As the world is undergoing a profound transformation, what role will the US play in a post-American century?


















The First Amendment – Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.


The Fourth Amendment – The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.


The Fifth Amendment – No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.


The Sixth Amendment — Trial by jury and other rights of the accused.  In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district where in the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defense.


The Seventh Amendment – In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.


The Fourteenth Amendment – Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.





President Barack Obama has signed into law a $633 billion US defense spending bill that funds the war in Afghanistan and boosts security at US missions worldwide.

“I have approved this annual defense authorization legislation, as I have in previous years, because it authorizes essential support for service members and their families, renews vital national security programs, and helps ensure that the United States will continue to have the strongest military in the world,” Mr Obama said in a statement early on Thursday after signing the measure.

Mr Obama, who is on holiday in Hawaii, said that he signed the measure despite reservations.

“In a time when all public servants recognize the need to eliminate wasteful or duplicative spending, various sections in the Act limit the Defense Department’s ability to direct scarce resources towards the highest priorities for our national security,” the president said.

“Even though I support the vast majority of the provisions contained in this Act … I do not agree with them all,” he said in his statement, adding that he did not have the constitutional authority to approve piecemeal items within the sprawling bill.

“I am empowered either to sign the bill, or reject it, as a whole,” he said.

The measure was hammered out by House and Senate conferees last month after each chamber voted to approve separate versions of the bill.

It includes $527.4 billion for the base Pentagon budget; $88.5 billion for overseas contingency operations including the war in Afghanistan; and $17.8 billion for national security programs in the Energy Department and Defense Nuclear Facilities Safety Board.

The bill authorizes $9.8 billion for missile defense, including funds for a Pentagon feasibility study on three possible missile defense sites on the US East Coast.

It also extends for one year the restriction on use of US funds to transfer Guantánamo inmates to other countries, a limitation critics say marks a setback for Mr Obama’s efforts to close the detention center.

Mr Obama also signed a bill that boosts taxes on the wealthiest Americans, while preserving tax cuts for most American households.

The bill, which averts a looming fiscal cliff that had threatened to plunge the nation back into recession, also extends expiring jobless benefits, prevents cuts in Medicare reimbursements to doctors and delays for two months billions of dollars in across-the-board spending cuts in defense and domestic programs.

The Republican-run House approved the measure by a 257-167 vote late Tuesday, nearly 24 hours after the Democratic-led Senate passed it 89-8.



For Immediate Release
January 03, 2013

Today I have signed into law H.R. 4310, the “National Defense Authorization Act for Fiscal Year 2013.” I have approved this annual defense authorization legislation, as I have in previous years, because it authorizes essential support for service members and their families, renews vital national security programs, and helps ensure that the United States will continue to have the strongest military in the world.

Even though I support the vast majority of the provisions contained in this Act, which is comprised of hundreds of sections spanning more than 680 pages of text, I do not agree with them all. Our Constitution does not afford the President the opportunity to approve or reject statutory sections one by one. I am empowered either to sign the bill, or reject it, as a whole. In this case, though I continue to oppose certain sections of the Act, the need to renew critical defense authorities and funding was too great to ignore.

In a time when all public servants recognize the need to eliminate wasteful or duplicative spending, various sections in the Act limit the Defense Department’s ability to direct scarce resources towards the highest priorities for our national security. For example, restrictions on the Defense Department’s ability to retire unneeded ships and aircraft will divert scarce resources needed for readiness and result in future unfunded liabilities. Additionally, the Department has endeavored to constrain manpower costs by recommending prudent cost sharing reforms in its health care programs. By failing to allow some of these cost savings measures, the Congress may force reductions in the overall size of our military forces.

Section 533 is an unnecessary and ill-advised provision, as the military already appropriately protects the freedom of conscience of chaplains and service members. The Secretary of Defense will ensure that the implementing regulations do not permit or condone discriminatory actions that compromise good order and discipline or otherwise violate military codes of conduct. My Administration remains fully committed to continuing the successful implementation of the repeal of Don’t Ask, Don’t Tell, and to protecting the rights of gay and lesbian service members; Section 533 will not alter that.

Several provisions in the bill also raise constitutional concerns. Section 1025 places limits on the military’s authority to transfer third country nationals currently held at the detention facility in Parwan, Afghanistan. That facility is located within the territory of a foreign sovereign in the midst of an armed conflict. Decisions regarding the disposition of detainees captured on foreign battlefields have traditionally been based upon the judgment of experienced military commanders and national security professionals without unwarranted interference by Members of Congress. Section 1025 threatens to upend that tradition, and could interfere with my ability as Commander in Chief to make time-sensitive determinations about the appropriate disposition of detainees in an active area of hostilities. Under certain circumstances, the section could violate constitutional separation of powers principles. If section 1025 operates in a manner that violates constitutional separation of powers principles, my Administration will implement it to avoid the constitutional conflict.

Sections 1022, 1027 and 1028 continue unwise funding restrictions that curtail options available to the executive branch. Section 1027 renews the bar against using appropriated funds for fiscal year 2012 to transfer Guantanamo detainees into the United States for any purpose. I continue to oppose this provision, which substitutes the Congress’s blanket political determination for careful and fact-based determinations, made by counterterrorism and law enforcement professionals, of when and where to prosecute Guantanamo detainees. For decades, Republican and Democratic administrations have successfully prosecuted hundreds of terrorists in Federal court. Those prosecutions are a legitimate, effective, and powerful tool in our efforts to protect the Nation, and in certain cases may be the only legally available process for trying detainees. Removing that tool from the executive branch undermines our national security. Moreover, this provision would, under certain circumstances, violate constitutional separation of powers principles.

Section 1028 fundamentally maintains the unwarranted restrictions on the executive branch’s authority to transfer detainees to a foreign country. This provision hinders the Executive’s ability to carry out its military, national security, and foreign relations activities and would, under certain circumstances, violate constitutional separation of powers principles. The executive branch must have the flexibility to act swiftly in conducting negotiations with foreign countries regarding the circumstances of detainee transfers. The Congress designed these sections, and has here renewed them once more, in order to foreclose my ability to shut down the Guantanamo Bay detention facility. I continue to believe that operating the facility weakens our national security by wasting resources, damaging our relationships with key allies, and strengthening our enemies. My Administration will interpret these provisions as consistent with existing and future determinations by the agencies of the Executive responsible for detainee transfers. And, in the event that these statutory restrictions operate in a manner that violates constitutional separation of powers principles, my Administration will implement them in a manner that avoids the constitutional conflict.

As my Administration previously informed the Congress, certain provisions in this bill, including sections 1225, 913, 1531, and 3122, could interfere with my constitutional authority to conduct the foreign relations of the United States. In these instances, my Administration will interpret and implement these provisions in a manner that does not interfere with my constitutional authority to conduct diplomacy. Section 1035, which adds a new section 495(c) to title 10, is deeply problematic, as it would impede the fulfillment of future U.S. obligations agreed to in the New START Treaty, which the Senate provided its advice and consent to in 2010, and hinder the Executive’s ability to determine an appropriate nuclear force structure. I am therefore pleased that the Congress has included a provision to adequately amend this provision in H.R. 8, the American Taxpayer Relief Act of 2012, which I will be signing into law today.

Certain provisions in the Act threaten to interfere with my constitutional duty to supervise the executive branch. Specifically, sections 827, 828, and 3164 could be interpreted in a manner that would interfere with my authority to manage and direct executive branch officials. As my Administration previously informed the Congress, I will interpret those sections consistent with my authority to direct the heads of executive departments to supervise, control, and correct employees’ communications with the Congress in cases where such communications would be unlawful or would reveal information that is properly privileged or otherwise confidential. Additionally, section 1034 would require a subordinate to submit materials directly to the Congress without change, and thereby obstructs the traditional chain of command. I will implement this provision in a manner consistent with my authority as the Commander in Chief of the Armed Forces and the head of the executive branch.

A number of provisions in the bill — including sections 534(b)(6), 674, 675, 735, 737, 1033(b), 1068, and 1803 — could intrude upon my constitutional authority to recommend such measures to the Congress as I “judge necessary and expedient.” My Administration will interpret and implement these provisions in a manner that does not interfere with my constitutional authority.




Written by  Joe Wolverton, II, J.D. | The New American

A congressman other than Justin Amash has come out against the indefinite detention provisions of the National Defense Authorization Act (NDAA).

On November 8, senior Democratic Whip Representative James P. McGovern (D-Mass.) sent a letter to leaders of the town of Oxford, Massachusetts, praising them for their passage of a resolution repealing sections of the NDAA that permit the president of the United States to order the indefinite detention of American citizens, denying them their constitutionally protected right of due process.

“I commend the Town of Oxford for its recent action in support of repealing Sections 1021 and 1022 of the Fiscal Year 2012 National Defense Authorization Act (NDAA),” McGovern wrote.

In October, citizens of Oxford, Massachusetts, almost unanimously passed the Oxford Restoring Constitutional Governance Resolution. In addition to outlawing the indefinite detention of residents of the city, the resolution states:

It is unconstitutional, and therefore unlawful for any person to:

a. arrest or capture any person in Oxford, or citizen of Oxford, within the United States, with the intent of “detention under the law of war,” or

b. actually subject a person in Oxford, to “disposition under the law of war,” or

c. subject any person to targeted killing in Oxford, or citizen of Oxford, within the United States.”

Unlike other cities where councilmen vote on resolutions, in Oxford, Massachusetts, citizens are empowered to consider and enact ordinances. In the case of the anti-NDAA resolution, 95 percent of those voting approved the measure.

People Against the NDAA (PANDA) reports:

Marla Zeneski, the Oxford resident who sponsored the resolution, along with the support of Worcester Tea Party Co-Founder Ken Mandile and PANDA Massachusetts, said:

“It took a long time and a big effort to gather these signatures due to the way our town is laid out as there is no single ‘common’ location where people of Oxford gather. But we persevered and I am so happy with the outcome! We are the first town in MA to pass this very important Resolution.”


Benjamin Selecky, Team Leader for PANDA Massachusetts, praised the resolution and the efforts of local activists:

“Special thanks to everyone that helped Take Back the Town of Oxford. It was a team effort, and everyone’s contribution was critical to accomplishing the mission. As we celebrate the victory, let us not lose sight of the long road ahead of us. There is work that still needs to be done, but together, we will restore constitutional governance to the Commonwealth of Massachusetts.”

President Barack Obama signed the latest National Defense Authorization Act (NDAA) into law on January 2, 2013, renewing the power to apprehend and detain Americans indefinitely granted in the previous year’s version.

As for the most unconstitutional parts of the NDAA 2012 that remain in effect, a bit of history is in order. On December 31, 2011, with the president’s signing of that law, the writ of habeas corpus — a civil right so fundamental to Anglo-American common law history that it predates the Magna Carta — is voidable upon the command of the president of the United States. The Sixth Amendment right to counsel is also revocable at his will.

One of the most noxious elements of the NDAA is that it places the American military at the disposal of the president for the apprehension, arrest, and detention of those suspected of posing a danger to the homeland (whether inside or outside the borders of the United States and whether the suspect be a citizen or foreigner). The endowment of such a power to the president by the Congress is nothing less than a de facto legislative repeal of the Posse Comitatus Act of 1878, the law forbidding the use of the military in domestic law enforcement.

Furthermore, a key component of the NDAA mandates a frightening grant of immense and unconstitutional power to the executive branch. Under the provisions of Section 1021, the president is afforded the absolute power to arrest and detain citizens of the United States without their being informed of any criminal charges, without a trial on the merits of those charges, and without a scintilla of the due process safeguards protected by the Constitution of the United States.

Also, in order to execute the provisions of Section 1021 described in the previous paragraph, subsequent clauses (Section 1022, for example) unlawfully give the president the absolute and unquestionable authority to deploy the armed forces of the United States to apprehend and to indefinitely detain those suspected of threatening the security of the “homeland.” In the language of this legislation, these people are called “covered persons.”

The universe of potential “covered persons” includes every citizen of the United States of America. Any American could one day find himself or herself branded a “belligerent” and thus subject to the complete confiscation of his or her constitutional civil liberties and nearly never-ending incarceration in a military prison.

Other states and towns around the country should consider following Oxford’s example in shielding citizens from the NDAA as the annual renewal of the legislation is underway on Capitol Hill.

On June 14, by a vote of 315-108, the House of Representatives passed the Fiscal Year 2014 version of the NDAA (HR 1960). Several amendments to the defense spending legislation were proposed, many of which were approved either by voice vote or en bloc. The first method of voting requires no report on how individual members voted, while the second method aggregates amendments, allowing them to be voted on in groups.

A few of the amendments represent significant improvements to the NDAA of 2012 and 2013. The acts passed for those years infamously permitted the president to deploy U.S. military troops to apprehend and indefinitely detain any American he alone believed to be aiding enemies of the state.

While the 2014 iteration doesn’t go far enough in pushing the federal beast back inside its constitutional cage, there are at least a few congressmen willing to try to crack the whip and restore constitutional separation of powers and shore up a few of the fundamental liberties suspended by the NDAA of the past two years.

First, there is the amendment offered by Representative Trey Radel (R-Fla.). Radel’s amendment requires the Department of Defense to submit to the Congress a report every year containing: (1) the names of any U.S. citizens subject to military detention, (2) the legal justification for their continued detention, and (3) the steps the Executive Branch is taking to either provide them some judicial process, or release them.

Radel’s amendment was passed by voice vote.

Next, an amendment offered by Representative Bob Goodlatte (R-Va.) would require the federal government, in habeas proceedings for U.S. citizens apprehended in the United States pursuant to the Authorization for the Use of Military Force (AUMF), to prove by “clear and convincing evidence” that the citizen is an unprivileged enemy combatant and there is not presumption that the government’s evidence is accurate and authentic.

The House approved the Goodlatte amendment by a vote of 214-211.

Finally, an amendment by Representative Paul Broun (R-Ga.) forbids the Department of Defense from killing a citizen of the United States by a drone attack unless that person is actively engaged in combat against the United States.

This trio of amendments represents a laudable attempt to restrain the power of the executive. As constitutionalists and civil libertarians are aware, recent occupants of the Oval Office have usurped sweeping unconstitutional powers, including the authority to target Americans for indefinite detention, to withhold from them their unalienable rights, and to kill American citizens who have been charged with no crime and been given no opportunity to defend themselves from the accusations that qualified them for summary assassination.

Despite these small victories in the battle to restore constitutionally protected liberty, the debate on the 2014 NDAA provided several examples of members of Congress violating their oaths of office by shrinking the scope of basic rights and expanding the power of the president to act as de facto (and now, de jure) judge, jury, and executioner.

As in so many other cases, the fundamental civil liberties protected by the Constitution will have to be preserved not by Congress, but by states and communities determined to undo the damage done by a federal government that acts where it has no authority.



Written by  Joe Wolverton, II, J.D. | The New American

The California State Senate on September 3 unanimously approved a bill to severely limit the federal government’s unconstitutional power to indefinitely detain citizens of the Golden State under provisions of the National Defense Authorization Act (NDAA).

By a vote of 37-0, state senators expressed bipartisan support of the Bill of Rights and habeas corpus. The measure’s successful passage by both houses of the state legislature (the state assembly passed the bill by a vote of 71-1) is a victory for civil liberties and a remarkable demonstration of the ability of lawmakers from opposite ends of the political spectrum to work together.

The act — the California Liberty Preservation Act (AB 351) — will now go to Governor Jerry Brown for his signature or veto.

Originally sponsored by State Assemblyman Tim Donnelly, a conservative Republican (now running for governor), the bill’s senate sponsor was one of that body’s “most liberal lawmakers,” Mark Leno.

“Indefinite detention, by its very definition, means that we are abrogating, suspending, just throwing away the basic foundations of our Constitution and of our nation,” Leno said.

After being warned by some of his fellow Democrats that siding with Donnelly was tantamount to political suicide, Leno stood firm in defense of liberty.

“It doesn’t matter where one finds oneself on the political spectrum,” he said. “These two sections of this national defense act are wrong, unconstitutional and never should have been included.”

Grassroots support for the act comes from a broad, politically diverse coalition, as well.

AB 351 is backed by the Taxpayers for Improving Public Safety, the Bill of Rights Defense Committee, the Tenth Amendment Center, the California American Civil Liberties Union, San Francisco Board of Supervisors president David Chiu, the Libertarian Party of California, and the Siskiyou County Board of Supervisors.

Specifically, if enacted, the bill would shield from federal assault several fundamental constitutionally guaranteed civil liberties, “including the right of habeas corpus, the right to due process, the right to a speedy and public trial, and the right to be informed of criminal charges brought against him or her.”

Relying on the 10th Amendment’s reservation to the states and the people all powers not specifically delegated to the federal government in the Constitution, the bill is a constitutionally sound expression of state sovereignty.

In a press release issued by his office after the committee approved his bill, Assemblyman Donnelly recognizes his duty to resist attempts by Washington, D.C., to deny Americans of their most basic freedoms.

“The NDAA gives the executive branch — under not only President Obama, but also every future president — unprecedented power to detain US citizens without due process. This runs counter to the very principles that make America great, and violates our nation’s commitment to the rule of law,” said Donnelly.

He continued,

We have a moral duty to protect Californians from the disastrous consequences made possible by NDAA. When Constitutional protections are ignored, racist hysteria allows vulnerable groups to be targeted. It was not long ago we memorialized the tragedy of Japanese American internment camps on the floor of the California State Assembly. I am grateful for today’s committee vote, which shows Californians that their representatives are serious about ensuring similar violations of freedom and human rights abuses never happen again within our State.

While the text of the bill lays out specific ways in which the NDAA denies citizens many of the most basic constitutionally protected civil liberties, the surprising scope of the NDAA is still unfamiliar to most Americans.

President Barack Obama signed the latest National Defense Authorization Act (NDAA) into law on January 2, renewing the power to apprehend and detain Americans indefinitely granted in the previous year’s version.

The Fiscal Year 2014 version of the bill is currently working its way through Congress. At this time, many amendments that would have stricken some of the most pernicious provisions from the act have been defeated.

As for the most unconstitutional parts of the NDAA 2012 that remain in effect, a bit of history is in order. On December 31, 2011, with the president’s signing of that law, the writ of habeas corpus — a civil right so fundamental to Anglo-American common law history that it predates the Magna Carta — is voidable upon the command of the president of the United States. The Sixth Amendment right to counsel is also revocable at his will.

Furthermore, a key component of the NDAA mandates a frightening grant of immense and unconstitutional power to the executive branch. Under the provisions of Section 1021, the president is afforded the absolute power to arrest and detain citizens of the United States without their being informed of any criminal charges, without a trial on the merits of those charges, and without a scintilla of the due process safeguards protected by the Constitution of the United States.

On the face of the bill, it would seem that California’s state lawmakers are determined to protect their citizens from being seized and imprisoned under the provisions of the NDAA.

While AB 351, as well as Section 1029 of the current version of the NDAA purport to buttress the right to a trial for citizens and permanent residents, it does nothing to prevent their apprehension. Denial of habeas corpus (or a trial) comes later; it is the delirium, not the fever, in a manner of speaking.

Put simply, Californians would not need to worry about being held without charge if the president was not authorized in the same act to deploy the armed forces to round up the “suspects” and detain them indefinitely. Being apprised of the laws one is accused of having violated is important, but it’s the detention and the manner of it that must be of more immediate concern to those who are alarmed about the new world order being defined by the NDAA.

While the bill is not perfect, it is a significant step toward stopping the frightening federal attempt to legislatively repeal the Constitution. In a statement to The New American, the Tenth Amendment Center’s Michael Boldin praises the California state legislature for its courageous, bipartisan action.

California would be the second U.S. state to challenge this particular law, after Virginia last year. But the impact of such resistance by the massive Blue State could lead to a wave of resistance in others states, as happened after California voters first passed a law to nullify federal marijuana prohibition in 1996.
Civil libertarians view indefinite detention, otherwise known as internment, of Japanese Americans during World War II as a dark stain on American history.


In passing bill AB 351, the California State Legislature took precisely the step that James Madison advocated states should take when the federal government oversteps its bounds — a “refusal to cooperate with officers of the Union. “

I commend the California Legislature for their broad bipartisan support of this bill, but the effort is far from over. Governor Brown must still sign the bill into law. If he does, other states will certainly follow California’s lead and prove once again, like Rosa Parks did, that saying “No” can change the world.

A call to Governor Brown’s office was not returned by press time.



Published on Sep 4, 2013

This week the California State Senate unanimously shot down the federal government’s indefinite detention powers in a 37-0 vote. Lawmakers are refusing to provide material support for the National Defense Authorization Act, and if the measure becomes law it will be difficult for the government to enforce indefinite detention in the state. Tangerine Bolen, founder and director for RevolutionTruth, has more on the NDAA.



Published on Mar 20, 2013

At CPAC, Sierra Adamson spoke to Senator Mike Lee about the use of drones on American citizens and how the drone program is used oversees. They also discussed the NDAA lawsuit currently going on and Senator Lee’s thoughts on the Federal Reserve.



Published on Mar 14, 2013



The New York Times calls Carl Mayer: “A populist crusader and maverick lawyer.” (New York Times, October 15, 2004).

Mr. Mayer’s biggest impact was when he was profiled by Mike Wallace and Morley Safer on the CBS News Program “Sixty Minutes”. Mayer — then an elected Independent town councilman in Princeton, N.J. — went undercover and wore a wire to expose the rampant corruption and criminality endemic to New Jersey and, increasingly, American, politics.

On that program, the CEO of United Gunite Corporation (a construction company) was caught offering a cash bribe to a “Sixty Minutes” cameraman to stop his filming: a first in “Sixty Minutes” history.

The same CEO was subsequently indicted by the U.S. Attorney for New Jersey and cooperated in indicting corporate lobbyists and the mayors of several New Jersey cities, including Patterson and Irvington. The fallout continues as over ninty elected officials and corporate lobbyists have been sent to jail for bribery, extortion and other corruption charges.

Mr. Mayer dedicates his law practice, writing and electoral efforts to ending the tyranny of corporate power over American citizens.

He has written in law journals opposing efforts by corporations to use the Bill of Rights intended only for American citizens to shield corporations from accountability and legal sanction.

Mr. Mayer worked on the Nike v. Kasky case in the United States Supreme Court that successfully prevented Nike from using the First Amendment to continue deceiving consumers about sweat-shop labor used in Nike plants




February 21, 2013

The emergency stay which was placed on Judge Forrests’ injunction against Section 1021 and indefinite detention will remain in effect, after the U.S. Supreme Court denied an application to vacate. The NDAA remains in effect.

Now StopNDAA waits on the Second Circuit Court of Appeals’ ruling.

Chris Hedges along with a group of journalists, activists, and academics, as well as a member of Iceland’s parliament filed an application, called an “Emergent Application to Vacate Temporary Stay of Permanent Injunction”[139] (docket 12A600,[140] with the U.S. Supreme Court on December 12, 2012. With the application the group asked the Supreme Court to lift the stay pending appeal order issued by the U.S. Second Circuit Court of Appeals on October 12, 2012 and thus to put back into effect District Judge Forrest’s order from September 12, 2012 which permanently enjoined enforcement of § 1021(b)(2) of the National Defense Authorization Act for Fiscal Year 2012. The new application was filed with Justice Ruth Bader Ginsburg, who handles cases from the Second Circuit geographic area. She had the authority to decide the issue on her own, or share it with her colleagues.[18][72] The application submitted by plaintiff attorney Bruce Ira Afran stated: “Unless this Court lifts the stay, core constitutional rights will continue to be violated and the status quo that the military cannot detain civilians will be upended pending an appeal process that could take many months if not years.”[18] It also said that Americans are “in actual and imminent danger of losing their core First Amendment rights and fundamental Equal Protection liberties.”[141]

That application was denied by Justice Ginsburg in her individual capacity as a Circuit Justice on December 14, 2012.[18][142] In her order Ginsburg pointed out to the case Doe v. Gonzales,[18] in which Ginsburg said that the Court should hesitate to interfere with an appeals court that was proceeding on an expedited schedule to review a ruling against a federal law, and that, in any event, the Court should be cautious when such a law had been nullified in a lower court.[18]

However, Justice Scalia approved to convene a conference of the entire Supreme Court to consider lifting the stay and restoring the injunction.

Now, Justice Ginsberg and Justice Scalia have both said that they will NOT lift the stay – indefinite dentention under the NDAA still stands, and StopNDAA will have to wait on the Second Circuit Court of Appeals’ ruling.



The potent charge of terrorism has been used to systematically curtail justice, writes author.

by Charlotte Silver

In the US, due process – one of the defining features of a democratic judicial process – continues to be badly bludgeoned: Obama fights tooth and nail to push through NDAA, which would allow indefinite detention of US citizens, and the definition of terrorism has expanded its unwieldy scope, casting a widening net that ensures more and more people are captured in its snare.

The US has pursued “domestic terrorism” by practicing pre-emptive prosecution, that is, going after individuals who have committed no crime but are alleged to possess an ideology that might dispose them to commit acts of “terrorism”. Maintaining that it can -and should – be in the business of divining intent, the government decimates crucial elements of the US justice system.

Thus, in cases where terrorism is charged, prosecutors need not prove guilt beyond a reasonable doubt. Rather, only the defendant’s potential for committing a crime need be established in order to convict.

Consider the case of Tareq Abufayyad, a young Palestinian man and recent college graduate who was detained at San Francisco International Airport when he was on his way to unite with his family, all of them naturalised citizens of the US. Tareq was deemed inadmissible merely on the grounds that he had the potential to become a Hamas-operative.

FBI Agent Robert Miranda, the lead investigator into the government’s case against the Holy Land Foundation, argued before the Immigration Judge presiding over Tareq’s case that, because he was a well-educated man from Gaza, a strong-hold of Hamas, Tareq would be “attractive to Hamas” as a future recruit.

It’s not hard to understand why David Cole, a professor of law at Georgetown University, concluded pre-emptive prosecution as an “inevitably speculative endeavour”.

Project Salam, an organisation devoted to monitoring and documenting the US Justice Department’s prosecution of terrorism cases, points out that the logic of pre-emptive prosecution – enthusiastically embraced after 9/11 – was derived in significant part from Dick Cheney’s infamous “One Percent Doctrine”. Ron Suskind explained Cheney’s reasoning:

“Even if there’s just a 1 percent chance of the unimaginable coming due, act as if it is a certainty…. Justified or not, fact-based or not, ‘our response’ is what matters.”

Commenting on the impact Cheney’s policy had on the role of evidence in judicial proceedings, Suskind writes:

“As to ‘evidence’, the bar was set so low that the word itself almost didn’t apply.”

Terrorism statutes

For the past 12 years, this wanton policy has been wielded primarily against Muslims in a frenzy of cases brought against US citizens and others in immigration, civil and criminal courts, with anguished and predictable devastation wrought on individuals and their families.

Frost Over the World – The ‘war on terror’
10 years on

“If they are sufficiently ‘Muslim’, they are sufficiently ‘predisposed’,” writes Steve Downs, civil liberties lawyer and founder of Project Salam, in Victims of America’s Dirty Wars.

In a telephone conversation with me, however, Downs noted that this policy has recently been extended to apply to those who hold other “ideologies”, namely leftists and anarchists. Downs pointed to a handful of cases, including the “Cleveland 5″, “RNC 8″ and “Nato 3″ that suggest the direction in which the policy of preemptive prosecution is going.

In the wake of 9/11, many states – including Illinois, New York, New Jersey and Oklahoma – passed terrorism statutes that included their own variations on the definition of terrorism. However, because it is the federal government that primarily handles cases of terrorism, states have rarely employed these laws.

Last year, for the first time, Illinois deployed its own statute against terrorism. Illinois’ terrorism law states:

“A person commits the offence of terrorism, when with the intent to intimidate or coerce a significant portion of a civilian population; he or she knowingly commits a terrorist act.”

The language used is vague, opaque and clearly lends itself to a chillingly broad landscape of prosecutorial action. But most significant, the statute does not require that an unlawful act be committed in order for a charge of terrorism to be brought against an individual in an Illinois court.

Indeed, civil rights lawyer Michael Deutsch believes, “The law could theoretically be used against labour strikes, acts of civil disobedience, demonstrations, and so on.” In other words, acts that should be protected under the First Amendment are not exempted from the definition of terrorism.

We have already seen how the domestic front of the “War on Terror” has effectively turned lawful acts, like contributing to charities in the Middle East, into illegal “material support” of Foreign Terrorist Organisations. Staggering attacks on democracy and liberty continue as a growing list of activities that are framed as terrorism.

The only time the Illinois statute has been used was against a group of Occupy activists.

On May 16, 2012, days before the NATO summit was scheduled to take place in Chicago, the local police raided an apartment and arrested nine Occupy activists who had come together from around the country to protest the convention.

Over the next few days, all but three were released. Those who remained behind bars were: Brian Church, 22, and Brent Betterly, 24, from Florida, and Jared Chase, 27, from New Hampshire.

On May 19, they were indicted under the state’s anti-terrorism statute and charged with conspiracy to commit terrorism and possession of explosives.

After announcing the charges, the State’s Attorney, Anita Alvarez, released a document to the press that introduced the three young men as “self-proclaimed anarchists” and “members of the “‘Black Bloc’ group”, and sketched out the plans they had been “conspiring” against the city of Chicago.

What the press release did not mention is that the group had been infiltrated and coached by two undercover police officers named “Gloves” and “Mo”.

Definition of terrorism

Utilising one of the classic tactics perfected in time-honoured counter-intelligence operations used to intimidate, threaten and entrap people engaged with political groups out of favour with the government (from the Black Panthers, environmental protection groups, and Communists to protesters of the Vietnam war and others), the cops convinced the young men to concoct Molotov cocktails and, as soon as they did, phoned into police headquarters – triggering the raid.

After the charges were announced, Deutsch, the lawyer representing the three men, told the press that the case was “even worse than entrapment”.

On the phone, Deutsch explained to me that this case fits within “the whole policy of pre-emptive prosecution, of creating the crime and then solving it”.

Entrapment is consistently employed in these cases. However, where the presence of entrapment may have seen a case thrown out in the past, the logic of pre-emptive prosecution arms the state with the ability to justify its actions and successfully circumvent that defence, as noted by Project Salam:

“When the defendant claims as a defence to have been entrapped in a crime manufactured by the government, the government counters with the claim that the defendant was ‘predisposed’ to commit the crime, which would negate the entrapment defence.”

On January 25, the Nato 3’s lawyers filed a motion in the Circuit Court of Cook County, Illinois, challenging the constitutionality of the state’s terrorism law. If the court agrees with them, the defendants will be charged with possession of explosives but will no longer face a 40-year prison sentence for terrorism.

While the Illinois court should find the law unconstitutional, the truth remains that the nebulous but potent charge of terrorism has been used to systematically curtail justice. In the words of Glenn Greenwald:

“It’s just a manipulative slogan legitimising all forms of American violence against Muslims and delegitimising any acts meaningfully impeding US will.”

As a New York Court of Appeals decision admitted last December, there is no real definition of terrorism beyond our “collective understanding” of it. But in the term’s meaninglessness lies its limitless power to undermine justice everywhere.

Charlotte Silver is a journalist based in San Francisco and the West Bank. She is a graduate of Stanford University.



by Nick Sibilla

February 27, 2013

In a huge win for the Bill of Rights, the Montana House of Representatives overwhelmingly approved a bill to ban indefinite detention in Montana by a vote of 98 to 0. Introduced by state Rep. Nicholas Schwaderer, HB 522 would also “prohibit state cooperation with federal officials” who try to enforce the National Defense Authorization Act (NDAA).  The bill now heads to the state senate for approval.

During the second reading of the bill on Tuesday, Schwaderer noted that his bill would have a real effect on defending the right to due process in Big Sky Country.  This is “not a letter to Santa Claus,” he quipped.  The freshman representative also cited Printz v. U.S., a 1997 U.S. Supreme Court decision that held that state officials could not be commandeered by the federal government.  Indeed, since HB 522 prevents state officials from cooperating with federal agents, there is no legal conflict. After all, as Schwaderer noted, “there is no legal note attached to this bill.”

Montana joins a growing trend of both red and blue states working to defend due process.  So far, Hawaii and Virginia have passed anti-NDAA legislation, while the House of Representatives in Rhode Island and Michigan have overwhelmingly voted to support stopping indefinite detention.  Just yesterday, the San Francisco Board of Supervisors voted unanimously against the NDAA, making it the 18th city to do so. On top of that, the Bill of Rights Defense Committee has toolkits and model resolutions for activists to defend liberty and human rights in their local communities.



Activist Post

The anti-NDAA movement continues to gain traction. There is still much more work to be done as part of Operation Homeland Liberty, but People’s Blog for The Constitution highlights the latest development we can add to the victory column in Montana’s step toward resisting federal intrusion.

By a vote of 20-0, a bill that bans cooperation with federal agents over the National Defense Authorization Act (NDAA) has just passed the Montana House Judiciary Committee. Known as HB 522, the bill would also require the state’s attorney general to report any attempts by federal officials who try to enforce the NDAA. HB 522 is now one step closer to becoming law.

Additional details below with contact information for Montana legislators….

Introduced by freshman Republican state Rep. Nicholas Schwaderer, the bill has gathered over 20 Democratic and Republican cosponsors in the House, including the Speaker Pro Tempore Austin Knudsen and the chair of the Judiciary committee, Krayton Kerns.

Speaking at a committee hearing on Wednesday, Schwaderer articulated why he opposes the NDAA and indefinite detention: “There’s a lot of us on both sides of the aisle that feels that this flies in the face of habeas corpus and a free society and the better part of a millennium of human progress.”

View previous reports on how Montana and communities all across the nation are working to stop the NDAA and restore due process. You can find contact information for Montana legislators online.



By Chris Hedges

Posted on Feb 11, 2013

On Wednesday a few hundred activists crowded into the courtroom of the Second Circuit, the spillover room with its faulty audio feed and dearth of chairs, and Foley Square outside the Thurgood Marshall U.S. Courthouse in Manhattan where many huddled in the cold. The fate of the nation, we understood, could be decided by the three judges who will rule on our lawsuit against President Barack Obama for signing into law Section 1021(b)(2) of the National Defense Authorization Act (NDAA).

The section permits the military to detain anyone, including U.S. citizens, who “substantially support”—an undefined legal term—al-Qaida, the Taliban or “associated forces,” again a term that is legally undefined. Those detained can be imprisoned indefinitely by the military and denied due process until “the end of hostilities.” In an age of permanent war this is probably a lifetime. Anyone detained under the NDAA can be sent, according to Section (c)(4), to any “foreign country or entity.” This is, in essence, extraordinary rendition of U.S. citizens. It empowers the government to ship detainees to the jails of some of the most repressive regimes on earth.

Section 1021(b)(2) was declared invalid in September 2012 after our first trial, in the Southern District Court of New York. The Obama administration appealed the Southern District Court ruling. The appeal was heard Wednesday in the Second Circuit Court with Judges Raymond J. Lohier, Lewis A. Kaplan and Amalya L. Kearse presiding. The judges might not make a decision until the spring when the Supreme Court rules in Clapper v. Amnesty International USA, another case in which I am a plaintiff. The Supreme Court case challenges the government’s use of electronic surveillance. If we are successful in the Clapper case, it will strengthen all the plaintiffs’ standing in Hedges v. Obama. The Supreme Court, if it rules against the government, will affirm that we as plaintiffs have a reasonable fear of being detained.

If we lose in Hedges v. Obama—and it seems certain that no matter the outcome of the appeal this case will reach the Supreme Court—electoral politics and our rights as citizens will be as empty as those of Nero’s Rome. If we lose, the power of the military to detain citizens, strip them of due process and hold them indefinitely in military prisons will become a terrifying reality. Democrat or Republican. Occupy activist or libertarian. Socialist or tea party stalwart. It does not matter. This is not a partisan fight. Once the state seizes this unchecked power, it will inevitably create a secret, lawless world of indiscriminate violence, terror and gulags. I lived under several military dictatorships during the two decades I was a foreign correspondent. I know the beast.

“The stakes are very high,” said attorney Carl Mayer, who with attorney Bruce Afran brought our case to trial, in addressing a Culture Project audience in Manhattan on Wednesday after the hearing. “What our case comes down to is: Are we going to have a civil justice system in the United States or a military justice system? The civil justice system is something that is ingrained in the Constitution. It was always very important in combating tyranny and building a democratic society. What the NDAA is trying to impose is a system of military justice that allows the military to police the streets of America to detain U.S. citizens, to detain residents in the United States in military prisons. Probably the most frightening aspect of the NDAA is that it allows for detention until ‘the end of hostilities.’ ”

Five thousand years of human civilization has left behind innumerable ruins to remind us that the grand structures and complex societies we build, and foolishly venerate as immortal, crumble into dust. It is the descent that matters now. If the corporate state is handed the tools, as under Section 1021(b)(2) of the NDAA, to use deadly force and military power to criminalize dissent, then our decline will be one of repression, blood and suffering. No one, not least our corporate overlords, believes that our material conditions will improve with the impending collapse of globalization, the steady deterioration of the global economy, the decline of natural resources and the looming catastrophes of climate change.

But the global corporatists—who have created a new species of totalitarianism—demand, during our decay, total power to extract the last vestiges of profit from a degraded ecosystem and disempowered citizenry. The looming dystopia is visible in the skies of blighted postindustrial cities such as Flint, Mich., where drones circle like mechanical vultures. And in an era where the executive branch can draw up secret kill lists that include U.S. citizens, it would be naive to believe these domestic drones will remain unarmed.

Robert M. Loeb, the lead attorney for the government in Wednesday’s proceedings, took a tack very different from that of the government in the Southern District Court of New York before Judge Katherine B. Forrest. Forrest repeatedly asked the government attorneys if they could guarantee that the other plaintiffs and I would not be subject to detention under Section 1021(b)(2). The government attorneys in the first trial granted no such immunity. The government also claimed in the first trial that under the 2001 Authorization to Use Military Force Act (AUMF), it already had the power to detain U.S. citizens. Section 1021(b)(2), the attorneys said, did not constitute a significant change in government power. Judge Forrest in September rejected the government’s arguments and ruled Section 1021(b)(2) invalid.

The government, however, argued Wednesday that as “independent journalists” we were exempt from the law and had no cause for concern. Loeb stated that if journalists used journalism as a cover to aid the enemy, they would be seized and treated as enemy combatants. But he assured the court that I would be untouched by the new law as long as “Mr. Hedges did not start driving black vans for people we don’t like.”

Loeb did not explain to the court who defines an “independent journalist.” I have interviewed members of al-Qaida as well as 16 other individuals or members of groups on the State Department’s terrorism list. When I convey these viewpoints, deeply hostile to the United States, am I considered by the government to be “independent”? Could I be seen by the security and surveillance state, because I challenge the official narrative, as a collaborator with the enemy? And although I do not drive black vans for people Loeb does not like, I have spent days, part of the time in vehicles, with armed units that are hostile to the United States. These include Hamas in Gaza and the Kurdistan Workers Party (PKK) in southeastern Turkey.

I traveled frequently with armed members of the Farabundo Marti National Liberation Front in El Salvador and the Sandinista army in Nicaragua during the five years I spent in Central America. Senior officials in the Reagan administration regularly denounced many of us in the press as fifth columnists and collaborators with terrorists. These officials did not view us as “independent.” They viewed us as propagandists for the enemy. Section 1021(b)(2) turns this linguistic condemnation into legal condemnation.

Alexa O’Brien, another plaintiff and a co-founder of the US Day of Rage, learned after WikiLeaks released 5 million emails from Stratfor, a private security firm that does work for the U.S. Department of Homeland Security, the Marine Corps and the Defense Intelligence Agency, that Stratfor operatives were trying to link her and her organization to Islamic radicals, including al-Qaida, and sympathetic websites as well as jihadist ideology. If that link were made, she and those in her organization would not be immune from detention.

Afran said at the Culture Project discussion that he once gave a donation at a fundraising dinner to the Ancient Order of Hibernians, an Irish Catholic organization. A few months later, to his surprise, he received a note of thanks from Sinn Féin. “I didn’t expect to be giving money to a group that maintains a paramilitary terrorist organization, as some people say,” Afran said. “This is the danger. You can easily find yourself in a setting that the government deems worthy of incarceration. This is why people cease to speak out.”

The government attempted in court last week to smear Sami Al-Hajj, a journalist for the Al-Jazeera news network who was picked up by the U.S. military and imprisoned for nearly seven years in Guantanamo. This, for me, was one of the most chilling moments in the hearing.

“Just calling yourself a journalist doesn’t make you a journalist, like Al-Hajj,” Loeb told the court. “He used journalism as a cover. He was a member of al-Qaida and provided Stinger missiles to al-Qaida.”

Al-Hajj, despite Loeb’s assertions, was never charged with any crimes. And the slander by Loeb only highlighted the potential for misuse of this provision of the NDAA if it is not struck down.

The second central argument by the government was even more specious. Loeb claimed that Subsection 1021(e) of the NDAA exempts citizens from detention. Section 1021(e) states: “Nothing in this section shall be construed to affect existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States.”

Afran countered Loeb by saying that Subsection 1021(e) illustrated that the NDAA assumed that U.S. citizens would be detained by the military, overturning two centuries of domestic law that forbids the military to carry out domestic policing. And military detention of citizens, Afran noted, is not permitted under the Constitution.

Afran quoted the NDAA bill’s primary sponsor, Sen. Lindsey Graham, R-S.C., who said on the floor of the Senate: “In the case where somebody is worried about being picked up by a rogue executive branch because they went to the wrong political rally, they don’t have to worry very long, because our federal courts have the right and the obligation to make sure the government proves their case that you are a member of al-Qaida and didn’t [just] go to a political rally.”

Afran told the court that Graham’s statement implicitly acknowledged that U.S. citizens could be detained by the military under 1021(b)(2). “There is no reason for the sponsor to make that statement if he does not realize that the statute causes that chilling fear,” Afran told the judges.

After the hearing Afran explained: “If the senator who sponsored and managed the bill believed people would be afraid of the law, then the plaintiffs obviously have a reasonably objective basis to fear the statute.”

In speaking to the court Afran said of 1021(e): “It says it is applied to people in the United States. It presumes that they are going to be detained under some law. The only law we know of is this law. What other laws, before this one, allowed the military to detain people in this country?”

This was a question Judge Lohier, at Afran’s urging, asked Loeb during the argument. Loeb concurred that the NDAA was the only law he knew of that permitted the military to detain and hold U.S. citizens.



Institute for Public Accuracy

February 11, 2013

CHRIS HEDGES, [email] just wrote the piece “The NDAA and the Death of the Democratic State,” which states: “On Wednesday a few hundred activists crowded into the courtroom of the Second Circuit, the spillover room with its faulty audio feed and dearth of chairs, and Foley Square outside the Thurgood Marshall U.S. Courthouse in Manhattan where many huddled in the cold. The fate of the nation, we understood, could be decided by the three judges who will rule on our lawsuit against President Barack Obama for signing into law Section 1021(b)(2) of the National Defense Authorization Act.

“The section permits the military to detain anyone, including U.S. citizens, who ‘substantially support’ — an undefined legal term — al-Qaida, the Taliban or ‘associated forces,’ again a term that is legally undefined. Those detained can be imprisoned indefinitely by the military and denied due process until ‘the end of hostilities.’ In an age of permanent war this is probably a lifetime. Anyone detained under the NDAA can be sent … to any ‘foreign country or entity.’ This is, in essence, extraordinary rendition of U.S. citizens. It empowers the government to ship detainees to the jails of some of the most repressive regimes on earth.

“Section 1021(b)(2) was declared invalid in September after our first trial, in the Southern District Court of New York. The Obama administration appealed the Southern District Court ruling.” Hedges is lead plaintiff in the NDAA lawsuit. His most recent book is The World As It Is: Dispatches on the Myth of Human Progress and he was part of a team of New York Times reporters who won a Pulitzer Prize.

MICHAEL RATNER, ( is president emeritus of the Center for Constitutional Rights. He said today: “The rule of law is not in peril; it is no more. The country under Obama is utterly lawless. There is nothing legal or moral about murdering with drones or assassinations, continuing indefinite detention, military commissions and renditions. There is nothing legal or moral about attacking other countries such as Yemen, Pakistan or Libya. There is nothing legal or moral about a massive surveillance state. And then just to make sure no one reveals our evil we persecute and jail our truth tellers.  What you are seeing here is the recognition by the U.S. that it is weakening as a world power and it is striking out in ways that aren’t always rational but that are certainly inhuman and lawless.”

SHAHID BUTTAR, [email], is executive director of the Bill of Rights Defense Committee. He said today: “The civil liberties abuses of the Bush administration, and their continuing extension by the Obama administration, have reduced our Constitution to a shadow of itself. This week’s State of the Union address offers a disturbing reminder that, in 2013, America can not be plausibly described as ‘the land of the free.’

“Our supposedly ‘free’ country imprisons more people than any other on Earth, including China — which has a much larger population, and a longstanding reputation for abusing rights.

“Our supposedly ‘free’ country actively suppresses dissent. Instead of enjoying meaningful First Amendment rights to speech, assembly, and the right to petition our government, the peaceful Occupy movement was targeted by federal and state authorities for surveillance, infiltration, disruption, and violent suppression. Occupy activists in several states, like peace activists, environmental activists, and labor organizers, have been charged (and in many cases, convicted) of terror offenses.

“In our supposedly ‘free’ country, the Fourth Amendment right to be free from unreasonable searches and seizures has collapsed. Congress recently approved mass warrantless wiretapping by the NSA, which operates not only in secret, but under a secret budget at a time when politicians claim to face a budget crisis. Meanwhile, the FBI unapologetically infiltrates faith institutions and peaceful activist groups, creating a national biometric identity scheme under cover of facilitating immigration enforcement, and faking the results of its forensic investigations. Even local police routinely work as spies, using drones and other military technology to monitor Americans for activities as ‘suspicious’ as drawing and taking notes.

“Our supposedly ‘free’ country also abuses more fundamental rights. Anyone, including American citizens, is subject to arbitrary military detention without trial or proof of crime, or outright assassination by the CIA, a secret civilian agency for which the White House has announced a nominee for Director whom the Senate should reject. Brennan refuses to acknowledge that torture (which the CIA recently conducted as a matter of policy before destroying much of the evidence) is a crime. Brennan has not, and can not, explain the national security justification for drone strikes given their profound strategic risks. And Brennan hasn’t even faced questions about the CIA training domestic police departments, like the NYPD, in violation of its statutory charter.

“Finally, our supposedly ‘free’ country practices unequal justice. While millions face prosecution for relatively minor offenses, the architects of U.S. human rights abuses include a federal appellate judge wielding a lifetime appointment and six figure government paycheck. Whistleblowers, like the NSA’s Thomas Drake and the CIA’s John Kiriakou, face prison sentences not for committing crimes, but for revealing them to the public.

“Neither the President nor his partisan critics are likely to note these issues this week, but Americans feel their impact every day. Under each of the past two presidents, executive fiat, enabling legislative statutes and judicial formalism have combined to shred our Constitution and transform America from a ‘land of the free’ into a land that loudly proclaims freedom while denying it to our own people.”



By Marianne Hoynes

February 7, 2013

This morning while most Americans were not paying much attention, a critical battle for our civil liberties, everything in fact that defines America, was being waged at the NY US Court of Appeals for the Second Circuit, in Foley Square.

An amazing group of patriotic Americans were facing down the Obama administration over the new law, NDAA, in Chris Hedges et al vs. Obama NDAA.

NDAA essentially allows military law to supersede civil law, which goes against the US Constitution. It gives dictatorial authority to the President of the US, not seen since before the signing of the Magna Carta. “There is no doubt as to the merit and structure of the bill”, said attorney for Chris Hedges, Carl Mayer, but section 1021 E is phrased in such general terms that it allows for the abduction of American Citizens by the US Government. It allows our government to hold citizens under military law indefinitely, with no right to due process, no right to an attorney or access to evidence, until the “end of conflict”, which is now defined as America’s War on Terror, and ongoing war on nebulous enemy combatants, now in its eleventh year with no end in sight.

Before this law, the US military could never have power over the American civilian population, or civil law. NDAA was written and backed by bipartisan support from the US Congress, and signed into law by Obama in 2012.

You might remember the AUMF (Authorization for Use of Military Force Against Terrorists), signed into law by George W. Bush. AUMF clearly does not allow the detention of any American citizen or legal resident of the US by the US military, even during wartime. Whereas Bush’s executive order exempts US citizens, Obama’s NDAA law does not.

We live under an administration that has named peace activists and those who speak up for the rights of Americans, like those who Occupy Wall Street, as terrorists. Chris Hedges, formerly of the NY Times and now an independent journalist, has cause for concern under NDA. So does every American and legal US resident who independently publishes articles or blogs that in any way criticize America’s actions at home or abroad; or even have their photo taken at a peace rally they just happen to be walking through, and are not even a part of.

The attorneys arguing on behalf of the Executive Office, Barack Obama, said that if Americans were arrested under NDAA, “they probably would not be detained for long, and Americans [or legal residents in detention] would be given plenty of time to convince the US Government that they were not Al Qaeda”.

Ask Al Jazeera cameraman, Sami Al-Hajj how well that worked for him. As Kevin Gosztola of Firedog lake reported today, “The government made some startling statements about Al-Hajj. Loeb (attorney for the US government) said Al-Hajj had used the claim that he was a journalist as a cover for something else. A person in a case like this cannot use being a journalist as a defense against indefinite detention. Al-Hajj told the US government, “I’m not the person who film[ed] Osama bin Laden, because at that time I was in Doha. And my passport says that, and my ticket with you also says that. I’m not the person. This is my job, and this is my business. If I get the chance now to film Osama bin Laden, I will.” He was released from Guantanamo Bay nearly seven years after he was detained by US forces.” He was completely vindicated.

Independent expression was once known as “free speech” protected under the US Constitution in the First Amendment. The Congress who drafted this law, as well as the President of the US, take the same oath of office as every American who serves in the US military. “That oath”, said famed whislteblower of the Pentagon Papers Daniel Ellsberg, “is an oath to support and defend the Constitution of the United States against all enemies, not an oath to obey the Commander in Chief. The people who wrote and then ratified this bill, are not traitors, but are enemies of the US Constitution. They are violating their oath of office.”

Americans need to begin to pay more attention, before it is too late.



By Michael Kelley  | Business Insider
Feb. 7, 2013

Hedges v. Obama, the lawsuit challenging the indefinite detention provision of the 2012 National Defense Authorization Act (NDAA), continued Wednesday at the U.S. Court of Appeals for the Second Circuit.

A three-judge panel heard oral arguments regarding the indefinite detention clause of the 2012 National Defense Authorization Act (NDAA), which allow the U.S. military to indefinitely detain anyone who provides “substantial support” to the Taliban, al-Qaeda or “associated forces,” including “any person who has committed a belligerent act” in the aid of enemy forces.

A decision — whether to reinstate a permanent block of the provision or to overrule the injunction and affirm the clause — is expected in coming months. The clause is currently in effect (pending that decision), and the case is expected to go to the Supreme Court.

After the hearing, plaintiffs of the case held a panel in which attorney Carl Mayer gave a perfect summary of why this case is so important:

“In broad terms, the stakes are very high because what our case comes do to is: Are we going to have a civil justice system in the United States or a military justice system? The civil justice system is something that’s ingrained in the Constitution and was always very important in com batting tyranny and building a democratic society. And what the NDAA is trying to impose is a system of military justice that allows the military to police the streets of America, to detain U.S. citizens, to detain residents in the United States in military prisons, and — probably the most frightening aspect of the NDAA — it allows detention ‘until the end of hostilities.’

We’re now, by my count, [on] day 4,163 of this war, which is an open-ended war against al-Qaeda, the Taliban and now it’s defined as ‘associated forces’ in the NDAA.”

Mayer then noted that this “type of militarization of our justice system has occurred before,” citing the forced internment of Japanese-Americans during World War II.

“We’re trying to prevent a repeat of episodes like that,” Mayer said. “That’s what the case is about — it’s really about preserving our civil liberties and preserving our civil justice system, in broad terms.”



Section 1021 of the NDAA is being challenged in the case, and it reads (in part):

The President has the authority to detain persons that the President determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, and persons who harbored those responsible for those attacks. The President also has the authority to detain persons who were part of or substantially supported, Taliban or al-Qaida forces or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act, or has directly supported hostilities, in the aid of such enemy forces.

The government has argued that section 1021 is merely an “affirmation” of the 2001 Authorization of Military Force (AUMF), a joint resolution passed a week after 9/11 that authorizes the government to indefinitely detain “those who planned, authorized, committed, or aided in the actual 9/11 attacks” as well as those who harbored them.

The plaintiffs argue, and initial judge Judge Katherine Forrest agreed, that the extra language added to the NDAA (i.e. “The President also has the authority…”) appeared to be a retroactive legislative fix “to provide the President (in 2012) with broader detention authority than was provided in the AUMF in 2001.”

As the War on Terror has extended, so has its global scope. The plaintiffs in Hedges v. Obama are attempting to block the U.S. military’s detainment powers on its own shores.

The bottom line, according to plaintiff lawyer Bruce Afran, is that the NDAA “is still unconstitutional because it allows citizens or persons in the U.S. to be held in military custody, a position that the Supreme Court has repeatedly held is unconstitutional.”



February 7, 2013

The NDAA lawsuit is one of the key topics I have written about over the past year or so.  For those of you that aren’t up to speed, one of the most popular posts I ever wrote was NDAA: The Most Important Lawsuit in American History that No One is Talking About.  Basically, Section 1021 of the NDAA allows for the indefinite detention of American citizens without charges or a trial.  Journalist Chris Hedges and several others sued Obama on the grounds of it being unconstitutional.  Judge Katherine Forrest agreed and issued an injunction on it.  This was immediately appealed by the Obama Administration to a higher court, which promptly issued a temporary stay on the injunction.

Yesterday, oral arguments began in front of this aforementioned higher court; the 2nd Circuit.  As Chris Hedges states in the interview below, if they win the case then it will likely be brought in front of the Supreme Court within weeks.  On the other hand, if the Obama Administration wins and the Supreme Court refuses to hear the appeal, Hedges states: “at that point we’ve just become a military dictatorship.”





Published on Jan 5, 2013

Michael Ratner: Obama continues model of Presidential fiat, Congressional fiat, no due process, no trials, and indefinite detention.


Jan 2, 2013

David Knight breaks down anti NDAA legislation and “head fakes” being used by our national leaders.



Susanne Posel
Occupy Corporatism
December 19, 2012

The Sandy Hook elementary shooting and false assertions of Peter Lanza’s connection to LIBOR are a complete distraction from the schemes of the US government to take guns from US citizens and veterans – hidden in the 2013 National Defense Authorization Act (NDAA).

In the Senate, as part of a defense cuts proposal is an amendment to curb the rights of US veterans to access guns. Senator Tom Coburn would like for the veterans deemed “mentally incompetent” to have the Department of Veterans Affairs decide that they would have their 2nd Amendment rights revoked and not be able to purchase or possess firearms.

Coburn said to the Senate: “We’re not asking for anything big. We’re just saying that if you’re going to take away the Second Amendment rights … they ought to have it adjudicated, rather than mandated by someone who’s unqualified to state that they should lose their rights.”

This amendment is part of a package of additions to the 2013 National Defense Authorization Act (NDAA).

Senator Charles Schumer retorted: “I love our veterans; I vote for them all the time, they defend us. But if you are mentally ill, whether you’re a veteran or not, just like if you’re a felon, if you’re a veteran or not, and you have been judged to be mentally infirm, you should not have a gun.”

In September, Obama signed an executive order (EO) entitled, “Improving Access to Mental Health Services for Veterans, Service Members, and Military Families” with the supposed focus on strengthening “support for the emotional and mental health needs of our service members and their families.”

In this EO, Obama takes control over the evaluation of the mental health of our returning service men and women by providing US government controlled “effective mental health services for veterans, service members, and their families.” Obama is authorizing the coordination of the Departments of Veterans and the Department of Defense (DoD), as well as the Departments of Veterans Affairs (VA) and Defense to “transition” veterans back into “civilian life”.

Keeping in line with touting all veterans as mentally defective, substance abusers and suicidal, Obama demands that the VA and the DoD collaborate to provide proactive measures and a psychiatric pre-screen of returning service men and women to prevent erratic behavior. The DoD will “review all existing mental health and substance abuse prevention, education and outreach programs” within the military services and access their effectiveness.

During a private “roundtable” discussion at Fort Bliss in Texas, Obama met with members of the military and addressed active duty troops. The Obama administration’s focus is on identifying and “providing additional support” to soldiers who have been diagnosed with “post-traumatic stress disorder and traumatic brain injuries (TBI)”.

Previously, the DoD have come out publicly to state that US veterans suffering from TBI and chronic traumatic encephalopathy (CTE) are considered potentially violent and dangerous.

Doctors for the DoD claim CTE is an incurable disease soldiers may develop after having injured their brain in battle. CTE is explained as causing large bursts of anger and depression while having their vital motor skills and memory impacted; as well as being degenerative of whose effects can manifest themselves days, months or years after the initial trauma.

At Fort Detrick and Fort Bragg, in conjunction with the National Institutes of Health (NIH), the US military is conducting clinical trials on 2,000 solders to create a medical screen to detect a person’s propensity toward TBI/CTE by measuring biomarkers.

The Obama administration devised a report in 2011 entitled “Strengthening Our Military Families” that focuses on the mental stability of our US service men and women. It questions whether or not their exposure to battlefield conditions, TBI/CTE, and diagnosis of post-traumatic stress disorder (PSTD) is causing them to be a potential danger to society. Hidden under bureaucracy of promising to develop governmental systems to aid veterans, the document is directed at identifying all veteran’s potential to become mentally incapacitated due to some psychiatric disorder which would cause them to become violent, depressed, aggressive and inevitably dangerous to society.

The EO also allocates the US government-sponsored use of local community mental health clinics, community health centers, substance abuse treatment facilities, and rural health clinics to assist the DoD in identifying veterans who may be suffering from mental illness and would therefore have federal agencies working with private sector health providers to ensure veterans get the psychiatric help they need in “a timely way”. Obama has ordered 15 “pilot projects” to be established to create an integrated mental health system wherein the DoD would have complete oversight. The DoD would also be at the liberty of defining the parameters of the objective need of mental healthcare of veterans.

The Secretary of Veterans Affairs (SVA) will employ 800 peer counselors by 2013 that will be controlled and disseminated by the DoD under directives of the SVA. Collaborative tools and monetary oversight will remain with the SVA as an estimate 1,600 mental healthcare workers is expected to be needed to deal with the issue of mentally ill veterans nationally.

A National Research Action Plan will be established by May of 2013 that will be sponsored by the US government to use biomarkers for “early diagnosis and treatment” of veterans who tested positive for a propensity toward TBI/CTE. Obama wants to integrate electronic data sharing of information about veterans and their predetermined mental status between federal agencies, academia and state-sponsored research facilities to create pharmaceutical and psychiatric answers to this supposed burgeoning problem.

The goal of the Obama administration is to devise a “comprehensive longitudinal mental health study with an emphasis on PTSD, TBI, and related injuries” to identify mental health issues in veterans and enroll veterans in a long-term plan coordinated with the Department of Veteran Affairs which will be directed by the DoD.

The creation of a Task Force to advise Obama on how to deal with mental illness and veterans will be established within 180 days of the EO. This Task Force will alone define specific goals on how to best combat veterans alleged fall into mental illness with specific regard to TBI/CTE and post-traumatic stress disorder (PSTD).

The US government’s goal is to identify these veterans and label them with a progressive, unstable and degenerative disease so that they can refer them to mental hospitals for further evaluation and/or admittance.

The University of Pennsylvania study of the Clinton assault weapons ban concluded that the legislation had no effect on the naturally occurring decrease in gun-related violence because the ban only exempted gun and magazines that were manufactured prior to 1994. The statistical fact that mass shootings are so rare makes them impossible to attribute to the availability of guns to the American public.

The Institute for Safe Medication Practices published a study that linked reports of violent behavior to 31 prescribed pharmaceutical drugs that are readily prescribed by the psychiatric community.

These drugs are more likely to cause violent behavior:

• Desvenlafaxine (Pristiq) antidepressant affecting serotonin levels
• Venlafaxine (Effexor) antidepressant for anxiety disorders
• Fluvoxamine (Luvox) antidepressant affecting serotonin levels
• Triazolam (Halcion) insomnia treatment, addictive
• Atomoxetine (Strattera) ADHD treatment, affects neurotransmitters
• Mefoquine (Lariam) malaria treatment, causes bizarre behavior
• Paroxetine (Paxil) SSRI antidepressant, causes severe withdrawal and birth defects
• Fluoxetine (Prozac) SSRI antidepressant, causes extreme violence
• Varenicline (Chantix) anti-smoking medication

Mainstream media hosts are pushing for the complete ban on assault weapons across the nation, claiming: “You don’t need them unless you want to be the next mass shooter!”

Dick’s Sporting Goods (DSG) has suspended the sale of sporting rifles in all of their stores. DSG has locations across the country, including in Newtown, Connecticut.

In a public statement, DSG said: “We are extremely saddened by the unspeakable tragedy that occurred last week in Newtown, CT, and our hearts go out to the victims and their families, and to the entire community. Out of respect for the victims and their families, during this time of national mourning we have removed all guns from sale and from display in our store nearest to Newtown and suspended the sale of modern sporting rifles in all of our stores chainwide. We continue to extend our deepest sympathies to those affected by this terrible tragedy.”

It is being investigated as to whether or not the gun Adam Lanza used during the shooting at Sandy Hook elementary was purchased at DSG.

The decision by DSG will last indefinitely.

Wal-Mart has stated that they will stop selling their Bushmaster Patrolman’s Carbine M443 rifle, a military-based gun that resembles the gun used by Lanza.

Cerberus Capital Management, the private equity firm that owns the manufacturer of the Bushmaster has said they are selling off their financial investment in the corporation and returning any profits to the investors because: “It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level….It is not our role to take positions, or attempt to shape or influence the gun control policy debate. That is the job of our federal and state legislators. There are, however, actions that we as a firm can take.”

Senator Joe Manchin, who was pro-gun, is now saying that something must be done about restricting guns after the Connecticut shooting.




Susanne Posel
Occupy Corporatism
December 20, 2012

President Obama, speaking at the James Brady White House Briefing room, has announced the creation of an Interagency Gun Control Task Force. The initial action plan is to devise proposals on how to broach gun control legislation that will be favorable to passage within the Congress as well as ensure that gun-related violence be quashed after the shooting at Sandy Hook elementary.

The new task force, headed by Vice President Joe Biden, will include current Obama administration members, representatives of special interest groups, law enforcement and gun rights advocates.

It has escaped Biden’s memory that back in 2008, when assisting Obama in becoming elected for his first term as President, he convinced voters that Obama was a staunch supporter of the 2nd Amendment. In fact, Biden “guaranteed” that Obama “ain’t taking my shotguns, so don’t start buying that malarkey.”



This task force is expected to produce viable proposals that can be included in the President’s State of the Union Address. Obama has vowed to stop gun-related violence with the assistance of public outrage filtered through political posturing to create binding legislation that will diminish the power of the 2nd Amendment.

With reports and studies, the new task force will use existing gun laws as a template in order to implement more stringent measures, cultural influences and mental health services to combat gun-related violence.

Obama referred to the 2nd Amendment as a “strong tradition of gun ownership that’s been handed down from generation to generation” which reveals how he plans to remove its power through Congressional approval of a bill that would revive bans on assault weapons, high capacity ammunition as well as creating circumstances that restrict gun sales at gun shows without background checks.

January of 2013 is the ideal timeframe to introduce this legislation and Obama applied verbal pressure to Congress, warning them that they must act accordingly to support this measure.



Obama said: “The fact that this problem is complex can no longer be an excuse for doing nothing. The fact that we can’t prevent every act of violence doesn’t mean we can’t steadily reduce the violence and prevent the very worst violence.”

Evoking the emotions of the nation, Obama asserted that: “There’s already a growing consensus for us to build from. A majority of Americans support banning the sale of military-style assault weapons. A majority of Americans support banning the sale of high-capacity ammunition clips. A majority of American support laws requires background checks before all gun purchases.”

On the WeThePeople website, a petition was initiated with the “goal . . . to force the Obama administration to produce legislation that limits access to guns” as well as a “national dialogue” to coerce the general public to support gun related deaths.”

New York Mayor Michael Bloomberg postured himself with this statement: “With all the carnage from gun violence in our country, it’s still almost impossible to believe that a mass shooting in a kindergarten class could happen. It has come to that. Not even kindergarteners learning their A,B,Cs are safe.”

Bloomberg said that Obama’s “calling for ‘meaningful action’ is not enough” and he would like to see Obama “send a bill to Congress to fix this problem.” He asserted that “a national tragedy . . . demands a national response.”

As a member of the coercive network called Mayors Against Illegal Guns (MAIG), Bloomberg is one of 600 mayors across the nation that would like to see massive restriction of the 2nd Amendment under “commonsense reforms”. Bloomberg has contributed considerable financial donations to MAIG, along with the Joyce Foundation, a globalist Chicago-based non-profit organization started by Valerie Jarrett and Barack Obama.

The Bureau of Alcohol, Tobacco, Firearms and Explosives will be authorized to prioritize and implement measures approved for action by the task force.
Creating measures to identify who the “dangerous people” are will get the “guns out of the hands” of those deemed unfit by the US government. Obama promises that this action will prevent “atrocities like the one in Newtown.”

Dan Gross, president of the Brady Campaign to Prevent Gun Violence praised Obama’s initiative by stating: “The urgency with which the president is taking this issue on is a tremendous step forward. We are hopeful that the task force being led by Vice President Biden will produce real results in real time and we will do everything we can to be constructive partners in that effort.”

Senator Dianne Feinstein said last week that “the president will soon have legislation ‘to lead on’ in the gun control debate.” Feinstein is heading the march against the 2nd Amendment with the introduction of a bill into Congress in January of 2013. This document is just now being drafted with a proposal for the US House of Representatives.

Feinstein explains the bill “will ban the sale, the transfer, the importation, and the possession. Not retroactively, but prospectively. It will ban the same for big clips, drums or strips of more than 10 bullets. There will be a bill.”

Nancy Pelosi, House Minority Leader, jumped the “gun” when she announced that House Representative Mike Thompson would be leading the newly envisioned gun control task force. Thompson is a “gun owner, hunter, former co-chair of the Congressional Sportsman Caucus” which would give him the perfect credentials to head this task force, according to Pelosi.

Dueling gun control task forces will bring confusion and conflict on Capitol Hill, which appears to be the intention. Because while the American public are focused on which task force has the authority to ban which weapons, there is an amendment to the Fiscal 2013 National Defense Authorization Act which states that veterans deemed “mentally incompetent” to have the Department of Veterans Affairs decide that they would have their 2nd Amendment rights revoked and not be able to purchase or possess firearms.

With this new bureacracy, it may prove an easy task to take guns from the “mentally incompetent” civilians until the 2nd Amendment is made useless.



Army manual provides blueprint for confiscating guns of rioters and dissidents

Paul Joseph Watson
January 2, 2013

The blueprint for how Americans would be disarmed during a declared civil emergency is contained in an Army manual that outlines a plan to confiscate firearms to prevent them falling into the hands of rioters or dissidents.

Given the imminent introduction of Senator Dianne Feinstein’s draconian gun control legislation, which would instantly criminalize millions of gun owners in the United States if passed, concerns that the Obama administration could launch a massive gun confiscation effort have never been greater.

In July 2012, the process by which this could take place was made clear in a leaked US Army Military Police training manual for “Civil Disturbance Operations” (PDF) dating from 2006. Similar plans were also outlined in an updated manual released in 2010 entitled FM 3-39.40 Internment and Resettlement Operations.

The document outlines how military assets will be used to “help local and state authorities to restore and maintain law and order” in the event of mass riots, civil unrest or a declaration of martial law.

On page 20 of the manual, rules regarding the use of “deadly force” in confronting “dissidents” are made disturbingly clear with the directive that a, “Warning shot will not be fired.”

“Restrictions on the sale, transfer, and possession of sensitive material such as gasoline, firearms, ammunition, and explosives will help control forces in minimizing certain forms of violence,” states the document on page 40.

The issue of gun confiscation is also covered in the manual, which makes clear that every effort will be made to prevent “rioters” and “dissidents” from having access to weapons.

“A main consideration in the conduct of civil disturbance operations is to prevent liquor, drugs, weapons, and ammunition from falling into the hands of rioters. Therefore, liquor stores, drug stores, sporting good shops, pawn shops, and hardware stores are main targets for looters and must be kept under close observation by means of foot and motorized patrols. Normally, businesses of this type must be identified in advance and included in emergency plans,” states the manual. (Emphasis added.)

The document also instructs soldiers to protect “control force personnel and civilian dignitaries in the disturbed area” from the violent behavior of “radical or extremist elements” by denying access to “armories, arsenals, hardware, and sporting good stores, pawnshops, and gunsmith establishments, or other places where weapons or ammunition are stored. To conserve manpower, consideration may be given to evacuating sensitive items, such as weapons from stores and storing them in a central facility.”

Urban warfare training drills focused on invading American towns and going door to door in gun confiscation exercises have been taking place for years. In 2009, a planned mock invasion of Arcadia, Iowa was scaled back by the Iowa National Guard after listeners to the Alex Jones Show threatened to protest the event.

In the aftermath of Hurricane Katrina, the New Orleans Police, National Guard troops, and U.S. Marshals confiscated firearms. “Guns will be taken. Only law enforcement will be allowed to have guns,” New Orleans Police Superintendent Eddie Compass declared as he prepared to violate the Second Amendment. The National Guard conducted warrantless house-to-house searches, targeting not just Hurricane-hit areas under the pretext of stopping violent looters, but also high and dry homes that were not even affected by the storm.














Published on Dec 19, 2012

If you have been following the National Defense Authorization Act, it is no secret that the issue is anything but a roller coaster ride. Last month the Senate approved an amendment that would prevent the military from detaining American citizens suspected of terrorism without a trial, but on Tuesday lawmakers dropped that same ban. Tangerine Bolen, founder and director for RevolutionTruth, breaks down what the NDAA could mean for Americans.



Kurt Nimmo
December 20, 2012

On Tuesday, Congress removed a provision from 2013 NDAA that claimed to protect American citizens from unconstitutional detention by the military. The effort was spearheaded by Arizona Sen. John McCain.

“An authorization to use military force, a declaration of war, or any similar authority shall not authorize the detention without charge or trial of a citizen or lawful permanent resident of the United States apprehended in the United States, unless an Act of Congress expressly authorizes such detention,” the provision declared.

The amendment was added by Sen. Dianne Feinstein. The House version of the legislation, however, did not contain language protecting citizens from detention. It was removed after a conference committee from both chambers worked out a unified measure.

