Archives for December 2014

The Year in Five Narratives

Courtesy of The Automatic Earth.


John Vachon Auto of migrant fruit worker at gas station, Sturgeon Bay, Wisconsin Jul 1940

Let’s see, how do we close this year in a proper manner? I already wrote that 2014 for me has been The Year Propaganda Came Of Age. Likewise, looking forward, I said that The Biggest Economic Story Going Into 2015 Is Not Oil. Moreover, I talked about things that need to be done next year in Things To Do In 2015 When You’re Not Yet Dead.

So what else is left? I thought I’d make a list of narratives that painted the past year, and look at what’s real about them versus what we’re being told they are about. Nothing comprehensive about them, mind you, just train of thought.

Ukraine/Crimea/Putin

The Crimeans voted to join Russia: not an option. Everybody but the Crimeans and Russians declared the vote illegal. East Ukraine held a referendum: not an option. Everybody but the East Ukrainians and Russians declared the vote illegal. The ‘logic’ is the only people who can hold a legal referendum in East Ukraine are the very ones who send in their armies to kill them.

But the US/EU-led ouster of an elected president, and the replacement of his government with one led by a US handpicked PM, narrowly voted in by a parliament at the time replete with guns and at best shady elements, that’s democracy, AD 2014. Throw in a billionaire Willy Wonka who, true, did get elected as president, though the legal status of that election should be under scrutiny given that East Ukraine did not, could not, participate in electing its own leader.

One of the very first things Willy Wonkoshenko did was order his Swastika-toting storm troops to go and kill more East Ukrainians, whose ‘official’ president he had just become (and they did). This all happened under US/EU command (Ukraine itself couldn’t fund a brassband, let alone an army).

Which makes me think, that’s not that far removed from for instance imagining that Washington sends its army into Texas or West Virginia with a licence to kill. But who over there have stood up for East Ukraine? None that I’m aware of. Other than Ron Paul, a proud Texan himself. You guys could have really gotten under Obama’s skin on that, but you never did. What a missed chance, right wing America! Too far away? Too close? Here you got these people whose only goal it is not to be subdued by Washington, and who get shot to bits because of it, and you don’t recognize yourselves in that image?

The west didn’t leave Putin any other option than to assimilate Crimea – and he did it through elections! -; it was clear all along to all involved that Russia would never let go of its only warm water port. It had nothing to do at any point with anything close to a majority of Ukrainians wanting to be ‘free’, but with the west – NATO – wanting to encroach on Russia’s borders, despite specific agreements stemming from the early 1990s not to do that. Putin is not the aggressor in this narrative, we are.

EU

2014 was almost quiet in Europe, apart from the Ukraine narrative, compared to the last few years. Well, that’s not going to last. We’re going to have a Greek election January 25, and an epic three weeks of mud-slinging and fear-mongering prior to that date. It’ll be something to behold, at least from a safe distance. For the Greek people, it won’t feel like much fun.

The European Union consists of democracies – however flawed and corrupt they may be -, but it is not itself a democracy. And that increasingly reflects back – in a very negative way – on the original democracies that founded the doomed edifice in the first place. Everyone gets infected by the virus eventually.

The EU, and the eurozone, will fail and fall apart at some point. The longer it takes, the worse it will be for the people. The EU deserves to fail for the same reasons other supra-national organizations do, like NATO, World Bank, IMF etc.: they’re all inherently undemocratic. They have no reason to listen to what people want. The same can by now well be said for the US, by the way.

The reason these organizations will start to fail now is that economies have begun to fail. It’s as simple as that. I first quoted Yeats years ago on this, but it’s still as fitting as can be: The Centre Cannot Hold. Not when the economy falls to bits. All the smart boys will call it protectionism, in very derogatory tones, but that’s what happens when economies and empires fail: people must manage to take care of themselves in smaller units.

The good thing is, people are very good at that. The bad thing, is emperors and other power hungry ‘leaders’ don’t take kindly to being made redundant. But it has to be done regardless. So let Greece lead the way. It wouldn’t be the first time. Brussels has been nothing but disaster to southern Europe. The European Union is dead and must be dissolved, and its place be taken by a form of cooperation that doesn’t suffocate entire nations. There’s no simpler or clearer way of putting it.

OPEC and oil prices

I know where it’s coming from, but I still look with a childish kind of amazement at all the pundits who declare OPEC, and Saudi Arabia first, responsible for what happens to oil prices. If only OPEC would cut production … what? like they did 30-40 years ago?! It’s a different world, kiddos. Why not demand the US cut production, or Canada? The rationale behind that is energy independence and all that, isn’t it?

But the reality behind that, in turn, is that global oil demand is dropping much faster than producers anticipated, while supply – temporarily – outpaces expectations because of unconventional oil. But, you know, if you fill your media to the brim with false reports about US growth and China growth day after day, what can you expect? The recent sudden drop in oil prices was a long time coming, and only held back by the QE related global central bank money drops.

We’ve seen lipsticked pigs for years now, and we think they’re born that way. They’re not, But it’s still very blind to say OPEC caused the drop in prices. I found a nice take on this at RT, where they interview Margaret Bogenrief at ACM partners, who says:

I think what is most interesting, and you are seeing this really with a lot of countries throughout the Middle East, is the genie has kind of been let out of the bottle. I mean, in Saudi Arabia its oil prices, in other countries like Iraq it’s the dissolution of the previous government. I don’t know if there is a lot that Saudi Arabia can do in 2015 to really take care of its citizenry and to prevent the unrest that you see is growing there. If you look at its population, it’s predominantly male, young and unemployed.

And I don’t know if there is a lot that they can do to keep that under control. [..] I think social unrest in Saudi Arabia is going to be a significant issue in 2015 and beyond. What I think is most interesting is that if you look at the 2014 economic numbers, oil accounted for something like 89% of the country’s revenue. That’s a very singular economy. And if you look at this economic disparity combined with that so focused on that resource, you are going to see some significant issues in 2015 and beyond.

[..] the US has really worked under the Bush and Obama Administrations to increase domestic oil production. That has sent a signal to the world market that the US is really looking not to be as competitive as Saudi Arabia, but certainly to be involved and try to control that a little bit more. Secondly, it’s also just a demographic issue. Saudi Arabia is facing a demographic reality that it has not had to face for decades. The combination of those two things along with the US fracking and trying to get more involved in the energy sector, that’s really combining to costs and issues.

If you look at fracking, I actually think that fracking is not as significant when it comes to actual oil production. I think it’s a better message tool than it’s an actual production tool. What Saudi Arabia is realizing, you certainly saw it in the budget, is that suddenly it doesn’t have complete control over the pricing and manufacturing of oil. That’s really causing some issues. In the budget for 2015 oil was priced to be $80 a barrel. Honestly, that’s wishful thinking.

If you look at Saudi Arabia it’s going to impact Saudi Arabia far more than other Middle Eastern countries. I know Iran is facing some potential sanction issues in 2015; the US is debating whether or not to lift sanctions. That’s not necessarily energy related but I do think you are going to see some significant changes there too.

Not like it’s a brilliant take, but it’s much better than just about any I’ve seen. The Saudis don’t control the price of oil anymore, and they know it – ahead of anyone else, it seems – . They’ve been running budget deficits for a while, and they’ve just seen their revenues halved. And then some 10,000 dimwit western journalists write that they should cut production, while shale oil in the US must keep growing. And then today the Saudi King was hospitalized today as well?

The House of Fahd is not having an easy time of it. They’re all on quaaludes by now. And then Bloomberg reports about a maze in the export ban laws that allow for more US light crude exports. What a brilliant idea. Export into an overloaded market, and let your own actions behead your own industry.

North Korea

Yeah, that daft film that now allegedly stands for freedom, artistic or otherwise, and that Obama apparently had to lean into. Chances that North Korea was involved into hacking the Japanese firm that financed it and sort of released it are by now slim to none, no matter what the FBI said. This is what America stands for these days. A mere narrative. Next up: the rape and murder of Obama’s daughters, Prince George and Vladimir Putin. All very funny and artistically free.

The US dollar and global currencies, stocks and bonds

As we speak, the euro has passed the $1.21 barrier. When the new year starts, it will sink below that, unless crazy measures are taken by someone, anyone. And stock markets are not going to remain anywhere near their present highs with commodities falling the way they are; too much ‘money’ is being lost along the way. It’s known as debt deflation.

Yes, the greenback had a good run in 2014:

 

 




 

 

But there’s much more to come. And not because ‘investors like the US’ so much, or because the American economy actually grows at a 5% clip. The real reason is, as I explained in The Biggest Economic Story Going Into 2015 Is Not Oil, that emerging economies are being pulled through a wringer, and all the cheaply borrowed dollars they kept appearances up with are dripping right back into the mothership, i.e. the US.

How happy should this make us? Well, how happy should we be about poverty in Greece, Spain, Brazil and all these other nations to begin with? Do you feel it’s a good idea for us to get richer off of the backs and the misery of other people? If you say yes, it’s clean sailing for a while longer. If you don’t, what are you going to do about it?

If you live in a western country, no matter which one, that’s how your political candidates can promise to keep you rich for a bit. By making people elsewhere poorer, and by making your own children even worse off. There are no other ways left to keep up the facade we live in today. There’s no economic growth, there are no new energy sources, the only thing left to do is borrow from the future. And yeah, I know that seems to work up to the present.

But the price of oil should be a warning sign to you. If oil falls the way it does over a significant amount of time, and other commodities do too, it’s just a matter of time until stocks and bonds start bombing merrily along. And that’s even before the Fed raises its key rates, ‘guided’ by numbers like that 5% US GDP growth in Q3.

This is going to be a crazy year. We’ve said it many times before, but here you go again: volatility will reign the day, in ways we haven’t seen in many years. And the volatility will drive us downward. Not up. Nerves will guide decisions. And losses. Losses that will pressure economies, first of all Japan and Europe, into ever deeper deflationary territory. The central bank fairy tale will not last another 12 months. But the US dollar will be fine. Because it’ll be ‘nurtured’ by the demise of emerging markets.

What we, fortunate citizens of this earth, in the twilight of our civilization, should do in my humble view, is not to enrich ourselves as much as we can, but to ‘minimize the suffering of the herd’, as any shepherd should. I saw this Telegraph headline today, “Goodbye To One Of The Best Years In History”, and I thought, if that’s what you see when you look around, if you’re in Britain and you don’t see that fast and vast increase in poverty on your own doorstep, then what can I say? Hats off? Or heads off?

See ya in da New Year!

Bluff of the Day: Germany Warns “Greece is No Longer of Systemic Importance For the Euro”

Courtesy of Mish.

In the obvious bluff of the day, Euro zone No Longer Obliged to Rescue Greece, Merkel Ally Says.

Actually, the eurozone was never obliged to rescue Greece, and in fact did not rescue Greece. Rather the EU and Troika rescued European banks holding Greek bonds.

Here’s the actual bluff.

In an interview with Rheinische Post newspaper published on Wednesday, Michael Fuchs also said Greek politicians could not now “blackmail” their partners in the currency bloc.

