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Daily Archives: January 17, 2014

Since Barack Obama has been in the White House, high ranking military officers have been removed from their positions at a rate that is absolutely unprecedented. Things have gotten so bad that a number of retired generals are publicly speaking out about the “purge” of the U.S. military that they believe is taking place.

As you will see below, dozens of highly decorated military leaders have been dismissed from their positions over the past few years. So why is this happening?

When I was growing up, my father was an officer in the U.S. Navy. And what is going on right now is absolutely crazy – especially during a time of peace. Is there a deliberate attempt to “reshape” the military and remove those that don’t adhere to the proper “viewpoints”? Does someone out there feel a need to get officers that won’t “cooperate” out of the way?

Throughout world history, whatever comes next after a “military purge” is never good. If this continues, what is the U.S. military going to look like in a few years?

Perhaps you are reading this and you think that “purge” is too strong a word for what is taking place. Well, just consider the following quotes from some very highly decorated retired officers…

–Retired Army Major General Paul Vallely: “The White House protects their own. That’s why they stalled on the investigation into fast and furious, Benghazi and Obamacare. He’s intentionally weakening and gutting our military, Pentagon and reducing us as a superpower, and anyone in the ranks who disagrees or speaks out is being purged.”

–Retired Army Major General Patrick Brady: “There is no doubt he (Obama) is intent on emasculating the military and will fire anyone who disagrees with him.”

–Retired Army Lt. General William G. “Jerry” Boykin: “Over the past three years, it is unprecedented for the number of four-star generals to be relieved of duty, and not necessarily relieved for cause.”

–Retired Navy Captain Joseph John: “I believe there are more than 137 officers who have been forced out or given bad evaluation reports so they will never make Flag (officer), because of their failure to comply to certain views.”

According to the Blaze, one anonymous Pentagon official has said that even young officers have been told “not to talk about Obama or the politics of the White House”…

A Pentagon official who asked to remain nameless because they were not authorized to speak on the matter said even “young officers, down through the ranks have been told not to talk about Obama or the politics of the White House. They are purging everyone and if you want to keep your job — just keep your mouth shut.”

Now this trend appears to be accelerating. We have seen a whole bunch of news stories about military officers being dismissed lately.

Almost always, a “legitimate reason” is given for the dismissal. And without a doubt, if a military officer is actually behaving unethically, that officer should be held accountable.

However, the reality is that everyone has “skeletons in the closet”, and if you really want to get rid of someone it is usually not too hard to find a way to justify your decision.

The following are excerpts from three news stories about military officers in trouble that have come out so far in 2014…

#1 The Air Force Times: A group of former Air Force majors, forced out this summer by a noncontinuation board, plans to file a lawsuit claiming the service had no right to separate them simply to meet end-strength numbers set by Congress.

More than 10 of the 157 dismissed majors are banding together to challenge the move in court, seeking either reinstatement or early retirement pay. All 157 had been twice passed over for promotion and were within six years of retirement.

#2 Defense News: Acting US Navy Undersecretary Robert Martinage, the department’s No. 2, has resigned under pressure, sources confirmed for Defense News.

The resignation, which Martinage announced to his staff Tuesday morning, came after allegations were made of inappropriate conduct with a subordinate woman, the sources confirmed.

#3 Huffington Post: The Air Force says 34 nuclear missile launch officers have been implicated in a cheating scandal and have been stripped of their certification in what is believed to be the largest such breach of integrity in the nuclear force.

Some of the officers apparently texted to each other the answers to a monthly test on their knowledge of how to operate the missiles. Others may have known about it but did not report it.

The cheating was discovered during a drug investigation that involves 11 Air Force officers across six bases in the U.S. and England.

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Taken alone, it would be easy to dismiss those stories as “coincidences”. But when you put them together with the stories of dozens of other high ranking military officers that have been purged from the U.S. military in recent years, a very disturbing pattern emerges.

