Today’s News October 23, 2015

• What If They Started A War And Everyone Came?

  Submitted by Peter Van Buren via TomDispatch.com,

  What if the U.S. had not invaded Iraq in 2003? How would things be different in the Middle East today? Was Iraq, in the words of presidential candidate Bernie Sanders, the "worst foreign policy blunder" in American history? Let's take a big-picture tour of the Middle East and try to answer those questions. But first, a request: after each paragraph that follows, could you make sure to add the question “What could possibly go wrong?”

  Let the History Begin

  In March 2003, when the Bush administration launched its invasion of Iraq, the region, though simmering as ever, looked like this: Libya was stable, ruled by the same strongman for 42 years; in Egypt, Hosni Mubarak had been in power since 1983; Syria had been run by the Assad family since 1971; Saddam Hussein had essentially been in charge of Iraq since 1969, formally becoming president in 1979; the Turks and Kurds had an uneasy but functional ceasefire; and Yemen was quiet enough, other than the terror attack on the USS Cole in 2000. Relations between the U.S. and most of these nations were so warm that Washington was routinely rendering “terrorists” to their dungeons for some outsourced torture.

  Soon after March 2003, when U.S. troops invaded Iraq, neighboring Iran faced two American armies at the peak of their strength. To the east, the U.S. military had effectively destroyed the Taliban and significantly weakened al-Qaeda, both enemies of Iran, but had replaced them as an occupying force. To the west, Iran's decades-old enemy, Saddam, was gone, but similarly replaced by another massive occupying force. From this position of weakness, Iran’s leaders, no doubt terrified that the Americans would pour across its borders, sought real diplomatic rapprochement with Washington for the first time since 1979. The Iranian efforts were rebuffed by the Bush administration.

  The Precipitating Event

  Nailing down causation is a tricky thing. But like the June 1914 assassination of Archduke Franz Ferdinand that kicked off the Great War, the one to end all others, America's 2003 invasion was what novelists refer to as “the precipitating event,” the thing that may not actively cause every plot twist to come, but that certainly sets them in motion.

  There hadn’t been such an upset in the balance of power in the Middle East since, well, World War I, when Great Britain and France secretly reached the Sykes-Picot Agreement, which, among other things, divided up most of the Arab lands that had been under the rule of the Ottoman Empire. Because the national boundaries created then did not respect on-the-ground tribal, political, ethnic, and religious realities, they could be said to have set the stage for much that was to come.

  Now, fast forward to 2003, as the Middle East we had come to know began to unravel. Those U.S. troops had rolled into Baghdad only to find themselves standing there, slack-jawed, gazing at the chaos. Now, fast forward one more time to 2015 and let the grand tour of the unraveling begin!

  The Sick Men of the Middle East: It’s easy enough to hustle through three countries in the region in various states of decay before heading into the heart of the chaos: Libya is a failed state, bleeding mayhem into northern Africa; Egypt failed its Arab Spring test and relies on the United States to support its anti-democratic (as well as anti-Islamic fundamentalist) militarized government; and Yemen is a disastrously failed state, now the scene of a proxy war between U.S.-backed Saudi Arabia and Iranian-backed Houthi rebels (with a thriving al-Qaeda outfit and a small but growing arm of the Islamic State [ISIS] thrown into the bargain).

  Iraq: Obama is now the fourth American president in a row to have ordered the bombing of Iraq and his successor will almost certainly be the fifth. If ever a post-Vietnam American adventure deserved to inherit the moniker of quagmire, Iraq is it.

  And here’s the saddest part of the tale: the forces loosed there in 2003 have yet to reach their natural end point. Your money should be on the Shias, but imagining that there is only one Shia horse to bet on means missing just how broad the field really is. What passes for a Shia “government” in Baghdad today is a collection of interest groups, each with its own militia. Having replaced the old strongman prime minister, Nouri al-Maliki, with a weak one, Haider al-Abadi, and with ISIS chased from the gates of Baghdad, each Shia faction is now free to jockey for position. The full impact of the cleaving of Iraq has yet to be felt. At some point expect a civil war inside a civil war.

  Iran: If there is any unifying authority left in Iraq, it is Iran. After the initial 2003 blitzkrieg, the Bush administration’s version of neocolonial management in Iraq resulted in the rise of Sunni insurgents, Shia militias, and an influx of determined foreign fighters. Tehran rushed into the power vacuum, and, in 2011, in an agreement brokered by the departing Bush administration and carried out by President Obama, the Americans ran for the exits. The Iranians stayed. Now, they have entered an odd-couple marriage with the U.S. against what Washington pretends is a common foe — ISIS — but which the Iranians and their allies in Baghdad see as a war against the Sunnis in general. At this point, Washington has all but ceded Iraq to the new Persian Empire; everyone is just waiting for the paperwork to clear.

  The Iranians continue to meddle in Syria as well, supporting Bashar al-Assad. Under Russian air cover, Iran is increasing its troop presence there, too. According to a recent report, Tehran is sending 2,000 troops to Syria, along with 5,000 Iraqi and Afghan Shia fighters. Perhaps they’re already calling it “the Surge” in Farsi.

  The Kurds: The idea of creating a “Kurdistan” was crossed off the post-World War I “to do” list. The 1920 Treaty of Sèvres at first left an opening for a referendum on whether the Kurds wanted to remain part of what remained of the Ottoman Empire or become independent. Problem one: the referendum did not include plans for the Kurds in what became Syria and Iraq. Problem two: the referendum never happened, a victim of the so-called Turkish War of Independence. The result: some 20 million angry Kurds scattered across parts of modern Iran, Iraq, Turkey, and Syria.

  That American invasion of 2003, however, opened the way for the Kurds to form a virtual independent statelet, a confederacy if you will, even if still confined within Iraq's borders. At the time, the Kurds were labeled America's only true friends in Iraq and rewarded with many weapons and much looking the other way, even as Bush administration officials blathered on about the goal of a united Iraq.

  In 2014, the Kurds benefited from U.S. power a second time. Desperate for someone to fight ISIS after Iraq's American-trained army turned tail (and before the Iranians and the Shia militias entered the fight in significant force), the Obama administration once again began sending arms and equipment to the Kurds while flying close air support for their militia, the peshmerga. The Kurds responded by fighting well, at least in what they considered the Kurdish part of Iraq. However, their interest in getting involved in the greater Sunni-Shia civil war was minimal. In a good turn for them, the U.S. military helped Kurdish forces move into northern Syria, right along the Turkish border. While fighting ISIS, the Kurds also began retaking territory they traditionally considered their own. They may yet be the true winners in all this, unless Turkey stands in their way.

  Turkey: Relations between the Turks and the Kurds have never been rosy, both inside Turkey and along the Iraqi-Turkish border.

  Inside Turkey, the primary Kurdish group calling for an independent state is the Kurdistan Workers party (also known as the PKK). Its first insurgency ran from 1984 until 1999, when the PKK declared a unilateral cease-fire. The armed conflict broke out again in 2004, ending in a ceasefire in 2013, which was, in turn, broken recently. Over the years, the Turkish military also carried out repeated ground incursions and artillery strikes against the PKK inside Iraq.

  As for ISIS, the Turks long had a kind of one-way “open-door policy” on their border with Syria, allowing Islamic State fighters and foreign volunteers to transit into that country. ISIS also brokered significant amounts of black market oil in Turkey to fund itself, perhaps with the tacit support, or at least the willful ignorance, of the Turkish authorities. While the Turks claimed to see ISIS as an anti-Assad force, some felt Turkey's generous stance toward the movement reflected the government’s preference for having anything but an expanded Kurdish presence on its border. In June of this year, Turkish President Recep Erdogan went as far as to say that he would "never allow the establishment of a Kurdish state in northern Syria."

  In light of all that, it’s hardly surprising that early Obama administration efforts to draw Turkey into the fight against ISIS were unsuccessful. Things changed in August 2015, when a supposedly anti-ISIS cooperation deal was reached with Washington. The Turks agreed to allow the Americans to fly strike missions from two air bases in Turkey against ISIS in Syria. However, there appeared to be an unpublicized quid pro quo: the U.S. would turn a blind eye to Turkish military action against its allies the Kurds. On the same day that Turkey announced that it would fight the Islamic State in earnest, it also began an air campaign against the PKK.

  Washington, for its part, claimed that it had been “tricked” by the wily Turks, while adding, “We fully respect our ally Turkey’s right to self-defense.” In the process, the Kurds found themselves supported by the U.S. in the struggle with ISIS, even as they were being thrown to the (Turkish) wolves. There is a Kurdish expression suggesting that Kurds have “no friends but the mountains.” Should they ever achieve a trans-border Kurdistan, they will certainly have earned it.

  Syria: Through a series of events almost impossible to sort out, having essentially supported the Arab Spring nowhere else, the Obama administration chose to do so in Syria, attempting to use it to turn President Bashar al-Assad out of office. In the process, the Obama administration found itself ever deeper in a conflict it couldn’t control and eternally in search of that unicorn, the moderate Syrian rebel who could be trained to push Assad out without allowing Islamic fundamentalists in. Meanwhile, al-Qaeda spin-offs, including the Islamic State, found haven in the dissolving borderlands between Iraq and Syria, and in that country’s Sunni heartlands.

  An indecisive Barack Obama allowed America's involvement in Syria to ebb and flow. In September 2013, on the verge of a massive strike against the forces of the Assad regime, Obama suddenly punted the decision to Congress, which, of course, proved capable of deciding nothing at all. In November 2013, again on the verge of attacking Syria, the president allowed himself to be talked down after a gaffe by Secretary of State John Kerry opened the door to Russian diplomatic intercession. In September 2014, in a relatively sudden reversal, Obama launched a war against ISIS in Syria, which has proved at best indecisive.

  Russia: That brings us to Vladimir Putin, the Syrian game-changer of the moment. In September, the Russian president sent a small but powerful military force into a neglected airfield in Latakia, Syria. With “fighting ISIS” little more than their cover story, the Russians are now serving as Assad's air force, as well as his chief weapons supplier and possible source of “volunteer” soldiers. 

  The thing that matters most, however, is those Russian planes. They have essentially been given a guarantee of immunity to being shot down by the more powerful U.S. Air Force presence in the region (as Washington has nothing to gain and much to worry about when it comes to entering into open conflict with the Russians). That allows them near-impunity to strike when and where they wish in support of whom they wish. It also negates any chance of the U.S. setting up a no-fly zone in parts of Syria.

  The Russians have little incentive to depart, given the free pass handed them by the Obama administration. Meanwhile, the Russian military is growing closer to the Iranians with whom they share common cause in Syria, and also the Shia government in Baghdad, which may soon invite them to join the fight there against ISIS. One can almost hear Putin chortling. He may not, in fact, be the most skilled strategist in the world, but he’s certainly the luckiest. When someone hands you the keys, you take the car.

