Today’s News June 16, 2015

• Bank Of America Begins 66-Day Countdown Until The Terrible Ghost Of 1937 Returns

  In 66 trading days on September 17, 2015, the Federal Reserve will, according to Bank of America, hike rates for the first time since 2006, which according to BofA will “end the era of excess liquidity.”

  We disagree entirely, but let’s hear what BofA’s Michael Hartnett has to say:

  On September 17th the Fed will hike the Fed funds rate by 25bps according to Ethan Harris & our US economics team, the first hike since June 2006. 

   

  Recent US economic data support this view, in particular the solid May payroll & retail sales reports. Note that after a Q1 wobble, one of our favorite cyclical indicators, US small business confidence, has also bounced back into expansionary territory. Ethan Harris forecasts 3.4% US GDP growth in Q2, after 0.2% in Q1, and US rates strategist Priya Misra forecasts a Fed funds rate of 0.5% by year-end, and 1.5% by end-2016. Like Ethan & Priya, the futures market also looks for a modest Fed tightening cycle: Eurodollar futures contracts are currently pricing in 3-month rates in the US rising from 0.01% today to 0.65% by year-end, and to 1.54% by end-2016.

  Yes, the US economy is so strong the Bureau of Economic Analysis has to fabricate double seasonal adjustments to goalseek GDP data that is non-compliant with the narrative. As for economists being wrong about a rate hike, or overestimating future US growth, let’s just say it won’t be the first time they are wrong…

  

  Still, one thing BofA is right about: this time the normalization process will be different.

  Past Fed performance is no guide to future performance

   

  Gradual or otherwise, the first interest rate hike by the Fed since June 2006 marks a major inflection point for financial markets. Three reasons suggest that the impact of higher Fed rates will be far less predictable than normal, that historical comparisons may be less powerful, and that volatility across both credit & equity markets should continue to be owned.

  Actually, the main reason is one, and it is very simple. It is shown in the chart below.

  

  Here are some other reasons why the Fed’s rate hike will lead to a period of, to put it mildly, volatility which “will mark the beginning of the end of massive monetary easing and a collapse of interest rates to effectively zero across the globe, and follows a humungous bull market in both equities and credit in the past 6 years:”

  • Central banks now own over $22 trillion of financial assets, a figure that exceeds the annual GDP of US & Japan
  • Central banks have cut interest rates 577 times since Lehman, a rate cut once every three 3 trading days
  • Central bank financial repression created $6 trillion of negatively-yielding global government bonds earlier this year
  • 45% of all government bonds in the world currently yield <1% (that’s $17.4 trillion of bond issues outstanding)
  • US corporate high grade bond issuance as a % of GDP has doubled to almost 30% since the introduction of ZIRP
  • US small cap 5-year rolling returns hit 30-year highs (28%) in recent quarters
  • The US equity bull market is now in the 3rd longest ever
  • 83% of global equity markets are currently supported by zero rate policies

  Put simply, central bank’s provision of liquidity for financial markets has been unprecedented. The extent of Wall Street addiction to liquidity is about to be revealed and the potential for unintended consequences is clearly high.

  Which is not to say that attempts to “renormalize” rates are unheard of: previously both Israel and the RBNZ tried it and failed, with markets promptly forcing them to reverse tightening.

  More notably, it was the ECB itself which in April of 2011 under Jean-Claude Trichet tried to halt Chinese inflation exports in their tracks, and pulled off one rate hike… before the wheels came off from under Europe and the continent promptly entered a double dip recession, leading not only to a return to ZIRP, and the replacement of Trichet with an Italian Goldman Sachs apparatchik, but ultimately pushed Europe into its first ever NIRP episode.

  But no episode is more notable than what happened in the US in 1937, smack in the middle of the Great Depression. This is the only time in US history which is analogous to what the Fed will attempt to do, and not only because short rates collapsed to zero between 1929-36 but because the Fed’s balance sheet jumped from 5% to 20% of GDP to offset the Great Depression.

  Just like now.

  And then, briefly, the economy started to improve superficially, just like now, and as a result the Fed tightened in a series of three steps between Aug’36 & May’37, doubling reserve requirements from $3bn to $6bn, causing 3-month rates to jump from 0.1% in Dec’36 to 0.7% in April’37.

  

  Here is a detailed narrative of precisely what happened from a recent Bridgewater note:

  The first tightening in August 1936 did not hurt stock prices or the economy, as is typical.

   

  The tightening of monetary policy was intensified by currency devaluations by France and Switzerland, which chose not to move in lock-step with the US tightening. The demand for dollars increased. By late 1936, the President and other policy makers became increasingly concerned by gold inflows (which allowed faster money and credit growth). 

   

  The economy remained strong going into early 1937. The stock market was still rising, industrial production remained strong, and inflation had ticked up to around 5%. The second tightening came in March of 1937 and the third one came in May. While neither the Fed nor the Treasury anticipated that the increase in required reserves combined with the sterilization program would push rates higher, the tighter money and reduced liquidity led to a sell-off in bonds, a rise in the short rate, and a sell-off in stocks. Following the second increase in reserves in March 1937, both the short-term rate and the bond yield spiked.

   

  Stocks also fell that month nearly 10%. They bottomed a year later, in March of 1938, declining more than 50%!

  Or, as Bank of America summarizes it: “The Fed exit strategy completely failed as the money supply immediately contracted; Fed tightening in H1’37 was followed in H2’37 by a severe recession and a 49% collapse in the Dow Jones.”

  

  As can be seen on the above, in 1938, the stock market began to recover some. However, despite the easing stocks didn’t fully regain their 1937 highs until the end of the war nearly a decade later.

  Wait, the Fed hiked only to easy? That’s right: in response to the second increase in reserves that March, Treasury Secretary Morgenthau was furious and argued that the Fed should offset the “panic” through open market operations to make net purchases of bonds. Also known now as QE. He ordered the Treasury into the market to purchase bonds itself.

  Fed Chairman Eccles pushed back on Morgenthau urging him to balance the budget and raise tax rates to begin to retire debt.

  How quaint: once upon a time the US actually had an independent Fed, not working on behalf of the banks, and pushing back on pressure to monetize debt and raise stock prices.

  Those days are long gone.

  So is the imminent rate hike which guarantees the ghost of 1937 is about to wake up and lead to stock losses which could make the Lehman crash seem like a dress rehearsal just the precursor to QE4, as happened nearly 80 years ago? We don’t know, but neither does the manager of the world’s biggest hedge fund. This is what Ray Dalio says ahead of the upcoming rate hike:

  … in our opinion, inadequate attention is being paid to the risks of a downturn in which central bankers’ abilities to ease are significantly impaired. Please understand that we are not sure of anything but, for the reasons explained, we do not want to have any concentrated bets, especially at this time.

  We don’t know either, but we do know that if the S&P is cut in half the Fed will launch not just QE4, but 5, 6 and so on, resulting in every other central bank doing the same as global currency war goes nuclear, and the race to the final currency collapse enters its final lap.

  

  

  
  
  

  

• Obama's Anti-Russia Policy Escalates: DoD Tells Congress Nukes Are Still On The Table

  Submitted by Justin Raimondo via AntiWar.com,

  The War Party is a veritable propaganda machine, churning out product 24/7. Armed with nearly unlimited resources, both from government(s) and the private sector, they carpet-bomb the public with an endless stream of lies in order to soften them up when it’s time to roll. In the past, their job has been relatively easy: simply order up a few atrocity stories – Germans bayoneting babies, Iraqis dumping over babies in incubators – and we’ve got ourselves another glorious war. These days, however, over a decade of constant warfare – and a long string of War Party fabrications – has left the public leery.

  And that’s cause for optimism. People are waking up. The War Party’s propaganda machine has to work overtime in order to overcome rising skepticism, and it shows signs of overheating – and, in some instances, even breaking down.

  One encouraging sign is that the Ukrainian neo-Nazis have lost their US government funding …

  In a blow to the “let’s arm Ukraine” movement that seemed to be picking up steam in Congress, a resolution introduced by Rep. John Conyers (D-Michigan) and Rep. Ted Yoho (R-Florida) banning aid to Ukraine’s Azov Battalion, and forbidding shipments of MANPAD anti-aircraft missiles to the region, passed the House unanimously.

  This is significant because, up until this point, there has been no recognition in Washington that the supposedly “pro-democracy” regime in Kiev contains a dangerously influential neo-Nazi element.

  As I reported early on, Ukraine’s ultra-nationalists – who openly utilize wartime Nazi symbols and regalia, and valorize Stepan Bandera, the anti-Soviet guerrilla leader who collaborated with the Third Reich – were the muscle behind the movement that pushed democratically elected President Viktor Yanukovich out of power. With the rebellion in the east, the paramilitary militias of the far right have been officially incorporated into the Ukrainian army: Dmytro Yorash, the leader of Right Sector and a member of parliament, is an aide to Viktor Muzhenko, the supreme commander of the Ukrainian military, and Right Sector – an openly neo-Nazi organization – has been officially integrated into the armed forces.

  The Conyers-Yoho amendment won’t stop Ukraine’s neo-Nazis from feeding at the US-provided trough, but, hey, it’s the thought that counts. They’ll just abandon their independent existence and blend into the official military, effectively going underground, just as they did in the last Ukrainian elections, where fascists like Yarosh won a seat in the parliament with the tacit support of the “mainstream” parties, which withdrew their candidates in his district: Adriy Biletsky, commander of the Azov Battalion, enjoyed a similar advantage. Open fascists hold prominent positions in the Ukrainian government, the military, and the police.

  Vadim Troyan, the deputy leader of the Azov Battalion, is now the regional chief of the Kiev district police, and fascists have the run of the city. The perpetrators of an arson fire at a Kiev theater that sponsored a gay film festival were charged with “disturbing the peace” and let off with a light sentence – and the theater was held responsible for not providing enough security! "I think the government prosecutor and those who are prosecuted are playing for the same team," says one activist, and this is quite true: the fascists permeate the Kiev regime from top to bottom. When gay activists announced a Gay Pride march, the Mayor of Kiev said he couldn’t – or wouldn’t – guarantee their safety and asked them to cancel it. What was an open invitation to violent thugs was accepted when dozens of Right Sector stormtroopers attacked the procession, which ended the event after thirty bloody minutes.

  As the Kiev regime shows its true colors, its most fervent backers are forced to acknowledge its shortcomings. Yes, even our UN Ambassador, Samantha “responsibility to protect” Power …

  In a recent speech delivered in Kiev, Ambassador Power made oblique reference to the embarrassing slip ups on the part of our sock puppets in Kiev, gently scolding them to be more … discreet. Citing Abraham Lincoln, she urged Ukrainians to listen to “the better angels of our nature,” and averred that “Ukraine is stronger” when it does so:

  “It means that Ukraine should zealously protect freedom of the press, including for its most outspoken and biased critics – indeed, especially for its most outspoken and biased critics – even as the so-called separatists expel journalists from the territory they control, and even as Russia shutters Tatar media outlets in occupied Crimea. It means that politicians and police across the country should recognize how crucial it is that people be able to march to demand respect for LGBT rights and the rights of other vulnerable groups without fear of being attacked.”

  Citing Lincoln while calling for press freedom is a bit problematic – Abe shut down “treasonous” newspapers and jailed his more vociferous critics, but, hey, Power probably figured the Ukrainians aren’t up on the details of Civil War history, so what the heck. As the US continues to pump money – and weaponry – into the country, they’ll listen politely to Power’s lectures, and laugh all the way to the bank.

  Amid all the publicity given to ISIS and the rise of its “caliphate,” the volatile condition of the Balkans has remained in the shadows. Yet the US, while sending only a few hundred “advisors” to Iraq, is sending a huge shipment of tanks and other heavy weaponry to nearly every country in Eastern Europe – enough to equip 5,000 American troops.

  Ostensibly proposed in response to a nonexistent Russian “threat” to invade its Baltic neighbors, and/or Ukraine, this represents a significant escalation of the new cold war. And if the tanks are already on the ground, you can bet the troops won’t be long in coming. As NATO James Stavridis put it: “It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full-time on the ground, of course.”

  And we aren’t just talking about troops here: the Pentagon is also considering stationing nuclear missiles alongside them.

  The US is playing a dangerous game of nuclear brinkmanship. Robert Scher, undersecretary of defense, has even floated the idea of a nuclear first strike against Russia. Claiming that Russia has violated the INF Treaty by testing a banned ground-launched cruise missile, Scher laid out possible options in testimony before Congress:

  “Robert Scher, assistant secretary of defence for strategy, plans and capabilities, told politicians in April that one option could be to beef up defenses of potential targets of the Russian cruise missile.

