Jul 202012
 July 20, 2012  Posted by at 6:16 pm Finance Comments Off on Rage Against the American Dream

After Jared Loughner opened fire on group of people in an Arizona grocery store early last year, apparently targeting Congreswoman Gabrielle Giffords, I wrote a post called "The Lunatic is in my Head". It questioned the mainstream narrative that we were fed about Loughner being a paranoid schizophrenic who had simply gone untreated for too long, and suddenly snapped. Let me be clear – in my opinion, whether Loughner was a "lunatic" or not is irrelevant to whether he should be held accountable for his despicable actions. There is absolutely NO excuse for such actions, and people like him should (and will) be punished to account for justice.

Fast forward to July 20, 2012, and we find ourselves confronted with a very similar tragedy. Police have identified James Holmes, a 24 year old studying for a P.h.D. in neuroscience at the University of Colorado, as the gunman who killed 12 people and injured 40 others at a Dark Knight movie premier in Denver. Should we chalk this horrendous incident up to the homicidal delusions of an abnormal person in an otherwise "normal" society as well, and then forget about it next week? Is there any connection at all between the actions of Holmes and the societal institutions and ingrained culture that surrounds us?

Perhaps it is time we, as individuals living in such a society, really start to ask ourselves why these incidents are apparently becoming more common throughout the developed world, mainly in the West but also in the East. What's happening in our economies, our corporate sectors, our banking systems and our socipolitical environments is not independent of what's happening in our movie theatres and our schools and our workplaces. Something deeper is happening than just chemical imbalances and misfiring neurons here; something more sinister, and something more widespread. I dare say we owe it to the victims and their families to not only offer them our thoughts and prayers, but to offer them our deeply considered reflection on what just happened.

In that spirit, I would ask readers to consider the following summary and review of the book "Going Postal: Rage, Murder and Rebellion " by Mark Ames, written in 2007 by Ed Vulliamy for the Guardian. In the book, Ames compares modern shooting sprees to the murderous outbursts of slaves against those around them, including but not limited to their masters – acute episodes of backlash against a culture of severe oppression and alienation. In the review, however, Vulliamy takes it a step further to suggest that perhaps what we are experiencing through these acts IS our culture, and what it has been for many years now. People like Holmes are not victims, rebels or exceptions – they are the metastasized cells of a cancerous culture.

Once again, I don't want to use this incident as a platform to convince anyone of anything, but simply to present ideas that deserve our consideration in these trying times.

Rage against the American Dream


It came as a shock, but then seemed suddenly inevitable: another news bulletin, another school massacre. Almost exactly a year before, I had been in Jonesboro, Arkansas, to report the gunning down of four girls at Westside Middle School. Now, in April 1999, it was a town called Littleton, Colorado, and a school called Columbine High: hardened SWAT officers wiping away tears; bereaved parents, their faces crippled with sorrow; another little town with its soul torn out by yet another 'rage killing'. 'Where's your God now?' the teenaged killer Eric Harris had jibed – with what one girl I spoke to called a 'dumb giggle' – before opening fire and killing her friend Cassie Bernall.


Then came the excavation into the world of Columbine's 'Trenchcoat Mafia', its immersion in guns, rap music, Marilyn Manson and violent computer games, and the acclaimed film Bowling for Columbine (2002) by Michael Moore. Now comes a book about the history of 'rage killing' in America that takes its title not from the school massacres that inspired it, but from an expression every American knows. 'Going postal' entered the language after a spate of shootings in the US Postal Service facilities that began in 1986 with a murderous spree by Patrick Sherrill in Edmond, Oklahoma. Ames explains how the shootings coincided with 'semi-privatisation' under Ronald Reagan that turned working for the USPS into a corporate experience like many others in postmodern, post-industrial America. But Ames goes further.


There followed many more workplace massacres, the histories of which he traces meticulously, and which he posits as acts of enraged rebellion against a new system of stress, layoffs and impossible expectations which are 'making the world a crueller place' in the new American factory – the office – and at places of supposed study. It is an apolitical insurgency by people who are, he insists, 'sane'.


In the education system, the stress endured by pupils' parents 'doesn't so much trickle down, it rains down from parent to child, like acid rain'. Ames draws a direct line between slave rebellions and rage killing, arguing that 'the modern American work culture derives from the same sources that defined slavery's official work culture'.


But the idea that developing forms of modernity and postmodernity devour, reduce and alienate their pawns to the point of violence is as old as modern social analysis. And other problems arise in Ames's argument, among them the fact that there have not, so far as I know, been many, if any, cases of 'rage massacre' in the sweatshops of Asia or indeed along the chain of Mexican export assembly plants, or maquiladoras, on the United States's southern frontier, where conditions are far worse than those in the US itself.


What Ames is writing about is a largely American phenomenon, and mostly a white one – with black ghetto gun killing another, though related, matter. Ames scorns the way 'Americans wanted to blame everything but Columbine High for the massacre' – citing 'a violent culture, Marilyn Manson, the internet' and the gun lobby. He wants the mainstream to be responsible, not its bogeymen.


Of course he has a point when it comes to the alienation, stress, pressure, bullying and loneliness endemic in modern America – imitated all over the world, markedly in Britain and Asia – and the violence they detonate. But what could be more quintessential to establishment America's perversion of its own culture than the factors Ames dismisses: violence in the media, on the internet, in mass music, all of it highly lucrative?


Is there really such a distance between the hardcore rap lyrics that incite violence and the entertainment industry that nurtures them? Or between Hollywood violence and extreme violence on the web and in computer games designed along Silicon Valley? What if rage killing were actually an affirmation of – not a 'rebellion' against – American culture?


The mediocre genius of postmodern mass culture is that it creates what appears to be dissent, in order to absorb it at a profit. A more interesting volume would collate these outrages, as Ames has done, and demonstrate how they were actually inspired by creatures of that same, highly established, mass and new digital media, that same postmodern, post-industrial culture against which Ames thinks they were directed.


This was pointed out to me, a year before Going Postal was conceived, by David Grossman, a former army psychologist who had tutored soldiers in the psychological art of killing in Vietnam, and had come to live in Jonesboro. By the time of the massacre there, he was a college tutor in 'killology', and he told me how what he called the 'continued stimulus and conditioned response' to ensure that a soldier would kill were 'manifest all over mainstream American civilian society, on television, in the rap music, in computer games'. During his experiments, children accomplished at cyber-killing became eager and skilful marksmen on a clay-pigeon shoot.


But how far do we want to go in 'understanding' rage killers, and defining their rampages in terms of 'rebellion'? We in Britain tend to regard American rage killing as something of a video game in itself – a passage in that fantasy mental screen narrative we call 'Americana'. But what if we bring it home? Covering Jonesboro and Columbine were coloured for me by the unforgettable honour of having previously met an extraordinary man called Mick North, whose daughter was killed, along with 15 other children, at Dunblane primary school in 1996 by Thomas Hamilton, who had a grudge against the local scouts, against parents of children at the school and against the local police, all two of them. Do we really want to 'understand' what Hamilton did in terms of 'alienation' from our admittedly rotten and 'postal' society? And if we don't, does that make us 'Outraged of Tunbridge Wells?' No, it doesn't. Closing Ames's book and trying to think of Hamilton as any kind of revolutionary or victim … sorry, it just doesn't work.

