Wealth Inequality Is Not A Problem, It’s A Symptom

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Posted on 19th October 2014 by Administrator in Economy |Politics |Social Issues

From Raúl Ilargi Meijer of The Automatic Earth

Wealth Inequality Is Not A Problem, It’s A Symptom

A comment on an article that comments on a book. I don’t think either provides, for the topic they deal with, the depth it needs and deserves. Not so much a criticism, more a ‘look further, keep digging, and ye shall find more’. And since the topic in question is perhaps the most defining one of our day and age, it seems worth it to me to try and explain.

The article in question is Charles Hugh Smith’s Why Nations (and organizations) Fail: Self-Serving Elites, and the book he references is Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James Robinson.

Charles starts off by saying:

The book neatly summarizes why nations fail in a few lines:

 

(A nation) is poor precisely because it has been ruled by a narrow elite that has organized society for their own benefit at the expense of the vast mass of people. Political power has been narrowly concentrated, and has been used to create great wealth for those who possess it.

The Amazon blurb for the book states that the writers “conclusively show that it is man-made political and economic institutions that underlie economic success (or lack of it)”, and continues with examples used such as ancient Rome, North Korea, Zimbabwe, the Congo, to make the point that some countries get rich and others don’t, because of differences in leadership structures. That in itself certainly seems true, but that doesn’t necessarily make it the whole story.

In the case of the Congo, for instance, the perhaps richest place on earth when it comes to resources, there’s not only the devastating history it’s had to endure with incredibly cruel Belgian colonial powers, there’s to this day a lot of western involvement aimed at keeping the region off balance, and feed different tribes and peoples with weaponry up the wazoo, in order to allow the west to keep plundering it. It’s not just about national goings-on, it’s – also – a supra-national thing.

That’s one of two shortcomings in the material, the breadth and width of why nations and organizations fail their people but serve their masters. In the present day, national boundaries, whether they are physical or merely legal/political, are not the best yardsticks anymore by which to measure and gauge events.

The second shortcoming, in my view, is that inequality, a theme so popular that even Janet Yellen addressed it this week in what can only be seen as her worst possible impression of Marie Antoinette, and expressed her ‘worry’ about wealth inequality in America. The very person publicly responsible for that inequality thinks it’s ‘just awful’. Go bake a cake, gramps.

Wealth inequality is but a symptom of what goes on. Charles Hugh Smith has a few graphs depicting just how bad wealth inequality has become in the US. We all know those by now. It’s bad indeed. But where does that come from? Charles touches on it, but still hits a foul ball:

I submit that this dynamic of failure – the concentrated power and wealth of self-serving elites – is scale-invariant, meaning that it is equally true of communities, towns, cities, states, nations and empires alike: all fail when they’re run for the benefit of a narrow elite. There is a bitter irony in the ease with which American pundits discern this dynamic in developing-world kleptocracies while ignoring the same dynamic in America.

 

One would imagine it would be easier to see the elites-inevitably-cause-failure in one’s home country, but the pundits by and large are members of the Clerisy Upper Caste, well-paid functionaries, apparatchiks, lackeys, factotums, toadies, sycophants and apologists for the very elites that are leading America down the path of systemic failure as the ontological consequence of their self-serving consolidation of wealth and power.

Here’s the thing: especially after WWII, though before that already as well, the western world woke up to the need for international co-operation. Dozens of organizations were established to structure that co-operation. But then, in yet another fountain of unintended consequences, something man is better at than just about anything else, we let those organizations loose upon the world without ever asking what happened to what they were intended for, or whether the original grounds for founding them still existed, and whether they should perhaps be abolished or put on a tight leash.

These are questions that should be asked about any large-scale organization. Be they multinational corporations, global banks, Google or indeed the United States of America. We can’t just assume these powers, which gather more power as time goes by, share and serve the purposes of the people. What if they gradually come to serve only their own purpose, and it contradicts that of the people? Should we not get that leash out?

Turns out, we never do. If someone would suggest today to break up the USA, because its present status contradicts that which the Founding Fathers had in mind (and there are plenty of arguments to be made that such contradictions exist in plain view), (s)he would not even be sent to a nuthouse, because no-one would take him/her serious enough to do so.

But wealth inequality still rises rapidly within America, and it doesn’t serve the people. So why does it happen, and why do we let it? Because the inequality that matters most is not wealth, but power. And we’ve been made to believe that we still have that power, but we don’t. Voting in elections has the same function today as singing around a Christmas tree: everyone feels a strong emotional connection, but it’s all just become one giant TV commercial.

Even if families are genuinely happy to meet up and exchange gifts and stories, it’s all modeled after the building blocks handed to us by chain stores. It isn’t really our story anymore, and Jesus certainly wasn’t born in a manger: he was born in a MacMansion and the first thing the child saw was his mom’s fake boobs, a wall-sized TV and an iPhone.

In that same vein, we lost the stories bitterly fought and suffered for by our grandparents through two world wars and the brutal invasions of Vietnam and Iraq, the stories of how we can best keep ourselves safe and out of – international – trouble. Not just military trouble, but economic and political trouble. These things are no longer our decision. We founded supra-national, indeed global, institutions for that. And then let them slip out of our sight.

The US is a bit of an outlier here, simply because it’s older. But the IMF, the World Bank, UN, NATO and the EU absolutely all fit the picture of organizations that have – happily – grown beyond our range of view, and that exhibit the exact same inverted pyramid characteristics we see on wealth inequality, only for these organizations it’s not wealth that floats and concentrates increasingly from the bottom to the top, it’s power.

Wealth comes after that. And one shouldn’t confuse that order. Because power buys wealth infinitely faster than wealth buys power.

All these supra-national institutions were established with good intentions – at least from some of the founders. But then we forgot, ignored, to check on them, and they accumulated ever more power when we weren’t watching (we were watching TV, remember?)

And what we see now is that any effort, any at all, to break up the IMF, World Bank, UN, NATO and EU would be met with the same derision that an effort to break up the USA would be met with. We have built, in true sorcerer’s apprentice or Frankenstein fashion, entities that we cannot control. And they have taken over our lives. They serve the interests of elites, not of the people. So why do we let them continue to exist?

What powers do we have left when it comes to bailing out banks, invading countries, making sure our young people have jobs when they leave school? We have none. We lost the decision making power along the way, and we’re not getting it back unless we quit watching the tube (or the plasma) and fight for it. Until we do, power will keep floating to the top like so much excrement; it’s a law of – human – nature.

That the people we voluntarily endow with such control over our lives would also use that control to enrich themselves, is so obvious it barely requires mentioning. But that doesn’t mean this is about wealth inequality, that’s not the main issue, in fact it’s not much more than an afterthought. It’s about the power we have over our lives. Or rather, the power we don’t have.

Ebola Travel Ban Now!

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Posted on 19th October 2014 by Administrator in Economy |Politics |Social Issues

Ebola Travel Ban - Public DomainIs Barack Obama completely insane?  By not instituting an immediate ban on all non-essential travel between the United States and West Africa, he is putting the lives of more than 300 million Americans at risk.  Anyone with a shred of common sense knows that you keep more people from getting sick by keeping the sick people away from the healthy people.  Because the Ebola outbreaks in Liberia, Guinea and Sierra Leone are raging out of control, it is extremely difficult to tell who is carrying Ebola and who is not carrying Ebola.  Therefore we need to keep everyone from those countries away until those outbreaks subside.  If Barack Obama had established an Ebola travel ban a month or two ago like he should have done, Thomas Eric Duncan would never have entered the United States, and we would not have two Texas nurses infected with the virus.  But because Barack Obama did not do his job, now we have a new Ebola scare popping up somewhere in the country almost hourly.  If this outbreak eventually evolves into a full-blown pandemic, we will know who to blame.

Will an Ebola travel ban work?

It has worked in Africa.  Even as the outbreaks in Liberia, Guinea and Sierra Leone have spread like wildfire, the nations immediately bordering them are doing just fine.  And there is one primary reason why this is the case…

Ivory Coast, Guinea-Bissau and Senegal, all of which share borders with at least one of the three most affected countries, have closed those borders.

At this point, nearly 30 countries have instituted an Ebola travel ban.

So why won’t Obama do it?

This is clearly what the American people want.  For example, one recent survey asked the following question…

Should the government allow people who have recently been in any of the countries in western Africa where there is a major Ebola outbreak to enter the United States?

Only 23 percent of respondents said yes to that question.

We aren’t talking about the flu or the measles or some other disease that we are accustomed to dealing with.

We are talking about a brutally efficient killer that could kill millions of us if it were to spread widely inside the United States.

