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Welcome To Phase Three Of The Global Financial Crisis | Zero Hedge

Welcome To Phase Three Of The Global Financial Crisis | Zero Hedge.

It’s deliciously ironic that emerging market (EM) problems have flared so soon after the meeting of the rich and powerful in Davos. According to the central bankers at Davos, the financial crisis is behind us and brighter days lay ahead. According to these bankers, the EM issues which have since arisen are confined to a handful of developing countries and they won’t impact the West.

If only were that so. What the eruptions of the past week really show is that the system based on easy money created by these bankers remains deeply flawed and these flaws have been exposed by moves to tighten liquidity in the U.S. and China. The system broke down in 2008, and again in Europe in 2011 and now in EM in 2013-2014.

The market reaction to the latest events has been abrupt and violent, particularly in the currency world. In my experience, markets generally cope well when there is one crisis. If the current issue was isolated to Turkey, markets outside of this country would probably shrug their shoulders and move on. But when there are multiple spot fires like the last week, markets don’t cope as well.

What are investors supposed to do now? Well, going into this year, Asia Confidential suggested (herehere and here) being cautious on stocks given increasing deflationary risks from U.S. tapering and a China slowdown. And to go long government bonds in developed markets (the U.S) given these risks and junior gold miners due to the extraordinarily cheap valuations on offer. These recommendations have performed well year-to-date and should continue to out-perform for the remainder of 2014.

Simple explanations for the crisis

Much ink has been spilled (or keyboards worn, in this day and age) trying to make sense of the past week’s event. China’s economic slowdown has copped much of the blame. As has QE tapering. And idiosyncratic issues in Turkey and Argentina have received their fair share of attention.

There have also been more sophisticated explanations such as this one from Kit Juckes at Societe Generale:

“There has been a shift in the balance of growth as Chinese demand for raw material wanes, and as higher wages and strong currencies make many EM economies less competitive. Meanwhile, the Fed policy cycle IS turning, and 4 years of capital being pushed out in a quest for less derisory yields, are ending. This isn’t a repeat of the 1990s Asian crises, because domestic conditions are completely different but it is a turn in the global market cycle. We need to transition from a world where investment is pushed out of the US/Europe/Japan to one where it is pulled in by attractive prospects. When that happens, flows will be differentiated much more from one country (EM or otherwise) to another. But for now, we’re just waiting for global capital flows to calm down.”

Now I have a large issue with the purported attractive prospects of the US, Europe and Japan, but let’s put that aside. The bigger issue is that the explanation here appears to be addressing the symptoms of the crisis (global capital flows) rather than the disease (excess credit and an unstable global economic system).

A more nuanced view

Let me elaborate on this. In a previous post, I echoed the thoughts of India’s new central bank chief in suggesting that there were four main causes for the 2008 financial crisis:

  • Rising inequality and the push for housing credit in the U.S.. Growing income inequality in America, exacerbated by technology replacing low-wage jobs and an inadequate education system which failed to re-skill people, led to politicians allowing easier credit conditions to boost asset prices and make people feel wealthier. That resulted in the subprime and housing crisis.
  • Export-led growth and dependency of several countries including China, Japan and Germany. The debt-fueled consumption in the U.S. would have been inflationary were it not for these countries not meeting the consumption needs of Americans. In other words, they aided and abetted the consumption binge in the U.S.
  • A clash of cultures between developed and developing countries. This relates back to 1997 when the Asian crisis force countries in the region to go from being net importers to substantial net exporters, thereby creating the conditions for a global glut in goods.
  • U.S central bank policy pandering to political considerations by focusing on jobs and inflation at any cost. The bank acted in accordance with the wishes of politicians by keeping interest rates too low for too long. They did this to maintain high employment, one of the bank’s two central mandates.

It’s important to note that none of these issues has been resolved. In fact, many of them have worsened. And any hint of adjustments to one or more of these problems results in further crises (like Europe in 2011 and in EM mid-last year and today).

This isn’t to excuse the governance issues in the likes of Argentina and Turkey. But it is to suggest that they are merely symptoms of a deeper malaise.

Deflation is winning battle over inflation

If these adjustments were to happen in full, it would result in plunging global asset prices as excessive debt loads are unwound. De-leveraging, in economic terms. This deflationary action is anathema to the world’s central bankers as deflation is enemy number one. Hence, they’ll do “whatever it takes” to produce inflation. And if that means flushing currencies down the urinal, so be it. The battle between inflation and deflation is ongoing, though the latter has the upper hand right now.

The weapons of choice for central bankers to fight off deflation are QE and zero interest rates. Central bankers tell us that these policies are necessary for economies to heal. I’d suggest this is baloney and they’re exacerbating the aforementioned problems.

To see why, it’s important to understand that interest rates are the central price signal off which all assets are priced. If central banks keep rates artificially low, it distorts these asset prices. And if you keep rates low for long enough, it distorts prices to such an extent that it’s impossible to know what the real value of certain assets are.

Another issue is that by keeping rates low, businesses which should go bankrupt stay alive. That’s why government bail-outs of almost any private company are a bad idea. Keeping zombies businesses alive means economies become less competitive over time. Witness Japan since 1990.

These are but a few of the unintended consequences of the current policies.

The endgame

There are three possible endgames to the current situation:

  1. There’s a global deflationary shock where all asset prices fall and fall hard. A la 2008. In this instance, central banks would go in all guns blazing with more money printing on an even grander scale. This would risk inflation if not hyperinflation as faith in currencies is diminished, if not lost.
  2. You have a gradual global recovery and inflation stays tame enough for a smooth exit from current policies.
  3. There’s a recovery but central banks are slow to raise rates and inflation gallops, which forces tightening and a subsequent economic slowdown.

My bet remains on the first scenario given intensifying deflationary forces from a China economic slowdown and Japan currency debasement (which aids exporters in being more price competitive).

