Nomi Prins: 10 Years Later, A Debt Crisis Is Building Again

Authored by Nomi Prins via The Daily Reckoning,

Though it seems like only yesterday, it’s been a decade since my former employer, Lehman Brothers, went bankrupt, and in the process, helped instigate a massive global financial crisis.

That collapse catapulted the Federal Reserve on a mission to, in its own narrative, save the economy from further collapse. In fact, its creation of $4.5 trillion to purchase U.S. treasury and mortgage related bonds from the big private banks in exchange for continued liquidity was the biggest subsidy in U.S. history.

In some ways, we seem much better off now. Employment is at record highs in most developed nations outside the Eurozone. Global economic growth has picked up overall and stock markets have recovered.

Indeed, many stock markets around the world have regained or passed their former record highs. Asset prices are booming.

But that only tells half the story.

That’s because the last financial crisis was about debt and debt levels have increased substantially since 2008. The entire “recovery” was built on debt.

From 179% before the financial crisis, the global debt-to-GDP ratio has jumped to 217% today. Companies and governments have piled on more debt than before. Emerging-market debt, led by China, is also at a record. The big banks are even bigger, and remain “too big to fail.”

Eliminating all that debt is the ultimate solution for avoiding another crisis. That’s because if interest rates drift higher, it can lead to problems in debt repayment, followed by defaults, followed by crisis as defaults spread like a contagion. But there’s no magic bullet for doing that.

First, you should know that no two crises are exactly the same. The last one was met with huge debt on the back of the Fed’s quantitative easing policy. Central bank credit, or what I call dark money, tended to go to the wealthy and into financial assets.

“Dark money” comes from central banks. In essence, central banks “print” money or electronically fabricate money by buying bonds or stocks. They use other tools like adjusting interest rate policy and currency agreements with other central banks to pump liquidity into the financial system.

That dark money goes to the biggest private banks and financial institutions first. From there, it spreads out in seemingly infinite directions affecting different financial assets in different ways.

Dark money is the #1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

On Wall Street, knowledge of and access to dark money means trillions of dollars per year flowing in and around global stock, bond and derivatives markets.

Now, ten years after the financial crisis, there are major complications building with the deluge of debt created on the back of quantitative easing policy.

When the next shoe drops from our inflated bubble markets, it will be the debt markets that lead the way. Whether the financial bubble begins to pop in emerging markets, over-leveraged corporate sectors or from over-stretched consumers — the reality is that a storm is brewing.

All of this is a recipe for another crisis. Meanwhile, a new article lists ten warning signs of a recession by 2020.

Written by Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates and Brunello Rosa, co-founder and CEO at Rosa & Roubini Associates, shows why 2020 could be the year of the next financial crisis.

They range from the economic to the geopolitical triggers. They posit that the “current global expansion will likely continue into next year, given that the U.S. is running large fiscal deficits, China is pursuing loose fiscal and credit policies, and Europe remains on a recovery path.”

After that, however, they believe that conditions will lead to a financial crisis, and then a global recession. The main four reasons are:

  1. By 2020, “a modest fiscal drag will pull growth from 3% to slightly below 2%.”

  2. Trump’s trade wars “will almost certainly escalate, leading to slower growth and higher inflation” around the world.

  3. Growth outside of the U.S. will likely slow down – especially, if more countries retaliate against U.S. protectionism. In addition, China would have to slow its growth to reduce its level of “excessive leverage” in order to avoid “a hard landing.” Plus, emerging markets can get hurt by a double whammy of trade wars and dollar-strengthening.

  4. In the event of a correction, “the risk of illiquidity and fire sales/undershooting will become more severe.” That could result in high-frequency/algorithmic trading that produces “flash crashes” which could hurt exchange-traded and dedicated credit funds.

The main difference between 2008 and now is that central bank sheets are dramatically higher today. They just don’t have the room to accommodate nearly as much easing this time around.

Now, J.P. Morgan Chase, another of my former employers, sees a problem. The next crisis may become so serious a recent JPM report suggests, “that the next financial crash may be so cataclysmic that the Federal Reserve may have to enter the market to buy up stocks…”

So let’s get this straight. JPM has spent tens of billions of dollars over the past several years buying back its own stock to boost the price. Now they want the Fed to directly bail out the stock  market — and JP Morgan stock by implication. Call it whatever you want, just don’t call it the free market.

What all of this means that the Fed will either stop its current tightening program, re-invoke QE, or get its central bank allies to do the same when necessary. It means that further rounds of quantitative easing (through various dark money ploys), in addition to all the help they’ve received, will continue. The banks can see no other option.

All of those options could prop up the market through volatile periods ahead and drive the current bull market even further.

In the long run, this is not sustainable. No one can say exactly when the next crisis will arrive, but there are lots of signs it may be getting close.

In the meantime, you can take steps to prepare yourself by taking profits and allocating money into cash or gold if signs of a crisis grow stronger. By staying diversified in your portfolio and watching stories like these you can be well prepared for market turmoil when it arrives.

While we aren’t there yet, I’ll be watching for signs of risks and opportunities along the way.

via RSS https://ift.tt/2NDjix2 Tyler Durden

JPM Is Worried That Trump Is Getting So Cocky, He Is About To Make A “Major Miscalculation”

It has been one of the pronounced paradoxes of this market: the harder Trump pushes and escalates trade wars with various opponents – mostly China – the more the market rewards him by setting new all time highs, leading the president to believe he is “winning” and resulting in even more aggressive future escalations. Perhaps as a result, earlier today Goldman said that following Trump’s threat of further escalation in the trade war with China, the bank now thinks the probability that all imports from China will ultimately be subject to tariffs has risen to 60%.

And, in a note from JPMorgan’s strategists over the weekend, the bank expressed a similar – if even more nuanced – concern, warning that it is starting to make “forecast and strategy changes” around issues emerging from the US-China conflict.

One is the growing possibility that the US-China trade war enters Phase III in 2019, resulting in tariffs on all +$500bn of imports from China, similar to Goldman’s conclusion. The bank notes that without more policy easing, this scenario implies weaker China growth, which directly impacts the commodity complex’s incipient recovery. And depending on the weight authorities give to monetary versus fiscal measures over the next 6 to 12 months, the renminbi could depreciate sufficiently to pull EM Asia and the non-oil commodity complex lower.

The other, and more interesting, concern is that US economic and equity market resilience – despite tariffs – will embolden the President on all geopolitical fronts – autos, NAFTA and particularly Iran – and thus risk a major miscalculation from sanctions that are tough to calibrate.

This possibility is the driver behind JPM’s revised oil price forecast for the next several quarters, from a previous average price forecasts for Brent of the low $60s (mid-$50s on WTI) in Q4 2018 and Q1 2019 to $85/bbl (WTI $76/bbl) over the next six months, with even a spike to $90/bbl increasingly likely. As a reminder, some analysts still believes sthat it was oil’s superspike in the summer of 2008 that ultimately catalyzed the collapse of Lehman. Incidentally, the main driver of this upward price revision is the higher estimate of how much Iranian crude exports might decline due to multi-country respect for US sanctions that should come into effect on Nov 4th. While initially JPM had expected some 500kbpd to drop off the market, it now models a loss of 1.5mn barrels per day as more countries agree to comply with Trump’s sanctions, and coming at a time when Saudi tolerance for oil prices above $80/bbl appears to be increasing.

Meanwhile, should Trump escalate trade war with China and impose 25% tariffs on all imports from China, it would take $8 off consensus 2019 EPS projections of $179 and reduce next year’s EPS growth from 10% to 5% year-on-year.

“Even with a forward multiple of 17, an EPS downgrade this large would end the US stock rally unless some other offset materialized.”

In a similar analysis two weeks ago, Goldman predicted that a 10% tariff imposed by the US on all global imports would lead to a 25% drop in the S&P, to as low as 2,200, resulting in a bear market, and wiping out $6 trillion in market cap.

Trump’s cockiness aside, going back to the latest market rally, JPMorgan also asks if it is the beginning of an unmissable strategic opportunity (lasting six months or more, delivering at least 10% upside) or just a more tactical one (lasting another week or two, delivering about 5% upside)?

In its response, JPM believes that on one hand a “strategically bullish view” is based on risk premia which are so high in assets like EM, the DAX, Autos, Base Metals and Metals & Mining stocks that they can absorb escalation, since by now most observers accept that this conflict will endure at least as long as Trump remains President.

