Archives for July 2014

Debt Rattle Jul 29 2014: There’s A War Going On Already In Europe

Courtesy of The Automatic Earth.

Arthur Rothstein Elm Street, Theater Row, Dallas Jan 1942

I don’t think it’s ever a good sign, no matter how funny it may look, when the US state Department makes one think of Monty Python. But it does. With a Silly Claims instead of Silly Walks department. Would these people really sit around a big table in the evening and brainstorm about what anti-Russia statement to feed to the press the next morning? What else could possibly be going on here? I mean, just look at this bit from the New York Times:

US Says Russia Tested Cruise Missile, Violating Treaty

The United States has concluded that Russia violated a landmark arms control treaty by testing a prohibited ground-launched cruise missile, according to senior American officials, a finding that was conveyed by President Obama to President Vladimir V. Putin of Russia in a letter on Monday. It is the most serious allegation of an arms control treaty violation that the Obama administration has leveled against Russia [..]

At the heart of the issue is the 1987 treaty that bans American and Russian ground-launched ballistic or cruise missiles capable of flying 300 to 3,400 miles. That accord, which was signed by President Ronald Reagan and Mikhail S. Gorbachev, the Soviet leader, helped seal the end of the Cold War and has been regarded as a cornerstone of American-Russian arms control efforts.

Russia first began testing the cruise missiles as early as 2008, according to American officials, and the Obama administration concluded by the end of 2011 that they were a compliance concern. In May 2013, Rose Gottemoeller, the State Department’s senior arms control official, first raised the possibility of a violation with Russian officials. The New York Times reported in January that American officials had informed the NATO allies that Russia had tested a ground-launched cruise missile [..]

If we are to believe the NYT, Russia started testing the system 6 years ago, it then took the US at least 3 years to ‘conclude’ it was ‘a compliance concern’, another 18 months or so to ‘raise the possibility of a violation with Russian officials’, 8 more months after that to inform NATO – and have the NYT write it up – and another half year on top of that for Obama to write a letter to ‘President Vladimir V. Putin of Russia’ (excellent choice of title, love the extra V.) and feed the press.

Whereas we can all agree that timing is everything, how many of you recognize that any and every single day over the past 6 years and change would have been better to go public with this than today? In all the papers, we can read that ‘Senior American officials’ stress that this is ‘a serious violation’.

Look, we know you’re trying to make Russia look bad. We get it. But we also know that if this would have been such a serious violation, you would have spoken out a long time ago. We therefore have no other choice but to file this under ‘whatever’. And wait with glee for what you come up with tomorrow.

By the way, while reading up on this, I happenstanced upon something else in the field of nuclear treaties. And since you guys insisted on putting us in Python mood, here goes. This is from the Santa Barbara Independent:

Feds Looks to Quash Nuclear Treaty Lawsuit

Federal attorneys have made their first big move to dismiss a lawsuit that alleges the United States, along with eight other countries, has violated a 46-year-old treaty to dismantle its nuclear arsenal. The lawsuit was filed in April — in U.S. Federal Court as well as in the International Court of Justice in The Hague – by the tiny Pacific nation of the Marshall Islands, which the U.S. bombarded with nuclear weapons tested between 1946 and 1958. Marshall Islands officials maintain that radioactive fallout from the tests sickened citizens and rendered some territories unlivable.

“Our people have suffered the catastrophic and irreparable damage of these weapons,” said Marshall Islands Foreign Minister Tony de Brum in May, “and we vow to fight so that no one else on Earth will ever again experience these atrocities.” The Treaty on the Non-Proliferation of Nuclear Weapons (NPT) was signed in 1968 and mandates that the United States, Russia, United Kingdom, France, China, Israel, India, Pakistan, and North Korea “pursue negotiations in good faith” to end the nuclear arms race “at an early date and to work toward worldwide nuclear disarmament.”

Attorneys for the Marshall Islands argue that the countries have instead increased and modernized their nukes over the decades. [..] In the fed’s Motion to Dismiss, the government claims the lawsuit should be thrown out because of procedural and jurisdictional issues. “The U.S.… does not argue that the U.S. is in compliance with its NPT disarmament obligations,” the NAPF explained in a prepared statement. “Instead, it argues in a variety of ways that its non-compliance with these obligations is, essentially, justifiable, and not subject to the court’s jurisdiction.”

That doesn’t exactly make that claim against Russia look better, does it? Anything else? Alright then, moving on. The Financial Times has a particularly spicy rendering of the Yukos lawsuit story in which Russia was ordered to pay $50 billion in damages:

‘Yukos Is Insignificant, There Is A War Coming In Europe’

Beleaguered shareholders of Yukos could scarcely have imagined when they launched arbitration in 2005 they would one day be awarded $50bn in damages – nor that the ruling would be released into the febrile atmosphere that exists between Russia and the west today.

Just six months ago, say legal experts, Russia still seemed interested in being part of international “clubs” like the Organisation for Economic Co-operation and Development, the group of mainly rich countries. As the Ukraine crisis worsens, protecting its international reputation no longer seems a priority. “If one were to be quite cynical, I think the reputational consequences for Russia [of not paying] will be very limited indeed, because they have already been through a lot of things,” said Loukas Mistelis, director of the School of International Arbitration at Queen Mary University of London. “I think they would be prepared to take quite a bit of risk.” [..]

… if Russian state businesses find themselves hit both by western sanctions and attempts to seize assets by Yukos shareholders, relations between the Kremlin and the west could sour further. One person close to Mr Putin said the Yukos ruling was insignificant in light of the bigger geopolitical stand-off over Ukraine.

“There is a war coming in Europe,” he said. “Do you really think this matters?”

I don’t know. I catch myself thinking at times that there’s already a war going on in Europe. It could certainly expand and accelerate a lot further, but the sanctions the US and EU intend to slam on Russia sure look like economic warfare to me. As do the innuendo, the lack of evidence, the constant stream of smear stories leaked through fuzzy channels, it all fits the picture.

The Yukos case is already causing people to wake up from various stages of slumber. BP reported ‘great’ profits today, largely from their interest in Russian oil giant Rosneft (got to love the irony), but it also said the sanctions that are being prepared could hurt its shares, because it has a 19% stake in Rosneft.

What it didn’t say out loud, but what is certainly an added threat, is that the parties who won the case can now go sue BP to get their $50 billion. Because of the same 19% stake. And given that many of the stakeholders of the other 81% will be hard to go after, BP could face a bit of a problem.

But something tells me that’s still not Beyond Petroleum’s biggest worry: the deals with Rosneft gave it the prospect of actual recognized fossil fuel reserves, something BP, like all western oil behemoths, has far too little of. Exxon, too, has Rosneft deals, as does Norway’s Statoil, both for Arctic drilling projects. Shell, though Sakhalin developement(s), may well be the largest foreign investor in Russia.

At some point Big Oil will need to write down reserves; at some point their shares will fall for real. That sanctions originating in western anti-Putin sentiments may accelerate the process is something that, I’m not even sorry to say it, amuses me.

To get some perspective on the whole story, here are a few principle ideas it is based on. The west – US and EU – tries to squeeze Russia, and Rosneft. The west also – so far – seems to think this would surprise Putin and hurt his plans. Many people for instance claim that he will lose popularity at home if his economy takes a southbound turn.

Me, I’m not so sure. I think Putin must have seen all of this coming from a long time and a long distance away. The US keeps trying to pull him into proxy wars, but he’s not biting (which is why they turn to unsubstantiated claims).

Russian speaking Ukrainians are getting killed by the dozen with western support, and he must detest that. But sending in his troops would be just what the west wants, and it would lead to far more bloodshed. As long as he and his people officially stay on sovereign Russian soil, he’s OK.

As for economic sanctions, Russia is not that vulnerable. While the US tries to break the bond between Russia and Europe, Russia can try the same for the bond between US and EU. What’s more, Putin knows the ‘leadership’ in Brussels is not overly competent, and dreams away in grand visions of power, of an equal partnership with their American friends. Vladimir V. knows the US has no intention of granting Brussels any such power.

The sanctions will eventually lead to either a break between US and EU -because European business interests get hurt too much -, or – more likely for now – it will lead to $200 a barrel oil, huge increases in EU heating costs and a sharp dip in the euro that will make that $200 a lot more still.

Putin’s fine either way. Sell 50% less to Europe at 100% higher prices, why not? Let’s see EU member Slovakia send Russian gas back to Ukraine – or however that reverse flow is supposed to work -. Putin can simply cut overall gas delivery to Europe by 25%, and 50% if they try it again. There’s no love lost between Putin and Europe in the aftermath of the crash and the things that have been said about him.

And I think Vladimir must know how the US feels about this. Washington sees the advantages of making Europe their bitch, pardon my French. With half of the old world in the cold come winter, the US can greatly enhance its influence there. The Americans think that with their domestic shale wealth – they’re wrong, but they think it -, $200 a barrel oil in international markets would suit them just fine for a while.

As I said last week, we have entered the next phase in the energy equals power battle, and we entered it for good. This should be evident from looking at the sanctions and the Yukos case, and the fall-out this will have on western oil companies. You can be a big wig in Brussels and feel nice about yourself negotiating punishments for Vladimir V. Putin, but that doesn’t mean you’re ready to play with the big boys. And from here on in, it’s a big boys game only.

Wall Street Journal Reporter: “The Entire United States Market Has Become One Vast Dark Pool”

Courtesy of Pam Martens.

Citigroup, the Bank the U.S. Taxpayer Saved From Insolvency in 2008, Is Operating a Dizzying Array of Dark Trading Pools Today

Citigroup, the Bank the U.S. Taxpayer Saved From Insolvency in 2008, Is Operating a Dizzying Array of Dark Trading Pools Today

In 2012, Wall Street Journal reporter, Scott Patterson, released his 354-page prescient overview of U.S. market structure titled, Dark Pools: High Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. (For those whose computer prowess is limited to turning on a laptop, like millions of fellow Americans, “A.I.” means artificial intelligence – machines teaching themselves to think like humans, but faster.)

Patterson comes to an epiphany on page 339 of his book, writing in the notes section: “The title of this book doesn’t entirely refer to what is technically known in the financial industry as a ‘dark pool.’ Narrowly defined, dark pool refers to a trading venue that masks buy and sell orders from the public market. Rather, I argue in this book that the entire United States stock market has become one vast dark pool. Orders are hidden in every part of the market. And the complex algorithm AI-based trading systems that control the ebb and flow of the market are cloaked in secrecy. Investors – and our esteemed regulators – are entirely in the dark because the market is dark.” (The italics in this excerpt are as they appear in the hardcover book.)

