Today’s News October 16, 2015

• How Do You Prepare A Child For Life In The American Police State?

  Submitted by John Whitehead via The Rutherford Institute,

  “Fear isn’t so difficult to understand. After all, weren’t we all frightened as children? Nothing has changed since Little Red Riding Hood faced the big bad wolf. What frightens us today is exactly the same sort of thing that frightened us yesterday. It’s just a different wolf.” ? Alfred Hitchcock

  In an age dominated with news of school shootings, school lockdowns, police shootings of unarmed citizens (including children), SWAT team raids gone awry (leaving children devastated and damaged), reports of school resource officers tasering and shackling unruly students, and public schools undergoing lockdowns and active drills, I find myself wrestling with the question: how do you prepare a child for life in the American police state?

  Every parent lives with a fear of the dangers that prey on young children: the predators who lurk at bus stops and playgrounds, the traffickers who make a living by selling young bodies, the peddlers who push drugs that ensnare and addict, the gangs that deal in violence and bullets, the drunk drivers, the school bullies, the madmen with guns, the diseases that can end a life before it’s truly begun, the cynicism of a modern age that can tarnish innocence, and the greed of a corporate age that makes its living by trading on young consumers.

  It’s difficult enough raising a child in a world ravaged by war, disease, poverty and hate, but when you add the police state into the mix—with its battlefield mindset, weaponry, rigidity, surveillance, fascism, indoctrination, violence, etc.—it becomes near impossible to guard against the toxic stress of police shootings, SWAT team raids, students being tasered and shackled, lockdown drills, and a growing unease that some of the monsters of our age come dressed in government uniforms.

  Children are taught from an early age that there are consequences for their actions. Hurt somebody, lie, steal, cheat, etc., and you will get punished. But how do you explain to a child that a police officer can shoot someone who was doing nothing wrong and get away with it? That a cop can lie, steal, cheat, or kill and still not be punished?

  Kids understand accidents: sometimes drinks get spilled, dishes get broken, people slip and fall and hurt themselves, or you bump into someone without meaning to, and they get hurt. As long as it wasn’t intentional and done with malice, you forgive them and you move on. Police shootings of unarmed people—of children and old people and disabled people—can’t just be shrugged off as accidents, however.

  Tamir Rice was no accident. Cleveland police shot and killed the 12-year-old, who was seen playing on a playground with a pellet gun. Surveillance footage shows police shooting the boy two seconds after getting out of a moving patrol car. Incredibly, the shooting was deemed “reasonable” and “justified” by two law enforcement experts who concluded that the police use of force “did not violate Tamir's constitutional rights.”

  Aiyana Jones was also no accident. The 7-year-old was killed after a Detroit SWAT team launched a flash-bang grenade into her family’s apartment, broke through the door and opened fire, hitting the little girl who was asleep on the living room couch. The cops weren’t even in the right apartment. Ironically, on the same day that President Obama refused to stop equipping police with the very same kinds of military weapons and gear used to raid Aiyana’s home, it was reported that the police officer who shot and killed the little girl would not face involuntary manslaughter charges.

  Obama insists that $263 million to purchase body cameras for police will prevent any further erosions of trust, but a body camera would not have prevented Aiyana from being shot in the head. Indeed, the entire sorry affair was captured on camera: a TV crew was filming the raid for an episode of The First 48, a true-crime reality show in which homicide detectives have 48 hours to crack a case.

  While that $263 million will make Taser International, the manufacturer of the body cameras, a whole lot richer, it’s doubtful it would have prevented a SWAT team from shooting 14-month-old Sincere in the shoulder and hand and killing his mother.

  No body camera could have stopped a Georgia SWAT team from launching a flash-bang grenade into the house in which Baby Bou Bou, his three sisters and his parents were staying. The grenade landed in the 2-year-old’s crib, burning a hole in his chest and leaving him with scarring that a lifetime of surgeries will not be able to easily undo.

  No body camera could have prevented 10-year-old Dakota Corbitt from being shot by a Georgia police officer who tried to shoot an inquisitive dog, missed, and hit the young boy, instead.

  When police shot 4-year-old Ava Ellis in the leg, shattering the bone, it actually was an accident, but it was an accident that could have been prevented. Police reported to Ava’s house after being told that Ava’s mother, who had cut her arm, was in need of a paramedic. Cops claimed that the family pet charged the officer who was approaching the house, causing him to fire his gun and hit the little girl.

  Alberto Sepulveda, 11, died from one “accidental” shotgun round to the back, after a SWAT team raided his parents’ home. Thirteen-year-old Andy Lopez Cruz was shot 7 times in 10 seconds by a California police officer who mistook the boy’s toy gun for an assault rifle. Christopher Roupe, 17, was shot and killed after opening the door to a police officer. The officer, mistaking the Wii remote control in Roupe’s hand for a gun, shot him in the chest.

  These children are more than grim statistics on a police blotter. They are the heartbreaking casualties of the government’s endless, deadly wars on terror, on drugs, and on the American people themselves.

  Not even the children who survive their encounters with police escape unscathed. Increasingly, their lives are daily lessons in compliance and terror, meted out with every SWAT team raid, roadside strip search, and school drill.

  Who is calculating the damage being done to the young people forced to watch as their homes are trashed and their dogs are shot during SWAT team raids? A Minnesota SWAT team actually burst into one family’s house, shot the family’s dog, handcuffed the children and forced them to “sit next to the carcass of their dead and bloody pet for more than an hour.” They later claimed it was the wrong house.

  More than 80% of American communities have their own SWAT teams, with more than 80,000 of these paramilitary raids are carried out every year. That translates to more than 200 SWAT team raids every day in which police crash through doors, damage private property, terrorize adults and children alike, kill family pets, assault or shoot anyone that is perceived as threatening—and all in the pursuit of someone merely suspected of a crime, usually some small amount of drugs.

  What are we to tell our nation’s children about the role of police in their lives? Do you parrot the government line that police officers are community helpers who are to be trusted and obeyed at all times? Do you caution them to steer clear of a police officer, warning them that any interactions could have disastrous consequences? Or is there some happy medium between the two that, while being neither fairy tale nor horror story, can serve as a cautionary tale for young people who will encounter police at virtually every turn?

  No matter what you say, there can be no avoiding the hands-on lessons being taught in the schools about the role of police in our lives, ranging from active shooter drills and school-wide lockdowns to incidents in which children engaging in typically childlike behavior are suspended (for shooting an imaginary “arrow” at a fellow classmate), handcuffed (for being disruptive at school), arrested (for throwing water balloons as part of a school prank), and even tasered (for not obeying instructions).

  For example, a middle school in Washington State went on lockdown after a student brought a toy gun to class. A Boston high school went into lockdown for four hours after a bullet was discovered in a classroom. A North Carolina elementary school locked down and called in police after a fifth grader reported seeing an unfamiliar man in the school (it turned out to be a parent).

  Better safe than sorry is the rationale offered to those who worry that these drills are terrorizing and traumatizing young children. As journalist Dahlia Lithwick points out: “I don’t recall any serious national public dialogue about lockdown protocols or how they became the norm. It seems simply to have begun, modeling itself on the lockdowns that occur during prison riots, and then spread until school lockdowns and lockdown drills are as common for our children as fire drills, and as routine as duck-and-cover drills were in the 1950s.”

  These drills have, indeed, become routine.

  As the New York Times reports: “Most states have passed laws requiring schools to devise safety plans, and several states, including Michigan, Kentucky and North Dakota, specifically require lockdown drills. Some drills are as simple as a principal making an announcement and students sitting quietly in a darkened classroom. At other schools, police officers and school officials playact a shooting, stalking through the halls like gunmen and testing whether doors have been locked.”

  Police officers at a Florida middle school carried out an active shooter drill in an effort to educate students about how to respond in the event of an actual shooting crisis. Two armed officers, guns loaded and drawn, burst into classrooms, terrorizing the students and placing the school into lockdown mode.

  What is particularly chilling is how effective these lessons in compliance are in indoctrinating young people to accept their role in the police state, either as criminals or prison guards. If these exercises are intended to instill fear and compliance into young people, they’re working.

  Sociologist Alice Goffman understands how far-reaching the impact of such “exercises” can be on young people. For six years, Goffman lived in a low-income urban neighborhood, documenting the impact such an environment—a microcosm of the police state—on its residents. Her account of neighborhood children playing cops and robbers speaks volumes about how constant exposure to pat downs, strip searches, surveillance and arrests can result in a populace that meekly allows itself to be prodded, poked and stripped.

  As journalist Malcolm Gladwell writing for the New Yorker reports:

  Goffman sometimes saw young children playing the age-old game of cops and robbers in the street, only the child acting the part of the robber wouldn’t even bother to run away: I saw children give up running and simply stick their hands behind their back, as if in handcuffs; push their body up against a car without being asked; or lie flat on the ground and put their hands over their head. The children yelled, “I’m going to lock you up! I’m going to lock you up, and you ain’t never coming home!” I once saw a six-year-old pull another child’s pants down to do a “cavity search.”

  Clearly, our children are getting the message, but it’s not the message that was intended by those who fomented a revolution and wrote our founding documents. Their philosophy was that the police work for us, and “we the people” are the masters, and they are to be our servants. Now that has been turned on its head, fueled by our fears (some legitimate, some hyped along by the government and its media mouthpieces) about the terrors and terrorists that lurk among us.

  It’s getting harder by the day to tell young people that we live in a nation that values freedom and which is governed by the rule of law without feeling like a teller of tall tales. Yet as I point out in my book Battlefield America: The War on the American People, unless something changes and soon for the young people growing up, there will be nothing left of freedom as we have known it but a fairy tale without a happy ending.

   

  

  

  

  

  

• Visualizing The Demise Of The Once Mighty Euro

  The European Union has always been primarily a political project. The idea of the union was to take peoples that had long and complicated histories, and to place them in a situation where they must work together and shed their differences in order to achieve success.

  From the political angle, it can be argued that this objective has been achieved. War and conflict within Western and Central Europe has mostly been stymied. Considering the continent’s lengthy history in these areas, this is great news.

  However, it’s particularly the countries that adopted the euro as common currency that put themselves into a more precarious economic position. The problem is simple: countries maintain certain political and fiscal responsibilities, but do not control the fate of their common currency.

  The result is that eurozone politicians have very different fiscal policies, but don’t have the flexibility of monetary policy to help accompany them. Some countries are trying to spend their way out of trouble, while others are maintaining strict austerity. Either way, the European Central Bank (ECB) controls the plight of the currency and can make unilateral decisions that have a big impact on every country. For example, in the beginning of June 2015, the ECB announced the minimum of a $1.14 trillion quantitative easing program that will add new currency units that together are larger than the economies of Ireland, Greece, Portugal, Finland, Luxembourg, and Slovenia combined.

  There has been an array of other problems plaguing the eurozone as well. The most notable of these was that Greece was admitted into the monetary union in the first place after fudging numbers on the Greek economy. Even though Greece makes up about 2% of the overall eurozone, the country has been in constant trouble that has threatened to undermine the entire union. (For a primer on this, read The Origin of the Greek Crisis)

  The euro itself has dropped precipitously, particularly in terms of USD but also in terms of GBP and CNY. In the beginning of 2008, a US dollar could buy only €0.65 euros. Today, on average through 2015, one US dollar can buy €0.91 euros.

  With European demographics getting more challenging by the year, and deflation stalking the eurozone, problems don’t seem to be going away for the euro. The crises in Ukraine and Greece continue on without much resolved, and the ECB is continuing on with its QE program. Meanwhile, the Refugee Crisis has created another political distraction that has its own challenges for the people of Europe.

  Will the shrinking euro be able to revert its course, or is Europe doomed to become the next Japan?

  

  Courtesy of: Visual Capitalist

  

  

  

  

  

• Russia And Iran Moving To Corner The Mideast Oil Supply

  Submitted by Steve Chambers via AmericanThinker.com,

  It looks like Vladimir Putin and the ayatollahs are preparing to corner the world’s oil supply – literally.

  Last May I wrote on this site that Iran was in the process of surrounding the Saudi/Wahhabi oil reserves, along with those of the other Sunni Gulf petro-states.  I added that, “Iran’s strategy to strangle Saudi/Wahhabi oil production also dovetails with Putin’s interests.  As the ruler of the second largest exporter of oil, he would be delighted to see the Kingdom’s production eliminated or severely curtailed and global prices soar to unseen levels.  No wonder he is so overtly supporting Iran.”

  We’ve now seen Putin take a major, menacing step in support of the Iranians by introducing combat forces into Syria.  Many analysts argue that he’s doing this both to protect his own naval base at Tartus and as some sort of favor to the Iranians.  Are those really sufficient inducement for him to spend scarce resources and risk Russian lives, or does he have bigger ambitions in mind?  Given the parlous state of Russia’s economy, thanks in very large part to the recent halving of oil prices, he must relish the opportunity now presented to him, in an axis with Iran, to drive those prices back to prior levels.