The arithmetic behind this view could run like this: (1) the nominal sums affected by announced and threatened tariffs are trivial relative to the size of the US and Chinese economies, so don’t justify any more than a 0.25-0.5% cut in global growth through first round income effects; and (2) many cyclical assets have fallen so much this year that they discount a least a 1% slowdown in global growth from its current 3.5% pace. Even if catalysts are small, the value proposition seems huge.

Alternatively, a “strategically neutral but tactically positive view” runs like this:

  1. any estimates of first-round effects should be doubled or tripled given the immeasurable second-round effects around confidence, supply-chain disruption and tighter financial conditions, so apparently-cheap assets no longer look so compelling when adjusted for uncertainties;
  2. country-level improvements in key markets have been incremental rather than transformational;
  3. short covering could extend a few percent over the next week around the Sep 26th FOMC if the committee removes the word “accommodative” from its statement describing its monetary stance, thus suggesting that it might be near the end of its hiking cycle.

For what it’s worth, JPM’s increasingly cautious view – in light of Trump’s unpredictability – is that when asked if the rally is “unmissably strategic”, or “tactical”, the conviction across the bank’s various research teams, “is higher around the latter than the former.” In other words, ride it out but be ready to bail.

via RSS https://ift.tt/2zq7QvM Tyler Durden

The Living Reality Of Military-Economic Fascism Exposed

Authored by Robert Higgs via The Mises Institute,

“The business of buying weapons that takes place in the Pentagon is a corrupt business – ethically and morally corrupt from top to bottom. The process is dominated by advocacy, with few, if any, checks and balances. Most people in power like this system of doing business and do not want it changed.”

– Colonel James G. Burton (1993, 232)

In countries such as the United States, whose economies are commonly, though inaccurately, described as “capitalist” or “free-market,” war and preparation for war systematically corrupt both parties to the state-private transactions by which the government obtains the bulk of its military goods and services.

On one side, business interests seek to bend the state’s decisions in their favor by corrupting official decision-makers with outright and de facto bribes. The former include cash, gifts in kind, loans, entertainment, transportation, lodging, prostitutes’ services, inside information about personal investment opportunities, overly generous speaking fees, and promises of future employment or “consulting” patronage for officials or their family members, whereas the latter include campaign contributions (sometimes legal, sometimes illegal), sponsorship of political fund-raising events, and donations to charities or other causes favored by the relevant government officials.

Reports of this sort of corruption appear from time to time in the press under the rubric of “military scandal” (see, for example, Biddle 1985, Wines 1989, Hinds 1992, “National Briefing” 2003, Pasztor and Karp 2004, Colarusso 2004, Calbreath and Kammer 2005, Wood 2005, Babcock 2006, Ross 2006, and “Defense Contractor Guilty in Bribe Case” 2006). On the other, much more important side, the state corrupts business people by effectively turning them into co-conspirators in and beneficiaries of its most fundamental activity — plundering the general public.

Participants in the military-industrial-congressional complex (MICC) are routinely blamed for “mismanagement,” not infrequently they are accused of “waste, fraud, and abuse,” and from time to time a few of them are indicted for criminal offenses (Higgs 1988, 1990, xx-xxiii, 2004; Fitzgerald 1989; Kovacic 1990a, 1990b).

All of these unsavory actions, however, are typically viewed as aberrations — misfeasances to be rectified or malfeasances to be punished while retaining the basic system of state-private cooperation in the production of military goods and services (for an explicit example of the “aberration” claim, see Fitzgerald 1989, 197–98). I maintain, in contrast, that these offenses and even more serious ones are not simply unfortunate blemishes on a basically sound arrangement, but superficial expressions of a thoroughgoing, intrinsic rottenness in the entire setup.

It is regrettable in any event for people to suffer under the weight of a state and its military apparatus, but the present arrangement — a system of military-economic fascism as instantiated in the United States by the MICC — is worse than full-fledged military-economic socialism. In the latter, the people are oppressed, because they are taxed, conscripted, and regimented, but they are not co-opted and corrupted by joining forces with their rapacious rulers; a clear line separates them from the predators on the “dark side.”

With military-economic fascism, however, the line becomes blurred, and a substantial number of people actively hop back and forth across it: advisory committees, such as the Defense Science Board and the Defense Policy Board and university administrators meet regularly with Pentagon officials (see Borger 2003 for a report of an especially remarkable meeting), and the revolving door spins furiously — according to a September 2002 report, “[t]hirty-two major Bush appointees are former executives, consultants, or major shareholders of top weapons contractors” (Ciarrocca 2002, 2; see also Hamburger 2003, Doward 2003, Stubbing 1986, 90, 96, and Kotz 1988, 230), and a much greater number cross the line at lower levels.

Moreover, military-economic fascism, by empowering and enriching wealthy, intelligent, and influential members of the public, removes them from the ranks of potential opponents and resisters of the state and thereby helps to perpetuate the state’s existence and its intrinsic class exploitation of people outside the state. Thus, military-economic fascism simultaneously strengthens the state and weakens civil society, even as it creates the illusion of a vibrant private sector patriotically engaged in supplying goods and services to the heroic military establishment (the Boeing Company’s slickly produced television ads, among others, splendidly illustrate this propagandistically encouraged illusion).

Garden-variety Military-Economic Corruption of Government Officials

We need not dwell long on the logic of garden-variety military-economic corruption. As pots of honey attract flies, so pots of money attract thieves and con men. No organization has more money at its disposal than the US government, which attracts thieves and con men at least in full proportion to its control of wealth. Unscrupulous private parties who desire to gain a slice of the government’s booty converge on the morally dismal swamp known as Washington, DC, and take whatever actions they expect will divert a portion of the loot into their own hands. Anyone who expects honor among thieves will be sorely disappointed by the details of these sordid activities.

Although headlines alone cannot convey the resplendently lurid details, they can suggest the varieties of putrid sloughs that drain into the swamp:

  • Audit Cites Pentagon Contractors [for widespread abuse of overhead charges]

  • Ex-Unisys Official Admits Paying Bribes to Get Pentagon Contracts

  • Top Republican on a House Panel Is Charged With Accepting Bribes

  • Ex-Pentagon Officials Sentenced [for taking monetary bribes and accepting prostitutes’ services from contractors]

  • Northrop Papers Indicate Coverup: Documents from ’80s Show Accounting Irregularities Were Hidden from Pentagon

  • Revolving Door Leads to Jail: Former Acquisition Official Convicted of Steering Business to Boeing for Personal Gain

  • Contractor “Knew How to Grease the Wheels”: ADCS Founder Spent Years Cultivating Political Contacts

  • Graft Lurks within Pentagon’s “Black Budget”: Top-secret Items Escape Oversight

  • Contractor Pleads Guilty to Corruption: Probe Extends Beyond Bribes to Congressman

  • From Cash to Yachts: Congressman’s Bribe Menu; Court Documents Show Randall “Duke” Cunningham Set Bribery Rates

  • Defense Contractor Guilty in Bribe Case

(Sources for these headlines appear, respectively, in the citations given in the third paragraph of this article.) Anyone who cares to accumulate all such news articles may look forward to full employment for the rest of his life.

Yet, notwithstanding the many culprits who are caught in the act, one must realistically assume that a far greater number get away scot-free. As Ernest Fitzgerald, an extraordinarily knowledgeable authority with extensive personal experience, has observed, the entire system of military procurement is pervaded by dishonesty: “Government officials, from the majestic office of the president to the lowest, sleaziest procurement office, lie routinely and with impunity in defense of the system,” and “the combination of loose procurement rules and government acquiescence in rip-offs leaves many a crook untouched” (1989, 312, 290).

Among the instructive cases now making their way through the justice system are several related to recently convicted congressman Randall “Duke” Cunningham, a war hero and longtime titan of the MICC who currently resides in a federal penitentiary. Chief among the persons under continuing investigation by the Federal Bureau of Investigation is Brent Wilkes, a DC high-flyer who is alleged to have been involved tangentially in events leading to the recent sacking of former congressman and Director of Central Intelligence Porter Goss. According to a May 7, 2006, report in the New York Daily News, ongoing FBI and CIA investigations of Kyle (Dusty) Foggo, formerly the third-ranking official at the Central Intelligence Agency (CIA), who resigned in May 2006 amid a swirl of allegations,

have focused on the Watergate poker parties thrown by defense contractor Brent Wilkes, a high-school buddy of Foggo’s, that were attended by disgraced former Rep. Randy (Duke) Cunningham and other lawmakers.

Foggo has claimed he went to the parties “just for poker” amid allegations that Wilkes, a top GOP fund-raiser and a member of the $100,000 “Pioneers” of Bush’s 2004 reelection campaign, provided prostitutes, limos and hotel suites to Cunningham.

