Plutocracy, Then and Now - The Lesser of Two Evils

The world being what it is, we sometimes have to choose between two less than desirable options. The problem with choosing the lesser of two evils that are distasteful enough is that one has to numb their conscience to do it. This is what is known as a 'Faustian bargain.' We may lie to others and especially ourselves about it, but there it is.

But the individual will find that if they choose to make this kind of rotten deal with their own conscience enough times, and put their inner voice aside to make an expedient, practical choice rather than a moral one, and pile lie upon lie to ease the pain of their betrayal, eventually their conscience will fail them when it matters the most.  Or they may simply find themselves too compromised to do anything but overtly choose what is objectively wrong or suffer serious personal consequences.  They have intertwined their fingers with the power of darkness so deeply that now they are his.

And this is how the banal, time serving functionaries familiarize themselves into eventually doing otherwise unthinkable, and sometimes monstrous things.

The road to hell is paved, not with one climactic choice, but a long series of increasingly bad choices and lies, that eventually grow into a complete betrayal of duty, and our honour, and our sacred oaths of service.

We Americans are not usually thought to be a submissive people, but of course we are. Why else would we allow our country to be destroyed?  Why else would we be rewarding its destroyers?  Why else would we all— by proxies we have given to greedy corporations and corrupt politicians— be participating in its destruction?

Most of us are still too sane to piss in our own cistern, but we allow others to do so and we reward them for it. We reward them so well, in fact, that those who piss in our cistern are wealthier than the rest of us. How do we submit?  By not being radical enough.  Or by not being thorough enough, which is the same thing.

Wendell Berry


Under pretence of governing they have divided their nations into two classes, wolves and sheep. I do not exaggerate. This is a true picture of Europe. Cherish therefore the spirit of our people, and keep alive their attention. Do not be too severe upon their errors, but reclaim them by enlightening them.

If once they become inattentive to the public affairs, you and I, and Congress, and Assemblies, judges and governors shall all become wolves. It seems to be the law of our general nature, in spite of individual exceptions; and experience declares that man is the only animal which devours his own kind, for I can apply no milder term to the governments of Europe, and to the general prey of the rich on the poor.

Thomas Jefferson, 16 January 1787


Special privileges and the use of the taxing power for private gain, these are the twin pillars upon which plutocracy rests. To take away these supports and to elevate the beneficiaries of special legislation to the path of honest effort is the purpose of our party.

And who can suffer injury by just taxation, impartial laws and the application of the Jeffersonian doctrine of equal rights to all and special privileges to none? Only those whose accumulations are stained with dishonesty and whose immoral methods have given them a distorted view of business, society and government.

Accumulating by conscious frauds more money than they can use upon themselves, wisely distribute or safely leave to their children, these denounce as public enemies all who question their methods or throw a light upon their crimes.

Plutocracy is abhorrent to a republic; it is more despotic than monarchy, more heartless than aristocracy, more selfish than bureaucracy. It preys upon the nation in time of peace and conspires against it in the hour of its calamity. Conscienceless, compassionless and devoid of wisdom, it enervates its votaries while it impoverishes its victims.

It is already sapping the strength of the nation, vulgarizing social life and making a mockery of morals. The time is ripe for the overthrow of this giant wrong. In the name of the counting-rooms which it has defiled; in the name of business honor which it has polluted; in the name of the homes which it has despoiled; and in the name of religion, upon which it has placed the stigma of hypocrisy, let us make our appeal to the awakened conscience of the nation.

William Jennings Bryan, 30 August 1906


The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

Franklin D. Roosevelt, Inaugural Address, March 4, 1933


Still another danger is represented by those who, paying lip service to democracy and the common welfare, in their insatiable greed for money and the power which money gives, do not hesitate surreptitiously to evade the laws designed to safeguard the public from monopolistic extortion. American fascists of this stamp were clandestinely aligned with their German counterparts before the war, and are even now preparing to resume where they left off, after 'the present unpleasantness' ceases.

They claim to be super-patriots, but they would destroy every liberty guaranteed by the Constitution. They demand free enterprise, but are the spokesmen for monopoly and vested interest. Their final objective toward which all their deceit is directed is to capture political power so that, using the power of the state and the power of the market simultaneously, they may keep the common man in eternal subjection.

Henry Wallace, 9 April 1944


It was of the utmost importance to me that people in western Europe should see the Soviet regime for what it really was. Since 1930 I had seen little evidence that the USSR was progressing towards anything that one could truly call Socialism. On the contrary, I was struck by clear signs of its transformation into a hierarchical society, in which the rulers have no more reason to give up their power than any other ruling class.

George Orwell, Animal Farm preface, 1945


Now we remember that it was Bill Clinton's administration that deregulated derivatives, deregulated telecom, and put our country's only strong banking laws in the grave. He's the one who rammed the North America Free Trade Agreement (NAFTA) through congress. Mass incarceration and the repeal of welfare, two of Clinton's other major achievements, are the pillars of the disciplinary state that has made life so miserable for Americans in the lower reaches of society. He would have put a huge dent in Social Security too, had the Monica Lewinsky sex scandal not stopped him. If we take inequality as our measure, the Clinton administration looks not heroic but odious.

Mounting a campaign against plutocracy makes as much sense to the typical Washington liberal as would circulating a petition against gravity. What our modernized liberal leaders offer is not confrontation but a kind of therapy for those flattened by the free-market hurricane: they counsel us to accept the inevitability of the situation.

Thomas Frank, Rendezvous With Oblivion, 1 September 2006


Our plutocracy, whether the hedge fund managers in Greenwich, Connecticut, or the Internet moguls in Palo Alto, now lives like the British did in colonial India: ruling the place but not of it.

Mike Lofgren, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government, 5 January 2016


We are not left to conjecture how the moneyed power, thus organized and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands can not yet be forgotten.

The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and despondency ought to be indelibly impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors?

No nation but the freemen of the United States could have come out victorious from such a contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have dictated the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes. The forms of your Government might for a time have remained, but its living spirit would have departed from it.

Andrew Jackson, Farewell Address, 4 March 1837


A multibillion-dollar bailout and Wall Street’s swift, subsequent reinstatement of gargantuan bonuses have inspired a narrative of parasitic bankers and other elites rigging the game for their own benefit. And this, in turn, has led to wider—and not unreasonable—fears that we are living in not merely a plutonomy, but a plutocracy, in which the rich display outsize political influence, narrowly self-interested motives, and a casual indifference to anyone outside their own rarefied economic bubble.

Chrystia Freeland, The Rise of the New Global Elite, January 2011


That first [gilded] age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent. Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

Major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets.

