Next Generation Risks, Part 1: “Super EMP” Attack

Authored by John Rubino via DollarCollapse.com,

The global financial system’s ever-increasing leverage pretty much guarantees another crisis in coming years – unless it’s pre-empted by new weapons that can, in theory, shut down entire national banking systems, thus screwing up the best-laid plans of today’s savers and investors.

This series will consider some of them, beginning with the electromagnetic pulse (EMP) attack. From The Wall Street Journal:

North Korea Dreams of Turning Out the Lights

Pyongyang doesn’t need a perfect missile. Detonating a nuke above Seoul—or L.A.—would sow chaos.

 

 

In 2001 Congress established a commission to study the danger of an electromagnetic pulse generated by the detonation of a high-altitude nuclear weapon. It concluded that while there would be no blast effects on the ground, critical electricity-dependent infrastructure could be rendered inoperable. The commission’s chairman, William R. Graham, has noted that several Russian generals told the commissioners in 2004 that the designs for a “super EMP nuclear weapon” had been transferred to North Korea.

 

Pyongyang, the Russian generals reported, was probably only a few years away from developing super EMP capability. According to Peter Vincent Pry, staff director of the congressional EMP commission, a recent North Korean medium-range missile test that was widely reported to have exploded midflight could in fact have been deliberately detonated at an altitude of 40 miles.

 

Was it a dry run for an EMP attack? Detonation at that altitude of a nuclear warhead with a yield of 10 to 20 kilotons—similar to those tested by North Korea—would produce major EMP effects and inflict catastrophic damage to unhardened electronics across hundreds of miles of surface territory. It is a myth that large yield nuclear weapons of hundreds of kilotons are required to produce such effects.

 

Although some analysts have dismissed the possibility of a successful North Korean EMP attack—either on South Korea or the United States—several factors could make it a more appealing first-strike strategy for Kim Jong Un’s nuclear scientists than a direct, missile-delivered nuclear strike. For one thing, accuracy is not a concern; the North Koreans simply need to get near their target to sow chaos. Nor would they need to worry about developing a reliable re-entry vehicle for their ballistic missiles.

 

Conventional wisdom aside, a North Korean EMP attack on the U.S. may also not be far-fetched. “North Korea could make an EMP attack against the United States by launching a short-range missile off a freighter or submarine or by lofting a warhead to 30 kilometers burst height by balloon,” wrote Mr. Graham earlier this month on the security blog 38 North. “Even a balloon-lofted warhead detonated at 30 kilometers altitude could blackout the Eastern Grid that supports most of the population and generates 75 percent of US electricity. Moreover, an EMP attack could be made by a North Korean satellite.” Two North Korean satellites currently orbit the earth on trajectories that take them over the U.S.

 

This is not mere theory. In 1962 the United States detonated a 1.4-megaton nuclear warhead over the South Pacific, 900 miles southwest of Hawaii. Designated “Starfish Prime,” the blast destroyed hundreds of street lights in Honolulu, caused electrical surges on airplanes in the area, and damaged at least six satellites. Only Hawaii’s undeveloped electric power-transmission infrastructure prevented a prolonged blackout. It was the era of vacuum-tube electronics. We are living in the digital age.

Some conclusions

Lots of actors in addition to North Korea have this capability. And we can’t stop it. Preventing a nuke-laden plane or balloon from detonating miles above a populated area is hard to the point of impossibility.

Banking and brokerage networks would be shut down – possibly for a long while – by such an attack, which means no access to ATM machines or credit card readers. People without ready cash would be stuck without access to life’s necessities. Meanwhile cars, which have in recent years become rolling computer networks, won’t run, making it hard to get to distant supplies.

The fiat currency of a system shut down in this way might or might not hold its value. This is uncharted financial territory so it’s not certain that cash under the mattress will be of use. And forget about cryptocurrencies in this scenario. Virtual money evaporates when the network on which it circulates goes down.

The solution?

Start upgrading to hardened electronics as part of a basic prepping program. That’s beyond the technical scope of this article, but Google it and you’ll find plenty of resources. And hold precious metals in small enough denominations to use as currency. One of history’s lessons is that gold and silver remain valuable whatever else is going on. If we’re destined to spend a few months back in the Middle Ages, spendable money will make the experience a lot more manageable.

via http://ift.tt/2sPtx35 Tyler Durden

Tracking Hacking: Visualizing The World’s Biggest Data Breaches

The graphic below shows a timeline of some of the biggest data breaches on record. As Visual Capitalist's Chris Matei notes, each bubble represents the number of records lost in any given breach, with the most sensitive data clustered toward the right side.

