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David Stockman Warns "It's One Of The Scariest Moments In History"

"The Fed is out of control," exclaims David Stockman - perhaps best known for architecting Reagan's economic turnaround known as 'Morning in America' - adding that "people don't want to hear the reality and the truth that we're facing." The following discussion, with Harry Dent, outlines their perspectives on the looming collapse of free market prosperity and the desctruction of American wealth as policymakers "take our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that's been built up and created by the American people over decades and decades." The Fed, Stockman concludes, "is a rogue institution," and their actions have led us to "one of the scariest moments in our history... it's a festering time-bomb and we're not sure when it will explode."

 

Full Discussion:

 

Full Transcript here.

Key Excerpts from the detailed interview:

David Stockman: People don't want to hear the reality and the truth that we're facing. But I think there is an enormous appetite out in the country to get a different perspective than what you have from the media day in and day out, so I say the fed is out of control. Its balance sheet is exploded. It's printing money like never before.

Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets. I said that as a result of this, Wall Street has become a huge casino which basically rewards gamblers, but it is not functioning as a capital raising, capital allocating instrument, which really is what the financial markets should do in a free market system. I warned about the size of the federal debt. I'm an old budget director from the Reagan days. We had a trillion dollar national debt, a 3 trillion economy when I started. Today, it's 18 trillion. Eighteen fold gain in the last 35 years versus maybe a fourfold gain in the economy. So all of these trends are taking our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that's been built up and created by the American people over decades and decades.

So people don't want to hear the warning. They don't want to hear the truth in the establishment, in Wall Street, in Washington, but I think out in the country they must.

*  *  *

David Stockman: Well it's obvious that Wall Street is addicted to cheap money and unlimited flow of new liquidity into the markets. Traders can then borrow money on an overnight basis for five basis points, which is nothing. Buy anything with a yield like a ten-year or five-year bond or speculate in stocks that they think might be going up or even get fancier and go into derivatives or commodity futures or whatever. And then capture the profit or the spread between the cheap money that the fed is putting into the overnight market and the yield or profit they're making on the asset, and they're leveraging way up.

You know, 90 percent, 95 percent in many cases. So obviously, the whole financial market is dependent on this, but it comes at a cost. It is destroying savers in America. If you worked a lifetime and saved $100,000.00, you're making $400.00 a year in interest from a lifetime of savings. I think there will be a revolt sooner or later of the American public against this disastrous crushing of the saver in order to essentially accommodate Wall Street's appetite for liquidity.

*  *  *

David Stockman: Well you know, the problem is the fed, I've described, is a rogue institution. It's operating beyond any of the legislative intent or statutory authority that's been given to them over the years. They have essentially become a national monetary planning agency that has decided they can drive the daily, weekly, monthly movement of the economy by manipulating interest rates and the yield curve by putting a put under the stock prices by essentially trying to drive the entire 18 trillion or 17 trillion US economy from Wall Street. That is fundamentally at variance with the requisites of a healthy capitalist economy. You need an honest financial market. Not a manipulated one.

You need price discovery by people that have their money at risk, not the central bank.

Harry Dent: Actually, it's a centrally planned economy, isn't it?

David Stockman: Right, exactly.

*  *  *

So David, do you think the republican congress can save us from this economic sundown that we've been discussing today?

David Stockman: Well I would like to think so, and they talk a good game, but unfortunately when push comes to shove, they're in the consensus with everyone else in the beltway in Washington and are unwilling to take on the hard issues. We are borrowing still $600 billion in the last year, six years after allegedly the great recession ended, and we are setting ourselves up for trillion dollar deficits again, the next time the economy stumbles or we have a recession or some other dislocation. The fact is the fed is not abolished the business cycle. The fed has not made the world completely safe from these kinds of dislocations. So therefore, we need to look at what's driving this huge deficit, and the answer is big entitlements and big defense spending, and the republicans are unwilling to take on the Pentagon. They want more, and they're afraid to take on Social Security and the entitlements because they believe that is going to be problematic politically.

So therefore, nothing is being done about the structure of this deficit problem, and we're just basically stumbling our way into another huge crisis in ballooning national debt.

*  *  *

David Stockman: Well, it's one of the scariest moments I think in our history, but also we need to recognize we're in uncharted waters. No central bank has ever printed this much money this long, kept interest rates at zero, fueled so much speculation. Not just here, but worldwide. Not just in the normal stocks and bonds, but the whole shale boom, for instance, in the United States was massively funded by cheap debt based on oil prices that weren't sustainable, and now that's all coming unwound. We have never had deficits of ten percent of GDP back to back, or even still four or five percent four or five years into a recovery.

We have a runaway budget where the population is getting older and older, 10,000 people are retiring every day. Nothing is being done about Social Security. It's a festering time bomb, and we're not sure how it will explode, but we know it isn't sustainable. We have a Wall Street that is more addicted to pure overnight gambling and trading and speculation for the ultra short run that is driven by robo traders, the so-called HFT money, like never before. It's unstable. That's why we see things happen like the overnight 40 percent gain with the Swiss Franc when the Swiss National Bank pulled the pay.

Forty percent overnight – not overnight, but in a couple of minutes or seconds when there were hundreds of billions of short positions in the Swiss Franc. All of these things have never existed simultaneously, not only in the United States, but worldwide. All the central banks are doing it. We're reaching the point where it's unsustainable, things are going to give and break, but the good thing is it's going to be more a disaster in the financial markets in my view, less some kind of Great Depression impact on Main Street. It will be difficult on Main Street, but Wall Street is in the gun sites of this disaster coming.

*  *  *

David Stockman: I agree. In the long run, we have to get off this debt addiction. We need to get back to sound finance both in government and households, but beginning between here and there is going to cause enormous pain for millions of households who have been herded into risky investments, junk bond funds, stock market funds, high flying biotech stocks and on and on because they were told it's the only place to be. If you put your money in a CD, you get no return. If you put your money in a safe bond, you get almost no return. Now when the big reset, as Harry calls it, happens, and the stock market drops by large magnitudes, 50 percent, more, those people who were herded into these risky investments late in life – Because remember, we have the baby boom, you know, heading towards their retirement homes, are going to be badly hurt at a time that they can't recover, and it will be a massive injustice that is being done by Washington and the fed to this current generation of middle class Americans. That will produce, in my view, a political reaction, a political revolt that will begin to say, "What's wrong here? Who believed that printing money out of thin air can make a society wealthier? Why did we do that? Who believed that we can actually create jobs and new economic output on Main Street simply by having the fed press a button and create another billion dollars?"

*  *  *

David Stockman: Yeah, I agree with that, and the point to remember is that massive money printing by central banks on a worldwide basis is inherently deflationary for two reasons. One, it fuels massive financial speculation. When we talk about speculation, we're talking about professional gamblers who borrow 95 cents and use that borrowed money that they pay practically nothing for to buy stocks or bonds or commodities or derivatives or biotech stocks and so forth as I indicated. All of that buying power is artificial. That is not coming from production today, real effort in the economy. That's coming from newly minted credit.

So it takes asset prices to unreasonable, unsustainable levels. They crash, and that creates a negative economic cycle. Secondly, massive money printing makes capital and debt too cheap to the real sector of the economy. So therefore, massive capital investments are made on the basis of cheap cost of capital, not on the basis of the likely return or sustainable return over time.

*  *  *
David Stockman: Yeah, a famous American economist once said anything that's unsustainable tends to stop. My argument is that we're at the stop point. The fed has been printing money like there's no tomorrow really for 25 years since Greenspan took over in 1987. They are now at the point where their balance sheet has become so bloated, so enormous that even the people running the fed are confused about what to do. They've painted themselves into a corner, and they're playing it by the day, and they're going to make a huge mistake. So the money printing thing is near an end.

Secondly, our political system has become totally non-functional. We have a lame duck president who can accomplish nothing, a congress that is totally paralyzed, meaning that before 2017 at the earliest, nothing will be done about our fiscal and entitlement explosion. Finally, the American people have believed falsely that all of this is going to work out. It's not going to. When they find out that the adults so called in Washington had no clue what they were doing, there is going to be a collapse of confidence, and that will flow into the system as well.

*  *  *
So it seems like this bubble bursting is inevitable. How much time do we have? Is it years, months? How will we know? Are there some clues we can look into to make sure that we're prepared?

David Stockman: There's really no magic numbers here, but it's remarkable that these central bank driven bubbles tend to peak after about six years. The dot com bubble started really in mid-1994 with the famous Netscape IPO. It crashed in March 2000, six years. The housing bubble roughly started in 2002. It totally crashed in 2008. Six years. The meltdown on Wall Street bottomed in March 2009. Add six years. 2015. I think we're at the end of this bubble simply based on the fact that they can't expand forever. They reach an asymptotic peak, and then confidence is lost, a catalyst occurs, a black swan appears, the selling begins, and there's nothing under this market. There is no safety net under this market.

*  *  *
Is there anything that can save us?

David Stockman: Yes, there are, and in the short run, that will be painful. There will be great dislocations, both in the financial markets and the real economy. But in the long run, that's a good thing. We have become so dependent on government, we have come to believe that the Federal Reserve drives the economy hour by hour, day by day. None of that is historically true. Real wealth, real prosperity comes from the sweat and from the enterprise and from the invention of people on Main Street, not the politicians on Wall Street who are on the central bank. So I think the big inflection point that we're facing is when the big crash comes, on the other side, maybe we can get back to the private enterprise system and the kind of family self-reliance and thrift and prudence that our prosperity was built on 40 years ago.

*  *  *

David Stockman: Well in The Great Deformation, I said, "We're heading towards a day of reckoning. This isn't sustainable." It's happening in real time, and in the updates, what I try to do is focus on the catalyst events, the catalyzing forces that will warn us when we're really getting to the edge of the cliff.

That is the central banks. Japan's central bank is out of control. I watch that. It's important to know what happens there because if the great money printing debt experience in Japan finally fails, it's going to be noted in markets all around the world. I watch the ECB, European Central Bank. It is divided between Germans who want to try to maintain some semblance of some money and the rest of Europe that would like to print and drown themselves in debt as far as the eye can see. It's important to watch China, which is a giant house of cards, that's on the verge of collapse, and that will ricochet around the world in terms of the countries that supply it. Australia, Korea, the so-called emerging markets, and what it'll do to the theory, which I think is false that China is the engine of growth in the world, it is not. It is the biggest speculative disaster in human history.

*  *  *
David Stockman: Well, the crisis is unfolding by the day. It is not too late to start preparing right noW. Now is the time to begin to save if you can and minimize your outlays for unnecessary luxuries. This is going to be a devastating crisis, and people will be happy down the road if they take the steps to prepare today.








"We Are Failing To Deliver On Our Obligations As Americans"

Submitted by Thad Beversdorf via First Rebuttal blog,

I’m Bedazzled by the Bewilderment Surrounding the Fed’s Behaviour... So I’ve De-engineered to the Bare Basics... and Oh Boy!

According to former Fed Chair Ben Bernanke in an excerpt from a Nov. 3, 2009 Bloomberg article, the Fed strategy is that “..large-scale asset purchases should boost economic growth through lower borrowing costs and higher stock prices…”.  Now as depicted in the following chart (by Gallup) we see that the top 5% own almost 75% of financial wealth (i.e. stocks) while the bottom 80% own less than 5% (these are 2010 figures and certainly things have gotten significantly worse over the past 4 years).  

Rather than boosting economic growth through incentivizing capital expenditures as has been the way of monetary policies gone by, this new Fed strategy, to explicitly target higher stock prices, is meant to create enough excess wealth to those on top by way of stocks such that some of that wealth would then trickle down to the rest of America.  The Fed has made this clear both verbally and by way of action, that is, by ensuring (manipulating) higher stock prices.  The result is that low cost debt is being used to invest into a risk free stock market.  To get an idea of how this works look at the following table which I pulled from a December 2014 report from Factset.com,

So during 2014, these 10 companies spent roughly $150B on share buybacks and paid out $55B in dividends, leading to an average market cap increase of around 25% across the 10 firms.  It appears then that firms have been taking advantage of the low cost debt to borrow and buy back shares to increase market capital and pay out dividends which are typically reinvested directly back into the market.

For instance, IBM has borrowed $33B since 2012 and has repurchased $37B worth of stock.  Apple spent circa 9x the amount on share buybacks as they did on capital expenditures in 2014.  The point here is that the Fed’s policy strategy, as expressed by Bernanke above, of lowering borrowing costs and targeting higher stock prices to create wealth at the top was extremely successful.  In fact, I doubt Bernanke ever dreamed how effective his wealth creation strategy would be.

However, the second part of the Fed’s policy strategy was to have some of that extraordinary wealth trickle down to the 90%ers.  Unfortunately this part of the strategy has failed miserably.  Now as we’ve discussed many time here on First Rebuttal, the second part of the strategy was inherently flawed in such a way so as to actually necessitate its failure.  That is, by targeting (guaranteeing) higher stock prices you force CEO’s and all other investors to push available capital that would otherwise have been reinvested back into the company and other economic investments to simply allocate directly into the market.  Meaning no need or money left for hiring, and in fact, the layoffs continue along with the share buybacks.