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

Recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

Simon Johnson, The Quiet Coup, May 2009


The American economy increasingly serves only a narrow part of society, and America's national politics has failed to put the country back on track through honest, open, and transparent problem solving. Too many of America's elites-among the super-rich, the CEOs, and many of my colleagues in academia-have abandoned a commitment to social responsibility. They chase wealth and power, the rest of society be damned.

Jeffrey Sachs, The Price of Civilization, January 2012


The problem of the last three decades is not the 'vicissitudes of the marketplace,' but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy.

Dean Baker, Vicissitudes of the Marketplace Would Be a Big Improvement, 29 September 2014


Over the last thirty years, the United States has been taken over by an amoral financial oligarchy, and the American dream of opportunity, education, and upward mobility is now largely confined to the top few percent of the population. Federal policy is increasingly dictated by the wealthy, by the financial sector, and by powerful (though sometimes badly mismanaged) industries such as telecommunications, health care, automobiles, and energy. These policies are implemented and praised by these groups’ willing servants, namely the increasingly bought-and-paid-for leadership of America’s political parties, academia, and lobbying industry.

If allowed to continue, this process will turn the United States into a declining, unfair society with an impoverished, angry, uneducated population under the control of a small, ultrawealthy elite. Such a society would be not only immoral but also eventually unstable, dangerously ripe for religious and political extremism.

Charles Ferguson, Predator Nation, June 2012


This elite-generated social control maintains the status quo because the status quo benefits and validates those who created and sit atop it. People rise to prominence when they parrot the orthodoxy rather than critically analyze it. Intellectual regurgitation is prized over independent thought. Voices of the dispossessed, different, and un(formally)educated are neglected regardless of their morality, import, and validity.

Real change in politics or society cannot occur under the orthodoxy because if it did, it would threaten the legitimacy of the professional class and all of the systems that helped them achieve their status.

Kristine Mattis, The Cult of the Professional Class, 4 April 2016


Plutocracy is not an American word but it's become an American phenomenon. Back in the fall of 2005, the Wall Street giant Citigroup even coined a variation on it, plutonomy, an economic system where the privileged few make sure the rich get richer with government on their side.

By the next spring, Citigroup decided the time had come to publicly 'bang the drum on plutonomy.' 

Over the past 30 years the plutocrats, or plutonomists— choose your poison— have used their vastly increased wealth to capture the flag and assure the government does their bidding.

This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet.

Like those populists of that earlier era, millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable. Then, the remedy was a popular insurgency that ignited the spark of democracy. Now we have come to another parting of the ways, and once again the fate and character of our country are up for grabs.

Democracy only works when we claim it as our own.

Bill Moyers, last episode of Bill Moyers Journal, 30 April 2010


Hubris calls for nemesis, and in one form or another it's going to get it, not as a punishment from outside but as the completion of a pattern already started.

Mary Midgley, The Myths We Live By, 2003

Mark Blyth On Neoliberalism, Brexit, and the Global Revolt Against the 1% and their Unelected Elites

"...a full 95% of the cash that went to Greece ran a trip through Greece and went straight back to creditors which in plain English is banks. So, public taxpayers money was pushed through Greece to basically bail out banks...So austerity becomes a side effect of a general policy of bank bailouts that nobody wants to own. That's really what happened, ok?

Why are we peddling nonsense? Nobody wants to own up to a gigantic bailout of the entire European banking system that took six years. Austerity was a cover.

If the EU at the end of the day and the Euro is not actually improving the lives of the majority of the people, what is it for? That's the question that they've brought no answer to.

...the Hamptons is not a defensible position. The Hamptons is a very rich area on Long Island that lies on low lying beaches. Very hard to defend a low lying beach. Eventually people are going to come for you.

What's clear is that every social democratic party in Europe needs to find a new reason to exist. Because as I said earlier over the past 20 years they have sold their core constituency down the line for a bunch of floaters in the middle who don't protect them or really don't particularly care for them. Because the only offers on the agenda are basically austerity and tax cuts for those who already have, versus austerity, apologies, and a minimum wage."

Mark Blyth

Although I may not agree with every particular that Mark Blyth may say, directionally he is exactly correct in diagnosing the problems in Europe.

And yes, I am aware that the subtitles are at times in error, and sometimes outrageously so.  Many of the errors were picked up and corrected in the comments.

No stimulus, no plans, no official actions, no monetary theories can be sustainably effective in revitalizing an economy that is as bent as these have become without serious reform at the first.

This was the lesson that was given by Franklin Roosevelt's New Deal.  There will be no lasting recovery without it; it is a sine qua non.  One cannot turn their economy around when the political and business structures are systemically corrupt, and the elites are preoccupied with looting it, and hiding their spoils offshore.

Thomas Frank: What Happened To the 'Party of the People'

"Inequality is a euphemism, a kind of shorthand, for all of the things that have gone to make the lives of the rich so much more delicious, year on year, for the last three decades.  And also for the things that have made the lives of working people so wretched and so precarious in that same time.

This word inequality. It's visible in the ever rising costs of healthcare and college, in the coronation of Wall Street, and the slow blighting of wherever it is that you happen to live. And you catch a glimpse of inequality every time you hear about someone that had to declare bankruptcy because a child got sick, or you read about the lobbying industry that drives Washington DC, or the new political requirement, the new constitutional requirement that every presidential candidate has to be a billionaire's favorite, or a billionaire themselves.

Inequality is about the way in which speculators, and even criminals, get a helping hand from Uncle Sam, while the Vietnam Vet down the street from you loses his house. Inequality is the reason that some people find such incredible significance in the ceiling height of an entrance foyer, or the hop content of a beer, while other people will never believe in anything again."

Thomas Frank

Change is coming. It must come, because the status quo is unsustainable, and has been so for some time.

How many times will our 'very serious people' with access to the public information channels continue to miss the obvious dissonance of the common reality from the official story that they tell each other about everything from the economy to politics?

At the root of this inequality, hidden as it is in the fog of fine sounding theories and economic models, is simple injustice.

The longer that change is delayed, the longer that the professional class continues to insulate itself, looking down on the broader public with smug contempt from privileged perches, blinding themselves with hypocritical arguments that deny what is happening all around them, the more disruptive that change will finally be.

And, as always, 'no one,' or at least no one who matters in their world, will have ever been able to see it coming.   Because by definition no one who is an insider can ever publicly admit that the insiders have blown it completely, once again.

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.  But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich."

John Kenneth Galbraith

Above the Law: The Age of Impunity and the Credibility Trap

"A credibility trap is a condition in which the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves."

