Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Stop me before I kill again!!!!
Bernanke Points to 'Increased Possibility of a Sudden Fiscal Crisis'
By Matt Cover
February 7, 2012
Federal Reserve Chairman Ben Bernanke (AP Photo/Alex Brandon)
(CNSNews.com) – Federal Reserve Chairman Ben Bernanke said that the current trajectory of the federal budget – marked by large annual deficits – was “clearly unsustainable” and that “serious economic consequences” could result.
“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the Senate Budget Committee Tuesday.
“Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy.”
Bernanke said that while nobody knows when a fiscal crisis will come, it is surely “ever closer.”
“Although historical experience and economic theory do not indicate the exact threshold at which the perceived risks associated with the U.S. public debt would increase markedly, we can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point.”
Bernanke also said that these rising debts and deficits could also crowd out private investment and was “clearly unsustainable.”
“Of even greater concern is that longer-run projections, based on plausible assumptions about the evolution of the economy and budget under current policies, show the structural budget gap increasing significantly further over time and the ratio of outstanding federal debt to GDP rising rapidly. This dynamic is clearly unsustainable,” Bernanke said.
The central bank chief said that over time, the national debt would “crowd out” private sector investment and growth.
“Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth,” he added.
The only way to prevent lower economic growth and a Greece-like debt crisis in the long term was to begin to get the budget deficit under control now, Bernanke warned.
“To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. Attaining this goal should be a top priority.”
http://cnsnews.com/news/article/bernanke-points-increased-possibility-sudden-fiscal-crisis
Welcome to reality GF.
You are exactly correct. But how do we stop it?
Everybody (99%) have completely bought into the something for nuthin world...
Update: U.S. Unemployment Rises To 12.2%
by: Carlos X. Alexandre February 3, 2012
The January 2012 unemployment rate published by the Bureau of Labor Statistics (BLS) surprised plenty of pundits with a jobless rate of 8.3% and 243,000 new jobs. That's wonderful news, and any new jobs are welcome, but the participation rate dropped to 63.73%, the lowest since 1982. As I illustrated in my previous article, "Why U.S. Unemployment Rate Is 12.1%," lowering the overall unemployment rate is quite easy.
One way is to achieve a lower unemployment rate is to freeze job creation and layoffs today, and drop the participation rate to 60%. By the end of 2012, even with population growth at 1%, the official unemployment rate will be 3.55%, or literally full employment.
However, and despite a lower unemployment rate, the fact remains that less and less people have jobs, and the impact will be felt in due time. In addition, the side effects on consumer sentiment as a result of most people knowing someone that is struggling to find employment, will continue to stimulate consumers to play safe and tighten their purses.
But there may be a silver lining. In general, individuals may be persuaded to view the present economic condition as benign and improving, and may start to spend. However, they must find a balance between their current perceptions of the future with the realities of the present - friends and family that still cannot find a job, lower home prices, etc. - and consumer sentiment going forward will tell us which side is winning.
My preferred average participation rate is 66.56% for the 1990-2006 period, not because I like to bask in bad news, but because that period is a better reflection of recent economic conditions, and a better gauge of the job market. It's only fitting that I plug in the latest numbers.
Thus, when the labor force is adjusted using the average above (66.56%), the result is an increase from 12.1% to 12.2%, although the Bureau of Labor Statistics reported a decrease from 8.5% to 8.3%. Fixing unemployment never looked so easy. Because some will see a political statement somewhere in here, I must state that I am politically independent, and strive for objectivity. In the end, my decisions pay my bills.
The numbers game is an old approach, and, for example, plenty of people still mention the time in the 1990s when the U.S. government had a surplus. Well, if one takes the time to look through the Treasury reports, one will find out that government debt climbed every single year, without exception, and a reduction or pause should have taken place if a surplus was generated. Having said that, and based on the participation rate average used above, one will see that the unemployment rate was lower than reported during that same period.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/339801-update-u-s-unemployment-rises-to-12-2?source=email_macro_view&ifp=0
Here's a link- (this is very important to understand)
Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low
Submitted by Tyler Durden on 02/03/2012 08:51 -0500
A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.
Chart below shows it all - that jump is not a fat finger!
And Labor Force Participation:
This is the largest absolute jump in 'Persons Not In Labor Force' on record...and biggest percentage jump in 30 years.
Chart: Bloomberg
http://www.zerohedge.com/news/record-12-million-people-fall-out-labor-force-one-month-labor-force-participation-rate-tumbles-
The Weak Economic Recovery
by: Shareholders Unite January 31, 2012
It's something you heard for a while and even after some uptick in job creation, it hasn't died down. For many, it doesn't really feel like a recovery at all, but the one way to make sure is to simply look at the figures. So what do the figures say?
Luckily, we have Jim Reid from Deutsche Bank putting it all together:
click to enlarge
Indeed, the recovery from the 2008/9 recession is the weakest of them all, barring the one from 1927, but that ran into the stock market crash in 1929, so perhaps it's not the fairest of comparisons. But the real surprising thing is that it still seems to surprise many people. By now, it should be no secret that this isn't your garden variety recession.
After the second World War, recessions were typically brought about by the Fed, jacking up interest rates in order to cool the economy when inflation was threatening to accelerate (or already had, like in 1980). This isn't at all what happened this time around (and to a lesser extent, in 2001).
Balance sheet recession
The 2008/9 recession was another beast altogether, where a speculative bubble had exploded some asset prices, and these came crashing down, destroying many a balance sheet in the private sector and financial sector alike. Nine trillion dollars (nearly 40%) of wealth of American home owners has been wiped off their balance sheets.
Balance sheet recessions have unfortunate consequences:
Damaged balance sheet holders become preoccupied with repairing their balance sheets, increasing savings, reducing spending.
Credit demand really falls as a result.
Because credit demand falls rather significantly, interest rates plunge and monetary policy becomes quite powerless.
This is a very different situation from a traditional recession. The dangers are threefold:
The reduction in private spending creates a downward spiral, as spending by one is income for another party
Inflation drops below zero (deflation), increasing the real value of debt and setting off a debt-deflationary spiral first described by Irving Fisher in the 1930s. This could very well reinforce the first negative spiral.
Banks, faced with too many bad performing loans, restrict credit supply and tighten credit conditions, and might even go under because of the bad debt.
The US has been quite successful in stabilizing the banking system through rather unprecedented Fed interventions and bailouts. The fear that the large increases in money creation would be inflationary are misplaced and made by those not fully understanding the nature of a balance sheet recession.
Since monetary policy is quite powerless, much of the burden of keeping the economy afloat relies on fiscal policy. We had some success with this, but things could have been a lot better. Once again, those expecting runaway interest rates on public debt because of the large deficits and debts do not fully grasp the nature of a balance sheet recession. There simply is enough savings to finance the debt rather effortlessly and indeed, the US can borrow at record low interest rates despite having large deficits and debts.
Savings is what goes up in a balance sheet recession, making credit demand weak, hence, monetary policy ineffective, and producing enough savings to finance budget deficits at record low interest rates. Deficits that are an unfortunate necessity, as higher savings also means lower demand. A balance sheet recession is in one sense rather traditional; it manifests itself as insufficient aggregate demand and lots of idle resources.
What happens next?
The good news is the deleveraging of the private sector (that is, households, as most companies had rather healthy balance sheets) has gone some way in the US, much more so compared to many other nations. According to a McKinsey study, there is a market reduction in private sector debt in the US.
Well, that's the good news. The bad news is that according to Shiller, housing will remain depressed for years to come. So we muddle through.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/327622-the-weak-economic-recovery?source=email_macro_view&ifp=0
Will The January Rally End With U.S. GDP Miss?
by: Zecco January 29, 2012
By Paul Quintaro
On Friday, U.S. GDP for the fourth quarter of 2011 printed at 2.8%. It disappointed markets at the open, as analysts had anticipated a figure of 3.0%. Futures quickly reversed, and traded into the red.
Also, GDP for the third quarter was revised to 1.8%, meaning that altogether the annual GDP growth rate for 2011 was only 1.7%.
Further, what may have been particularly grim from the report was the inventory build up data. In total, inventory build up accounted for 1.9% of the 2.8% Q4 GDP. This could indicate that further downward revisions are coming.
Given the strong rally in equity markets seen in the first few weeks of the year, investors may have been surprised by Friday’s disappointing GDP figure. Yet, if investors had been paying attention to statements from the Federal Reserve, the announcement may have not been surprising at all.
On Wednesday, the Fed pushed back its outlook for the time period during which interest rates would remain near zero. The Fed said that interest rates would remain low until late 2014 and possibly into 2015.
If the Fed had believed that the economy was showing signs of improvement, or was going to improve in the near-term, then the institution may not have been promising to keep rates low for such an extended period of time.
Rates held artificially low during times of economic prosperity can lead to great amounts of inflation, as has been seen in China’s economy, which struggled with food inflation for much of 2011.
So where does the January rally go from here?
On Thursday, Caterpillar (NYSE: CAT) gave particularly rosy guidance, arguing that the global economy was improving and would continue to improve in coming months. Oil has remained near $100 a barrel, which could be harmful to consumers paying more at the pump, but could be indicative of growing demands, suggesting industrial growth remains.
The European situation also appears to be somewhat contained, although it seems that the probability of a Greek default has become increasingly more likely.
In an interview on CNBC, JP Morgan’s (NYSE: JPM) CEO Jamie Dimon gave his outlook for U.S. banks. He argued that the situation was improving. Particularly noteworthy were his comments on Greece.
When asked directly, Dimon stated that the immediate effects of a Greek default on U.S. banks would be practically zero.
Still, if it were that easy, did investors in 2011 simply act irrationally?
Dimon conceded that the effects of a Greek default on the global economy could be negative, which would have repercussions on U.S. banks.
At any rate, the GDP figure gave investors pause on Friday. Still, the Fed’s promise of low rates and a contained European situation could support the market going forward.
Important Note
Content, including research, tools and securities symbols, is for educational and informational purposes and should not be intended as a recommendation or solicitation to engage in any particular securities transaction or investment strategy. You alone are responsible for evaluating which securities and strategies better suit your financial situation and goals, risk profile, etc. The projections regarding the probability of investment outcomes are hypothetical and not guaranteed for accuracy or completeness. They do not reflect actual investment outcomes and are not guarantees of future results, and do not take into consideration commissions, margin interest and other costs that will impact investment outcomes. Content may be out of date or time-sensitive, and is subject to change or removal without notice. Supporting documentation for any claims made in this post will be supplied upon your email request to editor@zecco.com.
At the time of distribution of the material contained herein, neither Zecco Trading nor Zecco Forex was a market maker or acted as the contra-party for customer transactions through the firm’s principal accounts for the securities discussed.
Zecco Holdings, Zecco Trading, Zecco Forex, and their officers/partners/employees may hold a nominal financial interest in any of the securities discussed herein, with the nature of the interest consisting of, but not limited to, any option, right, warrant, future, long, or short position.
Neither Zecco Trading nor Zecco Forex has participated as a manager or co-manager in public offerings of the securities mentioned herein within the last twelve months.
http://seekingalpha.com/article/322981-will-the-january-rally-end-with-u-s-gdp-miss?source=email_macro_view&ifp=0
PAYCHECKS, PERCEPTION, PROPAGANDA & POWER
Posted on 23rd January 2012 by Administrator in Economy |Politics |Social Issues
Aldous Huxley, banks, Bernanke, BLS, Bush, CNBC, corporate Fascist, CPI, Department of Homeland Security, Edward Bernays, FourthTurning, germany, GOP, Greenspan, Jesse's Cafe Americain, Josef Goebbels, JP Morgan, lies, Mainstream media, Martin Mayer, Military industrial complex, Nazis, Neil Howe, Obama, Occupy Wall Street, Oligarchy, Perception, Propaganda, Revolution, Ron Paul, ruling elite, TARP, truth, V for Vendetta, Wall Street
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
I began to write this article in early December. I had just written a piece that attempted to scrutinize how the American public could stand idly by while heavily armed mercenary thugs viciously crushed the Occupy encampments across the country in a Department of Homeland Security coordinated attack at the behest of the ruling oligarchy. Comfortably Numb made a case that the political and economic systems of the United States have been captured by a few evil men and they use their wealth and power to control the message hammered into the psyches of an apathetic, distracted, vincibly ignorant public. I started to tackle the question of why Americans could stand by as the new Greatest Generation was being abandoned, derided, scorned, beaten, tear gassed, and arrested for having the courage and audacity to stand up to a powerful corrupt unholy alliance between Wall Street psychopaths, corporate fascist barbarians, and Washington DC power hungry jackals. But I became overwhelmed with a feeling of disillusionment and hopelessness and was unable to write anything for about a month. I found myself questioning whether it was worth fighting such a powerful foe after seeing how easily they crushed the opposition put forth by OWS. After a month I decided I am not one to love my servitude.
"Most men and women will grow up to love their servitude and will never dream of revolution." – Huxley's Brave New World
I owe it to my three sons to keep fighting the good fight. They deserve a future. Day by day we draw ever closer to a showdown with the traitors who have sold this country into debt slavery. I don't dream of revolution, but my eyes are wide open and I see it coming. I had been trying to wrap my head around what happened with the Occupy Movement since the Department of Homeland Security coordinated destruction of most of the encampments around the country in November. The corporate mainstream media immediately moved onto more pressing issues like the Kim Kardashian divorce and Jessica Simpson's weight gain. The American public has been instructed by the media the Occupy story is history, just like the BP oil spill, the Fukushima nuclear meltdown, and the Egyptian revolution. In a society consumed by reality TV Occupy Wall Street was just another show. The credulous American populace dutifully turned their attention to Black Friday and whipping out one of their 15 credit cards to purchase remote control pillows, 3D 72 inch HDTVs, a see through tank top from the Snooki line of slutware, or thousands of other ludicrous Chinese crap churned out by slave labor in factories built to support the "efficiency" efforts of U.S. conglomerates.
Without a constant irritating presence in the heart of NYC and other large cities, the Occupy Movement appears to have lost steam. I've been trying to figure out how and why this happened. The issues that motivated the protests have not gone away. The despicable MF Global crime, committed by a hall of shame member of the .01% – Jon Corzine – has proven beyond a shadow of a doubt the Wall Street/Washington DC criminal conspiracy is alive and well. Unless you have been sitting in line at a Wal-Mart for the last two months to get a $3 waffle-maker, you saw young people across the country tear gassed, shot with rubber bullets, maced, bludgeoned, and brutalized by the paid thugs of the ruling oligarchy on a daily basis. The outrage at the continued looting by the psychopathic Wall Street aristocracy and the horrific police brutality against young people exercising their Constitutional right to free speech and assembly should have ignited widespread anger and mass protest. Instead the reaction has been silence, scorn and smug satisfaction with the government response.
Paychecks & Perceptions
There are a plethora of rationales for the apathy and lack of critical thinking overwhelming our society as we plunge into the depths of a looming economic calamity. They include economic self interest, the power of propaganda to condition the masses, fear of opposing authority, and the perception of a reality that allows you to sleep at night. The Upton Sinclair quote above hit home for me a few weeks ago and explains much of the disdain for the Occupy movement. I was in a high level meeting at my University and during the course of the meeting the Occupy Movement was brought up. A senior executive made a derogatory comment about Occupy and then laughed. I smiled and bit my tongue. In retrospect it shouldn't have surprised me. I work at one of the top business schools in the world. The person who made the comment has spent his entire life educating students who end up with jobs at Wall Street financial institutions and with America's largest corporations. It is a natural response for someone whose whole life is reliant upon the existing financial system to psychologically overlook the obvious criminality of the Wall Street fat cats and corporate executives who validate his entire existence and life's work. He chooses to not understand the message of these protestors because to truthfully comprehend their message would nullify his thirty years of academic efforts. My non-response to the comment about the Occupy Movement was also based upon self-interest and reliance on a paycheck to make a living. I had learned my lesson the hard way during a previous career stop.
It appears older generations have a considerably more negative view of young people protesting the capture of our political and economic system than younger generations. This also makes sense because they have the most to lose and cannot visualize a society other than the one they have created. To acknowledge the validity of the Occupy Movement and the justice of their positions would be to admit their own guilt in the creation of a society that has allowed a chosen few to enrich themselves at the expense of the many. The Baby Boom Generation has been living a lie their entire adulthood. It is true that prior generations created the welfare/warfare state we have today, but the Boomers have had the reins of power for the last two decades in Congress and chose to not only ignore the fact the entitlement promises made by previous administrations could not be fulfilled. They even made further promises in the trillions to their fellow Boomers. Instead of making a budgetary choice between guns and butter, the Boomers chose guns, butter, education, universal healthcare, the right to own a home, the right to a 72 inch HDTV, and zero percent financing on their Cadillac Escalade from government motors. The consequences of these choices are a $15.2 trillion National Debt growing at a rate of $3.7 billion per day and unfunded entitlement liabilities totaling in excess of $100 trillion.
I had the pleasure of meeting Neil Howe, co-author of The Fourth Turning and fourteen other books, in early December. His ground breaking work with William Strauss on generational theory has proven to be uncannily accurate, as their 1997 assessment of what dynamics would drive the course of history over the coming decades have materialized exactly as they presumed. We had a fascinating two hour discussion about various topics impacting the world today and I found that we were in agreement on just about everything, except for the Occupy protests. Neil Howe is an expert on interpreting how generations react to events. I expected him to be impressed by the courage and fortitude of the Millenials leading this protest against Wall Street gluttony and audacious criminality. This is the new GI Generation and I anticipated him perceiving these protests as a prelude to greater feats ahead by this generation. Instead he described them as naive adolescents being led down a phony path by anarchist Boomers. As an example he referenced the fact that many of the protestors were wearing Guy Fawkes masks, the most famous anarchist in history. He found this distasteful and dangerous. My interpretation of the Guy Fawkes masks was more in line with the movie V For Vendetta and the theme of a corrupt evil government keeping the public living in perpetual fear.
"Because while the truncheon may be used in lieu of conversation, words will always retain their power. Words offer the means to meaning, and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn't there? Cruelty and injustice, intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission. How did this happen? Who's to blame? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you're looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn't be? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to the now high chancellor, Adam Sutler. He promised you order, he promised you peace, and all he demanded in return was your silent, obedient consent." – V For Vendetta
Neil Howe's impression of the movie centered on the terroristic aspects of blowing up Parliament, not on the symbolism of citizens rising up and casting off the yoke of a malevolent oligarchy that has used propaganda, fear and intimidation to manipulate and control the population. Howe is a Baby Boomer and I'm Generation X. We are each viewing the Occupy Movement through the prism of our life experiences and perceptions about the intentions of these protestors. The existing social, economic, and political structure is dominated by Boomers. Neil Howe views the Occupy Movement as a threat to the system he believes in and supports. As a cynical Xer with no allegiance to a corrupt government, a crony capitalist economic system or a greedy self centered society, I see these young revolutionaries as our last great hope.
