Monday, August 1, 2011

August 1 2011: Of Ceilings and Dungeons

National Photo Co. Bonus Expeditionary Force 1932
"B.E.F. camp, Anacostia, encampment of World War I veterans (the Bonus Army) and their families in Washington, D.C."

Ilargi: Even now the two Washington sides are close to inking a deal -though it could still fail, even be filibustered-, it won’t solve any real issues.

If and when the deal causes America to be perceived as stronger and less risky than Europe, that will merely lead to a higher dollar vs the euro, and that in turn will kill US exports, which will lead to lower employment, lower tax revenues, lower consumption rates, and all that stuff.

And even then: in what could be an ominous sign, the US dollar is losing against the Euro this morning, not gaining. Makes you wonder how long this round of debt -ceiling- relief will work. [Update: alright, now the dollar is rising, as European markets tank]

On the real issues, nothing has changed since at least the demise of Bear Stearns and Lehman, and arguably way before that. There is too much debt in the system, way too much, perhaps as much as 10, 100 or even 1000 times too much.

The rate of economic growth that would be required to flush out that debt is not only unrealistically high, it's downright physically impossible. And besides, Q1 US GDP was revised down to 0.4% last week, which takes it straight into the realm of mere marginal statistical errors. So the only ways to pay the debt is through budget cuts and tax increases. In the foreseeable future, we’ll see lots of the former and none of the latter.

So don't believe any of the talk about recovery; there isn't any today, there hasn't been any in the past 5 years, and there won't be none for a long time to come. A government spending itself into colossal new debt levels can perhaps create the illusion of recovery for a limited period of time (check), but it will all end up just making things worse down the line. For the people, that is. Not for the politicians and financiers who make the decisions.

And don’t believe that a last minute August 2 debt ceiling agreement solves anything either, since why should anyone on Main Street be happy just because their government has just allowed itself to get even deeper into debt?

The picture has just simply been wrong from the start: a ceiling is too positive of an image: we should perhaps do better to be talking about a debt dungeon.

That would convey the underlying reality much more accurately. Washington’s not raising a ceiling, it's digging an ever deeper, damp and darkened hole for US taxpayers and their children. Whatever comes out of the talks, and something will since no-one wants to take the blame of failure, will materialize as even more hardship for even more Americans.

Watch what will happen to Social Security. With Medicare. They're going to strip it to the bone, layer by layer. They'll do it slowly, so you won't even remember after a while what there used to be. Like many won't remember what is was like to own a home and be happy about it, what it was like to have a job that paid the bills and left some money on the side for fun things for the kids.

The present deal on the table skirts the entitlement conundrums almost entirely: the one thing that has been pushed through is that Medicare providers would be hit if the soon to be erected Super Congress (how’s that for democracy?), a bipartisan committee that will formulate the next rounds of cuts, can't agree on those next rounds. Here’s wondering why and how they would agree on anything, let alone anything that actually benefits their voters.

We're on a road to nowhere, mostly because there's nowhere to go that we would like to go to. We don't like the options available, but they are the only options we have, even if we insist on denying it. All the options we have will lead us down the slope; there's no way up anymore.

What we could and arguably should do is to try and find ways to soften the blow, to improve the way we travel on the way down. To achieve that, we need to get rid of the people who now make the decisions. And that will be very hard. There are only two political parties in America, and they might as well be one. None represent the interests of the people. Not that it’s any different in Europe, mind you.

Once a society or country allows money to enter its politics, the outcome is inevitable: the money interests will come to rule that country. This is evident all over the western world, whether you look at the Greek, Irish and other EU bail-outs, or at the debt dungeon debate the US is presently digging its way into ever deeper, with the respective bills handed to the people and their children.

As we speak, and as we watch the wall-sized media coverage of the debt dungeon chasm, municipalities and counties are on the cusp of bankruptcy. Services will be cut across the board. That is our future.

A future that won't involve growth, but which be all about austerity and cutting back and outright poverty for rapidly increasing numbers of people. Just not for the politicians and their puppeteers, not for those who get to decide who will hurt the most.

That is the main issue today. Who are you going to let decide how bad your future will be? If you opt for Washington, anyone in Washington, or Brussels if you're in Europe, your future will hurt something bad. When it comes to that future of yours and, of your offspring, the debt dungeon debate is the wrong focus. There's nothing beneficial for you in there.

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'It’s All Cuts'
by Michael McAuliff, Sam Stein and Elise Foley - Huffington Post

Congressional leaders and President Obama on Sunday night announced they've cut a deal to avert a historic U.S. default, saying they have assembled a framework that cuts some spending immediately and uses a "super Congress" to slash more in the future.

The deal calls for a first round of cuts that would total $917 billion over 10 years and allows the president to hike the debt cap -- now at $14.3 trillion -- by $900 billion, according to a presentation that House Speaker John Boehner (R-Ohio) made to his members. Democrats reported those first cuts at a figure closer to $1 trillion. It was unclear Sunday night why those two estimates varied. The federal government could begin to default on its obligations on Aug. 2 if the measure is not passed.

The next round of $1.5 trillion in cuts would be decided by a committee of 12 lawmakers evenly divided between the two parties and two chambers. This so-called super Congress would have to present its cuts by Thanksgiving, and the rest of Congress could not amend or filibuster the recommendations. But if the super Congress somehow failed to enact savings, the measure requires automatic cuts worth at least $1.2 trillion. Those cuts would be split equally between military and domestic programs. Social Security, Medicaid and programs for the poor would be spared, but Medicare providers -- not beneficiaries -- would take a hit.

White House officials confirmed that there would not be an extension of unemployment benefits as part of the final package. The administration had insisted that an extension be part of the grand bargain it was negotiating with Boehner. But when those discussions fell apart, so too did efforts to ensure that unemployment insurance was part of a final package. A senior administration aide added that the president would push for an extension in the months, if not weeks, ahead.

Some observers scored one victory for the president -- the second round of cuts do not kick in until 2013, when the Bush-era tax cuts are set to expire. Having a fresh round of deficit reduction that is all cuts with no revenues could give the White House ammunition to end the tax cuts on wealthier Americans, as it failed to do last winter.

Though none of the leaders sounded pleased about the deal, they said they were relieved it may present a chance to avert default. President Obama seemed especially dissatisfied with the idea of the super committee, saying the leaders should have been able to accomplish all the cuts now. "Is this the deal I would have preferred? No," Obama said. "I believe that we could have made the tough choices required -- on entitlement reform and tax reform -- right now, rather than through a special congressional committee process."

The two Senate party heads also expressed qualified support for the deal. "Leaders from both parties have come together for the sake of our economy to reach a historic, bipartisan compromise that ends this dangerous standoff," Majority Leader Harry Reid (D-Nev.) said on the Senate floor Sunday night. "At this point I think I can say with a high degree of confidence that there is now a framework to review that will ensure significant cuts in Washington spending," said Minority Leader Mitch McConnell (R-Ky.) "We can assure the American people tonight that the United States of America will not for the first time in our history default on its obligations," McConnell added.

In spite of the guarded optimism, all sides will face quite a sales job in getting enough lawmakers in the middle to accept a deal. Liberals were extremely displeased with the final result of the talks, which began with Democrats saying there should be no strings attached to a debt limit increase that would enable the country pay its bills. Then they insisted that if deficit reduction was going to be linked to the debt limit, then closing loopholes and raising taxes on the rich had to be part of the deal.

They lost completely on both counts
, and House Republicans managed to pull the entire deal further and further to the right, even inserting a requirement into the agreement for a vote on a balanced budget amendment to the U.S. Constitution.

Both the Congressional Black Caucus and the Progressive Caucus in the House had called emergency meetings for Monday as details of the plan started to leak. They seemed likely to oppose the deal.
One top House aide said his boss would vote against the measure, and the aide predicted Minority leader Nancy Pelosi (D-Calif.) would not be eager to whip her members to get on board.\ "This is going to be close. I think in the end, the president and Nancy are going to have to twist arms, and I'm not sure how hard she'll work to do that," the aide said, noting that Pelosi still remembers the infamous TARP vote where she delivered 150 of her members but Boehner did not get 100 of his.

Many of Boehner's freshman Tea Party members also are likely to find the proposal tough to swallow, since many wanted no hike in the borrowing limit to begin with. They also wanted the passage of a balanced budget amendment to be a prerequisite for increasing the debt ceiling. Both sides can afford to lose members if 217 representatives can still back the plan.

Boehner's talk to his 240 members Sunday night had the greatest note of triumph. "Now listen, this isn’t the greatest deal in the world," he said, according to remarks his office sent out. "But it shows how much we’ve changed the terms of the debate in this town."

He also sounded a note of vindication. "There is nothing in this framework that violates our principles. It’s all spending cuts. The White House bid to raise taxes has been shut down," Boehner crowed. "And as I vowed back in May -- when everyone thought I was crazy for saying it -- every dollar of debt-limit increase will be matched by more than a dollar of spending cuts."

Notably, Pelosi was the only of the four congressional leaders not to pledge support for the plan. "I look forward to reviewing the legislation with my Caucus to see what level of support we can provide," she said in a statement.

A deal that found the lowest-common denominator
by Ezra Klein - Washington Post

Assuming no hiccups in the House -- and that might be a big assumption -- we’ve got a deal. The deficit-reduction side includes $1 trillion in cuts now, $1.5 trillion (or more) in deficit reduction later, and a vote on a balanced budget amendment. Meanwhile, it raises the debt ceiling by $900 billion immediately, and either $1.5 trillion (if the second deficit reduction package or a balanced budget amendment passes) or $1.2 trillion (if neither pass) later. Either way, the Treasury should have plenty of borrowing authority to get us to 2013.

Behind the deal is a creative way out of the impasse that’s held up the negotiations: how do you get "balanced approach" if Republicans refused to consider revenues? The solution that both sides seem to have settled on is to substitute defense cuts where taxes would otherwise have gone.

In the initial $900 billion in cuts, almost half will come from "security spending" (which includes defense, homeland security, veteran’s benefits, the State Department, etc). Defense is the big money there, and, according to the White House’s fact sheet, it will take a full $350 billion in cuts on its own. But the real hit comes in stage two: if the second round of deficit reduction isn’t signed into law, the "trigger" that will make automatic spending cuts absolutely savages defense spending.

Let’s stop there and talk about the trigger, as it’s arguably the most important part of the deal. In his remarks on Friday, President Obama said he would support a trigger if it was done in "a smart and balanced way." The implication was that it had to include tax increases as well as spending cuts, as a trigger with just spending cuts wouldn’t force Republicans to negotiate in good faith. The trigger in this deal does not include tax increases.

What it includes instead are massive cuts to the defense budget. If Congress doesn’t pass a second round of deficit reduction, the trigger cuts $1.2 trillion over 10 years. Fully half of that comes from defense spending. And note that I didn’t say "security spending." The Pentagon takes the full hit if the trigger goes off.

The other half of the trigger comes from domestic spending. But Social Security, Medicaid and a few other programs for the poor are exempted. So the trigger is effectively treating defense spending like it comprises more than half of all federal spending. If it goes off, the cuts to that sector will be tremendous -- particularly given that they will come on top of the initial round of cuts. Whether you think the trigger will work depends on whether you think the GOP would permit that level of cuts to defense.

If the trigger "works," of course, it’s never used. Instead, the bipartisan committee produces $1.5 trillion (or more) in deficit reduction, Congress passes their plan and the president signs it. But why should we believe that will happen? If Republicans and Democrats couldn’t agree on major deficit reduction this year, why is it going to be any easier in an election year?

The answer is supposed to be the trigger. Those cuts are meant to be so brutal that neither party will risk refusing a deal. But a deal means taxes, or at least is supposed to mean taxes. And Speaker John Boehner is already promising that taxes are off the table.

In a presentation to his members, Boehner says that the rules governing the committee "effectively [make] it impossible for Joint Committee to increase taxes." Specifically, he’s arguing that using the Congressional Budget Office’s "current-law baseline" makes tax increases impossible, as that baseline assumes the expiration of the Bush tax cuts, and so, if you touched taxes at all, you’d have to raise taxes by more than $3.6 trillion or the CBO would say you were cutting taxes and increasing the deficit.

Confused? That seems to be the point. Boehner is misleading his members to make them think taxes are impossible under this deal. But make no mistake: The Joint Committee could raise taxes in any number of ways. It could close loopholes and cap tax expenditures. It could impose a value-added tax, or even a tax on carbon. The Congressional Budget Office would score all of this as reducing the deficit under a current-law baseline. The only thing that wouldn’t reduce the deficit is going after part of the Bush tax cuts. That means they’re likely to go untouched in this deal.

That’s actually good news for...people who want to raise taxes. The Bush tax cuts will still be set to expire in 2012, which means that if Democrats get some revenue as part of this deal, they’ll be able to get more revenue if Congress gridlocks over the Bush tax cuts in 2012.

But that’s really a technicality. Boehner is promising that he’ll oppose any deal that includes revenue, and unless he decides to break his promise next year, that means the House is unlikely to pass any deal that includes revenue. So that leaves us with three options: 1) there’s no deal and the trigger goes off, 2) the Democrats agree to $1.5 trillion in further spending cuts alongside zero dollars in tax increases, or 3) Republicans agree to revenues.

The upside of this deal is that "the debt ceiling will cave in and Congress will create a global financial crisis for no reason" is not one of the potential outcomes. So that’s something.

The downside is that we actually haven’t come that far: we’re still pretending that a deal a few months from now will somehow be easier than a deal today, we’re moving to austerity budgeting -- note that neither unemployment insurance nor the payroll tax cut are extended -- while the economy remains weak, and we’re putting off the decisions about what to cut and how to handle taxes.

And that gets to the truth of this deal, and perhaps of Washington in this age: it’s all about lowest-common denominator lawmaking. There are no taxes. No entitlement cuts. No stimulus. No infrastructure. Less in actual, specific deficit reduction than there was in the Simpson-Bowles, Ryan, or Obama plans, and even than there was in the Biden/Cantor or Obama/Boehner talks. The two sides didn’t concede more in order to get more. They conceded almost nothing in order to get a trigger and a process, not to mention avoid a financial catastrophe.

There’s reason to be skeptical that a trigger and a process will do much to change these basic dynamics. We’ve now attempted to get a deficit-reducing grand bargain by yoking it to both a near-shutdown and a near-default, not to mention a series of negotiations, commissions, and senatorial gangs. None of it has been enough. And that’s because bipartisan commissions and terrible consequences have not been enough to convince Republicans to agree to revenues, and revenues are fundamental to large deficit-reduction compromise.

Perhaps this deal signals the end of the need to actually reach an agreement, however. If the Joint Committee fails, the trigger begins cutting spending. If negotiations over taxes fail, the Bush tax cuts expire and revenues rise by $3.6 trillion. Neither scenario is anyone’s first choice on policy grounds. But you can get to both scenarios without Republicans explicitly conceding to higher taxes or Democrats explicitly conceding to entitlement cuts in the absence of higher taxes. Politically, that’s the lowest-common denominator, and that might mean it’s also the only deal the two parties can actually make. But that’s because it’s the only deal that doesn’t require, well, making a deal.

Gerald Celente on US debt insanity: Collapse inevitable
by RT

The President Surrenders
by Paul Krugman - New York Times

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

And then there are the reported terms of the deal, which amount to an abject surrender on the part of the president. First, there will be big spending cuts, with no increase in revenue. Then a panel will make recommendations for further deficit reduction — and if these recommendations aren’t accepted, there will be more spending cuts.

Republicans will supposedly have an incentive to make concessions the next time around, because defense spending will be among the areas cut. But the G.O.P. has just demonstrated its willingness to risk financial collapse unless it gets everything its most extreme members want. Why expect it to be more reasonable in the next round?

In fact, Republicans will surely be emboldened by the way Mr. Obama keeps folding in the face of their threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling. Maybe it’s just me, but I see a pattern here.

Did the president have any alternative this time around? Yes.

First of all, he could and should have demanded an increase in the debt ceiling back in December. When asked why he didn’t, he replied that he was sure that Republicans would act responsibly. Great call. And even now, the Obama administration could have resorted to legal maneuvering to sidestep the debt ceiling, using any of several options. In ordinary circumstances, this might have been an extreme step. But faced with the reality of what is happening, namely raw extortion on the part of a party that, after all, only controls one house of Congress, it would have been totally justifiable.

At the very least, Mr. Obama could have used the possibility of a legal end run to strengthen his bargaining position. Instead, however, he ruled all such options out from the beginning. But wouldn’t taking a tough stance have worried markets? Probably not. In fact, if I were an investor I would be reassured, not dismayed, by a demonstration that the president is willing and able to stand up to blackmail on the part of right-wing extremists. Instead, he has chosen to demonstrate the opposite.

Make no mistake about it, what we’re witnessing here is a catastrophe on multiple levels.

It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn’t over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.

In the long run, however, Democrats won’t be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.

Muddying the Budget Waters With Social Security
by Tara Siegel Bernard - New York Times

All the political wrangling over the budget in Washington has been focused on one theme: how much the government should cut and when those cuts should take effect.

But for all of the difficulty lawmakers are having now, their hardest decisions may come this fall when they do battle over which government programs to cut back. And one program that has already been put on the table for discussion is Social Security, even though it has not contributed to the budget deficit.

There is no question the program needs to be tweaked so it can remain solvent for decades to come. And experts say the problem is not that difficult to solve, as long as it is dealt with relatively soon.

The proposed changes would have tinkered with one of the most beloved features of Social Security: the cost of living adjustment, which helps benefits keep pace with inflation so the elderly maintain their purchasing power. The proposed changes would link benefits to a new measure of inflation — one that is projected to rise more slowly than the current index.

"It amounts to a benefit cut," Alicia H. Munnell, the director of the Center for Retirement Research at Boston College, said.

The proposal, which emerged as a potential bargaining chip earlier in the budget debate, caused Social Security preservationists to cringe. And that is a big reason they argue that any changes should not be fast-tracked as part of the broader deficit debate.

If no changes are made, the program’s reserves are now projected to be exhausted in 2036, a year earlier than last year’s projection. Then the taxes collected would be enough to pay only about 75 percent of benefits through 2085, according to the latest annual report from the agency’s trustees.

The shortfall can largely be attributed to demographic shifts. The coming wave of baby boomers will strain the system, while the number of workers paying into the system is declining. On top of that, people are living longer, and the weak economy is not helping matters.

Changing the cost of living adjustment is just one of several ways to bolster Social Security’s finances. Suggestions have included gradually increasing the retirement age or raising the amount of income subject to Social Security payroll taxes.

The Obama administration’s deficit-reduction commission proposed switching to the new type of index because, members said, it would be more accurate. Unlike the current measure, it takes into account that people tend to change their buying habits when prices rise, substituting cheaper items for more expensive ones. If, for instance, the price of apples goes up, people may instead buy pears, if they are cheaper. The current index assumes that if the price of apples go up, people will just buy fewer apples.

But there is a question of whether the elderly and disabled can make the same substitutions as working people. "If you are down to paying your rent and your food, and the price of your food goes up, you probably just eat less," Ms. Munnell said.

In addition, the slower rise in benefits would compound over time. That means the older that retirees grew, the bigger the pinch they would feel, especially people who depended heavily on the program. About 43 percent of single people and 22 percent of married couples rely on the benefits for more than 90 percent of their income, the Social Security Administration says. More than half of couples and 73 percent of singles draw more than half their income from the program.

So how much would this cost? Over the last decade or so, the "chained CPI-U" — that is the name of the new proposed index — has risen 0.3 percentage points a year less than the measure used now, according to Stephen Goss, the chief actuary at Social Security. And he expects that would continue in the future.

Consider a worker who retired at 65. After 10 years, the worker would receive 3.7 percent less in benefits than he would receive under the current system; after 20 years, 6.5 percent; and 9.2 percent after 30 years, according to Mr. Goss’s calculations. (He ran the numbers in response to a request by Representative Xavier Becerra, a Democrat from California who is the ranking member of the Ways and Means subcommittee on Social Security).

