On r > g

Here's what drives me up the wall about academic economists, and economists in general:

When we absolute know (and there is no credible disagreement about this) that wealth inequality has increased to Gilded Age levels, economists, even progressive economists like Jamie Galbraith and Yves Smith, quibble that "it isn't because r > g" or some other such blather about "Cambridge capital controversies," rather than looking at the facts staring them in the face, the actual causes of the acceleration of wealth inequality: our carry-traded capital markets and our winner-take-all compensation of chief executives (which extends to all who get bonuses based on stock price, a small fraction of employees).

But as the saying goes, you could put all the economists on the planet in a line and they would never reah a conclusion. Meanwhile the march toward either (a) security state neofeudalism, or (b) social and economic collapse that ushers in some form direct democracy.

Choose.

Financial imperialism in the Ukraine

Michael Hudson’s masterful exposition of the forces of financial imperialism at play in the Ukraine, from both sides, came out a couple of days ago, but if you haven’t read it—it’s owrth the long read, as it covers the neocon/neoliberal “Great Game” strategy in historical context. Via nakedcapitalism.com

Michael Hudson: The New Cold War’s Ukraine Gambit

Waiting for that Nixon-in-China moment

The US strategy toward Russia and the Ukraine is following the neocon playbook: contain Russia, prevent the pan-Asian trade zone from happening.

At one time I believe we fought (another illegal) war in Vietnam to “contain” China, a vast country on the brink of abandoning old-style Communism well before the Soviet Union fell.

Nixon went to China in 1972, before the fall of Saigon. Deng beat out Mao’s chosen successor in the late Seventies and started liberalizing the economy in about 1980, just as the US was abandoning capitalism for right-wing plutocracy.

Subsequently trade with China helped the diminishing American middle class via inexpensive imports, even as it aided its diminishment by taking some of its jobs.

Wouldn’t it be nice if, instead of vilifying Gorbachev, Putin could take Gorbachev’s advice and permit democracy to flourish? And if Obama could see that Russia, like China, is a huge market with little sovereign debt that we are going to lose?

But we seem to be on the downside of a long wave in a time when confidence fails everywhere, a time, as Martin Armstrong points out, in which governments almost everywhere exist in a state of sclerotic corruption and codependency with the international plutocracy that seems ultimately to serve only the families of the plutocrats.

May the meek inherit the Earth on the other side of this. And meanwhile, pity the poor broke Ukrainians, caught between two mad plutocracies who want the black Ukrainian soil but not their debts and who are trying to figure out if a war might give them clear title.

When will rates rise? -- reprise

Bernanke Shocker: "No Rate Normalization During My Lifetime" – Zero Hedge

As I pointed out recently in Interest rate reality check I agree that it will be quite a while until rates normalize. The analytical criterion is of course when the ratio of monetary base to GDP returns to longer term averages, which would require the ratio to drop to about 25 percent of its current level of ~0.22.

One way for this to happen would be for the Fed to charge off all the bad debt it is hiding for the banking system, and to stop paying them interest on fictitious reserves.

I don’t know how bad the debt in the monetary base is—no one does, even within the Fed, apparently—but this (absent a huge increase in GDP growth) is what would have to happen. And as base has been growing at >20 percent annual rates and GDP at… well, you know.

John Hussman deserves credit for saying that it is the illusion of solvency created by FAS 157 that has sustained the (stock market) recovery.

Will the Western banks do this? Not a chance. The Fed and ECB seem determined to kill their economies and start another world war.

Another indication that the big tiger may leapfrog us is Jim Rogers’ assertion that the PBOC is actually requiring banks to charge off bad debts. A sharp contraction followed by really robust growth (after a couple of years) would be the implied forecast.

Even Barry Ritholtz is questioning whether FAS 157 should remain in place.

But it won’t matter, if the Fed keeps buying up and hiding all the bad debt, will it? Thanks Alan, thanks Ben. Martin Armstrong says his sources in the big “banks” (i.e., Goldman et al., the hedge funds stealing money from the American people via the discount window and Fed largesse in general) tell him the Fed is saying they’re only going to bail out depositors next time—which is exactly what I said they should have done last time, which would have let the system clear and avoided a hell of a lot of moral hazard—and to get their trading risk models tuned accordingly.

We shall see. I hope Janet is up to the task.

Why I’m probably on a watch list

From the Guardian reporting on Glenn Greenwald’s new book:

One document from the Snowden files, dated 3 October 2012, chillingly underscores the point. It revealed that the agency has been monitoring the online activities of individuals it believes express "radical" ideas and who have a "radicalising" influence on others. The memo discusses six individuals in particular, all Muslims, though it stresses that they are merely "exemplars".

The NSA explicitly states that none of the targeted individuals is a member of a terrorist organisation or involved in any terror plots. Instead, their crime is the views they express, which are deemed "radical", a term that warrants pervasive surveillance and destructive campaigns to "exploit vulnerabilities".

Among the information collected about the individuals, at least one of whom is a "US person", are details of their online sex activities and "online promiscuity" – the porn sites they visit and surreptitious sex chats with women who are not their wives. The agency discusses ways to exploit this information to destroy their reputations and credibility. […]

All of the evidence highlights the implicit bargain that is offered to citizens: pose no challenge and you have nothing to worry about. Mind your own business, and support or at least tolerate what we do, and you'll be fine. Put differently, you must refrain from provoking the authority that wields surveillance powers if you wish to be deemed free of wrongdoing.

This is a deal that invites passivity, obedience and conformity. The safest course, the way to ensure being "left alone", is to remain quiet, unthreatening and compliant.

Are you going to remain quiet because you are afraid of being put on a watch list? You are part of the problem. Reform will require an expansion of consciousness to the point where people can begin actually think about things as deeply troubling as whether Building 7 which wasn’t hit by anything at the World Trade Center didn’t collapse because of the little fire on the third floor, but was professionally demolished….

It is frightening to contemplate what our government has become. Follow your conscience.

First they came for the Socialists, and I did not speak out--
Because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out--
Because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out--
Because I was not a Jew.

Then they came for me--and there was no one left to speak for me.

--Pastor Martin Niemöller

The "government bad" meme

It's so easy to say that "government is bad, government is worthless, all government does is accumulate debt that it will never pay off. Martin Armstrong, an entertaining writer, is chiding the Pope for saying that some redistribution of the world's ever more concentrated wealth to the poor is called for. Armstrong says "even God is not on the Pope's side," citing the commandment not to covet thy neighbor's wealth. This is a biased use of citation to say the least.

It takes a rare strain of delusion to think that government is going away in this world. The libertarians are de facto shills for the status quo, no matter how much they say they'd like to tear it all down.

We still seem to be heading toward total dysfunctionality.

Interest rate reality check

There is a lot of talk about when “the Fed” is going to “raise rates.” Rates are actually determined mostly by supply and demand in the money market. Without getting into an academic fracas, I am going to present some graphs representing very strong empirical regularities that suggest interest rates, long or short, are not going up any time soon.

I’ve presented one of these before, the long term chart; here I’ve added the 3-month T-bill. These graphs show the relationship between interest rates and the ratio of the St. Louis monetary base to GDP. Data is to April or first quarter 2014. The ratio of base to GDP is ~0.23 currently.

Here is the trajectory of the base/GDP ratio. Can you spot the taper?

Here is the trajectory of base:

From these empirical regularities I draw the following conclusions:

• Interest rates aren’t going up any time soon. The “taper” is really a reduction in the rate of addition to base, not a reduction of base.
• Nor is inflation taking off any time soon, except for stagflationary cost-push. Negative real interest rates will continue. The labor market has no power; the reserve army of the unemployed (whether they are categorized as such or “not in the labor force”) is growing. There is no wherewithal for a wage-price spiral to get started.

This mirrors the experience of the Thirties. ZIRP in that period lasted until near the end of WWII. It took a war to get the inflation started. Federal debt exploded. But America had relatively less sovereign debt going into that war; we are already at comparable levels.

So people who suggest that the Fed “raise interest rates” are really asking the Fed to reduce the size of the monetary base a huge amount. There is no question the Fed would crash the stock market if they did this, purely because of the “optics,” so it won’t happen. Moreover, if the Fed sent all those bad debts back into the banking system they’d be subject to “stress testing” (heaven forbid they were actually marked to market) that I somehow doubt the Fed does on the stuff they hold. (Comment if you know better than I, please.)

