- Welcome To New Britain – Europe's 21st Century 'Balkans'
“When you have anti-English, pro-European nationalists in Scotland and anti-European, pro-British nationalists in England, spiced up with a few anti-English, pro-European nationalists in Wales and of course, the anti-each-other, pro-whatever your having yourself, British and Irish nationalists in that blissfully incoherent chunk of Ulster – Northern Ireland, you know you’re not in the old UK." Welcome to new Britain, Europe’s 21st century version of the Balkans!
Via Punk Economics:
h/t ValueWalk
- Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?
Submitted by Michael Snyder via The Economic Collapse blog,
Do you remember what happened when Cyprus decided to defy the EU? In the end, the entire banking system of the nation collapsed and money was confiscated from private bank accounts. Well, the nation of Greece is now approaching a similar endgame. At this point, the Greek government has not received any money from the EU or the IMF since August 2014. As you can imagine, that means that Greek government accounts are just about bone dry.
The new Greek government continues to insist that it will never “violate its anti-austerity mandate”, but the screws are tightening. Right now the unemployment rate in Greece is over 25 percent and the banking system is on the verge of collapse. It isn’t going to take much to set off a panic, and when it does happen there are already rumors that the EU plans to confiscate money from private bank accounts just like they did in Cyprus.
Throughout this entire multi-year crisis, things have never been this dire for the Greek government. In fact, Greece came this close to defaulting on a loan payment to the IMF back on May 12th. And with essentially no money remaining at all, the Greek government is supposed to make several large payments in the weeks ahead…
Athens barely made its latest payment (May 12) to the International Monetary Fund (IMF), and it managed to do so only when the government discovered that it could use a reserve account it wasn’t aware of, according to the Greek media.
Kathimerini, a Greek daily newspaper, reports that Prime Minister Alexis Tsipras wrote to the IMF’s Christine Lagarde warning that Greece would not be able to make that May payment, worth €762 million ($871 million, £554.2 million).
Pension and civil-servant pay packets are due at the end of the month, and based on this news Athens may struggle to pay them. Even if it does manage that, on June 5 the country owes another €305 million to the IMF.
In the two weeks following June 5 there are another three payments, bringing the June total to the IMF to over €1.5 billion.
The Germans and the other financial hawks in the EU are counting on these looming payment deadlines to force Greece into a deal.
Meanwhile, Greek banks also find themselves in very hot water. Many of them are almost totally out of collateral, and without outside intervention some of them could start collapsing within weeks. The following comes from Bloomberg…
Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors.
As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more and more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.
“The point where collateral is exhausted is likely to be near,” JPMorgan Chase Bank analysts Malcolm Barr and David Mackie wrote in a note to clients May 15. “Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June.”
If no agreement is reached, by this time next month Greece could be plunging into a Cyprus-style crisis or worse.
And if that does happen, there are already rumblings that a “Cyprus-style solution” will be imposed. Just consider what James Turk recently told King World News…
The troika of the EU, ECB and IMF have not yet pulled the plug on the Greek banks, but the following quote in the Financial Times from this weekend should be a warning to anyone who still has money on deposit in that country: “The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.”
The ECB is up to its eyeballs swimming in unpayable Greek debt that it holds. The ECB is not going to take a loss on this Greek paper on its books. Because Greece does not have the financial capacity to repay what is now about €112 billion of credit exposure to Greece on the ECB’s books, the ECB has only two alternatives.
It can push the €112 billion of Greek debt it holds to the national central banks of the Eurozone and on to the backs of the taxpayers in those countries, which it politically untenable. Or it can confiscate depositor money in Greek banks, like it did in Cyprus and as the FT has now reported.
Needless to say, such a move would be likely to set off financial panic all over Europe.
Could we actually see such a thing?
Well, let’s recall that back in April we already saw the Greek government forcibly grab “idle” cash from the bank accounts of regional governments and pension funds. The following is from a Bloomberg report about that event…
Running out of other options, Greek Prime Minister Alexis Tsipras ordered local governments and central government entities to move their cash balances to the central bank for investment in short-term state debt.
The decree to confiscate reserves held in commercial banks and transfer them to the Bank of Greece could raise as much as 2 billion euros ($2.15 billion), according to two people familiar with the decision. The money is needed to pay salaries and pensions at the end of the month, the people said.
“It is a politically and institutionally unacceptable decision,” Giorgos Patoulis, mayor of the city of Marousi and president of the Central Union of Municipalities and Communities of Greece, said in a statement on Monday.“No government to date has dared to touch the money of municipalities.”
Grabbing cash from the bank accounts of private citizens is just one step farther.
And what happened in Cyprus just a couple of years ago is still fresh in the minds of most Greeks. That is why so many of them have been pulling money out of the banks in recent weeks. The following comes from Wolf Richter…
Greeks remember very well what happened in Cyprus in 2013, when local banks were given a big thumbs-up from Europe to help themselves to their depositors’ accounts. Cyprus and Greece are very closely tied, and many Greeks consider the island a “sister-nation.”
What little trust remained in banks in Greece died that day. People have been nervously looking for signs something similar may happen again in their home country.
And they resolved to act at the first sign of danger: banks cannot confiscate money you have under your mattress. Cash can be hidden away.
Let’s certainly hope that what happened in Cyprus does not happen in Greece.
But right now, both sides are counting on the other side to fold.
The Germans believe that at some point the economic and financial pain will become so immense that it will force the new Greek government to give in to their demands.
The Greeks believe that the threat of a full blown European financial crisis will cause the Germans to back down at the last moment.
So what if they are both wrong?
What if both sides are fully prepared to stand their ground and take us over the cliff and into disaster?
For a long time I have been warning that a great financial crisis is coming to Europe.
This could be the spark that sets it off.
- No, You Can't Go Back To The USSR!
Submitted by Dmitry Orlov via Club Orlov blog,
One of the fake stories kept alive by certain American politicians, with the help of western media, is that Vladimir Putin (who, they vacuously claim, is a dictator and a tyrant) wants to reconstitute the USSR, with the annexation of Crimea as the first step.
Instead of listening to their gossip, let's lay out the facts.
The USSR was officially dissolved on December 26, 1991 by declaration ?142-H of the Supreme Soviet. It acknowledged the independence of the 15 Soviet republics, and in the place of the USSR created a Commonwealth of Independent States, which hasn't amounted to much.
In the west, there was much rejoicing, and everyone assumed that in the east everyone was rejoicing as well. Well, that's a funny thing, actually, because a union-wide referendum held on March 17, 1991, produced a stunning result: with over 80% turnout, of the 185,647,355 people who voted 113,512,812 voted to preserve the USSR. That's 77.85%—not exactly a slim majority. Their wishes were disregarded.
Was this public sentiment temporary, borne of fear in the face of uncertainty? And if it were to persist, it would surely be a purely Russian thing, because the populations of all these other Independent States, having tasted freedom, would never consider rejoining Russia. Well, that's another funny thing: in September of 2011, fully two decades after the referendum, Ukrainian sociologists found out that 30% of the people there wished for a return to a Soviet-style planned economy (stunningly, 17% of these were young people with no experience of life in the USSR) and only 22% wished for some sort of European-style democracy. The wish for a return to Soviet-style central planning is telling: it shows just how miserable a failure the Ukraine's experiment with instituting a western-style market economy had become. But, again, their wishes were disregarded.
This would seem to indicate that Putin's presumptuously postulated project of reconstituting the USSR would have plenty of popular support, would it not? What he said on the subject, when asked directly (in December of 2010) is this: “He who doesn't regret the collapse of the USSR doesn't have a heart; he who wants to see it reborn doesn't have a brain.” Last I checked, Putin does have a brain; ergo, no USSR 2.0 is forthcoming.
Interestingly, he went on to say a few more words on the subject. He said that the USSR had a competitive advantage as a unified market and a free trade zone. This one element of the USSR is now embodied in the Customs Union, of which Russia, Belarus, Kazakhstan and several smaller countries are members, and it appears to be a success.
The Ukraine—with over 40 million inhabitants, a major piece—refused to join while continuing to trade mostly with Customs Union members. This strategy has turned out to be, to put it mildly, disadvantageous, with Ukrainian economy now in rapid collapse, having declined over 17% in just the first quarter of this year. Thus, while the theory of competitive advantage may or may not be valid, the converse competitive disadvantage of *not* joining the Customs Union is there for all to see.
* * *
To be sure, many aspects of the old USSR have been happily consigned to oblivion. Among them:
- The communist ideology: the Communist Party no longer has a monopoly on power.
- The bloc mentality: the Warsaw Pact evaporated, leaving NATO behind as the one hand clapping. The new system is a multipolar one.
- Central planning: replaced with a market economy
- Economic isolationism: replaced with an export-driven economy based on trade agreements with numerous nations around the world
- Authoritarian governance: replaced with authoritative governance, in which leaders derive their authority from their popularity, which is based on their performance in office, whereas previously the General Secretary of the CPSU was a bit like the Pope—infallible by definition.
These are all positive changes, and very few people regret that they have occurred, or wish for a return to status quo ante.
There are many other aspects of the old USSR which have been degraded, sometimes severely, but nevertheless remain in place. Among them are public health and public education.
The USSR had a system of socialized medicine that excelled at some things and was mediocre in others. The shift to privatized medicine has been a success in some ways, but is very hard on those who cannot afford the care or the medications. The educational system is still very good at all levels, but here too there has been significant degradation, bemoaned by many observers.
The USSR invested heavily in science and culture, and much has been lost during the difficult years of the 1990s—something that many people regret very much. The USSR led the world in basic scientific research, probing into matters that did not have any commercial applications, simply because they were scientifically interesting and led to publishable results. The US led the world in product design, something that Soviet engineers were happy to simply copy much of the time, to save time and effort. Since they were not attempting to export into the western consumer market, a slight lag in time to market was of no consequence to them.
On the other hand, Americans have always had trouble wrapping their heads around the idea of financing scientific research that had absolutely no conceivable commercial applications. In addition, the anti-intellectualism prevalent in American culture caused a proliferation of other sorts of “scientists”: political scientists, social scientists, food scientists… a certificate in “janitorial science” wouldn't be too much of a stretch.
Basic science is the premier transnational intellectual endeavor of the human species in modern times, and the damage done to Soviet science has caused significant damage to the pursuit of scientific knowledge throughout the world, and a diminution in the stature of the scientific endeavor. Now even in Russia scientists are forced to chase after grant money by pursuing avenues of research that lead to patentable gizmos and gadgets.
One of the things that has been retained is the living arrangement. Over the seven decades of the USSR's existence, there took place a thorough transformation from an agrarian population dispersed across the countryside to an industrialized population concentrated in major cities. The people went from being log cabin-dwellers to apartment-dwellers. Following the dissolution of the USSR, the housing stock was privatized, and now many families own their residences free and clear. The ability to live rent-free provides them with a very large competitive advantage compared to families in high-rent, debt-ridden countries such as the US.
Along with apartment buildings built in dense, walkable clusters went a system of public transportation. This, too, has remained largely intact, and in many cities has been expanded and modernized. This, again, provides numerous benefits to the population, and gives them an advantage vis à vis people in car-dependent countries, where the people spend much of their life stuck in traffic, and where the elderly, who are too old to drive safely, are often forced to choose between being stuck in their homes and taking their lives (and those of others) in their own hands behind the wheel.
* * *
When something is said to have collapsed, people often assume that it has simply ceased to exist. But the effects of collapse depend on the nature of the thing that collapses. When a hydroelectric dam collapses, it ceases to produce electricity, plus it destroys lots of things downstream from it, plus it may disrupt access to water. When a school collapses, it may kill some schoolchildren, and some teachers, but it doesn't necessarily destroy the knowledge that was being imparted. And when a mausoleum collapses, only its description changes: it can then be described as “ruined.”
Some collapses are common, others not. Economies, especially bubble economies, collapse all the time. Empires collapse with great regularity. Civilizations are said to collapse, but do they really? A civilization can be viewed as a functioning apparatus, but doing so seems to confuse a set of principles with the entity that embodies them. Civilizational principles can be quite durable: the Roman empire was gone for a thousand years when Europe once again became capable of large-scale social organization, but, sure enough, the Europeans dusted off the old Roman legal codes and principles of organization, and started applying them. In the meantime, in the colleges and universities, Latin had remained the language of learned discourse, in absence of any surviving Latins being present to teach LSL classes. It would appear that civilizations don't really collapse; they just become quescent. New developments may spark them back to life, or they may eventually be supplanted—by another civilization.
The USSR is gone as a political entity, but as a civilizational entity it appears to be holding its own, though it lacks a name. The two-part name—Soviet, plus “Soyuz” (Union)—fell apart. The word “Soviet,” used as an adjective, applies only to the past. As a noun, it means “council,” having originated from the revolutionary workers' councils, and this is still used, although cautiously: “to help with council” is, to a Russian, to only pretend to help. But the term “Soyuz” lives on; it is the name of the only spaceship that can still ferry passengers to the International Space Station; the new Customs Union is a Customs Soyuz. And Russian children still grow up in the Soyuz, in a manner of speaking, thanks to Soyuzmultfilm, the Soviet-era studio that produced excellent children's animated films, which are still hugely popular and are now available on Youtube.
Let us think of the Soyuz—as a civilization, rather than of the USSR—which was a political empire. A major effort was made to supplant it with western civilization, through the introduction of market economics and a flood of western imports, both material and cultural. Western civilizational principles dominated for a time, among them such western innovations as granting equal status to homosexual practices, disregarding the role of ethnicity in political organization, and the abnegation of economic and political sovereignty to the imperial center in Washington, DC. All of these were, for a time, masticated thoroughly. Then they were rather forcefully spat out, everywhere in the former USSR except for a few sorry basket cases, the Ukraine foremost among them. But everywhere else, once the full fiasco of western values became clear to all, previous civilizational principles came roaring back to life.
Perhaps foremost among them is social conservatism. The Russian Federation has two major religions: Orthodox Christianity and Islam, and a great deal of effort goes into maintaining their mutual compatibility, so that religion does not become a divisive factor. Introducing constructs that are alien to both, such as gay marriage, is a nonstarter. But polygamy is not off the table, and a senior Chechen official recently took a young bride to be his second wife. This event caused quite a sensation, but was allowed to proceed—in Moslem Chechnya.
