• What Is the REAL Risk from Terrorism?

  Preface:   Bad government policy has increased the level of terrorism. And corruption in our security agencies has allowed attacks to succeed which should have been stopped. 

  Even so, the levels of terrorism are still much lower than many assume.  Government officials and counter-terror experts may hype the terror threat to promote their agendas. But – as shown below – your risk of being killed in a terror attack is actually much lower than being killed by virtually any other cause.

  Daniel Benjamin – the Coordinator for Counterterrorism at the United States Department of State from 2009 to 2012 – noted in January (at 10:22):

  The total number of deaths from terrorism in recent years has been extremely small in the West. And the threat itself has been considerably reduced. Given all the headlines people don’t have that perception; but if you look at the statistics that is the case.

  Time Magazine noted in 2013 that the chance of dying in a terrorist attack in the United States from 2007 to 2011, according to Richard Barrett – coordinator of the United Nations al Qaeda/Taliban Monitoring Team – was 1 in 20 million.

  Let's look at specific numbers …

  The U.S. Department of State reports that only 17 U.S. citizens were killed worldwide as a result of terrorism in 2011.* That figure includes deaths in Afghanistan, Iraq and all other theaters of war.

  In contrast, the American agency which tracks health-related issues – the U.S. Centers for Disease Control – rounds up the most prevalent causes of death in the United States:

  

  Comparing the CDC numbers to terrorism deaths means:

  – You are 35,079 times more likely to die from heart disease than from a terrorist attack

   

  – You are 33,842 times more likely to die from cancer than from a terrorist attack

   

  – You are 4,311 times more likely to die from diabetes than from a terrorist attack

   

  – You are 3,157 times more likely to die from flu or pneumonia than from a terrorist attack

   

  – You are 2,091 times more likely to die from blood poisoning than from a terrorist attack

   

  – You are 1,064 times more likely to die as your lungs swell up after your food or beverage goes down the wrong pipe

  (Keep in mind when reading this entire piece that we are consistently and substantially understating the risk of other causes of death as compared to terrorism, because we are comparing deaths from various causes within the United States against deaths from terrorism worldwide.)

  Wikipedia notes that obesity is a a contributing factor in 100,000–400,000 deaths in the United States per year. That makes obesity 5,882 to 23,528 times more likely to kill you than a terrorist.

  The annual number of deaths in the U.S. due to avoidable medical errors is as high as 100,000. Indeed, one of the world’s leading medical journals – Lancet – reported in 2011:

  A November, 2010, document from the Office of the Inspector General of the Department of Health and Human Services reported that, when in hospital, one in seven beneficiaries of Medicare (the government-sponsored health-care programme for those aged 65 years and older) have complications from medical errors, which contribute to about 180 000 deaths of patients per year.

  That’s just Medicare beneficiaries, not the entire American public. Scientific American noted in 2009:

  Preventable medical mistakes and infections are responsible for about 200,000 deaths in the U.S. each year, according to an investigation by the Hearst media corporation.

  And a new study in the Journal of Patient Safety says the numbers may be up to 440,000 each year.  But let’s use the lower – 100,000 – figure. That still means that you are 5,882 times more likely to die from medical error than terrorism.

  The CDC says that some 80,000 deaths each year are attributable to excessive alcohol use. So you’re 4,706 times more likely to drink yourself to death than die from terrorism.

  Approximately 38,329 Americans die each year from drug overdoses. That's 2,255 times more than from terrorists.

  Wikipedia notes that there were 32,367 automobile accidents in 2011, which means that you are 1,904 times more likely to die from a car accident than from a terrorist attack. As CNN reporter Fareed Zakaria wrote last year:

  “Since 9/11, foreign-inspired terrorism has claimed about two dozen lives in the United States. (Meanwhile, more than 100,000 have been killed in gun homicides and more than 400,000 in motor-vehicle accidents.) “

  President Obama agreed.

  According to a 2011 CDC report, poisoning from prescription drugs is even more likely to kill you than a car crash. Indeed, the CDC stated in 2011 that – in the majority of states – your prescription meds are more likely to kill you than any other source of injury. So your meds are thousands of times more likely to kill you than Al Qaeda.

  The financial crisis has also caused quite a few early deaths. The Guardian reported in 2008:

  High-income countries such as the UK and US could see a 6.4% surge in deaths from heart disease, while low-income countries could experience a 26% rise in mortality rates.

  Since there were 596,339 deaths from heart disease in the U.S. in 2011 (see CDC table above), that means that there are approximately 38, 165 additional deaths a year from the financial crisis … and Americans are 2,245 times more likely to die from a financial crisis that a terrorist attack.

  Financial crises cause deaths in other ways, as well. For example, the poverty rate has skyrocketed in the U.S. since the 2008 crash. For example, the poverty rate in 2010 was the highest in 17 years, and more Americans numerically were in poverty as of 2011 than for more than 50 years. Poverty causes increased deaths from hunger, inability to pay for heat and shelter, and other causes. (And – as mentioned below – suicides have skyrocketed recently; many connect the increase in suicides to the downturn in the economy.)

  The number of deaths by suicide has also surpassed car crashes. Around 35,000 Americans kill themselves each year (and more American soldiers die by suicide than combat; the number of veterans committing suicide is astronomical and under-reported). So you’re 2,059 times more likely to kill yourself than die at the hand of a terrorist.

  The CDC notes that there were 7,638 deaths from HIV and 45 from syphilis, so you’re 452 times more likely to die from risky sexual behavior than terrorism. (That doesn't include death by autoerotic asphyxiation … discussed below.)

  The National Safety Council reports that more than 6,000 Americans die a year from falls … most of them involve people falling off their roof or ladder trying to clean their gutters, put up Christmas lights and the like. That means that you’re 353 times more likely to fall to your death doing something idiotic than die in a terrorist attack.

  The same number – 6,000 – die annually from texting or talking on the cellphone while driving. So you're 353 times more likely to meet your maker while lol'ing than by terrorism.

  The agency in charge of workplace safety – the U.S. Occupational Safety and Health Administration – reports that 4,609 workers were killed on the job in 2011 within the U.S. homeland. In other words, you are 271 times more likely to die from a workplace accident than terrorism.

  Approximately 4,000 Americans drown each year … 235 times more than from terror attacks.

  The CDC notes that 3,177 people died of “nutritional deficiencies” in 2011, which means you are 187 times more likely to starve to death in American than be killed by terrorism.

  About 2,200 Americans die each year from acute alcohol poisoning (i.e. extreme binge drinking) … 129 times more than from terror attacks.

  Some 2,000 Americans die each year from heat or cold. That's 118 times more than from terrorism.

  Approximately 1,000 Americans die each year from autoerotic asphyxiation. So you're 59 times more likely to kill yourself doing weird, kinky things than at the hands of a terrorist.

  There were an average of 928 Americans killed by police officers in the United States each year in "justifiable homicides". That means that you were more than 55 times more likely to be killed by a law enforcement officer than by a terrorist. That number does not include unjustifiable homicides.

  Some 411 Americans are electrocuted each year … 24 times more than die from terrorism.

  Nearly 400 Americans die each year due to drug allergies from penicillin. More than 200 deaths occur each year due to food allergies. Nearly 100 Americans die due to insect allergies. And 10 deaths each year are due to severe reactions to latex. See this. There are many other types of allergies, but that totals 710 deaths each year from just those four types of allergies alone … making it 42 times more likely that you'll die from an allergic reaction than from a terror attack.

  Some 450 Americans die each year when they fall out of bed, 26 times more than are killed by terrorists.

  Scientific American notes:

  You might have toxoplasmosis, an infection caused by the microscopic parasite Toxoplasma gondii, which the CDC estimates has infected about 22.5 percent of Americans older than 12 years old

  Toxoplasmosis is a brain-parasite. The CDC reports that more than 375 Americans die annually due to toxoplasmosis. In addition, 3 Americans died in 2011 after being exposed to a brain-eating amoeba. So you’re about 22 times more likely to die from a brain-eating zombie parasite than a terrorist.

  Around 34 Americans a year are killed by dog bites … around twice as many as by terrorists.

  The 2011 Report on Terrorism from the National Counter Terrorism Center notes that Americans are just as likely to be “crushed to death by their televisions or furniture each year” as they are to be killed by terrorists.

  Statistics from the Centers for Disease Control show that Americans are 110 times more likely to die from contaminated food than terrorism. And see this.

  The Jewish Daily Forward noted in May that – even including the people killed in the Boston bombing – you are more likely to be killed by a toddler than a terrorist. And see these statistics from CNN.

  Reason notes:

  [The risk of being killed by terrorism] compares annual risk of dying in a car accident of 1 in 19,000; drowning in a bathtub at 1 in 800,000; dying in a building fire at 1 in 99,000; or being struck by lightning at 1 in 5,500,000. In other words, in the last five years you were four times more likely to be struck by lightning than killed by a terrorist.

   

  The National Consortium for the Study of Terrorism and Responses to Terrorism (START) has just published, Background Report: 9/11, Ten Years Later [PDF]. The report notes, excluding the 9/11 atrocities, that fewer than 500 people died in the U.S. from terrorist attacks between 1970 and 2010.

  Scientific American reported in 2011:

  John Mueller, a political scientist at Ohio State University, and Mark Stewart, a civil engineer and authority on risk assessment at University of Newcastle in Australia … contended, “a great deal of money appears to have been misspent and would have been far more productive—saved far more lives—if it had been expended in other ways.”

   

  Mueller and Stewart noted that, in general, government regulators around the world view fatality risks—say, from nuclear power, industrial toxins or commercial aviation—above one person per million per year as “acceptable.” Between 1970 and 2007 Mueller and Stewart asserted in a separate paper published last year in Foreign Affairs that a total of 3,292 Americans (not counting those in war zones) were killed by terrorists resulting in an annual risk of one in 3.5 million. Americans were more likely to die in an accident involving a bathtub (one in 950,000), a home appliance (one in 1.5 million), a deer (one in two million) or on a commercial airliner (one in 2.9 million). [Let's throw a couple more fun facts into the mix … The risk of choking to death on food is 1 in 4,404, and the risk of dying by falling out of furniture (including couches, chairs and beds) is 1 in 4,238. So you're almost a thousand times more likely to die from one of these rare causes of death than terrorism.]

   

  The global mortality rate of death by terrorism is even lower. Worldwide, terrorism killed 13,971 people between 1975 and 2003, an annual rate of one in 12.5 million. Since 9/11 acts of terrorism carried out by Muslim militants outside of war zones have killed about 300 people per year worldwide. This tally includes attacks not only by al Qaeda but also by “imitators, enthusiasts, look-alikes and wannabes,” according to Mueller and Stewart.

   

  Defenders of U.S. counterterrorism efforts might argue that they have kept casualties low by thwarting attacks. But investigations by the FBI and other law enforcement agencies suggest that 9/11 may have been an outlier—an aberration—rather than a harbinger of future attacks. Muslim terrorists are for the most part “short on know-how, prone to make mistakes, poor at planning” and small in number, Mueller and Stewart stated. Although still potentially dangerous, terrorists hardly represent an “existential” threat on a par with those posed by Nazi Germany or the Soviet Union.

   

  In fact, Mueller and Stewart suggested in Homeland Security Affairs, U.S. counterterrorism procedures may indirectly imperil more lives than they preserve: “Increased delays and added costs at U.S. airports due to new security procedures provide incentive for many short-haul passengers to drive to their destination rather than flying, and, since driving is far riskier than air travel, the extra automobile traffic generated has been estimated to result in 500 or more extra road fatalities per year.”

