Tag: David Stockman

Bad Trend Breaking: Retail Results Not Better Than Expected, But Worse Than Ever!

It looks like David Stockman liked my retail article. He wrote this lead in to my story on his Contra Corner site.

The ultimate evil of monetary central planning is that it drastically distorts pricing signals in capital markets, thereby inducing vast malinvesments in the real economy—-mistakes that eventually result in uneconomic returns and losses which must be someday written off. Accordingly, what is recorded as a boost to GDP by our Keynesian policy overlords in the front-end of the malinvesment cycle results in a reduction of national wealth when it’s all said and done.

Needless to say, if central bank induced financial repression is carried on long enough the level of capital market deformation and main street malinvesment can become monumental. In fact, there are four bell-ringer statistics among the macro-economic data that dramatize perhaps the greatest of these central bank induced investment errors, but they are never published in the main street financial press—–probably because they explain far too much in one glance.

The skunks in one of the nation’s greatest uneconomic woodpiles are: 100k, 1 million, 15 billion and 47 square feet. Those stats measure the collective girth of America’s shopping emporia, and designate, respectively, the number of shopping centers and strip malls across the land; the number of retail stores spread among them; the total retail space occupied by the nation’s shopping machinery; and the amount of space at present for every man, woman and child in the nation.

It does not take much analysis to see that these bell ringers do not represent sustainable prosperity unfolding across the land. For example, around 1990 real median income was $56k per household and now, 25 years later, its just $51k—-meaning that main street living standards have plunged by about 9% during the last quarter century. But what has not dropped is their opportunity to drop shopping: square footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present.

This complete contradiction—declining real living standards and soaring investment in retail space—did not occur due to some embedded irrational impulse in America to speculate in real estate, or because capitalism has an inherent tendency to go off the deep-end. The fact that in equally “prosperous” Germany today there is only 12 square feet of retail space per capita is an obvious tip-off, and this is not a teutonic aberration. America’s prize-winning number of 47 square feet of retail space per capita is 3-8X higher than anywhere else in the developed world!

When the aggregate level of shopping space is looked at during the above longer-term time frame, the aberration is even more apparent. At the time of the S&L fiasco around 1990 there were only about 5 billion square feet of shopping space in the nation—meaning that capacity tripled during the subsequent a quarter century. Yet this was a period when the real incomes of the middle class were essentially dead in the water. So what market signals could have possibly given rise to such a disconnect?

The answer is the relentless drive for yield among fixed income investors during a period when time and again the Fed intervened in financial markets to prevent the benchmark rate—that is, the 10 year treasury note—- from finding its natural economic price/yield in what was becoming a savings parched economy. Accordingly, there developed a massive tidal wave called “retail operating leases” that quenched this thirst for yield—helped along by accounting loopholes which allowed trillions of these operating leases to be kept off borrower balance sheets and which thrived on the illusion that the proliferating chains of new retail concepts served up by the Wall Street IPO machine were “national credit tenants” That is, these overnight sensations had such solid and sustainable “business models” as to imply blue chip credit status—meaning terms (10-15 years) and interest rate spreads over benchmark rates that made retail occupancy dirt cheap relative to the true long-run economics and risks.

Suffice it to say, that operating leases and national credit tenant financing by banks and institutional fixed income investors like insurance companies and pension funds account for virtually all of the stupendous gain of 10 billion square feet of retail space since 1990. And all of the cheap debt which funded this vast deformation will not be found on the balance sheet of any known retailer.

One of the great “success” stories of retail during the last quarter century, for example, was the Walgreen Co. drug chain which grew from a few thousand outlets centered in the mid-west to more than 40,000 nationwide units today. What seems to be a financial miracle about this staggering growth—that fact that WAG has only $2 billion of net debt—actually is nothing of the kind. In truth, Walgreen’s stores are almost all on operating leases, and the latter represent a present value obligation in the range of $25 billion—or 25X its reported “debt”.

Self-evidently, were the Walgreen drug store empire ever to falter due to any number of factors—demographics, economics, public policy, new technologies and delivery modalities such as Amazon’s putative “drones”, the “national credit tenant” myth would be blown sky-high. In fact, that is the true story materializing in the retail space today.

Like in every other case, the main stream financial press has a stunning case of recency bias with respect to retail. It remains obsessed with short term variations from analyst projections of quarter by quarter trends, and is focused on a few high end chains which service the top 10% of households. It thereby completely misses the drastically deteriorating trends such below the surface.

But a 40-year perspective can do wonders. Since 1970 when the US economy became increasingly a creature of fiat central banking, real GDP per capita has doubled, but retail space has grown from 2 billion square feet to 15 billion or 7.5X, and by 5X per capita after accounting for population growth. Stated differently, a day of reckoning is coming for our massive over-built, debt-bloated retail sector.

In his usually trenchant and fact-driven manner, Jim Quinn has laid out the overwhelming evidence just from the Q1 retail reports that retail party is already over, and that sales per square ft. are falling in virtually every mall and big box based retailer in America. As shown below these range from Wal-Mart to the “go to” names of just a few years ago like Target, Kohl’s and JC Penney, to hapless basket cases like Sears, Staples and Best Buy.

The obvious implication is that unless these trends reverse, the massive mountain of operating leases behind these names will become deeply impaired, and then the great retail leverage unwind will gain powerful, unstoppable momentum. Failing chains will enter chapter 11, massive store closures will occur and mall and power center traffic will continue to decline, thereby perpetuating the viscous financial cycle already underway.

Moreover, as Quinn further documents, the great baby boom retirement wave now underway—10,000 new retires per day each and every day until 2030—will perform the coup d grace. Retirees don’t go to malls in the first place, and won’t be able to afford it in any event. The statistics presented below on lack of retirement savings among the overwhelming share of the population 55-64 is truly shocking.

Nor should the fact that bubblevision’s obsessively focusses on the still positive results of a handful of high end chains like Michael Kors, Nordstrom, Tiffany, Saks, Ralph Lauren, etc. confuse the matter. The top dozen or so high end retail chains in America including the above and Whole food occupy hardly 25 million square feet or just over 1% of the total.

As the debt-burdened middle class continues to struggle with a job insecurity, rising living costs, lack of savings and approaching retirements, shoppers will counting dropping from what will become even more dismal same store “comps”. And as shoppers drop, so will the whole edifice of retail malinvesment and debt on which America’s 40 year consumption party was based.

Financial Storm Chasing With Blinders On: How The Fed Is Driving The Next Bust

Guest Post by David Stockman

The latest iteration of the Fed’s meeting minutes is surreal. Its another economic weather report consisting of trivial, random observations about the quarter just ended that are as superficial as CNBC sound bites. Along with that prattle comes guesses and hopes about the next 30-90 days—including the expectation that the weather will “seasonally normalize” and that auto production schedules, for instance, which were down in March, will stabilize at that level “in the months ahead”.

Likewise, after noting that consumption spending moved “roughly sideways” during January and February, it detected that “recent information on factors that influence household spending were positive”—-a guess that turned out to be wrong based on data we already know from April retail sales. The data on new and existing home sales had indicated the continuation of a 5-month trend of sharp drops from prior year, but the minutes could muster only an on-the-one-hand-and-on-the-other-hand whitewash, accented with hopeful indicators on single-family permits and pending home sales.

Business investment was treated the same way—that is, it was down in the first quarter but “modest gains” are expected soon based on sentiment surveys. And as you read further the noise just keeps getting more foolish, including the hope that the negative net export performance in Q1 would be off-set by improving global developments. That fond hope included this doozy: “In Japan, industrial production rose robustly, and consumer demand was boosted by anticipation of the April increase in the consumption tax.”

That particular phrase actually translates into big speed bumps ahead, but that’s beside the point. What this item and all of the rest of the commentary amounts to is bus driver chatter about road conditions at the moment. Stated differently, the monetary politburo does indeed believe that it can steer our $17 trillion economy on a month-to-month basis, and attempts to do so with primitive “in-coming” data from the Washington statistical mills that is so tentative, imputed, guesstimated, seasonally maladjusted and subsequently revised as to be no better than anecdotal sound bites.

Worse still, it pretends to be executing its monetary central planning model without any of the “gosplan” tools that would really be needed to drive the thousands of variables and millions of actors which comprise an open $17 trillion economy that is deeply intertwined in the trade, capital and financial flows of the world’s $75 trillion GDP. Alas, its one size fits all control panel includes only interest rate pegging, risk asset propping and periodic open mouth blabbing by Fed heads.

But these are no longer efficacious tools for driving the real Main Street economy because to boost the latter above its natural capitalist path of productivity and labor hours based growth requires artificial credit expansion—that is, a persistent leveraging up of balance sheets so that credit bloated spending rises faster than production and income.

As should be evident after six continuous years of frantic money pumping that old secret sauce doesn’t work any more because the American economy has reached a condition of peak debt.  During the Keynesian heyday between 1970 and 2007 the nation’s total leverage ratio—that is, total public and private credit market debt relative to national income—soared right off the historic charts, rising from a 100-year ratio of +/- 150% of national income to a 350% leverage ratio by 2007.

Since the financial crisis, the components of national leverage have been shuffled from the household sector to the public sector, but the ratio has remained dead in the water at 3.5X. That means that contrary to all the ballyhoo about deleveraging, it has not happened in the aggregate, but where it has happened at the sector level actually proves that the Fed’s credit transmission channel is over and done.

Total non-financial business debt has risen from $11 trillion to $13.6 trillion since the financial crisis, but virtually all of that gain has gone into shrinkage of business equity capital—that is, LBOs, stock buybacks and cash M&A deals which levitate the price of shares in the secondary market, but do not fund productive assets and the wherewithal of future growth. In fact, as of Q1 business investment in plant and equipment was still nearly $70 billion or 5% below its late 2007 peak.

In the case of the household sector, the 40-year sprint into higher and higher leverage ratios has reversed and is now significantly below its peak at 220% of wage and salary income in 2007. At 180% today household leverage is off the mountain top—but it is still far above historically healthy levels, especially for an economy with rapidly aging demographics and soaring ratios of dependency on government benefits that requires tax extraction from debt-burdened households or debt levies on unborn taxpayers.

Household Leverage Ratio - Click to enlarge

So the traditional credit expansion channel of Fed policy is busted, but the monetary politburo is like an old dog that is incapable of learning new tricks. It plans to keep money market rates are zero for seven years running through 2015 on the misbegotten notion that it can restart America’s unfortunate 40-year climb into the nosebleed section of the debt stadium.

That isn’t happening, of course, but the $3.5 trillion of new liquidity that it has poured through the coffers of the primary bonds dealers since September 2008 has not functioned like the proverbial tree falling in an empty forest. Just the opposite. It has been a roaring siren on Wall Street—guaranteeing free short-term money to fund the carry trades, while providing a transparent “put” under the price of debt and risk assets. In short, it has fueled the Wall Street gambling channel like never before in recorded history.

Do the Fed minutes evince a clue that six years into this frantic money printing cycle that speculation, financial leverage strategies and momentum chasing gamblers are setting up for the next bursting bubble.  Well no. Aside from pro forma caveats about possible future financial risks, the minutes claimed that all is well in the casino:

“In their discussion of financial stability, participants generally did not see imbalances that posed significant near-term risks to the financial system or the broader economy….

Perhaps they did not review the two charts that follow. Both  are ringing the bell loudly to the effect that we are reaching the same bubble asymptote—or curve that has reached its limit— as was recorded right before the crashes of 2000-2001 and 2007-2008.

The margin debt explosion is especially significant because it had reached a higher ratio to GDP (2.73%) than either of the two pervious bubble cycles. Back in the day of William  McChesney Martin, the Fed watched margin debt like a hawk because it was comprised of veterans of the 1929 crash. Accordingly, they did not hesitate to take preemptive tightening actions when speculation began to get out of line, such as in the summer of 1958. But this month’s meeting minutes did not even take note of the margin data.

To be sure, it is always possible to claim that the broad market is trading at “only” 15X the forward earnings of the S&P 500 at $123/share.  But that’s ex-items and from analyst hockey sticks which always get sharply reduced as the future actually materializes. In that respect it is notable that at this very point in the bubble cycle during October 2007, S&P forward earnings were projected at $118/ share for 2008 or 15X; they actually came in at $55/share on an ex-items basis, and a scant $15/share after a half decade of phony profits were written of by banks and non-financial business alike.

In any event, the landscape is riddled with froth and unsustainable speculation everywhere, but most especially in the world of junk credit where the final blow-off has occurred in each of the last three bubble cycles. All the usual suspects are there including record junk bond issuance, soaring expansion of the debt-on-debt-on-debt Wall Street vehicles known as CLOs—along with “cov lite” loans and leveraged recaps whereby the LBO kings pile more loans on portfolio companies already groaning under massive debt in order to pay themselves a fat dividend.

And then the tentacles of junk credit expand far and wide. Sub-prime auto debt is at nearly 2007 peak levels, and now another flavor has emerged: Subprime business debt whereby struggling shopkeepers and home-gamers are invited to pay up to 100% annualized interest to keep the doors open a few more months.

Finally, there is the ultimate in sub-prime—-student debt that has now reached $1.1 trillion, and which already sports default rates in excess of 30% among borrowers who are actually in repayment status.

Monetary central planning at the zero bound embodies a destructive internal contradiction. It inherently generates rampant speculation in real estate and financial assets because ZIRP massively subsidizes the cost of carry. At the same time, its practitioners are institutionally disposed to bubble denial because they falsely believe that their policies are what is keeping the real economy advancing–even if currently it is at a sub-normal pace by historical standards.

Without fail, therefore, monetary central planners keep their feet on the accelerator to the very end, boasting that the “in-coming data” shows the macro-economy approaching the nirvana of full-employment. What they are actually doing, however, is driving the financial system to unsustainable extremes of valuation and speculation— and eventually to a crash landing. We have had two of these processions of the lemmings—that is, Fed driven cycles of bubble inflation and bust—- already in this century. Now we are at the asymptote of the third.

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Rupert Murdoch’s Drop Boxes: Where Central Bankers Post Front-Runners On When To “Buy”

Submitted by David Stockman via Contra Corner blog,

The Wall Street Journal appears to be saving money by dispensing with journalists and using human drop boxes instead. Thus in the New York markets the “Hilsenramp” signal is already a well-known event which occurs at approximately 3pm on/during/after Fed meeting days, and is posted under the byline of “Jon Hilsenrath”. In simple packaged form it provides fast money speculators with a message from the B-Dud, otherwise known as William Dudley, President of the New York Fed, on why the Fed will back-up another run at still higher record highs.

So today comes a drop box message with respect to ECB policy posted under the byline of “Brian Blackstone”. Self-evidently, the staff of the Bundesbank is negotiating with Mario Draghi in public. The latter backed himself into a corner last meeting by committing to a dramatic new easing round in June in order to avoid being finally called on his 2012 promise to do “whatever it takes”, which so far has been nothing.

But the ECB is still not ready to bend over for outright bond-buying Bernanke/Yellen style—so it has kindly deposited in Murdoch’s drop box alternative measures that would be acceptable. These apparently include negative deposit rates, a year’s extension of the so-called fixed rate full allotment loan facility, a new long-term fixed rate loan program for commercial banks and some purchases of asset-backed securities.

In other words, the Bundesbank is splitting teutonic hairs on the matter of money printing. It resolutely opposes buying government debt directly—least it encourage the demonstrably and incorrigibly debt-addicted politicians of the EU to become even more fiscally enebriated. Instead, it will inject freshly minted funds into EU banks so that they can do the dirty work with the newly opened space on their balance sheets—that is, buy the government debt.

So the Germans are not going make a stand for monetary sanity, either. They are just negotiating the terms of surrender by using Murdoch’s drop box. Specifically, they are painting a bright marker on the ECB staff’s upcoming inflation forecast—the very same marker that Draghi laid-out in his recent post-meeting statement.

In that regard, the ECB staff like all central bank forecasting outfits professes to know the path of European inflation to the decimal point. To wit, 1.0% this year and reaching exactly 1.7% in about 30 months from now by the end of 2016. But according to today’s drop box message from the Bundesbank that forecast just won’t do. Only if the ECB staff peers more deeply into its crystal ball and finds a more significant shortfall from the ECB’s presumably wholesome target of 2.0% inflation is it willing to bless more oomph on the printing presses:
But these steps aren’t a done deal, and depend critically on the ECB’s forecasts for inflation through 2016 that are due when the ECB meets on June 5. The central bank currently expects inflation to average 1% this year, 1.3% next year and 1.5% in 2016. ECB staff economists expect that, by the end of 2016, inflation will be around 1.7%.

The Bundesbank expects forecasts for this year to be marked down.

 

If the ECB keeps its 2016 projections unchanged then Germany’s central bank would be reluctant to support new stimulus measures, the person said.

 

The number of steps on stimulus it would back depends on how far the 2016 inflation projections undershoot current estimates, the person said.

The answer is thus reasonably evident. The ECB staff needs to re-set the inflation path so that the year-end 2016 number does not exceed 1.255%. Presumably then even the historically inflation-phobic bubba would call for moooar money and inflation.

Needless to say, in a world pregnant with geo-political, financial and economic disorder—including the accelerating slide toward meltdown in China, old-age bankruptcy in Japan, and cold war resumption on the Ukrainian front—-the idea that the ECB staff can forecast CPI inflation 30 months down the road to the third decimal place is farcical; it’s the central bankers equivalent to counting the angels on the head of a pin.

But that doesn’t matter because today’s drop box messages are not actually about the distant and unknowable economic future. They are about the need for another surge of front-running by the fast money traders in order to sustain the utterly lunatic condition under which Spain’s 10-year bond is trading at a lower yield than its equivalent US treasury note.

Obviously, the promise of a new round of easing by the ECB in June is just what the doctor ordered. And today’s drop box messages are just what is needed to “build confidence” among fast money traders so that their current heavily long positions in peripheral government debt will be maintained and enlarged.

Just to make sure that signals are clear, Murdoch’s drop box carried a second message today under the by-line of “Richard Barley” . After a lot of sophistry as to why five year Spanish debt yielding under 2% (“inflation-adjusted”) is actually a bargain due the fact that headline inflation has computed lower than trend for a few months now, the post gets to the meat of the matter. Spanish, Italian and even Greek bonds are a “buy” because the German’s are caving and the Draghi’s money machine is fixing to crank into a higher gear:
The euro-zone bond rally is remarkable. Spanish 5-year yields have fallen from north of 7% in 2012 to below those of U.S. Treasurys; Irish 10-year yields, which came close to 14% in 2011, are below those of the U.K. The market hasn’t lost the plot on credit risk, though. The current levels reflect the problem of very low euro-zone inflation and the big-bazooka policy response investors think might be coming.

 

…. On an inflation-adjusted basis, (Spanish) yields are higher than in the U.S. and U.K. Spain’s dollar-denominated bonds due 2018 yield around 2.07%, according to Tradeweb, more than five-year Treasurys due 2019 despite having a shorter maturity.

 

That reflects the true force driving bond markets…. the European Central Bank seems set to loosen policy in June, with the Bundesbank onside….

 

Given that array of forces, it wouldn’t be surprising to see euro-zone yields—including Germany, Spain and Ireland—fall further still versus those of the U.S. and U.K.

Once upon a time markets processed real world information and there was a need for independent financial journalists with actual investigative and analytical skills. But Murdoch did not become a multi-billionaire for nothing. In today’s central bank dominated financial markets he has apparently learned that human drop boxes will do just fine.

DO NO EVIL GOOGLE – CENSOR & SNITCH FOR THE STATE

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of.