Jul 192012
 July 19, 2012  Posted by at 5:33 pm Finance Comments Off on How the ‘Hedge’ Has Shifted on QE

Most people would have noticed how ZeroHedge, perhaps the most popular financial blog, has done a 180 degree reversal on the prospects for imminent quantitative easing by the Fed, as well as other important central banks. And if you hadn’t noticed the reversal, then you will after reading this. Most of last year and the first few months of this year, the writers/editors there had been heavily biased towards the Fed announcing a bold new QE program at almost every significant meeting. Now, not so much. So what happened?

Well, basically, their analysis was wrong before, and now it is more in tune with reality. That is a commendable flexibility of analysis rather than something to be critical of. The financial and political constraints on monetary easing throughout the world have become much too clear to ignore any longer. The toolbox of CBs is too limited, the markets are valued too high, the data is not bad enough and the political climate is too bitter. Here is a sampling of recent statements from the ‘Hedge’ that clearly show its reversal in thinking about QE:

“It appears that The Bernank has followed his central banking peers around the world and passed the torch on to someone else (since perhaps he has realized his own lack of omnipotence – or more simply he knows the market has become self-aware of QE and needs to reset expectations to have any hope of a QE impact).”


“It seems to us that Santelli’s perspective that Bernanke knows he is at his limit with regard to efficacy of measures seems much more realistic than Liesman’s re-iteration of the Fed-Watcher’s desires and his own incredible cognitive dissonance – just what happens if the Fed is not omnipotent?”


“We discuss each below but note, just as Goldman believes, that while we think that a modest easing step is a strong possibility at the August or September meeting, we suspect that a large move is more likely to come after the election or in early 2013 (and not before), barring a very rapid further deterioration in the already-cautious near term Fed economic outlook (which we assume implicitly brings the threat of deflation).”


“[Bernanke says] ‘I assume there is a theoretical limit on QE as the Fed can only buy TSYs and Agencies’ and ‘If the Fed owned too much TSYs and Agencies it would hurt the market’. Perhaps the market was expecting that the Fed would admit it can buy ETFs and REITs like the BOJ, or that it can sell vol into the single digits, as its New York Fed trading desk is rumored to be doing, but this is hardly the stamp of endorsement to buy any stock come hell or high water that the algos now expect out of the Fed.”


“The Fed’s Beige Book was just released and for those looking for cliff-dropping and panic-driven views of the plunge in the economy, we are sorry. The Beige Book was, well, beige… Maybe we will just muddle through with our lower earnings and weaker outlooks but never quite bad enough to get Ben off the bench.”


“Finally, people for whom extended claims expired soared by 84K in one week, as those on EUC 2008 benefit is imploding with each week. Overall, a very ugly number, but not horrible enough yet to send the S&P up 100 on imminent NEW QE.”


“Sadly, which the economic contraction accelerates and print after print is horrible, once again they are not nearly bad enough to usher in New QE any second, even as the market has priced in not only QE 4, but 5, 6, and so on.”


“If, indeed, adverse US climatic conditions spread, and it appears they already have as “the monsoon season, which is critical for that country’s agricultural production, is 22% below normal conditions for the year” it means that Asian food prices will broadly be the next commodity sector to go sky high, and with that kill any hope of either an RRR cut, or an outright reduction in the PBOC’s Interest Rate.” [see also China is Missing It’s Own Targets]


“Then again, praying for rain is oddly more appropriate and realistic than hoping that the central bankers will ease more with the US stock market at its 2012 highs.”

That is obviously not an exhaustive list of such statements, and I’m sure we’ll get many more in the near future. As our readers know, TAE has been making very similar points about the prospects and effectiveness of monetary easing for quite some time. We never rule out that a large QE3 effort will be undertaken, but we are always careful to examine the factors which inform such a decision and to recognize the limits on the power of central banks within the current system. With the Fed, ECB and PBoC by and large sitting on the sidelines in terms of full-fledged monetization, it stands to reason that the financial/equity markets will be suffering from even more painful withdrawal before the year is up.

Jul 172012
 July 17, 2012  Posted by at 7:11 pm Finance Comments Off on The Dreaded Defaults are Here

I’m always surprised by the common argument that central authorities will “not allow defaults to occur”, as if a) they have a clear-cut choice in the matter and b) those defaults haven’t ALREADY occurred. Obviously, this threat is the most acute at the so-called “sovereign” level in the Eurozone, in which countries are inextricably wedded to each other in unholy monetary matrimony. Greece has already defaulted on its obligations to private creditors, while the so-called “autonomous” regions of Spain are following quickly in pursuit, and the regions of Italy are in a close second (the Sicilian governor is being forced to resign due to the region’s proximity to default).

Yet, the dreaded “D” word is by no means limited to that side of the Atlantic. People tend to forget that the states and cities of America borrow vast sums of money and provide a whole range of services and benefits to their citizens, including education, police, firefighters, transportation, utilities, etc. These are governmental authorities that are now being forced to file for bankruptcy in increasing numbers and renege on many of the promises they have made to institutions and people in the past. It may not seem like much when considered individually, but when you add them up in the context of an already struggling private economy, they can certainly rival the effects of defaults in Europe.

Some of the more notorious bankruptcy filings by cities/counties in recent times have been San Bernardino and Stockton in California over the past few weeks, which were the second and first largest bankruptcies in U.S. history respectively, as well as Jefferson County, Alabama and Harrisburg, PA late last year. Leading the way in bankrupted government entities, though, is the state of Nebraska, as reported by Steven Church of Bloomberg:

Nebraska, Not California, is King of Municipal Collapse


Busted land deals and empty subdivisions bankrupted more governmental entities in Brian C. Doyle’s home state than anywhere in America. With the recent financial collapse of three of its cities, it might be easy to assume he’s from California.


Doyle, however, lives in Nebraska.


Quirks in local, state and federal law have made Nebraska home to almost one-fifth of the more than 220 Chapter 9 bankruptcies filed in the U.S. since 1981, according to a nationwide review of federal court records. California, with more than 20 times Nebraska’s population, is second, followed by Texas and Alabama. California may soon add to its total, as San Bernardino decides whether to seek court protection this week.


The main difference between Nebraska and its larger brethren is the kind of governmental bodies that file for bankruptcy. No town, city or county has sought court protection in the state. All 45 of Nebraska’s Chapter 9 cases were by special tax districts, most of them owned by residential subdivision developers who used property-tax revenue to pay for streets, sewers and other infrastructure.


“Chapter 9 is an effective tool that can be used to protect taxpayers and treat creditors fairly,” said Doyle, a land-use attorney in Omaha who represents bankrupt subdivisions. Those special tax districts become vulnerable to bankruptcy when housing sales slow, he said.

What’s key to remember, though, is that the filing of bankruptcy is simply the culmination of a process in which an increasing number of obligations are not met by the entity involved. San Bernandino and Stockton had been cutting services and payments to various public institutions and creditors for quite some time before they finally had no choice but to file Chapter 9. Bankruptcy is truly the last option for a desperate government that can no longer find ways to squeeze and manipulate their obligations to creditors, public officials and citizens without creating a massive political and public relations disaster.

For example, Ben Duronio of Business Insider explains that the city of Stockton, CA had imposed massive austerity on its police department over the past few years, and that had led to a “surge in murders” and an “emboldened criminal element”, all before they were forced to file for bankruptcy:

STOCKTON GOES BANKRUPT And Already The Murder Rate Is Soaring


Stockton, California is filing for the largest bankruptcy of any U.S. city in history due to the decline in the once hot housing market and an intake of debt during its boom years.


