Daily Business Report

The Empire's Next Effort To Extract Your Wealth

2013-05-17T05:02:00.002-04:00

Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer... they’re actually heading in the other direction. They’re getting poorer.

This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at the logic of the American Empire and what you can expect in the year(s) ahead.

“Great empires, such as the Roman and British, were extractive,” economist Paul Craig Roberts observed recently. “The empires succeeded because the value of the resources and wealth extracted from conquered lands exceeded the value of conquest and governance.”

We explored a similar theme in our 2006 book, Empire of Debt. But unlike empires of the past, the American Empire has a logic all its own.

“America’s wars are very expensive,” says Roberts, stating the obvious. “Bush and Obama have doubled the national debt, and the American people have no benefits from it. No riches, no bread and circuses flow to Americans from Washington’s wars.”

In the big Iraqi oil auction of 2009, for example, even as U.S. helicopters droned overhead, the oil minister gave out zero contracts to American firms. Not one. And we spent at least $3 trillion on war — $2.9 trillion more than Team Bush’s original budget. So much for paying for war with “oil profits.”

Russia was actually the big winner here. So what gives? The American Empire has perverted the Roman mantra “Veni, vidi, vici” (I came, I saw, I conquered) into the odd imperial slogan, “We came, we saw… we borrowed!”

The results from this turn of phrase are less than desirable. Again Roberts:

“Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America. The military-security complex, Wall Street, agribusiness and the Israel lobby use the government to extract resources from Americans to serve their profits and power. The U.S. Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%.

“That is how the American Empire functions,”

We agree. To grow, the American Empire is always looking to inflate the next bubble. These serial bubbles each have the effect of “extracting” wealth from the citizens — in the form of bigger mortgages, heftier credit card statements and stuffed stock portfolios. The “extracted” money is, over time, passed from the wallets of citizens to the pockets of the well connected.

For confirmation of this assertion we need look no further than the top o’ the 1%, the Oracle of Omaha. Peter Schweizer of Reason reckoned in an exposè published last year on Warren Buffett that this folksy fellow “needed the TARP bailout more than most.”

Let’s run through the numbers. Berkshire Hathaway firms in total received $95 billion in TARP money. Berkshire, you’ll recall, held stock in Wells Fargo, Bank of America, Goldman Sachs and American Express. Not only did these companies receive TARP funds… they also dipped into the FDIC’s treasury to back their debt. Total bailout: $130 billion. TARP-enabled companies accounted for 30% of the Oracle’s publicly disclosed stock portfolio.

He’s definitely one of the top beneficiaries of the big bank bailout. And to sharpen the sting, he even got a better deal to help ailing Goldman Sachs than our own government. Buffett got a 10% preferred dividend while the Feds got all of 5%. He cleaned up with $500 million a year in dividends. Without the bailout, you can bet many of his stock holdings would have gone near-zero instead.

Contrast that with a blog post from Rosemarie Jackowski, a community activist at Dissident Voice. She’s describes her experiences working with the underclass in a small town in Vermont.

“In Bennington, there are three very distinct classes,” writes Jackowski. “First, there are the ‘fancy people.’ They are the ones who rule and control everything. They are on the boards — the hospital board, the library board, the select board, the school boards. They have the power — even the power over life and death. They, occasionally during a medical crisis in the hospital, make the decision to pull the plug or allow life to go on.”

We hear you. At first, we were prepared to dismiss the piece as another bleeding heart diatribe… but she goes on to describe a theme very familiar to our readers.

Then there is the large group of ordinary citizens. Some are blue-collar workers. Most work hard. Love their families. And have had family in Vermont for generations. They acknowledge the class system in conversation often. They call it the ol’ boys network — cronyism.

The third group consists of those who are in need. Those on the bottom of the economic pile. At the conference, some of the most-impressive comments were made by a poor mother of two disabled children. She talked about the oppressive avalanche of redundant paperwork required to get any tiny benefit. The social services system is designed by nameless, faceless, unelected bureaucrats. It is setup to assure maximum job security to the workers in the system. To a struggling family, it often feels like an attack of the “paper churners.” Being poor is a full-time job.

More and more “ordinary citizens” are faced with the challenge of joining this third group of government dependents… or choosing to join the ranks “nameless, faceless, unelected bureaucrats” just to survive.

Case in point: “In the most recent Census,” writes co-author Samantha Buker in The Little Book of the Shrinking Dollar, “48% of America qualifies as ‘low income.’ There are more Americans living under extreme poverty than have ever been recorded.

“Since 2009, we’ve added another 4 million souls to the category of low income to below the poverty line. That’s 146 million people in America who aren’t consuming much aside from ever-increasing applications for food stamps.”

In November 2008, food stamp applicants topped 30 million for the first time in history. We’re still posting “record highs,” having added over 16 million more names (and counting…) to the food stamp list.

Does this sound like a nation of ripe, robust citizens ready to be drained for the benefit of the national coffers? Au contraire. Sounds like another case in which our Empire will hand out more than it’s taking in.

Again.

In her post, Ms. Jackowski provides a list of 35 ways poverty robs you of your dignity. Here are just a few:

“Poverty means living with shame.”

“Poverty means working three jobs and still not ‘making it.’”

“Poverty means that you go to work when you are sick. Worse than that, you send your children to school when they are sick.”

“Sometimes poverty means that you skip meals so that your children can eat.”

“Poverty means that your housing is never secure…”

“Poverty means following all of the rules. Then graduating with oppressive student debt so that the president of UVM can be paid $447,000 per year.”

It’s Jackowski’s final mention of extraction - the student debt fiasco - that worries us. This bubble that has already taken flight. Now it’s flying dangerously close to a few pins.

Just like with housing, this is one hell of a bubble. And when it bursts, it’ll invite another crew of crony capitalists to the Beltway, who will soon be lining up for bailouts. I urge you to grip your wallet with both hands and prepare for the worse.

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The Problem of Central Banks With Multiple Goals and Few Tools

2013-05-16T04:34:00.003-04:00

While there are numerous definitions of economics, the most widely used is:

Economics is the study of how economic agents – households, businesses, governments – allocate limited resources across competing uses.

The definition encompasses market, command and mixed economies as the need to allocate resources transcends legal, institutional and other societal arrangements. Various sub-fields of economics have area-specific operational definitions, but the core, the fundamental economic problem, is the same: the allocation of resources. The relative scarcity of resources implies opportunity costs or tradeoffs, e.g., guns versus butter, labor versus leisure, present versus future.

However, current monetary policymakers (largely economists) have designed and employed macroeconomic models and a policy framework that allow only one goal for central banks: price stability. They did not solve the problem of how to allocate scare resources (in this case limited policy tools) in pursuit of competing ends, e.g., stable prices, full employment, sustainable growth, financial stability, external balance. They simply designed models that assumed the problem away and freed central banks from the fundamental problem of finding acceptable, if not optimal tradeoffs when setting policy.

Post the financial crisis, the great recession and in the midst of a painfully slow recovery, economists and central bankers are moving in the direction of flexible inflation targeting, i.e., allowing for the possibility that monetary policy should pursue goals other than just price stability. However, the flexibility appears to be limited to sequential shifts from inflation-only targeting to employment targeting and back. Policymakers are still talking as if they will never be faced with policy tradeoffs.
More recently, and very belatedly, monetary policymakers have acknowledged the existence of a link between monetary policy and financial stability. The existence of the link implies that the Fed faces potential tradeoffs not only between inflation and unemployment, but among inflation, unemployment and financial stability. Given that financial instability implies the possibility of increased unemployment in the future, there are also potential tradeoffs between current unemployment and future unemployment.

With financial stability as a goal in addition to its dual mandate, i.e., price stability and full employment, the Fed has three policy goals. How many resources, aka policy tools, does the Fed have? In terms of monetary policy per se, the Fed has one tool, either interest rates or the quantity of reserves. It also has a set of regulatory tools, but as Yellen has pointed out:

The Federal Reserve has been working with a number of federal agencies and international bodies since the crisis to implement a broad range of reforms to enhance our monitoring, mitigate systemic risk, and generally improve the resilience of the financial system. Significant work will be needed to implement these reforms, and vulnerabilities still remain. Thus, we are prepared to use any of our many instruments as appropriate to address any stability concerns.”

Policymakers do not have the necessary regulatory tools in place. The financial industry also has a well established record of innovating to avoid regulation. Hence, the Fed and other regulatory authorities will likely continue to lag the markets on the regulatory front. Furthermore, financial regulation and supervision will not control the behavior of financial institutions that innovate to avoid regulation, operate outside the regulatory border or across political boundaries. The remote likelihood of a lasting and sufficiently robust regulatory system raises the possibility that there will be times when it is advantageous for a central bank to alter interest rate policy to reflect financial stability concerns.

Interest rate policy also has advantages over regulatory policy in promoting financial stability. Interest rate policy has a non-discriminatory impact on regulated and non-regulated entities as well as across financial products. Furthermore, interest rate policy can alter the incentive that financial entities have to engage in regulatory arbitrage or to innovate to avoid the costs of regulation. This effect has been noted by Fed Governor Stein:

For example, if low interest rates increase the demand by agents to engage in below-the-radar forms of risk-taking, this demand may prompt innovations that facilitate this sort of risk-taking.

Consequently, interest rate and regulatory policies are not independent. The Yellen statement implies that the Fed is prepared to address financial stability concerns with interest rate policy. Plosser of the Philadelphia Fed has said that some members of the FOMC are concerned about the low interest rate policy because of increasing potential costs of financial instability. However, the Fed has not shown any inclination to do so and still asserts that interest rates were not “too low for too long” prior to the crisis. In fact, economists, central bankers and pundits continue to resist calls to acknowledge the possibility that it might be advantageous to design monetary policy with more than just one target in mind. They mustered a number of arguments. They include 1) the Tinbergen separation principle and 2) arguments based on the idea that central banks should specialize/focus on inflation as they have a comparative advantage in maintaining price stability.

Tinbergen Separation Principle

Wikipedia summarizes the Tinbergen separation principle as follows:

Tinbergen, in his work on macroeconomic modeling and economic policy making, classified some economic quantities as “targets” and others as “instruments”. Targets are those macroeconomic variables the policy maker wishes to influence, whereas instruments are the variables that the policy maker can control directly. Tinbergen emphasized that achieving the desired values of a certain number of targets requires the policy maker to control an equal number of instruments.

Tinbergen’s classification remains influential today, underlying the theory of monetary policy used by central banks. Many central banks today regard the inflation rate as their target; the policy instrument they use to control inflation is the short-term interest rate.

Ben Bernanke espoused this position in 2002 when he was a Federal Reserve Governor.

My suggested framework for Fed policy regarding asset-market instability can be summarized by the adage, “Use the right tool for the job.”

As you know, the Fed has two broad sets of responsibilities. First, the Fed has a mandate from the Congress to promote a healthy economy–specifically, maximum sustainable employment, stable prices, and moderate long-term interest rates. Second, since its founding the Fed has been entrusted with the responsibility of helping to ensure the stability of the financial system. …By using the right tool for the job, I mean that, as a general rule, the Fed will do best by focusing its monetary policy instruments on achieving its macro goals–price stability and maximum sustainable employment–while using its regulatory, supervisory, and lender-of-last resort powers to help ensure financial stability.”

Unfortunately, defense of inflation-only targeting via appeals to the Tinbergen separation principle are over simplified and misplaced. The separation principle was derived in the context of a macroeconomic model comprised of well-behaved linear equations. It is clear that real economies include dynamic non-linear relationships between variables and that behavior is at times chaotic.
Furthermore, Tinbergen’s principle was much more nuanced than one instrument for one target. In the context of his model, Tinbergen found that:

1. When the number of policy instruments exceeds the number of targets, policymakers will be able to chose from a menu of possible combinations of instruments to achieve the goals;

2. When the number of instruments equals the number of targets, all targets can be met and one instrument can be used for each goal; and

3. When the number of targets exceeds the number instruments, it will not in general be possible for policymakers to reach all the goals. Policymakers will be faced with having to make tradeoffs across goals. In general, policies will have to be designed with multiple goals in mind, if all targets are to be pursued.

The number of policy goals far exceeds the number of effective instruments.

Regulatory policy has been and is likely to remain incapable of insuring financial stability. Fiscal policy appears to be driven by concerns other than promoting the goals of economic policy, e.g., full employment. International economic policy is non-existent. Consequently, the Tinbergen separation principle should not be invoked to support inflation-only targeting, as the conditions under which it was derived are not met.

Appeals to Comparative Advantage

Central banks, including the Fed, presumably have both absolute and comparative advantages over other policy institutions in maintaining price stability. The exploitation of comparative advantages gives rise to specialization, trade, markets and increased efficiency. To many, this suggests that it is advantageous for the Fed to specialize in maintaining price stability.

However, there are limits to specialization, aka the division of labor. This was noted by Adam Smith in An Inquiry Into The Nature and Causes Wealth of Nations. Chapter III is titled “The Division of Labour is Limited by the Extent of the Market” and includes the following observations:

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.

In simple terms, the ability of specialization to enhance efficiency and welfare depends not only on the existence of an agent with a comparative advantage, but also on the market and institutional setting.

If the Fed’s goal is to design and implement the optimal monetary policy for an otherwise perfect world, then complete specialization in the pursuit of a single target is appropriate. If the Fed’s goal is sustained stable growth with full employment in a world characterized by market and institutional failures, e.g., other policy tools are either non-existent or incapable of achieving their intermediate goals, then economics suggests that the Fed must accept the possibility that a one-target-only policy may exacerbate resource misallocation and contribute to inferior outcomes.

It is ironic that economists in pursuit of macroeconomic models with microeconomic foundations have adopted models and an operating framework that preclude the existence of the rationale for economics – the relative scarcity of resources and resulting existence of tradeoffs. In so far as inflation-only targeting contributed to the asset price bubbles, the financial crisis and recession, it was costly as well.

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10 Scenes From The Ongoing Global Economic Collapse

2013-05-15T05:14:00.004-04:00

When is the economic collapse going to happen? Just open up your eyes and take a look around the globe. The next wave of the economic collapse may not have reached Wall Street yet, but it is already deeply affecting billions of lives all over the planet. Much of Europe has already descended into a deep economic depression, very disturbing economic data is coming out of the second and third largest economies on the globe (China and Japan), and in most of the world economic inequality is growing even though 80 percent of the global population already lives on less than $10 a day. Just because the Dow has been setting brand new all-time records lately does not mean that everything is okay. Remember, a bubble is always the biggest right before it bursts. The next major wave of the economic collapse is already sweeping across Europe and Asia and it is going to devastate the United States as well. I hope that you are ready.

The following are 10 scenes from the economic collapse that is sweeping across the planet...

#1 27 Percent Unemployment/60 Percent Youth Unemployment In Greece

The economic depression in Europe just continues to get worse with each passing month. According to the Daily Mail, the unemployment rate in Greece has nearly tripled since 2009...

Greek youth unemployment rose above 60 per cent for the first time in February, reflecting the pain caused by the country's crippling recession after years of austerity under its international bailout.

Greece's jobless rate has almost tripled since the country's debt crisis emerged in 2009 and was more than twice the euro zone's average unemployment reading of 12.1 percent in March.

While the overall unemployment rate rose to 27 per cent, according to statistics service data released on Thursday, joblessness among those aged between 15 and 24 jumped to 64.2 percent in February from 59.3 percent in January.

#2 Detroit, Michigan Is Insolvent And Is Rapidly Running Out Of Cash

I love to write about Detroit because it is a perfect example of where the rest of the country is headed. They have just gotten there first. At this point, Detroit is essentially bankrupt, and the new emergency financial manager is saying that Detroit may totally run out of cash next month...

Detroit may run out of cash next month and must cut long-term debt and retiree obligations, according to emergency financial manager Kevyn Orr’s preliminary plan to save Michigan’s largest city from bankruptcy.

Orr’s report says the cost of $9.4 billion in bond, pension and other long-term liabilities is sapping the ability to provide public safety and transportation. He listed cutting debt principal, retiree benefits and jobs among his options.