If I’m right, there may be deflation followed by extreme inflation (or one quickly followed by the other). That makes investing a tough game. Under both of those scenarios, stocks and bonds would under-perform in a big way (my current call to own developed market government bonds is a 6-12 month one, not long-term). That’s why cash (which would out-perform in deflation), gold (which would prosper under extreme inflation) and select property and other tangible assets such as agriculture (which may out-perform under extreme inflation on a relative rather than absolute basis) should be part of any diverse investment portfolio.

This post was originally published at Asia Confidential
http://asiaconf.com/2014/01/29/phase-three-financial-crisis/

After Davos, The China-Japan ‘Cold-War’ “Situation Is Getting Worse” | Zero Hedge

After Davos, The China-Japan ‘Cold-War’ “Situation Is Getting Worse” | Zero Hedge.

China and Japan’s war of words reveals a larger struggle for regional influence akin to a mini Cold War. Last week’s tempestuous pissing contest in Davos, which The FT’s Gideon Rachman notes, left people with the belief that “this is not a situation that is getting better; it is getting worse.” Following Abe’s analogies to WWI, China’s Yi compared Abe’s visit to the Yasukuni shrine to Merkel visiting the graves of Nazi war criminals and as the rhetoric grows the US has asked for reassurance from Abe that he will not do it again. So we have two countries, each building up their militaries while insisting they must do so to counter the threat of their regional rival. Added to this, a deep distrust of each other’s different political systems coupled with a history of animosity makes the two nations deeply suspicious of each other. Each country insists it loves peace, and uses scare tactics to try to paint its opponent as a hawkish boogeymanSound familiar to anyone else?

 

As The WSJ reports,

U.S. officials say they are seeking assurances from Japan that Prime Minister Shinzo Abe won’t repeat a visit to a war shrine that angered China and South Korea and will ask Mr. Abe to consider reaffirming Tokyo’s previous formal apologies over World War II in a bid to ease tensions in East Asia.

 

But even as Washington looks for calm, Seoul and Beijing bristled again this week over new comments by Mr. Abe on his shrine visit, underscoring the challenges the U.S. faces in its diplomatic push.

The FT sums up the tensions in Davos last week…

 

Via Shannon Tiezzi via The Diplomat,

Lately, it seems that Japanese officials can’t sneeze without incurring the wrath of the Chinese — and vice versa. So it’s no surprise that even conciliatory statements from Shinzo Abe have been soundly rebuffed. On Thursday, Abe wrote a message, published in local Chinese-language papers, conveying greetings for the lunar new year. According to Reuters’ translation of the Japanese-language version, Abe insisted that Japan has “taken the path of peace” since World War II, and “nothing has been changed in the policy of continuing to uphold this position.”

Friday, Abe further extended the olive branch. According to Channel NewsAsia, Abe told a parliamentary session that “Japan and China are inseparable.” He also expressed his desire for the two countries to restart diplomatic meetings. “Instead of refusing to hold dialogue unless issues become resolved, we should hold talks because we have issues,” Abe said.

China flatly rejected these overtures. Responding to earlier requests for a bilateral dialogue, Qin Gang responded with bitter sarcasm: “Such kind of dialogue will be of no effect. Chinese leaders are very busy. Let them spend more time on things useful and effective.” China has repeatedly expressed its position that no diplomatic meetings between China and Japan can be held until Shinzo Abe proves his sincerity. During Friday’s press conference, Qin Gang laid down a specific path for restarting dialogue: Abe should declare that “I will pull back from the precipice, immediately admit and correct mistakes and make no more visits to the Yasukuni Shrine.”

As I wrote earlierat this point it seems impossible that anything Abe will do will satisfy Chinese leaders (the things he could do, like apologizing for his visit to Yasukuni and/or Japan’s imperialistic past, are incredibly unlikely). To Chinese officials, Abe is “self-contradictory,” as an editorial in China Daily put it. Unless Abe apologizes for and refrains from repeating actions that upset China (from visiting Yasukuni to building up Japan’s military), China will dismiss as insincere his rhetoric about dialogue and peace. Meanwhile, from the Japanese perspective, were Abe to devote the rest of his administration to proving his friendship to China, it would have obvious negative repercussions for Japanese interests.

So we have two countries, each building up their militaries while insisting they must do so to counter the threat of their regional rival. Added to this, a deep distrust of each other’s different political systems coupled with a history of animosity makes the two nations deeply suspicious of each other. Each country insists it loves peace, and uses scare tactics to try to paint its opponent as a hawkish boogeyman. Sound familiar to anyone else?

Ever since the Cold War ended, strategists have been warning leaders to drop the “Cold War mentality.” But it apparently hasn’t worked, because that is exactly what we have right now between China and Japan. The two countries identify so strongly as rivals that it’s impossible for either country to do or say anything without triggering a response from its counterpart. The tensions pop up in the most unexpected places – during Abe’s Africa tour, during a global economic summit in Switzerland.

Even the strong economic ties between China and Japan haven’t helped forestall tensions. In fact, it’s the other way around – tensions are eroding the economic relationship. The Telegraph recently reported that, according to a poll, 60 percent of Chinese business leaders are unwilling to work with Japanese firms. In 2012, China-Japan tensions even erupted into outright calls to boycott Japanese products, with rioters targeting Japanese businesses and restaurants. While Japan’s business view of China is less affected (according to The Telegraph, 80 percent of Japanese are willing to continue trade with China and South Korea), economic interests are shifting to other regions, notably Southeast Asia. Economic ties are likely to continue worsening. It’s certainly hard to see the next round of negotiations on a trilateral China-Japan-South Korea free-trade agreement going off as planned in February 2014.