This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.” – Edward Bernays – Propaganda

I find the quote above by Edward Bernays to be a perfect synopsis for everything that has come to pass over the last century. The world has become increasingly controlled by an invisible government of greedy Wall Street bankers, shadowy billionaires, immoral big business, crooked politicians, and the military industrial complex, with mammoth media conglomerates, purposefully using propaganda to manipulate and mold the minds of the masses in order to exert power and control over our lives. He wrote those words in 1928, when the only available forms of manipulation were newspapers and radio. Bernays would be ecstatic and delighted with the implements available today used by our corporate fascist state controllers as they deliver the electronic messaging guiding the public mind.

He never dreamed of television, the internet, social media, and the ability of corporations like Google, in full cooperation with the government, to censor the truth, while feeding misinformation and state sanctioned propaganda to the masses in such an efficient and effective mode. Compelling the masses to worship at the altar of technology, while idolizing the evil men running our largest banks and corporations, has been a prodigious success for the shadowy ruling power and their mass media propaganda agents. Mike Lofgren, former congressional insider and author of The Party Is Over: How Republicans Went Crazy, Democrats Became Useless and the Middle Class Got Shafted, describes these mysterious perfidious men as the Deep State:

Yes, there is another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose.

My analysis of this phenomenon is not an exposé of a secret, conspiratorial cabal; the state within a state is hiding mostly in plain sight, and its operators mainly act in the light of day. Nor can this other government be accurately termed an “establishment.”

 All complex societies have an establishment, a social network committed to its own enrichment and perpetuation. In terms of its scope, financial resources and sheer global reach, the American hybrid state, the Deep State, is in a class by itself. That said, it is neither omniscient nor invincible. The institution is not so much sinister (although it has highly sinister aspects) as it is relentlessly well entrenched.

Far from being invincible, its failures, such as those in Iraq, Afghanistan and Libya, are routine enough that it is only the Deep State’s protectiveness towards its higher-ranking personnel that allows them to escape the consequences of their frequent ineptitude. – Mike Lofgren, Anatomy of the Deep State

The techno-narcissistic American public has been manipulated into falsely believing their iGadgets, Facebook, Twitter, and thousands of Apps have made them smarter, freer and safer. As Goethe proclaimed, the majority of willfully ignorant Americans are hopelessly enslaved, while falsely believing they are free. Our controllers, through relentless propaganda and misinformation pounded into our brains by the government controlled education system and unrelenting messaging by their mass media co-conspirators, have molded the minds and opinions of the vast majority into believing government and mega-corporations are beneficial and indispensable to their well-being.

The overwhelming majority have been conditioned like rats to believe anything their keepers feed them. In order to keep society running smoothly, with little dissent, thought, opposition or questioning, the Deep State utilizes all the tools at its disposal to manipulate, influence, coerce, bully and bribe the populace into passive submission. They’ve trained us to love our servitude. The Inner Party sees this as essential to their continued control, power and enrichment, while keeping the Proles impoverished, ignorant, fearful and distracted with bread and circuses.

http://www.netcharles.com/orwell/pics/1984/1984-social-classes.gif

The key weapon in their arsenal of obedience is technology and the mega-corporations that control the flow of information disseminated to the hypnotized mindless masses. The United States has devolved into a society where a few powerful unelected unaccountable men, controlling the levers of government, education, finance, and media are able to formulate the opinions, tastes, beliefs, and fears of the masses through the effective and subtle use of technology. They have tenaciously and unflinchingly fashioned a technology addiction among the masses in order to keep them distracted, entertained and uninterested in thinking, gaining knowledge, or comprehending their roles and responsibilities as citizens in a purportedly democratic republic.

The mass media, along with their corporate compatriots – Microsoft, Apple, Verizon, AT&T, Comcast, Yahoo, Facebook and Google, gather vast amounts of data, emails, phone calls, texts, internet searches, spending habits, credit information, passwords, videos and private personal information from an agreeable, gullible and trusting populace. Americans have a seemingly infinite capacity for blindly counting on the government and the corporatocracy to use this data in an honorable and ethical manner. But, as Edward Snowden has revealed, the corporate fascist state is collecting every shred of data on every American in a systematic and thorough way. We have voluntarily surrendered our privacy, liberties, and freedoms to mega-corporations like Google and their techno-brethren, who then willingly collaborate with Big Brother NSA and allow unfettered access to this private information.

The U.S. Constitution along with the First and Fourth Amendments are meaningless to these deceitful entities. Our freedoms have dissipated at the same rate we have adopted the technological “innovations” of Facebook, Twitter, and Google. We are being monitored, scrutinized, tracked and controlled by the technology we have exuberantly purchased from the mega-corporations stripping us of our freedom. Technological “progress” has actually resulted in a colossal regression in freedom, liberty, independence, choice, and intelligent questioning of authority. We having willingly submitted to the google shackles of tyranny in exchange for being entertained and amused by Angry Birds, Words with Friends, facebooking, texting, tweeting, posting selfies and statuses, and linking in.       

“Technological progress has merely provided us with more efficient means for going backwards.” – Aldous Huxley – Ends and Means

  google big brother-2

                 

David versus the Nameless, Faceless Goliath Robot

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair – I, Candidate for Governor: And How I Got Licked

 

My enlightening encounter with the nameless, faceless $52 billion “non-evil doing” behemoth entity known as Google, over the last month, has clarified my understanding of how the invisible governing body of the Deep State uses the power of the all-mighty dollar to suppress dissent and obscure the truth. My inconsequential libertarian minded blog that attracts 15,000 visitors per day has been up and running for the last five years. I started my own blog because I didn’t want to deal with ongoing censorship of my articles by Wall Street sellout blogs such as Seeking Alpha, Minyanville, and Financial Sense.

Their salary/living depended upon them not publishing articles critical of Wall Street and the government. My intention has never been to make a living from my blog. Any donations or incidental advertising revenue allowed me to upgrade my server capacity to handle more visitors. I’m certainly not averse to making money, but the sole purpose of my blog has been to try and open people’s eyes to Wall Street criminality, political corruption, media propaganda, and the perilous financial state of our country. Therefore, I was pleasantly surprised when Google approved my website for ads in December.

I will admit my site has been essentially an un-moderated free for all going back to the very beginning in 2009. I do not believe in censorship or false civility. I attempt to induce anger and outrage with every article and post. These are desperate times and anger is the appropriate reaction. The country is on a burning platform of unsustainable policies and practices which threaten the future of our society. I’m pissed off and I want others to be just as pissed off. The regular commenters are intelligent, critical, opinionated, and not afraid to unload with both barrels on fellow regulars or newbies. The language is often strong and the posting of pictures and images adds to the frat house like atmosphere. Regular contributors include doctors, farmers, engineers, business owners, accountants, teachers, waitresses, students, homemakers, soldiers, spies, and retirees. The wild-west nature of the site is not a secret to anyone who has ventured a peek. I assume Google did a review of the site before approving it for their Adsense program.

I started running Google ads on my site in early December. My site operated as it always had. The $30 per day in ad revenue was welcome, as it helped defray my server and security expenses. I experience a surge in visitors whenever I publish an article that gets picked up by fellow truth telling alternative media websites like Zero Hedge, 321 Gold, Washington’s Blog, Jesse’s Cafe Americain, Steve Quayle, Monty Pelerin, Doug Ross, Market Oracle, Dollar Collapse, TF Metals and several others. I published an article called The Retail Death Rattle on January 20 which obliterated the false government and mainstream media recovery storyline and skewered the delusional incompetent CEOs of mega-retailers. It struck a nerve as it generated the highest visitor count in history for my site. It was even picked up by Wall Street Journal owned Marketwatch. My articles are highly critical of Wall Street, the Federal Reserve, corrupt Washington politicians and the feckless captured legacy media, but they usually fly under the radar of the ruling class. On January 22 Google disabled my ads for “policy violations”. This is the vague non-specific description provided by the non-human policing bot:

Scraped content

It’s important for a site displaying AdSense to offer significant value to the user by providing unique and relevant content, and not to place ads on auto-generated pages or pages with little to no original content. This may include, but is not limited to:

·        copying portions of text content from other sources

·        websites dedicated to embedded videos from other hosts

·        websites with gibberish content that makes no sense or seems auto-generated

·        templated or pre-generated websites that provide duplicate content to users.

Sexual content

Google ads may not be placed on pages with adult or mature content. This includes, but is not limited to, pages with images or videos containing:

·        Strategically covered nudity

·        Sheer or see-through clothing

·        Lewd or provocative poses

·        Close-ups of breasts, buttocks, or crotches

Over the last five years I have received exactly ZERO complaints from other websites or authors about re-posting their articles, with full attribution and links, on my website. No one can accuse my site of not having unique and relevant content. I have permission to post articles from Zero Hedge, Charles Hugh Smith, Michael Snyder, Jim Kunstler, David Stockman, John Mauldin, Doug Casey, Paul Rosenberg, Fred Reed and dozens of other brilliant truthful journalists detailing our societal decay. Was there some Kate Upton bikini Gifs and provocative Salma Hayak pictures scattered within the 200,000 comments made on the site in the last five years? Guilty as charged. It seems Google reviewers can’t see the hypocrisy of running ads to meet young bikini clad Asian girls, while disabling ads because there are a few bikini pictures on the website. I suspected my article had drawn the Eye of Sauron in my direction and this was the response.

http://tolkiengateway.net/w/images/f/fc/The_Lord_of_the_Rings_Online_Shadows_of_Angmar_-_Eye_of_Sauron.png

 

Speaking truth to power during these perilous times has repercussions. But I decided to make a good faith effort to follow their rules.

I had made almost 15,000 posts over the last five years. Over the next week I scanned the site and archived posts that included articles from mainstream media websites, along with a hundred or so bikini pictures. You never deal with a human being when attempting to satisfy the Google Gestapo. Identical canned appeal denial responses are issued from Google Central with no clarification or effort to help you understand their reasoning.

Hello,

Thank you for providing us with additional information about your site. However, after thoroughly reviewing theburningplatform.com and taking your feedback into consideration, we’re unable to re-enable ad serving to your site at this time, as your site appears to still be in violation.

When making changes, please note that the URL mentioned in your policy notification may be just one example and that the same violations may exist on other pages of your website. Appropriate changes must be made across your entire website before ad serving can be enabled on your site again.

If you’d like to have your site reconsidered for participation in the AdSense program, please review our program policies and make any necessary changes to your webpages.

We appreciate your cooperation.

Sincerely,

The Google AdSense Team         

There must have been some miscommunication within the Google Gestapo, as the ads were re-enabled after one week and my third appeal. A newbie, who didn’t get the memo, must have mistakenly activated my ads. Regular commenters and contributors were confused by what they could and couldn’t post on the site, as was I. The iron fist of the Google Stasi came down once again within a week, with the identical policy violation notice. I made the assumption that since the site was declared in compliance as of January 29, I only had to address anything posted since that date.

I had purged the site of any and all risqué pictures, so I knew that wasn’t a real issue. I thoroughly reviewed every post made since January 29 and archived or edited them to leave no doubt I was meeting Google’s vague guidelines. I continued to have my appeals rejected. I then went back a year and archived hundreds of other posts. By the fourth appeal rejection, I realized I would never meet their standard because it wasn’t really about violating Google content policies. It was my libertarian, anti-government, anti-Wall Street, anti-Mega-Corporation, anti-Surveillance State views that were the real issue. They were attempting to make me “not understand” or write about the creeping corporate fascist paradigm overtaking the country by making my Google salary dependent on “not understanding”.

Once I understood this truth, I was set free to provoke and prod the nameless, faceless Google entity and prove beyond a shadow of a doubt their true purpose. Their appeal form allows 1,000 characters for your response. Along with the actions I had taken, I began to question the integrity of the Google apparatchik “reviewer”, as it was clear the site was not in violation. I had archived over a thousand posts and tens of thousands of comments. I challenged the man behind the Google curtain to provide me with proof the site was still in violation. I must have struck a nerve, as out of the blue I received a new violation notice.

 Violent or disturbing content

AdSense publishers are not permitted to place Google ads on pages with violent or disturbing content, including sites with gory text or images.

Now this was funny. My site focuses on the financial, political, and social decay of our country. It in no way advocates or promotes violence. It has no graphic images or gory videos. If Google is attempting to suppress videos of revolutions occurring in Venezuela, Ukraine, and Syria from being seen by citizens of the world, their credibility is zero. If Google is attempting to suppress videos of police brutality against citizens or the police state locking down an entire city while violating the Fourth Amendment, they prove themselves to be nothing more than a fascist propaganda tool of the State. This violation notice was laughable, but I decided to call their bluff one last time. I spent three days and archived 14,000 out of the 15,000 posts ever made on my site. All that remained were my main articles, published on dozens of other sites with Google ads active, and original content produced by myself or other approved contributors. There was no violent content, scraped content, or sexual content on my website.

My ninth and final appeal was denied. I then proceeded to write an FU Google post on my website and inform my readers and contributors they were unshackled from the Google Evil Empire of Censorship. I’m in the process of restoring all of the posts I had archived. Some might argue that Google is just exercising their rights under our free market capitalism system. I would argue free market capitalism does not exist today. The unholy alliance of big banks, big corporations, big military and big media has created a state run by the few for the benefit of the few. They use their control of the purse strings to manipulate minds, crush dissent, and censor through bullying and bribery.

Once I mentally liberated myself from their financial control, I was able to see their game. They essentially wanted me to purge the site of every anti-establishment example of free speech and First Amendment rights I had ever written, in order to kneel before the altar of $$$ in the Church of Google. Google would be perfectly fine if I converted my website into a chat-fest where I discussed the details of the upcoming Kim and Kanye wedding, pondered deep issues regarding the benefits of gay marriage, conducted polls on who The Bachelor will choose to be his betrothed this season,  mused about what Hollywood stars will wear at the Academy Awards, and debated who will win the fourteenth season of American Idol. The Google money would flow freely as I contributed to the dumbing down and sedation of the masses. I have chosen not be a Judas that sells out my readers and the American public for 30 pieces of fiat to the Google Pharisees and the American corporate fascist surveillance empire.

This was not the first time the Deep State attempted to silence my anarchistic viewpoint. On June 5 Edward Snowden, American hero and patriot, released the first of thousands of documents detailing the traitorous actions of the NSA, Obama, Congress, the Judicial branch, and the corporate media. Snowden revealed the government, in cooperation with Google, Verizon, Facebook and a myriad of other technology/media companies, was collecting metadata and conducting mass surveillance of every American in violation of the Fourth Amendment, a clearly illegal form of search and seizure.

On June 19 I penned an article titled Who Are the Real Traitors? In the article I declared Obama, James Clapper, Dick Cheney, Diane Feinstein, Peter King and a plethora of other politicians, faux journalists, and talking media heads as the real traitors of the American people. The article achieved wide distribution through my usual channels and must have again drawn attention in Mordor on the Potomac. Two days later anyone with McAfee or Norton security were receiving false warnings about a malicious virus on my site. Long time readers in the military informed me the site was now blocked by the Department of Defense as a dangerous website. Other long-time readers informed me their corporations were now blocking access to the site. The site was inundated by denial of service attacks. It slowed to a crawl and was virtually inaccessible. I’m sure it was just a coincidence.  

I was forced to switch server companies and hire an anti-hacking company to protect the site, thereby increasing my cost to run the site by a factor of 10. Even though the companies I hired confirmed there were no malicious viruses on the site, Norton continued to scare Internet Explorer users from reading my site for the next eight months. How the $8 billion Symantec (owns Norton) entity could rationalize this false warning on only $80 billion Microsoft’s Internet Explorer, seems suspicious to me. The warning would not appear if you accessed the site with Mozilla Firefox, even if you employed Norton security. Norton makes it virtually impossible to appeal their false danger rating. I’m sure thousands of people were scared away from my website by these unaccountable corporate entities, working on behalf of the all-powerful state. Lofgren’s Deep State or Bernays’ Invisible Government hate the truth. They despise anyone who attempts to open the eyes of the public to their deception, criminality, and propaganda.             

Google has become a tool and partner of the Deep State. Enrichment of the state within the state is their sole purpose. Google’s Don’t Be Evil motto, originated when they were a fledgling company in 2000, has become a farce as they have descended into the netherworld as the information police for the ruling despots. They are now a humungous corporation with near monopoly control over the flow of information, searches, emails, and internet advertising. They know more about you and your habits than you do. They attempt to control freedom of speech at the point of a wire transfer. Fall into line or no advertising blood money for you. Not only do they suppress viewpoints through advertising revenue bullying, they manipulate their search engine results to hide the truth from the masses.  Google search engines filter, block and bury blog posts that contain content or information it deems incompatible with the message of its corporate fascist co-conspirators. Its oppressive corporate practices on behalf of its evil partners are an abridgment of the freedom of speech, perversion of the truth, and active attempt to mold the minds of the masses.

One of the most intelligent and cleverest contributors to my website, Nick (aka Stucky), summed up the evil entity known as Google in this pointed comment on my website:

There is an Entity out there who knows every search you ever made.

The Entity knows all about your emails, the content and address.

The Entity knows what you buy online and how often.

The Entity is developing software to predict what you will buy next.

The Entity can now even watch you, and know where you are, and what you are doing.

The Entity even knows your habits.

The Entity has enormous resources and stacks of cash.

The Entity shares your information with Lesser Entities … and also The Big Evil Entity that rules us all.

The Entity makes the NSA, CIA, FBI, DHS, and their ilk look like Lightweight Chumps.

The Entity hates you. You are just a means to an end.

The Entity is building a Profile all about you.

The Entity will soon know you better than you know yourself.

Welcome to Google, the most evil Entity on the planet.

As a society we have fallen asleep at the wheel. We’ve allowed ourselves to be lulled into complacency, distracted by minutia, mesmerized by technology, turned into consumers by corporations, pacified by financial gurus and Ivy League economists, and fearful of our own shadows. Surveillance, censorship and propaganda are the tools of the oppressive state. Free speech and truthful revelations about the Deep State are a danger in the eyes of our oppressors. Words retain power and can change the hearts and minds of a tyrannized citizenry willing to listen. V’s speech to London in the movie V for Vendetta, with slight modification, captures the essence of how Google fits into the evil matrix we inhabit today.  

Because while the truncheon may be used in lieu of conversation, words will always retain their power. Words offer the means to meaning and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn’t there?

Cruelty and injustice…intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance, coercing your conformity and soliciting your submission. How did this happen? Who’s to blame? Well certainly there are those who are more responsible than others, and they will be held accountable. But again, truth be told…if you’re looking for the guilty, you need only look into a mirror.

I know why you did it. I know you were afraid. Who wouldn’t be? War. Terror. Disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you and in your panic you turned to the government and their banking/corporate patrons. They promised you order. They promised you peace. And all they demanded in return was your silent, obedient consent.

I choose not to silently and obediently consent to the will of the Deep State. Google will not silence me. We are in the midst of a Fourth Turning and I will try to do my small part in sweeping away the existing social order and trying to replace it with a system that honors and follows the U.S. Constitution. In Part 2 of this expose of evil, I’ll provide further proof of Google’s hypocrisy, censorship, and willing participation in spying on the American people. I’m beginning to understand the major conflict which will drive this Fourth Turning – The People vs The Corporate Fascist State.

WARNING: The National Security Agency is recording and storing this communication as part of its unlawful spying program on all Americans … and people worldwide. The people who created the NSA spying program say this communication – and any responses – can and will be used against the American people at any time in the future should unelected bureaucrats within the government decide to persecute us for political reasons. Private information in digital communications is being shared between Google, Facebook, Verizon and the government. It will be used against you when it suits their purposes.

