The Unscrupulous Initiative of a Few - Dancing On a Volcano

 

"And such was the attitude of their minds that a shocking crime was dared by a few, with the blessing of more, and the passive acquiescence of all." 

Tacitus, Histories: Book I, XXVIII, The Murder of Galba

"And what rough beast, its hour come 'round at last, slouches toward Bethlehem to be born."

W. B. Yeats, The Second Coming

"It has been assumed that the old bipolar world would beget a multipolar world with power dispersed to new centers in Japan, Germany (and/or 'Europe'), China and a diminished Soviet Union/Russia.  [This is] mistaken.  The immediate post-Cold War world is not multipolar.  It is unipolar...  American preeminence is based on the fact that it is the only country with the military, diplomatic, political and economic assets to be a decisive player in any conflict in whatever part of the world it chooses to involve itself.

If America wants stability, it will have to create it... We are in for abnormal times. Our best hope for safety in such times, as in difficult times past, is in American strength and will— the strength and will to lead a unipolar world, unashamedly laying down the rules of world order and being prepared to enforce them."

Charles Krauthammer, The Unipolar Moment, Foreign Affairs, 1990

"It is not a choice between preeminence today and preeminence tomorrow. Global leadership is not something exercised at our leisure, when the mood strikes us or when our core national security interests are directly threatened; then it is already too late. Rather, it is a choice whether or not to maintain American military preeminence, to secure American geopolitical leadership, and to preserve the American peace...

Information systems will become an important focus of attack, particularly for U.S. enemies seeking to short-circuit sophisticated American forces. And advanced forms of biological warfare that can 'target' specific genotypes may transform biological warfare from the realm of terror to a politically useful tool.

This is merely a glimpse of the possibilities inherent in the process of transformation, not a precise prediction. Whatever the shape and direction of this revolution in military affairs, the implications for continued American military preeminence will be profound....the process of transformation, even if it brings revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event – like a new Pearl Harbor."

Project for a New American Century, Rebuilding America's Defenses, September 2000

"Japan, whose claim to power rested exclusively on economics, went into economic decline. Germany stagnated. The Soviet Union ceased to exist, contracting into a smaller, radically weakened Russia. The European Union turned inward toward the great project of integration and built a strong social infrastructure at the expense of military capacity. Only China grew in strength, but coming from so far behind it will be decades before it can challenge American primacy... Today, American military spending exceeds that of the next twenty countries combined. Its navy, air force and space power are unrivaled. Its technology is irresistible. It is dominant by every measure.

The result is the dominance of a single power unlike anything ever seen. American dominance has not gone unnoticed. During the 1990s, it was mainly China and Russia that denounced unipolarity in their occasional joint communiqués. As the new century dawned it was on everyone’s lips.

The third effect of September 11 [2001] was to accelerate the realignment of the current great powers, such as they are, behind the United States...

Multilateralism is the liberal internationalist’s means... (the moral, legal and strategic primacy of international institutions over national interests) and legalism (the belief that the sinews of stability are laws, treaties and binding international contracts)—are in service to a larger vision: an international system in the image of domestic civil society. The multilateralist imperative seeks to establish an international order based not on sovereignty and power, but on interdependence.

The greatest sovereign, of course, is the American superpower, which is why liberal internationalists feel such acute discomfort with American dominance. To achieve their vision, America too—America especially—must be domesticated... This liberal internationalist vision—the multilateral handcuffing of American power—is, as Robert Kagan has pointed out, the dominant view in Europe...to be expected, given Europe’s weakness and America’s power. But it is a mistake to see this as only a European view

Trade agreements with Canada are one thing. Pieces of parchment to which existential enemies affix a signature are quite another. They are worse than worthless because they give a false sense of security and breed complacency. For the realist, the ultimate determinant of the most basic elements of international life—security, stability and peace—is power.

The future of the unipolar era hinges on whether America is governed by those who wish to retain, augment and use unipolarity to advance not just American but global ends, or whether America is governed by those who wish to give it up—either by allowing unipolarity to decay as they retreat to Fortress America, or by passing on the burden by gradually transferring power to multilateral institutions as heirs to American hegemony. The challenge to unipolarity is not from the outside but from the inside. The choice is ours.

To impiously paraphrase Benjamin Franklin: History has given you an empire, if you will keep it."

Charles Krauthammer, The Unipolar Moment Revisited, The National Interest, Winter, 2002/3


"We now station over half a million U.S. troops, spies, contractors, dependents, and others on more than 737 military bases spread around the world.  These bases are located in more than 130 countries, many of them presided over by dictatorial regimes that have given their citizens no say in the decision to let us in...

The purpose of all these bases is force projection, or the maintenance of American military hegemony over the rest of the world. They facilitate our 'policing' of the globe and are meant to ensure that no other nation, friendly or hostile, can ever challenge us militarily.

The crisis the United States faces today is not just the military failure of Bush’s policies in Iraq and Afghanistan, the discrediting of America’s intelligence agencies, or our government’s not-so-secret resort to torture and illegal imprisonment.  It is above all a growing international distrust and disgust in the face of our contempt for the rule of law.