The following is a list of high ranking military officers that have been dismissed over the past few years that has been circulating all over the Internet. I think that you will agree that this list is quite stunning…

Commanding Generals fired:

General John R. Allen-U.S. Marines Commander International Security Assistance Force [ISAF] (Nov 2012)
Major General Ralph Baker (2 Star)-U.S. Army Commander of the Combined Joint Task Force Horn in Africa (April 2013)
Major General Michael Carey (2 Star)-U.S. Air Force Commander of the 20th US Air Force in charge of 9,600 people and 450 Intercontinental Ballistic Missiles (Oct 2013)
Colonel James Christmas-U.S. Marines Commander 22nd Marine Expeditionary Unit & Commander Special-Purpose Marine Air-Ground Task Force Crisis Response Unit (July 2013)
Major General Peter Fuller-U.S. Army Commander in Afghanistan (May 2011)
Major General Charles M.M. Gurganus-U.S. Marine Corps Regional Commander of SW and I Marine Expeditionary Force in Afghanistan (Oct 2013)
General Carter F. Ham-U.S. Army African Command (Oct 2013)
Lieutenant General David H. Huntoon (3 Star), Jr.-U.S. Army 58th Superintendent of the US Military Academy at West Point, NY (2013)
Command Sergeant Major Don B Jordan-U.S. Army 143rd Expeditionary Sustainment Command (suspended Oct 2013)
General James Mattis-U.S. Marines Chief of CentCom (May 2013)
Colonel Daren Margolin-U.S. Marine in charge of Quantico’s Security Battalion (Oct 2013)
General Stanley McChrystal-U.S. Army Commander Afghanistan (June 2010)
General David D. McKiernan-U.S. Army Commander Afghanistan (2009)
General David Petraeus-Director of CIA from September 2011 to November 2012 & U.S. Army Commander International Security Assistance Force [ISAF] and Commander U.S. Forces Afghanistan [USFOR-A] (Nov 2012)
Brigadier General Bryan Roberts-U.S. Army Commander 2nd Brigade (May 2013)
Major General Gregg A. Sturdevant-U.S. Marine Corps Director of Strategic Planning and Policy for the U.S. Pacific Command & Commander of Aviation Wing at Camp Bastion, Afghanistan (Sept 2013)
Colonel Eric Tilley-U.S. Army Commander of Garrison Japan (Nov 2013)
Brigadier General Bryan Wampler-U.S. Army Commanding General of 143rd Expeditionary Sustainment Command of the 1st Theater Sustainment Command [TSC] (suspended Oct 2013)

Commanding Admirals fired:

Rear Admiral Charles Gaouette-U.S. Navy Commander John C. Stennis Carrier Strike Group Three (Oct 2012)
Vice Admiral Tim Giardina(3 Star, demoted to 2 Star)-U.S. Navy Deputy Commander of the US Strategic Command, Commander of the Submarine Group Trident, Submarine Group 9 and Submarine Group 10 (Oct 2013)

Naval Officers fired: (All in 2011)

Captain David Geisler-U.S. Navy Commander Task Force 53 in Bahrain (Oct 2011)
Commander Laredo Bell-U.S. Navy Commander Naval Support Activity Saratoga Springs, NY (Aug 2011)
Lieutenant Commander Kurt Boenisch-Executive Officer amphibious transport dock Ponce (Apr 2011)
Commander Nathan Borchers-U.S. Navy Commander destroyer Stout (Mar 2011)
Commander Robert Brown-U.S. Navy Commander Beachmaster Unit 2 Fort Story, VA (Aug 2011)
Commander Andrew Crowe-Executive Officer Navy Region Center Singapore (Apr 2011)
Captain Robert Gamberg-Executive Officer carrier Dwight D. Eisenhower (Jun 2011)
Captain Rex Guinn-U.S. Navy Commander Navy Legal Service office Japan (Feb 2011)
Commander Kevin Harms- U.S. Navy Commander Strike Fighter Squadron 137 aboard the aircraft carrier Abraham Lincoln (Mar 2011)
Lieutenant Commander Martin Holguin-U.S. Navy Commander mine countermeasures Fearless (Oct 2011)
Captain Owen Honors-U.S. Navy Commander aircraft carrier USS Enterprise (Jan 2011)
Captain Donald Hornbeck-U.S. Navy Commander Destroyer Squadron 1 San Diego (Apr 2011)
Rear Admiral Ron Horton-U.S. Navy Commander Logistics Group, Western Pacific (Mar 2011)
Commander Etta Jones-U.S. Navy Commander amphibious transport dock Ponce (Apr 2011)
Commander Ralph Jones-Executive Officer amphibious transport dock Green Bay (Jul 2011)
Commander Jonathan Jackson-U.S. Navy Commander Electronic Attack Squadron 134, deployed aboard carrier Carl Vinson (Dec 2011)
Captain Eric Merrill-U.S. Navy Commander submarine Emory S. Land (Jul 2011)
Captain William Mosk-U.S. Navy Commander Naval Station Rota, U.S. Navy Commander Naval Activities Spain (Apr 2011)
Commander Timothy Murphy-U.S. Navy Commander Electronic Attack Squadron 129 at Naval Air Station Whidbey Island, WA (Apr 2011)
Commander Joseph Nosse-U.S. Navy Commander ballistic-missile submarine Kentucky (Oct 2011)
Commander Mark Olson-U.S. Navy Commander destroyer The Sullivans FL (Sep 2011)
Commander John Pethel-Executive Officer amphibious transport dock New York (Dec 2011)
Commander Karl Pugh-U.S. Navy Commander Electronic Attack Squadron 141 Whidbey Island, WA (Jul 2011)
Commander Jason Strength-U.S. Navy Commander of Navy Recruiting District Nashville, TN (Jul 2011)
Captain Greg Thomas-U.S. Navy Commander Norfolk Naval Shipyard (May 2011)
Commander Mike Varney-U.S. Navy Commander attack submarine Connecticut (Jun 2011)
Commander Jay Wylie-U.S. Navy Commander destroyer Momsen (Apr 2011)

