BOND BUBBLE - TIPS May Be First To Pop

MORGAN STANLEY: 'There's A Storm Coming' In The TIPS Market01-11-13 Morgan Stanley via BI

CORPORATE ZIRP FALLOUT - Cash MIS-Management, Capital MIS-Allocation and CAPEX Avoidance

Will CapEx Come Back? 01-11-13 UBS via ZH

Almost a year ago, we identified what the main stumbling block facing US (and global) corporations is in the New Normal ZIRP regime: namely:

CORPORATE STUMBLING BLOCKS

1. Cash mismanagement,
2. Capital misallocation, and
3. a serious lack of CapEx spending which leads to lack of revenue growth, secular declines in profits, further layoffs, and a broad contraction in corporate returns (absent the endless deus ex which is central-bank assisted multiple expansion).

We also identified what in our view was the primary reason for this misallocation, which said simply, is the Fed's monetary policy which forces corporate executives to focus on short-term gratification of shareholders via prompt return of cash instead of reinvestment into the business - a critical requirement to assure top-line stability and growth.

It got so bad that in 2012 numerous bond issues fared worse simply by stating the use of proceeds from refinance as CapEx and General Corporate Purposes instead of share buybacks or dividend recaps, in some ways converting the entire public capital market into one large private equity fund, where management works to keep their fleeting shareholders happy with dividend after dividend (instead of at least keeping the cash on the books). The results of our analysis have become evident in the subsequent quarters, when corporate earnings, profits and especially revenues not only pleateaued but have now in many cases reverted to contraction on a year over year basis despite seemingly near endless central bank largesse.

EPS 'BEATS' are driven from

• One-time restructuring charges (which are now recurring on a quarterly basis),
• Non-cash items, and most of all,
• Even more layoffs of workers: something which in turn continues to eat away at the heart of any given economy, forcing even more monetary intervention, and even more CapEx spending cuts.

PE EXPANSION

Because sooner or later multiple expansion in a world in which 1% GDP growth is "acceptable" will end.

This Supports Completely our Thesis at GordonTLong.com

above graphic from GordonTLong.com

UBS REPORT

At a broad global economic level the weakness of capex in recent months has been notable and troubling. It has been notable because the growth rate in capital goods orders in the US, Europe and Japan slipped into recession territory toward the end of last year (Chart 1 overleaf). And on our estimates global capital spending volume ground to a halt in the third quarter (Chart 2) even as global GDP eked out a modest gain (Chart 2). It has been troubling moreover given the role that capital spending plays in lifting the productivity fabric of the world economy and in fostering sustainable rates of economic growth. If developed economies are to ever weane themselves off their dependency on monetary and fiscal policy stimulus, private sector capital spending must push up a gear or two.

Tracing the causes of this recent recent weakness, however, is not that difficult. The slowdown in the world economy and the generic uncertainty about its future trajectory have depressed “animal spirits” in recent months. That has prompted companies to postpone or even cancel capital expenditure programmes. It is of note that heavy capital-intensive sectors - such as manufacturing – appear to have borne the brunt of the recent global slowdown.

Many non-manufacturing sectors, that are less capital-intensive, have fared much better (Chart 3). That incidentally helps to explain why  labour market activity in some economies, and most notably the US, has fared relatively well in recent months even as capital spending growth has faltered.

The weakness in capex can also be traced to policy uncertainty in the US, Europe and even China. In a recent survey of UBS company analysts over half (54%) believed that fiscal, monetary or euro membership uncertainty is delaying investment planning while only 9% believed that uncertainty is expediting planning (see ‘The Director’s Cut, Act 14, 8 January 2022). This link between policy uncertainty and capex can be seen empirically in the macro data in Chart 4 overleaf. It shows the level of G3 capital goods orders (from the US, Germany and Japan) against an index that captures policy uncertainty in the US and Europe. That index is inverted in the chart suggesting that greater global policy uncertainty has generally generated weaker capex levels over recent years (and vice versa). In relation to recent developments the analysis shows that uncertainty about economic policy reached a high point in the middle of last year. Capital spending subsequently weakened in response as many firms became more alarmed about the potential profitability of their capital spending plans.

Still, the outlook for capex from here ought to brighten a little. Forward looking indicators of global growth have perked up of late, including those that concern the capital-intensive manufacturing sector (Chart 5). Global trade growth in the meantime appears to be recovering partly thanks to a cyclical pick up in China. That as well ought to alleviate uncertainty about the global economic environment.

As Chart 4 additionally suggests policy uncertainty is not quite as extreme as it was in the middle of last year, partly thanks to last year’s initiatives from European policymakers and notwithstanding the intensity of recent US fiscal cliff negotiations. Those issues concerning the outlook for Europe and US fiscal policy clearly need to be become less politicized in the period ahead, however, if the outlook for capex is to brighten more. It perhaps goes without saying that credit restraint needs to become less pervasive in Europe as well for capex in that region to embark on any meaningful recovery.

A final consideration on the capex front concerns the relationship between corporate profitability and capital spending in advanced economies, and most notably the US. Many observers have been perplexed about the lacklustre pace of capital spending growth not just over recent months but over recent years against a backdrop where many companies have been flush with cash and as corporate profitability climbed to new highs. This anomaly is not that perplexing though if the declining capital intensity of many advanced economies is taken into consideration (Chart 7). Sectors that spend heavily on capital equipment, such as mining and manufacturing, have declined in importance for many years in those economies. That capital productivity has been climbing as capital goods prices have been falling (Chart 8) has also been of huge  importance in explaining why aggregate corporate cash surpluses have been so high even as aggregate capital spending has been fairly subdued.

Click to Enlarge

Click to Enlarge

PATTERNS - Parallel Rises

Is 807 The Number Of The S&P 500 Beast? 01-10-13 rad Wishak at NewEdge via ZH

In today's WTF moment, we note that the inexorable rise from the March 2009 lows to the most recent September 2012 highs has created exactly the same 807 point rise that the last bubble-blown levitation managed(from October 2002 to October 2007) . Curiouser and curiouser... and from a suspiciously devilish 666 low print, we can only hope our behavioral biases can cope with these glimpses.

(h/t Brad Wishak at NewEdge)

EQUITY and BOND FUND FLOWS - Emerging Markets Set Record

Investors Are Staging One Of The Biggest Moves Into Equities Of All Time 01-11-13 BI

CANARIES - 1970 Pattern Comparisons

CITI: These Charts From The 1970s Make Us Think A 20% Drop In Stocks Is Coming 01-11-13 CITI via BI

RETIREMENT - Changing Landscape and Expectations

Five Disturbing Statistics About Retirement 01-11-13 via ZH

To all Americans in their twenties, thirties, forties, or even fifties, naively looking forward to their retirement, we have two words: "good luck."

One look at the flow chart below and we can't help but wonder: just how many Americans actually follow the "plan" of what they should do to prepare for retirement. A million? Two? Less? And how soon before the government decides it knows what's best for everyone in this particular touchy topic - because since the US welfare system is now hopelessly broken and unsustainable, then the retirement "option" for virtually everyone is a non-starter - and begins imposing behavioral mandates, not to mention taxes, to "steer" the population into the proper "avenues" and "channels"?

EU ECB - Risk Shifted to Tax Payers in the Core

TARGET-2 Imbalances - "The Debt Crisis Is Eating Its Way Ever Further Into Europe's Core" 01-10-13 Pater Tenebrarum of Acting-Man blog via ZH

As Der Spiegel reports, capital flight from Southern Europe has stopped and even slightly reversed in recent months. This is a belated reaction – so it is surmised – to the 'OMT' announcement effect.

However, the move is still quite small at this stage, although we suspect that several officially unconcerned central bankers in the 'core' are letting out a sigh of relief that their TARGET claims haven't just risen even further.

“As recently as the summer of 2012, investors and those with savings accounts in crisis-stricken countries were moving their money out as quickly as they could. Billions of euros were withdrawn from accounts in Greece and Spain and banks in stable countries such as Germany put a cap on the amount of money they were willing to lend business partners in countries hit hardest by the euro crisis.

But since last autumn, this trend has come to a stop. Indeed, the most recent numbers indicate that a slight reversal is underway, with ECB statistics showing that deposits in Spanish and Greek banks have recently ticked upwards. Furthermore, Germany's central bank, the Bundesbank, reported this week that imbalances in Europe's so-called Target2 settlement system, in which euro-zone central banks and the ECB transfer money across the common currency union, have declined. As the euro crisis progressed, the system had become massively imbalanced, which could result in massive losses for countries such as Germany should Greece, for example, be forced to exit the euro zone.

Just prior to the ECB's massive intervention on the bond markets in August, 2012, the Bundesbank had Target2 claims worth €751 billion ($981 billion). But by the end of December, they had sunk to €656 billion. The imbalance is still dramatic, but the trend reversal provides cause for hope, particularly because it is mirrored by falling debts at the other end of the transfer system. Taken together, the combined Target2 debts owed by Italy, Spain, Greece, Portugal and Ireland shrank from €989 billion at the end of August, 2012 to €902 billion at the end of October. More current data is unavailable.”

Here is the chart that illustrates the situation:

The Bundesbank's TARGET-2 claims versus the TARGET-2 liabilities of the PIIGS as of end October

However, as Hans-Werner Sinn reminds us (Sinn was the first mainstream economist to ring the alarm bell over the growing imbalances in the central bank payments system), the calming of the situation is entirely due to the risks having been shifted, not to the risks having gone away. The ESM with its new power to finance e.g. banks directly, simply shifts more of  the risk to taxpayers residing in the 'core' countries. Quoth Sinn:

“The markets have been calmed because new ways have been found to make taxpayers in those European countries that are still healthy liable," Sinn says. He is not just referring to the bond purchases that could be undertaken by the ECB — purchases that taxpayers are ultimately liable for. Rather, he is also referring to new rules allowing the crisis backstop fund, the European Stability Mechanism, to provide aid directly to banks.

"The debt crisis is eating its way ever further into the budgets of Europe's core countries," he says. "But policymakers are celebrating the obfuscation of this fact as a success."

He certainly has a point.

Japan Will Monetize European Debt 01-07-13 Zero Hedge

Just when we thought America would be alone in crossing into the montary twilight zone where so many Keynesian lunatics have gone before, and where trillion dollar platinum coins fall from the sky right onto the heads of all those who have not even the faintest understanding of money creation, here comes Japan:

• ASO: JAPAN TO BUY ESM BONDS
• ASO SAYS JAPAN TO BUY ESM BONDS USING FOREIGN EXCHANGE RESERVES
• ASO: ESM PURCHASES WILL HELP TO STABILIZE YEN
• JAPANESE FINANCE MINISTER ASO SPEAKS TO REPORTERS IN TOKYO
• ASO SAYS AMOUNT OF JAPAN’S ESM BOND BUYS UNDECIDED

For those who have forgotten, the E in ESM stands for European (the S for Stability), not Japanese (Stability). Otherwise it would be, er... well, JSM. Keynesian at that. But yes - Japan will now proceed to "stabilize" itself by monetizing European debt. Because its own JPY 1 quadrillion in debt was not enough.

As for a rehash of the old lunacy, which just like the OMT has driven the JPY much lower on nothing but innuendo and speculation, and will end the second the BOJ's plan is formalized, we get:

• ASO WANTS STATEMENT ON BOJ, GOVT COOPERATION
• AMARI SAYS GOVT, BOJ TO COOPERATE ON PRICE TARGET

MONETARY MALPRACTICE - The Trillion Dollar 'Snake Oil" Coin Scheme

“in a world of thieves, the only final sin is stupidity.”

