Ms. Yellen Swings the Axe

The new head of the Federal Reserve: Dove ascendant ... Janet Yellen will stick to her predecessor's expansionary policies ... an uphill slog awaits. For most of the past few years, monetary policy has urged the economy on while dysfunctional fiscal policy has held it back. Barack Obama's decision to nominate Janet Yellen to succeed Ben Bernanke as the Fed's chairman in February raises the odds that stimulative monetary policy will continue. – The Economist

Dominant Social Theme: The Fed does what's best.

Free-Market Analysis: Can we call 'em or what? This is one of those narratives that grows stronger as we go. First the JOBS Act, then the cave-in on "tapering" and now comes the Big Bird herself, Her gray eminence, The Dove: See the article excerpt above.

Janet Yellen ...

The Big Boys are getting ready for another stock market blow-off. How else to read the proverbial tea leaves? We've likely read this one correctly, at least so far. And if we're right, this is going to be (to mix metaphors) a kind of nuclear explosion, after which comes the long, icy winter.

The world is a mess. Economies are reeling. More importantly, people understand what's going on and what's happened to them. It's one reason mainstream newspapers and magazines are doing everything they can to minimize article feedback. The New York Times actually has barred feedback in some articles. If we recall correctly, something about the hoi polloi not providing proper analysis.

When it comes to many of the things publications like The New York Times or The Economist present, there is no "proper analysis" except to note in disgust that liars lie. Mainstream publications are filled with lies these days. We call them dominant social themes, elite talking points that are designed to frighten Western middle classes into giving up wealth and power to ever-more globalized sociopolitical and economic facilities.

We sit and watch the process agape ... especially when it comes to economics. We are still supposed to believe that debasing the currency is a viable way of promoting prosperity.

"Your money is worthless, so we will print more of it," doesn't strike us as good monetary policy. Yet this is what we are asked to take seriously. This is what The Economist and its sister publications are promoting. This is the "policy" that Yellen brings to the table.

To add proverbial insult to injury, we are told the appointment of Yellen, assuming she ascends to the throne, marks the coming-of-age of the modern, professional woman in a time of gender-enlightenment. For us, as critics of the process, this is a bit like claiming that Bloody Mary, Queen of England, was a step forward for female equality because she returned England temporarily to Catholicism.

And if that seems harsh, dear reader, please consider the misery that has overtaken the US and Western Europe. Suicides are up; self-immolations, too. Formal employment has eroded precipitously and if you took a REAL poll, you'd probably find a lot more people wish they were dead than you might expect.

 This is all the bitter harvest of monopoly central banking, which gives a handful of people the arbitrary right to decide on the volume and price of money at any given time ... and thus ruin the lives of many others.

Janet Yellen, heir to the throne, is well known for her thoughtful, consensus-driven approach regarding these issues. But price fixing – and its damaging or deadly results – is not a parlor game. In real life it has terrible consequences, though we seldom read about them or see them directly attributed.

This article, excerpted above, does make mention that Yellen's inflation-driven collegial style is seen as troublesome by some, but the larger focus of whether anyone should have the right to make such decisions is never examined. Here's some more from the article:

 But disquiet about that stance is growing. In addition to being the first woman to run the Fed, Ms Yellen is also the first acknowledged dove. Presidents once felt compelled to appoint monetary-policy hawks such as Paul Volcker and Alan Greenspan to reassure markets that the Fed would not succumb to the political system's inflationary bias.

 In appointing Ms Yellen Mr Obama has implicitly acknowledged how much the world, and the Fed's priorities, have changed. Since 2008 America, like many other countries, has struggled with slack demand and high unemployment. Meanwhile, energy prices excluded, inflation has persistently fallen short of the Fed's 2% target.

Ms Yellen is not alone in believing that unemployment is a bigger problem than inflation. So do most of her colleagues on the Federal Open Market Committee, through which the Fed sets interest rates. But she has felt that way longer and more strongly. She pushed publicly last year to hold interest rates near zero for longer than the Fed then planned, to hasten the fall in unemployment, even if that caused inflation to rise briefly above 2%.

She was the principal author of the Fed's current statement of long-term goals and operating principles, which stresses the equal importance of its twin statutory goals of full employment and low inflation. As vice-chairman, Ms Yellen helped Mr Bernanke nudge the FOMC towards its commitments to keep its benchmark interest rate at zero (where it has been since late 2008) at least until unemployment has dropped to 6.5% and to keep buying $85 billion-worth of bonds a month with newly printed money ("quantitative easing", or QE) until the labour market has improved substantially.

These policies have not fuelled inflation, as hawks feared they might. Indeed, Ms Yellen would probably welcome having to tighten due to inflationary pressure, because that would mean demand was buoyant. But hawks still worry that the Fed is distorting prices in financial markets, breeding excessive risk-taking and preventing investors in Treasury bonds from demanding fiscal discipline.

Let's unpack this a little bit, especially the last graf. We're told that quantitative easing hasn't fueled inflation, "as hawks feared." First, printing money IS inflationary. What The Economist means to say is that prices haven't risen commensurately with all the extra money being printed.

Additionally, The Economist makes the claim that inflationary pressure means "demand [is] buoyant." This is a misreading of how inflation works in a central banking economy. One can have high inflation and low demand. One can have high inflation from monetary over-stimulation and stagnant employment. It's called "stagflation" and until it happened in the 1970s, Keynesians denied it could exist. But it could, it did and it does.

 Printing money is not a panacea. It is not even a good outcome. It is a promotion, one of the most pernicious. But everything associated with modern monetary policy is a kind of lie. It's a made-up science administered by made-up experts. The policies of debasement, that lead to further economic ruin and increased sociopolitical centralization, are endlessly justified and celebrated. In our topsy-turvy world, one ought to believe the opposite of almost anything one hears regarding money.

The article closes as follows:

Once in office, Ms Yellen is likely to pursue a gentle "taper" coupled with a firm commitment to keep interest rates at zero. If the economy falters—an all-too-real possibility given America's budget mess—she may want to increase QE, but might struggle to persuade her colleagues. The Fed's strength, she said in accepting the nomination, is its capacity to "vigorously debate diverse views, and then to unite." Maintaining that trait may be her biggest challenge.

You see? Ms. Yellen's biggest challenge may be "consensus." Not rationalizing a crazy system. Not stopping the debasement. Not arguing for monetary sanity. Only doing her best to ensure that the psychosis of the modern money mechanism continues to function in a collegial manner.

The West is in a death spiral of sorts. Someone like Ms. Yellen is only likely to accelerate that spiral but to do it in a manner that greases the gears. Everyone at the Fed, if Ms. Yellen does her job right, will be appreciative of her gentle touch and the kindness of her manner right up until they smash into the proverbial brick wall going 90 miles an hour.

The power elite has badly miscalculated the anger that people feel about what's happened to them, their savings, their jobs and their solvency. The elites no doubt have realized by now that too many understand what has gone wrong and what the real culprit is. But ever their solution to this problem is to rev up the printing presses in the hopes that a rising stock market will drown out the catcalls.

This, in fact, is the big bet that is looming regarding the appointment of  Yellen. Clearly, they didn't want Larry Summers, who might have slowed the plunge toward monetary oblivion. They wanted this woman, who somehow believes that the act of money printing is an affirmation of prosperity.

Yes, it will be for those who participate in this final stock market blow-off, assuming they get in and out in time. But the aftermath is going to be grim, indeed.

Conclusion

This isn't about monetary policy any more. Monetary policy in the 21st century doesn't exist. It's merely a justification for allowing a small group to pocket what may be trillions based on the manipulation of Western economies. They'll never explain it, of course. They will use scientific jargon. They will take something that is very simple and make it sound complex. They will complicate it with gender issues and observations about collegiality. But at root, what is going on is very simple ... and deadly. Ms. Yellen will swing the axe.

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Here's What's Behind China's Ugly Export Data

Earlier this weekend, China reported trade data which showed exports fell 0.3% year-over-year in September.