Cunningham is serving an eight-year sentence after pleading to taking $2.4 million in bribes to steer defense contracts to cronies.

Wilkes hosted regular parties for 15 years at the Watergate and Westin Grand Hotels for lawmakers and lobbyists. Intelligence sources said Goss has denied attending the parties as CIA director, but that left open whether he may have attended as a Republican congressman from Florida who was head of the House Intelligence Committee. (Sisk 2006)

In your mind, multiply this squalid little scenario by one thousand, and you will begin to gain a vision of what goes on in the MICC’s higher reaches. Evidently, the daily routine there is not all wailing and gnashing of teeth over how to defend the country against Osama bin Laden and his horde of murderous maniacs — our country’s leaders require frequent periods of rest and recreation. If this sort of fun and games at taxpayer expense is your idea of responsible government, then you ought to answer “yes” when the pollster calls to ask whether you favor an increase in the defense budget. Our government is clearly at work — at work making chumps out of its loyal subjects and laughing at these rubes all the way to the bank.

Legal Corruption of Government Officials

The truly big bucks, of course, need not be compromised in the least by this sweaty species of fraud and workaday corruption (Kovacic 1990a,89–90, 103 n197; 1990b, 118, 130 n94–101). Just as someone who kills one person is a murderer, whereas someone who kills a million persons is a statesman, so the government officials who steer hundreds of billions of dollars, perhaps without violating any law or regulation, to the Star Wars contractors and the producers of other big-ticket weapon systems account for the bulk of the swag laundered through the Department of Defense and the Department of Homeland Security. (Lest the latter organization be overlooked, see the enormously revealing account by Bennett 2006.)

I am not saying that this huge component of the MICC is squeaky clean — far from it — but only that the corruption in this area, in dollar terms, falls mainly under the heading of legal theft, or at least in the gray area (Stubbing 1986, 407). As a Lockheed employee once wrote to Fitzgerald, “the government doesn’t really need this stuff. It’s just the best way to get rich quick. If they really needed all these nuclear bombs and killer satellites, they wouldn’t run this place the way they do” (qtd. in Fitzgerald 1989, 313; see also Meyer 2002). I personally recall Fitzgerald’s saying to me twenty years ago at Lafayette College, “A defense contract is just a license to steal.”

Absence of Proper Accounting Invites Theft

Indeed, Fitzgerald appeared as a witness at Senator Chuck Grassley’s September 1998 hearings titled “License to Steal: Administrative Oversight of Financial Control Failures at the Department of Defense.” At those hearings, Grassley released two new audit reports prepared by the General Accounting Office and another report prepared by his staff in cooperation with the Air Force Office of Financial Management. According to Grassley’s September 21, 1998, press release, “These reports consistently show that sloppy accounting procedures and ineffective or nonexistent internal controls leave DoD’s accounts vulnerable to theft and abuse. Failure by the DoD to exercise proper accounting procedures has resulted in fraud and mismanagement of the taxpayers’ money.”

Although this sort of complaint has become an annual ritual, dutifully reported in the press, the Pentagon has never managed to put its accounts into a form that can even be audited. Like Dick Cheney, who chose not to fight in the Vietnam War, the military brass seems to have had other priorities, even though for more than a decade the Defense Department has invariably stood in violation of the 1994 federal statute that requires every government department to make a financial audit (Higgs 2005, 55–61).

Testifying before a congressional committee on August 3, 2006, Thomas F. Gimble, the department’s acting inspector general, emphasized “financial management problems that are long standing, pervasive, and deeply rooted in virtually all operations.”

Expanding on this general observation with specific reference to the fiscal year 2005 agency-wide principal financial statements, he stated: “We issued a disclaimer of opinion for the statements because numerous deficiencies continue to exist related to the quality of data, adequacy of reporting systems, and reliability of internal controls.”

Of the nine organizational components “required by the Office of Management and Budget (OMB) to prepare and obtain an audit opinion on their FY 2005 financial statements,” only one received an unqualified opinion and one a qualified opinion. “All the others, including the agency-wide financial statements, received a disclaimer of opinion, as they have every year in the past…. The weaknesses that affect the auditability of the financial statements also impact other DoD programs and operations and contribute to waste, mismanagement, and inefficient use of DoD resources. These weaknesses affect the safeguarding of assets and proper use of funds and impair the prevention and identification of fraud, waste, and abuse” (US Department of Defense, Office of the Inspector General 2006, 1–2, emphasis added).

In Iraq since the US invasion in 2003, billions of dollars have simply disappeared without leaving a trace (“Audit: US Lost Track” 2005, Krane 2006). Surely they did not all evaporate in the hot desert sun. The accounts at Homeland Security are in equally horrible condition (Bennett 2006, 110–11).

No one knows how much money or specific property is missing from the military and homeland-security departments or where the missing assets have gone. If a public corporation kept its accounts this atrociously, the Securities and Exchange Commission would shut it down overnight. Government officials, however, need not worry about obedience to the laws they make to assure their credulous subjects that everything is hunky-dory inside the walls. When they are of a mind, they simply flout those laws with impunity.

PAC Contributions to Politicians and Their Parties Are Bribes

Political action committees (PACs) evolved and eventually obtained legal validation as vehicles for making lawful bribes to candidates for federal offices and to their political parties. Candidates now count on them for a large share of their campaign funds, and everyone over eleven years of age with an IQ above 70 understands that these contributions are made with an understanding that they will elicit a quid pro quo from the recipients who win the elections.

Military-economic interests have not been timid about forming PACs and transferring huge sums of money through them to the candidates. According to the Center for Responsive Politics, “defense” PACs transferred more than $70 million to candidates and parties in the election cycles from 1990 to 2006. Individuals and soft-money contributors (before soft-money contributions were outlawed after the 2002 elections) in the “defense” sector added more than $37 million, bringing the total to nearly $108 million (the figures are available here).

No one knows how much was added by illegal and hence unrecorded contributions made by military interests, but the addition might well have been substantial, if we may judge by the many accounts of individual instances of such contributions that have been brought to light over the years.

Figure 1 shows the amounts transferred during the past nine election cycles.

Figure 1. Contributions by “Defense” Interests in Federal Elections, 1990–2006

Source: Center for Responsive Politics Note: Soft money contributions (defined as those that do not explicitly urge voters to cast their ballots for specific candidates) after the 2002 elections were banned by the Bipartisan Campaign Finance Reform Act.

One may deny, of course, that PAC contributions constitute a form of corruption, inasmuch as they are legal within the statutorily specified limits, but such a denial would elevate form over substance. Both the givers and the receivers understand these payments in exactly the same way that they understand illegal forms of bribery, even though they never admit this understanding in public — political decorum must be served, if only to protect the children.

How Government Corrupts Business

A brief review of the history of US military contracting helps to clarify my claim that military-economic transactions tend to corrupt business. The most important historical fact is that before 1940, except during wartime, such dealings amounted to very little. The United States had only a tiny standing army and no standing munitions industry worthy of the name. When wars occurred, the government supplemented the products of its own arsenals and navy yards with goods and services purchased from private contractors, but most such items were off-the-shelf civilian goods, such as boots, clothing, food, and transportation services.

To be sure, plenty of occasions arose for garden-variety corruption in these dealings — bribes, kickbacks, provision of shoddy goods, and so forth (Brandes 1997) – but such malfeasances were usually one-shot or fleeting transgressions, because the demobilizations that followed the conclusion of each war removed the opportunity for such corruption to become institutionalized to a significant degree in law, persistent organizations, or ongoing practice.

Like gaudy fireworks, these sporadic outbursts of corruption flared brightly and then turned to dead cinders. No substantial peacetime contracting existed to fuel enduring corruption of the military’s private suppliers, and much of the contracting that did take place occurred within the constraints of rigid solicitations and sealed-bid offers, which made cozy deals between a military buyer and a private seller difficult to arrange. At late as fiscal year 1940, the War Department made 87 percent of its purchases through advertising and invitations to bid (Higgs 2006a, 39).

All this changed abruptly and forever in 1940, and the situation that existed during the so-called defense period of 1940–41, before the United States became a declared belligerent in World War II, and the manner in which it was resolved had an enduring effect in shaping the contours of the MICC and hence in establishing its characteristic corruption of business.

The Roosevelt administration, desperate to build up the nation’s capacity for war after the breathtaking German triumphs in the spring of 1940, made an abrupt about-face, abandoning its relentless flagellation of businessmen and investors and instead courting their favor as prime movers in the buildup of the munitions industries. Most businessmen, however, having been anathematized and legislatively pummeled for the past six years, were reluctant to enter into such deals, for a variety of reasons, chief among them being their fear and distrust of the federal government (Higgs 2006a, 36–38).

