Archives for April 2013

Unburnable Carbon Bubbles

Courtesy of The Automatic Earth.

Artwork: Ilargi for The Automatic Earth

A report came out in Britain 10 days ago that deserves more attention than it got. If only because it uses the great term "unburnable carbon", great even before it's defined. It makes me ponder the popular and somewhat crazy claims about shale and fracking leading to US energy independence, the holy grail du jour.

It promises much vaunted freedom from outsiders, but what exactly does it consist of? Does it mean the ability to burn ever more carbon-based energy sources without having to buy them abroad? And does "abroad" include Canada, or do we think of this as an "energy Nafta"? Guys, if you would just waste a bit less of the stuff, you'd have been energy independent ages ago without having to inject tons of toxic concoctions into your land. What on earth are you thinking?

"Unburnable carbon" also makes me think of Professor Kenneth Deffeyes, who stated that "Crude oil is much too valuable to be burned as a fuel" , in reference to the long list of products, some of which are very beneficial to us (think medicine), that are made with oil carbons.

Deffeyes also said: "Thirty years from now, oil will be little used as a source of energy. Our grandchildren will say, 'you burned it? All those beautiful molecules? You burned it?'" Will we ever understand this? Not very likely. We don't even think about it. We just want to find more of the stuff and then burn it. Give any organism access to an energy surplus, and it will use it up as fast as possible. Man is no exception.

But first, that report. Which claims that national and international climate targets risk leaving huge amounts of oil and gas stranded. The risk alone should be enough to inject so much uncertainty into the markets that they could plunge into a huge crisis. Damian Carrington for The Guardian:

Carbon bubble will plunge the world into another financial crisis

The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists.

"The financial crisis has shown what happens when risks accumulate unnoticed," said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was "very big indeed" and that almost all investors and regulators were failing to address it.

The so-called "carbon bubble" is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to a report published on Friday, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for "dangerous" climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses . But the stock markets are betting on countries' inaction on climate change.

The stark report is by Stern and the thinktank Carbon Tracker. Their warning is supported by organisations including HSBC, Citi, Standard and Poor's and the International Energy Agency. The Bank of England has also recognised that a collapse in the value of oil, gas and coal assets as nations tackle global warming is a potential systemic risk to the economy, with London being particularly at risk owing to its huge listings of coal.

Stern said that far from reducing efforts to develop fossil fuels, the top 200 companies spent $674bn (£441bn) in 2012 to find and exploit even more new resources, a sum equivalent to 1% of global GDP, which could end up as "stranded" or valueless assets. Stern's landmark 2006 report on the economic impact of climate change – commissioned by the then chancellor, Gordon Brown – concluded that spending 1% of GDP would pay for a transition to a clean and sustainable economy.

The world's governments have agreed to restrict the global temperature rise to 2C, beyond which the impacts become severe and unpredictable. But Stern said the investors clearly did not believe action to curb climate change was going to be taken. "They can't believe that and also believe that the markets are sensibly valued now."[..]

Paul Spedding, an oil and gas analyst at HSBC, said: "The scale of 'listed' unburnable carbon revealed in this report is astonishing. This report makes it clear that 'business as usual' is not a viable option for the fossil fuel industry in the long term. [The market] is assuming it will get early warning, but my worry is that things often happen suddenly in the oil and gas sector."

HSBC warned that 40-60% of the market capitalisation of oil and gas companies [is] at risk from the carbon bubble, with the top 200 fossil fuel companies alone having a current value of $4 trillion, along with $1.5 trillion debt. [..]

The report calculates that the world's currently indicated fossil fuel reserves equate to 2,860 billion tonnes of carbon dioxide, but that just 31% could be burned for an 80% chance of keeping below a 2C temperature rise. For a 50% chance of 2C or less, just 38% could be burned.

Carbon capture and storage technology, which buries emissions underground, can play a role in the future, but even an optimistic scenario which sees 3,800 commercial projects worldwide would allow only an extra 4% of fossil fuel reserves to be burned. There are currently no commercial projects up and running. The normally conservative International Energy Agency has also concluded that a major part of fossil fuel reserves is unburnable. [..]

Jeremy Grantham, a billionaire fund manager who oversees $106bn of assets, said his company was on the verge of pulling out of all coal and unconventional fossil fuels, such as oil from tar sands. "The probability of them running into trouble is too high for me to take that risk as an investor." He said: "If we mean to burn all the coal and any appreciable percentage of the tar sands, or other unconventional oil and gas then we're cooked. [There are] terrible consequences that we will lay at the door of our grandchildren."

And it's of course not just the US that is involved. All major energy producers (and consumers) are. Nor is it just oil and gas: coal could get hit hard. Damian Carrington had this on Australia over the weekend:

Carbon bubble makes Australia's coal industry ripe 'for financial implosion'

Australia's huge coal industry is a speculative bubble ripe for financial implosion if the world's governments fulfil their agreement to act on climate change, according to a new report. The warning that much of the nation's coal reserves will become worthless as the world hits carbon emission limits comes after banking giant Citi also warned Australian investors that fossil fuel companies could do little to avoid the future loss of value.

Australia is already the globe's biggest coal exporter and "mega-mine" plans in Queensland for more extraction are identified as the world's second biggest "carbon bomb" threatening runaway global warming.

"Investments in Australian coal rest on a speculative bubble of climate denial, indifference or dreaming," said John Connor, one of the new report's authors and CEO of The Climate Institute, an independent research organisation based in Sydney. "Investors, governments and even some coal companies say they take climate change seriously, but this report shows they do not or are taking risky gambles."

James Leaton, at thinktank Carbon Tracker and also another of the report's authors, said: "Investors need to challenge the assumption that coal demand will continue to rise in China and elsewhere, otherwise billions of dollars of taxpayer, superannuation and shareholder funds will be wasted in assets linked to unburnable carbon."

Carbon Tracker's recent global report found that at least two-thirds of existing fossil fuel reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for "dangerous" climate change. The new report shows Australian coal reserves owned by listed companies alone are equivalent to 25% of the global carbon budget for the fuel to 2050.

However, far from cutting back on exploration for new coal reserves, Australian listed companies spent AU$6 billion on developing new deposits. If only half of potential future reserves were exploited, Australian coal would use up 75% of the global carbon budget for the fuel.

Earlier in April, Citi banking group issued a warning to investors in fossil fuel companies. "We see limited potential for engagement to alter the outcome in this case," concluded its report. "If the unburnable carbon [scenario] does occur – even with carbon capture and storage technology – it is difficult to see how the value of fossil fuel reserves can be maintained."

Leaton said China has indicated its coal use will peak in the next five years, but that this had not been priced by markets. "I don't know why the market does not believe China. When it says it is going to do something, it usually does." Yet Australia is banking on selling coal to China: "That doesn't add up."

Still, you could argue that governments will try to find a way to ignore climate treaties. Once they start painting a picture of plunging economies and lifestyles for their people, the hope will be that the treaties can be watered down to facilitate business as usual. Given the strength and broad appeal of climate activism, that won't be as easy as some might think.

For the Canadian government and economy, climate issues may not be the biggest headache going forward. Ottawa faces a growing and steadily better organized resistance from Indigenous peoples. Who, if they resist being divided and bought off, can be a major pain in the government butt, not least of all because they still have many elders who remember being raised on notions of keeping the land fit to pass on to multiple generations. Large scale exploitation of carbon resources doesn't seem to fit that bill. Martin Lukacs for the Guardian in December last year:

Canada's First Nations protest heralds a new alliance

Canada's placid winter surface has been broken by unprecedented protests by its aboriginal peoples. In just a few weeks, a small campaign launched against the Conservative government's budget bill by four aboriginal women has expanded and transformed into a season of discontent: a cultural and political resurgence.

It has seen rallies in dozens of cities, a disruption of legislature, blockades of major highways, drumming flash mobs in malls, a flurry of Twitter activity under the hashtag #IdleNoMore and a hunger strike by Chief Theresa Spence, in a tepee minutes from Ottawa's parliament. Into her tenth day, Spence says she is "willing to die for her people" to get the prime minister, chiefs and Queen to discuss respect for historical treaties.

[..] What remains unspeakable in mainstream politics in Canada was recently uttered, in a moment of rare candour, by former Prime Minister Paul Martin:

"We have never admitted to ourselves that we were, and still are, a colonial power."

[..] While Canada has the world's largest supply of fresh water, more than 100 aboriginal communities have tapwater so foul they are under continual boil alert. Aboriginal peoples constitute 3% of Canada's population; they make up 20% of its prisons' inmates. In the far north, the rate of tuberculosis is a stunning 137 times that of the rest of the country. And the suicide rate capital of the world? A small reserve in Ontario, where a group of school-age girls once signed a pact to collectively take their lives.

Such realities have not stopped politicians and pundits from prattling on about the sums supposedly lavished on aboriginal peoples. [..] Billions have indeed been spent – not on fixing housing, building schools or ending the country's two-tiered child aid services, but on a legal war against aboriginal communities.

Every year, the government pours more than $100 million into court battles to curtail aboriginal rights – and that figure alone went to defeating a single lawsuit launched by two Alberta First Nations trying to recover oil royalties essentially stolen by bureaucrats.

Despite such odds, the highest courts of the land have ruled time and again in favour of aboriginal peoples. Over the last three decades, they have recognized that aboriginal nations have hunting, fishing and land rights, in some cases even outright ownership, over vast areas of unceded territory in British Columbia and elsewhere.

Parliament will soon debate a bill that would break up reserves – still, mostly, collectively held – into individual private property that can be purchased by non-native speculators. The undeclared agenda of government policy is the same as it was a century ago: a grab for resource-rich lands, and the assimilation of aboriginal nations.

The Canadian federal and provincial governments act on a "shoot first, talk later" basis. As in many other places in the world, government policy is based on bullying citizens into compliance with what are labeled "democratic policies", which actually hugely benefit both the government and its corporate backers financially, but leave those citizens with mere scraps off the table.

In Canada, the situation is far less simple than the government would like, because aboriginal – land – claims that have been ratified in various treaties, and on many occasions confirmed by its own Supreme Court, numerous times, can't just be ignored without trampling both democracy itself and the rule of law.

In a very cynical move, Ottawa spends $100 million per year in legal fees to fight these aboriginal claims in courts across the country. Cynical because one might argue that this stunning amount of money rightfully belongs to the aboriginal population in the first place: hence, their own money is being used to keep them poor. Lukacs again:

Indigenous rights are the best defence against Canada's resource rush

In a boardroom in a soaring high-rise on Wall Street, Indigenous activist Arthur Manuel is sitting across from one of the most powerful financial agents in North America.

It's 2004, and Manuel is on a typical mission. Part of a line of distinguished Indigenous leaders from western Canada, Manuel is what you might call an economic hit-man for the right cause. A brilliant thinker trained in law, he has devoted himself to fighting Canada's policies toward Indigenous peoples by assailing the government where it hurts most – in its pocketbook.

Which is why he secured a meeting in New York with a top-ranking official at Standard & Poor's, the influential credit agency that issues Canada's top-notch AAA rating. That's what assures investors that the country has its debts covered, that it is a safe and profitable place to do business.