We totally agree with Patterson that U.S. markets are the darkest they have ever been in history – from their early origins in the bright sunlight under the Buttonwood tree at 68 Wall to today’s secretive, unregulated stock exchanges known as dark pools that trade in private across America – the lights have gone out. And as each light has flickered and dimmed, public confidence has drained from the system, leaving it today as the unsafe battlefield of hedge funds, high frequency traders and dark pool operators.

Wall Street and its sycophants began this journey into darkness with their push to run their own private justice system on Wall Street in the 1980s. Called mandatory arbitration, Wall Street was given a green light by the U.S. Supreme Court in its 1987 decision, Shearson/American Express v. McMahon. Since then, cases filed by both customers and employees against Wall Street firms, which could shed critical light and serve as an early warning system on patterns of fraud and abuses, have been removed from the sunlight of open courtrooms into the dark shadows of a private justice system that claimants believe is rigged against them.

Once able to function as its own judge and jury in a justice system designed by its own Wall Street lawyers, the industry was effectively able to keep many of its crimes shielded from the press for years – until they collapsed in massive losses and brought subpoenas.

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Alan “Ace” Greenberg, Rest In Peace

Courtesy of Larry Doyle.

In early 1990 after 7 fabulous years learning the ins and outs of Wall Street while working at The First Boston Corporation, I departed that venerable firm for the rough around the edges ways of Wall Street that defined Bear Stearns. I had been cautioned by some not to make that move. I am glad that I disregarded that advice.

The relationships and business acumen I gained during my 7 years (1990-1997) at “the Bear” made all the difference in the world during my days in those large Wall Street banks.

As with most organizations, the tone and culture that emanates throughout the company is set at the top. In 1990, Bear Stearns was led by Wall Street legend Alan “Ace” Greenberg. Last Friday I felt a real sadness when I learned of his passing. While I have little regard let alone respect for most of the senior level management on Wall Street, Ace Greenberg was different. I held him in the highest regard and had untold respect for him. Why so? Let me count the ways.

Ace was a winner. He cared. He was ultra-competitive but knew that rules were not meant to be broken.

He was a bridge back to the days of Wall Street partnerships when one’s word actually meant something. While many of Wall Street’s most senior executives would stroll or saunter into their offices that were typically larger than most Manhattan apartments, Ace would spend the bulk of his day firmly entrenched at his desk and meaningfully accessible right there on the trading floor.

He was renowned for writing regular memos that went throughout the firm under his pen name of Haimchinkel Malintz Anaynikal. They were absolutely priceless and filled with a simple but precious wisdom that often got lost on Wall Street amidst the sea of egos and sociopaths that ran large parts of the industry.

His writing was collected into a short book entitled Memos from the Chairman.

His direction that paper clips and elastic bands should never be purchased by anybody within the firm because more than enough of these items could be found and saved from the incoming mail went straight to instilling a real discipline around managing expenses. I loved it.

He also emphasized that any calls or messages should be returned the same day. Very simply, Ace Greenberg took a very human approach in dealing with people. From the shoeshine guy to the executives running the firm, everybody was treated with fairness and respect. How refreshing.

In terms of whom he wanted to entice to come work at the Bear, he often stated he much preferred to attract individuals with a PSD than an MBA. A PSD? Yes, that being the designation for individuals who were “poor”, “smart”, and with a “deep desire to truly get ahead.” I loved it even more. Ace was my kind of guy.

Other recollections I have of Ace include his emphasis on a “trust but verify” system of risk management.

Outside of Wall Street, Ace was legendary for his acumen as a bridge player, a magician, and a true philanthropist. Ace stepped aside from his role as CEO of the firm in the mid-90s. Although every firm goes through a change during a transition, I never thought the company was the same after that. Many believe that the firm lost the humility and discipline embodied by Ace to such a degree that it led to the ultimate demise of the company in 2008.

A few years after Ace was no longer CEO, I departed Bear Stearns. I made a point of stopping by his desk and thanking him. Ever the gentleman, he took the time to inquire where I was going and why I was leaving the firm. We had a brief but meaningful chat after which he sincerely wished me all the best in my future endeavors.

Ace Greenberg was a good man. Wall Street could use more real men like him.

Rest in peace, Ace!!

Ukrainians Ordered to War, Women Burn the Military Writs

Courtesy of Mish.

The war in Ukraine is going so well that soldiers are unpaid and men are ordered to serve whether they want to or not.

Hats off to a group of women who confront a Ukrainian soldier and burn military writs right in front of the soldier’s face.

Writ Burning Video

Video link: Ukrainians Burn Writs


  • Woman to Ukrainian soldier: Who are you?
  • Soldier: I am the head of the local recruiting center.
  • Woman: Why are you bringing military writs?
  • Soldier: It’s an order from above. I can’t explain all the details but you can read about it on the internet
  • Soldier: When did you get the writs?
  • Very disgruntled woman: Yesterday evening.
  • Another Woman: This one we got recently.
  • Soldier: Yes, we’re sending those to put the potential recruits under control.
  • Yet another woman: We don’t need it. We don’t need any war.
  • Multiple women chime in with the same thing at once about not wanting war.
  • Very disgruntled woman: We’ve been told that the police will handle those who refuse to sign the writs for mobilization. What does that mean?
  • Soldier: It’s an official order for total mobilization.
  • Another woman: We’ve been told those fairy tales many times. They told us those who refuse to go to war will go to jail for 5 years.
  • Soldier: I ask you, did we take anyone to war so far?
  • Woman: When you take someone it will be too late to worry.
  • Another woman: We’ve never been on Maidan. We didn’t touch anyone. We don’t need it.
  • Very angry man gesturing: Take your recruit list and make sure no one will be taken to war.
  • Soldier – finally admitting the truth: They will take your sons anyway.
  • Same angry Man: Who will take them?
  • Soldier: The state
  • Same angry man: We don’t give a damn about your country and your war!
  • Large group gathers writs and sets them on fire.
  • Background conversation: mostly untranslated but also containing We are sickened of the authorities.
  • More background conversation: The authorities flee like rats from a sinking ship, but they come here and take our sons and send them to death. They all made the mess and now they need us to clean it up.
  • Fire takes hold
  • Another woman: Those who wanted all this, let them go to war! We never needed this nor Maidan.
  • Cars stop, many more people including more men watch on the periphery.
  • Writs go up in ashes. Many still confront the soldier


Congratulations to all those who told the soldier to go to hell. No better way than burning draft papers and refusing to serve.

Musical Tribute

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Excuse Me For Living

Israel has all the proof it needs that world opinion will never consider its right to exist important. The Obama White House, and a lot of the US News Media, portray the Hamas-Israel conflict as something like an amateur soccer match, with the uneven score (40-odd Israeli soldiers killed versus 1000-plus Palestinians, mostly civilians) showing that the contest is unfair, that Israel has “gone too far,” that they have entered the same moral zone as Hitler, Stalin, and Pol Pot, carrying out a “genocide.”

Of course, this is a real hot war, not a diversity training exercise, or a self-esteem course, or any sort of the kindergarten psychotherapy that has come to form the basis of American thought and policy. And a vicious world opinion uses America’s own moral fecklessness the way Hamas uses women and babies to shield its rocket installations.

Apparently world opinion also doesn’t take seriously Israel’s founding maxim, “never again,” meaning that Israelis will not passively wait for world opinion to save them from an enemy that plainly and clearly seeks to annihilate them, as happened 1933-45. The Hamas organization is explicitly dedicated to the destruction of Israel. That is not a rhetorical gimmick; it is its declared unwavering primary goal.

The claim that Israel seeks to annihilate the Palestinians is simply a lie. Israel seeks to stop rocket attacks and tunnel invasions, and as long as Hamas is dedicated to those actions, they can expect a forceful Israeli reaction. The sealed border of Gaza has been part of that reaction, to counteract the traffic in war materials and the ready supply of suicide bombers who, Hamas declares, “love death more than the Israelis love life.”

The Hamas war leaders are killing their own people to score public relations points. The particulars of the Hamas arsenal embedded among the civilian Gaza population are so firmly established that the facts are hardly worth rehearsing. Anyway, the world doesn’t care about those facts. Israel’s will to exist is an annoyance to it.

Of course, Gaza is just one flash point in an Islamic region much more broadly inflamed in conflict between different Islamic brands and their political subsidiaries. The main reason (unacknowledged) is overpopulation of the region due to short-term wealth from oil. With oil production peaking across North Africa and the Middle East, the world can expect at least a generation of violent conflict over the table-scraps of Modernity. Even the Islamic nations with scant oil reserves have been hugely affected by a half-century of this regional oil wealth. The crack-up in the shadow of this brief historical episode has been easy to anticipate. World opinion is not going to stop it.

By the way, where was world opinion a month ago when ISIS was crucifying and beheading its way out of Syria into central Iraq? World opinion took those horrors in stride because that’s exactly the kind of behavior that world opinion now expects from radical Islamic maniacs.

Israel is a sideshow to all that, really, but one that attracts a lot of attention, with the memory of the Nazi “final solution” lingering on in the atrophying moral organs of what has been loosely called “the West,” where the last great world conflagration played out. It is ridiculous, of course, to compare the lot of the Gaza Palestinians to the Jews of the Warsaw Ghetto. The Jews locked in the Warsaw ghetto were not firing rockets out of it, nor did they ever declare that Germany had no right to exist.

The Palestinians will find justice when they find a leadership that is willing to grant Israel a right to exist and when they stop firing rockets and sending tunnel commandoes into Israel to wreak havoc. If they started with that, they could expect a conversation to begin with Israel over new terms of coexistence. But they have to demonstrate an interest in coexistence. There’s no evidence of that so far. Why this simple equation is not understood by world opinion is an abiding mystery.

On Washington’s Ukrainian Fiasco: “Who Is The Real Problem Here?”

Courtesy of David Stockman via Contra Corner blog

In just 800 words Pat Buchanan exposes the sheer juvenile delinquency embodied in Washington’s current Ukrainian fiasco. He accomplishes this by reminding us of the sober restraint that governed the actions of American Presidents from FDR to Eisenhower, Reagan and Bush I with respect to Eastern Europe during far more perilous times.

In a word, as much as they abhorred the brutal Soviet repression of the Hungarian uprising in 1956, the Prague Spring in 1968 and the solidarity movement in Poland in the early 1980s, among many other such incidents, they did not threaten war for one simple reason: These unfortunate episodes did not further endanger America’s national security. Instead, in different ways each of these Presidents searched for avenues of engagement with the often disagreeable and belligearent leaders of the Soviet Empire because they “felt that America could not remain isolated from the rulers of the world’s largest nation”.

Accordingly, during the entire span from 1933, when FDR recognized the Soviet Union, until 1991, when it ended, the US never once claimed Ukraine’s independence was part of its foreign policy agenda or a vital national security interest. Why in the world, therefore, should we be meddling in the backyard of a far less threatening Russia today?

