ZeroHedge RSS Feed

Middle-East 'Frenemies'

The enemy of your enemy is your... frenemy; and so it is across the Middle East as the WSJ notes the spread of The Islamic State has united many parties once at odds with each other to become 'strange bedfellows'.

 

Strange Bedfellows
Parties that display friction or outright aggression toward one another are finding themselves aligned in a desire to counter Islamic State.

Groups of colored lines between parties represent shared interests.

 

U.S. and Iran
The U.S. and Iran share an interest in fostering an Iraqi government strong enough to fend off Islamic State.

U.S. and Syria
The U.S. and Syria’s Bashar al-Assad share an interest in quashing Islamic State in Syria, even if the regime appears to put a higher priority on fighting other rebel groups.

Israel and Egypt
Israel and Egypt have come together to oppose Hamas, and they now have a similar long-term interest to do the same in confronting Islamic State.

Syria, Kurds, Turkey and Iraq
Turkey and Syria, long fearful of building up the region’s Kurds, have a shared interest in building up the Kurdish Peshmerga to combat a more immediate threat, Islamic State. Iraq has acquiesced.

Turkey and Qatar
Turkey and Qatar suddenly have a shared interest in keeping the Islamist movement they separately helped foster in check before Islamic State absorbs and consolidates it.

Iran, Saudi Arabia and Iraq
Saudi Arabia supported Sunnis in Iraq while Iran supported Shiites. They now have an interest in aiding the Shiite-led Iraq government to counter a common threat.

U.S., China and Russia
Russia and China have plenty of disputes with the U.S., but they agree that, as big powers, they are threatened in similar fashion by the expansionist Islamic extremism of Islamic State.

U.S., Egypt, Qatar and Turkey
Egypt’s military ruler sees Qatar, Turkey and the U.S. as hostile to his suppression of the Muslim Brotherhood. They all now fear Islamic State will consolidate the Islamic threat.

U.S. and al Qaeda
The greatest odd bedfellow of all: Islamic State threatens al Qaeda as well as the West, meaning that, in fact, al Qaeda and the U.S. now have a shared enemy.

 

Full Wall Street Journal interactive chart here...








Libya May Be Focus Of Major Rift Between US And Regional Allies

Submitted by Defense & Foreign Affairs via OilPrice.com,

It had become clear by late August 2014 that Libya could no longer be seen as a unified state; at best it was in two parts, even with the communal leaderships of both sides professing a desire to resume national unity. By late August 2014, the country had two parliaments: one elected by the Libyan people, and the other given legitimacy solely by foreign support.   

The situation seemed so intractable by that point that it was possible that a full military intervention by regional states, perhaps spearheaded by Egypt, could be attempted, with the goal of stabilizing the country and eliminating the foreign-funded and foreign-armed jihadis who were using Libya as a springboard for a proposed pro-Islamist war against the current Egyptian Government.

The proxy forces of the 2011 unilateral intervention by Qatar, supporting jihadis and the Muslim Brothers (Ikhwan), and by Turkey and the US, into the Cyrenaican revolt against Mu’ammar al-Qadhafi, were still dominating the Libyan political scene, much to the frustration of Libyan tribal forces.

Qatar was creating a “Free Egyptian Army” in the Cyrenaica desert, and patterned on the “Free Syrian Army” which Qatar, Turkey, and the US had built to challenge Syrian leader Bashar al-Assad.  

Significantly, while the US and European Union (EU) continued in August 2014 to promote the concept of a unified Libya, they were basing their approach around what was essentially a modification of the mode of governance practiced by Mu’ammar al-Qadhafi, who seized power by a coup in 1969, and held it until 2011. Widespread Libyan calls for a return to the 1951 Constitution — drafted by the United Nations and the 140 or so Libyan tribes — have been consistently ignored by Washington and Brussels.  

By August 2014, the foreign jihadist fighters — mainly linked to salafist groups and either directly or indirectly working with the Muslim Brothers (Ikhwan) — were still entrenched in Cyrenaica, in Eastern Libya (where the local moderate. anti-salafist Senussiyah sect of Islam predominates), supported by Qatar, Turkey, and the US Government. As well, they were entrenched around Tripoli.  

By August 18, 2014, the situation had deteriorated to the point where United Arab Emirates (UAE) combat aircraft, operating from Egyptian bases, conducted air strikes against jihadist militia forces around Tripoli, without prior warning to the US. The operation was also coordinated with the Government of Saudi Arabia, and the UAE Air Force aircraft staged over the Kingdom, en route to Egypt, using UAE AF Airbus A330 MRTT aerial refueling aircraft to reach, it is understood, Mersa Ma- truh Air Base or another forward Egyptian Air Force base, from which the strikes were then made on the Libyan targets.  

The first wave of strikes, on August 18, 2014, hit militia groups; the second wave on August 23, 2014, targeted Qatari-supplied rocket launchers and military vehicles owned by the militias. The strikes were insufficient to blunt the mainly Misrata-based militia forces of the Islamist-dominated Fajr Libya (Libya Dawn) coalition which, a day later (August 24, 2014), overran Tripoli Airport, taking it from the control of the Zintan militia. [Fajr Libya also controls some 80 percent of Benghazi, although the residents of that city and surrounds have traditionally been hostile to the salafist tenets promoted by the group.] The UAE strikes also hit at Ansar al-Sharia, another extremist Islamist group, ostensibly condemned by Washington, but benefiting from Washington’s position.  

The new Government was aware — and supportive — of the combined military actions of the UAE, Egypt, and Saudi Arabia to strike at the Islamist militias.  

On August 25, 2014, the US, France, Germany, Italy and the UK governments issued a joint statement denouncing “outside interference” in Libya which it said “exacerbates current divisions and undermines Libya’s democratic transition”, failing to highlight the reality that the US has, since 2011, provided the main umbrella for outside interference in Libya affairs, and continued to support the Qatari-led efforts currently underway.  

At the same time, with US encouragement, the former Islamist-dominated Parliament — which no longer had a mandate — was reconvened on August 25, 2014, and voted to disband the interim Government, even though the new Government had been voted into place by opponents of the Islamists. But the newly-elected Parliament — not the one controlled by the Islamists — continued to meet in Tobruk, in Cyrenaica, away from the militias. That Parliament on August 24, 2014, dismissed the Army Chief of Staff and, with a vote of 88 out of 124 parliamentarians, installed a new one, Col. Abdel Razzak Nadhuri, who was promoted to general when he took up his new role. He replaced Gen. Abdessalam Jadallah al-Obeidi, who was dismissed by Parliament. Gen. Nadhuri, from the town of Marj, 1,100km (600 miles) east of Tripoli, took up his post as Libya’s Foreign Minister and his regional counterparts met in Cairo to discuss the Islamist threat.

Gen. Nadhuri has been known for his support for the anti-Islamist Operation Karama (Dignity), led by retired Gen. Khalifa Haftar. In the first reactions to Nadhuri’s appointment, several military generals affiliated with the Joint Chiefs of Staff announced their rejection of the Parliament’s appointment of Nadhuri declaring that “they refuse to work under the command of an officer who supports Operation Karama, and that they will only recognize Gen. al-Obeidi as chief of staff”.  

The interim Government itself was unable to return to Tripoli as a result of the fighting, and had been holding its meetings in the eastern city of Bayda.  

But on August 25, 2014, the interim General National Congress (GNC), which had been officially replaced earlier in August 2014 by the new Parliament, named an Islamist figure, Omar al-Hassi, to form a rival “salvation government”, which was being given credence by, for example, the US Government over the Government elected by Libyan voters in August 2014.  

The situation, then, was that Libya now had two parliaments and two governments, but only the Tripoli-based Parliament had electoral legitimacy with its Government led by Prime Minister Abdullah al-Thani.  

Egyptian Foreign Minister Sameh Shukri was quoted on August 25, 2014, as saying that the situation in Libya threatened the entire region and other parts of the world, noting: “The developments in Libya have left an impact we have felt on the security of neighboring countries, with the presence and movement of extremist and terrorist groups whose activists are not only limited to the Libyan territories but also spill over to neighboring countries.” He also said that a spillover of lawlessness from Libya could prompt foreign intervention in Libya, but hoped that this could be avoided.  

The combined stance by Egypt, Saudi Arabia, and the UAE has further demonstrated the division of these onetime US allies away from Washington. To emphasize the point, Egyptian Pres. Abdel Fattah al-Sisi said on August 24, 2014, to local news media that Qatar, Turkey, the United States, and the Muslim Brotherhood were funding new online media projects which “aim to undermine Egypt’s stability”. These powers, he said, “do not hesitate to spend tens of millions, or even hundreds of millions [of dollars], on these websites in order to promote ideas that aim to undermine Egypt’s stability”. Ironically, the news came out at the same time that the Obama Administration announced the development of a new government program to track “hate speech” on social media in the US.  

The US is moving closer to alienating key regional allies (Egypt, Saudi Arabia, and the UAE) in order to support Turkey’s and Qatar’s objectives in Libya, without defining the strategic goals for the US and the West. Already the Egyptian bloc is at war with Turkey and Qatar.








The Fall Is Golden For Bullion Bulls

September is the hottest month of the year for gold prices, rising on average 3% over the past 20 years. As the yellow metal tests hovers off 2-month-lows, Bloomberg notes that "Indian jewelers and dealers will be stocking up in the coming weeks," ahead of the festival period, which runs from late August to October (andis followed by the wedding season) when bullion is bought for part of the bridal trousseau or in jewelry form as gifts from relatives. As GoldCore's Mark O'Byrne notes, "a lot of traders are aware of this trend towards seasonal strength... They tend to buy and that creates momentum."

 

Chart: Bloomberg

Some color on the week's Precious Metals Trading from Alasdair Macleod of GoldMoney,

The pattern of trading in precious metals changed for the better this week. After London's bank holiday on Monday, for the first time in a long time the market opened in London's pre-market with higher prices. This indicated Asian or Middle-Eastern physical demand was returning to the market. Predictably, prices drifted lower during London hours as paper trading took over, and all the gains were more or less lost by close of play on Comex in New York.

It was a similar story on Wednesday. Yesterday, (Thursday) started the same way, but this time the move gained more traction; but volumes remain pitifully low, in common with open interest. Today this pattern was not repeated with gold kicking off unchanged on overnight levels. However, gold is up $15 on the week and feels more firmly based.

