Today’s News June 7, 2015

• "Literally, Your ATM Won’t Work…"

  By Bill Bonner Of Bonner And Partners

  Literally, Your ATM Won’t Work…

  While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us.

  Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates.

  Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage?

  Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared.

  The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells!

  The same thing could happen to the money supply…

  There’s Not Enough Physical Money

  Here’s how… and why:

  It’s almost seems impossible. Hard to imagine. Difficult to understand. But if you look at M2 money supply – which measures coins and notes in circulation as well as bank deposits and money market accounts – America’s money stock amounted to $11.7 trillion as of last month.

  But there was just $1.3 trillion of physical currency in circulation – about only half of which is in the US. (Nobody knows for sure.)

  What we use as money today is mostly credit. It exists as zeros and ones in electronic bank accounts. We never see it. Touch it. Feel it. Count it out. Or lose it behind seat cushions.

  Banks profit – handsomely – by creating this credit. And as long as banks have sufficient capital, they are happy to create as much credit as we are willing to pay for.

  After all, it costs the banks almost nothing to create new credit. That’s why we have so much of it.

  A monetary system like this has never before existed. And this one has existed only during a time when credit was undergoing an epic expansion.

  So our monetary system has never been thoroughly tested. How will it hold up in a deep or prolonged credit contraction? Can it survive an extended bear market in bonds or stocks? What would happen if consumer prices were out of control?

  Less Than Zero

  Our current money system began in 1971.

  It survived consumer price inflation of almost 14% a year in 1980. But Paul Volcker was already on the job, raising interest rates to bring inflation under control.

  And it survived the “credit crunch” of 2008-09. Ben Bernanke dropped the price of credit to almost zero, by slashing short-term interest rates and buying trillions of dollars of government bonds.

  But the next crisis could be very different…

  Short-term interest rates are already close to zero in the U.S. (and less than zero in Switzerland, Denmark, and Sweden). And according to a recent study by McKinsey, the world’s total debt (at least as officially recorded) now stands at $200 trillion – up $57 trillion since 2007. That’s 286% of global GDP… and far in excess of what the real economy can support.

  At some point, a debt correction is inevitable. Debt expansions are always – always – followed by debt contractions. There is no other way. Debt cannot increase forever.

  And when it happens, ZIRP and QE will not be enough to reverse the process, because they are already running at open throttle.

  What then?

  The value of debt drops sharply and fast. Creditors look to their borrowers… traders look at their counterparties… bankers look at each other…

  …and suddenly, no one wants to part with a penny, for fear he may never see it again. Credit stops.

  It’s not just that no one wants to lend; no one wants to borrow either – except for desperate people with no choice, usually those who have no hope of paying their debts.

  Just as we saw after the 2008 crisis, we can expect a quick response from the feds.

  The Fed will announce unlimited new borrowing facilities. But it won’t matter….

  House prices will be crashing. (Who will lend against the value of a house?) Stock prices will be crashing. (Who will be able to borrow against his stocks?) Art, collectibles, and resources – all we be in free fall.

  The NEXT Crisis

  In the last crisis, every major bank and investment firm on Wall Street would have gone broke had the feds not intervened. Next time it may not be so easy to save them.

  The next crisis is likely to be across ALL asset classes. And with $57 trillion more in global debt than in 2007, it is likely to be much harder to stop.

  Are you with us so far?

  Because here is where it gets interesting…

  In a gold-backed monetary system prices fall. But the money is still there. Money becomes more valuable. It doesn’t disappear. It is more valuable because you can use it to buy more stuff.

  Naturally, people hold on to it. Of course, the velocity of money – the frequency at which each unit of currency is used to buy something – falls. And this makes it appear that the supply of money is falling too.

  But imagine what happens to credit money. The money doesn’t just stop circulating. It vanishes. As collateral goes bad, credit is destroyed.

  A bank that had an “asset” (in the form of a loan to a customer) of $100,000 in June may have zilch by July. A corporation that splurged on share buybacks one week could find those shares cut in half two weeks later. A person with a $100,000 stock market portfolio one day could find his portfolio has no value at all a few days later.

  All of this is standard fare for a credit crisis. The new wrinkle – a devastating one – is that people now do what they always do, but they are forced to do it in a radically different way.

  They stop spending. They hoard cash. But what cash do you hoard when most transactions are done on credit? Do you hoard a line of credit? Do you put your credit card in your vault?

  No. People will hoard the kind of cash they understand… something they can put their hands on… something that is gaining value – rapidly. They’ll want dollar bills.

  Also, following a well-known pattern, these paper dollars will quickly disappear. People drain cash machines. They drain credit facilities. They ask for “cash back” when they use their credit cards. They want real money – old-fashioned money that they can put in their pockets and their home safes…

  Dollar Panic

  Let us stop here and remind readers that we’re talking about a short time frame – days… maybe weeks… a couple of months at most. That’s all. It’s the period after the credit crisis has sucked the cash out of the system… and before the government’s inflation tsunami has hit.

  As Ben Bernanke put it, “a determined central bank can always create positive consumer price inflation.” But it takes time!

  And during that interval, panic will set in. A dollar panic – with people desperate to put their hands on dollars… to pay for food… for fuel…and for everything else they need.

  Credit may still be available. But it will be useless. No one will want it. ATMs and banks will run out of cash. Credit facilities will be drained of real cash. Banks will put up signs, first: “Cash withdrawals limited to $500.” And then: “No Cash Withdrawals.”

  You will have a credit card with a $10,000 line of credit. You have $5,000 in your debit account. But all financial institutions are staggering. And in the news you will read that your bank has defaulted and been placed in receivership. What would you rather have? Your $10,000 line of credit or a stack of $50 bills?

  You will go to buy gasoline. You will take out your credit card to pay.

  “Cash Only,” the sign will say. Because the machinery of the credit economy will be breaking down. The gas station… its suppliers… and its financiers do not want to get stuck with a “credit” from your bankrupt lender!

  Whose credit cards are still good? Whose lines of credit are still valuable? Whose bank is ready to fail? Who can pay his mortgage? Who will honor his credit card debt? In a crisis, those questions will be as common as “Who will win an Oscar?” today.

  But no one will know the answers. Quickly, they will stop guessing… and turn to cash.

  Our advice: Keep some on hand. You may need it.

  

  

  
  
  

  

• Capex Recovery Is Worst In History, BofAML Says

  One of the major themes we’ve discussed this year is the overwhelming tendency for US corporates to take advantage of record low borrowing costs and voracious demand from yield-starved investors by tapping credit markets and investing the proceeds in share repurchases. Setting aside the fact that this dynamic is embedding an enormous amount of risk in corporate credit (a booming primary market is a dangerous thing when the secondary market is completely illiquid and investors are staring down a Fed rate hike cycle), record issuance and buybacks have come at the expense of capex. 

  Price insensitive corporate management teams are leveraging their balance sheets in order to buyback shares, thereby artificially inflating the bottom line, boosting equity-linked compensation, and underwriting a stock market rally.

  

  This comes at the expense of capex (i.e. investing the proceeds from debt sales in future growth and productivity). While some will note that capex hit a record in absolute terms in 2014, that obscures the fact that if one looks at how companies are using cash, the trend is clearly towards buybacks and dividends and away from investment.

  

  This, we’ve argued, could imperil top line growth going forward, as financial engineering is not, in the final estimation, a viable growth strategy. 

  Against this backdrop, BofAML is out with a new note, calling business capex “a major drag” on the ‘recovery.’ Here’s more:

  Business investment has been one of the more important weak links to the sluggish recoveries in most advanced economies in the aftermath of the Great Recession of 2009. 

   

  In the United States, it took 18 quarters (4.5 years) before fixed business investment regained its pre-recession peak, in chain-volume terms. That compares with an average of just five quarters before business investment recovered to its peak level prior to the onset of previous post-War recessions; previously, it had never taken longer than three years for that milestone to be attained. 

   

  Since the Great Recession, US business investment has grown at an average annual rate of 4.9%, compared with the 8.1% average for the corresponding period of all post-war recoveries. This shortfall is a much larger than the 1.8pp shortfall for household consumption, and the 2.0 pp for residential investment.

   

  

  Why the weakness? As we have observed on many different occasions, banking and real estate crises tend to cause big recessions and abnormally slow recoveries. Rather than counter the balance sheet consolidation of the private sector, governments have pursued their own consolidation. It is hardly surprising that businesses lack confidence in any sustained upswing in demand that would justify taking the risks associated with large increases in investment. For many listed companies, returning surplus cash to shareholders through dividends or share buybacks has seemed a safer strategy.

  *  *  *

  In other words, it has taken three-and-a-half times longer for capex to recover from the recession versus the historical average. Worse, it has never taken longer than three years — it took four-and-a-half years this time around. This is directly attributable to companies opting for buybacks over fixed investment, which means two things: 1) the stock market rally is illusory, and 2) corporate America’s productive capacity has not grown with its market cap. 

  

  

  
  
  

  

• CoLD WaRRioR 2.0….

  

  
  
  

  

• SEC Reads Zero Hedge, Launches Crack Down On Activist Hedge Fund "Idea Dinners"

  In the summer of 2014, the biggest activist hedge fund story on anyone’s lips was whether Bill Ackman had broken securities laws when he had accumulated a massive $3 bilion stake, or roughly 9.7% of the outstanding stock of Allergan (using leverage via call options), in advance of Valeant’s announcement it would launch a hostile offer for Allergan. The punchline: Ackman had secretly collaborated with Valeant management in advance of the material, public announcement which sent Allergan shares soaring and was the primary reason for Ackman’s blockbuster year and billions in profits for Pershing Square.

  The story came and went (nowhere) because the man who had given Ackman the SEC’s tacit blessing that nothing bad would happen to Bill, as well as a green light to proceed with a trade that would land anyone else in prison, was none other than the former head of enforcement at the SEC, now a $5 million a year legal advisor at Kirkland and Ellis, Robert Khuzami (formerly general counsel of serial market manipulator Deutsche Bank). As a result, the SEC’s inquiry into whether Ackman had broken insider trading laws was quickly forgotten.

  However, aside from Ackman’s allegedly criminal trading, there was another, perhaps even more important tangent, one which only Zero Hedge picked up on last summer: the topic of idea dinners among hedge funds, in which in order to mitigate the securities violation, numerous activist hedge funds would collude with each other as a means of limiting their legal exposure, while altogether profiting when one or more of their group went “hostile” on the target du jour.

  This is what we said last August, when we asked “Is The SEC Asking These Hedge Funds Why They All Rushed Into Allergan Last Quarter?“

  It remains to be seen if frontrunning the general public on collusive, material, non-public information that a strategic would be about to announce a bid for Allergan is indeed “completely lawful”, however we do have a question: now that the SEC is formally investigating Ackman for what may be a massive frontrunning scam, is it also looking at all the other hedge funds which reported brand new stakes (some of which also entirely in the form of calls) in Allergan in the second quarter?

   

  The reason we ask is that as everyone knows, in order to diffuse the scent of criminality and dilute their culpability, what hedge fund managers, especially of the activist variety, will do nearly all the time ahead of a significant public announcement of a major stake, is to hold an “idea dinner” in which they preannounce to a select group of close friends what they are doing. As such, what ends up happening is that the benefactor of what may be an illegal tip off, or in this case collusion, is not only entity, but numerous, thus making it very difficult for the SEC to isolate just who “leaker zero” was, and who benefited from the information – certainly complicated if the beneficiaries are more than a dozen.

   

  Presenting exhibit A: this is the list of hedge funds and prop trading desks that according to Bloomberg (and CapIQ) announced brand new and quite material stakes, in Allergan, after building up a position some time in the second quarter, having no holdings as of the first quarter.

   

  

   

  It goes without saying that the list of “position initiators” is the who’s who of Idea Dinner participants with names such as York, Perry, Mason, Och Ziff, Eton Park, Viking, and so on.

   

  So, to recap: if the SEC is indeed serious about getting to the bottom of the Allergan insider-trading scam, is it also looking into just how these hedge funds decided to buy into Allergan in a quarter in which the stock soared on the Valeant/Ackman news?

   

  Because while it is perfectly legal if these funds did their homework and rather “mysteriously” all decided to buy into the stock at the same time, or put on M&A arbs after the hostile bid announcement, one wonders just how legal it would be if one or more of these investors only bought AGN stock after getting a “sure thing” tip from Ackman that he was about to go activist on Allergan with Valeant money, something which is certainly illegal.

   

  All that said, we aren’t holding our breath on the SEC actually doing its job for once, and certainly not before Pershing Square goes public. After all can’t hinder “capital formation” in these here unrigged markets.

  And so, 10 months later, our observations are once again proven prophetic… That, or the SEC reads this “fringe” website religiously for clues how to do its job, because as the WSJ reports the SEC has answered our question, and yes: the  SEC is finally asking not only “these” hedge funds why they all rushed into Allergan (see above), but into every other collusive activist take out target.

  According to the WSJ, the SEC is investigating “whether some activist investors teamed up to target companies without disclosing their alliances, potentially in violation of federal securities rules, according to people familiar with the matter.”

  The SEC’s enforcement division has recently opened multiple investigations and sent requests for information to a number of hedge funds, according to some of the people. Neither the names of the funds nor the companies they targeted could immediately be ascertained.

   

  As part of a broader effort to promote transparency, the SEC is looking at whether certain investors coordinated their efforts without filing appropriate disclosures. Federal securities regulations require investors who jointly agree to buy, sell or vote securities to disclose those arrangements, and to designate themselves as a group if they together own at least 5% of a company’s stock or are soliciting votes from other shareholders. Such formal, disclosed alliances have included a recent effort by Barington Capital Group LP and Macellum Capital Management LLC to win board seats at retailer Children’s Place Inc. 