More importantly, if Ike could invite Khrushchev to tour America and pow-wow with him at Camp David after the suppression of the Hungarian freedom fighters and his bluster over Berlin, what in the world is Obama doing attempting to demonize Putin and make him an international pariah? The fact is, Crimea had been part of Russia for 200 years, and the Donbas had been its Russian-speaking coal, steel and industrial heartland since the time of Stalin.

Putin’s disagreements with the Ukrainian nationalists who took over Kiev during the Washington inspired overthrow of its constitutionally-elected government in February are his legitimate geo-political business, but have nothing to do with our national security. And whatever his considerable faults, Putin is no totalitarian menace even remotely in the same league as his Soviet predecessors. In that regard, Hillary Clinton’s sophomoric comparison of him to Hitler is downright preposterous.

At the heart of the matter is the War Party’s desire to punish Putin for pushing back against American interventionism in Syria, Iran, Iraq and elsewhere in the Middle East. For that Washington has now ensnared itself in an ancient ethnic struggle that has roiled Russia’s borders for centuries; and has landed smack in the middle of an attempt by Kiev’s nationalists to violently maintain the “territorial integrity” of a nation who’s boundaries have been meandering all over the map since the middle ages.

In that context, Senator John McCain’s call to arm the ruffians, opportunists, oligarchs and neo-fascists who took power in a street level coup in Kiev is downright lunatic. It causes Buchanan to ask, “Who is the real problem here?”

The answer is that it’s not Putin, and that conclusion comes from a brilliant partisan scholar of 20th century foreign policy who is no left-wing pacifist.


By Pat Buchanan (via Anti-war)

In 1933, the Holodomor was playing out in Ukraine.

After the “kulaks,” the independent farmers, had been liquidated in the forced collectivization of Soviet agriculture, a genocidal famine was imposed on Ukraine through seizure of her food production.

Estimates of the dead range from two to nine million souls.

Walter Duranty of the New York Times, who called reports of the famine “malignant propaganda,” won a Pulitzer for his mendacity.

In November 1933, during the Holodomor, the greatest liberal of them all, FDR, invited Foreign Minister Maxim Litvinov to receive official U.S. recognition of his master Stalin’s murderous regime.

On August 1, 1991, just four months before Ukraine declared its independence of Russia, George H. W. Bush warned Kiev’s legislature:

“Americans will not support those who seek independence in order to replace a far-off tyranny with a local despotism. They will not aid those who promote a suicidal nationalism based upon ethnic hatred.”

In short, Ukraine’s independence was never part of America’s agenda. From 1933 to 1991, it was never a U.S. vital interest. Bush I was against it.

When then did this issue of whose flag flies over Donetsk or Crimea become so crucial that we would arm Ukrainians to fight Russian-backed rebels and consider giving a NATO war guarantee to Kiev, potentially bringing us to war with a nuclear-armed Russia?

From FDR on, U.S. presidents have felt that America could not remain isolated from the rulers of the world’s largest nation.

Ike invited Khrushchev to tour the USA after he had drowned the Hungarian Revolution in blood. After Khrushchev put missiles in Cuba, JFK was soon calling for a new detente at American University.

Within weeks of Warsaw Pact armies crushing the Prague Spring in August 1968, LBJ was seeking a summit with Premier Alexei Kosygin.

After excoriating Moscow for the downing of KAL 007 in 1983, that old Cold Warrior Ronald Reagan was fishing for a summit meeting.

The point: Every president from FDR through George H. W. Bush, even after collisions with Moscow far more serious than this clash over Ukraine, sought to re-engage the men in the Kremlin.

Whatever we thought of the Soviet dictators who blockaded Berlin, enslaved Eastern Europe, put rockets in Cuba and armed Arabs to attack Israel, Ike, JFK, LBJ, Nixon, Ford, Carter, Reagan and Bush 1 all sought to engage Russia’s rulers.

Avoidance of a catastrophic war demanded engagement.

How then can we explain the clamor of today’s U.S. foreign policy elite to confront, isolate, and cripple Russia, and make of Putin a moral and political leper with whom honorable statesmen can never deal?

What has Putin done to rival the forced famine in Ukraine that starved to death millions, the slaughter of the Hungarian rebels or the Warsaw Pact’s crushing of Czechoslovakia?

In Ukraine, Putin responded to a U.S.-backed coup, which ousted a democratically elected political ally of Russia, with a bloodless seizure of the pro-Russian Crimea where Moscow has berthed its Black Sea fleet since the 18th century. This is routine Big Power geopolitics.

And though Putin put an army on Ukraine’s border, he did not order it to invade or occupy Luhansk or Donetsk. Does this really look like a drive to reassemble either the Russian Empire of the Romanovs or the Soviet Empire of Stalin that reached to the Elbe?

As for the downing of the Malaysian airliner, Putin did not order that. Sen. John Cornyn says U.S. intelligence has not yet provided any “smoking gun” that ties the missile-firing to Russia.

Intel intercepts seem to indicate that Ukrainian rebels thought they had hit an Antonov military transport plane.

Yet, today, the leading foreign policy voice of the Republican Party, Sen. John McCain, calls Obama’s White House “cowardly” for not arming the Ukrainians to fight the Russian-backed separatists.

But suppose Putin responded to the arrival of U.S. weapons in Kiev by occupying Eastern Ukraine. What would we do then?

John Bolton has the answer: Bring Ukraine into NATO.

Translation: The U.S. and NATO should go to war with Russia, if necessary, over Luhansk, Donetsk and Crimea, though no U.S. president has ever thought Ukraine itself was worth a war with Russia.

What motivates Putin seems simple and understandable. He wants the respect due a world power. He sees himself as protector of the Russians left behind in his “near abroad.” He relishes playing Big Power politics. History is full of such men.

He allows U.S. overflights to Afghanistan, cooperates in the P5+1 on Iran, helped us rid Syria of chemical weapons, launches our astronauts into orbit, collaborates in the war on terror and disagrees on Crimea and Syria.

But what motivates those on our side who seek every opportunity to restart the Cold War?

Is it not a desperate desire to appear once again Churchillian, once again heroic, once again relevant, as they saw themselves in the Cold War that ended so long ago?

Who is the real problem here?

Calling All Munitions and Fighter Plane Experts: Is German Pilot Claim “Air-to-Air Attack” Brought Down MH17 Credible?

Courtesy of Mish.

Peter Haisenko, a German aviation expert made a claim yesterday that air-to-air fire brought down MH17.

The above link is to a translated page.

As a lay person, it’s easy to be persuaded by such arguments. Moreover, even if Haisenko is an aviation expert, one has to wonder about his munitions expertise.

I have some questions later, but first let’s take a look at some images and a translation of Haisenko’s thesis.

Haisenko provides this High-Res Image of MH17 Cockpit.

Click on chart for sharper image, or click on the preceding link for an even bigger image.

Haisenko Notes

  • Cockpit shows traces of shelling, clean round hole, about 30 mm caliper.
  • Some holes are bent inward, some outward
  • Rivets bent outward
  • Moreover, small cuts can be seen, all bent outward, which hint at the fact that fragments have penetrated the outer hull from the inside of the cockpit.

Bullet Holes in Shell

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Most Transparent Insider Trading Congress Ever Tells SEC To Shove it

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

"Do as we say, not as we do," appears the modus operandi of the current administration's increasingly totalitarian regime. Today's edition of 'wait, what?' comes from The WSJ who report that The U.S. House of Representatives told a federal court Friday it should dismiss a lawsuit filed by the SEC (regarding the long-running insider-trading investigation) because Congress is lawfully allowed to ignore requests to turn over records and testimony to the executive branch agency. Arguing "sovereign immunity" and responding in a rather snarky (almost "do you know who we are?" manner), House attorneys blasted the SEC's "fool's errand."

As WSJ reports,

The U.S. House of Representatives told a federal court Friday it should dismiss a lawsuit filed by the Securities and Exchange Commission because Congress is lawfully allowed to ignore requests to turn over records and testimony to the executive branch agency.

"Rather than acknowledge the fool's errand on which it has embarked, the SEC instead invites this court to join it by disregarding fundamental limitations on judicial authority," wrote House attorneys in a new court filing.

The SEC filed a lawsuit last month in the U.S. District Court for the Southern District of New York seeking to force House lawyers to turn over documents sought by the agency in a long running insider-trading investigation.

House lawyers largely repeated arguments they made in an earlier motion asking the court to dismiss the SEC case.

They say neither Mr. Sutter nor the committee have done anything improper and argued they are not required to comply with the subpoenas under provisions in the Constitution that shield legislative activity from outside scrutiny.

They also argue "sovereign immunity," which protects the government from legal liability without an explicit waiver, also shields it from a suit filed by a government agency.

*  *  *

And summing it all up:


Marc Chandler: FX and Energy on CNBC Squawk Box

Courtesy of

This Cool Video is a clip from my appearance on CNBC's Squawk Box this morning. I offered a nuanced view, suggesting that while the dollar appears to be at a turning point, unless US yields find better traction, it is difficult to be too bullish on the dollar.  

IMF Warns Pound Overvalued; What About Other Currencies?

Courtesy of Mish.

Is the British pound overvalued? What about the Euro? The US Dollar? The Yen?

Curiously, economists make that case for all of those currencies.

And today, the IMF is pounding the drums with this proclamation “Overvalued” Pound Prevents Rebalancing.

The International Monetary Fund warned on Monday that the pound was “overvalued” and preventing the rebalancing of the economy away from a reliance on spending and imports.

In its annual assessment of the UK economy, the fund said sterling was between 5 and 10 per cent overvalued because of a “lack of competitiveness and limited export diversification”.

“Staff estimates that the current account balance is 2.6 per cent weaker than its equilibrium level, and that the real exchange rate is overvalued by about 5–10 per cent,” the IMF said.

Equilibrium Level Madness

Apparently the IMF is the arbiter of the “equilibrium level” of any and every currency. A few examples will prove the point.

New Zealand Dollar Overvalued by 20%

On April 10, 2014 the IMF warned New Zealand Dollar May Be Overvalued.

Canadian Dollar Overvalued by 10%

On March 2, 2014 the IMF Warned Canadian Dollar Overvalued by 10%” despite recent depreciation, thus the Bank of Canada should wait before hiking rates..

Australian Dollar Overvalued by 10%

Continue Here

Debt Rattle Jul 28 2014: Washington Thinks Americans Are Fools

Courtesy of The Automatic Earth.