Neil Howe runs a very successful consulting firm whose clients include Fortune 500 corporations, including Wall Street financial firms. His annual income and net worth is dependent upon the existing corporate dynamic. When your living depends upon not understanding the real reason young people are protesting corporate malfeasance, fraud and corruption, your mind can ignore observable facts and visible truths. Anything can be rationalized when putting food on the table requires you to ignore obvious truths and understandable facts.
Propaganda & Power
"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind." – Edward Bernays, Propaganda, 1928
I was shocked when I came across the above quote a few months ago. Bernays had it figured out 84 years ago before mass media, television, or spin doctors. His vision of a society manipulated by a small number of governing elite who believe they know better than the masses has come to fruition. True republican equality as defined by the founders in the Constitution is considered quaint and a belief of the trusting and naïve masses by the wealthy elite. Manipulation of the masses through a relentless never ending barrage of propaganda disguised as news and unremitting false advertising is designed to control and herd the cattle into the slaughterhouse. We are given the illusion of free choice, when in reality the choices are being made for us by a chosen few who think they know what is best. These puppeteers controlling the strings inhabit the financial, government and corporate halls of power. Their purpose is not to benefit society and its citizens but to protect their wealth and influence, using any means at their disposal. Propaganda to control the minds of a willfully uninformed public has been their most potent weapon.
Source: Mike Kreiger
Most people have never heard the name Edward Bernays. That is the way public relations specialists (manipulators of the truth) like it. They operate in the shadows, subtly influencing public opinion through what Bernays arrogantly referred to as the sinister method of "engineering of consent". The Governing Elite have no time for messy processes like true capitalism or non-manipulated free elections. The objective for Bernays and his ilk has always been to provide corrupt government power brokers, shadowy bankers and corporate media kingpins with potent psychological instruments of social persuasion and mind control. Edward Bernays is considered the "father of public relations", and he was the nephew of Sigmund Freud. He pioneered media manipulation techniques.
He understood the weaknesses of the human mind and developed methods and processes for taking advantage of that weakness.
"The average citizen is the world's most efficient censor. His own mind is the greatest barrier between him and the facts. His own `logic proof compartments,' his own absolutism are the obstacles which prevent him from seeing in terms of experience and thought rather than in terms of group reaction." – Bernays, Crystallizing Public Opinion
Bernays got his big break during the administration of Woodrow Wilson, the outset of the American interventionist empire bankrolled by an inflation creating Federal Reserve and a tax and spend Congress. During WWI, Edward began work for the Committee on Public Information, the immense propaganda machine ordered by Woodrow Wilson to sway the American public towards a war he campaigned to keep us out of. He became so instrumental he was invited to accompany Wilson to the Paris peace conference. His claims to fame afterward included:
•Creating a false storyline of communists in Guatemala on behalf of his client United Fruit Company, resulting in a CIA led military coup which ushered in a brutal dictatorship resulting in the dislocation, torture and death of thousands.
•He was responsible for breaking the taboo of women smoking in public while working for American Tobacco Company.
His biggest claim to fame was inspiring the most reviled propagandist in history. Bernays' techniques were so effective that Joseph Goebbels, the Nazi propaganda minister, made copious use of Bernays' book, "Propaganda" throughout the Holocaust, often crediting Bernays. That was quite a feather in Bernays' cap. The German people were gradually indoctrinated by their government through propaganda into consenting and supporting the most horrific crimes in history as described by Milton Mayer in his book, They Thought They Were Free – The Germans, 1933-45:
"This separation of government from people, this widening of the gap, took place so gradually and so insensibly, each step disguised (perhaps not even intentionally) as a temporary emergency measure or associated with true patriotic allegiance or with real social purposes. And all the crises and reforms (real reforms, too) so occupied the people that they did not see the slow motion underneath, of the whole process of government growing remoter and remoter.
"To live in this process is absolutely not to be able to notice it—please try to believe me—unless one has a much greater degree of political awareness, acuity, than most of us had ever had occasion to develop. Each step was so small, so inconsequential, so well explained or, on occasion, `regretted,' that, unless one were detached from the whole process from the beginning, unless one understood what the whole thing was in principle, what all these `little measures' that no `patriotic German' could resent must someday lead to, one no more saw it developing from day to day than a farmer in his field sees the corn growing. One day it is over his head."
Bernays was a master of using psychological techniques to mask the motives of his clients, as part of a calculated strategy aimed at keeping the public unaware of the forces that were working to mold their psyches. Bernays died in 1995, but his techniques have been taken to a new level as our government, media and financial elite use any means at their disposal to keep the masses sedated and content while they are fleeced and herded towards the slaughterhouse. The Big Lie perpetrated upon the masses is the fallacy of America being a democratic society. The anti-democratic and treacherous corporate public relations Madison Avenue maggots manage and manipulate the opinions of the many in order to make sure a true democratic system doesn't threaten the privileges and supremacy of the governing elite.
I wonder if it was coincidental the creation of the Federal Reserve, implementation of the personal income tax, and virtually non-stop war coincided with the rise of an industry designed to manipulate and control the thoughts and opinions of an easily influenced and willfully unaware populace. Most people want to be led and told what to believe. Critical thinking and taking personal responsibility for your life and your society requires hard work, sacrifice, honesty, and self restraint. Simply believing storylines supplied by authority figures and media pundits allow the masses to continue living lives of debt delusion and hope, occasionally stirred into a frenzy of fear and loathing towards the foreign bogeyman of the moment, chosen by the governing elite. Bernays and his disciples understood this dynamic and have been able to utilize corporate mass media and the human weakness of trusting in the judgments of authority figures to control and manage the vast swath of America without them knowing it.
"If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it." – Edward Bernays
The propaganda techniques employed to manipulate the masses seemed less abhorrent when they centered upon just consumer products. Convincing women they would look like a gorgeous model if they used a company's cosmetics or convincing a man he'd be admired by his neighbors if he drove a certain car was small potatoes. In the last few decades the misinformation and outright lies fed to the American public by oligarchy of governing elite has become more manifest and repugnant. The list of abuses is virtually endless.
•The American public has been lured into debt by the incessant unrelenting lifestyle marketing messages spewed from our TVs 24/7. From the introduction of the show Lifestyles of the Rich & Famous in the early 1980s, wealth, materialism, and consumerism became the motivating force in America. Consumption accounted for only 63% of GDP in 1980, with capital investment accounting for 17%. Today, consumption accounts for 71% of GDP and capital investment only 12%. Keeping up with the Kardashians is the mantra of our times.
•The utter failure of our government controlled educational system in teaching our children how to think critically or question the validity of government created data has allowed the elite to paper over the fact the average American worker has not had any real income gains in at least four decades. The insidious nature of Federal Reserve created inflation (up 600% since 1970) is incomprehensible to a public that finds math boring and not essential in their lives.
•Once the manipulators convinced the masses they needed a 4,000 sq ft McMansion, two brand new stylish cars, four big screen HDTVs, three computers, stainless steel appliances, granite countertops, a Rolex, Armani suits, an in-ground pool, an ATV, and house at the shore, there was only one thing left to do – loan them the money to live the faux American dream. GDP has grown 525% since 1980. Personal consumption expenditures have grown 600% since 1980. Consumer debt outstanding has grown 700% since 1980. And total household debt outstanding has grown 800% since 1980. It seems the purveyors of debt on Wall Street have been the only beneficiaries of the apparition of an American dream sold to a willingly duped American populace.
•The dream of home ownership was used by politicians of both parties to further their agendas, egged on by the Wall Street elite and the National Association of Realtors – two of the largest contributors to politicians. As politicians tried to outdo themselves creating programs to get poor people into homes, Federal Reserve Chairman Greenspan urged the masses to use creative new adjustable rate mortgage products. With a wink and nod from Greenspan and no fear of any regulation whatsoever, the Wall Street elite created liar loans, negative amortization loans, subprime loans, Alt-A loans and a myriad of other products to induce fraud in the housing market. Appraisers did their part by overstating the values of homes and Wall Street colluded with the rating agencies to package the toxic mortgages and sell them to clueless dupes around the globe with a AAA rating stamped on them. At the absolute peak in 2005, with prices two standard deviations above the long term average, Ben Bernanke declared the housing market strong and the NAR proclaimed it the best time to buy. As the coup de grace, Wall Street urged home owners to unlock that equity in their homes and borrow $3 trillion to spend on gadgets, home upgrades, automobiles, facelifts, new boobs, and exotic vacations. The greatest mass fraud in history was complete. And not one person has gone to jail. •Not only have the governing elite lured the masses into debt slavery, but they've convinced them to love their slavery. The governing elite have done a fantastic job of using their media mouthpieces to deflect criticism away from their pillaging and looting of the national wealth. They've successfully persuaded the slaves the extreme income inequality is beneficial to the country because the 1% are the job creators and have earned their way to the top through our free market capitalism system. Convincing the middle class to blame the poor for their three decade decline is a tribute to the effectiveness of their propaganda crusade. Jesse gives accolades to the father of propaganda as the moneyed interests have won:"The moneyed interests have done quite a successful PR job in refocusing the national discussion on priorities involving social issues, and the reform of the support systems for the weak, the unfortunate, and the elderly. Turning one group against another, and objectifying your intended victims through slogans and stereotypes, has always been an effective method of bending the herd to your will. Score one for Edward Bernays."
•The Social Security System is an example of propaganda and misinformation on a grand scale. A modest (1% tax) insurance program designed to help widows and orphans during the Great Depression, which should have been treated much like term life insurance, morphed into a massive retirement plan at the behest of politicians over the last eight decades. The voters shockingly voted for more benefits. Millions are now totally dependent upon the monthly pittance they receive, as the promise of a Social Security pension deterred them from saving for their old age. Politicians perpetuated lies about the funds being protected in a lockbox. The truth is the politicians raided the lockbox and took every dime to spend on wars of choice, aid to dictators, paying off their corporate masters, and leaving only IOUs. They have promised $17.5 trillion more than they can payout. It could be made viable with a gradual rise in the retirement age and a simple means test that would eliminate payouts to those who do not need it. Instead politicians use it as a means to control their constituents and obscure the simple truths. Americans choose to remain ignorant of the facts based on their perceptions of a false reality.
•Another storyline propagated by politicians of a liberal bent is that Medicare is a successful Federal government program. Only someone from the governing elite would declare a program that is $90 trillion underfunded, racked by fraud and abuse totaling almost $100 billion per year, despised by doctors across the land for its insane bureaucracy, and allows corporate insurance, drug and hospital conglomerates to dictate the costs, a success. The entire government run sickcare industry is a scam designed to enrich the corporations that contribute to the campaigns of the politicians writing the rules and regulations. The pricing mechanism between doctor and patient is broken, with neither having any say in the decisions.
•With the unleashing of a torrent of inflation during the 1970s the governing elite needed to resort to obfuscation and manipulation of inflation figures to create the illusion of price stability and positive GDP, while screwing seniors citizens out of their Social Security benefits and convincing the middle class their annual 3% wage increases were getting them ahead in life. Inflation has been systematically understated by 5% to 7% annually since 1980.
•The government drones at the BLS do the dirty work for their masters by reporting unemployment of 8.6% when the real level exceeds 20%, Great Depression levels. The corporate media just does the bidding of the corporate fascist state by unflinchingly reporting the bogus figures. Reporting the truth would be detrimental to the political and financial elites, so propaganda is rationalized as being beneficial to the country. The sheep just keep grazing as their shepherds herd them toward the slaughterhouse.
•By conducting focus groups and testing words, master manipulators like Frank Lutz have been able to convince the masses to support repeal of the estate tax even though it does not affect 99.7% of American taxpayers. By renaming it a Death Tax, the public was convinced that this horrible abuse of the tax code should be repealed. The 0.3% with the ability and means to manipulate public opinion, won again.
•The tax code and the propaganda campaign being waged by the richest .01% to obscure the truth and misinform the masses is the most barefaced attempt of the elite to retain their wealth and power. Their corporate media legions pound home the storyline of 50% of Americans not paying their fair share because they pay no Federal income tax. It sure sounds like these weasels must be doing something dishonest to avoid paying Federal taxes. What is not mentioned by the media mouthpieces is 50% of Americans make less than $25,000 per year. What is also conveniently forgotten is these people pay payroll taxes, local income taxes, state income taxes, real estate taxes, sales taxes, tolls and a multitude of other taxes, fees and charges to their utility, cable, and phone providers. In the real world, the total effective tax rate for someone making $50,000 per year exceeds the total effective tax rates of Mitt Romney, Lloyd Blankfein and Warren Buffett.
• The IRS tax code did not grow to 75,000 pages because the middle class and the poor used their undue influence to convince politicians in Washington DC to insert credits, loopholes and deductions for mega-corporations and the wealthy elite into the code. Only those with wealth, power and influence are allowed to "sway" legislation in Congress. This is called crony capitalist democracy. The current propaganda coming from the GOP candidates is our poor mega-corporations that outsourced millions of American jobs to Asia are overburdened by the 35% corporate tax rate, despite the fact they actually pay an effective rate of 18% and many multi-billion dollar conglomerates pay nothing. The truth is not important or relevant to those running the show in this country.
•The most damaging and far reaching use of propaganda, misinformation and outright scare tactics by the financial and political elites was during the financial meltdown during September and October of 2008. The American public was whipped into a frenzy of fear by the protectors of Wall Street – Hank Paulson and Ben Bernanke – in order to funnel trillions of taxpayer funds to the Wall Street cartel that created the crisis in the first place. The governing elite declared the economic system would fail unless Wall Street was bailed out. When some courageous Congress members balked at passing TARP, the masters of the universe crashed the stock market with their super computer trading machines. The hysterical pundits on CNBC and the other corporate media outlets shrieked that our way of life would surely die if the banks were not saved. TARP was passed and Wall Street bankers rejoiced by paying themselves billions in bonuses. The truth not revealed to the masses was that the failure of a few reckless ravenously greedy Wall Street banks would not have destroyed our economic system. It would have destroyed the wealth of psychotic bankers like Blankfiein, Dimon, Pandit and a slew of other criminals on Wall Street. Wealthy stockholders and bondholders would have been wiped out. Bank depositors would not have lost a dime. The irresponsible risk junky bankers would have seen their banks liquidated. Bad debts would have been written off. The remaining good assets would have been sold to prudent banks. But instead, the ethically and financially bankrupt were saved by their corporate fascist partners in crime at the expense of the confused and disoriented American citizens. Saving bankers had been successfully marketed to the sheep as being on par with saving the nation. Chalk another one up for Bernays and his brethren.
•After Bush and his banker cronies successfully fleeced trillions from taxpayers and handed it to bankrupt bankers, Obama and his minions continued the con on the middle class. With the help of Pelosi and Reid he was able to dispense $800 billion of payoffs to various contributors, constituents and special interests while calling it a job creating stimulus plan. When it became clear to even the ignorant masses that no jobs were being created, the governing elite channeled their best Edward Bernays and invented the term "jobs saved". The beauty of this concept was the impossibility of ever verifying the figures spouted by the paid shills disguised as expert economists. Billions more were funneled to the housing industry and auto industry as paybacks for their contributions in the form of homebuyer tax schemes and Cash for Clunker scams. The bill for these complete failures was passed onto future generations as the National Debt soared from $10.6 trillion to $15.2 trillion in just three years of Obama rule.
•The latest fraud being perpetrated on the American public is the lie about energy independence touted by GOP candidates for president. Rather than leveling with the people and explaining the facts of peak cheap oil to them honestly, the governing elite prefer slogans, half-truths and fantasy projections. The left touts solar, ethanol and other green energy fantasies, while the right peddles drilling, fracking, and fake estimates of supplies. Both are lying. All the cheap easy to access oil in the world has been found. The oil being discovered and accessed today is harder to reach, more expensive to produce and requires producers to expend almost one barrel of oil to produce a new barrel of oil. The easy to access oil is being depleted at the same rate that new hard to access oil is being brought on line. Meanwhile, demand grows across the globe. Our far flung suburban sprawl society teeters on the edge of an abyss and the governing elite pretend all is well.
The above list of abuses committed by the ruling oligarchy pales in comparison to the totalitarian like measures that have been executed since September 11,2001. With the country cowering in fear, the governing elite passed an Orwellian like 350 page bill that changed this country forever. The USA PATRIOT Act, which changed the relationship between our government and its citizens forever, was supposedly written, introduced, debated and passed in the space of 30 days in October 2001. I wonder which public relations firm came up with the Orwellian acronym? Uniting (and) Strengthening America (by) Providing Appropriate Tools Required (to) Intercept (and) Obstruct Terrorism Act of 2001. The purpose of naming this bill was to imply that anyone who was against allowing our government to spy, monitor or place under surveillance anyone our government chooses would make you unpatriotic. The American people chose implied safety and security over true freedom and liberty by their deafening silence. The governing elite used fear and propaganda to achieve their goal of more domination over our lives.
Drunk with their new found power, the political elite decided to change the world by using their spin machine to create visions of mushroom clouds over U.S. cities in the minds of a gullible public to craft a believable storyline for the invasion of Iraq. A willingly pliant press corp. spread the misinformation about weapons of mass destruction and Al Qaeda connections to fashion a convincing plot for pre-emptive war on a sovereign country that did not threaten our country. Who benefitted from war with Iraq? The military industrial complex reaped billions in profits and the Wall Street banks bankrolled the invasion with more debt. It only destroyed the lives of thousands of low income American soldiers, killed 100,000 Iraqi peasants, drove the price of oil from $25 a barrel to $100 a barrel, and will ultimately cost American taxpayers $4 trillion. And the great thing about passage of the Patriot Act and invasion of Iraq was the bipartisan cooperation pushing us ever closer to an authoritarian state.
