Published on Feb 12, 2014
Will Lehr of Perpetual Assets is joined by Jim Willie of Golden Jackass In this hour and a half interview we discuss Current Events, International Monetary Analysis, Capital Controls, Asset Confiscation and more . . .
The solution within the global currency reset is the launch of the new American Dollar, for its own usage, no longer a global reserve currency. The United States is fast racking up characteristics of a Third World nation. Its finances are Third World. Its president is Third World. Its banking integrity is Third World. Its absent industry is Third World. Its decaying cities are Third World. It urgently begs for a Third World currency, but that is soon to be remedied. The nation has been a freeloader on the global reserve currency for too long. That is about to end.
From Jim Willie
The United States is fast racking up characteristics of a Third World nation. Its finances are Third World. Its president is Third World. Its banking integrity is Third World. Its absent industry is Third World. Its decaying cities are Third World. It urgently begs for a Third World currency, but that is soon to be remedied. The nation has been a freeloader on the global reserve currency for too long. That is about to end. For the last three years, the United States has been living in a fairy tale with bailouts from the vast bond monetization. The Quantitative Easing with its amplified bond purchases and hidden channels to disguise higher volumes has been operating as an historically unprecedented Wall Street bailout and Fannie Mae fraud recycle room. Pressures are building. The USDollar held in foreign jurisdictions is beyond the legal authority of the USGovt, which cannot continue covering its debts with inflation spew in the grandest heretic experiment in history. The solution within the global currency reset is the launch of the new American Dollar, for its own usage, no longer a global reserve currency.
Given its wretched fundamentals, it earns the name of Scheiss Dollar. Those familiar with the German language recognize it as the Shit Dollar. It will be stowed high in transit, true to the colonial application of shipping manure that gave off gas. S.H.I.T. was a warning to beware of gas explosions from lanterns on ships transporting the fertilizer agent. The current USDollar is not just giving off excess gas for global banking system flatulence. Its gas has produced vast insolvency in the banking systems of many nations. The air pockets in circulatory systems have caused widespread cardiac arrest. The higher cost structure, primarily felt in food prices and energy prices, but also in material prices, has resulted in diminished profitability and a ruinous retirement of capital. The capital destruction must be halted, going hand in hand with global recession. Foreign nations demand a new solution and quickly. Thus the Global Currency Reset, within which the new Scheiss Dollar will be launched.
INSURMOUNTABLE PRESSURES BUILD
As the world moves away from the USDollar, it will avoid the USTreasury Bond in banking reserve function. The world will settle trade outside the USDollar on a rapidly growing basis. The result will be a shock to the USeconomy with fast rising prices. Alternative systems will move toward other currencies in trade settlement, like the Chinese Yuan and Gold bullion. The USFed will compensate by printing money to cover the USTBond selloff, dumping, divestiture, and indirect exchange. Only when the foreign suppliers do not want USDollars will the problem hit the United States like a financial hurricane.
The USFed response will trigger two events: a separate dollar from a split, and the ravage of price inflation. Not monetary inflation but rather a currency crisis will slam the United States. Powerful dynamics inside the United States and outside the United States will result in split birth of a new Scheiss Dollar for domestic usage, but also a flood of foreign USDollars converted to Gold bullion. The Scheiss Dollar will suffer from a sequence of devaluations. The conversion of USTBonds and other sovereign bonds to gold will gain momentum to change the face of the world. The Gold Standard lies directly ahead. In fact, the Global Currency Reset has a more appropriate name in the Return to the Gold Standard.
The pressures internal and external to the United States will force drastic action. The USGovt must defend against a growing tide of USTreasury Bond dumping and absent demand for USTreasury Bonds, both hitting simultaneously. The USFed cannot solve the imbalance and fill the gaps, by means of endless monetary hyper inflation. The USGovt must make a new Domestic Dollar, and devalue it in order to assure supply to the import dependent USEconomy. Neither the financial so-called experts nor the US maestros will not anticipate how deeply they will have to devalue the New Scheiss Dollar. The Jackass estimates between 50% and 60% in at least two steps, probably more. The result will be well over 100% price inflation. See Venezuela for an example that made up for two decades of abuse. Also, the US maestros have misjudged the oil supply from the Bakken region, misjudged the natural gas supply from Shale projects, while contaminating the US-based water supply table.
The USFed must halt its hyper monetary inflation, since it is wrecking the global financial markets and ruining capital on a grand scale. No more can the central bank cover the sold and dumped USTreasury Bonds with newly printed money. So they lie about tapering, after a failed experiment last year. The QE volume is increasing, not decreasing. Monetary inflation is a cancer, always has been, always will be. To call it the New Normal is national suicide. The three years of QE bond monetization have created the high pressure factor in the massive vortex. As the global trade is settled more outside the USDollar, far fewer USTreasury Bonds will be accumulated by foreign trade players. In fact, a whirlwind of USTBonds will be sold off during a grand divestiture, often called diversification. As the USDollar goes out of favor in trade, the United States will have a tremendous new challenge.
Being a massive importer, the USEconomy must find a means of paying for the huge volume of incoming supply. This is precisely how the USDollar will undergo its crisis. Events will go out of control. The USGovt must find a way to devalue its USDollar currency, and stop printing new USDollars. During the next chapter, foreigners will begin refusing USD in trade while selling its USTBond shelves from their banking systems. The sales dump will form the low pressure factor of the massive vortex. The hurricane is gathering force from the high pressure of central bank monetary growth, combined simultaneously with the low pressure of foreign dumping. Add to the intense pressures the economic damage from capital destruction, which raises sovereign government deficits that must be financed.
VICIOUS CYCLE & DOWNWARD SPIRAL
The USFed response will be to print money to cover the sales of USTBonds, but done with a discount which has already begun in force. The debasement of the USD from rampant money supply growth will exacerbate the situation. Foreign USTBond holders will rush to sell more, thus fueling the downward spiral. The USFed will print even more money to compensate in the bond monetization, probably done in hidden fashion to hide the monstrous QE volume increase. Then comes the full blown currency crisis, which in my view will result in a currency split. The USGovt with its USFed masters will decide to split the currency. They will tell the foreigners that the external USDollars retain value, but a new Scheiss Dollar (aka Shit Dollar) will be distributed in order to pay for imports from foreign suppliers. It will be devaluated, in order to encourage its acceptance and to assure incoming supply. The foreign USTBond selling will slow down, and even halt, only when the USFed promises to redeem with original USTBonds in cash. The foreigners will use the cash to buy other major currencies and Gold Bullion, and certainly not swap into the new Republic Shit Dollar.
The Chinese will take control of the Federal Reserve, and assume responsibility for management of foreign held USDollars, with some assistance by the Intl Monetary Fund. The IMF already has a Chinese dominance. The USDept Treasury late last year took back control of certain USDollar responsibility. Doing so set the stage for launch of the Scheiss Dollar, while the Chinese had been busy with acquisition of the JPMorgan headquarters in South Manhattan. The split oversight has already taken root.
As the perception spreads like a virus that the new Scheiss Dollar will see deep devaluation on a repetitive basis, the torrent will be directed toward conversion of major nation sovereign bonds into Gold bullion. From 2009 to 2012 the PIGS took the headlines. Next the US, UK, and Japan will make headlines for trouble in sovereign bonds. As the perception spreads like a virus that the major currencies all suffer from the central bank debasement problem, the conversion of Euros, British Pounds, and Japanese Yen will all be directed toward Gold Bullion. Their sovereign bonds will undergo separate simultaneous crises, all perceived as toxic paper. The recognition of Gold Trade Settlement will be common, its practice born in a simultaneous stroke. The momentum into Gold Bullion will be staggering, secret, and robust, led by the BRICS Bank (aka Gold Trade Central Bank).
On the domestic front, the new split Scheiss Dollar will face a huge problem of its own. The USGovt deficits must be covered, and the foreigners will continue not to purchase the USTBonds. They already do not bid at USTreasury auctions. They already are shedding them en masse, as their divestitute continues like a rampaging storm. Marginal factors will dominate. The enormous new supply and absent demand within the US walls will result in severe devaluation. The USTreasury Bonds will offer a higher yield with a lower currency value, in order to attract foreign buyers again for its toxic Third World debt. Expect probably a devaluation of the Scheiss Dollar with a first sudden quantum step like 30% down. When it finally trades more freely like in the FOREX open market introduction, it should suffer another quantum step down. Such launch will be traumatic, loaded with shock, and begin the sweeping perception of Third World America in an outbreak of reality.
