The Empire's Next Effort To Extract Your Wealth

Since before the tech bust, we’ve been suggesting that while Americans “think” they’re getting richer... they’re actually heading in the other direction. They’re getting poorer.

This proposition has been easier for folks to entertain since housing busted and the financial crisis reversed the “wealth effect” in 2008. With that in mind, let’s take a look at the logic of the American Empire and what you can expect in the year(s) ahead.

“Great empires, such as the Roman and British, were extractive,” economist Paul Craig Roberts observed recently. “The empires succeeded because the value of the resources and wealth extracted from conquered lands exceeded the value of conquest and governance.”

We explored a similar theme in our 2006 book, Empire of Debt. But unlike empires of the past, the American Empire has a logic all its own.

“America’s wars are very expensive,” says Roberts, stating the obvious. “Bush and Obama have doubled the national debt, and the American people have no benefits from it. No riches, no bread and circuses flow to Americans from Washington’s wars.”

In the big Iraqi oil auction of 2009, for example, even as U.S. helicopters droned overhead, the oil minister gave out zero contracts to American firms. Not one. And we spent at least $3 trillion on war — $2.9 trillion more than Team Bush’s original budget. So much for paying for war with “oil profits.”

Russia was actually the big winner here. So what gives? The American Empire has perverted the Roman mantra “Veni, vidi, vici” (I came, I saw, I conquered) into the odd imperial slogan, “We came, we saw… we borrowed!”

The results from this turn of phrase are less than desirable. Again Roberts:

“Washington’s empire extracts resources from the American people for the benefit of the few powerful interest groups that rule America. The military-security complex, Wall Street, agribusiness and the Israel lobby use the government to extract resources from Americans to serve their profits and power. The U.S. Constitution has been extracted in the interests of the Security State, and Americans’ incomes have been redirected to the pockets of the 1%.

“That is how the American Empire functions,”

We agree. To grow, the American Empire is always looking to inflate the next bubble. These serial bubbles each have the effect of “extracting” wealth from the citizens — in the form of bigger mortgages, heftier credit card statements and stuffed stock portfolios. The “extracted” money is, over time, passed from the wallets of citizens to the pockets of the well connected.

For confirmation of this assertion we need look no further than the top o’ the 1%, the Oracle of Omaha. Peter Schweizer of Reason reckoned in an exposè published last year on Warren Buffett that this folksy fellow “needed the TARP bailout more than most.”

Let’s run through the numbers. Berkshire Hathaway firms in total received $95 billion in TARP money. Berkshire, you’ll recall, held stock in Wells Fargo, Bank of America, Goldman Sachs and American Express. Not only did these companies receive TARP funds… they also dipped into the FDIC’s treasury to back their debt. Total bailout: $130 billion. TARP-enabled companies accounted for 30% of the Oracle’s publicly disclosed stock portfolio.

He’s definitely one of the top beneficiaries of the big bank bailout. And to sharpen the sting, he even got a better deal to help ailing Goldman Sachs than our own government. Buffett got a 10% preferred dividend while the Feds got all of 5%. He cleaned up with $500 million a year in dividends. Without the bailout, you can bet many of his stock holdings would have gone near-zero instead.

Contrast that with a blog post from Rosemarie Jackowski, a community activist at Dissident Voice. She’s describes her experiences working with the underclass in a small town in Vermont.

“In Bennington, there are three very distinct classes,” writes Jackowski. “First, there are the ‘fancy people.’ They are the ones who rule and control everything. They are on the boards — the hospital board, the library board, the select board, the school boards. They have the power — even the power over life and death. They, occasionally during a medical crisis in the hospital, make the decision to pull the plug or allow life to go on.”

We hear you. At first, we were prepared to dismiss the piece as another bleeding heart diatribe… but she goes on to describe a theme very familiar to our readers.

Then there is the large group of ordinary citizens. Some are blue-collar workers. Most work hard. Love their families. And have had family in Vermont for generations. They acknowledge the class system in conversation often. They call it the ol’ boys network — cronyism.

The third group consists of those who are in need. Those on the bottom of the economic pile. At the conference, some of the most-impressive comments were made by a poor mother of two disabled children. She talked about the oppressive avalanche of redundant paperwork required to get any tiny benefit. The social services system is designed by nameless, faceless, unelected bureaucrats. It is setup to assure maximum job security to the workers in the system. To a struggling family, it often feels like an attack of the “paper churners.” Being poor is a full-time job.

More and more “ordinary citizens” are faced with the challenge of joining this third group of government dependents… or choosing to join the ranks “nameless, faceless, unelected bureaucrats” just to survive.

Case in point: “In the most recent Census,” writes co-author Samantha Buker in The Little Book of the Shrinking Dollar, “48% of America qualifies as ‘low income.’ There are more Americans living under extreme poverty than have ever been recorded.

“Since 2009, we’ve added another 4 million souls to the category of low income to below the poverty line. That’s 146 million people in America who aren’t consuming much aside from ever-increasing applications for food stamps.”

In November 2008, food stamp applicants topped 30 million for the first time in history. We’re still posting “record highs,” having added over 16 million more names (and counting…) to the food stamp list.

Does this sound like a nation of ripe, robust citizens ready to be drained for the benefit of the national coffers? Au contraire. Sounds like another case in which our Empire will hand out more than it’s taking in.

Again.

In her post, Ms. Jackowski provides a list of 35 ways poverty robs you of your dignity. Here are just a few:

“Poverty means living with shame.”

“Poverty means working three jobs and still not ‘making it.’”

“Poverty means that you go to work when you are sick. Worse than that, you send your children to school when they are sick.”

“Sometimes poverty means that you skip meals so that your children can eat.”

“Poverty means that your housing is never secure…”

“Poverty means following all of the rules. Then graduating with oppressive student debt so that the president of UVM can be paid $447,000 per year.”

It’s Jackowski’s final mention of extraction - the student debt fiasco - that worries us. This bubble that has already taken flight. Now it’s flying dangerously close to a few pins.

Just like with housing, this is one hell of a bubble. And when it bursts, it’ll invite another crew of crony capitalists to the Beltway, who will soon be lining up for bailouts. I urge you to grip your wallet with both hands and prepare for the worse.

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The Problem of Central Banks With Multiple Goals and Few Tools

While there are numerous definitions of economics, the most widely used is:

Economics is the study of how economic agents – households, businesses, governments – allocate limited resources across competing uses.

The definition encompasses market, command and mixed economies as the need to allocate resources transcends legal, institutional and other societal arrangements. Various sub-fields of economics have area-specific operational definitions, but the core, the fundamental economic problem, is the same: the allocation of resources. The relative scarcity of resources implies opportunity costs or tradeoffs, e.g., guns versus butter, labor versus leisure, present versus future.

However, current monetary policymakers (largely economists) have designed and employed macroeconomic models and a policy framework that allow only one goal for central banks: price stability. They did not solve the problem of how to allocate scare resources (in this case limited policy tools) in pursuit of competing ends, e.g., stable prices, full employment, sustainable growth, financial stability, external balance. They simply designed models that assumed the problem away and freed central banks from the fundamental problem of finding acceptable, if not optimal tradeoffs when setting policy.

Post the financial crisis, the great recession and in the midst of a painfully slow recovery, economists and central bankers are moving in the direction of flexible inflation targeting, i.e., allowing for the possibility that monetary policy should pursue goals other than just price stability. However, the flexibility appears to be limited to sequential shifts from inflation-only targeting to employment targeting and back. Policymakers are still talking as if they will never be faced with policy tradeoffs.
More recently, and very belatedly, monetary policymakers have acknowledged the existence of a link between monetary policy and financial stability. The existence of the link implies that the Fed faces potential tradeoffs not only between inflation and unemployment, but among inflation, unemployment and financial stability. Given that financial instability implies the possibility of increased unemployment in the future, there are also potential tradeoffs between current unemployment and future unemployment.