“If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece,” he said.

The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the euro.”

Blackmail Potential

Curiously, there was little potential for blackmail years past when Greece ran a primary account deficit (Greece needed money from Europe to stay afloat), but now Greece has a tiny current account surplus (not counting interest payments).

Countries with current account surpluses are not dependent on foreigners to finance debt. This makes it all the more likely Greece can tell the Troika “go to hell”.

Of course, Tsipras has made all kinds of pledges that would kill the surplus if carried out, but since when do politicians keep promises?

More than likely a default would wreck the Greece economy, but so does interest on €245 billion in “bailouts” for years if not decades to come. Tsipras may easily decide he has nothing to lose.

Ironically, if his economic proposals were better, Greece would indeed have everything to gain and nothing to lose by cramming this straight down the EU’s throat.

Eurozone Financial Stability Contribution Weights

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Scenes From a (Suddenly) Nude Beach

Courtesy of John Rubino.

Warren Buffett’s classic observation that “You only see who’s swimming naked when the tide goes out” is being tossed around more frequently these days, as the world gets yet another deflation scare. Zero Hedge just published a great piece on this topic, which should be read in its entirety. In the meantime here’s a summary of the story with a few added bits.

Let’s begin with the common sense premise that overly-easy money sends a false-positive signal to market participants, leading them to buy and build things that maybe shouldn’t be bought or built. Then, when money goes back to a more reasonable price, the bad decisions (malinvestment in economist-speak) are revealed and financial turmoil ensues.

Today’s situation has its roots in the 1980s, when the developed world got too lazy to live within its means and started borrowing way too much money. It then tried to inflate away its debts by creating a tidal wave of new currency and pushing interest rates down to unnaturally low levels. Flush with extra cash and cheap credit, consumers (especially in the US) bought huge amounts of imported junk. This in turn led China — the main producer of said junk — to go on an infrastructure/factory building spree of epic proportions, which shifted into hyper-drive after the 2008 crash. Chinese demand for industrial materials like copper, iron ore, and oil soared, pushing their prices far above historical averages.

This in turn led miners and drillers to mine and drill on an unprecedented scale, which caused the supply of industrial materials to surge. The flashiest case in point is the US shale oil boom, which sent domestic oil production back to levels not seen since Texas’ blockbuster oil fields were young.

But it was all a money illusion, and every part of this process has recently hit a wall. Consumers refuse to go more deeply into debt to buy non-necessities, even when money is nearly free. Faced with lower demand and poor cash flow from the past decade’s overbuilding, China has tapped the brakes on its infrastructure build-out. The US is trying to stop monetizing its debt, which has sent the dollar through the roof on foreign exchange markets, thus making life even harder for about half the world’s population.

As a result of the above, demand for basic materials is returning to normal levels, which, in the face of inflated supply, is tanking prices across the commodity complex.

In other words the tide has gone out, leaving a whole beach full of naked (and unfortunately not very attractive) bodies. Specifically:

Shale oil junk bonds. Back when oil was over $100 a barrel, everybody wanted to lend to drillers, especially in the exotic (and as it turns out fatally-flawed) shale oil sector. $170 billion of energy-related junk bonds are now outstanding, and they are tanking along with the price of oil.

Oil junk bonds 2014

Emerging market economies. These countries and their major companies have accumulated about $6 trillion of dollar-denominated debt, and with the dollar up more than 10% in the past year, the aggregate losses on those loans could exceed half a trillion dollars. Suddenly, the emerging market miracle looks disturbingly like the Asian Contagion that nearly brought down the 1990s global economy.

Mining/drilling firms. These guys ramped up in response to soaring oil, copper, iron ore, gold, and silver prices. Now many of them are earning less per unit of product than it costs to mine/drill it. Massive bankruptcies and consolidations are coming. One dot-comish sign of things to come is Civeo, which provides living quarters for workers pouring into oil fields and mines in Canada, Australia, and the US. With people pouring out instead of into these suddenly non-viable fields, the company’s services are no longer required.

Civeo 2014

The Texas economy. Texans are cool. But a big source of their cockiness vis-a-vis the rest of the country was due to the fact that the price of their main export — oil — was at historically high levels. Now that it’s not anymore, the Texas economy — like those of Brazil and Russia, is falling back to earth. JP Morgan Chase predicts a recession in 2015.

The US economy. It turns out that most of the full-time jobs gained in the past five years have come from the energy sector. Otherwise, it’s been part-time secretarial/fast food/temp work that no one actually wants and in any event can’t support a family. Reverse out the oil patch jobs and the $10 or so trillion it took to engineer the “recovery” will look like just another piece of money-illusion malinvestment.

Anyhow, that’s just a sampling of the badly-maintained bods suddenly on display. Most are now running for cover, which is an amusing sight for anyone not directly affected by their problems. Trouble is, it’s hard not to be affected by energy, debt and deflation.

Visit John's Dollar Collapse blog here >

Mining picture via Pixabay. 

 

Clips from Today’s Halftime Report

First videos: moving out of strong performers and betting on "catch-up" with small caps and European stocks. Sixth video down: Gerald Storch's thoughts on the retail space. Joshua Brown discusses how he's investing in energy in the second to last video. The last video is about what insiders are buying and selling in the energy sector. 

Clips from Today’s Halftime Report

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2015 Housing Trends: Will The Echo Bubble Continue Expanding?

Courtesy of Charles Hugh Smith Of Two Minds

Considering the reality that only the top 5% have benefited from the policies of the past six years, it's difficult to see how the Echo Bubble can continue expanding in 2015.

After two years of bubble-type price increases, the big question for housing in 2015 is: will the Echo Bubble continue expanding, or will it follow its 2002-2007 sibling's epic bubble pop and decline? To answer the question, we first need to identify the key trends that have enabled the expansion of the Echo Bubble.

There are three key dynamics underpinning housing's Echo Bubble.
  1. The unprecedented intervention of the Federal Reserve to push mortgage rates to historic lows.Nothing fancy here; lower rates serve two purposes central to the policies of central banks everywhere: they enable marginal buyers to qualify to buy homes, and they boost prices higher.
  2. The post-2008 slump in housing construction and the demand for rental housing pushed inventory down and demand up. This led to a classic imbalance of supply and demand: as demand by investors and overseas buyers rose, inventory fell. Prices naturally skyrocketed in areas with tight inventory and high demand.
  3. The end of the Fed's monetary easing/money-printing devastated the periphery emerging-market economies, forcing capital to flee to safe havens such as U.S. real estate. As China and the emerging economies that had boomed as Fed money poured into their economies rolled over, those who had accumulated fortunes rushed to transfer their wealth (often ill-gotten) into safe havens such as the U.S.
The goal wasn't just to transfer capital, but safeguard the families' physical safety; buying a house with cash is the ideal solution. This dynamic has fueled a vast all-cash housing trade in areas favored by foreign capital: New York, Miami, Los Angeles, San Francisco, Vancouver, etc.
 
The question then boils down to: are these trends likely to continue or fade? To answer that, we have to refer to a fourth dynamic, one that undermines the entire Echo Bubble: the erosion of household income.
 
How can housing prices keep rising as household income continues declining in real terms?
 
The Fed and federal housing agencies have reversed the natural downward pressure on demand and prices by making mortgages incredibly cheap and reducing the down payment requirements. This enables marginal buyers to qualify, but the previous housing bubble revealed that enabling marginal buyers to qualify for mortgages triggers a time-bomb of defaults: last ones on, first ones off.
 
Marginal buyers are the first to default when lay-offs, divorces, medical crises, etc. arise, as they inevitably do.
 
Here is a chart of per capita income. This broad measure of income doesn't reflect the enormous skew in household income to the top 5%–a reality that is thoroughly covered by Doug Short in Household Incomes Across Time: The Divergence at the Top 5%. In effect, most of the gains in income and wealth over the past decade have flowed to the top 5%, leaving the bottom 95% with stagnant income and net worth.
 
Let's consider each of the three trends that have pushed prices higher.
 
Mortgage rates: it's difficult to see how rates can decline much further, as they are already near-zero in real (inflation-adjusted) terms. there is precious little incentive for lenders to accept the risk of default for near-zero returns.
 
The Federal housing agencies appear to have recognized this limit, which is why they're pushing near-zero down payment loans again.
 
Inventory. Courtesy of Market Daily Briefing, here is a chart of inventory and the Case-Shiller house price index. Inventory plummeted in the past few years, and remains low.
Cash sales/mortgage credit. This chart of mortgage credit growth and the Case-Shiller house price index shows that mortgage credit has lagged the explosive rise in price, suggesting much of the price appreciation has been driven not by Americans buying homes to live in, but foreign buyers and domestic investors paying cash.
Is there any limit on the number of foreign buyers with hot money to launder by buying U.S. houses? That's an unknown with multiple variables. The imposition of capital controls in periphery economies could trigger a tsunami of hot money seeking safe haven. But once that wave breaks, the flow of hot money could subside.
 
We might also ask: is there any limit on demand for rental housing? Investors flocked into housing in the great chase for yield in a zero-interest rate economy, but the sharp rise in rents in many areas may be reaching limits on what households can afford to pay.
 
We see a hint of slackening demand in this chart of home sales, which tend to lead price. As sales decline and inventory slowly rises, prices tend to follow.
Will the Echo Bubble continue expanding in 2015? Let's answer with another set of questions: is a housing market that is dependent on marginal buyers who would never qualify to buy a house with prudent risk management a sustainable market? Is a housing market that is dependent on hot money from overseas buying houses for cash a sustainable market? Is a housing market that is dependent on investors buying homes to rent a sustainable market?
 
Considering the reality that only the top 5% have benefited from the policies of the past six years, it's difficult to see how the answer is "yes." Income has gone nowhere, while the wealth of the top 5% has soared. Is that a healthy economy that can support a sustainable rise in house values? No, it isn't.
 
 
 

November’s Deflation Figures the Fed Would Rather You Not See

Courtesy of Pam Martens.

Janet Yellen, Federal Reserve Chair

Janet Yellen, Federal Reserve Chair

According to the U.S. central bank, the Federal Reserve, in its December 17, 2014 policy statement delivered by the Federal Open Market Committee, America has become a veritable oasis in a sea of economic turmoil. Economic activity is “expanding,” labor conditions have “improved further,” housing spending is “rising moderately,” business fixed investment is “advancing.” And that plunge in oil prices? Well, that’s going to be “transitory” and “dissipate.”

The Fed’s position that the United States can wave a magic wand and delink itself from the vicious deflationary forces besetting our trading partners is the stuff of fairy tales.

As of November 2014, annual rates of inflation as measured by the Consumer Price Index (CPI), showed that ten of our trading partners, mostly in the Eurozone, were experiencing deflation:

Belgium: -0.110 percent

Estonia: -0.614 percent

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Vermont Throws in the Towel on Inane Single-Payer “Medicare for All” Proposal; Live and Let Die; Why Does Single-Payer “Work” in Europe?