Regarding the Trillion Dollar Coin 01-09-13 Paul Brodsky QB Asset Management Company, LLC New York, NY

Speaking of monetary abstractionism, there has been recent talk of a fiscal gimmick called “The Trillion Dollar Coin,” (http://www.huffingtonpost.com/2013/01/09/platinum-coin-white-house_n_2442073.html)  in which a platinum coin valued at $1 trillion would be created by the U.S. Mint for the Treasury Department. Treasury would then rid itself of its pesky fiscal deficit in one fell swoop by simply keeping the coin on deposit at the Fed.

The TDC idea is a marvel of political imagination and public ignorance (and so it seems to have legs!). As with most clever illusions, the TDC is based on sound logical footing, one in fact we have argued in favor of: asset monetization. But there is a fundamental difference separating the Fed monetizing Treasury’s gold to devalue the dollar, followed by a re-pegging of dollars to gold at the higher fixed exchange rate (our idea), and assigning an arbitrary value to an asset no one else is allowed to own.

After declaring the coin to be worth $1 trillion there would be no market-based discipline. In its aftermath, twice or half the amount of global platinum could not be exchanged in the marketplace for double or half the amount of dollars. (It is reminiscent of the Weimar Germany scheme to back Papiermarks with agricultural land. Brilliant! Er, but how do its users exchange the money for the land?) Not only would it be difficult to value extant platinum, it would be almost impossible to value anything in the world (at least in dollars).

Once the coin were struck, it would become obvious to the global marketplace – producers, consumers, savers, investors and trade partners – that future global purchasing power would be left exclusively in the hands of the US Treasury. Treasury would be able to simply outbid everyone on the planet for everything.

We suspect the Japanese Ministry of Finance would soon mint a ¥100 trillion pair of chopsticks and put them on deposit with the BoJ. They could then purchase most if not all of the oil on the market today for future consumption! We are confident oil exporters would not raise their prices because they would have the magic chopsticks as collateral. And why wouldn’t all the world’s treasury ministries simply create priceless flux capacitors and use them to create all the taxes needed to self-fund their governments? (To do so Ben Bernanke would have to hand over its proprietary technology – the Fed “has a technology called a printing press…”)

Obviously, the TDC idea is a political ploy with a targeted mission: to rid the US Treasury of its debt ceiling, which is an increasingly frequent and embarrassing public reminder of government ineptitude. Everyone knows government-led de-levering is not a serious threat. However, the irony of the scheme and its MMT[1]/liberal Keynesian promoters could not be more delicious. The scheme exposes the forty year-old charade, otherwise known as the global monetary system, better than any mind-exercise we have been able to come up with.

As we considered the plan, Hunter S. Thompson’s observation sprang to mind: “in a world of thieves, the only final sin is stupidity.” Though the TDC idea would work from an accounting standpoint, it seems awfully unlikely Americans and the rest of the world would let the US Treasury enjoy a very visible monopoly on fraudulent monetary accounting.

Today The Very Serious People Found Their Alternative To Minting A Trillion Dollar Platinum Coin 01-10-13 BI

Minting a trillion dollar platinum coin to work around the debt ceiling is...

1. ... legal
2. ... economically sound
3. ... much better than a debt ceiling catastrophe

But the complaint from so many people is: It's just not serious! It's the work of impish trolls!

That people think it's silly has prevented many people from endorsing it.

But it seems that they recognize that a Plan B needs to be developed, and now they've glommed onto one: Printing IOUs to pay the bills.

The new campaign (which might be characterized as #PrintTheIOU) is the brainchild of Edward Kleinbard, who made his case in a NYT op-ed that came out last night.

He wrote:

However, there is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.

The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay. The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.

He's followed that up with a conference call this morning, in which he called the Platinum Coin an "embarrassment."

So here we are. The Serious People have found their Serious Alternative to the platinum coin.

The influential magazine National Journal -- which likened the Platinum Coin option to FDR illegitimately packing the Supreme Court -- has a writeup of the IOU idea, which specifically frames it as a non-loopy alternative to the coin.

The $1 trillion platinum coin seems too wacky; the 14th amendment too risky. But could IOU's be the solution to an impasse on raising the nation's borrowing limit?

Yes, and President Obama should publicly adopt the idea, Edward Kleinbard, a University of Southern California law professor and former chief of staff to Congress’s Joint Committee on Taxation, argues in a Thursday New York Times op-ed. If lawmakers can’t reach an agreement before the nation hits its debt ceiling--which could happen as soon as next month--then Obama should have a backup plan of issuing IOU's in place, Kleinbard argues.

The debate over the IOU or "Scrip" idea will continue, but here are the two big takeaways.

-- This is Plan B proposal that respectable people are comfortable with.

-- We've reached a new stage, where a lot of the discussion is not about if the debt ceiling will be raised, but how Obama will circumvent it if/when its not raised. Arguably that itself represents a loss of GOP leverage.

EU - The Economic Death Spiral Continues to Worsen

20 Facts About The Collapse Of Europe That Everyone Should Know 01-10-13 The Coming Depression blog via ZH

The economic implosion of Europe is accelerating. Even while the mainstream media continues to proclaim that the financial crisis in Europe has been “averted”, the economic statistics that are coming out of Europe just continue to get worse.

Manufacturing activity in Europe has been contracting month after month, the unemployment rate in the eurozone has hit yet another brand new record high, and the official unemployment rates in both Greece and Spain are now much higher than the peak unemployment rate in the United States during the Great Depression of the 1930s. The economic situation in Europe is far worse than it was a year ago, and it is going to continue to get worse as austerity continues to take a huge toll on the economies of the eurozone.

It would be hard to understate how bad things have gotten – particularly in southern Europe. The truth is that most of southern Europe is experiencing a full-blown economic depression right now. Sadly, most Americans are paying very little attention to what is going on across the Atlantic. But they should be watching, because this is what happens when nations accumulate too much debt. The United States has the biggest debt burden of all, and eventually what is happening over in Spain, France, Italy, Portugal and Greece is going to happen over here as well.

The following are 20 facts about the collapse of Europe that everyone should know...

#1 10 Months: Manufacturing activity in both France and Germany has contracted for 10 months in a row.

#2 11.8 Percent: The unemployment rate in the eurozone has now risen to 11.8 percent – a brand new all-time high.

#3 17 Months: In November, Italy experienced the sharpest decline in retail sales that it had experienced in 17 months.

#4 20 Months: Manufacturing activity in Spain has contracted for 20 months in a row.

#5 20 Percent: It is estimated that bad loans now make up approximately 20 percent of all domestic loans in the Greek banking system at this point.

#6 22 Percent: A whopping 22 percent of the entire population of Ireland lives in jobless households.

#7 26 Percent: The unemployment rate in Greece is now 26 percent. A year ago it was only 18.9 percent.

#8 26.6 Percent: The unemployment rate in Spain has risen to an astounding 26.6 percent.

#9 27.0 Percent: The unemployment rate for workers under the age of 25 in Cyprus. Back in 2008, this number was well below 10 percent.

#10 28 Percent: Sales of French-made vehicles in November were down 28 percent compared to a year earlier.

#11 36 Percent: Today, the poverty rate in Greece is 36 percent. Back in 2009 it was only about 20 percent.

#12 37.1 Percent: The unemployment rate for workers under the age of 25 in Italy – a brand new all-time high.

#13 44 Percent: An astounding 44 percent of the entire population of Bulgaria is facing “severe material deprivation”.

#14 56.5 Percent: The unemployment rate for workers under the age of 25 in Spain – a brand new all-time high.

#15 57.6 Percent: The unemployment rate for workers under the age of 25 in Greece – a brand new all-time high.

#16 60 Percent: Citigroup is projecting that there is a 60 percent probability that Greece will leave the eurozone within the next 12 to 18 months.

#17 70 Percent: It has been reported that some homes in Spain are being sold at a 70% discount from where they were at during the peak of the housing bubble back in 2006. At this point there areapproximately 2 million unsold homes in Spain.

#18 200 Percent: The debt to GDP ratio in Greece is rapidly approaching 200 percent.

#19 1997: According to the Committee of French Automobile Producers, 2012 was the worst year for the French automobile industry since 1997.

#20 2 Million: Back in 2005, the French auto industry produced about 3.5 million vehicles. In 2012, that number dropped to about 2 million vehicles.

One thing that these shocking numbers cannot convey is the tremendous amount of pain that many average Europeans are living through on a daily basis at this point. To get a peek into what life is like in Greece these days, check out this short excerpt from a recent Bloomberg article…

Anastasia Karagaitanaki, 57, is a former model and cafe owner in Thessaloniki, Greece. After losing her business to the financial crisis, she now sleeps on a daybed next to the refrigerator in her mother’s kitchen and depends on charity for food and insulin for her diabetes.

“I feel like my life has slipped through my hands,” said Karagaitanaki, whose brother also shares the one-bedroom apartment. “I feel like I’m dead.”

For thousands of Greeks like Karagaitanaki, the fabric of middle-class life is unraveling. Teachers, salaries slashed by a third, are stealing electricity. Families in once-stable neighborhoods are afraid to leave their homes because of rising street crime.

All over Europe, people that have lost all hope are actually setting themselves on fire in a desperate attempt to draw attention. Millions of formerly middle class Europeans have lost everything and are becoming increasingly desperate. Suicide and crime are skyrocketing all over southern Europe and massive street riots are erupting on a regular basis.

Unfortunately, this is just the beginning. Things are going to get even worse for Europe.

Meanwhile, those of us living in the United States smugly look down our noses at Europe because we are still living in a false bubble of debt-fueled prosperity.

But eventually we will feel the sting of austerity as well. The recent fiscal cliff deal was an indication of that. Taxes are going up and government spending is at least going to slow down. It won’t be too long before the effects of that are felt in the economy.

And of course the reality of the situation is that the U.S. economy really did not perform very well at all during 2012 when you take a look at the numbers. The cold, hard truth is that the U.S. economy has been declining for a very long time, and there are a whole bunch of reasons to expect that our decline will accelerate even further in 2013.

So if you are an American, don’t laugh at what is happening over in Europe at the moment. We are headed down the exact same path that they have gone, and we are going to experience the same kind of suffering that they are going through right now.

Use these last few “bubble months” to prepare for what is ahead. At some point this “hope bubble” will disappear and then the time for preparation will be over.

SHADOW HOUSING INVENTORY - Banks Soon to Start Unloading

Fannie Says Household Financial Situtation Outlook Slumps To Worst Since August 2011 01-07-13 Fannie Mae

The full details:

• The percentage who expect their personal financial situation to get
  worse over the next 12 months continued to rise, reaching 20 percent and
  the highest level since August 2011.
• Thirty-seven percent reported significantly higher household expenses
  compared to 12 months ago, a 3 percentage point increase over the past
  month and the highest level since December 2011.
• At 39 percent, the share of respondents who say the economy is on the right track fell by 5 percentage points from last month’s survey high.
• Twenty-two percent of respondents say their household income is significantly higher than it was 12 months ago, a slight increase over last month and a 5 percentage point increase over September.

So, to recap, the US household's financial situation is bad and getting worse, with expenses "significantly higher" than a year ago.

BAC's 6+ month delinquent mortgages now amount to a whopping $64 billion

Fannie May was already in the news this morning courtesy of the $10 billion settlement announced between the GSE and Bank of America. Let's make it two in a row courtesy of the firm's monthly housing survey in which one aspect, the ongoing expectation that home prices will continue to rise driven by the recent momentum, should come as no surprise: there is always hope that this dead cat bounce is different and unlike the previous three, and will result in something substantial. It won't, once all those millions of properties held on bank books and generating zero cash flow (remember: BAC's 6+ month delinquent mortgages now amount to a whopping $64 billion) are unleashed on the market once the subsidized housing price is perceived as sufficient by most as a new, and satisfactory, clearing price. What was surprising was the consumer outlook on the economy and personal finances, which was diametrically opposite, and in fact those who expect that their personal financial situation will get worse in the next 12 months rose to the highest since August 2011

UNDERSTANDING WASHINGTON DC (District of Corruption)

PUBLIC POLICY - Views on Politicians Just Get Lower and Lower

01-08-13 George Washingtonblog via ZH

We’ve previously noted that Congress is less popular among Americans than Communism, BP during the Gulf oil spill, Nixon during Watergate or King George during the American Revolution.