   

  “A second option could ‘look at how we could go about and actually attack that missile where it is in Russia,’ Scher said.

   

  “And a third option would be ‘to look at what things we can hold at risk within Russia itself,’ Scher said.

   

  “His comments appeared to signal employing forces to strike at other Russian military targets — apart from the missiles that allegedly violate the INF accord.

   

  “Brian McKeon, deputy undersecretary of defense for policy, told politicians in December that the United States could consider putting ground-launched cruise missiles in Europe. Such weapons are banned under the INF treaty.”

  Yes, that’s how crazy the warlords of Washington are: in their demented calculus, nuclear war is just another “option.”

  And if that isn’t the definitive argument for regime-change in Washington, then I don’t know what is.

  

  

  
  
  

  

• Saudi Arabia Opens Stock Market To Foreign Investment Amid Low Oil Prices, Yemen War

  Saudi Arabia officially opened its stock market to foreign investment on Monday, in what’s being billed as a potential game changer for emerging markets investors. The country’s Capital Markets Authority finalized the rules for direct foreign investment in early May, although plans had been in the works for quite some time. Summarizing, qualified foreign investors (QFIs) are defined as institutions with at least $5 billion in AUM and five years of experience, no QFI can hold more than 5% of a single issue and no consortium of QFIs can hold 20% or more in a single stock. 

  Saudi Arabia hopes the liberalization of its stock market will pave the way for MSCI EM benchmark inclusion, a process which in all likelihood will take at least two years. Here’s a look at how the Saudi market stacks up in terms of both daily trading volumes and relative size…

  

  …and here’s a bit on valuation and sector weights…

  

  To be sure, the move to allow direct foreign ownership of domestic equities couldn’t come at better time. Falling crude prices and military action in Yemen have weighed on Saudi Arabia’s fiscal position and the country is quickly drawing down its petrodollar reserves.

  Citi has more on the economic situation facing Riyadh: 

  King Salman has clearly signaled the priorities for his administration since succeeding from King Abdullah in January. All indications have been that the Kingdom will stay the course on oil policy, protecting market share and not intervening to support global oil prices. For Saudi, this means having to deal with the consequences of significantly lower oil prices — Citi’s forecast is for Brent to average US$54 per barrel in 2015. At this price, we expect total Saudi government revenues to fall by some 41% in 2015. We believe that as a result it is highly likely that Saudi will cut expenditure sharply next year. According to our calculations, if Saudi Arabia were to maintain the same level of spending this year as it did last year, the budget deficit would balloon to US$130bn, or 22% of GDP. This would be unsustainable, in our view, with fiscal reserves covering just three years of such levels of expenditure. It would also be three times the level of deficit the government has budgeted for. We therefore think it is likely that total expenditure will shrink by around 20%, bringing the overall deficit to 13% of GDP.

  And here’s more color from Tim Fox, head of research and chief economist at Emirates NBD:

  The sharp decline in oil prices since last summer has had an immediate and significant impact on the country’s fiscal position. Last year’s budget included the first deficit in 12 years at 65.5 billion Saudi riyals (minus 2.3 per cent of the GDP), and the deficit is likely to have widened this year to about 12 per cent. In addition to further weakness in oil prices in the first quarter of this year, government spending has likely been higher than budgeted year-to-date as a result of one-off bonuses and disbursements on the accession of King Salman in February and the escalation of military activity in Yemen and against ISIL.

   

  Given the increased spending on defence and the difficulty in reducing public-sector wages, Saudi Arabia is likely to cut its capital spending budget..

   

  The decision to open the Saudi equity market to direct foreign investment looks timely. Saudi Arabia has run a current-account surplus … mainly because of oil revenue. The current-account surplus narrowed … last year … both because of lower oil revenue and a higher deficit on the services balance, and looks like it will fall into deficit this year. An increase in portfolio investment after the opening of the equity market, while by no means necessary, would help to offset the decline in the current account, which in the absence of other inward investment would have put additional pressure on official foreign exchange reserves and reduced manoeuvrability on the balance sheet.

   

  
  

  In principle, Saudi Arabia should be able to offset pressure on its current account via inflows to its capital account. This is a nice option to have when you’re fighting an expensive proxy war on your Southern border and when you need to keep oil prices low in order to drive high-cost US producers from the market and force a certain Russian autocrat to stop supporting a regional nemisis. 

  *  *  *

  Saudi Arabia snapshot via Citi:

  

  

  

  
  
  

  

• China Mocks G7 As "Gathering Of Debtors", Warns "Confrontation Will Be A Disaster For Europe"

  Vladimir Putin didn’t get an invite to the Angela Merkel-hosted G7 Summit in Bavaria last week, which means the Russian President not only missed out on two days at the scenic Castle Elmau, but also on lederhosen shopping with US President Barack Obama who, judging from eyewitness accounts and a variety of amusing photo ops, channeled his inner Clark Griswold upon touching down in the Bavarian town of Krun. The G7 isn’t pleased with Russia’s ‘behavior’ in Eastern Europe and so, Moscow has been expelled from the cool kids club until such a time as the Kremlin agrees to uphold Western democratic values. 

  

  (Obama in Krun)

  But the G7 is an equal opportunity exclusionist which means it’s not just former superpowers that aren’t welcome, but rising superpowers as well, which means you won’t be seeing Xi Jinping at the table either.

  But “Big Uncle Xi” (as he is affectionately known in China) likely isn’t losing any sleep because in the eyes of Beijing, the G7 — much like the IMF and the ADB — is a relic of a global economic and political order that is well on its way to obsolescence if it isn’t there already.

  

  (Xi Jinping; illustration: The New Yorker)

  The Global Times (which, it should be noted, is owned by the ruling Communist Party’s official newspaper, the People’s Daily) has more on why the G7 is largely irrelevant in the modern world.

  Via The Global Times:

  The G7 summit concluded in Germany last week. Chinese scholars and media barely showed any interest to this outdated informal institution, except for a Declaration on Maritime Security issued by G7 foreign ministers. The declaration expressed their concerns on “unilateral actions” in the South China Sea, with China as the obvious target.

   

  Judging from the agenda and outcomes of this year’s G7 summit, it has run counter to the global trend of peace, development and cooperation and become mere of a geopolitical tool.

   

  Since the very beginning of the establishment of the G7, it has been a rich-man’s club that consists of Western major powers and aims to maintain the collective hegemony of the US-led West. It used to focus on the world’s economic issues, and then extended to political and security affairs. After the Cold War, Russia was included in this grouping, which almost became the core of global governance and looked as though it might replace the UN Security Council. 

   

  However, the other G7 members never treated Russia as an equal partner. Russia was only entitled to discuss politics and security but not financial and economic issues.

   

  As the world entered the 21st century, new economies started to emerge and the world’s political and economic center has gradually shifted to the Asia-Pacific. The 2008 global financial crisis forced G7 members into a stalemate, and these nations started to realize that they could only get rid of the crisis with the help of emerging economies. Therefore, the US proposed defining the G20 as the main platform to discuss international economic problems. Within the G20, although the G7, as a sub group, intends to dominate the agenda-setting, the G7 cannot play its role without cooperation from new economies whose voices can be heard more nowadays.

   

  Yet countries such as the US and Japan can hardly accept the rising international status of emerging economies and are reluctant to give up their hegemony. When the financial crisis eased slightly, Western media vigorously propagated the “revival” of the G7. But the economic performance of G7 members meant the summit was a gathering of debtors.

   

  To some extent, the role of the G7 in global economic governance is negative. The IMF and the World Bank are under the control of G7 members. This is one of the reasons for the low implementation capacity of the G20.

   

  In the field of politics and security, Western powers relentlessly promoted the role of the G7. But the G7 has proved to be unable to maintain regional stability, and has led to chaos in the Middle East instead. After the Ukrainian crisis, the West excluded Russia from the original G8, making the current G7 grouping on the way to becoming a Cold War relic.

   

  Russia and China are main targets of the discussion at this G7 summit. They decided to continue to impose pressure on Russia amid the ongoing Ukrainian crisis. As for China, they focused on issues around the Asian Infrastructure Investment Bank and the East and South China Sea. But it is worth noting that European members have shown a different stance from the US and Japan on both matters.

   

  Whether the G7 will become a geopolitical tool or a Cold War relic largely depends on European countries. Unlike the US, Europe shares a closer geopolitical and economic links with Russia. If the G7 becomes a platform for the confrontation between the West and Russia, it will undoubtedly be a disaster for Europe. Seeking a peaceful solution to the Ukrainian crisis with Russia fits European interests. As for the East and South China Sea disputes thousands of kilometers away from the European continent, these countries needn’t necessarily get involved.

   

  During the G7 summit, Japanese Prime Minister Shinzo Abe tried to pull European countries to Japan’s anti-China bandwagon. China should continue to stay wary of the Japanese government.

  Obviously this is to be taken with a grain of salt considering it comes directly from the politburo, but nevertheless, there are some important observations here that deserve attention.

  For instance, China equates the G7 with the IMF and the World Bank, two institutions which Beijing is well on its way to challenging via the AIIB and The Silk Road Fund. In public, China has been careful to adopt a conciliatory stance towards existing multilateral lenders. This partly reflects the fact that China isn’t eager to ruffle any feathers among the Western countries who took a rather palpable political risk by throwing their support behind the AIIB in the face of fierce opposition from Washington. Beyond that though, adopting an overly critical stance towards institutions whose goals are ostensibly similar to those of the AIIB risks sending the wrong message to countries who depend on supranational institutions for aid. That said, equating the IMF, The World Bank, and the ADB with the G7 before subsequently calling the latter a “Cold War relic” is a kind of backdoor way of suggesting that the G7-dominated multilateral institutions are, by virtue of their leadership, hurtling towards irrelevancy.

  Further, the assertion that “the economic performance of G7 members [means] the summit [is] a gathering of debtors” is on the one hand hypocritical (China, after all, is sitting on $28 trillion in debt) but on the other hand speaks to the fact that, even as China’s economic growth slows as Beijing marks a difficult transition from an investment-led economy to a consumption driven model, economic growth in the West has simply stalled out altogether and as for Japan, well, Tokyo has been grappling with a deflationary nightmare for decades, something Abenomics has so far failed to correct. In other words, China’s economic miracle may be “landing hard” so to speak, but there’s certainly an argument to be made that even in its crippled state, the Chinese economic machine is still capable of outperforming the West.

  Finally, and perhaps most importantly, China suggests Washington’s dominance has led the G7 to pursue myopic foreign policies that have conspired to stoke sectarian chaos in the Middle East (it’s now almost impossible for the US to keep track of where it supports Shiite militias and where it backs Sunni militants) and create the conditions for a second Cold War in Eastern Europe. The deliberate exclusion of Russia, Beijing says, risks transforming the G7 into what is effectively the political arm of NATO, which undercuts the institution’s ability the foster peace and cooperation. 

  Again, some of this is propaganda served hot and fresh straight from the Communist Party kitchen. That said, the underlying geopolitical analysis is spot-on even if it’s presented with a hyperbolic veneer. 

  The G7, like the IMF and the World Bank, is quickly falling victim to the arrogance of its most powerful members. If an overriding sense of Western exceptionalism is allowed to create the same type of complacency and rigidity that has paralyzed the IMF, it may not be long before the world’s emerging powers supplant entrenched political bodies much as they have moved to supersede ineffectual economic institutions.

  

  

  
  
  

  

• Consumers Are Not Following Orders

  Submitted by Jim Quinn via The Burning Platform blog,

  

  Last week the government reported personal income and spending for April. After months of blaming non-existent consumer spending on cold weather, shockingly occurring during the Winter, the captured mainstream media pundits, Ivy League educated Wall Street economist lackeys, and Keynesian loving money printers at the Fed have run out of propaganda to explain why Americans are not spending money they don’t have. The corporate mainstream media is now visibly angry with the American people for not doing what the Ivy League propagated Keynesian academic models say they should be doing.

  The ultimate mouthpiece for the banking cabal, Jon Hilsenrath, who does the bidding of the Federal Reserve at the Rupert Murdoch owned Wall Street Journal, wrote an arrogant, condescending, putrid diatribe, directed at the middle class victims of Wall Street banker criminality and Federal Reserve acquiescence to the vested corporate interests that run this country. Here are the more disgusting portions of his denunciation of the formerly middle class working people of America.

  We know you experienced a terrible shock when Lehman Brothers collapsed in 2008 and your employer responded by firing you.