To placate the leery businessmen by shifting the risks from them onto the taxpayers, the government adopted several important changes in its procurement laws and regulations. These included negotiated cost-plus-fixed-fee contracts, instead of contracts arrived at within the solicitation-and-sealed-bid system; various forms of tax breaks; government loan guarantees; direct government funding of plants, equipment, and materials; and provision of advance and progress payments, sparing the contractors the need to obtain and pay interest on bank loans.

All of these arrangements, with greater or lesser variations in their details from time to time, became permanent features of the MICC (US Senate, Committee on Armed Services 1985, 35, 42, 553–67).

Even more important, as the new system operated on a vast scale during World War II, the dealings between the military purchasers and the private suppliers took on a fundamentally new style. As described by Wilberton Smith, the official historian of the Army’s economic mobilization during the war:

The relationship between the government and its contractors was gradually transformed from an “arm’s length” relationship between two more or less equal parties in a business transaction into an undefined but intimate relationship — partly business, partly fiduciary, and partly unilateral — in which the financial, contractual, statutory, and other instruments and assumptions of economic activity were reshaped to meet the ultimate requirements of victory in war. Under the new conditions, contracts ceased to be completely binding; fixed prices in contracts often became only tentative and provisional prices; excessive profits received by contractors were recoverable by the government; and potential losses resulting from many causes — including errors, poor judgments, and performance failures on the part of contractors — were averted by modification and amendment of contracts, with or without legal “consideration,” whenever required by the exigencies of the war effort. (1959, 312, emphasis added)

Although Smith was describing the system as it came to operate during World War II, almost everything he said fits the postwar MICC as well (Higgs 2006a, 31–33), especially his depiction of the buyer-seller dealings as constituting “an undefined but intimate relationship” and his recognition that “contracts ceased to be completely binding.”

Thus, the institutional changes made in 1940–41 and the wartime operation of the military-industrial complex in the context of these new rules put permanently in place the essential features of the modern procurement system, which has repeatedly demonstrated its imperviousness to reform for the past sixty years — it was too good a deal to give up even after the demise of the USSR and the end of the Cold War, and with breathtaking chutzpah, the system’s kingpins parlayed the box-cutter attacks of 9/11 into an excuse to pour hundreds of billions of additional dollars into purchases of Cold War weaponry (Sapolsky and Gholz 2001, Isenberg and Eland 2002, Higgs 2004, Makinson 2004).

Under the old, pre-1940 system, a private business rarely had anything to gain by wining and dining military buyers or congressmen. Unless a firm made the lowest-priced sealed-bid offer to supply a carefully specified good, it would not get the contract. The military buyer knew what he needed, and he had a tightly limited budget with which to get it. After 1940, however, the newly established “intimate relationship” opened up a whole new world for wheeling and dealing on both sides of the deal — often it was difficult to say whether the government agent was shaking down the businessman or the businessman was bribing the government agent.

In fact, until the military purchasing agency certified a company as qualified, the firm could not make a valid offer, even in the context of competitive bidding. In the post-1940 era, only a small fraction of all contracts emerged from formally advertised, sealed-bid competition, and most contracts were negotiated without any kind of price competition (Higgs 2006a, 39; Stubbing 1986, 226, 411).

Deals came to turn not on price, but on technical and scientific capabilities, size, experience, and established reputation as a military supplier — vaguer attributes that are easier to fudge for one’s friends. From time to time, deals also turned on the perceived need to keep a big firm from going under. For example, Fen Hampson observes that in the early 1970s, “The bidding [for production of the C-4 (Trident I) missile] was not opened to other companies because Lockheed was encountering financial difficulties at the time and desperately needed the business” (1989, 92).

Indeed, scholars have identified an extensive pattern of rotating major contracts that has been dubbed a “follow-on imperative” or a “bailout imperative,” a virtual guarantee against bankruptcy, regardless of mismanagement or other corporate ineptitude (Nieburg 1966, 201, 269; Kurth 1973, 142–44; Kaufman 1972, 289; Dumas 1977, 458; Gansler 1980, 49, 172, 227; Stubbing 1986, 185–89, 200–04).

Subcontracts could also be used to prop up failing firms, and in nearly every large-scale project they served as the principal means of spreading the political patronage across many congressional districts (Kotz 1988, 128–29; Mayer 1990, 218–31). In truth, deals — especially the many important changes introduced into them after their initial formulation (“contract nourishment”), permitting contractors to “buy in now, get well later” (Stubbing 1986, 179–84) — came to turn in substantial part on “who you know.” In Richard Stubbing’s words, “Often it is raw politics, not military considerations, which ultimately determines the winner” (1986, 165).

All the successful major prime contractors — such as Lockheed Martin (see Cummings 2007), General Dynamics (see Franklin 1986), Rockwell (see Kotz 1988), Bechtel (see McCartney 1988), and Halliburton (see Briody 2004), for example — demonstrated beyond any doubt that in the MICC, cultivating friends in high places yields a high rate of return. Indeed, without such friends, a firm may be hard pressed to survive in this sector at all.

The tight budget constraints of the pre-1940 peacetime periods became vastly looser as trillions of dollars poured out of the congressional appropriations process during the endless national emergency of the Cold War and its sequel, the so-called war on terror. As Nick Kotz observed, “Now that the stakes in profits and jobs were far higher than those of any government program in history, dividing the spoils ensured that the game of politics would be played on a grand scale” (1988, 50). (Of course, the game of politics in reality, as distinct from the high-school-civics idealization, is essentially the game of corruption.) In fiscal year 2007, for example, the Department of Defense anticipates outlays of approximately $90 billion for procurement, $162 billion for operations and maintenance, $72 billion for research, development, testing, and evaluation, and $8 billion for military construction — components that sum to $332 billion (US Department of Defense, Office of the Under Secretary of Defense 2006, 15). Nearly all of this loot will end up in the pockets of private contractors; military personnel costs are separate from these accounts.

With plenty of money to go around, all that a would-be contractor needs is an old buddy in the upper reaches of a military bureaucracy or a friend on the House military appropriations subcommittee or in the Senate. (Nowadays, more than ever before, a single member of Congress can create magnificent gifts for his friends by making “earmarks,” furtive amendments to an appropriations bill that everyone understands to be nothing but an individual legislator’s pound of flesh taken out of the taxpayer’s unfortunate corpus.)

If one does not have such a friend in high places, one can acquire him (or her, as the infamous Darleen Druyun illustrates [see Colarusso 2004]) by ponying up the various forms of bribes to which many Pentagon officials and members of Congress have shown themselves to be highly receptive. After all, it’s not as if the bureaucrat or the member of Congress is giving away his own money.

To keep this gravy train on the track, contractors and their trade associations, as well as the armed forces themselves, devote great efforts to increasing the amount of money Congress appropriates in total for “defense,” and now also for “homeland security.” Their campaign contributions and other favors go predominantly to the incumbent barons — congressional leaders and committee chairmen — and to the “hawks” who’ve never met a defense budget big enough to please them. As Fitzgerald notes, “In Washington you can get away with anything as long as you have the high moguls of Congress as accessories before and after the fact” (1989, 91).

Furthermore, as Kotz observes, “[t]here is a multiplier effect as the different military services, members of Congress, presidential administrations, and defense industries trade support for each other’s projects” (1989, 235). In other words, the defense budget is not simply the biggest logroll in Congress (Stubbing 1986, 98), but the biggest logroll in Washington, DC. Fen Hampson remarks: “bureaucratic and political interests approach weapons acquisition and defense budget issues as non-zero-sum games; that is, as games where there are rewards and payoffs to all parties from cooperation or collusion” (1989, 282). Only the taxpayers lose, but their interests don’t count: they are not “players” in this game, but victims.

To give the public a seeming interest in the whole wretched racket, the contractors also spend substantial amounts of money cultivating the public’s yearning to have the military dish out death and destruction to designated human quarry around the world — commies, gooks, ragheads, Islamo-fascists, narco-terrorists, and so forth — who are said to threaten the precious “American way of life.”

For example, Rockwell, a military contractor whose massive secret contributions helped to reelect Richard Nixon in 1972 (Kotz 1988, 103–04, Fitzgerald 1989, 84), once mounted “a secret grass-roots campaign code-named Operation Common Sense” that included “a massive letter-writing campaign … solicitation of support from national organizations … and production of films and advertisements as well as prepared articles, columns, and editorials that willing editors could print in newspapers and magazines” (Kotz 1988, 134–35) — all the news that’s fit to print, so to speak.