The city has cut more than $90 million in spending over the past few years, specifically in its police department. The city has cut over one quarter of its police jobs, which has led to a “surge in murders”, and has created an”emboldened criminal element” in the city. According to police spokesman Joe Silva, the city has had 87 murders since the start of 2011, 29 of which have already occurred this year. In contrast, there were 35 murders in 2009 and 48 in 2010. With six months left in the year, there have already been more murders in the city since the start of 2011 than the two-year stretch of 2009-2010.


Further cuts to the police department would likely only worsen the issue, so filing for bankruptcy after already having cut 40 percent of its city’s employees was the only option, according to Mayor Ann Johnston.

So how many more counties/cities in the U.S. are being forced to systematically gut their institutional services to citizens on the road that inevitably leads to bankruptcy? Ben Duronio also profiles twelve other large cities/counties that find themselves in dire financial straits –  OH CRAP: A Whole Bunch Of Cities And Counties Are Now Seeing Their Finances Collapse. And those are only the ones that are worst off right now. I suspect many readers living in the U.S. can attest to various ways in which their cities are gradually imposing austerity on the public to continue rolling over their debts and meeting their obligations to private creditors. 

It won’t be enough, though, just like it was never enough for Greece. And for those who are expecting Ben Bernanke to ride in and save the day with a QE3 program that targets municipal bonds, they need to first explain why he just gave the following response to a question about how much QE the Fed can realistically do – “I assume there is a theoretical limit on QE as the Fed can only buy Treasuries and Agencies. Personally, I don’t think Bernanke is stupid enough to place an arbitrary constraint on the Fed unless he already knows for certain that the option will not be pursued.

Jul 172012
 July 17, 2012  Posted by at 6:14 pm Finance Comments Off on Ruminations: Labeling the Other

Have I ever told you much I despise the use of labels? Perhaps you’ve noticed by my sometimes frequent use of quotation marks around nouns that I can’t otherwise avoid using in a description or explanation. In the field of economics and finance alone, you have your “Keynesians”, “Austrians”, “Monetarists”, “Marxists”, “Neoclassicals”, “Inflationists”, “Deflationists”, “soft money advocates”, “hard money advocates”, “capitalists”, “communists”, “anarchists”, etc. When we expand the fields to encompass sociology, psychology, politics and religion… forget about it. The “pundits” and the “politicians” will continue labeling each other into eternity.

Frankly, it’s an embarassment that our socieities have developed so many different labels to use and yet individual people have so little understanding of what each other truly believes. Perhaps that’s why people in the highest levels of academia and government, as well as the most decentralized levels of intellectual discourse, find themselves talking past one another so often. And perhaps that’s why our global society has reached an era of sclerotic stagnation in which the majority of the population finds themselves hiking around a circular trail at the base of the mountain, never making any vertical progress.

Instead of gradually making our way towards the truth, we paint targets on each other’s backs to make our arguments and our beliefs more convenient. This practice is by no means limited to the societal “elites”, but rather is endemic to the modern world – we are all guilty of doing it.

Jul 162012
 July 16, 2012  Posted by at 4:15 pm Finance Comments Off on Report: The Golden Dilemma


May 1936. “Bank that failed. Kansas.” Medium-format nitrate negative by Arthur Rothstein for the Resettlement Administration.

It seems to have been at least a month or two since the last time TAE ticked off more than a few gold bugs with an article, and that’s much too long if you ask me! My aim here, of course, is not really to tick anyone off, although that may very well be the result, but to present some balanced information about where the price of gold may be headed in the near-term. Claude B. Erb and Campbell R. Harvey from the National Bureau of Economic Research published a report last month entitled, “The Golden Dilemma”, in which they addressed many of the common arguments in favor of gold as an investment.

Given the length of the report, I am just going to present you with the excerpts and graphs that I feel are most relevant, as well as some very limited commentary of my own. There is a lot of data/information to process here, but the authors do a pretty good job of distilling it down to its most simple form. I am mostly interested in hearing what our readers think about the arguments made. There is a lot more data and analysis from the report than what will be presented here, and you can find it all by following the PDF link above.

#1 – Gold Provides an Inflation Hedge

Report: Exhibit 1 illustrates one literal version of the “gold as an inflation hedge” argument. Our initial sample starts in 1975 because for most of the history of the U.S., the price of gold was fixed by the government.8 Exhibit 1 shows the month-end value of the nearby gold futures contract versus the monthly reading for the U.S. Consumer Price Index (CPI), over the period January 1975 to March 2012. The red regression line shows that on average the higher the level of the CPI the higher the price of gold. This line roughly portrays the implied price of gold — if gold was driven by CPI. However, in Exhibit 1, the price of gold swings widely around the CPI. The inflation derived price of gold and the actual price of gold have rarely been equal. Given the most recent value for the CPI index, this version of the “gold as an inflation hedge” argument suggests that the price of gold should currently be around $780 an ounce.



Ashvin: One obvious criticism to this approach is that the official CPI numbers are under-estimated, and therefore gold has risen more commensuaretly with real inflation. However, I think this flaw is partially mitigated by their comparison of gold prices to CPI over the last 40 years, which includes periods before many CPI adjustment mechanisms were put in place. In addition, they compare gold prices to “unexpected inflation”, i.e. the change in the annual inflation rate. If the CPI is under-reporting inflation through various adjustments, then we would at least expect the magnitude of under-reporting to remain relatively constant over time.




Report: In “normal” times, gold does not seem to be a good hedge of realized or unexpected short-run inflation. Gold may very well be a long-run inflation hedge. However, the long-run may be longer than an investor’s investment time horizon or life span. In the short-run the real price of gold has been the dominant driver of the price of gold and the returns from gold. We will return to the inflation argument when we explore the “safe haven” argument where we explore hyperinflation.

#2 – Gold Serves as a Currency Hedge

Report: There are at least two ways to interpret the “gold as a currency hedge” argument. The first interpretation suggests that “gold is a foreign exchange currency hedge”. In this case, the expected return of gold should offset the expected decline in the value of one’s own currency. If, for instance, the U.S. dollar declines 10% against the Japanese yen then the “gold as a currency hedge” argument would suggest that the price of gold should rise by 10%. The net result of this hedge should be a return of zero (gold return + currency return = 0).

This perspective has the following problem. If the price of gold in a country is driven by its own inflation rate and if the exchange rate between two countries is driven by the difference in their inflation rates, then gold will only reliably be a hedge of the foreign exchange rate if one of the two countries always has an inflation rate equal to zero.

Exhibit 12 shows how the local currency real price of gold has fluctuated in a number of countries: Australia, Canada, Germany, Japan, New Zealand, Switzerland, the U.K. and the U.S. In each case the local currency price of gold is divided by a local inflation index19 and the resulting ratio is normalized to an initial value of 1.0. The message of Exhibit 12 is that since 1975 the real price of gold in these eight countries seems to have moved largely in tandem. The real price of gold reached a high level in 1980 amongst all eight countries. The real price of gold fell to a low level in each of the eight countries in the 1990s, and more recently the real price of gold has risen to very high levels in all eight countries. The historical evidence of a seemingly common local currency movement in the real price of gold does not lend itself to a convenient “gold as a currency hedge” explanation. In fact, the change in the real price of gold seems to be largely independent of the change in currency values. Furthermore, since the real price of gold seems to move in unison across currency perspectives, it is unlikely that currency movements help in explaining why the real price of gold fluctuates.