Just how many layoffs are continuing is becoming difficult to ascertain.  Ironically I found the following notice from the BLS in its last Layoff Report…

But suffice it to say looking at the U6 figure we know hiring for real breadwinner jobs has been sparse at best (we’ll take a detailed look shortly).  So the result of not only targeting but guaranteeing an upward moving market, which the Fed has been very explicit about doing, has literally prevented the trickle down part of the trickle down strategy meaning all we’ve attained is extreme wealth creation to those on top.  And this seems to be recognized by essentially everyone.

What becomes obvious in researching the topic of ‘trickle down economics’ is that this is one subject that appears to have almost unanimous agreement amongst everyone outside of the political class.  Left, Right, Gay, Straight, Religious, Atheist, you name it they agree on the subject unless they hold a political office.  In fact, the resounding agreement is that this latest experiment has been a tremendous failure.  That said, here we are in year 6 of the now completely failed experiment with no signs of changing course.  Rather than allocating efforts to reshaping our economic growth strategy, all efforts seem to be focused on selling a false story of success to the American people.

So this brings us to the debate around whether the parabolic move in equity valuations is the same as last time, meaning the asset bubble the eventually burst in 2008.  The ‘secular bulls’ are screaming “It is different this time!”.  And well I agree, things are very different this time around.  But is that a good thing or a bad thing?  Well let’s take a stroll past all of the bullshit nonsense from both sides of the bull bear coin and just look at the very parameters that are time tested indications of growth and valuation.

So just on pure price level we see about a 25% increase between 2007 and today on the S&P 500.  That would suggest we have had material improvement today relative to 2007.  Now let’s have a look at some multiples to see how we feel about our growth prospects relative to 2007.

The chart depicts price to sales of S&P 500 companies and the Adjusted Buffet Indicator.  We are using price to sales because it is a much better long term gauge than price to earnings as earnings, especially given all of the share buybacks and reallocation of funds from capex to income, is easily manipulated in the short term.  What we find in price to sales is that today’s multiple is 30% higher than in 2007 (according to multpl.com).  This suggests the market is pricing in some pretty heavy growth relative to the expected growth in 2007.

The Adjusted Buffet indicator is a gauge I developed to adjust out reported economic gains that are solely a function of consumption from debt rather than income.  The idea being that debt consumption is actually a net negative to economic growth and therefore is nonsensical to include in growth measures.  What we see is that apples to apples the Adjusted Buffet indicator has grown by 150% since 2007, suggesting that either the economy needs to accelerate significantly or market pricing needs to come down.

And really this is the crux of the whole debate.  Is the economy poised to accelerate or will the market revert back to historic norms through price collapse, as it did in 2008.  So let’s have a look at our growth prospects.  ‘Secular bulls’ are obviously claiming this time is very different from last time arguing that there will be no repricing as fundamentals actually do signal growth acceleration.  Now that’s what they’re claiming but as we always do here at First Rebuttal, let’s have our own look to validate or discredit those claims.  Specifically, we are looking for signals of economic acceleration that would support the implied expectation of relatively higher future corporate cash flows.

The above chart is the official real average GDP growth over a 5 yr period ending in the subject year.  The idea is to see if generally throughout the economy we see signals of stronger growth than we had in 2007.  What we find is that economic growth is 24% lower than it was is 2007.  So this does not support today’s higher multiples.  But let’s keep going.  The market is certainly pricing higher multiples today than 2007 and so surely we should find the growth source for these higher multiples if we just keep digging.

In the above chart, sourced from the Federal Reserve, we see a 10% reduction in cash inflows for the American consumer and we see a whopping 40% decline in net worth to the bottom 90% since 2007.  Historically, 70% of economic growth has come directly by way of expenditures from the American consumer.  One has to ask oneself, does a consumer with less cash inflow and significantly lower wealth, as absolutely evidenced in the above chart i.e. this is not arguable, lead to sustained higher expected expenditures and thus future corporate cash flows??  The market apparently thinks so, unless we can find another source for the market’s growth expectations.  So let’s carry on…

Well consumer cash flows can increase via a rise in income or reduction in costs.  Above is the income side which failed to show any rational expectation for signs of consumer expenditures growth but what about the cost side?  Well let’s take a look at consumers’ cost of goods and debt service relative to 2007 to see if we have freed up some cash on the consumer’s cost side.

The deflator is a better measure of the bare necessities as these are generally domestic goods and services as opposed to imported e.g. food, rent, public transport, etc.  And so we see that cost of goods and services on just the staples have moved up about 2% per year despite the CPI measurement of closer to 1% per year.  And so it is clear from the above chart that we had no price relief since 2007 and as such still no logical expectation for increased consumer expenditures.  But what about debt service?  Interest rates are lower so perhaps the American consumer has freed up some cash flow due to lower rates?

Despite the decline in prime interest rates, average consumer credit rates saw only a 6% decline (from 14.5% to 13.7%, sourced from St. Louis Fed) vs an increase in consumer credit levels of around 30%, as depicted in the above chart.  The implication is that the American consumer has increased their total debt service relative to 2007 meaning expected consumer expenditures should be lower than in 2007.  This means that both the income and cost side of the American consumes’ cash flows provide an expectation of lowered consumer expenditures relative to 2007.  Thus current market multiples should actually be lower not higher based on the American consumer’s financial position.  But the search must go on… we are nothing if not perseverant here at F.R. so let’s keep on truck’n.

Ok, so what if consumer cash flows are down and have no signals of improving relative to 2007.  This doesn’t necessitate that multiples need actually be lower than in 2007.  If each dollar is being used more effectively than in 2007 we could actually generate higher ultimate corporate cash flow growth than in 2007 and this could support higher market valuations.  Let’s take a look…

The above chart depicts how effectively we are using both money supply and debt to generate economic growth relative to 2007.  And we find that our effectiveness at using money supply has declined by about 25% while our ability to generate output growth from debt has plummeted by 75% since 2007.  This actually tells us that even if cash flows were the same as in 2007 our overall growth would still be slower.  Given the American consumer actually has less cash flow our reduced effectiveness will result in much lower expected growth than in 2007 and, as such, should result in lower market multiples based on the consumer and economic efficiency.

This is not looking promising for validating the higher market multiples but there could be one saving grace to all of this.  Jobs are the key to every economy.  The tighter the job market the greater the income distribution.  The greater the income distribution the greater all of the above become.  And so let’s take a look at jobs today relative to 2007 to look for signs of a tighter job market.

Disappointingly we find that the job market is much looser than it was in 2007 with unemployed and underemployed 26% higher today.  And so the likelihood of higher cash flows stemming from a tighter job market is essentially zero, especially given the continuing trend to trade away employees for share buybacks.

And so what we have done by way of the above analysis is provide the proof for the market’s mispricing.  Thing of it is, we already knew the market is mispriced.  As discussed at the beginning of the article The Fed has told us several times that their mandate for the past 6 years has been to manipulate the market higher so that it creates wealth for those at the top in hopes that this wealth will trickle down onto the rest of America.  Based on that declaration of price manipulation, we know the market is mispriced.  There is nothing grey or convoluted about that.  None of this has been done in secret.  So why is it that these TV pundits and politicians spend so much time pitching that the market is fairly valued??  And how is it that those deemed market ‘pros’ are buying into it??

Well perhaps it is not so much that these market pros are buying into it as they are trying to convince us that nothing needs to change.  You see while the Fed’s manipulation has not been done covertly the fact that it has failed to create any benefit to the bottom 90% of Americans is very much being kept a secret.  Those on top for which the current Fed manipulation is creating extraordinary wealth absolutely do not want a change of policies.  And why would they?  They are earning incredible wealth while taking no risk.

This completely perverts the basis of capitalism which results in huge misallocations of resources.  It is this very misallocation of resources that not only created the economic destruction we saw in the above charts but will continue to deepen the grave we are digging ourselves.  What no one can say for certain is how long the Fed manipulation will last because we’ve never been in a situation where the open mandate has been explicitly to push stock prices higher.

The hope was that the wealth would trickle down and improve the fundamentals enough to support the market valuation so that the Fed could quietly hand the market back over to fundamentals as the main pricing mechanism.  Unfortunately what they’ve now realized is that the fundamentals are not going to catch up to the market valuation.  And so the Fed will have to either continue to manipulate the market or allow it to reprice materially downward.

I expect the Fed has no idea what the next move will be.  As I’ve mentioned in the past the Fed can theoretically continue as long as USD strength holds up.  If USD devalues significantly the Fed will have to step back and the market will reprice at that point.  That said, there doesn’t seem to be a near term concern for USD weakness.  But you can see what an incredibly difficult conundrum the Fed has created for itself and for the nation.

By implementing the wrong policies and then refusing to acknowledge it early on, the Fed has undoubtedly created irreparable destruction for all but the very top of the food chain.  The destruction is already slowly playing out and that is clear when looking at income, net worth and consumer debt levels.  And at some point, as we saw in 2008, an unimaginable amount of pain is going to hit home almost overnight.  What more can anyone say about this.

The market is way out of whack and that will continue until it doesn’t.  In the meantime 90% of America will slowly degrade.  How can any of this be considered a success as we hear so often from the market pros?  The one thing that is clear in all of this mess is that our policymakers have failed miserably and so too then have our legislators for allowing this nonsense to continue.  But worse is that we the people are failing as Americans.  We have an obligation to those who came before us and did their job as Americans and to those who will come after deserving as many rights as were passed onto us.

But we are failing to deliver on our obligations as Americans, that is undeniable.  We are allowing the political class to plunder our wealth, negate our freedoms and desecrate our Constitution.  Sadly we have become the immoral populace our founding fathers warned all future generations not to become.  As the ‘Founding Father of Scholarship and Education’, Noah Webster, put it in 1832,

“if the citizens neglect their duty and place unprincipled men in office, the government will soon be corrupted; laws will be made, not for the public good, so much as for selfish or local purposes; corrupt or incompetent men will be appointed to execute; the public revenues will be squandered on unworthy men; and the rights of the citizens will be violated or disregarded. If a republican government fails to secure public prosperity and happiness, it must be because the citizens neglect the Divine commands and elect bad men to make and administer the laws”

The duty and obligation is ours and so too then are the failures and successes of our society.  Unfortunately ours will be the first generation to have failed at being American.  Yet regrettably more unfortunate is that it will be the innocent generations yet to come that will bear the full costs of our failures.  We are 15 years in to what is absolute denial regarding the competence of our nation’s policymakers.  Their failures in taking us to a false war in Iraq, in making a mockery of our rights as Americans and in destroying our economic opportunities are our failures.  Yet here we sit, silent and indifferent to our own demise; so completely antithetical to the character of a true American.








"Spectacular Developments" In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole "Discovered"

Slowly, all the lies of the "recovery", all the skeletons in the closet, and all the bodies swept under the rug are emerging.

Moments ago, Austrian ORF reported that there have been "spectacular developments" in the case of the Hypo Alpe Adria bad bank, also known as the Heta Asset Resolution, where an outside audit of Heta's balance sheet exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the Austrian Financial Market Authority said.

As a result, according to Reuters, the bad bank that was created in the aftermath of the Hypo collapse, is itself about to be unwound, as the bad bank itself goes bad!

"Austria's Financial Market Authority stepped in on Sunday to wind down "bad bank" Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria."

In short: Austria just cut off state support of what was until this moment a state-backed, wind-down vehicle and a key pillar of trust in what was already a shaky financial system.

Not surprisingly, today's shock announcement comes a week after Austria's Standard reported that up to a five billion euro impairment at Heta would take place, a report which the Finance Ministry called "pure speculation" and noted that the Bank was in good health. According to Standard, among the reasons for the massive capital shortfall was the plunge in collateral as a result of the continuing crisis in South East Europe which meant that the value of "real estate in South East Europe, shopping centers and tourism projects, deteriorated massively" driven largely by the appreciation of the Swiss Franc. "As a result, the volume of bad loans has increased significantly."

Everyone was wondering who the first big casualty of the SNB's currency peg failure would be. We now know the answer.

Further from Reuters, the finance ministry confirmed this in a statement, adding Heta was not insolvent and that debt guarantees by Hypo's home province of Carinthia and the federal government were unaffected by the move.

The problem is that going forward that nobody knows who insures what, what various other state and quasi-state guarantors suddenly unclear as to who is responsible for what: the province of Carinthia guarantees back €10.7 billion worth of Heta debt. The federal government backs a 1 billion euro bond issued in 2012 that the ministry said would be honored in full.

As a result of the "sudden" capital deficiency, there will be a moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.

Perhaps a badder bank to rescue the bad bank?

According to Reuters calculations, More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.

But the punchline, is that while the world was waiting for Greece to announce capital controls, or a bail-in over the past week, it was none other than one of the Europe's most pristeen credits (one which until recently was rated AAA/Aaa) that informed creditors a bail-in is imminent: "The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or "bailed in" - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden."

Bloomberg confirms that the ministry announced that under new EU rules means creditors can be forced to share losses.

Of course, this being Austria, and the Creditanstalt, aka the bank which failed in 1931 under almost identical circumstances and set off the dominos that led to a global financial crisis which in turn bank fanned the flames of the Great Depression, also being Austrian, suddenly everyone is asking: "what just happened and what happens next?"








Meanwhile In California, Unambiguously Ungood...

