- Guest Post: How Big Government Kills The American Dream
Last week, Sen. Elizabeth Warren, D-Mass., and New York Mayor Bill de Blasio published their prescription for reviving the American dream. They are right to focus on the dream. They are wrong in their understanding of American history and the role government can play in restoring and fostering the dream.
In an 872-word argument titled “How to revive the American dream,” the words “free” or “freedom” never appear. That’s a clue.
They open with a chilling refrain: Opportunity for success for most Americans is hopeless. All but the rich are falling behind because the “game is rigged.” Their diagnosis: You can’t improve your situation by your own talents or effort. Their prescription: Don’t leave freedom in the hands of citizens. Only a massively larger central government, run by people like them, can help you.
Respectfully, this has been the claim of every person in history who has ever sought to gain enormous power through government control over the daily lives of their fellow citizens.
They say the American dream is nearly dead because the game is rigged. If so, your talent, hard work and dedication can’t help you, and your freedom to choose your own path in life isn’t worth much, is it?
And if the situation is hopeless, the change has to be dramatic. “Bold” is their word. They aren’t trying to sell common-sense reforms. They are selling an entirely new American system that fundamentally changes the relationship between central government leaders and you. Thomas Jefferson wrote that the purpose of the government is to secure freedom. Warren and de Blasio’s government would take your freedom in order to protect you from freedom’s harmful effects.
Their misreading of American history is frightening. The American system of free people and free markets created more opportunity and prosperity for more citizens than any economic system in human history. Most countries have tried to copy our economic model.
Take China. Thirty years ago, the Chinese government abused and controlled every aspect of the lives of its impoverished people. The Chinese middle class did not exist. In the last two decades, the Chinese have moved from a totally government-controlled economy toward freer markets, and more than 300 million Chinese citizens now comfortably belong in the world’s middle class. Unfortunately, the Chinese government still allows egregious abuses of law and its people, but the old model was a complete disaster.
The Warren and de Blasio answer for strengthening the American middle class would move us toward the old Chinese economic model. They propose having the government dictate wages, overtime, vacation and leave policies, child-care requirements, and how much men and women are paid. They would dictate tuition levels for colleges. While decrying cronyism, they want a central government empowered to decide which companies are “fair,” and only those would receive funding for research and development. According to them, rather than allowing a business to succeed — or fail — on its own merits, government should pick the winners and bail them out with the public’s money when they fail.
They oppose free markets. Instead, they’d create “fair rules” in the marketplace. Let’s cut through the code words here. They don’t want you to be free to make economic decisions. Instead, they want the power to decide what is “fair” for you. Nowhere in their list of new government services and controls is any mention of a cost to us. We’re to believe only Bill Gates and a few of his friends would pay.
Except we know that isn’t true. The cost of their policies would be paid in more debt, taxes and fewer jobs. Have they learned nothing from watching Greece?
Warren and de Blasio aim their argument for a massive expansion of federal power at the goal of helping the middle class. The great American middle class was not created by government policies. Their prescription would crush working families and small business — the engine of the American dream.
The debate here isn’t between a more powerful central government versus no government and a dog-eat-dog world where the strong eat the weak. A fair read of American history shows that wise government policies nurture an environment where the dream can grow through actions, such as funding of public infrastructure, scientific and technological research, and public education. And government regulation plays a necessary role in keeping America safe.
To build their case that America today is in need of radical change, Warren and de Blasio make the incredible claim that America used to invest in our kids and in policies to build a strong middle class, but “we don’t anymore.” What are those government policies? Social Security, Medicare, free public education. We don’t invest in these policies anymore? Spending for these programs has risen from $195 billion in 1980 to just under $2 trillion today.
If Warren and de Blasio limited their argument to the need for government assistance to help the poorest and weakest in our society, there wouldn’t be a debate. I would agree with that. But that is not their claim. They claim that a massive expansion of federal power would help the families in the middle. Their prescription requires middle America to surrender freedom. In exchange, they say government control would improve our situation in life more than exercising our own freedom will.
Warren and de Blasio’s prescription is for killing the American dream rather than reviving it.
- Only 22 Countries Have Never Been Invaded By Britain (For Now)
While America may have troops in around 150 countries around the world, it still has not ‘officially’ invaded as many as Britain managed throughout its history… but there’s still time.
Source: @MaxCRoser
* * *
Time to step up the American Empire game…
- Birth Tourism: How 1000s Of Pregnant Chinese Women Visit The US To Give Birth (& Get A Passport)
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
Did you know there exists a highly lucrative business in America that consists of helping pregnant Chinese women get into the U.S. merely to give birth and get their children passports? Yep, neither did I.
From Bloomberg:
Fiona He gave birth to her second child, a boy, on Jan. 24, 2015, at Pomona Valley Hospital in Southern California. The staff was friendly, the delivery uncomplicated, and the baby healthy. He, a citizen of China, left the hospital confident she had made the right decision to come to America to have her baby.
She’d arrived in November as a customer of USA Happy Baby, one of an increasing number of agencies that bring pregnant Chinese women to the States. Like most of them, Happy Baby is a deluxe service that ushers the women through the visa process and cares for them before and after delivery.
There are many reasons to have a baby in the U.S. The air is cleaner, the doctors generally are better, and pain medication is dispensed more readily. Couples can evade China’s one-child policy, because they don’t have to register the birth with local authorities. The main appeal of being a “birth tourist,” though, is that the newborn goes home with a U.S. passport. The 14th Amendment decrees that almost any child born on U.S. soil is automatically a citizen; the only exception is a child born to diplomats. He and her husband paid USA Happy Baby $50,000 to have an American son. If they had to, she says, they’d have paid more.
A week later, five men from Homeland Security Investigations, the sheriff’s department, and the fire department arrived. At first He thought they’d come from the homeowners’ association. Then she saw the bulletproof vests and handguns. They showed her a search warrant. She recognized the translator from the previous visit. “Then they asked me a lot of questions, and I became nervous,” she says.
The HSI agents told He she wasn’t in trouble. That turned out to be only sort of true. They were investigating the owners of USA Happy Baby—Dong and her husband, Michael Liu—for suspected tax evasion, money laundering, and visa fraud. Although it’s legal to travel to the U.S. to give birth, it’s illegal to lie about the purpose of a visit—or coach someone to do so. For two hours the agents gathered documents, including the family’s passports, and made copies of He’s e-mails and texts. “They took my son’s immunization record, even the paper I used to record his milk time,” she says.
Homeland Security and the IRS have been investigating the growing business of “birth tourism,” which operates in a legal gray area, since last June. The industry is totally unregulated and mostly hidden. Fiona’s apartment was one of more than 30 baby safe houses that HSI agents and local law enforcement searched in Southern California that day in March. They came with translators and paramedics, almost 300 people in all. The investigators focused on three agencies—USA Happy Baby, You Win USA Vacation Resort, and Star Baby Care—using a confidential informant, undercover operations, and surveillance, according to three affidavits.
No one knows the exact number of Chinese birth tourists or services catering to them. Online ads and accounts in the Chinese-language press suggest there could be hundreds, maybe thousands, of operators. A California association of these services called All American Mother Service Management Center claims 20,000 women from China gave birth in the U.S. in 2012 and about the same number in 2013. These figures are often cited by Chinese state media, but the center didn’t reply to a request for comment. The Center for Immigration Studies, an American organization that advocates limiting the scope of the 14th Amendment, estimates there could have been as many as 36,000 birth tourists from around the world in 2012.
The U.S. and Canada are the only developed countries that grant birthright citizenship. For those who believe U.S. immigration policies are too generous, birth tourism has become a contentious issue. “It’s like somebody giving birth in your living room and saying they’re part of your family,” says Ira Mehlman, the spokesman for the Federation for American Immigration Reform.
After the March raids, 29 Chinese mothers and relatives were designated material witnesses and ordered to stay in Southern California until the federal court decided they could leave. Fiona He moved from her apartment in Rancho Cucamonga to one in another part of the Inland Empire. “I want my children to have the best they can,” she says. “But I had no idea I would have this trouble. We didn’t hurt anyone. We just found an easy way to stay here to give birth. Is that wrong?
If a woman says she’s traveling to give birth, the consular and customs officers may request proof that she can pay for her hospital stay. (The same would be asked of anybody seeking medical treatment in the U.S.) “Keep every single one of your invoices as evidence that you didn’t use the public charge,” Zhai says, referring to Medicaid. “If you have receipts with big sums, such as a watch worth tens of thousands, or a diamond ring, save those too.”
The consular and customs officers “may” ask for proof?
There’s a lot of money to be made in laundering Chinese money into America, as well as in getting Chinese citizens a green card or residency.
- UK PM David Cameron Proclaims: It’s Not Enough To Follow The Law, You Must Love Big Brother
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
It’s not just those domestic extremists and crazy “conspiracy theory” kooks who took serious issue with UK Prime Minister David Cameron’s recent overtly fascist language when it comes to freedom of expression in Great Britain. For example, in a post published today, the UK Independent describes the quote below as “the creepiest thing David Cameron has ever said.”
This statement, and others like it, are a huge deal. This isn’t how the leader of a major civilized Western so-called “democracy” speaks to the citizenry. It is how a master talks to his slaves. How a ruler addresses his subjects. I think the following tweet by Glenn Greenwald earlier today sums up David Cameron’s attitude perfectly well:
This is really the mentality of Her Majesty's Government RT @akaSassinak But now it is not enough to obey. You must LOVE BIG BROTHER.
— Glenn Greenwald (@ggreenwald) May 14, 2015
Those of us who are in disbelief over David Cameron’s recent language, don’t have to just point to the quote above. There’s a lot more to it than a simple quote. For example, the Guardian reports:
The measures would give the police powers to apply to the high court for an order to limit the “harmful activities” of an extremist individual. The definition of harmful is to include a risk of public disorder, a risk of harassment, alarm or distress or creating a “threat to the functioning of democracy”.