“The decision by the NDAA conference committee, led by Sen. John McCain (R-Ariz.) to strip the National Defense Authorization Act of the amendment that protects American citizens against indefinite detention now renders the entire NDAA unconstitutional,” said Kentucky Sen. Rand Paul.

“I voted against NDAA in 2011 because it did not contain the proper constitutional protections. When my Senate colleagues voted to include those protections in the 2012 NDAA through the Feinstein-Lee Amendment last month, I supported this act,” Sen. Paul continued. “But removing those protections now takes us back to square one and does as much violence to the Constitution as last year’s NDAA. When the government can arrest suspects without a warrant, hold them without trial, deny them access to counsel or admission of bail, we have shorn the Bill of Rights of its sanctity.

“Saying that new language somehow ensures the right to habeas corpus – the right to be presented before a judge – is both questionable and not enough. Citizens must not only be formally charged but also receive jury trials and the other protections our Constitution guarantees. Habeas corpus is simply the beginning of due process. It is by no means the whole.

“Our Bill of Rights is not something that can be cherry-picked at legislators’ convenience. When I entered the United States Senate, I took an oath to uphold and defend the Constitution. It is for this reason that I will strongly oppose passage of the McCain conference report that strips the guarantee to a trial by jury.”

In November, we reported that the amendment was essentially meaningless because there are no established rules allowing a citizen to exercise the right to a civilian trial, as guaranteed by the Constitution (specifically, the Sixth Amendment) and detained citizens have no way to gain access to lawyers, family or a civilian court after they are detained by the military.

Bruce Afran, a lawyer for a group of journalists and activists suing the government over the NDAA 2012, said the provision in 2013 NDAA in fact specifies military detainment.

“The new statute actually states that persons lawfully in the U.S. can be detained under the Authorization for the Use of Military Force [AUMF]. The original (the statute we are fighting in court) never went that far,” Afran explained. “Therefore, under the guise of supposedly adding protection to Americans, the new statute actually expands the AUMF to civilians in the U.S.”

“It’s a bunch of words, basically,” Dan Johnson, founder of People Against the NDAA, told Business Insider.



Joe Wolverton, II, J.D.
New American
Dec 12, 2012

The fox has been put in charge of guarding the hen house.

Senator Joseph Lieberman (I-Conn.) — author of the Enemy Expatriation Act — is leading the group of senators and congressmen working on the conference report (final version) of the Fiscal Year 2013 National Defense Authorization Act (NDAA).

Last week, the Senate unanimously approved S. 3254, their version of the 2013 defense spending bill.

In May, the House, 299-120 passed H.R. 4310, the companion bill on that side of the Capitol.

Now, Lieberman will lead a crew of congressman in hammering out a compromise bill that can pass both houses and be presented to the president for his signature.

Lieberman isn’t the only fox put on patrol of the hens, however. He is joined on the conference committee by fellow senatorial warmongers John McCain (R-Ariz.) and Lindsey Graham (R-S.C.).

The practical effect of putting this claque in charge of the conference report means that Americans are all but guaranteed to still be considered potential suspects who could potentially be apprehended and potentially detained indefinitely under the bill’s provisions.

On the Senate side, not a single senator said a single word against the unconstitutional and unconscionable power given to the president in the NDAA to deploy U.S. armed forces to nab and detain American citizens living in the the United States based on nothing more substantial than his own suspicion that the detainee poses a threat to national security.

In fairness, Senators Mike Lee (R-Utah) and Rand Paul (R-Ky.) introduced and managed to get passed an amendment to the Senate version of the NDAA that guaranteed the right to trial for any citizen or permanent resident of the United States imprisoned under the authority of the NDAA.

This proposal was met with significant criticism, however, by many writers and observers in the liberty movement.

Several articles warned that the Feinstein-Lee Amendment (co-sponsored by Senator Paul) made the situation worse by explicitly granting the president the authority he merely assumed in last year’s NDAA and the Authorization for the Use of Military Force(AUMF), upon which the NDAA is based.

For example, in its story on the passage by the Senate of the 2013 NDAA, RT writes:

“It might look like a fix, but it breaks things further. Feinstein’s amendment says that American citizens and green-card holders in the United States cannot be put into indefinite detention in a military prison, but carves out everyone else in the United States,” explains Chris Anders, an attorney with the Washington, DC legislative office of the American Civil Liberties Union.

According to Anders, the Feinstein Amendment has at least three serious faults that could pose problems starting next year. “It would not make America off-limits to the military being used to imprison civilians without charge or trial,” he writes, “…because its focus on protections for citizens and green-card holders implies that non-citizens could be militarily detained.”

“The goal should be to prohibit domestic use of the military entirely,” writes Anders. “That’s the protection provided to everyone in the United States by the Posse Comitatus Act. That principle would be broken if the military can find an opening to operate against civilians here at home, maybe under the guise of going after non-citizens. This is truly an instance where, when some lose their rights, all lose rights — even those who look like they are being protected.”

In a statement to The New American, Dan Johnson, director of People Against the NDAA (PANDA), explained his organization’s view of the Feinstein-Lee Amendment and the lack of real protections it affords:

The biggest thing about the [2012] NDAA was that you weren’t getting a trial…. Nothing in here says that you’ll make it to an Article III court so it literally does nothing. It’s a bunch of words, basically.

Bruce Afran agrees. Afran, a lawyer representing a group of journalists challenging the indefinite detention provision of the 2012 NDAA, told Business Insider, “The new statute actually states that persons lawfully in the U.S. can be detained under the Authorization for the Use of Military Force [AUMF]. The original (the statute we are fighting in court) never went that far.” “Therefore, under the guise of supposedly adding protection to Americans, the new statute actually expands the AUMF to civilians in the U.S.”

Given the tenor of speeches and statements made by Lee and Paul in support of their amendment, it would seem that the inclusion of the requirement for explicit authority to detain Americans in the Feinstein-Lee Amendment was intended as a sort of poison pill that would kill the chances of the NDAA to be upheld by the courts when and if new legal challenges are filed.

That explanation will not satisfy most constitutionalists, however. The fact of the matter is that the president has demonstrated that he will gladly use his “authority” to detain American citizens based on mere suspicion of associating with enemies of the United States, regardless of whether that authority is explicit or implied.

Section 1021 of the 2012 NDAA sparked the constitutional controversy. Under that pernicious provision, the military was authorized to detain people “without trial until the end of hostilities.”

It also permits detainees to be tried by a military tribunal, transferred to a foreign holding facility, or to “an alternative court” — leaving a little window open for civilian trials.

Potential detainees, according to the act, include any person suspected of having “planned, authorized, committed, or aided” the 9/11 attacks, or having “harbored those responsible.”

The aspect of Section 1021 specifically challenged by Bruce Afran on behalf of his clients is the part that allows for the apprehension and detention of anyone who takes “part of or substantially supported” al Qaeda, the Taliban, “or associated forces that are engaged in hostilities against the U.S. and its coalition partners.”

It is hard to imagine how this language could have been any broader or any more vague.

Left equally undefined in the act is whether these provisions apply specifically to citizens of the United States.

According to ProPublica, “Congress left that deliberately unspecified last year, essentially punting the issue to the courts.”

No provision in the act explicitly permitted or prohibited the indefinite detention of U.S. citizens. Last year’s version simply said that nothing in it could affect “existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States.”

Until now. The Feinstein-Lee Amendment altered the language for this year’s bill specifically granting that authority.

But, in fairness, it did exempt citizens and permanent residents from being held without trial.

That said, none of the senators or their spokesmen contacted by The New American could explain why not a single senator offered an amendment to cause the president to disgorge the extra-constitutional authority granted him by the NDAA. That authority, part of which is to send the Army to arrest Americans suspected of violating a law, is so vague that, were the law a city ordinance, it would be summarily thrown out by a state court.

Now Senators Lieberman, McCain, and Graham will work to correct the House’s failure to insert similar language into their version of the NDAA.

For his part, President Obama has threatened to veto the NDAA, but he performed a similar pantomime last year before signing the bill just before midnight on New Year’s Eve.

The solution to the collusion of the unholy trinity of courts, Congress, and executive to deprive all people of their constitutionally protected rights is for state legislatures to reclaim their sovereign right to nullify any unconstitutional act of Congress, including the NDAA.




Published on Dec 12, 2012

By now anyone who pays attention to politics knows that the National Defense Authorization Act (NDAA) of 2012 contained a provision that allows for the indefinite detention of U.S. citizens without charge or trial.

Section 1021 of the 2012 NDAA states that anyone suspected of being involved in terrorism or “belligerent acts” against the U.S. can be detained by the military under the so-called Authorization for Use of Military Force, including American citizens.

In other words, the war on terror has been officially declared on U.S. soil and everyone is now considered a potential combatant in this war.

Senator Lindsey Graham pretty much summed it up when he said, “The homeland is part of the battlefield and people can be held without trial whether an American citizen or not.”

Even though this clause is a direct violation of citizen’s rights under the 6th Amendment of the U.S. Constitution, there was scarcely any dissent and hardly a peep from the corporate media when Obama signed it into law under the cover of darkness late on New Year’s Eve 2011.

This year Senator Rand Paul once again blocked the passage of the NDAA for 2013, which the Senate hoped to rush through before the Thanksgiving recess. Using a filibuster, Paul is attempting to force a vote on his amendment to exempt American citizens from the indefinite detention clause.

Rand Paul’s amendment simply reaffirms the 6th Amendment to the U.S. Constitution: A citizen of the United States who is captured or arrested in the United States and detained by the Armed Forces of the United States pursuant to the Authorization for Use of Military Force (Public Law 107–40) shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defense.”

Compare that to the 6th Amendment of the Constitution: In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the assistance of counsel for his defense.



The Tenth Amendment Center
Dec 6, 2012

A bill condemning detention provisions written into the National Defense Authorization Act and blocking any state cooperation with federal agents attempting to detain people in Michigan without due process unanimously passed the Michigan House Wednesday.

HB5768 declares, “no agency of this state, no political subdivision of this state, no employee of an agency of this state or a political subdivision of this state acting in his or her official capacity, and no member of the Michigan national guard on official state duty shall aid an agency of the armed forces of the United States in any investigation, prosecution, or detention of any person pursuant to section 1021 of the national defense authorization act…”

It passed 107-0.

Bill sponsor Rep. Tom McMillin was jubilant after the vote.

“My bill opposing NDAA’s indefinite detention, and taking away due process, and prohibiting the Michigan government from participating passed the House today. On to the State Senate,” he said.

A large coalition of grassroots activists spanning the political spectrum, including the Tenth Amendment Center, supported the bill and lobbied for its passage.

“There has been a lot of debate about the Feinstein amendment recently passed in the U.S. Senate. Will it really protect Americans from indefinite detention? Or is the language too broad? State actions like the one taken in Michigan today protect people no matter what they come up with in D.C.,” Tenth Amendment Center national communications director Mike Maharrey said. “Even if the Feinstein amendment sticks, it still expressly claims congressional power to pass legislation to detain people on U.S. soil. It is the duty of state legislatures to interpose and stop the progress of evil. And what can be more evil than government-sanctioned kidnapping? Don’t let caterwauling in D.C. distract you. Keep pressing your state lawmakers to take action.”



by Travis Holte | Global Research

The Senate passed the much ballyhooed Feinstein-Lee amendment 98-0, which supposedly partially nullifies the provision in the National Defense Authorization Act (NDAA) allowing for Americans to be kidnapped by the government and disappeared without any charge or due process. Senator Rand Paul put out a press release declaring victory. But as Congressman Justin Amash points out, the wording of the amendment effectively codifies tyranny:

The heart of the Feinstein amendment:

“An authorization to use military force, a declaration of war, or any similar authority shall not authorize the detention without charge or trial of a citizen or lawful permanent resident of the United States apprehended in the United States, UNLESS AN ACT OF CONGRESS EXPRESSLY AUTHORIZES SUCH DETENTION.”

Well, that Act of Congress is the 2012 NDAA, which renders the rest of the Feinstein amendment meaningless.

I have some questions:

Why are Americans who are traveling, working, living abroad left out of this legislation?

Does one only have his rights when he’s within the sanctified borders of the U.S.?

Why is it not being argued that ALL PEOPLE have the right to due process?

Why are there libertarians celebrating this passage when rather than making us more free it really only further enshrines the idea that the State grants (and denies) us our rights?


Abby Martin talks to the founder and director of Revolution Truth, Tangerine Bolen, about the latest news regarding the NDAA 2013 including renewed use of domestic propaganda and keeping Guantanamo prison open.



Published on Dec 6, 2012

The US Senate has voted in favor of an act 98-0 that could imprison Americans. RT has been watching closely the discussions in Congress over the National Defense Authorization Act. Tangerine Bolen of Revolution Truth joins RT’s Kristine Frazao for more on what next year’s NDAA means and compares it to the current legislation, one that allows for the indefinite detention of US citizens without trial.



Published on Dec 5, 2012

On Tuesday, the US Senate voted 98-0 in favor of the National Defense Authorization Act of 2013. After much debate and countless amendments considered, the bill is now making its way to a House/Senate Conference Committee where it will be fine-tuned. The bill includes details of military spending and also detaining American citizens without a speedy trial, so will Obama sign the NDAA into law?



Published on Dec 5, 2012

On Tuesday, the National Defense Authorization Act of 2013 came one step closer to becoming law. The US Senate voted 98-0 in favor of the controversial act that could land American citizens behind bars. The NDAA has been challenged in court due to its explosive nature, in it if the president determines anyone an enemy combatant or found affiliated with enemy forces, including American citizens, they could find themselves imprisoned indefinitely by the US military. Carl Meyer, attorney with the Mayer Law groups, breaks down what the NDAA could mean for Americans.


Kurt Nimmo
November 30, 2012

In response to widespread outrage over the National Defense Authorization Act passed last year, Congress is said to be working on a more Constitution friendly version of the legislation. The latest version was overwhelmingly approved by the House Armed Services Committee on May 8 and introduced the following week.

“This year, through the incorporation of the Right to Habeas Corpus Act, the bill makes clear beyond a shadow of a doubt that every American will have his day in court,” a press release issued by the Armed Services Committee states.

Is the NDAA 2013 an improvement over the previous version? At first glance, it would seem so. Consider the following clause included in the bill:

Nothing in the AUMF [Authorization for the Use of Military Force] or the 2012 NDAA shall be construed to deny the availability of the writ of habeas corpus or to deny any Constitutional rights in a court ordained or established by or under Article III of the Constitution for any person who is lawfully in the United States when detained pursuant to the AUMF and who is otherwise entitled to the availability of such writ or such rights.

However, according to Bruce Afran, a lawyer for a group of journalists and activists suing the government over the NDAA 2012, this is merely smoke and mirrors.

Because there are no established rules allowing a citizen to exercise the right to a civilian trial, as guaranteed by the Constitution (specifically, the Sixth Amendment), detained citizens have no way to gain access to lawyers, family or a civilian court after they are detained by the military.

“The biggest thing about the [2012] NDAA was that you weren’t getting a trial … Nothing in here says that you’ll make it to an Article III court so it literally does nothing,” Dan Johnson, founder of People Against the NDAA, told Business Insider on Thursday. “It’s a bunch of words, basically.”

“The new statute actually states that persons lawfully in the U.S. can be detained under the Authorization for the Use of Military Force [AUMF]. The original (the statute we are fighting in court) never went that far,” Afran explained. “Therefore, under the guise of supposedly adding protection to Americans, the new statute actually expands the AUMF to civilians in the U.S.”

Although Kentucky Senator Rand Paul is being portrayed as a savior by offering up language that would “affirm the Sixth Amendment of the Constitution and limit the indefinite detention of Americans,” more than a few observers of his co-sponsored amendment to the NDAA say the effort does not go far enough.

On Thursday evening, the “Senate voted on Amendment No. 3018 to the National Defense Authorization Act sponsored by Sens. Dianne Feinstein (D-Calif.) and Mike Lee (R-Utah), and co-sponsored by Sen. Rand Paul, which protects the rights prescribed to Americans in the Sixth Amendment of the Constitution with regard to indefinite detention and the right to a trial by jury,” Paul’s Senate web page explainds.

“Senator Paul’s amendment – for all the good that it does – doesn’t go far enough. Read the text of the proposal again. There is not one word of repeal or abolition or revocation of the indefinite detention of Americans from the NDAA,” writes Joe Wolverton for the New American.

A previous attempt to placate critics of the NDAA resulted in the Gohmert Amendment (House Amendment 1126) stating that the NDAA will not “deny the writ of habeas corpus or deny any Constitutional rights for persons detained in the United States under the AUMF who are entitled to such rights.”

“This amendment, like the one offered by Senator Paul last week, displays an indefensible use of vague language that would make it vulnerable to challenge in any court in any state in the Union, but somehow adds to its appeal among the Republicans in Congress,” Wolverton comments.

A handful of efforts to make the NDAA constitutionally friendly are little more than a public relations gimmick to silence critics. The NDAA is essential if the government is going to silence critics and disappear activists and other enemies of the establishment.

The bottom line, Bruce Afran said, is that the latest iteration of the NDAA “is still unconstitutional because it allows citizens or persons in the U.S. to be held in military custody, a position that the Supreme Court has repeatedly held is unconstitutional.”

The indefinate detention section of the NDAA must be repealed entirely. Anything short of that is treason.


Mac Slavo
November 30, 2012

To screams and protests from the American people, Congress overwhelmingly supported passage of the National Defense Authorization Act which, among other things, allowed for the indefinite detention of Americans without charge or trial should they be arrested or held under suspicion of loosely-based definitions for domestic terrorism.

A super-majority 86% of Senators supported the measure, which was signed by President Obama while Americans partied on New Year’s Eve December 31st, 2011.

Now, under pressure from Senator Rand Paul (R-KY), members of Congress have re-assessed their positions on the amendment which allows the government to snatch up American citizens domestically and hold them in similar fashion to Guantanamo Bay detainees.

Senators who likely failed to read the bill before they found out what was in it back in 2011, have made a u-turn on one of its most controversial provisions.

President Barack Obama opposed the measure, but ultimately signed it after an amendment to the act muddied the issue enough to make it debatable in courts. Obama pledged to never use the authority.

Sen. Dianne Feinstein (D-Calif.), who helped write that amendment, declared Wednesday that it is not good enough, and recalled seeing Japanese Americans jailed in horse stalls at a racetrack when she was a girl.

I believe that the time has come now to end this legal ambiguity, and state clearly, once and for all, that the AUMF or other authorities do not authorize such indefinite detention of Americans apprehended in the U.S.,” Feinstein said.

“The federal government experimented with indefinite detention of U.S. citizens during World War II, a mistake we now recognize as a betrayal of our core values,” she said. “Let’s not repeat it.”

The amendment filed by Feinstein Wednesday would bar such detentions of citizens and green card-holders.

She was also backed by Sens. Kirsten Gillibrand (D-N.Y.), Rand Paul (R-Ky.), Dean Heller (R-Nev.), Mark Udall (D-Colo.), Jon Tester (D-Mont.), Mike Lee (R-Utah), Chris Coons (D-Del.), Susan Collins (R-Maine), Mark Kirk (R-Ill.) and Frank Lautenberg (D-N.J.).

It was not clear when the amendment would get a vote.

Of then ten Senators sponsoring the bill, eight of them voted in support of the legislation in December of 2011, including Sen. Feinstein.

While we are in full support of eliminating the indefinite detention provisions of the NDAA, as well as the ambiguous definitions for what is or is not a domestic terrorist as per the Patriot Act, the NDAA in its current form should never have been passed in the first place.

Is it not the responsibility of our elected officials to prevent ambiguity BEFORE a law is passed, especially when the questions being raised have to do with fundamental Constitutional issues like due process and the right to a fair and speedy trial?

For nearly a full year now, the Congress of the United States essentially granted the President a decree allowing him to utilize broad powers to detain anyone, for any reason, and for as long as he wanted. It was a power that President Obama himself railed against publicly, even pledging to veto the provision, though he ultimately failed to follow through on that pledge.

While President Obama “promised” never to use the provision to detain Americans, the fact is that such power should never be granted to any government, let alone a single individual.


Published on Nov 19, 2012 by RTAmerica

Just days before Thanksgiving, the US Senate was planning on taking a vote on the National Defense Authorization Act, but there has been a slight delay. Senator Rand Paul of Kentucky has proposed an amendment halting the vote. In it, Paul reaffirms the sixth amendment guaranteeing a fair a speedy trial to all Americans which has been threatened by the NDAA. Brian Doherty, senior editor for Reason.Com, give us his take on the latest development.


Obama’s emergency stay on NDAA block extended

Steve Watson
Oct 3, 2012

A federal appeals court has ruled that the US government can still indefinitely detain citizens should it wish to do so, under the Obama Administration’s National Defense Authorization Act.

The ruling came in the form of an extension of an “emergency” stay of a district court judge’s order that had previously struck down the defence bill’s provisions altogether.

Last month District Judge Katherine Forrest permanently blocked the NDAA provision, saying that “First Amendment rights have already been harmed and will be harmed by the prospect of (the law) being enforced.”

However, the very next day the Obama administration moved to appeal the decision in an attempt to reinstate the indefinite detention provisions. The administration characterized the ruling by Forrest as unconstitutional.

Federal judge in New York, Raymond Lohier, then granted the Obama administration an “emergency” stay that temporarily blocks Forrest’s ruling.

Late yesterday, a three-judge motions panel of the U.S. Court of Appeals for the 2nd Circuit extended that stay, supporting the administration’s appeal and intimating that Forrest’s ruling is flawed.

“We conclude that the public interest weighs in favor of granting the government’s motion for a stay,” Appeals Court Judges Denny Chin, Raymond Lohier and Christopher Droney wrote in athree-page order that also expedited the appeal.

All three judges on the panel were appointed to the appeals court by Obama.

The order continues:

First, in its memorandum of law in support of its motion, the government clarifies unequivocally that, ‘based on their stated activities,’ plaintiffs, ‘journalists and activists[,] . . . are in no danger whatsoever of ever being captured and detained by the U.S. military.’

Second, on its face, the statute does not affect the existing rights of United States citizens or other individuals arrested in the United States. See NDAA § 1021(e) (‘Nothing in this section shall be construed to affect existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States.’).

Third, the language of the district court’s injunction appears to go beyond NDAA § 1021 itself and to limit the government’s authority under the Authorization for Use of Military Force…

Concerned Americans have argued that the NDAA provision could see American citizens kidnapped and held indefinitely without charge.

The lawsuit that Judge Forrest ruled on was brought by activists and journalists, including former New York Times columnist Chris Hedges, who argued that the law was unconstitutional because it could see journalists abducted and detained merely for speaking their minds.

Hedges and the other plaintiffs successfully argued that some provisions of the indefinite detention clause are so vague they would chill free speech and restrict the ability to associate with individuals or groups labeled enemies by the government.

Critics have argued that the provisions also violate the Fifth Amendment, which specifically mentions due process of law, and the “equal protection” clause of the 14th Amendment which states that all people be treated the same under the law.

“This pernicious law poses one of the greatest threats to civil liberties in our nation’s history,” writes Brian J. Trautman. Under AUMF, “this law can be used by authorities to detain (forever) anyone the government considers a threat to national security and stability – potentially even demonstrators and protesters exercising their First Amendment rights.”

The federal government argues that the National Defense Authorization Act did not expand its authority beyond what already existed under the 2001 Authorization for Use of Military Force (AUMF) , as interpreted by judges in Guantánamo Bay habeas corpus cases.

As we have documented throughout the course of the NDAA controversy, despite Obama issuing a signing statement promising not to use the indefinite detention provisions against U.S. citizens, his administration specifically pushed for those provisions to be applied to U.S. citizens in the first place.

As the NDAA’s co-sponsor Senator Carl Levin said during a speech on the floor in December, it was the Obama administration that demanded the removal of language that would have protected Americans from being subject to indefinite detention.

“The language which precluded the application of Section 1031 to American citizens was in the bill that we originally approved…and the administration asked us to remove the language which says that U.S. citizens and lawful residents would not be subject to this section,” said Levin, Chairman of the Armed Services Committee.

“It was the administration that asked us to remove the very language which we had in the bill which passed the committee…we removed it at the request of the administration,” said Levin, emphasizing, “It was the administration which asked us to remove the very language the absence of which is now objected to.”

In attempting to include the entire United States as a battleground under the NDAA, the Obama administration is merely extending its already established policy of targeting American citizens worldwide for state-sponsored assassination with no legal process whatsoever.

Given that the White House is already executing this policy at the global level, it’s no surprise that they are also keen to enforce it domestically


Steve Watson is the London based writer and editor for Alex Jones’, He has a Masters Degree in International Relations from the School of Politics at The University of Nottingham in England.



Alex also welcomes guest Carl Mayer, the attorney representing American Pulitzer Prize-winning journalist Chris Hedges in his legal battle to keep President Obama’s power to send US citizens to military prisons without right to trial or attorney, or NDAA privilege, at bay.


September 18, 2012

A lone appeals judge bowed down to the Obama administration late Monday and reauthorized the White House’s ability to indefinitely detain American citizens without charge or due process.

Last week, a federal judge ruled that an temporary injunction on section 1021 of the National Defense Authorization Act for Fiscal Year 2012 must be made permanent, essentially barring the White House from ever enforcing a clause in the NDAA that can let them put any US citizen behind bars indefinitely over mere allegations of terrorist associations. On Monday, the US Justice Department asked for an emergency stay on that order, and hours later US Court of Appeals for the Second Circuit Judge Raymond Lohier agreed to intervene and place a hold on the injunction.

The stay will remain in effect until at least September 28, when a three-judge appeals court panel is expected to begin addressing the issue.

On December 31, 2011, US President Barack Obama signed the NDAA into law, even though he insisted on accompanying that authorization with a statement explaining his hesitance to essentially eliminate habeas corpus for the American people.

“The fact that I support this bill as a whole does not mean I agree with everything in it,” President Obama wrote. “In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists.”

lawsuit against the administration was filed shortly thereafter on behalf of Pulitzer Prize-winning journalist Chris Hedges and others, and Judge Forrest agreed with them in district court last week after months of debate. With the stay issued on Monday night, however, that justice’s decision has been destroyed.

With only Judge Lohier’s single ruling on Monday, the federal government has been once again granted the go ahead to imprison any person “who was part of or substantially supported al-Qaeda, the Taliban or associated forces that are engaged in hostilities against the United States or its coalition partners” until a poorly defined deadline described as merely “the end of the hostilities.” The ruling comes despite Judge Forrest’s earlier decision that the NDAA fails to “pass constitutional muster” and that the legislation contained elements that had a “chilling impact on First Amendment rights”

Because alleged terrorists are so broadly defined as to include anyone with simple associations with enemy forces, some members of the press have feared that simply speaking with adversaries of the state can land them behind bars.

“First Amendment rights are guaranteed by the Constitution and cannot be legislated away,” Judge Forrest wrote last week. “This Court rejects the Government’s suggestion that American citizens can be placed in military detention indefinitely, for acts they could not predict might subject them to detention.”

Bruce Afran, a co-counsel representing the plaintiffs in the case Hedges v Obama, said Monday that he suspects the White House has been relentless in this case because they are already employing the NDAA to imprison Americans, or plan to shortly.

“A Department of Homeland Security bulletin was issued Friday claiming that the riots [in the Middle East] are likely to come to the US and saying that DHS is looking for the Islamic leaders of these likely riots,” Afran told Hedges for ablogpost published this week. “It is my view that this is why the government wants to reopen the NDAA — so it has a tool to round up would-be Islamic protesters before they can launch any protest, violent or otherwise. Right now there are no legal tools to arrest would-be protesters. The NDAA would give the government such power. Since the request to vacate the injunction only comes about on the day of the riots, and following the DHS bulletin, it seems to me that the two are connected. The government wants to reopen the NDAA injunction so that they can use it to block protests.”

Within only hours of Afran’s statement being made public, demonstrators in New York City waged a day of protests in order to commemorate the one-year anniversary of the Occupy Wall Street movement. Although it is not believed that the NDAA was used to justify any arrests, more than 180 political protesters were detained by the NYPD over the course of the day’s actions. One week earlier, the results of a Freedom of Information Act request filed by the American Civil Liberties Union confirmed that the FBI has been monitoring Occupy protests in at least one instance, but the bureau would not give further details, citing that decision is “in the interest of national defense or foreign policy.”

Josh Gerstein, a reporter with Politico, reported on the stay late Monday and acknowledged that both Forrest and Lohier were appointed to the court by President Obama.


Zero Hedge

September 13, 2012

Back in January, Pulitzer winning journalist Chris Hedges sued President Obama and the recently passed National Defense Authorization Act, specifically challenging the legality of the Authorization for Use of Military Force or, the provision that authorizes military detention for people deemed to have “substantially supported” al Qaeda, the Taliban or “associated forces.”

Hedges called the president’s action allowing indefinite detention, which was signed into law with little opposition fromeither party “unforgivable, unconstitutional and exceedingly dangerous.” He attacked point blank the civil rights farce that is the neverending “war on terror” conducted by bothparties, targetting whom exactly is unclear, but certainly attaining ever more intense retaliation from foreigners such as the furious attacks against the US consulates in Egypt and Libya. He asked  “why do U.S. citizens now need to be specifically singled out for military detention and denial of due process when under the 2001 Authorization for Use of Military Force the president can apparently find the legal cover to serve as judge, jury and executioner to assassinate U.S. citizens.” A few months later, in May, U.S. District Judge Katherine Forrest ruled in favor of a temporary injunction blocking the enforcement of the authorization for military detention. Today, the war againt the true totalitarian terror won a decisive battle, when in a 112-opinion, Judge Forrest turned the temporary injunction, following an appeal by the totalitarian government from August 6, into a permanent one.

From Reuters:

The permanent injunction prevents the U.S. government from enforcing a portion of Section 1021 of the National Defense Authorization Act’s “Homeland Battlefield” provisions.

The opinion stems from a January lawsuit filed by former New York Times war correspondent and Pulitzer Prize winner Chris Hedges and others. The plaintiffs said they had no assurance that their writing and advocacy activities would not fall under the scope of the provision.

Government attorneys argued that the executive branch is entitled to latitude when it comes to cases of national security and that the law is neither too broad nor overly vague.

“This court does not disagree with the principle that the president has primacy in foreign affairs,” the judge said, but that she was not convinced by government arguments.

“The government has not stated that such conduct – which, by analogy, covers any writing, journalistic and associational activities that involve al Qaeda, the Taliban or whomever is deemed “associated forces” – does not fall within § 1021(b)(2).”

What is ironic, is that in the ongoing absolute farce that is the theatrical presidential debate, there hasn’t been one word uttered discussing precisely the kind of creeping totalitarian control, and Orwellian loss of constitutional rights, that the biparty-supported NDAA would have demanded out of the US republic. Why? Chris Hedges said it best:

The oddest part of this legislation is that the FBI, the CIA, the director of national intelligence, the Pentagon and the attorney general didn’t support it. FBI Director Robert Mueller said he feared the bill would actually impede the bureau’s ability to investigate terrorism because it would be harder to win cooperation from suspects held by the military. “The possibility looms that we will lose opportunities to obtain cooperation from the persons in the past that we’ve been fairly successful in gaining,” he told Congress.

But it passed anyway. And I suspect it passed because the corporations, seeing the unrest in the streets, knowing that things are about to get much worse, worrying that the Occupy movement will expand, do not trust the police to protect them. They want to be able to call in the Army. And now they can.

He is 100% correct, and today, if it weren’t for his lawsuit, the saying that someone, somewhere in the world might possibly “hate America for its liberties” would have been the biggest lie conceivable.

Also, the total fascist takeover of America would now have been a fact.

Some other insights from Hedges, who explained back in January, just why he is suing Barack Obama:

This demented “war on terror” is as undefined and vague as such a conflict is in any totalitarian state. Dissent is increasingly equated in this country with treason. Enemies supposedly lurk in every organization that does not chant the patriotic mantras provided to it by the state. And this bill feeds a mounting state paranoia. It expands our permanent war to every spot on the globe. It erases fundamental constitutional liberties. It means we can no longer use the word “democracy” to describe our political system.

The supine and gutless Democratic Party, which would have feigned outrage if George W. Bush had put this into law, appears willing, once again, to grant Obama a pass. But I won’t. What he has done is unforgivable, unconstitutional and exceedingly dangerous. The threat and reach of al-Qaida—which I spent a year covering for The New York Times in Europe and the Middle East—are marginal, despite the attacks of 9/11. The terrorist group poses no existential threat to the nation. It has been so disrupted and broken that it can barely function. Osama bin Laden was gunned down by commandos and his body dumped into the sea. Even the Pentagon says the organization is crippled. So why, a decade after the start of the so-called war on terror, do these draconian measures need to be implemented? Why do U.S. citizens now need to be specifically singled out for military detention and denial of due process when under the 2001 Authorization for Use of Military Force the president can apparently find the legal cover to serve as judge, jury and executioner to assassinate U.S. citizens, as he did in the killing of the cleric Anwar al-Awlaki in Yemen? Why is this bill necessary when the government routinely ignores our Fifth Amendment rights—“No person shall be deprived of life without due process of law”—as well as our First Amendment right of free speech? How much more power do they need to fight “terrorism”?

Fear is the psychological weapon of choice for totalitarian systems of power. Make the people afraid. Get them to surrender their rights in the name of national security. And then finish off the few who aren’t afraid enough. If this law is not revoked we will be no different from any sordid military dictatorship. Its implementation will be a huge leap forward for the corporate oligarchs who plan to continue to plunder the nation and use state and military security to cow the population into submission.

Today’s full ruling presented below in its entirety:




While claiming otherwise, White House has pushed for measure all along

Paul Joseph Watson
Friday, September 14, 2012

Within 24 hours of a historic court ruling that struck down the indefinite detention provision of the National Defense Authorization Act, the Obama administration has appealed the ruling, emphasizing once again how the White House – while claiming to be against the measure – has aggressively pushed for it at every turn.

On Wednesday, New York federal judge Katherine Forrest issued a ruling which blocked provisions of the NDAA that could have seen American citizens kidnapped and held indefinitely without charge.

The suit was brought by activists and journalists, including former New York Times columnist Chris Hedges, who argued that the law was unconstitutional because it could see journalists abducted and detained merely for speaking their minds.

In “permanently” halting the enforcement of the law, Forrest noted how the plaintiffs presented “evidence that First Amendment rights have already been harmed and will be harmed by the prospect of (the law) being enforced. The public has a strong and undoubted interest in the clear preservation of First and Fifth Amendment rights.”

However, the very next day the Obama administration reportedly moved to appeal the decision in an attempt to reinstate the indefinite detention provisions.

“This sent a chill down my spine,” writes Business Insider’s David Seaman. “In the midst of my interview with Tangerine Bolen, a plaintiff in the lawsuit against the NDAA’s indefinite detention provisions & coordinator of, she received an email from her lawyer to inform her that the Obama administration has already appealed yesterday’s historic court ruling.”

“For a man who doesn’t want the ability to order the military to abduct and detain citizens – without charge or trial – it is quite odd that his administration is appealing yet again,” he adds.

Indeed, as we documented throughout the course of the NDAA controversy, despite Obama issuing a signing statement promising not to use the indefinite detention provisions against U.S. citizens, his administration specifically pushed for those provisions to be applied to U.S. citizens in the first place.

As the NDAA’s co-sponsor Senator Carl Levin said during a speech on the floor in December, it was the Obama administration that demanded the removal of language that would have protected Americans from being subject to indefinite detention.

“The language which precluded the application of Section 1031 to American citizens was in the bill that we originally approved…and the administration asked us to remove the language which says that U.S. citizens and lawful residents would not be subject to this section,” said Levin, Chairman of the Armed Services Committee.

“It was the administration that asked us to remove the very language which we had in the bill which passed the committee…we removed it at the request of the administration,” said Levin, emphasizing, “It was the administration which asked us to remove the very language the absence of which is now objected to.”

In attempting to include the entire United States as a battleground under the NDAA, the Obama administration is merely extending its already established policy of targeting American citizens worldwide for state-sponsored assassination with no legal process whatsoever.

Given that the White House is already executing this policy at the global level, it’s no surprise that they are also keen to enforce it domestically by appealing this week’s ruling.


Posted on August 10, 2012

Despite a mainstream media blackout on the topic, the alternative media is abuzz with this week’s hearing on the constitutionality of the clearly unconstitutional NDAA.  In case you don’t remember, section 1021 of the NDAA, which Obama signed into law on December 31 of last year, allows the government to lock up U.S. citizens indefinitely without a trial.  At the time of signing, Obama penned a pathetic letter to many of his outraged supporters where he basically said he signed it but he won’t use it.  Thanks pal!

In any event, the Administration is showing its true colors by appealing an injunction that judge Katherine Forrest issued against it in May.  The injunction was in response to the lawsuit filed by Pulitzer Prize winning journalist Chris Hedges and others.  While the NDAA clearly vaporizes the 5th and 6th Amendments of the Constitution, I believe the real target is the 1st Amendment.  By having a law on the books that allows the government to arbitrarily lock anyone up and throw away the key, the government is actually trying to instill enough fear in people that they self-censor speech and become too afraid to criticize the criminal elite political and economic oligarchy.

Tangerine Bolen is one the lead plaintiffs in the suit against the government and she penned a powerful piece for the UK’s Guardian.  Here are some key quotes:

I am one of the lead plaintiffs in the civil lawsuit against the National Defense Authorization Act, which gives the president the power to hold any US citizen anywhere for as long as he wants, without charge or trial.

In a May hearing, Judge Katherine Forrest issued an injunction against it; this week, in a final hearing in New York City, US government lawyers asserted even more extreme powers – the right to disregard entirely the judge and the law. On Monday 6 August, Obama’s lawyers filed an appeal to the injunction – a profoundly important development that, as of this writing, has been scarcely reported.

Judge Forrest had ruled for a temporary injunction against an unconstitutional provision in this law, after government attorneys refused to provide assurances to the court that plaintiffs and others would not be indefinitely detained for engaging in first amendment activities. At that time, twice the government has refused to define what it means to be an “associated force”, and it claimed the right to refrain from offering any clear definition of this term, or clear boundaries of power under this law.

This past week’s hearing was even more terrifying. Government attorneys again, in this hearing, presented no evidence to support their position and brought forth no witnesses. Most incredibly, Obama’s attorneys refused to assure the court, when questioned, that the NDAA’s section 1021 – the provision that permits reporters and others who have not committed crimes to be detained without trial – has not been applied by the US government anywhere in the world after Judge Forrest’s injunction.

I would also take the time to watch this short video from one of the co-counsels on the case as to exactly what the government is arguing in court.  Not a word from the mainstream media on the most important court case in American history.  One that will decide the fate of a law that will effectively dismantle at least a third of The Bill of Rights.

Please share this with everyone that cares about Liberty and The Republic.





Time after time, Obama’s lawyers defending the NDAA’s section 1021 affirm our worst fears about its threat to our liberty

By Tangerine Bolen |
August 10, 2012


Tangerine Bolen


I am one of the lead plaintiffs in the civil lawsuit against the National Defense Authorization Act, which gives the president the power to hold any US citizen anywhere for as long as he wants, without charge or trial.

In a May hearing, Judge Katherine Forrest issued an injunction against it; this week, in a final hearing in New York City, US government lawyers asserted even more extreme powers – the right to disregard entirely the judge and the law. On Monday 6 August, Obama’s lawyers filed an appeal to the injunction – a profoundly important development that, as of this writing, has been scarcely reported.

In the earlier March hearing, US government lawyers had confirmed that, yes, the NDAA does give the president the power to lock up people like journalist Chris Hedges and peaceful activists like myself and other plaintiffs. Government attorneys stated on record that even war correspondents could be locked up indefinitely under the NDAA.

Judge Forrest had ruled for a temporary injunction against an unconstitutional provision in this law, after government attorneys refused to provide assurances to the court that plaintiffs and others would not be indefinitely detained for engaging in first amendment activities. At that time, twice the government has refused to define what it means to be an “associated force”, and it claimed the right to refrain from offering any clear definition of this term, or clear boundaries of power under this law.

This past week’s hearing was even more terrifying. Government attorneys again, in this hearing, presented no evidence to support their position and brought forth no witnesses. Most incredibly, Obama’s attorneys refused to assure the court, when questioned, that the NDAA’s section 1021 – the provision that permits reporters and others who have not committed crimes to be detained without trial – has not been applied by the US government anywhere in the world after Judge Forrest’s injunction. In other words, they were telling a US federal judge that they could not, or would not, state whether Obama’s government had complied with the legal injunction that she had laid down before them.

To this, Judge Forrest responded that if the provision had indeed been applied, the United States government would be in contempt of court.

I have mixed feelings about suing my government, and in particular, my president, over the National Defense Authorization Act. I voted for Obama.

But the US public often ignores how, when it comes to the “war on terror”, the US government as a whole has been deceitful, reckless, even murderous. We lost nearly 3,000 people on 9/11. Then we allowed the Bush administration to lie and force us into war with a country that had nothing to do with that terrible day. Presidents Bush and Obama, and the US Congress, appear more interested in enacting misguided “war on terror” policies that distract citizens from investigating the truth about what we’ve done, and what we’ve become, since 9/11.

I, like many in this fight, am now afraid of my government. We have good reason to be. Due to the NDAA, Chris Hedges, Kai Wargalla, the other plaintiffs and I are squarely in the crosshairs of a “war on terror” that has been an excuse to undermine liberties, trample the US constitution, destroy mechanisms of accountability and transparency, and cause irreparable harm to millions. Several of my co-plaintiffs know well the harassment and harm they have incurred from having dared openly to defy the US government: court testimony has included government subpoenas of private bank records of Icelandic parliamentarian Birgitta Jónsdóttir; Wargalla’s account of having been listed as a “terrorist group”; and Hedges’ concern that he would be included as a “belligerent” in the NDAA’s definition of the term – because he interviews members of outlawed groups as a reporter – a concern that the US attorneys refused on the record to allay.

Other advocates have had email accounts repeatedly hacked, and often find their electronic communications corrupted in transmission (some emails vanish altogether). This is an increasing form of pressure that supporters of state surveillance and intervention in the internet often fail to consider.

I’ve been surprised to find that most people, when I mention that I am suing my president, Leon Panetta, and six members of Congress (four Democrats and four Republicans), thank me – even before I explain what I’m suing them over! And when I do explain the fact that I and my seven co-plaintiffs are suing over a law that suspends due process, threatens first amendment rights and takes away the basic right of every citizen on this planet not to be indefinitely detained without charge or trial, their exuberance shifts, and a deeper gratitude shines through newly somber demeanors. But this fight has taken a personal toll on many of us, including myself.

My government, meanwhile, seems to have lost the ability to discern the truth about the US constitution any more; I and many others have not. We are fighting for due process and for the first amendment – for a country we still believe in and for a government still legally bound by its constitution.

If that makes us their “enemies”, then so be it. As long as they cannot call us “belligerents”, lock us up and throw away the key – a power that, incredibly, this past week US government lawyers still asserted is their right. Against such abuses, we will keep fighting.


President Obama who pledged to veto the National Defense Authorization Act signed it into law on December 31, 2011. Of course his promise was only for public consumption. It was the Obama administration all along that demanded the indefinite detention provisions be added while at the same time telling the America people he was fighting to protect their rights.


Alex Jones covers Obama’s signing of the National Defense Authorization Act, a draconian bill that will allow the military to arrest American citizens and put them in a secret labyrinth tribunal system where victims may be kept for years without access to due process of law or the protection of the Fourth Amendment of the Constitution.




By JULIE PACE | Associated Press

HONOLULU (AP) — President Barack Obama signed a wide-ranging defense bill into law Saturday despite having “serious reservations” about provisions that regulate the detention, interrogation and prosecution of suspected terrorists.

The bill also applies penalties against Iran’s central bank in an effort to hamper Tehran’s ability to fund its nuclear enrichment program. The Obama administration is looking to soften the impact of those penalties because of concerns that they could lead to a spike in global oil prices or cause economic hardship on U.S. allies that import petroleum from Iran.

In a statement accompanying his signature, the president chastised some lawmakers for what he contended was their attempts to use the bill to restrict the ability of counterterrorism officials to protect the country.

Administration officials said Obama was only signing the measure because Congress made minimally acceptable changes that no longer challenged the president’s terrorism-fighting ability.

“Moving forward, my administration will interpret and implement the provisions described below in a manner that best preserves the flexibility on which our safety depends and upholds the values on which this country was founded,” Obama said in the signing statement.

Signing statements allow presidents to raise constitutional objections to circumvent Congress’ intent. During his campaign for the White House, Obama criticized President George W. Bush’s use of signing statements and promised to make his application of the tool more transparent.

Obama’s signature caps months of wrangling over how to handle captured terrorist suspects without violating Americans’ constitutional rights. The White House initially threatened to veto the legislation but dropped the warning after Congress made last-minute changes.

Among the changes the administration secured was striking a provision that would have eliminated executive branch authority to use civilian courts for trying terrorism cases against foreign nationals.

The new law now requires military custody for any suspect who is a member of al-Qaida or “associated forces” and involved in planning or attempting to carry out an attack on the United States or its coalition partners. The president or a designated subordinate may waive the military custody requirement by certifying to Congress that such a move is in the interest of national security.

The administration also pushed Congress to change a provision that would have denied U.S. citizens suspected of terrorism the right to trial and could have subjected them to indefinite detention. Lawmakers eventually dropped the military custody requirement for U.S. citizens or lawful U.S. residents.

“My administration will not authorize the indefinite military detention without trial of American citizens,” Obama said in the signing statement. “Indeed, I believe that doing so would break with our most important traditions and values as a nation.”

Despite the changes, officials cited serious concerns that the law will complicate and could harm the investigation of terrorism cases.

For example, FBI Director Robert Mueller has said the measure would inhibit his bureau’s ability to persuade suspected terrorists to cooperate immediately and provide critical intelligence. He told Congress it wasn’t clear how agents should operate if they arrest someone covered by the military custody requirement but the nearest military facility is hundreds of miles away.

Other officials have said agents and prosecutors should not have to spend their time worrying about citizenship status and whether get a waiver while trying to thwart a terror attack.

The administration also raised concerns about an amendment in the bill that goes after foreign financial institutions that do business with Iran’s central bank, barring them from opening or maintaining correspondent operations in the United States. It would apply to foreign central banks only for transactions that involve the sale or purchase of petroleum or petroleum products.

Officials worry that the penalties could lead to higher oil prices, damaging the U.S. economic recovery and hurting allies in Europe and Asia that purchase petroleum from Iran.

The penalties do not go into effect for six months. The president can waive them for national security reasons or if the country with jurisdiction over the foreign financial institution has significantly reduced its purchases of Iran oil.

The State Department has said the U.S. was looking at how to put them in place in a way that maximized the pressure on Iran, but meant minimal disruption to the U.S. and its allies.

This week, Iran warned that it may disrupt traffic in the Strait of Hormuz – a vital Persian Gulf waterway. But on Saturday, Tehran seemed to back off that threat when a commander of its Revolutionary Guard said such discussion is a thing of the past and “belongs to five years ago.”

Iran also said Saturday that it had proposed a new round of talks on its nuclear program with the U.S. and other world powers. The invitation would come after the U.N. has imposed four rounds of sanctions. Separately, the U.S. and the European Union have imposed their own tough economic and financial penalties.

The $662 billion bill authorizes money for military personnel, weapons systems, the wars in Afghanistan and Iraq and national security programs in the Energy Department for the fiscal year beginning Oct. 1.

The measure also freezes some $700 million in assistance until Pakistan comes up with a strategy to deal with improvised explosive devices.

Obama signed the bill in Hawaii, where he is vacationing with his family.



The White House

Office of the Press Secretary

For Immediate Release December 31, 2011

Statement by the President on H.R. 1540

Today I have signed into law H.R. 1540, the “National Defense Authorization Act for Fiscal Year 2012.” I have signed the Act chiefly because it authorizes funding for the defense of the United States and its interests abroad, crucial services for service members and their families, and vital national security programs that must be renewed. In hundreds of separate sections totaling over 500 pages, the Act also contains critical Administration initiatives to control the spiraling health care costs of the Department of Defense (DoD), to develop counterterrorism initiatives abroad, to build the security capacity of key partners, to modernize the force, and to boost the efficiency and effectiveness of military operations worldwide.

The fact that I support this bill as a whole does not mean I agree with everything in it. In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists. Over the last several years, my Administration has developed an effective, sustainable framework for the detention, interrogation and trial of suspected terrorists that allows us to maximize both our ability to collect intelligence and to incapacitate dangerous individuals in rapidly developing situations, and the results we have achieved are undeniable. Our success against al-Qa’ida and its affiliates and adherents has derived in significant measure from providing our counterterrorism professionals with the clarity and flexibility they need to adapt to changing circumstances and to utilize whichever authorities best protect the American people, and our accomplishments have respected the values that make our country an example for the world.

Against that record of success, some in Congress continue to insist upon restricting the options available to our counterterrorism professionals and interfering with the very operations that have kept us safe. My Administration has consistently opposed such measures. Ultimately, I decided to sign this bill not only because of the critically important services it provides for our forces and their families and the national security programs it authorizes, but also because the Congress revised provisions that otherwise would have jeopardized the safety, security, and liberty of the American people. Moving forward, my Administration will interpret and implement the provisions described below in a manner that best preserves the flexibility on which our safety depends and upholds the values on which this country was founded.

Section 1021 affirms the executive branch’s authority to detain persons covered by the 2001 Authorization for Use of Military Force (AUMF) (Public Law 107-40; 50 U.S.C. 1541 note). This section breaks no new ground and is unnecessary. The authority it describes was included in the 2001 AUMF, as recognized by the Supreme Court and confirmed through lower court decisions since then. Two critical limitations in section 1021 confirm that it solely codifies established authorities. First, under section 1021(d), the bill does not “limit or expand the authority of the President or the scope of the Authorization for Use of Military Force.” Second, under section 1021(e), the bill may not be construed to affect any “existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States.” My Administration strongly supported the inclusion of these limitations in order to make clear beyond doubt that the legislation does nothing more than confirm authorities that the Federal courts have recognized as lawful under the 2001 AUMF. Moreover, I want to clarify that my Administration will not authorize the indefinite military detention without trial of American citizens. Indeed, I believe that doing so would break with our most important traditions and values as a Nation. My Administration will interpret section 1021 in a manner that ensures that any detention it authorizes complies with the Constitution, the laws of war, and all other applicable law.

Section 1022 seeks to require military custody for a narrow category of non-citizen detainees who are “captured in the course of hostilities authorized by the Authorization for Use of Military Force.” This section is ill-conceived and will do nothing to improve the security of the United States. The executive branch already has the authority to detain in military custody those members of al-Qa’ida who are captured in the course of hostilities authorized by the AUMF, and as Commander in Chief I have directed the military to do so where appropriate. I reject any approach that would mandate military custody where law enforcement provides the best method of incapacitating a terrorist threat. While section 1022 is unnecessary and has the potential to create uncertainty, I have signed the bill because I believe that this section can be interpreted and applied in a manner that avoids undue harm to our current operations.

I have concluded that section 1022 provides the minimally acceptable amount of flexibility to protect national security. Specifically, I have signed this bill on the understanding that section 1022 provides the executive branch with broad authority to determine how best to implement it, and with the full and unencumbered ability to waive any military custody requirement, including the option of waiving appropriate categories of cases when doing so is in the national security interests of the United States. As my Administration has made clear, the only responsible way to combat the threat al-Qa’ida poses is to remain relentlessly practical, guided by the factual and legal complexities of each case and the relative strengths and weaknesses of each system. Otherwise, investigations could be compromised, our authorities to hold dangerous individuals could be jeopardized, and intelligence could be lost. I will not tolerate that result, and under no circumstances will my Administration accept or adhere to a rigid across-the-board requirement for military detention. I will therefore interpret and implement section 1022 in the manner that best preserves the same flexible approach that has served us so well for the past 3 years and that protects the ability of law enforcement professionals to obtain the evidence and cooperation they need to protect the Nation.

My Administration will design the implementation procedures authorized by section 1022(c) to provide the maximum measure of flexibility and clarity to our counterterrorism professionals permissible under law. And I will exercise all of my constitutional authorities as Chief Executive and Commander in Chief if those procedures fall short, including but not limited to seeking the revision or repeal of provisions should they prove to be unworkable.

Sections 1023-1025 needlessly interfere with the executive branch’s processes for reviewing the status of detainees. Going forward, consistent with congressional intent as detailed in the Conference Report, my Administration will interpret section 1024 as granting the Secretary of Defense broad discretion to determine what detainee status determinations in Afghanistan are subject to the requirements of this section.

Sections 1026-1028 continue unwise funding restrictions that curtail options available to the executive branch. Section 1027 renews the bar against using appropriated funds for fiscal year 2012 to transfer Guantanamo detainees into the United States for any purpose. I continue to oppose this provision, which intrudes upon critical executive branch authority to determine when and where to prosecute Guantanamo detainees, based on the facts and the circumstances of each case and our national security interests. For decades, Republican and Democratic administrations have successfully prosecuted hundreds of terrorists in Federal court. Those prosecutions are a legitimate, effective, and powerful tool in our efforts to protect the Nation. Removing that tool from the executive branch does not serve our national security. Moreover, this intrusion would, under certain circumstances, violate constitutional separation of powers principles.

Section 1028 modifies but fundamentally maintains unwarranted restrictions on the executive branch’s authority to transfer detainees to a foreign country. This hinders the executive’s ability to carry out its military, national security, and foreign relations activities and like section 1027, would, under certain circumstances, violate constitutional separation of powers principles. The executive branch must have the flexibility to act swiftly in conducting negotiations with foreign countries regarding the circumstances of detainee transfers. In the event that the statutory restrictions in sections 1027 and 1028 operate in a manner that violates constitutional separation of powers principles, my Administration will interpret them to avoid the constitutional conflict.

Section 1029 requires that the Attorney General consult with the Director of National Intelligence and Secretary of Defense prior to filing criminal charges against or seeking an indictment of certain individuals. I sign this based on the understanding that apart from detainees held by the military outside of the United States under the 2001 Authorization for Use of Military Force, the provision applies only to those individuals who have been determined to be covered persons under section 1022 before the Justice Department files charges or seeks an indictment. Notwithstanding that limitation, this provision represents an intrusion into the functions and prerogatives of the Department of Justice and offends the longstanding legal tradition that decisions regarding criminal prosecutions should be vested with the Attorney General free from outside interference. Moreover, section 1029 could impede flexibility and hinder exigent operational judgments in a manner that damages our security. My Administration will interpret and implement section 1029 in a manner that preserves the operational flexibility of our counterterrorism and law enforcement professionals, limits delays in the investigative process, ensures that critical executive branch functions are not inhibited, and preserves the integrity and independence of the Department of Justice.

Other provisions in this bill above could interfere with my constitutional foreign affairs powers. Section 1244 requires the President to submit a report to the Congress 60 days prior to sharing any U.S. classified ballistic missile defense information with Russia. Section 1244 further specifies that this report include a detailed description of the classified information to be provided. While my Administration intends to keep the Congress fully informed of the status of U.S. efforts to cooperate with the Russian Federation on ballistic missile defense, my Administration will also interpret and implement section 1244 in a manner that does not interfere with the President’s constitutional authority to conduct foreign affairs and avoids the undue disclosure of sensitive diplomatic communications. Other sections pose similar problems. Sections 1231, 1240, 1241, and 1242 could be read to require the disclosure of sensitive diplomatic communications and national security secrets; and sections 1235, 1242, and 1245 would interfere with my constitutional authority to conduct foreign relations by directing the Executive to take certain positions in negotiations or discussions with foreign governments. Like section 1244, should any application of these provisions conflict with my constitutional authorities, I will treat the provisions as non-binding.

My Administration has worked tirelessly to reform or remove the provisions described above in order to facilitate the enactment of this vital legislation, but certain provisions remain concerning. My Administration will aggressively seek to mitigate those concerns through the design of implementation procedures and other authorities available to me as Chief Executive and Commander in Chief, will oppose any attempt to extend or expand them in the future, and will seek the repeal of any provisions that undermine the policies and values that have guided my Administration throughout my time in office.

December 31, 2011.



Administration itself demanded power to detain American citizens without trial

Paul Joseph Watson & Alex Jones


Barack Obama’s signing statement that was added to the passage of the NDAA bill in an effort to dampen concerns over the ‘indefinite detention’ provision of the bill is smoke and mirrors for a number of reasons – prime amongst them the fact that it was the White House itself – not lawmakers – who demanded Section 1031 be expanded to empower the government to detain U.S. citizens without trial.

On first reading, Obama’s signing statement appears to assuage fears that American citizens could be targeted for arrest and detention without trial.

“My administration will not authorize the indefinite military detention without trial of American citizens … Indeed, I believe that doing so would break with our most important traditions and values as a nation,” wrote Obama.

However, the statement is meaningless for a number of reasons.

Firstly, even if Obama manages to fulfil one of the rare occasions on which he keeps his word, this does nothing to stop future administrations from exercising the power to indefinitely detain American citizens without trial.

Secondly, the Obama administration is already carrying out even more egregious measures than those supposedly authorized within the NDAA, by targeting American citizens worldwide for state-sponsored assassination with no legal process whatsoever.

Thirdly, Obama has reversed almost every single promise he made to get elected – his word is no good. Given the right civil emergency, Obama could turn to indefinite detention of citizens without hesitation.

Crucially, Obama’s promise that he will not use the law to detain Americans without trial is completely hollow – because it was his administration that demanded the power to do so in the first place.

As the bill’s co-sponsor Senator Carl Levin said during a speech on the floor last month, it was the Obama administration that demanded the removal of language that would have precluded Americans from being subject to indefinite detention.

“The language which precluded the application of Section 1031 to American citizens was in the bill that we originally approved…and the administration asked us to remove the language which says that U.S. citizens and lawful residents would not be subject to this section,” said Levin, Chairman of the Armed Services Committee.

“It was the administration that asked us to remove the very language which we had in the bill which passed the committee…we removed it at the request of the administration,” said Levin, emphasizing, “It was the administration which asked us to remove the very language the absence of which is now objected to.”



If the Obama administration is so opposed to the idea of detaining Americans without trial, why did they push for such powers to be included in the final version of the National Defense Authorization Act?

It’s also necessary to highlight the fact that just because this bill has been passed into law, that shouldn’t bestow any kind of legitimacy to it given that indefinite detention is anathema to the bill of rights and the constitution. It was once a law that black people were not human – that doesn’t mean it’s right or should be given credence.

The passage of the indefinite detention provision is about sticking the final nail in the coffin of Posse Comitatus and openly declaring war on the American people. Is it any wonder that at the same time U.S. citizens are being targeted by the federal government, they are buying guns in record numbers?

By brazenly codifying the powers of a totalitarian state into law, lawmakers and the Obama administration have crossed the rubicon and laid down the framework for the nationwide implementation of martial law.

But that doesn’t mean it’s going to happen tomorrow, this year or even next. The next play will not be the mass round up of American citizens, the law first has to be legitimized by being used against a universally loathed figure, just as Obama’s assassination policy was first exercised to take out Al-Qaeda members like Abdulrahman al-Awlaki.



J. D. Heyes
Natural News


(NaturalNews) It’s called “Washingtonspeak,” and it’s different than the rest of the English language. President Obama used some of it last week when he agreed to sign the National Defense Authorization Act that allows, among other things, the military to detain American citizens indefinitely, to conduct secret kidnappings of suspected terror suspects (even if they are Americans living on American soil), and murder of same if said suspect is deemed a threat to national security. All without a trial. All without any deference to any other constitutional protection.

Very mindful of what the NDAA truly authorizes, Obama, in signing the legislation, said this: “The fact that I support this bill as a whole does not mean I agree with everything in it. In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists. Over the last several years, my Administration has developed an effective, sustainable framework for the detention, interrogation and trial of suspected terrorists that allows us to maximize both our ability to collect intelligence and to incapacitate dangerous individuals in rapidly developing situations, and the results we have achieved are undeniable. Against that record of success, some in Congress continue to insist upon restricting the options available to our counterterrorism professionals and interfering with the very operations that have kept us safe.”

“My Administration has consistently opposed such measures. Ultimately, I decided to sign this bill not only because of the critically important services it provides for our forces and their families and the national security programs it authorizes, but also because the Congress revised provisions that otherwise would have jeopardized the safety, security, and liberty of the American people. Moving forward, my Administration will interpret and implement the provisions described in a manner that best preserves the flexibility on which our safety depends and upholds the values on which this country was founded.”

The president went onto say that the provisions in question – specifically Sect. 1021, which he said merely “affirms the executive branch’s authority to detain persons covered by the 2001 Authorization for Use of Military Force.” He describes the provision as “unnecessary.”

President Obama stated: “Two critical limitations in section 1021 confirm that it solely codifies established authorities. First, under section 1021(d), the bill does not limit or expand the authority of the President or the scope of the Authorization for Use of Military Force. Second, under section 1021(e), the bill may not be construed to affect any existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States.”

In other words, the president is using Washingtonspeak to say he already had the authority to do what the NDAA law merely “codifies.” So the danger that many Americans, lawmakers and advocacy groups are concerned about is why this president claimed the authority to kill an American citizen in Yemen earlier this year who had not actually carried out any terrorist attacks against the U.S., but was only suspected of wrongdoing.

Is that how it works in America today? No more checks and balances? Or, are there checks and balances so long as the president interprets and implements in a manner that best preserves the flexibility on which our safety depends?

“If President Obama were committed to Constitution and international legal norms, he would veto this bill. Instead, he seems more concerned about consolidating the power of the Executive Branch at the cost of our legal and human rights,” says the National Lawyers Guild. We agree. This is a terrible law, no matter how Obama and Co. try to spin it.




Exclusive: Though the 9/11 attacks occurred more than a decade ago, Congress continues to exploit them to pass evermore draconian laws on “terrorism,” with the Senate now empowering the military to arrest people on U.S. soil and hold them without trial, a serious threat to American liberties, says ex-CIA analyst Ray McGovern.

By Ray McGovern

Ambiguous but alarming new wording, which is tucked into the National Defense Authorization Act (NDAA) and was just passed by the Senate, is reminiscent of the “extraordinary measures” introduced by the Nazis after they took power in 1933.

And the relative lack of reaction so far calls to mind the oddly calm indifference with which most Germans watched the erosion of the rights that had been guaranteed by their own Constitution. As one German writer observed, “With sheepish submissiveness we watched it unfold, as if from a box at the theater.”

The writer was Sebastian Haffner (real name Raimond Pretzel), a young German lawyer worried at what he saw in 1933 in Berlin, but helpless to stop it since, as he put it, the German people “collectively and limply collapsed, yielded and capitulated.”

“The result of this millionfold nervous breakdown,” wrote Haffner at the time, “is the unified nation, ready for anything, that is today the nightmare of the rest of the world.” Not a happy analogy.

The Senate bill, in effect, revokes an 1878 law known as the Posse Comitatus Act, which banned the Army from domestic law enforcement after the military had been used —and often abused — in that role during Reconstruction. Ever since then, that law has been taken very seriously — until now. Military officers have had their careers brought to an abrupt halt by involving federal military assets in purely civilian criminal matters.

But that was before 9/11 and the mantra, “9/11 changed everything.” In this case of the Senate-passed NDAA — more than a decade after the terror attacks and even as U.S. intelligence agencies say al-Qaeda is on the brink of defeat — Congress continues to carve away constitutional and legal protections in the name of fighting “terrorism.”

Detainees at Guantanamo Bay in 2002

The Senate approved the expanded military authority despite opposition from Defense Secretary Leon Panetta, Director of National Intelligence James Clapper and FBI Director Robert Mueller — and a veto threat from President Barack Obama.

The Senate voted to authorize — and generally to require — “the Armed Forces of the United States to detain covered persons” indefinitely. And such “covered persons” are defined not just as someone implicated in the 9/11 attacks but anyone who “substantially supported al-Qaeda, the Taliban, or associated forces that are engaged in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act or has directly supported such hostilities in aid of such enemy forces.”

Though the wording is itself torturous — and there is a provision for a waiver from the Defense Secretary regarding mandatory military detentions — the elasticity of words like “associated forces” and “supported” have left some civil libertarians worried that the U.S. military could be deployed domestically against people opposing future American wars against alleged “terrorists” or “terrorist states.”

The Senate clearly wished for the military’s “law and order” powers to extend beyond the territory of military bases on the theory that there may be “terrorsymps” (short for “terrorist sympathizers”) lurking everywhere.

Is the all-consuming ten-year-old struggle against terrorism rushing headlong to consume what’s left of our constitutional rights? Do I need to worry that the Army in which I was proud to serve during the 1960s may now kick down my front door and lead me off to indefinite detention — or worse?

My neighbors have noticed, after all, that I now wear a longish beard and, sometimes, even a hat like Muslim cleric Anwar al-Awlaki. And everyone knows what a terrorsymp he was. “If you see something, say something!”

Worse still, a few of my neighbors overheard me telling my grandchildren that President Obama should be ashamed to be bragging about having Awlaki, an American citizen, and later his 16 year-old son murdered without a whiff of due process. “If you hear something, say something!”




Ron Paul

Little by little, in the name of fighting terrorism, our Bill of Rights is being repealed. The 4th amendment has been rendered toothless by the PATRIOT Act. No more can we truly feel secure in our persons, houses, papers, and effects when now there is an exception that fits nearly any excuse for our government to search and seize our property. Of course, the vast majority of Americans may say “I’m not a terrorist, so I have no reason to worry.” However, innocent people are wrongly accused all the time. The Bill of Rights is there precisely because the founders wanted to set a very high bar for the government to overcome in order to deprive an individual of life or liberty. To lower that bar is to endanger everyone. When the bar is low enough to include political enemies, our descent into totalitarianism is virtually assured.

The PATRIOT Act, as bad is its violation of the 4th Amendment, was just one step down the slippery slope. The recently passed National Defense Authorization Act (NDAA) continues that slip toward tyranny and in fact accelerates it significantly. The main section of concern, Section 1021 of the NDAA Conference Report, does to the 5th Amendment what the PATRIOT Act does to the 4th. The 5th Amendment is about much more than the right to remain silent in the face of government questioning. It contains very basic and very critical stipulations about due process of law. The government cannot imprison a person for no reason and with no evidence presented or access to legal counsel.

The dangers in the NDAA are its alarmingly vague, undefined criteria for who can be indefinitely detained by the US government without trial. It is now no longer limited to members of al Qaeda or the Taliban, but anyone accused of “substantially supporting” such groups or “associated forces.” How closely associated? And what constitutes “substantial” support? What if it was discovered that someone who committed a terrorist act was once involved with a charity? Or supported a political candidate? Are all donors of that charity or supporters of that candidate now suspect, and subject to indefinite detainment? Is that charity now an associated force?

Additionally, this legislation codifies in law for the first time authority to detain Americans that has to this point only been claimed by President Obama. According to subsection (e) of section 1021, “[n]othing in this section shall be construed to affect existing law or authorities relating to the detention of United States citizens, lawful resident aliens of the United States, or any other persons who are captured or arrested in the United States.” This means the president’s widely expanded view of his own authority to detain Americans indefinitely even on American soil is for the first time in this legislation codified in law. That should chill all of us to our cores.

The Bill of Rights has no exemptions for “really bad people” or terrorists or even non-citizens. It is a key check on government power against any person. That is not a weakness in our legal system; it is the very strength of our legal system. The NDAA attempts to justify abridging the bill of rights on the theory that rights are suspended in a time of war, and the entire Unites States is a battlefield in the War on Terror. This is a very dangerous development indeed. Beware.

Originally appeared at



By Jonathan Easley |

GOP presidential candidate Ron Paul warned that the National Defense Authorization Act, which was passed by Congress this month, will accelerate the country’s “slip into tyranny” and virtually assures “our descent into totalitarianism.”

“The founders wanted to set a high bar for the government to overcome in order to deprive an individual of life or liberty,” Paul, the libertarian congressman from Texas, said Monday in a weekly phone message to supporters. “To lower that bar is to endanger everyone. When the bar is low enough to include political enemies, our descent into totalitarianism is virtually assured. The Patriot Act, as bad as its violations against the Fourth Amendment was, was just one step down the slippery slope. The recently passed National Defense Authorization Act continues that slip into tyranny, and in fact, accelerates it significantly.”

The NDAA is the nearly $670 billion defense spending bill that covers the military budget and funding for the wars in Iraq and Afghanistan.

One controversial provision mandates the detention of terror suspects and reaffirms the administration’s authority to detain those suspected of having ties to terrorist organizations.

“The Fifth Amendment is about much more than the right to remain silent in the face of government questioning,” Paul continued. “It contains very basic and very critical stipulations about the due process of law. The government cannot imprison a person for no reason and with no evidence presented and without access to legal council. The danger of the NDAA is its alarmingly vague, undefined criteria for who can be indefinitely detained by the U.S. government without trial.”

“It is no longer limited to members of Al Qaeda or the Taliban, but anyone accused of substantially supporting such groups or associated forces,” Paul continued. “How closely associated, and what constitutes substantial support? What if it was discovered that someone who committed a terrorist act was once involved with a charity? Or suppose a political candidate? Are all donors of that candidate or supporters of that candidate now suspects and subject to indefinite detainment? Is that charity now an associated force?”

The White House initially threatened to veto NDAA because of the detainee language, saying it would tie the hands of law enforcement officials. But the administration dropped the veto threat before the bill passed the House, as the bill’s supporters argued that there were sufficient waivers.

“The president’s widely expanded view of his own authority to detain Americans indefinitely even on American soil is for the first time in this legislation codified in law,” Paul said. “That should chill all of us to our cores.”

“The Bill of Rights has no exceptions for really bad people or terrorists or even non-citizens. It is a key check on government power against any person. That is not a weakness in our legal system, it is the very strength of our legal system. The NDAA attempts to justify abridging the Bill of Rights on the theory that rights are suspended in a time of war, and the entire United States is a battlefield in the war on terror. This is a very dangerous development, indeed. Beware.”


by Michel Chossudovsky | Global Research

With minimal media debate, at a time when Americans were celebrating the New Year with their loved ones, the “National Defense Authorization Act ” H.R. 1540 was signed into law by President Barack Obama. The actual signing took place in Hawaii on the 31st of December.

According to Obama’s “signing statement”, the threat of Al Qaeda to the Security of the Homeland constitutes a justification for repealing fundamental rights and freedoms, with a stroke of the pen. The relevant provisions pertaining to civil rights were carefully esconded in a short section of a 500+ page document.

The controversial signing statement is a smokescreen. Obama says he disagrees with the NDAA but he signs it into law.

“[I have] serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists.”

Obama implements “Police State USA”, while acknowledging that certain provisions of the NDAA (contained in Subtitle D–Counterterrorism) are unacceptable. If such is the case, he could have either vetoed the NDAA (H.R. 1540) or sent it back to Congress with his objections.