Second is the principle that ethnicity is significant to social and political organization. Russia is not a nation—it is a multinational federation. There are over 190 different nations that make it up, with ethnic Russians accounting for a little over 3/4 of the population. This percentage is likely to decrease over time: Russia is second only to USA in the number of immigrants it absorbs, and their country of origin, sorted by the number of immigrants, is as follows: Ukraine, Uzbekistan, Tajikistan, Azerbaijan, Moldova, Kazakhstan, Kyrgyzstan, Armenia, Belarus, China, Germany and USA.
During the existence of the USSR, the multi-ethnic composition of the country was given much emphasis. Numerous small nations had their languages written down for the first time, using the ever-expanding Cyrillic alphabet, and endowed with a national literature. National languages were included in school curricula, and various nations used them in their local self-governance, to enlarge their autonomy and improve social cohesion. In essence, the Russian Federation provides for ethnic sovereignty—each nation can claim a measure of sovereignty for itself, rule itself and create its own laws, provided they do not conflict with the larger whole. A prime example of this is modern Chechnya: Moscow is content to let it persecute its own anti-terrorist campaign, to put down the remaining foreign-financed jihadis.
Imagine the principle of ethnic sovereignty being applied to the US, where one's ethnicity is of no consequence provided one looks, sounds and behaves sufficiently Anglo. In the US, ethnicity has been reduced to questions of music and cuisine, with perhaps a festival here and there, but always with the tacit understanding that “ethnic” means “other”: there is no such thing as an “ethnic Anglo.” Since ethnicity is essentially taboo, the completely artificial construct of race is used instead, with artificial, discriminatory labels attached to categories of individuals. The label “Latino” is particularly bogus, since there is very little in common between, say, a Cuban and a Bolivian, except that both are likely to face discrimination, neither being considered sufficiently “white”—Anglo, that is. But imagine if the Mexicans or the African-Americans were to be granted a similar level of autonomy within the US? It would blow the country to pieces!
A country predicated on protecting “white privilege” cannot possibly survive such a corruption of its founding principles. The US fought a revolution to keep slavery legal (it was about to be abolished by the British); then it fought a civil war to change slavery from one form to another (there are more African-Americans in US jails now than there were slaves in the Confederate South prior to the Civil War).
Nobody knows what wars lie in its future, or what will provoke them, but this particular intercivilizational fault line is likely to be very important. For what is a nation? Is it your tribe, or is it a bunch of mercenaries pretending to be Anglo so that they are allowed into the country club? Only time will tell which of the two civilizations will prove to be more durable.
- China Officially Launches Critical Local Government Debt Swap — But Is The PBoC Really Just Issuing Treasury Bonds?
After getting off to a rocky start last month, China’s local government debt swap program is officially underway. As a refresher, here is the situation, in a nutshell:
The idea is to swap existing high-interest loans — which are a consequence of localities skirting debt issuance limits by tapping shadow banking conduits for cash — for standard muni bonds which will carry yields that are more inline with the supposed credit-worthiness of the issuer. This sounded great on paper, but when the provincial early adopters tested the waters they discovered that bank demand for the new bonds was tepid, leaving the PBoC with two options: 1) buy the bonds outright, 2) create demand by allowing banks who purchases the bonds to pledge them for long-term cash loans. Option number one would simply constitute Chinese QE, while option number two is akin to ECB LTROs and in either case, it gives the PBoC an excuse to implement a large-scale easing program and in the case of the latter option, the hope is that banks will use the cash to lend to the broader economy thus kickstarting growth.
China chose the latter option (for now). On Monday, Jiangsu Province sold 3-year bonds at 2.94%, 5-yr bonds at 3.12%, 7-year bonds at 3.41%, and 10-year bonds at 3.41%. Broadly speaking, borrowing costs were lower than expected, a relief for Jiangsu which pulled an offering in April after bank demand proved tepid. That event effectually forced the PBoC’s hand when it came to allowing purchasing banks to pledge the new issues as collateral for cash loans. In other words, we can thank the failed Jiangsu offering for Chinese LTROs.
Here’s FT with more:
Jiangsu is one of China’s richest and best-managed provinces, but its initial plan in late April to sell Rmb64.8bn of bonds to pay off existing debt failed because state-owned banks balked at an interest rate that was considered too low for the risk involved in lending to the province.
After initially saying the Rmb1tn bond programme would be driven by the market, Beijing changed its mind and issued an administrative order to banks to buy the bonds.
The central government also capped the interest rate that could be offered at no more than 30 per cent above Treasury yields, allowed banks to use the new bonds as collateral from the central bank and lowered benchmark interest rates to make the bonds more attractive.
For reference, here’s a breakdown of debt by region (as a percentage of GDP) and also of regional revenue growth:
While it now appears that the PBoC’s support (and heavy hand) will be enough to ensure that the debt swap program will be generally successful at least in the narrow sense of saving local governments billions in interest expense, two things are as yet unclear: 1) what impact will participation in this multi-trillion yuan experiment have on banks?, and, more importantly, 2) will a new directive that encourages local governments to continue to tap LGFV even as the bond swap program is barely off the ground serve to undercut the whole endeavour by encourage localities to accumulate still more high interest debt?
Here’s Citi on the first question:
We believe local government bond issuance, despite the low yields, is overall positive for banks. We see the following implications:
Negative interest income impact due to the lower yields on LG bonds vs. LGFV loans. We reckon this yield differential could be 200-250bps lower in this case (assuming LGFV loans at benchmark lending rate). On the present announced Rmb1trn debt swap target, we estimate the interest income loss will be about 1% of industry-wide earnings.
Positive for credit risk because provincial government is surely a better credit risk than an LGFV.
Positive for capital because the risk-weight for provincial government bonds is 20%, much lower than the 100% risk-weight for a corporate loan (under the standardized approach).
Lowers LDR and releases lending capacity. To the extent that there is loan demand, banks can use this extra loan capacity to make up for the loss in interest income.
Consider the bolded passage there and then consider this from SocGen:
If we are right about PBoC’s intention of helping local government debt restructuring, the total size of this programme may match the total size of local government’s debt stock at the moment. Considering that issuance for the fiscal spending in the coming years may also need some help on attracting demand, we would not be surprised by an eventual size of CNY20tn.
The question then appears to be this: if the program is expanded dramatically over the course of the next several years, what will the cumulative impact be on banks’ bottom line if just the initial CNY1 trillion pilot program is going to amount to 1% of industry-wide earnings?
As to the relaxation of the ban on LGFV financing, we’ve suggested that this could ultimately open the door for the limitless expansion of credit in China (and maybe that’s the goal) because should the PBoC decide that new LGFV loans are also eligible for the debt swap program, it isn’t clear what keeps this from turning into a debt creation machine, whereby local goverments obtain financing wherever they can get it, swap the loans for muni bonds, sell the muni bonds to banks who then pledge them to the PBoC for cash that’s then used to extend still more credit.
Irrespective of whether this is exactly how the situation plays out, one thing seems clear: with the relaxation of the LGFV rule, China is sending a clear message that the immediate concern is simply to roll-over local governments’ existing debt while allowing them to add still more leverage. In other words, “delay-and-pray.” As it turns out, Fitch agrees.
Via Fitch:
Chinese government directives last week concerning local government debt signal a potentially significant policy shift to prioritise growth over managing the country’s debt problem…
Uncertainty over the scale and strategy to resolve high local government debt remains a key issue for China’s sovereign credit profile, and the latest directives could reflect a continuation of an “extend and pretend” approach to the issue…
A joint directive from the Chinese finance ministry, central bank and financial regulator on 15 May, instructed the banks to continue extending loans to local government financing vehicles (LGFV)s for existing projects that had commenced prior to end-2014, and to renegotiate debt where necessary to ensure project completion. This is an explicit form of regulatory forbearance, and serves to delay plans to wind down the role of LGFVs. More broadly, it also suggests that propping up growth in the short term has temporarily taken priority over efforts to resolve solvency problems at the local government level.
We’ll close with the following passage from Citi which suggests that in reality, the new local government bonds might as well be treasury bonds both in terms of yield and in terms who will ultimately be responsible if (perhaps more appropriately “when” given what we’ve said above) local governments can no longer kick the can and wind up unable to pay.
The new setting is in line with our view of burden sharing on local debts: local governments have promised no default, banks will receive lower yield, and the central bank has committed to provide cheap funding. But if there is no efficiency gain in coming years, some local governments may become insolvent, and then all burdens would be channeled up to the central government. Local bonds are thus not much differentiated from treasury bonds.
- In Iraq, ISIS Is Winning And The United States Is Losing
Submitted by Michael Snyder via The End of The American Dream blog,
During the Iraq war more than 4,000 U.S. soldiers died, countless others were severely injured, and the total cost to U.S. taxpayers was more than 2 trillion dollars. But now whatever the U.S. military accomplished during that war is being completely undone by ISIS. On Monday, we learned that ISIS had fully taken control of the strategically important city of Ramadi. Despite nine months of airstrikes by the U.S. military, ISIS continues to move forward and take new territory.
Just a few years ago, American soldiers fought some incredibly bloody battles on the streets of Ramadi, but now that city is in the hands of the most ruthless terror organization on the entire planet. And since it is only about 70 miles from Baghdad, Ramadi is going to make a fine staging area for an all-out assault on the capital. No matter how you cut it, the cold, hard reality of the matter is that the United States is losing in Iraq and ISIS is winning. So what will the U.S. do if ISIS actually takes control of the entire country?
Ramadi is traditionally known as the ‘Gateway of Baghdad’, but in recent days it has experienced utter carnage. According to the Daily Mail, “mutilated bodies” now lie everywhere along the streets of that once proud city…
ISIS militants have held a twisted victory parade after taking the key city of Ramadi in an orgy of violence and beheadings – and the extremists could march on the Iraqi capital Baghdad within the next month.
Mutilated bodies scatter the streets of the ‘Gateway of Baghdad’, where Islamic State slaughtered around 500 and forced nearly 25,000 to flee their homes over the last few days.
Now ISIS has released images of militants celebrating, children wielding automatic weapons and a fleet of pick-up trucks carrying its jubilant fighters through the blood-stained streets of Ramadi.
U.S. military officials insist that it really isn’t that big of a deal that Ramadi has fallen, but they made similar pronouncements back during the days of the Vietnam War. Just consider the following passage from a recent Wall Street Journal article…
In the closing years of the Vietnam War it was often noted sardonically that the “victories” against the Viet Cong were moving steadily closer to Saigon. The same could be said of Baghdad and the victories claimed against Islamic State, or ISIS, in Iraq in the past year. The ISIS takeover of Ramadi in the Anbar province over the weekend exposed the hollowness of the reported progress against ISIS. The U.S.-led bombing campaign in support of Iraqi forces isn’t working.
And guess what? As the “Iraqi Security forces” folded, they left behind large amounts of military equipment and large numbers of armored vehicles for ISIS to capture. In the end, this will make ISIS even more formidable. The following comes from Fox News…
Although there were a large number of Iraqi security forces occupying Ramadi, most troops fled after ISIS fighters began their assault on the city center Sunday, leaving behind Humvees and armored vehicles supplied by the U.S. military, a separate senior U.S. military official told Fox News.
“The Iraqi security forces were pushed out by a much smaller [ISIS] force,” the official said.
This is a theme that we have seen time after time. ISIS is taking over both Iraq and Syria largely using captured American weapons. Vehicles, equipment and weapons that our tax dollars paid for are being used to establish and expand a terrorist state in the heart of the Middle East, and Barack Obama seems almost ambivalent to the whole thing.
Even those that are on Obama’s side can’t quite understand what Obama is doing. For example, just consider the words of Piers Morgan…
But Obama’s had plenty of time to devise a successful strategy for dealing with the emerging threat of ISIS, and so far he has spectacularly failed.
As they beheaded Americans, he made somber speeches, then played golf minutes literally seven minutes later.
As they burned Jordanian pilots in cages, Obama assured us with almost casual confidence that he was on top of things.
As they threw gays to their death off rooftops and slaughtered Christians on beaches, still the leader of the free world exuded calm.
The clear message? ‘Don’t worry, I’ve got this all under control..’
Only he hasn’t.
For years and years, we heard about what a “threat” al-Qaeda was. But the truth is that al-Qaeda never was much of a threat at all. Most of the time their leaders seemed to be hiding out in caves or bunkers, and they never actually controlled any real territory.
But now we have a very real Islamic caliphate which has become so powerful that it can successfully fight a multi-front war against the Syrian government, the Kurds and the Iraqi government. Since it was first established, the amount of territory that it has captured is larger than the British Isles, and smaller terror groups all over the planet are rapidly swearing allegiance to it.
Unlike al-Qaeda, ISIS appears to be the real deal, and nobody in the western world can seem to muster up the will to do anything about it. The following is how this new Islamic State was described in a recent article in the Telegraph…
It is one of the strangest states ever created. The Islamic State wants to force all humanity to believe in its vision of a religious and social utopia existing in the first days of Islam. Women are to be treated as chattels, forbidden to leave the house unless they are accompanied by a male relative. People deemed to be pagans, like the Yazidis, can be bought and sold as slaves. Punishments such as beheadings, amputations and flogging become the norm. All those not pledging allegiance to the caliphate declared by its leader, Abu Bakr al-Baghdadi, on 29 June last year are considered enemies.
Almost every day now, there are global headlines about the latest ISIS atrocities. You can find a couple of particularly disturbing examples right here and right here.
There is no negotiating with these guys, and they will not stop until the entire Middle East is under their control.
I want to share with you two maps. This first map is the territory that ISIS controls today…
This second map is what ISIS claims belongs to them…
So what should be done about ISIS?
- "If The Public Knew About Obama's Lies And Cover Ups, Mitt Romney Might Be President" – Judicial Watch
When it comes to the countless lies of this administration (and that of the next one under Hillary Clinton) one has to just throw in the flag.
Days after Seymour Hersh exposed the biggest lie of Obama’s first term, a lie which we learned was also facilitated and perpetuated by the CIA as well (the topic of the latest Frontline documentary “How the CIA Helped Make “Zero Dark Thirty””), we get yet more evidence of the administration’s lies this time on a topic dear – and sensitive – for the person who may well be the next US president, Hillary Clinton, who as a reminder made up a story that the September 11, 2012 Benghazi embassy attack was a product of spontaneous protests of an obscure YouTube documentary by an American producer that lampooned Muslims.
Only later did the administration concede that the attack was a terrorist operation.
And now, according to a declassified Defense Department document obtained by Judicial Watch we learn that the Obama administration knew that “al Qaeda terrorists had planned the Benghazi attack ten days in advance.” Then Secretary of State Hillary Clinton and other senior level individuals including then-Defense Secretary Leon Panetta, the Joint Chiefs of Staff and the Obama White House National Security Council were given intelligence within hours of the Benghazi attack describing how it had been planned at least 10 days in advance “to kill as many Americans as possible.”