  World War I

  As in imperial Europe in the period leading up to the First World War, the collapse of an entire order in the Middle East is in process, while forces long held in check are being released. In response, the former superpowers of the Cold War era have once again mobilized, at least modestly, even though both are fearful of a spark that could push them into direct conflict. Each has entangling regional relationships that could easily exacerbate the fight: Russia with Syria, the U.S. with Saudi Arabia and Israel, plus NATO obligations to Turkey. (The Russians have already probed Turkish airspace and the Turks recently shot down a drone coyly labeled of “unknown origin.”)

  Imagine a scenario that pulls any of those allies deeper into the mess: some Iranian move in Syria, which prompts a response by Israel in the Golan Heights, which prompts a Russian move in relation to Turkey, which prompts a call to NATO for help… you get the picture. Or imagine another scenario: with nearly every candidate running for president in the United States growling about the chance to confront Putin, what would happen if the Russians accidentally shot down an American plane? Could Obama resist calls for retaliation?

  As before World War I, the risk of setting something in motion that can't be stopped does exist.

  What Is This All About Again?

  What if the U.S. hadn't invaded Iraq in 2003? Things would undoubtedly be very different in the Middle East today. America's war in Afghanistan was unlikely to have been a big enough spark to set off the range of changes Iraq let loose. There were only some 10,000 America soldiers in Afghanistan in 2003 (5,200 in 2002) and there had not been any Abu Ghraib-like indiscriminate torture, no equivalent to the scorched earth policy in the Iraqi city of Fallujah, nothing to spark a trans-border Sunni-Shia-Kurd struggle, no room for Iran to meddle. The Americans were killing Muslims in Afghanistan, but they were not killing Arabs, and they were not occupying Arab lands.

  The invasion of Iraq, however, did happen. Now, some 12 years later, the most troubling thing about the current war in the Middle East, from an American perspective, is that no one here really knows why the country is still fighting. The commonly stated reason — “defeat ISIS” — is hardly either convincing or self-explanatory. Defeat ISIS why?

  The best Washington can come up with are the same vague threats of terrorism against the homeland that have fueled its disastrous wars since 9/11. The White House can stipulate that Assad is a bad guy and that the ISIS crew are really, really bad guys, but bad guys are hardly in short supply, including in countries the U.S. supports. In reality, the U.S. has few clear goals in the region, but is escalating anyway.

  Whatever world order the U.S. may be fighting for in the Middle East, it seems at least an empire or two out of date. Washington refuses to admit to itself that the ideas of Islamic fundamentalism resonate with vast numbers of people. At this point, even as U.S. TOW missiles are becoming as ubiquitous as iPads in the region, American military power can only delay changes, not stop them. Unless a rebalancing of power that would likely favor some version of Islamic fundamentalism takes hold and creates some measure of stability in the Middle East, count on one thing: the U.S. will be fighting the sons of ISIS years from now.

  Back to World War I. The last time Russia and the U.S. both had a powerful presence in the Middle East, the fate of their proxies in the 1973 Yom Kippur War almost brought on a nuclear exchange. No one is predicting a world war or a nuclear war from the mess in Syria. However, like those final days before the Great War, one finds a lot of pieces in play inside a tinderbox.

  Now, all together: What could possibly go wrong?

  

  

  

  

  

• More Bad News For Millennials, Who Face "Great Depression" In Retirement

  Americans in their 20s and 30s are facing a retirement crisis that could plunge them back into the Great Depression, Blackstone President and COO Tony James said Wednesday. Appearing on CNBC's Squawk Box, James exclaimed "Social Security alone cannot provide enough for these people to retain their standard of living in retirement, and if we don't do something, we're going to have tens of millions of poor people and poverty rates not seen since the Great Depression." According to James, the solution is simple – government-imposed mandatory savings through a Guaranteed Retirement Account which employers are mandated to match (whose assets would be managed by?).

   

  Blackstone COO James explains…

   

  As CNBC details, the solution is to help young people save more by mandating savings through a Guaranteed Retirement Account system, he said.

  Right now, young people cannot save enough on their own because they face stagnant incomes and heavy student-debt burdens.

   

  The Guaranteed Retirement Account was proposed by labor economist Teresa Ghilarducci in 2007 as a solution to the problem of retirement shortfalls that inevitably arise when contributions are voluntary.

   

  A GSA system would require workers to make recurring retirement contributions, which would be deducted from paychecks. Employers would be mandated to match the contribution, and the federal government would administer the plan through the Social Security Administration.

   

  Ghilarducci has proposed a mandatory 5 percent contribution, but James said a 3 percent requirement rolled into GRAs could outperform retirement savings vehicles like IRAs and 401(k)s.

   

  He noted that a 401(k) typically earns 3 to 4 percent, while a pension plan yields 7 to 8 percent. The average American pension plan has a 25 percent allocation to alternative investments — including real estate, private equity and hedge funds — with the remainder invested in markets, he said.

   

  "The trick is to have these accounts invested like pension plans, so the money compounds over decades at 7 to 8 percent, not at 3 to 4," he said.

   

  A 25-year-old who earns 3 to 4 percent per year would retire with $75,000, not nearly enough to annuitize and live on, James said. A 7-percent-per-year investment would yield $200,000 at retirement, he said.

  Under the plan James is proposing, the government would offer a 2 percent guarantee on GRAs.

  "The key to it is taking that capital, setting up the Guaranteed Retirement Accounts and investing it well for the very long term," he said. "We have to do that and we have to do that professionally."

  And of course, who will that "professional" be? Why we assume Blackstone of course… And of course, with cash being banned by the time they retire, spending from a government-mandated savings account will be entirely free of oversight, we are sure.

   

  Except, 2 things – Millennials don't trust financial service providers OR The Government…

  

   

  While Blackstone claims Millennials will retire into a Great Depression without his and the government's help, it is student loans that are Millennials' biggest concerns…

  

  

  

  

  

  

• US Dollar Dumped Against Asian FX As Releveraging Chinese Send Margin-Debt To 6-Week Highs

  Chinese stocks are not as exuberant as European, Japanese (which are rolling over), and US markets at the open as they cling to unchanged for the day and week (despite margin debt rising to a six-week high). The main event in AsiaPac trading appears to be a huge re-entry into the EUR-ANY-EM-FX carry trade as The USDollar gets pummeled against Asian FX (despite EUR weakness). PBOC weakened the Yuan fix by the most in 8 days to its lowest in 2 weeks.

   

  Japanese stocks soared during the US session but are fading at the open…

  

   

  Chinese stocks flat in the pre-open…

  

   

  Even as Margin Debt hits a 6-week high…

  

   

  As The Dollar gets pummeled against Asian FX…

  

   

  and PBOC weakens the Yuan Fix…

  

   

  With Offshore Yuan pushing to 1-month lows…

  

   

  Finally, it's almost as if China never shook up the world's carry trading malarkey… only Chinese stocks are still feeling the pain…

  

   

   

  Charts: Bloomberg

  

  

  

  

  

• New FBI Report Debunks Mythical "War On Police"

  Submitted by Carey Wedler via TheAntiMedia.org,

  Throughout the United States, Americans believe there is a “war on police.” A recent survey found 58% of Americans agree with this sentiment. A new, privately-funded billboard campaign hijacks the “Black Lives Matter” moniker to read “Blue Lives Matter,” highlighting powerful pushback from law enforcement sympathizers against activists.

  The FBI’s 2014 report, Law Enforcement Officers Killed and Assaulted (LEOKA), released this week, appears to support the notion that police officers are in danger and unduly targeted. The number of officers killed by individuals committing “felonious acts” jumped from 27 in 2013 to 51 last year, and police apologists are all but guaranteed to point to this increase as proof their concerns are justified. A deeper examination of the data, however, reveals that police are not only safe, but still running rampant in their liberal use of violence against the citizens they allegedly serve.

  In 2013, the FBI reported that 27 police officers were killed in the line of duty. By 2014, according to the new data, that number rose to 51. While this seems like a sharp uptick — in fact, it nearly doubled — the comparison on its own is misleading. Out of 536,119 officers included in the FBI’s 2014 analysis, .0095 percent  of the force was killed on the job — less than one percent.  While this represents an increase from the .005 percent of officers killed on the job in 2013 — the safest year for police in decades — neither figure signals an unrelenting assault on police officers.

  As the Washington Post explained:

  “[W]hen police advocates say that 2014 saw an 80+ percent increase in homicides of cops over 2013, remember a few things: First, 2013 wasn’t just an all-time low, it was an all-time low by a significant margin. Second, the 2013 figure was so low that even a small increase will look large when expressed as a percentage. Third, the figure for the following year, 2014, (51 officers killed) was essentially consistent with the average for the previous five years (50 killed), and still lower than any five-year average going back to 1960. Fourth, again, 2015 is on pace (35 killings) to be lower than any year but 2013.”

  The nature of the officers’ deaths also provides insight into the “war on police”. Though the total number of officers murdered did increase from 27 to 51 from 2013 to 2014, the two biggest jumps came when officers were responding to disturbance calls or making traffic stops. In 2013, the number of officers killed during disturbance calls jumped from four to eleven, while traffic stop deaths increased from two to nine. In contrast, the number of ambushes on police officers — premeditated actions intended to hurt the officers — only increased by two, from five to seven. While this is nothing to celebrate, it actually constitutes a drop in the proportion of officers killed by ambush — the most intentional way to kill, or ‘wage war against’ — a cop. In 2013, 18.5% of all felonious deaths were a result of an ambush . In 2014, 13.7% of cops who died were ambushed.

  Perhaps most revealing, however, is the FBI’s data on officers “assaulted” on the job. The FBI lists a startling figure for 2014:

  Of 536,119 officers included in the report, 48,315 were assaulted. With 9% of all officers having been “assaulted,” on the job, it seems impossible to deny a concerted attack against law enforcement. However, that rate is lower than the previous year (9.3%). Further, the data becomes much less daunting when considering officers who were assaulted and injured as a result of the attack. In 2014, 13,654 officers reported sustained injuries from assault: just 2.5% of the entire force. This is also a small drop from the previous year, which saw 14,565 of 533,895 total officers injured (2.7%). This is an injury rate lower than that of construction workers, who clock in at 3.8%. Further, these figures do not take into account instances where officers claimed they were assaulted but in reality were not. There seems to be great potential for this discrepancy, especially since the FBI notes that “assailants used personal weapons (hands, fists, feet, etc.) in 79.9 percent of the incidents.”

  Interestingly, in both cases of assault and murder, the majority of assailants were white. In 2014, of 54 perpetrators, 42 were Caucasian while only 12 were African American. Two were Native American, one was Asian/Pacific Islander, and two were unknown. In 2013, 15 of 28 alleged killers were white — more than half. The government’s own data on attackers refutes another common, media driven falsehood: that rabid Black Lives Matter activists are spurring attacks against police.

