Catching Fire, civil war, Crisis, Decline, Edward Snowden, Empire, Federal Reserve, Fourth Turning, George Washington, Grapes of Wrath, Hunger Games, Huxley, inequality, Jamie Dimon, Jon Corzine, Katniss Everdeen, Lady Gaga, Lord of the Rings, Millennials, mood, Neil Postman, NSA, oligarchs, Orwell’s 1984,Poverty, President Snow, Rome, ruling class, Samuel Adams, Steinbeck, Strauss & Howe, Suzanne Collins,Tolkien, TV, Wall Street, wealth
“Human history seems logical in afterthought but a mystery in forethought. In every prior Fourth Turning, the catalyst was foreseeable but the climax was not.” – The Fourth Turning – Strauss & Howe – 1997
We are five years into the Crisis that will not resolve itself until sometime in the 2020’s. No one can predict the specific events that will fundamentally change history over the next decade, but the catalysts of debt, civic decay and global disorder were evident sixteen years ago when Strauss and Howe wrote their prophetic generational history. The volcanic eruption occurred in 2008 when the worldwide financial system blew and the molten lava continues to spew forth and flow along the Federal Reserve created channels, protecting the corrupt establishment while incinerating senior citizens, the working middle class and Millennials. Deep within the volcano the pressure is building again as the mood of the country darkens. It will blow again and the economic, social, political and military distress will catalyze into a catastrophic emergency that will tear the fabric of the country asunder. The existing social order will be swept away and replaced by a new paradigm which could be better or far worse.
“Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:
- Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation).
- Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities.
- Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders.
- Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction.”
The Fourth Turning – Strauss & Howe – 1997
Linear thinkers are incapable or unwilling to understand that history is cyclical, primarily driven by national mood changes and the interaction of generations entering different stages in their 80 year life cycle. We’ve seen this story before, but those who lived through the last Fourth Turning have mostly died out, and our techno-narcissistic populace has absolutely no interest in understanding history beyond last night’s episode of Duck Dynasty. The mood of the country during a Turning is often captured in literature and/or film produced during that period.
The last Fourth Turning encompassed the period from the Great Crash in 1929 through the Great Depression and World War II, ending in 1946 with a new world order. Four novels written during this Crisis captured the dystopian nature of the time, reflecting the fear, pain, anger, brutality, and courageousness of the common man during that perilous period. Huxley’s Brave New World (1932),Steinbeck’s Grapes of Wrath (1939), Orwell’s 1984 (written during WWII), andTolkien’s Lord of the Rings Trilogy (written from 1937 through 1949) are masterpieces of literature which captured the aura of the times in which they were penned. Only one of the novels was brought to film during the Crisis, with John Ford’s brilliant Grapes of Wrath screen adaptation capturing the suffering and desperation of common folk during the Great Depression.
Most of what passes for literature and film these days is nothing more than glorified commercials or corporate created twaddle designed for narcissistic, mindless, teenage girls. Many will dismiss Suzanne Collins’ Hunger Gamestrilogy and the film adaptations as nothing more than run of the mill teenager nonsense. They are making a huge mistake. Decades from now, if we make the right choices during this Fourth Turning, The Hunger Games will be viewed as the novels and films that captured the darkening, rebellious mood of the Crisis. It is not a coincidence the first novel was published in September 2008. The worldwide financial meltdown initiated by the Wall Street financial elite and their paid for cronies in the nation’s capital, occurred in September 2008 and marked the commencement of this Fourth Turning. Collins has brilliantly created a dystopian nightmare that combines the shallowness and superficiality of our reality TV culture with our never ending wars of choice and rise of our surveillance state, while blending the decadence and debauchery of the declining Roman Empire. She also unwittingly places her characters in their proper generational roles during a Fourth Turning Crisis.
Collins was a military brat who was fortunate enough to have a father that taught her the truth about historical events, not the propaganda taught in our public schools today.
“He was career Air Force, a military specialist, a historian, and a doctor of political science. When I was a kid, he was gone for a year in Viet Nam. It was very important to him that we understood about certain aspects of life. So, it wasn’t enough to visit a battlefield, we needed to know why the battle occurred, how it played out, and the consequences. Fortunately, he had a gift for presenting history as a fascinating story. He also seemed to have a good sense of exactly how much a child could handle, which is quite a bit.”
She learned lessons about war, poverty, oppression, and the brutality and corruption of the ruling classes. Her knowledge of history, the visual images of reality shows and the Iraq War displayed on TV created the idea for her Hunger Games trilogy.
“I was channel surfing between reality TV programming and actual war coverage when Katniss’ story came to me. One night I’m sitting there flipping around and on one channel there’s a group of young people competing for, I don’t know, money maybe? And on the next, there’s a group of young people fighting an actual war. And I was tired, and the lines began to blur in this very unsettling way, and I thought of this story.”
The central storyline of The Hunger Games is there are twelve districts subservient to the Capitol in the totalitarian nation of Panem. The country consists of the affluent Capitol, located in the Rocky Mountains, and twelve desperately poor districts ruled by the Capitol. The Capitol is lavishly opulent and technologically advanced, but the twelve districts are in varying states of poverty. As punishment for a past rebellion against the Capitol wherein twelve of the districts were defeated and the thirteenth purportedly destroyed, one boy and one girl from each of the twelve districts, between the ages of twelve and eighteen, are selected by lottery to compete in the “Hunger Games” on an annual basis.
The Games are a televised spectacle, with the participants, called “tributes”, being forced to fight to the death in a treacherous outdoor arena. It’s a combination of American Idol, Survivor, and Middle Eastern warfare. The victorious tribute and his or her home district are then remunerated with extra food and supplies. The objective of the Hunger Games is to provide superficial reality TV entertainment for the vacuous small-minded masses in the Capitol and serve as a constant reminder to the Districts of the Capitol’s supremacy and supposed omnipotence. The Capitol ruling with an iron fist over its 13 Districts is clearly founded upon the British Empire running roughshod over the 13 American colonies and harvesting resources and taxes to maintain their wealth, power and control. Collins utilizes her knowledge of ancient Greek and Roman history and merging it with our degraded shallow TV culture to meld a dystopian nightmare of brutality, child murder, voyeuristic sadism, and a fragile, rotting empire.