#3 – Gold is an Attractive Alternative to Assets with Low Real Returns

Report: The “gold as an alternative to other assets with low real returns” is a competing assets argument. The most frequent manifestation of this story is “the price of gold rose because nominal, or real, interest rates fell” argument.20

Exhibit 13 illustrates the historical relationship between the real price of gold in U.S. dollars (using the observations from Exhibit 2) and the real yield of a generic 10-year Treasury Inflation Protected Security (TIPS). Month-end observations from the inception of TIPS trading in 1997 to the present are used. The message of Exhibit 13 seems to be fairly obvious. When real interest rates are high, as they were during the late 1990s introduction of TIPS in the U.S., the real price of gold was low. Now that the real yield on a 10-year TIPS is low (close to zero) the real gold price is high. The correlation between ten year TIPS real yields and the real price of gold is -0.74. Is it possible to disagree with the view that low real yields caused the real price of gold to be high? Yes.



It is important to avoid the “correlation implies causation” trap. The negative TIPS real yield-gold real price correlation of -0.74 is a measure of the linear correlation of real yields with real gold prices. While it is possible to argue that low real yields “cause” high real gold prices, it is equally possible to argue that high real gold prices “cause” low real yields. Alternatively, it is possible that both low real yields and high real gold prices are driven by some other influence, such as an immeasurable fear of hyperinflation. This is a classic example of spurious correlation.

Does the competing assets argument “explain” the nominal price of gold? No. Does the competing assets argument “explain” the real price of gold? No.

#4 – Gold is a Safe Have in Times of Stress

Report: The safe haven/tail protect argument has already appeared three times. First, it is possible that gold does not hedge day-to-day inflation surprises but provides some protection in a hyperinflationary environment. Second, gold may not provide very effective hedging for currencies in usual circumstances but might provide some protection in situations of significant debasement – such as one associated with hyperinflations. Third, the negative correlation between real gold prices and real interest rates may be driven by the fear of a large negative macro event – such as hyperinflation.

First, let’s examine the safe haven with respect to financial stress. Exhibit 14 shows the joint distribution of U.S. stock and gold returns. How does gold hold up in Quadrant 3 (negative equity returns matched with negative gold returns)? The simple safe haven test states that there should be very few observations in Quadrant 3. In fact, 17% of the monthly stock and gold return observations fall in Quadrant 3. This suggests that gold may not be a reliable safe haven asset during periods of financial market stress.



For some proponents of gold investment, the hyperinflation of the Weimar Republic stands as an electrifying example of the risks of a fiat currency regime. The hyperinflation of the Weimar Republic during the years 1922 and 1923 is an example of a possible endgame for a country that spends much more than it earns. The German mark-U.S. (gold) dollar exchange rate rose from 430 in 1922 to about 433,000,000,000 by 1924. If such a hyperinflation unfolded in the U.S. today and if gold moved with the inflation rate, then the price of gold would exceed $163 trillion U.S. dollars

Largely unpredictable events with impossible to caluculate probabilities and far reaching and inestimable consequences live in Extremistan. Hyperinflation lives in Extremistan. Extremistan is populated with “I don’t know” events. For instance, if hyperinflation occurs it is likely that no one knows ahead of time how long the hyperinflation will last and how significant the magnitude of the hyperinflation will be. In Extremistan, it is impossible to tell how bad things might be so any example, such as how bad things were during the German inflation, is as good, and arbitrary, as any other possibility. In Extremistan the price of gold ten years in the future might be $72,092,964,539,007.

Exhibit 16 illustrates a simple “mixture model”, a way of thinking about financial market outcomes by looking at a combination of models that describe outcomes during “normal” times (Mediocristan) and during stressful times (Extremistan). Given the assumptions, a one-in-a-billion chance of ending up in Extremistan yields a 10 year in the future expected value for gold in excess of $72,000. A one-in-a-hundred chance of ending up in Extremistan yields an expected gold price in excess of $720 billion. The Mediocristan-Extremistan framework does not provide any insight into the probability of hyperinflation. In addition, the Mediocristan-Extemistan framework does not provide an explanation for the currently high real price of gold. Its main value is that it highlights the dilemma faced by investors: how even extraordinarily remote probabilities of hyperinflation could have a large impact on the possible future price of gold.




Ashvin: I suspect the probability that major fiat regimes will enter Taleb’s “Extremistan” in the future will easily exceed 4% as debt deflation progresses and central authorities respond. In fact, we could be well over a 50% probability another ten years from now. However, as the author’s of the report point out, it is called “Extremistan” for a reason – there is really no telling what the sociopolitical environment will look like once we get to that stage of the collapse. It is quite possible that gold technically valued at obscene amounts will actually not be that valuable to the person who possesses it, since they must protect it from central authorities and street-level thugs alike, and they must trade it for basic necessities in what could very well be a war-torn landscape.

#5 – We are Returning to a De Facto Gold Standard

Report: Why is no country on the gold standard? Some of the supposed possible benefits of a gold standard are: “life without inflation, an end to the business cycle, rational economic calculation in accounting and international trade, an encouragement to savings, and a dethroning of the government-connected financial elite” (see Rockwell, 2002). Others such as Delong (1996) highlight a belief that a gold standard would result in loss of “normal” monetary policy options (such as the possible Phillips curve trade-off between inflation and employment and impart a recessionary and deflationary bias to countries with balance of payments deficits). This line of thought focuses on the work of Eichengreen and Peter Temin (2010) who note that during the Great Depression those countries that abandoned the gold standard earliest suffered the least economic harm. One view of the “de facto gold standard” argument is that the gold standard is the worst form of currency except for all those other forms that have been tried from time to time.

If a gold standard exists then gold is money, but the “gold is money” argument does not require the existence of a gold standard. The “gold is money” argument is essentially another way of stating the “constant price when measured in gold” argument. For instance, investors Brodsky and Quaintance (2009) and hedge fund manager Dalio (2012) have argued that “gold is money” without arguing that the world is on a de facto gold standard. For Brodsky and Quaintance (2011), the “shadow price of gold”, the price they believe gold should trade for, is equal to the amount of the U.S. monetary base divided by the official gold holdings of the U.S. Given a monetary base of $2.7 trillion and official U.S. gold holdings of 8,300 metric tons this yields a “shadow gold price” of about $10,000 an ounce. Similarly, Dalio28 thinks that “the price of gold approximates the total amount of money in circulation divided by the size of the gold stock”.

The “shadow price of gold”, “gold is money”, argument is an intriguing concept. The “gold is money” argument is influenced by Friedman’s assertion that “inflation is always and everywhere a monetary phenomenon”. As a result the “gold is money” argument is essentially a restatement of the “gold as an inflation hedge” argument, and it should not be expected to more successfully explain the variation in the real price of gold. However, the “gold is money”, “shadow price of gold” argument yields a fairly specific prediction: a view of where the price of gold should be if the world actually accepted this specific view. From a U.S. standpoint, all that is needed to know where the price of gold is headed is a sense of the size of official U.S. gold holdings and the size of the U.S. “money supply”.

Exhibit 17 shows a time series of official U.S. gold holdings since 1870. Official gold holdings peaked at about 20,000 metric tons following implementation of President Roosevelt’s Executive Order 6102, which outlawed the private ownership of gold in the U.S. Official gold holdings entered a period of decline during the Eisenhower administration that continued until 1971, when President Nixon officially took the U.S. off the gold standard. Since that time, the official gold holdings of the U.S. have been slightly greater than 8,000 metric tons.



