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.

Global currency reset: is it real?

The Intertubes are buzzing with talk of a global currency reset, usually in conjunction with a sale of a DVD that the seller alleges contains secrets that "the elite" have imparted to him that will make the difference between survival and adject ruin in your life. The most cogent of these is by Pastor Lindsey Williams here.

The basic argument is that Christine Lagarde has secured agreement from some 204 nations to enter into a new managed float currency system that, however, will move currencies toward new exchange rates based on national "assets." America, being the premier debtor nation in the world, would be devalued in its new channel, especially relative to the yuan. This of course is what a lot of people would like to see happen to stimulate exports. This system is allegedly to be kicked off by the end of first quarter 2014. There will be some sort of gold-backed or basket-based new international reserve currency introduced.

Obviously America is hit by stagflation as goods from China increase in price by 30 percent or so. Simultaneously the government in 2014 or 2015 will seize 30 to 50 percent of public and private pension funds to pay down government debt.

I have little doubt that the dollar's reserve currency status is weakening. Many significant trade deals have been recast in the past few years out of dollars into other currencies, or in some cases, into commodities. But if such negotiations for a global currency reset have taken place they have been kept very quiet.

The problem I have with this story is that it conflicts with what I see as the most likely outcome, the credit supernova, in which all countries succumb to temptation to beggar the rest of the world to inflate out their debt and depreciate their currency. America's dominance and relative safety (note the negative yields on recent T-bill auctions) would seem to augur a relatively strong dollar in such a supernova scenario.

However, Williams does make a credible case that the American economy will totally collapse in 2015 when the business mandate of Obamacare takes effect. The press has recently given coverage to the profit guarantees that the health insurance companies enjoy under Obamacare. Recent retail sales numbers certainly suggest a collapse of demand (see this).

The good pastor also maintains that the smart meters that have supposedly been put on most American houses are in fact microwave mind control devices that have softened up the population for the imposition of the totalitarian new world order without violent resistence (this seems to entirely based on the allegations of one Barrie Trower, a British physicist).

What economists call "effective" demand collapses when most people's incomes are falling, even if total income (GDP) is ostensibly rising. The rich just don't spend enough or on the right things to keep the circular flow going in a healthy way. And when the most attractive investment opportunities are offshore, anyone with a mutual fund can send their capital abroad. Add to this the bad debts of the banks that they have transferred onto the backs of the American (and Irish, and Spanish, and Portuguese...) people and the stage is indeed set for collapse. The question will be whether the rich will push the poor into a die-off (life expectancies are already declining among the lower classes in America, and probably elsewhere) or whether the population of the world will learn to share in the context of a just society.

In any event, we'll see if there's anything to all the fevered talk about the "global currency reset" within 90 days.

 

QE = Quantitative Erasing

How even the nostrums of decades of accepted mainstream academic economics are debased by propaganda in these latter days!

As John Hussman has pointed out, the euphoria of the current expansion (among the haves) is largely due to the legerdemain of FAS 157, the "pretend and extend" statement.

But FAS 157 was not enough.

Graduate students have been taught for decades that excess reserves are just that, in excess of required reserves, and therefore do not contribute to money multiplier money creation, or to movement of the real economy.

So "quantitative easing" (taking bank assets into the Fed and letting them serve as reserves) when it involves adding to already excessive levels of reserves should not expected to have an effect on the real economy. And it hasn't, by definition.

So why do it? The reason for QE is simply to sweep the mountains of bad debt on the banks' balance sheets into the unauditable fetid swamp that is the "Federal" Reserve System. It is "quantitative erasing" of these bad debts and magical transmutation of them into the gold (for the bankers) of high-powered reserves, so that the bonuses may increase!

The Fed has never to my knowledge reported on the losses on the assets it holds.

So I gag when I hear that Fed policy is going to remain "accommodative." It is a measure of the level of false consciousness even among supposedly professional economists that no one is calling out the Fed on this canard. ZIRP is so far from being repealed (see Hussman's beautiful chart relating reserves as a percent of GDP to short rates a couple of posts ago) that the dreaded "taper" can a priori have no effect on short rates; the only effect might be lower long-term inflation expectations, which would flatten the yield curve, which would be bearish for the economy, other things equal.