Courtesy of Mish.

Proponents of the single-payer healthcare idea who tout the idea such a system will save money need only look at Vermont to see reality.

Vermont Governor Peter Shumlin, a single-payer advocate, threw the single-payer idea on the ash heap of history admitting what any sensible person knew from the onset:

  • The plan would cost far more than estimated
  • The plan would quickly become insolvent
  • Massive tax increases would be required
  • Coverage would decline for many

MainWire explains in Lessons for Maine in Vermont’s Failure.

Last Wednesday, Vermont Governor Peter Shumlin announced that he was abandoning his plan for a single-payer health care system for the state, finally admitting in an unexpected news conference that it is “not the right time.”

As one most liberal states in the nation, Vermont has faced years of internal pressure to adopt government-run health care. Shumlin made single-payer health care a major feature of his recent re-election campaign, and until last week, seemed to be blazing a trail towards the first single-payer system in the U.S.

His plan, which was designed partly by controversial Obamacare architect Jonathon Gruber, would have pushed for a single-payer – the state of Vermont – to pay health care costs, instead of private insurance companies. Nearly every Vermonter would have been required to be insured under “Green Mountain Care,” a state-run agency funded primarily through taxes rather than insurance premiums.

The cost for Green Mountain Care was estimated to be approximately $2.6 billion, an astounding $300 million more Vermont’s entire budget for FY 2015. The state would have needed an overwhelming 11.5% payroll tax on businesses and a new sliding-scale income tax of up to 9.5% just to get the program off the ground. Given that Vermont already boasts a top income tax rate of 8.95%, a 6% sales tax and 8.5% corporate income tax, these new taxes would have made Vermont the highest taxed state in America, by a significant amount.

Even with those new taxes, Shumlin’s administration predicted that Green Mountain Care would be drawing a deficit by at least 2020, meaning additional revenue or tax increases would be needed in the near future.

Supporters assert that despite the huge tax increases, a single-payer system is ideal and could actually save money. They maintain that a single-payer system would lower health care spending by way of decreased administrative costs, discounts for buying bulk insurance, and lower reimbursement rates for hospitals.

However, there’s plenty of evidence to suggest that none of the above would or could happen in America. Medicare and Medicaid (government insurers already in existence) do not have significantly lower administrative costs. Large insurance companies already buy in bulk and purchase more plans than entire countries that utilize the single-payer system. And while slashing reimbursement rates may sound good for taxpayers, it would also mean drastic pay cuts for hardworking doctors, nurses, receptionists, and technicians. No politician in their right mind would ever cut health care reimbursements, or at least not to the point where taxpayers would see any benefit.

Another major issue that Vermont encountered is the level of coverage to provide in a single-payer system. Instead of having consumers purchase health insurance based upon their needs or income, the single-payer model favored by Vermont forces everyone to pay for the same amount coverage, regardless of health care requirements. With all citizens reduced to a single coverage level, Vermont was faced with the catch-22 of choosing between a low or high coverage level, and deciding whether they wanted to decrease or increase coverage for many of their residents.

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Janet Tavakoli’s “Financial Journalism: Best of 2014”

Janet Tavakoli gives her financial journalism awards for the year. This year, Bloomberg News gets applauded for breaking a series of stories about global currency manipulation, bold collusion, and bank managers and crony regulators getting continually rewarded for their crimes. 

Financial Journalism: Best of 2014

By  writing at Huffington Post

Excerpt:

Global Currency Manipulation Reportage by Bloomberg News

This year the nod goes to Bloomberg News' Liam Vaughan, Gavin Finch, and Bob Ivry. On November 13, 2014, Finch and Vaughan wrote "'Cartel' Chat Room Traders Boasted of Whacking FX Market." This article about manipulation of global currency markets by traders at Citigroup Inc., JPMorgan Chase & Co., UBS, Barclays and two other banks is part of an ongoing body of work that included Ivry's reportage.

It is worth repeating that the currency market is the largest in the world, includes currency derivatives that add hidden leverage to banks' balance sheets, and this manipulation has been ongoing, after we bailed out the global financial system in 2008 and failed to implement even the most basic regulation, much less create deterrents for malfeasance and fraud.

Bloomberg broke the story in June 2013 ("Traders Said to Rig Currency Rates to Profit Off Clients"). In December 2013, they reported on the "Bandits' Club" in a seminal piece, "Secret Currency Traders' Club Devised Biggest Market's Rates."

More here >

See Also:

The Cartel: How BP Got Insider Tips Through a Secret Chat Room

1000% Inflation in Venezuela?

Courtesy of Mish.

Those looking for hyperinflation can find it in Venezuela. Here's the question of the day: How bad is Venezuelan inflation and how bad can it get?

Bloomberg reports Venezuelan 1,000% Inflation Seen by BofA Without Weaker Bolivar

Venezuela President Nicolas Maduro, set to announce a new currency system today, needs to devalue the bolivar or risk inflation passing 1,000 percent as soon as next year, according to Bank of America Corp.

Under the current system, Venezuela’s overvalued bolivar means that the government effectively sells the dollars it gets from oil exports at a discount, compelling policy makers to print extra currency to cover domestic spending needs. Currency controls that limit Venezuelans’ access to dollars have spawned a black market in which the greenback fetches 172 bolivars, compared with officially sanctioned exchange rates that range from 6.3 to about 50 bolivars per dollar.

“If we don’t see a large adjustment of the exchange rate, we’re almost certain to have triple-digit inflation and I wouldn’t be surprised to see the economy veering into four-digit annual inflation,” Francisco Rodriguez, the chief Andean economist at Bank of America, said by phone from New York on Dec. 28, before Maduro scheduled his announcement. The government “needs to print money to finance the deficit and it is running a deficit because its revenues in bolivars are too low.”

Maduro said in televised speeches earlier this month that he saw no need to cut the government subsidies that leave gasoline selling for 6 cents a gallon, and that he will keep a 6.3 bolivar-per-dollar fixed exchange rate for priority imports.

The most recent official data is that annual inflation in Venezuela was 63 percent in August, the fastest in the world. A more up-to-date estimate based on the depreciation of the bolivar on the black market is 183 percent, according to Steve Hanke, a professor of applied economics at Johns Hopkins University and director of the Troubled Currencies Project at the Cato Institute.

The bolivar weakened 42 percent on the black market in the fourth quarter, according to data from dolartoday.com, outpacing even the 29 percent decline in the Russian ruble. Both currencies have been pressured by declines in price of oil, which makes up 95 percent of Venezuela’s exports and is the country’s principal source of hard currency.

With no access to international capital markets and falling revenue from oil sales, Maduro is dependent on loans from allies or on printing more money to plug his growing budget deficit.

“If they continue with their social welfare and income redistribution programs, they’ll be forced to run the printing press at an ever accelerating rate,” Hanke said. “There is tremendous pressure on them to keep spending and their sources of financing have dried up.”

Venezuela’s M2 money supply, a measure of the amount of bolivars in the economy that includes bank notes in circulation as well as retail savings, rose by 64 percent in the past 12 months. That is three times as fast as any other country tracked by Bloomberg.

Curious Headline

The Bloomberg headline "Venezuelan 1,000% Inflation Seen by BofA Without Weaker Bolivar" is rather curious given a weaker bolivar and Venezuelan inflation go hand in hand.

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The Rigging Triangle Exposed: The JPMorgan-British Petroleum-Bank Of England Cartel Full Frontal

Courtesy of ZeroHedge. View original post here.

The name Dick Usher is familiar to regular readers: he was the head of spot foreign exchange for JPMorgan, and the bank's alleged chief FX market manipulator, who was promptly fired after it was revealed that JPM was the bank coordinating the biggest FX rigging scheme in history, as initially revealed in "Another JPMorganite Busted For "Bandits' Club" Market Manipulation." Subsequent revelations – which would have been impossible without the tremendous reporting of Bloomberg's Liam Vaughan – showed that JPM was not alone: as recent legal actions confirmed, virtually every single bank was also a keen FX rigging participant. However, the undisputed ringleader was always America's largest bank, which would make sense: having a virtually unlimited balance sheet, JPM could outlast practically any margin call, and make money while its far smaller peers were closed out of trades… and existence.

But while the past year revealed that FX rigging was a just as pervasive, if not even more profitable industry for banks than the great Libor-fixing scandal (for details see "How To Rig FX Like A Pro "Bandit", And Make Millions In The Process"), the conventional wisdom was that it involved almost exclusively bankers at the largest global banks including JPM, Goldman, Deutsche, Barclays, RBS, HSBC, and UBS.

Now, courtesy of some more brilliant reporting by Vaughan, we can finally link banks with the other two facets of what has emerged to be an unprecedented FX-rigging "triangle" cartel: private sector companies that have no direct banking operations yet who have intimate prop trading exposure, as well as central banks themselves.

By "banks" we, of course, refer to the ringleader itself: JP Morgan, and its former head of spot forex trading in London, Dick Usher. As for the company that benefited from its heretofore secret participation in the biggest FX rigging scandal in history, it is none other than British Petroleum.

We learn about all this thanks to a story that begins with, of all thing, a story about freshwater fishing at a lake in Essex called "Wharf Pool."

As Bloomberg reports, "an hour away by train, in London’s financial district, the lake’s owners ply their trade. Wharf Pool was purchased for about 250,000 pounds ($388,000) in 2012 by Richard Usher, the former JPMorgan Chase & Co. trader at the center of a global investigation into corruption in the foreign-exchange market, and Andrew White, a currency trader at oil company BP Plc. "

The plot thickens: was there more than a passing connection between the head FX trader at JPM and White "who’s known in the market as Tubby, is one of half a dozen spot currency traders working for British Petroleum (BP) in London. He and his colleagues, most of them ex-bankers, decide which firms will carry out their foreign-exchange transactions. That makes them prized clients for banks seeking a slice of the business and a glimpse into potentially market-moving trades. Passing on information was a way to curry favor."

In short, a typical Over The Counter relationship between a banker and a buyside client, one which is largely unregulated and where the bank hopes to be able to frontrun the client's orders by providing the client with confidential market moving information, thus generating more business with the client in the future. In this case, however, the buyside client was not a typical hedge fund, but the FX trading group at one of the world's largest energy companies: a group which trades enormous amounts of FX every single day, both with intent to hedge, and to generate a profit.

The trading unit’s primary role is to manage the firm’s exposure to financial risks, including fluctuations in interest rates and foreign exchange, according to the company’s website. Unlike at most corporations, it also is run as a profit center, which means that in addition to hedging risks, traders can place their own bets on the direction of markets. The company doesn’t break out how much money the treasury unit makes.

Basically, BP's energy operations were just a balance sheet funding cover: what its FX traders did in the front office was trade for a profit pure and simple, just like any prop trading desk or hedge fund anywhere else in the world. And it did so in collusion with a small group of market rigging individuals all located at the biggest, market-moving banks around the globe.