The bureaucrats, politicians, professional enablers, and financial elite are so intricately complicit in, and so benefited by, the broken system which we have now that they cannot talk about the systemic problems that are driving the real economy into a perpetual stagnation. They may talk a good game, and pledge themselves to reform in passing, but quickly turn the conversation to some emotional distraction, some other group of people to blame, some other social cause, anything but the serious subject of substantial financial reform.

They are very much a part of the problem, if not at the heart of it.

They cannot engage in effective reforms because in doing so they would:
a) indict themselves and their predecessors and colleagues, and impugn their reputation for competency and/or integrity, and
b) would hamper their very lucrative careers in a system that they cannot afford to change or meaningfully reform.

There are very serious consequences for speaking the truth these days.  Insiders do not speak ill of other insiders, or they lose access to information and power.  This explains much of our current problems.

Perhaps the slogan for these pampered princes and princesses should be 'it may be a rotten, broken system, but I am personally doing just fine by it.'

How can one expect real reform when the privileged control the mechanisms of power and regulation, including the very selection process that chooses which candidates can even run for public office?

This is the credibility trap.

The Age of Impunity
Jeffrey Sachs
May 13, 2016

THE PANAMA PAPERS opened yet another window on the global system of financial corruption, showing how political leaders and businesses use shell companies in secrecy havens like the British Virgin Islands and many US states to evade taxes and hide corruption and other crimes.

Yet the system of corruption depends on another factor beyond secrecy, one that is perhaps even more important: impunity. Impunity means that the rich and powerful escape from punishment even when their malfeasance is in full view.

Impunity is epidemic in America. The rich and powerful get away with their heists in broad daylight. When a politician like Bernie Sanders calls out the corruption, the New York Times and Wall Street Journal double down with their mockery over such a foolish “dreamer.”

The Journal recently opposed the corruption sentence of former Virginia governor Bob McDonnell for taking large gifts and bestowing official favors — because everybody does it. And one of its columnists praised Panama for facilitating the ability of wealthy individuals to hide their income from “predatory governments” trying to collect taxes. No kidding.

Our major institutions, the ones that should know better, are often gross enablers of impunity...

Read the entire article here.

Scholes Sees Stagflation Coming, Suggests Safety To Be Found In Assets Like Gold and Silver

"But never a truth has been destroyed;
They may curse it, and call it crime;
Pervert and betray, or slander and slay
Its teachers for a time.
But the sunshine aye shall light the sky,
As round and round we run;
And the truth shall ever come uppermost,
And justice shall be done."

Charles Mackay

A banquet of consequence is coming, but I am afraid that justice is taking a more circuitous route, thanks in large part to the credibility trap. And the masters of the feast never seem to be around to pick up the check for their revels.

Myron Scholes, of the Black-Scholes Risk Pricing Model, said in an interview from the Milken Conference this morning that stagflation is the most likely outcome for the economy.

Stagflation! And what did Myron suggest that people invest in to protect themselves? Gold and silver, among other hard assets.  He thinks that stocks are due for a decline.

Stagflation is coming, so buy gold and silver to protect at least some of your wealth. Where have we heard that forecast before?

I think a forward thinking person, looking at the nature of the Fed's serial policy errors and the economic abuses that the monied interests have been inflicting on the real economy for quite some time, could have seen this outcome coming some years ago.

And some did.   But it is nice to see the models catching up.  The only surprise is that it has gone on as long as it has.  Never underestimate the venality of unscrupulous greed, and the power of thinking in herds.

And this comes a day after Ken Rogoff has suggested that the emerging markets invest their surpluses in the safety of gold! Which of course any but the most casual observer knows very well that they have been doing, and in size, for some time.

So there we have two major economic thinkers coming out for gold and silver as safe havens this week. One might be excused if they wonder if these are not statements being made ahead of some event to protect a sage's derrière.

There is one major hurdle, however, to executing that strategy to protect yourself by buying precious metals, as depicted in a single chart of a key market factor below.

Caught in the Aftermath of a Minsky Moment by a Credibility Trap

"I think this is where the academics are kind of clashing with the practitioners. I think on paper negative rates make a lot of sense if you're running academic models, but in reality they make no sense.  Having seven or eight trillion dollars of debt trading at negative rates, having thirty year JGB's trading at fifty basis points is absolutely ludicrous. This experiment that's going on we all know will end poorly at some point in time, I just don't know when that time is...

I think that one of the fears that they have is a run on cash. If they told you and I that they're going to tax your deposits by a hundred basis points, well it's better to put it in a safe or under your mattress. And that's why you see a resurgence in gold. The more they move to negative rates, the more gold is gonna take off because there's no carrying cost."

Kyle Bass, Hayman Capital

This comment [quoted below] about a recent column by Paul Krugman is written by someone I consider to be an ethical and intelligent mainstream economist. It was so simply and eloquently put that I am using it here on my site.  It expresses almost perfectly why there is a broad movement growing in the US that rejects all the  establishment candidates from both parties

And it goes without saying that the words I put in front of it are completely my own, and most likely go far beyond what this person said so well.  We have disagreed on some things at times, but I hope in an amicable way.  This is how knowledge is created from the raw material of data.

What I find to be highly significant right now is how badly the status quo is assessing and reacting to this current political situation.  There is an unmistakable desire for honesty, transparency, and reform in this country, especially among the young.  But those who view themselves as the powerful, the thought leaders, seem to be retreating into a comfortable story that they tell each other.   It is a story about how good things really are, if only the stupid and naive public could be made to understand it. Few may actually believe it in their hearts, but it is a story that serves their cause: it is expedient.

I don't wish to single Mr. Krugman out, not at all, because he is hardly the worst among mainstream commentators and economists.  He is merely symptomatic of these times, more a follower and participant than an original thinker or leader. Like his peers, he has seen others doing it, and it has worked for them.  As Louis Brandeis once said, the government teaches by example.   

What the privileged fail to realize is that by continuing to push forward with their winning strategy, because nothing powerful enough has risen up yet to stop them, will at some point shake the American republic to its foundations.

Since our current system of finance and money is so heavily reliant on confidence in its integrity, I fear that this break in trust, that is already showing signs of advanced development, will lead to a serious tear in the social and economic fabric.  This is certainly something that we have seen before in this country, but thankfully not for many, many years.

Some people will view this gathering storm as an opportunity to gain more power for themselves and their friends, and will attempt to use it as such.  And some ruthlessly so I am sure.  And that is dangerous. It is unfortunate that real change that can provide a more constructive alternative is not happening, because the very serious people, what Larry Siummers categorized as insiders, keep rationalizing the status quo to themselves, and deny anything that suggests that the prevailing system has failed, that they may have failed in anything.  I have called this the credibility trap.

