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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Archive for June 2011

Time for a break…

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JUST TO SAY TO ALL YOU FAITHFUL SUBSCRIBERS, and the hangers-on, and all the others, that Quantum Pranx will be taking a well-earned rest for a couple of weeks, starting about now… So nothing new or topical will be coming onstream in that time, but please feel free to trawl the archives. You might find an interesting or challenging article to rearrange your critical faculties, or else get you reaching for the loaded emergency pistol that you keep close by in a handy drawer… Of course, we are all well aware of a somewhat critical time frame coming up (yes, of course, it came up a long while back): the Greek crisis, the Eurozone crisis, the U.S. deficit crisis, the dollar crisis, the end of the road crisis, the future of the world crisis, blah blah. Yeah, well, that’s why QP is taking some time off… Stay safe, stay sane. –Aurick

Written by aurick

27/06/2011 at 5:15 pm

Posted in Uncategorized

Cracks beneath the Façade

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by ilene
from Stock World Weekly
Posted June 26, 2011

China 

ON THURSDAY, QU XING, DIRECTOR OF THE CHINA INSTITUTE OF INTERNATIONAL STUDIES, a Foreign Ministry think tank, told reporters that China doesn’t want to see debt restructuring in the Eurozone and is working with the IMF and countries involved with the debt crisis in an attempt to avoid it. Speaking at a press conference during a visit to Hungary, Premier Wen Jiabao said, “China is a long-term investor in Europe’s sovereign debt market. In recent years we have increased by a quite big margin holdings of Euro bonds. In the future, as we have done in the past, we will support Europe and the Euro.”. Sunday, on a tour of the Chinese-owned Longbridge MG Motor factory in Birmingham, Premier Wen told BBC it will lend to European countries, and also has plans to stimulate domestic demand and reduce its foreign trade surplus.

China’s stated position prompted Zero Hedge to ask, “Will the third time be the charm for the Chinese ‘white knight’ approach to Europe, where it has so far sunk about $50 billion in bad money after good?” Saturday, Zero Hedge reported that China’s European Bailout (And TBTF) Bid Hits Overdrive, As Wen Jiabao is Now in the Market for Hungarian Bonds. “It seems China has learned from the best, and either knows something others don’t (except for the SHIBOR market of course) or is actively preparing to become Too Biggest To Fail by making sure that if something bad happens to it, literally the entire world will follow it into the depths of hell.  Sunday, ZH wrote, “As expected, China is the new IMF… All this means is that China will do everything in its power to prevent the ECB from launching an outright unsterilized monetization episode, which will double the amount of importable inflation (plunging EUR) to hit the Chinese domestic economy, and destabilize the already shaky stability, so critical for the Chinese communist party.” (China Says It Will Bail Out Insolvent European Countries.)

It’s good to know that China has its problem with inflation now solidly under control.

 

Greece

Greece has a population of just over 11 million people. Compare that to the New York City metropolitan area population estimated at 18.9 million. It may seem strange that Greece’s travails might greatly affect the global economy, but the potential repercussions from a Greek default become more significant when considering leverage and derivatives. Data from the International Monetary Fund (IMF) show that German banks are heavily leveraged, holding 32 Euros of loans for every Euro of capital they have on hand. Other banks are leveraged to the hilt as well. Belgian banks are leveraged 30-1, and French banks are leveraged 26-1. Lehman’s leverage at the time of its collapse was 31-1. U.S. Banks are paragons of sanity by comparison, with an average leverage of only 13-1. (Europe’s sickly banks) France and Germany are the countries most exposed to Greek debt through bank and private lending and government debt exposure (chart below).

Derivatives present another potential minefield. As Louise Story wrote in the NY Times,
“It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.? No one seems to be sure, in large part because the world of derivatives is so murky. But the possibility that some company out there may have insured billions of dollars of European debt has added a new tension to the sovereign default debate… The looming uncertainties are whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default.” (Derivatives Cloud the Possible Fallout From a Greek Default)

Michael Hudson explored the differences between what happened to Iceland and its debt crisis, and what is currently happening in Greece:
“The fight for Europe’s future is being waged in Athens and other Greek cities to resist financial demands that are the 21st century’s version of an outright military attack. The threat of bank overlordship is not the kind of economy-killing policy that affords opportunities for heroism in armed battle, to be sure. Destructive financial policies are more like an exercise in the banality of evil – in this case, the pro-creditor assumptions of the European Central Bank (ECB), EU and IMF (egged on by the U.S. Treasury)…