The erroneous notion that Americans have a choice between two political parties that offer distinct and clear opposing policies addressing the major issues facing our country is still perpetuated by politicians and the corporate media. It is untrue, as we have seen the Obama administration employ the same repressive methods instituted by the Bush administration. Military spending rises. Wars of choice proliferate and grow. Obamacare is virtually identical to a plan created by the leading GOP presidential nominee. Further restrictions, regulations and laws are put forth to keep the masses controlled, sedated and fearful. The governing elite and their propagators of misinformation are again formulating a false storyline to convince the easily fooled ignorant public that a sovereign country 7,500 miles from our shores is actually a threat to their lives. While our government has already committed acts of war against Iran (sanctions, assassinations, cyber warfare, and using drones to spy), the public is being worked into a bloodthirsty frenzy of nationalism. Bipartisanship worked so well with Iraq. How could it possibly go wrong with Iran?
In the last six months cracks have begun appearing in the fascist façade masquerading as a democratic republic. The rise of the Occupy Movement, increasing pain and discontent among the middle class, a small but vocal irate minority utilizing the internet to organize, inform and spread knowledge, and the growing support among the liberty minded for Ron Paul's candidacy are the opening salvos in a coming revolution. The volleys being traded between the forces of the American aristocratic elite and the leading forces of this revolution are only the opening shots on par with Bunker Hill. The oligarchs have won the initial skirmishes with the Occupy Movement through their control of superior mercenary fire power and ability to falsify the message and nature of the protestors. The corporate mass media propaganda machine convinced an apathetic, non critical thinking public the protestors were nothing but dirty, lazy, college students looking for government handouts organized and led by George Soros. Journalist Robert Fisk reveals the true nature of the protests and rage:
"And that is the true parallel in the West. The protest movements are indeed against Big Business – a perfectly justified cause – and against "governments". What they have really divined, however, albeit a bit late in the day, is that they have for decades bought into a fraudulent democracy: they dutifully vote for political parties – which then hand their democratic mandate and people's power to the banks and the derivative traders and the rating agencies, all three backed up by the slovenly and dishonest coterie of "experts" from America's top universities and "think tanks", who maintain the fiction that this is a crisis of globalization rather than a massive financial con trick foisted on the voters.
The banks and the rating agencies have become the dictators of the West. Like the Mubaraks and Ben Alis, the banks believed – and still believe – they are owners of their countries. The elections which give them power have – through the gutlessness and collusion of governments – become as false as the polls to which the Arabs were forced to troop decade after decade to anoint their own national property owners. Goldman Sachs and the Royal Bank of Scotland became the Mubaraks and Ben Alis of the US and the UK, each gobbling up the people's wealth in bogus rewards and bonuses for their vicious bosses on a scale infinitely more rapacious than their greedy Arab dictator-brothers could imagine." – Robert Fisk, Bankers are the Dictators of the West
The mounting desperation of the oligarchs is palpable. They have circled the wagons as one of their leaders – Jon Corzine – was caught stealing $1.2 billion directly from the accounts of his customers after making reckless bets that went wrong and bankrupted his firm. The Department of Homeland Security coordinated brutality unleashed upon peaceful protestors in cities across America opened the eyes of more people to the approach of an increasingly oppressive state. The media lapdogs have come out in force with an organized smear campaign designed to derail the presidential campaign of Ron Paul, the only candidate talking about real change and a real downsizing of the American empire. Ron Paul's platform of liberty, freedom, non-interventionism, sound money, and a government not controlled by bankers and corporate interests is anathema to the ruling elite of both parties. A vote for one of the hand selected candidates offered by the moneyed interests is simply a vote for the special interest status quo. As our economic system becomes more saturated with debt by the day a tipping point approaches.
Obama's signing of the NDAA, overwhelmingly supported by politicians of both parties, now gives the ruling class the ability to track down and imprison indefinitely any American citizen they consider a threat to their power, without charges. The only remaining thorn in their side is the internet. The internet has allowed critical thinkers to share information, organize resistance to the oligarchs, create communities of like-minded citizens, and allow individuals the opportunity to turn the tables and perform surveillance on the state. The state does not like an unfettered internet because it allows citizens to find the non-manipulated truth and undermines their mainstream media propaganda machine. Young people are less able to be manipulated. The introduction of abominable legislation like SOPA and PIPA are a blatant attempt by the governing elite to crush dissent by locking down the internet and eliminating sites that question their version of reality.
Humans are a flawed species. Our minds are easily manipulated. We don't like pain. We prefer instant gratification. We are susceptible to mass delusion. We will often choose hope over critical thought. Those with higher IQs will regularly attempt to take advantage of those with lower IQs. Fear and greed are the two motivations used by the minority in power to control and manipulate the majority. The American people have been led astray by a small group of powerful men. We were herded through a door in the wall of perception that promised an American dream of material goods, entitlements and pleasure with no obligations or responsibility to future generations. There is only one choice that can save this country from ruin. Each individual must make a choice to either to continue supporting the manipulative, corrupt status quo or coming back through the Door in the Wall.
"The man who comes back through the Door in the Wall will never be quite the same as the man who went out. He will be wiser but less sure, happier but less self-satisfied, humbler in acknowledging his ignorance yet better equipped to understand the relationship of words to things, of systematic reasoning to the unfathomable mystery which it tries, forever vainly, to comprehend" – Aldous Huxley
http://www.theburningplatform.com/?p=26210
India to pay gold instead of dollars for Iranian oil. Oil and gold markets stunned
DEBKAfile Exclusive Report January 23, 2012, 5:57 PM (GMT+02:00)
Iranian oil for India
India is the first buyer of Iranian oil to agree to pay for its purchases in gold instead of the US dollar, debkafile's intelligence and Iranian sources report exclusively. Those sources expect China to follow suit. India and China take about one million barrels per day, or 40 percent of Iran's total exports of 2.5 million bpd. Both are superpowers in terms of gold assets.
By trading in gold, New Delhi and Beijing enable Tehran to bypass the upcoming freeze on its central bank's assets and the oil embargo which the European Union's foreign ministers agreed to impose Monday, Jan. 23. The EU currently buys around 20 percent of Iran's oil exports.
The vast sums involved in these transactions are expected, furthermore, to boost the price of gold and depress the value of the dollar on world markets.
Iran's second largest customer after China, India purchases around $12 billion a year's worth of Iranian crude, or about 12 percent of its consumption. Delhi is to execute its transactions, according to our sources, through two state-owned banks: the Calcutta-based UCO Bank, whose board of directors is made up of Indian government and Reserve Bank of India representatives; and Halk Bankasi (Peoples Bank), Turkey's seventh largest bank which is owned by the government.
An Indian delegation visited Tehran last week to discuss payment options in view of the new sanctions. The two sides were reported to have agreed that payment for the oil purchased would be partly in yen and partly in rupees. The switch to gold was kept dark.
India thus joins China in opting out of the US-led European sanctions against Iran's international oil and financial business. Turkey announced publicly last week that it would not adhere to any sanctions against Iran's nuclear program unless they were imposed by the United Nations Security Council.
The EU decision of Monday banned the signing of new oil contracts with Iran at once, while phasing out existing transactions by July 1, 2012, when the European embargo, like the measure enforced by the United States, becomes total. The European foreign ministers also approved a freeze on the assets of the Central Bank of Iran which handles all the country's oil transactions.
However, the damage those sanctions cause the Iranian economy will be substantially cushioned by the oil deals to be channeled through Turkish and Indian state banks. China for its part has declared its opposition to sanctions against Iran.
debkafile's intelligence sources disclose that Tehran has set up alternative financial mechanisms with China and Russia for getting paid for its oil in currencies other than US dollars. Both Beijing and Moscow are keeping the workings of those mechanisms top secret.
http://www.debka.com/article/21673/
Europe: Staring Into The Abyss
by: John Mauldin January 22, 2012
"If we want everything to stay as it is, everything will have to change." – from The Leopard by Giuseppe Tomasi di Lamedusa
"The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought, and that's sort of exactly the Mexican story. It took forever and then it took a night." – Rudiger Dornbusch
Europe's leaders are committed to keeping both the euro and the eurozone as it is. But for it to do so, everything must change, as the wonderful quote from the 1958 Italian novel suggests. This is no easy task, as no one wants a change that will impact them negatively; and there is no change that will allow things to stay the same that does not impact all severely, as we will see. In the third part of a continuing series, we look at the actual options that are available on the menu of choices, or as one group called it, the menu of pain. I offer some guideposts that we should watch for along the way, and end by offering a suggestion as to what Europe should do. As has been the case in this series, I do my best to offend everyone at some point. If by some small, unintended oversight I do not, then wait another week, I will get to you. What else are friends for?
But before we take on Europe, let me quickly tell you to save the date for my annual Strategic Investment Conference, co-sponsored with my partners, Altegris Investments. And what a lineup we have this year. Already scheduled are my friends Dr. Woody Brock, Mohamed El-Erian, Marc Faber, Niall Ferguson, bond-fund star Jeff Gundlach, Dr. Lacy Hunt, David Rosenberg, as well as your humble analyst. And there are a few more blockbuster names we are close to finalizing. Most people who attend think this is simply the best investment conference of the year, and I think this one looks better than ever. It will be May 2-4 in the San Diego area. I will soon give you details about where you can go to register, but for now put it in your calendar. What better way to think about how to invest in these times than to hear some of the best minds in the world, all in one place?
As this letter will suggest, I don't think this is the year you want your portfolio in typical long-only funds. There is a lot of tail risk this year coming from Europe.
Now, let's jump right in.
Choices, Debt, and the Endgame
We started off this New Year's series by pointing out that the choices we make today are constrained by the choices we made in the past, and the choices we make in the future will be limited by the choices we make today. Europe chose to create a free trade zone, and then some of the countries proceeded to lock themselves into the gold standard of a single currency, relinquishing the ability to adjust any imbalances in their economies by changes in the prices of their own currencies.
Interest rates for the southern tier of Europe dropped to levels never available to them before, and those countries responded by borrowing ever-increasing amounts of money to finance current spending. Then came the credit crisis, and budgets simply ballooned out of control, and debts began to get to levels that made the bond markets ask for ever-higher rates, as concerns about sovereign defaults began to rise.
This problem was compounded by the fact that European banking institutions were allowed to leverage their purchases of sovereign debt by 30 or 40 to 1 their actual capital. That means even a default by a small country has potentially big ramifications. As it became clear that Greece was in trouble, European leaders at first thought that if Greece was given some time, it could get its budget deficit under control and then once again gain access to the bond market.
In the summer of last year, after dithering through some 40-odd summits, it began to dawn on European leaders that it was not a short-term liquidity crisis they had on their hands but a solvency crisis. A fact that numerous commentators had been pointing out to them for quite some time. And as Greece began shake and bake its way to "austerity," the very act of cutting deficits pushed the country into recession, which lowered tax revenues and increased expenses, putting the elusive goal of a balanced budget even further off. We should quickly note that this is not just a Greek problem. Spain's "draconian" cuts have meant that its 6% deficit target for the year has this week been raised to a more likely 8%, making it harder to get back to even.
For country after country, this is the Endgame. It is the end of the Debt Supercycle. Debt has grown to the size that it cannot be sustained. The market will not lend any more money on terms that can be afforded, and any efforts to cut spending and raise taxes will result in an even worse economy, in various degrees of recession, with falling revenues and rising costs.
Europe has three main problems.
1.A growing number of its countries are insolvent or close to it. It is increasingly likely that the only way forward is for defaults of some type, to lessen the burden of debt to a level where it can be dealt with and that will allow the countries the possibility of growth, which is the only real answer to the problems they face.
2.Because of growing fears of multiple defaults (just Greece would be bad enough!) most of the banks in Europe are seen to be insolvent and in need of hundreds of billions of euros of new capital. The interbank market in Europe is in a shambles, and banks park their cash with the ECB, at a lower rate of return, as that is the only institution they trust. They clearly do not trust each other. As an aside, I heard from many sources while I was Hong Kong and Singapore, meeting with readers and friends, that European banks (especially French) are cutting back on their trade lending, which is making normal commerce more difficult. Didn't we just go through that in 2008?
3.The real problem in Europe is the massive trade imbalances between the peripheral countries and the so-called core countries. Without the ability to adjust currencies, those trade imbalances will render any debt solution moot, as a country cannot balance its budget while it runs a trade deficit and its citizens and businesses also deleverage. I have written about this arithmetic problem on numerous occasions. There must be balance or there must be a mechanism to achieve balance.
One cannot solve one problem without solving all three. Either they all get done or none truly get done. You can kick the can down the road by solving problems 1 and 2, but problem 3 will put you shortly back to square one.
Europe is now trying to address problems 1 and 2. They are talking about a "new treaty" that will require austerity of a real kind, although I understand that Germany has put in a clause that gives it some extra time to achieve its own balanced budget. And the ECB is dispensing euros through the back door to banks, in exchange for anything resembling collateral. Not directly of course, as that is prohibited, but the same thing is being accomplished, despite objections in some quarters, mostly German.
Staring Into the Abyss
It was late in September of 1998. I was flying from New York to Bermuda to speak at a hedge fund conference, and found myself upgraded at the last minute, back in the day when I did not fly that much, so I was feeling rather happy. As the door closed, a patrician-looking gentleman stepped in and came and sat next to me, immediately picking up a file and burrowing into it. I had a book and the Wall Street Journal, so I was content to read.
As soon as we took off, he asked for a scotch. He proceeded, over the next hour, to wage a very aggressive war on the diminishing cache of scotch bottles stored on board. (No, it was not Art Cashin. He doesn't fly.) It was an arduous campaign, but he was fully committed to winning.
He glanced over to my Journal and noted some headline about the crisis that had occurred the previous week. I had been following the extreme market volatility with interest, but this was in the first decade of the internet, so most of what you came by you still read in print or heard on the phone.
"They don't really know how close we came," he shuddered, his eyes showing the first signs of emotion – and fear – I had seen from him. That piqued my interest, and I engaged him, though without touching his precious hoard of scotch. I settled for a nice chardonnay. It turned out he was the second-ranking executive at one of the three largest banks in the country. He had been at the table in the NY Fed boardroom when 14 banks were forced to put in $3.625 billion to keep Long Term Capital from collapsing, with only Bear Stearns declining (one of the reasons they had no friends ten years later). The NY Fed president had essentially called all the heads of the banks, told them to be in the room, not to send proxies, and to bring their checkbooks. There was subsequently a lot of criticism of the Fed, but they did what a central bank is supposed to do in times like that: they made the children play nice in the sandbox. They were the only entity that could force the various monster-ego players to even sit in the same room with each other.
"No one will ever really know," he said again. But of course, soon everyone did, as Roger Lowenstein wrote the must-read real-life thriller When Genius Failed.
"We walked to the edge of the abyss, and we looked over." He proceeded to regale me with the stories of the negotiations, as the immensity of what would happen if they allowed the collapse dawned on the group one by one. They all had exposure to LTCM but did not realize the extent of it until it was too late. Looking back, it might have looked something like the credit crisis of 2008 if they had not acted, except it would have happened much faster.
I can tell you that no one in that room wanted to write a $300-million check. It was not good for their careers. Interestingly, after two years the fund was liquidated and the banks got back their capital plus a small profit.
Now, the bankers and leaders of Europe are getting ready to walk to the edge of the Abyss. It will be a long way down, and look like the 7th level of Dante's Inferno.
Their first real look will come in the next few weeks, as Greece is negotiating aggressively with its lenders as to how much of a haircut they will receive and what sort of guarantees Greece will provide on the remaining debt (they are balking at putting the new bonds in a legal jurisdiction that will have some real bite if they default again, which they will). They are also negotiating with Europe about how much additional real austerity they will have to endure in order to be allowed to take on more debt. If they walk away and there is an uncoordinated default, it will guarantee chaos. Bank collateral will collapse and credit default swaps will be triggered, including many sold by European banks that are already essentially insolvent.
The legal euphemism here is that if debtors "voluntarily" accept a 50% haircut, then no credit default swap protections will be triggered on those positions. But not all parties want to voluntarily take that loss (or an even greater one). If they are forced to do so, then the credit default swaps they bought come into effect. Greece can legislatively force them to take the haircut, but CDS contracts are written in such a way that that action would be seen as a loss, triggering the CDS insurance. The governments involved want everyone to accept, so there is no crisis. The funds simply want as much money as they can get back, and many are playing a very hard-nosed game.
Can the holdouts be enticed with sweeteners that not all may get? Maybe different collateral? Or shorter terms, or …?
The sad thing is that a 50% cut of the private lenders only gets Greece back to what will soon be 120% debt-to-GDP, from the current 170% and rising. 120% (which I consider optimistic) is just another, lesser form of insolvency, as Italy now understands. And if Italy is under pressure at 120%, then it is almost a given that the market would see Greece as still insolvent.
An Unintended (and Very Negative) Consequence
There is at least one unintended consequence arising from the Greek settlement negotiations. Private investors thought they were buying a bond that was "pari passu," or equal with all other Greek sovereign debt. It now turns out they were buying junior, second-tier, subordinated debt. Something like a second mortgage on a home. You will take the first loss, so you then charge accordingly. But it now seems that the ECB, the IMF, and European public institutions are "more equal" than the private parties and will not have to share in the losses. The private lenders have found out they were taking subordinated risks while only getting senior-rate returns.
It the public lenders were involved in the haircuts, then maybe it would only have to be a 30% haircut, or if it was 50% it would be enough to maybe get Greece to the point where it might have a chance; and the remainder of the debt would be in better shape, rather than this just being the negotiations for the first haircut, with more to follow.
Every private lender in Europe now recognizes they are taking more risk when they invest in a sovereign debt instrument. This will have the effect of pushing rates up in the private market, like they have very recently climbed for Portugal (more on Portugal later).
Europe faces a set of choices. They can lend Greece more money on promises to turn things around, which can't happen because of (1) the very austerity being imposed and (2) the 10% of GDP trade imbalance with the rest of Europe. But if they don't lend the money and there is an uncontrolled default, they will get to inspect that Abyss more closely than they would like. It will mean hundreds of billions of euros in losses at their banks, which will have to be bailed out eventually by taxpayers.
Europe is worried about "contagion." If Greece gets a 50% reduction on its debt, will not Portugal point out that they deserve it more? There have been deep fiscal cuts by the free-market government of Pedro Passos Coelho in an attempt to reduce the deficits, but estimates are that, even with those cuts, the deficit will still be 6%, falling only to 4% in 2013. And that is if things go well.
The market is not acting as if it expects things to go well. Yields on Portugal's 10-year bonds climbed to 14.39% on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years.