The heavily redacted Defense Department “information report” says that the attack on the Benghazi facility “was planned and executed by The Brigades of the Captive Omar Abdul Rahman (BCOAR).” The group subscribes to “AQ ideologies:”
The attack was planned ten or more days prior on approximately 01 September 2012. The intention was to attack the consulate and to kill as many Americans as possible to seek revenge for U.S. killing of Aboyahiye ((ALALIBY)) in Pakistan and in memorial of the 11 September 2001 atacks on the World Trade Center buildings.
“A violent radical,” the DIA report says, is “the leader of BCOAR is Abdul Baset ((AZUZ)), AZUZ was sent by ((ZAWARI)) to set up Al Qaeda (AQ) bases in Libya.” The group’s headquarters was set up with the approval of a “member of the Muslim brother hood movement…where they have large caches of weapons. Some of these caches are disguised by feeding troughs for livestock. They have SA-7 and SA-23/4 MANPADS…they train almost every day focusing on religious lessons and scriptures including three lessons a day of jihadist ideology.”
One can see why Clinton is allergic to any hearings on the Benghazi killings nearly three years after the event: she lied about the entire affaird during countless sworn testimonies, and as a result has been haunted from the first lie she uttered to avoid looking incompetent. A lie which may be very costly for the nation as it prepares to elect its next president.
There was more in the Judicial Watch disclosure: the DOD documents also contain the first official documentation that the Obama administration knew that weapons were being shipped from the Port of Benghazi to rebel troops in Syria. An October 2012 report confirms:
Weapons from the former Libya military stockpiles were shipped from the port of Benghazi, Libya to the Port of Banias and the Port of Borj Islam, Syria. The weapons shipped during late-August 2012 were Sniper rifles, RPG’s, and 125 mm and 155mm howitzers missiles.
During the immediate aftermath of, and following the uncertainty caused by, the downfall of the ((Qaddafi)) regime in October 2011 and up until early September of 2012, weapons from the former Libya military stockpiles located in Benghazi, Libya were shipped from the port of Benghazi, Libya to the ports of Banias and the Port of Borj Islam, Syria. The Syrian ports were chosen due to the small amount of cargo traffic transiting these two ports. The ships used to transport the weapons were medium-sized and able to hold 10 or less shipping containers of cargo.
The DIA document further details:
The weapons shipped from Syria during late-August 2012 were Sniper rifles, RPG’s and 125mm and 155mm howitzers missiles. The numbers for each weapon were estimated to be: 500 Sniper rifles, 100 RPG launchers with 300 total rounds, and approximately 400 howitzers missiles [200 ea – 125mm and 200ea – 155 mm.]
The heavily redacted document does not disclose who was shipping the weapons, however we do know what happened to US weapons sent by unknown sources to Yemen rebels: they are now being used to kill US-supported coalition forces.
The State Department has yet to turn over any documents from the secret email accounts of Hillary Clinton and other top State Department officials.
Judicial Watch president Tom Fitton summarized this latest round of hard fought revelations – which should have been a matter of public record from day one for the most transparent administration ever – as follows:
“These documents are jaw-dropping. No wonder we had to file more FOIA lawsuits and wait over two years for them. If the American people had known the truth – that Barack Obama, Hillary Clinton and other top administration officials knew that the Benghazi attack was an al-Qaeda terrorist attack from the get-go – and yet lied and covered this fact up – Mitt Romney might very well be president. And why would the Obama administration continue to support the Muslim Brotherhood even after it knew it was tied to the Benghazi terrorist attack and to al Qaeda? These documents also point to connection between the collapse in Libya and the ISIS war – and confirm that the U.S. knew remarkable details about the transfer of arms from Benghazi to Syrian jihadists,” stated Tom Fitton, Judicial Watch president. “These documents show that the Benghazi cover-up has continued for years and is only unraveling through our independent lawsuits. The Benghazi scandal just got a whole lot worse for Barack Obama and Hillary Clinton.”
He may be right: as the WSJ reported moments ago, Hillary’s aides openly scrutinized, and even blocked release of documents requested under public-records law, openly flaunting their legal responsibility to the American people:
When Hillary Clinton was secretary of state, her staff scrutinized politically sensitive documents requested under public-records law and sometimes blocked their release, according to people with direct knowledge of the activities.
In one instance, her chief of staff, Cheryl Mills, told State Department records specialists she wanted to see all documents requested on the controversial Keystone XL pipeline, and later demanded that some be held back.”
And yet… ladies and gentlemen, presenting the next US president.
- Welcome To The Bubble State, Where Everything Is Unsustainable
Submitted by Joshua Kraise via The Daily Sheeple,
Since its inception, California has always portrayed itself as the land of opportunity. Kind of like a dream within the American dream. It’s the California dream to be precise, and while it has taken on many forms over the years, the song has always remained the same.
That song preaches that anyone can become fabulously wealthy here. But unlike the American dream, the California dream does not demand effort, at least not in its current form. Instead, it offers low hanging fruit. It claims to be overflowing with opportunities, just waiting to be exploited. The grass is always greener here, and a new millionaire is made every day. So why not you? What are you waiting for? Anybody can make it big in the Golden State, haven’t you heard? You’d be a damn fool to stay in your podunk Midwestern town. Get over here already!
Of course, if you ask anyone who actually lives here, they’ll tell you the truth. The only people getting rich from the dream are the ones who made it up. They prey on the gullible masses who think they can move here and become movies stars, and tech CEO’s. But more importantly, this dream is the lifeblood of our vampiric state, and always has been. Like the myths surrounding the Great Wall of China, our foundations are layered with those who fell while chasing the dream. We owe our very existence to this ever evolving scam.
It all started with the gold rush. The first of our get rich quick schemes. As soon as word got out that there was gold in those hills, the rubes poured in by the thousands. The only folks who got rich were the ones who sold picks, pans and shovels to the miners at outrageous prices.
Then came the movie industry, which produces the one lie that never seems to die. There are always just enough success stories about talentless nobodies making it big, that the Hollywood machine will always have an abundance of starry eyed wannabes hoping to ride the gravy train to fame and fortune. Few ever “make it” of course, and the rest would be fortunate enough to get a second chance in the porn industry.
And who could forget the hippies? Ahhh the hippies. That one managed to suck in thousands angsty teenagers, who now make their living as either college professors or strung out homeless panhandlers, depending on who you ask. This scam was unique for it was not a get rich quick scheme in the financial sense, but in the spiritual and political sense. Hunter S. Thompson so astutely described them as “All those pathetically eager acid freaks who thought they could buy Peace and Understanding for three bucks a hit.”
You might be thinking to yourself “But how do you house and feed all these gullible masses?” I would say, as inefficiently as humanly possible. Only in California would they build gigantic cities hundreds of miles away from the nearest source of fresh water, because the weather is just so darn pleasant in LA. Then they feed those people with crops grown on thousands of square miles of desert. Not even Las Vegas can hold a torch to that kind of madness.
And between the poorly regulated water supply and the sublime weather conditions, you have the perfect recipe for the marijuana bubble, which hasn’t quite reached its peak. There are plenty of folks who think they can show up and make hundreds of thousands of dollars growing pot. They’re in for a rude awakening once the plant is fully legalized, and Philip Morris starts growing Mary Jane in such vast quantities, that it cost half as much as it does now, and runs all these people out of business.
By the way, our water supply didn’t just make our sprawling dystopian cities a reality. There’s no housing bubble if you don’t have houses and cities right? While California doesn’t carry all the blame for the housing crash of 2007, would it really be the same without this state? I seem to recall that the price of housing was pretty stable in other parts of the country, while it was ballooning to ridiculous levels every year in California. Our state was practically the epicenter of the “house flipping” fad.
Do you see what I’m getting at here? California is the pump and dump state. The history of California is a cascade of overlapping economic bubbles and ridiculous lies, each one bigger than the last. It’s the only thing that sustains us. The get rich quick scheme is our oldest trick, and it has never failed suck up an abundance of money and talent that would have never arrived here otherwise. The ever-changing Cali graft continues to operate to this day, though it’s finally starting to get repetitive.
Everyone remembers the dot-com crash right? Call me crazy, but aren’t we starting to see the same thing now with all these startups? We keep hearing stories about these young nobodies making millions after selling their tech companies. It’s kind of ridiculous isn’t it?
It’s the next gold rush, and just like all previous gold rushes, very few people are making that kind of money. The vast majority of these new companies you hear about, fail miserably. Silicon Valley is not the easy money tech mecca they want us all to believe in, and yet, people keep putting millions of dollars into these companies. It hasn’t even been 20 years since the last tech bubble burst, and now we’re in another one.
You see the same situation unfolding in the real estate market. When someone buys a 750sq foot fixer upper in San Francisco for $1.5 million, or when sharing a room with three people costs $1,000 a month per person, one must wonder if another real estate bubble is being inflated courtesy of the California dream, whose hallmarks are blind optimism and blissful ignorance.
The tech bubble and the housing bubble were responsible for the greatest financial losses in recent memory, and now they’re both back with a vengeance, and they appear primed to burst at the same time. And when they do, you can thank the California dream, the most outrageous and pervasive scam in American history. The century spanning hustle that just won’t die.
- Beijing We Have A Problem: China Suffers Record Capital Outflow In Q1
Back on April 18 in “China Sees Largest Capital Outflow In Three Years,” we noted that according to JP Morgan estimates, China saw its fourth consecutive quarter of capital outflows in Q1, bringing the total over the last 12 months to some $300 billion. This is part and parcel of what we have called China’s “currency conundrum” wherein Beijing needs to devalue in order to support the export-driven economy, but can’t for fear of exacerbating capital flight and/or jeopardizing an IMF SDR bid (assuming China is still interested in the latter after Washington’s abject refusal to reform the Fund’s structure), or to put as simply as possible, “devalue too much, and the capital outflows will accelerate, not devalue enough, and the mercantilist economy gets it.”
The official numbers for the first three months of the year are now in and sure enough, China reported a record $159 billion deficit on its capital and financial accounts.
More, via UBS:
FX reserves shrank sharply by USD 113 billion in Q1, following last Q4’s contraction of USD 45 billion and 2014’s annual increase of USD 22 billion. PBC’s FX asset also shrunk by RMB 252 billion in Q1 (vs. last Q4’s fall of RMB 134 billion). Our preliminary estimates show that China saw non-FDI capital outflows of around USD 190 billion in Q1 on a BoP basis. Recent data release showed that China’s capital & financial account (excluding reserve assets) recorded a deficit of USD 159 billion in Q1…
In Q1 2015, China saw an even sharper pace of FX reserve contraction, with a negative valuation effect (of around USD 34 billion) and non-FDI capital outflows (of around USD 190 billion) more than offsetting a still sizable trade surplus of goods & service (USD 77 billion) and largely stable net FDI. The main types of non-FDI capital flows include the usual portfolio investment flows, trade credit flows, other foreign borrowing and foreign lending, domestic banks interbank borrowing and offshore lending, interest rate arbitrage flows, and capital flight.
Factors driving recent persistent capital outflows likely include: corporates’ increasingly holding on to their FX proceeds due to weaker RMB appreciation expectation; growing market concerns over China’s property downturn and recent weak economic data; weakening or unwinding of interest rate arbitrage capital flows due to the anticipated rise in global interest rates and fall in domestic interest rates; an increased desire by domestic residents to diversify their assets globally; among others.
And as we noted last month, this marks four consecutive quarters of outflows. For Beijing, the implications of the above are clear, although the proper course of action is anything but. Here’s FT:
Capital outflows are complicating efforts by the People’s Bank of China to support the economy through monetary easing. For the past decade, central bank purchases of foreign exchange inflows were the main source of base money creation in China’s banking system. Now, with outflows threatening to shrink the money supply, the central bank is turning to new mechanisms to expand it.
The most important of these is cuts to banks’ required reserve ratio. The PBoC once used RRR rises to restrain excess money growth by forcing commercial banks to keep a chunk of newly created base money on reserve at the central bank, where it is unavailable for lending. Now the PBoC is doing the opposite: cutting the RRR to offset the loss of liquidity caused by capital outflows.
Yet even after RRR cuts totalling 1.5 percentage points this year, the ratio for big banks, at 18.5 per cent, remains far higher than in any other large economy. Most economists believe that for the PBoC to meet its broad M2 money growth target of 12 per cent, further RRR cuts will be necessary.
“From the start of this year, capital inflows have been negative. We believe the key factor now restricting effective monetary easing is that the required reserve ratio remains at a high level,” said Liu Liu, macroeconomic analyst at China International Capital Corp.
In addition to RRR cuts, the central bank has slashed benchmark rates three times since November. But lower rates could exacerbate capital flight by making Chinese assets less attractive, especially in comparison to the US, where the Federal Reserve is expected to raise interest rates this year.
The PBoC’s signal to the market that it intends to hold the renminbi stable has helped prevent the trickle of outflows from becoming a flood.
For those who prefer a visual explanation and are interested to know why all of the above means QE in China is getting more likely by the month, read on.
With each passing data point, we get still more evidence that China’s economy is in trouble…
…but thanks to rising capital outflows…
…Beijing has favored policy rate cuts over devaluation…
…but three benchmark rate cuts since November and two RRR cuts this year aren’t working…
* * *
What all of this means — just as we said more than two months ago in “How Beijing Is Responding To A Soaring Dollar” — is that QE in China may be inevitable. Since then, the PBoC has indeed moved in that direction, while still maintaining that outright QE will not be necessary given the number of policy tools at Beijing’s disposal. Shortly after explaining all of the above in March, we went on to suggest that the likely form Chinese QE would take would be the purchase of local government debt (which totals 35% of GDP).
Sure enough, the PBoC ended up announcing a program whereby banks will be allowed to pledge local government bonds for cash which can then be re-lent to the broader economy. While this doesn’t quite constitute QE (it’s akin to the ECB’s LTROs), it is nevertheless a definitive step in that direction and unquestionably represents a foray into “unconventional” policy.
If capital outflows persist over the coming quarters and if economic data continues to come in soft (which it likely will), China will likely first move to cut policy rates further, with sell-side desks projecting at least three more cuts in 2015. Eventually however, that avenue will be exhausted and at that point, we will see if the PBoC’s contention that Chinese QE “doesn’t exist” holds up under pressure.