The War Party Desperately Fights Back: The Bill Kristol/Samantha Power Grand Alliance Of Neocons And “Progressives”

Guest Post from David Stockman’s Contra Corner

by Justin Raimondo

The War Party is making a comeback. After laying low in the wake of the disastrous invasion and occupation in Iraq, and the complete failure of our efforts to subdue Afghanistan, the coalition of forces that made these strategic catastrophes possible has returned – and they are winning.

While the public is still highly skeptical of foreign adventurism – recent polls show overwhelming support for supposedly “isolationist” policies – the political class is doing what it does best: undermining the popular will by simply doing an end run around the American people. Their campaign has opened up on three major fronts:

1) The Snowden revelations – The single biggest blow to the War Party’s hegemonic power in Washington was delivered by Edward Snowden, the libertarian dissident ex-NSA contractor forced into exile for exposing the horrifying scope of what is nothing less than the apparatus of a police state in the making. This set the authoritarians in both parties back on their heels: it was a blow in the dark – and this time they were on the receiving end.

However, it wasn’t long before they picked themselves up off the ground and started fighting back. As the rising tide of protest on both sides of the political spectrum threatened to upend official Washington, they mobilized their forces and manned the battlements.

The siege of the castle was begun by the heroic Rep. Justin Amash (R-Michigan), our Braveheart, who, in tandem with Rep. John Conyers (D-Michigan), introduced the most radical “reform” of the National Security Agency yet proposed: his bill would’ve yanked funding for its unconstitutional activities outright. In an effort led by “progressive” Democratic Minority Leader Nancy Pelosi, my former representative in Congress, Amash’s assault was staved off – but just barely.

In a closely-watched debate, the bill splintered the partisan divide and polarized the House along ideological lines, albeit not in accordance with the familiar left-right straitjacket we are all supposed to be wearing. For a few glorious hours the old liberal-conservative paradigm was abolished and the new political reality stood revealed in all its starkness: arguing on the floor of the House, it was libertarians versus authoritarians in a knockdown drag-out fight that nearly succeeded in toppling the Surveillance State.

But that was just the beginning. Rep. Jim Sensenbrenner (R-Wisconsin), who introduced the original “Patriot” Act, breached the castle walls by furiously denouncing the NSA data dragnet as “un-American” and demanding to know “How could the phone records of so many innocent Americans be relevant to an authorized investigation as required by the Act?”

And so the battle lines were drawn around “reform” legislation that would somehow “fix” the problem without dismantling the legal basis for the necessary task of investigating and prosecuting criminal acts. The two camps coalesced around two rival bills, one introduced in the Senate by Diane Feinstein, and the Sensenbrenner bill – known, respectively, as the “FISA Improvement Act” and the “USA Freedom Act.” The former was widely mocked – Sensenbrenner called it “a joke” – as an extension of the NSA’s powers rather than anything remotely approaching “reform,” however loosely defined, while the latter picked up co-sponsors and support on both sides of the aisle.

As the castle walls began to shudder and shake, the defenders retreated to their inner sanctum and contemplated a way to break the siege. What was needed was some kind of truce: a negotiated settlement that would let them keep the keys to their kingdom whilst giving the impression they had surrendered. So they ran up the white flag, and conferred with the other side: using the Byzantine rules of the House, which give committee chairmen the power to bottle up legislation or wave it through, they arranged for the Freedom Act to pass the Judiciary Committee – but only after being essentially gutted, as Marcy Wheeler explains here, here, here, and here. (Also here and here.)

In brief, the “compromise” bill deploys the time-honored bureaucratic weapon of linguistic obfuscation to redefine language and use it in ways no ordinary person would recognize. In translating the intent of legislators into lingo describing the technical architecture of our emerging police state, terms like “selector” can be interpreted broadly enough to put not even a dent in the NSA’s armor.

The final legislative product will be an amalgamation of the language contained in both the original Sensenbrenner bill and the Feinstein extension of the NSA’s powers, leading to the creation of a new hybrid system in which the power of the State to track, surveil, and investigate Americans on suspicion of “terrorism” will be extended in more ways than it is (theoretically) restricted.

The castle still stands, its inner sanctum unbreached – while, outside, the peasants with pitchforks gather …

2) The new cold war – The Iraq and Afghan conflicts exhausted the American people, and by the time the new gang in the White House decided to go on yet another Middle East rampage – Libya, Bahrain, Syria – their patience was coming to an end. When the Obamaites got around to Syria, with Hillary Clinton and General Petraeus leading the charge, they’d finally had enough: a major public outcry scotched that one pretty decisively. Plans to go after Iran – the neocons’ favored target – had been shelved earlier by the administration, and the War Party was frustrated. They had a very big problem: there was no one left to go to war with!

Osama bin Laden was dead, Al Qaeda in eclipse, and the never-very-convincing neocon attempt to portray China as the new bogeyman had petered out. American capitalism was conquering the Chinese market without a shot being fired anyway, so why bother?

In preparing a new war narrative, the groundwork had already been done: the neocons had been doing a job on Russia ever since their favorite oligarchs had been sent packing by Putin, and the Russian leaders’ refusal to jump on board the Iraq war train was the final straw. It wasn’t until later, however, when the complete lack of an official foreign bogeyman threatened to end the War Party’s profitable racket, that ostensible liberals and their sterner “progressive”-minded comrades enlisted as foot-soldiers in the new cold war. A storyline portraying Putin’s Russia as a homophobic racist anti-Semitic fascist Hell was thrown together, in tandem with a semi-covert effort by the US to overthrow the democratically elected Ukrainian government.

This was a cause both neocons and progressives could glom onto, and the Ukrainian coup was the perfect occasion for a grand alliance: Samantha Power and Bill Kristol, together at last!

3) The political battle – As the War Party has always understood, but some libertarians have never grasped, electoral politics is the main battlefield in the war for the hearts and minds of Americans. Insofar as mobilizing large numbers of people around a particular cause is concerned, it usually only happens around election time. Even more importantly, of course, he who controls the State controls the guns – and gets to point them in a certain direction.

The War Party has had remarkable success in reserving the job of bipartisan gatekeeper for itself: by presenting voters with a “choice” between two candidates with virtually identical views on foreign policy and civil liberties, they have managed to maintain control of the presidency, Congress, and the two major parties ever since the end of World War II.

The combined impact of war fatigue and the Snowden revelations had sent the War Party reeling, but the castle was still surrounded by the moat of electoral politics – and there are plenty of crocodiles in those waters.

As the 2016 presidential contest looms closer, the two camps – the authoritarian and libertarian tendencies in American politics – are gathering behind their respective champions. On one side is Hillary Clinton, whose disdain for the Internet predates the present NSA controversy, and who has already been all but nominated by acclamation by the Democrats a full year and a half before the first primary. Running interference for her are a number of prospective Republican candidates with zero chance of winning the White House, along with the not-for-sure candidacy of Jeb Bush. Bush’s entry would make the race a competition of rival political dynasties – an easy hook for the lazy media and a good way to obscure the real issues before the public.

And then there’s Senator Rand Paul (R-Kentucky), who has all but declared his candidacy – and is using his lawsuit against the NSA as a launching pad for his campaign.

The smear campaign against the son of Ron Paul has already started, with David Corn of Mother Jones competing with the Washington Free Beacon – the voice of Sheldon Adelson inside the Beltway – to see who can make the most vicious attacks. And they aren’t forgetting about Justin Amash, believe you me: he is the target of a primary challenge by one Brian Ellis, who is supported by millions in out of state neocon money – including a hefty donation from Home Depot – in addition to plenty of dough from the Chamber of Commerce (on account of Amash’s opposition to the corrupt crony capitalism which is the signature cause of that lobby).

Another target of the War Party, staunch anti-interventionist and Ron Paul ally Rep. Walter Jones (R-North Carolina), beat back his neocon primary opponent, a former lobbyist and Bush administration insider, but it was a close call. They had lots of money, but they never engaged Jones on the issues for which he is justly famous: his fierce opposition to the Iraq war, and his bold declaration that Dick Cheney is going to find a place in Hell right next to Lyndon Baines Johnson. Only the “Emergency Committee for Israel,” which spent a lot of moolah on ads denouncing him for not wanting war with Iran, brought up foreign policy issues during the campaign – and these probably helped Jones more than they hurt him.

In short, the War Party has fought their opponents – that is, us – to a standstill on all three battlefronts: the legislative, the ideological, and the electoral. Not only that, but they’re slowly but surely making a real comeback. Their crowning moment will be the election of Hillary Clinton – or some warmongering, anti-libertarian Republican – as President in 2016.

As Walter Cronkite used to say: and that’s the way it is, folks, as of May 8, 2014, at 3:09 Pacific Standard Time. Stay tuned to this space for updates.

http://original.antiwar.com/justin/2014/05/08/the-war-party-makes-a-comeback/

I MIGHT BE PARANOID, BUT THAT DOESN’T MEAN THEY’RE NOT OUT TO GET ME

Last Thursday I was just minding my own business and posting my normal subversive material on The Burning Platform. I was again at war with Google, as they forced one of my new advertising partners to terminate me. I left the office at 4:30 to pick up my mother and take her out to Bertuccis for her birthday. After a few hours of hearing about neighbors, friends and relatives that have died, are dying, or want to die, I was mentally exhausted. I didn’t even try to logon to the site that evening. When I tried to logon Friday morning, I immediately got a timeout message.

I logged onto my DreamHost account where I can view the analytics of what is happening on the site. At exactly 4:20 pm on Thursday afternoon the load time for the site spiked from 1 second to 30 seconds and had stayed at that level permanently. I then entered Live Chat IT Help Desk Hell.

It was not immediately apparent to me the site was under attack because I’m a clueless dolt when it comes to the IT aspects of running a website. I had gone six whole months with no website issues, which was a record for TBP. I wasted the next three days on-line with multiple low level drones from DreamHost giving me horrible advice and offering no help in solving my problem. They at least confirmed that I was under attack. Now I was really pissed. My whole weekend was ruined and I was in a foul mood. You should have seen my reaction when some dude honked at me to move my car so he could get out of a Wawa parking lot when I was at a red light with cars in front and behind me. I was ready to go “Walter” on his ass.

I had previously contracted with Stop the Hacker to fix some weaknesses in the site and asked if they could help. They recommended CloudFlare to fend off denial of service attacks. I signed up for their service and followed all their recommendations to stop the attack. It continued unabated. Now I was really frustrated. I had dropped $200 and had nothing to show for it. The IT guys at CloudFlare were much more helpful than the guys at DreamHost. They told me what DreamHost needed to do to make the CloudFlare protection work. My site’s IP address could not be made public. DreamHost refused to do what we asked.

I was ready to try anything. But my methods were highly unlikely to fix the problem.

By Sunday night I was ready to pull the plug on the site and give up. I had been receiving emails from many of the regulars and people I had never had contact with before offering their good wishes and help. When I was at my low point on Sunday I received an email from a fellow liberty minded, truth telling, oligarch hating blogger. He offered to put me in touch with his webmaster and a beautiful friendship was born.

I felt like the townsfolk in one of Clint Eastwood’s Spaghetti westerns who are being beaten, abused and mistreated by the bad guys. And then The Man With No Name arrives in town and takes on the evil doers with his six shooter.

I finally had someone who knew what they were talking about. His advice to DreamHost was spot on, but they were too stupid to understand what he was talking about. Sometime on Monday I realized my only hope was to convince The Man With No Name to take me on as a client. I asked him to save me from the banditos attacking my tiny site. As a retired gunfighter he was reluctant to enter this battle, but he slept on it and decided to do the right thing and help someone he had never met. He did it because he believes in the things I write about. On Tuesday he went to battle against an enemy that was pounding the site with 48.4 million hits over a 24 hour period.

I gave him access to my CloudFlare account and he immediately went to work assessing the situation with the top notch CloudFlare specialists. I can’t say enough about their professionalism and willingness to try new stuff to fight off the attack. I was copied on the email stream, but was completely clueless reading the various query and code banter that was taking place. The Man With No Name did tell me that this was an extremely sophisticated attack undertaken by really smart people. I guess that rules out the NSA and every other government agency.

The CloudFlare guys had to write a special program to fend off the attack. By Wednesday evening the Man With No Name had vanquished the bad guys. In his spare time he had already set up a server, transferred my databases from DreamHost, and upgraded my WordPress, while getting in some tennis, tending his garden, and drinking some beer.

The emails with offers to help continued to pour in. I’ve received a number of generous donations from TBP fans. The support has been very uplifting. Both David Stockman and Jim Kunstler offered help to get the site back up. I owe a special debt of gratitude to Mike Krieger. I’d also like to thank Thinker and RE for keeping people up to date on my plight. A few websites even ran my Under Attack page. Special thanks to Howe Street, Before It’s News, and Steve Quayle. By the end of the day on Wednesday I was optimistic we could be live today. When Clint said it was ready for prime time, I was psyched. I told him to pull the trigger and let’s resume this gunfight with the evil establishment.

So what did I learn from this experience?

First of all, this was a crime. What was done to my site over the last week was against the law. Do you think the authorities give a shit about me and my website? Do you think the police would undertake an investigation into this crime? Not a chance. They are too busy prosecuting farmers for selling fresh milk, ranchers for letting their cattle graze on grass, and tazering little old ladies on the side of the road. The government was either behind the cyber-attack or cheering it on from the sidelines. The rule of law no longer exists in this country. If you are not part of the establishment, you are the enemy.

I learned that TBP is having an impact. This was not an attack carried out by some pimply teenager in the Ukraine. It was an all-out assault on the truth. It was a blatant attempt at censorship. The attacker was attempting to put my website out of commission for good. They do not like what I have to say. They are worried that too many people will start paying attention to what is really happening in this country.

They know I’m a one man operation with limited financial resources and no technical resources to fight such a major attack. They came close to making me throw in the towel. But what they didn’t realize is that words matter. I’ve written hundreds of articles over the last five years. And people with certain skills I do not have, agree with my point of view. They felt compelled to help me fight this battle. This episode proves to me that the little people can stand up to the oligarchs and win.

The TBP community has lost lots of battles against Google, the MSM, and the government, but we will win the war. This country is headed down the wrong path. The accumulation of debt, suicidal monetary policies, and unsustainable fiscal policies, combined with a totally corrupt political system, and a financial system designed by evil men to benefit evil men, will lead to the destruction of our society. I see it as my duty to my children and the other rational thinking people in this country to tear down the existing establishment at every opportunity. The existing social order must be swept away before progress has a chance.

The oligarchs will not go down without a fight. This past week was the opening volley in this battle for liberty. I fear it will get much worse than a cyber-attack on my website. The mass surveillance of all Americans, military training exercises in American cities, and the trashing of the 4th Amendment are all warning signals not being heeded by the general population.

The coming years will require fortitude, courage to stand up to the establishment, sacrifice, and a will to create a better tomorrow for our children and grandchildren. I will keep fighting until some government thugs kick in my front door and haul me off to some FEMA camp. In the meantime, I’m proud to be associated with all the TBP contributors, commenters, and readers. We have a choice between tyranny and liberty. I choose liberty.

America’s Consumers Are Dropping, Not Shopping

Submitted by David Stockman via Contra Corner blog,

McDonald’s latest results confirm that something is very much amiss on the consumer side. Total global revenue grew only 1% Y/Y, including new store launches and acquisitions.

However, as has been the pattern since 2012, US comparable store sales lagged markedly. The rate of contraction in Q1 was actually the worst in more than a decade.

ABOOK Apr McD Same Store US

Even if you believe that the cold and snow of January and February played a role, it could not have explained that comparison. There is simply no way that anything other than consumer exhaustion can create the chart above.

One need only glance at the revenue history of companies in the S&P 500 to see that in full effect. If McDonald’s persistent travails are limited to the company, or even the fast food industry, there is no way that the revenue pattern for MCD would so match closely that of the entire S&P 500. The commonality screams macro.

ABOOK Apr McD SP 500 Revenue

Current projections for the first quarter add up to about 2.5% revenue expansion across S&P 500 companies, but, as last quarter showed, that is likely overly optimistic (fourth quarter revenue was believed to be expanding at near 3% at the outset of earnings season in January 2014, only to be revised lower to almost 0%).

In comparison to the pre-collapse portion of the Great Recession, current results are much worse.

ABOOK Apr McD SP 500 Revenue 08 Comp

The first nine months of 2008 were incorporated into a technical recession, though I wonder how much of the last three months of that year and the first three months of 2009 have colored people’s recollections and skewed perceptions about what a recession might look like. The second phase of that event, utter collapse after the panic, is not likely to be repeated without financial threat and ruin of similar proportion. We should not expect similar downfall proportions (particularly factoring the preposterously weak “recovery” thereafter). That puts a spotlight on the comparisons with the first phase, which in its own right would have been the worst recession since 1982.

At the time, it was assumed that the economy was experiencing a “muddle”, though that was not the term used then. If you go back and read contemporary commentary, particularly from the orthodox cohort, that is exactly the narrative that was being formed (regardless of actual data).

YELLEN. The strong incoming data on spending eased my fears that we are in or are approaching a recession regime of the sort embedded in the last two Greenbooks. However, given the numerous large and worsening drags on spending, a couple of months of data aren’t enough to convince me that we are on a solid trajectory…

Janet Yellen’s comment above, from June 2008, sounds no different than what is being said right now. What looked like “drags” on tepid growth trajectories was, at that moment, something worse – and would only grow far, far more destructive further on.

If there is one striking difference between then and now, it would have to be the evident bifurcation and stratification of economic station. There is a very narrow channel into which financial and asset inflation is fostering the impression of economic activity on the mend (autos, mostly, now that housing is in reverse). However, these results shown here conclusively dismiss any and all ideas that expect such narrow benefits to be the catalyst for more widespread economic revival. In fact, what we see, particularly in the comparisons to the first phase of the Great Recession, is that such doctrine of asset inflation and the “wealth” effect are wholly incorrect toward this updated “trickle down.”

As is the case with so many other data points, there is clearly no imprint of QE 3&4 anywhere to be found. This is the only place where monetarism has been outwardly “successful”, though I sincerely doubt it will be styled as such at some point in the future.

Chronicling The Fed’s Follies: America’s Housing Fiasco Is On You, Alan Greenspan

Guest Post by David Stockman

So far we have experienced 7 million foreclosures. Beyond that there are still 9 million homeowners seriously underwater on their mortgages and there are millions more who are stranded in place because they don’t have enough positive equity to cover transactions costs and more stringent down payment requirements.

And that’s before the next down-turn in housing prices—a development which will show-up any day. In fact, another downward plunge is a positive certainty now that the buy-to-rent LBO speculators are rapidly pulling out of those “flash” bull markets in Arizona, California, Los Vegas, Florida and elsewhere. The latter were merely short-lived price eruptions which were an artifact of the Fed’s free money policies.

Yet even as Wall Street heads out of Dodge City the normal wave of organic buyers is nowhere to be seen. That’s because the inexorable normalization of interest rates is already beginning to drive housing affordability even further south among the diminishing cohort of buy-to-occupy households with sufficient income to meet today’s financing standards.

Among the latter, incomes are stagnant in real terms and have been so for a decade. In the absence of real income gains, therefore, the “affordable” price of housing is essentially an inverse function of the cost of leveraged carry. As the latter goes up, the former goes down.

