- Why The Powers That Be Are Pushing A Cashless Society
We Can’t Rein In the Banks If We Can’t Pull Our Money Out of Them
Martin Armstrong recounts the push to ban cash … and argues that the goal of those pushing a cashless society is to prevent bank runs:
The central banks are indeed taking up these growing signs and are planning drastic restrictions on cash itself. They see moving to electronic money will first eliminate the underground economy, but secondly, they believe it will even prevent a banking crisis.This idea of eliminating cash was first floated as the normal trial balloon to see how the people take it. It was first launched by Kenneth Rogoff of Harvard University and Willem Buiter, the chief economist at Citigroup. Their claims have been widely hailed and their papers are now the foundation for the new age of Economic Totalitarianism that confronts us. Rogoff and Buiter have laid the ground work for the end of much of our freedom and will one day will be considered the new Marx with hindsight. They sit in their lofty offices but do not have real world practical experience beyond theory. Considerations of their arguments have shown how governments can seize all economic power are destroy cash in the process eliminating all rights. Physical paper money provides the check against negative interest rates for if they become too great, people will simply withdraw their funds and hoard cash. Furthermore, paper currency allows for bank runs. Eliminate paper currency and what you end up with is the elimination of the ability to demand to withdraw funds from a bank.
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In many nations, specific measures have already been taken demonstrating that the Rogoff-Buiter world of Economic Totalitarianism is indeed upon us. This is the death of Capitalism. Of course the socialists hate Capitalism and see other people’s money should be theirs. What they cannot see is that Capitalism is freedom from government totalitarianism. The freedom to pursue the field you desire without filling the state needs that supersede your own.
There have been test runs of this Rogoff-Buiter Economic Totalitarianism to see if the idea works. I reported on June 21, 2014 that Britain was doing a test run. A shopping street in Manchester banned cash as part of an experiment to see if Brits would accept a cashless society. London buses ended accepting cash payments from July 2014. Meanwhile, Currency Exchange dealers began offering debt cards instead of cash that they market as being safer to travel with. The Chorlton, South Manchester experiment was touted to test customers and business reaction to the idea for physical currency will disappear inside 20 years.
France passed another Draconian new law that from the police parissummer of 2015 it will now impose cash requirements dramatically trying to eliminate cash by force. French citizens and tourists will then only be allowed a limited amount of physical money. They have financial police searching people on trains just passing through France to see if they are transporting cash, which they will now seize. Meanwhile, the new French Elite are moving in this very same direction. Piketty wants to just take everyone’s money who has more than he does. Nobody stands on the side of freedom or on restraining the corruption within government. The problem always turns against the people for we are the cause of the fiscal mismanagement of government that never has enough for themselves.
In Greece a drastic reduction in cash is also being discussed in light of the economic crisis. Now any bill over €70 should be payable only by check or credit card – it will be illegal to pay in cash. The German Baader Bank founded in Munich expects formally to abolish the cash to enforce negative interest rates on accounts that is really taxation on whatever money you still have left after taxes.
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Complete abolition of cash threatens our very freedom and rights of citizens in so many areas.
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Paper currency is indeed the check against negative interest rates. We need only look to Switzerland to prove that theory. Any attempt to impose say a 5% negative interest rates (tax) would lead to an unimaginably massive flight into cash. This was already demonstrated recently by the example of Swiss pension funds, which withdrew their money from the bank in a big way and now store it in vaults in cash in order to escape the financial repression. People will act in their own self-interest and negative interest rates are likely to reduce the sales of government bonds and set off a bank run as long as paper money exists.
Obviously, government and bankers are not stupid. The only way to prevent such a global bank run would be the total prohibition of paper money. This is unlikely, both in Switzerland and in the United States because the economies are dominated there by a certain “liberalism” to some extent but also because their currencies also circulate outside their domestic economies. The fact that but the question of the cash ban in the context of a global conference with the participation of the major central banks of the US and the ECB will be discussed, demonstrates by itself that the problem is not a regional problem.
Nevertheless, there is a growing assumption that the negative interest rate world (tax on cash) is likely to increase dramatically in Europe in particular since it is socialism that is collapsing. Government in Brussels is unlikely to yield power and their line of thinking cannot lead to any solution. The negative interest rate concept is making its way into the United States at J.P. Morgan where they will charge a fee on excess cash on deposit starting May 1st, 2015. Asset holdings of cash with a tax or a fee in the amount of the negative interest rate seems to be underway even in Switzerland.
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The movement toward electronic money is moving at high speed and this says a lot about the state of the financial system. The track record of the major financial institutions is nearly perfect – they are always caught on the wrong side when a crisis breaks, which requires their bailouts. The fact that we have already seen test runs with theory-balloons flying, the major financial institutions are in no shape to withstand another economic decline.
For depositors, this means they really need to grasp what is going on here for unless they are vigilant, there is a serious risk of losing everything. We must understand that these measures will be implemented overnight in the middle of a banking crisis after 2015.75. The balloons have taken off and the discussions are underway. The trend in taxation and reduction of cash seems to be unstoppable. Government is not prepared to reform for that would require a new way of thinking and a loss of power. That is not a consideration. They only see one direction and that is to take us into the new promised-land of economic totalitarianism.
People can’t pull cash out of their bank accounts – for political reasons, because they’ve lost confidence in the bank, or because “bail-ins” are enacted – if cash is banned.
The Government Can Manipulate Digital Accounts More Easily than Cash
Moreover, an official White House panel on spying has implied that the government is manipulating the amount in people’s financial accounts.
If all money becomes digital, it would be much easier for the government to manipulate our accounts.