With financial stability as a goal in addition to its dual mandate, i.e., price stability and full employment, the Fed has three policy goals. How many resources, aka policy tools, does the Fed have? In terms of monetary policy per se, the Fed has one tool, either interest rates or the quantity of reserves. It also has a set of regulatory tools, but as Yellen has pointed out:

The Federal Reserve has been working with a number of federal agencies and international bodies since the crisis to implement a broad range of reforms to enhance our monitoring, mitigate systemic risk, and generally improve the resilience of the financial system. Significant work will be needed to implement these reforms, and vulnerabilities still remain. Thus, we are prepared to use any of our many instruments as appropriate to address any stability concerns.”

Policymakers do not have the necessary regulatory tools in place. The financial industry also has a well established record of innovating to avoid regulation. Hence, the Fed and other regulatory authorities will likely continue to lag the markets on the regulatory front. Furthermore, financial regulation and supervision will not control the behavior of financial institutions that innovate to avoid regulation, operate outside the regulatory border or across political boundaries. The remote likelihood of a lasting and sufficiently robust regulatory system raises the possibility that there will be times when it is advantageous for a central bank to alter interest rate policy to reflect financial stability concerns.
 
Interest rate policy also has advantages over regulatory policy in promoting financial stability. Interest rate policy has a non-discriminatory impact on regulated and non-regulated entities as well as across financial products. Furthermore, interest rate policy can alter the incentive that financial entities have to engage in regulatory arbitrage or to innovate to avoid the costs of regulation. This effect has been noted by Fed Governor Stein:

For example, if low interest rates increase the demand by agents to engage in below-the-radar forms of risk-taking, this demand may prompt innovations that facilitate this sort of risk-taking.

Consequently, interest rate and regulatory policies are not independent. The Yellen statement implies that the Fed is prepared to address financial stability concerns with interest rate policy. Plosser of the Philadelphia Fed has said that some members of the FOMC are concerned about the low interest rate policy because of increasing potential costs of financial instability. However, the Fed has not shown any inclination to do so and still asserts that interest rates were not “too low for too long” prior to the crisis. In fact, economists, central bankers and pundits continue to resist calls to acknowledge the possibility that it might be advantageous to design monetary policy with more than just one target in mind. They mustered a number of arguments. They include 1) the Tinbergen separation principle and 2) arguments based on the idea that central banks should specialize/focus on inflation as they have a comparative advantage in maintaining price stability.

Tinbergen Separation Principle

Wikipedia summarizes the Tinbergen separation principle as follows:

Tinbergen, in his work on macroeconomic modeling and economic policy making, classified some economic quantities as “targets” and others as “instruments”. Targets are those macroeconomic variables the policy maker wishes to influence, whereas instruments are the variables that the policy maker can control directly. Tinbergen emphasized that achieving the desired values of a certain number of targets requires the policy maker to control an equal number of instruments. 

Tinbergen’s classification remains influential today, underlying the theory of monetary policy used by central banks. Many central banks today regard the inflation rate as their target; the policy instrument they use to control inflation is the short-term interest rate.

Ben Bernanke espoused this position in 2002 when he was a Federal Reserve Governor.

My suggested framework for Fed policy regarding asset-market instability can be summarized by the adage, “Use the right tool for the job.” 

As you know, the Fed has two broad sets of responsibilities. First, the Fed has a mandate from the Congress to promote a healthy economy–specifically, maximum sustainable employment, stable prices, and moderate long-term interest rates. Second, since its founding the Fed has been entrusted with the responsibility of helping to ensure the stability of the financial system. …By using the right tool for the job, I mean that, as a general rule, the Fed will do best by focusing its monetary policy instruments on achieving its macro goals–price stability and maximum sustainable employment–while using its regulatory, supervisory, and lender-of-last resort powers to help ensure financial stability.”

Unfortunately, defense of inflation-only targeting via appeals to the Tinbergen separation principle are over simplified and misplaced. The separation principle was derived in the context of a macroeconomic model comprised of well-behaved linear equations. It is clear that real economies include dynamic non-linear relationships between variables and that behavior is at times chaotic.
Furthermore, Tinbergen’s principle was much more nuanced than one instrument for one target. In the context of his model, Tinbergen found that:

1. When the number of policy instruments exceeds the number of targets, policymakers will be able to chose from a menu of possible combinations of instruments to achieve the goals; 

2. When the number of instruments equals the number of targets, all targets can be met and one instrument can be used for each goal; and 

3. When the number of targets exceeds the number instruments, it will not in general be possible for policymakers to reach all the goals. Policymakers will be faced with having to make tradeoffs across goals. In general, policies will have to be designed with multiple goals in mind, if all targets are to be pursued. 

The number of policy goals far exceeds the number of effective instruments.

Regulatory policy has been and is likely to remain incapable of insuring financial stability. Fiscal policy appears to be driven by concerns other than promoting the goals of economic policy, e.g., full employment. International economic policy is non-existent. Consequently, the Tinbergen separation principle should not be invoked to support inflation-only targeting, as the conditions under which it was derived are not met.

Appeals to Comparative Advantage

Central banks, including the Fed, presumably have both absolute and comparative advantages over other policy institutions in maintaining price stability. The exploitation of comparative advantages gives rise to specialization, trade, markets and increased efficiency. To many, this suggests that it is advantageous for the Fed to specialize in maintaining price stability.

However, there are limits to specialization, aka the division of labor. This was noted by Adam Smith in An Inquiry Into The Nature and Causes Wealth of Nations. Chapter III is titled “The Division of Labour is Limited by the Extent of the Market” and includes the following observations:

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.

In simple terms, the ability of specialization to enhance efficiency and welfare depends not only on the existence of an agent with a comparative advantage, but also on the market and institutional setting.

If the Fed’s goal is to design and implement the optimal monetary policy for an otherwise perfect world, then complete specialization in the pursuit of a single target is appropriate. If the Fed’s goal is sustained stable growth with full employment in a world characterized by market and institutional failures, e.g., other policy tools are either non-existent or incapable of achieving their intermediate goals, then economics suggests that the Fed must accept the possibility that a one-target-only policy may exacerbate resource misallocation and contribute to inferior outcomes.

It is ironic that economists in pursuit of macroeconomic models with microeconomic foundations have adopted models and an operating framework that preclude the existence of the rationale for economics – the relative scarcity of resources and resulting existence of tradeoffs. In so far as inflation-only targeting contributed to the asset price bubbles, the financial crisis and recession, it was costly as well.

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10 Scenes From The Ongoing Global Economic Collapse

When is the economic collapse going to happen?  Just open up your eyes and take a look around the globe.  The next wave of the economic collapse may not have reached Wall Street yet, but it is already deeply affecting billions of lives all over the planet.  Much of Europe has already descended into a deep economic depression, very disturbing economic data is coming out of the second and third largest economies on the globe (China and Japan), and in most of the world economic inequality is growing even though 80 percent of the global population already lives on less than $10 a day.  Just because the Dow has been setting brand new all-time records lately does not mean that everything is okay.  Remember, a bubble is always the biggest right before it bursts.  The next major wave of the economic collapse is already sweeping across Europe and Asia and it is going to devastate the United States as well.  I hope that you are ready.

The following are 10 scenes from the economic collapse that is sweeping across the planet...

#1 27 Percent Unemployment/60 Percent Youth Unemployment In Greece

The economic depression in Europe just continues to get worse with each passing month.  According to the Daily Mail, the unemployment rate in Greece has nearly tripled since 2009...

Greek youth unemployment rose above 60 per cent for the first time in February, reflecting the pain caused by the country's crippling recession after years of austerity under its international bailout.

Greece's jobless rate has almost tripled since the country's debt crisis emerged in 2009 and was more than twice the euro zone's average unemployment reading of 12.1 percent in March.

