- Demographic Devastation: Italy's Birth Rate Drops To 150 Year Low
Italian women would “like to have more [children], but the conditions just aren’t good enough,” laments one new mother as CBS News reports, official figures show that in 2014 there were fewer babies born in Italy than at any time since 1861. “Nowadays people don’t want to raise their child in poverty,” but Pope Francis had a different opinion, as The Guardian reported, “a society with a greedy generation, that doesn’t want to surround itself with children, that considers them above all worrisome, a weight, a risk, is a depressed society.”
Chart: Bloomberg
Relative to Europe’s top-‘producing’ nation – Azerbaijan – and its 18.3 births per 1,000 inhabitants, He may well be right but the Italians are in ‘depressed’ company along with Portugal, Greece, and Spain at the lower end of the EU spectrum.
As CBS News adds, “Nowadays people don’t want to raise their child in poverty,” Francesca said. “They want a good level, a good standard of life for their kids.”
That’s true across most of the developed world. The birth rate in North America, Russia and Europe is already below the replacement rate of about two children per couple. And in Italy, a quarter of all women have no children at all.
That’s partly the fault of a system that gives women no support, says professor Elizabeth Addis, an expert in demographics and social policy. More than 50 percent of Italian women work outside the home, and yet there’s no affordable day care here, no school meals, and no after-school programs.
“In Italy, this virtuous process of building public services to help women, and to substitute for women’s traditional work, didn’t happen,” Addis said.
“A lot of Italian women are trapped,” said Palmer.
“Right. They will be trapped in a dependent situation in which they can only be housewives, and they don’t want to be housewives — they want to be free.”
…
It’s a crunch that threatens everyone’s standard of living. Reversing the trend will depend partly on a better economy, and more help for working mothers.
And, controversially, it also means welcoming more foreign migrants, including those smuggled into Italian waters every day, and who will join Italy’s immigrant community, with its economic ambitions and higher birth rate.
Conservatives fear those changes will dilute the traditions of a great culture, but the alternative is a weakened Italy out of step with the modern world.
* * *
- Japanese Govt Bonds Are Crashing After Weakest Auction Since Lehman
Today's 10Y JGB auction saw the lowest bid-to-cover ratio since Feb 2009 at just 2.24x with a notable tail of 1.1bps (the widest since March) as it appears once again, the total dissolution of liquidity from the largest bond market in the world has left the BoJ and Ministry of Finance losing control. The reaction is dramatic with 5Y through 30Y yields up 5-8bps (10Y +8bps at 47.6bps – the biggest absolute jump in yields in 2 years) leaving 30Y yields at 2-month highs above 1.49% and 10Y yields at 6-month highs.
Weakest auction since Feb 2009…
Repricing the entire curve dramatically higher…
Sending 10Y yields crashing the most in 2 years to 6-month highs…
This is a major problem, since as we discussed previously, the reignition of VaR shocks (in the 'safest' of assets) can quickly lead to forced selling to reduce risk allocations…
The second self-feeding dynamic is something we’ve discussed at length before, most notably in 2013 when volatility-induced selling — reminiscent of the 2003 JGB experience — hit the Japanese bond market again, prompting us to ask the following rhetorical question:
What happens to JGB holdings as the benchmark Japanese government bond continues trading with the volatility of a 1999 pennystock, and as more and more VaR stops are hit, forcing even more holders to dump the paper out of purely technical considerations?
The answer was this: A 100bp interest rate shock in the JGB yield curve, would cause a loss of ¥10tr for Japan's banks.
What we described is known as a VaR shock and simply refers to what happens when a spike in volatility forces hedge funds, dealers, banks, and anyone who marks to market to quickly unwind positions as their value-at-risk exceeds pre-specified limits.
Predictably, VaR shocks offer yet another example of QE’s unintended consequences. As central bank asset purchases depress volatility, VaR sensitive investors can take larger positions — that is, when it’s volatility times position size you’re concerned about, falling volatility means you can increase the size of your position. Of course the same central bank asset purchases that suppress volatility sow the seeds for sudden spikes by sucking liquidity from the market.
In a nutshell, this means that once someone sells, things can get very ugly, very quickly.
Charts: Bloomberg
- American Cops Are More Heavily Armed than Front Line U.S. Combat Soldiers In Active War Zones
Rafael Rivera – who served in the U.S. Army for seven years – writes:
The police in Ferguson have better armor and weaponry than my men and I did in the middle of a war. And Ferguson isn’t alone — police departments across the US are armed for war.
The Hill notes:
[Senator] McCaskill pointed out that in some places local police departments are more heavily armed than the National Guard.
Business Insider points out:
Someone identifying himself as an 82nd Airborne Army veteran, observing the Ferguson police scene, comment[ed] that “We rolled lighter than that in an actual warzone”
Constitutional and civil rights lawyer John Whitehead notes that homeland security officers within the U.S. have three times as much ammunition as front-line soldiers in Afghanistan (and possess a type of ammunition that is banned in war zones).
Huffington Post reports:
Many combat veterans have since pointed out that the SWAT officers are more heavily armed and outfitted than they themselves were while patrolling the streets of Iraq or Afghanistan.
Indeed, many veterans have noted that American police are more heavily armed than they were when serving on the front line (click for 9 tweets which I can't figure out how to embed).
The extreme militarization of American police is as anti-American as it gets.
- This Is What Happened To Tinder's Predecessor
Before there was Tinder, which just won a student the Ira Sohn contest for best write up for an “underappreciated valuation” in IAC, there was Adult Friend Finder, aka FriendFinder Networks, a website whose sole purposes was finding, to put it bluntly, a fuck buddy.
And just like Tinder, back in 2011 when the early stages of the current gargantuan tech bubble were only taking shape, nobody could hide their enthusiasm about the stock.
BizJournals recalls the froth accompanying the IPO of that particular “matchmaking” site:
The FriendFinder IPO was first announced in 2008, but was received critically in the depths of the recession.
At first, the company posited that it could raise more than $400 million, according to SEC filings. But that amount shrank as the IPO was delayed.
Mark Albright, a Miami attorney who handles securities law, but was not involved in the FriendFinder deal, said he recalls its IPO came on the heels of those for Angie’s List, Yelp and LinkedIn.
“It looked like they were following behind the success of other social media companies. Outside of Florida, I don’t think FriendFinder had the same appeal as LinkedIn or the Silicon Valley names,” said Albright, a founding partner with Perlman, Bajandas, Yevoli & Albright. “At the time, I believe Penthouse Media companies were profitable, where the others weren’t. So it wasn’t a sexy IPO, so to speak, but it was credible.”
Sex toys, porn stars
When the IPO finally happened, it raised $49 million. FriendFinder shares have been in a virtual tailspin since it went public, and NASDAQ sent the company notice of delisting, which it is appealing.
Dvorkin alleges that, while the stock was tanking, Bell gave himself a raise and spent corporate money on things like “gift baskets of sex toys to non-businesspeople, funded restaurants and clubs, promoted the opening of a restaurant, used private planes for non-business purposes, hosted parties, dinners, trips, hired prostitutes and made payments to porn stars.”
This is what happened to the shares of AFF since going public: it lasted just 2 years before going, er, tits up.
This time, however, it’s all different. Because you see: Tinder, unlike AdultFriendFinder, is “mobile”; it also has hides no ambitions about profitability in the near, or not so near future (AFF actually had positive EBITDA when it went public). And that’s all that matters for the current generation of sophisticated investors: eyeballs (or in this case some other anatomical organ).
And then there is of course, Ashley Madison “a website for cheating spouses“, which is looking to raise $200 million for its own unique set of ethically-fluid services.
Incidentally, the BizJournals article was titled “Prominent investors lose their money after FriendFinder IPO finds few friends on Wall Street.” Fast forward to 2017 when the very same article will be republished, only with Tinder or Ashley Madison instead of FriendFinder. Because contrary to Fed-inflated popular delusions, it is never different this time.
- War Threat Rises As Economy Declines, Warns Paul Craig Roberts
Authored by Paul Craig Roberts,
Keynote Address to the Annual Conference of the Financial West Group, New Orleans, May 7, 2015
The defining events of our time are the collapse of the Soviet Union, 9/11, jobs offshoring, and financial deregulation. In these events we find the basis of our foreign policy problems and our economic problems.
The United States has always had a good opinion of itself, but with the Soviet collapse self-satisfaction reached new heights. We became the exceptional people, the indispensable people, the country chosen by history to exercise hegemony over the world. This neoconservative doctrine releases the US government from constraints of international law and allows Washington to use coercion against sovereign states in order to remake the world in its own image.
To protect Washington’s unique Uni-power status that resulted from the Soviet collapse, Paul Wolfowitz in 1992 penned what is known as the Wolfowitz Doctrine. This doctrine is the basis for Washington’s foreign policy. The doctrine states:
“Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.”
In March of this year the Council on Foreign Relations extended this doctrine to China.
Washington is now committed to blocking the rise of two large nuclear-armed countries. This commitment is the reason for the crisis that Washington has created in Ukraine and for its use as anti-Russian propaganda. China is now confronted with the Pivot to Asia and the construction of new US naval and air bases to ensure Washington’s control of the South China Sea, now defined as an area of American National Interests.