Indeed, numerous high-level NSA whistleblowers say that NSA spying is about crushing dissent and blackmailing opponents … not stopping terrorism.
This may sound over-the-top … but remember, the government sometimes labels its critics as “terrorists“. If the government claims the power to indefinitely detain – or even assassinate – American citizens at the whim of the executive, don’t you think that government people would be willing to shut down, or withdraw a stiff “penalty” from a dissenter’s bank account?
If society becomes cashless, dissenters can’t hide cash. All of their financial holdings would be vulnerable to an attack by the government.
This would be the ultimate form of control. Because – without access to money – people couldn’t resist, couldn’t hide and couldn’t escape.
- Legal Corruption In The US: Meet The 1% Of The 1% Who Drive American Politics
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
That said, my greater source of personal concern, outrage and sympathy beyond this particular case is focused neither upon one night’s property damage nor upon the acts, but is focused rather upon the past four-decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore and cities and towns around the U.S. to third-world dictatorships like China and others, plunged tens of millions of good, hard-working Americans into economic devastation, and then followed that action around the nation by diminishing every American’s civil rights protections in order to control an unfairly impoverished population living under an ever-declining standard of living and suffering at the butt end of an ever-more militarized and aggressive surveillance state.
The innocent working families of all backgrounds whose lives and dreams have been cut short by excessive violence, surveillance, and other abuses of the Bill of Rights by government pay the true price, and ultimate price, and one that far exceeds the importances of any kids’ game played tonight, or ever, at Camden Yards. We need to keep in mind people are suffering and dying around the U.S., and while we are thankful no one was injured at Camden Yards, there is a far bigger picture for poor Americans in Baltimore and everywhere who don’t have jobs and are losing economic civil and legal rights, and this makes inconvenience at a ballgame irrelevant in light of the needless suffering government is inflicting upon ordinary Americans.
– Commentary by Baltimore Orioles COO, John Angelos, on the root causes of the unrest
Earlier this week, I published a post titled, Charting the American Oligarchy – How 0.01% of the Population Contributes 42% of All Campaign Cash, which I think is one of the most important articles I’ve written all year. The key point of the piece is that demonizing the 1%, or 3.2 million American citizens, is divisive and counterproductive. Strategically it’s stupid because there will be many decent, intelligent, motivated people within this class who should be recruited as allies rather than demonized with superficial slogans. Moreover, you should never judge anyone based on their wealth and status alone, you should judge each person by their individual actions.
In that post, I highlighted the fact that 25,000 American adults are essentially calling all the public policy shots in the U.S. I went on to argue that the real players are probably the 0.001%, or the 2,500 wealthiest American adults. Even within this extraordinarily wealthy data pool, we still must be careful not to judge them together. Just think about the enlightened commentary made by John Angelos, COO of the Baltimore Orioles and son of the team’s owner, I referenced at the top. The fact that someone of his privilege and wealth understands exactly what is happening in America, and also has the balls to say it, is incredibly encouraging. We must recruit such people to join forces with us rather than alienate them with catchy soundbites.
The good news is that with modern technology we can data-mine the 0.001%, or even the 0.01%, better than ever in order to get a sense of who the really bad players are. Naturally, this would be much harder to do with a pool of several million, but that’s probably unnecessary anyway due to the extreme concentration of wealth and power in America today.
Several organizations are already doing such data mining, and one study that caught my eye yesterday is a joint analysis by the Center for Responsive Politics and the Sunlight Foundation. We should all be indebted to them for doing this, as the revelations and the wealth of information provided serves as an invaluable resource to anyone trying to avert multi-generational oligarch dictatorship.
The analysis focused on 31,796 people, roughly 0.01% of the American population, who collectively contributed $1.18 billion during the 2014 elections, or an estimated 29% of total donations. These donors were mostly male and mostly city dwellers, but most disturbingly, were dominated by Wall Street. Yes, the industry that received trillions in taxpayer backstops and bailouts is not only doing better than ever, but remains in complete and total control of the American political process.
From OpenSecrets.org:
In the 2014 elections, 31,976 donors — equal to roughly one percent of one percent of the total population of the United States — accounted for an astounding $1.18 billion in disclosed political contributions at the federal level. Those big givers — what we have termed the Political One Percent of the One Percent — have a massively outsized impact on federal campaigns.
They’re mostly male, tend to be city-dwellers and often work in finance. Slightly more of them skew Republican than Democratic. A small subset — barely five dozen — earned the (even more) rarefied distinction of giving more than $1 million each. And a minute cluster of three individuals contributed more than $10 million apiece.
Particular attention should be given to the $10 million plus donors, for obvious reasons.
The $1.18 billion they contributed represents 29 percent of all fundraising that political committees disclosed to the Federal Election Commission in 2014. That’s a greater share of the total than in 2012 (25 percent) or in 2010 (21 percent).
That’s one of the main takeaways of the latest edition of the Political One Percent of the One Percent, a joint analysis by the Center for Responsive Politics and the Sunlight Foundation of elite donors in America.
When former Sunlight Fellow Lee Drutman first reported on the One Percent of the One Percent, he noted that these deep pocketed donors were increasingly playing the role of “political gatekeepers.” Candidates needed their backing — and cash — as did the parties and super PACs that depended on the support of the politically active elite.
Now, in the first full midterm since the Supreme Court’s Citizens Uniteddecision, our joint analysis finds that the influence of the One Percent of the One Percent has only continued to grow.