   

  The funds that the U.S. spends on counterterrorism should perhaps be diverted to other more significant perils, such as industrial accidents (one in 53,000), violent crime (one in 22,000), automobile accidents (one in 8,000) and cancer (one in 540). “Overall,” Mueller and Stewart wrote, “vastly more lives could have been saved if counterterrorism funds had instead been spent on combating hazards that present unacceptable risks.” In an e-mail to me, Mueller elaborated:

   

  “The key question, never asked of course, is what would the likelihood be if the added security measures had not been put in place? And, if the chances without the security measures might have been, say, one in 2.5 million per year, were the trillions of dollars in investment (including overseas policing which may have played a major role) worth that gain in security—to move from being unbelievably safe to being unbelievably unbelievably safe? Given that al Qaeda and al Qaeda types have managed to kill some 200 to 400 people throughout the entire world each year outside of war zones since 9/11—including in areas that are far less secure than the U.S.—there is no reason to anticipate that the measures have deterred, foiled or protected against massive casualties in the United States. If the domestic (we leave out overseas) enhanced security measures put into place after 9/11 have saved 100 lives per year in the United States, they would have done so at a cost of $1 billion per saved life. That same money, if invested in a measure that saves lives at a cost of $1 million each—like passive restraints for buses and trucks—would have saved 1,000 times more lives.”

   

  Mueller and Stewart’s analysis is conservative, because it excludes the most lethal and expensive U.S. responses to 9/11. Al Qaeda’s attacks also provoked the U.S. into invading and occupying two countries, at an estimated cost of several trillion dollars. The wars in Afghanistan and Iraq have resulted in the deaths of more than 6,000 Americans so far—more than twice as many as were killed on September 11, 2001—as well as tens of thousands of Iraqis and Afghans.

   

  ***

   

  In 2007 New York City Mayor Michael Bloomberg said that people are more likely to be killed by lightning than terrorism. “You can’t sit there and worry about everything,” Bloomberg exclaimed. "Get a life."

  Indeed, the Senior Research Scientist for the Space Science Institute (Alan W. Harris) estimates that the odds of being killed by a terrorist attack is about the same as being hit by an asteroid (and see this).

  Terrorism pushes our emotional buttons. And politicians and the media tend to blow the risk of terrorism out of proportion. But as the figures above show, terrorism is a very unlikely cause of death.

  Indeed, our spending on anti-terrorism measures is way out of whack … especially because most of the money has been wasted. And see this article, and this 3-minute video by professor Mueller:

  
  

  Indeed, mission creep in the name of countering terrorism actually makes us more vulnerable to actual terrorist attacks. And corrupt government policy is arguably more dangerous than terrorism.

  Indeed, the terrorism deaths Americans have suffered were  unnecessary … and were largely due to corruption in our security agencies. And see this.

  * Note: Subsequent official reports – published in 2012 and 2013 – show that even fewer Americans were killed by terrorists than in the previous year.

  

  
  
  

  

• Saudi Ambassador Warns West On Iran Deal: "All Options On Table…" Including Nukes

  We previously warned of the risks of escalation in The Middle East to something much more dangerous, but, as the Saudi ambassador to UK confirmed today, the risk of Wahhabis going nuclear is even higher than many expected, “…if [Iran will not offer assurances it will not pursue nuclear weapons], then all options will be on the table for Saudi Arabia… Iran’s nuclear program poses a direct threat to the entire region and constitutes a major source and incentive for nuclear proliferation across the Middle East, including Israel.”

   

  Saudi Arabia is ready to acquire nuclear weapons if diplomatic talks aimed at halting Iran’s nuclear ambitions break down, the Saudi ambassador to the UK has said. As RT reports,

  Prince Mohammed bin Nawwaf bin Abdulaziz al-Saud said the oil-rich Gulf kingdom hoped negotiations being led by US President Barack Obama would result in a “watertight” deal with Iran.

   

  However if does not happen, then “all options are on the table,” he said.

   

  …

   

  Prince Mohammad told The Telegraph: “We have always expressed our support for resolving the Iranian nuclear file in a diplomatic way and through negotiation.”

   

  “We commend the American president’s effort in this regard, provided that any deal reached is watertight and is not the kind of deal that offers Iran a license to continue its destabilizing foreign policies in the region. The proof is in the pudding.”

   

  The Saudi ambassador said the kingdom hopes Iran will offer assurances it will not pursue nuclear weapons.

   

  “But if this does not happen, then all options will be on the table for Saudi Arabia.”

   

  “Iran’s nuclear program poses a direct threat to the entire region and constitutes a major source and incentive for nuclear proliferation across the Middle East, including Israel,” he added.

   

  Saudi Arabia is believed to have funded up to 60 percent of Pakistan’s nuclear program, on the condition it could buy warheads at short notice.

  If the Gulf state were to activate the deal, it would see Saudi Arabia become the first nuclear power in the Arab world.

  Finally, if this ‘threat’ were to become true… what would be the Saudi catalyst of the hair-trigger big red button of doom? This perhaps?

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

  This won’t end well…

  

  Source: Townhall via Sunday Funnies

  

  

  
  
  

  

• The New World Order – A Faustian Bargain

  Submitted by Jeff Thomas via Doug Casey's International Man blog,

  Faustian bargain: An agreement in which a person abandons his or her spiritual values or moral principles in order to obtain wealth or other benefits. A deal with the devil.

  The argument over the existence of an Elite, who plan to control the entire world under a New World Order like some great yo-yo, has been around for a long time. Not surprisingly, events created by world leaders of all stripes in recent years give rise to an increasing belief in the likelihood of the existence of such an effort.

  There are two great dangers in attempting to describe this perceived secret endeavour, and they are at opposite ends of the spectrum: a) being so naive as to assume that no collusion exists amongst various groups of leaders to further their respective ends, and b) over-simplifying such alliances to suggest that there is an Elite Master Plan that all members implicitly agree upon and follow in every respect.

  Assumption A

  In any country, the citizenry are accustomed to such acts of collusion as all the petrol suppliers raising the price by the same amount, overnight. Few individuals would doubt that the two companies get together well in advance to agree on the price hike.

  The same sort of collusion can be expected between banks and governments, etc. However, most people in any given country seem to believe that the political parties that rule them do not collude in their own collective interest and against the best interests of their respective constituents.

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

  Assumption B

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

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

  Some even believe we are a part of a secret cabal working against the best interests of the United States, characterizing my family and me as ‘internationalists’ and of conspiring with others around the world to build a more integrated global political and economic structure—one world, if you will. If that’s the charge, I stand guilty and I am proud of it.

  But the error that is most common amongst those who oppose a New World Order is the extent to which they believe the collusion exists. Many believe the collusion is total. That is, a Master Plan exists amongst the world’s leaders (the heads of the central banks, the Bilderberg Group, the leaders of the most powerful nations—or the whole gang of them—take your pick) that all members agree upon in detail and in full.

  Still, when any New World Order opponent rails against the latest perceived move by the Elite, if asked the question, “Do you really think that these people are so unified that several hundred of them get together every week around a conference table to decide who to victimise this week?,” most will say that, no, they may act in concert, but not in so total a fashion.

  Option C

  So, is there a third perception as regards those in high positions who collude on a large scale? In my opinion there is.

  In my experience in dealing with political leaders (and political hopefuls) from several jurisdictions, I’ve found there to be a consistent sociopathology (by definition, the desire for dominance over others, undeserved self-confidence, lack of empathy, a sense of entitlement, lack of conscience, etc.). Whether they are British members of Parliament or US members of Congress, they tend to display the same sociopathic traits.

  Sociopaths are drawn to political leadership for obvious reasons. First, they’re prone to collusion, as they recognise that it may further their interests (agreements with a small group of individuals that would allow for dominance over another, larger group of individuals). And this, of course, fits well into Assumption B.

  Trouble is, the same sociopathology would drive the same individuals to seek to dominate each other. Yes, they would enter into agreements with one another, but even as they are making them, they would be planning to deviate from them.

  Any agreement regarding increased power for all members, defining what seat each would have at the table, may be agreed, but immediately after, each would begin jockeying for a better seat. Further, whatever agenda is agreed upon, each would already have a secondary agenda for his own betterment even as the agreement is being forged.

  Any attempt at a New World Order, if it were to succeed in creating unified dominance, would never reach full fruition, as so many disparate individuals would be plotting for a bigger piece of the pie from the outset.

  As regards the desire to follow a Grand Plan, we are not describing the meek Kool-Aid drinkers of Jonestown, Guyana, whose willingness to follow a Master Plan was unquestioningly due to their extremely low self-esteem. We are describing those with the opposite mental makeup—those who are compulsive in their desire for dominance of others (first their minions, then their partners).

  Further, each would promote his own sphere of power. A banker would seek to have the group’s means of control be economically based; a general would seek to have the means of control be militarily based; etc.

  Dissent Among the Ranks

  The push-and-pull of sociopathic leaders is unending. Their very makeup dictates that each one individually will always be vying for more. In order to achieve that, they will form subversive subgroups that will agree on a separate direction from what has been agreed by the primary group, and along the way, each one, in his lack of conscience and loyalty, might betray both the primary group and the subgroup.

  In the end, there’s no question that there are those who consider themselves to be part of a New World Order, as so many have publicly stated so themselves, for generations. Also, there can be little doubt that each member expects to come out of the deal as a ruler, not as one of the ruled. Further, the effort is ongoing and growing, and will result in great damage for the average person who, in most cases, simply wishes to be left alone to run his own life.

  It has been postulated by many that those who see themselves as an Elite are nearing the completion of what they perceive as world dominance. However, should they succeed, they will betray their partners the very next day, as it’s their nature to do so. Their behaviour would likely be that of a group of cats with their tails tied together.

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

  The two greatest uncertainties will be how much damage will be done before the dust has settled, and how protracted the period of destruction and struggle for dominance might be.

  Ultimately, for the reasons stated above, I don’t believe the New World Order concept can fully prevail, but it can and will do damage of unprecedented proportions in the attempt to implement it. Those involved will not be swayed from their individual or collective objectives (consider Adolf Hitler or Josef Stalin).

  The best that can be done is to work at placing ourselves as far outside of their sphere of influence as possible.

  

  

  
  
  

  

• When It Rains It Pours: Shares Of Chinese Umbrella Manufacturer Rise 2,700%

  As mentioned previously, China’s world-beating equity rally is the gift that keeps on giving, and not just for those who are riding the inexorable, margin-fueled rally. The mania also provides quite a bit of comic relief for those of us who are, on a daily basis, inundated with hundreds of depressingly absurd Greek soundbites and hoplessly clueless central banker ruminations.

  Valuations have skyrocketed in China, with the median PE on the Shenzhen sitting at a cool 108X, which looks impressive until you consider that the ChiNext trades at 133X. The siren song is in fact so alluring that some US-listed Chinese tech firms are repatriating because they feel they aren’t getting the valuations they ‘deserve.’

  “American investors don’t understand the business model,” one Chinese tech executive recently told Reuters.

  One business model that’s easy to understand is that of Hong Kong-listed Jicheng Umbrella Holdings Limited. As you might have guessed from the name, the company designs, researches, manufactures and sells plastic umbrellas. That’s really all you need to know to appreciate the following chart which shows that shares have risen some 2,700% since February 13 (also note the annualized figure)… 

  

  *  *  *

  What bubble?  