A “risk of public disorder,” or a “risk of harassment alarm or distress.” Think about that for a second. Pretty much 90% of all speech could be classified as posing a risk to all of those things. It’s basically banning any criticism the government doesn’t like. Truly remarkable. Now here’s how the magnificent “democracy” of Great Britain plans on dealing with such “extremists.”
They would include a ban on broadcasting and a requirement to submit to the police in advance any proposed publication on the web and social media or in print. The bill will also contain plans for banning orders for extremist organizations which seek to undermine democracy or use hate speech in public places, but it will fall short of banning on the grounds of provoking hatred.
Although I’m not a British citizen and have never lived in the UK, I have spent some time writing about the disturbing trends happening across the pond due to the historic, cultural, geopolitical and linguistic ties between the U.S. and Great Britain. I warned all about these dangerous trends last fall in the post, The UK’s Conservative Party Declares War on YouTube, Twitter, Free Speech and Common Sense. Here are a few excerpts:
Teresa May wants to “ban non-violent extremist groups that fall short of the current threshold for being banned as terrorist-related organizations.” Think about that very closely. Essentially, she is saying non-violent groups that are currently not breaking any laws should be criminalized by creating new laws. Once this process begins, it will continue to be expanded and expanded until pretty much every form of expression other than government propaganda will be banned.
Secondly, she notes that the new laws are necessary to combat groups that undertake activities “for the purpose of overthrowing democracy.” Considering that the U.S. government changes the meanings of words at a moment’s notice, such as claiming that “imminent” doesn’t really mean “imminent,” I argue that an official government definition of democracy is necessary. Moreover, what if the UK is like the U.S., a state that claims to be a democracy, but in reality is an oligarchy? What are the rules about calling for the removal of an oligarchy?
Have fun mates.
- Are You Ready For The Coming Debt Revolution?
Submitted by Bill Bonner via Bonner & Partners,
There is a specter haunting America… and all the developed nations of the world. It is the specter of a debt revolution.
We left off yesterday talking about how the economy of the last 30 years – and especially that of the last six years – has favored the old over the young.
“Rise up, ye young’uns,” we as much as said, “you have nothing to lose but your parents’ debts.”
We showed how the value of U.S. corporate equity, mainly held by older people, had multiplied by 28 times since 1981.
That was no honest bull market in stocks; it was a market sent soaring by an explosion of credit.
But what did it do for young people whose only assets are their time and their youthful energy?
Alas, the real economy has increased by only five times over the same period.
A Grim and Menacing Specter
And when you look more closely at work and wages, the specter grows grimmer and more menacing. Average hourly wages have barely budged in the last 30 years. And average household incomes have fallen – from $57,000 to $52,000 – in the 21st century.
But as our fingers came to rest yesterday, there was one question hanging in the air, like the smoke from an exploded hand grenade: Why? Was this huge shift – of trillions of dollars of wealth from young working people to old asset holders – an accident?
Was it just the maturing of a market economy in the electronic age? Was it because China took the capitalist road in 1979? Or because robots were competing with young people for jobs?
Nope… on all three counts.
First, old people, not young people, control government. Ultra-wealthy campaign funders like Sheldon Adelman and the Koch brothers were all born in the 1930s. The big money comes from wealthy geezers like these, eager to buy candidates early in the season when they are still relatively cheap. Old companies fund most Washington lobbyists, too. And old people decide elections: There are a lot of them… and they vote. They know where the money is.
Second, the government – doing the bidding of old people – restricts competition, subsidizes well-entrenched industries, raises the cost of employing young people, and directs its bailouts, cheap credit, and contracts to the graybeards.
Third, the credit-based money system increases the profits and prices of existing capital. It encourages borrowing and spending. This rewards the current generation while pushing the costs into the future.
Grandparents Prey on Grandchildren
None of this was an accident. None of it would have happened without the active intervention of the old folks, using the government to get what they could never have gotten honestly.
This is not the same as saying they were completely aware of what they were doing and what consequences their actions would have. We doubt the Nixon administration had any idea what would happen after it tore up the Bretton Woods monetary system in 1971. It was behind the eight ball, fearing foreign governments would call away America’s gold.
Few in the White House realized they had made such a calamitous mistake when the president ended the convertibility of the dollar into gold.
And yet it created a world in which parents and grandparents could prey on their grandchildren… for the next 44 years. And it’s still not over.
The new credit money – which could be borrowed into existence with no need for any savings or gold backing – was just what old people needed.
We have estimated that it increased spending by about $33 trillion over and above what the old, gold-backed system would have allowed. That spending lifted the value of the geezers’ assets and increased their living standards. Meanwhile, the average 25-year-old reporting for work in 2015 can’t expect a single dollar more in real hourly wages than his father did in 1980.
The total value of outstanding U.S. corporate bonds was 17% of GDP in 1981. Now, it’s $11.6 trillion – or 65% of GDP.
What did corporations use that money for?
Some of it went into capital investment that made companies more productive and more profitable. But much of it went where you would expect it to go: to buy back shares… to acquire other companies at inflated prices… and to pay off executives as the value of their share options went up!
Who did this benefit? Mostly people over 50.
Government debt is even worse. Unlike most personal debt, it doesn’t go to the grave with the person who borrowed it. It sticks around to burden the next generation – who got nothing from it.
Federal debt in 1980 was less than $1 trillion. Today, it is $18 trillion. That money was used to fund federal programs – few of which provided any benefit to young people.
An accident? A mistake? Partly. But old people must have known what they were doing.
Their lobbyists asked for the spending. Their politicians voted for it. Their companies enjoyed the revenues. And they pocketed much of the money. When the economy threatened a correction, they demanded more credit on easier terms to keep the money flowing. And when their credit balloon popped in 2008, they whined to the feds to protect their ill-gotten gains.
Honest capitalism? Not if they could prevent it.
Creative destruction? Not on their watch.
Pay for what you get? Not if they could put the bills on the next generation.
Young people of the world, unite!
- China Creates Perpetual Leverage Machine After Dropping Debt Directive
China is in a tough spot and it’s starting to show up in what look like contradictory policy decisions. The problem — as discussed at length in “How China’s Banks Hide Trillions In Credit Risk” and in “China’s Shadow Banking Grinds To A Halt As Bad Debt Surges” — goes something like this. In the interest of curbing systemic risk and decreasing the percentage of TSF comprised of off-balance sheet financing, China has moved to rein in the shadow banking boom that helped fuel the country’s meteoric growth. The effort to deleverage a system laboring under some $28 trillion in debt is complicated by the fact that the export-driven economy is growing at the slowest pace in 6 years (and that’s if you believe the official numbers), a scenario which calls for some manner of stimulus. Unfortunately, the yuan’s dollar peg has served to further pressure China’s exports while rising capital outflows (plus an IMF SDR bid) make currency devaluation an undesirable tool for boosting the economy. Beijing has thus resorted to slashing policy rates, cutting the benchmark lending rate three times in six months and RRR twice this year (and they aren’t done yet). This of course flies in the face of attempts to deleverage the system. That is, lowering real interest rates encourages more leverage, not less, but Beijing has little choice. It must walk the tightrope, because at some point, the deceleration in economic growth will become so readily apparent that China will no longer be able to stick to the (likely) fabricated 7% output figure.
Consider the following graphics which do a good job of illustrating how China has too much leverage and not enough leverage at the same time. The first chart shows that credit creation in China far outstrips EM and G4 countries…
…while the second graphic shows that the ratio of TSF to new bank loans is near one, meaning almost all of new credit creation is in the form of traditional loans suggesting the shadow banking complex (the engine that has helped drive expansion) has indeed ground to a halt…
As we discussed on Thursday, the country’s local government debt dilemma is a microcosm of the challenges facing the broader economy. Local governments used shadow banking conduits to skirt borrowing limits, accumulating a massive pile of high-yield debt in the process. The total debt burden for these localities sums to around 35% of GDP and because a non-trivial portion carries yields that are much higher than traditional muni bonds, the debt servicing costs have become unbearable. To remedy the situation, Beijing is implementing a debt swap program which allows local governments to swap their high-yielding loans for long-term bonds with lower coupons. In order to create demand for the new issues, the PBoC is allowing banks that purchase the new bonds to post them as collateral for cash that can then be re-lent to the broader economy, presumably at a healthy spread. So while the program is designed to help local governments deleverage by cutting hundreds of billions from debt servicing costs, the PBoC’s move to allow the new LGBs to be pledged for cash by the purchasing banks, means that on net, the entire refi program will actually add leverage to the system as banks use the cash they receive from repoing their LGBs to make new loans.
In the end, it’s the same dilemma: China is attempting to deleverage and re-leverage at the same time.
Local government bond supply is expected to come in at around CNY1.6 trillion for the year (that includes CNY1 trillion of new bonds issued in connection with the debt swap program and another CNY600 billion to fill budget gaps). While that’s four times last year’s issuance, the increase in supply is tolerable because it’s supposedly for a good cause. That is, the lion’s share of new supply is part of the debt swap program and will thus go towards helping issuing local governments reduce their debt service burden and thus deleverage. Of course, as we said above, these bonds ultimately end up creating more leverage when they’re pledged by the purchasing banks for cash that’s then re-lent, but we’ll focus just on the effect the program has on local government finances for now and if we take that narrow view, the refi effort should help. Unless of course the PBoC does something stupid like lift the ban on local governments accumulating the same type of off-balance sheet debt that got them into their current predicament.
Via WSJ:
China is reversing course on a major effort to tackle its hefty local government debt problem, marking a setback for a priority reform aimed at getting its financial house in order.
The move could provide the economy with some short-term help. But it restores a backdoor way that enabled local governments to load up on debt in recent years, providing a drag on growth at a time when Beijing is looking for ways to rekindle it.
According to an announcement made Friday by the State Council, China’s cabinet, the authorities relaxed controls on the ability of local governments to raise money by allowing them to tap government-sponsored financing companies—the very entities that have been blamed for a rapid run-up in China’s local debt load over the past few years.