  Regardless of the facts the FBI itself released this week, one overarching factor should be cause enough to silence those who lament a war on police: every single year, the FBI constructs its meticulous LEOKA report from thousands of police departments around the country, crafting dozens of charts and tables to break down and detail the manner in which officers died (full report here). There is currently no such system in place for regular civilians killed by police, though one community database places the total at 1,108 for 2014.

  In spite this dearth of information on who the government kills, the federal government only took action this month to attempt to record police shootings and deaths caused by officers — even though this problem has crippled communities, especially minority for years, if not decades. In contrast, despite the ongoing, intensive reporting by the FBI on police deaths, President Obama signed the “Blue Alert” law earlier this year to provide for even further calculation and analysis of threats and assaults to law enforcement. There is still no official total on the number of civilians killed by police.

  While many outlets in the media propagate the narrative that police officers are under attack, the government’s own data speaks for itself. Though loud voices may decry police accountability activists and millions of Americans concerned about police overreach, the FBI’s report only further justifies their outrage.

  

  

  

  

  

• This Is What Happens After Three Years Of Negative Interest Rates

  It may seem extraordinary that in the aftermath of the infamous Kocherlakota “dots” the Fed is actively contemplating negative interest rates, but some may have forgotten that Europe has had NIRP since last June. In fact, the reason for today’s global risk-on rally, was Draghi’s hint – remember: Draghi did absolutely nothing, just suggested he may do more –  that in addition to extending the ECB’s QE program, the ECB may cut its deposit rate, already at -0.20%, to -0.30% or more.

  But when it comes to negative rates, the ECB is merely a late adopter. For the real pioneer one has to look further north in Denmark, where the central bank first adopted negative rates in the middle of 2012 to defend the krone’s peg to the Euro. And, as documented here before, Denmark cut rates not once, not twice, but three times in early 2015 in anticipation of the EUR collapse, pushing its interest rate to a record negative -0.75%.

  Denmark’s descent into NIRPdom is shown in the Bloomberg chart below.

  

   

  So what happens after 3 years of NIRP?

  Well, according to Bloomberg, you get the mother of all housing bubbles, one which makes even China blush:

  “Property prices in Copenhagen have risen 40-60 percent since the middle of 2012, when the central bank first resorted to negative interest rates to defend the krone’s peg to the euro.”

  This should come as no surprise: recall that there are documented cases where Danish borrowers are paid to take on debt and buy houses as we explained in January in “In Denmark You Are Now Paid To Take Out A Mortgage“, so between rewarding debtors and punishing savers, this outcome is hardly shocking. Yet it is the negative rates that have made this unprecedented surge in home prices feel relatively benign on broader price levels, since the source of housing funds is not savings but cash, usually cash belonging to the bank.

  What is disturbing is that Denmark is reflating a gargantuan housing bubble less than 7 years since its last housing bubble popped:

  Denmark’s most recent housing bubble burst in 2008, with the subsequent price slide rivaling that seen in the U.S. subprime crisis. Thanks to generous welfare benefits, Danish households suffered only negligible foreclosure rates, unlike their U.S. counterparts.

  Some are starting to warn that the central bank’s primary strategy at keep the currency at bay is backfiring:

  The Danish regulator this month warned Danske Bank against pursuing a growth strategy in Sweden as the housing market there shows signs of imbalances. Price developments are now “highly distressing,” Klas Danielsson, the chief executive officer of Sweden’s state mortgage bank, SBAB, said on Thursday.

  He is not alone: “Denmark’s biggest mortgage bank says there’s a “real risk” Copenhagen is heading into a property bubble.” Though a collapse isn’t imminent, “the danger signals” mean that apartment prices in the Scandinavian city “could reach an unsustainable level relatively fast should the current pace of price gains continue,” said Joachim Borg Kristensen, a housing economist at Nykredit.

  Yes, after a 60% increase in 3 years, that is a safe assessment.

  However, following today’s tumble in the EUR, it is even safer to assume that Danish rates are about to go even more negative as the central bank scramble to defend its currency from even hotter money, and even more inflation. It also means that home prices are going to soar even more.

  “Given the current prospects of urbanization, as well as the outlook for the economy and interest rates, housing prices look set to continue rising,” Kristensen said. But that will probably happen at a “slower pace than has been the case thus far.”

  No, it won’t: PFA, Denmark’s biggest commercial pension fund, said on Thursday it will invest as much as 4 billion kroner ($607 million) in the country’s property market. It plans to treat the investment much like its bond portfolio, according to an e-mailed note. PFA is returning to the market after selling most of its property portfolio in 2006.

  We may not have economic tenure at Harvard but even we know what will happen to property prices in this scenario.

  And while the US may have had problems reflating its own housing bubble, Denmark has already achieved just that:

  “The hefty growth in both prices and sales of building projects is a worry because it could be driven by an anticipation of continued housing price gains,” Kristensen said. “The question is whether potential home buyers have exaggerated expectations when it comes to future price developments.”

  Finally, while we have no doubts how this latest housing bubble will end (in tears, for those wondering), one thing we find truly entertaining is Denmark’s inflation rate: as the following chart shows, the officially reported inflation in the northern European nation is a whopping… 0.5%

  

  So let’s get this straight: Copenhagen home prices rising at 12% per year (or more) and yet the Danish central bank is operating on the assumption that headline inflation is half of 1%?

  In retrospect, is it any wonder that when using such clearly ridiculous “data” on which to base decisions that have taken us beyond the zero-bound and into the Twilight Zone of monetary policy, that the world is now living inside the biggest asset bubble ever inflated…

  
  

  

  

  

  

  

• Why Europe Is About To Plunge Further Into The NIRP Twilight Zone, And What It Means For Depositors

  In some respects, today’s ECB presser was a snoozer. Reporters asked the same old questions (some of which we’ve been asking for years) and, more importantly, there were no glitter attacks.

  Our ears did perk up however, when Mario Draghi admitted that, unlike the governing council’s last meeting, cutting the depo rate further into negative territory was indeed discussed. 

  This is significant for a number of reasons. At the general level, it shows that DM central bankers are ready and willing to plunge the world further into the Keynesian Twilight Zone. As we outlined last month, this means the Riksbank and the SNB are now on watch. If the ECB cuts again, the Riksbank will be forced to act as well and as Barclays recently opined, the SNB may be compelled to go nuclear on depositors, as removing the negative rate exemption for domestic banks would force them to pass along the “cost” to customers: 

  “In contrast, a cut in the ECB’s deposit rate further into negative territory likely would have a significant impact on the EURCHF exchange rate and provoke a more immediate response from the SNB. Indeed, we expect that a cut in the ECB’s deposit rate may have a greater effect on EURCHF than on other EUR crosses. Switzerland applies its negative deposit rate to only a fraction of reserves, currently about 1/3rd of sight deposits by our calculation. In contrast, negative deposit rates apply to all reserves held at the ECB, Riksbank and Denmark’s Nationalbank. Consequently, a cut to the ECB’s deposit rate likely has a larger impact both on the economy and on the exchange rate than a proportionate cut by the SNB. An SNB response to an ECB deposit rate cut could take one of two forms: 1) a further cut in its deposit rate and CHF Libor target range; or 2) the ‘nuclear’ option, removing all exemptions from the negative deposit rate. We think the latter is more likely and would have major implications for EURCHF.” Most retail (private) depositors at domestic Swiss banks still do not face negative interest rates, but we would expect that to change if the SNB removed exemptions of domestic banks on sight deposits at the SNB. A removal of domestic banks’ exemption from negative deposit rates likely would force Swiss banks to pass on negative deposit rates as it would increase the proportion of assets charged negative rates to over 20%.

  This is an important concept not only for what it says about the never-ending, tit-for-tat, beggar- thy-neighbor monetary policies that now pervade developed markets, but also for the degree to which it explains why NIRP has not yet led to a sharp increase in the demand for physical banknotes. Put simply: depositors haven’t yet felt the effects of the monetary insanity engendered by the global currency wars. 

  Deutsche Bank’s Abhishek Singhania and Oliver Harvey have taken a close look at the proliferation of NIRP at the Riksbank, the SNB, the Nationalbank, and the ECB on the way to positing that not only is zero not the lower bound, but in fact no one has hit the lower limit for rates as of yet. 

  First, there’s the obvious problem with negative rates. Namely, depositors will just take it to the mattresses (so to speak): 

  The main concern with further cuts to policy rates is the problem of the zero lower bound. In academic literature, the challenge for central banks operating near or at zero interest rates is that it is technically unfeasible to impose interest rates on cash. Depositors charged at negative rates can simply exchange electronic reserves into paper currency.

  Of course because fractional reserve banking is nothing more than a giant ponzi scheme wherein banks are perpetually borrowing short to lend long, instituting a rate negative enough to trigger a run on deposits would have the exact opposite effect from what central banks intended. That is, banks would be forced to sell assets to meet the outflows: 

  As well as losing control over monetary policy, central banks would see financial conditions tighten as banks were forced to sell assets to meet depositor withdrawals. In extremis, the effect could be compared to a bank-run preceding capital controls or large scale currency devaluation. However, due to the more incremental nature of the impact of negative rates (e.g. 25bp charge on deposit holdings rather than a multi percent devaluation), interest rates would need to be slashed deeply negative for depositor withdrawals to resemble much more than a jog.

  Obviously, if rates go negative enough to trigger a run that (literally) breaks the banks, then the lower limit will definitively have been reached, but at that point it will be too late. Back to Deutsche Bank:

  So far, the experiences of the four European economies under negative interest rates, including the Eurozone, suggest that this theoretical constraint has not been reached. The demand for coins and notes has ticked up slightly in recent months, but remains at fairly muted levels. 

   

  

   

  Why the lower bound constraint has yet to be reached, and how much more room there is to maneuver, is obviously crucial for the ECB and the three other central banks imposing negative rates. The main reason is that banks have not passed on negative policy rates to depositors. In none of the four economies are household deposit rates in negative territory, either for outstanding balances or new business. Why have negative nominal rates not passed through to depositors? 

   

  

  Banks are of course hesitant to charge depositors for deposits for fear of damaging relationships. Or, in Deutsche Bank’s more condescending parlance, “banks are very reluctant to pass on negative rates to households [because] retail depositors [are] least likely to understand the wider monetary policy context behind such a decision.” Right, they aren’t likely to understand why they should have to pay the bank to lend out their money at a spread that nets the bank a profit and the reason they aren’t likely to understand it is because, frankly, it makes absolutely no sense. 

  But the bank has to preserve its margins. With long-end rates falling on the asset side thanks to unconventional monetary policy, you either have to pass that along by reducing the rate you pay on your liabilities (i.e. deposits) or else your margins are going to get pinched – unless you find some other way to make up the difference, that is. 

  The indirect cost of negative rates for banks is through margins. In theory, as unconventional monetary policy pushes down yields on the asset side of the balance sheet, banks need to cut rates on the liability side to preserve margins. As banks are reluctant to cut deposit rates into negative territory for the reasons above, their net interest margin may suffer. 

  Right. So what’s the solution if it’s not passing along NIRP to depositors? 