While Portugal's public debt of 113pc of GDP is lower than Greece's, the private sector has much larger debts and the country's total debt load is higher, at 360pc of GDP – much of it external debt. Jürgen Michels, Europe economist at Citigroup, says, "Without a sizeable haircut to its debt stock, Portugal will not be able to move into a viable fiscal path. We expect a haircut of 35pc at the end of 2012 or in 2013."
Ambrose Evans-Pritchard, writing in the London Telegraph (I really like his work), notes:
Portugal is a troubling case for EU officials, who insist that Greece is a 'one-off' case rather than the first of a string of countries trapped in a deeper North-South structural rift. The official line is that Portugal will pull through because it has grasped the nettle of retrenchment and reform.
Europe's leaders have vowed that there will be no forced 'haircuts' for holders of Portuguese bonds. If the country now spirals into a Grecian vortex as well they will have to repudiate that promise or accept that EU taxpayers will have to shoulder the burden of debt restructuring. While all eyes are on Greece, it is the slower drama in Portugal that will ultimately determine the fate of the eurozone.
A Preview of Coming Attractions
Let's turn to some charts from a well-written report called "The European Crisis Deepens," from the Petersen Institute, by Peter Boone and Simon Johnson. Both authors have a long list of credentials.
The first one is a chart of the cost of five-year credit default swaps. Notice they all are rising. (This is a log chart, so the scale rises by a factor of ten for each level.) Now, notice that Portugal is where Greece was last year. Then pay attention to the fact that Italy is likewise where Portugal was last year. Just thought I would give you a preview of coming attractions, horror-movie edition.
click to enlarge images
Then they offer us this chart, which compares the labor-unit costs of six countries in Europe. Only Ireland has seen their costs drop, as their labor has accepted pay cuts and productivity has increased. And pay attention to the ever-rising costs of France vs. Germany. This trend suggests France is on a path that Greece took. There are dragons down that path.
And it also illustrates the problem of why it will be so hard for Greece to turn around without being able to resort to a currency devaluation. They have to endure a 30% pay cut relative to core Europe if they want to compete. There will be no volunteers in Greece for such cuts. After two years of IMF and European institutional involvement (meddling?) in Greece, there has been hardly any movement in Greek labor costs.
Greece is not alone. Are you reading of any general pay cuts in the proposed solutions for Italy, where labor costs are now above those of Greece? Likewise, no move in Portugal (not shown in graph). The entire eurozone is out of balance, and no one is making any moves to deal with it or even acknowledge the basic problem.
Hallucinogenic Data and Other Fun Activities
Much of establishment Europe was predicting a positive GDP for the region only a month ago. The recent trend suggests the data they were smoking was hallucinogenic. And given the seriousness of the problem, it must have been primo stuff. Germany was in recession for the 4th quarter of last year and is likely to be there this quarter, which is the technical definition of recession. Clearly, peripheral Europe is in recession, some countries in what looks like it could be called a depression. Below is the Purchasing Manager's Index for six major countries in Europe. I have added a thick red line at the 50 mark, below which there is negative growth.
Gentlemen, Choose Your Disaster
With all of the above as a backdrop, let's now see if I can outline the choices Europe faces. First, let's take Greece, because it is instructive. Greece has two choices. They can choose Disaster A, which is to stay in the euro, cutting spending and raising taxes so they can qualify for yet another bailout; negotiating more defaults; getting further behind on their balance of payments; and suffering along with a lack of medicine, energy, and other goods they need. They will be mired in a depression for a generation. Demonstrations will get ever larger and uglier, as the government has to make even more cuts to deal with decreasing revenues, as 2.5% of their GDP in euros leaves the country each month. There is a run on their banks. Any Greek who can is getting his money out.
Greek voters will then blame whichever political group was responsible for choosing Disaster A and vote them out, as the opposition calls for Greece to exit the euro. Which is of course Disaster B.
Leaving the euro is a nightmare of biblical proportions, equivalent to about 7 of the 10 plagues that visited Egypt. First there is a banking holiday, then all accounts are converted to drachmas and all pensions and government pay is now in drachmas. What about private contracts made in euros with non-Greek businesses? And it is one thing to convert all the electronic money and cash in the banks; but how do you get Greeks to turn in their euros for drachmas, when they can cross the border and buy goods at lower prices, as inflation and/or outright devaluation will follow any change of currency. It has to. That is the whole point.
So how do you get Zorba and Deimos to willingly turn in their remaining cash euros? You can close the borders, but that creates a black market for euros –and the Greeks have been smuggling through their hills for centuries. And how do you close the fishing villages, where their cousin from Italy meets them in the Mediterranean for a little currency exchange? What about non-Greek businesses that built apartments or condos and sold them? They now get paid in depreciating drachmas, while having to cover their euro costs back home? Not to mention, how do you get "hard" currency to buy medicine, energy, food, military supplies, etc.? The list goes on and on. It is a lawyer's dream.
There is a third choice, Disaster C, which is worse than both of the above. Greece can stay in the euro and default on all debt, which cuts them off completely from the bond market for some time to come. This forces them to make drastic cuts in all government services and payments (salaries, pensions etc.), and suffer a capital D Depression, as they must balance their trade payments overnight, or do without. Then they choose Disaster B anyway.
The only real options are Disaster A or Disaster B. Whether they opt to go straight to the drachma (Disaster B) is only a matter of timing. They will get there soon enough.
Why then do they wait? What's the point of going through all these motions? Because Europe fears a disorderly Disaster B. For the rest of Europe, it is the Abyss. The Greek hope is that Europe (read Germany) keeps funding them in order to keep back from the edge of the Abyss.
As one European diplomat noted, "There is a growing sense that despite the valiant efforts of Papademos … the reluctant Greek establishment is biding its time to the next elections, banking on the assumption that the world will continue to bail them out, no matter what."
Europe is getting closer to the point where it must make a decision about what to do with Greece. In theory, the deadline is March 29 for the next round of funding. It is a game with very high stakes and deadly serious players. Can Sarkozy be seen as weak and giving in to Greece, with elections coming up in April? Can Merkel appear to give in and keep her troops in line? There are elections not long after that in Greece. Can Papademos cave in to further cuts and promises on future debt that will be hard to keep and intensely unpopular?
The markets are getting exhausted. There will be no private market for Greek debt at any number close to what is sustainable. Greece will be on European life support for a very long time if they stay in and there is no disorderly default. It will mean hundreds of billions of euros over the decade, debt forgiveness, etc. There are no good choices.
And Europe will all too soon face what to do with Portugal, which will want to dispense some haircuts of its own. Don't forget Ireland, which is very serious about not paying the debt the previous government took on for its banks in order to pay British, German, and French banks. That is a default that is in the cards. I think "polite" Ireland is just waiting until its $60-billion default is seen as small potatoes, which will not be too long, as Italy must raise almost €350 billion just to roll over current debt. Italy projects that its deficit will be down to 2%, but if Europe goes into recession that projection goes out the window.
The bottom line is that Italy (and most likely Spain at some point) cannot raise the debt it needs at rates it can afford without massive European Central Bank involvement. Rates are already approaching 7% again. That is unsustainable from an Italian point of view. Germany must be willing to allow the ECB to take on massive balance-sheet debt, or Italy will not make it without haircuts. And a mere 10% haircut for Italy dwarfs what is happening in Greece – and doesn't do much for Italy. If they go for a haircut, it will be much larger. French banks holds 45% of Italian debt. Italy is too big for France to save. They cannot even backstop their banks if Italy becomes a solvency risk. They simply cannot get their hands on that much money without destroying their balance sheet. The most recent downgrade of their debt was just the first of many.
Speaking of downgrades, Egan Jones downgraded Germany from AA to AA- and put the country on negative watch. This is important, as this is what I believe to be the most credible rating agency; and over 95% of the time the other "Big 3" agencies generally follow their lead, after a period of time. Part of the reason for the downgrade is all the debt that Germany is guaranteeing. Sean Egan was one of the first serious analysts to suggest that Greece would default. He was talking a 95% eventual default a long time ago. (Very nice gentleman, by the way. Or maybe he just left his Darth Vader mask at home when I met him.)
Europe will have to make its choice this year. Either a much tighter, more constrictive fiscal union with a central bank that can aggressively print euros in this crisis, or a break-up, either controlled or not. I don't think they can kick the can until 2013, as the market will not allow it. Either the ECB takes off its gloves and gets down to real monetization when Italy and Spain need it, or the wheels come off.
The quote at the beginning returns to mind: "If we want everything to stay as it is, everything will have to change."
Like any long trip, the drive (or flight) seems to take forever, particularly if you are very young or you are an investor. But then suddenly you are there. The LTCM crisis mentioned above took a long time to develop, but then it ended with a bang. One day Lehman or Bear is a big player and the next they are gone. I think this is the year the crisis moment for the euro arrives. Let's hope they are ready.
What Europe Should Do
When Europe approaches the edge of the Abyss and looks over, the rest of the world gets to take a look, too. We can all be taken to the edge and over. I was reminded while in Singapore and Hong Kong how much we all need Europe to come through this.
Europe has problems that are structural and can't be fixed with just another treaty or more ECB liquidity. With that in mind, here are my thoughts.
1.The European Union works, mostly much more than less. Keep the free trade zone. There are countries that work just fine that are not in the euro. We live in the world of computers. Currency exchange is a computer operation and relatively easy. And keep working on coordinating with the rest of the world. Take advantage of what you can do together. We are all better off with a united Europe. Until such time as there are stable labor and productivity markets across Europe, don't press for a single currency. Single currencies don't insure there will be no conflict. Really integrated free trade and open borders do.
2.Admit the euro just doesn't work for some countries, and let them leave the eurozone (but stay in the free trade zone, like Denmark and Sweden are now). Establish as orderly as possible a path for a country to revert to its old currency. Yes, there are going to be some very large losses. If you control it, they will be far less than if you don't. You can set up a two-tier system, just as you did when you created the euro. And pass some laws so everyone isn't spending the next two decades suing everyone else. Deal with it like adults who want to be friends after the divorce rather than enemies for life. If you have to make up some rules, then make them up. But do it quick. The longer you take, the more it will cost you (and the world).
3.Greece has to be told no. No more loans. No more threats. If they want to stay, then let the market deal with them. I doubt it will be kind, but they have to take responsibility for themselves. Nobody forced them to borrow too much. Cut your losses now. Use the money to salvage your own banks. When (not if) Greece decides to go, help them with some humanitarian aid (medicines and emergency supplies) but stop piling on debt they can't pay. Work out the terms so they can get on their feet and go on with their lives. Allow them to stay in the free trade zone. And learn your lessons. Be careful whom you lend money to!
4.Sadly, the same goes for Portugal, although with a reasonable and very healthy haircut they may be able to stay.
5.Ireland is not going to pay that bank debt. Get over it. Just let the ECB swallow it. Then Ireland will pay the rest of its government debt and can grow its way out of its problems. They have a positive trade balance. Besides, who doesn't love the Irish?
6.Italy and Spain are problems. If they stay they are going to need some major ECB help on rates while they get their deficits under control. Either do it or don't, but don't keep the world in limbo. Germany needs to make a decision and make it very publicly.
7.I don't know what to suggest to France. That is the toughest question. They are losing labor competitiveness with Germany and others, and already have taxes that cannot go much higher, large fiscal deficits, poor demographics, and huge future unfunded liabilities in the form of health-care and pension benefits. They have time to get things sorted out if they will use it (like the US). The world surely hopes they do. The concern about the problems of French banks was voiced everywhere in Hong Kong and Singapore. They are integral to world trade in ways that US banks (or others) can't come close to. They just have the experience and infrastructure in making those trade loans. You can't build that up in a short time. A problem with French banks would be a problem for world growth, which is already slowing down.
I know the markets are discounting a happy ending to the euro crisis. I just see the substantial "tail risk" and suggest you manage accordingly. Large pensions and foundations may be happy if they end the year where they started. Smaller investors should assess their risk tolerance from the perspective that Europe does not work through its problems.
Next week, we get to the US. If you think Europe has problems…
South Africa and Sweden
I came back to Dallas by way of Tokyo. As I walked to my gate, I noticed a crowd and then lots of cameras. Clearly a celebrity of some import was getting on the plane. I boarded and went to my seat in first class (you've got to love system-wide upgrades!). I asked the steward (who I knew from previous flights, which says I have been on too many) who was getting on. It turned out it was Yu Darvish, the best baseball pitcher in Japan, who Nolan Ryan had just signed to pitch for my Texas Rangers. He is young (25), good looking, and quite tall at 6'5". And he seemed the perfect gentleman, smiling and quite willing to sign autographs. Yes, I got one, but it was for my kids. I'll just save it for them for a while. The Texas fans are going to love him. He just has that charisma. Let's hope he can keep his sub-2 ERA when he pitches in The Ballpark. Then they'll go crazy.
The letter is already too long to write much this time about Hong Kong and Singapore, but I would be hard-pressed to say which city impressed me more. I was blown away. I thought I was prepared, but you really do have to see it for yourself. I am going to spend more time in Asia. And soon, thanks to the team at the Hong Kong Economic Journal.What an honor to work with such a venerable and prestigious paper. (They translate my letters into Chinese and give them a full page each Monday and Thursday, as well as post them online.)
Next week is busy with meetings, writing, and deadlines. Barry Habib comes to Dallas to help launch our new institutional research publication with Bloomberg. Then Wednesday a week I will be with Rich Yamarone (Bloomberg Chief Economist), Dr. Woody Brock, and Mark Yusko at the Annual Dallas CFA Forecast Dinner. We hope to be able to get together the previous night for some fun and maybe a little discussion of the markets (d'ya think?). The panel should be quite entertaining. Then I'm off to Cape Town, South Africa for two days to speak for Rand Merchant Bank at their fixed-income conference. (I will try and stay on Texas time if I can!)
It is time to hit the send button. It is the wee hours of Saturday morning and I am still on Asia time, it seems; but I need to get to bed and try to adjust. Have a great week!
Disclaimer
John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.
Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC and InvestorsInsight Publishing, Inc. (InvestorsInsight) may or may not have investments in any funds, programs or companies cited above.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Communications from InvestorsInsight are intended solely for informational purposes. Statements made by various authors, advertisers, sponsors and other contributors do not necessarily reflect the opinions of InvestorsInsight, and should not be construed as an endorsement by InvestorsInsight, either expressed or implied. InvestorsInsight is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.
http://seekingalpha.com/article/321072-europe-staring-into-the-abyss?source=email_macro_view&ifp=0
"it makes one wonder whether the Department of Justice still dispenses justice … or has turned into a “protection racket” for the rich and powerful."
Rhetorical I hope...
It amazes me that anyone- left or right still argues that either party is anything but bought and paid for...
BD, take heart.
Those on the fringe always see the middle as confusing.
Since both sides are fubar pointing that fact out is merely an observation.
O has been a terrible president but then so was Bush II.
Timing is so tough. I really am impressed by how long they have kept it together.
I think you are pretty close.
Washington Is Destined to Destroy the Dollar
Content By: The Coming Depression Editorial Staff (original story here)
------------------------------------------------------------------
Copyright: include link to this article on top of reproduction if you use it. Been affected by the recession? Comment at bottom.
(3 votes, average: 5.00 out of 5)
Loading ...
““We’re printing money, we’re spending money, we have not reformed Washington. They’re destined to destroy the dollar, which means not that the gold price is going up, but the value of gold will be maintained. The value of the dollar is destined to go down.””
Dr. Ron Paul speaks with Goldseek Radio about government tracking of gold purchases, shortages at the US Mint, investing in gold coins vs gold stocks, and the Free Competition in Currency Act.
Paul addresses the section of the recently passed health care monstrosity requiring businesses to submit a 1099 for all purchases of $600 a year beginning in January 2012. He believes this may lead to further tracking of gold purchases.
[mp3player width=500 height=100 config=fmp_jw_widget_config.xml playlist=ron-paul.xml]
The Texas Congressman also speaks on two of his bills, the SEC Transparency Act (H.R 5970) and the Free Competition in Currency Act (H.R. 4248). H.R. 5970 would eliminate the section of Obamacare that grants the SEC immunity from freedom of information requests. H.R. 4248 would legalize competing currencies and help free up the market from the monopoly of the private Federal Reserve.
“We’re printing money, we’re spending money, we have not reformed Washington. They’re destined to destroy the dollar, which means not that the gold price is going up, but the value of gold will be maintained. The value of the dollar is destined to go down.”
Read more: http://www.thecomingdepression.net/main-street/ron-paul-washington-is-destined-to-destroy-the-dollar/#ixzz1jROGKMPq
Original story at http://thecomingdepression.net
Under Creative Commons License: Attribution Non-Commercial
25% Of The World Economy Is Fake? Imagine The Alternative
by: Shareholders Unite January 7, 2012
A quarter of the world economy is fake? Yes, you read that right. That's what the people at the financial blog Zero Hedge argue. It's a curious claim, but at the same time it is quite enlightening, as it provides some insight into what's wrong with a somewhat curious branch of economics that goes by the name of 'Austrian economics'.
The argument is simply as follows. During the crisis (in the developed world, that is, the U.S., the EU and Japan), central banks have greatly increased their balance sheets, mainly to keep the financial system floating.
Here are central bank balance sheets (Fed, ECB, BoJ) as a percentage of world output (from ZeroHedge): (Click to enlarge)
ZeroHedge concludes:
It means that nearly $8 trillion in world economic growth is artificial and exists only courtesy of central bank intervention.
Now, for the sake of it, let's begin by simply assume they're right and take that statement that 25% of world economic output would disappear if not for the intervention of central banks. The choice then becomes a simple, but rather stark one: What would you rather have, ballooning central bank balances, or 25% of the world economy 'disappearing?' We think that simply asking the question should already be enough in answering it. If we would let 25% of world economic output disappear, that would wreak havoc on millions of lives and throw the whole world economy into a deep downward spiraling depression. So my first thought was something like 'thank you, central banks!'
If you still have doubts, I've got a follow up question: Does that ballooning of central bank balances do any harm? And here, of course, we come to the core of the Austrian beliefs. Sooner or later, all that central bank money should lead to accelerating inflation. The fact that we already have had years of it without any noticeable uptick in inflation hasn't dimmed those beliefs one iota.
You would expect after years of (indeed unprecedented) central bank buying of assets left, right, and center, that there would be at least a whiff of inflation. Nothing. And it's not a big mystery why this hasn't happened, most of the money just sits as bank reserves.