  The Iranians, for their part, must welcome this opportunity as well, for two huge reasons: first, when sanctions are finally lifted, thanks to their friend in the White House, Iran’s oil production will only aggravate the current global excess oil supply, reducing their cash flow (although they will still repatriate the $150 billion released by the nuclear deal).  They and the Russians must both be desperate to find a way to prevent further oil price declines.  And second, Iran’s mortal sectarian enemies and rivals for leadership of all of Islam are the Saudi/Wahhabi clan, so the prospect of simultaneously hurting them while strengthening themselves must seem tremendously tantalizing.

  To achieve this, the Russian-Iranian axis can pursue the encirclement strategy of the Arabian Peninsula that Iran has already been overtly conducting, as I described in May, and is evident by referring to the map below.

  

  Iran and its allies already control the border across the Saudi/Wahhabi Kingdom’s northern frontier, although the Iranian grip on the Syrian portion is tenuous – hence the Russian intervention.  Now Iran is also fighting a bitter proxy war with the Kingdom in Yemen, where Iran is backing coreligionist Shi’ites.  From Yemen, Iran can also threaten the Bab-al-Mandeb that provides access to the Red Sea, multiplying the pressure it already exerts on the Kingdom by threatening the Strait of Hormuz at the entrance to the Persian Gulf from its own territory.

  Moreover, Iran is widely believed to be supporting the Shi’a who live on top of the Saudi/Wahhabi oil reserves in the Eastern Province.  The natural affinity between the Shi’a of Arabia and Iran has long worried the royal family and led them to discriminate against their Shi’ite subjects, fostering resentment among them.  Attacks on the Shi’a community early this year have increased tensions.  On top of all that, Iran is reportedly behind the recent Shi’a unrest in Bahrain, which Iran considers it lost “14^th province” – much as Saddam viewed Kuwait in the late 1980s.

  With this being the current state of the Mideast chessboard, consider how the game can unfold.  With Russian assistance, Iran can save its Syrian puppet and reinforce its defensive enclave in the Allawite homeland in the northwest of its putative boundaries.  Then the combined forces of the axis can turn on ISIS, all the while boasting of doing the world a favor, and reduce its territorial control if not extirpate it entirely.  Of course, the Saudi/Wahhabis will probably do whatever they can to assist their vicious ideological offspring, but it would be hard to bet against the axis.

  As the axis pacifies Syria, it can then begin pressure the Saudi/Wahhabis and other Sunni petro-states to curtail their oil production enough both to accommodate the increased Iranian flow and to lift prices back to acceptable levels.  $100 a barrel must sound like a nice target.

  The axis’s initial pressure will probably be diplomatic, applied by both principal powers.  However, with Iran’s foothold-by-proxy in Yemen and their influence in the Eastern Province and Bahrain, it could easily foment more general violence against the Saudi/Wahhabis, even within the Kingdom itself.  Iran could likewise twist Bahrain’s arm and thereby rattle the cages of the lesser Sunni petro-states.  Then, by trading a reduction in oil for a reduction in violence, the axis could achieve its objective.

  If not, the Iranians could escalate the violence further.  Perhaps ideally from the Iranian perspective, the Saudi/Wahhabis would overreact and provide Iran with an excuse to strike directly at the geographically highly concentrated Arabian oil fields and support facilities.  Iran might not be willing to risk royal retaliation by attacking on its own, but it could be emboldened with Russian backing by air and sea, and perhaps even a nuclear umbrella.  In that scenario, the proud Arabs would be forced to bow to the will of their ancient Persian foes – particularly since it is obvious that the US under its current president could not be relied upon for support.

  An attack on the Kingdom’s fields would cause a severe and lengthy disruption of Mideast oil supply, which would dreadful for the rest of the world – but certainly not the worst-case scenario.  Such a disruption would precipitate another nasty global recession and could severely weaken the US, Europe, and China, all of whose economies are fragile and probably brittle.  Thus the damage inflicted could far outlast the disruption itself.  This could be yet another highly attractive incentive for Putin and his ayatollah allies.

  So, Putin and the ayatollahs have powerful motives to corner the world’s oil market and therefore the US and the rest of the world are facing an enormous risk.  The horrible pity of this is that the US could easily demonstrate the futility of the Russian-Iranian axis trying to take the world hostage with Mideast oil, simply by opening up our surface deposits of oil shales in the Rockies.  As I showed in this analysis last March, these resources could make Mideast oil irrelevant.

  The US’ surface oil shales are completely different from the deep shales that are accessed through directional drilling and fracking and that grab all the headlines; the deep shales are a mere side show in terms of reserves.  The surface shales hold up to 3 trillion barrels of oil versus about 50 billion barrels of tight oil accessed by fracking.  The total global proven reserves of oil are 1.6 trillion barrels, and the Canadian tar sands have 1.6 to 2.5 trillion barrels (although they're officially listed at 175 billion barrels, which are incorporated in the global total).  So, the US and Canada together essentially can triple the global supply of oil, and at prices in the $60-75/barrel range.  Meanwhile, Mideast reserves are about 800 billion barrels – half of Canada’s oil sands, perhaps less than a third of the US surface shales.  The world no longer needs the Muslim oil.

  Unfortunately, the vast majority of the Rockies surface shales sit on Federal land, and while George W. Bush opened up those lands for development, Obama rescinded that policy.  These reserves now sit almost entirely idle.

  As with any petroleum deposit, these surface shale reserves can’t be turned on with the wave of a wand.  But they can be opened for development with just a pen, and not even a phone.  For the protection of this country, and the good of the world, our current president should immediately open these reserves for development, with great fanfare.  If he will not use our military to protect our interests, he should at least use our economic weapons.

  There is no time to lose.  Russia is on the march, in unison with the emboldened and enriched Iranians, thanks again to our president.  Putin and the ayatollahs know they will enjoy only another 464 days with this president and that none of his likely replacements will be so complacent and flexible, to use his own term.  We should therefore expect that they will want to make as much hay as they can while the sun reflects off of Obama’s insouciant grin.

  

  

  

  

  

• OBoZo DoN'T SuRF!

  

  

  

  

  

• EM FX Party's Over: Dollar Rallies In Early Asia Trading As China's Bond Bubble Gathers Pace

  After two days of relative USD carnage in and across the emerging and asian FX markets, early AsiaPac trading this evening is seeing that trend revert with the Ringgit, Rupee, and Lira sliding. After-hours gains in US equity futures have been erased, despite USDJPY's continued BoJ-aided push higher (though it seems 119.00 is the new ceiling for now). China's government bonds remain extraordinarily bid (outperforming TSYs by almost 60bps in the last few weeks) with yields dropping to 6-year-lows, as corporate bond bubble fears rotate modestly back to govvies. Aussie miners are under pressure with Iluka Resources getting hammered on "excess capacity" warnings.

   

  The USDollar is rallying against Asian FX in the early going…

  

   

  And USDJPY has run stops and rolled over…

  

   

  Despite ongoing strength in Chinese equities (obeying the commands of The National team that "the correction is nearly over")…

  

   

  China 10Y yields have collapsed in the last few weeks (down 50bps outright and 43bps tighter than UST since 8/20 devaluation)

  

   

  The China-UST spread is nearing 100bps – its lowest in 4 years…

  

   

  Offshore Yuan signaled downward pressure on the fix and sure enough, PBOC weakened the Yuan…

  

   

  But it remains an ugly week for Aussia miners (with Iluka Resources gettting "Glencore"'d)…

  

   

  Charts: Bloomberg

  

  

  

  

  

• The Fog Of "Everything": Why America's Eternally Caught Off Guard In The Middle East

  Submitted by Tom Engelhardt via TimDispatch.com,

  1,500.

  That figure stunned me. I found it in the 12th paragraph of a front-page New York Times story about “senior commanders” at U.S. Central Command (CENTCOM) playing fast and loose with intelligence reports to give their air war against ISIS an unjustified sheen of success: “CENTCOM’s mammoth intelligence operation, with some 1,500 civilian, military, and contract analysts, is housed at MacDill Air Force Base in Tampa, in a bay front building that has the look of a sterile government facility posing as a Spanish hacienda.”

  Think about that.  CENTCOM, one of six U.S. military commands that divide the planet up like a pie, has at least 1,500 intelligence analysts (military, civilian, and private contractors) all to itself.  Let me repeat that: 1,500 of them.  CENTCOM is essentially the country’s war command, responsible for most of the Greater Middle East, that expanse of now-chaotic territory filled with strife-torn and failing states that runs from Pakistan’s border to Egypt.  That’s no small task and about it there is much to be known.  Still, that figure should act like a flash of lightning, illuminating for a second an otherwise dark and stormy landscape.

  And mind you, that’s just the analysts, not the full CENTCOM intelligence roster for which we have no figure at all.  In other words, even if that 1,500 represents a full count of the command’s intelligence analysts, not just the ones at its Tampa headquarters but in the field at places like its enormous operation at al-Udeid Air Base in Qatar, CENTCOM still has almost half as many of them as military personnel on the ground in Iraq (3,500 at latest count).  Now, try to imagine what those 1,500 analysts are doing, even for a command deep in a “quagmire” in Syria and Iraq, as President Obama recently dubbed it (though he was admittedly speaking about the Russians), as well as what looks like a failing war, 14 years later, in Afghanistan, and another in Yemen led by the Saudis but backed by Washington.  Even given all of that, what in the world could they possibly be “analyzing”?  Who at CENTCOM, in the Defense Intelligence Agency, or elsewhere has the time to attend to the reports and data flows that must be generated by 1,500 analysts?

  Of course, in the gargantuan beast that is the American military and intelligence universe, streams of raw intelligence beyond compare are undoubtedly flooding into CENTCOM’s headquarters, possibly overwhelming even 1,500 analysts.  There’s “human intelligence,” or HUMINT, from sources and agents on the ground; there’s imagery and satellite intelligence, or GEOINT, by the bushelful.  Given the size and scope of American global surveillance activities, there must be untold tons of signals intelligence, or SIGINT; and with all those drones flying over battlefields and prospective battlefields across the Greater Middle East, there’s undoubtedly a river of full motion video, or FMV, flowing into CENTCOM headquarters and various command posts; and don’t forget the information being shared with the command by allied intelligence services, including those of the “five eyes“ nations, and various Middle Eastern countries; and of course, some of the command’s analysts must be handling humdrum, everyday open-source material, or OSINT, as well — local radio and TV broadcasts, the press, the Internet, scholarly journals, and god knows what else.

  And while you’re thinking about all this, keep in mind that those 1,500 analysts feed into, and assumedly draw on, an intelligence system of a size surely unmatched even by the totalitarian regimes of the twentieth century.  Think of it: the U.S. Intelligence Community has — count ‘em — 17 agencies and outfits, eating close to $70 billion annually, more than $500 billion between 2001 and 2013.  And if that doesn’t stagger you, think about the 500,000 private contractors hooked into the system in one way or another, the 1.4 million people (34% of them private contractors) with access to “top secret” information, and the 5.1 million — larger than Norway’s population — with access to “confidential and secret” information.

  Remember as well that, in these years, a global surveillance state of Orwellian proportions has been ramped up.  It gathers billions of emails and cell phone calls from the backlands of the planet; has kept tabs on at least 35 leaders of other countries and the secretary general of the U.N. by hacking email accounts, tapping cell phones, and so on; keeps a careful eye and ear on its own citizens, including video gamers; and even, it seems, spies on Congress.  (After all, whom can you trust?)

  In other words, if that 1,500 figure bowls you over, keep in mind that it just stands in for a far larger system that puts to shame, in size and yottabytes of information collected, the wildest dreams of past science fiction writers.  In these years, a mammoth, even labyrinthine, bureaucratic “intelligence” structure has been constructed that is drowning in “information” — and on its own, it seems, the military has been ramping up a smaller but similarly scaled set of intelligence structures.

  Surprised, Caught Off Guard, and Left Scrambling

  The question remains: If data almost beyond imagining flows into CENTCOM, what are those 1,500 analysts actually doing?  How are they passing their time?  What exactly do they produce and does it really qualify as “intelligence,” no less prove useful?  Of course, we out here have limited access to the intelligence produced by CENTCOM, unless stories like the one about top commanders fudging assessments on the air war against the Islamic State break into the media.  So you might assume that there’s no way of measuring the effectiveness of the command’s intelligence operations.  But you would be wrong.  It is, in fact, possible to produce a rough gauge of its effectiveness.  Let’s call it the TomDispatch Surprise Measurement System, or TSMS. Think of it as a practical, news-based guide to the questions: What did they know and when did they know it?

  Let me offer a few examples chosen almost at random from recent events in CENTCOM’s domain.  Take the seizure at the end of September by a few hundred Taliban fighters of the northern provincial Afghan capital of Kunduz, the first city the Taliban has controlled, however briefly, since it was ejected from that same town in 2002.  In the process, the Taliban fighters reportedly scattered up to 7,000 members of the Afghan security forces that the U.S. has been training, funding, and arming for years.

  For anyone following news reports closely, the Taliban had for months been tightening its control over rural areas around Kunduz and testing the city’s defenses.  Nonetheless, this May, based assumedly on the best intelligence analyses available from CENTCOM, the top U.S. commander in the country, Army General John Campbell, offered this predictive comment: “If you take a look very closely at some of the things in Kunduz and up in [neighboring] Badakhshan [Province], [the Taliban] will attack some very small checkpoints… They will go out and hit a little bit and then they kind of go to ground… so they’re not gaining territory for the most part.’”

