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Charles Hugh Smith says, “Ukraine: Follow the Energy”.
“Many have noted that the Russia economy is critically dependent on oil and gas exports to the EU. It should be noted that the converse is less true every day about EU dependence on Russian oil and gas. The Wall Street Journal even had a line about an EU proposal to push natural gas EAST to the Ukraine. It’s hard to understand that passage or where the natural gas could come from unless one understands the North Africa to southern Europe gas pipelines. […] [see map]
LNG exports are going to become a weapon in the struggle for geopolitical influence and control.
This highlights another problem for Russia/Gazprom. Its present natural gas advantage in Europe now rests mainly on its pipeline infrastructure. This advantage is fading due to the current and proposed pipeline projects running through Turkey to Europe, plus LPG terminal & ship developments, plus the five trans-Mediterranean pipelines from Libya, Algeria and Morocco to southern Europe, plus local shale gas plays…
The Ukraine is not the only country becoming less systemically important to Europe for natural gas supply. So is Russia. Current events will only accelerate everyone’s efforts to diversify away from such an unstable and apparently dangerous supplier.
I think the long-term fallout from the Ukrainian Crisis will be similar to China’s attempt to exploit its temporary low price monopoly position in rare earth metals a few years ago. The result is rare earth metals are becoming less rare by the day as alternate mines outside China are opened and reopened.”
https://www.oftwominds.com/blogmar14/Ukraine-energy3-14.html
Ilargi – “Maybe a piece of reality that stares us in the face is what we need. Maybe it’s time a for a little down time in America. Maybe a nice chunk of real hardship wouldn’t be all that bad.”
Couldn’t agree more. It really is the only way people ever take a good, hard look at themselves and their lives. Everybody’s on automatic pilot, and the plane is heading in the wrong direction, except they don’t see it. Suffering is what wakes you up. It’s essential for growth, or any kind of “deep” growth. Without some suffering, which would allow people to step off the treadmill for awhile and look around, I don’t hold out much hope for the planet.
Zero Hedge reveals a shocking recording between:
“…..EU foreign affairs chief Catherine Ashton and Estonian foreign minister Urmas Paet, in which it is revealed on tape that all those photos of horrifying deaths of Ukrainians by snipers during the last days of the Median stand off, were in fact caused not by Snipers controlled by Yanukovich, but that the snipers shot at both protesters and police in Kiev were allegedly hired by Maidan leaders!”
At about 8:20 of the video recording of conversation:
“Paet: “All the evidence shows that people who were killed by snipers from both sides, policemen and people from the streets, that they were the same snipers killing people from both sides. … Some photos that showed it is the same handwriting, the same type of bullets, and it is really disturbing that now the new coalition they don’t want to investigate what exactly happened. So there is now stronger and stronger understanding that behind the snipers, it was not Yanukovych, but it was somebody from the new coalition.”
Ashton: “I think we do want to investigate. I mean, I didn’t pick that up, that’s interesting. Gosh.”
Paet: “It already discreditates (sic) this new coalition.”
Fire on your own people in order to gain power. Who would have ever suspected that? (sarc)
“Every nation-state, from brutal dictatorships to nominal democracies, ultimately depends on a spoils system that provides the various factions, classes, etc., with sufficient material and status benefits to accept the Status Quo arrangement. […]
The spoils system is not only the foundation of every Elites’ political legitimacy, it is the thin layer of plaster that covers all the longstanding ethnic, regional, linguistic, religious and political fault lines that run beneath current nation-state arrangements.
As noted in yesterday’s entry Ukraine: A Deep State Analysis, numerous national borders were drawn after World War II (1945) with little regard for historical divisions between various groups or preceding borders.
Entire nations were penciled into existence by Imperial diktat in complete disregard for existing historical groups–Iraq and Syria being just two examples of many.
As long as the stick of repression and the carrot of the spoils system were sufficiently persuasive, the tectonic plates beneath the regime were masked. But once the spoils system and the machinery of suppression crack, the old rivalries arise anew.
The spoils system can crack for two reasons: either the national surplus declines so there simply isn’t enough spoils left to keep everyone placated, or the spoils diversion to the Elites and their cronies exceeds the tipping point of legitimacy.”
https://www.oftwominds.com/blogfeb14/spoils2-14.html
When times are good, problems stay below the radar. When countries are divided up willy-nilly by distant leaders who draw circles on maps, when these leaders bring in cheap immigrant labor in order to force down wages, when the elite loot, it isn’t a big surprise that there be fireworks when economies get depressed. All the fuel that was thrown on the fire when times were good now suddenly ignites.