“The bankers are trying to get a windfall by using the debt hammer to achieve what warfare did in times past. They are demanding privatization of public assets (on credit, with tax deductibility for interest so as to leave more cash flow to pay the bankers). This transfer of land, public utilities and interest as financial booty and tribute to creditor economies is what makes financial austerity like war in its effect…

“One would think that after fifty years of austerity programs and privatization selloffs to pay bad debts, the world had learned enough about causes and consequences. The banking profession chooses deliberately to be ignorant. ‘Good accepted practice’ is bolstered by Nobel Economics Prizes to provide a cloak of plausible deniability when markets “unexpectedly” are hollowed out and new investment slows as a result of financially bleeding economies, medieval-style, while wealth is siphoned up to the top of the economic pyramid.

“My friend David Kelley likes to cite Molly Ivins’ quip: ‘It’s hard to convince people that you are killing them for their own good.’ The EU’s attempt to do this didn’t succeed in Iceland. And like the Icelanders, the Greek protesters have had their fill of neoliberal learned ignorance that austerity, unemployment and shrinking markets are the path to prosperity, not deeper poverty. So we must ask what motivates central banks to promote tunnel-visioned managers who follow the orders and logic of a system that imposes needless suffering and waste – all to pursue the banal obsession that banks must not lose money?

“One must conclude that the EU’s new central planners (isn’t that what Hayek said was the Road to Serfdom?) are acting as class warriors by demanding that all losses are to be suffered by economies imposing debt deflation and permitting creditors to grab assets – as if this won’t make the problem worse. This ECB hard line is backed by U.S. Treasury Secretary Geithner, evidently so that U.S. institutions not lose their bets on derivative plays they have written up…” (Michael Hudson’s Whither Greece – Without a national referendum Iceland-style, EU dictates cannot be binding for more.)

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Feigning cluelessness, Helicopter Ben fools no one

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by Rick Ackerman
Posted ‘Rick’s Picks’ June 23, 2011

HELICOPTER BEN WAS DEEP IN DENIAL YESTERDAY FOLLOWING A TWO-DAY FED meeting, telling reporters [see below,article from SeattlePI] he’s puzzled by recent signs of deterioration in the economy.  “We don’t have a precise read on why this slower pace of growth is persisting.” Is this guy a hoot, or what?

Earth to Bernanke: The Great Recession never ended!  In fact, the term “Great Recession” itself is popularly used by plain folks to assert that economic hard times are very much with us, notwithstanding brazen statistical claims to the contrary. As anyone can see, many trillions of stimulus dollars have yet to improve a dismal employment picture one iota — only kept it from getting worse; nor have those “dollars” boosted household incomes or real estate prices. What they have boosted are bank profits and the prices of stocks, commodities and basic goods

Surprising no one, Mr. Bernanke also failed to mention the still-deflating housing market as a possible reason for the punk economy. Who but a Fed chairman could fail to connect the dots? It seems not to have occurred to him that consumers are no longer binging because their homes have continued to plummet in value – another 4.2% in the last quarter alone.

In a policy statement issued after the meeting, the Fed muckety-mucks blamed the usual suspects for the weakening economy: higher energy prices and the disaster in Japan. Perhaps Bernanke had second thoughts about trotting out such a lame explanation, however, and that’s why he deflected the matter by feigning cluelessness. Whatever the case, although he further widened the cognitive gap between the government’s spinmeisters and the working stiff, the Fed chief may have bought time to feign yet more cluelessness when he admitted that the ”sluggish recovery” could linger into next year.

We wonder what he sees for 2012 that could change things for the better, since even realtors and developers who are usually giddy with optimism seem to have accepted that there isn’t yet any light at the end of the tunnel – at least, none that can be discerned by the uncompromised eye. Unfortunately for Mr. Bernanke, no matter how little he tries to say, he’ll have to give away his game when QE2 sunsets at the end of the month. You can bet that whatever form QE3 takes, it will be called something else. Bernanke and Obama can count on the mainstream media to go along with the ruse and to tell us as often as needed that the Emperor is wearing a fine suit of clothes, but we’ll look to Europe’s editorialists to call the next phase of Fed monetization by its proper name.