Much money goes into producing glorification of the armed forces, and reports of those forces’ stupidities and brutalities in exotic climes are dismissed as nothing but the fabrications of leftists and appeasers or, if they cannot plausibly be denied, alleged to be nothing more than the isolated misbehavior of a few “bad apples” (Higgs 2006b).

Lest the armed forces themselves prove insufficiently imaginative in conceiving of new and even more expensive projects for the lucky suppliers to carry out, the contractors hire battalions of mad geniuses to design the superweapons of the future and regiments of former generals and admirals to market these magnificent creations to their old friends and subordinates currently holding down desks at the Pentagon.

Thus, as General James P. Mullins, former commander of the Air Force Logistics Command, has written, “the prime contractors are where the babies really come from.” He explains: “[T]he contractor has already often determined what it wants to produce before the formal acquisition process begins…. The contractor validates the design through the process of marketing it to one of the services. If successful, the contractor gets a contract. Thus, to a substantial degree, the weapon capabilities devised by contractors create military requirements” (1986, 91; see also Stubbing 1986, 174).

In sum, the military-supply firms exemplify a fundamentally corrupt type of organization. Their income comes to them only after it has first been extorted from the taxpayers at gunpoint — hence their compensation amounts to receiving stolen property. They are hardly unwitting or unwilling recipients, however, because they are not drafted to do what they do. No wallflowers at this dance of death, they eagerly devote strenuous efforts to encouraging government officials to wring ever greater amounts from the taxpayers and to distribute the loot in ways that enrich the contractors, their suppliers, and their employees.

These efforts include both the licit and the illicit measures I have described, spanning the full range from making a legal campaign contribution to providing prostitutes to serve the congressman or the Pentagon bigwig after he has become bored with playing poker in the contractor’s suite at a plush DC hotel.

(Note well: such “entertainment” expenses are likely to be accounted “allowable costs” by the defense contractor who bears them, and with only routine audacity he may add to them an “overhead” charge — the entire sum to be reimbursed ultimately by the taxpayers. [In general, “overhead proves to be a huge moneymaker for defense firms” (Stubbing 1986, 205).] Kotz [1988, 137], describes Rockwell’s billing for entertainment, public relations, and lobbying in connection with its contract to build the B-1 bomber. Fitzgerald [1989, 197, 198–99] describes similar charges by General Dynamics, as well as boarding expenses for an executive’s dog, and by Pratt and Whitney, including $7,085 for hors d’oeuvres at a Palm Beach golf resort and $2,735 for strolling musicians at another bash. Sometimes the contractors billed the government twice for the same outrageous expenses.)

Can Anything Be Done?

The short answer is “probably not.” The MICC is deeply entrenched in the US political economy, which itself has been moving steadily closer to complete economic fascism for more than a century (Higgs 1987, 2007). Decades of studies, investigations, blue ribbon commission reports, congressional hearings and staff studies, and news media exposés detailing its workings from A to Z have scarcely dented it (Higgs 2004). For the most part, the official scrutiny is just for show, whereas the unofficial scrutiny is easily dismissed as the work of outsiders who don’t know what they are talking about, not to mention that they are “America haters.”

Official evaluations, at their frankest, conclude that “[p]ast mistakes — whether in the procurement of a weapon system or in the employment of forces during a crisis — do not receive the critical review that would prevent them from recurring…. The lessons go unlearned, and the mistakes are repeated” (US Senate, Committee on Armed Services 1985, 8). Such evaluations, though seemingly forthright and penetrating, strike me as far-fetched. Of course, people sometimes makes mistakes, but if people with the power to change an arrangement refrain from doing so for decades on end, the most reasonable conclusion is that they prefer things as they are — that is, as a rule, there are no long-lasting “failed policies,” properly speaking.

To apply here what I wrote twelve years ago in regard to several other kinds of policies: “Government policies succeed in doing exactly what they are supposed to do: channeling resources bilked from the general public to politically organized and influential interest groups” (Higgs 1995; see also Kotz 1989, 242–45).

Therefore, one must conclude that the MICC serves its intended purposes well, however much its chronic crimes and intrinsic corruption sully its self-proclaimed nobility. What you and I call corruption is, after all, precisely what the military-economic movers and shakers call the good life.

Ultimately, the most significant factor is that the post-World War II US foreign policy of global hegemony and recurrent military intervention places a strong floor beneath the MICC and serves as an all-purpose excuse for its many malfeasances (Eland 2004, Johnson 2004).

As Ludwig von Mises observed, “The root of the evil is not the construction of new, more dreadful weapons. It is the spirit of conquest…. The main thing is to discard the ideology that generates war” (1966, 832; see also Higgs and Close 2007). Until the scope of the US government’s geopolitical ambitions and hence the scale of its military activities are drastically reduced, not much opportunity will exist for making its system of military-economic fascism less rapacious and corrupt.

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From a ‘Due Process’ Perspective, the Brett Kavanaugh Hearing Will Be a Farce

BKChristine Blasey Ford has agreed to testify before the Senate Judiciary Committee on Thursday about her sexual assault allegation against Supreme Court nominee Brett Kavanaugh, who will also take questions from the senators about the matter.

Kavanaugh strongly denies committing the assault, and will submit his calendar from the summer of 1982 as evidence that he never attended a house party with Ford and the other people she has claimed were there. On Saturday, a long-time friend of Ford, Leland Ingham Keyser, lent some credence to Kavanaugh’s denial: Contrary to Ford’s claim that Keyser attended the party 35 years ago, Keyeser said she never met Kavanaugh and was not present at any such party.

“Ms. Keyser does not know Mr. Kavanaugh and she has no recollection of ever being at a party or gathering where he was present, with, or without, Dr. Ford,” said Keyser’s lawyer in a statement, according to CNN.

It’s possible, of course, that she did meet Kavanaugh, and was there on the day of the sexual assault—she just can’t remember. Even so, the fact that no relevant witness has been willing or able to back up Ford’s eminently plausible but unproven account is notable.

When it comes to the truth of the accusation, I can understand why people might have a hunch one way (evidence of a pattern of alcohol abuse among Kavanaugh’s social circle, lack of unbelievable details in accusation), or the other (no other accusers, extensive testimony of Kavanaugh’s good treatment of women). But plenty of political experts sound as if they are already certain of Kavanaugh’s guilt or innocence.

What’s more, some of these people sit on the Senate Judiciary Committee—the very authority charged with deciding whether the allegation is credible enough to deny Kavanaugh a spot on the Supreme Court. This should serve as a reminder that despite all the conservative defenders of Kavanaugh invoking due process, Kavanaugh is not actually entitled to it. If he was, most members of the Senate Judiciary Committee would have to recuse themselves from the vote, since they have made prejudicial statements about Kavanaugh that signal their lack of impartiality.

Take Sen. Mazie Hirono (D–Hi.), who told Jake Tapper that she put Kavanaugh’s denial “in the context of everything that I know about him in terms of how he approaches his cases.” She described Kavanaugh as “very outcome driven” and having “an ideological agenda,” and appeared to suggest that his hostility toward abortion rights somehow gave credence to Ford’s accusation. (These remarks drew a rebuke from Tapper, “It sounds to me like you’re saying that because you don’t trust him on policy… you don’t believe him about this party in 1982.”)

Or consider Sen. Lindsey Graham (R­–S.C.), who asked Fox News, “What am I supposed to do, go and ruin this guy’s life based on an accusation?”

Senators are not actually objective fact finders trying to decide whether an accusation has cleared some prescribed burden of proof. They are political partisans elected to their positions by the American people. That’s a huge problem, from a due process perspective—due process requires impartiality from the people rendering the verdict.

“If this were a legal proceeding, many (if not all) of the members of the SJC would have to recuse themselves based on public statements that they’ve made either about this particular issue or the BK nomination more generally,” wrote Carissa Byrne Hessick, a criminal law professor at the University of North Carolina, in an informative Twitter thread.

A rival framework for considering the Kavanaugh nomination, also has some problems, though: the idea that this is a job application, and thus the senators can reject Kavanaugh even on the slightest suspicion of wrongdoing. For many employers throughout the U.S., that’s not actually true.

“The law varies by state, in terms of what you are allowed to do, but it’s tricky territory,” wrote Patrick Chovanec, an adjunct professor at Columbia University School of International and Public Affairs, in a similarly useful Twitter thread. “The basic idea here is that unproven allegations alone are not an adequate basis for rejecting a job applicant. In fact, depending on how you handle it, it could be an unjust and illegal basis for making your hiring decision.”