If the fortunate few decide to continue to push down this rising trend towards reform and justice, eventually resorting to force as confidence and willing compliance continues to decline, then history suggests that the Pandora's box that they will open will carry many of them, and far too many innocents, to a place where they would not wish to go.

We do not have 'capitalism;'  what we have is plunder.   We have a corrupt system of kleptocracy ruled over by the big money power of a relative few individuals and organizations, what FDR called 'organized money'.  And a system based on the primacy of selfishness, power,, unbridled greed and a free hand to cheat and deceive and manipulate will serve to create a kind of hell on earth.

I think it is time for all of us to take a deep breath and seriously consider where our passions are taking us, and what this spirit of contentiousness and willfulness is causing us to say and do. The ultimate irony is when we become that which we hate.  I would wish all of us to step back and see what we may become before this goes too far.

Saturday, April 16, 2016 at 05:32 AM (in reaction to the two recent PK columns on Sanders):

"Paul Krugman has decided that if there is any way to destroy a decent, humble, caring, thoughtful candidate for president, a candidate who offers the possibility of actual change in domestic and foreign policies that have created so many problems for so many people for so long, if there is any way, any word that can be used, to destroy that candidate then destruction there will be.

What Krugman has done however is show me what wild intolerance, what authoritarian political thinking in an American context amounts to, and the attempts by Krugman at destruction of a decent person and candidate will with me turn me completely away from the desired effect.

Were I a student of Paul Krugman, I would smile and nod as if in agreement and very quietly go in the opposite direction. After all, I fortunately learned early on which teachers always had to be agreed with.

I have no idea where this disdain for a truly decent person and candidate comes from, obviously not from the person, nor do I care about the psychology on where the disdain comes from. Krugman is being as fierce as can be, harsh as can be. I record the fierceness and harshness, know such an anti-intellectual posture can never be for me and move away.

"As you know, I’m only saying these things because I’m a corporate whore and want a job with Hillary.

Related: Paul Krugman, Why I Haven't Felt the Bern


Jesse in reply:

Paul, you will obtain no objection to that self-confession from me, although it is purposely and dramatically overstated so as to discredit it.   No, you are caught by an idea, to a particular economic arrangement that seems to be failing most people, and to what history is likely to see as a systematic and continuing abuse of power.

This is not capitalism; this is mere plunder by a powerful few. We are caught in the aftermath of a 'Minsky Moment' by a credibility trap, and it has been going on for far too long.

In your defense, there is a lot of this sort of creative rationalization of a rotten system going around these days. It is fashionable.   And that is a big part of the problem.

Fed: JP Morgan Poses a 'Serious Adverse Effect To US Financial Stability' While Media Ignores

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair


"Hell is empty and all the devils are here."

William Shakespeare, The Tempest

And these days it is not always so obviously a question of salary. But it is often a question of access to the powerful, and the great favors, money, and privileges that they may grant as a reward.

There has been no meaningful and sufficient financial reform in the US, thanks in large part to the money power of the Banks and their faithful courtiers in the professional and political classes.

How can we not expect political failures in financial reform when almost fifty percent of Super Pac money comes from just 50 sources?

Do you reasonably expect any movement on changing this corrupt system from the establishment Republicans or the Wall Street Democrats?  They and their friends are doing very well financially as the data shows.

One of the reasons why the Fed is raising this alarm now is in part to the serious grilling that Senator Elizabeth Warren gave to Janet Yellen in a hearing last year, to which Janet had no good answers.

As JPM showed in their most recent financials, they are prospering once again while risking the rest of the US economy by their pursuit of greed and socialization of their losses.

And as we learned yesterday, Deutsche Bank admitted that they had been manipulating the prices of gold and silver in the world markets, and that they were certainly not alone in this fraudulent behaviour.  As I have asked so many times, if the Banks have been shown to have manipulated so many other markets of consequence, how can anyone be so skeptical when the evidence showed that they were doing the same thing in the gold and silver markets.

A rank amateur might not see it on the tape and the data, but any seasoned pro could not miss it unless they were wilfully blind.  Keep this sort of thing in mind as you take your pick of analysis and associated spinning of the facts.  I have seen a lot of nastiness on the Street over the past thirty five years, but this is one of the most rotten financial market climates that I can remember.  What used to be the exceptional misbehaviour seems to have become the accepted standard of doing business.  This is one of the most brutally cynical political and financial climates that I can remember and my memory of this goes all the way back to the early 1960's, to LBJ and Nixon.

The mainstream media continues to yawn, and when the next financial crisis comes, one well may ask 'why didn't anyone see it coming?'

The Fed Sends a Frightening Letter to JPMorgan and Corporate Media Yawns
By Pam Martens and Russ Martens
April 14, 2016

Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system...

At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.”   Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?

It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”

That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that “Dodd-Frank Financial Reform Is Working” when it comes to the behemoth banks on Wall Street...

JPMorgan’s sprawling derivatives portfolio that encompasses $51 trillion notional amount as of December 31, 2015 is also causing angst at the Fed and FDIC. The regulators wanted more granular detail on what would happen if JPMorgan’s counterparties refused to continue doing business with it if rating agencies cut its credit ratings. The regulators asked for a “narrative describing at least one pathway” for winding down the derivatives portfolio, taking into account a number of factors, including “the costs and challenges of obtaining timely consents from counterparties and potential acquirers (step-in banks).”

Read the entire article here.

NAV Premiums of Certain Precious Metal Trusts and Funds

It looks like we have had some notable changes in the closed end trusts and funds since February.  I include both the current and the previous charts of these instruments below.

The first thing that I looked at is the drawdown in gold bullion at the Sprott Physical Gold Trust that has occurred since February of about 57,702 troy ounces.  I think it is probably due to redemptions rather than fund sales because the cash level of the Trust is a workable but relatively modest $1,870,00, down from about $3,345,000.  As you may recall Sprott completed the acquisition of the Central Gold Trust (GTU) in January of this year.

As I have noted several times before, most of the funds and trusts that allow for bullion redemptions have been seeing outflows of gold bullion for some time now, as gold has been moving from West to East.  We have seen some 'inflows' into the big ETF for gold of GLD and a few others like that this year as gold rallied off a bottom.  But I do not quite view the gold in GLD on the same level as some of these closed end funds because of its relative volatility and the nature of its sub-custodial relationships.