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“Growing your way out of debt” is a fantasy

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by Charles Hugh Smith from Of Two Minds
Originally posted June 22, 2011

ADD RISING INTEREST PAYMENTS AND HIGHER TAXES to declining assets and incomes and you don’t get “growth,” you get insolvency. The Status Quo consensus is that “kicking the can down the road” a.k.a. “extend and pretend” will work because “Greece, Spain, Ireland et al. are going to “grow their way out of debt.” That is a fantasy.

Here’s why.

1. There’s a funny little feature of debt called interest. The Status Quo solution for Ireland, Greece, Portugal, Spain et al. is A) increase their debt load with more loans and B) roll over their old debt into new loans, without the old lenders taking any “haircut” on the principal. Both of these “solutions” add more interest costs. That means more of the national income stream must be diverted to pay the lenders their pound of flesh. That means there is less money in the national economy to buy goods and services, which means the economy must shrink to pay the higher interest costs.

This is why unemployment in Spain and Greece has skyrocketed and why 100,000 small businesses have closed in Greece in the past year.

2. A funny little feature of interest is that when people see you’re at risk of default, they start charging you more to borrow their moneyAnd it isn’t a tiny bit more interest, it’s a lot. Think subprime teaser loan at 3% shooting to 8%, or 28% if you’re trying to sell new debt on the open market. For the E.U. to “help” Greece and Ireland by rolling over their already crushing debt loads into new, higher interest loans is like “helping” a sick patient by sticking a knife into their back.

3. Governments over-promise future benefits to win elections in the here and now. This makes sense, of course, because you win the elections and power now and the problem of paying for these excessive benefits is left to future politicos and taxpayers. But when the phony “growth” (think metasticizing cancer) fueled by rapidly rising debt is finally cut off, then the government has no choice but to raise taxes, and keep raising them, to pay for the extravagant past promises made to citizens.

That means more of the national income is diverted to taxes, only part of which flow through as cash benefits to consumers. Much of the tax revenues flow to cronies, fiefdoms and of course those higher interest payments on the ballooning debt.

4. Cheap abundant credit has a funny little consequence: asset bubbles. When everybody can borrow vast sums of nearly-free money at costs much lower than the outlandish gains being reaped by real estate speculators and punters pouring cash into stocks and commodities, then of course it is a perfectly rational decision to leverage yourself to the max, borrow as much as you can and join the speculative frenzy.

So assets bubble up to frothy levels, and McMansions sprout by the thousands on Irish and Spanish soil. The “demand” is not for shelter; it was all speculative demand for something to flip and churn. So when the debt bubble pops, so too do all the asset bubbles.

5. Leverage has a funny little feature called collateral and that other peculiar feature, interest. The land and house are the collateral for a mortgage (debt). As the real estate bubble popped, then the value of the collateral plummeted. Now the collateral is worth less than the loan–the borrower is “underwater.” The lender foolishly reckoned this would never happen, and now taking the collateral when the borrower defaults is an unsavory option because the lender will have to absorb a huge loss (“haircut”) if they take the property.

So they choose to “extend and pretend,” offering the borrower new terms, lower payments, etc., anything to keep the loan value on the books at 100%.

All of this is just artifice, of course; the borrower is insolvent, and so is the lender. As long as the borrower has to pay interest and principal, then there is not enough income left to “grow” anything. As long as the lender keeps the impaired loan on the books at the bogus valuation, then the lender is treading on the thin ice of insolvency.

6. As the national income and asset valuations both decline, the government imposes “austerity” programs which further cut incomes. A funny little feature of government “austerity” is the cuts come from the citizen’s side of the expense ledger, not from the crony/fiefdom side. Here in the U.S., for example, the library hours are slashed and the parks are closed to save $22 million in a $100 billion annual budget (those are the numbers in California) while various favored fiefdoms continue to get their swag. The “pain” of austerity is anything but evenly distributed.

7. People facing financial uncertainty and duress have a funny little habit called saving. As the reality of instability becomes crystal-clear to all, then people rather naturally rally round and circle the wagons, i.e. start saving money to cushion them through the hard times. Trusting in future benefits and bubbles is obviously foolish, and the only avenue of relative safety is cash (or equivalent) in hand. As people save more of their declining income, there is even less national income left to be spent on goods and services.

8. These forces are self-reinforcing. The worse times get, the more people save. the lower the national income, the more taxes will be raised. The more visible these trends become, the more interest lenders demand as they see the positive feedback loops leading to insolvency.