Public Policy Polling has a new poll out showing that Congress is less popular than:

• Cockroaches
• Lice
• Root Canals
• Colonoscopies
• Traffic Jams
• Used Car Salesmen
• or Genghis Khan

The poll did not examine whether – as in China – politicians are viewed as less trustworthy than prostitutes.   But given that regulators sleep with industry-bought prostitutes, it is hard to tell where one ends and the other starts.

Postscript:  Obviously, my comparison of politicians with prostitutes is not factually correct, is over-the-top, unfair and offensive.  We extend a sincere apology … to the “professional” women.

Politicians are not prostitutes … they are in fact pimps.

STUDENT LOANS - Here Comes the Student Loan Baliout

Here Comes The Student Loan Bailout 01-07-13 Zero Hedge

"Pay as You Earn Repayment Plan"

2012 is the year the student loan bubble finally popped. While on one hand the relentlessly rising total Federal student debt crossed $956 billion as of September 30, and was growing at a pace that will have put it over $1 trillion by the end of 2012, the one data point confirming the size, severity and ultimately bursting of this latest debt bubble was the disclosure in late November by the Fed that the percentage of 90+ day delinquent loans soared from under 9% to 11% in one quarter.

Which is why we were not surprised to learn that the Federal government has now delivered yet another bailout program: this time focusing not on banks, or homeowners who bought McMansions and decided to not pay their mortgage, but on those millions of Americans, aged 18 to 80, that are drowning in student debt - debt, incidentally, which has been used to pay for drugs, motorcycles, games, tattoos, not to mention countless iProducts. Which also means that since there is no free lunch, all that will happen is that even more Federal Debt will be tacked on to replace discharged student debt loans, up to the total $1 trillion which will promptly soar far higher as more Americans take advantage of this latest government handout. But when the US will already have $22 trillion in debt this time in four years, who really is counting? After all, "it is only fair" that the taxpayer funded "free for all" bonanza must go on.

The latest debt bailout, not surprisingly is not titled "Yet another taxpayer funded bailout for those who bought things they can't afford on credit" as that would not be very politically prudent, especially for those politicians who still have taxpaying citizens as their voters. Instead, its name is the much more PC: "Pay as You Earn Repayment Plan." Alas, it really should be called the former, because what it does is it incentivizes Americans to borrow even more Federal student loans, well aware that there will now always be a cap on the associated monthly interest payment which will never leave a mark regardless what the full underlying loan notional is. It also provides for full debt discharge should the borrowers end up with cushy Federal jobs - because the one thing the US government needs afford is more debt-saddled government workers.

What is the "Pay as You Earn Repayment Plan"? The WSJ explains:

A new federal program should make it easier for some recent college graduates to keep their student-loan payments manageable.

The new option, known as the "Pay as You Earn Repayment Plan," lets eligible borrowers sharply lower their monthly loan payments and qualify for loan forgiveness quicker than they might otherwise.

"It's a very good safety net for students who borrow too much," says Mark Kantrowitz, publisher of the financial-aid site FinAid.org. "If your debt exceeds your annual income, you will probably benefit."

Pay as You Earn, which took effect on Dec. 21, "is designed to help offset the effects of the recession for student borrowers most likely to take a hit in this tough job market," says Lauren Asher, president of the Institute for College Access and Success, which has pushed for the creation of income-based repayment plans.

Which in the New Normal, means everyone with a student loan will benefit. It also means, that courtesy of knowing this safety net is there, more and more people will take advantage of the government's latest generosity with other taxpayer's money.

What are the terms of this new bailout?

The new program comes at a time when rising student-loan balances—amid a still shaky job market—have weighed heavily on many families.

Typically, federal student loans must be repaid within 10 years. At current interest rates, that can work out to a monthly payment of roughly $300 for a borrower with $26,000 in debt.

Pay as You Earn, by contrast, limits student-loan payments to 10% of "discretionary income" as defined by government formulas. Borrowers who make regular payments could have the remaining unpaid amounts forgiven after 20 years.

So much for student debt being non-dischargeable: borrow hundreds of thousands, but make your monthly payment of a hundred or so bucks, and in 20 years you will be debt free, courtesy of US taxpayers. Actually, scratch that: one doesn't even have to make a payment!

In some cases, borrowers with low incomes could be required to make a zero-dollar payment and would still be considered current on their loan. Monthly payments can increase or decrease each year based on the borrower's income and family size.

For those who think getting full debt forgiveness in 20 years is far too long, why there's a loophole for that too: just go "work" for Uncle Sam:

Borrowers with public-service jobs may qualify for loan forgiveness after just 10 years.

As for eligibility "constraints":

To be eligible for the program, borrowers must have taken out their first federal student loan after Sept. 30, 2007, and received at least one federal student loan after Sept. 30, 2011. Borrowers also must meet eligibility cutoffs based on the size of their debt, their discretionary income and family size.

The U.S. Department of Education's Pay As You Earn calculator, available at studentaid.gov, can help you determine if you qualify. Borrowers can apply for the program online or by contacting the loan servicer that collects their payments on behalf of the federal government.

In other words, virtually all people who were responsible for the diagonal take off in the Federal student loan total in the current depression are now eligible for what will eventually be full debt discharge.

So let's get this straight:

1. go to some "everyone who applies is admitted" community college
2. take on the biggest Federal loan one can get
3. use the proceeds for everything besides the tuition (of course)
4. be unable to find a job after graduation (naturally)
5. plead poverty, accusing evil employers who don't hire those who majored in Foosball, and make "zero" payments while remaining in "compliance"
6. get a job working for the government, wait ten years, and have the entire loan magically disappear.

And there it is: incentives for the common, and very much broke, man in the New Normal.

If there is anyone out there who thinks this will not result in a "charge it" feeding frenzy and that the Federal student loan total will not go absolutely parabolic going forward, please raise your hand.

Of course, what is not discussed, is who is on the other side of all those forgiven loans. And the answer, dear taxpaying US readers, is starting at you in the mirror. Because all the Federal government will do is transfer the unfunded obligation, which has already been used to satisfy the purchase of goods and services, from one individual to the whole group.

But when one is dealing with the government of a country that is no longer even fit to be defined as "banana", what is adding one more trillion between already insolvent counterparties.

Finally, yes, this means the Fed just tacked on one more year of QE to its $1 trillion/year in US debt monetization, which also means the Fed's balance sheet will now also be used for to fund student loan forgiveness, among so many other things.

Insolvent students of the world, unite!

CONFIDENCE - Business Confidence and CAPEX Investment Continue to Worsen

Small Business Optimism Stagnates (Even Before Higher Taxes) Lance Roberts of Street Talk Live, via ZH

PATTERNS - Repetitive Macro Pattern

2013 - Macro Deja Deja Vu 01-11-13 Zero Hedge

Ever feel like we have been here before? Overwhelmed by the chatter that this time is different and the 'recovery' is self-sustaining? Join the crowd (and Goldman). Their MAP indicator - which tracks both absolute (up/down) and relative (beat/miss) moves in macro-economic data - is once again at a level that in the last two years has perfectly marked the tipping point in expectations and absolute macro performance. While the markets (in their infinite wisdom) appear convinced - just as they were in 2007 - perhaps 4 weeks in a row of weakening claims and a gross downward revision of Philly Fed is a glimpse that it really is no different this time.

Chart: Goldman Sachs

US MONETARY - Big Picture Understanding

How the Federal Reserve is Showing Financial Fear 01-04-13 Elliott Wave International

Have you heard about the Fed's 180 degree turn?

Think about one of those movie scenes when the leading man does all he can to defeat the big, bad enemy -- punches, kicks, slams, stabs, shoots -- but the bad guy just won't go down. In fact he doesn't even look fazed. That's when the protagonist really starts to worry. In real life, that's where the Federal Reserve finds itself today.

The central bank has thrown everything in its arsenal at the economy, but most key economic metrics have barely budged. In the epic struggle, the Fed's policy has been turned upside down.

In the latest Elliott Wave Theorist, Bob Prechter noted:

The Fed has changed its policy, and it has done so in dramatic fashion. Look at this history of what the Fed has done.

Prechter continues his commentary:

You can go all the way back to 1929, and [the Fed] was doing what its job is supposed to be, which is to put dampers on exuberance and only make money easier when the markets are down and the economy is contracting.

Following that plan, the Fed raised the discount rate in 1929 to 6%. Here at the 1937 high, it raised margin requirements and bank reserves. In the 1968 bull market, when the public was excited about stocks, the Fed raised margin requirements and raised the discount rate to 6%. In 2000, right at that high, the Fed again raised its discount rate to 6%. In 2006, when the housing market was topping, and a year before stocks topped, it raised it to 6¼%.

What is it doing now? The market is right back in the rarified areas that it was when the Fed dampened speculation, but now the Fed is doing the opposite. Not only has the Fed not raised the discount rate to 6%, or even to 1%, but it is keeping the Fed funds rate at zero, and it is promising a 0% Fed-funds rate through 2015, three whole years.

This 180-degree turn tells me that the Fed is in a panic.

The Elliott Wave Theorist, Special Video Issue, October 2012

If the Federal Reserve itself is frightened about the financial future, perhaps you should be concerned too.

INFLATION - Is First and Foremost a Monetary Phenonemon

Inflation Since The American Revolution 01-08-13 Michael Krieger of Liberty Blitzkrieg blog via ZH

As is clear by this chart, inflation was virtually unheard of until the Creature from Jekyll Island (the Federal Reserve) took over.  However, more importantly, things didn’t really start to get bad until the 1970?s right afterNixon took the nation off the gold standard in 1971.  Since that time, America has seen a period of non-existent real wage growth and a huge gap grow between the rich and the poor ever since.  Nothing like livin’ the debt slave dream!

Match to Long Term DJIA Chart ABOVE and Fed Actions

MARKETS - Public Volume Flees But Bank Prop Desks Pick Up Slack With Fed Reserves

A Record $220 Billion "Deposit" Injection To Kick Start To The 2013 Market 01-11-13 Zero Hedge

When people talk about "cash in the bank", or "money on the sidelines", the conventional wisdom reverts to an image of inert capital, used by banks to fund loans (as has been the case under fractional reserve banking since time immemorial) sitting in a bank vault or numbered account either physically or electronically, and collecting interest, well, collecting interest in the Old Normal (not the New ZIRPy one, where instead of discussing why it is not collecting interest the progressive intelligentsia would rather debate such trolling idiocies as trillion dollar coins, quadrillion euro Swiss cheeses, and quintillion yen tuna). There is one problem, however, with this conventional wisdom: it is dead wrong.

As we explained in "Dear Steve Liesman: Here Is How The US Financial System Really Works", in a day and age when i) the Fed has to step in and fill the void of deposit creation left by traditional bank lending, which has been dead for the past 4 years, via reserves, and ii) commercial banks like JP Morgan can step in and use this deposit excess (i.e., direct fungibility of excess reserves) for investment purposes, a surge in deposits means one simple thing: the banks have more dry powder to invest as they see fit.

Don't believe us? Believe the Federal Reserve of the United States instead:

[B]anks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets - loans and investments.

...