While the overall unemployment rate rose to 27 per cent, according to statistics service data released on Thursday, joblessness among those aged between 15 and 24 jumped to 64.2 percent in February from 59.3 percent in January.

#2 Detroit, Michigan Is Insolvent And Is Rapidly Running Out Of Cash

I love to write about Detroit because it is a perfect example of where the rest of the country is headed.  They have just gotten there first.  At this point, Detroit is essentially bankrupt, and the new emergency financial manager is saying that Detroit may totally run out of cash next month...

Detroit may run out of cash next month and must cut long-term debt and retiree obligations, according to emergency financial manager Kevyn Orr’s preliminary plan to save Michigan’s largest city from bankruptcy.

Orr’s report says the cost of $9.4 billion in bond, pension and other long-term liabilities is sapping the ability to provide public safety and transportation. He listed cutting debt principal, retiree benefits and jobs among his options.

“No one should underestimate the severity of the financial crisis,” Orr said yesterday in a statement. He called his report “a sobering wake-up call about the dire financial straits the city of Detroit faces.”

#3 Economic Despair In France

France is going down the same path that Greece, Spain, Portugal and Italy have gone.  The following is an excerpt from a recent article in the Economist...

HELDER PEREIRA is a young man with no work and few prospects: a 21-year-old who failed to graduate from high school and lost his job on a building site four months ago. With his savings about to run out, he has come to his local employment centre in the Paris suburb of Sevran to sign on for benefits and to get help finding something to do. He’ll get the cash. Work is another matter. Youth unemployment in Sevran is over 40%.

#4 7,000 Abandoned Buildings In Dayton, Ohio

All over the upper Midwest, there are formerly great cities that are dealing with thousands of abandoned buildings.  Dayton, Ohio is one example...

Like many urban cities in recent years, Dayton still finds itself knee-deep in abandoned, dilapidated properties as the result of the foreclosure crisis and economic downturn five years ago.

Boarded up buildings that appear to be on their last legs litter the city as it attempts to recover.

Kevin Powell, the city’s acting manager of housing inspection, says officials plan to use $5.2 million — half from the state’s Moving Ohio Forward program and a matching grant from the city’s general fund — to raze 475 abandoned properties by the end of September.

That will scratch the surface of an estimated 7,000 abandoned property problem that is growing.

#5 Overwhelmed By Squatters In Spain

In Spain, unemployment is rampant and people have become incredibly desperate.  In fact, in some Spanish cities you can now find entire apartment buildings that are being overwhelmed by squatters...

A 285-unit apartment complex in Parla, less than half an hour’s drive from Madrid, should be an ideal target for investors seeking cheap property in Spain. Unfortunately, two thirds of the building generates zero revenue because it’s overrun by squatters.

“This is happening all over the country,” said Jose Maria Fraile, the town’s mayor, who estimates only 100 apartments in the block built for the council have rental contracts, and not all of those tenants are paying either. “People lost their jobs, they can’t pay mortgages or rent so they lost their homes and this has produced a tide of squatters.”

#6 The Collapse Of Chinese Power Consumption

Energy consumption tends to closely mirror economic activity.  That is why the recent collapse of Chinese power consumption is so alarming.  The following is from Zero Hedge...

According to CLSA's Chris Wood using NEA data, China's monthly power consumption (the most accurate proxy for underlying economic strength according to the current premier) growth slowed from 5.5% YoY in Jan-Feb 2013 to 1.9% YoY in March, the slowest growth rate since May 2009 (as discussed in-depth here).

#7 Horrible Economic Data Coming Out Of The Second Largest Economy On The Planet

The economic data that has been coming out of the second largest economy on the globe has been quite alarming recently...

#000000;">For starters, China’s recent economic data, as massaged as it is to the upside, is downright awful. China’s PMI numbers were the worst in two years. Staffing levels in the Chinese service sector decreased for the first time since January 2009 (remember that year).

#000000;">China’s LEI also shows no sign of recovery. If anything, it indicates China is heading towards an economic slowdown on par with that of 2008. And if you account for the rampant debt fueling China’s economy you could easily argue that China is posting 0% GDP growth today.

#8 One Out Of Every Five U.S. Households On Food Stamps

Back in the 1970s, about one out of every 50 Americans was on food stamps.  Today, even though we are supposedly in the midst of an "economic recovery", food stamp enrollment continues to soar to new highs.  The following is from CNS News...

The most recent Supplemental Assistance Nutrition Program (SNAP) statistics of the number of households receiving food stamps shows that 23,087,886 households participated in January 2013 - an increase of 889,154 families from January 2012 when the number of households totaled 22,188,732.

The most recent statistics from the United States Census Bureau-- from December 2012-- puts the number of households in the United States at 115,310,000. If you divide 115,310,000 by 23,087,866, that equals one out of every five households now receiving food stamps.

#9 Child Hunger In America

Those that work for the big banks on Wall Street may have no problems feeding their children, but overall there is a rapidly growing child hunger crisis in America today.  Just check out the following statistics from one of my previous articles...

*For the first time ever, more than a million public school students in the United States are homeless.  That number has risen by 57 percent since the 2006-2007 school year.

*In Miami, 45 percent of all children are living in poverty.

*In Cleveland, more than 50 percent of all children are living in poverty.

*According to a recently released report, 60 percent of all children in the city of Detroit are living in poverty.

#10 The Tremendous Suffering Of Hundreds Of Millions Of Desperately Poor People That We Never Hear About

There are billions of people around the globe that are deeply suffering but that do not have a voice.  We usually never hear about the desperate poverty that these people are living in, but that doesn't mean that they don't exist.  The following statistics that Stephen Lendman recently compiled should shock and alarm you...

At least 80% live on less than $10 a day. Over three billion people live on less than $2.50 a day. More than 80% live in countries where income disparity is increasing.

The poorest 40% of world population has 5% of global income. The bottom fifth has $1.5%. The top 20% has 75%.

According to UNICEF, 22,000 impoverished children die daily. They "die quietly in some of the poorest villages on earth, far removed from the scrutiny and the conscience of the world. Being meek and weak in life makes these dying multitudes even more invisible in death."

An estimated 28% of children in developing countries are underweight, malnourished and/or stunted.

How can so many people be living like that in a world with such wealth?

Sadly, things are going to get much worse.  The economic and financial systems of the world are rapidly breaking down, and in a few years these are going to look like "the good old days".

And a growing number of people are starting to realize the direction that things are headed.  For example, according to a survey that has just been released, 48 percent of all Americans believe that the best days of America are now behind us.

So what do you think?

Are our best days behind us, or are they still ahead of us?

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Russia’s Plan For The BRICS To Dismantle The Dollar System

Yves here. Some financial markets commentators seem to be eagerly awaiting the dollar to collapse under the weight of the Fed’s monetary expansion. The wee problem with that view is that everyone knows that the party that trashes its currency gets a nice boost to its export sector, but it’s easy for this sort of behavior to devolve into “beggar thy neighbor” competitive devaluations (witness our recent finger-shaking at Japan). And since policy-makers in the major economies are deeply devoted to our current “free trade” system, the tacit assumption has been that we might see some jockeying within the current system, but no real breaks.

And the second major reason for the mainstream view that the dollar’s dominance is not at risk is that no other large economy wants the burden of serving as the reserve currency, which entails running trade deficits much of the time.

Nevertheless, a lot of countries resent the dollar hegemony. This post describes one effort to supplant it.

The status of the US dollar as the world reserve currency gives the US a number of advantages over other countries. The world’s most important commodities are priced and traded in dollars, even if most of these commodities are not produced in the US. The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the Federal Government runs a huge deficit with impunity.