Once a household or nation is burdened with stupendous debt loads and stagnating earnings, “growing your way out of debt” is impossible. The E.U. may succeed in strong-arming Greece into swallowing even more debt, more austerity and higher interest payments, but that will only speed up the self-reinforcing dynamics of insolvency, and guarantee the losses kicked down the road for a few months will be even more devastating.

The Fed wages its war on gold on behalf of fraudulent paper money

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by Dave in Denver
Posted June 17, 2011

http://truthingold.blogspot.com

Question:   If you were advising the Federal Reserve, what would you say are the unsolved economic problems of the day?
Milton Friedman:  One unsolved economic problem of the day is how to get rid of the Federal Reserve. –January 1996 interview on NPR

RON PAUL HAS BEEN AGGRESSIVELY SEEKING AN OFFICIAL, INDEPENDENT audit of the gold that is supposedly being held at Ft. Knox on behalf of all U.S. citizens.  Such an audit has not taken place since Eisenhower was the President? What gives there?  In the face of mounting criticism and citizen requests for this audit, why does the Treasury ignore this issue?  What does it have to hide?

At this point, anyone who looks at the Treasury financial statements is placing their “full faith” in the belief that the Government is honestly reporting its numbers. Does anyone really believe that the economic numbers the Government publishes on a weekly basis? Everyone believe that the Government is telling truth about why we’re spending trillions on wars in Iraq, Afghanistan and now Libya?

The Fed has been spending millions to fight all of the recent Freedom Of Information Act requests, which have been filed so that we can see what the Fed is doing secretly with our money – especially now that most of what Fed does has a guarantee on it by the Treasury. Most notably for me is the GATA request that we get to see what kinds of transactions the Fed has been in engaging in with OUR gold. It is highly likely that the 8100 tonne book entry on the Treasury balance sheet is just another electronic entry on a piece of paper. How about we get to take a look at the actual physical gold that is supposedly represented by that electronic entry? How about we get to see if that gold has any legal encrumbrances attached to it like Federal Reserve gold swaps and leasing transactions?

An audit needs to be done and it needs to be done under the full, transparent scrutiny of all U.S. citizens who would like to watch it happen. And of even more immediate concern, at least to me, is the drain on physical gold and silver occurring at the Comex. It’s kind of spooky the way unencumbered physical silver is being, and has been, “sucked” out of the system (Comex, SLV) over the past couple months. As much as I want to see Ron Paul force an open audit of Ft. Knox, I’d love to see an open audit of the Comex. I believe the Comex problem is the Achilles Heel of this whole mess.

It wouldn’t take much to stage a run on the Comex. And when that occurs, if it turns out that the Comex is unable to make deliveries of actual physical metal and instead changes its rules and defers to cash settlement of contracts, that’s when all hell will break loose. I would then expect that GLD and SLV will head south quickly in price while the global spot price of gold and silver head for the moon. The slight inversion in silver futures will go nearly verticle and the dollar index will go into a serious tail-spin. But how about we just start with a simple audit of Ft. Knox?

Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: ‘Account overdrawn.’  (famous speech by Francisco D’Anconia in “Atlas Shrugged”)

A “Lehman Moment”

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by Doug Noland
Posted June 17, 2011

http://quintet.prudentbear.com/index.php/creditbubblebulletinview?art_id=10543

ISN’T IT INCREDIBLE THAT THE FAILURE OF ONE FIRM, Lehman Brothers, almost brought down the global financial system?  It is equally incredible that, less than three years later, a small country of 11 million has the world teetering on the edge of another systemic crisis.  Today’s circumstance is a sad testament both to the instability of the international Credit “system” and to the lessons left unlearned from the previous crisis.

For about 15 months now my analysis has attempted to draw parallels between the initial subprime eruption and last year’s Greek debt crisis.  Both were the initial cracks in major Bubbles (“Mortgage/Wall Street Finance” and “Global Government Finance”).  These two weakest links – due to their role as the marginal borrower exploiting a period of system market excess – were extremely poor Credits.  On the one hand, the systemic vulnerabilities associated with a potential bursting of major Bubbles elicited aggressive policy responses to the initial subprime and Greek tumults.  On the other hand, policy had no constructive impact on the underlying quality of the debt – while significantly inciting market excesses (market price distortions, Credit and speculative excess, etc.) that exacerbated systemic fragilities.