Wall Street maintained its perch as the most influential sector among the One Percent of the One Percent, both in the number of donors that made the list and the money given. Individuals that listed a job in securities spent about $175 million in 2014, of which $107.5 million went to committees supporting Republicans.
The most jarring difference between the One Percent of the One Percent in 2014 and 2010, the last midterm cycle, is how “top heavy” the donor list has become. A small subgroup of these elite donors is the driving force behind its growing share of political money.
In 2010 only 17 individuals contributed a total of $500,000 or more, while members of the $1 million-plus club numbered only nine. In 2014, the number of $500,000 and up donors ballooned to a whopping 135, and 63 people gave more than $1 million.
Those 63 people are the ones that really matters.
The rising numbers of donors who gave at least $500,000 reflects, in part, the sharp uptick in liberal giving to outside spending groups, which can take money in unlimited amounts. In a change from both 2012 and 2010, more than half of the One Percenters’ contributions to outside groups went to those that supported Democrats and attacked Republicans. Liberals have learned to love the super PAC.
Can we finally admit that this is a bipartisan oligarchy?
The donors at the very top of the money pyramid provided the financial fuel for many of the attack ads and other messages from independent organizations that filled the airwaves last year. A previous analysis by CRP found that the country’s top 100 donors accounted for 39 percent of the $696,011,919 raised by super PACs in the 2014 elections.
Compared to the population at large, men are heavily overrepresented among top political donors. We were able to reliably ascertain a gender for about 95 percent of the donors in 2014. Of those, just under 75 percent were men, who accounted for 78 percent of the total contributions, almost exactly the same ratios as in 2012 and 2010.
Among the economic sectors defined by the Center for Responsive Politics, the finance, insurance and real estate category (FIRE) remains the best represented among the One Percent of the One Percent.
Unsurprisingly, these are the industries generally characterized as the most “rent-seeking.”
The loneliest sector in our analysis? That distinction goes to labor, which accounted for 75 donors and $349,795 in contributions in our .01% data.
Just in case you wondered why real wages haven’t budged in decades. Labor doesn’t pay off the politicians, so it gets scraps, if that.
But that doesn’t mean that Wall Street has shortchanged Democrats: The securities and investment industry had the second-largest representation among individuals in the One Percent of the One Percent who gave to Democrats and liberal outside groups. In fact, the top five industries by party are similar — both also include real estate and miscellaneous finance in the top five. Donors from the oil and gas and manufacturing industries round out that list for Republicans.
Bear that in mind when Hillary disingenuously attacks Wall Street. Like Barry, she doesn’t mean it for a second.
While environmental giving surged among the .01 percent, the largest drop between our 2010 and 2014 lists goes to pro-Israel interests and donors in the insurance industry. In the case of the latter, their contributions surged during consideration of the Patient Protection and Affordable Care Act, or Obamacare, in the last midterm cycle.
That is hilarious. They got what they paid for and then moved on.
What about the Vampire Squid itself? Unsurprisingly…
Goldman Sachs, the global investment bank, was the most prolific organization on our 2014 list, with more employees among the One Percent of the One Percent’s list of super donors than any other organization we could identify. The bank is a seasoned player in the Washington influence game. Goldman has kept the top spot on our list for the past three election cycles and was also the number one contributor on Fixed Fortunes 200, Sunlight’s ranking of the top 200 most politically-active companies in the country. Several other financial titans join it in the top 10 including Citigroup and the Blackstone Group investment firm.
Look who else is in there, the biggest financial corporate welfare baby of them all, Citigroup. As is Blackstone, best known for buying up Americans’ foreclosed real estate after the crisis, merely to rent it back to the broke citizenry while behaving like slumlords (see: A Closer Look at the Decrepit World of Wall Street Rental Homes).
Many of the names on the list, of course, are stalwarts who have been among the nation’s top donors in nearly every recent election cycle. Eleven of 2014’s top 20 names were in the top 20 in 2012, and none of the top 20 were new to the .01 percent. Sheldon Adelson and his wife may not have matched his record-setting sum of more than $93 million in contributions in 2012, but in 2014, he alone still threw in $5.8 million. Liberal super donor Tom Steyer gets the award for most dramatic ascent into the topmost tier of the super donors. He gave “only” $115,000 in 2012 (ranking him No. 1,458), before claiming the top spot in 2014 with his $73 million in donations. On the other hand, Oracle founder Larry Ellison went in the opposite direction: He was No. 19 in 2012, with donations of $3.1 million, but only gave $94,300 in 2014.
I’ve focused on the specific danger represented by Sheldon Adelson several times in the past. See:
Sheldon Adelson – The Dangerous American Oligarch Behind Benjamin Netanyahu
Inside the Mind of an Oligarch – Sheldon Adelson Proclaims “I Don’t Like Journalism”
Neo-Con Republicans Make Pilgrimage to Vegas to Kiss the Ring of Oligarch Sheldon Adelson
A review of the top zip codes on our One Percenters list finds much of the money comes from donors who live near population hubs like New York, San Francisco, Chicago and Washington. Of the 50 zip codes that produced the most money from the .01 percent, 14 were in New York, 8 in California and 5 each were in Texas and Illinois.
Also important, is the surge in relevance of super PACs in this oligarch bribe scheme.
The 2010 midterm cycle saw more than $38.6 million of the nearly $732.8 million spent by the One Percent of the One Percent go to outside groups, or about 5 percent of their total contributions. In 2012 contributions to super PACs and hybrid super PACs accounted for about 30 percent of the $1.7 billion contributed, and in 2014, that share inched up again 31.5 percent of this group’s spending, for about $373 million.