So far, only China has been active in challenging the dollar supremacy. The internationalization of the yuan is an official priority of Chinese leaders. Currency swap agreements with major trade partners like Brazil, France, or Australia are small but important steps in the Chinese strategy.

Changing the world financial system is not an easy task and certainly a very challenging undertaking for China. Now, it seems that Beijing has found an ally in the Kremlin. And there appears to be a consensus between the BRICS countries: the urgent necessity to dismantle the dollar system.

A week before the recent BRICS summit in Durban, the Kremlin administration has silently produced a document which describes the Russian strategy in the context of BRICS cooperation. The document makes for a fascinating read for anyone brave enough to plow through the dense Russian legalese. The strategy has been designed in the “inner circle” of Vladimir Putin’s team, so it is safe to assume that it represents the official view on the BRICS future.

In Russia, politics are Byzantine; the fact that the Kremlin decided not to hide the document or leak it to a chosen few journalists, but publish it outright is a very strong signal, a very vocal angry signal directed at the US. A signal that the Western media chose to ignore.

In the recitals section of the document, the authors point out that “there is a common desire of the BRICS partners to reform the outdated global financial and economic framework that doesn’t take into account the growing economic weight of the emerging markets.” Moreover, the Russian strategists view the BRICS as a tool to reform the way the world is being governed. Then the document hammers home its message:

Russia assumes that, given enough political will of the leadership of the BRICS countries to advance their cooperation, this alliance can become one of the key elements of a new system for global governance, primarily in the economic and financial domains.

Move aside New World Order! The BRICS are coming to change the world.

The goals are clear. In the section titled “Strategic goals,” the first point on the BRICS’ agenda is the reform of the world financial system in order to make it “fairer, more stable, and more efficient.” In the later chapters, it is spelled clearly that this “reform” is actually a dismantling of the dollar system.
It is worth noting that the place of this issue in the list of the BRICS’ priorities speaks volumes about its importance. Judging by the order of priorities, depriving the dollar of its status as the world reserve currency is more important than “preventing breaches of sovereignty” (a.k.a. the “Syrian problem”) or “expanding economic cooperation.”

The language used in this document indicates that it has been written or strongly influenced by Sergei Glaziev, the president’s economy advisor, who is known for masterminding the economic aspects of the Eurasian Union between Russia, Belarus, and Kazakhstan. Glaziev has repeatedly accused Fed Chairman Ben Bernanke of starting “a currency war” against the emerging markets. He also believes that Bernanke’s policy will ultimately lead to a military confrontation: “the conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of a major war” (read more).

A whole chapter of the strategy document is dedicated to step-by-step instructions on dismantling the existing global financial system. The list of measures includes:

• Reformation of the world currency system in order to create a representative, stable and predictable system of world reserve currencies;
• Reduction of the risks of destabilization of currency and equity markets linked to massive cross-border flows of capital;
• Increasing the use of national currencies in the trade between BRICS countries;
• Increasing the level of cooperation between BRICS countries in order to promote their interest in the domain of world trade;
• Strengthening the BRICS Exchange Alliance;
• Creating independent rating agencies.

Since the Durban Summit, at least one of those measures has been implemented: RT reported that “China’s Dagong Global Credit Rating agency is to set up the joint venture with US-based Egan-Jones Ratings Co (EJR) and Russia’s RusRating JSC to challenge the three major US ratings agencies.” As BRICS countries try to achieve the rest of their stated goals, it remains to be seen if the dollar system survives the joint onslaught of the biggest emerging economies. By Valentin Mândrăşescu, author of the pungent article on the inner machinations of Russia…. Cyprus: A Triumph For Russian Isolationists

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World's Largest Steelmaker Urges Europe To Declare Trade War On China

Currency wars are so pre-"QE eternity." At least that is the opinion of Indian multi-billionaire Lakshmi Mittal, and owner of the world's biggest steelmaker, who urged Europe to embrace protectionism and erect trade barriers to "protect" its manufacturers (benefiting one ArcelorMittal among others), while at the same time bashing austerity, saying "the futures of EU manufacturing depended on politicians in Brussels helping industry face what he said was unfair competition from China." In other words, it's time for Europe to escalate into full blown trade warfare with China. It is unclear if Mr. Mittal had any thoughts on how China would, in turn, escalate to this progression in trade warfare: whether with tariffs, subsidies, or outright dumping. What does appear quite clear is that the owner of ArcelorMittal, who on Friday posted a net loss of $345 million (down from a $92 million profit a year earlier) on Q1 sales plunging by 13%, whose stock is just off its 52 week lows, and who said he may close plants in Eastern Europe if the "economy continues to slump", may have some ulterior motives in asking that Europe fight his war for him.

From the FT:

Mr Mittal suggested that Europe should embrace protectionist measures to stop Chinese products flooding the market with cheap goods.

The London-based entrepreneur said Brussels should consider applying higher tariffs on imports of Chinese-produced steel, similar to the ones to be imposed on solar panels made in China. He argued that Chinese producers of steel were over producing, lowering the price of the metal globally.

“There should be increased tariffs for imports, or there should be a surcharge on the steel coming to Europe from countries where environmental standards are very low,” he said.

His call came as EU policy makers adopt an increasingly muscular approach to what they see as unfair competition from Chinese producers across a range of sectors.

Also not surprising was his lashing out at the latest bogeyman for Europe's economic doldrums: austerity, which has become the old world's equivalent of Bush, whereby everything that is wrong, is blamed on Germany's unwillingness to pursue "debt-reduction" policies through the layering of more debt, or in other words, to give the ECB carte blanche to follow in the Fed's footsteps and engage in outright monetization (a topic extensively discussed previously, and one where Europe will be at an impasse at least until Merkel's September reelection campaign is successful, or not).

“If Europe continues only with the austerity programme without spending money on growth for infrastructure, things will never improve,” Mr Mittal told the Financial Times. “We can clearly see that austerity is not helping economies to come out of recession.”

He added: “They [policy makers] have to save European manufacturing, whatever you may call it, what I want is actions to save the domestic manufacturing, including steel.”

At least now thanks to Lakshmi, Europe has a new bogeyman: evil, efficient Chinese steel plants which should be stigmatized due to "very low environmental standards."

Just as not surprising, was the lack of macro economic "advice" geared at the US - after all there Mittal's operations are still quite profitable:

ArcelorMittal executives say  the operating environment in the Americas is much healthier than in Europe. Louis Schorsch, who heads a large part of the American business, said that steel consumption in the United States was approaching levels last seen before the financial crisis. Demand from the auto industry, probably the company’s most important customer in the United States,  is ‘‘a good story’’ and housing is ‘‘a little better,’’ he said, while demand for drill pipe and other energy-related products is ‘‘a little bit off.’’

But in Europe it is a different story entirely:

 Mr. Mittal said Friday that while the results were ‘‘still not satisfactory, at least I am starting to see the benefits of the actions we have taken’’ to reduce capacity.

Given the slump in demand in Europe, ‘‘we felt that this is not a cyclical but a structural change,’’ he said. ‘‘We needed to take action.’’

The closing  of operations in Europe, especially at Liège,  Belgium, and Florange,  France, has led to tension with governments and unions.

The French government last year threatened to nationalize the Florange site, but Mr. Mittal largely held firm on his plans to permanently close blast furnaces there. The company did say Friday that  it had begun a new production line at Florange for modern, lightweight automotive steel with the trademark Usibor.

Bottom line: Mittal's advice to France - don't target me, but instead make things much worse by re-escalating trade tensions and taking up the global currency wars at least one level. As for the long-term consequences of China getting actively involved in trade warfare, well - the stock market really only cares 1-2 quarters out. What happens in 2014, 2015 and so on, that's someone else's concern.

ArcelorMittal, which is based in Luxembourg, still looks as if it has a long way to go before it returns to the high profitability it enjoyed before the onset of the global financial crisis. The company reported net income of $10.4 billion in 2007.