  

  

  
  
  

  

• Major Medical Journal Retracts Numerous Scientific Papers After Fake Peer-Review Scandal

  A major publisher of scholarly medical and science articles has retracted 43 papers because of “fabricated” peer reviews amid signs of a broader fake peer review racket affecting many more publications. As The Washington Post reports, BioMed Central – a well-known publication of peer-reviewed journals – shows a partial list of the retracted articles suggests most of them were written by scholars at universities in China. The Committee on Publication Ethics stated, it "has become aware of systematic, inappropriate attempts to manipulate the peer review processes of several journals… that need to be retracted."

  Peer review is the vetting process designed to guarantee the integrity of scholarly articles by having experts read them and approve or disapprove them for publication. With researchers increasingly desperate for recognition, citations and professional advancement, the whole peer-review system has come under scrutiny in recent years for a host of flaws and irregularities, ranging from lackadaisical reviewing to cronyism to outright fraud.
  
  And as The Washington Post reports,  BioMed Central, based in the United Kingdom, which puts out 277 peer-reviewed journals of scholarly medical and science articles has retracted 43 papers because of “fabricated” peer reviews amid signs of a broader fake peer review racket affecting many more publications…

  A partial list of the retracted articles suggests most of them were written by scholars at universities in China. But Jigisha Patel, associate editorial director for research integrity at BioMed Central, said it’s not “a China problem. We get a lot of robust research of China. We see this as a broader problem of how scientists are judged.”

  Meanwhile, the Committee on Publication Ethics, a multidisciplinary group that includes more than 9,000 journal editors, issued a statement suggesting a much broader potential problem.

  The committee, it said, “has become aware of systematic, inappropriate attempts to manipulate the peer review processes of several journals across different publishers.” Those journals are now reviewing manuscripts to determine how many may need to be retracted, it said.

  Ivan Oransky and Adam Marcus, the co-editors of Retraction Watch, a blog that tracks research integrity and first reported the BioMed Central retractions, have counted a total of 170 retractions in the past few years across several journals because of fake peer reviews.

  “The problem of fake peer reviewers is affecting the whole of academic journal publishing and we are among the ranks of publishers hit by this type of fraud,” Patel of BioMed’s ethics group wrote in November.

   

  “The spectrum of ‘fakery’ has ranged from authors suggesting their friends who agree in advance to provide a positive review, to elaborate peer review circles where a group of authors agree to peer review each others’ manuscripts, to impersonating real people, and to generating completely fictitious characters. From what we have discovered amongst our journals, it appears to have reached a higher level of sophistication. The pattern we have found, where there is no apparent connection between the authors but similarities between the suggested reviewers, suggests that a third party could be behind this sophisticated fraud.”

   

  In a blog post yesterday, Elizabeth Moylan, BioMed Central’s senior editor for research integrity, said an investigation begun last year revealed a scheme to “deceive” journal editors by suggesting “fabricated” reviewers for submitted articles. She wrote that some of the “manipulations” appeared to have been conducted by agencies that offer language-editing and submission assistance to non-English speaking authors.

  Perhaps most astonishing was the fact that…

  Ultimately, when they tracked down some of the scientists in whose names reviews were written, they found that they hadn’t written them at all. Someone else had, using the scientists’ names.

  But that Chinese Micro-cap Biotech stock is definitely still worth buying… even after rising 3000% YTD.

  

  

  
  
  

  

• China's Deficient Deflator Math Is One More Reason To Distrust Data

  It’s no secret that Beijing’s ‘official’ GDP prints likely overstate the pace at which China’s economy is growing. In fact, the numbers may be grossly exaggerated, as some analysts say the real rate of expansion is somewhere on the order of 4% (as opposed to 7%). 

  We’ve noted on any number of occasions that multiple key indicators — such as rail freight volume, industrial production, electricity consumption, etc. — suggest the dreaded “hard landing” is in fact here, and if Beijing fails to figure out how to balance a sharp decrease in shadow financing with the need to boost credit creation (i.e., if China can’t navigate the impossible task of deleveraging and re-leveraging simultaneously), things could get materially worse before they get better for an economy that’s attempting to mark a very difficult transition from investment-led growth to a consumption-driven model. For more on transparency and why the real rate of growth in China’s economy is “anybody’s guess”, see “Guessing Game: China’s ‘Real’ GDP Growth Could Be As Low As 3.8%.”

  Beyond intentional misrepresentations however, China’s GDP data may suffer from a calculation error that at least one firm claims is endemic across emerging markets thanks to data collection limitations.

  FT has more:

  The issue centres on the so-called “GDP deflator”, the inflation measure used to convert estimates of nominal GDP into real, inflation-adjusted terms.

   

  The deflator is a broader measure than indicators such as consumer or producer price inflation and is therefore often considered a more useful gauge of overall price pressures in an economy. It is the preferred inflation measure of the US Federal Reserve.

   

  Since GDP is a measure of domestic output, arguably this deflator should only reflect the prices of domestically produced goods and services.

   

  In practice, this means netting out the price of imports in the calculation of the GDP deflator, a routine practice in countries with “robust statistical systems”, as Chang Liu, China economist at Capital Economics, puts it.

   

  For much of the time, a failure to do this might not matter too much. However, at times when import price inflation varies markedly from domestic inflation, such as when global commodity prices are rising or falling rapidly, it matters more..

   

  Because China does not net off shifts in import prices when calculating the deflator for most sectors of its economy, its deflator tracks producer price inflation much more closely.

   

  As a result, Mr Liu says: “China’s GDP deflator is not an accurate measure of changes in domestic output prices. It exaggerates inflation when import prices are rising, and understates it when import prices fall”.

   

  In the first quarter of the year, China’s deflator turned negative for the second time since 2000, coming in at -1.1 per cent. In comparison, consumer price inflation was +1.2 per cent. This means its inflation gap has jumped to 2.3 percentage points, even as it has fallen sharply in the likes of the US, as the chart shows.

   

  If the deflator is, as a result, understated, then real GDP growth is overstated by the same amount.

   

  “A reasonable guess might be that true inflation was 1-2 percentage points higher than the deflator shows. In that case, real GDP growth in Q1 would have been 5-6 per cent [rather than 7 per cent],” said Mr Liu, who added that the lower rate was closer to Capital Economics’ own estimate, based on activity data, of 4.9 per cent.

  In other words, when commodity prices are falling, China (and other EMs) may be routinely overstating GDP growth.  As a reminder, here are some estimates for ‘actual’ (i.e. not emanating from Beijing) Chinese economic output:

   

  While Capital Economics is careful to suggest that this statistical ‘error’ is baked into estimates like the ones shown above, one is certainly left to wonder whether the understated deflator should be simply one more factor to consider on the way to estimating what the real growth rate in China actually looks like.

  In other words, considering the above, it could well be that GDP growth in China is closer to flatlining than anyone cares to admit.

  

  

  
  
  

  

• Land Of The Debt Serf: How "Auto Title Loan" Companies Ruthlessly Prey On America's Growing Underclass

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Short-term lenders, seeking a detour around newly toughened restrictions on payday and other small loans, are pushing Americans to borrow more money than they often need by using their debt-free autos as collateral.

   

  Their hefty principal and high interest rates are creating another avenue that traps unwary consumers in a cycle of debt. For about 1 out of 9 borrowers, the loan ends with their vehicles being repossessed…

   

  But Jordan said it wouldn’t make a loan that small. Instead, it would lend her $2,600 at what she later would learn was the equivalent of 153% annual interest — as long as she put up her 2005 Buick Rendezvous sport utility vehicle as collateral.

   

  State law limits payday loans to $300, minus a maximum fee of $45. California also caps interest rates on consumer loans of less than $2,500 on a sliding scale that averages about 30%. Consumer loans above $2,500 have no interest rate limit.

   

  For that reason, essentially all auto title loans in the state are above that level, according to the state’s business oversight department.

   

  – From the excellent LA Times article: More Auto Title Lenders are Snagging Unwary Borrowers in Cycle of Debt

  Last week, I published an article highlighting how the use of “alternative financial services” has continued to increase despite the so-called economic “recovery.” These services include payday loans, refund-anticipation loans, pawnshops, rent-to-own services, and the little known, but recently surging, category called auto title loans. Here’s an excerpt from that post, titled Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery”:

  Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

   

  According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

   

  It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

  In that article, the category of auto title loans was just a minor blip on the radar, but it seems poised to take a growing share of the legalized American loanshark market.

  

  Yesterday, the LA Times published an excellent article on the topic of auto title loans describing what they are, and how they are being used to prey on America’s growing underclass of debt serfs. We learn that:

  Cash-strapped consumers are being shown a new place to find money: their driveways.

   

  Short-term lenders, seeking a detour around newly toughened restrictions on payday and other small loans, are pushing Americans to borrow more money than they often need by using their debt-free autos as collateral.

   

  So-called auto title loans — the motor vehicle version of a home equity loan — are growing rapidly in California and 24 other states where lax regulations have allowed them to flourish in recent years.

  Think about how troubling this is for a second. In the run-up to the last crisis, Americans borrowed on their home equity and used the proceeds to remodel kitchens, etc. Now these same Americans are so completely broke, the only asset they can borrow against is their cars, and they are desperately using the money to purchase groceries, pay cable bills, etc. Thank you Ben.

  

  Even worse, more than 10% of these debt serfs end up losing their cars. What will they end up borrowing against after the next crisis, their organs?

  Their hefty principal and high interest rates are creating another avenue that traps unwary consumers in a cycle of debt. For about 1 out of 9 borrowers, the loan ends with their vehicles being repossessed.

   

  “I look at title lending as legalized car thievery,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento advocacy group. “What they want to do is get you into a loan where you just keep paying, paying, paying, and at the end of the day, they take your car.”

   

  Jordan, 58, said she needed about $400 to help her pay bills for cable TV and other expenses that had been piling up after her mother died.

   

  She turned to one of a proliferating number of storefront title lenders, Allied Cash Advance, which promises to help “get the cash you need now.”

   

  But Jordan said it wouldn’t make a loan that small. Instead, it would lend her $2,600 at what she later would learn was the equivalent of 153% annual interest — as long as she put up her 2005 Buick Rendezvous sport utility vehicle as collateral.

  Nice to see how the 0% interest rate Ben Bernanke and his fellow criminals at the Federal Reserve instituted is trickling down so generously to average Americans.

  Why would the company want to lend her much more money than she needed? The key reason is that California has no limit on interest rates for consumer loans of more than $2,500, and it otherwise doesn’t regulate auto title loans.

   

  Six months later, unable to keep up with the loan payments, Jordan said, she was awakened at 5 a.m.

   

  “My neighbor came pounding on my door and said, ‘They’re taking your car!'” she recalled.

   

  In California, the number of auto title loans jumped to 91,505 in 2013, the latest data available, from 64,585 in the previous year and 38,148 in the first year, 2011, that was tracked by the state Department of Business Oversight.

   

  The study, one of the first comprehensive looks at the issue, found that the average loan was for $1,000 and a typical borrower paid $1,200 in fees a year on top of the principal.

   

  Loan sizes and fees vary by state, but the most common annual percentage rate on a one-month loan was 300%, according to Pew, which surveyed borrowers and analyzed regulatory data and company filings.

   

  “Your auto is in many cases one of your only assets. Be careful signing away the ownership of that car for some short-term cash,” said Jan Lynn Owen, the state’s commissioner of business oversight.

   

  The terms of auto title loans vary widely by state. But they all center on using the vehicle’s title, also known as the pink slip, as collateral. The borrower usually must have full ownership of the vehicle, and its value must be well above the amount of the loan.