Perhaps it is just some perspective bias on my part.  I trust few completely, but then some less than others.  And GLD falls into that category of unease because of their structure of custodianship.  I believe there may be undisclosed counterparty risk, which is not as much of a consideration for short term trading, but of more concern, like the CME was for Kyle Bass as a fiduciary for example, in the kinds of scenarios when gold is held as a long term asset held for 'insurance' against financial dislocations.

The Central Fund of Canada has still not addressed its cash situation, with the current cash assets shown as a negative $1,539,263 (1,539,264), down from a modest positive cash position of $173,805 in February.  I have to admit I was a little surprised to see that.  The bullion levels remain the same.  Typically the Fund does a shelf offering of additional shares to raise cash and add to bullion levels.  Or it is acquired as was its sister the Central Gold Trust.

And Sprott Silver has gained quite some silver bullion from its recent follow on offering and raised a substantial amount of cash.  I estimate their cash assets position at around $15,167,600, which is a notable increase over their cash of $1,779,270 which it had in February.  And the silver bullion in the fund has increased from 48,788,515 to 52,483,526 troy ounces.  The number of shares outstanding has also increased from 127,331,218 to 139,631,218 or roughly by 12,300,000.

Here is the press release on Sprott Silver's follow on unit offering which has just completed.

Interestingly enough the Sprott Silver Trust is showing a slightly negative premium to its NAV, as compared to a +2% premium in February.  I suspect this reflects some discouragement with regard to silver than to the trust itself.

The gold/silver ratio has fallen from 80+ to 76 which is still rather high historically.  I do think that there are some reasons for this, regarding the state of the 'free float' of gold bullion in London, with some side effects appearing elsewhere in NY and in some of the funds as mentioned.  Silver is tight but apparently not as much as gold.  Still, the central banks own little silver, and so supplying bullion for 'attitudinal and expectation adjustments' for the management of perception is not as readily available.  Excepting of course the large silver bullion stash that is being held by JPM, which seems to sometimes do heavy lifting for the Fed in the markets.

I get the sense that the Fed is caught in a credibility trap, and that they are managing a scenario of financial bubbles and busts that is highly counterproductive and the result of their group thinking and heavy bias to the wealthiest few and their banking system.   After all, the Fed is their creature whether we like to admit it or not, and the linkages and much used revolving door between Wall Street and the halls of power in this country is well established.  And as always, the enablers will speak nothing to power but what they wish to hear, and what they wish their courtiers to say to the rest of us, with a few notable exceptions.

I doubt very much that there will be a sustainable recovery in this country without serious and significant financial and political funding reforms.  And the established status quo, including the so called liberals who are captured by the system of privileged treatment and positioning itself, is dead set against it.

Thank you for all your kind words and messages.  I am hopeful that our Mary will transfer from hospital to an in-patient care rehabilitation facility for the weakness on her right side and for the 'fluent aphasia' in her speech.   Time will also be a great healer as the brain swelling subsides even more, but some targeted therapy looks to be necessary.  We all miss her and she misses us.  A home without a wife and mother is just a house, because she is its heart.

Here is the previous spreadsheet from February of this year.

Gold Daily and Silver Weekly Charts - Credibility Trapped

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car."

Neil Barofsky


"The people who designed the [bailout] plans are either in the pocket of the banks or they’re incompetent."

Joseph Stiglitz


“In poor countries, officials receive explicit bribes; in D.C. they get the sophisticated, implicit, unspoken promise to work for large corporations.”

Nassim Taleb, The Bed of Procrustes


"...the biggest risk we can take is to try the same old politics with the same old players and expect a different result."

Barack Obama, Democratic National Convention 2008


"But at some point the Obama Administration should acknowledge that this particular former CEO of Goldman Sachs is still driving the policy bus.  If the Republicans are in control of the Congress come next January, maybe they should subpoena [Robert] Rubin to appear periodically. At least then we all can hear directly to the person who is actually making national economic policy."

Chris Whalen, The World According to Robert Rubin


"On Sunday afternoon, facing a revolt by his own party’s senators, Obama dumped Larry [Summers] as likely replacement for Ben Bernanke as Chairman of the Federal Reserve Board.

But the fact that Obama even tried to shove Summers down the planet’s throat tells us more about Obama than Summers—and whom Obama works for. Hint: You aren’t one of them."

Greg Palast, Larry Summers: Goldman Sacked


"After dinner, Larry [Summers] leaned back in his chair and offered me some advice. I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them.

Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders."

Elizabeth Warren

Here is my end of an exchange today, with some editing for clarity completeness, between myself and my Samoan attorney, while exchanging some anecdotes about the current climate of corruption within the Beltway and the NYC metropolitan area.  He is well informed of the doings in the halls of officialdom.

This gets to the heart of my theory of 'the credibility trap' which you may have seen on my site.

These professional bureaucrats and financiers are so intricately complicit in, and so benefited by, the broken system that we have now that they cannot talk about the real problems. They are very much a part of the problem.

They cannot engage in effective reforms because in doing so they would:
a) indict themselves and their predecessors and colleagues, and impugn their reputation for competency and/or integrity, and
b) would hamper their very lucrative careers in a system that they cannot afford to change or meaningfully reform.

There are very serious consequences for speaking the truth these days. This explains much of our current problems.  They are incapable of fixing things without the cover/incentive of a very serious event, either financial or something more exogenous..

Perhaps the slogan for these pampered princes should be 'in for a penny, in for a trillion dollars, because it's all Other People's Money, and I am doing just fine.'

So when I identify various politicians, regulators, and pundits as 'caught in a credibility trap' this is what I mean.

The people are starting to 'get this' even if they cannot describe it eloquently.   And they are therefore seeking to use their votes to toss out the insiders and bring in what they hope will be real change.

Here is my more 'formal' definition of the credibility trap.

"A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious, organized hypocrisy."

Gold and silver rocketed higher today after the ECB pulled out the bazooka loaded with some unconventional weapons, largely designed to benefit the European Banks.

Never have so many suffered so much for such an unworthy few.

There was little real activity in The Bucket Shop. The scorecards are below.

Now at least we know why the silly whacking of gold was the thing to do the past couple days. They knew it would run when Draghi dropped the hammer, and did not want it to take out key overhead resistance with a lot of momentum.

They 'have to control the price of gold, manage it.'   Because otherwise it might tell the truth.

Have a pleasant evening.

Deep State: Inside Washington's Shadowy Power Elite

“Our plutocracy, whether the hedge fund managers in Greenwich, Connecticut, or the Internet moguls in Palo Alto, now lives like the British did in colonial India: ruling the place but not of it. If one can afford private security, public safety is of no concern; to the person fortunate enough to own a Gulfstream jet, crumbling bridges cause less apprehension, and viable public transportation doesn’t even compute. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare?”