“No one should underestimate the severity of the financial crisis,” Orr said yesterday in a statement. He called his report “a sobering wake-up call about the dire financial straits the city of Detroit faces.”

#3 Economic Despair In France

France is going down the same path that Greece, Spain, Portugal and Italy have gone. The following is an excerpt from a recent article in the Economist...

HELDER PEREIRA is a young man with no work and few prospects: a 21-year-old who failed to graduate from high school and lost his job on a building site four months ago. With his savings about to run out, he has come to his local employment centre in the Paris suburb of Sevran to sign on for benefits and to get help finding something to do. He’ll get the cash. Work is another matter. Youth unemployment in Sevran is over 40%.

#4 7,000 Abandoned Buildings In Dayton, Ohio

All over the upper Midwest, there are formerly great cities that are dealing with thousands of abandoned buildings. Dayton, Ohio is one example...

Like many urban cities in recent years, Dayton still finds itself knee-deep in abandoned, dilapidated properties as the result of the foreclosure crisis and economic downturn five years ago.

Boarded up buildings that appear to be on their last legs litter the city as it attempts to recover.

Kevin Powell, the city’s acting manager of housing inspection, says officials plan to use $5.2 million — half from the state’s Moving Ohio Forward program and a matching grant from the city’s general fund — to raze 475 abandoned properties by the end of September.

That will scratch the surface of an estimated 7,000 abandoned property problem that is growing.

#5 Overwhelmed By Squatters In Spain

In Spain, unemployment is rampant and people have become incredibly desperate. In fact, in some Spanish cities you can now find entire apartment buildings that are being overwhelmed by squatters...

A 285-unit apartment complex in Parla, less than half an hour’s drive from Madrid, should be an ideal target for investors seeking cheap property in Spain. Unfortunately, two thirds of the building generates zero revenue because it’s overrun by squatters.

“This is happening all over the country,” said Jose Maria Fraile, the town’s mayor, who estimates only 100 apartments in the block built for the council have rental contracts, and not all of those tenants are paying either. “People lost their jobs, they can’t pay mortgages or rent so they lost their homes and this has produced a tide of squatters.”

#6 The Collapse Of Chinese Power Consumption

Energy consumption tends to closely mirror economic activity. That is why the recent collapse of Chinese power consumption is so alarming. The following is from Zero Hedge...

According to CLSA's Chris Wood using NEA data, China's monthly power consumption (the most accurate proxy for underlying economic strength according to the current premier) growth slowed from 5.5% YoY in Jan-Feb 2013 to 1.9% YoY in March, the slowest growth rate since May 2009 (as discussed in-depth here).

#7 Horrible Economic Data Coming Out Of The Second Largest Economy On The Planet

The economic data that has been coming out of the second largest economy on the globe has been quite alarming recently...

#000000;">For starters, China’s recent economic data, as massaged as it is to the upside, is downright awful. China’s PMI numbers were the worst in two years. Staffing levels in the Chinese service sector decreased for the first time since January 2009 (remember that year).

#000000;">China’s LEI also shows no sign of recovery. If anything, it indicates China is heading towards an economic slowdown on par with that of 2008. And if you account for the rampant debt fueling China’s economy you could easily argue that China is posting 0% GDP growth today.

#8 One Out Of Every Five U.S. Households On Food Stamps

Back in the 1970s, about one out of every 50 Americans was on food stamps. Today, even though we are supposedly in the midst of an "economic recovery", food stamp enrollment continues to soar to new highs. The following is from CNS News...

The most recent Supplemental Assistance Nutrition Program (SNAP) statistics of the number of households receiving food stamps shows that 23,087,886 households participated in January 2013 - an increase of 889,154 families from January 2012 when the number of households totaled 22,188,732.

The most recent statistics from the United States Census Bureau-- from December 2012-- puts the number of households in the United States at 115,310,000. If you divide 115,310,000 by 23,087,866, that equals one out of every five households now receiving food stamps.

#9 Child Hunger In America

Those that work for the big banks on Wall Street may have no problems feeding their children, but overall there is a rapidly growing child hunger crisis in America today. Just check out the following statistics from one of my previous articles...

*For the first time ever, more than a million public school students in the United States are homeless. That number has risen by 57 percent since the 2006-2007 school year.

*In Miami, 45 percent of all children are living in poverty.

*In Cleveland, more than 50 percent of all children are living in poverty.

*According to a recently released report, 60 percent of all children in the city of Detroit are living in poverty.

#10 The Tremendous Suffering Of Hundreds Of Millions Of Desperately Poor People That We Never Hear About

There are billions of people around the globe that are deeply suffering but that do not have a voice. We usually never hear about the desperate poverty that these people are living in, but that doesn't mean that they don't exist. The following statistics that Stephen Lendman recently compiled should shock and alarm you...

At least 80% live on less than $10 a day. Over three billion people live on less than $2.50 a day. More than 80% live in countries where income disparity is increasing.

The poorest 40% of world population has 5% of global income. The bottom fifth has $1.5%. The top 20% has 75%.

According to UNICEF, 22,000 impoverished children die daily. They "die quietly in some of the poorest villages on earth, far removed from the scrutiny and the conscience of the world. Being meek and weak in life makes these dying multitudes even more invisible in death."

An estimated 28% of children in developing countries are underweight, malnourished and/or stunted.

How can so many people be living like that in a world with such wealth?

Sadly, things are going to get much worse. The economic and financial systems of the world are rapidly breaking down, and in a few years these are going to look like "the good old days".

And a growing number of people are starting to realize the direction that things are headed. For example, according to a survey that has just been released, 48 percent of all Americans believe that the best days of America are now behind us.

So what do you think?

Are our best days behind us, or are they still ahead of us?

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Russia’s Plan For The BRICS To Dismantle The Dollar System

2013-05-14T03:04:00.003-04:00

Yves here. Some financial markets commentators seem to be eagerly awaiting the dollar to collapse under the weight of the Fed’s monetary expansion. The wee problem with that view is that everyone knows that the party that trashes its currency gets a nice boost to its export sector, but it’s easy for this sort of behavior to devolve into “beggar thy neighbor” competitive devaluations (witness our recent finger-shaking at Japan). And since policy-makers in the major economies are deeply devoted to our current “free trade” system, the tacit assumption has been that we might see some jockeying within the current system, but no real breaks.

And the second major reason for the mainstream view that the dollar’s dominance is not at risk is that no other large economy wants the burden of serving as the reserve currency, which entails running trade deficits much of the time.

Nevertheless, a lot of countries resent the dollar hegemony. This post describes one effort to supplant it.

The status of the US dollar as the world reserve currency gives the US a number of advantages over other countries. The world’s most important commodities are priced and traded in dollars, even if most of these commodities are not produced in the US. The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the Federal Government runs a huge deficit with impunity.

So far, only China has been active in challenging the dollar supremacy. The internationalization of the yuan is an official priority of Chinese leaders. Currency swap agreements with major trade partners like Brazil, France, or Australia are small but important steps in the Chinese strategy.

Changing the world financial system is not an easy task and certainly a very challenging undertaking for China. Now, it seems that Beijing has found an ally in the Kremlin. And there appears to be a consensus between the BRICS countries: the urgent necessity to dismantle the dollar system.

A week before the recent BRICS summit in Durban, the Kremlin administration has silently produced a document which describes the Russian strategy in the context of BRICS cooperation. The document makes for a fascinating read for anyone brave enough to plow through the dense Russian legalese. The strategy has been designed in the “inner circle” of Vladimir Putin’s team, so it is safe to assume that it represents the official view on the BRICS future.

In Russia, politics are Byzantine; the fact that the Kremlin decided not to hide the document or leak it to a chosen few journalists, but publish it outright is a very strong signal, a very vocal angry signal directed at the US. A signal that the Western media chose to ignore.

In the recitals section of the document, the authors point out that “there is a common desire of the BRICS partners to reform the outdated global financial and economic framework that doesn’t take into account the growing economic weight of the emerging markets.” Moreover, the Russian strategists view the BRICS as a tool to reform the way the world is being governed. Then the document hammers home its message:

Russia assumes that, given enough political will of the leadership of the BRICS countries to advance their cooperation, this alliance can become one of the key elements of a new system for global governance, primarily in the economic and financial domains.

Move aside New World Order! The BRICS are coming to change the world.

The goals are clear. In the section titled “Strategic goals,” the first point on the BRICS’ agenda is the reform of the world financial system in order to make it “fairer, more stable, and more efficient.” In the later chapters, it is spelled clearly that this “reform” is actually a dismantling of the dollar system.
It is worth noting that the place of this issue in the list of the BRICS’ priorities speaks volumes about its importance. Judging by the order of priorities, depriving the dollar of its status as the world reserve currency is more important than “preventing breaches of sovereignty” (a.k.a. the “Syrian problem”) or “expanding economic cooperation.”

The language used in this document indicates that it has been written or strongly influenced by Sergei Glaziev, the president’s economy advisor, who is known for masterminding the economic aspects of the Eurasian Union between Russia, Belarus, and Kazakhstan. Glaziev has repeatedly accused Fed Chairman Ben Bernanke of starting “a currency war” against the emerging markets. He also believes that Bernanke’s policy will ultimately lead to a military confrontation: “the conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of a major war” (read more).

A whole chapter of the strategy document is dedicated to step-by-step instructions on dismantling the existing global financial system. The list of measures includes:

Reformation of the world currency system in order to create a representative, stable and predictable system of world reserve currencies;
Reduction of the risks of destabilization of currency and equity markets linked to massive cross-border flows of capital;
Increasing the use of national currencies in the trade between BRICS countries;
Increasing the level of cooperation between BRICS countries in order to promote their interest in the domain of world trade;
Strengthening the BRICS Exchange Alliance;
Creating independent rating agencies.

Since the Durban Summit, at least one of those measures has been implemented: RT reported that “China’s Dagong Global Credit Rating agency is to set up the joint venture with US-based Egan-Jones Ratings Co (EJR) and Russia’s RusRating JSC to challenge the three major US ratings agencies.” As BRICS countries try to achieve the rest of their stated goals, it remains to be seen if the dollar system survives the joint onslaught of the biggest emerging economies. By Valentin Mândrăşescu, author of the pungent article on the inner machinations of Russia…. Cyprus: A Triumph For Russian Isolationists

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World's Largest Steelmaker Urges Europe To Declare Trade War On China

2013-05-13T04:34:00.002-04:00

Currency wars are so pre-"QE eternity." At least that is the opinion of Indian multi-billionaire Lakshmi Mittal, and owner of the world's biggest steelmaker, who urged Europe to embrace protectionism and erect trade barriers to "protect" its manufacturers (benefiting one ArcelorMittal among others), while at the same time bashing austerity, saying "the futures of EU manufacturing depended on politicians in Brussels helping industry face what he said was unfair competition from China." In other words, it's time for Europe to escalate into full blown trade warfare with China. It is unclear if Mr. Mittal had any thoughts on how China would, in turn, escalate to this progression in trade warfare: whether with tariffs, subsidies, or outright dumping. What does appear quite clear is that the owner of ArcelorMittal, who on Friday posted a net loss of $345 million (down from a $92 million profit a year earlier) on Q1 sales plunging by 13%, whose stock is just off its 52 week lows, and who said he may close plants in Eastern Europe if the "economy continues to slump", may have some ulterior motives in asking that Europe fight his war for him.

From the FT:

Mr Mittal suggested that Europe should embrace protectionist measures to stop Chinese products flooding the market with cheap goods.

The London-based entrepreneur said Brussels should consider applying higher tariffs on imports of Chinese-produced steel, similar to the ones to be imposed on solar panels made in China. He argued that Chinese producers of steel were over producing, lowering the price of the metal globally.

“There should be increased tariffs for imports, or there should be a surcharge on the steel coming to Europe from countries where environmental standards are very low,” he said.

His call came as EU policy makers adopt an increasingly muscular approach to what they see as unfair competition from Chinese producers across a range of sectors.

Also not surprising was his lashing out at the latest bogeyman for Europe's economic doldrums: austerity, which has become the old world's equivalent of Bush, whereby everything that is wrong, is blamed on Germany's unwillingness to pursue "debt-reduction" policies through the layering of more debt, or in other words, to give the ECB carte blanche to follow in the Fed's footsteps and engage in outright monetization (a topic extensively discussed previously, and one where Europe will be at an impasse at least until Merkel's September reelection campaign is successful, or not).

“If Europe continues only with the austerity programme without spending money on growth for infrastructure, things will never improve,” Mr Mittal told the Financial Times. “We can clearly see that austerity is not helping economies to come out of recession.”

He added: “They [policy makers] have to save European manufacturing, whatever you may call it, what I want is actions to save the domestic manufacturing, including steel.”

At least now thanks to Lakshmi, Europe has a new bogeyman: evil, efficient Chinese steel plants which should be stigmatized due to "very low environmental standards."

Just as not surprising, was the lack of macro economic "advice" geared at the US - after all there Mittal's operations are still quite profitable:

ArcelorMittal executives say the operating environment in the Americas is much healthier than in Europe. Louis Schorsch, who heads a large part of the American business, said that steel consumption in the United States was approaching levels last seen before the financial crisis. Demand from the auto industry, probably the company’s most important customer in the United States, is ‘‘a good story’’ and housing is ‘‘a little better,’’ he said, while demand for drill pipe and other energy-related products is ‘‘a little bit off.’’

But in Europe it is a different story entirely:

Mr. Mittal said Friday that while the results were ‘‘still not satisfactory, at least I am starting to see the benefits of the actions we have taken’’ to reduce capacity.

Given the slump in demand in Europe, ‘‘we felt that this is not a cyclical but a structural change,’’ he said. ‘‘We needed to take action.’’

The closing of operations in Europe, especially at Liège, Belgium, and Florange, France, has led to tension with governments and unions.

The French government last year threatened to nationalize the Florange site, but Mr. Mittal largely held firm on his plans to permanently close blast furnaces there. The company did say Friday that it had begun a new production line at Florange for modern, lightweight automotive steel with the trademark Usibor.

Bottom line: Mittal's advice to France - don't target me, but instead make things much worse by re-escalating trade tensions and taking up the global currency wars at least one level. As for the long-term consequences of China getting actively involved in trade warfare, well - the stock market really only cares 1-2 quarters out. What happens in 2014, 2015 and so on, that's someone else's concern.

ArcelorMittal, which is based in Luxembourg, still looks as if it has a long way to go before it returns to the high profitability it enjoyed before the onset of the global financial crisis. The company reported net income of $10.4 billion in 2007.

‘‘There is a glut of steel supply globally,’’ said Jeff Largey, an analyst at Macquarie in London. ‘‘That is going to prevent a company like ArcelorMittal from making the type of profits it did in its heyday.’’

One wonders if Mittal will also demand protectionism to be enacted against Chinese miners next:

Even in mining, where Mr. Mittal is focusing most of his investment these days, the results were not stellar. Operating income of $286 million was down 19 percent compared with the previous year, although it was up 54 percent compared with the last quarter of 2012.

But ignore all that, and just blame China, which was a great friend and ally when it was helping the Indian's materials empire achieve record profits, but which may be sacrificed at the altar of hollow punditry and macroeconomic myopia once things start turning sour for the bottom line.

Source

Implosion: Patent Law Remains Troubled in the US

2013-05-10T04:48:00.003-04:00

Headlines have been trumpeting the Indian Supreme Court's decision to deny a new patent for the cancer drug Gleevec as an attack on intellectual property rights and a win for patients in need of cheap drugs. Those headlines are misleading. What the ruling actually demonstrates is that India has set a high bar for determining what is "innovative." – Reuters

Dominant Social Theme: Nothing wrong with patent law. Let the haters hate.

Free-Market Analysis: A scholar with the Cato Institute, a libertarian think tank, has written about India's noted Gleevec case that has spawned such headlines as "Gleevec as an attack on intellectual property rights and a win for patients in need of cheap drugs ..."

The article posted at a Reuters blog points out that "Those headlines are misleading. What the ruling actually demonstrates is that India has set a high bar for determining what is 'innovative.'"