   

  Because the loan is secured by the vehicle, lenders often don’t consider a consumer’s income or ability to repay. If the borrower falls behind, the car will be repossessed and sold to pay off the loan.

   

  State law limits payday loans to $300, minus a maximum fee of $45. California also caps interest rates on consumer loans of less than $2,500 on a sliding scale that averages about 30%. Consumer loans above $2,500 have no interest rate limit.

   

  For that reason, essentially all auto title loans in the state are above that level, according to the state’s business oversight department. Most range from $2,500 to $5,000. Of those, about 45% carried annual percentage rates of at least 100%, according to state data for 2013.

  How can this practice be seen as anything other than predatory?

  Meanwhile, the Fed continues to holds interest rates for financial oligarchs at 0%, patting itself on the back as America’s underclass grows and the oligarchy consolidates all wealth and power. Bernanke and his colleagues at the Federal Reserve have committed ongoing crimes against humanity, and nobody with any ability to stop it seems to care.

  *  *  *

  For related articles, see:

  The Road to Serfdom

  Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery”

  Just Another Tale from the Oligarch Recovery – $100 Million Homes Being Built on Spec

  Pennsylvania Looks to Legalize Payday Loans by Calling Them “Mirco-Loans”

  TBTF Banks Enter Payday Loan Business with 500% Interest Rates

  Portrait of the American Oligarchy – The Very Troubling Income and Wealth Trends Since 1989

   

  

  

  
  
  

  

• "One Belt, One Road" May Be China's 'One Chance' To Save Collapsing Economy

  In April, Chinese President Xi Jinping marked a historic visit to neighboring Pakistan. China, via Beijing’s “One Belt, One Road” initiative, will invest some $50 billion in Pakistani infrastructure, including power plants, roads, railways, and, perhaps most importantly, the Iran-Pakistan natural gas pipeline. The vast sum represents 53% more than the US has given Islamabad over the past 13 years combined. China is also set to invest an equally large sum in Brazil and is even considering the construction a railroad over the Andes, which would connect Brazil to China via the Pacific and ports in Peru. 

  On Sunday, Hungary became the first European country to sign a Silk Road MOU. Reuters has more:

  Hungary has become the first European country to sign a cooperation agreement for China’s new “Silk Road” initiative to develop trade and transport infrastructure across Asia and beyond, China’s foreign ministry said late on Saturday.

   

  China welcomes more European countries to look East, and strengthen cooperation with China and other Asian countries, and participate in the “One Belt, One Road” in various ways, said Wang Yi, China’s foreign minister, according to a separate statement on the website.

   

  Hungary hopes to closely cooperate with China and push on with the Hungarian-Serbia railway and other major construction projects, Hungary’s President Janos Ader was quoted as saying by the Chinese foreign ministry.

   

  China is helping fund and build a railway connecting Hungary and Serbia.

   

  Projects under the plan include a network of railways, highways, oil and gas pipelines, power grids, Internet networks, maritime and other infrastructure links across Central, West and South Asia to as far as Greece, Russia and Oman, increasing China’s connections to Europe and Africa.

  Although highly publicized, “One Belt, One Road” isn’t well understood (which partly reflects the sheer size and scope of the initiative). The program has been cast, by some, as a Chinese Marshall Plan, an interesting characterization, given that we’ve cast the AIIB as an implicit attempt by Beijing to institute a kind of Sino-Monroe Doctrine.As an aside, this also demonstrates an overwhelming tendency (and we may be guilty here as well), to view the world through glasses tinted by the unipolarity that has dominated global politics for more than six decades. Or perhaps it’s a reflection of the fact that China is indeed a rising hegemon, and as such its policies and programs resemble those of the US at critical historical moments when Washington seized opportunities to expand American influence. 

  Here, to cast some light on “The Yi Dai Yi Lu”, is Barclays:

  *  *  *

  Not just a Marshall Plan – bigger, more comprehensive and more inclusive

  The Yi Dai Yi Lu (YDYL) initiative has been labelled a “Chinese Marshall plan” in some global commentary. There are some similarities between China’s new initiative and the post World War II US-driven European Recovery Program (popularly known as the Marshall Plan after US Secretary of State George Marshall).

  • The emphasis on infrastructure and heavy industry as a mode to kick-start growth or recovery.
  • The Marshall Plan amount of US$13bn (c.US$120bn in current dollar value) is in the same order of magnitude as the initial US$40bn envisaged for the New Silk Road Fund.
  • The establishment of the Asian Infrastructure Investment Bank (AIIB) could be perceived to be analogous to the formation of the IMF and the World Bank to aid the structural transformation of economies.
  • The perception (in some quarters) of potential for Chinese hegemony in the YDYL countries.

  However, there are some obvious differences as well.

  • The world is not recovering from the aftermath of a world war. In fact, most of the countries that are potential YDYL project recipients could do just fine without the project impetus (though growth rates arguably would be lower).
  • The YDYL initiative is open to all countries, regardless of their political or economic regime.

  We note that the Chinese government has expressed its displeasure at the Marshall Plan moniker. A government spokesman said in early March 2015 “It is inappropriate to simply describe the Belt and Road initiatives as another Marshall Plan. These initiatives seek common development of countries with different ethnicities, religions and cultures, focusing on wide consultation, joint contribution and shared benefits.”

  More than just a political slogan – this concept has potential, in our view

  
  

  We expect companies in China from SOEs to private enterprises to embrace the YDYL initiative, indentifying the value it could bring to their businesses, rather than simply paying lip service to the leadership’s latest pronouncements. We believe YDYL has captured the imagination of the market. During the FY14 results season, around 70% of the companies in our Chinese metals & mining coverage universe – including both SOEs (eg, Shenhua, Chalco, Jiangxi Copper) and private companies (eg, Hongqiao) – had YDYL formulated in their strategy and plans in some form or other.

  Not just about big projects – infrastructure building is just the start

  
  

  We believe it would not be overstating the case to say that China’s economic power to date has not been reflected in its influence on the world. China’s economic power has not translated into “soft power” being projected into the outside world.

  We see three phases of the YDYL initiative beginning to mould China’s influence overseas over the course of a few decades:

  • (Predominantly) China-funded infrastructure using plenty of Chinese-made materials and machinery, ‘adopted’ technology and Chinese construction companies (with a high contribution of Chinese workforce as well – at least in the initial stages).
  • Increasing awareness and demand for Chinese brands, consumer products and cultural products as a result of increased interaction between the countries that receive YDYL investment increases and China (in short, China becoming “cool”). Chinese consumer goods companies could capitalize on the international growth phase – very similar to Coca Cola and Disney as they became US exports in prior decades.
  • Full integration of China with the global economy as global influences (not just from the economically successful countries) seep back into China. Creation of international companies out of China that are truly transnational in character (eg, the likes of Unilever), rather than those that are just “China-plus”.

  Our China Economist, Jian Chang, also believes that development along the New Silk Road could contribute to sustainability of China’s growth at 5-7% in the coming years and have a positive impact on China’s industrial upgrading and economic transformation.

  *  *  *

  As you can see, One Belt, One Road has far-reaching implications for China. For Chinese state-owned companies, return on investment is falling (diminishing returns in the face of overcapacity) and now sits just above 4%. Investments in US Treasurys yield even less.

   

  

  On the other hand, Barclays estimates ROIC on YDYL projects to be between 10-15%, an obvious improvement over both domestic investment and money parked in US safe haven assets.

   

  Meanwhile, embarking on large infrastructure projects with YDYL recipients can also help alleviate one of China’s pressing problems. The transition away from investment-led growth to a consumer-driven economy and a dearth of global demand have combined to leave China’s industrial sector in a state of perpetual overcapacity.

  

  

   

  YDYL countries offer a potential outlet (a pressure valve, if you will) as there is a pressing need for FAI in the form of roads, railways, and power generation. While infrastructure development in these countries has the potential to provide a short-term economic boost for China, an expanded Chinese presence could also yield medium- and long-term benefits. Here’s how Barclays sums things up:

  China could benefit in the short, medium and long term from achieving various levels of the targets outlined in YDYL. Many sectors could benefit from increased revenue, while non- monetary benefits such as goodwill and political clout could arise if China successfully helps developing countries improve their economies.

  • Short term: Ease industrial overcapacity, create demand for Chinese capital and consumer goods. Help reduce the economic disparity between inland and coastal China as YDYL land-based projects are focused on central and western China.
  • In the medium term: Raise demand for Chinese capital goods and Chinese products in general, effectively helping China transition to a consumption-driven economy. Maintain export growth.
  • Medium to long term: Internationalization of China’s currency as some loans to YDYL countries will include RMB in the basket of currencies used to denominate and settle loans, versus using US dollars.
  • Long term: Promote travel, cultural exchange and long-term cooperation in geopolitical, military and trade areas. Improve general image of China on the world stage. Increase returns for the portion of China’s reserves contributed to the development funds and diversify risks. Potentially ease tension between countries over territorial disputes.

  In sum, China benefits economically from YDYL in three important ways. First, investing in countries where FAI is needed to improve infrastructure not only helps China’s SOE’s achieve a higher ROIC than they could get domestically, but also helps to alleviate China’s industrial overcapacity. Second, establishing a Chinese presence in emerging, rapidly-growing economies will boost demand for Chinese products, which will aid the country in its transition to a consumption-driven economic model. Third (and we’ve mentioned this on a number of occasions in the past), using the yuan to settle AIIB loans will help establish the renminbi and decrease dependence on the US dollar on the way to ushering in a new era characterized by yuan hegemony.

  *  *  *

  Bonus: More from Barclays on the extent to which YDYL will relieve China’s industrial overcapacity problem and a bit on the differences between the Silk Road Fund and the AIIB.

  YDYL demand should help China export overcapacity

  We estimate that YDYL projects would absorb some of the overcapacity in Chinese industries such as cement, steel and aluminium, even under conservative assumptions. If we envisage a scenario assuming that roads, railway, power generation and power distribution assets grow by 5% from their existing asset base among YDYL countries, this could create 137mt of steel demand based on the existing asset base. This represents around 14% of China’s total steel production capacity as of 2014. Such a boost to demand could effectively give back steel producers in China pricing power, as the industry would go from 22% oversupplied to 8%, based on our estimates.

  

  

  Asian Infrastructure Investment Bank (AIIB)

  The AIIB was proposed by President Xi in his speech at the Indonesian Parliament on 3 October 2013. It was proposed to finance infrastructure construction and promote regional interconnectivity and economic integration. Application to be a founding member of AIIB ended on 31 March 2015 and 57 countries have been approved to be founding members. China has stated that it will not seek to be the single majority shareholder and is aiming to dilute its 50% of capital as other countries join and contribute their own capital. The bank is expected to be set up at the end of 2015.

  Silk Road Infrastructure Fund

  The US$40bn Silk Road Infrastructure Fund is to provide funding to carry out infrastructure, resources, industrial cooperation, financial cooperation and other projects related to YDYL. The company that manages the fund, The Silk Road Fund Co. Ltd, is backed by China’s foreign exchange reserves, China Investment Corp, Export-Import Bank of China, and China Development Bank. The fund started operation in February 2015 with US$10bn in capital, which was 65% contributed by China’s SAFE, which manages China’s Foreign Reserve. The fund is chaired by Jin Qi, the assistant governor of PBOC.

