Friday, May 31, 2013

Satire: "Obama Under Fire for Using Free Government Housing"

 "Obama Under Fire for Using Free Government Housing"
by Andy Borowitz

WASHINGTON (The Borowitz Report)— "In the latest scandal to rock the Obama Administration, a leading Republican congressman accused the President today of using his position to obtain free government housing for himself and his family. According to Rep. Paul Ryan (R-Wisconsin), Mr. Obama “has arrogantly exploited the office of President to gain access to a fifty-five-thousand-square-foot residence that could double as a museum. While the average American is struggling to pay his bills, President Obama is living in a luxury home, adorned with priceless paintings and antiques as far as the eye can see,” Rep. Ryan alleged.

Additionally, the Wisconsin congressman said, the President has availed himself of “sumptuous free meals—breakfast, lunch, and dinner—all on the taxpayer’s nickel.” “Day after day, he selfishly sucks on Uncle Sam’s teat,” he said. In keeping with Mr. Obama’s bloated lifestyle as “Superstar-in-Chief,” the congressman added, “The President travels with an entourage of highly trained bodyguards who would put Jay-Z’s posse to shame.” Drawing a line in the sand, the Republican warned Mr. Obama to cut back on his lavish living arrangements “or face possible impeachment.” “Across America, people are tightening their belts,” Rep. Ryan said. “The President should not be living like a head of state.”

"How It Really Is"

"The Final Nail In America’s Financial Coffin"

"The Final Nail In America’s Financial Coffin"
by Dave Hodges

"Our government is broke, in fact they are beyond broke since the 2008-09 decision was made to cover the derivative debt losses of the criminal banksters. As a result of their financial desperation, the government, on behalf of Wall Street, has become  increasingly desperate, aggressive and criminal.

There can be no doubt that most of the aware among us are cognizant of the ongoing government discussions being held  about their intentions of  requiring every U.S. citizen to put at least a portion of their retirement savings into a government-controlled retirement accounts regardless of whether they have your approval or not.

As I have reported before, Treasury Secretary, Jack Lew, has announced that he is “borrowing” from federal pension funds this summer in order to help the federal government meet its debt obligations. Since the national deficit is $17 trillion dollars and the unfunded federal mandated liabilities will exceed $200 trillion dollars in one year, these victimized federal workers will never see their full retirement.  And if you find yourself breathing a sigh of relief because you do not work for the federal government, you have sadly deluded yourself because the government mafia is coming after all forms of retirement accounts, both pension funds and invested retirements (e.g. 401k’s).

If the federal government is planning to steal retirements, would they be wise to steal them incrementally, or all at once? Of course, incremental theft is always preferable because it avoids an initial widespread confrontation with the public.  And who better for the federal government to steal from than federal employees because who are they going to complain to?

Our criminal-in-chief has suggested totally new and extremely onerous taxes to pay for Obamacare (e.g. a 5% tax on all home sales). He also has announced that he is expanding welfare program, including a new national sales tax as well as a national transaction tax. The Treasury department is even discussing a new wealth tax coming to America. It is already in place in countries like France, Spain, and England. For some in France, the tax will reach 100% of earned income. Blue blood money is presently fleeing these countries.

Let’s say you are a small businessman, who despite Obama’s best efforts to destroy your business, becomes successful and begin to gross over $200,000 dollars per year. Your success will be short lived as you will hand over MOST of your income to the Sheriff of Nottingham (i.e. The Federal Government Mafia).
What Is A Citizen to Do? First, we need to realize that there are morons among us who think it is somehow our duty to bail out the government and Wall Street. After all, the government and its parent companies, the Wall Street corporations, are too big to fail. 

Second, you need to realize that it is YOU that must take action to preserve what little the government lets you keep. It is your money and therefore, your responsibility.
Third, you need to be aware of the fact that the government can never pay down the debt that they have acquired.  Could the federal mafia pay down the $17 trillion dollar deficit?  Yes, but they would need 2-3 generations of responsible fiscal policies to do so. Could the federal mafia ever meet its $200 trillion dollar unfunded liabilities such as Social Security and Medicare? The short and best answer is, NEVER. Even if by some miracle we could pay off the unfunded liabilities, totalling almost a quarter of a quadrillion debt, there is even a bigger reason why we can NEVER financially recover. America is doomed to absolute economic failure and there is nothing that can be done. When you understand that we can never pay the debt, and the collapse is evitable, then perhaps you will move to protect what you can.

The Final Nail: America, while you slept, your country was stolen from you. Your country was absconded by all the political misfits and corporate criminals that the disenfranchised former Republicans and Democrats have been trying to warn you about over the last several years. Laws, originating out of New Deal legislation, written in response to the Great Depression, provided some measure of protection for the American financial system from the unsavory forces which led to its initial demise in 1929. In 2008, corporate greed, governmental corruption and a populace who is asleep at the wheel, has succeeded in achieving what historians will someday label the “Greatest Depression of 2009.” I say The Greatest Depression of 2009, because that is when this irreversible action called the bailouts commenced. Most of the loyalists in this country objected to the bailouts strictly on philosophical grounds.  Very few of us understood how catastrophic the bail outs would prove to be.

When Congress was intimidated into approving a series of bailouts, America signed her own death warrant. The remainder of this article will explain exactly why there is absolutely no way that America can financially survive. History, will clearly demonstrate that destruction of the late, great American economy was entirely self-inflicted.

What You Don’t Know Can Hurt You: If Americans knew their history, then we would be cognizant of the fact that one of the prime causes of the Great Depression was due to stock investors buying shares on margin (i.e., loans). The passage of the Glass Steagall Act protected Americans from this shady practice by separating commercial banking from this investment practice of stockbrokers. However, with one stroke of his New World Order pen, Bill Clinton’s repeal of the Glass-Steagall act opened the flood gates for the domestic AND foreign infusion of bad credit into both our stock market and banking system. Consequently, both industries stand upon the precipice of collapse in what is quickly becoming the most massive wealth transfer in world history. .

On September 30, 1999 , Fannie Mae and Freddie Mac sought governmental permission to “relax” (i.e., break) the prudent governmental regulations on sound lending practices and begin to make loansto individuals who were not credit worthy. This spelled the death of the mortgage industry as we once knew it.

The Uptick Rule once prevented companies from crashing due to large scale shorting of company stock. Do you remember it was Goldman Sachs that was fined for shorting mortgages just preceding the bursting of the mortgage bubble?  A company’s stock could not be sold short as long as it was in continuous decline. The short sellers had to wait for an uptick in the stock before engaging in shorting. At the urging of Goldman Sachs and Hank Paulson, the Uptick Rule was retired in 2007 and the rest, as they say, is history.

The elimination of the Uptick Rule is like going to a basketball game and not being able to see the scoreboard. Who’s ahead, who’s behind? Nobody knows but “Ladies and Gentlemen, place your bets!” What is your stock portfolio worth? Who knows? Who cares? Somebody wealthy is getting wealthier at your expense and you and your middle class investors are none the wiser. Let me be crystal clear here, the worst parts of today’s financial crisis was orchestrated by Goldman Sachs and Hank Paulson.

The derivative market is the main impetus for the breakdown of the American economy. The rapid increase in the price of fuel during the last several years is a good example of the destructive nature of the derivative market and it is this market which fueled the greatest debt load every visited upon the planet. Most of the price gouging which resulted in unprecedented increases in gas prices, and record oil company profits, was due to speculation in futures and this, again, was led by Goldman Sachs which just happens to be Treasury Secretary’s Henry Paulson’s old company. The derivatives market subsequently collapsed because the rampant speculative nature of futures drove prices, including homes and real estate through the roof. However, the real damage done by the collapse in derivatives is the fact that almost all other forms of financial instruments are tied to this market because they banks pledged their collateral assets to back this market.