Naval Officers fired: (All in 2012):

Commander Alan C. Aber-Executive Officer Helicopter Maritime Strike Squadron 71 (July 2012)
Commander Derick Armstrong- U.S. Navy Commander missile destroyer USS The Sullivans (May 2012)
Commander Martin Arriola- U.S. Navy Commander destroyer USS Porter (Aug 2012)
Captain Antonio Cardoso- U.S. Navy Commander Training Support Center San Diego (Sep 2012)
Captain James CoBell- U.S. Navy Commander Oceana Naval Air Station’s Fleet Readiness Center Mid-Atlantic (Sep 2012)
Captain Joseph E. Darlak- U.S. Navy Commander frigate USS Vandegrift (Nov 2012)
Captain Daniel Dusek-U.S. Navy Commander USS Bonhomme
Commander David Faught-Executive Officer destroyer Chung-Hoon (Sep 2012)
Commander Franklin Fernandez- U.S. Navy Commander Naval Mobile Construction Battalion 24 (Aug 2012)
Commander Ray Hartman- U.S. Navy Commander Amphibious dock-landing ship Fort McHenry (Nov 2012)
Commander Shelly Hakspiel-Executive Officer Navy Drug Screening Lab San Diego (May 2012)
Commander Jon Haydel- U.S. Navy Commander USS San Diego (Mar 2012)
Commander Diego Hernandez- U.S. Navy Commander ballistic-missile submarine USS Wyoming (Feb 2012)
Commander Lee Hoey- U.S. Navy Commander Drug Screening Laboratory, San Diego (May 2012)
Commander Ivan Jimenez-Executive Officer frigate Vandegrift (Nov 2012)
Commander Dennis Klein- U.S. Navy Commander submarine USS Columbia (May 2012)
Captain Chuck Litchfield- U.S. Navy Commander assault ship USS Essex (Jun 2012)
Captain Marcia Kim Lyons- U.S. Navy Commander Naval Health Clinic New England (Apr 2012)
Captain Robert Marin- U.S. Navy Commander cruiser USS Cowpens (Feb 2012)
Captain Sean McDonell- U.S. Navy Commander Seabee reserve unit Naval Mobile Construction Battalion 14 FL (Nov 2012)
Commander Corrine Parker- U.S. Navy Commander Fleet Logistics Support Squadron 1 (Apr 2012)
Captain Liza Raimondo- U.S. Navy Commander Naval Health Clinic Patuxent River, MD (Jun 2012)
Captain Jeffrey Riedel- Program manager, Littoral Combat Ship program (Jan 2012)
Commander Sara Santoski- U.S. Navy Commander Helicopter Mine Countermeasures Squadron 15 (Sep 2012)
Commander Kyle G. Strudthoff-Executive Officer Helicopter Sea Combat Squadron 25 (Sep 2012)
Commander Sheryl Tannahill- U.S. Navy Commander Navy Operational Support Center [NOSC] Nashville, TN (Sep 2012)
Commander Michael Ward- U.S. Navy Commander submarine USS Pittsburgh (Aug 2012)
Captain Michael Wiegand- U.S. Navy Commander Southwest Regional Maintenance Center (Nov 2012)
Captain Ted Williams- U.S. Navy Commander amphibious command ship Mount Whitney (Nov 2012)
Commander Jeffrey Wissel- U.S. Navy Commander of Fleet Air Reconnaissance Squadron 1 (Feb 2012)