Measured by deliveries on the Shanghai Gold Exchange, Chinese demand is increasing, with last week's figure rising to 46 tonnes, having increased every week in August. So far this year over 1,200 tonnes have been delivered, and the extension of trading and therefore potential demand into the Free Trade Zone is due to kick off in September.

The chart of the gold price and open interest on Comex is shown below.

August is a notoriously poor trading month, with traders in the northern hemisphere on holiday, or at least not thinking about markets. September is wake-up time, and statistically the best month for gold. Will this be the pattern this year?

Trading in silver continues to be healthier, even if the price performance has been disappointing, with the gold/silver ratio rising to 66 from 63 earlier in the month. Open interest had its first significant fall on Wednesday, when the price rose marginally. This suggests that on balance there is some bear closing in futures. The action is shown in our next chart.

Could this be a harbinger of better times? Quite likely: being mostly an industrial metal, there is some evidence that commercial users are locking in low prices by holding futures positions. Bear in mind that two years ago, users probably estimated silver prices at $35+ in their business plans, so current prices for them are too good to miss.

Quick side-note: palladium continues to power ahead, having made all-time highs consistently in recent months to challenge $900 this week.








Inflation

Submitted by Adam Taggart via Peak Prosperity,

For close to 300 years, inflation in the US remained very subdued. Small spurts occurred around major wars (Revolutionary, Civil, WW1, etc), but after each, inflation quickly trended back down to its long-term baseline. If you lived during this stretch of time, your money had roughly the same purchasing power your great-grandfather's did.

But something changed after inflation spiked yet again during World War 2. With the permanent mobilization of the military industrial complex and the start of the decades-long Cold War, combined with a related acceleration in government deficit spending, inflation did not come back down. It remained elevated, and in fact, rose further.

That is, until the "Nixon shock" in 1971, when the dollar's remaining ties to gold were severed. Then inflation EXPLODED. And the inflationary moon-shot has continued since, up to present day.

So, we've become used to a system in which our money loses purchasing power over the years. For anyone aged 50 or younger, it's pretty much all we've ever known.

But it doesn't have to be this way. Indeed, our country did fine for centuries without systemic continual chronic inflation.

So why do we accept it today?

For the best viewing experience, watch the above video in hi-definition (HD) and in expanded screen mode

Coming next Friday: Chapter 12: How Much Is A Trillion?

For those who simply don't want to wait until the end of the year to view the entire new series, you can indulge your binge-watching craving by enrolling to PeakProsperity.com. The entire full new series, all 27 chapters of it, is available -- now-- to our enrolled users.

The full suite of chapters in this new Crash Course series can be found at www.peakprosperity.com/crashcourse

And for those who have yet to view it, be sure to watch the 'Accelerated' Crash Course -- the under-1-hour condensation of the new 4.5-hour series. It's a great vehicle for introducing new eyes to this material.

Click here to read the full transcript








The Intersection Of Church And State - In One Chart And 44 Bubbles

Curious what the political positions are of the various, and all too numerous some would say, religions and churches in America? This new graph, courtesy of Tobin Grant, maps the ideologies of 44 different religious groups using data comes from Pew’s Religious Landscape survey. This survey included 32,000 respondents. It asked very specific questions on religion that allow us to find out the precise denomination, church, or religion of each person.

Here are the key observations:

  • Churches that are similar religiously are also similar ideologically.
  • Evangelicals are classic conservatives (small role in economy, protect morality). Pentecostals want a larger role for government on economic issues.
  • Presbyterian Church in America, Lutheran Church Missouri Synod, and smaller Methodist churches have historical ties to both evangelicalism and mainline denominations. On the question of government and morality, they are between other evangelical churches and mainline denominations.
  • Mainline churches hold similar economic views as evangelicals but want less government involvement protecting traditional morality.
  • Christians in traditionally black denominations and evangelicals are similar in their views toward morality policy, but there is a large divide on economics.
  • Catholics are large and represent the center on both dimensions.
  • Jews are centrist on the economy. There is a major divide between both Conservative and Orthodox Jews and other streams of Judaism. This divide falls along the morality dimension.
  • The “nones” are united on their ideology toward morality (keep government out!) but there are interesting divides on government services. Atheists want more government services; agnostics favor less governmental involvement in the economy. If you consider Unitarians part of this group, then they’re the most supportive of government services.

Some guidelines on how to read the graph:

  • Each circle represents a denomination, church, or religion. There are several circles for types of Americans with no religion: self-identified “atheist”, self-identified “agnostic”, and those who say that have “no religion in particular”.
  • The size of the circle represents the relative size of the religion in the United States. For very small groups, I put them in groups with other similar churches. In these cases, the circle represents collections of similar churches, e.g., nondenominational evangelicals, all Baptists who aren’t in one of the larger denominations, or all Hindus. The decision for how specific to make the circle was based on the size of the group in the survey.
  • The color of the circle indicates the religious tradition of the group: evangelical Protestant (historically white), Mainline Protestant (historically white), historically black Protestant, Catholic, a catch-all category for other Christian groups, all other religions, and those with no religion. (yes, there are some disagreements about whether some groups should be coded as evangelical (e.g., Seventh Day Adventist) or even Christian or not (e.g., Jehovah’s Witness). We can debate these decisions in a future post.
  • The location of the circle represents where a group’s members stand on the two major ideological divides in American politics. The numbers represent the percentile location of each group (details below). The political ideologies of religious groups are placed along two dimensions.
    • Government involvement in the economy (x-axis). This is the major ideological divide in the country. At one end are the “small government” folks who want a  less regulation, fewer services, and more market-oriented policies. At the other are those who want a stronger safety net, tougher consumer protections, and greater checks on the economy. In the Pew survey, this is measured by a question asking whether they wanted: “a smaller government providing fewer services” or “a bigger government providing more services”?
    • Government involvement in morality (y-axis). How much should government be involved in regulating morality? Some people believe that the government should protect morality and should uphold traditional values and religion. Others think government should “stay out of bedrooms” and keep up a high wall between church and state. This can be measured using a question that asked people to pick which statement comes closest to their beliefs: “The government should do more to protect morality in society” or “I worry the government is too involved in this issue”?

Some additional notes on the author's website.








These Clowns Are Dragging Us Into War

From  Raúl Ilargi Meijer of The Automatic Earth

Jack Delano Workman at Chicago & North Western repair shops, Chicago, IL Dec 1942

These Clowns Are Dragging Us Into War

In 8 weeks, on October 26, there are – supposed to be – parliamentary elections in Ukraine. What’s that going to look like? Who’s going to vote? In the presidential elections a few months ago, most of east Ukraine did not vote. How many different ways are there to define democracy and still remain credible?

In an interview today on Russian Channel 1, Vladimir Putin commented on the upcoming elections: “All the participants in the electoral race will want to show how cool they are; Everyone will want to show they are strongmen or strongwomen, and as the political struggle sharpens it is hard to expect anyone to seek a peaceful resolution and not a military one.” That would seem to be an accurate prediction.

The EU yesterday (in yet another definition of democracy) picked its new president. They chose Polish PM Donald Tusk, which may seem a bit strange since Tusk doesn’t speak a word of either English or French, and he comes from a nation that is not even in the Eurozone, yet he will now now get to chair meetings that concern the euro. But Tusk is a hawk on Russia, and therefore suspiciously convenient to the inner core of Washington and Brussels’ control apparatus. He’s said more bad and ugly things about Russia and Putin than just about anyone recently, and that’s saying something.

The US and EU have worked for years to see their desire to take over Ukraine come to fruition. They’ve come a long way, but they wanted Crimea and the Donbass region most of all, and those they still don’t have. Still, they’ve so far shown themselves more than willing to assist first in killing thousands of eastern Ukrainians to get what they want, and now they are prepared to start a war over it.

The well-prepared, built-up step by step, storyline in the western press is the threat of Russia’s expansionary drift. Hence this Reuters piece:

Polish President Warns Germany Of Putin’s ‘Empire’ Ambitions

Polish President Bronislaw Komorowski said that Vladimir Putin is trying to build a new Russian empire for Moscow and that the region now had to choose whether it wanted “a Cossack Europe or a democratic one”. “Russia has carried out an invasion in Ukraine,” the Polish head of state told German public radio. Komorowski said Putin was quite open about his ambitions to “rebuild the empire”. The Polish president is an ally of Prime Minister Donald Tusk. “I hope Germans are sufficiently mindful of what a Soviet empire meant for Europe,” Komorowski told Deutschlandradio Kultur and Deutschlandfunk, warning against any reprise of the pre-World War Two “appeasement policy of yielding to Hitler”.

That’s the kind of thing where I go: Huh? Did I see that right? You try to scare the Germans by referring to a Russia that by now has been history for almost 25 years, a Russia that was instrumental in saving Europe from the Third Reich and lost 20-30 million people in the process, by reminding them of an 80-year old policy of appeasement to Hitler? The Germans?

When we look at what has actually happened over the past decade, and what we can prove when it comes to expansion drift, that is without a doubt a painfully hollow story. Since what we actually do know, what is not mere conjecture, is that it has instead been the west, through NATO, that has been in expansion mood.

Despite solid agreements not to move NATO’s borders eastward, the alliance has done nothing but move east, and is now planning to put even more troops and new army bases right on Russia’s doorstep. The narrative to justify this NATO expansion that breaches those former agreements, which we can see time and again, is that Russia is moving west, for which there is no proof, only accusations, and that NATO territory is inviolable, but Ukraine is not a NATO member.

No NATO territory is under threat of being violated, other than inside the narrative. Moreover, while voices in Europe increasingly claim that the threat to Ukraine is a threat to Europe (i.e. the EU), Ukraine is no more an EU member than it is a NATO member. Brussels seems to want it to be, but that’s where the narrative ends. So it’s simply being changed on the fly and has now become: “Ukraine is fighting a war on behalf of all Europe”, according Lithuanian leader Dalia Grybauskaite.

Which is where I think: really, Ukraine has killed over 2000 of its own citizens ‘on behalf of Europe’?

The entire conflict could be solved in a heartbeat if Kiev would simply tell the Donbass leadership that they can be autonomous. But that’s not what Poroshenko wants, or Yatsenyuk, and certainly not Washington and Brussels. Because the Donbass is by far the richest region in Ukraine. Which however happens to be home to people who don’t want to be ruled by the present Kiev leadership. Well, so you kill a bunch of them and instill fear in the rest, right?

