Sotheby’s Burned For $5 Million In Art Auction Fraud

A fine art consultant in New York and and an interior designer in Florida stole an elderly woman’s identity and used it to bid millions of dollars on famous paintings and defraud the renowned Sotheby’s auction house, federal prosecutors in Florida alleged in court filings. Both men involved have been charged with wire fraud conspiracy and aggravated identity theft, according to the Associated Press.

Interior designer Antonio DiMarco from Hallandale, Florida, used the identity of a wealthy, 80-year-old retiree to bid at a Sotheby’s contemporary art auction in the fall of 2017. The woman was under the impression that the signature would only be used to allow him access to the auction, not to bid on items.

Antonio DiMarco/AP

After obtaining the woman’s signature, DiMarco and art advisor Joakim von Ditmar bought an untitled Mark Rothko painting dated 1968 for $6.4 million. In addition, they bought Ad Reinhardt’s “No. 12”, dated 1950, for $1.16 million. The fraud was foiled when the auction house phoned the woman in order to follow up on the purchases, and she denied any knowledge of bidding for them.

“No. 12″/Sotheby’s

Sotheby’s told AP that its discussions with the purchasers “raised significant suspicion and concern for the elderly client they purported to represent and we felt it was necessary to contact the FBI. We are pleased that the appropriate action has been taken and the victim has been protected.”

Discovery of the fraud didn’t stop Sotheby’s from being on the hook for $5 million, however, as it had committed to pay the works’ consignors regardless of what happened after the paintings were auctioned off. Sotheby’s then commented to the Associated Press that they had recovered much of the money they lost by reselling one painting and putting the other one back on the auction block.

The retiree also told the FBI that she had brought on DiMarco to decorate her home in 2014, but that instead he took more than $400,000 from her without doing much of the work.

Meanwhile, pointing out the obvious, a former FBI agent who founded the bureau’s Art Crime team, Robert Wittman, told AP that “this really was not a good fraud. They clearly did not think this all the way through.”

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California Parents Lose One More Right As State Limits Kids’ Menu Drinks To Water Or Milk

Authored by Meadow Clark via Daisy Luther’s Organic Prepper blog,

Yes, the rumors are true. California lawmakers passed a state law that forces restaurants within the state to offer only select beverages on children’s menus. Governor Jerry Brown signed SB 1192 into law in late September and it easily passed in both the State and the Assembly. Support for the nanny state law flew under the guise of what’s healthiest for the children.

The default options for beverages on children’s menus have been forced to change to unflavored milk and water.

In other words, one more option than a dungeon.

Please understand that we aren’t promoting giving children HFCS-laden sodas on a regular basis, but we ARE promoting parental choice. Adamantly.

Customers can order another drink for their child by request, but clearly, the point of the law is to make it difficult (and frowned upon) to order something “unhealthy” for their child. That’s how nanny-state health laws are usually created. In increments or with fines or taxes (see more below), and usually with some kind of societal shame tactic.

“Non-dairy fluid milk substitutes” containing under 130 calories can also appear as an option on the menu if that kind of drink is available at the restaurant. Again, this is an assumption of the “health” of the beverage and the idea of low calories being best for all children.

Should the government dictate what drinks a restaurant can serve to patrons? Do you want the government to decide what is healthiest for your children? When you go to McDonald’s, are you there for a fat-free kale smoothie? Is this giving you flashbacks to Nanny Bloomberg’s large drink ban in New York? (Which, I might add, was finally struck down in court as unconstitutional.)

That is precisely what is happening in California right as we speak. You are probably not surprised, but at the same time, when will the insanity stop?

Government nannying is insulting…

Some people might not think a few menu option changes are no big deal in the grand scheme of things. But consider this: Food is more personal than politics and religion. At least you would think so to see people fight about it online. Food is the one thing people strive to have complete control over – three times a day – in regards to their personal liberty. Going to a restaurant is an “extra” that consumers enjoy at will. It’s all up to choice. So it shouldn’t be viewed the government as a health need.

Food can be more intimate to someone than the typical concept of intimacy. In reality, food IS a form of intimacy. Look at the way different cultures come together as families to enjoy a particular meal. When you start a relationship, you bond over food. For some families, a meal out is the only time when the kids get to drink a soda pop, as a rare treat. Should families at a restaurant be confined to paltry portions and plain tap water for an evening out? Perish the thought!

Bonding over food is a concept as old as time. Holidays feature certain cuisine. Most religions have some guidelines about food – and people still argue about it every day!

When you add to that the modern nuance of what constitutes a healthy food, now we’re talking a recipe for disaster.

So when a sweeping law suddenly takes away that choice from consumers who are spending their hard-earned money for a night out…you may have heard a swath of eyeballs rolling out of heads on the West coast. In Stereo.

Childhood obesity is certainly rising, but who is to say that crimping a beverage option from a weekly night out will fix the issue?

Nothing against dairy on this site, but it does cause some problems for a lot of people. So who is to say that prompting the parent to “choose” milk is automatically healthier than the occasional soda drink? One could surmise that orange juice is healthier than soda until you see how it’s made and realize that it’s not the wholesome fruit-based drink we think it is.

What are the fines for disobeying government nanny health rules?