“A significant influence would have to be the Greek myth of Theseus and the Minotaur. The myth tells how in punishment for past deeds, Athens periodically had to send seven youths and seven maidens to Crete, where they were thrown in the Labyrinth and devoured by the monstrous Minotaur. Even as a kid, I could appreciate how ruthless this was. Crete was sending a very clear message: “Mess with us and we’ll do something worse than kill you. We’ll kill your children.” And the thing is, it was allowed; the parents sat by powerless to stop it. Theseus, who was the son of the king, volunteered to go. I guess in her own way, Katniss is a futuristic Theseus.
In keeping with the classical roots, I send my tributes into an updated version of the Roman gladiator games, which entails a ruthless government forcing people to fight to the death as popular entertainment. The world of Panem, particularly the Capitol, is loaded with Roman references. Panem itself comes from the expression “Panem et Circenses” which translates into ‘Bread and Circuses’.” – Suzanne Collins
Any similarities between propaganda posters in Panem and propaganda in America are purely coincidental, I’m sure.
“At least once every human should have to run for his life, to teach him that milk does not come from supermarkets, that safety does not come from policemen, that ‘news’ is not something that happens to other people. He might learn how his ancestors lived and that he himself is no different–in the crunch his life depends on his agility, alertness, and personal resourcefulness.” – Robert Heinlein
The Reaping of Wealth
“War, terrible war. Widows, orphans, a motherless child. This was the uprising that rocked our land. Thirteen districts rebelled against the country that fed them, loved them, protected them. Brother turned on brother until nothing remained. And then came the peace, hard fought, sorely won. A people rose up from the ashes and a new era was born. But freedom has a cost. When the traitors were defeated, we swore as a nation we would never know this treason again. And so it was decreed, that each year, the various districts of Panem would offer up in tribute, one young man and woman, to fight to the death in a pageant of honor, courage and sacrifice. The lone victor, bathed in riches, would serve as a reminder of our generosity and our forgiveness. This is how we remember our past. This is how we safeguard our future.” – President Snow – Hunger Games
A major theme in the novels is the tremendous wealth inequality between the Capitol and most of the districts. District 12, the home of Katniss Everdeen the protagonist, is the most desperately poor. District 12 is located in the Appalachian region of the former USA. They are tasked with providing the Capitol resources obtained from dangerous mines. The population lives a bleak existence in poverty and squalor, with starvation always looming like an apparition of death. The districts are essentially slave plantations to be pillaged for whatever the dictatorial Capitol demands. The districts exist to harvest resources, such as fish, coal, lumber, crops, and gems, all sent to fulfill their quotas. Many districts, such as 12 and 11, don’t have enough coal to power their own district or enough food to feed their citizens. Districts 1, 2 and 4 are closer and more allied with the Capitol, resulting in them receiving more support, better food, consumer goods, and military protection. The wealth inequality between the ruling class and the working class in the districts is the primary cause of discontent and increasing rebelliousness.
The parallels with our corporate fascist surveillance state are unmistakable. The wealth and power in our country is concentrated in the hands of ruling elite who primarily reside in the nation’s capital of Washington D.C. and the financial capital of New York City. The top 1% control 42% of the nation’s financial wealth, while the bottom 80% control less than 5% of the financial wealth.
Table 1: Income, net worth, and financial worth in the U.S. by percentile, in 2010 dollars
Wealth or income class
Mean household income
Mean household net worth
Mean household financial (non-home) wealth
|Top 1 percent||
|Top 20 percent||
|Bottom 40 percent||
From Wolff (2012); only mean figures are available, not medians. Note that income and wealth are separate measures; so, for example, the top 1% of income-earners is not exactly the same group of people as the top 1% of wealth-holders, although there is considerable overlap.
The concentration of wealth in the hands of the few if achieved through superior work ethic and/or intellectual advantage would not cause discontent among the masses. Henry Ford, Steve Jobs and Bill Gates were admired for creating businesses and employing people. They earned their wealth. Today, it has become clear to all critical thinking people that a small cabal of super-rich men constituting an invisible ruling class have captured our financial and political system. They are the .1% who run the Wall Street banks, control the Federal Reserve, buy off the politicians of both parties, and pay lobbyists to write the laws and tax regulations. They use their ill-gotten wealth to maintain the status quo and further pillage the wealth of the working class through financial market manipulation, man-made inflation and outright theft. As 47 million Americans depend upon food stamps and other welfare programs to get by and real unemployment exceeds 20%, the wealth inequality in the nation has reached levels only seen in 1929, prior to the Great Crash outset of the last Fourth Turning. The mounting anger and discontent among the former working middle class is palatable. Those at the top of the food chain have rigged the system and get richer by the day. They bribe the lower classes with welfare benefits, taken from the working middle class, in an effort to stave off riots in the streets.
Rentier capitalism, the economic practice of parasitic monopolization of access to physical, financial, and intellectual property, has replaced free market capitalism, with the rentier class generating billions of illicit financialization profits while contributing nothing to society. We’ve become a modern day Panem, an imperialistic state thriving on the slave labor of other countries and inflicting our bastardized form of democracy at the point of Tomahawk missiles. In order to survive, Katniss defiantly and illegally hunts outside the District 12 fence perimeter and the famished citizens openly defy the law with their black market trading at the Hob. Desperate times lead to desperate measures.
