Archives for August 2012

Neocons carry Bush’s banner

TAMPA — George W. Bush may be completely absent at the Republican National Convention, but at a theater just beyond the security perimeter, it was as if he was still in office today as Condoleezza Rice and former Bush chief of staff Joshua Bolten praised his legacy. The lineup of the forum, meant to “give you a sense of where Republicans stand on issues of foreign aid and national security,” as the president of the National Republican Institute said in his opening remarks, suggest just how little Republican foreign policy has changed since 2001, despite the intervention of two unpopular and disastrous wars that have tarnished the neoconservative ideals that defined the Bush era.

Joining Rice and Bolten was Michael Gerson, who, as Bolten said today, “crafted some of the most famous phrases in politics over the past decade.” Gerson was a senior policy adviser and speechwriter to Bush and helped sell the war in Iraq as a member of the White House Iraq group. He developed the famous “smoking gun/mushroom cloud” metaphor after American forces turned up none of the weapons of mass destruction they expected to find in Iraq. He also coined the infamous “axis of evil.” He was such a trusted aide of Bush’s that he had an office in the West Wing, which is rare for speechwriters. Gerson left in 2006 in a White House shakeup as Bush’s poll numbers sank, largely on the failure of the war. Gerson is  now a columnist for the Washington Post, where he remains an influential conservative voice. Rice’s star has only risen since 2008.

Keep reading: Neocons carry Bush’s banner – Salon.com.

Taibbi: The True Story of Mitt Romney and Bain Capital

Taibbi: The True Story of Mitt Romney and Bain Capital

Courtesy of Jesse's Cafe Americain

For a related story read The Federal Bailout That Saved Mitt Romney also from Rolling Stone.

Greed and Debt: The True Story of Mitt Romney and Bain Capital
By Matt Taibbi
August 29, 2012 

The great criticism of Mitt Romney, from both sides of the aisle, has always been that he doesn't stand for anything. He's a flip-flopper, they say, a lightweight, a cardboard opportunist who'll say anything to get elected.

The critics couldn't be more wrong. Mitt Romney is no tissue-paper man. He's closer to being a revolutionary, a backward-world version of Che or Trotsky, with tweezed nostrils instead of a beard, a half-Windsor instead of a leather jerkin. His legendary flip-flops aren't the lies of a bumbling opportunist – they're the confident prevarications of a man untroubled by misleading the nonbeliever in pursuit of a single, all-consuming goal. Romney has a vision, and he's trying for something big: We've just been too slow to sort out what it is, just as we've been slow to grasp the roots of the radical economic changes that have swept the country in the last generation.

The incredible untold story of the 2012 election so far is that Romney's run has been a shimmering pearl of perfect political hypocrisy, which he's somehow managed to keep hidden, even with thousands of cameras following his every move. And the drama of this rhetorical high-wire act was ratcheted up even further when Romney chose his running mate, Rep. Paul Ryan of Wisconsin – like himself, a self-righteously anal, thin-lipped, Whitest Kids U Know penny pincher who'd be honored to tell Oliver Twist there's no more soup left. By selecting Ryan, Romney, the hard-charging, chameleonic champion of a disgraced-yet-defiant Wall Street, officially succeeded in moving the battle lines in the 2012 presidential race…

Read the rest here.

The Tinder of Revolutionary Movements

Chris Hedges: The Tinder of Revolutionary Movements

Courtesy of Jesse's Cafe Americain 

"I have three precious things, which I hold fast and prize. 

The first is gentleness; the second is frugality; the third is humility, which keeps me from putting myself before others. Be gentle, and you can be bold; be frugal, and you can be liberal; avoid putting yourself before others, and you can become a leader among men. 

But in the present day men cast off gentleness, and are all for being bold; they spurn frugality, and retain only extravagance; they discard humility, and aim only at being first. 

Therefore they shall surely perish. 

Gentleness brings victory to him who attacks, and safety to him who defends. Those whom Heaven would save, it fences round with gentleness."

Lao Tzu

"A revolution is coming: a revolution which will be peaceful if we are wise enough; compassionate if we care enough; successful if we are fortunate enough. But a revolution which is coming whether we will it or not. We can affect its character; we cannot alter its inevitability."

Robert F. Kennedy

Dis and Dat

Courtesy of Bruce Krasting

Convenient timing for this announcement. Sixty days before the big election the Administration is dishing out favors to big hedge fund contributors. I wonder how much they took in to make this deal.

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It always surprises me how quickly sentiment changes. A month ago the the FX market had a big short on the EURUSD. The betting at the end of August is that a long Euro position is the way to make money.

How big are the expectations that Mario Draghi has to deliver on? Big. Very big.

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No TAG? What's that about?

In the dark days of 2008 the FDIC guaranteed all non-interest bearing deposits at banks. Back then, there was a run on the banks. TAG (Transaction Account Guarantee) was the FDIC response. Tag was supposed to run out in 2010 but got extended to 12/31/12.

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Time has run out for any legislation to extend TAG before the election. Add this silly old thing to all the other things that are going to fall off a cliff on New Years Eve.

Oh, one thing about TAG, the transactions accounts that are guaranteed by FDIC run to the Tens of Trillions! So much for that TBTF issue we used to hear about. Another reason for a a hard landing in January.

 

 

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Watch out for this story. It has legs.

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How much of the student loan debt is un-payable? Half?

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This debt is a noose around young people's neck. What an ugly thing to have done to them. The next generation will never be able to dig out of the hole.

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For those who love regulations and believe that Congress can actually fix things, DF is a blessing. In the end, those who want more regulations will find themselves strangled by DF. It ain't gonna work!

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Eurozone Retail Sales Decline 15th Month, Plunge Led by Italy, France; German Sales Contract Slightly

Courtesy of Mish.

Once again there is grim data from Europe. The safe thing to do is expect grim data every time European data is reported. Except for an occasional outlier, you will not be too far off.

Eurozone Retail Sales Decline 15th Month

Markit Reports Eurozone retail downturn deepens in August

Key points:

  • Revenue contraction extends to tenth month
  • German sales flat; sharper falls in France and Italy
  • Inflationary pressures build up

Retail sales in the Eurozone continued to fall sharply on an annual basis in August. The rate of contraction accelerated to the fastest since May, and extended the current sequence of continuous decline to 15 months. This was despite a further year-on-year increase in Germany, and reflected substantial declines in both France and Italy.

Employment Declines 5th Month

Employment at retailers in the Eurozone declined for the fifth month running in August. The rate of job shedding remained modest, reflecting sustained workforce growth in the German retail sector. French retailers posted the steepest job cuts for over three years, while the rate of contraction in Italy eased since July.

Prices Paid Rise

The Prices Paid Index rose for the third month running from May’s 19-month low in August, signalling a strengthening rate of inflation of wholesale prices in the Eurozone. Sector data signalled that clothing & footwear and food & drink drove cost pressures in August.

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The U.S. Drought Is Hitting Harder Than Most Realize

Courtesy of Chris Martenson of Peak Prosperity

This is an important update on the U.S. drought of 2012, the combined record-setting July land temperatures, and their impact on food prices, water availability, energy, and even U.S. GDP. 

Even though the mainstream media seems to have lost some interest in the drought, we should keep it front and center in our minds, as it has already led to sharply higher grain prices, increased gasoline costs (via the pass-through of higher ethanol costs), impeded oil and gas drilling activity in some areas (due to a lack of water), caused the shutdown of a few operating electricity plants, temporarily reduced red meat prices (but will also make them climb sharply later) as cattle are dumped in response to feed- and pasture-management concerns, and blocked and/or reduced shipping on the Mississippi River.  All this and there's also a strong chance that today's drought will negatively impact next year's Winter wheat harvest, unless a lot of rain starts falling soon. 

The good news from Hurricane Isaac is that he's traveling on a perfect path to deliver relief to one of the most heavily drought-impacted areas:

There are steps that everyone can and should take to become more food- and fuel-resilient in case the drought persists – as some experts think is quite possible – into next year and perhaps a few more. We'll get to those steps shortly.