Let’s assume the retiree had a monthly benefit of $1,261, or $15,132 annually. But as he aged, his benefits would not rise as quickly as they would have under the current system. At 75, he would receive $560 less a year under the new system compared with the current one. At 85, he would receive $984 less, and, at 95, he would receive $1,394 a year less. These changes would resolve about 23 percent of the program’s current shortfall, according to Social Security’s actuaries.

But what is most irksome to some critics is that the proposed index has been called "more accurate." It may be more accurate for the broader population, they say, but that doesn’t necessarily hold for retirees. (It would, however, save $112 billion over 10 years, according to the Congressional Budget Office).

If accuracy, and not cost savings, is the goal, they suggest further analysis of an experimental "elderly" index that accounts for the fact that older people spend a greater share of their budget on medical care. That index is estimated to increase about 0.2 percentage point more each year than the broader indexes. In fact, Ms. Munnell said that moving to the elderly index — and adding the mechanism to account for substituting cheaper items when prices rise — might make more sense.

Referring to the chained CPI-U index, Ms. Munnell said, "It’s not the worst proposal that could be put in place," especially when considering that other ideas, like providing an increase in benefits at age 85, could offset some of the reduction. "It’s just that people aren’t candid when they talk about it. That’s the real problem."

And that is the issue hanging like a dark cloud over the broader discussion to bolster Social Security, especially in such a politically charged atmosphere.

Many people misunderstand how the program operates. Payroll taxes stream into the trust fund that is used to pay current retirees’ benefits. When there is a surplus, that money is invested in a special type of Treasury bond that pays interest to the trust fund. At the end of last year, the trust fund had about $2.6 trillion. And though last year was the first year since 1983 that the fund paid out more than it received in tax revenue, it still continued to grow because of the interest accrued — and it is estimated to continue to grow through 2022.

Since the money in the trust fund is held in Treasury securities, taxes collected are essentially being lent to the federal government to pay for whatever it wants (and this allows the government to borrow less from the public). That is where some of the confusion comes into play about how Social Security is used to pay for things that are unrelated to the program. But it is really no different from China lending the government money by investing in Treasuries.

"Social Security does not, and cannot by law, add a penny to the federal debt," said Nancy Altman, co-director of Social Security Works, an advocacy organization that promotes the preservation of the program. "It, by law, cannot pay benefits unless it has sufficient income to cover the cost, and it has no borrowing authority to make up any shortfall."

And, she added, it is not in crisis. "Its long-range funding shortfall should be dealt with on its own legislative vehicle, separate from deficit-reduction talks and after those talks are concluded," she added.

The budget proposal from the bipartisan group of Congressmen known as the Gang of Six and the president’s deficit-cutting commission did state that Social Security should be reformed for its own sake — and that any savings must go toward solvency. There are many ideas on how to achieve that balance. Here’s hoping our leaders will evaluate them on their own merit.

America is merely wounded, Europe risks death
by Ambrose Evans-Pritchard - Telegraph

We have a glimmer of hope. The key indicators of the US money supply are at last firing on all cylinders, a dramatic turn for the better that would normally signal recovery or even a mini-boom within the next six to 12 months.

Needless to say, these are not normal times. The US and EU debt crises are feeding on each other in a dangerous synergy, with fears of a fiscal "sudden stop" in Washington causing global risk aversion and aggravating tremors in the Spanish and Italian bond markets. It is a pre-taste of the "catastrophe" predicted by the Fed’s Ben Bernanke if politicians fail to control their passions.

And yet, data from the St Louis Fed show that America’s M2 money supply grew at a 6.4pc annual rate in the second quarter, accelerating to 12.2pc in June. The compound annual rate of change has exceeded 40pc over recent weeks.

The broader M3 indicator (including large savings deposits) is growing at the optimal rate of around 5pc. It has been an uncannily accurate lead indicator at each twist and turn of our economic drama over the past five years, and is telling us now that the Fed’s kindling wood has at last begun to ignite the damp coals of the US financial system. There is no longer a 1930s liquidity trap. We can infer that the housing market may be nearing the end of its deep slump.

The economy is curing itself in time-honoured fashion. Whether this monetary cure will be allowed to run its course depends on politicians in Washington, Berlin, Rome and Madrid. My recurring nightmare ever since the Western debt edifice began to crumble four years ago is that the denouement would track the events of mid-1931, when leaders failed to reform a destructive fixed exchange system (Gold Standard) and the fuse finally detonated on Europe’s banking system. It was when political blunders turned recession into the Great Depression, and ideology intruded with a vengeance.

The narrative of 1931 is already well-known to readers. France sabotaged a rescue of Vienna’s Credit Anstalt because of strategic disputes with Germany. This set off a financial chain reaction. Frightened markets tested the weak links of the Gold Standard. They withdrew funds from Britain after naval ratings "mutinied" over pay cuts. Contagion spread back to New York. By October 1931 the international system had collapsed, though the full horror did not become evident until the next year. A string of countries retreated into variants of autarky, or fascism, or both. Communists and Nazis together won more than half the seats in the Reichstag election of July 1932.

It is far from clear that the international order is more secure today than it was in the seemingly calm days of May 1931, so one cannot lightly forgive the reckless brinkmanship on Capitol Hill over recent days. I write before knowing the outcome of weekend talks but we can rule out any form of US default. President Barack Obama can invoke the 14th Amendment in extremis, or issue a Bush-style "Catastrophic Emergency" directive.

The more plausible risk is that the debt ceiling is not raised, forcing a ferocious fiscal squeeze to avoid default. Washington would have to slash spending at an annual rate equal to 11pc of GDP, and do so in a disorderly fashion that would shatter confidence. There are historical cases of respectable growth following fiscal contractions, not least in Britain after 1932 and 1993, but the scale of cuts needed to close America’s double-digit deficit at a stroke is of an entirely different order. You do not have to be Keynesian to see the dangers of such a violent shock in an over-leveraged economy.

If cuts continued into September without either side blinking, the knock-on effects might rapidly set off serial defaults by states and an implosion of the $2.5 trillion municipal bond market. The bankruptcy saga of Jefferson County, Alabama, is a foretaste. Maryland, Virginia, South Carolina, New Mexico and Tennessee have all be put on negative watch. California has had to raise an emergency $5bn loan. Nevada is spending half its tax-take on debt service costs, and Michigan 40pc. These states are hanging on by their fingernails.

Yet if disaster is an outside risk in America, it is an odds-on likelihood in Europe. It is already clear that the latest EU summit deal is too little to stop a spiralling crisis in confidence, let alone acknowledge that North and South have diverged too far to share a currency union. Spanish and Italian yields are back to pre-summit danger levels, and might fly out of control at any moment unless a lender-of-last resort steps in to guarantee the market.

The European Central Bank still refuses to do so, and the EFSF bail-out fund cannot legally do so until all national parliaments ratify the summit deal to widen its remit. Yet these chambers have shut down for the summer. Europe’s leaders have gone on holiday. The €440bn EFSF is an any case too small. The bond vigilantes broadly agree that the EFSF needs €2 trillion in pre-emptive firepower to forestall a twin crisis in Italy and Spain, though quite how France might pay for this without being drawn into the maelstrom itself is an open question.

Germany’s "triangulating" finance minister Wolfgang Schauble has once again over-promised in Brussels, only to retreat under pressure in Berlin. There will be no "carte blanche" for EFSF bond purchases. So will Germany do whatever it takes to uphold monetary union in its current form, or will it not? We are no wiser.

As the details dribble out from the summit deal, we can now see that Greece will enjoy no debt relief despite having been pushed into default. Citigroup said the net effect will increase Greece’s debt by a further 4pc of GDP to more than 160pc next year. Since this is obviously untenable, Greece will need a third rescue. The EU has brought about the first sovereign default in Western Europe since the Second World War and set a fateful precedent without actually resolving the Greek problem. This is the worst of all worlds.

Moody’s cited the summit terms as a key reason why it put Spain on negative watch last week. "Pressures are likely to increase still further following the official package for Greece, which has signaled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits," it said. EU ineptitude - or rather, German, Dutch and Finnish unwillingness to face up to the implications of EMU - have raised the risk of a traumatic August crisis in Italy and Spain. EU leaders are bringing about exactly what they pledged to avoid.

The US cannot insulate itself against the consequences of Europe’s elemental EMU blunder, but it can mitigate the effects by restoring order in its own political house. The Fed has already bought a degree of insurance by gunning the money supply in advance. The executive institutions of the US government are viable and still functioning. We can only pray that at least one half of the Atlantic system holds relatively firm. If both go down together, buy a shotgun and prepare for 1932.

Optimism on Wall St. Tempered by Hurdles
by Eric Dash - New York Times

After an anxious weekend spent glued to their BlackBerrys and iPhones, bankers and investors breathed a sigh of relief Sunday as lawmakers forged an agreement to raise the nation’s debt ceiling ahead of Monday’s trading.

The doomsday discussions that dominated conversations of late quickly faded as political leaders in Washington first signaled a compromise was close, then finally announced a deal on Sunday night. Wall Street was hesitant to declare total victory, though, because lawmakers still faced the hurdle of getting a bill through both chambers of Congress.

The optimism was further tempered by the broader economic challenges that continue to confront the United States and global markets. "The debt ceiling is out of the way, but the current picture is far from rosy," said Ajay Rajadhyaksha, head of United States fixed-income and securitized strategy at Barclays Capital. "Economic growth is so much weaker than many people thought just six months ago, and we are heading into a period of austerity."

Analysts and investors warned that the markets could remain turbulent in the weeks ahead. Besides sluggish economic growth, the threat of a ratings downgrade on United States debt and Europe’s continuing financial troubles loom.

Still, the first signs of market reaction to the deal were positive. Stock markets in Japan and South Korea picked up steam as the deal was announced by President Obama, and they rallied close to 2 percent by midday. Futures contracts on the American stock market also jumped, indicating that Wall Street may recoup some of the past week’s losses once trading starts in New York on Monday.

Gold, a traditional haven that struck record highs amid the uncertainty of the past weeks, fell 1 percent to $1,610 an ounce. Oil rose about $1, to $97 a barrel. In the currencies markets, the dollar gained against the yen and the Swiss franc after falling last week. It was barely changed against the euro.

For Wall Street executives, it was a roller-coaster weekend. Although optimistic that Congress would reach an 11th-hour agreement, bankers had been planning for the worst in case a deal was not struck. But there was little of the market panic that in the 2008 financial crisis had bankers traders stuck at their desks for much of every weekend. Citigroup, Goldman Sachs and Morgan Stanley executives were monitoring the news from home.

"Everybody still has the fireman boots and fireman hat on, but there is a significant sigh of relief these guys are moving in the right direction," said one senior Wall Street executive, who spoke on condition of anonymity on Sunday afternoon as the deal was coming together. At JPMorgan Chase, Jamie Dimon huddled with his senior managers at the bank’s Park Avenue headquarters. Bank executives also set up a war room at an operations center in Columbus, Ohio, to react to customer issues stemming from the political developments — just as they did for natural catastrophes like Hurricane Katrina.

By Sunday night when the deal had been announced, lobbyists and financial executives were almost gleeful. "This is huge," said Scott E. Talbott of the Financial Services Roundtable, an industry lobbying group. "It provides much-needed certainty during an uncertain economic time." Mr. Talbott said his group was still reviewing details of the deal, but would likely move forward with a lobbying blitz over the next two days. "We will light it up with Hill visits, joint-letters, and encourage our member companies to consider contacting members of Congress, too," he added.

Indeed, BlackRock, the giant asset manager, issued a statement urging lawmakers to take prompt action. "Every day of delay in resolving this situation will erode economic confidence, jeopardize job creation and undermine the credibility of the United States in global financial markets," it said.

With the deal yet to be approved by lawmakers, Chase announced that it would temporarily waive overdraft fees and other account charges for Social Security recipients, military workers and other federal employees if their government-issued checks were not posted. Last week, the Navy Federal Credit Union pledged that it would advance pay to active military and civilian defense workers in the event of a breach of the debt ceiling.

Investors were hopeful that approval of the deal by Congress would cause the markets to rebound. after tumbling 3.9 percent last week. "It isn’t a ‘grand bargain’ to cut the deficit — that would have been great for the market," said Byron Wien, the vice chairman of Blackstone Advisory Partners. But he said that the current blueprint, if passed, at least deals with the debt ceiling and that the government’s bills will be paid. "This is a positive, but there was so much negative momentum going into the weekend," he added.

Indeed, some investors cautioned that failure to pass the bill would be catastrophic, recalling how the market dropped precipitously in 2008 when Congress initially voted down a huge bailout package for the nation’s banks. "You are looking at Dow 10,000 if this doesn’t get resolved in a very short period of time," said M. Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Okla. That would be a 21 percent drop from where the Dow Jones industrial average closed on Friday.

Even as attention has shifted to the domestic fiscal problems, the European Union financial health continues to deteriorate despite a second bailout package it put in place for Greece last month in an effort to stem its sovereign debt crisis. In one sign of worsening trouble, the spreads on credit-default swaps on the debt of Italy and Spain are nearing their widest level of the year. Investors are betting that those countries are becoming more likely to default on their debts.

Meanwhile, new data released on Friday showed the United States economy had experienced a significant slowdown during the first half of 2011, underscoring the weakness of the recovery. And the political mayhem in Washington has done little to bolster consumer confidence, a crucial economic engine. Daniel J. Arbess, manager of the Xerion fund at Perella Weinberg Partners in New York, said the fiscal problems in the United States and Europe were "chronic and will be persisting" for some time. "Investors need to get used to them," he said. "No single episode of tension is the ultimate one, nor is any patch the ultimate solution."

From Big Spending to Big Cuts, While the Economy Stalls
by Binyamin Appelbaum and Catherine Rampell - New York Times

The nation’s political leaders agreed on Sunday to spend and invest less money in the American economy, a step that economists said risks the reversal of a faltering recovery, in the hope of improving the nation’s long-term prosperity.

The emerging outlines of a deal to cut spending by at least $2.4 trillion over 10 years, with a multibillion-dollar down payment later this year, would complete an about-face in the federal government’s role from outsize spending in the immediate aftermath of the recession to outsize cuts in the future.

Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too. "Unemployment will be higher than it would have been otherwise," Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. "Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise." He added, "We have a very weak economy, so withdrawing more spending at this stage will make it even weaker."

The agreement would end months of single-minded debate about the federal debt that has diverted Washington’s attention from broader economic questions, and indeed threatened the health of financial markets as investors watched and wondered whether the United States might really decide, quite voluntarily, to leave some bills unpaid. If both chambers of Congress give their approval by Tuesday night, the government will have averted the danger of a self-inflicted financial crisis, but only at the expense of public confidence in its ability to address the nation’s broader economic malaise.

The looming challenges include a renewal of the standoff over the federal budget at the end of September, and the scheduled expiration at the end of 2012 of the broad tax cuts passed during the administration of President George W. Bush. President Obama said Sunday night that the deal "begins to lift the cloud of debt and the cloud of uncertainty that hangs over the economy." He added that political leaders now "should be devoting all of our time" to the nation’s broader economic challenges.

But economists say the deal could complicate that task. There is broad agreement that the United States needs to pay down its debts, but most economists say the government should have waited a year or more for the economy to strengthen. "We sure missed a big window of opportunity to reduce our debt in those strong years when asset prices were booming," said Carmen Reinhart, senior fellow at the Peterson Institute for International Economics and co-author of "This Time Is Different," a history of debt crises. "Instead we’re stuck trying to do it now, when the economy is so weak."

The economy grew at an annual rate of only 0.8 percent during the first half of the year. Millions of homes remain empty. Twenty-five million Americans could not find full-time jobs last month. And even without the debt ceiling deal, federal spending is in rapid decline. Little remains of the federal stimulus money. Payroll tax cuts are set to expire at the end of the year.

The combination of the budget-cutting government’s plans and the grim economic news is likely to increase pressure on the Federal Reserve, which will hold a scheduled meeting on Aug. 9, to reconsider its declaration earlier this summer that it has done enough to aid the economic recovery.

After four years of extraordinary efforts to promote growth, including a continuing campaign to hold down interest rates for at least a few more months, officials at the central bank say they are reluctant to do more. But the Fed’s chairman, Ben S. Bernanke, said if the economy deteriorates and there is a growing risk of deflation or a broad decline in prices, policy makers could act.

The Fed’s options include pledging to maintain low interest rates for a specified period of time or increasing its holding of government debt in a bid to further reduce rates. "It’s difficult to find a textbook to tell you what should you do now," said Torsten Slok, chief international economist at Deutsche Bank.

The Republican authors of the debt ceiling deal say that cutting the size of government will increase economic growth down the road because federal borrowing soaks up money otherwise available to private businesses and federal spending distributes that money inefficiently.

Some conservative economists argue that even the immediate impact of a deal could be positive. Classic economic theory holds that people respond to the growth of government by spending less of their own money, because they assume that taxes will increase. A reduction in the federal debt therefore should encourage people to spend more of their money.

"From an accounting point of view, it seems obvious that you would reduce G.D.P. if you cut government spending," said Randall Kroszner, an economics professor at the University of Chicago and a former Fed governor appointed by Mr. Bush. "But the key is really the impact on consumption and investment. If you reduce government spending and if people think that reduces uncertainty about the tax burden down the line, they may be more comfortable with spending."

Economists who have examined the historical record, however, say the evidence is clear that the immediate impact of spending cuts outweighs any short-term benefits to confidence. "When you look at the history of these things, the finding is that we shouldn’t be kidding ourselves," said Paolo Mauro, chief of the fiscal affairs department at the International Monetary Fund and the editor of a book of case studies, "Chipping Away at Public Debt." "When you do fiscal adjustment in the near term, it does have an adverse impact on economic growth."

Northrop Grumman, a major military contractor, is a case in point. The company said Wednesday that second-quarter sales were depressed by the confusion in Washington. "Uncertainties surrounding the debt ceiling and future defense budgets caused our customers to move more slowly and spend more conservatively," the chief executive, Wesley G. Bush, told analysts. "We did not see the recovery in spending that one might have expected."

The deal on the table on Sunday, however, is likely to include reductions in defense spending. The broader impact depends on the details. The cuts stretch over a decade, and the White House has pushed to limit the impact by delaying the largest cuts, giving the economy time to recover. And the value of federal spending also varies widely. Some spending is wasteful. "Cutting infrastructure spending is generally thought to be a bad idea, but if that money was being spent on a bridge to nowhere, it’s not so concerning," Mr. Mauro said.

Another feature that could limit the economic impact is an agreement to negotiate more than half of the cuts over the next several months. Ms. Reinhart said countries often did the greatest economic damage by agreeing on cuts at the 11th hour, in the desperate rush to complete a deal, without sufficient attention to the particulars. "That’s when politicians make the worst decisions often — they cut the things that would yield short-term revenues," Ms. Reinhart said. "They cut discretionary spending in the ways that if you really thought about it, they wouldn’t do it that way."

Running out of options
by Buttonwood - Economist

Governments in the rich world have painted themselves into a corner

Economic policy in the developed world over the past 25 years has followed one overriding principle: the avoidance of recession at all costs. For much of this period monetary policy was the weapon of choice. When markets wobbled, central banks slashed interest rates. A by-product of this policy was a series of debt-financed asset bubbles. When the last of those bubbles burst in 2007 and 2008, the authorities had to add fiscal stimulus and quantitative easing (QE) to the policy mix.

The subsequent huge rise in budget deficits was largely the result of a collapse in tax revenues that had been artificially inflated by the debt-financed boom. Britain and America ended up with deficits of more than 10% of GDP, shortfalls that were unprecedented in peacetime.

