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MERS? It May Have Swallowed Your Loan
By MICHAEL POWELL and GRETCHEN MORGENSON
Published: March 5, 2011
FOR more than a decade, the American real estate market resembled an overstuffed novel, which is to say, it was an engrossing piece of fiction.
Christophe Vorlet
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How a Mortgage Moves Through MERS
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Daniel Rosenbaum for The New York Times
R. K. Arnold, who had been with MERS since its founding, resigned as C.E.O. this year.
Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes. Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods.
That world largely collapsed under the weight of its improbabilities in 2008.
But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.
Never heard of MERS? That's fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.
Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation's public land ownership records. Most questions boil down to this:
How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan?
And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?
The answers have implications for all American homeowners, but particularly the millions struggling to save their homes from foreclosure. How the MERS story plays out could deal another blow to an ailing real estate market, even as the spring buying season gets under way.
MERS has distanced itself from the dubious behavior of some of its members, and the company itself has not been accused of wrongdoing. But the legal challenges to MERS, its practices and its records are mounting.
The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.
"The state court is attracted like a moth to the flame to the legal owner, and that isn't MERS," says Walter T. Keane, the Salt Lake City lawyer who represented the homeowner in that case.
And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an "agent" for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.
But this, Judge Robert E Grossman said, was not his fault.
"This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country," he wrote, "that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law."
With MERS under scrutiny, its chief executive, R. K. Arnold, who had been with the company since its founding in 1995, resigned earlier this year.
A BIRTH certificate, a marriage license, a death certificate: these public documents note many life milestones.
For generations of Americans, public mortgage documents, often logged in longhand down at the county records office, provided a clear indication of homeownership.
But by the 1990s, the centuries-old system of land records was showing its age. Many county clerk's offices looked like something out of Dickens, with mortgage papers stacked high. Some clerks had fallen two years behind in recording mortgages.
For a mortgage banking industry in a hurry, this represented money lost. Most banks no longer hold onto mortgages until loans are paid off. Instead, they sell the loans to Wall Street, which bundles them into investments through a process known as securitization.
MERS, industry executives hoped, would pull record-keeping into the Internet age, even as it privatized it. Streamlining record-keeping, the banks argued, would make mortgages more affordable.
But for the mortgage industry, MERS was mostly about speed — and profits. MERS, founded 16 years ago by Fannie Mae, Freddie Mac and big banks like Bank of America and JPMorgan Chase, cut out the county clerks and became the owner of record, no matter how many times loans were transferred. MERS appears to sell loans to MERS ad infinitum.
This high-speed system made securitization easier and cheaper. But critics say the MERS system made it far more difficult for homeowners to contest foreclosures, as ownership was harder to ascertain.
MERS was flawed at conception, those critics say. The bankers who midwifed its birth hired Covington & Burling, a prominent Washington law firm, to research their proposal. Covington produced a memo that offered assurances that MERS could operate legally nationwide. No one, however, conducted a state-by-state study of real estate laws.
"They didn't do the deep homework," said an official involved in those discussions who spoke on condition of anonymity because he has clients involved with MERS. "So as far as anyone can tell their real theory was: `If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.' "
County officials appealed to Congress, arguing that MERS was of dubious legality. But this was the 1990s, an era of deregulation, and the mortgage industry won.
"We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property," said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.
And so MERS took off. Its board gave its senior vice president, William Hultman, the rather extraordinary power to deputize an unlimited number of "vice presidents" and "assistant secretaries" drawn from the ranks of the mortgage industry.
The "nomination" process was near instantaneous. A bank entered a name into MERS's Web site, and, in a blink, MERS produced a "certifying resolution," signed by Mr. Hultman. The corporate seal was available to those deputies for $25.
As personnel policies go, this was a touch loose. Precisely how loose became clear when a lawyer questioned Mr. Hultman in April 2010 in a lawsuit related to its foreclosure against an Atlantic City cab driver.
How many vice presidents and assistant secretaries have you appointed? the lawyer asked.
"I don't know that number," Mr. Hultman replied.
Approximately?
"I wouldn't even be able to tell you, right now."
In the thousands?
"Yes."
Each of those deputies could file loan transfers and foreclosures in MERS's name. The goal, as with almost everything about the mortgage business at that time, was speed. Speed meant money.
ALAN GRAYSON has seen MERS's record-keeping up close. From 2009 until this year, he served as the United States representative for Florida's Eighth Congressional District — in the Orlando area, which was ravaged by foreclosures. Thousands of constituents poured through his office, hoping to fend off foreclosures. Almost all had papers bearing the MERS name.
"In many foreclosures, the MERS paperwork was squirrelly," Mr. Grayson said. With no real legal authority, he says, Fannie and the banks eliminated the old system and replaced it with a privatized one that was unreliable.
A spokeswoman for MERS declined interview requests. In an e-mail, she noted that several state courts have ruled in MERS's favor of late. She expressed confidence that MERS's policies complied with state laws, even if MERS's members occasionally strayed.
"At times, some MERS members have failed to follow those procedures and/or established state foreclosure rules," the spokeswoman, Karmela Lejarde, wrote, "or to properly explain MERS and document MERS relationships in legal pleadings."
Such cases, she said, "are outliers, reflecting case-specific problems in process, and did not repudiate the MERS business model."
MERS's legal troubles, however, aren't going away. In August, the Ohio secretary of state referred to federal prosecutors in Cleveland accusations that notaries deputized by MERS were signing hundreds of documents without any personal knowledge of them. The attorney general of Massachusetts is examining a complaint by a county registrar that MERS owes the state tens of millions of dollars in unpaid fees.
As far back as 2001, Ed Romaine, the clerk for Suffolk County, on eastern Long Island, refused to register mortgages in MERS's name, partly because of complaints that the company's records didn't square with public ones. The state Court of Appeals later ruled that he had overstepped his powers.
But Judith S. Kaye, the state's chief judge at the time, filed a partial dissent. She worried that MERS, by speeding up property transfers, was pouring oil on the subprime fires. The MERS system, she wrote, ill serves "innocent purchasers."
"I was trying to say something didn't smell right, feel right or look right," Ms. Kaye said in a recent interview.
Little about MERS was transparent. Asked as part of a lawsuit against MERS in September 2009 to produce minutes about the formation of the corporation, Mr. Arnold, the former C.E.O., testified that "writing was not one of the characteristics of our meetings."
MERS officials say they conduct audits, but in testimony could not say how often or what these measured. In 2006, Mr. Arnold stated that original mortgage notes were held in a secure "custodial facility" with "stainless steel vaults." MERS, he testified, could quickly produce every one of those files.
As for homeowners, Mr. Arnold said they could log on to the MERS system to identify their loan servicer, who, in turn, could identify the true owner of their mortgage note. "The servicer is really the best source for all that information," Mr. Arnold said.
The reality turns out to be a lot messier. Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents.
The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.
Some experts in corporate governance say the legal furor over MERS is overstated. Others describe it as a useful corporation nearly drowning in a flood tide of mortgage foreclosures. But not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.
"We would never rely on it to find ownership," says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.
Apparently with good reason. Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS's ownership records against those in the public domain.
The results were not encouraging. "Fewer than 30 percent of the mortgages had an accurate record in MERS," Mr. White says. "I kind of assumed that MERS at least kept an accurate list of current ownership. They don't. MERS is going to make solving the foreclosure problem vastly more expensive."
THE Sarmientos are one of thousands of American families who have tried to pierce the MERS veil.
Several years back, they bought a two-family home in the Greenpoint section of Brooklyn for $723,000. They financed the purchase with two mortgages from Lend America, a subprime lender that is now defunct.
But when the recession blew in, Jose Sarmiento, a chef, saw his work hours get cut in half. He fell behind on his mortgages, and MERS later assigned the loans to U.S. Bank as a prelude to filing a foreclosure motion.
Then, with the help of a lawyer from South Brooklyn Legal Services, Mr. Sarmiento began turning over some stones. He found that MERS might have violated tax laws by waiting too long before transferring his mortgage. He also found that MERS could not prove that it had transferred both note and mortgage, as required by law.
One might argue that these are just legal nits. But Mr. Sarmiento, 59, shakes his head. He is trying to work out a payment plan through the federal government, but the roadblocks are many. "I'm tired; I've been fighting for two years already to save my house," he says. "I feel like I never know who really owns this home."
Officials at MERS appear to recognize that they are swimming in dangerous waters. Several federal agencies are investigating MERS, and, in response, the company recently sent a note laying out a raft of reforms. It advised members not to foreclose in MERS's name. It also told them to record mortgage transfers in county records, even if state law does not require it.
MERS will no longer accept unverified new officers. If members ignore these rules, MERS says, it will revoke memberships.
That hasn't stopped judges from asking questions of MERS. And few are doing so with more puckish vigor than Arthur M. Schack, a State Supreme Court judge in Brooklyn.
Judge Schack has twice rejected a foreclosure case brought by Countrywide Home Loans, now part of Bank of America. He had particular sport with Keri Selman, who in Countrywide's court filings claimed to hold three jobs: as a foreclosure specialist for Countrywide Home Loans, as a servicing agent for Bank of New York and as an assistant vice president of MERS. Ms. Selman, the judge said, is a "milliner's delight by virtue of the number of hats that she wears."
At heart, Judge Schack is scratching at the notion that MERS is a legal fiction. If MERS owned nothing, how could it bounce mortgages around for more than a decade? And how could it file millions of foreclosure motions?
These cases, Judge Schack wrote in February 2009, "force the court to determine if MERS, as nominee, acted with the utmost good faith and loyalty in the performance of its duties."
The answer, he strongly suggested, was no.
http://www.nytimes.com/2011/03/06/business/06mers.html?_r=1&hpw=&pagewanted=all
Shell chief Peter Voser warns oil demand could outstrip supply
Peter Voser, the chief executive of Royal Dutch Shell, believes the $116 oil price caused by the Middle East crisis will soon ease back, but warned of a longer-term shock where "supply cannot meet demand".
Peter Voser said he had confidence in the ability of OPEC to compensate for the loss of 1m barrels per day of production from Libya Photo: BLOOMBERG
By Rowena Mason 6:31PM GMT 04 Mar 2011
Lack of investment over the past two to three years will most likely be the biggest driver of high oil prices, he said on Friday.
"We may face a situation at one stage where supply cannot meet demand," Mr Voser said. "That's where OPEC spare capacity will help but we have to replace significant barrels because of natural decline over time."
The boss of Europe's biggest oil company said he had confidence in the ability of OPEC, the oil cartel, to compensate for the loss of 1m barrels per day of production from Libya. More than half the North African country's production has been lost as uprisings worsens and the nation heads towards civil war.
"I think as OPEC has highlighted there is enough spare capacity to actually replace the shortage of oil out of Libya and it will over time balance itself again," Mr Voser said.
"Once the Middle East calms down, the oil price will be in the area where it is determined by supply and demand.
"Hopefully in the longer term it will not have substantial impact on economy. I still see economic growth in 2011."
The oil price rose again on Friday as tensions in Libya showed no signs of abating, having dropped down on Thursday on hopes of peace talks. The London benchmark, Brent crude, increased by $1.25, or 1pc, to $116.04 in barrel, as dozens more people were killed in clashes across the country.
The contract price has risen by 3.5pc this week and is up by more than 16pc since the beginning of the crisis in North Africa and the wider Gulf region.
Andrew Horstead, risk analyst at Utilyx, said: "Oil has soared to a two-and-a-half-year high of $116 a barrel and we expect prices to test new highs over the coming weeks if there is no sign of a political breakthrough. Prolonged instability in Libya and the prospect of an all-out civil war spilling over into neighbouring countries is the immediate concern. Any indications that Saudi Arabia is being dragged into the picture will raise immediate alarm bells and will almost certainly mean oil prices soaring further.
The Saudi Arabian stock market has plunged 20pc since mid-February on fears that it could also see insurrection. Shell is holding meetings with major investors about further changes to its executive pay, two years after a serious shareholder revolt.
On Friday, Hans Wijers, remuneration committee chairman, wrote to investors outlining changes to pacify them. The oil group froze executive pay last year and aligned bonuses more with performance.
http://www.telegraph.co.uk/finance/oilprices/8362579/Shell-chief-Peter-Voser-warns-oil-demand-could-outstrip-supply.html
Norway Oil Drillers Hit Record Dry Spell as Reserves Wane
By Marianne Stigset - Mar 3, 2011 6:09 AM ET
Statoil ASA and Eni SpA are among companies with plans to drill a record number of wells in Norway's far north this year to help the world's second-largest gas exporter to sustain output. Photographer: Heidi Wideroe/Bloomberg
Statoil ASA and Eni SpA are among companies with plans to drill a record number of wells in Norway's far north this year to help the world's second-largest gas exporter to sustain output. Photographer: Heidi Wideroe/Bloomberg
Statoil ASA (STL) and Eni SpA (ENI) are among companies with plans to drill a record number of wells in Norway's far north this year to help the world's second-largest gas exporter to sustain output. So far, they've struck out.
All four wells drilled in the Barents and Norwegian seas this year have failed to find oil or gas, adding to two dry wells in the North Sea, the biggest number of failures to start the year since the country's oil era began in 1966, according to government data. Oil companies plan as many as 22 wells in Norway's Arctic this year, up from 12 last year.
Helge Lund, chief executive officer at state-controlled oil company Statoil, says the industry has been unable to "crack the code" of the Barents Sea, off Scandinavia's northern tip. Norway, where energy production makes up about 25 percent of the economy, is pushing into the Arctic and relying more on gas because oil output has slumped 50 percent since peaking in 2000.
The Barents Sea "is extremely important for Norwegian oil production given that the mature areas are in extreme decline," said Torbjoern Kjus, an analyst at DnB NOR ASA in Oslo. "Every dry well is a setback, but we have to keep trying where there might be resources left if we're going to maintain Norwegian production going for as long as possible."
Resources Cut
Explorers drilled 16 dry wells off Norway last year, part of the reason the Petroleum Directorate cut its estimate for undiscovered gas by 31 percent, or by 570 billion cubic meters. That's equal to almost six years of production for Norway.
