An Open Letter About Austerity, Debt, and Public Policy from Alex Tsipras

As we read this, let us keep in mind that the Banks were mired in bad debts that were created by their fraudulent activities and speculation, and that they were massively bailed out by the people, in the most gentle and accommodating of terms if not outright subsidies.

And now they would prey on those who have saved them, seeking to extend more debts, and harsher terms, not only to Greece but to the poor and middle class of their own countries, in order to make them like slaves to unresolvable burdens, stripped of freedom and assets by a corrupt judiciary and politicians.

Even now, QE is being extended to buy unpayable and overvalued debts from the Banks, to free their balance sheets, and to give them more power to financially oppress the public.

"Most of you, dear Handesblatt readers, will have formed a preconception of what this article is about before you actually read it. I am imploring you not to succumb to such preconceptions. Prejudice was never a good guide, especially during periods when an economic crisis reinforces stereotypes and breeds bigotry, nationalism, even violence.

In 2010, the Greek state ceased to be able to service its debt. Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.

In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future. Nothing more than common sense was required to see that the application of the 'extend and pretend' tactic would lead my country to a tragic state. That instead of Greece's stabilization, Europe was creating the circumstances for a self-reinforcing crisis that undermines the foundations of Europe itself.

My party, and I personally, disagreed fiercely with the May 2010 loan agreement not because you, the citizens of Germany, did not give us enough money but because you gave us much, much more than you should have and our government accepted far, far more than it had a right to. Money that would, in any case, neither help the people of Greece (as it was being thrown into the black hole of an unsustainable debt) nor prevent the ballooning of Greek government debt, at great expense to the Greek and German taxpayer.

Indeed, even before a full year had gone by, from 2011 onwards, our predictions were confirmed. The combination of gigantic new loans and stringent government spending cuts that depressed incomes not only failed to rein the debt in but, also, punished the weakest of citizens turning people who had hitherto been living a measured, modest life into paupers and beggars, denying them above all else their dignity. The collapse of incomes pushed thousands of firms into bankruptcy boosting the oligopolistic power of surviving large firms. Thus, prices have been falling but more slowly than wages and salaries, pushing down overall demand for goods and services and crushing nominal incomes while debts continue their inexorable rise. In this setting, the deficit of hope accelerated uncontrollably and, before we knew it, the 'serpent's egg' hatched – the result being neo-Nazis patrolling our neighbourhoods, spreading their message of hatred.

Despite the evident failure of the 'extend and pretend' logic, it is still being implemented to this day. The second Greek 'bailout', enacted in the Spring of 2012, added another huge loan on the weakened shoulders of the Greek taxpayers, "haircut" our social security funds, and financed a ruthless new kleptocracy.

Respected commentators have been referring of recent to Greece's stabilization, even of signs of growth. Alas, 'Greek-covery' is but a mirage which we must put to rest as soon as possible. The recent modest rise of real GDP, to the tune of 0.7%, signals not the end of recession (as has been proclaimed) but, rather, its continuation. Think about it: The same official sources report, for the same quarter, an inflation rate of -1.80%, i.e. deflation. Which means that the 0.7% rise in real GDP was due to a negative growth rate of nominal GDP! In other words, all that happened is that prices declined faster than nominal national income. Not exactly a cause for proclaiming the end of six years of recession!

Allow me to submit to you that this sorry attempt to recruit a new version of 'Greek statistics', in order to declare the ongoing Greek crisis over, is an insult to all Europeans who, at long last, deserve the truth about Greece and about Europe. So, let me be frank: Greece's debt is currently unsustainable and will never be serviced, especially while Greece is being subjected to continuous fiscal waterboarding. The insistence in these dead-end policies, and in the denial of simple arithmetic, costs the German taxpayer dearly while, at once, condemning to a proud European nation to permanent indignity. What is even worse: In this manner, before long the Germans turn against the Greeks, the Greeks against the Germans and, unsurprisingly, the European Ideal suffers catastrophic losses.

Germany, and in particular the hard-working German workers, have nothing to fear from a SYRIZA victory. The opposite holds. Our task is not to confront our partners. It is not to secure larger loans or, equivalently, the right to higher deficits. Our target is, rather, the country's stabilization, balanced budgets and, of course, the end of the grand squeeze of the weaker Greek taxpayers in the context of a loan agreement that is simply unenforceable. We are committed to end 'extend and pretend' logic not against German citizens but with a view to the mutual advantages for all Europeans.

Dear readers, I understand that, behind your 'demand' that our government fulfills all of its 'contractual obligations' hides the fear that, if you let us Greeks some breathing space, we shall return to our bad, old ways. I acknowledge this anxiety. However, let me say that it was not SYRIZA that incubated the cleptocracy which today pretends to strive for 'reforms', as long as these 'reforms' do not affect their ill-gotten privileges. We are ready and willing to introduce major reforms for which we are now seeking a mandate to implement from the Greek electorate, naturally in collaboration with our European partners.