Deposit expansion can proceed from investments as well as loans. Suppose that the demand for loans at some Stage 1 banks is slack. These banks would then probably purchase securities. If the sellers of the securities were customers, the banks would make payment by crediting the customers' transaction accounts; deposit liabilities would rise just as if loans had been made. More likely, these banks would purchase the securities through dealers, paying for them with checks on themselves or on their reserve accounts.

Source: "Modern Money Mechanics", Chicago Fed, 1961

We realize that this is diametrically opposite to what the general public has been indoctrinated by the Fed and its explanation of how excess reserves are used by banks, not to mention by an insolvent federal deposit insurance corporation, because imagine the panic that would ensue if people were to realize that the money they dutifully earn and save, and then deposit in a bank in a checking or savings account where it is assumed to be safe, is actually used as funding for ultra risky trades by firms like JPM's London-based Chief Investment Office (as JPM itself showed precisely happened), for example allowing a bank like JP Morgan to buy the stock or bonds of a bank like Goldman Sachs?

And after all, when one strips away all the different schools of meaningless philosophic thought, and the quasi-religious monetary dogma, in this modern age all money (and reserves), whether low-powered, high-powered, M1, M2, is really just electronic 1s and 0s in some mainframe, resulting from credit creation, either by commercial banks, or by the Fed, either under traditional or shadow bank conduits, which can be repoed, re-repoed, hypothecated, re-hypothecated at a whim, and a moment's notice.

Yes folks: this is money, it is not a philosophy textbook, and money will do whatever it is told, not what some archaic monetary school of thought allows it to do.

So when one puts all of this together, what does it mean from a fund flow perspective?

Simple: the Fed purchases assets on an unsterilized bases, as it started doing with QE3 but especially following the expiration of Twist when it is now adding $85 billion to its balance sheet on a monthly basis, the result is excess reserves, which appear on bank books as excess deposits over loans. Then commercial banks take a hint from the JPM CIO (which in turn was simply caught doing what banks have always down with excess reserves throughout history, and especially since 2008) and use the funds to buy risk assets.

Period. End of story.

Certainly the story that claims "money is on the sidelines" when talking about bank deposits: absolutely incorrect - money sitting in deposits is used by the banks to ramp the market, courtesy of the unwind of Glass-Steagall.

Which is why tracking deposit flow data is so critical, as it provides hints of major inflection points, such as when there is a massive build up of deposits via reserves (either real, from saving clients, or synthetic, via the reserve pathway) which can then be used as investments in the market.

And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history.

So the next time someone asks you how it was possible with retail investors fleeing the market in droves (see relentless, 24 week straight outflows from domestic equity mutual funds) and putting their money in other assets, or money markets, or, alas, in the "safety" of bank accounts, that the market experienced its biggest move higher ever to start the new 2013 year, now you know.

Oh and thank Bernanke for creating $85 billion in 'deposits' each month which will be used by banks to, what else, buy stock

CORPORATE EARNINGS - Cyclical Highs

What If Corporate Earnings Have Topped Out? 01-08-13 Charles Hugh-Smith of OfTwoMinds blog via ZH

The market may have reached cyclical highs in corporate earnings. That does not bode well for additional stock market advances.

Note that real earnings (CPI adjusted) in '09 fell to the levels of the 1920s-30s, 1890s, and 1870s, and to the levels of the 1970s in nominal terms. A "typical" cyclical decline would take earnings back to the long-term trend from 1932 and the log trend line at $40s-$50s from $87 today. 

Also, recall that the Fortune 300 firms have revenues equivalent to 50% to 100% of private GDP at $425,000/employee, so they are the economy. A decline of 50% for profits would be the equivalent of 10% of private GDP, which would match or exceed the decline in '08-'09, risking an increase in the Unemployment rate of 50-100% and a fiscal deficit exceeding 100% of tax receipts after Social Security and Medicare receipts.

Reported earnings of the S&P 500 (SPX) are highly cyclical with a periodicity of ~51 months. Earnings are contracting year-over-year (yoy) as occurred in late '07 and early '08, early '01, etc. Profits as a percentage of GDP at 10-11% are 65-70% above the historical average and 130% above the historical average during recessions and bear market troughs, implying the risk of up to a 55-60% decline in profits and profits as a percentage of GDP, i.e., a roughly $1 trillion decline or an equivalent of 10% of private GDP.
The 10-yr. average P/E and 16- and 20-year real changes and real total returns to date for the secular bear market imply the risk of a crash at some point in the next 1/2 to 4 years and no real change to the S&P 500 for 20 years, indicating just how grossly overvalued stock prices are historically.

4th Quarter Earnings Will be an Unmitigated Disaster (EconMatters)

SHILLER PE - 5 Year Shiller Returns Correlation

The Predictive Power Of The Famous Shiller PE Ratio 01-08-13 BI

Q4 2012 EARNINGS SEASON - Divergences Need to Be Reconcilled

The Three Key Charts Before The Launch Of Earnings Season 01-07-13 Zero Hedge

A total of 22 companies, 4% of the S&P 500 market cap, have reported 4Q12 results. Of these, 64% have topped revenue estimates and 68% topped earnings estimates (considerably lower than average). Aggregate earnings results have exceeded estimates by 1%, revenues have missed by 0.5%, and blended margins are down 12bps y/y. As Barclays' Barry Knapp notes, the last several quarters, earnings seasons have generally been characterized by revenue misses, earnings beats (but by a shrinking amount), and negative guidance; as a result, there has been a negative skew to stock prices. In other words, in the immediate  aftermath of the report, earnings beats are marginally outperforming the market, while misses get hammered, primarily due to weak forward guidance. The sustainability of earnings growth remains key given the weak top-line environment and these three self-explanatory charts should hopefully put some fundamental color around the perspective thatearnings season will be a negative for the market overall.

Top-down 'macro' and bottom-up 'micro' ain't believing it...

Expectations beggar belief...

and no matter what you are told, P/Es are not 'low' or due to re-rate anytime soon...

But don't stop believing...

PATTERNS - US Macro Surprise Index

What Happened The Last Four Times That US Macroeconomic 'Surprises' Hit A Three-Month Low? 01-06-13 Zero Hedge

The last week or two has seen Citi's economic 'surprise' indicator (ECO) take a decided turn for the worse. At Friday's close, the index that tracks not just absolute performance of the major macro prints but their relative performance to expectations, had hit a three-month low. Since the top in the S&P 500 in late 2007, the 3-month rate-of-change has shifted significantly negative four times - and each of these times has been followed by a significant downturn (or change of trend) in the S&P 500. As of Friday's close, the ECO index's rate-of-change shifted negative (its most negative in 5 months) and has signaled a quite intriguingly divergent lower high (from Q4 2011' previous peak) compared to the S&P 500's higher high. Is the short-term drop in ECO due to 'cliff' indecision? Or will earnings season be the market's catalyst to realize the changing macro landscape?

Late 2009 saw a period of very unusual absolute stagnation in macro data (while QE1's liquidty lifted stocks) but once the rate-of-change pushed consistently negative, the top was in for stocks in mid 2010.

The blue dotted-line indicates the lower high that macro data has shown during this latest cycle (as opposed to higher high in equities)

Chart: Bloomberg

VIX - Cost of Risk Plummets

Last Week, We Witnessed A Historic Collapse In The VIX 01-06-13 BI

STATISM - Constitution in Peril

The following from Brandon Smith of Alt-Market blog via ZH has been 'rebuilt' and modified by GordonTLong.com Original: Where Does The Hatred Of Constitutionalism Come From?

Most of us know about the suggestions by media entities and political opportunists (including Joe Biden) for Barack Obama to bypass congress and the Constitution, implementing possible gun restriction, registration, and confiscation through “executive order” like a common dictator.  There is an obviously brash and violent effort amongst political players today to mold our government into a godlike entity.

"The Constitution of the United States is an undeniably powerful document.  So powerful in fact, that it took establishment elitists with aspirations of globalized governance over a century to diminish the American people’s connection to it.  It’s been a long time coming, but in the new millennium, there is now indeed a subsection of the masses that not only have no relationship to our founding roots, they actually despise those of us who do!

There are a number of reasons for this dangerous development in our culture: 

• A public school system that rarely if ever teaches children about the revolution, the founders, constitutional liberty, or the virtues of individualism in general. 
• A mainstream media apparatus that has regurgitated endless anti-constitutional shlock for decades, attacking any person or group that presents a freedom oriented view. 
• A governmental structure that has become so corrupt, so openly criminal, that they ignore all aspects of constitutional law without regard, rarely feeling the need to explain themselves. 

As a people, we are surrounded daily by the low droning wash-talk of denigration and disdain for our principled foundations.  The wretched ghosts of collectivism and tyranny mumble in our ears from birth to death.  It’s truly a miracle that every man and woman in this nation has not succumbed to the mind numbing hypnotism…

However, our propaganda soaked environment is not the ONLY cause of our self destructive society; many people are themselves to blame.  Severe character flaws and psychological imbalances have left some open to suggestion, manipulation, and fraud.  Their hatred, though fueled in part by the socialization of the establishment, is still theirs to own.

The brutal ignorance on display in mainstream circles against the liberty-minded needs to be addressed.  In my view, the American public is being conditioned to see us as a convenient “enemy” which they can use to project all their internal grief and woe.  Our country is on the verge of collapse, economically, politically, and philosophically. 

Corporatized elements of our government and the financial high priests of the international banking sector are behind this calamity, and of course, they don’t plan to take responsibility. 

Who better to demonize as the catalyst for all the pain that is coming than the only people who have the awareness and the means to stand against the catastrophe?    

There is no doubt in my mind that a great conflict is near, between those of us who value liberty and constitutional protections, and those who would destroy them.  This battle is unlikely to be solved with words.  The anti-constitutionalist rhetoric is becoming so ruthless, so malicious, that it can only lead to a hardening of our own hearts, and an equally forceful response."

THE RULE OF CONSTITUTIONAL LAW

The Constitution is not just a legal document; it is also an emotional and spiritual document.  If one does not have a relationship with his own conscience and the concept of natural law, then he will discover little in the founding ideals of America that he agrees with.  Some people (usually corrupt politicians and judges) see the law as a weapon to be used against their ideological opponents, whereas constitutionalists see the law as a shield to protect us from such despots.  The Constitution and the Bill Of Rights are both designed to protect our Absolute Freedoms.  That is, freedoms that are inborn and which no person or government is qualified to give as a gift, or take as if they are a privilege.

Nothing angers those who seek power more than a legal framework which they are not allowed to touch, or shift, or “tweak” to suit their private ambitions.      

Constitutional protections are not meant to be subject to the “buts” and “what ifs” common in the lesser legal world.  They are not open to debate.  Our rights are not subject to the demands of the so-called “majority”.  Our rights are eternal, and unchangeable.  Anti-constitutionalists attempt to work around the absolutes of the document by implementing subversive law backed by flawed logic.  But, a law which destroys previous constitutional rights is not a law which any individual American is required to follow.  Even an amendment that undermines our civil liberties is not legally binding.  The freedoms put forth in the Constitution and the Bill Of Rights are SET IN STONE (and this includes the right to bear arms in common use of the military of our day).  They cannot be undone without destroying the very fabric of the republic.

INDIVIDUALISM versus FOLLOWING

Some people are predisposed to be followers.  They do not want to take responsibility for their futures or even their own actions.  They do not like questions.  They do not like dilemmas.  They want to be left to wallow in their own private prisons, where they are comfortably enslaved.

