Apr 072018
 
 April 7, 2018  Posted by at 12:32 pm Finance Tagged with: , , , , , , , , , , , ,  


Dorothea Lange Farmers’ supply co-op. Nyssa, Malheur County, Oregon 1939

 

 

It’s Dr. D again. Told you he’s on a roll. He remains convinced America can re-invent itself. If only because it must.

 

 

Dr. D: Herbert Stein’s Law states “What Can’t Go On Forever, Doesn’t.” This is a neat summary of the present trade and currency imbalance. China makes real goods and the U.S. consumes them by typing digits on a keyboard. This is the very definition of what cannot go on forever.

 

• How long do you expect a nation can make nothing and consume everything?

• How long do you expect a nation without manufacturing, without a workforce, and now without a viable military to remain pre-eminent?

• How long does wealth and influence remain in a nation that makes nothing, does nothing, and knows nothing?

 

Reminds me of that other Law: “A fool and his money should be parted as soon as possible”, for to be wealthy, and helpless, and dumb, is not a combination that lasts for very long.

Since China cannot send the U.S. free goods forever, ergo, they won’t. That means slowly or quickly, now or later, they will cut us off. Right now it appears that can never happen, but I assure you it will very soon. And what will the U.S. do then? Actually, that’s very simple: the U.S. will have to close a $600B trade deficit instantly. Roughly, that means the U.S. will no longer import $600B worth of goods and be $600B/year poorer, or $2,000/year per person. Nor is this unusual. History is rife with examples of nations that once were prosperous and were suddenly cut off: Spain and Greece come immediately to mind. So how does this happen?

The Core nation, the trading hub has failed dozens of times in history, from Venice to Holland, Spain to England, and although most of history was on a gold standard, nevertheless the same thing happened: repudiation and devaluation of the currency. That’s why a U.K. Pound is no longer a troy pound of pure silver ($192) and why the U.S. Dollar is no longer 1/20th ounce of gold ($267). So let’s run down how this might unfold.

Like other empires, the U.S. rose to prominence with hard work and industry. Like other empires, this personal and physical industry was the foundation of an effective military. This military eventually stood alone, leaving the U.S. to set the rules of trade, the rules of diplomacy, and the rules of conduct. Like other nations, the U.S. bent those rules in its own favor, both early and late. Like other nations, the natural way to take advantage was to run an overvalued currency, which draws in capital from all trading partners worldwide, creating a 100-year spiral of wealth and influence that seems truly endless.

However math, the cruelest of Mother Nature’s laws, is not fooled. If you bend the rules to create market distortions, those distortions are indeed created. If there were fair trade, a gold standard, a nation that increases their wealth would find its currency rise. A rising currency would dampen manufacturing and efficiency, the gold would flow back out, and the unfair advantage would be corrected. But only in a free market. Any market on Earth has an Army, and that Army’s job day and night is to make sure that unfair advantage does NOT end. Ask Smedley Butler.

 

Mother Nature is never deterred. However long it takes, she waits. Lacking fair trade, an abnormally strong currency does the only other thing it can: destroy the Core nation’s industry, totally and completely. More certain than a nuclear explosion, economics will not miss a single spot until the wrong is righted and the truth is out. At first the low-gain commodity industries go: mining, shipping, smelting; then their sooty kinsmen: heavy rail, ships, ports, transportation.

After that go the lighter industries: manufacturing, stamping, autos, and so on up to mainframes, silicon chips and phones, and with them, their children, manufacturing processes and R&D. However, as London and NY showed, you can forestall currency correction even now by moving market distortions into services and financial engineering. At this point, however, the Core nation has nothing left but Banks, Universities, and the Government/Military, and no underlying economy to support them.

However, what Charles Hugh Smith calls the fiefdoms of monopoly cartels and apparatchiks of the 1% now lead an empty parade, horse-whipping the uncompliant 99% into supporting an economy that exists only in their minds. And then “What can’t go on, doesn’t.” The empire collapses from within, to the total surprise of historians of the 1%, and the total lack of interest of the 99%, for whom it had already collapsed decades before.

And of the other side? Thanks to the overly-high currency of the Core nation, the perimeter nation has an artificially LOW currency. They didn’t do that, because they are by definition small and weak and aren’t using an army to set the rules. The artificially low currency leads to low costs, low labor, high enterprise, and in the mirror image of the Core nation, the constant INCREASE in manufacturing. The increase in wealth, and the addition of commodity goods, then heavy industry, then manufacturing, then R&D. Whose fault is that? Who used a worldwide army to enforce the very rules that gutted their homeland? Not the Vandals; not China. It was Rome; it was D.C.

What is this whole imbalance based on? In our case, the artificially strong dollar, backed by a worldwide U.S. military. So how must it end? With a weak dollar, falling real markets, and a U.S. military returning home.

You say this can’t happen? Yet it must happen. To say otherwise means China will give us free goods for 10,000 years, and the U.S. will get always weaker that whole time. So how does the transition go?

The U.S. financial bulwark cracks, being highest and most based on psychology, not reality, very likely in conjunction to a military failure or withdrawal, as in empire finance, the military and currency are equivalent. Slowly, then rapidly, the tide flows out, the U.S. dollar gets weaker, the Chinese Yuan gets stronger, and the whole process reversed as it should have done years ago.

 


(mind the log scale)

 

Mother Nature isn’t fooled, and those 70 years of repression and manipulation are made up in a few years.

Down on the ground, what happens is not that China shuts off free imports to the U.S. directly, with a political embargo, what happens is the U.S. is seen as a has-been and the U.S. dollar falls in purchasing power on the world market, raising the price of foreign goods in a “free” and “open” marketplace. Lacking manufacturing and the military power to stop it, the U.S. can’t hold off Mother Nature and the laws of physics any more.

Knowing this to be inevitable, how would a nation prepare? For one thing, you would need to kick-start your industry, post-haste. Anything that can be made internally will find its prices stabilize and not rise. Yet before the currency rates are corrected this face overwhelming headwinds. Second, as income will be lost and the borders will be shut off, you need to switch the focus of taxation from income to tariffs, from finance to real goods.

Third, you need to open your pipelines, ports, and infrastructure, and expand the required steel, oil by any means necessary, even armed standoffs. Fourth, you’ll need to shove the culture away from government support and subsidies that will soon disappear, and into self-reliance and productivity. Firth, you’ll need to downsize the government and especially the military, which will and must return home. Any of those platforms sound familiar?

 

Despite what you read, it’s not all bad. Just as “The arrogant people will be brought down, and high and mighty people will be humbled”, “Every valley shall be raised up, and every mountain and hill shall be made low; and the crooked shall be made straight, and the rough places smooth.”

 

This is a master reversal of all manipulations, of all imbalances that have reached extremes. As the U.S. – China trade deficit must balance, we know that Chinese goods must rise. But that also means the cost of production for U.S. goods must fall. This cost-advantage puts Americans back to work just as it did the Chinese, while the rise of the Yuan will make China rich, but less productive.

What’s more, as matters reverse, the U.S. will raise prices on their exports: food and oil, two things China must have and cannot get elsewhere. Agriculture is at an all-time, 1,000 year low and must rise. Stocks and housing are at an all-time high and must fall. In a reversal, the high prices fall, the low prices rise, that’s obvious. That’s what “reversal” means, that’s what “extreme” means.

As for manufacturing, the world is changing fast. Even China is opening “dark” factories that employ no people, only robots. That will be true here as well, which undercuts any labor savings they once had. There’s a few problems, however: robotic mega-factories only work with very large scale of identical goods that can source reliable, high-quality inputs. If oil is too high, and/or shipping or marketing fractures, those factories scale down, retool more, and therefore require more people than presently.

How is China going to have huge robotic mega-factories if half their export market can no longer afford them? If the U.S. and China split the market, aren’t all those factories half the size of present? Since the U.S. will now have low-cost people and raw materials, what advantage does China bring to offset shipping and tariffs? The “market” isn’t uniform. There was worldwide mass-integration of manufacturing between India and England and the world in 1910 too, yet it’s didn’t persist; it changed.

 

One way it can change is to leapfrog China. We hear about how the U.S. is a has-been as we are supporting legacy copper telephones while the 3rd world goes directly to fiber and cell, and this is true. However, China has mainlined on low-price, low-profit, mass-manufacturing. Why would anyone compete with them there? It’s irrational. Build a baseline and let them have all the low-profit, environment-destroying work they want, the U.S. can’t and won’t beat them there.

We can beat them by leapfrogging into technology that’s out there, but no one is revealing yet, things they haven’t done, but Americans are good at doing: innovating, high-tech, medical. Much as I hate high-tech and its panacea as an answer, yet I believe there are goods, ideas out there that can transform the way things work.

Look at the rapid development and uptake of LEDs for example. The patent office is filled with them, and an outsized number are American. We have superconducting maglev, field physics, material science of no-weight foam, color-shifting paint, hyperconducting graphite, and transparent concrete to name a few. All there, all unused. Let’s make an example case in a very large, very quiet investment.

Medical and Biotech are to some extent used up, with overpriced, mass-market pharmaceuticals being rejected by price and form even by the wider population. But that’s so last-century. The new biotech is going to take a blood or DNA sample and synthesize a drug specifically for your blood and DNA. They are going to create another organ, a blood transfusion no one but you can use.

In one way, this may be more expensive, and that’s good for profits, but in another way, they will work for you, much better and guaranteed, and therefore fix your health faster, spare you useless drugs, bad side effects, and actually work, and therefore be cheaper. What does it take to make them? A complete revolution in drug manufacturing. Multi-billion dollars’ worth of equipment, extremely unique development and patents, a 20 year head start.

 

Could you sell such a thing to the Chinese? You bet. Could they get off retail manufacturing and scoop us on it? Not a chance. So you see how such a thing could happen, even with a U.S. dollar falling and a hard readjustment ahead. And that’s just one.

If boutique and robotic goods are the new industries, what do we do with 200 million unemployed? We won’t have 200 million. That’s a consequence of the distorted extreme of our finance, our centralization, our currency. For one thing, we have only 100 million now and a lower dollar will definitely restore the competitive advantage of highly-productive U.S. workers. At the same time, if work requires fewer workers, we will find a solution. Why?

Because you can’t have 200 million unemployed. Not even 100 million. The resulting inequity and income disparity can and has caused a revolution. Faced with that, any nation will adjust because they must or perish. As difficult as Americans can be, they are a practical people above all. This has happened to dozens of nations in the past: Spain, France, Germany, England, China, Japan, and they all still exist. Things rotated out in the big wheel of time. New things were made and the old ones faded away, and we will too.

We’re going back to being just one of many nations, and a fair and productive one too. There are ways and we will find them. How can I be so sure? Because “What Can’t Go On Forever, Doesn’t,” and it won’t this time either.

 

 

Mar 312017
 
 March 31, 2017  Posted by at 7:23 pm Finance Tagged with: , , , , , , , ,  


Ray K. Metzker Europe 1961

 

The true face of the EU is presently on display in Greece, not in Germany or Holland or France. Brussels must first fix what’s going wrong in Athens and the Aegean, and there’s a lot going wrong, before it can move on towards the future, indeed towards any future at all. It has a very tough job in Italy as well, which it’s trying hard to ignore.

You can’t say ‘things are fine in Germany’ or ‘Finland is recovering’ and leave it at that. Not when you’re part of a political -and to a large degree also economic- Union, let alone when you’re preaching tightening -and deepening- that Union. Not when parts of that Union are not only doing much worse than others, but are being thoroughly gutted. Then again, they’re being gutted by the very Union itself, so Brussels -and Berlin, The Hague, Paris- can’t very well feign surprise or deny responsibility.

Of course the European continent needs a ‘body’, some form of organization -and it needs it badly- that will allow its nations to cooperate, in 1000 different ways and fields, but the EU is not it. The EU is toxic. It is turning nations against each other as we speak. So much so that it’s crucial for these nations to leave the union and dismantle the entire operation before that happens, because there will be no opportunity left to do it once the toxicity takes over. The UK should count itself lucky for getting out while it did.

 

In its present setting, the EU has no future. And, more importantly, there is no mechanism available to change that setting. It should have been insisted on when the Union was founded, or in one of its various treaties after. This never happened, though, and that’s no coincidence, it was always about power. It’s therefore very hard -if not impossible- to see how the EU could be altered in such a way that it has a chance of survival.