Naval Officers fired: (All in 2013):

Lieutenant Commander Lauren Allen-Executive Officer submarine Jacksonville (Feb 2013)
Reserve Captain Jay Bowman-U.S. Navy Commander Navy Operational Support Center [NOSC] Fort Dix, NJ (Mar 2013)
Captain William Cogar-U.S. Navy Commander hospital ship Mercy’s medical treatment facility (Sept 2013)
Commander Steve Fuller-Executive Officer frigate Kauffman (Mar 2013)
Captain Shawn Hendricks-Program Manager for naval enterprise IT networks (June 2013)
Captain David Hunter-U.S. Navy Commander of Maritime Expeditionary Security Squadron 12 & Coastal Riverine Group 2 (Feb 2013)
Captain Eric Johnson-U.S. Navy Chief of Military Entrance Processing Command at Great Lakes Naval Training Center, IL (2013)
Captain Devon Jones-U.S. Navy Commander Naval Air Facility El Centro, CA (July 2013)
Captain Kevin Knoop-U.S. Navy Commander hospital ship Comfort’s medical treatment facility (Aug 2013)
Lieutenant Commander Jack O’Neill-U.S. Navy Commander Operational Support Center Rock Island, IL (Mar 2013)
Commander Allen Maestas-Executive Officer Beachmaster Unit 1 (May 2013)
Commander Luis Molina-U.S. Navy Commander submarine Pasadena (Jan 2013)
Commander James Pickens-Executive Officer frigate Gary (Feb 2013)
Lieutenant Commander Mark Rice-U.S. Navy Commander Mine Countermeasures ship Guardian (Apr 2013)
Commander Michael Runkle-U.S. Navy Commander of Mobile Diving and Salvage Unit 2 (May 2013)
Commander Jason Stapleton-Executive Office Patrol Squadron 4 in Hawaii (Mar 2013)
Commander Nathan Sukols-U.S. Navy Commander submarine Jacksonville (Feb 2013)
Lieutenant Daniel Tyler-Executive Officer Mine Countermeasures ship Guardian (Apr 2013)
Commander Edward White-U.S. Navy Commander Strike Fighter Squadron 106 (Aug 2013)
Captain Jeffrey Winter-U.S. Navy Commander of Carrier Air Wing 17 (Sept 2013)
Commander Thomas Winter-U.S. Navy Commander submarine Montpelier (Jan 2013)
Commander Corey Wofford- U.S. Navy Commander frigate Kauffman (Feb 2013)

So what do you think about all of this?

Do you believe that a “purge” of high ranking military officers is taking place?

Please feel free to share what you think by posting a comment below…

This article first appeared here at the American Dream. Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

Alan Rusbridger: Westminster is hoping Snowden revelations go away | Media | theguardian.com

January 17, 2014 8:09 am / 5 Comments on Alan Rusbridger: Westminster is hoping Snowden revelations go away | Media | theguardian.com

Alan Rusbridger: Westminster is hoping Snowden revelations go away | Media | theguardian.com.

Alan Rusbridger told the BBC both the main political parties felt compromised by the surveillance revelations. Photograph: Leon Neal/AFP/Getty Images

Britain’s political class has been closing its eyes and hoping the revelations from Edward Snowden go away rather than tackle important issues over mass surveillance that have provoked such heated debate in America, the editor in chief of the Guardian has said.

Alan Rusbridger accused Westminster of “complacency” about the revelations from Snowden, which have been published in the Guardianover the past six months.

Speaking to the BBC hours before the US president, Barack Obama, was due to give details about reforms to the US spy headquarters, the National Security Agency (NSA), Rusbridger said: “I think one of the problems is that both of the main political parties feel compromised about this. Labour is not keen to get involved because a lot of this stuff was done on their watch.”

He added: “I think there is a degree of complacency here. There has been barely a whisper from Westminster. I think they are closing their eyes and hoping that it goes away. But it won’t go away because it’s impossible to reform the NSA without having a deep knock-on effect on what our own intelligence services do.”