Nationalism can be a very bad thing, but it seems to me that the opposite is equally true. Unless there is ‘some’ feeling of togetherness, you really have nothing; in good times it just looks like you do.
Dmitri Orlov:
“[Update: Based on some of the responses, people still have trouble imagining what it’s like to have the fascists in charge. Well, here’s a short video in which one of the “revolutionaries” is “holding discussions” with a Ukrainian Attorney General, on camera. You don’t have to understand Ukrainian to see what’s happening.”
Interesting what Orlov has to say about what’s going on in the Ukraine:
https://cluborlov.blogspot.ca/2014/03/reichstag-fire-in-kiev.html#more
Great material, Ilargi. As the hustle continues, everybody’s jostling for position. Paper Planes by MIA:
All I wanna do is (BANG BANG BANG BANG!)
And (KKKAAAA CHING!)
And take your moneySome some some I some I murder
Some I some I let go
Some some some I some I murder
Some I some I let goAnd of course Little Green Bag (originally Little Green Back) and Reservoir Dogs:
Mish has an interesting map on Ukranian language usage (towards the end of his post). There are a lot of Russians or Russian-speaking people in the Ukraine! To quote from an email that Mish received:
“Also, one of parliament’s very first post-revolution decisions was to revoke the right of local governments to do business in non-Ukrainian languages, such as Russian. Another law has been proposed to effectively ban the broadcast or rebroadcast of television or radio from Russia. There are still other proposed bills aimed at provoking and oppressing the Russian or Russian-speaking population.”
https://globaleconomicanalysis.blogspot.ca/2014/02/inside-ukraine-mish-reader-who-speaks.html
“There is, however, a prior question that few if any bother to ask: Do capitalists want a
recovery in the first place? Can they afford it?On the face of it, the question sounds silly: of course capitalists want a recovery; how else
can they prosper? According to the textbooks, both mainstream and heterodox, capital
accumulation and economic growth are two sides of the same process. Accumulation
generates growth and growth fuels accumulation, so it seems bootless to ask whether
capitalists want growth. Growth is their lifeline, and the more of it, the better it is.Or is it? […]
The economic consensus is that the capitalist income share in the advanced countries is procyclical (see for example, Giammarioli et al. 2002; Schneider 2011).
Expressed in simple words, this belief means that capitalists should see their share of income rise in the boom when unemployment falls and decline in the bust when unemployment rises.But that is not what has happened in the United States. According to Figures 1 and 2, during the post-war era, the U.S. capitalist income share has moved countercyclically, rising in downturns and falling in booms. […] …..we find that for every 1 per cent increase in unemployment, there is 0.8 per cent increase in the capitalist share of domestic income three years later. […]
The evidence in this research note serves to explain this nonchalant attitude: Simply put, U.S. capitalists are not worried about the crisis; they love it. ”
https://www.paecon.net/PAEReview/issue66/BichlerNitzan66.pdf
Professorlocknload (from yesterday) – “They are always well behind the curve in arresting the bubbles they so naively create. They didn’t see the stock bubble of the 20′s, the Stagflation of the 70′s, the dot com bubble, the equity and housing bubbles of the 2000′s, until it was too late. Nor do they see the bubble they are now in the early stages of creating. Hell, they never allowed the last one to completely clear! Nothing new here, they have learned nothing.”
Do you really think they (the Fed) are naive, that they don’t “see”? In my opinion, I think they see very well. They are doing what they’ve always done in a most deliberate, calculating fashion. They are trying to keep asset prices propped up in order to save the banks. Period. Of course they knew beforehand (before QE, before mark to model, etc.) exactly what was going to happen. That’s why they’re doing what they’re doing. This is the plan.
This is exactly what Mish keeps spouting, that somehow they don’t know what they’re doing. They do! It is not them who have “learned nothing”. It is us, because we keep letting them get away with it.
I enjoy your posts.
“A Map of Russian Gas Supplies to Europe via Ukraine” – Zero Hedge
https://www.zerohedge.com/news/2014-02-20/ukraine-situation-explained-one-map
A comment I read:
“The US agenda is (and always has been) to maintain the status quo petrodollar regime in order to support our debt-based Ponzi economy. The Russian agenda is to undermine or de-Americanize the world’s financial system by selling their oil (that runs through Ukraine) outside of the petrodollar. This would undermine and weaken the US dollar, and the US empire will not sit on its hands and allow that to happen.