Putin had something to say about that too, first in Agence France Presse’s version of his Channel 1 interview:

Putin Urges Ukraine ‘Statehood’ Talks

Russian President Vladimir Putin today sharply raised the stakes in the Ukraine conflict by calling for the first time for statehood to be considered for the restive east of the former Soviet state. Mr Putin’s defiant remarks came just hours after the EU gave Moscow – which the bloc accuses of direct involvement in the insurgency – a week to change course or face new sanctions. “We need to immediately begin substantive talks… on questions of the political organisation of society and statehood in southeastern Ukraine … ”

And then the way RT reported it:

Putin: Impossible To Say When Political Crisis In Ukraine Will End

The devastated infrastructure of the southeast requires full repair otherwise people might just freeze to death, he said. “It looks as if only Russia cares about that. The first most essential condition is to stop combat operations and begin reconstruction of the infrastructure, replenish inventories, do the necessary repairs and scheduled maintenance to be ready for the cold season.” [..]

 

Russian President Vladimir Putin has called on Kiev to start substantial talks on deescalating the crisis in eastern Ukraine. He added that it’s an illusion to expect that the rebels would calmly watch their homes being destroyed. “We have agreed on a plan, so its realization must be pursued,” Putin told Channel 1 TV, adding that the Ukrainian government “must immediately start substantial talks – not a technical discussion – on the political organization of society and the state in southeast Ukraine so that the interests of people who live there are protected.” The plan, according to Russia’s leader, puts negotiations at the center of the peace process.[..]

 

Commenting on the new batch of sanctions against Russia threatened by western countries, Putin advised his counterparts to think again about what they are advocating. “What are the so-called European values then? Support for an armed coup, suppression of opponents with armed forces – so these are ‘European values’? I believe our colleagues should be reminded of their own ideals … ”

In the meantime, the rumors and allegations don’t just continue, they get stronger. Evidence hasn’t been a factor is this game for a long time, and it is not now. Just today, I’ve seen 2 Russian ladies who say 100 Russian troops died in a battle earlier this month, Kiev claiming that Russian tanks ‘flattened’ an entire village, and Ukraine soldiers saying their comrades who were given safe passage after being trapped, were shot at.

It just never stops, or so it seems. We’ve been subject so far to a tsunami of allegations and accusations, and 99%+ of them have come with zero evidence. But now we risk being pulled into a outright war despite the lack of evidence. Really, it’s come to this: we’re asking for just one piece of evidence for all the accusations we’ve been made party to. Just the one!

Essentially, the western leadership is saying that if the ‘Donbass rebels’, and Russia, won’t let the Ukraine army do just what it wants in east Ukraine, there will be war. But it’s not our leaders who are going to be the boots on the ground. And because Obama has pledged no US military involvement in Ukraine – though CIA, Blackwater and who knows who else, are present anyway -, it will have to be European boots on the ground in Ukraine.

Perhaps prior to the official war declaration our politicians and media can tell us where the remains of the BUK rocket are that’s alleged to have downed MH17, where the contents are of the black boxes, and where the Air Traffic Control conversations with the pilots are which were allegedly confiscated by the Ukraine secret service on July 17.

It’s perhaps hard to remember due to the misinformation tsunami, but the MH17 has been a major driver of the western public’s anger vs Russia, and their acceptance of sanctions and other decisions, and now the threat of war. While it still may just as well not have been the Donbass rebels who shot that plane, but the Ukraine army, or Blackwater or the CIA. We simply don’t know.

The west says that the war in east Ukraine is caused by Russia’s support for the rebels. Just like the overriding narrative today is that the west reacts to what Russia does, while in reality it’s the other way around.

The entire Ukraine conflict could be resolved tomorrow morning if Kiev, and its western support, would pledge to stop waging war on the Donbass. And give it a separate status, either within Ukraine or in a separate state. After half a year+ of warfare, how else could you resolve this crisis? Only through more bloodshed, that’s how.

But our western leadership is simply too trigger happy for comfort. Based on only hints and allegations. There’s a NATO conference in Wales this week; Obama, Merkel, they’ll all be there. I suggest you just watch and listen what comes out of that. It won’t be pretty. Peace will not be a commonly used term there. While for all of us, and all the civilians in the Donbass, that’s all we want.

But these clowns are dragging us into war. And yes, maybe it would be a good idea for you to tell them that you don’t want them to. Before your kids, or their friends, their neighbors, start dying in some far away ugly theater they should never have been part of.

Is peace impossible in Ukraine today? No. Not at all. But it is as long as the west keeps its hopes for conquering the Donbass alive. It should have known that from the start, and perhaps it did, and started this crusade anyway, because the grand prize it’s after is Russia itself. Over our dead bodies.








"Happy" Labor Day

As the weekend's celebration of 'labor' in America continues, the following cartoon seemed to sum it all up perfectly...

Source: Cagle

 

And, as we discussed here, some 'labor' is not as exuberant as others...

 

FACT: There is a record divergence between the exuberant 'rich' and crushed 'middle class'








Keynesian Central Banking Is An Economic Scourge: More Evidence From Japan

Submitted by Alhambra Partners' Jeffrey Snider via Contra Corner blog,

The Bank of Japan has already been pressured by events to reduce its economic expectations for 2014. At the end of 2013 there was enough cautious optimism that Japanese officials went ahead with their dubious proposal to try to appear fiscally responsible. The tax increase was expected to create a mild contraction in GDP before the economy then accelerated mildly but broadly with inflation. That optimism actually gained strength after the first quarter was estimated far “better” than anticipated, temporarily restraining calls for even more QQE from the Bank of Japan.

The first quarter was actually a case of the inverse interpretation eluding the orthodox mind and his regressions. If the Japanese were so compelled to front-load so much spending and activity over a relatively minor tax increase that could only be viewed, with common sense and intuition free of the statistical prison, dubiously and ominously. A healthy economy would certainly see some of that process, but not enough to create such massive swings. It was the size of the interference that suggested a course far, far off track.

Results in the second quarter had thus been much worse than expected, but still there remained blissful designs for the third. The latest projections for Q3 are hopeful in their scale, suggesting somewhere between 2% and 3% for GDP.

Part of that optimism has been derived from the “success” in generating “positive” price changes inside Japan. Academic economics is absolutely convinced that Japan’s problems stem from stubborn “deflation” that has entrenched itself into the very psychology of the Japanese people. Under that paradigm, a shock of “inflation” should have worked as Japanese agents (people, investors and businesses) are forced by nominal disturbance to re-orient their expectations. That is the foundation of modern monetarism, a mildly stunted psychology.

Yet again, however, the mainstream interpretation is far too infatuated with mathematics and has far too little experience with realistic complexity. That quarter century of “deflation” was not itself the problem, it was a symptom of structural flaws that gained great currency (pun intended) during the halcyon days of the Bank of Japan’s 1980’s “power” and prestige. Not only has the idea of “money supply” itself undergone a radical change in the past thirty years, creating new pathways and channels for psychological impulses and outlets, instability in any form is still instability.

Creating, indeed cajoling and even forcing, positive price directions on any economic system is a radical tool of redistribution. Creating nominal profits from currency debasement is, however, nothing like creating real profits from expanding wealth. There is at least some recognition of the costs of redistribution inside the orthodox construction, but it is always calculated (only qualitatively funny enough) as being less than the intended positive effects. So the Bank of Japan (and its central bank fellow travelers) admits to creating winners and losers, but does so in unabashed intent because the net “stirring of the pot” supposedly forces systemic forward momentum.

Even where losers abound, their station is believed improved over the long run by a healthy economy – supposedly you have to break a few eggs to gain socialized economic advance. That was a specific view espoused time and time again by Ben Bernanke during his justifications for all the QE’s. He “shared the pain” of fixed income retirees as he actively suppressed nominal and real returns to the maximum, but, as he always rejoined, higher rates of returns would only appear and stay when the economy was on the durable growth path (and he was very much right about that, though I’m sure he is not enjoying the current bond market proving that fact in the opposite case).

In Japan, the trick was wages and exports. Redistribution meant greater costs to households and Japanese exporters and businesses, but that would, again, be offset by the positive forces of wage gains and devalued yen cheapening Japan Inc. We know too well just how wrong the orthodox expectations were in terms of exports and Japan Inc, which has been accelerated into Japan Offshore Inc.

On the wage front, even nominal wages refused to budge – until more recently. In the past few months it appears as if there might stay an actual plus sign in front of scheduled earnings, the main source of income for Japanese households. Last month’s (June) first estimate was positive, as had occurred several times before, but was only revised lower, as expected, to zero. That was a major achievement in itself, breaking a two-year string of declines. Wages in July have also come in slightly positive, though it is unclear yet if it is enough to withstand the quirky downward revisions to come.

But in any event, the trend of nominal wages is in the direction that economists want and expect.

The implications of all this, however, are far less rosy than the sudden plethora of plus signs would seem to suggest (though the latest figures only run through June; given the disaster in spending shown below it might yet be premature to extrapolate about July). Again, redistribution counts more than one facet of consideration, and the state of wages in nominal terms doesn’t always mean what you are told.

Despite that increasing yen flow to households, they are not actually doing any more work. I suppose that conforms to the plan and idea for inflation, as the intentions stray little from the nominal side, but that is the problem. The real world goes far beyond nominal changes, and more often than not in the “wrong” direction due fully to that currency flow reorganization.

The exchange of labor for wages is the predicate position for creating wealth, but the Bank of Japan and all orthodox economics cares little for wealth in the pursuit of generic activity. Had wealth been expanding alongside prices (costs), wages would likely move in tandem and there would at least be some kind of hope for weathering the redistribution storm that has been unleashed over there.

Instead, there is no real reason for wages to rise other than nominal inertia, but that is far too insufficient to equalize where debasement has already had its full force. That is the great problem with all of this, that redistribution in whatever form, be it currency debasement directly, asset inflation or whatever, can only penetrate so far on its own. Unfortunately, the areas and segments of the economy most susceptible to this corruption are usually negative factors. So in the generic sense, orthodox practitioners intend to create a healthy economic trend out of an engineered preponderance of negative factors.

The results are entirely predictable outside of regressions. Household spending collapsed as intuition suggested during that very “hopeful” first quarter, but worse than that it hasn’t stopped.

Adjusting for prices, as best any official inflation measure can, household spending in July was worse than April and almost as bad as May! Even in purely nominal terms, to see spending decline so much without a polar vortex (cheap shot, but deserved) or additional tax changes is a very serious blow not just to future expectations but to credibility. And that is the biggest problem here, in that the Bank of Japan is not an outlier central bank running unique programs directly targeted at only Japan. They are reading the same textbook as all the others and crafting “solutions” based on it, just as the rest are.