Interviewed on BBC Radio 4’s Today programme, Rusbridger said the oversight mechanisms that were supposed to review the work of Britain’s intelligence agencies had proved to be “laughable”. He said the parliamentary intelligence and security committee, even with the extra money it had received recently, was not up to the job. “I just don’t think they have the technical expertise or the resources,” he said.

Rusbridger added: “What is unprecedented in the last 15 years is the advance of technology. It is completely different from anything that has existed in humankind before.”

Earlier in the programme, William Hague, the foreign secretary, reaffirmed his belief that Britain’s eavesdropping headquarters, GCHQ, had acted within the law when it looked at the content of intercepted messages.

He refused to comment on the Guardian’s latest story from the Snowden files – which shows GCHQ has access to “unwarranted” text messagescollected by the NSA in a programme codenamed Dishfire.

“I am not going to comment on allegations or leaks. I can’t possibly do that,” said Hague.

“But I can say [we have] a very strong system of checks and balances of warrants being required from me or the home secretary to intercept the content of the communications.

“That system is not breached. I have not seen anything to suggest that system has been breached. We have probably the strongest system in the world. Not only do I and the home secretary oversee these things, but we have commissioners who oversee our work and report to the prime minister. No country has a stronger system than that.”

But Rusbridger said Hague had sidestepped the main issue.

Dishfire collects so-called “metadata”, which can be analysed with fewer legal restraints. Yet expert after expert had admitted metadata was as valuable as content to intelligence analysts, said Rusbridger, because it allows analysts to build up a picture of your whereabouts and your relationships.

“There is not much distinction between metadata and content,” he said.

“[Hague] talked about being within the law on content. This isn’t content. This is metadata, which politicians make out as very harmless. This is not just billing data. The world has moved on. What people can tell through metadata is almost everything about you.

“Contrary to what William Hague said the documents say, the NSA likes working here because of the light legal regime here.”

Rusbridger also questioned the claims of Britain’s security chiefs that the Guardian’s revelations had undermined national security and – in the words of the head of MI6, Sir John Sawers – left al-Qaida rubbing its hands in glee.

Rusbridger said the claim was “theatrical … but there was no evidence attached”.

Bernanke reflects on ‘trying to avoid going off the bridge’ – Business – CBC News

January 17, 2014 7:24 am / 1 Comment on Bernanke reflects on ‘trying to avoid going off the bridge’ – Business – CBC News

Bernanke reflects on ‘trying to avoid going off the bridge’ – Business – CBC News.

Ben S. Bernanke likened the financial crisis to a car crash in his final public comments as head of the Federal Reserve Thursday. (Bloomberg)

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Term ends January 31

Bernanke will leave the Fed on Jan. 31 after eight years as chairman. His successor, Janet Yellen, will take over on Feb. 1.

In his appearance, Bernanke defended the Fed’s efforts during the crisis, which included massive purchases of Treasury bonds to push long-term interest rates lower and forward guidance to investors about how long the Fed plans to keep short-term interest rates near zero.

Critics have warned that those efforts pose great risks for higher inflation or future financial market turmoil.

But Bernanke says there has not been a problem with inflation, which is still running well below the Fed’s 2 per cent target.

Should inflation start to be a problem as the economy starts growing at faster rates, the Fed “has all the tools we need to manage interest rates” to keep inflation from getting out of hand, he said.

“Inflation is just not really a significant risk” from the bond purchases, Bernanke said.

Bernanke said the central bank was aware of potential threats to financial market stability from its massive bond holdings and is monitoring markets very closely to spot any signs of trouble. He said this threat was the one “we have spent the most time thinking about and trying to make sure that we can address” should the need arise.

But he said any concerns about financial stability did not outweigh the need to keep providing support to the economy.

The Fed announced last month that it would slightly reduce the size of its bond purchases in January from $85 billion per month down to $75 billion. And it said it would likely make further reductions at upcoming meetings, if the economy keeps improving.

Why Canada Should Demand Sustainable Trade Practices From Its Partners | David R. Miller

January 17, 2014 7:24 am / 1 Comment on Why Canada Should Demand Sustainable Trade Practices From Its Partners | David R. Miller

Why Canada Should Demand Sustainable Trade Practices From Its Partners | David R. Miller.