According to Intellectual Takeout:

According to the new law, violations of the rule will be punishable by fines up to $500:

[The] first violation shall result in a notice of violation. A second violation within a five-year period from the notice of violation shall be punishable by a fine of not more than two hundred fifty dollars ($250). For a third or subsequent violation within a five-year period, the fine shall be not more than five hundred dollars ($500).

As with most government policies that restrict individual and economic freedom, lawmakers appealed to the public good in order to justify the new regulations. According to Section 1 of the legislation:

From 1990 to 2016, inclusive, the obesity rate in California increased by 250 percent. While the increase was greatest from 1990 until 2003, recent trends suggest a continued increase in obesity among children.

The solution, they argue, is to “support parents” efforts to feed their children nutritiously by ensuring healthy beverages are the default options in children’s meals in restaurants,” ultimately improving “children’s health by setting nutritional standards for a restaurant’s children’s meals.”

The reasoning almost makes sense. If we reduce obesity and help children grow up healthy, then it will lessen the economic burden by the annual $9.1 billion spent on obesity-related health problems. But right there you can see that it’s really about cutting costs. Not much was done when childhood obesity climbed to a degree never before seen in American history.

Would skipping soda help crimp rapid weight gain?

You bet!

Unequivocally the data is clear: the high-fructose corn syrup found in soft drinks increases weight gain much faster than table sugar in the diet.

So, I must ask:

Instead of punishing parents, children, and restaurants – why not go after the food and beverage makers who are putting crappy ingredients in all the food and beverages leaving no one any choice at all about obesity if they like to partake every now and then?

Why not say to the soft drink companies, you’ve placed a harmful ingredient in beverages that is now found to be harmful and strongly correlates with the highest childhood obesity spike we’ve ever seen in the history of the United States of America. You need to switch back right now. We the Nanny made a mistake by subsidizing so much corn. We’ll start getting that sugar cane back in. 

Instead, the Nanny state points a finger to your inexplicably fat child and says he is a burden on Nanny. No soda pop for you!

California doesn’t have a glowing record for parents’ rights.

Don’t forget that Governor Jerry Brown signed one of the toughest vaccine laws in recent history. He removed all exemptions for vaccines for school-aged children (except the medical kind which are nearly impossible to get). Not exactly a champion for children’s health. Parents in California are getting kicked in the teeth.

And when California inevitably forces every citizen to eat, drink and move only in ways that are approved by the Government, their economy will crash from people crossing the border to have any semblance of fun.

Californians are already leaving the Golden State in droves, and this is no fun for Arizona as it means that the contrasting laws that they enjoy could be overturned by the coastalites.

Previously, California banned the sale of soda pop in schools. But, teens then apparently took to sports drinks.

Intellectual Takeout says:

As a 2013 study on the effects of soda bans published in the International Journal of Behavior Nutrition and Physical Activity warned, “State laws that ban soda but allow other SSBs [sugar-sweetened beverages] may lead students to substitute other non-soda SSBs.” (Unsurprisingly, California lawmakers also tried to ban sports drinks in schools in 2010. They failed, but the USDA passed a nationwide ban in 2013).

[…]A 2018 UCLA study found that while adolescent soda consumption was down in California, sugar consumption overall was still on the rise.

Prohibition failed. The War on Drugs failed. Taxing sugar and fat failed. (It was a world’s first and a big fat failure.) Yet governments keep trying to punish the individual with more restrictions and fines. Maybe it’s to get us used to having nothing.

People want their fix and in the end, they have a right to their choices.

It doesn’t make sense to legislate human behavior when there are other ways to approach problems…

If you even have to at all.

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Need Cash Fast? US Bank Unveils Payday Loan Program With 88% APR

Just as Goldman Sachs is putting the breaks on what had been a rapidly expanding consumer lending business amid growing doubts about how its $4 billion portfolio might perform during a downturn, US Bank is gambling on the riskiest form of consumer credit, offering old-fashioned pay-day loans with a digital twist.

Last month, US Bank introduced “Simple Loan”, an online-lending platform that combines the ease of Quicken Loans’ app-based platform with usurious interest rates.

Lynn Heitman, executive vice president of US Bank Consumer Banking Sales and Support, told MarketWatch that the loans provided a “trustworthy, transparent” option.

Bank

The process is relatively quick and simple for customers who have a checking account with US Bank. Simply log on to the US Bank mobile app and apply to borrow up to $1,000. The loan is deposited directly into the applicants’ checking account, then must be repaid in three installments over three months. Users who opt to have the loan payments debited directly from their checking accounts will pay $12 in interest for every $100 borrowed. Those who don’t will face a slightly higher rate of $15. Borrowers who choose automated payments will pay a 70% APR, while borrowers who opt for manual payments will pay an 88% APR.

USB

In marketing materials released by the bank, Heitman said the program incorporated extensive feedback from US Bank customers. “It was the right thing to do for our customers,” Heitman said.

All US Bank needs now is catchy jingle and they’ll be good to go…

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China’s Next Revolution Is On The Horizon

Authored by Charles Hugh Smith via OfTwoMinds blog,

The Mandate of Heaven will be withdrawn, and the autocratic regime overthrown.

The absolute confidence that China’s political structure is permanent and forever is reminiscent of the absolute confidence in the 1980s that the USSR’s political structure was permanent and forever. But the social contract that undergirds the Communist Party’s absolute power in China is fast-eroding, and those who understand Chinese history sense the winds of change have shifted and the next revolution in China is already darkening the horizon.