So I just think of QE as "quantitative erasing" and further plunging into the monetary chaos to come.

The banking system remains an anvil around the neck of the American economy. The Fed needs radical reform, or better, to be abolished.

And when the crisis comes, I pray that the haves in America will rediscover a collective conscience and realize that the countrymen and women they have expropriated are their closest relatives.

Median household incomes at 1996 levels

From an adaptation-level theoretic perspective, I don’t understand why confidence hasn’t collapsed already.

Source: Census via FRED. Annual data through 2012.

Inequality forever: the (hidden) neo-feudalist agenda

I read a lot of different blogs, mostly for their links. I have little interest in reading Yves or Michael Snyder, but they both provide lots of high-quality links, so I frequent their blogs. Some blogs I won't go to, like Brad de Long's, simply because the stench of the self-satisfied Establishment is too much.

What I find tragic about the libertarians like Mish and about the Evangelicals like Michael Snyder is that they are apparently willing to play so readily into a Government-destroying gambit that opens the way for those in control of vast wealth, the 1 percent, so to speak, to bankrupt governments worldwide and then buy up their assets at trivial prices as occurred after the fall of the Soviet Union; in other words, to take the world into the new world order dreamed of by Rockefellers and other Illuminati for generations, a neo-feudalism enforced by financial fascism through a world-wide fiat money system run by the Bank of International Settlements, which there are the lords and ladies of wealth over the debt-serfs, everyone else. Snyder even had a link to a Carroll Quigley quote on this from the Sixties.

Depression conditions are known to foster fascism, but the indicated depression conditions don't seem to bother the Evangelicals or the libertarians.

But history is nonlinear, and I maintain hope that in the Crisis to come a new viable democratic form will emerge.

Was full employment a debt-illusion?

http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=EMRATIO

The Great Debt Illusion began with "Supply Side Economics" in Reagan I, a con game that provided definitive proof that tax cuts for the rich do not provide growth that "trickles down" to everyone else. Here's the picture of federal debt:

http://research.stlouisfed.org/fred2/series/GFDEGDQ188S

Notice where the take-off occurs. Add to this insight that it was a Republican, Nixon, who took us off the gold standard in 1971, setting the stage for massive monetization of federal debt, and it is hard not to conclude that the modern-era Republicans are the most fiscally-irresponsible party in American history. All their talk of austerity is in fact mere mean-spiritedness. This is the distinguishing characteristic of the Republican Party today.

Today, the House Republicans take pride in being the most hard-hearted folks in the country, proving it by taking their greedy frustration out on women and children by cutting funding for food stamps.

This is a party without a future.

On the employment issue: in the Sixties, it was possible to support a family on one (male) income. Not so today except for the top few percent. Multi-generational living is a growing trend, and maybe not such a bad one if it brings families closer together.

Shalom.

Fourth turning update

The entertaining Jim Quinn has put up the third in his series of "Trying to Stay Sane in an Insane World." Quinn works at Wharton and his website is either one of the cleverest honeypots around, or Wharton — a bastion of, let's face it, Wall Street think — actually allows some free speech.

However, here's my response to the Austrians who say — who chant — "Government bad! Government bad!" — and, "Free markets good! Free markets good!"

Feudalism bad! The Middle Ages were based on a system of highly concentrated ownership of the means of production, which at that time was mostly land. You had your lords and your serfs. With the assistance of rapidly improving technology are getting closer and closer to a new age of feudalism.

The Crisis still looks to peak after 2020. Buckle up.

The signature of incipient depression (take 2)

I almost titled this, “It’s the distribution, stupid,” but there’s more to it than that.  A while ago I published a piece called The signature of incipient depression that pointed out the similarity of the current period (still applies, two years later) to 1929, pre-The Great Depression:  namely, the very high total nonfinancial debt to GDP, and the extreme inequality of the income and wealth distributions.  Today I can add declining real incomes for the ~90+ percent as the third leg of the stool.