I remain hopeful that Americans can still rouse themselves to save our democracy. But the time in which to head off financial and moral bankruptcy is growing short. The present book is my attempt to explain how we got where we are, the manifold distortions we have imposed on the system we inherited from the Founding Fathers... Nemesis, the goddess of retribution and vengeance, the punisher of pride and hubris, waits impatiently for her meeting with us."

Chalmers Johnson, Nemesis: The Last Days of the American Republic, 2006


Nuland: ...So that would be great, I think, to help glue this thing [Ukraine regime change] and to have the UN help glue it and, you know, fuck the EU.

Victoria Nuland, US senior diplomat, Robert Kagan, Ukraine crisis: Transcript of leaked Nuland-Pyatt call, BBC, 7 February 2014 

 

Please do not imagine that what you read here is some sign that the American people are 'waking up.'  They are not waking up.  They are as confused, divided, manipulated, and distracted as ever, seeing little and loving only themselves.  And I am just an old man, deeply overshadowed by the strength of evil, and the weakness of man.

Perhaps by circumstance, perhaps by design, every impulse to change seems to be easily turned towards the darkness.

These are love letters to the Truth, mimeographed and thrown off balconies, scattered into empty university hallways, hoping that someone might pick one up and read it.  

Sixty years ago the blood-dimmed tide was loosed, and the ceremony of innocence was drowned.

Perhaps change will come.  Perhaps the light will break through at last, and dispel the deepening gloom.  

But if not, God grant that we, who want to love and serve him, will never bow before the gods of evil.

And perhaps that is enough.

Please make a copy of this for yourself, and as many copies as you can and distribute them.

Stocks and Precious Metals Charts - Without Shame or Honor - Hitmen

 

“The most tragic thing in the world is a man of genius who is not a man of honor." 

George Bernard Shaw

 

"We may make ourselves popular by telling our fellow citizens that they have made Discoveries, conceived Inventions, and made Improvements; We may boast that we are the chosen people; we may even thank God that we are not like other men.  But after all it will be but flattery, and the delusion, the self deceit of the Pharisee."

John Adams, Letter to John Taylor,  29 July 1814

 

“Melancholia is the beginning and a part of mania.  The development of a mania is really a worsening of the disease.  A period of lewdness and shamelessness exists with the worst type of manic delirium.”

Aretaeus of Cappadocia

 

"Time and again we hope for better leaders, but all too often those hopes are dashed.  The reason is that power causes people to lose the kindness and modesty that got them elected, or they never possessed those sterling qualities in the first place.  In a hierarchically organised society, the Machiavellis are one step ahead.  They have the ultimate secret weapon to defeat their competition.  They’re shameless.” 

Rutger Bregman, Humankind: A Hopeful History

 

“The real conflict is the inner conflict.  Beyond armies of occupation and the  the sacrifice of many victims of extermination camps, there are two irreconcilable enemies in the depth of every soul: good and evil, sin and love.  And what use are the victories on the battlefield if we ourselves are defeated in our innermost personal selves?”

Maximilian Kolbe

Stocks had a number of ways to demonstrate that they have put in a decent bottom from this recent flirtation with lower lows.

The action today was not one of them.  

A gap open and sprint higher that flopped into the close reeked of artificiality.

Gold and silver did manage a bounce from the expiration lows, and went out nearer to the highs of the day.

But to extend that in the face of titanic monetary events is key.

The Dollar continued its march higher, taking on the 103 handle and then some.

Or should we more correctly say that this is not Dollar strength so much as Yen and Euro weakness?

And is this Dollar strength more like the receding of the ocean, prior to some greater seismic event?

The strong Dollar has had its impact already, shaving several whole points off GDP in a yawning trade imbalance, fostered by a stronger dollar.

A strong Dollar favors imports, discourages exports, and encourages hot money of finance to seek acquisitions abroad.  

Save yourself from the madness, if you will.

And you may be grateful yet, if you do so moderate your passions, while remaining standing safely and faithfully, on higher ground.

Have a pleasant evening.

Stocks and Precious Metals Charts - Managed Complacency - The Grand Equilibrium

“It has been more profitable for us to bind together in the wrong direction than to be alone in the right one. Those who have followed the assertive idiot rather than the introspective wise person have passed us some of their genes. This is apparent from a social pathology: psychopaths rally followers.”

Nassim Nicholas Taleb, The Black Swan


"Definite signs that business and industry have turned the corner from the temporary period of emergency that followed deflation of the speculative market were seen today by President Hoover. The President said the reports to the Cabinet showed the tide of employment had changed in the right direction." -

News dispatch from Washington, January 21, 1930


"The even larger problem is that there is a kind of chronic complacency that has been rotting American liberalism for years, a hubris that tells Democrats they need do nothing different, they need deliver nothing really to anyone – except their friends on the Google jet and those nice people at Goldman. The rest of us are treated as though we have nowhere else to go and no role to play except to vote enthusiastically on the grounds that these Democrats are the 'last thing standing' between us and the end of the world.It is a liberalism of the rich, it has failed the middle class, and now it has failed on its own terms of electability."

Thomas Frank, 2016

The markets want to see a 25 basis point cut from the Fed's FOMC meeting, which will announce its decision around 2 PM.