The story starts in the Song Dynasty, which reached its zenith in the mid-1200s.

I’ve been pondering the excellent 1964 history of the Southern Song Dynasty’s capital of Hangzhou, Daily Life in China on the Eve of the Mongol Invasion, 1250-1276 by Jacques Gernet, in light of the Chinese government’s unprecedented “Social Credit Score” system, which I wrote about in May 2018: Kafka’s Nightmare Emerges: China’s “Social Credit Score”.

The scope of this surveillance is so broad and pervasive that it borders on science fiction: Inside China’s Dystopian Dreams (NY Times)

China has turned Xinjiang into a police state like no other (The Economist)

In the Song Dynasty, arguably China’s high water mark in many ways (before the Mongol conquest changed China’s trajectory), social control required very little force. The power of social control rested in the cultural hierarchy of Confucian values: one obeyed the family’s patriarch, one’s local rulers and ultimately, the Emperor.

Author Edward Luttwak made the distinction between force and power in his fascinating book The Grand Strategy of the Roman Empire: From the First Century CE to the Third: power is persuading people to cooperate, force is making them obey.

Power is people choosing of their own accord to comply, for reasons they find sound and that serves their self-interest; there is little need for the application of force.

Power is highly leveraged; a relatively small police/military and judiciary is all that’s needed. Force, in contrast, doesn’t scale: it’s enormously costly in capital and labor to monitor an entire populace and impose control and obedience.

While the Song Dynasty had a police force, a judiciary and an army, the populace generally managed itself via an internalized secular religion that placed the father, civil authorities and the Imperial state at the top of a natural order that enabled the harmony of Heaven and Earth. To disobey would be to threaten the harmony that served everyone.

In the early days of the Communist revolution (1949 to 1965), the majority of China’s populace embraced the values and authority of the Communist regime, despite the hardships and setbacks of the Great Leap Forward (millions dying needlessly of starvation) and other centralized incompetencies.

But the Cultural Revolution that was launched with Mao’s blessing in 1966 was only embraced by the youthful Red Guards. The rest of the society had to be monitored and forced to comply with the mercurial injustices and arbitrary nature of the Cultural Revolution, which imprisoned millions of China’s most accomplished citizens in various forms of forced deprivation: house arrest (the most mild); forced relocation to rural labor, re-education (i.e. torture) and imprisonment. Many were killed without even the semblance of a judicial process.

In broad brush, the Cultural Revolution broke the power of the Communist Party and the government. Thereafter, the Party and the state only had force at their disposal.

The rise of broadly distributed prosperity (Deng’s “to get rich is glorious”) replaced the failed power of Communist ideology with a new social contract: obey the party and the state and you’ll become prosperous.

If this new contract was rock-solid, why would China’s government need the vast surveillance system they’re putting in place for fine-grained control of the populace? Clearly, the leadership (Xi and his cabal) are aware that the prosperity is not permanent, nor is it being distributed evenly enough to harmonize Heaven and Earth.

Sensing their lack of social power, they are turning to technology to create a vast system of coercion (force).

Force is not a substitute for power. For this reason, the “Social Credit Score” system smacks of desperation. Xi et al. see the storm clouds on the horizon and are moving quickly to install an autocratic system of Total Information Awareness and Control.

But China’s history is clear: the culture and the people prefer a system in which power is maintained through social norms, not force. With Communist ideology a dead force, and prosperity about to wither, what’s left? A system of autocratic obedience backed by Orwellian technology and gulags.

The Mandate of Heaven will be withdrawn, and the autocratic regime overthrown. Perhaps the replacement social contract and political structure will still be called “Communist,” but it will be a very different social contract and political structure than the current version.

Of related interest:

Stagflation Looms As China’s Economy Suffers Weakest Growth Since Q1 2009

Implosion of Stock Market Double-Bubble in China Hits New Lows, Authorities Busy Elsewhere Keeping China Miracle from Unraveling

Bubbles, Balloons, Needles and Pins

Forget the Fake Statistics: China Is a Tinderbox (August 10, 2015)

*  *  *

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“Pathological Social Deviant”: Senior NSA Official Engaged In “Egregious” Misconduct With Women

A senior National Security Agency official made inappropriate physical contact with women in the workplace, sent sexually explicit and racist messages over the agency’s top secret network, and sent himself a sexually charged email from his female supervisor’s NSA email account, reports BuzzFeed, which obtained a redacted copy of an Inspector General’s report through a Freedom of Information Act (FOIA) request. 

The official’s name at the center of the allegations was redacted from the report — “Misuse of Government Communications Systems and Conduct Unbecoming” — on privacy grounds. The document identifies him only as a “deputy chief” of a division within the NSA. The official retired from the agency after he was interviewed by investigators and confronted about his behavior, the report said. –BuzzFeed

The incidents date back to 2011, when the official began sending sexually explicit chat messages over the NSA’s top secret communications network. When this came to light, he was ordered into counseling, while the Inspector General called the deputy chief’s behavior “egregious” after a year of investigation. 

“Subsequent to being disciplined, he did not cease his misconduct,” the IG writes. Instead, the deputy chief “simply stopped misusing chat and relied solely on email to engage in inappropriate written exchanges with females, because he believed it was not monitored and he would not be caught.”