Norway estimates the Norwegian Sea holds 455 billion cubic meters in undiscovered gas and the Barents Sea 520 billion cubic meters. Total undiscovered gas resources may be 1.26 trillion cubic meters, the directorate said in January, down from an estimate of 1.82 trillion cubic meters last year. The country had proven gas reserves of 2 trillion cubic meters in 2009.
"It's disappointing that we haven't seen any results yet," said Thina Saltvedt, an analyst at Nordea Markets in Oslo. "Norway is important for the oil market because we export a lot of the oil we produce and not least because we have a stable political situation."
Statoil last week started work on its last well for the year in the Barents Sea, in the Skrugard area. The other four wells will be drilled by Total SA (FP), GDF Suez SA, Dong Energy A/S and Lundin Petroleum AB. (LUPE) Eni also postponed two wells in the Salina and Boenna prospects until next year because of a rig delay, said Andreas Wulff, a company spokesman, by phone.
Heilo Prospect
GDF will begin drilling at the Heilo prospect in August or September with the Aker Barents rig, which will then move on to work for Dong, GDF spokesman Ulf Rosenberg said. Rocksource ASA, which owns 20 percent in Heilo, estimates the chance of a discovery at more than 50 percent and sees recoverable resources at 200 million barrels of oil equivalents, according to a statement on its website.
The Barents Sea has two developments, Statoil's Snohvit gas field, and Eni's Goliat, an oilfield that is scheduled to start pumping in 2013.
"A dry well is disappointing, but every new well is a new possibility," Ola Anders Skauby, a Statoil spokesman, said by phone this week. "We still believe in the Barents Sea."
A find at Skrugard would be positive for investments at Snohvit, Skauby said. Statoil and partners including Total, GDF, RWE AG and Hess Corp. are hoping to find more gas to enable a second liquefied natural gas plant at Melkoeya, the onshore production facility near Snohvit. An investment decision is scheduled for 2013.
Challenging Targets
The lack of discoveries is challenging targets to maintain production offshore Norway and imperiling the development of a second gas hub in the Norwegian Sea. Statoil missed production targets last year and has said a goal of keeping output in Norway at current levels until 2020 is "ambitious."
Producers operating off Norway are investing a record amount in exploration and production this year to make bigger discoveries and prolong output from existing fields. Investments are estimated to climb 13 percent to 141.1 billion kroner ($25 billion) driven by an 11 percent increase in spending on exploration, the country's statistics agency said today.
Appraisal wells last year around Royal Dutch Shell Plc (RDSA)'s Gro discovery in the Norwegian Sea have indicated resources may be at the lower end of a 10 billion to 100 billion cubic meters estimate. Total, Europe's third-largest oil company, also reduced the size of its Victoria find in the area after more drilling in 2009.
The Norwegian Sea is also home to Shell's Ormen Lange, Europe's third largest gas deposit, where the company announced a dry appraisal well last month. The Petroleum Directorate and the company are assessing the field after estimated reserves at the field were cut by 24 percent last year following two appraisal wells.
Protected Waters
Det Norske Oljeselskap ASA (DETNOR), a Trondheim, Norway-based explorer, on Feb. 28 also reported a dry well in a prospect east of the Ormen Lange field.
Continued failure may increase pressure on the government to open up protected waters off the Lofoten and Vesteraalen islands in the Norwegian Sea. Norway is also targeting areas to the east, after signing a maritime delimitation treaty with Russia in September, settling a four-decade dispute. The treaty needs to be ratified by both parliaments. The waters along the Russian border, as well as the unexplored area around the Jan Mayen Island are described by Norway as carrying the potential to prolong petroleum output. There are no resource estimates.
The government is set to reach a decision this month on whether to start a study of the consequences of exploration off Lofoten and Vesteraalen, where 3.5 billion barrels in oil and gas is estimated to lie.
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net;
http://www.bloomberg.com/news/2011-03-03/norway-drillers-hit-worst-dry-spell-in-decades-as-reserves-wane.html
Whiskey & Gunpowder- The Political Economy of Government Employee Unions
By Thomas DiLorenzo
February 28, 2011
Baltimore, Maryland, U.S.A.
The Political Economy of Government Employee Unions
The main reason so many state and local governments are bankrupt, or on the verge of bankruptcy, is the combination of government-run monopolies and government-employee unions. Government-employee unions have vastly more power than do private-sector unions because the entities they work for are typically monopolies.
When the employees of a grocery store, for example, go on strike and shut down the store, consumers can simply shop elsewhere, and the grocery-store management is perfectly free to hire replacement workers. In contrast, when a city teachers’ or garbage-truck drivers’ union goes on strike, there is no school and no garbage collection as long as the strike goes on. In addition, teachers’ tenure (typically after two or three years in government schools) and civil service regulations make it extremely costly if not virtually impossible to hire replacement workers.
Thus, when government bureaucrats go on strike they have the ability to completely shut down the entire “industry” they “work” in indefinitely. The taxpayers will complain bitterly about the absence of schools and garbage collection, forcing the mayor, governor, or city councilors to quickly cave in to the union’s demands to avoid risking the loss of their own jobs due to voter dissatisfaction. This process is the primary reason why, in general, the expenses of state and local governments have skyrocketed year in and year out, while the “production” of government employees declines.
For decades, researchers have noted that the more money that is spent per pupil in the government schools, the worse is the performance of the students. Similar outcomes are prevalent in all other areas of government “service.” As Milton Friedman once wrote, government bureaucracies — especially unionized ones — are like economic black holes where increased “inputs” lead to declining “outputs.” The more that is spent on government schools, the less educated are the students. The more that is spent on welfare, the more poverty there is, and so on. This of course is the exact opposite of normal economic life in the private sector, where increased inputs lead to more products and services, not fewer.
Thirty years ago, the economist Sharon Smith was publishing research showing that government employees were paid as much as 40 percent more than comparable private-sector employees. If anything, that wage premium has likely increased.
The enormous power of government-employee unions effectively transfers the power to tax from voters to the unions. Because government-employee unions can so easily force elected officials to raise taxes to meet their “demands,” it is they, not the voters, who control the rate of taxation within a political jurisdiction. They are the beneficiaries of a particular form of taxation without representation (not that taxation with representation is much better). This is why some states have laws prohibiting strikes by government-employee unions. (The unions often strike anyway.)
Politicians are caught in a political bind by government-employee unions: if they cave in to their wage demands and raise taxes to finance them, then they increase the chances of being kicked out of office themselves in the next election. The “solution” to this dilemma has been to offer government-employee unions moderate wage increases but spectacular pension promises. This allows politicians to pander to the unions but defer the costs to the future, long after the panderers are retired from politics.
As taxpayers in California, Wisconsin, Indiana, and many other states are realizing, the future has arrived. The Wall Street Journal reports that state and local governments in the United States currently have $3.5 trillion in unfunded pension liabilities. They must either raise taxes dramatically to fund these liabilities, as some have already done, or drastically cut back or eliminate government-employee pensions.
Government-employee unions are primarily interested in maximizing the profits of the union. Consequently, they use civil-service regulations as a tool to protect the job of every last government bureaucrat, no matter how incompetent or irresponsible he or she is. Fewer employed bureaucrats means fewer union dues are being paid. Thus, it is almost guaranteed that government-employee unions will challenge in court the attempted dismissal of all bureaucrats save the occasional ones who are accused of actual criminal behavior. This means that firing an incompetent government school teacher, for example, can take months, or years, of legal wrangling.
Politicians discovered long ago that the most convenient response to this dilemma is to actually reward the incompetent bureaucrat with an administrative job that he or she will gladly accept, along with its higher pay and perks. That solves the problem of parents who complain that their children’s math teacher cannot do math, while eliminating the possibility of a lawsuit by the union. This is why government-school administrative offices are bloated bureaucratic monstrosities filled with teachers who can’t teach and are given the responsibilities of “administering” the entire school system instead. No private-sector school could survive with such a perverse policy.
Government-employee unions are also champions of “featherbedding” — the union practice of forcing employers to hire more than the number of people necessary to do the job. If this occurs in the private sector, the higher wage costs will make the firm less competitive and less profitable. It may even go bankrupt, as the heavily unionized American steel, automobile, and textile industries learned decades ago.
No such thing happens in government, where there are no profit-and-loss statements, in an accounting sense, and most agencies are monopolies anyway. Featherbedding in the government sector is viewed as a benefit to both politicians and unions — but certainly not to taxpayers. The unions collect more union dues with more government employees, while the politicians get to hand out more patronage jobs. Each patronage job is usually worth two or more votes, since the government employee can always be counted on to get at least one family member or close friend to vote for the politician who gave him the job. This is why, in the vast literature showing the superior efficiency of private versus government enterprises, government almost always has higher labor costs for the same functions.
Every government-employee union is a political machine that lobbies relentlessly for higher taxes, increased government spending, more featherbedding, and more pension promises — while demonizing hesitant taxpayers as uncaring enemies of children, the elderly, and the poor (who are purportedly “served” by the government bureaucrats the unions represent).
It is the old socialist trick that Frédéric Bastiat wrote about in his famous essay, The Law: The unions view advocates of school privatization, not as legitimate critics of a failed system, but as haters of children. And the unions treat critics of the welfare state, not as persons concerned with the destruction of the work ethic and of the family that has been caused by the welfare state, but as enemies of the poor.
This charade is over. American taxpayers finally seem to be aware that they are the servants, not the masters, of government at all levels. Government-employee unions have played a key role in causing bankruptcy in most American states, and their pleas for more bailouts financed by endless tax increases are finally ringing hollow.
Regards,
Thomas DiLorenzo
http://whiskeyandgunpowder.com/
The need to protect the internet from 'astroturfing' grows ever more urgentThe tobacco industry does it, the US Air Force clearly wants to ... astroturfing – the use of sophisticated software to drown out real people on web forums – is on the rise. How do we stop it?
A real person using the internet. Unfortunately we can no longer assume what we are reading is written by one of these creatures.
Photograph: Jeff Blackler/Rex Features
Every month more evidence piles up, suggesting that online comment threads and forums are being hijacked by people who aren't what they seem.
The anonymity of the web gives companies and governments golden opportunities to run astroturf operations: fake grassroots campaigns that create the impression that large numbers of people are demanding or opposing particular policies. This deception is most likely to occur where the interests of companies or governments come into conflict with the interests of the public. For example, there's a long history of tobacco companies creating astroturf groups to fight attempts to regulate them.
After I wrote about online astroturfing in December, I was contacted by a whistleblower. He was part of a commercial team employed to infest internet forums and comment threads on behalf of corporate clients, promoting their causes and arguing with anyone who opposed them.
Like the other members of the team, he posed as a disinterested member of the public. Or, to be more accurate, as a crowd of disinterested members of the public: he used 70 personas, both to avoid detection and to create the impression there was widespread support for his pro-corporate arguments. I'll reveal more about what he told me when I've finished the investigation I'm working on.
It now seems that these operations are more widespread, more sophisticated and more automated than most of us had guessed. Emails obtained by political hackers from a US cyber-security firm called HBGary Federal suggest that a remarkable technological armoury is being deployed to drown out the voices of real people.
As the Daily Kos has reported, the emails show that:
• Companies now use "persona management software", which multiplies the efforts of each astroturfer, creating the impression that there's major support for what a corporation or government is trying to do.
• This software creates all the online furniture a real person would possess: a name, email accounts, web pages and social media. In other words, it automatically generates what look like authentic profiles, making it hard to tell the difference between a virtual robot and a real commentator.
• Fake accounts can be kept updated by automatically reposting or linking to content generated elsewhere, reinforcing the impression that the account holders are real and active.
• Human astroturfers can then be assigned these "pre-aged" accounts to create a back story, suggesting that they've been busy linking and retweeting for months. No one would suspect that they came onto the scene for the first time a moment ago, for the sole purpose of attacking an article on climate science or arguing against new controls on salt in junk food.
• With some clever use of social media, astroturfers can, in the security firm's words, "make it appear as if a persona was actually at a conference and introduce himself/herself to key individuals as part of the exercise … There are a variety of social media tricks we can use to add a level of realness to fictitious personas."
Perhaps the most disturbing revelation is this. The US Air Force has been tendering for companies to supply it with persona management software, which will perform the following tasks:
a. Create "10 personas per user, replete with background, history, supporting details, and cyber presences that are technically, culturally and geographically consistent … Personas must be able to appear to originate in nearly any part of the world and can interact through conventional online services and social media platforms."
b. Automatically provide its astroturfers with "randomly selected IP addresses through which they can access the internet" (an IP address is the number which identifies someone's computer), and these are to be changed every day, "hiding the existence of the operation". The software should also mix up the astroturfers' web traffic with "traffic from multitudes of users from outside the organisation. This traffic blending provides excellent cover and powerful deniability."
c. Create "static IP addresses" for each persona, enabling different astroturfers "to look like the same person over time". It should also allow "organisations that frequent same site/service often to easily switch IP addresses to look like ordinary users as opposed to one organisation."
Software like this has the potential to destroy the internet as a forum for constructive debate. It jeopardises the notion of online democracy. Comment threads on issues with major commercial implications are already being wrecked by what look like armies of organised trolls – as you can sometimes see on guardian.co.uk.
The internet is a wonderful gift, but it's also a bonanza for corporate lobbyists, viral marketers and government spin doctors, who can operate in cyberspace without regulation, accountability or fear of detection. So let me repeat the question I've put in previous articles, and which has yet to be satisfactorily answered: what should we do to fight these tactics?
http://www.guardian.co.uk/environment/georgemonbiot/2011/feb/23/need-to-protect-internet-from-astroturfing?CMP=twt_gu
I'll believe it when I see it...eom
New Rules Will Cause Panic For Shorts
Posted: Feb 25 2011 By: Jim Sinclair
February 25, 2011 at 9:12 pm
Filed under: General Editorial
Dear Friends,
Between now and Monday, February 28th be prepared for panicked short sellers who cannot make delivery to try every trick in the book to buy back their short positions.