Sadly, at this point Barack Obama and the CDC are dead set against a travel ban, and there are “experts” popping up all over the mainstream media explaining to us why an Ebola travel ban would be a bad idea.

They say that a travel ban would provide a “false sense of security”.

Of course they never mention that travel bans are working quite well in Africa.

They say that a travel ban would make the Ebola outbreaks worse by keeping people from going over there to help.

But very few people are suggesting that essential medical personnel should be banned from traveling.  So that argument makes no sense whatsoever.

They say that travelers would just find another way into this country, and that it is better for us to be able to screen them when they come through the airports.

What are they going to do?  Swim over here from West Africa?

If we ban all sea and air travel from those nations, the only way that they would be able to come in would be through the Canadian or Mexican borders.  And if Obama had secured those borders like he should have done by now, we wouldn’t have a problem.

Some “experts” are even suggesting that a travel ban would be “racist”.

Really?

What about all of the other African nations that have instituted Ebola travel bans?

Are they “racist” too?

Right now, the dead bodies of Ebola victims are decaying in the streets over in West Africa.  Ebola corpses are being dumped into rivers and are being eaten by animals.  Grave diggers can’t keep up with the number of bodies being delivered to them.  The Liberian government estimates that it will soon need more than 84,000 additional body bags as the death toll climbs at an exponential rate.

We don’t want that coming here.

But thanks to Obama, most Americans now believe that we will see a major Ebola outbreak in the United States during the coming year…

According to a Wednesday poll by the Harvard School of Public Health, 52 percent of Americans surveyed said they believe the country will experience a large outbreak in the coming year, while 38 percent said they believed they or a family member would be infected.

In a previous article, I blamed the current state of affairs on Obama’s incompetence.

But to be honest, I was giving him the benefit of the doubt.

The truth is that Obama being incompetent is the best case scenario.

There is also a possibility that Donald Trump has raised.  We could actually be looking at a situation where there is something wrong with his mental health

Thursday on NewsMax TV’s “The Steve Malzberg Show,” real estate mogul Donald Trump called into question President Barack Obama mental health for refusing enact a travel ban on commercial flights from West African nations suffering with the Ebola outbreak.

When Malzberg asked if Trump, who had tweeted that the president was “psycho” for not stopping the flights, stands by questioning Obama’s mental health, Trump doubled down saying, “There is something wrong, and nobody knows what it is, but there is something wrong. There are so many bad decision. Can anybody be that incompetent? There is something wrong.”

Others have suggested that Obama may even be doing this on purpose.

Whatever his motivation is, the truth is that he is endangering all of us and our families.

Meanwhile, the CDC also richly deserves all of the criticism that it is currently getting.

This is an agency that is absolutely showered with money.  It gets more than $6,000,000,000 a year, and it is supposed to be preparing our health care system for events such as this.

And without a doubt, the money is in their budget

This lack of response is despite having these line items in its budget (2012 numbers):

  • Quarantine (non-add) $25,866,000
  • Healthcare-Associated Infections – PPHF (non-add) $11,750,000
  • Workplace Wellness – PPHF $10,000,000
  • Surveillance, Epidemiology, and PH Informatics $262,129,000
  • Personal Protective Technology $16,791,000
  • State and Local Preparedness and Response Capability $657,418,000
  • Public Health and Social Services Emergency Fund Transfer (non-add) $30,000,000

How much of these funds were used to monitor, consult, advice the nurses in Dallas who were treating a man with deadly Ebola? $0.00

“Incompetent” is far too kind a word to describe the performance of the CDC so far.

But of course this is just par for the course for federal agencies these days.  This has become so glaringly obvious that even CNBC is talking about it…

The CDC is just the latest in a line of federal agencies viewed as bumbling and incompetent. First it was the botched rollout of Obamacare by the Department of Health and Human Services and the IRS seemingly targeting conservative groups for extra scrutiny. More recently, the Secret Service came under heavy criticism for allowing a knife-wielding intruder to burst in and run wild inside the White House, among other appalling lapses.

The CDC now is under heavy scrutiny for not moving more swiftly to ensure that Ebola patient Thomas Eric Duncan did not spread the disease to American nurses and for apparently unclear direction to one of those nurses, Amber Joy Vinson, about whether she could fly after treating Duncan.

As political pressure has mounted, Obama has finally made a “big move” to get a grip on this crisis.

He has appointed an “Ebola czar” to oversee the federal response to Ebola.

His name is Ron Klain, and he is a Democratic political hack best known for his work during the “hanging chads” episode of the 2000 presidential election.

The White House says that they were not looking for an expert on Ebola.

Mission accomplished.

The “Ebola czar” heading up the response to what could be the greatest health crisis in U.S. history does not know anything about the virus.

Let us hope that this Ebola outbreak fizzles out somehow and that by some miracle no more Ebola victims travel to the United States.

Because it has become exceedingly clear that our government is not equipped to deal with something like this.

Matt Drudge recently sent out a tweet warning that we need to be ready to “self-quarantine” if necessary.

I think that is very good advice.  Obviously the government is not going to be able to protect us if Ebola starts spreading like wildfire.

The only people that you are going to be able to depend on are yourself, your family and your close friends.

I encourage all of you to get prepared while we still have time.

Calling Into Question

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Posted on 16th October 2014 by Administrator in Economy |Politics |Social Issues

Outside the Box: Calling Into Question

By John Mauldin

 

A note has been circulating among economists, calling into question the wisdom of another group of economists who wrote an open letter to the Federal Reserve a few years ago suggesting that one of the risks of their quantitative easing program was increased inflation. Since we have not seen CPI inflation, this latter group is calling upon the former to admit they were wrong, that quantitative easing does not in fact cause inflation. To no one’s surprise, Paul Krugman has written rather nastily and arrogantly about the lack of CPI inflation.

Cliff Asness has responded with a thoughtful letter, with his usual tinge of humor, pointing out that there has been inflation, it just hasn’t been in the CPI. We’ve seen it in assets instead. That money did go someplace, and it has disrupted markets. So why is Cliff’s letter a candidate for Outside the Box, when the markets seem to be bouncing all over heck and gone?

Because, come the next crisis, there is going to be another move for yet another round of massive quantitative easing. And the justification will be that increases in the money supply clearly don’t have much to do with inflation.

I should note that while I did not agree with the original letter (I thought we were in an overall deflationary environment, and I wrote that the central banks of the world would be able to print more money than any of us could possibly imagine and still not trigger inflation – views came in for considerable pushback), my reasons for believing QE2 and QE3 were problematic dealt with other unintended consequences. And ultimately, as global debt gets restructured (which will take many years) inflation will become a problem. Did you notice how Greek debt spreads blew out yesterday? It’s not just about oil. And trust me, France is going to be the new Greece before we know it. The people who think they can control markets and direct investors like sheep are going to be in for a huge surprise, but the nightmare is going to be visited upon the participants in the market.

We then move to a few thoughts from Peter Boockvar, in a letter he writes to savers, noting that the same people who brought you quantitative easing are also responsible for the demise of any income that might possibly have come from saving.

I wish I had good advice for your savings, but I can’t advise buying stocks that have only been more expensive in 2000 on some key metrics right before you know what, and I can’t recommend buying any long term bond as the yields also stink relative to inflation. With the Fed now saying that the dollars in your pocket are now worth too much relative to money in people’s pockets overseas and thus joining the global FX war, maybe you should buy some gold, but I know that yields nothing either. You are the sacrificial lamb in this grand experiment conducted by the unelected officials working at some building named Eccles who seem to have little faith in the ability of the US economy to thrive on its own as it did for most of its 238 years of existence. Borrowers and debt are their only friends. To you responsible saver that worked hard your whole life, may you again rest in peace.

And then we finish with some thoughts from our friend Ben Hunt, who takes exception to being told how to think and believe and act by “those smart people with degrees” who only want to do what’s best for us. Not just in economics but with regard to ISIS and Ebola and everything else. After reading Ben’s essay I called him and said, “Me too!”

I am tired of being manipulated, placated, spin-lied to (if it’s not a word it should be), mutilated, spindled, and folded.

We have to keep our eyes open and entertain the possibility that central banks will “lose the narrative,” that is, their ability to control markets with simple statements. The BIS recently had this to say:

Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” [at] the first sign of stress.

Mr. Debelle said the markets may at any time start to question whether the global authorities have matters under control, or whether their pledge to hold down rates through forward guidance can be believed. “I find it somewhat surprising that the market is willing to accept the central banks at their word, and not think so much for themselves,” he said. [Source: Ambrose Evans-Pritchard, “BIS warns on 'violent' reversal of global markets”]

The 10-year US Treasury slipped below 2% earlier today, but has rebounded somewhat to 2.06% as I write. Oddly, the yen seems to be strengthening slightly as the stock markets once again fall out of bed. Oil continues to weaken. As noted above, Greeks spreads are blowing out. Super Mario needs to get on his bike and start peddling before that concern spreads to other nations almost as insolvent. France will soon be downgraded again. Don’t you just love October?