Plutocracy World, the Global Casino, rocks on for years to come. The banking system hangs like an albatross around the neck of the world economy. China seems to be making the same mistakes; it will be interesting to see what they do with all their bad debt.

The great economic task of the first half of the twenty-first century will be to reform the world’s monetary system.

Sanctions salami tactics

Plutocrats have a certain grudging respect for one another. Naturally, they would like to put each other out of business unless it impacted their own business adversely. So I conclude that Obama's sanctions are an attempt to isolate Putin from his plutocratic supporters (although perhaps supporters is too strong a word; Putin keeps his plutocrats on a pretty tight leash, just ask Mikhail Khodorkovsky).

But what if under the table the West is inviting Putin's plutocrats to join them, where the grass is greener and you don't have old Vlad busting your chops. We're not going to mention that we're going to give you a haircut on the way, but are you really ready for the rebirth of the Soviet Union? The London bankers must certainly be for it.

On the other hand, you have the Chinese promising big business... but China's biggest real estate investor is unloading everything as China replicates the Western real estate bubble and collapse....

It's tough being a Russian plutocrat these days. It's tough being a plutocrat anywhere, really, with all this talk that plutocrats are *too* wealthy (and are actually mass murdering their fellow humans with their insatiable greed by hording wealth and depriving others of health care, education and jobs).

Come to America! Come to the UK! Plutocrats rule! This is the subtext of what the Russian plutocrats are hearing.

The West breaks faith

With a country on the brink of civil war, crying out for a diplomatic solution--and actually with a diplomatic solution in place crying out for organized referendums to plot a sane course of action--the USA has fallen back to its default option--"bomb bomb bomb"--having sent first the CIA director on a secret mission that did not stay secret, then the Secretary of State, then the Vice President to Kiev to egg the quite possibly illegitimate Ukrainian government on to military action. The Russians are apparently sending a column of "peacekeeping" military in from the east.

This morning's first reports are here.

One of the Rothschilds once said, "Buy on the smell of gunpowder." The stock market seems to like it. More on this below.

We will see if Putin's position is as strong as he seems to think it is. I think he is counting on being the leader of a global wave of blow-back against the US from the G20 - USA - UK to support his action.

This is clearly not the time to "unite" the Ukraine by military means. Those Ukrainians in the east who were "neutral" or merely desiring a peaceful resolution will never forgive the US and its puppets in Kiev for this, I think.

Our CIA-puppet president is proving to be stupider than he looks. Of course the underlying plan is to bankrupt the Ukraine--and possibly the EU--and swoop in and gather up the assets. We'll see how that works out.

America is doing what it does best to defend its currency, sowing chaos abroad. According to Martin Armstrong, the US stock market will benefit as well, as hot money pours in from China (collapsing) and Europe. He thinks the Dow will double by the end of 2015. This is not investment advice, but reportage. You invest at your own risk, unlike the Wall Street banks, who also invest at your risk.

How I got my anonymous handle

I blog anonymously using a handle given to me by Google. Why do I blog anonymously? Because I am humble and don't want the brilliance and perspicacity of my views to cause waves of adulation to return to me from my postings.

But today's revelation is how I got my handle. This is a true story. I got an email from Google one day several years ago saying that they had changed my user name. No reason was given, but because my previous user name was a simplified form of my real name perhaps they thought it was better for security. Or so I thought at the time. Nowadays lots of people have Gmail accounts with their real names on them.

Google said, "You new user name shall be 'b9brodwicz.'"

Hence, by inference I figured my first name must be "Benign."

True story.

Ukrainian forces in east disarming

http://youtu.be/VNig07RtWxA

I recommend the entire playlist of Vice News coverage of the Ukrainian crisis.

How stupid is our CIA-appointed president?

Washington has already lost the war in the Ukraine. The BRICs are accelerating their arrangements to avoid the petro-dollar. Russia and China have accelerated their plans to form a pan-Asian trade alliance. Russia is building an independent settlement system so that the US cannot impose economic sanctions through the banking system. The BRICs are forming their own development bank and have expressed a desire to avoid contact with the IMF.

First the CIA stage a coup after Yanukovych cancels an agreement to join the EU in favor of closer relations with Russia. RT (note source) interviewed the former security chief of the Ukraine who described in detail how the coup was run out of the American embassy in Kiev. The director of the CIA, John Brennan, recently visited Kiev to follow up. This was reported on RT and in the American alternative press, but nowhere in the MSM. The White House confirmed the visit.

The ever-stupid American public is being told the Russians fomented the coup; that it is the Russians destabilizing the Ukraine; and they are buying it.

The German “60 Minutes” has just investigated the sniper shootings at the Maidan and found that they were perpetrated by the protesters, not pro-Russian agents. This is typical false flag chaos-creation by the CIA.

Putin has been consistent in his demands: he wants the Ukraine to be a buffer state, not aligned with NATO; and given the demonstrably split demographics and east-west hostilities, for referendums to be held in the east to establish more autonomy for the eastern provinces, who large dislike Kiev. The statistics I’ve seen on eastern Ukrainian sentiment on secession and joining Russia are about a third for, a third against, a third just want peace and don’t care.

Putin is correct that the primary danger now is civil war. Military action by Kiev in the east virtually guarantees it. If Putin is smart, he will not engage militarily; and the West will lose the hearts and minds of Ukrainians for generations to come. As the EU goes bust they will look to the east. They will likely default on debts to the IMF under such conditions.

What is is disturbing this morning is that our CIA-appointed president is on TV looking very gray and exhausted saying that under no conditions will America take military action, that our only course will be tightening sanctions.

In contrast, Michael Hudson, who is better connected than I, is on RealNews saying that under the table the Americans are threatening Russia with military action, including nuclear, and that Europe and the rest of the world are terrified by this.

The neocon-neoliberal Washington Consensus is on its last legs. Their program for world domination has already failed; they’ve hollowed out the US economy and turned the rest of the world against us. The plutocrats who are pulling the strings everywhere have no national allegiances. They park their money beyond national tax jurisdictions; and they will make themselves at home in Europe or Asia and encourage the EU to join the pan-Asian trade zone if that suits them; and where would that leave the US?

It is time for Russia and America to work together to let the Ukraine develop a federalized structure; and to jointly support this impoverished, ransacked region so that it may support itself. America via the IMF wrecked the Russian economy when the Soviet Union fell (by “free market shock treatment” that destroyed the social fabric, fostered anti-Semitism and created pronounced inequality and government by a plutocracy that Putin is trying to ride herd on).

Destroying the Ukraine in the name of freedom helps no one except Blackwater, or Xi, or Academi and the rest of their military-industrial-financial complex ilk. And of course the plutocrats on both sides who would like to buy up Ukrainian assets at bargain prices.

But this is what Washington does best, destroying countries in the name of freedom.

But starting World War III would guarantee that the rest of world would turn on us.

Time to throw the psychopathic bums out, America. Wake up!

Krugman on Piketty

Paul Krugman has a beautiful review of Thomas Piketty’s Capital in the Twenty-First Century. I have described Piketty as the hero-economist on a white horse who will finally and I hope irrevocably shut up the neocons and neoliberals who would tell you that the distribution is not a worthy subject of economic analysis. Now, next, if economics would take note of Wilkinson’s epidemiological work on inequality (see this for intro) we might be able to say economics is a noble profession seeking social justice (as some used to think of it) rather than a bunch of whoring cheerleaders for the rich.

Those of us who were young economics professors in 1981 as Ronald Reagan began his program of fraudulent “supply side” tax cuts for the rich (“trickle down economics”)  told our students that America was being duped, that it was time for “mourning in America,” that is was not “morning in America.”

Why We’re in a New Gilded Age

Paul Krugman

MAY 8, 2014 ISSUE

Capital in the Twenty-First Century

by Thomas Piketty, translated from the French by Arthur Goldhammer

Belknap Press/Harvard University Press, 685 pp., $39.95

Emmanuelle Marchadour

Thomas Piketty in his office at the Paris School of Economics, 2013

Thomas Piketty, professor at the Paris School of Economics, isn’t a household name, although that may change with the English-language publication of his magnificent, sweeping meditation on inequality, Capital in the Twenty-First Century. Yet his influence runs deep. It has become a commonplace to say that we are living in a second Gilded Age—or, as Piketty likes to put it, a second Belle Époque—defined by the incredible rise of the “one percent.” But it has only become a commonplace thanks to Piketty’s work. In particular, he and a few colleagues (notably Anthony Atkinson at Oxford and Emmanuel Saez at Berkeley) have pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past—back to the early twentieth century for America and Britain, and all the way to the late eighteenth century for France.