The following is information from Dr. Jim Decosta:
Here is the URL:
http://www.finra.org/Industry/Regulation/RuleFilings/2010/P121892?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FINRARuleFilings+(FINRA+Rule+Filings)
Quote: There’s 3 new laws gaining attention in the NSS market reform arena: FINRA 4320 goes into effect on 2/28/11. It mandates 13 day buy-ins for open delivery failures FINALLY applying to shares of non-reporting corporations. FINRA 2010-043, also starting on 2/28/11 reinstates the “short sale exempt” (SSE) marking requirements for trade reporting and the OATS system. Those MMs accessing the bona fide MM exemption from executing pre-borrows or “locates” before admittedly naked short sales must now FORMALLY acknowledge the accessing of that universally-abused exemption. Being that these trades are theoretically being made to “inject liquidity” then the excuse to hide the related trade data from the public’s eyes goes out the window. You can’t have it both ways and claim the bona fide MM exemption and later claim that the related trade data needs to be kept secret because it might reveal a “proprietary trading strategy”.
Truly bona fide MMs that are able to legally access that universally-abused exemption cover their naked short position on the next downtick after their short sale when buy side liquidity is in need of being ejected as share prices fall. The 3rd new rule which is in effect now states that the offers and bids that MMs post must be of approximately the same size. No longer can the offers be of 1 million shares and the offsetting bid good for the minimum 5,000 shares.
The verbiage in 4320 is especially well done as it FINALLY puts the clearing firms that aid and abet this crime wave on the spot. With the FFETF, which is made up of 25 different agencies, now on the scene the transparency has increased markedly. You can imagine how critical the lack of transparency is to a crime involving selling nonexistent securities and then refusing to ever deliver that which you sold AFTER being allowed access to the funds of the investor being defrauded.
Here are the links to the rules SR-FINRA-2010-028 and SR-FINRA-2010-043:
www.finra.org/Industry/Regulation/RuleFilings/2010/P121522
Notice the part I marked in bold in the quote above:
"FINRA 4320 goes into effect on 2/28/11. It mandates 13 day buy-ins for open delivery failures FINALLY applying to shares of non-reporting corporations."
http://jsmineset.com/
Robert McFarlane: Open Fuel Standards Are Critical To Fighting the Peak Oil Catastrope
--------------------------------------------------------------
Friday, February 25, 2011
Click the play button below to listen to Chris' interview with Robert C. McFarlane (runtime 34m:39s):
http://www.chrismartenson.com/category/blog/chris-martensons-blog
that's funny and so sad...hard to believe people think that way.
The Role of US Debt in the Current Revolution
By Bill Bonner
02/22/11 Paris, France – Cereal Wars…and Zombie Wars…
Hey, how ’bout that Ben Bernanke… He’s a freedom fighter! Look what he’s done to North Africa!
Seems like every time we pick up the paper another dictator is toppling over. Where does it lead, we wonder? What would a world be like without dictators? Without them, who will the CIA and the State Department give our money to?
On the run this morning (but not quite given up) is Muammar Gaddafi of Libya.
Wait… Is this guy a friend or an enemy? We can’t remember. Wasn’t he a bad guy a few years ago? But recently we’ve heard that he is a good guy. He’s helped with the War on Terror. And he sells oil.
Friend or foe, we don’t know…but whatever he is, he’s beginning to look past tense. As of this morning, reports say he’s lost control of Libya’s second largest city. His troops are firing on protesters in the capital, where he and his loyal guards are holed up in a few government buildings.
His son vows to fight back. He says there will be “rivers of blood” before he gives up.
That “rivers of blood” image was used by Enoch Powell in Britain fifty years ago. It came from Virgil’s Aeneid, in which a character foresees “wars, terrible wars, and the Tiber foaming with much blood.”
Powell was referring to the effects of immigration into Britain from Africa and elsewhere. He thought he saw race wars and power struggles coming as a result.
But the younger Gaddafi uses the language as a threat, not a prophecy.
Still, it didn’t do Powell much good. Maybe Gaddafi will have better luck with it. Most likely, he’ll high tail it out of the country before the blood is his own. That will bring to three the number of regime changes in the last few weeks. Which leads us to ask: what’s up?
The answer comes from our old friend, Jim Davidson. He pins the revolutions on Ben Bernanke. Behind the popular discontent is neither the desire for liberty nor the appeal of elections. It’s food. And behind soaring food prices is Ben Bernanke.
The Arab world is a model Malthusian disaster, says Davidson. Populations have ballooned. Food production has not. Which makes Arab countries the biggest importers of cereals in the world. And when the price of food goes up, the masses rise up too.
From Jim’s latest newsletter, Strategic Investment:
Food prices hit an all-time high in January. According to the UN’s Food and Agricultural Organization (FAO) “the FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4 percent from December 2010 and the highest in both real and nominal terms” since records began. Note that prices have now exceeded the previously record levels of 2008 that sparked food riots in more than 30 countries. “Famine-style” prices for food and energy that prevailed early in 2008 may also have helped precipitate the credit crisis that Federal Reserve Chairman Ben Bernanke described in closed-door testimony “as the worst in financial history, even exceeding the Great Depression.”
This time around, the turmoil surrounding commodity inflation has taken center stage with more serious riots and even revolutions across the globe. Popular discontent is not just confined to “basket case” countries like Haiti and Bangladesh as in 2008. High food prices have roiled Arab kleptocracies with young populations and US backed dictators such as Tunisia, Egypt, Bahrain and Yemen. Even dynamic economies have been affected. Indeed, all of the BRIC countries, except Brazil, have witnessed food rioting.
Well, how do you like that, Dear Reader? All those billions of dollars spent propping up dictators – $70 billion was the cost of supporting Hosni Mubarak in Egypt alone – and then the Fed comes along and knocks them down.
The Fed lowers the cost of money so speculators can borrow below the rate of inflation. And then it prints up trillions more – just to top up the worlds’ money supply.
Is it any wonder food prices rise? Imagine you’re a farmer…or a speculator. You can sell food. Or you can hold it in storage. You know the food is valuable. You know the world has more and more mouths to feed everyday. You know food production is limited. And you know Ben Bernanke can print up an unlimited number of dollars. What do you do?
Do you sell immediately? Or drag your feet…holding onto your valuable grain as the price hits new highs?
Davidson continues:
While Mr. Bernanke modestly declines the credit for de-stabilizing much of the world, close analysis confirms that he played an informing role. His QE2 program of counterfeiting trillions out of thin air has helped ignite a raging bull market in raw materials with food and commodities – up 28% in the past six months. The fact that the US dollar has heretofore been the world’s reserve currency means that almost all commodity prices are denominated in dollars. As a matter of simple math, when the dollar goes down, the prices of commodities tend to go up.
Today, Libya. Tomorrow…Yemen? Or Saudi Arabia.
In North Africa, Cereal Revolutions…
In North America, Zombie Wars…
Yes, the battle rages in the Dairy State. And yes, Nobel Prize winner Paul Krugman (Economics!) has no idea what is going on:
It’s “not about the budget. It’s about power.”
He thinks it is a battle between the rich and powerful, whom he calls the “oligarchy,” and the decent lumpenproletariat on the other. Wisconsin’s governor is trying to bust the union, says Krugman, so that the elite can ride roughshod over poor government workers, cut their pay, and reduce their benefits (thereby downsizing the state’s budget deficit).
It’s not about money, says the New York Times columnist. He’s wrong, as usual. The Zombie Wars are always about money. There is less money available and more zombies who want it.
In the present case, rather than hire honest people to work at market rates…Krugman wants the state to be forced to deal with a privileged union. Union zombies should bargain with government zombies, he says. Together, in cooperation, not in conflict, they should figure out how to rip off the taxpayer.
Stay tuned…the Zombie Wars are just beginning.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: The Role of US Debt in the Current Revolution http://dailyreckoning.com/the-role-of-us-debt-in-the-current-revolution/#ixzz1Evva0p9P
OMG I am running out of ignores...eom
So Much Stimulus. So Little to Show for It.
By Bill Bonner
02/15/11 Baltimore, Maryland – First, let’s step back and look at the big picture.
In 2007, after 60 years of stretching credit, the US economy snapped.
Savings rates went up…from near zero up to 7%. Houses went into foreclosure. People tossed away their credit cards. Wall Street wobbled…and almost fell.
The feds rushed in, trying to stop the correction.
They threw everything they had into the fight against the big D – deflation, de-leveraging, default, and depression.
Fiscal stimulus, monetary stimulus, unorthodox stimulus – trillions of dollars’ worth. The biggest stimulus program of all time – with budget deficits of 10% of GDP…special stimulus spending on “shovel ready” programs for $800 billion…zero interest rates…and a total of $1.7 trillion in Fed purchases of mortgage backed securities and US Treasury debt.
What happened?
Well…not much. Unemployment rose to nearly 10% (after President Obama promised that his stimulus program would hold it at 8%). About 30 million people are still jobless.
House prices are still falling. Foreclosures are still rising.
GDP is positive…meaning, technically, the recession is over. But after such overwhelming stimulus (negative interest rates for more than 2 years)…you’d expect more than a tepid increase.
Besides, who knows what is really going on? The figures are all in terms of dollars. And now, who knows what the dollar is worth?
The feds’ hot money has swamped the world. Food prices are soaring. Oil is approaching $100 a barrel. And a prominent analyst predicts that it will hit $300 by 2020.
The feds say the US core inflation rate is still less than 2%…but the core rate doesn’t include the things that are going up – food and energy. Properly adjusted for real cost of living increases…
…and shorn of the curly growth caused by government’s deficit spending (which it can’t continue forever)…
…real GDP growth might actually be negative!
The Great Correction continues, in other words. Confusing and frustrating…with mixed signals and false starts. And it will continue for a long time. For the harder the feds fight against it, the tighter the ropes become.
The feds’ hot money boosts stock prices. But prices for the raw materials go up too. And food and energy prices paid by consumers. The consumer has less real purchasing power. Business profit margins are squeezed.
Meanwhile, the Fed continues printing dollars – $600 billion of them scheduled for January to June of this year. Alert dollar holders wonder how long it can continue. Shrewd investors wonder how it could stop.
If it takes a $1.5 trillion budget deficit and negative interest rates to produce 3% growth…what would a balanced budget and a 3% lending rate do?
We don’t know. But we know one thing: no one in Washington or in a position of authority wants to find out.
The Financial Times yesterday reported that Mr. Obama will propose cutting $1.1 trillion from US deficits over the next 10 years.
Hey… Wait a minute… That’s $110 billion per year…out of a $3.7 trillion annual budget – a cut (please sit down, dear reader) of 3%…or only 7/10ths of 1% of GDP!
Woo hoo! Hallelujah…
Our problems are solved.
Bill Bonner
for The Daily Reckoning
Read more: So Much Stimulus. So Little to Show for It. http://dailyreckoning.com/so-much-stimulus-so-little-to-show-for-it/#ixzz1EBUB5DzP
Revolution in Egypt and Where to Be When Black Swans Appear
By Bill Bonner
02/14/11 Baltimore, Maryland – Not much action in the stock market on Friday. Gold didn’t do much either.
The big news was that Hosni Mubarak called it quits. After supporting him for 3 decades, the US threw him under a tank. Almost everywhere except the Mubarak household, people rejoiced. We were surprised they had an opinion, one way or the other.
We got emails from strangers telling us what a “hopeful” development this was…or how “free elections” might be coming next.
Typical was the report in The Washington Post:
“Mubarak became the second Arab leader in a month to succumb to his people’s powerful thirst for freedom.”
“Thirst for freedom?” If Egyptians were thirsty for freedom they must be like camels. They only need a drink of it once every 30 years. Mubarak ruled for three decades. Egyptians went without quenching their “powerful thirst for freedom” through the ’80s, the ’90s and the ’00s. Apparently, they only needed to bring the cup to their lips this year.
Many spoke of the “jubilant crowds” and the “idealistic youth” behind the peaceful revolution.
We were tempted to mention the jubilant crowds that attended the execution of Louis 16th…or the idealistic youth who gathered to jeer at Nicholas II when he and his family were shipped off to Yekaterinburg, where they would be murdered, along with their valet and even the cook.
Mubarak left office on Friday. The army took control on Saturday. On Sunday, the generals dissolved parliament.
Revolutions don’t always turn out well. The French Revolution was a good time to be in England. The Russian Revolution was a good time to be almost anywhere other than Russia. Even the American Revolution was a good time to be elsewhere too. And then, when Americans finally got their freedom from Britain they almost immediately began shackling one another. Tax rates had been only about 3% when the English ran the colonies. Now, the federal rate is 11 times as much. And for every injustice done to Americans by the English there must be 100 they have done to themselves.
But revolutions happen.
Where should you be now? We don’t know. But we suggest that you have a bolt hole somewhere. A refuge…a getaway…a family stronghold…
Many things could go wrong. Earthquakes. Plagues. Volcanic eruptions. Wars. Bankruptcies. Hyperinflations. And – we wouldn’t rule it out – invasions from space.
These events are hard to predict. Even something as obvious as the revolution in Egypt was unforeseen by almost everyone. We pay the CIA hundreds of billions to keep on top of things like this, but as one journal put it, sarcastically: “CIA Forecasts, like, Suck.”
Here at The Daily Reckoning, however, we take up for the CIA, just as we would stand up for any drunk or half-wit. The CIA’s work is at least on a par with the SEC or Amtrak. We have no doubt about it. It is at least as efficient as the Post Office. It is as necessary as the TSA. And it is as competent and effective as the Congressional Ethics Committee.
But we do not take up pen today to criticize America’s intelligence agencies. Instead, we merely point out that: bad stuff happens.
What kind of bad stuff? All kinds. Kinds you expect. And kinds you don’t.
The problem with bad stuff is that it often comes in drag…pretending to be something it is not. A “peaceful revolution,” for example, can turn bloody mighty fast. And no one gives you advance notice.
Real trouble comes unannounced. If you knew that the dollar would collapse on the 3rd of June, for example, you could switch your money into euros. If the Irish Prime Minister called you on the phone and tipped you off – “Hey, we’re going to default next Thursday,” – you’d know what to do. You’d short the euro and make a bundle. Or, if you intercepted a secret cable – “Nuclear Attack on Washington, DC, 4PM, October 13th…” you’d get out of town as soon as possible.