The fact of the matter is that both the Executive and the US Congress are complicit in the drafting of Subtitle D. In this regard, Senator Carl Levin (D-Mich.) revealed that it was the White House which had asked the Senate Armed Services Committee “to remove language from the bill that would have prohibited U.S. citizens’ military detention without due process”

Obama justifies the signing of the NDAA as a means to combating terrorism, as part of a “counter-terrorism” agenda. But in substance, any American opposed to the policies of the US government can –under the provisions of the NDAA– be labelled a “suspected terrorist” and arrested under military detention. Already in 2004, Homeland Security defined several categories of potential “conspirators” or “suspected terrorists” including “foreign [Islamic] terrorists”, “domestic radical groups”, [antiwar and civil rights groups], “disgruntled employees” [labor and union activists] and “state sponsored adversaries” ["rogue states", "unstable nations"]. The unspoken objective in an era of war and social crisis is to repress all forms of domestic protest and dissent.

The “National Defense Authorization Act ” (H.R. 1540) is Obama’s New Year’s “Gift” to the American People:

“Moreover, I want to clarify that my Administration will not authorize the indefinite military detention without trial of American citizens. Indeed, I believe that doing so would break with our most important traditions and values as a Nation. My Administration will interpret section 1021 in a manner that ensures that any detention it authorizes complies with the Constitution, the laws of war, and all other applicable law.” (emphasis added)

Barack Obama is a lawyer (a graduate from Harvard Law School). He knows fair well that his signing statement –which parrots his commitment to democracy– is purely cosmetic. It has no force of law.

His administration “will not authorize” what? The implementation of a Law endorsed by the Executive and signed by the President of the United States?

Section 1021 is crystal clear. The Executive cannot refuse to implement it. The signing statement does not in any way invalidate or modify the actual signing by President Obama of NDAA (H.R. 1540) into law. It does not have any bearing on the implementation/ enforcement of the Law.

“Democratic Dictatorship” in America

The “National Defense Authorization Act ” (H.R. 1540) repeals the US Constitution. While the facade of democracy prevails, supported by media propaganda, the American republic is fractured. The tendency is towards the establishment of a totalitarian State, a military government dressed in civilian clothes.

The passage of NDAA is intimately related to Washington’s global military agenda. The military pursuit of Worldwide hegemony also requires the “Militarization of the Homeland”, namely the demise of the American Republic.

In substance, the signing statement is intended to mislead Americans and provide a “democratic face” to the President as well as to the unfolding post-911 Military Police State apparatus.

The “most important traditions and values” in derogation of The Bill of Rights and the US Constitution have indeed been repealed, effective on New Year’s Day, January 1st 2012.

The NDAA authorises the arbitrary and indefinite military detention of American citizens.

The Lessons of History

This New Year’s Eve December 31, 2011 signing of the NDAA will indelibly go down as a landmark in American history. Barack Obama will down in history as “the president who killed Constitutional democracy” in the United States. .

If we are to put this in a comparative historical context, the relevant provisions of the NDAA HR 1540 are, in many regards, comparable to those contained in the “Decree of the Reich President for the Protection of People and State”, commonly known as the “Reichstag Fire Decree” (Reichstagsbrandverordnung) enacted in Germany under the Weimar Republic on 27 February 1933 by President (Field Marshal) Paul von Hindenburg.

Implemented in the immediate wake of the Reichstag Fire (which served as a pretext), this February 1933 decree was used to repeal civil liberties including the right of Habeas Corpus.

Article 1 of the February 1933 “Decree of the Reich President for the Protection of People and State” suspended civil liberties under the pretext of “protecting” democracy: “Thus, restrictions on personal liberty, on the right of free expression of opinion, including freedom of the press, on the right of association and assembly, and violations of the privacy of postal, telegraphic, and telephonic communications, and warrants for house-searches, orders for confiscations, as well as restrictions on property rights are permissible beyond the legal limits otherwise prescribed.” (Art. 1, emphasis added)

Constitutional democracy was nullified in Germany through the signing of a presidential decree.

The Reichstag Fire decree was followed in March 1933 by “The Enabling Act” ( Ermächtigungsgesetz) which allowed (or enabled) the Nazi government of Chancellor Adolf Hitler to invoke de facto dictatorial powers. These two decrees enabled the Nazi regime to introduce legislation which was in overt contradiction with the 1919 Weimar Constitution.

The following year, upon the death of president Hindenburg in 1934, Hitler “declared the office of President vacant” and took over as Fuerer, the combined function’s of Chancellor and Head of State.

Obama’s New Year’s Gift to the American People

To say that January 1st 2012 is “A Sad Day for America” is a gross understatement.

The signing of NDAA (HR 1540) into law is tantamount to the militarization of law enforcement, the repeal of the Posse Comitatus Act and the Inauguration in 2012 of Police State USA.

As in Weimar Germany, fundamental rights and freedoms are repealed under the pretext that democracy is threatened and must be protected.

The NDAA is “Obama’s New Year’s Gift” to the American People.



by Joe Gullo | Global Research

President Barack Obama signed the controversial National Defense Authorization Act (NDAA) into law earlier today in Hawaii.

CNN reports Barack Obama “reluctantly signed a defense authorization bill, saying he was concerned about some in Congress who want to restrict options used by counterterrorism officials.”

Even before the bill was signed by Obama, there were mixed feelings on NDAA.

The bill only has a 2 percent approval rating on a poll conducted by Only 8 people support the bill out of 395 voters.

Another poll, of 397 people, conducted by PopVox gives the bill a 9 percent approval rating and a 91 percent disapproval rating.

One of the more controversial aspects of the bill involves the ability for the President to detain United States’ citizens.

According to The International Business Times, “The bill affirms and codifies the U.S. President’s authority to indefinitely detain in military custody anyone, including U.S. citizens, suspected of terrorism or supporting terrorists.”

In a statement released after the signing of the bill, Obama says, “I want to clarify that my Administration will not authorize the indefinite military detention without trial of American citizens. Indeed, I believe that doing so would break with our most important traditions and values as a Nation.”

Obama says even though he signed the bill he does not agree with everything that’s included in the bill.

“I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists,” Obama said.

[GR editor's Note: Obama's statement released after the signing is a smokescreen. it has no force of law. The White must abide by this law as confirmed by the CBS report]

CBS news reports, “If Mr. Obama violates any of the provisions in the bill, Congress could challenge the White House in court, which would have the final say in any dispute.”

The $662 billion bill includes tough sanctions against Iran over its nuclear program.

Sponsored by Republican Representative from California, Howard McKeon, the Senate passed the National Defense Authorization Act on November 30th, House on December May 26th. Changes were made to the original House bill in the Senate. The House passed the changes on December 14th. The Senate approved their changes on December 15th. The bill was introduced on April 13th.



by Jonathan Turley | Global Research

President Barack Obama rang in the New Year by signing the NDAA law with its provision allowing him to indefinitely detain citizens. It was a symbolic moment to say the least. With Americans distracted with drinking and celebrating, Obama signed one of the greatest rollbacks of civil liberties in the history of our country . . . and citizens partied only blissfully into the New Year.

Ironically, in addition to breaking his promise not to sign the law, Obama broke his promise on signing statements and attached a statement that he really does not want to detain citizens indefinitely.
Obama insisted that he signed the bill simply to keep funding for the troops. It was a continuation of the dishonest treatment of the issue by the White House since the law first came to light. As discussed earlier, the White House told citizens that the President would not sign the NDAA because of the provision. That spin ended after sponsor Sen. Carl Levin (D., Mich.) went to the floor and disclosed that it was the White House and insisted that there be no exception for citizens in the indefinite detention provision.

The latest claim is even more insulting. You do not “support our troops” by denying the principles for which they are fighting. They are not fighting to consolidate authoritarian powers in the President. The “American way of life” is defined by our Constitution and specifically the Bill of Rights. Moreover, the insistence that you do not intend to use authoritarian powers does not alter the fact that you just signed an authoritarian measure. It is not the use but the right to use such powers that defines authoritarian systems.

The almost complete failure of the mainstream media to cover this issue is shocking. Many reporters have bought into the spin of the Obama Administration as they did the spin over torture by the Bush Administration. Even today reporters refuse to call waterboarding torture despite the long line of cases and experts defining waterboarding as torture for decades. On the NDAA, reporters continue to mouth the claim that this law only codifies what is already the law. That is not true. The Administration has fought any challenges to indefinite detention to prevent a true court review. Moreover, most experts agree that such indefinite detention of citizens violates the Constitution.

There are also those who continue the long-standing effort to excuse Obama’s horrific record on civil liberties by either blaming others or the times. One successful myth is that there is an exception for citizens. The White House is saying that changes to the law made it unnecessary to veto the legislation. That spin is facially ridiculous. The changes were the inclusion of some meaningless rhetoric after key amendments protecting citizens were defeated. The provision merely states that nothing in the provisions could be construed to alter Americans’ legal rights. Since the Senate clearly views citizens are not just subject to indefinite detention but even execution without a trial, the change offers nothing but rhetoric to hide the harsh reality. THe Administration and Democratic members are in full spin — using language designed to obscure the authority given to the military. The exemption for American citizens from the mandatory detention requirement (section 1032) is the screening language for the next section, 1031, which offers no exemption for American citizens from the authorization to use the military to indefinitely detain people without charge or trial.

Obama could have refused to sign the bill and the Congress would have rushed to fund the troops. Instead, as confirmed by Sen. Levin, the White House conducted a misinformation campaign to secure this power while portraying Obama as some type of reluctant absolute ruler, or as Obama maintains a reluctant president with dictatorial powers.

Most Democratic members joined their Republican colleagues in voting for this unAmerican measure. Some Montana citizens are moving to force the removal of these members who they insist betrayed their oaths of office and their constituents. Most citizens however are continuing to treat the matter as a distraction from the holiday cheer.

For civil libertarians, the NDAA is our Mayan moment. 2012 is when the nation embraced authoritarian powers with little more than a pause between rounds of drinks.

So here is a resolution better than losing weight this year…make 2012 the year you regained your rights.



by Naomi Wolf | Global Research

I never thought I would have to write this: but—incredibly—Congress has now passed the National Defense Appropriations Act, with Section 1021, which allows for the military detention of American citizens. The section is so loosely worded that any American citizen could be held without due process. The language of this bill can be read to assure Americans that they can challenge their detention — but most people do not realize what this means: at Guantanamo and in other military prisons, one’s lawyer’s calls are monitored, witnesses for one’s defense are not allowed to testify, and one can be forced into nudity and isolation. Incredibly, ninety-three Senators voted to support this bill and now most of Congress: a roster of names that will live in infamy in the history of our nation, and never be expunged from the dark column of the history books.

They may have supported this bill because—although it’s hard to believe—they think the military will only arrest active members of Al Qaida; or maybe, less naively, they believe that ‘at most’, low-level dissenting figures, activists, or troublesome protesters might be subjected to military arrest. But they are forgetting something critical: history shows that those who signed this bill will soon be subject to arrest themselves.

Our leaders appear to be supporting this bill thinking that they will always be what they are now, in the fading light of a once-great democracy — those civilian leaders who safely and securely sit in freedom and DIRECT the military. In inhabiting this bubble, which their own actions are about to destroy, they are cocooned by an arrogance of power, placing their own security in jeopardy by their own hands, and ignoring history and its inevitable laws. The moment this bill becomes law, though Congress is accustomed, in a weak democracy, to being the ones who direct and control the military, the power roles will reverse: Congress will no longer be directing and in charge of the military: rather, the military will be directing and in charge of individual Congressional leaders, as well as in charge of everyone else — as any Parliamentarian in any society who handed this power over to the military can attest.

Perhaps Congress assumes that it will always only be ‘they’ who are targeted for arrest and military detention: but sadly, Parliamentary leaders are the first to face pressure, threats, arrest and even violence when the military obtains to power to make civilian arrests and hold civilians in military facilities without due process. There is no exception to this rule. Just as I traveled the country four years ago warning against the introduction of torture and secret prisons – and confidently offering a hundred thousand dollar reward to anyone who could name a nation that allowed torture of the ‘other’ that did not eventually turn this abuse on its own citizens — (confident because I knew there was no such place) — so today I warn that one cannot name a nation that gave the military the power to make civilian arrests and hold citizens in military detention, that did not almost at once turn that power almost against members of that nation’s own political ruling class. This makes sense — the obverse sense of a democracy, in which power protects you; political power endangers you in a militarized police state: the more powerful a political leader is, the more can be gained in a militarized police state by pressuring, threatening or even arresting him or her.

Mussolini, who created the modern template for fascism, was a duly elected official when he started to direct paramilitary forces against Italian citizens: yes, he sent the Blackshirts to beat up journalists, editors, and union leaders; but where did these militarized groups appear most dramatically and terrifyingly, snapping at last the fragile hold of Italian democracy? In the halls of the Italian Parliament. Whom did they physically attack and intimidate? Mussolini’s former colleagues in Parliament — as they sat, just as our Congress is doing, peacefully deliberating and debating the laws. Whom did Hitler’s Brownshirts arrest in the first wave of mass arrests in 1933? Yes, journalists, union leaders and editors; but they also targeted local and regional political leaders and dragged them off to secret prisons and to torture that the rest of society had turned a blind eye to when it had been directed at the ‘other.’ Who was most at risk from assassination or arrest and torture, after show trials, in Stalin’s Russia? Yes, journalists, editors and dissidents: but also physically endangered, and often arrested by militarized police and tortured or worse, were senior members of the Politburo who had fallen out of favor.

Is this intimidation and arrest by the military a vestige of the past? Hardly. We forget in America that all over the world there are militarized societies in which shells of democracy are propped up — in which Parliament meets regularly and elections are held, but the generals are really in charge, just as the Egyptian military is proposing with upcoming elections and the Constitution itself. That is exactly what will take place if Congress gives the power of arrest and detention to the military: and in those societies if a given political leader does not please the generals, he or she is in physical danger or subjected to military arrest. Whom did John Perkins, author of Confessions of an Economic Hit Man, say he was directed to intimidate and threaten when he worked as a ‘jackal’, putting pressure on the leadership in authoritarian countries? Latin American parliamentarians who were in the position to decide the laws that affected the well-being of his corporate clients. Who is under house arrest by the military in Myanmar? The political leader of the opposition to the military junta. Malalai Joya is an Afghani parliamentarian who has run afoul of the military and has to sleep in a different venue every night — for her own safety. An on, and on, in police states — that is, countries with military detention of civilians — that America is about to join.

US Congresspeople and Senators may think that their power protects them from the treacherous wording of Amendments 1031 and 1032: but their arrogance is leading them to a blindness that is suicidal. The moment they sign this NDAA into law, history shows that they themselves and their staff are the most physically endangered by it. They will immediately become, not the masters of the great might of the United States military, but its subjects and even, if history is any guide — and every single outcome of ramping up police state powers, unfortunately, that I have warned for years that history points to, has come to pass — sadly but inevitably, its very first targets.



David Seaman, Credit Card Outlaw

This is day three of living in post-NDAA America.

In case you’ve been living under a particularly large and comfy rock, the NDAA is a radical and dangerous bill — which Barack Hussein Obama quietly signed into law on New Year’s Eve, while almost every American was preoccupied with New Year’s binge drinking. (His administration had previously vowed to veto the NDAA, before strangely reversing course and signing it into law. He issued a signing statement saying his administration would not use the controversial indefinite detention provisions. This promise, however, is not legally binding — and it also does not prevent future Presidents from detaining and torturing American citizens without right to a trial or attorney, and without bringing formal charges against them. The signing statement is the legal equivalent of a Post-it note affixed to a manuscript.)

How bad is this law, really? Here are some experts:

Presidential candidate Ron Paul on NDAA: “…bold and dangerous attempt to establish martial law in America.”

Rep. Justin Amash: NDAA was “carefully crafted to mislead the public.”

Amnesty International: “Provisions that were snuck into the bill with little notice from mainsteam media could spell indefinite detention without a hearing, keep Guantanamo open, and hinder fair trials.”

And Americans, despite some pro-Obama spin to the contrary, are definitely targeted by NDAA’s indefinite detention provisions. As Salon columnist and constitutional lawyer Glenn Greenwald explained: “Myth #3: U.S. citizens are exempted from this new bill: This is simply false, at least when expressed so definitively and without caveats. The bill is purposely muddled on this issue which is what is enabling the falsehood.”

The American broadcast media has been eerily silent on NDAA’s passage into law, despite the fact that foreign newspapers and broadcast networks have been covering this as one of their top international stories.

Yesterday, however, FOX News began to let NDAA mentions seep into their news coverage.  There is a grassroots movement to convince News Corporation chief Rupert Murdoch to invite me on FOX News, so that I can discuss the dangers posed by the NDAA, and SOPA, which is a radical Internet censorship bill Congress plans to vote on later this month. (SOPA would make online criticism of NDAA subject to government censorship and deletion. Profoundly scary. Google co-founder Sergey Brin has warned that SOPA “would put us on a par with the most oppressive nations in the world.”)

But enough self-aggrandizing for one morning! Here are NDAA reactions from others around the Web — online outrage has been steadily growing, as Americans realize their cherished civil rights protections and Bill of Rights are now as obsolete as last year’s iProduct.

Rupert Murdoch: “Obama decision on terrorist detention very courageous – and dead right!” via his Twitter. Reactions to this rather contrarian view were not polite, to say the least.

Author Naomi Wolf, with a warning for Congress: “I never thought I would have to write this: but – incredibly – Congress has now passed the National Defense Appropriations Act, with Amendment 1031, which allows for the military detention of American citizens. The amendment is so loosely worded that any American citizen could be held without due process. The language of this bill can be read to assure Americans that they can challenge their detention – but most people do not realize what this means: at Guantanamo and in other military prisons, one’s lawyer’s calls are monitored, witnesses for one’s defense are not allowed to testify, and one can be forced into nudity and isolation. Incredibly, ninety-three Senators voted to support this bill and now most of Congress: a roster of names that will live in infamy in the history of our nation, and never be expunged from the dark column of the history books.

They may have supported this bill because – although it’s hard to believe – they think the military will only arrest active members of Al Qaida; or maybe, less naively, they believe that ‘at most’, low-level dissenting figures, activists, or troublesome protesters might be subjected to military arrest. But they are forgetting something critical: history shows that those who signed this bill will soon be subject to arrest themselves.”

Tumblr user Raychel, who has posted reaction to NDAA: “Seeing as the NDAA now applies to American citizens, like I said, I don’t know if it’s such a great idea to expose myself to the point of my writings being published in an article ha ha! What are your thoughts on it?

I first found out about NDAA through my research on Ron Paul via YouTube. Watching debates, interviews, etc. I stumbled across a lot of videos that were definitely not getting enough hype. That being said, no I don’t think the traditional media has done it’s job of bringing it to the public’s attention. It’s done quite a good job of the opposite, actually. The media is showing us stories about missing pets, celebrities acting like banshees, and the top rated videos on YouTube (which obviously aren’t the Ron Paul videos I found, sadly!) I’ve noticed over the years that the media is definitely keeping secrets from the people. Things we deserve to know go unmentioned, but you bet if a dog saved a man’s life who was drowning THAT video would be ALL over the news and Internet for weeks!” (via email to Business Insider)

Jonathan Turley in The Guardian (UK): “President Barack Obama rang in the New Year by signing the NDAA law with its provision allowing him to indefinitely detain citizens. It was a symbolic moment, to say the least. With Americans distracted with drinking and celebrating, Obama signed one of the greatest rollbacks of civil liberties in the history of our country … and citizens partied in unwitting bliss into the New Year.

Ironically, in addition to breaking his promise not to sign the law, Obama broke his promise on signing statements and attached a statement that he really does not want to detain citizens indefinitely.”

Petitions and online protests like this one, which call for the impeachment of Obama and recall of Senators who voted in favor of NDAA, are also beginning to appear.

This should be an interesting year. If you don’t see any future articles or tweets from me, you’ll know I’ve been relocated to the Guantanamo Beach Club.


A group of journalists and activists made a statement at a court in New York against the National Defense Authorization Act. The group has filed a lawsuit against the Obama Administration and are determined to overturn the NDAA. The bill allows the US military to legally detain suspected terrorists indefinitely and without charge or trial – that includes American citizens.  Journalists covering terror threats and interviewing terrorists also fall under the umbrella. Raha Wala, an attorney with the law and security programm at Human Rights First talks to RT’s Kristine Frazao about some legal implications of the bill.


Last week the case against the National Defense Authorization Act was presented to a judge in New York. One of the plaintiffs in the case has decided to sue the Obama administration claiming that by simply doing his job he could be arrested and detained indefinitely due to the nature of his work, reporting. Chris Hedges, columnist for TruthDig, joins us to explain how his day in court went.



The Tenth Amendment Center
April 20, 2012

RICHMOND, Va. – On Wednesday, the Virginia legislature overwhelmingly passed a law that forbids state agencies from cooperating with any federal attempt to exercise the indefinite detention without due process provisions written into sections 1021 and 1022 of the National Defense Authorization Act.

HB1160 “Prevents any agency, political subdivision, employee, or member of the military of Virginia from assisting an agency of the armed forces of the United States in the conduct of the investigation, prosecution, or detention of a United States citizen in violation of the United States Constitution, Constitution of Virginia, or any Virginia law or regulation.”

The legislature previously passed HB1160 and forwarded it to Gov. Bob McDonnell for his signature. Last week, the governor agreed to sign the bill with a minor amendment. On Wednesday, the House of Delegates passed the amended version of the legislation 89-7. Just hours later, the Senate concurred by a 36-1 vote.

Bill sponsor Delegate Bob Marshall (R-Manassas) says that since the legislature passed HB1150 as recommended by the governor, it does not require a signature and will become law effective July 1, 2012.

Several states recently passed resolutions condemning NDAA indefinite detention, but Virginia becomes the first state to pass a law refusing compliance with sections 1021 and 1022.

“In the 1850s, northern states felt that habeas corpus was so important that they passed laws rejecting the federal fugitive slave act. The bill passed in Massachusetts was so effective, not one single runaway slave was returned south from that state. Today, Virginia joins in this great American tradition,” Tenth Amendment Center executive director Michael Boldin said. “When the federal government passes unconstitutional so-called laws so destructive to liberty – it’s the people and the states that will stand up and say, ‘NO!’ May the other states now follow the lead taken today by Virginia.”


The Virginia legislature once again approved House Bill 1160 (HB1160), what many refer to as the NDAA Nullification Act. The support was overwhelming, again. In the House today the vote was 89-7 and the Senate concurred a few hours later, 36-1.

The bill “Prevents any agency, political subdivision, employee, or member of the military of Virginia from assisting an agency of the armed forces of the United States in the conduct of the investigation, prosecution, or detention of a United States citizen in violation of the United States Constitution, Constitution of Virginia, or any Virginia law or regulation.”

According to an inside report, bill sponsor Delegate Bob Marshall spoke twice in support of the bill on the House floor today. Delegate Barbara Comstock (a long-time Patriot Act supporter) invoked Michael Chertoff and others as high government officials opposing HB 1160. Basically, she said state legislators have no business questioning the federal government.

Marshall responded with citations to a CRS report demonstrating the vagueness of the law, and its effort to circumvent the Treason Clause. He also noted that state legislators are to be watchdogs against the Federal Government.

In the Senate today, Senator Dick Black (R-Loudoun) and Senator Chap Petersen (D-Fairfax) spoke in favor before the final vote.


HB1160 originally passed the Virginia house in February by a vote of 96-4. It went to the Senate where opponents tried to hold it over until next year, effectively killing it. The vote was a tie- and failed. In two short days, thousands of grassroots activists contacted their Senators to support the bill and the next vote, taken quickly, was a different story – 39-1.

With minor amendments, the bill needed to go back to the House for approval. A number of parliamentary maneuvers were used to stall and kill the bill. Various votes to delay (“pass by”) actual approval were held. Eventually, the House rejected the Senate amendments and the bill was sent back to the Senate for another consideration.

Again, the grassroots got on board – and activists from groups across the political spectrum called and emailed their Senators to move the bill forward. The Senate, after a few days of jousting, “receded” from their original amendment by a vote of 37-1 in March, effectively passing the original House bill from the previous month.

HB1160 then went off to the Governor’s desk. Inside sources had been telling us at the Tenth Amendment Center that Governor Bob McDonnell did not want to sign this bill. Vetoing would certainly keep him in a good place with the establishment who supports NDAA detentions, but would also be a slap in the face of a huge portion of his own state’s population, considering the massive outpouring of support from the people there.

McDonnell had until mid April to sign or veto the bill. On the very last day, after some strong behind-the-scenes work by supporters and sponsors, the Governor announced that he recommended some minor amendments – and he would support that version of HB1160.

The bill’s sponsor, Bob Marshall, released the following statement:

Over the past few weeks, Governor McDonnell has heard from a number of Virginians regarding House Bill 1160, sponsored by Delegate Bob Marshall. During the consideration of this legislation and since its passage, he has expressed both the shared concern that Virginia does not participate in the unconstitutional detention of U.S. citizens and the desire that this legislation does not impact legitimate law enforcement activities.

Preserving public safety is the foremost priority of any government. Every day, state and local law enforcement personnel work together and work with the federal government to keep Virginians safe by fighting crime, responding to emergencies, and combating terrorism. The governor believes we must encourage and promote these collaborative efforts while ensuring that core constitutional principles enjoyed by all U.S. citizens are respected. He believes these standards are expected by all Virginians and want to take appropriate steps to reaffirm that position. In the governor’s view, this legislation now accomplishes that goal.

Since the legislation’s passage, staff has worked with the patron to come up with amendments that will achieve the goal of not supporting unconstitutional detentions while preserving the ability of law enforcement and our state defense forces to carry out their responsibilities. The amendments Governor McDonnell sent down achieve those goals, and Delegate Marshall has expressed his support for them. The governor hopes the General Assembly will support them, as well.

The bill is now expected to be promptly signed by Governor McDonnell.

May the other states now follow the lead taken today by Virginia.

UPDATE – according to sponsor Bob Marshall, because the legislature passed the bill as recommended by the Governor, a signature is not required. HB1160 becomes law on July 1st.


To track Liberty Preservation legislation across the U.S., click HERE.

For model legislation to present to your local government, click HERE.

For model NDAA nullification legislation at the state level, click HERE.

Michael Boldin [send him email] is the founder of the Tenth Amendment Center. He was raised in Milwaukee, WI, and currently resides in Los Angeles, CA. Follow him on twitter – @michaelboldin, on LinkedIn, and on Facebook.


















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S&P 500 INDEX CLOSE NOVEMBER 23, 2012: 1409.15


Most of the folks who were dead wrong for years after the market low in March 2009 (see charts) have quietly given up, but at least one analyst is still calling for stocks to crash through those financial-crisis lows.

United-ICAP senior technical analyst Walter Zimmermann thinks the S&P 500 will nose a bit higher in the early part of 2012 and then drop about 60% to 579.57, Tomi Kilgore of the WSJ reports.

(That’s 579.57–not 580 or 550 or 600).

This time Zimmermann says, it will be worse.  This crash will take the form of a “sharp and sustained drop” through December 2012.  Unlike some technical analysts, Zimmerman does invoke some fundamental logic for his call: Europe. “If the history of debt tells us anything it is that one cannot solve a debt crisis by lending more money to the bankrupt and the insolvent,” Zimmerman says.

And he’s certainly right about that. He expects 2012′s price action will mirror what the S&P 500 did from its Oct 2007 peak until it bottomed in March 2009. “The technical patterns suggest that 2012 will be a terrible year for holding stocks. Even if by some miracle the euro zone hangs together, it is already falling into a deep and enduring recession,” says Zimmermann. “We expect this recession will drag down both the USA and China.”

Walter Zimmermann is senior technical analyst from United-ICAP, providing market-leading advisory services for professional traders and risk managers with an active interest in global energy markets. In addition to online and e-mail distribution of product-specific reports, suggested strategies, tutorials and time cycle analyses, Walter hosts a daily conference call via webcast.




By Michael Patterson & Lu Wang – Bloomberg

Jan 4, 2013

From John Paulson’s call for a collapse in Europe to Morgan Stanley (MS)’s warning that U.S. stocks would decline, Wall Street got little right in its prognosis for the year just ended.

Paulson, who manages $19 billion in hedge funds, said the euro would fall apart and bet against the region’s debt. Morgan Stanley predicted the Standard & Poor’s 500 Index would lose 7 percent and Credit Suisse Group AG (CSGN) foresaw wider swings in equity prices. All of them proved wrong last year and investors would have done better listening to Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein, who said the real risk was being too pessimistic.

The ill-timed advice shows that even the largest banks and most-successful investors failed to anticipate how government actions would influence markets. Unprecedented central bank stimulus in the U.S. and Europe sparked a 16 percent gain in the S&P 500 including dividends, led to a 23 percent drop in the Chicago Board Options Exchange Volatility Index, paid investors in Greek debt 78 percent and gave Treasuries a 2.2 percent return even after Warren Buffett called bonds “dangerous.”

“They paid too much attention to the fear du jour,” Jeffrey Saut, who helps oversee about $350 billion as the chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said by phone on Jan. 2. “They were worrying about a dysfunctional government in the U.S. They were worried about the euro quake and the implosion of Greece and Portugal. Instead of looking at what’s going on around them, they were letting these macro events cause fear to creep into the equation.”

Trailing Markets

The market value of global equities increased by about $6.5 trillion last year as the MSCI All-Country World Index (MXWD) returned 17 percent including dividends. The Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index of government debt returned 4.5 percent. The MSCI gauge of stocks in developed and emerging markets rose 0.3 percent to 347.68 today.

While Bank of America Merrill Lynch indexes show Treasuries of all maturities returned an average of 2.2 percent last year, including reinvested interest, an investor who bought what was then the benchmark 10-year note — the 2 percent security due in November 2021 — would have gained 4.01 percent after taxes, according to data compiled by Bloomberg.

Blankfein Positive

Money managers who aim to beat markets lagged behind instead. The Bloomberg Global Aggregate Hedge Fund Index, which tracks average performance in the $2.19 trillion industry, increased 1.6 percent last year through November. More than 65 percent of mutual funds benchmarked to the S&P 500 trailed the gauge in 2012, according to data compiled by Bloomberg. The 50 stocks in the S&P 500 with the lowest analyst ratings at the end of 2011 posted an average return of 23 percent, outperforming the index by 7 percentage points, the data show.

Blankfein was more prescient. “I tend to be a little more positive than what I’m hearing from other people,” the 58-year- old CEO told Bloomberg Television in an April 25 interview at Goldman Sachs’s New York headquarters. “One of the big risks that people have to contemplate is that things go right.”

While markets moved against forecasters last year, their predictions may eventually prove correct.

Rising Yields

Ten-year Treasury yields have climbed 0.51 percentage point from a July low to 1.90 percent, while the so-called VIX index of volatility is up 2.8 percent from last year’s nadir. Greece’s economy will contract 4 percent this year, the International Monetary Fund predicted in October, as euro membership prevents the country from boosting exports with a weaker currency.

Paulson, the founder of New York-based Paulson & Co., told clients in April he was wagering against European sovereign bonds and buying credit-default swaps on the region’s debt. The contracts insure against default and increase in value when investor perceptions of the borrower’s creditworthiness decline.

Citigroup Inc. (C) economists led by Willem Buiter in London said in February the possibility Greece would leave the euro within 18 months had increased to 50 percent from between 25 to 30 percent. They raised the risk to 75 percent in May and by July were citing a 90 percent chance of departure, writing in a report that their “assumption” was an exit by Jan. 1.

Greek Rally

Greek bonds surged the most worldwide and the country stayed in the euro as the European Central Bank pledged a bigger rescue effort, German Chancellor Angela Merkel softened her stance on aid and Prime Minister Antonis Samaras delivered on austerity commitments in Athens.

Money managers who bet against the conviction of European leaders to hold together the 17-nation currency union missed out on some of the best investment opportunities as the euro strengthened about 9.4 percent from a July 24 low against the dollar, Germany’s DAX Index (DAX) of shares returned 29 percent for the year and credit-default swaps on Portugal dropped 644 basis points to 449.

“There really is only one ‘worst trade’ and that is the ‘euro crisis’ trade,” Michael Shaoul, the chairman and chief executive officer of Marketfield Asset Management LLC in New York, which oversees about $4.4 billion, said in a Dec. 31 e- mail.

Armel Leslie, a spokesman for Paulson & Co., declined to comment. Buiter wasn’t available to comment, Devonne Spence, a spokeswoman at Citigroup in London, said on Jan. 2.

Fed Stimulus

Adam Parker, the U.S. equity strategist at New York-based Morgan Stanley, predicted the S&P 500 would fall 7.2 percent to 1,167 last year as the U.S. presidential election, slower growth in China and Europe’s debt crisis deterred investors. Stocks rose as Federal Reserve decisions to keep benchmark interest rates at record lows while buying more than $80 billion a month of mortgages and Treasuries boosted confidence in the economy.

The average forecast of 12 strategists tracked by Bloomberg called for the S&P 500 to increase about 7 percent last year to 1,344. It reached 1,426.19, surpassing the year-end prediction by the most since 2003, data compiled by Bloomberg show.

Parker said he underestimated the impact of central bank stimulus and investors’ willingness to pay more for stocks. The S&P 500 is valued at 13.2 times estimated earnings, about 9 percent more expensive than it was a year ago, according to data compiled by Bloomberg.

Mea Culpa

“We were wrong on our year-end outlook for 2012 mostly because of our view on the multiple,” Parker wrote in a report on Oct. 22. “The specter of nearly unlimited intervention from the ECB and the Fed seems to have created a more positive asymmetry than we anticipated.”

Buffett, the chairman of Berkshire Hathaway Inc. (BRK/A) and the world’s fourth-richest person in the Bloomberg Billionaires Index, wrote in a February letter to shareholders that inflation and low yields make fixed-income securities less attractive than stocks or buying whole companies over time.

While U.S. inflation of about 2 percent last year left Treasuries with almost zero real return, U.S. company bonds outpaced the increase in consumer prices with a gain of 11 percent, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.

Buffett didn’t respond to a request for comment sent to an assistant.

Easing concern about a breakup of the euro helped reduce equity volatility, defying the Jan. 12 prediction by Credit Suisse’s Andrew Garthwaite that price swings would increase.

‘Significant Surprise’

The MSCI All-Country index’s 30-day historical volatility dropped to a six-year low of 6.7 on Dec. 28. The VIX, a gauge of projected market swings derived from options on the S&P 500, fell to 18.02 from 23.4 at the end of 2011, the biggest annual drop since 2009.

Bank of America Merrill Lynch’s MOVE Index, a gauge of Treasury volatility, retreated 35 percent last year. The cost of options on developed-nation currencies declined 34 percent, the biggest annual slump since at least 1993, according to JPMorgan Chase & Co.

“It’s a significant surprise why implied volatility in the foreign exchange market, bond market and equities market is all far, far lower than anyone expected,” Garthwaite, the London- based global equity strategist at Credit Suisse, said by phone on Jan. 2. “Ultimately, we have to put it down to central bank action.”

French bonds rallied even as S&P and Moody’s Investors Service Inc. removed the country’s top credit rating. France’s sovereign debt returned 10 percent last year, more than double the rest of the global government bond market, according to Bank of America Merrill Lynch indexes.

China Optimism

The gains echoed the previous year, when investors considered the U.S. more creditworthy after S&P removed the nation’s AAA grade and drove 10-year note yields to a record low in 2012.

Goldman Sachs’s call on Chinese equities proved too optimistic. Helen Zhu, the New York-based bank’s China strategist, said in a Jan. 11 interview on Bloomberg Television that the CSI 300 Index (SHSZ300) would probably climb 36 percent to 3,200 by year-end. Instead, the gauge of shares traded in Shanghai and Shenzhen peaked at 2,717.82 and ended the year up 7.6 percent at 2,522.95.

“China’s A-share market has seen substantially more valuation de-rating relative to other markets since 2010, larger than we and many others had expected,” Zhu said in a Dec. 28 interview. “Intensifying concerns about structural risks in the economy have resulted in significant volatility in a market which tends to be more sentiment driven.”

Predicting Politics

Zhu, who’s estimating a CSI 300 index gain of about 9 percent for 2013, wasn’t the only forecaster who proved too bullish last year as government efforts to cool home prices and contain inflation limited equity returns.

About 3,000 recommendations compiled by Bloomberg show analysts overestimated gains for CSI 300 shares by 33 percentage points, the second-most among 45 markets after Russia.

“It’s always more challenging for investors to try and predict political actions,” Khiem Do, the head of Asian multi- asset strategy at Baring Asset Management, which oversees about $50 billion worldwide, said in a Jan. 2 phone interview from Hong Kong. “In general they’re trained to analyze the economic data, balance sheets and so on. They’re not trained to predict political decisions. These factors have ruled the lives of fund managers in a more significant manner than what used to be over the past 20 or 30 years.”



Death of ‘Growth Economics’ spells danger

By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — “Is the U.S. Condemned by History to Slow Growth?” asks Bloomberg BusinessWeek. Yes. But for traders and investors, it’s far worse than just bearish slow growth. Plan for no growth or zero growth.

Why? Wall Street, America and the world economy are in the early stages of a long era of “de-growth,” a reversal of economic growth and reduction in market growth as population growth adds new stresses on commodities resources, creates unrest, disasters and wars. Big problems ahead.

Our nine economic scenarios all lead to a stock plunge.

Please listen: Earnings growth is in a long slowdown in all of the following nine scenarios. Economy down. Earnings down. Stocks down. Trading down. Focus on the long term, on history, look past the noise about elections and fiscal cliffs.

Why? This is an economic “perfect storm.” All nine scenarios end in bad news for all markets, spell danger for your future income, your family’s security. Start planning now.

1. 800-year growth trend: Back to pre-Industrial Revolution levels

Yes, BusinessWeek says America is condemned by history to slow growth. They open with an “IMF warning that global growth would slip below 2% in 2013.” Then a review of Richard Gordon’s provocative National Bureau of Economic Research study: “Is U.S. Economic Growth Over?”

Yes. History tells us for five long centuries before the 18th century, a “capita rate of just 0.2 percent per year.” Then, the Industrial Revolution. A few centuries as U.S. “growth shot up” to 2.5% by 1930. Driven by endless innovations: Steam engine. Railroads. Electricity. More. But “it’s been downhill since 1950, with annual growth averaging just 2.1 percent per capita through 2007.”

NBER’s Gordon warns: “If the U.S. continues on its current trajectory, by 2100 the world’s biggest economy will wind up back where it started, at 0.2 percent growth per annum.”

2. ‘Less Than Zero Growth:’ Long decade of decline: 2013-2022

Markets now totally irrational: Read economist Gary Shilling’s Forbes warning: The “Bad-News-Is-Good-News Effect Can’t Last, Expect Markets to Nose-Dive.” The bulls can’t hear, will get caught exposed.

Listen: “There’s a ‘grand disconnect’ currently going on in global markets. Suddenly weakening economies worldwide are driving optimism in markets.” Why? Global “dependency on monetary and fiscal bailouts.” Everyone wants more stimulus, more bailouts. “Conditions are so bad, they’re good.”

Dead ahead, a nosedive into Shilling’s prediction of a long decade of “less than zero growth,” high-stress chronic unemployment, accelerating global unrest, regional conflicts, higher Pentagon budgets,” because “much of the excesses and financial leverage built up in past decades, especially in the financial sector globally and among U.S consumers, remain to be worked off.”

Whether bull or bear, optimist or pessimist, you better prepare of the coming Age of Austerity.

3. ‘Hyper-Growth’ traders: New bubble repeats 2008 meltdown

This is a trader’s ultra short-term global reality: Their brains focus on “The Moment” like a New Age Guru meditating on the “Eternal Now.” Today’s closing prices, quarterly earnings, even annual returns may be of interest to Main Street investors. But as BusinessWeek once put it, 15 minutes is an “eternity” for traders.

Forbes tells the high-frequency traders brain narrows to the “20 milliseconds it can take quotes to travel from Chicago to Nasdaq’s market site in New Jersey.” Traders leave stuff like long-term global population growth up to some higher power. Unfortunately, the trader’s myopic view of the world will ultimately backfire, repeating the 2008 meltdown.

4. ‘Perpetual Growth:’ Economic theory now self-destructive fantasy

Perpetual Growth is the basic theory for all business economists in Wall Street banks, Corporate America, Big Oil, Billionaires, the Fed. Economic growth parallels population. Supply is infinite: The Chamber of Commerce CEO says the world has “1.4 trillion barrels of oil, enough to last at least 200 years,” natural gas for 120 years, coal for 450 years.” At least five times what we need.

These classical business economists ignore environmental economists as just liberals. But the real reason: stock profits would fall if corporations had to factor in the rising public costs of their damages to the environment.

Environmental economist Bill McKibben also knows the planet has a five-times supply of energy. But that’s the big problem. If we use more than 20% of the supply, we’ll be dumping so much excess carbon dioxide into the atmosphere we’ll soon kill the planet. Big Oil doesn’t care, warns McKibben: Big Oil is a “rogue industry, reckless like no other force on Earth … Public Enemy No. 1 to the survival of our planetary civilization.” Big-Oil dismisses environmentalists as a left-wing anti-capitalist conspiracy plot.

5. Population Growth out of control: Planet can’t feed 10 billion

Money manager Jeremy Grantham’s warns: It is “impossible to feed the 10 billion people” on Planet Earth. Impossible. But that is the United Nations forecast, creating an “inevitable mismatch between finite resources and exponential population growth … a bubble-like explosion of prices for raw materials.”

Commodity shortages will be a huge “threat to the long-term viability of our species when we reach a population level of 10 billion” in 2050. Mismatches will trigger disasters: “As the population continues to grow, we will be stressed by recurrent shortages of hydrocarbons, metals, water, and, especially, fertilizer. Our global agriculture, though, will clearly bear the greatest stresses,” and more wars.

6. Gates, ‘Cap population growth at 8.3 billion:’ But still too many

A few years ago Bill Gates and his billionaire friends all agreed, overpopulation was the world’s number one problem. The Wall Street Journal said Gates, Buffett, Turner and other billionaires had long been worrying about population problems. Gates outlined a plan to scale back and “cap the world’s population at 8.3 billion people, rather than the projected peak population of 9.3 billion,” less than the U.N.’s forecasts.

Since then Gates has been funding research to develop cheap contraceptions for low-income nations, in an effort to reduce infant mortality, slow population. Other environmental economists warn Earth can’t support 8.3 billion. But, can we realistically halt growth fast enough?

7. ‘End World Poverty’ to end growth on our ‘Crowded Planet’

Economist Jeffrey Sachs is director of Columbia University’s Earth Institute. In his “Common Wealth: Economics for a Crowded Planet,” Sachs says our planet can actually support only 5 billion people. Today we have 7 billion, two billion too many. Plus we’re consuming natural resources as if we have “1.5 Earths” says the Global Footprint Network group of scientists and economists.

Sachs solution: End world poverty. And less than 1% of the GDP of developed countries would do it. America could increase foreign aid from 0.14% to just 0.7% of GDP, less than the 4% GDP spent by the Pentagon. Doing nothing is the worse case scenario. Why? Growth means billions demanding better lifestyles adding greater stress on scarce resources by 300% per person, the equivalent of 6 Earths. But with 7 billion today, 10 billion by 2050, is cutting back to 5 billion just another fantasy?

8. ‘De-Growth’ scenario: WorldWatch’s solution to global disasters

De-Growth is a scary scenario. A recent Worldwatch Institute report, “De-growth Offers Alternative to Global Consumer Culture,” warns that “if everyone lived like the average American, according to the Global Footprint Network, the Earth could sustain only 1.7 billion people — a quarter of today’s population.” WorldWatch also warns: “The window to prevent runaway climate change is closing,” and “mitigating global warming will be all but impossible without dramatic reductions in consumption and fossil fuel use.”

After the tipping point WorldWatch sees coming: “Large population shifts due to natural disasters, such as coastal flooding, prolonged drought, and the introduction of disease” we expect “a future scenario not only incompatible with perpetual economic growth but likely to lead to economic and societal decline.”

Get it? Perpetual growth is dead. Global De-Growth Conferences are well intentioned, but their solutions will be socialist to American capitalists, as well as too weak and too late to be effective. Worse, De-Growth activists lack the resources to beat global capitalists billionaires.

9. ‘War and Disaster scenarios:’ Bad endings are inevitable

A decade ago the Pentagon warned that “by 2020 warfare would define human life” on the planet.” A few years ago InvestmentNews warned that commodity price inflation not only raises “bubble fears” but also increases war threats.

More recently, a USA Today editorial warned that a “silent tsunami of hunger washes over poor nations” triggering food riots and political unrest worldwide. Prices are spiraling out of control in fuel, energy and food … Global grain prices were up 250% since 2002, starvation threatens millions living on as little as a dollar a day.” Euphemisms aside, war is our history.

Yes, whether you like it or not, America is already edging toward a newer, bigger, costlier war: No lessons learned after two exhausting wars the past 11 years, 2.3 million boots in Iraq and Afghanistan, at an estimated cost of $29.7 trillion new debt. Are Americans addicted to war? Bigger budgets? More debt? Austerity? Yes, all scenarios are growth killers. And yet like an addict, we won’t stop this insanity, without a disaster.

Warning to all you investors, the stage is set. The economic growth trajectory of the last 300 years is ending. You must take action, protect your family. A collapse can happen sooner than you think, spread fast, wide … these nine scenarios are now a perfect storm.


by Holly Ellyatt

November 13, 2012

The markets are going to go into meltdown soon, so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC

“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the ‘fiscal cliff’ — because there won’t be a ‘fiscal cliff,’ ” Faber told CNBC’s “Squawk Box.” “The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view.”

Faber, who is known for his bearish views, cited tech giant Apple [AAPL 527.678 2.058 (+0.39%) ], a company whose disappointing earnings have caused its stock to fall 20 percent from its September highs and 14 percent in the past month.

A series of poor quarterly earnings from corporate giants such as [AMZN 225.23 4.631 (+2.1%) ], McDonald’s [MCD 84.1198 0.0698 (+0.08%) ] and Google [GOOG 647.18 -0.08 (-0.01%) ] have hurt investor sentiment in recent weeks.

Faber argued that the “fiscal cliff,” a rise in taxes and automatic spending cuts, would actually involve some minor tax increases in “five years’ time” and some spending cuts “in 100 years.”

What the U.S. needed was some pain, he said, aptly demonstrated by the euro zone’s austerity measures that are attempting, with a mixed measure of success, to curb gaping budget deficits.

“There will be pain and there will be very substantial pain. The question is do we take less pain now through austerity or risk a complete collapse of society in five to 10 years’ time?” he said, adding that there was a lack of political will to tackle the U.S. budget.

Faber added: “In a democracy, they’re not going to take the pain, they’re going to kick down the problems and they’re going to get bigger and bigger.”

Payback Time

Faber identified several issues curbing an economic recovery, such as the real estate market, which he said had never been so “overbuilt.” He also said there was lots more deleveraging ahead.

“In the Western world, including Japan, the problem we have is one of too much debt and that debt now will have to be somewhere, somehow repaid or it will slow down economic growth,” Faber said. “I think we lived beyond our means from 1980 to 2007, and now it’s payback period.”

Faber told CNBC that central bank stimulus was useless and the implosion of markets was the only way to restructure the financial system.

“I think the whole global financial system will have to be reset and it won’t be reset by central bankers but by imploding markets — either the currency [markets, debt market or stock markets,” he said. “It will happen — it will happen one day and then we’ll be lucky if we still have 50 percent of the asset values that we have today.”


By: Robert Frank | CNBC Reporter & Editor
November 12, 2012

For many of the wealthy, 2012 is becoming a good year to sell.

They’re worried about the “fiscal cliff,” which is when tax cuts expire and spending cuts are set to go into effect at the end of the year.

Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.

Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.

“Under almost any scenario, it makes sense to take the gains this year,” said Gregory Curtis, chairman and managing director of Greycourt & Co. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”

If the Bush-era tax cuts expire, taxes on capital gains would revert back to its previous rate of 20 percent from its current 15 percent.  Another 5 percent may be added from health-care levies and changes in itemized deductions, bringing the rate to 25 percent for many high earners.

Taxes on dividends could go from 15 percent to over 43 percent. And the estate tax could go from 35 percent on estates worth more than $5 million to 55 percent on estates over $1 million.

As a result, the wealthy are taking a close look at all of their assets to see what could or should be sold off now to avoid potentially higher taxes next year.

The most noticeable sell-off has been in stocks. Wealth managers say many of their clients who have large gains on stocks are selling them now, or selling them or buying them back again to create a higher basis (and thus a lower tax bill later).

Since the wealthiest one percent of U.S. households control more than half of the stocks in the United States, their selling and buying can have strong ripple effects on the market.

Bankers say owners of private businesses are also pressing to sell their companies to ahead of a possible tax hike. If an entrepreneur, for instance, sells a company for $100 million, they could pay $10 million less in taxes than if they sold in 2013.

Deal advisors say that by selling his company to Disney this year for $4 billion, George Lucas potentially saved hundreds of millions of dollars in taxes.

Granted, business owners aren’t suddenly selling their companies after the election. The businesses most likely to take advantage of lower taxes are small businesses that may have been in the process of selling and can push to close before Jan. 1.

“Selling a business is not easy, it’s not like you can just pull a switch,” said Frederic Seegal, vice chairman of Peter J. Solomon Co, the investment banking firm.

Mansion sales are seeing a similar acceleration, brokers say. Some recent multi-million-dollar sales in Florida, New York and California were partly driven by sellers who were anxious to sell before the end of 2012, brokers say.

The sell off could have profound impacts on both asset prices in the United States, as well as tax revenues.

Roberton Williams of the Tax Policy Center said the direct impact of all this front-loading is hard to determine, since there are so many other factors in the economy. But he said that a rise in wealthy sellers could put pressure on asset prices and stocks, at least in the short term.

“This could depress asset values,” he said.

He also said that all this income-shifting could make revenues more volatile and unpredictable. It might also result in the government raising less than expected during the first year or two of the tax increase.

“The government may come out ahead this year, but lower the next year.”

In 1986, for example, the capital gains tax rate was 20 percent but was schedule to go up to 28 percent in 1987 as part of President Ronald Reagan’s tax overhaul. In 1986, capital gains collections soared to $52 billion – twice the amount as 1985. But the following year, when the higher rate kicked in, capital gains fell by 50 percent.

“Taxes are only one factor when it comes to decisions to gains,” he said. “But they are certainly a factor.”


Kurt Nimmo

Stocks tumbled again on fears of the rapidly approaching fiscal cliff in the United States and a failure by eurozone finance ministers and the IMF to decide how Greece will resolve its sovereign debt and pay off the banksters at Société Générale, Deutsche Bank, Eurobank, and other loan sharking institutions.

“This morning the reasons du jour started out with Europe and the kerfuffle over Greece and then you have the fiscal cliff,” Michael Holland, chairman of New York-based Holland & Co., told Bloomberg News.

Amid the lackluster performance of the stock market, the Obama administration has invited top establishment politicos in Congress to the White House later this week to hammer out a plan to avoid the so-called fiscal cliff. Business honchos from some of the world’s largest transnational corporations will be in attendance, including those from American Express, Ford Motor and Honeywell International.

“We’re not out of the woods yet,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. He added that a resolution of the financial crisis threatening to extend the recession for the foreseeable future depends on the leadership of Obama.

According to Rep. John Fleming, we won’t be getting out of the woods anytime soon, especially with Obama at the helm. “It looks like we’re going to have to go through the same or similar pain [as Greece] to get real reforms,” the Louisiana Republican told the Daily Caller on Sunday.

He said that if the current economic trend is not reversed, “what’s going to happen is there’s going to be a day of reckoning that gets into a serious situation where we have to make tough choices.”

Greece’s fiscal pain erupted into violent riots last week after the country’s three-party coalition government voted to adopt the €18.5bn budget cuts by 2016. Protesters lobbed Molotov cocktails and rocks at police who responded with stun grenades, tear gas and the first use of water cannon in Greece in years, according to The Telegraph.

“Americans may think this sort of thing can’t happen here, but the globalists plan to take them down too,” we wrote on November 7 as riots commenced in Greece. “The economic meltdown is a slow burn that will eventually lead to violence, but Americans will not be just throwing Moltov cocktails like the Greeks.”


CHART OF THE WEEK: Bud Conrad, How Far Could the Stock Market Fall? Read more here-

-Markets to Spike ‘One Last’ Time: Nomura’s Janjuah. U.S. markets may rally once more before slumping for the subsequent six to 18 months, according to a research note by Nomura Strategist Bob Janjuah. “If I look out three to six months, I am open to the idea of one last parabolic spike higher in risk-on markets,” wrote Janjuah, who is known for his ultra-bearish views.

“I think we will eventually get fiscal and debt ceiling fudges in the U.S. Of course long-term credible solutions are needed but in the interim, the knee jerk reaction of markets to fiscal/debt ceiling fudges will likely be positive.” Janjuah said the market rally could prove sharp enough to push the S&P 500 to 1,500 points. The S&P traded at 1,382.25 points on Tuesday, and has gained 9.32 percent year-to-date.

Janjuah’s views concur with those of Ken Kamen, president of Mercadien Asset Management, who told CNBC on Tuesday that investors should position for a market rally on the resolution of the fiscal cliff problem. “I am very optimistic that while we will have some gyration and pain in the short-run, maybe for the next three to six months, we are going to start moving towards an end-game,” Kamen said. “That is what investors should position for.”

However, Janjuah warned he remained “very bearish” over the longer-term, and forecast the S&P will slump throughout 2013, bottoming out in 2014 at around 800 points. “I worry about excessive debt in the West, I worry about anemic growth globally, and I worry about the market’s Pavlovian fixation on continued but increasingly unsuccessful and non-credible policy stimuli,” he said. Read more here-

-Panic Selling? Why Investors Are Dumping Dividend Stocks. For dividend investors, a worst-case scenario for the wealthiest Americans would be that the upper income tax rate is returned to 39.6 percent, and dividends could then be taxed at that much higher rate, if the Bush tax cuts are left to expire. Read more here-

-Stock, Bond Certificates in DTCC Vault Damaged by Sandy Flooding. Read more here-


-David Rosenberg Brought Down The House With This Presentation At A Conference This Week. According to Rosenberg the U.S. is at best halfway through the deleveraging. The stock market, he says, is only up by dint of Fed intervention, and that there are already signs that the latest bout of QE-Open Ended is not having the same effect as last time. Read and see more here- and here-


Strategist Nicholas Colas expects second-half market fireworks

By Jonathan Burton

MarketWatch SAN FRANCISCO (MarketWatch)

It has been all quiet on the Wall Street front. Too quiet for Nicholas Colas. Stock market volatility is near its low points of the past three years, as measured by the CBOE Volatility Index, or VIX (MDE:VIX).

To Colas, ConvergEx Group chief market strategist, a storm is brewing and will strike when market participants least expect it. The challenge then will be to stay standing. “Be mentally prepared for volatility,” Colas said. “Traders know that if something happens to the market that really scares you, you weren’t prepared and positioned for it.”

Besides being troubled by investors’ complacency, Colas said the U.S. market doesn’t seem healthy. “U.S. stocks got a pass in the first half of the year because Europe was so sloppy,” he said. Going forward, investors’ scrutiny is going to circle back to the U.S., and they might not like what they see. “We are being threatened with a second recession,” Colas said.

“We simply have too many impediments to a catalyst that would make a cyclical investor buy more.” He added: “It’s very hard to argue that stocks can go up” without the Federal Reserve pumping another round of liquidity into the financial system. Against that backdrop, Colas said he is cautious about stocks, in both the U.S. and Europe.

The U.S. market in particular is trading more on emotions than fundamentals, he noted. Europe, meanwhile, is nowhere near out of the woods. To be sure, Colas has a stock-market shopping list, but it’s mostly meat and potatoes.

Own defensive, income-producing consumer-focused companies, gold and Treasurys, he advised, and avoid indigestion from the financial sector and Europe.

1. Buy defensive, dividend-paying stocks

Dividend strategies have become extremely popular, to the point that many strategists now are channeling baseball legend Yogi Berra’s attributed quip that “Nobody goes there anymore. It’s too crowded.” Not Colas. He still supports investing in defensive, dividend-paying companies with earnings power. “A global balance-sheet recession takes time to heal,” he said. “Patience will be a virtue.” Consumer staples stocks (NAR:XLP)  are traditional fits for investors in these times — in particular shares of companies that reflect a more frugal customer. “People still eat in a balance-sheet recession,” Colas said. “They’re going to eat, smoke, go to moderately priced restaurants, wear practical clothes. It makes total sense that you should be looking at stocks of companies that make products you use regularly.”

2. Avoid the financial sector

Financial stocks benefit from economic expansion, especially early in a recovery. The sector was one of the best performers in the first half of the year, as buyers figured that the U.S. economy was gathering steam. But nowadays the economic cycle has become more difficult to read. The wheel of economic fortune is spinning erratically, and where it stops, nobody really knows. Accordingly, Colas is staying away from the financial sector (NAR:XLF) “If you’re not sure where you are in the economic cycle, its hard to hold financials,” he said. That’s especially true should the U.S. economy stall, he added. “The first half was constructed out of the early-cycle playbook. That all made total sense.But people are going to revisit whether they’re going to want to be in financials on the back half of the year if that cyclical recovery doesn’t hold.” Added Colas: “If we’re not going to have follow-through and there’s risk to the downside, I don’t see financials doing well. If people are buying financials for a recovery, and the recovery doesn’t materialize, they’re going to sell.”

3. Wait for Europe’s revival

“Euro” has become a four-letter word. But the currency has a brighter future than most people believe, Colas said. Europe’s financial meisters have been roundly criticized for kicking the debt can down the road. But policy makers will face reality eventually, Colas said. At that point, he predicted, the European Central Bank will “cut rates aggressively and buy sovereign debt in the open market” in a way that follows the Federal Reserve’s playbook. In time, Colas envisions what he calls “euro 2.0” — a “fantastically strong” currency that could trade at 1.50 to the U.S. dollar. (WSJ:XX:BUXX)   (NYE:DXY)  Traders expect upside from the euro, too, he said. That’s one reason why the euro (ICAPC:EURUSD)  doesn’t trade closer to parity with the dollar, he added. But Europe is going to get worse economically before it gets better, Colas said. He expects a “big downshot” for the euro zone this fall. “That’s when the ECB is going to act,” he said. “At a new level of economic distress, you will finally have those big solutions.” Then, the biggest moves off the bottom will be in the riskiest assets, he said. “If you want to roll the dice,” Colas said, “Spanish banks will be the big trade on the back half of the year.”

4. Tiptoe around Treasurys

To buy Treasurys at such paltry yields, you have to believe that global economies will slow even more and the U.S. will continue to be a high-quality option for your money. In that case, Treasury yields will decline and the value of these securities will rise. True, some market experts liken Treasury buying to picking up nickels ahead of a steamroller, but Colas is convinced that investors have time before they have to jump out of the way. “There’s a shortage of good financial collateral on the planet,” he said. Buyers, he added, want assets that are “money good, regardless of what else goes on.” In Colas’s slow-growth view, 10-year Treasurys (ICAPSD:10_YEAR)  could yield 1.2% by year-end. On Friday, the 10-year bond yielded near 1.4%. “You buy Treasurys here to not lose,” Colas said. “You will have preserved principal and made a little bit in what will be a very difficult environment for risk assets.”

5. Stick with gold

The gold rush has gone bust. Safety, not speculation, is the first order of business. Moreover, slower growth in India and China — two of the world’s premier gold buyers — has also left gold in the dust. Colas is unruffled. Gold may be a vehicle for speculation at some point again, but nowadays, Colas said, the metal is the “ultimate” insurance contract. “Gold (NAR:GLD)  is a valuable part of a portfolio,” Colas said. “If policy makers make a dramatic misstep, gold is good insurance. If they get it right, then the other 90% of your portfolio is going to do so good you wont mind.”


By Mamta Badkar | Business Insider Apr. 11, 2012

Shilling: Home prices have another 20% to fall

The S&P 500 just broke a five-day losing streak today, but the index is still down from its highs.

Market bear Gary Shilling was on Bloomberg TV today saying that with a hard landing in China and a strong dollar, he expects the operating earnings of S&P 500 companies to drop to $80 this year.

He said this would almost guarantee a major bear market with a PE ratio low of about 10, which implies that the S&P 500 index should be around 800—a 43 percent decline from its recent level. “Bear in mind that the analysts have been cranking their numbers down. They started it off at north of a 110, then 105, they’re now 102. They’re moving in my direction.

But yeah I think that’s true because as you just mentioned you’ve got the foreign earnings that don’t look good because of the recession unfolding in Europe, a stronger dollar so there are translation losses, hard landing in China and the U.S. I think we could see a moderate recession led by consumer retrenchment, and I think that kind of earnings estimate is not unreasonable.”

Shilling said that while the U.S. is “the best of the bad lot”, it doesn’t necessarily mean that people will rush into U.S. stocks if things turn worse in Europe and China. He also said the Fed has been driving stocks and that investors are ignoring other crucial aspects of the economy like housing, consumer spending, and profits. Shilling said he is sticking with his “quartet”; i.e. he’s long treasuries, short stocks, short commodities and long the dollar.

Watch the entire interview at Bloomberg TV.



Charles Nenner on March 10, 2011 predicted deflationary pressures will lower the Dow to 5,000 points – along with a major war by the end of 2012 and into 2013.


Published on Nov 21, 2012 by 


-, a top trends research newsletter, has released a World War 3 simulation video, “The Day The World Ended.” The purpose of this simulation is to show people just how fast things could get ugly if we go to war with Iran. During the simulation, oil prices spike to $130 per barrel, but by the end of the day are trading for $405. Gold and silver become unavailable as the world floods into safety as oil prices force a systemic economic collapse. Riots, civil unrest, and drastic government action are taken during the start of this war. helps many investors strategically look at how future trends and scenarios will help or hurt their portfolio. This simulation is not an exact prediction, however does believe events could unfold quickly if Iran responds striking at the heart of the world’s petroleum market.

Much in the press is about Iran and Israel, but military planners and pundits should take note that Iran is also enemies with Saudi Arabia and they know that the U.S. cannot survive without oil. Though 90% of U.S. oil imports come from areas not in the middle east, prices are set on a global market, so crisis in the middle east will be a direct crisis for the U.S. economy. During the war simulation, Iran strikes Saudi oil fields in response to Israel striking Iranian nuclear sites. Once this happens, to put it nicely, all hell breaks loose.

Those who watch “The Day The World Ended – WW3 Simulation” by, be prepared for an intense 8 minute simulation. Once finished, you can visit to watch more, as well as download their free report on how to survive and thrive during a currency crisis.

In order to watch Part 2, Visit:







By Matthew Boesler | Business Insider

July 24, 2012

Harry S. Dent Jr.

Harry Dent, the financial newsletter writer and CEO of economic forecasting firm HS Dent, has one of the most bearish calls on stocks we’ve ever heard.Appearing on CNBC, Dent explained the demographics-driven thesis behind his Dow 3,000 call: We track demographics.

We were more bullish than anybody in the 1990s and 2000s because we saw the Baby Boom generation spending more money, borrowing more money, as well as technologies and the Internet rising.

Now, it’s the opposite. From 2008 to 2020, there’s going to be less home buying and less spending. The Baby Boomers are going to be saving for retirement, and there’s no way you can stimulate your way out of this.

Over the next decade, we think the worst is likely to happen when this big debt bubble deleverages. The government has been preventing this by forcing money into the banking system. We don’t just have $16 trillion in government debt – we have $42 trillion in private debt that is deleveraging, and $66 trillion (or $80 trillion by different estimates) in unfunded entitlements.

We have the biggest debt bubble in history. This debt bubble needs to deleverage. That’s when stocks collapse the most. We had a big debt bubble deleverage from 1930 to 1933. That’s why we saw such an extreme crash at that time.


September 14, 2012

Most investors were duped by the mainstream financial media into thinking that the broad US stockmarket made an important upside breakout last week, but according to our charts it did no such thing. Sure the market did breakout to new post 2008 – 2009 crash highs, but it DID NOT break out to new highs on longer-term charts, and DID NOT break out upside from the large bearish Rising Wedge that it remains stuck in.

Our 4-year chart below, which shows the uptrend from the 2009 lows in its entirety, makes plain that the market is in the late stages of a huge strongly converging, and thus strongly bearish, Rising Wedge, which results from a steady diminishing of buying power. As we can see it must soon break out from this pattern and if the breakout is to the downside it is likely to plunge, which is likely given the looming Fiscal Cliff which will ravage corporate profits – if it succeeds in breaking out upside it will buy it more time, but this is considered a much less likely outcome.


Our long-term 20-year chart shows that the market has risen up into a zone of strong resistance approaching its 2000 and 2007 major highs – so much for the great breakout. Looks more like a great place for it to turn tail and start another bearmarket.


So what has been happening elsewhere while investors in US markets have been led to the edge of the cliff by the QE pied piper? Investors in Chinese markets do not seem so enthralled with the future outlook at all, as our 4-year chart for the Shanghai Composite index makes clear. It is incredible to think that while the US markets have wafted higher by about 26% since the start of 2010, the Chinese market has slumped by 36%.


So which group of investors is right about the outlook for the global economy? – before you go ahead and place your bets you ought to consider the following chart for the Baltic Dry Shipping Index…


…and we can put this all together on one disturbing chart that enables us to make a direct comparison between these 3 elements…


This Baltic Dry Index is a truly frightening chart, as it is already at the dismally low extremes plumbed during the depths of the 2008 market crash. If it is a reflection of the true state of affairs it means that world trade is imploding – and that means that the US stockmarket is hanging on a thread, with investors smoking the QE hopium pipe. Don’t believe it? – before you go off searching for evidence that this chart is somehow skewed and no longer functioning as a true reflection of the state of the world economy, you might like to take a look at the following 2 charts, and then try your hand at finding an excuse for them too…

The 1st is a chart for the US trash index, and while there is scope for distortion here as this is trash carried by rail freight, it is certainly not encouraging, and as we can see it nosedived around the time of the 2008 crash and is plummeting again right now.


Before you dismiss the previous chart as a load of rubbish take a look at this next chart which shows the Velocity of Money going back many years, as we can see it has recently slowed to an alarmingly low level – well below its lows at the depths of the 2008 market crash. Are you starting to get the picture yet? – is the penny starting to drop?? Knock knock – is there anybody in there???


A big reason for the US stockmarket’s rally last week was nothing to do with the economy and everything to do with the steep decline in the dollar, so it was just rising to compensate for the dollar drop. The main thing about the dollar is that it has been written off by many commentators as “toast” – and every time that has happened in the past it has made a comeback. Could it be different this time? – Could it really be toast this time round? – anything is possible but the probability of a rebound here is high for reasons that we will now examine.

The entire uptrend in the dollar from the lows of July last year can be seen to advantage on a 14-month chart. On this chart we can see that it appears to have broken down from the main uptrend, a development presaged by the earlier weaker impulse wave that took it up to about 84 in July. This may mark the start of a breakdown from a bearish Rising Wedge, or the channel may be becoming less steep as shown, but with adjusted channel support and support from earlier highs and a rising 200-day moving average close by, it is believed to be too soon to write off the dollar. We see also on this chart that the dollar index is at its normal oversold limit for this uptrend. All this means that the dollar could turn up soon.


With 90% of investors in US markets now looking to the Fed to save the day by waving its magical QE wand, the scope for disappointment is now huge – and there may be nothing to look forward to after the FOMC meeting on the 13th – and what if they do a big QE immediately? First of all it would take time to take effect, and there is no more time. Secondly, even if the banks stopped greedily sitting on all of the QE cash and let it out into the real economy, the result would be roaring inflation, and inflation is already high enough in the real economy, given that it is teetering on the verge of collapse. This inflation would impoverish consumers who would then spend less, thus adversely impacting corporate profits, resulting in falling stockmarkets – so they are damned if they do and damned if they don’t.

Given that stockmarkets generally discount the economy 6 to 9 months ahead, it is clear that the situation for the market is already extremely dangerous – the only reason that it hasn’t started down already is false hopes over a QE rescue.

The great thing about the current situation is that the latest new high by the market is giving us an opportunity to offload stocks at generally very favorable prices and to reverse position into bear ETFs and Puts, so that we can then feast on the ensuing severe decline while others are losing their shirts.

What will happen to gold and silver if the stockmarket goes into the tank? – well, past experience demonstrates that things could get ugly, although this time we have to factor in that before too much longer the bond market could tank too. Right now after a near vertical ascent silver has become super critically overbought on a short-term basis, meaning that there is a very high probability of it burning out, at least temporarily, very soon.


The latest COTs show Commercial short and Large Spec long positions for silver are at levels that in the past have marked reversal points. Could these readings get even higher? – anything is possible, they could fly off the scale, but this is clearly becoming an increasingly dangerous trade on the long side on a short-term basis at least.


It is suspected that Smart Money, well aware of the trap that has been set, will be taking profits ahead of the FOMC speeches on the 13th, leaving the news orientated little guy holding the bag as usual, so prices could start to come off the top even ahead of this date. It is therefore considered prudent to ditch the vast majority of any remaining long positions in the broad market early this coming week, and also to take positions in bear ETFs and Puts, according to personal preference. If prices rise after the statements any such rally is expected to be short-lived once reality sets in – with so many now bullish, there can’t be many left to buy whatever comes out of the Fed.

One erroneous theory doing the rounds is that the markets “won’t be allowed” to drop before the election, because this might damage Barack Obama’s chances of re-election. There are 2 points to make regarding this. One is that the Democratic and Republican parties are 2 heads of the same hydra, and they are both controlled by the same ruling elites, so that the US elections are a farce. The second is that Israel is known to like Mitt Romney, the Republican candidate, so a market crash to get him in would suit them, although either candidate would serve equally well.

Now that their coats have grown back, it’s time for US investors to get fleeced again.


By: Maria Bartiromo | Anchor |
October 1, 2012

The focus on fundamentals is about to begin.

For the last three months, investors have been ignoring the weak economic backdrop and plowing money into stocks because of the cheap money swirling from central banks around the world. Investors are searching for yield in an environment of rock bottom rates.

But judgment day is coming.

The fourth quarter has begun and the third-quarter earnings will start to flow, giving us a window on just how anemic the last three months have been in the real economy. (Read More:Stocks End Lower, but Log Best Third Quarter Since 2010.)

That doesn’t mean the chasing of the highly volatile big performers will let up. But it does mean selectivity when buying stocks will be more important than ever. And the risks of a big sell-off are higher.

Big institutions and other deep pools of capital, such as pension funds, have been playing catch up, chasing stocks even in the face of anemic economic growth, stubbornly high unemployment, and a mess in Europe that has yet to be resolved. (Read MoreFed to Ease Until Jobless Rate Falls Below 7%: Fed’s Evans.)