(continues here)

MMT is here already

I cannot recomment strongly enough reading David Stockman's cogent exposition of how MMT is already here:

Yellen’s Dog Is Eating Homework Congress Didn’t Even Assign: Reflections On The Greatest Mission Creep Ever

MMT is just another egregious form of fiat money. I have come to believe that human primates are not sufficiently self-controlled to handle the ability to print money without abusing it in extreme ways. Money based on metal provides, historically, stable prices, and hence removes the impetus for ever-increasing leverage (to get rich quick). The proponents of MMT on the left would use it to promote social welfare, I agree; but the Fed has beaten them to it, to promote welfare for bankers.

As to the critique that metal-backed money creates too much instability, two points:

First, fractional reserve banking existed during the gold era, and yet prices were stable on average over long periods. To my knowledge, this effect hasn't been totally explained. To dispense with the assertion that modern, post-1971 monetary policy created a "great moderation," no, it created a great debt bubble, as spending went further and further beyond income.

Second, the very idea that the business cycle should be stabilized is suspect. People should be stabilized. Most cyclical adjustments (or even more so, structural adjustments) need to be made; and "stabilization" policy simply masks what needs to be done, and generally prevents progress from being made. For example, preventing bad debts from being charged off rather than being put on the backs of taxpayers (around the world, as our model has been copied).

People in transition should be stabilized. People are in fact any nation's greatest resource. They should be kept healthy and offered transition assistance or at least a basic income.

What we are learning is that "stabilization" has been coopted on behalf of the haves, the have-nots don't have enough money, and aggregate demand and human capital are collapsing.

A diplomatic solution in the Ukraine

US Secretary of State John Kerry meets with Russian Foreign Minister Lavrov in Paris next week to talk about a negotiated settlement in the Ukraine, even as some 60,000 Russian troops mass on the eastern Ukrainian border.

An optimal negotiated settlement, in my view, would be approximately as follows:

• Voting in May determines a federal structure for the country;
• West and Russia let portions that want to join EU join; NATO membership not an option;
• Russia is assured it can keep its navel bases in the Crimea (they already had them); while a second plebescite if necessary validates the Crimea returning to Russia; all such voting needs to be internationally monitored and squeaky clean;
• Russia provides as close to an apology as possible to the Ukraine for its invasion of the Crimea, accompanied by a large chunk of the IMF money that has flowed to it in aid to the federated Ukraine.

The costs of war would fall on innocents, the profits would flow to plutocrats on both sides. I hope Putin sees this. Russia is collapsing demographically (see this); it is an early-dying nation of drunks and Putin is holding on to power only by increasing domestic repression and fanning the flames of nationalism.

Should Putin invade eastern Ukraine before May as many expect, NATO will surely arm the Ukrainian forces, which can be described as rag-tag (Vice News has great video reporting from the Ukraine). This war would be pathetic in the extreme. NATO could send in drones, no boots on the ground. The Ukraine would be torn up for a generation. There would be further losses to Western banks, who have just coughed up a bundle to keep the gas flowing, and who, through London, have a huge interest in seeing the Russian and Ukrainian plutocrats stay whole. So I can only imagine that the banks are doing their best to sweet talk both sides into playing nice.

When the bankers don't want war, it's not likely to happen. When it does, the bankers generally try to line up on the side that will win. If the hawks in the West push for war and get it, Russia might collapse, and another Russian revolution might easily be the result--the Western banks can't count on a stooge like Boris Yeltsin this time to let them come in and loot. Anyway, the Russian plutocrats already have their positions, are being serviced by the London banks, and would probably be happy to run the country as regional war lords. If the West can turn the Russian plutocrats against Putin by telling them what a sweet deal they could have if Russia fell to the West, then Putin might find himself odd man out. I wonder if the Russian plutocrats still in the country can leave if they want to.

Would the plutocrats trust the Western banks and the CIA? Well, they did pretty well working with them 23 years ago.... But can Russians ever make democracy work, or do they need an authoritarian Father figure? The neo-cons might not care, so long as they weaken Russia for another generation.

Who or what would come after Putin? That is the question.

Putin collects his chips

With an IMF deal in the neighborhood of $18 billion on the fast track, and Putin asking for about $16 billion amount in payment for gas much already delivered and other obligations, it would appear that Putin is coming out ahead financially so far on his Crimean adventure.

While President Obama authorized the sale of some of America's Strategic Petroleum Reserve, oil prices seemed to up this morning when I checked.

After QE; Piketty and neo-feudalism

There is a lot of nonsense going around about interest rates going up post-QE. Following John Hussman's lead, in a recent post I showed the empirical regularity governing the relationship between central bank balance sheet as a percent of GDP and long-term interest rates proxied by the 10 year T-bond.

Recently Base/GDP has been about 0.22, so we are way out on the right end tail. It would take a reduction of the ratio of about 15 percent of GDP to begin to raise long rates, or about $2.6 trillion at current rates of GDP. The St. Louis base is currently at $3.7 trillion, and has been growing at over 20 percent a year since the last recession.

Now, "tapering" is a reduction in the rate of increase of additions to the base, not a reduction of the base. The chart looks to me like a very strong empirical regularity indeed. So the chance that long rates will rise anytime soon is remote in the extreme, as the Fed has no announced plans whatsoever to actually reduce the base.
Long rates will remain low and the bad debt clogging the banking system will remain impacted, that much seems assured for years to come.
What is a somewhat lower probability outcome is that the dump-the-dollar movement internationally gains sufficient momentum that the Fed has to buy up more and more (perhaps virtually all) new Government debt. This might be called the MMT-by-force-majeure outcome, as there is little chance that such additions to the Fed's balance sheet will ever go away.

In this latter case rates will not go up because of the empirical regularity shown above, but as the dollar falls on the foreign exchange markets due to weak demand to hold or trade in dollars, there will be import inflation domestically in the US. This will cause a further collapse of effective demand--already afflicting the bottom 80 percent or so of Americans--as real purchasing power of consumers is decimated. The US will become an even less attractive place to invest, and capital flight will occur. The US's status as a banana republic will be cemented.

This is the essence of the dreaded global currency reset: the dollar falls on international markets, import inflation slams domestic real demand, but neither short-term nor long-term interest rates rise (short rates exhibit a similar empirical regularity to that shown above). A domestic stagflation occurs. The Fed, ever the servant of Capital, will fight the inflation with modest rises in short rates (this can be done administratively in the short run) sufficient to beat any thought of asking for higher wages out of the heads of workers even though labor cost-push inflation exists only as a curiosity in economic history textbooks.
In the final chapter plutocrats of various "nationalities" (with allegiance to none) will divvy up Plantation America, keeping the best parts of it private, for themselves and their would-be-royal progeny.

Enter the Anti-Mainstream Economist

Certainly Thomas Piketty is the most important economist of the past 80 years, since the last Fourth Turning (Keynes got it that time). I highly recommend The New Yorker's review of his big book (here). A Frenchman, Picketty came to the US at 22 as a young economics superstar and to his great credit, became immediately disenchanted (disgusted is a better word, probably) with the status-quo-supporting mathematical fictions he encountered at MIT. (Disgust afflicted your correspondent upon entering economics at the graduate level in search of "science" after an undergraduate career studying literature.) Son of a leftist French couple, Piketty imbibed the Marxist notion of capital increasingly displacing labor leading to the reserve army of the unemployed and set out to study the issue of the distribution empirically, probably sensing that only real world data could displace the mathematical fictions of the self-congratulating, narcissistic mathematical economist-priests ruling policy in the West.

Piketty's concerns over where the world is going are as dire as mine. He is the Anti-Mainstream economist on the white horse that I thought could never possibly arrive. The New Yorker disappointingly pooh-poohs Piketty's suggestions that we need to raise taxes on the incomes and wealth of the plutocrats as politically infeasible. (But of course The New Yorker’s readership inhabits the status quo, so what else could they say?)
Democracy will have to be reborn to prevent a return to out-and-out feudalism.
It couldn't happen here, of course (although Piketty now has a stateside ally in fellow French-born Berkeley economist Emanuel Saez). Piketty turned tail after a couple of years in the US and returned to Paris, where he has remained since.

[Editor: spelling of Piketty's name corrected 3/27/2014]

“Pushing on a string”—because the status quo

When I learned my macro, it was accepted that increasing reserves of the banking system when it was already in a substantial excess reserves position would have no effect on real output; hence it was called “pushing on a string,” an expression that I believe was coined in the Great Depression with respect to the excess reserves of the day.