- Plains All American Pipeline Ruptures; 21,000 Barrel 4-Mile Oil Slick On Santa Barbara Beaches
Emergency officials and Exxon Mobil were responding Tuesday afternoon to a ruptured pipeline that was leaking crude oil into the ocean off the Santa Barbara County coast, authorities said. The Santa Barbara County office of emergency management has identified the responsible party as Plains All American Pipeline.
As The LA Times reports, by 3:45 p.m., the leak had left a 21,000 barrel four-mile-long sheen of oil extending about 50 yards into the waters along Refugio State Beach in Goleta, said U.S. Coast Guard Petty Officer Andrea Anderson.
First trains, now pipelines…
The ruptured pipeline — which runs along the coast near Highway 101 — was first reported to county fire officials about noon. Coast Guard crews arrived and stopped the leak, Anderson said.
It’s unclear how much oil streamed into the ocean, and officials could not confirm what type of oil had been flowing through the pipeline.
According to one of the first responders, the oil was leaking at a rapid rate of “a couple of hundred BMP,” or barrels per minute. Speaking to the Santa Barbara Independent after arriving at the scene, County Fire spokesperson David Zenobi said the leak, which had originated from a broken pipeline on land, had stopped.
* * *
* * *
As Santa Barbara County Office of Emergency Management,
The responsible party for the ruptured pipeline near Refugio Beach has been identified as Plains All-American Pipeline. A Incident Command Post has been established and the CG will oversee the clean-up of the oil by the responsible party.
* * *
Pipeline leak sending oil into ocean at Refugio State Beach in #SantaBarbara.
We’re live. #OilSpill #environment pic.twitter.com/rudJIvN3Oh— Tena Ezzeddine (@TenaNBCLA) May 19, 2015
Pipeline rupture leaks oil onto Santa Barbara County beaches
http://t.co/tY2MN5MBev
Pic: Refugio State Beach, today pic.twitter.com/N3hEPTeLOK— Shelagh Becerra (@ShelaghBecerra) May 19, 2015
Breaking: #Oil pipeline spill fouls #SantaBarbara beaches. Slick 4 miles long. http://t.co/mAv5es3zFh pic.twitter.com/X7FaUm2L4n
— Watershed Watch (@WatershedWatch_) May 19, 2015
#breaking Oil Spill north of Goleta, Refugio State Beach, pipeline burst pic.twitter.com/43y72uKO6N
— Tara Wallis (@tarawallis) May 19, 2015
Unclear if this is source of pipeline break in SB County- but many officials on ground checking out this spot pic.twitter.com/rneYNFMAH7
— Tara Wallis (@tarawallis) May 19, 2015
NBC Los Angeles reports, the oil pipeline leaked 21,000 gallons
- "Kept Afloat With Nothing But Happy Thoughts"
Submitted by Jeffrey Snider via Alhambra Investment Partners,
The Edmund Fitzgerald departed the Burlington Northern Railroad dock in Superior, Wisconsin on November 9, 1975, at about 2:20 in the afternoon. She was carrying a load of taconite pellets to Zug Island in the Detroit River, a rather routine run for this massive ore hauler on the Great Lakes. Only a few minutes after departing, the National Weather Service issued a gale warning for along the Edmund Fitzgerald’s scheduled route. By early in the morning on November 10, the ship was reporting winds of 52 knots and 10 foot waves.
While it was certainly rough seas, or lakes as it were, the Edmund Fitzgerald was the largest and probably most well-known of the Great Lakes haulers that moved huge quantities of raw materials coming out of the Midwest and Plains toward the East. For an ore shipper built in the 1950’s, she was pretty much state of the art and even boasted rather unusual amenities. That didn’t stop the ship from setting all sorts of records up and down the Great Lakes, becoming known as “Pride of the American Flag” and the “Titanic of the Great Lakes.”
That last nickname was meant of as high compliment in service rather than to convey any such perceptions about the potential for catastrophic mishap. Though the lakes were extremely hazardous, holding still a reputation for swallowing up ships and their men, by the late 1950’s and into the 1960’s modern equipment supposedly made the ship unsinkable. If there was such a thing possible running up and down that busy shipping corridor, the Edmund Fitzgerald was it.
So when the Fitzgerald’s captain, Ernest McSorley, radioed the Arthur Anderson in the middle of the afternoon on November 10, as that ship was trailing the Fitz by about 20 miles, it was somewhat of a shock that McSorley reported some damage to his vessel. He relayed to the Anderson that, “I have a fence rail laid down, two vents lost or damaged, and a list.” All of those were by themselves something to worry about, as even the fence rail indicated the possibility of structural damage in the hull itself (the fence was meant to be pulled taught by the “weight” of the ship under load, and if the rail came down something in the structure might have changed). Of course, the fact that the ship was listing and some vent covers were lost or missing indicated that the Fitzgerald was taking on water.
That did not normally produce the loss of any ship or vessel and was not even that unusual on the Great Lakes. These ships have enormous pumps and pumping capacity, but there is a limit, especially in rough seas, as to how long the ship could tolerate such huge imbalance and deviation from expected design performance. And, as is usual in these kinds of affairs, there were cumulative setbacks all through the rest of the trip.
At 4:10 pm, the Fitzgerald radioed the Anderson that it had lost both its navigation radars, asking the Anderson’s captain if he would help the Fitz navigate to Whitefish Bay. There was a radio beacon and light at Whitefish Point that McSorley was probably counting on in lieu of all his high-tech gadgetry. Unfortunately, as reported by a passing ocean-going ship, the Avafors, neither the beacon nor light were apparently working.
Sometime around 6 pm, McSorely reported to the Avafors, “I have a bad list, lost both radars, and am taking heavy seas over the deck.” It only got worse, as around 7 pm two waves buffeted the ship, riding right up over the deck 35 feet above the waterline. The bow of the ship would actually “sink” into each wave and then pop back up out of the water due to nothing but buoyancy. About 10 minutes later, the Anderson called the Fitzgerald, now trailing only about 10 miles behind, about some traffic in the area but that it wasn’t going to be a concern.
McSorley reported that, “we are holding our own.” It was clear that, despite all the damage, unworkable systems and even the weather and waves, the Edmund Fitzgerald’s captain was expecting continued operation and even better performance once they reached Whitefish Bay. It was the last time the ship was ever heard from, as the Anderson reported to the Coast Guard only ten minutes later that the Fitzgerald had disappeared from their radar. It did enter a small squall at that time, and it wasn’t unusual for the squall to obscure radar reports, but by 7:55 pm the Anderson was reporting that the Edmund Fitzgerald was still lost to radar and visual contact.
Nobody knows exactly what happened and the exact sequence that turned an “unsinkable” ship to the bottom of Lake Superior. The focus these past forty years has been on the boat’s listing and vent covers, taking on water, but there is no explanation as to why the pumps were insufficient. It has been speculated that maybe one or two of the cargo covers themselves came loose or even came fully off, and that with waves coming right up over the ship there was no way to equalize the amount of water going out and that which was flooding in. Whatever the case, the Fitz went down in one wave just as it had before, with the bow sinking into the wave’s stormy trough, and the entire ship just never came back up.
In many ways these kinds of disasters are a process. I think we tend to think of them along the lines of single events, which is where the Titanic comparison might be misleading in that respect. There was no “iceberg” for the Fitzgerald to impact and begin the catastrophic chain of events, but rather a sustained degradation to systemic capacity that, at some critical point, could no longer keep the ship afloat. It was such embedded deterioration that even the ship’s captain seemed fairly confident that ultimately it would turn out just another unsteady trip on Lake Superior. Instead, he suffered catastrophic failure after hours of nothing but attrition.
The equivalence of the Edmund Fitzgerald to the US economy is striking to me. Orthodox economics holds fast to the theory that recessions are, and can be, nothing but the work of an exogenous “shock” – the iceberg of the Titanic variety. The indications of consumer “demand” so far in 2015 not only suggest that is wrong but for the very reasons, from a systems perspective, that the Fitz sank – attrition.
For their part in this allegory, the FOMC even recognized the “rough seas” of the post-crisis era, making no shortage of excuses that they were dealt a very difficult hand to begin with (without ever admitting or even contemplating their own role in dealing that hand). But overall they believed that their monetary toolkit, especially QE, would propel the US economy through those swells and into the safety of the full recovery. In the past year, they and their parroting economists have been infused with even more confidence that the economy would pass through this barrier despite the continuous stream of indications that there were structural problems still unsolved, and that those structural problems were leading to the economy’s version of listing (namely the “mysterious” lack of income and wage growth).
Since monetary policy functions very much like the internal water pumps on the Fitzgerald, it seems appropriate to analyze them in the same manner as the nautical disaster. In other words, if the US economy is really about to head under the 2015 wave, and not buoy back up as it had briefly after the heavy wave in Q1 2014, then why hasn’t QE been effective at its design?
A clue to that lies in the state of monetary policy as it actually exists rather than what various people and even investors at this late stage think it does. There remains the stubborn idea that the Federal Reserve is and has been “printing money.” From that, it stands to some reason that the economy would be available for a positive injection of cash, the old idea of the equation of exchange. If you give enough people cash to spend, out of nowhere, then it will be spent and the rest of the economy is supposed to follow. It makes no difference in theory whether that comes as cash itself or cash from borrowing – more of either is supposed to create more demand for the sake of demand.
But even under QE that was never really the case. Buying bonds directly from primary dealers did absolutely nothing except increase the level of bank “reserves” (using scare quotes here, appropriately, because the reserve account at the Fed is nothing like what used to constitute actual bank reserves, though they are classified now as if they were). This is not to say that there were no effects of that effort, only that those effects were highly muted, mutable and indirectly captured by bank balance sheet constraints that were often unrelated even to liquidity in the immediate post-crisis period.
As even the Federal Reserve will tell you, the quantity of bank “reserves” only indicates what the Fed is doing and has no actual and direct bearing upon what banks, or the economy, might do. However, the FOMC does not at all mind if you think they hold such immense power so long as you don’t go too far in that unsupported belief. That is why the FOMC and its academic arm have been diligent in parrying criticisms about those expecting “runaway inflation” without ever admitting the full extent of reality in that effort.
To which is added ZIRP, a factor that has been quite the topic of conversation since the middle of 2013. The FOMC exercises an interest rate target as its main lever of monetary influence, setting a range (or an exact interest rate prior to ZIRP) for the federal funds rate. This tool is at least one step in the realistic direction over QE, as the federal funds rate is derived from interbank activities among banks themselves. The premise is that banks drive the main mechanics in the interbank markets, the balance sheet factors that are crucial to all finance, but that the Fed can intervene in order to maintain its targets. The fallacy here is as those “reserves”, as essentially the Open Market Desk would undertake mini-QE’s (which are all just open market operations that change the level of cumulative “reserve” accounts) if the effective federal funds rate continued under its target.
So even in the interest rate target, the Fed is left with nothing but “reserves”, and in this case just the threat of “reserves” to control a major interest rate in order to reset and regulate systemically the price of the “risk-free” benchmarks (including and especially OIS). Prior to August 2007, that was enough as banks simply followed the target out of self-fulfilling expectations carried through arbitrage (both globally and amongst the survivorship basis in interbank payment mechanisms). However, in the post-crisis period there is another problem, one that has only grown over time, as the federal funds market itself is, quite frankly, dead.
What you see above in the effective rate is essentially what banks might offer of “cash” here if there was some actual demand for it. This is not a market in any meaningful way, a fact that the FOMC has acknowledged on many occasions. Most of those relate to suggestions and academic studies about repo markets which have taken over the relevant role of interbank determination. In fact, the Fed continues to be the only major central bank that does not employ its main monetary policy device through the repo market.
That leaves domestic monetary policy in the United States, of the world’s supposed reserve currency, as a process of fake reserves threatening highly indirect action in a market that nobody participates in. If that doesn’t sum up the economic predicament, than I doubt anything will ever do so.
For its part, the Fed does not care about all that. They are more concerned about signaling monetary policy to you and I and everyone in between. The actual pathology of how it is carried out in the end has become almost totally unimportant and irrelevant to how well the FOMC can “communicate” its intentions. In other words, never mind exactly how the Fed might do something like or around “money printing”, just as long as you assure yourself that something somewhere might happen as it is supposed to (as Janet Yellen continues to plead, stop worrying about the details and just accept her big picture socialism). I am not making this up, truth is far stranger than fiction, as the Fed will not move off its federal funds rate target to a more appropriate repo target because they don’t want to lose, in their minds, the ability to influence your behavior no matter how indirect, or, as in the case now, imaginary.
Monetary policy is all about psychology, to the point that the Federal Reserve itself will continue to use a non-existent interest rate in its actual “exit” (which I still doubt they will ever get to). In other words, there is no even “money printing” forward or in reverse as they increase rates, or keep them at zero; all that actually changes is a number published in the paper and talked about on the TV and internet. The full purpose is for you to get the message about what they intend for you to do without thinking about the operational impossibility of it taking place on their end; their main monetary policy rate is nothing about money, banking or anything in between but only a rate by which they think they will influence behavior and behavior alone.
Is it any wonder the economy is in danger of sinking toward catastrophic failure?
All that has been deployed as a counterforce to this continued attrition has been psychological, happy mumbo jumbo. The Fed stimulates absolutely nothing but the media’s descriptions of it and the various economists and their models that depend solely on them being successful in doing so. If recessions are emotional and irrational pessimism as the monetary textbooks believe, then QE and ZIRP are just right sort of “happy pills” to push emotions back to the “right” direction. The Fed can’t be bothered to hook its actual monetary programs into an actual market where actual finance is carried out, preferring instead the continuity of nothingness. The Fed continues its main line into the federal funds market despite the fact that nobody actually goes there, and hasn’t been there since 2008.
To finish in the analogy of the Edmund Fitzgerald, the water effecting a list upon the economic ship is real, the attrition, but the pumps that everyone thought were enough to correct all that are just imaginary creatures of a lot of happy talk and signals. It would be bad enough if they existed and just were not turned on, but, as the interest rate target in the dead federal funds market shows without ambiguity, the pumps don’t even exist at all.
But don’t get too pessimistic about it; their target for that dead market is still “stimulative” and “loose.”
- Someone Finally Read Obama's Secret Trade Deal And Admits The TPP "Will Damage This Nation"
There is a huge paradox surrounding what is supposed to be the crowning achievement of Obama’s second term, the Trans Pacific Partnership (TPP), a bill whose contents virtually nobody is familiar with or will be before it passes into law.