In short, the socio-economic mayhem implicit in the graph below is not the end of the line or a one-time nightmare that has subsided and is now working its way out of the system as the Kool-Aid drinkers would have you believe based on the “incoming data” conveyed in the chart. Instead, the serial bubble makers in the Eccles Building have already laid the ground-work for the next up-welling of busted mortgages, home foreclosures and the related wave of disposed families and social distress.

foreclosure-completions

Yet none of this carnage was inexorable or necessary. In fact, a housing bubble of the fantastic magnitude that unfolded during the Greenspan era could not occur on the free market. The 3X gain in housing prices between 1994 and 2007 was entirely an artifact of the massive outpouring of cheap mortgage debt that occurred during that period. The latter, in turn, is a consequence of the Fed’s financial repression policies—–maneuvers that disable and paralyze market interest rates and thereby enable runaway speculations fueled by virtually unlimited cheap debt.

Case Shiller Index - Click to enlarge

Case Shiller Index – Click to enlarge

Oddly enough, even the baby-steps toward normalization of interest rates recently taken by the Fed make it easy to benchmark the monumental scale of the mortgage bubble ignited by the Maestro’s abject capitulation to Wall Street after the Bush Republicans gained the White House in December 2000. On an all-in basis, Greenspan’s reckless money printing increased mortgage volumes by up to 5X what would have prevailed in an honest free market.

As I laid out in chapter 20 of the Great Deformation (“How The Fed Brought The Gambling Mania To America’s Neighborhoods”), during the 30 months after the Fed’s first bubble splattered—the dotcom crash—-Greenspan foolishly cut money market interest rates over and over until the 6.5% cost of money on Christmas eve 2000 had been reduced to 1% by June 2003. Never before in the Fed’s 100-year history had rates been reduced by 85% in such a short interval with such reckless abandon.

Not surprisingly, variable rate mortgage issuance exploded because teaser interest rates plummeted to lower levels than even during the Great Depression. Whereas mortgage issuance had rarely topped $1 trillion in earlier years, the run rate of issuance topped $5 trillion during the second quarter of 2003.

Such a massive explosion of ultra-cheap mortgage debt was guaranteed to elicit a frenzy of speculation in residential housing. Indeed, as is evident in the chart above during the roughly 60 months after Greenspan’s panicky rate reductions incepted, the national housing price index doubled.

The great Fed Chairman of yester-year like William McChesney Martin and Paul Volcker would have been appalled by such an outbreak of speculation and would not have hesitated to pick up the punchbowl and march straight out of the party. That’s what Martin did in August 1958 when he suspected too much speculation on Wall Street only six months after a business recovery had started.

But Greenspan had by then been coroneted as the Maestro and proceeded to prove exactly why monetary central planning is such a dangerous doctrine. When it became evident that large amounts of this massive outpouring of mortgage debt were being used as “cash-out” financing and applied to current spending on new carpets, autos and Caribbean cruises, Greenspan pronounced this destructive raid by mortgage borrowers on their own home equity nest-eggs as a fabulous new advance in financial innovation called “mortgage equity withdrawal”. It would even outdo Keynes: the people, not their government, would imbibe the magic elixir of more debt, and thereby generate more spending, income and economic growth.

In truth, America’s baby-boom generation was robbing its own future retirement years, but the Maestro was oblivious. Instead, he was busy tracking the quarterly rate of MEW (“mortgage equity withdrawal”) and crowing about how it was contributing to unprecedented prosperity on Main Street. It ended up in a conflagration of exploitive lending, fraud, default and trillions of financial losses, of course, but not until $5 trillion of cumulative MEW during the decade through 2007 had ruined the financial well-being of America’s middle class for a generation to come.

Under a regime of free market interest rates $5 trillion of MEW—that is, robbing from the future to party today—could not have happened. Long before the 2003-2006 blow-off top, mortgage interest rates would have soared to double digit levels, causing monthly debt service requirements to double or triple. Moreover, in an environment of market-set interest rates there would have been no Greenspan Put or ultra cheap wholesale financing that enabled Wall Street to fund mortgage boiler shops with warehouse credit lines and buyers of its toxic securitization products with cheap repo.

In short, free market interest rates are the vital check and balance mechanism which prevents runaway spirals of debt issuance and frenzied bidding-up of asset prices. Yet it was Greenspan’s “wealth effects” doctrine that destroyed the mechanism of honest price discovery once and for all. The carnage that has ensued in the nation’s credit and housing markets, therefore, is on you, Alan Greenspan.

The outcome of the Bernanke money printing spree of 2008-2013 provides even further evidence of Greenspan’s original culpability. During that five-year period, the Fed drove the 30-year mortgage rate from 6.5% to a low of 3.3%, thereby trigging a renewed wave of “refi madness” as shown below:

Photo

Since the spring of 2013 when the Fed signaled that its massive bond purchases would enter the “taper”, however, the mortgage rate has rebounded to about 4.5%. Accordingly, about 35% of the Bernanke repression has already been retraced and even that modest start toward interest rate normalization has had dramatic impacts on mortgage volumes.

The mortgage refi machine is now virtually shutdown, meaning that the run rate of mainly purchase money mortgage originations has plummeted to about a $1 trillion per year. So the math is pretty basic: During much of the Greenspan housing bubble the mortgage origination rate was $3-4 trillion annually—a level dramatically above what is being generated right now in a market that has taken only a baby step toward normalization.

Needless to say, it was this massive and artificial excess of mortgage financing that created the original Greenspan housing bubble; that induced his successor to try to overcome the carnage of the bust with a new round of refi madness; and that has now left the nation’s residential housing market high and dry for the fourth time since 1990.

As shown below, this short-term flash boom in housing prices induced by Bernanke’s money printing spree has driven first time buyers out of the market. And now more and more “trade-up” buyers will be forced out too— as they face steadily higher interest rates on new purchase mortgages and therefore progressively lower levels of home price affordability:

first-time-home-buyer

So the housing market is on the eve of another trip through the grinder of falling prices, rising defaults and spreading socio-economic distress on Main Street. Yet because the Fed gets away with ludicrous excuses about the mayhem it causes—such as Greenspan’s pathetic claim that the housing bubble was caused by the propensity of ex-rural serfs in China to save too much when they moved into the factory cities— the debilitating cycle of bubble finance goes on.

As this recent Wall Street Journal story so starkly conveys—policy makers and lenders are so desperate to restart a new round of phony housing finance that the 3% down mortgage is already back, and 10,000 pages of Dodd-Frank regulations have done nothing so stop it:

One such lender is TD Bank, Toronto Dominion’s U.S. unit, which on Friday began accepting down payments as low as 3% through an initiative called “Right Step,” geared toward first-time buyers and low- and moderate-income buyers.

Excess savings by Chinese factory girls, indeed!

About That “Strong” March Retail Sales “Bounce”: Good Thing Summer’s Coming!

Guest Post by David Stockman at Contra Corner

What would we do without the Wall Street Journal? Do people actually pay for this lame-brained noise?

Retail Sales Surge as Consumers Rev Up Growth

Indicator Posts Best Monthly Growth Since September 2012

In fact, we are now entering the fifth season of head-fakes about “escape velocity” acceleration in as many years. Yet the Wall Street stock peddlers and their financial media echo boxes are so fixated on the latest “delta”—that is, ultra short-term “high frequency” data releases—that time and again they serve up noise, not meaningful economic signal. The former is perhaps good for a pre-open futures ramp by the algos upon the 8:30 AM headline release, but nearly useless as to the real direction of America’s struggling economy.

The WSJ headline writer quoted above might have at least noted the context in which the 1.1% seasonally mal-adjusted bounce for March was reported yesterday. It seems that even giving allowance to what the Fed believes to be the ”insufficient” level of consumer inflation in recent months that the February starting point for yesterday’s report was down nearly 1% from its level last September. So when the winter storms are all said and done and the inflation adjusted retail number for March is published, it will be back to about $183 billion on the graph below—a level obtained around Columbus Day last fall. It’s a good thing summer’s coming!

The larger point here is that the Kool-Aid drinkers keep torturing the high frequency data because they are desperate for any sign that the Fed’s $3.5 trillion of QE has favorably impacted the Main Street economy. And that’s important not because it might mean some sorely needed income and job gains for middle America, but because its utterly necessary to validate the Fed’s financial bubble. Without ”escape velocity” thru and sustainably above 3-3.5% GDP growth, there is no chance of a corporate earnings re-acceleration or the 20-30% gain in S&P 500 profits that are backed into the current forward PEs ($130 per share vs. reported LTM of $100).

Yet is it really not that hard to strain the noise out of the numbers. The starting point is to recognize that the Keynesian economists’ almost maniacal focus on monthly and quarterly GDP numbers has always been a giant mistake— and not only because they are so consistently and significantly revised after the fact owing to plugs, guesses and imputations in the early releases. The real problem is structural because quarterly GDP numbers are based on 90-day rates of ”expenditure”. The latter contains huge oscillations in the economy’s inventory stocking and destocking function, and therefore can drastically mis-convey the underlying trends.

During the past 18 quarters for example, real inventory change has ranged from -$207 billion to +$127 billion, with points up and down the range during the interim. So a far more sensible use of even the flawed GDP data is to look at the year-over-year numbers for real final sales. That captures the trend and thereby filters out the four fake GDP accelerations that Wall Street has been gumming about since the end of the recession.

Here are the numbers. During the year ending in Q4 2010—the first year of “recovery”—real final sales expanded at a 2.0% rate. The next year there was no acceleration. Real final sales in the year ended in Q4 2011 was 1.8%—then it slightly bounced to 2.5% in 2012. And then, despite the initially reported big GDP acceleration in the second half of 2013, no such thing actually happened.

In fact, the four quarter gain in real final sales as of the most recent reporting on Q4 2013 was just 1.9%; and given the weak spending data already in for Q1 2014, its virtually certain to weaken even further during this quarter. In short, based on any reasonable and adult assessment of the numbers for the last 51 months, there has been no acceleration whatsoever. The economy is bumping along the bottom at 2% and that’s it.

Moreover, the problem with the 2% trend who’s name cannot be spoken is that it invalidates the entire bubble recovery scenario in which the inhabitants of the Eccles Building and their Wall Street overlords are completely invested. What has actually happened since the fall-winter 2008 crisis is that there was a drastic and unavoidable one-time liquidation of excess business inventories and phony jobs that had built-up during the Greenspan housing and credit bubble years, but that was nearly over by June 2009. This is documented in detail in Chapter 28 of my book, The Great Deformation (see pp 583-588, “The False Depression Call That Petrified Washington”).

Since then, the natural regenerative forces of our $17 trillion capitalist economy have been slowly inching output, income and employment forward at the aforementioned 2% rate— if you believe the official inflation data, and well less than that in reality. But the Fed’s massive money printing spree has nothing to do with it because the credit expansion channel of monetary policy transmission is broken and done.

As I have repeatedly mentioned, once “peak” business and household leverage ratio where reached in 2007-2008, the Fed’s massive liquidity injections operated almost exclusively through the Wall Street speculation channel. And that is exactly what has lead to forlorn quest for “escape velocity”.

The trailing 12 months reported EPS for the S&P 500 in Q4 2011 was about $90 per share, and today it is about $100. But while earnings have grown only 5%/year on a mechanical basis, and hardly at all after giving allowance to the massive, cheap-debt fueled stock buybacks in the interim, the broad market has bubbled upwards by more than 40%. In other words, its now extended out on the same peaks—about 19X trailing profits—that were obtained before the crashes of 2000-01 and 2008-09.

Nevertheless, the Wall Street talking heads can’t help themselves with the constant ridiculous refrain that the consumer is back, and its soon off the races:

The linchpin of economic growth, the consumer, is back,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Oh, really. Real wage and salary income is only 2% above its level 73 months ago when the economy last peaked. And after a salutary rebound in the savings rate during the Great Recession, the household savings rate has been drawn down to its unsustainable bubble lows. But pettifoggers like Rupkey just keep pouring the Kool-Aid.

So the Fed sponsored Wall Street bubble inflates to its final asymptote. When the inevitable bust occurs, it will trigger a sharp retrenchment in business inventories, investment and consumer spending, but the usual suspects will say its time to restart the Keynesian Clock. That being the one that is now permanently broken but never acknowledged by our rulers in the Wall Street-Washington corridor— who long ago threw sound money and the laws of economics to the winds in a desperate attempt to hang on to ill-gotten power and wealth.

In any event, in today’s post by Jeffrey Snider, it is evident that we just had winter; that the three month retail spending average including the ballyhooed March bounced was the second weakest of this century, and that the fifth annual spring time leap into “escape velocity” is nowhere in sight.

 

ABOOK Apr 2014 Retail Sales wout Autos Jan Mar

 

Obama On The Red Line And On The Rat Line

Submitted by David Stockman’s Contra Corner

Seymour Hersh’s Blockbuster: Obama On The Red Line And On The Rat Line

Read Seymour Hersh’s devastating account of Obama’s Red Lines and Rat Lines and weep for the Republic. It is no more.

For the first time in a half-century American voters actually elected the “peace candidate” in 2008 and sent Obama to the White House to end the interventionist foreign policy that had lead to disaster in Iraq, and, implicitly, to wind down the vast war machine that had been left over from the Cold War. The latter had  been converted  by the Bush’s and Clintons into an armada of invasion and occupation that had rained death and destruction from Bosnia to Baghdad to Kandahar for no reasonable or justifiable purpose of national security.  These aggressions were simply what a war machine does, making up rationalizations as it goes along.

But the Warfare State was not about to let peace happen. Soon Obama learned the Washington pivot, rehired the core of Bush’s War Cabinet and became enmeshed in the “national security” plots and schemes which were in the pipeline when he arrived at 1600 Pennsylvanian Avenue— much like JFK inherited the disastrous Bay Of Pigs invasion. Like the despicable Alan Dulles, he inherited ambitious scoundrels like so-called General David Petraeus, who soon had him convinced that the non-sensical and bloody “surge” in Anbar Province had been a roaring success, and that it should be exported to the quagmire in Afghanistan.

Indeed, after the Afghan surge was launched in 2009 there was no turning back. The peace candidate had already become co-opted—emerging as a pliant tool of America’s rogue Warfare State that functions almost entirely outside of the Constitution and often beyond statutory law, as well. Ironically, the former editor of the Harvard Law Journal and self-proclaimed constitutional expert apparently had no qualms whatsoever about any of this. The spy agencies were nourished with massive new resources and widened mandates; Rumsfeld’s disgraceful and illegal detention operation at Guantanamo Bay was not closed as he had promised; Bush’s cowardly and counter-productive drone wars were drastically escalated; and the defense budget grew by more than $100 billion from the already bloated levels he had inherited from the “decider”.

And this gets us to Hersh’s expose. By 2011 Obama had donned the full regalia of the imperial presidency. With not so much as even a casual nod to the War Powers Act—-the first piece of legislation I worked on 43 years ago as a young aide on Capitol Hill outraged by Johnson’s and Nixon’s immoral, illegal and genocidal war on Vietnam—-the peace candidate conducted an air war and subversion campaign in Libya because he could.

Upon the bloody end of the Gadhafi regime, Obama than turned to making war on the Assad regime in Syria—without a sliver of logic as to why intervention in an age old sectarian conflict between Sunnis and Alawites would make the citizens of Nebraska one wit safer. This time he did it through the establishment of a CIA annex in Benghazi to gather and accumulate the former Libyans dictator’s lethal arsenals for transfer to the Syrian rebels—many of whom where jihadists and terrorists of the type we were allegedly trying to erase from the earth.

Moreover, as Seymour Hersh explains, the Benghazi weapons were then transited by means of an illegal CIA “rat line” through Turkey to the rebels. And the rat line was absolutely illegal because all CIA covert operations since the 1970s have been required as a matter of law to be disclosed to the Congressional leadership—-for whatever that has become worth in the post Frank Church era where shaking down the military-industrial complex for campaign money, rather than thwarting its propensity for rogue operations, has become a bipartisan pursuit of choice.

But our constitutional scholar-in-chief apparently had no problem splitting hairs. The “rat line” was deemed a “liaison” operation with England’s MI6 and thereby exempt from reporting requirements. So when the rat line operation blew up in Benghazi during the middle of the Presidential campaign in September 2012 in the incident that lead to the death of Ambassador Chris Stevens, the Obama White House just lied. No, the consulate where the deadly attack occurred was not a CIA annex and weapons depot; and, no, we never supplied any weapons to any rebels in Syria. All a pack of lies.

But when you are knee deep in intrigue and covert operations and enmeshed in plots to overthrow governments with thugs like Prime Minister Erdogan of Turkey, one calamity soon leads to another. As Hersh explains, Barrack Obama in his usual manner had authorized an outright aggression, but than wimped out after the Benghazi fiasco and abruptly shutdown the rat line.

Needless to say, this left Prime Minister Erdogan and his chief of clandestine operations high and dry. By the fall of 2012, the latter were deeply committed to the overthrow of Assad and the establishment of a client regime in Damascus. But the tide of war had already turned—the squabbling gangs of rebels were in retreat, notwithstanding the substantial aid and support they had received from Saudi Arabia, Qatar,Turkey and the West. And from there emerges the main theme of Hersh’s expose.

Obama had foolishly drawn a “red line” on Syrian use of chemical weapons in a civil war which was already engulfed in bloody savagery from both sides.  So the Turks decided to call his bluff, and enable their main rebel ally, the jihadist al-Nusra Front, to stage a false flag attack with what was known to be the signature weapon in Assad’s Soviet supplied chemical weapons arsenal– the deadly sarin gas.

Seymour Hersh explains in chapter and verse, based on a DIA secret report among other high level sources, how this abomination unfolded, and became the horrific gas attack in Ghouta on August 21, 2013. But the gravamen of the piece is his description of how the Obama White House came within two days of launching a Bush style war on Syria after it had already been warned that the proof of Assad’s complicity was lacking; and that a weapons testing lab in England had already concluded that a sarin sample obtained on the scene was of a homemade variety and not of the military grade known to be in the Assad arsenal.

Despite all this, the White House apparatus pushed an increasingly resistant Joint Chiefs of Staff through more than 35 iterations of an attack plan that had nothing to do with spanking Assad for his alleged barbarity or surgically disabling his chemical weapons capacity. The attack was to involve an armada of British, French and American air strikes along with sea-based barrage of Tomahawk missiles to take out Assad’s entire military capacity.

In short, a power-drunk amateur in the White House came within two days of launching a massive military campaign to bring about regime change in Syria—-an action of stupendous folly which would have ignited  a cauldron of fire throughout the Middle East like never before:

In the aftermath of the 21 August attack Obama ordered the Pentagon to draw up targets for bombing. Early in the process, the former intelligence official said, ‘the White House rejected 35 target sets provided by the joint chiefs of staff as being insufficiently “painful” to the Assad regime.’ The original targets included only military sites and nothing by way of civilian infrastructure. Under White House pressure, the US attack plan evolved into ‘a monster strike’: two wings of B-52 bombers were shifted to airbases close to Syria, and navy submarines and ships equipped with Tomahawk missiles were deployed. ‘Every day the target list was getting longer,’ the former intelligence official told me. ‘The Pentagon planners said we can’t use only Tomahawks to strike at Syria’s missile sites because their warheads are buried too far below ground, so the two B-52 air wings with two-thousand pound bombs were assigned to the mission. Then we’ll need standby search-and-rescue teams to recover downed pilots and drones for target selection. It became huge.’ The new target list was meant to ‘completely eradicate any military capabilities Assad had’, the former intelligence official said. The core targets included electric power grids, oil and gas depots, all known logistic and weapons depots, all known command and control facilities, and all known military and intelligence buildings.