The Dow Jones Industrial Average is up more than 10 percent year to date, 4.3 percent in the third quarter. The S&P 500 index is more than 15 percent year to date, and 5.8 percent in the past quarter, and the Nasdaq Composite Index , the big winner of all is up nearly 20 percentyear to date and 6.2 percent in the third quarter.

But as money has flowed into stocks, the backdrop for corporate earnings has worsened. Gross domestic product, the broadest measure of the economy, was revised downward to show a slow 1.3 percent growth versus an earlier estimate of 1.7 percent.

Earnings for the third quarter are seen contracting — S&P Capital IQ is expecting a negative showing for third-quarter numbers, with profits down 1.9 percent. It would be the weakest earnings picture since the second quarter of 2009, smack dab in the middle of the recession.

Revenue is seen growing just 1.4 percent. To put that in context, historically over the last 10 years, revenue has grown some 7 percent.

The drags in the third quarter will once again be materials and energy, where earnings are expected to fall about 19 percent apiece.

There are some positives, including the financials, which of course has been where the momentum has been in stocks. Earnings for the banks are expected to rise 8 percent, with the commercial banks and insurance companies seeing gains of some 25 percent, which is coming off of a low base. (Read More: Is Third Quarter the Bottom for Slowing Earnings?)

Rich Peterson from S&P Capital Markets said the reason the financials are expected to see a boost is that the third quarter has been busy for leveraged buyout deals — the best since the third quarter of 2007, when more than $45 billion dollars in deals took place.

The fourth quarter will be boosted by more catch up: There’s about $100 billion in so-called dry powder — unused capital from earlier fundraising — whereby private-equity firms may be rushing to get deals done before year end.

Once again, future guidance from these companies will be critical and we will get more clarity once we know who will occupy the White House.

But the guidance in the past few months has not been a positive. Of the 101 companies that provided guidance for the third quarter, some 72 percent were negative. (Read MoreObama-Romney Debate Faces Off-Script Challenge.)

Things are seen picking back up in the fourth quarter, with overall earnings growth expected at nearly 10 percent — but many sources I speak to are questioning such a bounce from negative to double-digit growth.

Revenue is still expected to be anemic in the fourth quarter, coming in at about 3 percent, with materials seen rebounding 25 percent based on increased demand for construction, metals, and mining.

By all counts, these numbers are underwhelming. Particularly in a market that does not have a whole lot of room for error with the Fed bond-buying program taking stocks high and expectations even higher.

September 25, 2012

The message from this week’s sell off in global stock markets could not be clearer: The summer time rally, fueled by optimism over central bank stimulus measures, is now over and it’s time to brace for a period of renewed volatility and uncertainty, analysts say.

The S&P 500 index on Tuesday suffered its worst day in three months, while Asian stocks slumped on Wednesday, with Japan’s benchmark Nikkei stock index down 1.7 percent in early trade. The sharp sell-off and renewed concerns about Spain’s economy are likely to set the tone for European markets on Wednesday.

A retreat in global markets, which have seen stellar gains over the last three months, reflects a shift in sentiment among investors, analysts say. They add that now the world’s major central banks have unveiled steps to help their economies, focus has returned to the economic outlook, which remains weak in much of the world.

That means markets are expected to remain volatile heading into the final quarter of the year, with further selling in equities likely unless solid signs of an economic recovery emerge.

“The honeymoon period for markets is over. There is a realization that central banks have laid their cards on the table now and not much more can be done to help growth,” said Justin Harper, market strategist at IG Markets in Singapore. “Looking at the hard cold facts, economies globally are still struggling to recover. While markets remain toppy, more sell-offs could be on the cards as investors fail to find a new catalyst to drive equities higher.”

The European Central Bank (ECB) cheered markets at the start of the month when it outlined how it would help bring an end to the euro zone debt crisis with a plan to buy the bonds of those euro zone countries facing high borrowing costs.

Markets got another boost two weeks ago when the Federal Reserve unveiled an aggressive asset-buying plan to boost the U.S. economy and revive employment growth, while the Bank of Japan surprised markets last week when it delivered its own monetary easing measures.

A new week, however, has bought of dose of reality back to markets. U.S. heavy equipment maker Caterpillar spooked markets after it said on Monday that sluggish global growth prompted it to cut its profit outlook. (Read MoreWhat Caterpillar’s Profit Warning Means for Global Growth.)

Protests in Spain on Tuesday against unpopular austerity measures, meanwhile, act as a reminder that the euro zone’s debt crisis is far from over.

“What we’re seeing is a bit of (negative) headline news and volatility is back in the market place,” John Hailer, President and CEO at Natixis Global Asset Management in Boston told CNBC Asia’s “Squawk Box.”

“The truth is that we have our own problems in the U.S. — we still don’t see jobs growth. So without jobs growth, with the issues in Europe and the Chinese economy, we have a bunch of things happening that are forcing volatility back into the market,” he added.

The U.S. unemployment rate, which stood at 8.1 percent in August, has remained stubbornly high and analysts say a sustained fall in the rate is one thing investors, who appear to be moving to the sidelines, will be watching out for before they move back into equities.

“There’s too much uncertainty for investors at the moment so many are sitting and waiting,” Jill Cuniff, portfolio manager at Edge Asset Management in Hong Kong, told CNBC on Tuesday.

Bright Spots

Some analysts believed that despite the volatility, there were some bright spots investors should keep an eye on.

“There have been bright spots in the U.S. economy and there is an interest in investing in the U.S. … there are also signs that the housing market has bottomed, so that is positive,” Cuniff said.

Bhaskar Laxminarayan, chief investment officer at Bank Pictet and Cie, told “Squawk Box” on Wednesday that stimulus measures from central banks will provide support for Asian equity markets.

Shares in the region have gained about 15 percent since early June, but are off almost 2 percent from four-month highs hit last week.

“Risk is certainly back to a certain extent. But the fact is that so much liquidity is being pumped in, so we should see equities rally for a while,” he said.

Laxminarayan added: “I think that is supported by the fact that a lot of tail risk has been taken out by Draghi’s talk, stronger action then we’re used to from the Fed and the (U.S.) housing market is bottoming out,” referencing a pledge by ECB President Mario Draghi in late July to do whatever it takes to save the euro area from collapse. Those comments helped trigger sharp gains in global stock markets.

“But we are in wait-and-see mode for now,” he said.


By: Patti Domm | CNBC Executive News Editor
September 28, 2012

Traders expect October to give the markets a scare, starting with news on the economy and jobs in the week ahead.

After a surprisingly good performance in the third quarter, the thinking is the stock market is ready to pull back, especially after a few choppy sessions and a new batch of data that should continue to show a slow-moving, ‘zombie like’ economy.

Stocks logged the best third quarter performance since 2010. For the quarter, the Dow surged 4.32 percent and the S&P 500 soared 5.76 percent.

The coming week could provide plenty of excuses to take profits, beginning with Monday’s ISM manufacturing data, again expected to show weakness in the sector.

Manufacturing reports from China, over the weekend, and from Europe, also Monday, will provide a look at just how sluggish global activity has become. (Read More: Stocks to Ward Off China Slump?)

Friday’s jobs report is expected to show the low level of job creation continued in September, after August’s 96,000 nonfarm payrolls. The U.S. election is also a focus this week, with the first presidential debate in the tight race Wednesday evening.

“I think the overarching thing is it’s the new quarter. What’s it mean? Did we experience any window dressing? It doesn’t feel like it to me,” said Art Hogan of Lazard Capital Partners. “To me, there’s more downside risk than upside risk.”

“I’m not sure what the catalyst is going to be, but we’re due,” said Hogan.

Counterbalancing the disappointing economic news has been the willingness of global central banks to take action, and the Fed’s quantitative easing program is expected to provide a floor for the market if it does start to correct.

Of interest will be Fed Chairman Ben Bernanke’s comments Monday on the economy before the Economic Club of Indiana. The European Central Bank also holds a rates meeting Thursday, and while it is not expected to act, ECB President Mario Draghi will hold a briefing afterwards.

“Because of quantitative easing and we know the Fed’s going to be doing QE for a while, I think that takes some of the sting out of the economic data,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman. The Fed’s latest program is open ended and takes aim at the housing market, with the purchase of $40 billion in mortgage securities per month.

Chandler said he expects the dollar to gain some traction, around the economic data this week, and because of Fed easing. “We’re moving to a ‘risk off’ environment,” he said.

While the data has been disappointing, some of it has not, including housing and some consumer-related readings. University of Michigan consumer sentiment, for instance, was revised down from 79.2 to 78.3 in the final September report, but interestingly, the expectations of consumers rose, and consumer confidence, reported in the past week, also improved.

“I think the auto sales next week could be kind of interesting. We do have strong auto sales. They’re probably closer to the average for the full year. We haven’t seen deterioration yet. The personal consumption data is still holding up pretty well,” Chandler said.

Auto sales are reported Tuesday. expects car sales rose 11 percent from last year to 1.2 million, for a seasonally adjust selling rate of 14.6 million compared to 14.5 million in August.

The jobs number could also show these mixed economic messages—a weaker manufacturing sector and a consumer showing some signs of life. Retail hiring, for instance, could add to the jobs number, putting it at about 130,000 for the private sector, according to Diane Swonk, chief economist at Mesirow Financial.

“Retailers are hiring but we’re going to be losing some Wall Street people by the end of the week. There’s going to be some cross currents,” she said. The Chicago teachers’ strike, now resolved, could also have impacted the number by about 20,000, she said. Swonk expects total nonfarm payrolls, including public sector layoffs, to total 110,000.

She also sees third quarter growth at a soft 1.6 percent, after second quarter revisions in the past week showed that period grew at just 1.3 percent.

Wells Fargo institutional equity strategist Gina Martin Adams said she is actually more interested in the ISM manufacturing number than jobs this week. “I’ve been more focused on the ISM report just because the manufacturing sector seems to be at the leading edge of the decline,” she said.

“I’m looking for a positive ISM to be one of the signs of a turnaround…I don’t think we’ll get it next week,” she said. The reading was 49.6 last month, and a number below 50 shows contraction.

“I think jobs are important to the economic landscape but maybe just simply because the Fed is going to back stop until they improve,” said Adams.

Edging Toward Fiscal Cliff

The outcome of the election and the resulting handling of the so-called “fiscal cliff” are seen as keys to the performance of markets in the fourth quarter, and to the economic outlook.

Fiscal cliff is used to describe the double whammy to the economy that could come from the dual expiration of Bush-era tax cuts and automatic spending cuts Jan. 1, if the lame duck Congress does not act. The outcome on taxes and spending is expected to be different, depending on who wins the White House and Senate in November.

“The number of times we’re going to see the candidates and hear about the candidates’ platforms does increase as you get closer and closer to the election so it does become more central to the market’s concerns,” said Adams. “I just think at this particular time, we have earnings right around the corner, and with the situations with Greece and Span.. There’s just so many macro issues to deal with. The election is one, not first and foremost.”

Hogan said the market is currently pricing in status quo with a Democratic White House and Senate, but that could change when President Barack Obama and Republican Mitt Romney are face-to-face Wednesday.

“If the opinion on the results of the election changes because of the debate, it could be a market moving event,” said Hogan. “If there’s an upside surprise in Mitt Romney’s performance here, and you see the spreads in the pivotal states tick up a bit, I think the market looks at that as a positive.”

The Republican ticket is widely favored on Wall Street, since Romney’s stand on taxes and spending are viewed as more favorable for the economy and markets. A Republican sweep, while not apparent in the polls, would also be expected to bring a swifter resolution to the fiscal cliff.


Dominique de Kevelioc de Bailleul | Source: UK Telegraph

August 30, 2012

“I think we are heading for a market shock in September or October that will match anything we have ever seen before,” an unnamed source at a major European bank told the U.K Telegraph, Friday.

With the fear of, yet, more war—especially with Iran, a likely spark for WWIII —liquidity-trapped central bankers, political squabbling within German and between eurozone members over the fate of the euro, solid evidence of a global economic catastrophe lurking, and a nasty U.S. presidential election between two grotesque candidates nearing, any hopes of consumer spending or capital formation to come to the aid of an insolvent banking system has already been thoroughly discounted in the price of the bank stocks. 

And of course, it was the smart money skipping town during the two-year-long phony ‘rebound’, leaving the inevitable ‘act II’ of despair to the retail investor and captured institutionals as the usual bag holders. “A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way,” according to the Telegraph journalists, Harry Wilson and Philip Aldrick. Contrary to the paid cheerleaders of U.S. economy, no one is in the mood to commit to anything productive or able to consume the products (if he could) during the most tumultuous times since the Great Depression, leaving the middleman, the banks, with nothing to do. “The problem is a shortage of liquidity – that is what is causing the problems with the banks.

It feels exactly as it felt in 2008,” a senior London-based banker told the Telegraph. Whether the problem is a shortage of liquidity or an abundance of banks with an overabundance of bad assets, several very big banks are on the brink of failure—again.  And all the banker insiders know who is who, and who isn’t going to make it unless the money printing and bailouts increase more rapidly—and soon. This time, the world’s no. 1, 5 and 10 ranked European banks (by assets) are in trouble, with combined assets totaling $7.6 trillion.

“Credit default swaps (CDS’s) on the bonds of Royal Bank of Scotland (no. 10), BNP Paribas (no. 5), Deutsche Bank (no. 1) and Intesa Sanpaolo, among others, flashed warning signals on Wednesday,” stated the Telegraph. The article goes on to quote that the CDS rates on RBS paper reached record highs, Wednesday, surpassing the spike premium paid during the height of the global financial meltdown of October 2008. So, ‘act II’ of the global financial crisis is about to begin, just as George Soros had warned.

According to Soros’ SEC 13-F (ending Jun, 30), the billionaire insider reported selling all of his fund’s banking sector shares, and showed his appetite for holding gold increased markedly. Therefore, the question doesn’t appear to be whether the Fed will be there to save the U.S. banking system (it will), the question is whether the ECB will be allowed to copycat the Fed.  We’ll know on Sept. 12, when the German high court rules on the constitutionality of participating further in eurozone bailouts.

And a further question is: when will the central banks overtly announce more easing?  Will the ECB (assuming Germany somehow gives it the green light) and the Fed wait for something to ‘break’ before acting, or will the central bankers preempt the inevitable collapse? We’ll find out in September and/or October.  In the meantime, there are always the black and gray swans of war (or something out of the blue) to further complicate any expectation of a direction to these markets.


Michael Snyder
The Economic Collapse
Oct 4, 2012

In the financial world, the month of October is synonymous with stock market crashes.  So will a massive stock market crash happen this year?  You never know. The truth is that our financial system is even more vulnerable than it was back in 2008, and financial experts such as Doug Short, Peter Schiff, Robert Wiedemer and Harry Dent are all warning that the next crash is rapidly approaching.

We are living in the greatest debt bubble in the history of the world and Wall Street has been transformed into a giant casino that is based on a massive web of debt, risk and leverage.  When that web breaks we are going to see a stock market crash that is going to make 2008 look like a Sunday picnic.  Yes, the Federal Reserve has tried to prevent any problems from erupting in the financial markets by initiatinganother round of quantitative easing, but 40 billion dollars a month will not be nearly enough to stop the massive collapse that is coming.  This will be explained in detail toward the end of the article.  Hopefully we will get through October (and the rest of this year) without seeing a stock market collapse, but without a doubt one is coming at some point.  Those on the wrong end of the coming crash are going to be absolutely wiped out.

A lot of people focus on the month of October because of the history of stock market crashes in this month.  This history was detailed in a recent USA Today article….

When it comes to wealth suddenly disappearing, October can be diabolically frightful. The stock market crash of 1929 that led to the Great Depression occurred in October. So did the 22.6% plunge suffered by the Dow Jones industrial average in 1987 on “Black Monday.”

The scariest 19-day span during the 2008 financial crisis also went down in October, when the Dow plunged 2,675 points after investors fearing a financial collapse went on a panic-driven stock-selling spree that resulted in five of the 10 biggest daily point drops in the iconic Dow’s 123-year history.

So what will we see this year?

Only time will tell.

If a stock market crash does not happen this month or by the end of this year, that does not mean that the experts that are predicting a stock market crash are wrong.

It just means that they were early.

As I have said so many times, there are thousands upon thousands of moving parts in the global financial system.  So that makes it nearly impossible to predict the timing of events with perfect precision.  Financial conditions are constantly shifting and changing.

But without a doubt another major financial collapse similar to what happened back in 2008 (or even worse) is on the way.  Let’s take a look at some of the financial experts that are predicting really bad things for our financial markets in the months ahead….

Doug Short

According to Doug Short, the vice president of research at Advisor Perspectives, the stock market is somewhere between 33% and 51% overvalued at this point.  In a recent article he offered the following evidence to support his position….

● The Crestmont Research P/E Ratio (more)

● The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)

● The Q Ratio, which is the total price of the market divided by its replacement cost (more)

● The relationship of the S&P Composite price to a regression trendline (more)

Peter Schiff

Peter Schiff, the CEO of Euro Pacific Capital, has been one of the leading voices in the financial community warning people about the crisis that is coming.

During a recent interview with Fox Business, Schiff stated that the massive financial collapse that we witnessed back in 2008 “wasn’t the real crash” and he boldly declared that the “real crash is coming”.

So is Schiff right?

We shall see.

Robert Wiedemer

Economist Robert Wiedemer warned people what was coming before the crash of 2008, and now he is warning that what is coming next is going to be even worse….

“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”

Harry Dent

Financial author Harry Dent believes that the stock market could fall by as much as 60 percent in the coming months.  He is convinced that stocks are hugely overvalued right now….

“We have the greatest debt bubble in history. We will see a worldwide downturn. And when you are in this type of recessionary environment stocks should be trading at five to seven times earnings.”

So are these guys right?

We shall see.

But I do find it interesting that some of the biggest names in the financial world are currently making moves as if they also believe that a massive financial crisis is coming.

For example, as I have written about previously, George Soros has dumped all of his holdings in banking giants JP Morgan, Citigroup and Goldman Sachs.

Infamous billionaire hedge fund manager John Paulson, the man who made somewhere around 20 billion dollarsbetting against the U.S. housing market during the last financial crisis, is making massive bets against the euro right now.

So where are these financial titans putting their money?

According to the Telegraph, both of these men are pouring enormous amounts of money into gold….

There was also news last week in an SEC filing that both George Soros and John Paulson had increased their investment in SPDR Gold Trust, the world’s largest publicly traded physical gold exchange traded fund (ETF).

Mr Soros upped his stake in the ETF to 884,400 shares from 319,550 and Mr Paulson bought 4.53m shares, bringing his stake to 21.3m.

At the current price of about $156 a share, these are new investments of about $88m of Mr Soros’ cash and more than $700m from Mr Paulson’s funds. These are significant positions.

So why would they do this?

Why would they pour millions upon millions of dollars into gold?

Well, it would make perfect sense to put so much money into gold if a massive financial crisis was coming.

So is the next financial crisis imminent?

We will see.

Most “financial analysts” that appear in the mainstream media would laugh at the notion that a stock market crash is imminent.

Most of them would insist that everything is going to be perfectly fine for the foreseeable future.

In fact, most of them are convinced that quantitative easing is going to cause stocks to go even higher.

After all, isn’t quantitative easing supposed to be good for stocks?

Didn’t I write an article just last month that detailed how quantitative easing drives up stock prices?

Yes I did.

So how can I be writing now about the possibility of a stock market crash?

Aren’t I contradicting myself?

Not at all.

Let me explain.

The first two rounds of quantitative easing did indeed drive up stock prices.  The same thing will happen under QE3, unless the effects of QE3 are overwhelmed by a major crisis.

For example, if we were to see a total collapse of the derivatives market it would render QE3 totally meaningless.

Estimates of the notional value of the worldwide derivatives market range from 600 trillion dollars all the way up to 1.5 quadrillion dollars.  Nobody knows for sure how large the market for derivatives is, but everyone agrees that it is absolutely massive.

When we are talking about amounts that large, the $40 billion being pumped into the financial system each month by the Federal Reserve during QE3 would essentially be the equivalent of spitting into Niagara Falls.  It would make no difference at all.

Most Americans do not understand what “derivatives” are, so they kind of tune out when people start talking about them.

But they are very important to understand.

Essentially, derivatives are “side bets”.  When you buy a derivative, you are not investing in anything.  You are just gambling that something will or will not happen.

I explained this more completely in a previous article entitled “The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System“….

A derivative has no underlying value of its own.  A derivative is essentially a side bet.  Usually these side bets are highly leveraged.

At this point, making side bets has totally gotten out of control in the financial world.  Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it.  This system is almost entirely unregulated and it is totally dominated by the big international banks.

Over the past couple of decades, the derivatives market has multiplied in size.  Everything is going to be fine as long as the system stays in balance.  But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.

Five very large U.S. banks (including Goldman Sachs, JP Morgan and Bank of America) have combined exposure to derivatives in excess of 250 trillion dollars.

Keep in mind that U.S. GDP for 2011 was only about 15 trillion dollars.

So we are talking about an amount of money that is almost inconceivable.

That is why I cannot talk about derivatives enough.  In fact, I apologize to my readers for not writing about them more.

If you want to understand the coming financial collapse, one of the keys is to understand derivatives.  Our entire financial system has been transformed into a giant casino, and at some point all of this gambling is going to cause a horrible crash.

Do you remember the billions of dollars that JP Morgan announced that they lost a while back?  Well, that was caused by derivatives trades gone bad.  In fact, they are still not totally out of those trades and they are going to end up losinga whole lot more money than they originally anticipated.

Sadly, that was just the tip of the iceberg.  Much, much worse is coming.  When you hear of a major “derivatives crisis” in the news, you better run for cover because it is likely that the entire house of cards is about to start falling.

And don’t get too caught up in the exact timing of predictions.

If a stock market crash does not happen this month, don’t think that the storm has passed.

A major financial crisis is coming.  It might not happen this week, this month or even this year, but without a doubt it is approaching.

And when it arrives it is going to be immensely painful and it is going to change all of our lives.

I hope you are ready for that.


Michael Snyder
The Economic Collapse

Is the stock market going to crash by the end of this year?  Are we on the verge of major financial chaos on a global scale? Well, this is the time of the year when investors start getting nervous.  We all remember what happened during the fall of 1929, the fall of 1987 and the fall of 2008.  However, it is important to keep in mind that we do not see a stock market crash in the fall of every year.  Some years the stock market cruises through the months of September, October, November and December without any problems whatsoever.  But this year conditions certainly seem to be right for a “perfect storm” to develop.

Technical indicators are screaming that a stock market decline is imminent and sources in the financial industry all over the world are warning that a massive crisis is on the way.  What you are about to read should alarm you.  But it is not a guarantee that anything will or will not happen.  When Ben Bernanke gives his speech at the Jackson Hole summit on Friday he could announce to the rest of the world that the Federal Reserve has decided to launch QE3 and that the Fed will be printing up trillions of new dollars.

If that happened global financial markets would leap for joy.  So it is always a dangerous thing when anyone out there tries to tell you that they can “guarantee” what is about to happen in the financial world.  There are just so many moving parts.  But if we do not see major intervention by the governments of the world or by global central banks a major financial crisis could rapidly develop this fall.  The conditions are certainly right for a stock market collapse, and we could easily see a repeat of what happened back in 2008.

The truth is that the second half of 2012 looks a little bit more like the second half of 2008 with each passing day.

Just check out what Bob Janjuah of Nomura Securities has been saying….

Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides.

Others are issuing similar warnings.  For example, the following is what a couple of Bank of America analysts said in a report the other day….

Our strategists see an unusually high number of macro catalysts over the next 3-6 months that could take markets lower. We expect economic growth to disappoint in the second half of the year in anticipation of the fiscal cliff. This would exacerbate any slowdown from the deepening recession in Europe and decelerating growth in emerging markets. There is also the ongoing tension in the Middle East, the potential for a US credit downgrade and accelerating downward analyst estimate revisions. To top it off, September is seasonally the weakest month of the year for stock price returns.

There has been an unusual amount of chatter in the financial world about the September to December time frame.

That could mean something or it could mean nothing.

But is is very interesting to watch what some top financial insiders are doing with their stocks right now.

Dennis Gartman, the publisher of the Gartman Leter, has dumped all of his stocks at this point.

As I have written about previously, George Soros has dumped all of his stock in banking giants JP Morgan, Citigroup and Goldman Sachs.

Are they just being paranoid?

Or do they know something that we do not?

If you are looking for the next “Lehman Brothers moment” in the United States, you might want to watch Morgan Stanley.  Morgan Stanley was heavily involved in the Facebook IPO disaster, earlier this year their credit rating was downgraded, and now there are persistent rumors that Morgan Stanley is in big trouble and that it will be allowed to fail.  You can check out some of these rumors for yourself herehere and here.

But of course as I have said all along the center of the coming crisis is going to be in Europe, and many analysts agree with me.  For example, the following is what the chairman of Casey Research, Doug Casey, had to say during a recent interview….

Europe is a full cycle ahead of the U.S. Its governments and its banks are both bankrupt. It’s a couple of drunks standing on the street corner holding each other up at this point. Europe is in much worse shape than the U.S. It’s highly regulated, highly taxed and much more socially unstable.

Europe is going to be the epicenter of the coming storm. Japan is waiting in the wings, as is China. This is going to be a worldwide phenomenon. Of course, the U.S. will be in it, too. We’re going to see this all over the world.

Much of southern Europe is already experiencing depression-like conditions.  Unemployment in both Greece and Spain is well above 20 percent and both economies are steadily shrinking.

Money is flowing out of Spanish banks at an unprecedented rate right now.  Just take a look at these charts.  The only thing that is going to keep the Spanish banking system from totally collapsing is outside intervention.

But the truth is that all of Europe is in big trouble.  Even German companies are slashing job right now. For example, check out what Siemens is up to….

German engineering conglomerate Siemens (SIEGn.DE) is in early internal talks to cut thousands of jobs in response to a weakening economy, particularly in Europe, a German newspaper reported.

Decisions could be made in October or November, according to daily Boersen-Zeitung, which did not specify its sources.

A Siemens spokesman declined to comment.

We are living in the greatest debt bubble in the history of the world, and at some point that bubble is going to burst in a very messy way.

It is vital that people understand that our system is not even close to sustainable.

Knowing exactly when it will collapse is not nearly as important as understanding that a collapse is absolutely inevitable.

I think what former World Bank economist Richard Duncan had to say recently is very helpful….

“The explosion in credit drove economic growth in the U.S. and around the world, and now that’s the only thing that’s keeping us from collapsing in a debt/deflation spiral,” he said. “[What] I think everybody needs to understand is that the kind of economy that we have now, it’s not capitalism. It has very little in common with capitalism. Capitalism was an economic system in which the government played very little role …. Under capitalism, gold was money and the government had nothing to do with it. Now the central bank creates the money and manipulates its value.”

And he is very right.

We aren’t seeing a failure of capitalism.

What we are witnessing is the failure of debt-based central banking.

And if you think that the global elite are not aware of what is happening then you have not been paying attention.

This summer the global elite have been preparing very hard.  Either they are getting very paranoid or they know things that we do not.

If you want to catch up on what the global elite have been up to recently, check out these three articles that I have published previously….

-“Are The Government And The Big Banks Quietly Preparing For An Imminent Financial Collapse?

-“Startling Evidence That Central Banks And Wall Street Insiders Are Rapidly Preparing For Something BIG

-“Jacob Rothschild, John Paulson And George Soros Are All Betting That Financial Disaster Is Coming

If you are waiting for the nightly news to tell you what to do, then you have not learned anything.

Did anyone in the mainstream media warn you about what was about to happen back in 2008?

Of course not.

The “authorities” insisted that everything was going to be just fine and many average Americans were absolutely wiped out.

So don’t expect someone to come along and nicely inform you that your retirement savings are about to be absolutely devastated.

In this day and age it is absolutely critical for people to learn to think for themselves.

Barack Obama is not going to save you.

Mitt Romney is not going to save you.

The U.S. Congress is not going to save you.  They are too busy living the high life at taxpayer expense.

The system is not looking out for you.  Nobody is really going to care if your financial planning gets turned upside down.  This is a cold, cruel world and you need to understand how the game is played.  The financial insiders are looking out for themselves and most of them usually are able to avoid financial disaster.

Average folks like you and I are normally not so fortunate.

There are lots of warning signs that indicate that this fall could be a very turbulent time for global financial markets.

Ignore them at your own peril.


Greg Hunter’s

“We’re at 2008 crash levels,” says Ron Hera of   Hera thinks,“The dollar has been artificially strong . . . the dollar is due for a sharp decline.”  The Federal Reserve is likely to start printing money soon to spur the economy, and that will add to already rising commodity prices.   Hera says, “Silver is massively undervalued.  A smart investor would just buy silver and wait for the supply/demand fundamentals . . . to cause the price to rise.”  Rising food prices are especially troubling to Hera because of their negative impact on global stability.  He says, “Spiking corn, wheat and soybean prices” are leading to “political instability on a large scale.”   Join Greg Hunter as he goes One-on-One with Ron Hera.








Mac Slavo

NOVEMBER 25, 2012

A new effort by the Obama administration, Congress, the Treasury Department and labor unions aims to fundamentally alter how Americans plan and save for retirement.

Warnings have been popping up over the last several years about the possibility of re-appropriating the $3.5 Trillion sitting in private retirement and spreading those funds around to Americans who are deemed less fortunate.

This couldn’t possibly happen in America, right? At one time, most Americans also believed heath care mandates that force Americans at the barrel of a gun to surrender portions of their earnings into a universal system for all would never happen. Well, it did.

And now, those who would control and regulate every aspect of our lives are making a new push; one whose efforts will ultimately end in the seizure and redistribution the personal retirement savings of every American who has ever put money into a 401(k) or IRA.

This is no longer in the realm of conspiracy, but rather, public record.

A recent hearing sponsored by the Treasury and Labor Departments marked the beginning of the Obama Administration’s effort to nationalize the nation’s pension system and to eliminate private retirement accounts including IRA’s and 401k plans, NSC is warning.

The hearing, held in the Labor Department’s main auditorium, was monitored by NSC staff and featured a line up of left-wing activists including one representative of the AFL-CIO who advocated for more government regulation over private retirement accounts and even the establishment of government-sponsored annuities that would take the place of 401k plans.

“This hearing was set up to explore why Americans are not saving as much for their retirement as they could,” explains National Seniors Council National Director Robert Crone, “However, it is clear that this is the first step towards a government takeover. It feels just like the beginning of the debate over health care and we all know how that ended up.

A representative of the liberal Pension Rights Center, Rebecca Davis, testified that the government needs to get involved because 401k plans and IRAs are unfair to poor people. She demanded the Obama administration set up a “government-sponsored program administered by the PBGC (the governments’ Pension Benefit Guarantee Corporation).”

Such “reforms” would effectively end private retirement accounts in America, Crone warns.

“These people want the government to require that ultimately all Americans buy these government annuities instead of saving or investing on their own.The Government could then take these trillions of dollars and redistribute it through this new national retirement system.

“This effort ultimately is designed to grab the retirement nest eggs of America’s senior citizens. This new government annuity scheme, even if it is at first optional, will turn into a giant effort to redistribute the wealth of America’s older citizens,” explains Crone. “This scheme mirrors what I expect the President will try to do with Social Security. He wants to turn that program into a welfare program, too.”

Via: National Seniors Council

With the re-election of President Obama, a majority Democrat Senate and powerful organization and lobbying from labor unions, we can fully expect legislation that will shift private accounts into the public coffers  to become reality in the not too distant future.

In fact, the push to mold the perceptions surrounding this issue is already on, as highlighted in a recent Market Watch article which claims to explain the 10 Things 401(k) Plans Won’t Tell You.

Did you know, for example, that 401(k) plans aren’t supposed to provide you with full retirement benefits, and that they were originally intended to be “mere supplements” to other plans, and that they only “benefit the rich?” Not only that, but according to the article, no one can really tell you how much money you’re going to need; all of those math formulas and expert calculations were all wrong. Additionally, there are so many hidden fees that you’re losing hundreds of thousands of dollars to Wall Street (most of us knew that one).

And all this time, the millions of Americans who contributed their money to these accounts over the last three decades were under the impression that their accounts would one day grow into a retirement nest egg from which retirees could spend their days in comfort and relaxation.

Nope. We had it all wrong. Private retirement accounts were never actually designed to ensure that you could retire! Only a government managed retirement plan can ensure that you will have the money you need when you turn 59 1/2. Only they will be able to ensure you don’t pay excessive, hidden fees (even though they could have created legislation to require firms to overtly disclose this information int he first place). And, only the government can provide 100% full retirement coverage, not just supplemental funds. Oh, and they also know WHEN you should retire, currently 65 years of age.

It’s on folks. They are going to hit Americans from all angles on this one.

First, the political hearings that will claim only the rich are benefiting from private retirement accounts.

Then they’ll point out how stock market crashes and volatility put your money at risk. In fact, if we do have another market crash, look for this to be a key reverberation.

Then they put the spin machine into action, so that you think you’re getting unbiased analysis and truth.

Then they open the guilt spigot and make those who have personal retirement savings wonder if they are being greedy, and those who don’t have savings will direct their anger not just at the rich, but anyone who has put any money away.

Finally, they will pass a bill, which we have to pass first in order to know what’s in it, and it’ll be a done deal.

The United States government is coming for everything they can get their hands on.


Raúl Ilargi Meijer, The Automatic Earth

August 28, 2012

We have been saying for a long time that anyone in the western world who’s 10-15 years away from collecting their first pension payments, shouldn’t expect to get much, if anything, when the time comes. This is because, obviously, the economy has deteriorated as much as it has. It’s also because, in essence, pensions plans are the ultimate Ponzi schemes.

What doesn’t help are the central bank and government policies that are in fashion today that are based on pushing interest rates about as low as they can get.

The reactions to all this are interesting in their range of variation. Last week I picked up an article (more on that later) that made me refer back to a series of bookmarks I had made over the past month or so. Here are a few quotes that, when put together, paint the picture pretty accurately; you add up the details and numbers and you get an idea of what’s going on. Not necessarily for the faint of heart. First, Michael Aneiro for Barron’s:

Top Pension Fund Sends a Warning

The California Public Employees’ Retirement System, the nation’s biggest public pension fund at $233 billion, reported a mere 1% return on its investments in its fiscal year ended June 30. Earlier this year, in an attempted acknowledgment of today’s realities, Calpers had lowered its discount rate–an actuarial figure determining the amount that must be invested now to meet future payout needs—for the first time in a decade, to 7.5% from 7.75%. That represents combined assumptions of a 2.75% rate of inflation and a 4.75% rate of return.

Needless to say, a 1% annual return didn’t come close to hitting any of those figures and doesn’t engender confidence in the assumptions of institutional or individual investors alike. Calpers was quick to note that its 20-year investment return is still 7.7% and that the past year was challenging for everyone. But Calpers is a bellwether, and other systems are expected to report similarly disappointing returns, necessitating higher annual contributions in the years ahead to meet funding needs.

Later in the week, S&P Dow Jones Indices said that the underfunding of S&P 500 companies’ defined-benefit pensions had reached a record $354.7 billion at the end of 2011, more than $100 billion above 2010’s deficit. The organization reported that funding levels at the end of 2011 ran around 75%, on average, and that future contributions will constitute a “material expense” for many companies.

Fitch Ratings later released its own study of 230 U.S. companies with defined-benefit pension plans and found that median funding had dropped to 74.4% in 2011 from 78.5% in 2010, and that corporate pension assets grew just 2.9% in 2011 amid sluggish returns and a 6% decline in contributions.

This is not pretty. What we see is hugely unrealistic annual return assumptions combined with equally huge underfunding. Both ends burning. More from Marc Lifsher at the Los Angeles Times:

Pension funds seriously underfunded, studies find

Corporate and public pension funds across the country are seriously underfunded, threatening the retirement security of workers and straining the financial health of state and local governments, according to a pair of independent studies.

In 2011, company pensions and related benefits were underfunded by an estimated $578 billion, meaning they only had 70.5% of the money needed to meet retirement obligations, according to a report by S&P Dow Jones Indices.

Funds generally don’t need to have all the money needed pay future pensions because returns on investments vary over the years and people retire at different ages and with different levels of benefits, experts said. But a funding level in the 70% zone is considered dangerously low.

The looming shortfall, and the move by corporations to 401(k)-type plans in which the level of investment is controlled by employees, could keep many aging baby boomers from retiring, said Howard Silverblatt, a senior S&P Dow Jones Indices analyst and the report’s author.

“The American dream of a golden retirement for baby boomers is quickly dissipating,” Silverblatt said. “Plans have been reduced and the burden shifted with future retirees needing to save more for their retirement.

“For many baby boomers it may already be too late to safely build up assets, outside of working longer or living more frugally in retirement.”

While the cost of retirement is out of reach for many older workers and growing more expensive for younger ones, it’s becoming less of a burden for employers, according to the report issued Tuesday.

Employers are paying less into pension funds despite the fact that company cash levels remain near record highs and cash flows are at an all-time high,” Silverblatt said.

Meanwhile in the public sector, a separate pension-related report by the national State Budget Crisis Task Force warned that public pension funds in the U.S. are underfunded by $1 trillion to $3 trillion, depending on who’s making the estimate.

There’s no consensus on the amount by which pensions funds are underfunded. According to Reuters’ Jilian Mincer, the funding shortfall may be as high as $4.6 trillion (2011 numbers).

Public pension funds to face calls to set realistic targets

Public pension funds are expected to report poor annual returns in the coming weeks, results that are likely to increase calls for more realistic retirement promises for teachers, police officers and other public workers.

At least three of the nation’s largest U.S. public pension funds have already announced returns of between 1% and 1.8%, far below the 8% that large funds have typically targeted.

The fund’s targets have been “unrealistic,” said Michael Lewitt, a portfolio manager at Cumberland Advisors in Sarasota, Florida. “They’ve been fooling themselves because there is no realistic case they can make that.” [..]

Low returns will further aggravate funding shortfalls for hundreds of pension plans, adding to pressure on cities, counties and states that are already facing lower tax revenue and rising costs.

The vast majority of states have cut pension benefits or increased contributions from workers, or are trying to.

“Failing to understand the scope of the pension crisis sets taxpayers up for a bigger catastrophe in the future,” said Bob Williams, president of free-market think-tank State Budget Solutions, in Washington. “Without government action, states, counties, cities and towns all over America will go bankrupt,” he said. [..]

Major public pensions typically assume an average return of about 8%, but the median annual return in 2011 for large pension funds was roughly half that amount, 4.4%, according to data provided to Reuters by Callan Associates.

Median returns were only 3.2% for the last five years and 6% for the last 10. Before the 2007-09 recession, market performance was often above the 8% assumptions. Average returns for the last 20 or 25 years as a whole still reach that level. But with losses in 2008 and 2009 and uneven returns since then, analysts say pension funds should adjust to what seems to be a new reality. [..]

The funding status of public pensions has dramatically slipped over the last decade. Barely more than half were fully funded in 2010. At the end of that year, the gap between public sector assets and retirement obligations had grown to $766 billion, according to a report by the Pew Center on the States.

Ratings agency Moody’s Investors Service calculated this month that if it used a 5.5% discount rate, a rate closer to the way private corporations value their pensions, it “would nearly triple fiscal 2010 reported actuarial accrued liability” for the 50 states and rated local governments to $2.2 trillion.

Other estimates put the shortfall even higher. State Budget Solutions estimated it in a recent study at $4.6 trillion as of 2011.

In San Francisco, they don’t mince words, writes Heather Knight at SFGate:

More bad news for San Francisco’s city pension fund

A preliminary report of how the city’s pension fund performed in the fiscal year 2011-12, which ended June 30, shows it earned a meager 1.6% — far below the assumed rate of return of 7.5%. For a fund currently worth $15.3 billion, that’s a big difference.

“This is even worse than anyone predicted,” said Public Defender Jeff Adachi, who offered a competing, failed pension reform measure that would have raised more money through employee contributions. “If this was a movie, it would be a disaster movie called ‘Pension Armageddon.’”

Canada, which faces similar problems (“massive shortfalls”), despite an ostensibly far better performing economy (how on earth does that add up?), apparently takes a somewhat different approach than the US, where, essentially, the favorite approach is moving the goalposts, which “lets companies use a 25-year average of the discount rate rather than two years”.

You don’t have to be a genius to see that the – financial – world was a totally different place 25 years ago than it is today. So using 25 year old stats to calculate today’s required pension funding rates is a highly risky affair. If you find two years too short a period, you can go for 5 years, perhaps, I can see an argument being made for that. But 25? That looks like a desperate attempt at a cover-up more than a serious effort to find accurate accountancy methods.

Well, Canada resists such desperation. So far, at least, and despite strong opposition, that wants a sweet deal like the US gets. Louise Egan and Susan Taylor for Reuters:

Ottawa shrugs off pleas for pension fund relief amid massive shortfalls

Canada is taking a different tack than Washington on the thorny issue of helping companies fund their widening pension gaps, shrugging off corporate pleas for relief even as the United States lets businesses slash their contributions.

A frightening prospect for workers, retirees and companies, yawning pension deficits have gone from arcane accounting entries to front page news on fears that massive shortfalls could even cause some corporations to fail.

As a growing number of employers look to roll back benefits to the alarm of unions, others are pouring cash into their pensions funds only to see the hole get deeper.

Canada is not unique, and as in the United States, generous public sector pensions are a hot-button issue. But the federal government is taking a more hands-off stance than U.S. President Barack Obama, who signed a bill last month that changes how companies calculate what they must contribute to their pension funds, effectively allowing them to pay less.[..]

Softening the rules implies letting plans stay underfunded for longer, a risk financially prudent Ottawa may be reluctant to accept. After all, the country’s conservative banking culture helped it survive the global financial crisis better than most.

As in other countries, the scope of the Canadian problem is huge. 90% of the roughly 400 defined-benefit pension plans overseen by Canada’s federal regulator are underfunded, meaning they cannot meet their liabilities should their plans be wound up today, as is required by law. [..]

Historically, Canada has preferred relief measures such as lengthening amortization periods. Permanent rule changes in 2010 let companies average their solvency ratios over a three-year period instead of one, so that a sudden bad year doesn’t force them to make big cash infusions.

But some critics say it is dancing around the real problem – the very low “discount rate” used to assess a plan’s solvency, which is the focus of the recent measures in the U.S., Denmark and Sweden. This rate, based on long-term government bonds, helps actuaries judge how much assets will earn over time.

Companies complain the rate has never been lower and artificially inflates a plan’s deficit. The lower the discount rate, the bigger the deficit. Air Canada’s chief financial officer, Michael Rousseau, told analysts on a recent conference call that a 1.5% or 2% rise in the rate would eliminate more than $3-billion from the airline’s deficit.

That wishful thinking effectively became reality last month, not for Canadian companies but for their U.S. competitors. The new law there lets companies use a 25-year average of the discount rate rather than two years.

In Europe, Denmark and Sweden have tinkered with how the discount rate is used and the United Kingdom is thinking of following in their footsteps. [..]

Bob Farmer, who represents 250,000 pensioners as president of the Canadian Federation of Pensioners, says softer rules for companies mean bigger risks for workers. Tough luck about the low yields, he says. “That happens to be the world we’re living in.” [..]

“The biggest social issue in the next 10 years is going to be pensions,” said Rick Robertson, associate professor at the Richard Ivey School of Business, part of the University of Western Ontario. “What do I tell the 64-year-old person who may not have a chance to rebound if the company doesn’t succeed. Who’s my duty to? There’s no easy answer.”

Whereas in Japan, with the world’s fastest ageing population, the world’s biggest pension fund has taken a dramatic route: selling off assets. It hopes to make up for this by moving into riskier assets. That’s of course a big gamble no matter how you look at it. Monami Yui and Yumi Ikeda at Bloomberg:

World’s Biggest Pension Fund Sells JGBs To Cover Payouts

“Payouts are getting bigger than insurance revenue, so we need to sell Japanese government bonds to raise cash,” said Takahiro Mitani, president of the Government Pension Investment Fund, which oversees 113.6 trillion yen ($1.45 trillion). “To boost returns, we may have to consider investing in new assets beyond conventional ones,” he said in an interview in Tokyo yesterday.

Japan’s population is aging, and baby boomers born in the wake of World War II are beginning to reach 65 and become eligible for pensions. That’s putting GPIF under pressure to sell JGBs to cover the increase in payouts. The fund needs to raise about 8.87 trillion yen this fiscal year, Mitani said in an interview in April. As part of its effort to diversify assets and generate higher returns, GPIF recently started investing in emerging market stocks.

Now, remember that the level of funding for US public pension plans has fallen as low as 70% or thereabouts. And that brings me to the article from last week which made me return to the pension topic.

In the Netherlands, pension funds are by law required to maintain a 105% funding level. And there is little enthusiasm for changing this. Right after the autumn 2008 crisis peak, some leeway was provided by the government, but only for a short period. Now, there are other steps being taken:

Civil service pension fund ABP may cut pay outs by up to 15%

One of the biggest pension funds in the world, the Dutch civil service fund ABP, may have to cut pensions next year and again in two years time in order to keep its finances in order, the Volkskrant reports on Wednesday.

The paper bases its claim on confidential documents from the pension fund, which covers some three million workers and pensioners.

The current method of calculating pension funds’ coverage ratio – the amount of assets needed to meet pension obligations – could mean ‘reductions mount up to between 10% and 15%’, the document states.

The fund has already agreed to cut pensions by 0.5% next year. However, talks are under way between ministers and the central bank on changing the way interest rates used to determine the coverage ratio is calculated.

The document also states that if nothing is done to change the calculations, premiums for 17 big funds could rise by 28.5%.

Hundreds of thousands of pensioners are likely to get smaller pay-outs next year because pension funds have been hit by lower interest rates and the economic downturn.

There is no need to explain how tough it will be for many people to see 15% cut off their fixed income. And that will be just the beginning. Some pensions plans may temporarily do better if and when they’re allowed to invest in risk(ier) assets, but just as many will do worse for that exact same reason. Changing coverage ratio calculations is not a magic wand; it’s just another layer of creative accounting, and we’ve already got plenty of that.

For younger generations, which over a broad range have lower income jobs, if they have any, seeing pension plan premiums rise 28%, and then some more and so on, will become unacceptable, fast. They will soon figure out that the chances they will ever get any pension decades from now are close to zero. So they’ll ask themselves why they should pay any premiums, from the pretty dismal wages they make in the first place.

Over the next few years, this is a battle that will play out in our societies, and it will have no winners. We need to be very careful not to let it tear those societies apart. In a world where just about everyone has to settle for much less than they have or thought they would have, that will not be easy. Realistic accounting standards would be a good first step, but they will also be very painful. It will be very tempting to hide reality for as long as we can, in the same way we already do with issues ranging from Greece to real estate prices to bank losses to derivatives to our own personal debts.

The best, or even only, advice for those of us who belong to younger generations is: don’t count on getting a pension when you reach retirement age. It’ll probably have been moved to age 85 or over by the time you get there anyway.

This is not something that can or will be fixed overnight. It was doomed from the moment baby boomers started producing the number of children they have. It simply hasn’t been enough to keep the pension Ponzi going. And those baby boomers, with far too few children to provide for their pensions, have only just started to retire now, as the plans are already in such disarray. I’m sure you can see where this will lead.


By David Wessel

We’ve all heard the admonitions that with life spans growing longer, retiring at age 65 may not be economically possible, either for individuals or for the society as a whole.

Getty Images

But here’s some discouraging news from the Employee Benefit Research Institute: For about one-third of working-age households (those between ages 30 and 59 in 2007), working until age 70 won’t enough to provide adequate income in retirement.

“It would be comforting from a public policy standpoint to assume that merely working to age 70 would be a panacea to the significant challenges of assuring retirement income adequacy, but this may be a particularly risky strategy, especially for the vulnerable group of low-income workers,” said Jack VanDerhei, research director of EBRI, a nonprofit, nonpartisan research outfit.

Working longer can help, for sure. EBRI’s Retirement Security Projection Model indicates that nearly 64% households aged 50‒59 in 2007 would be “ready” for retirement at age 70, compared with 52% those households if they were to retire at age 65.

The EBRI conclusion differs that that of some other researchers. Earlier this year, economists at the Boston College Center for Retirement Research said in a report that by age 66 “about 55% of households are projected to be prepared for retirement” and that by 70, 86% are. They also found that at age 70, “low-income households … are nearly as prepared for retirement as their high-income counterparts (82% vs. 88%).”

EBRI said the major disagreement between the two findings turns on projections of the value of 401(k) defined contribution retirement accounts. The EBRI model relies on data from millions of actual 401(k) participants and its model incorporates longevity risk, investment risk, and the risk of potentially catastrophic health-care costs (such as prolonged stays in a nursing home).


With fewer pensions and more debt, they face retirement challenges their parents didn’t

by: Carole Fleck | AARP Bulletin

 The generation that gave rise to Hula-Hoops, Woodstock and Jimi Hendrix is reaching America’s traditional retirement age this year woefully unprepared. As the oldest of the boomers turn 65, they face a retirement that is unlikely to go as smoothly as their parents’ did.

The lingering pain from the most severe recession since World War II is partly to blame. Many boomers are on the verge of ending their work lives without fully recovering fortunes lost in the housing and stock markets.

That translates to less money to fund their retirement years, which could stretch for three decades given that boomers can expect to live into their 90s.

poll released Wednesday found that a whopping 25 percent of people ages 46 to 64 say they have no retirement savings — and 26 percent have no personal savings.

The situation is almost as grim for adults 65 and older: 22 percent have no retirement savings and 14 percent have no personal savings, according to the poll of 2,151 adults conducted in November by Harris Interactive.

Similarly, a Pew Research survey in May reported that half of all boomers say their household’s financial picture has worsened in the last year. A fifth say they have a lower standard of living than their parents had at their age.

‘Can I still retire?

“The recession contributed to a general feeling of uncertainty,” says Rob Hoxton, a certified financial planner and president of Hoxton Financial in Shepherdstown, W.V. “We have people who’ve come to us and said, ‘Can you fix me and can I still retire?’

“People believe that they deserve to have a retirement and it ought to be somewhat similar to what their parents had,” he says. “We constantly have to reconcile their expectations of what they believe they’re entitled to with the reality that it’s very expensive to retire and have 30 years of life after that, at least.

“There’s a lot of dialogue,” Hoxton adds, “and we come to a workable solution. But it may not be what they originally envisioned.”

Indeed, for America’s postwar generation, born between 1946 and 1964, life in retirement will surely bring more financial challenges than their parents faced.

Stagnant wages, heavy debt

To some extent, boomers are more encumbered by debt because their wages remained relatively stagnant for years, says Christian Weller, a public policy professor at the University of Massachusetts at Boston and a senior fellow at the Center for American Progress, a research group in Washington.

Add to that their penchant to spend beyond their means while saving less than what’s considered adequate for retirement, and a questionable outlook emerges.

Running out of money

When the “silent generation” began retiring more than 20 years ago, they were the last group to be widely covered by traditional pensions. Today just 10 percent of private companies provide employees with guaranteed lifelong income when they retire, according to the Bureau of Labor Statistics.

Consequently, 401(k) plans have become the main source of retirement income for workers of all ages. But because such plans are tied to the market, it’s somewhat of a guess how well they’ll perform.

If investors haven’t saved enough, or their portfolios and housing values decline just as they hit retirement age, they may end up carrying more debt in retirement. Worse, they could run out of money in their later years.

“People are reacting to this by working longer. They’re realizing that they can’t retire as young as their parents did,” says Richard Johnson, a senior fellow at the Washington-based Urban Institute.

“Since the early 1990s, men’s labor participation rates have increased. More people are not retiring, or they’re retiring later and it’s driven by economics.”

Health care costs a big worry

Many workers are staying on the job longer just to keep health insurance, especially as companies increasingly do away with retiree coverage to contain costs.

By some projections, boomers will need between $200,000 and $500,000 during retirement to pay for deductibles and expenses not covered by Medicare, including dental care, hearing aids and other treatment.

Social Security benefits won’t go as far, either. In 2002, benefits replaced 39 percent of the average retirees salary, and that will decline to 28 percent in 2030, when the youngest boomers reach full retirement age, according to the Center for Retirement Research at Boston College.

“When people retire today, their standard of living is more likely to fall compared with those who retired 30 years ago,” says Johnson of the Urban Institute.

“Also, the process of retiring has become more complex,” Johnson says. “It used to be people left their jobs and moved into full-time retirement. Now people are phasing in retirement, switching to part-time jobs, moving from full retirement back into the labor force. That’s not something you saw nearly as much in 1980s.”

Working longer to afford retirement

In 1985, just over 18 percent of people ages 65 to 69 were in the labor force. By 2010, the percentage of workers in that age group nearly doubled to 32 percent, says Sara Rix, a senior strategic policy adviser at AARP.

She predicts that the generation that came of age in the 1960s will embrace advances in technology, stay fit and healthy well into their later years, and won’t likely compromise on how they want to live their lives in retirement.

“I don’t see boomers scaling back or willing to do without the way their parents’ generation did,” Rix says. “They’re going to continue working so they can ultimately afford the retirement they want.”



By Tyler Durden, Zero Hedge
Nov. 20, 2012

When one thinks of America, the word “savings” is likely the last thing to come into a person’s head, for the simple reason that the vast majority of Americans don’t save: recall that in September the personal savings rate dipped to 3.3%, the lowest since 2009 save for one month.

On the surface this makes sense: the average US consumer, tapped out, with more spending than income, has no choice but to max out their credit card, and eat into whatever savings they may have.

This is usually as far as most contemplations on savings go. And this is a mistake, because at least according to official Fed data reported weekly as part of the H.6, which lists the data on the various components of M1 and, more importantly, M2, the real story with US savings is something totally different.

As a reminder, the H.6 lists the bank sector “liability” equivalents of the components that make up M2, which as most know comprises of M1, or physical currency in circulation at just over $1 trillion as well as Checkable and Demand deposits, amounting to $1.4 trillion, and the various M2 components which comprises of Savings Deposits, the largest component of M2 at $6.6 trillion, a modest amount of Time Deposits, and an even more modest amount of Retail Money Funds.

It is the Savings Deposits component that is of most interest. Recall that the primary definition of a savings account is, naturally, an amount of cash parked with an institution for a longer period of time, in exchange for receiving interest (or no interest in the era of The Great Chairman), which also have a limitation on the number of withdrawals: six per month at last check. Savings accounts also encompass the broader Money Market account category, which has a higher floor requirement than an ordinary savings account.

At first blush one would balk at the concept of a Savings Account in the New Normal: after all who in their right mind would face the counterparty risk associated with having money in a bank, especially money that has withdrawal limitations, if there is nothing to be gained in exchange, because under ZIRP nobody collects any interest, and won’t until the system finally collapses.

Well prepare to be surprised.

The chart below shows the time progression of the largest Savings Component: total Savings Deposits at Commercial Banks, which at $5.6 trillion in the week ended November 5, 2012, is also the largest single component of M2, and thus broader money stock of the US (accessible source data via the St Louis Fed).

The chart above hardly shows any slowing down in cash entering Savings Accounts. In fact, quite the opposite. As we have conveniently highlighted, the historic rate of growth in this category of about $200 billion per year, aka the “pre-New Normal” regime, nearly quadrupled to just shy of $700 billion, with a distinct break when Lehman failed aka the “post-New Normal”. That’s $700 billion per year entering what the Fed defines as a “Savings Account.” And all it took to get everyone to scramble to the uncompensated safety of savings accounts? A near collapse of the entire financial system!

This topic alone is worthy of a far greater discussion, because there is a distinct possibility that what the Fed discloses as a “savings account” book entry may simply be a book entry “plug” at the bank level to account for the surge in Excess Reserves into the banking system, after applying an appropriate reserve discounting factor: one way of thinking of M2 is the full lay out of the monetary system using base currency and Fed Excess Reserves and applying a Fractional Reserve banking multiplier. At last check the, multiplier from currency outstanding (1.08 trillion) to total M2 ($10.3 trillion) was 9.5x, in line with the historic ratio of ~10x.

A better representation of the very tight correlation between M1, which captures both currency and physical excess reserves, and M2 can be seen on the chart below.

As can be seen M1 is M2 just with a multiplier factor of ~4.5x.

What has been unsaid so far, is that to Ben Bernanke and the champions of the status quo, money in Savings Accounts would be far better used if it were to be dumped into stocks. After all, the primary reason for the urge by the Group of 30, Tim Geithner, Bernanke and the SEC to crush money markets and to make them even more uneconomical is to pull all the cash contained there and to have it invested into bonds, stocks, and other risky products.

In summary, the more money allocated to Savings Accounts, the more Bernanke’s attempts to rekindle the “animal spirits” fail. And while this cash is at least on the surface what is known as “money on the sidelines”, the flipside also is that should this money ever leave the “sidelines”, modestly at first, then all at once, then the Fed’s moment of reckoning will come, as that will be the moment when the Fed’s ability to keep inflation grounded in “15 minutes” or less, will be thoroughly tested.

Paradoxically, Bernanke wants this money to re-enter the risk markets, and/or the economy, but not in a way that leads to hyperinflation. After all there is $10 trillion in electronic “money” in the US system, and only $1 trillion in cold, hard cash available for cash claims satisfaction.

All that brings us to the topic of today’s post: weekly changes in the amount of cash held in Savings Deposits at Commercial Banks. As the chart below shows, rapid, dramatic shifts, characterized by massive inflows of cash into such savings accounts usually coincide with times of great monetary stress: the three biggest episodes in history to date have been the 2008 Lehman failure, the August 2011 Debt Ceiling Crisis and associated US downgrade, and the May 2009 First Greek failure and bailout.

Those three episodes represent the biggest weekly Savings Deposits inflows number 2 through 4.

When was the largest ever inflow into Savings Deposits at Commercial banks, at $131.9 billion in one week? This past week.


We don’t know, but the people who control $5.6 trillion in US commercial bank savings deposits – certainly not the vast majority of the US population who have virtually no money saved up, but the true 1% – just decided to park the most cash on a week over week basis into their savings accounts in history.

Perhaps ask them why they did it…

October 8, 2012

Excerpted from PIMCO Viewpoints: What’s Your Number at the Zero Bound?

The math of what happens when assumed rates of return go down, driven by a pro-active ZIRP from the Fed, is pretty straightforward. To make up for this, PIMCO notes that those approaching retirement have three choices: a) save more, b) work longer, or c) tighten their belts in retirement. Each of these are clear, individual family choices, but what happens when the whole of society is faced with the same dilemma? What works for one household can be grossly sub-optimal for society.

For now, let us assume that Americans would reject the idea of pre-commitment to significant future belt tightening. They may find that when they get to retirement they have little choice, but this is not something it seems they would rationally choose before having to do so.

If everyone saves more, we consume less, and therefore GDP growth slows down.Anemic growth leads to a Fed on hold for a prolonged period. If expectations for how long the Fed will be on hold are extended, low interest rates – particularly real ones – are the end result.

Given that the personal savings rate is a low 4.2%, significantly below the 6.9% average over the past 50 years, it is hard to argue that we are experiencing the paradox of thrift – at least not yet. We believe that there is a distinct wedge between households’ desired savings and actual savings driven by budget constraints. Less explored is the linkage between “working longer” and interest rates. The right side of Figure 1 shows a possible feedback loop for that cycle – which has the same end result as the Paradox of Thrift, but gets there through a different mechanism.

Here we see low rates leading to longer periods in the work force which would lead to a higher fraction of older Americans continuing employment. By construction, if labor force participation goes up, unless jobs go up proportionately, unemployment will rise. Given the Fed’s dual mandate – 1) fight inflation, 2) stimulate growth/lower unemployment – the central bank’s natural response will be to keep rates low, thus completing the circle.

The crux of the argument hinges on two things. First, if elderly labor force participation goes up and there is not an offsetting drop among other age groups, and second, whether there is empirical proof that low rates can be linked to higher labor force participation among older Americans. With respect to the first item, if there were a compensating drop in labor supply among other age cohorts, causing the unemployment rate to be unchanged, that would be unambiguously bad as these individuals are of prime working age. This would indicate serious structural issues and would likely be paired with slow economic growth. Figures 2 and 3 present support for the argument that low interest rates go hand-in-hand with high labor force participation among the elderly.

Figure 2 shows a 50-year history of 10-year Treasury yields versus labor force participation for those Americans over age 65. The axis for labor force participation is inverted to highlight the relationship. Over a long period, as yields rise, participation falls, and vice versa.

Figure 3 regresses participation on the level of the 10-year rate and its squared value, as the relationship is distinctly non-linear. Elderly labor force participation displays a “convexity” of sorts – the lower rates go, the greater the inertia of the elderly to stay in the workforce. Note the relationship is not perfect, and critics of this argument can point to structural issues in social programs that can give explanation to the time series relationship. It makes sense that elderly participation fell in the 1960s given the passage of Medicare under the Johnson Administration and fell further still given more generous benefits granted in Social Security during the Nixon years. Increases in the Social Security normal retirement age phased in after reform legislation in 1983 induced gradual lengthening of working careers.

Intuitively, low rates leading to longer work lives just makes sense – especially in an era where fewer retirees will draw defined benefit pensions. For those relying more and more on IRAs and 401(k) plans for retirement, the income produced is simply a product of portfolio yield and account balances. They alone bear the risk of market volatility and their own mortality. If anything, we would expect this to tie labor force participation more strongly to yield levels.

This is why some of us are wondering if the Fed is spinning its wheels by sticking to the old model of trying to stimulate growth. Maybe instead of pushing harder on the credit demand side of the ledger by doggedly keeping rates low, central bank policymakers might benefit by looking at other parts of the equation. Specifically, those parts of the puzzle that become more important as America ages.

Work a little longer. Save a little more. Get by with a little less. It’s like each of our numbers is tied to a hot air balloon that seems to rise higher as we get a little closer. Given our outlook for growth and the Fed’s renewed commitment to keeping rates at ”exceptionally low levels” at least through mid-2015, it could be quite a while before those numbers are within reach.


Michael Snyder
Economic Collapse
Nov 21, 2012

If you have a farm or a small business, would you like to pass it on to your children when you die?  Well, unless Congress does something, it is going to become much, much harder to do that starting next year.  Right now, there is a 5 million dollar estate tax exemption and anything above that is taxed at 35 percent.  But on January 1st, the exemption will go down to 1 million dollars and the tax rate will go up to 55 percent.  A lot of liberals are very excited about this, because they believe that the government will be soaking wealthy people like Warren Buffett and Bill Gates.  But the truth is that a lot of farms, ranches and small businesses will be absolutely devastated by this change in the tax law.  There are many farmers and ranchers out there today that do not make much money but are sitting on tracts of land that are worth millions of dollars.  According to the American Farm Bureau, approximately 97 percent of all farms and ranches in the United States would be subject to the estate tax if the exemption was reduced to just a million dollars.  That means that the children of these farmers and ranchers would be faced with a very cruel choice when it is time to inherit these farms and ranches.  Either they come up with enough money to pay the government about half of what the farm or ranch is worth, or they sell the farm or ranch that may have been in their family for generations.  Needless to say, most farm and ranch families do not have that kind of cash lying around.  Most of them are just barely making it from year to year.  So this change in the tax law is going to greatly accelerate the death of the family farm in America.  This is also going to devastate many family-owned small businesses.  Many small businesses don’t make much money, but they have buildings or land or assets worth millions of dollars.  Children that may have wanted to continue the family legacy will be forced to sell because of the massive tax bill that they get from Uncle Sam.  This is an insidious cruelty, and it shows just how broken our system has become.

The desire to leave the wealth that you have worked so hard to accumulate all your life to your children is something that is common to virtually all human societies.  We want to know that future generations will be taken care of.

It is simply immoral for the federal government to swoop in and tax farms, ranches and small businesses that were intended to be passed down from parents to their children at a 55 percent tax rate.

A lot of the people that are going to be affected by this change are not “wealthy” at all.  A recent Fox News reportexamined what this change in the law is going to mean for rancher Kevin Kester and his family…

Rancher Kevin Kester works dawn to dusk, drives a 12-year-old pick-up truck and earns less than a typical bureaucrat in Washington D.C., yet the federal government considers him rich enough to pay the estate tax — also known as the “death tax.”

Kester told Fox News that he has no doubt that his ranch will have to be sold when he dies just to pay the tax bill…

“There is no way financially my kids can pay what the IRS is going to demand from them nine months after death and keep this ranch intact for their generation and future generations,” said Kester, of the Bear Valley Ranch in Central California.

Two decades ago, Kester paid the IRS $2 million when he inherited a 22,000-acre cattle ranch from his grandfather. Come January, the tax burden on his children will be more than $13 million.

Reading that should make you angry.  Every single year, thousands upon thousands of farms, ranches and small businesses are going to be lost to the federal tax monster.

It is almost as if the federal government does not want income-producing assets to remain in the hands of the “little guy”.

What in the world are we supposed to do?

It isn’t as if all of those farmers and ranchers can go off to the big cities and find good jobs.  As I wrote about yesterday, our politicians are standing aside as millions of our good jobs are shipped out of the country.

The cold, hard truth is that our system does not work for average Americans any longer.  Those that roll out of bed every morning, work hard and never complain always seem to get the short end of the stick.

The people that are the backbone of America are the ones that the government is always the hardest on.

Unfortunately, we have gotten to a point where the government is searching for more “revenue” from anywhere it can because it desperately needs more money.  U.S. government finances are a complete and total mess and we are drowning in the biggest ocean of debt the world has ever seen.

We are more than 16 trillion dollars in debt and there are more than 100 million Americans that are enrolled in at least one welfare program.

Someday has to pay for all this.

Middle class Americans are already hit with dozens of different taxes each year, and you can be certain that our politicians will continue to invent ways to extract even more “revenue” out of us.

And of course our politicians will never stop their wild spending.  Despite all of the negotiations that have taken place over the past couple of years, our spending problems just continue to grow.  For example, the federal budget deficit for the month of October was $120 billion, which was more than 20 percent larger than the federal budget deficit for October 2011 was.

So what is the solution?

Well, Treasury Secretary Timothy Geithner now says that he wants to eliminate the debt ceiling entirely.  He says that we should just have no limit and that the federal government should just be able to go into debt as much as it wants.

In the end, all of this debt is going to absolutely crush us.  We have literally destroyed the future of America, and yet most of the country still seems clueless about all of this.  The blind are leading the blind, and we are headed straight for complete and utter disaster.

One day, when people look back on this period in American history, what do you think people are going to say about us?



By Sam Ro | Business Insider

Richard Russell, writer of the Dow Theory Letters, is just looking for the right time to buy stocks. But that time isn’t now.  And until that time comes, Russell will be keeping his wealth in gold.

He writes in King World News: What I want to illustrate is that great fortunes are made at super-bear market lows.  But you must have the money at the lows.  Which is why gold is so singular and valuable.  If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.

You are then betting on the lasting power of the US.  If the US comes back, you will be rich beyond your wildest dreams. But you have to have the guts to hang on to your gold.  And you need patience — the patience of ten men. And when the time comes, things will get messy before they get good. And I wonder — is there a super bear market waiting for us somewhere in the future? The great ride from the end of WWII to today has never been fully corrected.  Some day it will be.

And impossible bargains in stocks will be lying around — with very few willing or solvent buyers. …My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging When that happens, I want to own the only kind of money that the Fed can’t destroy.

‘There Is An Ominous Something Out There Waiting To Materialize’

Russell also writes that the “big money” — shorthand for savvy investors — do not like what they’re seeing in the market. “My guess is that this is the big money that has been holding off as long as it decently can — and then dumping their goods just before the close. I don’t think the big money likes this market, and I think they have been slowly exiting this market, as quietly as they can.” Russell is convinced something terrible is on the horizon for the markets. What it is ain’t exactly clear — a European depression? More bad housing news? Whatever it is, it’s time to plan for the worst.

“The big money tends to look out six months to a year or so, and there is something ‘out there’ that they see — but don’t like. Is it a rise in interest rates, is it the power of the Chinese yuan, is it a further collapse in real estate values? “Honestly I don’ know what it is, but I’m convinced that there is an ominous something out there waiting to materialize.

The big money, the institutional money, doesn’t want to be in this market when it materializes.”

Read the whole post at >-


Joe Weisenthal| Business Insider

May 24, 2012

Bearish newsletter guy Richard Russell finds the market action to be very strange and ominous. He’s specifically concerned by the endless grinding down of the Dow in a manner that’s steady but not yet panicky.

Here’s his reaction after yesterday’s market close, which was published on King World News As of today’s closing, Dow down 14 out of 16 sessions! This is one you can tell your kids about.

And still no collapse in breadth, and still no crash. The only thing I can make out of it is that a lot of people are “standing their ground.” Maybe it’s just the Dow that is dying, and the rest of the market is OK. But don’t you believe it.

The Dow represents the manufacturing capabilities of the United States, and when you see the Dow doing what it’s doing, you can be sure that somewhere ahead business is going to take it on the chin. … Stay in cash, because I intuit that something BIG is heading our way. After all these years following markets, sometimes I have the feeling that I’ve seen everything. But not this time. Hey, would you believe the Dow could go down 14 out of 16 sessions, and people would still be complacent?

There are so many potentially bearish scenarios in the wind that my head is spinning. Last night, I noted that the Dow futures were down 55 points. I can’t remember ever seeing a series like this in my lifetime. As a loyal American, I’d feel better if people were scared out of their wits. What’s it going to take to scare people—the Dow going down to 4000?

On May 1st, the Dow recorded a high, but that high was not confirmed by the Transports.  The two Averages then plunged below their April lows, delivering a bona fide Dow Theory bear signal.  So yes, this is a continuation of the bear market.

But it’s starting out in a stranger way than any bear market I’ve ever seen. Maybe the experts are so fascinated with the Dow and Facebook that they’re not taking in what’s happening. I still believe the proper position is to be on the sidelines with zero stock holdings. It looks like a sure thing that Greece will be leaving the EU.  Greeks must be pulling out their euros and shipping them to German banks.  It must be the same with Spain, which I think will follow Greece out of the Eurozone.  Back to the markets.  I note that the negative spread between Lowry’s Selling Pressure Index (supply) and their Buying Power Index (demand) has widened to 184, the widest on this series.  The wider the negative spread, the more bearish the picture.

So far, the decline in the market has been fairly orderly; no panic, no hysteria to get out of the market. I wonder how much longer the decline will continue to be orderly. Even the VIX has remained calm with the latest figure being 24.16.  My guess is that investors are waiting for the Fed to take action again — probably in the form of QE3.  So why sell before then? Frankly, there’s something eerie about what’s happening.  Bernanke tried to halt the bear.  Maybe we should call this the ‘Grizzly’s Revenge.’