That’s not the paradox: the paradox is that back in October 2009, the White House Press secretary said that “the President has returned to a stance of transparency and ethics that hasn’t been matched by any other White House…. the President believes strongly in transparency… that transparency in that way in the best policy.“
Or to paraphrase Nancy Pelosi, “we have to pass the bill so that you can find out what is in it.”
And yet while everyone seems to have an opinion on the final formulation of the TPP bill, especially Elizabeth Warren and her circle of progressive democrats who have emerged as the bill’s most vocal critics, the truth is that none have actually read it for the simple reason that anyone who is familiar with its text could be jailed for disclosing its contents.
Most transparent administration indeed.
We won’t even comment that those who don’t care to have their opinion made public and do have access to the bill have also not read the massive bill which layers giveaway upon giveaway to mega corporations: in fact the only ones who are intimately familiar with the TPP’s contents are those who drafted it: America’s multinational corporations whose shareholders will be the biggest beneficiaries of the TPP.
And yet someone appears to have finally read Obama’s TPP: that someone is Michael Wessel, a cleared liaison to two statutory advisory committees and a commissioner on the U.S. Trade Deficit Review Commission, as well as the international trade co-chair for the Kerry-Edwards Presidential Campaign.
Earlier today, Wessel wrote an article in Politico titled “I’ve Read Obama’s Secret Trade Deal. Elizabeth Warren Is Right to Be Concerned” which we agree with wholeheartedly because while one may or may not disgree whether the US economy will benefit from a trade agreement which anecdotally benefits large multinationals, it should be unanimous that America’s transformation into a secretive, klepto-fascist state controlled by corporations is catastrophic for not only the republic but America’s people, or at least those who are not among the 0.001% who stand to benefit from the TPP.
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From Michael Wessel, first posted in Politico:
I’ve Read Obama’s Secret Trade Deal. Elizabeth Warren Is Right to Be Concerned.
“You need to tell me what’s wrong with this trade agreement, not one that was passed 25 years ago,” a frustrated President Barack Obama recently complained about criticisms of the Trans Pacific Partnership (TPP). He’s right. The public criticisms of the TPP have been vague. That’s by design—anyone who has read the text of the agreement could be jailed for disclosing its contents. I’ve actually read the TPP text provided to the government’s own advisors, and I’ve given the president an earful about how this trade deal will damage this nation. But I can’t share my criticisms with you.
I can tell you that Elizabeth Warren is right about her criticism of the trade deal. We should be very concerned about what’s hidden in this trade deal—and particularly how the Obama administration is keeping information secret even from those of us who are supposed to provide advice.
So-called “cleared advisors” like me are prohibited from sharing publicly the criticisms we’ve lodged about specific proposals and approaches. The government has created a perfect Catch 22: The law prohibits us from talking about the specifics of what we’ve seen, allowing the president to criticize us for not being specific. Instead of simply admitting that he disagrees with me—and with many other cleared advisors—about the merits of the TPP, the president instead pretends that our specific, pointed criticisms don’t exist.
What I can tell you is that the administration is being unfair to those who are raising proper questions about the harms the TPP would do. To the administration, everyone who questions their approach is branded as a protectionist—or worse—dishonest. They broadly criticize organized labor, despite the fact that unions have been the primary force in America pushing for strong rules to promote opportunity and jobs. And they dismiss individuals like me who believe that, first and foremost, a trade agreement should promote the interests of domestic producers and their employees.
I’ve been deeply involved in trade policy for almost four decades. For 21 years, I worked for former Democratic Leader Richard Gephardt and handled all trade policy issues including “fast track,” the North American Free Trade Agreement and the World Trade Organization’s Uruguay Round, which is the largest trade agreement in history. I am also a consultant to various domestic producers and the United Steelworkers union, for whom I serve as a cleared advisor on two trade advisory committees. To top it off, I was a publicly acknowledged advisor to the Obama campaign in 2008.
Obama may no longer be listening to my advice, but Hillary Clinton and Elizabeth Warren might as well be. Warren, of course, has been perhaps the deal’s most vocal critic, but even the more cautious Clinton has raised the right questions on what a good TPP would look like. Her spokesman, Nick Merrill, said: “She will be watching closely to see what is being done to crack down on currency manipulation, improve labor rights, protect the environment and health, promote transparency and open new opportunities for our small businesses to export overseas. As she warned in her book Hard Choices, we shouldn’t be giving special rights to corporations at the expense of workers and consumers.”
On this count, the current TPP doesn’t measure up. And nothing being considered by Congress right now would ensure that the TPP meets the goal of promoting domestic production and job creation.
The text of the TPP, like all trade deals, is a closely guarded secret. That fact makes a genuine public debate impossible and should make robust debate behind closed doors all the more essential. But the ability of TPP critics like me to point out the deal’s many failings is limited by the government’s surprising and unprecedented refusal to make revisions to the language in the TPP fully available to cleared advisors.
Bill Clinton didn’t operate like this. During the debate on NAFTA, as a cleared advisor for the Democratic leadership, I had a copy of the entire text in a safe next to my desk and regularly was briefed on the specifics of the negotiations, including counterproposals made by Mexico and Canada. During the TPP negotiations, the United States Trade Representative (USTR) has never shared proposals being advanced by other TPP partners. Today’s consultations are, in many ways, much more restrictive than those under past administrations.
All advisors, and any liaisons, are required to have security clearances, which entail extensive paperwork and background investigations, before they are able to review text and participate in briefings. But, despite clearances, and a statutory duty to provide advice, advisors do not have access to all the materials that a reasonable person would need to do the job. The negotiators provide us with “proposals” but those are merely initial proposals to trading partners. We are not allowed to see counter-proposals from our trading partners. Often, advisors are provided with updates indicating that the final text will balance all appropriate stakeholder interests but we frequently receive few additional details beyond that flimsy assurance.
Those details have enormous repercussions. For instance, rules of origin specify how much of a product must originate within the TPP countries for the resulting product to be eligible for duty-free treatment. These are complex rules that decide where a company will manufacture its products and where is will purchase raw materials. Under the North American Free Trade Agreement (NAFTA), 62.5 percent of a car needed to originate within NAFTA countries. In the US-Australia Free Trade Agreement, it was lowered to 50 percent. It further dropped to 35 percent in the US-Korea Free Trade Agreement (KORUS). In essence, under our agreement with Korea, 65 percent of a car from South Korea could be made from Chinese parts and still qualify for duty-free treatment when exported to the U.S.
That fact is politically toxic, and for that reason, we should expect the TPP agreement to have higher standards. But will it reach the 62.5 percent NAFTA requirement? Or will it be only a slight improvement over KORUS? Without access to the final text of the agreement, it’s impossible to say.
State-owned enterprises may, for the first time, be addressed in the TPP. But, once again, the details are not clear. Will exemptions be provided to countries like Vietnam, Malaysia and Singapore, all of which could be heavily impacted by such a rule? What will be the test to determine what is or is not acceptable behavior? Will injury be required to occur over a substantial period of time, or will individual acts of non-commercial, damaging trade practices be actionable? Again, it’s impossible to say for sure.
Advisors are almost flying blind on these questions and others.
Only portions of the text have been provided, to be read under the watchful eye of a USTR official. Access, up until recently, was provided on secure web sites. But the government-run website does not contain the most-up-to-date information for cleared advisors. To get that information, we have to travel to certain government facilities and sign in to read the materials. Even then, the administration determines what we can and cannot review and, often, they provide carefully edited summaries rather than the actual underlying text, which is critical to really understanding the consequences of the agreement.
Cleared advisors were created by statute to advise our nation’s trade negotiators. There is a hierarchal structure, starting with the USTR’s Advisory Committee on Trade Policy & Negotiations at the top—a committee that includes people like Steelworkers President Leo Gerard, Mastercard CEO Ajay Banga, Etsy CEO Chad Dickerson and Jill Appell, co-owner of Appell’s Pork Farms. Then there are specific Committees covering subjects like labor, the environment and agriculture that make up the next tier. The last tier consists of the Industry Trade Advisory Committees (ITACS), which focus on individual sectors such as steel and aerospace. At last count, there were more than 600 cleared advisors. The vast majority of them represent business interests.
In an effort to diminish criticism, USTR is now letting cleared advisors review summaries of what the negotiators have done. In response to a question about when the full updated text will be made available, we’ve been told, “We are working on making them available as soon as possible.” That’s not the case overseas: Our trading partners have this text, but the government’s own cleared advisors, serving on statutorily-created advisory committees, are kept in the dark.
How can we properly advise, without knowing the details?
Questions pervade virtually every chapter of the proposed agreement, including labor and the environment, investor-state, intellectual property and others. The answers to these questions affect the sourcing and investment decisions of our companies and resulting jobs for our people. Our elected representatives would be abdicating their Constitutional duty if they failed to raise questions.
Senator Warren should be commended for her courage in standing up to the President, and Secretary Clinton for raising a note of caution, and I encourage all elected officials to raise these important questions. Working Americans can’t afford more failed trade agreements and trade policies.
Congress should refuse to pass fast track trade negotiating authority until the partnership between the branches, and the trust of the American people is restored. That will require a lot of fence mending and disclosure of exactly what the TPP will do. That begins by sharing the final text of the TPP with those of us who won’t simply rubber-stamp it.
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And then, moments ago: OBAMA SAYS HE’S `PLEASED’ WITH DEAL IN CONGRESS ON TRADE
It almost makes one wonder just whom does “elected” government represent…
- "Obama's Strategy Against ISIS Is In Ruins"
Over the weekend, a major shift in the balance of power in Iraq took place when Islamic State forces seized the key Iraqi state of Ramadi after militants detonated a series of car bomb blasts, which forced Iraqi security forces and tribal fighters to retreat to the city’s east, they said. The location of Ramadi is shown in the below ISW map.
It took barely one day for the neoconservative cries for an aggressive and powerful response when overnight Kimberly Kagan’s hawkish think tank, the Institute for the Study of War, came out with its assessment which was at least partially right that “Obama’s strategy against the Islamic State in ruins not only in Iraq but also throughout the Muslim world.”
However, the reason why said strategy is in ruins, namely decades of enforcing US presence in countless foreign territories to defend US “national interests” under false military pretenses, was ignored, and instead the ISW demands an immedate escalation of the war in Iraq, to wit:
… the Islamic State remains unable to stand against even a limited deployment of U.S. military forces if those forces are properly resourced and allowed to operate against the enemy. A few thousand additional combat troops, backed by helicopters, armored vehicles and forward air controllers able to embed with Iraqi units at the battalion level, as well as additional Special Forces troops able to move about the countryside, would certainly prevent further gains. They could almost certainly regain Ramadi and other recently lost areas of Anbar, in cooperation with local tribes. They might be able to do more.
Maybe, but they would certainly do enough on behalf of the US military-industrial complex, which would be delighted with the long overdue escalation of the Iraq war, especially since it has taken far too long to drag Syria back into the conflict for the second time in 2 years. We’ll also ignore widespread speculation that ISIS is merely a failed joint venture of the CIA and Saudi Arabia, as that would cause a substantial glitch in the narrative matrix.
We won’t however, ignore, Obama’s “pacificist” image. Or perhaps neither the ISW, nor the president really cares about his Nobel peace prize-winning legacy much, especially since Obama is now openly defending himself against a “fascist” agenda, one in which both the Executive and Legislative branches of government have been taken over by a corporatist agenda in the guise of the TPP.
For what it’s worth, here is the full ISW note.
The Fall of Ramadi was Avoidable
The seizure of Ramadi on Sunday leaves President Obama’s strategy against the Islamic State in ruins not only in Iraq but also throughout the Muslim world. It means that the Iraqi security forces will almost certainly not be able to recapture Mosul this year and, therefore, that the Islamic State will retain its largest city in Iraq. Worse, it gives the group momentum again in Iraq even as it gains ground in Syria and expands in the Sinai, Yemen, Afghanistan and elsewhere. This defeat was avoidable. Neither the Islamic State nor any other al-Qaeda offshoot has ever taken a major urban area actively defended by the United States in partnership with local forces. This is what happens when a policy of half-measures, restrictions and posturing meets a skillful and determined enemy on the battlefield. If the president does not change course soon, he will find that his legacy is not peace with Iran and ending wars, but rather the establishment of a terrorist state with the resources to conduct devastating attacks against the United States and a region-engulfing sectarian war.
Obama reacted slowly and reluctantly to the initial Islamic State surge last June from Syria into Mosul and then down the Tigris toward Baghdad. He authorized U.S. air support to assist the defense of the Kurdish capital of Irbil in August and eventually deployed first a few hundred and then a few thousand U.S. advisers. He did not allow those advisers to fight alongside the Iraqi units they were assisting. U.S. airstrikes have destroyed many fixed Islamic State targets and killed its fighters by the thousands since then, mainly in Iraq, but have allowed the group to retain a haven in Syria and even to maneuver freely within Iraq.
The Islamic State maneuver that led up to the fall of Ramadi was sophisticated and many weeks in the making, as a recent publication from the Institute for the Study of War shows. It entailed diversionary attacks in Baiji and Garma, a prison break in Diyala, attacks against pilgrims in Baghdad and raids near Ayn al-Asad air base west of Ramadi, a major hub of U.S. forces and Iraqi training. It was accompanied by a coordinated offensive around Deir ez-Zor, in Syria, that could give the group the ability to operate all along the Euphrates and toward Damascus as well. Numerous Islamic State fighters moved across Iraq and Syria. Although they leveraged poor weather that impedes U.S. reconnaissance, such activity must have created a signature that a properly resourced U.S. force in the region would have detected, and it certainly created a proliferation of targets on the ground for combinations of attack aviation and ground maneuvers – had those resources been available and allowed to operate freely. U.S. military power, properly employed and resourced, can thwart these kinds of maneuvers. The fall of Ramadi was unnecessary and avoidable.
It is also a major strategic setback. The president’s strategy has been to support the Iraqi security forces in retaking territory lost to the Islamic State last summer and then, in some unspecified manner, turn to confronting it in Syria (probably in the next president’s term). Statements by U.S. and Iraqi leaders this spring made it clear that their plans involved holding in Anbar while focusing on a major operation to retake Mosul sometime this year. That operation would have been an essential precondition for the liberation of the rest of Anbar and for any subsequent operations against the Islamic State in Syria. But discussions about whether the retaking of Mosul would lead to the immediate collapse of the group now appear to have been premature. The disaster in Anbar, along with the fight for Tikrit precipitated by Iranian-backed Shiite militias that ultimately required the diversion of U.S. and Iraqi assets, has certainly derailed any campaign aiming at an early reconquest of Mosul.