  The WSJ says that “the issue has taken on greater importance as activist hedge funds, which accumulate stakes in companies and agitate for changes such as stepped up share buybacks and asset sales, have become a major force in corporate America in recent years. Activists sometimes tip potential hedge fund allies to their trading plans, a Wall Street Journal investigation found last year. The practice isn’t illegal as long as they don’t coordinate their trades.“

  Unfortunately for said activist hedge funds, it is impossible to play dumb when virtually all of them decided to take stakes in Allergan in the same quarter as Ackman was building up his massive stake. The punchline: they could and would have only done that if they knew there was a guaranteed bullish catalyst imminent. Such as Valeant announcing a hostile bid for Allergan, a Valeant which was collaborating with the biggest activist hedge fund in the US currently, Pershing Square.

  Surprisingly, until recently the SEC, perpetually clueless and corrupt, likened doing its job to cooking.

  Michele Anderson, who heads the SEC’s office of mergers and acquisitions, said at a conference in March that changing the regulations on activist disclosures has proved to be “like peeling an onion,” where efforts to tackle one issue simply reveal another.

  So, because it is difficult, it is best to not do your job at all, eh SEC?

  But then something appears to have changed.

  In a sign of the SEC’s new focus on the issue, the agency in March sent a letter to activist fund Bulldog Investors LLC about its campaign for board seats at Stewart Information Services Corp. , a provider of title insurance. The SEC asked whether Bulldog had any “agreements or understandings” with Foundation Asset Management LP, another fund that had run its own proxy fight at the company.

   

  Bulldog co-founder Phil Goldstein said in an interview that the funds never made any agreement about trading or voting shares. Scrutiny from the SEC could chill legal discussions between investors, he said, adding that it isn’t surprising that underperforming companies would draw interest from several activists.

  This is how the Bulldog guy justified collusive activity between activists:

  “If you go to a Grateful Dead concert, you’re going to find a lot of Grateful Dead fans,” he said. “They’re not a group. They just like the same music.”

  What he left out is that the result of going to a Grateful Dead concert with other “fans” isn’t a multi-million dollar payday for all said “fans” due to illegally collusive behavior.

  Which is precisely what activist hedge fund “idea dinners” and other such collusive actions represent.

  Apparently, even the most clueless SEC regulator, the one whose patronage of Wall Street means she has to recuse herself of pretty much doing her job entirely, SEC head Mary Jo White spoke up:

  “Our role at the SEC is not to determine whether activist campaigns are beneficial or detrimental in any given circumstance,” Ms. White said. “Rather, the agency’s central focus is making sure that shareholders are provided with the information they need and that all play by the rules.”

  Rules.

  Funny. The only rule is when the activist community bribes the SEC to make sure this latest “investigation” goes away, to make sure there is no paper trail. Otherwise, the mere suggestion that the next hedge fund idea dinner may be bugged by an SEC mole will mean that in the coming years “activist” alpha, which in the past few years was the only “strategy” outperforming the market, will promptly disintegrate just like the concept of “fair and efficient” capital markets in a rigged, centrally-planned world disintegrated years ago alongside with retail interest in it.

  

  

  
  
  

  

• Cold War 2.0 Heats Up: Washington Dusts Off Russia "Containment" Plans

  The “ceasefire” — if you can call it that — that has been in place in Ukraine since February’s Minsk Accord has fallen apart this week with the fiercest fighting in months claiming dozens of lives and prompting President Petro Poroshenko to launch a media blitz in an attempt to rally the West against what he claims is a renewed offensive by Russian-backed separatists. 

  Russian media contends the separatists were only defending themselves after they began to take artillery fire. Ukraine, by contrast, claims its soldiers came under attack by rebel tanks. “We had some storming action by between 500 and 1,000 servicemen of the militants, with a large number of tanks and armored machinery, apparently counting on being able to quickly capture Maryinka,” Poroshenko said.

  

  Now, Ukraine is stepping up calls for Washington to send lethal aid to Kiev, casting the conflict as a war on Western, democratic values. Here’s The NY Times:

  In what amounted to a multidimensional confidence-building campaign, President Petro O. Poroshenko of Ukraine tried on Friday to rally international support for his country and to maintain pressure on President Vladimir V. Putin of Russia, including economic sanctions.

   

  Mr. Poroshenko held a major news conference, gave interviews to foreign journalists, spoke by phone with President Obama and Chancellor Angela Merkel of Germany, and prepared to welcome two visiting prime ministers to Kiev, Shinzo Abe of Japan and Stephen Harper of Canada..

   

  “We will defend our country, our territorial integrity and our independence by ourselves,” Mr. Poroshenko said in an interview with journalists from a small group of foreign news organizations, including The New York Times. “We have weapons for that. But unfortunately we are fighting with the weapons from the 20th century, from the time of the Soviet Union, against the Russian — most modern — weapons of the 21st century.”

   

  He added, “Here we are defending freedom, we are defending democracy, we are defending European values, and the actual reason of this war is the right of the Ukrainian people to live under European standards, with European values, in the European Union.”

  To be sure, this is an opportune time for Poroshenko to appeal to the US and its allies for assistance (which makes last week’s Russian “offensive” seem rather convenient). President Obama will attend a G-7 summit in Germany this weekend and will now come equipped with ‘evidence’ to support calls for stepped up sanctions on Russia. Obama may be seeking to rally support ahead of what looks to be a major strategy shift in realtions between NATO and Moscow. WSJ has more:

  Obama administration officials are considering new deterrence strategies to rein in Russian meddling in Europe, in what some say would amount to an updated version of Cold War-era containment.

   

  The proposed approach involves beefing up the militaries of allies and would-be partners and rooting out government corruption, which they see Moscow exploiting to gain more influence.

   

  Some administration officials also want to expand the North Atlantic Treaty Organization to limit Moscow’s orbit. Membership for Ukraine or Georgia remains off the table, but some Pentagon and administration officials are advocating admitting the small Balkan country of Montenegro to solidify the country’s ties to the West and show that Mr. Putin doesn’t have a veto over alliance expansion.

   

  The longer-term measures under discussion, officials say, stem from a recognition that Moscow has refused to moderate its posture after its territorial grab last year in Ukraine, and that U.S. and European attempts at diplomacy and sanctions alone won’t be enough to force a change. Those measures would include stepping up training for European allies to help partner militaries resist the kinds of so-called hybrid tactics—like training surrogate forces and conducting snap border exercises—that Russia has used effectively in Ukraine.

   

  The impetus toward a policy shift also is driven by the conclusion that U.S. steps to reassure regional allies must be bolstered by other measures against possible Russian intrusions.

   

  The Pentagon also is drafting plans for where to position new stocks of military equipment for use in a crisis or for stepped-up training exercises. That would entail additional U.S. troops assigned to rotating duty in the region. But Washington remains opposed, for now, to rebuilding permanent U.S. troop formations in Europe.

   

  The administration is accelerating work on new military technologies to better counter Russian military advances and try to offset advances by Moscow, and deter Russia from using its increasing military prowess.

   

  The policy deliberations are gaining momentum. On Friday, Mr. Carter gathered a group of military leaders in Stuttgart, Germany, to discuss the broader U.S. strategy to Russia..

  
  

  Inside the White House, meanwhile, the National Security Council is at work on an overhaul of its Russia strategy that formally casts aside the policy of “reset” that dominated Mr. Obama’s first term.

  The only thing being “reset” now, it appears, is the Cold War. 

  For its part, Moscow says Kiev “constantly” threatens to violate the ceasefire and refuses to engage in constructive dialogue. 

  From The Guardian:

  “All agreements should be fully implemented so that no one is able to derail fragile progress by resuming military activity,” the Russian foreign ministry wrote on its Twitter feed, quoting minister Sergei Lavrov. “We must know who is shelling communities, thereby violating not only the Minsk agreements, but also international humanitarian law.”

   

  Lavrov blamed Kiev for this week’s upsurge in fighting.

   

  “The February Minsk agreements are constantly under threat because of the actions of the Kiev authorities, trying to walk away from their obligations to foster direct dialogue with Donbass,” he said.

  While it’s impossible to accurately assess the fluid situation on the ground, what does seem clear is that neither side has the will (or even the desire) to deescalate the conflict.

  For Washington, now seems like a particularly inopportune time to begin dusting off Cold War containment policies and ratcheting up the war rheotric with Russia. The US is already engaged in a tense war of words with China over the latter’s land reclamation projects in the South China Sea, and all signs point to boots on the ground in Iraq (and eventually Syria) by year end. Once again, US foreign policy now revolves squarely around the projection of military prowess. 

  *  *  *

  (a video from The Guardian shows gunbattles in Eastern Ukraine)

  

  

  
  
  

  

• The Slide Toward “Velvet Glove” Fascism Continues

  Submitted by Pater Tenenbrarum of Acting Man

  Government-Granted “Freedom”

  Orwellian Language – the Slide toward “Velvet Glove” Fascism Continues

  Sometimes we get the feeling the ruling elites are investing the laws they enact with a kind of impertinent, slap-in-your-face black humor. How else to explain the Orwellian names given to the liberty-crushing laws that have been put in place since the “war on terror” started?

  The latest example is the misnamed “Freedom Act”, the purpose of which appears to be to make legal what was hitherto plainly illegal – inter alia whole-sale spying by the government on the citizenry. The legislation has been sold to the serfs as absolutely necessary to “prevent terror attacks”. As we have previously pointed out, the average US citizen is statistically far more likely to die from drowning in a bathtub or simply by falling from a chair rather than from a terror attack. No special laws have been proposed yet to save us from the evil of bathtubs and chairs, in spite of the danger evidently emanating from these deadly household furnishings.

  Many people indeed begin to watch what they are saying once they are aware of being under constant surveillance. As we have previously argued, this undermines an important pillar of civilization.

  

  Cartoon via Terrence Nowicki

  Apart from the vanishingly small statistical likelihood of actually being harmed by terrorists, it is noteworthy that such laws – the true purpose of which is highly unlikely to be congruent with their stated purpose – are enacted even while the government engages in activities that are bound to worsen these statistics in the future. The so-called “war on terror” so far actually seems to be similarly successful as the “war on poverty” and the “war on drugs”. In fact, it appears to be ranking quite high on the list of the biggest government boondoggles.

  

  Since the “war on terror” started, terrorism has grown like never before. One should expect such outcomes to some extent, but this one is actually putting quite a few other failed government schemes to shame … via Washington Post, click to enlarge.

  To call a law the “Freedom Act” makes it sound as if freedom were something the government generously grants to its serfs. This is not so. Not surprisingly, upon closer inspection it looks like the new law hasn’t improved the previous state of affairs in the slightest. Instead it has probably made it even worse.

  

  Just keeping in touch with the newly liberated citizens – now and forever, Cartoon by Walt Handelsman  

  Supporting Terrorists

  Due to a FOIA request by Judicial Watch it has recently emerged that the government knew full well that its intervention in Syria (arming moderately mad mullahs in order to overthrow Assad) would probably result in the emergence of an “Islamic State” in Iraq and Syria. As Washington’s Blog and Zerohedge have pointed out, there are quite a few choice passages in this 2012 assessment by the Defense Intelligence Agency (we have left the typos and grammatical mistakes in the transcription below intact, we have only added a few commas to improve readability):

  “The general situation”:

  Internally, events are taking a clear sectarian direction.

  The Salafists, the Muslim Brotherhood and AQI are the major forces driving the insurgency in Syria.

  The West, Gulf countries and Turkey support the opposition; while Russia, China and Iran support the regime.

  “The effects on Iraq”:
  The opposition forces will try to use the Iraqi territory as a safe haven for its forces, taking advantage of the sympathy of the Iraqi border population, meanwhile trying to recruit fighters and train them on the Iraqi side, in addition to harboring refugees.
  If the situation unravels, there is the possibility of establishing a declared or undeclared Salafist principality in Eastern Syria (Hasaka and Der Zor) and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion (Iraq and Iran).
  The deterioration of the situation has dire consequences on the Iraqi situation and are as follows:
  This creates the ideal atmosphere for AQI to return to its old pockets in Mosul and Ramadi and will provide a renewed momentum under the presumption of unifying the jihad among Sunni Iraq and Syria, and the rest of the Sunnis in the Arab world against what it considers the enemy, the dissenters. ISI could also declare an Islamic State through its union with other terrorist organizations in Iraq and Syria, which will create grave danger in regards to unifying Iraq and the protection of its territory.
  The renewing facilitation of terrorist elements from all over the Arab world entering into Iraqi arena.”

  (emphasis added)

  It is startling to learn that all of this was already known to government agencies in 2012, well before the world at large became aware of ISIS. Just think for a moment about this sentence: “…. there is the possibility of establishing a declared or undeclared Salafist principality in Eastern Syria (Hasaka and Der Zor) and this is exactly what the supporting powers to the opposition want.”

  

  Midwifing in the Middle Eas, Cartoon by Adam Zyglis

  In other words, ISIS has not only done precisely what was expected, but what the governments supporting the Syrian opposition wanted to happen. Radical salafists were armed to overthrow a tinpot dictator who represents no threat whatsoever to us. Many of the same politicians who voted in favor of this have at the same time incessantly promoted the alleged need to keep civil liberties undermined. According to them, provisions of the “Patriot Act” shouldn’t have been allowed to expire under any circumstances, inter alia to enable us to “defend against the threat posed by groups like ISIS”. Someone should perhaps remind these slime-molds that they knowingly and willingly helped to create this threat. The cynicism and hypocrisy are truly remarkable.

  

  John McCain posing with “moderately mad mullahs” in Syria. The man with the camera was later identified as terrorist Muhammad Nour, while the second man from the left was said to be his associate “Abu Ibrahim”. Both have allegedly been involved in the abduction of Lebanese Shia pilgrims. McCain’s office commented: “If the individual photographed with Senator McCain is in fact Mohamed Nour, that is regrettable.”