But black swans do not honk before they appear. They just appear.
We’ve spent a lot of time anticipating disaster. There will be a collapse of the international monetary system, for example. It is almost inevitable…but it is still unpredictable. We can’t say when or how it will come about.
Likewise, much higher inflation rates are coming…and a huge sell-off in government bond markets. Those things will provoke widespread financial disasters – possibly leading to riots, revolutions and other bad stuff.
It is possible that these financial calamities will cause a major economic disruption, like the collapse of the Roman Empire. In the chaos, trading networks could fall apart and take many decades to be rebuilt. GDP growth could turn negative and remain in the red for years. Developed regions could slide backward for generations. Emerging markets could explode. Who knows what would happen?
We see trouble coming…but we can’t tell you exactly what color wig it will be wearing…when it will get here…or what it will do when it arrives.
And then, there are the disasters that are impossible to see coming at all. For example, our old friend, Marc Faber, includes an essay on “cyber security” in his latest newsletter:
“Whether we acquiesce or not, our lives are determined by technology and computer systems. Our electric grids, nuclear systems, water supplies, financial institutions, fuel systems, communication systems, as well as our governments, are directed by technological systems, which are subject to attack or disruption.”
Apparently, the cyber attackers are well funded, very sophisticated groups engaged in serious warfare all the time. For the moment, they are outgunned by the forces of law and order – led by the USA. But imagine what happens when the USA runs out of money? How long will it take the attackers to get ahead technologically? With all the billions and billions of dollars worth of capital in the world…and the millions of people with high-tech computer skills…it seems like a matter of time before a serious Black Swan event occurs.
One thing about cyber war makes it especially attractive to low budget terrorists – it costs relatively little to maintain a serious threat. No battleships necessary. No billion-dollar fighter jets. No nuclear deterrent. In fact, with the right team of software geniuses, it may be possible to turn a nation’s own nuclear capability against itself.
“The US Department of Defense classified military computer networks were attacked in 2008. At a military base in the Middle East, an infected flash drive was inserted into a US military laptop, presumably by a foreign intelligence agency. The code uploaded itself to a network run by the US Central Command, spreading undetected in classified and unclassified systems, creating a digital source from which data could be transferred to computer systems under foreign control.”
In other words, when it comes to bad stuff…the sky’s the limit. It’s gonna happen, eventually…one way or another. And it could be real bad.
And when bad stuff happens, you’re better off being somewhere else.
Where?
Generally, bad stuff seems to happen most often in cities. Why is that? Cities are where most people live. It is where governments are. And it is where the labor force is most specialized.
There are no subsistence farmers living in cities. Nor do urban populations “live off the land.” Instead, they depend on complex networks of commerce. The typical city dweller produces neither food nor energy. He sits all day in an office – completely dependent on others to provide power and food. Then, he goes home – still completely dependent on the division of labor for his most important needs.
Progress can be described as the elaboration of the division of labor. In man’s most primitive state, specialization is extremely limited. From what we’ve been told, the early man was the hunter. Early woman gathered…that’s about the extent of it.
As the tribe grows larger, specialization increases. One person might tend the fire. Another might be in charge of making clothes or arrows.
The advent of sedentary agriculture and towns caused a big leap forward in human progress and, not coincidentally, the division of labor. Some townspeople went out to tend the fields. Others began to focus on woodworking…or iron mongering…or making weapons…or clothes. Some played cards and hung around at bars. There was soon a homebuilding industry…and, not long after, merchants, prostitutes and bankers…and even shyster lawyers and tax collectors.
As the division of labor expanded, the average person became richer…and more dependent on others. In order to eat, someone else had to plant…and till…and harvest…and hunt…and gather. And then, when agriculture became mechanized, he depended on faraway people who produced oil and gasoline…and people who built tractors and combines…and bankers who financed industries and factories. And, of course, he was more dependent on money too. In the days when he bartered, money was no threat. Then, when he traded only with gold and silver coins, there were no monetary breakdowns…no hyperinflations…and no financial crises.
As the 20th century progressed, more and more people gave up agriculture, moved to cities and took part in other industries. Today, cities may have millions of residents – like Bombay with 14 million…or Sao Paulo with 20 million…or Mexico City with even more. All of these people are dependent on vast, stretched lines of communication and commerce.
Even the farmers themselves are now dependent on these sophisticated networks of commerce. They depend on money…and what it will buy. Agriculture has become monocultural. That is, a farmer is likely to produce only wheat. Or only rapeseed. Or only barley. Or only cattle. Gone are the chickens around the farmhouse and the pig in the back pen. If the system of transport and trade breaks down – or the money itself goes bad – thousands of farmers could go hungry too.
There are black swans all over the place, waiting to be discovered. And when a black swan appears, people in the cities seem to suffer most.
In the hyperinflation in Germany in 1923, for example, farmers had so much food they ran out of storage space. But they wouldn’t sell it to city slickers. The mark was losing value so fast, farmers preferred to hold their crops off the market, knowing that the price was soaring…and that if they sold, the money they got would soon be worthless.
People in the cities, meanwhile, were starving. Soon, gangs roved the countryside, raiding rural barns and houses…and occasionally killing farmers who tried to resist.
Plagues hit city dwellers hard too. Proximity seems to be a curse when an infectious disease appears.
And, of course, in time of war and revolution, cities tend to be the battlegrounds.
Advancing armies are rarely polite. But even if they are advancing through the countryside, they are usually advancing towards cities, which they attack. In the old days, cities were besieged, starved out, and then, when they were taken, the attacking soldiers were given 3 days in which to sack the cities. In other words, they had three days to commit whatever mischief and mayhem their imaginations suggested.
When bad stuff happens, progress goes into reverse – so does the division of labor. When an economy goes backward, much of the specialization that developed during the boom years turns out to be uneconomic, or unaffordable, or unwanted. People may be willing to pay someone to park their car when they are flush. But when they are broke, they will park their own cars.
As the division of labor goes backward, people also find they need to tend to their own food and energy needs. Here is where it gets very tough for people who live in cities. They have no stores of mason jars with food from their own gardens that they have canned themselves. They have no hams hanging in the barn or stocked away in the larder. They have no animals on the hoof that they can slaughter. They get no eggs from the chickens they don’t have…and they can hardly go into the local park and shoot squirrels to make a pie.
Instead, they are out of luck.
Generally, when the black swans come out you are better off in the country – with country-boy skills and old-time farms supplies.
We once met a fellow who had a keen appreciation for apocalypse. He was sure it was coming. So, he moved to Arkansas where, he said, “I’m protected by 300 miles of armed hillbillies.”
That’s something else to think about. Not only do you have to worry about food and energy, you also have to worry about your neighbors. If you have a nice little vegetable garden next to a large apartment complex, for example, you might have a hard time protecting your crops. And don’t count on fattening a calf in Central Park during a famine.
You need to be somewhere else. Where?
Stay tuned.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: Revolution in Egypt and Where to Be When Black Swans Appear http://dailyreckoning.com/revolution-in-egypt-and-where-to-be-when-black-swans-appear/#ixzz1E5NTgAbs
key:
" the deserving "
If we can eliminate the "others" then " the deserving " could get what they need.
The recent debates about inflation and deflation are still not resolved- which is not surprising and that wouldn't be fun anyway.
The deflationistas think that the 10, 20 or 50 trillion dollars that was created out of thin air the last few years disappeared down a deflationary black hole never to be seen again except as an obligation of future generations. Apparently there is no law of conservation of mass or requirement to balance equations in economics. It is very unlikely that all this money just disappeared and any small fraction of it would suffice to kick-start inflation should the combination of banks, corporations and consumers decide as they often do to move as a herd in a given direction.
In addition, there is plenty of evidence that inflation in necessities is already well entrenched- especially in energy and food. Some would argue that food inflation is a recent weather induced phenomena. However, bad policies such as ethanol have resulted in grain stockpiles trending downwards for the last few years. The recent bad weather has only exacerbated an existing trend. And if you're reading this board it should be unnecessary to re-hash were energy prices are going. The other long-term inflation trend is in insurance and taxes. We recently had a tax "decrease" (even though for the most part it was a status quo of existing policy) but taxes and fees have only one direction to go. The US has lost productive jobs, seen an increase in the chronically unemployed/ under employed and added the interest costs of servicing a tremendous amount of new debt. Sooner or later taxes are going up. We've also created a unnecessarily complex society were the cost of risks is so out of control that insurance is either a necessity or an outright government mandate. Just compare your current insurance premiums to five years ago.
Everybody look at food costs, taxes/ fees, energy, and insurance costs from five years ago. Then compare to what they are today. For me that is about a 12-15% increase. My job depends on bonuses for about 25% of my salary. Due to the economy I made about 11-12% less in 2010 than in 2006 or 2007. 2009 was worse. And this is despite two "promotions." Which in this day and age means that I got more work for the same or a smidge more pay. Fortunately, I am a frugal person who is making pretty good money so the income loss was more annoyance than anything else- that is not the case for most.
The deflationista counter is that commodity pricing is volatile and that, well, prices in other areas have dropped either in actuality or when hedonically adjusted because even though the price has went up the next thing is so much better than the old thing it is actually cheaper. The problem is I don't have to buy a new laptop, IPhone, IPad, IPod or even a new car or appliance. I can always make do with what I have or go used. Energy and food must be purchased- regularly and at the going rate.
The next big counter argument is money supply based. There are several issues here. First, given the reality in food and energy inflation can and will exist in these markets regardless of the money supply situation. If necessary the medium of exchange will adapt to something outside of money because again people have to have these things. Secondly, and again, there has been so much money created that there is plenty lying around out there to start inflation. Keep in mind that by some measures the fed has created more money than the GDP of the whole world. That means that even if 95% of it has been sucked down the deflationary black hole there are still trillions out there to jump start inflation. Those that watch money supply and cling to old rules and definitions as justification that inflation is not coming will get an education in the new real world economics soon.
To summarize:
Taking a position that there is no inflation when the cost of everything that we must buy and pay for to live is not a winning or justifiable position. And no amount theoretical gymnastics can disprove the reality on the ground.
The entire crop of economists and current economic theory are wholly inadequate to predict or model the new reality. We need new theories and models going forward.
you're dead on. read the one i just posted. we've spent one helluva lot of money to just barely tread water...
Decoding the Truth About Inflation
By The Mogambo Guru
02/10/11 Tampa, Florida – Proving once again that investing in fixed-yield bonds when the foul, filthy Federal Reserve is creating so much money (so that their governments can deficit-spend it!) is a stupid, stupid, stupid idea because inflation will result, Agora Financial’s 5-Minute Forecast newsletter reports that “Already since October, the rate on the 10-year has jumped from 2.4% to 3.6% – a 50% increase.” Yikes!
So how much value does a bond paying 2.4% lose when yield rates climb to 3.6%? I don’t know, nor do I care, since I currently have less than zero interest in bonds, which is a kind of hostile antipathy towards them, not unlike that time I took the beautiful Brenda out, and when I later tried to kiss her goodnight, she said, “If your lips even come close to me one more time, I am going to claw your eyes out!”
I changed my mind about Brenda, and, of course, I will eventually change my mind about bonds, too. This will be when interest rates are so high but inflation seems to be peaking, which means that I will get out of gold (which will theoretically be at its high price) and into bonds (which will be, theoretically, at their low prices).
But that ain’t now! Indeed, the torrent of new money continues, as The Daily Bell newsletter reports, “Central banks have pumped something like US$20 to US$50 TRILLION into the world’s economy to try to reinflate economies that collapsed in 2008.”
The keen eyes and sharpened economic senses of Junior Mogambo Rangers (JMRs) everywhere surely detected the use of all-caps to spell “trillion,” and which JMRs rightly suspect contains a secret code of some kind, perhaps relaying an important secret message to a shadowy group of insiders who have the code key, or a Secret Code Thingamabob (SCT) of some kind, such as a Mogambo Secret Decoder Ring (MSDR).
Of course, there is the obvious interpretation that the $50 trillion dollars is a Hell Of A Lot Of Money (HOALOM), being just short of equaling the GDP of the Entire Freaking World (EFW)!
Perhaps if we had a Mogambo Secret Decoder Ring (MSDR) to solve the mystery!
Alas, the idea for the stupid rings never really worked, it cost WAAAY too much, it was made of really cheap materials (I think some of it was radioactive), with cheap labor, it was a Big Pain In The Butt (BPITB) to encode secret messages, and then I forgot how, but which wasn’t the point, anyway: the Mogambo Secret Decoder Ring (MSDR) was just another attempt to make a lot of money in a hurry so that I could have a lot of money to buy gold, silver and oil because the Federal Reserve was creating so much money!
Since I had no decoder ring, or code key, or any idea what I am talking about, I decided to just shut up, whereupon The Bell continued, “As this currency begins, finally, to circulate, price inflation must result, unless such money is quickly removed.”
And since money is obviously NOT being removed, it is no surprise that price inflation is already here, as attested to by Bloomberg reporting that “World food prices rose to a record in January on higher dairy, sugar and cereal costs and probably will remain elevated. An index of 55 food commodities climbed 3.4% from December to 231 points, the seventh straight increase.”
The biggest gainers were dairy prices, which were rising at 6.2%.
And The Economist magazine reports that inflation in the “food” category made prices rise by a staggering 44% in the last year, and “non-food agriculturals” rising by a whopping 100.6%! More than doubling! In One Freaking Year (OFY)!
Tyler Durden at zerohedge.com reports, “Corn spot up 7.76%, wheat up 5.63%, Rice up 10.08%, Hogs up 10.16%, Sugar up 5.64%, Orange Juice up 3.33%, and cotton… up 17.08%. That’s in one month!” Mr. Durden’s use of an exclamation point proves that he is concerned about inflation, and how fast prices are rising, too!
What does this all mean to me? It means I was abso-freaking-lutely right to be buying gold, silver and oil, because monetary inflation means price inflation, and that means gold, silver and oil go up in price! Whee! This investing stuff is easy!