When people despair, laws designed to maintain the status quo are deemed inconsequential by the peasants. You can see this happening in our society today. Welfare fraud among the lower classes is rampant. Bartering and working under the table for cash to avoid the crushing tax burden is growing. The rise of bitcoin as an alternative currency and the growing popularity of having possession of physical gold and silver is a reaction to the banker/politician fiat currency debt scheme to impoverish the masses. When the people see the bankers (Jamie Dimon) and former politicians (Jon Corzine) breaking laws with impunity, they feel no obligation to obey laws designed to keep them under the thumb of the ruling class. The fallacy of all men being created equal, with the American dream achievable for everyone, is still propagated by the government media propaganda mouthpieces. You’d have to be asleep to believe it.
In reality the ultra-rich have captured the system and have stacked the deck in their favor. This theme is captured in the Hunger Games during the reaping process, which is supposed to be random, with rich and poor equally likely to get chosen. In reality, the poor are much more likely than the rich to be reaped as tributes. In exchange for extra rations of food and oil necessary to keep from starving or freezing to death, called tesserae, those children eligible for theHunger Games can enter their names into the reaping additional times. Most children of poor families have to take tesserae to survive, so the children of poor families have more entries in the reaping than children of wealthy families who need no tesserae. The odds are never in their favor. The current version of the Hunger Games for our youth is loading them up with government peddled student loan debt, with no jobs available when they graduate, leaving them enslaved in unpayable debt.
The rich who do become tributes from the more prosperous districts have an additional advantage, because they are often trained to take part in the Games and volunteer to do so. They are bigger, stronger, well fed and groomed to win. The poor tributes face certain death. The fact is you can only push people so far before they fight back. The arrogance and hubris of the rich governing class leads them to disregard the misery of the lowly peasants, while they intensify their pillaging and burning of the countryside. Eventually a spark ignites a revolutionary spirit and unleashes a torrent of violence and retribution. History is ripe with instances of the downtrodden masses rising up and throwing off the yoke of authoritarian despots. Fourth Turnings are when the existing social order is swept away in an avalanche of violence and bloodshed.
Bread, Circuses & Reality TV
“What must it be like, I wonder, to live in a world where food appears at the press of a button? How would I spend the hours I now commit to combing the woods for sustenance if it were so easy to come by? What do they do all day, these people in the Capitol, besides decorating their bodies and waiting around for a new shipment of tributes to roll in and die for their entertainment?” – Katniss Everdeen – Hunger Games
The name of the nation – Panem, derives from the Latin phrase panem et circenses, which translates into ‘bread and circuses’. The idiom is meant to describe entertainment used to distract public attention from the corruption and vices of the governing class. By the government providing basic food and ample entertainment, the citizens voluntarily sacrifice liberties and rights for safety, security, and sustenance. The debauched occupants of the Capitol are the wealthiest and most decadent of all Panem, and the city’s affluence is fueled by the compulsory labor of the districts. The degenerates of the Capitol are known for their “creative” outfits, outrageous hair and ridiculous sense of fashion, even to the extent of dying the color of their own skin, or having whiskers implanted. Food and amusement are major drivers of the Hunger Games plot. The impoverished citizens, particularly in Districts 12 and 11 are on the verge of starvation, while the Capitol has food in abundance and throws lavish parties with extravagant and copious quantities of cuisine.
The superficial decadent upper class in the Capitol embraced overindulgence to such an extreme they purposely drank a concoction which would force them to throw up, so they could consume more. The analogy to the Roman vomitoriums during the depraved final days of their declining empire is distinct. Today in America, 47 million lower class Americans are reliant upon food stamps to be fed, while the majority are left to ingest processed poison packaged as food by mega-corporations and relentlessly marketed on television to a dumbed down populace. The ultra-rich dine on caviar and champagne in their penthouse suites, mansions in the Hamptons, or make reservations at restaurants not available to the 99.9%.
Appearances are extremely important in the post-apocalyptic pretentious world of the Hunger Games. Style and ostentatious fashion are everything to the affluent citizens of the plutocratic Capitol. It is natural to tattoo and dye their bodies’ in bright colors, as well as undergo plastic surgery to improve their looks. Some people of the Capitol have gems implanted in their skin, as well as talons. Capitol residents regularly wear wigs in a multitude of shocking colors. The degradation of our society can be seen in the worship of Hollywood created stars and pop singers freaks like Lady Gaga. The filthy rich deform their bodies with plastic surgery to change their natural appearance. By mutilating their bodies with surgery and tattoos, the media glorified fashionistas set the tone for a cultural decay. The lower classes can’t afford expensive plastic surgery, so they cover themselves in hideous tattoos in a pathetic attempt at individuality, when they are just conforming like lemmings to what they are told is trendy. The vain and narcissistic are too ignorant to realize their worship of celebrity and purchase of the latest fashions in clothes and jewelry are the sheep-like behavior of conformists.
The voyeuristic exploitation of children is taken to an extreme in The Hunger Games with their terror, suffering and slaughter televised for the enjoyment of a blood thirsty public. Murder as mass entertainment in a reality TV game show format illustrates a truly depraved culture. The American TV culture turns news, tragedy, childhood and war into morbid reality TV entertainment. The news, as reported by the corporate legacy media, is nothing more than propaganda generated by the establishment to support their continued control over the financial and governmental levers. It is designed to distract, misinform and obscure the truth. What the news cameras show is not reality and facades are more consequential than the truth – a Wag the Dog world. Virtually half of prime time TV is a staged voyeuristic display of moronic triviality, requiring no thought and providing a form of passive sedation for low IQ imbeciles. The sexual exploitation of children in shows such as Toddlers & Tiaras and Honey Boo Boo is considered normal in a thoroughly abnormal society. Television is nothing but show business and we are amusing ourselves to death, as revealed by Neil Postman.