The move undermines an October policy intended to prevent those financing firms from taking on new debt.
It comes as China’s long push toward financial reform—part of its broader effort to make the economy rely less on big investments but more on consumer spending—increasingly bumps up against a more pressing national goal: boosting growth.
The latest move comes as the world’s second-largest economy endures slower-than-expected growth. A barrage of monetary-easing measures since last year has proved insufficient to counter a real-estate downturn and flagging factory output…
Beijing heavily restricts the ability of local governments to borrow. In response, local officials around China have created thousands of finance companies called local-government financing vehicles that can borrow on their behalf. Such borrowing—which totals about $4 trillion by some estimates—is responsible for one-quarter of the buildup in China’s overall domestic debt since 2008, according to analysts. The International
Monetary Fund says China’s debt is growing more rapidly than debt in Japan, South Korea and the U.S. did before they tumbled into recessions.
Under the rule issued in October, those local financing vehicles were barred from borrowing additional funds starting this year, as the government sought to close what it dubbed “the back door” for localities to borrow.
Instead, all borrowing would be done by the local governments themselves and be appropriately disclosed and reflected in their budget plans. The purpose was to rein in runaway local-debt growth and make local borrowings more transparent.
According to the latest directive, local financing firms can continue to get loans from banks to fund ongoing projects. If the local firms have trouble repaying their bank debts, the rule says, their loan contracts should be “renegotiated and extended.”
Here’s Deutsche Bank with more color:
The Ministry of Finance (MoF), the PBoC, and CBRC issued a policy guideline on May 11 and loosened control on the financing of local government financing vehicles (LGFV). This policy guideline has been made public today. We take this as a significant policy easing signal. The growth slowdown in Q1 was partly due to a crackdown on LGFV financing by MoF and the State Council who issued the “document 43” guideline in late 2014. The new guideline will likely make “document 43” less effective. This development is in line with our expectation, and it is consistent with the pickup of fiscal spending in April (see our note China: April fiscal data show first sign of stimulus on May 15). It reinforces our view that growth may rebound slightly in H2.
The guideline released on May 11 focuses on the financing of ongoing LGFV projects. It specifies several issues, including: 1: Banks should not stop lending to ongoing projects which started before end of 2014. If the ongoing projects have trouble repaying banks, the loan contracts may be renegotiated and extended. (ZH: we discussed forced roll overs just yesterday; this is NPL ‘management’) 2: Encourage new financing through fund raising from private sources. For projects where financing is not sufficient, new financing should be included into local government budget and financed through government bonds. 3. Encourage spending in rural water projects, public housing, urban transportation projects. 4. Local governments now have more authority to spend fiscal funds flexibly before local government bonds are issued.
Note what China has done. They justified the implementation of LTROs by pointing to the need to jumpstart the refinancing program for local government debt accumulated off-balance sheet. The LTRO program will have the effect of creating more leverage, as purchased LGBs are pledged for PBoC cash that’s then re-lent. The net increase in leverage could be justified by the hundreds of billions local governments will save on interest expense. Meanwhile, local governments would not be allowed to use LGFVs to take on more debt because after all, taking out off-balance sheet loans was what got them into trouble in the first place, so tapping those channels again while simultaneously participating in the debt swap program would render the entire refi effort useless. Now, Beijing has done a complete 180 and will not only allow, but encourage local governments to accumulate more of the very same type of debt they are now swapping, meaning that even as the newly-issued debt-swap bonds decrease local governments’ debt servicing costs, new financing via LGFVs will invariably carry higher rates just as it did before, meaning the whole program is a wash.
Actually it’s worse than that. Because as we noted above, inserting an LTRO program into the equation means that every new debt-swap bond ultimately ends up creating a new loan for the broader economy and now that local governments are free to go right back to accumulating the same high interest loans which necessitated the creation of the debt swap program in the first place, the end result is simply the original scenario (i.e. local governments gorging themselves on off-balance sheet financing) only with the addition of an LTRO program.
Better (or worse) still, one is certainly left to wonder what stops Beijing from allowing newly-acquired off-balance sheet debt to be swapped for still more newly issued muni bonds. In other words, the current plan seems to be to segregate legacy high-yield loans from new LGFV financing, with the former eligible for the debt swap program and the latter ineligible. While the policy guidelines call for new LGFV loans to be rolled over by lenders in the event local governments get into trouble, it’s not clear what stops Beijing from simply saying that these loans are also eligible for the debt swap.
Should that happen, local governments would be free to borrow cash from whoever will lend it, at whatever interest rate the lender wishes to charge, because they know that ultimately, these loans can be swapped for low yielding muni bonds which will then be pledged by banks for cash that is in turn used to make loans to individuals and businesses.
And that, ladies and gentlemen, is how you create a perpetual leverage machine disguised as a deleveraging program.
- Before You Buy That Rothko – How The CIA Covertly Nurtured Modern Art As A Cold War "Weapon"
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
For decades in art circles it was either a rumour or a joke, but now it is confirmed as a fact. The Central Intelligence Agency used American modern art – including the works of such artists as Jackson Pollock, Robert Motherwell, Willem de Kooning and Mark Rothko – as a weapon in the Cold War. In the manner of a Renaissance prince – except that it acted secretly – the CIA fostered and promoted American Abstract Expressionist painting around the world for more than 20 years.
Because Abstract Expressionism was expensive to move around and exhibit, millionaires and museums were called into play. Pre-eminent among these was Nelson Rockefeller, whose mother had co-founded the Museum of Modern Art in New York. As president of what he called “Mummy’s museum”, Rockefeller was one of the biggest backers of Abstract Expressionism (which he called “free enterprise painting”). His museum was contracted to the Congress for Cultural Freedom to organise and curate most of its important art shows.
The museum was also linked to the CIA by several other bridges. William Paley, the president of CBS broadcasting and a founding father of the CIA, sat on the members’ board of the museum’s International Program. John Hay Whitney, who had served in the agency’s wartime predecessor, the OSS, was its chairman. And Tom Braden, first chief of the CIA’s International Organisations Division, was executive secretary of the museum in 1949.
– From the excellent Independent article published in 1995: Modern Art Was CIA ‘Weapon’
Most of you will be aware of the oligarch bidding wars for high end art at recent auctions held by Christie’s and Sotheby’s. In fact, the feeding frenzy was so extreme, the top 10 lots accounted for almost $800 million alone. Some of these paintings are breathtakingly beautiful, such as Vincent Van Gogh’s, “L’Allée des Alyscamps.” Others, not so much. Such as this one by Mark Rothko, which sold for $46.5 million.
Unsurprisingly, the paintings which seem to be least inspiring were by artists who were covertly pushed by the CIA in the 1950’s as part of its cold war strategy. Mark Rothko, for example, was born in the Russian Empire in 1903 (modern day Latvia) and ended up in America in 1913. Being a Russian artist in America made him the perfect CIA tool, and apparently his art served that purpose unbeknownst to him. The CIA program was originally set up in 1947, under the not so covert division called the Propaganda Assets Inventory. You really can’t make this up.
In one of the most interesting articles I’ve ever read, we learn from the UK Independent in a 1995 article:
For decades in art circles it was either a rumour or a joke, but now it is confirmed as a fact. The Central Intelligence Agency used American modern art – including the works of such artists as Jackson Pollock, Robert Motherwell, Willem de Kooning and Mark Rothko – as a weapon in the Cold War. In the manner of a Renaissance prince – except that it acted secretly – the CIA fostered and promoted American Abstract Expressionist painting around the world for more than 20 years.
The connection is improbable. This was a period, in the 1950s and 1960s, when the great majority of Americans disliked or even despised modern art – President Truman summed up the popular view when he said: “If that’s art, then I’m a Hottentot.” As for the artists themselves, many were ex- communists barely acceptable in the America of the McCarthyite era, and certainly not the sort of people normally likely to receive US government backing.
Why did the CIA support them? Because in the propaganda war with the Soviet Union, this new artistic movement could be held up as proof of the creativity, the intellectual freedom, and the cultural power of the US. Russian art, strapped into the communist ideological straitjacket, could not compete.
The existence of this policy, rumored and disputed for many years, has now been confirmed for the first time by former CIA officials. Unknown to the artists, the new American art was secretly promoted under a policy known as the “long leash” – arrangements similar in some ways to the indirect CIA backing of the journal Encounter, edited by Stephen Spender.
The decision to include culture and art in the US Cold War arsenal was taken as soon as the CIA was founded in 1947. Dismayed at the appeal communism still had for many intellectuals and artists in the West, the new agency set up a division, the Propaganda Assets Inventory, which at its peak could influence more than 800 newspapers, magazines and public information organisations. They joked that it was like a Wurlitzer jukebox: when the CIA pushed a button it could hear whatever tune it wanted playing across the world.
This was the “long leash”. The centerpiece of the CIA campaign became the Congress for Cultural Freedom, a vast jamboree of intellectuals, writers, historians, poets, and artists which was set up with CIA funds in 1950 and run by a CIA agent. It was the beach-head from which culture could be defended against the attacks of Moscow and its “fellow travelers” in the West. At its height, it had offices in 35 countries and published more than two dozen magazines, including Encounter.
The Congress for Cultural Freedom also gave the CIA the ideal front to promote its covert interest in Abstract Expressionism. It would be the official sponsor of touring exhibitions; its magazines would provide useful platforms for critics favourable to the new American painting; and no one, the artists included, would be any the wiser.
Because Abstract Expressionism was expensive to move around and exhibit, millionaires and museums were called into play. Pre-eminent among these was Nelson Rockefeller, whose mother had co-founded the Museum of Modern Art in New York. As president of what he called “Mummy’s museum”, Rockefeller was one of the biggest backers of Abstract Expressionism (which he called “free enterprise painting”). His museum was contracted to the Congress for Cultural Freedom to organise and curate most of its important art shows.