Our task is to bring about a European New Deal within which our people can breathe, create and live in dignity.

A great opportunity for Europe is about to be born in Greece on 25th January. An opportunity Europe can ill afford to miss.

Alex Tsipras, An Open Letter to the People of Germany About That Which You Were Never Told

 

Related: 
Greek PM Freezes Privatisations

Anti-Austerity Party Gathers Support in Spain

The Japanese Economic Dilemma in a Nutshell

Here is a note from a friend in Japan:

In today's Nikkei (Japanese version), on page 5, tucked behind all the hype about the government's decision to lower corporate taxes, in hopes that major companies will raise wages, was a short article on "three miscalculations about the economy" this year.

1. Tax revenues increased with the increase in the sales tax but consumer spending fell. Tax revenues expected to increase by about 5 trillion yen.

2. Weaker yen and higher stock market improved family assets for some I would say, but exports did not improve, and were about 8% lower than 4 years ago.

3. CPI (excluding fresh food) increased, resulting in a real wage decline. Rreal wages have been falling since mid 2013 and are now around 4% lower year over year.

Over the past few days I have been reading about the so-called lost decade of the 1990s and the government's policy decisions to try to kick-start the economy.

In 1990 the government had about 60 trillion in tax revenues and 69 trillion in general account total expenditures.

Now, the government estimates 52 trillion in tax revenues for fiscal 2014 but has more than 95 trillion in expenditures.

Even a second grade student can see that something is not working.

As you know, I think that there are three things that must be done.

Reform, reform, reform.

The Japanese economy is burdened with an unusually bad demographic problem, made much worse by the burdens of insider dealing, crony capitalism, and zombie banks and their corporations.

And its greatest burden of all is an elite that serves itself and its friends first and foremost, and that finds a greater kinship with its global counterparts than with the people whose interests it purports to represent.

 

"The conflict between the East and West was designed to scare the people of the world into accepting a convergence of these two monopoly systems of authoritarian power. The end result was to be a new Imperial Order and a New World Empire run by an elite self-perpetuating oligarchies from the leading nations of the earth."

Carroll Quigley, Tragedy and Hope, p. 860

 

Related:

Princes of the Yen: Central Banks and the Transformation of an Economy

Why the (Global) Kleptocrats Do Not Want a Recovery

The Pursuit of Global Corporatism

Corporate Media and Censorship In America

"Even today, there is little value in insuring the survival of our nation if our traditions do not survive with it. And there is very grave danger that an announced need for increased security will be seized upon those anxious to expand its meaning to the very limits of official censorship and concealment.

That I do not intend to permit to the extent that it is in my control. And no official of my Administration, whether his rank is high or low, civilian or military, should interpret my words here tonight as an excuse to censor the news, to stifle dissent, to cover up our mistakes or to withhold from the press and the public the facts they deserve to know."

John F. Kennedy, The President and the Press, 27 April 1961

"There are men, now in power in this country, who do not respect dissent, who cannot cope with turmoil, and who believe that the people of America are ready to support repression as long as it is done with a quiet voice and a business suit."

John Lindsay

This link below is a fairly long and very interesting discussion of the recent crisis in the Ukraine, and what some of the bigger picture implications and reasons for it may be.

However, I am starting this video towards the end, so that you can hear one key point that Professor Stephen Cohen of Princeton makes that is in my opinion essential.

He states that there is no longer a place in the popular mainstream media for debate over the different positions and opinions on key policy questions outside of a narrow range of acceptable views as decided by a few major media outlets.  If there is a dissenting view that is distasteful to the powerful interests that influence the government, they will not allow it to be heard or discussed rationally, except perhaps in a few scholarly journals out of the reach of most.

And in this I think he is absolutely correct. And it is not just about issues such as a new Cold War, but on a broad range of social and financial topics as well.  Journalism as I once knew it no longer exists except in select locations on the Internet.

Staged discussions between paid 'strategists' from the two major political parties with commentary from a few corporate media representatives is not journalism, and does not provide the platform for the serious discussion of issues that affect all of us.

The seeds for the decline of American mainstream media were sown by the overturn in 1987 of the Fairness Doctrine which required broadcasters to air both side of controversial subjects, and not just the officially sanctioned sides of a carefully selected and phrased question or topic. 

And the Communications Act of 1934 was further gutted by the Telecommunications Act of 1996 which permitted corporate conglomerates to acquire and establish powerful monopolies across the press, radio, and television.

I am finding too many cases where topics are being effectively censored by implicit agreement of the corporate media to either not cover a story, or to permit only certain aspects and views of an issue to be heard.

I am no big fan of the governments of either Russia or China.  It is the oligarchs who like the way these statist governments operate, but only when they are making deals with them and getting their way.   It was Bill Gates who came back from a tour of China in 2005 and praised this new kind of capitalism.

I have been to both Russia and China, and I prefer neither of those brands of oligarchy and monopoly in alliance with the State.  And so I am concerned about the modern attraction by the powerful in the West to emulate them, to manage the news, to establish monopolies, and to hide behind secrecy as they engage in undemocratic backroom deals with powerful interests as a standard matter of doing the business of the nation.