Further, there will be a definite impact to U.S. GDP, which could add to pressures (excuses?) that the Fed may use to justify additional quantitative easing (QE) measures (otherwise known as 'printing more money'). 

U.S. Drought Intensifies

The drought in the U.S. has intensified in the recent weeks, even though it has somewhat dropped from the front pages of mainstream media, possibly because the story is stale or possibly because it's just too serious to dwell on for long:

Extreme drought in the U.S. intensifies

Aug 17, 2012

The drought in the United States is continuing to intensify, according to the National Oceanic and Atmospheric Administration (NOAA).

The latest Drought Monitor says 61 percent of the contiguous United States faces moderate or worse drought conditions this week.

Nearly 30 percent is experiencing extreme to exceptional drought, exceptional being the most severe category.

Officials say the amount of land that's currently affected across the U.S. is larger than the entire state of California.

In this next image, it is notable that the areas of the highest drought classification — 'exceptional' — have dramatically expanded from the prior week (the August 7, 2012 report).

(Source

Much of the drought is centered squarely over the U.S. 'breadbasket' region and has really dented this year's harvests in a big way.

Crop Losses

Certainly the number one story around the U.S. drought centers on its impact on grain production, specifically corn and soybeans.  In a minute we'll discuss the other impacts, but we'll start with the one that has the greatest potential to cause both suffering and strife over the coming months (and possibly years), especially for those on limited budgets.   

In 2011, the U.S. reaped a corn harvest of some 314 million tons.  In 2012, the USDA has estimated a harvest of 274 million tons – a shortfall of 40 million tons – despite record acreage being planted.

While the USDA has been steadily reducing their crop estimates, practically with every passing week, it seems likely that the USDA remains behind the curve today, as it has been every step of the way. A different source for information comes from the Pro Farmer Midwest Crops Tour, which is coming in slightly under the current USDA estimates:

Crop Tour Points to Sharper Drought Impact on Soy, Corn

Aug 21, 2012

Initial reports from the closely watched Pro Farmer Midwest Crop Tour suggested more crop damage than expected from the drought, raising the potential for diminished soybean production this fall and sending futures sharply higher.

The disappointing crop reports from scouts touring fields on the Pro Farmer crop tour in states such as Ohio and South Dakota make it hard to believe soybean yields will reach current U.S. government crop projections, said Don Roose, president of advisory and brokerage firm U.S. Commodities in West Des Moines, Iowa.

The market is in the "watch and worry" mode on all fronts as shrinking crop forecasts will further tighten supplies already projected to dwindle to precariously tight levels in 2013, Mr. Roose said.

On the annual Pro Farmer tour, analysts and investors walk corn and soybean fields in seven Midwestern states over four days to assess prospects prior to the fall harvest. Pro Farmer is an agricultural advisory firm. The Pro Farmer tour, which wraps up Thursday, reported diminished potential for the soybean crop in both Ohio and South Dakota.

The crop tour doesn't estimate soybean yields, but it reported an average 584.9 pods per 3-foot-by-3-foot square area in South Dakota, down 47% from a year ago. In Ohio, scouts reported soybean counts at an average of 1,033.72 pods per 3-foot-by-3-foot square area, down from 1,253.2 pods a year ago.   

Soybeans entered their critical growing phases in recent weeks, and the crop has benefited in some regions from recent rains across the eastern Farm Belt.   

Meanwhile, scouts with the Pro Farmer Midwest Crop Tour on Monday reported an average estimated corn yield in Ohio of 110.5 bushels per acre, down from the tour's estimate of 156.3 bushels a year ago. In South Dakota, tour scouts reported an average yield estimate of just 74.3 bushels per acre, down from 141.1 bushels a year ago.

While commodities traders and agronomists have braced for weeks for the prospect of a crop decimated by drought, the estimates were lower than many had expected.

The summary here is that the Pro Farmer Tour is reporting crop yields to be 2% – 3% lower than current USDA forecasts, which is a big deal when it comes to food.  We're talking a few tens-of-millions-of-bushels' difference.

The somewhat sour note in this unfolding drama is the fact that 40% of the nation's corn crop goes to ethanol producers, which means that food will be burned in the nation's auto fleet instead of helping to keep prices down for consumers and animal feed.  Another 40% goes to animal feed (chicken, cattle, hogs, etc.), and the remaining balance goes to direct human consumption. 

However, the ethanol mandate is a congressional requirement for our fuel blenders, so they do not have a choice in the matter.  It would literally take an act of Congress to even temporarily suspend the ethanol requirement – and in an election year, that's just not going to happen, given the powerful constituencies invested in preserving that mandate.

Of course, higher input costs will ripple through the entire chain, so perhaps Bernanke will get the inflation he seeks, although it won't be the one he wants.  The inflation he wants is simple monetary-driven inflation.  The inflation he will get is nothing more than a supply/demand mismatch.

Still, the USDA has a handy calculation for estimating the future impacts:

U.S.’s inferior corn crop has supply-chain ramifications

Aug 13. 2012

The USDA has provided considerable information about how the drought’s effects were likely to percolate through the economy. Because of a smaller-than-expected corn crop, the USDA said it can make the general prediction that “we will see impacts within two months for beef, pork, poultry and dairy (especially fluid milk). The full effects of the increase in corn prices for packaged and processed foods (cereal, corn flour, etc.) will likely take 10-12 months to move through to retail food prices.”

The USDA has a formula for predicting changes in the rate of inflation caused by gains in prices at the commodity level: if the farm price of corn rises 50%, retail food prices rise by 0.5% to 1% as measured by the Consumer Price Index (CPI).

The price of September corn futures from mid-June until early August advanced 55%, meeting the USDA’s criterion for a measurable increase in the CPI Lapp presented a more extreme scenario than the USDA.  He predicted that the damage to the 2012 corn crop will translate into a food inflation rate of 4% to 5% in 2013. In his view, the dollar cost of the drought already was $30 billion, which accrued rapidly over the summer.

“This is a cost that somebody has to bear,” Lapp said. “Some price hikes are fairly quick and others take a while.”

He said high feed costs will have to be absorbed by producers, who will likely liquidate part of their cattle and swine herds and poultry populations. At the retail level, the drought’s effects will translate into narrower margins — and expected higher prices — for processed food and soft drink manufacturers among others.

Lapp offered his opinion that legislation that has effectively required 40% of the corn crop be used in making biofuels has made everything worse.

“The situation has been aided and abetted in a negative way by the biofuels mandates,” he said. “Shame on us for having mandated so much to corn ethanol” without creating contingencies for a bad crop year. 

Because corn is the base unit for so many things (especially in the form of high-fructose corn sweetener), and because it's a primary feed component for finishing cattle and raising chickens and hogs, it tends to have a pretty decent impact on food prices.

However, it takes time for those price hikes to work through the system. So it will not be until 2013 sometime that we really begin to feel it in the U.S.  And for the rest of the world that lives more directly on grains?  They're not as lucky.  The price hikes hit them almost immediately.

It looks like the harvest in Russia will be below expectations as well:

Russia harvest forecasts cut as drought hits crop in east

Aug 20, 2012

(Reuters) – Two leading Russian agricultural analysts cut their forecasts for Russia's grain harvest on Monday after harvest data from two drought-stricken eastern growing regions reduced the outlook for the overall crop.

SovEcon narrowed their grain forecast to 71-72.5 million metric tonnes (…)

The government's official grain harvest forecast is 75-80 million tonnes, of which 45 million tonnes could be wheat. The government has put this season's exportable surplus at 10-12 million tonnes, a level seen by traders as an informal cap on exports.

The government has tried to reassure markets there will be no repeat of August 2010, when Russia's government shocked markets with a snap decision to ban grain exports when the scale of losses from major drought became clear.

The government has indicated that protective tariffs could be an option, though only after the end of the calendar year.

But traders widely expect limits to be imposed in some form, perhaps as early as November, after heavy exports in the early months of the season showed Russia could hit the 10-12 million tonne mark sooner than January.