The museum was also linked to the CIA by several other bridges. William Paley, the president of CBS broadcasting and a founding father of the CIA, sat on the members’ board of the museum’s International Program. John Hay Whitney, who had served in the agency’s wartime predecessor, the OSS, was its chairman. And Tom Braden, first chief of the CIA’s International Organizations Division, was executive secretary of the museum in 1949.
- Artist's Impression Of Mainstream Media This Week
- America's Pitiful "Choice"
Submitted by Pater Tenebrarum via Acting-Man.com,
A Look Ahead to the Next (S)election
We realize we are jumping the gun a bit here, after all, it isn’t yet certain which candidates will win the primaries and become presidential candidates. However, we are taking an educated guess here, based on past elections and primaries. The Democratic Party usually has a relatively non-competitive field. One or two candidates are most likely to get the nomination from the outset. Left-of-field candidates like e.g. Bernie Sanders may take part, but have no chance anyway. Last time around, Hillary Clinton faced quite a formidable opponent in Barrack Obama, who undoubtedly was a far more appealing choice from the perspective of the Democratic base.
We present to you the likely winner of the next election …
This time around, it is hard to see who could possibly stop Hillary, except perhaps herself. She is as scandal-ridden as a stray dog in the slums of Lagos is flee-ridden. So she might trip over one of her scandals, but not if the US mainstream press has anything to say about it. This is actually a bit of a word play in a sense, since she usually gets away with stuff precisely because the mainstream press isn’t saying much about it. We also know from occasionally watching the discourse on Democratic grassroots sites that they are all rooting for her this time (we admittedly can’t understand it, but there it is).
With respect to the Republicans, it seems likely that the primaries will once again see a large field of candidates competing. The only somewhat offbeat choice on the menu is Rand Paul, who is a bit like a version of Ron Paul who has shed a lot of Ron in order to become “electable”. We cannot fault him for this strategy – if he were as fiercely principled as his father, he’d have no chance whatsoever. Rand Paul is the best chance the libertarian wing of the Republican party has had in a very long time indeed. We can be 100% sure though that he is not the preferred choice of the Republican establishment – the bland, war-mongering professional political clique that is always pushing for an equally bland candidate. To wit, Mitt Romney last time around – how much more uninteresting a candidate could they have possibly picked? So who is the Republican “establishment candidate” this time? Like Hillary, he is part of what America has instead of a nobility: Jeb Bush.
Rand Paul – the only possible candidate not utterly committed to statism and hence unlikely to get the nomination
Photo credit: WTVQ
The two major parties might as well be one party. Both are statist to the core, with only their emphasis slightly differing. The Democratic Party leans more toward welfare statism, the Republicans more toward warfare statism. A slight exception may be the small paleo-conservative and libertarian wings of the Republican Party, which would long have become a third party if the US were Europe. In the US the system is extremely stacked in favor of the two established parties though. It is extremely difficult to even get one’s candidates on a ballot as a third party – in fact, it is far easier for a non-establishment group to get onto the ballots in Russia (yes, allegedly “authoritarian” Russia) than it is in the US. Hence many of the more off-beat candidates are joining one of the two big parties, picking the one that seems ideologically the closest to their own views.
So here is the most likely “choice” in the next presidential selection:
Hillary and Jeb
We know one interest group in the US that is already rubbing its hands at the prospect of these two butting heads, because it will win no matter which one of them becomes president: the war racketeers, a.k.a. the military-industrial complex.
These guys are eagerly looking forward to a Hillary vs. Jeb election
Hillary the Neo-Con
Investigative journalist Glenn Greenwald, who writes for the “Intercept” these days, is philosophically sympathetic to the misnamed liberals, or let us rather say he isn’t averse to “progressive” ideology. We generally prefer to call it what it is, namely socialism. However, he has never once hesitated to criticize powerful Democrats with just as much verve as he displayed back when his main targets were G.W. Bush and Dick Cheney, and we like him for his consistency. If they are evil, he’s saying so. Anyway, as someone who is generally sympathetic to the Democrats, he may be uniquely qualified to provide us with a critical appraisal of Hillary. His assessment is certainly free of partisan bias as you will see below.
The quote is taken from an interview Greenwald gave to GQ:
“Hillary is banal, corrupted, drained of vibrancy and passion. I mean, she’s been around forever, the Clinton circle. She’s a f*cking hawk and like a neocon, practically. She’s surrounded by all these sleazy money types who are just corrupting everything everywhere. But she’s going to be the ?rst female president, and women in America are going to be completely invested in her candidacy. Opposition to her is going to be depicted as misogynistic, like opposition to Obama has been depicted as racist. It’s going to be this completely symbolic messaging that’s going to overshadow the fact that she’ll do nothing but continue everything in pursuit of her own power. They’ll probably have a gay person after Hillary who’s just going to do the same thing.
I hope this happens so badly, because I think it’ll be so instructive in that regard. It’ll prove the point. Americans love to mock the idea of monarchy, and yet we have our own de facto monarchy. I think what these leaks did is, they demonstrated that there really is this government that just is the kind of permanent government that doesn’t get affected by election choices and that isn’t in any way accountable to any sort of democratic transparency and just creates its own world off on its own.”
(emphasis added)
Greenwald is of course not the first person to notice that Hillary is not only surrounded by “sleazy money types”, but is a war-mongering harpy ideologically indistinguishable from the neo-cons. Note here that the latter are not only America’s biggest warmongers – among their philosophical/ideological heroes are people like Leo Strauss and Leon Trotsky (yes, the communist – Justin Raimondo has written extensively about their elitist and leftist roots), and they are in love with playing the role of “philosopher kings” who are constantly pulling the wool over the public’s eyes to get what they want. They are certainly not in favor of the free market. In fact, their position vis-a-vis the unwashed masses is that anything that keeps them docile is good, hence they support not only warfare statism, but welfare statism as well. Hillary fits right in, in every respect. Hell, even the New York Times has noticed.
Strident harpy Hillary
Photo credit: AP
Jeb Bush Still Likes the Iraq War
We didn’t know very much about Jeb Bush, except for the fact that he’s surrounded himself with the usual neo-con advisors that seem to be the main choice of every Republican establishmentarian. However, he is not only rightly suspected of being indistinguishable from Hillary in the foreign policy department, he just proved that as long as he can somehow get a war, he will be all for it, no matter how idiotic the choice is – even in hindsight! He might as well have announced that his middle name is “stupid”. Here is a recent Reuters article on the topic:
“Potential Republican presidential candidate Jeb Bush said he would have authorized the 2003 invasion of Iraq, just as his brother George W. Bush had done. The former Florida governor, in an interview taped to air on Fox News on Monday, acknowledged the United States made mistakes in managing Iraq after ousting President Saddam Hussein, including lack of post-war security for Iraqis.
“By the way, guess who thinks that those mistakes took place as well? George W. Bush,” he said. “Yes, I mean, so just for the news flash to the world, if they’re trying to find places where there’s big space between me and my brother, this might not be one of those.”
Bush has said that he is “my own man” and not tied too closely to the policies of George W. or their father, former president George H.W. Bush. He also has said his brother advises him on the Middle East.
The United States invaded Iraq after making a case to the United Nations that said Saddam had biological weapons. That case turned out to have been based on flawed intelligence.
“I would have [authorized the invasion] and so would have Hillary Clinton, just to remind everybody,” Bush told Fox News. “And so would almost everybody that was confronted with the intelligence they got.”
(emphasis added)
Anyone who paid even the slightest attention at the time knew the so-called “intelligence” was cooked up by an administration eager to go to war against a helpless third world tinpot dictator, who incidentally happened to sit atop a lot of oil. The intelligence wasn’t just “flawed” – they made it all up from day one. Today everybody knows of course that their “intelligence” consisted mainly of stuff like the lies they were told by con-men like Ahmed Chalabi (who ironically was basically an Iranian plant). US and UK secret services were told in no uncertain terms “to fix the intelligence around the policy”. The whole affair was so transparent from the outset though, that one required an IQ below room temperature not to see through it. Anyone who as naïve enough to believe even one word of Powell’s UN presentation is high on the list of people we’d love to meet at a poker table.
It isn’t a big surprise that Hillary did indeed vote in favor of the war, but what Jeb Bush is basically saying above is that he too would have been naïve enough to have believed in this so-called “intelligence” at the time (we will refrain from insinuating that he would have been party to cooking it up, we simply don’t know enough about him to come to any conclusions in this respect). Meanwhile, the fact that his brother is “advising him on the Middle East” is downright terrifying.
Conclusion
It would be both funny and tragic if indeed Hillary and Jeb were to end up facing off against each other in the next election (personally we would classify it as a nightmare actually). What it definitely wouldn’t be is a proper choice. We haven’t yet completely given up on Rand Paul’s chances though, so at the moment there is still a sliver of hope, tiny as it is. Maybe the fat cat seen below can still be deprived of its prize.
- Execution By Anti-Aircraft Gun: The Photographic Evidence
North Korean defense minister Hyon Yong Chol made a mistake: he fell asleep at an official event at which Supreme Leader Kim Jong Un was present.
Kim, keen on sending a strong message amid rumors that his grip on absolute power may be slipping, reportedly decided that the appropriate punishment for napping during a rally is execution by anti-aircraft gun.
If true, this would mark the latest in a series of “purges” which seem to lend some credence to the notion that Kim’s family name is no longer sufficient when it comes to securing absolute power and universal admiration both from his inner circle and from North Koreans in general. At a more basic level, executing someone with a ZPU-4 pretty much ensures that nobody will ever be caught napping at official events ever again.
Since the story broke there have been a few competing accounts of what fate ultimately befell General Chol, but according to the Committee For Human Rights In North Korea, satellite images from last October confirm the defense minister might well have met his fate at the hands of four 14mm heavy machine guns normally used to shoot down helicopters.