Setbacks against the Islamic State in Iraq might not be so devastating if the United States and its allies were on the offensive against that group elsewhere. The president’s plan, unfortunately, confined our efforts almost exclusively to Iraq. In the meantime, the group has managed to gain adherents in the Sinai, Yemen, Libya, Afghanistan, Pakistan and even further abroad, as part of its strategy to remain in Iraq and Syria and expand the caliphate. Had the Islamic State been dealt a rapid and crushing blow in Iraq, one might have hoped for a collapse in support for the organization and the dwindling of these various movements, all of which were preexisting organizations that swore allegiance to the Islamic State opportunistically in the hope that they would prove to be early backers of what Osama bin Laden liked to call “the strong horse.” The Islamic State’s success against the United States in Iraq makes the group look, indeed, like a strong horse and is likely to strengthen its efforts to recruit individuals and groups to its ranks. The fall of Ramadi is a major strategic defeat for the United States and an important victory for the Islamic State, even if it proves ephemeral.The White House is no doubt abuzz with recommendations, many probably counseling avoiding being sucked further into Iraq. Such recommendations would be completely wrongheaded. We are already sucked into Iraq for the simple reason that an enemy that has claimed credit for lone-wolf attacks in the United States and Australia (which it quite probably inspired, although did not direct) is entrenched there, defeating our local partners, and threatens to establish a quasi-state that controls several large cities. Even at this stage, however, the Islamic State remains unable to stand against even a limited deployment of U.S. military forces if those forces are properly resourced and allowed to operate against the enemy. A few thousand additional combat troops, backed by helicopters, armored vehicles and forward air controllers able to embed with Iraqi units at the battalion level, as well as additional Special Forces troops able to move about the countryside, would certainly prevent further gains. They could almost certainly regain Ramadi and other recently lost areas of Anbar, in cooperation with local tribes. They might be able to do more.
The choice facing Obama is not between a massive deployment of hundreds of thousands of troops and a tightly constrained mission of under-resourced forces. It is, rather, between the serious application of a limited amount of U.S. military power and the establishment of a terrorist state. We submit that it is hard to imagine a serious policy discussion that concludes by favoring the latter outcome.
- How GDP Metrics Distort Our View of the Economy
Submitted by Christopher Casey via The Mises Institute,
GDP purports to measure economic activity while largely divorcing itself from the quality, profitability, depth, breadth, improvement, advancement, and rationalization of goods and services provided.
For example, even if a ship — built at great expense — cruised without passengers, fished without success, or ferried without cargo; it nevertheless contributed to GDP. Profitable for investors or stranded in the sand; it added to GDP. Plying the seas or rusting into an orange honeycomb shell; the nation’s GDP grew.
Stated alternatively, GDP fails to accurately assess the value of goods and services provided or estimate a society’s standard of living. It is a ruler with irregular hash marks and a clock with erratic ticks.
As proof, observe this absurdity: in 1990, Soviet GDP equaled half of US GDP, according to the 1991 CIA Factbook. No one visiting the Soviet Union in 1990 would believe their economy came close to 50 percent of the quality and quantity of the goods and services produced in America. GDP-defined production may have been strong, but laying roads to nowhere, smelting unusable steel, and baking barely edible breads stretches the definition of “production.” And this describes the goods which were actually produced. There is no accounting for the opportunity cost of forfeited essential goods and services.
How can this be? Why does GDP poorly reflect economic size and vitality? The blame largely resides with three fallacious concepts embedded within GDP “measurements”:
(1) intermediate goods (e.g., steel) must be eliminated to avoid “double counting”;
(2) government expenditures consist of viable economic activities; and
(3) imports should be netted against exports.The Overstatement of Consumption
Which transactions should be included within GDP? Since most products consist of other products, GDP architects attempt to avoid “double counting” transactions by largely including only final goods and services produced. By their methods, the production of a car is counted (as an increase in inventory), but the metal, rubber, and plastic purchased in its creation is not. But the rules behind what makes a transaction “final” are arbitrary. The logic could just as easily justify including the sale of an automobile to a consumer and disregarding its previous production. In addition, any “final” transaction during a given time period does not necessarily include intermediate goods produced in that same time period: metal, rubber, and plastic purchased today will likely be for a different car produced or sold in a different (future) time period.
Regardless as to the arbitrary nature of determining final sales and notwithstanding the problem of temporally matching intermediate goods with their associated final sales, the exclusion of certain “intermediate” transactions simply excludes massive volumes of economic activity. Thus, GDP understates the economy as a whole while grossly overstating its consumption component relative to business investment. A better measure of overall production was created in 2014 when the US Commerce Department began publishing Gross Output which incorporates intermediate transactions. Using Gross Output, the commonly cited statistic of consumption accounting for 70 percent of all economic activity quickly falls to a mere 40 percent.
The Treatment of Government Expenditures as Productive
If GDP purports to measure economic activity which benefits society, the inclusion of government expenditures is dubious. GDP “produced” in the Soviet Union is no different than GDP “produced” by any government — the difference is but one of scale. All government spending is to some degree malinvestment, for as Murray Rothbard noted:
Spending only measures value of output in the private economy because that spending is voluntary for services rendered. In government, the situation is entirely different … its spending has no necessary relation to the services that it might be providing to the private sector. There is no way, in fact, to gauge these services.
The absence of voluntary action renders prices impotent, and without true price discovery, benefits cannot be ascertained. This does not mean all goods and services provided by government would cease to exist; rather, some production (e.g., hospitals, schools, roads, etc.) would revert to the private sector. To the extent government expenditures for goods and services would be produced by the free market, the true government contribution to GDP may be positive but overstated (it currently approximates 20 percent of US GDP). A more accurate depiction of economic activity would reduce if not eliminate the contribution of government expenditures. Or perhaps, as Rothbard argued, the higher of government receipts or expenditures should actually be deducted from GDP since “all government spending is a clear depredation upon, rather than an addition” to the economy.
The Problems of Subtracting Imports from Exports
As Robert Murphy has noted several times, the netting of imports against exports in determining GDP seriously understates the contribution of trade to overall economic activity. To wit, an economy which exports $1 and imports $1 will have the same GDP contribution (zero) as one which exports $100 billion and imports $100 billion. Obviously, the latter economy would be far worse off with the sudden cessation of trade.
A fixture of GDP is the mercantilist mentality of treating exports positively and imports negatively. Why are exports additive to GDP while imports are deductive? If the goal of GDP is to measure the goods and services provided to people within a geographic region, imports — not exports — are the benefit. Exports are but payment for imports. The problem and confusion arises because the GDP calculation unrealistically excludes other forms of payment: it should make a difference if imports are funded with increasing debt levels or if funds are accumulated from previous years of compensated exports. If China converted over $1 trillion in US debt instruments into imports of American goods and services, its people benefit today, but under GDP accounting, the negative impact of imports would offset greater consumption and/or government spending (the increase in GDP was previously realized in the years during which exports created a trade surplus).
GDP is Designed to Advance the Keynesian Agenda
Simon Kuznets (1901–1985) revolutionized econometrics and standardized measurements of GDP, with his research culminating in his 1941 book, National Income and Its Composition, 1919–1938. While not a Keynesian per se, the nature and timing of his research fueled the Keynesian revolution since central planning requires economic statistics. As Murray Rothbard noted:
Statistics are the eyes and ears of the bureaucrat, the politician, the socialistic reformer. Only by statistics can they know, or at least have any idea about, what is going on in the economy. Only by statistics can they find out … who “needs” what throughout the economy, and how much federal money should be channeled in what directions.
GDP’s faulty theoretical underpinnings and politically motivated acceptance distort the performance and nature of an economy while failing to satisfactorily estimate a society’s standard of living. In fact, Kuznets partially understood this. In his very first report to the US Congress in 1934, Kuznets said “the welfare of a nation [can] scarcely be inferred from a measure of national income.” Yet the blind usage of GDP persists. That its permanence and persistence only serves the Keynesian policies of greater consumer spending, increased government expenditures, and larger exports through currency debasement should not be considered coincidental. Unfortunately, the resulting economic stagnation, debt accumulation, and price inflation are as inevitable as they are predictable.
- Even More Admitted False Flag Terror Incidents Come to Light
Every time we look, we find new admissions of false flag terror attacks.
In the following instances, officials in the government which carried out the attack (or seriously proposed an attack) admit to it, either orally, in writing, or through photographs or videos:
(1) Japanese troops set off a small explosion on a train track in 1931, and falsely blamed it on China in order to justify an invasion of Manchuria. This is known as the “Mukden Incident” or the “Manchurian Incident”. The Tokyo International Military Tribunal found: “Several of the participators in the plan, including Hashimoto [a high-ranking Japanese army officer], have on various occasions admitted their part in the plot and have stated that the object of the ‘Incident’ was to afford an excuse for the occupation of Manchuria by the Kwantung Army ….” And see this.
(2) A major with the Nazi SS admitted at the Nuremberg trials that – under orders from the chief of the Gestapo – he and some other Nazi operatives faked attacks on their own people and resources which they blamed on the Poles, to justify the invasion of Poland.
(3) Nazi general Franz Halder also testified at the Nuremberg trials that Nazi leader Hermann Goering admitted to setting fire to the German parliament building in 1933, and then falsely blaming the communists for the arson.
(4) Soviet leader Nikita Khrushchev admitted in writing that the Soviet Union’s Red Army shelled the Russian village of Mainila in 1939 – while blaming the attack on Finland – as a basis for launching the “Winter War” against Finland. Russian president Boris Yeltsin agreed that Russia had been the aggressor in the Winter War.
(5) The Russian Parliament, current Russian president Putin and former Soviet leader Gorbachev all admit that Soviet leader Joseph Stalin ordered his secret police to execute 22,000 Polish army officers and civilians in 1940, and then falsely blamed it on the Nazis.
(6) The British government admits that – between 1946 and 1948 – it bombed 5 ships carrying Jews attempting to flee the Holocaust to seek safety in Palestine, set up a fake group called “Defenders of Arab Palestine”, and then had the psuedo-group falsely claim responsibility for the bombings (and see this, this and this).
(7) Israel admits that in 1954, an Israeli terrorist cell operating in Egypt planted bombs in several buildings, including U.S. diplomatic facilities, then left behind “evidence” implicating the Arabs as the culprits (one of the bombs detonated prematurely, allowing the Egyptians to identify the bombers, and several of the Israelis later confessed) (and see this and this).
(8) The CIA admits that it hired Iranians in the 1950′s to pose as Communists and stage bombings in Iran in order to turn the country against its democratically-elected prime minister.
(9) The Turkish Prime Minister admitted that the Turkish government carried out the 1955 bombing on a Turkish consulate in Greece – also damaging the nearby birthplace of the founder of modern Turkey – and blamed it on Greece, for the purpose of inciting and justifying anti-Greek violence.
(10) The British Prime Minister admitted to his defense secretary that he and American president Dwight Eisenhower approved a plan in 1957 to carry out attacks in Syria and blame it on the Syrian government as a way to effect regime change.
(11) The former Italian Prime Minister, an Italian judge, and the former head of Italian counterintelligence admit that NATO, with the help of the Pentagon and CIA, carried out terror bombings in Italy and other European countries in the 1950s and blamed the communists, in order to rally people’s support for their governments in Europe in their fight against communism. As one participant in this formerly-secret program stated: “You had to attack civilians, people, women, children, innocent people, unknown people far removed from any political game. The reason was quite simple. They were supposed to force these people, the Italian public, to turn to the state to ask for greater security” (and see this) (Italy and other European countries subject to the terror campaign had joined NATO before the bombings occurred). And watch this BBC special. They also allegedly carried out terror attacks in France, Belgium, Denmark, Germany, Greece, the Netherlands, Norway, Portugal, the UK, and other countries.
False flag attacks carried out pursuant to this program include – by way of example only:
- The murder of the Turkish Prime Minister (1960)
- Bombings in Portugal (1966)
- The Piazza Fontana massacre in Italy (1969)
- Terror attacks in Turkey (1971)
- The Peteano bombing in Italy (1972)
- The Atocha massacre in Madrid, Spain (1977)
(12) In 1960, American Senator George Smathers suggested that the U.S. launch “a false attack made on Guantanamo Bay which would give us the excuse of actually fomenting a fight which would then give us the excuse to go in and [overthrow Castro]“.
(13) Official State Department documents show that, in 1961, the head of the Joint Chiefs and other high-level officials discussed blowing up a consulate in the Dominican Republic in order to justify an invasion of that country. The plans were not carried out, but they were all discussed as serious proposals.
(14) As admitted by the U.S. government, recently declassified documents show that in 1962, the American Joint Chiefs of Staff signed off on a plan to blow up AMERICAN airplanes (using an elaborate plan involving the switching of airplanes), and also to commit terrorist acts on American soil, and then to blame it on the Cubans in order to justify an invasion of Cuba. See the following ABC news report; the official documents; and watch this interview with the former Washington Investigative Producer for ABC’s World News Tonight with Peter Jennings.
(15) In 1963, the U.S. Department of Defense wrote a paper promoting attacks on nations within the Organization of American States – such as Trinidad-Tobago or Jamaica – and then falsely blaming them on Cuba.
(16) The U.S. Department of Defense even suggested covertly paying a person in the Castro government to attack the United States: “The only area remaining for consideration then would be to bribe one of Castro’s subordinate commanders to initiate an attack on Guantanamo.”
(17) The NSA admits that it lied about what really happened in the Gulf of Tonkin incident in 1964 … manipulating data to make it look like North Vietnamese boats fired on a U.S. ship so as to create a false justification for the Vietnam war.
(18) A U.S. Congressional committee admitted that – as part of its “Cointelpro” campaign – the FBI had used many provocateurs in the 1950s through 1970s to carry out violent acts and falsely blame them on political activists.
(19) A top Turkish general admitted that Turkish forces burned down a mosque on Cyprus in the 1970s and blamed it on their enemy. He explained: “In Special War, certain acts of sabotage are staged and blamed on the enemy to increase public resistance. We did this on Cyprus; we even burnt down a mosque.” In response to the surprised correspondent’s incredulous look the general said, “I am giving an example”.
(20) A declassified 1973 CIA document reveals a program to train foreign police and troops on how to make booby traps, pretending that they were training them on how to investigate terrorist acts:
The Agency maintains liaison in varying degrees with foreign police/security organizations through its field stations ….