They are also going to be listening very carefully to Chairman Powell's press conference, and are expecting some kind of reassurance of the Fed's support for equities and the Banks.

Stocks were a bit wobbly today but managed to rally into the green in the late afternoon.

The Dollar was lower, while gold and silver edged higher. The VIX fell.

After the bell Fedex announced a miss in earnings. They also cut their outlook, citing global macro slowdown. The stock was being spanked rather thoroughly after hours.

Adobe also missed its results after hours.   Smells like teen spirit.

There will be the September stock market options expiration on Friday.

Need little, want less, love more. For those who abide in love abide in God, and God in them.

Have a pleasant evening.

A Currency War That Few Economists and Analysts Notice, Much Less Understand

"The enormous gap between what US leaders do in the world and what Americans think their leaders are doing is one of the great propaganda accomplishments of the dominant political mythology."

Michael Parenti

Most economists and financial analysts think that 'currency war' merely refers to the competitive devaluations that nations sometimes engage in to help boost their domestic economies, as they had done in the 1930's for example.

This time the currency war is a much more profound confrontation of differing agendas revolving around the historically unusual role of the US dollar, based on nothing more than the will of the Federal Reserve and the 'full faith and credit' of the US, as the reserve currency for global central banks and international trade.

When a single nation begins to wield such an 'exorbitant privilege' to underwrite the speculative excesses of a crony capitalist banking system, and perhaps even more importantly, as an instrument in support of their international policy, one ought not be surprised that the rest of the world will begin to resist it.

A currency must be policy neutral, without regard to any party if it is to be a true medium of exchange.  Can this still be said of the US Dollar as it has been managed, especially since 1990?

As Alan Greenspan once correctly pointed out, but certainly did not heed when he was at the Fed, if a fiat dollar is managed by monetary policy such that it emulates gold, then it will be perceived as fair, and will certainly be above the particular domestic issues or international policy biases of a single nation that de facto wields the reserve currency status.

"And so it is an odd situation where all the central bankers -- while none of them are advocating a return to the gold standard -- nonetheless try to replicate the various types of interest rate policies that the gold standard would have created. And it is an interesting question whether you call that regulation, or basically functioning of a central bank in stabilizing the economy."

Greenspan: Role of Central Bankers Is To Emulate the Gold Standard

It might help one to understand this if they were to imagine a world in which Russia, for example, in a quirk of history had established the ruble as the benchmark currency for the world.  The ruble was recommended for use by all nations as the means of paying for oil,  and for settling international trade even when Russia is not involved in the transaction.  Each country was thereby compelled to hold a substantial portion of its international reserves in rubles.

And how would one be likely to react if the Russian Central Bank started using the ruble as an instrument of their international policy and extension of their quest for imperial power?  What if they began creating more rubles to underwrite the domestic bubbles which were created in their own corrupted financial system to bail out their banks and oligarchs?

And let's be serious and think 'like the other guys' for a moment.  What if some other nation that held the enormous power of the world's reserve currency was exhibiting a crop of candidates for their leader like the current choices for the US Presidency?   I would expect that some of the rhetoric being tossed about in these debates would send a chill to the very bottom of our toes.  Who could place their confident trust in their good and selflessly wise judgement to do the right things for other nations around the world, even if it might not favor the powerful special interests that give them so many millions in campaign donations?

Would you be content if your own government went quietly along with this abusive sort of monetary system?  Is this not indeed taxation without representation when the money supply is expanded and handed over directly to the hands of a few Bankers?

The intransigence of the Anglo-American financial establishment to recognize the legitimate issues of the rest of the world with regards to the manner in which they have conducted their control of the IMF, the World Bank, and the international reserve currency has ignited a currency war that is now becoming increasing visible, to just about everyone it seems except for those sequestered in their ivory towers at the heart of the Empire.  Or perhaps they think it too dangerous to even acknowledge that it exists, because then they might be compelled to render an opinion on it.

This is a 'big event' and it is all the more remarkable because the policy makers in the US act as though it is not even happening, or is not happening for any of the reasons for which it is.  They prefer to view it as a challenge to their authority, and to react uncompromisingly and with force.

I think that historians will find the start of the currency war in the Asian currency crises and the fall of the Russian ruble in the 1990's, with the roots of it in the closing of the gold window by Nixon in 1971.    But from the following essay it seems that China and a few astute Western observers have marked it as being visible from March 2015.

But whatever the date of its commencement, this dispute over the international monetary regime is the basis for the ongoing currency war that seeks to rebalance the terms of international trade and finance.

It is the old story of the very powerful resisting change that benefits the few of them inordinately. And as in so many wars of the past, those few who benefit from it do not include the bottom 90% of their own people at the least.

Most economists and analysts are ignoring this, or are unaware of it.  When they do finally wake up they will likely get busy finding ways to justify it, or dismiss it as an issue, and 'prove' that there is nothing wrong with it.  And very few will acknowledge the price of it in terms of economic stagnation and human misery.  All is well.

Here is an excerpt of a recent article that was published in Chinese and then translated into English in the journal of the International Monetary Institute in Beijing.  (It is a little funny that they published his last name as Widdlekoop, but if you were writing in hanzi would you know if a similar looking character is upside down?)