The “shadow price of gold” is simply the “money supply” divided by the official gold holdings of the U.S. There is, of course, some ambiguity as to which definition of the money supply to use. The Federal Reserve currently publishes three versions of the “money supply”: the monetary base, M1 and M2. Furthermore, the Federal Reserve once published an M3 money supply number, but M3 was discontinued in 2006. Using the monetary base as the money supply value with which to calculate the “shadow price of gold” yields a current gold price target of about $10,000 an ounce. Using M1 as the money supply value with which to calculate the “shadow price of gold” yields a current gold price target of about $8,000 an ounce. Using M2 as the money supply value with which to calculate the “shadow price of gold” yields a current gold price target of about $37,000 an ounce.

These “shadow prices of gold” may seem alarming since each of the “shadow prices” is much higher than the current price of gold. Additionally, part of the “shadow price of gold” argument is that the higher the “shadow price of gold” is relative to the market price of gold the greater the latent inflationary pressures faced by the U.S.

There are a few obvious challenges with this line of reasoning. First, in the U.S. there has been an abundance of research that finds little evidence of a link between money supply growth rates and inflation rates.29 Second, why just focus on the U.S.? The U.S. official holdings are only about 5% of the world gold supply. In summary, the shadow price of gold is an engaging concept but, because it relies upon a vague model (the theory of exchange) and poorly defined monetary aggregates, it does not help us understand the underlying dynamics of the gold price.

#6 – Gold is “underowned”

Report: Of the six arguments to own gold, the “gold is underowned” argument offers probably the best way to understand why the real price of gold might vary. In order to explore the nuances of the “gold is underowned” argument, it is important to address a number of subsidiary issues: how much gold exists, who owns the gold, and have demand trends changed over time. Of course the “gold is underowned” argument is somewhat ambiguous since all of the gold in the world is currently owned by someone. 30 In its simplest version, the “gold is underowned” argument asserts that not enough people own gold, that maybe everyone should own some gold and the move towards universal gold ownership should cause the nominal and real prices of gold to skyrocket.

How much gold is there? Gold exists both above and below the ground. Above ground gold is gold that has already been mined. Below ground gold is gold ore that has yet to be mined. No one knows exactly how much above ground gold exists. The World Gold Council (2012) estimates that 171,300 metric ton of gold have been mined since the beginning of civilization. The World Gold Council estimate provides a convenient anchor for measuring the number of tons of gold but given the Herculean task of enumerating gold holdings “since the beginning of civilization” the actual, unknown, number could be much lower or higher. Buffett (2011) points out that 171,300 metric tons of gold would create a cube measuring 67 feet on each side. The U.S. Geological Survey (USGS, 2011) suggests that there might be 51,000 metric tons of “below ground” gold reserves that could be mined in the future. If the USGS estimate is correct then over 76% of the world’s actual and potential gold has already been mined. This balance of already-mined-gold relative to yet-to-be-mined-gold once prompted the CEO of Barrick Gold to speculate about the possibility of entering a period of “peak gold”.

Exhibit 20 plots investment demand, jewelry demand and technology demand relative to the U.S. dollar price of gold over the time period 2001 to 2011. The investment demand for gold seems to rise with the price of gold. This upward sloping investment demand is striking. While it is possible that the upward sloping investment demand for gold is an example of a Giffen good or a Veblen good, there are two other explanations that might be more plausible: the impact of momentum-based investors and “too much” demand, totally divorced from a momentum motive, chasing “too little” supply.




Exhibit 21 displays the trajectory of the real price of gold and the physical gold holdings of the world’s largest gold exchange traded fund, the SPDR Gold Trust. The SPDR Gold Trust, ticker symbol GLD, was launched in 2004. Since then its holdings of physical gold (stored in vaults in London) have grown from nothing to over 1,000 metric tons. GLD currently holds a little less than 1% of the world’s known supply of above ground gold. GLD’s purchases of gold represent about 15% of the total investment demand for gold since 2004. As we will soon see, this ETF has more gold that the official holdings of China. Exhibit 21 illustrates a rising amount of gold investment as the price of gold rises, which is consistent with an upward sloping demand curve for gold. While momentum investing is consistent with an upward sloping demand curve from traditional financial investors, in which a rising price leads to rising demand, it is also possible that there has been too much “non-traditional momentum” gold demand, relative to supply, and that excess demand has driven the real price of gold to historical high levels.




Have the Chinese been buying gold? Exhibit 23 shows World Gold Council estimates of the central bank gold holdings for Brazil, Russia, India and China, the BRIC countries. China’s estimated central bank gold holdings are currently over 1,000 metric tons. There is no reason to believe that Chinese central bank gold holdings are more accurately reported than any other Chinese government statistic. Even though China’s gold holdings have risen sharply over the last few years, as just noted, China holds less gold than the SPDR ETF. China’s gold holdings may still be rising.

Exhibit 25 profiles the entities that have either purchased or disposed of the largest gold holdings since 2000. China, Russia and Saudi Arabia have been enthusiastic purchasers of gold and the Netherlands, France and Switzerland lightened up on their gold holdings. For many years the central banks of the Western countries viewed gold as a “barbarous relic” that cluttered up their balance sheets. Some Western central banks sought to lighten up on their gold holdings but the lack of liquidity in the gold market forced them into a series of Central Bank Gold Agreements (CBGA). The essence of the CBGAs was that the central banks that wished to sell gold collectively agreed that they would not sell more than some set amount of gold in any one year. Depending upon the terms of the specific CBGA, the typical amount of sales was limited to 400 or 500 metric tons per year. The motive for limiting the number of tons of gold sold in any one year was a belief that the gold market could not absorb more gold sales without the price of gold falling significantly.



The “gold is underowned” argument has probably been an important driver of the increase in the real price of gold. A rising level of gold investment by emerging market central banks in an illiquid gold market could lead to a rising real price of gold. The rising real price of gold could act as a signal to momentum based investors to allocate capital to gold. As long as some central banks are insensitive to the price they pay for gold the possible move into gold could drive the real price of gold much higher.

Ashvin: And so the report ends on a much more positive note for all the gold bugs out there, but many questions remain. Can we really expect “investment demand” to continue its upward sloping trajectory of the last decade? Do we really think the emerging market countries will continue to emerge and diversify into more and more gold holdings? I suspect that these trends are unlikely to persist in the near-term. And I also suspect that too much gold demand has come from momentum investment in the paper products offered by vehicles such as GLD, and things could get ugly when people lose confidence in the ability of such vehicles to actually produce the gold they claim to have allocated. As always, time will tell the tale.

Jul 142012
 July 14, 2012  Posted by at 2:07 am Energy Comments Off on Retrospective #10: Further Draft Dodging

This is number ten in a series of articles documenting the principles and practice of eco-thrifty renovation written by Estwing of the ETR Blog for the Wanganui Chronicle.

Last week I wrote about foam window and door seal, and home-made draft-blockers. Did anyone install either of these? If so, please write a letter to the Chronicle and share your experience. Here is a short story to motivate you:

Last Friday night I went fishing with my mate. When I got to his home he was not back from work, so I chatted with his wife about window battens and draft blockers. My mate arrived, we went fishing for two hours and returned for tea. In the meantime, his wife put up one window batten, swapped a short curtain for a floor-length curtain, and put a long draft blocker along the base of their aluminum French doors. (Although the doors are well-sealed against drafts, they do conduct heat through the metal.) When we returned she greeted us with, “Isn’t it much warmer in here now?”