The loss of US industry will become a major point of discussion and debate, the focus on attracting it back. Harsh blame will be given for decisions to move industry to the Pacific Rim, then to China. More likely the open trading could result in 10% decline per month for a while, with ugly quantum jumps. In the end, the internal domestic newly split Scheiss Dollar could be devaluated by up to 70%. That is exactly what it deserves, in response to annual 1 $trillion government deficits, annual $400 to $500 billion trade deficits, a newly arrived higher Current Account Deficit from the global USTBond selloff, a grossly inadequate industrial base, wrecked financial markets, and deep corruption broadly across the top echelons, with a clear double standard in legal prosecution for $trillion crime. The symptoms are recognized as Third World. Commercial colonization will hit the US shores, a process also already begun.
INDIRECT EXCHANGE DUMPING OF USTBONDS
The indirect exchange concept will continue to accelerate. A quick review around the world can identify a wide range of locations for the discharge. The USTreasury Bonds are being used as currency by third parties (mostly China & Russia) to pay for large assets sales and energy purchases. The USGovt bonds are being dumped. A race will develop to convert the USTBonds before a final restructure writedown. In past Hat Trick Letter reports, some major Indirect Exchange routes had been identified. The biggest two were the Rosneft buyout of the British Petroleum stake in the TBK-BP huge Russian energy firm for $55 billion. The deal will see the Russians unloading those $billions in USTBonds, sent to London banks where they cannot be refused. The other large deal is to be the payment by China for Russian crude oil delivered via the vast network of Asian pipelines. The Chinese will pay the huge annual energy bill in USTBonds, a steady discharge.
The Indirect Exchange usage of USTBonds will contribute to the external pressure on the USDollar, from which the USGovt will be forced to ramp up the QE volume in bond monetization, and then split the USDollar for a domestic currency that is heavily devalued. The radical action will take place as the USD is dropped from global reserve status. Several creditor nations will follow suit in the Indirect Exchange movement, including Brazil, Japan, Hong Kong, Taiwan, Thailand, Singapore, South Korea, Luxembourg, Norway, and Ireland. The exchange of bonds will grow and become a global stampede, then a race to extract value before the USTreasury Bonds default and convert to 65 cents on the dollar during a Global Restructure Conference, with the USMilitary having a seat to ensure cooperation and compliance (with a smile). The Jackass forecast of a USGovt debt default made in late 2008 is slowly taking shape.
NO MORE USTREASURY BOND DEMAND
The overriding global message is that Russia & China are leading a movement across the entire East to dump the USTBond, to work toward alternative trade settlement, and to replace the USDollar in its key role as trade settlement medium and global reserve currency. A Global Paradigm Shift is in progress. Downward pressure in the USTreasury 10-year bond yield (TNX) will be seen in the poor economic results and application of the interest rate derivative machinery. Upward pressure in the TNX will be seen from the global USD/USTBond rejection and recognition of the USFed Taper Talk falsehood deception. The USFed is on course to lose all remaining credibility. Their prestige vanished with the introduction of the Quantitative Easing against the ZIRP zero bound rates. Five key important points dominate the global landscape like a gigantic billboard.
1) QE to Infinity is being recognized, the Taper Talk widely seen as a ruse and propaganda to defend the broken USDollar, another turn in the road.
2) The Geneva Iran Talks can be better described as the Petro-Dollar Surrender Talks, another turn in the road.
3) The Boyz might misjudge that the derivatives can prevent a powerful breakout above the critical 3.0% and toward the 3.7% target, as the London Whale incident was a turn in the road.
4) The Indirect Exchange seen in broad USTBond dumping is a new dangerous disruptive trend, yet another turn in the road.
5) The pension and bond funds as well as insurance sector demand higher bond yields for carry income, a breakdown coming.
PETRO-DOLLAR DEMISE & PETRO-GOLD RISE
The JPMorgan metal futures unit is actually included in a commodities sale, despite bank denials. The ploys continue to keep the ongoing gold price suppression active. One side attempts to comply with regulatory requirements, while the other side attempts to maintain gold inventory management scheme tied to deep gold market fraud. The JPM folks are liars to the end. The big bank is under siege by regulators who slowly grow teeth. Being revealed is the inter-relations with the brokerage business, like in providing credit.
Shadow warehouses are hoarding industrial metals, as the world’s metal is slipping into the shadows of a convenient system beyond regulation. The power centers slip away from the light as they attempt to retain control. Banks, hedge funds, commodity merchants, and other seamy firms (like offshore subsidiaries) are hiding tens of millions of tons of aluminum, copper, nickel, and zinc in a vast system of private warehouses. The network spans the globe. These facilities are known to some in the industry as shadow warehouses, since unregulated and not subject to disclosure. Their purpose is to operate outside the London Metal Exchange system of warehouses, their traditional home.
London and Frankfurt are way ahead in the Renminbi hub game. The Chinese Yuan currency trade will solidify the non-USDollar alternative movement. Great irony comes, since the final nail in the USDollar coffin will come from London, Frankfurt, and Switzerland, with their hands on the hammer. The Swiss business community is not enthusiastic at all about Yuan-based bond trading, as extreme competition has been sensed.
The Turkish Govt might be the casualty of a $119 billion Petro-Dollar loophole. The Great Silk Road is making a return, with gilded center stripes. An incredibly powerful reaction to the Iran sanctions has occurred, which should astonish analysts. Iran has biult a Petro-Gold highway out of necessity and expedience. Iran has brought the King Dollar to its knees. The Iran talks are about USDollar surrender, to assure no nuclear proliferation in its wake. The Geneva Iran Nuclear Talks should instead be called the Petro-Dollar Surrender Summit, as the Iran crime of selling energy outside the USD sphere has come full circle. The 21st century equivalent of the Great Silk Road is beginning to emerge. It has been constructed in the last year. The Iran workaround of the Iran sanctions has constructed the prototype of the Petro-Gold machinery. The rat has escaped the maze built by the USGovt and has wandered off the table.
The Petro-Dollar is being carted to the global cemetery, where war usually is triggered. Amazingly, the feisty maverick Iran has constructed the embryonic lanes for trade settlement in gold. The gold trade has long been at the center of controversial financial ties between Halkbank of Turkey and the oil ministry in Iran. Research conducted in May 2013 by the Foundation for Defense of Democracies and Roubini Global Economics revealed the Halkbank exploited a golden loophole in the punitive extensive sanctions by the USGovt against the Iran regime. The ruse was the public declaration of design to curb Iran’s nuclear program. The reality was to halt energy sales outside the USDollar. Its detailed workings are as simple and elegant as they are powerful.
IRAN, TURKEY, INDIA HOLD THE CROWBAR
India has a long history of tremendous gold demand. The private citizens own between 20,000 and 30,000 tons, apart from the banking system. Together with China, the pedal is held to the metal on gold demand, which works to break the paper gold price suppression schemes. Turkey after all is a key pivot ally in the region, as will be seen in the Eurasian Trade Zone as well. At the same time, Turkey was playing a key role in US policy in Syria. Possibly, the USGovt wished to appease its own allies, who regarded the Iran sanctions as far too punitive not only to Iran, but also to Western European nations. It appears the US under the clumsy Obama hand lost on all fronts, a regular occurrence on the geopolitical stage. The man has the anti-Midas touch. Possibly, the compromise had more to do with coaxing Iran into signing a nuclear deal. There might have been an American olive branch extended to Iran via Turkey, done to persuade its leaders to continue back-channel negotiations with the United States, under other hidden agendas. Again though, the US is not on any winning side, since the Iran Talks are not about nuclear disarmament or dismantled weapons programs. The main nuclear topic in discussion at the Geneva-based Iran Talks is the usage of nuclear weapons by the United States in retaliation for abandoning the USDollar, a highly secretive table topic. The gain for the USGovt is the appearance of taking the high ground of diplomacy, while guilty of genocide in civilian killings in several war zones and of earth crimes in HAARP usage on earthquakes, hurricanes, and rainfall. The USGovt is playing an absurd end game strategy to save face as it falls into the Third World.
BIRTH OF PETRO-GOLD
The birth of the Petro-Gold trade will coincide with the birth of the Petro-Yuan, and later usher in the Gold Trade Settlement in full glory. It remains to be seen what the new gold-backed currencies will be, but they will arrive in a powerful stream, probably in direct response to a unmistakable systemic collapse that cannot be painted over in the financial press. The Saudis will find themselves scrambling to retain their plundered wealth, even to save their skins. They will return as very wealthy bedouins on the move, if they fail to make significant reforms at home.
What comes in the year 2014 will be amplified global USDollar rejection and widespread USTreasury Bond divestiture. It will cause fireworks aplenty. Russia will pull some strings in Saudi Arabia and the Persian Gulf. Expect Putin to use Dubai and China together with Iran to weaken the House of Saud, and possibly to knock them off their exploitative throne. Russian vengeance is coming very soon. Notice Putin and the Chinese president meeting numerous times during the Sochi Winter Olympics, taking advantage of the venue without Western leaders in the room. Russian tactics will likely force the Saudis to adopt certain financial devices on oil pricing. Their adoption will wreck the US relations, like massive lobs of grenades into the USTBond and Big Bank Stock windows. In 12 to 18 months, expect the House of Saud Royals will be on the run in Southern Europe, as in running for their lives from both Russian and HezBollah hit squads. The attack on the Saudis does not necessarily mean the fall of the House of Saud, only tremendous changes, concessions, maybe even public payouts.