“When a population becomes distracted by trivia, when cultural life is redefined as a perpetual round of entertainments, when serious public conversation becomes a form of baby-talk, when, in short, a people become an audience, and their public business a vaudeville act, then a nation finds itself at risk; culture-death is a clear possibility.” – Neil Postman – Amusing Ourselves to Death
The Hunger Games are televised and discussed incessantly in Panem’s media, just as the pointless Iraq War and faux War on Terror are ceaselessly analyzed, evaluated and hyped by talking heads with bleached teeth, like the smarmy Caesar Flickerman in the Hunger Games movie. The Roman gladiatorial games and the televised “Shock & Awe” of obliterating the city of Baghdad with thousands of cruise missiles are both forms of barbaric entertainment, with the poor sacrificed on the altar of entertainment. The ruling class have successfully dehumanized our culture and turned real people into commodities to be manipulated, used and even killed for profit. Their value becomes determined by how much entertainment they provide, and as such they lose their identities as people. Reality television is a form of objectification. The world has become a stage for our Contollers, their stage managers on Madison Avenue and the mainstream media.
“Television is our culture’s principal mode of knowing about itself. Therefore — and this is the critical point — how television stages the world becomes the model for how the world is properly to be staged. It is not merely that on the television screen entertainment is the metaphor for all discourse. It is that off the screen the same metaphor prevails.” ― Neil Postman – Amusing Ourselves to Death
We’ve spent the last five decades learning to love our oppression, adoring our technology, glorying in our distaste for reading books, and wilfully embracing our ignorance. Huxley’s vision of a population, passively sleep walking through lives of self- absorption, triviality, drug induced gratification, materialism and irrelevance has come to pass. Only in the last two decades has Orwell’s darker vision of oppression, fear, surveillance, hate and intimidation begun to be implemented by the ruling class. We’ve become a people controlled by pleasure and pain, utilized in varying degrees by those in power. Stay tuned for our modern day Hunger Games after this commercial for your very own Duck Dynasty Chia Pet.
In Part 2 of this article – May the Odds Ever Be in Your Favor – Hope & Defiance, I’ll address how Edward Snowden is our mockingjay who has ignited a fire that will lead to revolution and the next phase of this Fourth Turning.
Canada’s electronic spy agency is defending its espionage activities against countries around the world, including trading partners — often at the request of the U.S. — as necessary to support government decision-making and provide a better understanding of global events.
The statement came in response to questions that CBC News posed to the Communications Security Establishment Canada (CSEC), the little-known spy service that collects intelligence by intercepting mainly foreign communications and hacking into computer data systems.
CBC News reported Monday that a top secret document retrieved by American whistleblower Edward Snowden reveals Canada has set up covert spying posts at the request of the giant U.S. National Security Agency, and is involved in joint espionage operations with the NSA in about 20 countries.
CSEC says it has a “mandate to intercept foreign communications signals to respond to government of Canada priorities.”
The agency says it collects foreign intelligence “to protect Canadians from threats, and we take that responsibility very seriously.”
It is not clear in either the leaked Snowden document or CSEC’s response to it, what kind of threats Canada faces that would require it to conduct espionage against 20 countries, including some of its important trading partners.
The secret document reveals that Canada has undertaken spying operations in countries that are “unavailable” to the NSA, as well as setting up listening posts “at the request” of the U.S. agency.
CBC News asked CSEC whether it does whatever the NSA asks it to do.
The agency replied that its activities respond only to the priorities of the Canadian government, “many of which are common to our allies.”
All of this sparked some heated questions for the Harper government in the House of Commons today.
NDP MP Jack Harris demanded to know whether the government would implement some form of parliamentary oversight of the spy service in light of the CBC News report.
Defence Minister Rob Nicholson, who is responsible for CSEC, pointed out only that the operations of the intelligence service are already reviewed by an oversight commissioner.
That commissioner reports to Nicholson.
Kerry will brief the full US Senate on Wednesday on the status of talks with Iran [Reuters]
|US Secretary of State John Kerry has raised doubts over whether Iran is prepared to conclude a final deal with Western powers on dismantling its disputed nuclear programme, but has urged US lawmakers not to impose new sanctions on the country.
“I came away from our preliminary negotiations with serious questions about whether or not they’re ready and willing to make some of the choices that have to be made,” Kerry told the US House of Representatives foreign affairs committee on Tuesday.
“Has Iran changed its nuclear calculus? I honestly don’t think we can say for sure yet. And we certainly don’t take words at face value,” Kerry said.
The top US diplomat, who helped hammer out an interim six-month deal with the country to freeze parts of its nuclear programme, said “believe me this is not about trust”.
“Given the history we are all rightly sceptical about whether people are ready to make the hard choices to live up to this.”
But he stressed Iran’s seriousness would be put to the test over the six months set out in the interim deal hammered out last month in Geneva.
Iran has denied accusations it is seeking to acquire a nuclear weapon under the guise of its civilian atomic energy programme.
Kerry said “we now have the best chance we’ve ever had to test this proposition without losing anything” and he urged lawmakers to hold off imposing new sanctions on Tehran to give negotiators time to work.
“I’m not saying never […] If this doesn’t work we’re coming back and asking you for more. I’m just saying not right now.”
Two US senators – Democrat Robert Menendez and Republican Mark Kirk – are finalising a new Iran sanctions measure that they hope to introduce before Congress goes on its year-end recess.
Republican Senator John McCain, who said he hoped senators could “get an agreement in the next day or two”, dismissed the idea that introducing new sanctions legislation now would hurt the interim agreement.
“It’s supposed to be a six-month deal,” he said of the legislation, which would aim to punish Iran if it reneged on its part of the deal that it reached last month with members of the so-called P5+1 group of Western powers.
Fellow Republican Senator Lindsey Graham said the new sanctions would not take effect until after the six months, and would “basically tie to the UN resolutions”.
Kerry said the world faced a crossroads, “a hinge point in history”: one path could lead to a resolution of concerns about Iran’s nuclear programme, the other could lead to conflict.
He warned that if the US went ahead with new sanctions, it risked angering Washington’s P5+1 partners and could also give Iran an excuse to flout the deal.