Months later, the Inspector General received a complaint from an employee who called the deputy chief a “pathological social deviant,” while accusing him of sexually harassing four women. The women testified that they did not feel sexually harassed, however they acknowledged that his behavior was “inappropriate.”

Inappropriate touching

The IG report also describes a pattern of abusive behavior by the official toward both NSA contractors and civilian personnel – including massaging the neck and shoulders of a woman he worked with, which she reported and said made her feel uncomfortable. The deputy chief “questioned women about their marital and parental status during job interviews; humiliated numerous women in staff meetings and in front of their supervisors; used an offensive, sexual acronym toward another woman in an email and on one occasion used a “racially-charged expression.”” according to BuzzFeed

While the Deputy Chief denied that the sexual acronym – which was redacted from the IG report on privacy grounds – “could be considered offensive given its common usage in chat.” That said, his refusal to explain the meaning of the acronym to the woman he emailed – telling her not to repeat it and to google it – suggested to the IG that he “was well aware such a term could be offensive and denigrating particularly when used in a Government communication.”

According to the report, several other women complained about the deputy chief’s behavior, however no action was taken by their superiors. In one case, he “misused” his female supervisor’s NSA email account to send himself inappropriate messages of a sexual nature.

One woman, a contractor, had asked to be moved to another contract so she would not have to interact with the deputy chief. Another woman who was subjected to his abusive behavior during a staff meeting stopped attending the meetings. A third woman, who witnesses said was harassed by the deputy chief, “denied having been sexually harassed” and said the accusations leveled against him amounted to “jealousy.”

The deputy chief also engaged in at least one sexual relationship with a woman he supervised on a government contract. The investigation also found that the deputy chief “misused” his supervisor’s NSA email account to “send himself sexually suggestive and inappropriate emails.” He explained to investigators that he sent the two emails in order to teach the woman “to lock her computer,” an assertion the inspector general did not find credible, the report said. –BuzzFeed

The IG wrote that the fact that the deputy chief “would go so far as to continue to misuse” agency email systems “to send himself a sexually suggestive and inappropriate email is particularly concerning,” adding that his “behavior calls into question his judgment and reliability and therefore his ability to effectively function as an Agency leader.”

Eventually the IG concluded that the official’s behavior did not rise to the level of sexual harassment, however he “used words that denigrate individuals, used offensive language, and engaged in other conduct that could affect his subordinates’ work performance or otherwise impact the work environment,” in violation of agency rules. 

 

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Stockman: Why Greenspanian Central Banking Is The Mortal Enemy Of Capitalist Prosperity

Authored by David Stockman via Contra Corner blog,

We can thank bubblevision and the Maestro himself for a splendid reminder yesterday that Greenspanian central banking is the greatest menace to capitalist prosperity ever invented. This was made abundantly clear by his pronouncement on CNBC regarding the current labor market:

“Tightest labor market I’ve ever seen.” – Greenspan on @CNBC 

As an empirical matter, of course, that’s rank nonsense—and is among the stupidest quips the Maestro has ever uttered. That’s because the law of supply and demand dictates that if the labor market is actually the tightest since Greenspan began his career in the 1950s, wage rates should also be rising at the highest rate ever.

In fact, at 2.8% year-year-over-year for September 2018, nominal wage growth (red line) is the lowest it’s been since the late 1960s; and in real terms, the story is even worse.

To wit, between 1955 and 2000, real compensation per hour grew at a 1.75% annual rate—-and that’s the average across seven business cycle, including recession years.

By contrast, we are now at the top of the second longest business expansion in history, and real compensation (purple line) was up just 0.7% over the past 12 months. And that’s virtually the weakest late cycle growth rate on record.

In short, the only valid free market measure of “tight” is the price of labor, and those limpid wage rates say absolutely not.

Of course, what the Maestro and his Keynesian fellow travelers refer to is not the verdict of the marketplace, but bureaucratic guesstimates about labor market conditions published monthly by the BLS. Yet it doesn’t take even 10 minutes worth of investigation to show that the BLS’ tightness gauge—the U-3 unemployment rate—is not worth the paper it’s printed on.

As Jeff Snider has cogently demonstrated, we are at 3.7% unemployment only because the labor force participation rate as measured by the BLS has plunged.

In fact, at the same 3.7% so-called full employment rate which pertained when the Maestro was riding high in the late 1990s, the labor force participation rate was north of 67%, not today’s 62.7% (September). And that means the Maestro’s alleged labor shortage rests on the back of 16.6 million workers who have purportedly gone missing!

We don’t think any workers have actually gone missing at all, and believe that the actual unemployment rate is upwards of 40%, as demonstrated below. But suffice it to say here that there is a reason why Wall Street and Washington economists alike insist on using the patently ridiculous and grossly erroneous numbers manufactured by the BLS data mills.

To wit, the BLS jobs data—and especially the U-3 unemployment rate—function as a convenient “help wanted” sign for Keynesian interventionists. The implication is that the free market’s pricing system for labor, goods and services doesn’t work very well, and that the wise guiding hand of the state is needed to regulate an economic ether called “aggregate demand”.