As with the Cold War, part of the problem is that both China and Japan willfully read each other’s every move as a challenge or threat. For all the distrust between China and the United States, the problem hasn’t reached this level (yet). The U.S. has too many potential enemies (Russia, Iran, North Korea) and too many global interests for China to realistically interpret every diplomatic or strategic maneuver as somehow anti-China (although certainly some hawks within China do try). Japan, with its more limited global presence and strategic interests, is a different story. Meanwhile, as China is currently limiting its military build-up and strategic goals to the near seas, it’s easy for Tokyo interpret each move (for example, a new air defense identification zone) as directly aimed at Japan.

My colleague Zachary wrote Friday that one byproduct of the United States’ decline could be the emergence of regional hegemons. We might be seeing the beginning of this process now, with China and Japan in a Cold War-style battle, not for global power but for regional dominance. The territorial dispute highlights this by increasing the possibility of military conflict, but even if the Diaoyu/Senkaku Islands were to sink into the ocean tomorrow (one possible benefit of global warming) the tensions would remain. It’s a regional Cold War, currently being fought with words but with an arms race looming on the horizon. And, like the Cold War, tensions are unlikely to end until one country claims victory.

Angst Over Argentina Upends Alpine Complacency in Davos – Bloomberg

Angst Over Argentina Upends Alpine Complacency in Davos – Bloomberg.

Over a three-hour lunch in Davos yesterday, Carlyle Group LP (CG) co-founder David Rubenstein told a group of investors and bankers his biggest worry: nobody appeared to be worried about anything at all.

Less than 24 hours later, the devaluation of the Argentine peso accelerated the worst selloff in emerging market stocks in five years, unnerving delegates at the World Economic Forum in Switzerland. As they shuttled from meetings to meals, losses were piling up by the minute as developing nation currencies slid with equities.

“I don’t want to look,” Daniel Loeb, billionaire founder of hedge fund Third Point LLC, said of the financial markets as he walked between meetings at the Congress center in Davos.

After recent gatherings were dominated by crises from Lehman Brothers Holdings Inc. to Greece, this year’s had begun to reflect a mood of optimism as economies and stock markets recovered. That enthusiasm waned today as the rout in emerging markets exacerbated concern that the engines of global growth since the crisis have now stalled.

Special Report: 2014 World Economic Forum in Davos, Switzerland

Attendees at the Davos lunch included Larry Fink, chief executive officer of Blackrock Inc. (BLK), the world’s largest money manager, Blackstone Group LP (BX)’s Steve Schwarzman andUBS AG (UBSN) Chairman Axel Weber. They were briefed by Treasury Secretary Jacob J. Lew and Bank of Japan Governor Haruhiko Kuroda.

Photographer: Jason Alden/Bloomberg

David M. Rubenstein, co-founder and co-chief executive officer of the Carlyle Group LP,…Read More

‘Black Swans’

“Over the last couple of years people have gotten a lot less worried, but there are always things like black swans that come around,” Rubenstein said in an interview today. “I just wanted to make sure everybody remembers that and that we are likely to have some bumps along the road.”

Emerging market stocks have suffered their worst start to a year since 2009 as signs of weakness in China’s economy add to concern about the impact of cuts to the U.S. Federal Reserve’s stimulus program. The MSCI Emerging Markets Index fell 1.5 percent today, extending this year’s slump to 5.3 percent.

Argentine policy makers devalued the peso by reducing support in the foreign-exchange market, allowing the currency to drop the most in 12 years to an unprecedented low. Turkey sold dollars to prop up the lira and South Africa’s rand declined to a five-year low.

Goldman Sachs Group Inc. (GS) CEO Lloyd Blankfein told Bloomberg Television’s Erik Schatzker and Stephanie Ruhle today he would “wait a while before saying there is a complete reversal” in markets, noting they were due a consolidation having “gone up very far in a single direction.”

Davos Man

“Davos Man is probably right in thinking 2014 will be a nice year, with more growth than last year,”Jean-Claude Trichet, former president of the European Central Bank, said in an interview. “But of course risks are still there.”

Forcing the reappraisal is the Fed’s tapering of monetary stimulus, which had previously covered all ills by prompting investors to chase returns in emerging markets.

With the U.S. central bank now cutting its monthly asset purchases from $85 billion, money managers are refocusing on the fundamentals of economies, punishing those with weak policies or imbalances such as large current account or budget deficits.

The shift was underscored this week by the International Monetary Fund, which released new forecasts showing emerging markets will outpace advanced nations by the smallest margin this year since 2001.

‘Overly Complacent’

“Investors have been overly complacent in emerging markets,” Davide Serra, founder of London-based Algebris Investments LLP, said in Davos. “In 12 to 18 months, as real rates rise in the U.S. we’ll see which emerging markets were swimming naked.”

Other emerging economies are displaying faultlines, with investors mainly focused on the so-called fragile five of Brazil, India, Indonesia, South Africa and Turkey.

China is also struggling to contain $4.8 trillion in shadow-banking debt, while Brazil is trying to rein in inflation fuelled up by a falling currency and higher public spending. A corruption investigation is embroiling Turkish Prime Minister Recep Tayyip Erdogan’s cabinet and deadly protests in Ukraine and Thailand are eroding confidence in their stability.

“We’re in a volatile era and anyone who doesn’t think that is overly complacent,” said Tim Adams, president of the Institute of International Finance, which represents more than 400 financial firms, and the U.S. Treasury’s former undersecretary for international affairs. “The re-pricing of risk will continue and there will be peaks of convulsions and complacency.”

To contact the reporters on this story: Jesse Westbrook in Davos atjwestbrook1@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; John Fraher at jfraher@bloomberg.net

Davos delegates warned of imminent oil crisis  |  Peak Oil News and Message Boards

Davos delegates warned of imminent oil crisis  |  Peak Oil News and Message Boards.

(Pic: Shell)

(Pic: Shell)

By Alex Kirby

A British businessman will tell world leaders meeting in Switzerland today that it is dangerous to argue that fracking for shale oil and gas can help to avert a global energy crisis.