To be honest, what’s happening is almost beyond analysis.  I have nothing to compare it with. I really have to go on my intuition and instinct at this point.  And my instinct is to get in cash.  Investors the world over are searching for safe harbors.  These seem to boil down to US dollars, Treasuries, German bonds and just maybe gold bullion. Of course, we don’t know who owns gold coins since such records are not kept and are secret — often handed down from generation to generation.

How’s the world doing? The chart below is the Dow Jones’ World Index.  What I see is a head & shoulders formation that has broken down below both its moving Averages.  RSI says it is oversold, so I guess a rally back to its 50-day moving average would be no surprise.  The real support comes in at 210 to 215.

Read the whole thing at King World News >

To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.


Richard Russell, has had a difficult time articulating what had made him so bearish.  In previous commentary, he’s talked about an “ominous something,” a thought that came from his unconscious, and an intuition that something big was heading our way. In his latest commentary, he has gotten confirmation based on none other than the Dow Theory.

From King World News: “IMPORTANT — Dow Theory — The D-J industrial Average recorded a high of 13,279.32 on May 1, 2012.  This Dow high was not confirmed by the Transports.  The two averages then turned down and broke below their April lows.

This action confirmed that a primary bear market is in progress — it was a textbook bear signal.” … The bear confirmation is particularly valid because nobody seemed to notice it nor did any analyst appear to be aware of it…. Russell recommends investors to “follow a course of utmost caution.Russell stated that markets have issued a major sell signal and we have now entered a “primary bear market.”  Russell also warned, “I believe that the bear signal is telling us that Greece will default, to be followed by Spain, and the whole Eurozone may then fall apart.”

I consider the April-May action to be a continuation of a primary bear market that started on October 9, 2007 with the Dow at 14,164.53.  We are now dealing with the latter part of the primary bear market that began in 2007.  Subscribers should now follow a course of utmost caution. The bear confirmation is particularly valid because nobody seemed to notice it nor did any analyst appear to be aware of it.  I know of no analyst or advisor who stated that we had seen a primary bear signal!  For evidence, see charts of the Dow and the Transports below! Below, new high in the Dow on May 1.

Below, Transports fail to confirm the new May 1 high in the Dow.

“I believe that the bear signal is telling us that Greece will default, to be followed by Spain, and the whole Eurozone may then fall apart.”



Matthew Boesler| Business Insider July 23, 2012 JP Morgan equity strategists Mislav Matejka and Emmanuel are seeing “red flags” in the stock market right now. In a note to clients entitled, “Reality Check – many red flags emerging,” the strategists give seven reasons why a market rally might not be sustainable:

  1. Treasury yields are still at their lowest levels ever. And stocks remain elevated. Matejka and Cau point out that “10-year yields are today at the same level as they were at the start of June, when S&P500 was at 1260.”
  2. Cyclical stocks aren’t participating in market rallies. JP Morgan says the group has lagged the overall market by “a remarkable 9%” since March, and that defensive stocks can’t be expected to “sustainably push the market higher.”
  3. Spanish bond yields are still at their highest levels ever. This usually doesn’t last too long without stock markets reacting to negative crisis pressures emanating from high peripheral yields in the eurozone.
  4. Commodity prices have soared recently. According to the strategists, this is a big deal because it could raise Chinese inflation and tie policymakers’ hands there – which means the world’s third-largest economy may have to take a break from monetary easing.
  5. Companies continue to revise earnings forecasts downward. Unless investors are banking on higher price-to-earnings ratios, this is not a good sign for stock prices.
  6. Stocks are up from the beginning of the year while growth forecasts are down. The JP Morgan strategists note that the S&P 500 is up 9 percent year-to-date while their forecasts for U.S. GDP growth in 2012 have been slashed 24 percent since the beginning of the year (from 2.5 percent to 1.9 percent).
  7. Real rates are negative, which is not as good for stocks as positive real rates. Matejka and Cau write that “over the last 110 years equities performed much better in the environment of positive real rates than during times of negative rates.”

Here is a table showing stock market performance in positive real-rate environments versus negative real-rate environments: Stock performance in positive and negative real rate enviroments


By Max Nisen | Business Insider
It has been a rough month for markets. Waves of bad news from Europe and weak data from of China have helped keep stocks low.
What can we look forward to? More of the same, and worse according to these 13 experts.

Fleckenstein: We need a crisis before our leaders get their acts together

Bill Fleckenstein on MSNBC:Unfortunately, we have elected officials who are completely incompetent, if not criminal, and the Fed is even worse. None of that is going to change until change is forced upon us (i.e., them) by a crisis. Read our full post here

Fitzpatrick: Stocks will tumble, just like last year

Fitzpatrick: Stocks will tumble, just like last year

Citi’s Tom Fitzpatrick Reuters via YouTube

Citi’s Tom Fitzpatrick:“So our bias is to think that (we will head down to the 200 day moving average), in a similar fashion to what we saw last year.  That is down quite a bit below present levels, at around 1277 (on the S&P).  This would translate into 700+ points (lost) on the Dow, to the region of around 12,000.” See our full post here

Pento: Europe’s demise will cause stocks to collapse this summer

Pento: Europe's demise will cause stocks to collapse this summer

Michael Pento Fox Business News

Michael Pento on King World News:What investors have conveniently overlooked is the fact that 40% of S&P500 earnings are derived from foreign economies.  And the seventeen countries that make up the Eurozone have collapsed into recession.  That wouldn’t be so bad if EU (17) wasn’t the second biggest economy on the planet… Read our post here

Achuthan: All signs suggest the economy is getting worse

Achuthan: All signs suggest the economy is getting worse

ECRI’s Lakshman Achuthan to Morgan Stanley Smith Barney:When we review the year-over-year growth rate of the US Coincident Indicator Index, which includes broad measures of output, employment, income and sales, we find it to be in a clear, cyclical downturn. That is an authoritative indication that overall US economic growth is actually worsening, not reviving. Read our full post here

Bank of America: The Ichimoku clouds signal a storm is coming for stocks

Bank of America: The Ichimoku clouds signal a storm is coming for stocks

Mary Ann Bartels Bloomberg via YouTube

From Bank of America’s technical analyst report:Putting these breaks together, along with the weaker cloud chart patterns for Europe, supports the case for a deeper equity market correction…our call remains for a continued correction with risk to 1300-1250 in the S&P 500, but we favor a summer rally and would look to buy dips. Read our post here:

Hussman: History says we can expect a “terrible” market

Hussman: History says we can expect a "terrible" market

From John Hussman of Hussman Econometrics Advisors:”On the basis of objective data, we estimate the prospective market return/risk profile to be in the most negative 0.5% of all historical observations.” See our full post for more

Edwards: China’s credit bubble will burst, the eurozone will fall apart, and the US will slip back into recession

Edwards: China's credit bubble will burst, the eurozone will fall apart, and the US will slip back into recession

From the Globe and Mail, according to Albert Edwards:”If you think times are tough now, they are about to get worse, as China’s “classic credit bubble” bursts, the euro zone comes unglued and the U.S. slides back into recession” See our full post here

Bill Gross: “credit cancer may be metastasised”

Bill Gross: "credit cancer may be metastasised"


Bill Gross in an FT column:”Euroland is just a localised tumour, however. The developing credit cancer may be metastasised, and the global monetary system fatally flawed by increasingly risky and unacceptably low yields, produced by the debt crisis and policy responses to it.” Check out our full post

Kostin: The S&P 500 will sink to 1250

Goldman’s David Kostin on CNBC:He broke his reasoning down based on three big trends: 1. Stagnating US economy. 2. Multiples are likely to stagnate 3. Earnings growth is slowing. Read our post here

Russell: Something big is coming our way

Russell: Something big is coming our way

Richard Russell YouTube

Richard Russell for King World News:Stay in cash, because I intuit that something BIG is heading our way. After all these years following markets, sometimes I have the feeling that I’ve seen everything. But not this time. Hey, would you believe the Dow could go down 14 out of 16 sessions, and people would still be complacent? There are so many potentially bearish scenarios in the wind that my head is spinning. Read our post here

Rosenberg: The whole world sucks except for Canada

Rosenberg: The whole world sucks except for Canada

Economist David Rosenberg:”You have to normalize gold against something. It’s complexion has changed over time and it is trading less as a commodity and more as a currency. The peak in gold will peak at $3,000 per ounce before the cycle is out or until the time I change my name from Rosenberg to Goldberg.” Our full post

Schiff: We never had a real recovery

Schiff: We never had a real recovery

Peter Schiff at King World News:“Well, we keep getting more weak economic data, which is validating my perspective that we never really had a recovery at all.  We simply juiced the economy up on stimulus, and as the stimulus high wears off, the hangover sets in.” Our full post

Shilling: Home prices have another 20% to fall

Gary Shilling in the Wall Street Journal:”Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. …Now that mortgage servicers have reached a $25 billion settlement with Washington and state attorneys general, foreclosures are likely to roar back. That likely will trigger the additional price decline, since the National Association of Realtors says foreclosed houses sell at a 19% discount to other listings, and sizable sales of real estate owned by lenders drag down the entire market. The total peak-to-trough decline in single-family house prices then would be more than 50%.” –


By Sam Ro | Business Insider July 25, 2012 nomura bob janjuah

Bob Janjuah, the bearish strategist over at Nomura, is out with his latest note.  Its title: You Have Been Warned!His note includes eight big bad bullets.  We summarize some of it here:

  • Growth is slowing worldwide.  “The softness in the manufacturing / industrials and basic materials/oil and gas sectors is the most worrisome trend as Western service sectors are in any case already seeing either very weak or close to zero trend growth.”
  • The market consensus is way too optimistic about monetary and/or fiscal policy.  Janjuah thinks that “the period August through to November (inclusive) represents a major global policy and political vacuum.”   Due to the election, he sees no action by the Fed or the US government until after Novemeber.  Due to leadership transition, he sees no action in China before the end of the year.
  • “[B]efore the Fed does it next major round of QE (I am looking for USD1trn in December) the market will also unfortunately be forced, in my view, to price IN the fiscal cliff into its 2013 growth and earnings forecasts.
  • Food commodity prices will surge due to the US drought and European floods, which will be a drag on growth and make policymakers more reluctant to print money.

Here’s where it gets scary for stocks: Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other wordsI expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011!  US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides…This four-month coming major risk-off phase will, in my view, also be very USD bullish (my expectation of Fed USD1trn QE in December should eventually alter the bullish USD trend of course) and bullish core government bonds (USTs, Gilts, Bunds) – perhaps we could see 10yr Bunds at 50bp all-in yields, with USTs and Gilts at/close to 1%. By late 2012, based on my Fed December QE view, my tactical call will likely turn bullish/risk-on – let us see about that closer to the time. And of course I still see a very clear path to 800 on the S&P500 at some point in 2013/2014, driven by market revulsion against pump- priming money printing central bankers, but this discussion is also for nearer the time. “You have been warned!” exclaims Janjuah.


By: Patrick Allen | CNBC EMEA Head of News
August 21, 2012

The S&P 500 is likely to fall by 20-25 percent over the next three months according to Nomura strategist Bob Janjuah. In a research note published on Tuesday, the long-term bear who called the recent rally for U.S. stocks said he expects investors to be back in risk-off mode until the U.S. election is over.

“I now think the correct thing to do — as I also said in April and June — is to prepare for a serious risk-off phase between August and November…over the August to November period I am looking for the S&P 500 to trade off down from around 1400…by 20 to 25 percent…to trade at or below the lows of 2011.”
Janjuah expects the dollar to be a big beneficiary if the S&P 500 does fall as sharply as he predicts. “This coming major risk-off phase will, in my view, also be very dollar bullish and bullish core government bonds,” said Janjuah, who thinks 10-year debt in the U.S., Germany and the U.K. could hit just one percent, and who is predicting more quantitative easing from the Federal Reserve in December.
Those hoping for a big bazooka from the Fed or the European Central Bank before December will be disappointed, he said. We expect “Mr Bernanke to disappoint markets at Jackson Hole next week, and also because we are confident that markets will soon discover that neither the ECB nor Eurozone politicians will actually be able to deliver on their promises,” Janjuah said. “For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favor.”


Mamta Badkar | Business Insider
August 27, 2012

Various economic and geo-political market moving events are expected to make September extremely volatile.

Nomura’s Senior Political Analyst Alastair Newton has highlighted 10 key risks in his latest report: “Issues Which Keep Me Awake At Night.” We summarize here:

  • Europe “EU in September” – Spain and Italy are likely to get external help in bond markets but with conditionality. But governments of both countries face domestic challenges that could “trigger political instability”. While a Grexit continues to be likely, Italy and Spain pose a greater risk of break-up. The eurozone itself is under-threat as “bail-out fatigue” is growing in the Netherlands and Germany.
  • United States “Elections and taxes” – “We still see the election as President Obama’s to lose”.  Irrespective of the outcome of the election though, the post-election period will be dominated by negotiations on fiscal issues and a debate on raising the debt ceiling. Failure to reach an agreement could send the U.S. into a recession in the first half of 2013, according to the Congressional Budget Office.
  • Iran/Israel “Serious or sabre-rattling” – There is a low probability that Israel will strike Iran and markets are more concerned about such an attack than they should be. Yet, “we do not totally rule out a strike before the US presidential election on 6 November, eg if Iran ramped up activity at its Fordow enrichment plant”.
  • China “From fourth to fifth generation” – “We expect to see incremental policy easing to drive a pick-up in growth through Q3 and into Q4, consistent with the authorities’ lower tolerance for a slowdown during the leadership transition.”
  • East Asia maritime borders “Renewed tensions” – Tensions are rising between China and Japan, and Taiwan over the disputed Senkaku/Diaoyu Islands. Both governments are however expected to calm tensions quickly given their political cycles. Meanwhile, South Korea and Japan are locked in a dispute over the Takeshima/Dokdo Islands and China is in a dispute with the Philippines over the Spratly Islands.
  • Korean peninsula “Turbulent times” – The recent changes in the North Korean military are part of Kim Jong-un’s efforts to “consolidate his grip on the country and possibly to wrest back power from the army to the Workers’ Party of Korea”. This could be to control the country’s mineral resources, and this could cause “bad behaviour in Pyongyang” – the capital of North Korea spurred by the South Korean presidential election in December.
  • MENA “Oil and more turmoil” – Markets are increasingly worried about the war in Syria and its impact on oil output. But this shouldn’t threaten oil output across the region. In Iraq, Kurdistan’s regional government is in dispute with Baghdad over energy policy and could limit investment in oil extraction and processing.
  • Pakistan “Political and security uncertainty” – Pakistan is ramping up efforts to squash Islamic militancy and this could cause Washington to give indiigenous forces more responsibility over security in Afghanistan. “However, in our view it could also risk a further escalation in terrorism in Pakistan itself and increase the possibility of a Pakistan-based group looking to distract the army by means of another terrorist attack in India.”
  • Venezuela “A third time for Mr. Chavez” Hugo Chavez is expected to secure a third term in the October election, and Chavez supporters in the military have said they won’t accept a victory by opposition candidate Henrique Capriles. “We expect domestic political tensions and social conflict to continue to dog the cities in particular; and for the economy’s performance to remain sclerotic and overly dependent on oil.”
  • Russia “Plus ca change?” – Without a major external shock for instance a drop in energy prices, Russia is unlikely to push through crucial reforms. But such a shock could cause political instability and investor uncertainty. Civil discontent is expected to rise leading up the 2015 elections.


By Sandrine Rastello and Simone Meier – Bloomberg
Oct 10, 2012

The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate.

Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks fromUniCredit SpA (UCG) to Deutsche Bank AG (DBK) to shrink assets, the IMF wrote in its Global Financial Stability Report released today. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.

“There is definitely a need for deleveraging in Europe,” said Michael Seufert, an analyst at Norddeutsche Landesbank in Hanover, Germany, with a “negative” rating on the European banking sector. “The danger is that this produced a downward spiral as the regulation gets stricter and stricter and the global economy cools, potentially meaning more writedowns for banks. States in the periphery are hit hardest.”

The IMF doesn’t need to lend money to Spain to help the country tackle its fiscal crisis, Managing Director Christine Lagarde indicated today. The Washington-based fund earlier this week cut its global growth forecasts and warned of even slower expansion if European officials don’t address threats to their economies.

‘Credible Conditionality’

Asian stocks fell for a third day today on global growth concerns, with the MSCI Asia Pacific Index down 0.9 percent. The Stoxx Europe 600 Index declined 0.2 percent at 2:14 p.m. in Frankfurt and the euro was little changed, trading at $1.2893.

While the European Central Bank’s plan to purchase bonds of debt-burdened countries has pushed down bond yields, officials are waiting for a bailout request from Spain before putting the program into action.

See the Latest Data: Euro zoneeconomies and the European debt crisis

The European rescue mechanism and the ECB bond program “must be regarded by markets as real, not ‘virtual’ and should be coupled with credible conditionality,” Jose Vinals, the director of the IMF’s monetary and capital markets department, said in prepared remarks for a press conference in Tokyo today.

ECB President Mario Draghi in July pledged to do “whatever it takes” to preserve the monetary union, which has been battered by a three-year debt crisis triggered by Greece’s hidden budget shortfall. He said in September that the Frankfurt-based bank may buy the bonds of nations that submit to the conditions of a rescue loan to lower yields.

‘QE-Type’ Program

Jose Manuel Gonzalez-Paramo, a former ECB Executive Board member, said in an interview in Madrid that the central bank could offer more long-term loans such as the three-year operations it introduced last year or ease collateral rules to feed more liquidity into the European economy. There’s “nothing that prevents the ECB from executing some QE-type” program, he said, referring to quantitative easing.

Still, Germany’s Bundesbank openly opposes Draghi’s plan to buy bonds on the secondary market, saying it comes too close to financing governments. ECB council member Jens Weidmann said in a speech in Frankfurt today that central banks “have to remain independent and they have to have a mandate that puts the goal of stable money ahead of all others.”

Since Draghi’s pledge, the yield on Spain’s 10-year bond has fallen from above 7.6 percent to 5.8 percent today. Prime Minister Mariano Rajoy, who meets his French counterpart Francois Holland in Paris today, has said he is still weighing up whether his country needs a bailout since the ECB’s safety net has already offered investors some reassurance and lowered borrowing costs.

Economic Slump

Still, governments may find it more difficult to plug their budget gaps as the euro-region economy shows signs of a deepening slump. Euro-area services and manufacturing industries contracted in September and economic confidence dropped. Unemployment held at 11.4 percent in August, a record.

“Some people say unless you have skin in the game, meaning money, you are not really respected, you are not heard,” the IMF’s Lagarde said in a Bloomberg Television interview with Sara Eisen in Sendai, Japan. “I am not so focused on that as I am on the monitoring. I think we would rather act in our framework, use one of the tools that is frequently used, but as I said we can be flexible.”

The fund is helping monitor a 100 billion-euro bailout of Spanish banks and is co-financing rescue packages for Greece, Ireland and Portugal. While the ECB has said the IMF should be involved in overseeing the economic programs of countries asking the central bank to buy their bonds, the fund’s exact role has not yet been defined.

Industrial Output

In France, industrial production unexpectedly increased in August, rising 1.5 percent from the previous month, when it advanced 0.6 percent, French statistics office Insee in Paris said today. Italian output also increased, rising 1.7 percent in August from July, a separate report showed.

The IMF said that “both Spain and Italy have suffered large-scale capital outflows” in the 12 months through June, with $296 billion and $235 billion, respectively.

“Unless confidence in the euro area is restored, fragmentation forces are likely to intensify bank deleveraging, restrict lending, add to the economic woes of the periphery, and spill over to the core,” the IMF said.

Baseline Scenario

In April, the IMF forecast asset sales of $3.8 trillion in a “weak policies scenario.” Since then, policy makers’ delay in taking decisions to solve the crisis worsened funding pressures while the relief provided by the ECB’s program of unlimited three-year loans faded.

Under a baseline scenario that has governments follow up on their commitments, the IMF sees a reduction in bank assets of $2.8 trillion, compared with $2.6 trillion in April.

“Intensification of the crisis has manifested itself in capital outflows from the periphery to the core at a pace typically associated with currency crises or sudden stops,” the IMF said. “Restoring confidence among private investors is paramount for the stabilization of the euro area.”

Bank deleveraging is being driven by five main factors, the IMF said. The impact of weaker earnings and higher asset impairments on capital level funding pressures from frozen interbank markets and declining deposits, growing trend for banks to match loan and deposit levels in some subsidiaries, pressure to increase domestic government bond holdings at the expense other assets as well as rising sovereign debt spreads.

$600 Billion

So far, the IMF estimates that deleveraging among sample banks has reached more than $600 billion in the year through June. Progress has been most pronounced among U.K. banks, which have cut non-core business, French banks, which have reduced U.S. dollar-denominated assets including structured products and Dutch banks, which have sold subsidiaries in the Americas, the IMF said. Efforts to raise capital cushions have helped strengthen balance sheets and prevent larger asset sales, it said.

Looking at other countries, the report stressed that the U.S. and Japan also face risks to financial stability.

“The present difficulties in the euro area provide a cautionary tale for Japan, given the latter’s high public debt load and interdependence between banks and the sovereign that is expected to deepen over the medium term,” the IMF said.

While emerging markets have managed to weather global shocks so far, the IMF said many countries in central and eastern Europe are vulnerable to the European turmoil, while Asia and Latin America seem more resilient.

In Asian economic releases today, South Korea said its workforce expanded last month, with the unemployment rate unchanged from August at 3.1 percent. A report on Australian consumer confidence for October showed sentiment climbed.


By Sandrine Rastello – Bloomberg
Oct 9, 2012

The International Monetary Fund cut its global growth forecasts as the euro area’s debt crisis intensifies and warned of even slower expansion unless officials in the U.S. and Europe address threats to their economies.

The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said today, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.

“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component,” the IMF said in its World Economic Outlook report. “The answer depends on whether European and U.S. policy makers deal proactively with their major short-term economic challenges.”

The IMF’s 188 member countries convene in Tokyo this week as low growth damped by fiscal consolidation in the richest economies hurts developing counterparts from China to Brazil. As the IMF urged measures to boost confidence, uncertainties out of Europe show no sign of abating, with leaders still divided over a banking union and Spain resisting a bailout.

Confidence Fragile

“Confidence in the global financial system remains exceptionally fragile,” the IMF said. “Bank lending has remained sluggish across advanced economies” and increased risk aversion has damped capital flows to emerging markets, it said.

European stocks were little changed as the region’s finance ministers met in Luxembourg to discuss the sovereign-debt crisis. The Stoxx Europe 600 Index slipped less than 0.1 percent at 11:02 a.m. in London.

In Seoul, World Bank President Jim Yong Kim told a forum today that he saw mildly encouraging signs in Europe. In Tokyo, IMF Chief Economist Olivier Blanchard indicated that yields on Spanish and Italian bonds, which decreased after the European Central Bank’s bond-buying plan announcement, could rise if the countries don’t request bailouts.

The IMF report called for U.S. policy makers to find an alternative to planned automatic tax increases and spending cuts that would trigger a recession. Europeans must follow on their commitments for a more integrated monetary union, and many emerging markets can afford to cutinterest rates or pause tightening to fight off risks to their economies, the IMF said.

“It is a call to action,” Blanchard told Bloomberg Television.

Europe’s Contraction

The 17-country euro area economy will contract 0.4 percent this year, 0.1 percentage point worse than forecast in July, and grow 0.2 percent in 2013, less than the 0.7 percent predicted three months ago, the IMF said.

The U.S. is seen expanding 2.2 percent this year, higher than an earlier forecast, and growing 2.1 percent next year, less than previously predicted. Japan’s estimate was cut to 2.2 percent this year and to 1.2 percent in 2013.

Spain’s economy will shrink 1.3 percent next year, 0.7 percentage point worse than predicted in July. German growth is seen at 0.9 percent each year, with the 2013 estimate half a percentage point less than previously forecast.

“Spain and Italy must follow through with adjustment plans that re-establish competitiveness and fiscal balance and maintain growth,” Blanchard wrote in a foreword to the report. “To do so, they must be able to recapitalize their banks without adding to their sovereign debt. And they must be able to borrow at reasonable rates.”

Emerging Economies

Growth forecasts were also lowered for emerging markets, where domestic factors add to external constraints, the IMF said. Brazil had some of the steepest cuts, with growth seen at 1.5 percent this year from 2.5 percent and 4 percent next year.

India’s economy may grow 4.9 percent this year and 6 percent next year, lower than previous forecasts of 6.2 percent and 6.6 percent respectively. China’s estimate was cut by 0.2 percentage point each year to 7.8 percent in 2012 and 8.2 percent in 2013.

Monetary policy should remain accommodative in developed economies, with expectations for slower inflation giving the European Central Bank “ample justification for keeping policy rates very low or cutting them further,” the IMF said. The Bank of Japan may need to ease further, it said.

Other risks to the global economic outlook in the short term include a renewed increase in oil prices and an inability to raise the U.S. debt ceiling, it said.

The IMF forecasts assume oil at $106.18 a barrel this year and $105.10 next year, based on the average prices of U.K. Brent, Dubai and West Texas Intermediate crudes. That compares with estimates of $101.80 and $94.16 in July.

Japan’s Trade

In economic releases in the Asia Pacific region today, Japan reported a larger-than-estimated 454.7 billion yen ($5.8 billion) current-account surplus. In Australiabusiness confidence recovered in September as the prospect of interest- rate reductions overshadowed weaker sentiment among miners and manufacturers, a private survey showed.

In South Korea, the central bank said today that the nation’s economy faces increased external risks and the finance ministry said it will step up efforts to boost growth.

In Europe, the U.K. may report today that industrial production fell in August, a Bloomberg News survey of economists indicates.


Michael Snyder
Economic Collapse

OCTOBER 21, 2012

The global debt crisis has reached a dangerous new phase.  Unfortunately, most Americans are not taking notice of it yet because most of the action is taking place overseas, and because U.S. financial markets are riding high.  But just because the global economic crisis is unfolding at the pace of a “slow-motion train wreck” right now does not mean that it isn’t incredibly dangerous.

As I have written about previously, the economic collapse is not going to be a single event.  Yes, there will be days when the Dow drops by more than 500 points.  Yes, there will be days when the reporters on CNBC appear to be hyperventilating.  But mostly there will be days of quiet despair as the global economic system slides even further toward oblivion.  And right now things are clearly getting worse.  Things in Greece are much worse than they were six months ago.  Things in Spain are much worse than they were six months ago.  The same thing could be said for Italy, France, Japan, Argentina and a whole bunch of other nations.  The entire global economy is slowing down, and we are entering a time period that is going to be incredibly painful for everyone.  At the moment, the U.S. is still experiencing a “sugar high” from unprecedented fiscal and monetary stimulus, but when that “sugar high” wears off the hangover will be excruciating.  Reckless borrowing, spending and money printing has bought us a brief period of “economic stability”, but our foolish financial decisions will also make our eventual collapse far worse than it might have been.  So don’t think for a second that the U.S. will somehow escape the coming global economic crisis.  The truth is that before this is all over we will be seen as one of the primary causes of the crisis.

The following are 21 signs that the global economic crisis is about to go to a whole new level….

#1 Bank of Israel Governor Stanley Fischer says that the global economy is “awfully close” to recession.

#2 It was announced last week that the unemployment rate in Greece has reached an all-time high of 25.1 percent.  Unemployment among those 24 years old or younger is now more than 54 percent.  Back in April 2010, the unemployment rate in Greece was only sitting at 11.8 percent.

#3 The IMF is warning that Greek debt may have to be “restructured” yet again.

#4 Swedish Finance Minister Anders Borg says that it is “probable” that Greece will leave the euro, and that it might happen within the next six months.

#5 An angry crowd of approximately 40,000 angry Greeks recently descended on Athens to protest a visit by German Chancellor Angela Merkel…

From high-school students to pensioners, tens of thousands of Greek demonstrators swarmed into Athens yesterday to show the visiting German Chancellor, Angela Merkel, their indignation at their country’s continued austerity measures.

Flouting the government’s ban on protests, an estimated 40,000 people – many carrying posters depicting Ms Merkel as a Nazi – descended on Syntagma Square near the parliament building. Masked youths pelted riot police with rocks as the officers responded with tear gas.

The authorities had deployed 7,000 police, water cannon and a helicopter. Snipers were placed on rooftops to ensure the German leader’s safety.

#6 The debt crisis is Argentina is becoming increasingly troublesome.

#7 The government debt to GDP ratio in Italy is expected to hit 126 percent this year.  In Greece, it is expected to hit198 percent.  In Japan, it is expected to hit a whopping 237 percent.

#8 Standard & Poor’s has slashed the credit rating on Spanish government debt to BBB-, which is just one level above junk status.

#9 Back in the year 2000, the ratio of total debt to GDP in Spain was 192 percent.  By 2011, it had reached 363 percent.

#10 Record amounts of money are being pulled out of Spanish banks, and many large Spanish banks are rapidly heading toward insolvency.

#11 Manufacturing activity in Spain has contracted for 17 months in a row.

#12 It is being projected that home prices in Spain will fall by another 15 percent by the end of 2013.

#13 The unemployment rate in France is now above 10 percent, and it has risen for 16 months in a row.

#14 There are signs that Switzerland may be preparing for “major civil unrest” throughout Europe.

#15 The former top economist at the European Central Bank says that the ECB has fallen into a state of “panic” as it desperately tries to solve the European debt crisis.

#16 According to a recent IMF report, European banks may need to sell off 4.5 trillion dollars in assets over the next 14 months in order to meet strict new capital requirements.

#17 In August, U.S. exports dropped to the lowest level that we have seen since last February.

#18 Economics Professor Barry Eichengreen is very concerned about what is coming next for stocks in the United States…

“I’m worried that stock markets in the United States in particular have gotten ahead of economic growth”

#19 During the week ending October 3rd, investors pulled more than 10 billion dollars out of U.S. mutual funds.  Overall, a total of more than 100 billion dollars has been pulled out of U.S. mutual funds so far this year.

#20 As I wrote about the other day, the IMF is warning that there is an “alarmingly high” risk of a deeper global economic slowdown.

#21 When shipping companies start laying off workers, that is one of the best signs that economic activity is slowing down.  That is why it was so troubling when it was announced that FedEx is planning to get rid of “several thousand” workers over the coming months.  According to AFP, “its business is being hit by the global economic slowdown”.

For even more signs that the global economy is rapidly crumbling, please see my previous article entitled “The Largest Economy In The World Is Imploding Right In Front Of Our Eyes“.

So is anyone doing well right now?

Yes, it turns out that QE3 is padding the profits of the big banks in the United States and making the wealthy even wealthier just like I warned that it would.

According to the Washington Post, QE3 is helping the big banks much more than it is helping consumers.  Is this what the Fed intended all along?…

JPMorgan Chase and Wells Fargo, the nation’s largest mortgage lenders, said Friday they won’t make home loans much cheaper for consumers, even as they reported booming profits from that business.

Those bottom lines have been padded by federal initiatives to stimulate the economy. The Federal Reserve is spending $40 billion a month to reduce mortgage rates to encourage Americans to buy homes. Instead, its policies may be generating more benefits for banks than borrowers.

So exactly how much has QE3 helped out the big banks?  Just check out these numbers…

Revenue from mortgages was up 57 percent in the third quarter compared with the same period last year at JPMorgan and more than 50 percent up at Wells Fargo.

But should we expect anything else from the Federal Reserve?

The American people are trusting the Fed to protect our economy, and yet they cannot even protect their own shipments of money.  In fact, the Fed recently lost a large shipment of new $100 bills.

Or perhaps could letting people steal money from their own trucks be another way that the Fed is trying to “stimulate the economy”?

Stranger things have happened.

In any event, the truth is that the U.S. economy and the U.S. financial system are unsustainablefrom any angle that you want to look at things.

We are drowning in government debt, we are drowning in consumer debt, Wall Street has been transformed into a high risk casino where our largest financial institutions are putting it all on the line on a daily basis, we are consuming far more than we are producing, there are more than 100 million Americans on welfare and we are stealing more than 100 million dollars an hour from future generations to pay for it all.

Anyone that believes that we are in “good shape” does not know the first thing about economics.

Sadly, the U.S. is not alone.  Nations all over the globe are experiencing similar problems.

The global economic crisis is just beginning and it is going to get much, much worse.

I hope you’re ready


The below chart comes from Morgan Stanley’s latest Strategy Forum deck, and though it’s simple, we suspect a lot of people haven’t seen it yet, or really haven’t made the connection between the chart and other big economic stories of the day.

This is the chart that’s causing warnings from FedEx.

This is the chart that’s contributed to the collapse of the Shanghai Composite.

This is the why the Baltic Dry Index is down 60% this year.

It’s why US manufacturing indices are giving off the weakest signs of the economy.

If the US goes into a recession in the next year, this will almost certainly be why.

chart of the day, globall growth has collapsed, september 2012


By Yalman Onaran – Bloomberg 
September 19, 2012

An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system.

A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year.

The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow. That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis.

“Capital flight is leading to the disintegration of the euro zone and divergence between the periphery and the core,” said Alberto Gallo, the London-based head of European credit research at Royal Bank of Scotland Group Plc. “Companies pay 1 to 2 percentage points more to borrow in the periphery. You can’t get growth to resume with such divergence.”

Lending Rates

The erosion of deposits is forcing banks in those countries to pay more to retain them — as much as 5 percent in Greece. The higher funding costs are reflected in lending rates to companies and consumers. The average rate for new loans to non- financial corporations in July was above 7 percent in Greece, 6.5 percent in Spain and 6.2 percent in Italy, according to ECB data. It was 4 percent in Germany, France and theNetherlands.

Some of the decline in deposits is because German and French banks are reducing their exposure. They cut lending to their counterparts in the four peripheral countries plus Italy by $100 billion in the 12 months ended March 31, according to the latest data available from the Bank for International Settlements. ECB data count interbank lending as deposits, as well as money being held for corporations and households.

Banks in the core countries also have been reducing their holdings of Spanish, Portuguese, Italian, Irish and Greek government bonds. At the same time, lenders in the periphery have been buying more of their own governments’ debt. That has further contributed to the fragmentation of credit along national lines, as banks collect deposits from people and companies in their own countries and lend internally.

IMF Warning

Organizations such as the International Monetary Fund have warned about the danger of such fragmentation. Financial disintegration along national lines “caps the benefits from economic and financial integration” that underlie the common currency, the IMF wrote in an April report.

The disintegration can fuel a cycle of deteriorating economic conditions and weakening banks, said David Powell, a Bloomberg LP economist based in London. The more banks pay for deposits the less profitable some of their businesses are, he said. A Spanish lender that borrows at 4 percent from depositors and is limited by Europe-wide interest rates to charging only 2.5 percent for a mortgage is losing money.

“The financial divergence is a symptom of the underlying economic divergence, but they feed on each other, making it harder to break out of,” Powell said. “Until companies and individuals are convinced that the euro will survive, they won’t invest in the periphery, and that will keep funds away.”

ECB Loans

The ECB has taken the place of depositors and other creditors who have pulled money out over the past two years, largely through its longer-term refinancing operation, known as LTRO. The Frankfurt-based central bank was providing 820 billion euros to lenders in the five countries at the end of July, data compiled by Bloomberg show. Irish and Greek central banks loaned an additional 148 billion euros to firms that couldn’t come up with enough collateral to meet ECB requirements.

Because central-bank financing is counted as a deposit from another financial institution, the official data mask some of the deterioration. Subtracting those amounts reveals a bigger flight from Spain, Ireland, Portugal and Greece. For Italian banks, what appears as a 10 percent increase is actually a decrease of less than 1 percent.

When financing by central banks isn’t counted, the data show that Greek deposits declined by 42 billion euros, or 19 percent, in the 12 months through July. Spanish savings dropped 224 billion euros, or 10 percent; Ireland’s 37 billion, or 9 percent; Portugal’s 22 billion, or 8 percent.

Accelerating Flight

The pace of withdrawals has increased this year. Spanish bank deposits fell 7 percent from the beginning of January through the end of July, compared with a 4 percent drop the previous six months. The decline in Portuguese savings accelerated to 6 percent from 1 percent, while Irish deposits fell 10 percent compared with almost no change in the last six months of 2011.

Banco Santander SA (SAN), Spain’s largest bank, lost 6.3 percent of its domestic deposits in July, according to data published by the nation’s banking association. Savings at Banco Popular Espanol SA, the sixth-biggest, fell 9.5 percent the same month.

Eurobank Ergasias SA, Greece’s second-largest lender, lost 22 percent of its customer deposits in the 12 months ended March 31, according to the latest data available from the firm. Alpha Bank SA (ALPHA), the country’s third-biggest, lost 26 percent of client savings during that period.

The ECB data include items such as deposits by securitization funds that Spanish banks say they don’t rely on for financing their businesses. Household and company deposits nationwide are stable if financing from instruments such as commercial paper sold to retail clients is included, Banco Bilbao Vizcaya Argentaria SA (BBVA) said in a Sept. 4 report.

Irish Banks

Irish government officials and bank executives say deposits at three government-backed banks have stabilized after almost three years of outflows. Bank of Ireland Plc, the largest lender, saw its customer deposits rise by 11 percent in the year ended June 30, according to regulatory filings. Ireland also hosts dozens of foreign institutions that use Dublin as an offshore base to benefit from lower tax rates and whose movements of funds would show up in the ECB’s Irish data.

Ireland nationalized almost all of its domestic banks in 2010, forcing them to recognize losses on real-estate lending, and injected 63 billion euros to keep them alive. Spain has resisted a similar cleanup that could cost several hundred billion euros, according to some estimates. After agreeing to 100 billion euros of potential assistance from the EU in June, the Spanish government still hasn’t decided how much of that to tap or what to do with its troubled lenders.

Plugging Holes

ECB cash may have plugged holes at lenders that otherwise would have had to sell assets at fire-sale prices as they lost private financing. The aid didn’t prevent funding costs from rising for the rest of the banks’ borrowing, including deposits.

While Italian lenders arrested the decline in deposits this year, they paid a high price to do so, with average deposit rates jumping 50 percent to3.1 percent in July from a year earlier, ECB data show. That’s more than the 2.4 percent paid by Spanish banks, whose deposit wars were halted by a rate cap last year. Those limits were lifted last month, and Spanish firms have begun raising interest rates on deposits again.

The average deposit cost at German banks in July was 1.5 percent. Two years ago, Italian and German deposit rates were the same, at 1.3 percent.

Loan Pricing

The difference in funding costs is reflected in loan pricing. Italian rates on consumer loans of less than one year, at 8.2 percent on average, exceeded even those in Greece and Portugal, ECB data show. Spanish consumers had to pay 7.3 percent to borrow from their banks, compared with 4.5 percent for German borrowers.

Another blow to financial integration is the localization of borrowing and lending. Units of German, French and Dutch banks in Spain, Italy and other peripheral countries also borrowed from the ECB to reduce the need for funds from their parent companies. Deutsche Bank AG, Germany’s largest bank, said last week it had cut the reliance of units on financing by the Frankfurt-based firm 87 percent through ECB loans.

While the largest banks say they’re protecting themselves against currency redenomination in case a country leaves the union, such moves help exacerbate divisions between the periphery and the core. A locally financed Deutsche Bank unit can’t make loans that reflect the cheaper funding sources of its parent in Germany.

‘Backdoor Bailout’

By taking over the financing of weak banks, the ECB is in effect bailing out their creditors in the core, according to Edward Harrison, an analyst at Global Macro Advisors, an economic consulting firm in Bethesda, Maryland. If Irish or Spanish lenders burdened with losses from their nations’ housing busts were allowed to fail, German and French banks would lose money on loans to financial institutions in Europe’s periphery.

The ECB’s latest plan to buy the sovereign bonds of some countries will continue the trend of bailing out German and French banks, Harrison said.

“The leaders of the core countries won’t let the periphery countries write down their debt because then they’d have to capitalize their own banks losing money from those investments,” Harrison said. “This is a good backdoor bailout of their banks, but it still doesn’t solve the solvency issue of Spain or Italy.”

The rescue shifts default risk from private shareholders of core banks to the ECB and, in effect, to euro-area taxpayers. When Greece restructured its debt earlier this year, so much of it already had been transferred to the public that losses by European banks outside Greece were cut in half. Because the ECB and other government lenders wouldn’t take any losses, the debt load wasn’t reduced enough to make it sustainable.

Bond Yields

The ECB’s offer to purchase Spanish and Italian government bonds — if those countries ask for help and agree to conditions imposed in exchange for the assistance — would reduce yields, which have fallen in expectation of the move. Still, the purchases won’t bring down borrowing costs for companies and consumers in those countries because banks will continue to pay higher rates for their funding, according to RBS’s Gallo.

Unlike in the U.S., where the Federal Reserve’s buying of securities in 2009 and 2010 brought down mortgage rates immediately, there isn’t as strong a connection in Europe between bond yields and loan rates, Gallo said.

Increased funding costs for Italian banks are purely a reflection of the sovereign’s borrowing costs, not weakness in the banking system, according to Bank of Italy Deputy Director General Salvatore Rossi. When Italian government-bond yields decline, banks’ funding costs should too, he said.

‘Vicious Cycle’

“Our banking system was in good shape before the crisis,” Rossi said in an interview in New York. “If the spread goes down, credit-market conditions would ease, contributing to halt a vicious cycle, which is hampering economic activity.”

That spread, the difference between the yields of Italian sovereigns and the German bunds, fell to 342 basis points yesterday from a high of 536 in July. One basis point is 0.01 percentage point.

While Italian banks are affected by their government’s debt overhang, some increased funding costs result from a rising level of bad loans, Gallo said. The ratio of nonperforming loans to total lending in Italy has almost tripled since 2008 to 5.6 percent in May, Italian Banking Association data show.

European Union leaders have acknowledged the dangers of a two-tiered banking system, which is accentuated by deposit flows from south to north and diverging borrowing costs.

“We cannot pursue price stability now when we have a fragmented euro zone,” ECB President Mario Draghi told European lawmakers Sept. 3.

Banking Union

Draghi has said that the central bank’s plan to buy sovereign bonds addresses the divisions. Euro-area leaders also have responded by attempting to establish a banking union. Shared deposit guarantees, a central regulator and a resolution mechanism for bad banks backed by common funds from member states could reduce concerns that customers will lose money when lenders fail, halting the deposit shift from south to north.

The European Commission unveiled its proposal for such a banking union last week as directed by leaders in June. The commission is initially focused on a centralized supervisor, with other elements such as the deposit guarantee to come later.

Even the supervision proposal has generated controversy. While there’s agreement the ECB should play a key role overseeing banks, EU members are divided about how it will interact with national regulators and the scope of its powers.

‘Difficult Road’

Germany, which spent about 50 billion euros to rescue its failed lenders in 2008, has opposed placing all banks under ECB supervision. At an EU finance ministers’ meeting in Cyprus last weekend, Germany was joined by the Netherlands in warning against a hasty move toward central supervision, while non-euro members such as Sweden criticized the plan for not protecting those outside the common currency.

While a banking union is seen as a first step toward a more fiscally united euro zone, getting there will be politically challenging and take longer than initially envisioned, according to Alexander White, European political analyst at JPMorgan Chase & Co. in London. Euro-area leaders had called for the establishment of a central supervisor by January, a date which now looks unlikely, White said.

“We’re still left with very big political questions about who pays for all this, how the backstops work and so on,” White said during a conference call with clients last week. “The proposals are going to be quite difficult for quite a lot of member states. It’s going to be a difficult road ahead.”


By Greg Hunter’s 

I don’t see how anyone could say the financial system is stable.  The facts say it is anything but well-balanced and steady.  The Western world is in crisis with Europe leading the way over the financial cliff.   Pick a country in the EU.  France, Greece, Spain or Italy are all capable of causing the next financial panic.  I can’t tell you how many times I’ve heard or read the word “collapse” in reporting on this spiraling financial crisis.  On Monday, German media giant Der Spiegel ran a headline that read “Investors Prepare for Euro Collapse.”  The story said, “Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar’s structure isn’t in doubt.” 
If the Euro goes down, the dollar will follow probably after a short spike.  This is just one of many recent examples of the fragility of the financial system. There is too much debt and not enough growth or taxes to service it.  It’s the same problem almost everywhere on the planet.  Governments are just printing money to try and make the problem go away.
Egon von Greyerz, founder of Matterhorn Asset Management ($5 billion in assets), said this week, “This is why money printing is guaranteed in Europe, the US, UK and Japan.  History teaches us that a nation which runs large deficits and increasing debts could never create wealth in the long-run.  Wealth has never been created by printing money, and this time, like it has before, it will lead to a financial crash.  This time the financial crash will be of a worldwide magnitude.” Nigel Farage, outspoken Member European Parliament, also fears another approaching calamity.  Just last week, he said, “It isn’t the euro that scares me anymore.  What scares me is the sheer level of indebtedness, and the fact that so many of our banks in the Western world are just in such serious trouble that we could face a situation where even if governments wanted to bail them out, the problem may become bigger than them.  So I do not discount, at some point, a really dramatic banking collapse.”
The next collapse will make the 2008 meltdown look like a day at the beach.  According to Professor William Black, it looks like a mathematical certainty.  Black is a former top bank regulator who helped unwind the Savings and Loan scandal.  He is also a professor of both law and economics and studies why we have “reoccurring and intensifying financial crises.”  In an interview this week, he told me, “. . . each crisis is becoming bigger by an order of magnitude.  The savings and loan debacle was $150 billion roughly.  The Enron era frauds and collapse of the high tech boom was six to seven trillion dollars.  Just the household sector (in the 2007-2008 meltdown) lost $11 trillion dollars.”  If youadd in $700 billion of TARP, more than $800 billion in stimulus, zero percent interest rates through 2014, FDIC deposit insurance for investment banks, the implicit guarantee of the “too big to fail”  banks by taxpayers and the $16.1 trillion pumped out by the Fed to bailout the world–you have one colossal crisis.
The next calamity will get bigger than the last by an “order of magnitude” because bankers, according to Professor Black, “can commit these frauds with impunity.”  (Black is referring to liar loans, security fraud of bundling those loans, ratings fraud, and the forgery and perjury of foreclosure fraud and many others.)   It is mostly the fault of greedy bankers who bought off corrupt politicians that allowed all the debt and bailouts to explode.   You would think the politicians would make the stability of the financial system a top priority.  After all, it is the cornerstone of retaining power.  Look at Libya’s Gadhafi.  You may not like him, but there was a reason he stayed in power for 40 years.  He couldn’t have done it without a stable financial system.  (He was also was sitting on 144 tons of gold.  That’s a lot of security, especially for a country the size of Libya.)  So, whether you are a dictator or a democracy, you want a rock solid system with zero chance of collapse. Professor Black says, “We are rolling the dice every day to have the disaster.”  In short, the next one will be the big one, and it can happen at any time without warning.


By Martin Hesse | Der Spiegel

Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar’s structure isn’t in doubt.
Otmar Issing is looking a bit tired. The former chief economist at the European Central Bank (ECB) is sitting on a barstool in a room adjoining the Frankfurt Stock Exchange. He resembles a father whose troubled teenager has fallen in with the wrong crowd. Issing is just about to explain again all the things that have gone wrong with the euro, and why the current, as yet unsuccessful efforts to save the European common currency are cause for grave concern. He begins with an anecdote. “Dear Otmar, congratulations on an impossible job.” That’s what the late Nobel Prize-winning American economist Milton Friedman wrote to him when Issing became a member of the ECB Executive Board. Right from the start, Friedman didn’t believe that the new currency would survive.
Issing at the time saw the euro as an “experiment” that was nevertheless worth fighting for.Fourteen years later, Issing is still fighting long after he’s gone into retirement. But just next door on the stock exchange floor, and in other financial centers around the world, apparently a great many people believe that Friedman’s prophecy will soon be fulfilled. Banks, investors and companies are bracing themselves for the possibility that the euro will break up — and are thus increasing the likelihood that precisely this will happen. There is increasing anxiety, particularly because politicians have not managed to solve the problems.
Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany’s Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution. There’s a growing sense of resentment in both lending and borrowing countries — and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. Meanwhile the the leader of Germany’s opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.
On the financial markets, the political wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro. Cross-Border Bank Lending Down Banks are particularly worried. “Banks and companies are starting to finance their operations locally,” says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.
According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the summer of 2011. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007. In addition to scaling back their loans to companies and financial institutions in other European countries, banks are even severing connections to their own subsidiaries abroad. Germany’s Commerzbank and Deutsche Bank apparently prefer to see their branches in Spain and Italy tap into ECB funds, rather than finance them themselves.
At the same time, these banks are parking excess capital reserves at the central bank. They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them. “Even the watchdogs don’t like to see banks take cross-border risks, although in an absurd way this runs contrary to the concept of the monetary union,” says Mayer. Since the height of the financial crisis in 2008, the EU Commission has been pressuring European banks to reduce their business, primarily abroad, in a bid to strengthen their capital base.
Furthermore, the watchdogs have introduced strict limitations on the flow of money within financial institutions. Regulators require that banks in each country independently finance themselves. For instance, Germany’s Federal Financial Supervisory Authority (BaFin) insists that HypoVereinsbank keeps its money in Germany. When the parent bank, Unicredit in Milan, asks for an excessive amount of money to be transferred from the German subsidiary to Italy, BaFin intervenes. Breaking Points Unicredit is an ideal example of how banks are turning back the clocks in Europe: The bank, which always prided itself as a truly pan-European institution, now grants many liberties to its regional subsidiaries, while benefiting less from the actual advantages of a European bank. High-ranking bank managers admit that, if push came to shove, this would make it possible to quickly sell off individual parts of the financial group.
In effect, the bankers are sketching predetermined breaking points on the European map. “Since private capital is no longer flowing, the central bankers are stepping into the breach,” explains Mayer. The economist goes on to explain that the risk of a breakup has been transferred to taxpayers. “Over the long term, the monetary union can’t be maintained without private investors,” he argues, “because it would only be artificially kept alive.” The fear of a collapse is not limited to banks. Early last week, Shell startled the markets. “There’s been a shift in our willingness to take credit risk in Europe,” said CFO Simon Henry.
He said that the oil giant, which has cash reserves of over $17 billion (€13.8 billion), would rather invest this money in US government bonds or deposit it on US bank accounts than risk it in Europe. “Many companies are now taking the route that US money market funds already took a year ago: They are no longer so willing to park their reserves in European banks,” says Uwe Burkert, head of credit analysis at the Landesbank Baden-Württemberg, a publicly-owned regional bank based in the southern German state of Baden-Württemberg. And the anonymous mass of investors, ranging from German small investors to insurance companies and American hedge funds, is looking for ways to protect themselves from the collapse of the currency — or even to benefit from it.
This is reflected in the flows of capital between southern and northern Europe, rapidly rising real estate prices in Germany and zero interest rates for German sovereign bonds. ‘Euro Experiment is Increasingly Viewed as a Failure’ One person who has long expected the euro to break up is Philipp Vorndran, 50, chief strategist at Flossbach von Storch, a company that deals in asset management. Vorndran’s signature mustache may be somewhat out of step with the times, but his views aren’t. “On the financial markets, the euro experiment is increasingly viewed as a failure,” says the investment strategist, who once studied under euro architect Issing and now shares his skepticism. For the past three years, Vorndran has been preparing his clients for major changes in the composition of the monetary union. They are now primarily investing their money in tangible assets such as real estate.
The stock market rally of the past weeks can also be explained by this flight of capital into real assets. After a long decline in the number of private investors, the German Equities Institute (DAI) has registered a significant rise in the number of shareholders in Germany. Particularly large amounts of money have recently flowed into German sovereign bonds, although with short maturity periods they now generate no interest whatsoever. “The low interest rates for German government bonds reflect the fear that the euro will break apart,” says interest-rate expert Burkert. Investors are searching for a safe haven. “At the same time, they are speculating that these bonds would gain value if the euro were actually to break apart.” The most radical option to protect oneself against a collapse of the euro is to completely withdraw from the monetary zone.
The current trend doesn’t yet amount to a large-scale capital flight from the euro zone. In May, (the ECB does not publish more current figures) more direct investments and securities investments actually flowed into Europe than out again. Nonetheless, this fell far short of balancing out the capital outflows during the troubled winter quarters, which amounted to over €140 billion. The exchange rate of the euro only partially reflects the concerns that investors harbor about the currency. So far, the losses have remained within limits. But the explanation for this doesn’t provide much consolation: The main alternative, the US dollar, appears relatively unappealing for major investors from Asia and other regions. “Everyone is looking for the lesser of two evils,” says a Frankfurt investment banker, as he laconically sums up the situation.
Yet there’s growing skepticism about the euro, not least because, in contrast to America and Asia, Europe is headed for a recession. Mayer, the former economist at Deutsche Bank, says that he expects the exchange rates to soon fall below 1.20 dollars. “We notice that it’s becoming increasingly difficult to sell Asians and Americans on investments in Europe,” says asset manager Vorndran, although the US, Japan and the UK have massive debt problems and “are all lying in the same hospital ward,” as he puts it. “But it’s still better to invest in a weak currency than in one whose structure is jeopardized.” Hedge Fund Gurus Give Euro Thumbs Down Indeed, investors are increasingly speculating directly against the euro. The amount of open financial betting against the common currency — known as short positioning — has rapidly risen over the past 12 months.
When ECB President Mario Draghi said three weeks ago that there was no point in wagering against the euro, anti-euro warriors grew a bit more anxious. One of these warriors is John Paulson. The hedge fund manager once made billions by betting on a collapse of the American real estate market. Not surprisingly, the financial world sat up and took notice when Paulson, who is now widely despised in America as a crisis profiteer, announced in the spring that he would bet on a collapse of the euro.
Paulson is not the only one. Investor legend George Soros, who no longer personally manages his Quantum Funds, said in an interview in April that — if he were still active — he would bet against the euro if Europe’s politicians failed to adopt a new course. The investor war against the common currency is particularly delicate because it’s additionally fueled by major investors from the euro zone. German insurers and managers of large family fortunes have reportedly invested with Paulson and other hedge funds. “They’re sawing at the limb that they’re sitting on,” says an insider.So far, the wager by the hedge funds has not paid off, and Paulson recently suffered major losses. But the deciding match still has to be played.


Today Egon von Greyerz told King World News, “Wealth has never been created by printing money, and this time, like it has before, it will lead to a financial crash.”  Greyerz, who is founder and managing partner at Matterhorn Asset Management out of Switzerland, also said, “This time the financial crash will be of a worldwide magnitude.” Here is what Greyerz had to say:  “The die is already cast for the world’s current situation.  It was cast many years ago and it is irreversible.  This is exactly why investors need to take a look at the big picture and protect their wealth.  But focusing on the short-term for a moment, markets look poised for a big move over the next few months here.”
Egon von Greyerz continues: “This move will include gold, silver and the HUI.  The fact that this move is in front of us simply means that more money printing is on the way at any time in the next few weeks.  I also expect global stock markets to top later this year, and then they should go through a precipitous decline. We should note that right now Japan has the biggest debt to GDP of any country, over 200%…. “The demographic situation in Japan is also a disaster.
But if the interest rates in Japan simply went from 1% to 2%, that will literally use up all of the tax revenues.  That is just incredible. So there is a hyperinflationary disaster looming in Japan, that’s absolutely guaranteed.  I wanted to stress Japan because very few people focus on that, but it is yet another country adding to the many other existing risks in the world. But even when you look at the US, with $15 trillion in debt, and roughly $1.5 trillion in tax revenues, it’s an enormous disaster waiting to happen.
At 10% interest rates the US will use 100% of its tax revenues to finance the debt. So we will see many countries that will not even collect enough tax revenues to pay for the interest expense on their debt. This is why money printing is guaranteed in Europe, the US, UK and Japan.  History teaches us that a nation which runs large deficits and increasing debts could never create wealth in the long-run.
Wealth has never been created by printing money, and this time, like it has before, it will lead to a financial crash. This time the financial crash will be of a worldwide magnitude.” Greyerz also added: “Gold’s rise has reflected some of the money printing up to now, it’s up 150% in dollar terms over the last five years. Over ten years gold is up 450%.
This is because of the destruction of paper money, which will only accelerate over time. But gold has risen with only slightly more than 1% of the world’s assets in gold.  Right now the world’s assets are about $150 trillion.  Of that number, $60 trillion is in cash, $40 trillion is in bonds, and $40 trillion is in stocks.  But, remarkably, only $2 trillion or just a bit over 1% is in gold.
With inflation headed higher, institutions, which have virtually no allocation to gold today, they will have to increase their allocation to gold.  There have been several studies over the last few months that have suggested that institutions will need to put part of their funds in gold. If you look at world financial assets, a 1% increase in allocation to gold of the world’s financial assets would require 12 years of gold production at today’s prices.
There simply isn’t the gold available at today’s prices to facilitate even a small move by institutional money into the sector.  Of course they can never get a sizable commitment into gold at these prices. I would also add that over time they will put a lot more than 1% into gold.  The studies I reference also suggest that institutions will improve their risk vs return situation by moving money into gold.  So I am convinced that there will be a big inflow of institutional money into gold over the next two or three years.”


Today MEP (Member European Parliament) Nigel Farage spoke with King World News about what he described as the possibility of, “a really dramatic banking collapse.”  Farage also warned that central planners want to enslave and imprison people inside of a ‘New Order,’ and he described the situation as “horrifying.” Farage also discussed gold, but first, here is what he had to say about the ongoing financial crisis:  “Governments don’t have the courage to tell the people that we cannot afford to go on living the way that we are.  We’ve really failed very badly in having honest politics, so we have this gross and very grave debt problem.”
Nigel Farage continues: “Now everyone has decided, the Bank of England, the Fed, and the European Central Bank, who are utterly brilliant people that have led us to the mess we are in, they’ve all decided that the solution is quantitative easing.  The solution is to go on printing and creating false money in an attempt to buy our way out of the (ongoing) crisis.
My take on that, my historical perspective is that all we are really doing is actually compounding the problem…. “It means that at some point in the future, it may be three years, it may be five years, but at some point in time we are going to get (massive) inflation.  If you devalue money, if you increase the money supply, that is what happens (massive inflation).
We know history has told us this again and again. It isn’t the euro that scares me anymore. What scares me is the sheer level of indebtedness, and the fact that so many of our banks in the Western world are just in such serious trouble that we could face a situation where even if governments wanted to bail them out, the problem may become bigger than them.
So I do not discount, at some point, a really dramatic banking collapse.” Farage had this to say about discussions in Europe where they are looking to cap the interest rates on the debt of both Italy and Spain:  “On a financial level it’s comical because it’s the same money that swirls around the system, which we know in the end doesn’t work.
But the sinister aspect of it is that the intention of men like (Italian Prime Minister) Mario Monti, and my old friend Mr. van Rompuy, is they actually want to enslave and imprison the peoples of these countries inside their ‘New European Order.’ And it’s horrifying because ultimately what it means is that people are going to reject and rebel against this.  They will rebel against it with violence, and they will rebel against it with political extremism.”

Farage had this to say regarding gold: “Short-term, over the next few weeks, I have no idea what the gold price will do.  We are at a period here of incredibly high risk.  We face huge problems with the West’s indebtedness and a very fragile banking system. I can only repeat that any sensible investor will have a decent percentage of their portfolio invested in gold. . And if things really do go as badly as I think they could, then the gold price could well shock people in terms of how high it goes.” This is one of Nigel’s best interviews ever on KWN.  The text above was just a small portion of what Farage had to say in this extremely timely and important interview.


The KWN interview with Nigel Farage is available now and you can listen to it by CLICKING HERE.


By NELSON D. SCHWARTZ | The New York Times


Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.

Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.

No one knows just how broad the shock waves from a Greek exit would be, but big American banks and consulting firms have also been doing a brisk business advising their corporate clients on how to prepare for a splintering of the euro zone.

That is a striking contrast to the assurances from European politicians that the crisis is manageable and that the currency union can be held together. On Thursday, the European Central Bank will consider measures that would ease pressure on Europe’s cash-starved countries.

JPMorgan Chase, though, is taking no chances. It has already created new accounts for a handful of American giants that are reserved for a new drachma in Greece or whatever currency might succeed the euro in other countries.

Stock markets around the world have rallied this summer on hopes that European leaders will solve the Continent’s debt problems, but the quickening tempo of preparations by big business for a potential Greek exit this summer suggests that investors may be unduly optimistic. Many executives are deeply skeptical that Greece will accede to the austere fiscal policies being demanded by Europe in return for financial assistance.

Greece’s abandonment of the euro would most likely create turmoil in global markets, which have experienced periodic sell-offs whenever Europe’s debt problems have flared up over the last two and a half years. It would also increase the pressure on Italy and Spain, much larger economic powers that are struggling with debt problems of their own.

“It’s safe to say most companies are preparing,” said Paul Dennis, a program manager with Corporate Executive Board, a private advisory firm.

In a survey this summer, the firm found that 80 percent of clients polled expected Greece to leave the euro zone, and a fifth of those expected more countries to follow.

“Fifteen months ago when we started looking at this, we said it was unthinkable,” said Heiner Leisten, a partner with the Boston Consulting Group in Cologne, Germany, who heads up its global insurance practice. “It’s not impossible or unthinkable now.”

Mr. Leisten’s firm, as well as PricewaterhouseCoopers, has already considered the timing of a Greek withdrawal — for example, the news might hit on a Friday night, when global markets are closed.

A bank holiday could quickly follow, with the stock market and most local financial institutions shutting down, while new capital controls make it hard to move money in and out of the country.

“We’ve had conversations with several dozen companies and we’re doing work for a number of these,” said Peter Frank, who advises corporate treasurers as a principal at Pricewaterhouse. “Almost all of that has come in over the transom in the last 90 days.”

He added: “Companies are asking some very granular questions, like ‘If a news release comes out on a Friday night announcing that Greece has pulled out of the euro, what do we do?’ In some cases, companies have contingency plans in place, such as having someone take a train to Athens with 50,000 euros to pay employees.”

The recent wave of preparations by American companies for a Greek exit from the euro signals a stark switch from their stance in the past, said Carole Berndt, head of global transaction services in Europe, the Middle East and Africa for Bank of America Merrill Lynch.

“When we started giving advice, they came for the free sandwiches and chocolate cookies,” she said jokingly. “Now that has changed, and contingency planning is focused on three primary scenarios — a single-country exit, a multicountry exit and a breakup of the euro zone in its entirety.”

Banks and consulting firms are reluctant to name clients, and many big companies also declined to discuss their contingency plans, fearing it could anger customers in Europe if it became known they were contemplating the euro’s demise.

Central banks, as well as Germany’s finance ministry, have also been considering the implications of a Greek exit but have been even more secretive about specific plans.

But some corporations are beginning to acknowledge they are ready if Greece or even additional countries leave the euro zone, making sure systems can handle a quick transition to a new currency.

In Europe, the holding company for Iberia Airlines and British Airways has acknowledged it is preparing plans in the event of a euro exit by Spain.

“We’ve looked at many scenarios, including where one or more countries decides to redenominate,” said Roger Griffith, who oversees global settlement and customer risk for MasterCard. “We have defined operating steps and communications steps to take.” He added: “Practically, we could make a change in a day or two and be prepared in terms of our systems.”

In a statement, Visa said that it too would also be able to make “a swift transition to a new currency with the minimum possible disruption to consumers and retailers.”

Juniper Networks, a provider of networking technology based in California, created a “Euro Zone Crisis Assessment and Contingency Plan,” which company officials liken to the kind of business continuity plans they maintain in the event of an earthquake.

“It’s about having an awareness versus having to scramble,” said Catherine Portman, vice president for treasury at Juniper. The company has already begun moving funds in euro zone banks to accounts elsewhere more frequently, while making sure it has adequate money and liquidity in place so employees and suppliers are paid without disruption.

FMC, a chemical giant based in Philadelphia, is asking some Greek customers to pay in advance, rather than risk selling to them now and not getting paid later. It has also begun to avoid keeping any excess cash in Greek, Spanish or Italian bank accounts, while carefully monitoring the creditworthiness of customers in those countries.

“It’s been a very hot topic,” said Thomas C. Deas Jr., an FMC executive who serves as chairman of the National Association of Corporate Treasurers. Members of his group discussed the issue on a conference call last Tuesday, he added.

American companies have actually been more aggressive about seeking out advice than their European counterparts, according to John Gibbons, head of treasury services in Europe for JPMorgan Chase.

Mr. Gibbons said a handful of the largest American companies had requested the special accounts configured for a currency that did not yet exist.

“We’re planning against the extreme,” he said. “You don’t lose anything by doing it.”


By Greg Hunter’s 

Professor William Black is an outspoken critic of Wall Street.  Black, a former bank regulator and professor of law and economics, says, “Outright fraud caused the great recession, and they are able to do it now with impunity.” Not a single financial elite that caused the crisis has gone to jail.   Because laws are not enforced and crooked bankers are allowed to do whatever they wish, Black says, “Each crisis is getting bigger by an order of magnitude.”  Meaning, the next financial meltdown is assured to be much greater than the last.  According to Professor Black, “Just the household sector lost $11 trillion, a trillion is a thousand billion.”  He goes on to say, “You can get to the point where even the United States could be thrown into a long term collapse scenario.”  When I asked, “Any day something could happen and we could be in another collapse?” The Professor unequivocally replied, “Yes.” 
Join Greg Hunter as he goes One-on-One with Professor William Black.


By Greg Hunter’s 

Greg Mannarino is a former Bear Stearns floor trader in the mid 1990’s.  He has written seven books on the ongoing financial crisis.  His latest is called“The Politics of Money.” Mannarino is a rising star on the internet for his YouTube commentaries.  He says, “The global debt bubble is the biggest in all of mankind, and every single one has burst in the past.”  He thinks what has been going on since the 2008 financial meltdown, “Is theft on a scale that is unimaginable.” When this debt bubble bursts, Mannarino thinks, “People are going to suffer on a Biblical scale. . . . People are not going to be able to acquire basic resources.” He predicts, “I am certain we are going to see violent crime erupt on a global level.”Mannarino chucked it all to go to medical school, and today he is a practicing physician’s assistant.  He’s back on the internet to warn people of what he sees coming in the not-so-distant future.
Join Greg Hunter as he goes One-on-One with Greg Mannarino.


By Mike “Mish” Shedlock | Global Economic Trend Analysis


Central bankers Debating the Limits of Power in Jackson Hole are wondering what’s holding back the economy.

“What is holding the economy back? Why is it that we’ve had such incredibly accommodative monetary policy for so long (but) we’ve had so little growth? I think it remains a puzzle,” said Donald Kohn, who is now a senior fellow at the Brookings Institution think tank in Washington.

Adam Posen, who finished his final day as a member of the Bank of England’s monetary policy on Friday and is a powerful advocate for more forceful central bank action, asked the same question as Kohn: “Why has all this lower short-term interest rates failed to make the economy go go go?” He argued that policymakers in Europe and the United States should waste no time in extending asset purchase programs to spur growth.

Alan Blinder, another former Fed vice chair who now teaches economics at Princeton, ticked off the two most blatant culprits for why the U.S. economy continued to struggle: government spending cuts and the drag from the depressed housing market.

Binder, Posen are Delusional 

Adam Posen and Alan Binder are clearly delusional.

Posen fails to understand the problems caused by going deeper in debt, even though Japan did just that for decades to no avail and has nothing to show for it but a mountain of debt.

As for Binder, might I ask: precisely what spending cuts is he referring to?

Please note the Fiscal Year Budget for 2011 was $3.603 trillion. Also note the budget for 2012 was $3.796 trillion, and the 2013 budget is projected to be higher still, at $3.883 trillion.

Indeed, the projected budget rises every year through 2022. It is ludicrous to talk of spending cuts, when spending is projected to increase every year for a decade.

Failure to Understand the Obvious

Central bankers and economists are so wrapped up in warped mathematical formulas they fail to understand the obvious. The answer, which they refuse to accept, or even consider as a possibility, is that central bankers and the monetary system itself are the problem.

Belief that a bunch of central planners can sit in a room and divine interest rates and the proper amount of money in circulation is as ridiculous as belief that Russian central planners could properly set the price and quantity of steel or orange juice.

The boom-bust cycles of ever-increasing amplitude benefiting the 1% while hollowing out the middle class should be poof enough central bankers do not know what they are doing.

That they met in Jackson Hole wondering why their policies are not working is also sufficient proof they do not know what they are doing.

What’s holding back the economy is three-fold.

Three Root Causes

  1. Fractional Reserve Lending
  2. No enforcement mechanism on governmental spending (i.e. lack of a gold standard)
  3. Central bank and governmental meddling

For a discussion of point number 2 above, please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold’s Honest Discipline Revisited

Since the end of the great depression until the year 2000 the Fed had tailwinds at its back and that made it appear Fed policy was successful.

Four Major Tailwinds 

  1. US productive capacity not destroyed in WWII
  2. Baby boomer demographics
  3. Women entering the workforce en masse
  4. Internet revolution

Those major tailwinds, in order, are what made it appear Fed policy was working. It is easy to inflate when powerful forces are at your back.


Following the 2001 recession, the Greenspan Fed held interest rates too low too long, allowing one last party. And it was the party-of-a-lifetime, culminating in the biggest housing and credit bubbles the world has ever seen.

In the wake of that party, all that is left is a big hangover and ten major headwinds.

Ten Major Headwinds 

  1. Boomers heading into retirement have insufficient savings
  2. Student debt holds back home-buying, marriage, and family formation
  3. Ability and willingness of individuals and businesses to take on more debt has shrunk dramatically. Attitudes towards lending, borrowing, and home ownership have changed.
  4. Bank bailouts at taxpayer expense left banks intact but did nothing for households deep in debt
  5. Tax policy encourages flight of jobs and capital
  6. Technology now serves to destroy more jobs than it creates. Please see Robots to Rule the World? Taking All Jobs? Replace Women? for a discussion.
  7. Untenable pension problems at the city, state, and federal level can no longer be put off.
  8. Public unions and collective bargaining are structural problems at the heart of the pension mess as well as the heart of numerous city bankruptcies.
  9. Artificially low interest rates weakens those on fixed income
  10. Commercial real estate bust on top of housing bust limits further job expansion. How many more Walmart, Pizza Huts, McDonalds, nail salons, Kohl’s stores, Office Depots, Home Depots do we need? Where?

Inflate to Grow Model Never Worked

It is disconcerting yet entirely predictable that central planners and government bureaucrats cannot see what the root problems are. After all, no one wants to blame themselves.

However, one might expect central bankers to at least understand headwinds and tailwinds. Sadly, you can forget about that as well.

The simple truth of the matter is the central planners model of “lowering interest rates to spur growth” never worked in the first place. Rather, four major tailwinds coupled with consumer attitudes (willingness to take on more debt) only made it appear so.

Central planners still fail to understand 10 obvious reasons why their policies are futile. And they are supposed to be guiding the economy!