Here is what happened in the U.S., although similar stuff happened in Japan and the U.K., while the eurozone has all sorts of fun and games going on blurring the picture. But fundamentally it's not different.
They lend very little because credit demand has been subdued. That's due to households keeping a lid on spending in order to repair their balance sheets, firms not expanding because of that tepid spending, and firms sitting on large ($2+ trillion) cash mountains.
At the minimum, one should recognize how ridiculous the Zero Hedge claim is that 25% of the world economy is 'artificial' and courtesy of central banks. At the maximum, this money has kept the financial system afloat (without it, the picture might have been quite bleak), but very little, if any, has been put to productive uses.
Central bank credit is the big bogey man in Austrian economics, but how about all that private credit created in the bubble years, you know, the kind that got U.K. debt to a level almost 10 times its GDP?
We think there is where the real problem lie. Austrians would retort that the credit boom would not have been possible without accommodating central banks. There isn't a whole lot of solid evidence for that either, the build-up in private credit in the U.K. to those really stratospheric levels occurred largely without the Bank of England (BoE) ratcheting up its balance sheet.
Our bogey man is simply the deregulation of financial markets way beyond the point where that was productive (way beyond, in some countries, like the U.K.). We think there is solid evidence for that, since countries where this wasn't applied, like Canada or Italy, didn't experience much, if any, of the exploding finance-creating bubble.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/318026-25-of-the-world-economy-is-fake-imagine-the-alternative?source=email_macro_view&ifp=0
The key part-
"Here's the problem with this report -- the non-institutional working-age population went from 240.441 million to 240.584, a gain of 143,000 people of working age. But the number of employed people went down from 141.070 million to 140.681 -- a loss of 389,000. Adding the two, which is the correct way to look at it, the economy on a population-adjusted basis lost 532,000 jobs."
The Employment Situation
The Market Ticker ® - Commentary on The Capital Markets
Posted 2012-01-06 10:01
by Karl Denninger
in Employment
The Employment Situation
Here it is.....
Nonfarm payroll employment rose by 200,000 in December, and the unemployment rate, at 8.5 percent, continued to trend down, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining.
Uh huh. Let's see what we actually have in here.
Heh the annualized doesn't look so bad eh? But look at the blue dashed line -- that's not so good. And we need to dig into that and figure out what's up, because I don't like that trend at all.
Ok, so the actual number of employed people went down. Hmmmmm.
"Not in labor force" went down slightly as a trend (that is, the slope decreased), but increased numerically.
How about the employment rate -- the most-important number in there, since it controls the taxing capacity of the government.
That's not good -- it's down a touch and has flat-lined now for basically two years.
Here's the problem with this report -- the non-institutional working-age population went from 240.441 million to 240.584, a gain of 143,000 people of working age. But the number of employed people went down from 141.070 million to 140.681 -- a loss of 389,000. Adding the two, which is the correct way to look at it, the economy on a population-adjusted basis lost 532,000 jobs.
http://market-ticker.org/akcs-www?post=200174
Good clip!
What The Federal Reserve Is Risking
by: John M. Mason January 5, 2012
•http://seekingalpha.com/article/317720-what-the-federal-reserve-is-risking?source=email_macro_view&ifp=0
There are two articles in the Wall Street Journal today that I believe are very important responses to the announcement of the Federal Reserve that it will release interest rate projections for several years out.
The first of these by Kelly Evans says a mouthful: "Boosting Transparency, Fed Puts Its Reputation on the Line." I love the quote that Evans leads the article with…it is from Abraham Lincoln: "it is better to remain silent and be thought a fool than to open one's mouth and remove all doubt."
First of all, to produce projections of interest rates three years into the future? Come on…
And, to release the forecasts from all 17 members of the Federal Reserve's open-market committee…
This is to produce credibility?
Come on…
Furthermore, the projections are to "make monetary policy more effective by lowering volatility and uncertainty in the market around the path of future rates."
Formerly, those in the Federal Reserve believed that some uncertainty should surround its goals because this allowed markets to move incrementally due to the fact that market participants had to search for where the Fed was moving. At least this was the way it was when I worked at the Fed.
Knowing what the target will be results in markets that take discrete leaps…up or down…as market participants jump to the place where the wizards at the Fed now presume interest rates should be.
But, two points on this. The first one is that making everything depend on the Fed's prognostications and the persistence with which the Fed holds onto the projections, can lead to "sure-thing" bets on the part of market participants. There are plenty of examples around in which "the market" bets against the ability of a government or a central bank to hold onto a desired "goal". As the pressure builds up, the probability that the government or central bank will have to adjust to the reality of the situation can approach 100 percent.
The second point is that the Federal Reserve may actually be the cause of the volatility and uncertainty it is attempting to reduce. As the very actions of the Fed become less recognizable and as, as Evans states, the forecasts "differ significantly from reality" the authority of the Fed decreases and this, in itself, creates "volatility and uncertainty."
I would argue very strongly that the actions of the Federal Reserve over the past four years…if not longer…have been a large part of the uncertainty it abhors and this has resulted in the increase in market volatility that it would like to reduce. But, this increase has not been due to a lack of "transparency" on the part of the Fed but has been due to a lack of understanding on the part of the Fed. And, this lack of understanding has been transmitted from the Fed to the financial markets.
This is where the other article in the Journal comes in: "Fed Rate Outlook to Bite Traders." In this piece, Cynthia Lin argues that "With its push to provide a clearer policy road map, the Federal Reserve is about to give bond traders one less reason to like medium-term bonds as it pins down yields that already are at historic lows."
Ms. Lin quotes Kent Engelke, chief economic strategist at Capitol Securities Management as saying, "The short end of the (yield) curve is dead."
Ms. Lin goes on, "Some investors even are suggesting that the new policy may give little reason to trade bonds maturing as late as 2019."
Doesn't someone at the Fed understand this possibility?
I have always assumed that volatility was a function of the depth and breadth of the market. If the policy of the Fed has the result that it will tend to reduce the number of traders in the market, then it would seem to me that this is a movement will have the wrong consequences for the market.
As I stated yesterday, I believe that the move made by Mr. Bernanke and the Fed to achieve greater "transparency" of Federal Reserve operations is more an effort to justify what Mr. Bernanke and the Fed have done over the past four years or so. (See "Bernanke Transparent about his lack of self-confidence".)
Furthermore, I believe that what has been done to the Fed over the past decade has changed central banking in the United States more that we can possibly imagine at this time. And, as most of you know that have read my blog over the past, almost four years, I am not convinced that the movement has been in the right direction. Unfortunately, I believe that we will be paying for this movement, in one way or another, over the next four or five years.
Nice to hear from you again West...
2012 Outlook: Anything Other Than The Apocalypse Is A Win
by: Lance Roberts January 5, 2012
It's that time of year again when we do our best to put our best "guessing hat" on as to what the new year may bring in terms of the economy, the markets and the world. This is a condensed version of the full report that was released this past weekend.
A Review Of 2011 Predictions
Our predictions for 2011 were mostly against the mainstream media punditry but on average we fared well overall. It is always an interesting exercise to review our calls with the benefit of hindsight. Here is a short review of what we said in January for the upcoming year.
1) The Stock Market: With 2011 being the third year of a presidential election year most analysts had predicted a double digit return year and new index highs for the year. We stated that: "...we are not in a normal economic cycle by any means but as long as the government is willing to ply the strength of printing presses against the weight of the market – statistically the markets should finish higher than where they began. However, it doesn't mean that it can't, or won't, be a bumpy ride along the way." CHECK
2) US Economy – May Be Weaker Than Expected."While the media is replete with calls for 3.5% to 4.00% growth in GDP next year our view is somewhat more sanguine in nature with GDP growing closer to 2-2.5% by the end of the year." CHECK
3) Eurozone Crisis."One thing that we are fairly confident about in the coming year is that the Eurozone Crisis will reemerge primarily in the PIIG countries with Portugal, Greece, Ireland and Spain back in the soup needing more money and assistance." NAILED IT
4) US Dollar vs Euro. "We expect that both the Eurozone crisis combined with tighter fiscal policy will push the Euro to below parity with the US Dollar." (This occurred but after a decline in the USD – NEUTRAL.)
5) US Stocks Outperform International/Emerging Markets. "We do think that US will outperform international markets this year and being overweight US and reducing international exposure will pay off... Very likely there will be another major disruption in the Eurozone in the coming months which will put pressure on their markets..." CHECK
6) Stock Market Correction – "...there is a high probability of a substantial correction (10-20%) during some point in the coming year." NAILED IT
7) Interest Rates Rise - We expected interest rates to continue their rise that began with QE2 and expected a QE3. However, the expiration of QE2 with subsequent follow up and rates fell as money moved into the safety of bonds and cash. FACE PLANT
8) Commodities Continue Bull Market - The commodities index peaked in May and has been correcting for the last half of the year with a flat return for the year. HIT AND MISS
9) Housing Prices Continue Secondary Decline. "There is no recovery in housing. Period. We said this would be the case two years ago and continue to pound the table on this front. There can be no recovery in housing as there is too much inventory both visible and invisible (banks holding inventory off market). Until we can go through the deleveraging process and the banks own up to their problems and begin to write these assets off their books, we will continue to suffer negative shocks to homes until prices come in line with long term historical norms." CHECK
10) Muni Bonds Hit The Skids. After an initial hit to muni bond prices states got off their duffs and began to straighten out budgets. That, combined with massive injections of government dollars to stave off financial pressures, and muni bonds firmed up. I don't mind missing this call as the alternative to being right was far worse. EPIC FAIL
Overall, our score was roughly 7 out of 10 with most of our calls being pretty out of mainstream territory as they tended to harbor a bearish tone. However, they served us well and kept us out of the 20% stock swoon this summer.
A Note About Risk Management
This is why we manage portfolios from a risk managed approach – greater returns are generated from the management of "risks" rather than the attempt to create returns. Our philosophy was well defined by Robert Rubin, former Secretary of the Treasury, when he said:
As I think back over the years, I have been guided by four principles for decision making. First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.
Most people are in denial about uncertainty. They assume they're lucky, and that the unpredictable can be reliably forecast. This keeps business brisk for palm readers, psychics, and stockbrokers, but it's a terrible way to deal with uncertainty. If there are no absolutes, then all decisions become matters of judging the probability of different outcomes, and the costs and benefits of each. Then, on that basis, you can make a good decision.
It should be obvious that an honest assessment of uncertainty leads to better decisions, but the benefits of Rubin's approach, and ours, go beyond that. For starters, although it may seem contradictory, embracing uncertainty reduces risk while denial increases it. Another benefit of acknowledged uncertainty is it keeps you honest.
A healthy respect for uncertainty and focus on probability drives you never to be satisfied with your conclusions. It keeps you moving forward to seek out more information, to question conventional thinking and to continually refine your judgments and understanding that difference between certainty and likelihood can make all the difference.
The reality is that we can't control outcomes; the most we can do is influence the probability of certain outcomes which is why the day to day management of risks and investing based on probabilities, rather than possibilities, is important not only to capital preservation but to investment success over time.
2012 – Anything Other Than The Apocalypse Counts As A Win
So, it is now time for our prognostications, forecasts, guesses and expectations for 2012. However, December 21, 2012 is also the end of the Mayan calendar which puts us into the camp that, regardless of what happens in the coming year, anything other than the "end of the world" counts as a win.
1) There Are Risk To US Economic Growth Projections - The mainstream economic analysts are going into the end of 2011 with very strong predictions for 3.5-4% annualized economic growth in the U.S. We have been vocal over the last year that this is highly unlikely to occur for several reasons.
2) Eurozone Crisis Will Continue -The 2011 deluge of capital through currency swaps by the Federal Reserve and three-year term loans to banks have done nothing to resolve the liquidity and solvency crisis plaguing the Eurozone. While these operations will postpone the inevitable – they are not a solution to a spending and debt issue
3) Real Estate Continues To Struggle - Despite rumors to the contrary; real estate will continue to struggle not only in 2012 but well beyond. The bursting of the real estate/mortgage bubble is not something that is solved in the course of a couple of years – especially in a case where the excesses took two decades to accumulate.
4) Interest Rates To Remain Low - No real surprise here but interest rates will remain range bound at these lower levels throughout 2012. With the Fed maintaining its zero interest rate policy into 2013 there is no real catalyst on the horizon to push interest rates higher.
5) US Dollar - Strength Into 2012 - The U.S. dollar will likely be the bright spot of 2012 after effectively being breakeven in 2011. The continuation of the Eurozone crisis will continue to push dollars into the U.S. currency as a safe haven.
6) Oil Will Be Higher And Lower - in 2012 we expect that oil prices will only be able to sustain the $100 plus levels for a limited time as the impact on the economy becomes apparent.
7) Gold 0, Hey It's Shiny - The continued belief that the world is on the edge of implosion will continue to drive money into the fear trade. However, for 2012 it is likely to be an investment that underperforms as the consolidation process continues.
8) Domestic Markets Outperform International - Money has to go somewhere and if you look around the world today there are few places to safely make large investments where liquidity, visibility and stability remain. The U.S. dominates the world in this regard.
9) Corporate Profit Contraction - One of the big shockers to the investment community will be the unexpected and fairly sharp decline in corporate earnings. This is one point that supports the trading range expectation for 2012 in the S&P 500 Index. In 2012, we expect a slower rate of growth in corporate earnings, weakness in forward guidance and concerns about international issues abroad to dominate reports.
10) Wild Card - Obama Is Re-Elected - I say this because I think this is what is going to happen. With more than 46 million people collecting food stamps and 86 million people no longer in the work force – the promises of a man to keep you in your home, put more dollars in your pocket, take from the rich to give to the poor and pointing fingers and blame at those "evil conservatives" will ring home with the average American.
There you have it. My predictions for 2012. MY JOB is to try and give you as many of the facts as possible so that you can make your own financial decisions going into the coming year. One of my favorite quotes is by Howard Marks and is a principle that we live by in our little shop;
"Given the uncertain nature of the future, and thus the difficulty of being confident your position is the right one – especially as price moves against you – it's challenging to be a lonely contrarian."
As we enter into 2012 it may pay to be a little cautious by raising some cash - as it promises to be a rough year. However, like I said - anything other than the "apocalypse" and we can count 2012 as a win.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/317525-2012-outlook-anything-other-than-the-apocalypse-is-a-win?source=email_macro_view&ifp=0
Never a bad idea to book some profits!
To be clear I don't put too much stock in any of these predictions.
They are merely interesting to read and see what people are thinking.
Other than that while it might be hard to put "x" date on when "y" will happen there is little doubt about the overall direction?
The Circling Black Swans of 2012 (January 2, 2012)
The Imperial hubris of America's Elites offers up a tempting target for black swans, as suppressing the sources of instability only increases the odds of disruptive instability.
Longtime correspondent (and Oregon resident) R.S.D. recently made this observation about black swans:
I notice that a number of predictors for 2012 never mention the flock of black swans that are currently circling in the murk before us. While I appreciate their anonymity, I was reminded of their presence last night about 10 PM while working in my shop. I had the door open to an almost Springlike night when I heard quite a flock of Canadian Geese passing over, heading north. In December!
Well said, R.S.D. For an example of the Status Quo's confidence that the odds of a financial or political black swan disrupting their Empire are essentially zero, let's turn to "conservative" pundit George Will, one of the Status Quo's leading proponents of bloviated smugness.
Mr. Will begins his syndicated New Year's column by hugging himself with Imperial self-satisfaction: America is a net exporter of energy products for the first time in 62 years!
The unwary consumer of Mr. Will's self-congratulatory prose (he has a corner office in the sprawling Ministry of Propaganda) might wrongly interpret this to mean that America is a net exporter of energy: it is not. The U.S. is a net importer of over 9 million barrels of oil a day.
How dependent are we on foreign oil? (U.S. Energy Information Administration)
The United States consumed 19.1 million barrels per day (MMbd) of petroleum products during 2010, making us the world's largest petroleum consumer. The United States was third in crude oil production at 5.5 MMbd. But crude oil alone does not constitute all U.S. petroleum supplies. Significant gains occur, because crude oil expands in the refining process, liquid fuel is captured in the processing of natural gas, and we have other sources of liquid fuel, including biofuels. These additional supplies totaled 4.2 MMbd in 2010.
In 2010 the United States imported 11.8 million barrels per day (MMbd) of crude oil and refined petroleum products. We also exported 2.3 MMbd of crude oil and petroleum products during 2010, so our net imports (imports minus exports) equaled 9.4 MMbd.
Apparently Mr. Will is incapable of performing either simple math or a basic web search to confirm the breezy implications of his carefully vague confidence in a future of never-ending, low-cost surplus energy.
If he'd performed five minutes of journalism instead of spewing propaganda, he might have stumbled upon this report, which suggests that U.S. dependence on imported energy will rise going forward: US Oil and Gas Import Dependence: Department of Energy Projections in 2011
Much propaganda has been issued over the years about the hundreds of years of supply of energy the U.S. possesses, but journalism is supposed to ferret out the current facts as its foundation rather than begin with self-satisfied pontification.
If we consult the facts, we find the storied Bakken oil/gas formation currently produces 445,000 barrels a day, certainly a substantial quantity of energy but a mere sliver of America's daily consumption of 19 million barrels a day. According to the EIA report Bakken formation oil and gas drilling activity mirrors development in the Barnett, Bakken production, which averaged just over 2 thousand bbl/d in 2000, averaged more than 260 thousand bbl/d in 2010. This rise in production is the result of hundreds of horizontal wells being drilled and brought online.
Is this new source of domestic energy welcome? Of course. Will it some day replace the 9 million barrels imported from elsewhere? A variety of sources suggest reaching 1 million BPD would be an extraordinary accomplishment, and that projecting the recent growth to millions of barrels a day is more fantasy than fact.
If we had to summarize the Status Quo's confidence that no black swans will threaten its control in 2012, we might begin with its faith that the system's self-regulation will resolve all systemic challenges. Just as the Status Quo has placed all its chips on a single bet--that "growth" from debt-based consumption can be resumed with vast public borrowing and saving the predatory financial sector--it also bases its confidence on the system's self-regulation.
If the banking sector is riddled with fraud and embezzlement, then some minor tweaking of regulation will solve all issues. If demand for debt has collapsed, then the solution is for the Federal Government to borrow 10% of GDP every year to compensate for the decline of private debt and spending.