In the Liquidity Trap, monetary policy was considered to be useless.

Now we have the trickle up theory of asset inflation, openly acknowledged by the Fed. Janet Yellen says the trickle down happens after the trickle up. But of course, the Fed does not acknowledge that asset inflation is inflation; it’s just wealth effect. John Hussman has pointed out that even the wealth effect is caused by an illusion, that the banking system is solvent, courtesy of FAS 157. Nevertheless, the Fed feels compelled to sweep the bad assets under the carpet before they can be audited. In the end we’ll have Good Bank, Bad Bank, with the Bad Bank being the Fed.

The non-economists readers of this blog need to be aware that current Fed policy, QE, goes against everything the entire mainstream macroeconomics canon says, but you won’t find an academic economist to admit it. If they’re conservative, like the Establishment Blowhard Gregory Mankiw, they like it because it lines the pockets of their clientele, the 1 percent (the “because capitalism (the banks want it) otherwise martial law” argument). If they’re liberal, like Paul Krugman, they like it because liberals always like accommodative monetary policy; it always serves their clientele, government, through monetization of the debt.

So mainstream academic economics has aligned itself with the status quo, and established its lack of intellectual integrity beyond any doubt.

The two political parties and their mainstream economist cheerleaders both support the status quo, while the structural rot continues. You just need to know they’ve abandoned everything the discipline has been saying for over thirty years in doing so.

Comment posted on another website

Posted this morning in comments at FabiusMaximus.com

Fab,

You amusingly take your contrarian tendencies to meta-levels of self-revolution that virtually are always entertaining! But you must be dizzy at times. Thanks for being so entertaining!

Two comments semi-germane to today's post:

1. As I've pointed out before, the rehearsal of catastrophe is always good entertainment (Aristotle), but that doesn't mean it's wrong! W.r.t current forecasts of collapse, my personal take is that the economy still exhibits the signature of pre-collapse seen before the Great Depression: excessive debt/GDP, mostly bad debt not being cleared by the banks; and very high income inequality. So I expect another financial collapse. This is a judgment call resulting from 30 years post economics PhD following the economy and learning to separate the mainstream propaganda from "the truth" as far as I can discern it.

2. John Robb is out with a proclamation that the problem with the world is that "the American dream" (that one should be able to get ahead by working hard) and that it needs to be reborn. I assert that it is excessive greed of the "managerial capitalist class" and their focus on profit (i.e., usually by screwing labor; record high profit/GDP etc.) that is the problem, and until all corporations face regulations similar to those in Germany and Scandinavia recognizing that employees are valid stakeholders in a corporation the problem won't be solved.

Back in the 'Seventies when regulation was in its heydey businesses used to say (re: environmental protections, for example) that they couldn't do it by themselves, that it needed to be required of all or they couldn't make a decent profit. Same thing applies today. Employee rights need to be enforced via law around the world in a reasonable way.

In my more optimistic moments I speculate that, as the most powerful form of social organization on the planet today, that corporations will naturally evolve to optimize their internal distributions a la Wilkinson (see his great TED talk on inequality) to maximize health and welfare benefits of all.

Interestingly, Putin has encouraged his oligarchs to register their businesses for tax purposes in Russia to support the nation. Radical concept.

Petrodollar alert

In case you missed it, ZeroHedge caught the announcement of a non-dollar-denominated energy deal between Russia and China:

Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China

China will sell US Treasuries to buy Russian oil, and Russia will stop borrowing from Western banks, is the general idea.

Janet Yellen interview

I have just watched the Janet Yellen interview (available here) from forthcoming movie, Money for Nothing: Inside the Federal Reserve, and I must say I found Ms. Yellen's Brooklyn folksy I'm-your-friendly-Berkeley-macro-teacher persona absolutely nauseating.

Questioned aboat the steps taken to resolve the financial crisis in 2008 she presents the same tired "we had to do something of the system was gonna collapse" without the slightest seeming awareness that when FDR, one of her putative heroes, I would guess, attacked the same structural problem in the 'Thirties he took structural actions to remedy them.

She certainly has never made a loan and has no understanding of what bad debt is, debts that will never be repaid and should be charged off by the bank with the bank taking the loss.

It's the same old Hank Paulson, either/or, bail Wall Street out, ignore the fraud, let them increase their bonuses in coming years on the backs of the taxpayers--or it's martial law.

And these macro people still think the Phillips Curve works!

I could go on, but I can't. It was just sickening.

Janet Yellen will do Wall Street's bidding and like Bernanke cash in afterwards.

I hope I outlive the Fed. It will be great day for America when the Fed is abolished.

Fiat money = funny money => Fed must screw labor

h/t Mish for pointing out an article by Adair Turner, former Chairman of the United Kingdom’s Financial Services Authority, a member of the UK’s Financial Policy Committee and the House of Lords, suggesting that the Fed or any fiat money central bank might accept conversion of assets on its balance sheet, i.e., Treasuries, into zero coupon perpetuities, and so create "helicopter money" and permanent monetization of the sovereign debt.

I suggested just this strategy as a joke some time ago (here).

However, we all knew that the Fed can and does print money. But stating it as baldly as this brings me back to the problem this causes in the labor market.

As I have said repeatedly, inflation (a sustained wage price spiral inflation) is always and everywhere a labor market phenomenon accommodated by monetary policy.

Thus, with the vast overhang of base the Fed must worry about inflation in the long run, even if not so much right now. Why not now? Because prosumers are overburdened with debt and inflation is nowhere raising its ugly head. Looking more deflationary now, it is.

But should actual deleveraging take place by some other means than a few bad debts actually being charged off (imagine that!), such as bad debts being recognized as such (FAS 157 thrown out, good riddance) and debtors finding relief as the (unpaid) debts hit statute of limitation dates with no more recourse--then the Fed would have to worry about a wage-price spiral getting going.

In other words, the Fed is intrinsically anti-labor and always will be. What did Paul Volcker teach us, if not that? You got to recruit some cannon fodder, some inflation fighters to win the war on inflation.

There's an interesting wrinkle in here in that Janet Yellen has allegedly stated her desire to see the labor force participation rate improve, while at the same time worrying that it will adversely impact the unemployment rate (duh!) and hence, confidence. (My readership is small but highly intelligent and knows that if discouraged workers are included the unemployment rate is well above 10 percent by the governement's own questionable figures.)

I do believe the Fed economists are aware of the psychological importance of the unemployment rate that the unknown economist whose work I channel has established, and which the econophysicists seem to appreciate far more than the professional economist (i.e., generally establishment cheerleaders) community does.

Sometime within the next few years the unemployment rate will meet its falling adaptation level and rise above it. That is when we will see the next collapse of confidence. So the model predicts.

In passing I note that MMT does not really offer a way out of the wage price spiral problem. They just seem to be willing to inflate the debt out, disco style. However, the danger of hyperinflation may be greater this time, given the size of the base, and they seem oblivious (to me) to the Austrian distributional implications that those who get new money first can increase their wealth at rates much faster than those depending on increasing real wages can expect.

To bing this discussion full circle, let's ask what comes next for the international monetary system? Does an IMF ADR basket currency make the central banks love labor any more? I think not. Unless they're playing competitive devaluation games, they still can't afford too much inflation ("a little inflation is a good thing, but not too much"--this is the mainstream cant).

Given the plutocratic distribution in the world today, it seems to me that any fiat money system broadly adopted is going to result in labor continually getting screwed, absent really aggressive incomes policies (guaranteed basic income and health care, for example; or even better, enforced limits on wage contours, now being challenged even in Sweden, such is the prevalence of greed in the current historical moment).

History shows that a metal based system achieves stable prices over long periods. Sorry, "Rich Dad, Poor Dad," you're not a genius for investing in real estate. To paraphrase Paul Samuelson, during an inflation every fool is a great financier. It takes no brains to load up on debt when inflation is guaranteed.

Are there financial crises under a metal standard? Yes, just like under fiat banking as it rides into its sunset. The answer to cyclical variations is always to let them happen, to concentrate on stabilizing people and not "the business cycle," to take care of displaced persons during the adjustment. And to keep banks out of the business of speculation with other people's money.

 

What currency shall we trade in?

From my reading and YouTubing it would seem that the question on the mind's of the Russians and others who resent the dollar's hegemony as a reserve currency is this:

How destabilizing would it be to accept payment in another currency for our oil (Saudis), gas (Russia), or other heavily traded good?