  Why should “we” get involved in the Sunni/Shia religious dispute at all, what has any of this got to do with us? Note that prior to the Iraq war, Sunni, Shia and Christian communities were living peacefully side by side in the region. One certainly cannot deny that both Saddam and Assad were, respectively are, quite unsavory dictators. And yet, the West has no problem with supporting the brutal theocratic regime of Saudi Arabia and the even more brutal junta of General al-Sisi that is currently ruling Egypt (where the courts are routinely sentencing hundreds of people to death in one go in Stalinesque show trials). This support is provided under the cover of “realpolitik”, the term regularly invoked when policies completely bereft of morals are pursued.

  

  Just trust us…, cartoon by Simon Kneebone

  Supporting radical fundamentalists in order to fight a regime one happens to dislike at a given moment is per experience especially dangerous. If there is a “lesser evil” in the Syrian conflict, we have yet to be apprised of its existence. The radicals fighting Assad are certainly happy to take Western money and weapons, just as the mujahedin of Afghanistan once did, but they are definitely not our “friends”. On the contrary, arming them will ultimately only invite blowback, a term coined by the CIA to describe the rash of unintended consequences that usually results from such interventions. It should be known by now that Islamist fundamentalists have especially large blowback potential. The recent murder of cartoonists in Paris has once again underscored this fact (the French government has reacted as one would expect, by curtailing the liberties of French citizens further).

  

  Spot the difference, Cartoon by Matt Wuerker

   

  Amending the Amendments

  No-one is saying that genuine terrorist threats shouldn’t be defended against. The question is whether surveillance of the entire population actually serves this goal. The evidence so far suggests that it doesn’t. As the former NSA chief publicly admitted, “one, or perhaps two” terrorist plots have actually been foiled by the NSA’s extended spying activities. Or perhaps none, as Michael Krieger avers. Who knows really? Our money is on “none”.

  Similarly, the extraordinary powers the government has arrogated to itself in other areas via the likewise Orwellian-sounding “Patriot Act” are unlikely to actually improve its record of providing safety. The previously allowed methods of detection and prevention of crime should be more than sufficient for this purpose. After all, “ticking bomb” scenarios exist only in Jack Bauer movies. If such a scenario were against all odds ever encountered in real life, we’re quite sure that those confronted by it wouldn’t let protocol stand in their way (and we can be just as certain that no-one would subsequently complain). For the citizens who are supposedly going to be “protected”, there is definitely no mileage in the shredding of the bill of rights.

  All over the world, anti-terror laws have been abused for purposes that have absolutely nothing to do with terrorism. These range all the way from “investigating copyright infringement” to “spying on noisy children”.

  

  Cartoon by Joel Pett

  If the process were honest, one would simply have to amend the 4^th and 5^th amendments a bit further. We propose the following changes: 

  “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

   

  There are certain exceptions when these rights shall be violated on a grand scale. As soon as the government declares something called “the war on drugs”, no-one shall be safe from arbitrary seizure of his effects by anyone ranging from Hicksville sheriffs to DEA agents at their whim. As soon as the government declares something called “the war on terror”, the passage about being secure from “unreasonable searches” will be suspended for the duration of the conflict, i.e., forever.  

   

  No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

   

  As soon as the government declares the never-ending “war on terror” mentioned in amendment 4, the whole rigmarole about “due process” shall be suspended as well.

  If these amendments were duly altered as proposed above, the courts would no longer have to engage in an unseemly song-and-dance about who has “standing” every time people are attempting to get them to rule on whether assorted anti-terror laws represent an infringement of the constitutional order.

  

  A vision of the potential future consequences of complaining too loudly, Cartoon by Ben Sargent

  Conclusion

  The fact that the newest anti-terror law has been named the “Freedom Act” is a big red flag all by itself. It certainly appears as if nothing has improved relative to the previous situation. At the same time, government intervention in far-away lands continues to be the biggest force generating more terrorism in the world. When blowback eventually ensues, we will no doubt be told that if we want to be “safe” we will need to surrender even more civil liberties. Unfortunately experience suggests that most people are either going to sleep through this or will even cheer their own enslavement on.

  History also shows that no society moves from a relatively free political system to full-scale authoritarianism in one fell swoop. Instead the process moves forward step-by-step, almost imperceptibly at first (in “salami tactic” fashion). A major characteristic of this process that can be observed time and again is that governments enact increasingly repressive legislation on the pretext of emergencies – at times real ones, and more often than not imagined ones. By the time people are waking up to what is going on, it is usually too late. None of this should therefore be taken lightly.

  

  Reaching the “too late” phase.

  

  

  
  
  

  

• EU's Junker Snubs Greek Prime Minister, Declines Phone Call

  In a speech to parliament on Friday, Greek PM Alexis Tsipras called a proposal drafted by the country’s creditors “an unpleasant surprise”.

  Tsipras, who submitted his own proposal to Angela Merkel, Francois Hollande, Jean-Claude Junker, and Mario Draghi on Monday just ahead of an emergency meeting between the four in Berlin, says the counterproposal he received on Wednesday from the troika was “unreasonable” and can’t possibly be the basis for a deal. He went on to say that Greece will not be “blackmailed” and even went so far as to suggest that the institutions’ draft was a negotiating “trick” and may ultimately be withdrawn. 

  While it’s as yet unclear whether Tsipras’ bluster is genuine or simply reflects the fact that thanks to the so-called “Zambia” option — whereby Greece will now bundle its June IMF installments into one payment due at the end of the month — the PM can now feign belligerence for another few weeks before ultimately conceding amid an acute liquidity crisis and a default to creditors.

  In the mean time, Tsipras must toe the line between adopting language that appeases the more radical members of Syriza, and testing the waters to discover what (if any) concessions would be acceptable to parliament. 

  As we’ve argued, the troika has every reason to stick to its guns. The risk of emboldening Syriza sympathizers in Spain and Portugal now far outweighs the projected fallout from a Grexit — or so the narrative goes.

  Greece, on the other hand, will face devastating economic consequences, political instability, and social unrest in the event the country returns to the drachma, meaning Tsipras’ move to effectively call the troika’s bluff might have been more show than anything else. That is, the longer the PM can put on a brave face, the harder he can say he fought when, in the end, he is forced to go to parliament with an unpopular deal or face an economic depression the depths of which are as yet impossible to measure. Here’s UBS with a bit of color on this:

  Seen from a positive angle, the bundling buys the Syriza government some time and arguably facilitates the cash-flow management in the immediate weeks ahead. But the bundling also raises concerns. It is a reflection, in our view, that the gulf between the Greek government and its international partners is still wide. It might also suggest that Prime Minister Tsipras is under significant pressure from the left wing of his party not to make concessions to the Troika. 

  If, on the other hand, Tsipras is serious about sticking with the mandate that got Syriza elected (which is possible), he got a rude awakening on Saturday when, insulted by the PM’s fire and brimstone speech to parliament, EU Commission President Jean-Claude Junker refused a meeting, noting that if Tsipras is serious about going down with the ship, there’s nothing left to talk about. FT has more:

  Alexis Tsipras, the Greek prime minister, asked to meet Jean-Claude Juncker on Saturday but was spurned by the European Commission president rankled by the Greek leader’s denunciation of his efforts to broker a bailout deal..

   

  In a fiery speech before the Greek parliament Friday night, Mr Tsipras lashed out, saying he was “unpleasantly surprised” by the offer made by Mr Juncker, calling the proposals “absurd” and “irrational, blackmailing demands”.

   

  “I would like to believe that this proposal was an unfortunate moment for Europe, or at least a bad negotiating trick, and will very soon be withdrawn by the same people who thought it up,” Mr Tsipras told the Greek parliament.

   

  According to a senior official with a Group of Seven delegation, which began gathering in southern Germany on Saturday ahead of a two-day summit of the leaders of the seven leading industrialised powers that begins Sunday, Mr Juncker believed Mr Tsipras’ speech in parliament left little to discuss.

   

  “Unless he seriously addresses the issues, there’s no reason to meet,” said the G7 official..

   

  Mr Juncker’s rejection of a meeting with Mr Tsipras returns the bailout talks to a point of stalemate just a week after creditors believed the talks were making progress for the first time in nearly four months.

   

  Many officials believe a deal to release €7.2bn in desperately-needed bailout aid needs to be reached ahead of a June 18 meeting of eurozone finance ministers so that Athens has enough time to implement an agreed set of economic reforms in order to get the rescue funds before the bailout expires at the end of the month.

   

  Without the €7.2bn in aid, Greece is expected to default on the €1.5bn IMF bill as well as two large sovereign bonds held by the ECB which come due in July and August totalling €6.7bn.

  And here’s Belgium’s finance minister Johan Van OvertveldtJohan Van Overtveldt:

  Greece (1/2) Hard to see what Greek prime minister wants to negotiate about with his partners after flatly rejecting their last proposals.

  — Johan Van Overtveldt (@jvanovertveldt) June 6, 2015

  Greece (2/2) it’s hard to avoid the conclusion that the Greek government does not want to accept the rules that make up a monetary union.

  — Johan Van Overtveldt (@jvanovertveldt) June 6, 2015

  For its part, Greece denies Tsipras requested a meeting and has resorted to what has become Athens’ favorite strategy when things go awry: blame Germany.

  A senior Greek official, however, denied that Mr Tsipras had requested a meeting with Mr Juncker. The official said Greece’s differences now lie with Berlin, not Mr Juncker in Brussels.

  While the hurt feelings will likely give way to reluctant (and painfully repetitive) talks next week, Junker has long been seen as generally receptive to Athens’ position, suggesting that Tsipras may have lost his best friend in his standoff with the troika.

  Meanwhile…

  • GREEK PROPOSAL REMAINS ON THE TABLE, GREEK GOVT OFFICIAL SAYS

  

  

  
  
  

  

• Forget the TPP: Wikileaks Releases Documents From The Equally Shady “Trade in Services Agreement"

  By Mike Krieger of Liberty Blitzkrieg

  Forget the TPP – Wikileaks Releases Documents from the Equally Shady “Trade in Services Agreement,” or TISA

  If it sounds complicated, it is. The important point is that this trade agreement contains a crucial discussion of governments’ abilities to meaningfully protect civil liberties. And it is not being treated as a human rights discussion. It is being framed solely as an economic issue, ignoring the implications for human rights, and it is being held in a classified document that the public is now seeing months after it was negotiated, and only because it was released through WikiLeaks.

   

  The process is also highly secretive—in fact, trade agreement texts are classified. While the executive branch does consult with members of Congress, even congressional staffers with security clearance have until recently been prevented from seeing the texts. Furthermore, certain trade industry advisers are allowed access to U.S. negotiating objectives and negotiators that the public and public interest groups do not have

       – From the Slate article: Privacy Is Not a Barrier to Trade

  

  If you haven’t heard about about the Trade in Services Agreement, aka TISA, don’t worry, you’re not alone. While I had heard of it before, I never read anything substantial about it until today. What sparked my reading interest on the subject were a series of very troubling articles published via several media outlets following a document dump by Wikileaks. Here’s how the whistleblower organization describes the TISA leak on it document release page:

  WikiLeaks releases today 17 secret documents from the ongoing TISA (Trade In Services Agreement) negotiations which cover the United States, the European Union and 23 other countries including Turkey, Mexico, Canada, Australia, Pakistan, Taiwan & Israel — which together comprise two-thirds of global GDP. “Services” now account for nearly 80 per cent of the US and EU economies and even in developing countries like Pakistan account for 53 per cent of the economy. While the proposed Trans-Pacific Partnership (TPP) has become well known in recent months in the United States, the TISA is the larger component of the strategic TPP-TISA-TTIP ‘T-treaty trinity’. All parts of the trinity notably exclude the ‘BRICS’ countries of Brazil, Russia, India, China and South Africa. 

  I’ve covered the extreme dangers of what’s colloquially known as trade “fast track” authority previously. In the post, As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP, I noted:

   

  Passing this corporate giveaway masquerading as a “free trade deal” is a lengthy process; a process that begins today with a Senate vote on Trade Promotion Authority (TPA), also known as “fast track.”  Passing TPA would be Congress agreeing to neuter itself to a yes or no vote on a trade pact and ceding its power to amend it. Even worse, it would give trade deals this expedited process for six years, thus outlasting the current Administration, and applying to other “trade” deals like the TTIP. Mind you, TPA is being voted on while the TPP text remains completely hidden from the public.

  Naturally, “fast track” ultimately passed through the corrupt, rancid body known as the U.S. Senate despite the best efforts of people such as Elizabeth Warren to stop it. As noted in the above paragraph, fast track isn’t just about the TPP, it covers other deals already well in the works such as TTIP and TISA. Makes you wonder whether these other deals are even worse.

  For more information on TISA, let’s turn to the Huffington Post:

  The latest leak purports to include 17 documents from negotiations on the Trade In Services Agreement, a blandly named trade deal that would cover the United States, the European Union and more than 20 other countries. More than 80 percent of the United States economy is in service sectors.

   

  According to the Wikileaks release, TISA, as the deal is known, would take a major step towards deregulating financial industries, and could affect everything from local maritime and air traffic rules to domestic regulations on almost anything if an internationally traded service is involved.

   

  The pact would be one of three enormous deals whose passage through Congress could be eased with passage of Trade Promotion Authority, also known as fast-track authority. The Senate has passed fast-track, and it could be taken up in the House this month.

   

  “Today’s leaks of TISA (trade in services) text reveal once again how dangerous Fast Track Authority is when it comes to protecting citizen rights vs. corporate rights,” he added. “This TISA text again favors privatization over public services, limits governmental action on issues ranging from safety to the environment using trade as a smokescreen to limit citizen rights.”