  Jin Qi, the chief executive of the Silk Road Fund, said in March 2015 that the fund will invest in projects with reasonable mid- and long-term returns, and it is not an aid agency that does not consider returns. She added that the Silk Road Fund will not be the sole financer of projects; rather it will seek to cooperate with other financial institutions when investing in projects in the future.

  

  

  

  
  
  

  

• Ex-US Intelligence Officials Confirm: Secret Pentagon Report Proves US Complicity In Creation Of ISIS

  Two weeks ago, courtesy of the investigative work of Nafeez Ahmed whose deep dig through a recently declassified and formertly Pentagon documents released earlier by Judicial Watch FOIA, we learned that Western governments deliberately allied with al-Qaeda and other Islamist extremist groups to topple Syrian dictator Bashir al-Assad. In his words: “According to the newly declassified US document, the Pentagon foresaw the likely rise of the ‘Islamic State’ as a direct consequence of the strategy, but described this outcome as a strategic opportunity to “isolate the Syrian regime.”

  Now, in a follow up piece to his stunning original investigative report titled “Secret Pentagon report reveals West saw ISIS as strategic asset Anti-ISIS coalition knowingly sponsored violent extremists to ‘isolate’ Assad, rollback ‘Shia expansion“, Nafeez Ahmed reveals that according to leading American and British intelligence experts, the previously declassified Pentagon report confirms that the West accelerated support to extremist rebels in Syria, despite knowing full well the strategy would pave the way for the emergence of the ‘Islamic State’ (ISIS).

  The experts who have spoken out include renowned government whistleblowers such as the Pentagon’s Daniel Ellsberg, the NSA’s Thomas Drake, and the FBI’s Coleen Rowley, among others.

  Their remarks demonstrate the fraudulent nature of claims by two other former officials, the CIA’s Michael Morell and the NSA’s John Schindler, both of whom attempt to absolve the Obama administration of responsibility for the policy failures exposed by the DIA documents. 

  This is Nafeez Ahmed’s follow up story, originally posted in Medium

  Ex-intel officials: Pentagon report proves US complicity in ISIS

  Renowned government whistleblowers weigh in on debate over controversial declassified documen

  Foreseeing ISIS

  As I reported on May 22nd, the US Defense Intelligence Agency (DIA) document obtained by Judicial Watch under Freedom of Information confirms that the US intelligence community foresaw the rise of ISIS three years ago, as a direct consequence of the support to extremist rebels in Syria.

  The August 2012 ‘Information Intelligence Report’ (IIR) reveals that the overwhelming core of the Syrian insurgency at that time was dominated by a range of Islamist militant groups, including al-Qaeda in Iraq (AQI). It warned that the “supporting powers” to the insurgency?—?identified in the document as the West, Gulf states, and Turkey —?wanted to see the emergence of a “Salafist Principality” in eastern Syria to “isolate” the Assad regime.

  The document also provided an extraordinarily prescient prediction that such an Islamist quasi-statelet, backed by the region’s Sunni states, would amplify the risk of the declaration of an “Islamic State” across Iraq and Syria. The DIA report even anticipated the fall of Mosul and Ramadi.

  Divide and rule

  Last week, legendary whistleblower Daniel Ellsberg, the former career Pentagon officer and US military analyst who leaked Pentagon papers exposing White House lies about the Vietnam War, described my Insurge report on the DIA document as “a very important story.”

  

  In an extensive podcast interview, he said that the DIA document provided compelling evidence that the West’s Syria strategy created ISIS. The DIA, he said, “in 2012, was asserting that Western powers were supporting extremist Islamic groups in Syria that were opposing Assad…

  “They were not only as they claimed supporting moderate groups, who were losing members to the more extremist groups, but that they were directly supporting the extremist groups. And they were predicting that this support would result in an Islamic State organization, an ISIS or ISIL… They were encouraging it, regarding it as a positive development, because it was anti-Assad, Assad being supported by Russia, but also interestingly China… and Iran… So we have China, Russia and Iran backing Assad, and the US, starting out saying Assad must go… What he [Nafeez Ahmed] is talking about, the DIA report, is extremely significant. It fits into a general framework that I’m aware of, and sounds plausible to me.”

  Ellsberg also noted that “it’s pretty well known” in the intelligence community that Saudi Arabia sponsors Islamist terrorists to this day:

  “It’s kind of a deal that the Saudis will support various Islamic extremists, all around the world, and the deal is that they [extremists] will not try to overthrow the corrupt, alcohol-drinking clique in Saudi Arabia.”

  Ellsberg, who was a former senior analyst at RAND Corp, also agreed with the relevance of a 2008 US Army-commissioned RAND report, quoted in my Insurge story, and also examined in-depth for Middle East Eye.

  The US Army-funded RAND report advocated a range of policy scenarios for the Middle East, including a “divide and rule” strategy to play off Sunni and Shi’a factions against each other, which Ellsberg describes as “standard imperial policy” for the US.

  The RAND report even confirmed (p. 113) that its “divide and rule” strategy was already being executed in Iraq at the time:

  “Today in Iraq such a strategy is being used a tactical level, as the United States now forms temporary alliances with nationalist insurgent groups that it had been fighting for four years… providing carrots in the form of weapons and cash. In the past, these nationalists have cooperated with al-Qaeda against US forces.”

  The confirmed activation of this divide-and-rule strategy perhaps explains why the self-defeating US approach in Syria is fanning the flames of both sides: simultaneously allying with states like Turkey who have continued to covertly sponsor ISIS, while working with Assad through the Russians to fight ISIS. Ellsberg added:

  “As Assad is the main opponent of ISIS, we are covertly coordinating our airstrikes against ISIS with Assad. So are we against Assad, or not? It’s ambivalent… I think that Obama and everybody around him is clear that they do not any longer as they’ve been saying want Assad to leave power. I don’t believe that that is their intention anymore, as they believe anyone who succeeds Assad would be far worse.”

  If true, Ellsberg’s analysis exposes the deep-rooted hypocrisy of the previous campaign against Assad, the current campaign against ISIS, and why both appear destined for failure.

  Frankenstein script

  Coleen Rowley, retired FBI Special Agent described my report on the DIA document as “excellent.”

  

  Rowley, who was selected as TIME ‘Person of the Year’ in 2002 after revealing how pre-9/11 intelligence was ignored by superiors at the FBI, said of the document:

  “It’s like the mad power-hungry doctor who created Frankenstein, only to have his monster turn against him. It’s hard to feel sorry when the insane doctor gets his due. But in our case, that script is constantly repeating. The quest for ‘full spectrum dominance’ and blindness of exceptionalism seems to mean we are doomed to keep repeating the ‘Charlie Wilson’s Frankenstein War’ script… The various neocon warmongers and military industrial complex, most of them inept Peter Principles, just don’t care.”

  Also commenting on the declassified Pentagon report, former NSA senior executive Thomas Drake?—?the whistleblower who inspired Edward Snowden?—?condemned “the West’s role in ISIS and threat of ‘violent extremists’, justifying surveillance and libercide at home.”

  

  Wedge strategy

  Alastair Crooke, a former senior MI6 officer who spent three decades at the agency, said yesterday that the DIA document provides clear corroboration that the US was covertly pursuing a strategy to drive an extremist Salafi “wedge” between Iran and its Arab allies.

  

  The strategy was, Crooke confirms, standard thinking in the Western intelligence establishment for about a decade.

  “The idea of breaking up the large Arab states into ethnic or sectarian enclaves is an old Ben Gurion ‘canard,’ and splitting Iraq along sectarian lines has been Vice President Biden’s recipe since the Iraq war,” wrote Crooke, who had coordinated British assistance to the Afghan mujahideen in the 1980s. After his long MI6 stint, he became Middle East advisor to the European Union’s foreign policy chief (1997–2003).

  “But the idea of driving a Sunni ‘wedge’ into the landline linking Iran to Syria and to Hezbollah in Lebanon became established Western group think in the wake of the 2006 war, in which Israel failed to de-fang Hezbollah,” continued Crooke. “The response to 2006, it seemed to Western powers, was to cut off Hezbollah from its sources of weapons supply from Iran…

  “… In short, the DIA assessment indicates that the ‘wedge’ concept was being given new life by the desire to pressure Assad in the wake of the 2011 insurgency launched against the Syrian state. ‘Supporting powers’ effectively wanted to inject hydraulic fracturing fluid into eastern Syria (radical Salafists) in order to fracture the bridge between Iran and its Arab allies, even at the cost of this ‘fracking’ opening fissures right down inside Iraq to Ramadi. (Intelligence assessments purpose is to provide ‘a view’?—?not to describe or prescribe policy. But it is clear that the DIA reports’ ‘warnings’ were widely circulated and would have been meshed into the policy consideration.)

  “But this ‘view’ has exactly come about. It is fact. One might conclude then that in the policy debate, the notion of isolating Hezbollah from Iran, and of weakening and pressurizing President Assad, simply trumped the common sense judgment that when you pump highly toxic and dangerous fracturing substances into geological formations, you can never entirely know or control the consequences… So, when the GCC demanded a ‘price’ for any Iran deal (i.e. massing ‘fracking’ forces close to Aleppo), the pass had been already partially been sold by the US by 2012, when it did not object to what the ‘supporting powers’ wanted.”

   

  Intel shills

  Crooke’s analysis of the DIA report shows that it is irrelevant whether or not “the West” should be included in the “supporting powers” described by the report as specifically wanting a “Salafist Principality” in eastern Syria. Either way, the report groups “the West, Gulf countries and Turkey” as supporting the Syrian insurgency together?—?highlighting that the Gulf states and Turkey operated in alliance with the US, Britain, and other Western powers.

  The observations of intelligence experts Ellsberg, Rowley, and Drake add further weight to Crooke’s analysis. They come in addition to comments I had previously received on the DIA document from former MI5 counter-terrorism officer, Annie Machon, and former counter-terrorism intelligence officer, Charles Shoebridge.

  The comments undermine the recent claims of disgraced US national security commentator, John Schindler, a retired NSA intelligence officer, to the effect that the August 2012 DIA report is “almost incomprehensible,” “so heavily redacted that its difficult to say much meaningful about it,” “Nothing special here, not one bit,” “routine,” “a single data point,” and so on.

  Schindler cites the DIA’s use of ‘Curveball’?—?the Iraqi informant who fabricated claims about Saddam Hussein’s weapons of mass destruction (WMD)?—?as evidence of the agency’s “less than stellar reputation.” But this misrepresents the fact noted by the CIA’s Valerie Plame Wilson that “it was widely known [in the intelligence community] that CURVEBALL was not a credible source and that there were serious problems with his reporting.”

  As I’ve documented elsewhere, the WMD threat mythology was not the outcome of an ‘intelligence failure’, as Schindler and his ilk like to claim, but a consequence of the corruption and politicization of intelligence under the influence of dubious vested interests.

  Also contrary to Schindler’s misinformation, an IIR provides raw intelligence data from human sources (HUMINT), not simply rumour, gossip or opinion. Before wider distribution, the IIR is vetted to determine whether it is worthy of dissemination to the intelligence community. IIRs then provide a source basis for evaluation, interpretation, analysis and integration with other information.

  Far from justifying the dismissal of the relevance of the declassified DIA documents, this shows that urgent questions must be asked:

  What happened to this raw intelligence data, described by six US UK intelligence experts as providing damning confirmation of how Western strategy led to the rise of ISIS?

  And why did it not lead to a change in policy, despite DIA analysts’ clear warning of the outgrowth of an ISIS-entity from Western allies’ desire to see a ‘Salafist Principality’ in the region?—?a warning which was, in hindsight, quite accurate?