 

If Japan’s results and programs here hold any true difference, it is only that they are further down the same road than the rest of us. As Japanification continues in the US and Europe, we are gaining good observations about what lays ahead until the political will to use that same textbook time and time again is exhausted, or, more likely, removed.








Putin Calls For "Immediate Talks" Over Eastern Ukraine "Statehood"

Vladimir Putin, who has repeatedly said that he does not favor the break-up of Ukraine - but only greater autonomy for the East, appears to have changed course rather dramatically today. In a speech broadcast on Russian TV, the Russian leader stated "we need to immediately begin substantive talks... on questions of the political organisation of society and statehood for southeastern Ukraine." As The Washington Post reports, use of the word "statehood" reflects a major shift in Kremlin policy towards 'Novorossiya' - it would be a direct challenge not only to Kiev but also to Western European nations and the United States, which have been trying to force Moscow to back down. While not directly addressing the latest round of sanctions chatter, Putin concluded, perhaps ominously, "they should have known that Russia cannot stand aside when people are being shot almost at point-blank."

 

 

As AFP reports,

President Vladimir Putin today dramatically raised the stakes in the Ukraine conflict by calling for the first time for statehood to be considered for the restive east of the former Soviet state.

 

"We need to immediately begin substantive talks... on questions of the political organisation of society and statehood for southeastern Ukraine with the goal of protecting the lawful interests of the people who live there," Putin was quoted as saying by Russian news agencies on a TV show broadcast in the far east of the country.

 

Russia has previously only called for greater rights under a decentralised federal system to be accorded to the eastern regions of Ukraine, where predominantly Russian-speakers live.

And as The Washington Post reports,

Putin spoke of the need to end hostilities before winter and criticized European leaders for supporting Ukraine, in remarks made during a television interview first broadcast in Russia's Far East and reported from Vladivostok by Russian news agencies. The interview was to be broadcast in Moscow seven hours later.

Putin has said repeatedly that he does not favor the breakup of Ukraine — though Russia seized Crimea from Ukraine in March — but only greater autonomy for the east. The word "statehood" suggests more than that, and if it reflects a major shift in Kremlin policy, it would be a direct challenge not only to Kev but also to Western European nations and the United States, which have been trying to force Moscow to back down.

 

...

 

"These are the inclusive talks that should determine the relationship with the eastern regions, that is, negotiations inside Ukraine on the internal Ukrainian order with respect for the interests of the country's eastern regions, the interests of Novorossiya," Peskov told reporters, according to Russian state-owned news agency Itar-Tass.

*  *  *

Doesn't sound very de-esacalation-y to us... but we are sure stocks will rally on the hopes of front-running the post-escalation de-escalation buying panic.








"Dawn Of Libya" Islamist Militia Group Seizes US Embassy In Tripoli, Holds Pool Party

Probably the 'oddest' headline of the day but in yet another show of disdain towards US military might, the Islamist militia group known as "Dawn Of Libya" has 'secured' an annex of the U.S. embassy in Tripoli. As Reuters reports, the United States evacuated its embassy in Tripoli on July 26, driving diplomats across the border into Tunisia; but a YouTube video showed the breach of the vacated diplomatic facility by an armed group, with fighters seen milling around a swimming pool. A rebel takeover of the compound would now deliver another symbolic blow to U.S. policy toward Libya, which Western governments fear is teetering toward becoming a failed state.

 

Whiskey and a Qatari man appear in US embassy building in #Tripoli taken by Dawn of #Libya Islamist militias pic.twitter.com/O6gQMLKbce

— Zaid Benjamin (@zaidbenjamin) August 31, 2014

 

As Reuters reports,

Members of a Libyan rebel militia have entered an annex of the U.S. embassy in Tripoli but have not broken into the main compound where the United States evacuated all of its staff last month, a U.S. official said on Sunday.

 

It was not immediately known how close the annex, apparently made up of diplomatic residences, is to the embassy itself. Libya has been rocked by the worst factional violence since the 2011 fall of Muammar Gaddafi.

 

The United States evacuated its embassy in Tripoli on July 26, driving diplomats across the border into Tunisia. A rebel takeover of the compound would now deliver another symbolic blow to U.S. policy toward Libya, which Western governments fear is teetering toward becoming a failed state.

 

The U.S. government believes the main embassy compound is still intact and has not been taken over, the U.S. official in Washington told Reuters, speaking on condition of anonymity.

An Associated Press journalist walked through the compound Sunday after the Dawn of Libya, an umbrella group for Islamist militias, invited onlookers inside.

Windows at the compound had been broken, but it appeared most of the equipment there remained untouched.

A commander for the Dawn of Libya group said his forces had entered and been in control of the compound since last week.
*  *  *

US Embassy compound seized... time for a pool party!!!??

*  *  *

It appears we are gonna need a bigger strategy...








Ukrainian Coast Guard Attacked Near Russian Border, Some Killed

A Ukraine military spokesman has confirmed that some sailors were killed and more injured when 2 Ukraine Coast Guard cutters came under attack by artillery from onshore near the village of Bezimenne (close to the Russian Border). This is believed to be the first such incident since the conflict began.

 

As Bloomberg reports,

Some killed when cutters attacked near village of Bezimenne near border w/ Russia, wounded are being transported to hospitals in Mariupol, Oleksiy Metasov, aide to Ukrainian lawmaker Yehor Firsov, comments by phone from Mariupol.

 

The naval cutter is reported to have been attacked by artillery from the shore.

 

 

Leonid Matyukhin, Ukraine military spokesman, says doesn’t recall similar attack since conflict started.

At around the 1:00 mark, the clip shows numerous aircraft approaching the burning ships...

 








Busy Week Ahead, ECB Meeting Stands Out

The week ahead is packed with events and data.  The monthly cycle of purchasing managers surveys  and the US jobs report are featured. There are also central bank meetings in six high-income countries and three emerging markets.   Given the recent geopolitical development, in Ukraine, as well ISIS, will give the NATO meeting extra significance.  

 

At the end of the day, there will be little to learn from the PMI data and most of the central bank meetings. Yes, there may be some headline risks, but our information set will not change very much.  The euro area flash report steal most of the thunder from the final report.   Arguably, more important for the outlook will be German industrial orders and production reports.  Modest improvement is expected.  The German economy is not really contracting, though it did in Q2.  

 

German exports to Russia are no more than 1% of GDP.  Assume that the sanctions cut German exports to Russia by three-quarters.  Now put that in the context of last year's growth (0.4%) and this year's projected growth of the German economy (~1.7%).  This is not to argue, like many have done that Germany has not interest in a rigorous sanction regime.  Such arguments seem to repeat the error of those who thought the euro zone was going to break up over Greece or Cyprus.  So many investors seem to exaggerate economic influences and dismiss political motivations. 

 

We have argued the advent of EMU and the euro is first and foremost an economic solution to a political problem, the reunification of Germany.  Europe itself is more a political construct than a geological one.  Political interests overrode economic interests, and that is why EMU survived. Similarly, the political elite is not Philistines.  They can and are putting larger political interests ahead of narrow economic interests.  Yes, there are compromises, but an economic determinist explanation and forecast does not do the situation justice.  

 

The PMI data is likely to confirm that the UK economy has lost some economic momentum that was recorded earlier this year.  It continues to operate a high level, but the moderation seen in July likely extended into August.  

 

The US employment data will also most likely confirm what we already know, and if it does not it will likely shrugged off as a fluke.  There is no reason not to look for the 200+ monthly increases in non-farm payrolls to extend the streak to seven consecutive months.  Nearly all the inputs that have been reported that economists use to shape their forecasts improved.  

 

Fed officials are looking at the general trend and here is what they see.  The acceleration of improvement can be seen in the averages.  The more recent averages are above the long-term term averages.  The three-month average is 245k.  The six-month average is at 244k.  The 12-month average is at 214k, and the 24-month average stands at 203k.  

 

The other of the labor market are less volatile, but the forward guidance has raised their significance over  the unemployment rate, which is likely to have ticked down to 6.0%-6.1% from 6.2% in July. Average weekly earnings may have ticked up, but the underlying trend remains flat.  A small increase would lift the year-over-year rate to 2.1%.  The three- and six-month averages are at 2.0%, and the 12-month is at 2.1%.  The 24-month average is 2.0%.  

 

Nor will Chinese PMI data likely change investors' views of the world's second largest economy. The economic data shows an economy that continues to expand 7.0%-7.5%, while being in some kind of economic and political transition, though the destination is not immediately obvious.   The PMI data will not shed much light on the immediate economic challenges will are emanating from the circulation of capital and real estate market.  

 

The softer Chinese demand for iron ore is thought to be the key factor driving down prices.   The Australian dollar has been resilient, largely in a broad trading range.  This underscores our understanding that the ultimate driving force of currencies from open high-income economies is the market for capital more so than the market for goods.  Australia's AAA rating and high yield appeals to both private and public asset managers.   

 

Most of the central bank meetings will not amount to much either.  The central banks of Brazil, Mexico and Poland, are expected to leave rates unchanged at 11%, 3% and 2.5% respectively.  Among the major central, banks, the BOE is not expected to say anything at the conclusion of the MPC meeting.  The Bank of Canada meeting will also likely be a non-event.   The Reserve Bank of Australia has indicated a stable rate, and there is little reason to expect a change.   

 

The Bank of Japan is surely disappointed with the recent economic readings that showed that the pullback in household consumption deepened in July and the half-hearted gain in industrial output.  However, Governor Kuroda is likely to give it an optimistic spin on it, though the debate is likely to intensify below the surface.  

 

The Riksbank surprised the market at its last meeting with a 50 bp rate cut that was delivered over the objections of the Governor and his deputy.  A follow-up rate cut is possible, but it seems unlikely.  Sweden's central bank may alter its expected repo rate path, which is a type of forward guidance that also has not proved particularly reliable.  

 

The ECB meeting is the most significant event.   Draghi all but pre-committed the ECB to action by acknowledging the disturbing decline in inflation expectations.  In the past, he said that this would trigger an official response.  The key issue is what action will be announced.  There has been much speculation that the ECB will announce an ABS purchase program.   We think the risk of this is very low for both practical and political reasons.  They might be moving quickly toward an ABS purchases, but there was much ground to cover, including regulatory issues, that have yet to be addressed, it seems.

 

It also appears to be risking putting the cart ahead of the horse if an ABS purchase program is announced, before the TLTRO is launched, and before the results of the asset quality review.   Indeed, it is through this process, that officials will have a greater understanding of the capacity and limits of bank balance sheets.  