  We also know you shouldn’t have taken out that large second mortgage during the housing boom to fix up your kitchen with granite counter-tops. 

  You should feel lucky you’re not a Greek consumer.

  Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates.

  We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.

  Please let us know the problem.

  The Wall Street Journal was swamped with thousands of angry responses from irate real people living in the real world, not the elite, QE enriched, oligarchs living in Manhattan penthouses, mansions on the Hamptons, or luxury condos in Washington, D.C. Hilsenrath presumes to know how the average American has been impacted by the criminal actions of sycophantic Ivy League educated central bankers and their avaricious Wall Street owners.

  He thinks millions of Americans losing their jobs and their homes due to the largest control fraud in financial history is fodder for a tongue in cheek harangue, blaming the victims for the crime. Hilsenrath reveals he is nothing but a Fed flunky who is fed whatever message they want the plebs to hear. His job is to obscure, obfuscate, spread disinformation, and launch Fed trial balloons to see whether the ignorant masses are still asleep. The Fed and their owners can’t understand why their propaganda hasn’t convinced the peasantry to follow orders.

  A system built upon an exponential increase in debt, cannot be sustained if the masses stop buying Range Rovers, McMansions, stainless steel appliances, 72 inch HDTVs, iGadgets, bling, and boob jobs on credit. His letter to America reeks of desperation. The Fed and their minions have used every play in their Keynesian monetary playbook, and are losing the game in a blowout. With a deflationary depression beginning to accelerate, they have no game.

  Despairing mothers, unemployed fathers, impoverished grandmothers, and indebted young people are supposed to feel lucky because they aren’t starving to death like the wretched Greeks. We do have one thing in common with the Greeks. We’ve both been screwed over by bankers and corrupt politicians. Did you know you’ve been given a free ride by your friends at the Federal Reserve? Did you know that zero interest rates and $3.5 trillion of Quantitative Easing (aka money printing) were implemented to benefit you? According to Hilsenrath, the Fed lending money at 0.25% to their Wall Street bank owners, who then allow you to borrow from them at 15% on your credit card, represents a free ride for you. Are the subprime auto loan borrowers, who account for 30% of all auto sales, paying 13% interest getting a free ride?

  Hilsenrath is purposefully lying. Bernanke and Yellen have been saying they want to start raising interest rates for the last four years. Remember the 6.5% unemployment rate bogey set by Bernanke in January 2013? Unemployment dropped below 6.5% in early 2014 on its way to 5.5% today. Did they raise rates? In 2013 we had two consecutive quarters of 4% GDP growth, with no Fed rate increase. In 2014 we had two consecutive quarters of 4.8% GDP growth, with no Fed rate increase. We have added ten million jobs and the stock market has tripled since 2009, with no Fed rate increase.

  We are supposedly in the sixth year of an economic recovery and the Fed is still keeping the discount rate at a Lehman “world is ending” emergency level of .25%. Six years after the last recession the discount rate was 5.25%. The last time the unemployment rate was this low the discount rate was 4%. The only ones getting a free ride from the Fed’s zero interest rate policy and QE to infinity have been Wall Street banks, the .1% who live off the carcasses of the dying middle class, zombie corporations who should have gone bankrupt, and politicians who keep running up the national debt with no consequences – YET. The Federal Reserve is a blood sucking leech on the ass of America. Their cure has been far worse than the original illness – Wall Street criminality. In fact, their cure has been to reward the Wall Street criminals while spreading cancer to the working class and euthanizing senior citizens.

  Hisenrath and his puppet masters at the Fed can’t figure you out. For decades you have followed their orders and bought Chinese produced shit with one of your 13 credit cards. The Bernays’ propaganda playbook has produced wins for the ruling class since the early 1980’s. Their record is 864 – 0 versus the working class. Our entire warped economic system since the 1980’s has been dependent upon an exponential increase in debt peddled by Wall Street to citizens, government and corporations to give the appearance of a growing, healthy economy.

  An economy built upon the consumption of iGadgets, Cheetos, meat lovers stuffed crust pizza, and slave labor produced Chinese baubles, along with the production of enough arms to blow up the world ten times over, and the doling out of trillions to the non-productive class, is doomed to fail. Maybe I can explain the situation in such a way that even an Ivy League educated central banker or a Wall Street Journal faux journalist will understand.

  Maybe Jon and his Fed cronies could be enlightened by a look at the American consumer before the bubble boys (Greenspan, Bernanke) and gals (Yellen) at the Fed, along with the corporate fascist takeover of our political system, and the propaganda spewing corporate media monopolies, combined to deform our financial and economic system for their sole enrichment. The lack of spending by consumers might just be due to some of the following factors:

  • Back in 1980 income meant money earned through working, investing, and saving. The amount of personal income made up of wages totaled 60% in 1980. Today it totals 51%. Interest earned on savings accounted for 14% in 1980. Today it accounts for 8%, as the Fed has punished seniors and savers with negative real interest rates. Since 2009 the Fed has robbed over $1 trillion in interest income from seniors and savers with their zero interest rate policy and handed it to the Wall Street banking cabal. Bernanke didn’t just throw seniors under the bus, he ran them over, backed up over them, and ran them over again.
  • In a shocking development, government welfare transfers accounted for 11% of total personal income in 1980 and have risen to 17% today. Only the government could classify money which has been absconded at gunpoint from working Americans in the form of taxes and redistributed back to other Americans as welfare payments, as personal income. If you take money from your left pocket and put it in your right pocket, is that income? The replacement of wages and interest by welfare redistribution payments has not benefited society whatsoever.
  • In 1980 consumer credit outstanding as a percentage of personal income totaled 15%. Today it totals 22%, an all-time high. It is higher than the bubble peak in 2007-2008. Real per capita disposable income has only risen by 88% over the last 35 years. Meanwhile, real per capita consumer debt has risen by 288%. Wages and earnings from saving have been replaced by debt. The propagandists for consumerism have convinced the ignorant masses to spend money they don’t have, while pretending to be wealthier and successful. Consumer debt currently stands at a towering all-time high of $3.4 trillion, almost ten times the $350 billion level in 1980. Hilsenrath and the Fed are upset with you because credit card debt still lingers $122 billion, or 12% below 2008 levels. It has forced them to dole out $900 billion of government controlled subprime debt to University of Phoenix wannabes and any deadbeat that can scratch an X on an auto loan application. The U.S. economic system is like a Great White Shark that must keep swimming or it will die. The Federal Reserve run U.S. economic system must keep generating debt or it will die. They are growing desperate and you are not following orders.

  

  • Before the grand debt delusion overtook the populace, they were saving 11% of their disposable personal income. In 1980, Depression era adults still believed in saving for large purchases such as a house, car, appliance or home improvement. The young adult Boomers didn’t have the same experiential deterrent. They were convinced by the Wall Street debt peddlers, Madison Avenue maggots, and corrupt politicians that saving was for suckers. Live for today, for tomorrow may never come. Well tomorrow did come. Boomers are entering their retirement years with $12,000 in retirement savings, while still in debt up to their eyeballs. There have been 10,000 Boomers turning 65 every day since 2010. This will continue unabated through 2029. This demographic certainty was already depressing consumer spending, as this age demographic spends far less than 25 to 54 year olds. Factor in the pitiful amount of savings and you have an ongoing spending implosion.

  

  • The propaganda machine was so well oiled, the savings rate actually reached 1.9% in 2005, as the masses all believed they would live luxurious retirements off their home equity windfall. How’d that delusion work out? The current level of 5.6% is seen as troublesome by the powers that be. They cannot accept the crazy concept of saving and investment when their entire warped paradigm is built upon borrowing and consumption. Banks don’t make money when you save and they despise when you use cash. They can’t sustain their opulent lifestyles without their 3% VIG on every electronic transaction, 15% compounded interest on the $5,000 average credit card balance, billions in late fees for being one day late with your payment, $4 on every ATM transaction, and the myriad of other fees and surcharges designed to bilk you and keep you from saving. The saving rate will continue to climb as people have no choice to make up for years of living beyond their means.
  • Hilsenrath is willfully ignorant as he pretends to not understand why the American people will not or cannot accelerate their spending. It is really quite simple. Even a PhD should be able to understand. Real median household income was $52,300 in 1989. Real median household income today is $51,939. The median household has made no economic advancement in the last quarter of a century. And this is using the manipulated lower CPI figure. Using a true inflation rate would show a dramatic decline over the last 25 years. There has been virtually no wage growth during this supposed six year recovery. The industrial base of the country has been gutted, except for the production of arms to blow up brown people in the Middle East. Young people have $1.3 trillion of student loan debt weighing them like an anchor, and those Ruby Tuesday waitress jobs and Home Depot cashier jobs aren’t going to cut it.

  

  • So we have the demographic dilemma of aging, under-saved, over-indebted Boomers who are being forced to spend less. We have an over-indebted, under-employed youth who don’t have anything to spend. And lastly we have the 25 to 54 year old age bracket who should be in their prime earning and spending years who are still 4 million jobs short of where they were in 2007 before the Fed induced financial collapse. The only age bracket to gain jobs since the crisis has been 55 to 69, as they have been forced to work to make up for their lost interest income. The only people making job gains are those least likely to spend.

  

  • The spending crescendo in 2004 through 2007 was fueled by the Greenspan housing bubble and the $3 trillion of mortgage equity withdrawal used to buy BMWs, in-ground Olympic size pools, Jacuzzis, vacations to Tahiti, home theaters, granite countertops, stainless steel appliances, and boob jobs, by delusional, apparently brain dead Americans who fell for the Bernaysian propaganda spewed by the Wall Street criminal class, hook line and sinker. The majority of shell shocked underwater home owners have been unable to sell since the housing crash. A 35% price decline will do that. The Fed has created $3.5 trillion out of thin air, more than quadrupled their balance sheet with toxic mortgages from Wall Street, artificially suppressed interest rates to bring mortgage rates to record lows, and was a co-conspirator along with Fannie, Freddie, FHA, and Wall Street hedge funds (Blackrock) to delay foreclosure sales and pump home prices with their buy and rent scheme. The result has been unaffordably high prices, mortgage applications at 1997 levels (60% below 2005 levels), first time buyers at a record low, and a non-existent housing recovery – despite the MSM propaganda saying otherwise.

  

  • The last data point which might help the math challenged Hilsenrath understand why you aren’t spending is total U.S. vehicle miles driven. The chart below shows a relentless climb from 1982 through to the 2008 collapse. It coincides with the debt fueled consumption orgy over this same time frame. The unrelenting expansion of retail outlets and importing of cheap Chinese crap required a lot of trucks to haul the crap. It required a lot of trips to the mall in the minivans and SUVs by soccer moms living in our suburban sprawl paradise. In case you hadn’t noticed, the fastest growing retailer in the U.S. since 2008 has been Space Available. The well run retailers like Home Depot and Wal-Mart saw the writing on the wall and stopped expanding. The badly run retailers like Sears and JC Penney have been closing hundreds of stores. And the really badly run retailers like Radio Shack have gone bankrupt. Vehicle miles have essentially flat-lined for the last six years as retailers are closing more stores than they are opening, job growth has been non-existent and commerce within the U.S. is stagnant. If we were experiencing a real economic recovery, vehicle miles would be surging.

  

  So this concludes my little tutorial for the Ivy League educated central bankers at the Fed and the Wall Street Journal Fed mouthpiece – Jon “I don’t understand” Hilsenrath. I know it is difficult for people to understand something when their paycheck depends upon them not understanding it, but this is pretty simple stuff. Pompous, arrogant, egocentric assholes who write for the Wall Street Journal, run JP Morgan, or control monetary policy for the world, know exactly what they have done, what they are doing, and who is benefiting. We all know the benefits of ZIRP and QE have gone only to the .1% who run the show. We know income inequality is at all-time highs. We know TPP will be passed, because the corporate fascists control the purse strings of our political class. We know the status quo will be maintained at all costs by the Deep State.

  We know mega-corporations continue to ship jobs overseas and replace us with cheap foreign labor. We know the current administration actively encourages illegals to pour over our borders, swamp our social safety net, increase crime, and take jobs from Americans. We know the government has us under mass surveillance and will not hesitate to use all of that military equipment in the hands of local police against us. The will of the people is nothing but an irritant to those in power. They might not have us figured out, but a growing number of critical thinking, increasingly pissed off people, have them figured out. The debt expansion days are numbered. A deflationary depression is in the offing. The coming civil strife, financial panic, war, and overthrow of the existing social order will rival the three previous tumultuous upheavals in U.S. history – American Revolution, Civil War, Great Depression/World War II. Fourth Turnings are a bitch.