 

Britain and France were both to play a part. On 29 August, the day Parliament voted against Cameron’s bid to join the intervention, the Guardian reported that he had already ordered six RAF Typhoon fighter jets to be deployed to Cyprus, and had volunteered a submarine capable of launching Tomahawk missiles. The French air force – a crucial player in the 2011 strikes on Libya – was deeply committed, according to an account in Le Nouvel Observateur; François Hollande had ordered several Rafale fighter-bombers to join the American assault. Their targets were reported to be in western Syria.

 

By the last days of August the president had given the Joint Chiefs a fixed deadline for the launch. ‘H hour was to begin no later than Monday morning [2 September], a massive assault to neutralise Assad,’ the former intelligence official said.

At the eleventh hour Obama backed down when General Dempsey said flat out no—and then lied that he had changed his mind after a walk around the White House with his clueless chief of staff. The foolish incumbent in the White House and his clownish Secretary of State, the man with the big head of hair and self-evidently not much underneath, then had to suffer the indignity of being rescued from their disastrous schemes and misadventures by Vladimir Putin.

Does that not explain their subsequent insensible campaign to destabilize the Ukraine and then to provoke the current insane showdown with Russia that has resulted from the putsch against a legitimately elected government in Kiev? Does not Obama’s incredible follies and abuses of power here described provide a palpable warning that it is time to dismantle the Warfare State? That is, before still another election turns out to be a mere ratification of an American Imperium being conducted by a permanent rogue regime buried deep within the Warfare State that our national security no longer requires?

As I said, read Seymour Hersh’s devastating expose and think about it.

Seymour M. Hersh on Obama, Erdo?an and the Syrian rebels

In 2011 Barack Obama led an allied military intervention in Libya without consulting the US Congress. Last August, after the sarin attack on the Damascus suburb of Ghouta, he was ready to launch an allied air strike, this time to punish the Syrian government for allegedly crossing the ‘red line’ he had set in 2012 on the use of chemical weapons.[*]?? Then with less than two days to go before the planned strike, he announced that he would seek congressional approval for the intervention. The strike was postponed as Congress prepared for hearings, and subsequently cancelled when Obama accepted Assad’s offer to relinquish his chemical arsenal in a deal brokered by Russia. Why did Obama delay and then relent on Syria when he was not shy about rushing into Libya? The answer lies in a clash between those in the administration who were committed to enforcing the red line, and military leaders who thought that going to war was both unjustified and potentially disastrous.

 

Obama’s change of mind had its origins at Porton Down, the defence laboratory in Wiltshire. British intelligence had obtained a sample of the sarin used in the 21 August attack and analysis demonstrated that the gas used didn’t match the batches known to exist in the Syrian army’s chemical weapons arsenal. The message that the case against Syria wouldn’t hold up was quickly relayed to the US joint chiefs of staff. The British report heightened doubts inside the Pentagon; the joint chiefs were already preparing to warn Obama that his plans for a far-reaching bomb and missile attack on Syria’s infrastructure could lead to a wider war in the Middle East. As a consequence the American officers delivered a last-minute caution to the president, which, in their view, eventually led to his cancelling the attack.

 

For months there had been acute concern among senior military leaders and the intelligence community about the role in the war of Syria’s neighbours, especially Turkey. Prime Minister Recep Erdo?an was known to be supporting the al-Nusra Front, a jihadist faction among the rebel opposition, as well as other Islamist rebel groups. ‘We knew there were some in the Turkish government,’ a former senior US intelligence official, who has access to current intelligence, told me, ‘who believed they could get Assad’s nuts in a vice by dabbling with a sarin attack inside Syria – and forcing Obama to make good

 

The joint chiefs also knew that the Obama administration’s public claims that only the Syrian army had access to sarin were wrong. The American and British intelligence communities had been aware since the spring of 2013 that some rebel units in Syria were developing chemical weapons. On 20 June analysts for the US Defense Intelligence Agency issued a highly classified five-page ‘talking points’ briefing for the DIA’s deputy director, David Shedd, which stated that al-Nusra maintained a sarin production cell: its programme, the paper said, was ‘the most advanced sarin plot since al-Qaida’s pre-9/11 effort’. (According to a Defense Department consultant, US intelligence has long known that al-Qaida experimented with chemical weapons, and has a video of one of its gas experiments with dogs.) The DIA paper went on: ‘Previous IC [intelligence community] focus had been almost entirely on Syrian CW [chemical weapons] stockpiles; now we see ANF attempting to make its own CW … Al-Nusrah Front’s relative freedom of operation within Syria leads us to assess the group’s CW aspirations will be difficult to disrupt in the future.’ The paper drew on classified intelligence from numerous agencies: ‘Turkey and Saudi-based chemical facilitators,’ it said, ‘were attempting to obtain sarin precursors in bulk, tens of kilograms, likely for the anticipated large scale production effort in Syria.’ (Asked about the DIA paper, a spokesperson for the director of national intelligence said: ‘No such paper was ever requested or produced by intelligence community analysts.’)

 

Last May, more than ten members of the al-Nusra Front were arrested in southern Turkey with what local police told the press were two kilograms of sarin. In a 130-page indictment the group was accused of attempting to purchase fuses, piping for the construction of mortars, and chemical precursors for sarin. Five of those arrested were freed after a brief detention. The others, including the ringleader, Haytham Qassab, for whom the prosecutor requested a prison sentence of 25 years, were released pending trial. In the meantime the Turkish press has been rife with speculation that the Erdo?an administration has been covering up the extent of its involvement with the rebels. In a news conference last summer, Aydin Sezgin, Turkey’s ambassador to Moscow, dismissed the arrests and claimed to reporters that the recovered ‘sarin’ was merely ‘anti-freeze’.

 

The DIA paper took the arrests as evidence that al-Nusra was expanding its access to chemical weapons. It said Qassab had ‘self-identified’ as a member of al-Nusra, and that he was directly connected to Abd-al-Ghani, the ‘ANF emir for military manufacturing’. Qassab and his associate Khalid Ousta worked with Halit Unalkaya, an employee of a Turkish firm called Zirve Export, who provided ‘price quotes for bulk quantities of sarin precursors’. Abd-al-Ghani’s plan was for two associates to ‘perfect a process for making sarin, then go to Syria to train others to begin large scale production at an unidentified lab in Syria’. The DIA paper said that one of his operatives had purchased a precursor on the ‘Baghdad chemical market’, which ‘has supported at least seven CW efforts since 2004’.

 

A series of chemical weapon attacks in March and April 2013 was investigated over the next few months by a special UN mission to Syria. A person with close knowledge of the UN’s activity in Syria told me that there was evidence linking the Syrian opposition to the first gas attack, on 19 March in Khan Al-Assal, a village near Aleppo. In its final report in December, the mission said that at least 19 civilians and one Syrian soldier were among the fatalities, along with scores of injured. It had no mandate to assign responsibility for the attack, but the person with knowledge of the UN’s activities said: ‘Investigators interviewed the people who were there, including the doctors who treated the victims. It was clear that the rebels used the gas

 

In the months before the attacks began, a former senior Defense Department official told me, the DIA was circulating a daily classified report known as SYRUP on all intelligence related to the Syrian conflict, including material on chemical weapons. But in the spring, distribution of the part of the report concerning chemical weapons was severely curtailed on the orders of Denis McDonough, the White House chief of staff. ‘Something was in there that triggered a shit fit by McDonough,’ the former Defense Department official said. ‘One day it was a huge deal, and then, after the March and April sarin attacks’ – he snapped his fingers – ‘it’s no longer there.’ The decision to restrict distribution was made as the joint chiefs ordered intensive contingency planning for a possible ground invasion of Syria whose primary objective would be the elimination of chemical weapons.

 

The former intelligence official said that many in the US national security establishment had long been troubled by the president’s red line: ‘The joint chiefs asked the White House, “What does red line mean? How does that translate into military orders? Troops on the ground? Massive strike? Limited strike?” They tasked military intelligence to study how we could carry out the threat. They learned nothing more about the president’s reasoning.’

 

In the aftermath of the 21 August attack Obama ordered the Pentagon to draw up targets for bombing. Early in the process, the former intelligence official said, ‘the White House rejected 35 target sets provided by the joint chiefs of staff as being insufficiently “painful” to the Assad regime.’ The original targets included only military sites and nothing by way of civilian infrastructure. Under White House pressure, the US attack plan evolved into ‘a monster strike’: two wings of B-52 bombers were shifted to airbases close to Syria, and navy submarines and ships equipped with Tomahawk missiles were deployed. ‘Every day the target list was getting longer,’ the former intelligence official told me. ‘The Pentagon planners said we can’t use only Tomahawks to strike at Syria’s missile sites because their warheads are buried too far below ground, so the two B-52 air wings with two-thousand pound bombs were assigned to the mission. Then we’ll need standby search-and-rescue teams to recover downed pilots and drones for target selection. It became huge.’ The new target list was meant to ‘completely eradicate any military capabilities Assad had’, the former intelligence official said. The core targets included electric power grids, oil and gas depots, all known logistic and weapons depots, all known command and control facilities, and all known military and intelligence buildings.

 

Britain and France were both to play a part. On 29 August, the day Parliament voted against Cameron’s bid to join the intervention, the Guardian reported that he had already ordered six RAF Typhoon fighter jets to be deployed to Cyprus, and had volunteered a submarine capable of launching Tomahawk missiles. The French air force – a crucial player in the 2011 strikes on Libya – was deeply committed, according to an account in Le Nouvel Observateur; François Hollande had ordered several Rafale fighter-bombers to join the American assault. Their targets were reported to be in western Syria.

 

By the last days of August the president had given the Joint Chiefs a fixed deadline for the launch. ‘H hour was to begin no later than Monday morning [2 September], a massive assault to neutralise Assad,’ the former intelligence official said. So it was a surprise to many when during a speech in the White House Rose Garden on 31 August Obama said that the attack would be put on hold, and he would turn to Congress and put it to a vote.

At this stage, Obama’s premise – that only the Syrian army was capable of deploying sarin – was unravelling. Within a few days of the 21 August attack, the former intelligence official told me, Russian military intelligence operatives had recovered samples of the chemical agent from Ghouta. They analysed it and passed it on to British military intelligence; this was the material sent to Porton Down. (A spokesperson for Porton Down said: ‘Many of the samples analysed in the UK tested positive for the nerve agent sarin.’ MI6 said that it doesn’t comment on intelligence matters.)

 

The former intelligence official said the Russian who delivered the sample to the UK was ‘a good source – someone with access, knowledge and a record of being trustworthy’. After the first reported uses of chemical weapons in Syria last year, American and allied intelligence agencies ‘made an effort to find the answer as to what if anything, was used – and its source’, the former intelligence official said. ‘We use data exchanged as part of the Chemical Weapons Convention. The DIA’s baseline consisted of knowing the composition of each batch of Soviet-manufactured chemical weapons. But we didn’t know which batches the Assad government currently had in its arsenal. Within days of the Damascus incident we asked a source in the Syrian government to give us a list of the batches the government currently had. This is why we could confirm the difference so quickly.’

 

The process hadn’t worked as smoothly in the spring, the former intelligence official said, because the studies done by Western intelligence ‘were inconclusive as to the type of gas it was. The word “sarin” didn’t come up. There was a great deal of discussion about this, but since no one could conclude what gas it was, you could not say that Assad had crossed the president’s red line.’ By 21 August, the former intelligence official went on, ‘the Syrian opposition clearly had learned from this and announced that “sarin” from the Syrian army had been used, before any analysis could be made, and the press and White House jumped at it. Since it now was sarin, “It had to be Assad.”’

 

The UK defence staff who relayed the Porton Down findings to the joint chiefs were sending the Americans a message, the former intelligence official said: ‘We’re being set up here.’ (This account made sense of a terse message a senior official in the CIA sent in late August: ‘It was not the result of the current regime. UK & US know this.’) By then the attack was a few days away and American, British and French planes, ships and submarines were at the ready.

 

The officer ultimately responsible for the planning and execution of the attack was General Martin Dempsey, chairman of the joint chiefs. From the beginning of the crisis, the former intelligence official said, the joint chiefs had been sceptical of the administration’s argument that it had the facts to back up its belief in Assad’s guilt. They pressed the DIA and other agencies for more substantial evidence. ‘There was no way they thought Syria would use nerve gas at that stage, because Assad was winning the war,’ the former intelligence official said. Dempsey had irritated many in the Obama administration by repeatedly warning Congress over the summer of the danger of American military involvement in Syria. Last April, after an optimistic assessment of rebel progress by the secretary of state, John Kerry, in front of the House Foreign Affairs Committee, Dempsey told the Senate Armed Services Committee that ‘there’s a risk that this conflict has become stalemated.’

 

Dempsey’s initial view after 21 August was that a US strike on Syria – under the assumption that the Assad government was responsible for the sarin attack – would be a military blunder, the former intelligence official said. The Porton Down report caused the joint chiefs to go to the president with a more serious worry: that the attack sought by the White House would be an unjustified act of aggression. It was the joint chiefs who led Obama to change course. The official White House explanation for the turnabout – the story the press corps told – was that the president, during a walk in the Rose Garden with Denis McDonough, his chief of staff, suddenly decided to seek approval for the strike from a bitterly divided Congress with which he’d been in conflict for years. The former Defense Department official told me that the White House provided a different explanation to members of the civilian leadership of the Pentagon: the bombing had been called off because there was intelligence ‘that the Middle East would go up in smoke’ if it was carried out.

 

The president’s decision to go to Congress was initially seen by senior aides in the White House, the former intelligence official said, as a replay of George W. Bush’s gambit in the autumn of 2002 before the invasion of Iraq: ‘When it became clear that there were no WMD in Iraq, Congress, which had endorsed the Iraqi war, and the White House both shared the blame and repeatedly cited faulty intelligence. If the current Congress were to vote to endorse the strike, the White House could again have it both ways – wallop Syria with a massive attack and validate the president’s red line commitment, while also being able to share the blame with Congress if it came out that the Syrian military wasn’t behind the attack.’ The turnabout came as a surprise even to the Democratic leadership in Congress. In September the Wall Street Journal reported that three days before his Rose Garden speech Obama had telephoned Nancy Pelosi, leader of the House Democrats, ‘to talk through the options’. She later told colleagues, according to the Journal, that she hadn’t asked the president to put the bombing to a congressional vote.

 

Obama’s move for congressional approval quickly became a dead end. ‘Congress was not going to let this go by,’ the former intelligence official said. ‘Congress made it known that, unlike the authorisation for the Iraq war, there would be substantive hearings.’ At this point, there was a sense of desperation in the White House, the former intelligence official said. ‘And so out comes Plan B. Call off the bombing strike and Assad would agree to unilaterally sign the chemical warfare treaty and agree to the destruction of all of chemical weapons under UN supervision.’ At a press conference in London on 9 September, Kerry was still talking about intervention: ‘The risk of not acting is greater than the risk of acting.’ But when a reporter asked if there was anything Assad could do to stop the bombing, Kerry said: ‘Sure. He could turn over every single bit of his chemical weapons to the international community in the next week … But he isn’t about to do it, and it can’t be done, obviously.’ As the New York Times reported the next day, the Russian-brokered deal that emerged shortly afterwards had first been discussed by Obama and Putin in the summer of 2012. Although the strike plans were shelved, the administration didn’t change its public assessment of the justification for going to war. ‘There is zero tolerance at that level for the existence of error,’ the former intelligence official said of the senior officials in the White House. ‘They could not afford to say: “We were wrong.”’ (The DNI spokesperson said: ‘The Assad regime, and only the Assad regime, could have been responsible for the chemical weapons attack that took place on 21 August.’)

 

*

 

The full extent of US co-operation with Turkey, Saudi Arabia and Qatar in assisting the rebel opposition in Syria has yet to come to light. The Obama administration has never publicly admitted to its role in creating what the CIA calls a ‘rat line’, a back channel highway into Syria. The rat line, authorised in early 2012, was used to funnel weapons and ammunition from Libya via southern Turkey and across the Syrian border to the opposition. Many of those in Syria who ultimately received the weapons were jihadists, some of them affiliated with al-Qaida. (The DNI spokesperson said: ‘The idea that the United States was providing weapons from Libya to anyone is false.’)

 

In January, the Senate Intelligence Committee released a report on the assault by a local militia in September 2012 on the American consulate and a nearby undercover CIA facility in Benghazi, which resulted in the death of the US ambassador, Christopher Stevens, and three others. The report’s criticism of the State Department for not providing adequate security at the consulate, and of the intelligence community for not alerting the US military to the presence of a CIA outpost in the area, received front-page coverage and revived animosities in Washington, with Republicans accusing Obama and Hillary Clinton of a cover-up. A highly classified annex to the report, not made public, described a secret agreement reached in early 2012 between the Obama and Erdo?an administrations. It pertained to the rat line. By the terms of the agreement, funding came from Turkey, as well as Saudi Arabia and Qatar; the CIA, with the support of MI6, was responsible for getting arms from Gaddafi’s arsenals into Syria. A number of front companies were set up in Libya, some under the cover of Australian entities. Retired American soldiers, who didn’t always know who was really employing them, were hired to manage procurement and shipping. The operation was run by David Petraeus, the CIA director who would soon resign when it became known he was having an affair with his biographer. (A spokesperson for Petraeus denied the operation ever took place.)

 

The operation had not been disclosed at the time it was set up to the congressional intelligence committees and the congressional leadership, as required by law since the 1970s. The involvement of MI6 enabled the CIA to evade the law by classifying the mission as a liaison operation. The former intelligence official explained that for years there has been a recognised exception in the law that permits the CIA not to report liaison activity to Congress, which would otherwise be owed a finding. (All proposed CIA covert operations must be described in a written document, known as a ‘finding’, submitted to the senior leadership of Congress for approval.) Distribution of the annex was limited to the staff aides who wrote the report and to the eight ranking members of Congress – the Democratic and Republican leaders of the House and Senate, and the Democratic and Republicans leaders on the House and Senate intelligence committees. This hardly constituted a genuine attempt at oversight: the eight leaders are not known to gather together to raise questions or discuss the secret information they receive.

 

The annex didn’t tell the whole story of what happened in Benghazi before the attack, nor did it explain why the American consulate was attacked. ‘The consulate’s only mission was to provide cover for the moving of arms,’ the former intelligence official, who has read the annex, said. ‘It had no real political role.’

 

Washington abruptly ended the CIA’s role in the transfer of arms from Libya after the attack on the consulate, but the rat line kept going. ‘The United States was no longer in control of what the Turks were relaying to the jihadists,’ the former intelligence official said. Within weeks, as many as forty portable surface-to-air missile launchers, commonly known as manpads, were in the hands of Syrian rebels. On 28 November 2012, Joby Warrick of the Washington Post reported that the previous day rebels near Aleppo had used what was almost certainly a manpad to shoot down a Syrian transport helicopter. ‘The Obama administration,’ Warrick wrote, ‘has steadfastly opposed arming Syrian opposition forces with such missiles, warning that the weapons could fall into the hands of terrorists and be used to shoot down commercial aircraft.’ Two Middle Eastern intelligence officials fingered Qatar as the source, and a former US intelligence analyst speculated that the manpads could have been obtained from Syrian military outposts overrun by the rebels. There was no indication that the rebels’ possession of manpads was likely the unintended consequence of a covert US programme that was no longer under US control.