Changing or tweaking a few rules is not going to do it. It’s the very Brussels power structure that is inherently faulty, and those parties that under this structure have the power, are the same ones who would have to change it (against their own interests). There is not a single decision concerning important -for instance economic- EU policies that can be taken against the wishes of Berlin. And Berlin demands what’s good for Germany, even if that is bad for other member states.

In order to save the EU, German representatives would have to vote against their own national interests. But they were elected specifically to protect those interests. There is no better way to illustrate the fatal flaw in the -construction of- the EU. Politicians are elected to protect the interests of their member states, and no member state can possibly prevail but Germany, because it’s the biggest. You can put any label you want on that, but democratic it’s not.

 

Germany and Holland are doing great, according to the most recent economic data. But how is that a reason to celebrate when Greece and Italy, among others, are not doing great at all? Why the difference? It’s not because they spend their money on “Schnaps und Frauen” as Eurogroup president and Dutch demissionary FinMin Dijsselbloem so poetically suggested.

It’s because the Eurogroup has not acted in their best interests. Because when their interests differed from the Dutch and German ones, the latter won out. Easily. And they always will under the present terms. As head of the Eurogroup, Dijsselbloem should represent the best interests of all member nations, not just Holland and Germany.

So should Angela Merkel as the de facto head of the EU. And it’s a very simple fact, easy to explain as well, that these interests can conflict. Obviously, that Merkel can call all the important shots in the EU should be a red, flashing, blinding and deafening alarm sign to start with. Germany should have taken a step back, back in 1960 or so, or even 1999, but for obvious reasons didn’t, and got away with that. It’s about power, it was never about Union other than to increase Power.

European politicians have not been able to make the ‘shift’ from nation to Union. Once they are faced with decisions that may harm their national interests, but benefit those of the EU as a whole, they must revert back, by default, to their own respective nationalistic priorities. Even if they are the ones who complain loudest about rising nationalism and protectionism.

And they’re -kind of- right, or justifiable. German, French, Dutch politicians are not accountable to Slovakian or Slovenian interests. That’s just extra, nice if it happens to coincide with what Berlin or Paris want, but not a priority in any sense of the word. Understandable, but lethal to the idea of a Union.

 

 

There is your fatal EU flaw. The whole common interest idea is just a sales pitch, always was. Which worked fine in times of growth. But take a look now. There’s nothing left. The rich north has used the poorer south to transfer its losses to. It’s not a union, it’s old-fashioned colonialism.

Europe’s political problem can perhaps best be expressed by comparing it to the US. Germany, plus to a lesser extent Holland, and France, have so much power that it would be like California and New York could call all important shots in America. But they can’t. Trump’s election shows that they cannot. Europe doesn’t even have that escape valve.

Delving a bit deeper, Kansas and California may be different cultures, but their people speak the same language, they watch the same TV shows, read the same news. Different cultures, but also part of the same culture. In Europe, most people have no idea who EU head Juncker is, or care, or how he got where he’s at.

Most likely know who Angela Merkel is, but they don’t know that she takes all the important decisions about their lives now. If they did, the pitchforks would be out in minutes. Luckily for Merkel, the EU is as opaque as can be,

90% of Europeans need subtitles to understand Juncker and Merkel. Or for some journalist to translate for them. Everyone in Kansas and California understands what Trump says, no matter how confused he may sound or what they may think of him. He’s American, and so are they. He’s one of them.

Needing subtitles to understand Juncker and Merkel may work in times of plenty. But in lean years, people don’t take kindly to that kind of thing, that someone you can’t even understand, and that you can’t hold to account, makes important decisions that impact you directly, as you see your jobs and savings and homes vanish and the future of your kids disappear.

That is asking for trouble. The EU has that trouble, and it will have much more of it. The only way out of that trouble is for the Union to dismantle itself. But as we can see in the whole Brexit story, that would involve so many interested parties giving up on so many perks that feed them, politicians, businesses, what have you, that none of it would ever happen voluntarily.

The EU has become a farcically intricate web of policies and laws and regulations, all built on fatally flawed foundations, that no citizen of sound mind feels connected with. The only way out of that is to literally get out. The UK got it right, whether they meant it or not.

The EU cannot be reformed because the only people -and the countries they represent- who could do the reforming, profit hugely from the present state of affairs, from not reforming. Fatal. Flaw.

As any builder can tell you who’s ever seen a structure on the verge of collapse: some can be saved and some of them you just have to let go. Raze ’em and start from scratch. Which in many cases, as builders know, is simply the best choice.

Please don’t get me wrong: of course there are tons of things the EU has done that are great, and right, and all that. But it’s the power structure that will inevitably kill it no matter what else it does that actually works. And that structure is beyond redemption.

 

 

Aug 012015
 
 August 1, 2015  Posted by at 9:54 am Finance Tagged with: , , , , , , , , ,  


Harris&Ewing “Slaves reunion DC. Ages: 100, 104, 103; Rev. Simon P. Drew, born free.” 1921

Time to tackle a topic that’s very hard to get right, and that will get me quite a few pairs of rolling eyes. I want to argue that societies need a social fabric, a social contract, and that without those they must and will fail, descend into chaos. Five months ago, I wrote the following about Europe:

Europe, The Morally Bankrupt Union

The European Union is busy accomplishing something truly extraordinary: it is fast becoming such a spectacular failure that people don’t even recognize it as one.[..] the Grand European Failure is bound to lead to real life consequences soon, and they’ll be devastating. The union that was supposed to put an end to all fighting across the continent, is about to be the fuse that sets off a range of battles. [..]

The carefully re-crafted relationship with Russia, which took 25 years to build, was destroyed again in hardly over a year, something for which Angela Merkel deserves so much blame it may well end up being her main political legacy.

To its south, the EU faces perhaps its most shameful -or should that be ‘shameless’? – problem, because it doesn’t do anything about it: the thousands of migrants who try to cross the Mediterranean to get to Europe but far too often perish in the process. [..]

But the biggest failure is not even in politics outside of its own territory. The union rots from within. Which starts with its moral bankruptcy, obviously. If you allow yourself to be an active accomplice in the death of over 6000 East Ukrainians, and you simply look away as thousands of migrants die in the seas off your shores, it should not be surprising that you just as easily allow for a humanitarian crisis, like the one in Greece, to develop within your own borders. It comes with the territory, so to speak.

And make no mistake: this absence of moral values is something Europe in its present form will never be able to claim back. Never. The EU has shown itself to be a gross moral failure, and that’s it: the experiment is over. They can’t come back in 10 or 20 years and say: now we want it back, we’re different now. You’d need to have a whole new union, new rules and principles, and new leadership. [..]

What will undo Europe from within is its economic policies. Which are strongly linked to the same moral values issue: inside a union, you cannot let thousands of people go without food and health care while others, a few hundred miles away, drive new Mercs and Beamers over a brand new Autobahn. That’s not a union. That’s a feudal society.

Though it may look out of far left field for those of us -and there are many- who think in economic and political terms only, we cannot do without a conscious definition of a social contract. We need to address the role of compassion, morals, even love, in our societies. If Jesus meant anything, it was that.

There have been times through history when this subject would have been much easier to breach, but we today almost seem to think they are irrelevant, that we can do without them. We can’t. But in the US, people get killed at traffic stops every day, and in Europe, they die of sheer negligence. Developments like these will lead to ‘centers that cannot hold’.

In that part of the media whirlwind that we at the Automatic Earth expose ourselves to, virtually all discussions about our modern world, and what goes wrong with it, which is obviously a whole lot, are conducted in rational terms, in financial and political terminology.

But that’s exactly what we should not be doing. Because it’s never going to get us anywhere. In the end, let alone in the beginning too, we are not rational creatures. And if and when we resort to only rational terms to define ourselves, as well as our world and the societies we create in that world, we can only fail.

For a society to succeed, before and beyond any economic and political features are defined, it must be based solidly on moral values, a moral compass, compassion, humanity and simple decency among its members. And those should never be defined by economists or lawyers or politicians, but by the people themselves. A social contract needs to be set up by everyone involved, and with everyone’s consent. Or it won’t last.

How and why that most basic principle got lost should tell us a lot about where we are today, and about how we got here. Morals seem to have become optional. The 40-hour death struggle of Cecil the lion exemplifies that pretty well. And no, his is not some rare case. The lack of morals involved in killing Cecil is our new normal.

In the US, these values seem to have long since disappeared from very substantial segments of society. A closer look would seem to teach us that this is largely because of the top down approach that comes with an oversized government apparatus that seeks to rule over what are today some 320 million people.

There are multiple reasons why such a government can’t work to make a society successful. First, there are far too many people to rule over; the human brain can’t conceive, other than in completely abstract terms, of meaningful human contact, in whatever shape or form, let alone of compassion, between such numbers of people.

The Catholic church, for all its failures, did succeed in binding a society together, and repeating that across many societies, but it never endeavored to gain control of every single political and economic system. Washington does.

Making morals optional necessarily means they will vanish. All strong societies through history had strong and binding social contracts. Less successful ones did not. We, however, have only financial and legal contracts left, no social ones other than those that are almost entirely optional. We ourselves cannot kill people at will, but our governments can. We -apparently- can still kill lions, though.

The second most important reason why the US, and now the EU with it, are destined to fail, is that their structures, which with the numbers of people involved must of necessity become less democratic with time, inevitably slide into selecting for the exact wrong kind of people, as I’ve often argued before.

Societies this size inevitably select for power hungry sociopaths; there is no other option. It’s a process we even see also in smaller scale societies today. With the advent of serious attempts to utilize Freud’s theories for penetrating people’s unconscious minds, picked up by Goebbels and since perfected by secret services, spin doctors and ad agencies, the world has become a whole other place. Even if most haven’t noticed.

The curious thing is that many separate EU nations for many years did have such compassion and humanity. Which these days are often mistaken for socialism. Which in turn, if we may believe the majority of pundits, is about the worst principle a country can pick to build its society on.

In reality, though, most of it has always simply been a matter of precisely that by which we can, should, judge a society’s success and viability: the extent to which it cares for its weakest and most vulnerable.

That in some cases this has perhaps been taken too far, doesn’t change the fact: we still can’t call a society successful that leaves its weakest to starve by the curb. And it doesn’t matter how much distorted Darwinism and Ayn Randism and neo- or ordo-liberalism one may wish to throw at it. A successful society must take care of all of its members to the extent that it can. Simply because man is a social animal.

Still, the principle of compassion seems to have all but vanished with the development of the European Union. And if there’s one main reason why that Union is doomed to fail, it’s that. It’s not the failed economic policies, it’s not even the increasing power politics that doom it: it’s the relentless drive towards a group of individuals seeking the power to manipulate millions of people they never met, with impunity.

The divergence between individual European nations and the Union seated in Brussels is also the source of much of the division between both. Greece doesn’t want to let its people slide into further misery. Brussels couldn’t care less: Athens has to stick to rules and regulations no matter how many of its children go hungry or how many of its elderly pass away from entirely preventable afflictions.

It’s right there, in that division, that the EU is blowing up itself. You can’t have a viable political or economic union if you don’t take care of the weakest. Thing is, once you got the sociopaths in charge, the inevitability of the process of losing and eroding a social contract gets ignored. Unless and until the people in the streets pick it up again.

No, the biggest issue in Europe is not whether the Union moves toward even closer ties. The biggest issue is that the Union is morally deficient in its core.

Ironically, it’s the Greek people who understand much better than the Dutch and Germans that “without love, it ain’t much”. And they are labeled a less developed society for it. While the less fortunate in Berlin, Paris and Amsterdam continue to receive relatively generous welfare and other benefits, certainly compared to their Greek peers. A two-tier union is not some future concept, it’s here.

And it’s not just Greece. The embarrassing situation with the refugees at Calais is due to the exact same moral quicksand. David Cameron is going to send “dogs and fences”. He’s going to send in dogs to ‘fight’ against people! We’ve seen that kind of thing before. And the military can’t be far behind.

It’s the only answer a certain class of people manage to come up with. After they’ve ignored and tried to wish away an issue they should long have tackled. It’s only when British tourists and truck drivers start complaining that Cameron ‘acts’. The refugees have been at Calais for a long time, during which no. 10 did nothing at all.