This de facto censoring of the news in the West is not a healthy situation.  And so we must get information about important topics where we can.   The coverage of too many news topics, from Snowden to the financial crisis to the Ukraine, have been disgracefully one sided and carry the stink of propaganda wrapped in a  press under the thumb of a few moneyed interests.

You may wish to listen to the entire interview which I found to be most interesting.  Please click on the link below to start the interview at the point of discussing censorship.

Stephen Cohen, The New Cold War: It's Five Minutes to Midnight

Related: National Publications Refuse Journalist Bill Cohan's Expose of Price Rigging in the Silver Market

               Salon, Obama's Unprecedented War on Whistleblowers

Bill Moyers with Bill Black: Chasing Mice While Lions Roam the Campsite

"The Clinton, Bush and Obama administrations all could have prevented the financial meltdown...We have created the incentive structures that are going to produce a much larger disaster.”

William K. Black

The big thieves hang the little ones.

The Problem In One Picture: Monetary Stimulus In an Unreformed Economic System

"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

"Most of them became wealthy by being well connected and crooked.  And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful. That’s what I have a problem with. And I think most people agree with me."

Charles Ferguson, Predator Nation

Trickle down stimulus doesn't work to activate aggregate demand and encourage real economic growth because the largely unreformed economic system continues to divert the bulk of the stimulus and growth to the top.  

Whatever is put in to this great economic machine, whether it be labor, materials, or monetary stimulus, the best and the most of what comes out is skimmed to the top.  This is not a bug or fault, it is a 'feature.'

This is like sending aid to a Third World nation, where the warlords take the aid for themselves, and allow only a very small portion of it to reach the people.   They take the stimulus and leave the debts.

And then there are the enablers, the professional class.   They must support any regime for it to last.  The Fed knows.  Most academics know.  Big media knows.  Politicians know.  It takes a pliant mind to ignore it, and a devious mind to rationalize it away.  On one hand their brilliance justifies their rewards and positions.  

But on the other hand, when something goes wrong, they don't know nothin' 'bout nothin', and had nothing to do with any of it.  There are lots of fabulously paid CEO's of the public trust, who in reality do nothing and know nothing, except on paydays when they know they are worth a lot.

These latest ubermench are members of the 'winning class.'   And those others, those losers, are obviously lazy, and stupid, and not favoured by the god of fortune.  

Why should they do anything about it, even for the sake of their own conscience?  Am I my brother's keeper?  And the bribes are very good, very Darwinian.  And the positions very piously taken, with pride. 

Why consider the parable of the talents, when we would be as gods?  We will write our own bible, our own parables.  And we will believe them.

So they are sitting back and waiting for the little people to do something about it first, to take all the risks, again.  Whether in war or peace, their cleverness and birthright prevails.  Only the little people suffer and bleed.  We are as wolves, and they are as sheep.  And justice is ours, to do with as we will.

Winning.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

Source: The most important chart about the American economy you'll see this year

History Lesson

Tsar Nicholas II:   I know what will make them happy. They're children, and they need a Tsar! They need tradition. Not this! They're the victims of agitators. A Duma would make them bewildered and discontented. And don't tell me about London and Berlin. God save us from the mess they're in!

Count Witte:   I see. So they talk, pray, march, plead, petition and what do they get? Cossacks, prison, flogging, police, spies, and now, after today, they will be shot. Is this God's will? Are these His methods? Make war on your own people? How long do you think they're going to stand there and let you shoot them? YOU ask ME who's responsible? YOU ask?

Tsar Nicholas II:   The English have a parliament. Our British cousins gave their rights away. The Hapsburgs, and the Hoehenzollerns too. The Romanovs will not. What I was given, I will give my son.

 

 

European Sovereign Debt Levels to GDP Before and After the Bank Bailouts

What is even more clever than lining your pockets by ballooning the financial system into a great bubble by fraud and bad governance?

Getting the victims and bystanders to pay the price of your perfidy, and shifting the anger of the people to some unfortunates,  while 'reforming' the system to make it even more efficient at looting so that you can do it all over again.

No wonder that any movement that threatens the status quo in the least bit gets these white collared reivers and their pampered princes in such a lather.  It is important to make people think that no one else cares, and that they are alone.

Such a parcel of rogues in a nation.

"The sudden explosion of European sovereign debt is the direct and indisputable result of all our political parties deciding they would safeguard their mates’ and their own personal wealth (it is the top 10% who hold the bulk of their wealth in the financial products which would be destroyed in a bank collapse. NOT the rest of us!) by bailing out the private banks and piling their unpaid debts on to the public purse.

So whatever the trigger of the next crisis may be, they know any solution which saves the wealth and power of the over-class will have to involve piling new, private-bank bad-debts on to already indebted sovereigns and that, our leaders must be keenly aware, will not be easy to force on an already angry public. They know a whole range of the assurances they might like to give us about what must be done when the next crisis hits and how those things will undoubtably save us, will not be so easy to shove down people’s throats...