There was heightened fear this week that the “Greek” crisis was evolving into Europe’s “Lehman Moment.”  Recalling back to 2008, the Lehman collapse was the catalyst for a crisis of confidence throughout the expansive universe of “Wall Street” risk intermediation.  Importantly, market confidence in the willingness and capacity for policymakers to backstop this multifarious system held steady virtually until the moment the Lehman bankruptcy was announced.  The marketplace had appreciated the enormous risks associated with a potential crisis of confidence throughout the securitization and derivative marketplaces, yet assumed that policymakers would simply not tolerate a failure by one of the major players in this financial daisy chain.  The global financial system almost imploded when this precarious “too big to fail” assumption was debunked.  

I have posited that the global policy response to the 2008 crisis only expanded and solidified the market’s notion of “too big to fail.”  Most in the marketplace believe that policymakers now recognize that allowing Lehman’s failure was a major policy blunder.  The expectation today is that the EU, ECB, IMF, Germany, China and the Fed will not tolerate a Greek debt default.  This faith had better not be misplaced.

While the Lehman failure proved the catalyst for the 2008 crisis, it was definitely not the root cause. The problem was instead the Trillions of unsound debt underpinning Trillions of leverage, Credit insurance, and sophisticated risk intermediation that, through “Wall Street alchemy”, had transformed really bad loans into seemingly appealing (“money-like”) debt instruments.  As soon as the market began to back away from these structures (commencing with subprime concerns), the downside of a (Hyman Minsky) “Ponzi Finance” scheme was set in motion.  And as the Bubble began to falter, the market increasingly valued huge amounts of debt based on the perception of a system backstop rather than on the fundamentals of the underlying debt instruments (largely, increasingly vulnerable mortgages).

If authorities had moved to save Lehman back in September of 2008, it would have bought some extra time – and would have changed little.  Trillions of unsound debt, distorted asset and securities markets, and a severely maladjusted economic structure ensured a major crisis.  It was only a matter of the timing and circumstances as to how the widening gulf between distorted market prices and the true underlying value of the debt was resolved.  As we are witnessing with Greek, Portuguese and Irish debt (and CDS) prices, market troubles often manifest when unanticipated policy uncertainties force the marketplace to take a clearer look at the fundamentals underpinning a debt structure – only to grimace.

The problem today is not really Greece.  A dysfunctional global Credit “system” has created tens of Trillions of unsound debt – and rapidly counting.  Aggressive “activist” policymaking has been at the heart of this unprecedented Credit inflation, and the markets today fully expect policymakers to ensure this Bubble’s perpetuation.  And, importantly, for better than two years now global fiscal and monetary policies have incited another huge round of global speculation and leveraging.  This latest Bubble gained considerable momentum with last year’s European Greek bailout and implementation of the Fed’s QE2 program.

Policymaking gave a new – and egregiously profitable – lease on life to the “global leveraged speculating community.”  Given up for dead in late-2008, hedge funds, proprietary trading desks and others have been able to exploit government-induced market distortions like never before.  With confidence that massive fiscal and monetary stimulus would ensure economic expansion, abundant marketplace liquidity, and strong inflationary biases for global securities and commodities markets, the global “risk on” trade proliferated near and far.  Re-risking and re-leveraging – through the creation of new market-based debt and attendant liquidity – fueled a self-reinforcing speculative boom.  QE2 (and other central bank liquidity operations) coupled with re-leveraging dynamics bolstered the perception that the markets had commenced a cycle that would prosper in liquidity abundance for an extended period.  Fragile underpinnings, especially in the U.S., seemed to ensure years of policy largess.

There is a big problem any time the leveraged speculating community begins to question core assumptions – certainly including the capacities of policymakers to sustain Credit booms, ensure liquid and continuous markets, and to contain Credit stress.  Think of it this way:  Enterprising market operators are incentivized into leveraged (“risk-on”) trades when they discern that policymaking is providing both a trading edge (generally an inflationary bias or predictable spread) in the marketplace and a favorable liquidity backstop availing an easy exit when necessary.  I would argue that huge speculative positions have accumulated over the past two years on assumptions that are increasingly in doubt.  This has quickly become a major market issue, and largely explains recent market action.

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Growth in despair the only U.S. “growth”

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by Jeff Nielson
Posted originally June 9th, 2011

FOR TWO YEARS WE HAVE BEEN FORCED TO LISTEN TO THE DESPICABLE FICTION THAT THE U.S. ECONOMY is enjoying a “recovery”. I say “despicable” because if the U.S. government (and media talking-heads) hadn’t kept lying to the American people that “things are getting better” then the U.S. government would have been forced to actually engage in positive measures for the American people, and the overall U.S. economy.