Having discovered this week what Americans are spending their "gas savings" on, and noted that nationwide gas prices are rising at the fastest pace in over a decade; as AP reports, for Californians, it's considerably worse as gas prices have soared 60c to $3.23 per gallon in the last few weeks. Between refinery shutdowns (due to strikes and explosions) removing 17% of California's production, and the seasonal shift to the less-polluting summer blend of gas mandated in California, supply remains drastically short spiking prices 20-30c on Thursday alone as one gas station owner exclaimed, in 48 years "I've never seen anything like this kind of [price spike]."

 

Nationwide, gas prices are rising at the fastest pace in over a decade...

 

But California is the hardest hit for now. (photo taken Friday in LA)

 

As AP reports, gas prices are soaring in California in a classic example of supply and demand after an explosion stopped gasoline production at an Exxon Mobil refinery while another remains offline due to labor unrest...

Average retail gas prices in the state have surged 25 cents a gallon in less than a week, from $2.98 per gallon for regular on Monday to $3.23 per gallon on Friday. That caps a run that saw the price of regular unleaded go up 60 cents per gallon since Jan. 30 as refineries prepare to shift to a summer blend of fuels.

 

In some areas of Southern California, gas station owners were forced to pass price hikes of 24 cents per gallon along to consumers on Thursday after seeing wholesale prices shoot up. Prices in Northern California lagged a day, but by Friday were also rising; an independent operator with a chain of gas stations around the San Francisco Bay area boosted prices 20 cents a gallon for regular on Friday, to $3.19.

 

The situation underscores the frustrating complexity of the gasoline market in California, where state environmental regulations mandate a specialized blend of fuel that isn't used anywhere else in the U.S.

 

Because of that, California is economically isolated and can't easily or quickly purchase fuel from outside the state in a crisis.

 

Between the strike at the Martinez Tesoro refinery and the explosion at Exxon's Torrance refinery, the two facilities combined make up 17 percent of the state's crude oil processing capacity, said Gordon Schremp, a senior fuels specialist with the California Energy Commission.

 

"It takes a while to get some significant supplies from outside," Schremp said. "It's very normal that we'd see a significant price spike."

 

...

 

Gas station owners, meanwhile, chafed at having to pass the costs on to consumers. The profit margin for station owners was 18.5 cents per gallon in California on Friday, a break-even or money-losing proposition for many independent retailers, said Jeff Lenard, a spokesman for the National Association of Convenience Stores.

 

In Torrance, station owner Frank Scotto was forced to increase his prices by 24 cents per gallon on Thursday. He hasn't seen such a spike since he went into the gas station business in 1967, he said.

 

"I printed out the price change and I'm framing this thing because I've never seen this kind of thing in all my years," said Scotto, who owns a Mobil and Exxon station.

*  *  *

As GasBuddy shows - the California differential is extreme...

 

*  *  *

However, while the extreme price moves are hitting California for now, given RBOB's recent rise, nationwide gas prices look set to top $2.60 within a week... 

Or as CNBC's Larry Kudlow would say: "Unambiguously ungood" for everyone.








Taking The Monetary Policy Ride Into The Theater Of The Absurd

Submitted by Jeffrey Snider via Alhambra Investment Partners,

There are any number of colloquialisms for monetary repression, “reach for yield” and serial asset bubbles being a few. In the vernacular of monetary policy itself, such color is disdained in favor of technocratic banality – “portfolio effects.” The idea is simple, which is to say that by repressing the returns on “safe” investments financial agents will be forced, not of their own volition, into “riskier” assets and asset classes. The prices of those risky assets rise, and that is supposed to contribute to economy-wide good feelings which loosen purse strings, in the equally prosaic terminology of the “wealth effect.”

There is, yet again, an unearned sense of precision about the task and the linkages to actual economic function that belies the chaos and mess of a real economic foundation. Removing organic profitability as a mechanism for resource distribution also obliterates constraints on methodical behavior. We may not think of such discipline as useful during periods of economic malaise, where “risk” seems to be lacking, but true discipline leads to the very processes which create sustainable economic advance. The allure of monetary-driven “risk” is an illusion of artificial bursts of at best short-term activity.

It seems we have come to a sort of crossroads state whereby past attempts at fostering economic advance through “reach for yield”, portfolio effects, directly interfere with current commanding efforts. Without admitting guilt, central banks and political regulators have combined to “make banks safer” largely through more complex banking regulation conspicuously free of free thought and common sense; especially Basel III. One component, which was “learned” of the Panic of 2008, was that banks “need” a liquidity buffer to withstand “market” funding withdrawal. There are, of course, formulas that determine these.

Banks especially in Europe were found wanting of such a buffer and have been “encouraged” to build their own around sovereign debt – which is believed, still, to be the most highly negotiable of all asset classes despite relatively close experience. That last problem was “dealt with” via Mario Draghi and the ECB’s implicit promises to “do whatever it takes.” That apparently includes undertaking QE.

The problem of QE is that it removes those same bonds in question from circulation, sequestered securely within the confines of the central bank (regardless of whether that central bank has made provisions for addressing the direct short-comings of just such an effort). The trade-off is one of bonds for “cash”, but more of modern liquidity concepts than cash, that will on balance lead to “portfolio effects.”

In one sense, the ECB in particular is saying that banks have become “too safe” and the European economy needs “more risk.” It intends not just to force just such an outcome but also to finance it. Banks, for their part, are not quite ready to “comply”:

Weeks before the European Central Bank begins a program to buy about 1 trillion euros ofeuro zone government bonds, banks, pension funds and insurers across the continent are hoarding them for regulatory or accounting reasons.

 

That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell.

 

“We prefer to hold on to them,” said Antoine Lissowski, deputy CEO at French insurer CNP Assurances. “The ECB’s policy … is reaching its limits now.”

I especially like the phrase “take additional measures to encourage investors to sell”, as you can almost envision some Hollywood Mafioso-type threatening a poor, expensively-suited bank executive not over blood money but on behalf of “monetary” authorities to take their cash. There is an element of comedy here that is un-writable as fiction; nobody could dream just such a scene.

In that respect, perhaps monetary depredations have reached their inevitable logical limitations. The banks “must” be made safe because of the last panic, but banks must be made risky because of the economy.

Of course, the central bankers under this paradigm don’t think in such broad terms, as they see no incompatibility at all. Again, they think there is some precision or mathematics of regressions that can “find” harmony between two largely and seemingly contrary or even irreconcilable forces – as if banks can be made “just safe enough” while also “just risky enough.” That is because an actual economy does so, where organic profit governs that relationship – why can’t central banks simply do it instead by dual-mandate? This is the reason for the facileness and technocracy of jargon, as this is all supposedly objective mathematics rather than anything emotionally explosive like bubbles.

While there are any number of reasons commandment of this kind will fail, it really comes down to the market itself, namely that such forces of “safety” and “risk” are not really homogenous and harmonized unto themselves. It takes all sorts of agents and actions to produce stability from chaos, whereby many people “take the other side.” The relative movement of prices, free from directive interference, acts as ultimate arbiter of what constitutes “risk”; safety results from that. Central banks take no sides at all and simply decree based upon poorly constructed mathematics that are stale by the time they are implemented.

And with such opposing policy intentions, is it any wonder how bubbles are formed? Which “side” wins out in the end? The amount of repression taken by monetary authorities will overwhelm any sense of propriety about even mathematically-drawn “prudence.” That is the case in every bubble, but in this one instance, especially in Europe, the tug-of-war is in the very instrument of both policies – government bonds. The ECB is demanding, reduced to constituent cases, that banks buy government bonds for every government bond they sell to the ECB. Banks are rightfully balking as “why bother?” It’s not just the naked convolution to the whole scheme, it is entirely emblematic and demonstrative as to why bank “capital” is so relatively expensive under monetary repression.

Since, however, the “risk” side always wins in these things, the ECB mafia will show up with the heaviest repression possible.

And yet, somehow, monetary policy is still believed neutral in the long run and that bubbles are market events. Central banks have shown why they cannot command economic performance, but that doesn’t mean they can’t give one hell of a comedic performance. We have taken a monetary ride now into the theater of the absurd.








Dollar Drivers: Central Bank Meetings, Jobs Data and More

March is said to come in like a lion and leave like a lamb.  It does indeed appear to be coming in like a lion for investors.  There are four major central bank meetings and the US employment report.  Although Yellen did not convince many that the Fed is set to hike rates in June, yields in the eurozone continue to fall in anticipation of the bond buying scheme that will start later this month.  The resulting widening of the interest rate differentials lent the dollar support.

 

Two emerging market central banks are in play as well.  Brazil is one of the few central banks engaged in a tightening cycle.  It is set to continue. The Selic rate bottomed in 2012-2013 at 7.25%.  It stands at 12.25% now.  The consensus expects another 50 bp rate hike.   A 25 bp rate hike would be seen as a potential signal that a pause and possibly the end of the tightening cycle is at hand.  

 

Poland is expected to cut the base rate by 25 bp to 1.75%.  It had cut the base rate 50 bp last September. The main issue is not growth.  Fourth quarter GDP expanded 3% year-over-year.  Rather Poland, like so many countries in Europe, is experiencing deflation.  In January, consumer prices were 1.3% below year ago levels.  

 

There were three developments over the weekend that may help shape the investment climate. First and most likely to impact trading on Monday is the rate cut by the People's Bank of China on Saturday.   The 25 bp cut in the key one-year lending and deposit rates (to 5.35% and 2.50% respectively).   The fact that the PBOC cut rates is not very surprising, but the precise timing is nearly always unpredictable.  Most of the speculation has focused possible yuan depreciation, and some analysts have been playing up the risk that the 2% dollar-yuan band would be widened.  The rate cut overshadows the official PMI readings that were also reported over the weekend.  The manufacturing PMI ticked up to 49.9 from 49.8 while non-manufacturing PMI firmed to 53.9 from 53.7.  

 

The PBOC explained the rate cut in terms of a decline in inflation, which results in an increase in real rates.  Consumer prices were 0.8% higher year-over-year in January while producer prices have been falling for three years.  Also on Saturday, China reported that housing prices in the 100 major cities fell by 3.84% in the year through February.   The rate cuts are not expected to reverse the slowing of the economy, arrest the deflation, or lift house prices.  They will, though, help large businesses and state-owned enterprises to cope with the more challenging economic conditions. The rates cuts will help facilitate the rolling over of existing debt.

 

The second important development over the weekend was the Sunday election in Estonia (the results are not know at pixel time).  The latest polls showed that a party with formal ties with Putin's United Russia Party is ahead of both of the governing coalition parties.  The government is pro-EU and pro-NATO.  However, a third of the population (~1.3 mln) comprises ethnic Russians.

 

As it has with several countries, Russia has made incursions into Estonian airspace.  In recent years Russia has developed a hybrid warfare in Moldova, Georgia, and Ukraine,  Although Russia's economy is being squeezed through sanctions; its tactics have seemingly succeeded.  It continues to occupy part of Georgia.  It supports a separatist region in Moldova.  Its annexation of Crimea stands and Ukraine's dismemberment is a fait accompli at Minsk, where the cease fire was agreed before the insurgents made one more strategic thrust.

 

Estonia could be a target of Russia's ambitions should Putin chose to challenge NATO itself, which up until now Russia has shied away from doing.  Narva is town in Estonia near the Russian border. Half the people do not have Estonian passports, and 90% are native Russian speakers, according to press reports.  Given Putin's view of the world, and the apparent success of his tactics, Narva (or a town like it) would seem to be a potential target as the next theater of Russian ambitions.

 

The third development takes us from Russian foreign policy to domestic.  One of the leading opposition critics of the Russian government, Boris Nemtsov was assassinated early Saturday morning in Moscow.   Putin called it a "provocation" which opposition leaders took as an indication the President was going to blame the opposition itself.  A large opposition rally to be held Sunday, protesting the economic crisis and Russia's involvement in Ukraine turned to more of a memorial for Nemstov.  

 

II

 

 

Four major central banks meet in the week ahead.  The least interesting is the Bank of England's meeting.  It is still seen to be at least a few quarters away from hiking rates, and despite the low inflation, and possible deflation, the bar is high for an easier policy.  More important for sterling and UK assets than the MPC meeting are the PMI reports.  They will likely confirm that the UK's economic recovery remains on track after slowing in H2 14.

 

The ECB meeting on the same day will command more attention.  However, it is most unlikely to do anything, having announced a larger and more aggressive effort to expand its balance sheet through asset purchases at its last meeting; no new measures are likely to be announced.  Still, it can provide more operational color to its bond purchase program.  The ECB's staff will produce new macro-economic forecasts.  Growth may be revised higher, but inflation forecasts may be shaved.

 

The ECB, through the Eurosystem, will launch its bond buying program later this month.  It still appears to be some legal and technical, operational issues that need to be sorted out before the purchases can begin.  Many participants are skeptical that it will lift price pressures for consumers (CPI) which is its declared objective.   The BOJ, which is many times more aggressively expanding its balance sheet, has seen consumer prices pressures fall steadily for several months and could slip back into deflation in Q2.  

 

Many participants also are wary potential operational difficulties.  In the US, foreign holders of Treasuries were more willing to sell them to the central bank than domestic investors.  In Europe, banks and pension funds appear to be among the largest holders of government bonds.  There are many reasons why they may not be so eager to part with their securities.  What can replace them and the yields they generate (remember the yields are locked in at the purchase of the fixed income instrument)?  Selling them is a tax event that some investors will not want to incur.  Some of the demand for sovereign bonds by banks stems from the regulatory considerations.  