I think one of the cleverest things the 1% have done over the last few years is the way they have created a relentless public discourse, via their paid political front-men and women and their media empires, to insist on the need to ‘fix’ and protect the system, and the extreme danger to us all should the system not be ‘saved’. This has served as a perfect cover for making sure that not enough people have noticed that the system is, in fact, being gutted and replaced by something that better serves the interests of the 1%. We have not been fixing the banks, we have been feeding them."

Golem XIV, The Next Crisis Part One

“Why do you think we have a winner?,” President Snow asks while cutting a white rose.
"What do you mean?,” Seneca asks.
“I mean, why do we have a winner?,” Snow repeats, before pausing. “Hope.”
“Hope?,” Seneca replies slightly bewildered.
“Hope. It is the only thing stronger than fear. A little hope is effective, a lot of hope is dangerous,” Snow declares. “A spark is fine, as long as it’s contained. So, contain it.”

Suzanne Collins, The Hunger Games

A Broken Economic System In One Picture

A truly bipartisan effort.

Such a parcel of rogues in a nation.

h/t Neil Irwin, You Can't Feed a Family GDP

David Cay Johnston: The Monopolists Rule

“You will even read about an insurance company owned by one of America’s most admired billionaires [Buffett] that asked a paralyzed man to die because the cost of keeping him alive was cutting into the insurer’s profits.”

“No other modern country gives corporations the unfettered power found in America to gouge customers, shortchange workers and erect barriers to fair play. A big reason is that so little of the news, which informs us about the world around us, addresses the private, government-approved mechanisms by which price gouging is employed to redistribute income upward.”

David Cay Johnston

 

Third World America.

Ukraine: The Global Corporate Annexation

"War against a foreign country only happens when the moneyed classes think they are going to profit from it."

George Orwell


"War is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.

A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small 'inside' group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes."

Major General Smedley Butler, USMC

There is certainly a long established difference between a just war, a defensive war, and a war of adventure or aggression. No one understand this better than those who suffer loss in fighting them.

Like quite a few people I found myself asking, 'Why the Ukraine? Why the sudden push there, risking conflict with Russia on their own doorstep?' Why are we suddenly risking all to support what was clearly an extra-legal coup d'état?'

It is telling perhaps that one of the first things that happened after the coup d'état is that all of the Ukraine's gold was on a flight to New York, for the safekeeping by those same people who have managed to misplace a good portion of the German people's gold. It is the most transportable and fungible store of wealth, where the transfer of less portable assets by computerized digits may lag.

Follow the money...

GlobalResearch
Ukraine: The Corporate Annexation
'For Cargill, Chevron, Monsanto, It’s a Gold Mine of Profits'
by JP Sottile

As the US and EU apply sanctions on Russia over its annexation’ of Crimea, JP Sottile reveals the corporate annexation of Ukraine. For Cargill, Chevron, Monsanto, there’s a gold mine of profits to be made from agri-business and energy exploitation.

The potential here for agriculture / agribusiness is amazing … production here could double … Ukraine’s agriculture could be a real gold mine.

On 12th January 2014, a reported 50,000 “pro-Western” Ukrainians descended upon Kiev’s Independence Square to protest against the government of President Viktor Yanukovych.

Stoked in part by an attack on opposition leader Yuriy Lutsenko, the protest marked the beginning of the end of Yanukovych’s four year-long government.

That same day, the Financial Times reported a major deal for US agribusiness titan Cargill.

Business confidence never faltered

Despite the turmoil within Ukrainian politics after Yanukovych rejected a major trade deal with the European Union just seven weeks earlier, Cargill was confident enough about the future to fork over $200 million to buy a stake in Ukraine’s UkrLandFarming...

Read the entire report here.

Anti-Gold Scare Tactics Seem To Be Largely Ineffective

I have seen the most recent surveys in Asia that show the appeal of gold as a store of wealth, but I had not known of similar results elsewhere.   I also think that physical silver is enjoying some strong interest that is barely mentioned.

The propaganda of the Western banks and their friends at Shill & Troll seems to be almost as heavy handed and fairly obvious as their trading tactics of dumping large numbers of contracts to see at market in quiet periods. 

They are free have their way in their phony, rigged markets, but perhaps the old saying from Abraham Lincoln really holds true:  You can fool all of the people some of the time, and some of the people all of the time, but you cannot fool all of the people all of the time.

Press’ anti-gold scare tactics largely ineffective
by Michael J. Kosares

Gallup poll ranks gold second best long term investment after real estate

Under normal circumstances, I might let a rutty headline about gold in the Financial Times pass without much notice. I say “rutty” because the Financial Times has long been stuck in a rut as one of the principle apologists for Keynesian economics — big banks, big deficits, big governments and powerful central banks. It doesn’t think much of gold enthusiasts and gold enthusiasts do not think much of it. (Although I still read it every morning.)