Via HRNK:
While examining satellite imagery of an area near the North Korean capital city, the Committee for Human Rights in North Korea (HRNK) and AllSource Analysis, Inc. (ASA) may have come across evidence of a ghastly sight: the public execution of several individuals by anti-aircraft machine gun fire.
A military training area generally known as the Kanggon Military Training Area is located approximately 22 km north of the capital city Pyongyang (Pyongyang-si). Given the size, composition, and location of the training facility, it is likely used by both the students and staff of the elite Kanggon Military Academy (6 km to the southwest) and units from either the Pyongyang Defense Command or the Ministry of State Security. Encompassing approximately 12km2, the training area is composed of a number of dispersed small facilities. One of those facilities, located 1.5 km northeast of the small village of S?ngi-ri, is a small arms firing range (39. 13 48.64° N, 125. 45 29.03° E). This firing range is approximately 100 meters long by 60 meters wide and consists of 11 firing lanes. A range control/viewing gallery and parking area are located immediately south of the firing range. A small drainage ditch horizontally bisects the firing range. This firing range is typical of many ranges throughout North Korea and is designed for small arms training and maintaining proficiency for weapons ranging from pistols to light machine guns, and chambered for 7.62mm (the standard AK-47 rifle round) or less.
Sometime on or about October 7th, 2014, some very unusual activity was noted on satellite imagery of the Kanggon small arms firing range. Instead of troops occupying the firing positions on the range there was a battery of six ZPU-4 anti-aircraft guns lined up between the firing positions and the range control/viewing gallery. The ZPU-4 is an anti-aircraft gun system consisting of four 14.5mm heavy machine guns (similar to a U.S. .50 caliber heavy machine gun) mounted on a towed wheeled chassis.
And would anyone in full possession of their faculties fire an anti-aircraft gun at this small arms firing range?
It is neither safe nor practical to use such weapons on a small arms range, as the combined weight of fire from the six ZPU-4 (a total of 24 heavy machine guns) would quickly destroy the downrange backstop and necessitate reconstruction.
A few meters behind the ZPU-4s there appears to be either a line of troops or equipment, while farther back are five trucks (of various sizes), one large trailer, and one bus. This suggests that senior officers or VIPs may have come to observe whatever activity was taking place. Most unusual in the image, perhaps, is what appears to be some sort of targets located only 30 meters downrange of the ZPU-4s.
In case you are still skeptical, here is why those “some sort of targets” were likely human beings who we assume committed “some sort of” treason in Kim’s estimation:
The satellite image appears to have been taken moments before an execution by ZPU-4 anti-aircraft machine guns. Busing in senior officers or VIPs to observe a ZPU-4 dry-fire training exercise at a small arms range amidst North Korea’s fuel shortages would make no sense. If the ZPU-4s were brought to the range solely to be sighted in, conducting this exercise at a 100 meter small arms firing range would be impractical. A live-fire exercise would be even more nonsensical. Rounds fired by a ZPU-4 have a range of 8,000 m and can reach a maximum altitude of 5,000 m. Positioning a battery of six ZPU-4s to fire horizontally at targets situated only 30 m downrange could have no conceivable utility from a military viewpoint. The most plausible explanation of the scene captured in the October 7th satellite image is a gruesome public execution.
Just out of morbid curiosity, how might an execution by anti-aircraft fire unfold?
Anyone who has witnessed the damage one single U.S. .50 caliber round does to the human body will shudder just trying to imagine a battery of 24 heavy machine guns being fired at human beings. Bodies would be nearly pulverized. The gut-wrenching viciousness of such an act would make “cruel and unusual punishment” sound like a gross understatement.
We’ll close be reiterating what we said earlier this week. Even if General Chol was indeed an unwilling participant in a recreation of the scene which HRNK claims played out last October at the Kanggon Military Training Area, it could have been worse. He could have merely had a visit from a lethal drone operated out of Nevada, and disappeared in an unsourced explosion, with the same effect.
- Global Trade Is "In The Doldrums", BofAML Says
We’ve spent a considerable amount of time discussing trends in global trade lately, touching on slumping metals demand and collapsing exports in China, sharp decreases in dry bulk trade, a prolonged period of depressed freight rates, and the emergence of a worldwide deflationary supply glut.
For their part, Goldman thinks China’s transition to a consumption-led economic model will be a drag on trade for years to come. “There are no other markets large and/or dynamic enough to offset a slowdown in China in the foreseeable future, and we forecast trade volumes to stabilize in the period to 2018,” the bank said, in a note out earlier this month.
As a reminder, here is our summary of the situation in China:
Meanwhile, we’ve exhaustively documented the laundry list of signs that point to dramtically decelerating economic growth in China, including falling metals demand, collapsing rail freight volume, slumping exports, a war on pollution that may cost the country 40% in industrial production terms, and, most recently, a demographic shift that’s set to trigger a wholesale reversal of the factors which contributed to the country’s meteoric rise. All of this means that the world’s once-reliable engine of demand is set to stall in the years ahead.
Supporting the notion that global trade is severly impaired— an assertion we made back in March after observing a double-digit decline in freight rates from Asia to Northern Europe — is a new note from BofAML who offers the following unambiguously bad assessment: “Global trade of goods and services has been in the doldrums, and the poor streak seems to be extending into the second quarter.”
Here’s more:
Global trade of goods and services has been in the doldrums, and the poor streak seems to be extending into the second quarter. First-quarter GDP reports in the US and Germany showed surprisingly weak export growth, and the healthier run in Japanese exports has also cooled. In emerging markets, real exports have been expanding faster in Eastern Europe and Latin America but have been treading water in Asia.
Is global trade wobbling due to feeble activity growth, or are structural issues to blame? The question has been recurring since 2011, when the ongoing soft patch began. If mostly cyclical in nature, trade growth could be expected to pick up once global GDP accelerates. But if predominantly structural, then EM economies should not count on meaningful demand boosts coming from above-trend growth in DM. With Fed rate hikes looming, a jammed trade channel means less growth offsets to the anticipated tightening in financial conditions.
The income elasticity of global trade has indeed been declining, pointing to diminished trade spillovers. In particular, there has been a marked change in Asian supply chains in response to a maturing Chinese economy.
And on import growth as a leveraged play on GDP growth:
The 10-year average of world import growth as share of GDP growth reached 2.2 in 2000, but the ratio has since entered a sustained decline. In 2014, global imports picked up only 1.2 times as much as global GDP growth. Unfortunately for trade-sensitive economies, global trade is no longer amplifying the pace of global activity.
What is behind the drop in the income elasticity of global trade? It could reflect the changed composition of global final demand, more reliant on consumption rather than on export-intensive capex growth.
What this appears to suggest is that DM demand may be structurally (i.e. permanently) impaired which is bad news for export-driven economies (like China) and serves to underscore what we’ve been saying for quite sometime — namely that global trade has slowed to a crawl and may soon stall out altogether.
- Massively Levered Beta: Tepper Adds $1.3 Billion, Or 33% Of Long Equity AUM, In SPY, QQQ Calls
Back in February, some were surprised to find that in the quarter (Q4 of 2014) in which Tepper again called the end of the bond bull market (incorrectly), dismissed Bill Gross’ PIMCO exit as irrelevant (incorrectly, now that PIMCO is no longer the world’s biggest bond fund as a result of relentless billions in outflows) and most notably, proclaiming that that stocks were inexpensive and multiples not high, Tepper dumped some 40% of his portfolio, taking his net long AUM to only $4 billion by selling among other things his entire AAPL stake just as the company went on to surge on a new bout of wearable euphoria.
The same Tepper kept very quiet throughout all of Q1, without any public appearance all the way until May when he spoke at the Ira Sohn Conference. Why was he silent? Perhaps because while the market was topping out, Tepper was actively adding to his bullish exposure, but not in the form of many new stock positions, when in fact he partially unloaded 15 of his 38 positions, while adding 12 new positions. It was 2 of these new additions that were particularly notable: just like in early 2014, Tepper is once again back to index investing, having added a whopping $939 million in notional-equivalent SPY Calls, and $413 million in notional-equivalent QQQ Calls.
In other words, Tepper is once again making a very levered beta bet that the market will resume climbing, and he can capture the upside through SPY and QQQ calls.
Incidentally this is almost a carbon copy of what Tepper did a year ago, just before he said was “nervous” and unlike now, said “not to be too freakin’ long.” Recall:
As of March 31, Tepper’s largest position is no longer just the SPY, or S&P500 ETF, which amounted to $2.1 billion in value as of December 31 followed by $765 million in the Nasdaq ETF, the QQQs, but rather calls on the S&P500, which at March 31, 2014 represented a notional equivalent of a whopping $1.1 billion, or 6 million shares! And perhaps even more notable: Tepper’s 6th largest position at the end of Q1, after the SPY Call, a cash position in SPY in second place, followed by $815 million in QQQs, and $492 million in Google and $480 million in Citi, is a new position in Nasdaq (QQQ) calls, amounting to a just as whopping $438 million share notional.
In short, a massively beta levered deja vu.
As for all of Tepper’s other less relevant additions, reductions and liquidations, you can find the breakdown below.
So with Tepper adding in Q1 when he said nothing, one wonders what he was doing in Q2, when he appeared at the Ira Sohn conference and told listeners not to “fight four Feds” and that the S&P is trading a little “cheap” just days before the Fed Chairwoman said the market is largely overvalued. Something tells us he wasn’t selling Treasurys…
- 5 Things To Ponder: Reading While Waiting List
Submitted by Lance Roberts via STA Wealth Management,
This past week has been much the same as the last couple of months – boring. It has been more interesting trying to count carpet fibers in my office than watching the markets.
However, there has been some excitement in domestic bond yields that have SURGED over the last couple of weeks. Well, as I discussed earlier this week, its a surge alright, you just need a magnifying glass to actually see it.
"The chart below is a 40-year history of the 10-year Treasury interest rate. The dashed red lines denote the long-term downtrend in interest rates."