EASTERN LINCHPIN NATIONS
Greece, Turkey, and Ukraine are critical linchpins, each with a critical pivotal role to plan in the global Paradigm Shift and in the development of the Eurasian Trade Zone. Many are the deceptions in the last couple years. To be sure, Cyprus might stay in the European Union, but it will keep a big window open to Russia with the GazpromBank. Then Greece will be a battleground for its energy pipeline access to Europe, perhaps the main reason why the EU continues to throw good money after bad in Athens. Then Turkey and Ukraine are critically important to tip the entire table East for the Eurasian Trade Zone. The Turkish gold routes will be extraordinarily important. The Ukraine energy pipeline routes will be extraordinarily important. The East can afford to lose Cyprus. The West is on the verge of losing Greece, which could be bought over the weekend by Russia with pocket change. But the East must have Turkey (for gold) and must have Ukraine (for energy) in the skeletal structure, as the paradigm shift continues to move and the trade zone takes form. It is interesting that the Bosporus Straits were crucial in ancient times, where fees were paid. Nowadays Turkey commands the NATO airbase and the gold trade routes.
WASHINGTON TOSSES SAUDIS UNDER THE BUS
China has begun to support the Arab states, making promises toward regional development and political stature. They must shmooze in order to create a fertile seedbed for the Petro-Yuan defacto standard to be born. Large projects and oil client relations over the last decade have helped. The new Persian Gulf protectorate role is being reshaped, slowly but surely. Arab monarchies eye stronger ties with China, and have conducted high level meetings. The Persian Gulf nations prepare for the Petro-Yuan. The Gulf Coop Council will serve as the platform for wider Chinese protectorate role. It will eventually usher in the Petro-Yuan Standard more formally, but only after more wine, more lamb, more deals, and more head nodding. Any strategic partnership between the Saudis and China means dumping WashingtonDC, simply put. The fallout will be tremendous.
As the United States embarks on a new path, with the Saudis perceived and painted at the extremists who discard the USDollar in favor of Asian devices, watch relations between the US and Iran warm slowly. The process has already begun. This point has been made by the Jackass in past analysis and interviews. Look for growing evidence that the USGovt will see Iran as a stability rock in the Persian Gulf after the Saudis piss on the US Embassy gates, after the Saudis discard the Petro-Dollar in favor of a tighter deal with Russian oil pricing and Chinese Yuan oil payments. Meanwhile, the Saudis are being painted with a nasty ugly new brush by the USGovt and its dutiful press like the New York Times. The Saudis will be forced to apply the crowbar that collapses the very Petro-Dollar that the kingdom has depended upon for 40 years to plunder their nation. The great divestiture of the Saudi USTreasury Bonds will take place while London and New York bankers continue to rehypothecate (steal) Saudi gold. All the Saudi gold outside their nation will disappear. Most Saudi gold has already been stolen. In the aftermath, no nation on earth will trust the Americans and British, who will have tossed the Saudis under the bus and stolen their gold. As WashingtonDC paints the Saudis as terrorists, watch the royals reveal who really took the lead role on 911.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at GoldenJackass.com. For personal questions about subscriptions, contact him at: JimWillieCB@aol.com
by Dmitry Orlov
The term “American exceptionalism” has been receiving more than its fair share of play recently. It was pressed into service in the vapid banter that passes for political discourse in the US, with the Republicans accusing Obama of not believing in it. More recently, it surfaced as a term in international relations, when Russian president V. Putin chastised the US for believing it in a NY Times editorial, equating it with chauvinism and lack of respect for the rule of international law. It seems that it is Putin’s dream to extend his cherished concept of “dictatorship of the law” to encompass even the US.
I feel that “American exceptionalism” does exist, and is, in fact, quite pervasive, but not in the way politicians and politicos in the US wish to think. This term, as those in the US are currently attempting to use it, is yet another of their attempts to mangle the language, along with “Libertarianism” that isn’t libertarian (i.e., socialist) and “football” that isn’t football (the entire planet’s favorite team sport). This sort of mangling of international terminology is rather exceptionally obnoxious.
The term “American exceptionalism” was born during a meeting which took place in the spring of 1929 between Joseph Stalin and the US Communist Party leader Jay Lovestone, during which Lovestone argued that workers in the US weren’t interested in socialist revolution. In response, Stalin the seminary drop-out demanded to put an end to this “heresy of American exceptionalism.” Stalin used the term in a mocking way, and something important was lost in translation from Russian “исключительность”, which is closer to “abnormality,” to English “exceptionalism” which has a few positive connotations, whereas in Russian, with the verb “исключить” (to expel) as its base, it is altogether non-aspirational.
Stalin’s taking an exception to “American exceptionalism” aside, Lovestone may at the time have had a valid point. At that time, the US could have been considered to stand a good chance of mitigating the negative effects of capitalism and advancing in the direction of a just and equitable society without resorting to brutal class struggle and violent revolution. The reasons for this had to do with luck: the US had the natural resources, the industrial capacity, a well-organized labor movement and an immigrant population that hadn’t had the time to develop rigid class distinctions.
But just a year later, at the 1930 American Communist convention, it was proclaimed that “the storm of the economic crisis in the United States blew down the house of cards of American exceptionalism.” While the USSR surged forward, the US wallowed in the mire of the Great Depression and recovered economically only thanks to the gigantic windfall of Word War II, at the end of which it remained as the only industrial nation that hadn’t been bombed to smithereens, flush with natural resources, and with a new-found egalitarian attitude borne of wartime patriotism and a newfound ability to understand each other thanks to the installation of Dayton, Ohio English as the nation’s official dialect. The US reaped another, much smaller windfall with the peaceful collapse and dismantlement of the USSR in 1990, extending its life expectancy by perhaps a decade.
But now this period is well and truly over: the resource base is depleted, the industrial base is in shambles, and society is rapidly degenerating from a class society to a caste society, with a disappearing middle class, an unbridgeable chasm between the haves and the have-nots and the lowest social mobility of any developed nation. If and when the revolution finally comes, I imagine Stalin’s embalmed corpse, resting in the Kremlin Wall Necropolis, smiling ever so sweetly.
So much for “exceptionalism” (in quotes); what about “American” (also in quotes)? I am currently working from an undisclosed location south of the US border, where temperatures hover around 85°F, the ocean is pleasantly warm, fresh fruit comes from a nearby jungle, the Internet is high-speed and rent is quite a lot cheaper than what it cost me to heat the boat in Boston. I am still very much in America (without the quotes)—as former Venezuelan president Hugo Chavez put it “We are all Americans.”
America, you see, is the term the entire world uses to describe the major land mass of the planet’s western hemisphere comprising some 43 million, grouped, for convenience, into North America and South America, and containing 36 countries. But then there is one country that controls well under a quarter of the total landmass and contains just over a third of the population, but which has the gall to call itself “The United States of America.” It is not the only “united states” in America; it is not even the only “united states” in North America because there is also Estados Unidos Mexicanos.
People south of the US border use a different intonation or roll their eyes ever so slightly to signal the difference between America the geographic term and “America” the country that had the impertinence to appropriate it. “Americans” themselves should probably use finger-quotes, to be polite, when they mean to say “America” rather than America.
Getting back to the subject of “American exceptionalism”: I believe that “America” (in quotes) is in some ways exceptional (in Stalin’s original sense of “abnormal”). I will therefore move “exceptionalism” outside the quotes and say a few more things about “American” exceptionalism.
First, “America” has an exceptionally bad government. There is fervent insistence that “America” is a democracy, but a look into the details of the matter discloses a decrepit political structure whose sole purpose is to legitimize privilege, wealth and aggression.
Starting with Congress, its two houses are both founded on systemic corruption. The Senate has two members from each state, be it a huge state like California or a tiny one like North Dakota, making it rather cheap for lobbyists to purchase roughly half the Senate, the rest being somewhat more expensive but still affordable. The House of Representatives is formed by a process called “gerrymandering,” whereby electoral districts are formed in ways that disadvantage the groups which the ruling elite wishes to see underrepresented. The result of this is that, according to numerous opinion polls, members of US Congress are now less popular than lice, cockroaches, colonoscopies, Hitler or Genghis Khan. This august body has been essentially incapable of governing. Its main activity involves enacting legislation which runs into thousands of pages, most of them written by lobbyists, which none of the members can either read or understand.
