Buy on the Dip?

SUBHEAD: What might happen to the USA if the SNAP card refills and Social Security checks stopped coming.

By James Kunstler on 17 April 2107 for Kunstler.com -
(http://kunstler.com/clusterfuck-nation/buy-the-dip/)


Image above: Illustration ofa  gold backed Chinese twenty "dollar" bill that could replace the US dollar in international trade. From (http://www.thedailyeconomist.com/2017/03/russia-may-soon-take-new-swift-type.html).

The military frolics of spring have distracted the nation’s attention from the economic and financial dynamics that pose the ultimate mortal threat to business as usual.

Note the distinction between economic and financial.

The first represents real activity in this Land of the Deal: people doing and making.

The second, finance, used to be a minor branch — only about five percent — of all the doing in the days of America’s putative bigliest greatitude.

The task of finance then was limited and straightforward: to manage the allocation of capital for more doing and making. The profit in that enabled bankers to drive Cadillacs instead of Chevrolets, but not much more.

These days, finance is closer to 40 percent of all the doing in America, and it is not about making anything, but getting more than its share of “money” — whatever that is now — and what “money” mostly is is whatever the people engaged in finance say it is, for instance, Fannie Mae bonds representing millions of sketchy loans for houses of vinyl and strand-board built in places with no future… or stock issued by the Tesla corporation… or the sovereign IOUs of the US Treasury.

The list of things that pretend to be “money” these days would be long and shocking and the sheer churn of these instruments among the banks and markets “produces” the fabled “revenue streams” beloved of The Wall Street Journal.

What happens when the world discovers that these instruments (securities and their derivatives) represent falsely? Why, bigly trouble.

And this is the season we’re moving into as the dogwoods blaze: the season of the re-discovery of actual value.

For those of you gloating over last week’s demonstrations of US Big Stick-ism, be warned that our military shenanigans have given China and Russia every reason to discipline this country by undermining the international standing of the dollar.

They’ve been preparing for this very deliberately for years: constructing an alternative to the US-sponsored SWIFT international payment system, stockpiling thousands of tons of gold, building trade partnerships to circumvent US dominated syndicates.

Before the month of April is out, they’ll “pull the trigger” on new voting arrangements in the International Monetary Fund that will reduce the financial power of the US and the Eurozone, especially in the oil trade.

Around the same moment, America will wake up to the awful reality of the debt ceiling. This petard has been ticking the whole time that the political bureaucracy of Washington has wasted its mojo on the quixotic crusade to blame Russia for the 2016 election outcome.

Congress will return from the Easter recess to discover that they have a few mere days to debate and resolve the debt ceiling problem — that is, to raise it so the country can borrow more “money” — or else they’ll be faced with a shut-down of government operations, including their own generous emoluments.

It’s a good thing (for them) that they have plenty of walking-around money from the mysterious perqs of government service, but the rest of America doesn’t have $500 to pay for a new set of tires or the extraction of an abscessed molar.

Some readers may have long wondered what might happen in this country if the SNAP card refills and social security checks stopped coming. Perhaps we’re about to find out. Congress might find itself in a painfully tight spot.

The Democrats would like nothing better than to let this drag on for a while in order to humiliate, and perhaps finish off, their arch-nemesis, the Golden Golem of Greatness.

Many Republicans have a religious-strength ideological aversion to increasing the already appalling US debt load. The prospects are not bright for a quick-and-easy resolution to this quandary.

The IMF voting re-set and the debt ceiling quagmire have the power to disrupt many of the arrangements that allow the banks and markets to continue pretending that their stuff has value.

When that consensus trance snaps, President Trump may find himself in the unhappy position of having to declare a bank holiday.

Unlike the usual holidays in America, there will no Easter Bunny, no Jack-o-lanterns, no Santa Claus.
Just empty supermarket shelves and pissed-off people marshaling in the WalMart parking lots with flaming brands and espontoons.

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International trade is collapsing

SUBHEAD: Denmark (home of biggest container shipper Maersk) says trade in primary commodities is down 25%.

By Michael Snyder on 9 November 2015 for Economic Collapse -
(http://theeconomiccollapseblog.com/archives/we-have-never-seen-global-trade-collapse-this-dramatically-outside-of-a-major-recession)


Image above: The Danish company Maersk debuts the Tripple-E, the largest ship in the world in 2013. Maersk  has been the top container ship operator in the world since 1996. From (http://www.industrytap.com/worlds-largest-container-ship-debuts-in-copenhagen/13932).

If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived.  Never before in history has global trade collapsed this dramatically outside of a major worldwide recession.

And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world.

So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting.

A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628.  However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China.  China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling.  In October, Chinese exports were down 6.9 percent compared to a year ago.  That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse.  Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September.  China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing.  As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…



Other numbers confirm the magnitude of the economic slowdown in China.  I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low…

The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.

The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.

It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.

Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…

• Demand for Chinese steel is down 8.9 percent compared to a year ago.
• China’s rail freight volume is down 10.1 percent compared to last year.
• In October, South Korean exports were down 15.8 percent from a year ago.
• According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114.  

What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.

Clearly something very big is happening, and it is affecting the entire planet.  The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple…

In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.”

Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.“

Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.

One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade.  A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…

When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.

And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.

A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.

This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.

Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).

But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately.  As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world.

All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash.

Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans.  This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.

Of course we have seen this happen before.  A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s and the major global recession of 2008 and 2009.

If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.

So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.

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Kicked to the curb

SUBHEAD: The squalor is awesome, we’re even too lazy to clean up the junk that is just lying around.

By James Kunstler on 23 March 2015 for Kunstler.com -
(http://kunstler.com/clusterfuck-nation/kicked-to-the-curb/)


Image above: Dumpster full of plastic packaging, cheap products, and wasted food. From (http://seeclickfix.com/issues/212960-overflowing-dumpster-and-illegal-dumping).

I begin to understand why the death of Ferguson, Mo, teen Michael Brown sent such shock waves through America last year. He truly symbolized our country: an overgrown, oafish, wannabe thug making one bad choice after another until his final, suicidal lurch against authority — followed by all the exculpatory lying on his behalf: the “gentle giant,” hands up, don’t shoot!

This is exactly how America acts on the world stage these days. We are the Michael Brown among nations, high on exceptionalism, stoned on entitlement, swaggering moronically from one place to another grabbing what we feel like, smashing things up as we go.

Also, as in the case of the actual Michael Brown, supposedly sentient observers do not have the guts to call bullshit on all the excuses we make for ourselves. Has any self-styled presidential candidate made a peep about America’s idiotic campaign to make Ukraine the 51st state? Has Hillary (“It’s Her Turn”) Clinton asked publically why the US is egging on NATO to stage military exercises on the Russian border?

Do we still have a senate Foreign Relations Committee, and does it convene once in a while? Is The New York Times so preoccupied with its “Gay Cities” index it forgot that the world is full of serious conflicts and hazards that extend beyond the choosing of apartment décor?

Likewise, there are obvious reasons why we’re so busy demonizing Vladimir Putin. He’s the only serious adult on a stage full of special ed students. When Vlad goes on vacation what does the American media do?

It launches into raptures of speculation about his “love child” — because in this country any political leader foolish enough to step out of the spotlight for a few minutes will be gleefully unmasked as a “cheater,” a lothario (because, despite our ultra-pornified 24/7 twerk-o-rama culture, we apparently think sex is bad), so then the peanut gallery can enjoy the grotesque spectacle of apology and the inevitable punishment that follows despite any apologies. Vlad walked out of a winter Olympic venue fourteen months ago and said, simply, “I’m divorcing Lyudmila….” End of story. Oh, and Vlad also doesn’t subscribe to the current American notion that being homosexual is a major life achievement. That truly offends!

This also explains America’s obsession with cartoon superheros, and especially characters who enjoy high-tech prosthetics for projecting power — all those robo-soldiers and cops, and the fabulous American Sniper with his thousand yard kill-shot.

Without all this magic we’d be revealed as weaklings, our vitality sapped by decades of Froot Loops, Cheez Doodles, and Pepsi, our brains shriveled by untold hours of conditioning by way of Grand Theft Auto V, Dark Souls II, and Keeping Up with the Kardashians.

What do foreign leaders think when they have concluded their mystifying sessions with our Secretary of State, the haircut-in-search-of-a-brain, John Kerry. Do they look around the floor of their ministerial offices to see if any sawdust leaked out of his head?

Has anyone actually looked around and noticed what a scabrous sight American towns and cities present these days? There are places here in the old Yankee northeast that Borat would be ashamed to call home. We live amidst so much delaminating plastic it’s a wonder that virtually everybody doesn’t have cancer.