Jeremy Leggett, a former Greenpeace staff member who founded a successful solar energy company, has been invited to the annual World Economic Forum meeting in Davos from 22 to 25 January. The theme of the meeting is The Reshaping of the World: Consequences for Society, Politics and Business.

Leggett told the Climate News Network: “The WEF likes to deal in big ideas, and last year one of its ideas was to argue that the world can frack its way to prosperity. There are large numbers of would-be frackers in Davos.

“I’m a squeaky wheel within the system. I’m in Davos to put the counter-arguments to Big Energy, and I’ll tell them: ‘You’re in grave danger of repeating the mistakes of the financial services industry in pushing a hyped narrative.”

This refers to the way in which banking leaders had “their particular comforting narrative catastrophically wrong, until the proof came along in the shape of the financial crash”.

Leggett founded Solarcentury, the UK’s fastest-growing solar electric company since 2000. He also established the charity SolarAid which aims to eradicate the kerosene lamp from Africa by 2020, and chairs the Carbon Tracker Initiative.

His book Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis was published in 2005, and his latest, The Energy of Nations: Risk blindness and the road to renaissance, in 2013.

‘Sunset industry’

Leggett says the conventional oil industry is facing an imminent crisis, because existing crude oil reserves are declining fast, it is having to find the money for soaring capital expenditure, and the amount of oil available for export is falling.

“Big Oil is still extremely powerful and well-capitalised”, he says, “but it is fast approaching sunset. The profitability of the big international groups – like Exxon, Shell and BP – is a real worry for investors, and they’ve been largely locked out of the easy oil controlled by national companies – just look at BP and Russia.

“Gas? Unless the price goes up, the whole US shale gas industry is in danger of becoming a bubble, even a Ponzi scheme. All but one of the biggest production regions have peaked already, and losses are piling up. This is an industry that’s in grave danger of committing financial suicide.”

A linked message that Leggett will deliver is that there is a growing danger of a carbon bubble building up in the capital markets. He says investors who think governments may agree stringent and strictly-enforced limits on greenhouse gas emissions might decide their investments in oil and gas are at risk of becoming worthless.

Crunch next year?

There is little sign yet that such limits are likely any time soon. But Leggett says that is to miss the point: “You don’t have to wait until agreement is close, or even probable. You have to believe only that there’s a realistic chance of policymaking which means assets might be stranded.”

He will also tell his audience “to take out insurance on the risk of an oil crisis, by accelerating the very things we need to deal with climate change”. Chief among these, he says, is the need to channel funds withdrawn from oil, gas, and coal into clean energy instead – though he acknowledges that, as a renewable energy entrepreneur himself, he may be accused of self-interest.

Leggett fears a world oil crisis could occur as early as 2015. And when it comes, it will certainly mean “ruinously high prices”, for a start. But it will mean something more, he says.

Last December he worked with a US national security expert, Lt-Colonel Daniel Davis, to organise the Transatlantic Energy Security Dialogue. Leggett has a regard for the views of people like Davis. “The military are better than your average politician or consultant to Big Energy at spotting systemic risk”, he says.

Leggett says military think-tanks have tended to side with those who distrust “the cornucopian narrative” of the oil industry.

One 2008 study, by the German army, says: “Psychological barriers cause indisputable facts to be blanked out and lead to almost instinctively refusing to look into this difficult subject in detail. Peak oil, however, is unavoidable.”

RTCC

Davos 2014: Larry Summers attacks George Osborne’s austerity programme | Business | theguardian.com

Davos 2014: Larry Summers attacks George Osborne’s austerity programme | Business | theguardian.com.

Larry Summers and George Osborne

Larry Summers, Bank of Japan governor Haruhiko Kuroda and George Osborne. Photograph: Denis Balibouse/Reuters

George Osborne‘s handling of the economy was strongly attacked byLarry Summers as the former US Treasury secretary poured criticism on the UK’s austerity programme, its welfare cuts for poor people and its strategy for preventing a housing bubble.

Summers, a long-running critic of the coalition government, said the chancellor was wrong to blame the eurozone crisis for the weakness of business investment and that governments should be spending more on infrastructure to tackle the threat of “secular stagnation”.

“I see less need to impose cuts on people who are vulnerable in the US context than the chancellor sees in the European context”, Summers said in a session on the future of monetary policy at the World Economic Forum in Davos.

Making it clear that he believed Britain would have done better to follow the US approach in which tackling the budget deficit has been seen as less important than restoring growth, Summers said: “It’s several years since the US exceeded its peak GDP before the crisis – that still hasn’t happened in the UK.”

The chancellor put up a staunch defence of his approach, noting Britain was creating jobs, had sound economic policies and a new system for controlling the City that was the envy of the world. Osborne said businesses had been sitting on their cash while the euro was going through “a near-death experience” but predicted that investment spending was now about to start to rising.

The chancellor responded to Summers’s charge that Britain, unlike the US, had failed to raise national output above its pre-recession levels by saying that the UK had suffered a deeper slump and was more dependent on the financial sector for its growth.

“We did have a much bigger fall in GDP [than in the US], and the impact of the crisis was even harder because our banking sector was a larger share of the economy than in America.

“The great recession in the UK had an even greater effect – and we were one of the worse effected of any of the western economies.”

But Summers, the man once a front-runner to succeed Ben Bernanke at the Federal Reserve responded to Osborne’s claim that the Bank of England had tools to rein in the property market by pointedly rubbishing the initiative.

“I worry about macro-prudential complacency”, Summers said, a reference to the notion that central banks can head off problems before they arise by actions to restrain the animal spirits of lenders.

Noting that policymakers had failed to spot the stock market crash of 1987 and the sub-prime mortgage crisis, Summers said he was unclear about how macro-prudential policies would work and said tougher measures were needed to make markets safe from “ignorance and error”.