Has the US Lost its Role as the Underwriter of the Economic System?
By Willem Middlekoop

The recent news that Britain aspires to become one of the founding members of the new Asian Infrastructure Investment Bank (AIIB), has shocked many. Larry Summers, who served as a Secretary of the US Treasury between 1999 and 2001, immediately understood the significance of these developments, and wrote in an op-ed for the Washington Post:   'March 2015 may be remembered as the moment the United States lost its role as the underwriter of the global economic system. I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.‘

This British announcement was highly criticized by the US. The Financial Times quoted an unnamed US official:  'We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power. This decision was taken after no consultation with the US.‘

Summers was also highly critical of the US‘ strategy toward the newly founded AIIB: 'The U.S. misjudged the situation tremendously, put pressure on allies and developing countries to under no circumstances be part of AIIB. Largely because of resistance from the right (neo-conservatives more precisely), the United States stands alone in the world in failing to approve International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their increased economic heft.‘

With Britain and many more major European countries signing up as founding members of the AIIB, the US economic hegemony has been dealt an enormous blow. For the first time since the end of the Second World War, the US is not in the driving seat during the foundation of a highly significant global institution. Of course, this will not change the world economic system overnight, but when we look back in five, ten or even fifteen years‘ time, March 2015 may be remembered as a turning point in economic history...

Another criticism is that the US move to more neoliberalism and global capitalism since the 1980‘s, has led to a change in the functions of the IMF. Critics claim allies of the US receive 'bigger loans with fewer conditions‘. Foreign governments who are non-allies have to sacrifice their political autonomy in exchange for IMF-funds and often have to sell assets crucial for their economy to foreign (often US) companies.

The former Tanzanian President Julius Nyerere, who was angered that debt-ridden African states were forced to hand over their sovereignty to the IMF (and World Bank), once asked:  'Who elected the IMF to be the ministry of finance for every country in the world?‘ And now the Chinese have openly asked for a 'new world wide central bank‘.

Joseph Stiglitz, a former chief economist at the World Bank, has also agreed that the IMF 'was reflecting the interests and ideology of the Western financial community‘. The 'helpful hand‘ by the IMF and World Bank towards military dictatorships friendly to the West‘ has been criticized as well.

It might be remembered as the start of an openly Chinese confrontation with the US over the world‘s economic leadership. As Summers points out, all of this has taken place because the Chinese leadership has had to wait a full five years for a change in the IMF-voting structure...

Willem Middlekoop, International Monetary Review, International Monetary Institute, Beijing July 2015, page 32

Comex Registered 'Deliverable' Gold Bullion Stores - Money Is All About Power To Some

"The conventional wisdom seems to be that the problems of the euro zone are, as economist Martin Feldstein once put it, 'the inevitable consequence of imposing a single currency on a very heterogeneous group of countries.'

What this commentary gets wrong, however, is that single currencies are never the product of debates about optimal economic solutions. Instead, currencies like the U.S. dollar itself are the result of political battles, where motivated actors try to centralize power.

This has most often occurred 'through iron and blood,' as Otto van Bismarck, the unifier of Germany put it, as a result of catastrophic wars. Smaller geographic units were brought together to build the modern nation state, with a unified fiscal system, a common national language that was often imposed by force, a unified legal system, and, a single currency. Put differently, war makes the state, and the state makes the currency....

European leaders weren’t stupid or self indulgent when they decided to move ahead with the euro, without fiscal union or strong Europe-level democracy. They just cared more about politics and international security than economics. They wanted to build a Europe that had transcended the divisions of the Cold War, and bind together Germany, which was reunited and much more powerful, with the rest of Europe."

Kathleen McNamara, This is what economists don’t understand about the euro crisis – or the U.S. dollar

Why is it that 'great people' always seem compelled to build their dreams of empire on the backs and broken bodies of innocents.  As always, it is for the greater good, and there will be collateral damage.

I do think some of the things that McNamara says is just a rationale for a certain philosophy of government.  The historical example of the US is almost embarrassing, revisionist, especially when she discusses the civil war, and how aimless the US had been until the creation of the Federal Reserve in 1913.

But it serves the hypothesis that the ends of pursuing 'order' justify the means including the overthrow of freedom, and that this is the lesson from history.  It certainly is a lesson, but I am not sure it is the one that she intends.

Money is indeed a medium of exchange, and a store of value. And it can also be a means of power, if it is abused and distorted to serve selfish ends.   We certainly have seen enough of that sort of thing in the first fifteen years of this century, with bailouts, and selective justice, and the abuse of regulation and monetary policy to favor a few over the many.

According to this line of thought, those who foresaw the pitfalls of the euro wanted nevertheless proceed in order to foster a unified political system which they felt would be more orderly, controlled by a collection of technocrats.

There is a similar school of thought with regard to a single world currency like the US dollar for example, that is to be controlled centrally by a cadre of technocrats that will be able to bring order, if not freedom, to everyone.   And somehow these benevolent technocrats always turn out to be merely human.  And then with time something less, much less.

After all, we must have order.  And in establishing that order, there must be collateral damage. Like Greece.