In a consumer-based economy, effective demand collapses when most people’s real incomes are falling, as they are now.  I’m putting up graphs of the three main elements of this signature of incipient depression, mostly in response to a stupid piece in Quartz from someone “refuting” Reinhart and Rogoff (here).  Not that they’re wrong, or that the No Exit situation that the fiscal authorities are in won’t prevent them from blowing the biggest debt bubble in world history over the next six years as posited in When will the financial singularity occur? ~2020.  Another six years might seem like a long time to kick the can down the road, but it would make this episode of ZIRP approximately as long as the previous one (1934-1946).

It is always possible for an economist—an ideological cheerleader—to miss the forest for the trees.  The most powerful fiscal remedies available to us now are steeply progressive income and wealth taxes, and a program of food and shelter and basic medical care in exchange for work for the dispossessed, who may be expected to become numerous if present trends continue.  Or perhaps a negative income tax with the elimination of the minimum wage.  And put health insurance on a hybrid single payer system so that everyone gets at least some coverage.

The point being:  The US economy still sports the signature of incipient depression.  As the focus ostensibly turns to fiscal policy for the remainder of the decade I suppose the best advice is to try to get on the gravy train if you can.  The next decade will be the Depression 2.0 decade, in all likelihood, the true test of democracy vs. fascism—we’re not there yet.  And given how piggy the 1 percent are world-wide we might not see much inflation until about 2020 either—except of course that rolling through asset markets.  My best guess is that the Feds will tase the labor market with a little more monetary tough love (also part of the “wash and rinse” cycle in the stock and metal markets, one for the Gipper, so to speak) so that the big boys can get nice and levered up for the big ramping up in asset markets to come in the second half of the decade.  Ordinary working people are hosed pretty much everywhere, it seems.  Just my guess.

The debt situation is worse if you look at all nonfinancial debt:

Here’s a longer-term picture of household income:

And that’s using the government’s phony hedonically adjusted inflation measure.

When will the financial singularity occur? ~2020

Didier Sornette has some great stuff out now.  See his Ted talk and this white paper, “The Illusion of the Perpetual Money Machine,” in which he he pretty well demolishes the con game that the economics profession—slave to Wall Street—has been playing at the great expense of the people of the world.  I’ve written previously about the faster than exponential growth theory of singularities, financial and otherwise (see here).

The bad debt will be cleared.  Sornette indicates that his models show that the anticipated phase transition out of the growth era, originally forecast for 2030-2060 in his work with Johansen, has begun.

Andrew Jackson’s last words before dying were, “I killed the Bank!”

Where is our Andrew Jackson?

What a democratic solution to a banking crisis looks like

Via: bloomberg.com  Imagine what our response would have looked like if our political system weren’t totally corrupt, but actually responded in a reasonable way the will of the people.  The Millennials wouldn’t be debt serfs looking to rent their next apartment from a hedge fund, while Wall Street “bankers” snap up their second and third vacation properties.

BTW, I actually wrote the White House today (wow, political activism!) informing the President that I was one of his progressive supporters who has been disappointed many times by his policies, but urging him not to blink on raising taxes on the rich.  Until our selfish, corrupt ruling class is made to heel at least a little bit to the needs of the bottom 80 percent, we are on the express train to neo-feudalism.

Depending on how much backbone Obama actually has and on how secure the Devil’s grip on America’s throat is, we could see very dark days ahead.  On the other hand, Obama could cave, like he usually does.  Few people want to consciously become martyrs.  In this case the forecast is for continued collapse of effective demand.  America joins Brazil as a full-fledged banana republic.

Fighting Recession the Icelandic Way

By the Editors - Sep 26, 2012

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression.

Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratingsrestored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

You can say that again. Iceland’s approach was the polar opposite of the U.S. and Europe, which rescued their banks and did little to aid indebted homeowners. Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.

Nothing distinguishes Iceland as much as its aid to consumers. To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.

Debt Relief

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.

These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

In addition to easing consumer debt, Iceland reduced government spending and increased revenue by raising taxes and cutting deductions that mainly benefited the well-off, a path the U.S. might profitably emulate. In fact, relief for overburdened U.S. consumers is a cause promoted by former U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair in a new book published this week. Bair would have done more to aid sinking homeowners and done less for banks, but she says her efforts were blocked by Treasury Secretary Timothy Geithner and others.