‘‘There is a glut of steel supply globally,’’ said Jeff Largey, an analyst at Macquarie in London. ‘‘That is going to prevent a company like ArcelorMittal from making the type of profits it did in its heyday.’’

One wonders if Mittal will also demand protectionism to be enacted against Chinese miners next:

Even in mining, where Mr. Mittal is focusing most of his investment these days, the results were not stellar. Operating income of $286 million was down 19 percent compared with the previous year, although it was up 54 percent compared with the last quarter of 2012.

But ignore all that, and just blame China, which was a great friend and ally when it was helping the Indian's materials empire achieve record profits, but which may be sacrificed at the altar of hollow punditry and macroeconomic myopia once things start turning sour for the bottom line.

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Implosion: Patent Law Remains Troubled in the US

Headlines have been trumpeting the Indian Supreme Court's decision to deny a new patent for the cancer drug Gleevec as an attack on intellectual property rights and a win for patients in need of cheap drugs. Those headlines are misleading. What the ruling actually demonstrates is that India has set a high bar for determining what is "innovative." – Reuters

Dominant Social Theme: Nothing wrong with patent law. Let the haters hate.

Free-Market Analysis: A scholar with the Cato Institute, a libertarian think tank, has written about India's noted Gleevec case that has spawned such headlines as "Gleevec as an attack on intellectual property rights and a win for patients in need of cheap drugs ..."

The article posted at a Reuters blog points out that "Those headlines are misleading. What the ruling actually demonstrates is that India has set a high bar for determining what is 'innovative.'"

The article adds that the United States "could learn a thing or two from India – particularly since Washington's excessively liberal patent system led to a ridiculous spat last year between Samsung and Apple over whether a rectangular cellphone screen with rounded corners was patentable."
Here's more:

The court's ruling has highlighted the fundamental point that patents are monopoly rights – which should not to be granted too liberally. Competition must be promoted and monopolies penalized, with the exception that temporary monopolies are strongly justified to reward innovation.
This includes rewarding true drug innovations, not the tweaking or "evergreening" of old patents through slight variations. In stark contrast to India, Washington grants patents liberally, with a low bar for deciding what is innovative. As a result, the U.S. patent office has been snowed under by an avalanche of patent applications it can hardly scrutinize thoroughly.

This has three unfortunate consequences. First, many new initiatives (especially in software and business processes) attract dozens of lawsuits, making innovation risky and expensive. The winners are those with the best legal brains and largest budgets, not the best innovations. Second, liberal patents hamper follow-on innovations. Unlike Isaac Newton, today's innovators cannot stand on the shoulders of giants without being hit by lawsuits for patent infringement. Third, liberal patent-granting policies spur patent trolls and defensive patenting. Patent trolls buy quantities of patents, often from ailing or bankrupt companies, with no intention of using them.

There is little doubt the US patent system is broken, and the article does us the favor of pointing out that granting monopoly rights to "inventions" via patents (or copyrights and trademarks) is increasingly producing a dysfunctional system when it comes to innovation.

The bar for patents in the US especially has been both raised and lowered. Small inventors often have a terrible time gaining patents while large corporations can gain patents for questionable inventions.
Additionally, patent law is often "making law" outside of other existing legal channels. It is certainly not settled law that the human genome ought to be patented but people are trying anyway.

Patent law, copyright and trademarks all confer legal power on those who are successful in registering their product or production. But like so many government functions, patent law has expanded in ways that certainly weren't originally intended.

Conclusion: One could speculate that the system is due for a radical makeover – or perhaps just a significant implosion that will catch companies and investors alike off-guard.

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What Buffett Has Forgotten, But We Should Remember

Buffett says economy on mend, bonds 'terrible' investment ... Warren Buffett said the U.S. economy is gradually improving, but low interest rates have made bonds "terrible investments" while stocks remain "reasonably priced." Speaking on CNBC television on Monday, the chairman and chief executive of Berkshire Hathaway Inc. said the economy is benefiting from an upturn in areas that had not previously performed well ... Buffett spoke on CNBC after Berkshire's annual shareholders meeting over the weekend in Omaha, Nebraska. The world's fourth-richest person said low benchmark interest rates, including overnight rates that Federal Reserve Chairman Ben Bernanke has kept at effectively zero since late 2008, can help stimulate demand. – Reuters

Dominant Social Theme: Okay, we had a rough patch, but things are looking up.

Free-Market Analysis: This article makes sure to remind us that Warren Buffett is the world's fourth richest man. But wealth does not necessarily create wisdom.

We remember when Buffett was technically broke ... certainly right after the financial crisis that began in 2008. Then with almost every other Goliath, Buffet was busted. Briefly, his net worth was probably negative.

It was money printing that caused the financial crisis, in our view ... money printing and low rates. Since then, there has been more of the same and gradually a reflating bubble. This is what Buffett and others are calling "a recovery."

It has been driven by central bank Super-Money. Apparently, the Federal Reserve in particular sent trillions around the world in so-called "short-term" loans that have never been repaid. Supposedly, Ben Bernanke provided some US$16 trillion in liquidity in a single weekend.

So it is worth remembering, when listening to someone like Buffett – as wise as he is – that only a few years ago he was basically broke. If the system had shattered so would his wealth.

Here's more from the article:

Many investors have also been drawn to bonds because their prices rise as rates fall, and Buffett said they could get their comeuppance when that process reverses.

"Bonds, they're terrible investments now," Buffett said. "That will change at some point, and when it changes, people could lose a lot of money if they're in long-term bonds."

He said stocks, in contrast, are "reasonably priced," though he continues to shy away from sectors such as media, where he cannot reasonably predict who will thrive in the long run.

"It's a lot easier for me to predict that ketchup will be doing well or Coca-Cola will be doing well in 10 years," Buffett said, referring to Berkshire's pending takeover with Brazilian investment firm 3G Capital of H.J. Heinz Co (HNZ.N), and Berkshire's large investment in Coca-Cola Co (KO.N) stock.
... Speaking on Monday, Buffett called Bernanke "a gutsy guy" who has "done very, very well in terms of what he has done for the United States."

Last week, the Fed said it would continue to buy $85 billion of bonds per month to spur growth, and it will step up purchases if needed. The economy grew at a 2.5 percent annualized rate in the first quarter.

Buffett is probably right about bonds, just as he is often about stocks. But all his analysis is focused around interest rates and Ben Bernanke actions as regards money printing. He even calls Bernanke a "gutsy guy."

The "Sage of Omaha" is known as an investment guru but, unfortunately, in this latest financial crisis we have seen more clearly than ever that nothing much else matters to the economy than the ability to print money and lots of it.

When Buffet says the stock market is reasonably priced, we have to wonder exactly what he means. Is he speaking of value or of Fed pump priming?

This is our larger point as well when it comes to investing. One needs to watch central bankers and the dominant social themes they promote just as much as one watches the market itself.

And it is a melancholy fact that if one had merely restricted one's investments to the military-industrial complex and Intel adjuncts such as Google and Facebook, one probably would have beaten the market hands down.

Investments these days are subject to a great struggle between manipulation and free-market pushback. What you invest in depends on what you believe the outcome of this struggle will be and the timeline as well.

Buffett, in our view, does consumers no favor by not spelling out larger market and governmental forces at play in the marketplace. By focusing on value, he is leading investors into believing that mathematical analyses and historical performance are the main drivers of investing.

Conclusion: But let us remember the financial crisis of 2008 when even Buffet found out otherwise.

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When Is The Government Going To Shut Down Bitcoin?