This coveted credit rating is Manuel's target. His line of attack is to try to lift the veil on Canada's dirty business secret: that contrary to the myth that Indigenous peoples leech off the state, resources taken from their lands have in fact been subsidizing the Canadian economy.

In their haste to get at that wealth, the government has been flouting their own laws, ignoring Supreme Court decisions calling for the respect of Indigenous and treaty rights over large territories. Canada has become very rich, and Indigenous peoples very poor.

In other words, Canada owes big. Some have even begun calculating how much. According to economist Fred Lazar, First Nations in northern Ontario alone are owed $32 billion for the last century of unfulfilled treaty promises to share revenue from resources. Manuel's argument is that this unpaid debt – a massive liability of trillions of dollars carried by the Canadian state, which it has deliberately failed to report – should be recognized as a risk to the country's credit rating.

How did the official who could pull the rug under Canada's economy respond? Unlike Canadian politicians and media who regularly dismiss the significance of Indigenous rights, he took Manuel seriously. It was evident he knew all the jurisprudence. He followed the political developments. He didn't contradict any of Manuel's facts.

He no doubt understood what Manuel was remarkably driving at: under threat of a dented credit rating, Canada might finally feel pressure to deal fairly with Indigenous peoples. But here was the hitch: Standard & Poor's wouldn't acknowledge the debt, because the official didn't think Manuel and First Nations could ever collect it. Why? As author Naomi Klein, who accompanied Manuel at the meeting, remembers, his answer amounted to a realpolitik shoulder shrug.

"Who will able to enforce the debt? You and what army?"

[..] The movement confronts a Conservative Canadian government aggressively pursuing $600 billion of resource development on or near Indigenous lands. That means the unbridled exploitation of huge hydrocarbon reserves, including the three-fold expansion of one of the world's most carbon-intensive projects, the Alberta tar sands. Living closest to these lands, Indigenous peoples are the best and last defence against this fossil fuel scramble.

No surprise, then, about the government's basic approach toward First Nations: "removing obstacles to major economic development." Hence the movement's next stage – a call for defiance branded Sovereignty Summer – is to put more obstacles up. The assertion of constitutionally-protected Indigenous and treaty rights – backed up by direct action, legal challenges and massive support from Canadians – is exactly what can create chronic uncertainty for this corporate and government agenda. [..]

The "Lord Stern report" focuses on the carbon bubble caused by the discrepancy between climate targets and the exploitation of carbon resources.

But there's another potential bubble in carbon that the report does not address: a large part of the resources will simply never become economically viable.

Even before you run into climate related limits, a lot of carbon will prove unburnable not primarily because of climate change legislation, but because of either one of two issues: 1) physics meets monetary limits, i.e. developing the asset makes no sense economically, or 2) physics meets physics, i.e. developing the asset makes no sense in energy terms because it costs more energy than it delivers.

In connection with these two issues, at present a substantial part of America's unconventional oil and gas only looks financially interesting because of the fortunes being made in speculation, for instance in land and land rights (in true Enron spirit, Aubrey McClendon and Chesapeake Energy have blown a huge market distorting bubble there).

Far more money is spent on the promise of oil and gas plays than on the actual product. The result is a carbon related land (rights) bubble, and a typical case of something that looks good; until it doesn't.

But there's more. A large part of the money that is being lavished on the carbon bubble is zombie money. If that money were not available, there would be no bubble. Every single debt that is not properly recognized, and restructured or defaulted upon, leaves zombie money present in a financial system. And every single asset this zombie money is invested in is by definition in a bubble.

If people had a more profound understanding of what occurs when debts are not cleansed the way they should be, there would be no zombie money. As it stands, accounting standards in nations hit by the 2007-08 crisis have become running jokes, all in order to hide the real state of both governments and financial institutions.

Hiding debt means hiding reality. Neither can remain hidden forever. Which, come to think of it, sets them apart from a lot of carbon resources. Which will never see the light of day.

The point to take away from all this is that a storm cloud of uncertainties is taking shape above the carbon industry. And that alone will be enough to leave a lot of carbon unburnable. Which may not be such a bad thing.


Mish Interview With “Bitcoin Jesus”

Courtesy of Mish.

Of all the topics that readers have pleaded me to write about for months but I never did until now, “bitcoins” are at the top of the list.

In private emails, I stated on many occasions “bitcoins are a scam”. I now take that back, “scam” is not the correct word. Others whose opinions I highly respect, state the same thing.

For example, Geoff Turk at GoldMoney stated in an email response:

I have spent quite a bit of time researching Bitcoins and have not found anything scam-like about them. Price volatility is another matter, and that is a result of an increasing demand for a relatively scarce resource. There may be individuals attempting to manipulate the price in some way, which we know is possible in any small (or even not-so-small) market. However, in my opinion the Bitcoin protocol itself is quite sound, and it creates an interesting hybrid of a commodity without corporeal existence that is nonetheless limited in supply.

That was not an endorsement of bitcoin, rather it was a statement that my labeling of bitcoin as a scam was incorrect. I agree, with apologies offered to bitcoin.

OK But What Is Bitcoin

If bitcoin isn’t a scam, then what is it? I have struggled with that question, which explains why I never have written about it.

Wikipedia offers a history and description of bitcoin that is rather fascinating.

Who Accepts Bitcoins?

For months I would search for companies accepting bitcoins as payment and found scant offerings. The same could be said for gold.

Yet, the total value of gold at a price of $1,600/oz would be something like $7.9 trillion. The total value of bitcoins is extremely volatile, fluctuating around $1 billion. Simply put, there is no comparison in terms of total price or volatility.

Continue Here

Here’s Why Everybody Is Wrong About The Second Quarter Being Weak

Courtesy of Lee Adler of the Wall Street Examiner

With the quarter now one third complete just about all the pundits are predicting a sharp slowdown in the economy for the April-June period. Today Jamie McKeever of Rheuters reported that Barclays and Morgan Stanley expect GDP growth of just 1% to 1.5% for the quarter.

The all knowing punditocracy will need a total collapse in May and June in order to be correct, based on first time unemployment claims and real time Federal Withholding Tax data. That, ladies and gentlemen, is simply not on the radar, at least not in the available real-time data. At this moment the economy is melting up, not down.

The following excerpt from the Wall Street Examiner Professional Edition Treasury Update illustrates why the pundits are probably wrong (… again… as usual… What else is new?)

The 4 week average of the 11 weekdays (half month) total of withholding taxes was up 12.6% in nominal terms versus the corresponding period a year ago [as of April 23]. That’s an increase from +12.1% last week. The tax rate change at the beginning of the year appeared to result in a 6.5% increase in withholding tax collections. (Withholding taxes in Q1 accurately foreshadowed GDP growth for that quarter). That suggests that the net gain not attributable to tax rate changes is around 6.1% year over year. Part of that is inflation and part is an increase in economic activity

Changes in average weekly compensation fluctuate wildly, so getting a handle on the real rate of gain becomes little more than swag as the month goes on until the next BLS employment data release. The  BLS figures for March showed a year to year increase of 1.9%.  Average weekly compensation gains each month, while volatile, have been averaging near a 2% annual rate. That would mean that real gains for the past 4 weeks were near 4.1%. I’m skeptical about this number. It probably includes other, non employment related forms of withholding which are withheld quarterly. They are usually minor but can skew the numbers from time to time. The effects of the tax rate increase and inflation may also be greater than estimated here.

Still, there’s no clear evidence of economic weakening in this data. The uptrend has been remarkably stable dating back to May 2012. The second quarter is off to a good start., contrary to the conventional wisdom.

Real Federal Withholding Taxes - Click to enlarge

Real Federal Withholding Taxes – Click to enlarge

As of April 23 month to date withholding tax receipts were 11% ahead of last year (see table below). Non withheld individual taxes were up 53%. They are material at this time because quarterly estimated individual income taxes and underpayments for 2012 are due on April 15. The enormous bulge was partly due to the rate increase that went into effect in January, but even with that, this is a spectacular increase.

Federal Government Cash Flow

Quarterly excise taxes are due at the end of the month so that number isn’t material yet.

Corporate taxes for the first quarter were collected on April 15. They show a 27% gain suggesting strong profit growth.

Corporate Tax Collections - Click to enlarge

Corporate Tax Collections – Click to enlarge

Outlays were up sharply indicating that the drop in March was due to calendar factors, and not the sequester. Those expecting an economic slowdown in the second quarter may be in for a shock. April’s numbers should be very good. That may have begun to show up in the claims data for last week.

Read Big Improvement In Unemployment Claims Suggests Fed Rigging May Be Trickling Out

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.

Who Won? the 93% or the 7%? Why?

Courtesy of Mish.

Economic trends since 2009 show A Rise in Wealth for the Wealthy; Declines for the Lower 93%.

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

Uneven Household Recovery

What Happened?

Some seriously misguided souls blame free market capitalism for this event.

For details, please see Is Capitalism Killing Our Morals and Economy?

I blame the Fed, fractional reserve lending, political corruption, unions, and the Military Industrial Complex that president Eisenhower warned us about in a Speech in 1961.

In short, the problems we face are not the result of free market capitalism, but rather the results of Fed sponsored corporate and military fascism.

Mike “Mish” Shedlock

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As Trust Evaporates…

Courtesy of John Rubino.

Rolling Stone’s Matt Taibbi has once again put the world’s major hard news organizations to shame by describing, in comprehensible terms, the pervasive corruption at the heart of the financial system. Below are his concluding paragraphs from a much larger article that everyone with money at risk in a bank, brokerage account or business should read in its entirety.

Everything Is Rigged: The Biggest Price-Fixing Scandal Ever
After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we’re forced to trust.

“In all the over-the-counter markets, you don’t really have pricing except by a bunch of guys getting together,” Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they’ll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. “In general,” it wrote, “those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion.”

Translation: When prices are set by companies that can profit by manipulating them, we’re fucked.

“You name it,” says Frenk. “Any of these benchmarks is a possibility for corruption.”

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It’s not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever’s in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it’s only just coming into view.

Some thoughts
Knowing what we now know about the big banks, the idea that precious metals are not manipulated is absurd — which explains, if an explanation is needed — why the paper and physical markets are diverging. Paper gold is at the mercy of the manipulators, while physical gold is immune to them – and is in fact a threat to them. An ETF like GLD is emphatically not the same thing as a gold eagle in hand.

With the political and judicial systems now wholly-owned subsidiaries of the big banks, buying physical gold and silver might be and individual’s last effective weapon against an emerging meta-government run by and for the people profiled in Taibbi’s article.

In a broader sense this tracks with the concept, popularized by Automatic Earth’s Nicole Foss among others, of a shrinking trust horizon. As we discover that the people running the big systems from distant financial and political centers are “harvesting” us in ever-more-creative and hard-to-detect ways, the number of people and organizations we’re willing to trust shrinks and recedes towards our homes. We can’t trust dollars or euros or yen so we convert them to precious metals held outside the financial system. We can’t trust the big banks so we open accounts with local credit unions. We can’t trust Big Food to tell the truth about what they’re feeding us so we turn to local farmers markets and backyard gardens. In some ways this is good and right and as it should always have been. But as it progresses it becomes a threat to the systems we’re abandoning, raising the question of how they’ll respond, with what new lies and what kinds of coercion.