It worked in Iceland. A deficit that reached 13.5 percent of gross domestic product in 2009 fell to 2.3 percent last year. The IMF predicts Iceland will have a primary surplus (excluding interest on debt) of 1.5 percent this year.

As for the banking industry, Iceland never had an option to adopt the too-big-to-fail policy that led governments in the U.S. and Europe to prop up their banks. Assets held by Iceland’s three largest lenders had swelled to nine times the size of the economy. After they defaulted on $85 billion in debt, the government seized control of them.

Initial plans to repay foreign creditors, mostly U.K. and Dutch depositors, collapsed in 2009 as street protests led to the demise of the government. Repayment of obligations to overseas creditors was either postponed or written off, leaving the reconstituted banks with much smaller domestic operations. Twice, Icelanders rejected national referendums on repaying foreign depositors, who are pressing their claims in European courts.

Holding Accountable

A new government led by Johanna Sigurdardottir embarked on a campaign to hold accountable the so-called neo-Viking bankers at the center ofIceland’s crisis. Instead of picking a prosecutor from law firms in Reykjavik, which had depended on the banks for business, the government drafted an investigator from a remote village. Although a number of bankers fled the country to avoid prosecution, the former chiefs of two of the three biggest banks have been indicted and are standing trial.

Undoing the damage caused by the crisis is a work in progress; not every Icelandic innovation would be feasible in the U.S. or Europe. Iceland’s debt stands at almost 100 percent of GDP. Many of the country’s professionals have left for Norway and Denmark amid a dearth of jobs. Iceland still must figure out how to ease constraints that barred investors from withdrawing as much as $8 billion from the country and transferring it overseas. Inflation remains stubbornly high. To counter that, and to prevent capital flight, Iceland’s central bank has increased interest rates five times in the past year. But raising interest rates makes credit more expensive, checking growth.

Iceland’s central bank on Sept. 18 released a report suggesting the country go slow with plans to enter the European Union, a process started in 2010 when the euro seemed sounder than the krona. Becoming a member won’t be easy: If the issue were put to a referendum, Icelanders would probably reject admission. And why would Iceland want to join now? Euro-member nations such as Greece and Ireland offer testimony to the risks of being yoked to a currency along with stronger economies.

Devaluation of the kind Iceland suffered is never fun. Reneging on debts leaves a legacy of violated trust. But it still looks better than recession with no obvious way out.

‘The devil has my the people by the throat.’

There is a great scene in “Casablanca” in which Rick talks to an émigré couple about getting out of town.  Because it’s so good, I’m reproducing it below.  The title quote reminds me of America today.

The greed and disinterest in one’s fellow human being, especially if poor or disadvantaged, that Romney and the Republicans embody is the greatest risk to America today.

A businessman doesn’t understand the feedbacks of an entire economy.  He lives in a detached world, concerned only with his income statement and balance sheet.  Austerity in extremis will kill the economy.

The devil has a large portion of the American people by the throat.  If Romney is elected and the Republicans do what they’ve said they will do—cutting taxes even more on the wealthiest, increasing military spending and starting new wars, gutting support for research, education, social services—America will become like Brazil.

We will become a full fledged banana republic.  The social class and income of the parents will largely determine that of the child.  The sliver of very wealthy families at the top will own most of everything, including the house your children will live in, and they will groom their children to positions of quasi-royalty.  Like Tagg Romney, who makes a million dollars a year of capital income in the business his father set up for him.  The rentier class will live in a world apart from their countrymen.

Obama is weak and pathetic, but he understands this, and may do something to mitigate the damage caused by the epoch of deleveraging and increasing inequality that we’re living through.

If Romney wins, the devil may have America by the throat.