― Mike Lofgren, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government


"Our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise.

But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened."

Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, Princeton 2014

"As a congressional staff member for 28 years specializing in national security and possessing a top secret security clearance, I was at least on the fringes of the world I am describing, if neither totally in it by virtue of full membership nor of it by psychological disposition.

But, like virtually every employed person, I became, to some extent, assimilated into the culture of the institution I worked for, and only by slow degrees, starting before the invasion of Iraq, did I begin fundamentally to question the reasons of state that motivate the people who are, to quote George W. Bush,  'the deciders.'

Cultural assimilation is partly a matter of what psychologist Irving L. Janis called groupthink,  the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive.

As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said,  'It is difficult to get a man to understand something when his salary depends upon his not understanding it.'"

Mike Lofgren

Duke U. Study Suggests The Fed Consistently Leaked Non-Public Information to Select Insiders

This excerpt from a Duke University study is just in from my friend Professor Anthony Sanders at George Mason University, who writes at Confounded Interest.

In reading the paper I did not necessarily get the sense that this was a nefarious form of communication.  More like the kind of collegial exchanges of information that are so common to the revolving door nature of our modern financial regime.  There are two sets of rules, and two methods of handling things.  And insiders never speak ill of the actions of other insiders.

This is the 'money shot' from the abstract of the paper which is tracks the distribution of stock market gains over the FOMC information cycle:

"High return weeks do not line up with public information releases from the Federal Reserve or with the frequency of speeches by Fed officials.

Systematic informal communication of Federal Reserve officials with the media and the financial sector is a more plausible information transmission mechanism. We discuss the social costs and benefits of this method of communication."

And in related news, the Congress has just used its power to block an investigation of its own insider trading.  Again.

Remember this blog post from 2011?  Credibility Trap: US Congressmen and Their Staffs Regularly Engage In Insider Trading

It is hard to escape the credibility trap as a plausible explanation for the lack of serious financial reform and transparency in a system that has been shown to be plagued with a lack of sound regulatory oversight, price manipulation, and corruption in almost every major market.

I would certainly hope that there is a different explanation for what appears to be systematic insider trading since at least 1994.

Here is what Tony has to say about this Duke University paper at his blog:

Fed Consistently Leaked Non-Public Information to Selected Insiders

Researchers at Duke University and the University of California at Berkeley point to quantitative evidence that The Fed consistently leaks non-public information about its meetings, driving an investment pattern that has led to market gains.

Here is the paper: 292092121-Stock-Returns-Over-The-FOMC-Cycle

Here are stock returns over the FOMC cycles. Notice anything unusal?

And here are the 5 day returns with bootstrapped confidence bands.

'Silk Road' Countries' Gold Reserves and Demand Accumulation Has Grown 450% Since 2008

Silk road total demand, including the growth of official reserves and commercial imports, has risen from 1,493 tonnes in the year 2000 to over 27,087 tonnes in 2015.

The greatest increase has been since the global financial crisis in 2008 with an astonishing increase of 450% over the total amounts accumulated until then.

As you may recall, gold was ending its long bear market with a price bottom and a long climb higher shortly after the currency crises of Asia and Russia in the 1990's.

Silk Road demand has easily exceeded total global mine production for the last two years. And quite  Therefore, in addition to mining, other sources of gold have had to be found.  This may include scrap, and gold held by other entities.

Has this surge in gold demand been an uniquely Chinese government phenomenon?  Hardly.

In the second chart I show all the gold reserve increases for China AND Russia from the year 2000. They account for only about 11.4% of the growth in gold demand from the 'Silk Road' countries.

It is interesting to match this with the steady declines in Western gold vaults and the increased leverage in gold trading, what some call 'synthetic gold,' that became apparent in 2013.

I show that in the third chart vis a vis the Comex, and the fourth chart for the London Vaults.

The fifth chart compares the relative physical deliveries on the Shanghai Exchange and the NY Comex.

I am not trying to persuade or convince anyone, or argue with anyone, and certainly not sell anything.
Here are the facts as I have been able to discover them, and I cannot control what people may choose to think or not to think about them.

The data suggests that the volume of gold increased dramatically in 2013, when measures seem to have been taken to dampen the large increase in price up to the $1900 level, through rather clumsily determined selling programs in quiet hours.

This increased flow of bullion may be the result of Gresham's Law, which states that 'when a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.'

The data suggests that gold is very underpriced in US dollars because of an effort to make the dollar appear to be strong and gold to be disreputable as an alternative store of wealth.  Why should gold be more favored than cash money in their own currencies, which central bankers would also like to eliminate to smooth the way for further policy blundering and experimentation.

They are hardly without better alternatives to this.  Except of course for their pride, and insular group thinking, and of course the credibility trap that does not allow for frank discussions of what the problems really are and how we might move along.  But alas, that is not favored by The Banks and the moneyed interests.  And so the very serious people are loathe to even raise the subject of genuine reform in a serious conversation, except in some mockery of a charade.

And the Congress is no better.  The Congress may not know when it is talking nonsense about the economic situation, but the financiers, the Banks, and their hired hands do, but don't care.

Whatever else someone may say about this, it is apparent by any examination of the figures that gold bullion is flowing from West to East, and in some fairly consequential and increasing volumes.

The Silk Road has added over 25,000 tonnes of gold in the last fifteen years.  The gold miners are hardly in a position to increase production and search for new supply.  A gold mine takes four or more years to bring into production.

According to Nick Laird's figures, monthly global mining production is about 260 tonnes, and monthly demand is about 357 tonnes.  I have included a list of the top gold producing countries  in chart six.

Where will the supply for the Silk Road demand come from over the next five years, as it continues to grow faster than mining and even scrap production?

These two charts are from Nick Laird at goldchartsrus.com, with my annotations.

An Open Letter To Paul Krugman On the 'Republican Lust for Gold'

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."

John Kenneth Galbraith, Age of Uncertainty

This is a response to Mr. Krugman's recent column as it was featured at Economist's View titled, Republican Lust for Gold

I am not in favor of a return to a gold standard.

I am a reasonably well-educated, politically progressive professional, a likely supporter of Bernie Sanders as an economic reformer and an opponent of endless war, and certainly not the 'Wall Street Democrats.'   I believe that the current 'debate' over the place of gold in the economy is breaking along ideological lines to the point of a religious fervor and intellectual blindness, on both sides.