Have we forgotten the long line of thought that money and the banking system are utilities, that were put in place under state charter and regulated to provide for their function within a greater, productive economy in order to serve the public good?  And not as a tool of power and oppression by a privileged few?

Is this not the message one receives in reading of the law, and the long history of thought from the founders to the New Deal, with the usual digressions and abuses of monopoly power that will use a variety of means, including finances?  And not as an instrument primarily of state power and control over the people.

The central hypothesis of Professor McNamara seems to be that money, like most other things, is primariily an instrument of power, and that the deployment of the euro is an exercise in the centralization of power over a heterogeneous collection of nations and economies, and a means to bring Germany to its natural place at the head of a United Europe.

I am not saying that this view of public finances, banking and money as instruments of power is the intention or perspective of all economists.  Such a view of monetary theory exists as a willful distortion and abuse of economics, fostered by hubris and the will to power.

"What is good? All that enhances the feeling of power, the will to power, and the power itself in man. What is bad? All that proceeds from weakness. What is happiness? The feeling that power is increasing--that resistance has been overcome. Not contentment, but more power; not peace at any price, but war; not virtue, but competence."

Friedrich Nietzsche

It is a perspective that is shared by some of the powerful and the privileged.  It is just not normally associated with popular or democratic governments.   Just as other public utilities like the police are not intended as a force used to terrorize the people and quell any dissent, or the judiciary exists to permit and facilitate the abuses of a privileged few, while serving as an instrument of oppression over the general populace.  Such things can and do occur.  But these are aberrations, and not the norm, except in a society that has lost its conscience and moral moorings.

It is ironic that McNamara is a Professor of Government and Foreign Service at Georgetown, Carroll Quigley's old university.  I am not familiar with her body of work, and so admit I may be construing what she has written about the European Monetary Union, or was even being satirical.  But what she says calls to mind the writings of another Georgetown professor Carroll Quigley who, as you may recall, was Bill Clinton's mentor, and sponsor for his Rhodes Scholarship.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences."

Carroll Quigley, Tragedy and Hope, 1966

As old as Babylon— or Babel.

The amount of gold deliverable at these prices at the Comex seems to be a bit thin by historical standards. 

Gold Daily and Silver Weekly Charts - Sitting On Top Of the World

"They were always complaining then, as they are always complaining now, that the poor do not understand political economy. But what was the political economy that they did not understand? It was not only paradox, but a piece of mysticism, almost like the mysteries of religion.

It was the mystical dogma of Bentham and Adam Smith and the rest, that some of the worst of human passions would turn out to be all for the best. It was the mysterious doctrine that selfishness would do the work of unselfishness."

G. K. Chesterton

"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, A Fighting Chance

 

Gold and silver held their levels today despite some early weakness. 

 

Looking at the delivery report for gold in this active month of April, it was interesting to see a number of contracts let by customers, and for these to be stopped at $1208 by the house accounts at  HSBC and JP Morgan. 

 

Let's see how this month progresses.  It seems now that gold is more active and silver less so, a distinct change from month.

 

Speaking of things that never seem to change, tomorrow we will see the Non-Farm Payrolls report for March.  It would not be unusual to see it accompanied by the usual shenanigans, that are often a favored choice for the insiders and plutocrats. 

 

A favorite trick of perception management is to put out a good number, and revise it lower, even sharply so, in the next couple of months, thereby rolling over the material obtained to the more current month, whether it be jobs, or factory orders, or whatever is on display.  We saw an example of this today with the Factory Orders.

 

They do it so regularly that is only remarkable that the mainstream commentators seem to fall for it every time.   Thereby we obtain a rolling enthusiasm of improvement, while in the midst of a secular stagnation.

 

Yes there are certainly more jobs.  We are coming off a calamitous decline in economic activity brought on by an asset bubble founded in regulatory capture and widespread financial fraud.  

 

Unfortunately all the abundant monetary stimulus that has flowed from the Fed's Balance Sheet into the financial economy to create these 'jobs' is finding it almost impossible to reach sustainability through a revival in aggregate demand.  Instead, it is being used to prop up the balance sheets of the zombie Banks. 

 

This is shown in the unadorned GDP numbers year over year and the flagging velocity of money.  Another enormous headwind is globalization that is creating unmanageable social and financial units, and the rise of corporate monopolies that span national borders.

 

The US may already have slipped into recession.  There will most likely be no alarm raised, because the looting of the ship into the first class lifeboats continues, and it is easier if the lower decks remain unaware of the risk.

 

The rigging of the gold and silver markets is founded in this desire to manage perception.  Oh, it is based on a more 'noble' desire to inspire confidence and not make people panic. 

 

But at the same time, it has become an enduring illusion, while the disparities in economic health become increasingly pronounced.  

 

And so the looting by the nationless few continues, and justice is led down a hallway and strangled, draped in the national colors, to the sound of patriotic tunes.  Such are times of currency war. 

 

The self-serving policy errors of the Federal Reserve Bank are matched only by the horrendously destructive policy errors in political judgement by a Congress and an Executive that has been captured by the moneyed interests.