The squalor is awesome, and to make matters worse, we’re even too lazy to clean up the stuff that is just lying around on the ground — and certainly too lazy to try to grow anything in that ground if it didn’t promise to grow up looking like a pepperoni stick or a corn dog.

America’s moment of getting kicked to the curb by other nations is at hand. I don’t think it will be a kinetic war, not right away, but it will be a hearty financial beat-down, and many of the members of our insane clown posse in Europe are going to feel the beat-down, too. America tried, at the very last moment, to join the new BRICs development bank.

Who finally decided that? Barack Obama? John Kerry? Jack Lew: the Three Stooges? Get gold. If you can.

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Regime change in Cuba

SUBHEAD: The Cuban Revolution intended to free Cubans from foreign domination and from exploitation.

By Craig Roberts on 19 December 2014 for WOrld News Trust-
(http://worldnewstrust.com/regime-change-in-cuba-paul-craig-roberts)


Image above: Front end of a Studebaker taxi in Havana as old as a US senior citizen. From Huffington Post article below.

Normalization of relations with Cuba is not the result of a diplomatic breakthrough or a change of heart on the part of Washington.

Normalization is a result of U.S. corporations seeking profit opportunities in Cuba, such as developing broadband Internet markets in Cuba.

Before the American left and the Cuban government find happiness in the normalization, they should consider that with normalization comes American money and a U.S. Embassy. The American money will take over the Cuban economy.

The embassy will be a home for CIA operatives to subvert the Cuban government. The embassy will provide a base from which the United States can establish NGOs whose gullible members can be called to street protest at the right time, as in Kiev, and the embassy will make it possible for Washington to groom a new set of political leaders.

In short, normalization of relations means regime change in Cuba. Soon Cuba will be another of Washington’s vassal states.

Conservatives and Republicans such as Peggy Noonan and Senator Marco Rubio, have made it clear that Castro is “a bad man who turned an almost-paradise into a floating prison” and that normalizing relations with Cuba will not “grant the Castro regime legitimacy.”

Noonan forgets about Guantanamo, Washington’s offshore torture prison in Cuba where hundreds of innocent people have been held and tortured for a large part of their lives by the exceptional Americans.

The Cuban Revolution intended to free Cubans from foreign domination and from exploitation by foreign capitalists. Whatever the likelihood of success, a half century of Washington’s hostility has as much to do with Cuba’s economic problems as communist ideology.

The self-righteousness of Americans is extreme. Noonan is happy. American money is now going to defeat Castro’s life work. And if the money doesn’t do it, the CIA will. The agency has long been waiting to avenge the Bay of Pigs, and normalization of relations brings the opportunity.

• Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts' latest books are The Failure of Laissez Faire Capitalism and Economic Dissolution of the West and How America Was Lost.

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Cuban tourism expected to rise

By Ben Fox on 22 December 2014 for Huffington Post - 
(http://www.huffingtonpost.com/2014/12/22/cuba-tourism_n_6365884.html)

As the U.S. and Cuba begin to normalize relations for the first time in half a century, some Americans are already roaming the streets of Old Havana, attending dance exhibitions and talks on architecture as they take part in scripted cultural tours that can cost more than a decent used car back home.

The U.S. visitors are participants in the highly regulated "people-to-people" travel that President Barack Obama permitted in 2011 in one of his first moves toward detente with Cuba. The program aims to increase interaction with ordinary Cubans without creating uncomfortable images of Americans lounging on beaches in a single-party state. The tours tend to attract people sympathetic to improving ties with President Raul Castro's government.

"It's pre-selected for people who already want there to be change," said Jonathan Anderson, a 33-year-old from Denver on an eight-day excursion that cost $6,000 per person. "People aren't coming here to see how evil Castro is. They are coming here to reinforce ties."

Travel experts said Sunday that the new opening to Cuba that Obama announced four days earlier goes far beyond the 2011 reform and could sharply increase U.S. tourism in the coming years.
Among the changes, Obama directed the Treasury Department to expand the categories of travelers who can go to Cuba without requesting a license from the department first.

Soon to be covered by a standing, blanket travel permit are participants in educational activities, the category that covers most people-to-people travel. Experts said that eliminating the licensing requirement could greatly reduce the costs of organized tours by cutting paperwork. It also could, perhaps more importantly, allow huge numbers of Americans to legally travel on their own to Cuba.

In the past, people-to-people travelers could only go to Cuba under a license obtained by a travel company in a time-consuming process followed by lengthy government verification that travelers weren't engaging in inappropriate leisure tourism.

"We can't go to the beach and drink mojitos all day," said Tony Pandola, who was leading Anderson's trip with Global Expeditions of San Francisco, California. "That doesn't have any sort of objective as an educational or cultural exchange."

Now, according to travel experts awaiting regulations expected within weeks, it appears tour companies will be able to head to Cuba and simply give the U.S. government their word that they're engaging in educational travel and not ordinary tourism. Some think the new "general license" travel permits would apply to individuals, allowing people to go on their own.

"As long as with integrity they can say they're going to engage with the Cuban people and learn about Cuba and talk about the United States then they don't have to do anything other than say that's what they're doing," said John McAuliff, executive director of the Fund for Reconciliation and Development, which has organized trips in the past.

The easing of tourism regulations is a gamble for both the U.S. and Cuba.

Obama said Wednesday that people-to-people travel was a way to "empower the Cuban people." At the same time, a U.S. tourism surge could funnel sorely needed cash to a tourism industry run mostly by what Obama described Friday as "a regime that represses its people."

Experts don't expect American tourists to flood Cuba immediately after the new regulations are published. The daunting complexity of the legal details and the possibility, even remote, of fines for violations will probably mean most new travel to Cuba will still go through tour organizers. Those organizers are currently required to do business with state-run travel companies, meaning tour agendas are now almost entirely under the purview of the Cuban government.

People-to-people travel can cost $2,000 to $6,000 per person and tour organizers are supposed to keep the formal itinerary full to meet U.S. regulations. "We can go out and see things but we have to conform to the rules," Anderson said.

General tourism to Cuba is still prohibited by the half-century old trade embargo, and it would take an act of Congress to lift it. But that hasn't stopped many Americans from traveling to Cuba through a third country and keeping quiet about it when they go through immigration and customs upon arrival back in the United States.

The number of U.S. travelers to Cuba has increased steadily each year, from about 245,000 in 2007 to nearly 600,000 last year, according to a report by the U.S.-based Havana Consulting Group. The most recent statistics from Cuba's government show that about 73,500 Americans visited in 2011, but that doesn't include dual citizens who it counts as Cuban.

Tom Popper, president of tour organizer Insight Cuba, said he thinks many new travelers to Cuba will take organized tours because it can be difficult for an individual to organize a trip that meets Treasury Department requirements.

Still, eliminating the license requirement will remove a significant bureaucratic hurdle, according to Popper, whose last application was more than 700 pages long.
"This is such welcome news to us," Popper said.

And the appeal of visiting Cuba goes beyond education to some Americans.

"I'm looking for a warm climate, it's historical obviously and it's also a place that most Americans don't go," said Katja Von Tiesenhausen, a 41-year-old emergency room doctor from Boston, taking part in another tour.


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Tapering, Exiting or just Punting

SUBHEAD: Western economies have lost the ability to generate real wealth that their debt-based monetary systems require.

By James Kunstler on 27 October 2014 for Kunstler.com -
(http://kunstler.com/clusterfuck-nation/tapering-exiting-or-just-punting/)


Image above: Monopoly money. From (http://picturesofmoney.org/category/monopoly-money/).

Oh, that sound you hear this morning is the distant roar of European equity markets puking after the latest round of phony bank “stress tests” — another exercise in pretend by financial authorities who understand, at least, the bottomless credulity of the news media and the complete mystification of the general public in monetary matters.

I rather expect that roar to grow Niagara-like as US markets catch the urge to upchuck violently. Problem is, unlike Ebola victims, they can’t be quarantined.

The end of the “taper” is upon us like the night of the hunter, conveniently just a week before the US election. If the Federal Reserve is politicized, the indoctrination must have been conducted by the Three Stooges. America’s central bank never did explain the difference between tapering and exiting their purchases of US treasury paper.

I guess that’s because it has other interventionary tricks up its sleeves. Three-card Monte with reverse repos… ventures into direct stock purchases… the setting up of new Maiden Lane type companies for scarfing up securities with that piquant dead carp aroma.

Who knows what’s next? It’s amazing what you can do with money in a desperate polity with a few dozen lawyers.