Visit John’s Dollar Collapse blog here >

Gun Control Advocates Have Scored A Major Victory That Nobody Is Talking About

Okay, let's talk about it. What does this show? Maybe individual self-interest in those controlling corporations can go both ways? Maybe violent crimes are so much more horrific than property crimes that there is a line at which basic decency gets pulled out of most people? (Perhaps this doesn't apply to a large enough majority of our current batch of senators.) Even if it is all about corporate reputation, withdrawal of financial support is an indirect, yet powerful, way for people to exert an influence on government when voting loses its effectiveness. Thoughts?

Gun Control Advocates Have Scored A Major Victory That Nobody Is Talking About

Courtesy of Walter Hickey, Business Insider 

This week G.E. Capital Finance announced that it would no longer finance gun purchases, becoming the latest in a string of companies that have decided to leave a large amount of money on the table rather than risk their reputations on the gun business. 

It's one of the few places where the high-profile publicity campaign in support of increased gun control has led to a real world result.

Last week advocates for gun control were dealt a humbling blow when legislation to require background checks at gun shows publicly flopped on the floor of the Senate after weeks of work. 

Despite the political defeat, however, something very interesting has happened in the private sector. 

GE is based in Fairfield, Conn., and several employees have children in Sandy Hook Elementary School, the site of the December mass shooting, according to the WSJJeff Immelt, the CEO of GE, had a meeting with employees after the shooting. This, among other reasons, led to the lender ending financing for guns. 

GE is the fifth-largest lender in the country. While their decision to stop lending to gun buyers will only impact a very small portion of the market, the optics of it are not good for the business of guns. 

The decision brings GE in line with Wells Fargo and Citigroup, both of which stopped financing gun purchases several years ago. But firms directly involved in the gun trade are having an even harder time. 

Cerberus Capital, the private investment company that owns Freedom Group — the manufacturer of the assault weapon Adam Lanza used to murder 20 children and 6 adults at Sandy Hook Elementary School — announced days after the shooting that they planned to unload the company from their portfolio. 

But Cerberus has been having difficulties finding a buyer for the company. Other gun manufacturers are using this opportunity to kick Freedom Group's tires, so to speak, and investigate their financials while a buyer remains elusive, according to the Wall Street Journal and Bloomberg News. 

It's come to the point where several individual Cerberus partners are pursuing a bid as a way to put a floor on the auction. Multiple investment banks — reportedly including JPMorgan Chase, Credit Suisse and Barclays — declined to aid Cerberus in the sale and have refused to represent buyers to avoid getting pulled into a politically contentious gun debate.

The sale is worth millions in fees — Freedom Group could fetch as much as $1 billion — and yet multiple banks have decided that getting in the gun business isn't even worth all the money when reputations are at risk. 

According to Bloomberg news, "Cerberus may have to take a lower price or be unable to sell the business because so many banks are unwilling to work on the deal, said one of the people with knowledge of the matter."


Ignores complex legal issues (the side of which you are on depends on your feelings about the particular executive order).


By Andy Borowitz

WASHINGTON (The Borowitz Report)—Responding to reports that President Obama is considering signing as many as nineteen executive orders on gun control, Republicans in Congress unleashed a blistering attack on him today, accusing Mr. Obama of “cynically and systematically using his position as President to lead the country.”

Spearheading the offensive was Rep. Steve Stockman (R-Texas), who charged the President with the “wanton exploitation of powers that are legally granted to him under the U.S. Constitution.”

Calling him the “Law Professor-in-Chief,” Rep. Stockman accused Mr. Obama of “manipulating a little-known section of the Constitution,” Article II, which outlines the power of the President…

Keep reading >

Picture via Business Insider

See also: Gun Control Advocates Have Scored A Major Victory That Nobody Is Talking About


Is Capitalism Killing Our Morals and Economy?

Courtesy of Mish.

In one of the most hopelessly incorrect collections of drivel that I have ever seen, Paul Farrell of MarketWatch writes Capitalism is killing our morals, our future.

Yes, capitalism is working … for the Forbes 1,000 Global Billionaires whose ranks swelled from 322 in 2000 to 1,426 recently. Billionaires control the vast majority of the world’s wealth, while the income of American workers stagnated.

Over the years we’ve explored the reasons capitalism blindly continues on its self-destructive path. Recently we found someone who brilliantly explains why free-market capitalism is destined to destroy the world, absent a historic paradigm shift: That is Harvard philosopher Michael Sandel, author of the new best-seller, “What Money Can’t Buy: The Moral Limits of Markets,” and his earlier classic, “Justice: What’s the Right Thing to Do?”

New free-market capitalism trapped in American brains. Yes, it’s everywhere: “Markets to allocate health, education, public safety, national security, criminal justice, environmental protection, recreation, procreation, and other social goods unheard-of 30 years ago. Today, we take them largely for granted.”

Examples … for-profit schools, hospitals, prisons … outsourcing war to private contractors … police forces by private guards “almost twice the number of public police officers” … drug “companies aggressive marketing of prescription drugs directly to consumers, a practice … prohibited in most other countries.”

Something Trapped in Our Brains

Yes something is trapped in our brains, or rather the brains of Farrell, Harvard philosopher Michael Sandel, and those who think like them.

The first problem is Farrell and Sandel do not know what free market capitalism is. We certainly do not have it.

The free market would not have fractional reserve lending. The free market would have gold and silver as money.

The primary reason for the major disparity in wealth is bank leverage of fiat money created at will via fractional reserve lending. The most redeeming feature of capitalism is failure, but the Fed has a moral hazard policy of “too big to fail” that promotes massive risk-taking.

There would be no Fed in a free market and there would be bank failures, not bailouts on the backs of taxpayers.

In a free market, money would not be inflated at will, nor would credit be handed out to anyone who could breathe as happened in the housing bubble.

Anyone who equates what is happening now with “free market economics” has something much smellier than mush for brains. So does anyone who thinks the socialist model would serve us better. If it the socialist model was better, and more regulation and rules was the solution for everything, France would be the booming leader of the world economy….

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Humiliating Viral YouTube Interview To Cost Job Of Argentina’s Economy Minister

Lesson: If you don't want to talk about a subject, e.g., inflation, don't agree to being interviewed about the subject. Cannot turn out well.

Humiliating Viral YouTube Interview To Cost Job Of Argentina's Economy Minister

Courtesy of ZeroHedge.

Two days ago we first posted a Youtube clip in which a Greek reporter asked Argentina's Economy Minister Hernan Lorenzino a simple question: "what is inflation in Argentina" – a sensitive topic to a country with price and capital controls, and where inflation ranges between 0 and 20% depending on whether one uses official, or unofficial but based on reality, data. The result was a why we dubbed the clip "Thursday humor" as after several minutes of meandering gibberish, Lorenzino concluded by telling his aided that "he wants to leave", which in turn promptly became a twitter hashtag meme #mequieroir, in which the minister's response to a simple request for the truth was promptly lampooned around the world. However, that may have been just the beginning of Hernan's problems. As Bloomberg reports, citing Clarin, Argentina's president CFK, was also quite taken aback by the bumbling economist that she met with him subsequent to the interview going viral, and told him he has lost credibility and the most likely next step is his resignation.

To wit:

Argentine Economy Minister Hernan Lorenzino’s appearance on Greek television in which he abruptly ended an interview and refused to speak about inflation in Argentina has spurred speculation he may quit, Clarin newspaper reported, without citing its sources.

President Fernandez met with Lorenzino to express her concern that he lost credibility among voters after he told an aide at the interview that he wanted “to go” after the reporter asked what he planned to do if the IMF sanctioned the country for not improving its inflation index, Clarin said.

Deputy Eco. Minister Kicillof would replace Lorenzino, Clarin said, without citing anyone

Kathimerini has some more information on the events that had taken place in late 2012, but were only broadcast this week, leading to the hilarious fallout.

Bothered by a Greek reporter’s repeated requests to release Argentinas true inflation rate, Economy Minister Hernan Lorenzino interrupted an interview, saying the issue is too "complex" to explore and telling an aide "I want to leave."

A video of the interview surfaced Tuesday and quickly became the talk of Argentine social networks. On Twitter, the hashtag #mequieroir (#iwanttoleave) was constantly retweeted, and the video of the visibly uncomfortable minister played repeatedly on Argentine television news stations that aren’t aligned with the government. Someone even put his voice to a cumbia beat, mashed it up with the Peronist March and posted the music video on YouTube.

Lorenzino didn’t respond to the display of dark Argentine humor at his expense. His press office told AP that the ministry had no reaction, and his Twitter account was quiet.

Lorenzino granted the interview in his ministry headquarters to Eleni Varvitsiotis late last year, but the Greek channel Skai TV didn’t broadcast it until Tuesday, as part of a documentary comparing Argentinas 2001 economic crisis to the situation in Greece.

Private economic analysts have said Argentinas consumer prices rose about 26 percent in 2012, more than twice the 10.8 percent published by the government’s inflation index, whose accuracy has been publicly rejected by the International Monetary Foundation.

"I have a very simple question for you, which seems very complicated these days: How much is Argentine inflation at this moment?" she asked.

"Official statistics show month after month the inflation and this is the only inflation possible," the minister responded in Spanish.

"But, how much is it?" she insisted.

Increasingly uncomfortable, Lorenzino said "I think the cumulative inflation over the last 12 months is 10.2 percent; I might be off by a decimal."

The journalist then noted that the IMF has warned that it will impose sanctions against Argentina for putting out false statistics. "What will you do about that?" "I don’t know, I don’t know. Can we turn off the camera a moment? I want to leave," Lorenzino said.

The rest of the encounter was captured on audio. Lorenzino can be heard telling the reporter, "Talking about inflation statistics in Argentina is complex. … Id rather leave it with the last thing I said and not go on about it."

Lorenzino then leaves, and an aide can be heard telling the reporter: "We never speak about inflation, not even with the Argentine media."

But "price increases are the main topic of the economy now," she protests. "Everyone in the street is saying there's high inflation. It’s not possible that I not ask about it. If not, I'm not doing my job."

And for those who missed it, here is the video again:

Ahhh – economics. The biggest, most profound, and most deadly joke of a non-science imaginable.

One can only hope more and more charlatans are unmasked, just like Hernan, and proceed to take their rightful place: at the unemployment office line, which is now the longest it has ever been in the modern era across all developed nations, precisely due the flawed and failed "policies" of such "academics" as Hernan. Of course that would (eventually) result in an economist finally doing an honest day's work for once, which as all know, is next to impossible.

What we don't understand is why an openly embarrassing interview in Argentina will lead to the termination of their economics minister, yet in the US Paul Krugman grants numerous interviews daily, and has countless blog posts, all of which transcend the merely laughable and tweet mime-inducing, and cross into the grossly surreal, and yet his "reputation" is still intact. Alas, some things that make sense even in Argentina appear far too complicated to be grasped in the US of A.

Terror in Boston: Photos of “Good and Evil”

Courtesy of Larry Doyle.

The photos to which I link in this post are truly graphic in nature. I offer this note of precaution as some may find them too disturbing.