Osborne said he agreed with the need for more infrastructure spending, but added there was no “free lunch”. Governments needed to take tough decisions elsewhere in your budgets, in areas such as welfare spending.

“Without a credible fiscal policy, as many other countries learned in this crisis, you don’t have a credible monetary policy and your market rates go up.

“So while infrastructure spending is needed, you need to make hard choices as finance minister as how to pay for it.”

Summers rejected Osborne’s argument that high borrowing costs in troubled eurozone countries were the result of governments over-spending and losing the trust of financial markets.

He said high borrowing costs were due to the specific nature of the eurozone currency – the fixed exchange rate and the inability of individual countries to tailor their economic policies to their own needs.

Roubini: Many Davos Speakers Think It’s Like 1914 … Right Before WW1 Broke Out Washington’s Blog

Roubini: Many Davos Speakers Think It’s Like 1914 … Right Before WW1 Broke Out Washington’s Blog.

Nouriel Roubini, Davos Speakers, Kyle Bass, Larry Edelson, Charles Nenner, James Dines, Jim Rogers, Marc Faber, Jim Rickards and Martin Armstrong Warn of Wider War

Well-known economist Nouriel Roubini tweeted from the gathering of the rich and powerful at Davos:

Many speakers compare 2014 to 1914 when WWI broke out & no one expected it. A black swan in the form of a war between China & Japan?

And:

Both Abe and an influential Chinese analyst don’t rule out a military confrontation between China and Japan. Memories of 1914?

Many other economists have forecast war.

Kyle Bass writes:

Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusionWe believe that war is an inevitable consequence of the current global economic situation.

Larry Edelson wrote an email to subscribers entitled “What the “Cycles of War” are saying for 2013″, which states:

Since the 1980s, I’ve been studying the so-called “cycles of war” — the natural rhythms that predispose societies to descend into chaos, into hatred, into civil and even international war.

I’m certainly not the first person to examine these very distinctive patterns in history. There have been many before me, notably, Raymond Wheeler, who published the most authoritative chronicle of war ever, covering a period of 2,600 years of data.

However, there are very few people who are willing to even discuss the issue right now. And based on what I’m seeing, the implications could be absolutely huge in 2013.

Former Goldman Sachs technical analyst Charles Nenner – who has made some big accurate calls, and counts major hedge funds, banks, brokerage houses, and high net worth individuals as clients – saysthere will be “a major war starting at the end of 2012 to 2013”, which will drive the Dow to 5,000.

Veteran investor adviser James Dines forecast a war is epochal as World Wars I and II, starting in the Middle East.

Billionaire investor Jim Rogers notes:

A continuation of bailouts in Europe could ultimately spark another world war, says international investor Jim Rogers.

***

“Add debt, the situation gets worse, and eventually it just collapses. Then everybody is looking for scapegoats. Politicians blame foreigners, and we’re in World War II or World War whatever.”

Marc Faber says that the American government will start new wars in response to the economic crisis:

We’re in the middle of a global currency war – i.e. a situation where nations all compete to devalue their currencies the most in order to boost exports. And Brazilian president-elect Rousseff said in 2010:

The last time there was a series of competitive devaluations … it ended in world war two.

Jim Rickards agrees:

Currency wars lead to trade wars, which often lead to hot wars. In 2009, Rickards participated in the Pentagon’s first-ever “financial” war games. While expressing confidence in America’s ability to defeat any other nation-state in battle, Rickards says the U.S. could get dragged into “asymmetric warfare,” if currency wars lead to rising inflation and global economic uncertainty.

As does Jim Rogers:

Trade wars always lead to wars.

Martin Armstrong wrote in August:

Our greatest problem is the bureaucracy wants a war. This will distract everyone from the NSA and justify what they have been doing. They need a distraction for the economic decline that is coming.

Armstrong argued last month that war plans against Syria are really about debt and spending:

The Syrian mess seems to have people lining up on Capital Hill when sources there say the phone calls coming in are overwhelmingly against any action. The politicians are ignoring the people entirely. This suggests there is indeed a secret agenda to achieve a goal outside the discussion box. That is most like the debt problem and a war is necessary to relief the pressure to curtail spending.

And given that many influential economists wrongly believe that war is good for the economy … many are overtly or quietly pushing for war.

In addition, historians say that the risk of world war is rising because the U.S. feels threatened by a rising China … and the U.S. government considers economic rivalry to be a basis for war

Moreover, former Federal Reserve chairman Alan Greenspan said that the Iraq war was really about oil, and former Treasury Secretary Paul O’Neill says that Bush planned the Iraq war before 9/11. And see this and this. If that war was for petroleum, other oil-rich countries might be invaded as well.

And the American policy of using the military to contain China’s growing economic influence – and of considering economic rivalry to be a basis for war – are creating a tinderbox.

Finally, multi-billionaire investor Hugo Salinas Price says:

What happened to [Libya’s] Mr. Gaddafi, many speculate the real reason he was ousted was that he was planning an all-African currency for conducting trade. The same thing happened to him that happened to Saddam because the US doesn’t want any solid competing currency out there vs the dollar. You know Gaddafi was talking about a golddinar.

Indeed, senior CNBC editor John Carney noted:

Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power? It certainly seems to indicate how extraordinarily powerful central bankers have become in our era.

Robert Wenzel of Economic Policy Journal thinks the central banking initiative reveals that foreign powers may have a strong influence over the rebels.

This suggests we have a bit more than a ragtag bunch of rebels running around and that there are some pretty sophisticated influences. “I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising,” Wenzel writes.

Indeed, some say that recent wars have really been about bringing all countries into the fold of Western central banking.

Davos: peeling back the veneer

Davos: peeling back the veneer.