Since central bankers cannot and will not admit the truth, they are left scratching their heads asking easily explainable questions like “What is holding the economy back?

I would have loved to present my views in a speech at Jackson Hole, but even if I was allowed, the participants would not have taken too kindly to the obvious truth: Central bankers and planners are a huge part of the problem, and no part of the solution.


Michael Pento writes exclusively for King World News to put readers ahead of the curve on what is happening with central planners. Pento warned, “The European Central Bank and Federal Reserve are both about to announce, this very month, an incredible assault on the Euro and the dollar.” Pento also cautioned, “… this is just the beginning of rising unemployment and soaring inflation.”

Pento also let investors know how to protect themselves in the coming chaos. Here is Pento’s piece: “Central banks will do something in September that causes fiat currencies to be flushed down the toilet. It will mark the beginning of the end for money that is not backed by precious metals. The events will be a desperate and final attempt to save faltering global GDP, but it will only lead to further economic destruction and intractable inflation.”

Michael Pento continues:

“The excuse being given for the upcoming assault on fiat money is the crumbling economies in Europe, which have taken down emerging markets economies as well. For example, China’s exports to the EU (17) dropped 16.2% in July, as sales to Italy plunged 26.6% from a year earlier.

The stumbling world economy has sent prices for base metals like iron ore falling 33% since July, which is the lowest level since October 2009….

“And now the nucleus of Europe, and Germany, is starting to split. German unemployment increased five straight months in August to reach 2.9 million. Factory orders fell 7.8% in June YOY as manufacturing output contracted further in August.

And listen up all you lovers of the Phillips Curve and inflation atheists; Spain’s unemployment rate has just reached another Euro-era high of 25.1% in July. However, inflation is headed straight up, rising from 1.8% in June, to 2.7% in August. But this is just the beginning of rising unemployment and soaring inflation. Just wait until the ECB and Fed launch their attack in September.

The European Central Bank and Federal Reserve are both about to announce, this very month, an incredible assault on the Euro and the dollar. The European Union said on August 31st that it proposes to grant the ECB sole authority to grant all banking licenses.

This means the ECB would be allowed to make the European Stabilization Mechanism—if sanctioned by the German courts on September 12th–a bank, which would allow them an unfettered and unlimited ability to purchase PIIGS’ debt. This is exactly what Mario Draghi meant when he said he would do “whatever it takes to save the euro.”

Not to be outdone, Fed Chairman Bernanke gave a speech on the same day indicating that open-ended quantitative easing will most likely be announced on September 13th. Fed Presidents Eric Rosengren and John Williams spelled out what open-ended QE means. The Fed would print about $50 billion per month of newly created money until the unemployment rate and nominal GDP reach target levels set by the central bank.

Incredibly, Mr. Bernanke said in his speech at Jackson Hole, WY that previous QEs have provided “meaningful support” for the economic recovery. He then quickly contradicted himself by saying that the recovery was “tepid” and that the economy was “far from satisfactory.” He also said, “The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.”

He continued, “…the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor-market conditions in a context of price stability.” Mr. Bernanke actually believes he has provided the economy with price stability, despite the fact that oil prices have gone from $147 to $33 and back to $100 per barrel in the last four years—all due to Fed manipulations.

Therefore, the Fed believes their attack on the dollar has helped the economic recovery and that it has been conducted with little to no negative consequences. Of course, you first have to ignore the destruction of the middle class. And incredibly, Bernanke also believes the $2 trillion worth of counterfeiting hasn’t quite been enough to bring about economic prosperity, so he’s going have to do a lot more.

What the Fed and ECB don’t realize is that their infatuation with inflation, artificial low rates and debt monetization has allowed the U.S. and Europe the ability to borrow way too much money. Their debt to GDP ratios have increased to the point that these nations now stand on the brink of insolvency.

And now these central banks will embark on an unprecedented money printing spree that will eventually cause investors to eschew their currencies and bonds. Therefore, they have managed to turn what would have been a severe recession in 2008, into the current depression in Southern Europe and a U.S. currency and bond market crisis circa 2015.

The only good news here is that the failed global experiment in fiat currencies may be quickly coming to an end. In the interim, investors that have exposure to energy and precious metal commodities will find sanctuary.”


By Matthew Boesler| Business Insider

September 8, 2012

A few weeks ago, Morgan Stanley’s head global economics Joachim Fels sent a note to clients entitled Into the Twilight Zone. In the note, the group downgraded its global growth forecasts, reflecting increasing pessimism across Wall Street on the future of the world economy.

Fels just put out an update today, writing that “recent disappointing data suggest that the global economy is sinking ever deeper into the twilight zone that divides sustainable recovery from renewed recession.”

Here’s Fels in his most recent note, looking at the new data that’s been revealed since Morgan Stanley downgraded its growth forecasts:

Disappointing data: Since we lowered our sights on global growth three weeks ago (see The Global Macro Analyst: Into the Twilight Zone, August 15, 2012), economic conditions have continued to deteriorate across emerging and advanced economies alike:

In China, the official manufacturing PMI fell into contraction territory for the first time in nine months in August, with widespread weakness across the relevant sub-components.

In India, our colleague Chetan Ahya has cut his 2012-13 GDP forecast for the third time this year and highlights the rising risk of a “deeper macro stress scenario” in the event of continued policy inaction (see page 8 or India Economics: Risk of a Deeper Growth Shock Rising, September 3, 2012).

In the US, the only slight decline in the manufacturing ISM composite index masked a greater deterioration in the relevant underlying details, including worsening indications for new orders, production and employment. The composite index was helped by a jump in the inventory component, but this is hardly a positive sign at a time of falling new orders and points to further production cuts ahead.

In Sweden, the manufacturing PMI dropped by an outsized 5.5 points to 45.1. Sweden’s manufacturing firms are exposed heavily to the European and global economy, so we take this as an(other) indication that the global trade cycle has deteriorated further.

Fels says it’s not as bad as it sounds, though, because “central banks are on the case.” The ECB meets tomorrow and investors are eagerly awaiting details about the Bank’s new bond-buying plan to rescue the euro periphery.


by Tyler Durden | ZeroHedge
Spot the point in this 803 year timeline of world inflation, when the Fed was created. 

The chart above comes courtesy of Jim Reid’s fantastic “Journey into the Unknown” which we will dissect in much more detail shortly. For now we wanted to bring our readers attention to what is arguably the most important aspect of modern monetary times: the advent of persistent inflation, and the disappearance of deflation.

Figure 18 shows median global inflation first from 1209 (left) and then from 1900 (right). As we’ve discussed in previous notes inflation took on a totally different persona after the start of the twentieth century. The charts are again on a log scale to allow us to easily see the near exponential increase in inflation over the last 100 years or so, especially relative to what occurred before. Note that had we used average instead of median, the chart would look almost absurd given the extreme levels of hyperinflation seen in several countries over the last century. The data behind the graph is based on a full set of 24 countries where we have inflation data back to 19001. Prior to this many countries have data that goes back several decades with some back through the centuries. We have included data as and when it becomes available.

It’s not just the general trend of higher prices, it’s the fact that even single years of deflation have been increasingly hard to find globally over the last century. Figure 20 shows the same data set as used above but shows the median YoY inflation back to 1209 (left) and over the shorter period since 1800 (right).

Prior to the twentieth century years of deflation were almost as common as years of inflation. However as discussed above, this all changed over the last 100 years or so. Indeed we haven’t seen a year of deflation on this median Global YoY measure since 1933. So we’ve now had nearly 80 years without a global year on year fall in prices.

Figure 21 extends this analysis showing the percentage of countries in our sample with a negative YoY inflation print and the total number of countries in our sample each year. The number of countries in annual deflation has certainly fallen over the last 100 years and particularly since the Gold Standard link was broken in 1971. Indeed since 1987 no more than 2 countries (out of the maximum 24 in our sample) have seen deflation in any one year and in most cases one of these two countries was Japan.

So although the last 30 years has been a period where inflation was perceived to be under control across the globe, there has generally been a persistent positive bias not seen through longer-term history. The break with Gold has ensured that countries can mostly ensure they don’t have deflation by being free to conduct money creation policies.

Although the hyperinflation list perhaps isn’t 100% inclusive, the trend is absolutely beyond dispute. The 1980s and 1990s saw the vast majority of the examples of these occurrences through history. Although all these have been outside of the developed world, this region has also seen many countries with high inflation over the period and with wide divergence between countries.

Much more coming: in terms of both Reid’s report, and inflation.


How Monetary Policy Threatens Savings

By Ferdinand Dyck, Martin Hesse and Alexander Jung | Der Spiegel

Central banks are currently flooding cash-strapped industrialized nations with money. This may help governments reduce their debt load, but it also erodes the value of people’s savings. A massive redistribution of wealth is threatening to take place in Germany and Europe — from the bottom to the top.

Germany’s central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country’s monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.

The confidence of visitors, however, is seriously shaken in the museum shop, just before the exit, where, for €8.95 ($11.65) they can buy a quarter of a million euros, shredded into tiny pieces and sealed into plastic. It’s meant as a gag gift, but the sight of this stack of colorful bits of currency could lead some to arrive at a simple and disturbing conclusion: A banknote is essentially nothing more than a piece of printed paper.

It has been years since Germans harbored the kind of substantial doubts about the value of their currency that they have today in the midst of the debt crisis. A poll conducted in September by Faktenkontor, a consulting company, and the market research firm Toluna, found that one in four Germans is already trying to protect his or her assets from the threat of inflation by investing in material assets, for example.

Germans Fear Assets at Risk

The German economy may be doing relatively well, with low unemployment and better economic performance than in many other industrialized countries. But Germans sense that they will end up paying for the current debt crisis, one in which politicians and monetary watchdogs are playing for time, through inflation that will gradually reduce the value of their savings.

It’s a silent but insidious and cold form of expropriation that has now begun.

Andrew Bosomworth can offer some insights into how this form of indirect theft of assets is taking place. When Bosomworth, the head of portfolio management in Germany for PIMCO, the world’s largest investment management firm, talks about the calamity that the debt crisis will bring upon mankind, he sounds like a concerned doctor. “The industrialized world is stuck in a severe debt and growth crisis,” he warns. “The central banks are fighting the disease with monetary infusions of previously unknown proportions, and the side effect is a slow but dangerous devaluation of money.”

Bosomworth argues that a gigantic redistribution from the bottom to the top has begun. “Gradual inflation has a numbing effect. It impoverishes the lower and middle class, but they don’t notice,” says Bosomworth. He believes that the Germans’ fear of inflation is more than justified.

For the past five years, governments from Berlin to London and from Brussels to Washington have been in crisis mode. They rescued the banks in 2007 and 2008, then they stimulated the economy and, since 2010, have threatened to drown in their own debts. The burdens are being pushed up the line, from private investors to central banks and government bailout funds. But this doesn’t make the debts any smaller. In fact, the opposite is true, as the example of Greece and other countries shows.

Governments Accepting Higher Inflation

Since September, when the central banks of the United States, the euro zone, Great Britain and Japan jointly announced their intention to pump even more cheap money into the financial markets, the people have become increasingly aware of the growing influence of highly indebted governments on central banks. They also recognize that governments seem to be willing to accept higher inflation if it facilitates debt reduction.

The official inflation rates are still moderate. According to recent figures, consumer prices rose by 1.7 percent in the United States, 2.2 percent in Germany and 2.6 percent in the euro zone as a whole, compared with the goal of about 2 percent inflation set by the European Central Bank (ECB). Nevertheless, economists, like American Nobel laureate Paul Krugman and Peter Bofinger, a member of Germany’s Council of Economic Experts, which advises the government in Berlin, believe that fears of a new era of inflation are nothing but hysteria. They argue that unemployment is too high and demand is too weak for companies to be able to achieve higher prices in the long term.

But perhaps the public does have a good nose for what is really happening, because consumer prices don’t tell the whole story. “The inflation debate is being conducted in an extremely abbreviated way,” says Thomas Mayer, a former chief economist at Deutsche Bank who still serves as an advisor to the company.

“The consumer price index does not reflect major purchases, like real estate, so that perceived inflation is higher than official inflation. Real consumer buying power is consistently declining.” And didn’t Anshu Jain, the new co-CEO of Deutsche Bank — who as a man born in India is less likely to be burdened by thoughts of hyperinflation that worry many average Germans — recently declare, with great conviction, that inflation will come?

The truth is that inflation isn’t some specter. It’s already here — still halting, but unmistakable and insidious.

It is evident at gas pumps in Germany, where the price of gasoline reached a new record high in September of €1.70 per liter (about $8.35 a gallon). It’s evident in real estate ads, which reveal considerable price increases in major cities like Munich, Hamburg and Berlin. And it’s also reached the precious metal markets, where gold is currently being traded at the record price of $1,775 per ounce.

Inflation, in the form of inflation of asset values, is already taking place in the financial markets.

The new price bubbles are being fed with cheap money from central banks, as well as by investors and savers fleeing into supposedly safe material assets. And there is something else people have figured out: If they are earning minimal interest or no interest at all on their savings, a hint of inflation is already chipping away at reserves.

The Flood of Money from Central Banks

One word from Italian economist Mario Draghi on Sept. 6 was enough to trigger jubilation in the financial markets. “Unlimited,” the head of the European Central Bank (ECB) said, along with his trademark crooked smile. What he meant was that the ECB would buy unlimited quantities of government bonds from euro-zone countries if they requested aid from the European Stability Mechanism (ESM), the permanent euro bailout fund that went into operation this week, and accepted the conditions of their euro partners — a statement Draghi reiterated last Thursday.

The ECB has already spent more than €200 billion on government bonds, and now the central bank’s balance sheet could continue to swell. The mood in the markets was further improved when the central banks in London and Tokyo also announced their intention to continue their bond purchase programs and, above all, when “Helicopter Ben” Bernanke, chairman of the US Federal Reserve, lifted off for another rescue flight.

In a speech in 2002, Bernanke cited economist Milton Friedman, who had once recommended throwing money out of a helicopter to avert deflation, which is when prices decline throughout the economy.

Bernanke certainly earned his nickname with his announcement, on Sept. 13, that the Fed would buy up $40 billion in mortgage loans every month to bolster the housing market and stimulate demand. It’s the third load of money that “Helicopter Ben” is tossing out over America since 2008. The Fed’s balance sheet already contains close to $3 trillion in government bonds, mortgages and other securities.

But that isn’t everything. The prime rate has been at zero since the end of 2008, and now Bernanke has announced that banks will likely be able to continue borrowing money for free from the Fed until at least mid-2015. “Helicopter Ben” is promising not to land before the American economy takes off and there is a significant drop in unemployment.

That may all sound good and well, but it no longer has very much to do with monetary policy.

In the eyes of PIMCO executive Bosomworth, Bernanke’s approach marks a departure from the Fed’s independence. “We are experiencing a ‘reverse Volcker moment’ in the United States,” he says. What he’s referring to is this: After the oil crises of the 1970s had driven up inflation in the United States, former Fed Chairman Paul Volcker rigorously combatted inflation with high interest rates. During that period, the Fed emancipated itself from the government’s influence. “Today the Fed is increasingly becoming subservient to fiscal policy,” Bosomworth says critically.

The US government debt has just exceeded the $16 trillion threshold. Inflation could help reduce this enormous mountain of debt. “The alternative is to reform and save — and to accept higher unemployment as a short-term consequence,” says Bosomworth. “But that isn’t as attractive politically.”

Instead, the US government is behaving the way governments have always behaved when their debts have gotten out of hand. The history of money is a history of almost constant devaluations.

The Return of Inflation

It began in the 4th century B.C. with Dionysius, the tyrant of Syracuse. When he was broke, he had all coins collected and re-minted, turning one drachma into two. He then returned half of the new coins to the people and used the other half to pay his debts.Later on, following the introduction of paper currency, monetary value could be manipulated even more easily. Now all it took was a money-printing press to inflate the money supply and devalue the currency. This was how the German Reich, overwhelmed with war debts and reparation claims after 1918, averted national bankruptcy, albeit at the cost of galloping inflation. The trauma of 1923 can still be felt to this day.

For American economist Friedman, this historic borderline experience was the best proof of a relationship between the money supply and inflation. The central message of the so-called monetarist is that if the volume of money is expanded while the supply of goods remains unchanged, inflation will be the inevitable outcome. Inflation, Friedman said, “is always and everywhere a monetary phenomenon.”

But inflation can also be triggered by rising costs — when, for example, workers succeed with their demands for higher wages or spending on commodities imports rises. This happened in 1973, when the increase in the price of oil raised the overall price level. Psychology also plays a role. When people lose their faith in money and question its stable value, a dangerous dynamic can develop as a result.

Many developments that have led to inflation in the past are evident once again today. The central banks are printing money, high commodity prices are driving up costs and both businesses and households distrust the stability of banks and, to some extent, that of the political system. But no one really knows when and to what extent this mélange will lead to inflation.

The central banks, by flooding the markets with money, are still offsetting the reluctance of commercial banks to lend money. At some point, however, the floodgates will have to close and will in fact do so, as those who are optimistic about inflation, like German expert Bofinger, believe. But will the central banks truly step on the brakes?

Economist Mayer is especially skeptical when it comes to the United States. “When the Fed raised interest rates in 2006 to offset inflation, the US real estate bubble, which the Fed and the government had helped to inflate, burst,” says Mayer. “After that experience, the Fed is unlikely to decisively step on the brakes this time.” And that is precisely when the ECB will struggle with raising interest rates again, because if the gap in interest rates between Europe and the United States becomes too large, the euro will likely appreciate, jeopardizing the economic recovery.

An Acceleration in Prices

The large money supply is already indirectly stimulating prices today. International borders no longer apply in the global financial game of Monopoly. “The US’s extremely loose monetary policy affects large emerging economies like China, which don’t have these problems,” says Mayer. “Interest rates are too low there, and the main problem there is that the economy is becoming overheated.” Through these growing markets, hungry as they are for commodities and machinery, the acceleration in prices could also increase in Europe.

As early as the 1990s, globalization prompted economists like Briton Robert Bootle to proclaim the “end of inflation.” They conjectured that higher wages and prices could no longer be achieved, due to cost pressure from the emerging economies. “For a long time, globalization slowed down rising prices. But the effect is running out, and the example of Foxconn shows that the limits of outsourcing have been reached,” says major investor Bosomworth.

One day, the name Foxconn could become a beacon for the end of an era in which globalization kept inflation in check. There has been unrest in recent months at the Taiwanese technology company, which operates plants in China that produce for Apple. Workers in emerging economies are increasingly demanding higher wages and better working conditions.

It is possible that weak demand in Europe will continue to prevent the company from achieving significantly higher prices for a long time to come, particularly given that the United States, with its policy of the weak dollar, has set a devaluation race in motion to boost its export economy. If Europe loses this currency war and the value of the euro rises, it could become even more difficult for the struggling peripheral countries to get back on their feet.

If this does happen, it will be yet another indication that inflation is already here, although it is largely restricted to the financial markets today. “Monetary policy drives the prices of financial instruments more strongly than growth and employment,” Bosomworth says, explaining the phenomenon. “In this way, it drives a dangerous wedge between the financial economy and the real economy.” The first consequences can already be seen today.

The Bubble Economy

The German Stock Index, or DAX, is above 7,000, a level normally seen in the best of times, even though there is every indication that the economy is cooling down. The situation with the commodities markets is similar. For months, the price of a barrel of crude oil has been almost consistently above $100.

Anyone who can afford it is seeking protection from inflation and fleeing to material assets. This includes the customers of Berenberg Bank. The Hamburg institution, founded in 1590, is the oldest private bank in Germany. Its offices are located directly on the shore of the Binnenalster, a man-made lake in Hamburg.

Berenberg sponsors a golf tournament, polo matches and classic-car races at Germany’s Nürburgring racetrack — the sorts of things a bank does for its exclusive customers. Anyone interested in having the bank manage his or her money has to show up with assets of at least €1 million, and the customers classified as “ultra high net worth individuals,” or people with assets of more than €30 million, numbers in the hundreds. These are the sorts of people who have a lot to lose.

Today’s Investor Focus: Preserving Value

In the past, the most important goal for these customers was to earn returns, says Berenberg Managing Director Jürgen Raeke. Today the emphasis is on preserving value. “Customers want to know that their assets are safe,” says Raeke. This means investing in anything that’s tangible. Raeke runs a Berenberg subsidiary that specializes in material assets, from apartment buildings to precious metals like gold and silver. Land, including forestry and agricultural land, is especially popular at the moment, although it takes a few hundred hectares of land to make an investment worthwhile. Depending on the quality, the price per hectare of land in Germany ranges from €5,000 to €40,000.

According to Raeke, art is also a hot investment at the moment, with buyers especially interested in the Old Masters, including famous names from Canaletto to Rubens, as well as Impressionists and Expressionists. Raeke views such works of art as “blue chips” in the art market, or “almost foolproof investments.” Average investments in art range from €25,000 to €500,000, and higher.

Precious stones, says Raeke, are also now being viewed as alternative investments. Rough diamonds are rare, and the better qualities, in particular, have become noticeably more expensive. Some gems have doubled in value in the last 10 years.

Nevertheless, Raeke remains cautious, warning that the diamond market requires special knowledge, and that markups of 30 to 60 percent are common in the wholesale trade. Besides, he says, a 19-percent turnover tax is also assessed in Germany. “In addition, you can’t just sell the gems to a jeweler.”

A Dramatic Surge in Gold Prices

These are the luxury problems of the rich. Everyone else in German society is left to invest their savings in the two classic material assets: real estate and gold.

That goes a long way toward explaining why business has become dynamic to the point of hysteria. Last week, the price of a gram of gold rose to a record €44.48. The price of gold has increased sixfold within the last decade. Whereas only a small group of currency apocalypticists nurtured the cult surrounding gold in the past, today the upper middle class, consisting of skilled craftsmen, doctors and university instructors, is starting to invest some of its assets in gold.

Another option is the real estate market. Residential real estate has become especially sought-after and expensive in Munich, where the average price per square meter of a mid-level condominium is €2,850, or 21.3 percent more than a year earlier. Even in Berlin, years of disinterest on the part of investors have turned into wild speculation.

When Markus Gruhn talks about the real estate market in the German capital, he doesn’t use words like “bubble” or “speculation,” of course, instead calling it “the big commotion.” It began five years ago, says Gruhn, the chairman of the Berlin branch of the German Realty Association, in his conference room on Kaiserdamm, decorated with oil paintings and a wall clock. At the time, a large comparative study on real estate prices in European capital concluded that Berlin was the most inexpensive market of all.

Only then did the Austrians, Danes and Norwegians arrive, followed by Spaniards and Italians, says Gruhn. The investors bought up entire blocks, often paid for with 100-percent credit financing. And when the euro crisis struck fear into the hearts of investors in 2010, historic apartment buildings in formerly troubled neighborhoods like Kreuzberg and Neukölln suddenly became hot investments for attorneys from Stuttgart and general practitioners from Upper Bavaria.

“With them, it’s often a mixture of naïveté, media hype and a lack of investment alternatives,” says Gruhn. The broker remembers one older building in the eastern part of the city, in particular. There was mold on the basement walls, the groundwater level was high and an unattractive ground-floor commercial unit was empty. There were no real prospective buyers for years.

“I wouldn’t have bought the building, either,” says Gruhn. But suddenly everything happened very quickly. Three of four bidders drove up the price, and a year ago a private investor bought the property for €820,000. It would be sold for €900,000 today.

The real estate boom is also beginning to spread to rental apartments. In the eastern city of Dresden, rents have gone up by almost 14 percent in only 12 months. This is how the inflation in asset prices ultimately affects the broader population. And the poor end up paying for the anxiety of the rich.

Financial Repression

Udo Reifner, founder of the Hamburg Institute for Financial Services (IFF), doesn’t think much of the attempt to protect assets by fleeing into supposedly stable real values. “If you’re going into material assets now, you really must be desperate. The security of these assets is an illusion, as the burst real estate bubbles in the United States and Spain have recently shown.” The dangerous moments will come, he says, when too many people begin to doubt that “the spiral in which the financial economy is circling itself can be turned up any higher,” says Reifner, a former board member of the Hamburg Consumer Assistance Office.”If the new bubble bursts, the central banks will hardly be able to react anymore,” says PIMCO manager Bosomworth. “That’s when things will get exciting.”

But it isn’t just the danger of a crash invoked by Reifner and others that should have savers and investors worried. There is yet another distortion in the markets that is worrying people in a far more subtle way.

“The bubble is the biggest with German and American government bonds,” says Deutsche Bank advisor Mayer. The United States and Germany are also deeply in debt, and their debt levels are only increasing. Nevertheless, investors are currently even paying, at least in real terms, for the privilege of investing in German government bonds. Things are no different in the United States.

One could see this as a result of the flight into supposedly safe government bonds. But there may be a method behind interest rates approaching zero, at least in the United States: With the combination of very low interest rates and palpable inflation, the government can pay off a portion of its debt over the years and borrow money at cheap rates. Economists call this financial repression.

This is how the trick works: The central bank buys government bonds, thereby pushing the interest rates to levels below the rate of inflation. This means that inflation is greater than the growth in interest rates, so that real interest rates become negative. Put differently, inflation consumes assets. Or, to put it even more bluntly: Saving becomes pointless.

After World War II, the United States, through a combination of growth, low interest rates and an average of four percent inflation, was able to reduce the ratio of debt to economic output from 109 percent to about 25 percent within three decades.

A similar scenario would also be conceivable today. The initial situation is similar, as US economists Joshua Aizenman and Nancy Marion have determined: Then, as today, the crisis was preceded by a period of borrowing and low inflation rates. “Both factors increase the temptation to reduce the debt burden through inflation,” Aizenman and Marion conclude.

A model calculation shows that a 6-percent rate of inflation could push the debt ratio down by 20 percent within four years. The saver, be it a giant country like the People’s Republic of China or a small investor in Germany, foots the bill.

Thomas Mayer has already calculated what this means for private retirement funds. “If I go into retirement in Germany today and hope for a supplementary private pension of €2,500 a month for 20 years, I have to have €500,000 in initial capital, at an interest rate of 2 percent a year,” the economist explains.

But if the interest rate is pushed down to zero, the fund would only yield €2,100 a month. “And if another 3 percent of annual inflation eats away at my savings, after 20 years my pension will only have a purchasing power of €1,100.” In other words, even moderate inflation leads to a loss of purchasing power of more than 50 percent.

Triple Redistribution

Inflation, speculative bubbles and financial repression don’t affect all citizens in the same way. As a result of the sovereign debt crisis and the way in which governments deal with it, billions are being redistributed and risks are being deferred.

“The aspect of the debt crisis that relates to distribution policy is underestimated, even though the effect is enormous,” says Harald Hau. A finance expert at the University of Geneva, Hau studied at Princeton University under US economist Kenneth Rogoff, considered something of a godfather of government debt research. According to Hau, banks in Europe have managed to unload a large share of their risks onto governments.

“From the standpoint of private lenders, it’s the best strategy for deferring a government bankruptcy and unloading the risk onto others, such as taxpayers or creditor countries. That’s exactly what is happening in the euro zone.”

Ironically, it was the governments, which ought to be advocates for taxpayers, that helped the financial companies. “The relationships between the banking economy and the political world are generally such that the transfer of risks can succeed,” says Hau. For example, he explains, government regulators have a natural interest in avoiding problems among “their” institutions. “If government bonds are reallocated from private investors to the ESM and the ECB, risks are shifted from rich to poor, and from foreign financial investors to domestic taxpayers,” says Hau. It would be different if a government bankruptcy had been allowed to occur. According to Hau, the ownership of financial stocks is very heavily concentrated among extremely affluent households. If a bank runs into difficulties as a result of losses on government bonds, this primarily affects the rich, and not savers who have their money in life insurance policies. “Contrary to what the banking lobby is suggesting, life insurance policies are very widespread in their investments and, therefore, tend to be exposed to relatively little risk in the peripheral countries of the euro zone,” says Hau.

In contrast, if governments reduce their debt through low interest rates and inflation, says Hau, this primarily affects the holders of life insurance policies and similar types of investments. “Those who buy highly regulated products like life insurance are forced into bonds, where the low interest rates make a big dent,” explains economist Mayer. That’s because insurance companies and pension funds are required by law to invest their depositors’ money in supposedly safe havens, like government bonds. “If people watching the news everyday could see how their savings are losing value as a result of low interest rates, they would be appalled,” says Mayer.

The Solution?

So what is to be done? Should people simply go into debt, like major borrowers? Consumer advocate Reifner doesn’t see that as a solution for people with average incomes. “They’re always saying that interest rates are low. But even in Germany, rates for weaker borrowers, including hidden commissions, are often higher than 20 percent.”

This is why consumers are being squeezed from two sides. “Ordinary citizens are taken advantage of as borrowers and, as savers, are slowly being expropriated through negative real interest rates.”

But there are alternatives to more and more debt excesses, inflation and price bubbles. The euro-zone countries, at least, are still trying to get their debt under control through austerity budgets and reforms. And although all eyes are on Southern Europe at the moment, the German government could also face some uncomfortable questions soon.

Investor Bosomworth sees Germany in a situation similar to that of Ireland, Spain and Greece after the euro introduction, when these countries profited from low interest rates. “Now Germany mustn’t repeat the mistake that led to speculation bubbles and the current problems in those countries,” says Bosomworth.

He suggests curbing the real estate market. “Possibilities include higher real estate transfer taxes, a speculation tax on real estate or limiting the issuance of loans in relation to the value of properties.” Besides, he adds, the government should generate surpluses to reduce debt.

A bankruptcy regulation for countries would also be necessary so that debts could be reduced in a more orderly fashion in the future, and at the expense of creditors instead of taxpayers. “Government bankruptcies are not at all unusual. In the last 200 years, this already occurred at a debt level of 40 to 50 percent of GDP,” says Geneva financial expert Hau.

And the central banks? ECB President Draghi and “Helicopter Ben” Bernanke should, once again, pay closer attention to making sure that the money supply and economic growth are in equilibrium.

Anyone paying a visit to the Bundesbank’s money museum can see how difficult this is. All it takes is to step up to a podium and move a joystick. When you pull back on the stick, liquidity is withdrawn from the economy, and when you push it forward the economy supplied with fresh capital. Two light pillars demonstrate how the money supply circulates and the corresponding volume of goods develops. The goal is to achieve a highly fragile balance. Whoever moves the stick too forcefully is immediately punished by the computer: “Sorry: Complete failure!”


By Robert G. Eccles and George Serafeim | Bloomberg
Sep 11, 2012

Globalization has concentrated economic power within a group of large companies who are now able to change the world at a scale historically reserved for nations. Just 1,000 businesses are responsible for half of the total market value of the world’s more than 60,000 publicly traded companies. They virtually control the global economy.

This vast concentration of influence should be the starting point for any strategy of institutional change toward a sustainable society.

Consider how quickly this situation has emerged. In 1980 the world’s largest 1,000 companies made $2.64 trillion in revenue, or $6.99 trillion in 2010 dollars, adjusted using the consumer price index. They employed nearly 21 million people directly, and had a total market capitalization of close to $900 billion ($2.38 trillion in 2010 dollars), or 33 percent of the world total.

By 2010 the world’s largest 1000 companies made $32 trillion in revenue. They employed 67 million people directly, and had a total market cap of $28 trillion. That’s equal to 49 percent of total world market cap. And it’s down from 64 percent in 2000, at the peak of the Internet bubble and before the financial crisis of 2008.

There’s substantial concentration even within the top 1000. Eighty-three companies account for one-third of the group’s $32 trillion in revenue. The top 172 companies account for about half of it. The 172nd largest corporation, the Russian oil company Rosneft Oil, had revenue equivalent to the GDP of the 74th largest country, Uruguay.

These companies and their supply chains have an enormous impact for both good and ill on society. They create goods and services for customers, wealth for their shareholders, and jobs for millions of people. They also consume vast amounts of natural resources, pollute the local and global environments at little or no cost, and in some cases limit employees’ well-being if wages and working conditions are inadequate. These latter, undesirable practices make our business-as-usual society unsustainable.

Many companies now acknowledge some responsibility to the world beyond their operations. What’s more, they know that if they are to continue such rapid growth in developing markets — or, as Willie Sutton might say, “where the money is” — they might need to bring in more than goods and services, such as civil-society upgrades where they’re most needed: housing, health and education.

Market opportunity, peer pressure, investor pressure, and brand reputation are doing for these companies what otherwise might be accomplished only through regulation. And since regulation is enforced by national agencies, all roughly 200 countries in the world would have to pass and enforce similar regulations. What a headache.

Instead, the market itself has already gone a long way toward making the global economy adaptable by concentrating market and moral leadership into 1000 boardrooms. The number 1000 is somewhat arbitrary. We choose it in part because it’s a relatively manageable number to target, and civil society institutions and NGOs are becoming increasingly sophisticated in the ways they do just that.

Major investors are also a powerful constituency demanding change. Wealth is even more concentrated within asset management than it is among companies. The top 500 fund managers have over $42 trillion in assets under management. The top 10 fund managers account for one-third of this amount; the top 50 for two-thirds. This means that a small number of institutional investors might wring great change from businesses. They’re making progress.

Many companies might see only short-term competitive disadvantage in sustainable practices. This need not be the case. Through innovations in processes, products, and business models, the Global 1000 can make more money by improving their performance in key sustainability metrics — called ESG, for environmental and social issues and corporate governance. Financial reporting itself is slowly changing to reflect the importance of these non-financial indicators. Integrated reporting — the practice of issuing financial and ESG data in one document — helps companies understand where new initiatives might come from, and helps investors understand whether a company sees how the world is changing.

Remaking these 1000 companies will change the behavior of millions of other companies, as healthier business practices trickle down their supply chains and into the constellation of private companies. Ultimately, creating a sustainable society—one that meets the needs of the present generation without sacrificing those of future generations—requires responsible behavior by every individual. And it’s easier for every individual to change if the institutions that structure our lives and society pave the way.

Eccles is professor of management practice at Harvard Business School. Serafeim is assistant professor of business administration at Harvard Business School.


Steve Quayle’s anonymous international banking source….

“The Bond market is finished, We all knew that there is a bubble in the bond market, This is the coup de grace that will not pop the bubble, but make it explode with the force of a thousand suns. America will be broke and barren in a blink of an eye! These are two events that I have been warning about are ones that will end your life on this planet as you know it. Your cash will be worthless, your country at a standstill, No money, No food, no essential services, AND WHEN IT ALL STOPS….. YOU STOP.”




By Matthew Boesler | Business Insider

AUGUST 26, 2012

The eurozone is on a path into a deep recession. As one of the largest and most advanced economies in the world, its centrality to a system of highly-interconnected global supply chains is taken for granted.

David Korowicz, a physicist and human-systems ecologist, recently authored a lengthy 78-page white paper titled: “Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse.”

It explores the increasing systemic risk brewing in the global financial and trade systems. Using complex systems analysis, he explains how within weeks of the next major economic shock, like a major bank failure or a country exiting the eurozone, contagion would quickly spread through global supply chains, causing an “irreversible global economic collapse.”

Korowicz warns that in the next crisis, “neither wealth nor geography is a protection. Our evolved co-dependencies mean that we are all in this together.”

We read the paper and boiled it down to its key points.

The number of connections in the global economy is skyrocketing

Ancient Native American tribes produced a few hundred “cultural artifacts”–the physical things around you–while today’s New Yorkers produce tens of billions of such artifacts.

In 2005, there were 2 billion connected devices. Five years later, that number had tripled to 6 billion, and it’s expected that by 2015 the number will be 16 billion.

Supply chain interactions–as parts are manufactured and put together into bigger parts of even bigger goods and so on–are in the tens of billions.

Source: Korowicz (2012)

Financial shocks can spread across the world in seconds

Several examples in recent years–like the collapse of Lehman Brothers in 2008 or the “flash crash” in the stock market in 2010–show how quickly financial turmoil can spread across highly interconnected markets.

Source: Korowicz (2012)

Cities don’t keep emergency stockpiles of food and other goods anymore

Modern cities only keep around three days worth of food for its population on hand.

Advanced economies use incredibly efficient “Just-In-Time” logistics systems because they can track real time demand for goods automatically from check-out counters to factories who can adjust to these changing signals.

The danger of “Just-In-Time” logistics is that there isn’t a lot of inventory available for emergency situations.

Source: Korowicz (2012)

Sovereign nations and banking systems are hot-wired for rapid contagion

Sovereign nations backstopping insolvent banks doesn’t remove the risks associated with a debt default–the risks are simply displaced and magnified over time.

Spain is a good example. The country bails out its banks, but in the process increases its own debt. This, in turn, causes concern over the fiscal health of the country, which causes its bonds to sell off. The banks it just bailed out, who have been buying up Spanish bonds, are more insolvent due to the decrease in asset values.

Banks across the developed world are holding increasing amounts of their country’s sovereign debt, thus increasing overall system risks.

Source: Korowicz (2012)

The global economic environment can no longer support the weak links in the chain

Other countries have faced problems of debt default before–like Argentina in 2002.

Because the world economy was relatively healthy and stable, it was able to absorb the impact of Argentina’s debt default.

The world economy is no longer healthy and stable. All signs point to a global slowdown looming ahead as Europe’s recession spills over into Asia, causing growth to slow there. Thus, another default would not be absorbed so easily.

Source: Korowicz (2012)

Economic contraction is fundamentally incompatible with the international financial and monetary systems

The global economy is based upon credit expansion–new debt must be issued to service the interest on old debts.

When the economy is contracting, as it is in Europe, the ability to service old debts disappears and debtors become insolvent.

This changes the dynamics of the financial system, introducing the possibility of defaults and haircuts on debt, which can be highly destabilizing.

Source: Korowicz (2012)

The stability of the global economy entirely depends on rising energy flows

The stability of the global economy entirely depends on rising energy flows

Korowicz writes that “maintaining complexity is a battle against entropic decay, and growing complexity is a battle against the universal tendency towards disorder.”

Equilibrium doesn’t exist in complex adaptive systems like the global economy–things are changing constantly.

Increasing complexity pushes a system further and further away from equilibrium–and it takes increasing amounts of energy to support that trend, or else a system will “fall back” toward its equilibrium.

Source: Korowicz (2012)

The idea that we are behind the wheel of a complex economy is a myth

The idea that we are behind the wheel of a complex economy is a myth

The tens of billions of supply chain interactions that happen all around us, for example, are too numerous and complex for anyone to fully see and understand.

Policy decisions mostly rely on outdated economic models that are “parametrized” for the stable conditions in which they were developed.

Korowicz writes that “as the risk of major systemic change grows, those models will likely prove increasingly erroneous as the system moves out of its historical equilibrium.”

Source: Korowicz (2012)

The structure of the global economy is contingent on historical conditions continuing

The structure of the global economy is contingent on historical conditions continuing

Negative feedback loops–automatic stabilizers–are designed to soften the blow of economic shocks and return a system back to a stable domain.

However, if automatic stabilizers fail, then positive feedback loops can arise, where negative events feed on each other to produce more negative events.

For example, failing to isolate the effects of a bank failure can lead to a cascading wave of failures throughout a financial system as it departs too far from the stable domain in which it must operate.

Source: Korowicz (2012)

Positive feedback loops mean infrastructure declines at an accelerating pace in a contraction

Economic contraction feeds on itself. Korowicz explains how this sort of process is carried out:

As the economy contracts, then the customers of the utility have less to spend. A decline in revenue would mean that the utility income relative to the fixed costs would fall. If they want to maintain the network, they may have to raise the price of their service; this would drive away some customers, and cause others to use less services. Thus the utility revenue would fall further, requiring further price rises, spending falls and so on. If the utility cannot afford to maintain the network, the service deteriorates making it less attractive for customers, who drop out, reducing income and so on.

Source: Korowicz (2012)

Economic crisis causes social fragmentation and spreads fear

Korowicz writes that “A suspicion of ‘outsiders’ and increasing nationalism are common features of an economic crisis.”

This is rapidly occurring in Europe as the crisis grows. Germans point fingers at the Greeks, while Greeks point fingers back at the Germans. Indeed, they do not identify as fellow Europeans but as nationalist entities.

When the economy is contracting, it decreases the incentive for relative strangers to keep their word to others. Greece has less incentive now to make good on its debts than it did when times were good because they no longer benefit like they once did.

Source: Korowicz (2012)

The banking system is insanely concentrated

75 percent of payment flows between banks on an average day are conducted among only 0.1 percent of the banks in the US Fedwire payment system.

This is a symptom of preferential attachment–highly-connected nodes in a system are more likely to attract additional connections.

Korowicz notes that “big banks have greater economies of scale and bargaining power, so can attract more business than their smaller rivals with better deals or market crowd-out.”

Source: Korowicz (2012)

The world is running out of cheap energy sources

The world is running out of cheap energy sources

US Coastguard

Increasing deepwater drilling activity and pursuit of extracting resources through more expensive means suggests that we are running out of cheap sources of oil.

If new oil fields don’t offer a sufficient energy return on energy invested–i.e., if it takes more energy input to extract the oil than the extracted oil even provides, then it will necessarily remain undeveloped.

Korowicz says that “peak oil is not primarily concerned with reserves, but flow rates.” If the oil stops flowing, economic activity ceases.

Source: Korowicz (2012)

Food constraints are causing severe social and behavioral stress

Global food supplies are facing increasingly severe constraints. Major droughts in producing regions like the U.S. and India don’t help matters.

Neither do estimates that, according to Korowicz, “between six and ten fossil fuel calories are used to produce every calorie of food,” which due to increasing energy constraints is a cause for concern.

The Arab world has already seen major uprisings, partly due to soaring food costs which consume large portions of the population’s budget. Korowicz writes that “no society wants to test the veracity of the old adage that we are only nine meals from anarchy.”

Source: Korowicz (2012)

Whenever the next crisis comes, it will be massive and the world won’t be prepared

Korowicz hits on some familiar themes:

  1. “As financial and monetary systems become more unstable, the risks associated with doing anything significant to change or alter the course increase.”
  2. “The actions taken to prevent a crisis, or preparations for dealing with the aftermath of a crisis, may help precipitate the crisis.”
  3. “The growing stress in our very complex globalised economy means it is much less resilient.”

Source: Korowicz (2012)

If a country like Greece went into disorderly default…

Insolvent banks in that country would shut their doors

People and businesses would be limited to the cash they have handy

Grocery stores, pharmacies, and gas stations would be hit with panic buying

Cell phones would stop working as mobile phone credit would get used up

Cell phones would stop working as mobile phone credit would get used up

Daniel Goodman / Business Insider

Source: Korowicz (2012)

Public transport would be restricted as gasoline shortages would arise

Imports would collapse as credit would dry up

Contagion would spread to the next weakest countries

Contagion would spread to the next weakest countries

Source: Korowicz (2012)

In these countries, fear of insolvency would cause credit to dry up

Then, supply chain linkages would start to fail as companies would have trouble financing production of new goods

Banks in developed countries furthest away from the epicenter would have to be bailed out

Critical infrastructure would be affected as supply chains deteriorated, which would accelerate the contagion

Businesses would shut down production as critical inputs would become increasingly unavailable

The cascading effect through global supply chains would shatter global trade

The cascading effect through global supply chains would shatter global trade


Steven Strauss, Harvard University
Jun. 19, 2012

We seem to be heading towards an economic downturn equivalent to the Great Depression of the 1930s. This isn’t a secret. The synthesis below is derived from: Lawrence SummersNouriel RoubiniSimon JohnsonNiall Ferguson, and Paul Krugman to name just a few.

This crisis is not happening quickly. It’s more of a slow-motion train wreck—Greece’s crisis started in 2009. But that leaves a puzzle—why is the American stock market not reacting to obvious warning signs? Greece and Spain already have unemployment rates exceeding 20 percent. If that isn’t a depression, what is? Greece is in very deep trouble.

Spain (the Euro’s fourth largest economy) just needed a $125 billion bank bailout. The weaker economies (Portugal, Ireland, Italy, Greece, Spain) face severe credit crunches as local banks lose deposits (withdrawn because of credit concerns and fear of forced devaluations following a Euro exit). Serious discussion is already taking place about the demise of the Euro, or even worse the break-up of the European common market—in which case unemployment rates across Europe will exceed 20 percent.

National incomes will decline sharply, resulting in large-scale corporate insolvencies, with the crisis spilling over into the U.S. and Asia. Arguably, the Germans have a sufficiently healthy economy to avert the crisis. But they are reluctant to act—without clear structural changes in the European Union/member states to prevent future problems. Amidst a crisis, it’s difficult to make structural changes quickly. The Germans (with some legitimacy) fear that a bailout lacking agreement on structural changes will result in some combination of a larger financial disaster later, and/or the German economy permanently subsidizing some of the weaker economies.

Europe’s economies provide little reason for optimism. The U.S. faces a recession next year if the Budget Control Act takes effect, which is likely if Obama wins and partisan gridlock continues. House Speaker Boehner already announced that if Obama’s re-elected, the GOP will treat us to another debt ceiling confrontation. If Romney wins, the Democrats (having learnt their lesson from the Republicans) would be as disruptive as possible. If the U.S. faces a major economic crisis triggered by the Euro’s collapse, bipartisan consensus on how to resolve it is unlikely. China’s growth model may be reaching its limit.

If the rest of the world’s problem is too much ideology, China’s is arguably the absence of any ideology except kleptocracy. China lacks a functioning legal system. Its officials are disciplined by shadowy communist party entities, rather than accountable to a transparent legal system. Nominally ruling in the name of the proletarian vanguard, China is governed by princelings and kleptocrats, with friction escalating among the kleptocrats. Internationally, another regional war appears increasingly likely in the Middle East.

The U.S. and/or Israel might have a military confrontation with Iran, over Iran’s nuclear ambitions. The Syrian situation has the potential to become a regional conflict (Syria, Iran and Russia fighting Syrian dissidents supported by some coalition of Saudi Arabia, the U.S., Turkey and other countries). A Middle Eastern war would lead to significant oil price increases, and trigger a global recession (at a minimum). Compared to the financial crisis of 2008, governments everywhere are far more constrained by weaker balance sheets, loss of public trust and crisis fatigue. I’m not saying everything listed above will go wrong (though if that happens, it would be a “global perfect storm”).

However, even 1-2 of these plausible misfortunes would make 2013 a really bad year, and the world will have other challenges we cannot foresee (e.g., another nuclear accident, major earthquakes, etc.). Depressed yet? So why is the stock market trading as though all’s well? The S&P 500 closed on June 15th at 1343.

Based upon stock price divided by earnings (P/E ratio), the market now trades at about 21 times the prior 10 years’ average earnings. The long-term 10 year P/E ratio is about 16, so today’s premium over that long-term average is difficult to explain, considering the risks listed above. At the top of the bubble in October 2007, the S&P was at 1565. Currently, we’re only about 15 percent below that peak, and (again) the market isn’t reflecting the referenced risks. Is it a case of short-term delusions, leading to later major stock market debacles? If so—is it time to go short? Or does the market know something we don’t? Are the risks outlined above really not so bad?

Is the market assuming losses will be paid by the government, so let’s party like it’s 2006? Or could it be that all investments at this stage have poor prospects—so there’s no place to hide?

Stay tuned: 2013 will be an interesting year!


By John P. Hussman, Ph.D.

Over the past two weeks, the S&P 500 has lost months of upside progress in a handful of sessions. This is the very characteristic initial outcome of the overvalued, overbought, overbullish syndrome that has been in place until recently (the decline has cleared the overbought component). The good news here is that we now estimate the 10-year prospective total return on the S&P 500 to be about 5.2% annually as a result of the recent decline.

As a rule of thumb, a 1% market decline in a short period of time tends to increase the prospective 10-year return, not surprisingly, by about 0.1%. However, that approximation is less accurate over large movements or over extended periods of time, where growth in fundamentals and compounding effects become important.

The bad news here is that given the sharp deterioration in market internals, and the likelihood of an emerging recession, we have no basis to expect market losses to be contained to such minimal levels. It is important to recognize that the scope of our concerns is on the order of 25-35% market losses over 12-16 months, and those concerns aren’t meaningfully resolved by a 5% decline over the course of a few sessions. A good week in the market is unlikely to change our assessment unless it produces a material improvement in our measures of market internals.

The fast, furious, prone-to-failure rallies that often result from short-term oversold conditions aren’t generally enough, and usually reflect short-covering rather than sustainable investment demand. Improved valuations are often supportive of that sort of sustainable demand, but that would require a much larger decline than we’ve seen thus far. Massive monetary interventions have not done much for the economy, but have proved capable of provoking speculation for several months at a time.

As I’ve noted recently, there may be latitude to take a more constructive stance between the point that any new monetary intervention produces an improvement in our measures of market internals, and the point where we re-establish an overvalued, overbought, overbullish syndrome. Without a material improvement in valuations or market action here, we remain defensive.

Undoubtedly, the best outcome would be a strong improvement in valuations, followed by signs of improvement in our measures of market action, which is the typical sequence of events that complete a market cycle and can launch a very favorable investment environment. In the meantime, however, a bad week is unlikely to change our assessment unless that bad week includes a market crash. Last week was not a crash, though a free-fall appears increasingly possible, as the reality of emerging recession (and all that it implies for fresh credit risks, sovereign defaults, fiscal imbalances, banking strains and other problems) will likely smash against the consensus view of economic expansion in next few months. I continue to view the U.S. economy as most probably entering a recession that will ultimately be marked as beginning in May or June of 2012.

We are very much in agreement with the ECRI on this, though our methods are different, and our conclusions are clearly still seen as “fringe” views by the consensus. For the financial markets, those risks are compounded by the unbalanced “risk-on” exposure that investment managers and institutions adopted early this year, encouraged by a short-lived burst of economic activity, and faith in a central-bank backstop. When heavy “risk-on” positions established in recent months are forced to squeeze out through a narrow exit, large price adjustments may be needed, since investors who are less tolerant of speculative risk seem unlikely to respond with the requisite demand until improved valuations provide a sufficient incentive.

As John Kenneth Galbraith wrote in 1955, “Of all the mysteries of the stock exchange there is none so impenetrable as why there should be a buyer for everyone who seeks to sell. October 24, 1929 showed that what is mysterious is not inevitable. Often there were no buyers, and only after wide vertical declines could anyone be induced to bid … Repeatedly and in many issues there was a plethora of selling orders and no buyers at all. The stock of White Sewing Machine Company, which had reached a high of 48 in the months preceding, had closed at 11 on the night before.

During the day someone had the happy idea of entering a bid for a block of stock at a dollar a share. In the absence of any other bid he got it.” Illiquidity is a very unpleasant thing when you’ve got an inappropriately speculative position and you’re under pressure to close it out. The very high beta exposure taken by managers and institutions lately (see Unbalanced Risk) strikes me as particularly dangerous in an environment where we continue to estimate the market’s return/risk profile among the most negative 0.5% of historical instances. Will the Federal Reserve come in with QE3 in an attempt to prop up the market?

Maybe. It doesn’t matter to Bernanke that the Fed’s interventions are reckless, promote speculation, distort resources, punish savers, produce only temporary economic effects, and will be nearly impossible to unwind. But the Fed will undoubtedly feel compelled to “do something.” Apart from dollar swap lines (which the Fed is likely to reopen to Europe in efforts to reduce banking strains there), more QE is all the Fed can hope to offer. Let’s face it – when your only tool is a hammer, all the world looks like a nail.

Still, we’ve observed diminishing returns from the Fed’s interventions, there is no political tolerance for the Fed to intervene in securities involving any credit risk that would be borne by U.S. citizens (purchasing European sovereign debt, for example), and the yield on the 10-year Treasury bond is already down to 1.7%, which is far below where it stood when prior interventions were initiated. It seems a hard sell to argue that yields aren’t low enough, and that the Fed needs to intervene to drive them down further. Even so, it’s clear that Wall Street responds to Bernanke like a bunch of Pavlov’s dogs.

Provided that renewed Fed intervention is sufficient to improve our measures of market action, I expect we would have some latitude to respond with a more constructive position until an overvalued, overbought, overbullish syndrome is re-established. Frankly, I doubt that investors will find the third time to be a charm in the event of another round of QE. This is why any willingness to accept risk will far more tied to our longstanding measures of market action and other testable factors than to some novel “Bernanke faith factor” that we have no way of testing historically in any kind of rigorous manner.

Yes, the stock market advanced in 2009-2010 when the Fed tripled its balance sheet. But there is no material long-term relationship between the size or growth rate of the monetary base and stock market fluctuations. Rather, QE has had its effect on the markets by essentially starving investors of safe yield and making them feel forced into increasingly speculative corners in search of return. With safe yields already so depressed, I suspect that we will see already diminishing returns become even weaker, because there is little left for the Fed to squeeze.

Liquidation Syndrome

As I’ve  frequently noted in recent weeks, there are numerous ways of defining the basic “syndrome” of a richly valued, overbullish market where favorable internals (breadth, leadership) or other driving factors have fallen away. Presently, the market remains richly valued on normalized earnings, and is coming off of a speculative peak with an abrupt and persistent initial decline.

The guys at Nautilus Capital recently noted that just a 5% decline from a nearby peak, coming off of a 25% prior advance, has historically been fairly hostile to forward returns. Bill Hester notes that going back as far as Depression era data, that same behavior coupled with a rich Shiller P/E (anything above the mid-teens) and a preponderance of daily declines in recent data (say down 11 days out of 14) has preceded even worse outcomes – particularly in the context of a weak economic backdrop.

I should note that we also saw a “leadership reversal” last week – a shift from a preponderance of new weekly highs to a preponderance of new weekly lows. All of this reflects what might be called a “liquidation syndrome” that is selective for awful drops that began in 1969, 1972, 1987, 2000, 2007, and the more moderate but still steep losses in 1998, 2010, and 2011. The chart below captures a fairly simple filter of instances when the market lost 5% or more over a 2-week period, from a market peak in the prior 6 weeks (within 5% of the prior 52-week high) that was characterized by a Shiller P/E over 19, more than 50% advisory bulls, and fewer than 25% advisory bears. So the bars simply identify quick initial declines from overvalued, overbullish peaks. But the fact that they coincide with so many important cyclical bull market peaks says something about how those peaks are formed.

It’s important to note that on long-term charts like this one, small distances actually represent weeks of data, including many days where stocks advanced and everything looked just fine on a near-term basis, so we certainly shouldn’t rule out the typical “fast, furious, prone-to-failure” rallies that usually punctuate extended market slides.

Note that with few exceptions, even when the near-term outcomes have been benign, the outcomes within the following 12-18 months have typically been terrible. Of course, this is one simple and imperfect measure. Our present defensiveness is based a far broader ensemble of evidence, as well an army of related syndromes.

On the basis of objective data, we estimate the prospective market return/risk profile to be in the most negative 0.5% of all historical observations. As for my opinion about market conditions, I have to agree with Richard Russell, who said last week “I think we’re now in the second half of the primary bear market that started back in 2007.

It won’t be pretty.” Richard is undoubtedly the pre-eminent authority of Dow Theory, which is often disparaged, but actually holds up nicely in historical data if you make Rhea and Hamilton’s writings operational. As a side note on this, from a signal extraction standpoint, you can think of the Transports as carrying a signal about demand and distribution, and the Industrials carrying a signal about production, and both carrying a common signal about more general factors like risk aversion and so forth.

From that perspective, the initial weakness we saw in the Transports, coupled with resilience in the Industrials, has been consistent with the buildup of unsold inventories we’ve seen in recent months. The groaning weakness of both indices in recent weeks – breaking simultaneously below the sideways channel that Hamilton refers to as a “line” – is a classic Dow Theory sell signal.

While we don’t use Dow Theory formally in our own work, it does provide some interesting confirmation of our analysis at times, for example, in early 2003 when we removed about 70% of our hedges (see the April and May 2003 market comments, also see Notes on Risk Management for a discussion of why we did not respond similarly in 2009). My impression is that Richard’s comment about the “second half” of the primary bear market reflects the view that – unlike most bear markets and economic downturns – the downturn that began in 2007 was never really resolved, but was instead just pushed off and deferred by massive monetary interventions, accounting changes, and the like. This, in addition to the fact that the S&P 500 remains below its 2007 peak.

So rather than being a distinct primary bear market, and a distinct economic downturn, what we’re likely to observe ahead will be largely a continuation of the original unresolved mess of bad credit and unrestructured debt, now also writ large across Europe. Banking risk and resolution On the subject of distressed and unrestructured debt, a report from the Financial Times last week included the following: “The unit at the centre of JP Morgan Chase’s $2 billion trading loss has built up positions totalling more than $100 billion in asset-backed securities and structured products – the complex, risky bonds at the centre of the financial crisis in 2008.

These holdings are in addition to those in credit derivatives which led to the losses and have mired the bank in regulatory investigations and criticism. The unit, the chief investment office (CIO), has been the biggest buyer of European mortgage-backed bonds and other complex debt securities such as collateralized loan obligations in all markets for more than three years… The unit made a deliberate move out of safer assets such as US Treasuries in 2009 in an effort to increase returns and diversify investments.”

“In November 2010, even the British Bankers’ Association, a lobbying group, explicitly noted the scale of the CIO’s activities in a warning on the fragility of the UK mortgage market: ‘The JPM CIO has taken more than 45% of the total amount of UK residential mortgage backed securities that has been placed with investors since the market re-opened in October 2009′.” Based on this and other reports, it’s not clear that the recent losses at JP Morgan were simply the result of a speculative trade gone bad.

Rather, my impression is that the problems at JPM may be the result of using highly leveraged, illiquid derivative transactions as a “cross-hedge,” intended to reduce the risk of default in a whole portfolio of complex positions including (but not limited to) European mortgage debt, but with the long and short portions of the position behaving unexpectedly in relation to each other. I’d be much more interested in how large JPM’s mark-to-market losses are on the European mortgage-backed bonds than how much loss they’ve sustained on the hedge. Maybe the right question isn’t why they lost money on the hedging transaction, but why they apparently have a boatload of questionable assets so massive that they need to use whale-sized leverage to hedge the default risk in the first place.

On an encouraging note, there is a clearer direction from the FDIC in how it would respond to a major bank “failure” (a word that is often thrown about to scare the public into accepting bailouts, but in nearly all cases simply means that the bank would fail to pay off its own stockholders and bondholders). Last week, Martin Gruenberg, the acting FDIC Chairman, outlined the planned response of the FDIC to the resolution of a “systemically important” institution: “The most promising resolution strategy from our point of view will be to place the parent company into receivership and to pass its assets, principally investments in its subsidiaries, to a newly created bridge-holding company.” In the process, shareholders would appropriately be wiped out, subordinated debt would be wiped out, senior unsecured debt could be written down to the extent that losses were still uncovered, and senior bondholders would get equity and convertible debt in the new restructured institution. Depositors would be unaffected, as would be other bank customers.

Gruenberg observed “These measures go to the goals of accountability for investors in the failed company, and the viability of the new well-capitalized private entity. We believe that this resolution strategy will preserve the franchise value of the firm and mitigate systemic consequences. This responds to the goal of financial stability.” This is very good news, and is also a largely proven strategy, because it’s close to how Sweden durably resolved its own banking crisis in the early 1990’s. This kind of response would provide a durable base for renewed economic growth following any future episode of major credit strains.

If you have a financial crisis in which bad debt isn’t restructured, there is really no moving ahead. It’s good to see that there’s somebody in charge who understands that. Market Climate The Market Climate is characterized by unfavorable valuations, unfavorable market action, and a continued army of hostile syndromes that have historically been associated with unusually steep market losses over the following 6-18 month period. On a very short horizon, the market appears significantly compressed and open to a standard “fast, furious, prone-to-failure” bout of short covering in order to clear that condition. The problem here is that economic conditions are beginning to surprise significantly on the downside (see last week’s Philly Fed report), and credit strains are rapidly increasing in Europe.

So barring some monetary intervention, shorts may not be particularly inclined to cover much here. In that event, the failure of the market to provide a relief advance could produce something of a run for the exits as managers holding high-beta positions cry “Uncle!” into a market that isn’t particularly willing to absorb those positions without a significant discount. For that reason, I have no particular view about short-term market direction, except that it is likely to be a roller-coaster of sorts. Hold on to your hat.

Looking out beyond the very short-term, suffice it to say that we continue to estimate the market’s expected return/risk profile to be among the most negative 0.5% of historical observations. Strategic Growth and Strategic International remain fully hedged, while Strategic Dividend is close to 50% hedged. Strategic Total Return continues to carry a duration of about 2.8 years, with just under 14% of assets in precious metals shares, and a few percent of assets in utility shares and non-euro foreign currencies. — Prospectuses for the Hussman Strategic Growth Fund, the Hussman Strategic Total Return Fund, the Hussman Strategic International Fund, and the Hussman Strategic Dividend Value Fund, as well as Fund reports and other information, are available by clicking “The Funds” menu button from any page of this website.








Writer and researcher Susanne Posel of joins SGT for an in-depth conversation about the government’s plans for martial law in the United States. Susanne shares her insights about the preparatory measures the DHS and military are taking, and why: “They know the collapse is coming,” says Susanne. “So they are preparing for it.” Susanne also shares shocking information about a computer banking virus that may be used as the excuse to shut down banks internationally. “If you hear about this in the news, you have 72 hours to do whatever you plan to do before the collapse.” 


Susanne Posel
August 24, 2012

In June of 2012, Eric Bloom, former chief executive, and Charles Mosely, head trader ofSentinel Management Group (SMG) were indicted for stealing $500 million in customer secured funds. Both Mosely and Bloom were accused of “exposing” customer segregated funds “to a portfolio of highly risky derivatives.”

These customer funds were used to “back up personal investments” which were part of “collateral for a loan from Bank of New York Mellon” (BNYM). This loan derived from stolen customer monies was “used to purchase millions of dollars worth of high-risk, illiquid securities, including collateralized debt obligations, or CDOs, for a trading portfolio that benefited Sentinel’s officers, including Mosley, Bloom and certain Bloom family members.”

Fast forward to August 9th of 2012, and the 7th Circuit Court of Appeals (CCA) rules that BNYM can be moved to first in line of creditors over the customers that had their funds stolen by SMG.

When a banking customer deposits their money into their bank account, the Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SPIC) are in place to protect the customer from fraud or theft. The ruling from the CCA means that these regulatory systems will not insure customer funds, investments, depositors and retirees who hold accounts in banks. In fact, the banking institution is now legally allowed to use those customer funds deposited as collateral, payment on debts for loans made, or free use on the stock market to purchase investments as the bank sees fit.

Fred Grede, SMG trustee, explained that brokers are no longer required to keep customer money separate from their own. “It does not bode well for the protection of customer funds.”

Since the ruling gives banks the right to co-mingle customer funds with their own, no crime can be committed for the use of customer deposited monies.
According to Walker Todd , former lawyer for the Federal Reserve Bank of New York and Cleveland: “Basically, there is a new 7th Circuit opinion saying that there is no reason to impose a constructive trust on a lender’s takings of customers’ funds from client commodity firms that were used (inappropriately) to secure the firms’ borrowings, as long as the lender can say that it did not know WITH CERTAINTY that customers’ funds were being repledged. Negligence and misappropriation (vs. knowing criminal intent) are now a sufficient excuse for letting the lender keep the money and go to the head of the line for distributions in bankruptcies of the client commodity firms.”

When a customer deposits money into a bank, the bank essentially issues a promise to have those funds available when the customer returns to withdraw the deposited amount. When the same customer withdraws funds from their account (whether checking or savings) the customer assumes that the bank has enough funds to cover their withdrawal; including the presumption that their monies are separate from the bank’s assets.

Now, those funds are up for grabs by the bank at their discretion without explanation to the customer – nor is the bank obligated to recoup the customer should they “lose” those funds due to bad loans, bankruptcy or stock market loss.

In Texas, Pamela Cobb, manager of Bank of America (BoA), stole an estimated $2 million from customer funds for personal use. Cobb had been taking customer segregated funds since 2002.

Customers have complained of fraudulent charges placed on their accounts that BoA cannot explain. When the customer brings these charges to the in-house fraud department, they are given the run-around until they acquiesce.

Other customers have had their private possessions stolen right out of their safety deposit box held at BoA. The safety deposit box was drilled into and the contents shipped to the BoA corporate holding center in South Carolina.

In 1992 to 2003, Citibank called their theft of customer funds “account sweeping” wherein they stole more than $14 million from customers nationally. Using computerized credit card processes to remove positive and negative balances from customers, the scheme included double payments or funds paid out on returned purchases that were then attributed back to the customer.

At Chase bank, an anonymous employee opened an account under a customer name (targeting an Alzheimer’s sufferer), complete with a personal debit card. An estimated $300 per day was withdrawn on the fraudulent account. When family representing the victim alerted Chase, they brushed them off with an internal investigation claim – even as the family sought legal action.

Banking fraud against the elderly has risen of late, since banks realize they can steal massive amounts of cash from their aging customers with little to no repercussions.

The recent ruling on SMG has given the banking industry the legal backing they have been lacking when stealing from their customers.

Our financial institutions have been planning for a financial collapse wherein the US government will not offer assistance. The resolution plans required by the Federal Reserve Bank, described schemes to have the major domestic banks remain afloat by selling off assets, finding alternative sources of funding, reducing risky measures that make a quick buck. These strategies were to be perfected with “no assumption of extraordinary support from the public sector.”

The mega-banks, through Wall Street, are also acquiring firearms, ammunition and control over private mercenary corporations like DynCorp and ‘Blackwater” as authorized by the Department of Defense (DoD) directive 3025.18 .

DynCorp is a military-based private mercenary contractor that provides (among other services) intelligence training and support, international security, contingency plans and operations. Ninety-six percent of their funding is based on annual revenues from the US federal government. The international branch of DynCorp has operated as a “police force” even assisting local law enforcement during Hurricane Katrina.

Named as investors for the amassing of gun and ammunition manufacturers are Citibank, BoA, Barclays and Deutsche Bank who are pouring money into Cerebus and Veritas Equity who have taken over private corporations involved in the controlling riot situations.

The Federal Reserve Bank, one of the heads of banking cartels, has their own police force which operates as a protective security for the Fed against the American public. As part of the Federal Reserve Act signed in 1913, the designation of a Federal Law Enforcement – special police officers that are exclusively regulated by authority of the Fed (whether in uniform or plain clothes. These specialized police officers (who train with Special Response Teams) can work in tandem with local law enforcement or US federal agencies. These officers are heavily armed with semi-automatic pistols, sub machine guns and assault rifles as well as body armor.

Of recent, when withdrawing cash from an ATM, the daily allotted amount has decreased with some banks, thereby forcing the customer to go into the branch and extract the difference with a teller. At this point, according to anonymous informants, the customer is taken into a backroom to be questioned as to why they want the cash, what they are purchasing with the cash, why they are not choosing to use a debit card or another form of digital trade to make the purchase. These questions are not only intrusive, they are illegal.

Some anonymous sources have said that banking representatives who conduct the integrations are directed to keep a record of customer responses on an online application that will be sent to the FBI in conjunction with Patriot Act mandates on tracking banking activity.

Customer funds are no longer secure, no longer backed by the FDIC or other insurance corporations, and banks are legally allowed to co-mingled customer money with other funds of the bank. The only safe place for your money is with you.

Now is the time to close your bank account.

Susanne Posel’s post first appeared on her blog, Occupy Corporatism.



By Linette Lopez | Business Insider

We haven’t been hearing a lot from Matt Taibbi lately because he’s on deadline. But he took a break from his furious writing to comment on this week’s bank earnings and the impending Moody’s downgrade of a few of the major Street players — BofA, Morgan Stanley, Goldman and Citi.

We know that earlier this week, Black Rock’s Larry Fink said that if some of these banks were downgraded, his massive asset management firm would have to stop doing business with them — they have stringent rules about ratings, you see. To Taibbi, that’s a nail in the coffin. From Rolling Stone:when big money players stop trading with those firms, that’s when the death spirals begin. Morgan Stanley in particular should be sweating. They’re apparently going to be downgraded three notches, where they’ll be joining Citi and Bank of America at a level just above junk.

But no worries: Bank CFO Ruth Porat announced that a three-level downgrade was “manageable” and that only losers rely totally on agencies like Moody’s to judge creditworthiness. “A lot of clients are doing their own credit work,” she said. As for the bank earnings, Taibbi focused on the bank he hates the most (right now)— Bank of America.

It just so happens that, if you read BofA’s Q1 earnings report closely enough, it says the government forced the bank to reclassify some of its debt. During 1Q12, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual policies for junior-lien consumer real estate loans. In accordance with this new guidance, beginning in 1Q12, we classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing.

As a result of this change, we reclassified $1.85B of performing home equity loans to nonperforming. So yeah, basically Taibbi’s point (h/t to ZeroHedge who gave him a heads up on this) is that BofA tried to pass off a bunch of non-performing loans as gold. The government may have caught a batch of those, but how many batches are there, really?


A month ago presented the latest derivatives update from the OCC, according to which the Top 5 US banks held 95.7%, or $221 trillion of the entire US derivative universe (which in turn is just a modest portion of the entire $707 trillion in global derivatives as of June 30, 2011). And while the numbers of all this credit money, because that’s what it is, and the variation margin associated with all these trillions in bets is all too real, appeared impressive on paper, they did not do this story enough service.

So to present, visually this time, the US derivatives problem, we go to our friends from Demonocracy, who put the $229 trillion derivative ‘issue’ in its proper context. For those curious what a paper equivalent of bailing out the US derivatives market would look like, you will soon know.

SHORT STORY: Pick something of value, make bets on the future value of “something”, add contract & you have a derivative. Banks make massive profits on derivatives, and when the bubble bursts chances are the tax payer will end up with the bill. This visualizes the total coverage for derivatives (notional). Similar to insurance company’s total coverage for all cars.
LONG STORY: A derivative is a legal bet (contract) that derives its value from another asset, such as the future or current value of oil, government bonds or anything else. Ex- A derivative buys you the option (but not obligation) to buy oil in 6 months for today’s price/any agreed price, hoping that oil will cost more in future. (I’ll bet you it’ll cost more in 6 months). Derivative can also be used as insurance, betting that a loan will or won’t default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative. Most large banks try to prevent smaller investors from gaining access to the derivative market on the basis of there being too much risk. Deriv. market has blown a galactic bubble, just like the real estate bubble or stock market bubble (that’s going on right now). Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don’t know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system since the 9 largest banks shown below hold a total of $228.72 trillion in Derivatives – Approximately 3 times the entire world economy. No government in world has money for this bailout. Lets take a look at what banks have the biggest Derivative Exposures and what scandals they’ve been lately involved in. Derivative Data Source: ZeroHedge.

One Hundred Dollars

$100 – Most counterfeited money denomination in the world. Keeps the world moving.

Ten Thousand Dollars

$10,000 – Enough for a great vacation or to buy a used car. Approximately one year of work for the average human on earth.

100 Million Dollars

$100,000,000 – Plenty to go around for everyone. Fits nicely on an ISO / Military standard sized pallet.$1 Million is the cash square on the floor.