On September 11, 2001 I was working in midtown Manhattan. I will never forget the unease and anxiety that ran throughout the city that day and for months to come. The evil displayed by those who attacked our nation that day was truly horrific yet it brought out the best in us as so many reached out to help our fellow citizens.

We witnessed the same in Boston on Monday April 15th and in the days since.

Will we ever learn all of what went into the planning of those who brought such devastation to the streets of Boston that day?  Who knows, but that said, I think it is important that the power of evil is broadly shared so that we may know just how destructive it is. I also think it is even more important that the power of good is even more broadly shared so that we may know just how powerful it is.

To these ends, I share today links to photos that crossed my desk this week. I caution readers that the photos are graphic and disturbing. When I first viewed them, I saw the evil amidst the mayhem on Boylston Street in Boston.

I have since viewed them again and I see the goodness of those who literally took the shirts off their backs to help their fellow man. I thank all those who helped our fellow citizens that day and in the days since. We can and will win this fight, but let us always be on guard so that no citizen and no family might ever have to bear the burden of those impacted by evil in Boston on 4/15.

Love this country. B  Strong!!

Terror in Boston: Photos of “Good and Evil” I

Terror in Boston: Photos of “Good and Evil” II (scroll down)


Durable Goods Orders Show US Manufacturing Continuing Secular Decline

Courtesy of Lee Adler of the Wall Street Examiner

New orders for manufactured durable goods in March decreased $13.1 billion or 5.7 percent to $216.3 billion, the U.S. Census Bureau announced today.  This decrease, down two of the last three months, followed a 4.3 percent February increase.  Excluding transportation, new orders decreased 1.4 percent.  Excluding defense, new orders decreased 4.7 percent.  Transportation equipment, also down two of the last three months, led the decrease, $11.0 billion or 15.0 percent to $62.4 billion.  This was led by nondefense aircraft and parts, which decreased $8.5 billion.

from Census Bureau

Economic consensus was for a decline of 3.1% according to the widely followed survey by As usual, they weren’t close. The old seasonal adjustment bugaboo rears its ugly head–that and the fact that most economists are quacks practicing the dark arts of economics fraudquackery.

Real Durable Goods Orders Chart- Click to enlarge

Real Durable Goods Orders Chart- Click to enlarge

March Real Durable Goods Orders, adjusted for inflation and not seasonally manipulated, declined 1.5% year over year. That compares with a 1.2% year to year increase in February after an upward revision. March is normally a seasonal peak, and it’s pretty clear that the peaks are declining. This isn’t new. It’s part of a downtrend in US manufacturing that has persisted since 1999.

Note: In adjusting for inflation, this measure attempts to represents actual unit volume of orders. Also, the use of actual, versus seasonally adjusted (SA) data allows an accurate view of the trend. With SA data, this may not be the case, since SA data can overstate or understate the real underlying change by attempting to fit the data to a standardized curve. There are no such issues when using the actual data (see Why Seasonal Adjustment Sucks).

New orders volume remains well below the 2004 through 2007 levels. Those years were when the housing bubble was in full swing, but current levels of orders are even below 1998 through 2000 and 2001 through 2003 when the US was in recession after the internet/telecom/tech bubble collapsed. The economy may be growing in other areas, but the pace of activity by this measure is still no better than the worst level of 2002.  This data has consistently shown since 2011 that manufacturing in the US is not recovering.  The US is producing less stuff today than it did 5 years ago, or 15 years ago.

To see how this data performed on a short term basis, since it’s actual NSA data, it’s necessary to compare it to March in previous years. March is always an up month and almost always the peak month of the year. The month to month change in March over the prior 10 years averaged +15.8%. This March had a gain of only 3.3%.   That was smaller than any March gain of the previous 10 years.  By contrast, March 2012 saw a gain of 6.1%, and March 2011 was up 24.6%.

The trend is clearly negative. It’s a long way from all the mainstream media pundit stories of a US manufacturing renaissance. The trend of US manufacturing looks dead in the water. The Fed will only see more ammunition for the argument to continue its massive money printing campaign.  Keynesian econoquacks will blame the tax increases that went into effect in January, but that would also be wrong based on the real time data on withholding taxes which have risen by substantially more than is attributable to the rate increases. The decline in US manufacturing is part of a secular trend that shows no real sign of reversing.

The stock market has been following the growth of the Fed’s balance sheet, just as Bernanke has ordered. But he’s had less success at getting US manufacturing on its feet. It has stalled out in spite of massive Fed money creation and a stock market bubble.

The stock market has shown that it can go on its merry way higher for several years with little or no growth in manufacturing.  Durable goods manufacturing makes up only 5-6% of the US economy. So it’s a good idea not to get hung up on durable goods orders as a stock market indicator.  The market is always its own best indicator, but if you are looking for economic data that correlates well with stock prices, look at the Fed’s balance sheet and Industrial Production. 

Read ISM New Factory Orders Collapse As Fed Creates Another Asset Bubble

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.

Reinventing Bretton Woods

Reinventing Bretton Woods: Global Finance In Transition – Currency Wars – Exorbitant Privilege

Courtesy of Jesse's Cafe Americain

As you may recall, Bretton Woods was the name of the conference, taken from its location, that set up the post World War II international currency arrangement with the US dollar as the reserve currency of the world. It was based on a dollar convertible in gold.

When Nixon arbitrarily shut the 'gold window' in 1971 the world entered a reserve currency system of purely fiat dollars, often called Bretton Woods II.

There are a number of theories that suggest that such a system is not sustainable, for many of the same reasons that the euro is not sustainable.  

And as some have remarked, the control of a currency by a small group of men operating in private is an exorbitant privilege.

But putting that aside, the BRICs in particular are not happy with the existing arrangement which has been slowly falling apart for some time as the Federal Reserve imposes its domestic needs and policy on what is intended to be the rest of the world's currency. It finds itself in much the same position as is Germany in the EU.

I have addressed this many times before, suggesting that the eventual outcome may be a reconstituted SDR-like instrument based upon a broader basket of currencies and the inclusion of gold and perhaps silver as well.

The Anglo-American banking cartel are fighting this at every turn, because as we know to control the world's currency brings remarkable power. I suspect quite of bit of the hysterical antagonism against gold and silver is tied up in this.  And an ardent desire to 'cover up' some of their past shenanigans. Germany should put pictures of its gold on milk cartons.

It is possible that they will thwart the objectives of this effort and most likely this conference. And what will happen then is a continuing fragmentation of the world into regional trading zones and spheres of influence.

This may be used as a reason to propose a one world government, that will be similar in composition to the European Union and controlled by a few elite politicians and their bureaucrats.  

We are eyewitness to one of the great events of economic history, and if anything it is remarkable how few economists and politicians understand what is happening. They are firmly embedded in their theory, and too often are willfully blind.  

Let us free markets from regulation, the Banks from restraint of law, and the money creation process from the bindings of oversight and transparency, and we will reach new pinnacles of prosperity.

I find that a well educated layman with a grounding in history and the practical side of finance and business has a better understanding of what is going on than the great bulk of theoreticians whose models are heading quickly towards the dustbin. I just read a strikingly good letter from my friend Hugo Salinas-Price, that proposes a basic model for regulating international trade. 

And I told him it would get nowhere, even though it was probably directionally correct, and about as good a start as many I have seen. The status quo and their hounds would rise up against it, because they are not ready to accept change. 

They will produce many weighty and learned papers that 'prove' that it is wrong. And they will twist and torture the data to serve their ends no matter what the data may actually say.  The Rogoff-Reinhart scandal is not an outlier in what is a generally disgraced profession.  But these are signs of the times, where there is little downside and enormous profits for deceit in the obsessive pursuit of money and power, at least for the exorbitantly privileged.

Money is power, and those who love power above all seek to control any and all changes to its structure, for their own ends.

Global Finance in Transition conference to take place in Istanbul

On May 7-8, 2013, Istanbul (Turkey) will host the Global Finance in Transition conference. The event is organized by the Central Bank of the Republic of Turkey jointly with theReinventing Bretton Woods Committee and the Russian Ministry of Finance.

Representatives of G20 finance ministries and central banks, international organizations, research institutions and businesses will take part in the conference. Head of Turkey's Central Bank Erdem Basci, Deputy Minister of Finance of Russia Sergei Storchak and Executive Director for the Reinventing Bretton Woods Committee Marc Uzan will give the opening remarks at the conference.

Five panel discussions are planned as part of the event. They will cover the international financial architecture, in particular, changes in the flow of global investments, local bond markets and growth in emerging economies, incentives and determinants of investment and other issues. 

In addition it is expected that new instruments and incentives for making the global financial system safer will be suggested during the forum.

You may visit the conference web site by clicking here.


Currency Wars Part II
Currency Wars
Russia Stockpiling Gold Likely For a New Trading Currency
Devaluing the Dollar, Against What?
What Will the World Reserve Currency Become?

This is the lesser known entry in the private contest that spurred Shelley to write his famous Ozymandias.

"In Egypt's sandy silence, all alone, 
Stands a gigantic Leg, which far off throws 
The only shadow that the Desert knows: 
I am great Ozymandias, saith the stone, 
The King of Kings; this mighty City shows 
The wonders of my hand. — The City's gone,
Nought but the Leg remaining to disclose 
The site of this forgotten Babylon. 

We wonder, and some hunter may express 
Wonder like ours, when through the wilderness 
Where London stood, holding the wolf in chase, 
He meets some fragment huge, and stops to guess 
What powerful but unrecorded race, 
Once dwelt in that annihilated place."

Horace Smith, Ozymandias, 1818

Spain’s Unemployment Rate Rises Full Percentage Point to Record 27.2%; Unemployment Tops 6.2 Million

Courtesy of Mish.

Spain’s budget deficits are out of control, home prices are still falling, GDP is down 2% annualized in the first quarter, production is down, the unemployment rate soared a full percentage point to 27.16%, and a record 6.2 million are out of work.

Here are some stats from Spain’s National Statistics Office as noted in the Financial Times.

  • Almost 240,000 people lost their jobs in the first three months of the year.
  • The overall number of jobless is 6.2 million.
  • The unemployment rate rose by more than 1 point to 27.16%
  • 2 million out of 17.4 million Spanish households are without a single person holding a job.
  • Job losses were particularly heavy in the services sector, but also in industry and farming.
  • Construction has shed more than 1.6 million jobs since 2008 as a result of the bursting of Spain’s housing bubble.

These numbers are an indication of a freefall, not a bottom. Yet, Rajoy says the Spanish economy has bottomed and Spain will return to growth this year. Such talk is ridiculous.

Mike “Mish” Shedlock

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Washington Exempts Itself from Obamacare, Airport “Sequester” Delays

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The uncomfortable effects of government actions are being felt everywhere.

Obamacare concerns are, anecdotally, delaying hiring, causing firms to change benefits for the people, and increasing taxes on the great majority.

On the other hand, in the context of the "sequester", which is merely a slowdown in the breakneck rate of government spending, anyone who has traveled by plane in the last month knows the full court press efforts under way to ensure the American public knows just how 'devastating' the sequester cuts are – with delays rising exponentially with every dollar removed from the FAA budget.

But there is a group on 'Americans' who are not feeling the pain of Obamacare or Airport delays. This group of people remains comfortably unaware of the reality that is being passed on the rest of the US citizenry.