The Chinese stopped accumulating Treasuries a year ago but along with the Japanese still own a bundle, and would like for the purchasing power of those securities not to fall while they're buying up real assets (land, capaital goods) in places like Africa.

My entirely subjective estimate is that if the Russians started asking for gold or Euros for their gas that the dollar would swoon but not collapse. As Yves pointed out the other day, that would technically speaking increase the desirability of our export goods, while dosing those of us stateside with some cost push inflation on our imported goods (oil, i.e., gasoline for most of us and other goods).

Meanwhile the Chinese are letting their yuan swoon a bit within a wider trading band, indicating that they are still in the race to the bottom as far as currency devaluation goes. The Russians are reported to be fighting the decline of the ruble by raising gas prices.

I keep hearing about the currency reset, how the feds will split off an international ("scheiss") dollar that will be about a third less valuable than the current dollar. I really don't know how you do this except through forex market interventions to debase the dollar by flooding the market with them. Could happen by dint of others' interventions as well. But as I say, not everyone abroad wants to see the dollar collapse.

First the IMF, now NASA

IMF Urges Redistribution To Tackle Growing Inequality The usual pro-forma self-flagellation, but it can't hurt.

From Guardian:

Natural and social scientists develop new model of how ‘perfect storm’ of crises could unravel global system

A new study sponsored by NASA’s Goddard Space Flight Center has highlighted the prospect that global industrial civilisation could collapse in coming decades due to unsustainable resource exploitation and increasingly unequal wealth distribution.

Noting that warnings of ‘collapse’ are often seen to be fringe or controversial, the study attempts to make sense of compelling historical data showing that “the process of rise-and-collapse is actually a recurrent cycle found throughout history.” Cases of severe civilisational disruption due to “precipitous collapse — often lasting centuries — have been quite common.”

The research project is based on a new cross-disciplinary ‘Human And Nature DYnamical’ (HANDY) model, led by applied mathematician Safa Motesharri of the US National Science Foundation-supported National Socio-Environmental Synthesis Center, in association with a team of natural and social scientists. The study based on the HANDY model has been accepted for publication in the peer reviewed Elsevier journal, Ecological Economics.

It finds that according to the historical record even advanced, complex civilisations are susceptible to collapse, raising questions about the sustainability of modern civilisation:

“The fall of the Roman Empire, and the equally (if not more) advanced Han, Mauryan, and Gupta Empires, as well as so many advanced Mesopotamian Empires, are all testimony to the fact that advanced, sophisticated, complex, and creative civilizations can be both fragile and impermanent.”

By investigating the human-nature dynamics of these past cases of collapse, the project identifies the most salient interrelated factors which explain civilisational decline, and which may help determine the risk of collapse today: namely, Population, Climate, Water, Agriculture, and Energy.

These factors can lead to collapse when they converge to generate two crucial social features: “the stretching of resources due to the strain placed on the ecological carrying capacity”; and “the economic stratification of society into Elites [rich] and Masses (or “Commoners”) [poor]” These social phenomena have played “a central role in the character or in the process of the collapse,” in all such cases over “the last five thousand years.”

Currently, high levels of economic stratification are linked directly to overconsumption of resources, with “Elites” based largely in industrialised countries responsible for both:

“… accumulated surplus is not evenly distributed throughout society, but rather has been controlled by an elite. The mass of the population, while producing the wealth, is only allocated a small portion of it by elites, usually at or just above subsistence levels.”

 

The Ukraine: the dollar's Waterloo?

Very trenchant analysis from www.thegoldenjackass.com:

The desperation of the Anglo-American leadership, guided by the steady corrupt banker hands, has never been more acutely high, nor obvious in full view. The entire Ukraine situation is a travesty. It includes Langley agents killing police and street demonstrators from rooftops, the confirmation coming from the Estonian Embassy (translation of scripts). It includes thefts of official Ukrainian Govt funds, again sent to the Swiss hill sanctuary. It includes sanctions delivered by a US Paper Tiger, sure to cause horrific backlash. It involves the last gasp attempt to obstruct the Gazprom energy pipelines, which will inevitably corner the European market in monopoly. It involves subterfuge with the NATO card (aka Narcotics And Treachery Outlaws) with missiles placed on the Russian borders. Look for NATO members to find a back door to exit the spurious treaty. It involves playing with nitro-glycerine in the Petro-Dollar room. It involves putting tremendous risk for much more clear isolation of the United States. The more the USGovt pushes, the more the US will be isolated. Remember that Nazis steal from their enemy states, de-fraud from their allied states, and force themselves into an isolated state. In Ukraine, the United States has over-played its weak hand. Already, a secret document was leaked in London that the UKGovt would not support the US-led sanctions against Russia.

History repeats itself from the Kremlin phone calls made during the Syrian conflict just a few months ago, when the UKGovt withdrew its support and left the US isolated, looking very weak. Already, Putin has threatened to dump USTreasury Bonds. Putin aptly calls the Anglo-Americans as Mutants. Imagine the lunacy of trying to cut off the only Russian warm water military naval port in the Crimea. Just as stupid as the Trans Pacific Partnership faux pas, trying to cut off China from its Asian neighbors and partners in trade. The intelligence level of the USGovt has never been more stupid, destructive, and in full view. The lost ground for the United States is obvious and glaring in the Persian Gulf, the Mediterranean Sea, and the Caucasus region.

IMMEDIATE PETRO-DOLLAR RISK

If the Kremlin demands Gold bullion (or even Russian Rubles) for oil payments, then the interventions to subvert the Ruble currency by the London and Wall Street houses will backfire and blow up in the bankster faces. Expect any surplus Rubles would be converted quickly to Gold bullion. If the Chinese demand that they are permitted to pay for oil shipments in Yuan currency, then the entire Petro-Dollar platform will be subjected to sledge hammers and wrecking balls. The new Petro-Yuan defacto standard will have been launched from the Shanghai outpost. If the Saudis curry favor to the Russians and Chinese by accepting non-USDollar payments for oil shipments, then the Petro-Dollar is dead and buried. The rise of the Nat Gas Coop run by Gazprom is in progress, its gas pipelines to strangle the OPEC and its bastard Petro-Dollar child. The entire USDollar foundation with the USTreasury Bond bank reserve structure is at risk is collapsing, as consequence to the desperate adventure and criminal activity conducted in Ukraine. Just like with Syria, a hidden giant energy deposit is concealed under the table. Off the Lebanese and Syrian coast, a massive off-shore energy deposit was recently discovered. The US & UK & Israeli oligarchs wish to take it all. Confusion is their game. In the western plains of Ukraine, a massive gas deposit was recently discovered. The US & European oligarchs wish to take it all. Confusion is their game.

The danger level has never been higher. No resolution to the Global Monetary War can come, which we have been seeking, without a climax. It is hardly just a financial crisis amidst a stubborn economic recovery. The nature of the currencies and their underlying sovereign bond foundation is highly toxic, which requires a strong replacement as solution, using an alternative to the USDollar alongside its reserve ledger item the USTreasury Bond. A return to the Gold Standard is coming, but the birth will have loud pangs and possibly broad damage suffered. The Global Currency Reset is better named the Return to the Gold Standard. The United States and London will not give up their control of the Weimar Printing Press easily, used for elite self-dole of extreme wealth. It has served well as the Elite credit card. They will not go quietly, and assume their place in the backwater without taking the world to the brink. No climax can occur without enormous risk and loss. The Global Paradigm Shift is in full gear, with attendant risk huge here and now. My Jackass firm belief is that the US/UK fascist team face a Waterloo event in Ukraine, the victim to be the Imperial Dollar. This bulletin will not be a comprehensive note, as the situation is too vast. The information in the Hat Trick Letter is used to interweave a story of the impending removal of the USDollar from its corrupt throne.

UNITED STATES TRAPPED AND CORNERED

The Anglo Americans have fallen into a carefully designed trap by the Russians and Chinese in a clever designed sequence. More Sun Tzu tactics have been put into practice, which utilize the momentum from the enemy to be thrust back on them. Planning for final steps must have taken place during high level Putin meetings with Xi from the elite Sochi viewing box. The unfolding of events has been more carefully engineered and orchestrated than what appears. The US/UK team has been caught in a vise for months, as the rejection of the USDollar as global reserve currency is in high gear, the refusal of the USTBond a recognized trend in diversifications. The death process is slow and grueling. Much of the American Hemisphere is surrounded and controlled by Russia & China, whether the canal, the port facilities, the oil supply, the mineral deposits, even Yuan Swap facilities. Africa has largely gone under Chinese control, with Russia playing a hidden role as well.