This compares with a 7.2% rise in August.

A breakdown by region showed that exports to the U.S. climbed 4.2% in September, compared with 6.1% the previous month. While exports to the EU fell 1%, compared with a 2.1% rise in August.

Exports to Japan ticked up. But exports to the Association of Southeast Asian Nations (ASEAN) climbed just 9.8% in September, compared with 30.8% in August.

Many have pointed to the data as proof that external demand is crumbling and the global economy is turning weak. But there are a few reasons that exports plunged.

"The most obvious reason for such a sharp deterioration was statistical, as export growth quickened from +2.7% yoy last August to +9.8% yoy last September," writes Societe Generale's Wei Yao. 

"The yuan appreciation started to pick up the pace last September and attracted a large amount of speculative capital inflows, most of which were disguised as trade flows. The yoy rates of export growth were  inflated as a result back then, but are likely to be suppressed in the next six months."

Bank of America's Ting Lu points out that the mid-autumn festival took place in September this year, but in October of last year. This "means that yoy export growth could still be affected by the different timing of holiday," he wrote. "In fact, both Korea and Taiwan’s export growth fell more than expected in Sep as the two economies have similar tradition in celebrating the Mid- Autumn Festival.

Many emerging markets also went "into turmoil," according to Lu on concerns over the Fed tapering its monthly $85 billion asset purchase program.

And again from a pure comparison base, Lu points out that external demand picked up after August 2012, as the eurozone crisis eased "significantly." That also made the comparison base much higher for September 2013.

Markets can take some solace from these factors behind September's ugly export data.
But external demand is mixed at best. And Yao argues that the trade data and the "less upbeat PMI data" suggest that "the window of big positive data surprises from China is closing quickly."

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Goldman "Whistleblower" Sues NY Fed For Wrongful Termination

After seven months of investigating Goldman Sachs' legal and compliance divisions, former NYFed examiner Carmen Segarra found numerous conflicts of interest and breach of client ethics (specifically related to three transactions - Solyndra, Capmark, and the El Paso / Kinder Morgan deal) that she believed warranted a downgrade of Goldman's regulatory rating. Her bosses were not happy, concerned that this action would hurt Goldman's ability to do business, and, she alleges, they urged her to change her position. She refused, and as Reuters reports, she was fired and escorted from the building. “I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the [NY Fed] certainly won’t be capable of supervising banks when even more serious issues arise.”

Via Reuters,

A former senior bank examiner at the Federal Reserve Bank of New York filed a wrongful termination lawsuit on Thursday, saying she was fired after refusing to alter a critical examination of Goldman Sachs Group Inc.

The former employee, Carmen Segarra, said that in her seven months of examining Goldman's legal and compliance divisions, she found the bank did not have policies to prevent conflicts of interest as required by regulation, a conclusion that might have caused a downgrade of the Wall Street bank's regulatory rating.

As a result of Segarra's findings, the New York Fed's Legal Compliance and Risk team voted to downgrade Goldman's annual rating pertaining to policies and procedures, according to the lawsuit filed in federal court in New York.

It is not clear whether the downgrade occurred, but according to the lawsuit, the threat of one startled Michael Silva, who oversees the New York Fed's relationship with Goldman, and Silva's deputy, Michael Koh. The two officials were concerned that a downgrade could cause clients to stop doing business with the Wall Street bank, the lawsuit said.

Segarra was assigned to Goldman's legal and compliance divisions from October 2011 until May 2012, and looked into three controversial transactions related to Solyndra, Capmark and the merger of El Paso and Kinder Morgan. At that point, Kim, Silva and Koh fired her and had her escorted from the building by security guards after weeks of disputes and pressure to change her examination findings, the lawsuit said.

Via The Washington Post,

Goldman had past problems with conflicts. A year earlier, the bank had received a drubbing from the Securities and Exchange Commission and a Senate subcommittee over conflicts related to a mortgage transaction the bank constructed called Abacus. The SEC imposed a $550 million fine on Goldman for the deal.

Segarra was instructed specifically to assess Goldman’s conflict-of-interest policies, including how they worked in a merger between two energy companies: El Paso Corp. and Kinder Morgan.

Goldman did provide documents showing how it had divided its El Paso and Kinder Morgan bankers into “red and blue teams.” These teams were told they could not communicate with each other — what the industry calls a “Chinese wall” to prevent improper information sharing.

Segarra said Goldman seating charts showed that in one case, opposing team members had adjacent offices. She also determined that three of the El Paso team members had previously worked for Kinder Morgan in key areas.

“They would have needed a Chinese wall in their head,” Segarra said.

On multiple occasions during Segarra’s examination, Goldman executives acknowledged that the bank did not have a firmwide conflict-of-interest policy, she said.

On March 21, 2012, Segarra presented her conclusion that Goldman lacked an acceptable policy on conflicts to her group of specialists from the other too-big-to-fail banks.

A summary sheet from the group’s meeting recommended downgrading Goldman from “satisfactory” to “fair” for policies and procedures, the equivalent of a “C” letter grade. 

As the Goldman review moved up the Fed’s supervisory chain, however, Segarra said she began to get pushback. 

“I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the Federal Reserve Bank of New York certainly won’t be capable of supervising banks when even more serious issues arise.”

Perhaps one indemnifying issue here is that whereas Goldman has indeed chronically and blatantly transgressed on numerous occasions when it comes to the abuse of its clients, and generally breaching its fiduciary duties, Segarra's description of the internal Chinese wall within the Goldman i-banking division sounds rather conventional and ordinary, and as for a conflict of interest policy - which banks actually really has one? To be sure, there are far greater misdeed for which Goldman can be held accountable, so in some ways the focal point of her complaint is not very strong.

Still, as everyone knows, both Bill Dudley and Stephen Friedman used to be at Goldman, and as we noted Dudley and Goldman chief economist Jan Hatzius periodically did and still meet to discuss "events" at the Pound and Pense.  

So while her allegations may be non-definitive, and her wrongfful termination suit is ultimately dropped, there is hope this opens up an inquiry into the close relationship between Goldman and the NY Fed. Alas, since the judicial branch is also under the control of the two abovementioned entities, we very much doubt it.

Source

The Rise Of The C-Note "And" The Cashless Economy?

Even as Washington stares into a fiscal abyss of its own construction, there is one bright spot: the ongoing global popularity of the $100 bill. The U.S. Treasury/Federal Reserve launched their latest version of the venerable C-Note just this week, printing $350 billion worth over the last 12 months to meet anticipated robust worldwide demand. This came on the heels of the 2012FY, when the Treasury printed 3.0 billion such notes.

Given that $100 bills last about 15 years in circulation, ConvergEx's Nick Colas notes that these record amounts seem to indicate very strong worldwide demand for hard currency rather just replacing old stock. In the US, by contrast, the ‘Cashless economy’ is coming hard and fast.  Dollar bill production in 2013FY was just $1.8 billion, the lowest amount since 1980. The value of all currency printed, excluding $100 bills, was $27 billion – less than half the run rate of just a decade ago and the lowest since 1981.

Via ConvergEx's Nick Colas,

The ongoing news coverage about the U.S. debt limit and budget debates has crowded out some pretty juicy stories in the past week, such as the mysterious $27 billion cash hoard sitting in a Moscow airport warehouse.  According to the Russian tabloid press (so take this all with a grain of salt), it arrived six years ago in 200 pallets of plastic-wrapped cash, with no forwarding address.  Since then Russian authorities have kept the money under armed guard, waiting for someone to claim it.  Some say it belongs to a fallen Middle East dictator.  Others suspect it is Iranian oil money. 

The strangest bit of the story, true or not, is that that the cash is all in 100 euro notes.  It is theoretically possible for such a trove to exist, for the European Central Bank printed some 129 billion euros worth of these bills from 2002 to 2008.  If 16% of them are sitting in Moscow, that would be a large chunk of the outstanding, to be sure.  How one person or institution could amass so much of the relatively new currency without drawing attention is the real question.