[CIA provides training sessions as follows:]
a. Providing trainees with basic knowledge in the uses of commercial and military demolitions and incendiaries as they may be applied in terrorism and industrial sabotage operations.
b. Introducing the trainees to commercially available materials and home laboratory techniques, likely to he used in the manufacture of explosives and incendiaries by terrorists or saboteurs.
c. Familiarizing the trainees with the concept of target analysis and operational planning that a saboteur or terrorist must employ.
d. Introducing the trainees to booby trapping devices and techniques giving practical experience with both manufactured and improvised devices through actual fabrication.
***
The program provides the trainees with ample opportunity to develop basic familiarity and use proficiently through handling, preparing and applying the various explosive charges, incendiary agents, terrorist devices and sabotage techniques.
(21) The German government admitted (and see this) that, in 1978, the German secret service detonated a bomb in the outer wall of a prison and planted “escape tools” on a prisoner – a member of the Red Army Faction – which the secret service wished to frame the bombing on.
(22) A Mossad agent admits that, in 1984, Mossad planted a radio transmitter in Gaddaffi’s compound in Tripoli, Libya which broadcast fake terrorist trasmissions recorded by Mossad, in order to frame Gaddaffi as a terrorist supporter. Ronald Reagan bombed Libya immediately thereafter.
(23) The South African Truth and Reconciliation Council found that, in 1989, the Civil Cooperation Bureau (a covert branch of the South African Defense Force) approached an explosives expert and asked him “to participate in an operation aimed at discrediting the ANC [the African National Congress] by bombing the police vehicle of the investigating officer into the murder incident”, thus framing the ANC for the bombing.
(24) An Algerian diplomat and several officers in the Algerian army admit that, in the 1990s, the Algerian army frequently massacred Algerian civilians and then blamed Islamic militants for the killings (and see this video; and Agence France-Presse, 9/27/2002, French Court Dismisses Algerian Defamation Suit Against Author).
(25) The United States Army’s 1994 publication Special Forces Foreign Internal Defense Tactics Techniques and Procedures for Special Forces – updated in 2004 – recommends employing terrorists and using false flag operations to destabilize leftist regimes in Latin America. False flag terrorist attacks were carried out in Latin America and other regions as part of the CIA’s “Dirty Wars“. And see this.
(26) Similarly, a CIA “psychological operations” manual prepared by a CIA contractor for the Nicaraguan Contra rebels noted the value of assassinating someone on your own side to create a “martyr” for the cause. The manual was authenticated by the U.S. government. The manual received so much publicity from Associated Press, Washington Post and other news coverage that – during the 1984 presidential debate – President Reagan was confronted with the following question on national television:
At this moment, we are confronted with the extraordinary story of a CIA guerrilla manual for the anti-Sandinista contras whom we are backing, which advocates not only assassinations of Sandinistas but the hiring of criminals to assassinate the guerrillas we are supporting in order to create martyrs.
(27) An Indonesian fact-finding team investigated violent riots which occurred in 1998, and determined that “elements of the military had been involved in the riots, some of which were deliberately provoked”.
(28) Senior Russian Senior military and intelligence officers admit that the KGB blew up Russian apartment buildings in 1999 and falsely blamed it on Chechens, in order to justify an invasion of Chechnya (and see this report and this discussion).
(29) As reported by BBC, the New York Times, and Associated Press, Macedonian officials admit that the government murdered 7 innocent immigrants in cold blood and pretended that they were Al Qaeda soldiers attempting to assassinate Macedonian police, in order to join the “war on terror”.
(30) At the July 2001 G8 Summit in Genoa, Italy, black-clad thugs were videotaped getting out of police cars, and were seen by an Italian MP carrying “iron bars inside the police station”. Subsequently, senior police officials in Genoa subsequently admitted that police planted two Molotov cocktails and faked the stabbing of a police officer at the G8 Summit, in order to justify a violent crackdown against protesters.
(31) The U.S. falsely blamed Iraq for playing a role in the 9/11 attacks – as shown by a memo from the defense secretary – as one of the main justifications for launching the Iraq war. Even after the 9/11 Commission admitted that there was no connection, Dick Cheney said that the evidence is “overwhelming” that al Qaeda had a relationship with Saddam Hussein’s regime, that Cheney “probably” had information unavailable to the Commission, and that the media was not ‘doing their homework’ in reporting such ties. Top U.S. government officials now admit that the Iraq war was really launched for oil … not 9/11 or weapons of mass destruction. Despite previous “lone wolf” claims, many U.S. government officials now say that 9/11 was state-sponsored terror; but Iraq was not the state which backed the hijackers. (Many U.S. officials have alleged that 9/11 was a false flag operation by rogue elements of the U.S. government; but such a claim is beyond the scope of this discussion. The key point is that the U.S. falsely blamed it on Iraq, when it knew Iraq had nothing to do with it.).
(32) Although the FBI now admits that the 2001 anthrax attacks were carried out by one or more U.S. government scientists, a senior FBI official says that the FBI was actually told to blame the Anthrax attacks on Al Qaeda by White House officials (remember what the anthrax letters looked like). Government officials also confirm that the white House tried to link the anthrax to Iraq as a justification for regime change in that country.
(33) According to the Washington Post, Indonesian police admit that the Indonesian military killed American teachers in Papua in 2002 and blamed the murders on a Papuan separatist group in order to get that group listed as a terrorist organization.
(34) The well-respected former Indonesian president also admits that the government probably had a role in the Bali bombings.
(35) Police outside of a 2003 European Union summit in Greece were filmed planting Molotov cocktails on a peaceful protester
(36) Former Department of Justice lawyer John Yoo suggested in 2005 that the US should go on the offensive against al-Qaeda, having “our intelligence agencies create a false terrorist organization. It could have its own websites, recruitment centers, training camps, and fundraising operations. It could launch fake terrorist operations and claim credit for real terrorist strikes, helping to sow confusion within al-Qaeda’s ranks, causing operatives to doubt others’ identities and to question the validity of communications.”
(37) Similarly, in 2005, Professor John Arquilla of the Naval Postgraduate School – a renowned US defense analyst credited with developing the concept of ‘netwar’ – called for western intelligence services to create new “pseudo gang” terrorist groups, as a way of undermining “real” terror networks. According to Pulitzer-Prize winning journalist Seymour Hersh, Arquilla’s ‘pseudo-gang’ strategy was, Hersh reported, already being implemented by the Pentagon:
“Under Rumsfeld’s new approach, I was told, US military operatives would be permitted to pose abroad as corrupt foreign businessmen seeking to buy contraband items that could be used in nuclear-weapons systems. In some cases, according to the Pentagon advisers, local citizens could be recruited and asked to join up with guerrillas or terrorists…
The new rules will enable the Special Forces community to set up what it calls ‘action teams’ in the target countries overseas which can be used to find and eliminate terrorist organizations. ‘Do you remember the right-wing execution squads in El Salvador?’ the former high-level intelligence official asked me, referring to the military-led gangs that committed atrocities in the early nineteen-eighties. ‘We founded them and we financed them,’ he said. ‘The objective now is to recruit locals in any area we want. And we aren’t going to tell Congress about it.’ A former military officer, who has knowledge of the Pentagon’s commando capabilities, said, ‘We’re going to be riding with the bad boys.’”
(38) United Press International reported in June 2005:
U.S. intelligence officers are reporting that some of the insurgents in Iraq are using recent-model Beretta 92 pistols, but the pistols seem to have had their serial numbers erased. The numbers do not appear to have been physically removed; the pistols seem to have come off a production line without any serial numbers. Analysts suggest the lack of serial numbers indicates that the weapons were intended for intelligence operations or terrorist cells with substantial government backing. Analysts speculate that these guns are probably from either Mossad or the CIA. Analysts speculate that agent provocateurs may be using the untraceable weapons even as U.S. authorities use insurgent attacks against civilians as evidence of the illegitimacy of the resistance.
(39) Undercover Israeli soldiers admitted in 2005 to throwing stones at other Israeli soldiers so they could blame it on Palestinians, as an excuse to crack down on peaceful protests by the Palestinians.
(40) Quebec police admitted that, in 2007, thugs carrying rocks to a peaceful protest were actually undercover Quebec police officers (and see this).
(41) A 2008 US Army special operations field manual recommends that the U.S. military use surrogate non-state groups such as “paramilitary forces, individuals, businesses, foreign political organizations, resistant or insurgent organizations, expatriates, transnational terrorism adversaries, disillusioned transnational terrorism members, black marketers, and other social or political ‘undesirables.’” The manual specifically acknowledged that U.S. special operations can involve both counterterrorism and “Terrorism” (as well as “transnational criminal activities, including narco-trafficking, illicit arms-dealing, and illegal financial transactions.”)
(42) The former head of Secret Services and Head of State of Italy (Francesco Cossiga) advised the 2008 minister in charge of the police, on how to deal with protests from teachers and students:
He should do what I did when I was Minister of the Interior … infiltrate the movement with agents provocateurs inclined to do anything …. And after that, with the strength of the gained population consent, … beat them for blood and beat for blood also those teachers that incite them. Especially the teachers. Not the elderly, of course, but the girl teachers yes.
(43) At the G20 protests in London in 2009, a British member of parliament saw plain clothes police officers attempting to incite the crowd to violence.
(44) Egyptian politicians admitted (and see this) that government employees looted priceless museum artifacts in 2011 to try to discredit the protesters.
(45) Rioters who discredited the peaceful protests against the swearing in of the Mexican president in 2012 admitted that they were paid 300 pesos each to destroy everything in their path. According to Wikipedia, photos also show the vandals waiting in groups behind police lines prior to the violence.
(46) A Colombian army colonel has admitted that his unit murdered 57 civilians, then dressed them in uniforms and claimed they were rebels killed in combat.
(47) On November 20, 2014, Mexican agent provocateurs were transported by army vehicles to participate in the 2014 Iguala mass kidnapping protests, as was shown by videos and pictures distributed via social networks.
(48) The highly-respected writer for the Telegraph Ambrose Evans-Pritchard says that the head of Saudi intelligence – Prince Bandar – recently admitted that the Saudi government controls “Chechen” terrorists.
(49) High-level American sources admitted that the Turkish government – a fellow NATO country – carried out the chemical weapons attacks blamed on the Syrian government; and high-ranking Turkish government admitted on tape plans to carry out attacks and blame it on the Syrian government.
(50) The Ukrainian security chief admits that the sniper attacks which started the Ukrainian coup were carried out in order to frame others. Ukrainian officials admit that the Ukrainian snipers fired on both sides, to create maximum chaos.
(51) Britain’s spy agency has admitted (and see this) that it carries out “digital false flag” attacks on targets, framing people by writing offensive or unlawful material … and blaming it on the target.
(52) U.S. soldiers have admitted that if they kill innocent Iraqis and Afghanis, they then “drop” automatic weapons near their body so they can pretend they were militants
(53) Similarly, police frame innocent people for crimes they didn’t commit. The practice is so well-known that the New York Times noted in 1981:
In police jargon, a throwdown is a weapon planted on a victim.
Newsweek reported in 1999:
Perez, himself a former [Los Angeles Police Department] cop, was caught stealing eight pounds of cocaine from police evidence lockers. After pleading guilty in September, he bargained for a lighter sentence by telling an appalling story of attempted murder and a “throwdown”–police slang for a weapon planted by cops to make a shooting legally justifiable. Perez said he and his partner, Officer Nino Durden, shot an unarmed 18th Street Gang member named Javier Ovando, then planted a semiautomatic rifle on the unconscious suspect and claimed that Ovando had tried to shoot them during a stakeout.
Wikipedia notes:
As part of his plea bargain, Pérez implicated scores of officers from the Rampart Division’s anti-gang unit, describing routinely beating gang members, planting evidence on suspects, falsifying reports and covering up unprovoked shootings.
(As a side note – and while not technically false flag attacks – police have been busted framing innocent people in many other ways, as well.)
(54) A former U.S. intelligence officer recently alleged:
Most terrorists are false flag terrorists or are created by our own security services.
(55) The head and special agent in charge of the FBI’s Los Angeles office said that most terror attacks are committed by the CIA and FBI as false flags. Similarly, the director of the National Security Agency under Ronald Reagan – Lt. General William Odom said:
By any measure the US has long used terrorism. In ‘78-79 the Senate was trying to pass a law against international terrorism – in every version they produced, the lawyers said the US would be in violation.
(audio here).
(56) Leaders throughout history have acknowledged the “benefits” of of false flags to justify their political agenda:
“Terrorism is the best political weapon for nothing drives people harder than a fear of sudden death”.
– Adolph Hitler“Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”
– Hermann Goering, Nazi leader.“The easiest way to gain control of a population is to carry out acts of terror. [The public] will clamor for such laws if their personal security is threatened”.
– Josef StalinPostscript: Private parties – such as NBC News, as well as Muslims, Jews, Scientologists, African-Americans and Neo-Nazis – play this game as well.
- Make College Free By Taxing Stock Trades, Dem Presidential Candidate Says
As the student loan bubble steams along towards the $1.5 trillion mark, pundits, researchers, and even (gasp) ratings agencies are starting to sound the alarm. While everyone is (as usual), around three years behind when it comes to admitting what’s been outlined extensively in these pages, we’re at least glad to see that the world is waking up to the fact that i) $1.3 trillion is a lot of money, ii) delinquency rates are far higher than the headline figures suggest, iii) students are never, repeat never, going to repay all of this, and iv) it is taxpayers who will eventually foot the bill.
To the latter point there, the calls for across-the-board debt “forgiveness” have already started and even if they hadn’t, and even if The White House weren’t looking at ways to make the discharge of student debt “more efficient” in bankruptcy, there are a number of reasons to believe that when it’s all said and done, taxpayers will be on the hook at least for hundreds of millions and more probably for hundreds of billions. Consider for instance that the cost of closing just one for-profit college could well run more than $200 million in federal loan forgiveness. Then there’s IBR (that’s “Income Based Repayment“) in which borrowers whose disposable income isn’t deemed sufficient when it comes to making monthly payments have the remainder of their loan forgiven after 25 years. There’s literally no way to know what the cost to taxpayers will ultimately be from IBR plans, but what we do know is that an increase in the number of borrowers opting for some kind of IBR plan is one reason why Moody’s thinks some $3 billion in student loan-backed paper may be at risk for default.
So against this backdrop, America needs a plan, because as we’re fond of reminding people, one person’s liability is another person’s asset, meaning debt is never really “cancelled”, it’s just written off at some else’s expense. Ideally, opportunities in the job market and a robust economy would allow new graduates to obtain high-paying, full-time jobs which would in turn allow them to pay down their loans, but since that isn’t going to happen any time soon, we’re open to suggestions.