A quick reminder on the "Cartel":

The four banks in the Cartel controlled about 45 percent of the global spot-currency market, according to a survey by Euromoney Institutional Investor Plc, so information about their plans was valuable. Some days they worked together to push around the 4 p.m. fix, settlements with the banks show.

The Cartel chat room was started by Usher as early as 2009, according to a person with knowledge of the matter. Usher had risen quickly to the top of his profession. After joining HBOS Plc in 2001, he was hired by Royal Bank of Scotland Group Plc in 2003 and a year later collected an industry award on his employer’s behalf…. The four members of the chat room ribbed each other like high school buddies. Usher was referred to as Feston because he resembled an overweight version of British chef Heston Blumenthal, according to people who have seen the chats. Matt Gardiner, a UBS trader based in Zurich, was called Fossil because he was a few years older than the others. Rohan Ramchandani, Citigroup’s cricket-loving head of spot trading, was called Ruggy, while Chris Ashton, the last one to join, was dubbed Robocop.

Now we can add BP too, a BP which doesn't even hide the prop-trading nature of its FX "hedging" group, which is located two blocks away from, wait for it, JPMorgan!

The two dozen traders in BP’s treasury trading unit are housed above a Porsche showroom on the second and third floors of the company’s office in Canary Wharf, an area of reclaimed docklands three miles east of the City of London, the historic financial district. The building, two blocks from JPMorgan’s, was completed in 2003 on the cusp of an oil boom. Lights in meeting rooms flick from green to white when someone enters, in keeping with the company’s corporate colors.

And while until today the last sentence would be pure conjecture, thanks to Bloomberg's release of exchanges between JPM and BP revealing the extent to which the "cartel" would stoop in order to make money for its members on a daily, risk-free basis, it is not a fact.

From Bloomberg:

Copies of messages sent to BP traders over the course of a year were provided to Bloomberg News by a person with access to the online conversations. The person, who redacted the names of banks sending the messages and dates of conversations, said they came from firms whose senior foreign-exchange traders belonged to a chat room called “The Cartel” that was set up by Usher and included dealers at JPMorgan, Citigroup Inc., Barclays Plc and UBS Group AG.

The information offered an insight into currency moves minutes, sometimes hours before they happened. The messages could drag the U.K.’s biggest energy company into a scandal that has enveloped 11 banks and led to more than 30 traders from London to Singapore losing or being suspended from their jobs. Last month six banks were fined $4.3 billion for passing along information about their clients and working together to rig foreign-exchange markets.

Presenting BP: collusive, insider trading hedge fund extraordinaire. All comparisons and similarities to Enron are purely coincidental.

With revenue of almost $400 billion last year and operations in about 80 countries, BP trades large quantities of currency each day. Traders at the company regularly received valuable information from counterparts at some of the world’s biggest banks — including tips about forthcoming trades, details of confidential client business and discussions of stop-losses, the trigger points for a flurry of buying or selling — according to four traders with direct knowledge of the practice.

Of course, in any non-banana republic, whose regulatory and enforcement divisions were not captured by the same megacorp that is in question here, this would have been the basis for a massive lawsuit, one which would ultimately seek to break apart the company's "profitable" FX trading division from its core energy business. But not in this republic: after all, between one of the world's biggest banks and one of the world's biggest corporations, and a corrupt, crony government it should be clear to everyone by now just who calls the shots.

BP of course is quick to note that it did nothing illegal: after all the last thing the company needs is its own Enron-type scandal, where an ancillary business manages to drag down the entire company. Sure enough it has promptly denied everything:

BP said in a statement that it conducted an internal review after regulators began probing currency markets. “BP’s FX desk has relationships as a customer with 26 relationship banks, including JPMorgan, Citibank and Barclays,” the London-based company said. “BP has a robust framework of compliance requirements and internal controls which are constantly reviewed, and maintains an open dialogue with the appropriate regulators.”

The firm, the third-largest publicly traded company in the U.K., hasn’t been investigated by regulators looking into currency manipulation, according to a person with knowledge of the matter. Chris Hamilton, a spokesman for the U.K. Financial Conduct Authority, declined to comment, as did representatives of JPMorgan, Barclays, Citigroup and UBS.

So how does one explain the joint equity interest in – for example – the little fishing lake ?

“BP’s Code of Conduct includes mandatory requirements for employees to disclose potential conflicts of interests internally,” the company said in response to a question about the commercial relationship between Usher and White through the fishing lake. “Following such disclosure, steps are taken to manage and monitor these appropriately. It is our policy not to comment on individuals.”

In other words, one can't.  Which is how BP likes it. Which is also why Bloomberg was quite cautious with how it phrases BP's involvement into something that could promptly turn out to be Britain's own Enron:

While there’s no evidence that any BP traders were members of the Cartel, Usher participated in at least one chat room with White, according to a person who has examined conversations that included both men. It couldn’t be determined from the messages reviewed by Bloomberg News who sent the information to BP or whether BP employees acted on any of the tips.

They did, and this is how we know: "Traders at BP haven’t been accused of any wrongdoing. Last year, within hours of regulators announcing probes, the chats between BP and the banks were shut down, people with knowledge of the matter said. Soon after, a compliance officer was placed on the desk for the first time, one of them said."

Not exactly something one would do if one was, for lack of a better term, innocent.

And while we hold our breath until UK's justice (don't laugh please) system assigns blame – by which we mean a $19.95 one time settlement with a promise by BP it will never do it again – here is a glimpse at the full extent of just how this rigging took place:

In the clubby, lightly regulated world of foreign exchange, traders passed around tips to their circle of trusted contacts like candy. The victims: mutual-fund investors, pensioners and day traders who took the other side of a transaction at a lower price than they would have if they had the same information.

In an undated message seen by Bloomberg News, a trader at a bank told BP he would be buying U.S. dollars against Australian dollars at the WM/Reuters fix at 4 p.m. in London, the one-minute window during which traders around the world exchange billions of dollars of currency on behalf of pension funds and asset managers. The message was received at BP about 30 minutes before the fix. By tipping his hand, the sender was telling BP about a potential fall in the Australian currency

At about 3 p.m. in London on a different afternoon, BP traders were informed that banks were selling dollars against the yen at 4 p.m. In a third message, this one arriving as the oil company’s traders drank their first coffee of the morning, a trader at a bank said he had just sold a quantity of an emerging-market currency, to whom and the price he received.

The settlements the banks reached with regulators reveal that in the minutes before 4 p.m. the traders would meet on chat rooms to discuss their positions and how they planned to execute them. Sometimes they also agreed to work together to push exchange rates around to boost their profits –- something they called “double-teaming.”

All of the above would be, if proven, criminal but in line with expectations: after all when given a carte blanche to do anything they want, humans will do just that, even if it means trample every regulation known to man. In fact, the bigger one's balance sheet, the greater one's percevied (and realized) leeway of sneaking between the legal cracks, facilitated by the number of politicians and regulators that have been coopted and outright purchased courtesy of said big balance sheet.

However, the true punchline is this: "[Usher] joined JPMorgan as head of spot foreign exchange in 2010, where he became a member of the now-defunct Bank of England’s Chief Dealers Sub Group, a collection of about a dozen currency traders and central bank officials who met at restaurants and bank offices to discuss industry developments."

In other words, all of this rigging, all of the FX manipulation, all of the criminal abuse of naive, innocent market participants took place with the Bank of England's own seal of approval. Which, of course, is why the BofE itself had to scapegoat its own sacrificial lamb to avoid any further connection to this criminal cartel – something it did in early November when it fired its Chief FX dealer, Martin Mallett, who on November 12 "was dismissed by the Bank of England yesterday for “serious misconduct relating to failure to adhere to the Bank’s internal policies,” according to a statement by the central bank today."

And just like that all loose ends have been cut off, although if we were Mr. Mallett, we would certainly keep away from loose nail guns, hot tubs or airplanes for the next several months.

In the meantime, after the mandatory pause of 3-6 months, all rigging, all manipulation, and all criminal abuse with blessing from the central bank itself will quietly return, because until the great (and as increasingly more predict, very violent) reset finally comes, nothing can possibly change in a system as corrupt as this one.

Picture source.

The 5 Phases of Bitcoin Adoption

The 5 Phases of Bitcoin Adoption

By Mauldin Economics

The 5 Phases of Bitcoin Adoption

What will it take for Bitcoin to gain broad adoption and become the foundation of a new global financial system?

Worth Wray sat down with Barry Silbert, founder of the Bitcoin Investment Trust, to discuss. As one the most active venture capitalists in the industry (with investments in over 30 Bitcoin-related portfolio companies through the Bitcoin Opportunity Corp.), Barry has gone all-in on Bitcoin and Bitcoin-related businesses.

He believes the rise of Bitcoin from 2009 to 2014 is just the beginning… and the virtual payment system may be approaching a big inflection point as Wall Street takes the baton from Silicon Valley.

Silbert thinks about Bitcoin adoption in five general phases.

(1) Experimentation Phase. (2009–2010)

  • No real value associated with Bitcoin. Hackers and developers playing around with the source code. Experimenting with Bitcoin as a medium of exchange.

(2) Early Adopters Phase. (2011–2013)

  • Interest from investors and entrepreneurs started to grow with substantial press coverage in the wake of the Silk Road bust. First generation of Bitcoin-related companies (exchanges, merchant processors, wallet providers, etc.) started. Potential began to shine through poor management.

(3) Venture Capital Phase. (2013–Present)

  • World-class VCs started investing in Bitcoin companies and rapid ramp-up is already outpacing the early days of the Internet. VCs poured more than $90 million into Bitcoin-related businesses in 2013 and more than $300 million in 2014 (compared to $250 million invested in Internet-related businesses in 1995).

(4) Wall Street Phase. (2015?)

  • Institutional investors, banks, and broker-dealers begin moving money into Bitcoin. Rising price and volume (in addition to development of derivatives) become the catalyst for mass adoption as retail investment follows.

(5) Global Consumer Adoption Phase. (?)

  • Only happens if (i) companies continue to innovate and make it easier for consumers to buy, hold, and spend Bitcoin, (ii) volume expands dramatically so that large merchants can start accepting payment in Bitcoin, and (iii) Bitcoin awareness continues to rise with these developments.

If Barry is right, the rise of Bitcoin could be as transformative for finance as the Internet has been for commerce and communications… and it could happen FAST.

To learn more about Bitcoin and hear more from Barry and other world-class thinkers, check out Mauldin Economics’ latest documentary, Why Bitcoin Matters.

The article The 5 Phases of Bitcoin Adoption was originally published at mauldineconomics.com.
 
Picture at Pixabay.
 

Saudi Facing Largest Deficit In Its History

Courtesy of Andy Tully via OilPrice

The nearly 50 percent plunge in the price of oil during the past six months is expected to leave oil-rich Saudi Arabia with its first budget deficit since 2011 and the largest in its history.

The budget, announced on Dec. 25, will include spending during fiscal 2015 of $229.3 billion, higher than in 2014, despite revenues estimated at only $190.7 billion, lower than in the current fiscal year. That would leave a deficit of $38.6 billion.