The article adds that the United States "could learn a thing or two from India – particularly since Washington's excessively liberal patent system led to a ridiculous spat last year between Samsung and Apple over whether a rectangular cellphone screen with rounded corners was patentable."
Here's more:

The court's ruling has highlighted the fundamental point that patents are monopoly rights – which should not to be granted too liberally. Competition must be promoted and monopolies penalized, with the exception that temporary monopolies are strongly justified to reward innovation.
This includes rewarding true drug innovations, not the tweaking or "evergreening" of old patents through slight variations. In stark contrast to India, Washington grants patents liberally, with a low bar for deciding what is innovative. As a result, the U.S. patent office has been snowed under by an avalanche of patent applications it can hardly scrutinize thoroughly.

This has three unfortunate consequences. First, many new initiatives (especially in software and business processes) attract dozens of lawsuits, making innovation risky and expensive. The winners are those with the best legal brains and largest budgets, not the best innovations. Second, liberal patents hamper follow-on innovations. Unlike Isaac Newton, today's innovators cannot stand on the shoulders of giants without being hit by lawsuits for patent infringement. Third, liberal patent-granting policies spur patent trolls and defensive patenting. Patent trolls buy quantities of patents, often from ailing or bankrupt companies, with no intention of using them.

There is little doubt the US patent system is broken, and the article does us the favor of pointing out that granting monopoly rights to "inventions" via patents (or copyrights and trademarks) is increasingly producing a dysfunctional system when it comes to innovation.

The bar for patents in the US especially has been both raised and lowered. Small inventors often have a terrible time gaining patents while large corporations can gain patents for questionable inventions.
Additionally, patent law is often "making law" outside of other existing legal channels. It is certainly not settled law that the human genome ought to be patented but people are trying anyway.

Patent law, copyright and trademarks all confer legal power on those who are successful in registering their product or production. But like so many government functions, patent law has expanded in ways that certainly weren't originally intended.

Conclusion: One could speculate that the system is due for a radical makeover – or perhaps just a significant implosion that will catch companies and investors alike off-guard.

Source

What Buffett Has Forgotten, But We Should Remember

2013-05-09T04:48:00.004-04:00

Buffett says economy on mend, bonds 'terrible' investment ... Warren Buffett said the U.S. economy is gradually improving, but low interest rates have made bonds "terrible investments" while stocks remain "reasonably priced." Speaking on CNBC television on Monday, the chairman and chief executive of Berkshire Hathaway Inc. said the economy is benefiting from an upturn in areas that had not previously performed well ... Buffett spoke on CNBC after Berkshire's annual shareholders meeting over the weekend in Omaha, Nebraska. The world's fourth-richest person said low benchmark interest rates, including overnight rates that Federal Reserve Chairman Ben Bernanke has kept at effectively zero since late 2008, can help stimulate demand. – Reuters

Dominant Social Theme: Okay, we had a rough patch, but things are looking up.

Free-Market Analysis: This article makes sure to remind us that Warren Buffett is the world's fourth richest man. But wealth does not necessarily create wisdom.

We remember when Buffett was technically broke ... certainly right after the financial crisis that began in 2008. Then with almost every other Goliath, Buffet was busted. Briefly, his net worth was probably negative.

It was money printing that caused the financial crisis, in our view ... money printing and low rates. Since then, there has been more of the same and gradually a reflating bubble. This is what Buffett and others are calling "a recovery."

It has been driven by central bank Super-Money. Apparently, the Federal Reserve in particular sent trillions around the world in so-called "short-term" loans that have never been repaid. Supposedly, Ben Bernanke provided some US$16 trillion in liquidity in a single weekend.

So it is worth remembering, when listening to someone like Buffett – as wise as he is – that only a few years ago he was basically broke. If the system had shattered so would his wealth.

Here's more from the article:

Many investors have also been drawn to bonds because their prices rise as rates fall, and Buffett said they could get their comeuppance when that process reverses.

"Bonds, they're terrible investments now," Buffett said. "That will change at some point, and when it changes, people could lose a lot of money if they're in long-term bonds."

He said stocks, in contrast, are "reasonably priced," though he continues to shy away from sectors such as media, where he cannot reasonably predict who will thrive in the long run.

"It's a lot easier for me to predict that ketchup will be doing well or Coca-Cola will be doing well in 10 years," Buffett said, referring to Berkshire's pending takeover with Brazilian investment firm 3G Capital of H.J. Heinz Co (HNZ.N), and Berkshire's large investment in Coca-Cola Co (KO.N) stock.
... Speaking on Monday, Buffett called Bernanke "a gutsy guy" who has "done very, very well in terms of what he has done for the United States."

Last week, the Fed said it would continue to buy $85 billion of bonds per month to spur growth, and it will step up purchases if needed. The economy grew at a 2.5 percent annualized rate in the first quarter.

Buffett is probably right about bonds, just as he is often about stocks. But all his analysis is focused around interest rates and Ben Bernanke actions as regards money printing. He even calls Bernanke a "gutsy guy."

The "Sage of Omaha" is known as an investment guru but, unfortunately, in this latest financial crisis we have seen more clearly than ever that nothing much else matters to the economy than the ability to print money and lots of it.

When Buffet says the stock market is reasonably priced, we have to wonder exactly what he means. Is he speaking of value or of Fed pump priming?

This is our larger point as well when it comes to investing. One needs to watch central bankers and the dominant social themes they promote just as much as one watches the market itself.

And it is a melancholy fact that if one had merely restricted one's investments to the military-industrial complex and Intel adjuncts such as Google and Facebook, one probably would have beaten the market hands down.

Investments these days are subject to a great struggle between manipulation and free-market pushback. What you invest in depends on what you believe the outcome of this struggle will be and the timeline as well.

Buffett, in our view, does consumers no favor by not spelling out larger market and governmental forces at play in the marketplace. By focusing on value, he is leading investors into believing that mathematical analyses and historical performance are the main drivers of investing.

Conclusion: But let us remember the financial crisis of 2008 when even Buffet found out otherwise.

Source

When Is The Government Going To Shut Down Bitcoin?

2013-05-08T05:15:00.000-04:00

Do you actually believe that the central banks of the world are going to sit back and do nothing while their monopoly over money creation is being threatened? Do you actually believe that the governments of the world are going to allow a digital currency that they have no control over to become “the future of money”? If so, then you are incredibly naive. Wars have been started over much less. The global elite are very, very sensitive when it comes to the creation of money, and Bitcoin has definitely gotten their attention. Yes, there have always been alternative currencies created by local communities, but none of those has ever been a real threat to the central banks of the world. The truth is that Bitcoin is different. It has the potential to really be something, and I expect a serious move to be made against Bitcoin before it explodes in popularity. If Bitcoin was solely a domestic currency, the U.S. government would have already shut it down long ago. The fact that it is a decentralized international currency makes things trickier, but without a doubt right now officials are thinking of ways to restrict the use of Bitcoin or shut it down altogether. Bitcoin is already being portrayed as a currency that attracts criminals involved in such things as tax evasion, drug dealing, gambling, terrorism and money laundering. In fact, the Wall Street Journal recently reported that the Treasury Department has ruled that money laundering rules will be applied to Bitcoin. But this is just the beginning.

At some point, the establishment will bring out the big guns. It is only a matter of time. And there are already some major banks that are shutting down the accounts of Bitcoin dealers. Just check out what is happening up in Canada…

Virtex, based in Calgary, is an online market that matches Bitcoin buyers with sellers, with about $13-million of trades under its belt.

But earlier this month Royal Bank of Canada quietly informed Mr. David that it would no longer do business with his company.

“They shut down our account without any reason,” said Mr. David, an ebullient entrepreneur with a background in technology companies. “They just said we have the right to refuse service to whomever we wish.”

For whatever reason, many in Canada’s small but fast growing Bitcoin community are suddenly dealing with the same problem: The banks have decided they don’t like the cryptocurrency and they’re shutting down some of the accounts of businesses that deal in it.

An isolated incident?

Perhaps.

But many of those that are closely associated with Bitcoin know that they are being closely monitored. They know that bankers and government officials are watching them. Just check out what Jeff Berwick of The Dollar Vigilante recently had to say…

If there is one thing that my involvement with BitcoinATM has shown me very plainly in the last month is that bitcoin has the direct attention of the governments, central banks and banks. It took them nearly two decades to figure out the internet would be their downfall. In this case, it has only taken them months to realize that bitcoin could end their monopoly on money and banking.

And they aren’t watching because they like what they see.
Rather, they are watching because they see a threat that needs to be stamped out.
Robert Wenzel of the Economic Policy Journal recently suggested how they will attempt to do this…

I continue to believe that the point of vulnerability for Bitcoin remains the point of exchange between bitcoins and other currencies. I fully expect government to make a massive shutdown of these exchanges at some point.

And I agree with him. I believe that a day will come when those exchanges will be shut down. The powers that be just have to figure out how to sell it to the public.

So what will happen to Bitcoin once those exchanges are shut down? The following is from a recent article by Max Keiser…

Here’s a thought exercise. What if all bitcoin exchanges were shut down by various governments? What would the current value of a bitcoin be? This is an important question because of the implied outcome of the current trend by governments to shut down — or prevent the creation of — bitcoin exchanges.

The mining of bitcoin would continue but spending them becomes a problem since there would be no quoted price. The bitcoin protocol is about mining bitcoin not pricing bitcoin. There is nothing in the protocol about establishing a market price for bitcoin; you need a market for that, but what if all the exchange markets are shut down?

And already we are starting to see Bitcoin being demonized in the mainstream media. For example, the following is a brief excerpt from a recent CNN article about Bitcoin…

No one really knows who is really behind Bitcoins, as the creator is just a pseudonym Satoshi Nakamoto. That in itself should be a huge red flag. I would certainly not trust my life savings to some mysterious computer algorithm created by shadowy anonymous characters in a system that attracts underworld types.

One of the self-proclaimed largest Bitcoin exchanges is Mt. Gox. The name originally stood for Magic: The Gathering Exchange, an online site designed to trade cards used in playing the card game popular with the younger set. An exchange based on trading kiddy cards does not seem like a sound foundation for a monetary system.

There is no government regulating participants in the system to prevent fraud and abuse. I would not be surprised if the Bitcoin mining software becomes a magnet for computer viruses. After all, the tax evaders, drug dealers and terrorists attracted to Bitcoin would not be likely to cooperate with authorities when they have been hacked and robbed.

It would be close to the perfect crime to create a pseudomonetary system that rips off other evildoers. Just be careful when the bad guys find out where you live.

And without a doubt, Bitcoin is a very, very unstable currency. Just a few days ago a Bitcoin was going for around $150. Now it has dropped below $100.

But I applaud the creators of Bitcoin for trying to come up with an alternative digital currency that actually works. As I have written about over and over, the Federal Reserve and the other central banks around the globe need to be abolished. They have trapped humanity in a debt-based monetary system that systematically drains our wealth.

We desperately need an alternative.

Unfortunately, I don’t believe that Bitcoin is going to be the solution. At some point, the establishment is going to step in and try to shut down Bitcoin. When that occurs, what is going to happen to all of the time, money and effort that people have put into the Bitcoin system?

Source

Morgan Stanley Commentators: Please Reveal Your Conflicts of Interests

2013-05-07T04:32:00.001-04:00

The Oil and Gold Booms Are Over ...The wreckage caused by China's great, juddering slowdown continues to spread far beyond the country's shores. Although most commodities enjoyed a bounce on May 3, after better-than-expected U.S. employment data, the plunge in their prices over the past few months suggests the past decade's rally is truly broken. For those of us not in the mining industry, this is actually good news – one of the best signs yet that the global economy is returning to normal. – Bloomberg

Dominant Social Theme: Let's get back to paper money as soon as possible.

Free-Market Analysis: Did you know that gold and oil have similar trading characteristics? Oil has been in use about 100 years from an industrial perspective and gold for several thousand years – though some say there are gold mines in South Africa that are 100,000 years old or more.
So it is strange that a thousand-year-old mineral and 100-year-old power source should have equivalent characteristics. We should wonder about that but, of course, this Bloomberg article doesn't wonder at all.

Written by a Morgan Stanley global strategist, the article glibly conflates oil and gold as "commodities." Anyone who has read yesterday's interview on these pages with Antal Fekete – or read Murray Rothbard or even Ludwig von Mises – knows that while gold expands and contracts, its supply and demand cycle actually has little to do with energy and oil.

In other words, the price of oil can remain relatively high, while the price of gold and silver may languish and vice versa. But we don't find out anything about the differences between money metals and oil in this particular screed nor others like it. The effort, as always, is to confuse people about the reality of money metals, their usefulness and their historical cyclicality. Here's more:

China's voracious demand for every conceivable raw material – oil, steel, soybeans, gold, to name a few – once seemed to spell a future of endlessly rising commodity prices and falling living standards in developed nations. This was a Malthusian vision of scarcity: Rising demand from the growing economies of the emerging world would couple with shrinking supplies to drive up the prices of natural resources. Gas prices would never come back down; gold would cost thousands of dollars an ounce.

The response, for many international investors, was to bet big on China. Because it is hard to buy directly into China, many instead bought into the commodities that were being sucked into the gaping maw of the country's economy: oil from Russia, iron ore from Australia and so on.

The China-commodity connection was born. Financial entrepreneurs started exchange-traded funds, which allowed individual investors to trade commodities, including silver and gold, as if they were stocks.

For the first time, U.S. pension funds started to allocate a share of their holdings to commodities. Even the Federal Reserve got involved, inadvertently, by printing so much money that a good portion of it wound up fueling speculative bets on China and the big emerging markets, often using commodities as a proxy.

Prices went parabolic. From 2000 to 2011, copper prices rose 450 percent, oil prices 365 percent, and gold prices more than 500 percent to a high of more than $1,900 an ounce. There was talk of oil hitting $200 a barrel, and gold reaching $10,000 an ounce. It was a wild time, all predicated on the idea that the rise of China had set off a commodity "supercycle" that could keep prices high indefinitely.

Commodity prices, such as that of gold, tend to rise when faith in the financial system is in decline and usually fall when confidence is high. In this they resemble the politician of whom Winston Churchill once said: "He has all the virtues I dislike and none of the vices I admire."

High commodity prices enrich a class whose corrupting influence is legend, and whose chief skill is the ability to secure the right political contacts. Meanwhile, high commodity prices, particularly for oil, squeeze the poor and the middle class, and act as a brake on growth in the industrial world. During the 2000s, the U.S. fretted over the rise of corrupt oil tycoons and unstable dictators in nasty petro-states, and rightly so.

That's why falling commodity prices -- both gold and copper are still down more than 10 percent this year despite the latest bounce -- are good news. The China-commodity connection is breaking. After three straight decades of ultrafast growth, China's inevitable slowdown has let air out of the bubble: Since the peak in April 2011, the broadest available measure of commodity prices has fallen 16 percent. In recent months, money has started flowing out of exchange-traded funds for most commodities.

Okay, had enough? Did you know when you buy gold and silver that you empower a corrupt political class? You thought you were empowering yourself and your family by buying gold and silver and taking delivery. Turns out all you are doing is supporting the Chinese hierarchy.

Let us toot our horn a bit: No one has a much better record when it comes to China than we do. We started talking about the Chinese bubble and bust as much as four years ago. At the time, it wasn't popular but we know a bubble when we see one. And we knew that a country building whole empty cities is not going to sustain that level of economic activity forever.

We also recognize questionable statements when we read them. The boom in gold and silver over the past decade had little to do fundamentally with China's development on the world scene. You know ... people bought gold before the arrival of the BRICs as important powers. People, including the Chinese and India's Indians, will buy gold and silver regardless of their countries' prominence on the world stage.

There are plenty of factors influencing the price of gold and silver (in fiat dollars) but treating gold and silver as if their performance is merely an aberrant side effect of China's emergence onto the world stage is facile at best. We're not surprised this article emerged from the pen of a Morgan Stanley exec. Morgan Stanley has a vested interest in boosting fiat money power and generates massive profits from paper currency.

Conclusion: These days writers for the financial press are supposed to reveal conflicts of interests. We await the day when Wall Street-affiliated scribes reveal their conflicts of interest when it comes to writing about gold and silver.

Source

Fed Is Tightening. No, It's Loosening. No, It's ...