The faith is that extending and pretending will magically restore the "growth" the Status Quo needs to support its ballooning debt. Extending and pretending offers up the compelling illusion that the system's broken self-regulation is up to the task of fixing systemic problems.
The essence of Talib's "black swan" insight is that instabilities that are written off by the Status Quo as "extremely low probability" become high-probability when low-level systemic instabilities are suppressed by extend and pretend and endless propaganda.
The Status Quo has suppressed instability with brute force and propaganda for four long years; while the Elites are patting themselves on the back and confidently predicting they can safely navigate 2012 with more extend and pretend, the odds are increasingly favoring the emergence of "unlikely" disruptions.
Mr. Will is supremely confident that whatever happens in 2012 will be a mere "pebble in the river of American history." In the darkness overhead, we can hear the beating of unseen wings that promise to make a mockery of the Status Quo's supreme Imperial hubris.
http://www.oftwominds.com/blogjan12/black-swan01-12.html
JohnGaltFLA.com Predictions for 2012
By John Galt
¨C January 1, 2012Posted in: Breaking News, Galtisms
JohnGaltFLA Predictions for 2012
By John Galt
January 1, 2012 ¨C 17:00 ET
I. Geopolitical Predictions
1. The United States constructs a new large military base in Columbia near the Venezuelan border in anticipation of the collapse of the Chavez regime. The new focus on South America is seen as a desire to refocus American foreign policy as the Middle East rejects any further interference from the United States. Columbia welcomes the action as it intertwines the U.S. into their internal conflicts and guarantees economic cooperation as their oil exports increase.
2. Syria¡¯s dictatorship under Assad survives the ¡°Arab Spring¡± movement in a bloody reign of terror due to other events in the Middle East over taking concerns about Syria, and renewed commitments to protect Syria from the West by Russia and China. Assad shifts strategies and adopts the call for a greater Caliphate and charges into the leadership in some parts of the Arab world by demanding all ¡°good Arabs¡± reject the poisonous influence of the U.S. and Europe.
3. Turkey invades and occupies the northern 25% of Kurdistan inside of Iraq, to stifle the rebel PKK movement. In retaliation, Kurdish based terrorist attacks increase in Baghdad, Southeastern Turkey, and northern Iran. Iran supports the Turkish invasion and rejects calls from Baghdad to help evict the occupation force. Saudi Arabia offers a blanket support for all Sunni Muslims in Iraq and promises to invade and offer military assistance if they are attacked by Kurdish or Shiite forces inside the nation of Iraq. Meanwhile, during 2012¡äs latter half, Iranian forces launch open incursions into the Basra region to ¡°support and stop¡± the slaughter of Shiites by ¡°Western pawns¡± in Baghdad. Iraq moves closer to a full blown civil war by the end of 2012.
4. The Iranian Nuclear program is dealt a severe set back in 2012 when United States¡¯ forces simultaneously attack 40 facilities, both military and civilian, destroying the majority of their operational ability to produce nuclear fuel. Israel praises the attack and openly thanks the United States from preventing an all out regional war. The attack will probably occur between August and October of 2012. A U.S. Naval vessel is sunk in the Straits of Hormuz in retaliation moving both nations closer to all out war. The American leadership claims that the action was legal per United Nations¡¯ Security Council warnings and edicts issued in May. Iran begins a full blown propaganda campaign which wins the sympathy of the Islamic world by displaying television news programs showing small girls dying from radiation sickness and mutilated bodies where an American missile allegedly missed its target. President Obama denies claims by some inside the United States and overseas that the attack was tied to his flailing political re-election campaign and poll results showing him trailing by over 14% in some surveys.
5. Lloyd¡¯s of London and other insurers declare the entire Persian Gulf and Arabian Sea a war zone and refuse to honor or insure any vessels transporting goods to and from the region. Shipping rates into and crossing through the waters of all Islamic nations skyrocket as protests erupt worldwide. Nigeria considers an oil embargo against the US and Europe for the attack on Iran and calls from the new non-aligned movement.
6. South Africa emerges as the leader of a new non-aligned movement secretly sponsored by Russia to put pressure on the West. Many Islamic nations join up in retaliation for the attack on Iran.
7. The UAE, Kuwait, Oman, Iraq, and Bahrain announce a new GCC currency regime based on the price of Brent crude, Omani crude, gold, the Yen, the Yuan, and the Dollar. Russia and China immediately recognize the new currency regime and offer to sell military equipment denominated in the new currency to the Kingdoms in the region.
8. Cambodia and Thailand engage in a renewed month long firefight over the disputed border region. China takes the role as peacekeeper by offering to station troops in the disputed territory with a United Nations role.
9. Hugo Chavez dies of cancer in Venezuela and a heretofore unknown hardline Marxist leaning General comes to power creating a mirror copy of the Cuban communist state.
10. Mexico¡¯s drug violence expands as heavier weapons including small artillery pieces, rocket launchers (artillery type), anti-aircraft missiles and helicopters are deployed against government troops. The nation moves closer to the brink of civil war.
11. King Mohammed VI flees Morocco under Islamist pressure from a new series of protests from the population during what becomes known as the ¡°Second Arab Spring.¡±
12. Algeria plunges closer to open civil war after several large terrorist attacks and as the Islamist movement is emboldened by the collapse of Morocco¡¯s pro-Western leadership.
13. India agrees to the basing of United States anti-ballistic missile batteries as a preventative measure to insure that a random attack due to the nation of Pakistan becoming more unstable after a failed coup. India agrees to sign an international ¡°no first strike¡± pact as part of the agreement.
14. Pakistan ceases all military and intelligence cooperation with the United States after another wayward drone attack kills Pakistani soldiers early in 2012.
15. The Taliban strike a deal with the Karzai government in Afghanistan with guarantees of immunity from prosecution for prior atrocities. The United States administration is outraged and accelerates the troop withdrawal during the summer of 2012.
16. Terrorists attack Moscow again before Putin is elected killing dozens. Chechen radicals are accused of the action but this time, the nation of Georgia is accused of assisting the terrorists.
17. Another major earthquake causes nuclear power plant problems in Japan. The plant is successfully shut down but the population flees the northern half of the nation in fear of another Fukushima disaster.
18. The first electronic malfunctions due to excessive radiation readings are discovered in vehicle and other machinery produced using materials from Japan. Planes, cars, trains, and other heavy machinery is shut down until the circuits are checked and deemed safe.
19. Iran successfully launches its first satellite into orbit.
20. Greece falls into civil war in late 2012. Hundreds die in the first month of fighting.
21. Italy experiences a resurgence of communist terrorist attacks in the spring and summer of 2012 as the economy collapses.
22. Portugal withdraws from the European Union along with Greece and Ireland.
23. French Muslims riot in sympathy with Moroccan and Algerian protesters causing the rise of a nationalist, more racist party in France before the election.
24. The United Kingdom seriously considers the secession of Scotland after a petition is submitted before the Queen and Parliament.
25. Russia sees a massive economic collapse but Putin re-introduces Soviet era internal security apparatus crushing all opposition and arresting numerous ¡°foreign agents¡± accused of fomenting unrest.
26. China¡¯s new premier is a hardliner and begins the construction of an electronic and political virtual wall preventing any data or reports of human rights abuses or internal military action from being reported by Western sources. Some human rights groups accuse the new Chinese communist gulags of slaughtering thousands of dissenters per month by year end. Islamic groups report that entire villages of Uighur¡¯s are slaughtered in a genocidal campaign but the West ignores the reports due to the situation in the Middle East.
28. The new Chinese aircraft carrier pays a ¡°peace visit¡± to the United States naval port in San Diego, California. Obama meets the new premier on the deck of the carrier to create a ¡°new era of trust and cooperation between the two superpowers.¡±
28. Canada begins to accept the Yuan on a limited basis for purchases of oil and lumber only.
29. Egypt closes the Suez Canal for one week and militarize the zone in protest against the lack of action to force Israel to the table to discuss a new Palestinian state.
II. U.S. Political Predictions
1. President Barrack Obama wins re-election over Mitt Romney, 49.1% to 40.3%. Independent candidate Ron Paul takes 8.1% of the vote.
2. The Republicans hold the House of Representatives by 3 seats. ¡°Tea Party¡± independents pick up 4 of the seats against Republican incumbents who voted with liberal tendencies causing a massive shake up in the Republican leadership.
3. Democrats are actually caught engaging in voter fraud in 2 states this election cycle.
4. The Senate remains under Democrat Party control by 1 seat.
5. Republicans lose 1 governor¡¯s race to a Democrat and 1 to a ¡°Tea Party¡± independent (correction from the radio predictions show due to a typo on my part).
6. Democrats lose 1 governorships to a ¡°Tea Party¡± independent who defeats both political parties.
7. The Supreme Court upholds the individual mandate portion of the Obamacare law. This action initiates the creation of the third party¡±Tea Party¡± movement for the coming elections of 2012.
8. Senator Rand Paul quits the Republican Party along with 5 other members of the House of Representatives declaring themselves independents.
9. The Supreme Court upholds the right of the Department of Homeland Security to monitor United States citizens communications for terrorist threats without a warrant.
10. Nancy Pelosi resigns from the House of Representatives after a scandal emerges which exposes a huge insider trading scandal involving politicians and bankers at a small, formerly unheard of hedge fund.
11. Occupy movement turns on the DNC convention with peaceful protests but hundreds arrested as they attempt to block the streets of Charlotte, North Carolina.
12. Occupy movement goes into a radical direction against the RNC convention with Tampa, Florida becoming the modern version of ¡°Kent State¡± where protesters are killed and dozens wounded in a conflict with the authorities after one of the radicals opens fire wounding an officer. Thousands are arrested and detained at Raymond James Stadium for processing.
13. California declares the first of its kind restrictions on bloggers engaged in political dissent and commentary with penalties including fines and jail time. Instead of using legislative action, Governor Brown declares a state of emergency after the riots in Tampa and Charlotte until the elections are complete to ensure ¡°the rights of the citizens.¡±
14. SOPA passes the House and the conference committee with the Senate result in the first restrictions and ¡°legal¡± definitions delineating the difference between a ¡°journalist¡± and a ¡°blogger.¡± In protest, Anonymous takes all of the major news outlets and puts a black, blank screen up on their websites. The first blogger is prosecuted under this law by October of 2012.
15. The new Domestic Homeland Security Force is created by the Congress at the request of the administration to act as a mobile deployment force to blunt terrorist activity inside the borders of the United States. This ¡°force¡± is buried in a desperation budget resolution act passed in the spring of 2012 as a new Federal Government DHS employment initiative.
III. Homeland Security
1. The first American citizen is arrested under the provisions of the NDAA. The individual arrested is declared a ¡°lone wolf¡± with alleged sympathetic ties to Al-Qaeda but reports surface that he was a supporter of the new third party movement and ¡°Patriot¡± groups and had no ties to radical Islam.
2. The first rest area check points are tested where all vehicles are pulled over, commercial or civilian, for inspection by DHS VIPR teams, state department of transportation officials, and local law enforcement. Guns are confiscated for ¡°inspection¡± as well as cash in excess of $1,000.
3. A U.S. Senator reveals photos of domestic drones taking pictures of Americans sitting in their living room causing an outraged public demanding action against this illegal spying. The story is buried and called ¡°fabricated¡± by the authorities.
4. Biometric airline tickets are tested by TSA.
5. TSA experiences its largest scandal to date and dozens of officers are arrested (yeah, I know, it¡¯s not a reach).
6. A truck hijacking by an alleged Al-Qaeda operative creates a new series of regulations requiring a DHS officer or certified DHS manager to operate as the official ¡°Homeland Security Supervisor¡± at all transportation companies operating more than 250 units on the road.
7. Armed DHS troops begin riding on the railways, both pass enter and freight, before the year ends.
8. The first Border Patrol robots are tested on the California border. Armed with Tasers, tear gas grenades, cameras, and other features, the Mexican government protests as a result of their deployment.
9. NHS, or ¡°Neighborhood Homeland Security¡± elective courses are offered to Juniors and Seniors in high schools. Completion of these courses and ¡°volunteer¡± work could entitle the participants to collegiate grants and scholarships. Parents are turned in by some children for ¡°anti-American¡± activities.
10. Michigan deploys the first DHS naval patrol boats in Lake Michigan not under USCG supervision.
IV. Economic Predictions
1. Greece, Ireland, and Portugal withdraw from the European Union creating a two quarter long massive worldwide recession. Hundreds of banks fail in the European Union and United States as a result.
2. Stock update report
Goldman Sachs falls below $50 per share during 2012.
Bank of America is delisted.
Citigroup is split up by the government into several divisions.
Wells Fargo trades below $15 per share during 2012.
J.P. Morgan Chase trades below $20 during 2012.
U.S. Bancorp eventually trades above $60 per share during 2012.
Regions Financial is delisted.
Synovus is delisted.
FXE is delisted at the request of the European Union due to the implied instability created by its trading action.
5 other ETF¡¯s are delisted due to regulatory intervention.
AAPL trades below $200 during 2012.
GOOG trades below $300 during 2012.
AMZN trades between $90 to $140 in 2012.
INTC trades below $10 during 2012.
XLF is delisted due to action by the SEC as well as all double and triple financial ETF¡¯s.
3. The Blackstone Group acquires Merrill Lynch with U.S. Treasury department assistance.
4. Goldman Sachs acquires the retail operations of Bank of America with the toxic assets transferred to a new joint Federal Reserve and U.S. Government agency created during an emergency weekend session in Congress.
5. 10 regional banks are forcibly merged with larger institutions due to solvency concerns.
6. Gold bottoms during trading one day between $1250 to $1320 per ounce and skyrockets above $2000 before the year is over with one day of trading rising over $150 per ounce.
7. Silver bottoms between $22-$25 then stabilizes above $50 per ounce before year end.
8. Copper trades as low as $1.50 before rising back above $3.
9. The ags enter a new bull market with shortages causing beef, soybeans, and wheat prices causing food inflation concerns world wide.
10. WTI crude tops $200 per barrel briefly. Brent tops $235. Natural Gas tops $5, and RBOB Unleaded Gas tops $6 per ounce triggering a price freeze and rationing due to an emergency declaration by President Obama.
11. The DJIA falls below 8,000 but crosses 12,000 close to the election.
12. The S&P 500 falls below 760 but crosses 1280 by year end.
13. The NASDAQ falls below 2,000 but finishes above 2,700 by year end in a massive rally after the election and announcement of Obama¡¯s new ¡°internet¡± initiative.
14. 2 more airlines go bankrupt. One legacy carrier ceases to exist after the impact of the oil price explosion destroys all leisure travel.
15. The Nikkei 225 falls below 5,000 at some point in 2012.
16. India experiences a prolonged bear market barely holding the 9,000 level but rallying into the year end.
17. Russia ¡®restructures¡¯ its stock market blocking foreign investment and speculation.
18. Capital controls cause the British FTSE 100 to close below 3,500 during 2012. Ireland¡¯s stock market falls 90% below its all time highs in the previous decade.
19. Germany and France see a major bear market with a further 30% decline in 2012.
20. Canada rallies above 12,000 based on oil and gold prices but falls below 8,000 early in 2012.
21. Short selling is banned in Q1 in the US on all financial stocks.
22. The 1-3-6 month United States Treasuries trade with negative yields for the first quarter of 2012 for the first time in history.
23. Greek 1 year yields reach 500% before the nation defaults and withdraws from the European Union.
24. The Australian dollar falls back to the 79-80 level.
25. The Dollar Index peaks at 91 to 93, possibly a little higher, in 2012.
26. The Fed, Swiss National Bank, JCB, ECB, Canadian National Bank, and Bank of England agree to form a new permanent committee to meet on monetary policy each quarter starting after the collapse.
V. Weather & Earth Change Predictions
1. Hurricane forecast 2012: 6 Tropical Storms, 6 Hurricanes with one major hurricane. Only two storms impact the United States.
2. 1 earthquake above 8.4 on the Richter Scale somewhere in the world in 2012.
3. Solar Flux skyrockets above 180 as the period of the Solar Maximum accelerates.
4. First U.S. commercial satellite damaged and disabled due to a solar flare.
5. The current drought continues and expands across the United States and Africa.
VI. Miscellaneous Predictions
1. First death due to an electric car failing occurs in the winter of 2012. The battery dies during a blizzard and the driver is found frozen to death after the storm.
2. The Catholic Church is embroiled in an online sex scandal where children are solicited online for recruitment for senior members inside the Church.
3. Canada ceases allowing all non-skilled workers and refugees as the economy craters in early 2012. A select number of highly skilled workers are permitted limited work visas with possible admission to apply for citizenship for the foreseeable future.
4. The Tampa Bay Buccaneers fire their head coach and hire Jeff Fisher as the replacement (Yeah, I know, it¡¯s wishcasting).
5. The Tampa Bay Rays will face the Philadelphia Phillies in the 2012 World Series.
6 . The Oscar for Best Picture will be awarded to some obscure British picture that wives force their husbands to watch at gunpoint.
BONUS PREDICTION:
One of the major cable news networks is caught fabricating stories against Ron Paul as a memo is leaked ordering the on air talent to highlight negative stories to diminish his campaign.
Remember, I do this for fun but there is some logic and forethought into these predictions so do with them what one desires, but let the buyer beware.
http://johngaltfla.com/wordpress/2012/01/01/johngaltfla-com-predictions-for-2012/
Here in the midwest it has been so wet for so long I am surprised we have not seen more "sink" holes forming.
Valid points or a case of calling those who prepare hoarders?
'It's The End of the World' Is Really About Selling Fear
by: Roger Nusbaum December 28, 2011
Paul Farrell had a column up yesterday that detailed 10 reasons why 2012 will be a doomsday. Included in the list are failings of US democracy, class warfare and some disturbing prognostications about global warfare.
If you read the paragraphs that Farrell wrote on those points, it is hard to disagree with the nature of the problems he cites. However these are not new issues and Farrell offers no reason as to why 2012 must be a tipping point for any of them. While I apologize for not taking the time to look I would venture to say that these points or similar ones were predicted by him to be tipping points in previous years.
Expectations of torn social fabric, or the breaking down of society were made at the beginning of the crisis and have not panned out and are unlikely to. Some things have gotten worse and will continue to get worse but we collectively can adapt better than most, probably not all, countries. To repeat an idea I have mentioned frequently, the US is the world's most important customer and so other countries have a vested stake in our remaining functional. Remaining functional is not a Jim-Paulsenian argument to be bullish but does argue for the US' ongoing ability to slog through as we have been.