Window battens and draft blockers can be made from items found in the house and shed, but there are some other eco-thrifty items available for purchase from local businesses. For example, draft excluders can be found in the same shops as window and door seal, insulation, and compact fluorescent light bulbs. But, I have some special eco-thrifty advice on draft excluders.

These come in a wide range of styles and prices from $10 to over $50. Here is my eco-thrifty advice: Don’t by the dearest one and don’t buy the cheapest one. I repeat, DO NOT buy the cheapest one. This may come as a surprise to some of you, but it brings up one of the finer points of eco-thrifty philosophy: Some times being cheap is expensive.

Sidebar: Sometimes being cheap is expensive: A case study.

An incandescent bulb will cost you $1 but may use $10 of power in a year. Total = $11.

A compact fluorescent (CFL) bulb will cost you $5 but will use ¼ of the power of an incandescent, in this example $2.50. Total = $7.50.

And, the CFL will last 10 times longer! That means for the life of one CFL ($5), you would need to buy 10 incandescents ($10).

The cheapest draft excluder is made of plastic and is held to the door with an adhesive strip. Considering the heavy traffic that most doorways encounter, I do not trust the durability of either the plastic or the adhesive. I would suspect that this product would fail in short time and then need to be replaced. Ergo, being cheap is expensive. The second cheapest one has an aluminium strip but is still held on with adhesive. As Bon Jovi would say, “We’re halfway there.” But an adhesive backing is just living on a prayer in a busy doorway.

The next one on the price scale is pre-drilled aluminium with fixing screws, but it was a far sight dearer than the previous one. So my solution that saves $4-$9 on each one is to buy the middle one (aluminium with adhesive) and to drill my own holes and use my own screws. This achieves the low cost / high performance mandate of eco-thrifty renovation.

But it also raises another point: it takes a little more work. Yes it does, but it is paid work. It pays you back in energy savings. All of the work we’ve done has resulted in a savings of over $200 per month (conservative estimate) compared to the average New Zealand power bill. I look at this as a kind of “wage” that has no tax withdrawn from it. In another way I see my efforts at energy savings and education as paying “rent.” I’m only spending a short time on this beautiful, diverse, wondrous planet that has given me oxygen to breath, water to drink and waves to surf. The least I can do is pay my rent.

Peace, Estwing

Jul 112012
 July 11, 2012  Posted by at 3:29 pm Finance Comments Off on From Each According to His Inability, To Each According to His Greed

I think the one recurring question that has been on everyone’s minds since at least 2008-09 is – what will the government do? We all know what the large private corporations and high-level bankers are going to do – they are going to lie, cheat, scheme and steal their way into whatever forms of wealth and control they can get their grubby little hands on (see the Libor scandal for the most recent example). But then we must ask whether the government is going to help them do those things and how exactly they are going to help. After four painful years of betrayal, the answer to the first part of that question seems to be a resounding YES.

And with political partisanship propaganda filtering through the Western populace in time for various elections, a lot of people will look at these government policies and scream “SOCIALISM” or “COMMUNISM” with a growing sense of frustration and anger. Indeed, there has been no other time in recent history in which central authorities have been so actively involved in the affairs of the private sector. But, if I remember correctly, the foundational tenet of central planning in a Communist system is, “from each according to his ability, to each according to his need” – the economic version of the Golden Rule. Is that what we see happening here?

That’s not what I see happening… I see the central authorities bending over backwards to take what people can no longer afford to give and giving it to those who are never satisfied with what they have. That’s the entire point of low interest rate policy, quantitative easing, central bank currency swaps, discount loans to banks, public loan guarantees, etc. They either directly hand out taxpayer money to the banks (and their large corporate beneficiaries) in exchange for worthless collateral, or they coerce workers and savers to put their wealth into the private sector in the form of consumer spending and investments. They also coerce debtors to remain in debt and continue running on the treadmill for fear that it slows down and they fall off the back, as Nicole would say.

This dynamic is the most potent in the Eurozone right now, where banks are starting to get bailed out by their governments en masse, AGAIN, and the struggling masses are forced to forgo public salaries/pensions, health benefits, etc. and also pay higher taxes. We see it all to clearly in Spain, where the Spanish government is currently at the forefront of bailing out reckless bankers and implementing austerity, while the Spanish population is already suffering upwards of 25% unemployment. However, don’t be fooled for a second into thinking that the same dynamic isn’t happening right here and right now in the U.S.

In fact, a headline from Reuters today, which probably comes off to most people as a “positive” economic development, actually confirms that the wealth extraction process in America continues on even in the absence of QE3, and is beginning to reach extreme levels.

U.S. Bankruptcies On Pace To Fall To Pre-Crisis Levels


July 5 (Reuters) – The number of U.S. businesses and consumers filing for bankruptcy fell 14 percent in the first half of 2012 and could end the year at the lowest level since before the 2008 financial crisis, according to data released on Thursday.


New bankruptcy filings fell to 632,130 in the first six months of the year compared to the same period last year, according to Epiq Systems Inc, which manages documents and claims for companies in bankruptcy.


The number of businesses filing for bankruptcy dropped 22 percent to 30,946 and the number of consumers seeking court protection from creditors fell 13 percent to 601,184.


“We are on pace for perhaps the lowest total new bankruptcies since before the financial crisis in 2008,” said Samuel Gerdano, executive director of the American Bankruptcy Institute, which jointly released the report with Epiq.


Gerdano attributed the decline to low interest rates, which have been kept at rock-bottom levels since the financial crisis by the U.S. Federal Reserve.


Despite the drop in filings, there have been several large bankruptcies this year, including photography icon Eastman Kodak Co, textbook publisher Houghton Mifflin Harcourt Publishers Inc, and Hostess Brands Inc, the maker of Wonder Bread and Twinkies.

The first question we should be asking here is who benefits from low interest rates that prevent businesses and consumers from filing for bankruptcy and discharging their debts? Yep, you guessed it – the same people who benefit from every other policy enacted by central authorities. As long as there remains wealth to be extracted from people who have mortgages, car loans, business loans, student loans, credit card debt, etc., the government will help the private banks do just that. The bankruptcy process is really the closest Americans will ever come to having a “debt jubilee” over the next decade, and that’s the one thing that is progressively slowing down, becoming sclerotic and growing much too expensive for the little guys.

A friend of mine works for a law firm that handles corporate and individual bankruptcies in Northern Virginia, and he also confirmed that business had slowed down for the firm lately. He made it clear that a primary reason was the fact that it simply wasn’t worth it for potential clients to file anymore – they didn’t have nearly enough equity left in their assets or dischargeable debt to justify paying the lawyers’ fees and court costs associated with a bankruptcy filing. Basically, they have already been squeezed out of so much wealth that they have been priced out of the bankruptcy process. It is really a sad state of affairs…


“From each according to his inability, to each according to his greed”


Make no mistake, that is the golden rule of our age. And when central governments around the world decide to nationalize their private industries through legislative dictate, it will STILL be the motto we are forced to live by, because only a select group of elites will benefit from the decisions of those central planners. No, such a paradigm cannot described as Socialism or Communism. What is happening is so unprecedented and radical that our current language barely has the words to describe it. Perhaps we can call it Fascism on Steroids and in Hyperdrive… or something like that.