This data visualization comes to us from Information is Beautiful. Go to their site to see the highly-recommended interactive format that visualizes the same data, while providing additional details on each specific hack.

Courtesy of: Visual Capitalist

 

Before 2009, the majority of data breaches were the fault of human errors like misplaced hard drives and stolen laptops, or the efforts of “inside men” looking to make a profit by selling data to the highest bidder. Since then, the volume of malicious hacking (shown in purple) has exploded relative to other forms of data loss.

FROM MILLIONS TO BILLIONS

Increasingly sophisticated hacking has altered the scale of data loss by orders of magnitude. For example, an “inside job” breach at data broker Court Ventures was once one of the world’s largest single losses of records at 200 million.

However, it was eclipsed in size shortly thereafter by malicious hacks at Yahoo in 2013 and 2014 that compromised over 1.5 billion records, and now larger hacks are increasingly becoming the norm.

SMALL BUT POWERFUL

The problems caused by hacks, leaks and other data breaches are not just ones of scale. For example, the accidental 2016 leak of information from spam/email marketing service River City Media stands out at an alarming 1.37 billion records lost. However, sorting by data sensitivity paints a different picture. The River City leak – represented by the larger blue dot below – is surpassed in severity by hacks at Yahoo, at web design platform Weebly, and even at adult video provider Brazzers.

Much of the data lost in the River City hack was made up of long lists of consumer email addresses to be used for spam email distribution, while the other hacks listed compromised items like account passwords, banking information, addresses, phone numbers, or health records. While having your email address become the target for spam exploitation is a serious annoyance, the hacking of much more sensitive personal data has quickly become the norm.

The fact that more and more of our data is being stored “in the cloud” and among devices on the Internet of Things means that increasingly sensitive types of data are now more vulnerable than ever to being hacked. This looks to be even more cause for concern than the rapidly rising volume of records that have been exposed, whether intentionally or by accident.

via http://ift.tt/2sqegZk Tyler Durden

Did James Comey’s Document Leaks Violate The FBI Employment Agreement?

Authored by Bre Payton via The Federalist,

Former FBI director James Comey's decision to leak FBI documents to a friend may have violated the FBI's employment agreement regarding unauthorized leaks.

During his testimony to the Senate Intelligence Committee on Thursday, former FBI director James Comey revealed that he was the source of leaked memos about his conversations with Donald Trump surrounding the Russia investigation. Comey explained that he shared the memos with his friend, a professor at Columbia University, who then shared them with the New York Times, actions that may violate the FBI’s own employee agreement.

“My judgment was I needed to get [the memos] out into the public square,” Comey said.

 

“So I asked a friend of mine to share the content of the memo with a reporter. I didn’t do it myself for a variety of reasons, but I asked him to because I thought that might prompt the appointment of a special counsel.”

By his own account, it seems that Comey may not have followed the agency’s employee agreement, which places numerous restrictions on the use of information or documents acquired during an individual’s employment by the FBI. Paragraphs 2, 3, and 4 of the FBI employment agreement appear to cover Comey’s distribution of content he says he created on government property in his capacity as a government official:

Paragraph 2 states that all materials acquired in connection with an employee’s official duties are property of the U.S. government and that such materials must be surrendered to the FBI upon an employee’s separation from the agency. Paragraph 3 states that employees are prohibited from releasing “any information acquired by virtue of my official employment” to “unauthorized individual[s] without prior official written authorization by the FBI.” Paragraph 4 of the agreement requires FBI employees, prior to disclosing or publishing information acquired during their employment, to submit the information to FBI authorities for review to determine whether it is authorized for public release.

So if Comey followed protocol and surrendered all government property, including the memos he produced in his capacity as an FBI employee, it would have been impossible for him to provide the memos to his friend. The fact that he was able to provide hard copies of the memos to both his friend and special counsel Robert Mueller suggests that Comey did not surrender them to authorities as required by the FBI employment agreement.