The Mogambo Guru
for The Daily Reckoning
Read more: Decoding the Truth About Inflation http://dailyreckoning.com/decoding-the-truth-about-inflation/#ixzz1DkgxTd28
Increasing Government Debt to Produce Economic Growth
By Bill Bonner
02/10/11 Baltimore, Maryland – Is the Great Correction over? Not quite!
Nothing much in the markets yesterday. Dow and gold both essentially flat.
So, let’s rehearse what we’ve learned so far.
Government’s main business is protection. Always and everywhere, its chief responsibility is the security of the nation’s borders and the safety of its own officers. As a secondary matter, it is concerned with the protection of the people it governs.
Of course, it protects, first and foremost, the interests of the people who control it.
A modern democracy is controlled by competing groups. In a combination of larceny and bribery, almost everyone gets something. Elite and powerful groups get a lot. The less powerful masses get a little.
In the crisis of ’07-’09, for example, government moved fast to protect elite interests – with trillion-dollar transfers to the banks and their bondholders.
Then, as the economy weakened, the masses of voters needed bribes too – food-stamps, unemployment relief, shovel-ready jobs, etc.
These measures do not produce genuine prosperity. How could they? They are just boondoggles and bailouts. But they give the appearance of stability and they help keep everything under control.
But how can the feds pay for all this larceny and bribery? They have to borrow…effectively shifting the cost to the next generation. Debts are incurred now. Money is spent now. It is meant to be repaid sometime in the future, by people who benefit from neither the bribes nor the thefts.
The private sector unloaded debt as quickly as it could in ’08 and ’09. Savings rates went from 2% of disposable income to 7%. We called it a “Great Correction.”
But now the process of correcting seems to have stalled. While the private sector threw off debt, the public sector picked it up. And now, it looks like the private economy is beginning to borrow again too.
Savings rates have fallen back to around 5%. Credit card debt has increased for the first time since the crisis began. Non-revolving credit is reported to be at a record high.
Government debt, meanwhile, is soaring. The US deficit last year was greater than all the money borrowed by the US government from its founding until 1986. And the Obama administration will borrow more than all previous administrations put together.
Is the Great Correction over?
Where will this end? Bankruptcy? Hyperinflation? Or revolution?
Maybe all of the above.
But wait. What if the peoples’ representatives “see the light”? What if they turn the situation around, forcing the US government to de-leverage along with the private sector?
Well, anything is possible. But we wouldn’t count on it.
Meanwhile, there’s another part to our hypothesis. Over time, stable societies become more and more rigid as elites get a tighter grip on them. They become “zombified,” with more and more of the society dependent on giveaways, bribes, boondoggles, protected markets and redistributed income. In a democracy, that means that the numbers begin to work against evolution. Against change. Against natural correction.
More and voters get more from the government than they pay for it. They will not permit any change to the system, because any change would be harmful to them.
So, over time, governments become less and less able to produce wealth…less dynamic…less responsive to evolutionary adjustment.
How does that work, exactly?
Well, it works in many, many different ways. But here’s a simple example. If the crisis of ’07- ’09 had happened back in the 19th century the big banks involved would have gone broke. Not only that, the bankers involved would have lost everything – including their personal mansions in the Hamptons. Because back then, typically, a banker was personally responsible for his losses. Neither banks nor investment houses had the advantage of corporate protection.
Today, the failures remain in business. The failed executives continue to receive bonuses. Their losses are socialized…picked up by feds and spread to people who don’t deserve them – notably, the next generation.
Most people think this process will last forever…with the costs pushed infinitely into the future. But it won’t.
“Stability leads to instability,” said Hyman Minsky. We see it coming. Stability makes people think that the system is eternal. They lend to the government at low interest rates…or even accept its new, paper money as though it was the real thing. This permits the government to run up far more debt than it could in an “unstable” era. The debt then becomes unsustainable…and the system collapses.
When? Who knows? But sooner or later, the lenders revolt. Or the next generation does.
Bill Bonner
for The Daily Reckoning
Read more: Increasing Government Debt to Produce Economic Growth http://dailyreckoning.com/increasing-government-debt-to-produce-economic-growth/#ixzz1Dkbeg3Cy
New drilling method opens vast oil fields in US
AP – FILE - This Oct. 17, 2010 photo shows an aerial photo of oil sprayed over 15 acres downwind of a runaway …
By JONATHAN FAHEY, AP Energy Writer Jonathan Fahey, Ap Energy Writer – 1 hr 26 mins ago
A new drilling technique is opening up vast fields of previously out-of-reach oil in the western United States, helping reverse a two-decade decline in domestic production of crude.
Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas and California. By 2015, oil executives and analysts say, the new fields could yield as much as 2 million barrels of oil a day — more than the entire Gulf of Mexico produces now.
This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.
"That's a significant contribution to energy security," says Ed Morse, head of commodities research at Credit Suisse.
Oil engineers are applying what critics say is an environmentally questionable method developed in recent years to tap natural gas trapped in underground shale. They drill down and horizontally into the rock, then pump water, sand and chemicals into the hole to crack the shale and allow gas to flow up.
Because oil molecules are sticky and larger than gas molecules, engineers thought the process wouldn't work to squeeze oil out fast enough to make it economical. But drillers learned how to increase the number of cracks in the rock and use different chemicals to free up oil at low cost.
"We've completely transformed the natural gas industry, and I wouldn't be surprised if we transform the oil business in the next few years too," says Aubrey McClendon, chief executive of Chesapeake Energy, which is using the technique.
Petroleum engineers first used the method in 2007 to unlock oil from a 25,000-square-mile formation under North Dakota and Montana known as the Bakken. Production there rose 50 percent in just the past year, to 458,000 barrels a day, according to Bentek Energy, an energy analysis firm.
It was first thought that the Bakken was unique. Then drillers tapped oil in a shale formation under South Texas called the Eagle Ford. Drilling permits in the region grew 11-fold last year.
Now newer fields are showing promise, including the Niobrara, which stretches under Wyoming, Colorado, Nebraska and Kansas; the Leonard, in New Mexico and Texas; and the Monterey, in California.
"It's only been fleshed out over the last 12 months just how consequential this can be," says Mark Papa, chief executive of EOG Resources, the company that first used horizontal drilling to tap shale oil. "And there will be several additional plays that will come about in the next 12 to 18 months. We're not done yet."
Environmentalists fear that fluids or wastewater from the process, called hydraulic fracturing, could pollute drinking water supplies. The Environmental Protection Agency is now studying its safety in shale drilling. The agency studied use of the process in shallower drilling operations in 2004 and found that it was safe.
In the Bakken formation, production is rising so fast there is no space in pipelines to bring the oil to market. Instead, it is being transported to refineries by rail and truck. Drilling companies have had to erect camps to house workers.
Unemployment in North Dakota has fallen to the lowest level in the nation, 3.8 percent — less than half the national rate of 9 percent. The influx of mostly male workers to the region has left local men lamenting a lack of women. Convenience stores are struggling to keep shelves stocked with food.
The Bakken and the Eagle Ford are each expected to ultimately produce 4 billion barrels of oil. That would make them the fifth- and sixth-biggest oil fields ever discovered in the United States. The top four are Prudhoe Bay in Alaska, Spraberry Trend in West Texas, the East Texas Oilfield and the Kuparuk Field in Alaska.
The fields are attracting billions of dollars of investment from foreign oil giants like Royal Dutch Shell, BP and Norway's Statoil, and also from the smaller U.S. drillers who developed the new techniques like Chesapeake, EOG Resources and Occidental Petroleum.
Last month China's state-owned oil company CNOOC agreed to pay Chesapeake $570 million for a one-third stake in a drilling project in the Niobrara. This followed a $1 billion deal in October between the two companies on a project in the Eagle Ford.
With oil prices high and natural-gas prices low, profit margins from producing oil from shale are much higher than for gas. Also, drilling for shale oil is not dependent on high oil prices. Papa says this oil is cheaper to tap than the oil in the deep waters of the Gulf of Mexico or in Canada's oil sands.
The country's shale oil resources aren't nearly as big as the country's shale gas resources. Drillers have unlocked decades' worth of natural gas, an abundance of supply that may keep prices low for years. U.S. shale oil on the other hand will only supply one to two percent of world consumption by 2015, not nearly enough to affect prices.
Still, a surge in production last year from the Bakken helped U.S. oil production grow for the second year in a row, after 23 years of decline. This during a year when drilling in the Gulf of Mexico, the nation's biggest oil-producing region, was halted after the BP oil spill.
U.S. oil production climbed steadily through most of the last century and reached a peak of 9.6 million barrels per day in 1970. The decline since was slowed by new production in Alaska in the 1980s and in the Gulf of Mexico more recently. But by 2008, production had fallen to 5 million barrels per day.
Within five years, analysts and executives predict, the newly unlocked fields are expected to produce 1 million to 2 million barrels of oil per day, enough to boost U.S. production 20 percent to 40 percent. The U.S. Energy Information Administration estimates production will grow a more modest 500,000 barrels per day.
By 2020, oil imports could be slashed by as much as 60 percent, according to Credit Suisse's Morse, who is counting on Gulf oil production to rise and on U.S. gasoline demand to fall.
At today's oil prices of roughly $90 per barrel, slashing imports that much would save the U.S. $175 billion a year. Last year, when oil averaged $78 per barrel, the U.S. sent $260 billion overseas for crude, accounting for nearly half the country's $500 billion trade deficit.
"We have redefined how to look for oil and gas," says Rehan Rashid, an analyst at FBR Capital Markets. "The implications are major for the nation."
___
Associated Press writer James MacPherson contributed reporting from Stanley, N.D.
http://news.yahoo.com/s/ap/20110209/ap_on_re_us/us_shale_oil
WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices
US diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%
• Peak oil alarm revealed by secret official talks
• Datablog: Are we running out of oil?
John Vidal, environment editor guardian.co.uk, Tuesday 8 February 2011 22.00 GMT Article history
Saudi oil refinery. WikiLeaks cables suggest the amount of oil that can be retrieved has been overestimated. Photograph: George Steinmetz/Corbis
The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.
The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.
The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.
However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.
According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".
Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.
One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."
It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."
The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."
Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."
A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.
It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.
In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was "not good news" for a world still heavily dependent on petroleum.
Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: "We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse."
http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks
Growth or Hot Money: What’s Really Affecting Food Prices
By Bill Bonner
02/07/11 Los Perros, Nicaragua – The Dow rose another 29 points on Friday. Gold lost $4.
Which is to say, nothing much happened one way or the other. Unemployment data came out, moving the unemployment rate down to 9%. But there were suspicious adjustments in the numbers. From the reports we read, nobody really knew if the numbers were good or bad.
The more interesting news continues to come from America’s central planners. At least, they are entertaining…in roughly the same way that TV shows such as 1000 Ways to Die or Jackass are entertaining.
Maybe it’s just human nature. But it’s fun to watch people do stupid things – sometimes, even when they’re fatal.
And now comes Ben Bernanke, chairman of the US Federal Reserve, former chairman of the Princeton Economics Department, with a claim so dumb that we don’t what to think. What’s the matter with Princeton? What’s the matter with economics? What’s the matter with the Fed? What’s the matter with Ben Bernanke?
The Telegraph has the report:
Ben Bernanke…has dismissed the idea that the central bank’s policies are to blame for the rise in global food prices to a record high…
Now, let’s see. The Fed adds $2 trillion to the world’s supply of “hot money.” Maybe that has no effect? What do you think? The Telegraph continues:
Mr. Bernanke said that the rapid growth of developing economies was behind the increase in food prices, rather than the Fed’s decision to embark on a second, $600bn (£371bn) round of printing money. “Clearly what’s happening is not a dollar effect, it’s a growth effect,” Mr. Bernanke said in a rare question and answer session with journalists at the National Press Club in Washington on Thursday.
The United Nations Food and Agriculture Organization (UN FAO) has warned that high prices, already above levels in 2008 which sparked riots, were likely to rise further.
The FAO measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar, and is widely watched by economists and politicians around the world as the first indicator of whether prices will end up higher on shop shelves.
The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. The index highlights how food prices, which throughout most of the last two decades have been stable, have taken off in alarming fashion in the past three years. In 2000, the index stood at 90 and did not break through 100 until 2004.
Well, how do you like that? It’s growth that it driving food prices to records. Not money printing.
But wait…hold on…is the emerging world growing faster now than it was two or three years ago? Nope. Hmmm… Is the growth a big surprise? Did something happen to make investors and traders suddenly realize that…well…hey…the world is growing!
Nope.
Then, how come prices are shooting up now? Why didn’t they shoot up 4 years ago? Or 2 years ago? Or last year? What has changed?
Well… How about the $1.5 trillion of brand spanking new money that the Fed put into the world’s money supply in 2009-2010? And how about the $600 billion more it’s pumping in now?
That’s new, isn’t it? So, here’s a wild and crazy idea. Maybe…just maybe…the fundamentals of supply and demand really do work. Maybe…just maybe…if you increase the world’s hot money supply (hot money does not come from an increase in real wealth or consumer demand…but from central banks’ low interest rates and money printing)…well, maybe prices on global, auction-priced goods – such as food – go up.
Just look at what is happening to other global, auction-priced goods. Oil, for example, soared above $100 over the weekend. And look at gold. Put oil and food in terms of gold and what do you find? That they haven’t gone up at all! What does that tell you? That the “growth” hypothesis is nonsense.
In other words, yes…the developing world is growing. It has been growing at a high rate for the last 20 years. Nothing new there.
What’s new is that central banks are printing money at a record pace. They are creating more bubbles.
Isn’t this going to end badly? Why would governments play such a dangerous game? Aren’t they putting their own credibility, currencies and solvency in jeopardy?
Yes, of course they are…
But there is something you have to understand. Governments always look out for the elite groups that control them. They’re not necessarily concerned with the betterment of humankind…or even the best interests of their own people.
Here’s an example, from The New York Times:
Public deficits and debt relative to gross domestic product have ballooned in the last three years for one simple reason – the big banks at the heart of our financial system blew themselves up. On this point, the conclusions of the Financial Crisis Inquiry Commission, which appeared last week, are very clear and utterly compelling.