  Hopefully I’ve explained the situation to the satisfaction of Jon and Janet. The mood in this country is darkening by the day. There is no going back to the good old days of yesteryear. They are long gone. No amount of debt issuance and propaganda is going to work. The system is overloaded. The people are angry. The politicians are captured. The banking elite are ransacking the nation for every last dime they can get their grubby little hands on. The military industrial complex is itching for war with Russia and China. The world hates us. If you can’t see it coming, you are either blind, dumb, or an Ivy League educated economist. So go out and spend to make your slave owners happy.

  

  

  
  
  

  

• China Dumps Record $120 Billion In US Treasurys In Two Month Via Belgium

  Those who have been following the saga of “Belgium’s” US Treasury holdings learned last month that the “mysterious buyer” behind Belgium’s Euroclear was, as some speculated, China all along. Nowhere was this more evident than when showing an overlay of China and Belgium’s combined TSY holdings versus China’s forex reserves.

  

  This is what we concluded last month:

  • “Belgium” is, or rather, was a front for China: either SAFE, CIC, or the PBOC itself.
  • That Belgium’s holdings, after soaring as high as $381 billion a year ago, have since tumbled back to only $2532 billon as China has dumped the bulk of its Euroclear custody holdings, and that once this number is back to its historical level of around $170-$180 billion, “Belgium” will again be just Belgium.
  • China’s foreign reserves tumbled and this was offset by a the biggest quarterly drop in Chinese pro-forma treasury holdings, which dropped by a record $72 billion in the month of March, and a record $113 billion for the quarter.

  It wasn’t precisely clear just why China, which had historically used UK-based offshore banks to transact in US paper in addition to the mainland, would pick Belgium or why it chose to hide its transactions in such a crude way, however the recent accelerated capital outflow from China manifesting in a plunge in Chinese forex reserves, coupled with a record monthly liquidation in total Chinese holdings, exposed just where China was trading.

  And while we have yet to get an update from Beijing of its April forex reserves, we know that China’s Treasury liquidation has continued. Enter: Belgium, only this time it is not a “mystery” buyer behind the small central European country, but a seller.

  As the chart below shows, after a record $92.5 billion drop in March, “Belgium” sold another $24 billion in April, bringing the total liquidation to a whopping $116.4 billion for the months of March and April.

  

  This means that after adding mainland China’s token increase of $2 billion in April after a $37 billion increase the month before, net of Belgium’s liquidation China has sold a record $77 billion in Treasurys in the most recent two months.

  And while we eagerly await the monthly update of Chinese official forex reserves, we can estimate that the drop will be another $50-60 billion in the month of April.

  

   

  The good news, for those tracking the story of China’s unprecedented capital outflows, is that after “Belgium’s” record March dump, in April Chinese Treasury sales slowed to the slowest pace in the past three months.

  

  In other words, China may finally be getting its capital outflow problem under control, which, incidentally is bad news for the Chinese stock market because if true, it means the PBOC can now step back from micro-managing the stock market bubble and its “beneficial” current account inflows to offset the declining capital account.

  But what is perhaps most curious is that even with China liquidating such a massive amount of US paper into a very illiquid market, the yield on the 10Y did not blow out far more in the months of March or April. And the last question: who did China sell all this paper to?

  

  

  
  
  

  

• Investors Ditch Cash Market For Futures As Treasury Liquidity Evaporates

  Over the past several months we’ve spent quite a bit of time discussing liquidity (or, more appropriately, a lack thereof) in the market for US Treasurys, German Bunds, and JGBs.

  Liquidity in government bond markets has become a hot-button issue in the wake of last October’s Treasury flash crash wherein the world’s deepest, most liquid market was suddenly exposed as having become nothing more than a playground for the Fed and HFTs. Six months later, the market was again forced to bear witness when German Bunds, the safe haven asset par excellence, began to trade like a penny stock as the reincarnation of 2013’s JGB VaR shock sent 10-year Bund yields on a wild ride from just 5 bps to nearly 80 bps in the space of just three weeks (the rout resumed last week, with yields rising above 1% on Wednesday). 

  The great Bund battering provided an opportune time for analysts to revisit the idea of illiquid government bond markets, and invariably, the focus turned to Treasurys and Bunds. Here’s what JP Morgan had to say recently about market depth for US Treasurys:

  Market depth for USTs is proxied by the 5-day average of tightest three bids and asks each day, shown in Figure 7 in $mn for 10y US Treasuries. Similar to US IG corporate bonds, there was an earlier collapse in market depth during 2007 already as the US subprime crisis erupted. But different to US IG corporate bonds, there has been a deterioration in UST market depth in the most recent years, since 2013. We argued before that the deterioration in UST market depth since 2013 reflects the contraction of US repo markets caused by regulations as well as UST collateral shortage induced by the Federal Reserve’s QE3 program coupled with a declining US government deficit. A retrenchment in repo markets is unwelcome news for the liquidity of the underlying securities. Most repos, around 80%-90%, are against government-related collateral and it is the repo market which makes government securities relatively more liquid by allowing fast and efficient financing and short covering. It is not accidental that trading volumes in bond markets are so closely related to the outstanding amount of repos. See previous Flows & Liquidity “Leverage ratios to hit repo markets”, July 19th 2013 which shows that US outstanding repo amounts and overall bond trading volumes have been drifting lower in recent years with no signs of a return to pre Lehman levels. And similar to USTs, Bund and JGB market depth has been also suffering as a result of government collateral shortage inflicted by the ECB’s and BoJ’s QE programs and shrinkage in their respective repo markets. 

   

  

  Now, UBS is out with a fresh take on UST market liquidity. Investors, UBS says, are increasingly turning to futures as liquidity in the cash market dries up. Here’s more:

  Bond market liquidity has become such an overriding concern for investors that mentioning “liquidity” in the title could simply be a plot to entice readers.  

  Markets for high-quality government bonds can get out of balance due to rising one-sided demand to transfer risk. Consequently, market-makers’ have a limited ability to serve as “shock observers.” At this point, we need to consider the true meaning of liquidity. Is liquidity the ability to execute fairly small trade at tight bid-ask spreads, or being able to get a price – any price – for a truly large transaction? In our opinion, the latter form of “liquidity” is the important one.

  At the same time that one investor has difficulty doing a very large trade at a tolerable level, a multitude of smaller trades could be executed at or near mid-market. Furthermore, algorithm-driven trades also likely would happen close to mid, even while the market is gapping, since algos would simply not execute if bid-offer were too wide. In this case, publicly reported bid-offers in Treasuries may move very little, yet liquidity has fallen in the most meaningful sense.

  Futures provide clues

  We turn to futures to help us discern liquidity trends. First, consider US Treasuries. A relative shift in turnover volume from cash bonds to futures could arguably serve to confirm worsening liquidity in cash Treasuries. Futures mechanics help mitigate both the balance sheet constraints and the potential challenges of flow trading restrictions, since participants need to fund only a small portion of notional and they always effectively transact with the exchange.

  Figure 12 plots turnover volumes of the entire futures and cash Treasury markets, and their ratio (dark line, right axis). It reveals an unambiguous trend: turnover in futures has been catching up to cash Treasuries. To be clear, we compare total market volumes by simple par amount. 

  For the past three months, daily average futures volume stands at nearly 70% of cash Treasuries, based on the notional amounts transacted. That is up from about 50% in 2011. The big leap in the turnover ratio occurred in 2014, and appears to have been sustained this year. 

  

   

  Figure 13 and Figure 15 shows a stark shift in the way market participants access liquidity in short and intermediate Treasuries. The futures/cash turnover ratio surged in 2014 from the low 20s to 40% for short maturities and from low 40s to 60% for intermediates.

   

  

  

   

  Migrating to futures from cash bonds may introduce a new set of challenges to investors. First, running large structural futures exposure in place of cash bonds does increase counterparty risk. Instead of having direct custody of full faith and credit government bonds, investors face a clearinghouse when they hold futures. True, major clearinghouses have excellent track records in getting past various crises. Still, regulators and policymakers have expressed concerns about potential systemic risk of central clearing counterparties. 

  Note that this is still more evidence of the market-wide shift out of cash and into derivatives in order to avoid illiquidity. This is the same dynamic that’s causing fund managers to use ETFs to avoid tapping illiquid corporate credit markets (see here and here) and serves to reinforce what we said back in February when we highlighted a Citi client survey which showed that increasingly, sophisticated investors are turning to derivatives not for hedging, but to express directional views on markets:

  

  Fair warning: the more often derivatives are used as a way of avoiding the underlying cash markets, the more illiquid those cash markets become, meaning the ‘solution’ to illiquidity effectively makes the problem orders of magnitude worse. 

  

  

  
  
  

  

• DoLeZaL…

  

  
  
  

  

• What Comes Next, Part 2: The Looming Transformation

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  Part 1 is here, the history of defining systemic operation since 1907.

   

  

  …

  The quest over equality or the “right” to impose optimal outcomes is one that cannot go backward. The inevitable failures lead no duty to re-assess overall, but only the means by which the results are to be commanded. That was the essence of Triffin’s Paradox, which was only a paradox if you follow that socialist outline. In short, the dollar, by holding a direct link to value expression, meant too much limitation on the extent to which fiscal socialism could execute its various means – the US gov’t wanted to spend but deficits disrupted the dollar as a global reserve currency. The threat of dollar upheaval was too severe of a rebuke, but instead of taking that to heart as a tangible economic element the discipline set about on how to overcome it yet further.

  The turn into the third age is the most misunderstood for the reasons of that transition. Not only did the dollar disappear as the dollar, but fiscal retreat was taken as some kind of “rightward” or libertarian turn. Friedman’s counter-response for the origins of the Great Depression seemed to be mindful of that. What really took place was instead shifting marginal control, and the tools to wield it, back toward central banks and “money” once more. The Thatcher government reprivatized industry and cut government spending and deficits, as did Reaganism, all the while eurodollars and Federal Reserve activism simply supplanted those as they receded. As government treasuries fell back to sanity, central banks took up the slack of planning against capitalism.

  That has caused inordinate confusion about how to describe the past forty years or so; many, especially those that yearn for the second age, look to this third age as “capitalism”, including the very central bank practitioners themselves. That was in great part a response to Milton Friedman’s influence, but he failed to see that he was not leading marginal systemic reality back to free markets but instead cultivating the conditions to transfer socialist economic command back from fiscal to monetary.

  A perfect example of this confusion is Paul Krugman. Dr. Krugman makes it very plain that he wishes to exercise the role of social scientist in generating both optimal economic conditions and fairness, which he believes are linked (as do most socialists these days, the fusion occurred a long time ago). Thus, he sees very well the transition from the second age to the third, in the abstract construction of each, but is perplexed by what actually constitutes the third. From 1999:

  I grew up in a planned economy. Bureaucrats didn’t run everything: Small-business men were more or less free to buy and sell as they saw fit. But those who controlled the economy’s “commanding heights,” its key industries, were administrators rather than entrepreneurs, conformists who were valued less for their productivity than for their loyalty, whose career advancement depended on their political skill. For ordinary workers, the system had some benefits: It was hard to get ahead, but once you had a good job, your life was secure. Still, the economy was often appallingly inefficient and consistently unresponsive to consumer needs. No, I am not an immigrant from Eastern Europe. I’m talking about the U.S. economy of the ’50s and ’60s, when General Motors was the very model of a modern major company…

   

  The retreat of business bureaucracy in the face of the market was brought home to me recently when I joined the advisory board at Enron–a company formed in the ’80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Enron does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated: It buys and sells gas both at the wellhead and the destination, leases pipeline (and electrical-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It’s sort of like the difference between your father’s bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the company’s pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it.

  Krugman again in 2002:

  But then why weren’t executives paid lavishly 30 years ago? Again, it’s a matter of corporate culture. For a generation after World War II, fear of outrage kept executive salaries in check. Now the outrage is gone. That is, the explosion of executive pay represents a social change rather than the purely economic forces of supply and demand. We should think of it not as a market trend like the rising value of waterfront property, but as something more like the sexual revolution of the 1960’s — a relaxation of old strictures, a new permissiveness, but in this case the permissiveness is financial rather than sexual. Sure enough, John Kenneth Galbraith described the honest executive of 1967 as being one who ”eschews the lovely, available and even naked woman by whom he is intimately surrounded.” By the end of the 1990’s, the executive motto might as well have been ”If it feels good, do it.”