What an interesting time to hold a midterm election. Have a great week!

Your really thinking through the implications of a stronger dollar analyst,

John Mauldin, Editor
Outside the Box
[email protected]

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The Inflation Imputation

By Cliff Asness, AQR Capital Management LLC

In 2010, I co-signed an open letter warning that the Fed’s experiment with an unprecedented level of loose monetary policy – in amount, and in unorthodox method – created a risk of serious inflation. Sporadically journalists and others have noted that this risk has not come to pass, particularly in consumer prices. Recently there has been an article surveying each of us as to why; seeming to relish in, when provided, our various rationales, presumably as they sounded like excuses. It seems none of the responses provided what the authors clearly wanted, a blanket admission of error. I did not comment for that article, continuing my life long attempt not to help reporters who’ve already made up their mind to make fun of me – I help them enough through my everyday actions, they don’t need more!

More articles of similar bent keep showing up. The authors seem to find it amusing that four years of CPI data wouldn’t get people to change their economic views, while ignoring that 80 years of overwhelming evidence has not dissuaded Keynesians from the belief that this time, if they could only run everything, not just most things, they’d really get it right.

Focusing my attention, as was predestined, Paul Krugman lived up to his lifelong motto of “stay classy” with a piece on the subject entitled Knaves, Fools, and Quantitative Easing. Some lesser lights of the Keynesian firmament have also jumped in (collectivists, of course, excel at sharing a meme). Responding to Krugman is as productive as smacking a skunk with a tennis racket. But, sometimes, like many unpleasant tasks, it’s necessary. I will, at least partially, make that error here, while mostly trying to deal with the original issue separate from Paul’s screeds (though one wonders if CPI inflation had risen in the last four years if Paul would be admitting his entire economic framework was wrong – ok, one doesn’t really wonder – and those things never happen to Paul anyway, just ask him).

Let me say up front that this essay will satisfy nobody. Those looking for a blanket admission of error will get part of what they want; a small part. Those hoping I hold the line denying any misstep will also be disappointed. I believe truth, as is often the case in similar situations, lies in the middle of these and I prefer truth, as I see it, to any reader walking away sated.

We indeed warned about the risks of inflation in 2010 and the CPI has been, to put it mildly, benign since then. First, to give the baying crowd just a bit of what it wants (I will take some of it back soon), our bad (I say “our” but obviously I speak only for myself). When you warn of a risk and it doesn’t come to pass I do think you owe the world this admission, even if you later explain what it means to warn of a risk not a certainty, and offer good reasons why despite reasonable worry this particular risk didn’t come to pass. I, and many other signatories, live in the world of economic or political prognostication, in my case money management, where if you get a bit more than half your calls right you are doing quite well, more than a bit more than half, you’re doing fabulously. I’ll put our collective record up against Krugman’s (and the Krug-Tone back-up dancers) any day of the week and twice on days he publishes.

Let’s start with the big one. We did not make a prediction, something we certainly know how to do and have collectively done many times. We warned of a risk. That’s a very specific choice people like the open letter writers, and Paul, have to make all the time, and he knows this, but that doesn’t deter him. Rather, Paul engages in the old debating trick of mentioning this argument himself and dismissing it. This technique worked for Eminem at the end of Eight Mile. But let’s not be fooled by chicanery (silly Paul, you are no Rabbit). If I had wanted to make a prediction, I would have made one. I didn’t, nor did my fellow signatories. Frankly, if there are any economists, aside from those never-uncertain-but-usually-wrong like Paul, who did not think such unprecedented Fed action represented at least a heightened risk, I think it was malpractice on their part. An honest Paul Krugman (we will use this term again below but this is something called a “counter-factual”) would have agreed with our letter but qualified that while heightened, he still didn’t think this risk would come to fruition and that he thought it was a risk worth running. Still, I will give the critics half credit here, accept half blame, and issue a demi mea culpa. By writing the letter we clearly thought this risk was higher than others did, and wished to stress it, and it has not (as most commonly measured) as of now come to bear. Our, and my, (half) bad. I hope that makes the critics (half) happy and they can stop copying each other’s articles over and over again.

Of course being able to call out risks, not just make firm predictions, is quite important. If you believe the risk of an earthquake is 10 times normal, but 10 times normal is still not a high probability, it’s rational to warn of this risk, even if the chance such devastation occurs is still low and you’ll look foolish to some when it, in all likelihood, doesn’t happen. If you can’t point out risks you are left with either silence as an option, or overly and falsely self-confident forecasts. Perhaps the latter may work for former economists turned partisan pundits but the rest of us will have to live with the ex ante and ex post ambiguity of discussing risks. It’s a real subtlety but I think there is truth somewhere in between the current attack meme of “you predicted inflation risk and were wrong and are now hiding behind the word ‘risk’“ and “we only said it was a risk so we cannot be wrong.” I think when you boldly forecast a risk you are saying more than “this might happen but either way I can’t be blamed” and something less than “this will happen and I stake my reputation on it.” We should all be mature enough to know the difference, but apparently that ship has sailed…

Not surprisingly, the above stress on risk jibes with my personal view of monetary policy, one that might not be shared by all my co-signatories. I tend to think it matters less than most think, and matters less often than most think. I tend to view it, for finance fans, in a “Modigliani Miller” (MM) framework, where most corporate financing transactions are paper-for-paper, mattering little. But, in the MM framework bankruptcy costs do matter. Therefore most corporate capital structure decisions are irrelevant, except to the extent they increase the chance of serious financial distress, in which everyone but the lawyers lose (in many models this risk must be balanced against the tax advantages of debt).

From this perspective, slight adjustments to the target Fed funds rate based on exquisitely sensitive perceptions of the probability of economic overheating or slowdown probably make little difference (and don’t even start me on the dots), but deflation or excessive inflation are important to avoid as their damage can be great. They are the bankruptcy costs of monetary policy. Thus, I think sounding the alarm, not making a prediction, that experimental and aggressive monetary policy raised one of these risks was appropriate. But, still, I think most people engaged on the topic spend a lot of time talking about monetary policy in the same way dogs spend a lot of time talking, yes in their secret dog language, about the cars they chase. The cars aren’t affected and generally don’t care.

Now, if you thought the above was an excuse on par with, continuing my canine fixation, “the dog ate my inflation,” and not the demi mea culpa I intended, you’re really going to hate the full blown non-conciliatory excuses about to come.

Economically, I think what everyone of any political or economic stripe missed, certainly including myself, was how little money would circulate, how little would be lent and then spent. In econo-geek, how low the money multiplier would be. Money kept by banks at low but positive interest rates at the Fed clearly isn’t doing much of anything, creating inflation as we feared, or helping the economy as they hoped. To the extent inflation worriers like us were wrong, so were those predicting great economic benefits. The Fed clearly wanted this money lent by banks and spent by companies on investment and by people on consumption. They didn’t get that, and we didn’t get the inflation we feared. This is not to say that low interest rates, real and nominal, and high prices for risky assets (and the supposed “wealth effect” that comes with them) were not Fed goals. They clearly were. But it seems these intermediate goals have not had their desired effect on the real economy.

Quantitative easing (QE) and other inventive forms of loose monetary policy have simply been less than hoped or feared. Some may declare Fed policy a great success as we’re not in a depression, but they can’t show any counter-factual, and given that this money has largely sat dormant, albeit presumably lowering risk premia (raising asset prices), it’s likely we’d have a similar record-weak recovery with or without it. How this is a victory for one side of the debate or another is beyond me, but obviously clear to Paul and his back-up singers. Of course, it’s also clear to Paul that the 2009 stimulus package saved us from this same second Great Depression (but more stimulus would of course have been much better). Yep, and if we traded good cash for just one more “clunker” we’d be growing at 5% per annum by now with a normal labor participation rate.

By-the-way, ignored in the critics’ review of the original letter was the line, “In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program…” On this I’m unapologetic. We were right, we’re still right, and thanks to people like Paul we’ve moved in the wrong direction. But that’s a fight for another day.

In a field without a broad set of counter-factuals we all stick too much to our priors and ideologies, and perhaps I’m doing that now. But at least I see it, and that’s always step one. Paul is stuck on step zero (if he ever gets up to “making amends” I will be around but given his history he might never get to me). But, if you’d like to advance past step zero, Paul, we’re still waiting on why Keynesianism failed to fix the Great Depression (no doubt not quite enough stimulus; just one more Hoover Dam would have done it, or, as they called it back then, “Dams for Clunkers”), strongly predicted a deep post-WWII depression, didn’t predict stagflation, and generally was on a the downward spiral to the intellectual dustbin until the great recession resuscitated it, not as a workable intellectual doctrine, but as an excuse for politicians to spend on their constituents and causes.