   

  The Office of the United States Trade Representative and top European officials have repeatedly denied that TISA or the Transatlantic deal would impact local laws, releasing a joint statement to that effect earlier this spring.

   

  Still, the Wikileaks documents suggest that World Trade Organization-style tribunals would be expanded under TISA, and that such tribunals convened to resolve trade disputes can impact local laws. One such WTO tribunal ruled last month that the United States must repeal its laws requiring meat to be labeled with its country of origin, or face punitive tariffs on exports.

  I covered this ruling a couple of weeks ago in the post: Congress Moves to Eliminate Labels Showing Consumers Where Meat Comes from Following WTO Ruling

  Moving along to the UK Independent’s coverage of TISA:

  Wikileaks has warned that governments negotiating a far-reaching global service agreement are ‘surrendering a large part of their global sovereignty’ and exacerbating the social inequality of poorer countries in the process.

   

  The Trade in Services Agreement exposed in a 17 document dump by Wikileaks on Thursday relates to ongoing negotiations to lock market liberalizations into global law.

   

  Under the agreement, retailers like Zara or Marks & Spencers would have the right to open stores in any of the signing countries and be treated like domestic companies. A nationalized service, such as the British telecoms industry in the eighties, would have to ensure it was not harming competition under these terms.

   

  Wikileaks says that corporations would be able to use the law in its current form to hold sway over governments, deciding whether laws promoting culture, protecting the environment or ensuring equal access to services were ‘unnecessarily burdensome’, or whether knowledge of indigenous culture or public services was essential to achieve ‘parity’.

   

  “In other words, unaccountable private ‘trade’ tribunals would decide how countries could regulate activities that are fundamental to social well-being,” Wikileaks said.

  No wonder these deals are being keep so secret. Let’s now turn to Slate, which examined TISA’s potential threat to a human right that is increasingly under attack: personal privacy.

  On Wednesday, WikiLeaks released the draft text of the biggest international agreement you’ve probably never heard of: the Trade in Services Agreement, or TISA. And buried in one of the 12 leaked chapters (which are mostly on things like “air transport services” and “competitive delivery services”) is a volatile and crucial debate about online privacy and the global Internet.

   

  Trade agreements used to focus on things like tariffs, but they aren’t just about trade anymore. They consist of hundreds of chapters of detailed regulations, on subjects ranging from textiles to intellectual property law. TISA purports to promote fair and open global competition in services, thus increasing jobs. (You may have also heard about the Trans-Pacific Partnership, another trade agreement currently being negotiated and criticized. This one’s even more mammoth.) TISA is being negotiated between 23 countries representing some 75 percent of the global services market. Buried in its e-commerce annex are rules that will reshape the relationship between the free flow of information and online privacy.

   

  The Internet is global, but privacy regulations incorporate localized norms. The U.S., for example, protects only some things, like your video-watching history and health information, while the European Union has a comprehensive framework for safeguarding far more information.

   

  But TISA is different. The leaked draft language, proposed by the U.S. and several other countries, states that a government may not prevent a foreign services company “from transferring, [accessing, processing or storing] information, including personal information, within or outside the Party’s territory.” Essentially, this says that privacy protections could be treated as barriers to trade. This language could strike most privacy regulations as they apply to foreign companies—and not just in the EU. It would also apply to U.S. regulation of foreign companies at home. For instance, U.S. health privacy law requires patient consent for health information to be shared. This, technically, is a restriction on transferring information that could be invalidated by TISA, if nothing changes.  

   

  The subject matter TISA covers is already governed by a global agreement called GATS, which has an exception for privacy protections. In other words, privacy protections are explicitly not treated as trade barriers in GATS. The leaked draft language from TISA shows that there is an ongoing debate between countries over whether to create an explicit privacy exception within TISA itself. The result of this debate is hugely important for states that want privacy laws.

   

  If it sounds complicated, it is. The important point is that this trade agreement contains a crucial discussion of governments’ abilities to meaningfully protect civil liberties. And it is not being treated as a human rights discussion. It is being framed solely as an economic issue, ignoring the implications for human rights, and it is being held in a classified document that the public is now seeing months after it was negotiated, and only because it was released through WikiLeaks.

   

  TISA’s contents are not all bad, and protection of an open global Internet through trade could theoretically be a good thing. But these fine points should be openly debated, not bartered away in an enormous agreement that bundles privacy together with maritime transport services.

   

  The process is also highly secretive—in fact, trade agreement texts are classified. While the executive branch does consult with members of Congress, even congressional staffers with security clearance have until recently been prevented from seeing the texts. Furthermore, certain trade industry advisers are allowed access to U.S. negotiating objectives and negotiators that the public and public interest groups do not have.

   

  Trade agreements governing civil liberties (and jobs, and the environment, and public health … ) need to receive meaningful input from the public and its real representatives—not after negotiations are concluded, not through a Congress hampered by excessive executive secrecy, and not through vague negotiating objectives that fail to meaningfully address human rights and other values.

   

  Fast track just passed in the Senate. Senators including Bernie Sanders of Vermont, Elizabeth Warren of Massachusetts, and Sherrod Brown of Ohio tried to stop its passage but narrowly lost. Now, the vote is coming up in the House—maybe as soon as this week. About 2 million Americans have already signed a petition against the legislation. It would be sad indeed if one of the few times Congress decides to actually pass legislation, embrace bipartisanship, and show support of the president is a law that enables states to bargain away citizens’ freedoms behind closed doors.

  Actually, it would’t be sad, it would make perfect sense. As George Carlin so accurately noted:

  

  Finally, from the New Republic:

  On Wednesday, WikiLeaks brought this agreement into the spotlight by releasing 17 key TiSA-related documents, including 11 full chapters under negotiation. Though the outline for this agreement has been in place for nearly a year, these documents were supposed to remain classified for five years after being signed, an example of the secrecy surrounding the agreement, which outstrips even the TPP.

   

  TiSA has been negotiated since 2013, between the United States, the European Union, and 22 other nations, including Canada, Mexico, Australia, Israel, South Korea, Japan, Norway, Switzerland, Turkey, and others scattered across South America and Asia. Overall, 12 of the G20 nations are represented, and negotiations have carefully incorporated practically every advanced economy except for the “BRICS” coalition of emerging markets (which stands for Brazil, Russia, India, China, and South Africa).

   

  The deal would liberalize global trade of services, an expansive definition that encompasses air and maritime transport, package delivery, e-commerce, telecommunications, accountancy, engineering, consulting, health care, private education, financial services and more, covering close to 80 percent of the U.S. economy. Though member parties insist that the agreement would simply stop discrimination against foreign service providers, the text shows that TiSA would restrict how governments can manage their public laws through an effective regulatory cap. It could also dismantle and privatize state-owned enterprises, and turn those services over to the private sector. You begin to sound like the guy hanging out in front of the local food co-op passing around leaflets about One World Government when you talk about TiSA, but it really would clear the way for further corporate domination over sovereign countries and their citizens.

   

  You need to either be a trade lawyer or a very alert reader to know what’s going on. But between the text and a series of analyses released by WikiLeaks, you get a sense for what the countries negotiating TiSA want.

   

  First, they want to limit regulation on service sectors, whether at the national, provincial or local level. The agreement has “standstill” clauses to freeze regulations in place and prevent future rulemaking for professional licensing and qualifications or technical standards. And a companion “ratchet” clause would make any broken trade barrier irreversible.

   

  No restrictions could be placed on foreign investment—corporations could control entire sectors. 

   

  Corporations would get to comment on any new regulatory attempts, and enforce this regulatory straitjacket through a dispute mechanism similar to the investor-state dispute settlement (ISDS) process in other trade agreements, where they could win money equal to “expected future profits” lost through violations of the regulatory cap.

   

  For an example of how this would work, let’s look at financial services. It too has a “standstill” clause, which given the unpredictability of future crises could leave governments helpless to stop a new and dangerous financial innovation. In fact, Switzerland has proposed that all TiSA countries must allow “any new financial service” to enter their market. So-called “prudential regulations” to protect investors or depositors are theoretically allowed, but they must not act contrary to TiSA rules, rendering them somewhat irrelevant.

   

  Most controversially, all financial services suppliers could transfer individual client data out of a TiSA country for processing, regardless of national privacy laws. This free flow of data across borders is true for the e-commerce annex as well; it breaks with thousands of years of precedent on locally kept business records, and has privacy advocates alarmed.

   

  That’s perhaps TiSA’s real goal—to pry open markets, deregulate and privatize services worldwide, even among emerging nations with no input into the agreement. U.S. corporations may benefit from such a structure, as the Chamber of Commerce suggests, but the impact on workers and citizens in America and across the globe is far less clear. Social, cultural, and even public health goals would be sidelined in favor of a regime that puts corporate profits first. It effectively nullifies the role of democratic governments to operate in the best interest of their constituents.

  Basically, if you think the corporate-fascist state is overbearing and oppressive now, you ain’t seen nothing yet.

  

  

  
  
  

  

• Awkward: Day After EPA Finds Fracking Does Not Pollute Water, Top Oil Regulator Resigns Over Water Contamination

  Put this one in the awkward file: just hours after the EPA released yet another massive study (literally, at just under 1000 pages) which found no evidence that fracking led to widespread pollution of drinking water (an outcome welcome by the oil industry and its backers and criticized by environmental groups), the director of the California Department of Conservation,  which oversees the agency that regulates the state’s oil and gas industry, resigned as the culmination of a scandal over the contamination of California’s water supply by fracking wastewater dumping.

  

  An aerial view of pits containing production water from oil wells near California 33 and Lokern Road in Kern County
  

  This is what the allegedly impartial EPA said on Thursday when it released its long awaited study: “we did not find evidence that [hydraulic fracking has] led to widespread, systemic impacts on drinking water resources in the United States.”

  

  Tom Burke, science adviser and deputy assistant administrator of the EPA’s Office of Research and Development, told NPR that “we found the hydraulic fracturing activities in the United States are carried out in a way that has not led to widespread systemic impacts on drinking water resources. In fact, the number of documented impacts to drinking water resources is relatively low when compared to the number of fractured wells.”

  In retrospect the EPA surely wishes it had picked a slightly different time and date to release its “imparial” results because less than 24 hours later on Friday afternoon, Mark Nechodom, director of the California Department of Conservation who was appointed by governor Jerry Brown three years ago, abruptly resigned following an outcry over oil companies injecting their wastewater into Central Valley aquifers that were supposed to be protected by law.

  As LA Times reports, Nechodom “was named this week in a federal lawsuit filed on behalf of a group of Kern County farmers who allege that Brown, the oil and gas division and others conspired with oil companies to allow the illegal injections and to create a more lax regulatory environment for energy firms.”

  The lawsuit was filed under federal racketeering statutes and claims the conspiracy deprived Kern County farmers of access to clean water.

  According to SF Gate, Nechodom announced his resignation in a brief letter to John Laird, secretary of the California Natural Resources Agency. The Conservation Department is part of the resources agency. “I have appreciated being part of this team and helping to guide it through a difficult time,” Nechodom wrote

  Ironically, California’s oil regulator, the Division of Oil, Gas and Geothermal Resources, has been facing scrutiny from the U.S. Environmental Protection Agency after allowing oil producers to drill thousands of oilfield wastewater disposal wells into federally protected aquifers.

  It was not immediately clear if the oil companies which commissioned the EPA study “clearing” fracking are also charged in the wastewater dumping case but the answer is “probably.”

  Attorney Rex Parris, whose firm filed the lawsuit, said in a written statement Friday that the case alleges a broad and complex conspiracy involving other officials.“We are not surprised that Nechodom resigned a day after the filing of this lawsuit,” Parris said. “We are confident he is just one of many resignations to come.”

  In one tense hearing before lawmakers in March, Nechodom received a barrage of criticism from elected officials who recited one oversight failure after another. Nechodom sat stone-faced during the hearing, but eventually agreed, saying, “We all fell down.”

  It gets better:

  Nechodom’s resignation was unexpected, although he had increasingly been called upon by state officials to explain problems in the oil and gas division’s oversight of the oil industry and a parade of embarrassing blunders.

   

  The Department of Conservation failed to meet an April 30 deadline for making public a broad range of information regarding the source, volume and disposal of water used in oil and gas production.

  The punchline: “Nechodom blamed the reporting failure on “unforeseeable personnel and technical challenges.” Well at least he did not blame an “internal procedural error“, the passive voice excuse used by the ECB when it was revealed it had leaked critical details of its monetary policy to a select group of hedge funds.

  So how does one reconcile the seeming contradiction between Nechodom’s fall from grace and the fact that quite clearly, fracking has had a drastic impact on the quality of drinking water in California, with the EPA’s finding which bombastically states the following:

  This state-of-the-science assessment contributes to the understanding of the potential impacts of hydraulic fracturing on drinking water resources and the factors that may influence those impacts. The findings in this assessment can be used by federal, state, tribal, and local officials; industry; and the public to better understand and address any vulnerabilities of drinking water resources to hydraulic fracturing activities.

  In other words, use the “state-of-the-science” findings” to demolish all allegations that the oil industry may not have the public interest in mind… just ignore the farce that took place one day later with the director California Department of Conservation.

  But how is this possible? For the answer we go to a recent letter by the editor in chief of The Lancet, one of the world’s best known medical journals, who without fear proclaims what many have known intuitively most of their adult lives, namely that half of all “scientific literature” is false. To wit:

  “The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue. Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness.”

  In other words, half of what you read anywhere, especially in “scientific” literature, is a lie.