Russia is still officially projecting 75-80 million tonnes but may only get 71 tonnes.  If the projected exportable surplus is 10-12 million tonnes, but Russia actually harvests 9 million tonnes less than their hoped-for projection, then its exports will have to decrease to plug that gap.

Here's the kicker: Russia has already exported a good deal of that amount. That is, the prospect of another Russian export ban this year is quite realistic. If we get one, then we can expect a repeat of the turmoil in the grain markets that we saw in 2010.

But there's another much more fundamental reason why we can expect higher prices going forward.

Need for Even Higher Prices

The good news is that there's still plenty of supply to carry us through to the next harvest.  However, demand is going to have to go down some, and the way we accomplish that is through the price mechanism. 

Right now, physical grain traders are saying that prices are too low and that unless they rise, we're going to run out of grain before the next harvest.  Obviously, that's not truly going to happen – increasing scarcity will cause prices to rise until current demand levels are reduced.

Fall in corn price disguises real picture

Aug 20, 2012

Corn prices surged this month to an all-time high of $8.4375 a bushel on the back of the worst drought in the US in nearly half a century. But prices have since fallen roughly 5 per cent. The impression is the rally has run out of steam.

This is far from the real picture.  Prices need to rise again – probably setting all-time highs – to dampen consumption that is running ahead of supply.

If demand does not slow down, silos will be all but empty before the next harvest arrives in late 2013.

On paper, the balance sheet for corn supply and demand published by the US Department of Agriculture seems good enough. But in practice, the numbers look a bit shaky. The agency, whose figures are closely watched by the market, first estimates supply and, after that, adjusts the demand data to maintain a minimum level of inventories.

This time the USDA is asking for monumental rationing on the demand side. For example, US corn feed and export demand will need to drop to their lowest levels in nearly 20 years.

The USDA is also forecasting lower ethanol production – and thus corn demand. Ethanol output has fallen, but not nearly enough. Worse, the rise in wholesale petrol prices back above $3 a gallon means that ethanol producers are profitable again, even when paying record corn prices.

Corn is now trading just above $8 a bushel – but traders in the physical market say that prices need to rise to $9-$10 to force demand down enough to meet the consumption levels anticipated by the USDA.

The retreat in corn prices over the past couple of weeks has given inflation watchers a false sense of security. The market should not relax, however. More food inflation is just waiting around the corner.

The idea here is that the cash market will have to lead the futures market higher, an odd situation because it is usually the other way around.  With so many hedge funds now playing in the commodity space, one explanation is that they are simply playing paper games with each other – those playing the short side will get a lesson in the importance of keeping one eye on reality.

A truly shocking event would be if the U.S. ever gets to the position of limiting exports of corn or even soybeans.  That is a very unlikely proposition to consider, but if the silos get drained because we have dysfunctional markets that saw fit to keep prices bizarrely low while our free trade agreements allow the too-low grains to be exported, threatening domestic supplies, then that possibility notches up a little bit.

Dairy, Meat, and Even Higher Gasoline Costs

While it is clear that basic grain prices are heading higher, the knock-on effects into other soft commodities are a little less clear, but are definitely still important to consider. 

The most obvious of these are higher grain feed costs that will hit both livestock and dairy producers especially hard:

The withering crops are translating into higher feed costs for livestock producers. "This is different than anything I've ever experienced," said Kent Pruismann, who raises cattle and hogs on a farm in Sioux County, Iowa, and saw his costs for feed jump by 20% in July.

The higher corn, soybean and wheat prices will reach food makers, exporters and eventually consumers. Drivers already have seen fuel costs climb because of higher prices for ethanol, a corn-based fuel that is blended into gas. The drought also has reignited the debate over whether ethanol production is a drain on global food supplies.

(Source)

Some are already turning to, shall we say, other means to keep their herds fed:

Aug 14, 2012

LOUISVILLE, KY (WAVE) – When you think of cattle feed, you probably don't think of candy, but due to the drought that's exactly what one farmer chose to do.

At Mayfield's United Livestock in Western Kentucky, owner Joseph Watson feeds his herd second hand candy.

Watson started feeding his cattle the candy because corn prices were so high.

He mixes the candy with an ethanol by-product and a mineral nutrient. He monitors the daily intake and said the cows have had no real health issues.

Yes, the higher grain costs are going to hit everything from big cattle feedlot operations to my own two-bags-a-month chicken-feed usage.

However, it will be the cost of and even lack of hay that will really create some big problems later this year.  The drought not only harmed the range and pasture lands, forcing greater use of stored hay to offset the decline in forage, but it put a huge crimp in this year's hay production:

Aug 19, 2012

Widespread drought has scorched much of the pastureland and hay fields needed to sustain cattle herds in the U.S., forcing many ranchers to find feed alternatives or sell their animals early into what has become a soft beef market.

The shortage has led to higher hay prices, with some farmers saying they have to pay two to three times last year's rates.

Despite farmers setting aside more land to grow hay this year, they are still producing a lot less because of the drought, according to a recent Department of Agriculture estimate.

The harvest of alfalfa, generally considered to make the best hay because of its high nutrient levels, is forecast to be the worst since 1953, according to the USDA.

Pasture grass and hay are what most cattle are fed for the roughly two years they live before being slaughtered, but the drought is threatening to starve the animals.

Illinois rancher Steve Foglesong said that most years he could graze his cattle from spring through November on verdant fields that are now brown, buying them hay bales only in the winter. This year, he and his animals have their eyes on withered corn plants.

"It may not have any ears on it, but it makes pretty good cow feed," he said.

John Erwin, who owns 20 acres of land in Shelbyville, Ill., said he is having trouble growing alfalfa hay, but demand is strong for what he can produce.

"I'm getting calls from ranchers as far away as Wyoming," Mr. Erwin said. "They're desperate."

He said he has been offered $250 a ton for his hay, nearly double the $130 a ton in a non-drought year. His fields didn't produce any hay in July.

A doubling of hay prices is obviously going to create quite a bit of economic hardship for many farming operations, which tend to be marginal profit businesses even when everything is going well.

Here's another view on the hay situation:

I spoke with Caldwell [of Indiana horse rescue] and a number of other horse-rescue organizations around the country by telephone this week. The relentlessly hot dry weather, amplified in many areas by wildfire, has been devastating to farmers, ranchers and other horse owners.

“Everybody is using their winter hay now. The pastures are destroyed and they probably won’t recover before winter,” said Caldwell. “The price of hay has doubled, and the availability is down by 75 percent.”

Caldwell is somewhat sanguine about his own lot, but not optimistic about what lies ahead.

“Today the problem is not nearly as bad as it’s going to be,” he told me. “It’s terribly bad today, but it is going to get a lot worse.”

(Source)

The drought has done some very serious harm to the nation's hay supply that goes beyond the economics of higher hay costs.  First there's the supply of the hay, and then there's the relatively poor quality of hay that was taken from non-irrigated, drought-stricken fields.  All in all, it's not a good situation. 

To add a bit more difficulty into the situation, it turns out that drought-stricken silage and even the corn itself can be harmful to animals:

Drought makes corn dangerous for livestock

Aug 16, 2012

COLUMBIA, MISSOURI, U.S.  — Tim Evans, an associate professor of veterinary pathobiology and toxicology section head at the Veterinary Medical Diagnostic Laboratory at the University of Missouri College of Veterinary Medicine, Columbia, Missouri, U.S., warns U.S. farmers and livestock producers that drought-damaged corn plants can pose a risk to animal health.

“During severe drought conditions, corn plants, especially those heavily fertilized with nitrogen, can accumulate a chemical called ‘nitrate’,” Evans said.

“This chemical can be very harmful to animals, especially cattle, if they eat corn plants or other vegetation containing too much nitrate. Eating plants with too much nitrate can cause damage to red blood cells, resulting in lethargy, miscarriage, and even sudden death.”