 

Who will dare even tell the truth, much less act on it, when the surrender of the truth for 'the story' is one's passport to the more favored classes, the insiders, with all that this implies in terms of comfort and security?  The only resignation is to accept a permanent exile, to be without influence, without a voice, ignored.

 

One must go along to get along, to pay one's dues, extend and pretend, and never, ever, speak ill of the insiders and their schemes.   Freedom, who needs it, when you can have security, comfort, and prestige.

So here we are, at peak illusion, just sitting on top of the world.

 

Have a pleasant evening.

 

 

 

 

 

 

Nomi Prins: All the President's Bankers

This is a walk through the twentieth century, and how the United States became, by design, a combination military, industrial, and financial global superpower.  And how the US dollar hegemony was created over a number of political administrations by groups of well connected, powerful families and friends.

It may seem a bit long, but she opens it for questions about the 48 minute mark, so it really is not. Nomi speaks briskly with many fact laden vignettes and scenarios that help to explain how the current system has evolved.

The facts she brings out about the 50's onwards were sometimes new to me, and absolutely fascinating.   About minute 40 she shows the culmination of this historical process with the Clinton Whitehouse, and begins to describe where we are today, and how it appears that the problem will be insoluble without some major events taking place to change this alliance in power between the financial and the political.

 

The talk served to solidify some of my own thinking, and removed some of the shadows of doubt that I have had about where things are going and why.

 

She does is not able to delve into the international ties between the global central Banks, particularly between London and New York.  She instead concentrates on what she might call 'the Big Six' of American Banks, which is a large enough subject itself.

I strongly recommend that you listen to it if you are at all interested in this subject.

 

 Or if you have the time to invest, you may wish to read her book which also sounds very interesting.  I have not done so yet, and I am not sure when I could get to it. 

 

But this video is a very good start, and will probably make you much better informed than 90 percent of the people out there.  Whether that is a good thing or not is another matter.

Currency Wars: Salinas-Price On the Changing Tempo and Tenor of the Growth of International Reserves

"The only resource against political disorders that had been known till then was the concentration of power. Solon undertook to effect the same object by the distribution of power. He gave to the common people as much influence as he thought them able to employ, that the State might be exempt from arbitrary government. It is the essence of Democracy, he said, to obey no master but the law. Solon recognised the principle that political forms are not final or inviolable, and must adapt themselves to facts; and he provided so well for the revision of his constitution, without breach of continuity or loss of stability..."

John Dalberg Lord Acton, History of Freedom in Antiquity

My long time friend Hugo Salinas-Price has shared some uniquely interesting observations on the growth of international paper reserves, which have been largely constituted of claims on debt, often pinned to the US dollar because of its international reach. And with all such fertile and insightful thinking it provokes more thought in others.

In this article he observes that the appetite for sovereign Treasury debt, and other forms of private debt such as mortgages and consumer credit, may not be keeping pace with the issuance of these forms of debt.

I think that with respect to price that this is a foregone conclusion in light of the Fed's QE III. The whole point of this exercise is to ensure that the current pricing is not sustainable without a non-market priced subsidy from the Fed, hopefully until some point that the markets reach some sort of self-sustaining equilibrium.

One of my key theses has long been that this equilibrium cannot occur without major systemic reforms.  The factors that created the problem were not incidental, but fundamental to changes that occurred during the 1990's in particular, with deeper roots back to 1980.  There was a decade long effort to overturn the New Deal Reforms that had allowed for the long stability that the financial world largely enjoyed in the post-WW II era.  These reforms were overturned by greed and corruption of power, and so here we are today.  We cannot go forward without returning to more transparent, honest markets that operate with a bias towards justice, and not bowing to right as defined and sanctified by might.

Modern monetary theorists would postulate that none of this is a problem, because the issuance of money based on debt is not necessary in the first place. All the debt can be repurchased through the direct issuance of money by a sovereign at any time. The proposal of the 'trillion dollar platinum coin' illustrates that principle in action.

But while technically true, there are two important facts that impinge on the wonders of such a brave new monetary world, besides the obvious problem of the ability of concentrated power to corrupt such Utopian arrangements, almost from their inception.  I keep asking, 'where is the flywheel' meaning where is the check and balance on the monetary issuance?  Quis custodes custodiet?

The first obstacle is that such money issuance system of almost unrestrained fiat works best where all the market participants are forced to operate according to the centralized rules. They will accept the money at stated value because they simply have no other choice, no other options.  Given Gresham's Law, if you think about this for a while, it becomes very apparent that this is the case. Fiat of this level of discretion must have the absolute force of law, without viable competition or substitute. 

Money is what we say it is, and is worth our stated official price.

I think we have enough historical examples of how well this works in practice. I saw it up close in both Russia and Czechoslovakia before and during the final collapse of the Soviet System.

In the world as it is, there is really no one world currency, issued by a centralized all-powerful entity, that essentially creates money from nothing, distributes it as it pleases, and dictates its value to all.  At least there is no such system yet, although it is certainly the objective of more groups than you might care to imagine.

In the case of a non-self-sufficient economy, there is the inescapable issue of trade and travel with other economies, that are not under the control of the central authority.