No one forced the banks to take on so much risk. Top bankers lobbied long and hard for the rules that allowed them to behave recklessly. And these same people effectively captured the hearts, minds and, some would say, pocketbooks of the regulators – in the sense that a well-regarded regulator can and often does go work for a bank afterward.
Meanwhile, Barry Ritholtz says the feds are using Fannie and Freddie as another way to shovel taxpayer money to Wall Street. As you know, the Fed already plays Sugar Daddy to the bankers. If the bankers have some trash mortgage-backed security that they lost money on, the Fed buys it from them at an inflated price. Of course, just having the Fed in the market buying MBSs inflates the markets.
But it turns out, the Fed isn’t the only one. The US Treasury also gave Fannie and Freddie a blank check to save the housing industry. But they let the housing industry go bust. Instead, they took the money and saved the housing industry’s creditors. The big banks, in other words. Wall Street. The richest of the rich.
Why should taxpayer money be used to bail out the rich?
Well, they’re not just rich. They’re powerful. They’re the people the government was set up to protect. Give the feds a break; they’re just doing their jobs.
The private sector innovates. Government procrastinates…hesitates…and vegetates.
That’s just the way it works. That’s what government has always been for. The government of ancient Egypt protected the pharaohs. The government of the Ottoman Empire protected the Ottomans. The government of Genghis Khan looked out for Genghis.
And who does the US government look out for? Naturally, it looks out for the elite groups that control it. Who’s that? The big banks, of course.
Bill Bonner
for The Daily Reckoning
Read more: Growth or Hot Money: What's Really Affecting Food Prices http://dailyreckoning.com/growth-or-hot-money-whats-really-affecting-food-prices/#ixzz1DPaycrXz
Egypt February 4, 2011: The Night of 1000 Body Bags
03:38 by John Galt. Filed under: Whatever
By John Galt
February 4, 2011
I hesitated penning this piece but I feel I must as a follow up to my show on Thursday night. There is a historical precedence for such an event to occur although I must ask my readers to pray and pray hard, that this does not occur. The American people have grown up into a naive understanding of world events since that fateful day of September 11, 2001. After President Bush opened up the “War on Terror” with great enmity towards those responsible, it deteriorated on the television sets to a whiz-bang sort of surreal reality television show, with only the deaths or maiming of neighbors or loved ones having any impact on the average citizen. The American media devolved into an almost animal pack of rabid politicized attack dogs looking behind every rock to find evidence of American wrong doing in the war zones, or worse, to diminish our abilities, power, and prestige.
Fast forward to the events of the past twenty-four hours where some members are shocked by the attacks on their journalistic brethren and pondering the idea of the affront of a government they have been labeling a brutal regime, well, engaging in the activities that a brutal regime would engage in. The article I posted a few days ago outlining the duration of the various MENA (Middle East/North Africa) dictatorships was not some concoction designed to demonstrate a knowledge of history or desire to promote the efficiency of these autocrats. The elites in these nations did not achieve and maintain power for these long periods of time by giving an ABC reporter a pass or a preferred interview from an American journalist because they think the words might change American public opinion. This is the same pattern we have seen in history in numerous places, yet the ignorance of world history by some of the American royalty posing as journalists was demonstrated by some, not all, once again.
Sadly, I fear we shall hear of, and someday witness the protester’s “Day of Departure” as just that; a Night of 1000 Body Bags where their souls depart this earth.
Prague, Damascus, Lebanon, Sudan, Tienanmen Square, Vietnam, Cambodia, Cuba, etc. are just some of the places where the journalists of our nation look back in horror but ignored the actions of dictatorships either through deliberated malfeasance or blind neglect. Now we are at a carrefour in our history where the governments of the world, including the regime in power in the United States, are seeking to censor the flow of information via the new media as well as the old, yet the only cries are heard when it is their own operation that appears imperiled. This is not the time for them to turn off their lights, their recorders, their video devices, but in fact now is the time they put their lives at risk like the brave Fox News crew did, and attempt to document the horror and not allow a slaughter to occur behind a wall of static. I fear some will see what they are there to document, but departing alive might well be another challenge in and of itself.
Regimes like this, just as in Castro’s Cuba, Communist China and Vietnam, Southern Sudan and Zimbabwe have a standard operating procedure which has been utilized throughout history. First they provide the people with an opportunity to vent frustrations and offer token concessions in an attempt to appease their desires. If that method fails, change figureheads within the ruling party and government and if that does not satisfy the citizens, engage in the final option. The final option was started with the first protests last week in Cairo and Alexandriac as the ruling party and their wealthy friends lost millions of dollars on world equity markets, including our own, creating the demand for retribution within Mubarak’s inner circle which grew louder. The American government, acting in its typical naive bliss, made loud proclamations against the violent reactions first witnessed but did not realize the hollowness of their claims as the U.S. made armored personnel carriers and tanks begin to move against the civilians. Now that the military is in position, the instigators identified by the secret police via the internet and photographs during the protests, the final program can now be activated. However, the military will be there only to keep the masses out of the areas to be cleansed and to obstruct foreign observers or media from participating or documenting the events. The secret police, or private legion will be loosed upon the crowds to find and terminate all opposition, collecting intelligence as necessary to eradicate the activists.
Those responsible for aggravating and attacking the Mubarak regime will now feel the full force of history planted squarely with a boot on the back of their necks, followed by a bullet. If history parallels the past and repeats to varying degrees, by Monday the rumors of mass killings will reach the West. This will upset the people of the Middle East even further and inflame the Arab street to a degree unseen since the 1970's. The demands for retribution against the Egyptian government and America will grow louder with Russia, France, and China refusing to obstruct the U.N. Security Council from condemning the attack, leaving the United States as the only nation willing to block such action, which we will not. In the mean time the bodies will be buried, the survivors interrogated, and the nation of Egypt degenerating into a state of perpetual police state chaos, where the West only gets whiffs of truth and fact while Omar Suleiman blames Mubarak for the slaughter when he ascends to power in September.
Remember not that Egypt is our ally, remember not the night Mubarak departs to Dubai, or Qatar, or Switzerland to retire in luxury until his eath.
Remember this weekend as another black eye for the world, as people are slaughtered acting as unwitting pawns for a greater shift in the control of the world’s resources and geopolitical game of chess.
Our government and its leadership will forget the dead the minute Suleiman takes power.
I pray we never forget as a just and pious people; as we have this poor soul below who is nothing but a footnote in our children’s school books, if he or the event is mentioned at all.
http://johngaltfla.com/blog3/2011/02/04/egypt-february-4-2011-the-night-of-1000-body-bags/
0n-going A+ BD...eom
Y2K redux?
---
Less than a year until internet addresses run dry
Asher Moses
July 26, 2010 - 12:09PM
In less than a year, the world will run out of internet addresses and inaction by internet providers could lead to broken applications and more expensive net connections, experts warn.
The protocol underpinning the net, known as IPv4, provides only about 4 billion IP addresses - not website domain names, but the unique sequence of numbers assigned to each computer, website or other internet-connected device.
The explosion in the number of people, devices and web services on the internet means there are only about 232 million left. This allocation is set to be exhausted in about 340 days.
"When the IPv4 protocol was developed 30 years ago, it seemed to be a reasonable attempt at providing enough addresses, bearing in mind that at that point personal computers didn't really exist. The idea that mobile phones might want an IP address hadn't occurred to anybody because mobile phones hadn't been invented [and] the idea that airconditioners and refrigerators might want them was utterly ludicrous," said John Lindsay, carrier relations manager at internet service provider (ISP) Internode.
Internet experts derived a solution to the problem several years ago, which involves moving to a new protocol, IPv6, that provides trillions of addresses for every person on the planet. But most of the internet industry - including ISPs and websites - have been reluctant to make the necessary investments to move to IPv6.
The issue has been compared to Sydney running out of phone numbers when using a seven-digit system, which was solved by adding a 9 to the front of all numbers. But with the internet the solution is much more complex than that, as all devices that connect to the net will need to be reconfigured or upgraded.
Geoff Huston, chief scientist at APNIC, which allocates IP addresses for the Asia-Pacific region, has been trying to raise awareness of the problem for 10 years.
He says the rise of smartphones, PCs and internet-connected appliances means the address pool will run dry within a year, decades quicker than even he predicted.
Huston said one of the biggest impediments to solving the problem was the sheer scale - all devices on IPv4 will need to be upgraded to support IPv6, as the two versions aren't backwards compatible. Consumers will need to upgrade the software on their computers and networking equipment and, in some cases, buy completely new hardware.
"This is almost like a lot of the other challenges we face in society like climate change ... if everyone does something, the right thing will happen, but if one individual does the right thing, it doesn't make a difference," said Huston.
"Your ISP needs to do a lot of work, and if you're not willing to pay more money to your ISP, your poor old ISP has got to spend [extra] money without [extra] income."
Huston said that, once the available internet addresses ran out, a kind of black market for IP addresses would be created where "those services that have the highest capacity to pay will still be able to get more addresses, but those who can't get denied".
Upfront costs of moving to the new protocol will be high but Huston said delays would push costs even higher.
As a stop-gap measure, Huston said ISPs would begin forcing multiple customers and devices to share single internet addresses, which would lead to common web applications ceasing to work. Huston pointed to web applications such as Gmail, Google Maps and iTunes as examples of those that would break.
"Over the years unless we embark on IPv6 then the internet will get slowly more and more strangled and applications will work in stranger ways," Huston said.
James Spenceley, chief executive at wholesale ISP Vocus, gave another example of an application that might cease to work under a shared IP address system: internet telephony.
"A VoIP phone needs to have a certain port number, so across 20 customers only one of them will work," he said.
"An internet service that resembles the service today might become a premium service, where you do have a unique IP address, [but] you might pay more."
Fortunately, some vendors have taken steps to support the move to IPv6. The Windows and Mac operating systems both support the new protocol, as do some smartphones such as the iPhone. Australian ISP Internode is the first to offer IPv6 as a commercial service.
Providers of popular web services such as Google and Facebook are also making good progress in adopting IPv6.
Google's chief internet evangelist and one of the founding fathers of the internet, Vint Cerf, appeared in an online video in June urging ISPs to do more to transition to IPv6.
"Moving from IPv4 to IPv6 is a little like changing the roads and tyres while continuing to drive along in your car," said Lindsay from Internode.
"It's been expensive, it's been time-consuming and it doesn't produce an immediate return on investment so it's the kind of thing that isn't popular with CFOs. However, it's laying an important foundation for what happens over the next few years as it becomes increasingly difficult to obtain IPv4 addresses."
This story was found at: http://www.smh.com.au/technology/tec...726-10r83.html
Ready for Splash Crash, the Ultimate Market Meltdown?
With memories of last May's "Flash Crash" still fresh in investors' minds, now comes warning of a market meltdown that could extend beyond stocks-a possible "Splash Crash" that also would affect currencies, commodities and bonds.
The interconnectedness of high-speed trading platforms is making such an event increasingly possible, says John Bates, chief technology officer at Progress Software in Bedford, Mass.
Geopolitical disturbances such as those in Egypt, Tunisia and elsewhere in the Middle East are just the kind of things that could trigger the "Splash Crash," sapping liquidity from trading systems and causing havoc among various markets.
"The dominos are no longer limited to one asset class," Bates warns in an essay posted on the Tabb Forum, an invitation-only online repository for market research. "Algorithms are becoming increasingly sophisticated, encompassing all of the elements that may impact a trade in a certain instrument."
In the May 6 Flash Crash, the Dow dropped nearly 1,000 points before quickly recovering during one manic swoon in the markets. Studies of the event have pinned the blame on various factors, largely centering on an aggressive sell order that in turn led to a series of other problems.
The plunge happened as global markets grew more concerned over the European debt crisis. The market temporary lost liquidity, causing some large company stocks to trade momentarily at a penny, but the damage was largely limited to the equity markets.
Bates believes should a similar event happen in the future, be it caused by further disturbances in the Middle East or something else that releases market jitters and a shock to the algorithmic programs that drive high-frequency trading, the effects will be more widespread.
"We saw with the flash crash how instability in European economies caused nervousness in the market and then an algorithm did something unexpected-causing a cascading effect across futures and equities markets," he writes. "As the cross-dependencies grow and algorithms become more intertwined, so the risks for a 'splash crash' grow."
One trader asked to comment on the Bates scenario, speaking on condition of anonymity, called it "interesting" but also considered it "fear mongering" and "speculation."
But others on trading floors said the fear of a splash crash-type event looms in the market.
"We're convinced it's going to happen," says Kevin Ferry, president of Cronus Futures Management in Chicago. "We're on constant Amber Alert for signs of it unfolding, because by definition it won't come from where everybody's looking. It has to come from where they're not looking. It's our feeling that it starts in the currency market and morphs into the debt market."
The Bates splash-crash hypothetical scenario is similar to that line of thinking.
Traders involved with a multinational energy company-Bates cites BP (NYSE:BP - News) as an example-would be impacted if China's economy starts to weaken and oil demand falls. Because oil is priced in US dollars, that would trigger a rise in the greenback while oil derivatives betting on a rise in price would get hit. That in turn would impact share prices of other large oil companies such as ExxonMobil (NYSE:XOM - News) and Chevron (NYSE:CVX - News).
While algorithms are programmed to handle such an occurrence, the roiling of bond markets would tick over into banks and hedge funds. Because these other markets are increasingly controlled by the same type of programs accounting for more than half the stock market trading, the effects could be profound, according to the Bates scenario.
"If enough instability and unexpected conditions occur and then one of these algorithms does something strange or unexpected, the cascading impact would be enormous across all asset classes," he writes. "Trading systems could clog up, limited bandwidth could choke orders, exchanges could freeze up-splashing across all of the affected asset classes. Pandemonium."
To be sure, it's an extreme case, one that likely would take a perfect storm of events to trigger.
But Ferry says these are the kinds of dangers ignored too often in the markets, referring specifically to the type of "Black Swan" events discussed in the book of the same name by author Nassim Taleb. The collapse of the financial system is considered one such event.
"It's a spider web of faux liquidity. Things are more complex, not less complex," Ferry says of the high-frequency trading environment. "That liquidity domino effect is what's going to cause this."