Now here’s the best chart of them all:
Our list of the 10 candidates who received the highest percentage of the money from elite donors includes many candidates from wealthy states, and nationally-known candidates like Sens. Cory Booker, D-N.J., and Ted Cruz, R-Texas, as well as new members who won high-profile races in 2014 like Sens. Dan Sullivan, R-Alaska, and Tom Cotton, R-Ark.
When I first read the above, I thought, let’s just find out who is most beholden to 0.01% donations and they are probably the most corrupt. Then I saw that Justin Amash is in that category, and I consider him to be one of the few honorable, brave and constitutional members of Congress. This just further proves the dangers of generalization, and the need to really look deep within the data and couple that with the elected representative’s actions.
*This analysis relies on donor ID’s and industry and sector codes researched and assigned by the Center for Responsive Politics. In cases where two donors tied for overall contributions, both donors were included. The number of donors was expanded from previous years to reflect 2014’s larger population.
These figures represent all the political contributions to traditional political action committees, super PACs, party committees and political committees affiliated with federal candidates. In keeping with previous reports in this series we did not include contributions to 527 political organizations that are not registered with the Federal Election Commission. These totals do not include contributions to politically active nonprofit organizations, also known as “dark money” groups, which do not publicly disclose their donors. Note that some totals for the 2010 and 2012 cycles in this analysis differ from what was originally reported; for this study, we used the most recently updated data available.
As if it’s not bad enough, if we include dark money it’s probably far worse. To illustrate just how bad it really is, here’s a great five minute video from Represent.Us
- TEPCO Admits Fukushima Is Leaking Again – Over 600x 'Safe' Radiation Levels
Having killed a robot by underestimating the level of radiation present in the Fukushima power plant, and after delaying its previous admission of a leak, Tokyo Electric Power Co. (TEPCO) has quickly admitted that the nuclear plant has sprung another leak. As EFE reports, a small quantity of radioactive water has leaked from a storage tank with 70 microsieverts per hour of beta-ray-emitting radioactivity detected on the surface where the water had leaked, far exceeding the recommended maximum exposure of 0.11 microsieverts per hour. But apart from that it’s “contained.”
A total of 40 milliliters of water was discovered, Tokyo Electric Power Co. (TEPCO), the plant’s operator, said on May 1.
The company believes that the liquid leaked from the storage tank, Japan’s Asahi Shimbun paper reported Saturday.
TEPCO stated that it placed bags of sand around the tank to prevent water from contaminating other areas.
The wet patch measuring 20 square centimeters was discovered by one worker at around 9:30am local time on May 1, it added.
According to TEPCO, seventy millisieverts per hour of beta ray-emitting radioactivity were detected on the surface where the water had leaked.
The leak was detected on the same day as tests began in preparation for the construction of a 1.5-kilometer-long frozen soil wall around the reactor buildings.
A project is aimed at preventing further leaks of radioactive water into the sea from the Fukishima plant.
…
In late April, the water transfer pumps at the Fukushima plant were shut down due to a power outage, leading to the leaking of radioactive water into the Pacific Ocean.
It was preceded by a series of toxic leaks in February, which saw around 100 tons of highly radioactive water leaked from one the plant’s tanks.
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Good luck at The Olympics…
- What Bubble? Wall Street To Turn P2P Loans Into CDOs
So far this year, around $38 billion in auto loan-backed ABS issuance has hit the market, around a quarter of which is backed by subprime loans. Meanwhile, America’s $1.3 trillion pile of student debt is likewise being sliced, packaged, and sold even as real delinquency rates (i.e. the rate for students in repayment and stripping out those borrowers in IBR payment plans whose calculated payments are zero) are probably at least 40% if not far higher. All told, around $76 billion in ABS deals went off in Q1 and for 2015, the total should come in at around $200 billion. While that’s a far cry from the $750 billion or so that came to market in 2006, it’s still on par with last year, which saw the highest total since the crisis.
As far as the collateral pools backing the deals, there’s cause for concern. For instance, Moody’s recently warned that some $3 billion in student-loan backed paper was in danger of default, while Skopos Financial (to whom we introduced readers last week), brought a $150 deal to market backed by loans to borrowers whose FICO scores ranged from just 350 to 500. Now, it appears Wall Street is set to feed its securitization machine with a new kind of debt: peer-to-peer loans. You read that correctly. Soon enough, the pool of micro loans that are facilitated by sites like LendingClub will be used to create CDOs.
Via Bloomberg:
Barely a decade old, “P2P” has gone mainstream and is now being co-opted by some of the big financial players it was supposed to bypass.
Investment funds can’t get enough of this business, which involves lending to people over the Internet and hoping they pay you back. Investors are snapping up the loans directly, while the banks are bundling them into securities, much as they did with subprime mortgages.
Now peer-to-peer lending and its Internet enablers like LendingClub Corp., the industry leader, are being pulled into the high-octane world of derivatives. While many hail Wall Street’s growing involvement, others warn investors could get carried away, as they did during the dot-com era and again during the mortgage mania. The new derivatives could help people hedge their risks, but they could also lure speculators into the market.
“It feels like the year 2000 again,” said Frank Rotman, a partner at QED Investors, an Alexandria, Virginia-based venture-capital firm that has invested in Prosper Marketplace Inc., Social Finance Inc. and 13 other P2P lending platforms. “Everyone is chasing ’it,’ but they don’t know what ’it’ is, and that is kind of scary.”
Of course voracious demand is a direct product of central bank policies that have sent investors searching far and wide for yield and they’ve apparently become so desperate they’re now willing to gamble on the payment streams generated by loans made on peer-to-peer platforms.