   

  How did this change in corporate culture happen? Economists and management theorists are only beginning to explore that question, but it’s easy to suggest a few factors. One was the changing structure of financial markets. In his new book, ”Searching for a Corporate Savior,” Rakesh Khurana of Harvard Business School suggests that during the 1980’s and 1990’s, ”managerial capitalism” — the world of the man in the gray flannel suit — was replaced by ”investor capitalism.”

  But all that didn’t just “happen”, springing up out of nowhere; “investor capitalism” was not an organic process that needs soul-searching levels of inquest. It’s much easier to see now having the serial asset bubble period to guide even the unwilling. The influence of the shift from the second age to the third age was still a socialist program of using macro ends to circumvent individual needs and perceptions, but exchanging government budgets that sought to borrow without restraint for monetary “stimulus” which cajoled private institutions and individuals to do the same. In order for that to happen, debt had to be created financially which meant “money” as well. The eurodollar system was only too obliging, which begins to account for “investor capitalism” properly categorized as “eurodollar socialism.” The banks stopped being the tool for private capitalism and overran all of it as an indirect agent of the government through various central banks.

  The serial bubbles of the 2000’s are nothing more than what was wrought of the 1920’s, in general. The monetary character of both is not coincidence, as the failures that bookend each of these ages induces the transformation: from monetary to fiscal and back to monetary again. That looks like progress and accountability, but in each it only leads to more extreme measures (relative to the last) to still achieve what Robert Owen and Karl Marx conceived more than a century and a half ago.

  

  That leads us to 2015 and what is certainly the ragged end of the eurodollar standard. The third socialist age was undone by August 2007, but that did not stop its proprietors of “eurodollar socialism” under the name “investor capitalism” from trying to rebuild and restore it to full capacity. There were some words exchanged about TBTF and some minor attention to banks overall, some spiffiness about “risk”, but in the end nothing much has changed; except actual function. That leaves us with perhaps another forming transition, from a third age to a fourth.

  The groundwork has already been laid, and it is exactly what you would expect given the history since 1907. There are no widespread details about a return to capitalism and sound money practices, only how to overcome the third installation of that timeless barrier thrown down in the collapse of each of the asset bubbles so far – value. Paul Krugman himself is already playing a leading role, which more than suggests that the fiscal rebirth is already in its infancy. What seems to be lacking at this point is a final resolution where the Panic of 2008 apparently wasn’t but really should have been – perhaps the next failure.

  

  That does not have to be a great financial panic or crash, and may be more attuned to social upheaval (which may actually be worse). However, given that “investor capitalism” has found new depths of debasement, there is a good chance this transition follows all the rest.

  What isn’t as clear, or with much visibility yet, is how the eurodollar system might be replaced. If the next transition is simply to be a fourth age of socialist economics, then the choices are quite restrained. The opportunity, however, is to make it the first age of free market restoration. That, however, is a political question but one that might be enhanced in the market direction by the failure of the eurodollar standard itself. If gold defined money at the outset of the first age, quasi-gold at the start of the second, and eurodollars the third, there really is no definition of a dollar heading through the fourth; a problem and, again, opportunity.

  To achieve that is even straightforward, to do what those arguing against prior shifts had not – to discredit. The shift to the second age was enthusiastically embraced, as shown by Churchill’s defeat, because it was generally believed capitalism had failed in the Great Depression (as if capitalism links call money to payment systems, and then advances call money through foreign “reserves”). The same is being setup right now, as Krugman and the rest would just as much like everyone to believe that capitalism built the asset bubbles, those greedy CEO’s and derisive shareholders who just want to screw everyone and use Wall Street to do it. But they are not the true perversions here, just manifestations of the real governing dynamic, and certainly not the one making Wall Street dance. The maestro directing the tune is the world of central bank socialism and activist economics using banks to go beyond everything imagined in either the first or second ages.

  What keeps thwarting these perfect plans of growing central planning is value. No matter how much money is changed, altered and even completely banished, there is still some sense of it somewhere at all times. It may be harder to define and recognize, a purposeful deflection of money by proxy, but it is there – in the dot-coms when it all went wrong; in housing as sanity proved the balance to monetary-driven mania; and again as all the world’s QE’s and ZIRP’s cannot conjure even a meek economic drive for more than a few months at a time. That is to discredit, but it also suggests to those who believe their crusade never wrong, like the Robert Owen’s, Paul Krugman’s and Ben Bernanke’s, that a fourth age will have to be even more “creative” toward command ability. None of the “isms” are ever wrong, according to their zealous proponents, just never enough.

  

  While so far most publicly available discussion surrounds still further intrusions against currency and money (including banning currency outright), at some point it may yet dawn that the true enemy of socialism this past century has been value; and it will remain so. In that respect, narrowly and in limited interpretation, Karl Marx has been proved right; so long as value remains, socialism has limitations. Those limitations may be somewhat pliable and vulnerable to intentional changes in money and currency, but it has survived and continues to provide at least some marginal anchor to true capitalist foundations. The challenge, as I see it, is to strengthen the anchor not try more devious and statist means to severe it.

  

  

  
  
  

  

• Deutsche Bank Exodus Continues As Real Estate Chief Leaves For Blackstone

  Earlier this month, Deutsche Bank’s co-CEOs Anshu Jain and Jürgen Fitschen were shown the door (well, technically they resigned, but with shareholder support plummeting amid skepticism about both financial targets and ongoing legal problems, it’s easy to read between the lines). The bank, which has paid out more than $9 billion over the past three years alone to settle legacy litigation, has become something of a poster child for corrupt corporate culture. Consider the following rundown of the legal problems the bank faced as of the beginning of its 2015 fiscal year:

  We are currently the subject of regulatory and criminal industry-wide investigations relating to interbank offered rates, as well as civil actions. Due to a number of uncertainties, including those related to the high profile of the matters and other banks’ settlement negotiations, the eventual outcome of these matters is unpredictable, and may materially and adversely affect our results of operations, financial condition and reputation. 

   

  A number of regulatory and law enforcement agencies globally are currently investigating us in connection with misconduct relating to manipulation of foreign exchange rates. The extent of our financial exposure to these matters could be material, and our reputation may suffer material harm as a result. 

   

  A number of regulatory authorities are currently investigating or seeking information from us in connection with transactions with Monte dei Paschi di Siena. The extent of our financial exposure to these matters could be material, and our reputation may be harmed. 

   

  Regulatory and law enforcement agencies in the United States are investigating whether our historical processing of certain U.S. dollar payment orders for parties from countries subject to U.S. embargo laws complied with U.S. federal and state laws. 

   

  We have been subject to contractual claims, litigation and governmental investigations in respect of our U.S. residential mortgage loan business that may materially and adversely affect our results of operations, financial condition or reputation.

  In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee) and subsequently paid $55 million to the SEC (an agency that’s been run by former Deutsche Bank employees and their close associates for years) in connection with allegations it deliberately mismarked its crisis-era LSS book to the tune of at least $5 billion. 

  But it was out of the frying pan and into the fire so to speak, because early last month, the DoJ announced it would seek to extract a fresh round of MBS-related settlements from banks that knowingly packaged and sold shoddy CDOs in the lead up to the crisis. JP Morgan, Bank of America, and Citi settled MBS probes when the DoJ was operating under the incomparable (and we mean that in a derisive way) Eric Holder but now, emboldened by her pyrrhic victory over Wall Street’s FX manipulators, new Attorney General Loretta Lynch is set to go after Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Royal Bank of Scotland Group PLC,UBS AG and Wells Fargo & Co. 

  With the bank facing yet another settlement that could run into the billions and with both CEOs on the way out, the exodus continues as Bloomberg reports that Jonathan Pollack, the bank’s global head commercial real estate, is leaving after 16 years. Here’s more:

  Pollack departed on Friday, according to a company memo. Amanda Williams, a Deutsche Bank spokeswoman, confirmed the contents of the memo and declined to comment further. Pollack who was based in New York, didn’t immediately return telephone calls seeking comment.

   

  

  (Pollack)

   

  Pollack took the helm of Deutsche Bank’s commercial mortgage bond business in 2011 and helped make it Wall Street’s top underwriter of securities linked to real estate from strip malls to skyscrapers. The bank’s ascent coincided with the rebirth of the roughly $550 billion market for packaging real estate debt into bonds and selling it to investors. Sales of such securities had frozen for more than a year in the wake of the financial crisis.

  Pollack’s departure comes just one month after the bank’s head of structured finance Elad Shraga left to start his own fund. Shraga was instrumental in helping Deutsche become “an award-winning arranger of asset- and mortgage-backed debt.” Shraga had been with Deutsche Bank for 15 years. 

  All of this seems to lend credence to the idea that Deutsche Bank may be in trouble. The employee exodus appears to be gathering steam, while the firm’s legal troubles show no signs of abating. Indeed the bank’s headquarters were raided just last week by authorities searching for information on client tax evasion.

  Considering all of the above, one cannot help but be reminded of William Broeksmit, the former head of capital and risk optimization at Deutsche Bank who tragically took his own life in his South Kensington home in late January of 2014. Prior to committing suicide, Broeksmit told a psycologist that he was, in WSJ’s words, “anxious about various authorities investigating” the firm. 

  Of course if Deutsche Bank does find itself up against the wall, it can always call in a few favors from former employees turned SEC officials turned high-profile attorneys like Robert Khuzami but as we noted last year, “it is usually best to just avoid litigation altogether, which is why perhaps sometimes it is easiest if the weakest links, those whose knowledge can implicate the people all the way at the top, quietly commit suicide in the middle of the night…” 

  *  *  *

  After the US market close, Bloomberg reported that Pollack will now join Blackstone as CIO of the firm’s property debt unit, and will report to Michael Nash who’s in charge of debt strategies. This means Pollack will set about securitizing landlord and home flipper loans in no time. Recall that Deutsche Bank was set to be the lead underwriter for the first landlord loan-backed securitization. 

  

  

  
  
  

  

• Saxobank CIO: Credit Cycle Has Peaked, Gold Will Be Best-Performing Commodity

  Submitted by Saxobank CIO Steen Jakobsen via TradingFloor.com,

  • Forget the 1930s. Inflation is different this time.
  • Real rates are finally coming off in the US
  • More and more pundits see inflation ticking higher
  • A summer of European growth – and hell afterwards
  • ECB's balance sheet as % of GDP little changed despite QE
  • The credit cycle has clearly peaked

   

  

  It'll be a sweet summer but a hellish autumn in Europe. Photo: iStock 

   

  The overall position:

   

  Our major allocation shift is working on fixed income, but commodities and gold still need the all clear regarding a Fed hike….

   

  Here's a reminder of the main points of my major strategy change as detailed in an article on May 18:

   

   The headlines for the next 6-7 months say:

  • US, German and EU core government bonds will be 100 bps higher by and in Q4 before making its final new low in H1 2016. US 10-year yield will trade above 3.0% and bunds above 1.25% 
  • Energy: WTI crude will hit US $70-80/barrel, setting up excellent energy returns. 
  • US dollar will weaken to EUR1.18/1.20 before retest of lows and then start multi-year weakness. 
  • Gold will be the best performer in commodity-led rally. We see 1425/35 by year-end. 

   

   We need to stop talking about deflation and using 1930s comparison about a Fed hike:

  

   Source. InflationData.com

   

   

  Real rates are finally coming off in the US: Positive Gold and negative US$?

   

  

   

   

   

  Wow – inflation expectations are rising and rising fast….

   

  

   

   

  European “cost advantage” is disappearing fast and furiously – enjoy the summer of growth – afterwards, you can expect: zero growth, zero reform and higher inflation “expectations”…..

   

   

  

   

   

  Excuse me? Didn’t the European Central Bank start quantitative easing. In a world of madness it's hard even to see change in the ECB balance sheet. Japan is just not real, indeed, nothing is!

   

  

   

  This is a poorly constructed chart… but clearly… the credit cycle has peaked……

   

  

   

  

   Source: Bloomberg

   

   

  Compare this to the commodity cycle:

   

  

   Source: Bloomberg

   

  And, just to remind you… when the Fed hikes it’s a margin call. There is no basis in the bank's mandate to do so, but  its need to normalise policy will have data support over the summer as the CESI (Citigroup Economic Surprise Index) will mean revert.