Page two of the agreement lists the types of information disclosures which are strictly prohibited. Included in the list of information that may not be released without prior written approval by the FBI is “information that relates to any sensitive operational details or the substantive merits of any ongoing or open investigation or case.” While the agreement states that unauthorized disclosure of classified information is a violation of the contract, information does not have to be classified in order to be prohibited from unauthorized disclosure. Comey claims that his memos were unclassified.

Comey’s claim that it would not have been proper to publicly disclose that Trump was not a target of any FBI investigation because the investigation was ongoing and facts could change flies in the face of his decision to provide to his friends records of his meetings about the investigation with the president. If he could not publicly note that Trump was not a target of an ongoing investigation, then why was he able to release FBI records related to that investigation to his friends for the purpose of having those details leaked to the public via the news media? In light of the FBI’s prohibition on publicly sharing documents or information related to ongoing investigations absent prior written authorization, Comey’s dual explanations make little sense.

The FBI employment agreement states that violating any of the included terms may result in termination, civil liability, revocation of security clearances, or even criminal sanctions.

 

via http://ift.tt/2t7y00c Tyler Durden

Meet The 22 Economists That Want To Kill Your Purchasing Power

After the Fed failed to spark any notable increase in aggregate demand despite keeping interest rates at zero for seven years, a group of economists is pressuring the central bank to rethink one of its most closely held-policy parameters.

The group of 22 economists, which includes Nobel laureate Joseph Stiglitz and former Minneapolis Fed President Narayana Kocherlakota, delivered a letter to the Fed on Friday pressuring it to appoint a blue-ribbon commission to reevaluate its policy targets in a way that’s transparent and also involves officials with a diversity of viewpoints. Ultimately, the group hopes the central bank will reevaluate its inflation target, which has stood at just below 2% since 2012.

Borrowing the reasoning from a paper published by the San Francisco Fed earlier this year called “Monetary Policy in a Low R-Star World,” the group argued that structural shifts in the US economy appear to have shifted the real rate of interest permanently lower – and that the US economy can now tolerate higher inflation as a form of compensation.

Here's a passage from the letter:

“Even if a 2 percent inflation target set an appropriate balance a decade ago, it is increasingly clear that the underlying changes in the economy would mean that, whatever the correct rate was then, it would be higher today. To ensure the future effectiveness of monetary policy in stabilizing the economy after negative shocks – specifically, to avoid the zero lower bound on the funds rate – this fall in the neutral rate may well need to be met with an increase in the long-run inflation target set by the Fed.”

Such a reassessment would be particularly appropriate now, the economists argue, because “the lack of evidence that moderately higher inflation would harm Americans’ standard of living is juxtaposed with the tremendous evidence that a tighter labor market would improve Americans’ standards of living.”

Some Fed officials have already expressed tentative support for raising the inflation target, or at least changing the system by which the central bank’s parameters are set.

Williams noted the need for the Fed “to adapt policy to changing economic circumstances” in his paper, and Boston Fed President Eric Rosengren has said that the Fed should adapt policy to changing circumstances. Vice Fed Chairman Stanley Fischer has praised the system adopted by the Bank of Canada, where policy targets are reviewed every five years, then re-set with the participation of the legislature.

The argument for why a central bank should aim to push consumer prices even higher might seem obtuse to some readers – so Kocherlakota explained his reasoning for signing the letter in a column published by Bloomberg.

Raising the inflation target would give the Fed more room to maneuver during the next slowdown by allowing it to focus on reining in inflation if benchmark rates are already low, Kocherlakota said. “If, for example, people expect inflation to be 3 percent, then a zero nominal rate translates into a negative 3 percent real rate — a full percentage point lower than the Fed could achieve if expected inflation were 2 percent.”

Experience suggests the Fed could use the support. During the most recent period of near-zero interest rates, the U.S. unemployment rate remained above 5 percent for nearly seven and a half years. And Yellen has suggested that, if another recession takes the Fed to the zero lower bound, the unemployment rate might stay above 5 percent for close to five years.

But while the Bureau of Labor Statistic’s seasonally adjusted CPI slumped to a 19-month low in April, other measures, like a gauge of consumer prices from PriceStat, have consistently recorded higher levels of inflation.

And regardless of what the rate of price growth is right now, the hard truth of the situation for many American workers is that real average wage growth is mired in the red while average household debt levels have climbed to record highs.