It’s easy to see why investors are so enthusiastic. In today’s low-interest-rate world, high-quality P2P loans yield about 7.6 percent. Two-year U.S. Treasuries, by comparison, were yielding a mere 0.6 percent on Friday.
And the same dynamic that drove the housing market off a cliff (and that very soon will do the same for the subprime auto market) is at play with peer-to-peer loans.
But P2P’s rapid growth also raises questions about the potential risks, including whether the firms involved might lower their standards to stay competitive. During the mortgage boom, Wall Street’s securitization machine fueled questionable lending practices. Derivatives tied to the debt were blamed for spreading their risks around the globe, and then amplifying investors’ losses when the housing market crashed.
But don’t worry says Mike Edman (who readers will recall knows a thing or two about derivatives), everything will be fine as long as you embed a credit default swap thus allowing investors to bet against the loans by buying protection — this would ‘balance things out’.
Edman, who runs New York-based Synthetic Lending Marketplace, or SLMX, has some high-profile experience. In the early 2000s, he helped invent a kind of credit-default swap that enabled some Wall Street firms to bet against U.S. subprime mortgage bonds.
But Edman sees little resemblance between the boom-era mortgage market of and the current peer-to-peer market. He said his derivatives will help investors hedge their bets and also improve the pricing of the underlying loans.
Indeed, Edman said the ability to short the loans could curb some of the enthusiasm for this asset class before any of the debt sours.
This sets up a scenario wherein sophisticated investors could theoretically choose the credits they want to bet against and, with the help of Wall Street, structure a synthetic deal which would then be sold to clueless investors on the premise that a 5% yield is hard to come by these days (so the investor who structured the deal would be buying protection on the tranches while everyone else would be selling protection and picking up the CDS premium, while the bank plays the middle collecting hefty fees).
We wonder what role LendingClub and other peer-to-peer sites will end up playing in this process and whether the online component and relatively small amounts being lent have the potential to turn the whole thing into an underwriting standard nightmare once these tech startups realize they can get paid for providing securitizable assets.
- Socialists, Central Banks & Credit Is Not Capital
Submitted by Jeffrey Snider via Alhambra Investment Partners,
It may just be fitting that it is May Day weekend, the old remembrance of the once “great” destructive force of international communism. Of course, it still resonates largely because its proponents view it from the standpoint of actual purity. Stalin, you see, never really practiced it; as such it has supposedly never really been tried. Repeating that lie long enough has left generations susceptible to the same cowing interpretations.
Normally, these fascinations with Marx and Marxism are left to the ivory towers of academia, who have apparently taken heart to the KGB’s “liberation ideology” and brought it to America’s college youth. I don’t mean for this to be such a political discussion, but it is somewhat unavoidable. After all, one of the most trending topics on Twitter earlier this week, just in time for May Day itself, was #ResistCapitalism.
The open spaces for this backlash are provided neatly by the recovery that doesn’t exist outside of various DSGE and GARCH models central banks employ to tell us how well they have done. Today’s youth are being inundated with Marxism that once appeared ridiculous in obviousness, but now contains, seemingly, some righteous prescription. This is not just “inequality” but it isn’t apart from it either, as stock bubbles and the very real lack of wage opportunity sharpen this great sense of divide.
From the perspective of anyone who appreciates actual freedom and free markets, there is an easy answer to the problem – that all these neo-socialists that don’t appreciated the irony of being “afforded” the opportunity to resist and renounce capitalism by all its very successful fruits. They are confused over the nature of capitalism itself, as maybe should not be so unappreciated or unexpected since it has been buried for some decades now. The smartphone technology and the internet fabric that draws it all together, the very means with which the Marxists gather each other for more comforting online serenades about how much better the world would be under more “equal” terms, is actually more ancient. The capitalism revolution of the information age was birthed and came of age long before Alan Greenspan started directing key economic variables from his computer.
The last two generations have seen nothing but the financial version and have heard it proclaimed and embraced as the true avatar of capitalism. If you were to ask anyone at Occupy Wall Street (if they could be resurrected out of their own anarchical self-destruction) the target of capitalism’s most dire edges, the name of the movement itself gives off the very answer – they view JP Morgan and Goldman Sachs as the true leading lights of capitalism.
That was never the case before in our history. Banking has always played a special role, and a vital one, but that was because of true money and not so much the dedication that modern pretenders have for debt and credit. The financial domination that came about starting in the 1980’s was unique to the capitalist tradition even though central bankers have claimed to be fully compatible. It is somehow taken as such because the Fed can intrude massively – but only up to a self-determined point. A point, by the way, that keeps getting moved further and further into what was once free asset markets.
And that is largely the unappreciated factor of the “recovery” such that it actually exists in the real world that is abhorred about it, that central banks do not represent capitalism at all in the 2010’s, if they had at all prior to 2007. They have absconded with the label and betrayed everything about it. The attempts to kill each and every currency, including the modern “dollar”, are not at all consistent with actual capital. Capitalism itself produces and describes a stable currency not one that is manipulated at the whims and will of a central elite authority.
The purpose of all this intrusive nature through finance is actually to dethrone the defining quality that makes capitalism so useful in society’s advance – dynamic destruction. The central bank, as any central government, abhors discord and disorder, and thus appeals of all its tools to deny dynamic processes in favor of what it thinks amounts to stability. And, indeed, that is exactly what they have produced and exactly what the young Marxists are railing about.