A Quick Financial Lesson:  In trying to write for the layman, I endeavor to make this as simple as possible. It is not an overstatement to proclaim that if you do not understand the principles discussed in the following paragraphs, you will have little chance in surviving the impending collapse and you will never know what has hit you when the inevitable comes.

Derivatives are not stocks or bonds or anything of tangible value. This is the ultimate money game in which paper derived from other paper, such as futures and options, has served to bolster the balance sheets on Wall Street. Futures and options are exchange and traded derivatives, but the largest group of derivatives is not even traded on the exchanges. These are called “counterparty derivatives” and consist of such financial entities as mortgage backed securities (MBS) and credit default swaps. After assimilating this material it will become obvious why the Federal Reserve is purchasing MBS’ to the tune of $40 billion per month, every month. This process began in September 2013. Of course, you should know that the Federal Reserve is just printing the money out of thin air, thus, making your existing cash supply worth a lot less. 

It is estimated that total derivative exposure of the financial system is between one quadrillion and one and a half quadrillion. A quadrillion is 1,000 trillion dollars and the derivative market has largely collapsed.

The entire Gross Domestic Product (GDP) of all the world’s countries in 2009 was approximately 60 trillion dollars. GDP is an economic terms for everything that is produced for sale. The American middle class is being asked to bear the burden of the entire derivatives market which totals over 16 times the net value of the entire planet. The “Bail Out Monies” cannot not come close to covering the shortfall.

Where do you think the bail out money will go? Ask yourself why so many corporate heads are building homes overseas? Why did George Bush build a 100,000 acre ranch in Paraguay? Why  is NORTHCOM, a combat organization, engaging in urban riot control training in terms of suppressing civil unrest? And again, we know that DHS has purchased 2.2 billion rounds of ammunition to go with their acquisition of 2700 armored personnel carriers. Are we to believe that all of these factors are unrelated? It is looking more and more like the bailout is actually doing what the name implies. Are we being asked to fund the getaway gifts for those that have stolen so much from the American people?

At one point,  America spoke with one voice: “NO BAILOUT FOR THE CROOKS.”  “Let Rome burn” was the prevailing feeling. We cheered as the House of Representatives voted down the attempt at further fleecing the American middle class. If the middle class is going down, then so should the Wall Street crooks who put “Mainstreet America” in this predicament. Despite this victory for the people, most Americans were disappointed that the crooks and the corrupt politicians, who put America in this dilemma, were not going to prison. The no-bail-out-victory of the people was indeed short lived. Eventually, the House, bent to pressure applied by then Treasury Secretary, former Goldman Sachs official, Hank Paulson, in which he said if we did not bail out his former firm and the majority of Wall Street, we would have martial law in the streets. Well, four years later, we are more broke than ever and martial law is imminent.    

“Meet the new boss, the same as the old boss” in which our corporate masters are determined to have their way with the assets of American people. The banksters have us where they want us. We are in an endless, unpayable stream of debt with no hope of escaping unless we repudiate the debt. However, the people who could do that work for the banksters."

“No Income, No Spending”

“No Income, No Spending”
by Karl Denninger

“One month does not make a trend. But if this is a trend... "Personal income decreased $5.6 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $16.1 billion, or 0.1 percent, in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $20.5 billion, or 0.2 percent. In March, personal income increased $36.2 billion, or 0.3 percent, DPI increased $25.4 billion, or 0.2 percent, and PCE increased $14.2 billion, or 0.1 percent, based on revised estimates."

Uh huh. Here's the problem- roughly $1 trillion in monetary dilution against a $15 trillion economy is ~7% dilution in purchasing power annually. This means that personal income and spending must increase at least 7% in dollar terms simply to be even at the consumer level.

For the last couple of years what we keep hearing is how it's "awful" that we're not getting real employee growth, real small business growth, real anything. Instead we see these "anemic" figures month after month with wobbles toward negative outright figures. Nobody is talking about the monetary reality, which is that trying to boost "nominal" income, investment and spending through government credit expansion has not worked for the last five years.

This is the fundamental disconnect in the economy .vs. the markets. The markets have priced in an expansion that hasn't happened. The consumer has been propped up through transfer payments of various sorts along with people spending what would otherwise be mortgage payments. All of these distortions have create a mirage- a belief in a "recovery" that never actually happened. The employment population ratio does not lie and it, along with these figures adjusted for currency debasement are well into raw Depression territory.

There are those who believe that The Fed can continue these games forever and that the check will never have to be paid- or at least not in our lifetimes. I will close by reminding everyone that this is exactly what was believed in the tech industry in late 1999 and housing in 2007. How did it turn out?”

The Economy: "Party... Party... Party!"

"Party... Party... Party!"
by Bill Bonner

"Stocks up yesterday, but by peanuts. However, gold popped $20 per ounce. What gives? We don't know. But we like the look of the gold mining companies. They're relatively cheap. And sooner or later, they're going to pop up too. You know why? Ludwig von Mises explained more than half a century ago: "If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world."

Few people understand this. But the Fed's ZIRP and QE policies are not bringing about a recovery. They're not bringing prosperity. They're bringing poverty. They're suppressing... repressing... depressing... a real recovery. Why? Because a real recovery stifles the aforementioned "accumulation of capital good by saving." People need to save... and they need to invest in real productive enterprises. Those businesses, factories and enterprises then create real jobs and real wealth... goods... services... stuff.

See how simple this is? You save money. You use it to buy a sawmill or build a software company. You hire people. You cut logs. You produce boards and make a profit. The world is a more prosperous place. But the Fed depresses interest rates. Savers get nothing for their efforts. Why bother to save when savings earn such trifling interest? People don't save... That's the purpose of Fed policy: to prevent people from saving. They want them to spend! To speculate! To party... party... party, until someone calls the cops. No saving... no capital goods... no new production... no new jobs....

Hey, no real recovery! Mr. Keith Eubanks of Arlington, Massachusetts, explained the Fed's policy succinctly, in a letter to The Wall Street Journal: "Private investment drives economic growth. The policies currently labeled as "stimulus" and "austerity" are failing because both policies reduce private investment, contracting both the means and incentive for private citizens to invest in their futures."

In the US, the private sector is still about three-quarters of the economy. If the private sector is not saving and investing the economy, it will not grow. "Stimulus" policies increase deficits and allow the feds to spend more money. Economists such as Paul Krugman and Larry Summers (the latter of whom is a leading candidate to replace Ben Bernanke) think more government spending creates jobs... and boosts GDP.

What it really does is transfer resources from the private sector to the public sector. You may get more government jobs... and a higher GDP... but no real recovery and no real prosperity. As far as we know, no society in history has ever prospered by putting more and more of its capital in the hands of politicians and bureaucrats.

"Austerity" advocates, on the other hand, generally attempt to decrease deficits by increasing taxes. Unless there is a big simultaneous cutback in government spending, austerity doesn't work, either, because it leaves society's resources under the control of politics.

A few days ago, The New York Times, publisher of Krugman and Friedman (Tom), had a big article about "How Austerity Kills." The idea was that austerity causes people to lose their jobs and then they blow their brains out. Without the soft, cuddly embrace of government employees, say the authors, people have no reason to live: "What we have found is that austerity – severe, immediate, indiscriminate cuts to social and health spending – is not only self-defeating, but fatal."

The authors favor stimulus. But if they were serious about this, they should advocate more radical change. Instead of austerity or stimulus, they should be cheering for a complete wipeout of the welfare state – abolishing disability, wage controls, welfare, minimum wages, housing support, food stamps, unemployment compensation, corporate bailouts, ZIRP, QE and all the other things that prevent a real shakeout of the economy. "Structural rigidities in the labor market," they might be called.