As a result, President Obama has recently announced his intention to ignore Congress and to start ruling by decree (the local euphemism for “decree” being “executive order”). This is rather typical of presidential régimes that are burdened by a morbid legislature, and, as such, is a step in the right direction. Turning ever so briefly to the supposedly independent judiciary, the US Supreme Court has consistently decided that justice is a matter of wealth and privilege, judging that “free speech” amounts to the right to spend money, and that “corporate persons” have more rights and fewer responsibilities than human ones. And so “America” is no longer a democracy, and although one never hears it from corporate-owned or corporate-funded “American” media, the “Americans” themselves seem well aware of the fact, which is why so few of them bother to vote. Why should powerless people participate in a humiliating face designed to legitimize the power of those who oppress them?
Second, “America” also has an exceptionally bad health care system. The rot started with a very bad mistake—the idea that health care should be tied to employment. It has now degenerated to a point where the medical system eats up a fifth of the country’s economic output, and is drifting in the direction of socialized medicine administered by a powerful group of profit-seeking companies. It produces outcomes that are slightly worse than those of Cuba, where per capita expenditure on health care is just 5% of that in “America.”
Life at an “American” hospital is a non-stop macabre comedy where sleep-deprived interns compulsively poke away at computers while ignoring the patients, and where the hospital profits from their numerous mistakes. Every “American” should know the term nosocomial, which designates medical problems caused by medical care itself. While “American” truck drivers must by law pull over and rest after ten hours behind the wheel, “American” doctors are often required to work 24-hour shifts, not because the decisions they make are so much less important than those made by truck drivers, but because their mistakes drive up profits by causing complications that require additional treatment. The sine qua non of “American” health care is emergency medicine, much of it devoted to keeping elderly patients alive for no good reason, and often against their will—until the money runs out. How much money? Well, a great deal of it, but how much anything costs is kept as a great mystery which is disclosed to patients only after the fact, often as part of a legal effort to bankrupt them.
This is why many “Americans” are discovering that their favorite doctor is, as the saying goes, is “Dr. Blue—Jet Blue.” A quick flight to America proper takes you out of the hands of “American” medical establishment and puts you in the hands of proper American doctors, who tell you how much your treatment will cost beforehand, charge reasonable rates and achieve reasonable results with reasonable effort.
There are other areas in which “America” is exceptional. For the sake of brevity, I will only touch upon one of them, briefly.
“America” has an exceptionally bad foreign policy. A key aspect of “American” foreign policy is that “America” is a sore loser: once defeated and expelled, it goes into a passive-aggressive mode of trying to rewrite history using economic sanctions and covert activities. Cuba overthrew the “American” dictator Fulgencio Batista 55 years ago, but sanctions are still in effect. Similarly with Iran: 35 years after its “American” shah was overthrown, it is still being portrayed as the enemy. Another key aspect of “American” foreign policy is its complete lack of compunction in resorting to political assassination. Luckily, “America” seems to be losing its ability to project power beyond its borders. It ran roughshod over Serbia, Iraq and Afghanistan unopposed, it was checked in Libya, and, if all goes well, it will be checkmated in Syria and Iran.
I could go on and on and talk about exceptionally high prison population, exceptionally expensive and ineffective education, exceptionally weak national infrastructure, exceptionally high levels of surveillance, exceptionally high murder rate and so on and so forth, but I hope I have made it clear: “American” exceptionalism is not something for “Americans” to be proud of. How it came about is by no means the fault of the vast majority of “Americans.” If it is anyone’s fault, it is the fault of their ruling class, with its faulty, self-serving, and ultimately self-defeating ideas. There are some impediments making the transition from being “Americans” in quotes to becoming Americans proper—and to accept their birthright as inhabitants of the American continent—but these impediments are mostly mental, cultural and organizational. All of them will have to make that journey sooner or later, as “America” breaks up and disappears in a maelstrom of national bankruptcy, repudiation of federal authority and open revolt.
by James Howard Kunstler
Team Obama pulled a cute one last week nominating Blythe Masters, JP Morgan’s commodity chief, to an advisory committee of the Commodity Futures Trading Commission (CFTC) which supposedly regulates activities on the paper trades in corn, pork bellies, cocoa, coffee, wheat, corn — oh, and gold, too, by the way, in which JP Morgan has been suspected of massive gold (and silver) market manipulations and other misconduct lately. That would include the 2011 MF Global Fiasco in which nearly a billion dollars from “segregated” customer accounts somehow ended up parked over at JP Morgan as a result of bad derivative bets on tanking Eurozone bonds. MF Global, primarily a commodities trading brokerage, was liquidated in 2011. The CFTC never issued referrals for prosecution to the Department of Justice in the matter and, of course, MF Global’s notorious CEO, Jon Corzine remains at large, enjoying caramel flan lattes in the Hamptons to this day. Such are the Teflon transactions of the Obama years: nothing sticks.
There was such a Twitter storm over Blythe Masters that she withdrew from consideration for the committee before the day was out.
JP Morgan is one of the specially privileged “primary dealer” banks said to be systemically indispensible to world finance. Supposedly, if one of them is allowed to flop, the whole global matrix of global debt obligations — and, hence, global money — would dissolve in a misty cloud of broken promises. They are primary dealers to their shadow partner, the Federal Reserve, and their main job in that relationship is buying treasury bonds, bills, and notes from the US government and then “selling” them to the Fed (earning commissions on the sales, of course). The Fed, in turn, “lends” billions of dollars at zero interest back to the primary dealers who then park the “borrowed” money in accounts at the Fed at a higher interest rate. This is, of course, money for nothing, and even small interest rate differentials add up to tidy profits when the volumes on deposit are so massive.
This “carry trade” was started because the primary dealer banks were functionally insolvent after 2008 and needed to build “reserves” up to some level that would putatively render them sound. But that was a sketchy concept anyway since accounting standards had been officially abandoned in 2009 when the Financial Accounting Standards Board (FASB) declared that banks could report the stuff on their books at any value they felt like. In short, the soundness of the biggest banks in the USA could no longer be determined, period. They were beyond accounting as they were beyond the law. At the same time, the banks began the operations of shifting all the janky debt paper, mostly mortgages and derivative instruments (i.e. made-up shit like “CDOs squared”), value unknown, from their vaults to the a vaults of the Federal Reserve, where it resides to this day, rotting away like so much forgotten ground round in the sub-basement of an abandoned warehouse of a bankrupt burger chain.
All of these nearly incomprehensible shenanigans have been going on because debt all over the world can’t be repaid. The world’s economy, as constructed emergently over the decades, can’t function without repayable debt, which is the essence of “credit” — the fundamental trust implicit in banking. You have “credit” because other persons or parties believe in your ability to repay. After a while, this becomes a mere convention in millions of transactions. What’s happened is that the conventions remain in place but the trust is gone. It’s gone in particular among the parties deemed too big to fail.
Everybody knows this now and everybody is trying desperately to work around it, led by the Federal Reserve. Trust is gone and credit is going and debt is sitting between a rock and a hard place with its grubby hands pressed together, praying that it will be forgiven, forgotten, or overlooked a little while longer. By the way, the reason trust and credit are gone is because oil is no longer cheap and world economies can’t grow anymore. They can’t afford to run the day-to-day operations of a techno-industrial society. They can only pretend to afford it. The stock markets are mere scorecards for players who can only lie and cheat now to keep the game going. Somewhere beyond all the legerdemain and fraud, however, there remains a real world that is not going away. We just don’t know what it will look like when the smog of fraud clears.
Yesterday we reported that Steve Quayle’s banker source “V” has informed him that the recent rash of banker “suicides” are part of a hit list that includes dozens of bankers including a supposed high level Citi executive.
Today, none other than Jim Willie himself has provided SD readers with an exclusive report on the banker deaths. The Golden Jackass states that the suicided bankers had flipped during prosecution investigation, and were assassinated to prevent insider testimony of bank fraud from reaching the prosecution.
Willie, who recently sat down with The Doc for an exclusive interview revealing the “Smoking Gun” proving gold rehypothecation by US officials, emphasizes that we are NOT seeing bad bankers removed, we are witnessing bankers taken out who are on the verge of revealing BIG DATA details.
The banker hits are being done by the bad guys to keep men from singing after they flipped during prosecution investigation. All have been working with police teams and continental cops like Interpol. The STL Fed guy discovered some Bush giant multi-$B fraud and was ready to report it. The STL Fed economist was hit by the Bush gang, before he sang against them. The London bankers had begun to sing to Interpol on Mafia Vatican connections on massive FOREX fraud thefts. It is unclear which is bigger: Vatican links to narco money, or links to FOREX fraud theft, or their control room for Nazis.