  The SNB have noted that the consequence of introducing negative rates earlier this year was rising, not falling, mortgage rates as banks sought to protect falling liability margins by raising long-end rates. In a similar vein, Danish banks appeared to raise administration fees on new mortgages after rates first turned negative back in 2012. An analysis of long-end mortgage rates offered by banks across Sweden, Denmark and Switzerland suggests that at the long-end, rates have actually risen since the introduction of negative interest rates.

  Got that? NIRP is paradoxically causing mortgage rates to rise because banks fear a depositor backlash from negative rates. So, this is yet another example of the unintended consequences of unconventional monetary policy.

  We saw something akin to this in Sweden back in July when the Riksbank had sucked up so much high quality collateral via QE that the liquidity premium demanded by investors ended up pushing yields on 10-year govies higher in what amounted to the exact opposite of what the central bank intended. 

  Note once again that there’s no end to this. If the ECB cuts the depo rate further, then other NIRP countries will have to respond. If they don’t, their currencies will soar, threatening inflation targets. Case in point, from this morning:

  

  This means going deeper into NIRP, which, in light of the above, means rising borrowing costs right up until the breaking point when the hit to margins can no longer be offset. At that juncture, NIRP will have to be passed on to depositors lest NIM should simply flatline.

  What happens next is anyone’s guess but if depositors revolt and begin asking for their money back, banks’ maturity mismatched business model means there are only three available options, i) sell assets to meet withdrawals, ii) institute capital controls, or iii) ban cash. Welcome to the future.

  

  

  

  

  

• ECB Putting Federal Reserve in a Bad Spot

  By EconMatters

   

  

   

  ECB Policy Press Conference

   

  I was watching a little of the ECB policy press conference this morning and there were a lot of thoughts that came out of that event which I may write about at a later date. However after the ultra-dovish ECB decision to signal to financial markets that they are going to add more stimulus in December with more bond buying in order to weaken the Euro currency, the US Dollar is back up to the 96.30 area on the DX, and financial markets haven`t really thought about the implications of this move by the US Dollar.

   

  Believe it or not: The Fed actually wants to raise rates now just to save face!

   

  Reading between the lines the Fed wants to raise rates in December to get back the ounce of credibility they once had as they have reiterated their intention of raising rates this year, and with the financial market once again ‘healed’ they are going to sneak in a 25 basis point rate hike, (maybe a lame 10 basis point rate hike if they completely wimp out on the rate hike) just to keep their original word of raising rates in 2015.

   

  Thanks A lot ECB, You just made the Fed`s job twice as hard

   

  

  The problem is with the ECB slamming the Euro trying to purposefully weaken the currency the US Dollar is already back to levels that were causing emerging markets to freak out, and the Fed to lose their nerve to raise rates in September which they had done a good job building in market expectations for a rate hike.

   

  The market sold off for the first time on a dovish Federal Reserve Meeting, and Fed members took notice of that and immediately tried to reassure markets that they were still committed to raising rates in 2015. I actually think the Federal Reserve is going to try and sneak in a rate hike, and this is a mistake right now given what the ECB is going to do in December at its policy meeting with regard to adding even more stimulus.

   

  

  Two Wrongs Cancel each other out right?

   

  The Fed is going to ‘rectify their wrong’ of the last meeting and raise rates and lose twice with regard to disappointing market expectations, and the US Dollar Index will jump back above 98, and I expect a sizable market selloff as the Dollar continues to strengthen as the Forex markets get hit with a double whammy of a Dovish ECB Meeting and a Hawkish Federal Reserve Meeting this December. And given year end positioning the Federal Reserve couldn`t pick a worse time to raise rates. Hopefully they will just make another stupid excuse, and avoid raising rates – the lesser of the two evils. But given they have become a complete joke with their forecasts regarding hiking rates, saving face is probably more important for them right now. Therefore, Wall Street and financial markets are probably going to get screwed on this one, and end up taking one for the team!

   

  Buy Some VIX Futures for December for Portfolio Protection

   

  Expect a totally surprised market when the Federal Reserve raises rates at its December policy meeting. The financial markets are as about as far from ‘pricing in’ of any rate hike for the December Meeting as they could be and frankly, the marker reaction will be fun to watch this December. And I really can`t blame this one on them as the Federal Reserve has gotten just plain loopy at this point. And listening to the ECB panel trying to justify more stimulus of bond buying in their herculean fight to save ‘low’ inflation from damaging European citizens was just pure comedy beyond a Monty Python skit. And at this point it is almost becoming a requirement for Central Bankers to just be plain Dodgy, Comical, Squirming in their Seats, Stupid, In Denial, Blatant Liars who look like Meth Abusers being questioned at the Press Conferences like a criminal in an interrogation room at the police station – even they don`t believe their own ‘shit’ these days that comes out of their mouths.

   

  Poor Mario Draghi: He didn`t look well

   

  A piece of advice for Mario Draghi just speak the truth, the ECB wants to weaken the Euro to boost exports by making them more competitive in trade, and they want to monetize the debt by trying to raise inflation because all of Europe`s Debt to GDP Ratios are a severe threat to European Solvency – the relativity game in both cases!

   

  At least with this answer I would  trust your competence as someone capable of holding such a position – although I don`t agree that QE and Debt Monetization actually is sound policy as it becomes self-defeating in promoting inefficient allocation of capital, and is in the end deflationary over the long haul.

   

  But when the reporter asked Draghi about why is low inflation such a bad thing for European consumers, and the panel trots out the argument of consumers delaying purchases crap, Draghi and company just come across as loopy, antiquated Meth induced pathologically untrustworthy and incompetent liars. Not the quality of individuals that should be in charge of monetary policy for the ECB!

   

  Low Standards for Central Bankers: Isn`t there Performance Review for this crowd?

   

  I think we should have the same standard that we have for Physicists, one can postulate all kinds of theoretical ideas, but when they fail in the experimental phase, they become set aside and replaced by better ideas that actually work in practical application in the field. Voodoo Economics of the last 25 years has failed, time to start promoting some economic ideas that actually work in the field. You know economic ideas that do a better job of more efficiently allocating capital to more productive purposes, as opposed to having large amounts of financial resources stuck as reserves in central banks and yield chasing electronic markets accumulating miniscule yields instead of promoting actual long term project growth for the world.

  

  

  

  

• US Issues Childish Ultimatum To Iraq: "It's Either Us, Or The Russians"

  At this point, it’s become difficult to keep track of the myriad embarrassments Washington has suffered since the start of Russian airstrikes in Syria. 

  There’s the Russian Defense Ministry’s daily video series depicting strikes on “terrorist” targets which makes the US look incredibly inept given how little “coalition” bombing runs have accomplished over the course of more than a year. 

  There’s Iran’s overt involvement on the ground which is a slap in the face for Washington as it comes just a two months after the conclusion of the nuclear deal. 

  And let’s not forget about the fact that thanks to the terribly convoluted strategy Washington has attempted to implement whereby the US will i) provide behind the scenes support for Sunni extremist groups in Syria, ii) provide public support for Iran-backed Shiite militias fighting Sunni extremists in Iraq, iii) send weapons to Syrian rebels who are fighting the very same Shiite militias at Aleppo, America is literally trying to say that if you’re a Sunni extremist, you’re a friend if you’re in Syria but an enemy in Iraq and if you’re a Shiite militia, you’re a friend in Iraq but an enemy in Syria. 

  Through it all, we’ve said that the ultimate humiliation would be for Russia to essentially kick the US out of Iraq. Make no mistake, the conditions are ripe for Moscow to simply muscle Washington out of the way in the country the US claims it “liberated” a little over a decade ago.

  There are two main reasons why it will be easy for the Russians to move in, i) Baghdad sees that Moscow is serious about bombing ISIS and the US, for whatever reason, isn’t and ii) Iran essentially controls the Iraqi army and Iraqi politics.

  In short, this would simply be a sequel to the Russian-Iranian military operation in Syria and the logistics are already in place as Iran’s militias have been battling Sunni extremists in Iraq for years alongside the Iraqi regulars. The newly established intelligence sharing cell set up in Baghdad and jointly staffed by Russia, Syria, Iran, and Iraq is a precursor to what one Iraqi official hopes will be a “full-blown military alliance.” 

  Needless to say, the US understands all of the above and the last straw apparently came with Iraqi PM Haider al-Abadi said he would welcome Russian airstrikes. This week, Marine Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff, showed up in Iraq to evaluate the situation and in what can only be described as a childish display, told al-Abadi that Iraq would have to choose between the US and Russia when it comes to countering ISIS. Here’s CBS (because to fully appreciate the pettiness, you have to hear it from the Western media):

  The U.S. has told Iraq’s leaders they must choose between ongoing American support in the battle against militants of the Islamic State of Iraq and Syria (ISIS) and asking the Russians to intervene instead.

   

  Marine Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff, said Tuesday that the Iraqis had promised they would not request any Russian airstrikes or support for the fight against ISIS.

   

  Shortly after leaving Baghdad, Dunford told reporters traveling with him that he had laid out a choice when he met with Iraqi Prime Minister Haider al-Abadi and Defense Minister Khaled al-Obeidi earlier Tuesday.

   

  “I said it would make it very difficult for us to be able to provide the kind of support you need if the Russians were here conducting operations as well,” Dunford said. “We can’t conduct operations if the Russians were operating in Iraq right now.”

   

  He said there was “angst” in the U.S. when reports surfaced that al-Abadi had said he would welcome Russian airstrikes in Iraq. The U.S., Dunford said, “can’t have a relationship right now with Russia in the context of Iraq.”

   

  The choice given to Abadi in Iraq by Dunford on Tuesday is a clear indication that the U.S. is not willing to compete with Russia for airspace over two neighboring countries deeply intertwined in the same convoluted war.

   

  The U.S. and Russia put into practice new rules on Tuesday designed to minimize the risk of air collisions between military aircraft over Syria.

   

  Reuters reports that the U.S. ultimatum to Iraq puts Abadi in a difficult position, as his own country’s ruling political alliance and some powerful Shiite groups have been pushing him to request Russian air support.

   

  The news agency said a proposal to request Russian strikes had been put to Abadi last week, but that he was yet to respond.

   

  “Abadi told the meeting parties that it wasn’t the right time to include the Russians in the fight because that would only complicate the situation with the Americans and could have undesired consequences even on long-term future relations with America,” Reuters quoted a senior Shiite politician close to Abadi as saying.

  In other words…

  

  So once again, it looks as though the US is in panic mode and is willing to pull out all the stops in a desperate attempt to keep the Russians from bombing ISIS in Iraq. 

  There are several theories as to why Washington is so intent on keeping Moscow out. The common sense theory that requires no conspiratorial ruminations says that the US is desperate to avoid ceding Baghdad to Russia and the Pentagon knows that with Iran already effectively in control of the army and the government, Russia would find a very receptive military and political environment in Iraq. 