The Panic of 1907, before all these "protections" were put in place, was over in three months... followed by full employment. The Crash of 1921 took longer – about 18 months – but when it was over, anyone who wanted a job could find one. But now, we've been in the Great Correction for five years. Millions of people have given up; they're no longer even looking for work. And suicide has replaced car accidents as the No. 1 threat to working-age Americans.

You want to reduce the rate of suicide? Eliminate the barriers to saving, capital formation and employment. If persistent unemployment really causes people to kill themselves, the authors should point out, Ben Bernanke should be tried for manslaughter. His ZIRP and QE will reduce real employment for many years."

Greg Hunter"Weekly News Wrap-Up 5.31.13"

"Weekly News Wrap-Up 5.31.13"
By Greg Hunter’s

"The Middle East is inching towards war. In Syria, the Assad regime wants high-tech Russian missiles to thwart new efforts for a no-fly zone that the Obama Administration may be calling for.  Israel says if the Russians deliver them, they will attack and knock them out. The missiles would make a no-fly zone very difficult. Assad says he has the S-300 missiles, but the U.S. says not yet.  More than 70,000 Syrians have been killed in more than two years of civil war. Syria has said it will attack Israel if Israel attacks again. Senator John McCain met with Syrian rebels to discuss arming them. A large part of the rebel effort is al-Qaeda, a known terrorist group. Lawmakers say they want to vet the rebels, but how are you going to stop al-Qaeda from getting weapons? 

In news on the other side of the Middle East, there is a new State Department report that claims Iran is increasing sponsorship of terrorism. A big benefactor is Hezbollah. That’s who is helping Assad in Syria stay in power. Will this turn into an excuse to attack Iran?

Embattled Attorney General Eric Holder has invited many mainstream media (MSM) organizations for an “off-the-record” conversation, and most outlets have declined to allow the White House to engage in spin and pressure to get the media back in line. FOX, CBS and the New York Times are just a few that have said no to “off-the-record” conversations. Wow, the MSM acting like journalists again. How refreshing. Speaking of AG Holder, some House Republicans allege Holder may have committed perjury when he told the House that he was “not involved” with the potential prosecution of the press. Holder allegedly signed off on a search warrant, calling a FOX News reporter a “criminal co-conspirator.” The FOX News reporter was not charged with any crime. 

Two more countries are planning to trade with China and not use the U.S. dollar. France and New Zealand will be trading with China using the Yuan sometime in the future. This is another step in the U.S. dollar losing its reserve currency status. It could be an inflationary disaster for the U.S., and some say it’s closer than some would admit. The only question is when.

The stock market is in record territory. The MSM says the Bull Run is on “solid footing.” The MSM always fails to mention all the QE, or money printing, by the Fed in the last few years. The latest “open-ended” QE is $85 billion a month, or a little more than $1 trillion a year. The data this week would throw cold water on a vibrant economy. Unemployment came in higher than expected.  Home sales lower than expected. GDP was just revised lower, mortgage rates are up and interest rates are rising. Analyst and trader Gregory Mannarino predicts, “The Fed’s go-go juice is going to turn into poison.” I couldn’t agree more.

Join Greg Hunter as he gives his analysis on these stories and more in the Weekly News Wrap-Up.”

Thursday, May 30, 2013

"After A Time..."

“After a time, you may find that having is not so pleasing a thing,
after all, as wanting. It is not logical, but it is often true.”

- Mr. Spock, “Star Trek”, "Amok Time"

"A Look To The Heavens"

“Ten thousand years ago, before the dawn of recorded human history, a new light would have suddenly have appeared in the night sky and faded after a few weeks. Today we know this light was from a supernova, or exploding star, and record the expanding debris cloud as the Veil Nebula, a supernova remnant. This sharp telescopic view is centered on a western segment of the Veil Nebula cataloged as NGC 6960 but less formally known as the Witch's Broom Nebula. Blasted out in the cataclysmic explosion, the interstellar shock wave plows through space sweeping up and exciting interstellar material. 
 Click image for larger size.
Imaged with narrow band filters, the glowing filaments are like long ripples in a sheet seen almost edge on, remarkably well separated into atomic hydrogen (red) and oxygen (blue-green) gas. The complete supernova remnant lies about 1400 light-years away towards the constellation Cygnus. This Witch's Broom actually spans about 35 light-years. The bright star in the frame is 52 Cygni, visible with the unaided eye from a dark location but unrelated to the ancient supernova remnant.”

Chet Raymo, “This View of Life, With Its Several Powers”

 “This View of Life, With Its Several Powers”
by Chet Raymo

“Somewhere in his "lost" notebooks Loren Eiseley writes of the pleasure of exploding a puffball in a woodland clearing, or shaking seeds out of their pods. As I recall, he takes a gleeful satisfaction in messing with evolution, in hurrying the process along.

I remember identifying with that sentiment when I read it. I like exploding puffballs too. Dropping insects into spider webs. Picking up turtles that are half-way across a road and placing them in a ditch on the other side. Most of all I like breaking off the stalks of ripe milkweeds and shaking them gloriously in a meadow on a breezy day. Love that snowstorm of fecund parachutes blowing hither and yon. Love the idea that I am helping the monarch butterflies that feed and breed exclusively on milkweed.

Yes, I know, in the great scheme of things my random intrusions into the grinding engine of evolution won't make an iota's worth of difference. The problems besetting monarch butterflies won't be significantly alleviated by one more milkweed plant. And that turtle I put in the ditch may just turn around and head back across the road. Still, I take a childish pleasure in mixing it up. Of helping the natural in natural selection. Of kicking up a little dust on the tangled bank.

We live in a creative universe, Eiseley said. Let's be creative."

Musical Interlude: Mason Williams, “Classical Gas”

Mason Williams, “Classical Gas”
Anyone else feel like your life's running at about this pace? lol
- CP

Musical Interlude: Mike Oldfield, “Tubular Bells”

Mike Oldfield, “Tubular Bells”

"Life Is Hard?"

"Life is hard? True- but let's love it anyhow,
though it breaks every bone in our bodies."
- Edward Abbey

"How It Really Is"

Karl Denninger, "Warning: Market Destruction Ahead"

"Warning: Market Destruction Ahead"
by Karl Denninger

"Larry Kudlow loves to say "profits are the mother's milk of stock prices." So what do you take from this when the tit has run dry? "Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $43.8 billion in the first quarter, in contrast to an increase of $45.4 billion in the fourth. Current-production cash flow (net cash flow with inventory valuation adjustment)- the internal funds available to corporations for investment- increased $110.9 billion in the first quarter, in contrast to a decrease of $89.8 billion in the fourth."

That is not good. Domestic profits decreased materially and so did international profits by US business. There was nothing material in the GDP section of this report, but the profit report is one that is often overlooked. It shouldn't be, especially not in this case coming off a fairly decent 4th quarter number.

The Nikkei market has imploded over the last few days and serve as a reminder that what goes up often comes down, and when the thing coming down is the stock market it usually comes down a lot faster than it went up. In the US we've had a roughly 18% increase in market prices since the end of the year. This profit report says that the entire move is unjustified based on the profitability of US businesses, underlining the point I've been making that this is almost all flow-based bubble activity coming from both the US Fed and Japan's central bank.

It's really quite simple- after four years of "crisis level" injections of "new money" into the system which we were told was both necessary and proper if the "tonic" was going to work it would have. It should have led to durable and sustainable increases in both profits and employment. Instead what we've obtained is a mark-up of asset prices but neither investment in people or innovation. Now, with the limits being reached where market volatility will force a cessation of the central bank drug-induced financial stupor, we are going to have to face the reality of our foolish reliance on central bank and government games- like it or not.