2013-05-06T05:24:00.001-04:00

Fed Open to Expanding QE as It Counters Talk of Tapering ... Facing the risk of a fourth straight summertime slowdown, Federal Reserve officials raised the prospect of increasing the monthly pace of bond buying above $85 billion to guard= against any slump in growth or employment. The Fed's statement yesterday that it's "prepared to increase or reduce the pace of its purchases" was a signal that its $3.32 trillion balance sheet is a flexible tool for monetary policy that can be adjusted up or down, like interest rates. – Bloomberg

Dominant Social Theme: The Fed knows what it is doing, collectively and individually!

Free-Market Analysis: Is the Fed loosening or tightening and how do they know? Wouldn't the top bankers at the Fed need forward-looking indicators to be most successful? In other words, once an economy has sagged – or roared to life – isn't it too late to apply the necessary prophylactic?

Here's more from the Bloomberg article above:

The statement, released in Washington, countered discussion of the timing of a reduction in purchases at the Fed's March meeting. "There is more uncertainty so they probably wanted to correct a single-minded focus on tapering," said Roberto Perli, a partner at Cornerstone Macro LP, a research firm in Washington, and former member of the Fed board's Division of Monetary Affairs. At the same time, policy makers need to see more data before deciding whether to step up the pace of asset purchases, Perli said.

Stocks and Treasury yields declined yesterday after reports showed that U.S. manufacturing in April expanded at the slowest pace this year and companies took on the fewest workers in seven months. The reports added to evidence that the world's largest economy is slowing this quarter after picking up speed in the first three months of the year.

The Standard & Poor's 500 Index (SPX) advanced 0.4 The Federal Open Market Committee said it will keep for now the monthly pace of bond purchases at $85 billion, a strategy aimed at spurring a revival in sales of cars and homes by reducing mortgage rates and other long-term borrowing costs.
The Fed repeated that bond buying will continue "until the outlook for the labor market has improved substantially." It also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn't exceed 2.5 percent.

The shift in the statement's language endorsed Chairman Ben S. Bernanke's message in March that the committee "could vary the pace of purchases" as the Fed gets closer or further away from its goals.

What do we learn from this? One feedbacker commenting on this article said it is obvious the top Fed bankers have no clue what to do next. One week, the bankers are indicating they will tighten because the economy is looking up and the next week they are speaking once again of a more accommodative policy.

This would be our perspective, as well. All this talk about monetary policy just covers up a basic futility.

They simply don't know. The black market US economy – spawned by hard times and high taxes – may be as much as US$4 trillion. Are these economic numbers taken into consideration?

And what about gold? The gold price is telling us that inflation is not as much of a factor in consumer worries. And yet there is no physical gold to be had at paper gold price, apparently.

What data to trust? How does Ben Bernanke know?

Maybe that's why he is leaving. The meme is collapsing around his head as he goes.

We predicted it nearly three years ago. Information on the Internet has thoroughly exposed the inadequacies of this kind of macro money management.

What about the employment figures? Where does the Fed stand on them? After all, they are probably half or less of the real number – or not, depending on the status of the black-market economy and what the government wants to portray.

This whole idea that a small group of people can sit around a table and examine politically massaged government statistics and then come up with monetary policy is increasingly and evidently insane.
It is a dominant social theme, a meme.

Central planning doesn't work. Price fixing doesn't work, especially price fixing of money stuff.
So what's on the menu? Surely not a measured recovery.

Conclusion: More chaos, no doubt. And that may suit some of our controllers just fine.

Source

How HMRC treated its Goldman Sachs tax deal whistleblower as a criminal

2013-05-03T04:34:00.002-04:00

Tax officials used intrusive investigative powers meant to catch serious criminals to try to prove that a whistleblower who uncovered a "sweetheart" deal with Goldman Sachs had spoken to the Guardian, it has emerged.

The belongings, emails, internet search records and phone calls of the HM Revenue and Customs solicitor Osita Mba and the phone records of his wife, Claudia, were examined by investigators, according to previously undisclosed documents.

The powers, which are supposed to be used to combat large-scale criminal tax frauds, were used because the tax inspectors suspected that Mba had been in contact with the Guardian's former investigations editor, David Leigh.

Leigh's telephone numbers and email addresses were cross-referenced with Mba's, but investigators found no evidence of contact, documents show.

The disclosure has prompted serious questions about HMRC's behaviour.

Cathy James, the head of the whistleblowers' charity, Public Concern at Work, said the decision to use intrusive powers to examine an employee who made claims using whistleblowing legislation was "outrageous" and "sinister".

"The actions of the HMRC in this case are very much a step in the wrong direction, more likely to result in a culture of silence with more anonymous leaking than anything else. It is a case of shoot – and silence – the messengers," she said.

Using the Public Interest Disclosure Act, Mba wrote to the National Audit Office (NAO) and two parliamentary committees in confidence in 2011 saying that the head of tax, Dave Hartnett, had "let off" Goldman Sachs from paying at least £10m in interest.

Emails show Mba's identity was disclosed to the revenue in October 2011 by the former clerk of the public accounts committee, who had sought clarification that Mba was their employee. The next day, a member of the HMRC's security staff sought to obtain access to Mba's office cabinet beneath his desk in Whitehall. "Thanks. Did you manage to get cabinet key number?" he asked a colleague.
The man also received an email containing the solicitor's private email address, his mobile number, his home telephone number and his wife's telephone details.

On 11 October 2011, the Guardian published a story under the headline "Goldman Sachs let off paying £10m interest on failed tax avoidance scheme", written by Leigh. Publication prompted members of the revenue's criminal investigative unit to take action. One named internal criminal investigator sent an email on 19 October to a colleague saying that the revenue had begun "a review of the suspect's [Mba's] H drive [the hard drive used within HMRC] and email traffic and internet usage", but inquiries had revealed nothing.

He then proposed a "further interrogation of computer material" and an "itemised billing check", and wrote that "consultations with the CPS [Crown Prosecution Service] can proceed".

Using the Regulation of Investigatory Powers Act 2000 (Ripa), HMRC can see websites viewed by taxpayers, where a mobile phone call was made or received, and the date and time of emails, texts and phone calls. According to the revenue website, these powers "can only be used when investigating serious crime". But the papers disclose that applications were granted to investigate Mba using Ripa.

On 21 October 2011, tax officials applied for an itemised billing request to check a mobile of Mba's, documents show.

One document read: "David Leigh, who was given HMRC material discussing a named taxpayers tax affairs advised a senior employee of HMRC that he had been given access to that material on the 4th or 5th October 2011 and in it he quoted extracts from an HMRC minute of 8/12/2010. He was clearly given information which if provided by an HMRC employee was in contravention of CRCA [Commissioners for Revenue and Customs Act 2005]."

Ten days later, another investigator sent a document, entitled leakupdate4, to colleagues showing they had failed to identify any illegal activity through IT checks, emails, intranet and internet usage and checks from Mba's office telephone.

Investigators also circulated Leigh's office and mobile number among staff so that they could be cross-referenced with Mba's numbers.

A memo sent in December 2011 said the revenue had checked Leigh's details but found no evidence of contact with Mba.

Leigh, who retired from the Guardian last month, said: "The revenue's decision to use these powers to try and find a link with a journalist when the disclosure was so obviously in the public interest was heavy-handed and foolish, and shows the level of paranoia over their tax deals."

Mba was suspended from work, as the Guardian revealed on 8 December 2011, when public accounts committee members warned revenue officials not to harass or bully him. However, the organisation continued to receive and detail his phone records, documents show. The inquiry was abandoned on 11 January 2012.

Mba, who trained as a barrister in Nigeria and completed his master's degree at Oxford, worked in the personal tax litigation team that dealt with the Goldman Sachs tax issue. He told the NAO and two parliamentary committees that the bank's settlement had been agreed with a handshake by Hartnett, the permanent secretary for tax at HMRC.

Mba believed the deal could be illegal, and told auditors he was making the disclosure under whistleblowing legislation. His evidence led to Hartnett's being accused of lying to parliament over his role in the Goldman Sachs deal, which he denied. He admitted, however, that his organisation had made a mistake by approving the deal.

In June 2012, Mba filed a claim under the Public Interest Disclosure Act in the central London employment tribunal. In November 2012, HMRC ordered Mba to return to work in a different team.
In 2011, HMRC was authorised under Ripa to view 14,381 items of "communications data" on taxpayers while investigating tax evasion, compared with 11,513 items in 2010, according to figures released under the Freedom of Information Act.

The employment tribunal claim continues and is expected to be heard in the autumn. HMRC declined to comment when contacted on Monday.

Source

22 Facts That Prove That The Bottom 90 Percent Of America Is Systematically Getting Poorer

2013-05-02T06:39:00.006-04:00

The mainstream media is not telling you this, but the truth is that most Americans are steadily getting poorer. The middle class is being absolutely eviscerated, and poverty is soaring to unprecedented heights. The fact that 90 percent of the population is constantly sliding downhill is not good for our society. The United States is supposed to be a land of opportunity with a vibrant free market system that enables average people to make better lives for themselves. Unfortunately, free enterprise is being strangled to death in the United States today. Entrepreneurs and small business are being pounded into oblivion by rules, regulations, red tape and oppressive levels of taxation. At the same time, millions of jobs have been shipped out of the United States by corporate giants and sent to countries where it is legal to pay slave labor wages. All of this has happened under both Democrats and Republicans. Meanwhile, wealth and power continue to become even more heavily concentrated in the hands of big government and big corporations. Our founding fathers warned that we should not allow such large concentrations of wealth and power, because they tend to funnel the rewards of society into the hands of a select few. We need to change the rules of the game so that entrepreneurs, small businesses and average workers can thrive in this country once again. If big government and big corporations continue to gobble up even more wealth and power, the wealth inequality that we see right now will only get even worse.

The following are 22 facts that prove that the bottom 90 percent of America is systematically getting poorer...

#1 According to the Pew Research Center, the top 7 percent of all U.S. households own 63 percent of all the wealth in the country.

#2 Between 2009 and 2011, the wealth of the bottom 93 percent of all Americans declined by 4 percent, while the wealth of the top 7 percent of all Americans increased by 28 percent.

#3 On average, households in the top 7 percent have 24 times as much wealth as households in the bottom 93 percent.

#4 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#5 According to the Economic Policy Institute, the wealthiest one percent of all American households have 288 times the amount of wealth that the average middle class American family does on average.

#6 According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.

#7 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.

#8 According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

#9 In the United States today, corporate profits as a percentage of GDP are at an all-time high, but wages as a percentage of GDP are at an all-time low.

#10 In 1980, CEOs at S&P 500 companies made 42 times as much as their employees did on average. Today, CEOs at S&P 500 companies make 354 times as much as their employees do on average. In fact, there are many CEOs that make more than 1000 times what the average employees in their companies make.

#11 According to a report recently issued by the Pew Research Center, Americans over the age of 65 have 47 times as much wealth as Americans under the age of 35 on average.

#12 U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

#13 Back in 2007, about 28 percent of all working families were considered to be among "the working poor". Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.

#14 At this point, one out of every four American workers has a job that pays $10 an hour or less.
#15 Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

#16 The U.S. economy continues to trade good paying jobs for low paying jobs. 60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

#17 As I mentioned yesterday, the homeownership rate in America is now at its lowest level in nearly 18 years.

#18 The United States now ranks 93rd in the world in income inequality.

#19 Approximately one out of every five households in the United States is now on food stamps.

#20 The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

#21 According to the U.S. Census Bureau, more than 146 million Americans are either "poor" or "low income".

#22 At this point, the poorest 50 percent of all Americans collectively own just 2.5% of all the wealth in the United States.

Even if your income just stays the same, you are still getting poorer because inflation is a tax that is constantly chipping away at the value of every single dollar that you own. The cost of everything that we buy on a regular basis (food, gas, health insurance, etc.) is constantly going up, and if your income is not keeping pace that means that you are getting poorer.

That is just one reason why the Federal Reserve system is so insidious. They are killing the middle class with inflation. For much more on the Federal Reserve and why it should be abolished, please see this article: "10 Things That Every American Should Know About The Federal Reserve".

So if most Americans are getting poorer, then why aren't our politicians doing something to fix it?
Well, the sad truth of the matter is that the big corporations fund the campaigns of our corrupt politicians. They know that the candidate that raises the most money almost always wins, and so it provides an incentive for our politicians to be very good to those that have the money.

Plus, many of our politicians are way too busy having a good time to be bothered with doing anything for us. Take Barack Obama for example. According to The Telegraph, Barack Obama has spent twice as much time playing golf and vacationing as he has on attending economic meetings...

In an analysis of the presidential diary and newspaper reports, the Government Accountability Institute found that Mr Obama has spent 976 hours since his January 2009 election on holiday and playing golf.

In contrast, he has only spent 474.4 hours in economic meetings.

"As a government watchdog group, we just tabulate the numbers and let others decide how to interpret them," said Peter Schweizer, president of GAI, which compiled the report.

But this is a problem that is not going away. The bottom 90 percent of the country is systematically getting poorer, and if this continues it will inevitably result in massive social problems. The video posted below does a great job of graphically illustrating the crisis that we are facing...

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Secret “Free Trade” Negotiations Will Gut Regulations, Further Enrich Multinationals and Big Financial Firms

2013-05-01T04:44:00.002-04:00

It’s a sign of the times that a reputable economist, Dean Baker, can use the word “corruption” in the headline of an article describing two major trade deals under negotiation and no one bats an eye.

By way of background, the Administration is taking the unusual step of trying to negotiate two major trade deals in the same timeframe. Apparently Obama wants to make sure his corporate masters get as many goodies as possible before he leaves office. The Trans-Pacific Partnership and the US-European Union “Free Trade” Agreement are both inaccurately depicted as being helpful to ordinary Americans by virtue of liberalizing trade. Instead, the have perilous little to do with trade. They are both intended to make the world more lucrative for major corporations by weakening regulations and by strengthening intellectual property laws. The TPP has an additional wrinkle of being an “everybody but China” deal, intended to strengthen ties among nations who will then be presumed allies of America in its efforts to contain China. As we indicated via a link to an Asia Times article over the weekend, that’s proving to be a bit fraught as Japan is flexing its muscles militarily and thus less inclined to follow US directives tamely.

One of the most disturbing aspects of both negotiations is that they are being held in secret….secret, that is, if you are anybody other that a big US multinational who has a stake in the outcome.
Baker describes in scathing terms why these types of deals are bad policy:

…these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers.

All the arguments that trade economists make against tariffs and quotas apply to patent and copyright protection. The main difference is the order of magnitude. Tariffs and quotas might raise the price of various items by 20 or 30 percent. By contrast, patent and copyright protection is likely to raise the price of protected items 2,000 percent or even 20,000 percent above the free market price. Drugs that would sell for a few dollars per prescription in a free market would sell for hundreds or even thousands of dollars when the government gives a drug company a patent monopoly…

The idea is that once a deal is completed there will be enormous political pressure for Congress to approve it no matter what it contains….news outlets like the Washington Post will use both their news and opinion sections to bash members of Congress who oppose a deal. They will be endlessly portrayed as ignorant Neanderthals who do not understand economics.

The reality of course is that it is the “free traders” who either do not understand economics or deliberately choose to ignore it. Many of the provisions that we are likely to see in these deals, like stronger patent protections, will slow growth and cost jobs.
These deals will also lead to more upward redistribution of income. The more money that people in the developing world pay to Pfizer for drugs and Microsoft for software, the less money they will pay for the products that we export, as opposed to “intellectual property rights”….

This is yet another case where the government is working for a tiny elite against the interests of the bulk of the population.

If that isn’t bad enough, there’s another side of these planned pacts that is often simply ignored. These “trade” deals are Trojan horses to erode or eliminate national regulations. Baker anticipates that these deals will include sections that would limit government regulation (including at the state and local level) on fracking and could revive much of the internet surveillance that reared its ugly head in the failed SOPA.

And this sort of erosion of the right to regulate will most assuredly extend to financial services. Dodd Frank? The Brown-Vitter bill that some see as a great new hope for tougher financial regulation? They are already unworkable under existing trade agreements. As Public Citizen noted:

One of the most controversial WTO agreements is the General Agreement on Trade in Services (GATS)..One of the most controversial service sectors covered by the GATS is finance….