Neither of these perspectives tell us what the senators should do. But Kavanaugh defenders and detractors should avoid the mistake of claiming what the senators must do is obvious. It’s not.

I say this as a staunch defender of due process, even in cases other than criminal trials. Campus Title IX adjudication, which similarly deals with allegations of sexual misconduct, is an example of a quasi-judicial proceeding where due process protections have not always been so strong, to the detriment of the validity of the process. Students accused of sexual misconduct under Title IX may not have the exact same rights as people charged with committing rape, but courts have held that they do possess some of those rights: The Sixth Circuit recently held, for instance, that students in Title IX hearings should have some opportunity to cross-examine each other. (The author of that decision, Judge Amul Thapar, was on President Trump’s Supreme Court shortlist, and Senate Majority Leader Mitch McConnell reportedly lobbied hard for Thapar, to no avail.)

If Kavanaugh were a criminal defendant, he would be entitled to a range of protections designed to ensure that no innocent person is wrongfully deprived of life or liberty, even if these protections mean that some guilty people go free. If Kavanaugh were a college student, he would be entitled to equal treatment irrespective of his gender, certain procedural safegaurds, and according to new guidance soon to be released by the Education Department, the presumption of innocence. But Kavanaugh is neither of these things, and thus the decision to confirm him to the Supreme Court is ultimately a political one. No matter what happens at the hearings this week, no one should mistake what they’re watching for due process.

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Beware The Zombies: BIS Warns That Non-Viable Firms Are Crippling Global Growth

Ten years after central banks unleashed a period of record low interest rates, the central banks’ central bank is warning that this may not have been the smartest move.

In the latest quarterly review from the Bank of International Settlements, the Basel-based organization that oversees the world’s central banks warned that decades of falling interest rates have led to a sharp increase in the number of “zombie” firms, rising to an all time high since the 1980s, threatening economic growth and preventing interest rates from rising.

Zombie firms are defined as companies that are at least 10 years old, yet are unable to cover their debt service costs from profits, in other words the Interest Coverage Ratio (ICR) is less than 1x for at least 3 consecutive quarters. These types of companies, which first gained attention in Japan decades ago and have since gained prevalence in Europe and, increasingly, the United States.  According to a second definition, a requirement for a “zombie” is to have comparatively low expected future growth potential. Specifically, zombies are required to have a ratio of their assets’ market value to their replacement cost (Tobin’s q) that is below the median within their sector in any given year.

According to authors Ryan Banerjee and Boris Hofmann, zombie firms that fall under the two definitions are very similar with respect to their current profitability, but qualitatively different in their profitability prospects, which may be a function of how central banks have “broken” the market.  Graph 1 below shows that, for non-zombie firms, the median ICR is over four times earnings under both definitions. As the majority of zombie firms make losses, the median ICRs are below minus 7 under the broad measure and around minus 5 under the narrow one, so this is hardly a surprise.

A striking difference between the broad and narrow zombie measure emerges, however, with respect to expected future profitability, as measured by Tobin’s q. Under the broad measure, the median Tobin’s q of zombie firms is higher than that of non-zombies. That means that investors are optimistic about the future prospects of  many of these zombie firms, more so than that for the non-zombies! As this group includes such “tech” and “story” names as Netflix and Tesla, it is easy to see why the market tends to reward the zombies. 

According to the BIS continue to steer resources away from healthier parts of the economy, weighing on productivity and economic growth, while stimulating deflation by keeping clearing prices lower than where they should be in the process reflexively acting as a brake to higher interest rates.

While lower borrowing costs should reduce the number of zombie firms, which tend to be less productive than other companies, as their interest expenses are reduced, the offsetting effect is that lower rates also ease the pressure on both the firms themselves and their creditors to clean up balance sheets, the report noted. Lenders then sometimes continue to provide “evergreen” loans to firms that may not be able to pay back.

“Should this effect be strong enough to reduce growth, it could even depress interest rates further,” the BIS authors warned.

Zombie firms took on more debt and disposed of fewer assets after 2000, a trend which continued after the financial crisis of 2008-2009 when the global interest rates hit a record low.

The BIS found that the 10% decline in nominal interest rates since the mid-80s accounts for around 17% of a six-fold rise in the number of zombie companies, although in reality the number may be far higher.

The report also found that once a company becomes a “zombie”, it tends to stay that way for longer rather than recovering or exiting through bankruptcy: while in the late 1980s zombie firms had a 60% chance of staying in that condition the following year, the probability reached 85% in 2016. The main culprit, naturally, is low interest rates which have helped these firms stay afloat by reducing their financial pressure to reduce debt.

Another factor is the symbiotic relationship between creditor and debtor: once “zombie” balance sheets are impaired, banks have incentives to roll over loans to non-viable firms rather than writing them off. This implies that weak banks played a role in the wake of the GFC. By inhibiting corporate restructuring, poorly designed insolvency regimes were also at
work.

“Lower rates boost aggregate demand and raise employment and investment in the short run. But the higher prevalence of zombies they leave behind misallocate resources and weigh on productivity growth,” the report notes and adds that “should this effect be strong enough to reduce growth, it could even depress interest rates further.”

The record prevalence of zombie firms also explains the sharp drop off in productivity in recent years:

On average, labor productivity and total factor productivity of zombie firms are lower than those of their peers (under both zombie definitions): the distribution of productivity of zombies is clearly shifted towards the lower end, ie to the left.

The zombie firms highlight a “difficult trade-off” for central bank policy, the BIS writers concluded. While lower rates should help boost aggregate demand in the economy and raise employment, more zombie companies means more misallocation of resources. Their survival will also crowd out investment in, and employment at healthy firms.

The zombies may not survive for much longer, however, as another concern has emerged recently.

With rates now rising, starting this year most of these zombie firms will no longer be able to roll over their maturing debt into lower interest rates. As such, as rates ratchet higher, defaults will inevitably increase – as we noted earlier in “Goldman Warns Of A Default Wave As $1.3 Trillion In Debt Is Set To Mature” – and depending on how pervasive the contagion from these isolated defaults becomes, the fallout could have dire consequences for the bond market as some $1.3 trillion in debt is due to be refinance over the next 5 years.

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The New York Times As Judge And Jury

Authored by Joe Lauria via ConsortiumNews.com,

Seeking to maintain its credibility, The New York Times dispenses with the criminal justice system and basic principles of journalism to weigh in again on Russia-gate…

We’ve seen it before: a newspaper and individual reporters get a story horribly wrong but instead of correcting it they double down to protect their reputations and credibility – which is all journalists have to go on – and the public suffers.

Sometimes this maneuver can contribute to a massive loss of life. The most egregious example was the reporting in the lead-up to the invasion of Iraq. Like nearly all Establishment media, The New York Times got the story of Iraq’s weapons of mass destruction—the major casus belli for the invasion—dead wrong. But the Times, like the others, continued publishing stories without challenging their sources in authority, mostly unnamed, who were pushing for war.

The result was a disastrous intervention that led to hundreds of thousands of civilian deaths and continued instability in Iraq, including the formation of the Islamic State.

In a massive Times‘ article published on Thursday, entitled, “A Plot to Subvert an Election: Unravelling the Russia Story So Far,” it seems that reporters Scott Shane and Mark Mazzetti have succumbed to the same thinking that doubled down on Iraq.

They claim to have a “mountain of evidence” but what they offer would be invisible on the Great Plains.

With the mid-terms looming and Special Counsel Robert Mueller unable to so far come up with any proof of collusion between Russia and the Trump campaign to steal the 2016 election—the central Russia-gate charge—the Times does it for him, regurgitating a Russia-gate Round-Up of every unsubstantiated allegation that has been made—deceptively presented as though it’s all been proven.

Mueller: No collusion so far.

This is a reaffirmation of the faith, a recitation of what the Russia-gate faithful want to believe is true. But mere repetition will not make it so.

The Times’ unsteady conviction is summed up in this paragraph, which the paper itself then contradicts only a few paragraphs later:

“What we now know with certainty: The Russians carried out a landmark intervention that will be examined for decades to come. Acting on the personal animus of Mr. Putin, public and private instruments of Russian power moved with daring and skill to harness the currents of American politics. Well-connected Russians worked aggressively to recruit or influence people inside the Trump campaign.”

But this schizoid approach leads to the admission that “no public evidence has emerged showing that [Trump’s] campaign conspired with Russia.”