Russia wants to settle trade outside of the US dollar, and the US wants to stop that from happening. Period! Battle-lines were drawn in Syria over this same agenda, Obama blinked, and lost. He’s regrouped, and drawing another “red line” in Ukraine. Same proxy war, different strategy, different location, some agenda.”
Ilargi, take care of yourself. Lots of pneumonia out there. If you get a bad cough, ask the pharmacist for some behind-the-counter cough syrup with codeine so that you can get some sleep.
“The Chinese Dominoes are About to Fall: Complete List of Upcoming Trust Defaults” by Zero Hedge.
Paul Craig Roberts on Ukraine:
“The protests in the western Ukraine are organized by the CIA, the US State Department, and by Washington- and EU-financed Non-Governmental Organizations (NGOs) that work in conjunction with the CIA and State Department. The purpose of the protests is to overturn the decision by the independent government of Ukraine not to join the EU.
The US and EU were initially cooperating in the effort to destroy the independence of Ukraine and make it a subservient entity to the EU government in Brussels. For the EU
government, the goal is to expand the EU. For Washington the purposes are to make
Ukraine available for looting by US banks and corporations and to bring Ukraine into NATO so that Washington can gain more military bases on Russia’s frontier. There are three countries in the world that are in the way of Washington’s hegemony over the world–Russia, China, and Iran. Each of these countries is targeted by Washington for overthrow or for their sovereignty to be degraded by propaganda and US military bases that leave the countries vulnerable to attack, thus coercing them into accepting Washington’s will.”And see:
“Of course, not all of the protesters are paid. There are plenty of gullible dupes in the streets who think they are protesting Ukraine government corruption. I have heard from several. There is little doubt that the Ukraine government is corrupt. What government isn’t? Government corruption is universal, but it is easy to go from the frying pan into the fire. Ukrainian protesters seem to think that they can escape corruption by joining the EU. Obviously, these gullible dupes are unfamiliar with the report on EU corruption issued February 3 by the EU Commissioner for Home Affairs.”
US and EU Are Paying Ukrainian Rioters and Protesters — Paul Craig Roberts
Very interesting, Ilargi. Here’s a good article entitled “The Ocean’s Death March”.
“The use of fossil fuel, in large measure, is the primary pathway behind this impending extinction event. Excessive quantities of CO2, of which the ocean absorbs 30% of CO2 emitted into the atmosphere, are changing the ocean’s chemistry, called acidification, which eventually has the potential to kill most, but not all, ocean life forms. […]
Most, if not all, of the five global mass extinctions in Earth’s history carry the fingerprints of the main symptoms of… global warming, ocean acidification and anoxia or lack of oxygen. It is these three factors — the ‘deadly trio’ — which are present in the ocean today.”
“Scary 1929 Market Chart Gains Traction”:
Re Elizabeth Kolbert’s book, “The Sixth Extinction”:
“It’s not something we’re doing because our species is greedy or evil. It’s happening because humans are human. Many of the qualities that made us successful — we are smart, creative, mobile, cooperative — can be destructive to the natural world.”
Smart? How smart are we when we build nuclear reactors on known fault lines (Japan)? When we continue to frack, taking up and then polluting much-needed water resources? And it’s not something we’re doing because our species is greedy and evil? Bullsh*t. Come on, the ones making the decisions ARE greedy and evil. They’re short-term thinking parasites who are doing it precisely for profit. Do you think they’d be doing it if there was no profit? Nope.
I laughed when I heard Jim Rogers say that he just lucked out when he started working on Wall Street. He said something like the job just fit him; he liked it and was good at it. I wonder whether he’d have liked it if he didn’t make an absolute fortune at it. I doubt it. Give him $25,000.00/year and put him behind a boring desk, and then ask him how much it fit, how much he liked it. (Not that Jim Rogers is a bad guy).
If we care about our children and grandchildren, we’re going to have to step up and stop these guys.
Charles Hugh Smith also had an interesting piece today entitled “The Middleman-Skimming Economy”:
“Humans avoid changing current arrangements until there is no choice left but to change them–usually when the arrangement collapses in a heap. Greece is an interesting example of just this dynamic: the political parties left, right and center are desperate to keep the corrupt Status Quo intact, while those whose slice of the swag has vanished have already moved on to new arrangements that no longer depend on Central State swag or the many layers of middlemen that skimmed off most of the wealth for various monopolies, cartels and Elites. Here’s the Status Quo arrangement: the Elites trying to take everything they can before their vast skimming arrangement finally collapses. […]
‘At the time, Mr. Kantas, a wiry former military officer, did not actually have the authority to decide much of anything on his own. But corruption was so rampant inside the Greek equivalent of the Pentagon that even a man of his relatively modest rank, he testified recently, was able to amass nearly $19 million in just five years on the job.'”