Taken as a whole, the WTO’s limits on financial service sector regulation are expansive. These rules not only guarantee foreign financial firms and their products access to U.S. markets, but also include numerous additional rules that limit how our domestic governments may regulate foreign firms operating here:

No new regulation: The United States agreed to a “standstill provision” which requires that we not create new regulations (or reverse liberalization) for the list of financial services bound to comply with WTO rules. Translated out of GATSese, this means that the United States has bound itself not to do what Congress, regulators and scholars deem necessary – create new financial service regulations.

Certain forms of regulation banned outright: The United States agreed that it would not set limits on the size of financial firms, the types of financial service one entity may provide or the types of legal entities through which a financial service may be provided in the broad array of financial services signed up to the WTO. These WTO rules conflict with countries’ efforts to put size limitations on banks (so that they do not become “too big too fail”) and to “firewall” different financial services (a policy tool used to limit the spread of risk across sectors).

Treating foreign and domestic firms alike is not sufficient: The GATS Market Access limits on U.S. domestic regulation apply in absolute terms. In other words, even if a policy applies to domestic and foreign firms alike, if it goes beyond what WTO rules permit, it is forbidden. And, forms of regulation not outright banned by these rules must not inadvertently “modify the conditions of competition in favor of services or service suppliers” of the United States, even if they apply identically to foreign and domestic firms. Might aspects of the Wall Street bailout eventually “change the conditions of competition” in favor of U.S. firms? Other WTO members have begun reviewing just this question.

No bans on new financial service “products”: The United States is also required to allow all foreign financial firms operating here “to offer in its territory any new financial service,” a conflict with proposals to limit various risky investment instruments, such as types of derivatives.

Other non-discriminatory domestic regulations also subject to review: GATS subjects policies of general application that may affect service sector firms to review, with WTO tribunals empowered to determine if they are “reasonable”, whether they “could not reasonably have been expected” and whether licensing and qualification requirements and technical standards limit foreign firms’ access.

And the TPP would tilt the table even further in favor of financial firms. Public Citizen again:

The draft text of the Trans-Pacific Partnership (TPP), a NAFTA-style FTA under negotiation between the United States and 10 Pacific Rim countries, contains the same limits on financial regulation as the WTO, and more. In addition, these rules would be privately enforceable by foreign financial firms that could “sue” the U.S. government in foreign tribunals, which would be empowered to order payment of unlimted sums of U.S. taxpayer money if they saw our laws as undermining such firms’ “expected profits.” Also, even as the International Monetary Fund has officially shifted from opposition to qualified endorsement of capital controls, which are used to avoid destabilizing floods of speculative money into and out of countries, the TPP would ban the use of these important regulatory tools. Despite years of pressure from former House Financial Services Committee Chair Rep. Barney Frank to permit capital controls, the Obama administration is the strongest promoter of this ban in the TPP.

When we have to look to Barney Frank as a lonely defender of the public’s interest, you know you’ve gone past an event horizon. The very fact that trade negotiations, which are normally so sophorific that they remain out of the public’s mind, are being held in secret says that what is afoot is most decidedly not in the average person’s best interest. At a minimum, voters and the press need to demand that these talks be conducted in the open to prevent Congress from being presented with a fait accompli.

The one good bit of news is Obama is looking more and more like a lame duck every day and his overplaying his hand on these bills could well backfire. But the stakes are sufficiently high that relying on nature to take its course is risky, particularly since corporate lobbying dollars will buy a lot of Congressional complacency. So make noise early and often about this outrage, particularly with local media outlets.

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Advocates for Monetary Central Planning Grow More Confused by the Day

2013-04-30T05:56:00.002-04:00

The great economic experiment of 2013: Ben Bernanke vs. austerity ... We rarely get to see a major, nationwide economic experiment at work, but so far 2013 has been one of those experiments ... – Washington Post

Dominant Social Theme: The Federal Reserve and the US government have to work hand-in-hand to resolve this mess.

Free-Market Analysis: Here's an interesting article in the Washington Post explaining how US fiscal austerity needs to be offset by Federal Reserve pump priming.

We would argue, not to put too fine a point on it, that it is a confused mess. The logic is lacking and the facts are in doubt. Unfortunately, it seems to make perfect sense to the author, who works for the Roosevelt Institute. As its name might suggest, the Roosevelt Institute is entirely comfortable with governmental activism on the economic front – even the nonsensical kind.

So here is a question: If activist economic management works so well, why is the world doing so poorly?

When one takes a look around at the devastated economies of Europe, Japan and the US, one would have to question whether monetary and fiscal activism really does provide the kind of miracles that are claimed for it.

The kind of solution being proposed in this article is not just confusing; it is also naïve.

First of all, the author doesn't really define what "austerity" is. And actually, austerity, as it has been initiated, is not merely government cost-cutting. It also often includes MORE taxes and more regulation; its privatization is often of the monopoly kind that makes the privatized conglomerate no more efficient than under government control.

Having simply (apparently) asserted that austerity is cost-cutting, the author moves on to proposing that the Fed needs to print lots of money to make up for the government's austere "fiscal policy."
How exactly money printing of paper-debt instruments makes up for government cost cutting on the economic front is never made clear. Nor is it made clear why government cost cutting – would that it were actually happening – needs to be offset to begin with.

We could go on. But see for yourself. Here's more from the article:

... The biggest threats to a full recovery are both early fiscal and monetary contraction. The Evans Rule is the right rule to communicate to the markets the Federal Reserve's stance, which is properly a balance between price stability and full employment. The Federal Reserve was, in fact, sitting on its hands, and it is no longer doing that.

Second, there is still more the Federal Reserve could do to try and balance out austerity in 2013, but those moves would require a big change from current policy. Minor tweaking is unlikely to help. Joseph Gagnon of the Peterson Institute for International Economics suggests that, instead of committing to mortgage purchases, the Fed could target the mortgage rate for a time. Other economists, such as Brad DeLong, suggest that an explicit higher inflation target would be important. Still others, ranging from Christina Romer to market monetarists, think the Fed should explicitly target a nominal GDP.

Given that the Fed appears to be having trouble getting these new policies to move inflation expectations or interest rates, a dramatic change may be harder than originally thought. And if even subtle statements by the FOMC can break expectations of policy, as many are worried about, monetary policy at the zero lower bound will be far too fragile to carry us to recovery. However, the status quo of a low inflation target teamed with "break out unconventional policy in case of emergency" doesn't appear robust enough to handle future recessions.

But the most important lesson to draw is that fiscal policy is incredibly important at this moment. In normal times, the broader effect of government spending, or the fiscal multiplier, is low because the central bank can offset it. But these are not normal times. It's not clear why the Federal Reserve's actions haven't balanced out fiscal austerity. But since they haven't, we should be even more confident that, as the IMF put it, "fiscal multipliers are currently high in many advanced economies."

These multipliers work in both directions. As spending benefits the whole economy more in these times, austerity is also much more vicious than it would normally be. Using fiscal policy also avoids the expectations problems that plague monetary policy. When President Obama signs a law promising spending, the public believes the government will spend. That's not so with the Federal Reserve, where a random statement from a Federal Reserve governor can cause markets to doubt the Fed's long-term commitment.

Meanwhile, the idea that there exists a debt "danger zone" that should cause us to embrace austerity has recently collapsed due to questionable data and methodology. The question is, will we now move to stimulus to complement the Fed's efforts to get to full employment, or will we continue to sabotage the recovery?

So let's try to sum up. As the US government is cutting costs, the Federal Reserve ought to print more money to offset government contraction.

But presumably this money – much of it – flows THROUGH the government, so the article is basically proposing that while the government is cutting costs it also ought to be embarking on various forms of pump priming.

How can the government do both? Either the government is cutting costs or it is not. And even if we accept this illogical perspective, we still have to grapple with the issue of the efficiency of government spending in the first place. The author seems sure it will realize the proper results. Has he been sleeping in a cave these past decades?

We would suggest this argument places a good deal too much faith in government power and policies. The real solution to the current economic crisis lies in the free market's Third Way. Get government officials and monopoly money printing bankers out of the business of managing the economy.

Let the market itself – as much as possible – provide the solutions via Adam Smith's Invisible Hand of Competition. What this article is proposing, if we understand it adequately, will only compound the problem.

Conclusion: Why is it that would-be policymakers so often avoid the real-life solutions provided by the competitive marketplace? It's very strange. It's almost as if they want more chaos and currency devaluation. And why would that be ...

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The More Illegal Immigrants That Go On Food Stamps The More Money JP Morgan Makes

2013-04-29T04:57:00.001-04:00

Recently uncovered documents prove that the Obama administration has been working with the Mexican government to increase the number of illegal immigrants on food stamps, and when more illegal immigrants go on food stamps JP Morgan makes more money. As you will read about below, JP Morgan has made at least 560 million dollars processing Electronic Benefits Transfer cards. Each month, JP Morgan makes between $.31 and $2.30 for every single person on food stamps (and that does not even include things like ATM fees, etc). So JP Morgan has a vested interest in seeing poverty grow and the number of people on food stamps increase. Meanwhile, the Obama administration has been aggressively seeking to expand participation in the food stamp program. Under Obama, the number of people on food stamps has grown from 32 million to more than 47 million. And even though poverty in America is absolutely exploding, that apparently is not good enough for the Obama administration. It has now come out that the U.S. Department of Agriculture has provided the Mexican government with literature that actively encourages illegal immigrants to enroll in food stamps. One flyer contains the following statement in Spanish: "You need not divulge information regarding your immigration status in seeking this benefit for your children." The bold and the underlining are in the original document in case you were wondering. Overall, federal spending on food stamps increased from 18 billion dollars in 2000 to 85 billion dollars in 2012, and at this point one out of every five U.S. households in now enrolled in the food stamp program.

When people illegally or fraudulently enroll in the food stamp program, it makes it harder for those that desperately need the help to be able to get it.

It is certainly a good thing to help fellow Americans that are suffering. It is a crying shame that more than a million public school students in America are homeless. That should not be happening in the "wealthiest nation on earth".

But today we have a system that has turned poverty into big business. According to an article posted on Breitbart.com, JP Morgan has made at least 560 million dollars (and probably much more) processing EBT cards...

A new report by the Government Accountability Institute finds that JP Morgan has made at least $560,492,596 since 2004 processing the Electronic Benefits Transfer (EBT) cards of 18 of the 24 states it has under contract for the food stamp program.

A Daily Beast article provided some more specifics about the monster profits that JP Morgan is making...

Just how lucrative JP Morgan’s EBT state contracts are is hard to say, because total national data on EBT contracts are not reported. But thanks to a combination of public-records requests and contracts that are available online, here’s what we do know: 18 of the 24 states JP Morgan handles have been contracted to pay the bank up to $560,492,596.02 since 2004. Since 2007, Florida has been contracted to pay JP Morgan $90,351,202.22. Pennsylvania’s seven-year contract totaled $112,541,823.27. New York’s seven-year contract totaled $126,394,917.

These contracts are transactional contracts, meaning they are amendable based on changes in program participation. Each month, the three companies that administer EBT receive a small fee that can range from $.31 to $2.30 (or higher depending upon the number of welfare services on an EBT card and state contractual requirements) for each SNAP recipient.

So the more people that are out of work and that need to turn to the government for food, the bigger profits that JP Morgan makes.

What makes all of this even more insulting is that many of the jobs that JP Morgan could be providing to Americans to help alleviate this poverty are being shipped overseas instead. As I noted in a previous article, many EBT card customer service calls are being routed to call centers in India by JP Morgan.

So why doesn't anyone do anything about this?

Well, it turns out that JP Morgan has the politicians that oversee the food stamp program in their back pocket. The following is from a recent Money Morning article...

And the bank has taken steps to make sure the SNAP program remains a growing source of revenue. JPMorgan's political donations to the members of House and Senate agricultural committees, the ones with legislative responsibility for the program, soared from just over $82,000 in 2002 to nearly $333,000 as of 2010.

What a wonderful system we have, eh?

And surely JP Morgan just loves the fact that the Obama administration is actively encouraging illegal immigrants to apply for food stamps.

What you are about to read should absolutely shock you. At a time when the U.S. government is absolutely drowning in debt, the Obama administration is making it abundantly clear to illegal immigrants that their immigration status will not be checked when they apply for food stamps. The following is from a recent Judicial Watch press release...

Judicial Watch today released documents detailing how the U.S. Department of Agriculture (USDA) is working with the Mexican government to promote participation by illegal aliens in the U.S. food stamp program.

The promotion of the food stamp program, now known as “SNAP” (Supplemental Nutrition Assistance Program), includes a Spanish-language flyer provided to the Mexican Embassy by the USDA with a statement advising Mexicans in the U.S. that they do not need to declare their immigration status in order to receive financial assistance. Emphasized in bold and underlined, the statement reads, “You need not divulge information regarding your immigration status in seeking this benefit for your children.”

The documents came in response to a Freedom of Information Act (FOIA) request made to USDA on July 20, 2012. The FOIA request sought: “Any and all records of communication relating to the Supplemental Nutrition Assistance Program (SNAP) to Mexican Americans, Mexican nationals, and migrant communities, including but not limited to, communications with the Mexican government.”

The documents obtained by Judicial Watch show that USDA officials are working closely with their counterparts at the Mexican Embassy to widely broaden the SNAP program in the Mexican immigrant community, with no effort to restrict aid to, identify, or apprehend illegal immigrants who may be on the food stamp rolls.

You can see a copy of the flyer right here.

So who pays for all of this?

You do of course.

The Obama administration is doing all that it can to promote illegal immigration, and big banks such as JP Morgan just make bigger profits the more illegal immigration that we see, but it is you and I that end up with the bill. This was put beautifully in a recent article by Mike Adams of NaturalNews.com...

Nearly $75 billion of taxpayer money is spent each year on federal food stamps, and it turns out some of that is alarmingly being handed out to illegal immigrants -- people who contribute nothing to the federal tax base in America but who seem to be experts on collecting social welfare benefits of all kinds. If you are working for a living, you are buying food for illegals who are being actively recruited by Obama and the democratic party so that they will vote more democrats into office.

When we reward illegal immigration, what happens?

That's right - we are just going to get even more illegal immigration.

According to WND, we have already started seeing a huge increase in illegal immigrants coming across the border since Congress began debating the amnesty bill...

Illegal border crossings have doubled, and possibly even tripled, since the latest congressional push began toward comprehensive immigration reform.

In reporting first published by Townhall.com’s Katie Pavlich, border patrol agents in the Tucson/Nogales sector claim illegals are coming here in much higher numbers in just the past few months.

“We’ve seen the number of illegal aliens double, maybe even triple since amnesty talk started happening,” an unnamed border agent said to Townhall. The data from Customs and Border Protection cited in the report shows 504 illegals were detected crossing in that sector between Feb. 5 and March 1. Only 189 were caught on camera, and just 174 of the 504 were apprehended. Of those spotted on camera, 32 were carrying huge packs believed to contain drugs and several were heavily armed.

If that bill is passed, it is being projected that it will bring 33 million more people into this country...

The pending Senate immigration bill would bring a minimum of 33 million people into the country during its first decade of operation, according to an analysis by NumbersUSA, a group that wants to slow the current immigration rate.

By 2024, the inflow would include an estimated 9.2 million illegal immigrants, plus 2.5 million illegals who arrived as children — dubbed ‘Dreamers’ — plus roughly 3.4 million company-sponsored employees with university degrees, said the unreleased analysis.

The majority of the inflow, or roughly 17 million people, would consist of family members of illegals, recent immigrants and of company-sponsored workers, according to the NumbersUSA analysis provided to The Daily Caller.

We have made legal immigration a complete and total nightmare while leaving the back door completely wide open at the same time.

We greatly punish those who are trying to do things legally while at the same time we are greatly rewarding those that are cheating the system.

What kind of sense does that make?

Shouldn't we insist that everyone come in through the front door?

Those that are coming over our borders illegally know what the score is...