 

By the end of 2012, it was believed throughout the American intelligence community that the rebels were losing the war. ‘Erdo?an was pissed,’ the former intelligence official said, ‘and felt he was left hanging on the vine. It was his money and the cut-off was seen as a betrayal.’ In spring 2013 US intelligence learned that the Turkish government – through elements of the MIT, its national intelligence agency, and the Gendarmerie, a militarised law-enforcement organisation – was working directly with al-Nusra and its allies to develop a chemical warfare capability. ‘The MIT was running the political liaison with the rebels, and the Gendarmerie handled military logistics, on-the-scene advice and training – including training in chemical warfare,’ the former intelligence official said. ‘Stepping up Turkey’s role in spring 2013 was seen as the key to its problems there. Erdo?an knew that if he stopped his support of the jihadists it would be all over. The Saudis could not support the war because of logistics – the distances involved and the difficulty of moving weapons and supplies. Erdo?an’s hope was to instigate an event that would force the US to cross the red line. But Obama didn’t respond in March and April.’

 

There was no public sign of discord when Erdo?an and Obama met on 16 May 2013 at the White House. At a later press conference Obama said that they had agreed that Assad ‘needs to go’. Asked whether he thought Syria had crossed the red line, Obama acknowledged that there was evidence such weapons had been used, but added, ‘it is important for us to make sure that we’re able to get more specific information about what exactly is happening there.’ The red line was still intact.

 

An American foreign policy expert who speaks regularly with officials in Washington and Ankara told me about a working dinner Obama held for Erdo?an during his May visit. The meal was dominated by the Turks’ insistence that Syria had crossed the red line and their complaints that Obama was reluctant to do anything about it. Obama was accompanied by John Kerry and Tom Donilon, the national security adviser who would soon leave the job. Erdo?an was joined by Ahmet Davuto?lu, Turkey’s foreign minister, and Hakan Fidan, the head of the MIT. Fidan is known to be fiercely loyal to Erdo?an, and has been seen as a consistent backer of the radical rebel opposition in Syria.

 

The foreign policy expert told me that the account he heard originated with Donilon. (It was later corroborated by a former US official, who learned of it from a senior Turkish diplomat.) According to the expert, Erdo?an had sought the meeting to demonstrate to Obama that the red line had been crossed, and had brought Fidan along to state the case. When Erdo?an tried to draw Fidan into the conversation, and Fidan began speaking, Obama cut him off and said: ‘We know.’ Erdo?an tried to bring Fidan in a second time, and Obama again cut him off and said: ‘We know.’ At that point, an exasperated Erdo?an said, ‘But your red line has been crossed!’ and, the expert told me, ‘Donilon said Erdo?an “fucking waved his finger at the president inside the White House”.’ Obama then pointed at Fidan and said: ‘We know what you’re doing with the radicals in Syria.’ (Donilon, who joined the Council on Foreign Relations last July, didn’t respond to questions about this story. The Turkish Foreign Ministry didn’t respond to questions about the dinner. A spokesperson for the National Security Council confirmed that the dinner took place and provided a photograph showing Obama, Kerry, Donilon, Erdo?an, Fidan and Davuto?lu sitting at a table. ‘Beyond that,’ she said, ‘I’m not going to read out the details of their discussions.’)

 

But Erdo?an did not leave empty handed. Obama was still permitting Turkey to continue to exploit a loophole in a presidential executive order prohibiting the export of gold to Iran, part of the US sanctions regime against the country. In March 2012, responding to sanctions of Iranian banks by the EU, the SWIFT electronic payment system, which facilitates cross-border payments, expelled dozens of Iranian financial institutions, severely restricting the country’s ability to conduct international trade. The US followed with the executive order in July, but left what came to be known as a ‘golden loophole’: gold shipments to private Iranian entities could continue. Turkey is a major purchaser of Iranian oil and gas, and it took advantage of the loophole by depositing its energy payments in Turkish lira in an Iranian account in Turkey; these funds were then used to purchase Turkish gold for export to confederates in Iran. Gold to the value of $13 billion reportedly entered Iran in this way between March 2012 and July 2013.

 

The programme quickly became a cash cow for corrupt politicians and traders in Turkey, Iran and the United Arab Emirates. ‘The middlemen did what they always do,’ the former intelligence official said. ‘Take 15 per cent. The CIA had estimated that there was as much as two billion dollars in skim. Gold and Turkish lira were sticking to fingers.’ The illicit skimming flared into a public ‘gas for gold’ scandal in Turkey in December, and resulted in charges against two dozen people, including prominent businessmen and relatives of government officials, as well as the resignations of three ministers, one of whom called for Erdo?an to resign. The chief executive of a Turkish state-controlled bank that was in the middle of the scandal insisted that more than $4.5 million in cash found by police in shoeboxes during a search of his home was for charitable donations.

 

Late last year Jonathan Schanzer and Mark Dubowitz reported in Foreign Policy that the Obama administration closed the golden loophole in January 2013, but ‘lobbied to make sure the legislation … did not take effect for six months’. They speculated that the administration wanted to use the delay as an incentive to bring Iran to the bargaining table over its nuclear programme, or to placate its Turkish ally in the Syrian civil war. The delay permitted Iran to ‘accrue billions of dollars more in gold, further undermining the sanctions regime’.

 

*

 

The American decision to end CIA support of the weapons shipments into Syria left Erdo?an exposed politically and militarily. ‘One of the issues at that May summit was the fact that Turkey is the only avenue to supply the rebels in Syria,’ the former intelligence official said. ‘It can’t come through Jordan because the terrain in the south is wide open and the Syrians are all over it. And it can’t come through the valleys and hills of Lebanon – you can’t be sure who you’d meet on the other side.’ Without US military support for the rebels, the former intelligence official said, ‘Erdo?an’s dream of having a client state in Syria is evaporating and he thinks we’re the reason why. When Syria wins the war, he knows the rebels are just as likely to turn on him – where else can they go? So now he will have thousands of radicals in his backyard.’

 

A US intelligence consultant told me that a few weeks before 21 August he saw a highly classified briefing prepared for Dempsey and the defense secretary, Chuck Hagel, which described ‘the acute anxiety’ of the Erdo?an administration about the rebels’ dwindling prospects. The analysis warned that the Turkish leadership had expressed ‘the need to do something that would precipitate a US military response’. By late summer, the Syrian army still had the advantage over the rebels, the former intelligence official said, and only American air power could turn the tide. In the autumn, the former intelligence official went on, the US intelligence analysts who kept working on the events of 21 August ‘sensed that Syria had not done the gas attack. But the 500 pound gorilla was, how did it happen? The immediate suspect was the Turks, because they had all the pieces to make it happen.’

 

As intercepts and other data related to the 21 August attacks were gathered, the intelligence community saw evidence to support its suspicions. ‘We now know it was a covert action planned by Erdo?an’s people to push Obama over the red line,’ the former intelligence official said. ‘They had to escalate to a gas attack in or near Damascus when the UN inspectors’ – who arrived in Damascus on 18 August to investigate the earlier use of gas – ‘were there. The deal was to do something spectacular. Our senior military officers have been told by the DIA and other intelligence assets that the sarin was supplied through Turkey – that it could only have gotten there with Turkish support. The Turks also provided the training in producing the sarin and handling it.’ Much of the support for that assessment came from the Turks themselves, via intercepted conversations in the immediate aftermath of the attack. ‘Principal evidence came from the Turkish post-attack joy and back-slapping in numerous intercepts. Operations are always so super-secret in the planning but that all flies out the window when it comes to crowing afterwards. There is no greater vulnerability than in the perpetrators claiming credit for success.’ Erdo?an’s problems in Syria would soon be over: ‘Off goes the gas and Obama will say red line and America is going to attack Syria, or at least that was the idea. But it did not work out that way.’

 

The post-attack intelligence on Turkey did not make its way to the White House. ‘Nobody wants to talk about all this,’ the former intelligence official told me. ‘There is great reluctance to contradict the president, although no all-source intelligence community analysis supported his leap to convict. There has not been one single piece of additional evidence of Syrian involvement in the sarin attack produced by the White House since the bombing raid was called off. My government can’t say anything because we have acted so irresponsibly. And since we blamed Assad, we can’t go back and blame Erdo?an.’

 

Turkey’s willingness to manipulate events in Syria to its own purposes seemed to be demonstrated late last month, a few days before a round of local elections, when a recording, allegedly of a government national security meeting, was posted to YouTube. It included discussion of a false-flag operation that would justify an incursion by the Turkish military in Syria. The operation centred on the tomb of Suleyman Shah, the grandfather of the revered Osman I, founder of the Ottoman Empire, which is near Aleppo and was ceded to Turkey in 1921, when Syria was under French rule. One of the Islamist rebel factions was threatening to destroy the tomb as a site of idolatry, and the Erdo?an administration was publicly threatening retaliation if harm came to it. According to a Reuters report of the leaked conversation, a voice alleged to be Fidan’s spoke of creating a provocation: ‘Now look, my commander, if there is to be justification, the justification is I send four men to the other side. I get them to fire eight missiles into empty land [in the vicinity of the tomb]. That’s not a problem. Justification can be created.’ The Turkish government acknowledged that there had been a national security meeting about threats emanating from Syria, but said the recording had been manipulated. The government subsequently blocked public access to YouTube.

 

Barring a major change in policy by Obama, Turkey’s meddling in the Syrian civil war is likely to go on. ‘I asked my colleagues if there was any way to stop Erdo?an’s continued support for the rebels, especially now that it’s going so wrong,’ the former intelligence official told me. ‘The answer was: “We’re screwed.” We could go public if it was somebody other than Erdo?an, but Turkey is a special case. They’re a Nato ally. The Turks don’t trust the West. They can’t live with us if we take any active role against Turkish interests. If we went public with what we know about Erdo?an’s role with the gas, it’d be disastrous. The Turks would say: “We hate you for telling us what we can and can’t do.”’

 

http://www.lrb.co.uk/v36/n08/seymour-m-hersh/the-red-line-and-the-rat-line

 

4 April

All Hail The Draghi Put: The Global Bond Market Is Now Well And Truly Broken

Submitted by David Stockman via Contra Corner blog,

The evil of modern central banking can nowhere better be seen than in this week’s mad stampede into $4 billion of Greek bonds. The fact is, Greece is not credit-worthy at nearly any coupon yield, but most certainly not at the 4.75% sticker that was attached to the offering.

After a 20% contraction the Greek economy has been literally eviscerated—with not much left except tourism, yogurt plants and a 27% unemployment rate. It has an impossible debt-to-GDP ratio of 170 percent and, worse still, almost all of that debt is owned by EC institutions and the IMF. That is, this week’s “winners” stand in line behind the “bail-you-in-first-brigade” that will find some way to crush private investors—-English law indentures or not—when repayment of their own tower of loans comes into question.

And the claim that Greece’s fiscal affairs have turned for the better is really preposterous.  Like Italy and some of the other PIGS, the Greek government has discovered the trick of off-balance sheet financing by stiffing its vendors. The backlog of “payables” to pharmacies, hospitals, doctors, garbage haulers, road maintenance vendors and countless more, along with deep arrearages in payments to pensioners and other transfer payment beneficiaries, has been manipulated by the finance ministry and their Brussels overseers to a far-thee-well, and now totals in the tens of billions.

This has created the impression, of course, that Greece’s budget is on the mend; its actually on the road to yet another political crisis owing to the parched liquidity among vendors and the precarious finances of beneficiaries. And that’s to say nothing of the absolute fracturing of the Greek body politic, where its current lame government survives by kicking enough recalcitrants out of the Parliament, as may be needed, to clear the next Brussels demanded action with one vote to spare.  In short, Greek sovereign risk cannot be even calculated by the market because it essentially has no functioning sovereign.

But none of this matters, of course, because the howling pack of money managers who scooped up the Greek debt at an oversubscribed rate of 5X were not pricing the non-credit of the former Greek state, but the promises of Mario Draghi—-the Goldman Sachs plenipotentiary temporarily seconded to Frankfurt.

Even the New York Times figured out that this week’s ballyhooed “return to the market” was a complete farce:

Investors may be playing a dicey game, but in the case of Greece and other shaky euro zone countries, they have been assuaged by the belief that the European financial machine will kick into gear should anything go wrong. European Central Bank President Mario Draghi has pledged to do “whatever it takes” to keep the crisis from reigniting.

They even found one of the remaining sane spokesman for the EC apparatus to clear the air and verify that the offering had nothing to do with “price discovery”—-the ostensible purpose of capital markets:

“Investors don’t look to the long-term health of economies,” said Simon Tilford, the deputy director of the Center for European Reform in London. They are looking at whether they can extract gains “without losing their shirts. At the moment, they figure they can, but that doesn’t tell us much about the sustainability of the euro zone or whether governments have taken it on a path to sounder footing.”

Besides vast mis-pricing and mis-allocation of capital, central bank puts also drastically impair even the daily vocabulary and discourse in the markets—rudiments that are essential to effective and honest price discovery.  After noting what is the sheer lunacy of the “Draghi put”, and that the herd of fast money traders which chase it have driven the yield on Spanish 5-year debt below that of US Treasuries, the NYT found one money manager who wasn’t drinking the Kool-Aid.

Fadi Zaher, the head of bonds and currencies at Kleinwort Benson, said his group had stayed on the sidelines due to “lingering concerns about the country’s poor economic health and its mountain of debt”.

Still, after noting that “there is euphoria right now over the Euro area” and that the euphoria is spilling over to Greece, Mr.Zaher concluded by saying:

“We are cautiously optimistic about the story, but looking over the longer term we are very, very cautious about it.”

Well, that is the equivalent of an analyst “hold” rating, but the vocabulary speaks for itself. The crush of momentum trading and the herd kiting of central banks is so overwhelming that even a professional skeptic could only muster a “very, very cautious” utterance. In truth, the better utterance would have been a “sell, sell. sell”.

Yet the very worst evil of monetary central planning is that it enables clueless politicians to believe in their own fiscal fairy tales, and to persist in the ritual can-kicking that is the scourge of central bank intoxicated politicians everywhere. In the context of its shattered economy, the Greek budget is a house of cards. Still, its current leaders, whose tenure is precarious by the day, get their turn in the spotlight to issue utterly specious pettifoggery:

In Greece, officials declared victory. Yannis Stournaras, the finance minister, said the nation had made “the biggest fiscal adjustment ever recorded since World War II” in a bid to mend its finances. The prime minister, Antonis Samaras, said in a televised statement that the strong demand for the bonds was “a sign of trust in the Greek economy and its ability to overcome the crisis.”

++++++++++++++++

What David likely did not know when he wrote this epic take-down of the farcical so-called “markets” we live in today is that:

1) Reality is already biting on these bonds (but that doesn’t matter because Greece got it cash)

and

2) The freaking country needs another bailout…

  • *GREECE MAY NEED THIRD PROGRAM AFTER SUMMER, DIJSSELBLOEM SAYS
  • *REGLING SAYS SUCCESS OF GREECE MUSTN’T LEAD TO REFORM FATIGUE

 

Bubbleberg News LP: Why We Are Plagued With Drivel Masquerading As Financial Reporting

Guest Post by David Stockman

One of the evils of massive over-financialization is that it enables Wall Street to scalp vast “rents” from the Main Street economy. These zero sum extractions not only bloat the paper wealth of the 1% but also fund a parasitic bubble finance infrastructure that would largely not exist in a world of free market finance and honest money.

The infrastructure of bubble finance can be likened to the illegal drug cartels. In that dystopic world, the immense revenue “surplus” from the 1000-fold elevation of drug prices owing to government enforced scarcity finances a giant but uneconomic apparatus of sourcing, transportation, wholesaling, distribution, corruption, coercion, murder and mayhem that would not even exist in a free market. The latter would only need LTL trucking lines and $900 vending machines.

In this context, the sprawling empire known as Bloomberg LP is the Juarez Cartel of bubble finance. Its lucrative 320,000 terminals and profit-rich $10 billion in revenue are not purely a testament to the extraordinary inventive genius of Michael Bloomberg The Younger. In fact, Bloomberg’s 1981 invention owed a huge debt of gratitude to Richard Nixon and Milton Friedman. It was they who destroyed the Bretton Woods regime of anchored money and global financial discipline that made “Bloombergs” necessary.

Let me explain. Under the fixed exchange rate regime of Bretton Woods—ironically, designed mostly by J.M. Keynes himself with help from Comrade Harry Dexter White—there was no $4 trillion daily currency futures and options market; no interest rate swap monster with $500 trillion outstanding and counting; no gamblers den called the SPX futures pit and all its variants, imitators, derivatives and mutations; no ETF casino for the plodders or multi-trillion market in “bespoke” (OTC) derivatives for the fast money insiders. Indeed, prior to Friedman’s victory for floating central bank money at Camp David in August 1971 there were not even any cash settled equity options at all.

The world of fixed exchange rates between national monies ultimately anchored by the solemn obligation of the US government to redeem dollars for gold at $35 per ounce was happily Bloomberg-free for reasons that are obvious—albeit long forgotten. Importers and exporters did not need currency hedges because the exchange rates never changed. Interest rate swaps did not exist because the Fed did not micro-manage the yield curve. Consequently, there were no central bank generated inefficiencies and anomalies for dealers to arbitrage. Stated differently, interest rate swaps are “sold” not bought, and no dealers were selling.

There were also natural two-way markets in equities and bonds because the (peacetime) Fed did not peg money market rates or interpose puts, props and bailouts under the price of capital securities. This means that returns to carry trades and high-churn speculation were vastly lower than under the current regime of monetary central planning. Financial gamblers could not buy cheap S&P puts to hedge long positions in mo-mo trades, for example, meaning that free market profits from speculative trading (i.e. hedge funds) would have been meager. Indeed, the profit from “trading the dips” is a gift of the Fed because the underlying chart pattern—mild periodic undulations rising from the lower left to the upper right–is an artifice of central bank bubble finance.

And, in fact, so are all the other distincitive features of the modern equity gambling halls—index baskets, cash-settled options, ETFs, OTCs, HFTs. None of these arose from the free market; they were enabled by central bank promotion of one-way markets—that is, the Greenspan/Bernanke/Yellen “put”. The latter, in turn, is a product of the hoary doctrine called “wealth effects” which would have been laughed out of court by officials like William McChesney Martin who operated in the old world of sound money.

In short, Wall Street’s triumphalist doctrine—claiming that massive financialization of the economy is a product of market innovation and technological advance—is dead wrong. We need “bloombergs” not owing to the good fortune of high speed computers and Blythe Master’s knack for financial engineering; we are stuck with them owing to the bad fortune that Nixon and then the rest of the world adopted Milton Friedman’s flawed recipe for monetary central planning.

fin profits chart

Needless to say, the parabolic rise in financial sector profits from about 1.25% of GDP prior to Camp David to 4.25% of GDP today—call it a round $500 billion per year—is only the tip of the ice-berg. What lies beneath, according to the Commerce Department numbers crunchers, is “value-added” of some $3.75 trillion in the FIRE sector (finance, insurance and real estate), which generates the aforementioned accounting profits and consists primarily of compensation.

Here the uplift is even more dramatic. The FIRE sector’s 800 basis point gain from 14% of GDP in 1970 to 22% at present rounds to about $1.4 trillion. That’s the bloat from financialization—which is to say, the infrastructure of bubble finance. Embedded in that bloat is everything from the running cost of fund-of-funds and family offices (i.e. private chefs, ”investor” conferences at tony resorts etc.) to the vast network of bankers, brokers, appraisers, title insurers, settlement lawyers and escrow agents that tend the home mortgage churning machine.

In the latter case, the untoward impact of financialization on the world of George Bailey’s Savings and Loan can not be gainsaid. Back then, people took out mortgages and paid them off a bit at a time over 30 years owing to the fact that there was no basis for today’s serial “mortgage refi”. On the free market, mortgages would either carry floating rates or have embedded call protection on fixed rates.