  For those inclined to think that in addition to any initial support (i.e. funding and training prior to the official formation of ISIS), the US is still supporting Islamic State, well then the worry for Washington is that Russia simply wipes them out. 

  Whatever the case, the story is ultimately the same in Iraq as it is in Syria. The US knows that Russia is effective at decimating opposition forces and for whatever reason, Washington is not keen on being a part of it. In Iraq, that unwillingness has now manifested itself in a childish ultimatum from the Pentagon to Baghdad.

  Draw your own conclusions.

  

  

  

  

  

• THiS MaP IS THe TeRRiToRY…

  

  

  

  

  

• Yellen & Kuroda Live In A "Fantasy Fiat World Divorced From Actual Business Conduct"

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  There must be a universal speech template included in the monetary textbook that is shared among the various central banks. On September 28, 2015, Haruhiko Kuroda, Governor of the Bank of Japan, delivered a speech that wasn’t just similar to the press conference Janet Yellen had endured only a week or so before, it was a close enough replica that if stripped of geographic references would have made it impossible to determine who was giving the speech. Kuroda did as Yellen did, making a specific point to emphasize how “robust” the Japanese economy was showing itself in 2015 before trying his best to explain away all the ways in which it was not.

  Saying, “First, domestic private demand has continued to be robust” Kuroda then listed factors that were only slightly related to “domestic demand.” Rather than find specific economic accounts performing as he suggested, the Governor was instead reliant on surveys. “Firms’ positive fixed investment stance could be confirmed by various survey results.”

  For Japanese households, Kuroda followed as his American counterparts by leading with the declining unemployment rate, assuming its validity and meaningfulness, and then trying to explain why household spending (demand) wasn’t following all that.

  In terms of household spending, private consumption is somewhat sluggish recently, reflecting bad weather in the April-June quarter. Nevertheless, as the employment and income situation has continued with its steady improvement and consumer sentiment is on an improving trend, private consumption seems to have remained resilient on the whole.

  Consumer “demand” remains “robust” except that it is easily distracted by Japanese weather (obviously not the same storms and snow apparently afflicting the US in the quarter before) and can only charitably be described as “resilient.” As nice as all that may sound, couched carefully as always improving, it doesn’t quite explain the steady and growing chorus expecting and now demanding still more QQE.

  Some of that is surely the “unexpected” detour of Japan’s export sector. As in the US, the Bank of Japan is blaming these unspecified “overseas” factors for the deviation in what was supposed to be building export momentum (though, it needs to be pointed out, the Bank of Japan makes no distinction about nominal growth due to the yen, leaving much illusory gains as if they were actual volume advances).

  Exports had increased for three quarters in a row since the July-September quarter of 2014, but have recently been more or less flat, due mainly to the effects of the slowdown in emerging economies (Chart 5). They are expected to remain more or less flat for the time being, but after that, they are likely to increase moderately, supported by the correction of the appreciation of the yen to date as emerging economies move out of their deceleration phase.

  He says exports were growing, but by any realistic account that was only yen-induced. Last August at Jackson Hole, Kuroda sounded exactly the same, which should be quite alarming given that he clearly never saw the “overseas” problem developing and he still has to project “global growth” as nearly all that is left of QQE now.

  Mr. Kuroda said that one reason for his optimism was an expectation that Japan’s exports would finally start to increase in coming months. One of the mysteries of the past year been [sic] the continued weakness in Japan’s exports, despite the sharp drop in the value of the yen, which lowers the price of Japanese goods on global markets.

   

  “The world economy is recovering and increasing its growth,” Mr. Kuroda said, pointing to estimates of faster growth from bodies such as the International Monetary Fund and World Bank. “Given this good prospect of the world economy we expect Japan’s exports gradually to catch up.”

  Japan’s trade problem has instead only continued, as “this good prospect of the world economy” is nowhere to be found and leaving exports never quite matching or living up to the yen’s pathway. Exports only gained 0.6% in September while imports collapsed 11.1%; so much for internal “demand.” A good proportion of that decline was due to the 23% drop in imports from Australia, continuing a string of such heavy contraction dating back to March. Against that resource and raw material view, Japan’s imports from China still grew 1.1% in September, despite the yen, as offshoring of production continues to haunt the Japanese economy.

  

  That is a factor that Kuroda, belatedly, acknowledged in his speech but if only to suggest, at least in his mind, that such an impoverishing trend may be coming to an end (without expanding on why and for what reason other than a curious view on the currency). While never suggesting his own QQE as heavily responsible, he at least seems familiar with reality here.

  What is worth noting is that, as the excessive appreciation of the yen is corrected, Japanese firms — which had been prioritizing foreign investment — seem to be increasing their domestic investment. This is a big change. On the back of a marked improving trend in corporate profits and the effects of monetary easing, business fixed investment is projected to continue increasing moderately.

  It seems as if he is quite alone in that assessment, as the trade data from the past few months suggests the opposite. Not only does internal Japanese “demand” appear far less than robust, there isn’t much to suggest a shift in Japanese offshoring; though I am absolutely sure he could produce any number of “surveys” that indicate as much. All that was left from his speech was to acknowledge the “transitory” nature of Japan’s CPI, which he dutifully recited as a part of that “global growth” expectation.

  It isn’t often that a central banker is directly rebuked so firmly and immediately, but that is where we are as they attempt to hold the line on an optimistic future that careens further and further from reach.

  Japan’s annual export growth slowed to a crawl in September as shrinking sales to China hurt the volume of shipments, raising fears that weak overseas demand may have pushed the economy into recession.

  Ministry of Finance data showed exports rose just 0.6 percent in the year to September, against a 3.4 percent gain expected by economists in a Reuters poll.

  That was the slowest growth since August last year, following the prior month’s 3.1 percent gain. The weak yen helped increase the value of exports, but volume fell 3.9 percent, the third straight month recording an annual decline. [emphasis added]

  In what can only be a further slap to the optimism about QE of any kind, the slowdown in the current quarter is not limited to Japan’s exports alone, extending into business investment which is why the whispers of renewed recession for Japan have only grown louder and gained more and more confirmation. This idea of QQE, as it is with just QE, amounts to thinking fantasy as reality. Kuroda talks about export growth, but he is at great pains to avoid distinguishing nominal levels. Companies, even export companies, may have more yen in profit and revenue, but are actually doing, building and shipping less for it. That is an economic gain in the fantasy of a fiat world divorced from actual business conduct.

  Exports to the United States, a major buyer of Japanese products, rose 10.4 percent in September, led by shipments of cars. In volume terms, however, U.S.-bound exports fell 4.7 percent.

   

  

  None of this should be a surprise given that yen interference and financialism on the scale of QQE amount to attempts at negative redistribution. Given what the Japanese have been subjected to in the past two and a half years of QQE, it is nearly criminal to suggest they need only more of it. None of it has worked as promised and stated, so what might have changed? Absolutely nothing except the arrangement of qualifiers and excuses that litter the same shared central bank speech delivered over and over of late. Kuroda says “robust”, Yellen proclaims “strong”, and both only confirm they live not of this world’s economy.

  

  

  

  

  

• Treasury Warns Of "Humanitarian Crisis" In Puerto Rico If Congress Does Not Agree To Bailout

  “Puerto Rico is not Greece“… but it increasingly looks like it will be in a few weeks, thanks to US taxpayers who are about to foot the bill for yet another creditor bailout.

  As we reported last night, creditors of the insolvent commonwealth, hoping to get a bailout and the highest possible return on their bond investment courtesy of the US taxpayer, have been pushing to portray the fiscal situation in Puerto Rico as beyond repair, hoping to force the administration and Congress to act. As The NY Times reported, on Wednesday, Puerto Rico took the unusual step of announcing that talks over restructuring about $750 million of the island’s debt had broken off, a move that some creditors saw as posturing to Washington for help.

  Then, all day today, Puerto Rico’s leadership, realizing its interests are suddenly alligned with those of its creditors as a bailout is in everyone’s best interest, took the rhetoric up a notch when the island’s Governor Alejandro Garcia Padilla said in written testimony for Senate Energy Committee that Puerto Rico will have negative cash balance of $29.8 million in November 2015, and then added that the Puerto Rico Government Development Bank may be unable to make its $355 million debt service. “These GDB bonds are supported by a guarantee from the Commonwealth, and the GDB, which faces its own liquidity crisis, is not expected to be able to make the payment on its own based on current information.”

  Others quickly chimed in: Puerto Rico Senate President Eduardo Bhatia said he would be in favor of “including everything” in a broad, comprehensive restructuring of the debt.

  In short: bail us out now or face the consequences of a domino effect of defaults which puts not only the creditors, but the island itself, in dire straits.

  The gambit is working. As we reported yesterday citing Bloomberg, “Obama is pressing for Congress to give Puerto Rico sweeping powers to reduce its $73 billion debt burden through bankruptcy, escalating administration involvement as the Caribbean island’s access to cash dries up.”

  Puerto Rico would be provided with a form of bankruptcy protection not now available to American territories. Administration officials also called for lawmakers on Wednesday to increase health-care funding for Puerto Rico, extend tax credits to the poor and put independent oversight in place to monitor the government’s budget.

  While Republican opposition to a broad bailout has been the base case, even that has been melting away in recent days: Bloomberg adds that the Republican leadership would be willing to grant Puerto Rico access to the bankruptcy courts only on a limited basis, and only with strings attached like the imposition of a federal “control board” to oversee the island’s finances.

  Control boards have been used in cases of severe municipal distress to take the power to spend public money out of the hands of elected officials. They do not generally have the powers that bankruptcy judges do to abrogate contracts, such as labor contracts and promises to repay debt.

  Or largely a technicality, one which would make Puerto Rico a comp to Greece, a “sovereign state” which is now de facto controlled out of Frankfurt and Brussels. Only in the case of Puerto Rico it would be the US taxpayers that are on the hook.

  So with the framework for the bailout largely in place, there is just one thing missing: the trigger that will push the last holdouts to agree.

  Luckily one already exist: the same one used to force the bailout of the banking system in 2008: an appeal to emotions, and a threat of dire consequences, unless a few conflicted parties get their way.

  This is precisely what happened today when as Reuters reports Treasury Secretary counselor Antonio Weiss warned that Puerto Rico faces a humanitarian crisis without federal action, as he appealed to Congress to help the debt-ridden U.S. territory, in comments to a Senate committee hearing on Thursday.

  In other words, bail out Puerto Rico or watch the island go up in a cloud or violent riots. But please, whatever you do, don’t call it a bailout:  “Weiss said that without action by Congress, Puerto Rico’s crisis would escalate and reiterated that the Obama administration’s policies were “not a bailout” for the island.“

  Which, naturally, is the spin that the holdout Republicans should use to justify their action before their voters: bail Puerto Rico out… just don’t call it a bailout.

  The rest is already known: he repeated the key points of a plan released by the Treasury on Wednesday, saying Congress should provide tools for Puerto Rico to restructure its liabilities, increase Medicaid support and boost economic growth through tax credits. Again: it’s “not a bailout.”