Linda Vickers, who owns a ranch in Brooks County, which is Ground Zero for the immigration debate, pins the blame directly on talk of 'amnesty' and a 'path to citizenship' for people who entered the U.S. illegally.

She recalls one man being arrested on her ranch not long ago.

"The Border Patrol agent was loading one man up, and he told the officer in Spanish, 'Obama's gonna let me go'."

Border Patrol agents report that immigrants are crossing the border, and in some cases surrendering while asking, “Where do I go for my amnesty?”

We are already becoming a poverty-stricken nation. We simply can't afford to feed millions upon millions of illegal immigrants as well.

As I write this, the U.S. national debt is $16,758,107,082,298.63.

We now have a debt to GDP ratio of about 105 percent.

In the United States today, the amount of money that is deposited in our banks is about 9.3 trillion dollars. If we took every penny of that and used it to pay off the national debt, we would still owe more than 7 trillion dollars.

We are stealing more than 100 million dollars from future generations of Americans every single hour of every single day to pay our bills, and yet everyone seems to think that this is "normal" somehow.

The truth is that what we are doing is absolutely criminal, and we should all be ashamed.
For much more on our exploding national debt, please see the following article: "55 Facts About The Debt And U.S. Government Finances That Every American Voter Should Know".

In the end, it should be apparent to everyone that our system is failing. Our government is corrupt, our big banks are consumed with greed and most average Americans are so addicted to entertainment that they have absolutely no idea what is going on.

What would those that bled and died for this country think about what we have become today?

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Monopoly Central Banking Is Weaker Than You Think

2013-04-26T04:30:00.002-04:00

Everything you 'know' about the Fed is wrong ... 5 misconceptions about the effects of QE and monetary policy ... Few would still argue against the assertion that the Federal Reserve has been central to the financial stabilization and economic recovery from the 2008 crisis. It fixed the plumbing and are now trying to incentivize animal spirits to pump water through the pipes. The debate has now migrated to exit strategies and whether the accumulating side effects of exceptional monetary accommodation outweigh incremental benefits. Read Minyanville's "The Givers and Takers of the Boston Bombings." Nonetheless, it is the Fed, so views are heated, and many mis-perceptions persist. The concept of money-printing resonates strongly and intuitively with almost everyone, but most of the intuitive reactions to the Fed's quantitative easing are turning out to have been wrong. Here are some of the major myths that linger. – MarketWatch

Dominant Social Theme: Central banking is no big deal.

Free-Market Analysis: Central banking is fundamental to the current crippled economic model of the West. It is a new model, always expanding, always changing.

Basically, central bankers fix the value and volume of money, doing so in ways that distort the larger economy and cause first booms and then busts. The globalists at the center of this ruinous system value it above all other resources and will do anything to defend it.

The ability to print money at will with all the attendant benefits is the fulfillment of an ancient human dream and no doubt will be defended by some to the last breath. In the meantime, those who benefit directly or indirectly will launch broadside after broadside defending monopoly central banking and its fiat-paper products.

This article posted over at MarketWatch is one more example of this sort of defense. Its authors, Mark Dow and Michael Sedacca, choose to maintain that central banking is not so powerful as supposed. Here are their points, along with our responses.

Money printing increases the money supply ...

The Fed does not control the money supply, only the base money (or inside money). Of course, such money is called super money for a reason. And this analysis does not deal with short interest rates that the Fed also controls. The idea that the ability to print up to US$16 trillion in short-term loans (apparently never repaid) is an incidental sort of power strikes us as, well ... ridiculous.

QE is 'pumping cash into the stock market' ...

Little of this money finds its way into the stock market, we are told (though how this statement can be made with such certainty is puzzling to us). Anyway, the idea is that about 82 percent of the money the Fed has injected since QE started has been re-deposited with the Fed as excess reserves.

Only about 18 percent has circulated. But excess reserves can circulate over time, thus turning into both monetary inflation and price inflation. And some of the money the Fed has printed goes to non-bank holders of targeted instruments.

The article maintains that equities have gone up so much in response to QE not because of actual money being injected into the market as a result of QE but because of perceptions – "psychology and misconception."

By taking an aggressive stand, the Fed signaled a positive message to markets: "I've got this." The confidence that the Fed would do everything it could to protect our economic downside stabilized animal spirits. Then it slowly but surely enabled risk-taking to re-engage. The fact that so many people believe that the Fed would be "pumping money into the stock market," and because so many buy into the "don't fight the Fed" aphorism (notwithstanding September 2007 to March 2009), the effect of the Fed's message was that much more powerful.

Our response: This seems a kind of contradiction in terms. Either central banking is a powerful instrument or it is not. Claiming it is not but then making the case that the Fed can move markets simply because so many refuse to "fight the Fed" is a curious kind of argumentation.

QE will create runaway inflation ...

Of course QE is going to create massive inflation. Inflation is the printing of money. And money has been printed. Price inflation has occurred as well, but as the US government refuses to acknowledge it, articles like this can make the argument that it has not occurred. But it has. Perhaps up to 10 percent a year, according to monetary critics like Peter Schiff.

The article goes on to make this astounding point: "But, there really has been no inflation, even with rounds of QE and interest rates stuck at zero. What we have learned in this crisis has driven home the points that the lending and borrowing that drive the money supply are more sensitive to risk appetite than they are to the price of money."

Huh? No inflation? Maybe these authors don't shop for themselves?

QE is the reason we have high oil/gasoline prices ...

We won't comment on this point much except to say that printing money is generally debasing and affects most every product and service in a given economy. Why should oil and gasoline be exempt?
QE has debased the dollar ...

"This is an excellent example of repeating a falsehood until it becomes accepted as true," we are told. Again, we find this a startling statement. Apparently, these authors have not seen the generally available charts showing dollar debasement from the formation of the Fed in 1913. The line goes straight up (or down) showing the dollar has lost up 99 percent of its value, if not more, depending on which statistics one chooses to use.

Bottom line: Anyone alleging debasement is working from hearsay and priors, not the scorecard. And there are some pretty high-profile people still throwing around the 'debasement' word.

We may not be high profile, but we're willing to "throw the word around." Debasement. Debasement. Debasement.

Conclusion: Money printing is debasement and the ability to print money-from-nothing gives a tiny group of people a godlike power. Denying it doesn't lessen the reality.

Source

Germany Out of the Euro or the Great Synthesis Has Begun?

2013-04-24T05:13:00.003-04:00

German 'Alternative': Parallel Currency Idea Carries Great Risks ... A new German protest party is proposing the gradual re-introduction of the national currencies of highly indebted euro-zone countries. While the party's spokesman insists the idea solves everyone's problems, it has one major drawback: Economists agree it won't work. – Der Spiegel

Dominant Social Theme: This is a great new party for Germany and marks the emergence of the anti-euro faction.

Free-Market Analysis: We would like to be able to write otherwise, but we don't believe much that comes out of Western political systems these days. That's not to say every particular evolution is noxious. In the United States, the Tea Party has contributed to a change in the freedom debate and Senator Rand Paul has lifted up a quasi-libertarian flag, from a rhetorical standpoint anyway.
But as we've pointed out many times, globalists are a particularly shifty lot and it doesn't take a lot of insight to guess that much of what goes on politically is being manipulated to ensure that the current cozy mercantilism enjoyed by Money Power remains firmly in place.

In Italy, rising star politician Beppe Grillo is not perhaps what he seems. We've written about that here:

Italy's Top Pol Beppe Grillo Being Groomed for Disruption by Soros?

The idea, when it comes to Grillo and those like him, is to create alternatives that form a Hegelian conversation ... Thesis, antitheses and then synthesis. If you are clever, the synthesis you create can be moved in any direction you like. By creating an "opposition," you develop a controllable conversation.

Grillo seems involved in this sort of strategy; we would tend to believe that Bernd Lucke, spokesman of the newly established Alternative for Germany Party, offers the powers-that-be a similar strategy. When we looked up his background we found he was an alumnus of the World Bank.

Let's be clear. This does not mean Lucke is some sort of political "double agent" ... only that he moves in the same circles as those whose views he is criticizing. It means that he is a member of the same establishment he's tipped his cap against. The apple, in other words, may not fall so far from the tree.

Here's more from the Der Spiegel article:

Lucke and his flock of supporters believe that the euro crisis can be solved if the Southern European countries leave the monetary union -- not with a big bang, but slowly and quietly. The professor wants to see these countries ejected from the monetary union in a civilized way, so that their withdrawal occurs as gently and harmoniously as a person's withdrawal from a school glee club.
And what is Lucke's miracle cure for a crash without side effects? He proposes that the Southern European countries introduce parallel currencies -- that is, bring back the drachma, the peseta, the escudo and the lira alongside the euro. The countries' national central banks would then tie these currencies to the euro at fixed rates. The professor essentially wants to combine the best of both worlds, allowing Greece, Spain, Portugal and Italy to remain connected to the euro zone and yet receive their own currencies. This would allow them to devalue their currencies and still have a calculable form of payment at their disposal. At the same time, argues Lucke, this will reduce the cost of their goods in world markets without assets losing their value overnight.

It is a patent remedy with which the professor and party spokesman wants to avoid the horror scenario that most economists associate with a sudden breakup of the euro zone: bank failures, financial collapses and mass layoffs. In other words, a financial and economic crisis that many believe could easily surpass the catastrophic consequences of the Lehman Brothers bankruptcy. But if parallel currencies are introduced, Lucke suggests, the risks could be reduced. Withdrawal from the euro would take place "in an orderly and certainly cautious manner," and could possibly be reversed after a few years through a complete return to the monetary union.

The plan that Lucke advocates is certainly appealing, but it has one drawback: It doesn't work. "A parallel currency is the worst conceivable way to solve the euro crisis," says Peter Bofinger, a member of the German Council of Economic Experts, which advises the government. And Clemens Fuest, head of the Center for European Economic Research (ZEW), sees "considerable disadvantages" in the concept. ...

This is also borne out by historical experiences. Parallel currencies have indeed become established in many countries in the past. The deutsche mark was a common currency in the Balkans in the 1990s, and the US dollar is popular in several Latin American countries today. El Salvador even declared the greenback as its official currency in 2001.

Whether it was dollars or deutsche marks, the strong currency has always prevailed over its weak counterpart ... Even Lucke probably senses that his proposal doesn't really solve the current problems. When it comes to the side effects of his recipe, he issues a typical caveat: "It goes without saying," he writes, "that the transition to a second national currency entails a number of technical problems."

We can see from this Der Spiegel article that Lucke's proposals are brought up only to be promptly dispatched. This is the beauty of having a formal opposition operating within the ambit of the approved political process. Without such an organized opposition a formal conversation is difficult to maintain let alone create.

We don't have any insight into what will come out of the debate that is now taking shape. But it is our suspicion that even though Lucke's new party is portrayed as an unwelcome development by Germany's euro-gatekeepers, it is a necessary one that has been tacitly encouraged by the same forces that cultivated Italy's Grillo.

Are the arrivals of Lucke, like Grillo in Italy, a political coincidence? FDR famously said there were no coincidences in politics, and we would tend to agree. These occurrences seem to indicate to us that something bigger may be in the works.

The globalists that put the EU together, and now the euro, seem to be realizing, finally, that the current gridlock could result in a massive destabilization that could shake not only the euro but the EU itself.

Yes ... reading the proverbial tea leaves, it seems those responsible for the formation of the EU and the implementation of the euro intend to be more proactive about a solution.

Conclusion: That has import not only for the EU itself but also those involved in it from a financial and investment perspective.

Source

Corporate America’s Excuses Rise as Earnings and Revenues Fall

2013-04-23T05:47:00.003-04:00

Some of the crown jewels of corporate America have reported declining revenues and earnings, and have lowered their forecasts, and in doing so, have unleashed a flood of obfuscation and excuses – from Easter falling on the wrong date to lazy sales reps. So when Caterpillar reported on Monday, it was almost refreshing in its unvarnished ugliness.

Sales plunged 17.7%, profits 44.6%. “A challenging first quarter,” Corporate Controller Mike DeWalt called it. Dealer sales had been less than expected, inventories had piled up on their lots, and they’d cut back their orders to bring down their inventories. End-user demand was down, along with sales of aftermarket parts. Everything was down. But manufacturing costs jumped, and profits sagged. The rest of 2013 would be tough, and revenue guidance was lowered by a chunk. Not a single excuse.

Then there’s IBM. Because it’s the world’s largest supplier of information technology, its earnings report is a harbinger of things to come… namely excuses. A technique it had picked up from Oracle last month. Oracle’s earnings call was a mess. Revenue dropped 1%, instead of being up. Revenues from new software licenses and cloud subscriptions dropped 2%, after the company had forecast an increase of 3% to 13%. Hardware sales were a disaster. Who did they blame? First, the government – the quarter “ended on the same day as the sequester deadline,” explained President and CFO Safra Catz – then the sales reps. Oracle had just hired 4,000 new reps around the world; that was the problem Catz and President Mark Hurd said in unison. They hadn’t been trained yet. It was just “sales execution.” Nothing else. Certainly not the economy, Catz pointed out.

“What we really saw was the lack of urgency we sometimes see in the sales force as Q3 deals fall into Q4,” Catz said. Those “new reps,” she said, “ran out of runway in Q3.” They just couldn’t close their deals. “The issue for us is simply conversion,” Hurd added. “Clearly we have work to do in training new reps on managing the sales processes,” Catz chimed in. What about the old reps? Where they all on vacation? They didn’t say. Not a good omen.

Thursday evening, it was IBM’s turn to report a first-quarter earnings shortfall and revenues that, instead of growing, had skidded 5% from a year ago. To get back on track, IBM would swing the axe, at a cost of $1 billion in the second quarter – “workforce rebalancing” was its newfangled term, “to better align our resources to opportunity.” There’d be a lot of “rebalancing.” The term was used 14 times during the call. And it would dump some businesses.

Why the drop in revenues? “We had a shortfall in sales execution in our software and mainframe businesses,” explained Mark Loughridge, Senior VP and CFO. These sales reps just hadn’t been able to close the deals in time, which then rolled over into the next quarter. The same disease that had afflicted Oracle reps. He blamed Easter, which fell into March, at the end of the quarter. He said most of those rollovers were in Europe and the US, countries impacted by Easter.

A few moments later he added that revenues in the Americas were down 3%, with steep declines in the US and Canada “mitigated by double-digit growth in Latin America.” Wait a minute. Easter – in fact the entire Holy Week – is a huge event in Latin America; yet Latin America had “double-digit growth?” Despite Easter? While rollovers due to Easter destroyed sales in the US where Easter isn’t that big?

Revenues were down in other places: Europe, the Middle East, and Africa saw a 4% tumble – most of the countries were down, but Spain “returned to modest growth,” he said, though Spain is precisely where the Holy Week and Easter are huge. In Asia-Pacific, revenue was down 1%, with white-hot China posting “modest declines” and with depressed Japan growing 3%.

At any rate, there’d be a good list of unfinished deals, the “rollover transactions,” that would kick-start the current quarter, and revenues should be up, right? Um, no. “I did not mean to indicate that all else would also be on the original performance track,” he said. “So, in fact, I still believe there are parts of our business that are in transition or have been underperforming that also were disappointing….”

What a tangle of obfuscation. Blaming sales reps, Easter, and whatnot to disguise what pulled the rug out from under IBM. It’s the same problem that other gauges of the global economy, such as Caterpillar and Oracle, have: declining demand in the US, Europe, and China, combined with tough competition.

A scary thought that the three largest markets in the world could weaken simultaneously – despite the prodigious amounts of money that central banks have printed and handed out. That phenomenon must be hidden under layers of lazy sales reps, sequester deadlines, and badly timed holidays. Yet, at the very end, something did slip out: “We are clearly not immune from changes in the global economy,” Loughridge said during his wrap-up, the most revealing sentence of the entire earnings call.

Source

Monsanto announces huge profits despite worldwide backlash

2013-04-22T00:09:00.004-04:00

Amid widespread protests against the ‘Monsanto Protection Act’, the biotech giant has reported a 22 percent increase in net profits – an announcement that may spark further outrage about the provision that protects the company from financial damage.