With a very real risk that Japan loses control over their markets the risk of an all-on dislocation event in our markets is rising rapidly. Don't be complacent.”
 No I don't. Done it thousands of times right here on this blog.
 Whether it made any difference is another story...
- CP

Dmitry Orlov, "The 5 Stages of Economic Collapse"

 "The 5 Stages of Economic Collapse"
by Dmitry Orlov

"Elizabeth Kübler-Ross defined the five stages of coming to terms with grief and tragedy as denial, anger, bargaining, depression, and acceptance, and applied it quite successfully to various forms of catastrophic personal loss, such as death of a loved one, sudden end to one's career, and so forth. Several thinkers, notably James Howard Kunstler and, more recently John Michael Greer, have pointed out that the Kübler-Ross model is also quite terrifyingly accurate in reflecting the process by which society as a whole (or at least the informed and thinking parts of it) is reconciling itself to the inevitability of a discontinuous future, with our institutions and life support systems undermined by a combination of resource depletion, catastrophic climate change, and political impotence.

But so far, little has been said specifically about the finer structure of these discontinuities. Instead, there is to be found continuum of subjective judgments, ranging from "a severe and prolonged recession" (the prediction we most often read in the financial press), to Kunstler's evocative but unscientific-sounding "clusterf**k," to the ever-popular "Collapse of Western Civilization," painted with an ever-wider brush-stroke.

For those of us who have already gone through all of the emotional stages of reconciling ourselves to the prospect of social and economic upheaval, it might be helpful to have a more precise terminology that goes beyond such emotionally charged phrases. Defining a taxonomy of collapses might prove to be more than just an intellectual exercise: based on our abilities and circumstances, some of us may be able to specifically plan for a certain stage of collapse as a temporary, or even permanent, stopping point.

Even if society at the current stage of socioeconomic complexity will no longer be possible, and even if, as Tainter points in his "Collapse of Complex Societies," there are circumstances in which collapse happens to be the correct adaptive response, it need not automatically cause a population crash, with the survivors disbanding into solitary, feral humans dispersed in the wilderness and subsisting miserably. Collapse can be conceived of as an orderly, organized retreat rather than a rout.

For instance, the collapse of the Soviet Union - our most recent and my personal favorite example of an imperial collapse - did not reach the point of political disintegration of the republics that made it up, although some of them (Georgia, Moldova) did lose some territory to separatist movements. And although most of the economy shut down for a time, many institutions, including the military, public utilities, and public transportation, continued to function throughout. And although there was much social dislocation and suffering, society as a whole did not collapse, because most of the population did not lose access to food, housing, medicine, or any of the other survival necessities. The command-and-control structure of the Soviet economy largely decoupled the necessities of daily life from any element of market psychology, associating them instead with physical flows of energy and physical access to resources. Thus situation, as I argue in my forthcoming book, Reinventing Collapse, allowed the Soviet population to inadvertently achieve a greater level of collapse-preparedness than is currently possible in the United States.

Having given a lot of thought to both the differences and the similarities between the two superpowers - the one that has collapsed already, and the one that is collapsing as I write this - I feel ready to attempt a bold conjecture, and define five stages of collapse, to serve as mental milestones as we gauge our own collapse-preparedness and see what can be done to improve it.

Rather than tying each phase to a particular emotion, as in the Kübler-Ross model, the proposed taxonomy ties each of the five collapse stages to the breaching of a specific level of trust, or faith, in the status quo. Although each stage causes physical, observable changes in the environment, these can be gradual, while the mental flip is generally quite swift. It is something of a cultural universal that nobody (but a real fool) wants to be the last fool to believe in a lie.
Stages of Collapse:

Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Stage 3: Political collapse. Faith that "the government will take care of you" is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social collapse. Faith that "your people will take care of you" is lost. As local social institutions, be they charities, community leaders, or other groups that rush in to fill the power vacuum, run out of resources or fail through internal conflict.

Stage 5:
Cultural collapse. Faith in the goodness of humanity is lost. People lose their capacity for "kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity" (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes "May you die today so that I die tomorrow" (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

Although many people imagine collapse to be a sort of elevator that goes to the sub-basement (our Stage 5) no matter which button you push, no such automatic mechanism can be discerned. Rather, driving us all to Stage 5 will require that a concerted effort be made at each of the intervening stages. That all the players seem poised to make just such an effort may give this collapse the form a classical tragedy - a conscious but inexorable march to perdition - rather than a farce ("Oops! Ah, here we are, Stage 5." - "So, whom do we eat first?" - "Me! I am delicious!") Let us sketch out this process.

Financial collapse, as we are are currently observing it, consists of two parts. One is that a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development. The second part consists of men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, "f**ked up," and so this is also just as it should be.

The government response to this could be to offer some helpful homilies about "the wages of sin" and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: "You former debt addicts and gamblers, as you say, 'f****d up,' and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don't do dishes." This would result in a stable Stage 1 collapse - the Second Great Depression.

However, this is unlikely, because in the US the government happens to be debt addict and gambler number one. As individuals, we may have been as virtuous as we wished, but the government will have still run up exorbitant debts on our behalf. Every level of government, from local municipalities and authorities, which need the financial markets to finance their public works and public services, to the federal government, which relies on foreign investment to finance its endless wars, is addicted to public debt. They know they cannot stop borrowing, and so they will do anything they can to keep the game going for as long as possible.

About the only thing the government currently seems it fit to do is extend further credit to those in trouble, by setting interest rates at far below inflation, by accepting worthless bits of paper as collateral and by pumping money into insolvent financial institutions. This has the effect of diluting the dollar, further undermining its value, and will, in due course, lead to hyperinflation, which is bad enough in any economy, but is especially serious for one dominated by imports. As imports dry up and the associated parts of the economy shut down, we pass Stage 2: Commercial Collapse.

As businesses shut down, storefronts are boarded up and the population is left largely penniless and dependent on FEMA and charity for survival, the government may consider what to do next. It could, for example, repatriate all foreign troops and set them to work on public works projects designed to directly help the population. It could promote local economic self-sufficiency, by establishing community-supported agriculture programs, erecting renewable energy systems, and organizing and training local self-defence forces to maintain law and order. The Army Corps of Engineers could be ordered to bulldoze buildings erected on former farmland around city centers, return the land to cultivation, and to construct high-density solar-heated housing in urban centers to resettle those who are displaced. In the interim, it could reduce homelessness by imposing a steep tax on vacant residential properties and funneling the proceeds into rent subsidies for the indigent. With plenty of luck, such measures may be able to reverse the trend, eventually providing for a restoration of pre-Stage 2 conditions.

This may or may not be a good plan, but in any case it is rather unrealistic, because the United States, being so deeply in debt, will be forced to accede to the wishes of its foreign creditors, who own a lot of national assets (land, buildings, and businesses) and who would rather see a dependent American population slaving away working off their debt than a self-sufficient one, conveniently forgetting that they have mortgaged their children's futures to pay for military fiascos, big houses, big cars, and flat-screen television sets. Thus, a much more likely scenario is that the federal government (knowing who butters their bread) will remain subservient to foreign financial interests. It will impose austerity conditions, maintain law and order through draconian means, and aid in the construction of foreign-owned factory towns and plantations. As people start to think that having a government may not be such a good idea, conditions become ripe for Stage 3.

If Stage 1 collapse can be observed by watching television, observing Stage 2 might require a hike or a bicycle ride to the nearest population center, while Stage 3 collapse is more than likely to be visible directly through one's own living-room window, which may or may not still have glass in it. After a significant amount of bloodletting, much of the country becomes a no-go zone for the remaining authorities. Foreign creditors decide that their debts might not be repaid after all, cut their losses and depart in haste. The rest of the world decides to act as if there is no such place as The United States - because "nobody goes there any more." So as not to lose out on the entertainment value, the foreign press still prints sporadic fables about Americans who eat their young, much as they did about Russia following the Soviet collapse. A few brave American expatriates who still come back to visit bring back amazing stories of a different kind, but everyone considers them eccentric and perhaps a little bit crazy.