Those deficits may have been necessary to avoid a repeat of the Depression. Economists will probably still be debating this issue in 75 years’ time, just as they still discuss whether Franklin Roosevelt’s New Deal programme was effective in the 1930s. But the "shock and awe" approach to Keynesian stimulus has an unfortunate consequence. Any decline in the deficit, even to a still whopping 8% of GDP, acts as a contractionary force on the economy: either the government is spending less or taxing more.

As a result governments are reluctant to cut the deficit too quickly for fear of sending their economies back into recession. But unless there is a rapid recovery, the debt will keep piling on, making the ultimate problem harder to solve.

Turning to monetary policy, interest rates are 1.5% or below in most of the developed world and are negative in real terms (the Bank of England kept rates at 2% or more for the first 300 years of its existence). In a normal recovery central banks would be looking to increase rates from crisis levels by now. But high debt ratios (particularly in the household sector) make central banks very uneasy about raising interest rates for fear of ushering in another round of the credit crunch.

With the big exception of the European Central Bank, most have repeatedly postponed the moment at which monetary policy is tightened. The parallels with Japan, where interest rates have been at rock-bottom for a decade, are striking.

As for QE, it is hard to tell how successful it has been as a strategy in reviving the economy although it certainly seems to have helped to prop up equity markets. Central banks seem reluctant to push it much further at the moment. But there is no suggestion that the economy is strong enough for them actively to unwind the policy by selling assets back to the markets.

In all three cases the story is the same. Governments and central banks have thrown a lot of stimulus at the economy and the result has been a fairly sluggish recovery. They have painted themselves into a corner. They cannot go forward, in the sense that there is little political or market appetite for more stimulus. But it is also hard for them to go back.

Withdrawing stimulus is not just risky economically, but hard politically, too. In Britain a sluggish second-quarter growth rate of 0.2% has led to talk that the coalition government needs to slow the pace of its austerity programme. But if you actually look at the data, the government has barely begun its deficit-cutting work. In the first three months of the fiscal year public spending is £5.2 billion ($8.5 billion) higher than in the same period of 2010-11, or £3.6 billion higher if interest payments are excluded.

An increase in joblessness, leading to higher benefit payments, is not the cause: the unemployment rate is lower than it was a year ago. A rise in value-added tax may have eaten into consumer demand (tax revenues are £5.3 billion higher than in the same period of 2010-11) but VAT also rose in January 2010 and GDP jumped by 1.1% in the second quarter of that year.

The danger for Britain is not just that its deficit-cutting strategy may have an adverse effect on growth. It is also that sluggish growth may prevent it from cutting its deficit significantly. Tim Morgan of Tullett Prebon, a broker, calculates that if the British economy grows at 1.4% annually, half the expected rate, the budget deficit will still be more than 8% of GDP in 2015.

In a sense, the bill has come due for the past 25 years. A policy of avoiding small recessions has resulted in the biggest downturn since the 1930s. Public finances turned out to be weaker than politicians thought. As a result, they have used up all their ammunition tackling the current crisis. Governments in the rich world will have very few options left if the economy weakens again. 

Debt Ceiling Impasse Rattles Short-Term Credit Markets
by Nelson D. Schwartz and Azam Ahmed - NYT Dealbook

The reverberations of Washington’s impasse over a debt deal are already being felt in the short-term credit markets, a key artery of the economy that daily supplies trillions of dollars of credit.

Over the last week, big banks and companies have withdrawn $37.5 billion from money market funds that invest in Treasury debt and other ultra-safe securities, the biggest weekly drop this year. Meanwhile, in the vast market for repurchase agreements, in which many financial firms make short-term loans to one another, borrowers are beginning to demand higher yields.

These moves underscore how companies and big financial institutions are beginning to rethink their traditional view that notes issued by the United States Treasury are indistinguishable from cash, even though many experts say they think it is unlikely that the government would miss payments on its obligations. The $37.5 billion drop, reported Thursday in a weekly survey by the Investment Company Institute, echoed what other analysts were seeing.

In the first three days of this week, investors pulled $17 billion from funds that invested only in government securities, a reversal of the daily inflows of $280 million for much of July, said Peter Crane, the president of Crane Data, which tracks money market mutual funds. "It’s big, no doubt about it," he said. "Seventeen billion isn’t a run, but it’s definitely indicative that investors are shifting their assets. If this were to continue for another week or two, it would be very disturbing."

Though lawmakers have been clashing all week on proposals to cut the deficit and raise the debt limit ahead of an Aug. 2 deadline set by the Treasury Department, bond markets have largely shrugged off the risk of a default or a downgrade of the Washington’s AAA credit rating.

Interest rates on longer-term Treasuries have held steady, but the yield on notes coming due next week, after the deadline, has moved sharply higher in recent days. The yield on Treasury bills coming due Aug. 4 jumped five basis points to 15 basis points, a significant move for a security that carried a yield close to zero earlier this month, said Jim Caron, head of interest rate strategy at Morgan Stanley.

"It’s a tell-tale sign of something that could reverberate if it spreads to other markets, and all the uncertainty with the debt ceiling is the functional equivalent of a tightening," Mr. Caron said. "I don’t think there is a default risk at all but the market is saying it’s not going to take any chances."

While money market fund managers say they are not seeing a sizable wave of redemptions yet, they are setting aside more cash, leaving it at custodial bank accounts in case investors demand their money back. At Fidelity, the Boston-based firm that has $442 billion in money market assets, managers are avoiding Treasury bills that come due on Aug. 4 and Aug. 11, however unlikely a technical default may be.

"We are positioning our portfolio to respond to a downgrade or a default and we are positioning the fund to respond to redemptions," said Robert Brown, president of money markets at Fidelity. Mr. Brown would not say how much cash was being kept at hand, but said "it’s a higher balance than one would expect to see."

In the commercial paper market, where companies raise funds for their short-term borrowing needs, buyers are also seeking shorter-term paper. In the last week, investors have shown signs of wanting quick access to their money, with financial borrowers raising on Wednesday only $1 million in notes that come due in 81 days or more, according to the Federal Reserve. That is down from $479 million on July 22.

At the same time, the amount of commercial paper issued with a duration of just one to four days rose to $920 million, from $771 million. "Investors are scrambling to bolster their liquidity profile," said Chris Conetta, head of global commercial paper trading at Barclays Capital. "They understand that a default or downgrade could be a big, systemic event."

In the repurchase market, known as the repo market, borrowers take loans and in exchange hand over a little more than the equivalent loan amount in securities. Because of their risk-free status, Treasuries are highly favored as collateral, estimated to account for about $4 trillion in the repo markets.

The fear is that if the United States credit rating drops, the value of those treasuries could respond in kind. Borrowers would then have to post more collateral to obtain their loans, effectively raising the cost of borrowing. That could ripple into the broader market, raising interest rates on all types of loans, analysts warn.

"The repo market is a pressure point because it can have an impact on overall credit availability, which bleeds through to mortgage rates," said Robert Toomey, managing director at the Securities Industry and Financial Markets Association. "Treasuries become a little less attractive if they are more expensive to finance."

The overnight repo rate, which started the week at about three basis points, was about 17 basis points Thursday evening, according to Credit Suisse. That means that to finance $100 million overnight in the repo market it would now cost about $472 per day, up from about $83 on Monday.

"It’s a bigger deal than a lot of people recognize," said Howard Simons, a strategist at Bianco Research, a bond market specialist. "If you downgrade the securities you have to put more up for collateral and that affects pretty much everybody out there who has held these in reserve. I don’t care if you’re a bank, insurance company, exchange or clearinghouse."

To be sure, most observers say the ripples in the repo market will not be anything like those felt in the fall of 2008, when creditors lost faith in the ability of banks to pay back their short-term loans. That caused a problem for companies like General Electric, which struggled to finance its daily operations as a result. Back then, the sharp drop-off in repo lending helped bring the financial system to its knees.

"I think people are looking at the U.S. as the cleanest shirt in the dirty laundry pile," said Jason New, a senior managing director at GSO Capital Partners. "To me, the downgrade is not dropping a boulder in a still lake. This is dropping a pebble, but nevertheless there are still ripples."

Jobs Deficit, Investment Deficit, Fiscal Deficit
by Laura D'Andrea Tyson - New York Times

Like many economists, I believe that the immediate crisis facing the United States economy is the jobs deficit, not the budget deficit. The magnitude of the jobs crisis is clearly illustrated by the jobs gap – currently around 12.3 million jobs.

That is how many jobs the economy must add to return to its peak employment level before the 2008-9 recession and to absorb the 125,000 people who enter the labor force each month. At the current pace of recovery, the gap will be not closed until 2020 or later.

The Hamilton Project, the Brookings Institution

History suggests that recovery from a debt-fueled asset bubble and ensuing balance-sheet recession is long and painful, with significantly slower growth in gross domestic product and significantly higher unemployment for a least a decade. Right now it looks as though the United States is following this pattern.

The jobs gap is primarily the result of the dramatic collapse in aggregate demand that began with the financial crisis of 2008. Even with unprecedented amounts of monetary and fiscal stimulus, the recovery that began in June 2009 has remained anemic, because consumers, the major driver of private demand, have curbed their spending, increased their saving and started to deleverage and reduce their debt — and they still have a long way to go.

As I asserted in my last post (and many other economists, including Lawrence Summers, Alan Blinder, Christina Romer, Peter Orzsag and Robert Shiller, have made this point, too), the jobs gap warrants additional fiscal measures to increase private-sector demand and promote job creation.

Sadly, current signals from Washington indicate that such measures will not be taken.

Instead, the risk grows that large, premature cuts in government spending will reduce aggregate demand, will tip the economy back into recession and drive the unemployment rate back into double digits.

Even if no budget deal is reached and no major spending cuts are made in the near future, there is now a serious risk that the rating agencies will downgrade government debt because of the political stalemate over a long-run deficit reduction plan. That would almost surely produce higher interest rates that could sink the economy into recession again.

Although the jobs gap and the high unemployment rate are the immediate problems in the American labor market, they are not the only ones. And there is no sign that the budget negotiations in Washington are going to address these other problems, either.

Even before the onslaught of the Great Recession, the labor market was in serious trouble. Job growth between 2000 and 2007 was only half what it had been in the preceding three decades.

Bureau of Economic Analysis, Bureau of Labor Statistics, McKinsey Global Institute

Productivity growth was strong, but far outpaced compensation growth. Between 2002 and 2007, productivity grew by 11 percent, but the hourly compensation of both the median high-school-educated worker and the median college-educated worker fell.

Lawrence Mishel and Heidi Shierholz, Economic Policy Institute

During the same period, the real median income for working-age households declined by more than $2,000. The 2002-7 recovery was the only American recovery on record during which the income of the typical working family dropped.

Lawrence Mishel and Heid Sheirholz, Economic Policy Institute

And despite the recovery, job opportunities continued to polarize. Employment grew in high-education, high-wage professional technical and managerial occupations and in low-education, low-wage food-service, personal-care and protective-service occupations; employment fell in middle-skill, white-collar and blue-collar occupations. The drop in middle-income manufacturing jobs was especially precipitous.

Bureau of Labor Statistics, National Bureau of Economic Research, McKinsey Global Institute

To fashion the appropriate policy responses to these long-term structural problems in the labor market, it is first necessary to understand their causes. The key contributors are three:

    1. Skill-biased technological change that has automated routine work while increasing the demand for highly educated workers with at least a college education, preferably in science, engineering or math.

    2. Globalization or the integration of labor markets through trade and more recently through outsourcing.

    3. The declining competitiveness of the United States as a place to do business.

Recent studies by Michael Spence and Sandile Hlatschwayo (discussed last week in Economix by Uwe Reinhardt) and by David Autor describe how technological change and globalization are hollowing out job opportunities and depressing wage growth in the middle of the skill and occupational distributions.

A widely cited commentary by Andrew Grove, former chief executive of Intel, and a prize-winning article by Gary Pisano and Willy Shih make similar arguments.

Many of the workers and jobs adversely affected by technological change and globalization are in the tradable goods sector, primarily in manufacturing. Nor is the United States labor market the only one to be affected by these forces: the polarization of employment opportunities is also occurring in the other advanced industrial countries.

Many of them, like Germany, are doing something about it. The United States is not. According to a recent McKinsey study, the United States is becoming a less attractive place to locate production and employment compared with many other countries.

McKinsey Global Institute

A newly published study by the Information Technology and Innovation Foundation reaches a similar conclusion. The United States is underinvesting in three major areas that help a country create and retain high-wage jobs: skills and training of the work force, infrastructure, and research and development.

Spending in these areas currently accounts for less than 10 percent of all federal government spending, and this share has been declining over time. And that’s despite the fact that the borrowing costs of the federal government have been near historic lows and much lower than the returns on economically justifiable investments in these areas.

Such investments fall into the "non-security discretionary spending" category of the federal budget, the category in line to be cut to historic lows to reduce the government deficit over the next decade.

In my previous Economix post, I said a budget deal should pair fiscal measures aimed at job creation now with a credible plan to reduce the deficit gradually and that both should be passed at once as a package. I also urged that the plan include an unemployment rate target that would postpone serious deficit-reduction measures until the target had been achieved.

I also think the plan should include a separate capital budget that distinguishes government spending on education, infrastructure and research as investments with committed revenues over several years. A capital budget would close the investment deficit in those areas that strengthen American competitiveness and promote high-wage job creation. None of the budget plans currently under debate include a separate capital budget.

The labor market is suffering from two problems: an immediate jobs gap, primarily the result of inadequate demand, and a long-term shortfall in rewarding employment opportunities for American workers, primarily the result of structural forces.

As a result of these forces, even when demand has recovered, many of the good jobs lost during the last decade will not be replaced by new good jobs without significant public investments to strengthen the attractiveness of the United States as a production location.

So far, the deficit-reduction proposals attracting attention do not address the labor market’s dual problems and leave many American workers and their families to face another lost decade.

Insiders selling at unusually fast pace
by Mark Hulbert - MarketWatch

Bad news, stock-market bulls: Corporate insiders are selling their companies’ shares at an abnormally fast pace.

In fact, one measure of that selling activity shows insiders of NYSE- and AMEX-listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago.m On the theory that insiders know more about their companies’ prospects than do the rest of us, this is an ominous sign.

Corporate insiders, of course, are a company’s officers, directors and largest shareholders. They are required to file a report with the Securities and Exchange Commission more or less immediately upon buying or selling shares of their companies, and the SEC makes those reports public.

One firm that gathers and analyzes the data is Argus Research, which publishes its findings in the Vickers Weekly Insider Report. One indicator that the firm calculates is a ratio of the number of shares that insiders have sold in the open market to the number that they have purchased. In the week ending last Friday, according to the latest issue of the Vickers report, this sell-to-buy ratio stood at 6.43 to 1. This is higher than 95% of other weeks’ readings over the last decade.

That’s ominous enough, but consider last week’s sell-to-buy ratio for just those issues listed on the NYSE or AMEX. That came in at 13.10 to 1, which is the highest reading for this ratio since when Vickers began collecting the data, which was October 1974.

Is there any way for a bull to wriggle out from underneath the weight of these high readings? Perhaps, though it’s not easy. One counterargument bulls can make is that it’s entirely normal for insiders to sell when the market rallies, and therefore such selling does not carry particularly bearish significance. But the stock market hasn’t exactly been rallying all that strongly. To be sure, the latest sell-to-buy ratio reflects last week, not the current one, and that week did have a better tone than the current one — but not all that great a tone.

In any case, the other occasions in recent years in which the sell-to-buy ratio rose to close to the same level it is today were on the heels of more or less uninterrupted rallies over the previous two or three months. That’s not the case now, of course, suggesting that insider selling this time around may not be so benign.

Another bullish counterargument is that the volume of insider transactions last week was light, as it usually is during earnings season. That’s because insiders are either reticent to buy or sell their companies’ shares in the days and weeks before their companies report earnings, for fear of being charged with acting improperly. But I’m not sure how much weight to put on this argument. There still were several hundred firms with insider activity last week, and it’s unclear why earnings season would have discouraged just those insiders who otherwise were interested in buying.

Furthermore, it’s worth remembering that the extensive Vickers database encompasses many other earnings seasons besides the current one. Also, the latest insider sell-to-buy ratio is higher than almost all comparable readings from those prior seasons.

Perhaps the strongest counterargument the bulls can muster at this point is that the insiders are not infallible. That indeed is true. Still, researchers report that they have been more right than wrong. At a minimum, I think we can all agree it can’t be good news that insiders recently have been selling at such a fast pace.

For Investors, Cash Is King
by Liz Rappaport and Matt Phillips - Wall Street Journal

Investors, companies and small savers are stashing billions of dollars in plain-vanilla bank accounts, taking cash out of short-term markets, in an effort to shield themselves from any market convulsions caused by Washington's stalemate over the debt ceiling. The movement of money, akin to that during the peak of the 2008 financial crisis, is one more sign that skittishness is on the rise as officials in Washington remain deeply divided about ways to reduce the deficit and lift the debt ceiling ahead of the Aug. 2 deadline.

Failure to reach an agreement by Tuesday could cause the U.S. to default on its debt and lead to an unprecedented downgrade of its triple-A rating, two events that some worry would roil financial markets around the globe. The ultradefensive stance of investors and corporations, while a natural precaution, may also have the unintended side effect of curbing the amount of money flowing through the financial system.

The pullback is adding to the stress in short-term markets. Treasury bill yields have soared in recent days, albeit from low levels. One-month bill yields rose to 0.17% Friday, up from 0.10% Thursday. At the end of June, they were essentially yielding nothing.

In the commercial paper market, where money funds lend to companies and banks for anywhere from one day to a year, most lending has been restricted to overnight. In the market for repurchase agreements, or "repos," in which investors use Treasury securities as collateral for short-term funds, the cost of borrowing has jumped from near zero to 0.15% in recent days.

The stocks of real-estate investment trusts that buy mortgage-backed securities and use them in the repo market tumbled as concerns rose about their ability to fund themselves at current levels. The Dow Jones Industrial Average fell 96.87 points to a one-month low of 12143.24, ending its worst week in more than a year. Gold hit a record of $1,628.30 per troy ounce. The yield on the 10-year Treasury note, which is still seen as a safe haven, dropped to 2.804%, its lowest close since last November. Yields fall as prices rise.

Money funds, which hold nearly $2.7 trillion in total assets, now have about half of their portfolios in securities that mature in seven days or less, said trading executives. Investors in these funds have also turned to cash, pulling out $9 billion every day over the past week, and the pace is accelerating. Money fund managers and corporate treasurers often increase the amount of cash they hold at the end of each month to meet monthly obligations, but the massive flows into federally insured bank accounts Thursday and Friday are much larger than usual, said people familiar with the matter. These bank accounts yield nothing, but are considered safe because they are insured by the Federal Deposit Insurance Corp.

"If any one of those markets freezes next week, there's no telling where it will be, so it's best to have (cash) in a couple of different places," said Anthony Carfang of Treasury Strategies, which advises corporate treasurers.

Money market funds are stashing their cash in bank accounts at their main custody banks, including Bank of New York and J.P. Morgan Chase & Co., according to people familiar with the matter. These custody banks are typical safe-havens when financial markets go haywire. They act as protectors of assets, cash and securities held as collateral for short-term loans for their clients, and they process payments and settle trades in the repo market. Money market funds, banks, hedge funds and other institutional investors can easily move money at their custody banks in short periods of time.

Federal Reserve officials have been watching developments in short-term lending markets closely, and see the build-up of deposits at banks as one of many signs of rising angst in the financial system. But observers stress that the financial markets are better positioned now than they were during the financial crisis. Banks are far less reliant on finding cash in overnight markets to keep operating and are less reliant on debt to amplify returns.

Corporations are following the same route. Glass and ceramics maker Corning Inc. has moved about 16% of its cash, or $1 billion of its $6.4 billion pool, into non-interest-bearing bank accounts insured by the FDIC over the past few weeks for fear that the Treasury bond market and other financial markets become volatile, said the company's Treasurer, Mark Rogus. Previously, Corning invested all of its cash in Treasurys and money market funds that invest in Treasury bonds and other government-backed debt that matured in three months or less. The $1 billion covers about three months of Corning's bills, said Mr. Rogus.