Arthur Rothstein Cow at Wabash Farms cooperative, Indiana May 1938

At this point, you may want to consider making it personal. Your government, wherever you are in the west, but especially in the US, takes you for a bunch of fools they can feed anything at all and fully expect you to believe all of it. As for the media who convey government messages, it’s up in the air whether they too take you for a flock of dimwits, or are just plain fools themselves. As for your families, friends and neighbors, you decide.

After failing to present a single shred of evidence in 10 days to substantiate their claims that either the rebels, Russia or all of the above were involved in the downing of MH17, they still haven’t. They did, however, come with something that is as devoid of shame as it is full of disgrace. And the media, surprise, present it as the real deal once again. Which goes to prove that nothing has to be real or true, Washington only has to claim it is.

The latest ‘release’ allegedly proves that Russia is firing missiles into Ukraine across the border. But the country with by far the best satellites and other spy equipment (or should we from now on just say the most expensive?), with which it, on a daily basis, traces every move of millions of people worldwide, in particular its own citizens both home and abroad, hasn’t been able so far to locate one single incriminating piece of ‘evidence’ on its own multi-multi-billion dollar spy networks.

For its first ‘real’ proof it turns to a company called Digital Globe, which apparently has produced a number of satellite pics that the US now uses to show the world that the Russians indeed fire those missiles. Remember the precision bombing footage on CNN in the Gulf War? Think 50 years before that in technology. Think grainy pics you couldn’t make out anything on without the help of ‘useful’ US provided arrows and descriptions of what you see.

If you were a religious person, and one of those helpful arrows and partial blow-ups said “that’s Jesus walking on water there”, you’d probably believe it too. And if you’re of the anti-Putin conviction, you’ll be inclined to take these pics for gospel. But that still does not come anywhere near to constituting evidence.

Now if the US would really want to present these things as evidence to the whole world, in a serious way, they would do one of two things: either have Colin Powell take them to the UN and do a show and tell for the General Assembly (worked like a charm before), or at the least do a multi-hour State Dept. and/or Pentagon press-op, simulcast across all major networks, in which various experts can point long sticks at large blowups of the pics and tell us what we see (Thar walketh the Lord … ).

But that’s not what happened. Instead, the Digital Globe pics were released through, of all places, the Twitter account of Geoffrey Pyatt, the infamous US ambassador in Kiev who rose to fame when word got out that he and Assistant Secretary of State Victoria Nuland had handpicked the next Ukraine government even before the last – and elected – one had gone, after spending $5 billion to make sure the change happened.

Look, I don’t want to keep getting wound up about all this. What use is it? Suffice it to say that if Washington had solid proof of any of the accusations it has made against any of the parties it has made such accusations against, the ‘evidence’ wouldn’t be presented this way. That’s not the MO, and no, the government hasn’t all of a sudden gone all modern; things presented this way are simply much easier to dismiss when push comes to shove. That’s why they are.

Most accusations against Russia, Putin and the east Ukraine rebels since MH17 crashed 10 days ago have been made – and then easily refuted -through social media accounts located somewhere in Kiev, many through Kiev government accounts, and now Geoffrey Pyatt. This whole set-up stinks five ways into Tuesday.

One more thing: there is another implication of the release of the Digital Globe pics, namely that they make it even less probable that we’ll ever see any evidence that the rebels downed the plane. Unless Digital Globe has pictures of that too. The US government does not, or it would have already made it public. Then again, it has no need to: whatever it says is swallowed up whole by the faithful regardless of how likely its ‘reports’ are to be true.

The Dutch, Australian and Malaysian forensic experts who have been sent in to work on the crash site to save what is left of the bodies and dignity of the victims whose remains haven’t yet been found, cannot enter the area, because the Ukraine army happened to have elected the past weekend to start a new offensive against the rebels. Ostensibly to clear the crash site for the experts, but they would have had full access already without the offensive.

Rebel leader Borodai says the army went in to ‘evade exposure’ (i.e. hide evidence) of its culpability in the crash, and I’m wondering how far off he could possibly be.

And that brings up yet another question: who commands the Ukraine army? The latest offensive began after former PM Yatsenyuk resigned, and just yesterday Ukraine president Poroshenko told journalists – again – that he had ordered to stop combat operations in a 40-kilometer zone around the crash site (the latest attacks take place much closer than that). If it’s not the government or the president ordering the latest attacks, the ones that make truth finding impossible, then who is it?

Does Poroshenko lie through his teeth or is something else going on? The country’s bankrupt. It has used large swaths of its IMF loans to fund its army, it has proposed conscription for all men under 50 years old, soldiers are fleeing to Russia because they don‘t want to shoot their own countrymen, but attacks with bombers and tanks on cities filled with civilians are intensified.

I still haven’t seen one single western leader call for an immediate cessation of all attacks on both sides, so the dead can be properly and respectfully buried. Not one. Not even the Dutch PM. And I think that should tell you all you need to know about what the true priorities are that ‘we’ have. Respect is a fleeting term.

Not that it’s only in matters related to Ukraine that Washington fully and arrogantly expects you to take for granted anything it says. Libya is going down the drain as we speak, and weren’t we just there recently? Israel is once again shooting fish in a barrel in the Gaza strip (and I know it’s not black and white), and “we” are not just outside observers there either. The blood-smeared ISIS campaign in Iraq can’t even make the headlines anymore, but “we” obviously have something to explain about our recent involvement there too.

“America” and “peace initiative” are two terms that are getting ever harder to fit into one sentence. And somehow, no matter how naive it may sound, that still feels like a giant betrayal of what the nation once stood for.

America doesn’t want peace, because peace doesn’t rhyme with power.

Meanwhile, at home, whenever you see someone anyone talk about ‘recovery’, you now know they’re full of it. The Russell Sage Foundation issued a 2-page report that makes clear ‘recovery’ is about the worst possible and least applicable term to use to describe what is happening in the US economy.

Households at the “median point in the wealth distribution – the level at which there are an equal number of households whose worth is higher and lower”, saw their wealth plummet -36% from 2003 to 2013. From the highest point, in 2007, to 2013 the number is -43%.

Five years after 2008 and Lehman, five years into the alleged recovery, which raised US federal, Federal Reserve, and hence taxpayer, obligations by $10-$15 trillion or more, US median household wealth was down -36% from 2003. And that’s by no means the worst of it:

If you look at the 5th and 25th percentile ‘wealth’ numbers (much of it negative), you see that they went down from 2003 to 2007, while the median was still rising. For both, wealth in the 2003-2013 timeframe deteriorated by some -200% (or two-thirds, if you will). -$9,479 to -$27,416 for the poorest 5%, $10.219 to $3,2000 for the lowest 25%.

This is how Washington defines recovery. Just in case you were wondering.

But they’re going to talk about it again, you just wait for it, just like they’re going to continue to blame Putin and the rebels for everything that goes wrong in Ukraine. They’re not going to stop until they have control over Russia’s resources, no matter what the body count, and they’re not going to stop until most Americans are de facto debt slaves.

And Uncle Sam counts on you! To swallow it all hook line and sinker. It works like a charm to date.

And That’s a GOOD Thing??

Courtesy of John Rubino.

The past year has seen a long list of “XYZ is at its highest level since XXX” announcements. Some notable examples:

NASDAQ tech stocks are back to 1999 levels

The number of initial public offereings, including companies with no earnings, is back to 1999 levels

Junk bond yields are even lower than in 2007

Junk bond issuance is higher than in 2007

Margin debt is back to 2007 levels

Corporate debt is rising faster than in 2007

Stock prices are higher than in 2007

Most recently, US mergers and acquisition activity is back to 2007 levels:

What the M&A surge says about the stock market

NEW YORK (MarketWatch) — Merger Monday is now often followed by Merger Tuesday, and investors are cheering a long-awaited resurgence in corporate mergers and acquisitions. But is the pickup something for market bulls to celebrate, or does it herald the end of the rally?

“You worry a little bit that M&A activity tends to pick up as the market matures, and not in the early stages of a bull cycle,” said Mitch Schlesinger, managing director at FBB Capital Partners in Bethesda, Md.

The pickup doesn’t necessarily signal the end of the recovery or of the bull market, but “you do want to put it in the context of a fairly slower-growth environment where people are either buying growth, or they are consolidating industries because of slow growth,” he said, in a phone interview.

Topping $1 trillion
There have been 5,844 targeted U.S. M&A transactions in the year-to-date valued at $1.04 trillion (see chart above), according to Dealogic. This marks the first year deal volume has topped $1 trillion over that period since 2007. Volume over the same stretch last year totaled $597.8 billion.

Big-time first-half deals include AT&T’s agreement to purchase satellite-television provider DirecTV and Medtronic’s pact to purchase fellow medical-equipment maker Covidien for $43 billion.

While surging M&A activity can belie nervousness over the growth environment, it also reflects diminishing unease over potential economic and political pitfalls.

“Everyone we talk to is looking forward, not behind. We’re two more years beyond the ‘08-’09 recession. Not that people have forgotten about it, but they’re more concerned about growth targets than they are about another [round of] financial instability,” said Robert Rubino, head of corporate finance and capital markets at RBS Citizens in Boston, in a phone interview.

Some of the links included here are to articles that, like MarketWatch on M&A, take a cautious approach to such records. But the vast bulk of the reporting in the mainstream media is positive, celebrating the new records as a sign of economic progress without asking the obvious question: “If we’re at 1999 or 2007 levels, what subsequently happened back then?” In each and every case noted here, the answer is “chaos.” Overstretched markets and excessive debt led to crises that nearly crippled the global financial system.

This time the milestones are a combination of 1999 and 2007, which implies a more-broad-based financial bubble than occurred in either of those previous periods.

At the risk of repeating the same tired complaint, if the media’s job is to sense patterns and give today’s news some historical context, you’d think the tone of most reporting would be, rather than “Yippee, we’re growing,” “Ooops, here we go again.”

Visit John’s Dollar Collapse blog here >

Time to Put a New Economic Tool in the Box

Thoughts from the Frontline: Time to Put a New Economic Tool in the Box

By John Mauldin

[E]conomists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude – an attitude which, as I defined it some thirty years ago, “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.

– Friedrich Hayek, from the introduction to his Nobel Prize acceptance speech in 1974

Last week we took a deep dive into how the concept of GDP (gross domestic product) came about. We looked at some of the controversies surrounding GDP statistics that we use to measure the growth of the economy, and we noted that the GDP tool seems designed to reflect and serve an economic theory (Keynesianism) that prefers to focus on the demand side of economic activity. If your measurement of the growth of the economy is entirely defined by final consumption (that is, consumer spending) and government spending, then if you want to try to improve growth you are left with just two policy dials to adjust:

  1. How do we increase consumption?
  2. How much government spending should there be to stimulate growth when the economy is in a recession?