   

  

   Source: Bloomberg

  

  

  
  
  

  

• Visualizing The Wealth Of Nations Over 2000 Years

  From Year 1 to today, Angus Madison, a British economist who specialized in measurement and analysis of economic growth and development, combined modern research techniques with his own extensive knowledge of economic history to estimate the historical spread of The Wealth of Nations…

   

  

   

  Source: VisualizingEconomics

  

  
  
  

  

• Warren Buffett And Weather Forecasts

  Submitted by Lance Roberts via STA Wealth Management,

  Barry Ritholtz had an interesting quote from Warren Buffett this morning:

  "Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

  This quote is crucially important but almost always misunderstood by the "bullishly biased" media/analyst community who use it as as the rallying cry for "buy and hold" advice. However, that is not what Warren is suggesting at all.

  Read the last two sentences again very closely. "Sellers" in the near future should be happy with rising prices while "Buyers" should hope for falling prices. This is the very essence of "Sell High" and "Buy Low" which is the basic function of investing for the long term.

  However, it is Warren that is right on this one. Most investors, including the vast majority of financial media and analysts promoting products or services to sell, get this one wrong. Rising prices are not necessarily the reason to "buy" and/or "hold." Sometimes, rising prices are a reason to "sell."

  The next rule is critical.

  "If you don't sell high, there is NO ability to buy low."

  In other words, if an individual was invested in the markets when it was rising, if they fail to "sell" on the way up, they have no free capital to "buy" with on the way down. (This assumes that investors have been investing their savings on the way up as well.)

  Why Am I Telling You This?

  The following is an excerpt from the most recent weekly newsletter. You can subscribe for free e-delivery here.

  Over the last several months, the market has been in a broader consolidation trend that has defied the underlying deterioration in overall price action. It is important to remember that the "price" of the market on a daily, weekly, monthly or even a yearly basis is a picture into the "psychology" of the "herd" of market participants that make up the market.

  That psychology, as I have shown this many times in the past with the following chart, explains why price often become dislodged from fundamental realities for longer than rational logic would dictate.

  

  The "buy and hold" psychology is particularly present near market peaks when it becomes assumed that "markets can never go down again." This belief is fortified by strongly trending prices with only relatively minor declines that are quickly reversed as shown in the chart below. The most recent decline in stock prices is barely noticeable when put into context of the market advance.

  

  However, what is noticeable is the overall deterioration in the price action of the market which is suggesting that the risk of a more substantial decline is rising.

  Of course, such a decline should not be surprising given the length of time that the market has advanced without a 10% or greater correction. As shown by the chart below, we are in the 3rd longest advance in history without such a decline.

  

  The problem for investors is that while many indications, as discussed last week, suggest that "profits should be taken from winners and losers sold," most will do nothing as "greed" overtakes logical portfolio risk management practices. Furthermore, with respect to Mr. Buffett's commentary, even if you currently believe that the market will inevitably go higher, if "crops are not harvested during the summer, they can not be replanted following the winter."

  Bullish Trend At Risk

  For most, knowing when to "sell" is the problem.

  While the bullish trend of the market does indeed remain intact, for now, it is extremely noteworthy that the deterioration in the underlying technical structures has gained momentum as of late.

  This past Friday, I had a discussion with one of my favorite financial media reporters stating:

  "The deterioration that we have discussed over the last few weeks is now becoming more reflected in the overall market action. As shown below, the recent oversold bounce that we saw this week, mostly a short-covering squeeze, exhausted itself at resistance. The downtrend that is being formed, along with a breakdown of the recent consolidation channel, suggests that portfolio risk has risen.

   

  It will be very important that the market does NOT violate the 150-dma that has been the primary support of this bull rally since Dec 2012. A failure at that level will very likely dictate a larger correction in in the works of 10% or more.

   

  I am recommending my subscribers this week begin to take measures to reduce portfolio risk and increase cash holdings modestly until there is better clarity to the market trend."

  The chart below is WEEKLY data. Therefore, it is only the end-of-week closing price that matters. Therefore, it is critical that the market maintains the long-term moving average (red dashed line) by the end of the week otherwise the bullish trend that begin in 2013 will have ended. This would suggest that a larger correction is in process.

  

  I stated last week that:

  "…the markets need to rally and close positive on Friday. Otherwise, the downward pressure will likely continue into next week putting the recent breakout at risk.

   

  The collision of the short-term moving average and the bullish trend makes Friday's closing action very important. A closing break below that level could trigger more selling next week."

  This additional downside price pressure is what we are seeing today. A break below the long-term moving average, and a close below that level by the end of the week, will likely solicit more selling as computerized trading programs are triggered. The chart below shows the bullish trend that has persisted since the onset of QE3 in December of 2012.

  

  I have identified potential correction levels given a break of the running bullish trend support lines. The most obvious correction would be down to the lows of January and a failure there would be the October lows following the end of QE3.

  As a reminder, it has been a LONG time since the markets have experienced a significant correction, and for investors it will feel MUCH worse. The emotional need to "panic" sell at that point will be high which is where "opportunity" may be realized.

  Why We Watch Weather Forecasts

  In a recent study of forecasting, it was determined that "weathermen" were the most accurate forecasters three days into the future. The reason to watch weather forecasts is to gauge the possibility of needing an umbrella. However, it is interesting that financial media/analysts never forecasts rain even though "showers" happen on a fairly consistent basis.

  Investors, like weather forecasters, should pay close attention to the weather. The technical deterioration, like a storm front approaching, suggests that it is currently "cloudy with a strong chance of rain." As an investor, action should be taken to be prepared to REACT if it does rain. In other words, if we think it MIGHT rain we take an umbrella with us, it doesn't mean that we walk around with it open.

  Our job as investors is to navigate the financial markets in a manner that significantly reduces the destruction of capital over time. Learning to identify when market risk is elevated, reducing exposure, and raising capital, gives investors the opportunity to "buy" when prices become cheaper rather than "panic" selling to reduce further losses.

  Currently, the markets are sending a very clear warning that a storm may be approaching; maybe you should grab an umbrella just in case.
   

  

  

  
  
  

  

• Will The ECB Finally Use The Greek "Nuclear Option" This Wednesdsay?

  This was not supposed to happen: by now the Greek insolvency “can” should have been kicked, and the Greek government, realizing the money has run out for both the government and the banking system, should have folded to Troika demands, and allow the Troika money to return repaying obligations to the Troika in exchange for more spending cuts.

  Instead, the “game theoretical” approach of bluffing until the end, and beyond, has put both countries in a corner from which neither knows how to escape, and with the “final deal deadline” passing this weekend we now have quotes such as this from the EU:

  • OVERTVELDT: GIVING IN TO GREECE WOULD UNDERMINE EU CREDIBILITY

  while in an op-ed due to be published today in German newspaper Bild, German Vice Chancellor and Economy Minister Gabriel has been quoted as saying that ‘the shadow of a Greek exit from the euro zone is becoming increasingly perceptible’ and that ‘repeated apparently final attempts to reach a deal are starting to make the whole process look ridiculous, there is an even greater number of people who feel as if the Greek government is giving them the run-around.” So time for another “final attempt” then:

  • EURO WORKING GROUP SAID TO DISCUSS GREECE TOMORROW AFTERNOON

  Meanwhile, Greece digs in over its red lines:

  • GOVT SPOKESMAN: GREECE WON’T ACCEPT PENSION CUTS, VAT HIKES

  And yet, in this climate of animosity between the IMF (which as a reminder walked out of talks last Thursday), and the Commission (whose amicable attitude toward Greece promptly soured over the past week), there is still one way Europe can promptly end the impasse.

  As a reminder, on Friday when we looked at the latest Greek one-day outflow which saw another €600 million leave local banks, we said that “next Wednesday is when a non-monetary policy board meeting of the ECB non-governing council will take place in Frankfurt where Draghi and company will discuss the issue of guarantees of Greek banks and perhaps the proposal for collateral “haircut.”

  Earlier today, Deutsche Bank hinted at the ECB meeting as just the place where the ECB, which has until now stayed out of the ever more rancorous Greek spat, and in fact has buttressed may just invoke the nuclear option. From DB’s Jim Reid:

  The ECB non-monetary policy meeting is also scheduled for Wednesday. George believes that a lack of progress on Thursday should see a more formal deadline put on Greece, beyond which capital controls will be implemented.

  Which makes us wonder: with both sides digging in and unwilling to budge, will Europe revert back to its strategy from day 1, namely creating a slow initially, then fast bank run in Greece, one which leads to gradual then sudden capital controls, resulting in civil discontent and disobedience and ultimately, a violent overthrow of the Greek government.

  The best way to achieve all of that would be to use the aptly named Cyprus “blueprint” – after all, with the “successful” Cyprus capital controls already tested out, and with the Greece stalemate going nowhere and leading to a loss of credibility in the EU, it may be time for the ECB to do what it did on March 21, 2013 when it issued the following statement:

  Governing Council decision on Emergency Liquidity Assistance requested by the Central Bank of Cyprus

   

  The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.

   

  Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in

  place that would ensure the solvency of the concerned banks.

  So will Wednesday see an identical press release issued by the ECB, only with “Greece” instead of “Cyprus”? Because with the ECB’s emergency liquidity assistance already covering some 64% (call it two-thirds following the latest weekly outflows) of total Greek deposits…

  

   

  … if there is one way to bring the Greek “crisis” to a grinding halt, it would be to give the Greeks themselves the “option” of regaining access to their now “capital controlled” funds if and only if they “choose” a different government, like any true democracy?

  Considering that according to the latest poll, for the first time a majority, or 50.2%, of Greeks want the government to accept the creditors’ proposals to prevent the country’s bankruptcy, this may be just the catalyst to push the population over the edge and to tell Tsipras that Europe has won?

  

  

  
  
  

  

• Guess Which Middle-East 'State' Just Beheaded Its 100th Person This Year?

  Nope, not ISIS… US ally Saudi Arabia just beheaded its 100th person of the year, as AFP reports, topping 2014's entire year's total of 97 already…

  

  As AFP reports,

  Saudi Arabia on Monday beheaded a Syrian drug trafficker and a national convicted of murder, taking to 100 the number of executions in the kingdom this year.

   

  The number of executions has surged in 2015 compared with the 87 recorded by AFP for all of last year. But it is still far below the record 192 which rights group Amnesty International said took place in 1995.

   

  Syrian Ismael al-Tawm smuggled "a large amount of banned amphetamine pills into the kingdom", said an interior ministry statement carried by the official Saudi Press Agency.

   

  He was beheaded in the northern region of Jawf.

   

  A separate statement said that Rami al-Khaldi was convicted of stabbing another Saudi to death and was executed in the western province of Taef.

   

  Drug and murder convictions account for the bulk of executions in Saudi Arabia.

  *  *  *

  This close US ally is described as following by Amnesty International…

  The government severely restricted freedoms of expression, association and assembly, and cracked down on dissent, arresting and imprisoning critics, including human rights defenders. Many received unfair trials before courts that failed to respect due process, including a special anti-terrorism court that handed down death sentences. New legislation effectively equated criticism of the government and other peaceful activities with terrorism. The authorities clamped down on online activism and intimidated activists and family members who reported human rights violations. Discrimination against the Shi’a minority remained entrenched; some Shi’a activists were sentenced to death and scores received lengthy prison terms. Torture of detainees was reportedly common; courts convicted defendants on the basis of torture-tainted “confessions” and sentenced others to flogging. Women faced discrimination in law and practice, and were inadequately protected against sexual and other violence despite a new law criminalizing domestic violence. The authorities detained and summarily expelled thousands of foreign migrants, returning some to countries where they were at risk of serious human rights abuses. The authorities made extensive use of the death penalty and carried out dozens of public executions.

  *  *  *

  With 'friends' like that, who needs enemies?

  Still – as w enoted previously – The Saudis are not the world's worst…

  

  

  

  
  
  

  

• Bilderberg 2015 – Where Criminals Mingle With Politicians

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Out at my car I couldn’t be bothered to get into the whole ‘probable cause’ thing so I flung open the doors and with as much good cheer as I could muster, said: “Help yourself”. They did. While one set of police searched my car with their torches, another lot clustered round me and asked me questions: “Where do you live? What are you doing here?” I’m a journalist and I live in a police state. What about you?

   

  A little while later, bored and a bit cold, I decided to point out to the officers that while they were treating a journalist like a criminal, there were actual criminals about to arrive at the hotel they were guarding. Convicted criminals. Such as disgraced former CIA boss, David Petraeus, who’s just been handed a $100,000 (£64,000) fine and two years’ probation for leaking classified information.

   

  I decided to reward their vigilance with a chat about HSBC. The chairman of the troubled banking giant, Douglas Flint, is a regular attendee at Bilderberg, and he’s heading here again this year, along with a member of the bank’s board of directors, Rona Fairhead. Perhaps most tellingly, Flint is finding room in his Mercedes for the bank’s busiest employee: its chief legal officer, Stuart Levey.