The fires in Baltimore right now are certainly caused by decades of progressive policies being carried out, that the “investments” of government are the only ones to be made. But what Baltimore has become on a smaller scale, like that of Detroit, has been leaking into the wider system for some time too. The results are exactly the same – if you analyze the major problems of these large inner cities where disturbance is so sharply turning up the common feature is stability; in other words, these places don’t ever change despite the untold promises and unimaginable millions (maybe billions) spent on that direction.
If you are to describe the US (and global economy) right now, stability is exactly the problem. The socialization of money has taken place for exactly that reason, discounting the role of variability in fostering actual economic growth and sustainable advance. Monetary policy is dedicated to a “smooth” existence, one without too much peaks and valleys – and we have certainly attained that if only after an impossibly deep valley. That is the “deflationary vortex.”
Socialism’s essential appeal is “order”, including the idea of “equality” (of result) within that order. Central banks have been agents with which to attain it, especially that while they heighten the divisions among the supposed rich and poor, they have also guided a massive increase into that latter category. The equality of result has been, through heavy and repeated monetarism, to make more Americans impoverished and thus fulfilling at least parts of the expectations of socialism’s effects.
For all the supposed divisions with the economics apparatus, it remains highly restrictive to anything but a financial-led recovery. And that is precisely the problem as it relates to socialism. That isn’t capitalism, at all, and the continued reverence for all things banking and interbank are killing whatever chances there are to break free of this malaise before the socialist impulse turns rapidly more intense. The true disappointment of 2008 was that the same framework was left in place, and thus another true crisis might well be necessary to finally get beyond it. However, the longer this goes on, and the tighter Marxists twist capitalism toward the Fed, ECB and BoJ, the greater the possibility that free markets do not come out the other side – at all.
As all good socialists, central banks have locked the global economy onto but a single path without any possibility of choice. And to do so they have, ironically, taken cues from today’s communists. The lack of recovery is, they say, that pure Keynesianism has never been tried, as even all that Keynes-type stimulus done throughout the years was “not the right” amount or type. And so it is being prepared that we go all through it again, with updated formulas, regressions and theories that don’t amount to the slightest bit of “science” as they are never permitted to be countermanded by actual observation.
That is, I think, the true appeal of the entire endeavor to begin with, as socialism in all these forms promises not only order and equality but a scientific, and thus objective, means to describe and deliver it. None of those characteristics are true, of course, as even the most complicated and elegant econometrics is essentially a prevarication and twisting of inescapable subjectivity into what can only look like science to those that don’t understand the mathematical limitations – and they are numerous. If there were truly science at the end of all this socialization of money, they wouldn’t be repeating, to all exclusions, the same thing over and over.
Bernanke argues against the Journal, and Krugman is associated in both and against both, but in reality their disagreements are truly superficial amounting only in the degree to which the same thing has or hasn’t happened; there is no difference between any of them in the formal processes they wish to see.
The Fed has been saying, all along, that the recovery must either be financial in character or nothing at all. If it isn’t driven by credit and debt then they don’t want it. And so they haven’t got it.
Despite the radical alteration as to what is taught in “business” schools, credit is not capital and it will never be. No amount of math will make it so, but the longer it remains operative the greater the potential we all end up with something even worse.
Happy May Day Weekend…
- WSJ Slams Bernanke's Rambling Blog Post: "Stop Blaming Everyone" For Your Mistakes
The mainstream is beginning to sound a lot like some fringe blog… A week after the world's largest sovereign wealth fund unleashed a tirade against high-frequency trading and monetary policy distortions, The Wall Street Journal has penned an Op-Ed ramping up its war against Bernanke (and The Fed). What next? Cats living with dogs, mass hysteria, the dead rising from the grave?
Bernanke threw the first punch… and it landed. Now The Wall Street Journal counters with a colossal combination…
It’s nice to know we’re being read, and Thursday’s editorial on “The Slow-Growth Fed” sure got a rise out of Ben Bernanke. The former Federal Reserve Chairman turned blogger turned Pimco adviser wrote to defend the central bank and by implication his policies as innocent of responsibility for subpar economic growth.
This is fun, so let’s parse the Revered One’s arguments. First, Mr. Bernanke accuses us of “forecasting a breakout in inflation” at least since 2006. The central banker is getting into the polemical swing, but he’s wild with that one. We’re not always right. But we’ve been careful not to join some of our friends in predicting inflation from the Fed’s post-crisis policies. We’ve written that we are in uncharted monetary territory with risks and outcomes we lack the foresight to predict.
Our view has been that the Fed’s first round of quantitative easing was necessary to stem the financial panic—and that it worked. We were skeptical of the later bouts of QE, and in our view these have been notably less successful in helping the economy return to robust health. Asset prices are up and the wealthy are better off, but the working stiff is still waiting for the economic payoff.
Mr. Bernanke defends the Fed’s over-optimistic economic growth forecasts by saying the central bank has been overly pessimistic about unemployment. “The relatively rapid decline in unemployment in recent years shows that the critical objective of putting people back to work is being met,” Mr. Bernanke writes.
Now, that’s over-optimism. One reason the jobless rate has fallen to 5.5% is because so many people have left the workforce. The labor participation rate has plunged to 1978 levels during this supposedly splendid expansion. Most economists acknowledge that if the participation rate had stayed constant, the jobless rate would still be close to 8%. The failure to attract the long-term unemployed into the job market is one reason the Fed continues to hold interest rates so low.
Mr. Bernanke’s other defense is the counterfactual that it could have been worse: “It seems clear that the Fed’s aggressive actions are an important reason that job creation in the United States has outstripped that of other industrial countries by a wide margin.”