Some of the other reasons cited by Farrell seem totally disconnected from the thesis of doomsday. His number 7 was about market technology whose consequence is that "average investors are no match for Wall Street's 'high-frequency traders.' " He's probably right here for average investors who actually try to hit bids and lift offers faster than the machines but more practically average investors buy a few shares of broad based ETFs or blue-chip stocks with the intention of holding long term not to scalp pennies before lunchtime.
Further, individuals have always been disadvantaged when compared with professionals and they always will be. No argument from me if anyone thinks that is wrong but it is hardly new. It is not plausible that a decades old issue can cause a breakdown in the magnitude he seems to suggest.
Farrell's last reason for doomsday was actually a suggestion of sorts about what to do in the face of doomsday, not a cause of it. He cites advice given by Barton Biggs about being able to grow your own food, real everyone into the bunker stuff, except that advice from Biggs came from a book published in 2008. Based on what I have seen of Biggs' TV appearances he appears to have distanced himself from those opinions (please comment if I have that wrong).
We have real and seemingly (almost) unprecedented problems but end of the world arguments like "the next crisis, according to Weiss, 'will destroy the incomes, savings, investments and retirements of millions of Americans.' Yes, destroy. 'It will plunge vast numbers of families into the nightmare of poverty … hunger … and homelessness. Only a minority of investors will survive intact' " have been made for thousands of years, there has always been a big market for selling fear.
It is important to understand the threats but not overreact to them. It is also important to understand the hopium sold by Wall Street and understand how markets and compounding can work. Understanding both sides gives a better chance for successful critical thinking that is required for successful cycle navigation.
Away from investing we need to do our best to be healthy (fit might be a better word) and remain individually adaptive. We can't know how our individual circumstances might evolve. While I hope that my financial situation never relies on my generating an income from being an EMT if it ever does, then I will be grateful that I went through the process.
The need for innovative personal solutions, a long-running theme here, will become increasingly more important as time goes on. My neighbor with the backhoe is the best example of this that I know.
http://seekingalpha.com/article/316313-it-s-the-end-of-the-world-is-really-about-selling-fear?source=email_macro_view&ifp=0
Loot and booty?
Seriously, a 40 to 60% devaluation might result in rioting but most troops live paycheck-to-paycheck and as long as they get 3 squares, a cot and beer money- if everyone else is starving that might be enough? What do the North Korean troops work for?
I think we've reached a point that it is a matter of when and not if we get some sort of collapse or economic reset. The trend continues unabated but if O gets re-elected and we have a lameduck president...
Crackdown: USA
NOTE
A condensed version of this article was published in two parts in the November 21, 2011 print edition of American Free Press:
Part I: U.S. Military Believes National Debt Now Most Serious Threat to America
Part II: (which can be accessed online here) Will U.S. Army Be Used To Crush Public Resistance?
by Keith Johnson
The United States is well on its way to becoming one giant third world country as insurmountable debt, depression level unemployment, and rising costs for basic necessities continue to crush the poor and middle class. It is now no longer a question as to if or when the economy will collapse, but rather how soon the American people will realize that it is already upon them.
The Occupy Wall Street protests that have now spread to every major city in the nation is a good sign that some have finally begun to wake up. But many of them are still relying on the same government that created the problem to come up with a solution to it.
Meanwhile, elected politicians and their faithful lackeys in the mainstream media continue to peddle lies and disinformation to those still living in denial. Using mathematical and linguistic trickery, they strive to convince the naïve that the current financial crisis is only temporary, cyclical, and well on its way to making a full recovery.
Perhaps if the American people simply had the wherewithal to look over the shoulders of these talking heads, they might be surprised to learn that their government has already conceded that the end is nigh—and that behind the scenes—they have been bracing for the fallout of a large-scale economic breakdown for several years.
The most recent evidence of this came in late October, when the U.S. Army sponsored their annual "Alternative Futures Symposium" in Chantilly, Virginia. This three-day session was covered in great detail by trade publication National Defense. According to their report, "The seminar included 85 experts from academia, industry, civilian government agencies, U.S. and foreign militaries" who concluded that the United States economy was on the verge of collapse, and that its burgeoning debt now took precedence as the most serious threat to national security.
Speaking on behalf of the U.S. military, Brig. Gen. Patrick J. Donahue II conceded that bloated military budgets would likely be a thing of the past, and that branches of the armed services would have to learn to cope with less. "How are we going to come up with a military that [might be smaller but] is still effective?" he asked. "That is the big issue that the Army is facing."
Among the other participants was Robert A. Weidermeier, author of the best-selling book "Aftershock: Protect Yourself and Profit in the next Global Financial Meltdown," who told the group that starting in 2013 and through 2015 is "when we're going to see bad things."
What is notable about Weidermeier's prediction is that 2013 marks the 100-year anniversary of the Federal Reserve, whose liberal printing of paper currency has incrementally caused the dollar to lose more than 95% of it's original purchasing power.
Weidermeier says that things have not yet spiraled out of control because interest rates have been kept low, but that even a 1 percent increase could inflate the debt by $150 billion per year. "That's about the same as the entire budget for the Army," Weidermeier said. "When you hit 10 percent, all bubbles burst."
Although that assessment is dire, it may be an underestimation of the true severity of the impending crisis. Weidermeier bases his calculations on the supposition that the U.S. debt is somewhere in the neighborhood of $15 trillion, when in reality it may be well over a hundred times that amount. In August, economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan's Council of Economic Advisers, told National Public Radio that the U.S. ignores "unofficial" payment obligations like Medicare and Social Security when computing the national debt. "If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," says Kotlikoff. "That's our true indebtedness."
Frank Finelli, managing director of The Carlyle Group, a global asset management firm, was another speaker at the symposium who warned that the Federal Reserve was largely responsible for the crisis, noting that the Fed's balance sheet had more than tripled since 2007 by $2.5 trillion. "Such tremendous increase in the money supply has not been accompanied by economic growth in the United States," said Finelli.
He went on to say that China would weather the financial crisis far better than the United States or Europe, and that its strength would not be exerted through missiles or submarines, but rather from its immense wealth. "China does view financial power as an exercise of power in a way that the United States does not," says Finelli. "The United States only exercises financial power through its corporations."
This most recent symposium was part of the U.S. Army's "Unified Quest 2012" exercise, the latest in a series of annual war games that—in recent years—has focused on America's response to a global financial meltdown.
In November 2010, CNBC's Eamon Javers had this to say about last year's exercise: "Ever since the crash of 2008, the defense intelligence establishment has really been paying a lot of attention to global markets and how they can serve as a threat to U.S. national security interests."
Javers goes on to report, "The Army is having a very interesting yearlong exercise called Unified Quest 2011. In that war gaming series, the Army is looking at the implications of a large scale economic breakdown in the U.S. that would force the Army to keep domestic order amid civil unrest, and deal with global fragmented power and drastically lower budgets."
According to Javers, 30 military officials from the Marine Corps war colleges visited the trading floor of JP Morgan in October 2010 to study markets and the economy. "So you can see that all different parts of the Pentagon and defense intelligence establishment are looking at markets, and looking at ways they can present a new kind of threat to the United States," says Javers. "These are the guys whose job it is to think of the very worst things that could possibly happen—and they've dreamed up some very scary scenarios here."
Inside Defense magazine also reported on Unified Quest 2011 in a November 2010 article entitled "Army Officials Think Through the What-If's of a Global Economic Collapse," where it was revealed, "Officials picked the scenario of a worldwide economic collapse because it was deemed a plausible course of events given the current global security environment. In such a future, the United States would be broke, causing a domino effect that would push economies across the globe into chaos."
According to Army Lt. Col. Mark Elfendahl, these were some of the conclusions drawn during a three-day session connected to that exercise: "The Army would have to significantly alter its investment portfolio, focusing on light and inexpensive forces" and that "an increased focus on domestic activities might be a way of justifying whatever Army force structure the country can still afford."
In an almost light hearted manner, the article concludes by saying, "The only silver lining: The Army would have an influx of qualified recruits as the result of an unemployment rate between 25 percent and 30 percent."
Tracing the government's contingency plans back even further—to 2008—we find a prominent American newspaper and a foreign news agency both reporting on the Pentagon's plans to confront the repercussions of an economic meltdown in the not-so-distant future.
According to a Russia Today report from 2008: "Twenty thousand additional U.S. uniformed troops, set to be trained by 2011, are to help as a response to the threat of a possible mass terror attack or civil unrest following an economic collapse."
And from the Washington Post: The U.S. military expects to have 20,000 uniformed troops inside the United States by 2011 trained to help state and local officials respond to a nuclear terrorist attack or other domestic catastrophe, according to Pentagon officials."
More recently, in a July 2011 article for the popular alternative news website The Intel Hub, Shepard Ambelas writes that the Pentagon's 2008 announcement dovetails "into the current troop and equipment movements around the country reported by truckers as well as many troop sightings by everyday citizens."
Ambelas goes on to write, "The military is already taking an active role in numerous domestic policing activities in close to a dozen states including Florida, Tennessee, California, Alabama and Pennsylvania."
It may be no mere coincidence that the recent announcement by President Obama to have all troops return from Iraq by the end of 2011 coincides with the anticipated economic collapse. Will those troops now deployed on the streets of America? An even more relevant question might be: Will those troops exact the same toll on this nation as they did to the one they just left?
http://revoltoftheplebs.wordpress.com/2011/12/29/crackdown-usa/
Is the fabric of industrialized society starting to unravel?
Highly complex civilizations are more vulnerable to collapse
by Mike Adams, the Health Ranger, NaturalNews Editor
(NaturalNews) This is one of the most important trends you'll see in 2012 and beyond: Global supply lines are breaking down. The just-in-time system of deliveries on tap is deteriorating. Have you noticed how often the products or parts you need are backordered or delayed? That's what I'm talking about.
Try to order 3TB hard drives for data storage. You'll discover they're all back-ordered. When you order items from Amazon.com that are shipped by third party companies, they're often delayed due to sourcing problems. Even our own NaturalNews Store has suffered from sourcing challenges, where customer demand is much higher than the available supply, and the suppliers sometimes can't get us products in a timely manner.
This issue is especially notable across the firearms industry, where record firearm sales have pushed gun manufacturers way beyond their normal capacities. Not only was Black Friday the top day for gun sales in the history of the USA, but I spoke with the owner of a local Austin gun shop just a couple of days ago, and he told me that on the Thursday and Friday before Christmas his shop was completely slammed with customers, and many of the products they wanted were simply out of stock or unavailable.
Something is happening across the planet with all this: Supply lines are getting thin and starting to crack. You've probably noticed it when you're trying to buy car parts or appliance parts. Even many service companies are thinly staffed these days. How long does it take now to get a repair man for your furnace? Or a plumber? Remember when it used to be same-day or next-day service? Now it's often 2-3 days (or even more) before somebody can fix the problem, and even then, they often need parts that have to be ordered.
The complexity of modern society is starting to rupture
All this is a worrisome sign to anyone who understands even a little bit about the complexities of modern society. Even to build something as simple as a water bottle, a manufacturer must be able to depend on a very long and highly complex chain of suppliers who individually specialize in metals, plastics or o-ring manufacturing. Then there's the logo printing which requires yet another supply chain of ink specialists and printing equipment. While a stainless steel water bottle may seem simple, it's actually the culmination of thousands of years of specialized knowledge, processes and equipment.
Even manufacturing a pencil is a modern miracle. Try it yourself sometime and you'll discover just how complex a pencil really is. You need sources of metals, rubber, graphite, paint, wood, and all the specialized manufacturing equipment and expertise that goes with it.
Why does this matter? Understand this hugely important point:
The more complex a society becomes, the more the loss of efficiency in just one small area of service or manufacturing ripples across the entire economy, magnifying its negative impact.
You can't build a car, for example, without the microchips manufactured in China. Sure, you can put together the entire car -- minus the microchips -- but all you have is a 3,000-pound piece of junk sitting on the assembly line. Without the microchips, the car is useless, and increasingly those microchips all come from China or Japan. This is even true across the military, where red alerts have been issued recently about the strategic vulnerability of military gear that relies on microchips from China. (http://www.wnd.com/?pageId=321477)
Suppose the microchips you need happen to show up, but then you then have a problem with rubber from Sri Lanka. Most Americans have absolutely no clue how much rubber they need to survive in modern society. The average vehicle contains over 500 pounds of rubber parts, all of which are 100% dependant on international rubber producers (http://en.wikipedia.org/wiki/Natura...).
Without rubber, in fact, modern society grinds to a halt. It's one of the most important strategic natural resources in the world, yet barely anyone thinks about it. Without rubber, you would have no transportation (not even bicycles). No trains, no trucks, no cars and no airplanes. A loss of rubber would also hit medical supplies and agricultural equipment in a huge way. Goodbye mechanized farming...
So even a tiny disruption in this crucial global resource could be devastating to the global economy. Rest assured, folks, that if you could read all the secret military documents at the Pentagon, and you could find a report on the world's "most important strategic resources," right underneath OIL, you would find RUBBER. (And no, the synthetic stuff isn't a viable replacement...)
The collapse ripple
The point is that a highly complex society has many points of failure that individually impact the entire web of complexity. Lose rubber and you've lost your entire transportation sector. Lose oil and much the same happens. Lose your source of microchips and you have to revert back to pre-1980's technology. Lose your manufacturing base -- which has already happened in America -- and you have no capability to start building the stuff you need in your own country anymore.
In World War II, America turned its car factories into tank factories and cranked out Armored Personnel Carriers, B-17 bombers, tracked vehicles and Jeep transport vehicles. Today, America's automobile manufacturing has been gutted to the core. All the machine shops have been offshored to Asia. A new generation of Americans has grown up with little or no knowledge of how to actually build anything other than Legos. The entire culture of innovative machining and metals fabrication has been all but lost (not to mention textiles).
What's behind these supply line failures? Criminal banks
There's a reason why supply lines are getting dangerously thin in America: Easy credit is disappearing. The failure of the global banking system is causing a trickle-down effect of decreased capital across the business sector. This, in turn, causes businesses to decrease their inventories and wait for orders to come in before manufacturing anything. So instead of excess supply sitting around, waiting to be delivered, more and more companies are operating on a "you order first, and then we'll make it" basis.
Capital is hard to come by for honest businesses, you see. Sure, if you're a criminal bankster like Jon Corzine, scamming the taxpayers out of billions (or trillions!) of dollars, you get free bailout money from the corrupt criminal enablers known as "members of Congress." But if you're an honest, hardworking American trying to run an honest business supplying real goods to business customers, you get royally screwed with high taxes, heavy banking fees, and a routine denial of operating credit. So you scratch by, doing the best you can with what you've got, even as the government is eroding the value of the Federal Reserve notes (dollars) you've worked so hard to earn.
Everywhere across the economy, honest businesses are getting hammered while the big money goes out to military contractors, weapons manufacturers, anti-terrorism security companies and others who have the right buddies in the right hallways in Washington. An economy that used to be based on manufacturing productivity and abundance is now based on false terrorism driving what is essentially a war economy.
That war economy, by the way, is just a few short years away from total default. It's the oldest story in history: Empire invades foreign nations, empire conquers foreign nations, then the empire goes broke trying to pay for its ever-expanding military to control those foreign nations. Empire collapses into the dark corners of history and becomes a lesson for the next generation which will usually make the same mistake anyway, because humans have a short memory and don't really understand what history means.
Do not fool yourself into thinking America isn't headed down this path right now. With the coming banking failures, the currency devaluation and the ever-expanding costs of running a false war (complete with home-grown false flag terror attacks to keep everybody scared into blind obedience), America's economy is headed for its own inevitable catastrophe, at which point you can fully expect supply line disruptions to be frequent and large-scale.
If you truly understand complex societies, you will prepare now
For a while after the collapse, it will be impossible to buy many items, including many food staples and possibly even fuel. Those who do not prepare for supply line disruptions will probably be weeded out of the human gene pool, earning their own place in history as examples of a failed genetic experiment that was ultimately incapable of adapting to a rapidly-changing environment.
In nature, when the climate rapidly changes, the only animals that survive are those with adaptive skills, mobility and backup resources (squirrels store food for a reason). In human society, when the mechanized production climate of readily-available foods, goods and services suddenly disappears -- even for a short while -- you will observe a sudden and shocking shift in the human gene pool towards those who have the foresight to plan and prepare rather than those who live day by day, partying, consuming, copulating and laughing it up.
As usual, I urge NaturalNews to be adaptive and be prepared. When the day comes that you actually need this wisdom, it will be too late to try to prepare. This is a test of survival that must be won in advance.
Why does the U.S. government stockpile food, medical supplies and weapons?
Remember: The U.S. government stockpiles massive quantities of food, weapons, ammunition, communications equipment and medical supplies. These are held in huge underground storage facilities (caves) carved out of pure granite. Watch the video to see for yourself:
http://www.youtube.com/watch?v=T24L...
By the way, I have firsthand knowledge of these caves. Being from Kansas City, I used to drive by these caves quite frequently, witnessing 18-wheeler rigs pulling in and out of these cave entrances, right off the highway. This has been going on for decades. They have underground cities for the storage of supplies. It's not a conspiracy theory, it's an admitted historical fact.
Ever wonder why the government bothers to do this? For what purpose does the government feel it needs to be prepared with years of supplies while, at the same time, telling the American citizens they only need enough supplies to last a few days?
That's not a flippant question. If you answer it honestly, you will be ahead of 99% of the rest of the population which now faces a precarious future in a highly complex society that's already starting to tear apart at the seams.
http://www.naturalnews.com/z034517_complex_societies_collapse_2012.html
Futures Trade Desk: The New Normal
by: The LFB December 28, 2011
The New Normal
The US debt ceiling will be raised (again) from $15.2 trillion to $16.4 trillion on Dec 30th in a political shell game that has no apparent ending. Once attention turns away from Eurozone banking system woes and bond market debacle, the impact of terrible US fiscal house-keeping may well be addressed by vigilante moves that cut equity and Treasury fair value in quick time.
In a strange twist of market mechanics, Eurozone banks are taking the funds made available to re-balance risk exposure under the ECN Long Term Repo Operation (LTRO) at 1% cost and are putting most of it back on deposit in the ECB overnight deposit fund at 0.25% gain.
European banks are taking cash from the ECB and instead of putting it to work in the open market are putting it back on deposit in their own name with the ECB, and are paying 0.75% to do so. Watch out below when common sense hits home; this is a red-flag that all is not well with inter-bank and sovereign risk sentiment and outlook.