Stage 3 collapse can sometimes be avoided by the timely introduction of international peacekeepers and through the efforts of international humanitarian NGOs. In the aftermath of a Stage 2 collapse, domestic authorities are highly unlikely to have either the resources or the legitimacy, or even the will, to arrest the collapse the dynamic and reconstitute themselves in a way that the population would accept.

As stage 3 collapse runs its course, the power vacuum left by the now defunct federal, state and local government is filled by a variety of new power structures. Remnants of former law enforcement and military, urban gangs, ethnic mafias, religious cults and wealthy property owners all attempt to build their little empires on the ruins of the big one, fighting each other over territory and access to resources. This is the age of Big Men: charismatic leaders, rabble-rousers, ruthless Macchiavelian princes and war lords. In the luckier places, they find it to their common advantage to pool their resources and amalgamate into some sort of legitimate local government, while in the rest their jostling for power leads to a spiral of conflict and open war.

Stage 4 collapse occurs when society becomes so disordered and impoverished that it can no longer support the Big Men, who become smaller and smaller, and eventually fade from view. Society fragments into extended families and small tribes of a dozen or so families, who find it advantageous to band together for mutual support and defense. This is the form of society that has existed over some 98.5% of humanity's existence as a biological species, and can be said to be the bedrock of human existence. Humans can exist at this level of organization for thousands, perhaps millions of years. Most mammalian species go extinct after just a few million years, but, for all we know, Homo Sapiens still have a million or two left.

If pre-collapse society is too atomized, alienated and individualistic to form cohesive extended families and tribes, or if its physical environment becomes so disordered and impoverished that hunger and starvation become widespread, then Stage 5 collapse becomes likely. At this stage, a simpler biological imperative takes over, to preserve the life of the breeding couples. Families disband, the old are abandoned to their own devices, and children are only cared for up to age 3. All social unity is destroyed, and even the couples may disband for a time, preferring to forage on their own and refusing to share food. This is the state of society described by the anthropologist Colin Turnbull in his book "The Mountain People." If society prior to Stage 5 collapse can be said to be the historical norm for humans, Stage 5 collapse brings humanity to the verge of physical extinction.

As we can easily imagine, the default is cascaded failure: each stage of collapse can easily lead to the next, perhaps even overlapping it. In Russia, the process was arrested just past Stage 3: there was considerable trouble with ethnic mafias and even some warlordism, but government authority won out in the end. In my other writings, I go into a lot of detail in describing the exact conditions that inadvertently made Russian society relatively collapse-proof. Here, I will simply say that these ingredients are not currently present in the United States.

While attempting to arrest collapse at Stage 1 and Stage 2 would probably be a dangerous waste of energy, it is probably worth everyone's while to dig in their heels at Stage 3, definitely at Stage 4, and it is quite simply a matter of physical survival to avoid Stage 5. In certain localities - those with high population densities, as well as those that contain dangerous nuclear and industrial installations - avoiding Stage 3 collapse is rather important, to the point of inviting foreign troops and governments in to maintain order and avoid disasters. Other localities may be able to prosper indefinitely at Stage 3, and even the most impoverished environments may be able to support a sparse population subsisting indefinitely at Stage 4.

Although it is possible to prepare directly for surviving Stage 5, this seems like an altogether demoralizing thing to attempt. Preparing to survive Stages 3 and 4 may seem somewhat more reasonable, while explicitly aiming for Stage 3 may be reasonable if you plan to become one of the Big Men. Be that as it may, I must leave such preparations as an exercise for the reader. My hope is that these definitions of specific stages of collapse will enable a more specific and fruitful discussion than the one currently dominated by such vague and ultimately nonsensical terms as "the collapse of Western civilization.”

Greg Hunter, “Collapse Isn’t Coming- We’ve Already Begun”

“Collapse Isn’t Coming- We’ve Already Begun”
By Greg Hunter’s

"David Quintieri, author of “The Money GPS,” is so worried about the unfolding economic calamity he wrote a book about how to survive it.  Quintieri says, “There is no other way out but a collapse... the collapse isn’t coming, we’ve already begun.” One sure sign the collapse is in full swing, Quintieri contends, “There’s no semblance of a free market what-so-ever, that’s completely gone. The numbers you see on TV and newspapers are completely fraudulent.” So, what do you need to do to prepare?  Quintieri says, “When the collapse happens, those holding real assets are going to be the ones with all the wealth.”  Don’t expect cash in the bank to help you either, Quintieri predicts, “They’re going to go money printing all the way. But it doesn’t go to the people, it goes to the banks. And whatever money’s left behind, they’re going to do a bail-in with it.” Join Greg Hunter as he goes One-on-One with David Quintieri, author of “The Money GPS.”

“The Smoke of ZIRP and the Mirrors of QE...”

“The Smoke of ZIRP and the Mirrors of QE...”
by Bill Bonner

“The front pages of yesterday's newspapers were full of good news. A strong rebound in real estate prices, they said, meant a full recovery was in the bag. From Reuters: "Home prices accelerated by the most in nearly seven years in March as the spring buying season gave the sector traction, while surging consumer confidence pointed to some resilience for the economic recovery. The data on Tuesday also suggested the two segments could act as buffers as the broader economy faces the pinch of belt-tightening in Washington. The S&P/Case Shiller composite index of 20 metropolitan areas climbed 10.9% year over year, beating expectations for 10.2%. This was the biggest increase since April 2006, just before prices peaked in the summer of that year."

This, along with a record stock market, was spreading cheer from coast to coast. Again, from Reuters: "Consumer confidence strengthened in May to the highest level in more than five years, suggesting Americans' attitudes were resilient in the face of belt-tightening in Washington, a private sector report showed on Tuesday. The Conference Board, an industry group, said its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists' expectations for 71. It was the best level since February 2008."

So you see, dear reader, everything is hunky-dory, copacetic and cool. But wait! What's this? In the face of all this good news, the US stock market fell and "disaster insurance" gold rose. The Dow dropped 106 points. And the price of gold went up $12 per ounce. Why? Because good news is bad news. Bad news is good news. Up is down and backward is forward. Nothing is what it seems... or what it ought to be.

If the economy were really doing better, the Fed would have to follow through on its promise to "normalize" monetary policy. That is, it would stop lending at zero interest rates and stop its $85 billion-per-month QE program. But our hunch is that those hocus-pocus programs – not a genuine recovery – are what keep stock prices going up. Take them away and you also take away the boom in stocks... and real estate too. (Housing prices now depend on the lowest mortgage rates in 50 years.)

What this means is that there is no genuine recovery. It's all the smoke of ZIRP and the mirrors of QE. When the magic show ends... so does the illusion of recovery.

40 Facts You Won't Believe: Yesterday, we promised to tell what was really going on in the US economy. As you will see, there is no sign of a real recovery. Instead, what we see is a deepening depression disguised by a Fed-driven asset bubble. Here's The Economic Collapse blog with "40 Statistics About the Fall of the U S Economy That Are Almost Too Crazy to Believe":
1. Back in 1980, the US national debt was less than $1 trillion. Today, it is rapidly approaching $17 trillion.
2. During Obama's first term, the federal government accumulated more debt than it did under the first 42 US presidents combined.
3. The US national debt is now more than 23 times larger than it was when Jimmy Carter became president.