  Which brings us to the last line of the EPA executive summary: “This assessment can also be used to help facilitate and inform dialogue among interested stakeholders, and support future efforts, including: providing context to site-specific exposure or risk assessments, local and regional public health assessments, and assessments of cumulative impacts of hydraulic fracturing on drinking water resources over time or over defined geographic areas of interest. Finally, and most importantly, this assessment advances the scientific basis for decisions by federal, state, tribal, and local officials, industry, and the public, on how best to protect drinking water resources now and in the future.”

  Great job. The only thing left missing is the disclosure of how many billions in “donations” and “lobby spending” it took the oil industry for the EPA to goalseek the findings of this “impartial, scientific” organization.

  

  

  
  
  

  

• Table 9

  Submitted by Jim Quinn of The Burning Platform

  Table 9

  It seems the mainstream media is giddy with excitement over the 280,000 jobs supposedly created in May. The markets aren’t so happy, as good news is actually bad news. What excuse will Yellen and her fellow Wall Street puppets at the Federal Reserve use to not increase interest rates from emergency levels of 0.25%? The ten year Treasury rate immediately skyrocketed to 2.43% in seconds. It was at 1.64% in February. That’s a 46% decline in price in four months. Do you still think bonds are a safe investment? Guess what is tied to the 10 Year Treasury rate? Mortgage rates. There goes the fake housing recovery. Artificially high prices, higher mortgage rates, and young people unable to buy sounds like a perfect recipe for collapse.

  The MSM is cackling about the 280,000 new jobs, but you won’t hear them mentioning that the number of unemployed people went up by 125,000 as 208,000 people the BLS classified as not in the labor force last month decided they were in the labor force this month. What a crock. At least 20 million of the 93 million classified as not in the labor force can or will work, therefore they are unemployed.

  One month does not make a recovery. Let’s see what the YTD numbers show:

  • Since January, 594,000 more Americans are employed, an average of 149k per month. Considering the working age population has gone up by 732,000 since January, why is anyone crowing?
  • The BLS drones actually expect you to believe the unemployment rate has fallen from 5.7% in January to 5.5% today, because 442,000 Americans decided to voluntarily exit the labor force. That’s a hoot.

  The really good stuff is buried in Table A-9 of the BLS data dump. See for yourself:

   

  http://www.bls.gov/news.release/empsit.t09.htm

  As the MSM hacks and government apparatchiks try to convince you the jobs market is booming, Table A-9 tells a different story. Here is what is revealed:

  • The number of working age Americans went up by 2.8 million in the last year, or 236k per month. The number of new jobs must average 236k per month just to stay even. In the last year the economy added 2.9 million jobs, slightly above the workforce growth, but the BLS expects you to believe the unemployment rate plunged from 6.3% to 5.5%. Hilarious!!!
  • It’s the breakdown of jobs by age that really screams out. It is a known fact that people in the 45 to 54 age bracket are in their prime earning and spending years. In the last year the number of employed 45 to 54 year olds has DECLINED by 67,000. It DECLINED in May by 51,000. It has DECLINED by 187,000 since February.
  • It is a known fact that people over 55 dramatically reduce their spending as they approach and enter their retirement years. The Boomers have added 824,000 jobs in the last year, or 28% of all the new jobs added.
  • Only 117,000 jobs were added in the 35 to 44 year old bracket in the last year. So the age brackets that do the most spending in the country (35 to 54) have a net increase of 50k jobs in the last year. That is 1.7% of the total jobs added.
  • The remainder of the new low paying jobs are going to young people who are in debt up to their eyeballs. Now you should understand why there is no real recovery. The people who normally spend the most aren’t getting jobs. The people who don’t spend or can’t spend are getting the bulk of the low paying service jobs.

  

  • Of the 2.9 new jobs created in the last year, guess how many are classified as self-employment jobs? How about 935,000. That’s right. Your new job selling shit on Ebay or cutting three lawns per week is counted as a new job by the BLS drones. What a load of bull.
  • There are also 7 million people who hold multiple jobs. That is a sure sign of economic progress.
  • Almost 300k of the new jobs added in the last year were part-time shit jobs. 205k of the 464k jobs added since March are part-time jobs.

  Sorry to be a buzzkill, but today’s jobs numbers are not great. The job market sucks. Wages suck. The BLS will lie and obfuscate until morale improves. The MSM will regurgitate the lies. So it goes.

  

  

  
  
  

  

• In Major Escalation, Yemen Rebels Fire Scud Missile Into Saudi Arabia

  Just two days after reports indicated that Yemen’s Iran-backed Houthi rebels were prepared to participate in UN-brokered peace talks with Abd Rabbuh Mansur Hadi’s government in exile, clashes on the Saudi border have intensified. 

  On Friday, the Saudi press agency said it had used Apache helicopters and artillery to repel a Houthi-led advance, killing “dozens” of militants. Four Saudis were also killed. 

  Meanwhile, Riyadh stepped up airstrikes around the Yemeni capital targeting what the Saudis say were arms depots. The Houthis, however, say the aerial bombardment is inflicting untold civilian casualties, mostly women and children. Here’s Reuters:

  Coalition Arab bombings killed around 58 people across Yemen on Wednesday and Thursday, the state news agency Saba, controlled by the Houthis, said.

   

  48 people, most of them women and children, were killed in air strikes on their houses in the Houthi heartland in the rural far north adjoining Saudi Arabia.

   

  The reports could not be independently verified.

  On Saturday, Riyadh claimed the Houthis, in concert with forces loyal to former President Ali Abdullah Saleh, fired a scud missile at Saudi Arabia for the first time.

  The scud, which apparently targeted the city of Khamis Mushait in southwest Saudi Arabia, was intercepted by two Patriot missiles. “At 2:45am on Saturday morning, the Houthi militias and ousted [president] Ali Abdullah Saleh launched a Scud missile in the direction of Khamees al-Mushait, and praise be to God, the Royal Saudi air defences blocked it with a Patriot missile,” a statement said. 

  Khamis Mushait is home to the US-desiged and constructed King Khalid Air Force base, from which airstrikes on Houthi positions have been launched throughout the conflict.

  

  

  (King Khalid Air Force Base)

  Friday’s attack by Abdullah Saleh’s Republican Guard and the Houthis in the Jizan province was billed as the largest “offensive” mounted by the rebels since the onset of hostilities months ago. The fighting reportedly began when rebels fired rockets at Saudi positions and promptly ended when the Saudi army called in air support from Apache gunships.

  

  (a rebel fires on Saudi positions near the border)

  

  Note that this latest escalation comes a month and a half after Saudi Arabia declared a George Bush-style “mission accomplished”-type end to operation Decisive Storm, claiming the ‘coalition’ airstrikes had “successfully eliminated the threat to the security of Saudi Arabia.” 

  The declaration looks to have been a bit premature. 

  The Houthis are scheduled to attend peace talks in Geneva on June 14. That is unless the Saudis launch a ground invasion in the interim. 

  

  

  
  
  

  

• California Begins To Rip Up Lawns Because "The Whole Damn State [Is] Out Of Water"

  In early May, California’s water regulators backed a series of emergency measures proposed in an Executive Order issued by Governor Jerry Brown. The extraordinary conservation effort comes amid a historic drought, that some climatologists say will reach “Dust Bowl” proportions before all is said and done. 

  Recapping, the order called for a 25% reduction in overall water usage beginning on June 1 — so, last Monday. The state reduced its consumption by 13.5% in April (compared to 2013), suggesting residents will need to redouble their efforts if Brown’s targets are to prove realistic. While some communities have attempted to cast conservation as the “cool” thing to do, other localities say that in the absence of significant financial resources, the cuts simply aren’t feasible. AP has more:

  April’s best conservers included Santa Rosa, a city of 170,000 people north of San Francisco, which reported a 32 percent drop in April compared to the same month in 2013. The city offered a host of programs to achieve savings such as paying residents to reduce 52 football fields’ worth of lawn and giving away 50,000 low-flush toilets since 2007.

   

  Saved water “is the cheapest water you can find,” said David Guhin, water director for Santa Rosa. “It’s gotten to where lawns are uncool.”

   

  Cool or no, many communities are still falling far short.

   

  “Fifty-thousand toilets? Really? We don’t have that kind of money,” said Alan Tandy, city manager of Bakersfield, where water use increased by 1 percent in the latest state tally.

  If Tandy thinks he doesn’t have money to throw ‘down the toilet’ (so to speak) now, things could get materially worse if Bakersfield (which, as a side note, has a deal with Chevron to distribute water generated from fracking to local farmers) is unable to hit state-mandated targets. Here’s AP again:

  Starting this month, each community has a mandatory water reduction target, with some ordered to cut back as much as 36 percent.

   

  Water districts missing their targets face potential fines of up to $10,000 a day once June numbers are in, although a far more likely outcome will be state-ordered changes in local regulations, like toughening limits on lawn-watering.

  Of course one way to ensure that Californians cut back on watering their lawns is to simply encourage households to remove the grass altogether and replace it with something that needs far less water — like rocks.

  As The Guardian reports, grass has no real place in California anyway and is only present because Californians have never had to live without it and because the state’s citizens exhibit a peculiar nostalgia for the time they spent as British monarchs.

  Via The Guardian:

  There is pressure to take things one step further and turn to lawns. More precisely, to the ripping out of them.

   

  In his executive order, Brown called for the replacement of 50m sq ft of lawns with “drought-tolerant landscapes”, a goal to be achieved with the help of local subsidies and partial funding from the state’s water department.

   

  “Over 50% of household water usage is outdoors,” said Stephanie Pincetl, a professor and director of the California Center for Sustainable Communities at University of California, Los Angeles.

   

  California’s love for lawns is wholly unsuited to the state’s dry climate, Pincetl said, describing the attachment as an “inherited historic aesthetic” that comes straight out of the British Empire.

   

  “Turf serves no functional purpose other than it looks good,” said Bob Muir of the Metropolitan Water District of Southern California (MWDSC), which provides water to nearly 19 million Californians.

   

  The MWDSC recently voted to increase its conservation programme to a whopping $450m over two years, with money taking the form of rebates on turf removal operations and incentives on efficient faucets.

  Californians are taking the leap by the tens of thousands. Almost one year into that two-year period, Muir said, half of the money already spent (around $44m out of $88m) has been allocated to residents and businesses undertaking turf removal.

  Replacing one’s lawn with rocks and cacti has become so popular that it’s spawned a growth industry.

  Turf Terminators, a Los Angeles-based company created last July, has ripped up 5,000 lawns in less than a year, according to its head of business development, Andrew Farrell. The company started with three employees. It now has 565 full-timers.

   

  But even with help from a turf-terminating team from design to completion, ripping up your lawn is expensive.

  
  

  In Los Angeles, if you combine two separate subsidies from the city ($1.75 per sq ft), and the MWDSC ($2 per sq ft), you will most likely still have to put in some cash of your own.

  
  

  According to Farrell, the average turf-removal job costs between $5 and $8 per sq ft. This means someone on a budget with a modest front yard of 400 sq ft would still have to pay $500 out of their own pocket for a $2,000 operation, if they went for one of the cheaper options.

  
  

   

  If they wanted to go for something slightly more elaborate, the same resident would have to put in $1,700 of their own money for a $3,200 operation.

  In fact, Terf Terminators advertises the fact that you may be able to have your lawn dug up for free, by simply signing over your “water rebate” (taxpayer-funded grass removal subsidy) to the company. Here’s how it works (from the official Terf Terminators website):

  Here’s how Turf Terminators can afford to offer its services for free:

  • Turf Terminators has consulted regional, municipal, and local water authorities, including utilities and state agencies to understand various turf removal rebate programs offered in Southern California.
  • Turf Terminators utilizes water rebates from state water authorities that are offered per square foot of turf that is removed and replaced.
  • Customers assign their rights to state-offered water rebates over to Turf Terminators.
  • Turf Terminators’ contractors transform customers’ lawns and campuses while abiding by certain landscape requirements dictated by state, municipal and local authorities.
  • Turf Terminators’ in-house laborers, relationships with local nurseries and suppliers and access to wholesale prices allow it to provide landscaping services at a low cost.
  • Government water rebates cover the cost of Turf Terminators’ services, which it provides WITHOUT CHARGING ITS CUSTOMERS ANYTHING.

  

   

  \

   

  And while Turf Terminators and its nearly 600 new full-time employees (including, we assume, the guy in the raindrop suit shown above) tear up lawns, and while residents skimp on showers, the state’s lawmakers are doing what lawmakers in the US do best: nothing. 

  Via LA Times:

  Farrmers have watched fields turn fallow. Residents have skipped showers and ripped up lawns. But four years into California’s epic drought, Congress is status quo: gridlocked.

   

  The state’s splintered congressional delegation — despite its size and influence — has been stymied by fundamental disagreements over the causes of the drought and the role of the federal government in mitigating its consequences.

   

  If anything, recent fights have only hardened positions, with both sides questioning each other’s motives.

  Ultimately, the state now hopes Senator Dianne Feinstein can help to break the stalemate. We’ll leave you with the following, from Congressman Devin Nunes:

  “If they don’t do something soon they’re going to get the whole damn state out of water.”

   

  *  *  *

  4.1.15 Executive Order

  

  

  
  
  

  

• America, The Ponzi Scheme: A Commencement Speech For The Scammed

  By Tom Engelhardt of Tom’s Dipstach

  

  Going for Broke in Ponzi Scheme Americ:  You’ve Been Scammed!

  It couldn’t be a sunnier, more beautiful day to exit your lives — or enter them — depending on how you care to look at it. After all, here you are four years later in your graduation togs with your parents looking on, waiting to celebrate. The question is: Celebrate what exactly?

  In possibly the last graduation speech of 2015, I know I should begin by praising your grit, your essential character, your determination to get this far. But today, it’s money, not character, that’s on my mind. For so many of you, I suspect, your education has been a classic scam and you’re not even attending a “for profit” college — an institution of higher learning, that is, officially set up to take you for a ride.

