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!

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]

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.

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.

The public players are all fools

How long will our MSM political discourse be limited to witless exchanges between cartoon ideologies? The libertarians are lazy, puerile pikers who want no one to take their toys away. The evangelicals follow like sheep their war-mongering false prophets, funded by greedy rich bastards who laugh at their stupidly. The screeching leftists like Krugman and Bernanke are too brainwashed in fiddle with the dials neoclassical macroeconomics to fully realize that the problem is the distribution, stupid. How long will progressives who sense a fundamental corruption in the military-industrial-financial-fascist complex resulting in the erosion of Constitutional protections, blatant suppression of significantly disruptive opposition (Wikileaks), the lack of a single prosecution of anyone responsible for the massively fraudulent activity that led to the financial crisis and the subsequent bailout of the perpetrators--how long will rationally skeptical progressives be labeled "conspiracy theorists"?

Most of the American people probably would fall into the latter category if they were honest about their views.

At this point They already know all of our political opinions through their surveillance of all our private communications, so what is there to lose in the American people tying up the phone lines to Congress more often with expressions of our disgust with our "representatives"? What other power do we have? Are we going to continue taking this lying down?

 

Today’s most depressing blog posts

We are doomed.  The historical dynamic will not be reversed.

Via:  www.nakedcapitalism.com

Obama Wins, the System is Broken

[…] There is a reluctance to recognize how large the gap between Obama’s persona and his mode of operation is, and there is a similar failure to appreciate what most of his compromises are about. Like Br’er Rabbit’s pleas not to be thrown in the briar patch, concessions for Obama are typically a vehicle to get him where he wanted to go anyhow.

More at The Real News

This is the money quote from this interview:

JAY: So what does the U.S. economy look like in four years? Whoever is the presidential nominee for the Democrats, it seems the plate gets set for a far-right candidate of the Republican Party to say, look, you had eight years and couldn’t do it.

JOHNSON: It looks like Brazil before Lula. It looks like it’s heading in that direction—in other words, favelas. You know, Lula’s made some strides in reversing—Lula and his successor, excuse me, have made some strides in reversing the inequality and alleviating poverty and invigorating education there. They were in a deep ditch of violent inequality of income and wealth, and they’ve made some positive strides. We’re going in the other direction as—faster than they turned things around.

Read more at http://www.nakedcapitalism.com/2012/11/obama-wins-the-system-is-broken.html#SqueqEfJmSuPzADS.99

See also:

Obama and progressives: what will liberals do with their big election victory? – Glenn Greenwald in The Guardian

Human cycles: History as science

Via:  Nature

Sometimes, history really does seem to repeat itself. After the US Civil War, for example, a wave of urban violence fuelled by ethnic and class resentment swept across the country, peaking in about 1870. Internal strife spiked again in around 1920, when race riots, workers' strikes and a surge of anti-Communist feeling led many people to think that revolution was imminent. And in around 1970, unrest crested once more, with violent student demonstrations, political assassinations, riots and terrorism (see 'Cycles of violence'). […]

Big picture empirical support for Strauss and Howe’s prophetic narrative of a crisis peak in about ten years.  Continues here.

‘Animal spirits’ update

Based on my judgmental forecast of the unemployment rate, which I expect to break below 8.0 percent just in time for the election, then to shoot up as the global slowdown catches up with the US.  In 2013 and 2014 the US will undeniably be in depression, in this view.  The next slump will be only about a year long (meaning the phase of negative aggregate growth) but will conclude in 2014 with unemployment at depression levels, but nowhere near as bad as it is in some parts of Europe.  The latter part of the decade will present the most fertile breeding ground for fascist extremism in a century, not only in the failed state of Europe but in America.

I am basing my forecast in part on the purely technical observation that previous “global” peaks in unemployment have come at the end of three local peaks on the way up.

‘By their gods shall ye know them’

Satyajit Das gets the last word on Frontline’s “Money, Power and Wall Street” (full series) when he says the reason there has been no reform is that (other than that Barry and Timmy are timid little Ford Foundation brats) it’s difficult to change gods, and Finance is our god.

Even as the new World Trade Center tower goes up, a cathedral to the god of our age….

Time to choose a new master, methinks.

Mexican standoff

We have entered one of those periods when things are happening so fast it’s difficult to update one’s mental maps in a meaningful way.  You know what was there, but you don’t know what’s there now.  The last time I felt this way was in the fall of 1990 when the Iron Curtain fell.  The map was crumbling.

In the past week we’ve learned that because of “language arbitrage,” another word for sharp business dealings, the entire CDS market is compromised.  The Greek default may be deemed “voluntary” by the banks who wrote the worthless paper, and, surprise surprise, also comprise the “regulatory agency” that makes the rules about what is and is not a default.

As the formidable Reggie Middleton says, the CDS market is shot to hell one way or the other, and the five big banks that hold the vast majority of the trillions of dollars of exposure and now effectively unhedged.

It’s a Mexican standoff.  Can we trust bankers to honor the rules of Mutual Assured Destruction?  Not hardly.  Look at how Hank Paulson took advantage of the opportunity to nuke Lehman.  At the first whiff of blood in the water the sharks will attack.