   

  A Guardian editorial this week branded HSBC “a bank beyond shame” after it announced plans to cut 8,000 jobs in the UK, while at the same time threatening to shift its headquarters to Hong Kong. And having just been forced to pay £28m in fines to Swiss regulators investigating money-laundering claims. The big question, of course, is how will the chancellor of the exchequer, George Osborne, respond to all this? Easy – he’ll go along to a luxury Austrian hotel and hole up with three senior members of HSBC in private. For three days.

   

  – From Charlie Skelton’s excellent article: Bilderberg 2015: Where Criminals Mingle with Ministers

  Charlie Skelton is a Oxford University educated comedy writer, journalist, artist and actor who has covered the Bilderberg meeting for the Guardian since 2009. This year’s meeting took on a particularly eventful twist for Mr. Skelton, something he wrote about in a powerful article published last week.

  Many of those who have descended upon Austria’s Interalpen-Hotel Tirol to report on the secretive meeting, have reported that police have been particularly aggressive and unhelpful at this year’s gathering. Charlie Skelton received a unique level of harassment, as his hotel room was raided in the middle of the night by Austria’s taxpayer funded, corporatist-protecting mercenary force, known as the POLIZEI.

  Here are some excerpts from the piece:

  I had three Austrian policemen in my hotel room last night. They stood there all grim faced with their fluorescent bibs, torches and sidearms. It was like the worst ever fancy dress party. I offered them a pilsner. They declined. They were too busy checking my ID that had been carefully checked 10 minutes prior at a police checkpoint. And carefully checked two minutes prior to that, at another police checkpoint.

   

  This third check took so long, it was so late, and my patience was so thin, that eventually I took my shirt and trousers off in front of the officers. “I’m having a shower,” I explained, and went and had one. When I’d finished, I came out in my towel, thinking they might be gone. They weren’t. “Put your clothes on please and come to your car.” This party wasn’t getting any better.

   

  Out at my car I couldn’t be bothered to get into the whole ‘probable cause’ thing so I flung open the doors and with as much good cheer as I could muster, said: “Help yourself”. They did. While one set of police searched my car with their torches, another lot clustered round me and asked me questions: “Where do you live? What are you doing here?” I’m a journalist and I live in a police state. What about you?

  Where it starts to get really interesting, is when Mr. Skelton decides to educate the POLIZEI about the various criminals and thugs they so vigilantly protect from journalists trying to do their jobs. He writes:

  A little while later, bored and a bit cold, I decided to point out to the officers that while they were treating a journalist like a criminal, there were actual criminals about to arrive at the hotel they were guarding. Convicted criminals. Such as disgraced former CIA boss, David Petraeus, who’s just been handed a $100,000 (£64,000) fine and two years’ probation for leaking classified information.

   

  Petraeus now works for the vulturous private equity firm KKR, run by Henry Kravis, who does arguably Bilderberg’s best impression of Gordon Gecko out of Wall Street. Which he cleverly combines with a pretty good impression of an actual gecko.

  For more on Petraeus, see:

  David Petraeus – How This Leaker of Classified Information is Peddling KKR Funds as Opposed to Serving Jail Time

  Some Leaks Are More Equal Than Others – Hypocritical D.C. Insiders Line up to Defend General Petraeus from Prosecution

  “Can I go now?” Another no. So I continued my list of criminals. I moved on to someone closer to home: René Benko, the Austrian real estate baron, who had a conviction for bribery upheld recently by the supreme court. Which didn’t stop him making the cut for this year’s conference. “You know Benko?” The cop nodded. It wasn’t easy to see in the glare of the searchlight, but he looked a little ashamed.

   

  I decided to reward their vigilance with a chat about HSBC. The chairman of the troubled banking giant, Douglas Flint, is a regular attendee at Bilderberg, and he’s heading here again this year, along with a member of the bank’s board of directors, Rona Fairhead. Perhaps most tellingly, Flint is finding room in his Mercedes for the bank’s busiest employee: its chief legal officer, Stuart Levey.

   

  A Guardian editorial this week branded HSBC “a bank beyond shame” after it announced plans to cut 8,000 jobs in the UK, while at the same time threatening to shift its headquarters to Hong Kong. And having just been forced to pay £28m in fines to Swiss regulators investigating money-laundering claims. The big question, of course, is how will the chancellor of the exchequer, George Osborne, respond to all this? Easy – he’ll go along to a luxury Austrian hotel and hole up with three senior members of HSBC in private. For three days.

   

  High up on this year’s conference agenda is “current economic issues”, and without a doubt, one of the biggest economic issues for Osborne at the moment is the future and finances of Europe’s largest bank. Luckily, the chancellor will have plenty of time at Bilderberg to chat all this through through with Flint, Levey and Fairhead. And the senior Swiss financial affairs official, Pierre Maudet, a member of the Geneva state council in charge of the department of security and the economy. It’s all so incredibly convenient.

  Well said sir.

  Moving along, I noticed a very interesting and timely article by Alex Proud, published today at the UK’s Telegraph titled, Perhaps the World’s Conspiracy Theorists Have Been Right All Along. Here are a few excerpts:

  Conspiracy theories used to be so easy.

   

  You’d have your mate who, after a few beers, would tell you that the moon landings were faked or that the Illuminati controlled everything or that the US government was holding alien autopsies in Area 51. And you’d be able to dismiss this because it was all rubbish.

   

  Look, you’d say, we have moon rock samples and pictures and we left laser reflectors on the surface and… basically you still don’t believe me but that’s because you’re mad and no proof on earth (or the moon) would satisfy you.

   

  This nice, cozy state of affairs lasted until the early 2000s. But then something changed. These days conspiracy theories don’t look so crazy and conspiracy theorists don’t look like crackpots. In fact, today’s conspiracy theory is tomorrow’s news headlines. It’s tempting, I suppose, to say we live in a golden age of conspiracy theories, although it’s only really golden for the architects of the conspiracies. From the Iraq war to Fifa to the banking crisis, the truth is not only out there, but it’s more outlandish than anything we could have made up. 

  Mr. Proud then goes on to list a few of the many “conspiracy theories” turned conspiracy fact. Also see: You Know You Are a Conspiracy Theorist If…

  Here are three:

  The Iraq War

   

  The most disgusting abuse of power in a generation and a moral quagmire that never ends. America is attacked by terrorists and so, declares war on a country that had nothing whatsoever to do with the attacks, while ignoring an oil rich ally which had everything to do with them. The justification for war is based on some witches’ brew of faulty intelligence, concocted intelligence and ignored good intelligence. Decent people are forced to lie on an international stage. All sensible advice is ignored and rabid neo-con draft dodgers hold sway on military matters. The UK joins this fool’s errand for no good reason. Blood is spilled and treasure is spent.

   

  The result is a disaster that was predicted only by Middle Eastern experts, post-conflict planners and several million members of the public. Thousands of allied troops and hundreds of thousands of blameless Iraqis are killed, although plenty of companies and individuals benefit from the US dollars that were shipped out, literally, by the ton. More recently, Iraq, now in a far worse state than it ever was under any dictator, has become an incubator for more terrorists, which is a special kind of geopolitical irony lost entirely on the war’s supporters.

   

  And yet, we can’t really bring ourselves to hold anyone accountable. Apportioning responsibility would be difficult, painful and inconvenient, so we shrug as the men behind all this enjoy their well-upholstered retirements despite being directly and personally responsible for hundreds of thousands of deaths and trillions of wasted dollars. And the slow drip, drip of revelations continues, largely ignored by the public, despite the horrendous costs which (in the UK) could have been spent on things like the NHS or properly equipping our armed forces.

   

  The Banking Crisis

   

  A nice financial counterpoint to Iraq. Virtually destroy the western financial system in the name of greed. Get bailed out by the taxpayers who you’ve been ripping off. And then carry on as if nothing whatsoever has happened. No jail, no meaningful extra regulation, the idea of being too big to fail as much of a joke as it was in 2005. Not even an apology. In fact, since the crisis you caused, things have got much better for you – and worse for everyone else. Much like Iraq, no-one has been held responsible or even acknowledged any wrongdoing. Again, this is partially because it’s so complicated and hard – but mainly because those who caused the crisis are so well represented in the governments of the countries who bailed them out. Oh, and while we’re at it, the banks played a part in the Fifa scandal. As conspiracy theorists will tell you, everything is connected.

   

  Paedophiles

   

  This one seems like a particularly dark and grisly thriller. At first it was just a few rubbish light entertainers. Then it was a lot more entertainers. Then we had people muttering about the political establishment – and others counter-muttering don’t be ridiculous, that’s a conspiracy theory. But it wasn’t. Now, it’s a slow-motion train crash and an endless series of glacial government inquiries. The conspiracy theorists point out that a lot of real stuff only seems to come out after the alleged perpetrators are dead or so senile it no longer matters. It’s hard to disagree with them. It’s also hard to imagine what kind of person would be so in thrall to power that they’d cover up child abuse. 

  This is a topic I’ve covered on many occasions. See:

  In Great Britain, Powerful Pedophiles are Seemingly Everywhere and Totally Above the Law

  In Great Britain, Protecting Pedophile Politicians is a Matter of “National Security”

  Oligarch Justice – Powerful Pedophiles Roam Free as Journalist Barrett Brown Returns to Jail

  So what’s his takeaway?

  This is what happens when you let money run riot and you allow industries to police themselves. This is what happens when the rich and powerful are endlessly granted special privileges, celebrated and permitted or even encouraged to place themselves above the law. And this is what happens when ordinary people feel bored by and excluded from politics, largely because their voices matter so little for the reasons above. Effectively, we are all living in Italy under Silvio Berlusconi. What’s the point in anything?

  Publishing an article like this in a mainstream newspaper would have been unheard of five or ten years ago. The fact that it was, and that it was written so eloquently and powerfully, is in of itself a very positive sign. It is evidence that people en masse are finally starting to see the world as it is, rather than as the status quo wants you to see it. This is the first necessary step to real change.

  Finally, if you still haven’t seen enough from Bilderberg 2015, check out Luke Rudkowski of We Are Change saying farewell to the criminals at Austria’s Innsbruck airport:

  

  

  
  
  

  

• Bridging The US Inequality Gap: Modern Women Now Weigh Same As 1960s Men

  While most “inequality” discussions these days are focused on male-female pay, black-white opportunities, or rich-poor wealth, there is one in which the ‘lesser’ half of the unequal equation is gaining… that of weight. As WaPo reports, American women now weigh the same as American men did in the 1960s.

   

  Since 1960, women’s weight-flation is up 18.5%, handily out-flationing men who are up 17.6% bodyweight.

  

   

  The average American is 33 pounds heavier than the average Frenchman, 40 pounds heavier than the average Japanese citizen, and a whopping 70 pounds heavier than the average citizen of Bangladesh. To add up to one ton of total mass, it takes 20 Bangladeshis but only 12.2 Americans.

   

  Digging into the details, we find that it is women over 30 who have really stepped up their game…

  

   

  When will the protests begin? When will men start to demand even more calories as their ‘right’ as women gain weight paying no attention to the poor downtrodden starving males in the population?

   

  Charts: Reddit, The Washington Post

  

  

  
  
  

  

• In Dramatic Decision Judge Finds Fed Bailout Of AIG Was "Illegal", Government "Violated Federal Reserve Act"

  Earlier today, former AIG head Hank Greenberg’s long-running legal battle of the US government came to a dramatic end when in a 75-page ruling,  U.S. Court of Claims Judge Thomas Wheeler found that Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its “unduly harsh treatment of AIG in comparison to other institutions” which was “misguided and had no legitimate purpose.”

  But because “the question is not whether this treatment was inequitable or unfair, but whether the government’s actions created a legal right of recovery for AIG’s shareholders” Wheeler found that Greenberg was not owed any money as AIG would have gone bankrupt without the government’s forced intervention. Greenberg was seeking at least $25 billion in damages for shareholders.

  The reason for the case is that years after the initial $85 billion bailout which eventually ballooned to $182 billion, AIG – with the government’s explicit backstop and thus zero credit risk – managed to repay the government bailout funds and the government with a $22.7 billion profit. Greenberg argued that the pre-bailout equity holders deserved a piece of the pie, very much the same way that Fannie and Freddie stakeholders are also arguing they too deserve a piece of the post-government bailout pie.

  However, “in the end, the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy. In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value” the judge found, and admitted that the pre-government bailout equity value of financial companies – since all of them were facing bankruptcy without a bailout – was zero.  Whether this opens up the door to a class action lawsuit by all those who were short financials into the bailout and were then squeezed by the Fed’s bailout which the court has found to be an “illegal exaction” remains to be seen.