 

We would attribute a greater chance of some small rate cuts, and possibly pushing the deposit rate into deeper negative territory.  We attribute an even greater probability to the ECB providing more details about what Draghi called the "modalities" of the TLTRO.  While reassuring investors that the ECB will do more if there is no substantial improvement, it may content itself with emphasizing and/or tweaking some of the rules regarding the access to the TLTRO facility, with an eye toward ensuring strong participation in the launch later in the month.  This may include spelling out the ability for smaller banks that don't have access to ECB facilities to participate (through other banks).  Draghi may also explain how in the second of two phases of the TLTRO, banks that are still deleveraging can still participate.  

 

If our assessment is right, we suspect many investors may be disappointed.  Given the extreme market positioning, we are concerned that many shorts are in weak hands.  A squeeze higher would provide medium and longer term investors with an opportunity to adjust exposures directly or through hedging.  

 

Geopolitics continues to be a concern for investors.  The Ukraine situation has escalated as Russian forces have entered the east.  In addressing the militants, Putin referred to "Novorossiya", or New Russia, which seemed to confirm his intent on removing another piece of Ukraine, whether in the form of a new state or to be part of Russia, as was the case with Crimea is immediately clear. 

 

We have argued that diplomacy is about nuances and that these nuances matter. Some observers dismiss the references, for example, of incursion instead of invasion as pusillanimous in the extreme.  Yet, there may be a significant consequence.  If it is a declared war, Ukraine would most likely not qualify for IMF assistance, which it desperately needs.  Over the weekend, the IMF agreed on disbursing another $1.4 bln of the $!7 bln aid package.  

 

There is a subtext of the events to consider as well.  After the collapse of the Soviet Union, NATO was brought to Russia's doorstep.  The EU was also expanded into what a key part of Russia's elite, and not just Putin, had seen as its sphere of influence.  Russia did not have the political will or resources to resist.  In Georgia and Moldova, Russia pushed back.   In Ukraine, it is making a clear stand.   Just like Russia has not struck at a NATO member, the US and Europe are not prepared to sacrifice their young people to take secure territory in Russia's near abroad.  It took what it could on the cheap, and expresses its displeasure with Russia's behavior where it cannot take.  

 

More sanctions are likely that seek to further isolate Russia.  These could include access to syndicated bank loans and restrictions on the sale of high-tech gas equipment. UK Prime Minister Cameron suggested limiting Russia's access to SWIFT payment system.  Russia has indicated that its retaliation could include cars, aerospace, and shipbuilding.  

 

While developments in Syria, Iraq and Iran are still of much concern, events in Hong Kong warn of a potentially new flash point.  The stage is set for a more intense confrontation between China and Hong Kong and between the Hong Kong economic and political elite and the pro-democracy movement.  

 

Ahead of the Hong Kong election in 2017, Chinese officials indicated that there will not be public nominations for the chief executive.  There will only be 2-3 candidates, and they will need to be approved by a majority of the 1200-person nominating committee.  The next step is for it to be affirmed by the Hong Kong legislature. A blocking minority of 27 members (of the 70 member legislature) is likely.  If it is rejected, the nominating committee will appoint the next chief executive for Hong Kong.  

 

Hong Kong has been the recipient of hot money flows.  Some appears to be coming from Russian sources.  Some appear to be an effort to play the Chinese stock market, which, thus far in Q3, is among the world's best performers.  The Shanghai Composite is up 8.2% since the end of June, and the Hang Seng is up 6.7%. The Hong Kong Enterprise Index, which tracks mainland companies, is up 6%. The capital flows have exerted upward pressure on the Hong Kong dollar and triggered intervention by the Hong Kong Monetary Authority.  The risk of social unrest may discourage new inflows. 








Currency Reform In Ancient Rome

Submitted by Peter Earle via The Adam Smith Institute

Currency Reform In Ancient Rome

In the Western world, modern civilizations are often thought of in comparison to those of the ancient world. The Roman Empire is typically the first considered, and arguably the most natural reference point owing to its many achievements, complexity and durability. It stands in history, widely considered the high water mark of the ancient world; one against which contemporary political, economic and social questions can be posed. Much of the world is still living with the consequences of Roman policy choices in a very real sense, in matters ranging from the location of cities to commercial and legal practices to customs.

The global economic downturn of 2008, in particular its monetary facet, readily invites comparison between the troubles of the modern world and those of the Roman Empire; just as Western currencies have declined precipitously in value since their commodity backing was removed in stages starting roughly a century ago, Roman currencies were also troubled, and present a cautionary tale.

The Roman coin in use through most of the empire was the denarius, which demonstrated a persistent decline in value, starting from the time of transition from Republic to Empire, and continuing until its decimation during the Crisis of the Third Century AD. Although efforts by Diocletian taken after the monetary collapse are commonly associated with Roman economic reform, there were other efforts by earlier, lesser known emperors that suddenly and unexpectedly improved the silver content and value of the denarius. Firsthand accounts and archeological findings provide sufficient detail to allow examination of these short, if noteworthy, periods of voluntary restorative policies – and their architects.

While popular interest typically fixes on such well known emperors as Julius Caesar, Nero, and Augustus, I seek to direct attention toward four lesser known emperors who undertook the improvement of the denarius.  These initiatives essentially constitute rare, temporary episodes of qualitative tightening, in contrast to the more common – and, in recent history, ubiquitous – policy of quantitative easing. The reformers were Domitian, Pertinax, Macrinus, and Severus Alexander. A necessarily concise summary of each one’s initiatives follows, with a brief review of the circumstances surrounding their administration and decisions.

Domitian (September 81 AD – September 96 AD)

The first noteworthy Roman currency reformer was Domitian, son of Vespasian and brother of Titus. He ascended in 81 AD, inheriting the problems associated with his forbear’s costly projects. Vespasian had undertaken large scale construction projects he thought necessary to repair the damage to many structures during the civil wars that raged throughout the late Republic.  In addition, he paid lofty financial incentives to regime-supporting historical writers and awarded pensions of up to 1,000 gold coins annually to a coterie of court intellectuals. Titus, his son and successor, was known for the initiation of lavish and elaborate games as well as for recompensing individuals struck by unexpected natural disasters, including the eruption of the volcano Vesuvius, the Great Fire of Rome, and those affected by the outbreak of war in Britannia. Together, Titus and Vespasian committed vast resources to the construction of the Coliseum; and, consequently, during the 12 years of their emperorship, the silver content of the denarius was reduced from roughly 94% to 90% purity.

Despite that precedent, “Domitian was apparently very sensitive to the importance of capital and the benefits of stability derived from a credible and dependable money supply.”[1] Thus early in his reign, in a “dramatic and entirely unexpected” move that coincided with the end of hostilities in Britain and Chatti (Germany), he fired the Empire’s financial secretary. Historians speculate that this was either because the secretary considered Domitian’s plans to improve the currency quality “unwise” or because he’d allowed such “slackness to permeate the mint” in the first place.[2] Shortly thereafter, “in 82 – 84 AD Domitian improved the silver standard, and older coins averaging 88 to 92 percent silver were reminted into purer denarii (98 percent fine)”.[3]

However, Domitian’s currency improvement effort was short-lived due to renewed foreign warfare. Between 85 and 89, fighting in Africa, Dacia (Eastern Europe), and Chatti again broke out, such that the “purer coins had scarcely entered the marketplace when [he], in mid-85, pressed for money to pay war bills, again changed the standard, reducing it to 93 percent fine”.[4]

Domitian’s reign eventually devolved into tyranny and massive building projects echoing those of his brother and father, and culminated in a wealth confiscation edict so brutal that “it [became] fatal at th[e] time … to own a spacious house or an attractive property”.[5] In 96 AD, he was assassinated.

Pertinax (January 193 AD – March 193 AD)

For nearly a century after Domitian’s fall, the debasement of the denarius continued apace, and by 148 AD devaluations became ritually associated not only with the start of wars and public projects but with inaugural events and holidays as well.[6]

At the beginning of Domitian’s reign, money supply was 60% of what it had been in 40 [AD], and about 70% of this level at the end of his reign, a range maintained throughout the reigns of the Antonines, until, under Commodus, money supply reached 700-800% above [that] initial level.[7]

Commodus, whose twelve year regime saw among other things the re-introduction of Plebian Games – a pricey, nearly month-long festival of religion, art and sports – and an incredible expenditure of state funds in a massive, megalomaniacal campaign of self-indulgent iconography, was succeeded by Pertinax – a man of “propriety [and] economy” – whose 86-day rule starkly depicts the considerable risk that currency reformers undertook – and perhaps still do.

[O]n the day of his accession, he resigned over to his wife and son his whole private fortune, that they might have no pretense to solicit favors at the expense of the state. He refused to flatter the former with the title of Augusta, or to corrupt the inexperienced youth … by the rank of Caesar … g[iving] him no assured prospect of the throne[.][8]

In addition,

[h]e forbad his name to be inscribed on any part of the imperial domains, insisting that they belonged not to him, but to the public. He melted the silver statues which had been raised to Commodus … s[elling] all his concubines, horses, arms, and other instruments of pleasure. With the money thus raised, he abolished all the taxes which Commodus had imposed.[9]

On the heels of that, Pertinax “carried out an extraordinary … coinage reform that returned the denarius to the standard of Vespasian.”[10] It revalued the denarius from 74 to 87% silver by weight on new coins, several mintings of which were emblazoned with the motto “MENTI LAVDANDAE” (“noteworthy good sense”), and most significantly featured not his or another emperor’s visage but Ops, the Roman personification of wealth. In addition to this, Pertinax simultaneously embarked upon a fiscal rehabilitation program, the centerpiece of which were large budget cuts targeting the Roman military; he began by cancelling the customary bonus paid to soldiers by newly-seated emperors.

In a remarkably short of time, Pertinax gained “the love and esteem of his people.”[11] But his cuts to the military were deep and far reaching, and his urge to settle disputes with enemies rather than fight them out enraged the soldiery. “A hasty zeal to reform the corrupted state … proved fatal” for him. [12]. On the 86th day of his rule, his personal guard betrayed him and mutinied, gathering at the imperial domicile. Though other guards urged him to safety, “instead of flying, he boldly addressed them” – and fell beneath their swords.[13] Rome’s “Age of Inflation” had thus begun.