  A key element of Treasury’s proposal is its endorsement of extending bankruptcy protections not only to Puerto Rico’s public agencies, but to the island’s government itself – a notion championed by some Puerto Rican leaders but seen as too radical to be politically practical.

   

  Cities, towns and municipal agencies can file for under the U.S. Chapter 9 bankruptcy code, while states cannot. Puerto Rico is exempt from Chapter 9 because it is a commonwealth. 

  And just in case it was lost, here it is again: “Bankruptcy is not a bailout,” Weiss said, according to testimony released ahead of his remarks. “Allowing Puerto Rico to resolve its liabilities under the supervision of a bankruptcy court involves no federal financial assistance whatsoever. Instead, bankruptcy requires shared sacrifice from both Puerto Rico and its creditors.”

  What he forgot to add is that with both Puerto Rico and its creditors being made whole on their bonds, and getting a backstop from the government, nothing will change, and the only sacrifice, very much unshared, will be by the usual patsy – US taxpayers.

  

  

  

  

  

• Presenting America's New Debt Ceiling: $19,600,000,000,000

  Even as the bond market has been rather concerned about another possible debt ceiling showdown as we showed before, and which earlier today prompted the Treasury to announce the purposefully dramatic step of postponing the auction of 2 Year Notes next week, the reality is that one way or another, with an equity-driven wake up call for the GOP or without, the debt ceiling will be raised.

  The only question is how much.

  As a reminder, the reason why the total US debt held by the public hasn’t budged from $18.1 trillion since March 16, 2015 is because that is when the last debt ceiling limit was hit. In the seven month since, the US Treasury has been cruising along on emergency cash measures, even as the total debt – if only for reporting purposes – has not budged (in reality it has grown by about half a trillion).

  It will budge very soon, because no matter what the outcome of the upcoming week of debt ceiling negotiations, one thing is certain: the US has to be able to borrow more in order to survive.

  And as The Hill reported, when one gets beyond the traditional posturing, the outcome will be the following:

  The House is expected as early as Friday to vote on a conservative debt-limit proposal even though chances are slim that the plan can pass the Senate. 

   

  Speaker John Boehner (R-Ohio) told the GOP conference on Wednesday that he is expecting a vote on the Republican Study Committee (RSC) plan that would raise the debt limit to $19.6 trillion from $18.1 trillion and would run through March 2017.

  Who will be the Republican to submit the unpopular measure? Most likely the outgoing speaker John Boehner, who will seal his tenure with this final act:  “With only two weeks to go, the pressure is on the House to pass a measure that raises the nation’s $18 trillion debt ceiling amid a search for the next Speaker.”

  Yes, the republicans will pretend to demand concessions, such as a balanced budet and other “sound money” conditions…

  The proposal would require a House vote on a balanced-budget amendment by Dec. 31, would implement a short-term freeze on federal regulations through July 1, 2017, and would compel the House to remain in session without a break if spending bills aren’t done by Sept. 1.

  … but they won’t get them because the corporations pulling the strings of every D.C. politicians are the biggest beneficiaries from US debt-funded largesse, especially if one throws in the occasional contained or not so contained war.

  This means another victory for the Demorats who have required a “clean” debt raise. This is precisely what they will get, and why it will have to take place under John Boehner as Paul Ryan would surely tarnish his reputation with the Freedom Caucus if his first act is one seen as submission to the left.

  Which means that the only certain outcome from the melodramatic debt ceiling fight over the next several days, is the following: the US is about to have a brand spanking new debt ceiling, one that should last it until March of 2017: $19,600,000,000,000.

  If the chart below looks increasingly exponential, that is not a coincidence.
  

  

  
  

  

  

  

  

  

• Paul Ryan Seals Republican Support, Declares Bid For House Speaker

  One week ago he said he has no interest in the Speaker position, but so much can change in one week. Moments ago Paul Ryan sent out a letter to the GOP announcing he would run for speaker of the house. And since he had previously said said he would only enter the speaker’s race if he could lock up support from three wings of the fractious party, in the space of just 3 days this week, he appears to have done just that.

  Letter below:

  

  And with that the question over who the next house speaker will be is answered.

  The only outstanding question now is how Ryan will handle the debt ceiling issue, which, however, as we said earlier is just a formality at this point, and the expansion of the U.S. debt ceiling target to $19.6 trillion is merely a matter of days.

  

  

  

  

  

• Back From The Future: A Presidential Address At The End Of The Fourth Turning

  Submitted by Jimski via The Burning Platform blog,

  Presidential Address to the Nation
  President Pro Tem
  Former Secretary of Education

  My fellow Americans

  I speak to you today from the historic heart of our republic in Washington DC. The last year has seen such pain and misery for our country but at last we see and end to the conflict that has devastated not only America but the whole world. With the Accord signed by the new and old governments we will see a draw down in combat and in mass destruction readiness across the globe. The world has seen pain like no other time in history. Cities Lay in ruin and the people of the world cry out for peace. Peace is now at hand.

  The first nine months of combat saw a replay of the second world war in which men and machine fought across the globe. More resources we consumed or destroyed in that time then all the worlds wars in history. Tank battles and sea battles and men in trenches fighting for what they believed was right.

  We know now just how wrong everybody was.

  When the war finally came to American shores it unleashed more death than every single war in American history. The targeting of 8 American cities resulted in the destruction of 7 of them. Our people continue to die due to the radiological affects of these weapons. We will take a long time to heal but we will heal. 3 of the cities will be decontaminated and rebuilt. We are planning to isolate and quarantine the other 4 cities as not viable for reconstruction at this time. It is triage plain and simple.

  What we do know from the missile that targeted Washington and was shot down is that 4 enemies took part in the plot. Evidence shows that the Nuclear material was supplied by North Korea and the missile technology came from Iran. The ships used to launch the attack was funded and flagged by Saudi Arabia through many fake companies. The personnel who built the weapons and pushed the buttons were a cross section of radical Islamic Jihad’s from 21 different countries. Even American citizens were involved.

  I state that again, even American citizens were involved.

  The broad selection of people who carried out this attack all had one thing in common. A religion of Death and Hatred fundamentally incompatible with modern life on this planet. That is why Mecca is now a crater in the desert. The 3 missiles used 1 from the United States 1 from China and 1 from Russia will leave for all time a monument and a warning to the peoples of the world that hate will bring hate and death. The other 7 cities of the world we struck were destroyed because of irrefutable evidence of complicity in the attack. You unleashed this hell. We delivered it back.

  The bombs were not the only thing that caused destruction and death in our country. It seems we did a good job of that ourselves. In the 93 days since the attack more Americans were killed from riots and shortages than from the weapons. The systems that deliver food and energy stopped. Instead of banding together to help one another we turned on our neighbors with fist and knife and gun. We forgot what it means to be Americans. We forgot what it means to belong to a community. And most idiotically we took out our collective anger on those most able to help us through these times.

  Reports across the country all tell the same story. Murder of local officials and looting on a countrywide scale. The people most targeted seem to be a small group of Americans called Preppers. These people through religious tenant or just good old common sense had prepared for a situation like this but local populations rose up with anger. They thought that because someone prepared for the worst they must have had something to do with the attack. Tens of Thousands were murdered by mobs. The very citizens needed to rebuild are almost gone. And we did this.
  America did it to its self.

  We set up a system of Government that was broken to begin with. It allowed men in high places to loot the treasury. It allowed men in high places to grow a constituency that was beholden to the Government itself though entitlements and outright bribery. We had a population who’s sole purpose was to keep those in power IN POWER. A population of voters who lived to consume and yet never to produce. This was the downfall of the republic. An outside enemy surly struck us well but not unto death. That we did to ourselves.

  Hindsight is for the most part 20-20 and in the clarity of history we see the architects of the war. We surely had well meaning people who agreed to the redistribution of wealth due to a need to help others but as we dissect that last 20 years we see a trend and it is horrific in its nature. We see now the programs to help others were just a way to pilfer from the public treasury. Banks and corporations stole money from America for the sole purpose of a few more decimal points on a ledger. What did it get them? It is all toilet paper now. Sure some got away. You will not get far. We know who you are. We have the records. As one of my last executive orders I have dispatched special forces across the world with orders to kill on sight everyone one of you bastards that brought us to this point.

  Is this legal? We are so past legal I do not care anymore. You have destroyed our country. We are going to drag you down with us.

  This is why we are now a fractured county. We have 4 different people claiming to be the president of 3 different sections of what was the United States of America. I am the only cabinet member in the chain of succession laid out in the Presidential Succession Act of 1947.This leaves me with the title president but for the most part I am the President of Washington DC and what little Military that is left and did not mutiny. That is why I make the following pronouncement:

  I hereby call for a new continental congress to form a new government. Our founders of the old Government knew this would be a possibility, nay probability. We shall gather together and write out a new constitution. A constitution that will hopefully prevent this from ever happening again. And yet as a think on it man being a flawed being perhaps we can never get it right. Perhaps we are doomed to replay generational the mistakes of the old.

  The following statement statement is for the rest of the world:

  We are done with you. Yes we wronged you but we were driven by vain men who harmed us as well as you. Even the interventions across the globe were nothing more than a way to loot the treasury. In the guise of democracy and freedom we brought war and death. We are sorry. I am sorry.

  But we will not be picked over like a dead animal. We are alive and we are able to protect ourselves. We are at this moment recalling every combat unit, every embassy, every American citizen who wants to rebuild the nation and build a future. You will do well to remember that our farmers at one point fed our country and almost 20% of the rest of the world. We still have our agricultural roots although they are buried deep. We will uncover and once again feed a billion people but we will need time. We will need friends. We reach out to those who offer true friendship as we rebuild.

  To those of you who may plot more attacks on our country. At this point you risk the total annihilation of our species. If you truly want to see what a wounded America is capable of. I will push the damn button.

  

  

  

  

  

• Too Big To Kick

  T-12 days till US default…

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• China's Red Capitalism Is The New Black Swan

  Submitted by David Stockman via Contra Corner blog,

  The proverbial peddlers of Florida swampland can now move over. They can’t hold a candle to the red suzerains of Beijing.

  The latter had drawn a line in the sand at 7.0% GDP growth. Conveniently enough, the “consensus” estimate of so-called street economists was pegged at 6.8% for Q3, thereby giving authorities one thin decimal point through which to thread a “beat” at 6.9%.

  By golly they did it!

  Even then, China’s Ministry of Truth had to fiddle down the GDP deflator to negative 0.5% (for the second time this year) in order to hit the bulls eye. And that’s exactly the point.

  No real world $10 trillion economy plagued with all of the turmoil evident in China’s whipsawing trade data or its volatile real estate development sector or its faltering rust belt and commodity-based industries can possibly deliver absolutely stable GDP numbers to the exact decimal point quarter after quarter.

  In fact, the odds that these reports represent anything other than goal-seeked propaganda are so overwhelmingly high that they perforce raise another more important question.  Why does Wall Street and its servile financial press not issue a loud collective guffaw when they are released?