9/11 served to launch the neoconservatives’ war for hegemony in the Middle East. 9/11 also served to launch the domestic police state. While civil liberties have shriveled at home, the US has been at war for almost the entirety of the 21st century, wars that have cost us, according to Joseph Stiglitz and Linda Bilmes, at least $6 trillion dollars. These wars have gone very badly. They have destabilized governments in an important energy producing area. And the wars have vastly multiplied the “terrorists,” the quelling of which was the official reason for the wars.
Just as the Soviet collapse unleashed US hegemony, it gave rise to jobs offshoring. The Soviet collapse convinced China and India to open their massive underutilized labor markets to US capital. US corporations, with any reluctant ones pushed by large retailers and Wall Street’s threat of financing takeovers, moved manufacturing, industrial, and tradable professional service jobs, such as software engineering, abroad.
This decimated the American middle class and removed ladders of upward mobility. US GDP and tax base moved with the jobs to China and India. US real median family incomes ceased to grow and declined. Without income growth to drive the economy, Alan Greenspan resorted to an expansion of consumer debt, which has run its course. Currently there is nothing to drive the economy.
When the goods and services produced by offshored jobs are brought to the US to be sold, they enter as imports, thus worsening the trade balance. Foreigners use their trade surpluses to acquire US bonds, equities, companies, and real estate. Consequently, interests, dividends, capital gains, and rents are redirected from Americans to foreigners. This worsens the current account deficit.
In order to protect the dollar’s exchange value in the face of large current account deficits and money creation in support of the balance sheets of “banks too big to fail,” Washington has the Japanese and European central banks printing money hand over fist. The printing of yen and euros offsets the printing of dollars and thus protects the dollar’s exchange value.
The Glass-Steagall Act that separated commercial and investment banking had been somewhat eroded prior to the total repeal during the second term of the Clinton regime. This repeal, together with the failure to regulate over the counter derivatives, the removal of position limits on speculators, and the enormous financial concentration that resulted from the dead letter status of anti-trust laws, produced not free market utopia but a serious and ongoing financial crisis. The liquidity issued in behalf of this crisis has resulted in stock and bond market bubbles.
Implications, consequences, solutions:
When Russia blocked the Obama regime’s planned invasion of Syria and intended bombing of Iran, the neoconservatives realized that while they had been preoccupied with their wars in the Middle East and Africa for a decade, Putin had restored the Russian economy and military.
The first objective of the Wolfowitz doctrine–to prevent the re-emergence of a new rival–had been breached. Here was Russia telling the US “No.” The British Parliament joined in by vetoing UK participation in a US invasion of Syria. The Uni-Power status was shaken.
This redirected the attention of the neoconservatives from the Middle East to Russia. Over the previous decade Washington had invested $5 billion in financing up-and-coming politicians in Ukraine and non-governmental organizations that could be sent into the streets in protests.
When the president of Ukraine did a cost-benefit analysis of the proposed association of Ukraine with the EU, he saw that it didn’t pay and rejected it. At that point Washington called the NGOs into the streets. The neo-nazis added the violence and the government unprepared for violence collapsed.
Victoria Nuland and Geoffrey Pyatt chose the new Ukrainian government and established a vassal regime in Ukraine.
Washington hoped to use the coup to evict Russia from its Black Sea naval base, Russia’s only warm water port. However, Crimea, for centuries a part of Russia, elected to return to Russia. Washington was frustrated, but recovered from disappointment and described Crimean self-determination as Russian invasion and annexation. Washington used this propaganda to break up Europe’s economic and political relationships with Russia by pressuring Europe into sanctions against Russia.
The sanctions have had adverse impacts on Europe. Additionally, Europeans are concerned with Washington’s growing belligerence. Europe has nothing to gain from conflict with Russia and fears being pushed into war. There are indications that some European governments are considering a foreign policy independent of Washington’s.
The virulent anti-Russian propaganda and demonization of Putin has destroyed Russian confidence in the West. With the NATO commander Breedlove demanding more money, more troops, more bases on Russia’s borders, the situation is dangerous. In a direct military challenge to Moscow, Washington is seeking to incorporate both Ukraine and Georgia, two former Russian provinces, into NATO.
On the economic scene the dollar as reserve currency is a problem for the entire world. Sanctions and other forms of American financial imperialism are causing countries, including very large ones, to leave the dollar payments system. As foreign trade is increasingly conducted without recourse to the US dollar, the demand for dollars drops, but the supply has been greatly expanded as a result of Quantitative Easing. Because of offshored production and US dependence on imports, a drop in the dollar’s exchange value would result in domestic inflation, further lowering US living standards and threatening the rigged, stock, bond, and precious metal markets.
The real reason for Quantitative Easing is to support the banks’ balance sheets. However, the official reason is to stimulate the economy and sustain economic recovery. The only sign of recovery is real GDP which shows up as positive only because the deflator is understated.
The evidence is clear that there has been no economic recovery. With the first quarter GDP negative and the second quarter likely to be negative as well, the second-leg of the long downturn could begin this summer.
Moreover, the current high unemployment (23 percent) is different from previous unemployment. In the postwar 20th century, the Federal Reserve dealt with inflation by cooling down the economy. Sales would decline, inventories would build up, and layoffs would occur. As unemployment rose, the Fed would reverse course and workers would be called back to their jobs. Today the jobs are no longer there. They have been moved offshore. The factories are gone. There are no jobs to which to call workers back.
To restore the economy requires that offshoring be reversed and the jobs brought back to the US. This could be done by changing the way corporations are taxed. The tax rate on corporate profit could be determined by the geographic location at which corporations add value to the products that they market in the US. If the goods and services are produced offshore, the tax rate would be high. If the goods and services are produced domestically, the tax rate could be low. The tax rates could be set to offset the lower costs of producing abroad.
Considering the lobbying power of transnational corporations and Wall Street, this is an unlikely reform. My conclusion is that the US economy will continue its decline.
On the foreign policy front, the hubris and arrogance of America’s self-image as the “exceptional, indispensable” country with hegemonic rights over other countries means that the world is primed for war. Neither Russia nor China will accept the vassalage status accepted by the UK, Germany, France and the rest of Europe, Canada, Japan and Australia. The Wolfowitz Doctrine makes it clear that the price of world peace is the world’s acceptance of Washington’s hegemony.
Therefore, unless the dollar and with it US power collapses or Europe finds the courage to break with Washington and to pursue an independent foreign policy, saying good-bye to NATO, nuclear war is our likely future.
Washington’s aggression and blatant propaganda have convinced Russia and China that Washington intends war, and this realization has drawn the two countries into a strategic alliance. Russia’s May 9 Victory Day celebration of the defeat of Hitler is a historical turning point. Western governments boycotted the celebration, and the Chinese were there in their place. For the first time Chinese soldiers marched in the parade with Russian soldiers, and the president of China sat next to the president of Russia.
The Saker’s report on the Moscow celebration is interesting. Especially note the chart of World War II casualties. Russian casualties compared to the combined casualties of the US, UK, and France make it completely clear that it was Russia that defeated Hitler. In the Orwellian West, the latest rewriting of history leaves out of the story the Red Army’s destruction of the Wehrmacht. In line with the rewritten history, Obama’s remarks on the 70th anniversary of Germany’s surrender mentioned only US forces. In contrast Putin expressed gratitude to “the peoples of Great Britain, France and the United States of America for their contribution to the victory.”For many years now the President of Russia has made the point publicly that the West does not listen to Russia. Washington and its vassal states in Europe, Canada, Australia, and Japan do not hear when Russia says “don’t push us this hard, we are not
your enemy. We want to be your partners.”As the years have passed without Washington hearing, Russia and China have finally realized that their choice is vassalage or war. Had there been any intelligent, qualified people in the National Security Council, the State Department, or the Pentagon, Washington would have been warned away from the neocon policy of sowing distrust. But with only neocon hubris present in the government, Washington made the mistake that could be fateful for humanity.
- How Wal-Mart Makes An Instant 65,724% Profit Selling… California Water
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Wal-Mart is facing questions tonight after CBS13 learns the company draws its bottled water from a Sacramento water district during California’s drought.
According to its own labeling, the water in the gallon jugs appears to come from Sacramento’s water supply.
Sacramento sells water to a bottler, DS Services of America, at 99 cents for every 748 gallons—the same rate as other commercial and residential customers. That water is then bottled and sold at Walmart for 88 cents per gallon, meaning that $1 of water from Sacramento turns into $658.24 for Walmart and DS Services.
– From the CBS News in Sacramento article: Wal-Mart Bottled Water Comes From Sacramento Municipal Supply
We all know there’s a severe drought plaguing much of California. I haven’t focused on this topic much, but I did publish a very powerful post on it last fall titled: Video of the Day – Stunning Scenes from California’s Central Valley Drought. I suggest checking it out if you missed it the first time.
Now we learn of some pretty troubling news that Wal-Mart is sourcing some of its bottled water from the Sacramento water supply, despite the fact that: “Sacramento-area water districts are preparing to enforce residential water-use cuts as high as 36 percent.”
As we all know, you should never let a historic drought get in the way of corporate profit margins; and these appear to be some really nice margins. We learn from CBS News in Sacramento that:
SACRAMENTO (CBS13) — Wal-Mart is facing questions tonight after CBS13 learns the company draws its bottled water from a Sacramento water district during California’s drought.
According to the label, the water comes from the Sacramento Municipal Water Supply. This comes on the heels of Starbucks opting to move sourcing and production of its Ethos bottled water from California to Pennsylvania.