When I took-in the headline — Bumpy ride in store for gold with price forecast to fall 15% — with my morning coffee, my first reaction was to disregard it, as I do most of the day-to-day, routinely negative Financial Times’ reports on gold. Scanning the article (with the hope some nugget of important information might be gleaned), something tugged at the back of my mind with respect to the entities referenced — Gold Fields Mineral Services (GFMS), Goldman Sachs and Credit Suisse. All three obviously were predicting 2014 would be a bad year for gold. What was nagging was their near-term record in the art of gold forecasting...

Read the entire article here.

Retiring SEC Attorney Proposes a Market That Puts the Public Interest First

I am not sure what the particular solutions might be, but I think an historically large number of people might agree that the government no longer has their best interests at heart.

The public interest has been sold to the special interests and their ideologues. 

I cannot think of any other reason why the government supports that obscene tax loophole of carried interest that so heavily subsidizes the financialization of the real economy.

I cannot think of any other reason why the government continually refuses, on principle and as a matter of policy,  to prosecute the individuals responsible for monumental financial crimes and abuses of the public trust, handing out wrist slap fines to the wealthy perpetrators and campaign contributors who are engaged in a serial white collar crime spree.

And I cannot think of any other reason why so many state governments would deny medical coverage to the most vulnerable of their own people by refusing the offer of Medicaid expansion on principle. What principle?  That people who are not as fortunate as others should suffer and die, even when adequate medical treatment is available and has been shown to work even better in other countries?

It is an historic feat of propaganda, that the American people think themselves to be the finest people on earth, the paragon of civilization, bringing freedom to the oppressed in Iraq, Afghanistan, Syria,  Libya, and the Ukraine from their presence in over seven hundred foreign military bases. while their own infrastructure and living standards crumble at home, and their own people become increasingly alienated from a self-serving power structure that governs by and for itself. 

Asking Capitalism to Cure Capitalist Woes:
The US Exchange, a Market for the Rest of Us
By James A. Kidney

High-speed trading, synthetic credit derivatives and other risky Wall Street products are described as refinements of our capitalist system — or lamented as the inevitable product of emerging technology. But the system benefits traders more than real capitalists – those who seek investors on the basis of the merit of their products and services to customers.

The response to the many problems posed by these new technologies, products and delivery systems is predictable: New statutes and rules, inevitably chewed into mush by politicians and lobbyists, and long delays in implementation by regulators. By the time these new rules are in place, Wall Street has found ways to circumvent them, requiring a new cycle of debate, lobbying and minimally effective rule-making in response to the next resulting crisis.

One possible solution seems to have been overlooked: Bringing capitalism to the capital markets. It is not that the trading markets have lacked opportunistic capitalists. Entire new trading platforms have been created to supplement or replace the traditional New York Stock Exchange, the NASDAQ and the old American Stock Exchange. Certainly, many new trading products have been invented. But few of these developments address any real need except trading itself.

 Let me post an example, simple and naïve as it may be, of how capitalism genuinely could improve the market beyond meeting the needs of traders themselves. The notion can at least be the start of something. But first, some background...

Read the entire article here.

Liz Warren Predicts the Collapse of the Middle Class in 2008

"A fascist is one whose lust for money or power is combined with such an intensity of intolerance toward those of other races, parties, classes, religions, cultures, regions or nations as to make him ruthless in his use of deceit or violence to attain his ends...

The symptoms of fascist thinking are colored by environment and adapted to immediate circumstances. But always and everywhere they can be identified by their appeal to prejudice and by the desire to play upon the fears and vanities of different groups in order to gain power...

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 A. Wallace

Certainly we can observe that the roots of the collapse go back to 1980, at least. And Warren provides the data that shows this.

What is perhaps most shocking six years later is the nonchalance with which this collapse in the grinding Great Recession is accepted as the new normal in a corporate kleptocracy. And that most meaningful reform is twisted and defeated by very well paid political interests, often to the cheers of useful idiots.

I do not think this cycle of repression has reached its zenith yet. And given historical examples I do not think it will end except in excesses which we have yet to imagine, both at home and abroad.

The Roots of the Next Crisis, and the Dark Hallway Beyond

“Those who fail to exhibit positive attitudes, no matter the external reality, are seen as maladjusted and in need of assistance. Their attitudes need correction...

Suddenly, abused and battered wives or children, the unemployed, the depressed and mentally ill, the illiterate, the lonely, those grieving for lost loved ones, those crushed by poverty, the terminally ill, those fighting with addictions, those suffering from trauma, those trapped in menial and poorly paid jobs, those whose homes are in foreclosure or who are filing for bankruptcy because they cannot pay their medical bills, are to blame for their negativity.

The ideology justifies the cruelty of unfettered capitalism, shifting the blame from the power elite to those they oppress."