But regardless of what we choose to call it, we must remember that 99%+ of humanity occupies the same boat here – there is no use trying to scapegoat one segment over another through the political process. Those types of populist calls will start coming in strong and fast, but we must resist the urge to validate them ourselves. The political machinations of nation-states are all but dead now; only the natural sovereignty of individuals and their local communities remain.

Jul 052012
 July 5, 2012  Posted by at 2:28 pm Finance Comments Off on Something’s Gotta Give

We’ve been here before, right? In this tense and teasing position in which we feel that something big is about to happen soon, one way or the other – either the Eurozone is going to crumble and the markets are going to nosedive or… the central authorities of the world are going to dive head first into massive and coordinated easing and/or stimulus of some sort. I mean, seriously, how many times in the past few years have you had that exact feeling? Some days it’s stronger than others, like when the ticker is flashing ALL RED, but sometimes it can generally last for months.

Come to think of it, this time it has lasted for nearly a year with only one or two months of respite in between. Now you may think I’m suggesting that the current concerns are nothing to get too worked up about this time around, but I’m not… at all. What I’m suggesting is that the frequency and amplitude at which these waves of systemic risk are pummelling into us are getting larger and larger – not just for us onlookers or for the lowly market participants, but for the big boys and the central authorities that are tasked with “saving the world”.

Today, we get some coordinated monetary policy by the Bank of England, the Bank of China and the European Central Bank, with the former increasing its QE program by £50 billion, the PBoC cutting its deposit and lending rates by 0.25 bps and 0.31 bps respectively, and the ECB cutting its discount rate by 0.25% to a record low 0.75%. Meanwhile, the ever-critical Danish Central Bank cut its discount to rate to 0% while slashing its deposit rate to -0.2% (yes, that’s a negative sign). But only those who haven’t been paying enough attention to the socioeconomic mood shift over the last year would have expected the markets to jump for joy at any of this crap. Mike Peacock for Reuters asks, “will it work?”, which is really a rhetorical question, whether he knows it or not.

Trio of top central banks leap into action in sign of alarm




All the major central banks, with interest rates at historic lows, face the law of diminishing returns.


The Bank of England had already created 325 billion pounds of new money before Thursday’s addition. In doing so, it has successfully driven borrowing costs to all-time lows, yet the UK economy is languishing in recession.


“The BoE has been excessively optimistic about how powerful QE is,” said Philip Rush, an economist at Nomura, referring to the money-creating strategies known as qualitative easing.


“The latest increase is more than just a token, but it is not hugely significant for the outlook for growth and inflation.”


The euro zone is no better off. “We see now a weakening basically of growth in the whole of the euro area, including the country or the countries that had not experienced that before,” Draghi said.


Policymakers could counter that things would be much worse if they had not acted, but with most monetary policy levers already pulled, government action is also required to improve the world’s fortunes.


The International Monetary Fund has urged the United States to quickly remove the uncertainty over the path of fiscal policy, which is set to tighten abruptly at the start of next year without congressional action.


The IMF, and others around the world, also continue to urge the euro zone to get on top of its debt crisis once and for all.


Measures announced at a European summit last week bought some calm with the promise of action to lower government borrowing costs, but economists say they did not tackle the root problems, which still pose the biggest risk to the world economy.


“In spite of the progress made at the latest European Council, concerns remain about the indebtedness and competitiveness of several euro-area economies and that is weighing on confidence here,” the Bank of England said after its policy meeting on Thursday.


The ECB continues to put the onus on euro zone governments to solve their debt crisis and did not even discuss on Thursday “non-standard” measures such as buying Spanish and Italian bonds to lower borrowing costs which are not sustainable indefinitely.


Elsewhere, Denmark’s central bank cut interest rates by 25 basis points, shadowing the ECB’s action, in a historic move that put one of its secondary rates into negative territory for the first time. Kenya ended its nine-months-long hawkish stance with a bigger-than-expected 150 basis points rate cut.

None of this stuff even comes close to alleviating any of the systemic fear/instability that has piled on top of the Eurozone over the last few months, particularly in Greece and Spain (the latter’s 10-year bonds are back above 6.5% approaching the dreaded 7% mark), and the PBoC’s move will barely make a dent in the fears that have cropped up over China’s decelerating growth story. Clearly, a lot more has to give before any temporary equilibrium point can be reached, so the only question is – which way are we headed? Are today’s monetary maneuvers a harbinger of an all-out monetary assault in the near future, or are they really the only thing the central authorities are capable of doing at this point?

I would suggest to you that it’s the latter (surprised??). The EU core tasked with setting up and managing funds to bail out the rest of Europe have been dealt blow after blow to their credibility over the last few months, and also to their sense of pride. With the anti-austerity fervor sweeping through the periphery, the core is now being asked by the markets to throw even MORE good money after bad to quell their concerns. The Bundesbank and ECB are being asked to throw all of their conservative principles out the window for the sake of their insolent counterparts. Just how likely is that to happen now?

On top of that, the critical June date for the Fed to announce impressive plans for QE3, perhaps the last viable date before elections, has come and gone without so much as a tepid squirt from the liquidity faucet. So if the central authorities are waiting for anything to really get their hands dirty (and bloody) again, they are waiting for the markets to crash a solid 10-20%, at the very least. And by the time that happens, we know for a fact that the Eurozone will be in much more dire straits than they are now. What will the Fed or the PBoC be able to do for the imploding economies of Spain and Italy?

I don’t claim to have any of the answers to all of these questions with anything close to certainty, but I do know that we are quickly approaching that point again… the DO or DIE point at which something has got to give. Most of the evidence I see points towards the ticker flashing ALL RED in the near future, and that’s not going to make life any easier for the central authorities tasked with “saving the world”. We will be forced to discover the “end” in “extend & pretend” for this financial capitalist paradigm, and then there’s really no telling what kind of centralized, combustible reaction comes next – but, I assure you, whatever it is, it won’t be pretty.

Jul 032012
 July 3, 2012  Posted by at 3:54 pm Finance Comments Off on Ruminations: Guerrillas by Night

Flipping through the channels and browsing through the Internet, watching/reading the pundits on CNBC and Bloomberg and Fox and CNN and [insert your channel or website here]… I can’t help but think about how badly the mainstream media has failed us over the last 51 years. And not just because of the fact that 90%+ of it is owned and managed by a few megalithic corporations, but also because the journalists, reporters, analysts, columnists, editors, publishers, blog writers, etc. etc. have failed to venture outside of their comfort zone – to buck the Owners – in order to expose uncomfortable truths.

Granted, there have been a few courageous souls over these years that have stepped up to the plate and gone to bat for the American public and the world at large, but none of them have really managed to live up to the standards set forth by that one courageous soul of 1961; the President of the United States, John F. Kennedy, who addressed the American Newspaper Publishers Association and made it clear that the Press was the ONLY institution that could keep the country and the world from running off the rails.

Yet the Press as an institution has clearly failed, and we have run off the rails in a major way. We see the evidence of this every day now as multinational corporations and governments across the world engage in accounting fraud, taxpayer fraud, embezzlement of client funds, insider trading, political subversion of “democratic” elections, undocumented expenditures, oppressive regulation, unauthorized wars and countless other injustices against the very idea of free and independent peoples, without any meaningful discussion of these injustices in the media.

