Tag Archives: David Stockman

Dirty American politics will always and only get dirtier

NORM ‘n’ AL Note:  It always seems to help to remember the derivation of the word “politics”… “poly” comes from the Latin word meaning “many,” and we all know that “tics” (or ticks) are just ugly little bloodsuckers.

 

If you were a Martian visitor just disembarked from of one of Elon Musk’s rocket ships and were therefore uninfected by earth-based fake news, the culprits in Washington’s witch-hunt du jour would be damn obvious.

They include John Brennan, Jim Comey, Sally Yates, Peter Strzok and a passel of deep state operatives—-all of whom baldly abused their offices. After Brennan had concocted the whole Russian election meddling thing to sully Donald Trump’s shocking election win, the latter three holdovers—-functioning as a political fifth column in the new Administration—-set a perjury trap designed to snare Mike Flynn as a first step in relitigating and reversing the voters’ verdict.

The smoking gun on their guilt is so flamingly obvious that the ability of the Trump-hating media to ignore it is itself a wonder to behold.

After all, anyone fresh off Elon’s rocket ship would learn upon even cursory investigation of the matter that the National Security Agency (NSA) intercepts electronically every single communication of the Russian Ambassador with any person on US soil—-whether by email, text or phone call.

So the clear-minded visitor’s simple question would be: What do the transcripts say?

In fact, a Martian visitor would also quickly understand that the entire world—-friend, rival, foe and enemy, alike— already knows of NSA’s giant digital spying operation owing to Snowden’s leaks, and therefore there are no “sources and methods” on the SIGINT (signals intelligence) front to protect.

Accordingly, the disinterested Martian would undoubtedly insist: Declassify the NSA intercepts and publish them on Facebook (and, for old timers, on the front page of the New York Times) so that the truth would be known to all.

Of course, that would punch a deep hole in the entire RussiaGate witchhunt because NSA, in fact, did record Flynn’s late December conversations with Russian Ambassador Kislyak. And there was not a single word in them that related to alleged campaign collusion or otherwise inappropriate communications by the in-coming national security adviser to a newly-elected President who was three-weeks from inauguration.

Indeed, as explained below, Mueller has effectively told us that Flynn’s communications with Kislyak were clean as a whistle.

Accordingly, there was no reason whatsoever—–as in none, nichts, nada and nugatory, too—-for the FBI’s January 24th interview of Flynn. Four days after the inauguration,  Acting Attorney General Sally Yates and the FBI were wasting the time of the new President’s national security advisor for no earthly reason except to administer a “gotcha quiz” on what they knew from the transcripts to be completely innocent conversations with the Russian Ambassador

The content of the calls was entirely about pending policy matters. That is, the UN security council resolution condemning Israel’s settlements policy and Obama’s belligerent new anti-Russia sanctions. With respect to both of these matters, the incoming President had a publicly known policy position different from the incumbent’s, and about which his team was completely entitled to communicate with official foreign ambassadors.

So the January 24th interview itself was a Nixonesque abuse of the nation’s law enforcement machinery to strike at a political enemy—-albeit a mighty legitimate one who had just become occupant of the Oval Office by will of the American people.

These new-style Deep State “plumbers” who openly broke into the White House that day, in fact, conducted a blatant entrapment exercise with malice aforethought. Its only possible purpose was to bait Flynn into contradicting the word-for-word transcripts in the FBI’s possession—-intercepts which had been illegally “unmasked” by Brennan’s political witch-hunt for Russian election malefactors.

And we use the “illegal” word purposefully to underscore that the only ultimate justice here is for Obama’s rogue CIA director to be locked-up.

Brennan’s post-election leakathon of phony Russian meddling accusations was so threadbare of valid national security evidence that it even included falsehoods from the completely discredited and ludicrous Steele dossier—which was paid for by the DNC and Clinton campaign. And it culminated in the evidence-free screed of January 6th that was nosily presented to Obama as an intelligence community’s assessment but was actually a hatchet-job authored by Brennan and a hand-picked silo of anti-Trump analysts and fiction-writers like the now outed Peter Strzok of the FBI.

Issued under cover of the CIA, FBI, NSA and Director of National Intelligence (the confirmed liar, James Clapper), this document amounted to a sweeping abuse of the national security apparatus in furtherance of purely political purposes and vengeance against Deep State critics. It capped a 5-month-long Brennan-led campaign of naked political exploitation of the national security machinery that made the Nixon White House look like a Boy Scout Jamboree.

As we will demonstrate below, Brennan never had hard proof of Trump campaign collusion with the Russians to influence the election because if it existed it would have leaked in full “smoking gun” splendor long ag0.

We are referring here, again, to NSA digital intercept evidence that Russian state actors used the internet to remotely hack the Podesta and DNC servers in order to steal and then disseminate their politically embarrassing contents and thereby “influence” the US election in Trump’s favor.

Aside from the asinine claims about Russian troll farms and trivial amounts of Facebook ads and other such social media monkey business, that’s all she wrote. There have been no other tangible allegations of election “meddling” that rise to even minimal plausibility.

And you don’t have to be fresh off Musk’s Martian rocket to recognize it; you can google it yourself, but nothing — we mean, nothing — comes up on the screen.

Yet as to the DNC emails, there has already been a compelling demonstration by ex-NSA super SIGNET sleuth, William Binney, that the DNC emails were downloaded on a memory stick by a staff insider from his own computer, not remotely hacked by Russian trolls.

That’s because the download speed of 22.7 megabytes per seconembedded in the Guccifer publication of the DNC email trove was impossible to achieve from Russia or Romania or anywhere else outside of the DNC offices in July 2016 when the “hack” allegedly occurred. The highest average ISP speeds in the US during the first-half of 2016 were achieved by Xfinity and Cox Communications at 15.6 megabytes per second and 14.7 megabytes per second, respectively, while average speeds on US systems were in the order of 11 megabytes per second.

In short, the embarrassing DNC emails about election-rigging against Bernie Sanders by the Democratic Party apparatus were almost surely sucked out of the DNC’s servers by an insider with a thumb drive (which can download at the indicated speeds), not some nefarious Kremlin operative 3,000 miles away.

And as for Podesta’s emails, the Donald was surely right all along: Any 400-pound slob on a couch could have hacked an email account protected by a password like “password”.

Stated differently, if either of these email troves were “hacked” by remote Russian agents the digital footprint of that action is stored at one of the massive NSA server farms. 

Accordingly, it would have been unmasked at the get-go by Brennan’s hand-picked apparatchiks, thereby giving rise to another virtual certainty: Namely, such NSA intercepts, if they actually existed, would be such politically radioactive “proof” of Trump collusion that they would have been leaked from the endlessly porous US government long ago.

Moreover, any such digital evidence—which must exist or there was never a hack in the first place—would have drastically foreshortened Mueller’s investigation, too. That is, Mueller would have gotten NSA’s digital logs the day he opened up shop in May and would have had no other investigative task than to track down any digital evidence of Trump campaign involvement with such a Russian hacking operation.

We say “digital evidence” because unless one of Trump’s inner circle traveled to Moscow to secretly collude with the Kremlin in an off-the-grid manner on the DNC/Podesta hacks, NSA would also have the intercepts to prove it. To wit, the schedules, phone calls, text messages and emails of the Trump family and inner circle are all out there in the NSA server farms. Every one of them.

Were there a shred of evidence on these digital logs proving or even hinting at Trump campaign complicity in the alleged DNC/Podesta hacks, it would not have been overlooked by Brennan’s inquisitors; it would have been dispatched by Mueller’s gunslingers in no time at all.

So let’s be clear on the matter. The Donald is the ultimate seat-of-the-pants one man show who essentially relies upon his four family members (Donald Jr., Eric, Ivanka and Jared Kushner) and a few trusted advisors. Yet none of them were sent to Russia during the relevant time frame—-and had they colluded in any other way Mueller would have nailed them for any untoward digitized interactions with the Russians in a heartbeat.

That’s right. Anyone disembarking from Elon’s rocket ship could also google the fact that only two people—-Carter Page and George Papadopoulos—even remotely involved with the Trump campaign went to Russia or tried to go there.

But Carter Page was a no-count volunteer who went to Moscow on his own dime and who never even met Trump.

Likewise, Baby George Papadopoulos was a 29-year old kid who got drafted onto Trump’s foreign policy advisory panel from, apparently, the phone book when the GOP foreign policy establishment boycotted to nearly a man/woman the Trump campaign prior to the convention.

Accordingly, Baby George’s claim to fame is that he appeared in exactly one photo with the Donald on the day the foreign policy advisory committee was announced in order to appease an endlessly nagging gaggle in the press and among Trump’s legions of opponents.

If Papadopoulos had done anything more serious than sit for a photo op designed to prove Trump got his foreign policy advice other than from “watching TV”, as the Donald had previously averred, his guilty plea would have hinted at it.

But, no, what Mueller’s high priced legal gun-slingers got him on was—again—technical perjury. So as we review Mike Flynn’s alleged crimes, just recall that Baby George’s sin was to say he meet some dufus UK professor—who was also a phony expert on Russian affairs—before Papadopoulos was announced as a foreign policy advisor on March 19, 2016.

As it happened, he actually meet him about a week earlier and was therefore truthful with the FBI. But these modern-day, hair-splitting Torquemadas nailed him for the “crime” of not mentioning that he knew on March 10 that he was to be appointed to the Trump committee, and that knowledge somehow colored his March 15 meeting with this no-count English go-between.

You can’t make this stuff up!

In any event, how do we know that every word on the Flynn transcripts was perfectly legal and appropriate and did not in the slightest manner compromise so-called national security?

Simple. Mueller’s “Statement Of The Offense” tells us so.

In the case of the Russia sanctions conversation Flynn was trying to make peace, and in the case of the UN censure resolution against Israel he was trying to make trouble. But the latter is what presidents and their advisors do all the time, and the former is a wonderful idea that Washington should try far more often.

In fact, just consider the words of Mueller’s charge:

“….FLYNN falsely stated that he did not ask Russia’s Ambassador to the United States (“Russian Ambassador”) to refrain from escalating in response to sanctions that the United States has imposed against Russia. FLYNN also falsely stated that he did not remember a follow-up conversation in which the Russian Ambassador stated that Russia had chosen to moderate its response to those sanctions as a result of FLYNN’s request.

In fact, this criminal charge actually narrates the actual tick-tock of a more peaceful world struggling to be born in real time.  Accordingly, Mueller charges that on December 28th the Russian Ambassador first called Flynn after the Obama White House announced another spiteful round of petty sanctions against Putin associates.

The in-coming national security advisor, in turn, discussed “what if anything to communicate to the Russian Ambassador” with a senior official of the Trump transition; and according to Mueller’s criminal complaint, the two agreed that “members of the Presidential Transition Team a Mar-a-Lago did not want Russia to escalate the situation”.

Good for them!

Thereupon the very same day Flynn dialed-up Kislyak and, as the felony charging document contends, “requested that Russia not escalate the situation and only respond to the U.S. Sanctions in a reciprocal manner.”

Self-evidently, the wheels of peace began to turn because the complaint notes that on December 30 “Russian President Vladimir Putin released a statement indicating that Russia would not take retaliatory measures in response to the U.S. sanctions at the time.”

Indeed, Russia didn’t merely take “reciprocal” actions, as Flynn requested, but did absolutely nothing at all. Even more progress!

Then on the last day of the year, Kislyak called Flynn back and “informed him that Russia had chosen not to retaliate in response to FLYNN’s request”.

And then there is just white space in the Russia-related section of the charging document. Not a single word or hint that the Kremlin was paying off the Trump Administration for nefarious promises it had made in return for Russia’s campaign help.

For crying out loud, that white space itself proves there was not so much as a single clause or veiled code word in the transcripts about pre-election collusion or other untoward arrangements between the Trump campaign and the Kremlin—-or the FBI plumbers would have asked about it on January 24, Flynn would have lied, and it would be in the plea deal.

Indeed, the possibility that there is something untoward in the Flynn intercepts which Mueller chose to keep under wraps and did not stipulate in the plea is preposterous in the extreme.

After more than one year of investigation that has produced exactly zero hard evidence of pre-election collusion it is beyond impossible that at long last Mueller would have abjured.  That is, refrained from putting a grain of content into what anyone getting off Musk’s Mars rocket can see is an utterly bogus Russia meddling case.

At the end of the day, Mueller’s perjury did occur in the context of a crime. But the felony was the Brennan-led Russian meddling inquisition.

Especially after the shocking result on November 8, the Deep State and its collaborators and shills in the Democratic Party, official Washington and the mainstream media were not about to be rebuked by the unwashed demos of Flyover America.

Indeed, if you are not caught up in the RussiaGate hysteria and witch-hunt, it’s as plain as the noise on your face.

To be sure, the perjury trap sprung on Flynn was justified by Hillary partisan Sally Yates on the grounds that Flynn’s alleged “lie” to the Vice President left him vulnerable to “blackmail” by the Russians.

What undiluted hogwash!

The best poker player on today’s international stage, Vlad Putin, finally gets a US President with a rational attitude about Russia, and he plans to burn him on day one?

C’mon. Whether she intended it or not or had gamed it out thoroughly, the history records will show that the sanctimonious Hillary partisan and politically ambitious Sally Yates then and there killed the best chance for peace on earth since the Soviet Union fell in 1991.

Sally Yates, James Comey and John Brennan are the real criminals here.

As Justin Raimondo so eloquently put it:

Think about it, folks: both the US and the Russians possess enough nuclear firepower to destroy all life on earth several times over. This sword of Damocles is hanging over us by a thread, just as it loomed large during the last cold war with Moscow. It’s a  machinery of annihilation that is set on hair-trigger alert, and any number of events could unleash it: a miscalculation, a foolish bluff, a misunderstanding, a technical glitch, a showdown similar to the Cuban missile crisis. All that stands between us and utter extinction is the hope that this apparatus of death can be restrained by mutual agreement. Bravo to the Trump administration for making peace a priority. If this is now a crime, and even “treason,” as the mouth-breathers of #TheResistance would have it, well then let the Washington Inquisition make the most of it.

The point was also underscored cogently by Andrew McCarthy of the National Review.

As McCarthy argues below, differences on foreign policy are essentially now being criminalized; and the Donald’s justified desire to shut down the Brennan-inspired political witch-hunt called RussiaGate is being falsely characterized as obstruction of justice rather than what it actually is—-an effort to prevent the Deep State’s insidious assault on American democracy from going any further.

While all that plays out, though, behold the frightening thing Mueller’s investigation has become: a criminalization of politics. In the new order of things, policy differences are the grist for investigation and prosecution.

Nevertheless, Trump’s victory caused consternation in the Obama administration for two reasons. First, and most obviously, Obama did not want his policies reversed. Second, neither Obama nor his party could abide a judgment of history holding that the election of Trump, the bane of their existence, was a result of the American people’s rejection of the Obama agenda and of Hillary Clinton, the hapless candidate nominated by Democrats to carry that agenda forward.

…The ongoing Mueller probe is not a good-faith investigation of suspected espionage or other crime. It is the exploitation of the executive’s intelligence-gathering and law-enforcement powers in order to (a) criminalize Trump political policies with which the Obama administration disagreed and (b) frame Clinton’s electoral defeat as the product of a traitorous scheme rather than a rejection of Democratic-party priorities.

Finally, we couldn’t agree more with McCarthy that General Flynn is a very foolish man. He was not required to speak to the FBI when agents came to interview him on January 24.

Moreover, as the former head of the Defense Intelligence Agency he surely knew that the FBI would have been monitoring Kislyak and that the FBI had recordings of the conversations the agents wanted to ask him about.

That he agreed to submit to the interview anyway, and then to lie, is surely one of the stupidest acts coming out of official Washington that we can recall from 47 years of observation. But perhaps it does explain why America’s legions of puffed-up generals have been such abysmal failures for onwards of a half-century now.

So it is fair enough to say that Flynn has no one to blame but himself, and that a person of such poor judgment should never have been chosen to be the president’s principal national security adviser in the first place.

Then again, the American people should also understand why Flynn has gone down and why the Donald’s political scalp is fairly waiting to be lofted from the Washington Monument.

Obama’s Deep State has turned its own crimes during and after the 2016 election into nothing less than a coup d’etat against American democracy…with Obama showing yet again that he has no respect for America, for the rule of law, or for doing things the way they ought to be done.  People in Texas refer to others of Obama’s ilk as both “nasty” and “all hat and no cattle.”

 

[From an article published by David Stockman’s Contra Corner]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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A lifetime of compromise, expediency, self-promotion and complacent acquisition of power, wealth and fame

Another title option: A failed leader trying to lead a failed generation. It’s an ugly sight.

Hillary Clinton has always been at the head of her class. That includes being among the leading edge of the 80-million strong baby boom generation that first started arriving in 1946-1947.

She did everything they did: Got out for Barry Goldwater in high school; got upwardly mobile to Wellesley and social liberation during college; got “Clean for Gene” and manned the anti-war barricades in the late 1960s; got to Washington to uplift the world in the 1970s; got down to the pursuit of power and position in the 1980s; joined the ruling class in the 1990’s; and has helped make a stupendous mess of things ever since.

The baby boom generation which started with so much promise when it came of age in the 1960s has ended up a colossal failure. It has turned America into a bloody imperial hegemon abroad and a bankrupt Spy State at home where financialization and the 1% thrive, half the population lives off the state and real main street prosperity has virtually disappeared from the land.

Quite a deplorable legacy, that. And all the while Hillary has been our class president. God help the world if she becomes our nation’s President. She has betrayed all that was right about the baby boomers in the 1960s; and has embraced all the wrong they did during their subsequent years in power.

It starts during our defining moment when peace finally had a chance in the spring of 1968. We drove a sitting President from office, and, at that, one whose megalomaniacal will-to-power was terrifying.

We called bull on the cold war hysteria that had once put us under our desks at school and now claimed that peasants in far off rice paddies threatened our security. We stopped the Vietnam War cold, dented the Cold War deep and put the whole Warfare State apparatus on the run—–the Pentagon, CIA, the generals and admirals, the military-industrial complex. Within a few years the warfare state budget was down by 40% in constant dollars.

So it was an epochal chance to break the deadly cycle of war that had started a half-century earlier in the bloody trenches of northern France during the Great War; that had been rebooted for a future reprise in the vengeful folly of Versailles; that had been made inexorable by the rise of nationalism, statism, autarky and militarism during the 1930s; and that had been unnecessarily and dangerously extended by the clash of military machines that both victors refused to demobilize after they won the peace in 1945, supplanting the silence of the German and Japanese war guns with the nuclear nightmare of the Cold War.

True enough, the defeat and retreat of the American Imperium by the idealism and defiance of the baby boomers was interrupted by the Reagan defense and Cold War revival. But that historical error is what makes the Clintons all the more culpable…..

It was their job as the first baby boom co-Presidents to finish the work of 1968, and by the time they entered the White House it was a lay-up. The Soviet Union was no more and Mr. Deng had just declared that to get rich is glorious.

The Clintons’ job in 1993 was to have at least the vision of Warren G. Harding. After all, he did demobilize the US war machine completely, eschewed the imperial pretensions of Woodrow Wilson and actually launched a disarmament movement which resulted in the melting down of the world’s navies and the Kellogg-Briand treaty to outlaw war.

Yet the opportunity at the Cold War’s end was even more compelling. There was absolutely no military threat to American security anywhere in the world. The Clintons could have drastically reduced the defense budget by mothballing much of the navy and air force and demobilizing the army.

They should have cancelled all new weapons programs and dismantled the military-industrial complex. They could have declared “mission accomplished” with respect to NATO and made good on Bush’s pledge to Gorbachev to not expand it “by an inch” by actually disbanding it. And, as legatees of 1968, they were positioned to lead a global disarmament movement and to end the arms export trade once and for all.

That was their job—-the unfinished business of peace. But they blew it in the name of political opportunism and failure to recognize that the American public was ready to end the century of war, too.

And you can’t let Hillary off the hook on the grounds that she had the health care file and Bill the bombs and planes. On becoming Senator she did not miss a stride betraying the opening for peace that had first broken-through in 1968.

She embraced Bush’s “shock and awe” campaign in Iraq and was thereby complicit in destroying the artificial nation created by Sykes-Picot in 1916. So doing, Clinton helped unleash the furies of Islamic sectarian conflict that eventually led to the mayhem and brutality of the Shiite militias and the rise of the ISIS butchers on the backs of the dispossessed Sunni tribes and the demobilized officer corps of Saddam.

Tellingly, Hillary Clinton made a beeline for the Senate Armed Services Committee, the domain of the Jackson war democrats, not the Foreign Affairs Committee, where Frank Church had exposed the folly of Vietnam and the treacherous deeds of the CIA. Undoubtedly, this was to burnish her commander-in-chief credentials, but it spoke volumes.

By the time Hillary got to the seat of power, the idealism and defiance of the warfare state that had animated her and the baby boomers of 1968 had dissipated entirety. For her and most of them, it was now all and only about getting and keeping power. In that respect, Hillary’s term at the State Department was a downright betrayal.

Whether by accident or not, Obama had actually been elected as the “peace candidate” by echoing the rhetoric of 1968 that he had apparently read in a book but had been too young to actually hear. What this untutored and inexperienced idealist needed to hear from his Secretary of State was a way forward for peace and the dismantlement of a war machine that had rained havoc on the world, left behind 4 million damaged and disabled veterans who had sacrificed for no good reason and a multi-trillion dollar war tab that had bloated the national debt.

What he got was Hillary The Hawk. When Obama took Bush’s already bloated $650 billion war budget (2005$) to a level that was almost 2X the level Eisenhower thought adequate at the peak of the cold war and upon his parting speech warning of the military-industrial complex, Hillary was completely on board. When Obama was bamboozled into a “surge” of forces in the god forsaken expanse of the Hindu Kush, Hillary busied herself rounding up NATO support.

When her neocon and R2P (responsibility to protect) advisers and Administration compatriots urged making peace by starting wars in Syria, Libya and the Ukraine, Hillary lead the charge. All of them have been disasters for their citizens and a stain on America’s standing in the world.

When the Deep State began lining up the next enemy, Hillary joined the gumming brigade, warning about the China threat. My god, were the red capitalists of Beijing to actually bomb 4,000 Wal-Marts in America their system would collapse in six months and their heads would be hung from the rafters in the nearest empty Foxcon/Apple factory.

Here’s the thing. Hillary Clinton’s sell-out to the Warfare State is not just about war and peace—-even as it fosters the former and precludes the latter. It’s also about the nation’s busted fiscal accounts, its languishing main street economy and the runaway gambling den that has taken over Wall Street……

After all this time, however, Hillary doesn’t get any of this. She thinks war is peace; deficits don’t matter; the baby boom is entitled to the social insurance they didn’t earn; and that the Fed’s serial bubble machine is leading the nation back to prosperity.

Actually, its leading to the greatest financial bubble in human history. After 90 months of ZIRP and a decade of Wall Street coddling and subsidization by the Fed, the windfalls to the 1% have become unspeakable in their magnitude and illegitimacy.

Soon 10,000 people will own a preponderant share of the wealth; 10 million people will live grandly off the droppings; 150 million will live off the state; and the rest of America will be left high and dry waiting for the house of cards to collapse.

Hillary rose to fame delivering an idealistic commencement address at Wellesley at the beginning of her career. But like the generation she represents, she has betrayed those grand ideals over a lifetime of compromise, expediency, self-promotion and complacent acquisition of power, wealth and fame.

She doesn’t deserve another stint at the podium—-let alone the bully pulpit.

 

[Excerpted from David Stockman‘s soon-to-be-published new book]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

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Losing ground in America’s heartland, continued…

(THIS IS A LONG ARTICLE, BUT WELL WORTH READING.)

 

The Fed’s crusade to pump-up inflation toward its 2.00% target by hammering-down interest rates to the so-called zero bound is economically lethal. The former destroys the purchasing power of main street wages while the latter strip mines capital from business and channels it into Wall Street financial engineering and the inflation of stock prices.

In the case of America’s 80 million working age adults (25 or over) with a high school education or less, the Fed’s double whammy has been catastrophic. As we demonstrated yesterday, the employment-to-population ratio for this group has plummeted from 60% prior to the great recession to about 54% today.

In round terms this means that the number of job holders in that pool of the less educated has shrunk from 49.4 million to 43.5 million since early 2007. That’s nearly 6 million workers gone missing or 12% of the total from just nine years ago.

And as we documented yesterday this plunge is not due to aging demographics. The MSM meme that it’s all about the baby boomers hanging up their spikes doesn’t wash; the labor force participation rate of persons over 65 has actually increased sharply in recent years.

Shrinking Pool Of Workers With High School Education Or Less

But even those who have managed to stay employed have suffered a devastating reduction in purchasing power. In fact, based on our Flyover CPI, each dollar of wages would buy 3.1% less annually or a cumulative 70% less since 1999.

And that assumes just 65% of the budgets of these lower-wage households are consumed by the four horsemen of inflation—-food, energy, medical and housing. There can be little doubt that they actually spend a materially greater share on these necessities than we have allocated to them in our index.

Flyover CPI Since 1999

By contrast, nominal wages rates for the high school and under workers have risen by less than 50% over the same period. That means drastic purchasing power compression.

In fact, flyover America’s vast cohort of less educated workers has experienced an approximate 1.1% decline in their real weekly wages every year this century. In 2015 dollars of purchasing power, average pay has declined from $475 per week to $397 per week.

That’s right. When viewed on an annualized basis, households which were scrapping by on $24,700 per year in 2000 have seen the purchasing power of their pay checks drop to $20,600 today or by nearly 17%.

Yet the house of academic fools in the Eccles Building keep insisting that we have insufficient inflation!

Likewise, the all knowing pundits of the Acela Corridor (Washington/Wall Street) can’t figure out why Donald Trump has come roaring out of nowhere.

Real Weekly Wages- High School Graduates, No College

 

That gets us to the Wall Street/Keynesian cult of consumer spending. The latter holds that Americans who “shop until they drop” are the mainspring of the US economy based on the silly observation that personal consumption expenditures (PCE) comprise 70% of the GDP accounts, which themselves are a Keynesian construct.

Then again, no one told them that fully $3.5 trillion or 28% of total PCE consists of imputed housing consumption via OER (owners equivalent rent) and health care costs heavily funded by third-parties such as government entitlements and employer-based health insurance plans.  No one “shopped” to fund either of these huge PCE components, but self evidently someone worked to pay the taxes and premiums.

That is, real capitalist growth and prosperity stems from the supply-side ingredients of labor, enterprise, capital and production, not the hoary myth that consumer spending is the fount of wealth.

Yet even within the framework of our Keynesian monetary central planners, how did real PCE grow so strongly during the last two decades when real incomes for a huge share of the work force were falling so sharply?

In a word, debt. The flip-side of the Greenspan/Bernanke/Yellen wage crushing operation was a national LBO in the household sector.

During the 21 years between Greenspan’s arrival at the Fed in August 1987 and the early 2008 peak, household debt erupted from $2.7 trillion to $14.3 trillion or by 5.3X.

To be sure, nearly $12 trillion of extra debt, representing an annual growth rate of nearly 8.5%, speaks for itself in terms of the implied monumental excess. But our Keynesian witch doctors have a way of attempting to minimize the import of it by what we call the “inflation lockstep fallacy”.

That is to say, there is purportedly not so much to see here because much of this huge gain represents inflation; and, of course, wages and incomes were inflating over this 21 year period, too. What counts, or so claim our Keynesian bettors, is “real dollar” amounts as computed by their bulimic inflation indices.

Au contraire!

Wages in the Chinese export factories were not being set by the PCE deflator less food and energy as confected and tabulated by some GS-16s in the BLS’ statistical puzzle palace. On the margin, the “China price” in the world’s labor market was less than $1 per hour equivalent during most of that time.

And that’s a full stop. Constant dollar statistical deflators had nothing to do with it.

The Fed’s policy of systematically and massively inflating the domestic cost of living and household debt, therefore, resulted in a giant economic deformation—-one even greater than that implied by the parabolic debt gains through 2008 shown above.

Indeed, the full import can only be grasped by considering the sound money contrafactual case. To wit, as we demonstrated in an earlier post on this topic the CPI would have declined by 1-2% per year under a sound money regime after the early 1990’s when China’s export machine took off.

That means that even under a scenario of 3% labor productivity growth and constant household leverage ratios (i.e. debt-to income), total household debt would have grown by perhaps 2% per annum.

So by 2008 outstanding household debt would have been in the range of $4 trillion, not $14 trillion.

That’s right. Thanks to the utterly wrong-head monetary policies of Greenspan and his successors, US households ended up with $10 trillion of extra debt to lug around. And in the bargain, they got bloated nominal wage rates, which resulted in the massive off-shoring of their jobs, and shrinking purchasing power, which lowered the living standard of the less educated flyover zone work force by 17% just since the turn of the century.

The extent of this destructive household sector LBO is hinted at in the graph below. Historically, the ratio of household debt—-mortgages, credit cards, car loans and the rest—–was under 80% of wage and salary income.

After Nixon pulled the props out from the last vestiges of sound money at Camp David in August 1971 and turned the Fed loose to print at will, however, the ratio began to creep steadily higher.

Yet it was only after the arrival of Greenspan in the Eccles Building that the household leverage ratio went virtually parabolic, climbing from about 100% of wages and salaries to nearly 225% by the early 2008 peak.

We have called this a one-time parlor trick of monetary policy because while the leverage ratio was rising, it did permit households to supplement spending from their current wages and salaries with the proceeds of incremental borrowings. Undoubtedly, this artificial goosing of living standards by the central bank money printers did help insulate flyover America from feeling the full brunt of its shrinking job opportunities and  the deflating purchasing power of its pay checks.

No more. The household LBO is over and done, but the slightly declining leverage ratio shown in the chart is not a measure of progress; it’s an indicator of the distress being felt by households that have been forced to cut their consumption expenditures to the level of current earnings, which, in turn, are not rising nearly as fast as the 3.1% inflation rate afflicting flyover America.

Household Leverage Ratio

There is no secret or mystery as to how America’s working households were led into this appalling debt trap. The fact is, the befuddled Greenspan actually bragged about it when he celebrated the higher consumption levels that were being funded by MEW or mortgage equity withdrawal.

That was just Fedspeak for the fact that under its interest rate repression policies, American families were being massively incentivized and encouraged day and night by cash-out mortgage financing ads ( e.g “Lost another one to Ditech!”) to hock their homes to the mortgage man and splurge on the proceeds. This reached nearly a $1 trillion annual rate and 9% of disposable personal income at the peak just before 2008.

That Greenspan took great pains to track the data and publish the above chart is a measure of how far the Fed had descended into “something for nothing” economics.

Did they think that the leverage ratchet would never stop rising? Did they not recognize the fundamental economic fact of the present era? Namely, that there is a massive 80-million strong baby-boom generation heading for retirement and that for better or worse, home equity accumulation owing to the deductibility of interest has been its primary vehicle of savings?

Well, apparently not in the slightest. Here is what was happening behind the screen during Greenspan’s spurious MEW campaign. American households were strip-mining the equity from their homes and burying themselves in mortgage debt.

Total mortgage debt outstanding soared from $1.8 trillion to $10.7 trillion or by nearly 6X during this 21 year period. And even though housing prices more than doubled, the ratio of equity to owner-occupied housing asset value plunged from 67% to 37% over the period.

Here’s the thing. The MEW party ended nine years ago, but virtually all of Greenspan’s MEW is still there. Flyover America may not know exactly how it got buried in such massive debts, but it knows that the current Washington/Wall Street Bubble Finance regime has left it high and dry. It now suffers a relentless shrinkage of living standards even as these contractual debt obligations chase the huge cohort of baby-boomers right into their retirement golden years.

The only thing worse than the MEW legacy plaguing seniors is what’s happening on the other end of the demographic curve. Among student age Americans, the degree of debt enslavement has become even more draconian.

In the last decade alone, total student loans outstanding have nearly tripled, rising from $500 billion in 2006 to $1.34 trillion at present. And for reasons laid out below, a disproportionate brunt of this massive student loan burden is being shouldered by flyover America.

That’s mainly because the preponderant share of the nation’s 25 million higher education students comes from the flyover zones. Those precincts still had a semblance of a birth rate 25 years ago, unlike the culturally advanced households of the bicoastal meccas.

Stated differently, these staggering debt obligations were not incurred by Wellesley College art history majors or even needs-based diversity students at Harvard Law School. They are owed by the inhabitants of mom and pop’s basements scattered over the less advantaged expanse of the land.

After all, the Ivy league schools including all of their graduate departments account for only 140,000 students or 0.5% of the nation’s total. Even if you add in the likes of MIT, Stanford, Caltech, Northwestern, Duke, Vanderbilt and the rest of the top 20 universities you get less than 250,000 or 1% of the student population.

The other 24 million are victims of the feckless Washington/Wall Street ideology of debt and finance. To wit, tuition, fees, room and board and other living expanses have erupted skyward over the last two decades because Washington has poured in loans and grants with reckless abandon and Wall Street has fueled the madcap expansion of for-profit tuition mills.

Even setting aside the minimum $50,000 annual price tag at private institutions, the tab has soared to $20,000 annually at public 4-year schools and nearly $30,000 per year at the tuition mills.

These figures represent semi-criminal rip-offs. They were enabled by the preternaturally bloated levels of debt and finance showered upon the student population by the denizens of the Acela Corridor.

So the former now tread water in an economic doom loop. Average earnings for 35 year-olds with a bachelors degree or higher are $50,000 annually, compared to $30,000 for high school graduates and $24,000 for dropouts.

Thus, the sons and daughters of the flyover zones feel compelled to strap-on a heavy vest of debt in order to finance the insanely bloated costs of higher education. But once so “educated”, the overwhelming majority end up with $30,000 to $100,000 or debt or more.

In this regard, the so-called for-profit colleges like Phoenix University, Strayer Education and dozens of imitators deserve a special place in the halls of higher education infamy. At their peak a few years ago, enrollments at these schools totaled 3.5 million.

But overwhelmingly, these “students” were recruited by tuition harvesting machines that make the all-volunteer US Army look like a piker in comparison. To wit, typically 90% of the revenues of these colleges were derived from student grants and especially loans——-hundreds of billions of them—-but less than one-third of that money went to the cost of education, including teachers, classrooms, books and other instructional costs.

At the same time, well more 33% went to SG&A and the overwhelming share of that was in the “S” part. That is, prodigious expenditures for salesmen, recruiters, commissions and giant bonuses and other incentives and perks.

Needless to say, this made for good growth and margin metrics that could be hyped in the stock market.  In fact, after the cost of education and all of the massive selling expense to turbocharge enrollment growth was absorbed, there was still upwards of 35-40% of revenue left for operating profits.

That’s right. For a decade until the Obama Administration finally lowered the boom after 2011, the fastest growing and most profitable companies in America were the for-profit colleges.

In short order they became a hedge fund hotel, meaning that the fast money piled into the for-profit college space like there was no tomorrow. So doing, they often drove PE ratios to 60X or higher, bringing instant riches to start-up entrepreneurs and top company executives, who, in turn, were motivated to drive their growth and profit “metrics” even harder.

At length, they became tuition mills and Wall Street speculations that were incidentally in the higher education business, or not. The combined market cap of the six largest public companies went from less than $2 billion to upwards of $30 billion in a decade.

The poster boy for this scam is surely Strayer Education. Between 2002 and the 2011 peak, its sales and net income grew at 25% per year and operating profit margins clocked in at nearly 40%.

Not surprisingly, Strayer was peddled as the second coming of “growth” among the hedge funds. The momo chasers thus pushed its PE ratio into the 60-70X range in its initial growth phase, and it remained in the 30-40X range thereafter.

Accordingly, its market cap soared by 7X from $500 million to $3.5 billion at the peak. The hedge funds made a killing.
STRA Market Cap Chart

STRA Market Cap data by YCharts

Then the Federal regulators threw on the brakes, and it was all over except the shouting. Total market cap of more than $27 billion disappeared from the segment within three years after 2011 and the hedge fund hotel experienced a mass stampede for the exits.

What was left were millions of flyover zone thirty-something’s stuck with crushing unpaid loans, educations of dubious value and a lot more years in mom and pop’s basement.

Should any of these tuition mills have even existed, let alone been valued at 60X earnings——-earnings that did not derive from real economic value added and which were totally at the whims of the US department of education?

Of course not.

But then again, after 20 years of radical financial repression the Wall Street has been turned into a casino that scalps the flyover zone whenever it gets half the chance.

 

[by David Stockman, writing for DAVID STOCKMAN’S CONTRA CORNER]

 

………………………………………

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

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“Wall Street has become a doomsday machine, and the Fed has absolutely no chance of stopping its eventual implosion”

The posse of fools in the Eccles Building [home of the Federal Reserve in Washington, DC] is so petrified of a stock market hissy fit that it has more or less created a Wall Street doomsday machine.

After trolling on the zero bound for 89 straight months now, the FOMC falsely believes that it has levitated the U.S. economy to the cusp of full-employment via massive liquidity and wealth effects pumping.

As a consequence, it refuses to let the market have breathing room for even a modest correction, insisting that just a few more months of this monetary lunacy will permit a return to some semblance of normalcy.

But it never gets there. The truth is, this so-called recovery cycle is now visibly dying of old age and being crushed by the headwinds of global deflation. Rather than acknowledge that the jig is up, our feckless monetary politburo just equivocates, procrastinates and prevaricates about the monumental policy failure it has superintended.

So the casino punters just won’t go home. They hang around against all odds, failing to liquidate and thereby enabling the robo machines to engage in endless and pointless cycling between chart points. As shown in the graph below, this has been going on for nearly 600 days now.

But of late the churning has been occurring in an increasingly narrow channel. Accordingly, the spring is being coiled ever more tightly.

When this 83-month long simulacrum of a economic recovery finally rolls over into recession someday soon, therefore, the implosion will be thunderous. The robo-machines will chase the punters out the casino exits in an epic stampede of selling.
^SPX Chart

Indeed, given the headwinds emanating from all corners of the global economy and financial system it is hard to believe that any sentient carbon units actually participated in today’s 19th nervous short squeeze in as many weeks. Among other things, first quarter results have been fully posted and it turns out that the S&P 500 companies earned $87 per share during the last 12 months (LTM).

That’s down from the $99 per share LTM figure posted in Q1 last year and the peak of $106 per share recorded in the year ended in September 2014.

In short, reported GAAP earnings—–the honest kind companies report to the SEC on penalty of jail—— are now down 18% from their recent bubble cycle peak. But since the S&P 500 has remained within 3% of its May 2015 all-time high (2130), it  means that the PE ratio has been rapidly inflating right into the teeth of falling profits and a rapidly cooling domestic and global economy.

In fact, the market closed today at 23.9X, which is a truly ludicrous valuation level. We are in the waning days of the third bubble cycle of the 21st century, yet the casino is pricing current earnings as if recessions have been outlawed and that the long-term growth trend of earnings is in double digits..

So here’s a spoiler alert.  When S&P 500 earnings peaked prior to the financial crisis in the June 2007 LTM period, they clocked in at $85 per share.

The arithmetic of the matter, therefore, is that corporate earnings have grown at a miniscule 0.2% annual rate during the last nine years. Take the inflation out of that and adjust for nearly $3 trillion of stock buybacks and shrinkage of the share count in the interim, and you have less than no growth at all.

The worse thing is that we have been here before—–at this same juncture exactly eight years ago in May 2008. The just completed earnings season had generated S&P profits of about $61 per share. That was down more than 25% from the prior year peak of $85, but the casino punters ignored the warning signs. The S&P 500 index remained within 3% of its November 2007 high (1570) for a few more months.

Then the sky fell. Nine months later the market was down by 57% and the U.S. economy was in the worst recession since the 1930s.

More crucially, the sell-side assurance that the severe earnings decline then underway was just the “pause that refreshes” and that profits would rebound to $100 per share in no time, proved to be dead wrong.

By the following spring, LTM profits for the S&P 500 companies posted at just $7 per share!

Now, we have no idea how far earnings will fall this time, but we do note that on the eve of the cyclical contraction in May 2008, the S&P 500 was trading at the same drastically inflated multiple as today——- 24X LTM earnings.

We also note that recessions are precipitated not by lagging indicators such as the dubious BLS monthly jobs surveys, but by the accumulation of excess inventories in the face of weakening sales. Here is what happened last time the punters insisted on staying in the nosebleed section of the casino when earnings were already falling rapidly.

Nor is this time any different. As of March, total business sales in the U.S. economy—manufacturing, wholesale and retail——were down 5.5% from their July 2014 peak, while the inventory ratio has soared back up into the recession zone.

That’s right. The scarlet “X” is back.

It means not merely that recession is just around the corner. That eventuality is guaranteed by the fact that this tepid recovery is already very long in the tooth by historical standards and by the reality that global trade, industrial production and PMI’s are slipping into recession mode virtually everywhere.

What is also proves is that the Fed and other central banks have absolutely destroyed the last semblance of honest price discovery. How is any other conclusion possible?

That is, with headwinds ranging from the tottering Red Ponzi of China, to the collapse in Brazil, the depression in the Baaken and Texas shale patch, the plunge in Japan’s trade accounts, the swirling liquidity crisis in the petro-states, the slump in German exports, the double digit decline of US freight volumes, the flat-lining of temp agency employment levels and much more, why would any rational investor pay 23.9X for the S&P 500 at this juncture—–and especially after nine years of no earnings growth?

Alas, they wouldn’t.

Wall Street has indeed become a doomsday machine and the Fed has zero chance of stopping its eventual implosion.

 

[by David Stockman, writing for DAVID STOCKMAN’S CONTRA CORNER]

 

…………………………………………

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

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How Donald Trump could clear the political fog and confusion in one master stroke

Donald TrumpIt’s actually pretty easy. At an apt moment very soon, Trump should offer Governor Kasich the VP slot and Senator Cruz the vacant Supreme Court seat.

Such a grand bargain would not only clear the primary field and quash any backroom hijacking of the nomination by the Washington GOP establishment; it would also permit each man to play his highest and best role at this great inflection point in the nation’s history.

That is, Donald Trump’s job is to destroy the Republican/Neocon establishment and bring working class America back into a modern version of a McKinley-style Republican Party. Ted Cruz’ task is to spend a lifetime bringing strict constructionism back to the high court, thereby helping to restore constitutional restraints on a leviathan state that fundamentally threatens personal liberty and economic freedom and prosperity in America.

And, yes, there really isn’t much for a washed-out, me-too Republican pol like Kasich to do at all. Except to get out of the way and exercise his apparent talent for preacherly uplift as America’s eulogist-in-chief at foreign state funerals.

Beyond the rightness of it, there’s some pretty potent logic for the politics of the deal, too, There would be lots of of winners all around—–most especially the long-suffering American people.

Mitch McConnell and his rudderless Senate wheels, for example, would not need even a ten minute caucus to hand down to young Ted Cruz a life sentence to the Supreme Court.

At the same time and more importantly, however, the American public would score a twofer——a more faithful high court and one less warmonger on Capitol Hill.

As to the former, Ted Cruz is about as close to the next Antonin Scalia as exists in America today. It goes without saying that he could do far more for the cause of liberty as a Justice than as a gadfly Senator.

But there is an angle even more important. Cruz was a top student and debater at Princeton, a distinguished editor of the Harvard Law Review and a clerk on both the DC Court of Appeals and for the great Justice William Rehnquist on the Supreme Court. During the primary debates, he erudition on constitutional matters towered far above the pack.

He was also described as “off the charts brilliant” by no less an admirer of his own brilliance than Alan Dershowitz. With a prospective long lifetime of service on the high court, Ted Cruz could bring a level of scholarly narrative and intellectual passion and acumen that is sorely needed by the constitutionalist cause.

At the same time, the American people would be spared of another bellicose politician hell-bent on extending Washington’s imperial depredations. Cruz seems to have the Ronald Reagan disease. That is, his belief in small government does not extend to the Pentagon side of the Potomac; and his high regard for liberty does not appear to encompass innocent foreigners dwelling in the vicinity of desert sands he would cause to glow in the dark.

As for Kasich, it is hard to think of a more inapt messenger with a more wrong-headed message. America does not need another compromiser, reconciler and wizened Washington ranch hand who can split the difference.

It needs, instead, a force of nature who can rain shock and awe on the Imperial City. And, so doing, overturn its vast network of prosperous racketeers who feed off the military industrial complex, the health care cartel, the education monopolies, the Wall Street and banking mafias and the legions of other crony capitalist rackets.

Governor Kasich’s specious claim to be a fiscally prudent budget balancer is especially telling. One of the most outrageous Washington wastes is right under his nose. Namely, the Lima Ohio M-1 tank line that he and the Ohio politicians keep open despite 10,000 such lethal machines already in inventory——-and notwithstanding that no other nation has tanks of this advanced capability or, more dispositively, the means to land them on these shores.

Actually, M-1 tanks were originally designed to fight the Red Army on the central front——said army and said front having disappeared from the pages of history 25 years ago.

Since then they have been used for neocon wars of invasion and occupation that did nothing for the safety and security of citizens in Dayton OH or Danbury CT except foster vengeful blowback in the cities and towns they turned into rubble. Even then, the Imperial City’s racketeers offered this folly as proof of the need for more iron and electronic monsters from Lima, while Kasich and his pols  lip-synched the sales pitch.

In truth, Kasich is exactly the kind of political lifer that needs to occupy the Joe Biden chair of policy irrelevance during the monumental reckoning ahead. He has indulged in double talk for so many decades that he no longer even knows when his lips are synching or even moving.

His victory speech after the Ohio primary, for example, was laced with pious rhetoric about devolving government back to the states and localities.

C’mon. He took a 90% bribe from Obama to drastically expand Medicaid in Ohio at the expense of taxpayers in Idaho and Texas, whose faithful governors didn’t. Yet he has the nerve to call himself a champion of decentralization?

Kasich’s brand of phony Federalism goes back to Nelson Rockefeller, who wore thin the patience of New York taxpayers with his out-sized building, spending and other appetites. So looking enviously at the untapped citizens of Nebraska and Oregon, Rocky then cooked-up the idea of revenue sharing and sold it to Nixon. It was actually just a form of interstate larceny.

As a young Capitol Hill staffer at the time, I saw how the old-fashioned conservative and legendary ruler of the House Ways and Means Committee, Wilbur Mills, had it killed dead as a doornail. His was virtually the last voice of authority and power in Washington during the past half century who insisted that such tax money should never leave home in the first place; and that the round-trip through Washington was just an opportunity for sticky fingers to skim the pot and for disingenuous politicians to bring home the pork while pretending it was free money.

If they want to spend it, said Mills, let them tax it first. But sound Federalism was not to be. LBJ’s Great Society had broken the dam and soon Wilbur Mills stumbled into submission on the eve of the 1972 Nixon landslide——perhaps in a foreshadowing of his final stumble two years later into the Tidal Basin with Fanne Foxe.

The rest, as they say, is history. With Mills’ iconic defense of the old order out of the way, the Nixon-Ford White House massively expanded the Federal grant-in-aid system. At length, a whole generation of GOP politicians became house-trained in Kasich style fiscal doublespeak and hypocrisy.That is, in the art of decrying Washington’s fiscal profligacy on the rubber chicken circuit by night while devoting their day jobs to scrapping for hometown pork from Medicaid and thousands of like and similar Federal gravy trains.

I have no idea whether Donald Trump will see through Kasich style fiscal hypocrisy or not. But I do believe him when he decries our $19 trillion national debt and when he says that he is going after Washington’s fiscal profligacy hammer and tong.

In this instance, and much else, Trump’s principal virtue is that his only acquaintanceship with the Imperial City is attendance at an occasional Kennedy Center gala. Accordingly, he is unschooled in the self-serving rationalizations that keep the rackets going, but endowed with such ample self-confidence that he is sure to go charging into the nation’s fiscal mess like a bull in a china shop.

And after years of a bipartisan conspiracy of silence and perfidiously orchestrated fiscal can-kicking, broken furniture and bombastic challenges are exactly what the fiscal doctor ordered. Indeed, what a President Trump could actually do is prove that the way to shutdown Washington’s budgetary rackets is by means of an insurrectionist-in-chief inside the White House, not furtive threats to shutdown the Washington Monument lobbed from Capitol Hill.

Say what you will about Trump’s controversial business history, the four bankruptcies and the rest, it is absolutely certain that he knows at least this much: You don’t stop a flood of budgetary red ink with a 25-year plan to get to a balanced budget by 2038!

That’s Speaker Paul Ryan’s particular contribution to the GOP establishments’ noxious form of fiscal duplicity and doublespeak. Like in the movie “Dave”, The Donald is like to dive into the budget himself and then there will be fear and trembling all around the Imperial City.

Big Pharma and the health insurance cartel are already in Trump’s gun sights, but once he gets to 1600 Pennsylvania Avenue he will quickly discover the target rich environment on the Pentagon side of the Potomac, too. The hideously expensive, technically plagued and completely unneeded trillion dollar F-35 fighter would be the ideal place for him to start.

And that goes to the larger point. All the swells in the mainstream media are furiously cackling about The Donald’s answer on morning TV about the identify of his top foreign policy advisors. Yet this is why the think tanks and neocon lobbies are in full frontal panic:

I’m speaking with myself No. 1 because I have a very good brain and I’ve said a lot of things,” he said in an interview on MSNBC. “I talk to a lot of people and at the appropriate time I’ll tell you who the people are.”

Actually, there is more, and it has to do with one of the many character flaws that self-evidently afflict the man. We speak of his monumental capacity to carry a grudge and seek revenge upon those who personally offend him.

Here’s the thing. Mitt Romney’s viscous public attack on Trump is only the beard. It is merely the censored for family TV version of what the entire neocon establishment and War Party is saying every day in the corridors of Imperial Washington.

Needless to say, the Donald is taking names and will not be reluctant to do far more than kick offending posteriors. He will make it his business to hound, denounce, denigrate and dispatch the entire passel of neocon power brokers who have declared war on his candidacy.

 

[by David Stockman, in DAVID STOCKMAN’S CONTRA CORNER]

 

………………………………………….

 

As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

 

 

 

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The folly of American exceptionalism … and why it presents an election made in hell

“Proudly overthrowing the Cuban government since 1959.”

 

If the American presidential election winds up with Hillary Clinton vs. Donald Trump, and my passport is confiscated, and I’m somehow FORCED to choose one or the other, or I’m PAID to do so, paid well … I would vote for Trump.

My main concern is foreign policy. American foreign policy is the greatest threat to world peace, prosperity, and the environment. And when it comes to foreign policy, Hillary Clinton is an unholy disaster. From Iraq and Syria to Libya and Honduras the world is a much worse place because of her; so much so that I’d call her a war criminal who should be prosecuted. And not much better can be expected on domestic issues from this woman who was paid $675,000 by Goldman Sachs – one of the most reactionary, anti-social corporations in this sad world – for four speeches and even more than that in political donations in recent years. Add to that Hillary’s willingness to serve for six years on the board of Walmart while her husband was governor of Arkansas. Can we expect to change corporate behavior by taking their money?

The Los Angeles Times ran an editorial the day after the multiple primary elections of March 1 which began: “Donald Trump is not fit to be president of the United States,” and then declared: “The reality is that Trump has no experience whatsoever in government.”

When I need to have my car fixed I look for a mechanic with experience with my type of auto. When I have a medical problem I prefer a doctor who specializes in the part of my body that’s ill. But when it comes to politicians, experience means nothing. The only thing that counts is the person’s ideology. Who would you sooner vote for, a person with 30 years in Congress who doesn’t share your political and social views at all, is even hostile to them, or someone who has never held public office before but is an ideological comrade on every important issue? Clinton’s 12 years in high government positions carries no weight with me.

The Times continued about Trump: “He has shamefully little knowledge of the issues facing the country and the world.”

Again, knowledge is trumped (no pun intended) by ideology. As Secretary of State (January 2009-February 2013), with great access to knowledge, Clinton played a key role in the 2011 destruction of Libya’s modern and secular welfare state, sending it crashing in utter chaos into a failed state, leading to the widespread dispersal throughout North African and Middle East hotspots of the gigantic arsenal of weaponry that Libyan leader Moammar Gaddafi had accumulated. Libya is now a haven for terrorists, from al Qaeda to ISIS, whereas Gaddafi had been a leading foe of terrorists.

What good did Secretary of State Clinton’s knowledge do? It was enough for her to know that Gaddafi’s Libya, for several reasons, would never be a properly obedient client state of Washington. Thus it was that the United States, along with NATO, bombed the people of Libya almost daily for more than six months, giving as an excuse that Gaddafi was about to invade Benghazi, the Libyan center of his opponents, and so the United States was thus saving the people of that city from a massacre. The American people and the American media of course swallowed this story, though no convincing evidence of the alleged impending massacre has ever been presented. (The nearest thing to an official US government account of the matter – a Congressional Research Service report on events in Libya for the period – makes no mention at all of the threatened massacre.)

The Western intervention in Libya was one that the New York Times said Clinton had “championed”, convincing Obama in “what was arguably her moment of greatest influence as secretary of state.” All the knowledge she was privy to did not keep her from this disastrous mistake in Libya. And the same can be said about her support of placing regime change in Syria ahead of supporting the Syrian government in its struggle against ISIS and other terrorist groups. Even more disastrous was the 2003 US invasion of Iraq which she as a senator supported. Both policies were of course clear violations of international law and the UN Charter.

Another foreign-policy “success” of Mrs. Clinton, which her swooning followers will ignore, the few that even know about it, is the coup ousting the moderately progressive Manuel Zelaya of Honduras in June, 2009. A tale told many times in Latin America. The downtrodden masses finally put into power a leader committed to reversing the status quo, determined to try to put an end to up to two centuries of oppression … and before long the military overthrows the democratically-elected government, while the United States – if not the mastermind behind the coup – does nothing to prevent it or to punish the coup regime, as only the United States can punish; meanwhile Washington officials pretend to be very upset over this “affront to democracy”. (See Mark Weisbrot’s “Top Ten Ways You Can Tell Which Side The United States Government is On With Regard to the Military Coup in Honduras”.)

In her 2014 memoir, “Hard Choices”, Clinton reveals just how unconcerned she was about restoring Zelaya to his rightful office: “In the subsequent days [after the coup] I spoke with my counterparts around the hemisphere … We strategized on a plan to restore order in Honduras and ensure that free and fair elections could be held quickly and legitimately, which would render the question of Zelaya moot.”

The question of Zelaya was anything but moot. Latin American leaders, the United Nations General Assembly, and other international bodies vehemently demanded his immediate return to office. Washington, however, quickly resumed normal diplomatic relations with the new right-wing police state, and Honduras has since become a major impetus for the child migrants currently pouring into the United States.

The headline from Time magazine’s report on Honduras at the close of that year (December 3, 2009) summed it up as follows: “Obama’s Latin America Policy Looks Like Bush’s”.

And Hillary Clinton looks like a conservative. And has for many years; going back to at least the 1980s, while the wife of the Arkansas governor, when she strongly supported the death-squad torturers known as the Contras, who were the empire’s proxy army in Nicaragua.

Then, during the 2007 presidential primary, America’s venerable conservative magazine, William Buckley’s National Review, ran an editorial by Bruce Bartlett. Bartlett was a policy adviser to President Ronald Reagan, a treasury official under President George H.W. Bush, and a fellow at two of the leading conservative think-tanks, the Heritage Foundation and the Cato Institute – You get the picture? Bartlett tells his readers that it’s almost certain that the Democrats will win the White House in 2008. So what to do? Support the most conservative Democrat. He writes: “To right-wingers willing to look beneath what probably sounds to them like the same identical views of the Democratic candidates, it is pretty clear that Hillary Clinton is the most conservative.”

During the same primary we also heard from America’s leading magazine for the corporate wealthy,Fortune, with a cover featuring a picture of Mrs. Clinton and the headline: “Business Loves Hillary”.

And what do we have in 2016? Fully 116 members of the Republican Party’s national security community, many of them veterans of Bush administrations, have signed an open letter threatening that, if Trump is nominated, they will all desert, and some will defect – to Hillary Clinton! “Hillary is the lesser evil, by a large margin,” says Eliot Cohen of the Bush II State Department. Cohen helped line up neocons to sign the “Dump-Trump” manifesto. Another signer, foreign-policy ultra-conservative author Robert Kagan, declared: “The only choice will be to vote for Hillary Clinton.”

The only choice? What’s wrong with Bernie Sanders or Jill Stein, the Green Party candidate? … Oh, I see, not conservative enough.

And Mr. Trump? Much more a critic of US foreign policy than Hillary or Bernie. He speaks of Russia and Vladimir Putin as positive forces and allies, and would be much less likely to go to war against Moscow than Clinton would. He declares that he would be “evenhanded” when it comes to resolving the Israeli-Palestinian conflict (as opposed to Clinton’s boundless support of Israel). He’s opposed to calling Senator John McCain a “hero”, because he was captured. (What other politician would dare say a thing like that?)

He calls Iraq “a complete disaster”, condemning not only George W. Bush but the neocons who surrounded him. “They lied. They said there were weapons of mass destruction and there were none. And they knew there were none. There were no weapons of mass destruction.” He even questions the idea that “Bush kept us safe”, and adds that “Whether you like Saddam or not, he used to kill terrorists.”

Yes, he’s personally obnoxious. I’d have a very hard time being his friend. Who cares?

CIA motto: “Proudly overthrowing the Cuban government since 1959.”

Now what? Did you think that the United States had finally grown up and come to the realization that they could in fact share the same hemisphere as the people of Cuba, accepting Cuban society as unquestioningly as they do that of Canada? The Washington Post (February 18) reported: “In recent weeks, administration officials have made it clear Obama would travel to Cuba only if its government made additional concessions in the areas of human rights, Internet access and market liberalization.”

Imagine if Cuba insisted that the United States make “concessions in the area of human rights”; this could mean the United States pledging to not repeat anything like the following:

Invading Cuba in 1961 at the Bay of Pigs.

Invading Grenada in 1983 and killing 84 Cubans, mainly construction workers.

Blowing up a passenger plane full of Cubans in 1976. (In 1983, the city of Miami held a day in honor of Orlando Bosch, one of the two masterminds behind this awful act; the other perpetrator, Luis Posada, was given lifetime protection in the same city.)

Giving Cuban exiles, for their use, the virus which causes African swine fever, forcing the Cuban government to slaughter 500,000 pigs.

Infecting Cuban turkeys with a virus which produces the fatal Newcastle disease, resulting in the deaths of 8,000 turkeys.

In 1981 an epidemic of dengue hemorrhagic fever swept the island, the first major epidemic of DHF ever in the Americas. The United States had long been experimenting with using dengue fever as a weapon. Cuba asked the United States for a pesticide to eradicate the mosquito involved but were not given it. Over 300,000 cases were reported in Cuba with 158 fatalities.

These are but three examples of decades-long CIA chemical and biological warfare (CBW) against Cuba. We must keep in mind that food is a human right (although the United States has repeatedly denied this).

Washington maintained a blockade of goods and money entering Cuba that is still going strong, a blockade that President Clinton’s National Security Advisor, Sandy Berger, in 1997 called “the most pervasive sanctions ever imposed on a nation in the history of mankind”.

Attempted to assassinate Cuban president Fidel Castro on numerous occasions, not only in Cuba, but in Panama, Dominican Republic and Venezuela.

In one scheme after another in recent years, Washington’s Agency for International Development (AID) endeavored to cause dissension in Cuba and/or stir up rebellion, the ultimate goal being regime change.

In 1999 a Cuban lawsuit demanded $181.1 billion in US compensation for death and injury suffered by Cuban citizens in four decades “war” by Washington against Cuba. Cuba asked for $30 million in direct compensation for each of the 3,478 people it said were killed by US actions and $15 million each for the 2,099 injured. It also asked for $10 million each for the people killed, and $5 million each for the injured, to repay Cuban society for the costs it has had to assume on their behalf.

Needless to say, the United States has not paid a penny of this.

One of the most common Yankee criticisms of the state of human rights in Cuba has been the arrest of dissidents (although the great majority are quickly released). But many thousands of anti-war and other protesters have been arrested in the United States in recent years, as in every period in American history. During the Occupy Movement, which began in 2011, more than 7,000 people were arrested in about the first year, many were beaten by police and mistreated while in custody, their street displays and libraries smashed to pieces. ; the Occupy movement continued until 2014; thus, the figure of 7,000 is an understatement.)

Moreover, it must be kept in mind that whatever restrictions on civil liberties there may be in Cuba exist within a particular context: The most powerful nation in the history of the world is just 90 miles away and is sworn – vehemently and repeatedly sworn – to overthrowing the Cuban government. If the United States was simply and sincerely concerned with making Cuba a less restrictive society, Washington’s policy would be clear cut:

  • Call off the wolves – the CIA wolves, the AID wolves, the doctor-stealer wolves, the baseball-player-stealer wolves.
  • Publicly and sincerely (if American leaders still remember what this word means) renounce their use of CBW and assassinations. And apologize.
  • Cease the unceasing hypocritical propaganda – about elections, for example. (Yes, it’s true that Cuban elections never feature a Donald Trump or a Hillary Clinton, nor ten billion dollars, nor 24 hours of campaign ads, but is that any reason to write them off?)
  • Pay compensation – a lot of it.
  • Sine qua non – end the God-awful blockade.

Throughout the period of the Cuban revolution, 1959 to the present, Latin America has witnessed a terrible parade of human rights violations – systematic, routine torture; legions of “disappeared” people; government-supported death squads picking off selected individuals; massacres en masse of peasants, students and other groups. The worst perpetrators of these acts during this period have been the military and associated paramilitary squads of El Salvador, Guatemala, Brazil, Argentina, Chile, Colombia, Peru, Mexico, Uruguay, Haiti and Honduras. However, not even Cuba’s worst enemies have made serious charges against the Havana government for any of such violations; and if one further considers education and health care, “both of which,” said President Bill Clinton, “work better [in Cuba] than most other countries” , and both of which are guaranteed by the United Nations “Universal Declaration of Human Rights” and the “European Convention for the Protection of Human Rights and Fundamental Freedoms”, then it would appear that during the more-than-half century of its revolution, Cuba has enjoyed one of the very best human-rights records in all of Latin America.

But never good enough for American leaders to ever touch upon in any way; the Bill Clinton quote being a rare exception indeed. It’s a tough decision to normalize relations with a country whose police force murders its own innocent civilians on almost a daily basis. But Cuba needs to do it. Maybe they can civilize the Americans a bit, or at least remind them that for more than a century they have been the leading torturers of the world.

 

[by William Blum, writing for David Stockman’s Contra Corner]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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Financial time bombs hiding in plain sight…

“The Fed is operating a giant monetary sump pump for no rational purpose whatsoever, and it’s based on pure financial fraud to boot.”

 

Monetary central planners are pushing on a credit string to no effect except to further drastically deform and destabilize a financial system that is already on the verge of implosion.

 

The bear will soon be arriving in earnest, marauding through the canyons of Wall Street while red in tooth and claw. Our monetary central planners, of course, will once again—for the third time this century——be utterly shocked and unprepared. That’s because they have spent the better part of two decades deforming, distorting, denuding and destroying what were once serviceably free financial markets. Yet they remain as clueless as ever about the financial time bombs this inexorably fosters.

The sum and substance of Keynesian central banking is the falsification of financial prices. In essence, this means pegging interest rates below market clearing levels on the theory that more borrowing and spending will thereby ensue.

To this traditional credit channel of monetary policy transmission has been added in recent years the notion of an FX channel, which works through currency depreciation and export stimulus; and the wealth effects channel, which seeks to levitate the paper wealth of the top 10% of households so that they will feel emboldened to spend more at luxury retail emporiums, BMW showrooms and upscale vacation spots.

Needless to say, currency trashing might work for a tiny export economy like New Zealand. But on a global scale among the big national economies, it’s just a recipe for a race to the bottom. Ultimately it leads to nothing more than the inflation of imported commodities and goods and the reallocation of income and wealth from domestic industries and households to exporters and their shareholders.  Japan proves that in spades.

With respect to the false FX channel, even Black Rock’s chief big thinker, Peter Fisher, hit the nail on the head last week on Bloomberg:

“But let’s be clear, negative rates for the FX rate is about a race to the bottom of competitive devaluation,” he asserted. “The International Monetary Fund was established to try to prevent us from doing that again, what we did in the 1920s and ’30s that were such a disaster.”

It is a measure of the political euthanasia induced into American politics by 20 years of central bank dominance that the so-called wealth effects channel is even taken seriously. It amounts to a massive fiscal transfer and trickle-up to the most affluent 10% of US households who own 85% of financial assets.

Moreover, this odious reverse Robin Hood feat is effected by 12 unelected apparatchiks who sit on the FOMC. From their august perches, they perform live monetary experiments on the American public with no accountability whatsoever.

That these depredations are fostering a hideously unjust redistribution of wealth from main street to a tiny elite of money shufflers, gamblers and silicon valley bubble-riders is attested to by the rise of Bernie Sanders, and Donald Trump, too. Besides stoking xenophobia and racial prejudice, The Donald is heading toward the GOP nomination because, ironically, he is self-funded and can loudly and honestly boast that he is not beholden to the Fat Cats who rule the country.

Besides the rank injustice, there is also the sheer stupidity of it. Implicit in the whole misbegotten wealth effects doctrine is the spurious presumption that the Wall Street gambling apparatus can be rented for a spell by the central bank. So doing, our monetary central planners believe themselves to be unleashing a virtuous circle of increased spending, income and output, and then more rounds of the same.

At length, according to these pettifoggers, production, income and profits catch-up with the levitated prices of financial assets. Accordingly, there are no bubbles; and, instead, societal wealth continues to rise happily ever after.

Not exactly. Central bank stimulated financial asset bubbles crash. Every time.

The Fed and other practitioners of wealth effects policy do not rent the gambling apparatus of the financial markets. They become hostage to it, and eventually become loathe to curtail it for fear of an open-ended hissy fit in the casino. Bernanke found that out in the spring of 2013, and Yellen three times now——in October 2014, August 2015 and January-February 2016.

But unlike the last two bubble cycles, where our monetary central planners did manage to ratchet the money market rate back up to the 6% and 5% range, by 2000 and 2007, respectively, this time an even more obtuse posse of Keynesian true believers rode the zero bound right to the end of capitalism’s natural recovery cycle.

Accordingly, the casinos are populated with financial time bombs like never before. Worse still, the central bankers are now so utterly lost and confused that they are all thronging toward the one thing that will ignite these time bombs in a fiery denouement.

That is, negative interest rates. This travesty reflects sheer irrational desperation among central bankers and their fellow travelers, and will soon illicit a fire storm of political revolt, currency hoarding and revulsion among even the gamblers inside the casino.

Besides that, they are crushing bank net interest margins, thereby imperiling the solvency of the very banking system that the central banks claim to have rescued and fixed.

We will treat with some of the time bombs set to explode in the sections below, but first it needs to be emphasized that the third bubble collapse of this century is imminent. That’s because both the global and domestic economy is cooling rapidly, meaning that recession is just around the corner.

Based on the common sense proposition that the nation’s 16 million employers send payroll tax withholding monies to the IRS based on actual labor hours utilized—-and without any regard for phantom jobs embedded in such BLS fantasies as birth/death adjustments and seasonal adjustments——my colleague Lee Adler reports that inflation-adjusted collections have dropped by 7-8% from prior year in the most recent four-week rolling average.

Federal Withholding Tax Trend - Click to enlarge

As Lee noted in his Wall Street Examiner:

The annual rate of change in withholding taxes for collections through Thursday, February 18, approached a level which signals not just recession but is within a couple of percent of indicating a full fledged economic depression. As of February 18, 2016, the annual rate of change was -5.6% in nominal terms versus the corresponding period a year ago. That’s down from -3.7% a week before, +0.6% a month before, +5.8% three months ago, and down from a peak of +8.7% in early February 2015…….Adjusted for the nominal growth rate of employee compensation, the implied annual real rate of change is now roughly –7.5 to -8% year over year.

So there will be carnage in the casino when it becomes evident that recession has again visited this fair land, but that the Fed is utterly out of dry powder. There is not a chance in the world that NIRP will work or even be permitted by what will be the suddenly awaked politicians of Washington.

Even Peter Fisher admitted that NIRP signals the end of the road for Keynesian central bankers:

Fisher believes that central bankers’ growing penchant for negative policy rates stems from a desire to avoid admitting that they’ve expended all of their monetary ammunition.

Yet what immense societal damage these fanatics have done charging mindlessly toward this dead end. In fact, our monetary central planners have become so self-deluded and drunk with power that they now dispense sheer nonsense with complete alacrity. Thus, the Fed’s actual printing press operator, Simon Potter of the New York Fed, relieved himself of the following tommyrot in a speech today at Columbia University:

The Fed used to use a scarcity of bank reserves to set monetary policy but has had to adopt new tools for raising rates with a balance sheet of $4.5 trillion.

“We have achieved excellent control over the effective federal funds rate, and we have done so while avoiding unintended effects on the financial system or financial stability,” Potter said.

Is this man kidding? There is no Federal funds market worthy of the name. The Fed’s massive bond purchasing program and the monumental excess reserves it generated obviated and destroyed the fed funds market long ago; and at a miniscule $45 billion, the residue of a market which trades virtually by appointment now amounts to just 0.3% of the footings of the US banking system.

Well, here are the Fed’s “new tools”. What they achieve is not a financial price or interest rate; what they produce is a purely counterfeit rate issuing from what amounts to a monetary circle jerk.

To wit, the Fed raised the cap on its domestic reverse repo bid from $300 billion to $2 trillion and set the yield at 25 basis points. On top of that, it has raised the foreign bank repo pool to $250 billion, where its now paying approximately 33 basis points. Finally, the interest rate it pays member banks with excess reserves (IOER) of approximately $2.5 trillion has been raised to 50 basis points.

Just call the combination of these three facilities the mother of all Big Fat Bids. And throw in the fact that the US treasury is now also flooding the market with T-bills. Under those conditions, how could it be otherwise than that money market rates, including federal funds, would settle in the FOMC’s 25-50 basis point target range?

So what? The Fed is operating a giant monetary sump pump for no rational purpose whatsoever, and it’s based on a pure financial fraud to boot.

On the former point, there is not a single rational business in America that would actually wish to fund its working capital or any other assets on an overnight tender. That’s why even floating rate revolvers have terms of a year or longer and contractual guarantees of availability if covenants are complied with.

The only beneficiaries of overnight money at 38 bps are Wall Street carry trade gamblers, and they would be just as grateful for an announced peg at 12 bps or 100 bps or even 250 bps. The only thing they really care about is short-run certainty about the cost of carrying their gambling chips—-something the Fed’s peg unfailingly provides. From the perspective of the main street economy, however, the whole federal funds targeting gambit is a thoroughly pointless farce.

So, yes, the Keynesian fools in the Eccles Building are mounting what amounts to a $6 trillion bid in order to peg with great precision a money market rate that is of absolutely no moment to the main street economy. That’s because the US household and business sectors are already at Peak Debt. Consequently, the old Keynesian credit channel of monetary policy transmission is over and done. The monetary central planners, therefore, are pushing on a credit string to no effect except to further drastically deform and destabilize a financial system that is already on the verge of implosion.

But what makes the world so dangerous is that they are doing it with a fraudulent Rube Goldberg Contraption that establishes beyond a shadow of doubt that the FOMC is lost in a monetary puzzle palace, and is capable of virtually any kind of desperate gambit. After all, just recall where this Big Fat Bid of $6 trillion equivalent comes from.

The $2 trillion overnight reverse repo facility essentially means that the Fed is hocking a part of its massive $4.5 trillion trove of treasury bonds and mortgage-backed securities to borrow cash that it doesn’t need. And, yes, this repo collateral was previously purchased with fiat credits that it had conjured from thin air and deposited into the bank accounts of Wall Street dealers who sold these securities to the Fed’s Open Markets desk via QE.

Then again, the banking system in aggregate didn’t have an immediate need for the new reserves injected via QE so they accumulated at the New York Fed, rising from a level just $40 billion in August 2008 to $2.5 trillion at present. Now, stacked as they are in towering digital piles at 33 Liberty Street, the second component of the Feds “new tools” keeps these previously inconceivable quantities of excess reserves happily sequestered. That is, they are bribed to stay put by 50 bps of IOER payments.

There shouldn’t be any confusion here. The Fed is gratuitously subsidizing its member banks to the tune of $13 billion annually for no rational purpose whatsoever except to keep these funds from leaking into the money market and quashing its pointless fed funds target.

And the same goes for the 33 bps being earned by offshore banks which have deposited $250 billion of excess cash in the NY Fed’s foreign repo pool. Surely Deutsche Bank, Barclays, BNP Paribas and the assorted other dinosaurs of European socialism are grateful for a better return on their idle cash than the negative yield on offer from their own NIRPing central bank in Frankfurt.

Yet does this goofball Simon Potter really think that this rank outrage is a measure of the Fed’s “excellent control” over its money market targets?

And that ain’t the half of it. All the bribes being paid through these three different channels in order to peg a completely pointless target for the non-existent fed funds market reduces the Feds annual “profit”.  And if the notion of profit, which lies at the very heartbeat of capitalism, ever needed to be qualified in quotation marks, this is the case.

The Fed earns revenue of approximately $120 billion per year from the $4.5 trillion trove of assets that it paid for with fictional credit rather than the proceeds of work, production and real economic value added. From that intake, it consumes $5-6 billion on its 22,000 staffers and army of contractors and consultants, many of whom otherwise pretend to teach “economics” in the nation’s colleges and universities. It now also spends upwards of $15 billion or so to pay the IOER and interest on its reverse repo borrowings and foreign bank depositors, resulting in net “profits” of about $100 billion.

This abortion of the very concept of profit is then recycled back to the US treasury as a giant bribe to keep the politicians at both ends of Pennsylvania Avenue pacified and out of its hair. Worse still, the Fed’s remanded profits are booked as an offset to the interest cost on the nation’s staggering $19 trillion of public debt, thereby enabling the politicians to believe there is a fiscal free lunch after all.

Unfortunately, all of this fraudulent monetary shuffling has a terrible consequence in the financial casinos here and aboard. It drives interest rates to sub-economic levels and triggers a massive hunt for yield among the world’s money managers and home gamers alike.

Today Bloomberg published a telling study of the baleful consequence this central bank fostered hunt for yield has had on the world’s energy and mining industries. To wit, it has enabled companies in what are highly cyclical, risky and volatile commodity industries to borrow heretofore inconceivable amounts of money, and plow it into massive malinvestments and excess capacity.

The bottom line is simple. The great wave of commodity and industrial deflation now sweeping through the world economy is the bastard offspring of the debt binge that was enabled by the central banks over the last two decades. Yet they now pretend that this massive headwind to growth originated in some exogenous force that must be counted with even more of the same monetary intrusion.

That’s how we get to the crime of NIRP. Keynesian central banks cannot imagine a problem for which more debt is not the solution. But is it not lack of “aggregate demand” which is idling an increasing share of the world’s oilfield drilling equipment; nor did it cause Caterpillar’s heavy mining machinery sales to plunge or the Baltic Dry index to plummet to 30-year lows.

What is driving output, wages and profits drastically southward throughout the materials and energy complex is drastically sinking profits and a desperate need to conserve cash flow in order to survive. The CapEx budget of global mining giant BHP is a proxy for what is becoming a global CapEx depression in the world’s industrial economy.

To wit, at the peak of the global credit boom and China/EM growth frenzy a few years ago, BHP’s capital budget was about $23 billion. This year, by contrast, it is expected to come in at just $7 billion and plunge further to only $5 billion in 2017.

Needless to say, it does not take much imagination to envision how a 78% cut in capital spending by a giant user of heavy machinery and engineered infrastructure like rail lines and port facilities will cascade down the supply chain. And since the top executives who ran these operations right over the credit bubble cliff are being fired right and left, another thing is quite certain.

That is, there are no takers for incremental debt at any price, NIRP or otherwise, in the global mining and energy industries. Epic damage has already been done, and the overhang of excess capacity and malinvestment will linger for years to come. Even then, hundreds of billions of the debt which funded this massive and mindless investment spree will be restructured or written off entirely, as is already emerging in the US shale patch.

These kinds of financial time bombs are lurking everywhere in the global economy——even if the central bankers don’t see them coming.

 

[by David Stockman, writing for David Stockman’s Contra Corner]

 

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As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis
normal@usa1usa.com
612.239.0970

 

 

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