Not a bad haul, $19 million. We can all relate to that, can’t we?
The article goes on to tell a story of what happened to a journalist/environmentalist who dared hand out flyers and how he was visited by two FBI agents. They knew everything about him, and threatened to take away he and his girlfriend’s funding/grants.
https://www.oftwominds.com/blogfeb14/middlemen2-14.html
How tight is this vise really getting?
Great, great report, Ilargi! So glad the corruption and collusion that took place in Italy is surfacing. Hopefully the rest of the soft coups d’etat will become known. These guys should all be in jail. Martin Armstrong had this to say about Europe the other day:
“There is no all-powerful group who knows what the heck they are doing. Everything is purely ad hoc and it is far worse than anyone can even guess. Sure, there are conspiracies to manipulate a given market and make money short-term and then they troll for the next scheme. But to think someone is actually behind this mess mapping out the future for society as if this was part of a giant plan, well you are attributing the power of God to man. Sorry – you are so off base it isn’t even funny. This is total chaos and politicians simply respond to whatever event is immediately before their eyes without ANY concept of the long-term. This is one step at a time without any sense of where they are even headed.”
Europe is a Basket Case – Just Turnout the Lights Now & Save Energy
In light of the Alan Friedman’s revelations, I wonder if he would change his mind on that.
“China will combine its urban and rural pension insurance systems to promote social mobility without concerns of loss of retirement income. A unified pension system will help consumption…”
There’s that word again, “consumption”. Governments devising programs to increase consumption. “Oh, look, you have a pension plan now, so don’t bother ‘saving’ your money, just consume, consume, consume. Don’t worry, we’ll look after that pension program.” Yeah, right, where have we heard that before?
Governments should stay the hell out of pension programs. The reason they don’t is because they work for large corporations who, if people actually saved for their own retirement, would profit less because people would consume less/save more. How would they get their precious “inflation” if people slowed down? If I’m lulled into relying on a pension system (a Ponzi system), then I might save less and consume more. Of course, in the end when there’s no money in the pot, I’ll be criticized for spending too much money and not saving enough.
And China wants to end its one-child policy. With over a billion people, why would they want to do that? Well, so they can provide younger people to keep the Ponzi machine running, keep people consuming and consuming, and they’ll worry about the falling apart problem later on.
People made a mistake when they allowed Wall Street/pension funds/governments to get involved in their retirement. These people don’t care about us in the long-term. They think about their short-term profits.
When you shake hands with the devil…..
“Foreign-exchange options are the latest issue to come under scrutiny. These contracts, which banks often sell to clients, pay out in the event that exchange rates reach certain levels. […] Behind the scenes, though, banks often buy or sell currencies aggressively to prevent those levels from being breached…”
“Crime unpunished is crime multiplied.” (Saying) Are the elite having a field day, or what? Robbery without the guns and ski masks. No jail time and no lopped-off limbs or digits.
“Top Ten Examples of Welfare for the Rich”:
“If you want to look at the welfare for the rich and corporations start with the federal Internal Revenue Code. That is the King James Bible of welfare for the rich and corporations. Special breaks in tax code is the reason there are thousands of lobbyists in the halls of Congress, hundreds of lobbyists around each state legislature and tens of thousands of tax lawyers all over the country.”
“Bernanke’s Biggest Beneficiaries”:
“It’s not quite accurate, however, to say Bernanke ‘bailed out the bankers’ and to stop there. The banks and financial institutions that were bailed are but the ‘institutional conduits’ for the real beneficiaries—the big money investors who provide the financial means for the banks, who invest on their behalf as well as themselves institutionally. […]
The investors that constitute the markets are the elite core of finance capitalists today. They are sometimes referred to as ‘very high net worth’ investors, or even ‘ultra high net worth’ investors. The arbitrary distinction between the two—very high and ultra—who together represent the elite layer of finance capitalists as a group is typically a cut off of $5-$30 million in readily available, i.e. liquid) investable assets (VHNWs) vs. more than $30 million (UHNWs).
According to a study in 2013 by Capgemini, a global business consultancy, VHNWs globally increased their investable wealth in 2012 alone by more than $4 trillion, to $46.2 trillion. Another report in 2013 by the big Euro bank, UBS, indicated the total wealth held by the UHNW wealthiest 200,000 investors in the world amounted to $28 trillion.”