Evans says that in normal conditions, corn crops typically absorb nitrate into only the lower 12-18 inches of the stalk, which does not have to be fed to animals. However, during severe drought conditions, high concentrations of nitrate can accumulate in the upper portions of the stalk, which cattle and other livestock often eat.

Evans also says that many naturally growing plants and weeds in grazing pastures can accumulate nitrate during drought conditions, as well. These plants include many types of grasses and some weeds, which animals might be forced to eat because of limited pasture or hay available as forage for livestock. 

The key here is that nitrates are safe below 2,000 ppm but toxic above 15,000 ppm, and the levels found in the stalks and how high it travels are a function of whether enough rain fell to allow the plant to take it up.  Much of the corn crop was so desiccated that the plants could not even manage to draw up this nutrient, and therefore it is safe as a feed product.

While it's hard to get a read on at this early stage, there are enough warning signs here pointing to much, much higher grain, food, and meat prices in the future.  The worry is whether there will even be enough feed to sustain the animal populations through the Winter and Spring. Given the damage to the harvestable corn, a lot of it is going to be turned into silage

Many ranchers and farmers are faced with a horrible choice here.  Saving their herds may be economically unsound or even impossible where hay and safe silage are not available, and so they are selling their herds, one of the most heart-wrenching decisions anyone could have to make.

So many are doing this that recently the price for cattle has dropped, as everyone is selling into an increasingly soft market.  My advice is to enjoy these low meat prices while they last, because the next stage of this story involves much higher meat prices.

The problem with understanding just how bad the hay situation might (or might not) be is that there are no national statistics collected that could tell us whether or not there's even enough hay available to sustain the current commercial and recreational livestock populations. 

The Importance of Positioning Yourself

So, with all of these repercussions building during the current drought – to which there's yet no end in sight – what can you do today to minimize their impact on your budget and lifestyle?

Part II: Positioning for the Drought's Aftermath looks at the likeliest outcomes in food prices, food availability, energy prices, and macroeconomic consequences (of which there will no doubt be many from this drought). We have a national food distribution system that runs significantly on a just-in-time basis, which leaves it vulnerable to price and inventory shocks when there are supply disruptions. The reduced water levels caused by the drought are handicapping electrical power generation in growing regions in the country; electrical thermal plants are the number one biggest user of water in the U.S.  The global financial markets are similarly tenuous these days, as resources are already taxed in trying to stimulate the moribund U.S. economy and dig Europe out of its massive credit woes.

This is one of those moments where taking simple, prudent steps now can have an outsized effect on preserving your quality of life. 

Click here to read Part II of this report (free executive summary; paid enrollment required for full access).

France to Hire 150,000 Subsidized Workers With Zero Qualifications; Why Stop There?

Courtesy of Mish.

Looking for a loony idea to address unemployment in France? Look no further because I have a doozie.

Via Google Translate from El Economista, France will create 150,000 jobs for young people without qualifications

The French Government has today adopted a draft law providing for the creation of 150,000 subsidized jobs for young people with little or no qualifications, which are most affected by unemployment and employability harder.

The beneficiaries of these so called “jobs of tomorrow” will work for municipalities, hospitals, schools, social organizations, associations or, exceptionally, in private companies, and will receive a grant of up to 75% of their compensation.

The estimated cost is 500 million euros in 2013 and “more than 1,500 million” next year by the state budget, said Labor Minister Michel Sapin, at a press conference.

“We want contracts defined privilege” said Sapin, who nevertheless admitted that the storms are also accepted, and said that public support will be maintained in each case between one and three years, provided that employers provide a “accompaniment” to “very great difficulty youth push” to which they are targeted.

He insisted that the “accompaniment”, which may include training for classical channels is “fundamental” to the 500,000 eligible people likely to have between 16 and 25 years, lack of skills and work.

Why Stop at 150,000?

The second half of that translation is a bit choppy but the bill clearly targets “500,000 eligible people” between 16 and 25 with no skills and no qualifications.

So, why stop at 150,000? Why not hire them all? And why stop at age 25? Why not hire everyone with no skills and no qualifications regardless of age?

Hopefully the answers are so obvious that hiring even 5,000 with no qualifications seems preposterous.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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More Bad News Imminent: August US Auto Production Set to Plunge by Most in 16 Months

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Over the past several months, many pundits were scratching their heads at the peculiar patterns in summer hiring and layoff trends, which threw all NFP, claims, and JOLTs forecasts in a loop making a mockery of even the best forecasters. The reality is that there was a very specific reason for this abnormal seasonal pattern: numerous car plants worked throughout the summer, avoiding traditional temporary shutdowns and furloughs, in an attempt to provide an optical boost to the Union-endorsed administration. And as always happens (see Cash for Clunkers), every attempt to pull demand or supply from the future to the present results in an eventual collapse in either of these two. Sure enough, with June and July reaping the benefits of advance demand, August is set be an absolutely abysmal month for US auto assemblies and for Industrial Production. Because as Stone McCarthy calculates, based on projections provided by Wards Autos, the U.S. motor vehicle assembly rate for August is projected to decline by 8% to a 10.1 million annualized rate after rising by 4.4% in July. This would be the biggest monthly percentage decline in the assembly rate in about a year and a half, since April 2011's 9.5% drop.

SMRA continues:

For the Fed's industrial production report, we project motor vehicle output to decline by 4% in August after rising by 3.3% in July. The anticipated decline in motor vehicle output will restrain industrial activity in August. In July, industrial output rose by 0.6% with manufacturing output up 0.5%.

And since Industrial Production feeds directly into bean counter models for GDP calculations 2%+ GDP forecasts for Q2 are about to see their floor falling off and the economy return to a sub-stall speed growth rate, even as the growth rate of debt refuses to budge lower by even one iota.

Was Initial Claims “Miss” Really a Miss?

Courtesy of Lee Adler of the Wall Street Examiner

This report is an excerpt from the permanent employment charts page, which is updated whenever new data becomes available. 

The Labor Department reported Thursday that seasonally adjusted (SA) first time claims for unemployment were unchanged at 374,000  in the advance report for the week ended August 25 after an upward revision of 2,000 for the previous week. That missed the consensus estimate of 370,000.

Actual claims, Not Seasonally Adjusted (NSA-the actual total of individual state counts submitted to the Department of Labor) were 311,000 (rounded) including  the addition of 1,500 claims to adjust for incomplete state counts that do not include interstate claims at the time of  the advance release. This week was better than the week ended August 27, 2011 when new claims totaled 337,000. The current week was also better than the average of the last 10 years’ claims for this week of 320,000. Approximately 25,000 (7.5%) fewer people filed first time claims this year than in the same week in 2011. On a week to week basis, claims were essentially unchanged, falling by less than 1,000.

To avoid the confusion inherent in the  fictitious SA data, I ignore it and analyze the actual numbers of claims filed that week as counted by the 50 states and submitted to the Department of Labor. It is a simple matter to extract the trend from the actual data (NSA) and compare the latest week’s actual performance to the trend, to last year, and to the average performance for the week over the prior 10 years.  It’s easy to see  graphically whether the trend is accelerating, decelerating, or about the same. This week it’s about the same.

This week’s data continues to be consistent with the improving trend of the past two years. It is entirely consistent with the normal weekly fluctuations in the rate of change from -3% to -20% that have occurred since mid 2010. Since mid 2011, in most weeks the annual rate of change has been within a couple of percent of -10%.  The trend has been remarkably consistent.

Looking back 10 years, the current week has consistently shown little change in claims, with small increases in some years and small declines in others.  The current week to week change was probably a decline of several hundred, depending on how close my adjusted figure is to the final number to be reported next week. That compares with a prior 10 year average of an increase of a few hundred for the week. Last year claims fell by 8,000. That was an outlier compared to the 10 year period. In 2010 when the economy was rebounding from the worst part of the recession, they fell  by 1,800 during the same week. The current numbers are not as strong as the past 2 years,  but consistent with or slightly better than the 10 year average. It is not a great number but it is consistent with the trend.