Oil prices have been dropping since June because of a market glut, caused in part because of prodigious oil extraction in the United States from shale formations.

As a result of this glut, OPEC was urged to cut production levels at its Nov. 27 meeting in Vienna in an effort to shore up prices, but wealthy members of the cartel, led by Saudi Arabia, decided to keep production at its nearly two-year-old level of 30 million barrels a day.

Saudi Oil Minister Ali al-Naimi has since explained that the OPEC strategy was to reclaim market share. Fracking has made the United States, once the cartel’s largest customer, nearly self-sufficient in oil. But fracking is expensive, and many believe it can’t be profitable if the price of oil falls much below its current level of around $60 per barrel.

Oil is the principal, if not the only, resource in Saudi Arabia, so it’s clear that the price of oil has a strong influence on how the country’s annual budget is drawn up. Different analyses, however, provide different answers to how Riyadh has forecast the commodity’s value. Four of these reports say the Saudi budget is predicated on oil averaging $55 to $63 per barrel in 2015.

One, from the Saudi investment bank Jadwa Investment, said the budget shows that the kingdom expects its oil exports to average $56 per barrel in 2015. Monica Malik, the chief economist at Abu Dhabi Commercial Bank, agrees, putting Saudi oil expectations at $55 per barrel.

The National Commercial Bank, the largest financial institution in Saudi Arabia, said the Finance Ministry expects a price of $61 per barrel. And Emad Mostaque, an oil strategist at Ecstrat, which consults for emerging markets, said the kingdom expected a price of $63 per barrel.

One particularly knowledgeable analyst is John Sfakianakis, the former chief economic adviser to the Saudi Finance Ministry. He told the London-based Arabic-language newspaper Asharq Al-Awsat that the budget is predicated on oil prices that are appreciably higher, averaging about $75 per barrel in 2015 while keeping production steady at 7 million barrels per day.

“What happened is a surprise to some extent, for amid this huge decline in the price of oil, the majority of people believed that the Saudi budget would base its projected revenues on $60 per barrel,” Sfakianakis said.

“When Saudi Arabia bases its projected oil revenues for next year on $75 per barrel, it is sending a strong message to the market that it expects oil prices to rebound next year,” Sfakianakis said.

Picture via Pixabay

Doug Parker: The Status Of The Drought In The U.S. West

Courtesy of Adam Taggart via Peak Prosperity

2014 saw the extension of a historic drought across the US West. Croplands withered or were fully abandoned. Water rationing was enforced. Well tables dropped. The price of many vegetables and meats have skyrocketed.

But the past month has seen a welcome set of rain systems arrive along the Pacific coast. As a result, some regions like northern California are currently at 140% of rainfall vs the typical year. To drive home why this is such an important topic for everyone to follow, the table below shows how critical California's agricultural output is to feeding the rest of America:

(Source)

So is an end to the drought in sight?

The short answer is 'no'. And were not close to it (yet). Much will depend on the rainfall levels over the next three months, and how much of that accumulates as snow pack.

To explore this important issue in depth, we welcome Doug Parker, the Director of the California Institute for Water Resources, as well as the Strategic Initiative Leader for the UC Agriculture and Natural Resources Water Quality Quantity and Securities Strategic Initiative.

Click the play button below to listen to Chris' interview with Doug Parker (27m:58s)

It’s Beginning to Look a Lot Like Christmas – of 2008

Courtesy of Pam Martens.

There Is a Wizard of Oz Quality to the Federal Reserve These Days.

There Is a Wizard of Oz Quality to the Federal Reserve These Days

We are watching a collapse in industrial commodity prices, including crude oil. Yields on junk bonds (high yield debt) have risen dramatically. Investors have sought out the safe haven of U.S. Treasury notes, driving the yield lower as junk bond yields rise from an exit flight out of higher risk securities.

The above paragraph could just as well be describing December of 2008. Unfortunately, it’s also an apt description of where we find ourselves on December 30, 2014.

Aside from the irrationally exuberant U.S. stock market, there are two other serious mismatches that don’t compute between December of 2008, in the midst of the greatest financial collapse on Wall Street since the Great Depression, and December 2014. First, the publicly traded stocks of the largest Wall Street banks were in precipitous decline in late 2008, as they should have been, since rising levels of distressed debt and crashing industrial commodity prices mean the economy is weakening and banks will take a hit to earnings. Bizarrely, today, the share prices of Citigroup, Bank of America, and JPMorgan Chase are actually higher than where they started the year.

The second serious mismatch is the rhetoric coming out of the Federal Reserve. The statement released by the Federal Open Market Committee (FOMC) on December 16, 2008, accurately acknowledged the “declines in the prices of energy and other commodities” as a harbinger of “weaker prospects for economic activity.” Today, despite a stunning collapse in the prices of industrial commodities, the December 17, 2014 FOMC statement mentions only “declines in energy prices” and says nothing about the stark weakness in a broad range of other industrial commodities.

FOMC Release Date: December 16, 2008 (Excerpt)

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Alaska Governor Warns State’s Fiscal Situation “Critical” As Oil Price Drops

Courtesy of ZeroHedge. View original post here.

Narrative, we have a problem. What is billed day after day as 'unequivocally good' is entirely not good for Alaska (oh and Texas and Pennsylvania and…) as with oil prices dropping, AP reports Alaska Gov. Bill Walker has halted new spending on six high-profile projects, pending further review. With oil taxes and royalties expected to represent nearly 90% of Alaska's unrestricted general fund revenue this year, officials warned, "the state's fiscal situation demands a critical look."

As AP reports,

Alaska Gov. Bill Walker issued an order Friday putting the new spending on hold. He cited the state's $3.5 billion budget deficit, which has increased as oil prices have dropped sharply.

With oil prices now around a five-year low, officials in Alaska and about a half-dozen other states already have begun paring back projections for a continued gusher of revenues. Spending cuts have started in some places, and more could be necessary if oil prices stay at lower levels.

How well the oil-rich states survive the downturn may hinge on how much they saved during the good times, and how much they depend on oil revenues. Some states, such as Texas, have diversified their economies since oil prices crashed in the mid-1980s. Others, such as Alaska, remain heavily dependent on oil and will have to tap into sizeable savings to get by.

The projects Walker halted spending on include a small-diameter gas pipeline from the North Slope, the Alaska Dispatch News reported. The other projects are the Kodiak rocket launch complex, the Knik Arm bridge, the Susitna-Watana hydroelectric dam, Juneau access road and the Ambler road.

"The state's fiscal situation demands a critical look and people should be prepared for several of these projects to be delayed and/or stopped," Walker's budget director Pat Pitney said in an email.

According to Walker's order, the hold on spending is pending further review. The administration intends to decide on project priorities near the start of Alaska's legislative session Jan. 20, and no later than a Feb. 18 legal budgeting deadline, Pitney said.

State lawmakers have final authority to decide whether the projects should continue to be funded, Pitney said.

Contractually required spending and employee salaries will continue.

Walker's order asks each agency working on the projects to stop hiring new employees, signing new contracts and committing any new funding from other sources, including the federal government.

* * *

Finally, as we concluded previously,

So perhaps it is finally time to add that footnote to the "unambiguously good" qualified when pundits describe the oil crash:

it may be good for everyone… except Texas which is about to enter a recession. And then Pennsylvania. And then North Dakota. And then Colorado. And then West Virginia. And then Alaska. And then Wyoming. And then Oklahoma. And then Montana, and so on, until finally we find just where the new equilibrium is following the exodus of hundreds of thousands of the best-paying jobs created during the "recovery" offset by minimum-wage waiters, bartenders, retail workers and temps.

*  *  *

Picture via Pixabay.

Things To Do In 2015 When You’re Not Yet Dead

Courtesy of The Automatic Earth.


Unknown GMC truck Associated Oil fuel tanker, San Francisco 1935

America has managed to construct an entirely one-dimensional political system. There’s no discernible difference left between left and right, other than in spin language pre-cooked for the sole purpose of faking the concept of elections. There’s very right and ultra right. America is living proof that once money is allowed into politics, the accumulation of it, and of the power it can buy, will and eventually must fully control a democratic system, which in the process, of necessity, suffocates and dies a painful death.

What once was a proud American democracy has been turned into a circus that rolls into town every four years, filled with clowns that pretend to fight each other with over the top grotesque contraptions, but sleep in the same bed once the show is over and the audience has gone home.

In Europe that process has not yet been completed, but with the inception of the EU it is well on its way. It is a predictable process, in that the concentration of power, and of money, is irreversible as long as it’s allowed to continue its course, and the system succeeds in making people believe they still have a say in their own lives. As long as that belief is in place, it’s just an ongoing – relatively – slow corrosion that sets in and then takes its time, but never stops.

Control of the media is an obvious key element of this process, and surprisingly easy to obtain; you’d be inclined to think people would fight harder for their access to real life information. They don’t. As I said two days ago in 2014: The Year Propaganda Came Of Age, that’s what the Ukraine situation has taught me. It’s shown me how far ahead we are, not just stateside, but all over Europe as well, in living up to George Orwell’s visions. As far as I’m concerned, if Eric Blair had named his book 2014, he’d have been dead on. 2014 was the year, much more than 1984. But I don’t blame him: how was he supposed to oversee that in 1948?

Ukraine was the epitomy: no questions asked, just neverending tons of innuendo written and spoken, and a case for which to date no proof has been provided has been firmly decided in the public mind. No due process, no innocent until proven guilty, not proper defense. Everybody has the right to a lawyer, but not in international politics. Or, apparently, in the eyes of western media and citizens.

Only today, Angela Merkel once again said something to the extent that Putin must get the Donbass ‘rebels’ to stop the fighting, while she knows full well they can’t and won’t, because they risk being ethnically cleansed if they would. 4500 of them were already killed by what was supposed to be their own government.

But the German people, like all other European peoples, swallow this nonsense whole. The only counterweight comes from German businesses that lose too much money in the sanctions that make no proper sense. And if the pressure from that side gets strong enough she’ll cave in, slowly, provided she can avoid losing face. That might be the biggest risk to US regime change plans in the new year.

And those plans deserve and need to be thwarted. As do the Troika schemes to throw Europe’s Mediterrenean region ever deeper into misery, austerity and ultimately debt slavery. The EU is a one dimensional one way street into a deep dark night, construction of which is overseen by people who work for their own personal interests, not that of their people. A nice idea gone terribly astray. Let’s make sure we finish it off in 2015, and give the Greeks and Italians back their honor and their dignity. And let’s keep our own dignity in the process.

As for the US, I got to tell you, I don’t know. Obama has been a miserable failure, perhaps because he was just trying to save his skin all along, or because he was like this all along, but he sure never brought much change. Or belief. Waiting in the wings we got Hillary Clinton and Jeb Bush, but they’re the exact same person. They’ll sell their grandmas for cheap if they think it’ll help them along.

America needs people who believe in something other than money or power, but anyone who’d try would be swept off the Christmas table with the other food scraps in no time, and be devoured by the dogs. I got some flack for saying on my Facebook page that the Ron Paul Institute published the propaganda article I mentioned before, but girl, Ron Paul is all you have left, like him or not.