Constitutionalists are predominantly individualists.  We do not cater to collectivist fairy tales.  We do not seek to roll with the tide just for the sake of finding our “place” within the machine.  We do not care about “fitting in” with the mainstream.  This is often confounding and infuriating to those who have labored their whole lives to please “the group”.  They accuse us of being “isolationists” in response.  What they do not comprehend is that illusion and delusion have isolated THEM, while the truth has brought constitutionalists together. 

An ACTIVIST QUOTE:

I remember participating in an End The Fed rally in Pittsburgh in early 2008 which was, like most activist rallies, meant to expose the uneducated public to ideas they may not have heard before.  I found it interesting that around a quarter of the people who strolled by our picket line automatically sneered, as if by reflex, even though they had probably never heard our position, or even heard of the Fed.  It dawned on me that they were not angered by our political or economic views.  Instead they were angered by the mere fact that we were there.  We were vocal, and defiant, and a disruption to their daily robot-like routine.  They hated us because we were ruining their fantasy of disconnectedness. 

CANCER OF "POLITICAL CORRECTNESS"

For the past few decades our society has become engrossed with the idea of “proper language and behavior”.  Of course, their idea of “proper” usually involves ignoring the reality of a thing.  For a Constitutionalist, a spade is a spade.  They don’t bother with superficial niceties that get in the way of legitimate debate or legitimate change.  They are not “pleasant” and tolerant with those who would kill their freedoms.  They do not pull punches. They are direct, and sometimes, brutal in our analysis. 

In some parts of the Western world (especially the UK) language has become a game, a game of self censorship and deceit.  This game has made its way to the United States in recent years, and Constitutionalists don’t play.  They understand that every overtly collectivist society begins with the fear of open expression.  And so, our blunt honesty rattles those invested in the 'Politically Correct' culture.  Their ultimate and ideal revenge would be to see Constituionalists painted as social malcontents; like people who smoke in public, or wear a mullet…

COLLECTIVISM

Most people who seek to deny and destroy constitutional liberties tend to lean towards a collectivist philosophy. They are usually socialist, or a variation (Marxist, Fascist), and can be professed members of either major political party. Collectivists understand one thing very clearly; an America without the Constitution is destined to become a centralized country.

CONSTITUTIONALISM

There has never been and there will never be a better method of law and governance than that method which defends the individualism and freedom of the people.  The most fantastic of human accomplishments, in technology as well as in philosophy, spring from the nurturing waters of liberty.  Free minds and hearts create.  They refuse to be contained, and the Constitution gives us license to ensure that they will never be contained, even to the point of revolution. 

... the principles of the Constitution are not something we grasp at all times, but rather, something to which we aspire to, and grow into as our nation matures. They require patience, and wisdom. They force us to question our own “brilliance”, and our own egos. They anchor us, preventing us from being swept away in the storms of fear.

To deny constitutionalism, is to endorse oppression. 

Constitutionalists LOVE liberty and the mechanics of freedom.  They love the values of a sovereign republic and the opportunities that such a system provides when collectivists are removed from the picture.  There is no question or doubt in their minds; they would fight and die to protect the pillars of the Constitution. 

When confronted with this kind of passion, the average person is shocked and sometimes appalled.  The idea of unshakable will is frightening to them.  They are so used to compromising in every aspect of their lives that when they run into an uncompromising man, they reel in horror. 

That which they see as “fanaticism” is instead an excitement, a boundless joy, a fervent desire to protect something universal and precious.  What they see as “extreme”, Constitutionalists see as essential.

RULE OF LAW - Being Called IntRULE OF LAW - Being Called Into Questiono Question

Is American Justice Dead? 01-10-13 David Galland, Casey Researchvia ZH

Every nation-state has a body of laws woven into the fabric of society. As Peruvian economist Hernando de Soto has commented on extensively, the stronger the rule of law, the stronger the economy.

And by "stronger" laws, I mean laws that are impervious to tampering for personal or political gains. The connection between a sound judiciary and economic health is readily comprehensible, except maybe to a politician... businesses and individuals are far more likely to invest capital in a country with understandable laws that are impartially and universally enforced than if the opposite condition exists.

That's because the lack of a consistent body of law breeds uncertainty and adds a huge element of risk for entrepreneurs. That is the case here in Argentina, where hardly a week goes by without La Presidenta and her meddlesome comrades cooking up some new hurdle for businesses to overcome.

Which brings me back to the matter at hand – American justice on a slippery slope.

Few recent cases make the contention clearer than the announcement last week by the US Justice Department that it had settled its case against HSBC for acting as the bag men for Colombian and Mexican drug cartels. The fine, $1.9 billion, amounts to about five weeks of revenue for the bank.

And that was pretty much it.

Matt Taibbi of Rolling Stone magazine, who can run hot or cold when it comes to reporting, in my opinion, nails his column on the verdict, which you can read here.

The basic setup is that for years, at the highest levels of HSBC, the bank worked hand in glove with the drug cartels to launder their money. So smooth was their relationship that the drug gangs used special cardboard boxes for them to fill with cash – boxes that were designed to fit easily through the teller windows of the HSBC branches in Mexico.

Now, don't get me wrong – I am 100% against the so-called "War on Drugs." That there are hundreds of thousands of Americans in prison for the "crime" of voluntarily ingesting recreational drugs, or providing said drugs in a rare free-market transaction (there's a willing buyer and a willing seller and no regulations – at least none that anyone pays any attention to), is an abomination.

And so it is that the US has the highest prison population in the world, and by a wide margin: on a per-capita basis, it is 33% higher than the closest contender, Russia.

If you take into account everyone under "correctional supervision," 3.1% of the US population is either in jail or on probation (for blacks, it's a stunning 9.2%). According to Human Rights Watch, since 1980 the number of people in US jails for drug charges has increased twelvefold.

Yet, the money men for the murderous cartels that supply the stuff – the sort of fat-cat villains that serve as the centerpiece of every James Bond movie – get off with a hand slap.

How is this possible? The answer is that, just like the much-maligned "banana republic," the judicial system in the Anglo-Saxon world has been bifurcated into two systems – one for the politically favored and the other for the rest of us.

In the case of HSBC, the rationale for management being spared even a criminal trial, let alone years behind bars, is that the bank is too big to fail. And that should anyone within the bank be collared for their colossal crimes, it could provide the trigger for the widespread collapse of the global financial system.

To which an Anglo-Saxon from the UK might retort, "Bollocks!" This is rather a case of the politically connected and their equally politically connected, high-priced law firms twisting the judicial system to their purposes.

Another recent case is that of the LIBOR fixing scandal.

As you know, in this case a group of banks clearly conspired to rig the rates on the interest-rate index used to underpin over $300 trillion in loans. As the scandal was revealed, it was also revealed that top tax dodger and now US Treasury Secretary Tim "Timmy" Geithner was aware of the rigging as far back as at least 2007 when operating the Federal Reserve Bank of New York.

Yet Geithner's elevated position in the Obama administration meant that this inconvenient revelation quietly faded into nothingness. As did the clear implication that if Geithner knew about it, so did untold scores of others at the Fed and other institutions at the time.

Meanwhile, back in the present, instead of rounding up the heads of these institutions, it was announced this week that a handful of floor traders – the ever useful minions – have been fingered to take the fall. For the sake of the public show, I suspect the fall will be pretty hard.

Hell, the last time I checked, even Jon Corzine, who as a former senator and governor of New Jersey is the über-insider, is still a free man despite being the lead actor in the bankruptcy of MF Global and the subsequent looting of billions in customer funds. No one, except maybe Corzine himself, thinks that he isn't criminally complicit, yet, at this writing, there isn't even a hint he'll be prosecuted.

As David Webb has so thoroughly documented, a spate of cases over the last decade has set a clear precedent that financial institutions – at least those of a size to count with the political class – are pretty much free to lie, cheat, misrepresent, and even use their clients' funds to trade for their own book.

And if things go wrong, they can pass the losses on to the clients, or in the case of Corzine simply shrug his Savile Row-clad shoulders, and feign ignorance about where said funds went.

It Goes On… and On…

And the conniving and criminality doesn't stop at the judiciary but has infested pretty much every corner of the government.

A personal recent favorite was Hillary Clinton's oh-so-convenient bout of fainting that kept her from testifying about the truly bizarre attack on the Benghazi consulate, thereby skipping the direct damage to her career that would have resulted from having to answer the unanswerable in front of television cameras.

Then there's the sweetheart deal embedded in the soon-to-be-updated federal regulations related to mortgages. Given all the abuses leading up to the housing crash, John Q. might posit that there will be strong teeth in these new regulations. Sure, there's a couple – but lookie what else is in the new regs; this from the New York Times…

As regulators complete new mortgage rules, banks are about to get a significant advantage: protection against homeowner lawsuits.

The rules are meant to help bolster the housing market. By shielding banks from potential litigation, policy makers contend that the industry will have a powerful incentive to make higher-quality home loans.

But some banking and housing specialists worry that borrowers are losing a critical safeguard. Industries rarely get broad protection from consumer lawsuits, and banks would seem unlikely candidates given the range of abuses revealed during the housing bust.

Mind-boggling.

Skipping across the pond, we have the truly incredible case of Julian Assange, who is now a prisoner, surrounded by upwards of 100 police officers, in the Ecuadorian embassy in London where he's been seeking asylum.

At one point, a senior British official suggested they were seriously considering throwing hundreds of years of diplomatic precedent out of the window by storming the embassy to get their man.

Yet his purported crime, having consensual sex with two different women without a condom (in one case, he had one, but it apparently broke) would, at most, be treated as a minor offense in pretty much any court, in pretty much every country in the world. Unless, of course, he knew he had AIDS and was deliberately trying to transmit it, which he wasn't.

Do your own research, and maybe you'll draw a different conclusion – here's one fairly thorough story on the charges against Assange – but that the UK government is willing to spend untold sums of money it can't afford keeping him penned up in the Ecuadorian embassy smacks of collusion and corruption.

What's really going on, of course, is that Assange's WikiLeaks organization embarrassed the power elite by doing what the media no longer does – getting to the truth, in this case releasing a stash of embarrassing diplomatic cables.

While Assange is fighting the good fight, it's a fight against entrenched political interests, and so it's a losing battle. Aided by the corrupt judiciary or, failing that, the malleable military, it's just a matter of time before he ends up in a cell next to Bradley Manning whose tortured corpus is now on trial for giving up state secrets that were really not all that secret.

In economic policy, too, the evidence of two different systems is glaring. Look no further than the Fed's recent decision to light the afterburners on over a trillion in new money creation each year.

Whom does such a policy help? The politicians, of course, by allowing them to claim they "fixed" the economy that they broke in the first place… when all they are really doing is replacing the capital formation and spending of a healthy private sector with the polluted effluence of government disbursements.

Whom does such a policy hurt? The population at large, by eroding the value of everything they own and eviscerating their ability to earn money on their money through a free market in interest rates… all the while fostering yet more malinvestment in the Potemkin villages of an uneconomic solar industry, electric cars, high-speed trains, etc.

Make no mistake, the Fed and the government are keenly aware of the damaging consequences of their actions – but, out of self-interest, take those actions nonetheless.

The enviro-socialists that have bought their way into the corridors of power provide another array of examples, using laughably bad science and arbitrary rulings to disadvantage key sectors of the economy such as energy and mining.

There is little question that the vast majority of the public is ignorant or apathetic, or both, to the pervasive corruption of the political classes and their financiers.

But even if they were paying attention and outraged, the fact of the matter is that things have degraded to the point where there is next to nothing John Q. can do about it. Sure, you can write your Congressman; just be sure to be extra polite, or your letter will end up in the hands of zee Homeland Security.

Ditto if you write angry emails and send them to all your friends. Just don't make the mistake of thinking there is still such a thing as privacy or the right of free speech in the Anglosphere.