1 Billion Dollars

$1,000,000,000 – This is how a billion dollars looks like. 10 pallets of $100 bills.

1 Trillion Dollars

$1,000,000,000,000 – When they throw around the word “Trillion” like it is nothing, this is the reality of $1 trillion dollars. The square of pallets to the right is $10 billion dollars. 100x that and you have the tower of $1 trillion that is 465 feet tall (142 meters).

Bank of New York Mellon

BNY has a derivative exposure of $1.375 Trillion dollars. Considered a too big to fail (TBTF) bank. It is currently facing (among others) lawsuits fraud and contract breach suits by a Los Angeles pension fund and New York pension funds, where BNY Mellon allegedly overcharged the funds on many millions of dollars and concealed it.

State Street Financial

State Street has a derivative exposure of $1.390 Trillion dollars. Too big to fail (TBTF) bank. It has been charged by California Attorney General (among other) lawsuits for massive fraud on California’s CalPERS and CalSTRS pension funds – similar to BNY.

Morgan Stanley

Morgan Stanley has a derivative exposure of $1.722 Trilion dollars. Its a too big to fail (TBTF) bank. It recently settled a lawsuit for over-paying its employees while accepting the tax payer funded bailout. Vice Chairman of Morgan Stanley had a license plate that said “2BG2FAIL” on his Porsche Cayenne Turbo. All this while $250 million of bailout money ended up in the hands of Waterfall TALF Opportunity, run by the Morgan Stanley’s owners’ wives– Marry a banker for a $250M tax-payer cash injection. The bank also got a SECRET $2.041 Trillion bailout from the Federal Reserve during the crisis, beyond the tax payer bailout.

Wells Fargo

Wells Fargo has a derivative exposure of $3.332 Trillion dollars. Its a too big to fail (TBTF) bank. WF has been charged for its role in allegedly pursuing illegal foreclosures and deceptive loan servicing. Wells Fargo was just slapped with a $85 million fine by Federal Reserve for putting good credit borrowers into bad-credit rating (high rate) loans. In March 2010, Wachovia (owned by Wells Fargo) paid $110 million fine for allowing transactions connected to drug smuggling and a $50 million fine for failing to monitor cash used to ship 22 tons of cocaine. It also failed to monitor $378.4 billion (that’s $378400 millions dollars) worth of transactions to Mexican “casas de cambio” (think WesternUnion, anonymous cash transfer) usually linked to drug cartels. Beyond that, WF lets its’ VIP employees live in foreclosed mansions. WF knows how to cash your legit check, then claim “fraud” and close your account. WF also re-orders your transactions to create more overdraft fees. Wells Fargo’s Wachovia also got aSECRET $159 billion bailout from the Federal Reserve.Wells Fargo paid NO taxes in 2008-2010 and had a tax rate of NEGATIVE 1.4% while making $49 billion in profit during the same time.


HSBC has a derivative exposure of $4.321 Trilion dollars. HSBC is a Hong Kong based bank and its original name is The Hongkong and Shanghai Banking Corporation Limited.You will find HSBC working a lot with JP Morgan Chase. Both HSBC and JP Morgan Chase have strong interest in gold & precious metals. HSBC and JP Morgan Chase are often involved together in financial scandals. Lately HSBC has been sued for allegedly funneling more than $8.9 billion to the largest ponzi-scheme in history – Bernie Maddof’s investment business. HSBC (along w/ JP Morgan Chase) has been sued for alleged conspiracy suppressing the price of silver and gold, partially through precious metal DERIVATIVES and making billions of dollars on it. State of Hawaii is suing HSBC (and other banks) for deceptive credit card lending practices. DZ Bank in Germany is suing HSBC (and JP Morgan) for deceptive (lying) practices when selling home-loan-backed securities. HSBC is also under investigation for laundering billions of dollars.

Goldman Sachs

Goldman Sachs has a derivative exposure of $44.192 Trillion dollars. The $1 Trillion pillars towers are double-stacked @ 930 feet (248 m). The White House is standing next to the Statue of Liberty.Goldman Sachs has advantage over other banks because it has awesome connections in US Government. A lot of former Goldman employees hold high-level US Government positions (chart).Mitt Romney’s top donor is Goldman Sachs, and one of Obama’s best donors. Ex-CEO of Goldman Sachs, Hank Paulson became the Secretary of Treasury under Bush and during the 2008 financial crisis authored the TARP bill demanding $700 billion bail-out. In UK, Goldman Sachs escaped £10 million bill on a failed tax avoidance scheme with help of good connections. The bank is the largest player in the food commodities market, earned $955m from food speculation in 2009” – That’s your $$$. Goldman Sachs employees are arming themselves with guns in case there is a populist uprising against the bank. Goldman Sachs calls their investors “muppets“. and use clients to make money for themselves, disregarding the clients. The bank was fined $22 million for sharing valuable nonpublic information with top clients (Think insider trading with best clients). Goldman Sachs was part-owner America’s leading website for prostitution ads until the ownership stake was exposed. Goldman Sachs helped Greece conceal its debt with secret loans, while simultaneously taking advantage of Greece. Goldman Sachs got a $814 billion SECRET bailout from the Federal Reserve during the 2008 crisis. Goldman Sachs got $10 billion of the 2008 TARP bailout, and in the same year paid $10.9 billion in employee compensation and “benefits”, while paying a tax rate of 1%. That means an average of $327,000 to each Goldman Sach’s employee.

Bank of America

Bank of America has a derivative exposure of $50.135 Trillion dollars.BofA is sticking the tax-payers with a MASSIVE bill, by moving derivatives to accounts insured by the federal government @ total of $53.7 trillion as of 06/2011. During 2011-12 BofA has been in need of cash, so Warren Buffett gave BofA $5 billion. Same year BofA sold its stake in China Construction Bank to raise $1.8 billion in cash.Bank of America paid $22 million to settle charges of improperly foreclosing on active-duty troops BofA recruited 3 cyber attack firms to attack WikiLeaks. but the Anonymous hacker group hacked the security firms first. BofA was sued for $31 billion in home-loan losses in 2011, the bank is involved in many lawsuits, too many to document. BofA also received a SECRET $1.344 trillion dollar bailout from the Federal Reserve.


Citibank has a derivative exposure of $52.102 Trillion dollars. The $1 Trillion dollar towers are double-stacked @ 930 feet (248 m).Citibank customers have been arrested for trying to close their accounts, while in in Indonesia a man was interrogated to death in Citibank’s special “questioning room”. In 2011 Citibankpaid a fine of $285 million for selling home-loan backed bonds to investors, while betting they would lose value (think derivatives/insurance). The man in charge of the unit at Citibank became Obama’s Chief of Staff. 2 weeks before getting hired by Obama he got $900,000 from Citibank for great performance. This was after Citigroup took out $45 billion in bailout money. Citibank knowingly passed over bad loans to the Federal Housing Administration to insure.Citigroup also received a SECRET $2.513 trillion dollar bailout from the Federal Reserve.

JP Morgan Chase (JPM)

JP Morgan Chase has a derivative exposure of $70.151 Trillion dollars. $70 Trillion is roughly the size of the entire world’s economy. The $1 Trillion dollar towers are double-stacked @ 930 feet (248 m).JP Morgan is rumored to hold 50->80% of the copper market, and manipulated the market by massive purchases. JP Morgan (JPM) is also guilty of manipulating the silver market to make billions. In 2010 JP Morgan had 3 perfect trading quarters and only lost money on 8 days. Lawsuits on home foreclosureshave been filed against JP Morgan. Aluminum price is manipulated by JP Morgan through large physical ownership of material and creating bottlenecks during transport. JP Morgan was among the banksinvolved in the seizure of $620 million in assets for alleged fraud linked to derivatives. JP Morgan got $25 billion taxpayer in bailout money. It has no intention of using the money to lend to customers, but insteadwill use it to drive out competition. The bank is also the largest owner of BP – the oil spill company. During the oil spill the bank said that the oil spill is good for the economy. JP Morgan Chase also received a SECRET $391 billion dollar bailout from the Federal Reserve. In 2012, JP Morgan (JPM) took a $2 billion loss on “Poorly Executed” Derivative Bets.

9 Biggest Banks’ Derivative Exposure – $228.72 Trillion

Note the little man standing in front of white house. The little worm next to lastfootball field is a truck with $2 billion dollars. There is no government in the world that has this kind of money. This is roughly 3 times the entire world economy. The unregulated market presents a massive financial risk. The corruption and immorality of the banks makes the situation worse.If you don’t want to bank with these banks, but want to have access to free ATM’s anywhere– most Credit Unions in USA are in the CO-OP ATM network, where all ATM’s are free to any COOP CU member and most support depositing checks. The Credit Unions are like banks, but invest all their profits to give members lower rates and better service. They don’t have shareholders to worry about or have derivatives to purchase and sell.Keep an eye out in the news for “derivative crisis”, as the crisis is inevitable with current falling value of most real assets.


by Washington’s Blog

How Large Is the Derivatives Market? Everyone paying attention knows that the size of the derivatives market dwarfs the global economy. But how big is it really? For years, there have been rumors that there is over a quadrillion – one thousand trillion – dollars in notional value of outstanding derivatives. But no one really knew.

Even though the Bank of International Settlements regularly publishes tables showing the amounts of different types of derivatives, some of the categories are ambiguous, and so it has been hard to get a good handle on what’s really out there. For example, one blogger wrote last year: Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion. Smart guys like bond trader Jeffrey Gundlach said last year that we’ve got a quadrillion dollar derivative overhang, the government hasn’t done anything to fix the basic problems in our economy, and so we’ll have another crash.

But I’ve now found an estimate from a top derivatives expert who confirms the claim. Specifically, Paul Wilmott – who has written numerous books on the subject – estimated the number last year at $1.2 quadrillion: The… derivatives market … is 20 times the size of the world economy. According to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.

A Clear and Present Danger to the World Economy The size of the derivatives market is a huge threat to the world economy: One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders …. How big is the risk to the world economy from these derivatives? According to Wilmott, it’s impossible to know unless you understand the details of the derivatives contracts.

But since they’re unregulated and likely to remain so, it is hard to gauge the risk. But Wilmott gives an example of an over-the-counter “customized” derivative that could be very risky indeed, and could also put its practitioners in a position of what he called “moral hazard.” Another kind of market conduct that makes markets volatile is what Wilmott calls positive and negative feedback loops. These relatively bland-sounding terms mask some really scary behavior for investors who are not clued into it. Wilmott argues that a positive feedback loop contributed to the 22.6% crash in the Dow back in October 1987.

As we noted last year: Bloomberg reported in May: Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved. “There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said …“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008. Credit default swaps were largely responsible for bringing down Bear Stearns, AIG (and see this), WaMu and other mammoth corporations. And unexpected changes in interest rates could cause a major bloodbath in interest rate derivatives.

And, no, there have not been any reforms or attempts to rein in derivatives, and the Dodd-Frank financial legislation was really just a p.r. stunt which didn’t really change anything. But the big banks and their minions claim that the huge amounts of derivatives themselves is unimportant because these are only “notional” values, and – after netting – the notional values are deflated to much more modest numbers. But as [Tyler] Durden – who has a solid background in derivatives – notes: At this point the economist PhD readers will scream: “this is total BS – after all you have bilateral netting which eliminates net bank exposure almost entirely.”

True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small… Right? …Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold).

The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd’s bank “resolution” provision would do absolutely nothing to prevent an epic systemic collapse.


David Quintieri about the Derivatives nightmare, which is a blatant Wall Street fraud that goes far beyond the fraud of fractional reserve banking. Derivatives are the titanic of the world’s financial system and we have already hit the iceberg. With more than $1,000 Trillion in outstanding Derivatives worldwide, the system cannot be “unwound” and it’s impossible to save.



by Washington’s Blog Here are some recent improprieties by the big banks:

  • Engaging in mafia-style big-rigging fraud against local governments. See thisthis and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details hereherehere,herehereherehereherehereherehere and here
  • Pledging the same mortgage multiple times todifferent buyers.  See thisthisthisthis andthis.  This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. Seethisthisthisthis and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See thisthis and this
  • Participating in various Ponzi schemes. See this,this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees.  But studies show that most of the fraud is committed by management. Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud.  See thisthis andthis. But at least the big banks do good things for society, like loaning money to Main Street, right? Actually:

  • The big banks have slashed lending since they were bailed out by taxpayers … while smaller banks have increased lending. See thisthis andthis


Anthony Gucciardi

July 23, 2012

Major banks and the financial global elite are now confirmed to have as much as $32 trillion in hidden assets stashed away in offshore accounts that are subject to little or no taxation. A

s a result, around $280 billion is estimated to be lost in tax revenues. In other words, the multi-trillion dollar banks and elite families are avoiding any taxation while forcing United States citizens to foot the bill. Amazingly, the $32 trillion stashed away represents the overall GDP of the United States and Japan combined. In order to reach the monetary figure, which many are calling quite conservative, economist James Henry commissioned was by the Tax Justice Network — a group that seeks to bring tax evasion to light. Even the Tax Justice Network was quite shocked by the outcome, with spokesperson John Christensen saying he was ultimately startled by the “scale” of the numbers. What’s more concerning than the numbers, however, is the entities behind them.

The report revealed that major banks such as Bank of America and Citigroup were among the many major corporations and banking organizations to hide their assets in offshore tax havens. Bank of America, HSBC, Global Elite Families Among Listed In an interview with the news organization Al Jazeera, Christensen explains just how deep the report goes:

“We’re talking about very big, well-known brands – HSBC, Citigroup, Bank of America, UBS, Credit Suisse – some of the world’s biggest banks are invovled…and they do it knowing fully well that their clients, more often than not, are evading and avoiding taxes.”

To find the incriminating information, Henry (the economist working for Christensen and the Tax Justice Network) actually utilized data from deep within the International Monetary Fund (IMF), World Bank, United Nations, and central banks to reach his final figure.

Embedded in what could potentially be the largest and most publicized breaking story on the subject of large-scale tax evasion by the wealthy elite, Henry also found that the offshore tax havens are actually quote attractive to entire developing nations — not just major banks and ultra-rich families.

Used by ‘private elites’ to hide the wealth of developing nations, Henry found the balance sheets of 139 developing countries on record. Since the 1970s, he estimates that among the richest of these nations currently disguising their true asset value had amassed around $7.3 to $9.3 trillion. A figure that is completely unknown to the rest of the world due to the fact that is ‘unrecorded’ as offshore wealth. The findings are continuing to gain mainstream attention, and pinpoint just how far big banks and major corporations will go in ensuring that they do not have to pay a dime in taxes while at the same time calling for mass tax increases for the average citizen.

Furthermore, it shows the financial mischief of the financial elite, depositing trillions upon trillions of dollars into offshore accounts with unknown value.


By Cordell Eddings and Daniel Kruger – Bloomberg
August 20, 2012
The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010. As deposits increased 3.3 percent to $8.88 trillion in the two months ended July 31, business lending rose 0.7 percent to $7.11 trillion, Federal Reserve data show.
The record gap of $1.77 trillion has expanded 15 percent since May, the biggest similar-period gain since July, 2010. Banks have already bought $136.4 billion in Treasury and government agency debt this year, more than double the $62.6 billion in all of 2011, pushing their holdings to an all-time high of $1.84 trillion. Faced with a slowing U.S. economy, unemployment above 8 percent for more than three years and regulations forcing them to hold more and higher-quality assets, banks are lending at below pre-recession levels.

The bond purchases help explain why even after rising this month, Treasury 10-year note rates are about half the 3.5 percent median forecast of 43 economists in a Bloomberg survey a year ago. “Bank deposits continue to explode and in turn they continue to buy Treasuries as the economy loses momentum, inflation is trending down,Europe continues to hang over our heads and political uncertainty reigns” said Michael Mata, a money manager in Atlanta at ING Investment Management Americas, which oversees about $160 billion. “There is no reason for interest rates to climb in any meaningful way any time soon.”

Borrowing Rises

While the gap has narrowed to $1.75 trillion as of Aug. 8 as lending of $7.12 trillion trailed $8.87 trillion in deposits, the gap is more than 17 times the $100 billion average in the decade before credit markets seized up, Fed data show. Commercial and industrial lending reached a peak of $1.61 trillion in October 2008, a month after the bankruptcy of Lehman Brothers Holdings Inc. As the credit crisis deepened, loans tumbled to $1.2 trillion two years later, before recovering to $1.46 trillion Aug. 1. The recent rise isn’t keeping up with record bank deposits as savings of U.S. households have risen to 4.4 percent of incomes as of June from 1.7 percent in 2007, the data show. “Every bank is looking for a way to increase their yield,” said Mike Pearce, president of Bank of The West in Grapevine, Texas, whose company has been purchasing government securities after deposits grew faster than loans in 2010 and 2011. Instead of earning the Federal Funds rate of zero to 0.25 percent on the deposits, its bond holdings are yielding about 3.25 percent, he said.

Seeking Safety

Bank Treasury holdings reached $500 billion, the highest since June 2011, even with interest rates minus inflation for benchmark 10-year notes of 0.38 percent, compared to the average of 1.26 percent over the past decade. Yields on 10-year Treasury notes rose 15 basis points, or 0.15 percentage point, last week to 1.81 percent. The price of the 1.625 percent security maturing in August 2022 declined 1 12/32, or $13.75 per $1,000 face value, or 98 9/32. The yield was little changed to 1.81 percent today. They increased from a record low 1.379 percent on July 25 as investors became more optimistic about the economy. The U.S. added 163,000 jobs last month, a government report showed Aug. 3, more than the 100,000 projected by analysts. Sales at U.S. retailers increased 0.8 percent, more than the 0.3 percent forecast and following a 0.5 percent slide in June, Commerce Department data released Aug. 14 showed.

Rate Forecast

The benchmark notes will yield 1.60 percent by the end of September, below June’s projection of 1.90 percent, median estimates in separate Bloomberg surveys show. The year-end forecast fell to 1.65 percent from 2.1 percent. Banks may be forced into more risky assets and lending practices if yields continue to hover about record low levels, said David Hendler, an analyst at financial research firm CreditSights Inc. in New York. Their net interest margin, a measure of lending profitability, has declined to 3.52 percent, the lowest since 2009, according to FDIC data. “It doesn’t pay to be aggressive right now if you are a bank, but continuing to buy bonds near these levels is not sustainable in the long run,” Hendler said in an Aug. 14 telephone interview. The Federal Reserve said in its quarterly survey of senior loan officers, released Aug. 6, that “domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months.” Lending standards for large and medium-sized firms loosened, while those for small business were little changed for the fourth consecutive period.

Recession Legacy

Wall Street’s five biggest banks are off to their worst start in four years. JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 percent from 2011 and the lowest since $135 billion in 2008. The firms blamed the decline on low interest rates and a drop in trading and deal-making. Low government bond yields are a legacy of the credit crisis that caused more than $2 trillion in write downs and losses at global financial institutions, according to data compiled by Bloomberg. After cutting its target rate for overnight loans between banks in 2008 to a range of zero to 0.25 percent, the Fed under Chairman Ben S. Bernanke bought $2.3 trillion of Treasury and mortgage-related debt to reduce market interest rates and stimulate the economy. The central bank owned $1.66 trillion of Treasuries as of August, ahead of China’s $1.16 trillion.

Extra Deposits

Investors are more willing to accept low yields “when you have large demand from the Fed as well as natural demand from banks,” said Matthew Duch, a fixed-income money manager at Calvert Investments, which oversees more than $12 billion in assets. “Are bonds where banks want to be right now? No, but given the uncertainty over regulation, the economy and still weak loan demand in the market it’s the best of lots of bad options,” he said. Banks have “very conservative” balance sheets, JPMorgan Chief Executive Officer Jamie Dimon said in a July 13 conference call with analysts. The bank lent out $700 billion of its $1.1 trillion in deposits in the second quarter. “That would generally be considered totally conservative,” Dimon said. JPMorgan increased the Treasury and government agencies portion of their available-for-sale credit portfolio to $11.743 billion as of June 30, from $8.351 billion at the start of the year, according to a filing with the Securities and Exchange Commission on Aug. 9.

Added Incentive

“We get a lot of deposits in,” he said. “The extra deposits of $423 billion, plus equity, plus some other net liabilities, give us $522 billion that’s not being lent out that we have to invest.” The global supply of the highest-quality securities, as measured by ratings companies, is poised to fall by as much as $4 trillion. Reforms such as the Dodd-Frank financial-overhaul law and global regulations set by the Bank for International Settlements require institutions to hold more top-graded debt. Lenders have an added incentive to buy Treasuries after the Basel Committee on Banking Supervision proposed rules in 2011 that banks increase available capital to bolster the cushion against potential losses and better measure and control their risk. Treasuries’ safety and liquidity makes them suitable capital under regulations designed to prevent a repeat of the global financial crisis.

Wrong Direction

Loans are being damped by the slow recovery. Gross domestic product expanded at a 1.5 percent annual rate in the second quarter after a revised 2 percent gain in the prior three months, below the average of 2.6 percent since 1982, the Commerce Department said on July 27. The share of U.S. households viewing the economy as heading in the wrong direction rose to 45 percent in August, the highest since November, from 36 percent in July, the Bloomberg Consumer Comfort survey showed today. The monthly expectations gauge dropped to minus 22 from minus 11. The weekly Bloomberg Consumer Comfort Index fell to minus 44.4 in the period ended Aug. 12, the lowest since January, from minus 41.9. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year, according to the commerce department’s report on GDP.

Stimulus Pledge

Fed policy makers said Aug 1 they would provide more monetary stimulus “as needed.” “There’s all sorts of good long-term developments that are occurring on household balance sheets, but you sense the Fed would like them to be not quite as thrifty and instead put a little more money to work,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis,Tennessee. “But that’s not going to happen without salary incomes rising.” That explains the gap between deposits and lending, said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City who advises community banks on more than $30 billion of investments. “It’s a function of inherently weak demand for loans and that relates to inherently weak demand in the economy,” he said. “Consumers, households, businesses: they’re paying down debt, they’re saving money, they’re not borrowing. They don’t have an appetite.”


By: Matt Taibbi | Rolling Stone Magazine

September 20, 2012

Wall Street lobbyists are awesome. I’m beginning to develop a begrudging respect not just for their body of work as a whole, but also for their sense of humor. They always go right to the edge of outrageous, and then wittily take one baby-step beyond it. And they did so again last night, with the passage of a new House bill (HR 2827), which rolls back a portion of Dodd-Frank designed to protect cities and towns from the next Jefferson County disaster.

Jefferson County, Alabama was the most famous case – the city of Birmingham went bankrupt after being bribed and goaded into taking on billions of dollars of toxic swap deals – but in fact it was just one of hundreds of similar examples of localities being duped into suicidal financial deals by rapacious banks and financial companies. The Denver school system, for instance, got clobbered when it opted for an exotic swap deal pushed by J.P. Morgan Chase (the same villain in Jefferson County, incidentally) and then-school superintendent/future U.S. Senator Michael Bennet, that ended up costing the school system tens of millions of dollars. As was the case in Jefferson County, the only way out of the deal involved a massive termination fee that might have been even more destructive than the deal itself.

To deal with this problem, the Dodd-Frank Act among other things included a simple reform. It required the financial advisors of municipalities to do two things: register with the SEC, and accept a fiduciary duty to respect the best interests of the taxpayers they are advising.

Sounds simple, right? But Wall Street couldn’t have that. After all, if companies are required to have a fiduciary responsibility to cities and towns, how in the world can they screw cities and towns? The idea was a veritable axe-blow to the banks’ municipal advisory businesses.

So what did Wall Street lobbyists and trade groups like SIFMA (the Securities Industry and Financial Markets Association) do? Well, they did what they’ve been doing to Dodd-Frank generally: they Swiss-cheesed the law with a string of exemptions. The industry proposal that ended up being HR 2827 created several new loopholes for purveyors of swaps and other such financial products to cities and towns. Here’s how the pro-reform group Americans for Financial Reform described the loopholes (emphasis mine):

For example, any advice provided by a broker, dealer, bank, or accountant that is any way “related to or connected with” a municipal underwriting would be exempted from the fiduciary requirement. A similar exemption would be created for all advice provided by banks or swap dealers that is in any way “related to or connected with” the sale to municipalities of financial derivatives, loan participation agreements, deposit products, foreign exchange, or a variety of other financial products.

So basically, if you’re underwriting a municipal bond for a city or a town, and you happen also to give the city or town advice about some deadly swap deal that will put the city into bankruptcy for the next thousand years, you don’t have a fiduciary responsibility to that city or town. The banks’ view is that being asked to perform the merely-technical function of underwriting a bond is very different from advising someone to take on an exotic swap deal – so if a bank is mainly an underwriter and happens to offhandedly recommend this or that swap deal, it just isn’t fair to drop this onerous financial responsibility, this weighty designation of municipal financial advisor, on its shoulders.

Here’s how SIFMA describes what that awful burden would have been under Dodd-Frank’s original reform:

The consequences of being deemed to be a municipal advisor are very serious.  Providing municipal advice without having registered is “unlawful”—i.e. potentially criminal.  The highest standard of conduct–a fiduciary duty–is imposed.

God forbid! Thankfully, this new law provides an exemption from that “highest standard of conduct” providing the bank or financial company is not just giving advice, but also performing a merely technical function like underwriting.

The details of this law are pretty hairy, but the basic idea is simple: provided a bank isn’t dumb enough to only provide advice, or to ask for separate compensation for advice, it doesn’t owe anyone any goddamned fiduciary responsibility. So they can keep screwing cities and towns as much as they’d like.

This bill passed last night with the support of both parties and Barney Frank. Are you proud to be an American yet?


By Stephen Lendman | Global Research

On December 8, 2008, the Senate confirmed Neil Barofsky’s nomination as Troubled Asset Relief Program (TARP) watchdog. He assumed the post of SIGTARP (Special Inspector General for TARP).On July 20, 2009, he estimated the $700 billion bailout fund could balloon to $23.7 trillion. Obama administration secrecy conceals what’s essential to reveal. Over $9 trillion is known. Some analysts think true figures may be three times that amount. Only crooked bankers and corrupt bureaucrats know for sure.

 In February 2009, Barofsky submitted an initial report to Congress. In the past two months, he said, Washington handed out hundreds of billions of dollars (like confetti) to troubled financial institutions.

Where did the money go, he asked? What assurances exist that it’s not stolen or wasted?

TARP didn’t require recipients to report or internally track funds used. Accountability wasn’t mandated. Banks took full advantage. Instead of loans to stimulate recovery, they hoarded cash, acquired other financial institutions, paid off debt, speculated, and knew then and now there’s plenty more help for the asking.

Fraud prevention standards weren’t imposed. Barofsky doubts the program’s longterm success.

On March 29, 2011, he headlined a New York Times op-ed “Where the Bailout Went Wrong,” saying:

Two and a half years after legislation passed, Obama officials declared mission accomplished. “On my last day as the special inspector general….I regret to say that I strongly disagree.”

TARP and what followed struck out. It “failed to meet some of its  most important goals.” Main Street was sacrificed for  Wall Street.

Congress was told TARP funds would buy up to $700 billion of mortgages. Authorizing legislation (the Emergency Economic Stabilization Act – EESA) emphasized preserving homeownership.

Treasury officials promised help. EESA mandated it. Struggling homeowners got none. Legislative provisions were violated. Treasury changed the rules. Money went to banks with no accountability or mandate to extend credit.

“There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds.”

Instead of increased lending, it declined. As inspector general, Barofsky had no enforcement power. He could only recommend. Suggested policies fell on deaf ears. Treasury and Wall Street conspired to commit grand theft. Ordinary people were hung out to dry and scammed.

Helping homeowners was shelved. The Home Affordable Modification Program (HAMP) was introduced. Obama promised four million families help. The program was “a colossal failure.”

It was designed to fail. Its provisions included no accountability. Guidelines only were provided. Banks and other mortgage services ignored them. Foreclosures mounted. Millions of homeowners were defrauded. Nothing changed to this day.

One of HAMP’s most pernicious abuses was letting servicers “direct borrowers who were current on their mortgages to start skipping payments, telling them that that would allow them to qualify for a HAMP modification,” said Barofsky.

“Homeowners who might have been able to ride out the crisis instead ended up in long trial modifications, after which servicers would deny them a permanent modification and send them an enormous ‘deficiency’ bill.”

“Borrowers who might otherwise never have missed a payment found themselves hit with whopping bills that they couldn’t pay and now faced foreclosure. It was a disaster.”

Geithner bears full responsibility. Understating problems, he admitted solutions “won’t come close” to expectations. He refused to address glaring shortfalls. He abandoned Main Street for Wall Street. He’s complicit in grand theft. He and banker cronies belong in prison.

Banks know they can steal with impunity. They’re larger and more powerful now than when crisis conditions erupted. They can speculate recklessly. They’ll be bailed whenever they get in trouble.

Treasury “ignore(d) rather than support(ed) real” reforms. Its “broken promises” turned TARP and other programs into a giant Wall Street “giveaway.”

Its “mismanagement” and criminal complicity “damaged the credibility of the government….” Conditions are so out of control that future policy makers may be unable “to save the system the next time a crisis arises.”

Perhaps that’s TARP’s “most lasting, and unfortunate, legacy.”

Barofsky’s new book “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street” explains.

Writer/Roosevelt Institute fellow Matthew Stoller calls it “a very important” account of the financial crisis aftermath. In April 2010, Barofsky met a key adversary.

Herbert Allison formerly headed Merrill Lynch, TIAA-CREF and Fannie Mae. He came out of retirement to oversee TARP. He became Assistant Treasury Secretary for Financial Stability.

“Have you thought at all about what you’ll be doing next,” he asked. “Out there in the market, there are consequences for some of the things you’re saying and the way you’re saying them.”

Barofsky knew he was being threatened “with lifelong unemployment.” Going along instead of bucking the system assures revolving door plum positions. “It was gold or the lead,” he explained.

Cooperate and get rich. Don’t and lose out. At first, he “had no idea that the US government had been captured by” bankers. He was “shocked (at) how much control” they have over policy on their own terms. Treasury goes along deferentially. Republicans or Democrats agree on core issues.

He was hijacked and hamstrung. Too big to fail constitutes near omnipotence. Whatever Wall Street wants it gets. Contesting its power is futile.

Stoller calls “Bailout” an account of “the importance of Congressional oversight in reigning in corruption, and the problems of our imperial Presidency.”

Barofsky hoped for press and congressional attention. “Our message was simple,” he said. “Treasury’s desperate attempt to bail out Wall Street was setting the country up for potentially catastrophic losses.”

Throughout his tenure, he was obstructed. He faced road blocks, ambushes, trench warfare, and threats in trying to do his job.

On arrival at Treasury, he saw ornate large offices given top officials. He got a small, foul-smelling basement one with barred windows. He spent most of the next three years there. He wasn’t welcome unless he played ball. It’s not his style and he refused.

He explained what he saw graphically. Homeowners were abandoned and scammed. A tsunami of evictions, foreclosures, fraud, mortgage document robo-signings, blighted neighborhoods, and homelessness continues without relief.

Taxpayers got the bill. Bankers got benefits. So did lobbyists and go-along politicians. The combination of Treasury criminality, White House complicity, congressional laxity, and regulatory failure keeps the dirty game going.

Since crisis conditions erupted five years ago, ordinary people were sold out and lied to. Obama exceeded the worst Bush administration policies. Political corruption is rampant.

Barofsky’s best efforts failed. Attempts to achieve accountability, transparency, controls, and consumer protections proved no match for entrenched bureaucratic power, privilege and complicity with Wall Street.

He issued numerous reports. Geithner and other Obama officials buried them. Media scoundrels largely ignored them.

Barofsky believes Geithner, complicit officials, and Wall Street crooks should be fired and prosecuted. Don’t expect it as long as criminals run America.

Five years after crisis conditions erupted, no top Wall Street or government official faced charges. Unaccountability is institutionalized. An eventual greater crisis looms. Unresolved problems assure it. When is anyone’s guess.



US Treasury Bonds
Maturity Yield Yesterday Last Week Last Month
3 Month 0.05 0.06 0.05 0.09
6 Month 0.11 0.11 0.11 0.13
2 Year 0.27 0.27 0.23 0.29
3 Year 0.36 0.36 0.31 0.40
5 Year 0.69 0.68 0.61 0.76
10 Year 1.69 1.68 1.58 1.79
30 Year 2.82 2.81 2.73 2.95
Municipal Bonds
Maturity Yield Yesterday Last Week Last Month
2yr AA 0.63 0.59 0.59 0.57
2yr AAA 0.50 0.47 0.45 0.41
2yr A 0.94 1.00 0.95 0.79
5yr AAA 0.84 0.81 0.81 0.79
5yr AA 0.93 0.93 0.93 1.03
5yr A 1.55 1.54 1.48 1.46
10yr AAA 1.47 1.50 1.54 1.94
10yr AA 1.37 1.61 1.62 1.70
10yr A 2.23 2.32 2.21 2.44
20yr AAA 1.91 1.90 2.11 2.67
20yr AA 2.70 2.64 2.97 2.95
20yr A 3.45 2.80 3.13 2.70
Corporate Bonds
Maturity Yield Yesterday Last Week Last Month
2yr AA 0.54 0.56 0.53 0.48
2yr A 0.83 0.82 0.85 0.75
5yr AAA 0.86 0.90 0.83 0.85
5yr AA 1.22 1.24 1.17 1.17
5yr A 1.57 1.60 1.76 1.73
10yr AAA 2.09 2.11 2.04 2.32
10yr AA 2.43 2.45 2.41 2.46
10yr A 2.63 2.65 2.59 2.56
20yr AAA 3.73 3.84 3.80 3.70
20yr AA 3.26 3.39 3.44 3.39
20yr A 3.89 4.00 3.97 3.86
Data provided by ValuBond.


By Forrest Jones | MoneyNews
A “tidal wave” of defaults in the municipal bond market is still building and will eventually hit the United States, says Wall Street analyst Meredith Whitney. Many U.S. cities, towns and municipalities are insolvent but are treading along similar to how Greece did for years before officially defaulting. In late 2010, Whitney told 60 Minutes that municipal defaults could run up into the hundreds of billions of dollars although that hasn’t happened. Maybe not officially, but insolvency is a deepening problem, and defaults are still on the way.
“You have Stockton (Calif.) that is on the brink of bankruptcy. You have five cities, including Detroit, which is on the brink of insolvency. It’s fascinating, because there’s been so much back-room political maneuvering to keep these cities from going bust,” Whitney tells CNBC, pointing out how California is trying to pass legislation to prevent municipalities from declaring bankruptcy.
“So there’s been every effort on the part of the states to prevent this tidal wave of defaults, which is going to happen sooner or later. It’s happening at an accelerating pace.” Taxes are rising, social services are being cut and fiscal shortfalls will keep widening. “They’re not called technical defaults. It took how long for Greece to become a technical default, so they’re insolvent, they’re not paying their bills,” says the founder of the Meredith Whitney Advisory Group. “You’re either willing to see it or you’ll shut your eyes, and if people want to tell me, ‘Oh, I was wrong,’ because this hasn’t played out, stay tuned.”
Municipal defaults rose to 5.5 per year in 2010 and 2011, from 2.7 in the previous 39 years, Moody’s Investors Service says in a report. Most defaults involved healthcare and things like multifamily housing projects, although more failures in the last two years came from smaller cities unable to pay services, pensions and salaries, Moody’s finds. “While we expect the vast majority of municipal issuers to continue to pay their debts, we also expect a very small but growing number of general government issuers to default on their bonded debts,” says Anne Van Praagh, Moody’s chief credit officer for public finance, according to Bloomberg. The municipal debt market returned 11.2 percent in 2011, its best performance since 2009, according to Bank of America Merrill Lynch index data, Bloomberg adds.



AUGUST 25, 2012

SACRAMENTO, Calif. (AP) — One of the nation’s top credit rating agencies said Friday that it expects more municipal bankruptcies and defaults in California, the nation’s largest issuer of municipal bonds.

Moody’s Investors Service said in a report that the growing fiscal distress in many California cities was putting bondholders at risk.

The service announced that it will undertake a wide-ranging review of municipal finances in the nation’s most populous state because of what it sees as a growing threat of insolvency.

The report has both investors and government leaders worried.

Three California cities – Stockton, San Bernardino and Mammoth Lakes – have filed for bankruptcy so far this year. They are not likely to be the last, Moody’s said.

Moody’s reports that some cities are turning bankruptcy as a new strategy to take on budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.

The municipal bond market has long been characterized by low default rates and relatively stable finances, Moody’s said, but that outlook is beginning to change as bankruptcy becomes a tool for cash-strapped cities.

As a result, the agency will reassess the financial position of all cities in California, which issues about 20 percent of the municipal bond volume nationwide, “to reflect the new fiscal realities and the governmental practices.”

The agency also will examine the outlook for municipal bonds in other troubled states, according to Robert Kurtter, managing director of public finance at Moody’s.

Moody’s would not say which states it will review, though Kurtter mentioned Michigan and Nevada as possibilities. Friday’s report noted that cities across the country are in financial distress but said that a greater share of bankruptcies are expected in California.

In California, officials rushed to downplay the report.

“Moody’s has an obligation to review changing circumstances, but we would just suggest that their assessment of the framework and ground activities is perhaps exaggerated,” said Chris McKenzie, executive director of the League of California Cities.

The state treasurer’s office also cautioned against overacting to three bankruptcies among California’s 482 cities.

“No city’s going to blithely skip into bankruptcy court to avoid its obligations,” said treasurer’s office spokesman Tom Dresslar, who called the report “a little hyperbolic.”

More than 10 percent of California cities have declared fiscal crises, according to the Moody’s, with the most troubled areas lying inland in the middle of the state and east of the Los Angeles area.

Kurtter said the declarations of emergency were “a reflection of the broader fiscal stress in the state.”

Moody’s floated the idea Friday of an across-the-board ratings adjustment for California cities, a move McKenzie warned “would have a terrible impact on taxpayers.”

The agency will consider ratings downgrades for embattled counties, school districts and special districts.

The report highlighted growing doubts in some corners about whether cash-strapped cities are making good-faith efforts to pay their debts.

“Credit analysis is based on the ability to pay and the willingness to pay,” said Paul Rosenstiel, Principal at DeLaRosa & Co., a San Francisco-based municipal bond investment-banking firm.

Investors have historically assumed that cities are willing to pay their debts because they want continued access to the bond market, Rosenstiel said.

Now, some are not so sure.

“What is being considered is whether the willingness to pay is something that needs to be factored in more than in the past – and if so, how would you measure it?” he said.

Lower bond ratings would increase borrowing costs for cities at a time when many already are struggling financially because of a steep drop in tax revenue. Because of that, Friday’s report is raising alarms for city leaders who fear that it could trigger a crisis of confidence that would hinder their ability to borrow for needed projects.

“Every city in the state is looking on with some concern,” said Dave Vossbrink, spokesman for the city of San Jose. “Governments of all kinds borrow money, usually to build infrastructure that lasts a long time. It’s like getting a mortgage to build roads, a sewage plant, whatever it might be.”

San Jose has shuttered libraries and laid off police officers to cut costs, and residents voted this summer to cut the pension benefits for city workers. But while the city is taking steps to reassure investors of its fiscal health, there is frustratingly little it can do to control larger fears about the municipal bond market.

“We know that even though we have a good reputation for our own affairs, if you are in a marketplace where some of your counterparts may be in a less desirable position, then it could have some bearing,” Vossbrink said.

Moody’s said it will review all California cities in the coming weeks and conduct in-depth reviews of stressed cities in September, with reports issued as the reviews are completed.


More than $100 billion of U.S. corporate-bonds were issued in September, the third time issuance has crossed that monthly threshold since 1995, according to data provider Dealogic. Is investor appetite now driven by a “reach for yield” in this low-rate environment? As investors stretch out further and further in search of the holy grail of yields, do they risk falling off the cliff? We talk to Peter Tchir, founder of TF Market Advisors, about where the chase for yield is leading.

Plus, RBS managers took part in LIBOR manipulation, according to a Bloomberg report. There is outrage over private banks manipulating interest rates, but where are the headlines about the public-private consortium that controls 35% of the long-term Treasury market? This consortium is the Federal Reserve and its open market committee of course. We talk to Peter Tchir about Treasury market distortion.

Also, as a follow up to our discussion with Peter Tchir about Treasurys, we parsed the prospectus on a popular Treasury ETF, the TLT. We break it down in today’s Word of the Day. And there is no doubt the drought caused a food shortage, but did you know it had an effect on the bacon industry? Lauren and Demetri talk pork in today’s episode of “Loose Change.”


Investing geniuses Bill Miller (Legg Mason) and Paul McCulley (formerly of PIMCO) are going to be on Consuelo Mack WealthTrack. Both investors say that the bond bull run is over.

In part one, “Great Investors” Bill Miller and Paul McCulley explain why new thinking and strategies are essential to succeed in today’s complex global markets: *Miller explains why “ultimately, the entire model of economics needs to change” and why he predicts “the 30-year bull market in bonds is over in the U.S.” as well as many other countries. McCulley agrees on both counts.

*McCulley talks about:

1) Why Federal Reserve policy is not as effective in today’s economy as it has been in the past.

2) Why the European Central Bank’s (ECB) recent agreement to loan massive amounts of money to commercial banks is a “game changer” and a positive for stocks

3) Why he is looking at residential real estate in the U.S., “truly a hated asset class.” He thinks, “There is value in the notion of roofs, because you’ve got to have one!”

In part two, “Great Investors” Bill Miller and Paul McCulley reveal which investments they are choosing for the long term.

*A market cliché is that the markets hate uncertainty. Both believe some major uncertainties have faded, including the threat of a serious recession, or worse, in the U.S. and Europe.

1) Biggest potential negative: higher oil prices. McCulley thinks they are the biggest risk to consumer spending, and thus the economy and stock market, over the next several months.

2) Biggest potential positive: the housing market, which they both believe is hitting bottom. *Both say the 30-year bull market in bonds has ended.

1) Miller believes large brand name U.S. companies offer the most value in the markets for the next 5 years or so. He explains why Apple and Googleare two of his fund’s largest holdings.

2) McCulley favors consumer companies in emerging markets to take advantage of the rising middle class there.

3) McCulley also believes retirees are going to continue to be disappointed with the income they receive from their investments. He is personally investing in municipal bonds. He also says retirees are going to have to go into principal to support themselves and advocates higher-yielding annuities as a substitute to low-yielding bonds.


Doug Short, Advisor Perspectives


Earlier this month the Wall Street Journal posted the results of its August Survey of economists conducted August 3-6 (xls file). Let’s take another look at their estimates for 10-year yields. The various Federal Reserve strategies in recent years (ZIRP, QE1, QE2 and Operation Twist) have focused on lowering interest rates, for which the 10-year note yield is an interesting “tell”. The 51 economists solicited for the latest survey were asked for their estimates for 10-year yields at six month intervals from June 2012 to December 2014. Not all of them participated, and responses dwindled a bit for the further out dates. The second chart below captures the ranges of responses for each of the six timeframes. But before we look at that chart, let’s refresh our memory on the recent history of the 10-Year Treasury Constant Maturity Rate, weekly data, through last week’s close.

As the snapshot above clearly illustrates, the 10-year note has been in a secular rally, as signified by falling yields, since the weekly yield peaked at 15.68 in October 1981. I’ve included recessions, inflation (based on the CPI) and the Fed Funds Rate to help us understand the role of the Federal Reserve in managing the long-term behavior of this asset class. Are we nearing a reversal of this trend? The economists who participated in the survey, for the most part, certainly think so.

As I type this, the CBOE Interest Rate 10-Year (TNX) is hovering around 1.75, five basis points below yesterday’s 1.80 close according to Treasury data. The mean (average) of economists’ estimates grows from 1.83 at year’s end to 3.25 in December 2014. At the high end of the range, one economist sees the 10-year yield above 5.80 by the end of 2014. The Japanese Yields ExemplarCould yields surprise in the other direction? That is to say, continue falling? We saw the 10-year yield hit an all-time closing low of 1.43 on July 25th. Government bond yields in the safe-haven countries have been plunging of late. The lesson from Japan is that the trend toward lower yields can last a very long time. Here is an overlay of the Nikkei and the 10-year bond along with Japan’s official discount rate.

And here is a closer look at the 10-year yield over time.

Click to View

The US is not Japan. But the experience of the Land of the Rising Sun (and falling yields) suggests caution in assuming that a sustained reversal in US Treasury yields is imminent.




U.S. Dollar Index DXZ12 (Dec ’12) ICEFI 80.236s -0.730 -0.90% 11/23/12 80.755 80.966 80.760 80.155
British Pound B6Z12 (Dec ’12) IMM 1.6044s +0.0096 +0.60% 11/23/12 1.5958 1.5948 1.6051 1.5925
Canadian Dollar D6Z12 (Dec ’12) IMM 1.00790s +0.00490 +0.49% 11/23/12 1.00330 1.00300 1.00820 1.00120
Japanese Yen J6Z12 (Dec ’12) IMM 1.21410s +0.00160 +0.13% 11/23/12 1.21270 1.21250 1.21870 1.20740
Swiss Franc S6Z12 (Dec ’12) IMM 1.07860s +0.01310 +1.23% 11/23/12 1.06670 1.06550 1.08370 1.06550
Euro FX E6Z12 (Dec ’12) IMM 1.29880s +0.01600 +1.25% 11/23/12 1.28510 1.28280 1.29940 1.28300
Australian Dollar A6Z12 (Dec ’12) IMM 1.04470s +0.01040 +1.01% 11/23/12 1.03640 1.03430 1.04560 1.03320
Mexican Peso M6Z12 (Dec ’12) IMM 0.076950s +0.000425 +0.56% 11/23/12 0.076650 0.076525 0.076975 0.076400
New Zealand Dollar N6Z12 (Dec ’12) IMM 0.82380s +0.01130 +1.39% 11/23/12 0.81420 0.81250 0.82390 0.81230
South African Rand T6Z12 (Dec ’12) IMM 0.112200s +0.001050 +0.94% 11/23/12 0.000000 0.111150 0.112200 0.112200
Brazilian Real L6Z12 (Dec ’12) IMM 0.47940s +0.00295 +0.62% 11/23/12 0.47740 0.47645 0.47975 0.47240
© 2012 Market data provided and hosted by Barchart Market Data Solutions. Fundamental company data provided by Morningstar. Information is provided ‘as-is’ and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer.


October 12, 2012

Dollar bulls may soon have something else to worry about. The 50- day moving average (80.73, according to FactSet) on the ICE dollar index  DXY -0.14% is within spitting distance of moving below the 200-day moving average (80.69).

To chart watchers, such a development is known ominously as a “death cross.”

A death cross is typically taken as confirmation that a major trend change is under way, said Colin Cieszynski, senior market analyst at CMC Markets, in a note. “It confirms the start of a new downtrend and is the opposite of the more commonly known golden cross.”

A golden cross occurs when the 50-day moving average moves above the 200-day.

“Today the 50-day and 200-day averages are “Even Steven” but any further decline from here would generate a death cross, a bearish signal for USD. The previous golden cross occurred a year ago, while the last death cross on USD was in September 2010, as expectations of the QE2 program were building,” Cieszynski writes.

The dollar index hit its year-to-date peak in on July 24 at 84.005. It now trades at 79.597.

–William L. Watts


By Greg Hunter’s

Money manager Peter Schiff says, “The stage has been set for a currency crisis and a sovereign debt crisis, and they’re going to come relatively soon.”  Schiff says the latest round of “unlimited” money printing by the Fed has only “postponed the collapse.”  Schiff, who recently wrote a book called “The Real Crash,” thinks, “The longer we wait, the worse it’s going to be.”  So, why don’t politicians do something to stop the collapse that many know is coming?  For one thing, Schiff says,“The political backlash will be enormous. . . . Nobody wants to be the messenger who gets shot because of the message.”  There is going to be a crisis dead ahead because, according to Schiff,“The dollar is vulnerable to a massive collapse . . . buy gold and silver.”  Join Greg Hunter as he goes One-on-One with Peter Schiff, the CEO of Euro Pacific Precious Metals.




OCTOBER 13, 2012

by John Rubino

Say you’re an up-and-coming superpower wannabe with dreams of dominating your neighbors and intimidating everyone else. Your ambition is understandable; rising nations always join the “great game”, both for their own enrichment and in defense against other big players.

But if you’re Russia or China, there’s something in your way: The old superpower, the US, has the world’s reserve currency, which allows it to run an untouchable military empire basically for free, simply by creating otherwise-worthless pieces of paper and/or their electronic equivalent. Russia and China can’t do that, and would see their currencies and by extension their economies collapse if they tried.

So before they can boot the US military out of Asia and Eastern Europe, they have to strip the dollar of its dominant role in world trade, especially of Middle Eastern oil. And that’s exactly what they’re trying to do. See this excerpt from an excellent longer piece by Economic Collapse Blog’s Michael Snyder:

China And Russia Are Ruthlessly Cutting The Legs Out From Under The U.S. Dollar

China and Russia are not the “buddies” of the United States.  The truth is that they are both ruthless competitors of the United States and leaders from both nations have been calling for a new global currency for years.

They don’t like that the United States has a built-in advantage of having the reserve currency of the world, and over the past several years both countries have been busy making international agreements that seek to chip away at that advantage.

Just the other day, China and Germany agreed to start conducting an increasing amount of trade with each other in their own currencies.

You would think that a major currency agreement between the 2nd and 4th largest economies on the face of the planet would make headlines all over the United States.

Instead, the silence in the U.S. media was deafening.

However, the truth is that both Russia and China have been making deals like this all over the globe in recent years.  I detailed 11 more major agreements like the one that China and Germany just made in this article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar”.

A few of the things that will likely happen when the petrodollar dies….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

So enjoy going to “the dollar store” while you can.

It will turn into the “five and ten dollar store” soon enough.

Some thoughts
Snyder goes on to note that both China and Russia are accumulating gold, which will protect them from the coming currency crisis and give the ruble and yuan greater legitimacy in global trade. In Jim Rickards’ book Currency Wars, he tells the story of financial war games conducted by the US military, in which one of the scenarios was a Russian gold backed currency that challenged the dollar. We’re apparently not far from that plan becoming feasible.

The US spends a big chunk of its $700 billion a year defense budget on dominating the Middle East in order to force the trading of oil in dollars. Let that trade be diversified into several currencies and the demand for petrodollars goes way down. Central banks and global corporations will sell part of their dollar holdings, sending the dollar’s exchange rate into a tailspin. This in turn will make it harder for the US to finance its military empire/welfare state.

The net result: America becomes Spain, no longer able to simply whip out the monetary credit card to cover its overspending. We’ll have to live within our means, cutting maybe $3 trillion a year in government largesse (including the growth in unfunded entitlements liabilities).

Cuts on this scale can’t be accomplished smoothly, as Europe is discovering. So in this scenario the coming decade will be even messier than the last one, with “Occupy” movements shutting down cities and every election producing incumbent massacres. A combination of higher prices for necessities and lower wages will demote much of the middle class to “working poor.”

Meanwhile, China and Russia will reap the rewards of stronger currencies, and will divide (or share) control over their part of the world. It’s hard to know who to feel sorrier for, Americans who thought they could depend on government programs for a middle class lifestyle, or the neighbors of China and Russia who will see the relatively light hand of the American empire replaced with something far more atavistic.


OCTOBER 13, 2012

AFP – China’s currency hit a record high against the US dollar on Friday, in what analysts said could be a response to US political pressure over claims the yuan is vastly undervalued.

The upcoming US presidential election and expectations the US government will soon release its semiannual report on exchange rate policies could have prompted Beijing to guide the yuan higher, analysts said.

The yuan touched an intraday high of nearly 6.2640 to $1.0, according to the China Foreign Exchange Trade System, marking the highest level since 1994 when the country launched its modern foreign exchange market.

“We don’t rule out the possibility of China taking pre-emptive action ahead of the US election,” Liu Dongliang, an analyst at China Merchants Bank, told AFP.

“But it’s more like this move was meant to respond to the upcoming exchange rate report,” he said, referring to the US Treasury Department’s report on exchange rate policies that will address China, among others.

China’s exchange rate is a long-running source of friction with the United States, which accuses Beijing of artificially undervaluing the yuan to boost exports.

But China claims it is moving towards greater flexibility, earlier this year letting the yuan trade against the dollar in a wider band.

US presidential hopeful Mitt Romney has turned China into a campaign issue and on Thursday he renewed his vow to brand China a currency manipulator.

“The president’s had the chance year after year to label China a currency manipulator, but he hasn’t done so,” Romney said of US President Barack Obama.

When the Treasury report was last released in May this year, it stopped short of accusing China of manipulating its exchange rate, but warned its “significantly undervalued” currency was a brake on global growth.

On Friday, China’s foreign exchange market operator set the trading midpoint for the yuan at 6.3264 to $1.0, stronger than the previous day level of 6.3391.

At 0830 GMT, the yuan was quoted at 6.2672, according to the market operator, strengthening from Thursday’s close of 6.2770.

“There is anticipation the authorities may want to send a signal and lift confidence in the domestic economy by allowing the currency to appreciate,” Jiang Shu, a foreign exchange analyst at Industrial Bank, told AFP.

But Chinese officials have previously said the yuan was nearing “equilibrium” amid signs of capital flight on expectations of slowing growth in the world’s second largest economy.


OCTOBER 13, 2012

By Sandrine Rastello | Bloomberg

The International Monetary Fund cut its global growth forecasts as the euro area’s debt crisis intensifies and warned of even slower expansion unless officials in the U.S. and Europe address threats to their economies.

The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said today, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.

“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component,” the IMF said in its World Economic Outlook report. “The answer depends on whether European and U.S. policy makers deal proactively with their major short-term economic challenges.”

The IMF’s 188 member countries convene in Tokyo this week as low growth damped by fiscal consolidation in the richest economies hurts developing counterparts from China to Brazil. As the IMF urged measures to boost confidence, uncertainties out of Europe show no sign of abating, with leaders still divided over a banking union and Spain resisting a bailout.

Confidence Fragile

“Confidence in the global financial system remains exceptionally fragile,” the IMF said. “Bank lending has remained sluggish across advanced economies” and increased risk aversion has damped capital flows to emerging markets, it said.

European stocks were little changed as the region’s finance ministers met in Luxembourg to discuss the sovereign-debt crisis. The Stoxx Europe 600 Index slipped less than 0.1 percent at 11:02 a.m. in London.

In Seoul, World Bank President Jim Yong Kim told a forum today that he saw mildly encouraging signs in Europe. In Tokyo, IMF Chief Economist Olivier Blanchard indicated that yields on Spanish and Italian bonds, which decreased after the European Central Bank’s bond-buying plan announcement, could rise if the countries don’t request bailouts.

The IMF report called for U.S. policy makers to find an alternative to planned automatic tax increases and spending cuts that would trigger a recession. Europeans must follow on their commitments for a more integrated monetary union, and many emerging markets can afford to cutinterest rates or pause tightening to fight off risks to their economies, the IMF said.

“It is a call to action,” Blanchard told Bloomberg Television.

Europe’s Contraction

The 17-country euro area economy will contract 0.4 percent this year, 0.1 percentage point worse than forecast in July, and grow 0.2 percent in 2013, less than the 0.7 percent predicted three months ago, the IMF said.

The U.S. is seen expanding 2.2 percent this year, higher than an earlier forecast, and growing 2.1 percent next year, less than previously predicted. Japan’s estimate was cut to 2.2 percent this year and to 1.2 percent in 2013.

Spain’s economy will shrink 1.3 percent next year, 0.7 percentage point worse than predicted in July. German growth is seen at 0.9 percent each year, with the 2013 estimate half a percentage point less than previously forecast.

“Spain and Italy must follow through with adjustment plans that re-establish competitiveness and fiscal balance and maintain growth,” Blanchard wrote in a foreword to the report. “To do so, they must be able to recapitalize their banks without adding to their sovereign debt. And they must be able to borrow at reasonable rates.”

Emerging Economies

Growth forecasts were also lowered for emerging markets, where domestic factors add to external constraints, the IMF said. Brazil had some of the steepest cuts, with growth seen at 1.5 percent this year from 2.5 percent and 4 percent next year.

India’s economy may grow 4.9 percent this year and 6 percent next year, lower than previous forecasts of 6.2 percent and 6.6 percent respectively. China’s estimate was cut by 0.2 percentage point each year to 7.8 percent in 2012 and 8.2 percent in 2013.

Monetary policy should remain accommodative in developed economies, with expectations for slower inflation giving the European Central Bank “ample justification for keeping policy rates very low or cutting them further,” the IMF said. The Bank of Japan may need to ease further, it said.

Other risks to the global economic outlook in the short term include a renewed increase in oil prices and an inability to raise the U.S. debt ceiling, it said.

The IMF forecasts assume oil at $106.18 a barrel this year and $105.10 next year, based on the average prices of U.K. Brent, Dubai and West Texas Intermediate crudes. That compares with estimates of $101.80 and $94.16 in July.

Japan’s Trade

In economic releases in the Asia Pacific region today, Japan reported a larger-than-estimated 454.7 billion yen ($5.8 billion) current-account surplus. In Australiabusiness confidence recovered in September as the prospect of interest- rate reductions overshadowed weaker sentiment among miners and manufacturers, a private survey showed.

In South Korea, the central bank said today that the nation’s economy faces increased external risks and the finance ministry said it will step up efforts to boost growth.

In Europe, the U.K. may report today that industrial production fell in August, a Bloomberg News survey of economists indicates.


By Colin Todhunter | Global Research

Many commentators and economists wonder if the US is able to turn its ailing economy around. The reality is that it is bankrupt. However, as long as the dollar remains the world currency, the US can continue to pay its bills by simply printing more money. But once the world no longer accepts the dollar as world reserve currency, the US will no longer be able to continue to pay its way or to fund its wars by relying on what would then be a relatively valueless paper currency.

And the US realises this. Today, more than 60 per cent of all foreign currency reserves in the world are in US dollars, and the US will attempt to prevent countries moving off the dollar by any means possible. It seems compelled to do this simply because its economic infrastructure seems too weak and US corporate cartels will do anything to prevent policies that eat into their profits or serve to curtail political influence. They serve their own interests, not any notional ‘national interest’.

Pail Graig Roberts, former Assistant Secretary of the US Treasury, notes that much of the most productive part of the US economy has been moved offshore in order to increase corporate profits. By doing so, the US has lost critical supply chains, industrial infrastructure, and the knowledge of skilled workers. According to Roberts, the US could bring its corporations back to America by taxing their profits abroad and could also resort to protective tariffs, but such moves would be contrary to the material interests of the ruling oligarchy of private interests, which hold so much sway over US politics.

So, with no solution to the crisis in site, the US is compelled to expand its predatory capitalism into foreign markets such as India and to wage imperialist wars to maintain global allegiance to the dollar and US hegemony. And this is exactly what we are seeing today as the US strategy for global supremacy is played out.

Over the past two decades, the US has extended its influence throughout Eastern Europe, many of the former Soviet states in central Asia and, among other places, in the former Yugoslavia, Libya, Iraq, Yemen, Afghanistan, Syria and Pakistan. But with each passing year and each new conflict, the US has been drawing closer and closer to direct confrontation with Russia and China, particularly as it enters their backyards in Asia and as China continues to emerge as a serious global power.

Both countries are holding firm over Syria. Syria plays host to Russia’s only naval base outside of the former USSR, and Russia and China know that if the US and its proxies topple the Assad government, Tehran becomes a much easier proposition. Ideally, the US would like to install compliant regimes in Moscow and Beijing and exploiting political and ethnic divisions in the border regions of Russia and China would be that much easier if Iran fell to US interests.

A global US strategy is already in force to undermine China’s growth and influence, part of which was the main reason for setting up AFRICOM: US Africa Command with responsibility for military operations and relations across Africa. But China is not without influence, and its actions are serving to weaken the hegemony of the US dollar, thereby striking at a key nerve of US power.

China has been implementing bilateral trade agreements with a number of countries, whereby trade is no longer conducted in dollars, but in local currencies. Over the past few years,China and other emerging powers such as Russia have been making agreements to move away from the US dollar in international trade. The BRICS (Brazil, Russia, India, China,South Africa) also plan to start using their own currencies when trading with each other. Russia and China have been using their own national currencies when trading with eachother for more than a year.

A report from Africa’s largest bank, Standard Bank, recently stated:

“We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”

Under Saddam, Iraq was not using the dollar as the base currency for oil transactions, neither is Iran right now. Even Libya’s Muammar Gadhaffi was talking about using a gold backed dinar as the reserve currency for parts of Africa. Look what happened to Libya and Iraq as a result.

In 2000, Iraq converted all its oil transactions to euros. When U.S. invaded Iraq in 2003, it returned oil sales from the euro to the dollar. Little surprise then that we are currently watching the US attempt to remove the Iranian regime via sanctions, destabilization, intimidation and the threat of all out war.

In the meantime, though, Iran is looking east to China, Pakistan and central Asia in order to counteract the effects of US sanctions and develop its economy and boost trade. In order to sustain its empire, US aggression is effectively pushing the world into different camps and a new cold war that could well turn into a nuclear conflict given  that    Russia,          China and Pakistan all have nuclear weapons.

The US economy appears to be in terminal decline. The only way to prop it up is by lop-sided trade agreements or by waging war to secure additional markets and resources and to ensure the dollar remains the world reserve currency. Humankind is currently facing a number of serious problems. But, arguably, an empire in decline armed to the teeth with both conventional and nuclear weapons and trapped in a cycle of endless war in what must surely be a futile attempt to stave off ruin is the most serious issue of all.


Mac Slavo
September 19, 2012

If you think the Federal Reserve’s quantitative easing will only affect the US dollar, think again. Now that the United States has officially begun it’s third round of money printing to the tune of at least $40 billion monthly, central banks around the world will also act to ‘defend’ their currencies in kind.

Moreover, because everyone is joining the fray, all of that extra money will make its way into key resource stocks and commodities, adding further upside price pressure to essential goods like food and fuel.

It’s a race to the bottom, and the losers are the 99.9% of us who aren’t being kept in the loop.

Quantitative easing is really another word for currency wars. A weak U.S. currency puts continued pressure on the Japanese Yen, the Chinese Yuan, the South Korean Won, the Australian dollar and other currencies.

Cheap money also fuels speculation and this money quickly drifts into commodity markets and the ETFs that help propel commodity market speculation. This is inflationary for food prices.

The lower the U.S. dollar the greater the intensity of currency wars.The break below the key uptrend line on the Dollar Index chart was an early warning of the third round of quantitative easing (QE3).

The most important question now is to use the chart to examine the potential downside limits of a QE3 weakened U.S. dollar.

The weekly close below this uptrend line was the first signal of a major change in the trend direction. It came before the announcement of QE3, last week.

The third significant feature is historical support near 74.5. This is the upper edge of a consolidation band between 73.5 and 74.5. This is the downside target for the Dollar Index following a fall below 79.

This target can be reached very rapidly over three to four weeks. A rapid collapse of the U.S. dollar puts immediate pressure on other dollar-linked currencies.

There is a very low probability the U.S. dollar will resume its uptrend. The move below the value of the uptrend line and a fall below 79 confirm thata new downtrend has developed.

The weakness in the U.S. Dollar will hurt export dependent economies and companies.


There are two ways this may end – neither of which is going to be good for the average Joe:

  • The Fed et. al. continue to print, so much so that prices for food, gas, utilities and other key commodities that are linked to US dollar movements will rise exponentially. This rise in prices will accelerate the pressure on consumers as more jobs are lost in an ever progressing, self reinforcing economic death spiral. The pressure of rising prices, even though the Dow Jones may reach 20,000 or 50,000 points, will be so great that American consumers simply won’t be able to pay their bills or put food on the table.
  • The Fed and their brethren around the world won’t be able to print fast enough to maintain stable financial markets, leading to stock market crashes in Europe, Japan, China and the United States, which then leads to a shift of capital to US Treasury bonds, ironically strengthening the dollar. A weak US economy that isn’t creating jobs and is adding tens of thousands of people to an already overburdened social safety net every week will eventually lead to confidence being lost in the US government’s ability to repay its debts. As we noted in 2012 Predictions of a Mad Tin Foilist, the end result will be a currency crisis, or de facto default by way of hyperinflating away our debt.

Both scenarios are virtually the same, as both will end with complete and utter destruction of Americans’ wealth.

Despite the mainstream notion that inflation is under control and most of the money is sitting on the sidelines with banks, all we need to do is look at the price increases for consumers since private and public bailouts begin in late 2008. Gas has doubled. Food is up over 25%. Electricity costs and the cost of just about every other non-debt based asset has steadily risen.

This is not going to stop.

While timelines remain elusive because of never ending government intervention into financial markets and economies, the policies being instituted by central banks around the world can only lead to continued degradation of paper currencies and the rise in prices of all goods linked to those currencies.

In January of 2010 we suggested a strategy of buying physical commodities at today’s lower prices and consuming those commodities at tomorrow’s higher prices. The trend for fiat paper money and physical assets has not changed and is, in fact, more pronounced now than ever before.

The US dollar is being systematically weakened until it no longer exists as a viable means of exchange. When this happens you’d better be prepared to operate in a society where traditional money is replaced with mechanisms of exchange like precious metals, food, critical supplies andproduction skills.

You can begin taking simple steps to prepare now. The collapse of the existing global paradigm is accelerating and if you’re not ready for it the price you’ll pay will be severe.


Michael Snyder
The Economic Collapse
Sept 14, 2012

You can’t accuse Federal Reserve Chairman Ben Bernanke of not living up to his nickname.  Back in 2002, Bernanke delivered a speech entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here” in which he referenced a statement by economist Milton Friedman about fighting deflation by dropping money from a helicopter.

Well, it might be time for a new nickname for Bernanke because what he did today was a lot more than drop money from a helicopter.  Today the Federal Reserve announced that QE3 will begin on Friday, but it is going to be much different from QE1 and QE2.  Both of those rounds of quantitative easing were of limited duration.  This time, the quantitative easing is going to be open-ended.  The Fed is going to buy 40 billion dollars worth of mortgage-backed securities per month until they have decided that the economy is in good enough shape to stop.  For those that get confused by terms like “quantitative easing” and “mortgage-backed securities”, what the Federal Reserve is essentially saying is this: “We’re going to print a bunch of money and buy stuff for as long as we feel it is necessary.”  In addition, the Federal Reserve has promised to keep interest rates at ultra-low levels all the way through mid-2015.  The course that the Federal Reserve has set us on is utter insanity.  Ben Bernanke can rain money down on us all he wants, but it is not going to do much at all to help the real economy.  However, it will definitely hasten the destruction of the U.S. dollar.

And the Federal Reserve is apparently very eager to get QE3 going.  Purchases of mortgage-backed securities are going to start on Friday.

In the coming months, hundreds of billions of dollars that the Federal Reserve has zapped into existence out of nothing will be injected into our financial system.

So what will happen to all of this new money?

If banks and financial institutions use that money to make loans then it could have somewhat of a positive impact on the economy in the short-term.

However, the truth is that it isn’t as if banks are hurting for cash to loan out.  In fact, right now banks are already sitting on $1.6 trillion in excess reserves.  Just like with the first two rounds of quantitative easing, a lot of the money from QE3 will likely end up being put on the shelf.

But the stock market loved the news because they know that the previous two rounds of quantitative easing have been great for the financial markets.  On Thursday, the stock market soared to levels not seen since December 2007.

There is much rejoicing on Wall Street right now.

And this stock market bounce is great for Bernanke’s good buddy Barack Obama.

Obama nominated Bernanke to a second term as Fed Chairman, and this might be Bernanke’s way of paying him back.

But of course the Fed is supposed to be “above politics” so that would never happen, right?

The Federal Reserve essentially “crossed the Rubicon” today.  No longer will quantitative easing be considered an “emergency measure”.  Rather, it will now be considered just another “tool” that the Fed uses in the normal course of business.

Considering how vulnerable the U.S. dollar already is, announcing an “open-ended” round of quantitative easing is utter foolishness.  According to the Fed, when you add the 40 billion dollars of new mortgage-backed security purchases per month to all of the other “easing” measures the Fed is continuing to do, the grand total is going to come to about 85 billion dollars a month.  The following is from the statement that the Fed released earlier today….

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

So what does all of this mean?

I really like how one analyst put it when he described this announcement as a “I’m gonna ease till your eyes bleed kinda statement“.

The Fed also promised to keep interest rates at “exceptionally low levels” until mid-2015….

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

It seems that whenever the U.S. economy gets into trouble, Bernanke and his friends at the Fed only have one prescription and it goes something like this….

“Print more money and promise to keep interest rates near zero even longer.”

Of course a lot of Republicans are quite disturbed that QE3 was announced with just a couple of months remaining in a very heated election battle.

Even big news organizations such as CNBC are commenting on this….

Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.

And without a doubt the mainstream media will be proclaiming this to be “good news” for the economy in the short-term.

But is QE3 really going to help the average person on the street?

Well, first let’s take a look at employment.  We are told that one of the primary reasons for QE3 is jobs.

But did QE1 and QE2 create jobs?

The answer is clearly no.

As you can see from the chart below, the percentage of working age Americans with a job fell dramatically during the last recession and has not bounced back since that time despite all of the quantitative easing that has been done already….

So why try the same thing again when it did not work the first two times?

But what more quantitative easing is likely to do is to pump up stock market values because a lot of the money from QE3 is going to end up being put into stocks and other investments.

This is going to help the wealthy get even wealthier, and it is going to make the “wealth gap” between the rich and the poor even larger in America.

QE3 is also probably going to cause commodity prices to rise just like QE1 and QE2 did.

That means that you will be paying more for gasoline, food and other basic necessities.

So there may not be more jobs, but at least you will get the privilege of paying more for things.

The inflation that QE3 will cause will be particularly cruel for those on fixed incomes such as retirees.

None of the extra money from QE3 is going to go into their pockets, but they will have to pay more to heat their homes and fill up their shopping carts.

And the “exceptionally low interest rate” policy of the Federal Reserve is absolutely devastating for those that have saved for retirement and that are relying on interest income for their living expenses.

In short, quantitative easing is very good for the wealthy and it is very bad for the average man and woman on the street.

But what else would you expect from the Federal Reserve?

It is imperative that we educate the American people about the Federal Reserve and about how they are destroying our economy.  For much more on this, please see my previous article entitled “10 Things That Every American Should Know About The Federal Reserve“.

Perhaps the biggest danger from QE3 is that it could greatly hasten the day when the U.S. dollar ceases to be the reserve currency of the world.

The rest of the world is not stupid.  They see that the Federal Reserve is now firing up the printing presses whenever they feel like it.  They can see the games that we are playing with our currency.

Why should the rest of the world continue to use the U.S. dollar to trade with one another when the United States is constantly debasing it and playing games with its value?