The Persian Gulf is in transition, with the critical protectorate role shifting to China. The Qatar royals have just ordered a dismissal of USGovt ambassadors from their nation. Note that Qatar is the site of a giant USNaval base. To be sure, the Sochi Olympic Games are over, a successful event. The gloves have thus come off. The risks have reached acute levels. The US leadership seems cavalier to the risks that over half the USGovt debt is in foreign hands, over 30% of it in Russian & Chinese hands. A severe backlash cometh. The most vulnerable player in the room is the most aggressive, arrogant, vile, and obnoxious. The instability of the situation is far beyond acute. The victim will be the USDollar and its sidekick the USTreasury Bond. The USTBonds will be kicked out of the global banking system. The Third World awaits the United States, for its domestic betrayals, its financial failures, its criminal deeds, and its war aggression.

THE RUSSIAN BACKLASH TO BE SUDDEN

Russian President Vladimir Putin will slam the West, and very soon. The initial salvo might be a natural gas cutoff by Gazprom, the Russian giant which has fast moved into the global monopoly position. Eventually, Putin might demand gold payment for the natgas in the captured pipelines, that being the plan according to The Voice. Russia supplies one quarter of Western European gas needs. It will be the opening salvo for Gold Trade Settlement, for which the Iran workarounds to the sanctions provided the critical prototype. Combined with a formal announcement of USTreasury Bond sales in volume by Russia & China, the impact would be tremendous, even devastating. The reverberation will be soon seen as the pending demise of the defacto Petro-Dollar Standard, dictated by crude oil sales in USD terms. It will also be soon seen as the end of the USTBond as the global reserve standard in banking systems. Notice for over two years, the primary buyer of USGovt debt (and its refunded rollover) has been the US Federal Reserve via bond monetization, an absolute heresy to central banking. Hyper monetary inflation cannot stand as fixed policy. The world has responded by constructing an alternative to trade settlement. The forum has been the BRICS conferences and the G-20 Meetings of finance ministers. The US & UK will gradually be excluded from both forums, a process well along. Even traditional allies like Japan are buying gold in high volume, with suppressed lowball data so far. This is game over for the USDollar, the direct victim of Ukraine backlash. The war against Russia has been veiled, but the Jackass has exposed it.

VEILED ATTACKS AGAINST RUSSIAN GAZPROM

First was the attack against Russian Gazprom in Cyprus. It was a hidden attack made to look like a bank confiscation event. Notice no bank account confiscations outside the small but important island nation. The entire Russian banking clearance system had been done through Cyprus. Also, Russia was making significant transactions to purchase Gold bullion using Cyprus as clearing house for the purchases. Second was the attack against Russian Gazprom in Syria, another complicated event. The US had used the Libyan Embassy as a weapons running facility (major diplomatic violation), after which the US lost Egypt as a transfer station on the weapons running. The false flag attack in Syria was made to look like a chemical weapons event. However, the Saudis were the guilty party. The motive by the US was to block the advance of Russian Gazprom pipelines, which are to connect to the vast Iran supply centers. Iran has far more oil & gas than Iraq. In fact, Iran is the linchpin nation, which will throw its support toward Russia. Iran will push the Nat Gas Coop certain to eclipse Saudi Arabia and the loud gaggle of OPEC members. With the Russian Gazprom, together Iran and the Nat Gas Coop will usher in the Petro-Yuan Standard and bury the Petro-Dollar, the price set by Russia, the contracts set in Shanghai. Thus the Saudis will be expendable, and their Gold in London to be totally stolen.

Move to the present. Third was the attack against Russia Gazprom in Ukraine, done by the CIA and its partner security agents from the small ally nation on the SouthEast Med corner. The old game of destabilization, popular uprising, bank thefts, and now data files stolen has been put into action. The theft of significant funds in Ukraine has only started, funds gone to Swiss banks. The full betrayal will be seen soon. The US & UK have a lunatic plan to corral the Ukraine pipelines and possibly the vast farmlands of Ukraine. The wrong-footed plan will backfire, when Putin cuts off the natgas supply to Europe, when Putin demands a new type of energy supply payment structure, and when Putin engineers certain other steps. They might execute a Nat Gas Coop double in price, much like the OPEC event in 1973. Witness the upcoming Birth of the Eurasian Trade Zone, the birth pangs heard in Ukraine. The United States and Great Britain will not be included. The Eurasian Trade Zone will span 14 time zones and will settle in gold.

IRAN WORKAROUND AS KEY PROTOTYPE SOLUTION

The Anglo Americans have disrupted a key nation with longstanding historical and religious ties to Russia. The land of Ukraine also contains Russia's only warm water naval port in the Crimea, the site of a recent suspicious earthquake. The response will be swift and firm. The Eastern nations (led by China & Russia) have been making detailed preparations in the last couple years to launch the alternative trade system founded in Gold Settlement. Its launch lacks a potential open door trigger, possibly offered by the Ukraine situation. The Gold Standard could return in a baptism by fire. The open door trigger appears to be the Western interventions into Ukraine, since the Western banking structures will not be permitted to collapse, the ugly reality. The abuse of the central bank monetary expansion and fraudulent bond redemption has gone totally out of control, forcing an endless cycle of alternative preparations and motivated reactions, including the Iran workaround with Turkey as intermediary in gold provision. Other attacks have taken place in the last few months against the Russian Ruble by Wall Street firms. The reaction will possibly be the launch of what could eventually be understood to be a gold-backed Ruble currency, combined with natgas cutoffs to Europe and USTBond dumps. At first it could be perceived as the oil-backed Ruble, but its quick hidden conversion to Gold bullion could be revealed later on. The USDollar will be discarded as obsolete, even toxic. The USDollar debt basis might be widely accepted to be the cause of the global financial crisis, and the USFed Quantitative Easing be widely understood to be the cause of the global financial collapse.

EUROPE AS KEY REGION TO TIP EASTWARD

Events inside Western Europe could unfold rapidly. Behind the scenes, much is happening. The important German-French Axis is breaking down, weakened by each passing month and bailout exercise. The motive for much of the German support of bailouts and rescue plans, as faulty as they have been, is the oversized German ownership of both French Govt debt and big French banks. They will fail, both the French sovereign debt and the big French banks. Germany must undergo a split, with a restructure from the devastating damage due to Southern European sovereign debt and related big bank losses. At the same time, Germany is on the verge of turning East to Russia. Already Russia is a large energy and mineral supplier to Germany, the heavy railway facilities in place. The core of Nordic Europe is firm. Austria and Finland are aligned with the pragmatic forces in Germany and the Netherlands. Italy is being transformed, but Spain might be lost to chaos. Turkey is also undergoing change during chaotic reform. The entire NATO Alliance has never been weaker. The military action in Ukraine is framed as a supposed NATO exercise to honor a treaty. Watch the loose end like Turkey fall off the NATO wagon, while Finland falls off the Euro currency wagon. The Jackass is eager to see the Snowden NSA files reveal key data on the illicit usage of NATO bases for narcotics distribution, the origin being Afghanistan. What a bombshell it would be if Turkey announced that their government would no longer permit heroin shipments from USMilitary aircraft on their Incirlik Airbase.

A key player in the mix is Israel. They have a Tamar floating platform, whose natgas has been pledged under contract to Russian Gazprom. The tiny nation is possibly changing its alliances out of pragmatism, seeing its drained weakened host that has duly served its purpose. The next big step is for Western Ukraine to suffer the drain of remaining resources (financial and agricultural) to the West, using all the diplomatic tools the Euro Elite can muster. The people in the East will realize that they have been betrayed once more by the Western powers. This is the critical final step. Several swing nations will consequently align with Germany, if only to make being integrated by Russia less painful. During all the transitions, China will take care of Asia in this game. The remaining overriding question is whether the US & Britain will go quietly in the night of faded empires, or else to wreck the world with nukes and viruses. The main exports out of the United States and its royal handlers have been fraudulent bonds, military hardware, genetically modified food, fast food with diabetes, pharmaceuticals, surveillance software, computer viruses, and jamming software technology. Such is the nature of the fascist transformation.