And heavens forbid you try to organize a physical protest. Next thing you know, you'll end up wearing a pair of these bad boys coming to your friendly police officer's belt soon.

(Not only do these next-gen cuffs restrain you, but they allow the arresting officer to remotely deliver electric shocks and, if that doesn't do the trick, even inject drugs into you.)

Of course, if your company or industry wants to fight it out in the courts, you have to be ready and able to spend millions in legal fees fighting a government with unlimited funds (provided, of course, by your taxes and money borrowed from the Chinese or ginned up by the Fed).

What I'm trying to say is that, regardless of what the popular corruption indexes show – and those are typically based on fairly suspect surveys on matters such as transparency in corporate reporting or whether bribes are required to do business – when you take into account the systematic skewing of the judicial and electoral systems to favor the entrenched politicos and their friends in high places, the level of corruption in the Anglosphere would make an African despot blush.

It's not an accident that the Republicans and the Democrats, two sides of the same coin despite all the rhetoric, are never remotely at risk of losing their collective grip on power – the system has been carefully and thoroughly rigged to prevent that from happening.

Logically, if there is virtually nothing the public at large can do about the rigged game they are forced to live with, then it comes down to decisions we make as individuals.

Some general approaches for your consideration.

1. Suck it up. The Stoic approach is to recognize there are certain things you can't do anything about, so put the hypocrisy and self-dealing of officialdom and their enablers out of mind and live your life the best you know how.

1. Profit from it. While it may seem counterintuitive, the more challenging the environment for business creation, the more money an especially hard-charging entrepreneur can make. This is why Asian shop owners open up in ghettos and why the margins for "war profiteers" are so high – because they literally have to risk life and limb to collect them.

   A successful acquaintance recently told me that, as the head of the Argentine branch of a major international electronics brand, his division was regularly able to pull down margins in excess of 40% while his counterparts in less volatile political environments were happy with less than 10%.

   It just takes an extra measure of patience and fortitude to overcome the challenges that scare less determined individuals away.

1. Move West… or South, but probably not North. A combination of #1 and 2 above, the brave minority might want to consider taking the show on the road.

1. If you can't beat them, join them. As Doug Casey has often pointed out, the effect of Pareto's Law operating over time on the large democracies has resulted in the worst sort of people controlling the levers of government at the federal, state and local level. If you happen to be a sociopath with control issues, then you might want to hop on the gravy train and worm your way into government, or into one of the many parasitic enterprises sucking the life from the body politic.

1. Go outlaw. Yesterday, a flash mob gathered in the southern Argentine city of Bariloche for the sole purpose of looting a large store of electronics, food and booze, and sundry other items that will make the Christmas holidays all the more festive.

   When I heard of the incident, I mentioned to my wife that this could very well be the proverbial first shot in the breakdown of civil society in cities around the world. And sure enough, as I was writing, the news broke that spontaneous mobs have formed in a number of cities around Argentina for the sole purpose of looting stores.

   This is precisely the sort of thing one can expect in an economy laid low by political corruption, malfeasance and self-serving meddling. When people lose hope, and lose faith that the judicial system will protect them from the entrenched interests, then it is well within the range of some of those people to just say screw it and go outlaw.

I could be wrong, but I think what happened in Bariloche yesterday has the potential to be just as seminal as the self-immolation in Tunisia that set off the Arab Spring.

The implications of mobs deciding to come together to just take what they want are potentially huge. In the Anglo-Saxon world, it could provide exactly the excuse needed to bring down the stainless-steel curtain built with hundreds of billions of homeland security expenditures over the past decade.

In fact, while I am probably overstating it, the action of the mob in Bariloche yesterday could be the missing link between Neil Howe's Third and Fourth Turning, ushering in the next and most troubled era.

It's ironic that it's happening in here in my new retreat in Argentina, but it's of no personal import because our new hometown of Cafayate is rural, small and very successful, and the sort of place where everyone knows everyone else. And, besides, there are no large supermarkets to raid.

In addition, despite the dark era of military rule (or perhaps because of it), Argentina is not a violent culture, and the big cities are few and far between. The same can't be said of places like Chicago and Detroit, where flash mobs have been increasingly cropping up with the primary intention of committing violence.

How fast and how far things will spread from here is only a matter of conjecture, but the range of possibilities is wide.

Regardless of whether the rule of law continues to be diminished through the acts of corrupt politicians or a mob – or through the militarized arm of the politicos trying to control the mob – I fear the knock-on consequences on the economy and on society at large.

I really don't want to be a Chicken Little, but taking some basic precautions to protect yourself and your assets is only commonsense at this juncture.

STATISM - How Indoctrination Occurs

The 9 Step Process Bankers Use to Force Global Slavery Upon Humanity 01-09-13 smartknowledgeuvia ZH

"None are more hopelessly enslaved than those who falsely believe they are free."- Johann Wolfgang von Goethe

Below is the nine step process bankers have used to enslave us all with nary a peep of resistance until recent times. Hopefully recognition of this process can help us to free ourselves from the grip of bankers that wish to financially destroy us all.

(1) Teach lies as truth like “markets are free” and “we need to spread democracy to the rest of the world.” Plant agent provocateurs in all movements of resistance like OWS to discredit these movements whenever possible.

Bankers teach lies like “free markets exist” throughout all business curricula taught in the institutional academic system. When Central Banks set artificial interest rates, this means the free market is not setting interest rates. Bankers are rigging stock markets, real estate markets, currency markets, and commodity markets all for their benefit only and to the detriment of all other humans on our planet. Furthermore, if you study democratic principles and whether governments that claim to be democracies actually abide by these principles, you will discover that most every “democratic” government operates on a fascist platform and not a democratic one. Stating that a free market co-exists in a country in which a Central Bank retains the monopolistic power to set interest rates is as impossible a relationship as the physics maxim that states two objects cannot occupy the same space at the same time.

Furthermore, bankers use the lies they teach in school to further other lies like the existence of Capitalism. Without free markets, Capitalism cannot exist. If free markets do not exist anywhere in the world because Central Banks, and not the free market, set interest rates, then by logic, Capitalism cannot exist. Yet, I’ve met brainwashed subjects at Occupy Wall Street protests in Hong Kong that argued that the basis of people’s economic suffering today is Capitalism and that Communism is the answer to the world’s economic problems. This false belief also allows wretched misanthropes like former Fed Reserve Chairman Alan Greenspan to deflect blame away from himself and write stupid articles full of lies like ”Don’t Blame Capitalism For All This Income Inequality”, an article in which he argues that capitalism and free markets should not be blamed for today’s global economic inequities between the bankers and the “have nots”. This typical reverse psychology ploy is one that banksters are notoriously fond of. By stating that you shouldn’t blame “capitalism and free markets” for global economic failures, Greenspan knows that since people don’t trust him, that they will fall into his trap and believe the opposite of what he says – that capitalism and free markets are responsible for the creation of massive global income inequities today even though neither “capitalism” in its purest sense nor “free markets” exist anywhere in the world. These clever psychological ploys also allow Greenspan to write the lie-filled article, “Fed Didn’t Cause the Housing Bubble”, and still have a large percentage of the masses gobble up and digest this disinformation without question like it was their daily breakfast cereal.

(2) Commandeer and effectively take over all control of global governments, mass media, state police, and federal military elements to suppress truth from reaching the masses.

Simon Johnson wrote about how bankers have taken over governments in his excellent article "The Quiet Coup".  These two excellent articles, here and here, explain how banks directed state police and government surveillance agencies to crush all dissent and opposition to their criminal activities. The fact that state police and government agencies bowed down to the bankers like subservient servants proves that these countries in which such incidences are taking place have long been far more fascist than democratic. Mussolini or Pinochet could not have asked for better cooperation and greater obedience from state police and government surveillance agencies than the bankers received.

(3) Take over the education system, design it to dumb down instead of enlighten the masses, and export this model to the rest of the world.

Western bankers have funded and exported to the rest of the world an institutional academic system that serves as a behavior modifaction camp responsible for dumbing down young adults and turning them into obedient, non-thinking worker bees. This is how you create a New World Order in which just a few thousand bankers can capably control 7 billion people and keep them in line and obedient at all times. See here for more information.

Bankers and industrialists like the Rockefellers and the Carnegies financed the development of our global education system during the American Industrial Revolution, and thus were able to promote the lies they wanted the masses to embrace such as the myth that America experienced a “revolution” in 1776 and that US President Abraham Lincoln ended slavery in 1863. The bankers were always happy to give the colonialists the illusion of gained “freedom” as an outcome of the “revolutionary” war in exchange for maintaining their control over the newly formed republic’s monetary supply. Thus, the Rothschild banking family quickly established the Bank of the United States (which has since become the US Federal Reserve today) through their colonialist agents in the United States in 1791. When this bank’s charter expired in 1811, Nathan Rothschild of the Bank of England and the Rothschild banking clan declared a grave warning: “Either the application for the renewal of the charter is granted, or the United States will find itself involved in a most disastrous war.” When US Congress chose not to renew the bank's charter, Nathan Rothschild responded, “Teach these impudent Americans a lesson. Bring them back to Colonial status.”

Even though African Americans were given their physical freedom in 1863, they were never granted their financial freedom by the bankers. How does Lincoln end slavery in America with his 1863 Emancipation Proclamation when just 50 years later, the bankers financially enslaved everyone with the founding of the US Federal Reserve. To declare that Abraham Lincoln ended “slavery” in America in 1863 is as big a myth as the lie that Columbus “discovered” a land called America. How does one “discover” a land that had already been inhabited for hundreds of years by millions of Indians? Furthermore, Columbus wasn’t even the first European to arrive in America as Vikings had beat him to this feat by hundreds of years. A.M. Reeves, N.L. Beamish and R.B. Anderson’s The Norse Discovery of America documented in great detail the epic and ferocious battles between the Vikings and the Native inhabitants of Vinland (the Viking word for America) as far back as the 10th century, about 500 years before Columbus stumbled upon America. So how did Lincoln end slavery and how did Columbus discover America? The answer to both questions is that they did not. The end of physical enslavement was merely transformed into a new kind of slavery - financial and mental enslavement. After the Rothschilds, the Rockefellers, the Warburgs, JP Morgan, etc. were able to form the US Federal Reserve in 1913, bankers extended their financial slavery empire over not only blacks, but also over whites, over Asians, and over Latinos, extending their empire of slavery all over the world. Thus slavery was never eradicated in 1863.

(4) Teach young adults that a tax on tea and a tax on stamps caused the American colonialists to hate the British monarchy and triggered a successful revolt in 1776, when it was the debt enslavement component of the monetary system and the bankers’ system of theft through numerous taxes that truly caused the revolt.

Benjamin Franklin desired that the colonies issue their own debt-free, interest-free money called Colonial Scrip. As I’ve explained in (3), the Colonialists lost this battle and thus, there was never a successful “revolution” against the bankers in 1776 though bankers have ensured, through control of our education system, that they teach the lie in all American schools today that America gained its independence on July 4, 1776. Just to make sure all Americans believe this, we celebrate this faux Independence Day every year as a national holiday. If Americans learned that the people truly lost the Revolutionary War in 1776, this might incite another revolution today. This is why the bankers teach the lie of the people winning the Revolutionary War in all American schools.

(5) Learn from the mistakes of Kings by hiding the robberies of citizens’ money and disguising this robbery as a silent tax called “inflation”. Transform the violent method of tax collection that lead to the beheading of past members of nobility during Medieval times into a passive method of automatic deductions from paychecks.