(c) World Economic ForumScrolling through the website of the World Economic Forum – convening this week in Davos, Switzerland – one might confuse the premier platform for global capital with a savvy and hip think tank, or perhaps a philanthropic aid and development charity. The content is carefully curated to sedate and comfort. The right buzzwords are there: “impact investing”, “embracing democracy”, “our oceans”, and “sustainability.” In the Issues section, one finds Environmental Sustainability, Health for All, and Social Development. An article by Nobel laureate economist Joseph Stiglitz (a critic of globalization) is featured front and center, as if to proclaim, ‘challenging the stodgy status quo through edgy, unorthodox economic thinking – that’s what we do here.’

There’s nothing to indicate that this is, in fact, a platform for multinational corporations, among them human rights abusers, political racketeers, property thieves and international environmental criminals. But then, that wouldn’t exactly make for a very inviting homepage.

Here, for example, is the WEF mission statement:

The World Economic Forum encourages businesses, governments and civil society to commit together to improving the state of the world. Our Strategic and Industry Partners are instrumental in helping stakeholders meet key challenges such as building sustained economic growth, mitigating global risks, promoting health for all, improving social welfare and fostering environmental sustainability.

Rather than getting bogged down in a detailed evaluation of WEF’s high-minded claims and eco-populist rhetoric, it may be more efficient to consider the behavior of those corporations and banks that comprise the Forum’s list of Industry Partners – described as “select Member companies of the World Economic Forum that are actively involved in the Forum’s mission.”

Among them are Shell, Nike, Syngenta, Nestlé, and SNC Lavalin – companies you’ll also find on Global Exchange’s list of the Top 10 Corporate Criminals of 2013, based on offenses like unlivable working conditions, corporate seizures of indigenous lands, contaminating the environment, and similar transgressions. At least seven other companies “actively involved in the Forum’s mission” are recentalumni of the Corporate Criminal list.

Or consider Corporate Accountability International’s Corporate Hall of Shame, comprised of “corporations that corrupt the political process and abuse human rights, the environment and our public health.” Seven of the ten ­– Walmart, ExxonMobil, Bank of America, Coca-Cola, DuPont, Monsanto, and Nestlé (which has the dubious distinction of making both lists) are WEF Industry Partners.

How about climate change? This is now an issue that regularly features ominously in the WEF’s “Global Risks” annual report. Curious, then, that in addition to Shell and ExxonMobil, the Forum’s Industry Partners include most of the largest oil and gas companies in the world, from BP and Chevron to Gazprom and Saudi Aramco.“Carbon Majors” a peer-reviewed study in the scientific journal Climatic Change, lists the 90 entities most responsible for extracting the fossil fuels burned over the past 150 years. The top six are WEF Industry Partners.

Despite the carefully crafted words of concern for the poor and hungry, the WEF’s many food corporations – from Unilever and Pepsico to Cargill and General Mills – have actually parleyed the misery of the food crisis into further control over the food system, as well as spectacular profits. During the 2008 food crisis, the organization GRAIN released a report revealing that “nearly every corporate player in the global food chain is making a killing from the food crisis …. Such record profits … are a reflection of the extreme power that these middlemen have accrued through the globalisation of the food system. Intimately involved with the shaping of the trade rules that govern today’s food system and tightly in control of markets and the ever more complex financial systems through which global trade operates, these companies are in perfect position to turn food scarcity into immense profits.” (1)

Global banks also played a pivotal role in precipitating – and making a killing off – this food crisis. According to an investigative report by Frederick Kaufman, Goldman Sachs instigated a “global speculative frenzy” on food which “sparked riots in more than thirty countries and drove the number of the world’s “food insecure” to more than a billion …. The ranks of the hungry had increased by 250 million in a single year, the most abysmal increase in all of human history.” (2) Needless to say, scroll down to “G” in the Industry Partners list, and Goldman Sachs is there.

The fact is, digging into any of the crises we face will reveal the complicity of the very corporations that the World Economic Forum represents. A study conducted for the UN, for example, estimated the combined environmental externalities of the world’s 3,000 biggest companies to be $2.2 trillion in 2008, “a figure bigger than the national economies of all but seven countries in the world that year.” (3)

Impression of the World Economic ForumThese are just a few of innumerable possible examples. The corporations represented by the World Economic Forum are the agents principally responsible for destroying the planet, ravaging livelihoods, and literally starving people, all while aggrandizing unprecedented profits into the hands of an ever-tinier super elite. Seen in this light, all the burnished social and environmental concern-speak of the WEF is so much vacuous corporate swagger, the crudest sort of greenwash. Even though these companies actually spend huge amounts of capital and energy fighting environmental regulation and the citizen’s groups who are suffering their abuses, they simultaneously pursue a strategic embrace of environmental discourse and narratives; they accept the existence of the problems while promoting privatized, technocratic strategies for addressing them. These strategies pivot between those that assign responsibility for causing and fixing the problems to individual consumers, and those that position the corporations themselves as crucial players in the common cause of “improving”/”cleaning” the environment – the same one, incidentally, that they destroyed.

The absurdity of this schizophrenia reaches extreme limits: the WEF is solemnly concerned about global warming because – get ready for it – it represents one of the biggest threats ever to global trade and corporate capitalism! The primary perpetrator of global warming is now portraying itself as a victim. In WEF-land, global warming is like a mysterious, autonomous, alien force invading from afar, without cause or explanation. It “affects us all”, so we must all roll up our sleeves and unite – fossil fuel corporations included – in the battle against a common external foe.

There is, however, one part of the WEF’s mission that is being genuinely fulfilled: “building sustained economic growth”, code for increasing the power and wealth of its corporate partners. That this is the first of the “challenges” described in the WEF mission statement is no accident. Economic growth might seem an odd mismatch to the other issues, like social welfare and environmental sustainability, but the WEF has clearly embraced the notion that endless growth is not only compatible with environmental sustainability, it is actually necessary for it. That this myth has been thoroughly debunked seems to have conveniently escaped the WEF’s notice. (4)

This farce would be laughable but for the immense power and enormous control commanded by the corporations and banks the World Economic Forum represents. When the WEF promises to address agriculture, food security, environmental sustainability, and the like, we should be very worried for exactly those things. Peel away the eco-charity veneer and the WEF’s actual mission stands naked: advance the power, growth, and wealth of the corporate rulers of the world.