Moreover, the basis for today’s serial refi would not exist. Interest rates would have no directional trend in an environment where they represent the market clearing price, balancing the supply of savings and the demand for loanable funds.

By contrast, the artificial downward-sloping trend in mortgage rates in recent decades has been an intentional outcome of the Fed’s interest rate rigging policies designed to goose housing prices and spur homebuilding. During the 55 months that elapsed between Lehman’s failure and April 2013, for instance, the Freddie Mac reference rate for 30-year mortgages dropped almost linearly from 6.5% to 3.3%.

As it happened, this massive inducement to home-borrowing did not generate much lift in the home-building sector because the stock of residential homes is massively over-built from the first housing bubble. But it did generate a substantial “refi” wave owing to the sheer math of mortgage finance. Indeed, Bernanke-Yellen regime have made no bones about their alleged success in driving down the 10-year treasury benchmark rate and thereby reflating the housing market.

In truth, the monetary politburo induced nothing more than another round of mortgage churn among a small sub-set of existing homeowners. There are approximately 115 million households in the US—40 million of which are renters and 25 million own their homes free and clear. Yet even among the 50 million households with mortgages, upwards of 25 million are still under-water or do not have enough positive equity to cover transactions costs and meet today’s more stringent loan-to-value requirements.

So at the end of the day, the refi churn machine has arbitrarily conferred debt service relief on a randomly selected sub-set of perhaps 10-20% of households—many of which have engaged in serial refi for several decades now. This serves no evident principle of public policy based on need or merit. But that doesn’t matter to the monetary central planners. Their only goal is to stimulate GDP as measured by the government stat mills—even if what they are measuring is more bloat from financialization.

In fact, that’s about all the Fed’s housing stimulus is now generating. For nearly 40 years, household mortgage borrowing did stimulate measured GDP. During that span the ratio of debt/wage and salary income was ratched-up by periodic Fed reflations from a pre-1970 level of about 80 percent to a peak of 210% by 2007.

But now that ”peak” debt has been reached and the household leverage ratio has fallen back slightly to about 180%, what the Fed’s ministrations produce is only a tepid amount of GDP from financialization; that is, we get a dollop of GDP from the pointless churning of home mortgages—a financial engineering process that does not create new wealth, but simply siphons existing wealth into activity among loan brokers, appraisers and real estate attorneys that the BEA is pleased to call GDP.

.FIRE economy

Indeed, the elephant in the room lurking behind the rising FIRE line in the graph above is the nation’s current $59 trillion in credit market debt. At 3.5 turns of GDP it represents a vast aberration of bubble finance, and compares to a healthy ratio of 1.5 turns that prevailed for more than a century before 1971.

These two extra turns of combined household, business, finance and government debt are not simply statistical curiosities. It represents $30 trillion of incremental debt that not only weighs heavily on the stagnating incomes of borrowers, but also represents a vast inventory of loans, bonds, hypothecations, re-hypothecations, derivatives and securitizations. It goes without saying that this immense inventory must be constantly tended, serviced, repackaged, extended, pretended and re-sliced and re-diced. Juggling the debt and chasing the “assets” which it funds and hypothecates is what financialization does.

As is well-known, the “Bloombergs” at the center of the bubble finance casino are so immensely profitable that they generate the equivalent of a drug lord’s surplus— which, in turn, funds the extensive apparatus of financial information and news production that comprise the Bloomberg empire. But at the end of the day, Bloomberg News LP is only a vertically integrated representation of the entire infrastructure of bubble finance. Reuters, the Financial Times, CNBC, Dow-Jones/News Corp and Inside Mortgage Finance are all part of the food-chain by which the bloated financial sector maintains and services itself.

It is not surprising, therefore, that the scribes and pundits employed by the bubble infrastructure cannot see beyond it; that CNBC can find an endless supply of fund managers who are buying the dips and following the Fed’s promise to keep interest rates lower longer and stock prices rising higher forever; that a corrupt financial market in which all interest rates are pegged and rigged by the Fed is taken for granted as the natural order of economics; that government borrowing to stimulate and support the economy is viewed as essential regardless of its baleful future consequences; that arbitrary central banking targets like 2% inflation as an instrument of optimum GDP growth or the bogeyman of “deflation” are embraced uncritically as axiomatic; or that economic absurdities such as zero money market interest rates for seven years running are rarely even noted.

In short, the vast infrastructure of bubble finance bends, shapes and curates the daily narrative so thoroughly that the denizens on the stage set do not even notice its vast artificiality. Its just one day at a time, and one more fix by the monetary and fiscal authorities to keep the bubble inflating, or at least stable.

In that context comes the monetary insanity of Abenomics and the economic freak-show of Japan Inc. After 20 years of relentless borrowing and money printing, it teeters on the edge of an economic abyss, shackled with massive public debt, a shrinking/aging population, a rapidly depleting savings pool, comically low interest rates on its public debt and a truly horrid fiscal posture—namely, it will need to borrow 50% of every dime its spends in the year ahead, even with the long-overdue rise of consumption taxes beginning in April.

Into that miasma comes a Bloomberg scribe, Matthew Klein, offering to essay on the upcoming baby-step toward fiscal sanity in Japan. The headline says it all:

Japan Is Taxing Itself Into Trouble

And then there follows more of the mindless narrative:

On April 1, Japan’s national sales tax will rise to 8 percent from 5 percent. Unless wages rise by an equal amount, the effect will be a drop in consumer spending…. Even if this isn’t enough to push the economy into recession, raising the sales tax is a bad move that will undermine Prime Minister Shinzo Abe’s agenda for the world’s third-largest economy….If anything, the government should be cutting taxes now

Young Matthew also notes that the Japanese people have not been astute enough to recognize what Wall Street and London gunslingers intuitively understood. That is, with the BOJ expanding its balance sheet at three times the rate relative to GDP of the Fed’s mad money printing, stock prices would soar and wealth effects would be had by all:

For instance, Japanese have been large net sellers of Japanese stocks ever since the big rally that began in the fall of 2012. Foreign investors have more faith in Abenomics than the people with the most at stake.

Then there is the news that victory over ”deflation” is in sight. Never mind that there has never been any sustained consumer price deflation in Japan, and that the current index of about 99.0 stands almost at the very spot it occupied 21 years ago in March 1993—with only tiny undulations during the intervening years:

A more encouraging bit of news is the rise in consumer prices, excluding food and energy. This measure of inflation has accelerated to 0.7 percent annually — its fastest pace since 1998, although still slower than the official target of 2 percent…..

On the drivel meanders. Nowhere is it noted that Japan’s scheduled consumption tax rise is a bitter, chronically deferred, end-of-the line fiscal necessity; that sustained 2% inflation would destroy its monstrous $10 trillion government bond market; and that Abenomics has already manifestly failed.

By trashing the Yen, Abenomics has imported massive commodity inflation onto an island that has no hydrocarbons, industrial raw materials or even operational nuke plants. Consequently, real wages are falling at an even faster rates than before and the massive debt burdens created by decades of bubble finance push the world’s largest retirement community toward its final demise.

This bit of tommyrot was published under Bloomberg Views—perhaps suggesting that it represents opinion, not hard news. But that’s just the trouble. The vast infrastructure of bubble finance generates an overpowering consensus of opinion that is utterly blind to the very bubble in which it resides.

http://www.bloombergview.com/articles/2014-03-27/japan-is-taxing-itself-into-trouble

Good Riddance to the Nanny State’s Massive, Mindless and Monumentally Meretricious War On Drugs

Via David Stockman’s Contra Corner

At age 27 Lucy Steigerwald still knows how to call a spade a spade:

…. the war on drugs is still raging. And we need to keep remembering it’s truly a war. This means half the people in our bulging prisons are both casualties of and prisoners of war. And while we keep progressing with recreational legal marijuana laws…. we cannot forget about the people who are still being punished due to the most dangerous moral panic in U.S. history. Legal precedent be damned; letting every single nonviolent drug criminal out of prison today would be the right thing to do.

Amen! Washington’s massive, mindless and monumentally meretricious war on drugs is surely one of the largest social policy disasters ever launched from the corridors of the beltway. It has plagued the continent with savage drug cartels that thrive on government created scarcity and the artificial 1000-fold elevation of drug prices which finance military-scale distribution networks. It has cruelly recruited millions of young people, especially in low-income neighborhoods, to a perilous life as drug smugglers, mules, runners and dealers or busted them for minor possession—-and then consigned them to extended sentences in the criminal training camps which comprise the nation’s bulging prisons. And it has foisted upwards of $40 billion per year on taxpayers for no valid purpose of state than to protect people from their own choices, habits, addictions and self-harm.

At long last the lunacy of the War on Drugs seems to be dawning on even mainstream voters and politicians, as reflected in liberalization referendums across the nation. But as a reminder of how the Nanny State can burrow itself deeply and intractably into the daily life of society,  Lucy Steigerwald makes another cogent observation:

I’m 27, but I still remember a time when nobody – nobody – with any kind of shot at winning political office dared discuss ending the drug war.

Funny thing. I am 68 and went to work in Washington at a time when nobody—really nobody—had even thought of starting a drug war.

So the lesson from the nation’s finally fading War on Drugs could not be more clear. Beware of politicians promising to “fix” problems that are not any business of the state in the first place. These schemes of uplift and betterment presently grow into cruel, intractable abominations.

By Lucy Steigerwald

…the moment the scorched policy of the war on drugs slows at all, it is tempting to pull a “W” on the aircraft carrier and declare “mission accomplished.”   But in May 2009, the Obama administration’s drug tsar, Gil Kerlikowske, declared that they weren’t going to call it “the war on drugs” anymore. After all, said Kerlikowske, “people see a war as a war on them. We’re not at war with people in this country.”

The Obama administration has made some token shifts towards less draconian methods of fighting, such as drug courts – which have their own problems – but Kerlikowske was basically lying. War is a nasty, disturbingly accurate, word for what the government has done for 40-plus years (mostly with public approval or at least indifference). The Korean War wasn’t a “police action,” and the door-busting, life-ruining parts of the   war on drugs did not end after their general decided calling a spade a spade was bad PR.
That switch, and other meek rhetorical gestures, have been pure show on the part of the hypocritical Obama administration until they began to timidly improve last year with some unofficial sentencing reform guidelines….(but) the legalization of recreational marijuana in Colorado and Washington State in 2012 truly did change the game. Weed was legal, really legal, for the first time in 70 years. And so far, Attorney General Eric Holder— – who is also backing more concrete sentencing reforms now –– has let those states be.

Everyone – particularly the heroic drug policy folks who made this possible– deserves to celebrate this victory. I’m 27, but I still remember a time when nobody – nobody – with any kind of shot at winning political office dared discuss ending the drug war. Not even medical marijuana was a safe enough subject on which to opine. You didn’t so much as come out against such things as they didn’t come up for debate at all. In the past five or so years, we have moved from that to this – this being mainstream politicians like Republican Governors Chris Christie (NJ) and Rick Perry (TX), and Senate Majority Leader Harry Reid, all declaring that drug laws need to be changed.

Marijuana reform is a popular issue for people, and the politicians are finally trying to catch up. It is incredible that it now safe enough an issue for non-libertarian, pro-big government politicians to endorse a truncated version of a drug war truce. But we can’t declare victory yet. This 40-year nightmare has ruined too many lives and busted too many civil liberties to count. The cause, like all of America’s ill-advised, brutal adventures do at first, sounded so nice – a drug-free society.   The result was the largest prison population in the world, and less freedom for all of us.

This war has long been global as well as domestic. We have a Drug Enforcement Administration that acts like the Central Intelligence Agency in Latin America, and has colluded with the National Security Agency at home. The United States has browbeaten other nations into following its warped example on drug policy. In Mexico, powerful drug cartels have killed 60,000 people and US policy has made that worse. And why bother repealing Posse Comitatus’ restrictions on soldiers enforcing law at home, when you can just make police indistinguishable from an army?

There is very little about this campaign against drugs that is not a literal war, at least since {Richard Nixon} made it so. And it needs to end now.

http://original.antiwar.com/lucy/2014/03/26/the-war-on-drugs-remains-literal/

We need peace more than we need legal propriety. We need to end this war,free all the prisoners, and never again trust the architects of misery and social   engineering – especially when they began to sell their next grand adventure.

Paul “Contrafactual” Krugman: The Laureate of Keynesian Babble

David Stockman tears Krugman a new asshole to go along with the one on his face.

 

If you are not Professor Paul Krugman you probably agree that Washington has left no stone unturned on the Keynesian stimulus front since the crisis of September 2008. The Fed’s balance sheet started that month at $900 billion–a figure it had accumulated mostly in dribs and drabs over the course of its first 94 years. Bubbles Ben then generated the next $900 billion in 7 weeks of mad money printing designed to keep the tottering gambling halls of Wall Street afloat. And by the time the “taper” is over later this year (?) the Fed’s balance sheet will exceed $4.7 trillion.

So $4 trillion in new central bank liabilities in six years. All conjured out of thin air. All monetary vaporware issued in exchange for treasury and GSE paper that had originally financed the consumption of real labor, material and capital resources.

And if $4 trillion of monetary magic was not enough, the action on the fiscal front was no less fulsome. At the time in March 2008 that Goldman’s plenipotentiary in Washington, Secretary Hank Paulson, joined hands with the People’s Tribune from Pacific Heights, Speaker Nancy Pelosi, to revive Jimmy Carter’s infamous $50 per family tax rebate, hoping America’s flagging consumers would be induced to buy a flat-screen TV, dinner at Red Lobster or new pair of shoes, the public debt was $9 trillion. It will be $18 trillion by the time the current “un-ceiling” on the Federal debt completes its election year leave of absence next March.

Yet $9 trillion of added national debt in six years is not the half of it. Even our Washington betters do not claim to have outlawed the business cycle, and we are now in month 57 of this expansion. Given that the average expansion during the ten “recovery” cycles since 1950 has been 53 months, it might be argued that we are already on borrowed time fiscally. That is, we have already used up the forward area on Uncle Sam’s balance sheet that is supposed to be available to absorb the predictable eruption of red ink that will occur during the next recession or financial bubble collapse or China melt-down etc.

In fact, peering at the future through its Keynesian goggles, the CBO assumes that the US economy will accelerate to nearly 3.5 percent average GDP growth until it reaches “full employment” around 2017, and then will remain in that beneficent state for all remaining time, world without end! Yet even then it projects a cumulative deficit of nearly $10 trillion under “current policy” (i.e. bipartisan can-kicking of expiring tax and spending giveaways) over the next decade.

Given the self-evident economic headwinds both at home and abroad, however, it would not be unreasonable to set aside CBO’s Rosy Scenario 2.0—a delusion I have some personal familiarity with, having invented the original version 33-years ago to the day. Indeed, a more prudent 10-year macroeconomic scenario might be simply “copy and paste”. That is to say, take the average growth rate of GDP, jobs, income and investment over the past decade and assume that the inevitable macroeconomic bumps and grinds of the next decade will average out about the same.

To be sure, some pessimists might note that more than 27 million working age citizens have dropped off the employment rolls since 2000; that presently 10,000 more are retiring each and every day; and that the ingredients of future growth have been radically short-changed, given that real investment in business fixed assets has averaged less than 1% annually for the past 14 years. So “copy and paste” might be hard to achieve in the real world ahead, but even then the added cumulative Federal deficit would total $15 trillion over the next decade under current policy.

In other words, until the sleepwalking denizens of the Washington beltway “do something” about a fiscal doomsday machine that has been put on auto-pilot since the 2008 crisis, the nation is likely to end up with upwards of $35 trillion of national debt by the middle of the next decade, while a “copy and paste” growth rate of nominal GDP (2000-2013= 4.0%) would end up at $25 trillion. In short, what is built into our fiscal future right now is a Big Fat Greek debt ratio of 140%.

Now comes Professor Krugman proposing to “do something”:

…. we should aggressively reverse the fiscal austerity of the last few years, getting government at all levels spending several points of GDP more to boost demand…. let’s say for the sake of argument that the right policy is two years of fiscal expansion amounting to 3 percent of GDP each year, plus a permanent rise in the inflation target to 4 percent. These wouldn’t be radical moves in terms of Econ 101 — they are in fact pretty much what textbook models would suggest make sense given what we have learned about macroeconomic vulnerabilities…

In short, Krugman wants to double-down on the lunacy we have already accomplished. His 4% inflation target is just code for re-accelerating the Fed’s money printing machine, thereby keeping real interest in deeply negative terrain for even more years beyond the seven-year ZIRP target the Fed has already promised. And while the Wall Street gamblers who prosper mightily from the free money carry trades enabled by this insult to honest financial markets might not even appreciate the favor, its possible that millions of Main Street households not “indexed” to Krugman’s beneficent 4% inflation target might well notice its impact.

The math is not promising. Under Krugman’s inflation RX, today’s median household income of $51,000 would compute out to $33,000 in constant dollars a decade hence—taking it back to pre-Korean War levels. But do not be troubled, of course, because right there in Krugman’s Dynamic Stochastic General Equilibrium Model (i.e. DSGE) it shows that every Wal-Mart shift supervisor will get at least a 4% wage increase each year, and that all retirees with a decent bundle of lifetime cash savings will earn at least a 4% annual return by investing in Dan Loeb’s hedge fund.

If you do not understand the DSGE, however, you might say good luck with that. And you might say that wantonly adding another $1 trillion to the national debt over the next two years, as Krugman has also prescribed, amounts to carrying “bathtub economics” to a downright absurd extreme.

At the end of the day, Professor Krugman and his Keynesian acolytes believe in a mysterious economic ether called “aggregate demand”. And through the wonders of their DSGE models they can measure the precise shortfall between aggregate demand under the nirvana of ”full employment” and the actual level of aggregate demand ( i.e GDP or spending”) generated by 150 million workers and 300 million consumers struggling to make ends meet in today’s real world. The whole point of fiscal and monetary ”stimulus”, therefore, is to insure that America’s economic bathtub is filled right up to the brim with aggregate demand, thereby insuring maximum growth of jobs, GDP and societal bliss.

Except that “aggregate demand” is a Keynesian fairy-tale that has now been playing for more than a half-century. In fact, spending or GDP cannot be conjured by the fiscal and monetary tricks of the state. Spending can only come from current income, which is the reward for current production; or it can come from borrowing, which is a claim on future income that will reduce borrowing capacity tomorrow in order to have more spending today.

In fact, four decades of fiscal and monetary stimulus have essentially layered spending from a one-time credit expansion on top of spending from current income. Unfortunately, we are presently nigh onto “peak debt”; that is, the balance sheets of households, business and the public sector have been used up after the great debt party (i.e. national LBO) since 1980 has taken the US economy’s historic leverage ratio (total credit market debt to GDP) from 1.5 turns to 3.5 turns.

That’s evident even in the specious GDP numbers from Washington’s statistical mills. If you set the aside short-run stocking and destocking of inventories in the quarterly GDP figures, the year-over-year gain in final real sales for Q4 2013 was 1.9%; and that’s also close enough for government work to the 2.5% gain ending in Q4 2012; the 1.8% rate in Q4 2011; and the 2.0% gain in Q4 2010.

In short, there is no “escape velocity” because the Fed’s credit channel is broken and done. Going forward, the American people will once again be required to live within their means, spending no more than they produce.

By contrast, Professor Krugman’s destructive recipes are entirely the product of a countrafactual economic universe that does not actually exist. He wants us to borrow and print even more because our macro-economic bathtub is not yet full. And that part is true. It doesn’t even exist.