Once momentum builds and year-end completes, the picture may become clearer in regard to the direction that equity indices, bullion, bonds, and commodities will go. The path of least resistance seems to be lower at the moment, helped in part by the fact that forward guidance on 2012 Q1 earnings reports has not indicated growth and expansion.
Buckle-up, especially those who still believe in buy-and-hold, because the next 6-12 months will be no different from the last, and if anything the challenges will get harder to overcome for those who only trade regional cash market sessions. Futures contracts are trading the global momentum swings and sentiment reactions and setting fair value ahead of the bell.
Waiting for the cash market bell to ring will be like standing on the gallows waiting for something to happen for those who do not have a plan. Average daily trading ranges will hold around 3% on most global asset classes, but as seen in 2011, the same 3% daily moves will unlikely lead to 12-month valuation changes. This is a trader's market, which has evolved with new rules for the new-normal. Get used to it, because things will not be changing anytime soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/316209-futures-trade-desk-the-new-normal?source=email_macro_view&ifp=0
Japan's Debt Crisis Will Take Center Stage In 2012
by: Bear Fight December 28, 2011
The majority of market participants are focused on the debt problem in Europe. I believe that investors need to focus on a potentially bigger problem. Japan, the world's third largest economy, is likely to experience its own debt crisis in 2012.
Japan's cost of capital remains miniscule and the high rate of savings have deterred a funding crisis. The yield on 10 year JGBs (Japanese Government Bonds) is below 1 percent.
Japan's debt to GDP is over 200% of GDP. According to Rogoff and Reinhart, countries typically run into problems when debt levels reach 90% of GDP. With more public debt than any country in the world, each Japan citizen owes over $86,000.
Increasingly Reliant on Borrowing
According to a recent Bloomberg article, the Japanese government will sell 44.2 trillion yen ($566 billion) of new bonds to fund 90.3 trillion yen of spending, raising the budget's dependence on debt to an unprecedented 49 percent. New bond issuances will surpass tax revenue for a fourth year. Receipts from taxes have shrunk about a third after peaking at 60.1 trillion yen in 1990.
Japan faces an aging and shrinking population and has very strict immigration laws. Social-security expenses, which have become 2.5 times more than that of two decades ago, will account for 52 percent of general spending next year.
Chart Source: CQCAbusinessresearch.com, April 2011
Strategy
I expect 2012 to be very volatile and am looking to position my portfolio for extreme events.
•Long precious metals to hedge against excessive money printing
•Long VXX call options
•Long SPY puts
•Short FXE
•Long JGBS
Disclosure: I am long GLD, SLV, VXX, JGBS.
Additional disclosure: Short FXE and long SPY puts.
http://seekingalpha.com/article/316212-japan-s-debt-crisis-will-take-center-stage-in-2012?source=email_macro_view&ifp=0
Peter Schiff, Jim Rogers...U.S. Economy outlook for 2012 (Dec-2011)(FINANCE & ECONOMICS series)
12.28 U.S. Market Preview: Preparing For the Fall
By John Galt
December 28, 2011 – 08:15 ET
When these pages say "preparing for the fall" I am not referring to a change in seasons. The one chart, a bear among the most bearish, says it all:
The breakdown of of Goldman Sachs is a leading, not lagging indicator of future activity. This collapse after the death cross as pictured above is usually a warning for a stock and in this case the financials that further stresses are about to impact the markets. The failures in November and December to break out of the pattern of lower highs and declining moving averages signals a massive decline of at least 20-30% is quite probably in this stock and hence, the financials will probably follow suit.
The dirty secret?
Europe is going to cause a wave of adjustment or reconfiguration within the world financial systems and the U.S. financial stocks are warning of a broader market dislocation in bonds, currencies, and equities is about to occur.
Watch out for the low volume end of year cheerleaders projecting 2012 to be the most wonderful year of them all as in 2008 after the election of the current regime, the same people said Obama's message of hope and change and by consequence, "reform," would restructure our markets and improve the economy. Within 90 days of his election the markets collapsed another 30+% and by March of 2009 the Federal Reserve was the savior of last resort.
Now that the Fed has failed as well as the ECB the choice has been made for all central bankers and governments worldwide in 2012 and it will ensure the action by the scoundrels of last resort:
Printing to infinity and beyond.
http://johngaltfla.com/wordpress/2011/12/28/12-28-u-s-market-preview-preparing-for-the-fall/
Who Should Control the World?
By Jeffrey Tucker Dec 27th, 2011
In the days following the gift-giving holidays, many millions of people stand in judgement over the quality of the gifts they gave and the gifts they receive. Did they arrive on time? Did the quality hold up? Did the reality match the advertising hype? The Internet ads an extra wrinkle. Anyone dissatisfied can post blistering attacks on any merchant and the product in questions. Anyone can vote up or vote down.
The down votes are what make the news. The Wall Street Journal tells the story of Scott Mitchell of Connecticut, who purchased from Best Buy and Playstation 3 for his two sons ages 10 and 14.The company let him know via an email that the goods didn’t arrive. He was furious and wouldn’t stop posting diatribes against the company. Eventually, the suits got involved and sent him his full bundle of goods at a low price plus a $200 gift certificate.
“While I can’t say I’m happy, I wound up being satisfied,” Mr. Mitchell told the Journal.
The case was cited as one of many such cases. Consumer demand was so intense that Best Buy got behind. The company didn’t have the inventory it needed to fill all requests. Cyber Monday overloaded the staff and they couldn’t respond fast enough. Any business that hears the story thinks: nice problem to have. Inventory decisions like this require daily clairvoyance.
What’s more important here is what this anecdote indicates about the social order. In this setting above, who is in control? Mr. Mitchell is just one lone guy with one problem with a company that serves untold millions. But he had a voice and his voice was heard. The company scrambled to please him.
Justice was served, and not because he was part of a big pack of people going to voting booths once every four years. There were no hearings, committees, testimonies, debates, complex systems of legislation and signings, judges and juries, regulations and legal rights. He was served because he was a consumer. One man with a credit card beat the system.
The institution that allows this great thing to happen is known as consumer sovereignty and it is an intrinsic part of the market. The preferences and rights of one individual prevailed even though he was not in the majority, even though he never registered for any system in a political apparatus, even though he had no lobbying firm or friends in high places. He complained and the giant corporate monolith bowed to his wishes. And they did so for self interested reasons. It’s bad for business to have dissatisfied customers. So the the corporate execs fell to their knees in supplication.
This is a good system. Who set it up? No one. There was no votes, no constitutions, no committee hearings, no lobbying. It emerged spontaneously from the decisions of self interested parties. The company exists to make a profit by finding ways to get goods to people who want them. Mr. Mitchell was among those who decided on his own volition to trade with the profit-seeking company. That trading relationship is one of billions and billions that go on every day, all day, all year. Put them all together and you have what is known as the market economy.
Philosophers from the ancient world to the present have tried to imagine how to set up a society in which every individual matters, a society without exploitation, a society without violence, a society with peace, justice, and prosperity. They have usually imagined that this world would have to emerge from the political process. That is where their speculations and plans usually begin. They were and are wrong. The society that does these things is right before our eyes and found within the framework of our own choices, actions, and trades with others.
We are often told about the evils of corporate power and the grim nightmare of the market in which we are all swallowed up by the forces of materialism and consumerism. Where is there evidence of any of this in the sphere governed by voluntary exchange?
In the market economy, the buyer is the decision maker. He or she determines what gets produced, how much, and directs the pattern of change. The supposedly powerful fat cats of the corporate world are daily submitting to the wishes of the little guy with a computer and a credit card. Any company in a market can be shut down in a matter of weeks if the consumers switch loyalties. This happens every day.
Nothing like this system exists in our dealings with the state. For years now, masses of people have been screaming about the indignities imposed upon us by the TSA. The TSA responds with a propaganda blitz designed to make us believe that they are strip searching us electronically for our own good. The institution doesn’t comply with all our wishes much less the wishes of one person. Instead it sets out to change our thinking, trying to make our mental habits conform to those with the power.
In other words, the TSA operates on the opposite principle of the free market. In the market, we are in charge and the producers slavishly attempt to find out what we think and try to conform their operations to our point of view. In government, we are told that we are the ones that must change. We must submit. We must comply. We must go along no matter what. We can choose to be grumpy about it or happy about it, but, in either case, there is no choice. We must obey. And the institutions of government never really go away.
And so it is with every government agency at all levels. The little guy doesn’t matter. There is nothing like the consumer/producer relationship that we see in operation in every instant on the market economy. Instead, the government takes our money by force and spends it as it wishes. If we don’t like the system, we are invited to slog our way to designated spots every four years and choose among a slate of drones who want to be our designated leaders.
Government vs. the market: which system is better? Granted that neither system provides utopia. The real issue is: which system is better capable of self correcting in our favor? The market does this every day. There is a ceaseless struggle going on globally with the goal of winning us over as consumers. The market is always saying: “how can I help you?” The government is always saying: “help us or else.”
Looking at the choice here, it seems rather obvious that the market – as a particular application of the principles of choice and free association – is the best approach to organizing society. No one designed it. It is controlled by us in the very exercise of our free will to It gives power to the people. The statist approach can only lead to less satisfaction, less mutual benefit, less control, and ultimately the very nightmare that we all want to avoid.
Think of all that that market contributed to your holidays and all it will do for you in the year ahead. As a form of social organization, nothing is more deferential to your needs and wishes.
http://whiskeyandgunpowder.com/who-should-control-the-world/
Why Oil Prices Are Killing The Economy
by: Gregor Macdonald December 22, 2011
http://seekingalpha.com/article/315618-why-oil-prices-are-killing-the-economy?source=email_macro_view&ifp=0
"Oh, that was easy," says Man, and for an encore goes on to prove that black is white and gets himself killed on the next zebra crossing." ¯ Douglas Adams, The Hitchhiker's Guide to the Galaxy
Have rising oil prices just put the final coffin nail in the entire 2009-2011 economic recovery?
Given the slowdown in China, the new recession in Europe, and the rocky bottom in the U.S. economy, it certainly seems that way.
Oil's Relentless March Higher
Oil prices emerged from their spider hole over two and half years ago. Having fallen from the towering heights of $148 a barrel in the summer of 2008, the early months of 2009 saw a return to prices in the $30s. Interestingly, during that great oil crash, the price of West Texas Intermediate Crude Oil (WTIC) spent only 20 trading sessions below $40. That is the exact price that most analysts only three years prior believed oil could never sustain as the world would pump "like crazy" should prices ever reach such "impossibly high levels."
Given the enormous debt troubles the West is currently facing and the fact that oil has averaged over $100 during several months this year, it does seem reasonable to suggest that, once again, the economy has been pushed off a ledge by oil. Let's take a look at oil prices over the past several years.
(Click to enlarge)
Although they won't admit to it, many economists and older energy analysts have been simply blown away by the persistence of oil prices, especially in the weak economic environment post the 2008 crisis and financial market crash. How did oil prices manage to recover to $80 (let alone to $40 or $60), and make their way back all the way to $100? (And this is just a chart of WTIC oil. Brent oil has been even stronger the past year). Why, for example, has a 12% reduction in U.S. demand and weak economies elsewhere in the OECD not translated to much cheaper oil prices? Why did oil not simply flatten out in price, post 2008? After all, many claimed oil was nothing but another in a series of `Made in America' financial bubbles. With "no shortage of global supply" (as many said), and with a market "awash in oil" (as others said), why didn't oil prices simply go to sleep at, say, $50 per barrel?
Do Higher Oil Prices Really Cause Recessions? (Answer: Yes)
Before we unpack some of the factors behind oil's strength, I want to address the subject of oil prices and recessions. I think readers should be aware that some analysts reject any reflexive, easy causality between high oil prices and sharp contractions in the economy. There are a range of views on this topic, from those who embrace the idea of substitution to those who assert that oil prices and oil supply rise concurrently with movements in the economy.
Substitutionists tend to also be positive, or constructive, transitionists I might add. Many of these come from technical and engineering backgrounds, and often have very good exposure to economic theory. In their view, higher oil prices drive human innovation and spur entrepreneurs to create new technology. High oil prices for them are actually a positive. Understandably, they also want all subsidies and other externalities, which we pay as a society to the fossil fuel industry, to be phased out. And frankly, I sympathize with that view.
Meanwhile, analysts who see the relationship between energy supply and the economy as more equalized, more symbiotic if you will, tend to hold the view that if the economy demands more oil — and is willing to pay the price — then the earth will reliably "give it up" to the resource extractors over time. You can see this view very much at play currently, in the excitement over natural gas and also oil extracted from shale. Indeed, the learning curve, in which the hydraulic fracturing technique moved from experimentation to perfection, conforms very much to theory.
If one expands on these two schools of thought — human innovation that conquers limitations, and a symbiotic view of the economy and energy supply — it becomes rather easy to imagine that high oil prices present a real but rather small problem for the economy.
Of course, I take a different view.
Writing with my friend and colleague Chris Nelder at the HBR Blog earlier this fall, we warned of not one but two risks associated with stubbornly high oil prices. First, we referred generally to the history of oil spikes and recessions, noting that in the post-war U.S. economy, one generally followed another. For an economy that has been geared towards oil for many decades, this should come as no surprise, especially when energy expenditures rise over certain thresholds, as they did in the 1970s, and again more recently. But we also warned that an over-confidence had developed over the decades, especially in America, and that any pressure from energy prices was ultimately solvable. And we encouraged corporate management to be more skeptical of the idea that the global oil and gas industry would be able to continue bringing to market resources that most could afford.
One of the more thoughtful reactions to our essay came from Michael Levi at the Council on Foreign Relations. Levi called into question whether any reliable threshold existed, regarding energy expenditures to GDP, that would trigger recession once crossed. In a general sense, that strikes me as reasonable. And to clarify, the notion of proving a magical threshold — say, when energy expenditures to GDP rise above 5% — was not exactly our central point. Indeed, I would agree with Levi more specifically that the rate of change might be at least as damaging, if not more so, than any threshold. In "Does Expensive Oil Inevitably Cause Recession?," Levi also makes an additional point worthy of attention:
There is, however, a possible back door explanation for why high petroleum expenditures relative to GDP seem to correlate with recessions even if they don't do a good job explaining them: it is easier for petroleum expenditures to undergo big changes in short periods of time if they are starting from a high level. If, say, the price of oil rises 50% from a starting point where petroleum expenditures are 2% of GDP, the change in spending is 1% of GDP; in contrast, if the price of oil rises the same 50% from a starting point where petroleum expenditures are 6% of GDP, the change in spending is 3% of GDP. Whatever your transmission mechanism – supply side contraction, demand destruction, shifts in consumer preferences for durable goods – the 3% jump is going to be far more economically damaging than the 1% one. Indeed the years where oil spending was high but recession was absent generally come from a period where prices were fairly stable.
(Source)
As we look at the historical table from EIA Washington, showing expenditures to GDP from 1949-2010 (opens to PDF), illustrative to Levi's point are the levels from which we rose, starting in 2004. Because in 2003, the level was already sitting at 6.8%. But in 2005, it rose to 7.3%, and then reached the very high level of 9.8% in 2008. Today I am mainly concerned with the outlook to 2012, given that the global economy was granted only the most brief reprieve from high energy prices in 2009, before resuming in 2010 and this year, 2011. To provide the most to up-to-date data, let's also look at the chart, also from EIA Washington:
(Click to enlarge)
Understanding Causality
It is difficult to satisfy a demand for precision — when asserting that high energy prices, or fast rates of change in energy prices, or energy-prices-to-GDP thresholds — has caused a recession. The most significant hurdle lies in the organic complexity of the economy itself. With all of its political and cultural variances, and the mercurial nature of social moods and trends, how does one make certain claims about such a large system?
Some have suggested therefore that high or rising oil prices cause changes in GDP — and hence, recession. To try to put this in layman's terms, Clive Granger attempts to assert causality within a more uncertain matrix, saying essentially that certain events follow others reliably, but in a sequence where causality is difficult to quantify. As has been pointed out by some, Granger is unfortunately paired with the word causality, when in fact it is really a test or a method by which to determine predictability. (For some of the best work on energy prices and recessions, and Granger Causality, I point readers to the work of James Hamilton, who also runs the popular macroeconomics blog, Econbrowser.)
A broader discussion of the economic impact of energy prices would also include the problem of energy transition. Or, if you like, the broader subject of adaptation. For example, perhaps oil-induced recessions historically were exacerbated or ultimately made possible by policy mistakes. It once was the habit of central banks to raise interest rates in the face of higher oil prices. But what if the economy had simply been left to handle higher prices on its own? More recently, Ben Bernanke has allowed that the central bank cannot control oil.
"There's not much the Fed can do about gas prices per se. After all, the Fed can't create more oil. We don't control emerging markets." ~ Ben Bernanke, 2011
This suggests an evolution in thinking over his predecessors. Could the economy adapt better to resource price pressures if policy mistakes were not a feature of the economy?
I'm not so convinced of that, either. After all, the volatility in free markets can have its own deleterious effect on new investment. One of the most vexing features of any reliance on high fossil fuel prices alone, as a trigger for investment in alternative energy, is the volatility of prices. If those with capital are to be encouraged to invest in new energy technologies, many of which capture more diffuse energy — or which create energy, but at a higher cost — then there must be some confidence that cheap fossil fuels will not re-enter the scene, making new investment uneconomic. Encouragingly, that particular issue now looks more resolved than ever because the price of the master commodity — oil — which is still the primary energy source of the world, is now structurally higher and is almost certain to stay that way.
Asking the Right Question
And so, to answer the question, Do high energy prices cause recessions? I would say with full respect to uncertainty and causality, yes. Eventually, however, the energy transition away from fossil fuels will gather enough momentum that we will interpret high-energy prices differently: We will say they (helpfully) forced a necessary transition. But as we are so early in any global transition to alternatives, it would be better for economists, policy makers, and business to consider the Douglas Adams quote that's in the header of this essay. Trying to prove that black is white may be a noble effort, in the fullness of epistemology and causality, but in the short term it could get you run over in a crosswalk.
We face a more immediate question: Is the global economy headed back into recession in 2012? Almost certainly, I think.
I think you are pretty close.
No tomorrow or least not one anything like many would envision or wish for...
"With two political parties who hate each other"
They may or may not hate each other but they definitely serve the same masters and electing either produces the same result.