Also remember, much like when the Germans bombed Pearl Harbor, nothing is over yet. The Fed has not undone its extraordinary loose monetary policy and is just now stopping its direct QE purchases. When monetary policy is back to historic norms, and economic growth is once again strong, a normal number of people are seeking and getting jobs, and inflation has not reared its head, I think we can close the books on this one, still recognizing that forecasting a risk and having it fail to come to bear is not a cardinal sin. But which one of those things has happened yet? Paul, and others, should by now know the folly of declaring victory too early.

At the risk of enraging a whole different group (I promise I’m not denying anything I’m just making an analogy, and one I know is very far from dead on) I’m amazed that a Paul Krugman can look at 15+ years of the earth not warming and feel his beliefs need no modification or explanation, but 4 years of the CPI not inflating is reason not simply to declare victory, but to decry those who disagree with him as “Knaves and Fools.” In fact, rather than also anger Mr. Gore and Steyer, I hope they find this paragraph supportive as I’m saying these debates are rarely settled in either direction in short time frames. Now, if I were cheekier (cheek is not denial!) I’d ask if perhaps our letter was right and the inflation we predicted is in fact occurring in the depths of the ocean? Or, maybe we should ex post relabel our letter a warning of the risk of “extreme price action” including of course the extreme stability we have experienced in CPI these last few years.

Now, while not pointing to the actual ocean it is fascinating where inflation has shown up. Don’t limit your view of inflation to the CPI. No, this isn’t a screed where I claim to have invented my own consumption basket showing inflation is rising at 25% per annum – though some of those screeds are interesting. It’s the far simpler observation that we have indeed observed tremendous inflation in asset prices since this experiment began (of course this was part of the Fed’s intent – but it was meant to stoke real activity not an end unto itself!). Stocks, the spreads on high yield bonds, real estate, you name it. Inflation is hard enough to forecast, but where it lands is even harder. If one counts asset inflation it seems we’ve indeed had tremendous inflation. While admittedly difficult to prove, as is any of this if we’re being honest as economics rarely offers proofs, you’d be hard pressed to find many economists or Wall Street professionals who don’t see current extremely high asset prices, and low forward looking returns to investors, as at least a partial consequence of the cocktail of QE, loose monetary policy, and financial repression. I understand Paul and others wanting to avoid this as not only does it show that they have no right to crow on inflation, but that the policies they advocate, and we decried, have had little effect on the economy but instead have, at least partially intentionally, exacerbated the inequality Paul spends the other half of his columns excoriating (while of course living himself off the global median income in protest and solidarity).

By-the-way, again the critics somehow manage to skip another prescient forecast in this same short open letter. We explicitly worried that the Fed’s policies “will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.” That’s econo-geek for “will drive financial market prices up and prospective returns down, and create financial instability when the Fed tries to stop.” Again, while this would perhaps not surprise the Fed, which actively desired low interest rates and a “wealth effect,” it seems that a fair reading shows that this much maligned letter wasn’t as wrong as the critics say, and was very right in ways the critics ignore.

Moving on, please recall that many, not all, supporters of QE and very loose monetary policy in general, did so exactly because they thought it would create some inflation, and they thought (and many still think) that’s what the economy needs. We, we the letter signers, are responsible for our own forecasts, but you might forgive us a bit for taking the other side at their word!

Bottom line, the half mea culpa above was not a throw away. When you go out of your way to warn of a risk and after a suitable period that risk has not come to bear, at least where everyone, including you, expected it, you should admit some error, and I do. But there is a still a big difference between pointing out a risk and making a forecast (hence the half admission!). A big reason this risk hasn’t come to fruition is, while not as dangerous so far as we thought, it appears QE was only mostly useless. To the extent even that is only mostly true, where effects did show up, it actually caused rather a lot of inflation, but inflation that went straight into the pockets of those who needed it least and whom Paul wouldn’t swerve his car to avoid. That is, it inflated financial assets, benefited the rich, and enhanced inequality.

So, to those who’ve been waiting for one of us to say it, you can have half the mea culpa you clearly want, but mostly Paul is wrong, and twisting the facts, and doing so as rudely and crassly as possible, yet again. The rest of the JV team of Keynesians who have also jumped on board are doing the same thing, just with more class and less entertainment value than the master.

Now for a real prediction: Paul will continue to be mostly wrong, mostly dishonest about it, incredibly rude, and in a crass class by himself (admittedly I attempt these heights sometimes but sadly fall far short). That is a prediction I’m willing to make over any horizon, offering considerable odds, and with no sneaky forecasts of merely “heightened risks.” Any takers?

Cliff Asness is Founding and Managing Principal of AQR Capital Management, LLC

 

Dear Saver, May You RIP

By Peter Boockvar, The Lindsey Group LLC

Dear Saver,

To the forgotten and misunderstood soul, may you rest in peace. There just seems that nothing can save you now. You were bloody and battered after the stock market bubble crashed in 2001 and 2002. Afterward, you stuck with stocks but also decided to play it safe in real estate. That was ok for a few years but your stock portfolio fell again by 50% and while you have a great new kitchen and wood paneled library, the value of your house is now worth much less than your mortgage. I know, renting can be so much easier! But some guy named Greenspan said something about a wealth effect.

Finally you said enough is enough. You wanted a safe, conservative place for your savings where living off fixed income of mostly CD’s and bonds was possible. Maybe you’d buy an occasional stock again but maybe not. You called your local branch banker and were told that for the privilege of being a Platinum Honors client that you would be able to secure a better rate on a money market savings account. Nice! You were told that you’d be able to get .10%, more than triple the standard rate of .03% that the average person gets! Disgusted, you went online and saw this great add on the Bank of America website, it said “With a Featured CD I can earn a fixed rate on my nest egg.” Sounds enticing until you scrolled down the page and saw it paid .08% for a fixed 12 month term. It had to be a typo but unfortunately it was not.

Questioning now how you can ever retire on your savings after working hard for the past 40 years, you decided to find out who can possibly be responsible for these pathetic yields when you know your cost of living is rising well above the 1.5-2% that these statisticians at the government keep telling you. You ask what an hedonic adjustment is? Don’t worry about it because the purchasing power of your money relative to inflation has been declining day after day for at least 6 years now. This is madness you say. I agree.

You started to read the papers and watched the news and learned that the men and women that work at the Federal Reserve, mostly economists who call themselves central bankers, sit around a large table and decide what the right interest rate should be. Ok you say, they are smart, they have models created by people that likely did really well on their SAT’s, they know what they’re doing and this can’t last. Well, I’m sorry to say to you, we’re 6 years into zero interest rates and these people have no intention of ever saving your savings. You’re screwed and even though they say it’s in your best interest because zero rates and money printing will help the economy, don’t believe them anymore because the strategy has failed. After all, If these policies actually worked, I wouldn’t be writing this letter to you.

I wish I had good advice for your savings but I can’t advise buying stocks that have only been more expensive in 2000 on some key metrics right before you know what and I can’t recommend buying any long term bond as the yields also stink relative to inflation. With the Fed now saying that the dollars in your pocket are now worth too much relative to money in people’s pockets overseas and thus joining the global FX war maybe you should buy some gold but I know that yields nothing either. You are the sacrificial lamb in this grand experiment conducted by the unelected officials working at some building named Eccles who seem to have little faith in the ability of the US economy to thrive on its own as it did for most of its 238 years of existence. Borrowers and debt are their only friends. To you responsible saver that worked hard your whole life, may you again rest in peace.

Sincerely yours,

Peter Boockvar
Managing Director
Chief Market Analyst
The Lindsey Group LLC

 

Calvin the Super Genius

By Ben Hunt, Ph.D., Salient

People think it must be fun to be a super genius, but they don’t realize how hard it is to put up with all the idiots in the world.  – Bill Watterson, “Calvin and Hobbes”

Here is the most fundamental idea behind game theory, the one concept you MUST understand to be an effective game player. Ready?

You are not a super genius, and we are not idiots.  The people you are playing with and against are just as smart as you are. Not smarter. But just as smart.  If you think that you are seeing more deeply into a repeated-play strategic interaction (a game!) than we are, you are wrong. And ultimately it will cost you dearly.  But if there is a mutually acceptable decision point – one that both you and we can agree upon, full in the knowledge that you know that we know that you know what’s going on – that’s an equilibrium. And that’s a decision or outcome or policy that’s built to last.