When JFK was assassinated in 1963, the Western world lost whatever remaining shreds of transparent leadership it had managed to hold onto, and we wholly succumbed to a system run by shameless guerrillas launching attacks against everything free and fair and righteous in this world under the cover of night. In fact, there are not much more than one or two political or corporate or academic leaders in the world that I can think of who fail to fit that description like it was custom-made for them, and the most influential media outlets and journalists are no longer exceptions either.

Here is the text and the audio of a Speech that truly speaks for itself:

Address, “The President and the Press,” before the American Newspaper Publishers Association, 27 April 1961


“Ladies and gentlemen,


the very word secrecy is repugnant, in a free and open society, and we are as a people, inherently and historically, opposed to secret societies, to secret oaths and secret proceedings.


We decided long ago that the dangers of excessive and unwarranted concealment of pertinent facts far outweigh the dangers which are cited to justify it.


Even today there is little value in opposing the threat of a closed society by imitating it’s arbitrary restrictions.


Even today there is little value in ensuring the survival of our nation, if our traditions do not survive with it.


And there is very grave danger that an announced need for increased security will be seized upon by those anxious who wish to expand it’s meaning to the very limits of official censorship and concealment.


That I do not intend to permit, to the extent that it is in my control.


And no official of my administration whether his rank as high or low, civilian or military, should interpret my words here tonight, as an excuse to censor the news, to stifle dissent, to cover up our mistakes, or to withhold from the press and the public the facts they deserve to know.


For we are opposed, around the world, by a monolithic and ruthless conspiracy, that relies primarily on covet means for expanding it’s fear of influence,


on infiltration instead of invasion,


on subversion instead of elections,


on intimidation, instead of free choice,


on guerrillas by night, instead of armies by day,


It is a system which has conscripted, vast material and human resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific, and political operations.


Its preparations are concealed, not published.


It’s mistakes are buried, not headlined.


Its dissenters silenced, not praised.


No expenditure is questioned. No rumor is printed. No secret is revealed.


No president should fear public scrutiny of his program.


Because from that scrutiny comes understanding. And from that understanding comes support or opposition, and both are necessary.


I am not asking your newspaper to support an administration.. But I am asking your help in the tremendous task of informing and alerting the American people..


For I have complete confidence in the response and the dedication of our citizens when they are fully informed.


I not only could not stifle controversy from your readers I welcome it. This administration intends to be candid about its errors. For as a wise man once said, “an error doesn’t become a mistake until you refuse to correct it”.


We intend to accept full responsibility for our errors and we expect you to point them out when we miss them. Without debate without criticism, no administration and no country can succeed. And no republic can survive.


That is why the Athenian law decreed it a crime for any citizen to shrink from controversy. And that is why our press was protected by the first amendment, the only business in America specifically protected by the constitution,


not primarily to amuse or entertain,


not to emphasize the trivial and sentimental,


not to simply give the public what it wants,


but to inform, to arouse, and to reflect


to state our dangers and our opportunities,


to indicate our crises and our choices,


to lead, mould, and educate and sometimes even anger public opinion.


This means greater coverage and analysis of international news, for it is no longer far away and foreign, but close at hand and local.. it means greater attention to improved attention to greater understanding of the news, as well as improved transmission, and it means finally, the government at all levels, must meet its obligation, to provide you with it’s possible information, outside the narrowest limits of national security.


And so it is to the printing press, to the recorder of man’s deeds, the keeper of his conscience, the carrier of his news, that we look for strength, and his assistance, confident that with your help, Man will be what he was born to be..


Free and independent.”



Those are my ruminations on JFK’s “Guerrillas by Night” – what are yours?

Jun 272012
 June 27, 2012  Posted by at 3:13 pm Finance Comments Off on Rant: On Deception

It’s Wednesday… the middle of yet another week… in which yet another round of European wealth extraction (bloody rape) is underway… and yet another gaggle of speculating geese prove that they have no idea what the hell they’re talking about or what the hell is going on around them… so… I’m just gonna take this opportunity to rant a little bit.

When the politicians, media pundits, corporate analysts and others start squirting out their verbal diarrhea about the economy, the financial system, the environment, energy trends, the political climate, the geopolitical situation, social issues and everything else that makes its way onto their teleprompters and scripts and reports, there is one common element throughout all of the incessant blather – deception.

That’s not just a descriptive noun or verb I’m talking about, either – it’s a Theory of Conduct. We must view everything they say or do from the standpoint of being DECEIVED with a capital D-E-C-E-I-V-E and D. None of those scoundrels can be trusted, because they either have a nefarious agenda of their own or are themselves being deceived by someone else with a nefarious agenda – call it a global circle jerk of deceivers and deception.

What these sheisters do is convince you that everything you thought you knew to be true can be substituted with their own MYTHS conjured up in corporate board rooms and hotel suites, bought and paid for with YOUR money. That’s right – just like Joe the Dumbass and Jane the Lazy TOOL pay 100 bucks a month to watch no-talent ass clowns on America’s Got an Infinite Number of Degrading Reality TV Shows every evening, they pay thousands of bucks every year to be convinced that their collective torture and rape is JUST ACES.

*You thought that taking on debt was bad and should generally be avoided – THEY told you that accumulating debt is the ONLY way to become successful and respected in this world.

*You thought that it was wrong to punish the victims and reward the perpetrators of a Class A Felony – THEY told you that it’s the ONLY way to prevent an economic apocalypse and save your pension or your job.

*You thought that austerity for the struggling masses and bailouts for the filthy rich bankers would destroy the local economy – THEY told you that local economies MUST be destroyed for the long-term greater good of humanity.

*You thought that it was important for people to have sovereignty over their bodies and their own communities through elected and accountable representatives – THEY told you that sovereignty and democracy are obsolete artifacts of a stagnant civilization; a naive remembrance of things past.

You see, anything that you think is true about this world and your life in it can be snatched up like a glop of silly putty, deformed and reshaped into something that is 100% untrue. The only pre-condition to these timeless acts of deception is that your BELIEFS have to be flexible and undefined like… a fucking glop of silly putty. Your worthless brain has to be so mushy and so atrophied that a couple of douche bags in Sweden can tell you that Barack Obama deserves a Nobel Peace Prize, and you believe them! 

A couple of Eurotrash Ministers can tell you that they have come up with yet another bailout plan to avert financial meltdown and fill your life back up with rainbows and happy thoughts, while emptying out your pockets and your bank account, and you immediately go back into a culturally-induced coma. That is, of course, until your 9 to 5 Boss tells you to pack up your shit and go home for good, or your financial advisor tells you that your net worth just cratered by 25%, or your trusted bank sends you a polite letter saying you’re in default on your mortgage and the roof over your kids’ heads has already been scheduled for auction to the lowest scumbag. 

Then you wake up and realize the better part of your life has just been one pack of deceptions after another, all setting you up to ultimately do whatever you are told by your Slave Masters and accept your miserable fate without so much as a peep. And it’s not just you who will end up SUFFERING for your lack of even ONE freaking ounce of critical thinking and due diligence in that malignant brain of yours – it will be everyone around you, including your family and your closest friends.

So take a deep breath… and re-learn how to read, and to comprehend, and to think critically and to be motivated for the Truth. Tell your family and friends that there is more to life than being endlessly DECEIVED, and more to life than being used like square of toilet paper by the DECEIVERS who just finished taking a massive dump on their heads. Take a shower… use a lot of shampoo and soap… scrub yourself down… towel off… and THEN get your mind right. And get very comfortable too… because the Truth can only win out over the Deceptions over the long-haul, and WE – me, you… all of us – are only just getting started here.