Just as disgraceful is the influx of African and Asian refugees on Greek islands that Brussels refuses to do anything about. The Greek population try to do what they can, as do the Italians. But their budgets are all in EU hands now, and Brussels doesn’t care. The EU’s only response is force, not compassion or moral values.

There are mass migrations going on in many parts of the world. They are the inevitable result of the means of mass transportation and mass communication we developed. We have two options: either we facilitate for the inclusion of the refugees in our societies, or we actively help develop their homelands. If we don’t, they will still keep coming, and things will get ugly.

Whichever choice we make, we need to do it in a spirit of humanity. We can’t turn our back on these people, not the Greeks, not the refugees, that can only come back to haunt us. And besides, we don’t have the -moral- right. In the meantime, don’t let’s forget that the number of refugees in Calais pales in comparison to the numbers that land in Greece on a daily basis.

The governments that represent us put us to shame as human beings. But in the end it’s us, ourselves, who allow them to do it.

It may be strange to see a finance site argue that letting finance set society’s values is a dead end, but at the same time we all know what’s involved, we just choose to be blind to it. Man cannot live by money alone, just as he cannot live by bread alone. We are not Christian, but we do remember this:

Matthew 4-4: “But he answered and said, “It is written: ‘A man does not live by bread alone, but by every word that proceeds from the mouth of God.’ “

Again, this is not optional. We can either get this right, or we’ll descend into chaos. Something many of our ‘leaders’ would not only welcome, but are actively instigating. It’s up to us, and that means you too, to keep them from doing it.

Take a look at the black kids getting killed in the US, look at the Greek children and grandmas who don’t have medicine or food, look at the refugees that are part of today’s mass migration, and who get dogs send in against them, look at all the areas in the world where our -western- interference has caused mass misery for profit, and if you still don’t get it, take a look at Cecil, and what his death symbolizes about our societies and values.

Societies which we are all part of, and values we should share in order to maintain our societies as going concerns. We may well have just one last chance to get it right. But that chance is fading as fast as our penchant for compassion. The lunatics have truly taken over.

May 272015
 
 May 27, 2015  Posted by at 11:38 pm Finance Tagged with: , , , , , , , , ,  


Dorothea Lange Salvation Army, San Francisco, California. Unemployed young men 1939

There are many things going on in the Greece vs Institutions+Germany negotiations, and many more on the fringe of the talks, with opinions being vented left and right, not least of all in the media, often driven more by a particular agenda than by facts or know-how.

What most fail to acknowledge is to what extent the position of the creditor institutions is powered by economic religion, and that is a shame, because it makes it very difficult for the average reader and viewer to understand what happens, and why.

Greek FinMin Yanis Varoufakis has often complained that he can’t get the finance ministers and others to discuss economics. As our mutual friend Steve Keen put it:

Steve Keen said the finance minister was frustrated with the progress of Greece’s talks with the euro zone, adding Varoufakis had compared the talks to dealing with “divorce lawyers”. Keen said the finance ministers of Europe refused to discuss certain euro policies, according to Varoufakis. [..] When asked what [Varoufakis and he] mainly discuss at the moment, Keen said, “Mainly his frustration, the fact that the one thing that he can’t discuss with the finance ministers of Europe is economics..”

“He goes inside, he is expected to be discussing what the economic impact of the policies of the euro are and how to get a better set of policies, living within the confines of the euro and the entire European Union system, and he said they simply won’t discuss it. He said it is like walking into a bunch of divorce lawyers, it is not anything like what you think finance ministers should be talking about..”

They won’t discuss these things because they have found religion, in the sense that there is for them only one truth, to the exclusion of all others. They toe the preconceived line, because if they didn’t they would lose their positions.

They are undoubtedly also very hesitant to discuss economics with Varoufakis because they are aware of his prowess in the field. They are much less knowledgeable, which makes it tempting to hide behind numbers, behind Germany, and behind their faith that their views are the only right ones. Which is precisely what Varoufakis challenges.

You won’t see the Pope in a muslim prayer five times daily with his face to Mecca, or an imam celebrating Holy Mass. And that’s sort of alright, there’s nothing that says everyone should have the same religion. But when it comes to a field such as economics, and certainly when multi-trillion dollar decisions are being taken, and people in the streets are already going broke and hungry, that is definitely not alright.

The number one priority under such circumstances absolutely must be to find a solution, find it fast, and alleviate the suffering. Not to push through any particular policy or vision. Now, you can accuse Greece of not doing that, and the institutions and their pundits in the press do that on a 24/7 basis, but that view lacks substance.

The institutions demand more austerity measures for Greece, whereas it’s plain to see that austerity is what has led to the misery of the people. In particular, pensions cuts are apparently still a point neither side wants to give in on. But not only have Greek pensions already been cut by 40% or so, they are the last straw for many entire families.

Which means the entire pension system would need to be thoroughly reformed, not just pensions cut, or more, and more widespread, misery is in the offing. And there simply is no time to achieve that thorough reform before Greek repayment deadlines set in. Don’t forget, the entire Syriza government hasn’t been able (allowed) to do anything but negotiate. And is then accused of not doing enough.

This inflexible insistence on more austerity, and hence more misery, for the Greek people, is a good example of how religion driven the IMF, EU and ECB are. As I’ve written many times, it’s about power, not about money; it wouldn’t cost all that much, but could achieve a lot, to let Greeks off the austerity hook for a bit. All it takes is flexibility when entering the negotiations. But there ain’t much of that, if any, on the creditors’ side.

Which is why this Bloomberg piece on the IMF’s ‘enforcer’ for Greece Poul Thomsen should bring a smile to our faces.

A former IMF colleague of Thomsen’s, Ashoka Mody, last month in a Bloomberg View column called for the fund to “recognize its responsibility for the country’s predicament” and forgive much of Greece’s debt. There’s little sign that the IMF and Thomsen might bend the rules or cross their red lines now. While some issues such as short-term budget targets may be negotiable, the fund’s position is that any Greek agreement must bring debt down to sustainable levels and include concrete commitment to reforms, especially cuts to public pensions.

“We are open to new ideas and different ways to achieve a country’s economic goals. We are a pragmatic institution,” Thomsen said in a statement to Bloomberg News. “But we also need to be mindful of economic realities. At the end of the day it needs to add up. And we need to ensure that we treat our member states equally, that we apply our rules uniformly.”

For all we know that’s even the way he sees things. But the IMF is neither a flexible nor a beneficial institution. It’s a power tool for the wealthy. The philosophy behind the institutions’ view of the negotiations, and indeed their entire view of economics in general, is constructed to follow the preferences of the wealthy, who have a strong vested interest in centralized control over just about everything, because more centralization makes it easier for them to exert this control.

Syriza getting its way on reforms doesn’t fit in that picture; before you know more parties want some say in their futures too. Most of all, though, different ideas on economics in general cannot be accepted. Everybody has to follow the IMF line of ‘reforms’, asset sales, privatizations, labor protection and austerity. Certainly everyone who owes the Fund money. That’s its ultimate power tool.

That the EU follows that line merely means it’s and immoral and amoral institution, and a union only in name. The ECB follows the IMF line on economics, which means there’s no room for aberrant views, no matter how well founded and thought through. There’s no place in there for people like Varoufakis, or Steve Keen.

It’s not about knowledge or brilliance, it’s about keeping the faith, because that keeps the power where it’s at. Yeah, there’s a hint of Galileo in there somewhere. The ‘philosophy’ is neo-liberal mixed with let’s say, Keynes-for-the-rich, aka QE.

A nice example of how the IMF operates, and how far its power tentacles reach, came in a Guardian piece on Chapter 11 bankruptcy for countries, and why Argentina took its case to the UN, not the IMF:

When Argentina tabled a motion calling for the UN to examine the issue of sovereign debt restructuring last autumn, 124 countries voted for it; 11, including the UK and the US, with their powerful financial lobbies, voted against; and there were 41 abstentions. Llorenti, who is chairing the UN “ad hoc committee” set up as a result of that vote, says the 11 countries that objected hold 45% of the voting power at the IMF. He believes they would prefer the matter to be tackled there, where they can shape the arguments: “It’s a matter of control, really.”

Another thing I‘ve said before is that the IMF is a prime example of why we should steer away from supra-national organizations. We can’t make them run for our own benefit, they invariably end up being run for the benefit of the few, because their inherent lack of transparency and democracy makes them an irresistible target for sociopathic individuals, who seek control, not democracy, and for the elites whose interests they invariably end up representing.

There’s the World Bank, NATO, the IMF, the EU. The UN is somewhat more democratic, but only somewhat. Behind the veil it’s not at all.

Amongst the European finance minsters there should still be a few who may have doubts about what’s happening to Greece, what’s being demanded of it. And who realize that the purely political decision to bail out the banks that had lent to Greece, and shove their debts into the lap of all Europeans, who in turn pushed it right back into Greece’s lap, is at best highly questionable.

If these Europeans want to save their union, they need to be told that what they’re doing right now is the exact wrong way to go about that, 180º wrong. What happens today is not holding or pulling the member states together, it’s driving them apart.

Perhaps it is indeed ultimately a choice between the banks and the people. And perhaps it scares them stiff not to choose the banks. With their limited knowledge of how economies function, they must believe the story of how everything will fall to pieces if the banks fail. Besides, if they question it, they’re out.

But economics cannot be a religion, it cannot have this inflexibility and resistance to change. And neither can politics, not if we want our unions, our countries and our societies to survive, if we want to survive, and our children. Economics is not a science, though it very much longs for that status. It shouldn’t be a religion either, however.

There is nothing that says, or proves, that bailing out banks and forcing austerity on people (note the combination) is the best, or only, way to rescue an economy in trouble. That austerity is the way to rebuild an economy. These are mere ideas, conceived by people who studied textbooks.

What Greece is asking for is a simple bottom beneath its society, lest it completely falls to bits, lest all it’s left with is some right wing movement or another. But instead, the institutions’ approach to economics, to democracy and to power look to make a true solution for the Greek problem impossible.

That in turn would seem to make a Grexit, in some shape or another, the only way left to go. Why would anyone want to live in a world dominated by religious fanatics and their henchmen?

Finally, as for what the euro, and hence the eurozone, were intended to do, here’s Greg Palast from 2012, talking about father of the euro, Robert Mundell:

Robert Mundell, Evil Genius Of The Euro

“It’s very hard to fire workers in Europe,” he complained. His answer: the euro. The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing. [..]

The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, “voodoo economics”: the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics: “Monetary discipline forces fiscal discipline on the politicians as well.” And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Mar 302015
 
 March 30, 2015  Posted by at 1:38 am Finance Tagged with: , , , , , , , ,  


Gottscho-Schleisner Fulton Market pier, view to Manhattan over East River, NY 1934

Increasingly over the past year or so, when people ask me what I do, and that happens a lot on a trip like the one I’m currently on in the world of down under, I find myself not just stating the usual ‘I write about finance and energy’, but adding: ‘it seems to become more and more about geopolitics too’. And it’s by no means just me: a large part of the ‘alternative finance blogosphere’, or whatever you wish to call it, is shifting towards that same orientation.

Not that no-one ever wrote about geopolitics before, but it used to be far less prevalent. Much of that, I think, has to do with a growing feeling of discontent with the manner in which a number of topics are handled by the major media and the political world. Moreover, as would seem obvious, certain topics lay bare in very transparent ways how finance and geopolitics are intertwined.

In the past year, we’ve seen the crash of the oil price, which will have – financial and political – effects in the future that dwarf what we’ve seen thus far. We’ve seen Europe and its banks stepping up their efforts to wrestle Greece into – financial and political – submission. And then there’s the nigh unparalleled propaganda machine that envelops the Ukraine-Crimea-Russia issue, which has bankrupted the economy of the first and imposed heavy economic sanctions on the latter, for political reasons.

And while there are plenty people out there all across the west who may feel convinced that Greece had it coming, that waging wars in far away lands is the only way to keep the west safe, and that Putin is the biggest and meanest bogeyman this side of Stalin, if not worse, many also have come to question the official version(s) of events. Something that, if you ask me, is always good, even if it doesn’t mean the conclusions arrived at are always top notch.