Money market funds and companies are able to go to cash because of a clause in the Dodd-Frank law, which provides unlimited FDIC insurance to all funds in non-interest bearing accounts at U.S. insured institutions. The clause, which expires on Dec. 31, 2012, was included in the law to replace the Term Account Guarantee Program, a financial crisis-era program that expired on Dec. 31, 2010, and served a similar purpose.

The desire for cash has also spread to individuals. Jeffrey Rubin, who runs a medical malpractice law firm, says he sold his stocks and moved his cash out of money market funds into an insured brokerage account. The total amount was about $1 million. "Though this is only a short term measure, and maybe a bit overdoing it, I just don't trust the uncertainty," Mr. Rubin says.

State Street Global Advisers' U.S. Treasury money market fund now has an average weighted maturity of about 2.5 days, compared to an average of about 34 days for the typical institutional Treasury fund, and down from 6 days at the end of June. It also has more than 90% overnight liquidity. "In the current market environment, preservation of capital and access to immediate liquidity are the priorities," a State Street spokeswoman said. Morgan Stanley's Treasury fund also said it is keeping maturities short in response to a volatile environment.

Doubts fuel investor guessing game
by Dan McCrum and Michael Mackenzie - FT

A high stakes guessing game has broken out on Wall Street: what might investors have to sell if the US government loses its triple A credit rating for the first time?

Even with a deal to raise the debt ceiling appearing more likely than last week, the Washington acrimony required to get there has left few analysts confident that Congress can agree sufficient deficit reduction measures to placate Standard & Poor’s, the rating agency most negative in its outlook for US government finances.

S&P wants to see $4,000bn in cuts, far more than any of the proposals being discussed. But it is understood that the agency is unlikely to rush out with any statements if a deal is reached that delivers a deficit reduction well below this figure.

Estimates for asset sales range from virtually nothing to $300bn of Treasury selling that one very large sovereign wealth fund is using as its base assumption after conversations with its broker dealers. JPMorgan puts the upper bound of holdings at bond funds which might be forced sellers at $40bn, a small fraction of the $10,000bn market.

The broader effect, however, could be a rise in interest rates that pushes up the cost of all forms of debt, threatening the fragile global recovery. Many eyes are fixed on money market funds, an important source of short-term funding for many businesses and financial institutions. It was a rush of withdrawals in 2008 that caused a breakdown in the commercial paper markets, deepening the financial crisis.

The funds would not have to sell Treasuries in the event of a downgrade, but could become forced sellers if they were hit by redemptions. Money market funds suffered their largest outflows since January this week as investors redeemed a net $32bn from the sector, according to data from Lipper, a research company.

Barclays Capital estimates that prime and government-only money market funds own $660bn of direct Treasury debt bonds issued by government-sponsored agencies like Fannie Mae and Freddie Mac, and also hold an additional $470bn in security repurchase, or "repo", positions. That accounts for 47 per cent of money fund assets.

"At the moment, there is little question that news about the US credit rating is unnerving money fund investors fearful about protecting their principal," said Joe Abate, strategist at Barclays.

Meanwhile asset managers maintain that a downgrade will not produce a wave of forced selling. A survey of 29 investors by UBS found very few potential sellers of Treasuries. In the event of a downgrade, hedge funds were the only respondents who would sell and they were outnumbered by peers who would be buyers. Central banks and sovereign wealth funds would do nothing, the survey found.

"The Treasury market remains the primary beneficiary of global reserves amid a lack of alternatives," said Ira Jersey, strategist at Credit Suisse. "A downgrade will convey no new fundamental information," he added. George Goncalves, head of interest rate strategy at Nomura Securities does not expect long-term investors will sell their holdings of US Treasuries.

The effects could be felt in sales of more risky assets, however. Separately managed accounts held at asset managers for central banks and some large sovereign wealth funds and businesses often have average credit quality criteria that are effectively double A. "You could see people being forced to sell lower-rated corporates or high yield debt to get the average credit quality of that portfolio back to that double A standard", said the head of one asset management business.

Yet a US downgrade is not a certainty and Moody’s and Fitch may not follow any S&P cut. Last week, Fitch Ratings said: "In a moderate downgrade scenario, Treasuries are expected to remain the benchmark security that anchors global fixed income markets for the foreseeable future. Their status as the global benchmark security is bolstered by the underlying strength of the US economy, Treasuries’ deep liquidity and fundamental role in the global financial architecture, and the lack of comparable, marketable alternatives."

Moody’s, which last month initiated a review of the US sovereign rating said late on Friday that its "review for downgrade will more likely than not conclude with a confirmation of the Aaa rating, albeit with a shift to a negative outlook."

That Aug. 2 Deadline? It May Be Impossible, Veteran Lawmakers Say
by Jackie Calmes - New York Times

Here is advice from veterans of past budget battles in Congress that went to the brink: This time, be afraid. Be very afraid.

The seemingly unbridgeable impasse between the two parties as the deadline for raising the nation’s debt limit approaches has Tom Daschle losing sleep, as he never did when he was a Senate Democratic leader in the mid-1990s and Congressional Republicans forced government shutdowns rather than compromise on spending cuts. "That was nothing compared to this. That was a shutdown of the government; this could be, really, a shutdown of the entire economy," Mr. Daschle said. "You can’t be too hyperbolic about the ramifications of all this."

Democrats and Republicans with legislative experience agree that even if both sides decided Saturday to raise the $14.3 trillion borrowing ceiling and to reduce future annual deficits, it would be extremely difficult for the compromise measure to wend its way through Congress before Tuesday’s deadline, given Congressional legislative procedures. But such a bipartisan deal seemed virtually impossible on Friday, as House Republicans approved their bill and dug in deeper against compromise with President Obama.

Any possibility of avoiding an economy-shaking default seemed to rest on hopes of a so-far nonexistent compromise in the Senate — between the majority leader, Harry Reid, Democrat of Nevada, and the Republican minority leader, Senator Mitch McConnell of Kentucky — that could pass by Tuesday and then be sent to the House. That would force Speaker John A. Boehner to decide at the 11th hour whether to hold a House vote on a bill that would not get many Republican votes, forcing him to rely on Democrats and perhaps further weaken his leadership, or to risk blame for an economic crisis.

"He’s going to have to pass it with Democratic votes. That’s going to be a tough decision, but he doesn’t have any choice at that point, particularly if the markets are reacting," said Tom Davis, a former House Republican leader from Virginia. "That’s the position they’ve got themselves in." But, he added: "The stakes are much higher here. If interest rates start spiking up, it’s going to cost us a lot more than anything you could save. They’re playing brinkmanship with our credit rating. That’s not very smart."

Mr. Davis recalled his vote in late September 2008 for the $700 billion Troubled Asset Relief Program that President George W. Bush sought to rescue a financial system near collapse. "I hated TARP, but no one had a better alternative," he said. But most of his Republican colleagues opposed the rescue measure and helped defeat it, sending the stock markets tumbling even as the vote was taking place. That reaction forced the Republicans to retreat, and days later a bailout bill carried on a second try.

Mr. Davis predicted that the current standoff over the debt limit could end similarly. "When the markets react" — as early as Monday if there is no compromise in sight — "I think the politicians will act," he said.

Yet many of the Congressional Republicans who won office last November with the help of the antigovernment Tea Party movement, giving their party control of the House, campaigned on promises to resist any government bailouts and to oppose an increase in the debt limit. Some lawmakers have been quoted describing the debt-limit vote as a way to make up for Republicans’ support of the bank rescue three years ago.

Against that backdrop, major business groups issued statements on Friday reiterating their calls for a deal, but with a heightened note of alarm. The Business Roundtable, an association of executives of some of the country’s largest corporations, sent a letter to the White House and Congress warning that "inaction poses an unacceptable financial risk to the nation’s economic growth and job creation" — this on a day when the latest economic data confirmed that growth slowed in the second quarter with the fallout of Japan’s tsunami, Europe’s debt crisis and upheaval in the Middle East.

"Failure to Raise Debt Ceiling Could Turn the Economy Back Into a Recession" was the headline on a statement from the U.S. Chamber of Commerce. "I’ve never seen people genuinely worried like this," said Vin Weber, a former representative from Minnesota, now a Republican strategist who has been meeting with other Republicans, including lawmakers, this week. "This time you have people who genuinely don’t know what the outcome is going to be, and they’re worried that the wrong outcome could genuinely be disastrous."

Goldman Sachs rates desk hemorrhages traders
by Lauren Tara LaCapra - Reuters

More than a dozen traders have quit Goldman Sachs Group Inc's North American government bonds and derivatives trading desk in New York in recent months as the bank takes fewer risks and big bonuses for ambitious traders dry up.

Goldman has been handing out promotions and better pay to its salespeople rather than the traders who manage the bank's inventory of securities and derivatives, people familiar with the bank's operations said. The changes reflect Goldman's shift toward client trading and away from making money by betting for its own account, those sources said. Weak trading in general has compounded Goldman's difficulties as it struggles to earn profits from clients without the help of its market bets, analysts said.

It makes sense for Goldman management to reward sales staff over traders these days, said Susquehanna Financial Group analyst David Hilder. "The client franchise is paramount," said Hilder. "You need sales people to deal with and talk to the clients. Over the long term, that's more important than a few guys trading bonds."

Among the recent departures is Brian Mooney, an interest-rate derivatives trader who spent 22 years at Goldman before joining Bank of America Corp's Merrill Lynch this week, according to three sources who know about the move. Mooney's exit follows that of Glenn Hadden, the former head of Goldman's U.S. Treasury bond trading desk, who left last year to run Morgan Stanley's global rates trading group in January.

At least nine other traders from the rates desk have left for jobs at competitors this year, including UBS AG, Nomura Holdings Inc, Jefferies Group Inc and JPMorgan Chase & Co, or hedge funds like Stark Investments near Milwaukee. Among their ranks were more junior traders, some of whom were seen as rising stars at Goldman. Goldman has been laying off traders since March, but there has also been a flood of voluntary exits that began late last year and continued through the second quarter, sources said.

Colin Corgan, a respected partner on the rates desk, retired in late 2010. In March, Craig Reynolds, a former top interest-rate swaps trader at Goldman, left to become head of Bank of America Merrill Lynch's North American interest-rate trading desk. Goldman has given additional responsibilities to remaining staffers and promoted others. For instance, Jonathan Hall, a rates trader in London, was tapped to oversee the entire U.S. rates trading operation after Hadden left. But the bank has kept many of the seats empty as it looks to keep staffing levels tight.

Some traders that have left the bank said they fear Goldman may turn into just another investment bank, and they wanted to leave while it was still seen as prestigious on Wall Street. "Working for Goldman is no longer different than working for anybody else," said one former Goldman trader who left this year. "At the same time, if you have Goldman on your resume, that's still a premium. People are monetizing the Goldman premium now because two years from now you won't be able to." "Goldman Sachs is totally committed to the interest rate products business," said spokesman Michael DuVally. The bank is staffed appropriately for the business, he added.

Specter Of The Volcker Rule
Goldman's North American rates-trading desk handles some of the most actively traded markets in the world, including U.S. Treasury bonds and U.S. dollar interest-rate swaps. The desk is to some degree shielded from a financial reform provision called the Volcker rule that will prevent banks from gambling on market direction.

The rule is not in effect yet, but even once it is implemented, banks will still be allowed to take proprietary positions in the Treasury market and hedge against risk using related derivatives. Nonetheless, traders who left Goldman's rates desk complained they were hamstrung by aggressive risk managers who limited position sizes and second-guessed trades. They also said they were being asked to take on more responsibilities with less pay as Goldman tries to cut costs.

In announcing quarterly results last week, Chief Financial Officer David Viniar said Goldman plans to lay off about 1,000 people this year to reduce expenses by $1.2 billion and may slash employee pay if business doesn't pick up. The rates-trading desk is among the largest in Goldman's enormous fixed income, currency and commodities trading business, known as FICC. Over the last six quarters, FICC trading has suffered as clients pulled back from the market.

Goldman detailed a 53 percent decline in second-quarter FICC revenue last week. Revenue there has dropped by 46 percent, on average, in each of the past four quarters. Goldman does not break out rates trading numbers, but said revenue there dropped "significantly."

Goldman's client business has gained traction in some rates-trading areas -- for example, the bank boosted market share in U.S. Treasury trading this year to 12.2 percent from 10.7 percent, according to a Greenwich Associates survey. Yet higher market share does not always amount to better profits, Greenwich said. Narrowing bid-ask spreads, increasing use of electronic trading and competition for big institutional clients' business are pressuring rates-trading profits.

"The market's shift in emphasis from structured products to rates products has already reduced the profitability of fixed income for sell-side firms," said Greenwich Associates consultant Woody Canaday.

Debt Crisis? Bankruptcy Fears? See Jefferson County, Ala.
by Campbell Robertson and Mary Williams Walsh - New York TImes

A few hundred miles north of here, politicians are fighting over debt. It is a spirited debate, full of discussions about what kind of country will be left for future generations and pledges not to kick the can down the road.

But one does not have to go far to see that possible future. Welcome to Jefferson County. This is the end of the road, where the can cannot be kicked any farther. There are lessons for everyone here, and they are all painful: lessons for those who are not concerned about the prospect of mounting debt, for those who insist that steep cuts can be relatively painless, for those who think the bill for big spending can safely be put off into the future, for those who have blind faith in the market and for those who think the government can always be relied upon to protect the interests of the people.

All of these beliefs have led to a place where the government can no longer borrow and the little cash on hand is being demanded by creditors, where the Sheriff’s Department cannot afford to respond to traffic accidents and hundreds of county workers are sitting at home, temporarily or possibly permanently out of work. They have also led to a widely held conclusion among residents that no one is on their side. "I get tired of them dumping on the little people," said Deb Passmore, 58, who had to shut down her Laundromat several years ago when the sewer and water bills reached $500 a month.

The prospect of county bankruptcy, which would be the largest of its kind in United States history, has gone from being an unwelcome mark of distinction to something that many residents insist should have happened a long time ago.

It still stings to think about how things got this way, how county residents are stuck with the tab from a reckless binge by Wall Street bankers, middlemen and crooked politicians, a greed-fueled spree that none of the voters actually wanted or even knew was happening. But residents know that complaints about fairness have not made that debt, all $3.2 billion of it, go away.

"What are you going to do?" said Steve Mordecai, 50, who was eating lunch at Ted’s, a meat-and-three place here that is somewhat less crowded than usual on Fridays, given that so many county employees are no longer working. "The county created the mess," Mr. Mordecai said. "Now we have to pay it back."

The story that ends in overspending excess began in neglect: in 1996, the federal government accused Jefferson County of sending raw sewage into area rivers and demanded that it rebuild its dilapidated sewer system. Such a project would be costly, but officials hoped to avoid unpopular rate increases first by pushing that cost into the future, and then by adding a maze of derivatives that were supposed to shield the county from interest-rate increases.

But the bond deals were fraught with pay-to-play scandals. Four county commissioners were convicted of taking bond-related bribes. Two bankers are fighting federal accusations that they made secret payments, and in 2009 J.P. Morgan forfeited $752 million to settle a complaint by the Securities and Exchange Commission.

The complicated bond-and-derivative structures failed during the financial turmoil of 2008, leaving the county with a $3.2 billion debt to pay, faster than planned. Sewer revenues that were pledged to pay the debt cannot keep up. The problems keep compounding: federal prosecutors have taken a derivatives consultant to court on bid-rigging charges. And the Internal Revenue Service is investigating whether the sewer bonds really should have been marketed as tax exempt.

But the fiscal crisis went from a simmer to a full boil in April, when the Alabama Supreme Court declared a major county tax unconstitutional. Shortly afterward, with the county reeling from the severe shortfall in general funds, a court-appointed receiver recommended a steep increase in county sewer rates, and also laid claim to the county’s only cash reserves, saying they were needed to bolster the sewer system’s finances.

At the end of June, Gov. Robert Bentley declared a shaky truce while negotiations took place. On Thursday, the County Commission announced that it was entering a seven-day standstill period to consider a settlement offer from the creditors, an announcement that was met with grumbles across most of the county.

"They should have filed for bankruptcy 10 years ago," said Howard Faulk, an owner of Sophie’s Deli across the street from the county courthouse, where the lines for county business are hours long but the parking is free because the county cannot afford parking attendants. "If you’re standing in water this deep," Mr. Faulk asked, his hand at his neck, how much deeper can it get?

But any residents who think a bankruptcy will simply wipe the debt clean are probably in for a bleak surprise. Chapter 9 of the federal bankruptcy code, the one local governments use, does not work like Chapter 11, where corporations restructure and bondholders routinely suffer losses.

In fact, Chapter 9 was amended in 1988 with the specific goal of making clear that certain types of municipal bonds would keep on paying even in bankruptcy, said James E. Spiotto, a bankruptcy specialist with the firm of Chapman Cutler. The bonds issued to finance Jefferson County’s giant sewer project are this type. "The whole purpose is to assure the market that in times of distress, the bonds will be paid," Mr. Spiotto said in an interview.

Many citizens of the county speak bitterly of a perception that other parts of Alabama think of the county as unworthy of help. Even one of the county’s own state senators blocked a plan to allow Jefferson to raise revenue to replace some of what was taken away by the April court decision, thus forcing layoffs. "In Alabama, Jefferson County is Chinatown," said David Mowery, a Montgomery political consultant, using the metaphor for hopeless inscrutability from the Roman Polanski film of the same name. "Forget it," he said, summing up the general attitude toward the county. "There’s nothing you can do about it."

But as Alabama’s own governor learned over the spring and summer, you cannot just forget Jefferson County, where Birmingham is the county seat. If it goes down, it takes the state — and the state’s credit — with it. This realization prompted the governor to intervene when the county was near declaring bankruptcy at the end of June.

Still, little of this reassures the people slogging through here, who realize that life will get harder before it gets better. The only consolation is gallows humor and signs they might not be alone. "I used to think what awful leadership we have in Jefferson County," said Phillip Winette, 58, who runs a printing company. "But now I’m watching the debate on a national level. It’s an epidemic."

Central Falls bankruptcy decision set for Monday
by Erika Niedowski - AP

The state-appointed receiver overseeing Central Falls is expected to announce Monday whether he will file for bankruptcy on behalf of the cash-strapped city.

A senior adviser to Gov. Lincoln Chafee said Friday that the receiver Robert G. Flanders will work through the weekend to determine whether Central Falls should file for federal bankruptcy protection -- a rare step for a municipality -- as a way to begin its financial recovery. Stephen Hourahan said negotiations between Flanders and union groups continue, meanwhile.

Many of the 141 police, fire and other municipal retirees who are being asked to accept voluntary pension and benefit cuts have said they want more time to decide, but the deadline to return their paper ballots was Thursday.

Flanders' office said that 57 requested additional time, 37 voted to reject the proposal and 12 voted to accept it. Flanders noted that nine of the 12 who voted yes would not have had their benefits reduced under the plan and would therefore save the city no money. Thirty-five other retirees did not respond. Flanders has said that municipal bankruptcy is "much more likely" if the retirees, and other groups, don't accept major concessions. The pension cuts aim to save the city around $2.5 million.

Central Falls has $80 million in unfunded pension and benefits obligations and projected deficits of $25 million over the next five years. Mayor Charles Moreau and City Council President William Benson, both of whom were relegated to advisers after the state receiver stepped in, say Chapter 9 bankruptcy is the only way the city can dig itself out of the fiscal mess.

"I don't think he's got a choice," said Benson, who has been critical of Flanders. "We can't get back on our feet this way. He hasn't brought a nickel in, how can it be anything but bankruptcy?" Benson said he had no indication what course the receiver's office will take. "They don't talk to us. They tell us nothing," he said.