But what if there are other ways to measure the economy? Might those other measurement tools suggest a different set of policies and methods to help the economy grow? Indeed, I noted last week that the one thing – besides science fiction – that Paul Krugman and I agree on is that we need more growth. (There are actually some economists out there who don’t agree with that assessment. Go figure.)

As it happens, Mr. Krugman stumbled upon my post and wrote the following under the heading “The Horror, the Horror”:

I happened to click on this John Mauldin post, in which he informs us that GDP is a Keynesian plot, and that without it Hayek would of course have won the macroeconomic debate. Oh, kay – but that’s not the horror. It’s this:

“We have now made the Newt Gingrich and Niall Ferguson Strategic Investment Conference videos available. … This week, we are happy to provide even more material from this incredibly informative event. Newt Gingrich and Niall Ferguson were the two highest rated presenters at a conference packed with some of the finest economic and investment minds in the world.”

Oh, boy.

Well, we did feature two of Paul K’s least favorite people at the conference. (His debates with Niall are classic.) I don’t know why, but I started reading the comments to Paul’s piece from readers, some of which were quite thoughtful and showed that commenters had actually read my letter. To those who found me from that link, let me point out that we also had at the conference my good friend, über-Keynesian Paul McCulley, who, along with two or three of the other speakers, was more than capable of defending the Keynesian position. Paul has been a featured speaker at our conference for over 10 years, but I am quite sure there are many people who wonder why we would include him. As I have always maintained in this letter and in my Outside the Box letter, I think it is important to consider and try to appreciate all positions. In fact, I even featured Mr. Krugman himself in Outside the Box, back in 2009.

(At the end of this letter I offer a link to let you see our conference speeches and judge the various positions for yourself.)

All that being said, Mr. Krugman, I don’t think GDP as it is measured today is a Keynesian plot. GDP is a valuable measurement tool, if you understand what is being measured and all those asterisks with caveats that attend any such measure. But as we will see in this week’s letter, there are other ways to measure GDP that would suggest additional policy dials for spurring economic growth.

Say’s Law Makes a Comeback

Actually, the debate on what constitutes an economy goes back much further than Keynes and Hayek. The debate was well recounted in an essay by economist Steve Hanke, a professor of applied economics at Johns Hopkins University. Let’s quote a few paragraphs:

The Classical School of economics prevailed roughly from Adam Smith’s Wealth of Nations time (1776) to the mid-19th century. It focused on the supply side of the economy. Production was the wellspring of prosperity.

The French economist J.-B. Say (1767-1832) was a highly regarded member of the Classical School. To this day, he is best known for Say’s Law of markets. In the popular lexicon – courtesy of John Maynard Keynes – this law simply states that “supply creates its own demand.” But, according to Steven Kates, one of the world’s leading experts on Say, Keynes’ rendition of Say’s Law distorts its true meaning and leaves its main message on the cutting room floor.

Say’s message was clear: a demand failure could not cause an economic slump. This message was accepted by virtually every major economist, prior to the publication of Keynes’ General Theory in 1936. So, before the General Theory, even though most economists thought business cycles were in the cards, demand failure was not listed as one of the causes of an economic downturn.

All this was overturned by Keynes. Kates argues convincingly that Keynes had to set Say up as a sort of straw man so that he could remove Say’s ideas from the economists’ discourse and the public’s thinking. Keynes had to do this because his entire theory was based on the analysis of demand failure, and his prescription for putting life back into aggregate demand – namely, a fiscal stimulus [read: lower taxes and/or higher government spending].”

The BEA Introduces Gross Output

So what other tool than GDP might we use? Conveniently, on this very day, July 25, 2014, the Bureau of Economic Analysis begins to publish a quarterly statistic called “gross output.” A good part of the reasoning behind this new statistic and the impetus to produce it comes from a book published in 1990 by my friend of 30 years Dr. Mark Skousen. The book was titled The Structure of Production, and in it Skousen forcefully argued that production rather than demand should be the basis for analyzing the strength of an economy. No less an authority on productivity than Peter F. Drucker commented in a review at the time, “The next economics will have to be centered on supply and the factors of production rather than being functions of demand. I've read Mark Skousen’s book twice, and it comes the closest to achieving this goal.”

Gross output (GO) measures the total output of an economy, including investments made by businesses in order to produce their goods, such as capital outlays on new equipment, raw materials, or other business-to-business transactions. In Structure, Skousen makes the case that modern economists downplay the importance of the business sector in the economy and overstate the importance of consumer spending. He believes that the GDP should not be used as the sole measure of economic activity.

Let’s go to the lead editorial by Mark that was published in the Wall Street Journal just a few months ago:

Why pay attention to gross output? For starters, research I published in 1990 shows it does a better job of measuring total economic activity. GDP is a useful measure of a country's standard of living and economic growth. But its focus on final output omits intermediate production and as a result creates much mischief in our understanding of how the economy works.

In particular, it has led to the misguided Keynesian notion that consumer and government spending drive the economy rather than saving, business investment, technology and entrepreneurship. GDP data at the end of 2013 put consumer spending first in importance (68% of GDP), followed by government expenditures (18%), and business investment third (16%). Net exports (-2%) makes up the difference.

Thus journalists and many economic analysts report that “consumer spending drives the economy.” And they focus on retail spending or consumer confidence as the critical factors in driving the economy and stock market. There is an underlying anti-saving mentality in this analysis, as evidenced by statements frequently made during debates on tax cuts or tax rebates that if consumers save their tax refund instead of spending it, it will do no good for the economy. Presidents including George W. Bush and Barack Obama have echoed this sentiment when they encouraged consumers to spend rather than save and invest their tax refunds.

Although consumer spending accounts for about 70% of GDP, if you use gross output as a broader measure of total sales or spending, it represents less than 40% of the economy. The reality is that business outlays – adding capital investment and all business spending in intermediate stages of the supply chain – are substantially larger than consumer spending in the economy. They make up more than 50% of economic activity.

Going back to my more visual “dials” metaphor, when you look at gross output you see that it gives us an additional and much larger dial for stimulating growth than simply trying to increase consumer spending. The real driver of the economy, as measured by gross output, is not consumer spending but private production and business spending. And indeed, we find that that is where the jobs are, and they are far higher-paying jobs than in the retail sector, which is where final consumption resides.

Let’s look at a few graphs my associate Worth Wray created for me today using the new data provided by the Bureau of Economic Analysis. You can see the actual data here. We will come back to the BEA’s tables in a little bit, as there are some fascinating insights to be gleaned about the US economy.

This first graph compares seasonally adjusted GDP and GO. Notice how much more sensitive gross output was to the 2009 Great Recession. Also note that measuring by gross output we find that the US economy is about $30 trillion in total production and transactions, roughly twice the amount measured by GDP.

We might as well address one of the objections to gross output here. It seemingly “double counts” transactions to produce a final number. And there is no question that it does. But that is not the point. To ignore all of the business activity that it takes to create a product that goes into retail consumption misses the primary driver of employment and wealth creation. All along the production chain, each business adds value to what eventually becomes the final product. 

I would not argue that gross output should be the primary tool in the economic measuring box. But neither should GDP. Just like a screwdriver and a hammer, they both have their uses.

Next, let’s compare growth rates of GDP and GO for the last eight years. Notice that these numbers are not adjusted for inflation, so you see the massive falloff in production during the 2009 Great Recession. We use nominal GDP here so that we can have an apples-to-apples comparison. One other thing to note is that GO did not fall in the first quarter of 2014, although GDP did. This goes a long way toward explaining why we saw positive improvement in the employment numbers even when the economy had seemingly fallen into the doldrums if not a quarterly recession.

GO also acted as a leading indicator, at least this one time, of the Great Recession. GO might also suggest that we are not in a recession today. (Please note that this instance doesn’t prove anything, as there are only two data points, and we would need many more to actually establish a semi-predictive relationship. But it has piqued my interest.)

Just for the record, here is what US GO growth versus real GDP growth looks like. You can see the negative real GDP trend clearly in 2011, but again on that occasion a recession was not confirmed by gross output.

Finally, I was curious to see the relationship between the unemployment rate, GDP, and GO. We can clearly see unemployment rising dramatically during the recession (note the inverted scale on the right-hand axis) and then gradually falling along with the solid growth shown in the gross output statistic, in spite of very weak post-recession GDP numbers (in what should have been a recovery).

We also see that GO is significantly more sensitive than GDP is to the business cycle.  During the 2008-09 recession, nominal GDP fell only 2% (due largely to countercyclical increases in government spending), but GO collapsed by over 7%, and intermediate inputs fell by 10%.  Since 2009, nominal GDP has increased 3-4% a year, but GO has climbed more than 5% a year.

Steve Hanke’s essay on Keynes and Say (excerpted above) concludes with an enthusiastic endorsement of the new BEA gross output statistic and what it will mean for economic analysis. I personally think it will take a good long while for the statistic to work its way into the mainstream, but this is a start, and it’s a good one. Let’s rewind the tape to Steve:

But, when it comes to the public and the debate about public policies, there is nothing quite like official data. So, until now, demand-side GDP data produced by the government has dominated the discourse. With GO, GDP’s monopoly will be broken as the U.S. government will provide official data on the supply side of the economy and its structure. GO data will complement, not replace, traditional GDP data. That said, GO data will improve our understanding of the business cycle and also improve the quality of the economic policy discourse.

So, what makes up the conventional measure of GDP and the new GO measure? And what makes up the gross domestic expenditures (GDE) measure, a more comprehensive, close cousin of GO? The accompanying two tables answer those questions. And for readers who are more visually inclined, bar charts for the two new metrics – GO and GDE – are presented.

[I apologize for the fuzziness of the next two charts – they were this way in the original. –JM]

These changes are big – not only conceptually but also numerically. Indeed, in 2013 GO was 76.4% larger than GDP, and GDE was 120.4% larger. Why? Because GDP measures only the value of all final goods and services in the economy. GDP ignores all the intermediate steps required to produce GDP. GO corrects for most of those omissions. GDE goes even further, and is more comprehensive than GO.

Even though the always-clever Keynes temporarily buried J.-B. Say, the great Say is back. With that, the relative importance of consumption and government expenditures withers away (see the accompanying bar charts). And, yes, the alleged importance of fiscal policy withers away, too.

Contrary to what the standard textbooks have taught us and what the pundits repeat ad nauseam, consumption is not the big elephant in the room. The elephant is business expenditures.

Time to Put a New Economic Tool in the Box


To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

Tool Box picture source: Pixabay.

The Case For A Bull Or Bear Market In Two Charts

Courtesy of Charles Hugh-Smith of OfTwoMinds blog,

Which appears more likely–a straight-line extension of the past two years' rise in stocks, or another "impossible" decline to complete the megaphone pattern?