  But no, the Wall Street Journal took it all very seriously, noting both the “beat” and China’s claim that the “miss” wasn’t a miss at all:

  The better-than-expected result—a Wall Street Journal survey of 13 economists forecast a median 6.8% gain—is likely to renew debate over the accuracy of China’s growth statistics…….Speaking at an event to promote entrepreneurism in Beijing on Monday, Premier Li Keqiang said “even though it was 6.9%, it is still a growth rate of around 7%.”

  Right. China’s #2 communist boss is out promoting the “enterprenurial spirit” while emitting central planning propaganda to the decimal point.

  You might find the irony exceptionally rich, but there is a larger message. Namely, the true size of China’s economy is unknowable to the nearest trillion or even several trillions. But that does not prevent most of Wall Street from taking seriously each and every word of China’s self-evidently clueless statist rulers spouting growth rates to the decimal point.

  In truth, Wall Street has become so intellectually addled from its addiction to central bank enabled gambling that it no longer has a clue about what really matters. That’s why the next crash will come as an even greater surprise than the Lehman meltdown, and will be far more brutal and uncontainable, as well.

  Yet the evidence that a China-led crash is on its way is hiding in plain sight. And what is being blithely ignored is not merely the blatant inconsistencies in its economic numbers—–such as the fact that electricity consumption has grown at only a 1.3% rate over the past year——or that its commerce with the outside world has shrunk drastically, with imports down by 23% and exports off by 3-6% in recent months.

  Instead, the evidence that China is a slow-motion trainwreck lies in the very consistency of its Beijing-cooked numbers. Apparently, no one has told its credit-happy rulers that printing precise amounts of new GDP quarter after quarter by issuing credit at double the rate of nominal income growth will eventually result in the mother of all deflationary collapses.

  Stated differently, if the pattern of debt versus GDP shown below is pursued long enough, the world’s greatest open air construction site will fall silent. Everything which can be built will have been delivered; any cash flow which can be encumbered with more debt will have been levered-up; any pretense that financial institutions are solvent will have given way too soaring defaults; and the Wall Street delusion that the primitive central planners of red capitalism had a iron grip on China’s runaway expansion will have been revealed as a snare and delusion.

  Accordingly, the only thing that really counted in yesterday’s release was that credit is still growing at nearly 12% or at 2X the 6.2% gain in nominal GDP. And as is also evident in the chart, this massive and aberrational debt versus income gap has been underway as far back as the eye can see.

  Indeed, its goes all the way back to Mr. Deng’s moment of enlightenment 25 years ago. That’s when he discovered a printing press in the basement of the PBOC and concluded that communist party power might better be preserved by running these presses red hot than by Mao’s failed dictum that power descends from the white hot barrel of a gun.

  In any event, why in the world would anyone in their right mind think this crucial chart can be extended toward the right axis much longer. Assume 10 more years of 12% credit growth, for example, and China will have $90 trillion of total debt or 50% more than the already staggering amount carried by the US economy.

  At the same time and given that China’s nominal GDP growth is descending in Gartman fashion from the upper left to the lower right, assume the very best outcome for nominal income. That is, posit that somehow China manages to achieve ten more years of this quarters’ 6% nominal growth. So doing, you get a mere $17 trillion of GDP.

  Everywhere and always, however, a 5X total leverage ratio on an economy is a recipe for crushing deflation. In fact, it has never happened before in modern times except for Japan after 1990; and Japan at least had some semblance of functioning markets separate from the state and the rule of commercial law, contracts and bankruptcy.

  By contrast, when China fully plunges into its inexorable deflationary spiral the rulers of red capitalism will have no choice except to resort to Mao’s preferred instruments of rule—–paddy wagons and machine guns—-in order to quell an outraged citizenry. After all, Mr. Deng told China’s newly ascendant capitalists that it is glorious to be rich, but did not explain that printing press prosperity ultimately results in a crack-up boom.

  Stated differently, the recent 18-month rise and then overnight collapse of $5 trillion of phony market cap in the Chinese stock market gave rise to utter panic and mindless expediency in Beijing, including a de facto bailout of billionaires. China’s red rulers apparently feared that the 90 million angry stock market speculators would be no match for its 70 million party cadres——especially since most of the latter were foremost among the former.

  Yet what will happen when China’s hideously inflated real estate and land values succumb to the deflationary wringer?  And hideous is not too strong a word: in many urban areas housing prices have reached 15-30X the median income.

  Well, there are 65 million drastically over-priced, empty apartments in China because its rulers told speculators and the rising middle class that housing prices could never fall——that they were the next best thing to a piggy bank. Accordingly, the last phase of China’s madcap construction boom is likely to be a manic spurt of prison building to accommodate the millions of irate citizens who are destined to experience China’s turbo-charged version of 1929.

  

  The other number number in the Q3 release that has been drastically misinterpreted is the reported 10.6% growth of fixed asset investment. Needless to say, this was described as “disappointing” when it is actually a screaming symptom of China’s terminally deformed economy. If it had any hope of avoiding a crash landing, fixed investment in its fantastically overbuilt public facilities and industrial capacity would be sharply negative, not still growing in double digits.

  Owing to the cardinal error embodied in Wall Street’s self-serving rendition of Keynesian economics, however, China’s fatal dependence on erecting economic white elephants and what amount to public pyramids in the form of unused airports, train stations, highways and bridges, is given hardly a passing nod. That’s because it is assumed that some way or another China will make the transition to a services and consumption based economy just like the good old shop-till-they-drop US of A.

  Let’s see. When China finally stops its borrowing binge, these putative shoppers will need to finance their purchases out of current incomes. Yet is not the overwhelming share of household income in China currently earned from the supply chain for fixed asset investment and construction and from the export of cheap goods to already saturated and debt-besotted DM markets?

  Just consider the fantastical reality that China’s 2 billion ton cement industry produced more in three years than did the US industry during the entire 20th century. When they finally stop building roads, apartments and factories, therefore, it is not just the cement kilns which will shutdown, but a whole network of gravel haulers, chemical plants, cement truck fleets, construction equipment suppliers, work site service vendors and much more reaching deep into the interstices of China’s hothouse economy.

  Likewise, when rebar and other construction steel demand collapses and the rest of the world throws up barriers to China’s surging steel exports, as it surely will and is already doing, the ricochet effects on China massively overbuilt 1.1 billion ton steel industry will be far-reaching. The incomes of coal barons and blast furnaces workers alike have already taken a pasting, and the downward spiral is just getting started.

  And wait until China’s newly minted auto dealer lots become backed-up with unsold cars as far as the eye can see. Then its 25 million unit auto industry will tumble into a depression unlike anything since 1929 when Detroit’s production plunged from 6 million cars/year to less than 2 million.

  All of those suddenly unemployed auto, steel, rubber, glass, upholstery etc. workers did, in fact, economically “drop”. But it wasn’t from an excess of shopping!

  In short, the affliction of Keynesian economics brought many ills to the modern world, but repeal of Say’s Law was not among them. You can have a one-time credit party, but when it inevitably ends, consumption spending defaults to that which can be financed from current incomes. Consumption is the consequence of production and income, not its cause.

  Yet crack-up booms eventually destroy the bloated and unsustainable incomes generated in the raw materials, capital goods and consumer durables sectors during the boom phase. Accordingly, even the red suzerains of Beijing can not get from here to there. The phantom incomes that resulted from paving nearly half of the Asian continent occupied by 20% of the world’s population must inevitably shrink, meaning that China’s consumption and service spending will falter, too.

  Stated differently, China’s red capitalism is the new black swan. There is nothing rational, stable or sustainable about it. Moreover, the consequence of its pending collapse will be literally earth shattering.

  That’s because in recent years it has accounted for a lot more than the one-third of global GDP growth conventionally cited. The latter is just a measure of border-to-border economic statistics.

  But the second and third order effects are equally large. From the bowels of Australia’s iron ore mines to the top of Dubai’s pointless 100 story office towers, the entire warp and woof of the global economy has been distorted and bloated by the central bank money printing spree of the last two decades, led by the red credit machines of Beijing. Everywhere economies have succumbed to over-building, over-consumption, over-financialization and endless dangerous, unstable speculation.

  So forget the cleanest dirty shirt meme or the preposterous Wall Street nostrum that the US economy has been “decoupled” from the rest of the world. That’s unadulterated hogwash, and its means that the stock market and risk assets are heading for a thundering crash.

  After the fact, of course, Wall Street will discover that the world economy was unexpectedly taken down when the suzerains of Beijing were unable to perpetuate the Red Ponzi.

  But just like last time during the mortgage and housing meltdown it was starring them in the face all along.  Here is what happened to the home ATM piggy-bank that fueled the Greenspan Boom and that gave rise to the Wall Street illusion that consumption spending is the motor force of economic life.

  From a peak mortgage equity withdrawal rate (MEW) at 9% of DPI or nearly $1 trillion per year prior to the crisis, MEW has been negative ever since. That is, it has subtracted from consumption, not added. Not one in one hundred Wall Street economists could have correctly projected this chart in 2007 when they were slobbering about the goldilocks economy.

  

   

  Needless to say, when it comes to the wounded elephant in the room this time around—-the tottering edifice of the Red Ponzi——they are still slobbering.

  

  

  

  

  

• Putin Just Warned Global War Is Increasingly More Likely: Here's Why

  Vladimir Putin is basking in Russia’s triumphant return to the world stage. 

  What began with a land grab in Crimea and escalated with support for the separatists at Donetsk, culminated in Moscow’s dramatic entry into Syria’s protracted civil war.

  To be sure, the deplorable (not to mention comically absurd) strategy adopted by the US and its regional allies in Syria set Putin up for success. The situation was highly exploitable by anyone that’s strategically minded and thanks to the convoluted set of alliances Washington has built with groups that later turned out to be extremists, Moscow gets to achieve its regional ambitions while simultaneously fighting terrorism. Meanwhile, Washington, Riyadh, Ankara, and Doha are left to look on helplessly as their Sunni extremist proxy armies are devastated by the Russian air force. The Kremlin knows there’s little chance that the West and its allies will step in to directly support the rebels – the optics around that would quickly turn into a PR nightmare. 

  All of this has provided the perfect backdrop for Putin to begin what’s amounted to a lecture tour on how to conduct foreign policy.

  Soundbites have ranged from very serious commentary on why the West should not employ extremists to bring about regime change to comical jabs at the US and its allies who the Russian President last week accused of having “oatmeal brains” when it comes to Mid-East policy. 

  Speaking today at the International Valdai Discussion Club’s 12th annual meeting in Sochi, Putin delivered a sweeping critique of military strategy and foreign policy touching on everything from the erroneous labeling of some extremists as “moderates” to the futility of nuclear war. 