For that matter, even Société Générale does geopolitical commentary, as evidenced in a note published by Tyler Durden:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties.

Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

While in my opinion the conclusions in the note leave to be desired, which may be an indication that the boys are somewhat new to the topic, the very fact that SocGen issues notes about geopolitics, and uses the term itself, is interesting and – to an extent – solidifies the link about finance and geopolitics I noted before.

Still, I’, inclined to think that when it comes to Greece, the bank’s analysts are capable of leaving their narrow finance perch behind for a broader vista that allows for a view that makes Greece a political instead of a financial issue. Because that’s what is has become, whether the parties involved wish to acknowledge it or not.

Greece, like Ukraine, is about power politics, executed at about the same level of intelligence and sophistication that you and I had when we are still playing in a sandbox. And finance, economics, is one of the very favorite weapons to try and get the side perceived as weaker to say Uncle.

And that in and of itself is still far from the worst thing. The worst is that what reaches the general public about these power games – which are far from innocent, they kill, maim, hurt real people – is a distorted and simplified precooked storyline, so hardly anyone can make up their own mind about what happens. That is why the ‘alternative finance blogosphere’ feels increasingly compelled to cover that part of the story as well.

This is also a major problem in the more domestic issue of economic recovery. Unless we would agree, which we really shouldn’t, that making a small group of the population richer while the much larger rest is made poorer, is how we define ‘recovery’, we have no recovery. But it is still accepted and proclaimed like a gospel: our economies are in recovery.

If you take a step back and watch things from a distance, it’s truly too silly to be true, but endless repetition of the same lines, be they true or not, has them accepted as being cast in stone. It’s like selling detergent. It’s exactly like that: say something often enough and people start to believe it, connect to it. Of course it doesn’t hurt that people very much want to believe a recovery is here. Just as they want to believe product X will turn them into shiny happy people dressed in ultra white shirts.

And of the best pieces I’ve seen in a while on the illusionary recovery topic comes from Scott Minerd at Guggenheim Partners, writing in the FT:

QE Will Lower Living Standards Long Term

New monetary orthodoxy is likely to permanently impair living standards for generations to come, while creating a false perception of reviving prosperity. As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal US dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.

In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policy makers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency. [..]

What I decidedly do not like about Minerd’s piece is the suggestion that if only policy makers had made more progress on ‘structural reforms necessary to increase global productive capacity’, things would have been fine, or better at least. Like if someone came up with a better way towards growth, that would solve our problems.

In my view, this is not about failing to find the right way towards more growth, it’s that more growth itself is not the right way to solve the issues. When he says policy makers and central bankers are ‘lacking the political will necessary to address the issues’, I can only hope he means the will needed to restructure the entire financial system, force bankrupt banks into bankruptcy and break up what’s left into pieces too small to ever again threaten an economy, let alone the entire financial system. But I don’t see him say it, so I’m left doubting that’s what he means.

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.

The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years.

That last bit is the same as saying there is no recovery. Which is a tad curious, because Minerd started out saying, in his first paragraph: ‘As economic growth returns again to Europe and Japan’. Pick one, I’d say.

In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time.

In fact, although U.S. equity prices are setting record highs, real median household incomes are 9% lower than 1999 highs. The report from BoA Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output. The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

It’s by no means the first time I bring this up, but I’ll do it again until there’s no more need. The stories we are bombarded with 24/7 under the quite hilarious misnomer ‘News’ have been prepared, pre-cooked and pre-chewed for our smooth and painless digestion, and as such they contain only tiny little flakes of reality. They are designed to make us feel good, not understand the world around us.

It’s up to sites like the Automatic Earth – and there’s quite a few others – to expose these storylines and narratives for what they really are: tools to sell detergents. Their purpose is not to inform people, but to manipulate them into forming opinions about their world that serve the intentions of one or more groups of people hungry enough for power to occupy themselves with this sort of scheming.

Somewhere on the not so sharp edge between money and power, there are lots of people who devote their entire lives towards devising ways to make up your mind for you. And if you’re like most people, you like that, because it absolves you from having to think for yourself. But the price to pay doesn’t come with the commercials: if you let others think for you, you or your children may be called into war at any time of somebody else’s choosing.

And, as Scott Minerd says, the economic future for your entire families will look utterly bleak. Because that recovery they talk about? It’s not for you.

Jan 052015
 
 January 5, 2015  Posted by at 11:26 pm Finance Tagged with: , , , ,  


DPC Court Street, Ames Building, Young’s Hotel, Boston, MA 1906

Well! WTI below $50 and Brent below $53 when I start writing this. Who knows where they’ll be by the time I’m finished?! The euro down below $1.20, US stocks flirting with -2%, major European ones off -3%, Italy and Greece over -5%. Welcome to the real world, baby! Didn’t think you’d see it again so soon, did you? Welcome to the world where the Kool-Aid recovery does not reign supreme.

Not that you’re not going to hear that anymore, and 24/7 incessantly so, but there’s no recovery with these oil prices, no matter what anybody says. The damage must be gargantuan by now. Everybody’s invested in oil. Sure, lots of shorts and stuff by now, but that’s not going to do much good. Not for pensions funds, or for governments. This thing will not blow up or over softly.

There’s not an oil major or minor or a producing country left that makes a profit at these prices, and there’s no sign anywhere to be seen that the drop will stop. If this keeps going, someday soon somebody’s going to go to war. Maybe domestically, maybe across a border, but it’ll happen.

There are dozens of regimes out there for whom oil prices have become a huge threat to their powers, their status, their lives, and there are dozens of others waiting in the wings, eager to take over. The move is just too big not to lead to bloodshed.

The eurozone is perceived as a major threat to the global economy, but not necessarily for the right reasons. Sure, that looming Grexit is not good for Brussels, but Germany and its courts might be a bigger issue. Mario Draghi will need to announce something along the lines of a QE-like measure on January 22, but can he even without risking to blow up the whole casino?

What’s more, with oil and the euro where they are, and especially where’s they’re headed, what good would any new Draghi policy do, however big it is? Europe today, like the rest of the world, has bigger problems to deal with than yesterday’s inflation rates.

Oil below $50 and falling is bigger than any other political or economic issue. Remember when they all said low oil prices would boost the economy through higher consumer spending? Heard anything much about that lately?

For western countries like Norway, Britain, Holland, oil and gas producers, the loss in – tax – revenue is debilitating. For US states like North Dakota, Texas, Alaska, it’s worse. These are not the kind of entities that can turn on a dime, they write long term budgets, the same way oil companies do. There’s a time lag in consequences, but that doesn’t mean it’s unwise to be ready to get out of Dodge.

Thing is, prices DO turn on a dime. And now they’re stuck with a zillion broken promises to investors and voters. And while the executives and politicians will at worst get thrown out, the other side of the equation is going to be stuck with the tab. And in order to save their skins, the ‘leaders’ will raise that tab wherever they see fit.

This oil thing is the real deal. There’s no Plunge Protection for that. And for all we know nobody that counts wants any. For all we know the American behind the curtain wizard convention plans to use it to destabilize a whole list of additional countries. And for all we know Russia – and perhaps China- have seen that coming from miles away.

If and when an oil producing (!) nation like Turkmenistan devalues its currency by 19% against the dollar, something’s really amiss, and tectonic plates are shifting in a part of the world where balances were already, and always, delicate. And once plates start shifting, who’s to tell where they will end up?

It’s no longer about which factors bring down oil prices, that’s old news; it’s about what oil prices bring down. You know, the next – logical -step. And they bring down more than anybody seems to be aware of. Good luck with saving a dollar a day on your gasoline bill. The world’s power brokers feel they have it all under control – they don’t, nobody has the means to control the entire world – , and they have no qualms about sacrificing you to get what they want.

The oil price drop is a much bigger event than the US subprime housing crisis, it’s bigger than everything put together that happened in 2008. And this time, central banks are lame sitting ducks. Omnipotence is a harsh mistress. She tends to backfire.

Dec 282014
 
 December 28, 2014  Posted by at 11:15 pm Finance Tagged with: , , , , , , ,  


Unknown GMC truck Associated Oil fuel tanker, San Francisco 1935

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dec 082014
 
 December 8, 2014  Posted by at 11:36 am Finance Tagged with: , , , , , , , , , ,  


Russell Lee Front of livery stable, East Side, New York City Jan 1938

Japan’s Economy Is Worse Than Feared (WSJ)
Japan’s Recession Deepens as Election Looms for Abe (Bloomberg)
China Trade Data Miss Forecasts By A Wide Margin (MarketWatch)
China Trade Data Paints Dreary Picture Of Economy (CNBC)
The Two Main Threats That Are Shaking Global Firms: China And Deflation (CNBC)
Oil, Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next (Wolf)
Canada’s LNG Export Dream Is Dead (Oilprice.com)
Dollar Surge Endangers Global Debt Edifice, Warns BIS (AEP)
Sudden Swings Expose Fragility Of Financial Markets: BIS (Reuters)
International Lending To China Soars In 2014: BIS (Reuters)
Why The Dollar Is Still King: BIS (CNBC)
Why The World Is Like A Real-Life Game Of Global Domination (Guardian)
Citigroup Panicked Over Fraud at Chinese Ports (Bloomberg)
The Long Slow Inexorable Demise Of America’s Working-White-Male (Zero Hedge)
ECB’s Loans Offer Clues In QE Guessing Game (Reuters)
Bank of England: Half A Million Housebuyers Face Mortgage Arrears (Guardian)
Bank of England: UK Banking To Double In Size, Reach 950% of GDP (Guardian)
Keep An Eye On The Fed’s Accelerating Asset Sales (CNBC)
Bill Gross: You Can’t Cure Debt With More Debt (CNBC)
The Most Essential Lesson of History That No One Wants To Admit (Beversdorf)
Uncork the Central Bank Bubbly (StealthFlation)
Taming Corporate Power: The Key Political Issue Of Our Age (Monbiot)

“The key economic figures come just six days before general elections ..”

Japan’s Economy Is Worse Than Feared (WSJ)

Japan’s economy contracted for the second straight quarter in the July-to-September period, revised data released Monday showed, serving as a bitter reminder to Prime Minister Shinzo Abe that the nation’s economy remains in the woods two years after he came into office. Gross domestic product shrank an annualized 1.9% in the third quarter from the previous three-month period. The government last month estimated that the economy shrank 1.6% in the third quarter after a 6.7% plunge in the second quarter, indicating that the economy had entered a recession.

The key economic figures come just six days before general elections, which Mr. Abe is framing as a referendum on his economic policy program known as Abenomics. Recession or not, Japan’s economy is in a funk. Private consumption, the most important pillar of the economy, has shown little sign of life after a one-two punch of a sales tax increase in April and inflation caused by the yen’s 30% fall against the dollar. The consumption slump had led businesses to slash production and capital investment, further undermining economic growth.

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How crazy will he get after being re-elected?

Japan’s Recession Deepens as Election Looms for Abe (Bloomberg)

Japan’s recession was deeper than initially estimated as company investment unexpectedly shrank, a blow to Prime Minister Shinzo Abe as he campaigns for re-election on his economic credentials. The economy contracted an annualized 1.9% in the July to September period from the previous quarter, weaker than the 1.6% drop reported in preliminary data. The result was also below every forecast in a Bloomberg News survey that showed a median 0.5% decrease. The surprise decline in business investment sapped the strength of the world’s third-biggest economy, compounding damage from a slump in consumer spending after a sales-tax rise in April. With the main opposition party caught unprepared, Abe is on-track to win the Dec. 14 election, even as a decline in the yen cuts into people’s spending power. “Today’s report shows a pretty bleak picture of Japan’s economy,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “We are going to see a recovery but only a gradual one. The weakening yen should provide a boost to manufacturers and those benefits will penetrate through a wide range of industries.”

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Not much use, these analysts.

China Trade Data Miss Forecasts By A Wide Margin (MarketWatch)

China’s exports rose a disappointing 4.7% in November while imports unexpectedly fell, as the world’s second-largest economy grapples with sluggish global activity and weak demand at home. Analysts said the data the government released on Monday show that the country’s crucial export sector – the one segment of the economy that had been showing signs of strength – was struggling during the month. “This was worse than expected,” said Ma Xiaoping, economist at HSBC. “We can see there is considerable downward pressure on the economy.” China’s economy has been showing slower growth after years of double-digit expansion. Growth slipped to 7.3% year-over-year in the third quarter, its slowest pace in more than five years. Full-year growth could fail to reach the government target of about 7.5% for the year.