That anecdote neatly explains why the U.S. $100 note is still the world’s king of physical currency, rather than the euro.  Over the same seven-year period the U.S. Treasury printed $589 billion of C-notes, so anyone looking to store $27 billion in cash would need just 4.5% of the issuance to construct their nest egg.  And, of course, the U.S. government was printing $100 bills long before the euro was even a twinkle in Brussels’ eye, so the supply is actually much larger than that. 

The fact that the U.S. Treasury just redesigned the $100 bill, launching the latest iteration today, should tell you that physical notes are still an important part of what makes the U.S. dollar a global “Reserve” currency.  The new notes have upgraded anti-counterfeiting measures such as three-dimensional ribbon imbedded in the bill and a color-changing bell in an inkwell.  Everyone from Hezbollah to North Korea has famously tried to counterfeit the U.S. $100 bill over the years, with varying levels of success.  The latest enhancements are merely the latest move in a long game of cat and mouse between forgers and the U.S. government.

What is more intriguing is the explosive increase in demand for $100 bills since the Financial Crisis.  Prior to 2007, the U.S. Treasury typically printed about 630 million C-notes (the average from 2001 – 2006).  From 2007 to the recent end of the 2013 government fiscal year, that average is 1,894 million, or three times the old run rate.  A few points here:

Most $100 notes go immediately overseas and stay there for their useful lives.

The Treasury estimates that a typical $100 bill lasts about 15 years, versus just 5 years or less for a $1 bill.  This is due to reduced handling.

The cost to produce a new $100 bill is about 13 cents, up modestly from the old note’s cost of 8 cents.  

The production of $100 bills is therefore profitable enough to have a positive and noticeable impact on U.S. fiscal health.  Assuming that half of the average 1.9 billion note average issuance since 2007 was new demand rather than replacing used currency, the U.S. has netted $190 billion/year since the Financial Crisis from the $100 bill program.  

Even better, since the demand for C-Notes is non-U.S., these inflows are largely incremental to the domestic economy.  You think Apple or Google have a good business model?  The Treasury/Federal Reserve have them trumped.

Who uses the $100, and to what purpose?  That’s where things get a little difficult.  It’s not like this is an efficient way to move money around. One million dollars just about fits in a standard Halliburton 5” aluminum briefcase, but it weighs about 22 pounds.  The $100 bill is widely accepted, to be sure, but if you move around with more than a few million dollars you’d better have a bodyguard or five. 

A piece of the incremental demand over the last decade is obviously conflict-related.   When I travelled in Afghanistan earlier this year it was clear that the U.S. dollar was the preferred currency, and the whole place seems to run on wads of $100 bills.  As countries in the region – Syria, Libya, Lebanon, and Egypt, for example – go through political and economic upheaval, their demand for physical currency likely grows.  The dollar still has an edge over the euro here, if only because of its longer history.

Then there are the more obvious sources of demand: criminal enterprise and tax evasion.  Google the term “Drug bust” and you won’t likely see bitcoin thumb drives or euros stacked up next to the illegal substances.  It will be stacks of $100 bills.  And our Russian airport stash notwithstanding, the dollar certainly has an edge in money laundering and “Wealth preservation” strategies.  Add to this the low rates of inflation in the U.S relative to many other countries, and you have a convenient (if bulky) store of value.

Back inside the U.S., however, paper currency is quickly sliding into the same history as electric typewriters and land line telephones.  We’ve got a lot of data on this in chart form after this note, but here are the highlights:

For the just-ended 2013 Fiscal Year, the Bureau of Engraving and Printing (part of the Treasury), produced just 1.8 billion dollar bills.  That’s the lowest production count on record since 1980 and a fraction of the 5 billion notes printed in 2000 and 2001 during the Y2K scare.  Even back during 2007 and 2008, the BEP was pumping out +4 billion bills a year.

The second most popular note – the $20 – is also way down in terms of production.  In 2013FY, the BEP produced 528 million such bills, down from +3 billion in 2005 and +4 billion in 1999.

The total value of non-$100 bill currencies printed in 2013FY was just $27.4 billion, the lowest amount since 1981.  For comparison, consider that in 2007 the BEP printed $72 billion in non-$100 currencies and even last year this number was $56 billion.

In summary, technology – debit cards, online bill paying, gift cards, etc – is quickly making physical currency a niche product rather than a mainstay of the domestic American economy.  The most profitable ‘Niche’ from an issuer’s perspective is the high-denomination $100 bill, and this fits neatly with the needs of many people who want a reliable and physically compact currency – especially offshore.  For everyday transactions, the “Cashless economy” is clearly on its way.

Source

Obama to nominate Yellen for Fed chair

President Barack Obama will nominate Janet Yellen to replace Ben Bernanke as chairman of the Federal Reserve, a White House official said Tuesday, in a move that many expect will result in a continuation of the central bank’s loose monetary policy.

Obama will introduce Yellen at a 3 p.m. Eastern ceremony at the White House Wednesday, the official said. Yellen currently serves as vice chairman of the central bank.

Stock futures /quotes/zigman/3102235 SPZ3 +0.24%   advanced Tuesday night after news of the impending nomination, following a session of sharp selling as the government shutdown continued.

If confirmed by the Senate, Yellen, 67, will be the first woman to run the Fed, one of the world’s most important economic posts.

 

Economists portray Yellen as a continuation of Bernanke’s aggressive easing stance developed in reaction to the financial crisis.
 

Many on Wall Street see Yellen as a “dove’ as she is a Democrat and supported asset purchases, otherwise known as QE, said Robert Brusca, chief economist at FAO Economics.
 

In general terms, a dove on the Fed is an official not strictly focused on fighting inflation.
 

“It is a label she’s going to have to live with and live down, but I don’t think it will be a big deal,” Brusca said.
 

The Fed pushed its short-term interest rate tool to zero in December 2008 and ever since has been using innovative asset purchases to try to foster stronger growth — to mixed success. The central bank is now buying $85 billion of bonds each month in an attempt to keep long-term interest rates low and provide support for the economy that has struggled in the wake of the severe financial crisis.

Yellen has been a strong supporter of the asset purchases.
 

These purchases and two earlier rounds of stimulus have swelled the Fed’s balance sheet to over $3.7 trillion.
 

The key challenge facing Yellen will be to try to scale back the asset purchases, shrink the balance sheet while keeping the economy on a self-sustaining growth path.
 

The International Monetary Fund on Tuesday urged the Fed to move cautiously and communicate clearly.
 

Interest rates jumped around the world in May after the Fed said it might begin to taper, or reduce the pace of its asset purchases. The Fed last month decided not to do that to the surprise of many in the market.
 

Like Bernanke, Yellen is a former academic expert on monetary policy who has eschewed politics. A former professor of economist at the University of California, Berkeley, Yellen is described by colleagues as non-ideological, well-prepared, and cautious.
 

Some economists had pushed aggressively for Yellen to get the post starting late in 2012.
  

“Anyone I know who has ever worked with or for Janet Yellen has nothing but the highest respect for her,” said Peter Ireland, an economics professor at Boston College.
 

“She was one of the only policy makers to warn about instability in the financial system in the years leading up to the financial crisis,” he said.
 

Obama was reportedly miffed by the public arm-twisting. It became clear that the president was mulling selecting Larry Summers, his former top economic adviser, for the top Fed job. But Summers, a former protégé of Robert Rubin, was forced to back out of the race after liberal Senate Democrats objected, citing the pair’s deregulatory zeal during the Clinton administration. Summers pushed Congress to repeal the Glass-Steagall act that had separated investment and commercial banks since the Great Depression. Some liberal Democrats in the Senate want to restore that law, blaming it for spurring the financial crisis.
 

Yellen came to the Fed in 1994 at the request of President Bill Clinton. She went to the White House to be chair of Clinton’s Council of Economic Advisers in 1997 but only lasted two years.
 