Monsanto on Wednesday reported that its net income rose 22 percent to $1.48 billion, or $2.74 a share, in a one-year period. The profit increase, which occurred in the three-month period through February, marked a new record for the lucrative biotech company. Revenue rose 15 percent to $5.47 billion, much of which came from the sales of genetically modified corn seeds, particularly those sold in emerging markets like Brazil, Argentina, and other Latin American countries.

Monsanto’s seed business, particularly its genetically engineered corn, cotton and soybeans, increased by more than 10 percent in the second quarter. The seeds repel bugs and are resistant to weed-killers, making them popular among farmers trying to yield more produce.

The profit spike exceeded expectations and Wall Street predictions and may have widened the gap between Monsanto and other seed businesses. The company’s shares also rose 89 cents, closing at $104.51 on Wednesday. Over the past years, the shares have risen by about 10 percent.

“So our bottom line business outlook today means the momentum that we anticipated in our first quarter has clearly carried through into even stronger business results for the second quarter,” said CEO Hugh Grant, on a call with analysts, as reported by the Associated Press.

And the company only predicts to be making more money this year: Monsanto expects $2 billion in free cash flow in 2013 and will become “more aggressive” in returning cash to shareholders through dividends and “opportunistic” share purchases,” Chief Financial Officer Pierre Courduroux said during the call with analysts.

But it’s not just the corporation’s seeds that are spiking revenue: the company also sells crop chemicals, which saw a 37 percent increase in sales. The herbicide Roundup, a popular weed killer, jumped by 73 percent to $371 million.

News of the company’s financial success comes just days after US President Barack Obama signed a bill into law that protects the billion-dollar corporation from any sort of litigation. Known by critics as the ‘Monsanto Protection Act’, section 734 of the Agricultural Appropriations Bill gives biotech companies immunity in regards to the production and sale of genetically modified seeds. The company would therefore have free reign to sell genetically engineered products the long-term effects of which remain unknown, without the prospect of facing a lawsuit for it.

Nationwide, Americans from the far right and the far left have united in their condemnation of the provision that benefits Monsanto, and a petition against the provision generated more than 250,000 signatures. Critics claim the legislation allows the company to bypass the court system and continue to dominate the US seed industry.

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‘Carbon bubble’ leading to another financial crisis, economists warn

2013-04-19T06:40:00.001-04:00

The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists.
“The financial crisis has shown what happens when risks accumulate unnoticed,” said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was “very big indeed” and that almost all investors and regulators were failing to address it.

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

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

Stern said that far from reducing efforts to develop fossil fuels, the top 200 companies spent $674bn (£441bn) in 2012 to find and exploit even more new resources, a sum equivalent to 1% of global GDP, which could end up as “stranded” or valueless assets. Stern’s landmark 2006 report on the economic impact of climate change – commissioned by the then chancellor, Gordon Brown – concluded that spending 1% of GDP would pay for a transition to a clean and sustainable economy.
The world’s governments have agreed to restrict the global temperature rise to 2C, beyond which the impacts become severe and unpredictable. But Stern said the investors clearly did not believe action to curb climate change was going to be taken. “They can’t believe that and also believe that the markets are sensibly valued now.”

“They only believe environmental regulation when they see it,” said James Leaton, from Carbon Tracker and a former PwC consultant. He said short-termism in financial markets was the other major reason for the carbon bubble. “Analysts say you should ride the train until just before it goes off the cliff. Each thinks they are smart enough to get off in time, but not everyone can get out of the door at the same time. That is why you get bubbles and crashes.”

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

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

Lord McFall, who chaired the Commons Treasury select committee for a decade, said: “Despite its devastating scale, the banking crisis was at its heart an avoidable crisis: the threat of significant carbon writedown has the unmistakable characteristics of the same endemic problems.”

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

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

Citi bank warned investors in Australia’s vast coal industry that little could be done to avoid the future loss of value in the face of action on climate change. “If the unburnable carbon scenario does occur, it is difficult to see how the value of fossil fuel reserves can be maintained, so we see few options for risk mitigation.”

Ratings agencies have expressed concerns, with Standard and Poor’s concluding that the risk could lead to the downgrading of the credit ratings of oil companies within a few years.

Steven Oman, senior vice-president at Moody’s, said: “It behoves us as investors and as a society to know the true cost of something so that intelligent and constructive policy and investment decisions can be made. Too often the true costs are treated as unquantifiable or even ignored.”

Jens Peers, who manages €4bn (£3bn) for Mirova, part of €300bn asset managers Natixis, said: “It is shocking to see the report’s numbers, as they are worse than people realise. The risk is massive, but a lot of asset managers think they have a lot of time. I think they are wrong.” He said a key moment will come in 2015, the date when the world’s governments have pledged to strike a global deal to limit carbon emissions. But he said that fund managers need to move now. If they wait till 2015, “it will be too late for them to take action.”

Pension funds are also concerned. “Every pension fund manager needs to ask themselves have we incorporated climate change and carbon risk into our investment strategy? If the answer is no, they need to start to now,” said Howard Pearce, head of pension fund management at the Environment Agency, which holds £2bn in assets.

Stern and Leaton both point to China as evidence that carbon cuts are likely to be delivered. China’s leaders have said its coal use will peak in the next five years, said Leaton, but this has not been priced in. “I don’t know why the market does not believe China,” he said. “When it says it is going to do something, it usually does.” He said the US and Australia were banking on selling coal to China but that this “doesn’t add up”.

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

Source

'No Doubt, Pensions Are Screwed'

2013-04-18T06:03:00.002-04:00

In a SPIEGEL interview, Harvard economist Carmen Reinhart argues governments are incapable of reducing their debts and that central banks are now stepping up to resolve the crisis themselves. In the end, she argues, everyday savers will pay the price. Reinhart: No central bank will admit it is keeping rates low to help governments out of their debt crises. But in fact they are bending over backwards to help governments to finance their deficits. This is nothing new in history. After World War II, there was a long phase in which central banks were subservient to governments. It has only been since the 1970s that they have become politically more independent. The pendulum seems to be swinging back as a result of the financial crisis. – Der Spiegel

Dominant Social Theme: Thank goodness for central banking.

Free-Market Analysis: Der Spiegel interviews Harvard economist Carmen Reinhart who has the novel idea that central banks are acting like the "adults" in the room by cleaning up after spendthrift governments.

"Governments are incapable of reducing their debts and now central banks are stepping in."

Perhaps this argument sounds reasonable to a Martian that has not been following exactly what central banks have been doing and continue to do, but last time we looked we weren't Martian.
The idea that monopoly central bankers are "responsible" and politicians are not seems a spurious question, in our humble view. A pox on both their houses.

Politicians spend money as fast as they can and central bankers work for instrumentalities that facilitate that spending.

A monopoly central bank is built to print money. That is what it is supposed to do. To deny it is to deny that a horse is configured to run, or a tiger to hunt, or an elephant, occasionally, to trample.
Here's some more from this "illuminating" interview:

SPIEGEL: Ms. Reinhart, central banks around the world are flooding the markets with cheap money in order to spur economies and support governments. Are these institutions losing their independence?

Reinhart: No central bank will admit it is keeping rates low to help governments out of their debt crises. But in fact they are bending over backwards to help governments to finance their deficits. This is nothing new in history. After World War II, there was a long phase in which central banks were subservient to governments. It has only been since the 1970s that they have become politically more independent. The pendulum seems to be swinging back as a result of the financial crisis ...

SPIEGEL: But the danger of such a central bank policy is already well known: It can lead to high inflation.

Reinhart: True. But it is certainly more difficult for a central banker to raise interest rates with a debt to gross domestic product ratio of over 100 percent than it is when this ratio stands at 39 percent. Therefore, I believe the shift towards less independence of monetary policy is not just a temporary change.

SPIEGEL: As a historian who knows the potential long-term consequences very well, doesn't such short-sighted decision-making frighten you?

Reinhart: I am not opposing this change, I am just stating it. You have to deal with the debt overhang one way or the other because the high debt levels are an impediment to growth, they paralyze the financial system and the credit process. One way to cope with this is to write off part of the debt ...

SPIEGEL: In other words: When the inflation rate is higher than the interest rates paid on the markets, the debts shrink as if by magic. The downside, though, is that this applies to the savings of normal people.

Reinhart: The technical term for this is financial repression. After World War II, all countries that had a big debt overhang relied on financial repression to avoid an explicit default. After the war, governments imposed interest rate ceilings for government bonds. Nowadays they have more sophisticated means.

SPIEGEL: ... with the consequence that people are going to lose their savings?

Reinhart: No doubt, pensions are screwed.

We learn a lot here in a short period of time. Monopoly central banks as virtual appendages of government are doing what governments are incapable of doing – which is cutting spending and reducing debt.

We also learn this is not new, that in previous generations (and monopoly central banking in Europe has been around for much of the past century) the word for this policy is "repression."
Finally, we learn – inevitably – that people's savings are going to be massively affected by all this deliberate money printing.

We could also sum up these insights differently. First, monopoly central banking is an invitation to spend, as politicians are always aware that central banks stand ready to monetize debt.

Second, central bankers will print money to "stimulate" economies, but if we believe what is said in this interview, a deeper game is played. The stimulus is also aimed at inflating currency, thus reducing the amount of debt that governments owe.

A third insight provided by this interview is that central bankers and politicians really don't care about people's savings in a fiat money economy. The savings that people have are merely fungible pools of money that in aggregate have little or no relationship to policy.

There is, of course, a fourth reason that the interview does NOT mention – and that is monopoly central banking is very effective at enriching those who are closest to it. Fresh money, first issued, is very powerful money that has not suffered the ravages of price inflation.

Even more importantly, central bank money printing creates first booms and then busts, centralizing power further in the hands of those conducting and controlling monetary power.

Monopoly central banking aggravates economic cyclicality, encourages government profligacy, inflates the currency and despoils people's savings and retirements. Additionally, it centralizes power and control in the hands of the few at the expense of the many.

It is incredible in this Internet Era that smart people issue forth from European and American schools of "higher learning" still trying to defend and endorse this degraded system.

Even when its defenders such as Ms. Reinhart provide us with a steady stream of justifications and positive analyses, anyone even remotely aware of central banking functionality must see the negatives outweigh the putative positives.

Are there any benefits to central banking? Only if you believe that price fixing and abuse of monetary power is generally a good thing.

Conclusion: Professor Reinhart no doubt believes she is providing us with a realistic – and in a sense positive – perspective about monopoly central banking. She's fooling herself ... but not (these days) so many others.

Source

Vice Chairman of Chinese Accounting Association Warns Chinese Local Debt Could Create Bigger Crisis than US Housing Implosion

2013-04-17T05:59:00.002-04:00

On the one hand, Bloomberg today tells us retail demand for stocks is as hot as ever:

“Over the last few weeks, every down move has been met with buyers that have come in,” Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp., said by telephone. His firm has $2.08 trillion in client assets. “People on the sidelines are waiting for a pullback to get into the market that they’ve missed for the past six months. We’re seeing more of that today.”

On the other, we have someone well-placed in China telling the world that its local debt is a train wreck waiting to happen, a classic Minksy Ponzi unit, but the timing of the unraveling is uncertain. And the source is an authority and not the sort one would expect to make remarks like that casually.
The Financial Times tells us the alert comes from Zhang Ke, vice chairman of the Chinese accounting association, who said his accounting firm, ShineWing, had virtually stopped signing the financial statements for bond sales by local governments. He described the debt as “out of control” with the potential to cause a bigger-than-housing-crisis level bust. But since the obligations can still be rolled, who knows when the dubious debt will fall under its own weight. As the article explains:

Local government debts soared after 2008, when Beijing loosened borrowing constraints to soften the impact of the global financial crisis. Provinces, cities, counties and villages across China are now estimated to owe between Rmb10tn and Rmb20tn ($1.6tn and $3.2tn), equivalent to 20-40 per cent of the size of the economy.

Last week, Fitch cut China’s sovereign credit rating, in the first such move by an international agency since 1999. On Tuesday, Moody’s cut its outlook for China’s rating from positive to stable.

Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.

Investment companies owned by local governments sold Rmb283bn of bonds in the first quarter of 2013, more than double the total for the same period last year. Such an increase would normally be expected to boost the economy, but China’s growth unexpectedly slowed to 7.7 per cent in the first quarter of 2013.

Mr Zhang said many local governments had invested in projects from public squares to road repairs that were generating lacklustre returns, and so were relying on financing rollovers to pay back their creditors. “The only thing you can do is issue new debt to repay the old,” he said. “But there will be some day down the line when this can’t go on.”

Zhang pooh-poohed the value of perceived guarantee by provinces and local authorities and says his firm will sign off on deals only when they see sufficient cash flow.

Now as the FT points out, ShineWing has a competitive axe to grind, since it is trying to break into the big leagues of international accounting firms. But this could also be self preservation. Do you think in a wealth-destroying local government bust that the national government would behave charitably towards the enablers, particularly since it has been trying to rein local borrowing in?

In an interesting bit of synchronicity, MacroBusiness has a new exclusive from Michael Pettis on the local debt issue which casts more light on this issue.

By Michael Pettis, finance professor at the Guanghua School of Management at Beijing University. Cross posted from MacroBusiness

[Saul] Eslake has argued as late as last September that he expected China to continue growing strongly over the next few years, and further claimed, in a 2011 report, that Chinese demand for hard commodities will rise quickly for at least another eight years and probably a lot longer:

But I believe that, even on quite conservative assumptions (which entail some slowing from the growth rates it has recorded over the past two decades), China’s demand for commodities will continue to grow strongly until at least 2019, and may not start to fall away until 2024; while in India, where the commodity-intensive stage of economic development only began in earnest in 2007, it is likely to continue well into the 2030s.

…Eslake says that while the full extent of China’s debt is unclear, much of it is owed by one part of the government to another. “There is the potential for writing off unsustainable obligations that doesn’t necessarily exist in other situations,” Eslake said. “I’m not disputing there are problems there and there is an opaqueness about the size, breadth of the debt problem, but it doesn’t automatically follow that China is facing its own Lehman Brothers moment.”

I am not sure what Eslake means by claiming that much of the debt “is owed by one part of the government to another”, but to the extent that this statement is correct it is pretty meaningless and to the extent that it means anything at all it is simply wrong. Although there are a number of intermediaries in the debt process in China, some of whom are indeed government entities, broadly speaking Chinese debt is owed by a group of borrowers that consists mainly of local and provincial governments and their financing vehicles, state-owned enterprises, real estate developers, large manufacturers, and other government related entities (the PBoC, the MoF, the various development banks, etc.).

These debts are owed mainly to Chinese households, either indirectly in the form of bank deposits and wealth management products intermediated by the banks, or, to a lesser extent, directly in the form of mutual funds, insurance companies, pension funds, and so on. To the extent that there is intergovernmental debt, this mainly occurs as agencies intermediate depositors and the ultimate borrowers.

…When solvency is the problem, implicit losses have to be resolved one way or another, and the costs must ultimately be assigned to some sector of the economy. Insolvency is a risk whenever the economic benefits created by an investment are less than the economic costs associated with the investment. In that case the investment makes a country poorer, but failure to recognize bad debt allows the county to feel richer when the investment is made. How the investment is financed can affect the stability and liquidity of the borrowing entity, but it cannot create or eliminate the original loss.

…Who pays for the transfer? In the past in China – and usually in every case in the world – the loss is paid for by the household sector, either in the form of busted deposits, taxes, or hidden transfers, of which the financial repression tax usually is the most important. China’s last banking crisis was paid in this way. Fifteen years ago China’s banking system was insolvent, with estimates that up to 40% of total loans were effectively non-performing had they been correctly identified.

The banking system was cleaned up over the next decade partly by implicitly granting massive debt forgiveness to borrowers in the form of extremely low interest rates (perhaps negative in real terms for most of the past fifteen years), which allowed the borrowers to “grow out” of their debt burden, and partly by the very wide spread mandated by the PBoC between the minimum lending rate and the maximum deposit rate, which guaranteed banks a huge profit. After 10-15 years of this, China’s domestically financed bad debt seemed miraculously to resolve itself.