The council, which has not convened in well over a year because of a legal fight over whether they are allowed to, has set a meeting for Thursday evening at City Hall. Central Falls is about seven miles north of Providence.

Emanuel vows no tax hikes to bridge $635.7 million budget gap
by Hal Dardick - Chicago Tribune

Mayor Rahm Emanuel today said next year's city budget hole is nearly $636 million and he won't use one-time fixes or reserves to fix it. "Today is to inform the public who pays the bills of the size and the scope of the problem," Emanuel said at a City Hall news conference. "The system needs reform. It is calling out for it."

Emanuel also said he won't raise taxes on Chicagoans who feel "nickeled and dimed" until the city's financial structure gets reformed. "I can't ask people to pay more into a system that needs to be fundamentally restructured," he said.

Without significant changes in how the city operates, the city budget gap would widen in coming years to $741.4 million in 2013 and $790.7 million in 2014, the administration estimates. Much of the budget imbalance results from long-term union contracts with locked-in raises, rising health care costs for workers and increased borrowing in recent years that brought higher interest payments.

The budget figures do not include shortfalls in city pension systems, which could add costs of $500 million or more annually in coming years. Absent changes in the pension systems or new revenue sources, that could result in a doubling of the city property tax, according to The Civic Federation, a non-partisan budget watchdog group. Emanuel is required to present his budget outlook by July 31.

Release of the preliminary figures is the first step in fashioning a budget for the coming year. Emanuel’s task will be to find ways to close that gap without tapping one-time revenue sources, as former Mayor Daley did repeatedly in recent years.

Emanuel, who personally briefed City Council committee chairmen on the budget this morning, told them he has asked his department heads to come up with ideas to close the gap. His appearance at the briefings was a break from past practice, when Daley had his financial chiefs present the news to aldermen.

In May, Daley said he anticipated a budget shortfall next year of $587 million, but incoming Emanuel administration officials have said they anticipated it would be higher. Last year, the city plugged a budget gap of $655 million largely by dipping into dwindling reserves, refinancing debt and drawing money from once-sacrosanct special taxing district funds.

During his first couple of months in office, Emanuel has taken steps to curtail spending. He announced plans to cut $75 million from this year’s $6.15 billion spending plan, and he has pushed unions to make concessions, so far to little avail. Critics note that even in 2007, when the economy peaked, the city faced a budget gap of $95 million, and spending has only increased since.

Colorado bank failures this year could cost the FDIC $1 billion
by Aldo Svaldi - Denver Post

The five bank failures represent one-fifth of the FDIC fund's overall losses this year

Five Colorado bank failures this year could cost the nation's deposit insurance fund slightly more than $1 billion. That represents a fifth of the $5 billion in overall losses to the fund from bank failures through July 22, said Federal Deposit Insurance Corp. spokesman Greg Hernandez. Only Georgia, with 16 failures costing $1.5 billion, has taken a bigger bite. Colorado and Georgia combined account for half of the hit to the FDIC fund this year.

That $1 billion exceeds the $970.6 million that three Colorado bank failures in 2009, led by Greeley's New Frontier Bank, cost the fund. Deposit insurance protects individual bank accounts for up to $250,000 and is a key reason why the country doesn't see bank runs during a financial crisis. But when banks fail, surviving banks pick up the tab, through higher premiums to replenish the fund. Those costs eventually pass down to customers and investors. And if things ever got bad enough, taxpayers could be asked to ante up.

"There is a bit of moral hazard involved in deposit insurance," said Matt Anderson, a managing director at Trepp, an Oakland firm that does analysis on commercial real estate and banking. The moral hazard exists because bankers and investors, knowing they won't be fully liable if a bank collapses, may take bigger risks. Although bank failures almost always wipe out the money investors put into banks, they also leave behind much bigger messes for everyone else to clean up. "It is frustrating, but we built a business model that can absorb it," said Mariner Kemper, chief executive of UMB Financial Corp. "I try not to think about it too much."

The loss a failed bank passes on to the deposit insurance fund is one measure of its failure to properly price risk, said Denver banking consultant Larry Martin. The losses at the five Colorado banks represent about 22 percent of their assets, which are made up mostly of loans. "That is probably pretty much ballpark with what has been going on so far nationally," Anderson said.

His measures show that the bank failures in June nationwide passed on losses of 25 percent of assets, up from a 19 percent rate in April. Three failed Colorado banks — FirsTier, Colorado Capital Bank and Signature Bank — face potential losses equal to about a third of their assets. What is more remarkable about those percentages is that they come after a borrower's equity in the project is consumed and after the bank has eaten through its capital cushion of 8 percent to 12 percent.

Even in the pre-crisis days, it wasn't unusual for banks to lend only 70 percent or less of the value of a project, although some banks pushed that amount up to win business in an overheated market. So how is it possible for bankers to get the valuation of collateral backing loans wrong by such a wide margin? About 80 percent of bank failures in this cycle are tied to commercial real estate, the remaining 20 percent to mortgages, Anderson said.

Raw land and construction projects in particular are hard to value and volatile. But they also generate larger fees upfront than other loans. Easy credit fuels higher prices, which supports larger loans, which fuels higher prices, until the whole thing collapses. Empty land or unfinished strip malls don't generate rents and, when a bust sets in, aren't worth even a fraction of the amount loaned against them. Many community banks focused on commercial real estate because that was the need in their communities and larger institutions were not providing money, said Don Childears, CEO of the Colorado Bankers Association.

But more than a specific sector, an inability of some bankers and bank directors to ask the question "what if" paves the road to ruin, Martin said. What if land prices fall 50 percent, what if this project doesn't get built, what if our loan portfolio is too concentrated in one loan type? "They have rose-colored glasses on, and they don't think beyond their nose," said Martin, who as an outside adviser tries to get bankers to look at the big picture.

Failure carries a long tail. Bank directors, unlike directors of corporations, are liable beyond their investment, Childears said. The FDIC can and will sue them for up to three years after a failure, Hernandez said. The FDIC is pursuing claims against 248 bankers and bank directors seeking to recover $6.8 billion against their professional liability policies, Hernandez said. That is driving up insurance premiums surviving banks have to pay for their directors and officers, adding another cost to the system, Martin said.

Failures also depress the price of collateral backing other loans in a market, weakening the balance sheet of the remaining banks. Colorado's hit to the insurance fund matched the deficit the deposit insurance fund was running as of March 31. The fund since has come into the black, in part because losses are declining in most states, Colorado being an exception. Back in 2009, bank failures cost the fund $37 billion, followed by a $23 billion loss in 2010 and only $5 billion so far this year, Hernandez said.

HSBC to Cut 30,000 Jobs
by Margot Patrick - Wall Street Journal

HSBC Holdings PLC on Monday said it is slashing around 30,000 jobs to cut costs and revamp its business, as the banking giant follows through on a May plan to withdraw from some countries and refocus its operations on high-growth markets.

On top of 5,000 jobs already under the ax in the U.S., U.K., France, Latin America and Middle East, around 25,000 further roles will be cut between now and 2013, Group Finance Director Iain Mackay told reporters. He said the bank is still hiring in some countries, though, and that the net headcount reduction could be much smaller.

HSBC made the announcement as it reported first-half net profit attributable to shareholders rose 35% to $8.9 billion from $6.6 billion, mainly from the effect of previously-flagged lower tax charges. Revenue was flat at $35.7 billion, with weakness in Europe and HSBC's Global Banking & Markets division offsetting double-digit percentage revenue growth in Hong Kong, the rest of Asia Pacific and Latin America.

HSBC shares were recently up 4.3% after trading up by about 1.5% just before the announcement. European and Asian stock indexes rose Monday after the U.S. late Sunday announced a last-minute agreement to raise its debt ceiling, averting a possible default. Mr. McKay said the agreement is welcome and will hopefully foster more stability in financial markets. HSBC Chief Executive Stuart Gulliver in May presented a strategic plan for the bank to shave up to $3.5 billion from its annual cost base by 2013, exit retail banking in some countries and tap a growing base of wealthy consumers in target markets.

So far, the bank has said it will stop offering retail banking in Russia and Poland, and has started reorganizing its operations in several other countries. The bank late Sunday said it was selling 195 retail-banking branches in upstate New York to First Niagara Financial Group Inc. for $1 billion in cash, a move Mr. Gulliver had said was under consideration in May.

Millions face pension poverty as 'golden' era ends
by James Hall - Telegraph

Up to 14 million workers will retire with pensions far smaller than those enjoyed by their parents, a report warns today, as the "golden generation" of retirement schemes comes to an end.

Almost three quarters of private sector staff will be unable to "adequately exist" when they retire due to a low level of savings and the complex, costly and inefficient pensions system, the report claims. Many workers retiring after 2020 are told to expect a "bleak old age", even taking into account pension reforms that will force employees to save for their retirement.

The grim financial outlook contrasts sharply with conditions enjoyed by the recently retired. Figures show that the net income of pensioners has grown by 47 per cent in real terms since 1999. Today’s report, written by Lord McFall of Alcluith, the former chairman of the Treasury select committee, warns that those who retire in the coming decades will do so on significantly reduced pensions. "A golden sunset is giving way to a bleak dawn," said Lord McFall.

The report, from the independent Workplace Retirement Income Commission, of which Lord McFall is chairman, comes as both the private and public sectors are grappling with the cost of pensions amid rising life expectancy. The Department of Work and Pensions will publish statistics this week suggesting that some children born today can expect to live to 120.

Lord McFall sets out 16 recommendations for creating a stronger, more stable pensions system. The findings will be presented to Steve Webb, the pensions minister. The report lists a raft of grievances about pension provision. It points out that the value of pensions has been hit by the global recession, low investment returns, increases in household debt, drops in real incomes and low interest rates. It suggests that there is a lack of trust in the system and says that private company pensions are often opaque and confusing for workers.

The report warns that workers must receive a better deal from their pensions if they are to bother saving for retirement. It also calls for an increase in minimum contributions to pension pots. Last year, only 36 per cent of those aged between 16 and 64 were actively contributing to a private pension, the report states. Over the past 10 years, the proportion of men saving into a pension has fallen from 49 per cent to 38 per cent, while for women it has dropped from 36 per cent to 33 per cent.

Lord McFall warned that although millions of workers would be enrolled automatically into workplace pension schemes from next year, up to nine million "may still fall through the cracks" by opting out. He said that a further five million workers did not earn enough to qualify for the auto-enrolment system, meaning that a potential 14 million people faced having an inadequate pension to live off. "In a rich nation such as ours, this is scandalous," he added.

The report states: "The shape of workplace pensions is changing and there seems to be little to suggest that trend will be reversed." The commission’s recommendations include the establishment of an independent standing commission on pensions. It also suggests that companies should offer workers free independent financial advice worth up to £500 free of tax.

The Government has outraged the unions with plans to force public sector workers to pay higher pension contributions. But these schemes are substantially more valuable than the majority in the private sector. Treasury figures show that a mid-level teacher retires with a pension pot equivalent to £500,000 — 20 times more than the average private sector worker.

Neil Carberry, director for employment at the CBI, broadly welcomed the latest proposals. "This report rightly identifies the need to do more to boost savings for retirement, and makes some helpful recommendations about how to build a culture of saving in the UK," he said. "However, the commission’s proposal to consider increasing the minimum compulsory pension contribution in 2017 is not the right answer. The current plan to introduce a floor of eight per cent saving from next year remains the best way to ensure more people who can afford to save do so."

Europe's Big Oil Sees Output Fall
by Alexis Flynn - Wall Street Journal

Most European major oil companies posted a surge in quarterly profits last week, but their results were overshadowed by a trend that continues to trouble Wall Street and corporate boardrooms: Nearly every major oil company reported year-to-year oil-and-gas output declines, often in the double-digits.

Big Oil is throwing huge resources at the problem with more open embrace of unconventional petroleum developments, high-risk exploration in frontier areas and corporate restructuring. But even if these strategies work in some cases, there is little doubt that anemic petroleum output signals a long-term challenge confronting the sector.

The particulars varied across the sector. BP PLC's 11% output drop was fueled in part by the continued hit from its reduced activity in the U.S. Gulf of Mexico after last year's disastrous spill. Italian giant Eni SpA's production fell 15% due to its disproportionate exposure to war-ravaged Libya. Spain's Repsol YPF SA, whose output fell 17%, was affected by both Libya and the U.S. Gulf, as well as by labor unrest in Argentina. Norway's Statoil ASA saw a 16% output decline largely on production outages and maintenance in its home market in the North Sea. French oil major Total SA's output slipped 2% from a year earlier, mostly due the loss of Libyan crude.

Oil giants are more vulnerable to operational problems in part because of their declining dominance over key resources. Whereas in 1973, independent oil firms controlled three quarters of the world's reserves, they hold as little as 10% today, according to some estimates. That has forced oil majors to rely to a greater extent on costly unconventional plays such as shale gas, deepwater exploration, and Arctic exploration.

Investment in conventional assets accounted for 63% of the majors' total capital expenditure between 2001 and 2005, research by Wood Mackenzie showed, with this proportion set to fall to 40% between 2011 and 2015.

Last week's reports showed that the two biggest oil giants, Royal Dutch Shell PLC and Exxon Mobil Corp., were somewhat better positioned than their smaller peers, in light of their capacity to progress capital-intensive projects. Another standout, Wall Street darling BG Group PLC, the only European oil major to report higher year-to-year output, has prospered from recent discoveries in the hot Brazil offshore region.

Yet there are problems even with these templates. Though demand for natural gas remains solid, natural gas prices could see further weakness in light of surging North American shale gas output and economic weakness in Europe and the U.S.

The push for more exploration has ignited interest in Africa following new seismic results and recent discoveries in Ghana and Uganda. But it's a risky and capital-intensive game and one requiring a fleetness of foot to grasp opportunities and adapt quickly to contrary political circumstances. Industry anecdotes abound of how some of the most lucrative recent discoveries on the continent were once passed up by reluctant majors.

Consolidation offers another way forward, yet few expect large corporate mergers between integrated oil giants in light of antitrust concerns and today's high oil prices. More likely is a deal akin to Exxon's purchase of U.S. unconventional-gas specialist XTO, a major factor in Exxon's standout 10% rise in production in the quarter. Wood Mackenzie's Simon Flowers predicts more such "infill acquisitions," but says "large-scale acquisition is not likely in the near term."

Another possibility is the flowering of deals between private oil giants and emerging state-controlled firms like Brazil's Petrobras, Russia's OAO Rosneft and China's CNPC. BP's failed share swap and Arctic exploration deal with Rosneft was an example and illustrates the lengths to which companies are prepared to go to gain access to their potentially lucrative reserves.

Wall Street will likely push harder for some sort of tangible action from Big Oil in the coming months. The sector trades at a significant discount to the oil price itself, a factor that could sharpen calls for share buybacks and more special dividends. The recent move by ConocoPhillips to hive off its downstream business lifted the Texas company's share price and spawned questions for the rest of the sector. But so far, most of Conoco's peers have dismissed the idea as impractical in light of the advantages of the conventional integrated model.


Jack said...

Hi Ilargi
Thanks for writing that post.
I can personally feel what this crisis is all about.
People call it a recession but I have seen many and none of them was like this.
You can find work ,you cant find customers for business and I think this is depression.
It has already started

Greenpa said...

from previous thread:

skilo: "Let's call a law breaker a criminal. Is that extreme nowadays? "

you have to remember- throughout history; rich people are not, cannot, be law breakers. By definition.

Jack said...

You cant find work

sv koho said...

Ilargi: the incisive clarity and brevity of your comments is the backbone of TAE. Thank you for your effort.

scandia said...

@Ilargi, In my search for other questions you've asked a humdinger!

" Who are you going to let decide how bad your future will be?"

Which leads me to " What are my choices? "

scandia said...

@skilo, your comment about the law breakers makes me think that the " law of the jungle " is in play now.
I do have a preference for something more civilized:)

el gallinazo said...

Not to sound like a record with a skip in it (soon only the geezers and geezettes will remember them), but I can't recommend CHS's new book highly enough as a companion piece to TAE and I&S.


The intro photo this morning reminded me again of General Smedley Butler, the fighting Quaker. He addressed the Bonus Marchers shortly before the sociopathic General Douglas MacArthur drove them out of Washington with truncheons.

I am a firm subscriber to Lily Tomlin's, "No matter how cynical I get, I just can't keep up." So, as one might imagine, I don't have a large pantheon of heroes. But the first one that comes to mind in 20th century Amerika is Butler. He prevented a pro Hitler and Mussolini fascist overthrow by the Owners of FDR in 1933. And his book, "War is a scam," is a classic. Retiring as a major general from the Marine Corps, he is the most decorated Marine in history for bravery and valor, although as he realized later in life, in support of the wrong people.

If you are unfamiliar with Butler, James Corbett gives a good one hour intro. Toward the end of the podcast he presents two readings. One of Butler's address to the Bonus marchers and the other an excerpt from his book. If you have an hour to kill, it is well worth your while.

jal said...

Ilargi said ...

“Who are you going to let decide how bad your future will be? If you opt for Washington, anyone in Washington, or Brussels if you're in Europe, your future will hurt something bad. When it comes to that future of yours and, of your offspring, the debt dungeon debate is the wrong focus. There's nothing beneficial for you in there.”
scandia said...

Which leads me to " What are my choices? "
Put things in prospective... look at the bigger picture ... Look at what the leaders have been doing elsewhere ...


The U.N. says more than 11 million people in the Horn of Africa need food aid, but that 2.2 million need aid in a region of south-central Somalia controlled by the al-Qaida-linked militant group al-Shabab, which has not let many aid agencies operate in its territory, including the U.N. World Food Program.
In a bit of good news, though, the International Committee of the Red Cross said Monday it is distributing food to 162,000 people in south-central Somalia affected by drought and armed violence. The food distributions in south-central are the first large-scale distributions in that regions since the beginning of the year, it said.

Today, more than 380,000 people live in the camps, originally built to hold 90,000. About 1,300 new refugees arrive each day. Most of them are fleeing either the drought, which has afflicted the whole of the Horn of Africa but hit southern Somalia the hardest, or the ongoing conflict between the Islamist rebels who control much of the south and Somalia's Western-backed transitional government.

For older people, they basically know that their life is finished, that their functional life is over. They have nothing to pass on to their children. They have no land, no property. All that was left behind when they fled Somalia.

There are three solutions to refugee situations: One is repatriation; a second is integration; and a third one is resettlement.
You can't resettle all the people in the camps. There's too many people; you just can't. Secondly, the Kenyan government is incapable of letting them all integrate.
The only real option is repatriation, and that's not going to happen until there's peace in Somalia.

I'm sure everyone KNOWS what will be done to fix the situation.


el gallinazo said...

Well, Gerald Celente didn't coin it, it's been around for a while, but very apropos for today.

Politics is nothing but show business for ugly people.

D. Benton Smith said...

Here are some axiomatic data that might help resolve these complex issues:

Seven Simple Rules

1. There has never been, nor will there ever be, a shortage of honest work.

2. There IS, however, often a shortage of honest pay.

3. The wages of sin are high ( but the pension sucks. )

4. Borrowing, and its consequent condition of indebtedness, is completely painless. So is spending.

5. Repayment, on the other hand ( even when mitigated by relief ) HURTS.

6. A Syllogism :

a) All lies are told for a reason.
b) The reason is either that the truth would result in loss &/OR that the lie would result in a gain.
c) The lie either avoids the loss &/OR achieves the gain.
d) The avoidance of loss is good.
e) The achievement of gain is good.
f) People who do good are good guys
Therefore: The liars are the good guys

7. Another Syllogism

b) All governmental positions consist of humans.
b) All government is done by humans.
c) All government is done for humans.
d) The people are all human.
Therefore : All government is of, by and for the people

And in closing let me pose a question that has baffled me for decades:

Since it is standard practice to extract from prospective borrowers every fact ( with supportive documentation ) pertinent to their capacity and likelihood to repay... WHY is there no such disclosures or documentation expected from lenders ?