As Politico reports, Congressional leaders in both parties are engaged in high-level, confidential talks about exempting lawmakers and Capitol Hill aides from the insurance exchanges they are mandated to join as part of Obamacare; and as the Washington Times reports, the chief of the FAA told Congress today that Washington-area airports will largely escape the effects of the air traffic controller furloughs.

It truly is good to be king, alternatively Americans are equal, except those who are excempt from all the rules and regulations of America – they are just a little more equal.

Via Politico,

Congressional leaders in both parties are engaged in high-level, confidential talks about exempting lawmakers and Capitol Hill aides from the insurance exchanges they are mandated to join as part of President Barack Obama’s health care overhaul, sources in both parties said.

The talksare extraordinarily sensitive, with both sides acutely aware of the potential for political fallout from giving carve-outs from the hugely controversial law to 535 lawmakers and thousands of their aides. Discussions have stretched out for months

“Everyone has to hold hands on this and jump, or nothing is going to get done.”

When asked about the high-level bipartisan talks, Michael Steel, a Boehner spokesman, said: “The speaker’s objective is to spare the entire country from the ravages of the president’s health care law. He is approached daily by American citizens, including members of Congress and staff, who want to be freed from its mandates. If the speaker has the opportunity to save anyone from Obamacare, he will.”

Via The Washington Times,

The chief of the FAA told Congress today that Washington-area airports will largely escape the effects of the air traffic controller furloughs — a blessing for lawmakers who fly out of the nation’s capitol.

Michael Huerta, head of the Federal Aviation Administration, told a congressional panel that the Washington region’s airports are spaced out enough and have enough spare capacity that furloughs to air traffic controllers won’t hurt as much here.

The Promise of Abenomics

The Promise of Abenomics 

By Joseph E. Stiglitz

TOKYO – Japanese Prime Minister Shinzo Abe’s program for his country’s economic recovery has led to a surge in domestic confidence. But to what extent can “Abenomics” claim credit?

CommentsInterestingly, a closer look at Japan’s performance over the past decade suggests little reason for persistent bearish sentiment. Indeed, in terms of growth of output per employed worker, Japan has done quite well since the turn of the century. With a shrinking labor force, the standard estimate for Japan in 2012 – that is, before Abenomics – had output per employed worker growing by 3.08% year on year. That is considerably more robust than in the United States, where output per worker grew by just 0.37% last year, and much stronger than in Germany, where it shrank by 0.25%.

CommentsNonetheless, as many Japanese rightly sense, Abenomics can only help the country’s recovery. Abe is doing what many economists (including me) have been calling for in the US and Europe: a comprehensive program entailing monetary, fiscal, and structural policies. Abe likens this approach to holding three arrows – taken alone, each can be bent; taken together, none can.

Keep reading: The Promise of Abenomics by Joseph E. Stiglitz – Project Syndicate.

Robotic Outsourcing; Food Preparation Robots Invade China, Japan, US; Who is to Blame, and What Can be Done About It?

Courtesy of Mish.

From hamburgers to sushi to noodles, food robots replace workers in the US, Japan, and China.

Today’s spotlight is on China where Restaurant Owners Praise Robot Noodle Makers for Doing “A Good Job!”

Noodle peelers should probably start looking for other things to do around the kitchen – there’s just no competing with these robots.

Runguan’s robots peel noodle strips from a firm piece of dough and tosses them directly into boiling water “before diners’ eyes can follow the whole process.” While a cook doing the same job would make about 40,000 yuan ($6,400) per year, the robot cost just 10,000 yuan ($1,600). And no human chef can work so tirelessly.

Price is already down from $2,000 this past August, which is no doubt a big reason why more than 3,000 restaurants that have already relegated their noodle-making to the robot.

That humans can be replaced by robots that do the job faster and cheaper is an idea that now pervades Chinese employers. “Chinese companies usually start considering robots when the payment for a skilled worker exceeds 50,000 yuan ($8,060) a year.”

In Japan robots are already being used to make sushi, and a robot in San Francisco can serve up 340 hamburgers an hour. But while robotic cooks provide restaurants a novelty for customers and savings for owners, other robots are invading China’s workplace on a much grander scale. Most notably is Foxconn who, last November, began replacing 1 million jobs performed by humans with robotic automation. The metamorphosis is advancing quickly. In late February the company announced it put a freeze on hiring new entry-level workers. This was due in part to a high worker retention rate following pay increases, but it’s also a conscious decision to accelerate the automation of their factories.

Robot Chefs Take Over

Who to Blame for “Robotic Outsourcing”

It’s easy to see what is happening. But who is to blame, and what can be done about it?

The simple fact of the matter is technology marches on and we all eventually benefit from it. To the extent it appears we do not, let me point out a six facts….

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Top 3 Technical Tools Part 2: Relative Strength Index (RSI)

(Video) Top 3 Technical Tools Part 2: Relative Strength Index (RSI)

EWI senior analyst Jeffrey Kennedy shows you how to identify quality trade setups with supporting technical indicators.

By Elliott Wave International

“There are many different forms of technical analysis. A completed Elliott wave pattern supported by additional evidence allows for more confident forecasts and higher probability trades.”

-Jeffrey Kennedy

Trader and technical analyst Jeffrey Kennedy has more than 25 years of experience using with the Elliott Wave Principle. To support his Elliott wave analysis, Jeffrey says that his 3 favorite technical tools are Relative Strength Index (RSI), MACD, and Japanese candlesticks.

This 3-part series includes Jeffrey’s practical lessons and proven techniques to support his wave counts (read Part 1 here >>). Today’s video clip shows you how RSI and range rules can help identify trading opportunities: Part 3 will cover MACD.

Jeffrey’s second lesson, excerpted from his Elliott Wave Junctures educational service, gives an overview of RSI followed by a video example.

Buying pullbacks in uptrends and selling bounces in downtrends are great ways to trade trending markets.

Developed by J. Welles Wilder, Jr. and presented in his 1978 book, “New Concepts in Technical Trading Systems,” RSI measures the strength of a trading vehicle by monitoring changes in closing prices and is considered a leading or coincident indicator. Andrew Cardwell popularized RSI as a trading tool by introducing the concept of range rules.

The theory behind range rules is that countertrend price action in trending markets has specific momentum signatures. RSI, for example will find support within roughly the 50-40 region when pullbacks in uptrends occur. Conversely, when bounces develop in downtrends, RSI will meet resistance in the 50-60 area.

Taking the path of least resistance is a benefit of trading in the direction of the trend. Moreover, the use of RSI and application of Andrew Cardwell’s range rules help identify when a trader can rejoin the trend.



Learn the Best Technical Indicators for Successful Trading

This free report from Elliott Wave International will teach you how to incorporate technical indicators into your analysis to improve your trading decisions.

You’ll learn which technical indicators are best for analyzing chart patterns, which are best for anticipating price action, and which are best for spotting high-confidence trade setups. You’ll also learn how technical indicators can be used to complement Elliott wave and other technical methods.

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This article was syndicated by Elliott Wave International and was originally published under the headline (Video) Top 3 Technical Tools Part 2: Relative Strength Index (RSI). EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Tamerlan Tsarnaev and Family Received Welfare

Tamerlan Tsarnaev and the Tsarnaev brothers' parents had received welfare benefits during their stays in Mass. At the time of the bombing, Tamerlan, his wife Katherine, and daughter were off welfare, no longer meeting income eligibility requirements due to Katherine's working. 

Tamerlan Tsarnaev and Family Received Welfare


"Marathon bombings mastermind Tamerlan Tsarnaev was living on taxpayer-funded state welfare benefits even as he was delving deep into the world of radical anti-American Islamism, the Herald has learned," reports the Boston Herald.

"State officials confirmed last night that Tsarnaev, slain in a raging gun battle with police last Friday, was receiving benefits along with his wife, Katherine Russell Tsarnaev, and their 3-year-old daughter…

Keep reading: Tamerlan Tsarnaev and Family Received Welfare | The Weekly Standard.


Tamerlan Tsarnaev got Mass. welfare benefits

By Chris Cassidy


The news raises questions over whether Tsarnaev financed his radicalization on taxpayer money.

Relatives and news reports have indicated that Tamerlan Tsarnaev’s descent into extremist Islam began around 2008 or 2009, when the ethnic Chechen met a convert identified only as “Misha,” began to become more devout, and sought out jihadist and conspiracy theorist websites, and the rabidly anti-Semitic propaganda tract, “The Protocols of the Elders of Zion.”

In early 2011, Tamerlan Tsarnaev first came to the attention of the FBI when the Russian FSB intelligence service contacted the U.S. agency to warn that he was suspected of being a dangerous radical and sought information.

“The request stated that it was based on information that he had changed drastically since 2010 as he prepared to leave the United States for travel to the country’s region to join unspecified underground groups.” The FBI reported finding no “terrorism activity.”

In mid-2011, he was being monitored by the FSB, apparently prompting the FBI contact, ahead of his six-month trip home to Dagestan in 2012, where Time magazine reported he is believed to have attended a notorious radical mosque…

Abnormalcy Bias

Courtesy of Jim Quinn of The Burning Platform

“The real hopeless victims of mental illness are to be found among those who appear to be most normal. Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives that they do not even struggle or suffer or develop symptoms as the neurotic does. They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted.”

 Aldous Huxley – Brave New World Revisited


The political class set in motion the eventual obliteration of our economic system with the creation of the Federal Reserve in 1913. Placing the fate of the American people in the hands of a powerful cabal of unaccountable greedy wealthy elitist bankers was destined to lead to poverty for the many, riches for the connected crony capitalists, debasement of the currency, endless war, and ultimately the decline and fall of an empire. Ernest Hemingway’s quote from The Sun Also Rises captures the path of our country perfectly:

“How did you go bankrupt?”
Two ways. Gradually, then suddenly.”

The 100 year downward spiral began gradually but has picked up steam in the last sixteen years, as the exponential growth model, built upon ever increasing levels of debt and an ever increasing supply of cheap oil, has proven to be unsustainable and unstable. Those in power are frantically using every tool at their disposal to convince Boobus Americanus they have everything under control and the system is operating normally. The psychotic central bankers, “bought and sold” political class, mega-corporation soulless chief executives and corporate controlled media use propaganda techniques, paid “experts”, talking head “personalities”, captured think tanks, and the willful ignorance of the majority to spin an increasingly dire economic descent as if we are recovering and getting back to normal. Nothing could be further from the truth.

There is nothing normal about what Ben Bernanke and the Federal government have done over the last five years and continue to do today. Truthfully, nothing has been normal since the mid-1990s when Alan Greenspan spoke the last truthful words of his lifetime:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

The Greenspan led Federal Reserve created two epic bubbles in the space of six years which burst and have done irreparable harm to the net worth of the middle class. Rather than learn the lesson of how much damage to the lives of average Americans has been caused by creating cheap easy money out of thin air, our Ivy League self-proclaimed expert on the Great Depression, Ben Bernanke, has ramped up the cheap easy money machine to hyper-speed. There is nothing normal about the path this man has chosen. His strategy has revealed the true nature of the Federal Reserve and their purpose – to protect and enrich the financial elites that manipulate this country for their own purposes.