That’s conveniently unprovable, not least because it doesn’t correct for non-monetary variables. The structural policy impediments to growth in Europe and Japan are far worse than in the U.S., yet Mr. Bernanke implies that the main policy difference is that they waited too long to try QE.
We learned in school that something isn’t a theory if it can’t be tested. Mr. Bernanke’s theory of post-crisis monetary policy is that if it’s working, then do more of it. And if it’s not working, then do more of it too. This isn’t data-driven monetary policy.
Mr. Bernanke also says that we “argue (again) for tighter monetary policy.” If lifting the fed-funds rate to 50 or 100 basis points after six years of near-zero policy is tighter money, then we plead guilty.
But perhaps Ben should consult Stanley Fischer, the Fed’s current vice chairman, who recently said on CNBC that “we are going to be changing monetary policy from the most extremely expansionary we’ve been able to do in all of history to an extremely expansionary monetary policy.” That doesn’t sound like a return to tight money. Lifting rates off zero means beginning an inevitable return to monetary normalcy that lets markets set rates and allocate capital.
We can understand that Mr. Bernanke doesn’t like being tagged with any responsibility for poor economic results. He absolved himself for any mistakes before the financial crisis too. But sooner or later he and the Fed have to stop using the financial crisis as the all-purpose excuse for slow growth. Even President Obama has stopped blaming George W. Bush for everything. Maybe Mr. Bernanke should stop blaming everyone else too.
* * *
Ouch!
- HFT + Inept Regulators + Fed Distortion = More Flash Crashes
Submitted by Adam Taggart via PeakProsperity.com,
As luck would have it, we had Joe Saluzzi lined up to record a podcast the day the news broke recently that the suspected culprit for the 2010 flash crash, Navinder Singh Sarao, had been arrested. Saluzzi is co-founder of Themis Trading LLC, long-time cautionary on the dangers of high-frequency algorithmic trading, and co-author of Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio.
In this discussion, Joe shares his suspicions about Sarao (a contributor to the crash, but highly unlikely to be the actual cause) and then provides his expert assessment of what has been done in the intervening years since the flash crash to safeguard the market against a similar failure (precious little). In his opinion, a winner-take-all high-tech arms race, clueless and toothless regulators, and central bank price distortion are conspiring to make us more vulnerable — not less — to another systemic breakdown:
What’s happened is the markets have evolved and they've obviously embraced computerization and technology. Some things have been very good for the markets and brought down cost. But regulators don’t seem to have evolved. They don’t seem to have caught up with times and they don’t necessarily have the eyes and ears out there to monitor things on a micro-second or nano-second level.
Just as an example: the FCC has proposed putting together a consolidated audit trail. This came about after the flash crash back in 2010. And we’re five years into this and they’re still out for bid, waiting for someone to bid on the project, and it’s nowhere near completion. And even when it does get completed, it’s still not going to be an all-encompassing view. They won’t be able to see futures, because the CFTC monitors that group. So it will be an incomplete set. It will be better than what they have now — which is called Midas, basically a bunch of a direct data feeds that are supplied by the exchanges. And Midas, by the way, was built by a high frequency trading firm named Trade Works that still gets paid by the FCC over couple million dollars a year for this thing. So it makes you wonder how they're properly equipped to monitor it. And when you see cases like spoofing pop up and you’re like “How could they have missed it”? As you mentioned Eric Hunt from Nanex, he sees this stuff all the time and he tweets it. I mean if I was a regulator I would just follow Eric and I’d say: "There’s an example right there, I don’t have to do the work, I’ll just follow Eric, he’s doing the work"
(…)
What happened to the price discovery mechanism? Is it really being set by fundamental investors who have looked at a company and its long term aspects, or is it now being set by Fed policy or some algorithm that’s tied to one currency pair or another?
And we're getting bubbles in certain areas because no one is really looking at valuations. All they care about is “Okay I made money today and I start fresh tomorrow because every night I go home flat and I start the game all over again”. That’s a scary thought. That’s a scary thought that these multi assets are now playing into each other and the correlation is so tight that when one market sneezes they all catch a cold really, really quickly.
I think we have to blame central bank intervention. How can we not? It’s all around the world. They’re setting interest rates at a ridiculous level. Quantitative easing is distorting all sorts of prices of assets. How do you price things anymore when you have such a giant manipulator out there?
Click the play button below to listen to Chris' interview with Joe Saluzzi (40m:53s)
- Varoufakis' Father Defends His Son After EU Praises "Significant Progress" Without Finance Minister
It has been a bad week for the Greek finance minister: first, under pressure from Europe, Tsipras was forced to sideline the “combatied” Varoufakis from future Troika negotiations, then his wife had to protect him from an attack by “young anarchists”, and now – adding insult to injury – an anonymous Greek government official as well as EU sources told AFP, Bloomberg and Reuters that, without Varoufakis present, Greece and its creditors have made “significant progress” and that there were “encouraging” signs from meetings over the weekend.
As a reminder, Greece is so desperate to get access to any money, last week its pensioners crashed a pension fund board meeting and formed long lines outside domestic banks demanding access to their cash which as delayed due to a “technical glitch.”
But the far bigger problem is that in the coming three months Greece will need to make billions in interest and maturity payments to Europe.
Which is why having shown Varoufakis who is boss, Europe is now once again in generous mood and will likely give Greece just enough cash with which Greece can repay what it owes to, well, Europe.
According to AFP, the talks, which began Thursday, were the first led by economist and junior foreign minister Euclid Tsakalotos, who last week replaced the controversial Varoufakis as head of Greece’s team of negotiators.