  “Why play with words dividing terrorists into moderate and not moderate. What’s the difference?,” Putin asked, adding that “success in fighting terrorists cannot be reached if using some of them as a battering ram to overthrow disliked regimes [because] it’s just an illusion that they can be dealt with [later], removed from power and somehow negotiated with.” 

  “I’d like to stress once again that [Russia’s operation in Syria] is completely legitimate, and its only aim is to aid in establishing peace,” Putin said of Moscow’s Mid-East strategy. And while he’s probably telling the truth there, it’s only by default. That is, peace in Syria likely means the restoration of Assad (it’s difficult to imagine how else the country can be stabilized in the short-term), and because that aligns with Russia’s interests, The Kremlin is seeking to promote peace – it’s more a tautology than it is a comment on Putin’s desire for goodwill towards men. 

  And then there’s Iran and its nascent nuclear program. Putin accused the US of illegitimately seeking to play nuclear police officer, a point on which he is unquestionably correct: The “hypothetical nuclear threat from Iran is a myth. The US was just trying to destroy the strategical balance, [and] not to just dominate, but be able to dictate its will to everyone – not only geopolitical opponents, but also allies.”

  Speaking of nukes, Putin also warned that some nuclear powers seem to believe that there’s a way to take the “mutually” out of “mutually assured destruction.”

  That is, Putin warned against the dangers of thinking it’s possible to “win” a nuclear war. Commenting on US anti-missile shields in Europe and on the idea of MAD, Putin said the following:

  “We had the right to expect that work on development of US missile defense system would stop. But nothing like it happened, and it continues. This is a very dangerous scenario, harmful for all, including the United States itself.  The deterrent of nuclear weapons has started to lose its value, and some have even got the illusion that a real victory of one of the sides can be achieved in a global conflict, without irreversible consequences for the winner itself – if there is a winner at all.”

  In short, Putin is suggesting that the world may have gone crazy. The implication is that the US believes it not only has the capacity to win a war against the nations Washington habitually places on its various lists of “bad guys” (i.e. Russia, Iran, and China), but that Washington believes America can win without incurring consequences that are commensurate with the damage the US inflicts on its enemies. That, Putin believes, is a dangerous miscalculation and one that could end up endangering US citizens. 

  So once again, this is Putin setting the narrative and jumping at every opportunity to portray Russia as a nation that’s not content to “lead from behind” (as so many have recently accused the US of doing). And once again, his assessment seems remarkably sober in a world that does indeed seem to have lost its collective mind. 

  Full speech (translated) below.

  

  

  

  

  

• What Your High School Chemistry Teacher Never Taught You About Gold

  Submitted by Simon Black via SovereignMan.com,

  One of the more unfortunate developments in human civilization over the last century is the devolution of money.

  In fact, the word ‘money’ has now become synonymous with those funny pieces of paper that are conjured out of thin air by unelected central bankers.

  Or even more ridiculous, ‘money’ has become the electronic representation of that paper.

  Think about your bank account balance; it’s not like the bank has all that paper currency sitting in its vault.

  The ‘money’ in your account doesn’t even really exist. There’s just enough of a thin layer of confidence in the system (at the moment) that this is a widely accepted practice.

  It seems rather strange when you think about it. Though for thousands of years, early civilizations had some pretty wild ideas about money.

  There are examples from history of our ancestors using everything from animals skins, to salt, to giant stones, as their form of ‘money’.

  Though I suppose these weren’t any more ridiculous than our version of money– pieces of paper that don’t even really exist, controlled by unelected central bankers.

  Of course, over the last 5,000 years, there was at least one form of money that did make sense. And it stuck. I’m talking, of course, about gold.

  It’s no accident that gold has become the most consistent form of money in world history.

  The metal is uniquely suited to serve as currency, not only amongst precious metals, but compared against nearly everything else on the planet.

  You can see for yourself by taking a look at the periodic table of elements, the scientist’s catalog of everything the world has to offer.

  Many of the entries on the periodic table are immediately disqualified. Many elements are radioactive. Others are gasses that would be impossible to transport.

  Still others are colorless, and hence indistinguishable from air.

  Taking these out eliminates most of the list, and you’re left with just a few dozen metals.

  Most of these, however, like copper or iron, can be easily eliminated as well. They’re simply too common. And a form of money is useless if its in too much abundance… a lesson that modern central bankers have completely forgotten.

  Others (like cesium) are highly reactive and explode on contact with water, or at least corrode easily.

  Clearly a currency that kills its holder, or can’t even maintain its physical state without debasing itself, is rather useless.

  Even silver, which nearly passes every single test falters at the last point, because it tarnishes slightly in reaction to sulfur in the air.

  So out of all the elements we’re left with just one that’s just right: gold.

  Gold is inert and non-reactive. It’s stable. It holds its form over the long-term. It’s malleable and easily divisible. And it’s rare. But not too rare.

  Judging by its chemical properties, it’s no accident that gold became the most widely-used currency in history.

  Of course, defenders of the paper money concept call gold a “barbarous relic”, suggesting that it has no place in modern civilization.

  (Curiously, paper is also relic from long ago, dating back to the 2nd century AD in China. . .)

  Yes it’s true that gold is a very old concept. But so is the wheel. Language. Arithmetic. And many other ideas passed down from the ages.

  Just because something is ancient doesn’t mean it’s not RIGHT.

  Empires rise and fall. Governments and central bankers come and go. Paper currencies lose their dominance.

  But gold lasts.

  And if you hold a long-term view, and believe that the path to prosperity is not paved in debt and money printing it makes sense to consider holding at least a small portion of your savings in the metal.

   

  

  

  

  

  

• In "Manifest Waste Of Time," Portugal Reappoints PM In Defiance Of Anti-Euro Left Coalition

  As those who followed our coverage of Greece’s protracted negotiations with creditors are no doubt aware, Berlin’s effort to tighten the screws on Alexis Tsipras and Yanis Varoufakis was just as much about sending a message to the rest of the EU periphery as it was about putting Greece on some kind of “sustainable” path to recovery. 

  Greece is going to be a German debt colony for decades to come and everyone knew that going in.

  The real risk was always that Spain, Portugal, and perhaps Italy would get the “wrong” idea about whether it’s possible to essentially threaten to expose the euro as dissoluble on the way to gaining leverage in debt negotiations with Brussels and the IMF.

  

  In other words, it seemed at times as though Greece was betting that the notion of the EMU as an unbreakable bond between member countries would ultimately prove to be so important, that the troika would bend over backwards to avoid Grexit.

  Of course it didn’t quite work out that way and the Greek people had their referendum “no” vote sold down the river by Tsipras.

  When it comes to Greece, Brussels and the IMF achieved what they set out to accomplish as soon as Syriza came to power in January: namely, they were successful in subverting the democratic process by using the purse string to turn Tsipras into a pandering technocrat and to gut Syriza of its more “radical” members like Panagiotis Lafazanis.

  The troika had hoped that Greece’s horrific experience during negotiations and the subsequent outcome which saw a beleaguered Tsipras reduced to a shadow of his former revolutionary self would be enough to deter leftists in other periphery countries from attempting to go down the Syriza route by shunning austerity and pushing for debt relief. As we put it a few months ago, the real question is whether or not the ATM lines, empty shelves, and gas station queues in Greece have had their intended psychological effect on Spanish (and Portuguese) voters. In other words, the question is whether the troika has succeeded in undercutting the democratic process outside of Greece by indirectly strong-arming the electorate. 

  Well, sorry Brussels, but it looks like Athens may have opened Pandora’s Box. On the heels of inconclusive elections held earlier this month, Portugal’s Socialist leader Antonio Costa is ready to align with the Communists and with Left Bloc to form a government in defiance of the Right-wing coalition. Here’s The Telegraph with more:

  Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’.

   

  Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament

   

  The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh.

   

  “The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University.

   

  Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

   

  Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency.

   

  The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy.

   

  His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.

   

  Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the European Central Bank close down its banks,” she said.

  And more from FT:

  The appointment of a government led by the Socialist Party (PS) would represent a marked shift from the centre-right government that steered Portugal through a punishing bailout in collaboration with international lenders, to a leftwing alliance determined to roll back austerity.

   

  “Europe is watching and is very concerned,” said Mujtaba Rahman, head of European analysis at the risk consultancy Eurasia Group. “Having just stabilised Greece and heavily distracted by migrants, the last thing Europe needs is a renewed crisis in the south.”

   

  Mr Passos Coelho’s Forward Portugal alliance (PAF) won 38.6 per cent, the largest share of the vote, in the October 4 election, but lost its outright majority in parliament. This means a minority centre-right government could be brought down by the combined votes of left-of-centre parties.

   

  No government on the left or right could hope to survive without support from the PS, which won 32.3 per cent, leaving Mr Passos Coelho nine seats short of an overall majority in the 230-seat parliament.

   

  But talks, encouraged by the president, between Mr Costa and Mr Passos Coelho on PS support for a minority centre-right government have collapsed.

  In other words, this is the absolute worst case scenario for Berlin and Brussels and indeed this is precisely what the troika was trying to deter by adopting a hardline approach during the fraught negotiations with Greece. 

  Who could have seen this coming, you ask? Well, here’s what we said in July:

  In this way, while the outcome of the Greek situation is currently unknown, it has also become moot, because at this very moment, politicians from leftist movements in the periphery are drafting memos demanding that the IMF evaluate their own debt sustainability. Or rather unsustainability.

  And here’s our assessment from way back in May: 

  Perhaps it’s time for Greeks to ask themselves if this is the kind of “European” partner they want to bind their fate to: a partner that will do everything in its power to subvert a democratically elected government, even if, or rather especially if, it means a wholesale “bail-in” for Greek depositors, who may lose as much as 70 cents on every euro.

   

  After Greece is done soul searching, the people of Spain, Italy, Portugal and Ireland should ask the same question, because if we have a Grexit in two weeks, then these countries are next and indeed, Portugal’s Socialist Party is pledging to implement a “reverse policy” as it relates to austerity and relations with the Troika.

  So the takeaway from the above is that allowing the Left coalition to form a government risks throwing the entire EMU back into crisis mode, but attempting to restore the political status quo by decree means setting everyone up for a prolonged period of indeterminacy.

  Obviously that’s a lose-lose for Silva, but as of Thursday evening, a decision has been made. In what is bad news for anyone who hoped Portugal wouldn’t end up mired in an intractable political stalemate, President Anibal Cavaco Silva has appointed Pedro Passos Coelho to serve another term as PM.

  That’s bound to make the situation worse given everything noted above about the relationship between Costa and Coelho. As Communist leader Jerónimo de Sousa said earlier this week, appointing Coelho as prime minister would be “a manifest waste of time”.

  So here again, just like in Brazil and Turkey, we’re set to see political turmoil take center stage, and the EU will be forced to stand by and hope that Portugal remains “in the fold” so to speak when it comes to austerity and the outward appearance of fiscal rectitude. 

  Oh, and if you’re looking for someone who apparently did not think it was possible that the Left might end up banning together to make a serious political power play in Portugal, see below…

  

  

  

  

  

  

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