How can you lose when you own the game?
When Jamie Dimon gets to walk around free while Edward Snowden can’t, something is terribly wrong. Good interview with Edward Snowden (first interview of him by German television):
https://www.liveleak.com/view?i=f93_1390833151
A very articulate and intelligent young man.
Superb synopsis and writing, Ilargi! Charles Hugh Smith writes in “The Mafia State of Mind”:
“The mafia state of mind is all about establishing a monopoly that leaves the populace no other choice, and that creates sufficient leverage to enable systemic extortion. In the mafia state of mind, the government is a partner in the racket. When thugs arrive in a peasant village in China to drive the residents off their land so a corrupt developer can build hundreds of highrise flats, where are the corrupt officials of the government? In line to collect their “fees”, which will fund their purchase of homes in Vancouver, B.C. or Sydney, Australia. […]
When there is no other choice but submission, when voting for either party yields the same results, the mafia state of mind reigns supreme. The mafia state of mind exists in all ideological flavors–socialist, capitalist, communist. The mafia state of mind is simple: leave the populace no choice but submission, enforce monopolies of control and power, and then extract and extort to your heart’s content.
Once the mafia state of mind has seeped into every nook and cranny of the society and economy, it’s not even recognized as corruption: it’s simply the way the system works. And so the residents of nominal democracies in Asia, Europe and the Americas do not even realize how thoroughly corrupted their societies and economies really are; they cling to the illusions of choice even as their incomes, wealth and political influence are funneled into the hands of various elites by overlapping extortion rackets.
Once you realize that the mafia is a state of mind, you recognize just how thoroughly it has corrupted and criminalized our entire society and economy.”
ted – he means “if” you have an employer, be worth more to your employer than he is paying you up until a crash happens. If you are a great worker and your employer is still hanging on after the crash, who’s he going to keep? You.
Great article, Ilargi! Karl Denninger had this to say on China in “China’s Bailout: Who Funded It?” re the $500 million trust product about to default:
“Who’s funding the bailout?
Get away from the markets folks. This is how it started in 2000 — and 2008 — as well.
Little things that were, on a dollars basis, not all that important. It was not the amount of money that mattered, it was the lack of transparency and the fact that everything was being hidden to avoid anyone having to answer for what they had done.”
Great article, so interesting. “Ambrose talks about China as well, and also writes about the need to pour more money into the system.” Good God, how much more is enough? This is going to be one for the record books when it falls; that is, if they ever let it.
Charles Hugh Smith (who I believe has a Chinese wife and friends who fill him in) had a good article as well re China and India entitled, “Two Powder Kegs Ready to Blow: China and India”:
“The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.
This is simply wrong on multiple levels: as the opportunities for crony/neofeudal skimming increase, so does corruption. As the scale of the economy increases, so does the scale of corruption. […]
Even the top number is a gross underestimate, as $4 trillion only accounts for the skim of the top layer; beneath that 1/10th of 1% is the rest of the top 1%, tens of thousands of lower-level political functionaries who skimmed billions of dollars forcing peasants off their land and selling development rights to crony developers–to name but one common skim of many. [He then talks about the various skimming methods and how they get their money out of China].
All this systemic corruption is accepted as long as the conveyor belt of wealth is moving: that the previous political Plutocracy skimmed their $4 trillion and absconded with their ill-gotten gains is OK to their replacements, as long as there is another $6 trillion to be skimmed.
The problem is there isn’t another $6 trillion to be skimmed. It has taken an enormous credit bubble of $23 trillion (The $23 Trillion Credit Bubble In China Is Starting To Collapse – What Next?) plus the monumental credit expansion of the shadow banking system in China to enable the skimming of $6 trillion by the political/financial Plutocracy.
This $23 trillion credit bubble is roughly twice the size of China’s entire GDP ($12 trillion). That this credit bubble is generating less return in the real economy is obvious–diminishing returns have set in with a vengeance.
The revolution never starts with the oppressed peasantry–it starts with the bourgeois who bought the fantasy of another $6 trillion to be skimmed and credit bubbles/ real estate valuations that never go down. The leadership in China has managed to create a propaganda bubble of epic proportions: Chinese leaders are supposed to have a long-term view that puts the West to shame. [,,,]
The spark that ignites the powder keg cannot be predicted or suppressed. Don’t look to the disenfranchised peasantry as the source, though they are ready enough to cast off the Powers That Be; look to those who believed the gilded promises issued by the looters and discovered that the fruits of their labor and their hopes is disillusionment on a scale as vast as the skim looted from their nation by their self-serving leadership.”
https://www.oftwominds.com/blogjan14/powder-keg-Chindia1-14.html
So the current leaders will try to keep the gravy train going (so they can too escape with their loot). If they can’t do the same as the previous looters, then watch for the sparks to fly.