Dr. Paul is the only one I know in America who has raised his voice against the US involvement in Ukraine, the only one in the entire west even, other than those of us in the blogosphere, or the alternative media if you will. And that’s insane. That’s utterly insane. We should not allow for our voices to be silenced the way they are, not just like Ron Paul, but worse than him. We don’t deserve to be marginalized anymore than Dr. Paul does; we’re smarter than the lot of them.

I guess that is what I think those of us who haven’t died yet should set out to do in 2015. Do what we’ve been doing, and do more of it. As Andy Warhol said: the only thing that counts is work. Big dreams or goals go only so far. They mean little if you don’t put in the work. And for this ‘alternative press’ we have going, from Zero Hedge all the way down to the Automatic Earth, with all the great people in between and around it, what matters is the work. No letting up; we have the same responsibility the illegal press had in Amsterdam and Paris in the 1940s – even if we can’t stand in the shadows of their courage -: to make sure people get information that does not stem from the matrix.

An article in the Guardian today said that 2014 was The Year The Internet Came Of Age. I think I’ll stick with my 2014: The Year Propaganda Came Of Age, but the combination of the two leads to interesting questions. Like: what role has the internet played in the rise of the propaganda that led to almost none of our so-called higher-educated people asking any questions about what really happened in Ukraine, or about so many other situations the ever more concentrated powers that rule us are involved in.

First of all, obviously, the financial world. Hardly anybody may understand what that is doing to us, to the world we live in, to the people we love and those who don’t know but we should still be holding out for (those underground press guys in WWII were risking their lives for people they didn’t know). Between us, we do understand a whole lot of what’s happening. We have no choice – or at least I don’t – but to keep going at it every single day and get it out there, and hope that a few more people every day will pick up on it. Not to make money for themselves – that’s the very disease that got us where we are -, but to be more human, and to try and lead a way forward. For now the internet allows us to do that. Let’s make the best of it while we can.

The Government Problem

The Government Problem

Courtesy of Robert Reich 

Some believe the central political issue of our era is the size of the government. They’re wrong. The central issue is whom the government is for.

Consider the new spending bill Congress and the President agreed to a few weeks ago.

It’s not especially large by historic standards. Under the $1.1 trillion measure, government spending doesn’t rise as a percent of the total economy. In fact, if the economy grows as expected, government spending will actually shrink over the next year. 

The problem with the legislation is who gets the goodies and who’s stuck with the tab.

For example, it repeals part of the Dodd-Frank Act designed to stop Wall Street from using other peoples’ money to support its gambling addiction, as the Street did before the near-meltdown of 2008.

Dodd-Frank had barred banks from using commercial deposits that belong to you and me and other people, and which are insured by the government, to make the kind of risky bets that got the Street into trouble and forced taxpayers to bail it out. 

But Dodd-Frank put a crimp on Wall Street’s profits. So the Street’s lobbyists have been pushing to roll it back.

The new legislation, incorporating language drafted by lobbyists for Wall Street’s biggest bank, Citigroup, does just this.

It reopens the casino. This increases the likelihood you and I and other taxpayers will once again be left holding the bag.

Wall Street isn’t the only big winner from the new legislation. Health insurance companies get to keep their special tax breaks. Tourist destinations like Las Vegas get their travel promotion subsidies.

In a victory for food companies, the legislation even makes federally subsidized school lunches less healthy by allowing companies that provide them to include fewer whole grains. This boosts their profits because junkier food is less expensive to make.

Major defense contractors also win big. They get tens of billions of dollars for the new warplanes, missiles, and submarines they’ve been lobbying for.

Conservatives like to portray government as a welfare machine doling out benefits to the poor, some of whom are too lazy to work.

In reality, according to the Center for Budget and Policy Priorities, only about 12 percent of federal spending goes to individuals and families, most of whom are in dire need.

An increasing portion goes to corporate welfare.

In addition to the provisions in the recent spending bill that reward Wall Street, health insurers, the travel industry, food companies, and defense contractors, other corporate goodies have been long baked into the federal budget.

Big agribusiness gets price supports. Hedge-fund and private-equity managers get their own special “carried-interest” tax loophole. The oil and gas industry gets its special tax subsidies.

Big Pharma gets a particularly big benefit: a prohibition on government using its vast bargaining power under Medicare and Medicaid to negotiate low drug prices.

Why are politicians doing so much for corporate executives and Wall Street insiders? Follow the money. It’s because they’re flooding Washington with money as never before, financing an increasing portion of politicians’ campaigns.

The Supreme Court’s decision this year in McCutcheon vs. Federal Election Commission, following in the wake of Citizen’s United, already eliminated the $123,200 cap on the amount an individual could contribute to federal candidates.

The new spending legislation, just enacted, makes it easier for wealthy individuals to write big checks to political parties. Before, individuals could donate up to $32,400 to the Democratic or Republican National Committees.

Starting in 2015, they can donate ten times as much. In a two-year election cycle, a couple will be able to give $1,296,000 to a party’s various accounts.

But the only couples capable of giving that much are those that include corporate executives, Wall Street moguls, and other big-moneyed interests.

Which means Washington will be even more attentive to their needs in the next round of legislation.

That’s been the pattern. As wealth continues to concentrate at the top, individuals and entities with lots of money have greater political power to get favors from government – like the rollback of the Dodd-Frank law and the accumulation of additional corporate welfare. These favors, in turn, further entrench and expand the wealth at the top.

The size of government isn’t the problem. That’s a canard used to hide the far larger problem.

The larger problem is that much of government is no longer working for the vast majority it’s intended to serve. It’s working instead for a small minority at the top.

If government were responding to the public’s interest instead of the moneyed interests, it would be smaller and more efficient.

But unless or until we can reverse the vicious cycle of big money getting political favors that makes big money even bigger, we can’t get the government we want and deserve.

 

The Republican’s Magical Mystery Tour (Starting Next Week)

The Republican’s Magical Mystery Tour (Starting Next Week)

Courtesy of Robert Reich

According to reports, one of the first acts of the Republican congress will be to fire Doug Elmendorf, current director of the non-partisan Congressional Budget Office, because he won’t use “dynamic scoring” for his economic projections.

Dynamic scoring is the magical-mystery math Republicans have been pushing since they came up with supply-side “trickle-down” economics.

It’s based on the belief that cutting taxes unleashes economic growth and thereby produces additional government revenue. Supposedly the added revenue more than makes up for what’s lost when Congress hands out the tax cuts.

Dynamic scoring would make it easier to enact tax cuts for the wealthy and corporations, because the tax cuts wouldn’t look as if they increased the budget deficit.

Incoming House Ways and Means Chairman Paul Ryan (R-Wis.) calls it “reality-based scoring,” but it’s actually magical scoring – which is why Elmendorf, as well as all previous CBO directors have rejected it.

Few economic theories have been as thoroughly tested in the real world as supply-side economics, and so notoriously failed.

Ronald Reagan cut the top income tax rate from 70 percent to 28 percent and ended up nearly doubling the national debt. His first budget director, David Stockman, later confessed he dealt with embarrassing questions about future deficits with “magic asterisks” in the budgets submitted to Congress. The Congressional Budget Office didn’t buy them.

George W. Bush inherited a budget surplus from Bill Clinton but then slashed taxes, mostly on the rich. The CBO found that the Bush tax cuts reduced revenues by $3 trillion.

Yet Republicans don’t want to admit supply-side economics is hokum. As a result, they’ve never had much love for the truth-tellers at the Congressional Budget Office.

In 2011, when briefly leading the race for the Republican presidential nomination, Newt Gingrich called the CBO “a reactionary socialist institution which does not believe in economic growth, does not believe in innovation and does not believe in data that has not been internally generated.”

The CBO has continued to be a truth-telling thorn in the Republican’s side.

The budget plan Paul Ryan came up with in 2012 – likely to be a harbinger of what’s to come from the Republican congress – slashed Medicaid, cut taxes on the rich and on corporations, and replaced Medicare with a less well-funded voucher plan.

Ryan claimed these measures would reduce the deficit. The Congressional Budget Office disagreed.

Ryan persevered. His 2013 and 2014 budget proposals were similarly filled with magic asterisks. The CBO still wasn’t impressed.  

Yet it’s one thing to cling to magical-mystery thinking when you have only one house of Congress. It’s another when you’re running the whole shebang. 

Now that Elmendorf is on the way out, presumably to be replaced by someone willing to tell Ryan and other Republicans what they’d like to hear, the way has been cleared for all the magic they can muster.

In this as in other domains of public policy, Republicans have not shown a particular affinity for facts.

Climate change? It’s not happening, they say. And even if it is happening, humans aren’t responsible. (Almost all scientists studying the issue find it’s occurring and humans are the major cause.)

Widening inequality? Not occurring, they say. Even though the data show otherwise, they claim the measurements are wrong.

Voting fraud? Happening all over the country, they say, which is why voter IDs and other limits on voting are necessary. Even though there’s no evidence to back up their claim (the bestevidence shows no more than 31 credible incidents of fraud out of a billion ballots cast), they continue to assert it.  

Evolution? Just a theory, they say. Even though all reputable scientists support it, many Republicans at the state level say it shouldn’t be taught without also presenting the view found in the Bible.

Weapons of mass destruction in Iraq? America’s use of torture? The George W. Bush administration and its allies in Congress weren’t overly interested in the facts.

The pattern seems to be: if you don’t like the facts, make them up.

Or have your benefactors finance “think tanks” filled with hired guns who will tell the public what you and your patrons want them to say.

If all else fails, fire your own experts who tell the truth, and replace them with people who will pronounce falsehoods.

There’s one big problem with this strategy, though. Legislation based on lies often causes the public to be harmed.

Not even “truthiness,” as Stephen Colbert once called it, is an adequate substitute for the whole truth. 

The Zombiefication Of America

Courtesy of Michael Snyder via The End of The American Dream

Do you know people that seem like they have had their souls sucked out of them?  On dictionary.com, a “zombie” is defined as “the body of a dead person given the semblance of life, but mute and will-less, by a supernatural force, usually for some evil purpose.” And that sounds very much like what has happened to tens of millions of Americans. When you look into their eyes, it doesn’t look like anything is even there. That is because who they once were is now dominated and controlled by the overwhelmingly powerful “matrix” that is being constructed all around us. 

As I wrote about the other day, virtually all news, information and entertainment that Americans consume is controlled by just six monolithic corporations. And today, Americans are more “plugged in” than ever before.  The average person watches 153 hours of television a month in addition to spending countless hours watching movies, playing video games, listening to music, reading books and surfing the Internet.  In the end, all of that “programming” turns many of us into virtual zombies, and that is the way that the elite like it.

Just think about it.  What was the biggest news story in the entire country over the holiday weekend?

It was the fact that some hackers had taken down the Sony Playstation and Microsoft Xbox networks and millions of kids could not log in and play the video games that they had just received for Christmas.