While the label reads Great Value, the fine print reveals the bottled water is anything but a deal, especially for Sacramento residents.
Sacramento sells water to a bottler, DS Services of America, at 99 cents for every 748 gallons—the same rate as other commercial and residential customers. That water is then bottled and sold at Walmart for 88 cents per gallon, meaning that $1 of water from Sacramento turns into $658.24 for Walmart and DS Services.
Shouldn’t the residents of Sacramento at least share in some of the profits earned if the municipality is going to sell its precious local resources to a mega corporation?
Elmets wonders if this perfectly legal business operation will get a big thumbs-down from California consumers. This comes as Sacramento-area water districts are preparing to enforce residential water-use cuts as high as 36 percent.
“It’s certainly leaving a bad taste in everyone’s mouth when you can’t fill up a swimming pool, if you’re building a new home in West Sacramento; you can’t water your lawn if you’re living in this region. And to find out they’re making a huge profit off of this, it’s just not right,” Elmets said.
Meanwhile, let’s not forget…
Walmart Admits in its Annual Report that its Profits Depend Heavily on Corporate Welfare
Let’s see if the people of Sacramento have the will or ability to do anything about this.
- China's Banks Obscure Credit Risk, Face "Insolvency" In Property Downturn, Fitch Says
Data released on Friday by state regulators showed that China’s non-performing loans rose 141 billion yuan during Q1, marking the sharpest quarterly increase on record and bringing the total to 983 billion.
NPLs have been on the rise in China for quite some time, and as we discussed at the end of March, the pace at which loans to the manufacturing sector have sourced has quickened in the face of the country’s slumping economy, leading the nation’s largest lenders to slash payout ratios. Anxiety over bad debt has only increased in recent weeks after a subsidiary of state-run China South Industries Group was allowed to default without government intervention suggesting that Beijing is willing to let small state-affiliated companies go if the risk to the system is deemed appropriately negligible.
The trend is especially worrisome given the sheer size of China’s debt load (a topic we first discussed years ago) which, at $28 trillion, totals more than 280% of GDP. Here’s a look at the breakdown:
Among that debt is some $364 billion in property loans (i.e. debt backed by property collateral) and according to Fitch, that’s not necessarily a good thing given the country’s slumping real estate sector, which saw developer Kaisa default earlier this year. The worry is that the preponderance of property loans on banks’ books serves to spread real estate risk to the economy writ large. In fact, Fitch says a lengthy downturn for China’s property market could render some large lenders insolvent given their exposure.
Via Fitch:
Property exposure is the biggest threat to the viability of China’s banks because of the banking system’s reliance on real estate collateral and the strong linkages between property and other parts of the economy, Fitch Ratings says in a new special report.
The agency estimates that for Fitch-rated banks, loans secured by property – residential mortgages and corporate loans backed by property – have increased 400% since end-2008, compared with 260% for loans overall. Loans secured by property now make up 40% of total loans in these banks. Residential mortgages have more than tripled since end-2008, and corporate loans secured with property have increased almost five-fold in the same period. The use of property collateral is predominant not just among loans to property developers and local government financing vehicles, but also increasingly common among corporate and micro-and-small-enterprise borrowers.
Collateral is supposed to reduce bank risk; but the rise of property collateral in corporate loans may actually increase the chance of bank failure. This is because the widespread use of such collateral has lowered the perceived risks of lending, fuelling China’s credit build-up and spreading real-estate risk to other sectors of the economy.
Banks generally place high confidence in their property collateral to provide reliable and timely protection in the event of default, and consider that low loan-to-value (LTV) ratios provide an adequate buffer against a property-market decline. Fitch believes, however, that a low LTV ratio may not necessarily shelter banks from large losses. Recent history of financial crises show that appraisal of property collateral can be highly misleading as the value of property fluctuates substantially, and corrections often happen abruptly. The value of such collateral in China could also be seriously compromised by hurdles to enforcement.
Fitch views a protracted downturn in property markets as a low probability, but high impact, scenario that could result in a credit crunch and force a chaotic deleveraging process for corporate borrowers. A steep fall in property prices would diminish the value of collateral, weaken banks’ lending capacity and increase borrowers’ default probabilities.
A protracted downturn in property markets could therefore threaten the solvency of Chinese banks, given their modest loss-absorption capacity.
One might be tempted, upon reading this, to point to “official” data on bad loans at Chinese banks on the way to concluding that “modest loss-aborption capacity” or not, sub-2% NPL ratios certainly do not seem to portend an imminent catastrophe. However, given the official figure is just 1.39%, and given what we know about the state of China’s economy, one could be forgiven for wondering if NPLs at China’s biggest lenders are grossly understated.
To let Fitch tell it, determining the true extent of China’s NPL problem is complicated by a number of factors and the ‘real’ data might be just as hard to get at as an accurate reading on Chinese GDP.
Via Fitch:
Chinese banks’ shifting of loans into debt investments, receivables, and interbank exposures to bypass lending restrictions, as well as the growth of the shadow banking system make it harder to assess the underlying asset quality of the banks and overall stress in the financial system, Fitch Ratings says in a new special report published today.
China’s asset management companies (AMCs) are playing an increasingly important role outside the banks in managing bad assets. It is common for AMCs to purchase assets directly from borrowers, so bad assets are often transferred to external parties without being recognised as non-performing loans (NPLs). Regulatory forbearance also delays the recognition of asset impairment. These features cloud the veracity of underlying non-performing loans (NPL) levels at banks and more broadly the transparency around the extent of debt problems in the financial system.
This renders NPL analysis less meaningful, especially as banks in China have remarkably similar NPL ratios. Banks’ NPL ratios for local government and property loans are very low because riskier credit often lies off banks’ balance sheets. Policy guidance on agricultural and micro lending may also lead to inappropriate pricing.
The underlying problem is one of debt sustainability. The rapid rise in leverage in China since 2008 is increasingly burdensome, with the interest cost of servicing China’s debt now estimated to have reached 15% of GDP, exceeding nominal GDP growth of below 10%. The need to strike a balance between maintaining adequate growth to support employment and ensuring banking system stability means that banks remain exposed to the risks of this unsustainable trend continuing.
Until China allows for more corporate and state-owned-enterprise defaults, moral hazard will prolong and exacerbate threats to the banking system beyond what reported NPLs indicate. The longer weak entities are permitted to roll over their debt, the greater the build-up and cost of servicing that debt, and the greater the strain on the economy.
In addition to the above, there have long been questions around “special mention” loans, a designation which simply refers to outstanding debt that hasn’t yet soured, but very well might. According to The Economist, the percentage of outstanding loans that fall under this cateogry has risen steadily and now stands at around 3.5%.
* * *
So while we cannot know the true extent to which non-performing ‘assets’ present a systemic risk to the Chinese banking sector and to the broader economy, what we do know is that even the official figures (derived from the data that Beijing allows to be disseminated) show NPLs growing at the fastest rate in history. We also know that at China’s big four banks, loans to manufacturers are going bad at twice the rate as loans to other borrowers and that would certainly seem to be a trend that is likely to accelerate given everything we know about anemic global demand. Finally, we’ve seen one high profile default (Kaisa) and one state-affiliated corporate default (Baoding Tianwei Group) so far this year and indeed, Friday looks to be the day of reckoning for coal importer Winsway Enterprises which missed a $13.5 million coupon payment last month and now faces the end of a 30-day grace period.
In closing, here’s a visual which depicts the sharp increase in China’s problem debt:
- A Portrait Of The Classical Gold Standard
Submitted by Marcia Christoff-Kurapovna via The Mises Institute,
"The world that disappeared in 1914 appeared, in retrospect, something like our picture of Paradise," wrote the economist Cecil Hirsch in his June 1934 review of R.W. Hawtrey’s classic, The Art of Central Banking (1933). Hirsch bemoaned the loss of the far-sighted restraint that had once prevailed among the "bankers' banks" of the West, concluding that modern times "had failed to attain the standard of wisdom and foresight that prevailed in the 19th century."
That wisdom and foresight was once upon a time institutionalized throughout an international monetary culture — gold-based, wary of credit, and contemptuous of debt, public or private. This world included central banks including the Bank of England, the Bank of France, the Swiss National Bank, the early Federal Reserve, the Imperial Bank of Austria-Hungary, and the German Reichsbank. But the entrenched hard-money ideology of the time restrained all of them. The Bank of Russia, for example, which once required 50 percent to 100 percent gold backing of all notes issued, possessed the second largest gold reserves on the planet at the turn of the twentieth century.
"The countries that were tied together in the gold standard system represented to a not inconsiderable degree a community of interest in and responsibility for the maintenance of economic and financial stability throughout the world," recounted Aldoph C. Miller, member of the Federal Reserve Board from 1914 to 1936, in The Proceedings of the Academy of Political Science, in May 1936. "The gold standard was the one outstanding symbol of unity and economic solidarity which the nineteenth century world had developed."
It was a time when "automatic market forces," as economists of the day referred to them, prevailed over monetary management. Redeemability of money in (fine) gold ensured, within limits, stability in foreign exchange rates. Credit was extended only as far as reserve ratios would allow, and central banks were required to keep fixed reserves of gold against notes-in-circulation and against demand deposits.