Macrinus (April 217AD – June 218AD)

Gibbons describes Caracalla, who ruled for 19 years, as “the common enemy of mankind” for the incredible number of massacres and persecutions, as well as economic destruction, which occurred during his tenure.[14] He devalued the denarii from 1.81 grams of silver to 1.66 and introduced a new coin, the antoninianus: ostensibly a “double denarius” but actually weighing 2.6 grams of silver instead of the implied 3.3 grams. Additionally, he increased tax revenue by making all freemen in the Empire citizens and commissioned the construction of a number of massive, exorbitant bathhouses. And, most unsurprisingly, he raised the pay of the military, granted them new and expanded benefits, and launched a war against the Parthian Empire.

Macrinus, a member of Caracalla’s staff, became emperor after his assassination – to which, by some accounts, he was a co-conspirator. From the start, he made clear his concern with “prioritiz[ing] public faith over the generation of a sufficient amount of cash” for the Roman state.[15] During his short reign, he made the conscious choice to raise the purity rate of silver from Caracalla’s debased 1.66 grams of silver to above the level extant when Caracalla was installed – 1.82 grams – and demonstrated an inclination toward diplomacy versus combat. When the Persians challenged the Roman army, Macrinus “tried to make peace with the Persian king” and “s[ent] back [their] prisoners of war voluntarily.”[16] Consequently, he incurred the resentment of soldiers and further enraged them by introducing a pay system which paid them according to their rank and time-in-service.

In summary,

[t]he increased silver content was clearly beneficial for the state, as it would instill more confidence among its recipients and presumably still inflation … [but] the major problem, of course, was Macrinus’ attempt at military reform … [T]he army would not stand for a curtailment of privileges, even among new recruits. So while Macrinus’ plan was … fiscal responsibility in the state, the strength of the army was too great to allow for it … [and] paved the way for Macrinus’ downfall.[17]

Dissent soon erupted within the ranks and military forces, in a coup, elevated 15-year-old Elagabalus as the new emperor; a battle ensued between Elagabalus supporters and Macrinus loyalists. Macrinus’ forces were routed, and he was captured and executed.

Severus Alexander (March 222AD – March 235AD)

The new Emperor Elagabalus presided until his 18th birthday, profoundly debasing the denarius and squandering monstrous sums from the public treasury. “No fouler…monster” wrote the poet Ausonius, “ever filled the imperial throne of Rome”.[18] After his assassination, his cousin Severus Alexander rose to power. And

[b]y the time that Alexander ascended the throne the question of the coinage, long acute, had become critical. Looking backwards one may see two centuries of fraud that the debasement of money had gradually but surely proceeded; in the future something little short of national bankruptcy awaited the Roman world unless measures were forthwith adopted to ward off [that] evil day.[19]

Yet in a different strategy from Domitian’s, Alexander initially reduced the silver content of the denarius from 1.41 grams to 1.30 grams, and some years later not only raised it back to the old standard, but far beyond that to 1.50 grams; a quality it had not seen in decades. He

restored the tarnished reputation of imperial money by improving the denarius and striking the first substantial numbers of brass sestertii and copper assees in a generation … they were well-engraved, struck on flans of traditional size and weight, and, as money, the equal of their more elegant ancestors.[20]

He reduced taxes and attempted through various means to end the “singular system of annihilating capital and ruining agriculture and industry [which] was so deeply rooted in the Roman administration”.[21] At the same time, though, he subsidized literature, art and science and socialized education.

When invaders from Gaul threatened the Empire, Severus Alexander attempted to buy them off rather than engage in a pitched, costly battle. This, once again, angered the legionnaires, who elevated General Maximinus as the new emperor. The military rebelled and, like Pertinax and Macrinus before him, Alexander Severus was executed.

Over the next three years, Maximinus doubled soldiers’ pay and waged nearly continual warfare. Taxes were raised, with tax-collectors empowered to commit acts of violence against delinquent or reluctant payers, as well as to summarily confiscate property for citizens in arrears.

Over the next five decades,

[e]mperors … debased the silver currency and raised taxes during what they perceived to be a temporary crisis, expecting windfalls of specie from victory, but war had changed from profitable conquest to a grim defense … The Roman world was treated to the spectacle of imperial mints annually churning out hundreds of millions of silver-clad antoninaniani by recycling coins but a few years old [which] removed older coins from circulation and destroyed public confidence in imperial moneys.[22]

Characteristic of all monetary collapses, as the denarius rapidly withered into a billon trinket Roman citizens developed odd, if essential, skills – the most noteworthy of which were extracting the thin silver coating from otherwise worthless coins and fluency in the social language of monetary failure: barter.

Epilogue

Comparing modern challenges and policy responses to those of remote times is an attractive but precarious enterprise: every generation, let alone culture and era, breathes a unique psychological oxygen. Nevertheless, in this case the exercise yields several potentially valuable insights.

First, what can we say about the reformers? Why did select figures, in an era admitting no formal economic theories and within which the interaction of supply and demand was attributed to superstitious causes or conspiracies, occasionally shore up their currency?

It is notable that all of the reform-minded emperors possessed germane backgrounds and experience: where the majority of Roman emperors had pre-ascension careers in politics or the military, Domitian grew up in a family known for banking; and despite the inglorious end of his incumbency (when maintaining power came to trump sense and experience) his initial

concern with finance, with a stable currency, and an awareness of reciprocity in business and trade dealings as demonstrated in instruments such as his Vine Edict, reflect his continuation of a tradition of financial sensibility, more in keeping with a business house, than with the traditions of [elites] valued by Senators and expected of Emperors.[23]

Most fascinatingly,

[w]hile still a Caesar, Domitian had published a work on coinage … which Pliny the Elder … had cited as a source.[24]

Macrinus was the first non-senatorial emperor, and had years of both financial training and experience; he served as the administrator of the massive Flaminian Road project. Later in his pre-political career, he was personally selected to manage the personal wealth of the imperial family under the emperors Caracalla and Geta. Pertinax had spent years in business as well as teaching, and his time as a merchant led him to the belief that “[e]conomy and industry … [were] the pure and genuine sources of wealth”[25]

Alexander Severus became emperor at 13. It is difficult to hypothesize as to what may have led him to enhance the denarii – and so strongly – but one may speculate that his closest advisors, his mother and grandmother, drew from years of experience in Roman booms and busts.

One also notes that each of the reformers came after particularly egregious debasers: Domitian after Vespasian and Titus; Pertinax after Commodus; Macrinus after Caracalla; and Severus Alexander after Elagabalus. It seems as if each deduced the connection between his predecessor’s profligate monetary (and, indeed, fiscal) policies and the consequent economic crisis, choosing to reverse the afflux.

Summarizing Macrinus’ efforts, but no doubt broadly applicable, is this synopsis:

The exact motivation … for coinage reform [efforts in the Roman Empire] is in general a little hazy … attempts at reforming the coinage standards could reflect the distrust that the … population had for the imperial currency … [a]nother possibility is that [the reformers] wanted to fit into a monetary tradition that was considered responsible … [or] felt a desire to distance themsel[ves] from the policies of [their] predecessor[s] … [as many] were a simple overturning of [prior emperors] destructive economic measures.[26]

In consummation, were these episodes in qualitative tightening successful? Obviously, brief respites in the systematic debasement of the denarius delayed the eventual, yet perhaps inevitable, monetary emergency. More analytically, though, one hint lies in the architectural analysis of lost, donated, and hoarded coins, in that

coins lost casually on sites are equivalent to small change lost today [in that] more were lost as their numbers mounted and purchasing value plunged due to debasements … [C]asual losses and hoards, then, can document shifts in patterns of circulation both within and beyond imperial frontiers.[27]

The number and constitution of coin hoards reveal the public propensity to forestall consumption (“saving”, in familiar parlance) or represent financial reserves hidden out of fear of future devaluations; in any event, they imply which coins were highly valued. Patterns of similar coins lost or donated, oppositely, suggest which in circulation were valued appreciably less. While both Pertinax and Macrinus ruled briefly, and their programs were quickly reversed by their successors, under both Domitian and Severus Alexander (who ruled for 15 and 13 years, respectively) the number of discovered, archeologically-dated coin hoards skyrocketed over those dated to their immediate predecessors: from 3 to 10 and 7 to 18; again, respectively. Similarly, coins of reduced quality are found with higher frequency at ritual offering sites (e.g., temples) and where losses were common (e.g., river crossing sites) than those of contemporary circulating issues with higher purity.[28]

But the most forbidding commonality is the thread of continuity running through the fates of the monetary reformers:

Emperors who improved the purity of the denarius, [notably] Pertinax in 193 [and] Macrinus in 217 … found themselves outbid for the loyalties of the army, and … went down in ignominious defeat.[29]

And so we return to the present day. Owing to the deep entrenchment of government in daily life and, consequently, the politically incendiary nature of entitlements, attempts to underpin the value of any currency with a commodity is likely to be met with considerable resistance from the diffuse and deep-seated institutions and social groups benefitting from fiat currency systems. And yet, for the first time in well over a century, the issue of what actually backs state-issued money has resurfaced as a political issue. Precious metals are seeing their greatest popular resurgence in decades, as, in tandem, interest in and usage of Bitcoin and other cryptocurrencies – precisely because of their irreproducibility and the consequent quantitative limitations – expands rapidly. This, perhaps, hints at a burgeoning shift in public awareness and sentiment, which may eventually translate to political pressure for a return to sound money, but real progress will likely be an uphill battle – with bouts of ‘sticker shock’ along the way. As historian William Warren Carlise wrote,

[a]ll through history we find that it is the reform, the return to sound money rather than the depreciation itself that first rouses popular discontent. It is only when the mass of the people learns that depreciations must be followed sooner or later by such remedies that they begin to entertain a salutary dread with regard to them.[30]

Perhaps the best conclusion that can be drawn from examining these instances is that in response to the familiar rhetorical query – “Are we going the way of the Romans?” – one can reply, truthfully: “No; they occasionally reformed their currency.”