Despite the mistruths spoken by Bernanke and his cadre of banker coconspirators, he can never reverse what he has done. The country will not return to normalcy in our lifetimes. Bernanke is conducting a mad experiment and we are the rats in his maze. His only hope is to retire before it blows up in his face. Just as Greenspan inflated the housing bubble and exited stage left, Bernanke is inflating a debt bubble, stock bubble, bond bubble and attempting to re-inflate the housing bubble just in time for another Ivy League Keynesian academic, Janet Yellen, to step into the banker’s box. This genius thinks Bernanke has been too tight with monetary policy. It seems inflated egos are common among Ivy League economist central bankers who think they can pull levers and push buttons to control the economy. Results may vary.

The gradual slide towards our national bankruptcy of wealth, spirit, freedom, self-respect, morality, personal responsibility, and common sense began in 1913 with the secretive creation of the Federal Reserve and the imposition of a personal income tax. Pandora’s Box was opened in this fateful year and the horrors of currency debasement and ever increasing taxation were thrust upon the American people by a small but powerful cadre of unscrupulous financial elite and the corrupt politicians that do their bidding in Washington D.C. The powerful men who thrust these evils upon our country set in motion a chain of events and actions that will undoubtedly result in the fall of the great American Empire, just as previous empires have fallen due to the corruption of its leaders and depravity of its people. Creating a private central bank, controlled by the Wall Street cabal, and allowing the government to syphon the earnings of workers through increased taxation has allowed politicians the ability to spend, borrow, and print money at an ever increasing rate in order to get themselves re-elected and benefit the cronies, hucksters and bankers that pay the biggest bribes. None of this benefit the average American, who sees their purchasing power systematically inflated and taxed away. This is not capitalism and it is not a coincidence that war and inflation have been the hallmarks of the last century.    

“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It is no coincidence that the century of total war coincided with the century of central banking.” Ron Paul


As you can see, the bankruptcy of our country and our culture began gradually, accelerated after Nixon closed the gold window in 1971, really picked up steam in 1980 when the debt happy Baby Boom generation came of age, and has “suddenly” reached maximum velocity as we approach the true fiscal cliff. There were many checkpoints along the way where fatefully bad choices were made. They include the New Deal, Cold War, Great Society, Morning in America, Dotcom New Paradigm, Housing Wealth Retirement Plan, Obamacare, and present belief that creating more debt will solve a problem created by too much debt. The Federal Reserve allowed interventionist politicians to fight two declared wars (World War I, World War II), fight five undeclared wars (Korea, Vietnam, Gulf, Afghanistan, Iraq), conduct hundreds of military engagements around the globe, occupy foreign countries, begin a war on poverty that increased poverty, begin a war on drugs that increased the amount of available drugs, and finally start a war on terror that has increased the number of terrorists and pushed us closer to national bankruptcy. The terrorists have already won, as the explosion of stupidity and irrational fear has allowed those in power to acquire more power and dominion over our lives.

Abnormality Reigns

“We live surrounded by a systematic appeal to a dream world which all mature, scientific reality would reject. We, quite literally, advertise our commitment to immaturity, mendacity and profound gullibility. It is as the hallmark of the culture. And it is justified as being economically indispensable.” John Kenneth Galbraith

When I critically scrutinize the economic, political, financial, and social landscape at this point in history, I come to the inescapable conclusion that our country and world are headed into the abyss. This is most certainly a minority viewpoint. The majority of people in this country are oblivious to the disaster that will arrive over the next decade. Some would attribute this willful ignorance to the normalcy bias that infects the psyches of millions of ostrich like iGadget distracted, Facebook addicted, government educated, financially illiterate, mass media manipulated zombies. Normalcy bias refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of governments to inform the populace about the impending disaster. The assumption that is made in the case of the normalcy bias is that since a disaster hasn’t occurred yet, then it will never occur. It also results in the inability of people to cope with the disaster once it occurs. People tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.

The unsustainability of our economic system built upon assumptions of exponential growth, ever expanding debt, increasing consumer spending, unlimited supplies of cheap easy to access oil, impossible to honor entitlement promises, and a dash of mass delusion should be apparent to even the dullest of government public school educated drones inhabiting this country. I don’t attribute this willful ignorance to normalcy bias. I attribute it to abnormalcy bias. In a profoundly abnormal society, adjusting your thinking to fit in appears normal, but is just a symptom of the disease that has infected our culture. There is nothing normal about anything in our society today. If you were magically transported back to 1996 and described to someone the economic, political, financial and social landscape in 2013, they would have you committed to a mental institution and given shock therapy.


Even though we’ve been in a 100 year spiral downwards, things still appeared relatively normal in 1996 when Greenspan uttered his “Irrational Exuberance” faux pas that so upset his Wall Street puppet masters. The ruling class had not yet repealed Glass-Steagall (pre-requisite for pillaging the muppets), created the internet bubble, fashioned the greatest control fraud in world history (housing bubble unrecognized by Ben Bernanke), or taken advantage of mass hysteria over 9/11 to begin the never ending war on terror and expansion of the Orwellian state. The citizens, and I use that term loosely, of this country have allowed those in control of the government and media to convince them the situation confronting us is just a normal cyclical variation that will be alleviated by tweaking existing economic policies and trusting that Ben Bernanke will pull the right monetary levers to get us back on course. The stress inflicted on their brains in the last thirteen years of bubbles and wars has made the average person incapable of distinguishing between normality and abnormality. What they need is slap upside of their head. Is there anything normal about these facts?

  • The Federal Reserve’s balance sheet in 1996 consisted of $422 billion, of which 91% were Treasury securities. Today it consists of $3.25 trillion, of which only 56% are Treasury securities, and the rest is toxic home mortgages, toxic commercial mortgages, and whatever other crap the Wall Street banks have dumped on their books. Their balance sheet is leveraged 57 to 1 and Bernanke has promised his Wall Street bosses he will add another $750 billion before the year is out. Is there anything normal about a central bank adding twice as much debt to its balance sheet in less than twelve months than existed on its entire balance sheet in 1996?
  • The National Debt at the end of fiscal 1996 was $5.25 trillion. It increased by $250 billion that year. The GDP of the country was $7.8 trillion. Our national debt as a percentage of GDP was only 67% and our annual deficit was only 3% of GDP. At the time, the country was worried about these outrageous levels of debt. Today the National Debt stands at a towering $16.8 trillion. It has increased by a staggering $1.12 trillion in the last twelve months. The GDP of the country today is $15.7 trillion. Our national debt as a percentage GDP has soared to 107%. Our annual deficits now exceed 7% of GDP on a consistent basis. Our budgets are on automatic pilot, with the $20 trillion level to be breached by 2016. Is it a normal state of affairs when the GDP of your country rises by 100% over seventeen years, while your debt rises by 320%?


  •  Total government spending (Federal, State, Local) in 1996 totaled $2.7 trillion, or 35% of GDP. Today total government spending is $6.3 trillion, or 40% of GDP. In 1979, before the belief in government became a religion, total government spending was only 31.5% of GDP (27% in 1965). Are you receiving twice the service from government than you received in 1996? Are you safer from terrorists due to the massive expansion of the police state? Are your kids getting a much better education than they did in 1996? Have the undeclared wars benefitted you in any way, other than tripling the price of gas? Are the higher wage taxes, real estate taxes, school taxes, sewer fees, utility fees, phone fees, gasoline taxes, permit fees, and myriad of other government charges worth it? Is it normal for government to account for almost half of our economy?


  • In 1996 personal consumption expenditures accounted for 67% of GDP, while private domestic investment accounted for 16% of GDP and we ran small trade deficits of 1% of GDP. Today, consumer spending accounts for 71% of GDP (despite the storyline about consumer retrenchment), while domestic investment has contracted to 13% of GDP and our trade deficits have surged to almost 4% of GDP. The Federal government has expanded their piece of the GDP pie by 130% since 1996, with the Department of War accounting for the bulk of the increase. Saving and capital investment is now penalized in this country. Is it normal for a country to borrow, consume and bleed itself to death?
  • Consumer credit outstanding totaled $1.2 trillion in 1996, or $4,500 per every man, woman and child in the country. Today, the austere balance is now $2.8 trillion, or $8,800 per every man, woman and child inhabiting our debt saturated paradise. The more than doubling of consumer debt would be acceptable if wages were rising at a similar rate. But that hasn’t been the case, as wages have only advanced from $3.6 trillion in 1996 to $7.0 trillion today. With even the massively understated CPI showing 50% inflation since 1996 and 23% more Americans in the working age population (45 million), real wages have advanced by 30%. Using a true measure of inflation, real wages have fallen. Total credit market debt in 1996 was $19 trillion, or 243% of GDP. Today total credit market debt sits at an all-time high of $56.2 trillion, or 358% of GDP. Is it normal for credit market debt to increase at three times the rate of GDP?

  total debt market owed

  • In 1996, personal income totaled $6.6 trillion, with wages accounting for 55% of the total, interest income on savings accounting for 12% and government entitlement transfers accounting for 14%. Today personal income totals $13.6 trillion, with wages accounting for 51% of the total, interest income on savings plunging to 7% due to Bernanke’s “Screw a Senior Zero Interest Policy”, and Big Brother entitlement transfers skyrocketing to 18%. In what Orwellian dystopian society is taking money from wage earners and redistributing it to non-wage earners considered personal income? Is it normal for a government to punish savers and makers in order to benefit the borrowers and takers?
  • Prior to the financial collapse and during the mid-1990s prudent risk-averse savers could get a 4% to 5% return on money market accounts. Since the Wall Street created worldwide financial collapse, Ben Bernanke, at the behest of these very same Wall Street banks, has reduced short term interest rates to 0%. The result has been to transfer $400 billion per year from the pockets of savers and senior citizens into the grubby hands of bankers that have destroyed our economy. The prudent are left earning .02% on their savings, while the profligate bankers can borrow for 0% and earn billions by re-depositing those funds at the Federal Reserve. In what bizarro world this be a normal state of affairs?


  • Total mortgage debt outstanding in 1996, before the epic Wall Street produced housing bubble, was $4.7 billion. Today, even after the transfer of almost $1 trillion of bad debt to the balance sheet of the American taxpayer, the amount of mortgage debt is an astounding $13.1 trillion. Despite home values rising since 1996, there are 20% of all households still in a negative equity position. Total household real estate equity was 60% in 1996, plunged below 40% in 2009, and has only slightly rebounded to 47% today because Wall Street dumped the bad mortgages on the backs of the American taxpayer. Is it normal for mortgage debt to triple and home equity to plunge in a rationally functioning world? Is it normal when 25% of all existing home sales are distressed sales and another 30% are sales to Wall Street hedge funds like Blackrock?       


  • In 1996 there were 200 million working age Americans, with 134 million (67%) in the labor force, 127 million (63.5%) employed, and 66 million (33%) not in the labor force. Today there are 245 million working age Americans, with 155 million (63%) in the labor force, 143 million (58%) employed, and 90 million (37%) supposedly not in the labor force. The number of working age Americans has increased by 22.5%, while the number of those employed has advanced by only 12.5%. The population to employment ratio has reached a three decade low as millions have given up, been lured into college by cheap plentiful government debt, or developed a mysterious ailment that has gotten them into the SSDI program. Is it normal for millions of Americans to leave the labor force when the economy is supposedly recovering?