   

  Are intel critics traitors?

  Schindler previously characterized NSA whistleblower Edward Snowden as a traitor and “pawn… of America’s adversaries.”

  He now declares that those who cite the DIA report as proof the intelligence community “knew more about the rise of the Islamic State than they let on” are at best “fools; at worst, they’re deceivers who have lied to the American people.”

  On the contrary, six decorated former senior US and British intelligence officials, many with direct experience of IIRs and their function, agree that the DIA report provides significant insight into the kind of intelligence available to the US intelligence community at the time.

  Yet for Schindler, it seems, Ellsberg, Drake, Rowley, Crooke, Machon and Shoebridge are all, effectively, traitors simply for lending their expertise to public understanding of the newly declassified documents.

  As Marcy Wheeler points out in Salon, the large corpus of secret DIA documents obtained by Judicial Watch demonstrates, at the least, that:

  “The Intelligence Community (IC) knew that AQI had ties to the rebels in Syria; they knew our Gulf and Turkish allies were happy to strengthen Islamic extremists in a bid to oust Assad; and CIA officers in Benghazi (at a minimum) watched as our allies armed rebels using weapons from Libya. And the IC knew that a surging AQI might lead to the collapse of Iraq. That’s not the same thing as creating ISIS. But it does amount to doing little or nothing while our allies had a hand in creating ISIS. All of which ought to raise real questions about why we’re still allied with countries willfully empowering terrorist groups then, and how seriously they plan to fight those terrorist groups now. Because while the CIA may not have deliberately created ISIS, it sure seems to have watched impassively as our allies helped to do so.”

  However, Wheeler overlooks that the reliance on foreign allies is a standard proxy war strategy?—?as Ellsberg explained in his interview?—?used by the covert operations arm of the US government to guarantee ‘plausible deniability.’

  As I noted in my Middle East Eye analysis of the DIA document, there is extensive evidence against which to contextualize the DIA report’s assertions. This evidence shows that the CIA did not merely watch “impassively” as the Gulf states and Turkey supported violent extremists in Syria, but actively supervised, facilitated and accelerated this policy.

  The August 2012 DIA document further corroborates this by repeatedly pointing out that the support to the Syrian insurgency from its allies was itself backed by “the West”?—?despite awareness of their intent to establish an extremist Salafi political entity.

  While the DIA document was, indeed, just one data-point, analyzing it in context with the other DIA reports along with incontrovertible facts in the public record, establishes that the Pentagon was complicit in its allies’ support of Islamist terrorists, despite recognizing this could create an “Islamic State” in Iraq and Syria.

  These revelations show that the real traitors are not the courageous whistleblowers who sacrifice everything to speak out on behalf of the public interest, but shameless shills like Schindler and Morell who willfully sanitize a dysfunctional and dangerous ‘national security’ system from legitimate public scrutiny.

   

   

  ---

  Dr Nafeez Ahmed is an investigative journalist, bestselling author and international security scholar. A former Guardian writer, he writes the ‘System Shift’ column for VICE’s Motherboard, and is also a columnist for Middle East Eye. He is the winner of a 2015 Project Censored Award, known as the ‘Alternative Pulitzer Prize’, for Outstanding Investigative Journalism for his Guardian work, and was selected in the Evening Standard’s ‘Power 1,000’ most globally influential Londoners.

   

  Nafeez has also written for The Independent, Sydney Morning Herald, The Age, The Scotsman, Foreign Policy, The Atlantic, Quartz, Prospect, New Statesman, Le Monde diplomatique, New Internationalist, Counterpunch, Truthout, among others. He is the author of A User’s Guide to the Crisis of Civilization: And How to Save It (2010), and the scifi thriller novel ZERO POINT, among other books. His work on the root causes and covert operations linked to international terrorism officially contributed to the 9/11 Commission and the 7/7 Coroner’s Inquest.

  

  

  
  
  

  

• How Obama Spells 'Respect'

  No R.E.S.P.E.C.T. for the Truth…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• Markets, Not Janet Yellen, Should Set Interest Rates

  Submitted by Dr. Richartd Ebeling via EpicTimes.com,

  Financial markets in the United States and around the world are all waiting with “bated breath” for when the Federal Reserve modifies its “easy money” policy and starts to raise interest rates. No one, however, asks a simple question: Why is the American central bank in the interest rate setting business?

  

   

  In May 20^th, the minutes were released of the April 2015 meeting of the Open Market Committee (OMC) of the Federal Reserve. The Open Market Committee decides when and by how much America’s central bank should intervene into the financial markets to influence the amount of money and credit in the banking system and, therefore, over time, in the U.S. economy as a whole.

  The members, it seems, were still divided as to whether or not the OMC should start nudging interest rates up through monetary policy, or keep them at the low levels they have been at for years, with a majority leaning to not doing so until maybe September.

  In its usual ambiguous language, the published summary of the OMC meeting stated that, “Many participants . . . thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.”

  The next day, Friday, May 21^st, Federal Reserve Chairwoman, Janet Yellen, spoke before the Greater Providence Chamber of Commerce in Rhode Island and said she, “Thinks it will be appropriate at some point this year to take the initial step to raise the federal-funds rate target and begin the process of normalizing monetary policy.”

  But she added that, “The Fed’s objectives of maximum employment and price stability would best be achieved by proceeding cautiously.”

  How the Fed Creates Money and Influences Interest Rates

  A key Federal Reserve policy instrument or “tool” is, as Yellen stated, the Federal Funds rate. This is the rate of interest that banks charge each other for overnight or short-term borrowing.

  Every bank is required under Federal Reserve rules to maintain a certain amount of cash reserves against its outstanding depositor liabilities. On a daily basis, sums of money deposits flow in and money withdrawals flow out of every bank and financial institution. Sometimes banks find that the withdrawals have exceeded deposits into their vaults, and they are threatened with temporarily falling below that required minimum of cash reserves. At other times, the reverse may be the case, and deposits have exceeded withdrawals resulting in “excess reserves,” that is, those above the minimum required.

  Banks borrow and lend funds between each other to cover and smooth out these temporary fluctuations in their deposit and withdrawal flows of cash, and a rate of interest emerges on the market reflecting the availability or “tightness” of such excess funds for some banks to lend to others running a bit short, short-term.

  The Federal Reserve can influence this Federal Funds interest rate by purchasing or selling U.S. government securities. The Federal Reserve is prohibited by law from directly lending to the U.S. Treasury. The Treasury first borrows money to cover the government’s budget deficit by issuing IOUs – short-term or longer-term securities – to financial institutions or larger private lenders.

  The Federal Reserve then goes into what is called the “secondary market” and offers to buy some of those securities being held by financial institutions or individuals, and pays for them by creating new money that then enters the banking system when those who have sold those government securities to the Federal Reserve deposit the check payments into their bank accounts.

  The banks receiving those additional deposits of this new money now have larger excess cash balances with which to extend loans (after setting aside a small fraction as a required cash reserve against the depositor’s newly deposited money).

  Finding themselves with larger available funds to lend, banks with try to attract interested and willing borrowers by lowering the rates of interest at which they offer to lend, given such things as the potential borrower’s creditworthiness and the type and term of the loan.

  This includes the short-term Federal Funds rate at which banks are lending to each other. Money is said to be “easy” when the Federal Funds rates is low or falling, since this means the banking system is awash with cash to facilitate the reserve requirements of those banks briefly short of required reserves.

  This process is reversed when (or if) the Federal Reserve sells government securities rather than buying them. The purchasers of those Treasury securities from the Federal Reserve’s portfolio pay for them out of their bank accounts. This “drains” reserves out of the banking system, tending to push up interest rates, as funds for lending purposes (all other things remaining the same) are reduced.

  

  $4 Trillion of New Money, But Low Price Inflation

  Since 2009, the Federal Reserve has been adding loanable funds into the banking system is such a large amount (around an extra $4 trillion) over the last five and a half years that the Federal Funds rate, when adjusted for the rate of price inflation has been “negative” virtually the entire time, as have one-year Treasury securities.

  And reflecting this, interest rates on various commercial and other loans have been “dirt cheap,” again, especially when adjusted for price inflation as measured, say, by the Consumer Price Index.

  It may be asked, why, if this is the case, price inflation has not been much higher with $4 trillion of extra loanable funds in the banking system? Sure, with that much additional money in the economy prices in general should have been rising much higher than the CPI measured rate of price inflation of far less than two percent a year.

  Fearful of the price inflation its own “easy” monetary policy might generate, the Federal Reserve has been paying banks not to lend a sizable portion of that $4 trillion by offering banking institutions a rate of interest slightly above what it could earn by lending to you and me. Thus, nearly $3 trillion of the $4 trillion have sat in the banks as unlent “excess reserves.”

  In viewing and treating interest rates as “policy tools” to influence the general levels of employment and prices in the economy, the Federal Reserve prevents interest rates from doing their “job” in a functioning market economy.

  Market-Based Interest Rates have Work to Do

  In the free market, interest rates perform the same functions as all other prices: to provide information to market participants; to serve as an incentive mechanism for buyers and sellers; and to bring market supply and demand into balance.

  Market prices convey information about what goods consumers want and what it would cost for producers to bring those goods to the market. Market prices serve as an incentive for producers to supply more of a good when the price goes up and to supply less when the price goes down; similarly, a lower or higher price in?uences consumers to buy more or less of a good. Finally, the movement of a market price, by stimulating more or less demand and supply, tends to bring the two sides of the market into balance.

  Market rates of interest balance the actions and decisions of borrowers (investors) and lenders (savers) just as the prices of shoes, hats, or bananas balance the activities of the suppliers and demanders of those goods. This assures, on the one hand, that resources that are not being used to produce consumer goods are available for future-oriented investment, and, on the other, that investment doesn’t outrun the saved resources available to support it.

  Interest rates higher than those that would balance saving with investment stimulate more saving than investors are willing to borrow, and interest rates below that balancing point stimulate more borrowing than savers are willing to supply.

  There is one crucial difference, however, between the price of any other good that is pushed below that balancing point and interest rates being set below that point. If the price of hats, for example, is below the balancing point, the result is a shortage; that is, suppliers offer fewer hats than the number consumers are willing to buy at that price. Some consumers, therefore, will have to leave the market disappointed, without a hat in hand.

  

  Central Bank-Caused Imbalances and Distortions

  In contrast, in the market for borrowing and lending the Federal Reserve pushes interest rates below the point at which the market would have set them by increasing the supply of money on the loan market. Even though savers are not willing to supply more of their income for investors to borrow, the central bank provides the required funds by creating them out of thin air and making them available to banks for loans to investors. Investment spending now exceeds the amount of savings available to support the projects undertaken.

  Investors who borrow the newly created money spend it to hire or purchase more resources, and their extra spending eventually starts putting upward pressure on prices. At the same time, more resources and workers are attracted to these new investment projects and away from other market activities.

  The twin result of the Federal Reserve’s increase in the money supply, which pushes interest rates below that market-balancing point, is an emerging price in?ation and an initial investment boom, both of which are unsustainable in the long run. Price in?ation is unsustainable because it inescapably reduces the value of the money in everyone’s pocket, and threatens over time to undermine trust in the monetary system.

  The boom is unsustainable because the imbalance between savings and investment will eventually necessitate a market correction when it is discovered that the resources available are not enough to produce all the consumer goods people want to buy, as well as all the investment projects borrowers have begun with the newly created money for which real savings does not exist to complete or fully sustain them.