As plotted on a chart, this week’s data shows that the trend is still improving (chart below). The rate of improvement is slightly slower than from August 2010 to August 2011, but the slope of the year to year line for this week is declining at approximately the same rate than the slower 52 week moving average, suggesting no shift in the rate of change over the past year.

The consistency is clear in the annual rate of change graph. The rate of decrease in new claims continues to hover near the -10% axis. The current year to year decline of 7.5% remains near the middle of the range of  the rate of change over the past 2 years. So far, the Fed has no reason for additional QE (more in depth analysis in the Professional Edition Fed Report). Only if the rate of decrease shrinks to less than 2.8% would the Fed have greater impetus to move.

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge

As the number of workers eligible for unemployment compensation has trended up since 2009, the percentage of workers filing first time claims has continued to decline. Comparing the yearly line for the current week  to the 52 week moving average, the trend of improvement continues to track at a steady rate. The current level is near the level of 2004, the last non-bubble, “normal” year. By this standard, the current level of claims is “normal.”

Initial Unemployment Claims Percentage of Total Employed - Click to enlarge

Initial Unemployment Claims Percentage of Total Employed – Click to enlarge

 

Plotted on an inverse scale, the correlation of the trend of claims with the trend of stock prices over the longer term is strong, while allowing for wide intermediate term swings in stock prices. Both trends are largely driven by the Fed’s operations with Primary Dealers (covered weekly in the Professional Edition Fed Report; See also The Conomy Game, a free report.) This chart suggests that as long as this trend in claims is intact, the S&P would be overbought at approximately 1450, and oversold at roughly 1200.  The market got very close to the overbought parameter over the past couple of weeks. Barring a much stronger improvement in the claims data, the market will be at greater risk of a correction in the next few months. [I cover the technical side of the market in the Professional Edition Daily Market Updates.]

Initial Unemployment Claims and Stock Prices - Click to enlarge

Initial Unemployment Claims and Stock Prices- Click to enlarge

 

For long term charts and other measures of initial claims and other employment measures visit the permanent Employment Charts page, updated whenever new data becomes available.

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the Wall Street Examiner.

Even 'The Rich' Aren't Buying This Rally

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Despite the near multi-year record highs in stock indices, which have typically correlated tick-for-tick with the-wealthy-people's view of the world, today's Bloomberg Consumer Comfort index sub-data has a rather nasty surprise in its tail. Those earning over $100k, the highest bracket interviewed in their survey, saw their 'comfort' plunge to its lowest of the year – massively diverging from the incessant rise in equity markets (and its supposed 'wealth effect' transmission channel).

 

 

This is the largest 4-week plunge in almost two-years…

 

Source: Bloomberg

Even ‘The Rich’ Aren’t Buying This Rally

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Despite the near multi-year record highs in stock indices, which have typically correlated tick-for-tick with the-wealthy-people's view of the world, today's Bloomberg Consumer Comfort index sub-data has a rather nasty surprise in its tail. Those earning over $100k, the highest bracket interviewed in their survey, saw their 'comfort' plunge to its lowest of the year – massively diverging from the incessant rise in equity markets (and its supposed 'wealth effect' transmission channel).

 

 

This is the largest 4-week plunge in almost two-years…

 

Source: Bloomberg

Occupy Wall Street to Protest September 17: Why It’s Still the Most Important Thing In the World

Courtesy of Pam Martens.

Shortly after the Occupy Wall Street protests began in lower Manhattan in the Fall of 2011, Naomi Klein published a piece at The Nation, heralding the movement as “the most important thing in the world now.”

To the chagrin of Wall Street, Klein succinctly explained to the populace what was coming next from the marauding wealth barbarians unless there was a demonstrative push back from the citizenry:

“If there is one thing I know, it is that the 1 percent loves a crisis. When people are panicked and desperate and no one seems to know what to do, that is the ideal time to push through their wish list of pro-corporate policies: privatizing education and social security, slashing public services, getting rid of the last constraints on corporate power. Amidst the economic crisis, this is happening the world over.

“And there is only one thing that can block this tactic, and fortunately, it’s a very big thing: the 99 percent. And that 99 percent is taking to the streets from Madison to Madrid to say ‘No. We will not pay for your crisis.’ ”

Those who would belittle or marginalize the Occupy Wall Street movement, could not possibly have ever worked within its polished mahogany corridors of power or have first hand insights into its sprawling tentacles.  Wall Street’s power draws its sustenance from the lack of a serious counterforce.  The two party political system is no power drain as it now functions as a provider of continuity government for Wall Street. Congress is no counterforce as members fear the wrath of being de-funded in their next political campaign.  The judiciary lacks any heft since any challenge that might arise in the lower courts receives a swift machete at the amply corporate-anointed U.S. Supreme Court. 

Occupy Wall Street was, and is, the most important thing in the world now.  And we will never really know how different our world might be today had not that spirited band of fellow Americans and kindred spirits from abroad convened in the bowels of the financial district and held their outpost through rain and snow, beatings, pepper spray and a cowardly eviction raid by the New York City Police Department; a raid so disgraceful to the City that shelters the Statue of Liberty that reporters were roughed up and barred from observing it. 

Continue Here

Podcast: China Inflation

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

Two minute podcast on Chinese inflation, and their trapped monetary regime.

Charts used:

 

 

For additional analysis on this topic and related trades subscribe to Russ Winter's Actionable – risk free for 30 days.The subscription fee is $69 per quarter and helps support Russ.s work on your behalf. Click here for more information.

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to The Wall Street Examiner.

Governor Brown Admits the Obvious “We Have Lived Beyond Our Means”; Brown Agrees to Vast Overhaul of the California’s Pension System; Unions Howl Over Obvious Truth

Courtesy of Mish.

In a long-overdue moment, governor Jerry Brown has finally admitted the obvious, the state's pension system is broke and California Has "Lived Beyond Our Means". Unions of course are howling at that obvious admission.

Please consider California leaders strike public pension reform deal

California Governor Jerry Brown and lawmakers have reached a deal to raise public employees' retirement ages, have them pay more into their pension accounts, and cap retirement payments in a vast overhaul of the state's pension system that he says will save $30 billion.

California faces a huge liability for funding the nation's largest public pension system, but other states and cities also have enormous pension funding gaps and will be watching the state closely.

Brown did not get everything he wanted from lawmakers, such as a hybrid plan that would funnel some contributions into 401(k)-style accounts, and some of the deal's measures will not affect current employees.

"We have lived beyond our means," he said. "The chickens are coming home to roost and this is just one in a series of countermeasures that will be required over the next decade."

LABOR UNIONS OUTRAGED

Democrats in a conference committee of both legislative chambers approved the deal 4-0 late on Tuesday. The two Republicans on the committee abstained, protesting lack of time to study the measures, and labor groups were stunned.

"We are outraged that a Democratic governor and Democratic legislature are taking a wrecking ball to retirement security for teachers, firefighters, school employees, and police officers," said Dave Low, chairman of Californians for Retirement Security, which represents 1.5 million public employees and retirees.

Outside the state building where Brown unveiled the agreement, union activists said the deal unfairly bypassed collective bargaining rights.

"Labor did not have input on this and we are very, very concerned on what this will mean for rank-and-file workers," said Barbara Maynard, also with Californians for Retirement Security.

Labor Did Not Have Input

That my friends is precisely the way it should be. Labor does not deserve any input and collective bargaining by public unions needs to go the way of dinosaurs.

Continue Here

The Left Right Paradigm is Over: Its You vs. Corporations

By Barry Ritholtz, The Big Picture

For a long time, American politics has been defined by a Left/Right dynamic. It was Liberals versus Conservatives on a variety of issues. Pro-Life versus Pro-Choice, Tax Cuts vs. More Spending, Pro-War vs Peaceniks, Environmental Protections vs. Economic Growth, Pro-Union vs. Union-Free, Gay Marriage vs. Family Values, School Choice vs. Public Schools, Regulation vs. Free Markets.