  As late as August 13th, at a press briefing, an ABC News reporter asked Brigadier General Wilson Shoffner, the U.S. deputy chief of staff for communications in Afghanistan: “There has been a significant increase in Taliban activity in northern Afghanistan, particularly around Kunduz.  What is behind that?  Are the Afghan troops in that part of Afghanistan at risk of falling to the Taliban?”

  Shoffner responded, in part, this way: “So, again, I think there's been a lot of generalization when it comes to reports on the north.  Kunduz is — is not now, and has not been in danger of being overrun by the Taliban, and so — with that, it's kind of a general perspective in the north, that's sort of how we see it.”

  That General Cambell at least remained of a similar mindset even as Kunduz fell is obvious enough since, as New York Times reporter Matthew Rosenberg reported, he was out of the country at the time. As Goldstein put it:

  “Mostly, though, American and Afghan officials appeared to be genuinely surprised at the speedy fall of Kunduz, which took place when Gen. John F. Campbell, the commander of coalition forces, was in Germany for a defense conference… Though the Taliban have been making gains in the hinterlands around Kunduz for months, American military planners have for years insisted that Afghan forces were capable of holding onto the country’s major cities.

   

  “‘This wasn’t supposed to happen,’ said a senior American military officer who served in Afghanistan, speaking on the condition of anonymity. ‘The Afghans are fighting, so it’s not like we’re looking at them giving up or collapsing right now. They’re just not fighting very well.’”

  It’s generally agreed that the American high command was “caught off guard” by the capture of Kunduz and particularly shocked by the Afghan military’s inability to fight effectively.  And who would have predicted such a thing of an American-trained army in the region, given that the American-backed, -trained, and -equipped Iraqi Army on the other side of the Greater Middle East had a similar experience in June 2014 in Mosul and other cities of northern Iraq when relatively small numbers of Islamic State militants routed its troops?

  At that time, U.S. military leaders and top administration officials right up to President Obama were, as the Wall Street Journal reported, “caught off guard by the swift collapse of Iraqi security forces” and the successes of the Islamic State in northern Iraq.  Peter Baker and Eric Schmitt of the Times wrote in retrospect, “Intelligence agencies were caught off guard by the speed of the extremists’… advance across northern Iraq.” And don’t forget that, despite that CENTCOM intelligence machine, something similar happened in May 2015 when, as Washington Post columnist David Ignatius put it, U.S. officials and American intelligence were “blindsided again” by a very similar collapse of Iraqi forces in the city of Ramadi in al-Anbar Province.

  Or let’s take another example where those 1,500 analysts must have been hard at work: the failed $500 million Pentagon program to train “moderate” Syrians into a force that could fight the Islamic State.  In the Pentagon version of the elephant that gave birth to a mouse, that vast effort of vetting, training, and arming finally produced Division 30, a single 54-man unit of armed moderates, who were inserted into Syria near the forces of the al-Qaeda-aligned al-Nusra Front.  That group promptly kidnapped two of its leaders and then attacked the unit.  The result was a disaster as the U.S.-trained fighters fled or were killed.  Soon thereafter, the American general overseeing the war against the Islamic State testified before Congress that only “four or five” armed combatants from the U.S. force remained in the field.

  Here again is how the New York Times reported the response to this incident:

  “In Washington, several current and former senior administration officials acknowledged that the attack and the abductions by the Nusra Front took American officials by surprise and amounted to a significant intelligence failure.  While American military trainers had gone to great lengths to protect the initial group of trainees from attacks by Islamic State or Syrian Army forces, they did not anticipate an assault from the Nusra Front. In fact, officials said on Friday, they expected the Nusra Front to welcome Division 30 as an ally in its fight against the Islamic State.

   

  “‘This wasn’t supposed to happen like this,’ said one former senior American official, who was working closely on Syria issues until recently, and who spoke on the condition of anonymity to discuss confidential intelligence assessments.”

  Now, if accurate, this is wild stuff.  After all, how anyone, commander or intelligence analyst, could imagine that the al-Nusra Front, classified as an enemy force in Washington and some of whose militants had been targeted by U.S. air power, would have welcomed U.S.-backed troops with open arms is the mystery of all mysteries.  One small footnote to this: McClatchy News later reported that the al-Nusra Front had been poised to attack the unit because it had tipped off in advance by Turkish intelligence, something CENTCOM’s intelligence operatives evidently knew nothing about.

  In the wake of that little disaster and again, assumedly, with CENTCOM’s full stock of intelligence and analysis on hand, the military inserted the next unit of 74 trained moderates into Syria and was shocked (shocked!) when its members, chastened perhaps by the fate of Division 30, promptly handed over at least a quarter of their U.S.-supplied equipment, including trucks, ammunition, and rifles, to the al-Nusra Front in return for “safe passage.” Al-Nusra militants soon were posting photos of the weapons online and tweeting proudly about them.  CENTCOM officials initially denied that any of this had happened (and were clearly in the dark about it) before reversing course and reluctantly admitting that it was so. (“‘If accurate, the report of NSF [New Syrian Forces] members providing equipment to al-Nusra Front is very concerning and a violation of Syria train-and-equip program guidelines,’ U.S. Central Command spokesman Colonel Patrick Ryder said.”) 

  To turn to even more recent events in CENTCOM’s bailiwick, American officials were reportedly similarly stunned as September ended when Russia reached a surprise agreement with U.S. ally Iraq on an anti-ISIS intelligence-sharing arrangement that would also include Syria and Iran.  Washington was once again “caught off guard” and, in the words of Michael Gordon of the Times, “left… scrambling,” even though its officials had known “that a group of Russian military officers were in Baghdad.”

  Similarly, the Russian build-up of weaponry, planes, and personnel in Syria initially "surprised" and — yes — caught the Obama administration “off guard.” Again, despite those 1,500 CENTCOM analysts and the rest of the vast U.S. intelligence community, American officials, according to every news report available, were "caught flat-footed" and, of course, "by surprise” (again, right up to the president) when the Russians began their full-scale bombing campaign in Syria against various al-Qaeda-allied outfits and CIA-backed opponents of Syrian President Bashar al-Assad.  They were even caught off guard and taken aback by the way the Russians delivered the news that their bombing campaign was about to start: a three-star Russian general arrived at the U.S. Embassy in Baghdad to offer an hour’s notice.  (Congressional lawmakers are now considering “the extent to which the spy community overlooked or misjudged critical warning signs” about the Russian intervention in Syria.)

  The Fog Machine of American Intelligence

  You get the point.  Whatever the efforts of that expansive corps of intelligence analysts (and the vast intelligence edifice behind it), when anything happens in the Greater Middle East, you can essentially assume that the official American reaction, military and political, will be “surprise” and that policymakers will be left “scrambling” in a quagmire of ignorance to rescue American policy from the unexpected.  In other words, somehow, with what passes for the best, or at least most extensive and expensive intelligence operation on the planet, with all those satellites and drones and surveillance sweeps and sources, with crowds of analysts, hordes of private contractors, and tens of billions of dollars, with, in short, “intelligence” galore, American officials in the area of their wars are evidently going to continue to find themselves eternally caught “off guard.”

  The phrase “the fog of war” stands in for the inability of commanders to truly grasp what’s happening in the chaos that is any battlefield.  Perhaps it’s time to introduce a companion phrase: the fog of intelligence.  It hardly matters whether those 1,500 CENTCOM analysts (and all those at other commands or at the 17 major intelligence outfits) produce superlative “intelligence” that then descends into the fog of leadership, or whether any bureaucratic conglomeration of “analysts,” drowning in secret information and the protocols that go with it, is going to add up to a giant fog machine.

  It’s difficult enough, of course, to peer into the future, to imagine what’s coming, especially in distant, alien lands.  Cobble that basic problem together with an overwhelming data stream and groupthink, then fit it all inside the constrained mindsets of Washington and the Pentagon, and you have a formula for producing the fog of intelligence and so for seldom being “on guard” when it comes to much of anything.

  My own suspicion: you could get rid of most of the 17 agencies and outfits in the U.S. Intelligence Community and dump just about all the secret and classified information that is the heart and soul of the national security state.  Then you could let a small group of independently minded analysts and critics loose on open-source material, and you would be far more likely to get intelligent, actionable, inventive analyses of our global situation, our wars, and our beleaguered path into the future.

  The evidence, after all, is largely in.  In these years, for what now must be approaching three-quarters of a trillion dollars, the national security state and the military seem to have created an un-intelligence system.  Welcome to the fog of everything.

  

  

  

  

  

• The Latest Evidence That Global Trade Has Collapsed: India's Exports/Imports Plunge By 25%

  Late last month, India surprised 51 out of 52 economists when the RBI cut rates by 50bps. 

  Although economists have a reputation for being terrible when it comes to making predictions (getting it wrong perpetually is almost a job requirement), it’s difficult to understand how 51 of them failed to see a cut of that magnitude in the cards.

  After all, it was just a little over a month earlier when the Indian government’s chief economic advisor Arvind Subramanian told ET Now television that India may need to “respond” to China’s monetary policy stance. He also hinted at further export weakness to come.

  Here’s what the REER picture and the export picture looked like going into the RBI meeting:

  

  

  And here’s what Deutsche Bank had to say in August: 

  Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. Global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction. 

  Hence the outsized rate cut.

  So that’s what the picture looked like going into Thursday’s export data and unsurprisingly, the numbers definitively show that global trade is in freefall. Here’s Reuters: 

  India’s exports of goods shrank by nearly a quarter in September from a year ago, falling for a 10th straight month and threatening Prime Minister Narendra Modi’s goal of boosting economic growth through manufacturing.

   

  India’s economy, Asia’s third largest, is mostly driven by domestic demand, but the country has still felt the effects of China’s slowdown. Exports have dropped and consumer and industrial demand for imports has weakened.

   

  Imports fell 25.42 percent in September from a year earlier to $32.32 billion. Exports stood at $21.84 billion, according to data released by the Ministry of Commerce and Industry on Thursday.

   

  “We see no signs of revival in exports in the near future,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. “We will be lucky if exports could even touch $265 billion to $270 billion for the whole year.”

  So yeah, both exports and imports fell by a quarter. That’s right, by a quarter.

  

  And so India finds itself in the same position as many other emerging economies in a world where trade is grinding to a halt: hoping that your own domestic demand for imported goods is even more abysmal than other countries’ demand for the goods you export just so the current account doesn’t collapse. Here’s Reuters again: 

  Policy makers were nonetheless relieved, because the trade deficit narrowed to $10.48 billion last month from $12.5 billion in August as gold and oil imports declined. For April-September, the trade deficit shrank to $85.36 billion from 497.17 billion a year earlier, the data showed.

  But as Goldman notes, even this dynamic may be set to disappoint because the expected benefit on the deficit from falling commodity prices is not as large as expected due to the fact that India… exports some commodities:

  Given the sharp decline in exports, we think the benefits of the commodity price decline on India’s trade balance may not be as large as widely perceived due to the significant commodity content within its exports.

  The takeaway is this: if you needed further evidence that global trade is in the doldrums and seemingly getting worse by the month, simply see the above. Of course the hope will be that the RBI’s easing will boost exports and further narrow the deficit, but again, this is just a race to the bottom with the entire world attempting to out-ease one another in a desperate attempt to stay ahead of the pace at which global demand is contracting. 

  There’s nothing positive (let alone sustainable) about that.

  

  

  

  

  

• Russia Responds To French President's Renewed Attempt To Sell Ships To Moscow

  Two months after French president Hollande, under heavy pressure from NATO, decided to scrap a deal to deliver two Mistral helicopter carriers to Russia which were sold to Egypt instead (the same Egypt whose foreign reserves are plummeting, whose fiscal house is in total disarray, which just devalued its currency, and which could only afford the $1.1 billion purchase if the CIA handed its military dictator the cash via envelope), the same French President announced on Wednesday that he “expects to sell new warships to Russia in the near future.”

  Quoted by AP during a visit to the shipyard of Saint-Nazaire in western France, Hollande said that “Things went well with Russia, which has agreed to cancel the contract. And I even think we’ll get partnerships for new ships.” He didn’t specify whether they could be military ships. More from AP:

  Hollande came aboard one of the warships that was originally named the Vladivostok, in reference to the Russian port. The inscription on the hull has been erased and replaced by grey paint.

  The Mistral sale was supposed to be the biggest arms sale ever by a NATO country to Russia, until the deal fell apart because of the Ukraine crisis. France refunded the 950 million euros ($1 billion) already paid by Russia and sold the ships to Egypt, which signed a 950 million-euro contract last week.

   

  “I had to sell them to a country that needed to ensure its own security but didn’t threaten anyone,” Hollande said.

   

  The assault ships can each carry 16 helicopter gunships, 700 troops and up to 50 armored vehicles. They are due to be delivered to Egyptian authorities in March 2016.

   

  The ships are supposed to arrive in Egypt in summer 2016 but first they should be de-equipped of Russian-developed command, control and communication systems.

  Russia promptly responded with the following simple and brief message:

  Paris is looking to sell new ships to Russia, France’s President Francois Hollande said during his visit to the Saint-Nazaire shipyard.  The president, however, neglected to mention whether Russia is actually eager to purchase such hardware from France.