Fair warning, this is an “Angry Ben” email, brought on by the US government’s “communication policy” on Ebola, which is a mirror image of the US government’s “communication policy” on markets and monetary policy, which is a mirror image of the US government’s “communication policy” on ISIS and foreign policy. We are being told what to think about Ebola and QE and ISIS. Not by some heavy-handed pronouncement as you might find in North Korea or some Soviet-era Ministry, but in the kinder gentler modern way, by a Wise Man or Woman of Science who delivers words carefully chosen for their effect in constructing social expectations and behaviors.

The words are not lies. But they’re only not-lies because if they were found to be lies that would be counterproductive to the social policy goals, not because there’s any fundamental objection to lying. The words are chosen for their  truthiness, to use Stephen Colbert’s wonderful term, not their truthfulness. The words are chosen in order to influence us as manipulable objects, not to inform us as autonomous subjects.

It’s always for the best of intentions. It’s always to prevent a panic or to maintain confidence or to maintain social stability. All good and noble ends. But it’s never a stable equilibrium. It’s never a lasting legislative or regulatory peace. The policy always crumbles in Emperor’s New Clothes fashion because we-the-people or we-the-market have not been brought along to make a self-interested, committed decision.Instead the Powers That Be – whether that’s the Fed or the CDC or the White House – take the quick and easy path of selling us a strategy as if they were selling us a bar of soap.

This is what very smart people do when they are, as the Brits would say, too clever by half. This is why very smart people are, as often as not, poor game players. It’s why there aren’t many academics on the pro poker tour. It’s why there haven’t been many law professors in the Oval Office. This isn’t a Democrat vs. Republican thing. This isn’t a US vs. Europe thing. It’s a mass society + technology thing. It’s a class thing. And it’s very much the defining characteristic of the Golden Age of the Central Banker.

Am I personally worried about an Ebola outbreak in the US? On balance … no, not at all. But don’t tell me that I’m an idiot if I have questions about the sufficiency of the social policies being implemented to prevent that outbreak. And make no mistake, that’s EXACTLY what I have been told by CDC Directors and Dr. Gupta and the White House and all the rest of the super genius, supercilious, remain-calm crew.

I am calm. I understand that a victim must be symptomatic to be contagious. But I also understand that one man’s symptomatic is another man’s “I’m fine”, and questioning a self-reporting immigration and quarantine regime does not make me a know-nothing isolationist.

I am calm. I understand that the virus is not airborne but is transmitted by “bodily fluids”. But I also understand why Rule #1 for journalists in West Africa is pretty simple: Touch No One, and questioning the wisdom of sitting next to a sick stranger on a flight originating from, say, Brussels does not make me a Howard Hughes-esque nutjob.

I am calm. I understand that the US public health and acute care infrastructure is light years ahead of what’s available in Liberia or Nigeria. I understand that Presbyterian Hospital in Dallas is not just one of the best health care facilities in Texas, but one of the best hospitals in the world. But I also understand that we are all creatures of our standard operating procedures, and what’s second nature in a hot zone will be slow to catch on in the Birmingham, Alabama ER where my father worked for 30 years.

The mistake made by our modern leaders – in every public sphere! – is to believe that they are operating on a deeper, smarter, more far-seeing level of game-playing than we are. I’ve got a long example of the levels of decision-making in the Epsilon Theory note “A Game of Sentiment“, so I won’t repeat all that here. The basic idea, though, is that by announcing a consensus based on the Narrative authority of Science our leaders believe they are stacking the deck for each of us to buy into that consensus as our individual first-level decision. This can be quite effective when you’re promoting a brand of toothpaste, where it is impossible to be proven wrong in your consensus claims, much less so when you’re promoting a social policy, where all it takes is one sick nurse to make the entire linguistic effort seem staged and for effect … which of course it was. The fact that we go along with a game – that we act AS IF we believe in the Common Knowledge of an announced consensus – does NOT mean that we have accepted the party line in our heart of hearts. It does NOT mean that we are myopic game-players, unerringly led this way or that by the oh-so-clever words of the Missionaries. But that’s how it’s been taken, to terrible effect.

I am calm. But I am angry, too. It doesn’t have to be this way … this consensus-by-fiat style of policy leadership where we are always only one counter-factual reveal – the sick nurse or the sick economy – away from a breakdown in market or governmental confidence. I am angry that we have been consistently misjudged and underestimated, treated as children to be “educated” rather than as citizens to be trusted. I am angry that our most important political institutions have sacrificed their most important asset – not their credibility, but their authenticity – on the altar of political expediency, all in a misconceived notion of what it means to lead.

And yet here we are. On the precipice of that breakdown in confidence. A cold wind of change is starting to blow. Can you feel it?

W. Ben Hunt, Ph.D.
Chief Risk Officer, Salient

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Important Disclosures

The article Outside the Box: Calling Into Question was originally published at mauldineconomics.com.

Sleeping 7-year-old girl shot in head during no-knock police raid on wrong home

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Posted on 16th October 2014 by Administrator in Economy |Politics |Social Issues

, ,

This is called Winning the War on Drugs

Via Police State USA

“They blew my granddaughter’s brains out. They killed her right before my eyes. I watched the light go out of her eyes.”

Aiyana Stanley-Jones surrounded by the Disney princesses that she adored. (Source: family photo)

DETROIT, MI — A Special Response Team shattered a family’s window in the middle of the night, hurled a flashbang onto a couch next to a sleeping girl, then charged in and shot her in the head.  The hyper-aggressive tactics were made worse by the fact that police had taken it upon themselves to raid both sides of a duplex, when their suspect was only known to reside in one of them.

* * * * *

On the evening of May 16, 2010, the Detroit Police Department’s Special Response Team (SRT) prepared for a surprise raid to arrest a wanted man. A surveillance unit had been monitoring the duplex in which he lived throughout the day and a no-knock raid was scheduled for just after midnight.

Police staged a so-called “safety briefing” shortly before the raid; undoubtedly focusing on their own safety rather than the safety of unknown innocents behind the doors they were about to kick in. Officers were briefed that they’d be entering a “possible dope den,” in which the suspect “might be armed” and might even possess “dangerous dogs.”

Police neglected to account for — or flatly disregarded — the safety of any potential children that might be present. Besides the glaring presence of toys strewn about the lawn and front porch, it is unlikely that investigators could have missed the presence of four young children and multi-generational family in the opposite unit during their surveillance of the duplex.

The raid commenced at roughly 12:40 a.m.  The Special Response Team arrived in its armored vehicle with a warrant to arrest Chauncey Owens, who was known to stay with his fiancée at 4056 Lillibridge Street.

Armed with MP5 submachine guns, adrenaline, and an unhealthy fear for officer safety, the raiders shuffled past the toys that littered the front yard and ignored the two distinct street address signs hanging on either side of the shared porch of the multi-unit building; 4056 was on the left, 4054 was on the right.

The exterior of 4054-4056 Lillibridge Street, where police killed Aiyana Stanley-Jones during a botched raid.  (AP Photo/Carlos Osorio)

A man named Mark Robinson was detained on the sidewalk while walking his dog, just before the raid. He repeatedly told officers, “There are children in the house,” yet his warnings went unheeded. He was pinned to the ground with officers’ boots on his neck and back, reported attorney Geoffrey Fieger.

The raid team was accompanied by an embedded cable TV crew, filming for A&E’s “The First 48.” With full bravado, the SRT put on a display of maximum force for the fans of police-state-adoring reality television.

Without warning, officers simultaneously attempted to breach entrances of two discrete living units of the duplex: the suspects’ location and the neighboring residence. What occurred at 4054 Lillibridge — where the suspect did NOT live — would be devastating.

In mere seconds, masked police officers stormed the porch and smashed the window of the neighbors’ downstairs apartment. They immediately tossed in a concussion grenade and kicked down the door. An officer discharged his rifle, and an innocent little girl named Aiyana Stanley-Jones was dead.

Amateur footage shot from the exterior of the building shows how quickly the raid unfolded:

http://bcove.me/fgynadfy

From the footage above, the following timeline can be assessed:

  • 0:24 — A dog detects the presence of police and begins to bark.
  • 0:27 — Police being shouting indiscernibly.
  • 0:28 — An officer uses a bludgeon to shatter the picture window of Aiyana’s residence. A flashbang grenade is thrown in immediately.
  • 0:29 — The flashbang explodes inside Aiyana’s residence, lighting up the porch.
  • 0:33 — A pop can be heard; presumably the fatal gunshot.

When the smoke cleared, 7-year-old Aiyana Stanley-Jones was found on the couch, covered with blood, with a gunshot to the head.  She had been sleeping on the couch next to her grandmother, Mertilla Jones.  A mere 3 seconds passed from the time of the first shouts until officers entered the home.  Aiyana was shot in six seconds.