In no way should The World Economic Forum be allowed to insert itself as a legitimate voice on the resolution of the very issues that its agenda – the perpetual growth of its partners – precipitates. On the contrary, it should be fiercely resisted – precisely what the alternative World Social Forum, Occupy WEF, and other anti-globalization groups were created to do. (5)

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Alex Jensen is Project Coordinator at the International Society for Ecology and Culture (ISEC). Alex has worked in the US and India, where he coordinated ISEC’s Ladakh Project from 2004 to 2009. He has collaborated on the content of ISEC’s Roots of Change curriculum and the Economics of Happiness discussion guide. He holds an MA in Globalization and International Development from University of East Anglia. He has worked with cultural affirmation and agro-biodiversity projects in campesino communities in a number of countries and is active in environmental health/anti-toxics work.

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(1) GRAIN (2008) ‘Making a Killing from Hunger’, 28 April,http://www.grain.org/article/entries/178-making-a-killing-from-hunger, and

http://www.grain.org/article/entries/716-corporations-are-still-making-a-killing-from-hunger

(2) Kaufman, F. (2010) ‘The Food Bubble: How Wall Street Starved Millions and Got Away With It’, Harper’s Magazine, July,http://frederickkaufman.typepad.com/files/the-food-bubble-pdf.pdf

(3) Jowit, J. (2010) “World”s top firms cause $2.2tn of environmental damage, report estimates”, The Guardian, 18 February, 2010.

(4) see, e.g.: Jorgenson, A. and Clark, B. (2012) ‘Are the Economy and the Environment Decoupling?: A Comparative International Study, 1960–2005,’ American Journal of Sociology 118(1),1–44; Jorgenson, A. and Clark, B. (2011) ‘Societies Consuming Nature: A Panel Study of the Ecological Footprints of Nations, 1960-2003’, Social Science Research 40:226-244; Stern, D. (2004) ‘The Rise and Fall of the Environmental Kuznets Curve’, World Development, 32(8):1419–1439; Hornborg, A. (2003) ‘Cornucopia or Zero-Sum Game? The Epistemology of Sustainability’, Journal of World-Systems Research IX(2): 205-216.

(5) see http://www.fsm2013.org/en andhttp://www.reuters.com/article/2012/01/23/us-davos-idUSTRE80M13X20120123

Top 1% Has 65 Times More Wealth Than The Bottom Half And The Global Elite Like It That Way

Top 1% Has 65 Times More Wealth Than The Bottom Half And The Global Elite Like It That Way.

85 Richest People - Photo by Oxfam

Did you know that the 85 richest people in the world have about as much wealth as the poorest 50% of the entire global population does?  In other words, 85 extremely wealthy individuals have about as much wealth as the poorest 3,500,000,000 do.  This shocking statistic comes from a new report on global poverty by Oxfam.  And actually Oxfam’s report probably significantly underestimates the true scope of the problem, because Oxfam relies on publicly reported numbers.  At the very top of the food chain, the global elite are masters at hiding their wealth.  In fact, as I have written about previously, the global elite have approximately 32 trillion dollars(that we know about) stashed in offshore banks around the world.  That would be about enough to pay off the entire U.S. national debt and buy every good and service produced in the United States for an entire year.  These elitists live on an entirely different planet than the rest of us do.  In fact, according to Oxfam, the richest one percent of the global population has 65 times more wealth than the bottom half of the global population combined.

There is certainly nothing wrong with making money.  In fact, the founders of the United States intended for this nation to be a place where free markets thrived and where everyone could pursue their dreams.  Unfortunately, this country (along with the rest of the world) has moved very much in the opposite direction.  Today, we have a debt-based global financial system which is dominated by gigantic predator corporations and big banks.  Working together with national governments, these corporations and banks have constructed a system that I like to call “Corporatism” in which the percentage of all global wealth that is being funneled to the very top of the pyramid steadily grows over time.

The Founding Fathers were very correct to be very suspicious of large concentrations of power.  In the early days of the United States, the federal government was very small and the size and scope of corporations was greatly limited.  Our nation thrived and a huge middle class blossomed.

Sadly, over the past several decades the pendulum has completely swung in the other direction.  Today, our society is completely and totally dominated by big banksbig corporations and big government.

And of course this is also happening in virtually every other nation on the face of the planet.  The global elite have rigged the game to send just about all of the rewards their way, and it is working.  The following are facts taken directly from Oxfam’s latest report

•Almost half of the world’s wealth is now owned by just one percent of the population.

•The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

•The bottom half of the world’s population owns the same as the richest 85 people in the world.

•Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

•The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.

•In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

Starting on Wednesday, several thousand members of the global elite will gather for the World Economic Forum meetings in Davos, Switzerland.  The following is how USA Today described this conference.

For several days at the end of January, presidents, prime ministers, monarchs and corporate titans jostle with actors, rock stars and major influencers for top billing at the annual meeting of the World Economic Forum. The confab takes place in the Alpine village of Davos, about 90 miles southeast of Zurich, and for a brief spell each year the pristine ski resort half-sheds its Graubünden roots and becomes a ground zero for the political and business elite.

Unless you are independently wealthy, you can forget about going to this conference.  A ticket to Davos is going to cost you about $30,000, and that is on top of the $55,000 that it costs to join the organization.

Needless to say, it is an organization of the elite, by the elite and for the elite.