Instead, Americans were subjected to “faux stimulus”, where the Obama regime sprayed $100’s of billions at the U.S. economy but where most of that money went into “food stamps”, unemployment benefits, or simply disappeared into the pockets of Wall Street bankers. There was virtually nothing done to directly “stimulate” employment growth – despite the worst unemployment problem in the U.S. since (at least) the Great Depression.

Now, as the U.S. economy is quite obviously turning lower again, Americans are finally shedding their “rose-coloured glasses” and beginning to view the U.S. economic nightmare for what it really is. That conclusion is strongly reinforced by a pair of statistics.

A CNN poll shows 48% of Americans predicting “another Great Depression in the next 12 months”. While that percentage might have been slightly worse during the worst of the 2008 crisis, this new (extremely pessimistic) number comes after more than two years of a supposed “economic recovery”. Obviously if there had been any real improvement in the economic fundamentals at the household level there couldn’t have possibly been such a serious erosion of public sentiment.

That first expression of despair is backed up a statistic at least as bleak, if not more so. A recent U.S. survey found that 85% of U.S. college graduates were forced to move back home to live with their parents. If there was one, single number which could shriek “no jobs” in the U.S. more clearly than any other, this is it.

At the other extreme in the realm of education, roughly ¼ of all young, adult Americans are high school drop-outs, with that number rising to about 50% in the under-funded school districts into which most of the U.S.’s ethnic minorities are funneled. Combining the two numbers, roughly half of all the young adults in the U.S. are unemployed college graduates forced to live at home, or high-school drop-outs whose best “hope” for the future would be some menial, minimum-wage job. Those numbers don’t tell us that a U.S. Great Depression is “coming in the next 12 months”, but instead echo what I have been writing all along: the U.S. entered a “Greater Depression” in 2008 – from which it has never emerged.

This conclusion is easily reinforced once people understand how easy it is for governments to fake “economic growth”. All it takes is for governments to deliberately underestimate inflation – and then each percentage-point by which inflation is understated instantly becomes a percentage-point of “GDP growth”. As I have explained many times previously, all GDP estimates must be fully “deflated” by the prevailing rate of inflation, otherwise price increases are transformed into “economic growth”.

With real U.S. inflation being (deliberately) “underestimated” by at least 6%, while the latest number for “GDP growth” was an anemic 1.8%, you don’t require a degree in mathematics to figure out that not only is there no “growth” in the U.S. economy, but it is once again shrinking rapidly.

Obviously the “future” of any/every economy is its next generation, and here the U.S. simply has no hope, at all. Compounding the massive, structural unemployment of U.S. college graduates, soaring eduction costs and ever-less government “assistance” mean that U.S. college-grads are now far more indebted than any other graduates in the history of our species.

The average debt-load for a U.S. college graduate is now $50,000. Indeed, U.S. student loans have been exploding upward with such ferocity that total U.S. student loan debt has exceeded total U.S. credit-card debt for the first time in history. If you’re an unemployed U.S. college graduate, living with your parents, and staring at a $50,000 ‘mortgage’ on your future, it doesn’t require much imagination to predict a “Great Depression” in the next 12 months.

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Fukushima: It’s much worse than you think

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by Dahr Jamail
Posted on al Jazeera on 16 Jun 2011

Scientific experts believe Japan’s nuclear disaster to be far worse than governments are revealing to the public

“FUKUSHIMA IS THE BIGGEST INDUSTRIAL CATASTROPHE in the history of mankind,” Arnold Gundersen, a former nuclear industry senior vice president, told Al Jazeera. Japan’s 9.0 earthquake on March 11 caused a massive tsunami that crippled the cooling systems at the Tokyo Electric Power Company’s (TEPCO) nuclear plant in Fukushima, Japan. It also led to hydrogen explosions and reactor meltdowns that forced evacuations of those living within a 20km radius of the plant.

Gundersen, a licensed reactor operator with 39 years of nuclear power engineering experience, managing and coordinating projects at 70 nuclear power plants around the US, says the Fukushima nuclear plant likely has more exposed reactor cores than commonly believed. “Fukushima has three nuclear reactors exposed and four fuel cores exposed,” he said, “You probably have the equivalent of 20 nuclear reactor cores because of the fuel cores, and they are all in desperate need of being cooled, and there is no means to cool them effectively.”