When Markets Dominated Monetary "Policy"
Gold flows regulated international price relationships through markets, which adjusted themselves accordingly: prices rose when there was an influx of gold — for example, when one country received a debt payment from another country (always in gold), or during such times as the California or Australian gold rushes of the 1870s. These inflows meant credit expansion and a rise in prices. An outflow of gold meant credit was contracted and price deflation followed.
The efficiency of that standard was not impeded by the major central banks in such a way that "any disturbance of economic or financial character originating at any point in the world which might threaten the continued maintenance of economic equilibrium was quickly detected by foreign exchanges," Miller, the Federal Reserve board member, noted in his paper. "In this way, the gold standard system became in a very real sense a regime or rule of economic health, a method of catching economic disturbances in the bud."
The Bank of England, the grand master of them all, was the financial center of the universe, whose tight handle on its credit policies was so disciplined that the secured the top spot while not even holding the largest gold reserves. Consistent in its belief that protection of reserves was the chief, and only important, criterion of credit policy, England became the leading exporter of capital, the free market for gold, the international discount market, and international banker for the trade of other countries, as well as her own. The world was in this sense on the sterling standard.
The Bank of France, wisely admonished by its founder, Napoleon, to make sure France was always a creditor country, was so replete with reserves it made England a 500 million franc loan (in 1915 numbers) at the onset of the World War I. Switzerland, perhaps the last "19th-century-style" hold-out today with unlimited-liability private bankers and strict debt-ceiling legislation, also required high standards of its National Bank, founded in 1907. By the 1930s that country had higher banking reserves than the US; the Swiss franc was never explicitly devalued, unlike nearly every other Western nation’s currency, and the country’s domestic price level remained the most stable in the world.
For a time, the disciplined mindset of these banks found its way across the Atlantic, where the idea of a central bank had been long the subject of hot debate in the US. The economist H. Parker Willis, writing about the controversy in The Journal of the Proceedings of the Academy of Political Science, October 1913, admonished: "The Federal Reserve banks are to be 'bankers' banks,' and they are intended to do for the banker what he himself does for the public."
At first, the advice was heeded: in September 1916, almost two years after its founding on December 23,1913, the fledgling Fed worked out an amendment to its gold policy on the basis of a very conservative view of credit. This new policy sought to restrain "the undue and unnecessary expansion of credit," wrote Fed board member Miller, in an article for The American Economic Review, in June 1921.
The Bank of Russia, during the second half of the nineteenth century steered itself through the Crimean War, the Russo-Turkish War, the Russo-Japanese War, impending Balkan wars — not to mention all that was to follow — and managed to emerge with sound fiscal policies and massive gold reserves. According to The Economist of May 20, 1899, Russian holdings were 95 million pounds sterling of gold, while the Bank of France held 78 million sterling worth. (Austria-Hungary held 30 million sterling worth of gold and the Bank of England 30 million sterling worth of both gold and silver.) "Russia up to the very moment of rupture [with Japan, 1904–1905], was working imperturbably at the progressive consolidation of her finances," reported Karl Helfferich of the University of Berlin, at a meeting of The Royal Economic Society [UK] in December 1904. "Even in years of industrial crises and defective harvest, her foreign trade showed an excess of exports over imports more than sufficient to compensate payments sent abroad. And, as guarantee her monetary system she has succeeded in a amassing and maintaining a vast reserve of gold."
These banks, in turn, drew on the medieval/Renaissance and Baroque-era banking traditions of the Hanseatic League, the Bank of Venice, and Amsterdam banks. Payment-on-demand "in good and heavy gold" was like a blood-oath binding the banker-client relationship. The transfer of credit "did not arise from any such substitution of credit for money," noted Charles F. Dunbar, in The Quarterly Journal of Economics of April 1892, "but from the simple fact that the transfer in-bank saved the necessity of counting coin and manual delivery of every transaction."
Bankers were forbidden to deal in certain commodities, could not make loans or create credit for the purchase of such commodities, and forbade both foreigners and citizens from buying silver on credit unless the same amount in cash was in the bank. According to Dunbar, a Venetian law of 1403 on reserve requirements became the basis of US banking law on the deposits of public securities in the late 1800s.
After the fall of bi-metallism in the 1870s, gold continued to perform monetary functions among the main countries of the Western world (and the well-administered Bank of Japan). It was the only medium of exchange and the only currency with unrestricted legal tender. It became the vaunted "measure of value." Bank currency notes were simply used as auxiliary to gold and, in general, did not enjoy the privilege of legal tender.
The End of An Era
It was certainly not a flawless system, or without periodic crises. But central banks had to act in an exceptionally prudent manner given the all-over public distrust of paper money.
As economist Andrew Jay Frame of the University of Chicago, writing in The Journal of Political Economy, in January 1912, noted: "During panics in Britain in 1847 and 1866, when cash payments were suspended, the floodgates of cash were opened [by The Bank of England], the governor sent word to the street that solvent banks would be accommodated, and the panic was relieved." Frame then adds: "However, this extra cash and the increased loans that went with it were very quickly put to an end to avoid credit expansion."
The US was equally confident of its prudent attitude. Aldoph Miller, writing of Federal Reserve policy, remarked: "The three chief elements of the policy of a central bank or system of reserve holding institutions are best disclosed in connection with the attitude towards 1) gold 2) currency 3) credit." He noted proudly: "The federal reserve system has met [these] tests on the whole with remarkable success."
But after World War I, a different international landscape was left behind. England had been displaced as the center of international finance; the US and France emerged as the chief post-war creditor countries. The mechanism of the gold standard to which depreciated currencies could be related no longer existed. Only the US was left with a full gold standard. England and France had a gold bullion standard and other countries (Germany, primarily) had a gold-exchange standard.
A matrix of unbalanced trade relationships began to saturate the international economy. Then, with so many foreign countries attendant upon its speculative boom, the US manipulated its own domestic credit policies to ease credit and exchange-standard controls. This eventually culminated in an international financial crisis of 1931. Under Bretton Woods (1944), the gold standard was effectively abandoned: domestic convertibility was illegal and the role of gold was very constrained in favor of the dollar.
"It was, at least in theory, simple enough in the old days," wrote a wistful W. Randolph Burgess, head of the New York Federal Reserve, in 1938. "In the present strange new world, where the old gold portents have lost their former meaning, where is the radio beam which the central banker may follow? What is the equivalent of gold?"
The men of his era and of the late nineteenth century understood the meaning of such a question and, more importantly, why it is one that must be asked. But theirs was a different world, indeed — one without "QE," ZIRP," or "Unknown Knowns" as fiscal policy. And there were no helicopters, either.
- Surge In VIX Volume Reflects Huge "Interest In Owning Market Crash Protection"
"I'm not sure if it’s the biggest trade ever, but it's certainly one of them," noted Jamie Tyrrell, a VIX specialist on the CBOE floor, as Bloomberg reports almost $100 million worth of options pegged to the volatility of US equities were traded in a split second at 1216ET today. "Someone is interested in owning a lot of protection," Tyrrell added as just over 1 million contracts were traded, all told, about 54% of the total amount of index options that traded at the CBOE all day Friday. While for every buyer of VIX Calls there is a buyer, the notable push higher in volatility after this trade suggests the trades had characteristics of someone hedging stocks.
The options trade were spread across 4 strikes and 2 maturities…
about 40 different trades went off at 12:16:04 p.m., encompassing contracts that gain in value should the Chicago Board Options Exchange Volatility Index rise over the next few months, according to options data compiled by Bloomberg. The four biggest were each more than 130,000 contracts.
While divining the motive of a single trader who may be operating in more than one market is impossible, buying a call on the VIX is a bet the equity market turbulence will rise, which usually happens when stocks fall. To Jamie Tyrrell, a VIX specialist on the CBOE floor, the trades had characteristics of someone hedging stocks.
For example the July 23 Strike Calls…
And left VIX (and VIX Futures) surging after the options trade…
As Bloomberg concludes, expectations of higher volatility have been creeping back into the market through options on the VIX. Traders owned about 5 million calls as of Friday, the most since November and more than double the open interest in January. They held 2.6 calls for every put, around the highest ratio since October.
And The Bloomberg Put-Call Ratio Composite is the lowest (most Calls over puts) since Dec 2010.
Charts:Bloomberg
- The Average Age Of A Minimum Wage Worker In America Is 36
Submitted by Michael Snyder via The Economic Collapse blog,
Did you know that 89 percent of all minimum wage workers in the United States are not teens? At this point, the average age of a minimum wage worker in this country is 36, and 56 percent of them are women. Millions upon millions of Americans are working as hard as they can (often that means two or three jobs), and yet despite all of their hard work they still find themselves mired in poverty. One of the big reasons for this is that we have created two classes of workers in the United States.
“Full-time workers” are entitled to an array of benefits and protections by law that “part-time workers” do not get. And thanks to perverse incentives contained in Obamacare and other ridiculous laws, we have motivated employers to move as many workers from the “full-time” category to the “part-time” category as possible. It may be hard to believe, but right now only 44 percent of all U.S. adults are employed for 30 or more hours each week. But to get any kind of a job at all is a real challenge in many parts of the country today. As you read this article, there are more than 100 million working age Americans that are not employed in any capacity. And according to John Williams of shadowstats.com, if the federal government was actually using honest numbers the unemployment rate would be sitting at 23 percent. That is not an “employment recovery” – that is a national crisis.