WE ARE NOT SEEING BAD BANKERS REMOVED. WE ARE SEEING BANKERS REMOVED WHO ARE ON THE VERGE OF REVEALING BIG DATA DETAILS
Jim Willie CB, editor of the “HAT TRICK LETTER”
Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. The historically unprecedented ongoing collapse has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
by Brandon Smith
I began writing analysis on the macro-economic situation of the American financial structure back in 2006, and in the eight years since, I have seen an undeniably steady trend of fiscal decline.
I have never had any doubt that the U.S. economy as we know it was headed for total and catastrophic collapse, the only question was when, exactly, the final trigger event would occur. As I have pointed out in the past, economic implosion is a process. It grows over time, like the ice shelf on a mountain developing into a potential avalanche. It is easy to shrug off the danger because the visible destruction is not immediate, it is latent; but when the avalanche finally begins, it is far too late for most people to escape . . . .
If you view the progressive financial breakdown in America as some kind of “comedy of errors” or a trial of unlucky coincidences, then there is not much I can do to educate you on the reasons behind the carnage. If, however, you understand that there is a deliberate motivation behind American collapse, then what I have to say here will not fall on biased ears.
The financial crash of 2008, the same crash which has been ongoing for years, is NOT an accident. It is a concerted and engineered crisis meant to position the U.S. for currency disintegration and the institution of a global basket currency controlled by an unaccountable supranational governing body like the International Monetary Fund (IMF). The American populace is being conditioned through economic fear to accept the institutionalization of global financial control and the loss of sovereignty.
Anyone skeptical of this conclusion is welcome to study my numerous past examinations on the issue of globalization; I don’t have the time within this article to re-explain, and frankly, with so much information on deliberate dollar destruction available to the public today I’ve grown tired of anyone with a lack of awareness.
If you continue to believe that the Fed actually exists to “help” stabilize our economy or our currency, then you will never find the logic behind what they do. If you understand that the goal of the Fed and the globalists is to dismantle the dollar and the U.S. economic system to make way for something “new”, then certain recent events and policy initiatives do start to make sense.
The year of 2014 has been looming as a serious concern for me since the final quarter of 2013, and you can read about those concerns and the evidence that supports them in my article Expect Devastating Global Economic Changes In 2014.
At the end of 2013 we saw at least three major events that could have sent America spiraling into total collapse. The first was the announcement of possible taper measures by the Fed, which have now begun. The second was the possible invasion of Syria which the Obama Administration is still desperate for despite successful efforts by the liberty movement to deny him public support for war. And, the third event was the last debt ceiling debate (or debt ceiling theater depending on how you look at it), which placed the U.S. squarely on the edge of fiscal default.
As we begin 2014, these same threatening issues remain (along with many others), only at greater levels and with more prominence. New developments reinforce my original position that this year will be remembered by historians as the year in which the final breakdown of the U.S. monetary dynamic was set in motion. Here are some of those developments explained….
Taper Of QE3
When I first suggested that a Fed taper was not only possible but probable months ago, I was met with a bit (a lot) of criticism from some in the alternative economic world. You can read my taper articles here and here.
This was understandable. The Fed uses multiple stimulus outlets besides QE in order to manipulate U.S. markets. Artificially lowering interest rates is very much a form of stimulus in itself, for instance.
However, I think a dangerous blindness to threats beyond money printing has developed within our community of analysts and this must be remedied. People need to realize first that the Fed does NOT care about the continued health of our economy, and they may not care about presenting a facade of health for much longer either. Alternative analysts also need to come to grips with the reality that overt money printing is not the only method at the disposal of globalists when destroying the greenback. A debt default is just as likely to cause loss of world reserve status and devaluation – no printing press required. Blame goes to government and political gridlock while the banks slither away in the midst of the chaos.
The taper of QE3 is not a “head fake”, it is very real, but there are many hidden motivations behind such cuts.
Currently, $20 billion has been trimmed from the $85 billion per month program, and we are already beginning to see what APPEAR to be market effects, including a flight from emerging market currencies from Argentina to Turkey. A couple of years ago investors viewed these markets as among the few places they could exploit to make a positive return, or in other words, one of the few places they could successfully gamble. The Fed taper, though, seems to be shifting the flow of capital away from emerging markets.
The mainstream argument is that stimulus was flowing into such markets, giving them liquidity support, and the taper is drying up that liquidity. Whether this is actually true is hard to say, given that without a full audit we have no idea how much fiat the Federal Reserve has actually created and how much of it they send out into foreign markets.
I stand more on the position that the Fed taper was actually begun in preparation for a slowdown in global markets that was already in progress. In fact, I believe central bankers have been well aware that a decline in every sector was coming, and are moving to insulate themselves.
Is it just a “coincidence” that the central bankers have initiated their taper of QE right when global manufacturing numbers begin to plummet?
Is it just “coincidence” the taper was started right when the Baltic Dry Index, a global indicator of shipping demand, has lost over 50% of its value in the past few weeks?
Is it just “coincidence” that the taper is running tandem with dismal retail sales growth reports from across the globe coming in from the final quarter of 2013?
And, is it just a “coincidence” that the Fed taper is accelerating right as the next debt ceiling debate begins in March, and when reports are being released by the Congressional Budget Office that over 2 million jobs (in work hours) may be lost due to Obamacare?
No, I do not think any of this is coincidence. Most if not all of these negative indicators needed months to generate, so they could not have been caused by the taper itself. The only explanation beyond “coincidence” is that the Federal Reserve WANTED to launch the taper program and protect itself before these signals began to reach the public.
Look at it this way – The taper program distances the bankers from responsibility for crisis in our financial framework, at least in the eyes of the general public. If a market calamity takes place WHILE stimulus measures are still at full speed, this makes the banks look rather guilty, or at least incompetent. People would begin to question the validity of central bank methods, and they might even question the validity of the central bank’s existence. The Fed is creating space between itself and the economy because they know that a trigger event is coming. They want to ensure that they are not blamed and that stimulus itself is not seen as ineffective, or seen as the cause.
We all know that the claims of recovery are utter nonsense. Beyond the numerous warning signs listed above, one need only look at true unemployment numbers, household wage decline, and record low personal savings of the average American. The taper is not in response to an improving economic environment. Rather, the taper is a signal for the next stage of collapse.
Stocks are beginning to plummet around the world and all mainstream pundits are pointing fingers at a reduction in stimulus which has very little to do with anything. What is the message they want us to digest? That we “can’t live” without the aid and oversight of central banks.
The real reason stocks and other indicators are stumbling is because the effectiveness of stimulus manipulation has a shelf life, and that shelf life is over for the Federal Reserve. I suspect they will continue cutting QE every month for the next year as stocks decline. Will the Fed restart QE? If they do, it will probably not occur until after a substantial breakdown has ensued and the public is sufficiently shell-shocked. The possibility also exists that the Fed will never return to stimulus measures (if debt default is the plan), and QE stimulus will eventually be replaced by IMF “aid”.
Government Controlled Investment
Last month, just as taper measures were being implemented, the White House launched an investment program called MyRA; a retirement IRA program in which middle class and low wage Americans can invest part of their paycheck in government bonds.
That’s right, if you wanted to know where the money was going to come from to support U.S. debt if the Fed cuts QE, guess what, the money is going to come from YOU.
For a decade or so China was the primary buyer and crutch for U.S. debt spending. After the derivatives crash of 2008, the Federal Reserve became the largest purchaser of Treasury bonds. With the decline of foreign interest in long term U.S. debt, and the taper in full effect, it only makes sense that the government would seek out an alternative source of capital to continue the debt cycle. The MyRA program turns the general American public into a new cash stream, but there’s more going on here than meets the eye….
I find it rather suspicious that a government-controlled retirement program is suddenly introduced just as the Fed has begun to taper, as stocks are beginning to fall, and as questions arise over the U.S. debt ceiling. I have three major concerns:
First, is it possible that like the Fed, the government is also aware that a crash in stocks is coming? And, are they offering the MyRA program as an easy outlet (or trap) for people to pour in what little savings they have as panic over declining equities accelerates? Bonds do tend to look appetizing to uninformed investors during an equities route.
Second, the program is currently voluntary, but what if the plan is to make it mandatory? Obama has already signed mandatory health insurance “taxation” into law, which is meant to steal a portion of every paycheck. Why not steal an even larger portion from every paycheck in order to support U.S. debt? It’s for the “greater good,” after all.
Third, is this a deliberate strategy to corral the last vestiges of private American wealth into the corner of U.S. bonds, so that this wealth can be confiscated or annihilated? What happens if there is indeed an eventual debt default, as I believe there will be? Will Americans be herded into bonds by a crisis in stocks only to have bonds implode as well? Will they be conned into bond investment out of a “patriotic duty” to save the nation from default? Or, will the government just take their money through legislative wrangling, as was done in Cyprus not long ago?