"The recent SURGE in interest rates is hardly noticeable when put into a long-term perspective. After rates dropped to their second lowest level in history of 1.68%, only exceeded by the "great debt ceiling default crisis of 2012" level of 1.46%, the recent bounce to 2.26% was expected"
There also has been the divergence in economic data, some good, but mostly not. This has been good for the stock market as "bad news" means the Federal Reserve has no reason to raise rates in the near future. This is particularly the case with first quarter's GDP printing negative and second quarter's falling below 1%.
This leaves investors in a precarious position of remaining invested as the financial markets levitate away from underlying economic realities. In fact, as recently pointed out by Tyler Durden at Zerohedge, the deviation of the markets from the economic data is one of the largest since the turn of the century.
For now, however, we wait for the market to decide its next action. Will be a resumption of the "bull run" as the vast majority expect or will the contrarian side of the markets finally prevail? I think we will have that answer very soon.
While we await that answer, I have compiled a this week's reading list to include a smattering of articles on everything from the markets, to investing, to the Fed to the economy.
1) Bond Rout Puts Bears On Wrong Side Of Fed by Simon Kennedy via Bloomberg Business
"Keeping monetary policy loose is still justified to economists at JPMorgan Chase & Co. They reckon global economic growth of 1.2 percent in the first quarter was the second weakest outside of a recession in the past 25 years and worldwide inflation of 0.4 percent was the lowest.
Torsten Slok, chief international economist at Deutsche Bank AG, told clients that "the QE trade is not over" and yields should soon reverse their rise once markets stabilize.
'What we have seen in markets over the past two weeks has been triggered by fear and not by a change in the outlook for economic fundamentals,' said Slok. 'I continue to see U.S. rates under downward pressure as a result of money printing abroad.'"
Read Also: 4 Charts Why The Fed Not Likely To Raise Rates This Year via Streettalklive
2) High Share of Part-Time Workers Explain Weak Wage Growth by Kathleen Madigan via WSJ
"One possible explanation is that more companies have restructured their staffing to focus on part-time workers. Because of that, there is slightly more slack in the labor markets than the jobless rate indicates. And these part-timers have less bargaining power to negotiate higher wages.
To be sure, most of the jobs created in this expansion (as reported in the household survey) are full-time positions. But part-time spots, less than 35 hours a week, now account for a larger share of total employment than they did before the recession. That's true for total part-time workers and for part-time workers who would prefer a full-time position."
Read Also: Riddle Me This: Difference Between Headlines & Reality by Streettalklive
3) The Federal Reserve's Asset Bubble Machine by Ruchir Sharma via WSJ Opinion
"At Morgan Stanley Investment Management, we have analyzed data going back two centuries and found that until the past decade no major central bank had ever before set short-term interest rates at zero, even in periods of deflation.
To critics who warn that pumping trillions of dollars into the economy in a short period is bound to drive up inflation, today's central bankers point to stagnant consumer prices and say, 'Look, Ma, no inflation.' But this ignores the fact that when money is nominally free, strange things happen, and today record-low rates are fueling an unprecedented bout of inflation across asset prices."
Read Also: What Equity Market Bubble by Scott Grannis via Califia Beach Pundit
4) Even Among The Richest, Fortunes Diverge by Annie Lowrey via NY Times
"It found that in 2012, the average household in the bottom 90 percent of the income distribution earned about $30,997. For the average household in the top 1 percent, the figure is $1,264,065, and for the top 0.1 percent, about $6,373,782.
Put another way, our 0.1 percent household made about 206 times, and our 1 percent household about 41 times, what our average household did. That gap has yawned over time. In 1990, for instance, the same multiples were 87 and 21. In 1980, they were 47 and 14."
Read Also: Consumer Recession Arrives As Retail Sales Fail To Emerge by Jeffrey Snider via Alhambra Partners
Read Also: How We Will Cope With Another Downturn by Buttonwood via The Economist
5) The Cardinal Sin – Missing Out by Charlie Bilello via Pension Partners
(Note: This could also be titled: Why you will be hammered during the next downturn)
'The greatest fear in the investment management industry is not what one might expect. It is not losing money but the fear of not making enough money when the market is moving relentlessly higher. This "fear of missing out" strikes terror into the heart of portfolio managers as clients will simply not tolerate it; it is the cardinal sin of the business.
The thinking was explained to me as follows. Lose money when the markets are going down and everyone else is suffering and you'll be just fine. But fail to capture maximum upside during a raging bull market and you'll soon be out of a job."
Read Also: Bulls Should Not Expect Help From The Fed by Cam Hui via Humble Student Of The Markets
OTHER INTERESTING STUFF
A Dozen Things I Learned From Julian Robertson About Investing via 25iq
"A colleague of Robertson once said: 'When he is convinced that he is right, Julian bets the farm.' George Soros and Stanley Druckenmiller are similar. Big mispriced bets don't appear very often and when they do people like Julian Robertson bet big. This is not what he has called a 'gun slinging' approach, but rather a patient approach which seeks bets with odds that are substantially in his favor. Research and critical analysis are critical for Julian Robertson. Being patient, disciplined and yet aggressive is a rare combination and Robertson has proven he has each of these qualities."
What Peter Schiff Said To Ben Bernanke by Tyler Durden via ZeroHedge
Moore's Law Turns 50 by Thomas L. Friedman via WSJ Opinion
"But what an exponential it's been. In introducing the evening, Intel's C.E.O., Brian Krzanich summarized where Moore's Law has taken us. If you took Intel's first generation microchip, the 1971 4004, and the latest chip Intel has on the market today, the fifth-generation Core i5 processor, he said, you can see the power of Moore's Law at work: Intel's latest chip offers 3,500 times more performance, is 90,000 times more energy efficient and about 60,000 times lower cost."
"If you think nobody cares if you're alive, try missing a couple of car payments." – Earl Wilson
Have a great weekend.
- Dear Bureau Of Labor Statistics, About Those Plunging Gasoline Prices…
One of the major reasons for yesterday’s market surge to new record highs was the surprise drop and miss in the April wholesale inflation report, or rather make that deflation, when the BLS announced that PPI in April had dropped by 0.4%, far below expectation of a 0.1% increase, of which the BLS said “over 30 percent can be attributed to the index for gasoline, which decreased 4.7 percent.”
The implication, of course, being that with the US drifting ever further from the Fed’s desired 2% inflation threshold, not only is the probability of a June rate hike negligible, but the last time US macro data was this bad, the Fed launched QE2 (and Operation Twist… and QE3).
Which is all great, we just have one question for the BLS: just what “data” are you looking at?
Because a quick reality check reveals April gasoline prices not only did not drop 4.7%, they rose by 8%!
… leading to the following grtesque divergence between “data” from the US Department of Truth and, well, the real world.
And just to put it in perspective, at this rate in a few weeks gasoline prices in America’s most auto-dependent state, California, will be at or above levels seen from last year. In fact, the surge in California gas prices in 2015 is the fastest on record. As Larry Kudlow would call it “unambiguously bad.“
So, dear BLS, we are all ears about that explanation.
- Gold & Silver Surge As Bond-Buying Bonanza Stalls Stocks
What goes up, must come down and while stocks have yet to factor in the Fed's anti-gravity gun will end one day, bond yields roundtripped in the most dramatic way in 2 years this week. Quite a ride…
A reminder (after 5 macro misses today)…
And (h/t @ImpartialExamin) from "Money, Bank Credit, and Economic Cycles"…
OK – with that off our chest. It was quite a week in general as consensus trades swinging around…
- Silver 3rd best week in 15 months
- Gold 2nd best week in 15 months
- USDollar worst 5-week run since Oct 2010
- WTI Crude was rescued last minute to its 9th up week in a row – first time since 1999
- Bund yields up 4th week in a row (first time since June 2012)
- 30Y Treasury yields dropped the most since Jan 6th in the last 2 days (2nd most in over 2 years)
- Trannies in 2015 -5.9% worst start since 2009 (Down 11 of last 20 weeks, 5 of last 8)
Volume was awful the last two days…
After collapsing through Wednesday, bonds tore lower in yield today – all the way back to unchanged on the week...the biggest drop in yields in over 4 months.
The plunge in bond yields appears to be catch up trade from the anti-correlation yesterday… very odd
Stocks held on to yesterday's volumeless gains but rolled over after OPEX struck early…
Futures markets show the swings a little more effectively… from Friday's payrolls print…
On the day, Trannies outperformed (after being the week's loser into that)…
Shale stocks continue their slide – though bounced today…
The momo names remain battered, squeezed, and bruised…
The dollar tumbled on the week with today's wild swings – selling EUR in Europe's session then dumping USDs as US macro data disappointed… Bad data sparked USD selling…
Commodities were all higher on the week led by Silver's surge…
But crude was rescued off $59.50 support into the green for the 9th week in a row…
This was odd though…
Charts: Bloomberg
- Stock Indicator Suggests Big Move (Lower?) Coming
We don’t talk too often (because we don’t use them) about traditional technical analysis indicators. We have nothing against them; it’s just that we have our own methodologies and processes that work for us. One indicator we do like to keep an eye on is the ADX, or Average Directional Index. It is essentially an indicator of the strength (or lack of strength) of the prevailing trend over a specified period, regardless of the trend’s direction. A high number indicates a strongly trending market and a low number reflects a lack of trend. The traditional default look-back period is 14 days so we tend to stick with that. Interestingly, recent readings of the 14-day ADX applied to the S&P 500 have been among the lowest of the last 65 years, indicating an extremely “trendless” market.
Given the recent range-bound action in U.S. stocks (which we’ve covered extensively), this isn’t too much of a surprise. Indeed, it is another way of measuring the existence, and persistence, of a trading range. As mentioned, though, this lack of trend has been especially noteworthy. On several days over the past 2 weeks, the ADX reached a reading of 9. Since 1950, there have been just 42 total days – or ¼ of 1% – that saw the ADX that low. Expanding the net to readings of 10 or lower yields 145 days, still less than 0.9% of all days since 1950.