November exports were below market expectations of an 8% gain compared with a year earlier and much less robust than the 11.6% increase in October. Meanwhile, imports sank 6.7% against expectations for a 3% rise, after a 4.6% year-over-year rise in October. Analysts said a rebound in the yuan’s value against other currencies could have been a factor. CIMB economist Fan Zhang said the weak export growth also reflects a strong month in the year-earlier period, while the drop in imports includes the impact of a sharp decline in global commodities prices, particularly oil. “In 2015, I still expect exports to improve over 2014 because of U.S. economic growth,” Mr. Zhang said. China’s central bank in late November cut benchmark interest rates for the first time in more than two years in a bid to give the economy a boost and cut borrowing costs for struggling companies. It has also injected liquidity into the banking system and encouraged banks to lend to struggling small businesses and the agricultural sector.

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Time for Xi and Li to set a new, much power, growth target?!

China Trade Data Paints Dreary Picture Of Economy (CNBC)

China’s annual import and export figures slowed sharply in November, data showed on Monday, reinforcing signs of fragility in the world’s second-largest economy. Exports rose 4.7% in November from a year earlier, much slower than an 11.6% rise in October and below expectations for an 8.2% increase in a Reuters poll. Imports fell an annual 6.7% in November, well below October’s 4.6% rise, and below expectations for a 3.9% increase. That left the country with a trade surplus of $54.5 billion for the month, above expectations of $43.5 billion. The Australian dollar weakened against the U.S. dollar after the data was released, recently trading at $0.8297.

“It’s clear domestic demand is pretty weak, most of the decline seems to be commodity related – which partly reflects lower prices, but is also because of the slowdown in the housing sector and overcapacity in industrial sectors,” Alaistair Chan, economist at Moody’s Analytics told CNBC. The slowdown in exports, meanwhile, was likely driven by a clamp down on over-invoicing seen earlier in the year and could suggest a cooling in global demand, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole.

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“The Asian powerhouse, which has been the world’s biggest consumer of raw materials, is now on course to post its slowest growth in nearly a quarter of a century.”

The Two Main Threats That Are Shaking Global Firms: China And Deflation (CNBC)

With an uneasiness looming over the global economy as the year draws to a close, chief financial officers (CFOs) have told CNBC that softer growth in China and the threat of deflation in the euro zone are the two biggest issues their firms are facing. Fifty-one CFOs from Europe and Asia – who make up the CNBC CFO Global Council – were asked what the major risks that their firms are currently up against. Coming ahead of the pack by a clear margin was the threat of falling growth in China. It came top of the list for Asian CFOs and was the third biggest risk for their European counterparts. When asked which of the year’s geopolitical or economic risks had the greatest impact on their businesses, 57% pointed at the warning signs coming from the world’s second largest economy.

The results underline how important China is for global confidence as the country shifts from its traditional role as the world’s factory floor to becoming a consumer-led economy. The Asian powerhouse, which has been the world’s biggest consumer of raw materials, is now on course to post its slowest growth in nearly a quarter of a century. It grew 7.3% year-on-year during the July-September period, its slowest pace in more than five years, jeopardizing Beijing’s 7.5% target for 2014. The slowdown comes after years of double-digit growth and at a time when the country’s new leadership is stepping up regulation and trying to curb an overheated credit market. As well as the tougher stance by Beijing, there has been a more gentle touch from the People’s Bank of China.

The central bank looks increasingly ready to backstop the economy and manage the fall in growth after announcing a surprise rate cut last month. Diana Choyleva, the head of macroeconomic research at Lombard Street Research, believes that growth and monetary conditions in China are actually much weaker than the official numbers suggest. She regularly concentrates her research on the country and said in a note last week that Beijing is battling an ongoing correction in investment and capital flight from its shores. “China’s banks are one of the victims of Beijing’s past excesses and will have to pay the price as the needed cleanup and financial market reforms unfold,” she said.

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“.. what the Fed has been worrying about is already happening in the energy sector: leveraged loans are getting mauled. And it’s just the beginning.”

Oil, Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next (Wolf)

The price of oil has plunged nearly 40% since June to $65.63, and junk bonds in the US energy sector are getting hammered, after a phenomenal boom that peaked this year. Energy companies sold $50 billion in junk bonds through October, 14% of all junk bonds issued! But junk-rated energy companies trying to raise new money to service old debt or to fund costly fracking or off-shore drilling operations are suddenly hitting resistance.

And the erstwhile booming leveraged loans, the ugly sisters of junk bonds, are causing the Fed to have conniptions. Even Fed Chair Yellen singled them out because they involve banks and represent risks to the financial system. Regulators are investigating them and are trying to curtail them through “macroprudential” means, such as cracking down on banks, rather than through monetary means, such as raising rates. And what the Fed has been worrying about is already happening in the energy sector: leveraged loans are getting mauled. And it’s just the beginning.

This monthly chart by S&P Capital IQ’s LeveragedLoan.com shows the leveraged loan index for the oil and gas sector. Earlier this year, when optimism about the US shale revolution was still defying gravity, these loans were trading at over 100 cents on the dollar. In July, when oil began to swoon, these loans fell below 100 cents on the dollar. The trend accelerated during the fall. And in November, these loans dropped to around 92 cents on the dollar.

How bad is it? The number of leveraged loans in the oil and gas sector trading between 80 and 90 cents on the dollar (blue line in the chart below) has soared parabolically from 0% in September to 40% now. These loans are now between 10% and 20% in the hole! And some leveraged loans are now trading below 80 cents on the dollar:

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And so is Australia’s.

Canada’s LNG Export Dream Is Dead (Oilprice.com)

Lower oil prices have killed off major plans for liquefied natural gas exports from Canada’s west coast. On December 2 the state-owned oil company of Malaysia, Petronas, decided to shelve plans to build an enormous LNG export terminal in British Columbia, citing the falling price of oil. It is common for LNG contracts to be priced using a formula linked to the price of crude oil, so declining oil prices pushes down prices for LNG. Petronas’ Pacific NorthWest LNG, as it was known, was a proposed $32 billion export terminal that would send LNG to Asia. The decision highlights how competitive global LNG trade has become, despite growing demand. Greenfield projects, such as Pacific Northwest LNG, face steep startup costs that become prohibitive when oil prices fall. Although low oil prices may have been the icing on the cake, Canadian LNG projects were facing serious obstacles before oil prices plummeted.

There is stiff competition from a slew of LNG projects already under construction in the U.S. and Australia, which will come online much earlier than anything from British Columbia. Several LNG export facilities in the U.S. are not starting from scratch, for example. The Sabine Pass terminal on the Gulf Coast and the Cove Point facility on the Chesapeake Bay were both originally constructed to import LNG rather than export. The original facilities were put on ice when the U.S. no longer needed LNG imports. Now, companies are retrofitting them to handle exports – a much cheaper process than building a new facility. The indefinite cancellation of Pacific NorthWest LNG is a major setback for Canada’s plans to export natural gas. The move comes after BG Group abandoned plans to build a separate LNG export terminal on Canada’s west coast. Chevron is also in limbo with its Kitimat LNG project after its partner Apache pulled out.

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“BIS officials are worried that tightening by the US Federal Reserve will transmit a credit shock through East Asia and the emerging world, both by raising the cost of borrowing and by pushing up the dollar.”

Dollar Surge Endangers Global Debt Edifice, Warns BIS (AEP)

Off-shore lending in US dollars has soared to $9 trillion and poses a growing risk to both emerging markets and the world’s financial stability, the Bank for International Settlements has warned. The Swiss-based global watchdog said dollar loans to Chinese banks and companies are rising at annual rate of 47%. They have jumped to $1.1 trillion from almost nothing five years ago. Cross-border dollar credit has ballooned to $456bn in Brazil, and $381bn in Mexico. External debt has reached $715bn in Russia, mostly in dollars. A chunk of China’s borrowing is disguised as intra-firm financing. This replicates practices by German industrial companies in the 1920s, which hid their real level of exposure as the 1929 debt trauma was building up. “To the extent that these flows are driven by financial operations rather than real activities, they could give rise to financial stability concerns,” said the BIS in its quarterly report. “More than a quantum of fragility underlies the current elevated mood in financial markets,” it warned.

Officials are disturbed by the “risk-on, risk-off, flip-flopping” by investors. Some of the violent moves lately go beyond stress seen in earlier crises, a sign that markets may be dangerously stretched and that many fund managers do not really believe their own Goldilocks narrative. “Mid-October’s extreme intraday price movements underscore how sensitive markets have become to even small surprises. On 15 October, the yield on 10-year US Treasury bonds fell almost 37 basis points, more than the drop on 15 September 2008 when Lehman Brothers filed for bankruptcy.” “These fluctuations were large relative to actual economic and policy surprises, as the only notable negative piece of news that day was the release of somewhat weaker than expected retail sales data for the US one hour before the event,” it said.

The BIS said 55% of collateralised debt obligations (CDOs) now being issued are based on leveraged loans, an “unprecedented level”. This raises eyebrows because CDOs were pivotal in the 2008 crash. “Activity in the leveraged loan markets even surpassed the levels recorded before the crisis: average quarterly announcements during the year to end-September 2014 were $250bn,” it said. BIS officials are worried that tightening by the US Federal Reserve will transmit a credit shock through East Asia and the emerging world, both by raising the cost of borrowing and by pushing up the dollar. “The appreciation of the dollar against the backdrop of divergent monetary policies may, if persistent, have a profound impact on the global economy. A continued depreciation of the domestic currency against the dollar could reduce the creditworthiness of many firms, potentially inducing a tightening of financial conditions,” it said.

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They do know.

Sudden Swings Expose Fragility Of Financial Markets: BIS (Reuters)

Sudden swings in financial markets recently suggest they are becoming increasingly sensitive to unexpected events, the global organization of central banks said on Sunday, warning “more than a quantum of fragility” underlies the current bullish mood. MSCI’s all-country world stock index is hovering around multi-year highs after rebounding from sell-offs in August and October. The downturns were triggered by uncertainty over the global economic outlook and monetary policy, as well as geopolitical tensions, and the Bank for International Settlements (BIS) said the sharp and sudden dips pointed to frailty in the markets. “These abrupt market movements (in October) were even more pronounced than similar developments in August, when a sudden correction in global financial markets was quickly succeeded by renewed buoyant market conditions,” the BIS said in its quarterly review.

“This suggests that more than a quantum of fragility underlies the current elevated mood in financial markets,” it said, adding that recent developments suggest markets are becoming “increasingly fragile” “Global equity markets plummeted in early August and mid-October. Mid-October’s extreme intra-day price movements underscore how sensitive markets have become to even small surprises,” it said in the report. The comments followed the organization’s warning in September that financial asset prices were at “elevated” levels and market volatility remained “exceptionally subdued” thanks to ultra-loose monetary policies being implemented by central banks around the world.

Since then, the U.S. Federal Reserve has brought its monthly bond-purchase program to an expected end. However, Japan’s central bank has spurred global markets by expanding its massive stimulus spending while China unexpectedly cut interest rates, adding to stimulus measures from the European Central Bank. The BIS said these divergent monetary policies, coupled with the recent appreciation of the dollar, could have a “profound impact” on the global economy, particularly in emerging markets where many companies have large dollar-denominated liabilities. Separately, the BIS report said that international banking activity expanded for the second quarter running between end-March and end-June. Cross-border claims of BIS reporting banks rose by $401 billion. The annual growth rate of cross-border claims rose to 1.2% in the year to end-June, the first move into positive territory since late 2011.

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“China’s share of BIS reporting banks’ foreign claims on all emerging markets stood at 28% in mid-2014, up from just 6% at the end of 2008.”

International Lending To China Soars In 2014: BIS (Reuters)

China has become the largest emerging market destination for international bank lending, accounting for more than a quarter of cross-border claims on all emerging market economies, a central banking report shows. Cross-border claims on China increased by $65 billion in the second quarter of 2014 to $1.1 trillion, and were up nearly 50% in the year to the end of June, according to a quarterly report from the Bank for International Settlements on Sunday. “China has become by far the largest (emerging market) borrower for BIS reporting banks. Outstanding cross-border claims on residents of China totaled $1.1 trillion at end-June 2014, compared with $311 billion on Brazil and slightly more than $200 billion each on India and Korea,” the report says.