Endnotes

[1] http://domitian-economicemperor.blogspot.com/2011/01/domitian-emperor-in-broader-economic.html
[2] Brian W. Jones, The Emperor Domitian (London: Routledge, 1992), 76.
[3] Kenneth W. Harl, Coinage in the Roman Economy, 300 B.C. to A.D. 700 (Baltimore: The John Hopkins Press, 1996), 14.
[4] Ibid.
[5] Jones, 77.
[6] Susan P. Mattern, Rome and the Enemy: Imperial Strategy in the Principate (Los Angeles: University of California Press), 141.
[7] http://domitian-economicemperor.blogspot.com/2011/01/domitian-emperor-in-broader-economic.html
[8] Edward Gibbon, Esq. The History of the Decline and Fall of the Roman Empire, Vol. I (London: W. Strahan, 1776), 101
[9] John Platts, A New Universal Biography … of Eminent Persons (London: Sherwood, Gilbert and Piper, 1826), 122.
[10] Mattern, 140 – 141.
[11] Gibbon, 102.
[12] Gibbon, 103.
[13] Platts, 122.
[14] Gibbon, 139.
[15] Andrew Scott, “Change and Discontinuity within the Severus Dynasty: The Case of Macrinus”, a dissertation submitted to the Graduate School-New Brunswick, Rutgers, The State University of New Jersey, in partial fulfillment of the requirements for the degree of Doctor of Philosophy, Graduate Program in Classics, May 2008, 133.
[16] Henry Jewell Bassett, Macrinus and Diadumenian (Menasha: George Banta Publishing Co., 1920), 33.
[17] Scott, 135.
[18] Martijn Icks, The Crimes of Elagabalus: The Life and Legacy of Rome’s Decadent Boy Emperor (London: I. B. Taurus & Co, 2011), 115.
[19] R. V. Nind Hopkins, The Life of Alexander Severus (Cambridge: University Press, 1907), 182.
[20] Harl, 128.
[21] Hopkins, 154.
[22] Harl, 132.
[23] http://domitian-economicemperor.blogspot.com/2011/01/domitian-emperor-in-broader-economic.html
[24] Ibid.
[25] Gibbon, 102 – 103.
[26] Scott, 129 -133.
[27] Harl, 17 – 20.
[28] Richard Duncan-Jones, Money and Government in the Roman Empire (Cambridge: Cambridge University Press, 1994), 107.
[29] Harl, 126 – 127.
[30] William Warrand Carlile, The Evolution of Modern Money (London: Macmillan and Co.), 100.








The Hard Life Of The First American

Submitted by Erico Tavares of Sinclair & Co.

The Hard Life of the First American

A forthcoming book titled “Kennewick Man: The Scientific Investigation of an Ancient American Skeleton” provides a very detailed account of what might have been the life of this remarkable American ancestor, who roamed Washington State 9,000 years ago. His skeleton was found by chance almost two decades ago, enabling scientists to glimpse into an era which is all but forgotten.

While genetic testing is still ongoing, the thin shape of his skull suggests that he is from Polynesian descent, not Native American as was previously thought. Some two thousand after the end of the last Ice Age humans were already crisscrossing the planet.

At 5ft 7 inches and 163 lbs (74 kg) the "First American" was very sturdy, going after big game animals such as deer, antelopes and sheep. However, he survived primarily on fish and marine mammals, drinking glacial melt-water. He was likely right handed.

But this man had a very hard life. He died at 40 for unknown reasons, after sustaining some major injuries during his lifetime, including major blows to the head, as well as broken ribs as a result of an impact trauma that never healed properly. His shoulder was damaged from the constant stress of throwing spears. And most incredibly, a spear lodged deep into his pelvis was also found, which must have been very painful to live with for several years.

His man-made injuries raise some interesting questions. While they may have resulted from an accident, like a spear gone astray during a hunting expedition, squaring off with patterns from other ancient tribes suggests that serious conflicts among humans must have been a regular fact of life back then. Our ancestors from that era lived in a world which was far less than idyllic.

And this legacy continued throughout the centuries. Native Americans appear to have been in a constant state of warfare, with many tribes becoming extinct well before the arrival of Columbus. Not only did these tribes have to compete for food but also genes, where problems associated with inbreeding likely led to the common practice of raiding one another for women and slaves. The arrival of the Europeans did not make things any better, and not before long they were also fighting among each other.

It took us 9,000 years – the equivalent of 225 Kennewick Man lives – to get to where we are today. Thankfully things are much better now. Cooperation, education, innovation and exploring new frontiers have proven to be incredibly more productive endeavors to our survival and quality of life than warfare and conflict.

And yet, as a species it appears we still have a lot to do here. If he were alive today, the First American might have agreed.








Helicopter Janet, Mario and Mark - "Central Banks Should Give Money Directly To The People"

 

“Central Banks Should Give Money Directly To The People” – Gold Bullish CFR Proposal

 


Helicopter Janet?

Last week, a very radical proposal appeared in the pages of the influential ‘Foreign Affairs’ magazine, the publication arm of the equally influential Council on Foreign Relations (CFR) think-tank based in New York.

 

An article “Print Less but Transfer More - Why Central Banks Should Give Money Directly to the People”, that has been picked up widely in the media argues that given that monetary stimulus measures such as quantitative easing and near zero central bank interest rates have failed to boost economic growth, a new radical monetary approach is needed.

That approach is to print currency and give the cash directly to consumers and households as required so as to remedy insufficient consumer spending and in order to prevent recessions.

 

The article is authored by Mark Blyth and Eric Lonergan. Blyth, originally from Scotland, is an economist at Brown University in Rhode Island. Lonergan, originally from Ireland, is a fund manager of global macro strategies at M&G Investments in London.

 

Although ‘Foreign Affairs’ publishes various sides of important debates, policy articles in ‘Foreign Affairs’ have tended to influence US economic and political policy over the years, so the ‘cash transfer proposal’ is worth watching.

 

Hoped For Benefits Of "Free Cash"
Blyth and Lonergan argue that the slow economic growth and low inflation rates being currently witnessed in Western developed economies call for more extreme government and policy maker approaches so as to get people spending again, thereby stimulating economic growth and encouraging inflation.

 

To them, deflation is a key threat that the unconventional low interest rates and quantitative easing has not managed to tackle. Therefore in their eyes this needs to be countered by directly making consumers spend more by actually handing over cash to them.

 

Blyth and Lonergan draw on Ben Bernanke and Milton Friedman to support their cash transfer argument and openly say that it is now “well past time” for policy makers in the US and also in other developed countries to try the helicopter cash drop approach.  

 


Helicopter Mark?

In 1998, after Japan suffered a lost decade of growth, Ben Bernanke, a then university economist at Princeton, advocated that Japan provide direct cash transfers to consumers in order to encourage them to spend more.

Previously, Milton Friedman had viewed direct money transfers as analogous to dropping cash from helicopters. This would go on to create the famous expression of Helicopter Ben (Bernanke) dropping cash from a helicopter.

 

Blyth and Lonergan advocate direct cash transfers either to all households equally, or possibly just to the lowest 80% of households. They say that lower income households would use this cash in a variety of ways, either to repay consumer debt, or to spend and consume, or to save. If a certain cash sum, say $1000, was not seen to be effective, households could, in their view, be given more, for example $3000 or $4000.

 

Blyth and Lonergan say that it’s hard to measure the direct impact on consumer spending of instruments such as lower interest rates, but that the impact of direct cash transfers are more measurable.


In their view, inflation won’t be an issue since central banks can continue inflation targeting.

 

Real Risks Of “Free Cash”

However, in our view, there are a number of flaws with this proposal.

Direct cash transfers have a danger of putting consumers further into debt. If a cash transfer is not effective, and an even bigger transfer is then handed out by governments, this will create the danger of consumer dependency on the cash transfer mechanism.

 


Helicopter Mario?

The argument that the level of inflation created by cash transfers can be controlled is untested. Since this direct cash transfer approach has never been used, it is in uncharted territory and could lead to unanticipated inflation. How the measurement of direct cash transfers is more accurate than the measurement of the effect of low interest rates and quantitative easing is unclear.

 

With economies already facing record money supply growth from expanded central bank balance sheets, new cash transfers flowing into the global economy could lead to an out of control velocity of money and possible hyperinflation. How would this extra liquidity ever be drained from the system again?

 

This new cash transfer money would also be printed out of thin air, thus diluting the existing money supply and eroding its purchasing power. Since all fiat currency is merely debt anyway, the creation of new money to finance the direct cash transfers would add to the existing debt burden of already struggling nation states.

 

GoldCore Conclusion
In many austerity hit countries, there are is an increasing tax burden with very high income taxes, sales taxes and many stealth taxes.


Does it make sense for central banks to be printing money that will in many cases be used to pay taxes, stealth taxes or even pay down credit card, loan and even mortgage debt?

This measure will likely further worsen the debt to GDP ratios in many already indebted industrial nations. With interest rates set to rise in the coming months and years, giving free money to consumers may bankrupt already vulnerable states.

Would it not be more prudent to have debt write offs and debt forgiveness at sovereign level so that countries can lower the tax burden on suffering citizens? Rather than compounding the problem by increasing sovereign debt levels through giving out "free" cash to indebted consumers?

There is a real risk that this could end up being another ‘soft bail-out’ for banks as much of the cash would probably end up being used to pay down the huge debts incurred in recent years  and would come full circle to banks in the form of debt repayments and governments in the form of taxes.

The real solution to the global debt crisis is not more debt in the form of “free currency” and increasing sovereign debt. The real solution remains to implement significant debt forgiveness for consumers and debt restructuring for institutions, banks and nations in a modern debt jubilee.

Were such an extreme scenario to be implemented and a further and deliberate debasement of currency, there is a real risk of significant inflation and stagflation. Even hyperinflation in a worst case scenario.

Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day. This underlines the vital importance of having an allocation to gold in a diversified portfolio.

Gold will maintain its purchasing power in the coming years, as it has always done throughout history.

by Ronan Manly, GoldCore Consultant. Editor Mark O’Byrne of GoldCore

 








THe EViDeNCe...

As we embark on yet another ever widening gyre of military violence, I would like to remind all of the truth and veracity of our overlords in these matters...








Movement to Declassify 9/11 Information Gathers Momentum ... 9/11 Commission Chairs and Congressmen Call for Declassification

The 9/11 Commission Co-Chairs - Lee Hamilton and Thomas Kean - have called for the 28-page section of the 9/11 Commission Report which is classified to be declassified. Kean said that 60-70% of what was classified shouldn't have been classified in the first place:

Congressman Thomas Massie read the 28 classified pages of the Joint Intelligence Committee Inquiry into 9/11 (the joint Senate and House investigation into 9/11) and immediately called for them to be released to the public:

A bipartisan bill - introduced by congressmen Walter B. Jones (Republican from North Carolina) and Stephen Lynch (Democrat from Massachusetts) - would declassify the 28 pages of the Joint Inquiry which implicate the Saudi government.