The Times also adds: “There is a plausible case that Mr. Putin succeeded in delivering the presidency to his admirer, Mr. Trump, though it cannot be proved or disproved.”

This is an extraordinary statement. If it cannot be “proved or disproved” what is the point of this entire exercise: of the Mueller probe, the House and Senate investigations and even of this very New York Times article?

Attempting to prove this constructed story without proof is the very point of this piece.

A Banner Day

The 10,000-word article opens with a story of a pro-Russian banner that was hung from the Manhattan Bridge on Putin’s birthday, and an anti-Obama banner hung a month later from the Memorial Bridge in Washington just after the 2016 election.

On public property these are constitutionally-protected acts of free speech. But for the Times, “The Kremlin, it appeared, had reached onto United States soil in New York and Washington. The banners may well have been intended as visual victory laps for the most effective foreign interference in an American election in history.”

Kremlin: Guilty, says NYT. (Robert Parry, 2016)

Why? Because the Times tells us that the “earliest promoters” of images of the banners were from social media accounts linked to a St. Petersburg-based click-bait farm, a company called the Internet Research Agency. The company is not legally connected to the Kremlin and any political coordination is pure speculation. IRA has been explained convincingly as a commercial and not political operation. Its aim is get and sell “eyeballs.”

For instance the company conducted pro and anti-Trump rallies and social media messages, as well as pro and anti-Clinton. But the Times, in classic omission mode, only reports on “the anti-Clinton, pro-Trump messages shared with millions of voters by Russia.” Sharing with “millions” of people on social media does not mean that millions of people have actually seen those messages. And if they had there is little way to determine whether it affected how they voted, especially as the messages attacked and praised both candidates.

The Times reporters take much at face value, which they then themselves undermine. Most prominently, they willfully mistake an indictment for a conviction, as if they do not know the difference.

This is in the category of Journalism 101. An indictment need not include evidence and under U.S. law an indictment is not evidence. Juries are instructed that an indictment is merely an accusation. That the Times commits this cardinal sin of journalism to purposely confuse allegations with a conviction is not only inexcusable but strikes a fatal blow to the credibility of the entire article.

It actually reports that “Today there is no doubt who hacked the D.N.C. and the Clinton campaign. A detailed indictment of 12 officers of Russia’s military intelligence agency, filed in July by Mr. Mueller, documents their every move, including their break-in techniques, their tricks to hide inside the Democrats’ networks and even their Google searches.”

Who needs courts when suspects can be tried and convicted in the press?

What the Times is not taking into account is that Mueller knows his indictment will never be tested in court because the GRU agents will never be arrested, there is no extradition treaty between the U.S. and Russia and even if it were miraculously to see the inside of a courtroom Mueller can invoke states secrets privilege to show the “evidence” to a judge with clearance in his chambers who can then emerge to pronounce “Guilty!” without a jury having seen that evidence.

This is what makes Mueller’s indictment more a political than a legal document, giving him wide leeway to put whatever he wants into it. He knew it would never be tested and that once it was released, a supine press would do the rest to cement it in the public consciousness as a conviction, just as this Times piece tries to do.

Errors of Commission and Omission

There are a series of erroneous assertions and omissions in the Times piece, omitted because they would disturb the narrative:

  • Not mentioning that the FBI was never given access to the DNC server but instead gullibly believing the assertion of the anti-Russian private company CrowdStrike, paid for by the DNC, that the name of the first Soviet intelligence chief found in metadata proves Russia was behind the hack. Only someone wanting to be caught would leave such a clue.

  • Incredibly believing that Trump would have launched a covert intelligence operation on live national television by asking Russia to get 30,000 missing emails.

Trump: Sarcastically calls on Russia to get Clinton emails.

  • Ignoring the possible role of the MI6, the CIA and the FBI setting up Trump campaign members George Papadopoulos and Carter Page as “colluders” with Russia.

  • Repeating misleading statements about the infamous Trump Tower meeting, in which Trump’s son did not seek dirt on Clinton but was offered it by a music promoter, not the Russian government. None was apparently produced. It’s never been established that a campaign receiving opposition research from foreigners is illegal (though the Times has decided that it is) and only the Clinton campaign was known to have obtained any.

  • Making no mention at all of the now discredited opposition research dossier paid for by the Clinton campaign and the DNC from foreign sources and used by the FBI to get a warrant to spy on Carter Page and potentially other campaign members.

  • Dismissing the importance of politicized text messages between FBI agents Peter Strzok and Lisa Page because the pair were “skewered regularly on Mr. (Sean) Hannity’s show as the ‘Trump-hating F.B.I. lovebirds.’”

  • Putting down to “hyped news stories” the legitimate fear of a new McCarthyism against anyone who questions the “official” story being peddled here by the Times.

  • Seeking to get inside Putin’s head to portray him as a petulant child seeking personal revenge against Hillary Clinton, a tale long peddled by Clinton and accepted without reservation by the Times.

  • Pretending to get into Julian Assange’s head as well, saying he “shared Mr. Putin’s hatred of Mrs. Clinton and had a soft spot for Russia.” And that Assange “also obscured the Russian role by fueling a right-wing conspiracy theory he knew to be false.”

  • Ignoring findings backed by the Veteran Intelligence Professionals for Sanity that the DNC emails were leaked and not hacked.

  • Erroneously linking the timing of WikiLeaks’ Podesta emails to deflect attention from the “Access Hollywood” tape, asdebunked in Consortium News by Italian journalist Stefania Maurizi, who worked with WikiLeaks on those emails.

Distorts Geo-Politics

The piece swallows whole the Establishment’s geo-strategic Russia narrative, as all corporate media do. It buys without hesitation the story that the U.S. seeks to spread democracy around the world, and not pursue its economic and geo-strategic interests as do all imperial powers.

The Times reports that, “The United States had backed democratic, anti-Russian forces in the so-called color revolutions on Russia’s borders, in Georgia in 2003 and Ukraine in 2004.” The Times has also spread the erroneous story of a democratic revolution in Ukraine in 2014, omitting crucial evidence of a U.S.-backed coup.

The Times disapprovingly dismisses Trump having said on the campaign trail that “Russia was not an existential threat, but a potential ally in beating back terrorist groups,” when an objective view of the world would come to this veryconclusion.

The story also shoves aside American voters’ real concerns that led to Trump’s election. For the Times, economic grievances and rejection of perpetual war played no role in the election of Trump. Instead it was Russian influence that led Americans to vote for him, an absurd proposition defied by a Gallup poll in July that showed Americans’ greatest concerns being economic. Their concerns about Russia were statistically insignificant at less than one percent.

Ignoring Americans’ real concerns exposes the class interests of Times staffers and editors who are evidently above Americans’ economic and social suffering.  The Times piece blames Russia for social “divisions” and undermining American democracy, classic projection onto Moscow away from the real culprits for these problems: bi-partisan American plutocrats. That also insults average Americans by suggesting they cannot think for themselves and pursue their own interests without Russia telling them what to do.

Establishment reporters insulate themselves from criticism by retreating into the exclusive Establishment club they think they inhabit. It is from there that they vicariously draw their strength from powerful people they cover, which they should instead be scrutinizing. Validated by being close to power, Establishment reporters don’t take seriously anyone outside of the club, such as a website like Consortium News.

But on rare occasions they are forced to take note of what outsiders are saying. Because of the role The New York Timesplayed in the catastrophe of Iraq its editors took the highly unusual move of apologizing to its readers. Will we one day read a similar apology about the paper’s coverage of Russia-gate?

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Futures, Yuan Slump At Open After China Cancels US Trade Talks

Having rallied 800 points last week on hopes that US-China trade tensions were on a path to de-escalation, Dow futures are opening down just 100 points (and Yuan is lower) after China escalated and canceled two planned trade talk visits.

After President Trump slapped a fresh round of tariffs on Chinese goods, targeting 10 percent duties on $200 billion of goods; the two camps were scheduled to meet in order to dial back tensions.

That was what sparked hope that this was just a trade skirmish (as Jamie Dimon attempted to play down), sending stocks soaring all week.

However, that is all over now.

The Journal  just reported on Friday that, according to sources, China has rescinded the proposals to send two delegations to Washington.

Chinese officials have said such pressure tactics wouldn’t induce them to cooperate.

By declining to participate in the talks, the people said, Beijing is following up on its pledge to avoid negotiating under threat.

“Everything the U.S. does hasn’t given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang said at a press briefing Friday.

“We hope that the U.S. side will take measures to correct its mistakes.”

And the result at the Sunday night futures open… Dow futures are opening down…

 

As are the rest of the US equity futures markets…

And Yuan is down modestly also after ramping for four days on trade hopes…

Meanwhile, WTI futures are up over 1% following OPEC’s tepid response to President Trump’s demands to lower the oil price…

The timing of this trade tension news, after the exuberant equity week, is also noteworthy as it follows Ray Dalio’s, founder of Bridgewater, warnings that the current trade tensions mirror those of the 1930s:

“I think that the 1935-40 period is most analogous to the current period and that it is worth reflecting on what happened then when thinking about US-Chinese relations now. 

To be clear, I’m not saying that we are on a path to a shooting war, but I am saying that we have to watch what path we are on, given these cause-effect relationships that history has taught us and that are described in the template. This excerpt describes how the economic and political conditions of the late 1930s evolved into the wars that followed. “

Read more here…

We have discussed this case-effect relation before…

 

 

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Hordes Of Bussed-In Protesters Prepare For DC Disruption Ahead Of Kavanaugh Confirmation

Liberal activists are planning to disrupt the confirmation hearing for Supreme Court nominee Brett Kavanaugh, according to journalists Paul Sperry and Jack Posobiec. 

Sperry reports: “Protesters from several radical leftwing activist groups, including Cntr for Popular Democracy,Women’s March, Indivisible, Moveon.org  &Housing Works, are being bussed into DC to march on the Senate next week & disrupt any vote on Kavanaugh. They’re meeting tonight (Sun) at 7:30 PM for training at St. Stephens of Incarnation Church, 1525 Newton Street NW in the Mount Pleasant area of DC. This church will also provide lodging for the rable and act as their staging ground throughout the week. Protesters’ jail bail, legal fees & transportation being paid for by these leftist groups, many of which are funded by liberal mega donor George Soros and are desperate to derail President Trump’s conservative SCOTUS nomination. (More details to come … )”

Jack Posobiec, meanwhile, claims to have “snuck onto the conference call for organizing against Kavanaugh on Monday and got their entire protest plans.” 




Prepare for a cacophony of rage amid a sea of pink pussy hats… 

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Poll Shows GOP Enthusiasm Rising As Midterms Loom; 70% ‘Satisfied’ With Trump’s Economy

With US stocks trading at record highs despite almost universal underperformance in global markets and the US economy benefiting from a late-cycle boom, Republicans are ready to do everything in their power to ensure that President Trump and his Congressional allies retain their unilateral control of the federal government after the midterms.

According to the latest WSJ/NBC News poll, 61% of Republican voters say they’re very interested in voting on Nov. 6, when Republicans will be looking to stop the Dems from retaking control of the House. To put that number in context, the poll showed that 65% of Democrats said they’re very interested in the vote. Over the first eight months of 2018, Democrats boasted an aggregate 12-point advantage over the Republicans on this metric – an advantage that has shrunk considerably.

Poll

To be sure, Republicans are still facing an uphill battle in the House. According to the poll, a sizable majority of voters say they would rather see Democrats wrest back control of Congress.

The Democratic lead on voter preference for control of Congress is the largest in Journal/NBC polling since Mr. Trump took office. It reflects gains for the party among white, working-class women, as well as among suburban voters and other groups that had been more favorable to the GOP in the past.

“Republicans have had a series of weak surveys; this is beyond weak,” said Bill McInturff, the GOP pollster who conducted the survey with Democrat Fred Yang. “This is a survey that says the Republican coalition at the moment is unhinged and not connected.”

Mr. McInturff emphasized that the poll reflected political conditions “at the moment.”

With the Nov. 6 midterm vote less than two months away, 52% of registered voters said they would rather see Democrats walk away with control of Congress, while 40% said they would prefer Republicans to hold on to both chambers.

That lead is up from 8 points in August. To be sure, when the pool of respondents was reduced to only likely voters, the Democrats’ advantage also shrunk.

Among those considered most likely to vote, a smaller pool than those identified as registered voters, Democrats held an 8-point advantage on the question of which party should control the next Congress. This is the first time in the midterm campaign that the Journal/NBC News poll has delineated which voters are most likely to cast ballots.

Despite most voters’ sunny view of the economy, 59% in the survey said they wanted a change from the direction Mr. Trump has been leading. That group included nearly one-third of Republicans.

Though it’s worth pointing out that Hillary Clinton boasted a similar advantage two months before the 2016 vote (an advantage that turned out to be an illusion).

When the poll turned to issues-based questions like voters’ satisfaction with the president’s performance and the economy, Democrats’ lead faded. Voters are extremely satisfied with the economy, and Trump’s approval rating has remained stable at 44%, among the highest readings since he took office. On the economy alone, voters’ approval has jumped from 63% to nearly 70%.

The poll also found that Mr. Trump’s job approval rating remained stable from August, at 44%. The share of voters satisfied with the economy jumped to 69%, up from 63% in a Journal/NBC News poll in June, and a plurality said Mr. Trump’s policies had helped economic conditions.

In other words, the “blue wave” that the mainstream media has promised its devotees is hardly a guarantee. Indeed, Democrats could endure another dramatic upset in November that could trigger flashbacks of 2016…

Blue

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Iran’s Supreme Leader Calls Attack On Parade A “US Plot”; Tehran Summons Western Ambassadors

Iran’s top cleric and leader Ayatollah Khamenei has pointed the finger at the West for a terror attack on a military parade that took place early Saturday in the Southwest city of Ahvaz, which left 25 people dead and over 60 wounded. 

Khamenei’s condemnation of “plots hatched by US stooges in the region” came simultaneous to Iran summoning the diplomatic envoys of Western countries including the Netherlands, Denmark and Great Britain, for harboring Iranian opposition groups in their countries

“It is not acceptable that these groups are not listed as terrorist organizations by the European Union as long as they have not carried out a terrorist attack in Europe,” foreign ministry spokesman Bahram Qasemi was quoted as saying by IRNA, per Reuters.

Government officials also indicated the gunmen which unleashed a hail of bullets on men women and children were disguised as Iranian soldiers: “The terrorists disguised as the Islamic Revolution Guards Corps (IRGC) and Basiji (volunteer) forces opened fire at the authorities and people from behind the stand during the parade,” the regional Governor of Khuzestan Gholam-Reza Shariati told state media

Iranian state IRNA news identified that the self-proclaimed “Saudi-affiliated” Al-Ahwaz terrorist group claimed the responsibility for the attack.

Indeed it appears that a group identifying itself as the “Ahwazi Democratic Popular Front” had announced on Twitter some 13 hours before the attack that “Al-Ahvaz will create a challenge for the Iranian occupiers with an attack,” according to a translation of the tweet

Iran’s Foreign Minister Mohammad Javad Zarif said in the aftermath that “US masters” and regional terrorist forces should be held accountable for the bloodshed.

Meanwhile Iran’s Supreme Leader ranted against Western and US plotting in his Saturday message, according to a translation and paraphrase by PressTV:

The Leader said the “tragic and sorrowful” incident in Ahvaz and the killing of people by mercenary terrorists once again exposed the cruelty of the enemies of the Iranian nation.

These savage mercenaries who open fire on innocent civilians, including women and children, are linked with the same liars who claim to advocate human rights, Ayatollah Khamenei added.

Khamenei then specifically identified US plotting as motivating the attack: “Their crime is the continuation of plots [hatched] by the US-led governments in the region who aim to create insecurity in our dear country.”

But on Saturday night the US State Department issued a rare statement of solidarity with Iranians in the wake of the terror attack: “We stand with the Iranian people against the scourge of radical Islamic terrorism and express our sympathy to them at this terrible time. The United States condemns all acts of terrorism and the loss of any innocent lives,” according to the official statement

Many prominent Western and Gulf-based media outlets refused to use the word “terrorism” in relation to the attack, which reportedly included children among the casualties.

Iran has in the past accused the United States, Saudi Arabia, and European countries for giving support to the MEK and using the opposition group as a proxy force for attacks withing Iran. The controversial Iranian opposition in exile Mujahideen e Khalq (MEK) is considered by Iran and many other countries as a terror organization (and not long ago by the US State Deptartment, though delisted as a terror group under Obama ), but is now given close support by US Congresspersons and Trump admin officials alike. 

Essentially a paramilitary cult, the MEK is suspected of conducting assassinations of high level Iranian figures, especially nuclear scientists and engineers for years, likely at the bidding of foreign intelligence services.

Currently, it is unclear exactly how much external support the Al-Ahwaz separatist group, which has claimed responsibility for the terror attack, receives, if any at all  though Tehran is pointing the finger at Saudi Arabia and its allies.  

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