  • In 1996 there were 25.5 million Americans on food stamps, or 9.6% of the population, costing $24 billion per year. Today there are 47.8 million Americans on food stamps, or 15% of the population, costing $75 billion per year. Historically, the number of people in this program would rise during recessions and recede when the economy recovered, just as a safety net program should function. According to our government keepers the economy has been in recovery since late 2009. The number of people entering the food stamp program has gone up by 7 million since the recession officially ended. This is not normal. Either the government is lying about the recession or they are screwing the taxpayer by encouraging constituents to enter the program in an effort to gain votes. Which is it?   


  • The price of oil averaged $20 per barrel in 1996 and it cost you $1.20 per gallon to fill your tank. Oil averaged $85 per barrel in 2012 and currently hovers around $90 per barrel. Most Americans are now paying between $3.50 and $4.00 per gallon to fill their tanks. This result seems abnormal considering the propaganda machine is proclaiming we are on the verge of energy independence. After two Middle East wars, 6,700 dead American soldiers, 50,000 wounded American soldiers, and $1.5 trillion of national wealth wasted, this is all we get – a tripling in gas prices and creation of thousands of new terrorists?

You have to have a really bad case of normalcy bias to be able to convince yourself that everything that has happened since 1996 is normal. Every fact supports the reality that we’ve entered a period of extreme abnormality and our response as a nation thus far has insured that a disaster of even far greater magnitude is just over the horizon. Anyone with an ounce of common sense realizes the social mood is deteriorating rapidly. We are in the midst of a Crisis period that will result in earth shattering change, but the masses want things to go back to normal and don’t want to face the facts. The cognitive dissonance created by reality versus their wishes will resolve itself when the next financial collapse makes 2008 look like a walk in the park. But, until then most will just stick their heads in the sand and hope for the best.

Loving Your Servitude

“Liberty is lost through complacency and a subservient mindset. When we accept or even welcome automobile checkpoints, random searches, mandatory identification cards, and paramilitary police in our streets, we have lost a vital part of our American heritage. America was born of protest, revolution, and mistrust of government. Subservient societies neither maintain nor deserve freedom for long.”Ron Paul

The most disgraceful example of abnormality that has infected our culture has been the cowardice and docile acquiescence of the citizenry in allowing an ever expanding police state to shred the U.S. Constitution, strip us of our freedoms, and restrict our liberties. Our keepers have not let any crisis go to waste in the last seventeen years. They have also taken advantage of the willful ignorance, childish immaturity, extreme gullibility, historical cluelessness, financial illiteracy and techno-narcissism of the populace to reverse practical legislation and prey upon irrational fears to strip the people of their constitutionally guaranteed liberties and freedoms. If you had told someone in 1996 the security measures, laws, and police agencies that would exist in 2013, they would have laughed you out of the room. Every crisis, whether government created or just convenient to their agenda, has been utilized by the oligarchs to expand the police state and benefit the crony capitalists that profit from its expansion. The character of the American people has been found wanting as they obediently cower and beg for protection from unseen evil doers. The propagandist corporate media reinforces their fears and instructs them to submissively tremble and implore the government to do more. The cosmic obliviousness and limitless sense of complacency of the general population with regards to a blatantly obvious coup by a small cadre of sociopathic financial elite and their army of bureaucrats, lackeys and jackboots is a wonder to behold.    

The 1929 stock market crash and ensuing Great Depression was primarily the result of excessively loose Federal Reserve monetary policy during the Roaring 20’s and the unrestrained fraud perpetrated by the Wall Street banks. The 1933 Glass-Steagall Act was a practical 38 page law which kept Wall Street from ravenously raping its customers and the American people for almost seven decades. The Wall Street elite and their bought off political hacks in both parties repealed this law in 1999, while simultaneously squashing any effort to regulate the financial derivatives market. The day trading American public didn’t even look up from their computer screens. Over the next nine years Wall Street went on a fraudulent feeding frenzy rampage which brought the country to its knees and then held the American taxpayer at gunpoint to bail them out. The Federal Reserve arranged rescue of LTCM in 1998 gave the all clear to Wall Street that any risk was acceptable, since the Fed would always bail them out. Just as they did in the 1920’s, the Federal Reserve set the table for financial disaster with excessively low interest rates and non-existent regulatory oversight.           

The downward spiral of our empire towards an Orwellian/Huxley merged dystopian nightmare accelerated after the 9/11 attacks. Within one month those looking to exert hegemony over all domestic malcontents had passed the 366 page, 58,000 words Patriot Act. Did the terrified masses ask how such a comprehensive destruction of our liberties could be written in under one month? It is apparent to anyone with critical thinking skills that the enemy within had this bill written, waiting for the ideal opportunity to implement this unprecedented expansion of federal police power. Electronic surveillance of our emails, phone calls and voice mails, along with warrantless wiretaps, and general loss of civil liberties was passed without question under the guise of protecting us. Next was the invasion of a foreign country based upon lies, propaganda and misinformation without a declaration of war, as required by the Constitution. Our government began torturing suspects in secret foreign prisons. The shallow, self-centered, narcissistic, Facebook fanatic populace has barely looked up from texting on their iPhones to notice that we have been at war in the Middle East for eleven years, because it hasn’t interfered with their weekly viewing of Honey Boo Boo, Dancing With the Stars, or Jersey Shore. They occasionally leave their homes to wave a flag and chant “USA, USA, USA”, as directed by the media, when a terrorist like Bin Laden or Boston bomber is offed by our security services, but for the most part they can live their superficial vacuous lives of triviality unscathed by war.

The creation of the Orwellian Department of Homeland Security ushered in a further encroachment of our everyday freedoms. They attempted to keep the masses frightened through a ridiculous color coded fear index. Little old ladies, people in wheelchairs and little children are subject to molestation by lowlife TSA perverts. Military units conduct “training exercises” in cities across the country to desensitize the sheep-like masses, who fail to acknowledge that the U.S. military cannot constitutionally be used domestically. DHS considers military veterans, Ron Paul supporters, and Christians as potential enemies of the state. The use of predator drones to murder suspected adversaries in foreign countries, while killing innocent men, women and children (also known as collateral damage), has just been a prelude to the domestic surveillance and eventually extermination of dissidents and nonconformists here in the U.S. We are already becoming a 1984 CCTV controlled nation. DHS has been rapidly militarizing local police forces in cities and towns to supplement their jackbooted thugs. Obama’s executive orders have given him the ability to take control of industry. He can imprison citizens without charges for as long as he deems necessary. Attempts to control gun ownership and shutdown the internet is a prologue to further government domination and supremacy over our lives when the wheels come off this unsustainable bus.

The last week has provided a multitude of revelations about our government and the people of this country. The billions “invested” in our police state, along with warnings from a foreign government, and suspicious travel patterns were not enough for our beloved protectors to stop the Boston Marathon bombing. After stumbling upon these amateur terrorists by accident, the 2nd responders, with their Iraq war level firepower, managed to slaughter one of the perpetrators, but somehow allowed a wounded teenager to escape on foot and elude 10,000 donut eaters for almost 24 hours. The horde of heavily armed, testosterone fueled thugs proceeded to bully and intimidate the citizens of Watertown by illegal searches of homes and treating innocent people like criminals. The government completely shut down the 10th largest metropolitan area in the country for an entire day looking for a wounded 19 year old. The people of Boston obeyed their zoo keepers and obediently cowered in their cages.  

The entire episode was an epic fail. The gang that couldn’t shoot straight needed an old man to find the bomber in his backyard boat. The people of Boston exhibited the passivity and subservience demanded by their government. Since the capture of the remaining terrorist, the shallow exhibitions of national pride at athletic events and smarmy displays of honoring the police state apparatchiks who screwed up – allowing the attack to occur and looking like the keystone cops during the pursuit of the suspects, has revealed a fatal defect in our civil character. We are living in a profoundly abnormal society, with millions of medicated mindless zombies controlled by a vast propaganda machine, who seemingly enjoy having their liberties taken away. Most have willingly learned to love their servitude. For those who haven’t learned, the boot of our vast security state will just stomp on their face forever. We’re realizing the worst dystopian nightmares of Orwell and Huxley simultaneously. This abnormalcy bias will dissipate over the next ten to fifteen years in torrent of financial collapse, war, bloodshed, and retribution. Sticking your head in the sand will not make reality go away. The existing social, political, and financial order will be swept away. What it is replaced by is up to us. Will this be the final chapter or new chapter in the history of this nation? The choice is ours.                         

“If you want a vision of the future, imagine a boot stamping on a human face – forever.
– George Orwell


“There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution” –Aldous Huxley, 1961

The Case Against Dzhokhar Tsarnaev: A Guide



On Monday, the government filed formal charges against Dzhokhar Tsarnaev in the terrorist attack on the Boston Marathon last week. He is charged with use of a weapon of mass destruction and malicious destruction of property resulting in death, and could face the death penalty.

The legal proceedings in Tsarnaev’s case are likely to be lengthy and complex. Here’s a guide to a few of the issues that may come up, or already have…

For more, keep reading: The Case Against Dzhokhar Tsarnaev: A Guide : The New Yorker.

Photograph, of the arrest of Dzhokhar Tsarnaev, by Jared Wickerham/Getty.

Mirabile Dictu! Someone (Bankruptcy Trustee Freeh) Finally Sues Jon Corzine Over MF Global

So maybe the civil courts will do what the criminal justice system won't – attempt to hold Corzine accountable for at least some of his alleged reckless conduct as head of MF Global. 

Mirabile Dictu! Someone (Bankruptcy Trustee Freeh) Finally Sues Jon Corzine Over MF Global

Courtesy of Yves Smith of Naked Capitalism 

The great unwashed public might get to enjoy a bit of theater. MF Global bankruptcy trustee Louis Freeh filed suit against Jon Corzine and two other MF Global executives, Brad Abelow and Henri Steenkamp, for running the firm into the ground for breach of fiduciary duty of care, breach of fiduciary duty of loyalty, and breach of fiduciary duty of oversight. That’s legalese for doing a recklessly bad job of being in charge.

The suit does not include the issue that has many members of the investing public outraged: the appropriation of customer funds. (A class action lawsuit involves that. – Ilene) But even though the specific failings are familiar to anyone who has been following this sorry affair closely, reading them together is a reminder of just how astonishingly irresponsible Corzine was as an executive.

One of the basic requirements of a trading operation is you need to have solid controls and reporting. Yet Corzine instead entered into a outsided trading strategy that produced accounting earnings but drained liquidity. It’s frustrating that the suit misses this element, that the trade actually had a two day funding gap on top its other defects, including the fatal one, the risk of increased haircuts on a levered trade. That meant it drained cash even when it was showing accounting profits.

As Michael Crimmins wrote:

The repo to maturity trade that enabled MFG to disappear the position was an INTERCOMPANY trade between MFGI and MFGUK. The ACTUAL repo with the street (MFGUK to LCH) was repo to (maturity-2 days).

The external auditors and the regulators waved it through anyway.

Since the entire business model rested on this fiction, the customers were doomed at the point this was approved.