  Maybe this is the moment, then, to begin your actual education by looking back and asking yourself what you should really have learned on this campus and what you should expect in the scams — I mean, years — to come. Many of you — those whose parents didn’t have money — undoubtedly entered these stately grounds four years ago in relatively straitened circumstances.  In an America in which corporate profits have risen impressively, it’s been springtime for billionaires, but when it comes to ordinary Americans, wages have been relatively stagnant, jobs (the good ones, anyway) generally in flight, and times not exactly of the best.  Here was a figure that recently caught my eye, speaking of the world you’re about to step into: in 2014, the average CEO received 373 times the compensation of the average worker.  Three and a half decades ago, that number was a significant but not awe-inspiring 42 times.

  Still, you probably arrived here eager and not yet in debt. Today, we know that the class that preceded you was the most indebted in the history of higher education, and you’ll surely break that “record.” And no wonder, with college tuitions still rising wildly (up 1,120% since 1978).  Judging by last year’s numbers, about 70% of you had to take out loans simply to make it through here, to educate yourself.  That figure was a more modest 45% two decades ago.  On average, you will have rung up least $33,000 in debt and for some of you the numbers will be much higher.  That, by the way, is more than double what it was those same two decades ago.

  We have some sense of how this kind of debt plays out in the years to come and the news isn’t good. Those of you with major school debts will be weighed down in all sorts of ways. You’ll find yourselves using your credit cards more than graduates without such debt.  You’ll be less likely to buy a home in the future.  A few decades from now, you’ll have accumulated significantly less wealth than your unindebted peers. In other words, a striking percentage of you will leave this campus in the kind of financial hole that — given the job market of 2015 — you may have a problem making your way out of.

  For those who took a foreign language in your college years, in translation you’ve paid stunning sums you didn’t have to leave yourself, like any foreclosed property, underwater. Worse yet, for those of you who dream of being future doctors, lawyers, financial wizards, architects, or English professors (if there are any of those anymore), that’s only the beginning. You’ll still have to pay exorbitantly for years of graduate school or professional training, which means ever more debt to come.

  Does this really sound like an education to you or does it sound more like a Ponzi scheme, like you’ve been scammed?

  Do I understand how all this works?  No.  I’m no expert on the subject.  What anyone should be able to see, however, is that the promise of higher education has, in this century, sunk low indeed and that what your generation has been learning how to endure while still in school is a form of peonage.  I’d binge drink, too, under the circumstances!

  Nobody feels good when they’ve been scammed, but at least you’re not alone on this great campus in needing to reassess what higher education means.  Many of your teachers turned out to be untenured part-timers, getting pitiful salaries.  They, too, were being scammed.  And even some of their esteemed tenured colleagues (as I know from friends of mine) are remarkably deep in the Ponzi pits.  It turns out that, as government money flowing onto campus has dried up, the pressure on some of those eminent professors, particularly in graduate programs, to essentially raise their own salaries has only been rising — a very highbrow version of peonage.  They increasingly need patrons, which generally means “friendly” corporations.  Talk about a scam!

  Demobilizing You

  Many of you undoubtedly think that your education is now over and it’s time to enter the “real world.”  I have news for you: you’ve been in that world for the last four years, hence the debt you’re dragging around behind you.  So, on a day when the sun’s in your eyes and it couldn’t be more apparent that the world’s not what you’ve been told it was, maybe you should apply the principles of the scam artist to the world you’re about to enter.  Unless you do so, you’ll simply be scammed again in the next phase of your life.

  Like the rest of us, presidents and politicians of every stripe have regularly told you that you belong to the one “indispensible” nation on the planet, a country “exceptional” in every way.  As a college-educated American, you’ve similarly been assured of how important you’ll be to that exceptional land.

  Get over it.  You’re going to find yourself living in an ever greyer, grimmer country — if you don’t believe me, check out the government’s unwillingness to fund essential infrastructure maintenance — to which you will be remarkably irrelevant.  And if the political elite, the plutocratic class, and the national security state have anything to do with it, in the future you’ll become ever more so.  In other words, you are to be relegated to the sidelines of what now passes for American life.

  Behind this reality, there’s a history.  Since the Vietnam era, the urge to demobilize Americans, to put them out to pasture, to stop them from interfering in the running of “their” country has only grown stronger.  When it comes to the military, for instance, the draft was sent to the trash bin of history in 1973 and most Americans were long ago demobilized by the arrival of an “all volunteer” force.  So, today, you have no obligation whatsoever to be part of that military, to serve in what is no longer, in the traditional sense, a citizen’s army.

  If that military isn’t really yours, the wars it’s been fighting since the dawn of the twenty-first century haven’t been your wars either, nor — despite the responsibility the Constitution reserves to Congress for declaring war — have they been that body’s.  Congress still has to pony up sums so extravagant for what’s charmingly called “defense” that the military budgets of the next seven countries combined don’t equal them.  It has, however, little genuine say about what wars are fought. Even when, as with the Islamic State, it is offered the modest opportunity to pass a new authorization for a war already long underway, its representatives, like most Americans, now prefer to remain on the sidelines.  In the meantime, the White House runs its own drone assassination campaigns via the CIA without anyone else’s say-so, while secretive paramilitaries and a secret military — the Special Operations forces — cocooned inside the larger military and growing like mad have changed the face of American war and it’s none of your business.

  Your role in all this is modest indeed: to pay as little attention as you want, endlessly thank the troops for their “service” when you run across them at airports or elsewhere, and leave it at that.  Of course, given the sums, verging on a trillion dollars a year, that “we” now put into the U.S. military and related national security outfits, and given our endless wars, conflicts, raids, and secret operations, that military does at least provide some job opportunities, though it has its own version of job flight — to so-called private contractors (once known as “mercenaries”).

  And if you think it’s only the military from which you’ve been demobilized, think again.  In these last years, so much of what the American government does has been swallowed up in a blanket of heavily enforced secrecy and fierce prosecutions of whistleblowers.  An expanding national security state, accountable neither to you nor to the legal system, has proven eager indeed to surveil your life, but not be seen by you.  In growing realms, that is, what once would have been called “the people’s business” is no longer your business.

  Your role, such as it is, is to get out of the way of the real players.  As with the military, so with that national security state: Americans are to thank its officials and operatives for their service and otherwise, for their own “safety,” remain blissfully ignorant of whatever “their” government does, unless that government chooses to tell them about it.

  The Corruption Sweepstakes

  It hardly needs to be said that this isn’t the normal definition of a working democracy or, for that matter, of citizenship.  Other than casting a vote every now and then, you are to know next to nothing about what your government does in your name.  And speaking of that vote, you’re being sidelined there, too, and buried in an avalanche of money.  Admittedly, in the media campaign season that now goes on non-stop from one election to the next, sooner or later you can still enter a polling place, if you care to, and cast your ballot.  Otherwise step aside.  These days, the first primary season or “Koch primary” is no longer for voters at all.  Instead, prospective candidates audition for the blessings and cash of plutocrats.

  Just how the vast sums of money flooding into American politics do their dirty work may not matter that much.  Specific contributions from the .01%, enacting their version of trickle-down politics, may not even elect specific candidates.  What matters most is the deluge itself.  These days in the American political system, money quite literally talks (especially on TV).  Via ads, it screams.  In the 2016 election season in which an unprecedented $10 billion is expected to be spent and just about every candidate will need his or her “sugar daddies,” the politicians will begin to resemble you; that is, they will find themselves dragging around previously unheard of debts to various plutocrats, industries, and deep pockets of every sort for the rest of their careers.

  Take just two recent examples of the new politics of money.  As the New York Times reported recently, Florida Senator Marco Rubio has been supported by a single billionaire auto dealer, Norman Braman, for his entire political career.  Braman hired him as a lawyer, hired his wife as a consultant to a family foundation, financed his legislative agenda, helped cover his salary at a local college, helped him right his personal finances and deal with his debt load, and is now about to put millions of dollars into his presidential campaign.  Rubio, as the article indicates, has returned the favor.  Though no one would write such a thing, this makes the senator quite literally a “kept” candidate.  Other plutocrats like the Koch brothers and their network of investors, reputedly ready to drop almost a billion dollars into the 2016 campaign, have been more profligate in spreading around their support and favors.

  Now, jump across the political aisle and consider Hillary Clinton.  As the Washington Post reported recently, she received a payment from eBay of $315,000 for a 20-minute talk at a “summit” that tech company sponsored on women in the workplace.  Over the last 16 months, in fact, she and her husband have raked in more than $25 million for such talks.  Hillary’s speeches pulled in $3.2 million from the tech sector alone, which she’s now pursuing for more direct contributions to her presidential campaign.  “Less than two months [after the eBay summit],” the Post added, “Clinton was feted at the San Francisco Bay-area home of eBay chief executive John Donahoe and his wife, Eileen, for one of the first fundraisers supporting Clinton’s newly announced presidential campaign.”

  Say no more, right?  I mean, it’s obvious that no one pays such sums for words (of all things!), not without ulterior motives.  No deal has to have been made.  No direct or even indirect exchange of promises is necessary.  On the face of it, there is a word for such fees, as for Rubio’s relationship with Braman, as for the investor primaries of the new election season, as for so much else that involves “dark money” and goes to the heart of the present political process.  It’s just not a word normally used about our politicians or our system, not by polite pundits and journalists.  If we were in Kabul or Baghdad, not Washington or Los Angeles, we would know just what that word was and we wouldn’t hesitate to use it: corruption.

  The Un-Kept Americans

  We are, it seems, enmeshed in a new hybrid system, which fits the Constitution, the classic tripartite separation of powers, and the idea of democracy increasingly poorly. We have neither an adequate name for it, nor an adequate language to describe it. I’m talking here about the “real world” in which, at least in the old-fashioned American sense, you will no longer be a “citizen” of a functioning “democracy.”

  As that system, awash in plutocratic contributions to politics and taxpayer contributions to the military-industrial-homeland-security complex, morphs into something else, so will you, whether you realize it or not.  Though never thought of as such, your debt is part of the same system.  A society that programmatically trains its young into debt and calls that “higher education” is as corrupt as a wealthy country that won’t rebuild its own infrastructure.  Talk about the hollowing out of America: you are it.  No matter how substantial you may be in private, you are being impersonally emptied in what passes for the real world.

  If Marco Rubio and Hillary Clinton are kept politicians, then you are un-kept Americans.  You are the ones that no one felt it worth giving money to, only taking money from.

  Being on the sidelines, it turns out, is an expensive affair.  The question is: What are you going to do so that you aren’t there, and in debt, forever?

  Of course, there’s a simple answer to this question.  Think of it as the Rubio Solution.  You could each try to find your own billionaire.  But given the numbers involved and what you don’t have to offer in return, that seems an unlikely option.  Or, if you don’t want the version of higher education you experienced to morph into the rest of your lives, you — your generation, that is — could decide to stop thanking others for their “service” and leave those sidelines.

  They’re counting on you not to serve.  They assume that you’ll just stay where you are and take it, while they fleece the rest of us.  If instead you were to start thinking about how to head for the actual playing fields of America, I guarantee one thing: you’d screw them up royally.

  As you form into your processional now to exit this campus, let me just add: don’t underestimate the surprises the future has in store for all of us.  The people who sidelined you aren’t half as good at what they do as they think they are.  In so many ways, in fact, they’re a crew of bumblers.  They have no more purchase on what the future holds than you do.

  You’ve proved in these years that you can get by despite lousy odds.  You’ve lived a life to which no one (other than perhaps your hard-pressed parents) has made a contribution.  You’re readier than you imagine to take our future into your hands and make something of it.  You’re ready to become actual citizens of a future democracy.  Go for broke!

  Tom Engelhardt is a co-founder of the American Empire Project and the author of The United States of Fear as well as a history of the Cold War, The End of Victory Culture. He is a fellow of the Nation Institute and runs TomDispatch.com. His latest book is Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.  This graduation speech was given only on the campus of his mind.

  

  

  
  
  

  

• The "Illegal Immigrant" Recovery? The Real Stunner In The Jobs Report

  Traditionally, when it comes to job numbers reported by the BLS’s Establishment (the source of the monthly nonfarm payrolls change) and Household (the source of the monthly unemployment rate data) surveys, there is a substantial discrepancy. However, in May’s far stronger than expected report, the two for the first time were almost identical: the Establishment Survey reported an increase of 280K jobs, while according to the Household survey 272K jobs were added.

  Impressive numbers in a month in which only 215K jobs were expected to be added.

  There were the usual kinks, of course. Two thirds of all jobs, according to the Establishment survey, were low-paying, low-quality jobs, primarily teachers, retail, temp help and waiters (something even CNBC has been forced to acknowledge):

  

   

  This has been the case throughout the recovery, and helps explain why while wage growth while barely rising for all workers, remains depressed and even negative inr eal terms for production and non-supervisory workers, which account for 83% of all US employment.

  

   

  There were other curiosities: the vast majority of jobs added in May, over 200K, were in the 20-24 age group, and the number of self-employed workers mysteriously soared by 350K to 10 million.

  But the biggest surprise came from Table 7, where the BLS reveals the number of “foreign born workers” used in the Household survey. In May, this number increased to 25.098 million, the second highest in history, a monthly jump of 279K.

  

   

  Assuming, the Household and Establishment surveys were congruent, this would mean that there was just 1K native-born workers added in May of the total 280K jobs added.

  Alternatively, assuming the series, which is not seasonally adjusted, was indicative of seasonally adjusted data, then the 272K increase in total Household Survey civilian employment in May would imply a decline of 7K native-born workers offset by the increase of 279K “foreign borns.”

  But while all of these comparisons are apples to oranges, using the BLS’ own Native-Born series, also presented on an unadjusted basis, we find the following stunner: since the start of the Second Great Depression, the US has added 2.3 million “foreign-born” workers, offset by just 727K “native-born”.