She moved back to Berkeley and rejoined the Fed in 2004 as president of the San Francisco Fed. In 2010, Yellen came back to Washington to take the number-two job at the board of governors.
 

Economists at Goldman Sachs predicted that Yellen would sail through the Senate confirmation process.
 

Sen. Tim Johnson, the Democrat from South Dakota who is chairman of the Senate Banking Committee, issued a statement Tuesday supporting Yellen’s nomination and promised to hold a confirmation hearing in a “timely manner.”
 

Sen. Bob Corker, a moderate Tennessee Republican on the Banking Committee, noted that he had voted against Yellen’s nomination to be Fed vice chair in 2010. “We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed,” said Corker in a statement .
 

Bernanke’s term expires on Jan. 31.
 

Yellen’s husband, George Akerof, is also a well-known economist, having won the 2001 Nobel prize for economics. He has credited Yellen for helping him win the prize.
  

Source

12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy

A U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash unlike anything that the world has ever seen before.  If the U.S. government purposely wanted to damage the global financial system, the best way that they could do that would be to default on U.S. debt obligations.  A U.S. debt default would cause stocks to crash, would cause bonds to crash, would cause interest rates to soar wildly out of control, would cause a massive credit crunch, and would cause a derivatives panic that would be absolutely unprecedented.  And that would just be for starters.  But don't just take my word for it.  These are the things that top financial experts all over the planet are saying will happen if there is an extended U.S. debt default.

Because they are so close together, the "government shutdown" and the "debt ceiling deadline" are being confused by many Americans.

As I wrote about the other day, the "partial government shutdown" that we are experiencing right now is pretty much a non-event.  Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world.  In fact, only about 17 percent of the federal government is actually shut down at the moment.  This "shutdown" could continue for many more weeks and it would not affect the global economy too much.

On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous.

And if the U.S. government is eventually forced to start delaying interest payments on U.S. debt (which could potentially happen as soon as November), that would be absolutely catastrophic.
Once again, just don't take my word for it.  The following are 12 very ominous warnings about what a U.S. debt default would mean for the global economy...

#1 Gerald Epstein, a professor of economics at the University of Massachusetts Amherst: "If the US does default, that will make the Lehman Brothers bankruptcy look like a cakewalk"

#2 Tim Bitsberger, a former Treasury official under President George W. Bush: "If we miss an interest payment, that would blow Lehman out of the water"

#3 Peter Tchir, founder of New York-based TF Market Advisors: "Once the system starts to break down related to settlement and payments, then liquidity disappears, as we saw after Lehman"

#4 Bill Isaac, chairman of Cincinnati-based Fifth Third Bancorp: "We can’t even imagine all the things that might happen, just like Henry Paulson couldn’t imagine all the bad things that might happen if he let Lehman go down"

#5 Jim Grant, founder of Grant’s Interest Rate Observer: "Financial markets are all confidence-based. If that confidence is shaken, you have disaster."

#6 Richard Bove, VP of research at Rafferty Capital Markets: "If they seriously default on the debt, what we're really talking about is a depression"

#7 Chinese vice finance minister Zhu Guangyao: "The U.S. is clearly aware of China's concerns about the financial stalemate [in Washington] and China's request for the US to ensure the safety of Chinese investments."

#8 The U.S. Treasury Department: "A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse"

#9 Goldman Sachs: "We estimate that the fiscal pull-back would amount to 9pc of GDP. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed quickly"

#10 Simon Johnson, former chief economist for the IMF: "It would be insane to default, but it’s no longer a zero-percent probability"

#11 Warren Buffett about the potential of a debt default: "It should be like nuclear bombs, basically too horrible to use"

#12 Bloomberg: "Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen."

A U.S. debt default could be the trigger for the "nightmare scenario" that so many people have been writing about in recent years.  In fact, it could greatly accelerate the timetable for the inevitable economic collapse that is coming.  A recent Yahoo article described some of the things that we would likely see in the event of an extended U.S. debt default...

A default would upend money markets, destroy bond funds, slam the brakes on lending, cause interest rates to spiral, make our banks insolvent, and deal a blow to our foreign trading partners and creditors around the globe; all of which would throw the U.S. and the world into economic disarray.

And of course stocks would crash big time.  Deutsche Bank's David Bianco believes that if the U.S. government starts missing interest payments on U.S. Treasury bonds, we could see the S&P 500 go down to 850 by the end of the year.

There would be almost immediate panic among ordinary Americans as well.  In fact, it is being reported that some banks are already stuffing their ATM machines will extra cash just in case...

With just 10 days left to raise the debt ceiling and congressional Republicans threatening to force the government to default on its obligations, banks are taking some dramatic steps to prepare for the economic chaos that would result should the brinkmanship continue. 

The Financial Times reports that one major U.S. bank has started stuffing its automatic teller machines with extra cash in preparation for a possible bank run from panicked depositors. The New York Times reports that another bank is weighing a plan to advance funds to customers who rely on Social Security and other government payments that could stop in the event of a default.

Let's hope that cooler heads will prevail and that a U.S. debt default will be avoided.
Unfortunately, it appears that the Democrats are absolutely determined not to be moved from their current position a single inch.  They have decided to refuse to negotiate and demand that the Republicans give them every single thing that they want.

And who can really blame them for adopting that strategy?  After all, it has certainly worked in the past.  Whenever Democrats have stood united and have refused to give a single inch, the Republicans have always freaked out and caved in eventually.
Will this time be any different?

The funny thing is that once upon a time, Barack Obama was adamantly against any increase in the debt limit.  The following comes courtesy of Zero Hedge...

But now Obama says that it is so unreasonable to be opposed to a debt limit increase that any negotiations are out of the question.

So which Obama is right?

If the Democrats will not negotiate, a debt default could still be avoided if the Republicans give in.
And that is what they always do, right?

Perhaps not this time.  Just check out what John Boehner had to say on Sunday...

"I, working with my members, decided to do this in a unified way," the speaker said -- with demands to defund, delay or otherwise alter the Affordable Care Act. 

Boehner had expected that the Obamacare fight would come during the next vote to raise the debt ceiling, “but, you know, working with my members, they decided, let's do it now," he said. "And the fact is, this fight was going to come, one way or another. We’re in the fight. We don't want to shut the government down. We’ve passed bills to pay the troops. We passed bills to make sure the federal employees know that they're going to be paid throughout this.” 

"You've never seen a more dedicated group of people  

who are thoroughly concerned about the future of our country," he said of House Republicans. "It is time for us to stand and fight."

But will the Republicans really stand and fight?

In the past, betting on the intestinal fortitude of the Republican Party has been a loser every single time.

So we'll see.  Boehner insists that this time is different.  Boehner insists that he is not going to fold like a 20 dollar suit this time.  In fact, when he was asked if the U.S. government was headed toward a debt default if Obama continued to refuse to negotiate, Boehner made the following statement...

"That's the path we're on."

The mainstream media has certainly been placing most of the blame at the feet of the Republicans, but at least the U.S. House of Representatives has been trying to get an agreement reached.  The House has voted 26 times since the Senate last voted.  Harry Reid has essentially shut the Senate down until the Republicans fold and give the Democrats exactly what they want.

The funny thing is that this could probably be solved very easily.  If the Democrats agreed to a one year delay to the individual mandate, the Republicans would probably jump at it.  And because of epic technical failures, hardly anyone has been able to get signed up for Obamacare anyway.  So a one year delay would give the Obama administration time to get their act together.

Unfortunately, the Democrats seem absolutely obsessed with the idea that they will not give the Republicans one single inch.  They seem to believe that this will be to their political benefit.

But this is a very dangerous game that they are playing.  The U.S. government must roll over 441 billion dollars of short-term debt between October 18th and November 15th.