Ukraine Escalates: Police, Some Armed With Chainsaws, Storm Protest Camp – Live Webcasts | Zero Hedge
It will be a long night in Kiev, where as warned previously, once things start rolling downhill, they will deteriorate rapidly. Via Bloomberg:
- POLICE STORM PROTEST CAMP IN CENTER OF KIEV, AP REPORTS
- UKRAINIAN POLICE MASS NEAR BARRICADES AT KIEV SQUARE
- RIOT POLICE ARMED WITH CHAINSAWS APPROACH KIEV BARRICADES
- UKRAINIAN POLICE INSIDE KIEV PROTEST CAMP
BREAKING: Police storm protest camp in the center of Ukrainian capital.
— The Associated Press (@AP) December 10, 2013
— Jonathan Paterson (@patersonjon) December 10, 2013
— Quentin Guillemain (@qguillemain) December 10, 2013
Some background from Guy Haselmann of Scotiabank:
Ukraine is a strategically important country of 45 million people. A trade pact with the EU was close. However, it appears that a rival bid (or other means of influence) arose during two closed door meetings with Vladimir Putin. The press often reports that President Yanukovich’s corrupt government has shown an instinct for self-preservation often at the expense of the expense of the nation.
The Ukraine economy is in recession. The country has only $20 billion of foreign reserves which is 2 ½ months of imports (worse than Egypt). The IMF’s red flag level is 3 months. Ukraine has $10bln of external debt maturing in 2014. Its CDS rose over 100 bps this week to near 1100. Debt-to-GDP is only 43%, but Argentina defaulted with its debt-to-GDP at 50%. Its currency (Hryvnia), which was devalued in 2008, is pegged to the dollar. The current account deficit is 7% and herein lies the biggest problem.
The IMF is unlikely to help until after the 2015 election. The EU is unlikely to provide any aid. Russia may be enticed to help via loans. The President is on his way to China – who may help – but he may return no longer in power.
And Goldman notes the situation is fluid but highly likely that anti-regime protests will persist with several possible scenarios developing:
1) President Yanukovich declares a state of emergency and/or uses force to prevent protests from developing further;
2) President Yanukovich agrees to talks with the opposition and to a roadmap for signing the EU association agreement at some point in 2014 (our understanding had been that this would not be possible on the EU side, but EU leaders have recently suggested otherwise);
3) President Yanukovich does nothing and protests persist.
From the macroeconomic standpoint, these protests come at a time when the National Bank of Ukraine (NBU) has had to defend the currency peg through sizeable interventions, which have depleted the reserve cover to 2.5 months of imports, and when the government is arguably unable to roll its debt in the market. Goldman fears the further risk is that, due to the heightened political uncertainty, capital outflows could intensify, putting further pressure on the peg.
While there had been some press reports suggesting sizeable Russian financial help in exchange for the country not signing the EU association agreement, the recent developments, in our view, call this further into question. We think that Russia is unlikely to extend substantial help without guarantees. Given that it appears that President Yanukovich’s chances of holding on to power beyond the 2015 spring election have decreased following the protests and schisms in his administration might even weaken his powers earlier (splits in the Region’s Party, for instance, might deprive him of a majority in parliament) he might very well not be in a position any more to give those guarantees.
As indicated by polling and by the participation in street protests, the decision to suspend preparations for signing the EU association agreement was an unpopular one, at least with a significant part of the population. Goldman believes that President Yanukovich may have underestimated the political ramifications of doing so.
At this stage, it is difficult to forecast how the situation will evolve. Apart from the size of the protests it also matters to what extent the president can hold on to his own power bases in the Regions Party and the eastern part of the country. Given that the economy is in recession and the heavy industries in the east in particular are suffering, his support there might very well be more brittle than in the past.
But perhaps there is a silver lining – in an odd twisted way – the concerns about Ukrainian banks and the currency peg have seen deposit outflows increasing the risk to the country’s financial system and creating a particularly acute headache for Russian banks. The silver lining, of course, is that Russia may be forced to provide more assistance in a Cyprus-style save for its own banks (lenders) and depositors…
While other foreign lenders have cut their Ukraine exposure in the five years since – to 20 percent of Ukraine banking sector assets in 2012 from 40 percent in 2008, according to a Raiffeisen Research survey – Russian banks have maintained a strong market presence, still accounting for 12 percent.
Among foreign banks, the Russians have easily the biggest exposure, more than twice that of Austrian lenders, the next biggest.
“[Moodys] estimate that these banks’ exposure to Ukrainian risk is $20-$30 billion, a sizeable amount indeed, considering that their combined Tier 1 capital was $105 billion in June,” Moody’s said.
Moody’s, which estimated that 35 percent of all bank loans in Ukraine were problem loans, said the country’s severe economic problems would keep local borrowers under pressure and could result in higher loan losses for the Russian lenders.
In the absence of the association agreement with the European Union, Russian-Ukrainian trade is likely to rise, and the four big Russian banks may well increase their exposure to Ukraine, it added.
Dimitry Sologoub, head of research at Raiffeisen in Kiev, said the banks had learned lessons from the 2008 crisis, so were much less exposed to credit risk, liquidity risk and forex risk, and the central bank was calming matters by providing liquidity and foreign exchange.
“The question is how long it will go? The reserve cushion of the national bank is not so big.”
In the meantime, Ukraine might secure short-term benefits from its closer ties with Russia, enough perhaps to stave off the kind of currency crisis that nearby Belarus suffered in 2011, said Charles Robertson, chief global economist at Renaissance Capital in London.
“In the long run, it will probably keep Ukraine poor. This is bad for Ukrainians and bad for Russia,” he added.
“Instead of being a strong, successful economy on Russia’s borders, able to buy plenty of Russian exports, Ukraine risks becoming another Belarus.”
Which – after all – could be just what Putin wants…
The End of the Status Quo: aka. Mass Consumption
Japan: Locus of the Next Crisis?