That is to say, the US economy resembles a giant economic bathtub, and the aim of government policy is to keep it filled exactly to the brim. That way, everybody’s got a job, a good wage, a nice life, no (inflation) worries and perhaps is even rid of sniffles and hangnails, too!

So when the U-3 unemployment rate is at 11%, 8% or 5%, there is purportedly a large deficiency of demand, signaling that the state and its central banking branch need to pump more spending into the bathtub via fiscal or monetary stimulus.

Likewise, when U-3 reaches the alleged “full employment” rate at +/- 3.7% that’s a signal the tub is close to full and that interest rates need to be raised in order to curtail credit expansion and spending, thereby insuring that an inflationary overflow does not upset the macroeconomic applecart.

But here’s the thing. The 12 members of the FOMC might as well be standing out on Independence Avenue waving their arms in order to keep marauding elephants from over-running the Eccles Building!

That’s about how useful U-3 is as a measure of labor market or macroeconomic conditions; and it’s also about as worthless as is the Fed’s endless pegging of money market rates and massive intrusion in the bond markets in furtherance of capitalist prosperity.

The fact is, the potential labor supply from both domestic and off-shore sources is so limitless that the only thing needed to mobilize more employed hours is the pricing system, not the monetary politburo’s (FOMC) machinations in the financial markets.

At a high enough wage rate, you will get housewives out of the kitchen, students off their duffs, more volunteers for over-time, and, if need be, more peasants out of the Chinese or Vietnamese rice paddies. In today’s globally networked, traded and welfare-enabled world, there will never be a physical shortage of labor hours—just the right price to bring latent hours into monetized production.

Needless to say, the latent hours now sequestered in Federally subsidized basketweaving classes or playing shuffle-board on early retirement or disability do raise market-clearing wage level s at the margin. But you can solve that problem but cutting welfare benefits, not giving the Fed a mandate to fiddle with interest rates and financial asset prices.

That latter only fosters increasingly destructive gambling, bubbles and malinvestments in the financial system, not higher production, employment and prosperity on main street.

Indeed, there is no need for central bankers at all when it comes to economic growth, jobs, incomes and prosperity. That’s because Say’s Law is as valid today as it has always been.

Work, effort, production and enterprise are what create both current income and future growth. Demand flows from supply and spending flows from income; capitalism doesn’t need any U-3 obsessed central bankers to make it all happen.

Likewise, the labor pricing system in a $20 trillion economy has it hands down over the 12 PhDs, bankers and Washington apparatchiks who sit on the FOMC. If the market is heavy with latent labor hours, real wage rates will come down; and if it’s light, real wage rates will rise sufficiently to attract the needed hours.

In fact, now that most of the monopoly industrial unions have been broken or defanged–even the old Keynesian saw about “sticky” wages is self-evidently inoperative. The truth is, there is nothing about the contemporary labor market that requires the helping hand of the Fed at all.

Moreover, there is no even theoretical possibility of runaway wage inflation of the type that industrial unions led by the UAW and Steelworkers were able to generate in the late 1960s. That because virtually every manner of goods produced in the US economy and a growing portion of services can now be supplied from off-shore, and often at far lower wage rates—even adjusted for productivity and transportation—-than paid by domestic suppliers.

That is to say, the only semblance of an inflation problem facing the US economy is the roaring inflation of financial asset prices, which is the Fed’s stock and trade.

So if you want to have honest full employment and maximum possible capitalist prosperity, unleash the free market and the pricing system for goods and labor; and if you want to avoid inflation of all types—goods, services, credit and stock prices–abolish the FOMC, which causes it.

Needless to say, reversion to Carter Glass’ original Fed design as a “bankers’ bank” empowered to discount and liquefy sound commercial credits (real bills), and one which had no macroeconomic remit whatsoever, would put today’s masters of the universe out of business.

In fact, the Glassian Fed only needed to employ green eyeshades who knew how to read financial statements and assess credit risk on business loans offered as collateral at the Fed’s discount windows. PhD economists and policy apparatchiks bent on improving the work of labor and entrepreneurs on the free market need not have even applied.

Stated differently, if the BLS didn’t exist—and it surely is not needed for true prosperity—Keynesian central bankers would have to invent it. It is the BLS’ phony labor market gauges (and price indices, too) which provide the fodder to justify the destructive full-employment focussed make-work of central bankers.

Ironically, the Maestro’s risible assertion this AM about the tightest labor market in modern history does nothing less than underscore that the the whole BLS employment/unemployment reporting framework and model is essentially a pile of garbage; it might have been relevant during the days of your grandfather’s economy, if even then, but is a crock in today’s world drowning in available labor.

So let us remind once again:The BLS data is built on the flawed notion that labor inputs can be accurately measured by a unit called a “job” and that an economic trend in motion tends to stay in motion.

To the contrary, in today’s world labor is procured by the hour and by the gig–meaning that the “job” units counted in both the establishment and household surveys are a case of apples, oranges and cumquats. The household survey, for example, would count as equally “employed” a person holding:

  • a 10-hour per week gig with no benefits;

  • a worker holding three part-time jobs adding to less than 36 hours per week with some benefits; and

  • a 50-hour per week manufacturing job (with overtime) providing a cadillac style benefit package.