  

  Or, as it summarized all of the above: “Sale away.”

  

  

  

  

  

• China Says Military Will "Stand Up And Use Force" If US Sends Warships To Islands

  Earlier this week, US officials indicated that they are set to go through with a plan to sail warships around China’s man-made islands in the Spratlys.

  “It’s just a matter of time when it happens,” one government source told WSJ.

  

  Over the course of the last six months, we’ve seen China’s land reclamation efforts go from oddity, to spectacle, to alleged “provocation”, to excuse for war as Washington feels compelled to come to the aid of its allies in the South Pacific who cried foul after it became apparent that this was no “normal” dredging effort. 

  In short, China has created some 3,000 acres of new sovereign territory and the US claims Beijing is effectively trying to redraw maritime boundaries on the way to establishing new military outposts. For its part, China denies the allegations and has responded with a peculiar mix of veiled threats (tweaking the wording of its official maritime strategy), not-so-veiled threats (telling a US spy plane with a CNN crew on board to “go now”), and humorous propaganda (a series of pictures from Fiery Cross depicting women, puppies, and gardens). 

  Despite efforts to de-escalate the matter when Xi visited the US this month, Beijing looks set to draw a line in the sand (no pun intended) when it comes to allowing the US to sail warships near the islands. Here’s AFP with more: 

  Chinese media slammed the US Thursday for “ceaseless provocations” in the South China Sea, with Washington expected to soon send warships close to artificial islands Beijing has built in disputed waters.

   

  Following a meeting of American and Australian officials Tuesday, US Defense Secretary Ash Carter warned Beijing that Washington will continue to send its military where international law allows, including the South China Sea.

   

  The remarks were backed by Australian Foreign Minister Julie Bishop, who said the two countries are “on the same page.”

   

  An editorial in The Global Times, which is close to China’s ruling Communist party, condemned Washington’s “ceaseless provocations and coercion”.

   

  
  

   

  “China mustn’t tolerate rampant US violations of China’s adjacent waters and the skies over those expanding islands,” it said, adding that its military should “be ready to launch countermeasures according to Washington’s level of provocation,” it added.

   

  The warship or ships would pass within the 12-mile territorial limit China claims around the structures to demonstrate that US commanders do not recognise it.

   

  Such a move, the Global Times suggested, could be a “breach of China’s bottom line”.

   

  “If the US encroaches on China’s core interests, the Chinese military will stand up and use force to stop it,” the paper warned.

  There you go. It doesn’t get much clearer than that.

  Obviously, there’s little doubt that China will use these islands for some military purpose. Whether that purpose will be extremely limited (as Beijing has suggested without explicitly acknowledging the militarization of the reefs) remains to be seen. 

  One question that one might fairly ask here however, is whether the US really needs to sail by the islands just to see if can do so without getting shot at. It isn’t, after all, as though China is on the verge of using the Spratlys as a staging ground for an invasion of the entire South Pacific so one wonders whether it might not be better to wait until there is some legitimate purpose for a pass-by. That way, Beijing can’t point to a deliberate “provocation.”

  Whatever the case, we suppose we will see in the next week or so who blinks first. 

  *  *  *

  A little background on the latest developments with accompanying visuals…

  Despite the fact that China claimed to have largely completed its dredging efforts in the Spratlys in June, Bonnie Glaser, a senior adviser at the Center for Strategic and International Studies in Washington, tells a different story. Here’s what Glaser has to say about a series of new images shown below and available at the Asia Maritime Transparency Initiative:

  China is still dredging in the South China Sea. Satellite imagery of Subi Reef taken in early September shows dredgers pumping sediment onto areas bordered by recently built sea walls and widening the channel for ships to enter the waters enclosed by the reef. On Mischief Reef, a dredger is also at work expanding the channel to enable easier access for ships, possibly for future use as a naval base.

   

  This activity comes in the wake of assertions by China that its land reclamation has ended in the Spratly Island chain. On August 5, during the ASEAN Regional Forum in Kuala Lumpur, Chinese foreign minister Wang Yi told reporters, “China has already stopped. You look, who is building? Take a plane and look for yourself.” He did not pledge that China would refrain from construction and militarization on the newly-created islands, however.

   

  Wang Yi reiterated that China’s construction on the islands is mainly “to improve the working and living conditions of personnel there” and for “public good purposes.” To date, however, China’s activity appears focused on construction for military uses. Recently built structures on Fiery Cross Reef include a completed and freshly painted 3,000-meter runway, helipads, a radar dome, a surveillance tower, and possible satellite communication facilities.

   

  Apparent Chinese preparations for building lengthy airstrips on Subi and Mischief raise questions about whether China will pose challenges to freedom of navigation in the air and sea surrounding those land features in the future.

   

  The persistence of dredging along with construction and militarization on China’s artificial islands underscore Beijing’s unwillingness to exercise self-restraint and look for diplomatic paths to reduce tensions with its neighbors, the United States, and other nations with an interest in the preservation of peace and stability in the South China Sea. U.S. calls for all claimants in the South China Sea to halt land reclamation, construction, and militarization have been rejected by China, which views the status quo as unfavorable to its interests.

   

  On the eve of President Xi Jinping’s visit to the United States, Beijing appears to be sending a message to President Barack Obama that China is determined to advance its interests in the South China Sea even if doing so results in heightened tensions with the United States.

  And more from Gregory Poling, a fellow with the Sumitro Chair for Southeast Asia Studies and the Pacific Partners Initiative at CSIS and AMTI director.

  Earlier this year, the addition of an airfield on Fiery Cross Reef provided a more southerly runway capable of handling most if not all Chinese military aircraft. And in June, satellite photos indicated that China was preparing to lay down another runway at Subi Reef. New photos taken on September 3 show grading work at Subi, providing further evidence that runway construction there is planned. Meanwhile work at the Fiery Cross airfield is well advanced, with China recently laying down paint.

   

  Satellite photos taken on September 8 contain an unanticipated development, indicating that China may be preparing to construct another airstrip at Mischief Reef. These images show that a retaining wall has been built along the northwest side of the reef, creating a roughly 3,000-meter rectangular area. 

  And the new visuals:

  

  

  

  

  We’ll close with the following from Robert Kaplan, a senior fellow at the Center for a New American Security in Washington who spoke to Bloomberg: 

  “The Chinese have a classic Sun Tzu philosophy of incremental steps. Because it is small steps, the Americans and their allies will not be able to respond in a strong fashion because they will seem to be over reacting. That is what makes China’s approach so infuriating.”

  

  

  

  

  

• There Goes The Final Pillar Of The US "Recovery": The Loan-Growth Paradox Explained

  With the manufacturing side of the economy now openly in recession (based not only on earnings call confessions, regional Fed surveys, but an inventory-to-sales spread that has never been greater and is screaming liquidation, as well as an energy sector that has been in freefall for the past year), and the US consumer – that 70% component of US GDP – slamming into a wall following not only three months of disappointing payrolls, non-existent wage growth, plunging retail sales, a high-end consumer that has stopped spending, and the lowest consumer confidence measured by Gallup in 2015, not to mention GDP itself, there were just two pillars of the so-called recovery that had not yet been crushed: housing and loan growth.

  Then yesterday, courtesy of the largest US mortgage lender, Wells Fargo, we learned that housing (all housing, not the tiny subset that is the all-cash “market” for ultra-luxury duplexes in NYC or San Fran which is only a function of how much laundered money Chinese oligarchs can park into the new “Swiss bank account” that U.S. real estate has become) was also rolling over after the worst quarter for mortgage applications in since the abysmal 2014.

  

  Which left commercial bank loans as the last remaining pillar of any so-called “recovery.”

  It was here, that after posing virtually no growth for over two years, starting in 2012, US bank lending, led by Commercial and Industrial or C&I lending growing at a double-digit pop, started to rise at an impressive pace, asking many to wonder: maybe the biggest driver for a sustainable economic recovery is in fact present, because where there is loan demand, there is velocity of money.

  

  Then a few years later, as the loan growth persisted with virtually no above-trend GDP growth to show for it, some – such as us – wondered: we know there is a “source of funds”, but what about the “use of funds.”

  The first flashing red flag appeared last July, when we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development, comparable to taking out a mortgage on one’s house and using the proceeds to buy deep out of the money calls on the S&P 500.

  This is what the FT said at the time:

  For the top 25 US commercial banks by assets, C & I lending grew by 10.5 per cent in the quarter to June 25 from the previous quarter, according to annualised weekly data from the Federal Reserve.

   

  This type of lending is an important source of business for the largest US banks, representing about a fifth of all loans made by the likes of Bank of America, JPMorgan Chase and Wells Fargo, according to Citigroup research. While low interest rates have made business lending less lucrative, the relationships it forges open doors for the banks to sell other services such as treasury management, hedging and leasing.

   

  A second corporate banking executive at a large regional lender said: “The larger part of the usage in the market right now are loan refinancings where companies are paying dividends back out.” He added: “They’re requesting increased loans or usage under a lien in order to pay a dividend or equity holders of a company. Traditionally banks have been very cautious of that.”

  Incidentally we explained all of this back in April of 2012 when we laid out why there simply can not be capital spending-fueled growth, when corporate shareholders can make far greater and faster profits using funds to splurge on buybacks, dividends and M&A – uses of capital that generate little or zero actual revenue growth.

  After scratching our heads for a few weeks afterward, we let the subject go: after all there is no way banks would be lending companies secured loans to use the proceeds to cash out existing stakeholders, in the process asset-stripping the corporation. This would mean that the loan officers at these banks are either criminally stupid, or corrupt and have been bribed by the borrower to close their eyes when signing the dotted line and wiring the funds.

  We promptly forgot this bizarre tangent into the “use of loan funds”… Until today when we found that it was, indeed, all a lie and that the banks themselves had become complicit in perpetuating not only the worst possible capital misallocation, but being an accessory to the US stagnation, soon to be replaced with full-blown recession.

  This is what CLSA’s Chris Wood found when looking at the several most recent loan officer surveys:

  … from the standpoint of the corporate sector, zero rates tend to encourage financial engineering over capital spending while also allowing non-competitive businesses to survive for longer. The financial engineering incentive provided by such policies has been most evident in America where share buybacks and M&A activity have surged even as capital spending has continued to disappoint. Thus, the latest data shows that S&P500 share buybacks and dividends rose by 6.6% YoY to a record US$923bn in the year to June, while total reported earnings declined by 8.4% YoY to US$841bn over the same period.

   

  

  And here is the punchline:

  Similarly American banks, in terms of the quite impressive pickup seen in commercial and industrial (C&I) loan growth (see Figure 10), have been financing financial engineering, be it M&A or share buybacks, not capex. Thus, C&I loans rose by 10.7% YoY in September. Yet in the Fed’s July Senior Loan Officer Survey, 26% and 18% respectively of US banks reporting stronger C&I loan demand stated that the ‘very important’ reason for stronger loan demand over the past three months were financing needs for M&A and debt refinancing, compared with only 6% for capital investment (see Figure 11). Meanwhile, the lack of healthy creative destruction associated with zero rates has long been associated with the Japanese experience of so-called zombie borrowers.

   

  

  There is the explanation of the paradox of surging C&I (and overall) loan growth, which took place even as overall economic growth and capital spending never followed. The reason? All that secured C&I debt was going not toward growth capital spending, or even maintenance/replacement CapEx, but simply into financial engineering: M&A and debt refis, the first to cash out the CEO of the acquiring or target company (with the generous blessings of the lender bank), the second to lower the cost of debt so more cash could be retained however not to grow the business but simply to fund the equity portion of said M&A.

  Meanwhile the loan demand associated with actual economic growth: a paltry 6% of the total!

  And while we are delighted to close the loop on this last “leg” of the recovery stool, one which stuck our like a sore thumb against a rapidly deteriorating economic landscape, confirming that we are indeed facing a recession and a very ugly one at that since the Fed can no longer cut rates even as the “economic-impact” credibility of QE is gone, what is more important is that this should be a lesson to everyone to remember that when money is transferred or when a loan is made there are always two sides to the equation: a sources of funds, and a use of funds. Because while everyone was focusing on the former, nobody remember to look at the letter.

  It is the latter that has made all the difference to the US recovery, or complete lack thereof.

  

  

  

  

  

• Nevada Shuts Down Fantasy Sports Sites: Apply For A Gaming License Or Face A Decade In Prison

  Earlier this week, the FBI and the Justice Department announced they were investigating whether the business models of daily fantasy-sports sites violate a Congressional exemption around the legality of transfers from financial institutions to online gambling sites.

  Effectively, sites like DraftKings and FanDuel rely on a loophole for “games of skill.” Here’s WSJ with the explanation: 

  The probe is in the preliminary stage, two people said. It is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites, in which customers pay entry fees to draft virtual sports teams that compete against each other for prize money based on the real-world performances of athletes. Congress in 2006 prohibited financial companies from transferring money to online gambling sites and several were shut down. But so-called games of skill were exempted. Fantasy-sports sites have since operated under that exemption.