4. If you started paying off just the new debt that the US has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.
5. The federal government is stealing more than $100 million from our children and our grandchildren every single hour of every single day.
6. Back in 1970, the total amount of debt in the United States (government debt + business debt + consumer debt, etc.) was less than $2 trillion. Today, it is over $56 trillion.
7. According to the World Bank, US GDP accounted for 31.8% of all global economic activity in 2001. That number dropped to 21.6% in 2011.
8. The United States has fallen in the global economic competitiveness rankings compiled by the World Economic Forum for four years in a row.
9. According to The Economist, the United States was the best place in the world to be born into back in 1988. Today, the United States is tied for only 16th place.
10. Incredibly, more than 56,000 manufacturing facilities in the United States have been permanently shut down since 2001.
11. There are fewer Americans working in manufacturing that there was in 1950, even though the population of the country has more than doubled since then.
12. According to The New York Times, there are now approximately 70,000 abandoned buildings in Detroit.
13. When NAFTA was pushed through Congress in 1993, the United States had a trade surplus with Mexico of $1.6 billion. By 2010, we had a trade deficit with Mexico of $61.6 billion.
14. Back in 1985, our trade deficit with China was approximately $6 million (million with a little "m") for the entire year. In 2012, our trade deficit with China was $315 billion. That was the largest trade deficit that one nation has had with another nation in the history of the world.
15. Overall, the United States has run a trade deficit of more than $8 trillion with the rest of the world since 1975.
16. According to the Economic Policy Institute, the United States is losing half a million jobs to China every single year.
17. Back in 1950, more than 80% of all men in the United States had jobs. Today, less than 65% of all men in the United States have jobs.
18. At this point, an astounding 53% of all American workers make less than $30,000 per year.
19. Small business is rapidly dying in America. At this point about only 7% of all non-farm workers in the United States are self-employed. That is an all-time record low.
20. Back in 1983, the bottom 95% of all income earners in the United States had 62 cents of debt for every dollar that they earned. By 2007, that figure had soared to $1.48.
21. In the United States today, the wealthiest 1% of all Americans have a greater net worth than the bottom 90% combined.
22. According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.
23. The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.
24. According to the US Census Bureau, more than 146 million Americans are either "poor" or "low income."
25. According to the US Census Bureau, 49% of all Americans live in a home that receives direct monetary benefits from the federal government. Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.
26. Overall, the federal government runs nearly 80 different "means-tested welfare programs," and at this point, more than 100 million Americans are enrolled in at least one of them.
27. Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every six Americans is on Medicaid, and things are about to get a whole lot worse. It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.
28. As I wrote recently, it is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.
29. At this point, Medicare is facing unfunded liabilities of more than $38 trillion over the next 75 years. That comes to approximately $328,404 for every single household in the United States.
30. Right now, there are approximately 56 million Americans collecting Social Security benefits. By 2035, that number is projected to soar to an astounding 91 million.
31. Overall, the Social Security system is facing a $134 trillion deficit over the next 75 years.
32. Today, the number of Americans on Social Security Disability now exceeds the entire population of Greece, and the number of Americans on food stamps now exceeds the entire population of Spain.
33. According to a report recently issued by the Pew Research Center, on average, Americans over the age of 65 have 47 times as much wealth as Americans under the age of 35.
34. US families that have a head of household who is under the age of 30 have a poverty rate of 37%.
35. As I mentioned recently, the homeownership rate in America is now at its lowest level in nearly 18 years.
36. There are now 20.2 million Americans who spend more than half of their incomes on housing. That represents a 46% increase from 2001.
37. 45% of all children are living in poverty in Miami more than 50% of all children are living in poverty in Cleveland, and about 60% of all children are living in poverty in Detroit.
38. Today, more than 1 million public school students in the United States are homeless. This is the first time that has ever happened in our history.
39. When Barack Obama first entered the White House, about 32 million Americans were on food stamps. Now, more than 47 million Americans are on food stamps.
40. According to one calculation, the number of Americans on food stamps now exceeds the combined populations of Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia and Wyoming."
As the wise Mogambo Guru would say, "We're so freakin' doomed!"
- CP

Free Download: Mark Twain, "Letters From The Earth"

“Mark Twain's ‘Letters From the Earth’"
by Wikipedia

“Letters from the Earth” is one of Mark Twain's posthumously published works. The essays were written during a difficult time in Twain's life; he was deep in debt and had lost his wife and one of his daughters. Initially, his daughter, Clara Clemens, objected to its publication in March 1939, probably because of its controversial and iconoclastic views on religion, claiming it presented a "distorted" view of her father. Henry Nash Smith helped change her position in 1960. Clara explained her change of heart in 1962 saying that "Mark Twain belonged to the world" and that public opinion had become more tolerant. She was also influenced to release the papers due to her annoyance with Soviet propaganda charges that her father's ideas were being suppressed in the United States. The papers were edited in 1939 by Bernard DeVoto. The book consists of a series of short stories, many of which deal with God and Christianity. The title story consists of eleven letters written by the archangel Satan to archangels, Gabriel and Michael, about his observations on the curious proceedings of earthly life and the nature of man's religions. Other short stories in the book include a bedtime story about a family of cats Twain wrote for his daughters, and an essay explaining why an anaconda is morally superior to Man.

Textual references make clear that sections, at least, of “Letters from the Earth” were written shortly before his death in April 1910. (For instance, Letter VII, in discussing the ravages of hookworm, refers to the $1,000,000 gift of John D. Rockefeller Jr. to help eradicate the disease – a gift that was announced on October 28, 1909, less than six months before Twain's death.)"

Excerpt: "Letters From the Earth"
by Mark Twain

"This is a strange place, an extraordinary place, and interesting. There is nothing resembling it at home. The people are all insane, the other animals are all insane, the earth is insane, Nature itself is insane. Man is a marvelous curiosity. When he is at his very very best he is a sort of low grade nickel-plated angel; at his worst he is unspeakable, unimaginable; and first and last and all the time he is a sarcasm. Yet he blandly and in all sincerity calls himself the "noblest work of God." This is the truth I am telling you. And this is not a new idea with him, he has talked it through all the ages, and believed it. Believed it, and found nobody among all his race to laugh at it.

Moreover - if I may put another strain upon you - he thinks he is the Creator's pet. He believes the Creator is proud of him; he even believes the Creator loves him; has a passion for him; sits up nights to admire him; yes, and watch over him and keep him out of trouble. He prays to Him, and thinks He listens. Isn't it a quaint idea? Fills his prayers with crude and bald and florid flatteries of Him, and thinks He sits and purrs over these extravagancies and enjoys them. He prays for help, and favor, and protection, every day; and does it with hopefulness and confidence, too, although no prayer of his has ever been answered. The daily affront, the daily defeat, do not discourage him, he goes on praying just the same. There is something almost fine about this perseverance. I must put one more strain upon you: he thinks he is going to heaven!"
Freely download, in PDF format, the complete "Letters From the Earth" here:

The Daily "Near You?"

Brookings, Oregon, USA. Thanks for stopping by.

Wednesday, May 29, 2013

Chet Raymo, “Speak, Earth”

“Speak, Earth”
by Chet Raymo

“There is a passage toward the end of Vladimir Nabokov' memoir "Speak, Memory" where he compares the writing of a novel to "the zest of a deity building a live world from the most unlikely ingredients—rocks, and carbon, and blind throbbings."

This is the season in New England when we watch the deity in action, when the cold, rocky foundation suddenly seeps and oozes the fluids of life, the blood and tears and intestinal juices and sticky protoplasm. The first rays of summer filter to the woodland floor and wild lilies-of-the-valley, bell flowers and star flowers spring up underfoot. Where the Queset Brook gathers and purls beneath the plank bridge the striders and whirligigs and mayflies skitter and flit. It's all a bit of a miracle, really- rocks, carbon and blind throbbings. Who could have guessed?