Of course, there is the solemn matter as to what happens now to the regularly issued treasury bonds and bills. Do they just sit in an accordian file on Jack Lew’s desk next to his Barack Obama bobblehead.

The Russians don’t want them.

The Chinese are already stuck with trillions they would like to unload for more gold.

Frightened European one-percenters may want to park some cash in American paper to avoid bail-ins and other confiscations already rehearsed over there — but could that amount to more than a paltry few billion a month at the most?

What do the stock markets do without up to $85 billion a month (peak QE) sloshing around looking for dark pools to settle in? Can US companies keep the markets levitated by buying back their own shares like snakes eating their tails? Isn’t that basically over and done?

And exactly how do interest rates stay suppressed when only a few French tax refugees want to buy American debt? I don’t think anybody knows the answer to these questions and the scenarios are too abstruse for the people who get paid for supposedly writing learned commentary in the sclerotic remnants of the press.

A few things are for sure, though they are sedulously kept out of the public discussion by interested gate-keepers. One is that the western economies have lost the ability to generate real new wealth of the type that their debt-based monetary systems require for ongoing operations (such as paying interest on old debt). Instead, we’ve entered a liminal era when fake wealth passes for wealth. Jive capital poses as capital.

The main reason for this, of course, is the inability of world energy producers to meaningfully increase energy production in a way that does not suck more capital out of the system than the system can regenerate. But that conversation also has been outlawed from the public arena in “Saudi America.”

I suspect the subject will force itself on the national consciousness in the year ahead as one company after another in the shale oil regions craps out on a shortage of available investment capital. That’s the inflection point where fake wealth is unmasked for what it really is: crippled capital formation. The disappointment from that looming event will thunder through our society.

In the meantime, the distractions are many and powerful. Ebola may appear controlled for the moment in the USA, but the host countries in West Africa are virtually falling apart and the demographic movement out of failed economies like Liberia’s would suggest an awful dynamic for the spread of that disease into new regions.

ISIS (or whatever we call them) is putting on a diversionary show on the Turkish border, but the real action awaits in Baghdad, perhaps poignantly at Christmas time, when mortar rounds start falling on the US embassy in the Green Zone and the evacuations commence.

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The Dollar & the Deep State

SUBHEAD: Only senior military or intelligence officers have any realistic grasp of the Deep State and its Empire.

By Charles Hugh Smith on 24 February 2014 for Of Two Minds -
(http://charleshughsmith.blogspot.co.uk/2014/02/the-dollar-and-deep-state.html)


Image above: Illustration showing corporate, military, political operatives of the Deep State - formerly known as the Military-Industrial Complex that now includes media, consumerism, food production, energy, etc.. From (http://voicesweb.org/nsa-surveillance-and-military-industrial-complex-9531).

At a very superficial level, some pundits have sought a Master Control in the Trilateral Commission or similar elite gatherings. Such groups are certainly one cell within the Empire, but each is no more important than other parts, just as killer T-cells are just one of dozens of cell types in the immune system.

One key feature of the Deep State is that it makes decisions behind closed doors and the surface government simply ratifies or approves the decisions. A second key feature is that the Deep State decision-makers have access to an entire world of secret intelligence.

Here is an example from the late 1960s, when the mere existence of the National Security Agency (NSA) was a state secret. Though the Soviet Union made every effort to hide its failures in space, it was an ill-kept secret that a number of their manned flights failed in space and the astronauts died.

The NSA had tapped the main undersea cables, and may have already had other collection capabilities in place, for the U.S. intercepted a tearful phone call from Soviet Leader Brezhnev to the doomed astronauts, a call made once it had become clear there was no hope of their capsule returning to Earth.

Former congressional staff member Mike Lofgren described the Deep State in his recent essay Anatomy of the Deep State: 

 There is another, more shadowy, more indefinable government that is not explained in Civics 101 or observable to tourists at the White House or the Capitol. The subsurface part of the iceberg I shall call the Deep State, which operates according to its own compass heading regardless of who is formally in power.

The term “Deep State” was coined in Turkey and is said to be a system composed of high-level elements within the intelligence services, military, security, judiciary and organized crime.

I use the term to mean a hybrid association of elements of government and parts of top-level finance and industry that is effectively able to govern the United States without reference to the consent of the governed as expressed through the formal political process.

 I would say that only senior military or intelligence officers have any realistic grasp of the true scope, power and complexity of the Deep State and its Empire.

Those with no grasp of military matters cannot possibly understand the Deep State. If you don't have any real sense of the scope of the National Security State, you are in effect touching the foot of the elephant and declaring the creature is perhaps two feet tall.

The Deep State arose in World War II, as the mechanisms of electoral governance had failed to prepare the nation for global war. The goal of winning the war relegated the conventional electoral government to rubber-stamping Deep State decisions and policies.

After the war, the need to stabilize (if not "win") the Cold War actually extended the Deep State. Now, the global war on terror (GWOT) is the justification.

One way to understand the Deep State is to trace the vectors of dependency. The Deep State needs the nation to survive, but the nation does not need the Deep State to survive (despite the groupthink within the Deep State that "we are the only thing keeping this thing together.")

The nation would survive without the Federal Reserve, but the Federal Reserve would not survive without the Deep State. The Fed is not the Deep State; it is merely a tool of the Deep State.

This brings us to the U.S. dollar and the Deep State. The Deep State doesn't really care about the signal noise of the economy--mortgage rates, minimum wages, unemployment, etc., any more that it cares about the political circus ("step right up to the Clinton sideshow, folks") or the bickering over regulations by various camps.

What the Deep State cares about are the U.S. dollar, water, energy, minerals and access to those commodities (alliances, sea lanes, etc.). As I have mentioned before, consider the trade enabled by the reserve currency (the dollar): we print/create money out of thin air and exchange this for oil, commodities, electronics, etc.

If this isn't the greatest trade on Earth--exchanging paper for real stuff-- what is?While I am sympathetic to the strictly financial arguments that predict hyper-inflation and the destruction of the U.S. dollar, they are in effect touching the toe of the elephant.

The financial argument is this: we can print money but we can't print more oil, coal, ground water, etc., and so eventually the claims on real wealth (i.e. dollars) will so far exceed the real wealth that the claims on wealth will collapse.

So far as this goes, it makes perfect sense. But let's approach this from the geopolitical-strategic perspective of the Deep State: why would the Deep State allow policies that would bring about the destruction of its key global asset, the U.S. dollar?

There is simply no way the Deep State is going to support policies that would fatally weaken the dollar, or passively watch a subsidiary of the Deep State (the Fed) damage the Deep State itself.

The strictly financial arguments for hyper-inflation and the destruction of the U.S. dollar implicitly assume a system that operates like a line of dominoes: if the Fed prints money, that will inevitably start the dominoes falling, with the final domino being the reserve currency.

Setting aside the complexity of Triffin's Paradox and other key dynamics within the reserve currency, we can safely predict that the Deep State will do whatever is necessary to maintain the dollar's reserve status and purchasing power.

Understanding the "Exorbitant Privilege" of the U.S. Dollar (November 19, 2012)

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

Recall Triffin's primary point: countries like China that run trade surpluses cannot host reserve currencies, as that requires running large structural trade deficits.

In my view, the euro currency is a regional experiment in the "bancor" model,where a supra-national currency supposedly eliminates Triffin's Paradox. It has failed, partly because supra-national currencies don't resolve Triffin's dilemma, they simply obfuscate it with sovereign credit imbalances that eventually moot the currency's ability to function as intended.

Many people assume the corporatocracy rules the nation, but the corporatocracy is simply another tool of the Deep State. Many pundits declare that the Powers That Be want a weaker dollar to boost exports, but this sort of strictly financial concern is only of passing interest to the Deep State.
The corporatocracy (banking/financialization, etc.) has captured the machinery of regulation and governance, but these are surface effects of the electoral government that rubber-stamps policies set by the Deep State.

The corporatocracy is a useful global tool of the Deep State, but its lobbying of the visible government is mostly signal noise to the Deep State. The only sectors that matter are the defense, energy, agriculture and international financial sectors that supply the Imperial Project and project power.

What would best serve the Deep State is a dollar that increases in purchasing power and extends the Deep State's power. It is widely assumed that the Fed creating a few trillion dollars has created a massive surplus of dollars that will guarantee a slide in the dollar's purchasing power and its demise as the reserve currency.

Those who believe the Fed's expansion of its balance sheet will weaken the dollar are forgetting that from the point of view of the outside world, the Fed's actions are not so much expanding the supply of dollars as offsetting the contraction caused by deleveraging.