Bankers studied previous Kings’ taxation system such as Great Britain’s King George’s system and his use of armed soldiers to collect these taxes. In 1765, King George sent 40,000 armed troops to assure collection of taxes from his subjects and he forced the colonists to also provide living quarters and food to his troops or risk being shot and killed. Bankers studied this method and learned that this type of violent armed method of collecting taxes would always lead to violent insurrection and revolt. Thus bankers learned how to steal our money today in a passive manner that is not nearly as offensive as the method employed by previous Kings throughout history.

Today, all of us still provide the money for the living quarters of bankers and provide all the money to feed the bankers but we do not realize it. The bankers have employed the exact same system of robbery that King George instituted against the American colonialists that infuriated them, but were clever enough to change the method by which they execute their brazen theft and extortion. Today bankers extort money from all of us through automatic deductions from each pay check so that there is no need to send armed soldiers to collect taxes from those that might resist this scam. Furthermore, they deliberately devalue money and rob every single human on the planet through the implementation of a “silent tax” called inflation.

(6) Engage in huge disinformation and propaganda campaigns to convince citizens in every country that income tax is not flat out robbery and not equivalent to King George’s act of sending 40,000 soldiers to force colonists to turn their hard-earned money over to him.

Bankers have successfully sold this lie by misinforming us and telling us that we receive benefits from our income tax payments and that it would be “unpatriotic” to even think for a second to not pay our income taxes to the bankers. In fact, the reality unearthed by the Grace Commission report in January, 1984, under US President Ronald Reagan is this: "100% of what is collected [in income taxes] is absorbed solely by interest on the Federal Debt and by Federal Government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services taxpayers expect from government." What are transfer payments? Payments for programs like welfare but also payments for programs like the massive 2008 $850 billion banker bailout program. Who receives interest payments on the Federal Debt? 100% of interest payments on the Federal Debt are directly funneled into the private banking accounts of the private banking families that own the Federal Reserve. So who is receiving nearly 100% of all income tax payments of all citizens in every country in the world? The answer is that nearly 100% of our income tax payments are transferred to just a few powerful private banking families. In fact, the Grace Commission report even hinted that the government performed studies to determine the outer limits of income taxation that they could get away with before it would trigger a revolt among the taxed citizenry.

(7) Sell concepts like “nationalism”, and incite religious-based and race-based hate to divide and conquer people from uniting against a segment of society (bankers) that commits a long list of atrocities that would have landed anyone else in jail centuries ago.

Bankers have been able to convince many blacks to blindly and stupidly support President Obama just because he is black and to falsely call anyone that also doesn’t support Obama a “racist”. Bankers have been able to convince many Jews to blindly and stupidly support Zionist agendas and cowardly and falsely accuse those that don’t support Zionist agendas of being an anti-semite. Bankers have been able to convince many people to blindly and stupidly support false wars and government agendas and label anyone that does not also support these items as “unpatriotic”, “un-American” or “un-whatever-country-you-are-from.”

Yes, bankers are behind all these hate-filled campaigns because they know that they can successfully divide and conquer the masses and if they do so, that a divided opposition will never be able to defeat them. They have also used their puppet Presidents and Prime Ministers to often perform favors for police and the military, such as increasing their pay and benefits, to falsely gain the loyalty and protection of those elements of society that should be most opposed to them. Bankers have taken their cue from big druglords and underworld crime bosses that have used these same tactics to gain the protection and loyalty of their communities. In Philadelphia, mobster Joey Merlino used to give away turkeys to housing project residents every Thanksgiving and throw Christmas parties for the homeless to gain the loyalty of people in his community despite his murderous ways. In the more expansive criminal drug underworld, ex-cocaine kingpin Pablo Escobar was, and still is, considered a hero among many of the poor in Colombia for all the jobs he provided for them, not to mention all of his charity. In Mexico, the most violent druglord today, “El Chapo” Guzman, is often also viewed as a modern-day “Robin Hood” and a hero by the poor in Mexico and is afforded loyalty and protection among many of the poor for his many acts of benevolence for the poor.

However, it is a huge mistake of morality to overlook the massive crimes of our political and financial leaders for their “fake” charity work as it is a huge mistake of the poor to adore violent murderous druglords just because they make their lives better while they destroy the lives of millions. This very selfish attitude of “I don’t care what my leader does as long as he helps me out” even if he’s destroying the lives of hundreds of thousands, or millions of other people, is the very tactic that bankers choose to employ to effectively divide and conquer people. Instead of being loyal to someone just because of his skin color, religion, nationality or race, we all need to abandon our pre-disposed affinities for people that look like us or share our belief systems, and instead, start looking at these situations strictly on the basis of morality. We need to ask ourselves not the questions of mindless robots but rather tough questions such as,”Is what my President or Prime Minister doing moral?” If so, then support him. If not, then do everything you can to get him out of office no matter your race. Ask, “Is what my government doing moral?” If so, then support it. If not, then stop the stupid and divisive ad-hominem attacks against dissenters by wrongly labeling them as “unpatriotic” no matter your nationality. Ask, “Is Israel acting morally?” If so, support this nation-state. If not, then stop supporting it immediately no matter your religion.

It really is that simple. For people that are open minded enough to learn the truth about the ulterior motives of why the same bankers (Rothschilds) that were integral in founding the US Federal Reserve also were very integral in founding, and funding, the creation of Israel, as well as the Bank of Israel, watch Chapter 26 at 1:10:28 at Chapter 29 at 1:19:27 of this video. Though there are many things in this video I don’t agree with, I believe that these two chapters provide a legitimate explanation of how bankers have used the religion dissension surrounding Israel as part of their divide and conquer campaign against the entire world. These two segments are very careful to make the distinction between humanitarian, compassionate, authentic Jews and their misanthropic, inauthentic Zionist counterparts. In fact, I believe that the distinction between truly religious Jews and their radical Zionist counterparts is very similar to the distinction between radical Muslims and religious, moral Muslims and radical Christians and religious, moral Christians.

There are those that continually smear all Jews for many of the world's financial problems and not only do I believe this tactic to be wrong but I also believe that anyone that uses this tactic falls right into the banker trap of their divide and conquer strategies. The banker-funded Zionists are the small faction of Jews and non-Jews (US Vice President Joe Biden is a self-proclaimed Zionist) that need to be investigated for creating global financial problems. Though this point is likely to generate the most hateful comments and unjustified criticism of any of the nine points of this article, consider this point. If you agree with the other eight points of this article, would it be worth the risk to discuss something entirely false as true, and that could potentially discredit the rest of this entire article? The answer, of course, is no. I only included this point after much careful research convinced me that the facts surrounding this point were well documented and because I believed that this point is crucial enough to include in the 9 main points of this article for anyone desiring to understand the truth about how bankers divide us and keep us from unifying against them. Consequently, please have an open enough mind to consider the possibility of the truth of this point as well and research the facts before you close your mind to a view that may differ from the one you currently hold.

(8) Falsely teach people that paper fiat currency and paper derivative products offered by bogus gold and silver derivative markets of the LBMA and COMEX are better stores of value and purchasing power than physical gold and physical silver, even though the below chart displays the incredible progression in the prices of gold and silver every year in USD since 2001.

The London price-fix of gold has risen for 13 straight years and silver has risen 11 out of the last 13 years. Thus, it is completely bizarre that the vast majority of the investing public are still scared off by declarations of banking shills and commercial banking investment advisers that tout global paper stocks such as Chipotle Grill, Facebook, and Bank of America as better investments than physical gold & silver, which they describe as “risky”. Volatile, yes. Risky, no.

Because of (1) through (8), most citizens, especially those that live in the West and have been subjected to generations of banker propaganda, have no understanding of the fact that downside volatility in gold and silver is introduced artificially through computer HFT (High Frequency Trading) algorithms and bear no reflection upon the reality of physical gold and physical silver supply-demand determinants. Because nearly 100% of the things bankers teach us in school and through the media about the global monetary system and financial markets is a lie, I see, time and time again, masses of people befuddled by gold and silver price movements to the downside that have no fundamental basis of explanation and that can only be explained by banker manipulative games. This occurs among those of us that have no understanding of points (1) through (7) of this article. Thus, to this date, shockingly most people have not taken advantage of the crystal clear gold and silver trend shown in the above timeline and have no idea that converting their fiat paper currencies or fiat GLD & SLV ETFs into real assets like physical gold and silver can serve as a very effective weapon to fight back against banker criminality. Though it makes no sense to put faith in a piece of paper that has almost no intrinsic value and is truly a barbarous relic and to forgo ownership of real hard assets like physical gold and physical gold, the majority of masses, due to internalization of steps (1) through (7), continue to ignore reality and logic. However, read this excerpt from the book The Golden Gift, to understand how converting paper fiat currency into real assets like physical gold and physical silver can help re-establish our economic freedoms and help cut our bondages of financial slavery imposed upon us by the bankers.

(9) Teach people that the law is the final word so that they believe that anything legal is moral and anything illegal is immoral. The bankers have flipped the paradigm of morality on its head by convincing people that anything legal is moral and anything illegal is immoral when in fact, many things they have legislated as illegal is still moral and many things they have legislated as legal is highly immoral.

If truly moral people ran the world, probably 50% of the things legislated as legal would become illegal and 50% of the things legislated as illegal would become legal overnight. According to the United Nations Office on Drugs & Crime 2012 World Drug Report, heroin, cocaine, and all other "illegal" drugs killed about 200,000 people last year. On the contrary, an estimated 100,000 to 450,000 deaths occur from "legal" prescription drugs every year in the United States alone, and in 2009, "legal" prescription drugs were responsible for 4.5 million hospital visits. However, due to a lack of focus by law enforcement agencies on "legal" drugs, accurate statistics of deaths from legal pills varies widely, and if I had to guess, I would say that the Big Pharma lobbyists do everything in their power to suppress the true number of deaths every year that occur globally due to their "legal" drugs. Thus, the War on Drugs is more about the parties that profit from it than about a sincere desire to abolish the murder and crime associated with it. There really should be a War on All Wars instead. Because of the creation of unthinking sheep that our education system produces, far too many people today react instinctively by thinking that anything illegal is wrong and that anything legal is right, thus diminishing their ability to recognize that our modern banking system amounts to a legalized institution of financial slavery.

As always, never believe anything printed or stated on TV “news” channels (especially CNN – just google “Amber Lyon” to understand why) unless you independently verify it yourself, including everything in this article. Unfortunately there are more lies than truth circulating among all mass media distribution channels today so nothing should be accepted at face value. You must verify everything yourself until you are satisfied that you have arrived at the truth. Uncover the truth, and when you do, do everything you can to spread the uncovered truth to the four corners of the earth. This is how we will regain our freedoms.

About the author: JS Kim is the founder and Managing Director of SmartKnowledgeU, a fiercely independent investment research & consulting firm that focuses on gold & silver as a means of resisting the tyranny of the global banking cartel and of restoring sound money that would lay the foundation for the reintroduction of sustainable, organic economic growth to the world. Follow him on twitter @smartknowledge, get his free newsletter available here, and read a free excerpt of his book The Golden Gift here.

Why we haven’t had a Revolution - The Age of Turbo-Paralysis

Revolution Vs "Turboparalysis" - The Real New Normal 01-08-13 Excerpted from Michael Lind, originally posted at The Spectator via ZH

The age of turboparalysis Why we haven’t had a revolution

More than half a decade has passed since the recession that triggered the financial panic and the Great Recession, but the condition of the world continues to be summed up by what The Spectator's Michael Lind calls ‘turboparalysis’ - a prolonged condition of furious motion without movement in any particular direction, a situation in which the engine roars and the wheels spin but the vehicle refuses to move.

...

The greatest economic crisis since the Great Depression might have been expected to produce revolutions in politics and the world of ideas alike. Outside of the Arab world, however, revolutions are hard to find. Mass unemployment and austerity policies have caused riots in Greece and Spain, but most developed nations are remarkably sedate.