It said China’s share of BIS reporting banks’ foreign claims on all emerging markets stood at 28% in mid-2014, up from just 6% at the end of 2008. The BIS, often referred to as the central bankers’ central bank, says China’s status as the principal emerging market destination for international bank lending reflects a “remarkable evolution” since the financial crisis of 2008-9. However, concerns are mounting among international investors of a credit bubble developing in China, with the country’s property market seen as the biggest risk to the economy.

In late November, after saying for months that China did not need any big economic stimulus, the People’s Bank of China surprised financial markets with its first interest rate cut in more than two years to shore up growth and help firms pay off mountains of debt. Outside China, cross-border claims on emerging market economies rose 2.7%, or $33 billion, in the three months to the end of June, the BIS said, with the increase coming mainly from Asia. However, cross-border lending to Russia declined 10%. Russia has seen its finances come under strain from western sanctions over Moscow’s role in the Ukraine crisis and the falling price of oil, its main export.

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“We argue that the dollar’s role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates – the ‘dollar zone’ ..”

Why The Dollar Is Still King: BIS (CNBC)

A question that has frustrated even the most experienced economists in the last few decades is how the dollar has remained the most prominent reserve currency in the world despite the global share of U.S. output eroding away. The Bank for International Settlements (BIS), a Basel-based institution that is known as the central bank of central banks, thinks it has found the answer. “We argue that the dollar’s role may reflect instead the share of global output produced in countries with relatively stable dollar exchange rates – the ‘dollar zone’,” it said in its new quarterly report released on Sunday. In 1978, economists Robert Heller and Malcolm Knight were credited as first to draw attention to the fact that countries held an average of 66% of their foreign-exchange reserves in dollars. Even today that number hasn’t budged much with the latest statistics from the International Monetary Fund showing that just over 60% of allocated funds are held in the greenback.

The higher the correlation in price between a given currency and the dollar, the higher the economy’s dollar share of that country’s official reserves, according to Robert McCauley and Tracy Chan, the two authors of the BIS report. The report adds that the dollar’s robustness comes despite an 18% decline against major currencies since 1978 and the U.S. economy’s share of global GDP (gross domestic product) shrinking 6% in those 36 years. “The ‘dollar zone’ still accounts for more than half of the global economy. In countries whose currencies are more stable against the dollar than against the euro, reserve composition that favors the dollar produces more stable returns in terms of the domestic currency,” they said.

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It’s a shame this guy feels he needs to resort to Putin bashing.

Why The World Is Like A Real-Life Game Of Global Domination (Guardian)

Putin gives a speech and the rouble falls. Europe’s central bank boss gives a speech and the stock markets fall. Opec meets in Vienna and the oil price plummets. Japan’s prime minister calls a snap election and the yen’s slide against the dollar accelerates. All these things in the last six weeks of an already fractious year. There are suddenly multiple conflicts being played out in the global markets, conflicts the global game’s usual rules are not built to handle. The first concerns a clear game of beggar thy neighbour between China and Japan. Since 2012 Japan has printed money hand over fist, with the aim of kickstarting economic growth. With growth stalling for a third time in the final quarter of 2014 its premier Shinzo Abe printed more. China perceives this as unfair competition, and with its own growth slowing, it responded in late November with a surprise interest-rate cut.

Many see this as the outbreak of a classic currency war, along 1930s lines, where rival economic giants engage in a pointless game of devaluing their own currency – boosting exports but hitting the spending power of their people – to their mutual detriment. By hitting each other’s capacity to export, they edge the region towards deglobalisation. The second new dynamic is the game of chicken being played over the oil price between America, Russia and Opec. Oil demand is falling because growth in the emerging markets – China, Brasil and the like – is slowing down. Yet supply has risen – by 11m barrels to 92m barrels per day since the global financial crisis began. America has become the world’s biggest oil producer thanks to the rapid rollout of shale and deep sea oilfields.

Since June 2014 the price of a barrel of Brent crude has fallen from $115 to $68 – and after Opec met in late November and rejected calls to cut production some analysts predicted the price could collapse to $40. Saudi Arabia and the other gulf monarchies were the key players in the decision to keep production high and prices falling – and few doubt there is politics behind the move. It hurts Russia, Venezuela and Iran. For Saudi Arabia there are scores to settle with both Russia and Iran over their role in crushing the Syrian revolution, and with Venezuela for being Russia’s perpetual Bolivarian cheerleader.

As a result, Vladimir Putin has had to admit to his people that a combination of western sanctions and Saudi oil strategy will push Russia into recession next year. At times like this economists resort to game theory, warning sparring countries that, in a game where everybody is trying to shrink something – whether it be prices or currencies – everybody loses out. So let’s game it out – not in the austere language of theory but of the empire-building “god games” popular on games consoles.

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The whole shebang is still under lockdown after all this time.

Citigroup Panicked Over Fraud at Chinese Ports (Bloomberg)

Citigroup was in a “state of panic” when alleged fraud was uncovered in two Chinese ports, Mercuria Energy’s lawyer said as a London trial over disputed metal finance deals got under way. “The discovery of the fraud was a massive problem for Citi as it was their metal and it was at their risk,” Mercuria lawyer Graham Dunning told a London judge. “There was a state of panic.” The disputed copper and aluminum is under lockdown in the ports of Qingdao and Penglai, where Chinese authorities are investigating an alleged fraud. Neither side can get access and they don’t know how much of the metal is there, Dunning said at a pre-trial hearing in August. Citigroup argues that it effectively delivered the metal to Mercuria under the terms of a sale-and-repurchase agreement by handing over warehouse receipts. The bank says it is owed about $270 million. Mercuria, a Cyprus-based firm with major trading operations in Geneva, argues the products were never properly delivered.

“It appears that substantial quantities may be missing from the warehouses or may be the subject of multiple pledges,” Dunning said today. The probe at Qingdao, China’s third-largest port, is examining companies owned by a Chinese-Singaporean metals trader, Chen Jihong, who is alleged to have pledged the same metal inventories multiple times for collateral on loans. Chinese authorities have uncovered almost $10 billion in fraudulent trade, including irregularities at Qingdao, according to the country’s currency regulator. Standard Chartered, Standard Bank and ABN Amro have also made loans affected by the alleged fraud. “Mercuria’s apparent goal is for it to be Citi, not Mercuria, which is left out of pocket,” Citigroup said in documents from the trial. Mercuria was responsible for safeguarding and insuring the metal, the bank said.

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What do they do all day?

The Long Slow Inexorable Demise Of America’s Working-White-Male (Zero Hedge)

Not “off the lows”…

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Germany holds the levers here.

ECB’s Loans Offer Clues In QE Guessing Game (Reuters)

The guessing game over the timing of euro zone money printing will intensify as the European Central Bank unveils a closely watched gauge of policy in the coming week, the highlight of a calendar dominated by Europe’s malaise. On the other side of the Atlantic, investors will continue placing their bets on a different but equally crucial event: when the U.S. Federal Reserve might raise interest rates. U.S. data and several Fed central bankers will give a sense of the speed of the recovery and when a rate rise might be merited, while oil prices and Chinese data will provide plenty more for markets to digest. “The key story is going to be in the euro zone,” said James Knightley, ING’s senior economist, referring to the results of the ECB’s targeted long-term refinancing operations (TLTROs) on Thursday. The cheap loans for banks are one of the ECB’s main ways to flush money into the stagnating euro zone economy. “If the take-up is poor, that could increase market talk that the ECB is going to step in and use other tools,” Knightley said.

That means a sovereign bond-buying program like those used in the United States, Britain and Japan, but which Germany fears would encourage reckless state borrowing and fuel inflation. Such a program may come early next year. “The take-up of TLTROs could swing the ECB’s Governing Council between January and March, depending on how the number looks,” said Citigroup economist Guillaume Menuet. The first TLTRO was taken up only to the tune of €83 billion. Hopes are higher for this time but forecasts hover around the €150 billion mark, leaving the ECB short of the €400 billion it was prepared to offer banks in total. On Monday in Brussels, ECB President Mario Draghi will tell euro zone finance ministers no amount of stimulus can replace reforms to tax, labor and pension systems to bring down near-record unemployment.

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Rate rises will be murder.

Bank of England: Half A Million Housebuyers Face Mortgage Arrears (Guardian)

The Bank of England has warned half a million families would be at risk of falling into mortgage arrears once it started to raise interest rates from their emergency level of 0.5%. Threadneedle Street said the number of households running into difficulties would increase by a third to 480,000 in the event of a two-percentage-point increase in the cost of borrowing. The Bank stressed the proportion of borrowers having trouble paying their home loans should remain well below the levels of the early 1990s – when Britain suffered its worst postwar property crash – provided incomes rose alongside interest rates. “Higher interest rates will increase financial pressure on households with high levels of debt,” the Bank said in its Quarterly Bulletin. “The%age of households with high debt-servicing ratios, who would be most at risk of financial distress, is not expected to exceed previous peaks given the likely paths of interest rates and income.

“But developments in incomes for the households who are potentially most vulnerable will be an important determinant of the extent to which financial distress does increase.” The findings were based on a survey for the Bank conducted by NMG consulting. It found that the average outstanding mortgage debt was £83,000 per household, with average household income of £33,000 a year (£43,000 for those with a mortgage) and unsecured debt £8,000. Interest rates have been pegged at 0.5% – the lowest in the Bank’s 320-year history – since March 2009 and cheap borrowing costs have made it easier for households with large home loans to keep up payments on their mortgages. The Bank has used its forward guidance policy to stress that interest rate rises, when they come, will be gradual and limited in size. Financial markets do not anticipate the first rise to come before the second half of 2015 but the Bank is exploring the impact of tighter policy on households where more than 40% of income is spent on mortgage repayments, since these housebuyers are most likely to fall into arrears.“

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Oh, great! 950% of GDP. What could go wrong?

Bank of England: UK Banking To Double In Size, Reach 950% of GDP (Guardian)

Britain’s exposure to its banks, already the largest in the G20 group of leading nations, is set to double in the next 35 years. “The size of the UK banking system might roughly double from its current size to over 950% of GDP by 2050, far outstripping the projected increase in other G20 banking systems,” the Bank of England said. The UK’s banking system is currently 450% of GDP, Threadneedle Street said. In money terms, it would amount to a rise from over £5tn to £60tn. “Some have suggested that the current size of the UK banking system represents a material risk to economic stability and that action should be taken to reduce its size,” the central bank said in its latest quarterly bulletin. However, in an article asking “Why is the banking system so big and is that a problem?” the Bank of England said it had not found evidence of a link between the size of the economy and the risk of a crisis.

It said more work was needed and that it had not looked at the interconnectedness of the banking system and its opacity as it increases in size. “The empirical analysis in this article does not find a strong link between banking system size and the probability or output cost of a crisis, at least once the resilience of the system is taken into account,” the bank said in the article. “Establishing empirically whether banking system size is a leading indicator of banking crises is not straightforward,” it said. The banking system has undergone a dramatic shift in past 40 years, with assets rising from about 100% of GDP in 1975, the Bank of England said. It said the UK’s banking system was the largest out of Japan, the US and the 10 biggest EU economies. Nearly a fifth of global banking activity is booked in the UK, where there are 150 deposit-taking foreign branches of banks and almost 100 foreign subsidiaries from more than 50 countries.

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“Since peaking at $4.07 trillion last August, the Fed’s monetary base has been reduced by $259.2 billion as of the latest reserve reporting date on November 26, 2014.”

Keep An Eye On The Fed’s Accelerating Asset Sales (CNBC)

The U.S. monetary authorities (Fed) are stepping up the contraction of their balance sheet at a surprisingly fast pace. Since peaking at $4.07 trillion last August, the Fed’s monetary base has been reduced by $259.2 billion as of the latest reserve reporting date on November 26, 2014. More than half of these Fed asset sales occurred between the end of October and the end of November. But the balance sheet remains an impressive $3.8 trillion – a huge difference with the pre-crisis monetary base of $820-$830 billion. It is interesting to note that even at these comparatively modest amounts of high-powered money, the pre-crisis U.S. monetary policy was very expansionary: the federal funds rate was fluctuating around 3% while the inflation rate was accelerating above 4%.