What is the significance of ADX readings this low, besides obviously that the market has been trendless over the recent period? Well, they say that low-volatility markets beget high-volatility markets. And while that sounds like another trite Wall Street cliche, it does seem to have some validity. Witness the ultra-low volatility periods in the U.S. Dollar and the Shanghai Composite early last year which led to explosive moves. Therefore, a market wound this tightly – like a coiled spring – may be setting up for an especially big move, one way or another.
We say one way or another, but a look the historical precedents suggests a strong possibility that the move will be lower. For while a low ADX signifies lack of trend in either direction, historically, the moves following such readings have been surprisingly skewed to the downside – or at least below average. Here are the returns in the S&P 500 following ADX readings of 10 or less since 1950 (138 instances before the recent readings).
What accounts for such poor returns following low ADX readings? Well, it is probably a function of when such low ADX readings tend to occur rather than a byproduct of the low readings. That is, these trendless markets often occur near transitional “topping” periods. During these periods, volatility (or at least, movement) is extremely low in contrast with bottoming periods, which tend to be volatilie, whippy type affairs.
We often filter these studies to look at the results for markets that were trading near the 52-week high. This study makes that extra step unnecessary as that characteristic is true for most of the readings. Of the 145 ADX readings of 10 or less since 1950, the median distance of the S&P 500 from its 52-week high was just 1.9%. And just 7 of the 145 days saw the S&P 500 further than 10% from its 52-week high.
There were a few exceptions to the weaker-than-normal returns following these readings. Like many of the studies we’ve looked at recently, those exceptions came during the mid-1990′s and in the post-2013 era. The S&P 500 saw healthy gains after such instances. Again, though, those were the exception rather than the rule. Many more of the readings, historically, have come near tops of intermediate to cyclical significance, including 1956, 1959, 1969, 1976, 1981, 1983, 2000, 2001 and 2007. Thus, the weight of the evidence is heavily skewed to a negative outcome.
The Average Directional Index, or ADX, is an indicator of “trend strength”, regardless of direction. Recently, coincident with the range-bound trade, the ADX registered among the lowest readings on record. This directionless coiling up of the market suggests that is is about to move one way or the other in perhaps a big way. Historical readings like this, however, have been more consistent in leading to poor performance in the S&P 500 rather than necessarily an out-sized move in some direction. The signal hasn’t been unanimous in foretelling weak performance, but it has certainly been the norm over the past 65 years, and to a statistically significant degree. Thus, we would consider this another negative facing the stock market at the present time.
- Wall Street Demands Exemption From Punishment In Exchange For Guilty Pleas In FX Rigging
Just three days ago in “Wall Street To Enter Hollow Guilty Plea On FX Rigging, Return To Business As Usual,” we lamented the fact that the Justice Department’s latest attempt to convince an incredulous public that the government is willing to prosecute white collar crime at TBTF institutions (which includes an amusing ‘crack down’ on UBS which we outlined here) will ultimately end in nothing more than the payment of a token fine before it’s back to business as usual. We also noted that there are actually SEC regulations in place specifically designed to ensure that so-called “bad actors” are punished in a way that is actually meaningful to them and as such serves to deter the type of behavior that results in the buildup of systemic risk and the rigging, fixing and manipulation of every market and -BOR on the face of the earth. Specifically, we said the following:
Even after Wall Street firms essentially admit to committing egregious fraud by ponying up billions to settle allegations of manipulation, policies put in place to ensure that deep pockets don’t allow big banks to simply sweep scandals under the rug once settlements are doled out are systematically skirted. The latest example of this was Deutsche Bank, who, after paying $2.5 billion to settle allegations its traders conspired to manipulate all manner of -BORs, worked with the CFTC to have language inserted in the settlement agreement exempting the bank from a Dodd Frank rule that restricts so-called “bad actors” from taking advantage of exempt securities transactions.
The excuse for allowing Wall Street to skirt the very penalties that were put in place as a result of the very things for which the banks are now being prosecuted is two-fold: 1) there’s the so-called ‘Arthur Andersen effect’ whereby the decade-old collapse of an accounting firm and the layoffs that accompanied it are somehow supposed to represent what would happen if a Wall Street bank were not able to claim seasoned issuer status, and 2) curtailing a major bank’s ability to issue capital “speedily and efficiently”, participate in private placements, and manage mutual funds represents a systemic risk.
We’ll leave it to readers to determine the extent to which any of that is an accurate portrayal of what would happen if big banks were unable to obtain waivers, but rest assured the waivers will be obtained as the following from Reuters makes abundantly clear:
Banks want assurances from U.S. regulators that they will not be barred from certain businesses before agreeing to plead guilty to criminal charges over the manipulation of foreign exchange rates, causing a delay in multibillion-dollar settlements, people familiar with the matter said…
The banks are also scrambling to line up exemptions or waivers from the Securities and Exchanges Commission and other federal regulators because criminal pleas trigger consequences such as removing the ability to manage retirement plans or raise capital easily…
Negotiating some of the waivers among the SEC’s five commissioners could prove challenging because many of these banks have broken criminal or civil laws in the past that triggered the need for waivers.
Many of the banks want an SEC waiver to continue operating as “well-known seasoned issuers” so they can sell stocks and debt efficiently, people familiar with the matter said. Such a designation allows public companies to bypass SEC approval and raise capital “off the shelf” – a process that is speedier and more convenient.
Several of the people said another waiver being sought by some banks is the ability to retain a safe harbor that shields them from class action lawsuits when they make forward-looking statements.
The banks involved are also seeking waivers that will allow them to continue operating in the mutual fund business, sources said.
The plea deals could be announced as soon as next week, two of the people said, adding that not all the penalties had been finalized yet.
Peter Carr, a spokesman for the U.S. Justice Department, declined comment on the timing or reason for a possible delay of any agreements. Citi, JPMorgan, RBS and UBS did not respond to requests for comment. A Barclays spokesman declined to comment.
Note that the original version of this story said that plea deals could be announced as soon as … well, as soon as two days ago, but just as we predicted, none of the banks will enter guilty pleas without a guarantee from the government that no actual penalties (because monetary fines don’t count when you’ve got access to cheap Fed cash) will apply.
You can expect The Justice Department to cave to these demands in relatively short order because while we know that TBTF guilty pleas represent but a pyrrhic victory (at best) for a regulatory regime that fell asleep at the wheel and allowed Wall Street to run the entire financial system into the ground, there will be no shortage of fanfare and congratulatory handshakes when the DOJ ‘proves’ how very serious it is by sending a few TBTF logos (but no actual people) to prison.
- "The People" Vs. Piketty
Submitted by Erico Matias Tavares via Sinclair & Co.,
Thomas Piketty is getting a lot of attention these days. The French economist has seen the recognition for his lifelong work on the study of inequality skyrocket after publishing “Capital in the Twenty-First Century” in August 2013. The book is a best-seller, which is quite an achievement for anything with 696 pages on economics (even if by some accounts the majority of readers don’t make it much beyond page 12).
Here’s what Paul Krugman, the don of neo-Keynesian economics, had to say about Piketty’s book back in April 2014:
“Other books on economics have been best sellers, but Mr. Piketty’s contribution is serious, discourse-changing scholarship in a way most best sellers aren’t. And conservatives are terrified. (…)The really striking thing about the debate so far is that the right seems unable to mount any kind of substantive counterattack to Mr. Piketty’s thesis.”
That turned out to be incorrect. Barely a month after his glowing review of Piketty’s opus magnum, Krugman had to come out in his defense after several scholars and commentators highlighted some “clear errors” in facts and figures.
And it wasn’t just from the right either. Yanis Varoufakis, economics professor turned finance minister of Greece – and self-proclaimed Marxist – is also a critic of Piketty’s work.
Undeterred, Piketty has joined forces with other like-minded economists to come up with actual proposals to tackle the inequality issues he wrote so extensively about.
As that brave intellectual effort takes shape, we would venture a sneak preview: assemble a huge ledger of all financial transactions, tax the “rich” and their unfair capital gains and make sure that they leave nothing for their kids.
This of course is music to any politician’s ears. It provides an aura of tackling one of humanity's great problems, while providing yet another reason to tax private property.
So in spite of all the publicity, there are two sides of the story here. Should we the People be in favor or against Piketty’s argument?
Inequality and Economic Systems
Where would you prefer to live: in a society with obvious economic and social inequalities but with an abundance of choices and opportunities, or in another with much greater equality and less choices?
The answer greatly influences why societies end up adopting a particular economic and political system – although not always by choice. Of course there are societies that neither feature equality nor opportunity, but in most cases there is a prevalence of one over the other.
To see why we can use a simple example that illustrates this dynamic. An economic system is in fact a set of incentives that drive behaviour, with varying degrees of personal input and liberty. Let’s assume that there are four tribes in a large forest (we did say it was simple) trying to get from point A to point B. Each tribe has the same mix of individuals with different physical and psychological attributes but decides to adopt a different economic system in pursuit of their goal:
- The first tribe adopts capitalism in its “rawest” form: those who can run the fastest (or by sheer luck find a great shortcut) are allowed to get ahead quickly, while the others in spite of their efforts are progressively left behind. This is how inequality is measured in this example: basically the distance between those who are ahead versus hose who are behind. This tribe on the whole will cover a lot of ground, although very unevenly: the fast runners will get very far (possibly even well beyond point B, if they so desire), while the ones in the back hope that the trail which has been blazed before them will somehow help them get through.
- The second tribe adopts similar principles, but with more inclusive incentives. People still largely run in accordance with their capabilities, but the fast runners are encouraged to help those further out in the back through social and financial rewards. They will likely not get as far as the fast runners of the first tribe, but the group as a whole will be much more compact.