Sadly, most parents don’t even bother to pay attention to what those video games are actually teaching their children.

One of the most popular video games this holiday season is Grand Theft Auto V.  In this game, our kids do things that none of us would ever want them to do in real life

The game contains scenes where players can have virtual sex with prostitutes then beat them up and steal their money, and a scene of torture where the player is expected to remove a gang rival’s teeth one by one using the joy pad, which vibrates as the victim begs for mercy.

It also includes scenes where the player smokes marijuana, and takes the dangerous hallucinogenic drug peyote. There is also a brief instance of necrophilia. Yet GTA V is one of the top-selling computer games in the world.

If you put garbage in, you are eventually going to get garbage out.

And we can see the consequences of this all over the country.

Meanwhile, Americans are becoming increasingly disinterested in things that really matter such as faith, family and the U.S. Constitution.

Instead, many of our spoiled young people are self-obsessed narcissists that loudly complain on social media when they don’t get the electronic gadgets that they were expecting for Christmas.

It isn’t the end of the world if “Santa” doesn’t bring you the latest iPhone.

But Americans today, especially our young people, have such a warped view of reality.  It begins at a very early age, and one of the biggest culprits is our public school system.

For instance, the Blaze recently reported that children down in Texas are being taught that the pilgrims were “essentially America’s first terrorists” and that they should listen to their teachers more than they listen to their parents…

Cassidy Vines was so horrified by what a teacher in Texas allegedly told her that she is planning on home-schooling her daughter after Christmas break.

Vines told Glenn Beck on Monday that she recently began noticing a change in her daughter’s behavior. Her daughter — who is in kindergarten — started to “snap” at her when she corrected her homework, saying “I’m her mommy, not her teacher.”

Vines said a few days after her daughter first snapped at her, she started pronouncing a word incorrectly. Vines corrected her daughter “in the most gentle way possible,” but she said her daughter broke down crying, saying “that’s how she was taught, and I can’t tell her something different because I’m a mommy, not a teacher.”

Vines said she was horrified and asked, “Is somebody telling you this at school?”

“She said, ‘Yes, I’m only allowed to learn from my teacher,’” Vines remarked.

In this day and age, our public schools have essentially become government indoctrination centers that train our children to let “the matrix” do their thinking for them.  They are taught that they are just highly evolved animals that are here only as the result of a giant cosmic accident, and that morality and values are all relative.

As a result, many of our young people just do whatever is right in their own eyes, and at this point many of them have consciences that have been seared beyond recognition.

For example, how far gone do you have to be in order to sing a “Christmas carol” that includes the line “Deck the halls with rows of dead cops”?…

The brave Portland #Ferguson demonstrators were back at it again Saturday evening, as they blocked the busy intersection of SE 39th and Belmont as a way of stickin’ it to the man.

They blocked buses and cars, and got into arguments and physical altercations with several people, including: elderly drivers, disabled bus passengers, a black woman who was trying to pick up her son, and anyone else who dared voice their dissent.

After about 20 minutes of tying up the intersection, the protest moved to nearby Peacock Lane, which is well known for its rows of large Christmas displays. The demonstrators sang parody Christmas carols, which included a brief rendition of “Deck the halls with rows of dead cops.”

Our society is breaking down in thousands of different ways, and we can see the evidence of this all around us.

But instead of coming together as a nation, anger, hate and division just continue to grow. And all of this anger, hate and division is being fueled by the talking heads on television.

It has become exceedingly apparent that most Americans no longer think for themselves. Rather, most conversations in America today consist of an exchange of sound bites, phrases, ideas and talking points that the “matrix” has fed us. Most of us are just zombies that spend our days searching for the things that we are desperately craving. For fictional zombies, that usually consists of brains. For American zombies, that usually consists of something that will feed our addictions.

So is there any hope for our society, or are we destined to become even more zombiefied?

What If The World Can’t Cut Its Carbon Emissions?

Courtesy of The Automatic Earth


NPC Tank truck with plow clearing snow, Washington, DC 1922

This is an article from our friend Euan Mearns’ site, Energy Matters, written by Euan’s co-conspirator, Roger Andrews. It was originally published here.

Roger Andrews: Many people, including more than a few prominent politicians, accept that global warming must be limited to no more than two degrees C above the pre-industrial mean, or a little more than one degree C above where we are now, to avoid dangerous interference with the Earth’s climate. Let’s assume these people are right, that the 2C threshold really does represent the climatic equivalent of a cliff and that bad things will happen if we drive off it.

So how do we apply the brakes?

According to the IPCC by limiting cumulative future global carbon emissions to no more than 500 gigatons, and even then we would have only a two-thirds chance of success:

To have a better than two-thirds chance of limiting warming to less than 2°C from pre-industrial levels the total cumulative carbon dioxide emission from all human sources since the start of the industrial era would need to be limited to about 1,000 gigatonnes of carbon. About half of this amount had already been emitted by 2011.

Here we will ignore the one-third chance of failure and use 500 gigatons as the “safe” emissions limit. Can we stay below it? Figure 1 summarizes the current position. The black line (data from EDGAR) shows progress, or lack thereof, in cutting global emissions since the United Nations Framework Convention on Climate Change (UNFCCC) started the ball rolling in 1992. The red line is a projection of the black line. The blue line, which intersects zero in 2117, amounts to 500 Gt of future carbon emissions. I assumed a linear decrease for simplicity but other pathways are of course possible:

Figure 1: Current position on cutting global emissions to “safe” levels

Obviously the world is going to have to reverse course in a hurry if it is to have any chance of keeping warming below the 2C danger threshold. What are the chances that it can? Let’s look at which countries the emissions are coming from and see what the prospects are.

The world’s emitters are commonly divided into two categories – the “developed” countries, such as the US, UK, Germany and Japan, and the “developing” countries, such as Egypt, India, Malawi and Paraguay. We will look first at the developed countries, which presently emit a third of the world’s carbon. Developed country emissions for 1970 through 2012 are summarized in Figure 2:

Figure 2: Developed country emissions from fossil fuel burning, 1970-2012

The United States accounts for 16% of global emissions (the percentages given here are from 2012 EDGAR data). US emissions have been trending down since 2005 partly because of the shale gas boom and partly because of the 2008 recession. The Obama administration recently adopted rules designed to cut US emissions further but whether they will survive is uncertain, and even if they do the chances that Congress as presently constituted will agree to emissions cuts unless the developing countries follow suit are effectively zero. The 1997 US Senate rejected US participation in the Kyoto Protocol for this reason, and given the opportunity the present Senate would do the same.

The European Union accounts for 11% of global emissions. For some years the EU has been setting an example to the world by unilaterally pursuing ambitious emissions targets, although so far with little to show for it (the downtrend in EU emissions since 2006 is largely a result of the 2008 recession and the EU’s slow recovery). The realization that the EU can’t save the planet all by itself is, however, finally beginning to sink in, and as a result the EU has hardened its negotiating position, stating at the Lima climate talks that mandatory emissions targets must now be set for all countries, not just the developed ones.

Australia, Canada and Japan collectively emit 7% of the world’s carbon. All three are presently somewhat less than enthusiastic about emissions cuts and are unlikely to become greatly more enthusiastic in the foreseeable future. They won’t move unless everyone else does.

Now on to the developing countries, which emit two-thirds of the world’s carbon and are responsible for all of the growth in global emissions since the world embarked on its quest to cut them in 1992. Developing country emissions are summarized in Figure 3:

Figure 3: Developing country emissions from fossil fuel burning, 1970-2012

China, which now accounts for 29% of global emissions (according to EDGAR; other sources put the figure at 25-26%) is the key player. The UNFCCC exempts China and the other developing countries from emissions caps – in fact it encourages them to build more power plants in order to eradicate poverty – and China wants to keep it that way. China pays lip service to the need to combat climate change but considers economic development far more important, as illustrated in Figure 4. The total disregard for the “Spirit of Kyoto” is almost comical:

Figure 4: China’s emissions before and after ratifying the Kyoto Protocol

(The lip service consists of a) China’s 2005 commitment to reduce its carbon intensity – the amount of carbon emitted per unit of GDP – by 40-45% by 2020 and b) its recent commitment to make its best efforts to peak its emissions by 2030. Figure 4 shows what happened to China’s emissions after its 2005 commitment. Its latest commitment pretty much guarantees that its emissions will continue to rise for at least the next 15 years.)

India, with 6% of global emissions, makes no bones about where it stands: “The world must accept that India’s per capita carbon emissions will need to rise rapidly if it is to eliminate poverty, the environment minister said on Friday, as delegates meet in Lima for key UN climate change talks.” Economic development takes priority over the need to combat climate change in India too, as illustrated in Figure 5:

Figure 5: India’s emissions before and after ratifying the Kyoto Protocol

The position of Russia, which accounts for 5% of global emissions, is predictable. Under Kyoto Russia committed to keep its emissions below 1990 levels and its emissions are still well below 1990 levels (Figure 3). Putin has other things to worry about anyway.

The other developing countries, which collectively contribute 26% of global emissions, include some in a reasonably advanced state of economic development, such as South Korea and Chile, but otherwise are mostly poor. The poor countries are more than willing to limit their emissions provided the developed countries pay all the costs, and in 2011 the Green Climate Fund was set up to get the ball rolling. So far, however, contributions amount to only $10 billion – a negligible sum relative to the scale of the undertaking. We can safely assume that funds on the scale necessary to reverse the 3% historic annual growth rate in other developing country emissions will not be made available, or at least not quickly enough to do any good.

The bottom line is that the developed countries won’t commit to emissions cuts of the magnitude necessary to stay below the 2C threshold unless the developing countries shoulder at least some of the burden, but the developing countries aren’t going to sacrifice economic development on the altar of climate change, threshold or no threshold. The most they are likely to agree to is token measures that get good publicity but which don’t cut emissions, as China has already done. As a result the developed countries will again be left to go it alone, which as shown in Figure 6 is an exercise in futility:

Figure 6: Developed and developing country carbon emissions, 1970-2012

The conclusion is inescapable. However desirable it may be to protect the Earth from the dire consequences of a runaway climate the chances that the world will agree to cut its emissions quickly enough to stay below the 2C threshold are somewhere between zip, zilch and zero. (There’s also the question of whether cuts of the magnitude necessary would be politically, economically and technologically achievable if the world does agree, but we’ll leave it aside here.)

Now imagine that you are one of the prominent politicians – Obama, Kerry, Merkel, Ban Ki-moon, Hollande, Cameron, Davey, whoever – who have publicly and repeatedly stated that climate change is the greatest threat facing the world, that the world is in serious trouble if nothing is done to stop it but that a solution is still within our reach. What do you tell people when next year’s make-or-break Paris climate talks show that it isn’t?

Gmail Dead in China, All Google Products Blocked; Reserve Currency Silliness Review

Courtesy of Mish.

Access to Gmail in China was difficult, but not impossible. Workarounds included Outlook, Apple Mail, and third-party Gmail hosts.

Starting last Friday, the "Great Firewall" became nearly impenetrable as China’s Censors Took Final Step in Blocking Gmail.