Beyond that, the underlying monthly surveys are tiny, primitive and utterly lacking in quality control among respondents. As a result, the statistical wizards at the BLS smooth it all over with ad hoc adjustments and guesstimates (e.g. the notorious birth-death model) and trend-cycle statistical models that essentially project into the current month the statistical trend line then underway.

In short, the monthly jobs report is not an accurate empirical snapshot of where the real world labor market actually is; it’s a modeled projection of where the BLS bureaucrats and their Keynesian tutors think it should be. 

And that’s also why the BLS “jobs” confection is useless at turning points in the business cycle. During the 2008-2009 employment collapse, for instance, it initially overreported the nonfarm payrolls by nearly 500,000 jobs per month because it assumed the previous trend was still in motion–even as employers were throwing workers overboard with reckless abandon after the Lehman meltdown on Wall Street.

Aside from cyclical turning points (mostly triggered by the Fed itself), the larger context is this: The natural tendency of a capitalist economy is to expand if the work force is growing and if the state does not excessively retard investment and productivity growth.

Those natural expansionary forces have been at work in tepid form since the recessionary correction of 2008-2010. They account for the “recovery” of some 8.5 million jobs which were lost in the Great Recession and the modest incremental gains that have been generated since breakeven was achieved in 2014.

But what is important is the growth rate of actual labor units employed and the relationship of that to the available potential labor force—not simply the BLS “jobs” model. The latter basically floats on the back of the natural capitalist business cycle expansion and enables the monetary politburo in the Eccles Building to claim credit for what are really nothing more than statistical proxies.
Needless to say, we think there is a far more insightful and accurate way to look at labor utilization and to assess whether or not an Awesome state of affair has actually been achieved.

As we indicated above, back in the year 2000 (the last time U-3 hit 3.7%) what we consider to be the comprehensive unemployment rate was 34.6%. Today it stands at 40.0%.

Since the turn of the century, therefore, there has been enormous deterioration in the US economy’s use of its potential labor supply. Yet as the Baby Boom rapidly ages and the Welfare State burden soars, that is a very bad thing.

Stated differently, the US has not utilized the last 9 years of so-called recovery to get back to Awesome—-as implied by the BLS reports and Alan Greenspan’s “tightest” ever labor market pronouncement.

Instead, it has wasted a crucial decade in front of the Baby Boom retirement bow-wave–continuing to peddle backwards with regard to its underlying capacity for economic growth and rising real incomes. If nothing else, the latter are absolutely essential to pay the taxes that will be needed to prevent the US Welfare/Warfare State from fiscally capsizing in the decades immediately ahead.

In this context, we measure the potential labor force as the US population 20-69 years of age and assume that in theory every adult could work 2000 hours per year in the monetized labor market.

That avoids the obvious problem in the BLS statistics with respect to work and activity relative to the official labor force and monetized economy. For example, the BLS counts three jobs for a two-earner family which hires a full-time housekeeper, but just one job for the same family where one spouse works in the monetized economy, one-stays home and neither hires a third person to do the home chores.

The same logic applies to the 30-year old still in graduate school living on Uncle Sam’s student loans versus holding a job in the monetized economy; or the former office worker on disability who got a bad back and corporal tunnel bending over a typewriter; or the 60% of able-bodied recipients on foods stamps who do not currently hold a job; or the millions of millennials in mom and pops basement who sell empty beer bottles on eBay.

Many factors drive whether potential labor hours get sequestered outside of the monetized economy in housework, studentdom, on the welfare rolls or in moms basement. But the interest rate on overnight funds is surely the least of them.

Nevertheless, all things equal under today’s demographic and fiscal circumstances requires that the comprehensive unemployment rate needs to be dropping—so that Uncle Sam can find the tax receipts needed to prevent a complete societal civil war a few years down the road.

But it’s not happening. In December 2000, there were 175.5 million adults aged 2069—meaning that the implied potential labor force amounted to 351 billion labor hour per annum. During that same month, the BLS measured 229.5 billion hours actually employed in the non-farm economy at an annual rate.

Accordingly, unemployment amounted to 121.5 billion hours or 34.6% of the potential available hours.

By contrast, the adult population 20-69 years of age is now 211.6 million and available hours total 423.2 billion per annum. Against that, the BLS most recent measure shows 254.2 billion hours actually employed—implying 169 billion unemployed labor hours and a 40.0% comprehensive unemployment rate.

Stated differently, between the two 3.7% anchor points on the U-3 unemployment during the last 18 years, the level of unemployed US labor has increased by 48 billion hours per annum, and the rate has risen commensurately.

More importantly, potential labor grew by 72 billion hours or at a 1.05% per annum rate during that period, while actually employed hours rose by only 25 billion and 0.58% per year.

And that’s exactly the skunk in the woodpile. By contrast, during the 1980 to 2000 peak-to-peak periods, the potential labor force grew by 2.2% per annum, and labor hours actually utilized rose by nearly an identical 1.9% annualized rate.

So we are now at the opposite end of Awesome and not even in the zip code of a labor shortage. In 1980, the Baby Boom was just beginning to flood into the labor force, and female participation rates in the monetized economy were rising rapidly; and those hours were put to work.

By contrast, employed hours have grown at only one-quarter that rate since December 2000 and the true (comprehensive hours based) unemployment rate has steadily risen.

The reason for that is not hard to find. Fed policy has badly damaged the main street economy via its massive inflationary incentive for off-shoring of high value production and jobs while turning the C-suites of corporate America into predatory dens of financial engineering.