The past five year rally in global credit was driven by liquidity flows and carry trades. Zero percent interest rates subsidized highly leveraged lending to the riskiest of sovereign borrowers. As long as the liquidity flows continued, the underlying solvency was never put into question. When liquidity flows inevitably reverse due to risk aversion, pricing of debt/credit/bonds will be based solely upon ongoing solvency of the underlying borrower. At that point in time, the Minksy Moment will arrive seemingly out of nowhere.
History’s Largest Circle Jerk
Third World wage slaves produce the goods. Over-leveraged Western consumers borrow from the wage slaves (via recurring trade deficits) to buy the goods, billionaires capture the arbitrage profits between rich and poor which they then lend to sovereign governments to service non-amortizing debts. Central Banks provide 0% liquidity to paper over the latent insolvency. All while policy-makers and the dunces at large pretend that this can go on indefinitely.
Borrowed Time and Money
December 10, 2013
[Editor’s Note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]
For practitioners of Schadenfreude, seeing high-profile investors losing their shirts is always amusing.
But for the true connoisseur, the finest expression of the art comes when a high-profile investor identifies a bubble, perhaps even makes money out of it, exits in time – and then gets sucked back in only to lose everything in the resultant bust.
An early example is the case of Sir Isaac Newton and the South Sea Company, which was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England’s war debt.
Investors warmed to the appeal of this monopoly and the company’s shares began their rise.
Britain’s most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise.
In the words of Lord Overstone, no warning on earth can save people determined to grow suddenly rich.
Newton went on to repurchase a good deal more South Sea Company shares at more than three times the price of his original stake, and then proceeded to lose £20,000 (which, in 1720, amounted to almost all his life savings).
This prompted him to add, allegedly, that “I can calculate the movement of stars, but not the madness of men.”
The chart of the South Sea Company’s stock price, and effectively of Newton’s emotional journey from greed to satisfaction and then from envy and more greed, ending in despair, is shown above.
A more recent example would be that of the highly successful fund manager Stanley Druckenmiller who, whilst working for George Soros in 1999, maintained a significant short position in Internet stocks that he (rightly) considered massively overvalued.
But as Nasdaq continued to soar into the wide blue yonder (not altogether dissimilar to South Sea Company shares), he proceeded to cover those shorts and subsequently went long the technology market.
Although this trade ended quickly, it did not end well. Three quarters of the Internet stocks that Druckenmiller bought eventually went to zero. The remainder fell between 90% and 99%.
And now we have another convert to the bull cause.
Fund manager Hugh Hendry has hardly nurtured the image of a shy retiring violet during the course of his career to date, so his recent volte-face on markets garnered a fair degree of attention. In his December letter to investors he wrote the following:
“This is what I fear most today: being bearish and so continuing to not make any money even as the monetary authorities shower us with the ill thought-out generosity of their stance and markets melt up. Our resistance of Fed generosity has been pretty costly for all of us so far. To keep resisting could end up being unforgivably costly.”
Hendry sums up his new acceptance of risk in six words: “Just be long. Pretty much anything.”
Will Hendry’s surrender to monetary forces equate to Newton’s re-entry into South Sea shares or Druckenmiller’s dotcom capitulation in the face of crowd hysteria ? Time will tell.
Call us old-fashioned, but rather than submit to buying “pretty much anything”, we’re able to invest rationally in a QE-manic world by sailing close to the Ben Graham shoreline.
Firstly, we’re investors and not speculators. (As Shakespeare’s Polonius counselled: “To thine own self be true”.)
Secondly, our portfolio returns aren’t exclusively linked to the last available price on some stock exchange; we invest across credit instruments; equity instruments; uncorrelated funds, and real assets, so we have no great dependence on equity markets alone.
Where we do choose to invest in stocks (as opposed to feel compelled to chase them higher), we only see advantage in favouring the ownership of businesses that offer compelling valuations to prospective investors.
In Buffett’s words, we spend a lot of time second-guessing what we hope is a sound intellectual framework. Examples:
- In a world drowning in debt, if you must own bonds, own bonds issued by entities that can afford to pay you back;
- In a deleveraging world, favour the currencies of creditor countries over debtors;
- In a world beset by QE, if you must own equities, own equities supported by vast secular tailwinds and compelling valuations;
- Given the enormous macro uncertainties and entirely justifiable concerns about potential bubbles, diversify more broadly at an asset class level than simply across equity and bond investments;
- Given the danger of central bank money-printing seemingly without limit, currency / inflation insurance should be a component of any balanced portfolio
- Forget conventional benchmarks. Bond indices encourage investors to over-own the most heavily indebted (and therefore objectively least creditworthy) borrowers. Equity benchmarks tend to push investors into owning yesterday’s winners.
In the words of Sir John Templeton,
“To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”
So be long “pretty much everything”, or be long a considered array of carefully assessed and diverse instruments of value. It’s a fairly straightforward choice.
Submitted by W. Ben Hunt of Epsilon Theory
Up to the walls of Jericho
With sword drawn in his hand
Go blow them horns, cried Joshua
The battle is in my hands
– “Joshua Fit the Battle of Jericho”, traditional African-American spiritual
At the outset of World War II, the German Luftwaffe attached an ear-splitting siren – the Jericho Trumpet – to the Junker Ju-87 dive-bomber, commonly called the Stuka. Dive-bombers are wonderful tactical aircraft if you have control of the skies, highly effective against tanks, vehicles of all sorts, even smaller ships, but they simply don’t carry enough ordnance to be a strategic weapon. They can certainly help you win a battle, but they’re unlikely to help you win a war. By attaching the Jericho Trumpet, however, the Stuka became a psychological weapon as much as a physical weapon, striking fear in a much wider swath than the actual bombs. During the early Blitzkrieg days of the war, the Stuka had exactly this sort of strategic effect, crushing the morale of the Polish army in particular.