Great article, and completely accurate title. No matter what, the people are (and have always been) guaranteed to lose. Sometimes this “losing” is just more apparent, like now. If ever we felt like we were winning or getting ahead, in hindsight it seems we were only being used (as consumer machines, as a tax grab in order to pay off political friends, etc.)
“But underlying the plaintiffs’ case in Kerr is a question that has wide relevance in today’s polarized politics: If one side of a political debate succeeds in smashing the political controls so it can never lose, is the resulting system really a self-governing one?”
One could argue that it is (and the courts would no doubt see it that way). The people have the right to elect good leaders, and they have sorely failed in this regard for a very long time. Unfortunately, I have talked to far too many people who merely elect someone because they like the way they dress, like their looks, like what they’re going to give them (benefits/credits/whatever), like their wittiness. In other words, most of the time they’re electing salesmen, but they don’t recognize it as such. They fail miserably when looking at the character of a candidate. Admiring people for all the wrong reasons.
Look at the presidents who the peasants have elected: Reagan, Bush, Clinton, Obama. All serving the same masters, and we’re not in that category. And you said it the other day: as soon as big money entered politics in the form of campaign contributions, we were done.
The courts would no doubt argue that you can throw the bums out (which can be done) if you don’t like what they’ve done. Of course, they can do a tremendous amount of damage in the time they are in office, but they can be turfed out.
Take what you want, but pay for it. If people do not want to take the time to ask some hard, hard questions, then they’re going to end up with Slick Willie, which is what keeps happening over and over again.
In a sad way, the people HAVE taken what they wanted, and they are now paying for it. We must think long and hard about what each of us truly wants for ourselves and our country, and we must elect leaders based on character, not whether they’re going to give us something. If people do not want tax increases, then there needs to be tremendous debate BEFORE electing someone. If they don’t follow through, get rid of them.
I totally agree with your good article. It’s just that I think the people are getting what they want, or thought they did. Step up, people. Throw the bums out, all of them.
“Beijing Goes Hunting for Overseas Real Estate Bought with Dirty Money”:
Beijing goes hunting for overseas real estate bought with dirty money
“In July [2013] Canada and China agreed to seize, share and return the proceeds of crime,” but not so in the U.S. The U.S. and China have no such agreement. We will see what Canada comes up with; they stopped keeping records, so they say. They record every other piece of information, but not that. Gee, I wonder why.
I’m getting too cynical.
Here’s another article by Gordon Chang re China’s real estate market. He says there is a huge overhang of units for sale: “In a normal economy, an overhang of this sort would depress prices, but in China many developers do not have to dump units because they are not allowed to go bankrupt. Cities have informal quotas for business failures, so the country now has zombie developers, dead but still walking.”
He goes on to say that the most important reason that properties keep rising is there is just too much money in China: government liquidity and shadow banking. He said, “At some point, unrestrained credit creation will lead to a disaster of its own.”
https://www.forbes.com/sites/gordonchang/2014/01/05/your-best-investment-in-china-in-2014/
Runaway train – no kidding!
Excellent investigative work; great article.
“That’s correct, but that is also why China is now heading to catastrophic failure. Because Chinese leaders have the power to prevent corrections, they do so. Because they do so, the underlying imbalances become larger. Because the underlying imbalances become larger, the inevitable corrections are severe. Downturns, which Beijing hates, are essential, allowing adjustments to be made while they are still relatively minor. The last year-on-year contraction in China’s gross domestic product, according to the official National Bureau of Statistics, occurred in 1976, the year Mao Zedong died.”
The last correction happened in 1976. Two-thirds of all profits made in China end up in U.S./Japanese/European hands – two-thirds! That’s a lot of moola. I wonder how much say the multinational corporations have in what goes on in China and the “preventing of corrections”.
Naked Capitalism had a piece re the stalling Trans-Pacific Partnership talks. The author said:
“Many of the anti-TPP stances [in Asia] are underpinned by a desire of corrupt, cronyism-riddled governments to hang on to their cosy status quos. […] If the TPP is on the other hand merely the US government doing the bidding of one of its main vested interests and biggest group of political donors (the multinational corporations) and asking the respondent TPP countries in the Pacific Rim to go against their own vested interests (such as subsidised agricultural producers or State Owned Enterprises) then the US will have to buy off the politicians in those countries with some political favours.”