At the same time, Welfare State policy has further drained labor resources from the monetized economy with massive increases in food stamp, disability, Medicaid and other welfare programs.

So if you want to fix the real labor market problem, remove the fiscal subsidies and incentives for keeping potential hours off the market.

But most importantly, abolish the FOMC. It’s the mortal enemy of capitalist prosperity.
 

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US Named “World’s Most Competitive Economy” For First Time In 10 Years

For the first time since the financial crisis, the US has regained its ranking as the ‘World’s Most Competitive Economy’, according to the World Economic Forum’s Global Competitiveness Index.

USA

What’s more, the US also scored high in the “innovation” pillar of the WEF’s index, which the organization added to better reflect the factors that are necessary for an economy to succeed in the aftermath of the “fourth industrial revolution” (i.e. the dawn of the Internet age). The US nudged aside Singapore, last year’s leader, to reclaim the gold for the first time since 2008.

WEF

According to segments of the report highlighted by WSJ and Bloomberg, WEF praised the US for its entrepreneurial economy and robust financial system, but warned about signs that its social fabric is beginning to deteriorate, while economic inequality remains a problem.

As one might have expected (this is the WEF, one of the posterchildren for globalized frictionless capitalism) the report criticized the protectionist policies of President Trump, claiming that countries with lower tariffs tend to perform better.

“At a time of escalating trade tensions and a backlash against globalization, the report also reveals the importance of openness for competitiveness,” it said. “Global economic health would be positively impacted by a return to greater openness and integration.”

And while the US scored the highest on the WEF’s index, which uses a scale from 1 to 100, the report pointed out that all of the 140 countries included in the report have a long way to go to achieve the ideals envisioned by the WEF.

The United States is the closest economy to the frontier, the ideal state, as described by the concepts included in the index, where a country would obtain the perfect score on every indicator. With a competitiveness score of 85.6, it is 14 points away from the frontier mark of 100, slightly closer than Singapore and Germany (see the full rankings). This implies that, even though the United States is the top-ranked economy among the 140, there is still room for improvement.

The median score from the 140 economies measured is 60, while 18 sub-Saharan African countries scoring lower than 50. With a score of 35.5 – 50 points behind the US – Chad was ranked dead last as the economy.

And while Europe and North America lead the world in competitiveness, followed closely by East Asia and the Pacific region, Latin America, South Asia and Sub-Saharan Africa lag far behind. This “competitiveness gap”

As always, the report included reams of colorful charts outlining the enormous disparities in economic output, growth and income between the developed and developing world.

WEF

WEF

The report also illustrated the broad intraregional “competitiveness gap” between some of the best and worst performing economies in the developing world…

WEF

As well as measuring the relationship between competitiveness and income.

WEF

The report is just one more piece of evidence showing that the US economic recovery has accelerated under President Trump. After lauding the strongest stock-market performance in seven months on yesterday, we imagine the president may very well want to share this news with his millions of twitter followers as well.

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Charting China’s Imminent Implosion

Authored by Chris Hamilton via Econimica blog,

Debt is money spent in the present and an obligation to be repaid in the future.  Given this, I thought I’d contrast China’s population of young versus their obligation to be repaid in the future.

The chart below shows the 0 to 24 year old Chinese population (green line) versus Chinese debt (red line) and GDP (black line).  The 0 to 24 year old Chinese population swelled by over 300 million from 1950 to it’s ultimate peak in 1991.  Since that peak, the total population of young in China has fallen by 176 million, or a 30% decline in the number of children across China.  Moving forward, the UN medium estimate hopes the formal elimination of the one child policy will simply slow the rate of decline in the population…but by no means will China’s fast declining childbearing population (those aged 15-44) nor disproportionately young male population potentially be offset by a slightly less negative birth rate.  Contrast that with the quantity of debt being forcibly injected into a nation that faces a massive imminent population decline.

To put that debt into perspective, the chart below shows that total debt and annual GDP each divided by the 0 to 24 year old Chinese population.  As of 2018, every child and young adult in China under the age of 25 is presently responsible for over $100 thousand dollars in debt while the annual economic activity (GDP) created by all this debt continues to lag ever faster. 

And the coming decade only worsens as the young population continues its unabated fall and debt creation (absent concomitant economic growth) continues soaring… building more capacity all for a population that is set to collapse?!?

China’s predicament and reaction to it are not particularly unique…but given China’s size, the ultimate global impact of China’s slow motion train wreck will be unprecedented… particularly as their 15 to 64 year old population is now in indefinite decline.  Chart below shows annual change in Chinese 15 to 64 year old population, in both millions (green columns) and percentage (blue line).

Massive overcapacity (thanks to over a decade of government mandated mal-investment) versus a ever swifter declining base of consumption does not add up to a burgeoning middle class or a happy ending.

*  *  *

Extra Credit –

Just for comparative discussion sake, below is the US 15 to 24 year old population (orange line) and employment among them (blue line) since 1979 (the year of peak employment among 15 to 24yr/old Americans).

And just for fun, US federal debt per capita of the 0 to 24 year old US population (a bit unfair comparison as I’m only showing US federal debt vs. 0 to 24yr/olds against China total debt vs. 0-24yr/olds above…but you get the idea).