TEPCO has been spraying water on several of the reactors and fuel cores, but this has led to even greater problems, such as radiation being emitted into the air in steam and evaporated sea water – as well as generating hundreds of thousands of tons of highly radioactive sea water that has to be disposed of. “The problem is how to keep it cool,” says Gundersen. “They are pouring in water and the question is what are they going to do with the waste that comes out of that system, because it is going to contain plutonium and uranium. Where do you put the water?”

Even though the plant is now shut down, fission products such as uranium continue to generate heat, and therefore require cooling. “The fuels are now a molten blob at the bottom of the reactor,” Gundersen added. “TEPCO announced they had a melt through. A melt down is when the fuel collapses to the bottom of the reactor, and a melt through means it has melted through some layers. That blob is incredibly radioactive, and now you have water on top of it. The water picks up enormous amounts of radiation, so you add more water and you are generating hundreds of thousands of tons of highly radioactive water.”

Independent scientists have been monitoring the locations of radioactive “hot spots” around Japan, and their findings are disconcerting. “We have 20 nuclear cores exposed, the fuel pools have several cores each, that is 20 times the potential to be released than Chernobyl,” said Gundersen. “The data I’m seeing shows that we are finding hot spots further away than we had from Chernobyl, and the amount of radiation in many of them was the amount that caused areas to be declared no-man’s-land for Chernobyl. We are seeing square kilometres being found 60 to 70 kilometres away from the reactor. You can’t clean all this up. We still have radioactive wild boar in Germany, 30 years after Chernobyl.”

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Operation Empire State Rebellion resumes attack on Fed Chairman

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from Zero Hedge
Posted June 11, 2011

OPERATION EMPIRE STATE REBELLION IS BACK. Perhaps in the aftermath of the IMF “very major breach” by anonymous hackers, it is really time to make sure all external access points to FedWire and FedLine are truly safe and sound. It will be very sad if it is uncovered that this source of externally accessible portal to hundreds of billions in emergency Fed funding has been somehow compromised. Just imagine the loss of confidence in the system… Why, a global distributed attack would really stretch the Fed’s 1,200-strong police force quite thin.

Transcript, from Op ESR’s just released video:

Ninety days ago, we requested Ben Bernanke’s resignation as Federal Reserve chairman. Mr. Bernanke has not complied with our request.

  • The Federal Reserve’s policies are systematically looting the country to enrich one-tenth of one percent of the population.
  • The Federal Reserve has deliberately driven tens of millions of people into poverty.
  • The Federal Reserve is responsible for Crimes Against Humanity!
  • The Federal Reserve gave trillions of American taxpayer dollars, in secrecy, to the people who were most responsible for causing our economic crisis.
  • Our tax dollars were handed out as all-time record-breaking bonuses to top executives at the “Too Big to Fail” global banks.
  • The Federal Reserve gave American taxpayer dollars to foreign banks and corporations.
  • The Federal Reserve directly subsidized tax evasion by funneling taxpayer dollars into to the Cayman Islands.
  • The Federal Reserve gave American tax dollars to their primary dealer banks, so the banks could then lend that same money back to the US government at higher interest rates, leading to significant profits for the banks, at the further expense of the American public.
  • Through bailout programs the Federal Reserve socialized financial losses onto American taxpayers and privatized profits into the hands of global banks.
  • The Federal Reserve aids and abets trillions of dollars in accounting fraud.
  • The Federal Reserve routinely manipulates the stock market.
  • The Federal Reserve deliberately caused inflation in the price of food, gas and basic necessities, while devaluing the dollar!
  • The Federal Reserve represents the central planning force behind a global banking cartel that has deliberately impoverished people throughout the world.

US Politicians have not taken action to break up the Federal Reserve and the “Too Big To Fail” Banks.
US Politicians have not taken action to prosecute the people who caused our economic crisis.
US Politicians have not taken action to end the system of political bribery, the campaign finance and lobbying racket, which allows global bankers to control our political process.
Democrats have failed us.
Republicans have failed us.
No one is defending our interests.
We cannot remain passive while our future is going up in flames.
It is time for us to stand up for ourselves.
It is time for you to stand up for yourself.
We must restore the rule of law and fight back against the organized criminal class.
We must now launch Operation Empire State Rebellion.
The operation will commence on June 14th.
As a first step, we are calling upon you to occupy a public space until Federal Reserve Chairman Ben Bernanke steps down.

Operation Empire State Rebellion, Engaged.