Do you actually believe that the central banks of the world are going to sit back and do nothing while their monopoly over money creation is being threatened?  Do you actually believe that the governments of the world are going to allow a digital currency that they have no control over to become “the future of money”?  If so, then you are incredibly naive.  Wars have been started over much less.  The global elite are very, very sensitive when it comes to the creation of money, and Bitcoin has definitely gotten their attention.  Yes, there have always been alternative currencies created by local communities, but none of those has ever been a real threat to the central banks of the world.  The truth is that Bitcoin is different.  It has the potential to really be something, and I expect a serious move to be made against Bitcoin before it explodes in popularity.  If Bitcoin was solely a domestic currency, the U.S. government would have already shut it down long ago.  The fact that it is a decentralized international currency makes things trickier, but without a doubt right now officials are thinking of ways to restrict the use of Bitcoin or shut it down altogether.  Bitcoin is already being portrayed as a currency that attracts criminals involved in such things as tax evasion, drug dealing, gambling, terrorism and money laundering.  In fact, the Wall Street Journal recently reported that the Treasury Department has ruled that money laundering rules will be applied to Bitcoin.  But this is just the beginning.

At some point, the establishment will bring out the big guns.  It is only a matter of time.  And there are already some major banks that are shutting down the accounts of Bitcoin dealers.  Just check out what is happening up in Canada…

Virtex, based in Calgary, is an online market that matches Bitcoin buyers with sellers, with about $13-million of trades under its belt. 

But earlier this month Royal Bank of Canada quietly informed Mr. David that it would no longer do business with his company. 

“They shut down our account without any reason,” said Mr. David, an ebullient entrepreneur with a background in technology companies. “They just said we have the right to refuse service to whomever we wish.” 

For whatever reason, many in Canada’s small but fast growing Bitcoin community are suddenly dealing with the same problem: The banks have decided they don’t like the cryptocurrency and they’re shutting down some of the accounts of businesses that deal in it.

An isolated incident?

Perhaps.

But many of those that are closely associated with Bitcoin know that they are being closely monitored.  They know that bankers and government officials are watching them.  Just check out what Jeff Berwick of The Dollar Vigilante recently had to say…

If there is one thing that my involvement with BitcoinATM has shown me very plainly in the last month is that bitcoin has the direct attention of the governments, central banks and banks.  It took them nearly two decades to figure out the internet would be their downfall.  In this case, it has only taken them months to realize that bitcoin could end their monopoly on money and banking.

And they aren’t watching because they like what they see.
Rather, they are watching because they see a threat that needs to be stamped out.
Robert Wenzel of the Economic Policy Journal recently suggested how they will attempt to do this…

I continue to believe that the point of vulnerability for Bitcoin remains the point of exchange between bitcoins and other currencies. I fully expect government to make a massive shutdown of these exchanges at some point.

And I agree with him.  I believe that a day will come when those exchanges will be shut down.  The powers that be just have to figure out how to sell it to the public.

So what will happen to Bitcoin once those exchanges are shut down?  The following is from a recent article by Max Keiser…

Here’s a thought exercise. What if all bitcoin exchanges were shut down by various governments? What would the current value of a bitcoin be? This is an important question because of the implied outcome of the current trend by governments to shut down — or prevent the creation of — bitcoin exchanges. 

The mining of bitcoin would continue but spending them becomes a problem since there would be no quoted price. The bitcoin protocol is about mining bitcoin not pricing bitcoin. There is nothing in the protocol about establishing a market price for bitcoin; you need a market for that, but what if all the exchange markets are shut down?

And already we are starting to see Bitcoin being demonized in the mainstream media.  For example, the following is a brief excerpt from a recent CNN article about Bitcoin…

No one really knows who is really behind Bitcoins, as the creator is just a pseudonym Satoshi Nakamoto. That in itself should be a huge red flag. I would certainly not trust my life savings to some mysterious computer algorithm created by shadowy anonymous characters in a system that attracts underworld types. 

One of the self-proclaimed largest Bitcoin exchanges is Mt. Gox. The name originally stood for Magic: The Gathering Exchange, an online site designed to trade cards used in playing the card game popular with the younger set. An exchange based on trading kiddy cards does not seem like a sound foundation for a monetary system. 

There is no government regulating participants in the system to prevent fraud and abuse. I would not be surprised if the Bitcoin mining software becomes a magnet for computer viruses. After all, the tax evaders, drug dealers and terrorists attracted to Bitcoin would not be likely to cooperate with authorities when they have been hacked and robbed.

It would be close to the perfect crime to create a pseudomonetary system that rips off other evildoers. Just be careful when the bad guys find out where you live.

And without a doubt, Bitcoin is a very, very unstable currency.  Just a few days ago a Bitcoin was going for around $150.  Now it has dropped below $100.

But I applaud the creators of Bitcoin for trying to come up with an alternative digital currency that actually works.  As I have written about over and over, the Federal Reserve and the other central banks around the globe need to be abolished.  They have trapped humanity in a debt-based monetary system that systematically drains our wealth.

We desperately need an alternative.

Unfortunately, I don’t believe that Bitcoin is going to be the solution.  At some point, the establishment is going to step in and try to shut down Bitcoin.  When that occurs, what is going to happen to all of the time, money and effort that people have put into the Bitcoin system?

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Morgan Stanley Commentators: Please Reveal Your Conflicts of Interests

The Oil and Gold Booms Are Over ...The wreckage caused by China's great, juddering slowdown continues to spread far beyond the country's shores. Although most commodities enjoyed a bounce on May 3, after better-than-expected U.S. employment data, the plunge in their prices over the past few months suggests the past decade's rally is truly broken. For those of us not in the mining industry, this is actually good news – one of the best signs yet that the global economy is returning to normal. – Bloomberg

Dominant Social Theme: Let's get back to paper money as soon as possible.

Free-Market Analysis: Did you know that gold and oil have similar trading characteristics? Oil has been in use about 100 years from an industrial perspective and gold for several thousand years – though some say there are gold mines in South Africa that are 100,000 years old or more.
So it is strange that a thousand-year-old mineral and 100-year-old power source should have equivalent characteristics. We should wonder about that but, of course, this Bloomberg article doesn't wonder at all.

Written by a Morgan Stanley global strategist, the article glibly conflates oil and gold as "commodities." Anyone who has read yesterday's interview on these pages with Antal Fekete – or read Murray Rothbard or even Ludwig von Mises – knows that while gold expands and contracts, its supply and demand cycle actually has little to do with energy and oil.

In other words, the price of oil can remain relatively high, while the price of gold and silver may languish and vice versa. But we don't find out anything about the differences between money metals and oil in this particular screed nor others like it. The effort, as always, is to confuse people about the reality of money metals, their usefulness and their historical cyclicality. Here's more:

China's voracious demand for every conceivable raw material – oil, steel, soybeans, gold, to name a few – once seemed to spell a future of endlessly rising commodity prices and falling living standards in developed nations. This was a Malthusian vision of scarcity: Rising demand from the growing economies of the emerging world would couple with shrinking supplies to drive up the prices of natural resources. Gas prices would never come back down; gold would cost thousands of dollars an ounce.

The response, for many international investors, was to bet big on China. Because it is hard to buy directly into China, many instead bought into the commodities that were being sucked into the gaping maw of the country's economy: oil from Russia, iron ore from Australia and so on.

The China-commodity connection was born. Financial entrepreneurs started exchange-traded funds, which allowed individual investors to trade commodities, including silver and gold, as if they were stocks.

For the first time, U.S. pension funds started to allocate a share of their holdings to commodities. Even the Federal Reserve got involved, inadvertently, by printing so much money that a good portion of it wound up fueling speculative bets on China and the big emerging markets, often using commodities as a proxy.

Prices went parabolic. From 2000 to 2011, copper prices rose 450 percent, oil prices 365 percent, and gold prices more than 500 percent to a high of more than $1,900 an ounce. There was talk of oil hitting $200 a barrel, and gold reaching $10,000 an ounce. It was a wild time, all predicated on the idea that the rise of China had set off a commodity "supercycle" that could keep prices high indefinitely.