  The idea, we suppose, is that betting on the “skills” of others is itself a “skill.” That is, if I know more about how the skills of say, one NFL player stack up against the skills of another NFL player, well then I too have a “skill”, and so therefore, sites which pay me to play my skills against the skills of other fans can exploit the above mentioned exemption.

  Obviously, that’s to a certain extent ridiculous, but whatever the case may be, the game (no pun intended) appears to now be up. Or at least in Nevada where you can gamble, but like the mob bosses who once ran the casinos, the state wants its cut of the action. Here’s AP:

  Nevada regulators have ordered daily fantasy sports sites like DraftKings and FanDuel to shut down, saying they can’t operate in the state without a gambling license.

   

  The decision comes amid growing backlash by investigators and regulators over the sites, which have grown in popularity in the past year.

   

  The sites insist they are skill-based games and not chance-based wagers, and are therefore not subject to gambling regulations.

   

  The state’s Gaming Control Board issued a notice Thursday saying the sites must stop offering their contests to Nevada residents effective immediately. Operators face felony fines and 10 years in prison.

  So there you have it FanDuel and DraftKings. Pay your protection money to run your gambling racket like everyone else. 

  Of course with a federal investigation looming, this is just the start of what, in sports terms, is likely to be a prolonged and deep slump for the industry – you can bet on that.

  Nevada

  

  

  

  

  

• Be Very Afraid: "The 3 EM Debacles" Loom, HSBC Warns

  As the emerging world continues to wrestle with a by now familiar set of problems including falling commodity prices, a decelerating China, the threat of a Fed hike, and, importantly, idiosyncratic political risks, the attendant underperformance might well lead you to wonder if this is perhaps “the time for courage” (to borrow a Gartman-ism). 

  In other words, some might be thinking that now is the time to BTFD in either EM FX, equities, or credit. 

  

  Of course we would note that as bad as the picture is now – and it’s pretty bad – things can always, always get worse especially given the fact that two EM darlings and one key emerging Asia nation all face intractable political crises, a situation which increases the potential for some manner of black swan or tail event to come calling. 

  As a reminder, Brazil needs desperately to find some kind of (lasting) compromise between President Dilma Rousseff and house speaker Eduardo Cunha lest the government’s utter inability to negotiate on budget reforms should end up shattering any last vestige of confidence the market might have in the country. 

  Meanwhile, Turkey is mired in a civil war of its own making and protracted periods of violence, terrorism, and ethnic feuding simply can’t coexist with a strong economy forever. 

  Finally, in Malaysia, PM Najib is at risk of seeing his career and legacy crumble before his very eyes as he struggles to explain how $700 million from the country’s embattled development fund ended up in his personal bank account.

  We mention those examples because the BRL, the TRY, and the MYR have performed miserably, but as you can see from the above, the political risk factors are very real indeed which should give one pause before reaching out to catch the falling knife and which should also underscore the importance of making a concerted effort to understand the intersection between finance and politics before placing bets on a whim. 

  But make no mistake, at its most basic level, this is a story about the fundamentals and the fundamentals for EM are quite simply a disaster:

  • Global growth and trade have entered a new era characterized by structural, endemic sluggishness 
  • Thanks to loose monetary policy that has kept capital markets wide open to otherwise insolvent producers and thanks also to anemic global demand, commodity prices aren’t likely to rebound anytime soon
  • Because the Fed missed its window to hike, both a hawkish and a dovish Fed are likely precipitate capital outflows

  As it turns out, HSBC went looking for opportunities across EM and came to the same conclusions. 

  First, we have the five reasons for EM malaise:

  These are, in brief: collapse in global trade cycle, competitiveness problems (rising manufacturing unit labour costs), faltering domestic demand, downside risks posed by China, and the slump in commodity prices. 

  And this is leading directly to a convergence of DM and EM growth, but not because DM is performing well:

  The growth differential between EM and DM is still narrowing, not necessarily because DM is doing well but because EM is performing miserably. The leading indicators do not suggest any imminent improvement, either.

   

  
  

  That’s not the only place we’re seeing a “convergence” between EM and DM – they are also starting to look alike in terms of leverage:

  The situation becomes even more toxic when the EM leverage cycle is taken into account. Thanks to years of abundant and cheap external liquidity, EM has built up debt very rapidly, while the drivers of economic growth have shifted towards private sector (household and corporate) credit. 

  In many ways, EM is showing similar symptoms to its DM counterparts of weak economic performance and over- reliance on credit. The outcome is what we call the three EM debacles: de-leveraging, depreciation (or devaluation even de-pegging) and downgrades of credit ratings. 

   

  
  

  And now that the Fed has missed its window and, on top of that, changed its reaction function, uncertainty around the FOMC is greater than ever.

  The external environment was already unhelpful with a very weak global trade cycle, erratic capital flows – and recently mostly outflows – and the risks surrounding the Chinese economy. On top, there is now another layer of uncertainty relating to the Fed, which has been telegraphing the message of lift-off in 2015 throughout the year, only to see the markets constantly pricing out the possibility of the first hike, not to mention the loss of momentum recently in the US economy. Fed monetary policy and its communication is becoming increasingly a source of uncertainty. 

  The takeaway: “In sum, this is a precarious environment, and we do not recommend taking risky positions in the EM space.” 

  So coming full circle to our intro, this is, to quote the incomparable Gartman, “not the time for courage”…

  

  

  

  

  

  

• Whistleblower: 90% of Drone Fatalities Are Civilians

  A new US whistleblower reveals that 90% of all deaths caused by US drones are civilians.  And see this, this and this.

  The bigger picture:

  • 90% of all deaths in ALL wars are civilians, on average

  • Obama has killed MORE people with drones than died on 9/11

  • Drone strikes CREATE 10 times as many terrorists than they kill (and see this)

  • The U.S. doesn’t even know the IDENTITY of the people it’s killing (more)

  • The US labels ALL young men in battle zones as “militants”

  • A former high-level intelligence official labels it “UNDISCIPLINED slaughter“

  • One of the main agencies responsible for deciding who gets killed with drones is ALSO largely responsible for spying on Americans

  

  

  

  

• Sanders And His Followers Are Not Outliers

  Submitted by Jeff Deist via The Mises Institute,

  Depending on one’s point of view, Bernie Sanders either held his own or boosted his chances against perceived front-runner Hillary Clinton in Tuesday night’s Democratic presidential primary debate. His message clearly resonated with the live audience, particularly his statements about raising the minimum wage to $15 per hour, global warming, and government-mandated paid childcare leave.

  Progressives are emboldened by Sanders, who reportedly draws upward of 20,000 people at events. He inspires them with his attacks on capitalism, happily calling himself a “Democratic Socialist.” And his economic plans, while a mess, appeal to their radical (and disastrous) notions of egalitarianism.

  Happily, there are murmurs of discontent — progressives like to eat their own. His crowds skew overwhelmingly white and older, leading to allegations that Sanders suffers from a whiteness problem. His home state of Vermont is laughably un-diverse and prosperous, home to woodsy limousine liberals who like the idea of urban living more than the reality. But nobody ever lost a political race purely for hypocrisy — and while Bernie’s brand of socialism might fade with the Birkenstock Boomer crowd, Occupy Wall Street millennials stand waiting.

  Regardless of whether Sanders ultimately secures the nomination, the size and energy of the Bernie phenomenon should not be underestimated. If anything, libertarians consistently misjudge the degree to which socialist thought is deeply rooted in the American psyche.

  Like Sanders, millions of American progressives hold these deeply statist and authoritarian beliefs:

  • changes in climate threaten human extinction;
  • fossil fuels should be banned, and alternative fuels should be mandated;
  • wealth and income should be forcibly redistributed;
  • no individual should earn more than a set amount of money each year;
  • welfare and entitlement programs should be vastly increased;
  • whole industries (healthcare, education) should be nationalized, while others (energy, banking) should be regulated to the point of de facto nationalization;
  • some form of global government should be installed;
  • a global wealth tax should be implemented;
  • private ownership of firearms should be banned;
  • anti-discrimination legislation should be applied to private religious organizations;
  • racial, gender, and sexual orientation quotas should be mandated on both public and private employers;
  • certain types of speech should be criminalized;
  • certain criminals should be subjected to greater penalties if motivated by “hate”;
  • social justice should be pursued by any means necessary; and
  • government should attempt to engineer equality of outcomes.

  These ideas, and the people who hold them, are not outliers in America. There are millions of rank and file progressives, mostly registered Democrats, who believe exactly as Bernie believes. They may prefer to vote for Hillary Clinton purely as a tactical matter because they are unsure the country is “ready” for full socialism, or because they think Hillary has a better chance of beating the hated Republicans in the general election.

  But average progressives and Democrats agree with Bernie Sanders across the board, whether they plan to vote for him or not.

  Do average Republicans and conservatives agree with Ron Paul? Do most registered Republicans really advocate eliminating income taxes, abolishing entire federal agencies, repealing the Federal Reserve Act, ending all foreign interventions, and drastically downsizing the US military? Are most conservatives, in their hearts, radically anti-state? The answer is no. Most conservatives are only nominally less statist, often more corporatist, and almost invariably more militarist than progressives.

  The reason is simple, though we tend to forget it: the twentieth century was a radically progressive century. Income taxes, central banking, social insurance schemes, demand-side Keynesian economics, and Wilsonian internationalism — all radical ideas — have become entrenched articles of faith over the past 100 years. When we talk about politics or economics today, we do so within a thoroughly progressive framework.

  The entire progressive agenda of the last century, which would have sounded outrageous to the libertarian-tinged ear of the average American in 1900, is now merely the baseline from which all government action originates.

  That’s why abolitionist libertarians are on the defensive in modern political discourse, while grandiose progressives are on the attack: the default position in American politics is for government to do something.

  So we shouldn’t downplay or minimize the success of progressives in shifting the landscape dramatically in favor of the state over the past century. Progressives never went away, despite the rhetoric of Ronald Reagan or Milton Friedman or Bill Clinton. The era of big government is still here, and it always was.

  So what should libertarians do, in an absurd progressive world obsessed with supposed global warming, inequality, racism, sexism, homophobia, transphobia, and privilege, ad nauseam?

  The answer could fill a book, but let me suggest we start by freeing ourselves of the burdens of politics. Our battle is for hearts and minds, not votes. While Democrats and Republicans fixate on candidates and their supposed policies, libertarians are free to remain psychologically and emotionally detached from the whole sordid process.

  And with that detachment comes freedom: the freedom to inspire, educate, and influence other people of good will without the divisive cloud of partisan politics creating suspicion and distrust. Once people know you’re not simply making arguments to support “your guy” — or any guy — they tend to view you more impartially and hence more favorably.

  A new era of liberty, peace, and prosperity will not be won at the ballot box. It will be won at ground level, individual by individual, as progressive ideas crumble in the face of unsustainable government debts, unsustainable government wars, and unsustainable government entitlements.
   

  

  

  

  

  

• Tomorrow Is OpEx: What Happens Next?

  Presented with little comment aside to say “Fool me once, shame on you” but fool me eight times…

  Behold The OPEX Rallies…

  

  2015’s OPEX rallies haven’t failed yet to provide a tradabale downswing… is the market capable of withstanding one this time?

   

  Source: NorthmanTrader.com
  

  

  

  

  

  

• Oct 16 – Fed's Dudley: Uncertainty about China creates uncertainty about US outlook

  EMOTION MOVING MARKETS NOW: 41/100 FEAR

  PREVIOUS CLOSE: 35/100 FEAR

  ONE WEEK AGO: 42/100 FEAR 
  ONE MONTH AGO: 16/100 EXTREME FEAR

  ONE YEAR AGO: 1/100 EXTREME FEAR

  Put and Call Options: FEAR During the last five trading days, volume in put options has lagged volume in call options by 25.06% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 16.05. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The CBOE Volatility Index (VIX) is at 18.03. This is a neutral reading and indicates that market risks appear low.