What are the social implications of economic collapse?

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by Simon Black at Sovereign Man
Originally posted June 14, 2011

IT’S IMPORTANT TO UNDERSTAND WHY THE WEST HAS TRULY PASSED the point of no return. Simply put, the United States and much of Europe are borrowing an extraordinary amount of money now just to pay interest on the money they’ve already borrowed. They cannot even self-fund their mandatory entitlement programs without going into the hole, and their options are limited:

Option 1: Continue borrowing, keep the party going.

As long as the government CAN do this, they WILL do this.  Regardless of their intentions, though, more debt only worsens the situation, creating higher borrowing costs in the long run, and even more debt. As this happens, the pool of buyers begins to dry up, especially from overseas.

Option 2: Inflation

The more buyers stop purchasing Treasury securities, the more the Federal Reserve will mop up the excess liquidity. In doing so, the Fed essentially conjures up money and loans it to the government.

No matter what the government monkey statistics say, this is inflationary, plain and simple. The more money they print, the greater the level of inflation in the long-term. Meanwhile, as foreigners simultaneously reduce their US dollar holdings, this inflation will become more acutely felt in the US.

Option 3: Austerity

There’s going to come a time when the US government is forced to face its economic reality and make some incredibly deep cuts that would be felt across society, from Wall Street and the military industrial complex to project housing on the other side of the tracks.

Option 4: Default

Eventually, the debt burden is simply going to be too much, and the most obvious solution will be to default. Politicians will make China out to be the enemy and they will probably invent a war just to have an excuse to default on Chinese owned debt. Americans will wave the flag and celebrate defaulting on their enemies.

Option 5: Economic Cannibalism

In the best traditions of Atlas Shrugged, the government will continue its persecution of the productive class– professionals, investors, entrepreneurs, and skilled workers. Existing taxes will rise, new taxes will be created, trade barriers will be enacted, and a maze of cost prohibitive regulations will be passed.

The first option (keeping the party going) is what has been happening for years. Politicians make small concessions to show they’re “serious” about fiscal discipline, cutting laughably small programs while dumping hundreds of billions of dollars into wars and entitlement programs.

The worse the debt situation becomes, though, the higher the borrowing costs become, and the worse the debt situation becomes. It’s not an enviable position. Existing lenders will continue backing away from the US Treasury market, giving option 1 a half-life measured in months at best.

In the longer term, only options 2 to 5 remain: inflation, austerity, default, and cannibalism. Each of these remaining options will shake the financial system to its core. More importantly, each of these has the power to create widespread social upheaval.

When inflation eats away at a family’s already meager standard of living, when austerity eliminates the benefits to which recipients have grown accustomed, when default vanquishes a retiree’s savings, when high taxes make workers feel like they’re just government serfs – this is when the real turmoil will begin:

  • Rising crime: devoid of a job or means to support their families, people will turn to crime out of desperation
  • Class warfare: with dividing lines drawn between have’s vs. have-not’s, it will become unpopular and even dangerous to be successful
  • Corruption: low-level public service officials will look to supplement their income through bribery and kickbacks
  • Black economy: An underground, cash-only (probably gold or foreign currency) economy will emerge with people getting paid in envelopes
  • Censorship: Of course they’ll blame it on national security, but the idea will be to prevent public disparaging of government policy
  • War: The government will need another major event to distract people from the real problems
  • Protests/Riots: This is when things turn bloody
  • Police state conditions: The government will close ranks and send the cops out to show all the little people who’s really in charge

There are a number of other manifestations, and many are already showing signs of emergence. The US and European police states are alive and well. Crime is on the rise. In Europe, cops are doing battle in the streets with their citizens. Think it can’t happen in the US? Remember tanks in the streets during the LA riots? Remember New Orleans? Remember any number of G8/G20 protests?

Here’s the bottom line: all you have to do is glance at the headlines to see what happens when you strip people of their livelihood, of their ability to put food on the table for their families. The US has been able to kick the can down the road with the most blunt social implications simply because the country benefits so much from a US-oriented financial system. This is coming to an end very, very quickly.

As a rule of thumb, the greater the economic distortion, the harder the collapse. The US economy has been in a fantasy world for so long, and when its dominant primacy is yanked away, the collapse will be at freefall speed. I’m not talking about the end of the world here, I’m talking about difficult times ahead, and the things that go beyond economics. It’s time to face facts and look at how society will change (and has already changed).