The grenade had fallen directly onto the couch, where it scorched Aiyana’s “Hannah Montana” blanket, and caused Ms. Jones to dive for the floor.

Officer Joseph Weekley poses in his department issued mask and SWAT outfit.  (Source: WXYZ-TV)

The moment a flashbang grenade exploded inside Aiyana Stanley-Jones' living room.

The trigger man was 37-year-old Officer Joseph Weekley, who both drove the armored personnel carrier and led the team through Jones’s door. Wielding a ballistic shield and an MP5, the 14-year DPD veteran claimed that he lost control of his weapon, but not for the reason one would expect. He blamed Aiyana’s grandma.

Officer Weekley’s novel defense was that Mertilla Jones rose up as he entered the apartment and “reached for his gun.” In his version of events, contact with grandmother caused him to pull the trigger of his submachine gun, subsequently striking the sleeping girl.

Mertilla Jones gave a very different account. She said that she had been dozing in and out of sleep on the couch when she was startled by the shattering of glass and the deafening incendiary device hurled through the window.  Ms. Jones claims she reached to protect her granddaughter and made no contact with any officer, according to the  Detroit Free Press.

“They blew my granddaughter’s brains out,” said Ms. Jones.  “They killed her right before my eyes. I watched the light go out of her eyes.”

Officer Weekley was no stranger to controversy. Previously during his six years on the Special Response Team, he had been named among several officers in a federal lawsuit regarding no-knock raid in which officers aimed rifles at small children and shot two family pets in 2007.

In addition to Aiyana, three other children were in the house at the time: Carlos (age four), Pierre (age two), and Christian (age three months).  The capacity for mistakes in such a household was monumental.

Charles Jones recoils in despair after his little girl was shot in the head by police.  (Photo: Mandi Wright / Detroit Free Press)

The blood-stained couch where Aiyana Stanley-Jones was killed by police. (Source: Abayomi Azikiwe)

Aiyana’s parents, Charles Jones and Dominika Stanley, were sleeping nearby and rushed toward the sound of the loud noise and tragic screams.  Mr. Jones was forced to lie on the floor, face-down in his daughter’s blood and shards of broken glass.

“Her blood was everywhere and I was trying to stay calm, but nobody would talk to me. None of them even tried to console me,” Mr. Jones told The Detroit News.  “I’ll never be the same.”

Ms. Stanley testified similarly that she was forced to sit on the couch spattered with her daughter’s blood for hours while police detained the family at the scene.

Mertilla Jones was not initially detained, despite the claim that she supposedly tried to steal Officer Weekley’s weapon. Before the night was over, however, police decided to cuff her and hauled her down to Detroit Receiving, where she was tested for drugs in her system and later for gunshot residue on her skin. She sorrowfully recalled being detained for at least 8 hours, away from her family on perhaps the most traumatic day of their lives.

The family says it took hours for them to be shown a warrant — not until “about 4 or 5 a.m., as they were driving away” (more on the warrant later).

The actual homicide suspect was arrested in the apartment upstairs without incident.

 DISTORTING THE FACTS

One of the major deceptions permeating the coverage of this case was the notion that Aiyana lived in the same residence as the subject of the search warrant.  This was plainly false, as the building was a duplex with separate units, not connected internally whatsoever.

This diagram provided by attorney Geoffrey Fieger demonstrates how police raided two separate entrances of two separate living units. (AP Photo / Geoffrey Fieger)

Attorney Geoffrey Fieger, who represented Aiyana’s family, stressed during a press conference that various facts were being distorted by the police and media.

“[Police] were going into both doors,” Mr. Fieger said.  “The upstairs flat is on the left.  Aiyana’s flat — where I want to stress that Mr. Chauncy Owens did not reside, never resided, never stayed — is on the right.”

Furthermore, police charged into the raid with an improper warrant to search both units, Mr. Fieger asserted. After improperly raiding both living units, police went back and covered their mistake by acquiring a retroactive search warrant for the second half. The official story glossed over that detail.

Feiger explained: “In the video they break into both the upstairs flat and the downstairs flat. The problem is they don’t have a warrant for the upstairs. (Assistant Police Chief Ralph Godbee) didn’t tell you when he got the second search warrant. After Aiyana was killed and after he broke into the upstairs apartment and arrested (the suspect).”

Another falsehood was the department’s claim that Aiyana was shot in the neck.  In fact, Aiyana was shot in the top of the skull, with the bullet exiting through the bottom of her chin, then grazing her chest.

The third, and most dubious claim, was the story that Aiyana’s grandmother tried to grab the officer’s gun and caused it to fire, under no fault of Officer Weekley.  The district attorney’s office did not find the officer’s story credible and charged him with felony involuntary manslaughter and careless discharge of a firearm causing death.

REALITY TV STAR

America’s fetish with the police state may have indirectly played a role in the unnecessary, hyper-aggressive tactics employed against Aiyana and in other situations in Detroit.  Author William N. Grigg astutely observed the following:

Detroit SRT Officer Joseph Weekly poses with a department-issued grenade launcher.  (Source: A&E)

The truly sickening thing about the death of Aiyana Jones is that the decision to carry out a SRT raid was almost certainly dictated by the media ambitions of Detroit Police Chief Warren Evans, who — in the words of Detroit News columnist Charlie LeDuff — is positioning himself as a “reality TV” star.

“Television executives around the country have been shown what is known in television parlance as the `sizzle reel’ of Chief Evans himself, a video compilation of Detroit’s top cop trying to take back the streets,” writes LeDuff, who saw that footage several weeks ago. “It is part of a pitch for a full-blown television series.”

As Detroit’s civic and economic implosion accelerates, the city has become an irresistible setting for state-centric media outlets “peddling mayhem,” continues LeDuff. “Spike TV featured the Detroit bureau of the Drug Enforcement Administration in 2008. A&E is taping a season of `Parking Wars’ here; production on a series about the Fire Department wrapped late last year. Even Animal Planet is in on the deal with `Animal Cops Detroit.’”

Joseph Weekley had himself been featured numerous times on various Detroit-based police reality shows. His cop nickname was “Brain.”

WEEKLEY’S 1ST TRIAL

At the June 2013 trial, Joseph Weekley’s defense stuck with the argument that the victim’s grandmother was to blame for his sloppy weapons-handling.

Officer Joseph Weekley makes excuses for his pathetic trigger discipline during his trial. (Photo: David Coates)

“She hit it in a downward motion,” Weekley said of his submachine gun during testimony at his first trial, according to the Associated Press. “As she hits it down, I start to pull it back. I hear the shot.”

Weekley’s defense argued that he should not be scapegoated for behavior linked to the missteps of his bosses. His attorney, Steve Fishman, said in court filings that Weekley “had nothing to do with the planning of the raid and was merely a police officer assigned to a certain position … by a superior officer.” He argued that his client should not be deemed responsible for the “ineptitude of the officer assigned to deploy” the flashbang.

Aiyana’s grandmother was the key witness at the trial.   Her testimony marked the fifth day of the emotional testimonies.

“That’s what I figured all of them was there to do — to murder. They came to kill, and they killed a 7-year-old,” Mertilla Jones testified.  Breaking down sobbing, she described the raid, saying “their arm was pointed at Aiyana’s head. They pulled the trigger. Blood started coming out of her mouth. She was dead.”

The jury was then excused for about 15 minutes.

Prosecutor Rob Moran closed his argument by emphasizing that Weekley’s story was fabricated to cover for gross negligence.

“It didn’t happen.  It did not happen,” Moran stressed, arguing the implausibility of Mertilla Jones rushing for the door in mere seconds after the window broke.

“All he had to do was keep his finger off the trigger,” Moran pointed out, which is among the most elementary of firearms safety rules.

In the end, the jury was hung, and Wayne County Circuit Judge Cynthia Gray Hathaway declared it to be a mistrial.

WEEKLEY’S 2ND TRIAL

Officer Joseph Weekley stood trial for a second time in September 2014.  This time the more serious charge of manslaughter was dismissed, and Weekley’s trial revolved around the charge of careless or reckless firing of a weapon causing death, which carries a potential 2 year prison sentence.

Prosecutor Rob Moran again poked holes in the police narrative.  If Mertilla Jones grabbed for Weekley’s gun, as the officer alleged, then why did it take hours for police to place her in handcuffs, he asked.  Wouldn’t police detain and arrest her immediately?

The prosecution also showed using forensic evidence that Mertilla Jones’ fingerprints were not among those found on Weekley’s gun.

Jurors ultimately deadlocked in a 7-5 split in favor of acquittal and could not agree about whether Weekley was negligent or not.  Deliberations went on for four days.