In the six months since Google’s mail service Gmail was blocked in mainland China, users had been able to access it using third-party email applications such as Microsoft Outlook or Apple Mail.

Beijing now appears to have closed the loophole, completely shutting down access to Gmail behind the so-called Great Firewall. Google data showed Gmail appeared to have been walled off starting Friday. Google spokesman Taj Meadows acknowledged the drop in traffic and said Monday that “there’s nothing wrong on our end.”

Google clashed with Beijing in 2010 after the company decided to stop censoring its Internet search results in China. Google shifted most of its Chinese operations to Hong Kong as a result, and it has been hard since then to access the company’s services on the mainland.

As with Google search functions, Gmail users will now have to access the application through virtual private networks or other censorship circumvention channels, putting the email service on par with Facebook and Twitter in the eyes of Beijing censors.

Reserve Currency Silliness

China has no sizable bond market, no floating currency, few political freedoms, no freedom of speech, massive censorship, and questionable property rights, yet every week I see some article promoting the idea that the yuan will soon replace the dollar as world's reserve currency.

The idea is laughable. Lack of a bond market in sufficient size is enough to kill the notion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Visit Mish here > 

2014 In Review: How Could Gold Bugs Have Been So Wrong?

Courtesy of John Rubino.

Twelve short months ago, the immediate future looked like a lock. Overvalued equities had to fall, ridiculously-low interest rates had to rise, and beaten-down precious metals had to resume their bull market.

The evidence was overwhelming. Debt in the developed world had risen to $157 trillion, or 376% of GDP, by far the highest level on record and clearly unsustainable. Long-term US Treasury rates had been falling for literally three decades and despite a recent uptick were so low that the only way forward seemed to be up.

10 year treasury yield 2013 revised

Europe and Japan were drifting into recessions that could easily morph into capital-D Depressions. The eurozone would fragment, Japanese bonds and probably stocks would crater, one or more major currencies would implode. No way to know which event would come first and in what order the other dominoes would fall, but without doubt something had to give.

And gold, of course, had had its correction and was, at the beginning of 2014, perilously close to the mining industry’s cost of production. The last time that happened, in 2008, an epic bull market ensued — and gold-bugs were anxious for a replay.

Gold price 2013 revised

Yet 2014 turned out to be a pretty good year for the powers that be and the economic theories that animate their behavior. Equities boomed, interest rates fell, the dollar soared, and gold ended the year below where it started. Gold miners, after a year of operating at an aggregate loss, have seen their market values crater.

2014 should not have happened, but it did. There’s no way to sugarcoat it: the gold bugs were wrong, Austrian economics was wrong, and the Keynesians were right. And now the sound money community is left trying to figure out what it missed and, crucially, whether the problem was merely one of timing or of fundamental worldview. With that in mind, a few explanations for the debacle that was 2014:

• Inflating away the world’s reserve currency is a whole different animal. When a single not-very-important country decides to devalue its currency, it simply prints a lot of new pesos or whatever, and the exchange rate falls until a crisis ensues. That is not, however, how it works for the US because so much of the world’s debt is linked to or denominated in dollars. Consider:

When you borrow money, you’re in effect betting against, or shorting that currency because you benefit if it goes down in value. But at the same time you’re creating future demand for it because in order to pay off the loan you have to acquire more of that currency. So the fact that so much of the world’s debt is denominated in dollars means that demand for dollars is rising even as US debt increases. In the short run, this makes the dollar stronger despite America’s deteriorating balance sheet. Add in the fact that the rest of the world is in even worse shape than we are, which makes the US look like a safe haven in relative terms, and the result is a strong dollar even in the face of soaring US liabilities.

• A fiat currency printing press is an amazingly powerful tool for fooling people. The world’s governments have been able to use trillions of dollars of newly-created, largely-fictitious currency to force down interest rates across the yield curve and push up equity prices. This signals to market participants that 1) things are basically okay, so relax, 2) it’s actually prudent to go for growth and yield by buying equities, junk bonds and houses, 3) it’s reasonable to borrow for things like college and cars because there will always be plenty of money, one way or another, to cover those debts, and 4) betting against the status quo will be punished. Short sellers and savers will lose because equities will be secretly supported, competing forms of money like precious metals will be depressed, and cash will yield next to nothing.

• A global currency war allows the combatants to shift back and forth between easy and tight money for a really long time before anything serious happens. Between 2008 and 2013, the US and China were on the offensive, borrowing huge amounts of money and/or inflating central bank balance sheets. As a result, their currencies were relatively weak and they grew while Europe and Japan stagnated. Now it’s the turn of the latter two to inflate while the former try to stabilize their debt loads. Aggregate global debt continues to soar, making the eventual financial crisis that much more catastrophic. But in the meantime the game of musical chairs can go on longer than it might for any individual country inflating alone.

• Debt is deflationary. The world is more heavily laden with bad paper than ever before. And while central banks’ efforts to inflate this debt away is inflationary, the paper itself wants to implode, which is highly deflationary. These two forces have been contending for over a decade, with the advantage shifting back and forth. In 2008 deflation was ascendant, but by 2011 it looked like inflation had the upper hand. Now we’re heading back into a deflationary stretch as the past few years’ tight money in Europe and Japan push those two into recession and send global capital pouring into the supposed safe haven of US bonds and stocks.

So, back to the big question: Does the above refute the sound-money/gold-bug case, or simply delay it?

Almost certainly the latter. Rising dollar-denominated debt leading to a stronger dollar is not a perpetual motion machine. All it does is allow the US and the rest of the world to take on even more debilitating levels of debt than would otherwise be possible.

China, India, Russia and Brazil, meanwhile, are actively bypassing the dollar in favor of trading in their own currencies, while accumulating pretty much all the gold being produced by the world’s mines. So the longer the current situation continues, the bigger the disruption when the dollar becomes just one of many global trading currencies.

Meanwhile, artificially depressing bond yields and supporting stock prices can only go so far before valuations (already crazy) become impossible to support with any amount of fiat currency. The yield on some Japanese bonds recently dropped below zero, and US 10-year treasuries are around 2%. US equity prices, margin debt, corporate share repurchases and most other measures of overvaluation are all in record territory. Unless we’re moving to a world of negative interest rates (which is a whole different theoretical discussion) and dot-com era P/E ratios, the end for these trends is near.

So this has to and therefore will blow up. And when it does, the world’s central banks will respond with debt monetization on a scale that will dwarf QE3 and Abenomics. “Inflate or die” will become official global policy. And gold will behave as it always does in such situations, by going parabolic.

But when? What seemed imminent a year ago now feels a little further out, as oil keeps falling (down another 2.5% as this is written on Dec 29), the dollar keeps rising and everything else is flat to down. Maybe instead of focusing on the numbers, which clearly don’t mean as much as they would in a world of actual functioning markets, we should think in terms of philosophy and psychology. Here’s a snippet from James Howard Kunstler that gets at the spirit of things without predicting “when things stop working”.

One reason this is happening to us is that we allowed reality to be divorced from truth. Karl Rove wasn’t kidding back in the Bush-2 days when he quipped that “we create our own reality.” The part old Karl left out is that there’s a price for doing that. In the short run, it allows you to pretend that you have superpowers and can act in defiance of the way things really are. In the longer run, your view of the world comports so poorly with the facts of the world that things stop working.

Visit John’s Dollar Collapse blog here >

Snap Elections in Greece; 3-Year Bond Yield Tops 12%; Potential Cascade! Who Has the Upper Hand?

Courtesy of Mish.

Despite fearmongering by Greek prime minister and the EU, prime minister Antonis Samaras fell 12 votes short of a needed majority to elect a new Greek President.

As a result, snap elections will be held on January 25.

Stavros Dimas, a former EU commissioner, captured 168 votes in Monday’s decisive third presidential ballot,12 short of the required three-fifths majority after a weekend of frantic backroom politicking failed to round up additional votes from independent lawmakers and small opposition parties.

A sombre-looking Mr Samaras said in a televised statement: “It’s time for voters to do what parliament couldn’t — end uncertainty and restore stability so that we can continue with reforms and make a decisive exit from the bailout.”

“Be optimistic and cheerful, austerity will soon be over,” said Alexis Tsipras, Syriza’s firebrand leader, as he left parliament after the vote. “The Samaras government which looted society and decided to take further austerity measures is finished.”

Along with the IMF and the European Commission, the ECB played a key role in overseeing the four year €245bn bailout of Greece. “The ECB holds the key,” said Greek finance minister Gikas Hardouvelis in an interview with Greece’s To Vima newspaper on Sunday. He added: “This key can easily and abruptly turn off bank funding and strangle the Greek economy in a split second.”

Commenting on Monday’s vote, Wolfgang Schäuble, Germany’s finance minister, said in a statement: “We want to give Greece further support on its path of reform, helping it to help itself. If Greece chooses another way, it will be difficult. New elections will not change any of the agreements made with the Greek government. Any new government must keep to the contractual agreements of its predecessor.”

Opinion polls at the weekend gave Syriza a lead of 3-4 percentage points over Mr Samaras’s centre-right New Democracy party, but pollsters say it is unclear whether this would be sufficient to ensure an outright majority at election.

Yields Soar

Greek stock and bond markets reacted with disapproval. The Athens stock market fell about 10% and Yield on the 3-year note sailed above 12%.

On August 24, yield on the 3-Year note fell to an absurdly low 3.14%. Today it sits at 12.15%.

 Potential Cascade to Spain, Italy

Continue Here

David Bird, Missing Wall Street Journal Reporter, Foresaw an Oil Crash

Courtesy of Pam Martens.

David Bird, Missing Wall Street Journal Reporter, Enjoyed Walking and Running.

David Bird, Missing Wall Street Journal Reporter, Enjoyed Walking and Running.

On the cold, wintry afternoon of January 11, 2014, David Bird, a reporter who covered energy markets for the Wall Street Journal, told his wife he was going out for a walk and left his home in Long Hill, New Jersey in a red jacket with yellow zippers. Despite his colorful attire, the involvement of hundreds of volunteers, law enforcement officials, and the FBI in the search, Bird has vanished without a trace.

As Wall Street On Parade previously reported in January, for the three months prior to his disappearance, Bird was reporting on a supply glut and growing stockpiles of oil. A newly retrieved article by Bird that appeared on line at the Wall Street Journal on August 21, 2013, shows the reporter had also presciently made an early connection between the Federal Reserve ending its massive bond-buying program known as “quantitative easing” and a potential crash in the price of oil – a crash that has now cut the price of oil almost in half in the past six months.

Bird wrote the following in his August 21, 2013 article:

“Crude-oil futures fell after the minutes from the Federal Reserve’s latest policy meeting heightened concerns that less economic stimulus could hit demand for the fuel.

“Traders are worried that the end of the $85 billion-a-month bond-buying program will cause dollar-based crude prices to rise in local-currency terms, choking off economic growth in India, Indonesia and other emerging markets that has fueled a rise in global oil consumption in recent years…

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