Chris Hedges

Here is a recent conversation I had with a friend about the current state of the US recovery.  As an accountant with a wide range of exposures, I enjoy hearing his perspective since I no longer have that sort of current insight into the corporate culture in America.  I have years of background running large businesses in corporations, and some forays into large scale M&A work, so I have seen quite a bit of it. The methods rarely change, merely the guises and degrees.

Here are excerpts from his side of the conversation with only one parenthetical comment of my own.

"I don’t think we’re seeing profits in a traditional sense. Instead, it appears to me that we’re watching a long, drawn out LBO’ing of America. It appears that companies are liquidating capital and returning it as opposed to earnings spreads on revenue.

It seems like we’re seeing the final blow-off phase that started with the stock option becoming the primary form of compensation for corporate talent. By drawing out the LBO, they re-stock their options each year with a guaranteed return thanks to the Fed and their own Treasury Departments.

The problem is that you can’t have systematic corporate buybacks with employment/economic growth as they create diametrically opposite outcomes. The more work I do, the more I conclude that the US economy has not expanded since 2006.

I was looking at mutual fund data the other day and it showed that people moved their fixed income money into domestic equity - $185 billion in liquidated bond funds to buy $175 billion in equity funds. This happened after the Fed announced tapering was on the table. Just like the gold market, I suspect that “someone” forced the liquidation of bond funds and herded the money into equity funds to keep the rally going.  (I think it is perfectly reasonable to flee bond funds at any time that interest rates are turning higher.  Bond funds often take it on the chin in such a deleveraging of a long term interest rate trend.   However, I think the whole taper thing was hyped and used by the wiseguys, as are most things these days by our financial masters of the universe. - Jesse)

Coincidentally, corporations used half a trillion in cash flow on buybacks. It’s a liquidity game but with limitations. What’s the next asset that can be liquidated or levered? They’re still working on gold but sometime soon, the price of gold will be set in the East, where the gold resides. Agricultural commodities are being liquidated but that ensures a drop in planting next year. Oil is too valuable on the geopolitical front to liquidate.

There are certainly winners in this economy but far more losers. At some point, the weight of the losers acts against the winners, many of whom are levered up with confidence. Corporations can liquidate equity capital but we all know how the LBO’d companies operated in the 1990’s. In many ways, they’ve gotten corporations to behave like consumers did in the 2000’s, only this time they’re trained to buy back their own stock. Every cycle has natural limits.

We know that corporate cash flow is no longer growing and we know that it’s more expensive to sell debt today than a year ago. We also know that the Fed sees the stock market as their proof of success. So how does this shakeout? If corporations are a lemon, how much juice can you squeeze out of the lemon?"

Although I do not wish to be an alarmist, I have to say that this trend of attempting to sustain the unsustainable has gone on longer than I had previously thought possible.

I am fairly sure that the next crisis will bring these things to a head and some sort of resolution. But therein also lies great danger. Philosophies that have grown time can have deep roots, and when faced with what to them is an intolerable change, can react somewhat excessively. They may even welcome the opportunity to act excessively and decisively, at least in their own minds, as the path to winning.

When a ruling subculture that has become accustomed to crushing and liquidating things for its own power and pleasure, whether it is natural resources, the environment, crops, animals, land, or social organizations, eventually runs out of things, it can become frustrated and angry in its seeming impotence to continue on, to keep expanding.

Indirectly and somewhat benignly at first, but with a growing efficiency and determination over time, it will begin with the weak and the defenseless, attacking and objectifying them, even in the most petty of ways and impositions. It will turn to its critics, and then everyone who is defined by them as 'the other.'

That is when a predatory social and economic philosophy can turn into pure fascism, and start liquidating people.  And finally it liquidates and consumes itself.

But really, no one wakes up one morning and suddenly decides, 'Today I will become a monster, and wantonly kill innocent women and children.'

Otherwise ordinary people get to that point slowly, one convenient rationalization for their 'necessary and expedient' behavior at a time. After all, they are the good people, they are the strong, they are the most successful and the favored.

 They are the entitled, and not these others who would seek to drain them, drag them back down. They are the champions of progress and achievement and civilisation, the hardest working, and the epitome of mankind.  

What could possibly go wrong? 

"He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

J. H. Newman, The AntiChrist

If you are one who thinks that the above 'could not possibly happen here,' and I am sure that there are many, you may wish to read the following vignette from modern US history. Alan Nasser, FDR's Response to the Plot to Overthrow Him

NAV Premiums of Certain Precious Metal Trusts and Funds - Breaking Bad

There is a blizzard moving into the northeastern US this evening.

It may affect tomorrow's trade in equities.

I had put a decent short position on in the closing minutes of 31 December.  I have taken most of that off the table here and now.

I am long gold and silver bullion.

To my mind, prices were pushed to some short term extremes for the year end tape painting.

I tend to agree with much of Ted Butler's recent analysis titled 2013: The Year of JP Morgan.   If it becomes publicly available I will link to it.  For now it is by subscription only.

Ted thinks that JP Morgan is the major mover in the Comex gold market, executing market corners first to the short and then to the long side over the course of 2013.