The resulting catastophe was inevitable and all the issues about chaos in the final moments and feuds between Treasury and Accounting and antiquated systems is noise.

The regulators could have shut him down on day one. Using intercompany accounting to game the regs is compliance 101 stuff, so the regulators can’t claim they were bamboozled by the slickest guy in town. They were idiots, genuinely or conveniently, you decide.

At least Lehman had the decency to pay its counterparties to rent their balance sheet to pull off their scam. Fuld must surely envy Corzine.

Of course, the fact that complaint auditors and “see no evil” regulators permitted this bogus treatment is the reason Freeh and his lawyers chose to omit this issue. Corzine et al. could simply take the position that who was he to second guess the experts? But the failure to put the focus on the central problem means complicit regulators escape the opprobrium they deserve.

And there was more than enough dereliction of duty to make for a juicy filing. Corzine knowingly relied on faulty reports, such as a “liquidity dashboard,” gave incomplete reports to his board, and ignored warnings of his Internal Audit department. And that’s only some of the high points.

Freeh v. Corzine et al., April 23, 2013


The fact that the suit was filed suggests that Corzine and his former partners in gross mismanagement were unable to reach a settlement. And as readers no doubt know, roughly 95% of all lawsuits are settled. But here, Freeh has already done a huge investigation prior to filing the suit, so the usual motivation to escape discovery costs isn’t a big driver; there’s not much additional work to be done to prepare for trial. Corzine has a big enough ego, an established appetite for risky courses of action, and deep enough pockets so as to be far less deterred by courtroom costs and process than most defendants. So the odds are way higher than normal that this filing will lead to trial than most cases.

Unfortunately, some embarrassing cross examinations and a diminution of Corzine’s net worth falls far short of what Corzine deserves, which is jail time. But this suit may pave the wave for other litigation. If we are lucky, Corzine will be tortured in court for years.

Crashing the 90 Percent Club

Crashing the 90 Percent Club: The Importance of the Reinhart-Rogoff Error

By Dean Baker, CEPR
Originally published: Caixin Online, April 23, 2013

See article on original website

Few academic papers have ever received as much attention or had as much influence on public policy as “Growth in a Time of Debt,” a paper put out in 2010 by Harvard economists Carmen Reinhart and Ken Rogoff. While standard Keynesian economics indicates that most wealthy countries could benefit enormously from increased government spending, this paper argued against such actions. 

Reinhart and Rogoff (R&R) purported to find a sharp cutoff with countries with debt-to-GDP ratios above 90 percent experiencing substantially slower growth than less-indebted countries. Their work has been cited by those arguing for smaller budget deficits in the eurozone, the United Kingdom, and the United States. The claim is that the higher deficits now could push nations into the danger zone; possibly leading to decades of slow growth.

There were many problems with the basic story in R&R. The most obvious problem was causality. Countries often accumulate large amounts of debt because their economies are doing poorly. Japan is the classic example. Its economy boomed in the 1980s driven by bubbles in both its land and stock market. During this decade it had near balanced budgets and very little debt.

Then its bubbles burst in 1990 and its economy went into a slump. The government boosted its deficits to help make up the demand lost from the private sector. In the R&R data set we have high debt causing Japan’s weak growth. In reality, the debt was due to the fact that its economy was weak.

There were also simple logical problems with the R&R story. Countries have both assets and liabilities. If there really is something horrible that happens when debt levels cross 90 percent of GDP then it would make sense to sell enough assets to get below this threshold. This could mean sales of government land, fishing rights, airwaves, even patent monopolies. While it may be foolish to privatize such assets in other circumstances, if there really is a potentially huge growth dividend from reducing debt-to-GDP ratios, then it would make sense to sell assets to get below the 90 percent threshold.

In spite of the obvious objections to the R&R paper it nonetheless carried enormous weight in policy circles. That is why it was hugely important when three economists at the University of Massachusetts put out a paper last week uncovering major errors in R&R. The three economists — Thomas Herndon, Michael Ash, and Robert Pollin — worked from R&R’s original spreadsheet. They found several important computational errors. When these errors were corrected, R&R’s result disappeared. There was no longer a sharp falloff in growth rates associated with debt levels above 90 percent of GDP.

The discrediting of the R&R paper raises important questions for economic policy. This work was central to the argument against measures designed to boost the economy. Now that it has been discredited, one of the major intellectual pillars of the drive for austerity has been removed. In principle this should lead to a rethinking of economic policy.

Unfortunately that does not seem likely to be an outcome. The policy of austerity has produced winners and losers, and the winners seem to have considerably more power. The high unemployment and weak labor markets of the last five years leaves workers with little bargaining power.

As a result, virtually all of the gains from productivity growth since the downturn have gone to employers. The after-tax profit share of national income is at the highest level since 1951. The rise in corporate profits had led to a booming stock market, which has recovered all the ground lost since the recession.

The list of losers in the current economic situation is much larger than the list of winners. There are a relatively small number of people who own substantial amounts of stock. The overwhelming majority of the non-retired population gets more income from their labor than stock ownership. These people are clear losers from the austerity being followed in the United States for the last three years.

Of course campaign contributions come disproportionately from the tiny segment of the population who do own large amounts of stock. As a result, the interests of the wealthy are likely to be the concerns of elected politicians even if they are opposed to the interests of the vast majority of the population. That is why we see efforts to cut programs such as Social Security and Medicare even when these cuts are opposed by large majorities of people across the political spectrum.

The news last week is that the new paper discrediting Reinhart and Rogoff made everything much clearer. The leadership of both major parties is not seeking ways to reduce the budget deficit because there is any reason to believe this will be good for the economy. They are looking for ways to reduce the budget deficit because the wealthy are happy to sustain a situation in which high unemployment weakens workers’ bargaining power. This does not paint a very positive picture of the state of democracy in the United States.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The End of Loser Liberalism: Making Markets Progressive. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

Instability may not be optional

capitalism is inherently flawed,.. ~ Hyman Minsky

Instability may not be optional 

By Steve Keen

Sydney Morning Herald commentator Gareth Hutchens commented that the Rogoff and Reinhart affair shows how slow economists are to realise that their data may be dodgy, but to my mind that is insignificant compared to how slow they are to realise that their theories are dodgier still.

A defining feature of mainstream economic modelling is the belief that the economy is stable: given any disturbance, it will ultimately return to a state of tranquil growth. Mainstreamers argue over how fast this will happen: Chicago/Freshwater /New Classicals argue it adjusts instantly, while Saltwalter/New Keynesians say it will take time because of ‘frictions’ in the economy’s adjustment processes. But they both take the innate stability of the economy for granted, and this belief is hard-coded into their mathematical models.

This stability is also seen as a good thing – so much so that anything which obstructs it being achieved should be removed. They argue over policy in a crisis like the world’s current one, with New Classicals falling firmly into the ‘Austerians’ camp while New Keynesians favour fiscal stimulus, but they speak almost as one in favour of eliminating monopolies, reducing union power, deregulating finance – or they did before the financial crisis came along.

One would think that after as disturbing an event as the Great Recession – and let’s call it as it is now, the Second (or perhaps Third) Great Depression in Europe – that this belief in the innate stability of capitalism might be at least reconsidered by the mainstream. But though they’re willing to tinker at the edges, their core vision of the economy as being either in or near a stable equilibrium remains an unchallenged mantra.

I come from a different tradition that sees the economy as inherently unstable, and which regards this instability as both creative and destructive. Schumpeter famously gave us the phrase “creative destruction” to describe the process by which capitalism develops new products and new institutions, and my work builds on his and that of his most famous pupil, Hyman Minsky.

Here there is also a bit of a “Freshwater vs Saltwater” divide, since Schumpeter focused on the industrial and entrepreneurial process – what you might call Main Street Capitalism – while Minsky focused on Wall Street Capitalism. In the latter case, the instability can be purely destructive, as inventive financiers find ways to portray what are innately Ponzi Schemes as good investments, and end up fleecing the public while conjuring financial crises into existence…

Keep reading: Instability may not be optional | Business Spectator.

Utopian Union Fantasy: What If Every California Worker Made What City of Irvine Workers Make?

Courtesy of Mish.

This is a guest post written by Ed Ring, editor of UnionWatch, a project of the California Public Policy Center. Ed Ring asks What If Every Worker Made What City of Irvine Workers Make?

Everything that follows is from Ed Ring.

“Jennifer Muir, a spokeswoman for the Orange County Employees’ Association, which represents more than 18,000 public employees in Orange County, said the California Public Policy Center’s study was a politically motivated attack on public employees and unions. Aside from promoting the center’s anti-public employee union agenda, Muir said, the reports are misleading and shift focus away from the discussions that matter most. Union leaders have long urged for people to consider the possibility that private-industry employees are being undercompensated and should receive retirement benefits and health coverage.”

Orange County Register, April 19, 2013

The study Muir refers to, entitled “Irvine, California – City Employee Compensation Analysis,” was published on April 8th, 2013, by our parent organization, the California Public Policy Center. To call this study “a politically motivated attack on public employees and unions,” as Muir alleges, is itself a distraction. It’s easy, and necessary, to impugn the motives behind information when the information itself is so embarrassing.

As noted, Muir went on to accuse the study of “shifting focus away from the discussions that matter most… that private-industry employees are being undercompensated.”

Let’s recap some of the facts regarding Irvine’s city employee compensation, drawing both from the CPPC study (which itself used payroll data provided by the City of Irvine), as well as from the Orange County Employee Retirement Systems 2011 Annual Report:

  • The average City of Irvine employee receives direct pay of $95,751 per year, and when the cost of employer paid benefits is included, this average goes up to $143,691 per year (Source: CPPC Study, Table 1.

  • The average participant in the Orange County Employee Retirement system who worked 25-30 years and retired last year collects a pension of $70,920 per year. If they worked 30 years or more, like virtually every private sector worker, that average goes up to $81,192 per year (Source: OCERS Annual Report, page 109.

Now let’s suppose that private industry employees are indeed being undercompensated. What are the economic implications of paying them a proper living wage à la Irvine – and every other unionized public sector job in California? Here are some facts:

  • In 2010 there were 8.3 million residents in California over the age of 55, which is the age by which a public employee may reasonably be assumed to have logged 30 years – assuming they completed their education by age 25 and entered the workforce for a full career in public service (source: U.S. Census Bureau.

  • Also In 2010, the GDP of California – its entire economic output – was $1.9 trillion (source: LA Times).This means that if everyone over the age of 55 in California got a pension of $70,000 per year, it would cost $581 billion per year, 31% of California’s entire economic output. Ms. Muir is invited to explain exactly how we’re going to accomplish this.

  • Using the same census data, in 2010 there were 15.8 million people between the ages of 25 and 55. Assume that two-thirds of these people work full-time, and the other one-third are unemployed spouses, stay-at-home parents, or are otherwise supported by a working partner. If every one of these 10.5 million people collected total compensation of $140,000 per year, this would cost $1.47 trillion per year, or 77% of California’s entire economic output.

So according to this utopian vision, if everyone could just receive the same compensation packages as the average full-time worker for the City of Irvine, it would consume 108% of California’s entire economic output.

There’s a bit more to this, however. In the real world, wages and salaries fluctuate between around 44% and 54% of GDP (source:

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