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“NSA Tapped The Pope”, Spied On Vatican To Prevent “Threats To Financial System” | Zero Hedge

“NSA Tapped The Pope”, Spied On Vatican To Prevent “Threats To Financial System” | Zero Hedge. (source)

In the latest blow, and a new low, for the US spying agency, earlier today Italian magazine Panorama blasted a preview of an article due for publication tomorrow, with the simple premise: “NSA had tapped the pope.” According to a Reuters report, the “spy agency had eavesdropped on Vatican phone calls, possibly including when former Pope Benedict’s successor was under discussion, but the Holy See said it had no knowledge of any such activity. Panorama magazine said that among 46 million phone calls followed by the U.S. National Security Agency (NSA) in Italy from December 10, 2012, to January 8, 2013, were conversations in and out of the Vatican.” But while it is unclear just what divine information the NSA had hoped to uncover by spying on the Vatican, what is an absolute headbanger, is that according to Panorama one of the reasons for the illegal wiretaps was to be abreast of “threats to the financial system.” We can only assume this means keeping on top of Goldman’s activities around the globe: after all, when one intercepts god’s phone calls, one is mostly interested what the bank that does god’s will is doing.

From Reuters:

Asked to comment on the report, Vatican spokesman Father Federico Lombardi said: “We are not aware of anything on this issue and in any case we have no concerns about it.”

Media reports based on revelations from Edward Snowden, the fugitive former U.S. intelligence operative granted asylum in Russia, have said the NSA had spied on French citizens over the same period in December in January.

Panorama said the recorded Vatican phone calls were catalogued by the NSA in four categories – leadership intentions, threats to the financial system, foreign policy objectives and human rights.

Benedict resigned on February 28 this year and his successor, Pope Francis, was elected on March 13.

“It is feared” that calls were listened to up until the start of the conclave that elected Francis, the former Cardinal Jorge Mario Bergoglio of Argentina, Panorama said.

The magazine said there was also a suspicion that the Rome residence where some cardinals lived before the conclave, including the future pope, was monitored.

Cue another US ambassador being summoned by an “ally” country, more questions about just what US taxpayer funds are being spent on, more public indignation, and even more bad will (if that is even possible) toward the great, globalist US superstate that is no longer accountable to anyone but itself and a few select oligarchs.

 

Police fire tear gas at Cairo student protest – Middle East – Al Jazeera English

Police fire tear gas at Cairo student protest – Middle East – Al Jazeera English. (source)

Students at al-Azhar have been demonstrating in support of Morsi for weeks [AFP]
Egyptian police fired teargas at students protesting at Cairo’s al-Azhar university hours after authorities announced the detention of Muslim Brotherhood leader Essam El-Erian, part of a crackdown against the Islamist movement

Students at the country’s top institution for Islamic teachings have been demonstrating for weeks in support of ousted President Mohamed Morsi, who the army toppled in July after mass protests against his rule.

At al-Azhar’s main campus, students smashed windows, hurled chairs and covered the walls of an administrative building with graffiti.

“Sisi is a dog. Down, down with the lord of the army,” one protester scribbled, refering to army chief General Abdel Fattah al-Sisi, who led the overthrow of Morsi.

One police officer yelled: “Arrest anyone you see. Bring me those kids. If you see anyone just arrest them right away.”

Mustafa el-Agrawi, al-Azhar’s legal adviser, told the ONTV private channel that the students besieged the administrative building, locking up the university chief and several other administrators.

Ahmed Hosni, deputy head of al-Azhar, said the students stormed the offices, trashed documents and computers to “sabotage and destroy the university”. The head of al-Azhar university had called on the police to enter campus grounds to “protect souls and properties”, according to an interior ministry statement.

Senior Muslim Brotherhood figure Essam al-Erian was arrested on Wednesday. [AFP /HO/EGYPTIAN INTERIOR MINISTRY]

Erian arrest

Erian, the deputy leader of the Brotherhood’s Freedom and Justice party, was taken into custody early on Wednesday from a residence in New Cairo where he had been in hiding.

“He’s been arrested and details will soon be released,” an Interior Ministry source told Reuters news agency.

Local media circulated a photo of what they described as the moment he was arrested, showing a smiling Erian standing next to a bed with two packed duffle bags.

Many Brotherhood leaders have been detained since the army deposed Morsi, Egypt’s first freely elected president, and declared a road map leading to elections.

 

Celebrities, Whistleblowers, Politicians Release Anti-NSA Ad For Rally Against Surveillance | Occupy.com

Celebrities, Whistleblowers, Politicians Release Anti-NSA Ad For Rally Against Surveillance | Occupy.com. (source/link)

The NSA is spying on our personal communications. It’s operating without any meaningful oversight. On October 26, the 12th anniversary of the signing of the USA Patriot Act, we’re holding the largest rally yet against NSA surveillance.

We’ll be handing more than a half-million petitions to Congress to remind them that they work for us — and we won’t tolerate mass surveillance any longer.

A stellar group of whistleblowers, activists, researchers and others from both sides of the political spectrum will be speaking at this historic event. The list includes:

  • Congressman Justin Amash
  • Former senior NSA executive and whistleblower Thomas Drake
  • Social critic Naomi Wolf
  • Jona Bechtolt, from electro-punk band YACHT
  • Claire L. Evans, also from YACHT
  • Lt. Dan Choi, LGBT advocate and U.S. veteran
  • Rainey Reitman, EFF
  • Bruce Schneier, internationally renowned security technologist
  • Craig Aaron, Free Press
  • Kymone Freeman, Director of the National Black LUV Fest
  • Former New Mexico Governor Gary Johnson
  • Khalilah Barnes, EPIC
  • Shahid Buttar, Bill of Rights Defense Committee
  • Malachi Byrd, D.C. Youth Poetry Slam Team
  • Wafa Ben Hassine, writer and human rights advocate
  • Former Congressman Dennis Kucinich
  • Laura Murphy, ACLU
  • NOT4PROPHET, Hip Hop MC and community organizer
  • Black Alley, D.C.-based soul-garage band

Location: Marchers will gather in front of Union Station at 11:30 a.m. by the Christopher Columbus Memorial Fountain in Columbus Circle. Shortly after noon we’ll march to the National Mall at 3rd Street and Madison Dr. NW, in front of the Capitol Reflecting Pool, where there will be a stage set up for our rally speakers, musicians, and performers.

Read more.

StopWatching.us is a coalition of more than 100 public advocacy organizations and companies from across the political spectrum. We came together in June 2013 to demand the U.S. Congress investigate the full extent of the NSA’s spying programs. Go here to read our letter to U.S. Congress demanding accountability and reform.

Originally published by Stop Watching Us

oliver stone

 

Food and Water First: The fight to protect prime farmland continues | Notes from the Panther Lounge | David Suzuki Foundation

Food and Water First: The fight to protect prime farmland continues | Notes from the Panther Lounge | David Suzuki Foundation. (source)

Photo: Food and Water First: The fight to protect prime farmland continues

A new grassroots movement is spreading across southern Ontario: Food and Water First (Credit:Jason van Bruggen)

By Ontario and Northern Canada Director-General Faisal Moola

Last fall the David Suzuki Foundation and our allies in the farming and local food movements defeated a mega-quarry proposed by the Highland Companies, that, if built, would have destroyed hundreds of acres of class 1 soil near Melancthon township, Ontario. Much of Canada’s most productive farmland has already been drained, dug up or paved over with urban sprawl and unsustainable aggregate pits, quarries and other development. The project would have been yet another outrage against this country’s rich agricultural heritage.

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The successful fight to stop the mega-quarry was inspired by tactics of the civil-rights movement and other grassroots campaigns — and people power eventually won the day. Local residents and allies held protests and rallies, wrote letters to politicians, gathered thousands of signatures, created land-inspired art, and participated in hundreds of other activities to raise awareness and put pressure on Highland Companies. The campaign benefited from support from some of Canada’s top musicians, artists, writers and actors, including Barenaked Ladies, Sarah Harmer and Rachel McAdams, and culminated in Soupstock, a giant community picnic/culinary protest that brought 40,000 people together in Toronto’s Woodbine Park.

Though the mega-quarry proposal was withdrawn, our precious farmland is still at risk of being destroyed. Currently, nothing prevents another similar project from going forward. So a new grassroots movement is spreading across southern Ontario: Food and Water First. Its goal is to ensure stronger government policies and laws to protect prime agricultural land and source drinking water areas from development.

The Food and Water First coalition, which includes the David Suzuki Foundation as well as farming organizations, local businesses and other NGOs, has already managed to get nearly a dozen communities — from small townships such as Melancthon to giant cities like Toronto — to pass council resolutions recognizing the importance of farmland and committing to protect it.

Recently, Food and Water First again joined with the Canadian actor Rachel McAdams, indie band Whitehorse and film maker Jason van Bruggen to produce an inspiring short video about the need to place our most precious assets — food and water — ahead of short-term economic gains brought about with their destruction.

Join the fight to save Ontario’s prime farmland by signing the Food and Water First pledge.

 

Trending Bad: What Environment Canada’s latest climate report says about Canada’s carbon pollution | Pembina Institute

Trending Bad: What Environment Canada’s latest climate report says about Canada’s carbon pollution | Pembina Institute. (source)

P.J. Partington — Oct. 29, 2013

Last week, Environment Canada released its annual Emissions Trends report, projecting the path of Canada’s climate-warming greenhouse gas emissions. This blog looks at what the report says and why it matters.

What is Emissions Trends and why is it important?

Canada’s Emissions Trends is an indispensible report from Environment Canada and a welcome example of government transparency. Carefully put together by a top-notch team of analysts, the report lays out Environment Canada’s best guess about the future path of Canada’s greenhouse gas emissions under current policy. It tells us where our emissions are headed in each sector and in each province, as well as nationally, and allows us to compare this to a hypothetical scenario in which no action was taken.

Credible, timely and publicly accessible emissions projections like this are essential to creating a shared basis for constructive policy discussions about energy and greenhouse gas emissions in Canada. Working from a common set of facts helps focus debates on the important stuff, like our country’s energy future, rather than on whose numbers are more credible.

Projections like this allow analysts to compare expected performance against the commitments Canada has made. The Harper government has promised to reduce the harmful emissions that are driving climate change — and if this is not happening we need to understand why.

What are the key findings of this year’s report?

The main message is very clear: Canada’s emissions are headed in the wrong direction. They are headed up, not down, and by the end of this decade are projected to be 20 per cent higher than the level to which Canada has committed. Last year’s report also warned of this yawning gap — a gap much bigger than the emissions from every power plant in the country, put together.

And this year’s edition shows that Ottawa has done nothing over the past year to change this trajectory: there is not a single new policy on the list of federal initiatives to reduce emissions in Canada. So it’s little surprise that the country is no closer to reaching its emissions target. In fact, the gap between where we are headed and where we should be headed has grown slightly in the past year.

The central conclusion of this year’s report is inescapable: without a serious ramp up of effort from our government, Canada is headed for another major broken promise on climate change. This is bad news for a lot of reasons, not least for our credibility.

We share the same emissions reduction commitment as the United States. Thanks to the climate policies President Obama has put in place, and the additional ones he has committed to adopting, U.S. government projections can now assert that they are on track to meet their target. We cannot. Each day that Canada lacks a credible plan to meet our commitments, our claims to climate leadership and responsible resource development ring increasingly hollow.

Projected GHG emissions for Canada and the United States

 

Projected GHG emissions for Canada and the United StatesSolid lines show projected GHG emissions in Canada and the U.S. under current policy, relative to the 2005 level. The shaded blue area reflects projected U.S. emissions with implementation of the President’s Climate Action Plan. Excludes land-use, land-use change and forestry (LULUCF) emissions. Data from U.S. Department of State and Environment Canada. Click to enlarge.

What can we do?

When jurisdictions take strong action to curtail emissions they get results.

The best example arguably comes from Ontario. Between 2005 and 2020, emissions from electricity in Canada are projected to fall by 39 million tonnes, the biggest decrease in any of Canada’s sectors. A lot of the credit for that decrease in emissions is due to provincial action like Ontario’s coal phase-out, which the province accompanied with support for clean energy and conservation.

Provinces like B.C., Ontario, Quebec and Nova Scotia are mustering significant effort to cut emissions and have seen their per-capita pollution fall. The emissions curve is also bending down in the transportation sector, where federal efficiency standards are expected to improve the fuel economy of new cars and trucks.

Projected change in GHG emissions by province, 2005-2020

 

Projected change in GHG emissions by province, 2005-2020.Shows projected absolute change in provincial GHGs under current policy. Canada’s 2020 target is 125 Mt below the 2005 level. Excludes land-use, land-use change and forestry (LULUCF) emissions. Data from Environment Canada. Click to enlarge.

So policies previously put in place by governments at both the provincial and federal level is making an impact. Emissions Trends estimates that Canada’s emissions are 128 Mt lower now than they would be if the provinces and Ottawa hadn’t taken any action to date. That’s nothing to sneeze at.

But it’s also just a start. Despite these past actions, Canada’s emissions are still projected to increase over the remainder of this decade. Closing the gap to Canada’s 2020 target is still going to be a huge job, one that will require far stronger action from Ottawa and the provinces than we’ve seen to date, particularly over the last year.

Sectors that have not yet been regulated need to be addressed quickly. The oil and gas sector — a rapidly growing emissions source that accounts for nearly a quarter of Canada’s carbon pollution — still has no federal greenhouse gas constraints of any kind. Without new rules, oilsands emissions are projected to triple between 2005 and 2020, in the process wiping out all the reductions that all other sectors in the country are projected to make. By the end of the decade, oilsands emissions are expected to emit more greenhouse gas pollution than any province, save Ontario and Alberta.

This rapid and uncontrolled growth in future oilsands emissions is the biggest barrier to getting Canada’s emissions on a downward track.

Projected change in GHG emissions by sector, 2005-2020

 

 Projected change in GHG emissions by sector, 2005-2020.Shows projected absolute change in GHGs by economic sector under current policy. Canada’s 2020 target is 125 Mt below the 2005 level. Excludes land-use, land-use change and forestry (LULUCF) emissions. Environment Canada’s preliminary estimates project new international accounting rules will allow Canada to claim a reduction of 28 Mt from the LULUCF sector in 2020. Data from Environment Canada. Click to enlarge.

Unfortunately, the federal government is currently not considering an economy-wide price on carbon, which would be a huge boost to climate action across Canada and a valuable complement to the rules they have enacted. But there’s no reason at all why they couldn’t be doing much more to develop strong sectoral regulations, reinvesting in smart programs to boost clean energy and energy efficiency, and working with provinces and municipalities on important priorities for sustainable transportation.

This year’s Emissions Trends paints a disappointing picture. But Canada’s government has the power to change it with ambitious and effective policy.

 

US spy chiefs defend targeting EU allies – Americas – Al Jazeera English

US spy chiefs defend targeting EU allies – Americas – Al Jazeera English. (source/link)

The United States’ espionage chiefs have said spying on allies is necessary and the collection of millions of European phone records was conducted with the help of European governments.

The US national intelligence director, James Clapper, told members of the House of Representatives’ intelligence committee on Tuesday that spying on allies was “a hardy perennial” and a “basic tenet” of intelligence work.

“It’s invaluable to us to know where countries are coming from, what their policies are, how that would impact us across a whole range of issues,” Clapper said. Asked if US allies had conducted the same type of espionage against US leaders, Clapper responded: “Absolutely.”

The director of the National Security Agency, Keith Alexander, meanwhile told the panel that the “metadata” from phone records of millions European citizens were swept up by NATO and not his organisation.

Over the last week, media reports have said that the NSA collected tens of millions of European phone records, and spied on political leaders, such as Chancellor Angela Merkel of Germany.

Asked about collection of foreign phone records, Alexander said that the US was given data by NATO partners as part of a programme to protect military interests.

Both spy chiefs said that the reports from France, Spain and Germany were inaccurate.

Spying review

Their evidence was given after President Barack Obama called for a review of NSA spying, and several senior politicians lined up to condemn the NSA’s reach.

In rare agreement, Senate Majority Leader Harry Reid, a Democrat, and House Speaker John Boehner, a Republican, both said Tuesday that it was time for a thorough review of NSA programmes.

Senator Dianne Feinstein, who leads the upper house’s intelligence committee, called for a “total review of all intelligence programmes” following the Merkel allegations. She said that her panel has not been fully advised of NSA activities in programmes in operation for almost a decade.

Several longtime allies have joined Germany in expressing their displeasure about spying on their leaders.

Spain’s prosecutor’s office has opened an inquiry to determine whether a crime was committed by NSA surveillance of its citizens.

The French president, Francois Hollande, said the US should not be eavesdropping on its allies.

 

There’s a Monetary Firestorm Coming | Capitalist Exploits – Frontier Markets Investing, Private Equity and IPO’s

There’s a Monetary Firestorm Coming | Capitalist Exploits – Frontier Markets Investing, Private Equity and IPO’s. (source)

By: Chris Tell

I’ve never been trapped in a fire before and trust me, I have had plenty of opportunity. Yes, I was THAT kid, the one who played with fire. The trick was, and still is to steer clear of the flames, to anticipate what and where. Fire is however notorious for doing what it wants and once its out of control even the best firefighters don’t stand a chance.

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Each day that passes we come closer to the arrival of a monetary fire that threatens to dwarf anything in our collective living memories. Watching the Australian bush fires in New South Wales recently made me think of our monetary system. Funny that.

The Australian bush has been burning long before the Brits began exporting their best and brightest to the “lucky country.” Right now the fires are raging. It was inevitable. Like the business cycle nature too abhors excess and steps in to correct it, clear the dead wood and prepare for rebirth.

What is often forgotten is that nature has evolved to rely on bush-fires as a means of reproduction and new “birth.” Fires are an integral part of the ecology of the planet’s surface. Humans can try and prevent these inevitable fires by “controlled burnings”, clearing out much of the dead underbrush, but it’s not foolproof.

The fires now raging in New South Whales are in part due to an extensive build up of dry brush which is likely overdue a good burning. The longer the dry bush remains unburned, and the more that accumulates the greater the risk of an inevitable fire. The result will be much greater than that which would have preceded it should a fire have taken place sooner. This is a basic, easy to understand law of nature.

Financial markets are NO different. The dry brush of excessive credit, monetary stimulus, rampant fraud, and government interference, which has caused the largest sovereign bond bubble the world has ever seen, has not been cleared or burned to allow for regeneration. In contrast we’ve actually been ADDING to it, doing the exact opposite of the “controlled burn.”

The market, like nature, has attempted to correct these excesses many times, only to be met with central bankers fire hoses spraying liquidity at ever increasing volumes and velocity. As the outbreaks of financial fires increase so too do the tools and technologies used by the central bankers. This postponement of the inevitable leads to massive mis-allocation of capital.

monetary bsae

That’s a lot of dead wood buildup there.

The above graph shows all the dead wood build-up. Quite a bonfire awaits us.

It is possible that the fires will continue to be contained, central bankers promise that this is indeed the case. We DO know however that it is not possible to contain it forever. This time is not different…or is it?

Let’s compare what’s different this time around in Australia and the world’s monetary system?

  • The bush fires have invaded the suburbs. So too have the monetary bush fires directly impacted most western “suburbs”.
  • The “tools” available to the firefighters are more advanced than at any time in human history. The tools that are at the disposal of central bankers are more “advanced” than at any time in human history.

What’s happening in New South Wales right now provides us with an instruction manual for how to proceed forward in a world of monetary madness. We need to BURN THE UNDERBRUSH. Simply hoping that the fires will fail to erupt simply defies history and mathematics. “Hope and Change” be damned.

1240349_159742077566989_882981684_n
The likely outcome is that we’re heading deep into asset confiscation mode. Government meddling will fail, it always has and it always will. The playbook from throughout history tells us that governments will steal anything and everything from the most productive before they default.

This happens either overtly (taxation, fines, penalties, asset seizure) or covertly via destruction of currencies (quantitative easing). Everything not nailed down is up for grabs. Don’t say you weren’t warned! If you need an example look at what’s happening in France. Hollande is insane, but he’s not unique.

As such, aside from structuring myself in order to protect what I have, which I hope I’ve done, ensuring that what I invest in going forward is structured properly is just as important. It makes no sense to invest intelligently only to have some thug steal the proceeds because I failed to set myself up to deal with the inevitability just mentioned.

So, how are Mark and I choosing to allocate our capital:

  • Investing in private equity. We like businesses where we can get to know and deal directly with CEO’s and management, and where we are not at the whim of black box trading systems, plunge protection teams and assorted other “firefighters”. This is by far our most overweighted asset class. If you want to know more about how we do this, drop us a line.
  • Trading the volatility created by these madmen. Our friend and colleague Brad Thomas, the new editor of our Trade Alert service, “The Capex Options Alert” is our guru in this area. You can get to know Brad a bit and sign up for this complimentary service for a limited timeHERE.
  • Continuing to buy and store physical precious metals. This just seems a long-term no-brainer.
  • Investing in agriculture. A guy’s gotta eat, right!
  • Select real estate. Maybe some premium scorched earth in New South Wales, Australia. After all, the risk of a devastating fire is now significantly reduced! But seriously, a nice piece of land where you can escape the madness and “grow your own” if need be.

The above is neither a recommendation nor an endorsement of any particular asset class or strategy. Obviously everyone’s situation is different, and we don’t know yours. Some could probably do just fine with a couple hunting rifles, some ammo and a nice piece of land to grow food and run a few livestock. Albeit that’s not going to work for urban dwellers.

The bottom line is that we are just encouraging you to consider how to prepare for a monetary firestorm. Do it your own way, use common sense, but just don’t be the dupe who ignores the obvious.

– Chris

“So just as I want pilots on the planes that I fly, when it comes to monetary policy, I want to think that there is someone with sound judgement at the controls.” – Martin Feldstein

 

Angry Harper lashes back over Senate scandal questions – Politics – CBC News

Angry Harper lashes back over Senate scandal questions – Politics – CBC News. (source)

Growing visibly more angry with every allegation coming from a senator that he appointed, Prime Minister Stephen Harper said during question period on Tuesday that Mike Duffy has shown no remorse for claiming ineligible expenses and should be removed from the Senate.

Harper’s remarks came a day after the former Conservative dropped a second bombshell, saying there was not one but two cheques cut to him by Harper’s former chief of staff.

Duffy told the Senate on Monday that Nigel Wright, Harper’s former chief of staff, arranged to have his legal fees paid by the Conservative Party — in addition to the $90,000 cheque Wright gave Duffy to repay his ineligible expenses.

“The reality is,” Harper said on Tuesday, “that Mr. Duffy still has not paid a cent back to the taxpayers of Canada. He should be paying that money back.”

‘On our side, there is one person responsible for this deception. That person is Mr. Wright.’— Prime Minister Stephen Harper

“The fact that he hasn’t, the fact that he shows absolutely no regret for his actions, and the fact that he has told untruths about his actions means that he should be removed from the public payroll,” Harper said.

The prime minister has maintained all along that he knew nothing about the $90,000 cheque that his right-hand man gave to Duffy.

On Tuesday, the prime minister took direct aim at his former chief of staff, telling the Commons, “On our side, there is one person responsible for this deception. That person is Mr. Wright.”

“It is Mr. Wright by his own admission. For that reason, Mr. Speaker, Mr. Wright no longer works for us. Mr. Duffy shouldn’t either,” Harper said.

NDL Leader Tom Mulcair in question periodNDP Leader Tom Mulcair once again peppered the prime minister with sharp questions over the Duffy-Wright affair, during question period on Tuesday, Oct. 29, 2013. (Adrian Wyld/The Canadian Press)

The prime minister did not, however, deny on Tuesday that the party cut Duffy a second cheque to cover his legal fees.

“That is a regular practice. The party regularly reimburses members of its caucus for valid legal expenses — as do other parties,” Harper said.

Duffy’s claim that he had paid back his ineligible expenses using his own funds was “the story of Mr. Duffy and Mr. Wright,” Harper said.

“Mr. Duffy should be removed from the Senate.”

NDP Leader Tom Mulcair continued to pepper the prime minister with sharp questions on Tuesday.

If Duffy’s expenses were “inappropriate,” as Harper said again Tuesday, why did the Conservative Party pay for the senator’s legal fees? Mulcair asked.

Harper did not directly answer the question, saying only that he has said “it was inappropriate all along.”

 

 

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John Taylor Explains Why Economic Failure Causes Political Polarization | Zero Hedge

John Taylor Explains Why Economic Failure Causes Political Polarization | Zero Hedge. (source)

Authored by John Taylor, originally posted at WSJ.com,

It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. I believe this gets the causality backward. Today’s governance failures are closely connected to economic policy changes, particularly those growing out of the 2008 financial crisis.

The crisis did not reflect some inherent defect of the market system that needed to be corrected, as many Americans have been led to believe. Rather it grew out of faulty government policies.

In the years leading up to the panic, mainly 2003-05, the Federal Reserve held interest rates excessively low compared with the monetary policy strategy of the 1980s and ’90s—a monetary strategy that had kept recessions mild. The Fed’s interest-rate policies exacerbated the housing boom and thus the ensuing bust. More generally, extremely low interest rates led individual and institutional investors to search for yield and to engage in excessive risk taking, as Geert Bekaert of Columbia University and his colleagues showed in a study published by the European Central Bank in July.

Meanwhile, regulators who were supposed to supervise large financial institutions, including Fannie Mae and Freddie Mac, allowed large deviations from existing safety and soundness rules. In particular,regulators permitted high leverage ratios and investments in risky, mortgage-backed securities that also fed the housing boom.

After the housing bubble burst the value of mortgage-backed securities plummeted, putting the solvency of the many banks and other financial institutions at risk. The government stepped in, but its ad hoc bailout policy was on balance destabilizing.

Whether or not it was appropriate for the Federal Reserve to bail out the creditors of Bear Stearns in March 2008, it was a mistake not to lay out a framework for future interventions. Instead, investors assumed that the creditors of Lehman Brothers also would be bailed out—and when they weren’t and Lehman declared bankruptcy in September, it was a big surprise, raising grave uncertainty about government policy going forward.

The government then passed the Troubled Asset Relief Program which was supposed to prop up banks by purchasing some of their problematic assets. The purchase plan was viewed as unworkable and financial markets continued to plummet—the Dow fell by 2,399 points in the first eight trading days of October—until the plan was radically changed into a capital injection program. Former Treasury Secretary Hank Paulson, appearing last month on CNBC on the fifth anniversary of the Lehman bankruptcy, argued that TARP saved us. Former Wells Fargo CEO Dick Kovacevich, appearing later on the same show, argued that TARP significantly worsened the crisis by creating even more uncertainty.

In any case, the crisis ended, but rather than simply winding down its short-term liquidity facilities the Fed continued to intervene through massive asset purchases—commonly called quantitative easing. Many outside and inside the Fed are unconvinced quantitative easing is meeting its objective of spurring economic growth. Yet there is a growing worry about the Fed’s ability to reduce its asset purchases without market disruption. Bond and mortgage markets were roiled earlier this year by Chairman Ben Bernanke’s mere hint that the Fed might unwind.

The crisis ushered in the 2009 fiscal stimulus package and other interventions such as cash for clunkers and subsidies for first-time home buyers, which have not led to a sustained recovery. Crucially, the actions taken during the immediate crisis set a precedent for giving the federal government more power to intervene and regulate, which has added to uncertainty.

The Dodd-Frank Act, meant to promote financial stability, has called for hundreds of new rules and regulations, many still unwritten. The law was supposed to protect taxpayers from bailouts. Three years later it remains unclear how large complex financial institutions operating in many different countries will be “resolved” in a crisis. Any fear in the markets about whether a troubled big bank can be handled through Dodd-Frank’s orderly resolution authority can easily drive the U.S. Treasury to resort to another large-scale bailout.

Regulations and interventions also increased in other industries, most significantly in health care. The mandates at the core of the Affordable Care Act represent an unprecedented degree of control by the federal government of the activities of businesses and individuals, adversely affecting incentives to hire and work and eventually worsening the federal-budget outlook.

Federal debt held by the public has increased to 73% of GDP this year from 41% in 2008—and according to the Congressional Budget Office, it will rise to more than 250% without a change in policy. This raises uncertainty about how the debt can be brought under control.

Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high. Rhetoric aside, many both inside and outside the government quite reasonably seek to return to the kinds of policies that worked well in the not-so-distant past. Claiming that one political party has been hijacked by extremists misses this key point, and prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects.

 

 

The adverse effects of monetary stimulation

The adverse effects of monetary stimulation. (source)

A number of people have asked me to expand on how the rapid expansion of money supply leads to an effect the opposite of that intended: a fall in economic activity. This effect starts early in the recovery phase of the credit cycle, and is particularly marked today because of the aggressive rate of monetary inflation. This article takes the reader through the events that lead to this inevitable outcome.

There are two indisputable economic facts to bear in mind. The first is that GDP is simply a money-total of economic transactions, and a central bank fosters an increase in GDP by making available more money and therefore bank credit to inflate this number. This is not the same as genuine economic progress, which is what consumers desire and entrepreneurs provide in an unfettered market with reliable money. The second fact is that newly issued money is not absorbed into an economy evenly: it has to be handed to someone first, like a bank or government department, who in turn passes it on to someone else through their dealings and so on, step by step until it is finally dispersed.

As new money enters the economy, it naturally drives up the prices of goods bought with it. This means that someone seeking to buy a similar product without the benefit of new money finds it is more expensive, or put more correctly the purchasing power of his wages and savings has fallen relative to that product. Therefore, the new money benefits those that first obtain it at the expense of everyone else. Obviously, if large amounts of new money are being mobilised by a central bank, as is the case today, the transfer of wealth from those who receive the money later to those who get it early will be correspondingly greater.

Now let’s look at today’s monetary environment in the United States. The wealth-transfer effect is not being adequately recorded, because official inflation statistics do not capture the real increase in consumer prices. The difference between official figures and a truer estimate of US inflation is illustrated by John Williams of Shadowstats.com, who estimates it to be 7% higher than the official rate at roughly 9%, using the government’s computation methodology prior to 1980. Simplistically and assuming no wage inflation, this approximates to the current rate of wealth transfer from the majority of people to those that first receive the new money from the central bank.

The Fed is busy financing most of the Government’s borrowing. The newly-issued money in Government’s hands is distributed widely, and maintains prices of most basic goods and services at a higher level than they would otherwise be. However, in providing this funding, the Fed creates excess reserves on its own balance sheet, and it is this money we are considering.

The reserves on the Fed’s balance sheet are actually deposits, the assets of commercial banks and other domestic and foreign depository institutions that use the Fed as a bank, in the same way the rest of us have bank deposits at a commercial bank. So even though these deposits are on the Fed’s balance sheet, they are the property of individual banks.

These banks are free to draw down on their deposits at the Fed, just as you and I can draw down our deposits. However, because US banks have been risk-averse and under regulatory pressure to improve their own financial position, they have tended to leave money on deposit at the Fed, rather than employ it for financial activities. There are signs this is changing.

Rather than earn a quarter of one per cent, some of this deposit money has been employed in financial speculation in derivative markets, or found its way into the stock market, gone into residential property, and some is now going into consumer loans for credit-worthy borrowers.

In addition to the government’s deficit spending, these channels represent ways in which money is entering the economy. Furthermore, anyone working in the main finance centres is being paid well, so prices in New York and London are driven higher than in other cities and in the country as a whole. They spend their bonuses on flashy cars and country houses, benefiting salesmen and property values in fashionable locations. And with stock prices close to their all-time highs, investors with portfolios everywhere feel financially better off, so they can increase their spending as well.

All the extra spending boosts GDP, and to some extent it has a snowball effect. Banks loosen their purse strings a little more, and spending increases further. But the number of people benefiting is only a small minority of the population. The rest, low-paid workers on fixed incomes, pensioners, people living on modest savings in cash at the bank, and part time employed as well as the unemployed find their cost of living has gone up. They all think prices have risen, and don’t understand that their earnings, pensions and savings have been reduced by monetary inflation: they are the ultimate victims of wealth transfer.

While luxury goods are in strong demand in London and New York, general merchants in the country find trading conditions tough. Higher prices are forcing most people to spend less, or to seek cheaper alternatives. Manufacturers of everyday goods have to find ways to reduce costs, including firing staff. After all if you transfer wealth from ordinary folk they will simply spend less and businesses will suffer.

So we have a paradox: growth in GDP remains positive; indeed artificially strong because of the under-recording of inflation, while in truth the economy is in a slump. The increase in GDP, which reflects the money being spent by the fortunate few before it is absorbed into general circulation, conceals a worse economic situation than before. The effect of an expansion of new money into an economy does not make the majority of people better off; instead it makes them worse off because of the wealth transfer effect. No wonder unemployment remains stubbornly high.

It is the commonest fallacy in economics today that monetary inflation stimulates activity. Instead, it benefits the few at the expense of the majority. The experience of all currency inflations is just that, and the worse the inflation the more the majority of the population is impoverished.

The problem for central banks is that the alternative to maintaining an increasing pace of monetary growth is to risk triggering a widespread debt crisis involving both over-indebted governments and also over-extended businesses and home-owners. This was why the concept of tapering, or putting a brake on the rate of money creation, destabilised worldwide markets and was rapidly abandoned. With undercapitalised banks already squeezed between bad debts and depositor liabilities, there is the potential for a cascade of financial failures. And while many central bankers could profit by reading and understanding this article, the truth is they are not appointed to face up to the reality that monetary inflation is economically destructive, and that escalating currency expansion taken to its logical conclusion means the currency itself will eventually become worthless.

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