The following infographic comes from the Economic Policy Institute. I certainly do not agree with a lot of the things that the Economic Policy Institute stands for, but I think that these numbers do accurately reflect what “part-time America” looks like today…
So what is the solution to this problem?
Most Democrats believe that raising the minimum wage would fix this. But as Zero Hedge has pointed out, it isn’t quite that simple…
Last week, we noted that Democratic lawmakers in the US are pushing for what they call “$12 by ’20” which, as the name implies, is an effort to raise the minimum wage to $12/hour over the course of the next five years. Republicans argue that if Democrats got their wish and the pay floor were increased by nearly 70%, it would do more harm than good for low-income Americans as the number of jobs that would be lost as a result of employers cutting back in the face of dramatically higher labor costs would offset the benefit that accrues to the workers who are lucky enough to keep their jobs.
Yes, raising the minimum wage would make life better for many minimum wage workers in America. But a large number of them would also lose their jobs completely, and a lot of small businesses would deeply suffer financially.
Ideally, what we would love to see happen is for the U.S. economy to be producing so many good jobs that the only people that are looking for entry-level part-time jobs would be teens, people just starting out in the workforce, etc. Back when I was a teen, I remember walking into a McDonald’s and getting hired on the spot because they were in dire need of workers. Sadly, those days are long, long gone.
Over the past several decades, millions of good paying American jobs have been shipped overseas, and millions more have been lost to advancing technology. And as I wrote about the other day, Barack Obama is deeply betraying American workers by working on a global economic treaty that would destroy millions more good paying jobs.
Thanks to the foolishness of our politicians, there is now intense competition even for minimum wage jobs at this point.
We keep hearing about an “employment recovery”, but it is a giant lie. Posted below is a chart of the civilian employment to population ratio. As you can see, the percentage of the working age population that is actually employed is much, much lower than it used to be…
In recent months, we have seen the employment-population ratio move slightly higher. But can this be called “an employment recovery”? Of course not. We are still way, way below the level that we were at just prior to the last recession, and now the next recession is just about upon us.
Meanwhile, the quality of our jobs continues to decline as more Americans are being pushed into “part-time work” with each passing year.
Since February of 2008, the size of the U.S. population has grown by 16.8 million people. But during that same time frame, the number of full-time jobs in this country has actually decreased.
And at this point, the majority of American workers simply do not make enough money to support a middle class family. The following income numbers come directly from the Social Security Administration…
-39 percent of American workers make less than $20,000 a year.
-52 percent of American workers make less than $30,000 a year.
-63 percent of American workers make less than $40,000 a year.
-72 percent of American workers make less than $50,000 a year.
Are you starting to see why I am so fired up about all of this?
We have developed a business culture in this country which does not care about workers. In business schools all over America, future executives are taught that a corporation only has one goal – to maximize wealth for the shareholders. Taking care of those that are part of your team is treated as an afterthought at best.
As corporations have gotten bigger, they have shown less and less concern for those that work for them. These days, employees are generally regarded as “expensive liabilities” that are to be discarded the moment that their usefulness has come to an end. And news of layoffs is often rewarded by Wall Street by a surge in the stock prices of the companies making those layoffs.
In the old days, more businesses in America were family-owned, and employees were often regarded as almost “part of the family”. Unfortunately, those days have disappeared forever.
Now, employees are treated like scum by many big companies, and if they don’t like how they are being treated they are told that they can leave. For example, just consider what was going on at a security company down in Florida…
Jose Molero worked as a site inspector for the company, which provides security for neighborhoods and companies across the country, for more than a year.
Molero says when he went to the Kensington Golf and Country Club guardhouse, he found wooden paddles on a desk, some with staff names on them and one reading “for staff discipline.”
He says there was also what is called a “Wall of Shame,” where the supervisor points out and posts reports that contain grammatical errors.
When Molero complained about these things to his district manager, he was told that if anyone was offended “maybe they shouldn’t work here”…
Molero contacted his operations manager, who told him to speak with the district manager. He says the district manager sent him an email response that said, “if that hurts their feelings then maybe they shouldn’t work here.”
Do you have a similar horror story to share?
Most of us do.
The U.S. economy is absolutely dominated by cold, heartless corporations that have no interest in listening to the little guy. If they could find a way to do it, many of them would operate with no low-level employees at all. And as technology continues to advance, they will replace as many of us as they can with robots, drones, machines and computers.
I’ll be honest with you – the future for workers in America looks really bleak. The competition for any jobs that can’t be shipped overseas or replaced by technology is going to become even more heated. This means that the middle class is going to get even smaller, the number of Americans dependent on the government is going to continue to explode, and the disparity between the wealthy and the poor is going to become even greater.
So what is the solution to this giant mess?
- Picasso Painting Sells For Record $180 Million In Christie's Auction
If the Fed’s bubble busting team led by Stanley Fischer was looking for runaway inflation, it could have easily found it earlier today without any particular effort, only not in the usual CPI place, but in the price of Women of Algiers (Version O), a “vibrant, multi-hued painting” from Pablo Picasso which moments ago became the world’s most expensive artwork, selling for $179,365,000, included the house’s premium in a Christie’s auction.
The same auction would also sell Alberto Giacometti’s sculpture “Pointing Man,” which was poised to set a record as the most expensive sculpture sold at auction. They were among two dozen masterpieces from the 20th century Christie’s offered in a curated sale titled “Looking Forward to the Past.”
The price for the Picasso surpasses the $142.4 million paid two years ago for Francis Bacon’s triptych, “Three Studies of Lucian Freud,” as well as earlier record of $120 million for Edvard Munch’s tortured “Scream.”
The price discovery, according to the WSJ, was described as a “dogged contest at Christie’s New York salesroom, with the bidding starting at $100 million and shot up quickly, with four telephone bidders competing for the jewel-tone scene of Cubist-style women lounging at odd angles in a room festooned with lush, striped décor.“
But as the price topped $145 million, the bidding war winnowed to a pair of telephone bidders and the room watched, hushed, a few pulling out their cellphones to capture the moment. After 11 minutes, the gavel fell and Brett Gorvy, global head of postwar art, fielded the anonymous winning bid.
The WSJ describes the painting as “a riot of colors and focuses mainly on a scantily dressed woman whose face evokes Picasso’s former lover, Françoise Gilot. She is joined by a disconnected tumble of other, smaller nudes who each seem to conjure other modern masterworks. The obvious muse is Eugène Delacroix’s 1834 scene of Algerian women in a fantasy interior. But Picasso also painted the work as a homage to his artistic hero and sometime rival Henri Matisse, who had died the year before.”
Why the high price?
The Picasso was considered a trophy as much for its ownership pedigree as its artistic merits. The work last changed hands 18 years ago when the estate of U.S. collectors Victor and Sally Ganz sold it through the auction house to a London dealer for $31.9 million. Its seller on Monday remains anonymous.
However, considering that the estimate price for the painting was nearly $40 million lower than the gavel price, one also has to thank the record $150 billion in global QE injecting stock market liquidity (and removing bond market liquidity) courtesy of the ECB and BOJ each and every month.
Picasso’s record price on Monday reflects the trophy-hunting atmosphere dominating the global art marketplace now, as billionaires compete for the handful of masterpieces that come up for sale in any given season. Bragging rights are part of the works’ allure, but the collective bidding is also ratcheting price levels for dozens of the world’s top artists.
This is not the end of it. From AP:
Experts say high art prices are driven by artworks’ investment value and by wealthy new and established collectors seeking out the very best works.
“I don’t really see an end to it, unless interest rates drop sharply, which I don’t see happening in the near future,” Manhattan dealer Richard Feigen said.
Impressionist and modern artworks continue to corner the market because “they are beautiful, accessible and a proven value,” added Sarah Lichtman, professor of design history and curatorial studies at The New School.
“I think we will continue to see the financiers seeking these works out as they would a blue chip company that pays reliable dividends for years to come,” she said.
With the one difference that art does not, in fact, pay any dividends, and any purchase is merely a gamble on further price appreciation driven by even greater asset bubbles in the future.
The identity of the buyer wasn’t immediately disclosed, but there are really just two options: a bored “activist” hedge funder, who has been urging his portfolio companies to lever to the hilt and buy back his stock, or a just as bored Chinese billionare, seeking to bypass China’s capital controls in new and, vibrant and multi-hued ways.
Now, the only question we have what is the Goldman bid/offer on the AJ-tranche of its brand new securitization product, the Pablo Picasso Backed Securities.
- Chinese Saturation Reached: World's Largest Smartphone Market Suffers First Drop In 6 Years
Less than two years ago, the number of smartphone shipments in China soared by roughly 100% year over year, rising over 80 million for the first time. Fast forward to Q1 of 2015 when according to IDC, the Chinese smartphone market – the largest in the world since 2011 when it overtook the US – has not only reached maturity but is now also fully saturated and as a result smartphone shipments suffered their first Y/Y decline, dropping 4.3% on an annual basis.
As IDC notes, “this is the first time in six years that the China smartphone market declined YoY as the market continues to mature.”
Worse, on a quarter over quarter basis, the market contracted 8% on the back of a large inventory buildup at the end of last year.
It was not clear if the ongoing slowdown is more driven by the now virtual halt in China’s growth but a collapse in consumer end demand is undoubtedly bad for all smartphone makers who are betting on China to be the last great demand frontier.