After months of acrimonious deadlock, “the revamped (Greek) Brussels group have clearly improved the process, with a clear schedule for the discussions… and with more experts present with more details,” one source said.
“Talks are constructive,” the source added. “I would even dare to say encouraging.” They will continue on Monday and could last until at least Wednesday, “which is a good sign”, the source said.
But while the Eurogroup has moved on from negotiating with Varoufakis, the Finance Minister still is confident he is in charge.
“Yes, I’m in charge. I’m still responsible for the talks with the Eurogroup,” he told the weekly Die Zeit on Thursday.
“I’m supported by various government members, not least by good friend Euclid Tsakalotos. The fact that some media are portraying as if he is replacing me in the talks is just another proof of how low journalistic standards have sunk,” he said.
…
Varoufakis claimed on Saturday that Greece could manage without a new “loan” if its debt was restructured.
Asked if it could do without bailout funds, Varoufakis told the Efimerida ton Sindakton daily: “Of course it can. One of the conditions for this to happen though, is an important restructuring of the debt.”
He also took a swipe at the eurozone, warning that if it “doesn’t change it will die”, adding that “no country, not only Greece, should have joined such a shaky common monetary system.”
Varoufakis is of course right. However, unless it gets some funds in the next days, if not hours, Grece will die first as the latest debt repayment schedule shows:
The reason why the Troika hatest Varoufakis: he tells the truth, even if he can’t quite make up his mind how to get what he wants: “he said it was “one thing to say we shouldn’t have joined the euro and it is another to say that we have to leave” because backtracking now would lead to “a unforeseen negative situation”.
Sadly for Varoufakis, his star is now setting almost as fast as it rose, and while last week it was his wife who rushed to his defense, now it is his father’s turn: “the maverick economist’s 90-year-old father, who still heads one of Greece’s leading steel producers, Halyvourgiki, jumped to his son’s defence, claiming his European counterparts were jealous of him.
Giorgos Varoufakis told the Greek daily Ethnos that the minister’s critics “want to run him down because he is competent. He is not like them. That is why they attack him.
“Yanis is a very good boy, and is always telling the prime minister what to do, which is why he adores him,” he added.
And is also why Varoufakis’ days as finance minister are numbered as long as Greece believes its future remains with the Eurozone, where the finance minister had made nothing but enemies.
- Why Deflation Is Unlikely
Submitted by Alasdair Macleod via GoldMoney.com,
Financial markets are becoming aware that the US economy is stalling, so investors increasingly take the view that with demand likely to stagnate or even fall, prices for goods and services will soften. This is already threatening to be the situation in a number of other advanced nations, with negative interest rates to combat it becoming commonplace. For this reason, gold and silver priced in dollars are expected by many traders to drift lower.
Putting the prices of precious metals to one side for a moment, there are some serious issues with this analysis. Let us assume for a moment that the US economy does stall; the text-books tell us supply and demand for goods and services will rebalance at lower prices. This was what effectively happened in the wake of the Lehman Crisis, when energy, metals and precious metal prices all fell sharply and large discounts for manufactured capital goods became available. This does not mean that second time round (and a sliding US economy could create the sort of financial strains that make Lehman look like a walk in the park), the same thing will happen again. Indeed, for next time the central banks already have a plan to contain the situation based on their experience in the Lehman Crisis. It involves the rapid expansion of money, which to the Federal Reserve System (“Fed”) at least has been proven on recent experience to have little or no inflationary consequences whatever.
We therefore know something we did not know in the wake of August 2008, when the imminent collapse of the global banking system drove everyone to increase their cash balances. This time we know that last time’s guarantees of $13 trillion, or whatever sum you care to think of, will yet again be provided by the Fed, backed by hard cash on demand. Forget bail-ins; they are for dealing with one-off bank insolvencies, not a wider systemic crisis.
Of course it’s tempting to think that a new financial and economic crisis will drive us towards selling anything we can for cash. However, this has not necessarily been the experience of previous monetary inflations: after printing money fails to raise the animal spirits, the consensus often expects a fall in prices, only for the opposite to happen. This was certainly the case in Germany and Austria after the First World War, when economic burdens from the combined destruction of infrastructure and wealth, the loss of productive lives, the end of military spending and the burden of reparations were all expected to overwhelm their respective economies. The result was people briefly preferred to hold onto their savings rather than spend. How wrong they were.
The political situation then was very different from that of today, but there was an important economic similarity. The rapid acceleration of growth in money supply failed to stimulate the Germanic economies in the preceding seven years. It’s the same today. The mistake is the one identified by Frederik Bastiat nearly 200 years ago with his fallacy of the broken window. We see the dynamics of a failing economy and draw our conclusions from that observation alone. We disregard the previous monetary inflation, and we have yet to see the more rapid expansion of money and credit to come. This is why we do not anticipate the growing certainty that the purchasing power of money will fall and not increase, embarking on the same value-path as the German mark and Austrian crown in 1920-23.
If a financial crisis is to be averted, the best we can hope for is an economy moving sideways rather than expanding. But there are dangers to this hope, partly from markets that are dangerously over-valued, and partly from the limitations on further private sector debt creation. In short, we are living with a situation that is highly vulnerable to an exogenous shock.
Meanwhile, the prices of gold and silver reflect the deflationary view to the exclusion of the likely outcome. There is no doubt that many dealers believe that gold and silver are merely commodities, otherwise they would be chasing their prices upwards in a dash for cash. Future historians should be puzzled. Perhaps someone will write a history with a snappy title, such as “Extraordinary Popular Delusions and the Madness of Crowds.”
- Obamanomics Summed Up
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