The Final Swindle
Again, the next debt ceiling debate is slated for the end of this month. If the government decides to kick the can down the road for another quarter, I believe this will be the last time. The most recent actions of the Fed and the government signal preparations for a stock implosion and ultimate debt calamity. Default would have immediate effects in foreign markets, but the appearance of U.S. stability could drag on for a time, giving the globalists ample opportunity to siphon every ounce of financial blood from the public.
It is difficult to say how the next year will play out, but one thing is certain; something very strange and ugly is afoot. The goal of the globalists is to engineer desperation. To create a catastrophe and then force the masses to beg for help. How many hands of “friendship” will be offered in the wake of a U.S. wealth and currency crisis? What offers for “aid” will come from the IMF? How much of our country and how many of our people will be collateralized to secure that aid? And, how many Americans will go along with the swindle because they were not prepared in advance?
You can contact Brandon Smith at: firstname.lastname@example.org. Alt-Market is an organization designed to help you find like-minded activists and preppers in your local area so that you can network and construct communities for mutual aid and defense. Join Alt-Market.com today and learn what it means to step away from the system and build something better.
from Off Grid Survival:
With fears of yet another government default only 30 days away, Terry Burnham, former Harvard economics professor and longtime critic of the Federal Reserve, is pulling all of his money out of Bank of America, and warns others might want to consider doing the same.
Although he stops short of calling for a run on the bank, he admits that what he’s doing could cause a huge ripple effect, causing other depositors to follow his lead. But he says the chance of losing his money by keeping it in the bank has become to great, and says he had no choice but to abandon Bank of America and the banking system.
In an article for PBS entitled Is your money safe at the bank? An economist says ‘no’ and withdraws his, Burnham writes, “Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more.”
Why he’s warning Bank of America Customers:
In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.
Returning to my money now entrusted to Bank of America, market turmoil reminded me that this particular trustee is simply not safe. Or not safe enough, given the fact that safety is the reason I put the money there at all. The market turmoil could threaten “BofA” with bankruptcy today as it did in 2008, and as banks have experienced again and again over time.
He then addresses critics who say the Federal Government’s FDIC insurance program protects depositor’s money by insuring it will be repaid should a bank go under. He says in the PBS article, “The FDIC currently has far less money in its fund than it has insured deposits: as of Sept. 1, about $41 billion in reserve against $6 trillion in insured deposits. (There are over $9 trillion on deposit at U.S. banks, by the way, so more than $3 trillion in deposits is completely uninsured.)”
In my opinion, he’s dead right on that. Should we face a crisis like we saw in 2008, when many of so-called “to big to fail” banks almost failed, there’s simply no way the government can possibly repay depositors. With our government already $17 trillion in debt, does anyone really believe they have the money to repay $6 trillion in insured deposits?
Where can you keep your money?
Burnham advises a number of things that I think are very smart; particularly paying down debt, keeping emergency cash on hand, and finding smaller local banks to spread your money around. In addition, I suggest stocking up on emergency supplies, food, water and consumables that will hold their value over the long run. Things like guns and ammo will definitely hold their value; and are not only a smart survival investment, but might be a smart financial investment as well.
The Fed cannot create a bid in bidless markets that lasts beyond its own buying.
We all know the Federal Reserve (and every other central bank) has one last Doomsday weapon to stop a meltdown in the global financial markets: creating trillions of dollars out of thin air and using the cash to buy assets that are in free-fall. This is known as “the nuclear option”–the direct monetizing of stocks, Treasury bonds, commercial real estate mortgages, student loans, corporate bonds, non-U.S. sovereign bonds, subprime auto loans, defaulted bat guano securities, offshore loans denominated in quatloos–you name it: The Fed could print money and buy, buy, buy to create and maintain a bid in bidless markets.
The idea is to stop a cascade of panic by buying assets in quantities large enough to staunch the avalanche of selling. The strategy is based on one key assumption: that no more than a small percentage of the asset class will change hands in any day or week.
Thus a low-volume sell-off in the $20 trillion U.S. equity markets can be stopped with large index buy orders in the neighborhood of $10 – $100 million–a tiny sliver of the total market value.
But in a real meltdown, popguns will no longer conjure a bid in suddenly bidless markets, and the Fed will have to become the bidder of last resort on a massive scale in multiple markets. We need to differentiate between loans, backstops and guarantees issued by the Fed and actual purchase of impaired assets.
After poring over all the data, the Levy Institute came up with a total of $29 trillion in Fed and Federal bailout-the-financial-sector loans and programs. The GAO found the Fed alone issued $16 trillion in loans and backstops:
The heart of quantitative easing and ZIRP (zero interest rate policy) is the Fed’s direct purchase and ownership of assets: residential mortgage-backed securities and Treasury bonds. The Fed has been operating not as the buyer of last resort but as the bidder who buys interest-sensitive securities to keep interest rates near-zero (known as financial repression).
The Fed’s purchases of impaired mortgages has also made its balance sheet “the place where mortgages go to die:” the Fed can hold impaired mortgages until maturity, effectively masking their illiquidity and impaired market value. We can see these two major purchase programs in this chart from Market Daily Briefing:
Despite all the talk of “tapering,” the Fed’s asset purchases on a grand scale continues:
Such a handy word, “taper:”
The Nuclear Option rests on another questionable assumption: markets only go bidless in brief panics, not because the assets have lost all value. The basic model of Fed emergency loan programs and asset-buying is 1907–a financial panic that erupts out of a liquidity crisis.
In a liquidity crisis, the underlying assets supporting loans retain their market value; the problem is a shortage of credit needed to roll over short-term loans on those still-valuable assets.
But what the world is finally starting to experience is not a liquidity crisis: it is a valuation crisis in which assets and collateral are finally recognized as phantom. I explained the difference between liquidity and valuation crises in In a Typhoon, Even Pigs Can Fly (for a while) (January 30, 2014).
Let me illustrate why the Fed’s Nuclear Option is a one-way street to oblivion.
What is the market value of a defaulted student loan that has no hope of ever being repaid by an unemployed ex-student debtor? The answer is zero: the “asset” has a value of zero and will always have a value of zero. It is not “coming back.”
What is the market value of a commercial mortgage on a dead mall that has no hope of ever being repaid by an insolvent mall owner? The answer is zero: the “asset” has a value of zero and will always have a value of zero. It is not “coming back.”
The New York Times recently published an article that nails the core issue in the entire U.S. economy: the top 10% is the only segment able to support additional consumption:The Middle Class Is Steadily Eroding. Just Ask the Business World (Yahoo news version)
This raises an obvious question: can the excess consumption of the top 10% support every mall, strip mall, premium outlet and retail center in the U.S.? Equally obvious answer: no. Most dead malls cannot be repurposed; the buildings are cheap shells, and while the land might retain some value for future residential housing, the coming implosion of the latest housing bubble nixes that hope: WARPED, DISTORTED, MANIPULATED, FLIPPED HOUSING MARKET (The Burning Platform).
What is the value of a company’s shares if that company has lost any means of earning a profit? Answer: the book value of the company’s assets minus debt.Given the staggering debt load of the corporate sector, the real value of many companies once their ability to reap a real (as opposed to accounting trickery) net profit vanishes is near-zero.
How about the value of Greek sovereign debt? Zero. The value of mortgages on empty decaying flats in Spain? Zero. And so on, all around the world.
This leads to a sobering conclusion: Should the Fed attempt to create and maintain a bid in bidless markets, it will end up owning trillions of dollars in worthless assets–and the market for those assets will still be bidless when the Fed stops being the bidder of last resort.
Let’s assume the Fed’s leadership will feel a desperate need to stop the next global financial meltdown in valuations. Offering trillions of dollars in liquidity will not stop sellers from selling nor magically create value in worthless assets. The Fed can only stop the selling by becoming the entire market for those assets.
The list of phantom assets the Fed will have to buy outright with freshly conjured cash is long. Let’s start with hundreds of billions of dollars in defaulting/impaired student loans. Once the debtors realize the system is swamped with defaults and can no longer hound them, the flood of defaults will swell.
The Fed can buy as many defaulted student loans as it wants, but it will never raise the value of those loans above zero. The market for worthless student loans will remain bidless the second the Fed stops buying.
The same is true of all the defaulted, worthless commercial real estate (CRE) mortgages on dead malls, decaying strip malls and abandoned retail centers: no amount of Fed buying will create a market for these worthless assets.
Dead Mall Syndrome: The Self-Reinforcing Death Spiral of Retail (January 22, 2014)
The First Domino to Fall: Retail-CRE (Commercial Real Estate) (January 21, 2014)
There is no technical reason the Fed cannot create $10 trillion and buy up $10 trillion of worthless or severely impaired assets; the Fed can become the owner of every dead mall and every defaulted auto loan in America should it wish to.