If a debt ceiling increase is not in place by that time, it will send interest rates soaring.  Borrowing costs for state and local governments, corporations, and ordinary Americans will go through the roof and economic activity will be hit really hard.

And as detailed above, we could potentially be looking at a financial crash that would make 2008 look like a Sunday picnic.

So let us hope for a political solution soon.  That will at least kick the can down the road for a little bit longer.

If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.

Source

Reuters to US Economy: ‘Our Heart Will Go On’

Shutdown: A fight with no room for compromise ... To end the government shutdown, all Speaker John Boehner (R-Ohio) needs to do is let the House of Representatives vote on a budget. It would pass within 30 minutes. Virtually all 200 House Democrats would vote to keep the government open, as would as many as 50 Republicans. An easy majority. But no. Boehner and other Republican leaders refuse to do that because they are in thrall to Tea Party conservatives. Hard-line conservatives number about 50 out of 232 House Republicans. But those conservatives are threatening to lead an insurrection against party leaders if they dare to allow a vote. Other Republican members are terrified that they will face a tough primary challenge from the right if they don’t go along with the Tea Party.  So what have we got? Minority government. It’s outrageous when you think about it. – Reuters editorial

Dominant Social Theme: The government is not so important after all, even if it goes broke. The US economy is exceptionally vibrant and no matter what happens, the system will continue.

Free-Market Analysis: This past week saw an astonishing outpouring of opinion, much of it vitriolic in the US news media regarding the so-called US government shut down. Nowhere was the coverage more dramatic than over at Reuters, where seemingly the entire team of top columnists breathlessly chronicled every aspect of a grieving nation’s inability to provide products and services to needy masses.

The above excerpt is a good example: an editorial that focuses relentlessly on the here and now without providing a larger context that might provide us with more insight into the underlying fundamentals of the “shut down.”

Reuters, like The Economist, serves as an elite mouthpiece, filtering news through its editorial process and then spewing dominant social themes out into the blogosphere. Habituated to editorial staff meetings, we are well aware of what went on. The leaders of Reuters “conferenced” the editorial staff electronically or otherwise and explained that this story was such a big one that everyone would have to pitch-in in order to cover it from all angles.

An editorial “top gun,” probably someone with a Rhodes Scholarship, breathlessly quarterbacked the coverage, barking out orders to the wire service’s well-compensated ink-stained wretches. The media columnist was asked to cover the shutdown from a media perspective, while a more erudite and theoretical editorialist was advised to address the issues via “game theory.” Clever that.

The result of all the coverage is a series of extraordinary articles examining an essentially manufactured event from almost every conceivable angle.

Never mind, of course, that most of the government has NOT shut down and that what has shut down has been hand-picked by the Obama administration to ensure that the few scant services affected (national parks and monuments come to mind) are among the most high-profile and popularly visited of all public facilities.

Here, from the Washington Times: “Where's sense of crisis in a 17% government shutdown?”
Everyone knows the phrase "government shutdown" doesn't mean the entire U.S. government is shut down. So in a partial government shutdown, like the one underway at the moment, how much of the government is actually shut down, and how much is not?

 … I asked a Republican source on the Senate Budget Committee for an estimate. This was the answer: "Based on estimates drawn from CBO and OMB data, 83 percent of government operations will continue. This figure assumes that the government pays amounts due on appropriations obligated before the shutdown ($512 billion), spends $225 billion on exempted military and civilian personnel, pays entitlement benefits for those found eligible before the shutdown (about $2 trillion), and pays interest costs when due ($237 billion). This is about 83 percent of projected 2014 spending of $3.6 trillion."

So the government shutdown, at least as measured by money spent, is really a 17 percent government shutdown.

Yes, the federal government’s death is considerably exaggerated. Of course, you wouldn’t know it from the editorial we’ve selected as an appropriate example of Reuters coverage. The screed paints the quarrel starkly. Conservatives wear black hats; liberals, white. Here’s more:

Hard-line conservatives are blocking majority rule so they can get their way. They insist they are taking a stand on principle. Why? “Because we’re right, simply because we’re right,” one of them told the New York Times.  What principle? The principle that the Affordable Care Act is an unconstitutional expansion of government power and that President Barack Obama is not a legitimate president. 

But didn’t the Supreme Court rule back in June that Obamacare is constitutional? It did. A Tea Party activist protested at the time, “Just because the Supreme Court says something is constitutional doesn’t mean it is.”  And didn’t the voters re-elect Obama last year? They did. But hard-line conservatives insist that’s only because Republicans put up a candidate who wasn’t a true conservative.

Conservatives have a talent for denying facts. “The American people overwhelmingly reject Obamacare,” Senator Ted Cruz (R-Texas) said on Meet the Press, “They understand it’s not working.”  Do they? Well, the public has always been skeptical of the Affordable Care Act. Americans polled last week by Quinnipiac University were split over the new healthcare law — 45 percent support it and 47 percent oppose it. 

… There is no way Republicans can win this fight. We’re already seeing polls that show Democrats building a lead over Republicans when voters are asked how they will vote for Congress. The Quinnipiac poll shows a 9-point Democratic lead — the biggest margin so far.  That has a lot of congressional Republicans freaking out. They’re rushing to try to restore spending on popular programs like veterans’ benefits and national parks. But Obama and congressional Democrats are holding fast. They know they’ve got the leverage. 

Don’t Republicans remember what happened the last time they shut down the government in 1996? President Bill Clinton coasted to re-election.  Conservatives argue that what hurt Republicans in 1996 wasn’t the shutdown. It was the “surrender.” They believe they lost because they gave in too quickly instead of keeping the government closed. 

What exactly do Republicans think they can accomplish with this maneuver? Some are using terms like “the Alamo” and “Custer’s Last Stand” — glorious defeats, fighting for a noble cause. Thank goodness nobody has mentioned the Confederacy as the great Lost Cause.  Senator Barbara Mikulski (D-Md.) reminded her Senate colleagues that the issue here is the federal budget. It’s a debate over money, she said, “not about political or ideological viewpoints.” 

Actually, that’s exactly what Republicans insist it is about. “This is a matter of core principle,” one Republican congressman said.  A budget is supposed to be a fight over interests. Interests can be negotiated and compromised.  But you can’t make deals if this is a fight over values, which is what conservatives claim it is. Values are about right and wrong. There’s no room for compromise. 

We've quoted a lot of the article because it is a prime example of the kind of rhetoric that has surrounded the health care debate – as provided by the US mainstream media. The editorial is incredulous that the US government has shut down and contemptuous that that the shutdown is being cast in terms of "core principles."

We beg to differ. This latest eruption is symptomatic of a much larger trend that in our view is going to continue for the foreseeable future. People know instinctively that the current Western economic and sociopolitical system is unstable and getting worse. They want something else and politicians, like clumsy herbivores, ever have their noses in the wind, sniffing the prevailing sentiment.
What they are sniffing is change, fundamental change – and thus the increasing paralysis of government not just in the US but in Britain, Spain, Italy and even France. (Germany, not yet … but wait.)

For the past decade we’ve been arguing that what we call the Internet Reformation has been busily reorganizing the sociopolitical and economic fabric of the West, and thus the world. We’ve made prediction after prediction pointing out that the power elite running the world’s central banks would turn to age-old tools of war and economic ruin to combat the dawning of the new information era.

Those following our paradigm would not have been surprised by the West’s economic decline, by the rise in the price of gold relative to the dollar or even by the wars in the Middle East that are replacing secular governments with Islamic fundamentalist governments (loosely affiliated with US Intel.)

We’ve predicted almost every major trend in the West over the past decade in the context of two separate web sites and there’s no evidence, from what we can see, that any of our analysis is suddenly going to skew towards inaccuracy or irrelevance.

People are losing faith in regulatory democracy, as well they should. The freedom movement in the United States is huge and every move the authorities make now to repress the Internet and re-emphasize dominant social themes is met with an equal pushback from the other side.