The answer to that one might give us the rule that removes the final veil.

Alexander Ac said...

Krugman? What did he want to say? I did not get it...

scandia said...

Have you ever noticed that the houses of rich people have " high ceilings"?
Ceiling height is a selling feature. I often see it in RE listings.
So the use of the ceiling metaphor appeals to those seeking to " better themselves". Man oh man but TPTB are so clever.

el gallinazo said...


To paraphrase Lord Rothschild and George Orwell, he who makes the language controls the people and I care not who makes their sausage.

I personally prefer "our national credit card limit." Brings it home to Joe and Jane Bagadonuts.

Alexander AC

Krugman - our laureate involuntary drooler.

I think he was chief economic advisor to Greece prior to the first bailout. Perhaps this year Obama can get the prize for economics and Krugman for peace (unless NATO gets directionally confused and it carpet bombs Stockholm and Oslo.)

I. M. Nobody said...

"It’s difficult to find a textbook to tell you what should you do now," said Torsten Slok, chief international economist at Deutsche Bank.

Well, there you have it. If its not in a textbook, it can't be done. Abandon all hope.

Methinks we are not far from discovering that we are all Mayans now.

El gallinazo's celebration of General Butler and condemnation of Dugout Doug is worthy of reflection. Mullen telling the troops they might not get paid for awhile was probably part of the Kabuki. Still, it wasn't very smart. Today's version of Dugout Doug, instead of chasing out protesters, will probably be directing an assault on DC. Probably complete with a few Hellfires lobbed into the Dome over the Rotunda. We wouldn't be needing that building anymore.

It is worth pondering what the Industrial part of the MIC will do in reaction to word of austerity in Pentagonia.

el gallinazo said...

Riddle: What does Ambrose Evans-Pritchard have in common with Kermit the Frog?

Answer: You have to look to the credits to learn who has their hands up their bottoms.

Wonder about the major monetary supply increases he quoted? How did he get an M3 "indicator" as Greenspan cancelled it for national security reasons. If he is using John Williams, he should acknowledge it.

scandia said...

DBS asked, " WHY is there no such disclosure or documentation expected from lenders?"
The rating agencies have that covered, Do you doubt the ratings:)

@El G, Up here in Canada we have donuts called Timbits. Now there will be a box of Timmybit debt donuts for every American family:)

Alexander Ac said...

Yeah, there you go - Victor Orban want to treat the national debt as a crime... it did not take too long...



jal said...

Ron Paul Exposes The Deficit "Plan" Lies: "Cuts Are Illusory, Not From Current Amounts Spent But From Projected Spending Increases"

Instead, the "cuts" being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases. 

The truth is that frightening rhetoric about default and full faith and credit of the United States is being carelessly thrown around to ram through a bigger budget than ever, in spite of stagnant revenues.

If we simply kept spending at current levels, by their definition of "cuts" that would save nearly $400 billion in the next few years, versus the $25 billion the Budget Control Act claims to "cut". 

It would only take us 5 years to "cut" $1 trillion, in Washington math, just by holding the line on spending.  That is hardly austere or catastrophic.

In Washington terms, a simple freeze in spending would be a much bigger "cut" than any plan being discussed.

snuffy said...

I must be getting soft,

I listened to Thom Hartman,broke down today,and actually called for a rant,and spoke with him."O-man is bushes third term" says I, "No,hes a conservative dem"says he....Would not let me on the air...he has a back channel that he talks to those he thinks are to salty for the air..Oh well,...


I went thru the headache to sign up on his blog and request he come over here and eyeball this site with the thought of getting stoneleigh on his show to spread the word but I have my doubts...she makes too much sense .He,being one of the few rational people in the media,I had hoped...
Perhaps it is I am a poor messenger for such a gig..If any you Want to try,hes easy to find,and is what I listened to until I gave up hope the system could be fixed.I would really like to see her on his show.

Nice post Ilargi.

I am working my tail off ,learning masonry"The hard way".
The break today is for beekeeping duties,which is turning into my "recreational work".[Its a lot easier than moving rock and cement].
Off to get stung...

Bee good,or
Bee careful


Philip Rutter said...
This comment has been removed by the author.
el gallinazo said...

As the submarine Japanese Yen plunges deeper into the inky depths of deflation, its ballast purge exhausted:


We call complete bullshit on this. Never do central banks preanounce when they intervene. Never. This is merely more posturing by the toothless and completely powerless BOJ which now has resorted to spreading rumors in order to get the USDJPY higher.

Archie said...

@El G

I believe you will find this article of more than casual interest. No further commentary necessary.

Nassim said...


IMHO, France is not far behind Italy - which is not far behind Greece and so on. The public sector in France is huge. The prices of ordinary things like clothes for kids and food and so on is very much higher than in the USA. On the other hand, medical care is essentially "free". Furthermore, the tax system does not encourage unduly women to go out to work - if you have a couple with two kids, the tax rate is that for total family income divided by 3 "parts" (one for each adult and half for each child). French people do not need to travel far to go to the seaside or to go skiing - no need to leave the country. Frankly, after my most recent trip to France two years ago, I cannot understand how ordinary people get by.

Like I mentioned earlier, France is not a tax-haven so there will one day be a rush of money out of the country. This money will go to places like London and New York as well as traditional havens like Luxembourg and Switzerland. This will make property cheap as it always was - most taxes are traditionally on property. The word "immobilier" means property and it also means stuff that you cannot take with you when you flee the country (i.e. immobile).

I am no good at giving advice. All I can say is that I have put a large part of my savings into precious metals which seem to be going in the right direction. I have no reason to believe that fiat money will stop losing its value.

Like el G, I have bought the Kindle version of "An Unconventional Guide to Investing in Troubled Times". I am rather busy and tend to read several books simultaneously over a period of weeks so I am still in the front quarter of this book. However, he does advise that one should have more than one economic activity. I think that is excellent advice though I would tend to discourage farming or beekeeping - unless you are a masochist.

I have been working on my own little thing for a while and can see possibilities. I am working on an online site where people can see things they would like to try, and possibly buy. They would be able to choose the items and decide (from a selection of possibilies) a time and place where they would like to see these items physically. For example, they could choose a particular style of shoe and size and then get to try the shoes the following day at the appointed time at some shopping centre. The idea is that it is much cheaper and safer to store stuff in warehouses than in a shoe shop at a prime location. Also the staff in these shops spend a lot of (paid) time waiting for something to happen. People are prepared to pay more if they get to try and see the goods. The fact that there is no money paid online or postage involved makes the website very much simpler. The same concept (and website) can be used for a diverse range of items (jewelry, books etc.). The same small prime location can be used for different things at different times. Above all, the foot-traffic would lead to site-visits (rather than the inverse).

I suspect that even if the unified internet were to break up, local versions would keep going for a long time.

How to increase your customers desire to buy… by 60%. Get physical!

I suggest that you think of something achievable with your circumstances and in your locality.

Nassim said...


I thought Blogger was playing up, but is seems that you deleted my reply to Chas twice.

I guess mentioning PM's is now a no-go area? or, is it the discussion of French property? Perhaps it is my localization project? I don't know and don't really care. :)

I know when I am not wanted and I am much too busy anyway.

D. Benton Smith said...

@Nassim @Ilargi

There must have been some sort of mistake. You definitely ARE wanted, as I am sure Ilargi & a straw vote by commentators would quickly confirm. My vote is: do not go.

I. M. Nobody said...


You may not be aware that Blogger incorporates a spam filter. Even though comments are not moderated they still meet the filter. If a comment meets its criteria it gets bumped into a queue from which an administrator can release it. Unless you really lose your cool, I don't think there is any chance Ilargi would delete one of your comments.

Bukko Canukko said...

@Nassim- This is Mrs. Bukko - I don't even comment here but do try to keep up with ALL of it.. I request that you don't go anywhere. I love your comments - especially about the Euro area, as I am a total Francophile. We left the usa 6 years ago ahead of this morass but it doesn't make me feel smug or relieved - just sad to see the sane people in this world eat the dust of the sociopaths. That IS what they are - down thru history... sociopaths.

scandia said...

@Nassim, Your comment on this posting was also on the previous posting. I don't think Ilargi is deleting your postings when I have gotten it twice?

A moderator said...

As IMN mentioned, Blogger has a built in spam filter. It is a "black box" and we do not really know what its perimeters are. One thing we did discover through trial and error testing is that any hyperlink tags beyond the five recognized ones seems to trigger it. We presume this is to catch spam ads which usually contain a lot of advanced tags. The good news is that the comments are not lost, and those with administrator privileges can and do put the comments back when we find them in the spam filter folder. We have had more trouble with this filter lately and are checking the spam folder more frequently than before to rectify any problems.

We also have some comments recently disappearing into thin air without any explanation. Ben had one on this thread which we cannot account for. When we are fed up with a commenter, Ian for example, we mention it publicly that they are persona non grata in our "house".

Nassim said...


My comment has reappeared on this most recent blog. Thanks whoever fixed it. :)

Funnily enough, it is still deleted at the previous blog at this page

My indexing system has it indexed here but the index leads nowhere as the anchor has gone.

el gallinazo said...


Thanks for that link. There were some details there that I never knew before.

p01 said...

Comments in limbo, huh? What's blogger up to next? A Cheryl A.I.?

VK said...

Hey Nassim!

Don't go. I enjoy your comments a lot. Always something to learn.

Btw Ilargi,

What's this rise in M3 that AEP mentioned? Is lending up? Student loans? How does that relate with such weak GDP growth? Doesn't make sense. Again if the US starts growing again, won't oil act as a limit?

So many questions, wonder what AEPs data set is?

Archie said...

@El G...

You're very welcome. It was a new twist for me as well. Anyway, that and $5 will get you a venti cafe at the local Starbucks.


A moderator said...

"It is a "black box" and we do not really know what its perimeters are."

We don't know what its parameters are either :-)

I. M. Nobody said...

Why worry about some damned money supply data. If the Fed can ship $16T to keep Europe from exploding at least for a little while then money supply is not a problem.

The problem, in case anyone needs reminding is the balance sheets of the Usan people, munis, counties and states. Unfortunately, none of them are allowed to create money and as of late too many are not allowed to earn it either. Until that little problem is resolved, which it doesn't seem possible that it ever will be, everything else is just theatrics.

I. M. Nobody said...

Hey your moderatorship, this is Blogger. Maybe the spamiciser is parameter free and just chooses its victims randomly. :)

D. Benton Smith said...

What is money, REALLY ?

There are a lot of explanations and I think I've heard 'em all. Here's another, for what it's worth.

In a small, pre-civilization, cashless society there's no need for money because everyone keeps track of who is giving or taking, and precisely how much of what.

It is an astronomically complex and sophisticated system. Some folks are generous, some are stingy. Some are grateful, others resentful or uncaring. There are the greedy and benevolent; the needy and the endowed. There are old people and young, weak and strong, relatives and others. Strong and weak, charming and repellent. Those who like giving, and those who prefer to take.

And for all of the myriad combinations and permutations of each virtually infinitely variable factor the rate of exchange for goods, favors, attention, help, affection (etc. ad infinitum ) subtly shifts in one direction or the other.

These calculations even change over time based on numerous external factors... and throughout the entire process everybody is keeping track.

Talk about accounting !

It is the system we used for many hundreds of thousands of years, maybe millions. To a large degree it shaped our very DNA and informed the structure not just of our societies … but the social nature of the species itself.

To think that symbolic bits and pieces of material stuff , 'money' , could perform in that setting to provide an even remotely similar function is beyond absurd. It's impossible. 7 Billion personal supercomputers couldn't handle the job... too crude, too slow, too limited.

So, along comes 'progress' and suddenly we just throw millenia of tried and true evolution out the window and replace it with these supposedly “fungible” symbols ?

Sorry, folks, no can do. That's not just unworkable, it's literally psychotic. A drooling lobotomized catatonic micro-cephalic could devise a better system than that.

You might as well try to throw sex out the window and replace it with a stack of magazines, say that a camcorder will serve for consciousness, or substitute Obama's teleprompter for the powers of human speech. They are simply not comparable … not by many many orders of magnitude.

Some anonymous guy once said that the love of money was the root of all evil.

Points for trying, anonymous guy, but I'm afraid that maxim doesn't even scratch the surface.

Money is not just incapable of performing the vital functions it presumes to replace... it prevents them.

And, in preventing them, prevents us from operating as we were evolved to. My carefully considered opinion is that either the money goes... or we do.

It's pretty much as simple as that... and looking like a coin-toss at this point.

I. M. Nobody said...

DBS said...

Some anonymous guy once said that the love of money was the root of all evil.

And some other guy added, "and mankind needs roots." :)

I believe what are saying is that the whole damn Neolithic Age has just been one bad trip. I think I could raise a toast to that thought.

sumacarol said...

I have to say that I enjoy most of the comments on this blog as much as the blog articles and summary. It is great to see the ideas presented through the perspectives of the commentators -- brings them alive.

ben said...

money post on money, DBS.

I don't recall having had a post of mine disappear, which isn't to say it didn't happen. I did delete two myself.

I. M. Nobody said...

That Sara N. Dipity girl planned this one pretty well. Tonight's dip into Fred's archives pulled this number.
Fred To Save Country

Not a whole lot in there to really disagree with. And maybe good for a laugh or two.

progressivepopulist said...


I heard you on the radio this afternoon and was probably as frustrated with Thom's dodging as you were. I too have lost patience with Hartmann- most of the time I stream shows from KPFK. I only tune in to the shills to check the pulse of the politically active liberals (it remains rather faint).

Good on you for getting a plug in for TAE, though Thom should at least know who Stoneleigh is as they were both featured in The Nation's video reports on Peak Oil and Global Warming.

As for Thom's resistance to recognizing reality, I'm reminded of this quote that while obvious in principle is so cleverly constructed I have to share it:

"Like a lawyer, the human brain wants victory, not truth; and, like a lawyer, it is sometimes more admirable for skill than virtue." -Robert Wright, author and journalist

progressivepopulist said...


Loved that piece by Fred. I'd be interested on his views regarding who ought to be allowed to give birth.

D. Benton Smith said...

re Fred For National Saviour

I like it !!

Just think how much we would save just on dirt cheap drugs & alcohol alone !

That's not even to mention other such compelling merits as elimination of ALL campaign and election expenses forever, zeroing out the perks pensions and bar tabs for three generations of Legislators of both houses, and ... best of all ... the end of endless Subsidized Right Wing Radio Broadcasting.

Why we could wipe out the national debt, cut the deficit to zilch and balance the budget all in one swipe !

Let's do it.

Elect Fred tonight and tomorrow someone run down there and sober him up enough for the Coronation.

I. M. Nobody said...

@ progpop and DBS

You guys cracked me up. Muchas gracias.

That's a great idea Smith, but he clearly expressed a preference for Duke of Guadalajara. I suppose that implies annexation of Mexico. I think I'll pick you for Coronation. I'll bet Fred would agree.

D. Benton Smith said...


Oh, gawd no !! Waaay too much work.

I want FRED'S job, after he gets promoted.

Layin' around on a nameless beach, suckin' down jalapeño martinis and poking fun at politicians has gotta be some kind of paradise.

el gallinazo said...

There is no telling what one can learn through this site. I never knew that Nehru fiddled while Rome burned. I thought he played bass guitar for Spinal Tap.

D. Benton Smith said...


re: Closing Argument

Besides, Fred is obviously the more qualified candidate.

Did you see the word he used in that opening paragraph: 'Perfervidly ?'

Why, I couldn't even LIFT such word, much less use it correctly in a sentence.

But Fred did, and I say that a man who can perform such a feat... by hand ... well a man like that could do just about anything.

Emperor or similar position of unquestionable authority ought to be just a piece of cake for him.

Nassim said...

The Tent City of New Jersey: Desperate victims of the economic slump forced to live in makeshift homes in forest

In scenes reminiscent of the Great Depression these are the ramshackle homes of the desperate and destitute U.S. families who have set up their own 'Tent City' only an hour from Manhattan.

Like the photo for this edition.

btraven said...

Highly recommended piece by Michael Hudson:

----- excerpt -----

This is what is happening today. Instead of enjoying what the Progressive Era anticipated – an evolution into socialism, with government providing basic infrastructure and other needs on a subsidized basis – we are seeing a lapse back into neo-feudalism. The difference, of course, is that this time around society is not controlled by military grabbers of the land. Finance today achieves what military force did in times past. Instead of being tied to the land as under feudalism, families today may live wherever they want – as long as they take on a lifetime of debt to pay the mortgage on whatever home they buy.

And instead of society paying land rent and tribute to conquerors, we pay the bankers. Just as access to the land was a precondition for families to feed themselves under feudalism, one needs access to credit, to water, medical care, pensions or Social Security and other basic needs today – and must pay interest, fees and monopoly rent to the neo-feudal oligarchy that is now making its deft move from the United States to Ireland and Greece.

The U.S. Government has spent $13 trillion in financial bailouts since Lehman Bros. failed in September 2008. But Mr. Obama warns that thirty years from now, the Social Security fund may run a $1 trillion deficit. It is to ward it off that he urges dismantling the plans for such payments now.

It seems that the $13 trillion used up all the money the government really has. The banks and Wall Street firms have taken the money and run. There is not enough to pay for Social Security, Medicare or other social spending that the Blue Dog Democrats and Republicans now plan to cut.

Not right away. The plan will be to “paper over” the current crisis by delegating the plans to a “Deficit Reduction Commission #2,” appointed from Congressional members.

Finally, we have “Change we can believe in.”

Real change is always surprising, after all.

----- end excerpt -----

skilo said...


>>What is money?<<

Let me throw in my definition. It is a systematic, societal asset stripping mechanism under the cover of being a unit to measure trade.


Re: "Lawless ones." Yeah, the criminals that write the laws don't add penalties for propaganda masquerading as "laws." Denninger pointed out that FinReg has absolutely ZERO penalties for breaking any of its "suggestions." IOW, a banker could break every law in FinReg a million times and... well... TBTF. They'd get record bonuses after the chumptocracy bailed them out again - and rooted for their "candidate" that made the call to do so.


Re: "Law of Jungle."

Understand, that only applies to the Robber Baron class. You mess up, the book gets thrown at you. Sometimes, even if you don't.

“Society dominated by an elite whose claim to political power would rest on allegedly superior scientific know-how. Unhindered by the restraints of traditional liberal values, this elite would not hesitate to achieve its political ends by using the latest modern techniques for influencing public behavior and keeping society under close surveillance and control.”
~Zbignew Brzezinski

@Ilargi, nice post.

Dungeon. How awful. How true. And the worst part is how many people eagerly vote for their dungeon master...

Alexander Ac said...

I know, this is old stuff, but here is new answer of one of the foremost slovakian economist and finance professor from, yes, Boston University:

"we have to think where this huge debt comes from - social state, unsustainable pensions, stimulation packages. These huge debts will slow down economic growth everywhere, but mostly in Europe, which has the biggest. But I am not such a pesimist. Certainly I do not expect oil for 30 dollars per barrel."

There You go, "Shock doctrine" in the making...



snuffy said...


I am many things,but I hope not a masochist[snort/giggle].I chose the current path as one that would provide the best return on time invested,and could be done by me and myself,with little outside help..My "farm"is more orchard than anything else,and I lean toward things like blueberries,and Hardy kiwi.[Perennial type stuff,passive food producers]Much of the work now is keep the deer out,prune,and keep the Himalayan Blackberry's down to keep from drowning my trees in green briars...
Yes,bees sting.I got one today on the inner thigh when I skipped wearing the long johns that would have prevented it[Its 80 outside]If your careful and paranoid,you minimize stings[I am not one to skip hood & gloves.Screw that.Yes I know some folks do.Many people do damn fool things.I am not one to .

I have some other Ideas.