That would of course render the Fed massively insolvent, as its assets would be worth a fraction of its liabilities. But so what? The Fed can simply assign a phantom value to all its worthless assets and let them rot until maturity, at which point they vanish down the wormhole.
The point isn’t that “the Fed can’t do that;” the point is that the Fed cannot create a bid in bidless markets that lasts beyond its own buying. The Fed can buy half the U.S. stock market, all the student loans, all the subprime auto loans, all the defaulted CRE and residential mortgages, and every other worthless asset in America. But that won’t create a real bid for any of those assets, once they are revealed as worthless.
The nuclear option won’t fix anything, because it is fundamentally the wrong tool for the wrong job. Holders of disintegrating assets will be delighted to sell the assets to the Fed, of course, but that won’t fix what’s fundamentally broken in the American and global economies; it will simply allow the transfer of impaired assets from the financial sector and speculators to the Fed.
Anyone who thinks that is the “solution” should read QE For the People: What Else Could We Buy With $29 Trillion? (September 24, 2012).
The Retail Commercial Real Estate Domino with Gordon T. Long and CHS:
The Revolution in Higher Education
Reconnecting higher education, livelihoods and the economyWith the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.
It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?
The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work – and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.
The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.
Things are falling apart–that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:
Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Once we accept responsibility, we become powerful.
Tuesday, February 04, 2014
Douglas Smith Zeus
Over the past half a decade I've made a number of detailed predictions about collapse: how it is likely to unfold, what its various manifestations are likely to be, and how it will affect various groups and categories of people. But I have remained purposefully vague about the timing of collapse and its various stages, being careful to always append “give or take half a decade” to my dire prognostications. I wasn't withholding information or being coy; I really had no way of calculating when collapse will happen—until five days ago, when, out of the blue, I received the following email from Ugo Bardi:
You may be interested in this post of mine.
Starting from this post, I'm trying to draw a parallel between the collapse of the Soviet Union and the impending collapse of Italy. There are, as always, similarities and differences. In particular, the Soviet Union collapsed almost immediately after that oil production flattened out and started declining. On the contrary, the Italian government survives despite a loss of 36% in oil consumption.
My impression is that it is all related to different taxation methods. I understand that the Soviet tax system was based mainly on commodity taxes and on taxes on production. When production stalled, people had nothing to buy and the government had nothing to tax because most people owned nothing and had little or no savings in banks. So, the government had no choice but to fold over and disappear.
Instead, the Italian system is based largely on income tax and property tax. The government is losing revenues on commodity taxes (e.g. on gasoline) but it can compensate with property taxes. Italians, on the average, are “rich,” in the sense that they have savings in banks and most of them own their homes. So, the government can tax their properties and their savings. As long as Italians still have something taxable, then the government will survive. It will disappear only when it has managed to strip citizens completely of everything they have.
Do you agree with this interpretation? (BTW, Italy as a state may be even more culturally diverse than the old Soviet Union was.)
I wrote back:
Very interesting article. Yes, the entire southern tier of the EU is in some early stage of collapse, but so far it hadn't occurred to me to draw parallels between it and USSR. Now that you mention it, the parallel is obvious: it is financial collapse triggered by something having to do with oil, but with polarities reversed, and delayed by a period of wealth destruction.
In the case of USSR, taxation wasn't really a source of government revenue. The national economy was based on government ownership of everything, central planning and budgets, and a system of assigning ministerial contracts to enterprises owned by the ministries. The external economy was a matter of exporting hydrocarbons in exchange for foreign currency, which was used to buy grain—mostly feed grain for cattle, without which the population would become protein-deprived and malnourished. Over the so-called “stagnation” period of the 1980s the Soviet economy became hollowed out because of several trends. Too much spending on defense was one of them. Another was that investment in capital goods (machinery, plant and equipment) reached the point of diminishing returns, which is very difficult to characterize but not so difficult to observe. Lastly, Solzhenitsyn and the dissident movement had done irreparable damage to Soviet prestige, destroying morale. The coup de grace, when it came, consisted of two pieces. One was the inability to expand oil production given the state of Soviet oil extraction technology of the era. The other was the fall in oil prices, down to $10/bbl at one point, because North Sea and Alaska both went on stream, and the Saudis pumped as much oil as they could based on a tacit agreement with the US to depress oil prices and thus crush the Soviets. In this they largely succeeded. The USSR became heavily indebted to the West, and, at the very end, needed Western credit to keep the lights on in the Kremlin. One of the final scenes featured Gorbachev on the phone with [West Germany's Chancellor] Helmut Kohl asking him to ask the Americans to release some funds.
Now, I can see parallels to this in what is happening now in the US and in the EU, but with all the polarities reversed: here oil flows in and money flows out, and the coup de grace [will be] high oil prices rather than low. Instead of failures of central planning, which failed to allocate production effectively, we have failures of the globalized market, where production is effectively globalized but consumption is ineffectively localized among the wealthy and the formerly wealthy, and has to be fueled by credit. Instead of diminishing returns from deployment of capital goods, we have diminishing returns from deployment of capital itself, where a unit of new debt now produces much less than a unit of economic growth. The damage to reputation and morale is mostly on the US side of the Atlantic, where in place of Solzhenitsyn and the dissident movement we have Abu Ghraib [scandal], [Wikileaks' Julian] Assange and [Edward] Snowden. With the EU, most of the damage has to do with [the] experience of economic disparities between the rich core and the increasingly impoverished periphery, and the recent move in Ukraine to walk away from the EU, and the ensuing Western-financed mayhem in Kiev, show that the bloom is off the EU rose as well. The runaway military spending is likewise mostly a US issue, although epic failures in Afghanistan, Libya and Syria, in which the EU is complicit, are likely to have some effect as well.
Comparing USSR to Italy is difficult because of the disparity of scale: 1/5 of the planet's dry surface versus a smallish peninsula; an economy that slowly decayed in isolation versus an integral part of the EU; a country where the choice is between burning hydrocarbons or dying of exposure versus one where the choice is between riding a scooter or taking the bus; a country with a ravaged agricultural sector unable to grow enough protein calories versus a nation of foodies where corner groceries make worthy subjects for oil paintings. But I think that when it comes to the actual collapse, when it finally comes, there will still be identifiable similarities. Financial collapse always comes first: all sorts of financial arrangements unravel as the center becomes unable to float the periphery, and in response the periphery starts to withhold economic cooperation. The result is a breakdown in supply chains, shutdown of production, and, shortly thereafter, shutdown of commerce. In the case of the USSR, this unfolded in 1989-91 as the various republics and regions refused to cooperate with Moscow. I suspect that this will also happen in the EU, at some point. But I think that you are exactly right that whereas the average Soviet citizen could not be fleeced, Italy, and much of the EU, still have plenty of fat sheep that the government can shear to keep things running. Thus we are looking at a few more years of steady decline before the lights start going out. This, then, is the key distinction: the USSR collapsed promptly because it was already skin and bones, whereas the US and the EU still have plenty of subcutaneous fat to burn through. But they are, in fact, burning through it. And so, the conclusion is, collapse will come, but here it will take a little longer.
I agree with you, of course. It makes perfect sense to me and it is the main point I was making: the Soviet government couldn't tax Soviet citizens too much because they owned very little.
The Italian government instead has some luck in the sense that Italians have some savings and most of them own their homes. So, the government is progressively strangling their citizens to squeeze out of them all that they have—while they still have something.
The last round of tax increases in Italy is targeting homes and it is really, really hurting, especially the poor. You can be poor here, and still own a house that you inherited from your parents. Now the government asks you to pay as if that house were revenue! That is truly evil. People who don't have the money to pay this property tax can only indebt themselves with banks (or worse). Eventually, they'll have to sell their homes or give them to the bank (or to the Mafia)—the result is disaster for everybody, including for the banks, and even the government. But the whole thing has a perverse logic. It has the advantage that it generates some immediate cash which is badly needed, then the hell with the future.
The [next] phase will be to target bank accounts. Then, when there will be nothing left, the government will decamp and say bye to everybody. Hell, what a planet I landed in…..