They most likely have some privileged knowledge of the market structure and official policy, and perhaps even semi-official support in this, if nothing else than by indirect acquiescence, or turning a blind eye if you will.

Below is a recent video about gold buying in India.  China, southeast Asia, and the Mideast offer similar stories, except that the governments there are not trying to restrict purchasing to please the Western bankers.

Hubris Is the Basis of Tragedy

To the extent that any very serious people take note of this, it is to ignore it, and then deride it. History shows that those who represent fading and unsustainable regimes tend to ignore what is happening, then turn stridently against any opposition to their will by both words and actions. And finally, they lose.

There are some very good reasons why China and India and quite a few of the new emerging economies are seeking safe havens from the dollar. It is not because 'they hate our freedom.' It is not because 'they are ignorant of modern economics.' It is not because 'they are a bunch of gold bugs.'

It is because the Western financial system is a shell game of frauds, and remains largely unreformed, run by and for insiders. Recognition of a fraud first arises at the periphery.

And the dollar has become a major vehicle for exporting these frauds to the rest of the world through the mispricing of risk and the brazen manipulation of price discovery, in many financially related markets. How can anyone continue to ignore and even deny this pervasive and ongoing corruption in the markets?

If you do not understand this, you will probably be able to understand little of what is going on now, and will understand little of what may likely happen over the next few years. I would expect there to be quite a bit of disinformation put forward about it.

To paraphrase Upton Sinclair, sometimes it is difficult to get a man to understand what his career path and his wallet encourages him not to see.

Sometimes, but thank God not always, when flawed characters face a crisis they start breaking bad.  And overcome thereafter by greed, pride, and the will to power, they do not know when  to stop. 

And so they hurl themselves over into the abyss, and take a number of good people with them.

"Who are you talking to right now? Who is it you think you see? Do you know how much I make a year? I mean, even if I told you, you wouldn’t believe it.

Do you know what would happen if I suddenly decided to stop going into work? A business big enough that it could be listed on the NASDAQ goes belly up. Disappears! It ceases to exist without me...

You clearly don’t know who you’re talking to, so let me clue you in. I am not in danger. I am the danger. A guy opens his door and gets shot, and you think that of me? No! I am the one who knocks."

Walter White, Breaking Bad

Corporate Media: Journalism In the Service of the Powerful Few

"But the biggest clue that Sorkin's take on Greenwald was no accident came in the rest of that same Squawk Box appearance:

"I feel like, A, we've screwed this up, even letting him get to Russia. B, clearly the Chinese hate us to even let him out of the country.

I would arrest him . . . and now I would almost arrest Glenn Greenwald, who's the journalist who seems to want to help him get to Ecuador."

"...As a journalist, when you start speaking about political power in the first person plural, it's pretty much glue-factory time."

Matt Taibbi, All Journalism Is Advocacy Journalism


"And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that."

John Dalberg Lord Acton

While I obviously can not agree with everything in this long documentary, Orwell Rolls In His Grave, I found the discussion and examples to be interesting.

I have included a short video clip concerning the standard visual media set piece afterwards just for fun.

The problem is not that there is advocacy in journalism. There is always advocacy in journalism, even despite a striving for objectivity. Taibbi goes to some lengths to show this in the piece I quoted from above.

The problem is the concentration of ownership in a few powerful hands, and the accompanying diminishment of the exposure of all the facts and perspectives. Even deciding what is not covered becomes a form of censorship.

Like the deregulation of the financial industry, the concentration of the media in a relatively few corporate hands was a ongoing trend that took a great leap forward under the presidency of Bill Clinton, and was then continued and reinforced under George Bush and Barack Obama. It was the conscious undoing of reforms from past lessons learned.

It is the concentration of ownership of the corporate media that is at the heart of the problem of the decline of independent journalistic standards. That, and the culture of unprincipled expediency in the service of power and shameless greed.

We are not responsible, but are culpable to the extent we accept this decline in decency and justice, even by doing nothing as simple as passing on a leaflet, conveniently electronic these days. As Sophie Scholl once said, many years ago in Munich, a people deserve the government which they are willing to tolerate.

The Tax Free Tour

"All animals are equal, but some animals are more equal than others."

George Orwell



h/t Stacy Herbert

Institutionalized Fraud

As you know I said yesterday that Fridays are the days on which they smack the metals.

And on Tuesdays they ramp stocks.

And so on, and so on.

No wonder the BRICs are so upset. No wonder the rest of the world is appalled.

This is not price discovery.

This is mere anarchy. This is a broad menu of corruption. This is moral hazard.

This is institutionalized fraud.

Overcome by greed, they have no shame. And their pride knows no bounds.

They do not even bother with pretense any more.

I think we all know how this is going to end.

Jeff Sachs: The Pathological Environment on Wall Street (and in Washington, London, and Berlin)

"But there is a sort of  'Ok guys, you're mad, but how are you going to stop me' mentality at the top."