In a time when power shortages may hit enough to hurt,having a standby capacity for stand alone power would be solid gold.Specifically for the operation of a Larger freezer system.I can remember as a kid going down to the local freezer company where my grand parents had a locker w/food stored for the winter.Before small cheap freezers,this was a local standard...the place where the community stored their frozen food.

Another is power for the "neighborhood"In a Mil surplus auction I saw 60k worth of brand new 30kw generator heads {4}go for the price of scrap...brand new heads.Hooked to a gassified I.C. engine[woodgas]a whole neighborhoods power could be supplied.
Among other skills,I am a pretty good steel fabricator,Having gone thru a boilermakers 4yr apprentice training,and spent a few years pushing steel for a living,I can make about anything I want to out of steel...
I have CHS last book[sent 5 copies to friends]and just downloaded the kindle app to try reading the new one.That guy has articulated a lot of stuff kicking around in my head for a long time, and did it in a erudite,comprehensive,and intelligent manner...much better than my rants...

Nassim,your comments are one of the things that make this place a enjoyable Daily read.Stick around please...

Time for rest...

Bee good,or
Bee careful


Ilargi said...

Just in case there's any misunderstandings: I haven't deleted any comments in a long time. Not by anyone. Not saying that's necessarily a good thing, when I survey the mess this place becomes at times, but there you are.


Nassim said...


Please don't think I am accusing you of being a masochist :) I am putting myself in the shoes of a bee-keeper and thinking that I would have to be into S&M to do that kind of thing. Perhaps sitting on your behind, when it is nice and sunny outside, and doing a lot of typing is your idea of self-punishment?

You are wise to try and reduce the frequency of the stings Laurence of Arabia is supposed to have said "the important thing is not minding that it hurts". The stings are reputed to help arthritis-sufferers.

Having a generator handy would certainly make you popular in Cyprus right now. A look at all the "wasteful" things that Africans seem to do a lot of might give one an idea of what will really matter.

Here is one idea that has been kicking around for years and big pharma seems to be doing all it can to keep it on the back-burner:
Tiny blood card offers easier tests for remote areas

The mChip is about the size of a credit card and can diagnose infections within minutes, according to a study in the journal Nature Medicine. Prototype tests for diseases such as HIV and syphilis in Rwanda showed almost 100% accuracy, it said. The US-developed device has a projected cost of $1 (60p). This would make it much cheaper than the lab-based tests currently used.

The technology is at least 10 years old - "nothing to see here ... move along!"

Nassim said...

when I survey the mess this place becomes at times ...

sorry :)

ogardener said...

Blogger Nassim said...

The Tent City of New Jersey: Desperate victims of the economic slump forced to live in makeshift homes in forest

Looks like a community to me :-)

D. Benton Smith said...

About the situation in Israel.... again.

Once I have said something I consciously try to not say it again too soon. I'm not an agenda-ist.

Nevertheless, the apparent absence of interest here on the burgeoning crisis in Israel is disquieting.

Those protests are neither a minor skirmish nor a second tier issue. Its big stuff. It's a BIG domino very near the head of a BIG row, and a popping bubble that has the potential wave front characteristics of an air-burst nuclear device.

The following excerpt is from a first string contributor ( Bernard Avishai ) to Al Arabiya news on 31 July 2011. Al Arabiya is a Saudi backed ( and testily competitive) equivalent of Al Jazeera. In other words, the two media don't like each other very much, but on THIS issue they are sounding the same alarm:

“... { it is ] ... Netanyahu’s free-wheeling approach to market regulation—so much like that of American Republicans, and masked by ultra-nationalist distractions—which has led to the enormous concentration of ownership in Israel. The wealthiest 16 families own 20 percent of the top 500 companies: Ofer, Dankner, Arison, Tshuva. Some family-based conglomerates have been taking super-profits from, in effect, monopolies in banking, telecom, food retailing, media, and so forth. But they are also over-leveraged, and highly invested in real estate. Burst the housing bubble—by releasing a great deal more ILA land, for example—and some will be under water. The impact on Israel could be something like the collapse of Lehman Brothers in the US.”

In other words, guys, yet another “ Pop! heard round the world. "

I would also draw your attention to his short list of their preferred zones of monopolistic profitability : banking, telecom, food retailing, media, and real estate.

To his list I would add only health care, defense, education and insurance to complete the package.

Notice any common denominator about those industries ?

They are all leveraged bubbles dependent on government contracts and/or subsidies.

Real estate is, as we know, the sand upon which those mansions are built... but the quiksand under THAT sand is government controlled extraction of money from civilians, then funneled to the industries by governmentally controlled program spending.

Wouldn't it be ironic if "THE " revolution started on the streets of Tel Aviv ?

p01 said...

Bill Still's latest.
Whatever politicians and legislators do will not work.

And, of course, what Bill suggests will not happen, but it's educational to see why this won't work, and realize why the change he proposes will not happen. The machine is just too damn big.

jal said...

p01 said...
Bill Still's latest.
Whatever politicians and legislators do will not work.
Can I take the opposite view?

The mechanism will work ... the application of the mechanism will cause another failure down the road.

Hey! That's all they they want ... kick the can down the road.

Getting to the present situation, USA will want to find $2T to cover their expenses. Who has that kind of money to lend to them?
Russia and others have stopped buying T-bills and are buying gold.

Of course everyone in NA has forgot that the EU will also need to borrow $2T.

Everyone will just need to buy more printing ink.


bluebird said...

@D. Benton Smith - I think the mainstream media must have a lockdown on any news about Israel. Or maybe people aren't aware of Israel, because of all the political kabuki theater concerning the raising of the debt ceiling and future spending cuts which obviously has been a major distraction from something else going on in the world.

el gallinazo said...

Your tax dollars at work - The Incredible Grunt


I, for one, am really interested in what is going on in Israel for a variety of reasons. Interest is not always followed up by a comment. Sometimes things just speak for themselves.

I liked your essay on money a lot and thought it was right on. The Kindle app on my iPod has been working overtime, switching between CHS's latest, Cannibals and Kings, with Good Calories, Bad Calories sitting in the wings. Also have a book on HAARP waiting to be looked at. Brain and eyes are the limiting factors.

Have you read Cannibals and Kings? Really interesting, unconventional ideas backed up by lots of hard data. His basic thesis is that humans have been too reproductively successful, and the basic social drive going back tens of thousands of years is how to keep clan population under control to prevent the degradation of hunter-gather resources. The primary method was to keep the female percentage of the clan down, for as Dr. Strangelove pointed out with such exuberance, a male can service 10 females. It is the female population of the clan that determines exponential growth or steady state. He states that this is the basis of both warfare and male dominance which is not instinctual to human nature but almost universal among hunter-gatherers. Male casualties are only secondary - the primary purpose of warfare is to make a high male percentage of the clan necessary which will perpetuate female infant infanticide and neglect. He also points out that hunter-gatherers have been completely aware of plant and animal reproduction and chose not to start an agricultural life, not because they were ignorant, but because they thought the life style sucked. They only became agricultural when they lost control of reproduction making the h-g life style impossible because they trashed their resource base. Archeological remains indicate that male population height before and after the shift went from 5'10" to 5'5" very quickly. Loss of teeth at death increased by three.

And as I suspected intuitively, the breakdown of economic liberty and individualism didn't start until the city-state when the Big Men, who often fared worse than average economically, became kings. Well, that is what I am up to so far in the book. Harris says that with the introduction of modern contraception, the entire basis of many negative aspects of human society has been eliminated, but it is probably far too late for that to make a difference. Kind of a Catch 22. That's my summer show and tell.

d.a. said...

@sumacarol - stopped in to say the same thing :-). I often check the progress of commentary between postings, as even the paid shills/trolls can sometimes be interesting. Love the conversation here, thank you everyone!

SecularAnimist said...

"He also points out that hunter-gatherers have been completely aware of plant and animal reproduction and chose not to start an agricultural life, not because they were ignorant, but because they thought the life style sucked.""

This runs contrary to what Marija Gimbutas thought. She spent here life studying old europe. Which were early egalitarian, non-war based, agricultural based settlements, sometimes with populations up to over 10,000. They also worshipped a female deity. This culture was overtaken by a male deity, hierarchical warrior culture that came out of southern russia around 5000bc and basically started imperial conquest as an acceptable and ritualized economic model. Causing all societies to adapt this method out of survival.

Actually, some think plant cultivation can be traced back almost 100,000 years for marijuana.

"Archeological remains indicate that male population height before and after the shift went from 5'10" to 5'5" very quickly. Loss of teeth at death increased by three."

Careful reviews of the available evidence indicate
that life expectancies (not the same as "lifespan") did not change much after the introduction of agriculture:

Actually, life expectancies generally crept upward, from the low 30s to the high 30s or low 40s, as the centuries wore on. But the BIG jump-- from circa 40 up to circa 70 -- came in the last century or so, with
the advent of industrial civilization.

HEALTH, on the other hand, did take a major hit, just as you say. The advent of agriculture was also the advent of chronic degenerative diseases of various kinds. It might seem odd that health status (judged in certain ways) deteriorated, without live expectancy changing much, but it is true. However,
health has been improving, along with life expectancies, over the last 2 centuries. Mostly from public health polices and nutritional changes. Humans are generally taller and healthier. With exceptions, of course. It appears that this trend was probably broken over the last generation in some parts of the developed world, such as the U.S. We seem now to be starting to lose some of the gains of the last 2 centuries. Just starting.

"They only became agricultural when they lost control of reproduction making the h-g life style impossible because they trashed their resource base".

It no doubt was some sort of crisis. Crises always spawns "revolutions". When I say (r)evolutions, I mean ones that dictate entirely new social structure, modes of operation and consciousness.

Kind of like the time period we are entering now.

el gallinazo said...

Your tax dollars at work Part two

Coming to Nebraska shortly

I. M. Nobody said...

Wouldn't it be ironic if "THE " revolution started on the streets of Tel Aviv ?


I don't think it would be ironic at all. As you mentioned awhile back, other than entertainment the Jew's special talents lie in the FIRE industries. As they are good at it, it is where they achieve prominence. In most of the world, they are blended in with goyim. In Israel they have noone to blend with.

News about Israel is filtered more than most places because Jews are also well placed in the news industry, which is mostly about entertainment and marketing. Information has occasionally leaked out that suggests the Israeli hoi polloi are not treated better than hoi polloi most everywhere. When they figure out they are going to be no better off than the Palestinians, a revolt is certainly a possibility.

As I have perfervidly (hehe) tried to explain before, the BFC (skilo's favorite acronym) have done what every social class does when they achieve full spectrum dominance. They overplayed their hand. The whole mess is ready to collapse in a moderately stiff breeze.

el gallinazo said...


As you mentioned awhile back, other than entertainment the Jew's special talents lie in the FIRE industries.


I think a good case could be made for theoretical science as well, particularly in the first half of the 20th century. And I don't think that it is a "special talent" so much as a historical artifact. When they discover a gene for investment banking I may change my mind.


For the few people here interested in finance, this is a good remedial pre Fed / Primary Dealer 101 summary.

As I mentioned before, when I look at the stock market currently, it always reminds me of Baron Harkonnen of the Dune novel, the grossly obese plotter who would float about near the ceiling of rooms with his antigrav belt.

I think that Brian Sack and his hit team Boyz of the NY Fed PPT are off the job and soaking up the rays at the Hamptons. They just may have turned off the juice to the antigrav belt. This may be the dump after the pump. I think the biggest question right now is - is this just a ruse to get the remaining survivors of the middle class, trapped in their 401-k's pseudo-pensions, to beg the Bernank to start QE 3, or have they really pulled the plug and decided to permit a deflationary collapse, like turtles, all the way down.

For those of you who say that the politicians won't permit the latter, I must remind you of who is the dog and who is the tail. Case in point. Carter appointed Volker, a David Rockefeller lackey, as chairman of the Fed. His actions were the most determinant of all events, including the Iran fiasco, to Carter's loss of the election to that half wit bozo, Reagan.

I am not making a prediction as to which one it is though until I have breakfast with Rockefeller and Rothschild.

p01 said...

@El gallinazo
Go directly to Taubes' latest smallish book.
"Good Calories, Bad Calories" is a very big book and does a lot of damage when you get to the infuriating parts, then throw it around yelling "We trusted them, and they are killing us!".
I know, I read it twice...

p01 said...

@El gallinazo
Oops, I see you're reading on your Pod. Make sure you have a spare one, then.

I. M. Nobody said...

Dammit el g let's not go there. Iranians seem to have a special talent for weaving fancy rugs. There is no reason to think it is something in their DNA. It's just what they have been doing for a very long time and become damn good at it. Down thru the generations the Jews have very often made their living as merchants and financiers. They got to be really good at it.

Fred has frequently claimed to believe that they are the smartest tribe on the planet. He may well be right. They are well represented in the sciences and have been well known among the philosopher class. Are there any other bases I might have missed?

ghpacific said...

For anyone else who likes to read TAE for insight into preparing for what's coming and not discussing the nuances of what's driving it, I offer this from the authors of Aftershock,

el gallinazo said...


"Are there any other bases I might have missed?"

I think that swapping crap, endless conjecture as to what's it all about physical and metaphysical, and entertainment have about 98% of the human endeavor covered.

el gallinazo said...

As I was just walking down my long driveway to check something at the street gate, a very large gallinazo circled me three times at a distance of less than 10 meters. She then settled down on a nearby crest to watch me. Either she is looking for a mate or I should rush to the internist for a full checkup. She was very pretty with a nice, bright red head.

Ash said...

El G,

Perhaps the large gallinazo knows something that the QE-HI hawks don't. The equity markets could either take a straight line down while the long-bond skyrockets, or, more realistically, the US economy could die like a terminally-ill human being subjected to various forms of "end of life care". As Dr. Kevorkian spent a good part of his life proving in criminal court and prison, Euthanasia is frowned upon in this country.

I'll admit, though, that the question always remains, what is gold doing and why? Right now it's moving in the opposite direction of equities and alongside the USD and bonds. Is this the beginning of the short-lived deflationary episode that leads to a HI tipping point and massive money printing? Or are herd investors just fantasizing about QE3 and/or fearing its potential effects before the bottom gives out? The fact that corn and what are up 5% right now seems to strongly suggest the latter, IMO.

TAE Summary said...

* Aphorisms
- It's a jungle out there
- War is a scam
- No matter how cynical you get, you can't keep up
- Politics is show business for ugly people
- Never act without a text book
- Bricks are heavy
- Don't give advice unless you want to

* Buyer beware; Lender be snare; The rich cannot break the law by definition

* No customers = No work; All our problems would be solved if people could create their own money; Banks never announce before they intervene

* France is huge; France is very close to Italy and not far from Greece; In France it's cheaper to wear bandages than clothes

* TAE comments are messy; Comments are not deleted but they may be filtered; No further comment is necessary

* Where is Cheryl? Has the big August run up in stocks started yet? Help me Cheryl, help me!

* Black boxes have unknown perimeters but known areas

* Cashless societies keep accounts in their head; Symbols can't replace substance; We aren't raising the debt ceiling, we're deepening the debt pit

* Liars are the good guys; Ron Paul exposes the good guys plan; They're still digging the debt pit, but have switched to a smaller backhoe

* Better Fred than Dead; If it isn't surprising it isn't change; If I have to get pecked by a vulture can she at least be a redhead?

* The agricultural lifestyle sucks unless you get to worship a female deity; Tent cities are growing in the Garden State; A generator comes in handy when the power is out; Someday soon a credit-card-sized object will determine if you will get medical care

* Don't criticize a Snuffy until you've walked a mile in his shoes; Then when you criticize him he'll be a mile away; And you'll have his shoes

FB said...

@ ghpacific

I read the Aftershock paper. The authors do not understand that massive debt destruction means deflation, not inflation. That invalidates a large part of their analysis, particularly concerning personal debt.

In addition, they do not mention peak energy, the environmental situation, overpopulation or any number of other problems.

They end by saying the U.S. will come back stronger, wealthier and better than ever, all due to increases in productivity in… guess what? Services. There is not much real information on what to do in the meantime, though they do advise not becoming obese on the vast quantities of junk food that will be available (they do not explain where all that food will be coming from).

I would be interested to know why you think that document is worth anyone's time.


Brunswickian said...

Celente in latest Trends issue:

As he has said before, it is only a matter of time before a major terror attack is executed in a major Western nation. And once it happens it will send shock waves throughout the world, leading to mass global panic and a further tightening of the noose around the necks of the populace:

What will another major terror strike mean? Should an attack hit one of the major NATO nations, the effects, this time, will go global. Bank holidays will be called, the US and other fragile economies will crumble, gold and silver will soar, and already-troubled currencies will crash. Economic martial law will be declared. Introduced as a temporary measure, once in place it will remain in place (like the curfews and draconian security precautions installed by despots and dictators everywhere). Civil rights will be suspended and, particularly in America, Homeland Security, already intolerably intrusive, will achieve an Orwellian omnipresence.

With banks closed and economic martial law inplace, restrictions will be set on the amounts, times and frequency of withdrawals. As we have cautioned before, it will be essential to have a stash of cash on hand. Even though governments will devalue their currencies, it will happen in stages. Speaking only for ourselves, we at The Trends Research Institute will not be storing precious metals in bank safe deposit boxes.

snuffy said...

I have many shoes,tall man[smile]

Bee good,or
Bee careful


I. M. Nobody said...

Economic martial law will be declared.

What kind of bullsh!t idea is that? When martial law is declared it will cover way more than just economic affairs. It will of course happen because of economic catastrophe. That adjective in front of martial is meaningless. Does Celente think he has to hang crepe on it like that to be taken seriously, because of who he is?

Is he implying that the Wall Streeters will somehow remain in charge and troops will only be deployed at the banks? My mind seems to be boggling right now trying to figure within a few orders of magnitude what the odds are of that happening. The military and law enforcement minds work differently from the ones he is used to hanging out with. Once they are unrestrained, there will be big changes. But, yes they will be felt in all aspects of the economy.

Lynford1933 said...

Off topic:

You know how at times you feel like the world is just about a half bubble off and then you realize it is you and not the world. I have been feeling that way for the last couple weeks with all the talk about the debt ceiling being the headline issue lately. We are going to raise the debt ceiling! The congress raised the debt ceiling by 2.4 trillion, the president signed it. Hurrah, hooray.

This morning I was on the internet and someone said, "It is not a debt ceiling. It is a debt pit." All of a sudden, at that instant, I understood, my bubble snapped back to the center. The congress just dug our debt pit 2.4 trillion dollars deeper and the president signed it. We should be in mourning, black arm bands, the whole bit. We have been snookered by semantics.

If you find yourself in a hole, for God's sake quit digging.

Nassim said...

D Beneton Smith,

Remarkable the Daily Telegraph has nothing of significance on Israel.

A Google search " israel" or " israel" gives nothing there either ... and so on

Move on ... nothing to see here :)

Ash said...

re: Israel

Global Research has a decent article about the situation there.

"Yediot Aharonot columnist Nahum Barnea described the protests as unprecedented. “Whether the crowds numbered 100,000 or 200,000, never have such numbers descended into the streets over social issues,” he wrote. “Who would have believed that 150,000 Israelis would take the trouble to go out into the street in the name of social change… the alienation and cynicism that typified the public in the past number of years has now been replaced by involvement and protest.”

The largest protest was in Tel Aviv, where up to 100,000 people marched through the city centre. According to media reports, another 10,000 rallied in Jerusalem outside the prime minister’s residence and 8,000 marched in Haifa. A smaller demonstration in central Nazareth involved both Jews and Arabs, the first such joint rally since the housing protests began.

Slogans included: “The people demand social justice”, “We want justice, not charity”, and “When the government is against the people, the people are against the government”. Protestors also made banners pointing to the influence of the recent uprisings in Egypt and other Arab countries. One read: “This is the Israeli spring”, and another, “Mubarak, Assad, Netanyahu!”