The new dynamic, however, has moved past the old Left Right paradigm. We now live in an era defined by increasing Corporate influence and authority over the individual. These two “interest groups” – I can barely suppress snorting derisively over that phrase – have been on a headlong collision course for decades, which came to a head with the financial collapse and bailouts. Where there is massive concentrations of wealth and influence, there will be abuse of power.  The Individual has been supplanted in the political process nearly entirely by corporate money, legislative influence, campaign contributions, even free speech rights.

This may not be a brilliant insight, but it is surely an overlooked one. It is now an Individual vs. Corporate debate – and the Humans are losing.

Full article here: The Left Right Paradigm is Over: Its You vs. Corporations | The Big Picture.

Economist Fired for Expressing Opinions on Max Keiser Show; Errors in Observation

Courtesy of Mish.

According to Forbes, economist Sandeep Jaitly was forced to resign from his position at the Gold Standard Institute after expressing his views with Max Keiser.

Said Phillip Barton, president of GSI “Lest there be any misunderstanding, the views expressed by Sandeep Jaitly in his interview with Max Keiser are not the views of The Gold Standard Institute. To the contrary, we strongly disagree with those views. …. Sandeep Jaitly has resigned from his position as Senior Research Fellow with the Institute and we sincerely thank him for his past contributions.

Let’s Tune Into Max

You can read the interview at Keiser Report: Frankenmarkets and Austrian Economics.

What appears to have gotten Sandeep in trouble is his criticism that Mises made “too many mistakes“.

However, Sandeep did say, “He [Mises] was certainly the greatest economists of the twentieth century. It’s just that he made a slight, few errors of observation. That’s all.

Errors in Observation

When it comes to errors in observation, Sandeep has made a few of his own. For example consider these statements from the interview: “What I want to make very clear Max is that you don’t need marginal quantitative easing from here for asset prices to start escalating. You only need what has already been printed to start spinning more quickly. And once things start spinning, nothing can slow it down.

Interestingly, the first sentence is true. However, the following sentences show Sandeep fails to understand the role of attitudes as well as the fundamental nature credit in a credit-based economy.

The statements imply that printed money may come spinning into the economy at any time causing massive inflation the Fed could not stop.

There are two errors in such an analysis. The first error is that banks do not lend from excess reserves. Rather, banks lend, on two conditions, both of which need to be true.

Continue Here

GDP Second Estimate 2Q: Meh

GDP Second Estimate 2Q: Meh

Nothing of real interest here…

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.7 percent in the second quarter of 2012 (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis.  In the first quarter, real GDP increased 2.0 percent.

No material change here; they claimed a 0.2% increase but it's not a material number and under 2%, which is approximately equal to what you need to keep pace with both workforce changes (up about 1.1-1.2% annually) coupled with the claimed present inflation rate (0.7%) which, if you're actually buying things you need, is a bad joke.

In other words, in real terms the economy is below "stall speed" and the common man continues to get rooked.

Jim Grant Refuses To Get Lost In A "Hall-Of-Mirrors" Market

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The bow-tied-and-bespectacled bringer-of-truth was on Bloomberg TV this morning providing his own clarifying perspective on what we should hope for (and what we should not) from J-Hole this weekend. Jim Grant's acerbic comments on Krugman's view of the world, on the gold standard as a "force for growth and stability", and the "unproven and truly radical methods" of the SNB and Fed, pale in significance when he is asked about the stock market distortions: "I think we live in a hall of mirrors in finance thanks to the zero interest rate regime and the chronic nonstop interventions," and when asked when Bernanke should start raising rates, the simple (yet complex) response is "Last Year! And Eric Rosengren would be in a different line of work." Must watch to understand the central-banker-meme-du-decade.

 

 

Grant on what the Federal Reserve needs to do now to get new best practices:

“It needs to get out of the central planning business. The Fed was organized in1914 and opened its doors to conduct a more or less traditional central banking business, meaning it would lend against good collateral to solvent institutions in times of cyclical or seasonal need. It would defend and protect the gold dollar. That was all that its original remit contained. fast forward many decades, and we see the Fed in the business of steering, guiding, manipulating the economy, financial markets, the yield curve. It manipulates and pegs interest rates. It is all over the joint doing what failed in the old eastern bloc.”

On whether the U.S. needs a more rules-based central bank to provide discipline and protection:

“What we need is a central bank that has the humility not to do what it cannot do. And the Fed cannot do what others have failed to do, namely to plan an economy from a central desk in the capital city.”

On the Swiss national bank:

“The Swiss national bank is a little bit like the Fed in that it is undertaking unproven and truly radical methods. It is also a sign of the times that it has to go in and buy astonishing amounts of euros to suppress the appreciation. What we need is currency stability, and we need objective value in currencies. There’s no better way to establish objective value in money than to anchor it to something. “

On whether he would prescribe a gold standard:

“Absolutely…the unintended consequences of massive intervention, and this entails both 0% interest rates and the grotesque enlargement of the Fed’s balance sheet, mostly the risks that the Fed introduces are the risks of the suppression of the basic laws of supply and demand. The reason that the shelves of Wal-Mart are full rather than empty is that freely set prices balance supply and demand in this very complex thing called the economy. That’s what prices do. Prices are discovered in the marketplace…From 100 years before and after the institution of the classical gold standard the price level was the same. 100 years the same.”

On what Krugman gets wrong about presumed disinflation and deflation:

“We Americans spend most of the weekend looking the thing that economists call deflation, but what we call every day low prices.  Falling prices are the sign of among other things, falling cost of production.  They are, in short, a sign of progress.”

On whether the gold standard would lead to economic stability or instability:

“It is a force for growth and stability. It never can be confused with heaven on earth. Paul Krugman ought to consult a book by Charles Goodhart, one of the great eminences of big monetary affairs. He wrote a book about the New York money market in 1900 and 1913, 14 years before the institution of the Fed and Goodhart deemed that period to be the best period on record for New York City banking with regard to stability, solvency and profits, notwithstanding the panic of 1907…What is important is the rules in which these banks operated. The important rule was the owners of the bank were responsible for the solvency. Not the government, the owners. It was a capitalist enterprise.”

On when Bernanke should raise interest rates to get back to a normal economy:

“Last year.”

[Eric Rosengren of the Boston Federal Reserve] will have a different line of work when I take over the Fed.”

On how distorted the stock market is from the central bank intervention:

“I think we live in a hall of mirrors in finance thanks to the zero interest rate regime and the chronic nonstop interventions. We do not know exactly where we are. We have to take a guess. It’s the only world we have. I see that many equities are cheap. They are all relatively cheap with respect to the bond market. Some are absolutely cheap. As it were by virtue of default, I am equity guy rather than a bond guy.”

On what he’d like to see accomplished at Jackson Hole:

“I would like to see the Fed admit it can’t do what it promises to do. That and that alone would do. Bernanke would get up and say, ‘ladies and gentlemen, we have erred. We have blundered into the central planning business when we ought to be in the central bank business. I am going to make things simple. We are going to make the dollar sound. We’re going to let the price mechanism work, and we're going to go home.’”

On Ackerson’s management practices at GM:

“They are improving. The thing for investors to know about GM is that it is an extraordinarily cheap equity. A great deal of upside. It’s very well financed out of bankruptcy. Chances of permanent capital impairment are probably very low. The chances of gain are pretty good.”

On whether he believes in manufacturing renaissance of America:

“That’s a pretty big phrase. I believe in GM at five times the estimate.”

Jim Grant Refuses To Get Lost In A “Hall-Of-Mirrors” Market

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The bow-tied-and-bespectacled bringer-of-truth was on Bloomberg TV this morning providing his own clarifying perspective on what we should hope for (and what we should not) from J-Hole this weekend. Jim Grant's acerbic comments on Krugman's view of the world, on the gold standard as a "force for growth and stability", and the "unproven and truly radical methods" of the SNB and Fed, pale in significance when he is asked about the stock market distortions: "I think we live in a hall of mirrors in finance thanks to the zero interest rate regime and the chronic nonstop interventions," and when asked when Bernanke should start raising rates, the simple (yet complex) response is "Last Year! And Eric Rosengren would be in a different line of work." Must watch to understand the central-banker-meme-du-decade.