 

Another significant group of investors are foreign central banks.   They could pare holdings by selling to the ECB.  This could be reflected in a reduction of the euro's share of reserves, but it might not be clear until the COFER report at the end of the year.  Nevertheless, the investors will be sensitive to market talk along these lines.  

 

The central banks in Australia and Canada meet.  These meetings are live in the sense that rate cuts are possible.  Both  central banks have cut interest rates already this year.  The derivative markets show a high degree of confidence that both central banks will cut rates again.   The issue here is timing, and it effects short-term traders more than medium and longer term investors.  

 

In the past week, the pendulum of expectations for next week's meetings shifted away from cuts now. A weak capex survey from Australia at the end of last week encouraged the doves to stick with their views.   It is a close call, and our impression is that officials had framed the issue as February or March last month.  Back-to-back cuts may be more aggressive than is warranted by the data.  

 

With some verbal guidance by Bank of Canada officials, investors had been convinced that another rate cut would be delivered at the March meeting.  However, last week Governor Poloz was understood to mean that a cut is not imminent.  In our reading, Poloz simply restated the official policy--that the January rate cut was an insurance policy meant to buy time for the economy to adjust to the fall in oil prices.  

 

We suspect that there is a greater risk of a Bank of Canada rate hike than an RBA rate cut in the week ahead.  That said, the failure to cut rates might not spur a strong rally as the lack of action now will simply raise the conviction for a later move.  

 

III

 

It is a hellacious week for US economic reports, culminating with the employment report at the end of the week.  There an economic report every day.  The economic data will provide insight into the pace of growth in the first quarter, but the key is the impact on Fed policy.  High frequency data may help create the price action that short-term participants like, but no one wants policy to be based on such noisy time series.  The general picture of the economy, namely one that has returned to what appears to be trend growth after a period of acceleration in April-September period last year.  

 

Headline inflation has been pulled down by the drop in oil prices, but the core rate, which is the aim of policy, is steadier.   Weakness in the parts of the country most linked to oil production will also likely be born out by the Beige Book prepared the mid-March FOMC meeting.  However, most businesses have lower input costs, and households have more disposable income.  The data is expected to confirm consumers are not necessarily increasing their consumption, though household consumption did rise 4.2% in Q414.  Rather, at least at the start of the 2015, it appears households bumped up their savings.  

 

The core PCE deflator is not expected to have changed in January from the 1.3% pace in December. The Federal Reserve would feel better if this measure ticked up in the coming months.  It would make the June rate decision easier.   Fed Chair Yellen was clear on the matter, however.  The core rate has also likely been knocked down by the drop in oil prices.  This is transitory, and the base effect wanes late this year and early next.  At the January FOMC meeting, the statement indicated that the Fed continued to expect that after some near-term softness, it continued to expect inflation will approach the 2% reference rate.  

 

It is that expectation coupled with continued improvement in the labor market that underpins our expectation for a June hike.  There has been a clear acceleration in jobs growth.  The three-month average is 336k while the six-month average is 282k.  Growth growth in February is expected to have slowed considerably.  The consensus expectation of 235k would be the slowest since last August.   Hourly earnings, which had fallen 0.2%  in December rose 0.5% in January and are expected to have risen 0.2% in February.   This would cause the year-over-year pace to slip  to 2.1% from 2.2%.   

 

On balance, the Federal Reserve will likely see the employment report as consistent with continued improvement.  There is no compelling new piece of evidence that would shake their confidence that the 2% inflation target will be achieved in the medium term.  Yellen argued that the international factors are mixed, and net-net are in neutral.  We think the most likely scenario is that the Fed drops "patience" in March, and true enough, it will not signal an immediate rate hike, which would be April.  Instead, it really is still patient and waits for June.  








Venezuela's Maduro Claims US Pilot Arrested For Espionage, Bans Bush, Cheney From Entering Nation

In case the world needed any more geopolitical risk "hotspots", overnight Venezuela's flailing president Nicolas Maduro, faced with an unprecedented economic crisis at home, decided to do what most authoritarian rulers do when faced with imminent civil unrest: point the finger abroad, and in this case, at Washington, as a distraction. With crude oil plunging, with opposition leaders being arrested, and with the economy generally in shambles, Venezuela has in recent weeks accused the United States of being behind an alleged coup plot. Then overnight, Maduro switched from broad generalizations to specifics when, as CNN reports, Maduro said Saturday an unspecified number of Americans were arrested "a few days ago" for engaging in espionage and recruitment activities.

More from CNN:

The President said they included an American pilot of Latin American origin, arrested in the southwest border state of Táchira.

 

He said the pilot was found in possession of "all kinds of documents" and was being interrogated by the authorities, though he did not identify him. The Venezuelan government has made many similar claims in recent years, without ever substantiating them.

 

Maduro also announced Saturday a series of measures, including visa requirements for U.S. citizens and the downsizing of the U.S. Embassy in Caracas, to counteract what he called U.S. "interference" in his country.

Considering the US has not replied officially (yet), there are two possibilities: Maduro made up the whole thing, which is far more likely, or the US did indeed engage in some covert ops in Venezuela. Considering the CIA's recent track record around Africa and Eastern Europe, that possibility certainly can not be discounted.

Speaking at an "anti-imperialist" rally in the capital, Maduro - who is surely feeling slighted following recent US overtures toward former socialist peer Cuba - said visas would now be required for all U.S. visitors and that the U.S. Embassy in Caracas would now need foreign ministry approval for any meetings. The Embassy, which he said had more than 100 staff, is to be reduced to a number closer to the 17 Venezuelan diplomats based in Washington.

Additionally, a group of prominent U.S. officials, current and retired, will be banned from entering Venezuela because of what Maduro said was their involvement in "bombing Iraq, Syria and Vietnam" and other "terrorist" actions. The officials include George W. Bush, former U.S. Vice President Dick Cheney, former CIA Director George Tenet and several current members of Congress, including Ileana Ros-Lehtinen, Bob Menendez and Mario Diaz-Balart.

Following the Maduro's announcement Diaz-Balart reacted via Twitter, saying he has "always wanted to travel to a corrupt country that is not a free democracy. And now Castro's lap dog won't let me!"

 

The move comes after the U.S. government last month approved a law under which Venezuelan officials allegedly involved in human rights violations are to have their visas revoked and their U.S. assets frozen.

 

A relatively small, but noisy crowd, dressed mostly in revolutionary red, applauded and cheered the measures announced by the President from a  platform outside the presidential palace in downtown Caracas.

Meanwhile, away from the arrest announcement, CNN also reported that "gour missionaries from Bethel Evangelical Free Church in Devils Lake, North Dakota were released by Venezuelan authorities on Saturday, a church official said."

Pastor Bruce Dick said the missionaries arrived in Venezuela on February 20 and were detained a few days ago.

 

"We love the Venezuelan people and have served alongside them for over 12 years," Dick said. "We have been praying along with hundreds or thousands of others for their release and for those in Venezuela who also have been affected by this."

 

It is unclear if the detention and release of these Americans is connected to Maduro's charges of espionage.

Should the price of Brent resume its downward trend, or even remain around $60 where it is a loss-maker fro Venezuela, expect even more amusing antics from Maduro, whose regime may be falling apart before his eyes, however if anything, that only makes him more unpredictable and irrational.








Which New World Order Are We Talking About?

Submitted by Jeff Thomas of International Man

Which New World Order Are We Talking About?


Those of us who are libertarians have a tendency to speak frequently of “the New World Order.” When doing so, we tend to be a bit unclear as to what the New World Order is. Is it a cabal of the heads of the world’s governments, or just the heads of Western governments? Certainly bankers are included somewhere in the mix, but is it just the heads of the Federal Reserve and the IMF, or does it also include the heads of JPMorgan, Goldman Sachs, etc.? And how about the Rothschilds? And the Bundesbank—surely, they’re in there, too?

And the list goes on, without apparent end.

Certainly, all of the above entities have objectives to increase their own power and profit in the world, but to what degree do they act in concert? Although many prominent individuals, world leaders included, have proclaimed that a New World Order is their ultimate objective, the details of who’s in and who’s out are fuzzy. Just as fuzzy is a list of details as to the collective objectives of these disparate individuals and groups.

So, whilst most libertarians acknowledge “the New World Order,” it’s rare that any two libertarians can agree on exactly what it is or who it’s comprised of. We allow ourselves the luxury of referring to it without being certain of its details, because, “It’s a secret society,” as evidenced by the Bilderberg Group, which meets annually but has no formal agenda and publishes no minutes. We excuse ourselves for having only a vague perception of it, although we readily accept that it’s the most powerful group in the world.

This is particularly true of Americans, as Americans often imagine that the New World Order is an American construct, created by a fascist elite of US bankers and political leaders. The New World Order may be better understood by Europeans, as, actually, it’s very much a European concept—one that’s been around for quite a long time.

It may be said to have had its beginnings in ancient Rome. As Rome became an empire, its various emperors found that conquered lands did not automatically remain conquered. They needed to be managed—a costly and tedious undertaking. Management was far from uniform, as the Gauls could not be managed in the same manner as the Egyptians, who in turn, could not be managed like the Mesopotamians.

After the fall of Rome, Europe was in many ways a shambles for centuries, but the idea of “managing” Europe was revived with the Peace of Westphalia in 1648. The peace brought an end to the Thirty Years’ War (1618-1648) in the Holy Roman Empire and the Eighty Years’ War (1568-1648) between Spain and the Dutch Republic. It brought together the Holy Roman Empire, The House of Habsburg, the Kingdoms of Spain and France, the Dutch Republic, and the Swedish Empire.

Boundaries were set, treaties were signed, and a general set of assumptions as to the autonomy within one’s borders were agreed, to the partial satisfaction of all and to the complete satisfaction of no one… Sound familiar?

Later, Mayer Rothschild made his name (and his fortune) by becoming the financier to the military adventures of the German Government. He then sent his sons out to England, Austria, France, and Italy to do the same—to create a New World Order of sorts, under the control of his family through national debt to his banks. (Deep Throat was right when he said, “Follow the Money.”)

So, the concept of a New World Order has long existed in Europe in various guises, but what does this tell us about the present and, more important, the future?

In our own time, we have seen presidents and prime ministers come and go, whilst their most prominent advisors, such as Henry Kissinger and Zbigniew Brzezinski, continue from one administration to the next, remaining advisors for decades. Such men are often seen as the voices of reason that may be the guiding force that brings about a New World Order once and for all.

Mister Brzezinski has written in his books that order in Europe depends upon a balance with Russia, which must be created through the control of Ukraine by the West. He has stated repeatedly that it’s critical for this to be done through diplomacy, that warfare would be a disaster. Yet, he has also supported the US in creating a coup in Ukraine. When Russia became angered at the takeover, he openly supported American aggression in Ukraine, whilst warning that Russian retaliation must not be tolerated.

Henry Kissinger, who has literally written volumes on his “pursuit of world peace” has, when down in the trenches, also displayed a far more aggressive personality, such as his angry recommendation to US President Gerald Ford to “smash Cuba” when Fidel Castro’s military aid to Angola threatened to ruin Mr. Kissinger’s plans to control Africa.

Whilst the most “enlightened” New World Order advisors may believe that they are working on the “Big Picture,” when it comes down to brass tacks, they clearly demonstrate the same tendency as the more aggressive world leaders, and reveal that, ultimately, they seek to dominate. They may initially recommend diplomacy but resort to force if the other side does not cave to “reason” quickly.

If we stand back and observe this drama from a distance, what we see is a theory of balance between the nations of Europe (and, by extension, the whole world)—a balance based upon intergovernmental agreements, allowing for centralised power and control.

This theory might actually be possible if all the countries of the world were identical in every way, and the goals of all concerned were also identical. But this never has been and can never be the case. Every world leader and every country will differ in its needs and objectives. Therefore, each may tentatively agree to common conditions, as they have going back to the Peace of Westphalia, yet, even before the ink has dried, each state will already be planning to gain an edge on the others.

In 1914, Europe had (once again) become a tangle of aspirations of the various powers—a time bomb, awaiting only a minor incident to set it off. That minor incident occurred when a Serbian national assassinated an Austrian crown prince. Within a month, Europe exploded into World War. As Kissinger himself has observed in his writings, “[T]hey all contributed to it, oblivious to the fact that they were dismantling an international order.”

Since 1648, for every Richelieu that has sought to create a New World Order through diplomacy, there has been a Napoleon who has taken a militaristic approach, assuring that the New World Order applecart will repeatedly be upset by those who are prone to aggression. Further, even those who seek to operate through diplomacy ultimately will seek aggressive means when diplomatic means are not succeeding.

A true world order is unlikely. What may occur in its stead would be repeated attempts by sovereign states to form alliances for their mutual benefit, followed by treachery, one- upmanship, and ultimately, aggression. And very possibly a new World War.

But of one thing we can be certain: Tension at present is as great as it was in 1914. We are awaiting only a minor incident to set off dramatically increased international aggression. With all the talk that’s presently about as to a New World Order, what I believe will occur instead will be a repeat of history.

If this belief is correct, much of the world will decline into not only external warfare, but internal control. Those nations that are now ramping up into police states are most at risk, as the intent is already clearly present. All that’s needed is a greater excuse to increase internal controls. Each of us, unless we favour being engulfed by such controls, might be advised to internationalise ourselves—to diversify ourselves so that, if push comes to shove, we’re able to get ourselves and our families out of harm’s way.