The 21^st century is not the 20^th. Western citizens generally are economically and socially libertarian. The false schism of Left and Right or Democratic and Republican is increasingly in danger of being discarded entirely. Just as we predicted, people like Rand and Ron Paul have emerged as some of the most influential politicians in the Western world. In England, UKIP is now coming on as a free-market oriented party. Soon France and the rest of Europe will follow.

It is ineluctable. When given the choice between freedom and servitude, people will choose freedom. The myth perpetrated by the powers that be that people will always choose security over self-determination is based on the idea that people don’t understand the choice, or believe they have none. But they do.

The Tea Party, partially co-opted by the Republican establishment, was not an aberration. The current dysfunction of the federal government is not an aberration. The revulsion of British and US citizens to war, recently illustrated as it has been, is not a coincidence. People speak of low information voters but many are using modern information technology to radically expand their knowledge base.

The Internet Reformation has just begun. The banking elites are helpless against it. They can try to shut it down, arrest people who increasingly question the current paradigm, utilize false economic arguments to prop up statist arguments regarding “public banking” but ultimately it’s not going work.

Those who understand what is going on – and the editorial we’re analyzing gets it fundamentally wrong – will apply their comprehension to every facet of their business, family and investment lives. The elites have worn their rope down to a nubbin. There will be one more “last gasp” – a final stock market party that will make some very wealthy indeed. And then gold will pop once again and the West will sink into the icy grasp of a further depression.

These people want more and more globalized facilities: a global central bank, global money and a fully globalized political system. They are counting on chaos and war to deliver a supine public into their grasp. They will continue to pound away at their increasingly dysfunctional dominant social themes, trying to frighten people in to giving up power and authority to international facilities.

But they won’t get it. The Internet was not deliberate. It was a mistake that combined a military-industrial facility developed by DARPA with the unexpected creation of Apple’s personal computer and floppy disk. The result was an explosive technology that expanded via Friedrich Hayek’s “spontaneous order.” The Internet is the best and biggest argument for the prosperity inherent in anarchy that there ever was. Government didn’t create this magnificent digital enterprise, the private sector did.

And government is not likely going to be able to shut it down, either. Technological advances like the Internet are very hard to control. It took the elites of the Middle Ages centuries to undo the damage to their authority caused by the Gutenberg press. There is no reason to believe that they can control the ramifications of the ‘Net in a decade.

The Reuters editorial harkens back decades to explain what is going to happen to the Republicans now that they have “shut down” government. But in our view, this is a fundamental misreading of what is occurring.  This article puts us in mind of a song that served as the theme for the blockbuster "Titanic." It began like this:

Every night in my dreams
I see you, I feel you
That is how I know you, go on
Far across the distance
And spaces between us
You have come to show you, go on

This admittedly schmaltzy melody can surely be seen as the Reuters theme song, though in Reuters's case it is aimed not at a handsome lover but at the government itself and its persistence in its current expansive state. “Government,” sings Reuters passionately, will “go on … far across the distance and spaces between us.”

Conclusion
 

Probably, it won’t.

Source

The Rise And Fall Of Monetary Policy Coordination

The US Federal Reserve’s recent surprise announcement that it would maintain the current pace of its monetary stimulus reflects the ongoing debate about the desirability of cooperation among central banks. While the Fed’s decision to continue its massive purchases of long-term assets (so-called quantitative easing) was motivated largely by domestic economic uncertainty, fears that an exit would trigger interest-rate spikes in emerging economies – especially Brazil, India, Indonesia, South Africa, and Turkey – added significant pressure. But should central banks’ decision-making account for monetary policy’s spillover effects?

Discussion of central-bank cooperation has often centered on a single historical case, in which cooperation initially seemed promising, but turned out to be catastrophic. Like most of our modern cautionary tales, it comes from the Great Depression.

In the latter half of the 1920’s, there was almost constant transatlantic tension, as US monetary policy drove up borrowing costs and weakened GDP growth in Europe. In 1927, at a secret meeting on New York’s Long Island, Europe’s leading central banks convinced the Fed to cut its discount rate. Although the move helped to stabilize European credit conditions in the short term, it also fueled the speculative bubble that would collapse in 1929.

Cooperation in the 1920’s was both novel and fragile, based as it was on the friendship between Bank of England Governor Montagu Norman and Benjamin Strong, Governor of the Federal Reserve Bank of New York, and, to a lesser degree, their ties with the president of Germany’s Reichsbank, Hjalmar Schacht.

The oddly intimate and affectionate relationship between Strong and Norman included regular visits, telephone conversations (a novelty at the time), and an extensive and bizarre correspondence, in which they discussed personal matters as much as monetary issues. Strong once wrote, “You are a dear queer old duck, and one of my duties seems to be to lecture you now and then.”

By the late 1920’s, though, Strong was dying of tuberculosis and Norman was experiencing successive nervous breakdowns. Their legacy of cooperation would soon crumble, too, with most observers concluding after the Great Depression that central banks should be subject to strict national controls to block future efforts at collaboration.

Central-bank cooperation in the aftermath of the 2008 financial crisis has unfolded in a remarkably similar manner. Initially, increased cooperation seemed to be just what the doctor ordered, with six major advanced-country central banks lowering their policy rates dramatically on October 8, 2008 – three weeks after the collapse of US investment bank Lehman Brothers – in a coordinated effort to stabilize plunging asset markets. They subsequently pumped huge amounts of liquidity into the banking system, thereby averting a total collapse.

Now, as the Fed contemplates its next move, emerging-market central bankers are becoming increasingly concerned about the destabilizing effects of monetary tightening on their economies. At September’s G-20 summit in Saint Petersburg, between discussions of the security challenge posed by Syria, world leaders attempted to tackle the issue by creating a formula for international monetary cooperation. But their limited efforts resulted in a fundamentally meaningless appeal.

The modern view is that the Fed’s mandate requires it to act according to inflation and employment outcomes in the US, leaving it up to other countries to combat any spillover effects. This means that other countries must devise appropriate tools to limit capital inflows when US interest rates are low and to block outflows when the Fed tightens monetary policy. But emerging economies missed their chance to limit inflows, and impeding outflows at this point would require draconian measures that would contradict the principles of an integrated global economy.

Moreover, unanticipated shifts in market expectations make it extremely difficult to anticipate the need for such tools. In this sense, the recent G-20 injunction that advanced-country central banks “carefully calibrate and clearly communicate” monetary-policy changes is unhelpful.  Given how difficult it is to communicate coming policy changes accurately, markets tend to be skeptical about long-term forward guidance.

This highlights a fundamental difference between central-bank cooperation in the 1920’s and today. Back then, monetary policy was viewed as an “art” practiced by a “brotherhood” of central banks. Modern central bankers, recognizing the limits of such personal ties, often attempt to formulate official rules and procedures.

But adhering to rules can be difficult when policymakers are confronted with the conflicting goals of preserving stable employment and GDP growth at home and ensuring that international capital movements are sustainable. When things go wrong (as they almost inevitably do), there is a political backlash against central bankers who failed to follow the rules – and against the cooperative strategies in which they engaged.

We are thus left with a paradox: While crises increase demand for central-bank cooperation to deliver the global public good of financial stability, they also dramatically increase the costs of cooperation, especially the fiscal costs associated with stability-enhancing interventions. As a result, in the wake of a crisis, the world often becomes disenchanted with the role of central banks – and central-bank cooperation is, yet again, associated with disaster.

 

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Justice’s Deceit on the JPMorgan Settlement, and Why Ed DeMarco Should Get Some Apologies

The moral bankruptcy of the Justice Department’s fake crusade against JPMorgan Chase was always fairly obvious, considering that the Attorney General is holding private meetings with Jamie Dimon, the chief potential suspect in a criminal case (hey, at least those talks were “constructive”). Just yesterday, Dimon walked into the White House to meet with the President, afforded the respect of an elder statesman. The idea that he’s under “attack” is absurd.