Because it was a propeller-driven siren, the Jericho Trumpet actually made the Stuka a less effective dive-bomber, slowing its air speed and making it an easier target to hit. This was a trade-off that the German High Command was happy to make so long as the Stuka maintained its mystique as a terrifying harbinger of death from above, but that mystique was shattered once the Royal Air Force started shooting them down by the dozens in the Battle of Britain. By the end of 1940 the Stuka was almost entirely redeployed from the Western Front to the East, and those planes that remained had their sirens removed. As Churchill famously said of the RAF, “never was so much owed by so many to so few,” and it’s the psychological dimension of this victory that is so striking to me. I don’t think it’s a coincidence that the military tides of World War II shifted in the West at exactly the same moment that the Luftwaffe took off the Jericho Trumpet and the Stuka lost its mojo.
Today the financial media – and the WSJ’s Jon Hilsenrath in particular – is the Fed’s Jericho Trumpet. Unlike the Luftwaffe, the Fed is not trying to inspire terror, but they are similarly trying to turn a powerful tactical weapon into a strategic weapon through psychological means. The Fed is now embracing the use of communication as a policy tool in a totally separate manner from whatever concrete actions the communication is ostensibly about, and they use Hilsenrath (and a few others) as a modern-day Joshua to blow the horn. The Fed is now playing the Common Knowledge game openly and directly, making public statements through their media intermediaries to tell you how ALL market participants perceive reality, even though in fact NO market participant has a clear view of reality. In the Common Knowledge game – whether it’s the Island of the Green-Eyed Tribe that modern game theorists write about, the Newspaper Beauty Contest that Keynes wrote about in the 1930’s, or the Emperor’s New Clothes that Hans Christian Andersen wrote about in the 1830’s – the strong public statement of what “everyone knows” creates a reality where it is rational behavior for everyone to act as if they, too, see this reality … even if they privately don’t see it at all.
Here’s the money quote from Hilsenrath’s article last Friday after the November jobs report, titled (self-referentially enough) “Hilsenrath’s Five Takeaways on What the Jobs Report Means for the Fed”:
MARKETS BELIEVE TAPERING ISN’T TIGHTENING: Markets are positioned more to the Fed’s liking today than they were in September, when it put off reducing, or “tapering,” the monthly bond purchases. Most notably, the Fed’s message is sinking in that a wind down of the program won’t mean it’s in a hurry to raise short-term interest rates. Futures markets place a very low probability on Fed rate increases before 2015, in contrast to September, when fed funds futures markets indicated rate increases were expected by the end of 2014. The Fed has been trying to drive home the idea that “tapering is not tightening” for months and is likely to feel comforted that investors believe it as a pullback gets serious consideration.
In truth, the shift in the implied futures market expectations of short-term rate hikes from late 2014 into early 2015 says nothing about what “The Market” believes about tapering. It says a lot about the enormous effort that the Fed is putting into its forward guidance on rates, as a communications policy replacement for its prior reliance on forward guidance and linkage of unemployment rates and QE (a mistake that I wrote extensively about at the time and is now universally seen as a policy error). The Fed, through Hilsenrath, is trying to tell you how you should think about tapering. Not by giving you a substantive argument, but simply by announcing to you in a very authoritative voice what everyone else thinks about tapering.
Hey, don’t worry about tapering. No one else is worried about tapering. You are totally out of step with all the smart people if you’re worried about tapering. It’s duration of ZIRP that matters, not QE. Don’t you know that? Everyone else knows that. Maybe you’re just not very smart if you can’t see that, too. Can you see it now? Ah, good.
This is game-playing in an almost pure form. It’s smart and it’s effective. The siren from above is starting to wail: if you react negatively in your investment decisions to tapering, you are Fighting the Fed.
The bombs are going to drop – increased forward guidance on rates and decreased direct bond purchases – but these policies in and of themselves are just tactical. What’s really at stake is the strategic meaning of these policies, the belief system that takes hold (or doesn’t) around the power of the Fed to create market outcomes.
Over the next three or four months we’re going to see quite a battle for the hearts and minds of investors, with both “sides” employing the Narrative of Don’t Fight the Fed. On the one hand you will have the Fed, with their Jericho Trumpet of Hilsenrath et al shrieking at you a new interpretation of the Narrative: ZIRP is the source of the Fed’s power, not QE, so tapering is no big deal. On the other hand you also have the Fed, but the Fed of the past several years and the way it has trained the market to believe that the portfolio rebalancing effect … i.e., the behavioral impact of QE that Bernanke has directly credited with driving up the stock market … is what really matters. And if that’s your reality, then tapering is a big deal, indeed. I’ll be monitoring all this closely at Epsilon Theory in the weeks ahead.
Importantly, this psychological battle is taking place entirely within the larger Narrative of Central Bank Omnipotence. If the QE meme wins the day and tapering ends up hitting the markets hard … well, it’s Fed balance sheet operations that determine market outcomes. If the ZIRP meme wins the day and tapering is a non-event … well, it’s Fed forward guidance on rates that determines market outcomes. Either way, it’s a Fed-centric universe. Forever and ever, amen.
While much has been said about the benefits of Bernanke’s wealth effect to the asset-owning “10%”, just as much has been said about the ever deteriorating plight of the remaining debt-owning 90%, who are forced to resort to labor to provide for their families, and more specifically how their living condition has deteriorated over not only the past five years, since the start of the Fed’s great experiment, but over the past several decades as well. However, in the case of America’s “servant” class, Al Jazeera finds that their plight is now worse than it has been at any time over the past century, going back all the way to 1910!
According to Al Jazeera, “at least one class of American workers is having a much harder time today than a decade ago, than during the Great Depression and than a century ago: servants. The reason for this, surprisingly enough, is outsourcing. Let me explain. Prosperous American families have adopted the same approach to wages for servants as big successful companies, hiring freelance outside contractors for all sorts of functions from child care and handyman chores to gardening and cleaning work to reduce costs. Instead of the live-in servants, who were common in the prosperous households of America before World War II, better off families now outsource the family cook, maid and nanny. It is part of a global problem in developed countries that is getting more attention worldwide than in the U.S.”