Of course the real miracle is not the annual resurgence of life but the original flicker of animation, the appearance of that first self-reproducing organism in a world that truly was just rock and carbon and blind throbbing. The crackle of lightning. The heat of volcanism. The tickling stimulus of radiation. We don't know how it happened. Or where. Or when. For the moment we must assume it happened here, on Earth, three or four billion years ago, but maybe the Earth was seeded from elsewhere, maybe the galaxy teems with life, maybe rock and carbon has an inevitable urge to seep and ooze, to throb.

There's so much we don't know that it behooves us to walk warily, to speak with discretion, to avoid dogmas of any kind. To remember the first sentence of Nabokov's "Speak, Memory": "The cradle rocks above an abyss, and common sense tells us that our existence is but a brief crack of light between two eternities of darkness.”

Satire: “Congress’s Average I.Q. Expected to Rise in 2015”

“Congress’s Average I.Q. Expected to Rise in 2015”
 by Andy Borowitz

WASHINGTON (The Borowitz Report)— “The average I.Q. of a member of the House of Representatives is expected to rise sharply in 2015, experts said today. The experts, who indicated that they were “cautiously optimistic” about the development, said that the gains were most likely to be made in the Midwest. The expected rise in I.Q. could mean that the average congressperson would have a greater grasp of basic concepts in math and science, including the law of evolution, as well as addition and subtraction. The last time a branch of the federal government experienced such a significant increase in average I.Q., experts said, was the executive branch in 2009.”

"How It Really Is"

Amazing, don't you think? All these "planned and unplanned 
refinery maintenances", that so conveniently drive prices higher. 
Mere coincidence, nothing to see here, move along...
- CP

“America’s Bubble Economy: An Economic Black Hole?”

“America’s Bubble Economy: An Economic Black Hole?”
by Michael Synder

"What is going to happen when the greatest economic bubble in the history of the world pops?  The mainstream media never talks about that. They are much too busy covering the latest dogfights in Washington and what Justin Bieber has been up to. And most Americans seem to think that if the Dow keeps setting new all-time highs that everything must be okay. Sadly, that is not the case at all. Right now, the U.S. economy is exhibiting all of the classic symptoms of a bubble economy. You can see this when you step back and take a longer-term view of things.  Over the past decade, we have added more than 10 trillion dollars to the national debt. But most Americans have shown very little concern as the balance on our national credit card has soared from 6 trillion dollars to nearly 17 trillion dollars. Meanwhile, Wall Street has been transformed into the biggest casino on the planet, and much of the new money that the Federal Reserve has been recklessly printing up has gone into stocks. But the Dow does not keep setting new records because the underlying economic fundamentals are good. Rather, the reckless euphoria that we are seeing in the financial markets right now reminds me very much of 1929. Margin debt is absolutely soaring, and every time that happens a crash rapidly follows. But this time when a crash happens it could very well be unlike anything that we have ever seen before. The top 25 U.S. banks have more than 212 trillion dollars of exposure to derivatives combined [Real figure worldwide: $1.4 QUADRILLION- CP], and when that house of cards comes crashing down there is no way that anyone will be able to prop it back up. After all, U.S. GDP for an entire year is only a bit more than 15 trillion dollars.

But most Americans are only focused on the short-term because the mainstream media is only focused on the short-term. Things are good this week and things were good last week, so there is nothing to worry about, right?

Unfortunately, economic reality is not going to change even if all of us try to ignore it. Those that are willing to take an honest look at what is coming down the road are very troubled. For example, Bill Gross of PIMCO says that his firm sees “bubbles everywhere”… "We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions."

And unfortunately, it is not just the United States that has a bubble economy.  In fact, the gigantic financial bubble over in Japan may burst before our own financial bubble does. The following is from a recent article by Graham Summers… "First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size. For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally."
So if Japanese bonds begin to implode, this means that:
1) The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).
2) The second largest economy in the world will collapse (along with the impact on global exports).
Both of these are truly epic problems for the financial system. And of course the entire global financial system is a giant bundle of debt, risk and leverage at this point. We have never seen anything like this in world history. When you step back and take a good, hard look at the numbers, they truly are staggering. The following statistics are from one of my previous articles entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“…

• $70,000,000,000,000 - The approximate size of total world GDP.

• $190,000,000,000,000 - The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

• $212,525,587,000,000 - According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

• $600,000,000,000,000 to $1,500,000,000,000,000 - The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

The financial meltdown that happened back in 2008 should have been a wake up call for the nations of the world.  They should have corrected the mistakes that happened so that nothing like that would ever happen again.  Unfortunately, nothing was fixed.  Instead, our politicians and the central bankers became obsessed with reinflating the system.  They piled up even more debt, recklessly printed tons of money and kicked the can down the road for a few years.  In the process, they made our long-term problems even worse.  The following is a recent quote from John Williams of… "The economic and systemic solvency crises of the last eight years continue. There never was an actual recovery following the economic downturn that began in 2006 and collapsed into 2008 and 2009. What followed was a protracted period of business stagnation that began to turn down anew in second- and third-quarter 2012. The official recovery seen in GDP has been a statistical illusion generated by the use of understated inflation in calculating key economic series (see Public Comment on Inflation). Nonetheless, given the nature of official reporting, the renewed downturn likely will gain recognition as the second-dip in a double- or multiple-dip recession.
What continues to unfold in the systemic and economic crises is just an ongoing part of the 2008 turmoil. All the extraordinary actions and interventions bought a little time, but they did not resolve the various crises. That the crises continue can be seen in deteriorating economic activity and in the panicked actions by the Federal Reserve, where it proactively is monetizing U.S. Treasury debt at a pace suggestive of a Treasury that is unable to borrow otherwise."

And there are already lots of signs that the next economic downturn is rapidly approaching For example, corporate revenues are falling at Wal-Mart, Proctor and Gamble, Starbucks, AT&T, Safeway, American Express and IBM. Would revenues at Wal-Mart be falling if the economy was getting better? U.S. jobless claims hit a six week high last week. We aren’t in the danger zone yet, but once they hit 400,000 that will be a major red flag.

And even though we are still in the “good times” relatively speaking, the federal government is already talking about tightening welfare programs.  In fact, there are proposals in Congress right now to make significant cuts to the food stamp program. If food stamps and other welfare programs get cut, that is going to make a lot of people very, very angry. And that anger and frustration will get even worse when the next economic downturn strikes and millions of people start losing their jobs and their homes.

What we are witnessing right now is the calm before the storm. Let us hope that it lasts for as long as possible so that we can have more time to prepare. Unfortunately, this bubble of false hope will not last forever. At some point it will end, and then the pain will begin."

"The Tarnished American Golden Years"

"The Tarnished American Golden Years"
by Addison Wiggin

"Train wrecks are tragic messes. But as gruesome as they are… it’s hard to avert one’s eyes. And let us tell you, the bloody wreckage following this catastrophe-in-progress is going to be horrific. Who knows why so many got onboard in the first place? But what’s done is done.

We’re pretty squeamish, and as such, we’ve had our eyes covered. But we’ve peeked through an open finger every now and then — it’s just too hard not to — and at last spotted this Gallup headline: “Three in Four U.S. Workers Plan to Work Past Retirement Age.” “Three-quarters of U.S. adult workers believe they will continue working past retirement age,” the article read, “with 40% saying they will do so because they want to, and 35% because they will have to.”

Question Posed: When you reach retirement age, do you think you: The 35% that must continue to work is down from 36% in 2011. Onlookers might think the “track switch” has been flipped and that the wreck might be averted at the junction… but we’ll call that 1% difference a wash; Gallup’s 2013 percentages add up to just less than 100%. A quick look at the Census data, though, confirms the coming collision. And it’s as troubling now as it was predictable years ago… you just needed the stomach to sneak a peek.