Indeed, it was a lack of liquidity during the flash crash that spread in seconds around the market and dropped stock indices so quickly, and a return of liquidity that helped mitigate the damage.
Since then, the Securities and Exchange Commission has established so-called "circuit breakers" which stop trading in individual stocks should they hit certain limits. The breakers have been tripped several times since the flash crash, and worries remain that similar events could happen again.
"If you see an erratic move in these markets and these market participants do back out, liquidity escapes extremely rapidly at that point and you get an event like you saw during the splash crash," says Brian LaRose, strategist at United-ICAP in New York. "I think it's entirely possible (that the splash-crash scenario could happen) and I don't think they've addressed it."
Bates prescribed three solutions to prevent the splash crash: using real-time trade analytics and risk management to back-test strategies in case of dire situations; providing more transparency to the high-frequency trading process; and standardizing rules across all exchanges. Progress markets software for, among other things, algorithmic and currency trading, as well as market monitoring.
But worries of another crash, in fact, crept into the market Friday when the major averages sold off aggressively as the Egypt tumult escalated, says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati.
"You got that same feeling," Detrick says. "There was definitely talk that things could spiral out of control. Fortunately, that didn't happen."
http://finance.yahoo.com/news/Ready-for-Splash-Crash-the-cnbc-2907054539.html?x=0&sec=topStories&pos=main&asset=&ccode=
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When this market crashes I want everyone to remember that the current "market" it he most government controlled thing ever imagined...
Youth and Islamic Fundamentalism
By Bill Bonner
02/01/11 Baltimore, Maryland – [Ed. Note: The following essay is an excerpt from Bill Bonner and Addison Wiggin’s 2002 bestseller, Financial Reckoning Day: Surviving the Soft Depression of the 21st Century.]
One of the complications of a declining population in the West is a political one. The War on Terrorism, declared on September 13, 2001, promises to be expensive, simply because there are so many potential terrorists to fight.
Westerners constitute a decreasing minority of the global population: In 1900, they amounted to 30 percent of humanity; in 1993 that number had dropped to 13 percent and by 2025, following current trends, the percentage will fall to 10 percent. At the same time, the Muslim world is growing younger and increasing in numbers.
In fact, Muslims’ market share of the global population has increased dramatically throughout the twentieth century and will continue to do so until the proportion of Westerners to Muslims is inverse that of the 1900 ratio. By 1980, Muslims constituted 18 percent of the world’s population and, in 2000, more than 20 percent. By 2025, they are expected to account for 30 percent of world population.
In his Clash of Civilizations, Samuel Huntington considers these demographics to have been a major factor in the Islamic resurgence of the late twentieth century. “Population growth in Muslim countries,” he says, “and particularly the expansion of the 15- to 24-year-old age cohort, provides recruits for fundamentalism, terrorism, insurgency, and migration…demographic growth threatens Muslim governments and non-Muslim societies.”
Islamic resurgence began in the 1970s and 1980s, just as the proportion of young people in the 15- to 24-year-old age group in Muslim nations exploded. Indeed this proportion peaked at more than 20 percent of the total population in many Muslim countries during these decades.
Muslim youth are a potential supply of members for Islamic organizations and political movements.
The Iranian Revolution, for example, in 1979 coincided with a peak in the youth population of Iran.
“For years to come Muslim populations will be disproportionately young populations,” Huntington explains, “with a notable demographic bulge of teenagers and people in their 20s.”
What are we to make of it?
Huntington suggests that the most accurate analogy in Western Society to this youth bulge in Muslim populations is the Protestant Reformation.
Ironically, both the rise of the fundamentalist movement in the Muslim world and the Protestant Reformation came about in reaction “to the stagnation and corruption of existing institutions,” says Huntington. Both advocate a “return to a purer and more demanding form of their religion; preach work, order and discipline; and appeal to emerging, dynamic middle-class people.” Both challenge the political and economic order of the time; and where the threat of the former is concerned, major defense spending on the part of the West would not seem appropriate.
“The Protestant Reformation,” writes Huntington, “is an example of one of the outstanding youth movements in history.” Citing Jack Goldstone, Huntington continues, “a notable expansion of the proportion of youth in Western countries coincides with the Age of Democratic Revolution in the last decades of the 18th century. In the 19th century successful industrialization and emigration reduced the political impact of young populations in European societies. The proportion of youth rose again in the 1920s, however, providing recruits to fascist and other extreme movements. Four decades later the post-World War II baby boom generation made its mark in the demonstrations of the 1960s.”
Whereas young people generally exhibit a rebellious and revolutionary influence on society, what happens when people grow old?
The exact opposite.
Fearfulness and loss of desire commonly accompany aging. Older people tend not to want as many things in life as young people. They lose their desire to impress friends, relatives, and partners. Instead of buying items they don’t need, they tend to become fearful that they will not be able to obtain what they do need. There is nothing peculiar about this; it is just nature’s way of recognizing diminishing opportunities. A man in his forties can start over. But in his late sixties, he no longer has the energy or the desire to do so. He therefore starts saving everything – tinfoil, money, rags – for fear he will not be able to get them when he needs them. This is how an elderly individual tends to behave. But what does an aging society look like? Again, we need only look across the ocean – to Japan.
Regards,
Bill Bonner and Addison Wiggin
for The Daily Reckoning
Read more: Youth and Islamic Fundamentalism http://dailyreckoning.com/youth-and-islamic-fundamentalism/#ixzz1CxYEuBTS
The Continuing Argument Over Fiscal Policy
By The Mogambo Guru
01/31/11 Tampa, Florida – I note that a Bloomberg.com article reported that Jean-Claude Trichet – whom I refer to as “socialist moron Keynesian euro-trash halfwit,” but which everyone else refers to as European Central Bank President – is said to have said, while “speaking on behalf of the world’s central bankers,” that “the global economy has recovered better than expected, boosting inflation pressures in emerging markets.” Hahaha!
What Mr. Trichet literally said is that, “It’s clear that it is extremely important that we all keep control of inflation expectations, and that calls for appropriate decisions,” which is actually a relief, because I hate it when something is extremely important, yet not in control, like when my wife is so mad at me about something that is, apparently, extremely important, yet her anger is so uncontrolled in that she is stammering in rage “You…you…you…!”
And if I try to help her by asking, “What in the hell are you stammering about, now?” oddly enough, she gets worse! And her eyes kind of bug out, too! I mean, I can’t win here!
You can see the kind of crap that I have to put up with all the time!
And it doesn’t get any better with this Trichet character, either, as he says that it is clear, and that it is extremely important, to “keep control of inflation expectations” which, in this case, is apparently achieved by saying lying, stupid things like how the economy has recovered “better than expected,” which is only true if you expected the world to erupt in anarchist flames where everything gets destroyed in a hyperinflationary catastrophic bankruptcy that sweeps around the world while flying saucers invade the Earth and enslave us all, or Democrats invade the Earth and enslave us all, one’s as bad as the other, probably.
And so, explains Mr. Trichet, the “recovery,” which is better than expected, is why price inflation is up! Hahaha!
And the lie of a recovering economy makes it suddenly OK that the poor, and everyone else, for that matter, slip a little closer to starvation because rising prices for food and energy consumes all their income?
What kind of crazy, demonic government is that? The same kind as America has, that’s what kind! Hahaha!
And that – that! – is why I am a proud Tea Party member who wishes us the best, and who laments the fact that it is Far, Far Too Late (FFTL) to do anything, like a car going 90 miles an hour sailing off a cliff after careening crazily down a perilous and steep mountain road.
As the car sails though the air, two guys inside are arguing, one saying, “More spending!” and the other saying, “Less taxes!”
Now, there are those that do not understand that such examples of Real Mogambo Humor (RMH) are very, very subtle, and thus not suited to the masses, who do not see the glaring, obvious connection between comparative economic virtues of more spending or less taxes and the prospect of a speeding car going over a cliff and smashing onto the rocks below, everyone inside screaming in fear all the way down, until the sudden stop kills everyone in a horrible, gruesome death milliseconds before the car bursts into flames, destroying everything, including whatever the car landed upon, probably an endangered species of some kind, or somebody’s mailbox, which aren’t cheap.
And when people gather around to see what happened, they will ask, “What happened?” If they did, then I would tell them that two guys in the car went over a cliff because they were arguing about fiscal policy when they should have been, instead, in total agreement to complain about the Federal Reserve creating so freakishly much money!”
If I did, I am sure that they would look at me with those same blank looks of incomprehension and befuddled stupefaction that are on the faces of the people in the security video that shows I am peacefully standing in line, waiting for a cashier, and I am exercising my First Amendment rights by passing the time saying to the cashiers as I waited, “Take your time, morons! The longer you wait to ring up my sale, the utility of my purchase is still new and undiminished, even as my money becomes more worthless, losing purchasing value with every tick of the clock – tick tock, tick tock, tick tock! – because the foul Federal Reserve is creating $100 billion of new money Per Freaking Month (PFM)!”
I expected, as I always expect, someone to say, “Well said! Well said, handsome, intelligent stranger to whom the bewildering world of economics seems but children’s toys!”
Well, they didn’t. So you can see on the video where I tell them, “The Federal Reserve is creating money out of thin air so that the corrupt government can borrow the money and spend it, which increases the money supply, which distorts everything, leading to weird bubbles and busts, mostly busts, fads and flops, mostly flops, and inflation, inflation, inflation that is going to eat you alive!”
This is when the security video shows the security guard coming over and asking me to leave, which I do, but not before saying, in my most melodramatic Mogambo eloquence and with a theatrical dismissive wave of my arm, “You have been warned, earthlings!”
It’s too bad that the video does not have a sound track, and thus there is no official record of my voice trailing off into the distance, saying, “So buy gold and silver, you morons! Gold and silver!”
I hope I did some good!
The Mogambo Guru
for The Daily Reckoning
Read more: The Continuing Argument Over Fiscal Policy http://dailyreckoning.com/the-continuing-argument-over-fiscal-policy/#ixzz1CxWtpEZE
Nothing about taxing everything including breath mentioned there...
A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government.
Thomas Jefferson
The Meddling of Global “Thinkers”
By Bill Bonner
01/31/11 Baltimore, Maryland – Now here’s something interesting. Every year, Foreign Policy magazine produces a list of the Top 100 Global Thinkers in the World. We picked up the list…looking for our own name.
But wait…
The key is that these are “global” thinkers. They’re not just thinkers, in other words, they are people who are thinking about how people on the other side of the planet should conduct their business.
We were suspicious even before we looked at the list. “Foreign Policy”? We’re against it. Why should we worry about things that don’t concern us?
“Well… You can’t put your head in the sand,” you might reply. “You have to be concerned, because things that happen overseas do affect you.”
Yes, that is true. They affect us. But so does the price of whiskey, the traffic on the Beltway, and the weather. None of them is worth thinking about. We can do nothing about them. And it would be indecent for us to try.
Imagine if we took an interest in the whiskey distiller’s business. What could we do? Try to force him to lower his prices? Try to show him how to operate more efficiently – as if we could know? Set up a buyers’ cartel to negotiate for lower prices? At best, we’d be wasting our time. At worse, we might succeed! Then, whiskey producers would be responding not to market forces…but to meddlers’ forces. What a mess that would be!
Meddling with things close at hand is bad enough. Meddling with things far away is worse. Remember our Daily Reckoning dictum: ignorance increases by the square of the distance. The farther you get away the harder it is to tell what is going on. The details disappear. All you can make out are the rough outlines. Shadows…reflections…silhouettes… In the darkness, you step on every rake and fall into every hole.
The next thing you know, you are calling for “reforms” in countries you’ve never even visited…setting the price of China’s money…and invading Iraq.
But let’s look at who Foreign Policy magazine thinks are the 100 Top Global Thinkers.
Uh oh. In the first and second place are Warren Buffett and Bill Gates. Hmmm… They’re smart guys. But what makes them “thinkers”? What have they been thinking about? And what are their thoughts on the subject?
FP says they are there, not for their contributions to the wealth of mankind, but for their philanthropic activities. Wait a minute. What’s philanthropy got to do with thinking?
Okay… We’re stumped on that one… So, who’s the number 3 thinker? Barack Obama! Hold on… This is getting silly. Have you ever heard Barack Obama come up with an original thought? Or any kind of thought worthy of the word? No. That’s not his thing. He’s a politician. Politicians are not thinkers. They may be doers…but they’re not thinkers. Obama gives us plenty of empty expressions and hollow words – “change you can believe in”…“hope”… “winning the future” – but real thoughts? Original ideas? Nope.
Generally, politicians are not thinkers. Occasionally, you get a politician who pretends to be a thinker – such as Princeton University chief Woodrow Wilson. But he almost invariably turns out to be a jackass and a fool.
There must be exceptions – Marcus Aurelius and Thomas Jefferson come to mind. But they seem ill-suited to the political profession and probably should have eschewed public office in the first place.
So let’s keep moving. There must be someone on this list who is a real thinker.
Let’s look back at last year…let’s see…who was FP’s top thinker?
Ben Bernanke!
Well, that does it for us. What’s the matter with these people? Can’t they tell the different between tired hacks with worn-out, crackpot ideas…and real thinkers?
The Foreign Policy editors should do some real thinking of their own. Then, maybe they’d mind their own business.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: The Meddling of Global "Thinkers" http://dailyreckoning.com/the-meddling-of-global-thinkers/#ixzz1CxVJsehN
Again I must call BS because in the timeframe you are referring to the line between the military and the merchant marine was razor thin.
Keep changing the subject one might fly sooner or later...
dick,
You are confused. It is not your money. It is the government's money and you should be happy that you are allowed to keep any of it.
Does that answer your question?
fuge
SF,
Let's drop this since we will never agree.
Plus you keep changing the subject. I mean you totally left the rails 2 emails when you brought up what the government did to people in the military. The military is a different story since servicemen agree to give up a certain amount of their rights when they enter the service so that has no relationship to the ordinary citizen. Here what does corporate entertainment and expenses have to do with inheritance tax?
I guess it is better to tax my breath than even considering cutting spending?