All the best,
And so here is the outline of the method for calculating the timing of collapses:
Find out when the collapse clock starts running by looking for a significant drop in energy consumption
Calculate how long the clock is going to run by dividing the total wealth of the citizenry by the economic shortfall of the shrinking economy
For any industrial economy the collapse clock starts running as soon as the consumption of fossil hydrocarbons starts dropping appreciably. It is sometimes difficult to tell whether this has already happened if the country in question is still a major hydrocarbon producer. Gross production numbers can still be holding steady or even seem to go up a bit, but once you subtract all the energy that is being expended on energy production itself, and on the unprofitable mitigation of its many undesirable consequences, you might be able see a decline sooner rather than later. Notably, the net energy yield, or EROEI, is very low for all the newer unconventional sources that have been trumpeted as panaceas in recent years, such as ones that require hydrofracturing and drilling in deep water, tar sands and so on. (The so-called “renewables,” such as wind, solar and biofuels, are an even bigger joke, because all of them with the exception of hydroelectric plants have net energy that is too low to sustain an industrial economy, plus they all depend on technologies that are “nonrenewable” unless the country maintains a vast industrial base which happens to run on fossil fuels.) And so the drop in net energy consumption is clear for Italy, which produces 7% of the oil it consumes and imports the rest, whereas the picture is somewhat less clear for the US, which still manages to supply around a third of its oil.
Since all industrial economies literally run on fossil fuels, lower energy consumption immediately translates into a lower level of economic activity and a shrinking economy. The gap between the expectations of economic growth that are dialed into all of the financial arrangements, and the reality of economic decline driven by lower energy availability, has to be plugged with the population's savings. There are a number of ways of expropriating wealth, generally proceeding from various kinds of stealth taxation measures, to more overt measures, to outright expropriation. Taking the US as the example (since I am most familiar with it) the expropriation cascade is proceeding as follows:
Central bank policy of zeroing out of interest rates on savings combined with massive money-printing. This forces money into speculative markets (stocks, real estate, etc.) creating huge financial bubbles; when these bubbles pop, savings are said to be destroyed, but in reality that money has already been spent by the government or used to fill the private coffers of those closely associated with the government.
Government policy of canceling retirements or short-changing retirees. The federal government has worked hard to make its official measure of inflation all but meaningless so that it can justify its policy of making cost of living adjustments to social security payments that are far less than the the real increases in the cost of living. Another federal expropriation scheme is via guaranteed student loans, which cannot be discharged through bankruptcy, and which have created an entire class of indentured servants. At the more local level, state and municipal governments are curtailing or canceling retirement programs by virtue of going bankrupt.
Ever more onerous reporting requirements for financial transactions, especially for those who try to leave the country and expatriate their savings. All foreign bank accounts must now be reported, and people who work abroad are now forced to file voluminous annual reports that cost thousands of dollars to prepare. Those who decide to repudiate their US citizenship are made to pay a hefty exit tax. Nevertheless, record numbers of US citizens have been doing just that. Just having a US passport often makes it impossible to set up accounts in foreign financial institutions, which have little desire to comply with US demands for financial disclosure.
These are the measures that are already in place. Looking at what's been tried before, here and elsewhere, we can see what other measures are in the works. Among them:
So-called “bail-ins” where insolvent financial institutions are rescued by confiscating depositor funds. We can expect the script to be similar to what happened in Cyprus: politically connected depositors get word ahead of time and yank out their money forthwith; everybody else gets shorn.
Limits on bank withdrawals. You might still “have” money in the bank, but that's the only place you can “have” it. The semantics of the verb “to have” can be quite tricky, you see…
Ever-increasing taxes on property resulting in property confiscation. It works like this: government prints money and hands it out to its friends; its friends use it to temporarily bid up property values; property taxes go up to a point where the property owners can't pay them; owners lose their properties. A staggering 63% of real estate purchases in Florida last December were cash purchases.
Various kinds of sudden, new, super-complex regulations, noncompliance with which results in very large fines. In turn, nonpayment of these fines results in forfeiture of assets. The US has some very curious laws according to which inanimate objects such as cars, boats and houses can be charged with a crime, seized and auctioned off. We can expect lots more of such property grabs in the future.
Gold confiscation, which happened once in the US already, so there is a precedent for it. Yes, I know that this will make a number of people upset, but I am yet to hear a convincing argument for why the US government would not resort to gold confiscation when that turns out to be one of the few remaining cards it can play.
This list is by no means comprehensive. If you feel that I have missed something major, please submit a comment, and I will consider it for inclusion.
Now, it would be nice if all of these measures worked like clockwork, always producing the right amount of wealth confiscation to levitate the government, and the financial scheme on which it is based, for a little while longer. Alas, as with most things, something is bound to go wrong at some point, most likely when you least expect it. And it seems like a dead certainty that something will in fact go wrong well before every last American citizen is relieved of every bit of their accumulated wealth and is living peacefully in a roadside ditch, wearing an attractive loincloth and a stylish mudpack for a hat, quietly perfecting a nouvelle cuisine that features snails au jus and dandelion salad au chaume. Maybe you can imagine it, but I can't. Beyond a certain point, I can only imagine reports of widespread “public disturbances” followed by “breakdown of law and order.”
Still, I hope that this framework will allow us to set an upper bound for how long collapse can be deferred for any given country. Once hydrocarbon consumption drops appreciably, the clock starts running. Then it is possible to estimate how long the clock can theoretically run by dividing the remaining net worth of the population by the size of the hole in the economy created by falling energy consumption.
But after that things get messy. Some countries will hollow themselves out quite peaceably, and go softly into the night, while others will explode and fast-forward though the financial-commercial-political collapse sequence. And so perhaps the most useful thing to know is whether the collapse clock is already running for any given country, because if it is already running, then it becomes a fool's game to wait around for the inevitable outcome.
One reasonable approach is to get another passport and quietly relocate to another country. It is important that this country be one for which the collapse clock is not running and won't be for a long time yet. Ideally this would be a financially secure, politically stable, energy independent, militarily invincible, underpopulated, non-extradition country which will be among the last to be severely disrupted by climate change and where you could have lunch with Edward Snowden. But this approach doesn't appeal to everyone, and I understand that.
And so another approach is to adapt to what's coming while remaining in the US, or in any other country for which the collapse clock is running, by making yourself, and your wealth, should you have any, illegible. Here is a very nice article by one smart cookie by the name of Venkatesh Rao on the concept of illegibility. And here is his very nice primer on being an illegible person. This kind of illegibility has nothing to do with bad handwriting; it is about hiding in plain sight. Please read these as homework, because I will have more to say on this topic in the near future. And I would love to see a list of countries for which the collapse clock is running, along with first-order estimates for how long it could possibly run for each one, based on their population's net worth and the country's economic shortfall. But since this post has just gone over 3000 words, I am leaving this as an exercise for the reader.
by Greg Hunter – February 5, 2014
Analyst and stock trader Gregory Mannarino says the market meltdown this week was caused by the Fed and weak economy. Mannarino says, “We understand there is a dynamic that has been changing here in the market with regard to the Fed’s purchasing mortgage-backed securities and bonds. This has rattled the emerging markets. They’re having problems with their currencies . . . The Federal Reserve has created an environment of distortions. By them pulling back some of this liquidity from the global economy, they’ve caused problems in these emerging markets, and this is being done on purpose.” What is the Fed trying to accomplish by destabilizing emerging market countries? Mannarino claims, “So, by rattling the emerging markets here, they are going to force investors into U.S. equities and into the U.S. bond market. It’s sort of a backdoor stimulus. . . . This just keeps the party going. That’s all this is.”
This may work in the short term, but it is not long term bullish for the markets. Mannarino warns, “We have this issue with the U.S. economy. They have been force feeding us nonsense . . . that we are in some kind of recovery. . . . This ISM number we got (Institute of Supply Management), we have not seen a pullback like this since 1980. It rattled the market. . . . We’re also getting mediocre earnings reports. We got unemployment numbers that are not good. So, this is spooking the market.” Looking at the big picture of the global economy, Mannarino goes on to say, “I am still a bull here in regards to the U.S. equity markets, but we all know where this is going. This is going to end terribly at some point. A complete financial meltdown is happening. You can see this already how the Federal Reserve has distorted this beyond the point of ridiculousness. Now, they are forcing the emerging market investor to look to the U.S. equity markets. At some point, people are going to see this whole thing is not sustainable. We are going to have a crisis of currency, a crisis of debt that is going to rock the core of the earth—period.”
This is a confidence game according to Mannarino. He says, “This is all about perception, not reality. If we were really in some type of a recovery, would we be talking about extending unemployment benefits for people? Would we be talking about more stimulus? Of course not, because there is no recovery. This is just smoke and mirrors across the board.” Don’t expect the market to plunge just yet because Mannarino says, “The Fed is counting on turmoil in the emerging markets to drive money into the U.S. market to keep the system propped up.”
Mannarino contends what you are seeing now is just a short term trade. In the longer term, Mannarino predicts, “Without a doubt, this is going to blow up. . . . I’ve been saying this for years now–we are headed for a pan global financial cataclysm. That’s a fact.” So, how does Mannarino plan to protect himself from this surefire coming calamity? Mannarino says, “I pull my gains out of the market, and I turn them into hard assets. I am the biggest precious metals bull out here. I can’t imagine a better place to be than in gold or silver, especially silver.”
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