There are dozens of charts and data points supporting the case for a continuation of the Bull market in stocks or a reversal into a Bear market. For the sake of brevity I've distilled the two arguments into two charts, one for the Bull case and one for the Bear case.

The Bull case is easy: the economy has reached self-sustaining expansion, a.k.a. escape velocity; hotel occupancy rates are high, home valuations are rising, stocks are fairly valued based on forward earnings, debt has been paid down/written off, and the Fed has tapered its quantitative easing (QE) bond and mortgage buying with no ill effect.

Looking ahead, there is no fundamental or technical reason for stocks to drop significantly; stocks always go up in years ending in 5, and there is nothing magical about 2016 in terms of a decline, either. The market could advance for years.

Bottom line: the advance since early 2012 is founded on solid fundamentals and there's no reason the advance can't continue along with strengthening fundamentals such as corporate profits, rising tax revenues, etc.

The Bear case is based on sentiment, but this reliance on extremes of bullish sentiment is misplaced; the fact that everyone is talking about a bubble in stocks and expecting a correction just goes to show there is no bubble and a correction will simply offer another opportunity to buy the dip, a strategy that has been richly rewarded.

The Fed (and other central banks) have our back: any decline in risk assets will be washed away with another tsunami of near-zero-interest money, liquidity and credit.



The Bear Case is also simple: the supposedly solid fundamentals of earnings, stock buybacks, etc. are all based on an unprecedented expansion of debt, central bank monetary easing, leverage and systemic risk.

Finance trumps economic data, and financial risk has reached a tipping point:shadow banking is unraveling in China, the Fed already owns most of the new home mortgages that have been issued and has to taper lest it own the entire mortgage/Treasury markets, junk bonds have been bid to the moon, etc.

Debt, leverage and risk have reached bubble heights, and simple cause and effect means the stock market has also reached bubble heights.

Faith in the central banks' ability and willingness to push stock markets higher has reached extremes. Volatility and complacency have both reached levels that historically correspond to major highs.

Take away massive buybacks funded by cheap credit and the market's dependence on financial one-offs will be revealed: the Bull market was never about earnings; it was always about cheap credit, central banks pushing investors into risk assets like stocks and corporate buybacks. Bulls claiming hotel bookings, auto sales and profits are "proof" of a self-sustaining economy are looking at the effects, not the causes.


To understand the cycle of credit addiction, please read Are We Addicted to Failure?

Bulls and Bears alike tend to marry their convictions. As we all know, the human mind is uncomfortable with uncertainty, and so once a person chooses the Bull case, recency bias and confirmation bias kick in and the Bull selects recent data that confirms his conviction.

The same tropism toward certainty takes hold of Bears, and those of us without the conviction of marriage watch from the sidelines.

I have long been skeptical of the Bull case based on the unprecedented scale of central bank/state intervention, support and manipulation. If everything's so great, then why does the Fed need to buy trillions of dollars in assets and manipulate markets with reverse repos, etc. and direct purchases via proxies? If a market only rises as a result of such outlandish one-off intervention, how can anyone claim it has any fundamental foundation?

Which appears more likely–a straight-line extension of the past two years' rise in stocks, or another "impossible" decline to complete the megaphone pattern? If stocks continue climbing once the Fed ends its bond-buying in and stock buybacks drop to less frenzied levels, that will be evidence the Bulls are right about the economy's escape velocity.

If the market tanks as soon as the monetary heroin is withdrawn, that will support the Bear's case that financial legerdemain trumps economic data.

Two things favor the Bear case in my view: if volume is the weapon of the Bull (i.e. rising volume drives Bull markets), then the fact that volume has been declining for years is not supportive of the Bulls.

Secondly, I don't see how the economy can reach escape velocity with household income declining in real terms: Five Decades of Middle Class Wages (Doug Short).

Wall Street’s Regulators Sell Out on Illegal Wash Sales

Pam Martens writes about the illegal practice of wash sales, which is essentially one entity being on both sides of a trade and manipulating (e.g., pumping up) prices with trades to itself.  This practice allows entities, such as Citigroup, to artificially inflate stock prices (or prices of derivatives or other trading vehicles) by creating fake demand using algorithms run on different in-house trading desks.

In effect, the prior rules prohibiting wash sales have been obliterated and are no longer enforced as originally intended to prevent market rigging. The intentional, re-designed definitions create a "loophole" larger than the rules themselves and permit trading desks belonging to the same entity to trade with each other. 


Bart Chilton, Former CFTC Commissioner, Speaks Out on "Voluminous" Amount of Wash Sales

Bart Chilton, Former CFTC Commissioner, Speaks Out on “Voluminous” Amount of Wash Sales, March 18, 2013

Wall Street's Regulators Sell Out on Illegal Wash Sales

By Pam Martens

Wash sales – one of the most virulent forms of stock manipulation that bankrupted banks and corporate conglomerates in the Great Depression and intensified the stock market crash of 1929 to 1932 – has reached scandalous proportions in today’s markets. The response from regulators? Gut the rules that make it a crime.

On March 18 of last year, Bart Chilton, then a Commissioner at the Commodity Futures Trading Commission (CFTC), stunned CNBC viewers with the announcement that wash sales were rampant in the futures markets. Speaking to Squawk Box host, Joe Kernen, Chilton stated:

“Well these wash sales, Joe, people know they’re illegal; they’re not allowed. A wash sale is when somebody trades with themselves. But what we’ve discovered is that they are going on at this large, voluminous level. I mean, to me, a shocking level. And they’re impacting what people see as volume. So this is an area that we’re going to review to ensure that markets are operating efficiently and effectively. Who knows what sort of impact they’re having. And it raises a host of policy questions that we have out there, because this stuff just shouldn’t be allowed.”

Volume is hardly the only problem with wash sales: the age old tactic of a wash sale is to pump a stock’s price so insiders can bail out at the top and transfer the losses of a worthless or inflated security to uninformed investors. This is done by the same party conducting or authorizing simultaneous buying and selling in the stock, typically making sure trades occur at ever rising prices until the operators have unloaded their stock. Without that support, the price crashes.

Laws making it illegal for one party to be on both the buy and sell sides of a stock transaction were implemented during the legislative reforms of Wall Street in the 1930s. They have had legal certainty for the past 80 years until this May 1 when Wall Street’s coddling, captured regulators, the Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA), gutted the wash sale rules beyond recognition – even changing the name of the illegal practice from “wash sale” to the benign “self trade.”


Eighty years of sound, prudent securities law has now been wiped out as Congress seems to muddle about in a daze. The pool operators of the 1930s have been reincarnated today in the form of Wall Street’s dark pools. The protections of the depression-era Glass-Steagall Act which barred the Wall Street speculators from getting ownership of insured deposit banks to gamble in stocks and derivatives – wiped away with the passage of the Gramm-Leach-Bliley Act in 1999.  Now rampant wash sales have been given a less onerous name and a green light by the top securities cop – a cop that today is staffed with Wall Street’s favorite former lawyers.

(my emphasis)

Read Pam's full article here

Libya Warns Oil-Fire Is “Out Of Control” – What 1.5 Million Gallons Of Burning Gasoline Looks Like

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

UPDATE: Caught on tape… A second fuel tank in the Libyan capital Tripoli has caught fire, which Libya's National Oil Company has described as "out of control".


A dark cloud hangs over Tripoli today… but this time it's physical not metaphorical. As NBC reports, a rocket hit a fuel storage tank containing 1.5 million gallons of gasoline, triggering a major blaze as rival brigades of former rebels fought for control of Tripoli's main airport. A huge cloud of black smoke billowed across the capital's skyline as the blaze burned "out of control," and firefighters had withdrawn from the area.




And cooling the natural gas tanks…

No BBC Video Removal Scandal After All; Evidence of Military Planes Shadowing MH17 Mounts

Courtesy of Mish.

On July 23 the BBC deleted a video report from correspondent Olga Ivishina regarding the crash of MH17. This has caused quite a stir in the blogosphere because the deleted video contained eyewitness reports of military aircraft flying on the same day, shadowing Mh17.

Here is the deleted video from cache: (go here) 

Global Research Canada has some interesting translation clips in Deleted BBC Report. “Ukrainian Fighter Jet Shot Down MHI7″, Donetsk Eyewitnesses.

BBC's Initial Response

I found dozens of references to the removal, but to find BBC's reason for removing the video, I had to search the BBC website. It's in Russian.

Jan Leder, managing editor of Russian BBC Service explains Why Bi-bi-si Material Removed From Site.

Video Reposted

My initial reaction was that Leder's response was disingenuous.

However, the BBC has since re-posted the video.

Reader Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian, went over the original and now re-posted videos and it appears the BBC was telling the truth all along.


Continue Here


3 reasons Yellen’s FOMC remains dovish

3 reasons Yellen's FOMC remains dovish

Courtesy of Sober Look

What makes Janet Yellen and a number of other FOMC members so dovish with respect to monetary policy and in particular the trajectory of rate normalization? A Credit Suisse report sites 3 key factors, which Yellen calls  “unusual  headwinds":

1. Tighter fiscal policy.

The combination of lower government spending and tax increases has created a drag on economic growth (see chart). This drag is now diminishing, but given the tepid recovery Yellen still views it as a headwind.

2. Relatively tight credit in the mortgage market.

Janet Yellen: – " … it is difficult for any homeowner who doesn't have pristine credit these days to get a mortgage. I think that is one of the factors that is causing the housing recovery to be slow. It’s not the only one, but I would agree with that assessment."

A recent study by Goldman compared current lending conditions in the mortgage market with the 2000 – 2002 period (supposedly "pre-bubble" period). The results indeed seem to point to tighter lending standards at this time (see chart).

3. Low household wage growth expectations.

While US wages have been growing at around 2% per year, expectations for growth remain depressed.

Yellen (see House testimony video below): – " … households have unusually depressed expectations about their own future income gains. And I think weighs on their feelings about their own household finances and is holding back consumer spending." 

Source: Credit Suisse

Ukraine’s Army Advances; Unguided Rockets Kill Civilians; Demise of Rebels?

Courtesy of Mish.

There are lots of conflicting, even contradictory news reports regarding Ukraine in the past couple of days. Let's take a look at a few of them starting with the Bloomberg report Ukraine Army Advances as EU Plans Tougher Putin Sanctions.

Ukraine’s army advanced on a last main separatist stronghold as the U.S. said Russian President Vladimir Putin is poised to give the rebels heavy weapons and European Union leaders considered their toughest sanctions yet on Russia.