  Here are the key sections from the court ruling:

  The weight of the evidence demonstrates that the Government treated AIG much more harshly than other institutions in need of financial assistance. In September 2008, AIG’s international insurance subsidiaries were thriving and profitable, but  its Financial Products Division experienced a severe liquidity shortage due to the collapse of the housing market. Other major institutions, such as Morgan Stanley, Goldman Sachs, and Bank of America, encountered similar liquidity shortages. Thus, while the Government publicly singled out AIG as the poster child for causing the September 2008 economic crisis (Paulson, Tr. 1254-55), the evidence supports a conclusion that AIG actually was less responsible for the crisis than other major institutions.

  Well, there was Lehman too, whose stock most certainly went to zero and which never got a government bailout but that was to be expected: after all Goldman needed to eliminate its biggest fixed income competitor at the time, and what better way than to wipe it out completely.

  Wheeler continues:

  The notorious credit default swap transactions were very low risk in a thriving housing market, but they quickly became very high risk when the bottom fell out of this market. Many entities engaged in these transactions, not just AIG. The Government’s justification for taking control of AIG’s ownership and running its business operations appears to have been entirely misplaced. The Government did not demand shareholder equity, high interest rates, or voting control of any entity except AIG. Indeed, with the exception of AIG, the Government has never demanded equity ownership from a borrower in the 75-year history of Section 13(3) of the Federal Reserve Act. Paulson, Tr. 1235-36; Bernanke, Tr. 1989-90.

  In other words, there has never been a Fed-mediated nationalization of a private corporation prior to 2008. Which is accurate. It is also illegal according to the court, a ruling that may have dramatic repercussions for all future government/Fed bailouts of banks that Goldman deems relevant.

  Starr alleges in its own right and on behalf of other AIG shareholders that the Government’s actions in acquiring control of AIG constituted a taking without just compensation and an illegal exaction, both in violation of the Fifth Amendment to the U.S. Constitution…. Having considered the entire record, the Court finds in Starr’s favor on the illegal exaction claim.

  It is not quite clear why the Fed is equivalent to the Government in this case but we’ll just let that slide.

  Here are the details:

  With the approval of the Board of Governors, the Federal Reserve Bank of New York had the authority to serve as a lender of last resort under Section 13(3) of the Federal Reserve Act in a time of “unusual and exigent circumstances,” 12 U.S.C. § 343 (2006), and to establish an interest rate “fixed with a view of accommodating commerce and business,” 12 U.S.C. § 357. However, Section 13(3) did not authorize the Federal Reserve Bank to acquire a borrower’s equity as consideration for the loan. Although the Bank may exercise “all powers specifically granted by the provisions of this chapter and such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this chapter,” 12 U.S.C. § 341, this language does not authorize the taking of equity.

  So if they Fed is not authorized to “take equity”, does that mean that the NY Fed trading desk at Liberty 33 or its backup desk in Chicago, also known as the “Plunge Protection Team” will have to do a firesale of all its stock, E-mini, and ETF holdings obtained as a result of levitating the market ever higher for the past 7 years? Inquiring minds demand to know.

  The good news is that while the Fed’s bailout of AIG was illegal, at least it was not unconstitutional, as that particular pathway would have likely led to that Constitutional “Expert”, the president of the US, to get involved and opine on the “fairness” of a Fed bailout now and in the future.

  A ruling in Starr’s favor on the illegal exaction claim, finding that the Government’s takeover of AIG was unauthorized, means that Starr’s Fifth Amendment taking claim necessarily must fail. If the Government’s actions were not authorized, there can be no Fifth Amendment taking claim…. Thus, a claim cannot be both an illegal exaction (based upon unauthorized action), and a taking (based upon authorized action).

  Furthermore, the Court found that like in the BofA negotations over the Merrill rescue, the government effectively strongarmed AIG management into accepting the terms of the bailout it proposed:

  The Government defends on the basis that AIG voluntarily accepted the terms of the proposed rescue, which it says would defeat Starr’s claim regardless of whether the challenged actions were authorized or unauthorized. While it is true that AIG’s Board of Directors voted to accept the Government’s proposed terms on September 16, 2008 to avoid bankruptcy, the board’s decision resulted from a complete mismatch of negotiating leverage in which the Government could and did force AIG to accept whatever punitive terms were proposed. No matter how rationally AIG’s Board addressed its alternatives that night, and notwithstanding that AIG had a team of outstanding professional advisers, the fact remains that AIG was at the Government’s mercy.

  This would be especially accurate if an armed drone was flying outside of AIG HQ’s during the “negotiation.”

  And yet, despite this clearly favorable to Greenberg ruling, the Court did not award him any damages. Why? For the simple reason that AIG was already effectively broke when the government stepped in, and as such there was be no residual equity value going into Lehman weekend and subsequently.

  In the end, the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy. In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value. DX 2615 (chart showing that equity claimants typically have recovered zero in large U.S. bankruptcies). Particularly in the case of a corporate conglomerate largely composed of insurance subsidiaries, the assets of such subsidiaries would have been seized by state or national governmental authorities to preserve value for insurance policyholders. Davis Polk’s lawyer, Mr. Huebner, testified that it would have been a “very hard landing” for AIG, like cascading champagne glasses where secured creditors are at the top with their glasses filled first, then spilling over to the glasses of other creditors, and finally to the glasses of equity shareholders where there would be nothing left. Huebner, Tr. 5926, 5930-31; see also Offit, Tr. 7370 (In a bankruptcy filing, the shareholders are “last in line” and in most cases their interests are “wiped out.”).

   

  A popular phrase coined by financial adviser John Studzinski, in counseling AIG’s Board on September 21, 2008 is that “twenty percent of something [is] better than 100 percent of nothing.”

  All of this is absolutely correct. It also applies to Goldman, JPM, BofA, Citi, Wells and so on: all of the banks which accepted a government bailout either in equity, loan, discount window access, and so on, primed their stock to the point where the equity was worthless. As such, the entire equity tranches of the US financial system at the moment Lehman failed was worth precisely nothing.  It is also why the Goldman controlled Fed did everything in Hank Paulson’s power to provide the Fed with a blank check to bail out Goldman Sachs the US financial system at any taxpayer means necessary.

  Which is precisely what happened, to the tune of trillions and trillions of liquidity injections, government backstops and loans into what was at that moment a financial system which was operating but whose equity was for all intents and purposes utterly worthless.

  * * *

  Which takes us to the Court’s closing arguments:

  the Court finds that the first plaintiff class prevails on liability because of the Government’s illegal exaction, but recovers zero damages.

  As the Court noted during closing arguments, a troubling feature of this outcome is that the Government is able to avoid any damages notwithstanding its plain violations of the Federal Reserve Act. Closing Arg., Tr. 69-70. Any time the Government saves a private enterprise from bankruptcy through an emergency loan, as here, it can essentially impose whatever terms it wishes without fear of reprisal. Simply put, the Government often may ignore the conditions and restrictions of Section 13(3) knowing that it will never be ordered to pay damages. 

  And there you have it in a nutshell: 103 years after the Aldrich Plan to create a National Reserve Association in which private, commercial banks could create money out of thin air, failed to pass and instead an “impartial” Federal Reserve was created, the US Central Bank is nothing more than what its founder on Jekyll Island first envisioned: a private enterprise above the law, which caters entirely to commercial bank, bails them out, or nationalizes them illegally as it sees fit, and generally does whatever it wishes without any public oversight.

  As to the Fed’s take on just how illegal its actions were, or if – gasp – it learned its lesson and will no longer illegally “bail out” this bank or that, here is the answer.

  The Federal Reserve strongly believes that its actions in the AIG rescue during the height of the financial crisis in 2008 were legal, proper and effective.  

  And judging by the public’s response to the events of 2008, where it is clear that not only the Fed but nobody learned anything, the next bailout of US commercial banks will proceed very much like the previo sone. And the next. And the one after that.

  Source: Starr International Company v The United States

  

  

  
  
  

  

• Magna Carta Now: Riots, Real Justice, & Reaching Our Own Runnymede Moment

  Submitted by Simon Black via Sovereign Man blog,

  In the history of post-Norman monarchs in the UK there have been nine Henrys. Eight Edwards. Four Williams. Four Georges. And three Richards.

  Yet there was only one John.

  In fact, in nearly 1,000 years since William the Conqueror took England in 1066, John was the only King to never have his name repeated.

  And with reason. He wasn’t exactly a popular guy, widely despised by his people and nobles alike.

  John constantly taxed and plundered his subjects to finance pointless wars abroad. He extorted them with ever-increasing fines and imprisoned people for absurd, victimless crimes.

  He used his local police (sheriffs) to confiscate private property under threat of violence, building them into the most feared and powerful force in the kingdom.

  According to Harry Buffardi’s book “The History of the Office of the Sheriff”, King John deliberately selected “men of harsh demeanor for the post”.

  (Does any of this sound familiar?)

  The historical evidence suggests that John was so hated that he was assassinated by poison; Shakespeare dramatizes this episode in his little known play King John, which contains the most wonderful death line “[N]ow my soul hath elbow-room. . .”

  Before he departed this earth, however, King John was forced to make certain concessions to the nobles who had waged all-out rebellion against him.

  After taking London, the rebel barons met John to formalize these concessions at a picturesque riverside meadow called Runnymede, not far from Heathrow airport.

  The contract they hammered out on June 15, 1215 (which is actually June 22nd in our modern calendar) contained a list of rights and privileges that eventually became known as Magna Carta.

  And to this day it continues to be held up as some sort of holy document that spawned everything from the English Bill of Rights to the United States Constitution.

  Over the weekend I went to a special Magna Carta exhibit at the British Library in London, which praised the document for building the foundation of personal liberty (ironically while all of us were under CCTV surveillance).

  That’s certainly the official story.

  The National Archives in the US calls Magna Carta “one of the most important legal documents in the history of democracy,” and that “during the American Revolution, Magna Carta served to inspire and justify action in liberty’s defense.”

  Yet this is a total myth, as much as “Columbus discovered America.”

  The truth is that Magna Carta was a document for the nobles, by the nobles. No one gave a damn about the common people.

  The document outlined numerous privileges and protections for nobles, including lower taxes, freedom from wanton imprisonment, and due process.

  (Curiously Magna Carta also mandated widespread deforestation across England.)

  Yet virtually all of these wonderful rights specifically excluded the serfs. Magna Carta only entitled the Nobles to freedom.

  Very little has changed.

  Eight centuries later, we still have nobles who come from political-banking dynasties… House Clinton, House Bush, House Goldman… all living above the commoners.

  Meanwhile governments and police are still extorting people, confiscating their property through civil asset forfeiture, imprisoning them for victimless crimes, and waging pointless wars abroad.

  Sure we can sing songs about our freedom. But that doesn’t make it true.

  Neither does writing down freedoms on a piece of paper.

  Governments’ behavior shows that they couldn’t possibly care less about any rights that were written down in some centuries-old charter.

  Just because it’s in a document doesn’t mean they’ll adhere to it.

  And that was perhaps the most humorous irony at the exhibit. At the very end they had an original Magna Carta from 800 years ago. But it’s been so worn away with time that it was completely illegible.

  I chuckled and thought to myself, “That’s about right.”

  But here’s the thing: we don’t need a piece of paper to tell us that we’re free.

  Human beings are born free. Freedom isn’t handed to us by kings or politicians. It’s not awarded by contract.

  Freedom is natural. And we don’t have to wait around for House Clinton or King Barry First of His Name to grant it to us.

  It’s fine to write it down. But if people don’t truly care about being free, the document will amount to nothing but an illegible artifact at a museum exhibit.

  Each of us has the ability to do something to take back our freedom. All the tools and resources already exist.

  It’s the Digital Age. We’re no longer bound by geography. Banks. Governments. Even borders themselves. They’re all becoming increasingly irrelevant.

  This is powerful stuff, and critically important to take advantage of while things are still ‘normal’.

  Right now it’s pretty clear that the temperature is rising. People are starting to wake up to the fact that, when it really counts, they’re no more free than a medieval serf.

  They pay taxes at gunpoint. They have no access to real justice.

  And many of the most important aspects of their lives, from the value of their savings to their medical care to the way they’re allowed to educate their own children, are tightly controlled.

  If the surge in riots and anti-government violence is any indicator, it looks like history may be repeating itself. And we may soon be reaching our own Runnymede moment.

  

  

  
  
  

  

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