 

 

Grant on what the Federal Reserve needs to do now to get new best practices:

“It needs to get out of the central planning business. The Fed was organized in1914 and opened its doors to conduct a more or less traditional central banking business, meaning it would lend against good collateral to solvent institutions in times of cyclical or seasonal need. It would defend and protect the gold dollar. That was all that its original remit contained. fast forward many decades, and we see the Fed in the business of steering, guiding, manipulating the economy, financial markets, the yield curve. It manipulates and pegs interest rates. It is all over the joint doing what failed in the old eastern bloc.”

On whether the U.S. needs a more rules-based central bank to provide discipline and protection:

“What we need is a central bank that has the humility not to do what it cannot do. And the Fed cannot do what others have failed to do, namely to plan an economy from a central desk in the capital city.”

On the Swiss national bank:

“The Swiss national bank is a little bit like the Fed in that it is undertaking unproven and truly radical methods. It is also a sign of the times that it has to go in and buy astonishing amounts of euros to suppress the appreciation. What we need is currency stability, and we need objective value in currencies. There’s no better way to establish objective value in money than to anchor it to something. “

On whether he would prescribe a gold standard:

“Absolutely…the unintended consequences of massive intervention, and this entails both 0% interest rates and the grotesque enlargement of the Fed’s balance sheet, mostly the risks that the Fed introduces are the risks of the suppression of the basic laws of supply and demand. The reason that the shelves of Wal-Mart are full rather than empty is that freely set prices balance supply and demand in this very complex thing called the economy. That’s what prices do. Prices are discovered in the marketplace…From 100 years before and after the institution of the classical gold standard the price level was the same. 100 years the same.”

On what Krugman gets wrong about presumed disinflation and deflation:

“We Americans spend most of the weekend looking the thing that economists call deflation, but what we call every day low prices.  Falling prices are the sign of among other things, falling cost of production.  They are, in short, a sign of progress.”

On whether the gold standard would lead to economic stability or instability:

“It is a force for growth and stability. It never can be confused with heaven on earth. Paul Krugman ought to consult a book by Charles Goodhart, one of the great eminences of big monetary affairs. He wrote a book about the New York money market in 1900 and 1913, 14 years before the institution of the Fed and Goodhart deemed that period to be the best period on record for New York City banking with regard to stability, solvency and profits, notwithstanding the panic of 1907…What is important is the rules in which these banks operated. The important rule was the owners of the bank were responsible for the solvency. Not the government, the owners. It was a capitalist enterprise.”

On when Bernanke should raise interest rates to get back to a normal economy:

“Last year.”

[Eric Rosengren of the Boston Federal Reserve] will have a different line of work when I take over the Fed.”

On how distorted the stock market is from the central bank intervention:

“I think we live in a hall of mirrors in finance thanks to the zero interest rate regime and the chronic nonstop interventions. We do not know exactly where we are. We have to take a guess. It’s the only world we have. I see that many equities are cheap. They are all relatively cheap with respect to the bond market. Some are absolutely cheap. As it were by virtue of default, I am equity guy rather than a bond guy.”

On what he’d like to see accomplished at Jackson Hole:

“I would like to see the Fed admit it can’t do what it promises to do. That and that alone would do. Bernanke would get up and say, ‘ladies and gentlemen, we have erred. We have blundered into the central planning business when we ought to be in the central bank business. I am going to make things simple. We are going to make the dollar sound. We’re going to let the price mechanism work, and we're going to go home.’”

On Ackerson’s management practices at GM:

“They are improving. The thing for investors to know about GM is that it is an extraordinarily cheap equity. A great deal of upside. It’s very well financed out of bankruptcy. Chances of permanent capital impairment are probably very low. The chances of gain are pretty good.”

On whether he believes in manufacturing renaissance of America:

“That’s a pretty big phrase. I believe in GM at five times the estimate.”

Janet T Comments On Prince Harry

Janet T Comments On Prince Harry

Now this is a good one…

Dear Sir,

It has come to our attention that you have been offered a role in a porn film for $10 million.  We urge you to reject it.  Princely Pay and Elite Status

Goldman Sachs is prepared to pay you much better than porn, and as a partner, your position will be much more prestigious than the Duke of York's role as a representative for international trade and investment.  We twist country treasurers and central bankers around our little fingers.  Politicians are at our beck and call.  We even pay a lower tax rate than your grandmother.

As a royal, you'll regain your rightful status.  We've managed to pervert capitalism and have even infiltrated our own regulators and government.  If you join us, your elite status will be assured in perpetuity.

Read the rest at the link.

It's good.  Real good.

The Rot Runs Deep 3: The Capture of the Professional Class

Courtesy of Charles Hugh Smith from Of Two Minds

The Rot Runs Deep 3: The Capture of the Professional Class

A rotten-to-the-core system continues grinding on because it has effectively co-opted (captured) the professional/managerial class with promises of phantom wealth and security.

The Status Quo depends on the professional/managerial class to maintain order and keep the machine running. Since this class has more options in life than less educated lower-income workers, their belief in the fairness and stability of the Status Quo is essential: should their belief in the Status Quo weaken, so would their commitment to positions that require long work days and abundant stress.

I addressed this dependence on the professional/managerial class over four years ago in When Belief in the System Fades (March 12, 2008):

The corollary to this structural need for highly motivated, dedicated people to work the gears is that if their belief in the machine fades, then the machine grinds to a halt.

This belief is far more vulnerable than the Powers That Be seem to understand.

In a way, a belief in the value, transparency, trust and reciprocity of the System is like a religious belief. The converts, the true believers, are the ones who work like crazy for the company or agency. And when the veil of illusion is tugged from their eyes, then the Believer does a reversal, and becomes a devout non-believer in the System. He or she drops out, moves to a lower position, or "retires" to some lower level of employment.

When the most dedicated servants of the system awaken to the realization that they are not benefitting from their service as they'd once believed, that their near-religious faith in the System has been bruised by the grim knowledge that the few are benefitting from the lives and sacrifices of the many, then they simply quit, or move down the chain to an undemanding position.

At that point–a point I anticipate will come to pass in the next 5-10 years–then the Elites' machine grinds to a crawl. People don't have to throw their bodies on the gears of the machine–they just have to stop believing, stop taking that promotion, and stop wanting to trade their entire lives for a thin slice of more more more.

The belief that the Status Quo is fair, just, stable and sustainable is wearing thin, and so the response of the Neofeudal Status Quo has been to "capture" the essential managerial/professional class and effectively chain them to their grindstones.

This phenomenon of "capture" is discussed in the following essay by correspondent Lonn Gary Schwartz, O.D.:

Many are familiar with the concept, regulatory capture, a term generally referring to an industry gaining control over, or capturing, those agencies mandated to regulate their business activities/conduct. A common example is Wall Street and the Too Big To Fail banks that, over the past several years, have been accused of capturing their appointed federal regulators.

I would like to suggest that a similar process applies to the entire American professional class, those highly educated, advanced degreed group of intellectuals designated –legislated – to administrate The System. Except in this case, it is outside – corporate/government – influence that has altered the dynamic of the “self-regulated” professions.

Although this professional capture mostly involves the professions’ elite, once these “thought leaders” capitulate to the needs of the predominant external interests, the bulk of their flock quickly fall into line, understanding that these are not times when fighting The System leads to highly satisfactory outcomes.

Instead of carrying out their professional responsibility of self-regulating their field of expertise – i.e. protecting the interests of their patients/clients/customers – these doctors, lawyers, accountants, educators, etc., have been – in many cases – manipulated, both from without and from within, at times acting completely antithetically to their legislated responsibilities.

Let’s take health care as an example, although this would apply to all professions.

It should come as no great surprise that with the decades-long corporate/government takeover of the American health care system, individual health care providers lost a great deal of professional autonomy.