This year, the theme of the meeting is “The Reshaping of the World: Consequences for Society, Politics and Business“.  And the founder of the World Economic Forum says that the time has come to press the “reset” button for the global economy…

It’s time to press the “reset” button on the world, the founder of the World Economic Forum said Wednesday, addressing media ahead of the WEF’s much ballyhooed annual meeting in Davos-Klosters, Switzerland, that gets underway in a week’s time.

“The world is complex, it’s fast-moving, it’s interconnected, and we in Davos want to provide a mirror to the world as it is. It is not a meeting devoted to one set of issues. It’s a meeting that address the complexity of our world,” said Klaus Schwab, the WEF’s founder and executive chairman.

At first glance, that sounds pretty good.

Personally, I would love to hit a “reset” button for the global economy.

But what the elite mean by “reset” is much different from what most of the rest of us would mean.

The following is an excerpt from the executive summary for the agenda for the 2014 World Economic Forum…

“At an international level, the formal architecture forglobal governance was not designed for the interdisciplinary challenges and collective action problems of today. As a result, international cooperation has yet to fully enter the information age and capture its associated productivity gains.”

For the global elite, the answers to our problems always involve more centralization and more “global governance”.  In other words, the answers to our problems always involve giving them more control and more power.

The elite never actually want the pendulum to swing back in the direction of the “little guy”.  The elite are generally pleased with how the game is being played because they are winning.

Most people don’t even realize that they are participants in a debt-based neo-feudalist system in which money is being used as a form of social control.

As I have written about previously, there is about 190 trillion dollarsof debt in the world, but global GDP is only about 70 trillion dollars.

There is no way that all of this debt could ever be paid off at one time.  It is mathematically impossible.  Over time, all of this debt transfers the wealth of the planet away from us and to the global elite.  If this game was allowed to go on long enough, eventually they would have nearly all of it.

And some would argue that we are already getting close to that point.  A study by the World Institute for Development Economics Research discovered that the bottom half of the global population only ownsapproximately 1 percent of all wealth, and at this point about a billion people throughout the world go to bed hungry every night.

This is one of the reasons why I am so adamant about the fact that the Federal Reserve needs to be shut down.  It is at the very heart of the debt-based system that we have in the United States, and over the past 100 years it has brought us to the brink of economic Armageddon.

Sadly, most Americans do not understand any of these things.  They just assume that the debt-fueled prosperity that we have been enjoying will be able to go on indefinitely.

So is there any hope for the “little guy”?

Well, you could try to win the one billion dollar NCAA tournament bracket contest that Warren Buffett is backing.

Or you could go out and try to win the lottery or try to date a famous professional athlete.

But the odds of any of those things actually happening are so low that they aren’t even worth mentioning.

Personally, I would rather spend my time trying to wake people up and help them understand how our global system really works.

I believe that a “great awakening” is coming.

I believe that millions of people are going to start breaking out of the “matrix of control” that has such a tight grip on their lives and are going to start thinking for themselves.

I believe that as the darkness gets even darker that the light is going to get even brighter.  I believe that we are going to see “renewal” on a whole bunch of different levels.

Yes, a great economic collapse is coming.

Yes, there is going to be a tremendous amount of pain.

But it won’t all be bad news.

The times ahead are going to be full of adventure and excitement for those who are willing to embrace it.

Trust in Governments Slides to Record Low Amid U.S. Spy Programs – Bloomberg

Trust in Governments Slides to Record Low Amid U.S. Spy Programs – Bloomberg.

Photographer: Alex Wong/Getty Images
Governments are struggling to maintain public trust amid the disclosure of U.S. spy programs by former contractor Edward Snowden and record unemployment in Europe. Confidence in government in the U.S. plummeted 16 points to 37 percent.

Trust in governments fell, making them the world’s least-trusted institutions for a third year, according to a survey published before policy makers and executives gather for the World Economic Forum in Davos, Switzerland.

Faith in governments fell to 44 percent from 48 percent in 2013, according to the 2014 Trust Barometer survey published by Edelman, a public-relations firm. Trust in business held steady at about 58 percent, bringing its lead over government to the widest in the 14 years the poll has been taken.

Governments are struggling to maintain public trust amid the disclosure of U.S. spy programs by former contractor Edward Snowden and record unemployment in Europe. Confidence in government in the U.S. plummeted 16 points to 37 percent, Edelman said.

“This is a profound evolution in the landscape of trust from 2009 where business had to partner with government to regain trust, to today, where business must lead the debate for change,” Richard Edelman, the firm’s chairman and chief executive officer, said in a statement.

Trust in CEOs is at 43 percent, above the 36 percent score for government officials, according to the survey. Confidence in the media slipped 5 percentage points to 52 percent.

Banks and financial services were the least-trusted industries for the fourth year, scoring 51 percent, up 1 point from 2013, the survey shows. Technology companies topped the ranking again at 79 percent, up two percentage points from the previous year.

Edelman polled 6,000 individuals in 27 countries with a college education and with household income in the top quartile for their age and country. The ages of those surveyed ranged from 24 to 65.

To contact the reporter on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

Plundering the planet: a report to the Club of Rome

Plundering the planet: a report to the Club of Rome. (FULL ARTICLE)

This is a text version of a talk I gave at the World Resource forum in Davos on Oct 07, 2013. For a more detailed description of the same subject, see this post on an earlier talk in Dresden.
Ladies and gentlemen, it is a pleasure to be here and my task today is to tell you about something that stands at the basis of everything we do: mineral resources. It it is the subject of a book that is the result of a research program sponsored by the Club of Rome and that has involved me and 16 co-authors. Here is the cover of  “the Plundered Planet.”
For the time being we have only the German version, we are working at the English one, but that will take some time – a few months. In any case, the title should be clear to you even if you don’t speak German and you can notice that we say “The Plundered Planet;” not “The Improved Planet”, or “The Developed Planet”. No, this is the concept: plundering. We have been acting with mineral resources as if we were pirates looting a captured galleon: grabbing everything we can, as fast as we can….

 

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