Labor Force Participation Rate for Men 65 Years and Older

"Over the past three decades, labor force participation by the 65-75 year age group has been steadily growing. Judging by that stat, the “golden years” retirees have come to expect seem a lot less golden. But we can’t say we’re surprised. Attentive onlookers could have spotted the derailment from a mile away.

We first noted the demographic shifts that the U.S. would face in the book we co-authored with Bill Bonner, "Financial Reckoning Day". There, we wrote: “For most of human history, the number of people aged over 65 was roughly 2% or 3% of the population. When Hammurabi, Julius Caesar or [even] Thomas Jefferson were alive, observes [author Peter] Peterson, there were very low odds (one person in every 40) of meeting a person aged 65 or over… According to the Organization for Economic Cooperation and Development (OECD) by 2030, the number of people aged 65 or over across the developed world will have increased by 89 million, whereas the number of working-age adults is projected to have decreased by 34 million.”

Well, we still have 17 more years till 2030, but the data seem to bear the trend out. Americans who are 65 and older are growing as a total number of people and as a percent of the total population. That’s not all. Two weeks ago, CNBC reported that “high school and college students aren’t the only ones looking for summer employment. With so many in the over-60 set out of work for lengthy periods, or looking for supplemental income, the jobs competition between teens and older workers may be heated.”

With half of the nation’s unemployed under 35, this could get ugly. It’s tragic to watch… the passengers are trapped and there’s nothing the conductor can do but say his prayers and look on with terror.

Just like we mused in Financial Reckoning Day: “In the struggle between myth and reality, the masses welcomed the myth that they would all be able to retire at someone else’s expense. As in a Ponzi scheme or bubble market, the first to get into the system made a nice profit. They paid in trivial amounts, lived longer than expected and drew out far more than they had any right to do. Later participants will find it much harder to come out ahead. With longevity increasing and the retirement age decreasing, the financial burden placed on the world’s working-age populations may be unbearable.”

The brakes have been thrown on… metal is screeching and sparks are flying… but it won’t be enough… and we can’t bear to watch anymore.”

Tuesday, May 28, 2013

"How It Really Is"

Satire: “Syrian Rebels Urge McCain to Get Over Losing to Obama”

“Syrian Rebels Urge McCain to Get Over Losing to Obama”
by Andy Borowitz

SYRIA (The Borowitz Report)— “During a meeting yesterday with Sen. John McCain (R-Arizona), Syrian rebels told the senator that he still seemed “really bitter” about losing the 2008 election to President Obama and advised him to “get over it.” After meeting with the Arizona senator in the border region near Turkey, a spokesman for the Syrian rebels told reporters that while they appreciated Sen. McCain’s support, “We were kind of uncomfortable with the place it was coming from. It was pretty obvious to me and the other rebels that everything McCain was doing was just to get back at Obama,” the rebel spokesman said. “And we were like, look, that election was five years ago. It’s time to move on.”

Sen. McCain denied that his support of the Syrian rebels had anything to do with a personal vendetta against President Obama, but according to the rebel, “Every time he said ‘Obama,’ a vein in his head kind of bulged out.” “The man is a simmering cauldron of rage,” the Syrian rebel said. “He needs to turn his anger toward Obama into something more positive. You can’t carry all of that hate around with you forever—it’s not healthy.” For his part, Sen. McCain said that he was “finished” with the Syrian rebels and would now focus on starting a war with North Korea.“

"Apple Is a Tax Dodger… You Should Be, Too"

"Apple Is a Tax Dodger… You Should Be, Too"
by Alexander Green

“There was a collective gasp in some quarters last week when it was revealed that technology giant Apple avoided taxes on billions of dollars in offshore profits. CEO Tim Cook will almost certainly catch plenty of flak in the weeks ahead. But shareholders can breathe easy. Apple is unlikely to pay an extra cent in taxes. And you would be well advised to follow its example. Here’s why…

Apple did nothing illegal. It is simply playing the game that Congress created with the near-incomprehensible tax code. Hundreds of other multinational companies also use cost-sharing agreements to shift profits to a tax haven jurisdiction. They take advantage of tax law loopholes and use countries like Ireland as the base for offshore subsidies. (However, Apple did push the envelope a bit by having a subsidiary, Apple Operations International, with no employees or physical presence.)

This is exactly the sort of behavior you should expect with such a convoluted tax code. It may surprise you to learn that not even the Internal Revenue Service knows how long it is. Nina Olson, the national taxpayer advocate at the IRS, recently prepared an official report that turned up 3.7 million words. The number of words in the code has more than tripled since 1975. Since the beginning of 2001, there have been more than 4,000 changes to the tax code – an average of more than one a day. Politicians have learned that one of the best ways to retain incumbency is doling out tax favors to special interest groups.

Not even the best tax specialists in the country – and certainly none of our “misrepresentatives” in Congress who created it – can honestly claim to understand the entire code (which explains this interesting loophole we discovered). And so we struggle.

The IRS reports that U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with the filing requirements of the Internal Revenue Code. More than 80% of individual taxpayers find the process of filing tax returns so overwhelming that they pay for help. This is a tremendous waste of time and money. Tax simplification would benefit all Americans, regardless of party affiliation. In the meantime, you have no choice but to play the game that Congress created. And that means doing everything in your power to keep your tax liabilities to an absolute minimum.

Tax Sense: Here are six basic steps to tax-managing your portfolio:

1. If you seek investment income, invest in municipal bonds. Interest payments are exempt from federal tax. And right now you face an unusual opportunity: Muni bonds yield more than Treasurys. This won’t last forever. Take advantage of it.
2. Minimize turnover in your non-retirement accounts. Taking gains on investments held less than a year means subjecting yourself to short-term capital gains taxes as high as 39.6%. Hold winners for at least a year, if possible. If you do, you’ll qualify for long-term capital gains treatment at the maximum rate of no more than 20%.
3. If you trade for short-term profits, it’s better to do it in your IRA or other qualified retirement plan. That way your short-term gains compound tax-deferred.
4. Before year-end, be sure to offset realized capital gains with capital losses. (You can buy the same securities back 30 days later.) And you can take up to $3,000 in additional losses against earned income.
5. Use your IRA, pension, 401(k) or other tax-deferred account to own corporate and Treasury bonds (since interest income is taxed at the same rate as earned income) and real estate investment trusts (since REIT dividends are taxed the same way). I call this your asset location strategy.
6. If you invest in mutual funds, use index funds rather than actively managed funds in your non-retirement accounts. Index funds are more tax-efficient because changes to the index are rare. Managed funds usually have high turnover and federal law requires them to distribute at least 98% of realized capital gains each year. That means you can get hit with a big capital gains distribution even when you haven’t sold a share – and even if the fund is down for the year. That hurts on April 15.

Occasionally, this strategy provokes anxiety from some investors who see tax-management strategies as some sort of abdication of their civic responsibilities. Not so.

The Morality of Taxes: You might feel, for instance, that low taxes cause deficits. Yet fiscally strapped countries in Europe have much higher tax rates than we do – and a VAT (value added tax) to boot. California is the biggest fiscal mess in this country and, not coincidentally, has the highest income and sales tax rates in the nation. Deficits everywhere are the result of unrestrained public spending, not citizens keeping too much of what they earn.

I’m not suggesting you do anything the least bit illegal or unethical. As a law-abiding citizen, you should pay all the taxes you are obligated to pay… but not one penny more. As Judge Learned Hand, who served for years as Chief Judge of the U.S. Court of Appeals for the Second Circuit, famously wrote: “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the Treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again, the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands.”

Amen, Judge.

In short, taxes matter… a lot. Take the basic steps I’ve outlined here and – like Apple – you’re assured of higher real-world, after-tax returns. Market returns come and go. But taxes and expenses are forever.”