  

   

  This means that the “recovery” has almost entirely benefited foreign-born workers, to the tune fo 3 to 1 relative to native-born Americans!

  

   

  How does the BLS determine a foreign-born worker? This is its definition:

  The foreign born are persons who reside in the United States but who were born outside the country or one of its outlying areas to parents who were not U.S. citizens. The foreign born include legally-admitted immigrants, refugees, temporary residents such as students and temporary workers, and undocumented immigrants. The survey data, however, do not separately identify the numbers of persons in these categories.

  In other words, the “foreign-born” catogory includes both legal and illegal immigrants unfortunately, the BLS is unable, or unwilling, to distinguish between the two.

  As a result, it may well be, that the surprise answer why America’s labor productivity (which recently posted its worst 6 month stretch in 22 years) has plummeted in recent years and certainly months, confounding economists who are unable to explain why “solid” labor growth does not translate into just as solid GDP growth…

  

   

  … and why wage growth has gone precisely nowhere, is because the vast majority of all jobs since December 2007, or 75% to be specific, have gone to foreign-born workers, a verifiable fact. What is unknown is how many of these millions of “foreign-born” jobs have gone to illegal immigrant who are perfectly willing to work hard, and yet whose wage bargaining power is absolutely nil (after all they are happy just to have a job) thereby leading to depressed wages for native-born workers in comparable jobs, resulting in wage growth which over the past 8 years has been non-existant.

  

  Incidentally, this is the same lack of wage growth which has allowed the Fed to pump some $4 trillion into the stock market. Because far more than merely a domestic politics issues, the lack of wage growth and downstream inflation, is precisely what has permitted the Fed to maintain QE as long as it has.

  In other words, how many illegal workers cross the US border, may be the biggest variable shaping US monetary polic at the moment! And, in thought-experiment land, the more porous US immigration policy the longer the Fed will be allowed to maintain its ZIRP/QE experiment, and the higher the S&P will rise.
  

  Could it be that illegal immigration is the best friend of that 0.1% of the US population which has benefited exclusively from the Fed’s relentless injection of liquidity into risk assets via either ZIRP of QE?

  Note: this article is not meant to side on either side of the illegal immigration debate: the upcoming presidential elections will do enough of that. It merely seeks to fill a gaping hole in economist models which are unable to explain or rationalize why America’s seemingly “booming” jobs recovery, which is “firing on all fours” according to the BLS, is not manifesting itself in either inflationary pressures, or broad economic productivity.

  Source: Native-born workers; Foreign-born workers

  

  

  
  
  

  

• Capital Controls Explained: Argentina Edition

  By Simon Black of Sovereign Man

  Capital Controls Explained: Argentina Edition

  If there’s one thing I love about Argentina, it’s that no rational person here trusts the government.

  They’ve been screwed over so many times before by their politicians (and the banking system), they know it’s all lies.

  Curiously it keeps happening.

  This place has been enduring some of the worst measures imaginable– capital controls and exchange controls. Price controls. Media controls.

  The government controls nearly every aspect of the economy; in fact, Argentine President Cristina Fernandez de Kirchner actually told her nation on Wednesday that without the state there would be no growth.

  (Amazingly she followed that up with “No one can teach us how to make the economy grow.”)

  Yet despite being admittedly clueless, Cristina campaigns for even more government control, and even more authority.

  This is so typical of bankrupt nations.

  When governments find themselves in financial trouble because of the stupid decisions that they’ve made, their first response is to award themselves even more power to make even stupider decisions.

  And among the stupidest decisions that any government can make is imposing capital controls… something that Argentina has in abundance.

  Capital controls are like the Matrix; you can’t really explain what they are. You have to show people. Argentina does not disappoint.

  For years now, the government has heavily restricted the flow of funds out of the country.

  It’s actually a criminal offense to leave the territory with more than 10,000 USD in cash.

  Transferring money out of the country through the banking system requires significant paperwork.

  One of the first things they’ll do is bounce your funds transfer request to the tax office so that the government can ensure they’ve taken their fair share of your savings.

  Then, whatever funds are allowed to leave must be transferred at the official exchange rate, which is presently about 30% worse than the street rate (what they call the ‘blue rate’).

  This means that on top of already soaring inflation, taxes, and tariffs, locals are effectively paying 30% more for goods and services, especially anything that’s imported.

  For foreigners who don’t earn their money in pesos, Argentina is an attractive bargain. But for the average guy on the street here, life is painfully expensive. And it gets worse.

  That’s what happens with capital controls: you see a rapid decline in your standard of living as the government traps your savings in a bankrupt system.

  It’s like lying on the ground with a blindfold on while the government builds a coffin all around you.

  Little by little they fasten together all the sides, and then the top, nail by nail.

  You can’t see precisely what’s happening. But your senses tell you that something’s going on. And if you wait too long to get out of there, you’ll be trapped.

  Capital controls are like a coffin for your savings.

  And if you wait too long to at least move a portion of your money somewhere else, everything you’ve ever worked to achieve can be trapped and heavily devalued.

  The people here who have done well in Argentina’s never-ending financial crisis are the ones who established accounts abroad and moved money while they still had the chance.

  (Coincidentally one of the trending jurisdictions for Argentines to hold their money these days is Hong Kong.)

  Argentina is not alone– this is the path that nearly every bankrupt nation ends up following. Greece (and other nations in Europe) are already going down this road.

  It would be foolish to think that any government with an unsustainably high (and growing) debt level would fare any better.

  Argentina wasn’t always this way. It used to be one of the wealthiest in the world.

  But it’s an important reminder that no country– no matter how rich its economy or how large it’s military is today– is immune to the universal law of prosperity.

  Just like regular people, governments and nations must produce more than they consume. Those who don’t will run into trouble.

  They can delay. They can deceive. But they can never avoid the decline.

  

  

  
  
  

  

• "Einstein" Fooled By "Chinese" Hackers In Massive Government Data Breach

  On Friday, Beijing responded to allegations from Washington that China was responsible for a cyberattack on the US Office of Personnel Management that compromised the personal data of some 4 million government employees. 

  The accusations, China’s foreign ministry said, are “irresponsible” and “groundless.” 

  The OPM breach is the latest in a string of cyber ‘incidents’ that have coincidentally occurred in the wake of the Pentagon’s new cyber strategy. Here’s a recap:

  Since the announcement by Defense Secretary Ash Carter, the following cyber ‘events have occurred’: Penn State reports hackers have been stealing data from the university’s DoD-affiliated engineering department for years (blamed on Chinese hacker spies), the IRS says at least 10,000 tax returns have been compromised (blamed on “Russian organized crime syndicates”), and, on Thursday evening, Washington reportswhat may end up being the largest data breach in history (blamed on China). As noted last month, these events represent a remarkable step up the cyber attack accusation ladder compared to Washington’s attempt to blame North Korea for cyber-sabotaging James Franco and Seth Rogen last year.

  Whether or not the most recent virtual attack on the US did indeed emanate from China or one of Washington’s other so-called “cyberadversaries” (the list includes Iran, Russia, and North Korea) will likely never be known the public, but rest assured the blame will be placed with a state actor so as to ensure the DoD has some precedent to refer to when, for whatever reason, the Pentagon decides it’s time to deploy an “offensive” cyberattack later on down the road.

  Irrespective of where the attack originated, it appears obsolete technology was ultimately to blame, because as Bloomberg reports, “Einstein” wasn’t much help in preventing the intrusion. 

  Via Bloomberg:

  The hackers who stole personal data on 4 million government employees from the U.S. Office of Personnel Management sneaked past a sophisticated counter-hacking system called Einstein 3, a highly-touted, multimillion-dollar and mostly secret technology that’s been years in the making.

   

  It’s behind schedule, the result of inter-agency fights over privacy, control and other matters, and only about half of the government was protected when the hackers raided OPM’s databases last December.

   

  It’s also, by the government’s own admission, already obsolete..

   

  Over the last several months, U.S. officials have said that perimeter-based defenses such as Einstein, even backed by the National Security Agency’s own corps of hackers, can never prevent break-ins.

   

  Like banks and technology companies, government agencies must move to a model that assumes hackers will always get in, specialists said. They’ll need to buy cutting-edge technologies that can detect intruders inside networks and eject them quickly, before the data is gone.

  Of course that likely won’t be possible, because after all, no self-respecting bureaucracy processes important initiatives expeditiously and no modern US lawmaking body actually legislates.

  Given the slow pace of government acquisition, the inter-agency rivalries and budget fights, though, the initiative may take several years or more to implement, leaving the possibility that the new technology will be old by the time it’s installed.

   

  Congress has yet to act on the personnel agency’s Feb. 2 request for a $32 million budget increase for fiscal 2016, said Senator Angus King, a Maine independent, in an interview.

   

  “Most of the funds,” the agency said, “will be directed towards investments in IT network infrastructure and security.”

   

  The latest intrusion points to the need for Congress to pass a cybersecurity bill, White House Press Secretary Josh Earnest said. He stopped short of saying whether the measure would have prevented the OPM breach.

  That looks a bit like an attempt on the administration’s part to put the blame on an ineffectual Congress, which would seem to be counterproductive at a time when there is clearly a need for less pettiness and more compromise. Some lawmakers were quick to acknowledge this and moved swiftly to rise above Presidential finger-pointing by … pointing fingers back at the President.

  “It’s too early to determine at this point what precisely would have prevented this particular cyber-intrusion,” Earnest said Friday at a press briefing. “What is beyond argument is that these three pieces of legislation that the president sent to Congress five months ago would significantly improve the cybersecurity of the United States, not just the federal government’s cybersecurity, but even our ability to protect private computer networks”..

   

  “Where is the leadership?” said Cory Fritz, a spokesman for House Speaker John Boehner, an Ohio Republican. “The federal government has just been hit by one of the largest thefts of sensitive data in history, and this White House is trying blame anyone but itself. It’s absolutely disgusting.” 

  As you can see, everyone appears to be on the same page here as both the Executive and Legislative branches look set to work together on a comprehensive, bipartisan approach to preventing cyber intrusions. 

  Fortunately for the millions of federal employees who are now left to wonder whether or not their personal information is safe on government servers, Defense Secretary Ash Carter may ultimately take matters into his own hands by consulting someone who knows a thing or two about using technology to co-opt personal information:

  Defense Secretary Ashton Carter spoke to technology leaders in Palo Alto, California, in April, tossing around ideas for recruiting engineers for temporary missions in government and meeting with Facebook’s Mark Zuckerberg. 

  Have no fear America, Facebook will cyber-protect you from belligerent foreign governments.

  

  

  
  
  

  

• What Happens To Stock Prices After Layoffs

  Submitted by Daniel Drew of Dark Bid

  

  What Happens To Stock Prices After Layoffs

  Increasing synergies. Downsizing. Staying nimble. Cutting back. Restructuring. What do all these corporate buzzwords have in common? They’re all bullshit explanations for why you’re about to lose your job after years of commitment to the company.

  As the market climbs higher and higher, and we approach the ultimate privatization of all capital, it seems like the corporate propaganda is actually true. Maybe layoffs are making companies more efficient, and this creates shareholder value. The foreigners and the robots can replace us, and the shareholders will be better off.

  A case study of two of the largest conglomerates in America defies the message that the American worker is no longer needed. Consider General Electric and Honeywell. The International Business Times recently published an article called, “At General Electric Company, Workers Struggle To Find Footing As Shareholders Reap Windfalls.” GE threatened to close its capacitor plant in upstate New York. They said the only way they would keep the plant open was if the workers agreed to a pay cut from $28 to $11. The United Electrical Workers wouldn’t agree to that, so GE closed the plant and moved it to Clearwater, Florida. At the new plant, there is no union, and GE can pay their employees low wages.

  Meanwhile, GE buys back billions of dollars of its own stock, and CEO Jeff Immelt makes millions. Adam Hartung of Forbes called GE a case of “total leadership failure.” Ironically, Immelt is on the board of directors at The Robin Hood Foundation. Because nothing says “Robin Hood” like underpaying your employees and keeping the money for yourself. He is also the Chairman of The President’s Council on Jobs and Competitiveness. Immelt knows all about jobs and how to get rid of them. GE has eliminated 16,000 positions in the United States since 2008.

  At Honeywell, things are different. CEO David Cote wrote an article in the Harvard Business Review about his company’s “no layoff policy.” Instead of laying people off during the 2008 crash, they furloughed their employees to spread the pain around equally. This actually used to be standard corporate policy. Peter Cappelli, author of “Why Good People Can’t Get Jobs,” said,

  Until 1985 the U.S. Bureau of Labor Statistics didn’t even have a category for permanent job loss. Until then the assumption was that if a company laid you off, it would rehire you when the economy picked up. That changed during the 1981-1982 recession.

  By avoiding layoffs, companies can sidestep the cost of constant turnover. The whole process of hiring and firing is much more expensive than one would think. Less churn is better for everyone. A look at the 10-year stock performance of GE and HON is evidence of this. General Electric lost 21%, and Honeywell gained 164%.

  

  For Cote, it’s personal: He used to work at GE until Jack Welch, the former CEO, told him he would not be his successor. Now, with fair labor policies and an outperforming stock price, Cote has the last laugh.

  However, just when you start to trust a corporation, this happens:

  

  

  
  
  

  

• A Hopeful Edward Snowden Says "The Balance Of Power Is Beginning To Shift"

  It has been two years ago since Edward Snowden released to the world a trove of proof that the NSA, the US’ top spy organization, had been focused as much on spying on its own people as on threats from abroad, in the process crushing countless constitutional civil and personal liberties. For his whistleblowing efforts, he was forced into self-appointed exile in Russia to avoid a lengthy prison sentence in the US.