Commodity prices, such as that of gold, tend to rise when faith in the financial system is in decline and usually fall when confidence is high. In this they resemble the politician of whom Winston Churchill once said: "He has all the virtues I dislike and none of the vices I admire."

High commodity prices enrich a class whose corrupting influence is legend, and whose chief skill is the ability to secure the right political contacts. Meanwhile, high commodity prices, particularly for oil, squeeze the poor and the middle class, and act as a brake on growth in the industrial world. During the 2000s, the U.S. fretted over the rise of corrupt oil tycoons and unstable dictators in nasty petro-states, and rightly so.

That's why falling commodity prices -- both gold and copper are still down more than 10 percent this year despite the latest bounce -- are good news. The China-commodity connection is breaking. After three straight decades of ultrafast growth, China's inevitable slowdown has let air out of the bubble: Since the peak in April 2011, the broadest available measure of commodity prices has fallen 16 percent. In recent months, money has started flowing out of exchange-traded funds for most commodities.

Okay, had enough? Did you know when you buy gold and silver that you empower a corrupt political class? You thought you were empowering yourself and your family by buying gold and silver and taking delivery. Turns out all you are doing is supporting the Chinese hierarchy.

Let us toot our horn a bit: No one has a much better record when it comes to China than we do. We started talking about the Chinese bubble and bust as much as four years ago. At the time, it wasn't popular but we know a bubble when we see one. And we knew that a country building whole empty cities is not going to sustain that level of economic activity forever.

We also recognize questionable statements when we read them. The boom in gold and silver over the past decade had little to do fundamentally with China's development on the world scene. You know ... people bought gold before the arrival of the BRICs as important powers. People, including the Chinese and India's Indians, will buy gold and silver regardless of their countries' prominence on the world stage.

There are plenty of factors influencing the price of gold and silver (in fiat dollars) but treating gold and silver as if their performance is merely an aberrant side effect of China's emergence onto the world stage is facile at best. We're not surprised this article emerged from the pen of a Morgan Stanley exec. Morgan Stanley has a vested interest in boosting fiat money power and generates massive profits from paper currency.

Conclusion: These days writers for the financial press are supposed to reveal conflicts of interests. We await the day when Wall Street-affiliated scribes reveal their conflicts of interest when it comes to writing about gold and silver.

Source

Fed Is Tightening. No, It's Loosening. No, It's ...

Fed Open to Expanding QE as It Counters Talk of Tapering ... Facing the risk of a fourth straight summertime slowdown, Federal Reserve officials raised the prospect of increasing the monthly pace of bond buying above $85 billion to guard= against any slump in growth or employment. The Fed's statement yesterday that it's "prepared to increase or reduce the pace of its purchases" was a signal that its $3.32 trillion balance sheet is a flexible tool for monetary policy that can be adjusted up or down, like interest rates. – Bloomberg

Dominant Social Theme: The Fed knows what it is doing, collectively and individually!

Free-Market Analysis: Is the Fed loosening or tightening and how do they know? Wouldn't the top bankers at the Fed need forward-looking indicators to be most successful? In other words, once an economy has sagged – or roared to life – isn't it too late to apply the necessary prophylactic?

Here's more from the Bloomberg article above:

The statement, released in Washington, countered discussion of the timing of a reduction in purchases at the Fed's March meeting. "There is more uncertainty so they probably wanted to correct a single-minded focus on tapering," said Roberto Perli, a partner at Cornerstone Macro LP, a research firm in Washington, and former member of the Fed board's Division of Monetary Affairs. At the same time, policy makers need to see more data before deciding whether to step up the pace of asset purchases, Perli said.

Stocks and Treasury yields declined yesterday after reports showed that U.S. manufacturing in April expanded at the slowest pace this year and companies took on the fewest workers in seven months. The reports added to evidence that the world's largest economy is slowing this quarter after picking up speed in the first three months of the year.

The Standard & Poor's 500 Index (SPX) advanced 0.4 The Federal Open Market Committee said it will keep for now the monthly pace of bond purchases at $85 billion, a strategy aimed at spurring a revival in sales of cars and homes by reducing mortgage rates and other long-term borrowing costs.
The Fed repeated that bond buying will continue "until the outlook for the labor market has improved substantially." It also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn't exceed 2.5 percent.

The shift in the statement's language endorsed Chairman Ben S. Bernanke's message in March that the committee "could vary the pace of purchases" as the Fed gets closer or further away from its goals.

What do we learn from this? One feedbacker commenting on this article said it is obvious the top Fed bankers have no clue what to do next. One week, the bankers are indicating they will tighten because the economy is looking up and the next week they are speaking once again of a more accommodative policy.

This would be our perspective, as well. All this talk about monetary policy just covers up a basic futility.

They simply don't know. The black market US economy – spawned by hard times and high taxes – may be as much as US$4 trillion. Are these economic numbers taken into consideration?

And what about gold? The gold price is telling us that inflation is not as much of a factor in consumer worries. And yet there is no physical gold to be had at paper gold price, apparently.

What data to trust? How does Ben Bernanke know?

Maybe that's why he is leaving. The meme is collapsing around his head as he goes.

We predicted it nearly three years ago. Information on the Internet has thoroughly exposed the inadequacies of this kind of macro money management.

What about the employment figures? Where does the Fed stand on them? After all, they are probably half or less of the real number – or not, depending on the status of the black-market economy and what the government wants to portray.

This whole idea that a small group of people can sit around a table and examine politically massaged government statistics and then come up with monetary policy is increasingly and evidently insane.
It is a dominant social theme, a meme.

Central planning doesn't work. Price fixing doesn't work, especially price fixing of money stuff.
So what's on the menu? Surely not a measured recovery.

Conclusion: More chaos, no doubt. And that may suit some of our controllers just fine.

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How HMRC treated its Goldman Sachs tax deal whistleblower as a criminal

Tax officials used intrusive investigative powers meant to catch serious criminals to try to prove that a whistleblower who uncovered a "sweetheart" deal with Goldman Sachs had spoken to the Guardian, it has emerged.

The belongings, emails, internet search records and phone calls of the HM Revenue and Customs solicitor Osita Mba and the phone records of his wife, Claudia, were examined by investigators, according to previously undisclosed documents.

The powers, which are supposed to be used to combat large-scale criminal tax frauds, were used because the tax inspectors suspected that Mba had been in contact with the Guardian's former investigations editor, David Leigh.

Leigh's telephone numbers and email addresses were cross-referenced with Mba's, but investigators found no evidence of contact, documents show.

The disclosure has prompted serious questions about HMRC's behaviour.

Cathy James, the head of the whistleblowers' charity, Public Concern at Work, said the decision to use intrusive powers to examine an employee who made claims using whistleblowing legislation was "outrageous" and "sinister".

"The actions of the HMRC in this case are very much a step in the wrong direction, more likely to result in a culture of silence with more anonymous leaking than anything else. It is a case of shoot – and silence – the messengers," she said.

Using the Public Interest Disclosure Act, Mba wrote to the National Audit Office (NAO) and two parliamentary committees in confidence in 2011 saying that the head of tax, Dave Hartnett, had "let off" Goldman Sachs from paying at least £10m in interest.

Emails show Mba's identity was disclosed to the revenue in October 2011 by the former clerk of the public accounts committee, who had sought clarification that Mba was their employee. The next day, a member of the HMRC's security staff sought to obtain access to Mba's office cabinet beneath his desk in Whitehall. "Thanks. Did you manage to get cabinet key number?" he asked a colleague.
The man also received an email containing the solicitor's private email address, his mobile number, his home telephone number and his wife's telephone details.