Fortunately, Democratic Presidential candidate Bernie Sanders has a plan that will ensure future generations of taxpayers aren’t stuck paying for their parents’ college degrees: simply tax investors so the entire country can go to school for free.
Via Bloomberg:
Democratic presidential candidate Bernie Sanders wants to take from the rich in order to make public college tuition-free for everyone else.
On Tuesday, the Vermont senator will hold a press conference in the nation’s capital at which he will introduce a plan to use a so-called Robin Hood tax on stock transactions to fund tuition at four-year public colleges and universities.
Sanders’ bill sets a 50-cent tax on every “$100 of stock trades on stock sales, and lesser amounts on transactions involving bonds, derivatives, and other financial instruments,” the group Robin Hood Tax on Wall Street said Monday in a press release.
“The Robin Hood tax would also slow the growth of automated high frequency trading, which makes the stock market more dangerous,” the press release stated. “A small tax would make risky HFT unprofitable, and help reduce the excess speculation on commodities like food and gas that drives up prices, which will protect the economy from computer-generated collapses and market manipulation.”
Sanders, who is the only candidate so far to mount a formal primary challenge to Hillary Clinton, argues that making college tuition-free will help America compete in the global marketplace.
“We live in a highly competitive global economy and, if our economy is to be strong, we need the best-educated work force in the world,” he said in a press release on Sunday. “That will not happen if, every year, hundreds of thousands of bright young people cannot afford to go to college, and if millions more leave school deeply in debt.”
There you go. Problem solved. We’ll leave it to readers to judge what kind of reception that plan is likely to get from GOP lawmakers, but we will venture to propose an alternative: make market rigging algos fund the education of the nation’s best and brightest by taxing all canceled orders. Then again, that plan would only generate revenue for one day because it would put the HFT crowd out of business overnight.
- This Is How Totally Over-the-Top Crazy San Francisco’s Housing Boom Really Is
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
In San Francisco, a boom is always associated with its essential counterpart, the bust. They’re as typical to the city as sun and fog. And currently, the city is in one heck of a housing boom, but the national indices don’t quite do justice to how over-the-top mind-blowing crazy the situation has gotten.
For example, the S&P/Case-Shiller Home price index covers not just the city or county of San Francisco (identical) but includes four other Bay Area counties: Alameda, Contra Costa, Marin, and San Mateo. There are more counties in the Bay Area, but they’re not included in the index. Two of the cities in these counties – Richmond and Oakland – have made the lists of the nation’s most dangerous cities, justified or not, and home prices in these cities and other cities too are much, much lower.
So in terms of home prices, the five-county Case-Shiller index for “San Francisco,” though showing a significant gain, waters down the craziness happening before our very eyes in the real San Francisco.
For the most current granular neighborhood-by-neighborhood data for San Francisco itself, we go to Paragon Real Estate Group’s May 2015 report, and what we find are vertigo-inducing price increases that have now beautifully spiked.
During the prior nationwide housing bubble that blew up with such fanfare, helped take down the world financial system, and caused central banks and governments to instigate the largest bail-out schemes the world has ever seen – from banks to entire countries – well, during that bubble, while it was still going on, homes in San Francisco reached what afterward were called totally crazy valuations, with the median price topping out in November 2007 at a completely mind-boggling $895,000.
People were shaking their heads at the time. But after the boom came the inevitable bust. By January 2012, the median home price had plunged 31% to $615,000.
By then, the tsunami of money that the Fed had unleashed was already washing over San Francisco from multiple directions: a stock-market and startup boom that the city is so dependent on, a tourist boom from around the world, waves of foreign buyers too, and a veritable flood of nearly free funding. Everything came perfectly together. Over the course of three years and four months, the median home price about doubled to $1,225,000.
January is typically the low point in the seasonal fluctuations of the median price. Paragon notes that sales prices in one month reflect deals negotiated in the prior month or two. So from January to April last year, home prices surged 15%. The four-month surge in 2013 hit 20%. But look at that gorgeous 32% spike so far this year! That’s what a real boom looks like:
The median home price is now 37% above the prior-bubble completely mind-boggling median price that afterwards everyone admitted had been based on totally crazy valuations.
This has a real impact on rents, with average asking rent in the first quarter hitting $3,458 a month, or $41,500 per year.
On a neighborhood-by-neighborhood basis, the differences in median home prices are enormous. Below are two charts from Paragon. The first chart shows median prices of houses; the second chart shows median prices of condos and co-ops. In some neighborhoods, houses dominate. In others, condos and co-ops dominate. So not all neighborhoods made it into both charts.
In the chart below, the median house prices range from $610,000 in Bayview, one of the more troubled neighborhoods, to nearly $6 million in Pacific Heights. It is in this exclusive, gorgeous, and groomed neighborhood, endowed with breathtaking views of the Bay, where you find the humble abode of the champion of the poor, former Speaker of the House Nancy Pelosi.
The chart below shows median prices of condos and co-ops. Prices too vary from one end to the other, but not by as much as prices in the prior chart:
The extraordinary moolah that developers make at these prices has kicked off a construction boom – to be followed, as always, by the inevitable bust.
“The new-home development situation in San Francisco is fascinating – and a fierce political issue,” Paragon explains. Probably one of the biggest understatements of the year. And this is what the construction boom-and-bust cycle looks like through 2014:
This year promises to be even more ebullient. Cranes are sprouting in some neighborhoods like mushrooms. Lots that have been vacant for years or decades suddenly see construction work. This place is hopping. According to Paragon’s Housing Construction report: “99% of all new construction being built for sale consists of new and usually high-end condos.”
New home development often goes through gigantic boom and bust cycles. What complicates the issue for SF developers is that from start to finish, from creating plans for city review to completing construction, the process can easily take 4 to 6 years. Right now, both residential and commercial developers are making enormous bets on a long, sustained, up cycle in the SF economy and real estate market.
They’re certainly not betting on the next bust.
Most of it is happening in the eastern quarter of the city (Paragon map) near the Market Street corridor, the Van Ness Street corridor just north of Market, and in the large area southeast of Market where sleek condo towers are replacing former commercial and industrial sites. Zoning in these areas “allows for large – sometimes very large – projects,” Paragon points out. Which you can’t do easily or at all in other areas of San Francisco. And people are already complaining that it doesn’t even look like San Francisco anymore.
So in this environment, how many years does it take to save up for a down payment in San Francisco and other US cities if you earn the local median income? Are you sitting down? Read… How Soaring Housing Costs Impoverish a Whole Generation and Maul the Real Economy
- Bloody Biker Breastaurant Shootout: New Footage, Details Emerge
Terrified patrons and flippant, scantily clad waitresses alike witnessed a rare “true biker shootout” at the Waco, Texas Twin Peaks Sports Bar and Grill on Sunday. Although details were initially sparse, the story seems to have begun when members of several rival biker gangs agreed to meet at Twin Peaks to discuss a territorial disagreement.
When tensions flared in the men’s room, the meeting to resolve what Reuters called “a dispute over a parking lot,” quickly escalated into a dispute in a parking lot where as many as five rival gangs brandishing bats, brass knuckles, knives, clubs, guns, and motorcycle chains set about attacking one another in a melee involving hundreds of bikers.
Police — who were aware that trouble might be brewing down at the Twin Peaks and who had actually warned the franchise owner that a biker brawl might be in the cards — quickly joined the shootout after the bikers “turned their guns” away from each other and onto the officers. In the end, the restaurant parking lot was littered with blood and bullets, 9 bikers were dead, 18 were injured, and 192 were arrested.
Here’s aerial footage of the arrests (set to fun music), cell phone footage, and more images from the melee:
For those interested in the backstory behind Sunday’s ‘event’, read on.
Two days after the harrowing high noon hostilities, details have begun to emerge. As The NY Times reports, the two instigating gangs look to be the Cossacks and the Bandidos who are engaged in a “long-running feud”:
Law enforcement officials said the midday gun battle was primarily between the Bandidos and Cossacks gangs, a continuation of a long-running feud between the two groups, though members of the Scimitars — a gang affiliated with the Cossacks — and two other motorcycle clubs were also involved…
The people arrested after the shootout at the Twin Peaks Restaurant, in south Waco, were charged with engaging in organized crime linked to capital murder, said Sgt. Patrick Swanton, a Waco Police Department spokesman. It will be up to prosecutors and a grand jury to decide what charges they will ultimately face, but capital murder charges can carry the death penalty.
With hundreds of bikers gathered at the restaurant, at the Central Texas Marketplace shopping plaza just off Interstate 35, the police anticipated trouble and were out in force before the confrontation. There were 18 Waco officers and four Texas Department of Public Safety officers there, and they closed in “within 30, 45 seconds” of the start of shooting, Sergeant Swanton said.
“There were multiple people on the scene firing weapons at each other,” he said. “They then turned on our officers. Our officers returned gunfire, wounding and possibly killing several”…
Both the Bandidos and the Cossacks originated in Texas in the 1960s, according to law enforcement officials and gang historians. Last year, two members of the Bandidos, including the president of the Abilene chapter,were indicted on charges of stabbing two other men, in what the police said was a conflict with the Cossacks.
“The view of the Bandidos is that Texas is their state,” said Terry Katz, vice president of the International Association of Outlaw Motorcycle Gang Investigators, a group of about 600 analysts, investigators, police officers and prosecutors. The Bandidos “are the big dogs of Texas,” he said, but the smaller Cossacks gang was “not going to bow down,” and there has been a series of violent confrontations between them…
The Bandidos are one of the few major biker gangs in the United States and the world. A 2013 national gang report produced by federal law enforcement agencies identified the Bandidos as one of five motorcycle groups — in addition to the Hells Angels, Pagans, Outlaws and Iron Horsemen — that posed the most significant gang threat around the country.
The Boston Globe has more:
The group is generally considered the world’s second-largest biker gang, behind the Angels, with as many as 2,500 members in 13 countries, according to the Department of Justice.
The Bandidos’ story charts the rise of biker gangs from counterculture clubs to fearsome organized crime organizations and helps to explain why tragedy struck on Sunday in a city already associated with spectacular violence.
The Bandidos began almost 20 years after the Hells Angels, but the two gangs soon became bitter rivals. According to the motorcycle club’s legend, founder Donald Chambers was bored with other bike clubs. ‘‘Chambers started the Bandidos in March 1966, when he was 36 years old and working on the ship docks in Houston,’’ Skip Hollandsworth wrote in a 2007 profile of the gang. ‘‘He told his friends that he was naming his club the Bandidos, in honor of the Mexican bandits who refused to live by anyone’s rules but their own, and he began recruiting his first members not only out of Houston but also out of the biker bars in Corpus Christi, Galveston, and San Antonio…
‘‘By the late 1970s local police and federal investigations began to expose the involvement of many 1% [motorcycle clubs] in drug trafficking, theft, extortion, and prostitution rings,’’ Quinn writes. Chambers was caught in 1972, when he and two other Bandidos were arrested for killing two drug dealers in El Paso…
In the mid 1990s, a ‘‘Great Nordic Biker War’’ between the Bandidos and the Hells Angels shook Scandinavia. At least 12 people died and nearly 100 were injured in the three-year skirmish, which featured unprecedented firepower for a gangland rivalry…
The two bike gangs faced off again in Canada during the late 1990s and 2000s. This time, the conflict — dubbed ‘‘The Quebec Biker war’’ — reportedly cost 150 lives.
Steve Cook, a Kansas City police officer who’s worked undercover in biker gangs told The Globe the following about Sunday’s shootout:
‘‘My perception is that the Cossacks have been flirting, if you will, with Hell’s Angels. If I’m a Bandido, my immediate reaction is: ‘These guys are going to try to make a move and bring an international gang into our state, which is going to cause a war.’’’
So there you have it. No other international gangs in the Bandidos’ state — and that includes Twin Peaks franchises in strip malls.Incidentally, the Bandidos have a website for those interested. Here are some selected images:
- The Untied State Of America
Dis-united…
In words…
As Robert Reich said yesterday, “yes, The Fed is feeding inequality; but it has to keep rates low for the good of the economy”
And Pictures…
And charts…
Source: Bloomberg and @Stalingrad_Poor
- Are Stocks & Bonds Due For A "Generational" 75% Crash?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target.
If we look back to 1981 valuations of stocks and bonds as a guide to valuations at the next generational low, we find stocks and bonds are due for a 75% drop. The Great Bull market in bonds and equities took off after 1981, and has run higher for 34 years (notwithstanding a spot of bother in 2000-02 and 2008-09).
Before credit bubbles became the New Normal, the stock market was valued at less than 50% of GDP. Now stocks are valued at over 200% of GDP, as are bonds. Together, the total securities valuation is over 400% of GDP:
Data courtesy of Doug NolandThe GDP (gross domestic product) of the U.S. was around $17 trillion in 2014. If valuations returned to pre-bubble levels of 50% of GDP, stocks would have to drop from $36 trillion to around $8 trillion–a decline of 75%.Bonds would have to experience a similar decline to reach pre-credit-bubble levels.
A drop back to the rich valuations of 100% of GDP would require a decline of 50% from current levels. In other words, the S&P 500 would be around 1,000, not 2,000.
To provide some context for the extreme valuations of present -day stocks and bonds, I have shown what the stock and bond markets would be worth in current dollars if they had simply tracked inflation since 1981. According to the Bureau of Labor Statistics Inflation Calculator, $1 in 1981 is now worth $2.60 in 2014 dollars.
If stocks had risen only with official inflation, the S&P 500 would be worth 10% of its current valuation: $3.6 trillion versus $36 trillion.
The bond market (Treasury, corporate and Municipal bonds and agency securities) would be worth 15% of the bond market's current valuations.
Measuring the valuations of bonds and equities in terms of GDP bypasses the debate over inflation.GDP has risen smartly in the past 34 years, and so the expansion of securities at the same rate is to be expected–never mind what official inflation registers.
Measured in GDP, stocks and bonds have reached extremes that make no sense except as the result of an unprecedented global credit bubble. Credit bubbles have a history of not being as permanent and durable as those living in the peak of the bubble expect.
By any reasonable measure, the current credit-bubble boom in stocks and bonds is getting long in tooth after 34 years of relentless expansion, and the rise of securities to 400% of GDP is reaching extremes that are increasingly difficult to support, much less push higher.
From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target. This implies a 75% decline in both stocks and bonds within the next decade, if not sooner.
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