But this has now burst into the open with Justice’s desire to stick the FDIC with half the bill:

JPMorgan Chase & Co’s possible $11 billion settlement of government mortgage probes has been complicated by a dispute with the Federal Deposit Insurance Corp over responsibility for losses at the former Washington Mutual Inc, said people familiar with the matter [...] 

JPMorgan, which acquired Washington Mutual from the FDIC for $1.9 billion at the height of the financial crisis, has disputed its responsibility to cover losses incurred by investors on the failed thrift’s mortgage securities [...] 

Some fear the FDIC, under pressure from the Justice Department to join a global settlement, might agree to assume liability, a move that would effectively force another government agency to absorb billions of dollars in losses [...] 

“If the FDIC were to indemnify JPM as part of the government deal, it would likely reduce the rumored $11 billion by about $3.5 billion,” said Joshua Rosner, managing director of Graham Fisher, an independent research consultancy. “That would be an absurd outcome.”

It’s worse than Josh says. As reports have noted, $4 billion of that fine goes to “mortgage relief,” allowing JPMorgan to game the rules (as every bank did in the National Mortgage Settlement) to “pay” their fine with other people’s money, get credit for routine actions like bulldozing homes or waiving deficiency judgments, and other “take air out of the books” actions. So the hard money fine is $7 billion. And the FDIC would take on fully HALF of that, despite the fact that, at the time, JPMorgan swore up and down that there would be no federal cost from the WaMu transaction. This is why I bristled a bit at Alex Pareene’s appearance on CNBC (though I like him very much and thought he did well). It was too predicated on JPMorgan paying “the largest financial fine in history,” when this accords way too much respect to the game the Justice Department is playing here.

At some level, this just transfers the fine from JPM shareholders over to taxpayers. But notice that the portion of the fine in dispute, the WaMu holdings, refers to the 2011 FHFA lawsuit over mortgage-backed securities purchases. Earlier we learned that, of the $7 billion hard-money fine, $6 billion comes from that lawsuit.

The Justice Department is leading the mortgage-securities negotiations, which also include the Federal Housing Finance Agency and New York Attorney General Eric Schneiderman. 

The FHFA has asked J.P. Morgan to pay more than $6 billion to settle claims the bank misled mortgage-finance companies Fannie Mae and Freddie Mac about the quality of mortgages it sold to them during the housing boom.

The fact that half of the fine would deal with WaMu’s liability in that FHFA lawsuit confirms that this is the model.

If so, the way in which this is being presented by Justice and the New York AG is remarkable in its deceitfulness. This is supposed to be a “global settlement” on all of JPM’s mortgage-backed securities exposure. In reality, they’re settling the FHFA lawsuit, the one that would be really damaging as a precedent and lead to all sorts of private litigation, and Justice and Schneiderman are piggy-backing their lawsuits on top, for pennies, to attach themselves like barnacles to a big settlement number. This includes Schneiderman’s Bear Stearns lawsuit, DoJ’s investigation over mortgage bond purchases, any misrepresentations to investors, etc. That represents $1 billion of a $7 billion figure.

Moreover, since this is being described as a “global” settlement, you can bet that all the other misconduct will never get a look from DoJ again. That’s the whole point – it’s a “pay for peace” deal. While Jamie Dimon isn’t technically out of the woods – and the presence of a whistleblower inside the company as well as the imminent extradition of Javier Martin-Artajo should make him sweat – in reality, Justice will take a victory lap and forget about JPMorgan Chase for a while. And their vaunted “financial fraud task force” investigation will have amounted to next to nothing – it’s the FHFA case that’s the big kahuna here.

Even if you accept this fine on its own terms as punitive, you have to thank the FHFA for that outcome. And that’s where the “liberal” housing groups who have been savaging Ed DeMarco for years look particularly shameful. There’s no question that DeMarco’s stubbornness against principal reduction has been misguided, but you have to look at the whole picture. As a conservator for Fannie and Freddie, what fits his job title most perfectly is for him to recoup money from banks who swindled the GSEs with their mortgage bonds. And the 2011 lawsuit against 17 banks has quietly yielded fruit. In the past week, Citi paid $395 million to Freddie Mac and Wells Fargo paid Freddie $869 million. Those are over direct mortgage purchases, but it’s on top of several other settlements, both on mortgages and mortgage securities, worth several billion over the years. Even the Justice Department’s civil lawsuit against Bank of America, seen as the first between the government and a mega-bank over what caused the financial crisis, is about mortgages purchased by Fannie and Freddie. The GSEs are profitable now because of their dominance over the mortgage market. But these successful putback cases relieved taxpayers as well.

And while I don’t think much of the $4 billion in mortgage relief in this settlement, if you take it at face value, that’s over twice as much as the benefit to homeowners if DeMarco allowed principal reduction over his preferred option of principal forbearance.

So I’m wondering when liberal housing groups like The New Bottom Line, the Home Defender’s League, The Center for Responsible Lending, the Campaign for a Fair Settlement and more will apologize to Ed DeMarco. I know they’ve called him the “single person holding back the economic recovery,” but his efforts to hold banks who passed bad mortgages to Fannie and Freddie accountable has had a more positive economic impact than anything they’re calling for. Not to mention the fact that creating an actual deterrent for financial fraud by making it unprofitable will do far more to help homeowners than anything else.

I eagerly await the contrite press releases.

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One model, two interpretations

Relabelling relations between China and America has not resolved the underlying tensions

CHINA has long stressed that its rise as one of the world’s great powers will be “peaceful”. But it is also aware that, historically, peaceful rises are the exception. Speaking on a visit to Washington on September 20th, Wang Yi, China’s foreign minister, referred to a study of 15 different countries. In 11 cases “confrontation and war have broken out between the emerging and established powers.” So the stakes are high when Chinese leaders speak of their hopes for a “new type of great-power relations”, or, in the humbler phrase they now prefer as a translation for the Chinese formulation, “a new model of major-country relations”. American officials echo the “new model” talk. Since neither side wants confrontation and war, they can be assumed to be sincere. Less certain is whether they mean the same thing.

Xi Jinping unveiled the concept on a visit to the American capital last year, before he took over the leadership of the Chinese Communist Party. His informal “Sunnylands” summit with Barack Obama in June was portrayed as the “model” in action. As elaborated by the smooth Mr Wang in Washington, it is an admirable idea, based on Mr Xi’s formula of “no conflict or confrontation”, “mutual respect” and “win-win co-operation”. Nor is there much disagreement about how to achieve this: by reducing strategic mistrust through building habits of co-operation.

Although America and China seem to line up on the opposite sides of so many international issues, optimists can point to progress in some areas of co-operation. The two countries have in recent months avoided the periodic crises that used to test their ties. China has reacted calmly to allegations of American cyber-espionage against it, for example, enjoying the chance to turn the tables thanks to the revelations of Edward Snowden, a disaffected American former security-services contractor.
Military co-operation is also being stepped up. Next year China’s navy is to join those of America and a score of other countries in a big maritime exercise. China is negotiating an investment treaty with America. It also wants to join one American-led free-trade negotiation, the Trade in Services Agreement (TiSA), and has said it is studying another, the Trans-Pacific Partnership, once seen as part of an American effort to contain China.

On some international hotspots, too, China and America find themselves closer than for some time. America will have been pleased that China this week showed its anger with North Korea, banning a long list of items for export there. China has welcomed the agreement between America and Russia on destroying Syria’s weapons. Mr Wang raised Afghanistan, which he predicted might next year overtake Syria as a global concern, as another area with “great potential” for enhanced co-operation. This is true both because co-operation has so far been minimal, but also because, as Mr Wang pointed out, both have an interest in the country’s stability after most foreign troops leave in 2014. China worries about Islamic extremism seeping across the border to infect its own Muslim minorities, and about the security of its massive proposed investment in the Aynak copper mine.