On 11 October 2011, the Guardian published a story under the headline "Goldman Sachs let off paying £10m interest on failed tax avoidance scheme", written by Leigh. Publication prompted members of the revenue's criminal investigative unit to take action. One named internal criminal investigator sent an email on 19 October to a colleague saying that the revenue had begun "a review of the suspect's [Mba's] H drive [the hard drive used within HMRC] and email traffic and internet usage", but inquiries had revealed nothing.

He then proposed a "further interrogation of computer material" and an "itemised billing check", and wrote that "consultations with the CPS [Crown Prosecution Service] can proceed".

Using the Regulation of Investigatory Powers Act 2000 (Ripa), HMRC can see websites viewed by taxpayers, where a mobile phone call was made or received, and the date and time of emails, texts and phone calls. According to the revenue website, these powers "can only be used when investigating serious crime". But the papers disclose that applications were granted to investigate Mba using Ripa.

On 21 October 2011, tax officials applied for an itemised billing request to check a mobile of Mba's, documents show.

One document read: "David Leigh, who was given HMRC material discussing a named taxpayers tax affairs advised a senior employee of HMRC that he had been given access to that material on the 4th or 5th October 2011 and in it he quoted extracts from an HMRC minute of 8/12/2010. He was clearly given information which if provided by an HMRC employee was in contravention of CRCA [Commissioners for Revenue and Customs Act 2005]."

Ten days later, another investigator sent a document, entitled leakupdate4, to colleagues showing they had failed to identify any illegal activity through IT checks, emails, intranet and internet usage and checks from Mba's office telephone.

Investigators also circulated Leigh's office and mobile number among staff so that they could be cross-referenced with Mba's numbers.

A memo sent in December 2011 said the revenue had checked Leigh's details but found no evidence of contact with Mba.

Leigh, who retired from the Guardian last month, said: "The revenue's decision to use these powers to try and find a link with a journalist when the disclosure was so obviously in the public interest was heavy-handed and foolish, and shows the level of paranoia over their tax deals."

Mba was suspended from work, as the Guardian revealed on 8 December 2011, when public accounts committee members warned revenue officials not to harass or bully him. However, the organisation continued to receive and detail his phone records, documents show. The inquiry was abandoned on 11 January 2012.

Mba, who trained as a barrister in Nigeria and completed his master's degree at Oxford, worked in the personal tax litigation team that dealt with the Goldman Sachs tax issue. He told the NAO and two parliamentary committees that the bank's settlement had been agreed with a handshake by Hartnett, the permanent secretary for tax at HMRC.

Mba believed the deal could be illegal, and told auditors he was making the disclosure under whistleblowing legislation. His evidence led to Hartnett's being accused of lying to parliament over his role in the Goldman Sachs deal, which he denied. He admitted, however, that his organisation had made a mistake by approving the deal.

In June 2012, Mba filed a claim under the Public Interest Disclosure Act in the central London employment tribunal. In November 2012, HMRC ordered Mba to return to work in a different team.
In 2011, HMRC was authorised under Ripa to view 14,381 items of "communications data" on taxpayers while investigating tax evasion, compared with 11,513 items in 2010, according to figures released under the Freedom of Information Act.

The employment tribunal claim continues and is expected to be heard in the autumn. HMRC declined to comment when contacted on Monday.

Source

22 Facts That Prove That The Bottom 90 Percent Of America Is Systematically Getting Poorer

The mainstream media is not telling you this, but the truth is that most Americans are steadily getting poorer.  The middle class is being absolutely eviscerated, and poverty is soaring to unprecedented heights.  The fact that 90 percent of the population is constantly sliding downhill is not good for our society.  The United States is supposed to be a land of opportunity with a vibrant free market system that enables average people to make better lives for themselves.  Unfortunately, free enterprise is being strangled to death in the United States today.  Entrepreneurs and small business are being pounded into oblivion by rules, regulations, red tape and oppressive levels of taxation.  At the same time, millions of jobs have been shipped out of the United States by corporate giants and sent to countries where it is legal to pay slave labor wages.  All of this has happened under both Democrats and Republicans.  Meanwhile, wealth and power continue to become even more heavily concentrated in the hands of big government and big corporations.  Our founding fathers warned that we should not allow such large concentrations of wealth and power, because they tend to funnel the rewards of society into the hands of a select few.  We need to change the rules of the game so that entrepreneurs, small businesses and average workers can thrive in this country once again.  If big government and big corporations continue to gobble up even more wealth and power, the wealth inequality that we see right now will only get even worse.

The following are 22 facts that prove that the bottom 90 percent of America is systematically getting poorer...

#1 According to the Pew Research Center, the top 7 percent of all U.S. households own 63 percent of all the wealth in the country.

#2 Between 2009 and 2011, the wealth of the bottom 93 percent of all Americans declined by 4 percent, while the wealth of the top 7 percent of all Americans increased by 28 percent.

#3 On average, households in the top 7 percent have 24 times as much wealth as households in the bottom 93 percent.

#4 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#5 According to the Economic Policy Institute, the wealthiest one percent of all American households have 288 times the amount of wealth that the average middle class American family does on average.

#6 According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.

#7 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.

#8 According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

#9 In the United States today, corporate profits as a percentage of GDP are at an all-time high, but wages as a percentage of GDP are at an all-time low.

#10 In 1980, CEOs at S&P 500 companies made 42 times as much as their employees did on average.  Today, CEOs at S&P 500 companies make 354 times as much as their employees do on average.  In fact, there are many CEOs that make more than 1000 times what the average employees in their companies make.

#11 According to a report recently issued by the Pew Research Center, Americans over the age of 65 have 47 times as much wealth as Americans under the age of 35 on average.

#12 U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

#13 Back in 2007, about 28 percent of all working families were considered to be among "the working poor".  Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.

#14 At this point, one out of every four American workers has a job that pays $10 an hour or less.
#15 Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

#16 The U.S. economy continues to trade good paying jobs for low paying jobs.  60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

#17 As I mentioned yesterday, the homeownership rate in America is now at its lowest level in nearly 18 years.

#18 The United States now ranks 93rd in the world in income inequality.

#19 Approximately one out of every five households in the United States is now on food stamps.

#20 The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

#21 According to the U.S. Census Bureau, more than 146 million Americans are either "poor" or "low income".

#22 At this point, the poorest 50 percent of all Americans collectively own just 2.5% of all the wealth in the United States.

Even if your income just stays the same, you are still getting poorer because inflation is a tax that is constantly chipping away at the value of every single dollar that you own.  The cost of everything that we buy on a regular basis (food, gas, health insurance, etc.) is constantly going up, and if your income is not keeping pace that means that you are getting poorer.

That is just one reason why the Federal Reserve system is so insidious.  They are killing the middle class with inflation.  For much more on the Federal Reserve and why it should be abolished, please see this article: "10 Things That Every American Should Know About The Federal Reserve".

So if most Americans are getting poorer, then why aren't our politicians doing something to fix it?
Well, the sad truth of the matter is that the big corporations fund the campaigns of our corrupt politicians.  They know that the candidate that raises the most money almost always wins, and so it provides an incentive for our politicians to be very good to those that have the money.

Plus, many of our politicians are way too busy having a good time to be bothered with doing anything for us.  Take Barack Obama for example.  According to The Telegraph, Barack Obama has spent twice as much time playing golf and vacationing as he has on attending economic meetings...

In an analysis of the presidential diary and newspaper reports, the Government Accountability Institute found that Mr Obama has spent 976 hours since his January 2009 election on holiday and playing golf. 

In contrast, he has only spent 474.4 hours in economic meetings. 

"As a government watchdog group, we just tabulate the numbers and let others decide how to interpret them," said Peter Schweizer, president of GAI, which compiled the report.

But this is a problem that is not going away.  The bottom 90 percent of the country is systematically getting poorer, and if this continues it will inevitably result in massive social problems.  The video posted below does a great job of graphically illustrating the crisis that we are facing...

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