Former Congressman Ron Paul is also demanding the 28 pages be declassified:

The Co-Chair of the congressional investigation into 9/11 - Bob Graham - and 9/11 Commissioner and former Senator Bob Kerrey are calling for either a “permanent 9/11 commission” or a new 9/11 investigation to get to the bottom of it.

Senator Graham has lobbied Obama for years to release the 28 pages and to reopen the investigation, but Obama has refused. The former Chair of the Senate Intelligence Committee and 9/11 investigator has even resorted to filing Freedom of Information requests to obtain information, but the Obama administration is still stonewalling:

Graham said that like the 28 pages in the 9/11 inquiry, the Sarasota case is being “covered up” by U.S. intelligence. Graham has been fighting to get the FBI to release the details of this investigation with Freedom of Information Act (FOIA) requests and litigation. But so far the bureau has stalled and stonewalled, he said.

And high-level former NSA official Thomas Drake provided testimony to the 9/11 investigations documenting that the "official story" of 9/11 makes little sense, as the intelligence agencies had all of the information they needed to stop it. Drake's testimony has - for no real reason - been classified. Drake is seeking to declassify his testimony to the 9/11 Commission:

I would argue for declassification and release because the 9/11 Commission asked for it in the public interest, my testimony was given to Congress via testimony (oral and written) to investigators as a material witness and whistleblower, because of NSA’s coverup of its accountability for 9/11, and the coverup committed by NSA to obstruct official Congressional investigations, plus declassification is timely in terms of ongoing efforts to reform NSA by Congress and the President.

I do know that my testimony and evidence was fully suppressed and censored as a deep state secret - so secret that it was not included in the classified report of the 9/11 Joint Inquiry.

Indeed, the 9/11 Commission admits that it never got all of the facts ... and many officials are eager to spill the beans about what they know.

Still Urgent Today

Ancient history, you say? Graham notes:

Although it's been more than a decade ago when this horrific event occurred, I think [the questions of who supported the attacks] have real consequences to U.S. actions today.

As Graham told PBS:

We need to have this information now because it’s relevant to the threat that the people of the United States are facing today.

Postscript: People may not remember now, but – at the time – the supposed Iraqi state sponsorship of 9/11 was at least as important a justification for the Iraq war as the alleged weapons of mass destruction. This claim that Iraq is linked to 9/11 has since been debunked by the 9/11 Commission, top government officials, and even – long after they alleged such a link – Bush and Cheney themselves.

But 70% of the American public believed it at the time, and 85% of U.S. troops believed the U.S. mission in Iraq was "to retaliate for Saddam's role in the 9-11 attacks."

Only last year, John Glaser noted:

Significant portions of Americans still believe that Saddam and al-Qaeda were in cahoots and cooperated in the 9/11 attacks. The reason is simple: the administration told them this lie.

An investigation by a committee in the House of Representatives in 2004 identified “237 misleading statements about the threat posed by Iraq that were made by President Bush, Vice President Cheney, Secretary Rumsfeld, Secretary Powell, and National Security Advisor Rice. These statements were made in 125 separate appearances, consisting of 40 speeches, 26 press conferences and briefings, 53 interviews, 4 written statements, and 2 congressional testimonies.”

According to the committee, at least 61 separate statements “misrepresented Iraq’s ties to al-Qaeda.” A Senate investigation in 2006 also covered these lies.

Keeping this lie afloat took some work. The Bush administration, primarily Dick Cheney and Don Rumsfeld, “applied relentless pressure on interrogators to use harsh methods on detainees in part to find evidence of cooperation between al Qaida and the late Iraqi dictator Saddam Hussein’s regime,” McClatchy reported in 2009.

According to Lawrence Wilkerson, chief of staff to Bush’s Secretary of State Powell, “the administration authorized harsh interrogation” in 2002, and “its principal priority for intelligence was not aimed at pre-empting another terrorist attack on the U.S. but discovering a smoking gun linking Iraq and al-Qa’ida.”

Wilkerson is right.

In other words, the failure to conduct a real 9/11 investigation contributed to the Iraq war, torture, and the failure to fix fundamental weaknesses in - and threats to - America's national security.

Bonus:Top NSA Whistleblower: We Need a New 9/11 Investigation Into the Destruction of the World Trade Center.








Corporations Join Droves Renouncing US Citizenship

Submitted by Nick Giambruno via Casey Research's International Man blog,

Don’t be surprised to lose if you don’t make an effort at being competitive.

And if you go out of your way to make yourself less competitive, expect to lose.

If that sounds like simple common sense, that’s because it is.

But it’s also exactly what the US has been doing for years—enacting tax policies that sabotage its global economic competitiveness.

It’s like trying to get in shape for a marathon by going on an all-McDonald’s diet. (Speaking of McDonalds, check out this funny video spoof of what their commercials should really look like.)

Here are two major reasons why the US is lagging in the global economic marathon:

  1. The US has the highest effective corporate income tax rate in the developed world (see chart below).
  1. Unlike most other countries, which only tax domestic profits, the US taxes the earnings of foreign subsidiaries of US companies when the money is transferred back to the US. This has had the effect of US corporations keeping over $1.9 trillion in retained earnings offshore to avoid the crippling US corporate income tax.

These “worst in the developed world” tax policies are clearly hurting the global competitiveness of American companies.

Being deemed a “US Person” for tax purposes is like trying to swim with a lifejacket made of lead.

It should come as no surprise that an increasing number of productive people and companies are seeking to shed this burden so they can keep their heads above water.

At this point, it’s more than just a trickle—it’s an established trend in motion.

And I don’t see anything that would reverse it. On the contrary, given the political dynamics—ramped-up spending on welfare and warfare policies, as well as an “eat the rich” mood—taxes have nowhere to go but north. And that means the exodus will continue.

Three Cheers for Walgreens

Over the past couple of years, dozens of high-profile US companies have moved abroad (or seriously considered it) to lower their corporate income tax rate and to access their offshore retained earnings without triggering US taxes.

Among them are Medtronic, Liberty Global, Sara Lee, and Omnicom Group—the largest US advertising firm—to just name a few.

Earlier this year Pfizer, one of the world’s largest pharmaceutical companies, sought (but was ultimately rebuffed) to move abroad, which would have cut its tax bills by as much as $1 billion a year.

The strategy these companies are using is known as an inversion. It’s where a US company merges with a foreign company in a jurisdiction with lower taxes and then reincorporates there. Current US law allows for this if the foreign shareholders own at least 20% of the combined company (though some are trying to raise the minimum to 50%).

Now, despite the howls and shrieks from upset politicians and the mainstream media about these companies being “unpatriotic” and “un-American,” they’re doing absolutely nothing illegal. Inversions are totally acceptable within the current rules of the US Tax Code.

Chuck Grassley, a Republican senator from Iowa has said, “These expatriations aren’t illegal. But they’re sure immoral.”

I beg to differ.

Why would anyone want to give the destructive bureaucrats in DC a penny more than is legally required? As far as I’m concerned, not only is there nothing wrong with going where you’re treated best, there's also an ethical and moral imperative to starve the Beast.

And now the latest high-profile company to consider putting the Beast on a diet is Walgreens.

Walgreens is considering reincorporating in Switzerland as part of a merger with Alliance Boots, a European rival. The net effect for would be to reduce Walgreens’ tax rate to 20%, down from around 31% now. The move is estimated to save around $4 billion over the next five years.

What really has the politicians scared is that inversions have started to snowball.

The New York Times quoted an international tax lawyer stating that “it takes one company with enough public recognition to start [a] domino effect.”

Walgreens could be the company that triggers a domino effect. If Walgreens were to move, it would gain a significant competitive advantage against its rivals. CVS, Walgreens’ main competitor, paid a 34% tax rate in recent years. Can CVS really compete with Walgreens if the latter is paying 20%?

Probably not. And that will only lead to more inversions.

Another Way to Starve the Beast

Remember, US companies are not globally competitive because of these two unique burdens:

  1. The US has the highest effective corporate tax rate in the developed world.
  1. Unlike most countries, which only tax domestic profits, the US taxes the earnings of foreign subsidiaries of US companies when the money is transferred back to the US.

We have already seen how inversions can reduce #1, but they also offer huge benefits in terms of #2.

Reincorporating abroad allows companies to permanently avoid paying US taxes on foreign earnings. It also allows companies to access their retained earnings offshore in ways they couldn’t before without triggering punishing US taxes.

Medtronic, for example, has accumulated $20.5 billion of untaxed earnings in foreign subsidiaries. By reincorporating abroad, Medtronic can access that money without getting slapped with US corporate income taxes, which would save it billions.

For companies like Medtronic and Walgreens, reincorporating abroad seems like a no-brainer.

Contrary to the government propaganda, the villains in this story aren’t the companies seeking to diversify abroad to remain globally competitive. The villains are clearly the spendthrift politicians who enact these “worst in the developed world” tax policies, which create very compelling incentives for these companies to leave the US.

It’s Not Just Companies Saying Sayonara

While the US should be enacting policies that make it attractive for productive people and companies to come to the US—rather than driving them away—don’t hold your breath for positive change. It’s more likely that nothing but more taxes and regulations are coming.

But as we have seen with companies like Medtronic and Walgreens, companies have options too.

And it’s not just multibillion-dollar corporate entities that have options. Individuals operating on a modest scale can also reap enormous benefits by diluting the amount of control the bureaucrats in DC (or any country) wield over them. International diversification is the solution.

You do this by moving some of your savings abroad with offshore bank and brokerage accounts, physical gold held abroad, owning foreign real estate, and establishing an offshore company or trust.

Obtaining a second passport is an important part of the mix as well.

You probably can’t take all of these steps, and that’s fine. Even taking just one will go a long way to reducing your political risk and giving you more options. In many cases, you don’t even have to leave your living room.

Think of it as your own personal insurance policy against an out-of-control government.

However, things can change quickly. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible when formulating your international diversification strategy. That’s where International Man comes in.

To keep up with the best strategies, you might want to check out our Going Global publication, where they are discussed in great actionable detail.








A Rare Glimpse Inside The NY Fed's Favorite 'Quote-Stuffing' Hedge Fund: Citadel

As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Recently we discovered that the true culprit behind the May 2010 Flash Crash was not Waddell & Reed, but quote stuffing. The most recent revelation for Citadel is that quote stuffing is not just some byproduct of some "innocuous" HFT strategy, as none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy." The following 2 clips give a sense of what goes on from day to day inside the firm that trades more volume than the NYSE every day...

 

HFT in action...

 

Is HFT a good thing or bad thing?








Pages