I think of gold as an alternative store of wealth, which without any sanctions from the state pro or con can serve a very useful purpose. It gives people a 'choice.' It can act as a barometer of sentiment. And it serves a purpose, especially in times of pervasive fraud in the financial asset markets, as an asset without mispriced or even hidden counterparty risk if held directly.

And if you think that the problem of pervasive fraud has been fixed you are sorely mistaken.

If a system cannot stand the criticism offered by something which it cannot and probably ought not to control, then perhaps the fault is in the system, and not in the critics.

And while we are on the topic, what by any stretch of the imagination do you subscribe the issue of 'gold' to the Republican establishment? Who shut the gold window in 1971? One of the few things that Chairman Greenspan said is that statists from both sides of the aisle despise and fear gold because it constrains them in their quest for discretionary power. And he was right.

The current 'stimulus' is a massive failure because it has been trying to save a broken and largely unreformed financial system, rather than provide stimulus and support to the vast majority of the participants. It is the consequence of placing the highest priority in means and methods, because they are 'ours.' Our method, our model. First and foremost. Because we fear for our credibility.

And so the participants who are complicit in the fraud and those who are invested politically in the models and methods both become ensnared in a 'credibility trap,' and what Mike Lofgren has called 'the anti-knowledge of the elite.'

Unfortunately, Gresham's law is still works. Gold, and to a lesser extent silver, are flowing 'en masse' to Asia in almost astonishing numbers of tonnes each month. The numbers are there, little publicized and noted in the prestige media, but almost shocking. It has not yet made its way fully into official reporting mechanisms, even so called 'industry organs.'

Mr. Krugman, nine out of ten Americans will notice that the vast peoples of Asia and the Mideast are not 'Republicans.'   The central banks of the world are hardly 'Republicans,' but they became net buyers of gold around 2007.

No, they are not the easily mocked Republicans.

But they are looking for a safe alternative to a monetary and financial system that is going off the rails, again.  The modern hypothesis that all money is purely arbitrary is only feasible if one has the ability to make their purely arbitrary valuations stick.   That is the Faustian bargain with the will to power, the endless war of the monetary relativists.

Would we make enemies of the whole world for the sake of a corrupt and unsustainable financial system? Alas, some would, and are doing so even now.

As I am sure you know, once a force like Gresham's Law goes into effect, which it already has, it can quickly turn into a torrent of consequences.  Will we continue to argue until that event is upon us, as we did with the prevalent fraud in the housing bubble that was created by the same perpetrators who have continued to rig markets even until today?

The dogmatic modelist and political hack sees China and India and other nations buying gold and says, 'We must stop this! Control it!' The thinker sees a sea change in the monetary markets and says, 'we must understand why this is happening, and what we may be doing to provoke it. And if we are doing something wrong, then correct it.'

No I do not support the gold standard, not at all. It would be entirely inappropriate for a patient still in the ICU to be prescribed a regime of hard exercise and strict diet. And the corruption in this system is capable of corrupting anything, even an external standard.

Given the proper regulation, transparency, and judgement, a paper currency can emulate the steadiness of a gold standard while allowing for more latitude in times of distress. Do you really believe that we have held to that prescription with our serial bubbles, frauds and crises?

But I do feel quite strongly that the current policy of constant market intervention in the West, which is obviously happening to anyone who is capable and experienced in watching trade patterns, is going to tear a hole in the facade that this sick series of policy errors is becoming.

If one takes even a cursory look at the trade flows of gold, one can see that the flows into Asia and the Mideast are relentless, and growing. And the decline of 'free float' in the UK and US in particular is striking. The numbers are difficult to discover, but some have taken on that task.

The leverage and shuffling of free bullion around to dull the interest in leverage is approaching 300 to 1 in NYC and 200 to 1 in the 'physical' LBMA market in London is the kind of obvious error that one looks back at from the wreckage and says, 'What were they thinking?'

We made a mistake. A big one.  We have tolerated a farcically ineffective program of 'reform' and a massive top down stimulus focused on the 'system' with an austerity for the public that is going to rip a tear in the social fabric which will take years, and a significant amount of pain, to mend.

It is going to happen, no matter what models or arguments you may wish to stick your head in. I am not trying to argue a point. I am trying to encourage people to at least look at what is happening, and to stop comforting themselves with obviously faulty numbers and metrics from a system that has stopped serving most participants in favor of a powerful few.

This is going to end badly. I was more demure when we had similar discussions here like this prior to the housing bubble collapse. 'And no one could have seen it coming.'  Because their eyes were closed and they comforted themselves with what they wanted to hear.

There is, at some point, going to be a dislocation in the international currency and bond markets.   And it will be noticeable, unless we change our ways and embrace honesty, transparency, broader equity, and reform.

It will not come from the political process, because that has also been broken by the power of big money.  That has become so painfully obvious that the only way to continue to justify it is to declare corporations to be 'people' and bribery to be 'free speech.'

People may think of themselves as 'Keynesians,'  and what the 'other side' thinks about Keynes is admittedly mostly an ideologically tainted caricature.  But first and foremost what made Keynes effective was his practical focus on the desired results and not to a preconceived model which crushes out the better part of reality in its understandable and unfortunate inadequacy that is common to all 'models.'  Keynes was an independent thinker who was confident enough to occasionally change his mind without worrying overmuch about his credibility, and not an acolyte of some constraining school of thought made dogma. 

No, rather than a 'gold standard' now I think gold should stand alone, and be allowed to speak whatever truths it may. As for any use of it by nations, let them make what use of it as they wish. It is a tool. But once they make it 'official' they cannot seem to keep from trying to cage it, and control it. But by then it is merely collateral damage of a growing corruption and fraud of finance, rarely without an accomplice in monetary economics.

At some point the thought leaders will have to rise above their own political enthusiasms and personal aspirations and begin to honestly and openly address what is going wrong. And then perhaps we may begin to push for the return of some of the basic principles hammered out in the 'New Deal' which we so foolishly allowed to be weakened and then overthrown in the 1990s, and even until now.

And, Mr. Krugman, that was a decidedly bipartisan effort. And the players and their enablers who brought us that misery are still active, unabashedly, in the highest circles of power.

An Almost Perfect Storm of Incompetence and Felony

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.

But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

John Kenneth Galbraith, Age of Uncertainty


“Misdeeds, once exposed, have no refuge but in audacity. And they have accomplices in those who are fearful in their complicity.”

Tacitus, Annals

I was discussing the markets this morning with my friends Dave and Bill Murphy as we generally do.  This is what I just wrote back in response to a question from Bill.