I would argue that the dollar will soon be scarce, and the simple but profound laws of supply and demand will push the dollar's value not just higher but much higher. The problem going forward for exporting nations will be the scarcity of dollars.

If we consider the Fed's policies (tapering, etc.) solely within the narrow confines of the corporatocracy or a strictly financial context, we are in effect touching the foot of the elephant and declaring the creature to be short and roundish. The elephant is the Deep State and its Imperial Project.

See also:
Huffington Post: The Quiet Coup - No, not Egypt. Here. 7/9/13

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Timing is (not) Everything

SUBHEAD:  Pretty soon, we’ll get the final surrender to the crack-up boom that awaits before the western world has to go medieval.

By James Kunstler on 9 December 2013 for Kunstler.com -
(http://kunstler.com/clusterfuck-nation/timing-is-not-everything/)


Image above: Soap Bubble intense rainbow swirls as surface thins. From (http://hypenotice.com/artwork/photographer-jason-tozer-turns-soap-bubbles-into-colorful-planets/13/).

“Federal Reserve officials are closer to winding down their controversial $85 billion-a-month bond-purchase program, possibly as early as December, in the wake of Friday’s encouraging jobs report.”

 That from the much-deservedly maligned John Hilsenrath, widely regarded to be the Federal Reserve’s ventrioloquist dummy over at the Wall Street Journal, as in, from God’s mouth to the jittery multitudes.

Of course the jobs number was just another highly seasoned and over-leavened cupcake from the Bureau of Labor Statistic’s magic hedonic oven, so you can be sure that the predicate of that statement is… how to put it delicately…  the latest arrant lie with hypothetical icing on top.

 Everybody knows that the Federal Reserve’s money-pumping operations have become a replacement for what used to be an economy. Therefore, no more money pumping = no more so-called economy. It’s that simple.

But it doesn’t mean that the Federal Reserve won’t make a gesture and I wouldn’t be surprised if they try it during the season that Santa Claus hovers over the national consciousness — or what little of that remains when you subtract the methedrine, the Kanye downloads, the fear of an $11,000 bill for an emergency room visit requiring three stitches, and all the other epic distractions of our time.

The next meeting of the Fed’s Open Market Committee (FOMC), where such things as taper-or-not are considered, is Dec. 17. The Fed has to make some kind of gesture to retain any credibility, so I suspect they’ll go for a symbolic shaving of five or ten billion a month off the current official bond-buying operation number of $85 billion a month (or $1.2 trillion a year).

If they don’t do it, no one will ever believe them again. I call it the “head-fake” taper, because it is essentially a false move.

 The catch is that the Fed has more than one back door for vacuuming up all sorts of other miscellaneous financial trash paper securitized by promises already broken, moldy sheet-rock housing, college loans defaulted on, car payments that stopped arriving eighteen months ago, credit cards maxed to oblivion, sovereign foreign economies visibly whirling down the drain, and untold casino bet derivative hedges.


Image above: Suddenly in thin white surface pinhole gaps in bubble skin. From (http://hypenotice.com/artwork/photographer-jason-tozer-turns-soap-bubbles-into-colorful-planets/13/).

Loose talk has it that the Fed is buying up way more dodgy debt than the official number of $85 billion a month.

And why not? They bailed out way more than the $700 billion official TARP figure back in 2009 — everything from insolvent European banks to Floridian motels on the REO junk-pile — so nobody should take any particular taper number seriously. They’ll just backfill as necessary.

But even in a world of seemingly no consequence, things happen. One pretty sure thing is rising interest rates, especially when, at the same time as a head-fake taper, foreigners send a torrent of US Treasury paper back to the redemption window. This paper is what other nations, especially in Asia, have been trading to hose up hard assets, including gold and real estate, around the world, and the traders of last resort — the chumps who took US T bonds for boatloads of copper ore or cocoa pods — now have nowhere else to go.

 China alone announced very loudly last month that US Treasury debt paper was giving them a migraine and they were done buying anymore of it. Japan is in a financial psychotic delirium scarfing up its own debt paper to infinity.

Who’s left out there?  Burkina Faso and the Kyrgystan Cobblers’ Union Pension Fund? The interest rate on the US 10-year bond is close to bumping up on the ominous 3.0 percent level again. Apart from the effect on car and house loans, readers have pointed out to dim-little-me that the real action will be around the interest rate swaps.

Last time this happened, in late summer, the too-big-to-fail banks wobbled from their losses on these bets, providing a glimpse into the aperture of a black hole compressive deflation where cascading chains of unmet promises blow financial systems past the event horizon of universal default and paralysis where money stops moving anywhere and people must seriously reevaluate what money actually is.

I think we’ll see them try the head-fake taper. They must. It will be backstopped by and saturated in statistical lying, and everyone will have trouble parsing the probable effect because the chronic dishonesty loose in this land will have deformed and impaired all metrics of true value.


Image above: In an instant the pale soap bubble begins to tear apart as tension destroys surface. From (http://hypenotice.com/artwork/photographer-jason-tozer-turns-soap-bubbles-into-colorful-planets/13/).

At the heart of whatever remains of this economy is fire, and the officers of the Federal Reserve are playing with it. Pretty soon, we’ll get the un-taper, the final surrender to the crack-up boom that awaits before the western world has to go medieval.

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Rehypothecation of Ben Bernanke

SUBHEAD: The nervousness out there is epochal. Everyone waiting for the other shoe to drop after Labor Day.

By James Kunstler on 26 August 2013 for Kunstler.com -
(http://kunstler.com/clusterfuck-nation/the-self-rehypothecation-of-ben-bernanke/)


Image above: David Horsey cartoon from 2009 showing bankers taking bailouts from US Treasury ATM. From (http://www.myqualitytime.net/2009/01/just-few-scary-thoughts-for-today-i.html).

Definition of "Rehypothecation" - The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients.

How then did Ben Bernanke finally summon the fortitude to entertain tapering Federal Reserve bond purchases from $85 billion a month to, say, $84.7 billion a month come September 18th, the world may never know, but now the deed appears to be done, in his absence, by remote paranormal transmission, while the other Fed board members, with their attendant economist factotums, servelings, and catamites all beamed the message out of horsey Jackson Hole that they expected — even pined for — the vaunted return to “a normal economy.”

Which left many bystanders wondering if that meant a Dow Jones industrial average at, say 3,847 around Columbus Day, the 10-year bond at 5 percent, and every pension fund in world bleeding out from a sucking chest wound — not to mention a Hindenberg-like conflagration of the US Treasury as debt payments went beyond critical.

Pardon me for saying that I don’t think these mooks of finance know what they’ve been paying for with the QE series of monkeyshines. They’ve been creating “money” for five years to offset the collapse of a no-longer-cheap-oil economy. It’s really that simple.

If any of these poobahs thinks they can run a “normal economy” at $106-a-barrel then they should run out and get a realtor’s license and buy as many Arizona REO’s as the foundering banks will admit to holding on their books, and then become landlord to renters working 29 hours a week on the WalMart loading dock.

Actually, I don’t think they will have to wait that long to see the consequences of their loose, silly talk. America’s major export is now working its hoodoo in many other parts of the world as currencies become unglued and economies look down at the flimsy bamboo scaffolding that holds them up so high.

America’s major export these days is economic uncertainty, specifically the question of what, exactly, will maintain the pretense that the hopelessly intertwined financial affairs of China, India, Brazil, Japan, Euroland, Russia, and everybody else, really, including ourselves, are not unraveling like some kind of cosmic sweater knitted with one needle by a cross-eyed god with the jim-jams.

A lot of people begin to suspect that there is something called “an economy” quite apart from the shenanigans and dumb shows put on by the banks and their imitators, the hedge funds. That actual economy is a very earthy thing, in so far as it is pegged to the biophysical realities of the planet — such as, can you harvest a turnip and therefore make turnip soup for dinner? After all, you won’t be making a soup out of interest rate swaps.

Of course, dining on turnip soup is not as sexy as driving to work in a Tesla to a hedge fund boiler room where you get to cream off millions every week by playing Where’s Waldo with the rehypothecated accounts of the muppets who foolishly entrusted you with their own ill-gotten savings.

The nervousness out there is palpable and epochal. Not only is everyone waiting for some other shoe to drop after Labor Day; they’re waiting for it to drop on their own heads. The most visible result, I think, will be a shocking flight into precious metals, of which there is precious little to meet the kind of demand soon to overwhelm that teeny-weeny market corner of the financial universe. What else is there now? The Fed taper talk is pretty much a case of holding a gun to a puppy’s head — the puppy being the equities markets.