The Trans-Pacific Partnership has been described by negotiation countries as one of the most ambitious 21st century trade agreements. However, today’s leak of the agreement’s draft environment chapter reveals deeply concerning limits to that ambition. And it is these limits that could significantly undermine the sustainable use of the world’s resources as well as the long-term economic benefits of trade.

For nearly four years, a dozen nations including Canada, the U.S., Mexico, and a number of Pacific Rim countries have been quietly negotiating this deal. Last fall, WWF along with 23 other environmental organizations called for the inclusion of a number of critical measures to ensure the long-term sustainability of the world’s seafood and timber, and to curb the illegal trade of wildlife. Even though legally enforceable environmental provisions are a mandatory part of all U.S. trade agreements, that’s precisely where the leaked chapter (penned, it turns out, by Canada) fails. In short, the environmental provisions have no teeth.

The global environmental issues cited by WWF and others are implicit in this trade agreement. The countries included in the Trans-Pacific Partnership represent about one-quarter of the world’s global seafood catch (Canada is both a major exporter and importer of seafood). They account for 34 per cent of world’s timber and pulp production. And they include some of the globe’s largest consumers of illegal wildlife products. In other words, this agreement represents a once-in-a-generation opportunity to significantly address the overfishing of our oceans, the devastation of our forests, and the illegal poaching and trafficking that is driving rhinos, elephants, sharks and other species to the brink of extinction.

That’s what’s slipping through our fingers here. And the implications are far-ranging. Unsustainable resource trade weakens the ability of law-abiding businesses to compete, and threatens jobs in countries who follow the rules. Take “pirate” fishing for example (fishing that’s illegal, unregulated, and unreported). This global epidemic accounts for about 20 per cent of the world’s seafood catch, costing the industry as much as $23 billion per year. It’s also a major driver of overfishing, which includes unsustainable shark finning.

Canada has actually become an international leader in the fight against “pirate” fishing. Shouldn’t we be demanding that same level of leadership from others? Shouldn’t we be at the table pushing for an agreement that makes strong, legally-binding environmental legislation the foundation for a prosperous and sustainable global economy? Doesn’t that speak both to our historic role in international negotiations as well as to our values as Canadians?

Sadly, today’s leaked report shows us doing the opposite: standing in the way of proposals for stronger environmental enforcements. That, too, is a very disappointing missed opportunity — for Canada, for the world, and for our country’s our place in it.

Follow David R. Miller on Twitter: www.twitter.com/@iamdavidmiller

Keystone XL ‘limbo’ needs to end soon, Baird tells U.S. – Politics – CBC News

January 17, 2014 6:49 am / Leave a comment

Keystone XL ‘limbo’ needs to end soon, Baird tells U.S. – Politics – CBC News.

Canadian Foreign Affairs Minister John Baird speaks at a U.S. Chamber of Commerce luncheon in Washington, Thursday. He told the business audience that Canada is looking for a decision soon on the Keystone XL pipeline project even if it’s not the ‘right’ one. (Cliff Owen/Associated Press)

Baird speech to U.S. Chamber of Commerce17:03

Tom Mulcair interview 15:47

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NK offers olive branch after holocaust threat – Asia-Pacific – Al Jazeera English

January 17, 2014 6:48 am / Leave a comment

NK offers olive branch after holocaust threat – Asia-Pacific – Al Jazeera English.

S Korea has rejected calls for an end to the mudslinging, saying it does not slander or threaten the North [AP]

North Korea has called on South Korea to end “all acts of provocation and slander”, a day after it warned of “an unimaginable holocaust” if the South carried out military exercises with the United States.

The National Defence Commission in Pyongyang adopted the conciliatory tone on Thursday in line with leader Kim Jong-un’s New Year speech about greater co-operation between the two countries.

In a statement posted on the official KCNA news agency, the NDC said: “We officially propose the South Korean authorities to take a practical measure of halting all acts of provoking and slandering the other side from January 30, a day before the Lunar New Year’s Day.”

But the olive branch was rejected by Seoul on Friday, with a government spokesman saying there was no intention of changing its behaviour or plans.

“We don’t slander North Korea so there is nothing for us to stop,” Unification Ministry spokesman Kim Eui-Do said.

“Our military exercises are routine defensive drills, like those conducted by all sovereign states.”

The North has regularly denounced the annual drills staged by South Korea and US as preparation for invasion.