We just saw a very historically significant decline in the precious metals in terms of days lower without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the Swiss franc that cannot possibly be good for the real economy of the US, when every other developed nation is trying to devalue their currencies to stimulate their exports and inhibit imports.

I believe that a portion of the gold selling in particular is an effort to knock down the open interest in gold for December. If there was any serious attempt for holders of those contracts to stand for delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer' in that market, would not be able to cover the demand.

JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+ ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.

As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold, 400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even now their inventories remain somewhat depleted.

The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering so that they can raise rates.  A strong dollar and higher rates are very harmful to what is almost undoubtedly a fragile economic recovery in the US.

And it is fantasy to think that the US can somehow go it alone, and continue to improve while the rest of the world is cutting rates because their economies are slowing.

The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy.

There will be another financial crisis as the IMF warned today. There will be a serious dislocation in several financial markets, including the precious metals and the bonds at some point, that will rock the current system to its foundations.

It is the credibility trap which ensnares the ruling class that inhibits any meaningful remedy and reform.

It is an almost perfect storm of incompetence and felony.

'Among Major Economies, Only the Chinese Numbers Are More Suspect'

On the surface this report shows solid economic growth for the US economy during the second quarter of 2015. Unfortunately, all of the usual caveats merit restatement: 

-- A significant portion of the "solid growth" in this headline number could be the result of understated BEA inflation data. Using deflators from the BLS results in a more modest 2.33% growth rate. And using deflators from the Billion Prices Project puts the growth rate even lower, at 1.28%. 

-- Per capita real GDP (the number we generally use to evaluate other economies) comes in at about 1.6% using BLS deflators and about 0.6% using the BPP deflators. Keep in mind that population growth alone (not brilliant central bank maneuvers) contributes a 0.72% positive bias to the headline number. 

-- Once again we wonder how much we should trust numbers that bounce all over the place from revision to revision. One might expect better from a huge (and expensive) bureaucracy operating in the 21st century.

Among major economies, only the Chinese numbers are more suspect. 

All that said, we have -- on the official record -- solid economic growth and 5.3% unemployment.

What more could Ms. Yellen want? 

Consumer Metrics Institute, BEA Revises 2nd Quarter 2015 GDP Growth Upward to 3.70%

Thanks to Wall Street On Parade for pointing the way to this commentary above.

The campaign to smother the true state of the US economy with paper, both in terms of paper money and manufactured statistics, is an outgrowth of the credibility trap.

Having crippled the real economy with incompetent and corrupt policy decisions, the status quo of pampered privilege is going full out to try and save the day– for themselves.

Meanwhile, underneath the public relations campaign to persuade people that all is calm, the pressures of a decade or so of malinvestment and crony capitalism continue to build.   The persuasion of the official numbers is becoming more and more ineffective, as people hear one thing but see another in their daily lives.

Yes, there are more jobs.  And they are of an inferior quality with low pay and often little or no benefits such as basic healthcare, which despite assurances otherwise is becoming increasingly expensive, and as in the clear case of Big Pharma, unnecessarily so but supported by government policies.

And the urge is to spread this malicious monopolistic drug policy globally through secret trade deals such as the TPP and TTIP.

The public is rejecting the 'establishment' in increasing numbers, such that such voices of the privileged are now recognizing them, but dismissing them as a sociological phenomenon,  expressive individualism.

The political and economic establishment has failed, again and again and consciously so, because it was to their short term benefit to do it.   It is the failure of an oath, of personal morality, and of office.

But now that the consequences of their actions are becoming apparent, they cannot possibly admit to them because, after all, it was they who are responsible.  And there is still plenty of money left on the table.

And so they must deny the problems, cover them and distract attention away from them, and continue to press on with what has been working all along, for them and their friends. The oligarchy has indeed become audacious. both in its lust for looting the system, and its bravura in the attempts to cover up the consequences of their decisions.

"Some appear to believe that 'confidence in the banks' can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit."

James K. Galbraith, Testimony to Congress, May 2010

Related:   LBMA Apparently Restated Its 2013 Gold Refining Number 2,200 Tonnes Lower

President Carter: US Is Now 'Just an Oligarchy With Unlimited Political Bribery"

You might not have heard about this interview on the mainstream media.  It occurred several days ago.  Apparently Jimmy is not gleefully participating in the triumphant Clinton-Bush winners road tour and congenial yukfest. 

 

Some, nearing the latter part of their days, tend to feel the weight of their conscience.  But certainly not all, especially not those who believe in nothing greater than themselves.

 

Carter's startling admission is at the root, the very heart of the lack of reform and recovery. 

 

But the pundits, even the so-called liberal media and the disgruntled conservative media, will not discuss it frankly and openly.   They traffic in shallow anger and distraction, and faithfully serve the special interests.

And there is as little serious discussion in the pampered corporatist media, whose mission is to obfuscate and distract the public from the key issues with 'bread, circuses, and sensationalism.'

This is the kind of thing that everyone in power, and almost all those who bask in that power, know but never talk about openly, feigning ignorance with dismissive ridicule.  

 

They are caught in a credibility trap of their own making.  And so they while away the days with private looting, waiting to see which way and when the winds of reaction may blow, while doing everything they can to maintain the status quo which they have created for their own benefit.

It is the dark heart of corruption, the quiet coup d'état that has overthrown the American republic.

 

The people are beginning to ask, 'After six years, why is there tremendous profits for those who caused the problems in the first place, but no recovery for the rest of us?'

And the elite look with bewilderment, fear, and anger at the fruits of their treachery and deceit.  

They think to themselves, 'We know that we are superior people, tasked with the burdens of leadership, so they must simply be ungrateful,  jealous of our success.'

 

A small but highly visible minority may look to the worst of the oligarchs as their leader and savior.  One might call it a kind of Stockholm Syndrome, but really it is just a perverse reaction, the impulse of the camp follower that identifies with their abusers, thinking that this elevates them from the rest.

 

And the media wisely warns them, slurring any candidates out of the mainstream control, the narcissist and the socialist, urging the people to stick with the familiar oligarchic brand names, Bush and Clinton, and in extremis that slickly formed alloy and extruded creation of the money masters, brand Obama.

Hubris begets nemesis.  If they were not so self-absorbed and morally stunted by their pride and selective experience they would understand that people will not stand by and allow themselves to be abused forever.

Transcript:

HARTMANN: Our Supreme Court has now said, “unlimited money in politics.” It seems like a violation of principles of democracy. … Your thoughts on that?

CARTER: It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members.

So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over. … The incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves.

Hat tip for the above to Sam Sacks and especially to Jon Schwarz at The Intercept.