   

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC) | 10 YR T NOTE | 2 YR T  NOTE | 5 YR T NOTE | 30 YR TREASURY BOND| SOYBEANS | CORN

   

  MEME OF THE DAY – IT’S THE JERKS

   

  UNUSUAL ACTIVITY

  VXX OCT WEEKLY4 21.5 CALLS7K+ @$.58

  LOCK NOV 8 PUT Activity on the BID side

  LULU NOV 55 CALL Activity 2500 block @$1.20 on offer

  EDGE SC 13D Filed by NEW LEAF Ventures .. 8.2%

  TROX .. SC 13G Filed by Putnam Investments .. 13.2%

  More Unusual Activity…

  HEADLINES

   

  ECB’s Nowotny says new measures needed to boost inflation

  Fed’s Dudley dismisses -ve rates, says economy slowing

  Fed’s Dudley: Uncertainty about China creates uncertainty about US outlook

  Tsy Sec Lew: Extraordinary measures will be exhausted by 3/Nov

  ECB’s Draghi calls for Greek banks to get aid by 15/Nov

  ECB’s Constancio: Diverging Fed, Global MonPol a CBank Challenge

  BoE’s Vlieghe gets nod, but MPs stress need for BoE review

  US DOE Crude Inventory (WoW) Oct-09: 7562K (est. 2577K, prev. 3073K)

  EIA Natural Gas Storage Change Oct-09: 100 (est. 93, prev. 95)

  PBOC researcher sees yuan gains amid global money shortage

   

  GOVERNMENTS/CENTRAL BANKS

  Fed’s Dudley: Recent news suggests economy is slowing –ForexLive

  Fed’s Dudley: Uncertainty about China creates uncertainty about US outlook –FoerxLive

  US Tsy Sec Lew: Extraordinary measures will be exhausted no later than 3/Nov –ForexLive

  Fed buys $5.7bn MBS in the week, sells $200m

  ECB’s Nowotny says new measures needed to boost inflation –Rtrs

  ECB’s Draghi calls for Greek banks to get aid by 15/Nov –WiWo

  ECB’s Constancio: Diverging Fed, Global MonPol a CBank Challenge –MNI

  BoE’s Vlieghe gets nod, but MPs stress need for BoE review –FT

  Greece Dep FinMin Chouliarakis: Greek govt to ask for lowering annual debt servicing needs –SZ

  FIXED INCOME

  US Mortgage Rates Drop, But Just Barely, On Downbeat Economic News –Bankrate

  Portuguese bonds: Picking up speed (downwards) –FT

  Ireland NTMA Sees Lower 2016 Funding Target –MNI

  Fitch: Irish Budget Consistent with Improving Public Finances

  FX

  USD: Dollar sliding on data and policy split –FT

  EUR: Euro falls vs USD

  NZD: Kiwi dollar leads USD charge –DL

  EM FX: Mexico, Malaysia lead FX reserve falls in emerging markets ex-China –Rtrs

  ENERGY/COMMODITIES

  WTI futures settle 0.6% lower at $46.38 per barrel

  US DOE Crude Inventory (WoW) Oct-09: 7562K (est. 2577K, prev. 3073K)

  US DOE Distillate Inventory (WoW) Oct-09: -1520K (est. -700K, prev. -2458K)

  US DOE Cushing Inventory (WoW) Oct-09: 1125K (est. 200K, prev. 98K)

  US DOE Gasoline Inventory (WoW) Oct-09: -2618K (est. -1250K, prev. 1910K)

  US DOE Refinery Runs (WoW) Oct-09: 01.50% (est. -0.48%, prev. -2.30%)

  EIA Natural Gas Storage Change Oct-09: 100 (est. 93, prev. 95)

  CRUDE: BARC says oil prices will recover quickly –MW

  UK faces worst energy supply crunch in a decade –FT

  COMMENT: How stock and bond indices could signal end of oil rout –FT

  Saudi Oil Minister Naimi: That demand for oil globally is improving –Rtrs

  Gold erases 2015 losses –BBG

  Antofagasta CEO: Copper near bottom as China absorbs supply, no plans to pare back mine production –BBG

  EQUITIES

  EARNINGS: Goldman Sachs Posts Weaker Results –WSJ

  EARNINGS: Citi beats expectations –CNBC

  EARNINGS: Philip Morris beats Q3 estimates –Benzinga

  EARNINGS: Blackstone Misses Q3 EPS By 5c –StreetInsider

  EARNINGS: US Bancorp profit rises in line with forecasts –MST

  EARNINGS: UnitedHealth Revenue Surges, But Bottom Line Flat –WSJ

  EARNINGS: Charles Schwab profit up 17 pct in third quarter –Rtrs

  BANKS: Deutsche Bank Said to Plan Sale of U.S. Private-Client Brokerage –BBG

  BANKS: Deutsche Bank Libor Probe Said to Rise to Former Trading Manager –BBG

  BANKS: UK banks to need 3.3 billion pounds more capital under BoE plan –Rtrs

  ACTIVIST: TeliaSonera Falls After Muddy Waters Questions Transparency –BBG

  LEGAL: EU to rule Starbucks, Fiat benefited from illegal tax deals -?WSJ

  LEGAL: Valeant subpoenaed by US prosecutors over drug pricing –Rtrs

  M&A: Vivendi takes stakes in Ubisoft and Gameloft –FT

  EM: China Construction Bank in talks to buy LME broker Metdist –Rtrs

  C&E: Glencore Plans More Debt Cuts to Help Win Upgrade in Credit Rating –WSJ

  EMERGING MARKETS

  PBOC researcher sees yuan gains amid global money shortage –Shanghai Sec News

  CHINA: Lower rates, slow economy spur China bank lending –FT

  Indonesia central bank holds key rate at 7.50% –BT

   

  Fitch Downgrades Brazil to ‘BBB-‘; Outlook Negative

  

  

  

  

  

• 'New Snowden' Reveals Obama's Secret Drone Assassination Program

  It's been just over two years since Edward Snowden leaked a massive trove of NSA documents, and more than five since Chelsea Manning gave WikiLeaks a megacache of military and diplomatic secrets. Now, as Wired.com explains, there appears to be a new source on that scale of classified leaks—this time with a focus on drones.

  On Thursday the Intercept published a groundbreaking new collection of documents related to America’s use of unmanned aerial vehicles to kill foreign targets in countries ranging from Afghanistan to Yemen.

   

  The revelations about the CIA and Joint Special Operations Command actions include primary source evidence that as many as 90 percent of US drone killings in one five month period weren’t the intended target, that a former British citizen was killed in a drone strike despite repeated opportunities to capture him instead, and details of the grisly process by which the American government chooses who will die, down to the “baseball cards” of profile information created for individual targets, and the chain of authorization that goes up directly to the president.

   

  All of this new information, according to the Intercept, appears to have come from a single anonymous whistleblower. A spokesperson for the investigative news site declined to comment on that source.

   

  But unlike the leaks of Snowden or Manning, the spilled classified materials are accompanied by statements about the whistleblower’s motivation in his or her own words.

   

  “This outrageous explosion of watchlisting—of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield—it was, from the very first instance, wrong,” the source tells the Intercept. “We’re allowing this to happen. And by ‘we,’ I mean every American citizen who has access to this information now, but continues to do nothing about it.”

  Mike Krieger of Liberty Blitzkrieg blog digs into the dreadful details,

  Besides sharing my own personal insight into the goings on in this crazy world we live in, and where I think things are headed, the other primary purpose of Liberty Blitzkrieg is to highlight certain stories that readers may have missed or overlooked while dealing with all the ins and outs of everyday life.

  In a perfect world, every American would read the eight articles that comprise the Intercept’s drone investigation published earlier today; however, the reality is that simply isn’t going to happen. As such, I went ahead and read them myself, and what follows are some particularly juicy excerpts that will hopefully inspire readers to investigate further.

  The reason I think these articles are so important, is not because they are based on intel leaked by an additional whistleblower (i.e., not Snowden), but because you can’t read the information without concluding quite simply that the U.S. empire is completely and totally out of control. That the plethora of American military adventures overseas are not only not making us safer, but are in fact making us far more vulnerable.

  This information will be presented by providing the title of each article with a link, as well as author attribution, followed by relatively brief excepts. I hope you find all of this as interesting and concerning as I did.

  1. The Assassination Complex by Jeremy Scahill

  When the Obama administration has discussed drone strikes publicly, it has offered assurances that such operations are a more precise alternative to boots on the ground and are authorized only when an “imminent” threat is present and there is “near certainty” that the intended target will be eliminated. Those terms, however, appear to have been bluntly redefined to bear almost no resemblance to their commonly understood meanings.

   

  The first drone strike outside of a declared war zone was conducted more than 12 years ago, yet it was not until May 2013 that the White House released a set of standards and procedures for conducting such strikes. Those guidelines offered little specificity, asserting that the U.S. would only conduct a lethal strike outside of an “area of active hostilities” if a target represents a “continuing, imminent threat to U.S. persons,” without providing any sense of the internal process used to determine whether a suspect should be killed without being indicted or tried. The implicit message on drone strikes from the Obama administration has been one of trust, but don’t verify.

   

  The source said he decided to provide these documents to The Intercept because he believes the public has a right to understand the process by which people are placed on kill lists and ultimately assassinated on orders from the highest echelons of the U.S. government. “This outrageous explosion of watchlisting — of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield — it was, from the very first instance, wrong,” the source said.

   

  Additional documents on high-value kill/capture operations in Afghanistan buttress previous accounts of how the Obama administration masks the true number of civilians killed in drone strikes by categorizing unidentified people killed in a strike as enemies, even if they were not the intended targets. The slides also paint a picture of a campaign in Afghanistan aimed not only at eliminating al Qaeda and Taliban operatives, but also at taking out members of other local armed groups.

   

  “The military is easily capable of adapting to change, but they don’t like to stop anything they feel is making their lives easier, or is to their benefit. And this certainly is, in their eyes, a very quick, clean way of doing things. It’s a very slick, efficient way to conduct the war, without having to have the massive ground invasion mistakes of Iraq and Afghanistan,” the source said. “But at this point, they have become so addicted to this machine, to this way of doing business, that it seems like it’s going to become harder and harder to pull them away from it the longer they’re allowed to continue operating in this way.”

  2. A Visual Glossary by Josh Begley

  Over a five-month period, U.S. forces used drones and other aircraft to kill 155 people in northeastern Afghanistan. They achieved 19 jackpots. Along the way, they killed at least 136 other people, all of whom were classified as EKIA, or enemies killed in action.

   

  Note the “%” column. It is the number of jackpots (JPs) divided by the number of operations. A 70 percent success rate. But it ignores well over a hundred other people killed along the way.

   

  This means that almost 9 out of 10 people killed in these strikes were not the intended targets.

   

  Hellfire missiles—the explosives fired from drones—are not always fired at people. In fact, most drone strikes are aimed at phones. The SIM card provides a person’s location—when turned on, a phone can become a deadly proxy for the individual being hunted.

   

  A “blink” happens when a drone has to move and there isn’t another aircraft to continue watching a target. According to classified documents, this is a major challenge facing the military, which always wants to have a “persistent stare.”

   

  The conceptual metaphor of surveillance is seeing. Perfect surveillance would be like having a lidless eye. Much of what is seen by a drone’s camera, however, appears without context on the ground. Some drone operators describe watching targets as “looking through a soda straw.”

   

  As we reported last year, U.S. intelligence agencies hunt people primarily on the basis of their cellphones. Equipped with a simulated cell tower called GILGAMESH, a drone can force a target’s phone to lock onto it, and subsequently use the phone’s signals to triangulate that person’s location.

  3. The Kill Chain by Cora Currier

  The Obama administration has been loath to declassify even the legal rationale for drone strikes — let alone detail the bureaucratic structure revealed in these documents. Both the CIA and JSOC conduct drone strikes in Yemen, and very little has been officially disclosed about either the military’s or the spy agency’s operations.

   

  The May 2013 slide describes a two-part process of approval for an attack: step one, “‘Developing a target’ to ‘Authorization of a target,’” and step two, “‘Authorizing’ to ‘Actioning.’” According to the slide, intelligence personnel from JSOC’s Task Force 48-4, working alongside other intelligence agencies, would build the case for action against an individual, eventually generating a “baseball card” on the target, which was “staffed up to higher echelons — ultimately to the president.”

  Here’s what this “killing chain” of command looked like:

  

  To quote Star Wars:

  “You will never find a more wretched hive of scum and villainy. We must be cautious.”

  In practice, the degree of cooperation with the host nation has varied. Somalia’s minister of national security, Abdirizak Omar Mohamed, told The Intercept that the United States alerted Somalia’s president and foreign minister of strikes “sometimes ahead of time, sometimes during the operation … normally we get advance notice.” He said he was unaware of an instance where Somali officials had objected to a strike, but added that if they did, he assumed the U.S. would respect Somalia’s sovereignty.

  Don’t make me laugh. A more idiotic statement has never been uttered.

  Obama administration officials have said that in addition to being a member of al Qaeda or an associated force, targets must also pose a significant threat to the United States.

   

  The study does not contain an overall count of strikes or deaths, but it does note that “relatively few high-level terrorists meet criteria for targeting” and states that at the end of June 2012, there were 16 authorized targets in Yemen and only four in Somalia.

   

  Despite the small number of people on the kill list, in 2011 and 2012 there were at least 54 U.S. drone strikes and other attacks reported in Yemen, killing a minimum of 293 people, including 55 civilians, according to figures compiled by the Bureau of Investigative Journalism. In Somalia, there were at least three attacks, resulting in the deaths of at minimum six people.

   

  Some of those Yemen strikes were likely carried out by the CIA, which since mid-2011 has flown drones to Yemen from a base in Saudi Arabia and reportedly has its own kill list and rules for strikes.

   

  The large number of reported strikes may also be a reflection of signature strikes in Yemen, where people can be targeted based on patterns of suspect behavior. In 2012, administration officials said that President Obama had approved strikes in Yemen on unknown people, calling them TADS, or “terror attack disruption strikes,” and claiming that they were more constrained than the CIA’s signature strikes in Pakistan.

   

  The study refers to using drones and spy planes to “conduct TADS related network development,” presumably a reference to surveilling behavior patterns and relationships in order to carry out signature strikes. It is unclear what authorities govern such strikes, which undermine the administration’s insistence that the U.S. kills mainly “high-value” targets.

   

  Another factor is timing: If the 60-day authorization expired, analysts would have to start all over in building the intelligence case against the target, said a former senior special operations officer, who asked not to be identified because he was discussing classified materials. That could lead to pressure to take a shot while the window was open.