As I wrote about the other day, China and Russia have been calling for a new reserve currency for the world for several years.  They have been leading the charge to conduct international trade in currencies other than the U.S. dollar, and I have documented many of the major international agreements to move away from the U.S. dollar that have been made in the last couple of years.

The status of the U.S. dollar in the world has already been steadily slipping, and now Helicopter Ben Bernanke pulls this kind of nonsense.

We are handing the rest of the world an excuse to abandon the U.S. dollar on a silver platter.

And when the rest of the globe rejects the U.S. dollar as a reserve currency, the dollar will crash, the cost of living will increase dramatically, our standard of living will go way down and we will never fully recover from it.

So if you think that things are “bad” now, just wait until that happens.

The U.S. dollar is one of the best things that the U.S. economy still has going for it, and Helicopter Ben Bernanke is doing his best to absolutely destroy that.


By Daniel R. Amerman, CFA


The United States government has five interrelated motivations for destroying the value of the dollar:

1. Creating money out of thin air on a massive basis is all that stands between the current state of hidden depression, and overt depression with unemployment levels in excess of those seen in the US Great Depression of the 1930s.

2.  It is the most effective way to meet not just current crushing debt levels, but to deal with the rapidly approaching massive generational crisis of paying for Boomer retirement promises.

3. It creates a lucratively profitable $500 billion a year hidden tax for the benefit of the US government which is not understood by voters or debated in elections.

4.  It is the weapon of choice being used to wage currency war and reboot US economic growth; and

5. It is an essential component of political survival and enhanced power for incumbent politicians. In this article we will take a holistic approach to how individual short term, medium and long term pressures all come together to leave the government with effectively no choice but to create a substantial rate of inflation that will steadily destroy the value of the dollar.

If you have savings, if you rely on a pension, if you are a retiree or Boomer with retirement accounts – any one of these five fundamental motivations is by itself a grave peril to your future standard of living.  However, it is only when we put all five together and see how the motivations reinforce each other, that we can understand what the government has been and intends to continue doing, and then begin the search for personal solutions.

Reason One:  The Political Interests Of Self-Serving Politicians

As further covered herein, almost 9% of the US economy is currently funded by deficit spending.  From a political perspective, this $1.3 trillion a year is “free money” that politicians get to disburse on a political district and favored special interest group basis.  In other words, roughly $1,000 per month, per American household can be used to reward friends and can be withheld from enemies, with personal credit being taken by the benevolent politicians for this never-ending largess. In past decades, politicians were restricted to spending perhaps $200 or $300 per month per household over and above what the government was collecting in taxes, with the difference being borrowed in the bond market.  Anything above that would require the unpleasantness of raising taxes, which might put individual politicians in danger of actually losing their position and privileged lifestyle if he or she wasn’t in a “safe” district.  However, in the current climate all limitations are gone, the pork is rolling out on a historically unprecedented basis, and the politicians are wielding unprecedented power. So why do the limitations usually exist on at least some level, and why are they gone now? Historically, the US government has directly created money out of thin air on a massive basis to fund deficit spending during the Civil War, and also during the Revolutionary War. There is a very good reason such governmental actions are so rare:  the value of the US dollar was rapidly destroyed in both instances.  So, this spending without limit would not ordinarily be a sensible path.  Unless, from the government’s perspective, there were other dangers that were considered a greater threat, that could be addressed only through destroying the value of the dollar.

Reason Two:  To Hide A Depression

I have written numerous articles about various aspects of Reasons Two through Five for some years now, and my long term readers and subscribers have been well aware of the building pressures.  While the emphasis of this article is on the interweaving of the short, medium and long-term relationships between the five reasons, we will first set the stage by taking a few paragraphs each to briefly review the individual government motivation, with a link to a full length article that covers the problem in more depth.   While you wouldn’t know it from government press releases or media headlines, there has been a gaping hole in the US economy since 2008, as illustrated below:

During the first round of the financial crisis, the US private economy nearly collapsed, threatening to send the US economy straight into deep depression.  We’re talking about a $1.3 trillion private sector collapse that was contained only by the government fantastically increasing the money it spent, even while tax revenues were falling.  The creation of huge government deficits has been all that has maintained even a facade of semi-normalcy.  Remove the mechanism of the government creating money so that it can spend what it doesn’t have, and it is straight to official Great Depression-level unemployment in months. Even as the true gravity of the situation is hidden from the general public, so too is the true cost of the grossly irresponsible short-term “band-aid” that is being used to cover the hole in the US economy.  The destruction of the value of savings in general, as well as the impoverishment of Boomers and retirees in particular, is explained in my article linked below, “Hiding A Depression:  How The US Government Does It.”

Reason Three:  A Desperate Attempt To Escape Depression By Waging Currency War

The US government has been waging currency war since September of 2010.  Simply put, the US would have great difficulty emerging from the depression described above so long as the US dollar is “strong”, because a strong dollar translates to “expensive” US workers who have difficulty competing for market share even in the US economy, let alone abroad.  One solution is that when a nation slashes the value of its currency, its workers become relatively cheaper, and they then cannot only better defend their domestic market share, but can begin to take market share in foreign economies as well.

However, when a major nation goes on the offensive, many trading partners will counterattack and try to defend their economies, not by making their own currencies stronger, but by making their own currencies weaker, so that their domestic workers remain relatively inexpensive and will be better able to compete for market share. To successfully go on the currency offensive and negate attempted counterattacks, Federal Reserve Chairman Bernanke chose a radical tool – he publicly announced that the Fed would be directly creating money on a massive scale equal to 9% of the US economy, with the proceeds going to purchase US government debt in the secondary markets.

Ultimately, the only protections for a symbolic currency (such as the US dollar) are the policies deployed by the central bank to maintain that value.  And when the nation’s chief central banker directly threatens to use his power to destroy the symbol rather than preserve it – the threat is extraordinarily effective. There is no free lunch, however.  While the US government is insisting to the world-at-large that it is not engaged in currency warfare, in order to maintain the plausible deniability that is essential to diplomatic doublespeak, it is also hiding the heavy cost from its own citizens.  The US standard of living since the late 1990s has been based on having a “strong” dollar and huge trade deficits – meaning we haven’t actually been able to pay for what we consume for a long time.

Therefore, even as jobs and the real economy grow, there is a drop in the overall standard of living, that is not evenly weighted – but is disproportionately born by savers, Boomers and retirees. Much more information on how this works and the specific ways that older citizens will be bearing most of the pain can be found in my article linked below, “Bullets In The Back:  How Boomers & Retirees Will Become Stimulus, Bailout & Currency War Casualties”. second and third elements of hiding a depression and waging currency war are tightly interwoven, and could even be called “killing two birds with one stone”.

The money doesn’t exist to keep the US from openly plunging into depression, it simply isn’t there for a fiscally responsible government.  And covering the economic hole by creating money out of thin air at a rate equal to 9% of the total US economy is so fiscally irresponsible that few nations dare a counterattack of such magnitude. For now, massive monetary creation allows the US to not only cover over the current hidden depression, but also to wage all-out currency war to try to emerge from that depression. However, to fully understand the agenda of the US government, we have to look at the greatest financial problem of all, and how destroying the value of the dollar is the intended solution.

Reason Four:  Dodging National Bankruptcy

Sometimes households reach the unfortunate point where when they add up the credit cards, mortgage payments, and 2nd mortgage payments – they realize that they will never be able to pay their bills.  They know they are bankrupt and there is no way of dodging that.  But instead of reducing their spending – they may even step up the spending, until all the lines of credit are maxed out, and the bills are all in arrears.  Because, once you know bankruptcy is inevitable anyway – why slash your standard of living before you absolutely have to?  Partying it up now for another few months won’t change the destination, so why not? Fortunately, relatively few ordinary people think that way.

There is ample evidence, however, that a good number of politicians hold that mindset when it comes to budget deficits that appear impossible to repay, at least in the conventional manner. There is a lie that is being frequently repeated, which is that our children and grandchildren will be slaving away for decades to pay back the money that we’ve been borrowing to fund this reckless deficit spending.  The assumption underlying the lie is that if it weren’t for the current spending, the nation would be fine, and therefore increased taxes will be needed to pay back the borrowing. Except that the nation isn’t fine.  Like most other major developed nations in the world, the United States has been effectively bankrupt for quite some time, with a day of reckoning that is approaching fast with or without the current outrageous level of deficit spending.

The graph below is from my article, “Six Layers Of Deficit Impossibilities Mean Retirement Catastrophe”.

As developed step by step in “Six Layers”, when we add up current and future Federal deficits, as well as unfunded Social Security, Medicare and other unfunded government promises, the total comes to over $785,000 per non-retired household (over the coming years) that has an above poverty line income.  And this isn’t even the total cost – it is the excess cost over and above current estimated tax receipts, which assumes a healthy and growing economy.  When we drop the assumption of an economy growing at the same rates of the last 50 years, then the shortfall goes far higher – perhaps over $200 trillion for Social Security and Medicare alone by some recent estimates.

That would raise the total shortfall to over $2 million per non-retired and above-poverty-line household. If taxes can’t pay (and it’s ludicrous to think they can), and the US doesn’t declare bankruptcy, then just how do we cover the gap? Short answer:  pay in full, but make the dollar worth five cents.  This drops the per household cost for everything from almost $800,000 down to about $40,000.  Painful, but manageable over a period of 20-30 years.

Merely make a dollar worth five cents, and impossible government promises become quite payable.  The problem with this “solution” is that it also requires making most people’s life savings worth five cents on the dollar.

Reason Five:  Create A Massive Hidden Tax

The Federal Reserve effectively controls short, medium and long-term interest rates in the United States, and this means that it controls the borrowing costs of the United States government.  As developed my article linked below, “Hiding A $500 Billion Tax On Savings:  How The Government Deceives Millions”, by forcing interest rates below the rate of inflation, the Federal Reserve creates about a half trillion dollar per year “windfall” gain for the Federal government.

This is not “free money”, far from it.  Every dollar of benefit for the government from interest rate manipulations comes directly out of the pockets of savers.  That is, for the government to come out ahead by $500 billion per year requires savers and pension funds to come up short by $500 billion per year.  This makes it a tax in all but name.  It is also essential to note that two elements have to come together to make this hidden tax work:  1) there have to be low interest rates, and 2) there also has to a substantive real rate of inflation (which can be quite different from the official rate).

From a politician’s perspective this massive tax – almost three times the size of federal corporate taxation – is a “dream tax”.  Half a trillion dollars a year is available to spend without raising taxes or increasing deficits.  Sure, there is a cost, which is the entirely deliberate destruction of retirement dreams and promises for tens of millions of US workers and retirees – particularly Boomers – as well as pushing forward the insolvency of state and local government pension funds around the country.  But the deliberate bankrupting of a generation is a long term problem with no clear accountability and almost no voter understanding, which means it is more or less irrelevant for how political decisions are made today.

The Convergence Of The Five Overwhelming Governmental Motivations

 The Long-Term

Let’s add our five powerful motivations together, and see how they interrelate. The truly big picture for both the United States and most other major developed nations is that population growth has been shrinking, long term promises to current and future retirees have been extravagant, and for the most fundamental of demographic and economic reasons, the nations simply can’t afford to pay for those promises. On a global basis, governments are left with a choice between breaking promises openly – reneging on their legal commitments on a massive scale, possibly having to actually declare bankruptcy in many cases (effectively) – or they can follow the time-honored route that almost every nation which has found itself in the situation and has had the ability do so has done:  they can pay their promises in form, but not in substance. They can inflate away the value of their national currency, and pay everything in full, but that currency will only be worth a fraction of what it is right now. So the larger the future shortfall, the more overwhelming the motivation to destroy the value of the currency, and the greater the degree of destruction of the currency that is necessary in order to turn impossible promises into possible promises.

The Short Term

Let’s look at the short term in the United States. As previously discussed, there is currently a gaping hole in the US economy that is equal to about 9% of the size of the economy if we look to official deficits, and about 12% if we include the hidden $500 billion tax on savings.  This economic hole in the private sector is being covered over by massive overt deficit spending and hidden taxation which account for about one in every eight dollars spent in the nation this year.  If this massive deficit spending were to cease abruptly, then the US would go straight to an overt Great Depression level of unemployment. So, if you’re in the political establishment and you don’t want outright political revolution, then you have enormous incentives to try to keep an appearance of normalcy in the economy, no matter how much damage you need to do to the long-term value of your nation’s currency.

Tying Together Long-Term & Short-Term

Short term interests are served by recklessly risking the long-term value of the nation’s currency, thereby providing the funding to cover over the hole in the economy.  Long term interests in terms of impossible government promises that must be inflated away, are served by the destruction of the value of the nation’s currency. The more severe this destruction, the less the cost of repaying impossible promises. Arguably then, the more risk that is taken in “papering” over the hole in the current economy, and the more severe the long term consequences, the better off the government will be in the future when it comes to its ability to cheaply repay debts that are otherwise unpayable.

The Medium-Term & The Real Economy

Now, let’s go to the medium term and consider the real world factor that bridges the current economic crisis and the long term economic crisis. That bridge is ultimately all that really matters, and it is the real economy. Without a powerful and rapidly growing real economy, there is no way out of the hidden depression in which the United States currently finds itself. American workers must be competitive if they are to regain both domestic and international market share (a situation many other nations are in as well).

Mixing Medium & Long Term

Nobody knows the true extent of the trouble the US economy is in over the next ten, twenty and thirty years as Boomer retirement promises come due in full.  But we do know that: 1) It would take a historically unprecedented rate of economic growth to meet the promises in current dollars without bankrupting the nation; and 2) The financial devastation could be far, far worse than most estimates if the US economy does not perform like it has historically, but instead continues the downward spiral of a wounded empire that is losing prominence and economic power on the world stage. When we strip away the common assumption of endlessly compounded 3% real economic growth, and say that we are either losing economic growth or just breaking even, then the future shortfalls grow even more staggering.  Indeed, when we include the academic evidence of the growth-slowing effects of large government deficits, and then add in the reduction in consumption expected for an aging population, then we may already be in an effectively zero per capita growth mode, as covered in my article linked below.

Bridging Medium, Long & Short-Term

What the short-term and long-term both have in common is that the only true solution is ultimately to grow the real economy. The real economy has been hampered since the mid-1990s by a short sighted “strong dollar” policy that has enormously benefited major international corporations and major banks, while creating a debt-driven illusion of personal prosperity for many of the citizens of the United States.  It’s a standard of living that could never be paid for, but rather was reliant on other nations lending the US the money to fund that lifestyle, so long as we agreed to keep the dollar “strong”.  The effective terms were that certain other nations lent us the money to live it up without our being able to pay for the goods that delivered our subsidized standard of living, and in exchange we let them take our industries and jobs.

To re-grow the real economy and regain economic competitiveness, the US must remove the handcuffs on American workers, which requires driving down the value of the US dollar.  This has to be done in a competitive world, where other nations want to defend their own market share by driving down the value of their own currencies. So for the US to be “successful” – it has chosen a strategy of taking more radical actions in a threat to destroy the value of its currency than other nations dare counter.

In other words, the other nations aren’t as willing to recklessly and rapidly wipe out the value of their citizen’s savings as the United States is, which gives the US a temporary “advantage” in currency brinksmanship. Most conveniently, the otherwise impossible cost of covering over the gaping hole in the US economy can be paid for through open monetization on deliberate, prominent display for the whole world to see. The strategy is to simply manufacture the money out of nothingness, which then lets the rest of the world know that the US dollar is in grave peril of swiftly diving in value.  This then drives down the value of the dollar, and reboots the real economy and real American competitiveness, even as the hole in the economy is temporarily covered over.

Perhaps most important of all, this begins the rapid destruction of the value of the dollar as necessary to avert formal US bankruptcy when it comes to paying the enormous retirement and health care obligations that are coming due over the next ten, twenty and thirty years. To understand the true extent of the danger to your savings, you need to see how all three of these levels work together:  hiding the depression in the short-term, rebooting the real economy in the medium-term, and the long-term destruction of the value of the dollar so that impossible promises can be paid in form, but not in substance. All three strategies effectively require the destruction of the value of the savings of older Americans and retirees in particular. It is your future lifestyle that must be sacrificed for all of these goals to happen together.

Adding In Short-Term Political Benefits

And finally, and not of incidental importance although perhaps not quite as fundamental as the other factors, there are enormous political rewards for those currently in power when it comes to pursuing this approach. As covered in the “Hiding A Depression” article, the government’s share of the US economy swiftly went (with very little commentary) from 35% of the total economy to 43% of the total economy.  In the real world of politics, what is most important is that this growth comes in the form of discretionary spending, that (normally) rare commodity that is the currency of pure power.  In normal circumstances, between government transfer payments, the military, and the established bureaucracy, there isn’t all that much discretionary money for politicians to channel for their partisan desires.

That has turned upside down, as discretionary money was created so fast, that Congress and the Administration initially had trouble figuring out how to spend it. The government has enormously increased its control over the day-to-day economic life of the nation. This control is not being exercised on an altruistic basis, but is being used in the exercise of raw political power.  Politicians have the unprecedented ability, almost without limitation, to take the $1000+ per month per American household in money that is being created out of the void ($1,300 with the hidden savings tax), and to use it to reward their friends and hurt their enemies.  And many are doing so. These five motivations all exist simultaneously, they all wrap around each other in their numerous interrelationships, and they all reinforce each other.   What they all have in common is an overwhelming incentive to make sure that a dollar does not remain worth a dollar.

The Personal Implications

The implications of the five powerful motivations all coming together are that we have multiple overwhelming reasons to believe that the value of the US dollar (and many other currencies) will be mostly or near entirely destroyed in coming years. Now, when paper wealth is wiped out for much of the population, and real wealth (goods and services) for a nation has taken a blow – but is not wiped out – then what we necessarily have is a massive redistribution of wealth. And there is very good reason to believe that the largest redistribution of wealth that has been seen in modern times is likely to be occurring over the coming years.

Inherently, the older that you are – the more likely that wealth will be redistributed away from you instead of towards you. A giant “Reset Button” will likely be pressed for the dollar, and with it the value of your savings and investments will likely evaporate – that is, if you have been following the conventional wisdom for retirement investing. You may not have that many working years left to recover from the damage, and jobs may be difficult to come by even if you want to work.

So you are competing against younger workers not just for jobs, but for goods and services, where they have the current income in inflation-adjusted terms to buy these desirable goods – and you don’t.  Thus, the older citizens become impoverished relative to the younger citizens. This is a history that has been repeated time and again across nations and across the centuries – it is the pensioners that get nailed when the currency reset button gets pressed. Making it even more difficult is that the hidden savings tax acts as a giant anchor, making it near impossible for fixed income savers to break even on an inflation-adjusted basis, let alone compound their wealth like all the financial planning models promised.  Simultaneously, the likely reduced economic growth rate associated with a heavily indebted and aging nation will likely slash further stock returns, or even turn them negative in after-inflation and after-tax terms.

Both of the pillars underlying conventional financial planning have shattered and fallen, which leaves traditional retirement investors with two negative return asset classes (in inflation-adjusted terms) that are steadily destroying wealth over the long term rather than compounding it.   Even as the slick investment firm ads featuring vibrantly healthy and wealthy retirees enjoying their active and prosperous retirements, continue to fill the airwaves and financial media.


Weekly Market Update Excerpt August 17, 2012

  • My life experience is manufacturing, management, and ownership. When the economy is based on manufacturing, products are produced, and the process improves people’s lives. Production of a product employs people in the fields of design, manufacturing, sales staff; right down the line it improves citizens’ lives. Unfortunately, this American model of building wealth is not what it used to be.
  • The current US economy is now built on consumption. Borrowing to keep up with spending produces what the US government calls a “recovery”. This process is enabled by artificially low interest rates that are produced by quantitative easing (QE). Sadly, when a round of QE is complete, interest rates start to rise. That’s happening now, and it will soon cause the economy to show signs of strain.
  • At that point, the Fed must supply more QE, to keep interest rates low. Each round of QE puts new pressure on the dollar. Over time, the dollar will be badly devalued.
  • A huge topping process is taking place on the US dollar weekly chart. MACD is rolling over, and my key CCI indicator has spiked, and fallen through the important 100 area.
  • A bearish wedge has formed within a huge symmetrical triangle. The overall technical situation of the dollar is a nightmare. My chart target is the 50-55 area, and I think it will be acquired.

  • I mentioned the bond market several weeks ago, and suggested that a major top was forming.
  • Yields are rising, and the central bank is likely quite concerned. Fed governors are now speaking out in support of more QE.  
  • A price break under $146 for two consecutive days should confirm that the intermediate trend has changed, from up to down.

  • There’s an ominous wedge pattern in place on this chart. It suggests that gold is set to dramatically outperform bonds.
  • MACD is rolling over, suggesting the bond market is in trouble.
  • My trigger point for a big move up in gold, and a big move down in bonds, is a two day close over $1625 for gold.

  • The general stock market appears to be making an intermediate-term top.
  • It’s an opportunity for aggressive investors to short the Dow in particular, because my work suggests that the Dow will not top out for another 5-10 days. I’ve put a “ten day countdown” note on the chart.
  • I suggest systematically shorting a bit more each time the Dow moves 2% higher.

  • My technical work continues to indicate gold will rise to $1850 by Nov. 2012. For the last three years, gold has put in a meaningful bottom in the summer. Note the four blue squares that highlight the July/August timeframes. Those bottoms have been followed bypowerful rallies.
  • This year features an MACD indicator on a great buy signal. It is more deeply oversold than at any point since 2008. Gold is now offering a great opportunity for capital appreciation.

  • Over the past week, there has been a soft volume pullback in GDX. This comes after a 12% rally. Yesterday’s power volume bar is extremely encouraging. I expect more volume like this next week. 
  • Sentiment indicators are very favourable. A major double bottom occurs when previous bulls change their opinions, from bullish to bearish, and that has occurred.
  • For the first time in several months, seasonal charts are now favourable for the metals.
  • Book trading profits in the $48 area, and buy all two-day price declines.

  • Gold stocks across the board paused for a few days, on soft volume. Yesterday, GDXJ burst higher on substantial volume. I think it is poised to move aggressively higher in the next several trading sessions.
  • MACD on this chart may appear like it’s becoming overbought, but don’t let that discourage you. It is barely above the zero line, and MACD on the weekly charts is just now turning higher! Hold your core positions, and buy a little bit more on any small price dip.
  • The highs that were established in early June at $22.18 seem to be acting like a technical magnet. Book trading profits in that price area.

  • Silver is my favorite asset at current price levels. MACD has produced a crossover buy signal, and done so in the same area as when silver was trading at about $9 per ounce.
  • I’d like you to focus on accumulating silver in the $24.22 to $29.11 price zone, which is defined by two key Fibonacci retracement lines.
  • Commercial traders are holding close to 60,000 longs in the futures market. This is an extraordinarily large amount, and it indicates they are very bullish.
  • Note the position of the RSI oscillator. It’s rising nicely from a drastically oversold state, and I expect the silver price to soon start doing the same thing!


Michael Snyder
The Economic Collapse
Sept 12, 2012

The mainstream media in the United States is almost totally ignoring one of the most important trends in global economics.  This trend is going to cause the value of the U.S. dollar to fall dramatically and it is going to cause the cost of living in the United States to go way up.

Right now, the U.S. dollar is the primary reserve currency of the world.  Even though that status has been chipped away at in recent years, U.S. dollars still make up more than 60 percent of all foreign currency reserves in the world.  Most international trade (including the buying and selling of oil) is conducted in U.S. dollars, and this gives the United States a tremendous economic advantage.  Since so much trade is done in dollars, there is a constant demand for more dollars all over the globe from countries that need them for trading purposes.  So the Federal Reserve is able to flood our financial system with dollars without it causing a tremendous amount of inflation because the rest of the world ends up soaking up a lot of those dollars.  But now that is changing.  China and Russia have been spearheading a movement to shift away from using the U.S. dollar in international trade.  At the moment, the shift is happening gradually, but at some point a tipping point will come (for example if Saudi Arabia were to declare that it will no longer take U.S. dollars for oil) and the entire global financial system is going to change.  When that tipping point comes the global demand for U.S. dollars is going to absolutely plummet and nightmarish inflation will come to the United States.  If such a scenario sounds far out to you, then you have not been paying attention.  In fact, China and Russia have been working very hard to move us toward exactly such a scenario.

China and Russia are not the “buddies” of the United States.  The truth is that they are both ruthless competitors of the United States and leaders from both nations have been calling for a new global currency for years.

They don’t like that the United States has a built-in advantage of having the reserve currency of the world, and over the past several years both countries have been busy making international agreements that seek to chip away at that advantage.

Just the other day, China and Germany agreed to start conducting an increasing amount of trade with each other in their own currencies.

You would think that a major currency agreement between the 2nd and 4th largest economies on the face of the planet would make headlines all over the United States.

Instead, the silence in the U.S. media was deafening.

At least there were some reports in the international media about this.  The following is from a Reuters articleabout this very important deal….

Germany and China plan to conduct an increasing amount of their trade in euros and yuan, the two nations said in a joint statement after talks between Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing on Thursday.

“Both sides intend to support financial institutions and companies of both countries in the use of the renminbi and euro in bilateral trade and investments,” said the text of the statement.

By itself, this deal would not be that alarming.

However, the truth is that both Russia and China have been making deals like this all over the globe in recent years.  I detailed 11 more major agreements like the one that China and Germany just made in this article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar“.

In that article I listed a few of the things that will likely happen when the petrodollar dies….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

So enjoy going to “the dollar store” while you can.

It will turn into the “five and ten dollar store” soon enough.

Okay, so if you are China and Russia and you are working hard to undermine the dollar, how do you get prepared for the fiat currency crisis that your hard work will eventually create?

You guessed it.  You hoard gold and other precious metals.

And that is exactly what China and Russia has been doing.

A recent MarketWatch article detailed the massive hoarding of gold that Russia has been doing….

I can’t imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.

According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

Of course Russia is not alone in hoarding gold.  According to Zero Hedge, China has quietly been importing gigantic mountains of gold….

In July, Chinese gold imports from HK, after two months of declines, have picked up once more and hit a 3-month high of 75.8 tons. While it is notable that this number is double the 38.1 tons imported a year prior, and that year-to-date imports are now a record 458.6 tons, well over four times greater than the seven month total in 2011 which was 103.9 tons, what is far more important is that in the first seven months of 2012 alone China has imported nearly as much gold as the total holdings of the hedge fund at the heart of the Eurozone, elsewhere known simply as the European Central Bank, and just as importantly considering the import run-rate has hardly slowed down in August, which data we will have in a few weeks, it is now safe to say that in 2012 alone China has imported more gold than the ECB’s entire official 502.1 tons of holdings.

And all over the world Chinese companies are buying up gold producers.  China National Gold Group Corporation has put in a $3.9 billion bid to buy African Barrick Gold PLC, but that is only one example.

A recent Fox Business article listed a bunch of other similar transactions that have taken place recently….

Zijin Mining Group Co. (2899.HK), China’s second-largest gold producer by output, said last week that its subsidiary has acquired more than 50% of Kalgoorlie’s Norton Gold Fields (NGF.AU).

That deal gives it a foothold in the Australian market, the world’s second-largest source of gold output after China itself. In 2011, Zijin bought 60% of Kazakhstan-based miner Altynken, which has access to a gold mine in Kyrgyzstan.

Since 2008, Chinese companies have completed 10 US$20-million-plus acquisitions of Australian gold assets, worth a combined $1.6 billion, according to Dealogic. Half were initiated since last year.

In November, Shandong Gold-Mining Co. (600547.SH) launched a bid to acquire Brazilian gold miner Jaguar Mining Inc. (JAG.T) for $1 billion.

You would have to be blind to not see what is happening.

Other big names have been hoarding gold as well.  In a previous article I detailed how George Soros, John Paulson and central banks all over the planet have been hungrily accumulating gold.

So what does all of this mean for the price of gold?

That’s right – it is likely to keep heading up.

In fact, Citi analyst Tom Fitzpatrick believes that the price of gold will likely hit $2500 within 6 months.

Personally, I believe that there will be times when precious metals both fall and rise in price dramatically.  It is going to be a wild ride.  But in the long-term I believe that all precious metals will be going up as fiat currencies such as the U.S. dollar fail.

Sadly, most Americans have no idea just how incredibly vulnerable the U.S. dollar really is.

The following is an excerpt from a recent piece by investigative journalist Bob Woodward.  It shows just how worried our leaders are about a crash of U.S. Treasuries….

Another possible outcome, Geithner said, was perhaps worse. “Suppose we have an auction and no one shows up?”

The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.

What happens someday if the rest of the world decides to reject our currency and our debt?

Right now we are able to trade our dollars for the things that we “need” such as oil from the Middle East and cheap plastic consumer products from China.

But what happens if the Federal Reserve keeps printing and printing and printing and the rest of the world eventually decides that the U.S. dollar is not even worth the paper it is printed on?

The truth is that the amount of printing the Federal Reserve has been doing and the amount of borrowing the federal government has been doing are both completely and totally unsustainable.

At this point, Moody’s is threatening to cut the credit rating of the federal government if a deal is not reached soon to reduce our debt to GDP ratio.

And Moody’s is not the only one concerned about our exploding debt.

German Finance Minister Wolfgang Schaeuble recently stated that he believes that “there is great uncertainty about the course American politics will take in dealing the U.S. government’s debts, which are much too high”.

Just because the economy is relatively stable right now does not mean that it is always going to be that way.

If we keep debasing our currency like this, at some point the rest of the world is going to decide that China and Russia have been right all along and that we need a new global reserve currency.

That day is coming.  It might not come tomorrow or next week or next month but it is definitely coming.

Once the U.S. dollar loses reserve currency status, that will be a major turning point in the history of our country.  We will never fully recover from that, and we will never get back to the same level of prosperity that we are enjoying today.

So enjoy spending those dollars while you can.  The party is almost over.


The Economic Collapse

July 18, 2012

The U.S. dollar isn’t dead yet, but the nails are being hammered into the coffin even as you read this article.  For decades, most of the nations of the world have used the U.S. dollar to buy oil and to trade with each other.  In essence, the U.S. dollar has been acting as a true global currency. Virtually every country on the face of the earth has needed big piles of U.S. dollars for international trade.  This has ensured a huge demand for U.S. dollars and U.S. government debt.

This demand for dollars has kept prices and interest rates low, and it has given the U.S. government an incredible amount of power and leverage around the globe.  Right now, U.S. dollars make up more than 60 percent of all foreign currency reserves in the world.  But times are changing.  Over the past couple of years there has been a whole bunch of international agreements that have made the U.S. dollar less important in international trade.

The mainstream media in the United States has been strangely quiet about all of these agreements, but the truth is that they are setting the stage for a fundamental shift in the way that trade is conducted around the globe.  When the petrodollar dies, it is going to have an absolutely devastating impact on the U.S. economy.  Sadly, most Americans are totally clueless regarding what is about to happen to the dollar. One of the reasons the Federal Reserve has been able to get away with flooding the financial system with U.S. dollars is because the rest of the world has been soaking a lot of those dollars up.

The rest of the world has needed giant piles of dollars to trade with, but what is going to happen when they don’t need dollars anymore? Could we see a tsunami of inflation as demand for the dollar plummets like a rock? The power of the U.S. dollar has been one of the few things holding up our economy.  Once that leg gets kicked out from under us we are going to be in a whole lot of trouble. The following are 11 international agreements that are nails in the coffin of the petrodollar….

#1 China And Russia China and Russia have decided to start using their own currencies when trading with each other.  The following is from a China Daily article about this important agreement….

China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday. Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies. “About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg. The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

#2 China And Brazil Did you know that Brazil conducts more trade with China than with anyone else? The largest economy in South America has just agreed to a huge currency swap deal with the largest economy in Asia.  The following is from a recent BBC article….

China and Brazil have agreed a currency swap deal in a bid to safeguard against any global financial crisis and strengthen their trade ties. It will allow their respective central banks to exchange local currencies worth up to 60bn reais or 190bn yuan ($30bn; £19bn). The amount can be used to shore up reserves in times of crisis or put towards boosting bilateral trade.

#3 China And Australia Did you know that Australia conducts more trade with China than with anyone else? Australia also recently agreed to a huge currency swap deal with China.  The following is from a recent Financial Express article….

The central banks of China and Australia signed a A$30 billion ($31.2 billion) currency-swap agreement to ensure the availability of capital between the trading partners, the Reserve Bank of Australia said. “The main purposes of the swap agreement are to support trade and investment between Australia and China, particularly in local-currency terms, and to strengthen bilateral financial cooperation,” the RBA said in a statement on its website. “The agreement reflects the increasing opportunities available to settle trade between the two countries in Chinese renminbi and to make RMB-denominated investments.” China has been expanding currency-swap accords as it promotes the international use of the yuan, and the accord with Australia follows similar deals with nations including South Korea, Turkey and Kazakhstan. China is Australia’s biggest trading partner and accounts for about a quarter of the nation’s merchandise sales abroad.

#4 China And Japan The second and third largest economies on the entire planet have decided that they should start moving toward using their own currencies when trading with each other.  This agreement was incredibly important but it was almost totally ignored by the U.S. media. According to Bloomberg, it is anticipated that this agreement will strengthen ties between these two Asian giants….

Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said. Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs, the Japanese and Chinese governments said. China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier.

#5 India And Japan It is not just China making these kinds of currency agreements.  According to Reuters, India and Japan have also agreed to a very large currency swap deal….

India and Japan have agreed to a $15 billion currency swap line, Japan’s Prime Minister Yoshihiko Noda said on Wednesday, in a positive move for the troubled Indian rupee, Asia’s worst-performing currency this year.

#6 “Junk For Oil”: How India And China Are Buying Oil From Iran Iran is still selling lots of oil.  They just aren’t exchanging that oil for U.S. dollars as much these days. So how is Iran selling their oil without using dollars? A Bloomberg article recently detailed what countries such as China and India are exchanging for Iranian oil….

Iran and its leading oil buyers, China and India, are finding ways to skirt U.S. and European Union financial sanctions on the Islamic republic by agreeing to trade oil for local currencies and goods including wheat, soybean meal and consumer products. India, the second-biggest importer of Iran’s oil, has set up a rupee account at a state-owned bank to settle as much as much as 45 percent of its bill, according to Indian officials. China, Iran’s largest oil customer, already settles some of its oil debts through barter, Mahmoud Bahmani, Iran’s central bank governor, said Feb. 28. Iran also has sought to trade oil for wheat from Pakistan and Russia, according to media reports from the two countries.

#7 Iran And Russia According to Bloomberg, Iran and Russia have decided to discard the U.S. dollar and use their own currencies when trading with each other….

Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow. The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said.

#8 China And Chile China and Chile recently signed a new agreement that will dramatically expand trade between the two nations and that is also likely to lead to significant currency swaps between the two countries…. The following is from a recent report that described this new agreement between China and Chile….

Wen called on the two nations to expand trade in goods, promote trade in services and mutual investment, and double bilateral trade in three years. The Chinese leader also said the two countries should enhance cooperation in mining, expand farm product trade, and promote cooperation in farm product production and processing and agricultural technology. China would like to be actively engaged in Chile’s infrastructure construction and work with Chile to promote the development of transportation networks in Latin America, said Wen. Meanwhile, Wen suggested that the two sides launch currency swaps and expand settlement in China’s renminbi.

#9 China And The United Arab Emirates According to CNN, China and the United Arab Emirates recently agreed to a very large currency swap deal….

In January, Chinese Premier Wen Jiabao visited the United Arab Emirates and signed a $5.5 billion currency swap deal to boost trade and investments between the two countries.

#10 China And Africa Did you know that China is now Africa’s biggest trading partner? For many years the U.S. dollar was dominant in Africa, but now that is changing.  A report from Africa’s largest bank, Standard Bank, says the following….

“We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”

#11 Brazil, Russia, India, China And South Africa The BRICS (Brazil, Russia, India, China and South Africa) continue to become a larger factor in the global economy. A recent agreement between those nations sets the stage for them to increasingly use their own national currencies when trading with each other rather than the U.S. dollar.  The following is from a news source in India….

The five major emerging economies of BRICS — Brazil, Russia, India, China and South Africa — are set to inject greater economic momentum into their grouping by signing two pacts for promoting intra-BRICS trade at the fourth summit of their leaders here Thursday. The two agreements that will enable credit facility in local currency for businesses of BRICS countries will be signed in the presence of the leaders of the five countries, Sudhir Vyas, secretary (economic relations) in the external affairs ministry, told reporters here. The pacts are expected to scale up intra-BRICS trade which has been growing at the rate of 28 percent over the last few years, but at $230 billion, remains much below the potential of the five economic powerhouses.

So what does all of this mean? It means that the days of the U.S. dollar being the de facto reserve currency of the world are numbered. So why is this important? In a previous article, I quoted an outstanding article by Marin Katusa that detailed many of the important benefits that the petrodollar system has had for the U.S. economy….

The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil. The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens when the petrodollar dies? The following are some of the things we are likely to see…. -Oil will cost a lot more. -Everything will cost a lot more. -There will be a lot less foreign demand for U.S. government debt. -Interest rates on U.S. government debt will rise. -Interest rates on just about everything in the U.S. economy will rise.

And that is just for starters. As I wrote about earlier today, the Federal Reserve is not going to save us.  Ben Bernanke is not somehow going to pull a rabbit out of a hat that will magically make everything okay.  Fundamental changes to the global financial system are happening right now that are impossible for Bernanke to stop. We should have never gone into so much debt.  Up until now we have gotten away with it, but when demand for U.S. dollars and U.S. debt dries up we are going to experience a massive amount of pain. Keep your eyes and ears open for more news stories like the ones referenced above.  The end of the U.S. dollar is going to be a very significant landmark on the road toward the total collapse of the U.S. economy.

GOLD INDEX CLOSE NOVEMBER 23, 2012: $1751.50



By 24/7 Wall St.

It is now more obvious than ever that gold is becoming the new global reserve currency. Continuous and aggressive central-bank actions from the United States and Europe are driving the demand for gold. Investors have not yet seen any of the real hyperinflationary pressures that seem likely down the road.

Gold’s substantial rise in price should speak for itself. In dollar terms, gold returned 11.1% in the third quarter and was up by 16% year-to-date through the end of the quarter. The World Gold Council said that gold has a low stock-market correlation through time. That was not the case in the third quarter. Gold still outperformed almost all the major equity markets in the largest gold-holding nations in 2012.

24/7 Wall St. analyzed how the gold rankings compare to each major nation’s gross domestic product and how those figures compare to the top 10 holders of gold. What is surprising in some cases is how countries with the largest GDP are not necessarily the largest holders of gold. Two small nations, the Netherlands and Switzerland, are major holders of gold. Under the terms of the Central Bank Gold Agreement among major European states, many countries are supposed to be selling gold but are not.

The United Kingdom’s $2.43 trillion in GDP is the world’s seventh largest, but its gold holdings of 310.3 tonnes rank only 17th in the world and account for only 15.9% of its total foreign reserves. Does the old term “pound sterling” mean that the British banks really care more about silver? Another standout exception is Brazil, which has tiny gold reserves compared with its GDP. Its $2.5 trillion in GDP ranks sixth in the world, yet it holds only 33.6 tonnes of gold, or 0.5% of foreign reserves. Brazil ranks a surprising 52nd in the world among gold holders.

The International Monetary Fund is the third-largest official holder of gold, with more than 2,814 tonnes. The European Central Bank ranks right behind India, with 502.1 tonnes and 32.3% of its total foreign reserves held in gold. Central bank buying of gold was recently undertaken by Russia, Turkey, Ukraine and the Kyrgyz Republic. Turkey went as far as raising the gold reserve requirements for its commercial banks.

The World Gold Council report shows low borrowing costs and the support of financial markets spur gold accumulation. Gold is no longer just an inflation hedge; it is the key protection against a global race to devalue currencies, even if consumer prices are somewhat stable. Bonds pay historically low rates and stock market volatility has spooked many investors, so gold is becoming the true safe haven.

Major central banks are growing their balance sheets by purchasing trillions of dollars in paper assets. The World Gold Council said that research showed that a 1% change in money supply, six months prior, in the United States, Europe, India and Turkey tends to increase the price of gold by 0.9%, 0.5%, 0.7% and 0.05%, respectively. The Council also said that inflation is still several years off and many central banks have been more worried about deflation. Investors would be well advised to heed a warning from bond king Bill Gross, who told global investors to have exposure to hard assets, which will rise in value with inflation.

24/7 Wall St. has listed the 10 nations with the largest gold reserves, along with the percentage of total foreign reserves held in gold, each nation’s 2011 GDP and how it ranks in the world, and the local stock market performance. We have added analysis about how the potential unraveling of the euro could play into the future buying or selling of gold by European nations. For nations outside Europe, we have provided some historical context and predicted the path that their central banks are likely to follow in the years ahead.

10. India

  • Gold reserves: 557.7 tonnes
  • Percentage of total foreign reserves: 10%
  • GDP: $1.82 trillion (10th highest)
  • Stock performance: Bombay BSE up 7.6% in Q3, up 21% YTD

While India ranks 11th on the World Gold Council list, it is 10th if you remove the International Monetary Fund. India has been a steady buyer of gold over time. That is likely to continue as the government needs to support its currency, even if the economy is volatile. India became an aggressive buyer in 2009, when it spent almost $7 billion to buy 200 tonnes of gold, which the IMF sold to raise capital. For the economy to support 1.2 billion people, the central bank must hold gold and hard assets. The Indian population is a large consumer of gold for jewelry and there is high demand for the precious metal to store wealth. India will thus continue to buy gold in the years ahead.

9. Netherlands

  • Gold reserves: 612.5 tonnes
  • Percentage of total foreign reserves: 59.8%
  • GDP: $838 billion (17th highest)
  • Stock performance: AEX up 5.1% in Q3, up 3.4% YTD

It is surprising that the Netherlands has so much gold. But it is also important to recall that the country is a former colonial power and has a long history as a very wealthy nation. Its population of 16.7 million ranks 63rd among all nations, while its GDP is the 17th largest in the world. As with some European nations, the Netherlands did not sell all the gold provided for by the Central Bank Gold Agreement. Now that the Netherlands is under some of the same pressure as many other European nations, it is unlikely to be a big seller of gold. It may need that gold to protect itself if the euro comes unraveled.

8. Japan

  • Gold reserves: 765.2 tonnes
  • Percentage of total foreign reserves: 3.2%
  • GDP: $5.86 trillion (3rd highest)
  • Stock performance: Nikkei 225 fell 1.5% in Q3, up 4.6% YTD

Japan has to hold large amounts of gold. The Bank of Japan has held interest rates at almost zero for about two decades. It recently sold gold so that it could pump about $200 billion worth of yen into the economy as stimulus after the tsunami and nuclear disaster threatened to send Japan back into recession. At some point in the future, Japan may need to buy that gold back to support its large monetary base. Until then, the yen remains one of the stronger global currencies, which makes exports more expensive. Japan’s population of 127 million is aging rapidly and birthrates are extremely low.

7. Russia

  • Gold reserves: 936.7 tonnes
  • Percentage of total foreign reserves: 9.6%
  • GDP: $1.85 trillion (9th highest)
  • Stock performance: MICEX down near 4% in Q3, negative YTD

Russia continues to buy gold as its global economic ambitions grow. A previous 24/7 Wall St. analysis showed that Russia’s reserves were 784 tonnes in early 2011 after it bought 120 tonnes in the first 10 months of 2010, more than 100 tonnes in 2009 and close to 70 tonnes in 2007. The World Gold Council reported that Russia has added more gold, so that reserves likely will rise yet again. Russia is extremely wealthy in natural resources, and President Vladimir Putin and his allies want it to become more of an economic superpower. With a population of 142 million and Russia’s GDP of $1.85 trillion, its holdings of gold are likely to surge.

6. Switzerland

  • Gold reserves: 1,040.1 tonnes
  • Percentage of total foreign reserves: 11.5%
  • GDP: $660 billion (19th highest)
  • Stock performance: Swiss Market up 7% in Q3, up 9.4% YTD

Switzerland is the world’s private banker and so must be a top holder of gold. Still, it is amazing to consider that its population is barely 7.9 million and it ranks 95th in the world for population. Also, its dollar-adjusted GDP of $660 billion ranks only 19th. Switzerland sold gold from 2003 to 2008, right before the huge run up in gold prices. If Switzerland needs to devalue its currency to remain competitive, it can always sell more gold. Unless global banking disappears entirely, the Swiss will remain one of the largest holders of gold in the generations ahead.

5. China

  • Gold reserves: 1,054.1 tonnes
  • Percentage of total foreign reserves: 1.7%
  • GDP: $7.3 trillion (2nd largest)
  • Stock performance: Shanghai Composite 6.6% lower in Q3, 5.4% lower YTD

China’s economy has stumbled to the point that its official growth rate of 7.4% in the third quarter may feel like a recession. China has the ambition of becoming the largest economy in the world. It already is considered the world’s manufacturer. China must have hard assets along with its U.S. Treasury bondholdings to keep its currency pegged to the U.S. dollar. It has the world’s largest population, with more than 1.3 billion people, yet its GDP of almost $7.3 trillion is still not even half that of the United States. Whenever the yuan truly floats, China will have to have more hard assets and more transparent economic readings to support it. China added some 454 tonnes of gold between 2003 and 2009. When it finally adjusts its official gold holdings in the coming months, they are likely to be higher again.

4. France

  • Gold reserves: 2,435.4 tonnes
  • Percentage of total foreign reserves: 71.6%
  • GDP: $2.77 trillion (5th largest)
  • Stock performance: CAC rose 4.9% in Q3, up 6.1% YTD

France finds itself in an interesting position. Socialist president Francois Hollande is on a quest against many of the austerity measures implemented by his predecessor, Nicolas Sarkozy. France does not want to lose its “second-best economy” status in the euro zone, behind Germany. It will have to pay for the new economic measures and this poses a particular problem because the extremely wealthy, who are being targeted for high taxes, may continue to leave the country. France may ultimately need to sell gold. Although it is part of the Central Bank Gold Agreement as a gold seller, it may need a cushion in case the euro faces an outright breakup.

3. Italy

  • Gold reserves: 2,451.8 tonnes
  • Percentage of total foreign reserves: 72%
  • GDP: $2.2 trillion (8th largest)
  • Stock performance: Borsa Italiana MIB rose 5.7% in Q3, flat YTD

Italy is a financially troubled nation, and it is truly too big to bail out. By many measures it is the greatest economic risk to the rest of Europe and the balance of the major world economies. Italy’s 61 million population ranks 23rd in the world, but its dollar-adjusted GDP of almost $2.2 trillion ranks it as the 8th largest economy. The Italian government was also part of the Central Bank Gold Agreement, but there is a real conundrum now. Italy could sell gold to raise capital, but then it would lose its cushion if the euro unravels. It is almost impossible to imagine that Italy would be a buyer of gold because it has too many pensioners and benefits to pay for as is.

2. Germany

  • Gold reserves: 3,395.5 tonnes
  • Percentage of total foreign reserves: 72.4% of foreign reserves
  • GDP: $3.6 trillion (4th largest)
  • Stock performance: DAX rose 12.4% in Q3, up 22.3% YTD

Despite forced gold sales from ECB nations in the past, Germany likely has to maintain its underlying asset base as it is the anchor of the euro. The euro after all, is a watered-down version of the deutsche mark. Germany’s population of 81 million ranks 16th in the world, but its $3.6 trillion adjusted GDP ranks fourth. What could happen if Germany started accelerated gold sales to buy up even more paper assets from the PIIGS (Portugal, Italy, Ireland, Greece and Spain) and more paper assets of their banks? The initial reaction might be positive for the euro-zone economies. However, Angela Merkel and her successors might be left with high inflation without hard assets as a cushion. Germany is supposed to be a gold seller under the Central Bank Gold Agreement, but it is likely to hold what it can as a buffer in case the euro breaks up or in case it needs to raise quick bailout cash for the PIIGS.

1. United States

  • Gold reserves: 8,133.5 tonnes
  • Percentage of total foreign reserves: 75.4%
  • GDP: $15 trillion in GDP (the largest)
  • Stock performance: S&P 500 up 5.7% in Q3, up 14.5% YTD

It should be no surprise that the U.S. is the largest holder of gold as the dollar is the global reserve currency and the U.S. has by far the largest GDP of any nation. The growth of the Federal Reserve’s balance sheet can only be sustained without dire consequences if it is backed by hard assets like gold. Imagine if the conspiracy theorists are right and that Fort Knox and other repositories do not have gold in them. It is this gold, the massive U.S. GDP and America’s underlying wealth of natural resources that keep the dollar as the world’s reserve currency. If the World Gold Council is right in its assessments of inflation and gold, then the U.S. is likely to hold its reserve currency status for quite some time, even if credit rating agencies continue to downgrade the country.


Greg Hunter’s 

Since this site went on line three years ago, more than a dozen readers either emailed or commented they cashed out of their IRAs or 401-Ks, paid the tax and penalty, and invested in physical gold and silver.  One reader, in particular, told me he did this when gold was at the outrageous “bubble” price of around $800 per ounce.  With the latest announcement of “open-ended” QE (unlimited money printing) by the Fed, it sure looks like everyone who did that made the right choice.  I am sure there are many more who bought gold at $300 to $400 per ounce and silver at $10 to $15 per ounce, but those were the early birds.  You might call them visionaries.  What has been going on in the last few years is what I call the “Great Asset Repositioning,” and it is now fully underway.

Farmland, gems, oil wells and rare art are also in the category of hard assets, but it is gold and silver that are at the center of this move out of paper and into real assets.  This trend includes everyone from the small investor to central banks.  For confirmation, look no further than the big time financial players who have just recently become investors in precious metals.  Bill Gross is head of PIMCO with $1.3 trillion under management.  The company is so specialized in selling bonds that Mr. Gross is nicknamed “The Bond King.”  Just this month, Gross basically calls the Fed money printing “budgetary crystal meth” in the“Investment Outlook” section on the company website.  The Federal Reserve is printing around $85 billion a month to buy mortgage and U.S. government debt.  This is more than $1 trillion per year of new money, and remember, it is “open-ended” or unlimited.  Gross goes on to say if the money printing to fill the “fiscal gap” continues, “Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.”  (Click here to read the complete PIMCO post by Gross.) “The Bond King” is a buyer of gold.  Gross has publicly stated many times in the past few months that gold, along with other tangible assets, are a good bet.  I find it a little scary that a guy who became a billionaire selling bonds is now telling people to buy gold and other hard assets.

Just last month, a man named one of the 100 most influential people by Time Magazine, Ray Dalio, is also on the gold band wagon.  Dalio is also Not a long time gold bug.    I recently wrote a post about what he is advising that said, “Now, a modern day version of JP Morgan is telling the world, ‘Gold is a currency.’  That’s what $120 billion hedge fund manager Ray Dalio said recently about the yellow metal.  Dalio, founder of Bridgewater Associates, doesn’t give many interviews.  So, I find it very telling that when he does speak, he says, ‘It’s not sensible not to own gold.’  When asked if he owned gold, he quickly replies, “Oh yeah, I do,” and said people should have ‘10%’ in their portfolios.”  (Click here for the complete original post.) 

“10%” gold in someone’s portfolio—that’s all?  Think again.  Tom Cloud of is an expert in financial planning and tangible assets.  He has more than three decades of experience advising high-net-worth clients and institutional investors.  Some of the individual high-net-worth clients have more than $20 million to protect.  I talked to him on the phone this week, and he told me most of his clients are going to a 45% allocation of physical precious metals.  This move is the polar opposite of debt and leverage.  This is a pure insurance and protection of wealth play.

Think putting “45%” in precious metals is outrageously high?  John Paulson, who made billions betting on the housing bust in 2007, has more than 44% in gold assets or gold shares in his fund.  (Click here for more on John Paulson’s gold holdings.)  By the way, Paulson recently sold all of his JP Morgan stock.        

Central banks are also big buyers of gold.  Bloomberg reported last month, “Central banks will increase gold purchases to 493 metric tons this year as they keep expanding reserves to diversify from the dollar and guard against a potential gain in inflation . . . We expect the official sector to remain a significant gold buyer for some time to come,’ GFMS said.”  (Click here for the complete Bloomberg story.)  China is leading the pack of central banks in gold buying. recently reported, “China Imports More Gold In 2012 Than All ECB (European Central bank) Holdings.”  That’s more than 500 tons of gold imported for China this year alone!  (Click here for the complete post.)  This does not include China’s mining production of around 275 tons per year that it does not sell!

What is coming is big, very big.  At no time in history has the Federal Reserve announced this kind of unlimited money creation along with 0% interest rates.  Inflation is a virtual certainty.  The Great Asset Repositioning is quietly going on unabated with the wealthy on the planet.  Do they see financial calamity, a new world currency, deflation, hyperinflation, global insolvency or all the above coming?  Who knows what they fear, but they are taking cover under gold and silver.


By Greg Hunter’s 

We have long been told that gold is a commodity–that it is no different than a bushel of corn or a barrel of oil.  In many newspapers, it is listed under the commodity section.   With the advent of the Federal Reserve’s recent announcement of “unlimited” Quantitative Easing (QE) or money printing, that has changed.  The view of gold as a commodity has circled back to what banker JP Morgan proclaimed to Congress in 1913, “Gold is money and nothing else.”   Many folks in the blogosphere have long agreed with the original JP Morgan.  It was the rest of the fiat world that wanted us all to believe the enormous lie that gold was only a commodity and not money.  Never mind that every central bank on the planet holds gold (and have been buying gold hand over fist for the past few years).

Now, a modern day version of JP Morgan is telling the world, “Gold is a currency.”  That’s what $120 billion hedge fund manager Ray Dalio said recently about the yellow metal.  Dalio, founder of Bridgewater Associates, doesn’t give many interviews.  So, I find it very telling that when he does speak, he says, “It’s not sensible not to own gold.”  When asked if he owned gold, he quickly replies, “Oh yeah, I do,” and said people should have “10%” in their portfolios.  (Click here to see the complete Ray Dalio interview.)  This is what Mr. Dalio said the day before the Fed announced its now infamous “unlimited” QE.

Just last week, Dalio was riding the gold band wagon again and told CNBC the yellow metal “should be a part of everybody’s portfolio to some degree, because it diversifies the portfolio. It is the alternative money.”  (Click here for the complete CNBC story.)  I find it interesting the man Time Magazine included in its 2012 “100 most influential people in the world” is sounding this warning.  I can only speculate, but I wonder what he sees.  Is it a banking holiday?  Is it a Treasury bond bust as holders of U.S. debt sell in a panic?  Does he see inflation or hyperinflation down the road?  I wonder if he is anticipating a new currency, or a global derivatives meltdown that leads to a worldwide depression.  Maybe it’s all of the above.  I don’t really know what he sees, but he sees something, and gold is his choice to counter a black horizon.

You would expect someone like Jim Sinclair to talk up gold.  His nickname is “Mr. Gold.”  And, if there were a “Mr. Silver,” that would be Eric Sprott of the $10 billion Sprott Asset Management.  Sprott is heavily invested in physical.  Both men have been instructing investors to buy precious metals for more than a decade, andBOTH have been spot-on.  For these guys, it was never a simple commodity play, but a currency play against an enormous amount of global money printing.  For years, Sinclair has said the central banks would issue“QE to infinity.”  The Fed calling the most recent round of money printing “unlimited” looks like a direct hit to me.

Don’t get me wrong, Ray Dalio is a very good investor, but he is hardly considered a legendary gold investor.  I cannot remember a time when he was touting gold like he is now.  Why would he do this?  I think it is a matter of respect and trust for Mr. Dalio because he sees something very big coming.  Dalio can’t do what the mainstream media (MSM) did in the wake of the 2008 meltdown.  In almost complete unison, the MSM said, “Nobody saw it coming.”  It’s Dalio’s job to see “it” coming, and he can’t sit quietly by when something this big is barreling down the tracks.  He has to be able to say, in the future, he saw it coming and warned people to protect themselves.  Call it his civic duty and a career prolonging move.  It’s a twofer!  

The last time Dalio said something big was coming, he was warning about the financial meltdown of 2008.  We all know how that story ended.  In July of 2011, Dalio said in the New Yorker, “I think late 2012 or early 2013 is going to be another very difficult period.” (Click here to read the complete New Yorker post.)  I think that is a nice way of saying another meltdown is coming, and this time, you better have some gold or you’re screwed.

Why else would a top hedge fund manager tell people to buy some ancient relic and just hold it?  Warren Buffett isn’t doing that.  After all, gold pays no dividend.  It pays no interest.  You must pay for secure storage, and it cannot magically split like a share of common stock.  If gold is a currency, why not just hold U.S. dollars?  That is a currency, too, isn’t it?  Holding gold is a very defensive play.  So, my question is what is Dalio really worried about?  I don’t know, but he is so on edge, that he’s saying “gold is a currency,” and I think that means gold has turned a psychological corner. 


Russia is bulking up its gold reserve

By Brett Arends | MarketWatch

I can’t imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.

According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

It emerged last month that financial gurus George Soros and John Paulson had also increased their bullion exposure, but it’s Putin that’s really caught my eye.

No one else in the world plays global power politics as ruthlessly as Russia’s chilling strongman, the man who effectively stole a Super Bowl ring from Bob Kraft, the owner of the New England Patriots, when they met in Russia some years ago.

Putin’s moves may matter to your finances, because there are two ways to look at gold.

On the one hand, it’s an investment that by most modern standards seems to make no sense. It generates no cash flow and serves no practical purpose. Warren Buffett has pointed out that we dig it out of one hole in the ground only to stick it in another, and anyone watching this from Mars would be very confused.

You can forget claims that it’s “real” money. There’s no such thing. Money is just an accounting device, a way of keeping track of how much each of us produces and consumes. Gold is a shiny and somewhat tacky looking metal that is malleable, durable and heavy. A recent research paper by Duke University’s Campbell Harvey and co-author Claude Erb raised serious questions about most of the arguments in favor of gold as an investment.

But there’s another way to look at gold: As the most liquid reserve in times of turmoil, or worse.

The big story of our era is not that the Spanish government is broke, nor is it that Paul Ryan apparently feels the need to embellish his running record. It’s that the United States, which has dominated the world’s economy for several lifetimes, is in relative decline.

As was first reported here in April of last year, according to International Monetary Fund calculations, the U.S. is on track to lose its status as the world’s biggest economy—when measured in real, purchasing-power terms—to China by 2017.

We will soon be the first people in two hundred years to live in a world not dominated by either Pax Americana or Pax Britannica. This sort of changing of the guard has never been peaceful. The declines of the Spanish, French and British empires were all accompanied by conflict. The decline of British hegemony was a leading cause of the First and Second World Wars.

What will happen as the U.S. loses its pre-eminence?

Maybe this will turn out better than similar episodes in the past. Maybe the Chinese will embrace an open society and the rule of law. If you believe that, there is probably no reason to hold any gold.

On the other hand, we may be about to enter a much more turbulent and dangerous era of power politics and international competition.

Not long ago, world gold reserves were mainly in the hands of the U.S. and the Europeans, which accumulated their holdings during their centuries at the top. The U.S. has 75% of its currency reserves in gold. Many other first world powers have comparable proportions.

But that’s beginning to change. According to the World Gold Council, China, Saudi Arabia and Russia are now in the top five. Western European countries have been selling gold. If the current financial crisis gets any worse, they may yet sell more.

Emerging markets have been buying. In most cases, gold remains a very small percentage of their total reserves. China, despite its recent buying, holds less than 2% of its currency reserves in gold.

But you have to wonder how long emerging countries will want to hold their reserves in any currency that is controlled by someone else. Vladimir Putin clearly doesn’t want to. Gold now accounts for 9% of Russia’s reserves, and that figure is rising.

The gold price has had a shakeout since peaking at around $1,900 an ounce a year ago. It fell as low as $1,566 in June. Since then, it has risen to $1,688.

But that shakeout has been exaggerated by the rally in the U.S. dollar over most of the past year. Put another way: Priced in euros, gold is nearly back to its old high. It’s 1,343 euros per ounce, just shy of the 1,356 euro record set a year ago.

The most common means of buying gold is either in bullion or through an exchange-traded bullion fund such as the SPDR Gold Shares. And maybe that’s sensible.

But you might also take a look at shares in gold-mining companies. They are at, or near, historic lows when compared with the gold price. Contrarians may take that as a buying signal.

The Philadelphia Gold & Silver Index, which tracks the stocks of precious-metal mining companies, stood at 170 on Tuesday—a level first seen five years ago, in September 2007, when gold itself was just $730 an ounce. Relative to gold itself, the Philly index is about 60% below the average levels seen since 1985.

Die-hard gold fans will tell you that the mining stocks involve all sorts of extra risks that you don’t get with the metal. Companies can be mismanaged. Mining costs go up. Countries can wallop miners with windfall taxes.

They’re right on all of the above. On the other hand, the equities are cheap and they do generate cash flow. Barrick Gold (NYSE:ABX) , the world’s biggest, trades at eight times forecast earnings, with a dividend yield of nearly 2%. Newmont (NYSE:NEM)  is trading at 10 times forecast earnings, yielding 2.8%.

As ever, you pays your money and you takes your choice.


August 17, 2012
Gold prices have had a less-than-stellar performance, up less than 3% this year and on track for their smallest yearly percentage gain since 2001, according to data from FactSet. Demand from China and India, the world’s two largest gold consumers, has been “usually weak in recent months,” acknowledges  Ross Strachan, commodities economist at Capital Economics said. “However, we expect another escalation of the euro-zone crisis to spark strong safe haven flows for gold and think Chinese demand will recover. As aresult, we continue to expect the price of gold  GCZ2 -0.12% to rise from around $1,620 per oz. now to $2,000 by the end of this year.,” Strachan said in a note. In a show of confidence for the metal’s prospects, major investors like George Soros and John Paulson have added to their stakes in physically-backed gold exchange-traded funds and central bank buying of gold was strong in the second quarter. But some analysts warned that assumption of further quantitative easing in the U.S. or Europe presents a risk for the gold market. “The market is almost completely dependent upon [quantitative easing] in the near term,” said Brien Lundin, editor of Gold Newsletter. “Because I believe major quantitative easing, or money creation, will be necessary to manage the huge debt load build up in the Western world, I am very bullish on gold for the long term,” he said. “The timing is all that remains in question.” – Myra Saefong


JP Morgan said in a court filing that PFG’s subpoena of the bank may be overly burdensome. Will JP Morgan find a way to get out of it? It looks like they could be off the hook for accusations of silver manipulation. The Financial Times reported US regulators are increasingly likely to drop the four year investigation of silver manipulation, failing to find enough evidence. Bart Chilton, CFTC Commissioner, told a Motley Fool reporter that this FT report is premature and inaccurate. We find out what Chris Powell, co-founder and treasurer of the Gold Anti- Trust Action Committee, thinks. Since 1998 the Gold Anti-Trust Action Committee, GATA, has been exposing, opposing, and litigating against collusion meant to control the price and supply of gold and other precious metals.

GATA has collected and published dozens of documents showing Western treasury and central bank efforts at intervention in metals markets – interventions that occur both openly, as well as surreptitiously, preventing the proper functioning of a free market in gold. Chris Powell, co–founder and treasurer of GATA and Managing Editor of the Journal Inquirer, has come all the way to our DC studio to give us an update on where GATA is in its efforts. Also, the Federal Government is auditing the gold stored at the New York Fed. Are those who have been calling for an audit for years satisfied, or does this miss the point? We talk to Chris Powell about what this audit accomplishes, and if it even begins to scratch the surface, no pun intended. And talking about precious metals, are shares in Wal-Mart as good as gold? Some are suggesting the discount retailer is the new safe haven. What does that mean? Since 40% of Wal-Mart’s revenue is from food stamps, according to one of our guests, should investors go long government subsidies?


Greg Hunter’s

Hard asset expert Tom Cloud has more than three decades of hard asset experience and more than 2,000 high-net-worth clients. Cloud says the rich are putting “45% of their wealth into hard assets” like gold and silver. Cloud says his clients “. . . fear there’s going to be a new currency . . . they know gold will win no matter what.” Cloud’s clients think the dollar’s days are numbered as the “petro currency.” When oil is traded globally in other currencies, Cloud says, “The dollar is going to fall off the table, everybody agrees on that.” Cloud thinks that could happen in less than “18 months.” When the dollar plunges, interest rates will spike, and Cloud predicts, “Bonds are the next killing field of investments.” Cloud is confident, “Gold will double in less than 4 years.” According to Cloud, supplies of physical precious metals are beginning to get tight, “especially silver bars and U.S. Silver Eagles.” Join Greg Hunter as he goes One-on-One with Tom Cloud of


Greg Hunter’s 

Nick Barisheff is an investment pro with a 30 year track record.  He manages more than $500 million in physical gold, silver and platinum.  He has a new book coming out titled “$10,000 Gold: Why Gold’s Inevitable Rise is the Investor’s Safe Haven.”  You think that is an overly bullish prediction?  Not if there is hyperinflation.  Barisheff says, “If we get into hyperinflation, $10,000 will be a conservative estimate.”  How likely is hyperinflation?

According to Mr. Barisheff, “There’s never been a fiat currency that didn’t end in hyperinflation and then complete collapse, not one in all of history.”  He expects gold to hit “$1,900 an ounce by the year end.” Gold prices will rise with U.S. debt levels, and they are skyrocketing.  Barisheff says, “If you plot a chart, the price of gold compared to the U.S. debt is almost a perfect correlation.”  

Join Greg Hunter as he goes One-on-One with the CEO of Bullion Management Group, Nick Barisheff.


-”Printing money is the only answer the central planners have for everything, but it does nothing except buying some time, at a cost of making the problem that much worse. All of this of course is very bullish for gold and silver.” James Turk

-”So eventually people are going to realize they are going to have to have assets which are not subject to devaluation by governments. That’s one of the reasons for about 10,000 years why people have tended to go to gold whenever they didn’t really trust their governments too much.” Don Coxe

-CHART OF THE WEEK: The Dow-Gold Ratio. For some perspective on the long-term performance of the stock market, today’s chart presents the Dow priced in another global currency gold (i.e. the Dow-gold ratio). For example, it currently takes less than a mere 7.5 ounces of gold to ‘buy the Dow’ which is considerably less than the 44.8 ounces it took back in 1999. Priced in gold, the Dow has been in a massive 12-year bear market. The current downtrend channel is the third of this bear market. While this latest channel is the least steep of the three, the Dow priced in gold has just failed to punch through resistance for the fourth time. Read more here-

-Soros Buying Gold as Record Prices Seen on Stimulus. Gold’s 12-year rally, the longest in at least nine decades, is poised to continue in 2013 as central bank stimulus spurs investors from John Paulson to George Soros to accumulate the highest combined bullion holdings ever.

The metal will rise every quarter next year and average $1,925 an ounce in the final three months, or 11 percent more than now, according to the median of 16 analyst estimates compiled by Bloomberg. Paulson & Co. has a $3.66 billion bet through the SPDR Gold Trust, the biggest gold-backed exchange-traded product, and Soros Fund Management LLC increased its holdings by 49 percent in the third quarter, U.S. Securities and Exchange Commission filings show.

Central banks from Europe to China are pledging more steps to boost growth, raising concern about inflation and currency devaluation. Investors bought 247.5 metric tons through ETPs this year, exceeding annual U.S. mine output. While both sides said talks Nov. 16 between President Barack Obama and Congress over the so-called fiscal cliff were “constructive,” the Congressional Budget Office has warned the U.S. risks a recession if spending cuts and tax rises aren’t resolved.

“We see gold as a hedge against the follies of politicians,” said Michael Mullaney, who helps manage $9.5 billion of assets as chief investment officer at Fiduciary Trust in Boston. “It’s a good time to garner some protection in portfolios by having some real asset like gold.” Read more here-

-Brazil Boosts Gold Reserves to the Highest in More Than 11 Years. Brazil raised its gold reserves for a second month in October to the highest level in more than 11 years as emerging nations from Kazakhstan to Russia boosted holdings by more than 40 metric tons. Read more here-

-ScotiaMocatta: ‘We would not be surprised to see gold prices reach $2,200/oz.’ “Given the concern over EU and US debt and the ongoing quantitative easing, we remain bullish for gold,” says ScotiaMocatta in its Precious Metals 2013 Forecast for gold. Read more here-

-Gold Seen by Merrill Lynch Rallying Above $2,000 Next Year. Gold is poised to rise above $2,000 an ounce next year, while lack of clarity on demand outlook and policies in China dim prospects for industrial metals, according to Merrill Lynch Wealth Management, which oversees more than $1.8 trillion for clients. “We are holding gold at the moment,” Bill O’Neill, chief investment officer for Europe, Middle East and Africa, told reporters in London. “We just use it as a form of diversification, a form of catastrophe insurance, but we are actually looking for a move above $2,000.” Read more here-

-Greg Hunter: Interview with Eric Sprott, Central Banks’ Gold Likely Gone. Money manager Eric Sprott says, “The central banks’ gold is likely gone with no realistic chance of getting it back.” Don’t expect this revelation to get any coverage by the mainstream media. In an interview last week, Sprott’s analysis was met with words such as “gold bug” and “conspiracy theory.” Sprott answers that sort of disrespect by saying, “We’ve had so many conspiracies, I don’t know why anyone would think this was unusual.”

To back up his point, he named “LIBOR, electricity markets in California and the Madoff” scandals. Sprott’s analysis shows a “flat supply” and at least a “2,500 ton net increase in gold demand” since 2000. “Where’s all the gold coming from?” asks Sprott. He says Western central banks “keep supplying this market with product in order to keep the price down so nobody knows how vulnerable the situation is.” Sprott, who manages nearly $10 billion in assets, boldly proclaims, “We have a shortage of gold.” Read and watch more here-

-Greg Hunter: Interview with Nick Barisheff, Hyperinflation and Complete Collapse. Asset manager Nick Barisheff says, “There’s never been a fiat currency in history that didn’t end in hyperinflation and complete collapse.” Barisheff thinks that Treasury Secretary Tim Geithner’s most recent call to have an “unlimited debt ceiling” for the U.S. was “just telling the truth.” That’s essentially what we have now with “open-ended” money printing by the Fed. Barisheff adds, “All it’s doing is postponing a problem it makes it bigger and eventually it blows up.”

Forget about remedies for the economy, it’s too late. Barisheff says, “We’ve passed the point of this getting fixed.” Barisheff thinks if the Fed’s gold holdings are ever audited, there will be a “gigantic short-covering rally multiple bankruptcies and a massive loss of confidence” in the dollar because much of the gold is gone or leased out. Barisheff thinks the gold price could be “easily double” right now. That’s because Barisheff believes, “What’s kept the price down is the artificial leased gold going onto the markets.” Read and watch more here-

-John Embry: $67 Trillion Shadow Banking System & $10,000 Gold. Read more here-

-John Embry: Fed’s Move Will Only Fuel