Obviously, these are different times now: the U.S. financial system and the economy have changed in a rapidly evolving global context. Still, the comparison is useful because it shows how much the Fed’s balance sheet will have to adjust in the months ahead. One key aspect of that adjustment process is the Fed’s statement that interest rates will remain low well after the beginning of large liquidity withdrawals to “normalize” the policy stance. The question is: how is that possible? If the quantity of money is being reduced in as large amounts as is currently the case, would it not be normal to expect that its price (i.e., interest rate) would also have to rise? Certainly it would.

But what makes the Fed’s statement credible is the fact that huge excess reserves (money banks can use to make loans) of the U.S. banking system – $2.4 trillion at the last count – will continue to keep an extraordinarily liquid interbank market for some time. Last Friday, for example, the effective federal funds rate (overnight money banks lend to each other) closed trading at 0.11% – more than half way below the Fed’s target of 0.25%. These excess reserves are now being drained by the Fed’s bond sales; they have been cut by $286.1 billion from their peak of last August. There is still plenty of cutting to do, though. Just think that during the pre-crisis period from January 2007 to June 2008 banks’ average excess reserves were fluctuating around monthly levels of $1.9 billion (sic). That is a far cry from the $2.4 trillion we have now.

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Not exactly a new point, but ..

Bill Gross: You Can’t Cure Debt With More Debt (CNBC)

Central banks are trying to solve a debt crisis by piling on more debt, creating a “point of low return” for investors, bond guru Bill Gross said in a letter to clients. The Janus Capital portfolio manager and Pimco founder takes the Federal Reserve, Bank of Japan and European Central Bank to task for using monetary policy to make it easier for governments to run up debt, all in the hopes of stimulating anemic global growth. “How could they?” Gross asks, using nursery rhymes including the characters Punch and Judy to bemoan the possibility of “inflationary horror” that characterized the 1970s. It’s probably better to read the Gross letter in its entirety – get it here – to see how he connects the dots, but his conclusion is stark:

Ah, policymakers. Perhaps the last five years have been one giant nursery rhyme. But each of these central bankers is trying to achieve the same basic objective: Solve a debt crisis by creating more debt. Can it be done? A few years ago, I wrote that this uncommonsensical feat could be accomplished, but with a number of caveats: 1) Initial conditions must not be onerous; 2) Both monetary and fiscal policies must be coordinated and lead to acceptable structural growth rates; and 3) Private investors must continue to participate in the capital market charade that such policies produced.

Several pitfalls have occurred within each caveat, not the least of which is stagnant growth and companies using the easy money of the past six years not to propel the economy but to jack up their own stock prices and reward themselves and shareholders. At the same time, the much-awaited handoff from monetary to fiscal policy has not happened, in large part because the Fed and others have been willing to provide trillions in accommodation:

In the U.S., as elsewhere, there has been little focus on public investment and infrastructure spending. It’s been all monetary policy, all of the time, with most of the positives flowing over to markets as opposed to the real economy. The debt currently being created is not promoting real growth and solving a debt crisis – it is being used by corporations to repurchase shares and accentuate the growing inequality between the very rich and the middle class.

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” .. as Dr. Paul so clearly points out, the sole purpose of H. Res. 758 is simply a pouring of the legal foundation for something much more substantive. You see, this is how wars begin.”

The Most Essential Lesson of History That No One Wants To Admit (Beversdorf)

Ron Paul wrote an eye opening article recently about some legislation that was just signed in Congress, namely H. Res. 758. In the article Dr. Paul explains the purpose of the resolution. It’s not a new law but provides a basis of facts that will be relied on for future action. So essentially the resolution purports that Russia behaved badly in various ways and by way of signing H. Res. 758 each congressman was indicating their agreement that the propositions contained therein are factual. Now just because a group of obnoxiously arrogant A-holes stand around in a tax-revenue financed chamber and say “yeah” to several assertions does not make those assertions factual, but here in the United Orwellian States of America it kinda does. Because those assertions that were voted to be fact (similar to the First Council of Nicaea) will now be written as factual history and taught to our children as having happened that way. The very same way we all attained our ideas of American superiority.

The dishonesty and ignorance it creates is reason enough not to do such things, however, the real stinker of it is, as Dr. Paul so clearly points out, the sole purpose of H. Res. 758 is simply a pouring of the legal foundation for something much more substantive. You see this is how wars begin. And the wheels for this particular war have been in motion for many years now. We’ve been told our actions heretofore are simply a necessary response to the Ukraine situation. However, those who can objectively look at the Ukraine situation will realize the US sponsored coup in Ukraine was simply a spark to light the fuse of a much larger detonation.

Now I understand many at this point are thinking “yep another conspiracy theory, why can’t it ever just be the US government thinks what they are doing is best for Americans”? And it can, it just never is anymore and perhaps ever was. Lies are told and public opinion is manipulated. For war must be every bit good theatre in the press, as good strategy on the ground. It is the theatre that makes war so ugly. Fighting a war for what one believes in is unfortunate and brutal but fighting for lies and deceit to an end that benefits only those telling the lies is a type of ugliness most of us cannot comprehend. It is only in the world ruled by sociopaths where such things can happen.

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“No worries, Father Allen, Brother Ben and Sister Janet figured out how to turn the universe’s economic waters into wine.”

Uncork the Central Bank Bubbly (StealthFlation)

What a glorious global economic gala! Apparently, contracting world GDP growth, monumental sovereign debt loads, ballooning central bank balance sheets, crashing commodity prices, competitive currency devaluations and synthetically suppressed interest rates, as far as the eye can see, are all great tidings to be joyously celebrated throughout this holiday season. Well, at least that’s the takeaway from the whooping wonderful world of capital markets. Have no fear, all is perfectly in order. Jamie Dimon, Jim Cramer, Larry Fink and Company have our back. The rest of us mere mortals are simply supposed to stand aside and take their professional word for it, silently sipping the financial establishment’s spiked eggnog until we attain a sheepish state of stupid stupor. After all, the money experts at the Fed are on the case, what could possibly go wrong?

Joy to the world! es, it’s true, your Nation too can enjoy the very same blissful state of economic euphoria, all you need is the will to turn your monetary policy completely on its head, a la festive freeloading Fed. No need to maintain the integrity of your means of exchange, that’s so old school. That’s right, you too are absolutely invited to enter the ZIRP zero bound party zone, just buy out all your own newly issued treasury obligations and be sure to lap up any illiquid debt that may be languishing. Set it and forget it, that’s it, nothing to it. In the end, it will all take care of itself according to the all knowing fabulous Fed heads and the crazed Keynesian collegiate kooks that orchestrated and obliged this opulent banker blowout. No worries, Father Allen, Brother Ben and Sister Janet figured out how to turn the universe’s economic waters into wine.

Oh, there is one important caveat which needs to be pointed out, along with the monetary ecstasy ease regime, your Nation is also required to unequivocally serve the United States’ geopolitical ambitions and global economic interests, otherwise, no monetary marmalade for you! Just ask Vlad on that score. His toast is badly burnt, his olive oil spread is spoiled, and his Ruble is now rubble. No money honey for comrade Putin until he bows down to the high and mighty masters of the badass bully banking USD monetary system hegemony.

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Wealth inequality is a symptom. Power inequality is the disease.

Taming Corporate Power: The Key Political Issue Of Our Age (Monbiot)

Does this sometimes feel like a country under enemy occupation? Do you wonder why the demands of so much of the electorate seldom translate into policy? Why parties of the left seem incapable of offering effective opposition to market fundamentalism, let alone proposing coherent alternatives? Do you wonder why those who want a kind and decent and just world, in which both human beings and other living creatures are protected, so often appear to be opposed by the entire political establishment? If so, you have encountered corporate power – the corrupting influence that prevents parties from connecting with the public, distorts spending and tax decisions, and limits the scope of democracy.

It helps explain the otherwise inexplicable: the creeping privatisation of health and education, hated by the vast majority of voters; the private finance initiative, which has left public services with unpayable debts; the replacement of the civil service with companies distinguished only by incompetence; the failure to re-regulate the banks and collect tax; the war on the natural world; the scrapping of the safeguards that protect us from exploitation; above all, the severe limitation of political choice in a nation crying out for alternatives. There are many ways in which it operates, but perhaps the most obvious is through our unreformed political funding system, which permits big business and multimillionaires in effect to buy political parties. Once a party is obliged to them, it needs little reminder of where its interests lie. Fear and favour rule.

And if they fail? Well, there are other means. Before the last election, a radical firebrand said this about the lobbying industry: “It is the next big scandal waiting to happen … an issue that exposes the far-too-cosy relationship between politics, government, business and money … secret corporate lobbying, like the expenses scandal, goes to the heart of why people are so fed up with politics.” That, of course, was David Cameron, and he’s since ensured that the scandal continues. His Lobbying Act restricts the activities of charities and trade unions but imposes no meaningful restraint on corporations.

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Oct 182014
 
 October 18, 2014  Posted by at 8:12 pm Finance Tagged with: , , , , , , , ,  


NPC Dedication, George Washington Masonic Memorial, Alexandria, VA Nov 1 1923

A comment on an article that comments on a book. I don’t think either provides, for the topic they deal with, the depth it needs and deserves. Not so much a criticism, more a ‘look further, keep digging, and ye shall find more’. And since the topic in question is perhaps the most defining one of our day and age, it seems worth it to me to try and explain.

The article in question is Charles Hugh Smith’s Why Nations (and organizations) Fail: Self-Serving Elites, and the book he references is Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James Robinson.

Charles starts off by saying:

The book neatly summarizes why nations fail in a few lines:

(A nation) is poor precisely because it has been ruled by a narrow elite that has organized society for their own benefit at the expense of the vast mass of people. Political power has been narrowly concentrated, and has been used to create great wealth for those who possess it.

The Amazon blurb for the book states that the writers “conclusively show that it is man-made political and economic institutions that underlie economic success (or lack of it)”, and continues with examples used such as ancient Rome, North Korea, Zimbabwe, the Congo, to make the point that some countries get rich and others don’t, because of differences in leadership structures. That in itself certainly seems true, but that doesn’t necessarily make it the whole story.

In the case of the Congo, for instance, the perhaps richest place on earth when it comes to resources, there’s not only the devastating history it’s had to endure with incredibly cruel Belgian colonial powers, there’s to this day a lot of western involvement aimed at keeping the region off balance, and feed different tribes and peoples with weaponry up the wazoo, in order to allow the west to keep plundering it. It’s not just about national goings-on, it’s – also – a supra-national thing.

That’s one of two shortcomings in the material, the breadth and width of why nations and organizations fail their people but serve their masters. In the present day, national boundaries, whether they are physical or merely legal/political, are not the best yardsticks anymore by which to measure and gauge events.

The second shortcoming, in my view, is that inequality, a theme so popular that even Janet Yellen addressed it this week in what can only be seen as her worst possible impression of Marie Antoinette, and expressed her ‘worry’ about wealth inequality in America. The very person publicly responsible for that inequality thinks it’s ‘just awful’. Go bake a cake, gramps.

Wealth inequality is but a symptom of what goes on. Charles Hugh Smith has a few graphs depicting just how bad wealth inequality has become in the US. We all know those by now. It’s bad indeed. But where does that come from? Charles touches on it, but still hits a foul ball:

I submit that this dynamic of failure – the concentrated power and wealth of self-serving elites – is scale-invariant, meaning that it is equally true of communities, towns, cities, states, nations and empires alike: all fail when they’re run for the benefit of a narrow elite. There is a bitter irony in the ease with which American pundits discern this dynamic in developing-world kleptocracies while ignoring the same dynamic in America.

One would imagine it would be easier to see the elites-inevitably-cause-failure in one’s home country, but the pundits by and large are members of the Clerisy Upper Caste, well-paid functionaries, apparatchiks, lackeys, factotums, toadies, sycophants and apologists for the very elites that are leading America down the path of systemic failure as the ontological consequence of their self-serving consolidation of wealth and power.