I wonder if China wasn’t bought off way back when Nixon visited there. After all, it’s been up, up and away for China ever since. Perhaps the elite have been making hay while the sun shines, preventing any downturns or crises, and are now fleeing the country while they’ve still got clothes on their backs.
Communist Party? I’m thinking it should probably have been called the Corruption Party or the Just-Us Party. They’ve stuffed their suitcases with cash and our western governments are giving them a nice welcome at the Immigration desk. They’re doing all they can to prevent a correction in order to save their own hides.
Someone else said: “China’s leaders are riding a runaway train that they don’t quite know how to stop. And they’re running out of track.”
All Central Banks are doing this. They’re all in collusion.
“Mega Default in China” (Forbes) is the article that Karl Denninger is referring to.
https://www.forbes.com/sites/gordonchang/2014/01/19/mega-default-in-china-scheduled-for-january-31/
SteveB – “As long as you keep using money, ’cause even if that ratio changes (temporarily), we’ll still be exploiting you.” Store sales shows our use of money is decreasing.
“The Retail Death Rattle:
If ever a chart provided unequivocal proof the economic recovery storyline is a fraud, the one below is the smoking gun. November and December retail sales account for 20% to 40% of annual retail sales for most retailers. The number of visits to retail stores has plummeted by 50% since 2010. Please note this was during a supposed economic recovery. Also note consumer spending accounts for 70% of GDP. Also note credit card debt outstanding is 7% lower than its level in 2010 and 16% below its peak in 2008. Retailers like J.C. Penney, Best Buy, Sears, Radio Shack and Barnes & Noble continue to report appalling sales and profit results, along with listings of store closings. […]
The entire economic recovery storyline is a sham built upon easy money funneled by the Fed to the Too Big To Trust Wall Street banks so they can use their HFT supercomputers to drive the stock market higher, buy up the millions of homes they foreclosed upon to artificially drive up home prices, and generate profits through rigging commodity, currency, and bond markets, while reducing loan loss reserves because they are free to value their toxic assets at anything they please – compliments of the spineless nerds at the FASB. GDP has been artificially propped up by the Federal government through the magic of EBT cards, SSDI for the depressed and downtrodden, never ending extensions of unemployment benefits, billions in student loans to University of Phoenix prodigies, and subprime auto loans to deadbeats from the Government Motors financing arm – Ally Financial (85% owned by you the taxpayer). The country is being kept afloat on an ocean of debt and delusional belief in the power of central bankers to steer this ship through a sea of icebergs just below the surface.”
From the comments: Only 6% of all retail sales in the entire country are done on-line. It accounts for Amazon and every other on-line retailer.
https://www.theburningplatform.com/2014/01/20/the-retail-death-rattle/#comments
And to follow up on the Chinese “wealth management products” you wrote about a few weeks ago, Karl Denninger agrees there is trouble in his “It Comes from the East (and Soon)”:
“On Friday, Chinese state media reported that China Credit Trust Co. warned investors that they may not be repaid when one of its wealth management products matures on January 31, the first day of the Year of the Horse.
The Industrial and Commercial Bank of China sold the China Credit Trust product to its customers in inland Shanxi province. This bank, the world’s largest by assets, on Thursday suggested it will not compensate investors, stating in a phone interview with Reuters that “a situation completely does not exist in which ICBC will assume the main responsibility.
Why does all this matter? Because this “investment” was “offered” under terms that were essentially impossible to fulfill at the outset.
They included a 10% annual return to investors, or three times bank deposit rates in China. This means that the company had to be paying more than that (since nobody lends intentionally at a loss.)
Obviously the firm that did the borrowing was desperate. The Forbes article details some of the probable reasons, but it doesn’t matter why. What matters is that this is an instance of a facially-fraudulent scheme if looked at with any sort of diligence at all.
That’s very much like our so-called “pension plans” that promise 8% returns in their portfolios, all of which are scams because there is no possibility of ever earning that return except by stealing it over very long periods of time. A person’s work-life is about 45 years (20-65), and thus if we were to assume such a pension plan had a ~40 year time horizon, the first dollar put in would have to have expanded by 21.7x over that 40 years. For that to be sustainable the economy would have to expand by 21.7x over the same 40 year period.”
Deflation should be the natural order of things. As people become more productive, prices should fall. But they haven’t, and they haven’t because they’ve been artificially propped up by cheap money, lots of leverage, speculation, accounting changes (mark to fantasy), blah.