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Glenn Greenwald: The Most Repulsive 3 Minutes Ever Broadcast On TV

We hate to possibly ruin your Friday with a Thomas “suck on this” Friedman post, but it appears he’s the only one still left defending Saudi Crown Prince Mohammed bin Salman even as David Ignatius attempts to momentarily change his tune as it’s looking all too clear that MbS personally ordered the murder and dismemberment of journalist Jamal Ghashoggi at the Istanbul consulate over two weeks ago. 

Friedman actually went on CNN to attempt to explain himself on Thursday after being pretty much universally despised over just about anything he writes these days. CNN host Christian Amanpour questioned if he was too quick to call MbS a reformer or if he has regrets over his year long quest to present the embattled Saudi de fact ruler as a “modernizer” and benevolent autocrat ushering in the Saudi “Arab Spring” from the top down

Friedman is absolutely outraged that anyone might question the prior accounts of his late night MbS love fests which he in so vulnerable and sensitive a fashion recounted in great detail in his NYT columns: 

Wearing a we don’t know what the hell what  a down comforter or something  Friedman is still excusing his prior fawning

In honor of Thomas Friedman’s latest love letter to Saudi here is 70 years of the NY Times describing #Saudi royals in the language of #reform.

— Abdullah Al-Arian (@anhistorian) November 24, 2017

“>”love letters” to MbS which included descriptions of late night dinner sessions in which he glowingly related that the kingdom’s new direction under the enlightened prince “blew my mind”.

A year ago the NYT columnist related how he got “worn out” by the “fire hose of new ideas” from late night sessions with the charming young dictator:

After nearly four hours together, I surrendered at 1:15 a.m. to MBS’ youth, pointing out that I was exactly twice his age. It’s been a long, long time, though, since any Arab leader wore me out with a fire hose of new ideas about transforming his country.

Friedman defiantly states in the CNN interview while looking heated and emotional: “I saw him giving the women the right to drive… I saw him actually taking on the hardline clerics in the war of ideas… Most importantly what I saw were young Saudis coming back to Saudi Arabia cause they thought a real change was happening.”

Crucially, Friedman notes that he was warned by friends that he was merely being duped by the prince’s propagandabut he stuck by MbS regardless: “Some people said ‘you know what Tom – it’s all a fake because look what he’s doing in Yemen, look what he’s – people that he’s arresting here… I thought it was worth investing a little hope in the upside…”

Just after the interview Glenn Greenwald aptly pointed out that the man that the establishment long ago anointed as America’s most influential foreign policy commentator is:

  • a gullible, easily duped idiot;
  • a fanatical supporter of bloodshed and wars;
  • and the author of one of the most repulsive 3 minutes ever broadcast on TV

And here’s a flashback of the previously unhinged Friedman in 2017 defending his high praise of MbS.

When asked at a panel discussion whether he was uncritically playing the role of MbS propaganda tool to the American public, Friedman unleashed: “I got news for you”…“Fuck that”…

And yet as cringe worthy as the above two clips are, Greenwald still says not even this is the worst of Tom Friedman. 

He’s “the author of one of the most repulsive 3 minutes ever broadcast on TV”…which is what?

Greenwald reminds us of his 2003 “suck on this” interview wherein he defended his enthusiastic support for the US invasion of Iraq…

I think it [the invasion of Iraq] was unquestionably worth doing, Charlie.

We needed to go over there, basically, um, and um, uh, take out a very big stick right in the heart of that world and burst that bubble, and there was only one way to do it.

What they needed to see was American boys and girls going house to house, from Basra to Baghdad, um and basically saying, “Which part of this sentence don’t you understand?”

You don’t think, you know, we care about our open society, you think this bubble fantasy, we’re just gonna to let it grow?

Well, Suck. On. This.

Okay.

That, Charlie, was what this war was about. We could’ve hit Saudi Arabia, it was part of that bubble. We coulda hit Pakistan. We hit Iraq because we could.

Behold, America’s premier foreign policy columnist and last defender of MbS!

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Saudis Admit Khashoggi Killed At Consulate “In Fist-Fight”, King Salman Fires Top General, Adviser

Saudi Arabia confirmed tonight that Washington Post columnist Jamal Khashoggi was killed at its consulate in Istanbul on 2 October.

In a statement put out on Saudi state television, citing an initial investigation by Saudi prosecutors, SPA said that:

“an argument erupted between him [Khashoggi] and others whom he met in the Saudi consulate in Istanbul leading to a fistfight which led to his death.”

Prosecutors said the investigation was still ongoing and that 18 people, all Saudi nationals, had so far been arrested, SPA reported.

Additionally, Saudi Arabia’s King Salman has removed a key royal adviser and a senior intelligence official..

King Salman issued an order to remove Saud al-Qahtani, an adviser to Crown Prince Mohammed bin Salman, according to the state-run Ikhbariya television.

The monarch also relieved deputy intelligence chief Gen. Ahmed al-Assiri.

This follows the narrative reported by The New York Times on Thursday that Riyadh is looking to blame Assiri for the purported murder of Khashoggi in an effort to shield Crown Prince Mohammed bin Salman from the blame.

Saudi King Salman has also ordered the formation of ministerial committee led by crown prince Mohammad bin Salman to restructure the general intelligence agency.

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