Tens Of Thousands Rally In Moscow To Mourn Slain Boris Nemtsov

If there was supposed to be any crackdown on opposition voices in Russia following the shocking death of Boris Nemtsov, it wasn't evident today during a rally in which tens of thousands converged in central Moscow this monring to mourn the veteran liberal politician Boris Nemtsov, whose killing on the streets of the capital has, according to AP, shaken Russia's beleaguered opposition.

As AP reports, and as the photos below show, the mourners marched to the bridge near the Kremlin where Nemtsov was gunned down shortly before midnight Friday. "The march could serve to energize the opposition or it could prove to be a brief outpouring of emotions that once again dissipates in a climate of fear."

Russia's federal investigative agency said it was looking into several possible motives for his killing.

The first possibility, the Investigative Committee said, was that the murder was aimed at destabilizing the political situation in Russia and Nemtsov was a "sacrificial victim for those who do not shun any method for achieving their political goals."

 

This suggestion echoed comments by Putin's spokesman and other Russian politicians that the attack was a "provocation" against the state.

Opposition activists had planned a protest rally on Sunday, which the city demanded they hold in a suburban neighborhood. After Nemtsov's death, they called instead for a demonstration to mourn him in central Moscow. The city gave its quick approval.

Below are various snapshots from the rally:

MT @michaelbirnbaum: Panoramic view of #Nemtsov March, alongside the Kremlin walls. pic.twitter.com/GRVhc9UDTV #??????

— Boris Zilberman (@rolltidebmz) March 1, 2015

#Nemtsov march banner: "these bullets hit every one of us" pic.twitter.com/PBx2TAGypp

— Dmitry Vostok (@DmitryVostok) March 1, 2015

#Nemtsov March begins. Quiet crowd walks down to Kremlin embankment towards bridge where he was shot. Thousands. pic.twitter.com/jm9dMGiFrO

— Dmitry Vostok (@DmitryVostok) March 1, 2015

???? ???? ?? ????? #?????? #Nemtsov pic.twitter.com/1hlR4BiFSR

— ??? ??? (@riafanru) March 1, 2015

Nemtsov's memorial looks like the biggest protest in Russia since Bolotnaya. Organizers claiming 50,000-100,000. pic.twitter.com/HQjFzl3fQc

— max seddon (@maxseddon) March 1, 2015

People pouring into mourning march to honor #Nemtsov http://t.co/Blg0CDv9er pic.twitter.com/6Whyjd63TZ

— RT (@RT_com) March 1, 2015

Moscow March feels more like a wake than opposition rally #Nemstov pic.twitter.com/bODrQtXhUW

— Anissa Naouai (@ANOWRT) March 1, 2015

Police lined up on march route next to bridge where nemtsov killed pic.twitter.com/aanZgpMXXk

— tom balmforth (@BalmforthTom) March 1, 2015

#Nemtsov March approaches place where he was killed, flowers laid across 100-150 metres pic.twitter.com/D4bB6VgAe4

— Dmitry Vostok (@DmitryVostok) March 1, 2015

Mourners reach bridge where #Nemtsov was killed http://t.co/Blg0CDv9er pic.twitter.com/8DPWTl62fk

— RT (@RT_com) March 1, 2015

#Nemtsov marchers shout Russia without Putin, No to war, Russia will be free pic.twitter.com/6965oDYAom

— Sarah Rainsford (@sarahrainsford) March 1, 2015

Mikhail Kasyanov on the bridge where #Nemtsov died: "We won't forgive, we won't forget. Boris with us" pic.twitter.com/F90sMD66T9

— Ryskeldi Satke (@RyskeldiSatke) March 1, 2015

Ukrainian, reported organizer of #Odessa Massacre, came to Moscow today to mourn his hero #BorisNemtsov pic.twitter.com/tHjkE8DV9n

— Mark Sleboda (@MarkSleboda1) March 1, 2015

Thousands of Russian flags with black ribbons but everyone once in a while blue and yellow #Moscow #Nemtsov pic.twitter.com/XeTL7X7KZo

— Anissa Naouai (@ANOWRT) March 1, 2015








Housing Industry Frets About the Next Brick to Drop

Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

Stephen Schwarzman, CEO and co-founder of Blackstone Group, the world’s largest private-equity firm with $290 billion in assets under management, made $690 million for 2014 via a mix of dividends, compensation, and fund payouts, according to a regulatory filing. A 50% raise from last year.

The PE firm’s subsidiary Invitation Homes, doped with nearly free money the Fed’s policies have made available to Wall Street, has become America’s number one mega-landlord in the span of three years by buying up 46,000 vacant single-family homes in 14 metro areas, initially at a rate of $100 million per week, now reduced to $35 million per week.

As of September 30, Invitation Homes had $8.7 billion worth of homes on its balance sheet, followed by American Homes 4 Rent ($5.5 billion), Colony Financial ($3.4 billion), and Waypoint ($2.6 billion). Those are the top four. Countless smaller investors also jumped into the fray. Together they scooped up several hundred thousand single-family houses.

A “bet on America,” is what Schwarzman called the splurge two years ago.

The bet was to buy vacant homes out of foreclosure, outbidding potential homeowners who’d actually live in them, but who were hobbled by their need for mortgages in cash-only auctions. The PE firms were initially focused only on a handful of cities. Each wave of these concentrated purchases ratcheted up the prices of all other homes through the multiplier effect.

Homeowners at the time loved it as the price of their home re-soared. The effect rippled across the country and added about $7 trillion to homeowners’ wealth since 2011, doubling equity to $14 trillion.

But it pulled the rug out from under first-time buyers. Now, only the ludicrously low Fed-engineered interest rates allow regular people – the lucky ones – to buy a home at all. The rest are renting, in a world where rents are ballooning and wages are stagnating.

Thanks to the ratchet effect, whereby each PE firm helped drive up prices for the others, the top four landlords booked a 23% gain on equity so far, with Invitation Homes alone showing  $523 million in gains, according to RealtyTrac. The “bet on America” has been an awesome ride.

But now what? PE firms need to exit their investments. It’s their business model. With home prices in certain markets exceeding the crazy bubble prices of 2006, it’s a great time to cash out. RealtyTrac VP Daren Blomquist told American Banker that small batches of investor-owned properties have already started to show up in the listings, and some investors might be preparing for larger liquidations.

“It is a very big concern for real estate professionals,” he said. “They are asking what the impact will be if investors liquidate directly onto the market.”

But larger firms might not dump these houses on the market unless they have to. American Banker reported that Blackstone will likely cash out of Invitation Homes by spinning it off to the public, according to “bankers close to the Industry.”

After less than two years in this business, Ellington Management Group exited by selling its portfolio of 900 houses to American Homes 4 Rent for a 26% premium over cost, after giving up on its earlier idea of an IPO. In July, Beazer Pre-Owned Rental Homes had exited the business by selling its 1,300 houses to American Homes 4 Rent, at the time still flush with cash from its IPO a year earlier.

Such portfolio sales maintain the homes as rentals. But smaller firms are more likely to cash out by putting their houses on the market, Blomquist said. And they have already started the process.

Now the industry is fretting that liquidations by investors could unravel the easy Fed-engineered gains of the last few years. Sure, it would help first-time buyers and perhaps put a halt to the plunging homeownership rates in the US [The American Dream Dissipates at Record Pace].

But the industry wants prices to rise. Period.

When large landlords start putting thousands of homes up for sale, it could get messy. It would leave tenants scrambling to find alternatives, and some might get stranded. A forest of for-sale signs would re-pop up in the very neighborhoods that these landlords had targeted during the buying binge. Each wave of selling would have the reverse ratchet effect. And the industry’s dream of forever rising prices would be threatened.

“What kind of impact will these large investors have on our communities?” wondered Rep. Mark Takano, D-California, in an email to American Banker. He represents Riverside in the Inland Empire, east of Los Angeles. During the housing bust, home prices in the area plunged. But recently, they have re-soared to where Fitch now considers Riverside the third-most overvalued metropolitan area in the US. So Takano fretted that “large sell-offs by investors will weaken our housing recovery in the very same communities, like mine, that were decimated by the subprime mortgage crisis.”

PE firms have tried to exit via IPOs – which kept these houses in the rental market.

Silver Bay Realty Trust went public in December 2012 at $18.50 a share. On Friday, shares closed at $16.16, down 12.6% from their IPO price.

American Residential Properties went public in May 2013 at $21 a share, a price not seen since. “Although people look at this as a new industry, there’s really nothing new about renting single-family homes,” CEO Stephen Schmitz told Bloomberg at the time. “What’s new is that it’s being aggregated, we’re introducing professional management and we’re raising institutional capital.” Shares closed at $17.34 on Friday, down 17.4% from their IPO price.

American Homes 4 Rent went public in August 2013 at $16 a share. On Friday, shares closed at $16.69, barely above their IPO price. These performances occurred during a euphoric stock market!

So exiting this “bet on America,” as Schwarzman had put it so eloquently, by selling overpriced shares to the public is getting complicated. No doubt, Blackstone, as omnipotent as it is, will be able to pull off the IPO of Invitation Homes, regardless of what kind of bath investors end up taking on it.

Lesser firms might not be so lucky. If they can’t find a buyer like American Homes 4 Rent that is publicly traded and doesn’t mind overpaying, they’ll have to exit by selling their houses into the market.

But there’s a difference between homeowners who live in their homes and investors: when homeowners sell, they usually buy another home to live in. Investors cash out of the market. This is what the industry dreads. Investors were quick to jump in and inflated prices. But if they liquidate their holdings at these high prices, regular folks might not materialize in large enough numbers to buy tens of thousands of perhaps run-down single-family homes. And then, getting out of the “bet on America” would turn into a real mess.

And getting out of the bet on China? China has long frustrated the hard-landing watchers. But maybe not much longer. Read… Housing Crash in China Steeper than in Pre-Lehman America








Most Americans Are Slaves And They Don't Even Know It

Submitted by Michael Snyder via The Economic Collapse blog,

Most Americans spend their lives working for others, paying off debts to others and performing tasks that others tell them that they “must” do.  These days, we don’t like to think of ourselves as “servants” or “slaves”, but that is what the vast majority of us are.  It is just that the mechanisms of our enslavement have become much more sophisticated over time.  It has been said that the borrower is the servant of the lender, and most of us start going into debt very early into our adult years.  In fact, those that go to college to “get an education” are likely to enter the “real world” with a staggering amount of debt.  And of course that is just the beginning of the debt accumulation.

Today, when you add up all mortgage debt, all credit card debt and all student loan debt, the average American household is carrying a grand total of 203,163 dollars of debt.  Overall, American households are more than 11 trillion dollars in debt at this point.  And even though most Americans don’t realize this, over the course of our lifetimes the amount of money that we will repay on our debts is far greater than the amount that we originally borrowed.  In fact, when it comes to credit card debt you can easily end up repaying several times the amount of money that you originally borrowed.  So we work our fingers to the bone to pay off these debts, and the vast majority of us are not even working for ourselves.  Instead, our work makes the businesses that other people own more profitable.  So if we spend the best years of our lives building businesses for others, servicing debts that we owe to others and making others wealthier, what does that make us?

In 2015, the words “servant” and “slave” have very negative connotations, and we typically don’t use them very much.

Instead, we use words like “employee” because they make us feel so much better.

But is there really that much of a difference?

This is how Google defines “servant”…

“a person who performs duties for others, especially a person employed in a house on domestic duties or as a personal attendant.”

This is how Google defines “slave”…

“a person who is the legal property of another and is forced to obey them.”

This is how Google defines “employee”…

“a person employed for wages or salary, especially at nonexecutive level.”

Yes, most of us might not be “legal property” of someone else in a very narrow sense, but in a broader sense we all have to answer to someone.

We all have someone that we must obey.

And we all have obligations that we must meet or else face the consequences.

At this point, Americans are more dependent on the system than ever before.  Small business ownership in the U.S. is at a record low, and the percentage of Americans that are self-employed has fallen to unprecedented levels in recent years.  From a very early age, we are trained to study hard so that we can get a good “job” (“just over broke”) and be good cogs in the system.

But is that what life is about?

Is it about being a cog in a system that ultimately benefits others?

Perhaps you don’t think that any of this applies to you personally.

Well, if someone came up to you and asked you what you truly own, what would you say?

Do you own your vehicle?

Most Americans don’t.

In fact, today the average auto loan at signing is approximately $27,000, and many of them stretch on for six or seven years.

What about your home?

Do you own it?

Most Americans don’t.

In fact, overall the banks have a much greater “ownership” interest in our homes and our land than we do.

But even if you have your home totally “paid off”, does that mean that you actually “own” it?

Well, no, not really.

Just see what happens if you quit paying your property taxes (rent) to the proper authorities.

So if they can take your home away from you for not paying rent (property taxes), do you really own it?

That is something to think about it.

What about all of your stuff?

Do you own it?

Perhaps.

But a very large percentage of us have willingly enslaved ourselves in order to acquire all of that stuff.

Today, the typical U.S. household that has at least one credit card has approximately $15,950 in credit card debt.

And if you do not pay off those credit card balances, the credit card companies will unleash the hounds on you.

Have you ever had an encounter with a debt collector?

They can be absolutely brutal.  And they use those tactics because they work.  In fact, they are so good at what they do that many of those that own debt collection companies have become exceedingly wealthy.  The following is from a recent CNN article…

Yachts. Mansions. Extravagant dinner parties. Life is good for the founders of one of the nation’s biggest government debt collectors.

 

That firm, Linebarger Goggan Blair & Sampson, rakes in big money from government contracts that allow it to pursue debtors over toll violations, taxes and parking tickets. While the debts often start small, the Austin-based firm charges high fees, which can add hundreds or even thousands of dollars to the bill.

After growing this business from a small Texas law firm in the late 1970’s to a nationwide debt collection powerhouse, the firm’s founders and top brass have walked away with millions of dollars.

And I haven’t even mentioned our collective debts yet.

We have willingly chosen to collectively enslave ourselves on a local, a state and a national level.

It is bad enough that we are doing this to ourselves.  But we are also cruelly saddling future generations of Americans with the largest mountain of debt in the history of the planet.  The following is from my previous article entitled “Barack Obama Says That What America Really Needs Is Lots More Debt“…

When Barack Obama took the oath of office, the U.S. national debt was 10.6 trillion dollars.  Today, it has surpassed the 18 trillion dollar mark.  And even though we are being told that “deficits are going down”, the truth is that the U.S. national debt increased by more than a trillion dollars in fiscal 2014.  But that isn’t good enough for Obama.  He says that we need to come out of this period of “mindless austerity” and steal money from our children and our grandchildren even faster.  In addition, Obama wants to raise taxes again.  His budget calls for 2 trillion dollars in tax increases over the next decade.  He always touts these tax increases as “tax hikes on the rich”, but somehow they almost always seem to end up hitting the middle class too.  But whether or not Congress ever adopts Obama’s new budget is not really the issue.  The reality of the matter is that the “tax and spend Democrats” and the “tax and spend Republicans” are both responsible for getting us into this mess.  Future generations of Americans are already facing the largest mountain of debt in the history of the planet, and both parties want to make this mountain of debt even higher.  The only disagreement is about how fast it should happen.  It is a national disgrace, but most Americans have come to accept this as “normal”.  If our children and our grandchildren get the opportunity, they will curse us for what we have done to them.

So can we really call ourselves the “home of the brave and the land of the free”?

Isn’t the truth that the vast majority of us are actually deeply enslaved?








Meet Linebarger - The Government's Biggest Private Debt Collector

Collecting debt is a dirty business which is why The Federal Government turns it over to the private sector. Meet one of the biggest players in the industry, law firm Linebarger Goggan Blair & Sampson. It has worked for small-town school districts, the city of New York and at one point, the largest tax collector in the country: the Internal Revenue Service. As CNN reports, based in Texas, Linebarger works for 2,300 clients nationwide and collects $1 billion for its clients each year. But the collection system is far from perfect, leading to some nightmare scenarios. Despite decades of scandals over the way the firm gets business (and even jail time for one of its top executives) Linebarger still lands lucrative government contracts...

 

As CNN Money reports, Government agencies across the country are hiring private debt collectors to go after millions of Americans over unpaid taxes, ancient parking tickets and even $1 tolls...

It’s a good deal for cash-strapped states, cities and other local governments. By outsourcing this dirty work and letting private companies charge debtors sky-high fees, government agencies can get these collection services free of charge.

 

And it's a great deal for debt collectors. In an industry already known for bad behavior, debt collectors that work for government agencies usually don’t have to work within the confines of consumer protection laws – opening the door for higher fees and even more aggressive tactics.

 

Their government bosses can give them the power to threaten debtors with the suspension of their driver’s license, garnishment of their wages, foreclosure and arrest to get them to pay up.

 

State lawmakers have even passed laws allowing private collectors to charge debtors steep fees. In Florida, for example, fees can be as high as 40% on top of the total bill, which includes not only what they already owe, but interest and government penalties as well. In Texas, they can reach 30%. And in cases of unpaid toll violations, flat fees can effectively amount to more than 100%. As a result, small unpaid tolls can easily balloon into hundreds of dollars, once government penalties and collection fees are tacked on.

 

"They keep figuring out ways to stack these fees up,” said Tai Vokins, a Kansas-based attorney and former assistant attorney general. “They’re preying on the absolute poorest people."

 

And this is all legal.

*  *  *
True Stories...

*  *  *

One of the biggest players in this industry is law firm Linebarger Goggan Blair & Sampson. Based in Texas, Linebarger works for 2,300 clients nationwide and collects $1 billion for its clients each year.

Despite decades of scandals and bad press surrounding the firm and its partners, Linebarger continues to wield widespread political influence and rake in new million-dollar contracts.

The scandals date back to its early days, when firm partners became infamous for using political connections to win contracts and change laws. Past controversies ranged from allegations of illegal loans to public officials to inappropriately influencing lawmakers, including a controversial Mexican getaway with a Texas Speaker of the House that reportedly involved a topless dancer.

 

Some critics thought the firm could even face extinction in 2002 after a major partner, Juan Pena, was indicted on charges that he bribed two city councilmen with more than $10,000.

 

Pena eventually pleaded guilty to bribery charges, lost his law license and was sentenced to 30 months behind bars. He did not respond to requests for comment.

 

Yet the scandals have continued. Take Chicago, for example, where Linebarger's contract was terminated in 2008 because the firm had paid for the trip of a top city official. The bad blood didn’t last long though, with the city hiring it again in the same year.

 

"The incident ... was embarrassing to say the least, but we worked very hard to earn another chance to represent the City," said Vallandingham.

 

Meanwhile in Memphis, attorneys in a class-action lawsuit challenging the firm’s fees questioned Linebarger’s payment of millions of dollars to a local attorney who helped it win the city contract to collect taxes. After the lawsuit was filed, Memphis ended its relationship with the firm.

 

And in Texas, a partner was indicted in 2012 for covering up donations to a local elected official and his case remains ongoing. More recently, two Linebarger consultants have been at the center of alleged bribery schemes -- one of which is heading to trial and another that is still under investigation.

 

Linebarger says the firm itself has never been charged with committing a crime and the actions of a few individuals aren't representative of its overall business practices. But one former Linebarger partner, who asked to remain anonymous, said some of the firm's tactics for getting contracts made him uncomfortable and didn't always "pass the smell test."

So how does Linebarger keep getting new business?

The firm touts its longstanding work in the field saying: "we are hired and rehired because we are good at what we do."

 

...

 

But others say it's all about the money.

 

Linebarger spends millions on campaigns and lobbying efforts across the country. And it pays big bucks to influential current Texas public officials by putting them on its payroll -- a surprising but legal practice.

 

"They’ve discovered a niche that they can monopolize through political manipulation," said Byron Schlomach, a former fellow at the Texas Public Policy Foundation. "And they’ve become very good at it."

*  *  *
Linebarger's reach is growing...

 

 

Linebarger says it undertakes all of its political activities with "strict adherence to the law." ... "The way you get access is you contribute to political campaigns, you go to fundraisers ... You make friends with these people," he said.

But even if all of the politicians and government agencies end their love affair with Linebarger, there are other private collectors that would be happy to take its place. What is really needed, consumer advocates say, is an end to the special treatment given to government debt collectors.

Until then, millions of Americans are left facing ominous threats and steep fees each year.

 

"They're bottom feeders; that's what they are," said Tom, the Oklahoma tax attorney. "The problem is they're bottom feeders with the power of the government behind them."

*  *  *

 








Breaking Bad (Debt) - Episode One

Submitted by Jim Quinn via The Burning Platform blog,

“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”Fed chairman, Ben Bernanke, Congressional testimony, March, 2007

“Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.”James Grant, Grant’s Interest Rate Observer

The Federal Reserve issued their fourth quarter Report on Household Debt and Credit last week to the sounds of silence in the mainstream media. There were minor press releases issued by the “professional” financial journalists regurgitating the Federal Reserve’s storyline. Actual analysis, connecting the dots, describing how the massive issuance of student loan and auto loan debt has produced a fake economic recovery, and how the accelerating default rates in auto loans and student loans will produce the next subprime debt implosion, were nowhere to be seen on CNBC, Bloomberg, the WSJ, or any other status quo propaganda media outlet. Their job is not to analyze or seek truth. Their job is to keep their government patrons and Wall Street advertisers happy, while keeping the masses sedated, misinformed, and pliable.

Luckily, the government hasn’t gained complete control over the internet yet, so dozens of truth telling blogs have done a phenomenal job zeroing in on the surge in defaults. The data in the report tells a multitude of tales conflicting with the “official story” sold to the public. The austerity storyline, economic recovery storyline, housing recovery storyline, and strong auto market storyline are all revealed to be fraudulent by the data in the report. Total household debt grew by $117 billion in the fourth quarter and $306 billion for the all of 2014. Non-housing debt in the 4th quarter of 2008, just as the last subprime debt created financial implosion began, was $2.71 trillion. After six years of supposed consumer austerity, total non-housing debt stands at a record $3.15 trillion. This is after hundreds of billions of the $2.71 trillion were written off and foisted upon the backs of taxpayers, by the Wall Street banks and their puppets at the Federal Reserve.

The corporate media talking heads cheer every increase in consumer debt as proof of economic recovery. In reality every increase in consumer debt is just another step towards another far worse economic breakdown. And the reason is simple. Real median household income is still below 1989 levels. The average American family hasn’t seen their income go up in 25 years. What they did see was their chains of debt get unbearably heavy. Non-housing consumer debt (credit card, auto, student loan, other) was $800 billion in 1989.

The 300% increase in consumer debt, while incomes stagnated, has created a zombie nation of debt slaves. And this doesn’t even take into account the quadrupling of mortgage debt from $2.2 trillion in 1989 to $8.7 trillion today. This isn’t Twelve Years a Slave; it’s Debt Slaves for Eternity. And who benefits? The Wall Street bankers, .1% oligarchs, and corporate fascists pulling the levers of government and society benefit. An economic and jobs recovery for working Americans is nowhere to be seen in the chart below.

Total debt on the balance sheet of American consumers (formerly known as citizens) now tops $11.8 trillion, up from the $11.1 trillion trough in 2013. The peak was “achieved” in a frenzy of $0 down McMansion buying, Lexus leasing, and Home Equity ATM extraction in 2008, when the total reached $12.7 trillion. The $1.6 trillion decline from peak insanity had nothing to do with austerity or Americans reigning in their debt financed lifestyles.

The Wall Street banks took the $700 billion of taxpayer funded TARP, sold their worthless mortgage paper to the Fed, suckled on the Fed’s QE and ZIRP, and wrote off the $1.6 trillion. Wall Street didn’t miss a beat, while Main Street got treated like skeet during a shooting competition. Every solution proposed and implemented since September 2008 had the sole purpose of benefitting the criminals on Wall Street who perpetrated the largest financial heist in world history. The slogan should have been Bankers Saving Bankers Since 1913.

The average American benefited in no way from the government/banker bailout. Their wages have deteriorated, their daily living expenses have risen, Obamacare has resulted in higher healthcare premiums, higher co-pays, more part-time jobs, less full-time jobs, and less healthcare choices for the working class, while Wall Street generates billions in risk free profits, bankers and corporate executives reap massive million dollar bonuses, and the .1% parties like its 1999. Rising wealth inequality has been systematically programmed into our economic system by bankers and their bought off puppet politicians in Washington D.C. – Corporate fascism at its finest.

The lack of real economic recovery for the average American has been purposely masked through the issuance of $500 billion of subprime student loan debt and $200 billion of auto loan debt (much of it subprime) since 2010 by the Federal government and their co-conspirators on Wall Street.

The issuance of debt by the government to people not financially able to repay that debt, in order to generate economic activity and boost GDP is nothing more than fraudulent inducement using taxpayer funds. Debt financed purchases is not wealth. Debt financed consumption does not boost the wealth of the nation. If adding debt produced economic advancement, why has the number of Americans on food stamps escalated from 33 million in 2009 to 46 million today during a five year economic recovery? Why have 10 million Americans left the labor force since 2009, pushing the labor participation rate to 30 year lows, during a jobs recovery?

Why have social benefits distributed by the Federal government surged by $2.5 trillion since 2012, reaching a record high of 20.8% of real disposable income? It resides 33% above 2007 levels and still above levels during the depths of the recession in 2009. But at least the stock market hits record highs on a daily basis, creating joy in NYC penthouse suites and Hamptons ocean front estates. American dream for the .1% achieved.

Does this look like Recovery?

When you actually dig into the 31 page Federal Reserve produced report, anyone with a few functioning brain cells (this eliminates all CNBC bimbos, shills, and cheerleaders), can see our current economic paradigm is far from normal and an economic recovery has not materialized. Record stock market prices and corporate profits have not trickled down to Main Street. Janet, don’t piss down my back and tell me it’s raining (credit to Fletcher in Outlaw Josey Wales). The mainstream media spin fails to mention that $706 billion of consumer debt is currently delinquent. That is 6% of all consumer debt.

Could the Wall Street banks withstand that level of losses with their highly leveraged insolvent balance sheets? The number of foreclosures and consumer bankruptcies rose in the fourth quarter versus the third quarter. Does this happen during an economic recovery? Donghoon Lee, research officer at the Federal Reserve Bank of New York, may be looking for a new job soon. When a Federal Reserve lackey actually admits to being worried, you know things are about to get very bad very fast.

“Although we’ve seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning. Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households.”

And he didn’t even mention the increase in auto loan delinquencies which will eventually morph into a landslide of bad debt write-offs, repossessions, and Wall Street bankers demanding another bailout. The pure data in the Fed report doesn’t tell the true story. The $306 billion increase in outstanding debt only represents a 2.7% annual increase. And even though mortgage debt increased by $121 billion, it was on a base of $8.17 trillion. That is a miniscule 1.5% increase. A critical thinking individual might wonder how national home prices could rise by 25% since the beginning of 2012, while mortgage debt outstanding has fallen by $220 billion over this same time frame, and mortgage originations are hovering at 1997 levels.

It couldn’t have been the Wall Street/Fed/Treasury Dept. withhold foreclosures from the market, sell to hedge funds and convert to rental units, and screw the first time home buyer scheme to super charge Wall Street profits and artificially boost home prices. Could it? New home sales prices and new home sales were tightly correlated from 1990 through 2006. Then the bottom fell out in 2006 and new homes sales crashed. Nine years later new home sales still linger at 1991 recession levels. New home sales are 65% lower than they were in 2005, but median prices are 20% higher. This is utterly ridiculous.

If prices had fallen to the $100,000 to $150,000 level, based on the historical correlation, first time home buyers would be buying hand over foot. But the Federal Reserve, their Wall Street owners, connected hedge funds, and the Federal government has created an artificial price bubble with 0% interest rates and trillions of QE heroin. The 1% can still afford to buy overpriced McMansions, but the young are left saddled with student loan debt, low paying service jobs, and no chance at ever owning a home.

The chart that puts this economic recovery in perspective is their 90+ days delinquent by loan type. If you haven’t made a payment in 90 days or more, the odds are you aren’t going to pay. The Fed and the ever positive corporate media, who rely on advertising revenue from Wall Street, the auto industry, and the government, go to any lengths to spin awful data into gold. Their current storyline is to compare delinquency levels to the levels in 2009 at the height of the worst recession since the 1930s. Mortgage delinquencies have fallen from 8.9% in 2010 to 3.2% today (amazing what writing off $1 trillion of bad mortgages can achieve), but they are three times higher than the 1% average before the financial meltdown. Is that a return to normalcy? Home equity lines of credit had delinquency rates of 0.2% prior to the 2008 meltdown. Today they sit at 3.2%, only sixteen times higher than before the crisis. Is that a return to normalcy? Do these facts scream “housing recovery”?

The outlier on the chart is credit card delinquencies. The normal, pre-crisis level hovered between 9% and 10%. Banks can handle that level when they are charging 18% interest while borrowing at .25% interest. During the Wall Street created recession, delinquencies spiked to 13.7%, but after writing off about $150 billion of bad debt and closing 100 million credit card accounts, delinquencies miraculously began to plunge. Delinquencies have plunged to 7.3% as credit card debt still sits $170 billion below the 2008 peak. This is a reflection of Americans depending on their credit cards to survive their everyday existence.

With stagnant real wages and household income 7% below 2008 levels, the average family is using their credit cards to pay for food, energy, clothing, utilities, taxes, and medical expenses. They are making the minimum payments and staying current on their payment obligations because their credit cards are the only thing keeping them from having to live in a cardboard box. A Bankrate.com survey this week revealed 37% of Americans have credit card debt that equals or is greater than their emergency savings, leaving them “teetering on the edge of financial disaster.” Greg McBride, Bankrate.com’s chief financial analyst sums up the situation:

“Not only do most of them not have enough savings, they’ve all used up some portion of their available credit — they are running out of options. People don’t have enough money for unplanned expenses, and if they have more credit card debt than emergency savings, it’s a double whammy. In the event of unplanned expenses, their options are limited.”

Who doesn’t have an unplanned expense multiple times in a year? A major car repair, appliance repair, hot water heater failure, or a medical issue is utterly predictable and most people are unprepared to financially deal with them. As many people found in 2009, credit card lines can be reduced in the blink of an eye by the Wall Street banks. This potential for financial disaster is why Americans are doing everything they can to stay current on their credit card payments. That brings us to the Federal Reserve/Federal Government created mal-investment subprime boom 2.0, which is in the early stages of going bust.

I’ll address the Subprime bust 2.0 in part two of this article.








1987 Or 2015? The Gap Between Growth Expectations & Valuations Is "Ridiculous"

While the divergence between macro data 'dismalness' and equity price exuberance is by now well known, there is a greater threat looming to the rampapalooza that is underway. As forward Price-to-Earnings ratios have soared in the last year (aided and abetted - as Alan Greenspan explained - solely by The Fed's largesse) so bottom-up earnings growth expectations have cratered. So much so that veteran stock market investors and traders now see the divergence between multiple 'hope' and growth 'reality' as "ridiculous." Just how ridiculous? Worse than 1987, 2002, and 2011, when stocks fell over 20% upon realization of reality.

 

"Ridiculous"

 

  • 1987 - down over 30%
  • 2002 - down over 30%
  • 2011 - down over 20%

Just how ridiculous?

 

2015 - who knows?

h/t @Not_Jim_Cramer








STiNKiN BuLLeTS...

.

BLOOMBERG NEWS (April 2014)--- On April 14, Newsmax.com reported that the USPS was seeking to buy a large amount of ammunition on the heels of similar purchases by the Social Security Administration, the U.S. Department of Agriculture, and the National Oceanic and Atmospheric Administration.

This alarmed some people whom Newsmax described as “second amendment advocates.”

One was Philip Van Cleave, president of the Virginia Citizens Defense League. “The problem is, all these agencies have their own SWAT teams, their own police departments, which is crazy,” he told the website. “Do we really need this? That was something our Founding Fathers did not like and we should all be concerned about.”








"Massive Mis-Governance" - Q4 Obliterates The Case For QE And ZIRP

Submitted by David Stockman via Contra Corner blog,

The most important number in today’s Q4 GDP update was 2.3%. That’s the year/year change in real final sales from Q4 2013. As an analytical matter it means that the Great Slog continues with no sign of acceleration whatsoever.

Indeed, the statistical truth of the matter is that this year’s result amounted to a slight deceleration—–since the Y/Y gain in real final sales for Q4 2013 was 2.6%.  But beyond the decimal point variation the larger point is this: Take out the somewhat jerky quarterly impacts of inventory stocking and destocking, and view things on a year/year basis to eliminate seasonal maladjustments and data collection and timing quirks, such as the double digit gain in defense spending during Q3 and the negative rate for Q4, and what you get is a straight line slog since the recession ended in 2009.

Thus, the year/year gain in real final sales for Q4 2012 was 2.1%; and was 1.5% and 2.0% for the years ended in Q4 2011 and 2010, respectively. Its a 2% world. Period.

The questions thus recurs as to what in the world the Fed’s massive money printing spree had to do with this tepid performance.  The answer is nothing at all, and that “tepid” and “slog” are exactly the right words to characterize these numbers. After all, the plunge in GDP during 2008 and the first half of 2009 was the deepest since WW II. By all prior norms, therefore, the bounce back should have been exceptionally strong.

For instance, real final sales dropped by 3% during the Great Recession—–far more than the 1.1% decline during the deepest prior post-war downturn of 1981-1982.  However, during the next five years of rebound, real final sales grew by 26% or nearly 4.7% per year.  That’s more than triple the 8% cumulative rebound from a far deeper hole in June 2009.

So the case for the Fed’s massive money printing campaign has now been flat-out obliterated. As I documented in the Great Deformation, the short but deep recession of 2008-2009 represented a sharp liquidation of excess inventories and labor that had built up in the main street economy during the Greenspan-Bernanke housing and subprime credit bubble. But that one-time liquidation was over by June 2009; the economy was not sinking into a black hole.

Moreover, by the time the US economy began to rebound in mid 2009, the real cause was the natural regenerative power of the capitalist market—not the massive money printing campaign that Bernanke had launched at the time of the Lehman failure in September 2008.  All of the massive liquidity—-which took the Fed’s balance sheet from $900 billion to $2.5 trillion in less than a year—–worked it magic in the canyons of Wall Street, not in the household and business sectors of the main street economy.

The fact is, the only channel through which the Fed can impact the main street economy is through credit expansion. Yet business and household credit outstanding was still shrinking long after the recession ended. The 2% slog that began thereafter had nothing to do with the machinations of the Fed; its represented the return of a steady, modest increment of labor hours and productivity growth to the market economy.

But here’s the thing. The 5X gain in the Fed’s balance sheet since 2009 has not been harmless——even though it has not stimulated the main street economy.  What is has done, obviously, is reflate a massive financial bubble. The latter will splatter eventually, sending the main street economy into a new tailspin of short-term labor and inventory liquidation and another financial crisis for no reason whatsoever.

Indeed, the monetary politburo is stuck in a dangerous time warp. Not recognizing that the credit channel of monetary transmission is broken and done, they keep money market rates pinned to the zero bound because they claim to detect no acceleration of consumer price inflation on the immediate horizon.

So what!  Do not these clueless Keynesian apparatchiks recognize that the  money market rate and the yield curve are the most important prices in all of capitalism, and that their policy of massive and continuous financial repression generates blatantly false prices in the financial markets and therefore rampant speculation and asset price inflation?

Needless to say, another quarter of no “escape velocity” on main street and a further round of Kool Aid drinker speculation on Wall Street takes us just that much closer to the brink. Yet the Fed remains oblivious and continues to manufacture excuses and equivocations as to why ZIRP should extend into its 80th month and beyond.

This is mis-governance on a colossal scale. So when the next thundering crash occurs—-it is devoutly to be hoped that “audit the Fed” turns out to be the least of the threats descending on the Eccles Building.

*  *  *

Wall Street vs Main Street








Caught On Tape: The Moment Boris Nemtsov Was Assassinated

As the world contemplates the various 'provocation' scenarios - a Russian act, a CIA act meant to look like a Russian act, or a Russian act meant to look like a CIA act? - the following clip suggests this was anything but an ad hoc shooting...

 

 

The narrator suggests, as Nemtsov and his companion are walking along the road, a garbage truck (or cleaning vehicle) is behind them. When the garbage truck comes alongside the couple, it slows down, then moves ahead, then stops... and another man leaves the vehicle and jumps in a following car, which speeds away with tires smoking...

 

*  *  *

As Ukraineatwar blog concludes,

The video seems to be real, because the location EXACTLY fits the know murder spot. It does not seem likely that such a video could have been prepared in advance.

 

The murder EXACTLY takes place when the cleaning vehicle passes by. It is absolutely unclear where the assassin come from. Nobody can be seen walking towards or behind Nemtsov and his companion. Neither can somebody be seen walking to that specific spot to wait for them.

 

Therefore it seems very likely that the cleaning vehicle has something to do with it and the assassin could have traveled with the vehicle.

 

Since Nemtsov was shot from behind and the cleaning vehicle already caught up with them when the murder took place, it does not seem likely that the assassin traveled on the passenger seat next to the driver. He had to open and close the door and that may have drawn their attention. It seems likely that he had traveled on the back of the car. He could easily jump on and off and could also estimate if there were other people to close to them to do the operation at all at that moment.

 

Using a cleaning vehicle gives a lot of advantage: you can drive slowly, draw no attention, wait if necessary and thus pick exactly the right moment (with no other people nearby).

 

It does seem like the assassin had been following the couple already when he jumped on the vehicle. They may have crossed the road where the cleaning car was waiting. After seeing them pass by, it started entering the bridge. When they passed the assassin, he jumped on. In this way they could be sure that they had the right person AND they could pick the right moment without running to catch them up.

 

All the getaway car had to do was to wait until the cleaning vehicle got on the bridge, see the hit man jumped on and then get to follow from a distance to slowly catch up.

 

It all does look like a REALLY WELL orchestrated operation.

 

Totally weird is that there is no traffic at all behind them. Such a moment is very hard to pick, especially when you can see that there are many cars before the assassination moment. Right after the car picks up the assassin, new cars start arriving again. This indicates there had been some 'orchestration' here too. Either traffic lights had been red on all fronts or traffic had been halted in another way.

*  *  *

Of course - while this seems very coordinated - one might question the fact that surely they would be aware that cameras would be everywhere?

*  *  *

Questions remain, but Soviet ex-President Mikail Gorbachev is sure, the assassination of opposition politician Boris Nemtsov as an attempt to destabilize Russia. As Sputnik News reports,

"The assassination of Boris Nemtsov is an attempt to complicate the situation in the country, even to destabilize it by ratcheting up tensions between the government and the opposition,” Gorbachev said.

 

“Just who did this is hard to say, let’s not jump to any conclusions right now and give the investigators time to sort this all out,” he added.

 

Gorbachev did not rule out that the high-profile murder could encourage some people to urge the authorities to introduce a state of emergency, which he said would only exacerbate what is already a difficult situation.

*  *  *








Gorbachev: Murder of Opposition Leader Was a False Flag

Sniper attacks are commonly used as a form of false flag terror.

Former Soviet leader Mikhail Gorbachev says the the killing is aimed at “destabilizing the situation in the country, at heightening confrontation” with the West.

Gorbachev says:

The assassination of Boris Nemtsov is an attempt to complicate the situation in the country, even to destabilize it by ratcheting up tensions between the government and the opposition.

The Saker notes that Putin warned years ago that a false flag of this nature might occur.