As Ilargi says, QE was to bail out the banks, to get their bad assets off their books and onto the public’s books. Look at the crap MBS the Fed has taken from the banks.
These are psychopathic thinkers, used to shifting blame and losses whenever and wherever possible (have had a lot of experience with these types of people).
I pray deflation comes because I think the Earth is about near the end of her rope.
I think that should say “.1 to .2 are the managers,” not “mangers”. They have a vested interest in seeing the status quo remain the same (top advisors in government, financial advisors, etc.)
Green Grasshopper – and if you do have a house, eventually you will be taxed out of it. It’s not a pretty picture. Moving back towards feudal times.
As Charles Hugh Smith also likes to say, none of this will stop until the people stop it, but they are loath to stop it because so many are gettng some form of pay check/entitlement/benefit/credit from the government, and they don’t want to upset the status quo lest that gravy train end. They don’t realize it’s going to end, anyway.
So while TPTB are busy looting, they make sure they keep the money flowing to the masses, just to shut them up. Someone posted a good hierarchy yesterday:
“The “99%” is just a slogan.
In reality it is more stratified on a power law with a ratio of .1 to .2
.001 to .002 represent the true owners of the global system who are descendants of old inherited fortunes.
.01 to .02 are the figure head puppets that everyone THINKS runs things. This includes politicians, CEOs, etc.
.1 to .2 are the mangers. This is the most important group and they are the enablers of the oppressive hierarchy. This group largely identifies with the class above them and stands to lose a lot if the system fails. These are the people that need to be changed.
.8 to .9 are the disenfranchised. This group is owned and considered livestock.
Until the situation is framed in these terms we will get nowhere. The 10 to 20% enablers are the key and they will fight just as hard as the few above them in the pyramid to keep their position.”
Here’s what Karl Denninger has to say:
“The Fed will cease QE on schedule. The taper is not only on, it won’t be suspended. And, withdrawing liquidity, that is, allowing short rates to rise, is on the table too, and almost-certainly sooner than you think.
It doesn’t matter if the market sells off, even if it sells off hard. […]
So now The Fed comes in and does QE, buying the long end. What happens? Long rates go down. A year on your 1 year to maturity bonds mature, and you must replace them. With what will you replace them? All things being equal, when you replace them you will get less interest income from the new issues.
So let’s say the effect of QE is that your mortgage goes from 6% to 3%. This is a 50% reduction in your interest payment. But — that MBS gets sold into the market. MBS have a typical maturity profile of about 7 years (which is why the 10 is the benchmark; it’s the closest), fluctuating somewhat. When rates are high and falling the profile is shorter (because people refinance), when rates are low and going higher it extends (because you’re a nut to refinance a 3% loan into a 4% one — nobody does that unless you have to sell and move for some reason.)
So the guy who buys it gets a 50% reduction in his interest income, but that’s only 1/10th of his portfolio. For the first year, anyway. As such his impact the first year is 5%, then 10%, then 15% and so on.
We’re roughly five years into this crap now.
The pension funds and insurance companies that are the backbone of this market are probably doing plenty of screaming, and with good cause. If this keeps up their cash flow will collapse; they can’t absorb it. Further, Bernanke and the rest of the Fed know that factually the damage they took on by buying those instruments during QE cannot be gotten rid of either; it has to roll off, because if you sell that bond you’re going to take a capital loss and crystallize the entire loss right now instead of spreading it out!
This is what is forcing the end of QE. It is also what is going to force The Fed to pull liquidity and let the short end come up.
They don’t have a choice but they will never breathe a word of this, because to confirm it would be to give a clean opportunity to gang-bang all those bondholders by Hedge Funds and others who can play in the derivatives market, and that could (read: probably would) set off a crisis far worse than 2008.
That’s my read on it.
We’ll see, over the next months, if I’m right.”
“Monetary Tectonics: 50 Slides Illustrate Tug of War Between Inflation and Deflation” – Mish posted this.
https://globaleconomicanalysis.blogspot.ca/2014/01/monetary-tectonics-50-slides.html
Mish’s comment:
“In general, hyperinflationists (as well as many self-proclaimed Austrians) ignored and continue to ignore credit, even though credit dwarfs money supply. Those screaming hyperinflation or strong inflation is at hand, missed the boat and will continue to do so for the foreseeable future.
Another equity bubble bust is around the corner, and that bust will be anything but inflationary.”
Authors’ 50 slides here:
