Posts Tagged ‘Iran’
by Jim Quinn
of The Burning Platform
Posted on 8th January 2012
“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – Strauss & Howe – The Fourth Turning – 1997
IN DECEMBER 2010 I WROTE AN ARTICLE CALLED Will 2012 Be as Critical as 1860?, THAT PONDERED WHAT MIGHT HAPPEN WITH THE 2012 presidential election and the possible scenarios that might play out based on that election. Well, 2012 has arrived and every blogger and mainstream media pundit is making their predictions for 2012. The benefit of delaying my predictions until the first week of 2012 is that I’ve been able to read the wise ponderings of Mike Shedlock, Jesse, Karl Denninger, and some other brilliant truth seeking analysts regarding what might happen during 2012. The passage above from Strauss & Howe was written fifteen years ago and captured the essence of what has happened since 2007 and what will drive all the events over the next decade. Predicting specific events is a futile human endeavour. The world is so complex and individual human beings so impulsive and driven by emotion, that the possible number of particular outcomes is almost infinite.
But, as Strauss and Howe point out, the core elements that created this Crisis and the reaction of generational cohorts to the implications of debt, civic decay and global disorder will drive all the events that will occur in 2012 and for as far as the eye can see. Linear thinkers in mega-corporations, mainstream media and Washington D.C. focus on retaining the status quo, their power and their wealth. They believe an economic recovery can be manufactured through monetary manipulation and Keynesian borrowing and spending. They are blind to the fact that history is cyclical, not linear. In order to have an understanding of what could happen in the coming year, it is essential to keep the big picture in focus. As we enter the fifth year of this twenty year Crisis period, there is absolutely no chance that 2012 will see an improvement in our economy, political atmosphere or world situation. Fourth Turnings never de-intensify. They exhaust themselves after years of chaos, conflict and turmoil. I can guarantee you that 2012 will see increased mayhem, riots, violent protests, recessions, bear markets, and a presidential election that will confound the establishment. All the episodes which will occur in 2012 will have at their core one of the three elements described by Strauss & Howe in 1997: Debt, Civic Decay, or Global Disorder.
Debt – On the Road to Serfdom
The world is awash in debt. Everyone is focused on the PIIGS with their debt to GDP ratios exceeding the Rogoff & Reinhart’s 90% point of no return. But, the supposedly fiscally responsible countries like Germany, France, U.K., and the U.S. have already breached the 90% level. Japan is off the charts, with debt exceeding 200% of GDP. These figures are just for the official government debt. If countries were required to report their debt like a corporation, their unfunded entitlement promises to future generations are four to six times more than their official government debt.
Any critical thinking person can look at the chart above and realize that creating more debt out of thin air to solve a debt problem is foolish, dangerous, and self serving to only bankers and politicians. The debt crisis took decades of terrible choices and bogus promises to produce. The world is now in the midst of a debt driven catastrophe. At best, the excessive levels of sovereign debt will slow economic growth to zero or below in 2012. At worst, interest rates will soar as counties attempt to rollover their debt and rolling defaults across Europe will plunge the continent into a depression. The largest banks in Europe are leveraged 40 to 1, therefore a 3% reduction in their capital will cause bankruptcy. Once you pass 90% debt to GDP, your fate is sealed.
“Those who remain unconvinced that rising debt levels pose a risk to growth should ask themselves why, historically, levels of debt of more than 90 percent of GDP are relatively rare and those exceeding 120 percent are extremely rare. Is it because generations of politicians failed to realize that they could have kept spending without risk? Or, more likely, is it because at some point, even advanced economies hit a ceiling where the pressure of rising borrowing costs forces policy makers to increase tax rates and cut government spending, sometimes precipitously, and sometimes in conjunction with inflation and financial repression (which is also a tax)?” – Rogoff & Reinhart
The ECB doubling their balance sheet and funnelling trillions to European banks will not solve anything. The truth that no one wants to acknowledge is the standard of living for every person in Europe, the United States and Japan will decline. The choice is whether the decline happens rapidly by accepting debt default and restructuring or methodically through central bank created inflation that devours the wealth of the middle class. Debt default would result in rich bankers losing vast sums of wealth and politicians accepting the consequences of their false promises. Bankers and politicians will choose inflation. They believe they can control the levers of inflation, but they have proven to be incompetent, hubristic, and myopic. The European Union will not survive 2012 in its current form. Countries are already preparing for the dissolution. Politicians and bankers will lie and print until the day they pull the plug on the doomed Euro experiment.
The false storyline of debt being paid down in the United States continues to be propagated by the mainstream press and decried by Paul Krugman. The age of austerity storyline gets full play on a daily basis. Total credit market debt in 2000 was $27 trillion. It skyrocket to $42 trillion by 2005 as George Bush and Alan Greenspan encouraged delusional Americans to defeat terrorism by leasing SUVs and live the American dream by putting zero down on a $600,000 McMansion, financing it with a negative amortization no doc loan. Paul Krugman got his wish as a housing bubble replaced the dotcom bubble. Debt accumulation went into hyper-speed in 2006 and 2007 as Wall Street sharks conducted a fraudulent feeding frenzy by peddling their derivatives of mass destruction around the globe. By the end of 2007, total credit market debt reached $51 trillion.
In a world inhabited by sincere sane leaders, willing to level with the citizens and disposed to allow financial institutions that took world crushing risks to fail through an orderly bankruptcy process, debt would have been written off and a sharp short contraction would have occurred. The stockholders, bondholders and executives of the Wall Street banks would have taken the losses they deserved. Instead Wall Street used their undue influence, wealth and power to force their politician puppets to funnel $5 trillion to the bankers that created the crisis while dumping the debt on taxpayers and unborn generations. The Wall Street controlled Federal Reserve provided risk free funding and took toxic mortgage assets off their balance sheets. The result is total credit market debt higher today than it was at the peak of the financial crisis in March 2009.
Our leaders have done the exact opposite of what needed to be done to address this debt crisis. The country is adding $3.7 billion per day to the National Debt. With the debt at $15.2 trillion, we have now surpassed the 100% to GDP mark. The National Debt will be $16.5 trillion when the next president takes office in January 2013. Ben Bernanke has been able to keep short term interest rates near zero and the non-existent U.S. economic growth and European disaster has resulted in keeping long-term rates near record lows. Despite these historic low rates, interest on the National Debt totalled $454 billion in 2011, an all-time high. The effective interest rate was approximately 3%. If rates stay at current levels, interest will be between $400 and $500 billion in 2012. Each 1% increase in rates would cost American taxpayers an additional $150 billion. A rapid increase in rates to the 7% level would ratchet interest expense above $1 trillion and destroy the last remaining vestiges of Bernanke’s credibility. It can’t possibly happen in 2012. Right? The world has total confidence in pieces of paper being produced at a rate of $3.7 billion per day.
Confidence in Ben Bernanke, Barack Obama and the U.S. Congress is all that stands between continued stability and complete chaos. What could go wrong? Debt related issues that will likely rear their head in 2012 are as follows:
- A debt saturated society cannot grow. As debt servicing grows by the day, the economy losses steam. The excessive and increasing debt levels will lead to a renewed recession in 2012 as clearly detailed by ECRI, John Hussman and Hoisington Investment Management.
“Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.” – ECRI
At present, we observe agreement across a broad ensemble of models, even restricting data to indicators available since 1950 (broader data since 1970 imply virtual certainty of recession). The uniformity of recessionary evidence we observe today has never been seen except during or just prior to other historical recessions.- John Hussman
Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012. Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income. In summary, the case for an impending recession rests not only on cyclical precursors evident in productivity, real wages, and inventory investment, but also on the disfunctionality of monetary and fiscal policy. – Van Hoisington
- The onrushing recession will send housing down for the count. With 2.2 million homes already in the foreclosure process and another 13 million homes with negative or near negative equity, the recession will push more people over the edge. As foreclosures rise a self reinforcing loop will develop. Home prices will fall as banks dump houses at lower prices, pushing millions more into a negative equity position. Home prices will fall another 5% to 10% in 2012, with a couple years to go before bottoming.
- The recession will result in companies laying off more workers. It won’t be as dramatic as 2008-2009 because companies have already shed 6 million jobs. The working age population will increase by 1.7 million, the number of people employed will go up by 1 million, but the official unemployment rate will drop to 7% as the BLS reveals that 10 million people decided to relax and leave the workforce. Surely I jest. The government manipulated unemployment rate will rise above 9%, while the real rate will surpass 25%.
- The American people rationally increased their savings rate to 6.2% in the 2nd Quarter of 2009. When you are over-indebted and the country heads into recession, spending less and saving more is a sane option. Consumer expenditures accounted for 69% of GDP in 2007, prior to the economic collapse. The “recovery” of 2010-2011 has been driven by Ben’s zero interest rate policy, the resumption of easy credit peddling by the Wall Street banks, and consumers convinced that going further into hock to attain the American dream is rational. Consumer spending as a percentage of GDP has actually risen to 71% and the savings rate has plunged to 3.6%. The 20% drop in gas prices since April bottomed in December. This decline temporarily boosted consumer spending, but prices are on the rise again. With the State and local governments reducing spending, do the Wall Street Ivy League economists really believe consumers will increase their consumption to 73% of GDP and reduce their savings rate to 1%? If you open your local newspaper you will see the master plan. Car dealers are offering 0% financing with nothing down for 60 months. The GMAC/Ditech/Ally Bank zombie lives as subprime auto loans are back. The “strong” auto sales are a debt financed illusion. Ashley Furniture is offering 0% financing for 50 months with no payments through Wells Fargo Bank. When the Federal Reserve provides the Wall Street banks with 0% funding, banks are willing to take big risks knowing that Uncle Ben and the naive American taxpayer will be there to bail them out when it blows up again.
- With recession a certainty as fiscal stimulus wears off, home prices fall, employment stagnates, and consumer spending grinds to a halt, what will happen to the stock market? The Wall Street shills paraded on CNBC and interviewed by the multi-millionaire talking head twits assure you that stocks are undervalued and the market will surely be up 10% to 15% by 2013. It’s a mortal lock, just as it has been for the last twelve years, with the S&P 500 at the same level as January 1999. The fact is the stock market drops 30% on average during a recession. The talking heads declare that corporate profits are at record levels and will continue higher. Not bloody likely. Corporate profit margins are at an all-time peak about 50% above their historical norms. Profits always revert to their mean. These profits are not sustainable as they were generated by firing millions of workers, zero interest rates for banks, fraudulent accounting by the banks, and trillions in handouts from the middle class taxpayers to corporate America.
In a true free market excess profits will draw more competitors and profits will fall due to competition. When corporate profits exceed the mean by such a large amount, you can conclude that crony capitalism has replaced the free market. Government bureaucrats have been picking the winners (Wall Street, War Industry, Big Media, Big Healthcare) and the American people are the losers. Corporate oligarchs prefer no competition so they can reap obscene risk free profits and reward themselves with king-like compensation. Mean reversion will eventually be a bitch. Real S&P earnings have reached the 2007 historic peak. To believe they will soar higher as we enter a recession takes the same kind of faith shown by Americans buying a $600,000 McMansion in Stockton with no money down in 2005. The result will be the same. Do you ever wonder how corporations are doing so well while the average American sinks further into debt, despair and poverty?
The brilliant John Hussman captures the gist of an investor’s dilemma in his latest article:
“With 10-year Treasury yields below 2%, 30-year yields below 3%, corporate bond yields below 4%, and S&P 500 projected 10-year total returns below 5%, we presently have one of the worst menus of prospective return that long-term investors have ever faced. The outcome of this situation will not be surprisingly pleasant for any sustained period of time, but promises to be difficult, volatile, and unrewarding. The proper response is to accept risk in proportion to the compensation available for taking that risk. Presently, that compensation is very thin. This will change, and much better opportunities to accept risk will emerge. The key is for investors to avoid the allure of excessive short-term speculation in a market that promises – bends to its knees, stares straight into investors’ eyes, and promises – to treat them terribly over the long-term.”
by Robert Denner
of Daily Economic Update
Posted December 1, 2011
BEEN LOTS OF TALK AROUND LATELY REGARDING THE COLLAPSE OF THE U.S. DOLLAR AND WHAT THAT WOULD MEAN FOR THE UNITED STATES OF AMERICA AND THE WORLD. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization.
These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world.
There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is your first lesson.
IMF and the SDR
So right off the bat we are using acronyms that mean absolutely NOTHING to the lay person and yet that is an actual sentence believe it or not… IMF stands for the International Monetary Fund. The SDR is short for Special Drawing Rights and is the currency of the IMF. The International Monetary Fund is a private bank that is used to help sovereign nations engage in international commerce. Just like if you owned a company and you used bank A, and your supplier used Bank B, the IMF would be the bank that both banks A and B used to transfer payments and credits back and forth to each other. To Company A and B (using Bank A and B) it would be seamless.
But the IMF does a whole lot more for the global economy. They are the creditor of last resort for a lot of countries. For if you want to engage in international commerce in the free world (meaning the world now) you must be a part of the IMF system. Should a country that is part of this system become over leveraged because of mismanagement and debt accumulation, the IMF stands ready to come to the rescue. To understand how this relationship has worked in the past (and the present); I MUST go into some history. I will keep it brief I promise.
To understand how the global monetary/commercial world works you have to go back to the end of World War II. Following the war the United States was alone as a major industrial power. The rest of the industrial countries were in shambles. The United States was also nearly alone as a producer of oil. It is this later point that needs to be highlighted.
The United States used its vast oil reserves and coupled it with a highly trained industrial labor force and put it to work in its vast expanse of industrial capacity to re-build the rest of the world. It is this fact that is at the very center of our current monetary system some 60 years later. So I will start with my first analogy…
The US Corp could be seen as a huge company like General Motors. Following WWII US Corp was the only company left with the capacity to make things and it had the working capital and energy to do what it wanted. US Corp went out into the world and started to acquire other businesses. First was Japan Corp which US Corp had beaten into a pulp during the war. US Corp decided that it was in its own best interest to build Japan Corp back up but it needed to make sure that it never again could threaten US Corp the way it did in WWII. Japan Corp used its own currency called the YEN and US Corp obviously used the Dollar. So to make this all work, US Corp had to make sure that the workers at Japan Corp didn’t feel like the last of their country was being taken from them. To keep them vested in the viability of their own country it was very important to let them keep their own currency and their own political structure, albeit greatly modified under the surface. We allowed Japan Corp to keep their figurehead CEO (the Emperor) and we installed a new board of directors (Democratic institutions). We linked the Bank of Japan to US Corp’s bank the Federal Reserve Bank through a new institution called the International Monetary Fund and the World Bank.
If we were to compare this to General Motors this would be like GM buying another company and bringing it under the umbrella of the GM brand. So in this case Japan is like Pontiac and they are given free rein to run their subsidiary the way they see fit, SO LONG as they abide by the parent companies rules.
This setup worked wonderfully and within a decade Japan Corp was back on its feet and was supplying cheap labor and products for US Corp and with every single barrel of oil Japan Corp bought on the international market it further linked them with our monetary system. To keep the Japanese citizens from feeling that it was the US Corp in charge of everything we came up with the International Monetary Fund and the World Bank. Of course these institutions were funded initially by the United States and Great Britain and as such they were just pseudo US institutions. But it worked and the Japanese subsidiary of US Corp gladly bought oil and products from the United States in its own currency (the Yen) but it was linked via the IMF to the US Dollar. For you see US Corp linked everything that the industrial world needed to the US Dollar. All gold/oil/silver/food/etc were priced first in US Dollars and depending upon the relative “strength” of your currency to the US Dollar, this would dictate how much of your currency it would take to purchase a barrel of oil or an ounce of gold. This gave US Corp a huge advantage in the world as we produced almost everything anyways. We had most of the world’s oil supply and a very large portion of the food supply. We were the largest producer of the big complex things the world needed to rebuild. We allowed the smaller subsidiaries to produce the little stuff we needed or wanted. Japan Corp was great at the later, supplying us with small radios and other cool electronic gadgets.
US Corp built a company with dozens and dozens of subsidiaries, each one of them bringing something to the table either large or small. And as the world re-built, other countries wanted to get in on the good times and they voluntarily sold themselves to US Corp. Other countries were very reluctant to join our big happy company. Those countries fell into two groups. Either they were affiliated with Russia Corp or they wanted to stay neutral. But in a world that was moving fast towards globalization it became apparent that each country would have to choose a side lest they be shut out of the global market. For remember that the only way to gain access to US Corp’s vast array of markets and supplies is to be a part of the IMF/World Bank. It was the only way to convert your currency to other currencies (like the US Dollar to buy OIL!!).
I will end this history lesson there as I could get sucked in for hours explaining how US Corp and Russia Corp went to economic(and sometimes real) war with each other and how Russia Corp tried to have it both ways by linking themselves partially to the IMF to gain access to US Corps vast supplies and labor.
I will leave that to YOU to go out and study on your own as it is a story to rival any fictional book you have ever read. The important thing to take away here is that the International Monetary Fund and the World Bank are institutions that were created by the United States and Great Britain. It is a global system that allows countries using different currencies to exchange their goods and services with each other almost seamlessly. Remember also that the system was setup INITIALLY to allow US Corp to control the world’s most important supplies. Things like FOOD, OIL, COMMODITIES (gold,silver,etc) and the rest. At the time this system was created it was the United States that was supplying the lion’s share of these items. But as the decades have come and gone, these items have increasingly come from other parts of the world. And a good portion of these countries are ones that were FORCED into our system either out of necessity or by direct manipulation of their country by forces outside their borders(meaning the US and the IMF).
CONFESSIONS OF AN ECONOMIC HITMAN
This next part of our story is centered on how the US has maintained its spot at the top of the economic order even in the face of massive budget deficits and seemingly unending debt loads. The title of this section is called Confessions of an Economic Hit Man, as I give a nod to a book of the same name written by a man named John Perkins. Mr. Perkins is a trained economists and his specialty was international finance. His job was to go out into the world and sell foreign leaders on US Corp and to convince them to get on board with our system. Or more importantly, it was his job to make sure that they were forever caught up in our system and that they did not attempt to leave our company.