Michael Rivero notes:

Another reason to doubt the “Blame Putin” chorus we are already seeing in the corporate media is the manner in which the shooting took place, in public, in front of the girlfriend, to generate the maximum publicity. If Putin had really wanted to kill this guy, it would have been a “suicide” in private or a small plane crash, the way the US Government handles assassinations.

 

The Kiev Snipers: Everyone Agrees That They Fired On BOTH SIDES Sniper Attacks As False Flag Terror

Random shootings are a type of false flag terror

For example, in 1985 – as part of the “Gladio” (11-21) false flag operations –  snipers attacked and shot shoppers in supermarkets randomly in Brabant county, Belgium killing twenty-eight and leaving many wounded.

Both Sides?

Additionally, shooting both sides is a tip off that it may be a false flag.

 

Specifically, when authoritarian regimes want to break up protests, they might shoot protesters.

 

Likewise, when violent protesters shoot government employees, they might be trying to overthrow the government.

 

But when secretive snipers kill both protesters and the police, it is an indication of a “false flag” attacks meant to sow chaos, anger, disgust and a lack of legitimacy.

 

This has happened many times over the years. For example:

  • Unknown snipers reportedly killed both Venezuelan government and opposition protesters in the attempted 2002 coup
Snipers Fired At BOTH Police and Protesters In Ukraine

This happened during the Maidan protests which resulted in the overthrow of the Ukrainian government, as well.  Indeed, the ruthless slaughter of people by snipers was the event which turned world opinion against the then-current Ukrainian Prime Minister, and  resulted in him having to flee the country.

 

BBC recently interviewed the head of the opposition’s security forces at the time, who confirms that snipers were killing both protesters and police:

 

The former Ukranian government security boss said the same thing.  Specifically, he said:

Former chief of Ukraine’s Security Service has confirmed allegations that snipers who killed dozens of people during the violent unrest in Kiev operated from a building controlled by the opposition on Maidan square.

 

Shots that killed both civilians and police officers were fired from the Philharmonic Hall building in Ukraine’s capital, former head of the Security Service of Ukraine Aleksandr Yakimenko told Russia 1 channel. The building was under full control of the opposition and particularly the so-called Commandant of Maidan self-defense Andrey Parubiy who after the coup was appointed as the Secretary of the National Security and Defense Council of Ukraine, Yakimenko added.

So both the chief of the government’s security forces and the head of the opposition’s security forces said that the same snipers were killing both protesters and police.  While they disagree about who the snipers were, they both agree that the snipers were attempting to sow chaos.

Similarly:

[Current Ukrainian Health Minister Oleh] Musiy, who spent more than two months organizing medical units on Maidan, said that on Feb. 20 roughly 40 civilians and protesters were brought with fatal bullet wounds to the makeshift hospital set up near the square. But he said medics also treated three police officers whose wounds were identical.

 

Forensic evidence, in particular the similarity of the bullet wounds, led him and others to conclude that snipers were targeting both sides of the standoff at Maidan — and that the shootings were intended to generate a wave of revulsion so strong that it would topple Yanukovych and also justify a Russian invasion.

And the Estonian foreign minister – after visiting Ukraine – told the EU foreign affairs minister that the Maidan opposition deployed the snipers – and fired on both the protesters and the police – to discredit the former government of Ukraine.

Was It Maidan Who Fired?

While the American media has proclaimed that the sniper fire was definitely from government forces, some of the above-cited sources dispute that claim.

Additionally, BBC reported at the time:

Reporting for Newsnight, Gabriel Gatehouse said he saw what looked like a protester shooting out of a window at the BBC’s Kiev base, the Ukraine Hotel.

And BBC recently interviewed a Maidan protester who admitted that he fired a sniper rifle at police from the Conservatory, and that he was guided by a military veteran within the Maidan resistance. Here are actual pictures a reporter took of Maidan snipers, recently published by BBC:

 

(There were reportedly at least 10 Maidan snipers firing from the Conservatory.)

 

The Frankfurther Allgemein reported last year that Maidan commander Volodymyr Parasjuk controlled the Conservatory at the time:

Volodymyr Parasjuk – the leader in “self-defense units” of the revolution who had called the night of Yanukovich’s escape, on the stage of Maidan to storm the presidential residence one year ago.

 

On the day of the massacre Parasjuk was staying with his unit in the colonnaded building of the Kiev Conservatory right at the Maidan. In the days before the death toll had risen, and the fighters grew the conviction alone with limited power as before will not be able to overthrow Yanukovych. “There were at that time many guys who said you have to take the weapon and attack,” said Parasjuk recalls. “Many,” he himself had since long ago it had firearms, often their officially registered hunting rifles.

Tagesschau – a German national and international television news service produced by state-run Norddeutscher Rundfunk on behalf of the German public-service television network ARD – also reported in 2014 that at least some of the sniper fire came from protesters.

 

And there are other photographs of protesters with rifles, such as this one from Reuters:

 

Reuters/Maks Levin

 

So the snipers might have been Maidan opposition forces shooting their own.

 

But – whoever the snipers were – the one thing that is clear is that they were shooting people from both as part of a “strategy of tension” to create maximum chaos. This hints that it may ave been a highly-organized campaign of terror.








WSJ Praises "Waiter, Bartender Recovery" While 74% Of Americans Believe They Will Work Until They Die

When a month ago we basked in the glow of what we dubbed the "Waiter and Bartender Recovery", highlighting that while the US is about to see the best performing, highest paid job sector in the last decade, i.e., those in the energy field...

... get the axe as a result of the shale collapse and the "secret" US-Arab deal to make Putin beg, even if tens if not hundreds of thousands of well-paid (not retail, leisure, hospitality and temp workers), are about to get a pink slip as a result, one other job sector is seeing unprecedented gains, namely the US "waiter and bartender industry"...

 

... whose total workers are soon set to surpass the entire US manufacturing sector...

 

... little did we know that some would not grasp this was pure sarcasm. One place this was clearly missed is the WSJ, which in a front-page article today praises the "Wages Rise at Restaurants as Labor Market Tightens." No really, to the WSJ "wage" increases for minimum-wage line cooks and burger flippers is what is now considered the sign of the recovery.

We are not kidding. Some excerpts:

Wage growth is breaking out in an unexpected corner of the U.S. economy: the nation’s restaurants and bars.

 

Many restaurant owners are now scrambling to hire and retain workers, a potential precursor to widespread wage gains if it signals diminished slack in the labor market.

They are also considering hiring "smart restaurant" minimum wage-crushing, burger-flipping robots, ordering tablets and implementing countless other automation processes which assures thousands of fewer carbon-based lifeforms will serve your fast food sandwich in the years to come, as those jobs that are paid the least of all for the simple reason that they provides virtually zero value, and are thus expendable... but don't let that get in the way of a good narrative.

So back to the lovely bedtime story of the minimum-wage bartender and waiter recovery:

Food-service employment has surged since the recession ended nearly six years ago, growing twice as fast as overall payrolls. But those gains had largely failed to translate into better wages in the sector, until recently. Restaurant wages zoomed up to an annualized pace of more than 3% in the second half of last year from below a 1.5% pace in the first half of 2013, according to the Labor Department. Private-sector wages across the overall economy have grown at about a 2% pace for the past five years.

Oh wait, that's actually part of the reality. Let's go back to the mythical world where bartender job gains are a leading indicator to soaring wages.

Driving the brisker wage growth are a number of factors, including a higher minimum wage in many states, falling unemployment and stronger demand for meals outside the home, fueled by growing disposable incomes. Other sectors also may be feeling pressure. Big retailers such as Wal-Mart Stores Inc. and TJX Cos., the parent company of T.J. Maxx, for example, recently announced raises.

 

In past economic cycles, low-skilled workers have been among the last to see a pickup in wage growth. But the latest gains suggest a consumer-driven recovery could draw more Americans back into the job market and further bolster consumption, a key driver of economic expansion.

Nobody mention the imminent mass energy layoffs, please, and the hundreds of thousands of high-paying jobs that are about to bit the dust: jobs where one energy contractor makes as much as 10 minimu wage line cooks. Just... be quiet.

Meanwhile, in the waiter "industry"...

“A lot of new [establishments] are popping up and those restaurants want experienced people,” said Patrice Rice, chief executive of Patrice & Associates, a restaurant staffing firm. “There is fierce competition.” Some of her clients are offering significant raises, paid vacation time and even free meals for spouses to attract workers. A national pizza franchise recently paid her $5,000 per position to place managers. Her fees are up 25% from a year ago.

Sure, why not: go get that Ivy league degree because there is "fierce competition" for experienced waiters. One doesn't know if to laugh or cry at this hallmark of the weakest US "recovery" in history (which according to many others is merely the longest depression in US history, swept under the rug of $3 trillion in Fed excess reserves).

And then, inexplicably, just as things were getting good, as seen by the following quote...

“After a few hard years, customers are treating themselves again,” said Jennifer Durham, vice president of franchise development at Checkers Drive-In Restaurants Inc. Higher sales led the burger chain to add 20 stores last year, hire hundreds of employees and raise its wages—with wage growth twice as fast in 2014 as it was in 2013.

... reality crept in.

Outsized growth in restaurant wages might not be an entirely positive sign for the broader economy. In the previous two cycles, pay gains for restaurant workers peaked very late in the expansion, after broader wage growth plateaued. If escalating restaurant wages mark the end, rather than start, of wider wage growth, that would limit the economy’s ability to accelerate.

Actually, it would also mean the acceleration of robotization of said waiter jobs, and the result will be even more mass layoffs of these lowest paid workers, many of whom are unionized, resulting in even more backlash against big corporations, more strikes, more sit ins, and many more angry minimum-wage workers unable to pay off their jobs.

It also means something else, and far worse: according to a recent Pew survey of 7000 households titled “Americans’ Financial Security: Perception and Reality”, barely one-quarter (26%) of Americans have some notion of retirement in which they plan to stop working altogether when they reach retirement age. As MarketWatch summarizes, when asked about their retirement plans, 21% said they are never planning to retire, while 53% anticipate doing something else, including working at a different job.

Roughly 10,000 baby boomers reach retirement every day, so it’s not unexpected that so many of them are either not willing or able to stop work altogether, says Andrew Meadows, a San Francisco-based producer of “Broken Eggs,” a documentary about retirement. He spent seven weeks traveling around the U.S. and interviewed over 100 people about why they haven’t saved enough money. “You tend to get a negative tone when you talk to people about retirement,” he says.

Even Pew has trouble spinning the data, on one hand eager to report that "Americans are increasingly optimistic about their own finances and the economy", while at the same time admitting that "In an apparent contradiction, most do not feel financially secure." Maybe they haven't heard about the "waiter and bartender recovery"?

In fact, it appears that "most Americans" can't stop worrying about any aspect of their financial lives, starting with lack of savings, not having any discretionary income, paying bills and pretty much everything else:

So why are three-quarters of Americans doomed to working until the day they die? Simple: debt.

One reason fewer people plan to retire is that more families with older breadwinners have debt. The percentage of families with a head of household ages 55 or older that carried debt increased to 65.4% in 2013 from 63.4% in 2010, according to “Debt of the Elderly and Near Elderly, 1992-2013”, released last month by the Employee Benefit Research Institute. Furthermore, the percentage of these families with debt payments greater than 40% of income—a traditional threshold measure of debt load trouble—increased to 9.2% in 2013 from 8.5% in 2010.

 

The amount of debt shouldered by all families has soared over the last two decades, mainly due to mortgage debt, says Craig Copeland, author of the EBRI report. The median debt level of all indebted families with heads aged 55 and over hit $47,900 in 2013, up from $17,879 in 1992. However, the percentage of families with debt also decreased significantly as the head of household of the family aged: Some 78.5% of families with heads of household ages 55 to 64 held debt in 2013 versus 41.3% of those with heads aged 75 or older.

Of course, every global depression has a silver lining, and here too MarketWatch tries to spin reality:

For some, not retiring may not be such a bad thing. “The idea of just resting is not something a lot people think about anymore,” Meadows says. “It wouldn’t surprise me if those who never plan to retire were the youngest people surveyed. It’s impossible for many people to gauge what their life would be like 30 or 40 years from now.” People are also living longer and staying healthier longer, he adds. “Many people think, ‘I don’t want my life to be over by 65. Maybe I can do that dream job I’ve always thought about.’”

Yes, you can surely have that dream job after you turn 65. Judging by the record number of old Americans, those 55 and over, in the labor force, it is only after you turn 65 these days that one's career prospects really pick up.

 

The punchline, of course, whether to the real, surreal or purely sarcastic aspects of the above narrative, is that all of this is happening with the stock market at all time highs, at levels which even current and former Fed officials admit the S&P is overvalued. What happens to the "waiter and bartender recovery" after the Fed finally loses control of the most manipulated and massaged "market" in US history, and the S&P suddenly finds itself bidless, the NYSE decides to halt all sales, and all those massive paper profits are nothing but a vague memory.

In our humble opinion, that would be a far more interesting line of investigation for the WSJ or any other mass media to pursue, instead of praising a "barender recovery" thanks to which 75% of Americans don't even dare to retire any more. That, or at least consider the other side of the wage question: what happens to gross US disposable income now that the shale boom has busted, and countless high paying jobs end up competing for the same fast food positions that suddenly are all the rage. Then again, we give the "mass media" the usua 6-9 months before they figure out what is really the key topic for the US economy...








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