If there was a silver lining of good news in IDC’s report, it was for Apple, which thanks to its recent immitation of Samsung’s larger screen strategy, has seen the iPhone 6 demand push persist for one more quarter, with a 62% jump in unit growth, giving AAPL the majority of the market share, or 14.7%, ahead of 13.7% for Xiaomi. This was already largely known when Apple reported a record $16.8 billion in revenue in China in the first quarter.
Per IDC:
Apple was the top smartphone vendor in China in the first quarter of 2015, with consumers still having a strong appetite for the larger screens on the iPhone 6 and iPhone 6 Plus. Xiaomi slipped to the second position as it faced strong competition from other vendors in the low to mid-range segment of the market, while Huawei maintained third position as it saw a good uptake in the mid-range segment. Samsung and Lenovo both led the market at least once last year, but rankings have since changed quickly, highlighting the volatility of consumers’ brand preference in China.
Former leader Samsung was far behind, with just 9.7% market share behind Huawei, and ahead only of Lenovo.
“Smartphones are becoming increasingly saturated in China,” said Kitty Fok, Managing Director at IDC China. “China is oftentimes thought of as an emerging market but the reality is that the vast majority of phones sold in China today are smartphones, similar to other mature markets like the US, UK, Australia, and Japan. Just like these markets, convincing existing users as well as feature phone users to upgrade to new smartphones will now be the key to further growth in the China market.“
What does the futures hold for smartphones in China? IDC expects relatively flat growth for China in 2015. Other trends to expect in China this year include:
- Multi-brand strategies. Huawei and ZTE are positioning younger sub-brands Honor and nubia, respectively, to chip away at Xiaomi’s user base, and to attempt to gain a loyal fanbase. Lenovo is also getting into the mix with the Motorola acquisition, not to mention its upcoming online-focused Shenqi division.
- Higher price tier competition. More vendors like Huawei, Lenovo, and even Xiaomi are trying to push higher into the mid to high-end segment.
- Non-traditional channel strategies. Reduced operator subsidies mean that vendors will further expand channels into more vendor-branded retail shops, direct online sales, and eTailers instead. In particular, they are trying to save on the cost that they had to pay to the traditional dealers/distributors in the past.
- Expansion into overseas markets. With the market in China slowing down, Chinese vendors will focus on increasing their presence in India as well as more Southeast Asia countries in 2015.
“To successfully combat local players overseas, Chinese vendors will need to focus on channel relationships and localized marketing strategies,” said Tay Xiaohan, Senior Market Analyst with IDC Asia/Pacific’s Client Devices team. “Most of the market’s growth will come from sub-US$150 phones as feature phone users switch to low-cost smartphones.” Xiaohan adds that the slowdown in China will increase pressure on manufacturers to seek growth in India and Southeast Asia, where striking partnerships with distributors will prove critical.
Which may very well mean that after Apple’s latest meteoric rise to the top spot (aided by billions in marketing spend), it may be all downhill from here for the Cupertino company, unless the company that Steve Jobs built and which has since become a financial engineering juggernaut without any clear blockbuster product (sorry Apple watch fanatics, it’s a dud), will have to return to its roots of producing brilliant products or soon the Chinese growth avenue will be shut just as fast as it opened.
Finally, if there is one thing that can push further smartphone, er, penetration it is this.
- White House Denies It Fabricated bin Laden Killing, Says Hersh Report "Riddled With Inaccuracies And Falsehoods"
If anyone expected the Obama administration to admit that, as Seymour Hersch alleged last night, it had openly lied and fabricated the entire account of Osama bin Laden killing – perhaps the most defining narrative of Obama’s entire first term, we have some bad news: it won’t.
Instead, as AP reports, the White House has decided to continue its reality challenged ways and has dismissed as “untrue” Hersh’s entire 10K plus word report on what really happened in Abbattobad.
It gets better: according to that paragon of honesty, White House spokesman, Josh Earnest, Hersh’s piece in the London Review of Books is “riddled with inaccuracies and outright falsehoods.”
It was not immediately clear if Earnest referred the press corp to some fabricated YouTube clip as evidence it wasn’t lying about lying.
Earnest noted former CIA deputy director Michael Morell’s reaction to the article — that he stopped reading because every sentence was wrong.
As previously reported, Hersh attributed his information to a retired general of the Pakistani intelligence service and several unidentified sources in the U.S. and Pakistan. He says bin Laden was secretly kept as a prisoner by the Pakistanis and that they helped the U.S. stage the raid on his compound.
Among the many allegations of Hersh’s report are that:
- bin Laden had been a prisoner of the Pakistan intelligence at the Abbottabad compound since 2006 (something revealed previously in “Osama bin Laden ‘protected by Pakistan in return for Saudi cash“)
- that the two most senior Pakistani military leaders knew of the raid in advance and had made sure that the two helicopters delivering the Seals to Abbottabad could cross Pakistani airspace without triggering any alarms;
- that the CIA did not learn of bin Laden’s whereabouts by tracking his couriers, as the White House has claimed since May 2011, but from a former senior Pakistani intelligence officer who betrayed the secret in return for much of the $25 million reward offered by the US,
- and that, while Obama did order the raid and the Seal team did carry it out, many other aspects of the administration’s account were false.
The Obama administration says the Pakistanis didn’t know about the raid in advance. It wasn’t immediately clear if it had rejected all the other claims.
For those who missed it, the full Hersh report can be found here.
- How The US Military Is Paying NFL Teams Millions To "Honor the Troops" At Sporting Events
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
When the Jets paused to honor soldiers of the New Jersey Army National Guard at home games during the past four years, it was more than a heartfelt salute to the military — it was also worth a good stack of taxpayer money, records show.
The Department of Defense and the Jersey Guard paid the Jets a total of $377,000 from 2011 to 2014 for the salutes and other advertising, according to federal contracts. Overall, the Defense Department has paid 14 NFL teams $5.4 million during that time, of which $5.3 million was paid by the National Guard to 11 teams under similar contracts.
The agreement includes the Hometown Hero segment, in which the Jets feature a soldier or two on the big screen, announce their names and ask the crowd to thank them for their service. The soldiers and three friends also get seats in the Coaches Club for the game.
– From the New Jersey Star Ledger article: Jets’ Salutes Honor N.J. National Guard but Cost Taxpayer
Like everything else in America, faux patriotism is also for sale.
I’ve written previously about how uncomfortable the superficial “honor the troops” displays at sporting events makes me feel. In the post, “Stop Thanking Me for My Service” – Former U.S. Army Ranger Blasts American Foreign Policy and The Corporate State, I noted:
I have to admit, whenever I find myself in the midst of a large public gathering (which fortunately isn’t that often), and the token veteran or two is called out in front of the masses to “honor” I immediately begin to cringe as a result of a massive internal conflict. On the one hand, I recognize that the veteran(s) being honored is most likely a decent human being. Either poor or extraordinarily brainwashed, the man or woman paraded in front of the crowd is nothing more than a pawn. Even if their spouse hasn’t left them; even if whatever conflict they were involved in didn’t result in a permanent disability or post traumatic stress disorder, this person has been used and abused, and thirty seconds of cheering in between ravenous bites out of a footlong hotdog from a drunk and apathetic crowd isn’t going to change that. I don’t harbor negative sentiments toward the veteran.
On the other hand, the entire spectacle makes me sick. I refuse to participate in the superficial charade for many reasons, but the primary one is that I don’t want to play any part in the crowd’s insatiable imbecility. It’s the stupidity and ignorance of the masses that the corporate-state preys upon, and that’s precisely what’s on full display at these tired and phony imperialist celebrations.
Of course, it’s not just me that finds these scenes hard to stomach. Many troops have come forward and expressed the exact same sentiment. For example, as Rory Fanning, who served in Afghanistan with the 2nd Army Ranger Battalion noted:
These two ceremonies seemed to catch a particular mood (reflected in so many similar, if more up-to-date versions of the same). They might have benefited from a little “awareness raising” when it came to what the American military has actually been doing these last years, not to say decades, beyond our borders. They certainly summed up much of the frustration I was feeling with the Concert for Valor. Plenty of thank yous, for sure, but no history when it came to what the thanks were being offered for in, say, Iraq or Afghanistan, no statistics on taxpayer dollars spent or where they went, or on innocent lives lost and why.
Will the “Concert for Valor” mention the trillions of dollars rung up terrorizing Muslim countries for oil, the ratcheting up of the police and surveillance state in this country since 9/11, the hundreds of thousands of lives lost thanks to the wars of George W. Bush and Barack Obama? Is anyone going to dedicate a song to Chelsea Manning, or John Kiriakou, or Edward Snowden – two of them languishing in prison and one in exile — for their service to the American people? Will the Concert for Valor raise anyone’s awareness when it comes to the fact that, to this day, veterans lack proper medical attention, particularly for mental health issues, or that there is a veteran suicide every 80 minutes in this country? Let’s hope they find time in between drum solos, but myself, I’m not counting on it.
We use the term hero in part because it makes us feel good and in part because it shuts soldiers up (which, believe me, makes the rest of us feel better). Labeled as a hero, it’s also hard to think twice about putting your weapons down. Thank yous to heroes discourage dissent, which is one reason military bureaucrats feed off the term.
Very well said, and now we learn that these spectacles are often even more phony than originally suspected. NFL teams are being paid millions of dollars to host them. From the New Jersey Star Ledger:
TRENTON — When the Jets paused to honor soldiers of the New Jersey Army National Guard at home games during the past four years, it was more than a heartfelt salute to the military — it was also worth a good stack of taxpayer money, records show.