  Which is ironic, because on June 2, with the passage of the “Freedom Act” (which actually is an acronym for Uniting and Strengthening America by Fulfilling Rights and Ending Eavesdropping, Dragnet-collection and Online Monitoring Act), the NSA’s recording of US electronic communications officially ended, in effect validating Snowden’s efforts at halting the US conversion into a totalitarian police state.

  In reality NSA surveillance did not really end: bulk collection of Americans’ metadata is still allowed by phone companies, which is then accessible by the NSA. According to skeptics this makes intrusion into US private lives even more deliberate as private corporations are not subject to FOIA requests or government intervention: in effect Obama has washed his hands of all supervision over data collection even as the NSA still has full access to everything it could ever ask for (it is unclear why the massive NSA spy facility in Bluffdale, Utah will continue existing if the NSA is no longer allowed to intercept and record data).

  Still, for Snowden this was a minor, yet massive at the same time, victory. This is what he said in an op-ed in the aftermath of the passage of the Freedom Act:

  Privately, there were moments when I worried that we might have put our privileged lives at risk for nothing — that the public would react with indifference, or practiced cynicism, to the revelations.

   

  Never have I been so grateful to have been so wrong.

   

  Two years on, the difference is profound. In a single month, the N.S.A.’s invasive call-tracking program was declared unlawful by the courts and disowned by Congress. After a White House-appointed oversight board investigation found that this program had not stopped a single terrorist attack, even the president who once defended its propriety and criticized its disclosure has now ordered it terminated.

   

  This is the power of an informed public.

  Or, perhaps far worse, this is the power of the government to obfuscate, and to pretend it is reforming when in reality it is hunkering down even further.

  The answer remains to be seen, but for now Snowden is granted a moment of optimism. His op-ed ends:

  At the turning of the millennium, few imagined that citizens of developed democracies would soon be required to defend the concept of an open society against their own leaders.

   

  Yet the balance of power is beginning to shift. We are witnessing the emergence of a post-terror generation, one that rejects a worldview defined by a singular tragedy. For the first time since the attacks of Sept. 11, 2001, we see the outline of a politics that turns away from reaction and fear in favor of resilience and reason. With each court victory, with every change in the law, we demonstrate facts are more convincing than fear. As a society, we rediscover that the value of a right is not in what it hides, but in what it protects.

  Of course, his view that the “balance of power” has shifted will be validated when he returns on US soil and is not promptly handcuffed and whisked off to prison where he spend the next 20 years of his life. Sadly for him, and the post-terror generation, the balance has more more shifting to do, before there are real, tangible changes.

  Below is his full NYT Oped:

  The World Says No to Surveillance

  Two years ago today, three journalists and I worked nervously in a Hong Kong hotel room, waiting to see how the world would react to the revelation that the National Security Agency had been making records of nearly every phone call in the United States. In the days that followed, those journalists and others published documents revealing that democratic governments had been monitoring the private activities of ordinary citizens who had done nothing wrong.

  Within days, the United States government responded by bringing charges against me under World War I-era espionage laws. The journalists were advised by lawyers that they risked arrest or subpoena if they returned to the United States. Politicians raced to condemn our efforts as un-American, even treasonous.

  Privately, there were moments when I worried that we might have put our privileged lives at risk for nothing — that the public would react with indifference, or practiced cynicism, to the revelations.

  Never have I been so grateful to have been so wrong.

  Two years on, the difference is profound. In a single month, the N.S.A.’s invasive call-tracking program was declared unlawful by the courts and disowned by Congress. After a White House-appointed oversight board investigation found that this program had not stopped a single terrorist attack, even the president who once defended its propriety and criticized its disclosure has now ordered it terminated.

  This is the power of an informed public.

  Ending the mass surveillance of private phone calls under the Patriot Act is a historic victory for the rights of every citizen, but it is only the latest product of a change in global awareness. Since 2013, institutions across Europe have ruled similar laws and operations illegal and imposed new restrictions on future activities. The United Nations declared mass surveillance an unambiguous violation of human rights. In Latin America, the efforts of citizens in Brazil led to the Marco Civil, an Internet Bill of Rights. Recognizing the critical role of informed citizens in correcting the excesses of government, the Council of Europe called for new laws to protect whistle-blowers.

  Beyond the frontiers of law, progress has come even more quickly. Technologists have worked tirelessly to re-engineer the security of the devices that surround us, along with the language of the Internet itself. Secret flaws in critical infrastructure that had been exploited by governments to facilitate mass surveillance have been detected and corrected. Basic technical safeguards such as encryption — once considered esoteric and unnecessary — are now enabled by default in the products of pioneering companies like Apple, ensuring that even if your phone is stolen, your private life remains private. Such structural technological changes can ensure access to basic privacies beyond borders, insulating ordinary citizens from the arbitrary passage of anti-privacy laws, such as those now descending upon Russia.

  Though we have come a long way, the right to privacy — the foundation of the freedoms enshrined in the United States Bill of Rights — remains under threat. Some of the world’s most popular online services have been enlisted as partners in the N.S.A.’s mass surveillance programs, and technology companies are being pressured by governments around the world to work against their customers rather than for them. Billions of cellphone location records are still being intercepted without regard for the guilt or innocence of those affected. We have learned that our government intentionally weakens the fundamental security of the Internet with “back doors” that transform private lives into open books. Metadata revealing the personal associations and interests of ordinary Internet users is still being intercepted and monitored on a scale unprecedented in history: As you read this online, the United States government makes a note.

  Spymasters in Australia, Canada and France have exploited recent tragedies to seek intrusive new powers despite evidence such programs would not have prevented attacks. Prime Minister David Cameron of Britain recently mused, “Do we want to allow a means of communication between people which we cannot read?” He soon found his answer, proclaiming that “for too long, we have been a passively tolerant society, saying to our citizens: As long as you obey the law, we will leave you alone.”

  At the turning of the millennium, few imagined that citizens of developed democracies would soon be required to defend the concept of an open society against their own leaders.

  Yet the balance of power is beginning to shift. We are witnessing the emergence of a post-terror generation, one that rejects a worldview defined by a singular tragedy. For the first time since the attacks of Sept. 11, 2001, we see the outline of a politics that turns away from reaction and fear in favor of resilience and reason. With each court victory, with every change in the law, we demonstrate facts are more convincing than fear. As a society, we rediscover that the value of a right is not in what it hides, but in what it protects.

  

  

  
  
  

  

• Dollar Outlook

  The strong US employment data stopped the dollar’s downside correction in its tracks.  It offset the unwinding of the long German bund/short euro hedge that had sent the euro racing toward $1.14 after have fallen to $1.0820 in late-May.   The Japanese yen and New Zealand dollar fell to new multi-year lows. 

   

  The US job growth was the strongest in five months.  It follows other data that indicate that the Q1 contraction is not a fair representation of the economy.  Although the IMF opined that the Fed should wait until next year to raise rates, lift-off in September still seems to be the most likely scenario.   Next week’s retail sales data is expected to show American consumers resumed their shopping in May (consensus 1.1%) after taking April off (flat). 

   

  If we are right, and the dollar’s two-month downside correction is over, the Dollar Index should rise above the 97.80 area. Then it should challenge the trend line drawn off the March and April highs which comes in near 99.00 at the end of the month.  We would peg initial support in the 95.80 area. 

   

  The euro reversed low on June 4 as its became clear that Greece would going to refuse the demands of the official creditors for more austerity, tracing out a bearish shooting star pattern.  The strong employment report spurred follow through euro selling.  That selling saw the euro fall toward fulfilling the 61.8% retracement objective of it bounce off the $1.0820 area in late April.  That retracement level is found near $1.1035.  The euro pre-weekend sell-off stopped near $1.1050.  A move now above $1.1200 would neutralize the bearish technicals.

   

  The dollar rallied to JPY125.85 before the weekend, spurred by the sharp rise in US Treasuries and Fed expectations.  We often see the dollar-yen rate in ranges, and when it looks like it is trending, it is often moving from one range to another.   The lower end of the new range appears to be in the JPY123.50 area.   The market is looking for the upper end.   As these levels have not been seen since 2002, it is difficult to have much confidence in picking a chart point.   We suspect it may be in the JPY126.50-JPY127.00 area.   

   

  Ahead of the G7 summit, Japanese officials seemed to have tried leaning a little against the tide.  Several talked about the need to avoid disruptive moves.    The sub-text to its G7 partners was that the yen’s depreciation was not of their doing.  Three-month implied volatility rose to 10% at the end of May, and although the dollar has risen to new highs, implied vol finished the week at its lowest level since May 26 (~8.78%). 

   

  Sterling may be carving out a potential head and shoulders pattern.  The left shoulder was made in late-April by the spike to about $1.55.  The head was the post-election rally that briefly extended through $1.5800.  The right shoulder may have been carved out in recent days that ended with the spike to $1.5440.  The neckline is near $1.5180, which corresponds to the 100-day moving average (~$1.5170) and the 50% retracement (~$1.5190) of the rally from the multi-year low set in mid-April.  The pattern projects back to those lows.   

   

  The US dollar spent last week range-bound against the Canadian dollar.  Canada reported stronger than expected employment data of its own before the weekend.   It was the only currency to gain against the dollar on Friday.  While Australia and New Zealand are expected to cut rates, the Bank of Canada is on hold.  The second consecutive month of strong full-time jobs growth (the 77.8k full times positions would be the equivalent of the US growing more than 780k jobs in a two-month period), and greater confidence in the US economic recovery story, reduces the need for additional stimulus. Support is seen near CAD1.2370-CAD1.2400, and a break could see CAD1.2250-80.   

   

  The Aussie traded to almost $0.7820 on the back of a stronger than expected Q1 GDP report in the middle of the week, only to fall back to the recent lows near $0.7600 on poor April trade and retail sales and the contrasting strong US jobs data.   Corrective upticks could see it recover into the $0.7660-80 area.   The multi-year low was set in early April near $0.7535.   There is no meaningful chart support below there until the $0.7000 area.  

   

  Technical signals are giving little indication that the broad trading range in the July light sweet crude oil futures contract is about to end.  The lower end of the range is seen in the $56.50-80 area.  The upper end of the range is in the $61.50-70 area.  In the US oil rigs continue to slip but production remains strong.  Inventories were drawn down for five weeks (for a total around 12 mln barrels).  This appears to be largely accounted for by the increased demand by refineries as US gasoline demand is tracking ten-year highs. 

   

  Two forces lifted US 10-year Treasury yields in the past week.  First it was the sell-off in German bunds, in part encouraged by the diminished deflation risks.  From the June 1 low yield near 47 bp to June 4 high print (~1.0%), the yield doubled last week.  This pushed US Treasury yields higher.  The yield rose a little further on the strong employment data.  On the week, the 10-year Treasury yield rose 20 bp.  Among the major countries, only Japan (+8 bp) and Canada (+18) rose less.  The yield finished above the downtrend line drawn off the early January 2014 high near 3.05%.  The next targets are seen near 2.50% and then 2.65%   

   

  Of note, the 2-year yield rose only seven bp, and most of this took place in response to the employment figures.  The bearish flattening would seem to reflect the international dimension on the long end while the short-end is constrained by the anticipated gradual pace of Fed tightening, once lift-off takes place.   The 2-year yield is bumping against the multi-year highs seen in December 2014, January and March this year near 74 bp.  There is little between this and the 90 bp area seen in February and April 2011. 

   

  Rising US yields appeared to exert downside pressure on US stocks.  None of the major bourses rose last week.  Over the week, the S&P 500 lost a little more than 0.5%.  The S&P 500 found support ahead of 2080.  The technical condition deteriorated slightly, with both the RSI and MACDs moving lower, and the 5-day moving average broke below the 20-day average. 

   

   

  Observations based on speculative positioning in the futures market:

   

  1.  There were four significant gross position adjustments in the currency futures in the CFTC reporting week ending June 2.  The gross short speculative yen position continued to grow rapidly.  The nearly 20k contract increase is the third consecutive week of double digit growth.  During this time, the gross short position has risen by 70k contracts to stands at 132.4k.  The gross short speculative Australian dollar grew by 17.8k to 76.6k contracts.    The gross long and short Mexican peso positions grew significantly.  The gross long position rose 10k contracts to 34k, and the gross short position rose 22.7k contracts to 79.1k.

   

  2.  The increase in gross short positions accounted for the switch back to net short Australian dollar and Canadian dollar speculative positions.  The net Canadian dollar position had been long for the previous two reporting periods, but the 7.8k increase was sufficient to turn the net position short by a thousand contracts.  The net long position was trimmed by 600 contracts to 30.1k.  The net speculative Aussie position had been long for the past four reporting periods, but the 17,8k increase in the gross short position swung the net position to the short side by 13.3k contracts.  The gross longs were trimmed by 1.9k contracts.

   

  3.  The general pattern was to cut gross long currency futures positions as the US dollar rebounded.  There were three exceptions.  The gross long euro position increased by 5.3k contracts to 49.5k.  The gross long Swiss franc position rose by 1.3k contracts to 12.5k.  The gross long Mexican peso position rose 10k contracts to 34.0k.  The gross short currency futures positions were mostly grown. The two exceptions were the euro, which saw a 1.0k contract reduction (to stand at 215k contracts), and sterling, where the gross short position was pared by 1.8k contracts to 58.4k.

   

   

  4.  The speculative net short US 10-year Treasury position fell by 10k contracts to 73.6k.  This was a function of both longs and shorts being trimmed (15.8k and 25.8k contracts respectively).   The speculative net long light sweet crude oil futures position was reduced by 8.5k contracts to 339.5k. This was almost wholly the result of the liquidation of 7.6k long contracts (leaving 494.5k) and an increase of a little less than 1k short contracts (to 154.9k contracts).

  

  

  
  
  

  

Digest powered by RSS Digest