  

  Federal Reserve Policies Bring About the Boom and the Bust

  What is important to understand is that while price inflation carries it own negative effects on the economy by eroding the real value, or buying power, of the money in people’s pockets, the most serious consequences of monetary expansion and interest rate manipulation are those distortions and imbalances brought about in the underlying supply and demand relationships between savings and investment in the economy.

  That is why even if price inflation, as measured by such statistical methods as the Consumer Price Index, may seem moderate or even near zero, as in recent circumstances, the most serious effects brought about by Federal Reserve monetary policy are those beneath the surface of the macroeconomic aggregates of total employment, total output, or the “general price level” of goods and services.

  Janet Yellen and the other members of the Board of Governors may be waiting for price inflation to rise into the neighborhood of two percent a year (their desired “target” for inflation) before being seriously concerned about the impact of their own easy money policies. But by that time, beneath that macroeconomic surface of statistical aggregates and averages, the savings and investment patterns and the use and allocation of labor and other resources among different sectors and activities in the economy will have been given a “wrong twist.”

  As a consequence, Yellen’s monetary and interest rate policies meant to assure full employment and stable prices will have set the stage for another “bust” following another unsustainable “boom.”

  In her address in Rhode Island Janet Yellen recalled taking economics classes at Brown University and thinking, “Gee, I didn’t realize how much influence the Federal Reserve has on the health of the economy. If I ever have a chance at public service” working at the Federal Reserve “would be a worthwhile thing to do.”

  The only way to bring an end to these cycles of booms and busts is to end Federal Reserve power and authority to manipulate the money supply and interest rates. But that is unlikely to happen any time soon with “activist” policy addicts like Yellen running the central bank who think it is “a worthwhile thing to do.”

  

  

  
  
  

  

• America's Housing Problem: Buying And Renting Are Both Unaffordable

  In Q1, the average down payment on single family homes, condos, and townhomes fell to just 14.8% — the lowest level since Q1 2012. 

  As discussed here on Sunday, this is the inevitable result of a move by FHFA to lower the minimum down payment on loans backed by Fannie and Freddie to 3% from 5%. This had the knock-on effect of prompting FHA to cut premiums in order to retain market share. The idea, of course, is to make the homeownership dream a reality for as many Americans as possible irrespective of whether or not they can actually afford their mortgage payments. After all, “it’s only right.” 

  As it turns out, the FHFA’s best efforts at resurrecting the same type of underwriting standards which precipitated the housing bubble haven’t been enough to transform what has become a nation of renters back into a nation of owners. Leaving aside — for now anyway — the issue of whether the homeownership rates that persisted pre-crisis were realistic, the factors impeding new home buying in America will be familiar to those who frequent these pages: student debt and lackluster wage growth. Meanwhile, rising rents are squeezing renters, making it even more difficult to scrape together enough for a down payment. WSJ has more:

  Last decade’s housing crisis has given way to a new one in which many families lack the incomes or savings needed to buy homes, creating a surge of renters and a shortage of affordable housing.

   

  The U.S. homeownership rate is now below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage more Americans to buy homes. Conventional wisdom says the rate, now at 63.7%, is leveling off to where it was for decades before the housing-market peak.

   

  But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least the next 15 years.

   

  Demographics tell the story. The Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average..

   

  Fewer than half of new households formed this decade and next will actually own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners. The downtrend would push the homeownership rate below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

   

  The declines reflect a surge of new renter households, which is boosting rents. Together with tougher mortgage-qualification rules, this will leave households stuck between homes they can’t qualify to purchase and rentals they can’t afford, says Ron Terwilliger, who spent two decades running Trammell Crow Residential, one of the nation’s largest apartment developers..

   

  A related concern is that qualified households will be unable to move from renting to owning as housing-cost burdens, slow wage growth and student debt make it harder to cobble together even a modest down payment.

   

  “America is blissfully unaware of this,” says Lewis Ranieri, the financier who co-invented the mortgage-backed security, which allowed large numbers of baby boomers to become homeowners beginning in the 1980s. “We’re rapidly running to a crisis in less than 10 years.”

   

  

  In other words, between Fannie, Freddie, the Fed, and Wall Street’s securitization machine, the US created a bubble which drove the homeownership rate to levels not commensurate with economic realities (i.e. incomes, FICOs, etc). Invariably, the bubble burst, turning a nation of homeowners to a nation of renters and demand for rentals has naturally driven up rents.

  

  Meanwhile, Fed policy has failed to boost aggregate demand and in turn, wage growth remains in the doldrums for the vast majority of workers…

  

  …while new graduates are unable to buy homes because 1) the “strong” jobs market is a BLS fabrication, and 2) they are weighed down by record student debt…

  

  …and homes purchased by flippers are increasingly being sold not to new occupants, but to landlords…

  

  *  *  *

  What the above suggests is that for many Americans, buying is out of the question and renting is becoming increasingly unaffordable as the entire household formation “upside case” is now collapsing on itself, something we’ve discussed on a number of occasions. Recall the rise in “parental co-residence rates“:

  

  

  Note that this situation has the potential to become self-fullfilling. That is, as homeownership becomes increasingly unrealistic, demand for rentals will only increase, driving further increases in the cost of rental housing. The question then becomes this: what happens when a family that can’t afford a down payment can no longer afford to pay the rent?

  

  

  
  
  

  

• What Keeps A Billionaire Awake At Night: "Envy, Hatred, Social Warfare" And The "Destruction Of The Middle Class"

  There is something morbidly ironic when one of the world’s richest men, in this case South African Johann Rupert, who has made billions (his net worth is roughly $7.5 billion) peddling Cartier jewelry and Chloe fashion as founder and chairman of luxury conglomerate Richemont, whose 20 brands also include Vacheron Constantin and Montblanc, said tension between the rich and poor is set to escalate, that the “envy, hatred and the social warfare” may crush society, and that “we are destroying the middle classes at this stage and it will affect us.”

  According to Bloomberg, Rupert said that “we cannot have 0.1 percent of 0.1 percent taking all the spoils,” adding that “it’s unfair and it is not sustainable.” Being among the 0.1% of said “0.1% of 0.1%” he should know.

  “How is society going to cope with structural unemployment and the envy, hatred and the social warfare?” he said. “We are destroying the middle classes at this stage and it will affect us. It’s unfair. So that’s what keeps me awake at night.”

  One other person who has been quite a fan of such as “fairness doctrine”, at least as far as it does not directly affect his personal wealth, is none other than crony capitalist and railroad enthusiast #1, Obama’s personal tax advisor and the world’s third richest man: Warren Buffett, who for all his sage advice on income tax has had surprisingly little to say about taxation on financial assets/capital, esatate of carried interest tax. Or has, in any other way, provided any of his wealth for “fair” use among the destitute.

  Which is why we skeptical of Rupert’s preaching and motives, especially since he himself, unlike millions of other people, actually can do something about “unfair” social inequalty if he really feels the deep urge. 

  Furthermore, it is now much too late to do anything about the social issues which Rupert accurately lays out as the biggest problems facing the world. There was some hope in 2008 when resetting the “unfair” system was a distinct possibility, however it was if not Rupert, than his billionaire banker peers who hijacked the system once more, transferred some $50 trillion in wealth away from the global middle class to the “0.1% of 0.1%”, and have virtually assured a revolution or war.

  Which incidentally is precisely what another billionaire, Paul Tudor Jones, warned is coming.  Recall from his mid-March TED talk:

  “This gap between the 1 percent and the rest of America, and between the US and the rest of the world, cannot and will not persist…  Historically, these kinds of gaps get closed in one of three ways: by revolution, higher taxes or wars.”

  Still, we must admit we have a sweet spot for Rupert. As Bloomberg describes the university dropout whose father made a fortune setting up Rembrandt Tobacco Corp. and selling it off, has in the past made other social critiques. Nicknamed ‘Rupert the Bear’ for his pessimistic views on the economy, the 65-year-old refers to himself as a “reformed prostitute,” having spent a decade as an investment banker. He said in 2008 that the collateral damage from the financial crisis was yet to come.

  “We’re in for a huge change in society,” he said Monday. “Get used to it. And be prepared.”

  Yet what is surprising is that instead of laying the blame squarely where it belongs, at the feet of the Mandarins inhabiting the Marriner Eccles building, and their equally clueless central banker peers around the globe, Rupert mostly accuses technology and… robots?!

  [T]ension between the rich and poor is set to escalate as robots and artificial intelligence fuel mass unemployment.

   

  The founder and chairman of Richemont… said he expects advances in technology to lead to job losses after having read books on the subject recently. Conflicts between social classes will make selling luxury goods more tricky as the rich will want to conceal their wealth, Rupert said in a speech Monday at the Financial Times Business of Luxury Summit in Monaco.

  Don’t worry Johann: by the time there is a robot for every job, the entire market will have taken itself private thanks to the unseen “cost-savings” as the companies of the S&P500 fire everyone except the executive suite. And for that is just one automaton you have to thank: whichever banker puppet is currently in charge of the Federal Reserve, the ECB, the BOJ, the PBOC or the SNB.

  

  

  
  
  

  

• Rand Paul And The Bogus Terrorist Threat In America

  Excerpted from Bill Bonner's "We Salute You, Rand Paul" via Bonner & Partners,

  …

  You can divide Congress into two groups: the fools, who are just not clever enough to understand what is going on, and the knaves, who are too clever by half.

  Between them, the cronies have a field day… duping the former and conniving with the latter.

  Rand Paul’s father, Ron, never fit into either group. Maybe Rand doesn’t fit either…

  Ron Paul couldn’t be bought. And he was smart enough to see that the do-gooders weren’t doing any good – except for themselves.

  If we had a beef with Ron, it was that he lacked cynicism. We often wanted to ask: What’s a nice guy like you doing in a place like this?

  It was as though he didn’t see the sordid scenes going on around him… and wouldn’t stoop to notice the sleazy motives of his fellow representatives.

  He was always for liberty and the Constitution… and that was it. It was as though he thought he had been elected to defend the liberty of his constituent voters.

  What they really wanted was something else – power, status, and other people’s money. But Ron ignored it… like one ignores the character flaws of an old friend… and continued on his lonely mission.

  Surely, Rand must have learned from watching his father.

  But what?

  He grew up in a political world – full of stuffed shirts and empty heads.

  Did he learn how to work with this crumbly, second-rate clay and shape it into the world he and his father wanted? Or did he learn how to get along by going along… and maybe become more successful, at least in Washington’s terms, than his father?

  A Bogus Threat

  We had our doubts. It seemed as though the apple had fallen… and then rolled far from the tree. But then, this past weekend, despite howls of protest, Rand did his father’s work.

  The Patriot Act was an embarrassment from the get-go. How could a people who valued their liberty give it up so readily?

  The terrorist threat was gaudy and spectacular, but never serious.

  Statistically, we Americans are more likely to be killed by our own children than by terrorists. We are more likely to starve to death. Or die after tripping over furniture.

   

  

  Chart: Acting-Man.com

  And for every American killed by a terrorist, there are about 100 who are gunned down, run over, or Tasered to death by their own police.

  Still, eavesdropping was sold to the public as a way to head off terrorist attacks.

  How many attacks did it thwart?

  Zero.

  The Washington Times reports:

  FBI agents can’t point to any major terrorism cases they’ve cracked thanks to the key snooping powers in the Patriot Act, the Justice Department’s inspector general said in a report Thursday that could complicate efforts to keep key parts of the law operating.