The Department of Defense and the Jersey Guard paid the Jets a total of $377,000 from 2011 to 2014 for the salutes and other advertising, according to federal contracts. Overall, the Defense Department has paid 14 NFL teams $5.4 million during that time, of which $5.3 million was paid by the National Guard to 11 teams under similar contracts.
The agreement includes the Hometown Hero segment, in which the Jets feature a soldier or two on the big screen, announce their names and ask the crowd to thank them for their service. The soldiers and three friends also get seats in the Coaches Club for the game.
Aside from the Hometown Heroes segment, the agreements also included advertising and marketing services, including a kickoff video message from the Guard, digital advertising on stadium screens, online advertising and meeting space for a meeting or events.
Flake said there was nothing wrong with the Guard using football games to recruit soldiers. The problem, he said, was spending taxpayer money on a program that, on its face, appeared to be a generous gesture by a football team.
The Daily News also covered this story, with a choice line from one of the most authoritarian members of Congress, Peter King. A man so completely insane, he makes neocons blush. He defended the spending of taxpayer money on superficial, faux patriotism:
Rep. Pete King (R-L.I.) also said “it’s money well spent.”
“People watching the NFL are generally inclined to be pro-military,” King told The News. “As far as the Jets, in addition to whatever money they’ve gotten from the (Department of Defense), I do know they are very actively engaged with veterans. The Jets do far more on balance than they get paid for.”
Football and fake patriotism. The new American Dream.
- The Last Time This Happened, Chinese Stocks Crashed
Chinese stocks are the most expensive relative to bonds in almost six years. For the first time since June 2009, Bloomberg notes, the earnings yield on the Shanghai Composite Index has dropped below the yield on top-rated corporate debt… and just like in now, stocks rallied 100% in the preceding year before plunging over 20% in the next month, and further still in the ensuing months. Already we are seeing Chinese stocks faltering – with a disappointying post-rate-cut move – which leads on analysts to note, “the market will enter a correction phase, and it will be very volatile,” and comments by officials have raised concerns that PBOC will “quickly erode its credibility.”
As Bloomberg reports,
The official People’s Daily said on its website Monday the bull market doesn’t just mean one-way gains, adding that the many people who have bought stocks using borrowed money may be hurt by a small correction.
Last week’s pullback doesn’t mark the end of the rally and could instead help the market enter a “slow bull” mode advocated by regulators, the official Xinhua News Agency said in a commentary on its website.
“The regulator must remember its primary role is to regulate and monitor market risks and it is not a strategist,” Hong said. “Its frequent switches between bullish when the market crashes and cautious when the market surges will quickly erode its credibility.”
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- America's Vanishing Worker: The Truth Behind The "Recovery" Propaganda
The biggest paradox of the so-called US recovery is that in the same report in which the US Department of Labor reported that the US unemployment has dropped to a depression-low 5.4%, a level suggesting near zero “slack” in the labor force, the BLS also indicated that the number of people not in the labor force rose to a fresh all time high of 93.2 million, keeping the participation rate at a level first seen in 1978.
How does one make sense of this glaring contradiction and paradoxical data, which one one hand suggest the recovery is fully in place, while on the other screams depression?
For the answer we go to the WSJ’s report on the curious case of America’s vanishing worker.
To be sure, this “curious case” covers nothing new for regular Zero Hedge readers, but may explain to casual observers how it is possible that America’s labor metrics have devolved to such a Schrodingerian state in which the US labor market is both alive and dead, depending on whose propaganda one observes.
For the answer, the WSJ tracks the career, or rather lack thereof, of Denny Ryder of Decatur, Illinois, 47 years old, who is one of hundreds of thousands of (former) employees in the industrial Midwest who has been forced to move away, retire or give up on finding a job. As a result, the unemployment rate in this has fallen even as Denny is no closer to being able to provide for his family.
As the WSJ reports, “by one key gauge of economic health, this industrial city three hours south of Chicago is well on the way to recovery. Hit hard by the recession, when its unemployment rate topped 14%, Decatur over the past year has seen one of the swiftest declines in joblessness in the country, with the rate dropping to 7% in March from 10.2% a year earlier.”
The problem: it’s nothing but a statistical mirage, a lie.
[L]ook closer, and this city of 75,000 resembles many communities across the industrial Midwest, where the unemployment rate is falling fast in part because workers are disappearing: moving away, retiring or no longer looking for a job.
“In cases like that, the unemployment rate makes things look better than they really are,” said Karl Kuykendall, U.S. regional economist at IHS Global Insight. In terms of overall economic growth, he said, “a decline in population and workforce is devastating.”
[T]he falling unemployment rate doesn’t tell the full story of a recovery that remains uneven nearly six years after the recession ended. Among the 20 metropolitan areas where unemployment fell by at least 2.7 percentage points in the past year, 16 also saw their workforces shrink over the same period, according to Labor Department data. Half of those were in Michigan or Illinois, including Detroit, Decatur, Flint, Mich., and Rockford, Ill.
Most places saw at least some hiring and job creation. In Decatur, though, payrolls fell over the past year due to layoffs, attrition, transfers or other causes.
In other words, anyone daring to look closer behind the thin facade of the “recovery” uncovers a rotting, collapsing core: an economy not only not flourishing, but shrinking even as it creates the false impression of growth.
Behold the recovery “mirage” in four simple charts:
Back to Denny Ryder, who wasn’t looking to leave Decatur, where he was born and raised. But he was laid off from a Caterpillar Inc. plant here in late 2013 as the heavy-equipment maker faced a slowdown in demand from mining companies.
What happens next is a story familiar to millions of Americans who not only have no weekly paycheck, but whose plight no longer is even accounted for in the Labor department’s monthly assessment of US economic health.
So Mr. Ryder and his wife relocated to Winston-Salem, N.C., last year where he found work at a Caterpillar contractor. While Mr. Ryder was confident he could find a job in Decatur, he didn’t feel it would match the wages and benefits at Caterpillar, where he worked for 19 years. “I probably could have lost a lot of money and found a job in Decatur,” said Mr. Ryder, who has taken to life in North Carolina, from enjoying the hills to swimming in the ocean for the first time.
“Probably.” And perhaps, not. That’s the magic of proving a negative: it’s impossible which is why economists do it all the time.
What one can prove looking at the data, is that any suggestion of a wholesale economic recovery is nothing but Goebbelsian propaganda.
The fitful recovery in Decatur has laid bare challenges building for decades in many places in the Midwest and Northeast. Populations are shrinking, and the workforce is getting older. A historical reliance on manufacturing has hurt aging industrial cities as the U.S. economy continues its shift to service jobs. And the recession expanded the share of the working-age population who don’t have a job and aren’t looking for one.
In the Decatur area, the Labor Department’s rough estimates show falling unemployment, a shrinking labor force and declining nonfarm payrolls. But the data don’t explain why the workforce is smaller and where the unemployed are going.
There are clues, such as the lunch crowd at the Good Samaritan Inn, a soup kitchen where the Rev. Stacey Brohard is executive director. He said many people lack skills or face other barriers to jobs and have given up on finding work. The recession only increased their ranks, he said.
You mean soaring soup lines aren’t counted as employed by the BLS? How is that possible when hookers and drug dealers somehow contribute to GDP in the UK, Spain and Italy? Surely someone at the BLS will promptly fix this oversight.
But it’s not just the Labor department’s blatant fabrication of a recovery narrative: what is worse is that America’s aging workers have been left to fend for themselves even as their absence from any official counts is meant to signify America’s fake economic renaissance.
Decatur’s population skews older—the metro area’s median age was 39.7 in 2013, compared with 37.5 for the U.S. as a whole. Some older workers were laid off or took early retirement during the downturn but remained in the labor force, looking for work. Now, with the stock market near all-time highs, their portfolios look healthier and they feel more comfortable retiring for good, said Ron Payne, a labor market economist at the Illinois Department of Employment Security.
Decatur faces a dual challenge: getting older workers retrained so they can extend their careers, and keeping younger workers from moving away. Richland Community College increasingly is concentrating on people over 50 years old—many of whom haven’t been in a classroom in decades.
And it’s doing a damn good job: as we also showed last week, the number of Americans 55 and older who do have a job has never been higher. Surely the basis of any solid recovery.
As for the younger ones, why they too are in luck: “City officials are courting young professionals with moves such as banning trucks from downtown, promoting outdoor dining and developing recreational opportunities around Lake Decatur.” Speaking of outdoor dining, these are precisely the jobs the young end up getting because if there is one thing America has a record of in addition to jobs for old workers, it is a record number of waiter and bartender jobs as well.
It’s not all bad:
Since the recession, the city has built a new water tower, replaced sewer lines and cut the ribbon on a new freight-rail terminal—all with the goal of retaining industrial employers and attracting new ones.
“First, it’s recovery, which is the phase we’re probably still in right now, but expansion eventually follows that,” said Ryan McCrady, president of city’s economic-development corporation.
Which is also known as “hope” which always dies last. Sadly, for the vast majority of Americans “hope” is all they have left.
As for the 1% of US society which has reaped the benefits of 7 years of ZIRP and QE, there we will admit: the recovery is all too real.
- Ron Paul: NSA Spying Ruled Illegal, But Will Congress Save the Program Anyway?
Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,
This week the Sixth Circuit Court of Appeals ruled that the NSA’s metadata collection program was not authorized in US law. The PATRIOT Act, under which the program began, was too vague, the court found. But the truth is the Act was intended to be vague so that the government could interpret it in the broadest possible way.
But this is really more of a technicality, because illegality and unconstitutionality are really two very different things. Even if Congress had explicitly authorized the government to collect our phone records, that law would still be unconstitutional because the Constitution does not grant government the power to access our personal information without a valid search warrant.
Even though the court found the NSA program illegal, it did not demand that the government stop collecting our information in this manner. Instead, the court kicked the ball back in Congress’ court, as these provisions of the PATRIOT Act are set to expire at the end of the month and the Appeals Court decided to let Congress decide how to re-authorize this spying program.
Unfortunately, this is where there is not much to cheer. If past practice is any lesson, Congress will wait until the spying program is about to expire and then in a panic try to frighten Americans into accepting more intrusions on their privacy. Senate Majority Leader Mitch McConnell has already put forth a new bill as a stop-gap measure to allow time for a fuller debate on the issue. His stop-gap? A five year re-authorization with no changes to the current program!
The main reform bill being floated, the FREEDOM Act, is little better. Pretending to be a step in the right direction, the FREEDOM Act may actually be worse for our privacy and liberties than the PATRIOT Act!
One silver lining in the court decision is that it should exonerate Ed Snowden, who risked it all to expose what the courts have now found was illegal US government activity. That is the definition of a whistleblower. Shouldn’t he be welcomed back home as a hero instead of being threatened with treason charges? We shouldn’t hold our breath!
This week Snowden addressed a conference in Melbourne, Australia, informing citizens that the Australian government watches all its citizens “all the time.” Australia’s program allows the government to “collect everyone’s communications in advance of criminal suspicion,” he told the conference. That means the government is no longer in the business of prosecuting crimes, but instead is collecting information in case crimes someday occur.
How is it that the Australian government can collect and track “pre-crime” information on its citizens? Last month Australia passed a law requiring telecommunications companies to retain metadata information on their customers for two years.
Why do Australia’s oppressive laws matter to us? Because the NSA “reform” legislation before Congress, the FREEDOM Act, does exactly what the Australian law does: it mandates that US telecommunications companies retain their customers’ metadata information so that the NSA can access the information as it wishes.
Some argue that this metadata information is harmless and that civil libertarians are over-reacting. But, as Ed Snowden told the Melbourne conference, “under these mandatory metadata laws you can immediately see who journalists are contacting, from which you can derive who their sources are.”
This one example of what happens when the government forces corporations to assist it in spying on the people should be a red flag. How can an independent media exist in the US if the government knows exactly whom journalists contact for information? It would be the end of any future whistleblowers.
The only reform of the PATRIOT Act is a total repeal. Accept nothing less.
- The Government's Career Suggestion For Massively Indebted College Grads: Become Farmers
Last week, we profiled this year’s class of college seniors and congratulated them on being the most heavily-indebted graduating class in the history of US higher education. These students will leave school carrying an average balance of more than $35,000. Of course, one can’t place the blame for this deplorable state of affairs entirely on the shoulders of the students because even as easy access to federal education loans creates the conditions under which students may be tempted to take on more debt than they actually need (because you have to have a MacBook and an iPad), thus borrowing from the future to pay for what, in many cases, are degrees that are not by any means guaranteed to lead to high-paying, full-time employment, the inexorable rise in tuition rates deserves its fair share of the blame as well.
Fortunately for the class of 2015, there’s a way out and it’s called Income-Based Repayment. These plans allow for the discharge of federal education loans after 300 “eligible” payments, a very convenient program for those who, after college, do not make enough discretionary income to service their debt. For these borrowers, a zero payment counts as an “eligible” payment, creating a scenario whereby it is technically possible to make no payments for 25 years and have the debt completely written off at the expense of the US taxpayer. The real beauty of this is that just as we said about student debt discharge in bankruptcy, once colleges and universities know they can charge anything for tuition, room and board because the debt funding it will be socialized and ultimately “forgiven”, expect the “up and to the right” tutition rate chart to go vertical.
In any event, total debt forgiveness is a nice fallback plan in today’s economy because as researchers from Georgetown discovered when they looked at the best and worst (in terms of average annual salaries) college majors, there are quite a few disciplines that promise to pay graduates less than the median annual income. And while the takeaway from the Georgetown study was that there’s still money to be made in petroleum engineering, the US government has another modest suggestion for America’s proud graduates: become farmers.
From the USDA:
One of the Best Fields for New College Graduates? Agriculture.
Nearly 60,000 High-Skilled Agriculture Job Openings Expected Annually in U.S., Yet Only 35,000 Graduates Available to Fill Them
Agriculture Secretary Tom Vilsack today announced a new report showing tremendous demand for recent college graduates with a degree in agricultural programs with an estimated 57,900 high-skilled job openings annually in the food, agriculture, renewable natural resources, and environment fields in the United States. According to an employment outlook report released today by USDA’s National Institute of Food and Agriculture (NIFA) and Purdue University, there is an average of 35,400 new U.S. graduates with a bachelor’s degree or higher in agriculture related fields, 22,500 short of the jobs available annually.
“There is incredible opportunity for highly-skilled jobs in agriculture,” said Secretary Vilsack.
“Those receiving degrees in agricultural fields can expect to have ample career opportunities. Not only will those who study agriculture be likely to get well-paying jobs upon graduation, they will also have the satisfaction of working in a field that addresses some of the world’s most pressing challenges. These jobs will only become more important as we continue to develop solutions to feed more than 9 billion people by 2050.“
There you have it. And while we imagine there aren’t that many aspiring college grads out there who envisioned a life on the farm, it might not be a bad option considering occupations like Early Childhood Education all but guarantee your status as a “low-income” American and considering that, unless you’re lucky enough to belong to the 17% of non-farm workers who the BLS classifies as “supervisors,” you will likey find yourself laboring under non-existent wage growth in perpetuity.
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And meanwhile, at Columbia:
As her May 19 commencement date looms, Yana Dey has begun considering skipping her own graduation.
It’s not that she wants to miss it. She’s proud of the work that went into fulfilling the requirements for a master’s degree from Columbia University’s Teachers College.
What’s holding her back is the $62 cost of the cap and gown she’s required to wear to walk at graduation. “I started to worry, because I just don’t have any extra money to spend right now,” says Dey, who began posting on Facebook groups in May to try to borrow past graduates’ regalia. “I honestly thought about not going.”
Dey isn’t alone. The issue garnered increasing attention on Facebook as students posted a flurry of requests—“Anyone have a 5’11” appropriate gown to loan out?”—to borrow garb from recent graduates.
We can only hope Ms. Dey majored in agriculture or petroleum engineering.
- The ECB is Attempting to Corner the Bond Market… Buckle Up
In 2012, during the depth of the EU banking crisis which nearly took the entire EU financial system down, Mario Draghi stated that he would do “whatever it takes” to hold the EU together.
Anyone paying attention knew that this was a bluff. True, the ECB and EU leaders had already defied if not broken every condition of the Maastricht Treaty and the Schengen Treaty (the legislation that formed the EU proper). However, even to the most cynical analyst, Mario Draghi’s claim was pushing the envelope a little too hard.
Implementing capital controls and border controls limit freedom, but from the perspective of monetary policy, they’re secondary items. The REAL power is that of the printing press.
This is how Draghi’s promise to save the EU was different from every other action: it addressed the structure of the EU in its most critical component, namely the control of the currency.
It took the EU two years to cobble together its reasoning for how something that went completely against the Maastricht Treaty would be permitted. As usual it was the Germans (the ultimate holders of the purse strings) who gave the “OK.”
Now given the green light, Draghi has embarked upon a €60 billion a month QE program. Somehow this is meant to:
1) Reboot a €46 TRILLION banking system that is totally insolvent.
2) Generate lower interest rates when most EU-member sovereign bonds are at multi-century lows.
3) Bring the EU economy back to growth.
The whole idea is absurd. But it does reveal one important thing: that we are much closer to the end of the Central Bank-fueled $100 trillion bond bubble than ever before.
The bond market has tripled in size in the last 14 years. This has been fueled by the issuance of debt at an astounding pace as Governments attempted to paper over the massive decline in living standards plaguing the West.
Today, the bond bubble is over $100 trillion in size. When you include derivatives based on interest rates (bonds) it’s over $555 trillion.
To put this into perspective, the CDS market which nearly took down the financial system in 2008 was a mere $50-$60 trillion in size. So the bond bubble is literally 10X this in size and scope.
The derivatives story is key here, because all of those $555 trillion in trades are backstopped by sovereign bonds (Japanese bonds, German Bunds, US Treasuries, etc.). These are the very bonds that Central Banks have been BUYING over the last five years (thereby shrinking the amount available to the banks to backstop those trades).
Put another way, the amount of high quality collateral backstopping this mess has shrunken dramatically. On top of this, traders have been piling into sovereign bonds in anticipation of various QE programs, forcing yields to multi-decade if not multi-century lows.
Currently over HALF of ALL Government bonds in the world yield less than 1%. Over $5 trillion in government debt has negative yields:
This is not only unsustainable… it is a clear sign of a bubble. A bubble that when it bursts when involve over $555 trillion worth of trades imploding.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
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