Regardless of what anyone may want the government will shrink and the spending will decrease.
But the damage to our society and culture has already been done.
Fuge
"So I’ll ask you where do we make up the lost revenue with you wanting to eliminate the estate tax because we would now have to borrow that money? Do you think that’s smart? Or don’t you care? "
By cutting spending?
The rest does not deserve a response...
I guess we will have to disagree.
It still is not your place or the governments to decide what people do with their money, property or lives especially after they've already paid the taxes once. Can't what's left be ours? That is what the country was founded on (freedom of choice, property rights, etc) not government deciding everyone should work.
Either way both positions have a slippery slope or two:
1) If the government gets to decide how much excess inheritance it gets to take then why not apply that power to excess wealth?
2) Why not call a salary to a child early inheritance? Probably already laws to prevent that but someone smart could work around?
You've sort of answered one question for yourself. The really rich find work arounds and do not pay. My understanding is that this hits small to mid size family businesses and farms the hardest.
Actually my first preference would be to not have to constantly consider the implications of government intrusion into private matters.
In this case- what one does with the left over wealth after a lifetime of paying excessive taxes to support a bloated inefficient, ineffectual government buracracy.
Maybe, just maybe if we can get back to individuals making economic decisions based on the economics and not the tax or regulatory implications we might get to have a real economy again...
Socionomic Trendspotting for 2011
What now for 2011? Let’s put on our Socionomic-Vision Goggles and peer over the horizon into the coming year and see what shapes we can make out on the horizon. I expect the general social mood to plunge, or at least slide into a net-negative condition. Now, I thought the same thing for 2010 and while we did see ongoing expressions of general negative mood as an overall theme, we had a lot of positive mood type events that showed the strength of this rally in mood. These included a massive health care bill (expressions of optimism, inclusion, confidence and supportiveness – though one could also have called it one massive exercise in magical thinking as the dominant theme, with a façade of positive mood aspects reflecting the weak nature of the positive aspect of mood) and the ongoing belief in the power of the Fed to control events via Quantitative Easing (constructiveness, optimism, supportiveness – or, the negative theme of magical thinking smeared with a varnish of those positive mood aspects). I’m calling again for net negative mood.
In a way, I hope I’m wrong again. Another year to prepare for the final, ugly realization of just how rotten the edifice of our system is, the better for me and mine.
This edition of Trendspotting is based on some of the “Aspects of Social Polarity” found in Chapter 14 of The Wave Principle of Human Social Behavior by Robert Prechter. I’ll be providing my expectation of how these aspects will play out in what I expect to be a negative mood environment.
At best I can give my interpretation of what to expect and use those expectations to help position myself, my assets and my location to avoid the worst if it comes and be able to take advantages of opportunities as they pop up. As Gary North puts it – you always want to “move to, don’t flee from” – we have been given an enormous gift, a long plateau of delusional (in my opinion) positive mood that has held firm for well over a year. Who knows how much more time we have to plan and prepare. Use that time wisely and keep a cheerful attitude.
Adventurousness/Protectionism
The slide towards trade protectionism will continue. Keep an eye on the ongoing disputes with China over the Rare Earths trade as a marker, but it will only be part of an overall trend towards rolling back many of the Free Trade agreements that were locked into place during the late great era of positive mood. Expect to hear much about how the early Republic was founded and grew behind significant trade barriers as an example of why we should put up new walls today.
As for other aspects of protectionism, expect banks to continue to be more conservative in their lending, expect personal debt to drop as people pay off their credit cards (though this could be interrupted if employment craters) and expect the general tenor of mood to be much more defensive.
Action Items: When others retreat, be ready to advance. Look for opportunities that others may be too frightened to take advantage of. Look for products meeting a local or regional need. Trade barriers could very well trash the base assumptions of many fine business plans.
Alignment/Opposition
Opposition will increase in many forms – whether it is labor strife in professional sports and public unions or between the main political parties, expect opposition to rule the day in many interactions.
Action Items: Don’t expect to get huge projects that required many layers of agreement off the ground. If you need lots of permitting, complicated financing or political support – don’t expect it to be easy. I would suggest focusing on small, discrete projects that can be handled quietly and cheaply.
Benevolence/Malevolence
I’m not sure how far down the curve we will slide on this polarity. Expect a rough year for charities. Expect public discourse to get even rougher and don’t be surprised to see a rash of stories about serial killers or spree killers make the news. The recent spate of cop killings (which we discussed briefly here) might be a ugly foreshadowing of things to come
Action Items: Keep your wits about you and make sure you don’t get caught up in a wave of malevolent behavior. Heaven knows the world can be short on kindness in the best of times.
Clarity/Fuzziness
This one is easy to spot. Policies such as issuing more debt to try and “fix” a debt crisis is a screaming alarm bell for this sort of thing, no matter how man Nobel Prize Winners line up to support it. There will be a vast amount of glittering generalities thrown around when it comes to talking about more jobs and debt relief. Expect vast waves of unintended consequences from the programs that do get pushed through.
Action Items: Be careful to make sure any plans you make – be they business plans, bug-out plans, relocation plans, etc. are based on the best facts available. Leave the day-dreaming to others. Keep in mind the old country saying “wish in one hand, shit in the other and see which one fills up first” when considering an investment. There is a lot of dreaming built into financial statements and pro formas. Make sure you can spot it.
Concord/Discord
Discord should rule the day. We are seeing politicos play nice at the moment as we are in a significant rally in mood. When we pass Dow 10,000 once again, expect that to melt away into angry, bitter, partisan wrangling.
Action Items: If you rely on harmonious times for your income or safety – expect a decrease in both.
Confidence/Fear
Fear should make a big, big comeback. Whether in terms of personal safety or investments, times should get stressful.
Action Items: If you have ignored me over the last several years when I say “get to know your neighbors, get plugged into your community – the actual real-life one, not the digital one” then please stop ignoring me and make those connections. People usually have less fear of those they know. Do what you can to limit fear’s deleterious effects on your life. When others are fearful, you can be looking for opportunity.
Constructiveness/Destructiveness
Expect to see things crumble or be blown to bits, whether it is infrastructure or political entities. Money for maintenance is going to dry up. Anger will spark the detonation of bombs and the collapse of many current social and political arrangements. Burn Baby Burn will make a comeback.
Action Items: I see this as a theme that will be picked up by macro themes such as Peak Oil or the Climate Change movement. Watch for a push to the return to gravel roads (informed by devastated local budgets and by an eco movement out to limit the use of roads) or for allowing infrastructure to decay to promote restrictions on access to areas and a return of those areas “back to nature.”
Daring/Defensiveness
Retrenchment should be the order of the day. Again, this will be a tough era to see big projects through to completion.
Action Items: You should already have your defensive measures in place. Be ready to get daring while others get defensive.
Desiring Power Over Nature/Desiring Power Over People
I think the Climate Change Religion (as opposed to the legitimate science of climate studies) is going to be the poster child for this. The Climate Catastrophe folks have their villain (carbon emitting activities), they have their Mein Kampf (Climate Change and the Failure of Democracy – read what they have in store for you, friends), they control many levers of power in the establishment and they have a high profile champion in Al Gore. They’ve suffered some setbacks lately, but watch as mood deteriorates. They will be a vocal, angry minority and they will know what they want – always a dangerous combo.
Action Items: Tyranny is going to be hard to impose in this era of open communications systems, but don’t worry, plenty of folks will try and impose it. Be watchful and be ready to run – early or fight - if you must in defense of the Constitution, your life and property.
Ebullience/Depression
If this model is correct, we should expect a lot more acceptance of depression or stoicism rather than the manic insistence that we should all be happy we saw in the 1990’s and most of the 2000’s. Ludes and other downers should make a comeback. Hopefully meth abuse will shrink.
Action Items: Be watchful of your moods. Don’t get caught up in the waves of depression that could very well sweep the country after an ugly financial or political event.
Embrace of Effort/Avoidance of Effort
Expect a lot of ennui if mood truly craters. A lot of “it doesn’t matter” will be floating around, in tandem with a depressed national psyche.
Action Items: While others avoid doing the hard things – you should be embracing them. This is the ultimate contrarian play.
Forbearance/Anger
As the text says “A rising mood leads to social expressions of acquiescence, apology and tolerance. A falling mood leads to social expressions of resistance, recriminations and intolerance.” Don’t expect to see things like the Catholic Church apologizing for the Inquisition or other public self-flagellation by political bodies to apologize for crimes or atrocities committed decades or centuries ago. This will be an age where we’ll be making plenty of our own atrocities that our great-grandchildren can the apologize for down the road.
Action Items: If you are a member of a group that relies on income based upon historical guilt. Get ready to see that income wither away. Also, this is just another ingredient in the stew that will keep politics a seething mass of anger and futility for the near future.
Friskiness/Somberness
Sigh. Watch as hemlines drop and fashion goes black, brown and ugly and people let their bodies go. It has been a fun ride in an era of short skirts, well-tailored suits, fun times and giddy excessiveness in parties and politics.
Action Items: If your business model relies on selling tiny amounts of clothing at a big mark-up or selling lot’s of sparkly rocks, expect to see a dent in your income. Fashion will always sell, but the trend is going to abruptly change, in my opinion.
Happiness/Unhappiness
Pretty self-explanatory. Gonna be some good blues tunes that come out of this era.
Action Items: Don’t ignore the bad things, but don’t let yourself dwell on unhappiness. This too shall pass.
Homogeneity/Heterogeneity
Watch for a shift towards a lot of “tribalism” in marketing and in politics. This should work hand in hand with anger and secession to make quite the ugly mix on the political scene.
Action Items: Take time to read The Breakdown of Nations by Leopold Kohr for an idea of how smaller, heterogeneous political and social organizations might be able to flourish. The heterogeneity pole can put enormous strains on big systems that count on people all behaving a set way. Breaking apart some of those sclerotic systems might not be all negative. Think of ways to market and thrive in such an environment.
Inclusion/Exclusion
Tribalism will continue to march onwards and upwards. The worst of “exclusion” takes us skin-color-based violence, to the re-ignition of historical animosities and just aggravates an already ugly national political scene.
Action Items: Go to the U.S. Census website and look up your city and your state. Where do you fall in terms of your ethnic group in your region? What do the projections for ten years out say? What would happen if ethnic-based conflicts erupted in your region?
Interest in Love/Interest in Sex
Get ready to get your groove on if that is your thing.
Action Items: If you are in the arts, plan to write that big best-seller or direct that movie focusing on self-serving pleasure and the thrill of the “hunt.”
Liberality/Restriction
Expect different regions to express this in different ways. Down South you may see a return of Blue Laws and an expansion of dry counties. Up in Yankee Land expect extremely restrictive gun laws. Expect more and more efforts to legislate behavior to more rigid forms.
Action Items: Be aware of the culture of where you live. This will be a cross-cutting theme in realms of politics, business, fashion and social behavior.
Optimism/Pessimism
This one is self-explanatory. While others are preparing for the world’s end in 2012, you can be buying their assets for pennies on the dollar, if you so choose.
Action Items: Buy when blood is flowing in the streets.
Practical Thinking/Magical Thinking
Expect so much Magical Thinking as to make you puke. This will be everything from relatively harmless visits to a local Santero to help out with your love life or a business deal to truly pernicious magical incantations such as QE3 or other sorts of wishful fantasizing that just because you want something bad enough it will manifest itself with no consequences. Much of this has already played out on the national scene as budget deficits have continued to skyrocket, guaranteeing devastation in the near future.
Action Items: Think clearly. Feel free to indulge in the more harmless aspects of magical thinking (so you don’t stand out too much from the crowd) but base your actions on practical thinking.
Search for Joy/Search for Pleasure
I define joy as a deep and internal state of connectedness to the Source, to Divine Providence, with active aspects of faith, hope and charity. A search for pleasure is a road where you wind up like Hugh Hefner, a shriveled old shell of a once-vibrant man, subsisting on Viagra and gold-diggers.
Action Items: Indulge lightly as we descend this slope into hedonism, don’t get consumed by it.
Self-Providence/Self-Deprivation
Watch as we recoil away from Hummers and McMansions to more humble digs and mass transit. In religious circles, look for a comeback of monastic environments and possibly more violent efforts such as flagellation. In politics, looks for “austerity” to rule the day in public spending and in general watch as society retrenches to a lower level of conspicuous consumption.
Action Items: Self-Deprivation, especially after an era of extreme excess is not the worst thing in the world. Use this wave of mood to clear out clutter and rationalize your budget.
Sharpness of Focus/Dullness of Focus
This will be a tricky one to nail down. In the best of times, there is not a lot of sharp focused effort out there.
Action Items: If you work in manufacturing or the energy sectors (or in a research reactor!) be extra vigilant to make sure you and your people are doing things by the book. Cutting corners can mean injury, ruined equipment and regulatory nightmares. Make sure your QA and Safety folks stay on the ball.
Supportiveness/Opposition
Another cross-cutting theme that should play havoc with any efforts to make big projects or big efforts succeed. There will be even more arm-chair quarterbacks out there ready to tell you why it can’t be done.
Action Items: Expect this. Build this into any timelines or plans you make. If you have important things you need to get done, keep the projects small and the group of people doing them limited. In politics, expect gridlock.
Tendency to Praise/Tendency to Criticize
Ditto from Supportiveness/Opposition. This will be a very tiresome aspect of this era of negative mood.
Togetherness/Separatism.
If we truly are facing a Super Cycle grade downturn, a lot of political entities are going to be shattered under the strain.
Action Items: Keep your eyes peeled for secessionist sentiment. If you live in Texas, you might want to make sure any assets you have in other states is disposed of within the next few years. Come 2020, you might be a citizen of the Lone Star Republic and need a passport to visit Little Rock or Los Angeles.
Summary
Whew. What a list. I hope the above was helpful. Use it to clarify your thinking. Keep a positive frame of mind. Have Plans A, B, C and D at least scoped out to cover both a continued rally in mood and a collapse. Enjoy this plateau for as long as it can hold.
http://futurejacked.blogspot.com/2011/01/socionomic-trendspotting-for-2011.html
And what do you get when young men are stressed?