The miracle cure of inflation, which really would have been a better way to get out from under bad debt, is not going to happen in a debt deflation.  In the banks unwillingness to recognize that their bad debt is not going to be repaid in full, and the whorish accounting profession’s willingness to let them carry it at fictitious values on their books, the downward spiral of debt deflation is guaranteed. 

One of the scariest things I’ve seen this Halloween was an interview with Larry Fink of Blackrock Investments on FT in which he (licking his lips) expressed a willingness on the part of the trillions of dollars of Big Money parked on the sidelines worldwide to participate in the rebuilding of some of these troubled economies at equity-like rates of return (with credit enhancements provided by governments and the IMF, if they could only learn how to behave and keep mostly out of the way)…. 

If the Greeks are smart they’ll tell the EU to shove and just default on their debts.  Once bad debts are written down, it’s amazing how quickly new money can appear.

The world economy will stagnate and tend toward war until honesty returns to the financial statements of the big banks.

As John Hussman has pointed out recently, and as I’ve pointed out all along, the failure of big financial institutions does not necessarily mean the economy falls into depression.  In the 1930s, the problem was that deposits were wiped out.  All the Feds had to do when the crisis hit was to tell Americans their deposits were insured.  When a bank fails, the biggest change from a depositor’s point of view is that the sign changes. 

Would the investors in the bank, equity holders and probably most bond holders, have been wiped out?  Sure.  That’s what risk taking is all about. 

But our leaders elected to send good money after bad, and bail the banks out on the taxpayers’ backs.  The Germans and French and Americans should just admit they made some really bad loans—and were stupid enough to believe the toilet paper CDSs they were selling each other were actually going to protect them from anything.  But then, the big banks were stupid enough, in some cases, to hold the “AAA'” securitizations of sub-prime mortgage paper that Wall Street conned them into creating on their own balance sheets.

There’s plenty of equity-backed liquidity sitting on corporate balance sheets. 

Can the global financial oligarchy survive a Mexican standoff?  That’s what this historical moment will decide.

And if the oligarchs turn to fratricide, and the strongest become even stronger, and exercise their greed even more, how long until the population of the world coalesces into a hard-edged resistance to financial feudalism through outright rebellion?

See also:

Consent Needed for Debt Repayments Michael Hudson, Credit Writedowns

In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards – Mish

Give the People a Vote on Bank Bailouts? Markets and Politicians Horrified at the Thought – Economic Populist

The 12 years war

It occurs to me that it will probably take a dozen years—if it ever happens—to amend the Constitution to take the money out of politics, to recognize that democracies are made up of human beings, not corporations.

As I pointed out a couple of posts ago, it will probably have to come up from the grass roots, through the state legislatures, and not through Congress, which is hopelessly corrupt.

The John Roberts Supreme Court has done its best to hand the country over to the plutocrats with a decision that is stunning in its idiocy, namely, that corporations are people.  We now have super-pacs that are able to accept unlimited amounts of money on an anonymous basis to interfere with any political campaign in the country.  Do you think all that money will come from onshore? 

The “conservative” members of the Roberts court should be prosecuted for treason.

It’s going to be a long war, that will be fought in meetings with neighbors and local politicians, to take back our state and local governments first.  The money will come down to the local level and poison the atmosphere, for sure.  The battle comes down to convincing the conservatives that democracy is for people, not corporations.  It’s all about conserving our democracy.

Let’s make our goal amending the Constitution to overturn Citizens vs. United States—at least.  Even better, let’s introduce spending limits on campaigns and make them stick.

Let’s see if we can get this done by 2023, close to the forecasted end of the fourth turning.

Will 2012 be as critical as 1860?

Jim Quinn’s The Burning Platform has a nice summary with topical speculations on where we’re at in the fourth turning.  Strauss and Howe’s The Fourth Turning is put down by Amazon’s own reviewer as a “pseudo-scholarly tract,” which is a misnomer (it is a tract, and it is scholarly).  Since it was written in the mid-1990s as a professed work of prophesy, the authors have gotten the tone of unfolding events pitch perfect.  They really seem to have their finger on the pulse of American history.

The presidential election of 2012 may or may not elect the leader around which the “regeneracy” phase of the Crisis can proceed.  Of the crop of potential candidates identified in Quinn’s article only Ron Paul has the dedication to the principles of the Constitution that might truly restore the “spirit of America,” in my humble opinion. 

Quinn doesn’t discuss what really brought us out of the Depression, in my view (and implicitly, Robert Reich’s)—the equalization of incomes in World War II that restored balance to domestic aggregate demand (see Saez reference embedded here). 

It remains to be seen if aggregate demand will be rebalanced in this Crisis turning.  Strauss and Howe identify four possible resolutions:

1.  The end of humankind
2.  The end of modernity
3.  The end of “America”
4.  The end of the seventh modern saeculum

Might also be worth reviewing Johansen and Sornette on the end of humankind’s growth era.

Quinn’s article is worth reading.

Have a great week!