   

  A September 2012 strike in Yemen, extensively investigated by Human Rights Watch and the Open Society Foundations, killed 12 civilians, including three children and a pregnant woman. No alleged militants died in the strike, and the Yemeni government paid restitution for it, but the United States never offered an explanation.

  4. Find, Fix, Finish by Jeremy Scahill

  The CIA had long dominated the covert war in Pakistan, and in 2009 Obama expanded the agency’s drone resources there and in Afghanistan to regularly pound al Qaeda, the Pakistani Taliban, and other targets. The military, tasked with prosecuting the broader war in Afghanistan, was largely sidelined in the Pakistan theater, save for the occasional cross-border raid and the Air Force personnel who operated the CIA’s drones. But the Pentagon was not content to play a peripheral role in the global drone war, and aggressively positioned itself to lead the developing drone campaigns in Yemen and Somalia.

   

  In September 2009, then-Centcom Commander Gen. David Petraeus issued a Joint Unconventional Warfare Task Force Execute Order that would lay the groundwork for military forces to conduct expanded clandestine actions in Yemen and other countries. It allowed for U.S. special operations forces to enter friendly and unfriendly countries “to build networks that could ‘penetrate, disrupt, defeat or destroy’ al Qaeda and other militant groups, as well as to ‘prepare the environment’ for future attacks by American or local military forces.”

  Ah, our old friend General David Petraeus. Who recently left “public service” to make his riches on Wall Street, and who also recently suggested America ally itself with al-Qaeda to fight ISIS. Just in case you’re still confused as to just how deranged and inept U.S. foreign policy has become.

  In December 2009, the Obama administration signed off on its first covert airstrike in Yemen — a cruise missile attack that killed more than 40 people, most of them women and children. After that strike, as with the CIA’s program in Pakistan, drones would fuel the Joint Special Operations Command’s high-value targeting campaign in the region.

   

  When Obama took office, there had been only one U.S. drone strike in Yemen — in November 2002. By 2012, there was a drone strike reported in Yemen every six days. As of August 2015, more than 490 people had been killed in drone strikes in Yemen alone.

   

  It is the politically advantageous thing to do — low cost, no U.S. casualties, gives the appearance of toughness,” said Adm. Dennis Blair, Obama’s former director of national intelligence, explaining how the administration viewed its policy at the time. “It plays well domestically, and it is unpopular only in other countries. Any damage it does to the national interest only shows up over the long term.”

   

  During the period covered in the ISR study — January 2011 through June 2012 — three U.S. citizens were killed in drone strikes in Yemen. Only one, the radical preacher Anwar al Awlaki, was labeled the intended target of the strike. The U.S. claimed it did not intend to kill Samir Khan, who was traveling with Awlaki when a Hellfire hit their vehicle. The third — and most controversial — killing of a U.S. citizen was that of Awlaki’s son, 16-year-old Abdulrahman Awlaki. He was killed two weeks after his father, while having dinner with his cousin and some friends. Immediately after the strike, anonymous U.S. officials asserted that the younger Awlaki was connected to al Qaeda and was 21 years old. After the family produced his birth certificate, the U.S. changed its position, with an anonymous official calling the killing of the teenager an “outrageous mistake.”

   

  Lt. Gen. Flynn, who since leaving the DIA has become an outspoken critic of the Obama administration, charges that the White House relies heavily on drone strikes for reasons of expediency, rather than effectiveness. “We’ve tended to say, drop another bomb via a drone and put out a headline that ‘we killed Abu Bag of Doughnuts’ and it makes us all feel good for 24 hours,” Flynn said. “And you know what? It doesn’t matter. It just made them a martyr, it just created a new reason to fight us even harder.”

   

  Glenn Carle, a former senior CIA officer, disputes Flynn’s characterization of the Obama administration’s motive in its widespread use of drones. “I would be skeptical the government would ever make that formal decision to act that way,” Carle, who spent more than two decades in the CIA’s clandestine services, told The Intercept. “Obama is always attacked by the right as being soft on defense and not able to make the tough decisions. That’s all garbage. The Obama administration has been quite ruthless in its pursuit of terrorists. If there are people who we, in our best efforts, assess to be trying to kill us, we can make their life as short as possible. And we do it.”

   

  The study, which utilizes corporate language to describe lethal operations as though they were a product in need of refining and upgrading, includes analyses from IBM, which has boasted that its work for the Pentagon “integrates commercial consulting methods with tacit knowledge of the mission, delivering work products and advice that improve operations and creates [sic] new capabilities.”

   

  As the Obama era draws to a close, the internal debate over control of the drone program continues, with some reports suggesting the establishment of a “dual command” structure for the CIA and the military. For now, it seems that the military is getting much of what it agitated for in the ISR study. In August, the Wall Street Journal reported that the military plans to “sharply expand the number of U.S. drone flights over the next four years, giving military commanders access to more intelligence and greater firepower to keep up with a sprouting number of global hot spots.” The paper reported that drone flights would increase by 50 percent by 2019, adding: “While expanding surveillance, the Pentagon plan also grows the capacity for lethal airstrikes.”

  5. Manhunting in the Hindu Kush by Ryan Devereaux

  This piece requires a brief intro. It deals with U.S. covert operations on the Afghan/Pakistani border, a place where America had considerable ground support and intel. Nevertheless, what ended up happening is that the U.S. merely resorting to going after everyday street thugs they didn’t like who had nothing to do with al-Qaeda. All this did was create a vast army of newly created enemies.

  Despite all these advantages, the military’s own analysis demonstrates that the Haymaker campaign was in many respects a failure. The vast majority of those killed in airstrikes were not the direct targets. Nor did the campaign succeed in significantly degrading al Qaeda’s operations in the region. When contacted by The Intercept with a series of questions regarding the Haymaker missions, the United States Special Operations Command in Afghanistan declined to comment on the grounds that the campaign — though now finished — remains classified.

   

  The secret documents obtained by The Intercept include detailed slides pertaining to Haymaker and other operations in the restive border regions of Afghanistan, including images, names, and affiliations of alleged militants killed or captured as a result of the missions; examples of the intelligence submitted to trigger lethal operations; and a “story board” of a completed drone strike. The targets identified in the slides as killed or detained represent a range of militant groups, including alleged members of the Taliban and al Qaeda — but also local forces with no international terrorism ambitions, groups that took up arms against the U.S after American airstrikes brought the war to their doorsteps.

  Brilliant. Just brilliant.

  The frequency which “targeted killing” operations hit unnamed bystanders is among the more striking takeaways from the Haymaker slides. The documents show that during a five-month stretch of the campaign, nearly nine out of 10 people who died in airstrikes were not the Americans’ direct targets. By February 2013, Haymaker airstrikes had resulted in no more than 35 “jackpots,” a term used to signal the neutralization of a specific targeted individual, while more than 200 people were declared EKIA — “enemy killed in action.”

   

  In the complex world of remote killing in remote locations, labeling the dead as “enemies” until proven otherwise is commonplace, said an intelligence community source with experience working on high-value targeting missions in Afghanistan, who provided the documents on the Haymaker campaign. The process often depends on assumptions or best guesses in provinces like Kunar or Nuristan, the source said, particularly if the dead include “military-age males,” or MAMs, in military parlance. “If there is no evidence that proves a person killed in a strike was either not a MAM, or was a MAM but not an unlawful enemy combatant, then there is no question,” he said. “They label them EKIA.” In the case of airstrikes in a campaign like Haymaker, the source added, missiles could be fired from a variety of aircraft. “But nine times out of 10 it’s a drone strike.”

   

  According to the documents, raids performed on the ground during Haymaker were far less lethal than airstrikes and led to the capture of scores of individuals. Research by Larry Lewis, formerly a principal research scientist at the Center for Naval Analyses, supports that conclusion. Lewis spent years studying U.S. operations in Afghanistan, including raids, airstrikes, and jackpots, all with an eye to understanding why civilian casualties happen and how to better prevent them. His contract work for the U.S. military, much of it classified, included a focus on civilian casualties and informed tactical directives issued by the top generals guiding the war. During his years of research, what Lewis uncovered in his examination of U.S. airstrikes, particularly those delivered by machines thought to be the most precise in the Pentagon’s arsenal, was dramatic.

   

  He found that drone strikes in Afghanistan were 10 times more likely to kill civilians than conventional aircraft.

  Recall the following from 2013:

  New Report: Drone Strikes 10x More Deadly to Civilians than Manned Aircraft

  “We assume that they’re surgical but they’re not,” Lewis said in an interview. “Certainly in Afghanistan, in the time frame I looked at, the rate of civilian casualties was significantly higher for unmanned vehicles than it was for manned aircraft airstrikes. And that was a lot higher than raids.”

   

  “When viewed from absolutely the wrong metric, the Americans were very successful at hunting people,” said Matt Trevithick, a researcher who in 2014 made more than a dozen unembedded trips to some of Kunar’s most remote areas in an effort to understand the province, and American actions there, through the eyes of its residents. The problem, he said, is that savvy, opportunistic strongmen maneuvered to draw U.S. forces into local conflicts, a dynamic that played out again and again throughout the war. “We knew nothing about who we were shooting at — specifically in Kunar,” Trevithick said. He understands the frustration of conventional U.S. forces who were dropped in places like Kunar. “I don’t blame them,” he said. “They’re put in an impossible situation themselves. But what happens is everyone starts looking like the enemy. And that means you start shooting. And that means people actually do become the enemy.”

  This is precisely why the Foundering Fathers warned us not to become involved in foreign entanglements. They are easy to start, far harder to get out of.

  After nearly a decade of war, thousands of operations, and thousands of deaths, some within the special operations community began to question the quality of the United States’ targets in Afghanistan. “By 2010, guys were going after street thugs,” a former SEAL Team 6 officer told the New York Timesrecently. “The most highly trained force in the world, chasing after street thugs.” Concerns that the U.S. was devoting tremendous resources to kill off a never-ending stream of nobodies did little to halt the momentum.

   

  Still, the documents’ assessment of Haymaker’s effectiveness was frank. A slide detailing the campaign’s “effects” from January 2012 through February 2013 included an assessment of “Objectives & Measures of Effectiveness.” The results were not good. Disruptions in al Qaeda’s view of northeastern Afghanistan as a safe haven and the loss of “key” al Qaeda members and enablers in the region were deemed “marginal.” Meanwhile, a comparison of Haymaker 1.0 (August 2011) with Haymaker 2.0 (February 2013) noted that al Qaeda faced “little to no local opposition” and enjoyed “relatively free movement” to and from Pakistan. Kinetic strikes, the slide reported, “successfully killed one [al Qaeda] target per year,” allowing the organization to “easily” reconstitute.

   

  Until recently, the ongoing conflict in Afghanistan had largely receded from public conversations in the U.S. This month, an American airstrike on a hospital run by the international organization Médecins Sans Frontières, offered a forceful reminder that the war, despite the Obama administration’s declaration in 2014, is far from over. Unleashed in the early morning hours of October 3, in the province of Kunduz, the U.S. attack killed at least a dozen members of the humanitarian group’s medical staff and 10 patients, including three children. A nurse on the scene recalled seeing six victims in the intensive care unit ablaze in their beds. “There are no words for how terrible it was,” the nurse said. MSF denounced the strike as a war crime and demanded an independent investigation.

  So how does Obama celebrate this war crime? By halting a withdrawal of troops from the country, announced today.

  Apparently, Obama wants to leave no hospital unbombed before retreating.

  The Kunduz attack underscored an ugly reality: After nearly a decade and a half of war, more than 2,300 American lives lost, and an estimated 26,000 Afghan civilians killed, the nature of combat in Afghanistan is entering a new, potentially bloodier, phase. In August, the United Nations reported that civilian casualties in Afghanistan “are projected to equal or exceed the record high numbers documented last year.” While most civilian casualties in the first half of 2015 were attributed to “anti-government” forces, 27 deaths and 22 injuries were attributed to airstrikes “by international military forces,” a 23 percent increase over last year, most of them, unlike the air raid in Kunduz, carried out by drones.

   

  Afghanistan’s northeastern border with Pakistan remains an active area of focus for the remaining U.S. special operations forces in the country. The Pech Valley, once a hotspot during the Haymaker campaign, continues to host a constellation of armed groups. Al Qaeda, the organization used to justify both the invasion of Afghanistan and the Haymaker campaign, reportedly enjoys a more pronounced presence in the valley than ever. “The al Qaeda presence there now,” according to a report by the United States Institute for Peace, “is larger than when U.S. counterterrorism forces arrived in 2002.”

   

  With JSOC and the CIA running a new drone war in Iraq and Syria, much of Haymaker’s strategic legacy lives on. Such campaigns, with their tenuous strategic impacts and significant death tolls, should serve as a reminder of the dangers fallible lethal systems pose, the intelligence community source said. “This isn’t to say that the drone program is a complete wash and it’s never once succeeded in carrying out its stated purpose,” he pointed out. “It certainly has.” But even the operations military commanders would point to as successes, he argued, can have unseen impacts, particularly in the remote communities where U.S. missiles so often rain down. “I would like to think that what we were doing was in some way trying to help Afghans,” the source explained, but the notion “that what we were part of was actually defending the homeland or in any way to the benefit of the American public” evaporated long ago. “There’s no illusion of that that exists in Afghanistan,” he said. “It hasn’t existed for many years.”