This year, Pyongyang said the exercises were dangerous and “may push the situation on the peninsula and the north-south ties to a catastrophe,” KCNA reported.

A spokesman for the Committee for the Peaceful Reunification of Korea (CPRK) said in a statement: “They should clearly understand that the north-south ties will plunge into a deadlock and unimaginable holocaust and that disaster will follow should they go ahead with the nuclear war drills and make military provocation.”

Last year’s exercises were held in the wake of North Korea’s third and largest nuclear test, prompting months of heightened military tensions that saw Pyongyang issue apocalyptic threats of nuclear war against the South and the US.

Chinese Stocks Tumble On Contagion Concerns From First Shadow-Banking Default | Zero Hedge

January 17, 2014 6:48 am / Leave a comment

Chinese Stocks Tumble On Contagion Concerns From First Shadow-Banking Default | Zero Hedge.

While manufacturing and services PMIs disappointed, the big problem in big China remains that of an out-of-control credit creation process that is blowing up. As we previously noted, instead of crushing credit creation, the PBOC’s liquidity rationing has forced distressed companies into high-interest-cost products in the shadow-banking world. Investors on the other side of “troubled shadow banking products” had assumed that ‘someone’ would bail them out but this evening Reuters reports that ICBC has confirmed that it will not rescue holders of the “Credit Equals Gold #1 Collective Trust Product”, due to mature Jan 31st with $492 million outstanding. The anxiety from contagion concerns of the first shadow-banking default has pushed the Shanghai Composite back near 2,000 for the first time since July – and to its narrowest spread to the S&P 500 in almost 8 years.

The Shanghai Composite is tumbling… to six month lows (and back near 2,000 for the firs time since July)…

and its closest (nominally) to the S&P 500 in almost 8 years…

As we previously noted,

…borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).

Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.

Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.

So the PBOC’s efforts are merely exacerbating the situation for the worst companies… for example… Zhenfu Energy…

As Reuters reports,

Industrial and Commercial Bank of China, the world’s largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market.

ICBC’s shares have fallen this week amid speculation that the bank would be forced to help repay investors in a 3 billion yuan ($496.20 million) high-yield investment product issued by China Credit Trust Co Ltd but marketed through ICBC branches. The product is due to mature on Jan. 31.

“Regarding this unsubstantiated rumour, a situation completely does not exist in which ICBC will assume the main responsibility (for the trust product),” an ICBC spokesman told Reuters by phone on Tuesday.

The trust product, called “2010 China Credit / Credit Equals Gold #1 Collective Trust Product”, used the funds it raised from wealthy investors in 2010 to make a loan to unlistedcoal company Shanxi Zhenfu Energy Group Ltd.

But in May 2012, Zhenfu Energy’s vice chairman, Wang Ping Yan, was arrested for accepting deposits without a banking licence.

Which Barclays warns:

In our view, despite the trust issuer, distributor bank and local government perhaps trying to bail out the mining company, the regulators and central government could probably allow the trust product default to happen as:

government appears fairly determined to reform the financial system and cut off the implicit guarantee of financial institutions;

the State Council is reportedly streamlining regulation of shadow banking including trust business; and

the default of trust products could have less social impact than the default of WMPs, bonds and other products sold to the general public or have problematic practices, such as asset-pool investments.

In our view, the default of trust products could trigger some short-term negative impacts on China’s financial sector and the reputation of financial institutions. However, we believe it is positive for the healthy development of financial system in the long run because the default could do the following:

Be a step to reduce the implicit guarantee of financial institutions for investment products. Banks could shift their financial liabilities back to the investors.

Increase the risk awareness of both investors and financial institutions, which could correct the pricing of investment products to more risk-oriented.

Its conclusion is dire: “If the trust product goes into default, we believe it would be the first default to test the financial system.”

Here is the product…

And the growth of such products has been enormous as we have explained in great detail previously: at RMB10.1 trillion as of Q3 should the first domino fall, watch out below.

Finally for those who have forgotten, below is a quick schematic of what a WMP looks like:

As Michael Pettis, Jim Chanos, Zero Hedge (numerous times), and now George Soros have explained. Simply put –

“There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years.”

The “eerie resemblances” – as Soros previously noted – to the US in 2008 have profound consequences for China and the world – nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained above.

Olduvaiblog: Musings on the coming collapse

Daily Archives: January 17, 2014