Robert Johnson, Audacious Oligarchy

Thanks to Bill Still for making this available on the web, and thanks to several people who sent it to me.

It is remarkably similar to something I wrote earlier today, but I am certainly not the only one.  Reform and the lack thereof is the 800 pound gorilla in the room.

Sachs certainly livened up a clubby conference of complacent financerati in the Pennsylvania Room at the Federal Reserve Bank of Philadelphia. The topic is "Fixing the Banking System for Good."  It is not so much what Jeff Sachs said alone, but also how out of touch with reality that group of people may be.

I find this interesting because just today Mary Jo White, the new head of the SEC, has indicated that their policy would be to 'move along' and not look at the financial crisis any longer.

This will continue until there is a problem too large to hide, and the confidence breaks. And then good luck controlling the reaction in the global markets. 

But for now they don't care, because they are operating within hermetically sealed capsules of personal privilege, and are locked into an odd form of group think and willful denial which I call the credibility trap.   In times of general deceit, telling the truth becomes a revolutionary act. 

And it is killing the economic recovery. 

And for now, anyone who speaks out, who speaks the truth, is ignored, ridiculed, marginalized, and threatened sometimes subtly and sometimes not, and generally isolated because no one will stand up with them. 

Neither austerity or stimulus will work until there is genuine reform. 

Don't forget that the CBC's documentary on the precious metals market is on this evening.  I will post a link with the commentary later, and will link to a video when it becomes available.

There is a strong push for change, and an even greater resistance from those whose paychecks and allegiances require them to oppose it.  This generally makes for an interesting episode in history.

Listen to this carefully. 

Thank you to Janet Tavakoli for this:

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structured need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological. And I'm talking about the human interactions that I have. I've not seen anything like this, not felt it so palpably.

These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people... counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can't find its voice. It's terrified of these companies.

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say... both parties are up to their necks in this.

... But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy, I have waited for four years... five years now to see one figure on Wall Street speak in a moral language. And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not gonna happen any time soon, it seems.

It's A Wonderful Life: Bedford Falls or Pottersville?

"These men are springs without water and mists driven by a storm. Blackest darkness is reserved for them. For they mouth empty, boastful words and, by appealing to the desires of sinful nature, they entice people who think they avoid error.

They promise them freedom, while they themselves are slaves, for a man is a slave to whatever has mastered him."

Where Are We Heading — Bedford Falls or Pottersville?
By Robert Reich
December 22, 2012

It’s easy to feel discouraged about the bullying by right-wing Republicans and their patrons over everything from gun control to taxes and social safety nets to trade unions and jobs.

Every year about now I watch “It’s a Wonderful Life” again to remind myself what Frank Capra understood about America — its essential decency and common sense.

In many ways the nation is better than it was in 1946 when the movie first appeared. Women have gained economic power and reproductive rights; we enacted Civil Rights and Voting Rights and, through Medicare and Medicaid, dramatically reduced poverty among the elderly; we began to tackle environmental devastation; we stopped treating gays as criminals and have even started to recognize equal marriage rights. We elected and then re-elected the first black president of the United States. We have enacted the bare beginnings of universal healthcare.

But we are still in danger of the “Pottersville” Capra saw as the consequence of what happens when Americans fail to join together and forget the meaning of the public good.

If Lionel Barrymore’s “Mr. Potter” were alive today he’d call himself a “job creator” and condemn George Bailey as a socialist. He’d be financing a fleet of lobbyists to get lower taxes on multi-millionaires like himself, overturn environmental laws, trample on workers’ rights, and shred social safety nets. He’d fight any form of gun control. He’d want the citizens of Pottersville to be economically insecure – living paycheck to paycheck and worried about losing their jobs – so they’d be dependent on his good graces.

The Mr. Potters are still alive and well in America, threatening our democracy with their money and our common morality with their greed.

Call me naive or sentimental but I still believe the George Baileys will continue to win this contest. They know we’re all in it together, and that if we succumb to the bullying selfishness of the Potters we lose America and relinquish the future.

A Short Video Primer on the US Debt and Deficit, Hubris, and the Credibility Trap

As I have said on many occasions, the problem is not so much this overblown 'fiscal cliff' and 'debt crisis.' These are spurs to desired action from the status quo.

This is almost an exact replay of the Crash of 1929 and the Great Depression, excepting of course that the US now has a manager rather than a leader.

The problem is the lack of reform of a system that is still given over to malfeasance, and remains badly out of balance.

Shifting the damage that has resulted from financial corruption on to the backs of the weak and the public in order to continue to pamper the predatory class is not the answer. It will only make things worse and at some point most likely tear open the social fabric.

Source

A credibility trap occurs when the regulatory, 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 situation 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 relatively honest reformers within the power structure become susceptible to various forms of soft blackmail and coercion.

And so a failed policy and its support system become almost self-sustaining, long after it is seen by the people to have failed, and in failing becomes a counterproductive force on a sustainable recovery. Admitting failure is not an option for those 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 hypocrisy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.