Ukrainian troops are battling insurgents in the town of Horlivka, about 20 kilometers (12 miles) northeast of the regional capital Donetsk, a city of 1 million people where rebels retreated after abandoning other positions earlier this month. Taking Horlivka would open the way to attack one of their last redoubts, Ukrainian Defense Ministry spokesman Andriy Lysenko said yesterday in Kiev.

“Fighting to take over Horlivka is going on,” he told journalists. “Donetsk will be next.” CNN reported that long lines of cars jammed roads leading south from the city yesterday as residents tried to flee.

Ukraine’s State Security Service, or SBU, posted what it said was an intercepted plea for help made by Alexander Borodai, head of the self-proclaimed Donetsk People’s Republic, to a Russian it identified as Alexei Chesnokov.

“If nothing changes in terms of military activity, the situation will not be held for more than two weeks,” a voice that the SBU said is Borodai’s says in the intercepted call it posted yesterday on its YouTube page.

YouTube Page

Chesnokov cited a YouTube page in a voice that allegedly matches Borodai’s.

OK. Let's see the video. If you are going to post an allegation citing a YouTube that purportedly "sounds" like Borodai, why not link to it?

So why doesn't Bloomberg ask for it?

Civilians Flee Horlivka

In regards to Civilian fleeing Horlivka and other war zones. I don't doubt it.

Bloomberg cites CNN, but Bloomberg's link is to a totally useless Bloomberg discussion page called, not anything useful on CNN, not even a discussion of the civilian flight….

Continue Here


The US Phillips Curve

The US Phillips Curve

Courtesy of Sober Look
We've received some questions about the so-called Phillips curve – the relationship between inflation and unemployment. While there are a number of ways to look at the Phillips curve, the services inflation measures are more suitable than the broader price indices in order to assess the relationship. That's because goods inflation in the US can be driven by global trends, while services tend to be more US-specific.

Furthermore, rather than using the headline unemployment rate ("U-3") it is more appropriate to use the "U-5" measure which captures a broader group of unemployed or marginally employed workers. U-5 is defined as "total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force."

10 years of data (orange = current levels)

“Place to Avoid” – French Blogger Fined $2,000 for Writing Bad Restaurant Review

Courtesy of Mish.

Want to review a French restaurant? Only good reviews are allowed in France.

Caroline Doudet a blogger who runs the site “Cultur’elle,” found that out when she wrote a restaurant review that the French court said “ranked too high a in Google search” (as if any writer can know in advance how many times a blog will be read, or what its ranking will be).

Link to Cached Review of “Place to Avoid”

Doudet was ordered to change the title of her blog and pay a fine. Instead she took it down.

However, a cached version is still available, and I bet it gets even more hits now that the courts have piqued everyone’s interest.

Cached English translation: The place to avoid the Cap-Ferret: Il Giardino.

Neither the headline nor the article appears unreasonably inflammatory.

Doudet’s main charge is exceptionally poor service. It took numerous complaints to three sets of servers for Doudet to get drinks and an appetizer before her main course arrived.

$2,000 Fine

For her writeup, French Blogger Fined $2,000 for Restaurant Review, Too Prominent on Google.

A blogger eats in an Italian restaurant in southwestern France. She thinks the food is bad, the service even worse, and she writes up a review that is not glowing, to put it mildly.

It’s a scenario that plays out daily in the cyberworld. Hair in a dish of pasta? Many would snap a photo and share it on Twitter or Facebook. An insufferable waiter? Blog it out….

Continue Here

Coffee, Tea Or P53

Patrick Cox calls coffee a "health food," and the single most important food item available at the grocery store. Throw in a steak (protein) and who needs anything else? Okay, fiber. We need that. Coffee, steak, vegetable… maybe a beer. 

Coffee, Tea Or P53 

Courtesy of Patrick Cox of Transformational Technology Alert

Serious historians have proposed that the introduction of coffee into the Western diet contributed significantly to both the Enlightenment and its offshoot, the American Revolution. The idea is not such a stretch.

Given the lack of modern water purification and plumbing technologies, beer was routinely consumed in Great Britain in the 1700s to prevent water-borne diseases. Though alcohol at the concentrations common in beer may not always kill pathogens, it does keep them from growing in beer that has been boiled during the brewing process.

When coffee came onto the British scene in the 1500s, it provided a popular and alternative way to take water safely. As with tea, pathogens were killed during the brewing process. Coffee, however, is often viewed as the disreputable cousin of tea, which is widely regarded as healthful. Coffee usually has higher caffeine levels and that difference may have quite profound implications.

In those days, coffee was much more expensive and few people had experience brewing the stuff. Coffeehouses sprang up in response, but they didn’t normally sell individual cups. Rather, they charged an entry fee, after which java flowed freely. The result was that hyperactive groups of coffee drinkers began to pop up in place of semi-sedated beer drinkers.

Students and merchants found these establishments pleasant places to study, do business, and talk. Lacking Wi-Fi connections, merchants who tracked current events and their impact on business would announce major news to the entire assemblage. Naturally, a lot of discussions turned to politics and philosophy. Arguments took place and movements were born.

Just as contemporary politicians would like to regulate political speech, especially on the Internet, British royalty took a dim view of the free and often antiauthoritarian ideas associated with coffee and coffeehouses. In 1675, “A proclamation for the suppression of coffee-houses” was issued by King Charles II.

The justifications were helpfully included in the proclamation.

Whereas it is most apparent, that the Multitude of Coffee-Houses of late years set up and kept within this Kingdom, the Dominion of Wales, and the Town of Berwick upon Tweed, and the great resort of idle and disaffected persons to them, have produced very evil and dangerous effects; as well for that many Tradesmen and others, do therein mis-spend much of their time, which might and probably would otherwise be imployed in and about their Lawful Callings and Affairs; but also, for that in such Houses, and by occasion of the meetings of such persons therein, diverse False, Malitious and Scandalous Reports are devised and spread abroad, to the Defamation of His Majesties Government, and to the Disturbance of the Peace and Quiet of the Realm …

Many efforts all over the world have been made to stamp out the demon bean. Though such efforts have failed, coffee is part of our lives and our culture.

Edward Lloyd opened his coffeehouse “The Angel” in 1650. The Oxford hangout of merchants and shippers eventually morphed into Lloyd’s of London, the best-known insurance company in the world. In Scotland, the tenets of the Enlightenment were worked out in coffeehouses where works by Adam Smith and Spinoza were passed around.

Daniel Webster called the Boston coffeehouse, Green Dragon Tavern, “headquarters of the Revolution.” Open from 1697 to 1832, it played a role in the birth of America and was frequented by the likes of John Adams, James Otis, and Paul Revere who met there to conspire. The New York Stock Exchange and the Bank of New York were first coffeehouses.

Still, coffee is regularly maligned, usually from some sort of health perspective. I frequently hear people say they’ve cut out coffee for health reasons.

My reaction is bafflement. When asked about such an insane self-flagellation, most of these decaffeinated martyrs express some vague sort of belief that coffee just must be bad for us. After all, it makes you alert and happy. Happier, at least.

Coffee is health food. It is the primary source of antioxidants in the American diet and I consider it the single-most important food item available in most grocery stores. I wasted a lot of time, while writing this piece, trying to come up with some theory that explains the practice of forming extreme opinions about diet and health with no consideration of actual evidence. While this has always been the case, we live in an age that gives us instant access to the peer-reviewed literature via Google Scholar. There’s no excuse.

The man who influenced my views about coffee most was Mark A. Smith, PhD, professor of Pathology at Case Western Reserve University. Smith was tragically killed by a drunk driver a few years ago, but his impact remains. He served on the editorial board of over 200 journals including Science Translational Medicine, the Journal of Neurochemistry,and the American Journal of Pathology. He was director of Basic Science Research at the University Memory and Aging Center and editor-in-chief of the Journal of Alzheimer’s Disease.

We weren’t close friends, but he was always available to generously answer my questions and talk about the things he thought were important. One of those things was the efficacy of coffee as a disease preventative and life-extension agent.

Scientists of his standing are famously reticent to speak the plain truth, but Smith was surprisingly frank in his endorsement of coffee. More importantly, as editor-in-chief of the Journal of Alzheimer’s Disease, he published a special journal issue titled “Therapeutic Opportunities for Caffeine in Alzheimer’s Disease and Other Neurodegenerative Disorders.”

While the JAD is an important and expensive journal, he made the issue free to encourage dissemination of the actual information about caffeine, coffee, and related subjects. I think that I’ve forwarded the link to this issue, published May 6, 2010, more than any other link. It’s a remarkable issue and I’ve downloaded all 22 articles just in case the new management ever decides to change access policy.

At the very least, you should read these excerpts from the preface.

Although caffeine is the most widely consumed psychoactive drug worldwide, its potential beneficial effect for maintenance of proper brain functioning has only recently begun to be adequately appreciated. This has mainly resulted from the convergence of conclusions from epidemiological studies and from fundamental research in animal models. Epidemiological studies first revealed an inverse association between the chronic consumption of caffeine and the incidence of Parkinson’s disease; this was paralleled by animal studies of Parkinson’s disease showing that caffeine prevented motor deficits as well as neurodegeneration. Later a few epidemiological studies showed that the consumption of moderate amounts of caffeine was inversely associated with the cognitive decline associated with aging as well as the incidence of Alzheimer’s disease. Again, this was paralleled by animal studies showing that chronic caffeine administration prevented memory deterioration and neurodegeneration in animal models of aging and of Alzheimer’s disease.

Also, from the preface,

Caffeine seems particularly effective to normalize rather than bolstering memory performance and is a candidate disease-modifying agent for Alzheimer’s disease, based on its neuroprotective profile and its ability to reduce amyloid-beta production. Although an inverse relationship between caffeine consumption and neurodegenerative disorders appeared compelling, it was consensual that several methodological issues must be solved before advancing to decisive clinical trials.

Because caffeine is a naturally occurring substance, and therefore can’t be patented, it’s unlikely that anyone will invest the many millions of dollars necessary to get it through the FDA’s drug approval process. Moreover, others have shown that it is difficult to replicate the benefits of coffee using therapeutic caffeine.

The abstract for the chapter titled “Caffeine and Coffee as Therapeutics Against Alzheimer’s Disease“ contains these remarkable words.

Caffeine appears to provide its disease-modifying effects through multiple mechanisms, including a direct reduction of A-beta production through suppression of both beta- and gamma-secretase levels. These results indicate a surprising ability of moderate caffeine intake (the human equivalent of 500 mg caffeine or 5 cups of coffee per day) to protect against or treat AD in a mouse model for the disease and a therapeutic potential for caffeine against AD in humans.

Notice the term “disease-modifying” that means mechanisms of Alzheimer’s are reversed. There is a $6 billion market today for Alzheimer’s drugs that are not disease-modifying. You will hear shortly, however, about a breakthrough drug candidate currently in clinical trials that I believe is disease-modifying.