  6. Firing Blind by Cora Currier and Peter Maas

  A report last year by retired Gen. John Abizaid and former Defense Department official Rosa Brooks noted that the “enormous uncertainties” of drone warfare are “multiplied further when the United States relies on intelligence and other targeting information provided by a host nation government: How can we be sure we are not being drawn into a civil war or being used to target the domestic political enemies of the host state leadership?”

  Indeed, we know this happens all the time. Again, another reason to not get involved in micromanaging the affairs of other nations.

  In 2011, for example, U.S. officials told the Wall Street Journal that they had killed a local governor because Yemeni officials didn’t tell them he was present at a gathering of al Qaeda figures. “We think we got played,” one official said. (The Yemeni government disputed the report.)

  7. The Life and Death of Objective Peckman by Ryan Gallagher

  This one also needs an intro. It deals with a UK citizen who had his passport revoked before being killed in a drone strike in Somalia.

  Kat Craig, a lawyer with the London-based human rights group Reprieve, told me that she believed there was “mounting evidence” that the British government has used “citizenship-stripping” as a tactic to remove legal obstacles to killing people suspected of becoming affiliated with terrorist groups.

   

  “If the U.K. government had any role in these men’s deaths — including revocation of their citizenship to facilitate extra-judicial killings — then the public has a right to know,” Craig said. “Our government cannot be involved in secret executions. If people are accused of wrongdoing they should be brought before a court and tried. That is what it means to live in a democracy that adheres to the rule of law.”

   

  Since 2006, the British government has reportedly deprived at least 27 people of their U.K. citizenship on national security grounds, deeming their presence “not conducive to the public good.” The power to revoke a person’s citizenship rests solely with a government minister, though the decision can be challenged through a controversial immigration court. When cases are brought on national security grounds, they are routinely based on secret evidence, meaning the accusations against individuals are withheld from them and their lawyers.

   

  “The net effect of the practice,” according to Craig, is “not only to remove judicial oversight from a possible life and death decision, but also to close the doors of the court on anyone who seeks to expose some of the gravest abuses being committed by Western governments.”

   

  There have reportedly been at least 10 British citizens killed in drone attacks as part of a covert campaign that, between 2008 and 2015, has gradually expanded from Pakistan to Somalia and now to Syria. Most recently, in late August, Islamic State computer hacker Junaid Hussain, a former resident of Birmingham, England, was assassinated on the outskirts of Raqqa, Syria, by a U.S. strike. Several days earlier, in another attack near Raqqa, the U.K. government deployed its own drones for the first time to target British citizens, killing Islamic State recruits Ruhul Amin and Reyaad Khan while they were traveling together in a car.

   

  It remains unclear whether, like Berjawi and Sakr, these targets had their British passports revoked before they were killed. Stack, the Home Office spokesperson, would not discuss the citizenship status of Hussain, Amin, Khan, or other Brits killed by drones. “We don’t talk about individual cases and also we don’t comment on matters of national security,” he told me.

  Shouldn’t they have to prove these are matters of “national security” to the public. Otherwise, they can just constantly make shit up. Which seems to be what all governments habitually do. It’s in their DNA.

  8. Target Africa by Nick Turse

  This article details the ever increasing U.S. military presence in Africa.

  Since 9/11, a multitude of other facilities — including staging areas, cooperative security locations and forward operating locations — have also popped up (or been beefed up) in Burkina Faso, Cameroon, Central African Republic, Gabon, Ghana, Kenya, Mali, Senegal, South Sudan, and Uganda. A 2011 report by Lauren Ploch, an analyst in African affairs with the Congressional Research Service, also mentioned U.S. military access to locations in Botswana, Namibia, Sao Tome and Principe, Sierra Leone, Tunisia, and Zambia. According to Sam Cooks, a liaison officer with the Defense Logistics Agency, the U.S. military has struck 29 agreements to use international airports in Africa as refueling centers. These locations are only some of the nodes in a growing network of outposts facilitating an increasing number of missions by the 5,000 to 8,000 U.S. troops and civilians who annually operate on the continent.

   

  Africom and the Pentagon jealously guard information about their outposts in Africa, making it impossible to ascertain even basic facts — like a simple count — let alone just how many are integral to JSOC operations, drone strikes, and other secret activities. “Due to operational security, I won’t be able to give you the exact size and number,” Lt. Cmdr. Anthony Falvo, an Africom spokesperson, told The Intercept by email. “What I can tell you is that our strategic posture and presence are premised on the concept of a tailored, flexible, light footprint that leverages and supports the posture and presence of partners and is supported by expeditionary infrastructure.”

  If you search Africom’s website for news about Camp Lemonnier, you’ll find myriad feel-good stories about green energy initiatives, the drilling of water wells, and a visit by country music star Toby Keith. But that’s far from the whole story. The base is a lynchpin for U.S. military action in Africa.

   

  “Camp Lemonnier is … an essential regional power projection base that enables the operations of multiple combatant commands,” said Gen. Carter Ham in 2012, then the commander of Africom, in a statement to the House Armed Services Committee. “The requirements for Camp Lemonnier as a key location for national security and power projection are enduring.”

   

  Located on the edge of Djibouti-Ambouli International Airport, Camp Lemonnier is also the headquarters for Combined Joint Task Force-Horn of Africa (CJTF-HOA), which includes soldiers, sailors, and airmen, some of them members of special operations forces. The camp — which also supports U.S. Central Command (Centcom) — has seen the number of personnel stationed there jump around 450 percent since 2002. The base has expanded from 88 acres to nearly 600 acres and has seen more than $600 million already allocated or awarded for projects such as aircraft parking aprons, taxiways, and a major special operations compound. In addition, $1.2 billion in construction and improvements has already been planned for the future.

   

  As it grew, Camp Lemonnier became one of the most critical bases not only for America’s drone assassination campaign in Somalia and Yemen but also for U.S. military operations across the region. The camp is so crucial to long-term military plans that last year the U.S. inked a deal securing its lease until 2044, agreeing to hand over $70 million per year in rent — about doublewhat it previously paid to the government of Djibouti.

  All of that money spent in Africa, while the citizens struggle back home and the middle class evaporates. This is the true cost of empire.

  One of the things I learned during my decade on Wall Street was the importance of management skills. Fortunately for me, most of my managers were exceptionally competent and knew how to deal with someone like me. A good manager doesn’t micromanage his or her people. A good manager is someone who viscerally understands people and can get the best out of each individual employee based on what makes them tick. They never employ a one size fits all approach.

  The worst type of manager is a micromanager. Everyone hates a micromanager, and that’s essentially what U.S. leadership does around the world. They are a bunch of middle management, micro-manager types pulling the strings of the strongest military on earth. The results of their incompetence and lack of wisdom are all around you.

  We as American citizens shouldn’t put up with it.

  *  *  *

  For related articles, see:

  Further Details Emerge on the Epic U.S. Foreign Policy Disaster that is Syria

  KKR Employee and Former CIA Head, General David Petraeus, Suggests Supporting al-Qaeda Against ISIS

  Additional Details Emerge on How U.S. Government Policy Created, Armed, Supported and Funded ISIS

  America’s Disastrous Foreign Policy – My Thoughts on Iraq

  Afghan President Hamid Karzai Slams U.S. Foreign Policy in Farewell Speech

  “Stop Thanking Me for My Service” – Former U.S. Army Ranger Blasts American Foreign Policy and The Corporate State

  More Foreign Policy Incompetence – U.S. Humanitarian Aid is Going Directly to ISIS

  Turkey Bombs Kurds Fighting ISIS, Then Hires Same Lobbying Firm Supporting U.S. Presidential Candidates

  How the Policies of U.S. Ally Egyptian Dictator, Abdel Fattah al-Sisi, Have Led to a Surge in ISIS Recruitment

  Accusations Emerge That the U.S. Is Aiding ISIS – The Latest “Conspiracy Theory” Circulating in Iraq

  The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya

   

  

  

  

  

  

• Over 5 Million Non-Existent Jobs: How $1.3 Trillion In Student Debt Broke The "Birth/Death Adjustment" Model

  One of the main reasons why the BLS has been massively overestimating job creation ever since great financial crisis, is due to the well-known birth-death adjustment, aka the CES Net Birth/Death Model, which quantitatively is shown on the chart below, has resulted in the “addition” of some 5.3 million jobs, that don’t actually exist, but are merely modeled by the BLS which continues to assume the same new business creation/destruction dynamics that existed before the crisis.

  

   

  The is a big problem with this core assumption, which has follow through effects not only for domestic fiscal policy, but also monetary policy (and explains why despite a 5.1% unemployment, there is zero wage growth, thus keeping the Fed pushing the ZIRP accelerator pedal years later), for the simple reason that as of this moment it is dead wrong.

  Here is what Gallup CEO, Jim Clifton, wrote several months ago looking at the trends in new business creation and destruction in the US.

  We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.

   

  The U.S. Census Bureau reports that the total number of new business startups and business closures per year — the birth and death rates of American companies — have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.

  As Clifton adds “you may not have seen this graph before” and for good reason: it destroys the most sacred assumptions held by the BLS’ cubicled actuaries and various tenured economists locked up in their ivory towers: namely that the number of US business startups outnumbers the number of failures. This is no longer true!

  

   

  Here is what the above chart shows: until 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number suddenly turned upside down. There has been an underground earthquake. As you read this, we are at minus 70,000 in terms of business survival. The data are very slow coming out of the U.S. Department of Census, via the Small Business Administration, so it lags real time by two years.

  Gallup adds that business startups outpaced business failures by about 100,000 per year until 2008. But in the past six years, that number suddenly reversed, and the net number of U.S. startups versus closures is minus 70,000.

  

   

  So what is causing this historic shift in US business creation.

  The are various answers, the most obvious of which is that the US never actually left the 2007 depression, whose effects continue to be papered over, literally, with some $13 trillion in global central bank liquidity, which have made life for the richest 0.1% better than ever at the expense of the middle class. 

  But the biggest culprit is also the one which over the past 7 years has become America’s latest credit bubble, last check rising to $1.3 trillion in debt: student loans.

  This is what Gallup finds when looking at the future of collapsing U.S. new business formation:

  … the country can’t look to people coming out of college to reverse this trend because too many of them are strapped by student loan debt. Results of the 2015 Gallup-Purdue Index — a study of more than 30,000 college graduates in the U.S. — provide a worrisome picture of the relationship between student loan debt and the likelihood of graduates starting their own businesses.

   

  Among those who graduated between 2006 and 2015, 63% left college with some amount of student loan debt. Of those, 19% say they have delayed starting a business because of their loan debt. That percentage rises to 25% for graduates who left with more than $25,000 in student loan debt. According to the National Center for Education Statistics, nearly 16.9 million bachelor’s degrees were conferred in the U.S. over the past 10 years — a time frame that mirrors Gallup-Purdue Index analysis of recent graduates between 2006 and 2015.

  Putting these sad statistics into numbers, Gallup calculates that over 2 million graduates have said they have delayed starting a business because of their student loan debt. If even a quarter of them had done so, we would quickly recoup our average surplus of 120,000 new businesses annually.

  It would also mean that the BLS’s Birth/Death model would once again be accurate. However, as a result of record student debt, which is increasing at an accelerating pace of over $100 billion per quarter, not only is the birth/death adjustment wrong, but its “contribution” to the total number of jobs should be inverted.

  Which, incidentally, would reflect far more accurately the woeful state of the US labor market.

  Finally, we know we are spot on right with our assessment that student debt has become the primary culprit holding back the jobs (and businesses) recovery, because two days ago none other than Ben Bernanke said Bthat “student debt no threat to U.S. financial system.”

  And that is all you need to know why the biggest threat to the US financial system is none other than student debt (after the Federal Reserve itself, of course).

  

  

  

  

  

• Mapping An Ungoverned World

  For those paying attention, you might have noticed that the world seems to be getting more and more ungovernable of late. 

  There are a variety of reasons for this – not the least of which is that in some states, outside governments are conspiring to destabilize regimes – but the phenomenon is manifesting itself across the globe.

  There is of course Syria, where a hodgepodge of rebels, militant groups, and extremists are battling to wrest control of the country from Bashar al-Assad. To quote Ban Ki-moon, there are parts of the country that one might imagine resemble “the worst circle of hell.” 

  There’s also Yemen, another theatre for the Mid-East proxy war between Iran and Saudi Arabia, where the fight between Shiite militiamen and a Saudi-backed alliance that includes the UAE and Qatar has cost countless innocent lives and destroyed parts of Sana’a, a UNESCO world heritage site. 

  And how about Burkina Faso, the landlocked, West African nation which has seen more than its share of coups and countercoups over the past 12 months. 

  And then Libya, another US foreign policy "success" story.

  It is of course difficult to catalogue all of the cases where, for whatever reason, states become failed states, or where large swaths of territory become ungovernable, but Bloomberg has taken a shot at it.

  We present a few examples of what is truly a sweeping infographic below and encourage you to check out the entire presentation here.

  

  

  

  

  

  

  

  

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