...

By now one might have expected the emergence of innovative and taboo-breaking schools of thought seeking to account for and respond to the global crisis. But to date there is no insurgent political and intellectual left, nor a new right, for that matter.

But why hasn't this occurred?

Why has a global calamity produced so little political change and, at the same time, so little rethinking? Part of the answer, I think, has to do with the collapse of the two-way transmission belt that linked the public to the political elite.

...

But there is a deeper, structural reason for the persistence of turboparalysis. And that has to do with the power and wealth that incumbent elites accumulated during the decades of the global bubble economy.

How did they get that power?

In essence, the bubble economy was a dysfunctional marriage of export-driven economies like China, Japan and Germany and debt-addicted nations like the US and many of Germany’s European neighbours. As international trade imbalances built up, from the 1980s to the 2000s, so did the wealth and power of elites who profited from the system, from Chinese Communist princelings with a stake in overbuilt export industries to the financiers of Wall Street and the City of London.

And that broke...

A global economic system that relied on excessive borrowing by consumers, particularly in the US, was bound to grind to a halt when fearful consumers switched from borrowing to saving. But the crash was only the first stage of the adjustment. The second stage is rebalancing.

But...

these reform agendas, from the downsizing of the overbuilt industrial sectors of mercantilist Asian nations to the pruning of finance in the Anglo-American world, threaten the very interests that profited from the preceding bubble and now glare defensively at a changing world, like Fafnir crouched upon his hoard. In the US, the wealth of the bubble-swollen financial sector has been transmuted into political power via campaign contributions.

So why no uprising against the elites? THIS IS CRITICAL

For their part, the masses seldom unite against the classes in democracies because they are divided among themselves. When nations realise that they will be collectively poorer in the future than they had expected, the usual result is not solidarity but rather civil war, by means of ballots and sometimes bullets. Confronted by a crisis like the Great Recession, each section of society uses its political influence to try to maintain its share of the national wealth, while forcing the cost of economic adjustment to others. The rich try to shift adjustment costs to the middle class, who in turn try to pay for their own subsidies and entitlements by cutting the programmes of the poor.

But is it coming?

History is sobering, in this regard. The Great Recession, which continues despite a technical ‘recovery’, can be viewed as the third great economic collapse of the industrial era, following the ‘Long Depression’ of the 1870s-1890s and the Great Depression of the 1930s. The earlier two episodes of global economic crisis witnessed setbacks for liberalism, democracy and free trade and the flourishing of illiberal nationalism, racism, imperialism and beggar-thy-neighbour economics. While slow growth combined with national rivalries have not yet engendered anything like the autarkic economics of the earlier two crises, it would be premature to predict the survival of present levels of financial and economic integration in a world that wobbles between feeble recoveries and renewed recessions.

Nowhere is there greater potential for conflict than in the relationship between the two poles of the now-collapsed bubble economy — the US, which specialised in exporting debt to China, and China, which specialised in exporting manufactured goods to the US. Since the Great Recession began, American attitudes toward China have grown strikingly more negative.

Is war coming?

The last global depression was brought to an end by the second world war. This time a ‘hot’ war is extremely unlikely and a cold war merely possible. Nevertheless, geopolitics may do what domestic politics has failed so far to do and free the world’s leading countries from ongoing turboparalysis.

The various national systems from which today’s leading global elites benefit, from hyper-industrial Germany to financialised Britain, grew up under the Pax Americana of the late 20th century. The US offered free security, a global currency, and the world’s largest open consumer market to allies — and potential allies — who were encouraged to specialise in non-military roles including industrial production (first Japan and Germany, later China) or finance (Britain and the US). The world order that resulted was well suited to East Asian and German industrialists and American and British bankers.

But while the US will remain the leading global military power for some time, the Pax Americana cannot survive the disappearance of a common Soviet threat and the diffusion of wealth and power to rising giants like China, India and Brazil. If, as many believe, the US will adopt a policy of moderate inflation in the future to help melt away the icecap of its public and private debt, the dollar as a store of value will be less attractive to foreigners.

If not, then what?

In the long run, regional hegemons, including China and Germany, may be compelled to take on some of America’s duties, from bailing out bankrupt countries to providing regional security. But that would require their political elites to focus less on economic statistics and more on their people and the world. The equivalent in the US would be a rebalancing of economic power and prestige away from financiers towards others — perhaps leaders of the fracking-driven energy renaissance or advanced manufacturing.

In some form or another, profound shifts like these are coming, because, as Mrs Thatcher would have said, There Is No Alternative. Going back to the pre-2008 world is not an alternative. Neither is the present state of suspended animation in politics and policy.

Nothing lasts forever. At some point today’s extended intermission in domestic and world affairs will give way to a new act. But for now the vehicle remains stuck in the ditch, while the wheels continue furiously to spin. The age of turboparalysis goes on.

STATISM - Self Censorship of the Media

U.S. Government Using Terrorism Against the American People 01-07-13 George Washington Blog via ZH

We've documented that - by any measure - America is the largest sponsor of terrorism in the world.

But remember, terrorism is defined as:

The use of violence and threats to intimidate or coerce, especially for political purposes.

The American government has also been using violence and threats to intimidate and coerce the American public for political purposes.

For example, the U.S. government is doing the following things to terrorize the American public into docility and compliance:

• Labeling peaceful protest as terrorism

• Using homeland security laws to crush dissent

• Spying on all Americans

• Threatening to indefinitely detain American citizens without cause and without any due process

• Even threatening to kill any U.S. citizen on a whim

U.S. constitutional law has taught for hundreds of years that chilling the exercise of our liberties is as dangerous to freedom than directly suppressing them.

For example, as we've previously noted, reporters censor themselves:

Initially, there is tremendous self-censorship by journalists.

For example, several months after 9/11, famed news anchor Dan Rather told the BBC that American reporters were practicing “a form of self-censorship”:

There was a time in South Africa that people would put flaming tires around peoples’ necks if they dissented. And in some ways the fear is that you will be necklaced here, you will have a flaming tire of lack of patriotism put around your neck. Now it is that fear that keeps journalists from asking the toughest of the tough questions…. And again, I am humbled to say, I do not except myself from this criticism.

What we are talking about here – whether one wants to recognise it or not, or call it by its proper name or not – is a form of self-censorship.

Keith Olbermann agreed that there is self-censorship in the American media, and that:

You can rock the boat, but you can never say that the entire ocean is in trouble …. You cannot say: By the way, there’s something wrong with our …. system.

As former Washington Post columnist Dan Froomkin wrote in 2006:

Mainstream-media political journalism is in danger of becoming increasingly irrelevant, but not because of the Internet, or even Comedy Central. The threat comes from inside. It comes from journalists being afraid to do what journalists were put on this green earth to do. . . .

There’s the intense pressure to maintain access to insider sources, even as those sources become ridiculously unrevealing and oversensitive. There’s the fear of being labeled partisan if one’s bullshit-calling isn’t meted out in precisely equal increments along the political spectrum.

If mainstream-media political journalists don’t start calling bullshit more often, then we do risk losing our primacy — if not to the comedians then to the bloggers.

I still believe that no one is fundamentally more capable of first-rate bullshit-calling than a well-informed beat reporter – whatever their beat. We just need to get the editors, or the corporate culture, or the self-censorship – or  whatever it is – out of the way.

Former Fox News reporters say the same thing.

Any reporters who don't censor themselves are harassed .  Whistleblowers are prosecuted ... or even tortured by the government.

The fact that the government is spying on all Americans - and using the information to launch political witch hunts - makes us all watch what we say, and makes us careful about who we talk to.  As the ACLU notes:

Peaceful protesters should not be treated as potential terrorists nor spied upon by federal government agents.  Not only is this a misuse of public funds that could be used to find real terrorists, it chills free speech activities and inhibits the public debate on important issues.

A federal judge found that the NDAA's provision allowing indefinite detention of Americans without due process has a "chilling effect" on free speech. And see this and this.

The threat of being labeled a terrorist certainly dissuades and chills our willingness to  exercise our rights.

Especially when power has become so concentrated that the same agency which spies on all Americans also decides who should be assassinated.

And fear of terror makes people docile and stupid ... and the government has intentionally whipped up an exaggerated hysteria of terror by "others" in order to scare the people.

The bottom line is that - like Stalin, Mao or Hitler - the U.S. government is using  violence and threats to intimidate and coerce its own people for political purposes ... to consolidate power and suppress dissent.

MERCANTILISIM - Cronyism

Mercantilist trade policies have returned in a big, big way. John Aziz of Azizonomics blog via ZH

Dani Rodrik:

The liberal model views the state as necessarily predatory and the private sector as inherently rent-seeking. So it advocates a strict separation between the state and private business. Mercantilism, by contrast, offers a corporatist vision in which the state and private business are allies and cooperate in pursuit of common objectives, such as domestic economic growth or national power.

The mercantilist model can be derided as state capitalism or cronyism. But when it works, as it has so often in Asia, the model’s “government-business collaboration” or “pro-business state” quickly garners heavy praise. Lagging economies have not failed to notice that mercantilism can be their friend. Even in Britain, classical liberalism arrived only in the mid-nineteenth century – that is, after the country had become the world’s dominant industrial power.

A second difference between the two models lies in whether consumer or producer interests are privileged. For liberals, consumers are king. The ultimate objective of economic policy is to increase households’ consumption potential, which requires giving them unhindered access to the cheapest-possible goods and services.

Mercantilists, by contrast, emphasize the productive side of the economy. For them, a sound economy requires a sound production structure. And consumption needs to be underpinned by high employment at adequate wages.

These different models have predictable implications for international economic policies. The logic of the liberal approach is that the economic benefits of trade arise from imports: the cheaper the imports, the better, even if the result is a trade deficit. Mercantilists, however, view trade as a means of supporting domestic production and employment, and prefer to spur exports rather than imports.

Today’s China is the leading bearer of the mercantilist torch, though Chinese leaders would never admit it  – too much opprobrium still attaches to the term.

I have three things to add.

First, states around the world including in the West, and especially America, have massively adopted corporatist domestic policies, even while spouting the rhetoric of free trade and economic liberalism publicly. One only has to look at the growth trend in American Federal spending to see that America has drifted further and further and further away from its free market rhetoric, and toward a centrally planned economy.

Second, the key difference between a free market economy, and a corporatist command economy is the misallocation of capital by the central planning process. While mercantile economies can be hugely productive, the historic tendency in the long run has been toward the command economies — which allocate capital based on the preferences of the central planner — being out-innovated and out-grown by the dynamic free market economies, which allocate capital based on the spending preferences of consumers in the wider economy.

Third, these two facts taken together mean that the inherent long-term advantage of the free market system — and by implication, of the United States over the BRICs — has to some degree been eradicated. This means that the competition is now over who can run the most successful corporatist-mercantilist system. The BRIC nations, particularly China, are committed to domestic production and employment, to domestic supply chains and domestic resource strength. America continues to largely ignore such factors, and allow its productive base to emigrate to other nations. And the production factor in which America still has some significant advantage — design, innovation, and inventions — has been eroded by the fact that the BRIC nations can easily appropriate American designs and innovations, because these designs are now being manufactured predominantly outside of America, and because of (American) communication technologies like the internet. This is the worst of both worlds for America. All of the disadvantages of mercantilism — the rent-seeking corporate-industrial complex, the misallocation of capital through central planning, the fragility of a centralised system — without the advantage of a strong domestic productive base.

GLOBAL - Youth Unemployment

The Elements Of Social Unrest Loom Large Across Europe 01-07-13 BI

GLOBAL - European Youth Unemployment

Brand New Data On Youth Unemployment — The Scariest Numbers In Europe 01-08-13 BI

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