Here’s the thing: especially after WWII, though before that already as well, the western world woke up to the need for international co-operation. Dozens of organizations were established to structure that co-operation. But then, in yet another fountain of unintended consequences, something man is better at than just about anything else, we let those organizations loose upon the world without ever asking what happened to what they were intended for, or whether the original grounds for founding them still existed, and whether they should perhaps be abolished or put on a tight leash.

These are questions that should be asked about any large-scale organization. Be they multinational corporations, global banks, Google or indeed the United States of America. We can’t just assume these powers, which gather more power as time goes by, share and serve the purposes of the people. What if they gradually come to serve only their own purpose, and it contradicts that of the people? Should we not get that leash out?

Turns out, we never do. If someone would suggest today to break up the USA, because its present status contradicts that which the Founding Fathers had in mind (and there are plenty of arguments to be made that such contradictions exist in plain view), (s)he would not even be sent to a nuthouse, because no-one would take him/her serious enough to do so.

But wealth inequality still rises rapidly within America, and it doesn’t serve the people. So why does it happen, and why do we let it? Because the inequality that matters most is not wealth, but power. And we’ve been made to believe that we still have that power, but we don’t. Voting in elections has the same function today as singing around a Christmas tree: everyone feels a strong emotional connection, but it’s all just become one giant TV commercial.

Even if families are genuinely happy to meet up and exchange gifts and stories, it’s all modeled after the building blocks handed to us by chain stores. It isn’t really our story anymore, and Jesus certainly wasn’t born in a manger: he was born in a MacMansion and the first thing the child saw was his mom’s fake boobs, a wall-sized TV and an iPhone.

In that same vein, we lost the stories bitterly fought and suffered for by our grandparents through two world wars and the brutal invasions of Vietnam and Iraq, the stories of how we can best keep ourselves safe and out of – international – trouble. Not just military trouble, but economic and political trouble. These things are no longer our decision. We founded supra-national, indeed global, institutions for that. And then let them slip out of our sight.

The US is a bit of an outlier here, simply because it’s older. But the IMF, the World Bank, UN, NATO and the EU absolutely all fit the picture of organizations that have – happily – grown beyond our range of view, and that exhibit the exact same inverted pyramid characteristics we see on wealth inequality, only for these organizations it’s not wealth that floats and concentrates increasingly from the bottom to the top, it’s power.

Wealth comes after that. And one shouldn’t confuse that order. Because power buys wealth infinitely faster than wealth buys power.

All these supra-national institutions were established with good intentions – at least from some of the founders. But then we forgot, ignored, to check on them, and they accumulated ever more power when we weren’t watching (we were watching TV, remember?)

And what we see now is that any effort, any at all, to break up the IMF, World Bank, UN, NATO and EU would be met with the same derision that an effort to break up the USA would be met with. We have built, in true sorcerer’s apprentice or Frankenstein fashion, entities that we cannot control. And they have taken over our lives. They serve the interests of elites, not of the people. So why do we let them continue to exist?

What powers do we have left when it comes to bailing out banks, invading countries, making sure our young people have jobs when they leave school? We have none. We lost the decision making power along the way, and we’re not getting it back unless we quit watching the tube (or the plasma) and fight for it. Until we do, power will keep floating to the top like so much excrement; it’s a law of – human – nature.

That the people we voluntarily endow with such control over our lives would also use that control to enrich themselves, is so obvious it barely requires mentioning. But that doesn’t mean this is about wealth inequality, that’s not the main issue, in fact it’s not much more than an afterthought. It’s about the power we have over our lives. Or rather, the power we don’t have.

Oct 082014
 
 October 8, 2014  Posted by at 9:44 pm Finance Tagged with: , , ,  


DPC Launch of the Western Star, Wyandotte, Michigan Oct 3 1903

Would you like to know how bankrupt our societies are? Financially AND morally? Before you say yes, please do acknowledge that you too ar eparty to the bankruptcy. Even if you have means, or you have no debt, or you’re under 25, you’re still letting it happen. And you may have tons of reasons or excuses for that, but you’re still letting it happen.

Our financial and moral bankruptcy shows – arguably – nowhere better than in the way we treat our children. A favorite theme of mine is that any parent you ask will swear to God and cross and hope to die that they love their kids to death, but the facts say otherwise. We only love them as far as the tips of our noses, or as far as the curb. That means you too.

While we swear on our mother’s graves that we love them so much, we leave them with a world that lost half of its wildlife species in 40 years, that can expect to make coastal areas around the globe uninhabitable during their lifetimes, and a world that is so mired in debt just so we can hang on to our dreams of oversized homes and cars and gadgets that all there will be left for them are nightmares.

But I always wanted what was best for them! Yeah, well, you always chose to not pay too much attention, too, and instead elected to work that job you hate and keep up with the Joneses and tell yourself there was nothing you could do about it anyway other than a yearly donation to some socially accepted charity in bed with corporations (you didn’t know? well, did you try to find out?)

You elected leaders that promised to let you keep what you had, and provide more of the same on top. You voted for the people who promised you growth, but you never questioned that promise. You never wondered, sitting in your home, the size of which would only 100 years ago have put aristocracy to shame, what would be the price to pay for your riches.

And you certainly never asked yourself if perhaps it would be your own children who were going to pay that price. Well, ‘Ich hab es nicht gewüsst’ has not been a valid defense since the Nuremberg trials, in case you were going for that.

The fact of the matter is, we can continue our lifestyles, best as we can, because we are able to make our children pay for it. We allow ourselves to continue to kill more species, at home but mostly abroad, because we never get in touch with any of those species anyway. Other than mosquitoes, which we swat. We can drive our 3 cars per family because we only see the ice melt in the Arctic on TV.

And we allow ourselves, and our governments, to get deeper into debt everyday, because we’ve been told that without – ever – more debt we would all die, that debt is the lifeblood of our very existence. We don’t understand what it means that our governments increase their debt levels by trillions every year, and we choose not to find out.

That’s a matter for the next generation; we’re good with our oversized flatscreens and coal powered central heating and all of that stuff. We are better off than the generation of our parents, and isn’t life always supposed to be like that?

Which brings us back to your kids. Because no, life is not supposed to be like that. Not every generation can be better off than the one before. In fact, you are the last one for whom that is true. It’s been a short blip in human history, let alone in the earth’s history, and now it’s over. And you must figure out what you’re going to do, knowing that not doing anything will make your sons and daughters futures even bleaker than they already are.

Europe Sacrifices a Generation With 17-Year Unemployment Impasse

Seventeen years after their first jobs summit European Union leaders are divided on how to create employment and a fifth of young people are still out of work. At a meeting in Milan today Italian Prime Minister Matteo Renzi plans to tout the new labor laws he’s pushing through. French President Francois Hollande will argue for more spending, a proposal German Chancellor Angela Merkel intends to reject. Britain’s prime minister David Cameron isn’t coming.

Their lack of progress may increase the frustration of ECB President Mario Draghi’s calling on the politicians to do their bit now and loosen the continent’s rigid labor markets even if that means facing the ire of protected workers. “An entire generation is being sacrificed in countries such as Spain,” economist Ludovic Subran said. “That has a real impact on productivity in the long run.”

How someone can talk about “a real impact on productivity” in the face of millions of lost and broken lives is completely beyond me. You have to be really dense to do that. And they pay people like that actual salaries.

When EU leaders met in Luxembourg in November 1997, the soon-to-be-born euro zone’s unemployment rate was about 11%. Jean-Claude Juncker, then prime minister of the host country, now president designate of the European Commission, promised a mix of free-market solutions and government plans would mean a “new start” for young people. Today the jobless rate is 11.5%. The Milan summit will focus on youth unemployment, which afflicts 21.6% of people under 25 across Europe, according to Eurostat. Even this number is almost identical to 1997, when it stood at 21.7%.

Average European youth unemployment numbers may not have changed much since 1997, which is bad enough, but plenty numbers did change. The young people of Greece, Spain, Italy and Portugal were not nearly as poorly off 17 years ago as they are today. That’s what the eurozone project has accomplished.

The leaders “need to discuss meaningful job creation,” Subran said. “It’s about avoiding the neither-nor situation of people being out of both work and school. This means providing jobs in the short term and training to improve skills and employability in the long term.” In February 2013, the EU allotted €6 billion ($7.6 billion) for youth-employment initiatives between 2014 and 2020, with the bulk of the spending in the first two years.

The centerpiece of the initiative is a “Youth Guarantee” that anyone under 25 should have either a job, apprenticeship, or training program within four months of leaving formal education or becoming unemployed. The initiative focuses on regions with over 25% youth unemployment, which is the whole of Spain, Greece, and Portugal, all but the north-east of Italy, about half of France, and a few regions of eastern Germany.

Lofty words. But nothing has come of them in many years, and nothing will. Politicians vie for the votes and campaign donations of the parents, not the children. Until the children are the majority block, but by then present day leaders will be gone.

Germany is opposed to discussing new spending until already allotted sums have been spent. Instead, Merkel’s government has stressed liberalization of labor markets as the best path to create jobs. France and Italy argue they are already taking steps to loosen their labor markets and those efforts won’t work without a background of growth.

Italy’s proposed rules, opposed by some lawmakers from Renzi’s Democratic Party, aim at making firing easier while providing a new system of income support for those who lose their job. European employment did improve after 1997, with the unemployment rate bottoming between 2007 and 2008 at 7%, and 15.7% for young people, as a credit bubble boosted growth in Spain and Greece.

It ballooned during the subsequent financial crisis. “I’m worried how the euro zone has detached itself from the rest of the world economy,” French Prime Minister Manuel Valls told business leaders in London Oct. 6. “If there is no strategy to support growth at the eurozone, we will be in even greater trouble.”

The only solutions in the minds of the leadership are reforms (make it easier to get rid of the older people and let the young do their jobs at half the price) and growth. Both of which have failed for all those years, but that’s all folks so they press for more of the same. Who cares about the young until they can unseat you?

The present leadership selects for a future in which they – and theirs – will still be the leadership. It’s only natural. Any victims made along the way there are seen as necessary collateral damage. Reforms and growth. Reforms being break down what generations of workers have built up in rights. Fighting squalid working conditions and miserable low pay. Think about that what you like.

But growth? What if there is no growth? Hey, even the IMF just said growth won’t return to levels of old. And then called for more reforms. But what lives will your children have if growth is gone, and what are you prepared to for them is it is? How are you going to soften the blow for them? How much are you willing to sacrifice for your children lest they be sacrificed by society?

One last thing: it seems obvious that we teach our kids the wrong skills. Or there wouldn’t be so many unemployed or in low-paying jobs. So if we want our kids to get a job, what should change in our education systems? Now, I must be honest with you, I’ve found our education so bad ever since I was even younger than I am now that I up and left.

I simply noticed that it was meant for people happy to be pawns in someone else’s game, and I knew that wasn’t me. Colleges and universities mold people into usable – not even useful – ‘things’, provided there is no independent thinking going on. Because that kills the entire set-up. It’s all been an utter disgrace for decades.

But this is not about me. The question is, what are we going to teach our kids? Well, with our present power structure, it will be a mere extension of what there is today. The overriding idea is that tomorrow will be like today, just with more of the same. That’s all we know, and all we have. And that’s what keeps our leaders happy too: a world in which they feel they can be safely settled into their comfy seats. Progress while sitting still. Don’t think I’m right? THink about it.

So would do you think the consensus would be when it comes to education? I think it would be having our kids be managers, lawyers, programmers, the same things that are ‘in’ today. More of the same, just more. But is that so wise if even the IMF says growth will never be the same it once was? What if things get really bad? What skills will they have that can help them through times like that?

Shouldn’t we perhaps teach our kids basic skills first, just in case? So they can grow and preserve food, build a home, repair machinery, that kind of thing? And only after that deal with the fancier stuff?

We have become utterly dependent on the ‘system’. Is it a good idea for our kids to be too? We lost our basic skills – or at least our parents did – at the exact same time that ‘growth’ became the magic word du jour. The idea was that we didn’t need them anymore, that other people would grow our food and take care of all the other basic necessities for us.

But what if that was just a temporary bubble, and it’s gone now? The data sure point to it. In that case, should we rush to move back our sons and daughters to the skillset our grandparents had?

And just in case you think this is all and only about Europe, this is a great portrait of America: