Two months ago we reported that Obama had officially declared war on the weather, after it was reported that he was ready to use “administrative authority” to fight climate change. While at the time it was not quite clear just what authority he had to unleash centrally-planned weather, today we finally got a glimpse of how Obama’s biggest war yet would look like.
As Washington Times reports, “President Obama issued an executive order Friday directing a government-wide effort to boost preparation in states and local communities for the impact of global warming. The action orders federal agencies to work with states to build “resilience” against major storms and other weather extremes. For example, the president’s order directs that infrastructure projects like bridges and flood control take into consideration climate conditions of the future, which might require building structures larger or stronger — and likely at a higher price tag.”
In other words, following the epic Syrian fiasco, whose primary intention was to boost the US budget deficit as a result of a localized war, and allow Bernanke more debt issues to monetize, Obama now has decided to unleash a very expensive, and very much debt-funded war against the greatest enemy of all: the weather.
The article goes on:
“The impacts of climate change — including an increase in prolonged periods of excessively high temperatures, more heavy downpours, an increase in wildfires, more severe droughts, permafrost thawing, ocean acidification and sea-level rise — are already affecting communities, natural resources, ecosystems, economies and public health across the nation,” the presidential order said. “The federal government must build on recent progress and pursue new strategies to improve the nation’s preparedness and resilience.”
There’s no estimate of how much the additional planning will cost. Natural disasters including Superstorm Sandy cost the U.S. economy more than $100 billion in 2012, according to the administration.
Well, the more the merrier. Since interest costs in the New Normal are not an issue as long as the Marriner Eccles politburo is around, debt is wealth, and the more debt the US incurs to comply with Obama’s latest executive order, the better.
Sure enough, as a result of this idiotic development, it is best to have very lofty aspirations, of the variety that come in 9 or more digits: after all, since nobody can quantify “climate change” may as well unleash the most ridiculous numbers conceivable.
The White House is also setting up a task force of state and local leaders to offer advice to the federal government, with several Democratic governors having agreed to serve and at least one Republican governor, from the U.S. territory of Guam.
Mr. Obama has a goal of reducing U.S. greenhouse gas emissions by 17 percent by 2020, and the Environmental Protection Agency is working on rules that would impose tougher regulations on coal-burning power plants. But much of the president’s climate-change agenda has stalled in Congress, and the administration says the new order recognizes that global greenhouse gas emissions are still rising, making further damage from global warming inevitable.
But since when did an autocrat, whose only concern is pandering to his populist, Obamaphone-equipped electorate, while spying on the middle class and doing the bidding of Wall Street, care about the facts?
“The question is not whether we need to act,” Mr. Obama said at the time. “The question is whether we will have the courage to act before it’s too late.”
Damn right: however the “action in question has nothing to do with spending trillions to prepare for a crisis that may come long after the Federal Reserve has destroyed western civilization, but rather to overthrow a corrupt, oligarchic, self-serving system, in which the middle-class, once the backbone of a great nation, is being forced into extinction by its “elected” representatives through the most subversive form of wealth transfer in the Fed’s 100 years of existence.
By: Tom Chatham
The electrification of the nation and to a larger degree the technology now seen as a necessary part of American life, are the Achilles heel of life in this country today. From cooking to sanitation to transportation to communication, most Americans can no longer do even menial day to day tasks without some kind of electrically powered equipment. We have come to rely on technology more and more as a crutch rather than a lever.
We have been blessed as a society to have tools that can multiply our strengths while covering up our weaknesses. When technology fails on a monumental scale, those strengths disappear and our weaknesses are laid bare before us. When this happens we must cope with it one way or another. Society has become so fragile today that the coping mechanism of most people is a distant memory relegated to our forefathers who could convert a four legged creature into their next meal.
Coping is a matter of knowledge and equipment. The more of both that you have in a situation, the more coping ability you will have. Ever wonder why a soldier heading off to war is so cocky? Knowledge and equipment. If you have good equipment and know how to use it your confidence is through the roof when something happens. It gives you the sense of control you need to overcome obstacles. Of the two, knowledge is by far the most important item to have. You may not have any equipment but if you need to start a fire and know 10 ways to do it without matches, you will eventually find what you need to make it happen. Knowing what to look for is the key to overcoming that obstacle.
When the power disappears and you are left with a room full of electronic paperweights, you need to have the knowledge and equipment to move to the next level of sustainability to cope with the problem. On one end of the spectrum you have full service, full bore idiot proof electrification to do most of your thinking for you. On the other end of the spectrum you have the clothes on your back and the mush between your ears with the power of a small appliance bulb. Knowledge turns that small appliance bulb into a finely tuned laser capable of destroying any obstacle. With the proper knowledge and equipment you can maintain your sustainability near the upper end of the spectrum no matter how bad it gets.
There are different levels to preparing for loss of power. It can go from a temporary loss for a few hours to total loss of all electrical equipment for years. The greater the problem is the lower down the levels you will go making sustainability more challenging. The following levels will deal mainly with power concerns so only brief mention will be given to food, water, sanitation and security concerns. FEMA recommends that every home have a two week supply of food and water. That should be a minimum.
Level one – normal operations with full access to electrical devices and power
Level two- disruption of power systems for less than 24 hours
Level three- loss of power systems up to two weeks
Level four- loss of power systems for two weeks or longer
Level five- catastrophic destruction of power systems and some electrical devices
Level six- catastrophic destruction of power systems globally along with most or all electrical devices
Level one- All systems are functional and nothing out of the ordinary is experienced. All creature comforts are available and accessible.
Level two- Power disruptions are experienced for any of a number of reasons. The power outage will require some alternate systems to be employed to maintain normalcy. Refrigeration will cease so units should remain closed to prevent frozen foods from defrosting. Alternative power systems may include generators, power inverters or alternate energy systems to maintain limited power requirements although for this level no power is likely necessary given the short duration. This level is a survivable event even without preparations except for individuals that require medical devices for lifecare which must be addressed. As a minimum, flashlights, portable radios, candles and matches/lighters should be kept. Foods such as dry cereal, power bars and fresh produce will be sufficient to maintain most people until power returns. Bottled water, fruit juice and sodas will provide sufficient hydration under most circumstances until power returns. The security situation should be relatively normal in most cases.
Fire extinguisher 5 lb.
1st aid kit
Level Three- After the initial 24 hrs. power disruptions will start to have serious consequences for society. Refrigerated foods that are not eaten risk spoilage. People will begin to suffer from dehydration as water supplies disappear. After 72 hrs. the security situation will degrade sufficiently in urban areas to become a threat. At this level an alternative energy source is necessary to maintain living standards at acceptable levels. A generator can be utilized to maintain refrigeration and charge batteries. Generators only provide power when running and they use a lot of fuel when run continuously so to make the best use of small fuel supplies a generator should only be run a few hours in the morning and in the late afternoon to maintain refrigeration, charge batteries and cook food. The remainder of the time a power inverter/battery pack can provide limited power for CF lights and communications to keep informed. This system will provide you with power 24/7 while using the least amount of fuel which will likely be difficult to find. To conserve power, camping equipment can fill some needs such as propane for cooking and lighting. A pressure cooker can also reduce power usage by allowing some foods to be cooked much faster. Sanitation during this time will become more difficult. Urban systems will require a portable system to be used while independent septic systems will only require a supply of water to continue functioning. For apartment dwellers, a battery/inverter system recharged with a vehicle may be the most viable system for electrical power while using propane for cooking. A two week food and water supply would get you through this level.
All level two items plus
Fuel – 5 gal. to 50 gal. depending on duration
3,000w power inverter
Deep cycle batteries
HD Extension cords
Sanitation, town system – portable toilet and waste storage means. Water to bathe
Sanitation, septic system – water supply to flush and bathe, 5 gal./person/day
Heat source to cook – Camp stove, grill, hot plate
Propane – for stove/grill 1 lb. per day
Water storage – drinking/cooking/sanitation
Manual can opener
Pressure cooker 4 qt.
1st aid kit
Defense weapon and ammo
Level Four – If this level is reached it is assumed that food and water supplies are not being transported so it is no longer viable to stay in an urban area and relocation to a less populated area is likely necessary. Without power a sustainable situation will require resources and space that are only possible in suburban or rural areas. This level can last months or even years depending on the situation. Because the duration will not be known at the time, it must be assumed at this point that the situation will continue for some time and a sustainable system of power and supply must be utilized. Renewable energy systems and food production will be a core necessity of this level. Propane appliances would be beneficial especially for refrigeration.
All items in level three plus
Fuel Storage – 500 gal.
Propane – 400 lbs.+
Solar Panels – 1kw +
Additional deep cycle batteries
Wind turbine – 500w +
Wood gassifier system
Wood stove -Alternate source of heating/cooking
Tools – Chainsaw w/maintenance eq. & oil, ax, wood saw
Source of wood
Pressure cooker 21 qt.
Source of water / rain catchment system
Hunting weapon and ammo
Salt – 100 lbs +
Level Five – This situation will likely result from an EMP/CME of limited duration and scope. In this instance some devices may still work if power is available so alternate sustainable systems must be utilized. Destruction of major components may impede recovery for many months making self sufficiency a key to survival. The difference between levels four and five are that a level five situation would likely disable or destroy electrical equipment that would be difficult to replace short term. In level four this equipment is still usable if the necessary power can be found to run it.
Generator- inside a faraday cage for storage
Wood gassifier system
Tools – ax, wood saw
Solar panels/wind turbine/hydropower
Deep cycle batteries
Woodstove – heating and cooking
Pressure cooker 21 qt.
Source of water / rain catchment system
Fire extinguisher 5 lb.
Hunting weapon and ammo
Salt 100 lbs. +
Misc. medical supplies w/antibiotics
Tube type radio – DC power
Level Six – This level would be the result of severe space weather or earth changes that cause catastrophic damage to electrical components worldwide. The damage to electrical equipment would be complete making recovery of technology a long and difficult process. With technology destroyed, sustainable systems from the past would have to be revived to provide the necessities of society. This is the worst case scenario. Alternative mechanical systems would be needed to rebuild the technology base. Computer chips are the pinnacle of our technology and the production of them requires several layers of technology to produce unlike the casting and assembly of things such as an engine.
Tools – ax, wood saw, files
Pressure cooker 21 qt.
Source of water / rain catchment system
Fire extinguisher 2 – 5 lb.
Hunting weapon and ammo
Salt 100 lbs. +
Misc. medical supplies w/antibiotics
Mountain bike w/repair parts
Gramophone w/vinyl records
Typewriter w/extra ribbons
Gas appliances – refrigeration, heating, cooking, hot water, lighting
Bio-gas production unit
Steam engine – machine power
Hydro systems – machine power
While this listing is not exhaustive, it provides a window into the various levels a person will encounter over different time spans and situations. Some forethought about your particular living situation will allow you to devise a plan that will allow the least amount of deprivation during the situation you encounter. The time to prepare is before the lights go out. Once it happens it is too late. When this happens, the lack of resources will make your well being entirely dependant on the knowledge you carry. In this instance, knowing what to do if you are caught without resources will allow you to react quickly and decisively in the first few critical hours of an event.
A brief look at the various levels of potential blackout will help you determine what resources are best suited to your particular circumstances. Every plan needs to be tailored to individual needs and expectations. In a level six situation, most of the equipment to repair the technology base will be destroyed so antiquated technology systems will be essential to long term recovery. Since most of this old technology is no longer common knowledge, the storage of this knowledge is necessary outside of the technology systems for later retrieval. This can also be said for any necessary knowledge during short term situations as well.
In November 2003 NASA detected a CME that they later determined to be at the X28+ level. Fortunately this was not directed toward Earth. If it had interacted with Earth we would be living in a very different world today. In 2005 an X17 was recorded and in 2006 an X9 was recorded just to give an idea of how often and extreme these occurrences are. You must decide what level you should prepare for and seek the means to overcome the situation. When you prepare for the worst case scenario, you will be well prepared for almost any contingency and anything less should be easily handled, but that level of preparedness is a personal choice.
Coping with the loss of technology is a personal responsibility that cannot be farmed out to others. When the unexpected happens it is the responsibility of the head of the household to continue to care for their family no matter what situation they find themselves in. It is always good to have outside help when the unexpected happens but to rely solely on others in these circumstances is to put your family at great potential unnecessary risk.
Testosterone Pit – Home – Japan’s Most Hated Outfit, TEPCO, Reports Fat Profit (From Taxpayer Bailout Money)
TEPCO, the utility that serves 29 million households and businesses in the Tokyo metropolitan area, and that owns the Fukushima nuclear power plant where three melted-down reactors are contaminating air, soil, groundwater, and seawater, an outfit famous for its lackadaisical handling of the fiasco and the parsimoniousness with which it doles out information – the most despised and ridiculed company in Japan reported earnings today. It was a doozie.
Instead of sending it into bankruptcy court to make bondholders and stockholders pay their share, the government has bailed it (and them) out lock, stock, and barrel. And it’s still on taxpayer-funded life support. So it was good news that revenues jumped 11.8% to ¥3.2 trillion during the fiscal first half ending September 30 – blistering hot growth for a utility with 49,000 employees in a slow-or-no-growth market!
But that was about it with the good news. It wasn’t even good news. It was based exclusively on electricity rate hikes that regulators had approved to compensate the company for the costs of running fossil-fuel power plants instead of its nuclear power plants, which remain shut down. It then inflicted those higher rates on already struggling businesses and squeezed consumers.
Sign of a booming Abenomics economy? Nope. Electricity sales volume fell by 1.7% in the first half. Among the reasons, ominously: a “decrease in production activities.” Commercial use fell 1.7% and industrial use 0.5% from the already depressed levels last year. Among large-scale industrial customers, electricity sales to ferrous metals companies suffered the most, down 6.7%, followed by sales to machinery producers, down 3.8%.
Net profit for the first half soared to ¥616.2 billion ($6.2 billion), up from a steep loss last year. But the rate hikes alone, big as they’ve been, couldn’t accomplish that. So cost cuts?
TEPCO is certainly trying to cut costs in dealing with the Fukushima fiasco, mostly by cutting corners. Efforts that produce curious results. A few days ago, for example, when it didn’t put enough pumps in place to deal with the rains from the typhoon, water contaminated with highly radioactive and toxic Strontium-90 leaked once again into the ocean. Despite all these valiant efforts at cutting corners, its “ordinary expenses” rose 1.2%.
So where did that big fat profit of ¥616.2 billion come from? Turns out, “ordinary income” was only ¥141.6 billion, up from a loss last year. Those were the rate increases. The difference? “Extraordinary Income.”
A lot of it! So TEPCO sold some fixed assets for a gain of ¥74.2 billion, fine. But then there was an interesting, and huge entry: ¥666.2 billion ($6.7 billion). It was the amount of taxpayer bailout money TEPCO had received during the first half. Booked as income!
After some extraordinary loss items – ¥22 billion for “extraordinary loss on natural disaster” and ¥230.5 billion for “nuclear damage compensation” – net disaster-related extraordinary income amounted to ¥413.7 billion ($4.2 billion), every yen of it from taxpayers. It became part of its net profit. What a way to make money!
These kinds of shenanigans have impact. TEPCO’s stock, which traded above ¥4,000 in 2007, skittered down during the financial crisis to land at ¥2,000 by the end of 2010. After the disaster in March 2011, the stock collapsed entirely and a few months later approached ¥100 yen – a technically bankrupt company with 49,000 employees. But since the bailout funds started pouring into TEPCO’s pocket, the stock has quintupled to ¥523.
Today, the government offered a view into the future. A panel composed of lawmakers from the ruling Liberal Democratic Party issued a draft report that recommended that the government, and therefore the taxpayer, step in and take control of the Fukushima cleanup and decommissioning efforts. It will be expensive and take four decades – unless the spent fuel rods in their destroyed pools ignite when the next big earthquake hits or when TEPCO screws up again, which would alter the hemisphere and eliminate any need to worry about the site.
The panel said that TEPCO must implement major internal improvements, including cost controls, and it suggested that the company may have to be broken up, partially or fully – with the good part likely going to bondholders and stockholders, and the bad part, that is Fukushima Daiichi and all associated costs and liabilities, being hung around the neck of the taxpayer.
There was urgency, the panel said. TEPCO could not manage the large amounts of groundwater that were getting contaminated daily by the reactors, and at the same time manage their decommissioning. The government would also have to figure out what to do with the nuclear waste from the site – and then pay for it as well.
The true costs of nuclear power are thus getting shuffled from the industry to the taxpayer – while bondholders and stockholders benefit.
Not a coincidence. Earlier this year, it was leaked that TEPCO had paid ¥1.8 billion ($189 million) in annual membership fees to a nuclear lobbying group in 2011, weeks after the melt-downs. The Federation of Electric Power Companies of Japan, which lobbies for Japan’s ten mega-utilities, keeps its budget secret. This was the first time the fees seeped out, offering an idea of its annual lobbying budget – whose magnitude explains in part the overwhelming power the nuclear industry has over its regulators and governments.
That power is now being exerted on the Abe administration and the legislature – not only to slough off the costs of dealing with Fukushima but also to restart the 50 surviving reactors, against strong local and national opposition.
As the Fukushima fiasco hobbled from cover-ups to partial revelations, TEPCO always pretended the situation was under control. But days after Tokyo scored the 2020 Olympics, that pretense fell apart. Read…. After Snatching Olympics, Japan Suddenly Admits Fukushima Not “Under Control,” Begs For International Help
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- Japan panel ‘wants Tepco break-up’ (bbc.co.uk)
- Fukushima operator returns to profitability, faces uncertain future (dnaindia.com)
- Japan ruling-party panel to propose break-of Fukushima operator: media (chinapost.com.tw)
- TEPCO, US to cooperate in Japan nuke plant cleanup (kansascity.com)
The latest revelations suggest even internet giants Google and Yahoo were spied on by the NSA [Reuters]
|Indonesia has summoned Australia’s ambassador to explain media reports his embassy in Jakarta was used to spy on Southeast Asia’s biggest country as part of a US-led global spying network.The chief US diplomat in Jakarta was called in earlier this week over similar allegations, while China on Thursday demanded an explanation from the US after the Sydney Morning Herald newspaper reported Australian embassies across Asia were part of the US spying operation.
News of Australia’s role in a US-led surveillance network could damage relations with Indonesia, Australia’s nearest Asian neighbour and a key strategic ally.
“Indonesia’s Foreign Minister Marty Natalegawa has demanded an explanation from the Australian ambassador in Jakarta about the existence and use of surveillance facilities in the Australian embassy here,” Indonesia’s Foreign Ministry said in a statement on Friday.
“The reported activities absolutely do not reflect the spirit of a close and friendly relationship between the two neighbours and are considered unacceptable by the government of Indonesia.”
The Herald said its reports were based on US whistleblower Edward Snowden and a former Australian intelligence officer.
Snowden leaks to other media have detailed vast intelligence collection by the US National Security Agency (NSA) on allies, including German Chancellor Angela Merkel, prompting protests and a US review of intelligence gathering.
‘Reached too far’
In an unprecedented admission following revelations the US spied on its European allies, US Secretary of State said on Thursday that his country’s US surveillance programme did go too far at times,
“In some cases, I acknowledge to you, as has the president, that some of these actions have reached too far, and we are going to make sure that does not happen in the future,” he said.
Kerry said that what Washington was trying to do was, in a “random way,” find ways of determining if there were threats that needed responding to.
Recent allegations and reports of widespread spying by the US National Security Agency have caused a major rift in trans-Atlantic ties.
Kerry justified the surveillance in broad terms, citing the September 11, 2001 attacks in the United States, as well as attacks in London, Madrid and elsewhere to argue that the US and other countries have had to come together to fight “extremism in the world that is hell-bent and determined to try to kill people and blow people up and attack governments.”
He said US intelligence had since 2001 averted attacks with intercepts of communications.
But he acknowledged, without going into specifics, that at times it had been too much.
Kerry also sought to give assurances that such steps would not be repeated.
“I assure you, innocent people are not being abused in this process, but there’s an effort to try to gather information,” Kerry told a London conference via video link.
- Aust meets Indon officials over spy claims (sbs.com.au)
- Indonesia summons Australian ambassador over US-led spying report – Reuters (reuters.com)
- Indonesia summons Australian envoy (therebel.org)
- Indonesia Demands Explanation Over Electronic Spying From Australian Ambassador (matthewaid.com)
- Indonesia summons Australian ambassador over US-led spying claims (dnaindia.com)
Medieval thinkers were tempted to believe that if you throw a rock it flies straight until it runs out of force, and then it falls straight down. Economists are tempted to think of prices as a linear function of the “money supply”, and interest rates to be based on “inflation expectations”, which is to say expectations of rising prices.
The medieval thinkers, and the economists are “not even wrong”, to borrow a phrase often attributed to physicist Wolfgang Pauli. Science has to begin by going out to reality and observing what happens. Anyone can see that in reality, these tempting assumptions do not fit what occurs.
In my series of essays on interest rates and prices, I argued that the system has positive feedback and resonance, and cannot be understood in terms of a linear model. When I began this series of papers, the rate of interest was still falling to hit a new all-time low. Then on May 5,2013, it began to shoot up. It rose 83% over a period of exactly four months. That may or may not have been the peak (it has subsided a little since then).
Several readers asked me if I thought this was the beginning of a new rising cycle, or if I thought this was the End (of the dollar). As I expressed in Part VI, the End will be driven by the withdrawal of the gold bid on the dollar. Since early August, gold has become more and more abundant in the market. I think it is safe to say that this is not the end of the dollar, just yet. The hyperinflationists’ stopped clock will have to remain wrong a while longer. I said that the rising rate was a correction.
I am quite confident of this prediction, for all the reasons I presented in the discussion of the falling cycle in Part V. But let’s look at the question from a different perspective, to see if we end up with the same conclusion.
In the gold standard, the rate of interest is the spread between the gold coin and the gold bond. If the rate is higher, that is equivalent to saying that the spread is wider. If the rate is lower, then this spread is narrower.
A wider spread offers more incentive for people to straddle it, an act that I define as arbitrage. Another way of saying this is that a higher rate offers more incentive for people to dishoard gold and lend it. If the rate falls, which is the same as saying if the spread narrows, then there is less incentive and people will revert to hoarding to avoid the risks and capital lock-up of lending. Savers who take the bid on the interest rate (which is equivalent to taking the ask on the bond) press the rate lower, which compresses the spread.
It goes almost without saying, that the spread could never be compressed to zero (by the way, this is true for all arbitrage in all free markets). There are forces tending to compress the spread, such as the desire to earn interest by savers. But the lower the rate of interest, the stronger the forces tending to widen the spread become. These include entrepreneurial demand for credit, and most importantly the time preference of the saver—his reluctance to delay gratification. There is no lending at zero interest and nearly zero lending at near-zero interest.
I emphasize that interest is a spread to put the focus on a universal principle of free markets. As I stated in my dissertation:
“All actions of all men in the markets are various forms of arbitrage.”
Arbitrage compresses the spread that is being straddled. It lifts up the price of the long leg, and pushes down the price of the short leg. If one buys eggs in the farm town, then the price of eggs there will rise. If one sells eggs in the city center, then the price there will fall.
In the gold standard, hoarding tends to lift the value of the gold coin and depress the value of the bond. Lending tends to depress the value of the coin and lift the value of the bond. The value of gold itself is the closest thing to constant in the market, so in effect these two arbitrages move the value of the bond. How is the value of the bond measured—against what is it compared? Gold is the unit of account, the numeraire.
The value of the bond can move much farther than the value of gold. But in this context it is important to be aware that gold is not fixed, like some kind of intrinsic value. An analogy would be that if you jump up, you push the Earth in the opposite direction. Its mass is so heavy that in most contexts you can safely ignore the fact that the Earth experiences an equal but opposite force. But this is not the same thing as saying the Earth is fixed in position in its orbit.
The regime of irredeemable money behaves quite differently than the gold standard (notwithstanding frivolous assertions by some economists that the euro “works like” the gold standard). The interest rate is still a spread. But what is it a spread between? Does arbitrage act on this spread? Is there an essential difference between this and the arbitrage in gold?
Analogous to gold, the rate of interest in paper currency is the spread between the dollar and the bond. There are a number of differences from gold. Most notably, there is little reason to hold the dollar in preference to the government bond. Think about that.
In the gold standard, if you don’t like the risk or interest of a bond, you can happily hold gold coins. But in irredeemable paper currency, the dollar is itself a credit instrument backed by said government bond. The dollar is the liability side of the Fed’s balance sheet, with the bond being the asset. Why would anyone hold a zero-yield paper credit instrument in preference to a non-zero-yield paper credit instrument (except as speculation—see below)? And that leads to the key identification.
The Fed is the arbitrager of this spread!
The Fed is buying bonds, which lifts up the value of the bond and pushes down the interest rate. Against these new assets, the Fed is issuing more dollars. This tends to depress the value of the dollar. The dollar has a lot of inertia, like gold. It has extremely high stocks to flows, like gold. But unlike gold, the dollar’s value does fall with its quantity (if not in the way that the quantity theory of money predicts). Whatever one might say about the marginal utility of gold, the dollar’s marginal utility certainly falls.
The Fed is involved in another arbitrage with the bond and the dollar. The Fed lends dollars to banks, so that they can buy the government bond (and other bonds). This lifts the value of the bond, just like the Fed’s own bond purchases.
Astute readers will note that when the Fed lends to banks to buy bonds, this is equivalent to stating that banks borrow from the Fed to buy bonds. The banks are borrowing short to lend long, also called duration mismatch.
This is not precisely an arbitrage between the dollar and the bond. It is an arbitrage between the short-term lending and long-term bond market. It is the spread between short- and long-term interest rates that is compressed in this trade.
One difference between gold and paper is that, in paper, there is a central planner who sets the short-term rate by diktat. Since 2008, Fed policy has pegged it to practically zero.
This makes for a lopsided “arbitrage”, which is not really an arbitrage. One side is not free to move, even the slight amount of a massive object. It is fixed by law, which is to say, force. The economy ought to allow free movement of all prices, and now one point is bolted down. All sorts of distortions will occur around it as tension builds.
I put “arbitrage” in scare quotes because it is not really arbitrage. The Fed uses force to hand money to those cronies who have access to this privilege. It is not arbitrage in the same way that a fence who sells stolen goods is not a trader.
In any case, the rate on the short end of the yield curve is fixed near zero today, while there is a pull on the long bond closer to it. Is there any wonder that the rate on the long bond has a propensity to fall?
Under the gold standard, borrowing short to lend long is certainly not necessary  However, in our paper system, it is an integral part of the system, by its very design.
The government offers antiseptic terms for egregious acts. For example, they use the pseudo-academic term “quantitative easing” to refer to the dishonest practice of monetizing the debt. Similarly, they use the dry euphemism “maturity transformation” to refer to borrowing short to lend long, i.e. duration mismatch. Perhaps the term “transmogrification” would be more appropriate, as this is nothing short of magic.
The saver is the owner of the money being lent out. It is his preference that the bank must respect, and it is for his benefit that the bank lends. When the saver says he may want his money back on demand, and the bank presumes to lend it for 30 years, the bank is not “transforming” anything except its fiduciary duty, its integrity, and its own soundness. Depositors would not entrust their savings to such reckless banks, without the soporific of deposit insurance to protect them from the consequences.
Under the gold standard, this irrational practice would exist on the fringe on the line between what is legal and what is not (except for the yield curve specialist, a topic I will treat in another paper), a get-rich-quick scheme—if it existed at all (our jobs as monetary economists are to bellow from the rooftops that this practice is destructive).
Today, duration mismatch is part of the official means of executing the Fed’s monetary policy.
I have already covered how duration mismatch misallocates the savers’ capital and when savers eventually pull it back, the result is that the bank fails. I want to focus here on another facet. Pseudo-arbitrage between short and long bonds destabilizes the yield curve.
By its very nature, borrowing short to lend long is a brittle business model. One is committed to a long-term investment, but this is at the mercy of the short-term funding market. If short-term rates rise, or if borrowing is temporarily not possible, then the practitioner of this financial voodoo may be forced to sell the long bond.
The original act of borrowing short to lend long causes the interest rate on the long bond to fall. If the Fed wants to tighten (not their policy post-2008!) and forces the short-term rate higher, then players of the duration mismatch game may get caught off guard. They may be reluctant to sell their long bonds at a loss, and hold on for a while. Or for any number of other proximate causes, the yield curve can become inverted.
Side note: an inverted yield curve is widely considered a harbinger of recession. The simple explanation is that the marginal source of credit in the economy is suddenly more expensive. This causes investment in everything to slow.
At times there is selling of the short bond, at times aggressive buying. Sometimes there is a steady buying ramp of the long bond. Sometimes there is a slow selling slide that turns into an avalanche. The yield curve moves and changes shape. As with the rate of interest, the economy does best when the curve is stable. Sudden balance sheet stress, selloffs, and volatility may benefit the speculators of the world, but of course, it can only hurt productive businesses that are financing factories, farms, mines, and hotels with credit.
Earlier, I referred to the only reason why someone would choose to own the Fed’s liability—the dollar—in preference to its asset. Unlike with gold, hoarding paper dollar bills serves no real purpose and incurs needless risk of loss by theft. The holder of dollars is no safer. He avoids no credit risk; he is exposed to the same risk as is the bondholder is exposed. The sole reason to prefer the dollar is speculation.
As I described in Theory of Interest and Prices in Paper Currency, the Fed destabilizes the rate of interest by its very existence, its very nature, and its purpose. Per the above discussion, the Fed and the speculators induce volatility in the yield curve, which can easily feed back into volatility in the underlying rate of interest.
The reason to sell the bond is to avoid losses if interest rates will rise. Speculators seek to front-run the Fed, duration mismatchers, and other speculators. If the Fed will “taper” its purchase of bonds, then that might lead to higher interest rates. Or at least, it might make other speculators sell. Every speculator wants to sell first.
Consider the case of large banks borrowing short to lend long. Let’s say that you have some information that their short-term funding is either going to become much harder to obtain, or at least significantly more expensive. What do you do?
You sell the bond. You, and many other speculators. Everyone sells the bond.
Or, what if you have information that you think will cause other speculators to sell bonds? It may not even be a legitimate factor, either because the rumor is untrue (e.g. “the world is selling Treasury bonds”) or because there is no valid economic reason to sell bonds based on it.
You sell the bond before they do, or you all try to sell first.
I have been documenting numerous cases in the gold market where traders use leverage to buy gold futures based on an announcement or non-announcement by the Fed. These moves reverse themselves quickly. But no one, especially if they are using leverage, wants to be on the wrong side of a $50 move in gold. You sell ahead of the crowd, and you buy ahead of the crowd. And they try to do it to you.
I think it is likely that one of these phenomena, or something similar, has driven the rate on the 10-year Treasury up by 80%.
I would like to leave you with one take-away from this paper and one from my series on the theory of interest and prices. In this paper, I want everyone to think about the difference between the following two statements:
- The dollar is falling in value
- The rate of interest in dollars must rise
It is tempting to assume that they are equivalent, but the rate of interest is purely internal to the “closed loop” dollar system. Unlike a free market, it does not operate under the forces of arbitrage. It operates by government diktats, and hordes of speculators feed on the spoils that fall like rotten food to the floor.
From my entire series, I would like the reader to check and challenge the sacred-cow premises of macroeconomics, the aggregates, the assumptions, the equations, and above all else, the linear thinking. I encourage you to think about what incentives are offered under each scenario to the market participants. No one even knows the true value of the monetary aggregate and there is endless debate even among economists. The shopkeeper, miner, farmer, warehouseman, manufacturer, or banker is not impelled to act based on such abstractions.
They react to the incentives of profit and loss. Even the consumer reacts to prices being lower in one particular store, or apples being cheaper than pears. If you can think through how a particular market event or change in government policy will remove old incentives and offer new incentives, then you can understand the likely first-order effects in the market. Of course each of these effects changes still other incentives.
It is not easy, but this is the approach that makes economics a proper science.
P.S. As I do my final edits on this paper (October 4, 2013), there is a selloff in short US T-Bills, leading to an inversion at the short end of the yield curve. This is due, of course, to the possible effect of the partial government shutdown. The government is not going to default. If this danger were real, then there would be much greater turmoil in every market (and much more buying of gold as the only way to avoid catastrophic losses). The selloff has two drivers. First, some holders of T-Bills need the cash on the maturity date. They would prefer to liquidate now and hold “cash” rather than incur the risk that they will not be paid on the maturity date. Second, of course speculators want to front-run this trade. I put “cash” in scare quotes because dollars in a bank account are the bank’s liability. The bank will not be able to honor this liability if its asset—the US Treasury bond—defaults. The “cash” will be worthless in the very scenario that bond sellers are hoping to avoid by their very sales. When the scare and the shutdown end, then the 30-day T-Bill will snap back to its typical rate near zero. Some clever speculators will make a killing on this move.
 See the Monetary Metals Supply and Demand Report
 I argue that it always fails in the end in Duration Mismatch Always Fails
- Theory of Interest and Prices in Paper Currency Part VI (The End) (keithweinereconomics.com)
Back in January, we highlighted the main problem plaguing the Greek financial system, and why a bailout (at least third, but likely fourth and fifth, and so on) is inevitable because “the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was “only” 16% and stood at a gargantuan 24% last month (indicatively, in the US this would mean that some $1.7 trillion in loans was nonperforming). And therein lies the rub, because as Kathimerini prudently notes, the “bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion.” Yesterday, Kathimerini provided a much needed update on the amount of NPLs in Greece: according to the latest PwC report, NPLs have risen by another €10 billion in under one year, and now amount to €65 billion, which is now larger than the recapitalization funding and amounts to more than double the €30 billion capital base of local banks!
Nonperforming loans (NPLs) have grown this year to more than twice the size of local banks’ capital, as, according to a report by PricewaterhouseCoopers (PwC), they now amount to 65 billion euros, while the capital base of domestic lenders stands at 30 billion euros.
PwC added that the share of bad loans has exceeded 30 percent of all loans issued, up from 25 percent at end-2012 and 18 percent at end-2011.
However, Greek banks are very reluctant to sell their bad assets due to the very low prices that investors are offering. Bank officials have told Kathimerini that the offers they have been quoted would make the sale of bad loan portfolios practically pointless.
And since the amount of NPLs is double the equity buffer designed to soak up precisely the kinds of losses that appear once NPLs are priced to reality, it means that nearly 4 years after its first bailout, the Greek banking system is still as broke as ever. In fact, it is now doubly broke and rising at about €15 billion per year.
What this means is simple: just like in Cyprus, the day of inevitable “template” reckoning, in which deposits are “converted” into capital is fast approaching.
Greek depositors: you have been warned. As for the local stock market, well… New Normal and such.
- Greece updates – October 31 , 2013 …. Troika and Greece Government at loggerheads regarding additional austerity demands made by Troika ? NPLs at Greek Banks continue to swell – now 65 billion euros worth of NPLs or 30 percent of all loans issued ….. (fredw-catharsisours.blogspot.com)
- Re: Greece Financial Default Watch (forum.prisonplanet.com)
- John Ward – Eurozone Alert : Pants On Fire In Italy, Smoke And Mirrors In Greece – 31 October 2013 (lucas2012infos.wordpress.com)
- Yanis Varoufakis: Johnny (Paulson) Got His Gun and is Aiming at Bigger Subsidies for His Greek Bank Investments (nakedcapitalism.com)
Three weeks ago, during the US government shutdown fiasco, and when there was legitimate concern if the US would begin prioritizing debt payments upon running out of cash, China’s official and most widely read press agency, Xinhua, slammed the US in “U.S. fiscal failure warrants a de-Americanized world” in which it called for a new world order, and an end to the reserve currency. Now, it is time for the follow up, with China kicking “America the eavesdropper” precisely when it is down.
The trust fiasco of America the Eavesdropper
The latest outburst of outcries and outrage across the world has laid bare that almighty America has at least one other anomalous addiction besides borrowing — bugging.
The U.S. debt drama features a polarized and paralyzed Washington at the helm of the world’s largest economy. As nerve-racking as it is, such irresponsible behavior is a recurrent headache economic policymakers worldwide can bear with.
Yet the sole superpower’s spying saga is spicy on a heart-attack scale. It is particularly hurtful to those supposed to trust America the most — its allies.
The recent cascade of eye-popping disclosures depicts a hyperactive Uncle Sam prying into others’ secrets and even eavesdropping on dozens of heads of state.
It has been revealed that the U.S. National Security Agency (NSA) monitored the phone conservations of at least 35 world leaders in 2006. And that is just a tip of the iceberg of the spook organization’s sprawling spying scheme.
Leaked documents show that the NSA has not only gained front-door access to countless Google and Yahoo user accounts through a court-approved process, but secretly broken into the main communications links connecting the two Internet giants’ respective data centers around the world to siphon information at will.
What is counterintuitive in the NSA forage is its nonsensical approach: relentless and indiscriminate like a vacuum cleaner. It just bugs everybody, even its closest allies in Europe.
In the most shocking revelation so far, Uncle Sam turned Madame Europa, German Chancellor Angela Merkel, into, as Deutsche Presse-Agentur puts it, “a dupe whose mobile phone conversations were for more than a decade a source of information for U.S. authorities.”
Merkel and her peers in the U.S. alliance have every reason to feel insulted and betrayed. At the very least, they deserve the kind of respect and trust that underpins the practice that air travelers do not have to fly naked.
The motivation behind America’s extensive eavesdropping is unclear. The explanations the White House has been forced to offer are far from explanatory, and the diorthosis President Barack Obama has promised seems all but skin-deep.
The half-heartedness stands in stark contrast with the pushfulness with which America accuses China of cyber-espionage, and the evasiveness marks a stunning retreat from the straightforwardness with which Washington reproves Beijing for alleged monetary manipulation.
The apparent application of a double standard only reinforces the image of a Janus-faced America. In the sunlight, it preaches; in the dark, it pries. On the offensive, it orates; on the defensive, it equivocates.
The wayward practice has now backfired, and the damage is increasing. Just as the borrowing addiction is shedding America’s economic credibility, the bugging obsession is draining its political and security trustworthiness — only with potentially more destructive consequences.
Trust is the first and foremost casualty. Common sense dictates that trust is a two-way street: One has to trust in order to be trusted. It is particularly true in friendships and alliances. America obviously failed to follow the simple rule.
If Washington did not knit the worldwide wiretapping web just because it could, then its pillage for information unveils an Uncle Sam too deeply entrenched in suspicion and isolation to treat anyone as a real friend.
Ironically enough, the bugging undermines the very thing it is supposed to protect — national security. As America pins its security on alliances, the tapping tale would sour its relationship with allies — and thus erode its security bedrock — more than any terrorist would be capable of.
The harm could go far beyond. For example, mutual trust is vital to China and America’s endeavor to build a new type of major-country relations. Washington’s lack of trust and hemorrhage of trustworthiness would only make the effort more difficult.
Needless to say, trust entails trade-offs, and the quid pro quos are not riskless. But the United States should be wise enough to know that to trust nobody is no less dangerous than to trust anybody.
As indicated in the still simmering spying scandal, the potential cost of excessive bugging could be way higher. Uncle Sam needs to remember what happened to the tailor in the Lady Godiva story — Peeping Tom was struck blind.
- Cartoon: The Eavesdroppers (englishblog.com)
- On Twitter, Eavesdropper Reveals Former NSA Head’s Train Chat – New York Times (nytimes.com)
- Chinese Media Calls America ‘Peeping Tom’ In Troll Over NSA Spying Scandals (businessinsider.com)
- How Can Any German Be Sure Merkel Wasn’t Blackmailed By NSA? What About Americans? (politicaloutcast.com)
- Obama causing the entire world to hate America: Spying, currency devaluation, torture and more (thedailysheeple.com)
- Germany to send intel officers to U.S. (cnn.com)
The unemployment rate in the eurozone is higher than it has ever been before. This week we learned that eurozone unemployment came in at an all-time high of 12.2 percent for September. Back in January 2012, it was sitting at just10.4 percent. So anyone that believes that “things are getting better” in Europe is just being delusional. In fact, the economic depression in Europe just keeps getting deeper. The funny thing is that the mainstream media will barely call what is going on in Europe a “recession” even though the unemployment rates in both Spain and Greece are now much higher than anything that the United States ever experienced during the “Great Depression” of the 1930s. There haven’t been as many headlines about the financial crisis in Europe lately because the ECB has been papering over the debt problems of the periphery (at least for the moment), but the economic conditions on the ground for average Europeans just continue to get even worse. Later on in this article, you will read about a 25-year-old Spanish man with three college degrees that moved to London in a desperate search for a job who is now cleaning up poop for a living. The economic collapse of Europe continues to march on, and there is no end in sight.
All you have to do is look at the latest unemployment numbers to realize that things are getting worse in Europe.
In Italy, the unemployment rate is up to 12.5 percent.
In January 2012, less than two years ago, it was sitting at just 8.9 percent.
In Greece, the unemployment rate is up to an astounding 27.6 percent.
In January 2012, it was sitting at just 21.4 percent.
In Spain, the unemployment rate is up to 26.6 percent.
The youth unemployment statistics in the eurozone are even more horrifying…
Unemployment among the under-25s rose by 22,000 in September to 3,548,000 – nudging up youth jobless rate to 24.1%. In France, the youth jobless rate jumped from 25.6% to 26.1%, while in Italy it increased from 40.2% to 40.4%.
But as bad as those numbers are, they are nothing compared to what is going on in Spain and Greece. In Spain, the youth unemployment rate is up to 56.5 percent, and in Greece the youth unemployment rate is up to 57.3 percent.
And of course unemployment is not the only problem that the European economy is dealing with right now. The following are some more facts about the European economy that show that the economic depression in Europe just keeps getting deeper…
-European car sales are on pace to hit a 23 year low in 2013.
-The percentage of “bad loans” in Spain has soared to a new all-time record high.
-The number of mortgage applications in Spain has fallen 90 percentsince the peak of the market.
-Citigroup is projecting that the unemployment rate in Greece will reach32 percent in 2015.
-The number of unemployed workers in Cyprus is now five times higher than it was before the financial crisis of 2008.
-It is being projected that Spain’s debt to GDP ratio will rise to nearly 100 percent by the end of next year.
-The debt to GDP ratio of Portugal is already up to 123 percent.
-The debt to GDP ratio of Italy is already up to 127 percent.
-Even though Greece has implemented a whole host of “austerity measures”, the debt to GDP ratio of Greece is now up to 156 percent.
But what these numbers cannot really communicate is the tremendous amount of pain and despair that millions upon millions of Europeans are experiencing right now.
For example, consider the story of Benjamin Serra Bosch, a 25-year-old Spanish man that moved to London in a desperate search for a job. He has three college degrees, including a Master’s Degree from the IEBS Business School in Barcelona. The following is a rough translation of a message that he recently posted on Facebook…
My name is Benjamín Serra, I have two bachelor degrees and a master’s degree, and I clean toilets.
No, it is not a joke. I do it to pay the rent for my room in London.
I’ve been working in a famous chain of cafes in the United Kingdom since May, and for the first time today, after 5 months working there, I see it clearly. I have been cleaning toilets. My thought was: “I received distinction in my two degrees and I clean other peoples’ poop in a country that isn’t my own.” Well, I also make coffee, clean the tables and wash cups.
And I am not ashamed to do so. Cleaning is a very decent job. What embarrasses me is having to do so because no one has given me an opportunity in Spain. Like me, there are many Spaniards, especially in London. “You are a plague,” I was told once here. And let’s not kid ourselves. We are not young people on an adventure to learn the language and have new experiences. We are immigrants.
I’ve always been very proud, I am not going to deny. Those who know me, you know. And I have to bust out a smile at customers who look over my shoulder as I am simply a “barista” (as they call it here). Some are so outrageous that it makes me want to pull out my University and master degrees and put them in their face. But it would not really do anything. It appears that those titles now only serve to clean the poop that I clean from the toilets in the cafe. A pity.
I thought that it deserved something better after putting so much effort in my academic life. It seems that I was wrong.
As economic conditions continue to decline all over Europe, anger and frustration with the “European experiment” continue to grow. UKIP’s Nigel Farage expressed these sentiments very eloquently during a speech on the 23rd of October when he stated that “what we are saying, large numbers of us from every single EU member state is: we don’t want that flag, we don’t want the anthem that you all stood so ram-rod straight for yesterday, we don’t want EU passports, we don’t want political union.”
Unfortunately, the elite of Europe are so obsessed with their little experiment that the only “solutions” to these economic problems that they are even willing to consider involve even more European integration.
And Americans certainly should not be looking down their noses at what is happening in Europe.
What is going on in Italy, France, Spain and Greece will be coming here soon enough. In fact, even during the midst of this so-called “economic recovery”, poverty continues to absolutely explode in the United States.
Economic conditions in both the United States and Europe have never even gotten close to where they were prior to 2008, and now the next major wave of the economic collapse is rapidly approaching.
A few years ago, I had an ah-ha moment when it comes to what we as humans would need to do to live in a sustainable manner. It is very easy. All we have to do is leave our homes, take off all of our clothes, and learn to live on the raw food we are able to gather with our own hands. We have a built-in transportation system, so that is not a problem.
Some animals are eusocial, that is, organized in away that allows for cooperative brood care and other joint tasks. If we follow that approach, we would get our extended families to join us living in nature, au naturel. We could then co-operate on tasks such as child rearing and gathering food.
Nature’s Provision for Order
Nature is organized in a number of ways that make certain that there will be modest change over time…
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A federal review agency says sensitive information gathered by the Canadian Security Intelligence Service could be abused by Canada’s allies due to lax sharing policies.
In its annual report, the watchdog that keeps an eye on CSIS flags concerns about what happens to intelligence that CSIS passes to the national eavesdropping agency, which in turn shares the details with foreign allies.
- EXCLUSIVE | Inside Canada’s top-secret billion-dollar spy palace
- EXCLUSIVE | Spy agency CSEC needs MPs’ oversight, ex-director says
- CSEC: What do we know about Canada’s eavesdropping agency?
The report underscores the fact CSIS is collaborating ever more closely with Communications Security Establishment Canada, which has come under scrutiny lately due to its participation in the international Five Eyes alliance.
CSEC, which monitors foreign telephone, satellite and Internet traffic, shares information with the U.S. National Security Agency and counterparts in Britain, Australia and New Zealand.
The American NSA has been the subject of almost daily headlines due to leaks from former contractor Edward Snowden that have revealed the agency’s vast surveillance of worldwide communications.
In its report, tabled in Parliament, the Security Intelligence Review Committee recommends CSIS develop clearer and more robust principles of co-operation with CSEC to ensure appropriate information sharing.
- BC Civil Liberties Association launches lawsuit against Canadian government over CSEC spying (blogs.vancouversun.com)
- Are you in Canada’s cyberspy data banks? Maybe. But good luck getting that info (globalnews.ca)
- Canadians sue their own government over domestic spying (dailydot.com)
- Allegations of CSEC spying against Brazil raise calls for greater oversight of secretive agency (canada.com)