Judge Hathaway again declared it to be a mistrial in October 2014 when no unanimous verdict could be reached.  At this point, prosecutors could either attempt a third trial, or decline to proceed with further prosecution.

{ Support Police State USA }

Aiyana Stanley-Jones beams before slicing into her birthday cake. (Source: family photo)

Thoughts from the Frontline: Sea Change

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Posted on 14th October 2014 by Administrator in Economy |Politics |Social Issues

Thoughts from the Frontline: Sea Change

By John Mauldin

 

You don’t need a weatherman
To know which way the wind blows.

– Bob Dylan, “Subterranean Homesick Blues,” 1965

Full fathom five thy father lies.
Of his bones are coral made.
Those are pearls that were his eyes.
Nothing of him that doth fade,
But doth suffer a sea-change
Into something rich and strange.

– William Shakespeare, The Tempest

Did you feel the economic weather change this week? The shift was subtle, like fall tippy-toeing in after a pleasant summer to surprise us, but I think we’ll look back and say this was the moment when that last grain of sand fell onto the sandpile, triggering many profound fingers of instability in a pile that has long been close to collapse. This is the grain of sand that sets off those long chains of volatility that have been gathering for the last five years, waiting to surprise us with the suddenness and violence of the avalanche they unleash.

I suppose the analogy sprang to mind as I stepped out onto my balcony this morning. Texas has been experiencing one of the most pleasant summers and incredibly wonderful falls in my memory. One of the conversations that seem to occur regularly among locals who have a few decades under their belts here, is just how truly remarkable the weather has been. So it was a bit of a surprise to step out and realize the air had turned brisk. In retrospect it shouldn’t have fazed me. The air has been turning brisk in Texas at some point in October for the six decades that my memory covers, and for quite a few additional millennia, I suspect.

But this week, as I worked through my ever-growing mountain of reading, I felt a similar awareness of a change in the economic climate. Like fall, I knew it was coming. In fact, I’ve been writing about it for years! But just as fall tells us that it’s time to get ready for winter, at least in more northerly climes, the portents of the moment suggest to me that it’s time to make sure our portfolios are ready for the change in season.

Sea Change

Shakespeare coined the marvelous term sea change in his play The Tempest. Modern-day pundits are liable to apply the word to the relatively minor ebb and flow of events, but Shakespeare meant sea change as a truly transformative event, a metamorphosis of the very nature and substance of a man, by the sea.

In this week’s letter we’ll talk about the imminent arrival of a true financial sea change, the harbinger of which was some minor commentary this week about the economic climate. This letter is arriving to you a little later this week, as I had quite some difficulty writing it, because, while the signal event is rather easy to discuss, the follow-on consequences are myriad and require more in-depth analysis than I’ve been able to bring to them on short notice. As I wrestled with what to write, I finally came to realize that this sea change is going to take multiple letters to properly describe. In fact, it might eventually take a book.

So, in a departure from my normal writing style, I am going to offer you a chapter-by-chapter outline for a book. As with all book outlines, it will be simply full of bones but without much meat on them, let alone dressed up with skin and clothing. I will probably even connect the bones in the wrong order and have to go back later and replace a leg bone with a rib, but that is what outlines are for. There is clearly enough content suggested by this outline to carry us through the next several months; and given the importance of the subject, I expect to explore it fully with you. Whether it actually becomes a book, I cannot yet say.

I should note that much of what follows has grown out of in-depth conversations with my associate Worth Wray and our mutual friends. We’ve become convinced that the imbalances in the global economic system are such that the risks are high that another period of economic volatility like the Great Recession is not only likely but is now in the process of developing. While this time will be different in terms of its causes and symptoms (as all such stressful periods differ from each other in many ways), there will be a rhyme and a rhythm that feels all too familiar. That should actually be good news to most readers, as the last 14 years have taught us a little bit about living through periods of economic volatility. You will get to use those skills you learned the hard way.

This will not be the end of the world if you prepare properly. In fact, there will be plenty of opportunities to take advantage of the coming volatility. If the weatherman tells you winter is coming, is he a prophet of doom? Or is it reasonable counsel that maybe we should get our winter clothes out?

Three caveats before we get started. One, I am often wrong but seldom in doubt. And while I will marshal facts and graphs aplenty to reinforce my arguments, I would encourage you to think through the counterfactuals presented by those who will aggressively disagree.

Two, while it goes without saying, you are responsible for your own decisions. It is easy for me to say that I think the bond market is going to go in a particular direction. I can even bet my personal portfolio on my beliefs. I can’t know your circumstances, but if you are similar to most investors, this is the time to make sure you have a truly balanced portfolio with serious risk management in the event of a sudden crisis.

Three, give me (and Worth, whom I am going to draft to write some letters) some time to develop the full range of our ideas. To follow on with my weather analogy, the air is just starting to get crisp, and winter is still a couple months away. Absent something extraordinary, we are not going to get snow and a blizzard in Dallas, Texas, tomorrow. We may still have some time to prepare, but at a minimum it is time to start your preparations. So with those caveats, let’s look at an outline for a potential book called Sea Change.

Prologue

I turned publicly bearish on gold in 1986. At the time (a former life in a galaxy far, far away), I was actually writing a newsletter on gold stocks and came to the conclusion that gold was going nowhere – and sold the letter. I was still bearish some 16 years later. Then, on March 1, 2002, I wrote in Thoughts from the Frontline that it was time to turn bullish on gold. Gold at that time was languishing around $300 an ounce, near its all-time bottom.

What drove that call? I thought that the future directions of gold and the dollar were joined at the hip. A bit over a year later I laid out the case for a much weaker dollar in a letter entitled “King Dollar Meets the Guillotine,” which later became the basis for a chapter in Bull’s Eye Investing. As the chart below shows, the dollar had risen relentlessly through the early Reagan years, doubling in value against the currencies of America’s global neighbors, causing exporters to grumble about US dollar policy. Then the bottom fell out, as the dollar made new lows in 1992. From 1992 through 2002 the dollar recovered about half of its value, getting back to roughly where it was in 1967. Elsewhere about that time, I predicted that the euro, which was then at $0.88, would rise to $1.50 before falling back to parity over a very long period of time. I believe we are still on that journey.

One of the biggest drivers of economic fortunes in the global economy is the currency markets. The value of your trading currency affects every aspect of your business and investments. It is fundamental in nature. While most Americans never even see a piece of foreign currency, every time we walk into Walmart, we are subject to the ebb and flow of global currency valuations, as are Europeans and indeed every person who participates in the movement of goods and services around the globe. In fact, globalization means that currency values are more important than ever. The world is more tightly interconnected now than it has ever been, which means that events which previously had no effect upon global affairs can trigger cascades of events that affect everyone.

I believe we are in the early stages of a profound currency-valuation sea change. I have lived through five major changes in the value of the dollar in the 45 years since Nixon closed the gold window. And while we are used to 40% to 50% moves in the stock market and other commodity prices happening in just a few years (or less), large movements in major trading currencies typically take many years, if not decades, to develop. I believe we are in the opening act of a multi-year US dollar bull market.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

Important Disclosures

The article Thoughts from the Frontline: Sea Change was originally published at mauldineconomics.com.

Will Gold Crash With The Dow… Or Soar?

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Posted on 7th October 2014 by Administrator in Economy |Politics |Social Issues

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Submitted by Jeff Thomas via Doug Casey’s International Man blog,

In 2008, we projected that the crash in the market was in fact a mini-crash and that the day would come when a more major crash would occur – one that reflected the level of debt. In recent months, this prognostication has been gaining traction – that a second, more severe crash is inevitable.

There are two primary camps amongst economists with regard to the economic direction that a crash will generate: inflationists and deflationists.

Inflationists tend to feel that the governments of the world that are now in debt over their heads will do what governments always do in such a situation. Rather than get off the monetary heroin, they will instead increase the dosage. Inflation will then ramp up dramatically, eventually causing collapses in currencies.

 

Deflationists, on the other hand, argue that when there is a market crash, there will be deflation. And since the debt level is so great, the severity of the deflation will likewise be great.

The argument goes back and forth, yet there seems to be the misconception that one must be either an inflationist or deflationist. This is not at all the case.

Recently, there have been vehement arguments from some very notable people in the deflationist camp that we shall soon see major drops in the Dow—first to 6000, then to 3300. They feel that, as this occurs, there will be a further real estate crash, gold will sink to $750, and unemployment will go through the roof.

Inflationists will inevitably reply that, in the event of a crash, the central governments will print money like never before, as soon as there is even a whiff of deflation. (Their argument is strongly supported by the repeated confirmations by the previous chairman of the US Federal Reserve, Ben Bernanke, that no deflation will be acceptable to the Fed, that they will indeed print as much as it takes to counteract any possible deflation.)