The bond sector is a hall of mirrors. Cash is a lot less than king in several countries now, with the contagion running hot. Everything is mispriced to the upside except Gold and Silver, which are mispriced the other way, especially after the chicaneries of April and June when, depending on which story you believe, the banks ran a naked short campaign to knock the stuffing out of the metals so they could then go back in and hoover some of it up cheap in an attempt to conceal the multiple out-leasings (that is sale, or perhaps theft) of metal left by fools in their custodial charge.

Or, some other sages might say, the knock-down was done to defend the honor of the evaporating US dollar (a dollar with the vapors), making it appear sturdier than it actually is. Yes, well that worked, sort of, for a few months, while Wall Street repaired to the annual East Hampton endorphin splash.

I was not invited to Diddy’s party, where the pineal glands of the gathered .01 percent were audibly ringing with celestial euphoria as they swapped the reassuring pulsations of their own specialness. Those people, you can be sure, were not pining for a “normal economy.”

Long story short: we’re in for some interesting weeks ahead. Keep your hat on.

.

The Darkest Pool

SUBHEAD: The darkest pool of magic capital is borrowed from the future of declining expectations.

By James Kunstler on 8 July 2013 for Kunstler.com -
(kunstler.com/clusterfuck-nation/the-darkest-pool/)


Image above: Flotsam after watery birthday party. From (http://robcartwrightphotoblog.wordpress.com/2013/06/04/canalival/).

Like entropy, the diminishing returns of technology never sleep. The hubristic techno-narcissism of the day, as seen in mankind’s efforts to fake-out the universe, will eventually get our one-way ticket to Palookaville punched. Perhaps there’s such a thing as being too cool after all.

The trick so far has been to create massive inflation, export the effects of it to other trading partners, and end up with a lot more money here in the USA, or the illusion of more money. Well, loans, for houses, cars, and college tuitions. 

In a word: debt. Let’s call it “Rainman Economics,” because it begins to resemble the behavior of a severely autistic human being who performs a small range of obsessive actions over and over and over, often centered on numbers. Rainman Economics is the policy of the Federal Reserve and, indirectly, the government under Mr. Obama.

The suave and genial Mr. Obama just doesn’t know what’s going on — despite being surrounded by minions with briefing folders, sages and vizeers, quantitative augurers neck-deep in mathematical goat entrails, and (always) the lone, silent soldier toting the dire nuclear “football.” 

Mr. Obama doesn’t know that the universe has launched us on a journey to a place beyond techno-industrialism — and it’s not Ray Kurzweil’s infinity of orgasms. It’s a place where no ring-tones are heard and not so much as a stretch-mark of the Kardashians remains to be found.

This is the eeriest summer. The coordinated effort to devalue gold — so as to maintain the sagging reputation of the world’s re$erve currency — has had the effect mainly of funneling it out of weak hands in the west to strong hands in the east, to countries that at one time or another we regarded as adversaries. China and Russia have been backing up their respective trucks at the gold warehouse loading dock, and before too long they will have yuan and rubles with more credibility than the US dollar.

In these games of currency war, there are too many moving parts for comfort. Paradoxically, the American position is all about maintaining undeserved comfort, that is a standard of living that is no longer earned but borrowed from the darkest pool of magic capital: the future of declining expectations. 

Enjoy the flat screen TVs, water-parks, RVs, and Happy Meals while you can. There is sand in the gears of the moving parts that have made all that possible. It’s quite a trick to debase your currency for strategic advantage and at the same time maintain the world’s credibility in it. 

 The strategic advantage is that debasement allows you to dissipate existing debt by stealth. But that trick is not working too well at the moment in the USA because too many other players are trying the same thing, and doing it badly, so people in foreign lands are dumping their currencies to take refuge in the dollar. The chief product of all this motion is not “prosperity” but instability. That is the last thing that economies need, even if the gamesters in the financial markets can arbitrage it to their advantage.

Instability translates into uncertainty, especially about the relative value of currencies. For the moment, holders of weakening currencies are seeking refuge in seemingly “stronger” dollars in bubbling equity markets. Many more dollars have been stashed on the balance sheets of the Federal Reserve in the form of bonds purchased in galumphing bales since 2009 — only the catch is that many of these bonds are worthless, especially the mortgage-backed securities. 

The collateral exists in the form of mold-infused sheetrock, swimming pools with algae blooms, and strip malls left with a single tenant: the wig shop. The Fed will never be able to unload this hoard of garbage, even if it “tapers” its buying of new garbage. The dollars that the Fed creates out of nothing are trapped in this fetid backwater of rotting capital, destined to go nowhere — surely not into activity that produces real wealth, or the means to continue being civilized.

Something’s in the air this hot, soggy summer and it smells like the loss of faith. In another month, as the nights grow cool we’ll approach the sober season of fall, when the air seems to possess powers of magnification and suddenly things can be seen clearly. The high frequency robo trading bots are good at detecting microscopic differences in digital quant pools, but they don’t have the finer sensory antennae of human brains for forces outside the rather narrow math narrative.

For instance, I communed with my fellow citizens this Fourth of July weekend for a few hours at a little beach in a Vermont state park. It was a family kind of place. The mommies and daddies were putting on a competitive tattoo display (along with competitive eating). 

So many skulls, Devil heads, snakes, screaming eagles, flags, and thunderbolts. I suppose they acquire these totem images to ward off some apprehended greater harm, the metaphysically inchoate forces marshaling at the margins of what little normal life remains in this nation of rackets, swindles, and tears. 

All was nonetheless tranquility, there by the little lakeside, with the weenies grilling and the pop-tops popping. A three-year-old came by where I was working on my tan on a towel in the grass, supine. 

He asked me if I was dead. Not yet, I told him. Behind him a skull smoking a doobie loomed in blue and red ink on his daddy’s thigh. My people. My country.


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Gold Crash Aftershocks

SUBHEAD: The fix is in. People may be ready for money with intrinsic value, but there is not enough of it to cover our obligations.

By James Kunstler on 22 April 2013 for Kunstler.com -
(http://kunstler.com/blog/2013/04/aftershocks.html)


Image above: Illustration of fleeing the dollar for gold by David Dees. From (http://www.activistpost.com/2012/12/12-gold-bugs-bring-christmas-cheer.html).

If the FBI can track down two homicidal Chechen nobodies inside of forty-eight hours of their Boston bombing caper, you kind of wonder how come the Bureau can't detect the odor of racketeering, insider trading, and wire fraud in this month's orchestrated smackdown of the gold futures markets, including the parts played by the Federal reserve, one or more too-big-to-fail banks, self-interested big money players such as George Soros, slumbering regulators at the Commodities Futures Trading Commission, and tractable editors at The Wall Street Journal and The New York Times.

Of course, US Attorney General Eric Holder, who oversees the FBI, has done a fair imitation of a Brooks Brothers store window mannequin for four years, but surely somewhere in the trackless labyrinth of American law enforcement there exists some dogged rogue investigator with a filament of nagging curiosity who might piece together the clunky train of events that may amount to the financial crime of the century.

For instance, it can't be so difficult to determine who was behind the several hundred ton mass dump of paper gold contracts a week or so ago. There must be a pretty simple record of the transaction, retrievable with a warrant or a subpoena. Whatever entity did it -- still ostensibly unknown -- knowingly generated losses in the neighborhood of a billion dollars for itself.

Was this just the cost of doing business? Or a favor owed, say, from a bank to its godfathers at the Fed, carried out to make the dollar look relatively a lot less unsound than it really is? Or a ruse to allow the custodians of bullion in US depositories re-acquire at bargain prices gold that has been stealthily hypothicated into oblivion? Or just to divert attention from their inability to make good on contracted deliveries of actual physical gold.

No official has yet answered why the Federal Reserve Bank of New York told the German government a couple of months ago that it would take seven years to return that country's gold held in safekeeping (across the ocean from the Russians) since the Cold War. The NY Fed must have a vessel under contract that makes the proverbial slow boat to China look like an ICBM.

Doesn't anybody want some answers to these questions, including how come the two aforementioned major newspapers published front-page stories calculated to justify, if not provoke, the most extreme negative sentiment in the precious metals markets, seemingly coordinated with Goldman Sachs advisories to short those markets?

And what about a glance at the trading records to see who executed massive naked shorts? Wouldn't it be interesting if they were the same parties as the dumpers?

And why? -- other than a strenuous intervention in the markets to make those markets look unreliable?

Does anyone even remember that the purpose of financial exchanges is to verify and authenticate the clearing of trades to provide confidence that markets are honest so that real business can be conducted?

What the interveners have accomplished is only to prove that the gold and silver derivatives markets are unreliable. They may have smashed the trade in that kind of paper, but only achieved a firmer divergence between the derivatives markets and the bullion markets where, for example, the premiums on delivery of silver ounces makes the price exactly equal to the pre-smackdown price. Anyway, nobody believes that the London Bullion Market Association (LBMA) or that the New York Commodity Exchange (COMEX) can deliver.

Meanwhile, runs on bullion contracts were starting to uncover a contagion of swindling in precious metals obligations that pervaded the western banking system. It was not a coincidence that the smackdown happened three weeks after the Dutch bank ABN Amro notified clients that it would only satisfy demands for redemptions of gold held in its custody with equivalent cash payments. "No gold for you today!" A fair inference based on subsequent events would be that all the custodians of physical gold bullion have misreported their holdings.

And now that actions by the European Union and its agents have ventured into the dangerous territory of plain confiscation, there is not a whole lot of faith throughout the western world by people who are paying attention that an account of any kind in any financial institution is safe. There is good reason to fear runs on everything.

Because the smackdown organizers pulled off their operation in a panic, they probably ignored the potential further negative consequences of their stratagem, namely a worsening loss of confidence in banks generally and in the trade of abstract financial instruments in particular, including currencies.

Nervous public officials may be brooding on imminent "bail-ins" and currency controls, but the public may be ready to bail out of the prevailing banking model into things that have been considered more money than "money" for a few thousand years, namely real gold and silver. The basic fact remains: there isn't enough to go around.

See also:
Ea O Ka Aina: Smack Down Time 4/15/13
Ea O Ka Aina: That Dreadful Day 4/8/13
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Smack Down Time

SUBHEAD: The weeks ahead could be a bloodbath for the dollar, the yen, the euro, and the pound.

By James Kunstler on 15 April 2013 for Kunstler.com -
(http://kunstler.com/blog/2013/04/smack-down-time.html)


Image above: Speculation on gold creates a financial bubble. From (http://goldco.pl/blog/banka-spekulacyjna-na-zlocie-i-srebrze/).

What a humdinger last week was in a money world that is chugging toward maximum velocity and turbulence. Readers know (and may be sick of hearing) that I'm allergic to conspiracy theories, but my allergy is not absolute or total and there are excellent reasons to believe that the smack down of gold and silver was an orchestrated event.

By whom?

So far, in the opaque realm of paper gold sales, we don't know, except that it was a 500-ton dump that set off the larger skid, and it is even quite possible, as one anonymous wag put it on James Sinclair's website, that the buyer and seller were virtually the same entity -- meaning that the probable naked short transaction only amounted to a mere bookkeeping jot when all was said and done.

Anyway, the 500-ton all-at-once dump could only be calculated to drive the price down. Any rational strategic sale of so much gold would be parceled out in smaller amounts over time so as not to drastically impair the sales revenue, as this sale did.

And, by the way, who even has the roughly $25 billion holdings in paper gold besides a major government, a major central bank, or one of the Fed's Too Big To Fail handmaidens (Goldman Sachs, JP Morgan, Morgan Stanley)? Or who could afford to eat the $billion-plus loss on the smacked-down sales value? In other words, the usual suspects.
 
I hate the term The Powers That Be, with its odors of recycled paranoia and lumpen extremism, but signs of collusion abounded last week. First, on Wednesday, Goldman Sachs issued an advisory to short gold as the price flirted with $1600/oz. Then on Thursday, The New York Times planted a front-page story headlined: "Gold, Long a Secure Investment, Loses Its Luster."

The story featured a quote by supreme market manipulator and world-class schmikler George Soros: "Gold was destroyed as a safe haven, proved to be unsafe," Mr. Soros said in an interview last week with The South China Morning Post of Hong Kong. "Because of the disappointment, most people are reducing their holdings of gold."

Well, there you have it. Soros sez: Gold = shit. If you get some on your shoe, scrape it off. All that set the stage for the Friday smack down. Notice how falling gold and silver prices make the US dollar look good -- it takes fewer dollars to buy more precious metal. The dollar must therefore be sound!

And this is in the interest of whom? Say, perhaps, a Federal Reserve busy systematically melting away the value of dollars through so-called quantitative easing (money "printing" or promiscuous credit creation) plus financial repression (interest rate chicanery), and also a US government so deep underwater on its debt obligations that Treasury Secretary Jack Lew shares office space with the giant squid of the Aleutian Trench.

To complicate matters, the day of the gold smash, rumors flew of a plan by the Cyprus government to sell off its relatively small gold holdings to pay off its EU debt -- didn't happen -- but the rumor had the effect of further queering the gold price some more by implying that the EU would soon come calling on all the PIIGS nations to settle up their vigs with yellow metal.

Thursday, interesting things happened in another ring of the circus.

The novelty investment called Bitcoin, having developed a hockey-stick chart profile, shooting up from about $60 a month ago to $260, got smacked smartly back down to $60. It had been attracting a lot of attention as a shelter from international monetary shenanigans -- and hypothetically as an eventual rival to funny-money central bank currencies.

Bitcoin is a web-based species of virtual "money" invented by a shady character (or cohort of characters) called Satoshi Nakamoto whose true persona remains mysterious.

Bitcoin's supposed virtue is that it can't be confiscated by governments -- though experienced programmers know any website can be hacked -- or otherwise meddled with, making it a more reliable store of value than the traditional "safe harbor" investments such as sovereign bonds and precious metals.

Well, okay, but it raises a couple of questions:

1. Does the world need an even more abstract form of "money" than fiat currencies, CDOs, Fannie Mae promissory notes, and JC Penny stock? I don't think so. If anything, the world needs more tangible instruments to represent a store of value, a medium of exchange, and an index of price. Bitcoin is little more than a bundle of algorithms. Granted, math helps with the management of money, but is math "money?"
   
   
2. What happens if you can't get online to access your Bitcoin "wallet?" Is Bitcoin, after all, just another example of the techno-narcissism infecting contemporary culture?

That idea is just off the radar screens of Bitcoin pimps such as Jon Matonis of Forbes Magazine who said last week that "civilization won't regress to the state of having no electricity." Really? You think so? Just watch. Electric grids all over the world are aging and decrepit -- the USA's in particular -- and the capital is not there to renovate them.

And perhaps you haven't noticed the gathering scarcity problem with fossil fuels. You bet society could regress to, first, spotty electrical service and then possibly no electricity at all in many places.

But that is an extreme case because in the meantime all it would take is a "denial of service" incident to render Bitcoin useless -- and the mysterious Mr or Ms Nakamoto him/her/itself induced a half-day time-out in Bitcoin last week, taking its Mt.Gox trading platform off-line.

The week ahead in world money matters looks bloody and gruesome. Japan is committing financial hara-kiri by central bank desperation.

In artificially suppressing the gold price, the American Powers That Be (yccchhh....) give China, Russia and other rivals the opportunity to buy gold cheaply, and to do so by dumping some of their US Treasury holdings, weakening the dollar's international exchange value -- which the gold smack down was supposed to enhance!

China and Russia have both been steadily accumulating their gold holdings in plain sight, with the possible motive of backing currencies with more appeal in international trade settlements than the dodgy US dollar.

The weeks ahead could be a bloodbath for the four horsemen of monetary apocalypse: the dollar, the Japanese yen, the Euro, and Great Britain's pound -- that is, the core of the so-called advanced economies of the world. What a prankster history is!

---

Flashback Warning

SUBHEAD: “Watch The Metals, When They Dip. It Will Be A Good Indication That Things Are About To Happen.”

Mac Slavo on 15 April 2013 for SHTF Plan -

As of this print the price of gold is reaching fresh two year lows, down nearly 25% from its all time high just six months ago. Though uninformed onlookers and financial pundits may see this as the popping of the proverbial gold bubble, the velocity and scale of the take-down in precious metals suggests that there is a massive assault in the works. According to former Assistant Treasury Secretary Paul Craig Roberts, last Friday’s price drop was the result of some 500 tons of gold being dumped onto paper markets, an amount equal to about $25 Billion dollars worth of the metal. Likewise, silver saw a similar dump and price drop. Moreover, the very same thing is taking place this morning, suggesting that some very large and influential market makers are involved.

Who has that kind of money and can afford to lose it in naked short positions? According to Paul Craig Roberts, “only a central bank that can print it.”