RUSSIA CANNOT BE ISOLATED

The West is in for a gigantic surprise in the sequence of events to unfold. They have placed criminal oligarchs into top government positions in Ukraine. Doing so might suit the West but not the Ukrainian people. The political brain trust in Berlin shows extremely errant strategy, still kowtowing to the USGovt and London Elite in an incomprehensible manner. The West cannot isolate Russia, which is the latest absurd bone-headed strategy. They need Russia in vital ways that will become apparent when the West faces energy supply cutoff or forced Gold payments during an open global USDollar rejection. The US will quickly feel the lost Petro-Dollar gear mechanisms. China has already aligned itself beside Russia, which makes isolation impossible. Consider the Russian commodity supply and Chinese industrial power, the new axis to the Eurasian Trade Zone.

The West cannot continue to bully Russia & China. Poking a stick in the bear's face will not work for long. Disrespecting the Chinese creditor is deep folly. The risk that coincides is for the two Asian superpowers to threaten or actually execute a dumping initiative of USTreasury Bonds, and force the United States to use its last card in a grotesque display of hugely amplified monetary expansion. The US would collapse by falling on its own sword, the event occurring in the Weimar chamber. A super high volume bond monetization machine to cover globally dumped USTBonds is a strong likelihood as climax event, with a broken derivative mechanism that is revealed during its fracture. The London banker murders (another Jackass correct forecast, made in mid-2011) indicate a motive to keep covered up the extreme $100 billion JPMorgan derivative losses at the hands of the London Whale Bruno Iksil, first sighted in May 2012. The accelerated hyper monetary inflation in response to Russian & Chinese joint retaliation would finally kill the USDollar. The echo event, born from failure, would be for the USGovt to launch the new split Scheiss Dollar. Then the USGovt could have its domestic currency finally, and then wreck it with an assured painful sequence of devaluations. The fundamentals for the US domestic only currency are truly horrible, typical of a Third World nation. Ukraine is about the last gasp of the USDollar. It has no viable defense.

UKRAINE AS WATERLOO FOR THE USDOLLAR

Ukraine is the Waterloo event for Team Obama and the Wall Street handlers, the true controllers of the White House puppet. Ukraine will lead to wreckage to the USDollar and its USTBond partner in crime. Witness the death of the USDollar and the Birth of both the Gold Trade Standard, on the new Eurasian Trade Zone landscape. Neither Russia nor China will cooperate on the IMF super sovereign reformed currency basket at this point, not during extreme hostility and conflict. Hope and pray for cooler heads to prevail, since already many serious military attacks have occurred with advanced weapons off the Syrian coast. The Western Press prefers to frame the Ukraine situation as one more curious Orange Revolution event staged in Eastern Europe, akin to the other deceptive Arab Spring events. The old Soviet Union was trapped years ago, forced to use hyper monetary inflation in defense, as the nation imploded financially. The United States is now trapped in an ironic parallel manner, and will be exposed for its heretic inflationary response that ramps up to obscene volumes, followed by financial implosion. In fact, the events from here onward are the final hurrah for the USDollar regime and the criminal cabal.

Now has never been a better time to own a big stack of gold & silver coins & bars, stored in a secure place outside the United States, outside England, outside Switzerland, even outside Canada. The people must defend against a climax of systemic failure, led by arrogance, stupidity, desperation, and delusion, even armed aggression. It remains to be seen whether the Kremlin has some secret allies who might emerge in time, from other worlds. But that is an entire other story to be told someday maybe. We earthlings will all find out soon enough. Times are changing fast, and better to be alert than to get hurt. The Global Currency Reset lies directly ahead, complete with its doubled Gold price and doubled Silver price. The Russians & Chinese are motivated to respond to a military prod, poke, and nudge by delivering a financial response. The rejection of the USDollar is near. The rapid diversification away from the USTreasury Bond is near. The arrival of the new Global Gold Standard is imminent.

 

How monetary policy drives foreign policy

It should now be evident that America's foreign policy is to an extent being driven by our banking mess. Again and again, we see Washington, including Wall Street's handmaiden, the Fed, exporting monetary chaos implicitely in order to weaken the status of potentially competing reserve currencies:

• Wall Street sent a tsunami of bad AAA-rated mortgage debt to Europe, much to Germany, the locus of power for the Euro (and again, implicit admission of guilt is seen in the apparent fronting of billions of bailout dollars to the European banks by the Fed after the crisis);
• Washington has apparently fomented or supported a coup in the Ukraine that increases the likelihood of war in Europe dramatically therefore sending the gigantic pools of liquid financial assets in the world scurrying into the greenback and US Treasuries, which the Chinese have stopped gobbling up;
• the other factor is that the military-industrial complex needs war to get its funding, and when drone-bombing rag-heads can't provoke a serious attack, destabilizing a former Eastern bloc nation and provoking a somewhat justifiably paranoid Russian leader into military action guarantees at least a shot in the arm of crisis funding.

Russia has repeatedly stated over the past decades that an EU move on the Ukraine crosses a red line. The EU ignored the warning, and with the US's help and the ire of Ukrainians sick of a corrupt government crossed Putin's red line. What the Ukrainians want is democracy and relief from their corrupt plutocrats (see previous post's article by Paul Craig Roberts).

The US has no compelling strategic interest in the Ukraine, or in the Crimea remaining part of the Ukraine. Yes, the Ukraine has been looted by its oligarchs, just as Russia was, and just as the US is being looted by its oligarchs right now; incomes of a majority of American households are falling so the banks can collect on bad debts. It would be nice for people everywhere if they could break the grip of the plutocrats over their livelihoods. In the Ukraine, to substitute debt servitude to Western banks for the domination of the oligarchs would only accelerate the collapse of the EU. And it's not clear the EU, if it offers help, won't be ripped off by the oligarchs as well. The new government in the Ukraine has already increased the power of the oligarchs by giving them provinces to rule, so it's not clear the Western "rescuers" are even able to help solve the fundamental problem at all, and might end up losing their shirts again, as they have in Greece, Portugal, et al.

Until democratic governments around the world become strong enough to counteract the power of the plutocrats by taxing them, both their income and their wealth (as Sweden does) the revolving looting of sovereign governments and demolition of middle classes by the plutocrats and their corporations will continue.

A couple of posts ago I said the scariest thing I've heard recently was Catherine Anne Fitts saying what the world needs now is a global debt for equity swap. I should say I generally like Ms. Fitts' analysis and suspect she may even have misspoken when she made this comment. Such a move would concentrate ownership of the world's assets sufficiently to create even more of a Plantation Earth than we have currently.

She identified the problem, but not the solution. What the world needs now is a global jubilee, debt forgiveness. The debt that the Fed is shoving under the carpet via QE is what is known in banking circles as "bad debt." It is loans that never should have been made because they will never be repaid. In honest not crony capitalism such debts come out of the profits (as losses) of the banks that made them. In crony capitalism, with a central bank controlled by the banks, such debts are "paid back" by being monetized and put on the backs of the taxpayers either directly or through inflation.

The austerity programs Europe has put in place so that Wall Street and European banks can be paid back bad debts have destroyed more than one economy and more are probably yet to fall. (The idea promoted ten plus years ago of "convergence" of interest rates in the EU between periphery and core caused me to gag at the time.) Debt slavery to Western banks is not the answer. (China is apparently making similar mistakes; it will be interesting to see what they do with the bad debt. I suspect their strong central government will tell the bankers to go stuff it.) Ms. Fitts suggests that sooner or later the plutocrats will destroy the banks in order to buy them cheap and collect the rents themselves, canny suggestion indeed.

Chaos in the world = a strong dollar. Until it doesn't. Chaos has a way of being unpredictable.

Capitalism has killed democracy. "Free" markets dominated by monopolies and oligopolies are not what Adam Smith had in mind. It's time for democracy to be reborn. There are degrees of economic inequality that are simply immoral and destructive and humankind has the right to reject them. When the top 85 families own as much as the bottom 3.5 billion people, as recently reported, we have reached such a point.

The looting of the Ukraine

From Paul Craig Roberts here (quoted with permission). The best thing Boris Nicolayevich Yeltsin did for Russia was to default on the loans the IMF pushed on them. Russia has a very low level of sovereign debt, and hence is largely immune to the evil machinations of the international bankers. The Ukraine ought to take note. See also Jess's excellent post with an embedded must-watch video from "economic hit man" John Perkins here.
Most Americans do not benefit from these imperialist exploits. It is within our power to stop them, if we gain control of our government.