However, each camp is overlooking a significant factor. The deflationist reasoning tends to lead up to the occurrence of deflation… and then stops. They rarely comment on what happens next: the influx of newly-created currency units.

The inflationists overlook the fact that, when a major crash occurs, it happens suddenly and when it occurs, it carries other markets with it. No amount of monetary printing can react quickly enough to simply cancel out the precipitous deflationary force of a crash. All that can be hoped for by the Fed and others in their situation is that they “play catch-up” as quickly as possible—injecting money into general circulation (not just crediting it to the banks, as they are now doing) to reverse the deflation and to hopefully return to “controlled” inflation.

Are we headed for a crash in the stock market? Almost certainly, and probably a more severe one than in 2008.

Are we headed for dramatic inflation or even hyperinflation? Again, almost certainly.

So what will this look like? How will it play out?

Consider the following as an order of immediate events (in brief form):

  1. The Dow crashes, in downward lurches, interspaced with false recoveries.
  1. As the crash unfolds, we will see innumerable people who bought on margin selling everything to cover their losses. (If they hold gold or gold stocks, these will be sacrificed even if the holders remain confident about gold. Their goal will be to cover immediate losses, at whatever cost.)
  1. Due to the dramatic selloff in gold, the price of gold plummets.

This is the deflationist argument and it is a logical one. (Popular estimates for the gold price are between $1000 and $750 as a potential floor.)

But this scenario rings true only if all those who hold gold are forced to sell.

What could actually happen might be similar to what we have seen with the unravelling of paper gold – that the development only serves to encourage those who understand gold to buy all they can. This serves to create a floor for the gold price.

There may well be sudden downward spikes that would tend to prove deflationists right, but as we now live in an electronic age, the turnaround by purchasers will be almost as quick as the crashes themselves. It may be that we will see sudden precipitous drops in gold, followed by immediate rises in purchasing – a real rodeo ride.

It is entirely possible that gold stocks will stay down longer than the gold price, and some (otherwise viable) companies may even go into liquidation. However, gold itself will not drop to $750 and stay there, as deflationists imply. More to the point, its recovery may be quite swift.

The market is experiencing a divide that didn’t exist before. Until recently, there have been many people (millions) who misunderstood gold, treating it like a stock. Many of those people are disappearing from the market (having been washed out by the paper gold failure), and soon, most of those who are still in gold will be those who understand it. The higher the percentage of gold ownership that is in their hands, the more solid the floor.

Whatever that floor may prove to be, gold will stabilise. Then, inevitable inflation will cause renewed interest in gold by the misinformed, as it begins its inflationary rise. By the time gold passes $2000, the misinformed will be falling all over each other to get back in—still not understanding gold, but desperate to ride the coattails of “a winner.” It would be at this point that we would go into a period of dramatic inflation, with a concurrent gold mania.

Whatever level of drop gold experiences as a result of deflation, gold will rise up from it like a phoenix – long before other asset classes rise.

In fact, it will lead the pack.

The question for the investor should not be whether we shall see inflation or deflation. We shall see both. The rodeo is underway and we are, whether we wish to be or not, in the saddle of the bronc. Soon, the chute will open and he’ll start bucking for all he’s worth. When he does, it will matter little whether he bucks to the left or to the right. The only objective should be to ride it out.

In investment terms, what this means is that we need to have avoided those investments that are most greatly at risk and have chosen instead those investments that are likely to be intact when the ride is over.

If we have loaded up on precious metals, in truth, it matters little if gold drops to $1000 or (gulp) to $750 as deflationists have predicted. All that will matter is whether we have had the fortitude to stay in the saddle until the ride comes to an end.

 

Academia – The Great Fraud?

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Posted on 5th October 2014 by Administrator in Economy |Politics |Social Issues

Academics

If we look at the world leaders, nobody has a degree in leading a nation. Most are lawyers. Even if we look at Christine LaGarde, she too is a lawyer running around threatening nations to give up foreigners or they will be banish from the world club while she sits in the Troika dictating the future of Europeans politically and economically, yet she again has no degree in what she is doing.

The question that rises to the surface is clearly what good is a degree when you cannot get one to be a world leader, politician, hedge fund manager, portfolio manager, or just about anything other than a doctor, lawyer or a civil engineer?

Geniuses typically clash with their teachers because teachers do not encourage original thought as several studies have shown. Teachers want kids who obey and follow orders. Winston Churchill was terrible in school yet without him Hitler would have died in a retirement home. Albert Einstein’s teacher famously decreed he would amount to nothing. Here is what Gandhi had to put up with:

 When Mahatma Gandhi was studying law at the University College of London, a professor, whose last name was Peters, disliked him intensely and always displayed animosity him.

Also, because Gandhi never lowered his head when addressing him as he expected, there were always “arguments” and confrontations.

One day, Mr. Peters was having lunch at the dining room of the University, and Gandhi came along with his tray and sat next to the professor. The professor said,”Mr Gandhi, you do not understand. A pig and a bird do not sit together to eat.”

Gandhi looked at him as a parent would a rude child and calmly replied, “You do not worry professor. I’ll fly away,” and he went and sat at another table.

Mr. Peters, reddened with rage, decided to take revenge on the next test paper, but Gandhi responded brilliantly to all questions.

Mr. Peters, unhappy and frustrated, asked him the following question:

“Mr Gandhi, if you were walking down the street and found a package, and within was a bag of wisdom and another bag with a lot of money, which one would you take?”

Without hesitating, Gandhi responded,

“The one with the money, of course.”

Mr. Peters, smiling sarcastically said,

“I, in your place, would have taken the wisdom.”

Gandhi shrugged indifferently and responded,

“Each one takes what he doesn’t have.”

Mr. Peters, by this time was fit to be tied. So great was his anger that he wrote on Gandhi’s exam sheet the word “idiot” and gave it to Gandhi.

Gandhi took the exam sheet and sat down at his desk, trying very hard to remain calm while he contemplated his next move.

A few minutes later, Gandhi got up, went to the professor and said to him in a dignified but sarcastically polite tone, “Mr. Peters, you autographed the sheet, but you did not give me the grade.”

QUOTES OF THE DAY

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Posted on 5th October 2014 by Administrator in Economy |Politics |Social Issues

“Republicans believed they didn’t have to be the party of root canals, warning the public about the dangers of deficit financing, or always saying no. Why don’t we become the Santa Claus Party and give tax cuts to everybody? We’ll win elections and live happily ever after — well,I think that’s just another variation of the Keynesian magic that the state can solve everything. There needs to be discipline. Economic growth, wealth, and prosperity take a lot of effort, sweat, and real-world endeavor over long periods.”

David Stockman

“Because Republicans claim that we had this great Golden Age in the 1980s, that there was a boom in the 1990s, and that everything was going well during the George W. Bush era until some mysterious comet came in from deep space and caused a meltdown in 2008. My argument is that this was mostly a phony prosperity built on massive additions to public and private debt. That so-called prosperity came from the printing press in the Eccles Building run by Alan Greenspan and Ben Bernanke. The “prosperity” didn’t come from tax cuts made by Republican policy makers.”

David Stockman

“I’m in the Ron Paul camp, and Rand sounds pretty good, too — at least on liberty, the warfare state, anti-interventionist foreign policy, opposition to big government, and the Keynesian deficit delusion. And he’s also solid on the clear and present danger to the American economy posed by [Federal Reserve Chair Ben] Bubbles Bernanke and his loony band of money printers.”

David Stockman

“We’ve got a rogue central bank that’s violating the principle of sound money that mankind accumulated over centuries. Interest rates were dropped to zero in early 2009 — I say zero, but 10 basis points is the same thing — and Bernanke’s suggesting he’ll keep them at that level through 2015. That’s six years when money markets have zero interest rates. That’s a lunatic economic proposition. Capital has to have a price. Money has to have a price. When it’s driven to zero, you’re essentially disarming the financial system. It can’t function without prices.”

David Stockman

“Reagan’s defense build-up was unnecessary — most of it went into a vast conventional armada of ships, planes, and tanks that could be used to invade places such as Iraq and Afghanistan and had nothing to do with the so-called Soviet threat. I would give him terrible marks for being so stubborn and insistent in that defense build-up. He had a vision of trying to shrink government, but every time some real tough choices came along, he walked away from them because the political heat was so great. He was easily talked into rationalizations for things that were very antithetical to free markets and supply-side. For instance, he put quotas on auto imports from Japan because he got double-talked into it by Secretary of Transportation Drew Lewis and the auto industry.”

David Stockman