As DBS pointed out, though, Israel isn't exactly Egypt, in terms of its importance in the global economy and its geopolitical important to the US, specifically. I noticed on ZH that the US is guaranteeing both Egyptian and Israeli bonds right now, which, like US bonds themselves, will not be downgraded by Moody's after being put "on review" for a potential downgrade, depending on what happened with the "debt ceiling crisis" (like there were actually two different outcomes possible). The US can afford to let Mubarak fall and then bail out the new Egyptian government, but Netanyahoo and Israel? Now that's a different story.

Ash said...

Forgot to say, the Israeli situation is also troubling to me in its implications for "false flag" attacks and/or a re-invigoration of the "war on terror" aka the "war on countries with strategic resources that also happens to provide a convenient distraction for the domestic population".

el gallinazo said...


i have been hearing reports of at least a second shooter in the Labor Party youth camp massacre. Supposedly dark haired and "Norwegian looking." Also why the police couldn't get a helicopter and it took them over 90 minutes to arrive. Also, that the police called to Anders Breivik by name when they first arrived. You reading anything in the Norwegian language press about it?

This report from FT:

“We do not have any indication, at this moment in time, that there are other cells in Norway or elsewhere in Europe,” she [Janne Kristiansen, director of the Norwegian Police Security Service], told the Financial Times, while refusing to rule out the possibility.

Mr Breivik, who has confessed to the attacks, claimed in a closed-door court hearing on Monday that he was part of an organisation with “two other cells” in Norway and several abroad, according to accounts by the judge and defence lawyer.

Ms Kristiansen said such statements may be intended to keep global media attention on him and sow confusion among investigators.

seychelles said...

IMN said

They are well represented in the sciences and have been well known among the philosopher class. Are there any other bases I might have missed?

Oh yes. Classical musicians. Their contribution in that sphere is far more than entertainment and more like purveyance of spiritual refuge that is readily available when day to day existence gets discouraging.

el gallinazo said...

Norway was scheduled to fly its last NATO Libyan bombing raid last Saturday (July 30).

Norway will fly its last combat mission in Libya on Saturday, two days before the official end of its role in the NATO-led air war, an alliance official told AFP.

Norway, one of eight NATO members that have conducted air strikes in the four-month-old operation, was the first to set an end-date for its participation when it decided last month to withdraw on August 1.

Norway originally deployed six F-16 fighters to the mission before reducing it to four last month. The government explained that its small air force could not sustain a large air contribution for a long period of time.

Only eight of NATO's 28 member states have flown bombing missions since the alliance took command of the operation on March 31: Norway, Britain, France, Canada, Belgium, Denmark, Italy and the United States

ogardener said...

@ ghpacific

There was no mention of peak oil and global climate change in the literature you suggested. These two important variables may inevitably lead to additional diminishing returns in the financial markets.

Nassim said...

el G,

Here is a translation of a listing of Aftenposten's main articles about the slaughter. There seems to be no reference anywhere to a second gunman.

My boy tells me that there is a lot of sympathy for Jens Stoltenberg - just like for Bush after the New York tragedy.

BTW, Jens Stoltenberg is the son of Thorvald Stoltenberg who was a previous minister of defence and a foreign minister of Norway. He was deeply involved in the Oslo Peace Accord and the Yugoslav tragedy. Who says politics cannot be a family business?

Personally, I find it sad that no one is prepared to discuss the reasons for this guy's behaviour and the fact that his attitude is quite common in Norway and Sweden. I really think that Europe is going to go back the way it always was. There is a lot of hypocracy going on. The guys who are doing most to promote "multiculturalism" are going to be the first to put on the brown shirts - once fashions change.

D. Benton Smith said...

@ Nassim

You wrote: " Remarkable the Daily Telegraph has nothing of significance on Israel.

A Google search " israel" or " israel" gives nothing there either ... and so on. "

Remarkable, yes. Surprising, not.

Arguably there would be no England were it not for the Rothschild banking dynasty, nor an Israel for that matter, which they, more than any other single entity, conceived, built, and operate like their own private colony.

If these sociopaths choose for a few of their conservative financial rags to boycott news that threatens their financial interests then I am far from shocked.

Sadly, were the Rothschilds ever faced with the existential choice between their money and their Jewish state, I believe they would choose the money without a moment's hesitation... ushering in yet another holocaust of the innocents.

Of all the betrayals ever suffered by the Jews of the world I believe the Rothschild's shameless use and shabby exploitation of all of the people of Israel (Jew and Muslim alike ) will go down in history as second only to Hitler's.

The combined intellectual, cultural, scientific, medical, philosophical and moral contributions to the human race, by Jews too numerous to fathom, is nothing less than a world treasure.

It shames me as a human being to see them used so badly, and by people so cynically pretending to be their own.

The only hope I can muster is that a brilliant and politically sophisticated new generation can see past the sectarian distractions and go for the financial jugular of those bloody
blood drenched bankers.

el gallinazo said...

Thanks Nassim for that link

The browser translations into English work really well. One mystery cleared up - how the police called Breivik by his name just as they arrived when they told him to surrender. He apparently called the police on his cell phone before they arrived at the island.

However, I find the police brass blowing off his testimony that he was allied with both two Norwegian groups and other international groups as simply an attempt for greater publicity as both suspicious and stupid. He couldn't get more publicity. I would say that murdering over 60 children of the ruling political party was a political event certain to get their attention.

el gallinazo said...


Re the Rothschilds

Agree with you entirely. I wonder if they realized, when they were wringing money out of post WWI defeated Germany, whether their greed would help lead to a fascist conflagration that would result in the murder of six million harmless and innocent fellow Jews. And if they did realize it, would it have made a difference? One of the ironies is that the Israeli protest tent cities are on Rothschild Boulevard. The Rothschilds and the Rockefellers, the reptilian branch of the human family.

seychelles said...

From CHS 08/02

As I have endlessly explained here, "healthcare" in the U.S. is nothing but an enormously profitable assembly of cartels. It is truly sickcare, because in a profit-based system, health is profitless and therefore the enemy of profit: it's illness that's profitable, so the sicker the populace, the better.

Absolutely. When HMOs were cooked up in the early '80s, one of their alleged strong suits was preventative medicine, with annual physicals. Now most health plans now do not cover routine preventative care. A complete about face. As costs have skyrocketed, healthcare quality has become laughably poor. Only a tiny fraction of negligent actions result in malpractice suits or reports to local medical societies, which ironically are usually headed by the biggest crooks and incompetents. Our healthcare "industry" needs rigorously applied wage and price controls and elimination of its vast unnecessary middleman bureaucracy ASAP. Every medical school core curriculum should include a course in medical ethics.

el gallinazo said...

Re Israeli protests

What a surprise! Ample coverage on Russia Today. Those damn Russkies are still subverting the world, even though they ain't Commies anymore. Not quite sure what they are now. Must be the jeans. Or the cabbage soup.

Then put "Israeli protests" in the search box.

Also, a quote from Mad Max Keiser on RT today.

"Lloyd Blankfein and Jamie Dimon are to the American middle class what Buffalo Bill was to the American buffalo.!

Actually you might as well watch the 5 minute clip. Max is really funny.

ben said...

a friend and TAE lurker took this photo of a big brother warning that is posted just off belmont st. here in portland:

el gallinazo said...

Norwegian intelligence probably wants to know where is Jack Ruby when we need him? Maybe they should let Breivik outside for a little fresh air.


Andres Behring Breivik, the self-confessed perpetrator of Norway's twin terror attacks, has demanded that his mental condition be diagnosed by Japanese specialists as part of a list of demands his lawyer described as "unrealistic."
Geir Lippestad said his client promised to tip police off about two other terrorist cells that allegedly helped him organize the July 22 massacres if the authorities met his demands, which also include the resignation of the government.
Lippestad said the 32-year-old anti-Muslim extremist wanted to be diagnosed by Japanese specialists because "he thinks that the Japanese will understand him better than the Europeans."

Also, here is a good political analysis of the Israeli protests on RT.

SecularAnimist said...

And now a message from Pam Geller, of now famed Atlas Shrugged website - alleged ideological mentor of Breivik.

"But the jihad-loving media never told us what antisemitic war games they were playing on that island. Utoya Island is a Communist/Socialist campground, and they clearly had a pro-Islamic agenda.
Only the malevolent media could use the euphemism summer camp and get away with it.
The slaughter was horrific. What these kids were being taught and instructed to do was a different kind of grotesque. There is no justification for Breivik's actions whatsoever. There is also no justification for Norway's antisemitism and demonization of Israel""

skilo said...


>>"Good Calories, Bad Calories" is a very big book and does a lot of damage when you get to the infuriating parts, then throw it around yelling "We trusted them, and they are killing us!".<<

check out the following link about HFC

The truth is that BFC owns and controls BFC Pharma, BFC Chemical and BFC Agra and they can MAXIMIZE PROFITS only one way - create massive levels of chronic cellular inflammation that leads to chronic disease.

Basically, they want to covertly make you sickly. And your children.

Did you know the flu shot has never undergone a double blind study to prove efficacy? Probably not, they don't advertise this truth. Did you know that they don't correlate flu death data with whether the person who died had a flu shot or not? Nope - don't want that data. Science, data - who needs it? Not Big Pharma!

I've had amazing results with the Zone Diet. Throw in non GMO natural foods and you should have a first class anti-inflammatory diet.

Check out this PDF...

The Tour de France team winner applies Zone Diet anti-infammatory technology...

Famouos Zoners include Dara Torres, Jenny Thompson, Tyson Chandler, BJ Penn, Troy Polamalu, Valentina Vezzali (only human to win 3 straight fencing gold medals), Manuel Uribe, 2004 Italian National Basketball silver medalists, The oldest swimmer on the US Olympic swim team since 1992 and Jennifer Aniston.

A diet is not just about losing "weight." It is about eliminating excess cellular inflammation and maximizing human performance.

The Zone Diet really works as a solid foundation to add non GMO, paleo, etc... into the mix.

Brunswickian said...

Things are not going well for NATO in Libya

scandia said...

An analysis on events in Israel from PressTV...

" Zionism incompatible with Israelis"

p01 said...

I just avoid grains, sugars and vegetable oils like a plague. I have no quarrel with carbs per se, as long as they come from tubers, although in paleo times the tubers were probably more like celery and less like the GMO bags of glucose called potatoes nowadays.

p01 said...

Anyway, as everything collapses we will have to eat grains. Stephan Guyenet explains why soaking and fermenting was done. It was not some naive grandma tradition...but a tried and true method used to transform something partially toxic into something partially nutritious.

p01 said...

Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is
Numerous bar patrons slowly nodded in agreement as Bernanke went on to suggest the United States could pass three or four more stimulus packages and "it wouldn't even matter."
The Onion

Ash said...

US Prepares for Worst Case Scenario With Pakistan Nukes

[Former CIA Director Tenet]: “After a few pleasantries … I launched into a description of the campfire meeting between (O)sama bin Laden, al-Zawahiri and the UTN leaders,” Tenet wrote. “‘Mr. President,’ I said, ‘you cannot imagine the outrage there would be in my country if it were learned that Pakistan is coddling scientists who are helping bin Laden acquire a nuclear weapon. Should such a device ever be used, the full fury of the American people would be focused on whoever helped al-Qaida in its cause.”

In a testimony before Congress four months ago, the CIA’s new director, Gen. David Petraeus, left little doubt the U.S. still fears the worst. “There are certainly elements in Pakistan, the Pakistani Taliban and several other varieties of elements who generally have symbiotic relationships, the most extreme of which might, indeed, value access to nuclear weapons or other weapons that could cause enormous loss of life,” said Petraeus, then commander of NATO and U.S. forces in Afghanistan.

Like others in the U.S. government, however, Petraeus felt duty bound to note, “There is considerable security for the Pakistani nuclear weapons.” But he appeared to choose his words with care. “Considerable” does not mean “state of the art,” for example.

Such discussions of Pakistan’s nuclear arsenal, now believed to consist of as many as 115 nuclear bombs and missile warheads, have gotten the attention of current and former Pakistani officials. In an interview with NBC News early this month, Musharraf warned that a snatch-and-grab operation would lead to all-out war between the countries, calling it “total confrontation by the whole nation against whoever comes in.”

“These are assets which are the pride of Pakistan, assets which are dispersed and very secure in very secure places, guarded by a corps of 18,000 soldiers,” said a combative Musharraf, who led Pakistan for nearly a decade and is again running for president. “… (This) is not an army which doesn't know how to fight. This is an army which has fought three wars. Please understand that.”

ghpacific said...

FB & ogardener, Thanks for the comments. Peak Oil is indeed a big factor that will affect the future and I don't know if the authors address this issue elsewhere in their book(s). Mostly my take away is to avoid all real estate as it is certain to further decline in value (as both I&S have said) and that was what I had been hoping would turn around, but am now making other plans for the 'final solution' of serfdom.

el gallinazo said...

A really good article on Iceland's recent financial and political history. Pops some illusions.


If you need some special hat designer tin foil, I have extra in my stash :-)

p01 said...

For canadians mainly:

"Massa" Turner has managed to piss off Ben Rabidoux(an excellent blogger IMHO, although much too optimistic) and is starting to show his true colors. What could a politician become if not a financial adviser? And as people realize his blog is in fact a push for his fee-based "how to make 8% per anum when even Soros is scared shitless" advice, all comments not aligned with his line of profit will get deleted.

Told ya not to trust politicians!

Chas said...

Where do Stoneleigh and Prechter differ? It appears that they share most of the same ideas.

Mike said...

El G,

Thanks for the CHS Link to his Kindle book. Kindle is another great way to get the word out and I think it would be another way for I&S to deliver their very important info and to gain an additional revenue stream.

I would also like to have an easily reference and readible document from Stoneleigh on the kindle format.

Just a thought.

I have been reading more and more Charles H Smith lately and his stuff has been outstnading.


scandia said...

@P01, I got caught by the Onion story on a drunk Bernacke!!!What an upside down world when fiction tells the fact.Probably the only way left to tell the truth. I had thought while reading it that too bad Powell hadn't had a few too many drinks before fudging the WMD in Iraq. What a different world we would have.

p01 said...

United "Enlightened" Europe going down the drain:
Fears of far-right rise in crisis-hit Greece.

Anyone still not convinced where Europe is headed? Any illusions this will be contained or that it "will not happen here"? :(

el gallinazo said...

Hamburger University More Selective Than Harvard

OK p01 - hold the bun

Forget Harvard. Hamburger University -- the Shanghai branch of McDonalds' managerial training program -- is one of the hardest colleges to get into in the world, with an acceptance rate of less than one percent, according to Bloomberg News. (Harvard's acceptance rate hovers at 7 percent.)

Young corporate hopefuls are flocking to the managerial training program, which is primarily designed to prepare current McDonald's staff members for positions in crew development, restaurant management, mid-management and executive leadership. So far, the tuition-free school has trained 1,000 of the 70,000 McDonald's employees in mainland, with plans of educating another 4,000 in the next two years. All restaurant branch heads must graduate from the university.

el gallinazo said...


Kindle can be a good revenue source. My stepson published a short story there a few months ago based on a true incident which happened to him about a shipwreck and rescue he participated in sailing from St John, USVI to FL. It sold for $1.99 of which he was supposed to get something like 75%. So far it has sold over 12,000 copies. Just hope that Amazon doesn't stiff him.

I have an iPod touch 3rd gen. Putting Stoneleigh's primers on it is no big deal, though I can only mention what I consider to be the best pathway for a Mac.

Open the html article, go to print, then pull down to save in PDF. Open in Preview and cut any pages off you wish to. Download Calibre and Stanza for the laptop and Stanza for the iPhone (all free). Convert pdf to epub with Calibre. This is not absolutely necessary but Stanza does a nicer job with epub than pdf. Sync your iPhone and move the epub to your Stanza iPod or iPhone app using the app tab of iTunes. Sounds complicated but it is not really, and you can batch the files.

Ash said...

Speaking of CHS, when I try to access his blog, it says "This Account Has Been Suspended". That doesn't sound like your typical technical difficulty... anyone have any further info? I'm gonna try e-mailing him, but I'm sure he's being bombarded with emails right now.

el gallinazo said...

Either Brian Sack's boyz of the NY Fed PPT flew back from the Hamptons on Benny's helicopter, or more probably, the algobots are responding to the FOMC's Hilsenrath's flatus suggesting QE 3. Hilsenrath is the designated anal pore to the MSM. This may just be a release to prevent a free fall demolition of the equities market since the European indices lost over 2% again today, or it may be a real shot across the bow. If the latter we can expect donuts at $5 apiece at Dunkin' soon.

el gallinazo said...


He forgot to put a quarter in the phone for the next five minutes. Server's ain't free and he must buy by the GB.

Ash said...

Prompt reply from CHS:

"Yes, I’m switching over to a dedicated server and it’s been bungled. sigh.
Thanks for the note!

el gallinazo said...

Don't criticize Stoneleigh's market predictions. The genius, George Orwell, was early also.

From the Guardian

Anarchists should be reported, advises Westminster anti-terror police

Frank said...

@el G given that Hitler wiped out three of the five branches of the Rothschild family. (only British and French left), I think it highly unlikely that that business developed in any Rothschild-planned way.

el gallinazo said...


You have links to that? I'd like to look at the details.

But DBS and I where taking about the British Rothschilds anyway. And this is not to paint all European Jewish bankers with the same brush. I was just thinking of the banker and friend of the family, Isak, in Bergman's film, Fanny and Alexander. Isak was a mysterious hero of the film, and in all probability, was taken from Bergman's childhood memories of a real person. In my humble opinion, Fanny and Alexander is a serious contender for the greatest film ever made.


Manic depression is touching my soul
I know what I want but I just don't know
How to, go about gettin' it
Feeling sweet feeling,
Drops from my fingers, fingers
Manic depression is catchin' my soul

Manic Depression by Jimi

The Treasury's Borrowing Advisory Committee, chaired by such luminaries as JPMorgan and Goldman Sachs, which according to some (and by some we mean anyone who cares about such things) is the brains behind the decision-making process of US debt issuance has released its quarterly minutes, in which it has issued one of the most stark warnings about the fate of the US Dollar to date. While it is now a daily occurrence for China and Russia to bash the dollar, for the most part still powerless to provide an alternative (but rapidly gaining), the same warning coming from Jamie and Lloyd has to be taken far, far more seriously. Which is precisely what happened today. As Bloomberg reports, "The Treasury Borrowing Advisory Committee... said the outperformance of haven currencies and those from emerging nations has aided in the debasement of the dollar’s reserve status, according to comments included in discussion charts presented ahead of the quarterly refunding. The Treasury published the documents today. “The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one committee member said. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”"

I. M. Nobody said...

Possibly one of Fred's most perceptive Scurrilous Commentaries.

Democracy, Birds, And Snails


April 7, 2005

I wonder whether liberal democracies do not follow an ordained trajectory into the muck, ripening like fruits, having their arteries harden, and falling, plop, to be eaten by birds and snails. (That was a two-animal medico-vegetative ballistic metaphor, not so much mixed as homogenized, almost colloidal. Patent applied for.) I note that the English-speaking countries are doing to themselves exactly what the United States is doing, and the Europeans, though better educated and more cultivated, follow. Maybe there is a pattern.

Democracy, Birds, And Snails

Ash said...

El G,

Is the statement released by the Treasury's "Borrowing Advisory Committee" code for "stop spending/printing so much money for the people and start getting serious about servicing the debt you owe us"? It seems the TBTFs enjoy making thinly-veiled threats these days; ones that they can't really afford to have carried out.

Ilargi said...

New post up.

The Next Bank Bailout Bloodbath is Here


Frank said...

@el G It seems I was (mostly) wrong. The German branch ended with no male heir earlier in the 20th century. The Austrian people escaped, but their business was not so portable. I seem to recall that they managed to sell some of their foreign operations to their British cousins in time, but it still cost the family as a whole a pretty penny.

Wikipedia is your friend.