According to a report in Kommersant-Ukraine, the finance ministry of Washington’s stooges in Kiev who are pretending to be a government has prepared an economic austerity plan that will cut Ukrainian pensions from $160 to $80 so that Western bankers who lent money to Ukraine can be repaid at the expense of Ukraine’s poor. http://www.kommersant.ua/doc/2424454 It is Greece all over again. 

Before anything approaching stability and legitimacy has been obtained for the puppet government put in power by the Washington orchestrated coup against the legitimate, elected Ukraine government, the Western looters are already at work. Naive protesters who believed the propaganda that EU membership offered a better life are due to lose half of their pension by April. But this is only the beginning. 

The corrupt Western media describes loans as “aid.” However, the 11 billion euros that the EU is offering Kiev is not aid. It is a loan. Moreover, it comes with many strings, including Kiev’s acceptance of an IMF austerity plan. 

Remember now, gullible Ukrainians participated in the protests that were used to overthrow their elected government, because they believed the lies told to them by Washington-financed NGOs that once they joined the EU they would have streets paved with gold. Instead they are getting cuts in their pensions and an IMF austerity plan. 

The austerity plan will cut social services, funds for education, layoff government workers, devalue the currency, thus raising the prices of imports which include Russian gas, thus electricity, and open Ukrainian assets to takeover by Western corporations. 

Ukraine’s agriculture lands will pass into the hands of American agribusiness.
One part of the Washington/EU plan for Ukraine, or that part of Ukraine that doesn’t defect to Russia, has succeeded. What remains of the country will be thoroughly looted by the West. 

The other part hasn’t worked as well. Washington’s Ukrainian stooges lost control of the protests to organized and armed ultra-nationalists. These groups, whose roots go back to those who fought for Hitler during World War 2, engaged in words and deeds that sent southern and eastern Ukraine clamoring to be returned to Russia where they resided prior to the 1950s when the Soviet communist party stuck them into Ukraine. 

At this time of writing it looks like Crimea has seceded from Ukraine. Washington and its NATO puppets can do nothing but bluster and threaten sanctions. The White House Fool has demonstrated the impotence of the “US sole superpower” by issuing sanctions against unknown persons, whoever they are, responsible for returning Crimea to Russia, where it existed for about 200 years before, according to Solzhenitsyn, a drunk Khrushchev of Ukrainian ethnicity moved southern and eastern Russian provinces into Ukraine. Having observed the events in western Ukraine, those Russian provinces want to go back home where they belong, just as South Ossetia wanted nothing to do with Georgia. 

Washington’s stooges in Kiev can do nothing about Crimea except bluster. Under the Russian-Ukraine agreement, Russia is permitted 25,000 troops in Crimea. The US/EU media’s deploring of a “Russian invasion of 16,000 troops” is either total ignorance or complicity in Washington’s lies. Obviously, the US/EU media is corrupt. Only a fool would rely on their reports. Any media that would believe anything Washington says after George W. Bush and Dick Cheney sent Secretary of State Colin Powell to the UN to peddle the regime’s lies about “Iraqi weapons of mass destruction,” which the weapons inspectors had told the White House did not exist, is clearly a collection of bought-and-paid for whores. 

In the former Russian provinces of eastern Ukraine, Putin’s low-key approach to the strategic threat that Washington has brought to Russia has given Washington a chance to hold on to a major industrial complex that serves the Russian economy and military. The people themselves in eastern Ukraine are in the streets demanding separation from the unelected government that Washington’s coup has imposed in Kiev. Washington, realizing that its incompetence has lost Crimea, had its Kiev stooges appoint Ukrainian oligarchs, against whom the Maiden protests were partly directed, to governing positions in eastern Ukraine cities. These oligarchs have their own private militias in addition to the police and any Ukrainian military units that are still functioning. The leaders of the protesting Russians are being arrested and disappeared. Washington and its EU puppets, who proclaim their support for self-determination, are only for self-determination when it can be orchestrated in their favor. Therefore, Washington is busy at work suppressing self-determination in eastern Ukraine. 

This is a dilemma for Putin. His low-key approach has allowed Washington to seize the initiative in eastern Ukraine. The oligarchs Taruta and Kolomoyskiy have been put in power in Donetsk and Dnipropetrovsk, and are carrying out arrests of Russians and committing unspeakable crimes, but you will never hear of it from the US presstitutes. Washington’s strategy is to arrest and deep-six the leaders of the secessionists so that there no authorities to request Putin’s intervention. 

If Putin has drones, he has the option of taking out Taruta and Kolomoyskiy. If Putin lets Washington retain the Russian provinces of eastern Ukraine, he will have demonstrated a weakness that Washington will exploit. Washington will exploit the weakness to the point that Washington forces Putin to war. 

The war will be nuclear.

‘Animal spirits’ update

The approach taken to confidence determination here stipulates that, for the most part, confidence levels are determined by whether unemployment is above or below what people are used to, an adaptation level modeled as an exponential moving average over the past four years. When unemployment is below the adaptation level, we feel good; and conversely. Thus, in the 1980s, when unemployment came down from double digit levels to 9 percent, that level produced gains in confidence. Currently the adaptation level is at 7.8 percent and unemployment is at 6.7, so in theory we are “confident” (as I have mentioned, I don’t quite know why the median income household—really everyone below about the 90th percentile—has not lost confidence completely; we know the top 10 percent are confident, and for the most part completely out of touch with what is happening in the country.)

What is remarkable about this simple theory is that it is very sensitive to identifying the beginnings of the downward cascade of economic activity—and upward shooting of the unemployment rate—that occur at the outset of recessions.

The forecast in blue assumes the following judgmental forecast for unemployment:

Now it is possible that unemployment will bounce along a bottom at about current levels for longer than I have assumed, but in this theory of the business cycle confidence will always fail when the adaptation level comes down to the current unemployment rate. Note in the graph above that the crossover point is almost always exactly when the NBER defined recession begins, and when unemployment accelerates upward.

The negative skewedness of the first differences seen here is also seen in stock prices, which arguably follow a very similar type of adaptation-level theoretic dynamic, at least in part.

The current period is morphologically similar to the early 1970s, before the recession began, with the Michigan Consumer Sentiment series lagging (green in “animal spirits” chart). If we follow that pattern the collapse will be sudden.

My judgmental forecast puts the start of the collapse a year from now, in February 2015, but my forecast includes increases of 0.1 percentage points a month starting in about six months. I cannot comment on the calculation of the unemployment rate authoritatively, but many have found the sharp decreases in the labor force participation rate to be anomalous. (It was amusing and sickening to hear that Janet Yellen is worried that the labor force participation rate might increase from its generation low and cause the unemployment rate to go up. She and the Fed are apparently aware of the underlying model referenced here even if here book-writing husband’s book on “animal spirits” doesn’t reference it.)

If we are at something like “peak false consciousness” (again) it won’t take much to prick the bubble, especially as the unemployment rate and adaptation level converge.

"Fuck the EU"

If you haven't listened to the conversation of the American ambassador and another apparatchik about regime change in the Ukraine--or if you haven't listened to it recently--I strongly suggest another listen. The totally-out-of-touch arrogance in the voices is absolutely sickening. (H/t Michael Snyder--I did listen to this when it came out in early February, but in the light of recent events it's really mind-blowing.)

I don't know who leaked this--as I recall it was originally attributed to Russian intelligence--but it does seem there is an upswelling of resistance to the feudal state from some of its most highly placed servants.

When will long rates rise?

Answer: After a whole lot of taper.

John Hussman has a famous graph of short rates plotted against the ratio of monetary base to GDP. I’ve never seen anyone plot the same for long rates, so I did it:

Recently Base/GDP has been about 0.22, so we are way out on the right end tail. It would take a reduction of the ratio of about 15 percent of GDP to begin to raise long rates, or about $2.6 trillion at current rates of GDP. The St. Louis base is currently at $3.7 trillion, and has been growing at over 20 percent a year since the last recession.

The scariest thing I've heard recently

In an interview with Greg Hunter on his YouTube channel Catherine Austin Fitts said, "What we need now is a global debt for equity swap."

In other words, let the sovereigns out of their unpayable debt by selling off public assets to the global plutocratic class.

This will seal the deal for generations of neo-feudalism to come.

More and more, I think the only way populations will throw off this yoke will be by national strikes that shut the corporatocracy down. I'm not advocating national strikes, but I don't see any way to combat entrenched neo-feudalism through democratic means, as the democracies have been eviscerated through the corrupting powers of money.

Talk continues to percolate through the Intertubes of the imminent "global reset"....