As this forfeiture revealed itself in decreasing control over patient-care as well as declining real incomes, it becomes easier to understand how professional and economic pressures began to subject health professionals to a variety of external influences.

Accordingly, outside control in health care emerged in several forms. Perhaps the most influential was – and still is – the insurance company provider agreement, a contract that spells out exactly what is expected of the practitioner in terms of clinical care and, in the same breath, stipulates compensation levels.

In other words, not only has the insurance company – in many cases – determined for the practitioner what is best for their patients, but they have also decided how much they are going to be reimbursed for providing these services. They have, de facto, taken over the health practitioner’s business model, a nearly complete loss of both professional and fiscal autonomy.

Whether this can actually work for individual providers – or their patients – seems lost on the insurance companies, as they have judged what works best for their corporate bottom-line, and since they control much of the market, what they say, goes. The result is that both the patient and doctor lose, the insurance company wins.

The greatest degree of external control, though, is exacted by government, whose laws, regulations, taxes, fees, and all the rest, have not only created a bureaucratic nightmare but has sanctioned – through regulation – the private insurance companies and their anti-free market practices [see Obamacare].

Therefore, the current corporate-government coalition in health care has created the worst of all worlds: distorted markets, incredible inefficiencies, skyrocketing costs, tremendous mal-investment, a health [sick] care system designed in the primary interests of ROI [return on investment] in the corporate sector, and a loss of professional control, i.e. professional capture.

The sad reality is – and as a direct result of the above policies – that it has become incredibly difficult to practice ethically and profitably on any level commensurate with the cost of a professional education/investment in a quality practice environment. Indeed, in an increasing number of health [sub] specialties, the insurance companies and government have financialzed and regulated health practitioners right out of existence!

In other words, booming corporate profits and an ever expanding government presence in health care have come at the expense of the patient – increasing insurance premiums/taxes – AND the doctor – loss of professional control/decreasing reimbursements – not to mention declining health care quality levels.

Although the government-sanctioned corporate take over of American life has certainly given us a nearly unlimited selection of mass produced consumer products, at what price has this material frenzy come?

The cost has been the obliteration of our national moral compass, elevating ROI above personal ethics to the point where not only have the professions been sacrificed to the alter of maximum corporate profit, but our very sense of who we are as Americans is being seriously questioned.

When it becomes nearly impossible to do business because of the plethora of laws, regulations, fees, taxes, financialization, and all the rest, highly trained, well-intentioned professionals succumb to the financial pressures and subject themselves to the degradation/humiliation of acquiescing to a system run by hooligans adherent only to the legally mandated corporate bottom-line.

Wealth creation based on widely accepted moral standards is what made the United States the great country it is, but if you can not practice your profession/carry out your business in a way that expresses your true professional nature, treats your patients/clients/customers with high levels of respect, while at the same time, deriving a socially acceptable return on your investment in a professional education/practice capital investment, then what’s the point?

It is time for the leaders of the professions to stand up and say, “ENOUGH IS ENOUGH!!” It is within the power of the professions to bring serious change to this country by acting in the direct interests of the American people.

Whether it is in health care, the legal system, corporate/government accounting, education, or any other professions, massive change is necessary to restore a balance to our national purpose.

It simply takes COURAGE and LEADERSHIP, and a willingness to look at the simple truth that it is time to make the interests of all Americans, PRIMARY.

It is time for those in positions of power and influence to put away the toys and pick up the tools that will enable us to rebuild the foundation of this great country so that future generations of Americans can enjoy what we have almost completely squandered.

The American people need help, and they need help NOW.

The process of capture involves many of the dynamics I have long discussed in the blog and in my books. Wealth is power, and if you want a slice of the wealth then you toe the line and keep quiet. There's a word for for this "voluntary capture": co-option.

At every juncture where a decision to opt out (quit) or continue serving the Status Quo arises, the believer is co-opted by their desire to "stay in the game" for the promised slice of wealth and security. The risk-return calculus is heavily skewed to complicity, because the options for wealth and security outside the machine are meager and loaded with risk.

It is my contention that the wealth and security promised by the machine in exchange for subservience are phantom, and the risk of the promises not being kept is much higher than generally assumed. ironically, those who opt out and accept the risk and lower compensation are actually more secure and much wealthier (in terms of well-being and autonomy) than those who submit to voluntary capture.

A History of US Defense Spending Since FDR; And Where Obama and Romney Differ

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Presented with little comment, via Bloomberg Insider's Convention 2012 Issue; the history of military spending (which we discussed recently) and the $400bn divide between Obama and Romney's agenda.

 

Source: Bloomberg

350 Million Indian Families Starve As Politicians Loot $14.5 BIllion In Food

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While The Brits are about to tax their Super-Rich, it appears one of the old colonies remains in full anti-Robin-Hood mode. Nothing surprises us much anymore but this note from Bloomberg too the proverbial biscuit. In the "most mean-spirited, ruthlessly executed corruption," India's politicians and their criminal syndicates have looted as much as $14.5bn in food from one province alone. 57,000 tons of food meant for the devastatingly poor of the Uttar Pradesh region is sat in a government storage facility five football fields long. The 'theft' has blunted the nation's only weapon against mass starvation and as Supreme Court commissioner Naresh Saxena notes: "What I find even more shocking is the lack of willingness in trying to stop it," as the Minister for Food, who stands charged with attempted murder, kidnapping, armed robbery and electoral fraud, has diverted more than 80 percent of the food. "Who is a person who holds a below poverty line ration card? A person of no influence; you can just tell him to buzz off." But there is growing tension "We could just storm the place, and every one of us could get a bag of rice each. Who would stop us?"

Via Bloomberg:

India has run the world’s largest public food distribution system for the poor since the failure of two successive monsoons led to the creation of the Food Corporation of India in 1965.

This scam, like many others involving politicians in India, remains unpunished. A state police force beholden to corrupt lawmakers, an underfunded federal anti-graft agency and a sluggish court system have resulted in five overlapping investigations over seven years — and zero convictions.

Even after accounting for the wastage, only 41 percent of the food set aside for feeding the poor reached households nationwide, but in Uttar Pradesh, where the minister of food stands charged with attempted murder, kidnapping, armed robbery and electoral fraud, the diversion was more than 80 percent in 2005.

"This is the most mean-spirited, ruthlessly executed corruption because it hits the poorest and most vulnerable in society," said Naresh Saxena, who, as a commissioner to the nation’s Supreme Court, monitors hunger-based programs across the country. "What I find even more shocking is the lack of willingness in trying to stop it."

"Who is a person who holds a below poverty line ration card? A person of no influence; you can just tell him to buzz off."

"Is the scam still ongoing? It may be," said Bhatnagar. "But that is not my concern."

but there is growing tension:

"We dream about robbing it," said Vaish, the activist, as the men and women around her laughed. "We could just storm the place, and every one of us could get a bag of rice each. Who would stop us?"

 

How Treasury Secretary Geithner Foamed the Runways With Children’s Shattered Lives

Courtesy of Pam Martens.

U.S. Treasury Secretary, Timothy Geithner

There really are two kinds of Americans.  One type is of the Ayn Randian persuasion, believing that rapacious capitalism without safety nets is an ideal model for our country.  The other kind believes that our Nation’s children represent the future and each and every one of them – regardless of class, race or social circumstances – deserves a chance at a productive life. 

The second kind of American is frequently derided as a soft-hearted liberal sop; but that’s a shallow analysis.  We fail as a country when we fail our children – both morally and in terms of global competitiveness. 

This is why the revelations in Neil Barofsky’s new book — Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street – are so disturbing.  Barofsky was the Special Inspector General of the Troubled Asset Relief  Program (TARP), put in charge to monitor how the hundreds of billions of taxpayer dollars were spent. 

According to Barofsky, the Home Affordable Modification Program (HAMP) did not have a goal of keeping struggling families and children in their homes.  It’s real goal, according to U.S. Treasury Secretary Tim Geithner, was to “foam the runway” for the banks.  

Here’s an excerpt from the book:

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