Annina: We come from Bulgaria. Oh, things are very bad there, Monsieur. The devil has the people by the throat. So, Jan and I we - we do not want our children to grow up in such a country.
Rick: So you decided to go to America.
Annina: Yes. But we have not much money and...traveling is so expensive and difficult. It was much more than we thought to get here. And then Captain Renault sees us, and he is so kind. He wants to help us.
Rick: Yes, I'll bet.
Annina: He tells me you can give us an exit visa, but, but we have no money.
Rick: Does he know that?
Annina: Oh yes.
Rick: And he's still willing to give you a visa?
Annina: Yes, monsieur.
Rick: And you want to know...
Annina: Will he keep his word?
Rick: He always has.
Annina: Oh! Monsieur. You are a man. If someone loved you very much, so that your happiness was the only thing that she wanted in the world, but she did a bad thing to make certain of it, could you forgive her?
Rick: Nobody ever loved me that much.
Annina: And he never knew. And the girl kept this bad thing locked in her heart. That would be all right, wouldn't it?
Rick: You want my advice.
Annina: Oh yes, please.
Rick: Go back to Bulgaria.
Annina: Oh, but if you knew what it means to us to leave Europe, to get to America. Oh, but if Jan should find out. He is such a boy. In many ways, I am so much older than he is.
Rick: Yes, well, everybody in Casablanca has problems. Yours may work out.

Currency wars & monetary policy

Here’s a great explanation of the currency was prevailing now between the US and China.

It’s great up until Rickards throws a 1 percent canard out at the end that tax cuts after WWII was what got us out of the Depression.  Note:

Via:  www.usgovernmentrevenue.com

You just can’t trust a plutocrat anymore, not matter what his seeming political stripes.

The signature of incipient depression

Historically, the signature of an oncoming depression consists of an unserviceable debt to GDP ratio and an aggregate demand choking level of income inequality (and wealth inequality).

The United States today resembles the US of 1929 more than that of 1941.  The warmongers inside the Beltway still salivate over the miraculous drop in income inequality that occurred in 1942 as America came together to fight the Axis.  They wish for another world war to propel America through the Fourth Turning into a new social cohesion.

Dubious proposition. 

I have published the supporting graphs before, but here they are:

The situation today is essentially as depicted in these graphs.

If the ruling class continues it manipulation of the tax system to its own advantage, with or without a Romney victory, given the broken, money-fouled state of our political system, I conclude that deeper depression will ensue, characterizing where we are as being similar to the 1930s, with positive growth, but as a relatively mild depression.

Some type of repeated systemic collapse looks more and more likely.

Solution to the debt problem

See American Dream Has Become a Myth – Stiglitz in Der Spiegel.

Given that we are in QEternity and ZIRP Into Perpetuity, and that the infrastructure of the US is crumbling, our schools are a mess, our teachers so abused that hardly anyone with half a brain would ever consider becoming one, and given the self-evident truth of Modern Monetary Theory that if you put slack to work in productive ways that exceed the cost of printing the money to do so, then it is obvious what Timmy and Ben should put their empty crania together to do--

Let the Treasury issue Zero Coupon Perpetuities!  Let the Fed buy them!

Problem solved!

Women pose for photos near a homeless man during New York Fashion Week this month.

When ‘capitalism’ fails

Capitalism fails when capital, or the control of capital, as currently in our corporatist system, becomes too concentrated.

When the majority of real incomes are falling, aggregate demand fails.  Duh!  And when people have already borrowed too much, trying to keep up or make a quick buck like the rich folk do, increasing the monetary base and encouraging people to borrow more is a fool’s errand.

Private property is great, and encourages people to work, except when ownership becomes too concentrated, when they feel locked out.

For capitalism to survive, its leaders—the owner class—will have to adopt an ethos that, “For everyone to whom much is given, of him shall much shall be required.”

Otherwise the owner class invites revolution of one form or another. 

Before that happens their greed causes a massive deflation that may very well expropriate themselves (see Comstock’s excellent deflation overview, which inspired these comments).

Democracy exists to allow people to make laws to fix broken systems.

Our democracy is also now broken.

Lot of work to do.

Western economy growth rates portend recession

This indicator has been making the rounds.  Recession soon follows when real GDP year-over-year falls below two percent, as it has for the past two quarters.  The indicator has a pretty good track record over the past 60+ years, never having missed signaling an ensuing recession a year or so in advance with no false positives.