The chapter titled, “Caffeine, Diabetes, Cognition, and Dementia“ discusses evidence that coffee protect against type 2 diabetes. In fact, there is evidence that coffee protects against other important diseases, including liver and heart diseases, though they are not the focus of theJournal of Alzheimer’s Disease. Incidentally, several articles compare coffee versus caffeine or tea consumption. In some cases, there was no real difference in outcomes. In other cases, however, the combination of the coffee bean and the attendant caffeine seemed particularly effective.

In large part, the JAD issue focused on the need for further research to illuminate how coffee and caffeine work. Since then, however, there’s been really interesting progress.

In particular, I’d like to point out this article, “Caffeine Induces Apoptosis by Enhancement of Autophagy via PI3K/Akt/mTOR/p70S6K Inhibition.” This is not an easy read, but the authors document the role of caffeine in autophagy. Autophagy, as the term implies, is “self eating.” While this may not seem a pleasant process, autophagy is a critical part of cell function. When something in a cell is worn out or flawed, through age or injury, it needs to be consumed and, if possible, recycled.

Obviously, autophagy is related to apoptosis or cell suicide. Once again, it may seem counterintuitive, but cell suicide is our friend. A mutated cell, for example, needs to die and be replaced. Cells that lose the ability to commit apoptosis and die can go on replicating and become cancers.

Apoptosis is a function of the “guardian angel gene,” p53, the master regulator of genomic repair or suicide. All cancers either shut down the p53 gene or block its pathway. Caffeine is a known activator of p53, which may explain some of the health benefits associated with coffee and tea.

As the abstract for this paper in the Journal of Cancer Research states, “The same low concentration of caffeine that was effective for inducing phosphorylation of p53 was also shown to increase p53 activation.”

Moreover, there’s been recent interest in the life-extending benefits, in animals at least, of clearing out senescent or worn-out cells. We don’t know if the same longevity benefits will accrue to humans, but there’s some reason to believe that some of caffeine’s benefits come from its newly discovered ability to increase autophagy.

Autophagy is also a response to calorie restriction, which is the only proven life-extension strategy thus far. Even in primate studies, calorie restriction with optimal nutrition (CRON) produces health benefits.

Of course, CRON also makes most people incredibly and permanently hungry, which means that there will probably never be any real long-term human studies. There are people who can cut calorie intake to the bare minimum for life, but they are rare. This is why indications that caffeine is a p53 activator are great news.

Fortunately, it is not the only way to induce the effects of CRON without actually being hungry (and probably irritable). Several mitochondrial enhancers seem to replicate the winter or calorie-restricted states in animals and this is one of the hottest areas in academic research right now. Based on pretty compelling data, I’m taking one of these compounds, which I’ll get to another time. It increasingly appears, however, that the optimal way to take a mitochondrial-enhancing compound may be with your morning coffee.

One last thing; some people can drink a lot of coffee and some cannot, due to differences in our genomes. I’ve had my genome analyzed by some of the best scientists in this area so I know that I have none of the genotypes that are known to cause adverse reactions to caffeine. This may not be true for you. My wife can only drink moderate levels of coffee before it interferes with her sleep.

I’d like to tell you to talk to your geneticist, but that probably won’t be practical for a year or two while a company I’ve written about inTransformational Technology Alert escalates their operations. In the meantime, use discretion based on your own experiences and talk to your doctor if he/she is keeping up with the literature.


Patrick Cox

From the TransTech Digest research team: To learn the name of the company covered in Transformational Technology Alert that has a p53-activating drug candidate in development, click here to begin a risk-free trial to Patrick’s elite-level research advisory.

To begin reading Patrick’s TransTech Digest newsletter for free each business day, simply click here. At Patrick’sTransformational Technologies site, you can join Tech Digest by entering your email address at the top right of the page. Thanks for reading.

Picture of coffee by LoboStudioHamburg at Pixabay.

You Can’t Taper a Ponzi Scheme: Time to Reboot

You Can’t Taper a Ponzi Scheme: Time to Reboot

One thing to be said for the women now heading the Federal Reserve and the IMF: compared to some of their predecessors, they are refreshingly honest. The Wall Street Journal reported on July 2nd:

Two of the world’s most powerful women of finance sat down for a lengthy discussion Wednesday on the future of monetary policy in a post-crisis world: U.S. Federal Reserve Chairwoman Janet Yellen and International Monetary Fund Managing Director Christine Lagarde. Before a veritable who’s-who in international economics packing the IMF’s largest conference hall, the two covered all the hottest topics in debate among the world’s central bankers, financiers and economists.

Among those hot topics was the runaway shadow banking system, defined byInvestopedia as “The financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions.” Examples given include hedge funds, derivatives and credit default swaps.

Conventional banks also engage in “shadow banking.” One way is by using their cash cushion as collateral in the repo market, where they can borrow to invest in the stock market and other speculative ventures. As explained by Bill Frezza in a January 2013 Huffington Post article titled “Too-Big-To-Fail Banks Gamble With Bernanke Bucks”:

If you think [the cash cushion from excess deposits] makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these “banks” to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.

Addressing the ticking time bomb of the shadow banking system, here is what two of the world’s most powerful women had to say:

MS. LAGARDE: . . . You’ve beautifully demonstrated the efforts that have been undertaken . . . in terms of the universe that you have under your jurisdiction. But this universe . . . has generated the creation of parallel universes. And . . . with the toolbox with all the attributes that you have — what can you do about the shadow banking at large? . . .

MS. YELLEN: So I think you’re pointing to something that is an enormous challenge. And we simply have to expect that when we draw regulatory boundaries and supervise intensely within them, that there is the prospect that activities will move outside those boundaries and we won’t be able to detect them. And if we can, we won’t be — we won’t have adequate regulatory tools. And that is going to be a huge challenge to which I don’t have a great answer.

Limited to her tools, there probably is no great answer. All the king’s horses and all the king’s men could not rein in the growth of the shadow banking system, despite the 828-page Dodd-Frank Act. Instead, the derivatives pyramid has continued to explode under its watch, to a notional value now estimated to be as high as $2 quadrillion.

At one time, manipulating interest rates was the Fed’s stock in trade for managing the money supply; but that tool too has lost its cutting edge. Rates are now at zero, as low as they can go – unless they go negative, meaning the bank charges the depositor interest rather than the reverse. That desperate idea is actually being discussed. Meanwhile, rates are unlikely to be raised any time soon. On July 23rd, Bloomberg reported that the Fed could keep rates at zero through 2015.

One reason rates are unlikely to be raised is that they would make the interest tab on the burgeoning federal debt something taxpayers could not support. According to the Treasury’s website, taxpayers pay about $400 billion a year in interest on the federal debt, just as they did in 2006 — although the debt has nearly doubled, from $9 trillion to over $16 trillion.  The total interest is kept low by extremely low interest rates.

Worse, raising interest rates could implode the monster derivatives scheme. Michael Snyder observes that the biggest banks have written over $400 trillion in interest rate derivatives contracts, betting that interest rates will not shoot up. If they do, it will be the equivalent of an insurance company writing trillions of dollars in life insurance contracts and having all the insureds die at once. The banks would quickly become insolvent. And it will be our deposits that get confiscated to recapitalize them, under the new “bail in” scheme approved by Janet Yellen as one of the Fed’s more promising tools (called “resolution planning” in Fed-speak).

As Max Keiser observes, “You can’t taper a Ponzi scheme.” You can only turn off the tap and let it collapse, or watch the parasite consume its food source and perish of its own accord.

Collapse or Metamorphosis?

The question being hotly debated in the blogosphere is, “What then?”  Will economies collapse globally? Will life as we know it be a thing of the past?

Not likely, argues John Michael Greer in a March 2014 article called “American Delusionalism, or Why History Matters.” If history is any indication, governments will simply, once again, change the rules.

In fact, the rules of money and banking have changed every 20 or 30 years for the past three centuries, in an ongoing trial-and-error experiment in evolving a financial system, and an ongoing battle over whose interests it will serve. To present that timeline in full will take another article, but in a nutshell we have gone from precious metal coins, to government-issued paper scrip, to privately-issued banknotes, to checkbook money, to gold-backed Federal Reserve Notes, to unbacked Federal Reserve Notes, to the “near money” created by the shadow banking system. Money has evolved from being “stored” in the form of a physical commodity, to paper representations of value, to computer bits storing information about credits and debits.

The rules have been changed before and can be changed again. Depressions, credit crises and financial collapse are not acts of God but are induced by mechanical flaws or corruption in the financial system. Credit may stop flowing, but the workers, materials and markets are still there. The system just needs a reboot.

Hopefully the next program that gets run will last more than 20 or 30 years. Ideally, we might mimic the ancient Mesopotamians, the oldest and most long-lasting civilization in history, and devise an economic system that lasts for millennia. How they did it, along with some other promising models, will be the subject of another article. For more on this, see The Public Bank Solution.

About Those Derivatives

How to kill the derivatives cancer without killing the patient? Without presuming to have more insight into that question than the head of the Fed or the IMF, I will just list some promising suggestions from a variety of experts in the field (explored in more depth in my earlier article here):

  • Eliminate the superpriority granted to derivatives in the 2005 Bankruptcy Reform Act, the highly favorable protective legislation that has allowed the derivatives bubble to mushroom.
  • Restore the Glass-Steagall Act separating depository banking from investment banking.
  • Break up the giant derivatives banks.
  • Alternatively, nationalize the too-big-to-fail banks.
  • Make derivatives illegal and unwind them by netting them out, declaring them null and void.
  • Impose a financial transactions tax on Wall Street trading.
  • To protect the deposits of citizens and local governments, establish postal savings banks and state-owned banks on the model of the Bank of North Dakota, the only state to completely escape the 2008 banking crisis.

These alternatives are all viable possibilities. Our financial leaders, in conjunction with our political leaders, have continually re-created the web of money and credit that knits our economy together. But they have often taken only their own interests and those of the wealthiest citizens into account, not those of the general public. It is up to us to educate ourselves about money and banking, and to demand a system that is accountable to the people and serves our long-term interests.


Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200+ blog articles are at

Market Shadows Update (9-26-14)

We updated the Virtual Value Portfolio spreadsheet here and the Virtual Put-Selling Portfolio spreadsheet here. 

NOTE: The Virtual Put Selling Portfolio will be closed. We will either allow puts to expire or buy them back.

Stock World Weekly is a weekly newsletter from Phil’s Stock World. Free Trial hereThe newsletter reviews last week’s market moves and next week’s events. Read the latest issue: 9-21-2014 SWW PDF.

Please contact me to let me know what you would be interested in seeing on Market Shadows in the future. ~ Ilene