In all these areas, however, co-operation is hampered by strategic distrust and profound differences. Cynics think that China’s interest in the TiSA, for example, is that of a spoiler. The Chinese want the Americans to go back to long-stalled talks with North Korea and regional powers; the Americans want the North first to promise to get rid of its nuclear arsenal. In Syria, China opposes any threat of military action against the Assad regime. And it is unclear just how it hopes to help stabilise Afghanistan. It remains officially wedded to a policy of non-interference, even as its new global weight makes that policy increasingly obsolete.

For all America’s constant refrain that it welcomes China’s rise, and has a vested interest in its prosperity, China’s leaders often seem unconvinced. The perpetual bugbear of America’s friendship with Taiwan is seen as an obstacle to “reunification” with the island. Nor do Americans necessarily believe Mr Wang when he says that China respects America’s “traditional influence and immediate interests” in the Asia-Pacific. The new sort of relationship is supposed to ease such suspicions. As John Kerry, the secretary of state, said before meeting Mr Wang, an important part of it is “a commitment to engage in frank discussions on sensitive issues, particularly where we disagree, where misunderstanding could lead to a miscalculation”. That is all to the good.

On the new model itself, however, the two sides often give the impression of talking past each other. Both agree that it is one where America has so far accommodated China’s rise. Where they may differ is over whether China agrees in return to continue to accept America’s role as the predominant military power, even in the Chinese backyard of the western Pacific. Americans find it hard to imagine why China, which has fared so well under the current arrangements, should want to challenge them.

Same bed, different dreams

 

Yet Douglas Paal, a former senior American official now at the Carnegie Endowment, a Washington think-tank, argues that, for China, the new model requires the Americans to acknowledge that it “has a new role in parts of the world where the US used to be pre-eminent.” China also thinks it means American agreement to respect its self-defined “core interests”. America’s backing for Japan over the disputed Senkaku (or Diaoyu) islands is seen not just as a difference of opinion but as a breach of trust.

Trust remains in short supply. With no immediate threat to its security (beyond the unpredictability of North Korea) and America the only potential long-term threat, China continues a rapid military build-up. And America, for all the distractions of the Middle East, remains committed, rhetorically at least, to its strategic pivot to Asia. This reassures allies alarmed by China’s rise, but looks less like a 21st-century “new model” relationship than a very old-fashioned 19th-century sort of strategic rivalry.

Source

World Bank Whistleblower Karen Hudes Reveals How The Global Elite Rule The World

Karen Hudes is a graduate of Yale Law School and she worked in the legal department of the World Bank for more than 20 years.  In fact, when she was fired for blowing the whistle on corruption inside the World Bank, she held the position of Senior Counsel.  She was in a unique position to see exactly how the global elite rule the world, and the information that she is now revealing to the public is absolutely stunning.  According to Hudes, the elite use a very tight core of financial institutions and mega-corporations to dominate the planet.  The goal is control.  They want all of us enslaved to debt, they want all of our governments enslaved to debt, and they want all of our politicians addicted to the huge financial contributions that they funnel into their campaigns.  Since the elite also own all of the big media companies, the mainstream media never lets us in on the secret that there is something fundamentally wrong with the way that our system works.

Remember, this is not some "conspiracy theorist" that is saying these things.  This is a Yale-educated attorney that worked inside the World Bank for more than two decades.  The following summary of her credentials comes directly from her website...

Karen Hudes studied law at Yale Law School and economics at the University of Amsterdam. She worked in the US Export Import Bank of the US from 1980-1985 and in the Legal Department of the World Bank from 1986-2007. She established the Non Governmental Organization Committee of the International Law Section of the American Bar Association and the Committee on Multilateralism and the Accountability of International Organizations of the American Branch of the International Law Association.

Today, Hudes is trying very hard to expose the corrupt financial system that the global elite are using to control the wealth of the world.  During an interview with the New American, she discussed how we are willingly allowing this group of elitists to totally dominate the resources of the planet...

A former insider at the World Bank, ex-Senior Counsel Karen Hudes, says the global financial system is dominated by a small group of corrupt, power-hungry figures centered around the privately owned U.S. Federal Reserve. The network has seized control of the media to cover up its crimes, too, she explained. In an interview with The New American, Hudes said that when she tried to blow the whistle on multiple problems at the World Bank, she was fired for her efforts. Now, along with a network of fellow whistleblowers, Hudes is determined to expose and end the corruption. And she is confident of success. 

Citing an explosive 2011 Swiss study published in the PLOS ONE journal on the “network of global corporate control,” Hudes pointed out that a small group of entities — mostly financial institutions and especially central banks — exert a massive amount of influence over the international economy from behind the scenes. “What is really going on is that the world’s resources are being dominated by this group,” she explained, adding that the “corrupt power grabbers” have managed to dominate the media as well. “They’re being allowed to do it.”

Previously, I have written about the Swiss study that Hudes mentioned.  It was conducted by a team of researchers at the Swiss Federal Institute of Technology in Zurich, Switzerland.  They studied the relationships between 37 million companies and investors worldwide, and what they discovered is that there is a "super-entity" of just 147 very tightly knit mega-corporations that controls 40 percent of the entire global economy...

When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

But the global elite don't just control these mega-corporations.  According to Hudes, they also dominate the unelected, unaccountable organizations that control the finances of virtually every nation on the face of the planet.  The World Bank, the IMF and central banks such as the Federal Reserve literally control the creation and the flow of money worldwide.

At the apex of this system is the Bank for International Settlements.  It is the central bank of central banks, and posted below is a video where you can watch Hudes tell Greg Hunter of USAWatchdog.com the following...

"We don’t have to wait for anybody to fire the Fed or Bank for International Settlements . . . some states have already started to recognize silver and gold, the precious metals, as currency"

Most people have never even heard of the Bank for International Settlements, but it is an extremely important organization.  In a previous article, I described how this "central bank of the world" is literally immune to the laws of all national governments...

An immensely powerful international organization that most people have never even heard of secretly controls the money supply of the entire globe.  It is called the Bank for International Settlements, and it is the central bank of central banks.  It is located in Basel, Switzerland, but it also has branches in Hong Kong and Mexico City.  It is essentially an unelected, unaccountable central bank of the world that has complete immunity from taxation and from national laws.  Even Wikipedia admits that "it is not accountable to any single national government."  The Bank for International Settlements was used to launder money for the Nazis during World War II, but these days the main purpose of the BIS is to guide and direct the centrally-planned global financial system.  Today, 58 global central banks belong to the BIS, and it has far more power over how the U.S. economy (or any other economy for that matter) will perform over the course of the next year than any politician does.  Every two months, the central bankers of the world gather in Basel for another "Global Economy Meeting".  During those meetings, decisions are made which affect every man, woman and child on the planet, and yet none of us have any say in what goes on.  The Bank for International Settlements is an organization that was founded by the global elite and it operates for the benefit of the global elite, and it is intended to be one of the key cornerstones of the emerging one world economic system.

This system did not come into being by accident.  In fact, the global elite have been developing this system for a very long time.  In a previous article entitled "Who Runs The World? Solid Proof That A Core Group Of Wealthy Elitists Is Pulling The Strings", I included a quote from Georgetown University history professor Carroll Quigley from a book that he authored all the way back in 1966 in which he discussed the big plans that the elite had for the Bank for International Settlements...

[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.

And that is exactly what we have today.

We have a system of "neo-feudalism" in which all of us and our national governments are enslaved to debt.  This system is governed by the central banks and by the Bank for International Settlements, and it systematically transfers the wealth of the world out of our hands and into the hands of the global elite.

But most people have no idea that any of this is happening because the global elite also control what we see, hear and think about.  Today, there are just six giant media corporations that control more than 90 percent of the news and entertainment that you watch on your television in the United States.
This is the insidious system that Karen Hudes is seeking to expose.  For much more, you can listen to Joyce Riley of the Power Hour interview her for an entire hour right here.

So what do you think about what Hudes is saying?  Please feel free to share your thoughts by posting a comment below...

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