The reality is that the modern servant is also known as the minimum-wage burger flipper, whose recent weeks have been spent in valiant, if very much futile, strikes in an attempt to increase the minimum wage their are paid. Futile, because recall that in its first “national hiring day” McDonalds hired 62,000 workers…. and turned down 938,000! Such is the sad reality of the unskilled modern day worker at the bottom the labor pyramid.
Unfortunately, we anticipate many more strikes in the future of America’s disenfranchised poorest, especially once they realize that their conditions are worse even than compared to live in servants from the turn of the century.
Al Jazeera crunches the numbers:
Consider the family cook. Many family cooks now work at family restaurants and fast food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed.
A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours now comes to $290 a week.
At first blush that looks like a real raise of $55 a week, or nearly a 25-percent increase in pay. But in fact, the 2013 minimum wage cook is much worse off than the 1910 cook. Here’s why:
- The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes.
- Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $122 in New York City, so bus fare alone runs $17 to $25 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish.
- The 1910 cook got room and board, while the 2013 cook must provide his own living space and food.
More than half of fast food workers are on some form of welfare, labor economists at the University of California, Berkeley and the University of Illinois reported in October after analyzing government economic statistics.
Data on domestic workers is scant because Congress excludes them from both regular data gathering by the Bureau of Labor Statistics and laws giving workers rights to rest periods and collective bargaining.
Nevertheless, what we do know is troubling. These days 60 percent of domestic workers spend half of their income just on housing and a fifth run out of food some time each month.
A German study found that in New York City domestic workers pay ranges broadly, from an illegal $1.43 to $40 an hour, with a quarter of workers earning less than the legal minimum wage. The U.S. median pay for domestic servants was estimated at $10 an hour.
We are falling backwards in America, back to the Gilded Age conditions a century and more ago when a few fortunate souls grew fabulously rich while a quarter of families had to take in paying boarders to make ends meet. Only back then, elites gave their servants a better deal.
Thorstein Veblen, in his classic 1899 book “The Theory of the Leisure Class,” observed that “the need of vicarious leisure, or conspicuous consumption of service, is a dominant incentive to the keeping of servants.” Nowadays, servants are just as important to elites, except that they are conspicuous in their competition to avoid paying servants decent wages.
But… but… how is that possible if the stock market is at all time highs and the wealth is US households just rose by $1.9 trillion in one short quarter. Oh wait, what they meant is “some” households.
And, of course if all else fails, America’s “free” servants, stuck in miserable lives working minimum wage jobs for corporations where the only focus in on shareholder returns and cutting overhead, can volunteer to return to a state of “semi-slavery” (while keeping the iPhones and apps of course, both paid on credit) and become live-in servants for America’s financial oligarchy and the like. We hear the numerous apartments of Wall Street’s CEOs have quite spacious servants’ quarters.
We can only imagine the upward revisions to GDP that will occur due to the largest mal-investment-driven wholesale inventory build in over 2 years. The 1.4% MoM gain is over 4x the expectation and biggest beat since Q4 2011, when – just as now – a mid-year plunge was met by a rabid over-stocking only to see the crumble back into mid 2012. As we noted previously, 56% of economic “growth” this year was inventory accumulation (cough auto channel stuffing cough) and this print merely confirms “hollow growth” continues.
So how does inventory hoarding – that most hollow of “growth” components as it relies on future purchases by a consumer who has increasingly less purchasing power – look like historically? The chart below shows the quarterly change in the revised GDP series broken down by Inventory (yellow) and all other non-Inventory components comprising GDP (blue).
But where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is seen most vividly, is in the data from the past 4 quarters, or the trailing year starting in Q3 2012 and ending with the just released revised Q3 2013 number. The result is that of the $534 billion rise in nominal GDP in the past year, a whopping 56% of this is due to nothing else but inventory hoarding.
The problem with inventory hoarding, however, is that at some point it will have to be “unhoarded.” Which is why expect many downward revisions to future GDP as this inventory overhang has to be destocked.
Despite the ratings agencies (Moody’s Dec 5th and S&P Nov 22nd) seemingly premature raising of the outlook for the nation’s sovereign credit rating (from negative to stable), economic hardship in Spain looks likely to continue as loan defaults surge and the unemployment rate remains the second highest in the EU.
25% of Working Population to Stay Unemployed
The IMF predicts Spain’s unemployment rate will remain at 25 percent or higher until 2018 even after the nation exited its recession in the third quarter. Spanish households’ average income fell to 23,123 euros per year in 2012, compared with 25,556 euros in 2008, the National Statistics Institute said on Nov. 20. That leaves 22.2 percent of the population at risk of poverty, according to Eurostat.
Bad Debts at Record High
Record bad loans may restrain the economic recovery. Spanish banks’ bad debt as a proportion of total lending rose to a record 12.68 percent in September, according to Bank of Spain data that began in 1962. Missed payments on mortgages are rising and defaults as a proportion of total mortgages jumped to 5.2 percent in the second quarter from 3.2 percent a year earlier.
House Prices May Fall Further
Banks are likely to remain under pressure as real estate values fall. House prices are down 28.2 percent from their peak. Fewer than 15,000 mortgages were granted in September, compared with about 129,000 at the September 2005 peak, according to the National Statistics Institute, pointing to more price declines. House prices may drop a further 13 percent by the end of 2014, S&P forecasts.
Corruption Levels Rise Most in Europe
Spain’s levels of perceived corruption rose the most in Europe last year, Transparency International’s annual rankings show. Spain fell six points to 59, ranking it 40th in the world. Only Syria fell by more. The so-called gray economy represents 18.6 percent of GDP according to analysis by Friedrich Schneider for the Institute of Economic Affairs. That is equivalent to about 183 billion euros.
But apart from that… it’s all good in Spain…
Source: Bloomberg Briefs