Thus, one must assume that this is not a natural effect of the free market, but rather, a coordinated attack on the global precious metals exchange orchestrated by our very own Federal Reserve, an organization run by a board of directors that includes representatives from some of the world’s largest banking institutions.

What’s most alarming about the collapse of gold and silver is that it was predicted in December of 2012 by a Department of Homeland Security Insider. In an interview with Doug Hagmann at the Northeast Intelligence Network, the insider warned that life for the average America would change drastically, and soon, and that this change would be preceded by various events, one of which is a major dip in precious metals:

They already are in motion. If you’re looking for a date I can’t tell you. Remember, the objectives are the same, but plans, well, they adapt. They exploit. Watch how this fiscal cliff thing plays out. This is the run-up to the next beg economic event.
I can’t give you a date. I can tell you to watch things this spring. Start with the inauguration and go from there. Watch the metals, when they dip. It will be a good indication that things are about to happen. I got that little tidbit from my friend at [REDACTED]
(full interview)

If we were to assume that this 25% dip amounting to some $50 billion just over the last two days could be the the precious metals “dip” referred to by the DHS Insider, then we must likewise assume that some very serious events are on the horizon.

To what end?

That remains to be seen, but if the US government’s war-gaming of economic collapse and civil unrest is any guide, we may be looking at the worst case scenario many have feared – an engineered collapse of our financial and economic systems leading to the centralization of control through implementation of martial law across America.

Sound far-fetched?

Perhaps. Unless of course you’re part of the Congressional membership that was explicitly warned of this very possibility at the height of the 2008 crisis:

Many of us were told in private conversations that if we voted against this bill on Monday, that the sky would fall, the market would drop two or three thousands points the first day, another couple thousand the second day, and a few members were even told that there would be martial law in America if we voted no.
House Representative Brad Sherman (D-California)
Debate on the House Floor, October 2, 2008
[video source]

Do you really think they saved the system back in 2008?

According to SGT Report, those involved in the take-down of gold and silver may not been done yet, as the unrelenting push against precious metals proves once again that the arrogance of criminal cartels behind global financial market manipulation continues.

We once opined that you should expect exactly such an event - a mega drop in precious metals – to take place and that you’ll hate your gold so much you’ll want to spit on it.

But consider that in the 1970′s, as gold assailed to its eventual all-time highs, it was halved in price at least once over the ten year period that it rose from double digits to over $800 per ounce.

During times of uncertainty, irrational events will occur. This is inevitable.

Don’t let the hype and manipulation change your long-term preparedness plans.

Consider what is money when the system as we know it collapses, and continue to acquire those hard assets that will retain value and barterability.

The worst is yet to come.

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That Dreadful Day

SUBHEAD: A day that the ultimate TV reality show debuts. Waterboarding the Real Housewives of Beverly Hills.

By James Kunstler on 8 April 2013 for Kunstler.com -
(http://kunstler.com/blog/2013/04/that-dreadful-day.html)


Image above: The Real Housewives of Beverley Hills live in a insulated bubble of fantasy. Platic statuary. From (http://www.eonline.com/photos/2011/the-real-housewives-of-beverly-hills).

For the moment, the trend seems pretty clear. Money from far and wide rushes into the US stock markets because every other conceivable place to stash money produces no return, no interest, no increase, at a time when the value of central bank currencies is slip-slidin' somewhere south of Palookaville. The rush into equities gooses equities increasing the rush, goosing the goose. Consider, however, that trends by their nature must last longer than the moment to be trends in the first place. One thing you can be sure of: the trend will end.

Another region of the trend concerns the recent peculiar behavior of gold and silver. Fear and greed may rule the trade in paper instruments, but something else rules the trade in hard metals: uncertainty. These days the uncertainty is very keen, not so much about the direction of the trade in paper - because the trend is up, up, and away - but whether the placeholders for the paper are for real, or whether you get to keep any of them when the dust settles at every dust-up.

Markets can go wither they will, but it's another matter when the government slams on capital controls and you can't move your money or redeem it from your account.

With the precedent of Cyprus now established (never mind MF Global), you'd think people all over the planet would be buying gold and silver as stores of value without counterparty risk, but the price keeps slowly sinking. I don't think it's because of the much chattered-about threat of confiscation. The US government could not be dumb enough to try to pull an FDR-style gold grab. This is a different land than it was in 1933.

The people who hold gold are exactly the same people who are very heavily armed, and just because the Department of Homeland Security supposedly has been buying up all the ammo on God's green earth, virtually all the people who are heavily armed are already heavily stocked up on ammo, too, and have quite enough to start an insurrection if the treasury agents come calling for their life savings.

Though I'm generally allergic to conspiracy theories, it smells like someone is engineering the downward behavior of the metals. The central banks of the US and Europe have a big incentive for driving the price down: it makes their currencies look stronger - despite the universal QE policies designed to make them actually weaker. That is, it gives the appearance that QE is not doing exactly what it is intended to do: wage currency war by driving down the value of money and incidentally inflating away the cost of debt denominated in these currencies.

I think the Federal Reserve and its TBTF cronies will succeed in driving the price of gold down, perhaps as far as the $1350 range, for a while (a moment, let's say). But by the time it gets there they will have completely wrecked the economies they pretend to represent, and driven many citizens into penury. Now, consider that hyperinflation is always a rather sudden phenomenon. When it comes on, it comes fast and hard, by the day and then the hour.

The Fed and its handmaidens will not be able to control it when it happens, because it will spring from all their previous actions, including the concealment of the loss of value of the dollar via manipulation of the gold and silver markets - and Ben Bernanke can't pretend that his helicopter is a time machine. There will be no going back to undo what he's already done.

That's the point where you will see the price of gold very quickly head toward $3,500 or even $10,000 and beyond, depending on the damage done and the oafishness of the political response. QE to infinity really translates into dollar wreckage to infinity.

History will record that this crisis of confidence in money was brought on by men who stupidly refused to acknowledge that the terms of daily human existence had changed in 2013. We could save the country and fashion a new economy appropriate to the new era of contraction, but it wouldn't look much like what you see out there now. It would be all about empty highways and empty WalMarts and people turning their energies elsewhere, to their communities, workshops, homesteads, and main streets.

We'll get to that place, but the journey to it will be dark and lonely since it will be accomplished by individuals bravely venturing where no politician dares to speak of, and the lonely individuals will receive no support from their culture or any of the authorities who play at political leadership.

There could well come a time, though, when those authorities will be disgraced, dragged down, and trampled, and I would tremble to be there on that dreadful day. That will be the day that the ultimate TV reality show debuts. Call it: Waterboarding the Real Housewives of Beverly Hills. When elites circulate, things get messy.

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Dollar as World Currency

SUBHEAD: To act as the global reserve currency, it must be exported in quantity size to facilitate gargantuan trades.

By Charles Hugh Smith on 27 march 2013 for Of Two Minds -

(http://www.oftwominds.com/blogmar13/dollar-higher3-13.html)

Image above: How do you make money? Print it! From (http://www.marketplace.org/topics/business/fallout-financial-crisis/where-does-bailout-money-come).

If we shed our fixation with the Fed and look at global supply and demand, we get a clearer understanding of the tailwinds driving the U.S. dollar higher.

I know this is as welcome in many circles as a flashbang tossed on the table in a swank dinner party, but the U.S. dollar is going a lot higher over the next few years. For a variety of reasons, many observers expect the dollar to decline against other currencies and gold, the one apples-to-apples measure of a currency's international purchasing power.

The tailwinds pushing the dollar higher are less intuitively appealing than the reasons given for its coming decline:

Point 1
The Federal Reserve printing another trillion dollars (expanding its balance sheet) will devalue the dollar because money supply is expanding faster than the real economy.

Point 2
The Fed is printing money with the intent of devaluing the dollar to make U.S. exports more competitive globally and thereby boost the domestic economy.

Let's examine Point 1.

1A
If much of the Fed's new money ends up as bank reserves, it is "dead money" and not a factor in the real economy. Fact: money velocity is tanking:

1B
Money is being destroyed by deleveraging and writedowns. This is taking money out of the real economy while the Fed's new money flows to banks.

1C
The purchasing power of the dollar is set by international supply and demand, not the Fed's balance sheet or the domestic money supply.

As for point 2:

2A
Exports are 13% of the economy. A stronger dollar would reduce the cost of oil, helping 100% of the economy, including exporters. Why would the Fed damage the entire economy to boost exports from 13% to 14% of the domestic economy? It makes no sense.

2B
Most U.S. exports are either must-have's (soybeans, grain, etc.) that buyers will buy at any price because they need to feed their people (and recall that agricultural commodities often fluctuate in a wide price band due to supply-demand issues, so if they rise 50% due to a rising dollar, it's no different than price increases due to droughts) or they are products that are counted as exports but largely made with non-U.S. parts.

How much of the iPad is actually made in the U.S.? Basically zero. Is it counted as an export? Yes. How much of a Boeing 787 airliner is actually manufactured in the U.S.? Perhaps a third. Sorting out what is actually made in the U.S. within complex corporate supply chains is not easy, and the results are often misleading.

2C
Many exports are made and sold in other countries by U.S. corporations, and so the sales are booked in the local currency. The dollar could rise or fall by 50% and most of the U.S. corporate supply chain and sales would not be affected because many of the goods and services are sourced and sold in other nations' currencies. The only time the dollar makes an appearance is in the profit-loss statement at home.

Americans tend not to know that up to 75% of U.S. corporations' revenues are generated overseas, in currencies other than the dollar. This may be part of Americans' famously domestic-centric perspective.

2D
Most importantly, the American Empire needs to control and issue the global reserve currency. The Fed is a handmaiden to the Empire; the Fed's claims of independence and its "dual mandate" are useful misdirections.

Some analysts mistakenly believe that Fed policies are aimed at boosting the relatively modest export sector (which we have already seen is a convoluted mess of globally supplied parts, sales in other currencies, etc.) from 13% to 14% of the domestic economy.

This overlooks the fact that the most important export of the U.S. is U.S. dollars for international use. I explained some of the dynamics in Understanding the "Exorbitant Privilege" of the U.S. Dollar (November 19, 2012) and What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012).

Which is easier to export:

• Manufactured goods that require shipping ore and oil halfway around the world, smelting the ore into steel and turning the oil into plastics, laboriously fabricating real products and then shipping the finished manufactured goods to the U.S. where fierce pricing competition strips away much of the premium/profit?
  
• Or electronically printing money and exchanging it for real products, steel, oil, etc.?

I think we can safely say that creating money out of thin air and "exporting" that is much easier than actually mining, extracting or manufacturing real goods. This astonishing exchange of conjured money for real goods is the heart of the "exorbitant privilege" that accrues to the issuer of the global reserve currency (U.S. dollar).

It's important to put the Fed's $3 trillion balance sheet in a foreign-exchange (FX) and global perspective:

• The FX market trades $3 trillion a day in currencies.
  
• Global financial assets are estimated at around $210 trillion. The Fed's balance sheet is 1.5% of global assets. The key to understanding the dollar and Triffin's Paradox is that as the global reserve currency, the dollar serves both domestic and international markets. Of the two, the more important market is the international one.

To act as the global reserve currency, a currency must be exported in sufficient size to facilitate the gargantuan trade in a $60 trillion global GDP/ $210 trillion global economy. There are only two ways to export enough currency to be remotely useful:

1. Run massive trade deficits, i.e. import goods and export dollars.
2. Loan massive quantities of dollars to nations that will place the dollars in international circulation.

The famous Marshall Plan that helped Western Europe rebuild its economies was just that: a series of large loans of dollars to dollar-starved economies. This was necessary because the U.S. was running trade surpluses in the postwar era and was therefore not exporting dollars.

This leads to a startling but inescapable conclusion: no exporting nation can issue the global reserve currency. That eliminates the European Union, China, Japan, Russia and every other nation running surpluses or modest deficits.

Many commentators are drawing incorrect conclusions from various attempts to bypass the dollar in settling trade accounts. For example, China is setting up direct exchanges where buyers and sellers can exchange their own currencies for renminbi, eliminating the need for intermediary dollars.

This is widely interpreted as the death knell for the dollar. But this misses the entire point of the reserve currency, which is that it must be available in quantity for everyone to use, not just those doing business with the domestic economy of the issuing nation.

Here's a practical example. The $100 bill is "money" everywhere in the world, recognizable as both a medium of exchange for gold, other currencies, goods and services, and as a store of value that is priced transparently (often on the black market). For the Chinese renminbi/yuan to replace the dollar as the global reserve currency, China would need to "export" enough currency to grease trade large and small worldwide, and enough electronic money to act as reserves that support domestic lending in nations holding the reserve currency.

This is yet another poorly understood function of the reserve currency: it acts as foreign exchange reserves, backing up the holder's currency, and as reserves in its central bank that act as collateral for its domestic issuance of credit.

In other words, the U.S. has issued and exported trillions of dollars because this is the necessary grease for global trade, currency stability and issuance of credit by nations holding dollars. The U.S. didn't run massive trade deficits by accident: it needed to "export" more dollars as the volume of global trade expanded.

Issuing credit and loans in dollars wasn't enough, so the U.S. exported dollars in exchange for commodities and goods.

For China to issue the global reserve currency, it would have to decouple the yuan from the U.S. dollar and start running deficits on the order of $500 billion a year.

Many observers think China is preparing to back its currency with gold, and they mistakenly conclude (yet again) this would be the death knell for the dollar. But they haven't thought through how currencies work: their value is ultimately set like everything else, by supply and demand.

In an export-dependent country like China, a gold-backed currency would not be exported in quantity--it wouldn't be "exported" at all, because China "imports" others' currencies in exchange for goods.

Assuming some of the gold-backed currency was exported, it would quickly end up in savings accounts or bank vaults, being a proxy for gold. There will be none available for facilitating trade in the $210 trillion global economy.

This dual nature of money trips up many analysts. Establishing a currency that is "as good as gold" but not exporting it in quantity means it will be hoarded as a store of value and be unavailable to facilitate trade. Money has to act both as a store of value and as a means of exchange.

This is why U.S. $100 bills are carefully stored in plastic in distant entrepots of the world, safeguarded as real money, available as a store of value and as a means of exchange.

Currencies can be exchanged in a Forex (FX) marketplace, but the reserve currency is the "winner take all" in the real world. If you hold out an equivalent sum in various currencies around the world, the trader in the stall will likely choose the $100 bill because he is not sure of the value of the other funny-money in his home currency and he knows he can easily exchange the $100 everywhere.

The other currencies might trade on the FX market at some percentage of the dollar, but in the real world they are effectively worthless because there isn't enough of them available to establish a transparent, truly global market. To do that, a nation has to export monumental quantities of their currency and operate their domestic economy in such a fashion that the currency is recognized as being a store of value.

In a very real sense, every currency is a claim not on the issuing central bank's balance sheet but on the entire economy of the issuing nation.

All this leads to two powerful tailwinds to the value of the dollar. One is simply supply and demand: as the global economy slides into recession, trade volumes decline, and the U.S. deficit shrinks. (It's already $250 billion less than was "exported" in 2006.) That will leave fewer dollars available on the global market.

In the case of the U.S., which exports large quantities of what the world needs (grain, soy beans, etc.) while buying mostly stuff that is falling in price in recession (oil, surplus manufactured goods, etc.), the trade deficit could decline significantly. (It is currently around $40 billion a month.)

And what does a declining trade deficit mean? It means fewer dollars are being exported. The global GDP is about $60 trillion, of which about 25% is the U.S. economy. Into this vast sea of trade, the U.S. "exports" about $500 billion in U.S. dollars via the trade deficit. Put in perspective, it isn't that big compared to the machine it is lubricating.

So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the "price/cost" of dollars up--basic supply and demand.

The second tailwind is the demand for dollars from those exiting the euro and yen. The abandonment of the euro is already visible in these charts, courtesy of Market Daily Briefing: Peak Euros.

We can anticipate this desire to transfer euros and yen into dollars will only increase as those currencies depreciate. Let's say, just as an example, $5 trillion in euros starts chasing $1 trillion in available U.S. dollars. What will that do to the value of the dollar?

Some ask why those selling euros won't buy Chinese yuan. Where are you going to find $1 trillion in yuan? It isn't even convertible on an open market, and since China is an importer of currency, there isn't 1 trillion yuan floating around the global marketplace to buy even if you wanted to.

Many people scoff when I suggest the dollar could rise 50% (i.e. the DXY dollar index could climb from its current level around 80 to 120) or even 100% (DXY = 160) in the years ahead. I know it's the highest order of sacrilege to even murmur this, but if global demand for dollars picks up, the Fed isn't printing nearly enough to dent the rise in the dollar.

As a lagniappe outrage, consider the domestic fallout from a decline in U.S. stocks and the U.S. economy. The Fed's precious horde of political capital will leak away, and its ability to print more money will be proscribed by political resistance and a loss of faith in the Fed's claimed omnipotence.

Any reduction in Fed printing would only limit the quantity of dollars available to global buyers, further pushing up its price on the open market.





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