   

  Inspector General Michael E. Horowitz said that between 2004 and 2009, the FBI tripled its use of bulk collection under Section 215 of the Patriot Act, which allows government agents to compel businesses to turn over records and documents, and increasingly scooped up records of Americans who had no ties to official terrorism investigations.

  So we salute Rand Paul. Good on you. In the long march to a police state, the feds were forced to take a small step back.

  This example made us think about other people doing good work. (Who says we are always negative!)

  There are millions and millions of people who do good work every day. Few of them get their names in the paper. They clean their homes. They drive trucks and analyze stocks. They weld steel and teach children.

  

  

  
  
  

  

• The 50 Most Illiquid Stocks

  Now that everyone is familiar with the idea of going long the most shorted stocks, a strategy which over the past several years was easily the best alpha generator available and has since become so commoditized there is even a short squeeze ETF, the SQZZ, the easy money has been made. As a result, hedge funds up and down Wall Street, or rather Park Avenue, are scratching their heads how to collude best (just don’t tell the SEC) and generate the highest returns while risking the smallest amount of capital.

  One of the strategies that has emerged in the post-squeeze normal is cornering the most illiquid stocks, and pushing them up, or down with relative ease due to the lack of liquidity and/or broad participation. Think of it as what the HFTs do each and every second with countless top hunts meant to ignite momentum once stops are hit, and to give HFT algos virtually risk-free returns with virtually no capital at risk.

  But how does one go about quantifying what are the most illiquid stocks: is it the ones that trade the least on any given day (a double edge sword, because exiting a position would be that much more problematic after pushing the prices to any desired level), or is it simply those where individual trades have the highest price impact?

  One suggested answer is to look at the equities whose current float is a small fraction of their total outstanding stock: these are names which have a big institutional concentration due to their recent corporate history, typically the result of Chapter 11 exits where the bondholders were equitized (Sears, Federal Mogul), or due to a recent IPO in which just a small amount of their total shares outstanding were sold to the public (incidentally, so the underwriters can control the price easier) or otherwise have the bulk of their shares locked up and unable to cushion (and take advantage of) big price swings.

  So to find those names which are most illiquid based on this definition, below we present a CapIQ screen of the top 50 Russell 3000 names that have the lowest float as a % of total outstanding shares.

  

   

  Naturally, the above list is not exhaustive and with a little searing one can surely find far more “illiquid” stocks based on any one particular definition of the word. However, the above list is likely a good place to start when analyzing the names which hedge funds would likely dabble in when trying to recreate HFT-type stop hunts at a major level as the preponderance of other illiquid names are simply too small for hedge funds to take a stake, as such they are at best PA trading vehicles.

  As a result one possible trade idea would be to put on a long-term straddle (preferably while VIX is still cheap) on some of the above names, and hope for a volatility shake out, either to the up, or downside.

  With the amount of liquidity packets in the broader market, and the sense that something big may be just over the horizon, which is now even starting to dent the broader market’s relentless buying spree for the past 3 years, finding a pool of potentially heightened volatility and trading in advance of implied vol becoming realized, is probably not the worst possible trade idea.

  

  

  
  
  

  

• Millennials Have No Hope Of Buying A Home In These 13 US Cities

  In “This Is What Happens When A Millennial Tries To Get A Job,” we highlighted 1) high youth unemployment (U-6 at nearly 14%) and 2) the failure of America’s university system to prepare new entrants for the job market, on the way to painting a rather grim picture for America’s newly-minted college graduates. 

  We’ve also been keen to emphasize the fact that the “strong” labor market is anything but, as wage growth is essentially non-existent and upside “surprises” benefit from the now ubiquitous “vanishing worker.” Given this, it’s no surprise that many of America’s best and brightest find themselves serving food and drinks after graduation even as they owe an average of $35,000 in student loans, debt which is curtailing homeownership — or at least delaying the process. 

  Given the above, it’s not surprising that in many large US cities, buying a home is simply out of the question for most millennials, even assuming they have saved up 20% for a down payment. Bloomberg has more:

  Millennials have been priced out of some of the biggest U.S. cities, with residential real estate prices rising even as wage growth remains elusive. 

   

  The good news is that out of 50 metropolitan areas, 37 are actually affordable for the typical 18-34 year-old.

   

  The bad news is that the areas that often most appeal to young adults are also the ones where homeownership is the most out of reach..

   

  Bloomberg’s calculations assume that millennials have already saved up the 20 percent they’d need for a down payment, which is a problem in itself. Families where the head of household was under 35 years old had a median net worth of $10,400 in 2013, according to the Federal Reserve’s Survey of Consumer Finances.

   

  Many millennials “don’t have the money for a down payment or can’t afford to buy where they want to buy,” said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “It’s tougher to buy a home in the city.”

   

  That means millennials living in unaffordable markets will be forced to shell out money for ever-increasing rents, instead of building equity.

   

   

  
  

   

   

  *  *  *

  We’ll leave you with the following quote from Dan Smart, a 28-year old with a graduate degree who spoke to Bloomberg about what it’s like for young professionals in New York:

  “I’m making a good salary and I’m doing all these things that I’m supposed to be doing. But you’re just not able to save enough to get to that number. Housing is so inflated.”

  

  

  
  
  

  

• Dow Red In 2015 As S&P Takes Out Key Support: Trannies Tank, Crude Clipped, Dollar Dumped

  It seems the hangover from Friday's "good" news continues, warranting only one possible clip today…

  First things first – The Dow dipped negative year-to-date, was briefly rescued by no-news Greece headlines…

  

   

  And the S&P 500 (cash) index closed back below its 100DMA (at 2084.57) for the first time in a month… closing at its lows… (and falling further after hours in futures)

  

   

  But while stocks were weak, the big moves were in The Dollar and Crude – both notably weaker…

  The dollar was monkey-hammered today driven by a surge above 1.1200 in EURUSD… (3rd worst day for USD in 3 months)

  

   

  As The Euro kept breaking significant levels…

  

   

  Crude did not care but gold, silver and copper eked out gains…

  

   

  In the only market The Fed cares about, stock indices were all weaker led by more turmoil in Trannies

  

   

  The Greek headline was perfectly timed to ramp S&P 500 futures to VWAP (even though it was actually bad news)…

  

   

  Notably, AAPL's weakness today weighed further on NASDAQ and leaves it the underperformer post Payrolls… Stocks closed "NOT" off the lows…

  

   

  AAPL's day explained…

  

   

  In case you missed it… Apple's Presentation was something like this… "am I right?"

   

  The Treasury Complex was generally bid with the long-end underperforming (late day weakness in bonds driven by the no-news Greece headlines)….

  

   

  With bond prices all lower post-payrolls…

  

   

  Charts:Bloomberg

  Bonus Chart: Whats wrong with this chart?

  

  

  
  
  

  

• The US Recovery Is Strong… In "Loan Shark" Terms

  It looks like this 'recovery' is going to need a triple-seasonal-adjustment to bring reality back to perception…

   

  

  h/t @RudyHavenstein

  As we concluded previously, we may as well go ahead and place that as the tombstone for the socio-economic entity previously known as the middle class.

  It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

  

   

  

  

  
  
  

  

• Why Stocks Are Not "Cheap Relative To Bonds"

  Authored by Jim Quinn's Burning Platform blog,

  For the lazy people who don’t like to slog through Hussman’s entire data laden weekly tome, I’ve picked out the most pertinent sections. For the really lazy, I’ve bolded the most important sentences.

  When everyone on Wall Street is using the same algorithms in their HFT supercomputers, and John Q. Public isn’t even in the market, who will these supercomputers sell to when they all get the sell signal at the same time?

  When that time comes, and it won’t be long, I’ll be munching popcorn and watching the festivities unfold. The talking heads, government apparatchiks, and Ivy League educated big swinging dicks on Wall Street will declare a national emergency and demand another bailout.

  Will we be stupid enough to fall for it again, or will we start hanging bankers? 

  

  Every valuation ratio used on Wall Street is simply an effort to approximate the Iron Law of Valuation by comparing price with some fundamental “X,” instead of explicitly modeling the long-term stream of deliverable cash flows for that investment. And here’s the central issue – if your fundamental “X” is not representative and proportional to the very, very long-term stream of cash flows that stocks are likely to deliver over time (think 50 years), valuing stocks as a ratio to X is meaningless. At the extreme, paying $100 for a one-year promise of $25 would represent a “cheap” P/E of just 4, but it would also be a ridiculous investment. Similarly, history has demonstrated cycle after cycle after cycle that paying elevated P/E multiples on record earnings is a time-tested way to lose 30-50% of your money by the time the cycle is complete.

  …

  The higher the price an investor pays for a given stream of expected cash flows today, the lower the return that an investor should expect over the long-term. As detailed below, investors have responded to zero interest rates by driving stock valuations up to the point where expected market returns over the coming decade are also zero. Given that outcome, one is quite free to say that stocks are reasonably valued “relative” to zero interest rates, but one should still expect zero 10-year returns on stocks.

  My impression is that’s not how investors are thinking. Particularly at market peaks, investors seem to believe that regardless of the extent of the preceding advance, future returns remain entirely unaffected. The repeated eagerness of investors to extrapolate returns and ignore the Iron Law of Valuation has been the source of the deepest losses in history.

  Current valuations are above the 2007 peak, and are now within about 15% of the 2000 extreme.

  What we haven’t seen at any point in history is the combination of dismal projected returns for the S&P 500 coupled with a similarly dismal yield-to-maturity on bonds. The coming decade will be an underfunding disaster for corporate pension plans, endowments, and municipalities, most that still typically plan around an assumed rate of return closer to 8%. The most reliable measures we identify suggest that nominal total returns on a conventional asset mix are likely to be closer to 1% annually. Quantitative easing has already given investors, at least on paper, the gains that they would otherwise have waited years longer to achieve (again, at least on paper). Particularly in equities, investors who do not have a very long horizon and cannot actually tolerate a 50% loss should consider realizing those paper gains now and cutting exposure to a tolerable level. That’s not market timing – it’s sound financial planning that may be quite overdue. My impression is that the window of opportunity is closing quickly.

  Recall that the 2000-2002 and 2007-2009 collapses were accompanied by Fed easing, not tightening. “Following the Fed” would have been disastrous in each case, as the Fed cut rates persistently and aggressively as the market lost half its value. Indeed, the Fed began cutting rates several weeks before the 2007 peak. The Fed also did not tighten within a year of the 1929 peak.

  How many investors do you suspect will be available to absorb your shares at current price levels once they begin trying to exit simultaneously?

  Look around, and all you’ll see are other bulls who share virtually identical beliefs despite the fact that many of those beliefs are contradicted by historical evidence. As I’ve detailed in recent weeks, stocks have been in a clear price-volume distribution pattern for nearly a year. The NYSE Composite has gone nowhere since last July, while the Dow and S&P 500 are back to their late-December levels. Soon, the only ones who will be available to take the buy side against sell orders are, well, value investors like me, and we don’t see value anywhere near current levels. The rule is simple. Once market internals have deteriorated, the exit rule for bubbles is that you only get out if you panic before everyone else does.

  Frankly, history suggests that a rather ordinary completion to the present market cycle would involve the S&P 500 losing more than half of its value.

  Based on the combination of obscene valuations and increasing deterioration across a wide range of market internals, our outlook remains hard-defensive here.

  At present, market losses that may seem like “worst case” scenarios are actually quite run-of-the-mill expectations. As Santayana wrote, “Those who do not remember the past are condemned to repeat it.”

  Read Hussman’s Weekly Letter

  

  

  
  
  

  

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