So the second great problem is that in the world as we have it today, oil and natural gas and certain essential commodities are significant factors when considering the international currency regime. In quite a literal sense, the US dollar is the petro-dollar, and control of the world's currency regime requires a strong influence over the world's oil and gas supply first and foremost.

If the US was truly energy self-sufficient, then the issue of trade and tariffs and money would be much simpler.  This would not be the case for some other entities without its geographic reach and the rich variety of its resources.

The other imported products are much more discretionary, and the domestic economy would most likely even prosper under a greater emphasis on self-sufficient production. Although the issue of reform would still remain because of the broken system of wealth distribution along lines of unequal power and undue influence over law to the detriment of justice.

It would have repercussions on international relations no doubt, but that is economic power by other means and would be dealt with through the usual alliances and cooperative ventures that could be denominated in other than a domestic currency.   This arrangement calls for the growth of large areas of common interest, or spheres of interest if you will,  that are able to achieve resource self-sufficiency.

The sophists will seek to dismiss what I am saying here as a paean to the gold standard. I wish to state again, categorically, that it is not. I am not proposing any solution at all, but merely attempting to draw up some outlines around the problem, what might be termed a systems analysis and requirements.

Gold does have some remarkable qualities that make it quite suitable for use as money. No one can create it, it is enduring, and relatively stable in terms of growth. As an external standard it is almost ideal. There is little wonder that diverse societies have gravitated towards gold and things like it down the long corridor of time.   And yet it does have one drawback: gold alone cannot enforce honesty on a corrupted system.  The recent growth on paper of the rehypothecated gold supply is one case in point.

There is no secret to creating a workable system.  I know I could do it, and many other people could so as well and perhaps much better.  The problem is that people of power do not wish to have a good system. 

There will be no good and sustainable monetary system easily reached for the same reasons that this generation of leaders can no longer create and put forward fair and workable laws for their own country.  They are overcome by ego and greed.  They wish for a system riddled with loopholes and personal advantage for them and their friends. So this is what is produced.   And until this changes, progress and change will be spattered with misery and blood, as it has so often been in the past. 

If there is any key point I wish you to take and hold in your minds and hearts it is that there is no such thing as a perfect, self-regulating monetary system. There could only be such an ideal model if men and women were angels, perfectly rational and reliably virtuous.

And like wealth the distribution of reason and virtue is very uneven, and so all systems must rely on a continuing effort and bias towards equal justice for all. And this has inescapable requirements for the design of the system.  Among these are transparency and the rule of law.   And the assumption that there will always be those who will be actively attempting to subvert the system, some bluntly, and some quite cleverly.

Money is power, and power corrupts.  So no system can succeed by its own design if its reins are held in the hands of mortal people, with all their weaknesses and failings.   So the system must account for this, and accommodate change and judgement as well as the balance of justice.

This was the great innovation of the US Constitution, the balance of power and its ability to change and evolve through law, with its commitment to justice and equality as an ideal, integrated into its construction, even though imperfectly by imperfect men of their time.  This is what made it such a bright star on the darkened horizon of human endeavour, a hymn to human freedom.  And look what they've done to our song.

It will be fascinating to see how this evolves. Will we see the creation of an SDR like monetary instrument based on a basket of items and currencies not under the control of a single power bloc? 

Will the world evolve into three or four powerful trading blocs, each with their own currency arrangements? Will the current dollar hegemony continue on until the collapses, and the what could have been an evolution will be a more sudden monetary revolution in which great wealth is destroyed, transferred and created anew?

We do live in interesting times.  And inescapably, these questions are now being addressed in the ongoing struggle for monetary power in what some have called the currency wars.

06 September 2013

Stalling growth of international reserves

Hugo Salinas Price

I have kept track of International Reserves (excluding gold) for many years, with data helpfully provided every week by Doug Noland, at prudentbear.com, who obtained the information from Bloomberg.

Here is the graph I have elaborated with data since 1948, when there was still a modicum of reason operating in the financial world.

Lately, I worked out a graph showing in more detail the growth of these reserves in the period from August 2005 to August 30, 2013.

I draw your attention to the slump in reserves which took place during the year 2008-2009. It was an ugly period, financially.

Then, notice the slowdown in growth of reserves during the past two years (24 months).
Finally, notice that growth in reserves has stalled in the last few months of this year. Growth appears to be topping-out. Since April 13, when reserves passed the $11 Trillion mark at $11.082 Trillion, in the four months to August 30, they have only increased by $86 billion – 0.78%

If the growth in reserves registered from August 2009 to August 2011, which averaged $1.5 Trillion yearly, had continued from August 2011 to August 2013, international reserves would now be over $13 Trillion; as it is, they are stalled at just over $11 Trillion. $2 Trillion are missing!
International reserves have two sources of growth:

1. Accumulation of Bonds (mainly Euro and Dollar Bonds) in central banks of the exporting nations, which come about due to export surpluses with which the exporters purchase bonds issued by the importing countries.
2. Accumulation of interest earned on the bonds, re-invested in bonds.

The international reserves are thus a measure of the credit which the exporters are willing and able to grant the purchasers of their exports.

If international reserves are not growing, but stalling out, this means that the exporting countries are not extending further credit, for whatever reasons, to the importing countries, mainly the US and the Euro Zone.