And the situation in Europe is similar, with a garnish of extreme political instability thrown on for seasoning:

‘It’s the debt, stupid,’ redux

Watch for unprecedented manipulation of the unemployment rate, as the administration comes to terms with the fact it is the relationship of the unemployment rate to its adaptation level that is the strongest single determinant of confidence in the United States of America.  The general public, including unsophisticated investors and even types like yours truly with a Ph.D. in economics, distrust the stock market and look at any manufactured gains there as simply more evidence of the expropriation of the public by the kleptocracy.

We learned in macro thirty-five years ago that when effective demand collapses in the depression, increased monetary “stimulus” is like “pushing on a string”—the public and businesses don’t want to borrow in a collapsing economy.  The only lesson Bernanke seems to have taken from his studies of the Depression (and from his current crop of colleagues) is that banks can’t be permitted to lose any money.

Three links by sources I trust sum it up pretty well:

It's A Long Hard Road – www.contraryinvestor.com (may be in the archives after September 2011)

An Imminent Downturn: Whom Will Our Leaders Defend? – John Hussman.  Hussman has developed a robust logistic model on more than just the yield curve, something I would do if I were paid to to do.

‘Helicopter Ben’ risks destroying credit creation – Bill Gross.  An almost comical whine seemingly on behalf of the banks by Bill Gross, who points out that the proposed contortionist “Operation Twist” will not help the banks to create credit, of course missing the main point that in a multi-generational deflationary collapse of effective demand very few want to borrow except the carry trade operators who are having fun blowing bubbles right and left to sucker the poor forcibly “risk on” public in to parting with more of their money.

By the way, I may have been the first to coin the phrase, “It’s the debt, stupid,” but I welcome any contributions to substantiating that claim.  Here’s the earliest reference I can find on the site:

The Animal Spirits Page: It's the debt, stupid

Just to be perfectly clear

Another two or more years of ZIRP (zero interest rate policy) is a subsidy to banks carrying bad debt at inflated “extend and pretend” values permitted by today’s phony accounting.

The Fed is willing to bleed the rest of the American economy to subsidize the banks.

The “bad banks” will not “grow solvent” as a result of this policy.  The enormity of the bad debt is simply too great.

ZIRP hasn’t helped the economy yet, so why should it going forward? 

However, those who fear inflation in the intermediate term are premature.  Bad debts don’t get repaid, they only get papered over until their failure is so absolutely plain to see it can’t be covered up any more….  Deflation lies between now and the future Great Inflation.

Which is why we’re probably in for another round of “quantitative easing” in which the Fed buys bad debt from weak banks and hides it away where bad debts never see the light of day.

At this point, some of the Modern Monetary Theory solutions to our problems seem actually attractive.  Why shouldn’t the Fed write off (i.e., charge off, write down to a zero value) the U.S. Treasury debt it holds.  That’s not a default, it’s more like the kind of favor rich people do for each other (as when the board of a Colorado savings and loan “charged off” a $100,000 loan to a son of George H.W. Bush).

We’ve been here before.  The Fed pursued a ZIRP in the 1930s.  It didn’t end well.

See also the estimable Joseph Stiglitz’s four-part solution to our problems here.

Is crisis necessary? Apparently.

If one subscribes to the hypothesis of The Fourth Turning, the answer is yes.  There is a truly Old Testament feel to Strauss and Howe’s uncannily accurate “prophesy” from fifteen years ago.  American society enters a crisis phase every eighty years or so (1780, 1860, 1940… 2020).  There is abundant macro evidence that our situation resembles the 1930s in many ways—high debt-to-GDP load, rampant inequality, labor beaten down—with a couple of significant differences.  In the 1930s the common people had a strong ally in Roosevelt; today the well-heeled direct the President.  In the 1930s, the United States was the world’s greatest creditor nation, today it is the world’s greatest debtor.  In the 1930s, a lot of bad debts were charged off and banks allowed to fail, today bad debts are being shuffled between banks and governments (taxpayers) in countries ‘round the world.

There seems to be a need for a depression to shake the society out of its old ways, or at least to increase the likelihood of radical change.  There is no guarantee America will reform itself.  Devolution into several centuries of neo-feudalism, a la late Roman Empire, is a distinct possibility.

So I watch the debt ceiling charade believing it is rehearsal for a more major screw-up to come.  It seems to be required by the nonlinear dynamics of history.  Phase change begins soon.