WILL OBAMA MAN UP & CONFRONT WAR MONGERS LIKE McSHITSTAIN

Via David Stockman’s Contra Corner

On Obama’s Craven Obeisance To The War Party: Its Time To Man-Up Like Ike and JFK

by •

When it comes to national security policy there is only one way to describe the 2008 candidate of change you can believe in. Having achieved the first clear mandate for peace from the American people in 50 years, Barrack Obama promptly learned the Washington “pivot”—- beating his plowshares into an even mightier sword than the grizzly one he inherited from the “decider”.

Soon enough defense spending was rising to a historic peak, the spy-state was flourishing like never before and US drones rained destruction from the skies over more countries than even Dick Cheney had ever imagined. Meanwhile, Guantanamo remained open, another misbegotten surge was launched in Afghanistan and a whole new round of intervention and meddling was begun in Libya, Egypt, Somalia, Syria and Yemen, to name just a few.

But the worst part is that the peace candidate re-appointed the War Party to run his government—-Gates, Jones, Panetta, Blair, Clapper and countless more. So it is not surprising that five years have been wasted and that President Obama stumbles down the same calamitous path as his predecessors. In the insightful and historically rich essay below, Robert Parry essentially says enough is enough, and implores the President to man-up!

Won’t happen.

Can Obama Speak Strongly for Peace?

By Robert Parry

With the neocons again ascendant – and with the U.S. news media again failing to describe a foreign crisis honestly – Barack Obama faces perhaps the greatest challenge of his presidency, a moment when he needs to find the courage to correct a false narrative that his own administration has spun regarding Ukraine – and to explain why it’s crucial to cooperate with Russian President Vladimir Putin in the cause of world peace.

In other words, if Obama is to salvage his historical legacy, he must find within himself the strength and eloquence that President John F. Kennedy displayed in possibly his greatest oration, his June 10, 1963 address at American University in Washington, D.C. In that speech, Kennedy outlined the need to collaborate with Soviet leaders to avert dangerous confrontations, like the Cuban Missile Crisis of 1962.

President Barack Obama, with Vice President Joe Biden, attends a meeting in the Roosevelt Room of the White House, Dec. 12, 2013. (Official White House Photo by Pete Souza)

President Barack Obama, with Vice President Joe Biden, attends a meeting in the Roosevelt Room of the White House, Dec. 12, 2013. (Official White House Photo by Pete Souza)

Kennedy also declared that it was wrong for America to seek world domination, and he asserted that U.S. foreign policy must be guided by a respect for the understandable interests of adversaries as well as allies. Kennedy said:

“What kind of peace do I mean and what kind of a peace do we seek? Not a Pax Americana enforced on the world by American weapons of war. Not the peace of the grave or the security of the slave. I am talking about genuine peace, the kind of peace that makes life on earth worth living, and the kind that enables men and nations to grow, and to hope, and build a better life for their children — not merely peace for Americans but peace for all men and women, not merely peace in our time but peace in all time.”

Kennedy recognized that his appeal for this serious pursuit of peace would be dismissed by the cynics and the warmongers as unrealistic and even dangerous. The Cold War was near its peak when Kennedy spoke. But he was determined to change the frame of the foreign policy debate, away from the endless bravado of militarism:

“I speak of peace, therefore, as the necessary, rational end of rational men. I realize the pursuit of peace is not as dramatic as the pursuit of war, and frequently the words of the pursuers fall on deaf ears. But we have no more urgent task. …

“Too many of us think it is impossible. Too many think it is unreal. But that is a dangerous, defeatist belief. It leads to the conclusion that war is inevitable, that mankind is doomed, that we are gripped by forces we cannot control. We need not accept that view. Our problems are manmade; therefore, they can be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings.”

And then, in arguably the most important words that he ever spoke, Kennedy said, “For in the final analysis, our most basic common link is that we all inhabit this small planet. We all breathe the same air. We all cherish our children’s futures. And we are all mortal.”

Kennedy followed up his AU speech with practical efforts to work with Soviet leader Nikita Khrushchev to rein in dangers from nuclear weapons and to discuss other ways of reducing international tensions, initiatives that Khrushchev welcomed although many of the hopeful prospects were cut short by Kennedy’s assassination on Nov. 22, 1963.

Eisenhower’s Warning

Kennedy’s AU oration was, in many ways, a follow-up to what turned out to be President Dwight Eisenhower’s most famous speech, his farewell address of Jan. 17, 1961. That’s when Eisenhower ominously warned that “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex. … We must never let the weight of this combination endanger our liberties or democratic processes.”

Arguably no modern speeches by American presidents were as important as those two. Without the phony trumpets that often herald what are supposed to be “important” presidential addresses, Eisenhower’s stark warning and Kennedy’s humanistic appeal defined the challenges that Americans have faced in the more than half century since then.

Those two speeches, especially Eisenhower’s phrase “military-industrial complex” and Kennedy’s “we all inhabit this small planet,” resonate to the present because they were rare moments when presidents spoke truthfully to the American people.

Nearly all later “famous” remarks by presidents were either phony self-aggrandizement (Ronald Reagan’s “Mr. Gorbachev, tear down that wall” – when the wall wasn’t torn down until George H.W. Bush was president and wasn’t torn down by Mikhail Gorbachev anyway but by the German people). Or they are unintentionally self-revealing (Richard Nixon’s “I am not a crook” or Bill Clinton’s “I did not have sexual relations with that woman.”)

Obama has yet to leave behind any memorable quote, despite his undeniable eloquence. There are his slogans, like “hope and change” and some thoughtful speeches about race and income inequality, but nothing of the substance and the magnitude of Eisenhower’s “military-industrial complex” and Kennedy’s “we all inhabit this small planet.”

But now may be the time for Obama to deliver a speech that grapples with the central foreign policy question facing the United States, essentially whether America will continue seeking to be an Empire or return to being a Republic. Obama also needs to confront the crisis in the political/media worlds where propaganda holds sway and the public is misled.

If Obama doesn’t meet this challenge head on – and explain to the American people why he has sought (mostly behind the scenes) to work with Russian President Putin to reduce tensions over Syria and Iran – he can expect that the final years of his presidency will be overwhelmed by neocon demands that he start up a new Cold War.

Taunting Obama as Weak

On the op-ed page of Saturday’s New York Times, Sen. John McCain gave Obama a taste of what that will be like. The newspaper version of the op-ed was entitled “Obama Made America Look Weak” with a subhead saying, “Crimea is our chance to restore our country’s credibility.”

McCain, the neocon/hawkish Republican who lost to Obama in 2008, wrote: “Crimea has exposed the disturbing lack of realism that has characterized our foreign policy under President Obama. It is this worldview, or lack of one, that must change. For five years, Americans have been told that ‘the tide of war is receding,’ that we can pull back from the world at little cost to our interests and values. This has fed a perception that the United States is weak, and to people like Mr. Putin, weakness is provocative. …

“In Afghanistan and Iraq, [Obama’s] military decisions have appeared driven more by a desire to withdraw than to succeed. Defense budgets have been slashed based on hope, not strategy. Iran and China have bullied America’s allies at no discernible cost.”

McCain also restated the old narrative blaming the Syrian government for the Aug. 21 chemical weapons attack near Damascus, even though that case has largely collapsed. McCain wrote: “Perhaps worst of all, Bashar al-Assad crossed President Obama’s ‘red line’ by using chemical weapons in Syria, and nothing happened to him.”

The New York Times, which only grudgingly acknowledged its own erroneous reporting on the Syria CW incident, made no effort on Saturday to insist that McCain’s accusations were truthful, fitting with how major U.S. news organizations have performed as propaganda vehicles rather than serious journalistic entities in recent decades. [For more on the Syrian dispute, see Consortiumnews.com’s “The Mistaken Guns of Last August.”]

From McCain’s op-ed and other neocon writings, it’s also clear that the new goal is to go beyond Ukraine and use it as a lever to destabilize and topple Putin himself. McCain wrote: “Eventually, Russians will come for Mr. Putin in the same way and for the same reasons that Ukrainians came for Viktor F. Yanukovych. We must prepare for that day now.”

This plan for overthrowing Putin was expressed, too, by neocon Carl Gershman, the longtime president of the U.S.-funded National Endowment for Democracy, a more than $100 million-a-year slush fund that was founded in 1983 to provide financial support for groups organizing to destabilize governments that Official Washington considered troublesome.

In a Washington Post op-ed last September, Gershman wrote that “Ukraine is the biggest prize,” but added that once Ukraine was pried loose from a close association with Russia, the next target would be Putin, who “may find himself on the losing end not just in the near abroad but within Russia itself.”

If President Obama doesn’t actually believe that the United States should undertake the willful destabilization of nuclear-armed Russia, he might want to tell the American people before these matters get out of hand. He also should describe more honestly the events now overtaking Ukraine.

But it has been Obama’s custom to allow his administration’s foreign policy to be set by powerful “rivals” who often have profoundly different notions about what needs to be done in the world. Obama then tries to finesse their arguments, more like the moderator of an academic debate than President.

The best documented case of this pattern was how Defense Secretary Robert Gates, Secretary of State Hillary Clinton and General David Petraeus maneuvered Obama into what turned out to be a pointless “surge” in Afghanistan in 2009. [See Consortiumnews.com’s “Robert Gates Double-Crosses Obama.”]

Kerry’s Double-Dealing

But Obama has been undercut, too, by his current Secretary of State John Kerry, who has behaved more like President John McCain’s top diplomat than President Obama’s. To the surprise of many Democratic friends, Kerry has chosen to take highly belligerent – and factually dubious – positions on Iran, Syria and now Ukraine.

For instance, on Aug. 30, 2013, Kerry delivered what sounded like a declaration of war against Syria over what Kerry falsely presented as clear-cut evidence that the Syrian regime of President Bashar al-Assad had launched a major chemical weapons attack on Damascus suburbs. But Kerry never presented any actual evidence to support his charges, and subsequent investigations, including a scientific assessment on the limited range of the one Sarin-laden missile, undercut Kerry’s claims.

After Kerry’s bombastic speech, President Putin helped President Obama find a face-saving way out of the crisis by getting Assad to agree to eliminate his entire chemical weapons arsenal (though Assad continued denying any role in the attack). Last fall, Putin also assisted Obama in getting Iran to sign an agreement on limiting its nuclear program, though Kerry again nearly scuttled the deal.

As Obama quietly tried to build on his collaboration with Putin, Kerry’s State Department undercut the relationship once more when neocon holdover Assistant Secretary of State for European Affairs Victoria Nuland stoked the crisis in Ukraine on Russia’s border.

Last December, Nuland, the wife of prominent neocon Robert Kagan, told a group of Ukrainian business leaders that the United States had invested $5 billion to promote the country’s “European aspirations.” She also personally encouraged anti-government protesters in Kiev by passing out cookies and discussed in an intercepted phone call who should serve in the new regime once President Yanukovych was gone.

Last month, when snipers opened fire and the violence killed both protesters and police, Kerry’s State Department was quick to point the finger of blame at the democratically elected President Yanukovych, although more recent evidence, including an intercepted call involving the Estonian foreign minister, suggests that elements of the opposition shot both protesters and police as a provocation.

Nevertheless, the State Department’s rush to judgment blaming Yanukovych and the gullible acceptance of this narrative by the mainstream U.S. news media created a storyline of “white-hat” protesters vs. a “black-hat” government, ignoring the many “brown shirts” of neo-Nazi militias who had moved to the front of the Kiev uprising.

As the crisis worsened, Putin, who was focused on the Winter Olympics in Sochi, Russia, appears to have favored some compromise with the protesters, urging Yanukovych to sign an agreement with the opposition and European nations on Feb. 21 accepting a cutback in his powers and moving up elections that would have removed him from office constitutionally.

But Putin reportedly warned Yanukovych about another element of the deal in which Ukrainian police pulled back. That created an opening for the neo-Nazi militias to seize government buildings by force and to force Yanukovych to flee for his life. Under the watchful eye of these modern-day storm troopers – and with pro-Yanukovych officials facing physical threats – a rump parliament voted in lock step to go outside the constitution and remove Yanukovych from office. [For a thorough account of the uprising, see “The Ukrainian Pendulum” by Israeli journalist Israel Shamir.]

A Murky Reality

Despite the many violations of democratic and constitutional procedures, Kerry’s State Department immediately recognized the coup government as “legitimate,” as did the European Union. In reality, Ukraine had experienced a putsch which ousted the duly elected president whose political support had come from the east and south, whereas the Kiev protesters represented a minority of voters in the west.

Faced with a violent coup on its border, Russia continued to recognize Yanukovych as the legal president and to urge the reinstitution of the Feb. 21 agreement. But the West simply insisted that the coup regime was now the “legitimate” government and demanded that Russia accept the fait accompli.

Instead, Russia moved to protect ethnic Russians in Crimea and in the eastern Ukraine. That, in turn, brought charges from Kerry’s State Department about Russian “aggression” and threats that a secession vote by the people of Crimea (to leave Ukraine and rejoin Russia) was illegal.

What should now be obvious is that Secretary Kerry and his team have been operating with a self-serving and ever-changing set of rules as to what is legal and what isn’t, with the mainstream U.S. press tagging along, conveniently forgetting the many cases when the U.S. government has supported plebiscites on self-determination, including just recently Kosovo and South Sudan, or when the U.S. military has intervened in other countries, including wars supported by Sen. Kerry, such as Afghanistan, Iraq, Libya and so forth.)

But another reason why the Ukraine crisis represents a make-or-break moment for Obama’ s presidency is that he is facing extraordinary attacks from neocons and Republicans accusing him of inviting “Russian aggression” by making deals with international adversaries, rather than making war against them.

So, if Obama hopes to continue cooperating with Putin in efforts to resolve disputes with Iran, Syria and elsewhere, he is going to have to explain bluntly to the American people the real choices they face: continued warfare and costly confrontations as advocated by McCain and the neocons or compromise in the cause of peace, even with difficult adversaries.

At this point, it looks as if Obama will again try to finesse the crisis in Ukraine, embracing Official Washington’s false narrative while perhaps holding back a bit on the retaliation against Russia. But that sort of timidity is what put Obama in the corner that he now finds himself.

If Obama hopes to give himself some real maneuvering room – and have a lasting influence on how the United States deals with the rest of the world – he finally has to speak truth to the American people. He finally has to find his voice as Eisenhower and Kennedy did.

[For more of Consortiumnews.com’s exclusive coverage of the Ukraine crisis, see “Neocons Have Weathered the Storm”; “Crimea’s Case for Leaving Ukraine”; “The ‘We-Hate-Putin’ Group Think”; “Putin or Kerry: Who’s Delusional?”; “America’s Staggering Hypocrisy”; “What Neocons Want from Ukraine Crisis”; “Ukraine: One ‘Regime Change’ Too Many?”; “A Shadow US Foreign Policy”; “Cheering a ‘Democratic’ Coup in Ukraine”; “Neocons and the Ukraine Coup.”]

LET THEM EAT iPADS

David liked my Fourteen year recession article so much, he posted it on the Contra Corner and then did his own follow-up article using my little excel chart.

 

Let Them Eat iPads: 14-Years Of Data Debunk Fed’s Inflation Shortfall Canard

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Fed Chair Janet Yellen thinks the US economy is under-performing because we don’t have enough inflation:

“Inflation has continued to run below the committee’s 2 percent objective… the FOMC continues to expect inflation to move gradually back towards its objective….(but)… is mindful that inflation running persistently below its objective could pose risks to economic performance.”

This is not simply another case of “Let them eat iPads” cynicism. Hitting the wholly arbitrary 2% inflation target is sacred doctrine inside the Eccles Cathedral, and Yellen takes her scriptures, along with her money printing, every bit as literally did as the legendary William Jennings Bryan. Indeed, failing the inflation target “from below” amounts to a Cardinal Sin.

So not surprisingly, during the past 168 months running the rate of inflation according to the Fed’s preferred measure called the PCE deflator has come in exactly at a 2.0 CAGR—the annual rate embedded in the 14-year index gain of 31.65% shown in the table below. You might think the paint-by-the-numbers Keynesians who run the Fed would be thoroughly satisfied with their inflation targeting performance—even if, as Paul Volcker cogently noted, it does mathematically result in the theft of half of a working man’s savings over his lifetime.

Not exactly. The monetary politburo has been gumming about periodic bouts of too-low inflation and even “deflation” ever since Bernanke arrived in 2002. Yet unless the Fed’s unrelenting pursuit of “mission creep” has led it to the conclusion that its mandate under the wholly elastic and content-free Humphrey-Hawkins Act requires hitting its quantitative targets on an annualized seasonally-maladjusted basis every week, there is not a hint of inflation shortfall during the entire 21st Century to date.

In fact, the table below presents the cost-of-living increases that have been endured by that substantial share of the public which has eaten food or consumed fuel sometime during the past 14 years. At best, according to the official CPI—which is apparently good enough for 50 million Social Security recipients— the cost of living has actually risen by 2.4% per year or 39 percent over the period.

And even that’s got some self-evident understatement to it. Fully 25% of the CPI is accounted for by “imputed rents” on owner-occupied homes. This figure is obtained by a BLS survey of approximately 0.0002% of the nation’s 75 million homeowners asking what they would charge to rent their homes to a stranger each month. Needless to say, the tens of millions of households who have struggled with mortgage foreclosures, delinquencies and under-water loans since the housing bust have undoubtedly not been very bullish about their rental market prospects—even as their actual cash expenses for property taxes, utilities and household repair and maintenance expenses have continued to surge.

So when you get by the rent imputations and the ”hedonic adjustments” for cars, toasters, big screen TVs and iPads— the rest of the cost-of-living menu has been downright inflationary. Renters’ costs have risen one-third faster than the Fed’s target; electricity bills rose by double; college tuition is up by 2.3X and ground beef, eggs, movie tickets and health care by three-fold. And, of course, hydrocarbon-based energy is not even in the Fed’s zip code: Gasoline prices have out-run the target by 5X since January 2000 and home heating oil in places like the Northeast by 6X.

In short, the idea of “under-shooting inflation from below” is just ritual incantation. It provides the monetary central planners an excuse to keep the printing presses running red hot, but the true aim is not hard to see. After a 30 year rolling national LBO that has taken credit market debt outstanding to $59 trillion and to an off-the-charts leverage ratio of 3.5X national income, the American economy is saddled with $30 trillion of incremental household, business, financial and public debt compared to its historically sound leverage ratio of 1.5X GDP.

We are at peak debt. Household, business and government balance sheets are tapped-out. The problem is not too little CPI inflation, but the unavoidability of a pay-back era of sustained debt deflation. Yet the entire purpose of the Fed’s money printing regime—ZIRP, QE and all the rest—-is to force more debt into an economy that is already saturated. And as I have demonstrated elsewhere, the end result is that the Fed’s massive liquidity injections do not flow into the busted and exhausted Main Street credit channel, but only into the “Wall Street Bubble Channel” where they fund endless carry trades, speculations and eventually rip-roaring bubbles.

What Inflation Shortfall?

Nor has the picture changed since the 2008 financial crisis—that is, there exists no newly threatening deflationary bias, as shown below. Officially measured inflation continues to oscillate in a narrow band around 2% like it has since the late 1990s. The idea of missing the inflation target from below is just central bank jabberwocky—-a lie that actually harms the vast portion of Main Street America where incomes have lagged behind actual inflation for most of the 21st Century.

What Deflation? 17 Years of Creeping CPI - Click to enlarge