Born of the liberation of the world’s money from the shackles which tied it to gold under Bretton Woods, the world’s great credit-expanding machine is slowing down. $2 Trillion in international reserves have not been generated in the last 24 months. The cause must be a decline in international trade, through which enormous export surpluses of the East were sold to the West on credit, and the East received bonds for the extended credit. The market for government bonds of the West has been the eastern exporting countries, which have used their vast export surpluses to invest in western bonds.

If the exporting countries – the East – are slowing down on bond purchases, it most likely means they have less surplus left with which to purchase the bonds. Of course, they might have generated surpluses and used them to invest in the “Emerging Markets” – another name for what used to be called the Third World. Perhaps they are buying up the underdeveloped and chronically deficit-ridden Third World? That may be, but such a policy could hardly account for a $2 Trillion slow-down in growth of international reserves.

A $2 Trillion market for bonds has not materialized in the last two years; it is no wonder that the Fed has stepped in with QE to purchase the bonds which must be sold to keep the US Government in operation, not to mention to stave off utter collapse if the word were to spread that “There is no market for US and Euro Bonds at the volumes that the sellers require!”

The US and the Euro Zone are finding that they cannot float further credit in the exporting countries. This is a serious condition; the West depends on a market which will accommodate its expansion of credit – a market for its government bonds – for without that continual expansion the whole house of financial cards comes crashing down.

There appears to be no further market where the US and the Euro Zone can float their bonds. The only recourse is to monetize their government debt (QE) and that means monetary inflation.

The consequence of monetizing debt will have to be rising interest rates.

If the government debt were not monetized, US and Euro Zone bonds would have to be thrown on the world market, but – who would purchase them? Interest rates would skyrocket, even if there were possible buyers, which is doubtful.

As it is, the US can only continue to monetize government debt. Higher dollar interest rates are inevitable and will cause further government deficits; the debt overhang in both the US and Euro Zone is so great that a rise of a few points in interest rates will explode the deficits, and so on and so forth.

Bottom line: Stalling growth in International Reserves tells me that a world financial collapse is in the offing.

Please draw your own conclusions.

Gold Daily and Silver Weekly Charts - The US Dollar: Keeping Up Appearances

Ron Paul: "I had a Federal Reserve Board Chairman testify before the committee that the gold standard had some merits but it was unnecessary because central bankers have now learned how to manage a Fiat currency in a manner in which it would mimic the gold standard. Would anybody care to comment about where the flaw is in that thinking?"

Mr. Lehrman: "I am anxious to comment on that, Dr. Paul. Under--and I must say Mr. Greenspan made the same insipid remark. Mr. Greenspan and Mr. Bernanke will have to then explain why it was that two of the greatest booms in American history, and two of the greatest panics and busts in American financial history, occurred under their 25-year watch..."

Mr. Grant: "The failure of AIG is so instructive in this respect. AIG, this immense insurance company with this ever so brilliant financial products group, didn't do one thing. It didn't mark its positions to market. Finally came the day of judgment and it argued with Goldman Sachs about what these things were worth, AIG said 100 cents on the dollar, Goldman Sachs said not close, Goldman Sachs won that debate and AIG failed.

As with AIG and Goldman Sachs, so it is today with the United States and its Asian trading partners. We never clear our trades. Our dollars go there, and they come right back here. We run twenty five consecutive years of debts on a current account and there will be for us, as there was for AIG, a moment in truth in which we must settle."

U.S. House of Representatives, Committee on Financial Services, Testimony of March 17, 2011

The US will settle, in paper dollars.  And if the payment is insufficient, they can always create more.

That is the long and short of it, and the sophistry of modern money.  Because the value of the money is self-referential, it is in essence a literal confidence game.  The dollar is worth what we say it is, and it is worth it because we say it, without regard to other opinions and considerations to the contrary. And as long as people believe this, or even pretend to believe this even if they don't but are afraid of the consequences of their disbelief, the dollar hegemony is secure.

Money is a matter of force and confidence; and when confidence wavers, force must provide. Force can take many forms, from persuasion to deception and even compulsion.

So the appearance of solidity and confidence must be maintained no matter what.   It must, as apparently Messrs. Greenspan and Bernanke have said, must 'mimic the gold standard.'  And they are right.  Caesar's wife must be above reproach, and the fiat dollar is the dowager queen of empire.

That is why the chat board gimmickry of the platinum coin was such a remarkably dangerous folly. Even given that money is a somewhat specialized area of study, it was shocking that a distinguished economist like Paul Krugman did not seem to understand it.  I could attribute that to a moment of political weakness. 

But the rest of the world did understand exactly what was happening, and held its breath.  Would the US dare to cynically impugn the basis of its debt, even by implication? 

Perhaps the greater question, such silliness as trillion dollar platinum coins aside, is how far the Anglo-American financial system is willing to go to keep up the appearance and dignity of a stable global reserve currency in the dollar, even while the dollar is being used and abused by the financiers like a 12th Avenue hooker?

I think you know that I believe that the paper metals markets are an accident waiting to happen, particularly with regard to silver.

It appears that the exchange and the regulators are managing the markets with reckless disregard for their soundness.

So let's see what happens.