- The third tribe adopts socialism. Those who run fast must pay a penalty in favor of those further behind (they are just lucky to have those genes after all). Now the fast runners have to think twice about how fast they should run, because the quicker they run the bigger the penalty. They may end up resenting the slow runners as a result, who may resent them in turn because they should be doing more to help them move along. That tribe will move forward at a more even pace, although clearly slower than the first two tribes and arguably less harmoniously. It's unlikely that anyone will try to go past point B.
- Finally, the fourth tribe adopts communism, where everyone is running in accordance with the same beat. There is no broad inequality since most cover the same ground. However, the fast runners must either accept a much slower pace or, if they dissent, “take one for the team”. The slow ones are not necessarily better off either. If the leaders (the guys beating the drums) want to enhance their collective pace to match the other tribes they may not be able to make it after all.
This was a long way of saying that inequality arises in economic systems where individuals are largely given the freedom to act in accordance with their capabilities and desires. We can certainly force society to be more equal, but this will come at some cost to individual freedoms and opportunities in general.
The fact is that we are all born with different capabilities and attributes. So when someone starts complaining about inequality, we need to understand what they are talking about. Is it because some are more capable than others? Luckier? More cunning? Are they obligated to bring everybody along?
We can say it is unfair that some of us are world class football players, others Hall of Fame actors, and others top tier fund managers. We can complain that they make way too much money. But this is a consequence of the economic system we have adopted in the West. And we're not necessarily poorer because these folks are richer.
In other societies they may have not fared as well. The best baseball players in Cuba are clearly much worse off on a relative basis in comparison to their peers in the US (and many are just as good). And since there are no savings (i.e. capital) there aren’t any fund managers either.
So there, much less inequality, but would you want to live in Cuba?
Piketty’s Argument
Having seen that freer societies tend to have greater inequalities, let’s quickly review Piketty’s argument (especially if you also haven’t made it beyond page 12 of his book).
As a disclaimer, for sure a lot of work went into the book and far from us wanting to oversimplify or denigrate what appears to be an honest attempt to tackle a recurring concern of society (over thousands of years in fact). On the whole Piketty comes across as a decent and sincere fellow.
But being sincere does not mean he's right; anyone can be sincerely wrong. And because of the fame bestowed upon him, his ideas may get widely accepted without due scrutiny or, as we shall see, little basis on fact. Worse, they can serve as justification for some truly repressive and appalling economic policies, which should concern us all.
So here’s the main thrust of Capitalism’s 696 pages: examining over 200 years of return on capital data in twenty Western world countries, Piketty concluded that because such returns have historically exceeded the rate of economic growth the holders of capital will get rich faster than anybody else.
In other words, inequality does not stem from differences in individual ability and achievement as we have discussed above, but rather through the mere ownership of capital. The system is rigged. Moreover, because capital can be inherited, this inequality can persist over many generations.
Piketty claims that the inevitable outcome from capitalism is perpetual misery, social violence and wars.
Incidentally (or not), this is eerily similar to the argument that John Maynard Keynes put forward to advocate the euthanasia of the “rentiers” in the 1930s (a great example of a repressive economic theory that has been adopted by the world’s central bankers and is now causing misery to millions of people, particularly to our elderly). Plus ça change Monsieur Piketty.
We would also have liked to pinpoint the similarities with Karl Marx's thinking (although his bag was mostly the perpetual exploitation of labor by capital, or something like that) but we also never got past page 12 of his book. Apparently a lot of pages are needed to explain something that should have been obvious to us all.
In a June 2014 interview with the jovial Stephen Colbert, Piketty provided some context to his thinking. People like Colbert became rich because capitalism is unfair; and because he became rich Colbert is depriving others from the opportunity to also become rich. The rich are out to get us! Not to worry, the French economist has a solution: tax all earnings above US$500,000 at 80%.
We can start getting a sense as to why Facebook and Spanx were created and mass-adopted in the “unequal” US and not “egalitarian” France, Piketty’s home country. Let's look at some facts.
The Unequal Land of the Free
Without even getting into the time-tested damage an 80% tax rate does to an economy, the US – the habitual poster child for inequality – provides robust evidence that inequality is oftentimes ephemeral and generally misunderstood. This is where facts start getting in the way of Piketty's grand vision for society.
Thomas Sowell, the prominent American economist from the Chicago School, has extensively researched this topic. He found that 56% of US households will join the richest 10% at some point in their lives, usually when they are older. So much for the rich versus the poor; this is much more likely a debate with our own selves at different stages of our lives.
When looking into the composition of the much vilified 1%, the statistics are even more revealing: over the course of a decade, the great majority of Americans only stay at that level for one year, and less than 13% for two years. Basically these are temporary spikes in wealth from things like asset sales. It certainly doesn’t seem like the wealthiest 1% are out to screw everyone else.
We have also written about inequality in the past. The Pikettys of the world obsess about the dispersion of income levels, where we believe that a much better measure of general prosperity is the percentage of people earning above a minimal threshold that achieves the fulfilment of basic needs (and then some). Using this metric US prosperity peaked in 1999, but the subsequent decline is certainly not attributable to ownership of capital.
History shows us that prosperity is best achieved in societies with a strong rule of law, enforceable property rights, good education and… access to capital!!! Try starting a business with no money and see how far you get. To vilify capital and the people who own it is truly myopic, not to say misguided.
So what if dozens of new Mark Zuckerbergs and Sara Blakelys also emerge from that system and greatly distort the income statistics because of their phenomenal wealth? But according to Piketty, Zuckerberg’s “fair” compensation for co-founding Facebook, a social media vehicle used by over a billion people around the world, and Blakely for starting Spanx, which sells undergarments to millions of women, should be a little over US$500,000 per year. Does this sound fair to you?
For all its virtues, we are not saying that the US is a perfect country. Many millions of people are still struggling after the last recession, and for them the American Dream is proving to be ever more elusive. Our point is that whatever valid grievances we may have with inequality, the ownership of capital is not the culprit. And hurting the people most likely to create it is not a solution either.
The Poor vs Piketty
One of the most robust critiques we have seen of Piketty’s work comes from Hernando de Soto, the Peruvian economist. His critique is not based on models or theory but rather on hard facts accumulated by his research team in the very countries where Piketty’s perpetual scourges of inequality – misery, social violence and wars – are prevalent.
He used Egypt as an example, which in 2011 was undergoing a profound social change with the emergence of the Arab Spring movement. What better testing ground to assess people's grievances? His findings were the polar opposite of what Piketty contends: people in those countries “actually want more rather than less capital, and they want their capital to be real and not fictitious”.
In fact, de Soto even points out that the very first "martyrs" of this movement were mostly small entrepreneurs desperate because they did not have access to the capital to sustain their businesses.
Piketty did not have reliable data for developing countries, but rather than conducting his own on-the-ground research he merely extrapolated his findings to the whole globe using data from Western countries. And voilá!
How was Muhammad Yunus able to improve the livelihoods of thousands of families in his native Bangladesh? By providing microcredit to them; in other words, access to capital.
How did China become such an economic powerhouse? Certainly not by restricting its citizens' access to capital and taxing them at 80%. On the contrary, it sucked as much foreign capital and know-how as it possibly could. At the start of their great march towards prosperity in the 1980s, Deng Xiaoping (supposedly) proclaimed "to get rich is glorious". They were tired of Mao-Tse Tung wanting to make everyone equal.
Piketty clearly knows something people in emerging markets don't. Or maybe what he was really describing is capital in the nineteenth century, not the twenty-first.
Unintended but Predictable Consequences
We have rich people, poor people, right-wing economists, left-wing economists and even revolutionaries, all contesting Piketty’s argument. It seems we the People do have a point against him. But will it prevail?
We’re not optimistic on this one. It is far more likely that Piketty's ideas will gain traction rather than fade away. Why? Because it gives politicians and their Keynesian consorts yet another framework and justification as to why the state should be the key allocator of resources in society.
In other words, it’s another "soak the rich" argument, this time propagated by a soft-spoken best-selling author. And to think that the state will be any more benevolent and altruistic when it is done soaking them is another example of academic theory which is contradicted by the historical record. Power corrupts everything, especially a more aggressive and intrusive state. Perhaps unintended, but clearly a predictable consequence.
The state does play a very important role in society, but not how Piketty, Krugman and their pals envisage it. Unfortunately, it seems we may be saddled with yet another set of dubious economic ideologies governing our lives and our livelihoods.
If you are one of those fast runners, we can only wish you the best of luck in your journey across the forest
- Boston Marathon Bomber Dzhokhar Tsarnaev Sentenced To Death – Live Feed
UPDATE: *BOSTON MARATHON BOMBER TSARNAEV SENTENCED TO DEATH
Just over 2 years after the devastating explosions that killed and maimed many during The Boston Marathon, Dzhokhar Tsarnaev is about to face his penalty. The jury of seven women and five men convicted Mr. Tsarnaev, 21, last month of all 30 charges against him, including 17 counts that carry the death penalty. After 14.5 hours of deliberation, the jury will announce at 3pmET whether he will face death or life in prison.
A death sentence would be the first for a federal jury of a terrorist in the post 9/11 era, according to Kevin McNally, director of the Federal Death Penalty Resource Counsel Project, which coordinates the defense of capital punishment cases. The last terrorist sentenced to death was Timothy McVeigh, the Oklahoma City bomber, who was convicted and sentenced in 1997 and executed by lethal injection in 2001.
The alternative is sending Mr. Tsarnaev to prison for the rest of his life with no chance of release, where he would join other terrorists on so-called Bomber’s Row at the federal supermax prison in Colorado.
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Live Feed (via CBS Boston)
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Lead prosecutor returns to court. Verdict to be announced shortly #Tsarnaev pic.twitter.com/6jPG7TNK7y
— Bob Murdock (@FOX25photog) May 15, 2015
People near finish line keep asking what sentencing verdict is as they walk by. @fox25news carrying live. pic.twitter.com/HpN2vcgfaJ
— Robert Goulston (@rgoulston) May 15, 2015
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