But there was no miracle, and I think this what confuses Eslake and others like him who did not understand how the bad debt was actually resolved. There was simply an annual – if hidden – transfer of resources equal, according to my back of the envelope calculation, to between 5% and 8% of GDP from households to banks and borrowers. Did this have an economic impact? Of course it did.

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Is The Takedown Of Gold A Sign That The Entire Global Financial System Is About To Crash?

2013-04-16T04:54:00.003-04:00

Somebody out there is sure getting prepared for something really big. We have just witnessed a takedown of gold and silver unlike anything that we have witnessed in decades. On Monday, the price of gold had fallen by more than 10 percent at one point. It shocked investors all over the globe, and overall what we have just seen was the largest two day decline in the price of gold in 30 years. The price of silver dropped even more rapidly on Monday. It was down more than 14 percent at one point. There was an atmosphere of "panic selling" as investors and financial institutions raced to liquidate their holdings of silver and gold. But was this exactly what someone out there wanted? As I wrote about the other day, big banks and news outlets all over the world have been boldly proclaiming for weeks that gold is entering a "bear market" and that now is the time for all of us to sell our gold. In particular, Goldman Sachs reportedly told their clients earlier this month that they "recommend initiating a short COMEX gold position". Was that just a "good guess" on their part, or was something else going on? Were they actually trying to help create a "selling frenzy" that would drive the price of gold much lower?

What we witnessed on Monday was absolutely jaw-dropping. Just check out this chart of the price of gold over the past 10 years. The takedown of gold on Monday sticks out like a sore thumb...

And that chart does not even show the full extent of the collapse. As I write this, the price of gold is sitting at $1355.20.

But this is just the beginning for gold and silver. As I have warned repeatedly, the price of gold and the price of silver will experience wild swings in the years ahead.

For example, the following is what I wrote about gold and silver on August 7th, 2012...

I like precious metals myself, but if you are going to invest you need to get educated so that you know what you are doing. If you go in blindly you are likely to get burned at some point.

In addition, you need to be prepared for wild fluctuations in price over the coming years. There will be times when gold and silver absolutely soar and there will be times when they drop like a rock.

So if you are going to play the game you need to be able to handle the ride.

Monday was an example of what I meant when I said that "you need to be able to handle the ride". There are going to be a lot more days like Monday (both up and down) for gold and silver in the years ahead.

The foolish people are those that are scared out of their wits and that are selling off all of their gold and silver right now.

Sadly, there was reportedly a tremendous amount of panic selling of gold and silver during this collapse. The following is what Dennis Gartman told CNBC on Monday...

"There are a lot of people throwing up their hands. Throwing positions overboard. Panic is everywhere," Gartman said in a "Squawk Box" interview on Monday. "I've never seen anything like this. I mean it."

It just shows that there are a lot of stupid people out there. The following is an excerpt from another CNBC report about the panic selling that was happening on Monday...

"I think the last $20 has been margin selling. The market is falling like a knife. People are saying, 'Get me out now,' " Phoenix Futures President Kevin Grady said. "You're also seeing people selling energy profits to pay for metals losses. You're seeing a tremendous amount of gold liquidation today."

According to Dr. Paul Craig Roberts, Assistant Secretary of the Treasury under President Ronald Reagan, all of this panic selling is the result of an orchestrated takedown of gold and silver...

This is an orchestration (the smash in gold). It’s been going on now from the beginning of April. Brokerage houses told their individual clients the word was out that hedge funds and institutional investors were going to be dumping gold and that they should get out in advance.

Then, a couple of days ago, Goldman Sachs announced there would be further departures from gold. So what they are trying to do is scare the individual investor out of bullion. Clearly there is something desperate going on...

So who is behind all of this orchestration? Well, according to Dr. Paul Craig Roberts, it is actually the Federal Reserve...

The Federal Reserve began its April Fool’s assault on gold by sending the word to brokerage houses, which quickly went out to clients, that hedge funds and other large investors were going to unload their gold positions and that clients should get out of the precious metal market prior to these sales. As this inside information was the government’s own strategy, individuals cannot be prosecuted for acting on it. By this operation, the Federal Reserve, a totally corrupt entity, was able to combine individual flight with institutional flight. Bullion prices took a big hit, and bullishness departed from the gold and silver markets. The flow of dollars into bullion, which threatened to become a torrent, was stopped.

In fact, Dr. Roberts says that former Goldman Sachs trader Andrew Maguire is reporting that the Fed orchestrated the dumping of 500 tons of naked gold shorts into the market on Friday...

According to Andrew Maguire, on Friday, April 12, the Fed’s agents hit the market with 500 tons of naked shorts. Normally, a short is when an investor thinks the price of a stock or commodity is going to fall. He wants to sell the item in advance of the fall, pocket the money, and then buy the item back after it falls in price, thus making money on the short sale. If he doesn’t have the item, he borrows it from someone who does, putting up cash collateral equal to the current market price. Then he sells the item, waits for it to fall in price, buys it back at the lower price and returns it to the owner who returns his collateral. If enough shorts are sold, the result can be to drive down the market price.

As Dr. Roberts noted, this represents an absolutely massive amount of gold...

Consider the 500 tons of paper gold sold on Friday. Begin with the question, how many ounces is 500 tons? There are 2,000 pounds to one ton. 500 tons equal 1,000,000 pounds. There are 16 ounces to one pound, which comes to 16 million ounces of short sales on Friday.

Who has 16 million ounces of gold? At the beginning gold price that day of about $1,550, that comes to $24,800,000,000. Who has that kind of money?

If any of the allegations above are even remotely true, then a whole lot of people need to be criminally investigated.

Meanwhile, many are considering this takedown of gold to be an ominous sign that another major financial crisis may be heading our way.

Just remember what happened back in 2008. As Zero Hedge noted on Monday, the price of gold suddenly plunged 21 percent in July 2008. That was just a couple of months before the U.S. stock market crashed in the fall...

The rapidity of gold's drop is impressive, concerning, and disorderly. We have seen two other such instances of disorderly 'hurried' selling in the last five years. In July 2008, gold quickly dropped 21% - seemingly pre-empting the Lehman debacle and the collapse of the western banking system.

Is this collapse in the price of gold a harbinger of another major stock market crash?
Time will tell.

Meanwhile, many average Americans are wondering if they should dump their gold and silver while they still can.

As I mentioned above, gold and silver are going to experience wild fluctuations over the next few years. When the next stock market crash comes, gold and silver are probably going to go even lower than they are today for a short time. But in the long run gold and silver are going to soar to unprecedented heights.

Investing in gold and silver is not for the faint of heart. If you cannot handle the ride, you should sit on the sidelines. We are entering a period of tremendous financial instability, and holding gold and silver is going to be like riding a roller coaster. The ups and downs are going to shake a lot of people up, but the rewards are going to be great for those that stick with it the entire time.

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Today's Low Gold & Silver Prices Are Not Realistic

2013-04-15T05:02:00.004-04:00

During this very tumultuous week for precious metals prices, Chris sat down with Mike Maloney, founder and owner of GoldSilver.com, one of the world's largest bullion dealers.

Mike is a true scholar of monetary history. His reasons for getting into the bullion business have their roots in a very predictable cycle that has happened time and again over the centuries (more accurately millennia):

A new monetary system is introduced, based on sound money (most commonly, using gold and/or silver)
Currency (e.g., paper bills backed by sound money) is introduced to faciliate trade and commerce
Governments begin to tinker with ways to 'print' more currency than can be fully backed (e.g., coin clipping, partially-backed notes, FRNs)
A false prosperity ensues. Those closest to the new money creation benefit most and debase the currency further to forward their advantage.
Reality begins to catch up with this deficit spending and the purchasing power of the currency weakens dramatically.
The monetary system collapses under too many claims on a limited pool of sound money.
Eventually, a new monetary system backed by sound money rises from the ashes (see Step 1, above).

Mike believes that we are currently experiencing Step 6 and that we will witness the birth of a new monetary regime within the next ten years.

What makes this moment in history unique is that all past monetary regime collapses have happened regionally. This is the first time in human history in which all the world's major currencies are collapsing together. Which is why he is so passionate about owning gold and silver.

In his opinion, we will soon witness the greatest transfer of wealth ever seen, as countries worldwide realize they need to revert to monetary systems backed by sound money (i.e., the precious metals). Those acquiring gold and silver beforehand will not only preserve their wealth as existing fiat currencies are extinguished, but will see staggering increases in their purchasing power. Those interested in learning more of Mike's specific vision can watch Episode One of his new Hidden Secrets of Money video series. (Chris and I received advance screenings of the next few episodes, which are excellent in terms of explaining the processes and shortcomings of our current monetary system.)

On the Tightening Physical Market for Gold & Silver

What most people do not understand is that the price of gold and silver are not determined by how much gold and silver is being sold. It is how many gold and silver IOUs are being sold. And you can write as many IOUs, futures contracts and options, as you want. Those are unlimited. The supply, though, of physical gold and silver is quite limited, and so when people actually start asking for it and they want the physical, then there is a divergence of the paper price versus the physical price, and we are seeing that right now.

We are in a back-order situation with all of the suppliers. Spreads are going up. Silver eagles cost about fifty cents over spot more than they normally cost because all of the suppliers have had to raise their price to try and find the supply/demand equilibrium that the markets are for. The markets are there to try and find a supply/demand equilibrium, so then price is the arbitrator. Price rises; that draws more supply and reduces demand. Price falls; that reduces supply and increases demand.

So the price discovery mechanism of the markets is what is supposed to ensure that things are in equilibrium. We have this broken system where there are a few big players that manipulate the market, and it always shows up when shortages start developing in the physical market. You know that the price of gold and silver right now are too low to be realistic. And the good thing about that is that it cannot last.

On the Hidden Wealth Transfer Caused by Inflation Targeting

Everybody got in an uproar over [the Cyprus bank deposit haircuts], but nobody gets in an uproar over the central banks targeting 3% inflation. That compounds out to 34% of your wealth that they are confiscating every decade. People got mad because it happened all at once and they could see it. One day their bank account said one thing; the next day it said another thing. With this insidious confiscation known as inflation, this is the inflation tax – you do not see it because the number on your bank account might say that you could make a deposit and if there are no fees or anything on that deposit, $100,000 deposit a decade ago still stays $100,000. Except gasoline went from $1.25 to near $5. Measured in gasoline, you lost 75% of that $100,000, but it still says $100,000.

So the central banks targeting this 3% inflation rate is a wealth transfer from the public to the financial sector.

On the Recent Price Weakness in the Precious Metals

You do not want to stay in just one investment class your whole lifetime. But it is a very powerful tool to be able to measure these classes against each other and then jump from an over-valued asset class to an under-valued asset class at the appropriate time for the road to true wealth. And it only requires a few big decisions during your lifetime.

Now, when I discovered wealth cycles, I was looking at the Dow Gold ratio and thinking this thing has a cycle. I made another check of the Gold Dow ratio instead the Dow Gold ratio, and put them on top of each other. Lo and behold – there is a cycle. It has a positive side and a negative side. If you are doing a Dow Gold ratio, you jump from being invested in paper assets like stocks and then back to gold for the long investment waves. I would say it is somewhere between 8 and 20 years you spend in an asset class, and you can do this with anything. If you measure your house in how many barrels of oil it is worth over a century and you jump back and forth from being invested in oil wells to being invested in real estate, it is the same thing as being invested in gold or the Dow. It is a very powerful tool that I believe has a high degree of predictability and safety to it, if you do not let the short-term noise flush you out.

Right now we are in consolidation. Gold has been chopping sideways for 19 months now, and it has worn people out. But basically gold is up. It is not up from 19 months ago when it was nearing $2,000, but it sure is up over the last decade. So I do not let the short-term noise affect me now that I know that we have not reached the point where the price of gold equals the points on the Dow. Right now gold’s value is one-ninth of the Dow, and so I know that it needs to rise by a factor of 18 against stocks before I need to get worried and start watching gold.

So I am very comfortable in these pullbacks. It gets a little aggravating, but still it does not bother me that much and is definitely not going to flush me out.

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Of Bubbles and Bitcoins

2013-04-12T06:05:00.003-04:00

The newest invention in monetary affairs are the so-called Bitcoins. Their creators and promoters explain them as follows: 'Bitcoins are digital money. They are transferred person to person through Internet without going a bank or a clearinghouse, so they are independent of the current monetary system. Several currency exchanges exists where you can trade your Bitcoins for dollars or euros, and some small business and freelancers are starting to accept them in payment.'

The Bitcoin is a game. We live in a highly confused and perplexed world regarding what real money has to be. Let's get this straight: Real money has to be the commodity that is generally accepted by society as payment in full for goods or services received.

Throughout history, the commodity most generally accepted in payment has been gold. Silver has taken the second place after gold. Gold and silver were chosen by humanity thousands of years ago, as the commodities with which to make payments.

In the exchange of any given merchandise for gold (or silver), neither of the parties to the interchange ends up owing the other party. There has been "settlement."

The Bitcoin may serve as a medium of exchange, as do the world's currencies, but neither the Bitcoin nor any of the currencies of the world can achieve settlement, because the Bitcoin is not a commodity, and neither are the dollar, the euro, the yen, the yuan, etc.

Since there can be no settlement with Bitcoins, at some point many people are going to be more or less seriously burnt when this Bitcoin game goes out of fashion, depending on how much they are holding when the game ends.

So you won playing that great game, "Monopoly"? It's a great satisfaction to win playing "Monopoly" – you have all those bills, and your game partners are busted! In truth, all the high and mighty fellows running the world's Central Banks are keeping us amused and busy as we attempt to gather as much as we can of the "Monopoly" money they print up for us. But when you have a lot of their "Monopoly" money, or of Bitcoins, what do you really have when the game ends? You have papers or worthless digits, period.

The only thing that the holder of Bitcoins can do – like any holder of currencies – is to get rid of them by buying things, while there is someone willing to receive them in "payment." I use quotes around the word "payment," because since August 1971 there is in this world no real payment at all. Real payment involves settlement, and neither Bitcoins nor currencies can achieve settlement. The proof lies in the $11 Trillion of International Reserves that have built up around the world, because there has been no settlement of international trade imbalances since August 1971. If the Bitcoin mania continues to grow, expect digital quantities of Bitcoins to show up in Chinese Central Bank reserves. Then the creators of the Bitcoins will have to proceed to issuing Bitbonds, so that the Chinese can trade there Bitcoins for Bitbonds which pay interest. It's all a huge game, dollars, euros, pounds, yen, yuan and now Bitcoins – all the same garbage.

Bitcoins cannot be accumulated safely as savings, because they are not a commodity, nor redeemable into any commodity. We are seeing how unsuspecting depositors of sums of currency in banks are in danger of seeing their deposits cancelled by government decree. Tangible commodities such as gold and silver cannot evaporate because they are not created artificially.

The world of artificial currencies – which now includes the famous Bitcoin – will end in disaster. A truly maddened world knows not where to turn for safety. The vicious drug of artificial money has got the world on a "high." More drug will kill our civilization, but less drug will send it into a violent withdrawal. Humanity seems to be trapped in a death-cult.

The popularity of the Bitcoin is based on the existing mentality, which considers that something designed "scientifically" must have some value.

The Bitcoin is an example of the tremendous hold that the idea of the omnipotence of technology to solve human problems has upon humanity. However, technology cannot create matter; it cannot create commodity-money, as it cannot create petroleum. Technology may give various forms to matter, but it cannot create matter or substance, and money must be the substance that is most accepted in commerce. All the Ph.D.s and Nobels in Economics are playing games to keep the world entertained. The less their pronouncements make sense, the wiser they think we will consider them.

You tell me: What is the future that awaits a humanity so confused that it can no longer distinguish between an abstract concept and what is real and material? Very confused people are participating in speculations in imitation currencies – dollars, pounds, euros, yen, yuans, Bitcoins − in the hopes of obtaining some profit or benefit, because unable to think for themselves, they can do nothing but speculate − and ruin themselves.

What worries me is not how the speculators will fare; what worries me is: how are the masses going to behave toward me and my family when the fraudulent currencies of the world, Bitcoins included, have turned those masses into hungry beggars?

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