While many would welcome higher wages and better jobs, the relationship between inflation and employment – as Janet Yellen herself admitted – has seemingly broken down. Whether the central bank can successfully push inflation higher is up for debate; it has struggled in recent years – despite pumping trillions of dollars into the economy. But regardless, higher consumer prices are not what Americans need right now.

In addition to Stiglitz and Kocherlakota, the letter a signed by Dean Baker from the Center of Economic and Policy Research, Heather Boushey, from Washington Center for Equitable Growth, Brad DeLong, University of California, Berkeley, Joseph Gagnon, Peterson Institute, Lawrence Mishel, Economic Policy Institute, William Spriggs, Howard University, Valerie Wilson, Economic Policy Institute, Gene Sperling, Obama Administration Economist, Jared Furman, Peterson Institute, Marc Jarsulic, Center for American Progress, Lawrence Bell, Johns Hopkins University, Josh Bivens, Economic Policy Institute, Tim Duy, University of Oregon, Manuel Pastor, University of Southern California, Mark Thoma, University of Oregon, Justin Wolfers, University of Michigan, David Blanchflower, Dartmouth College, Mike Konczal, Roosevelt Institute, Michael Madowitz, Center for American Progress.

*****

Read the full text of the letter below:

Dear Chair Yellen and the Board of Governors,

 

The end of this year will mark ten years since the beginning of the Great Recession. This recession and the slow recovery that followed was extraordinarily damaging to the livelihoods and financial security of tens of millions of American households. Accordingly, it should provoke a serious reappraisal of the key parameters governing macroeconomic policy.

 

One of these key parameters is the rate of inflation targeted by the Federal Reserve. In years past, a 2 percent inflation target seemed to give ample leverage with which the Fed could lower real interest rates. But given the evidence that the equilibrium interest rate had fallen substantially even prior to the financial crisis, and that the Fed’s short-term policy rate remained at zero for seven years without sparking any large acceleration of aggregate demand growth, a reassessment of this target seems warranted. Such a reassessment is particularly appropriate when the lack of evidence that moderately higher inflation would harm Americans’ standard of living is juxtaposed with the tremendous evidence that a tighter labor market would improve Americans’ standards of living.

 

Some Federal Reserve policymakers have acknowledged these shifting realities and indicated their willingness to reconsider the appropriate target level. For example, San Francisco Federal Reserve President John Williams noted the need for central banks to “adapt policy to changing economic circumstances,” in suggesting a higher inflation target, and Boston Federal Reserve President Eric Rosengren cited the different context in which the inflation target was set in emphasizing the need for debate about the right target. In May, Vice Chair Stanley Fischer highlighted the Canadian system of reconsidering the inflation target every five years, saying, “I can envisage – say, in the case of inflation targeting – a procedure in which you change the target or you change the other variables that are involved on some regular basis and through some regular participation.”

 

The comments made by Fischer, Rosengren, and Williams all underscore the ample evidence that the long-term neutral rate of interest may have fallen. Even if a 2 percent inflation target set an appropriate balance a decade ago, it is increasingly clear that the underlying changes in the economy would mean that, whatever the correct rate was then, it would be higher today. To ensure the future effectiveness of monetary policy in stabilizing the economy after negative shocks – specifically, to avoid the zero lower bound on the funds rate – this fall in the neutral rate may well need to be met with an increase in the long-run inflation target set by the Fed.

 

More immediately, new, post-crisis economic conditions suggest that a reiteration of the meaning of the Fed’s current target is in order. In its 2016 statement of long-run goals and strategy, the Federal Open Market Committee wrote: “The Committee would be concerned if inflation were running persistently above or below this objective.” Some FOMC participants, however, appear to instead consider 2 percent a hard ceiling that should never be breached, and justify their decision-making on that basis. It is important that the Federal Reserve makes clear – and operates policy based on – its stated goal that it aims to avoid inflation being either below or above its target.

 

Economies change over time. Recent decades have seen growing evidence that developed economies have harder times generating faster growth in aggregate demand than in decades past. Policymakers must be willing to rigorously assess the costs and benefits of previously-accepted policy parameters in response to economic changes. One of these key parameters that should be rigorously reassessed is the very low inflation targets that have guided monetary policy in recent decades. We believe that the Fed should appoint a diverse and representative blue ribbon commission with expertise, integrity, and transparency to evaluate and expeditiously recommend a path forward on these questions. We believe such a process will strengthen the Fed as an institution and its conduct of monetary policy, and help ensure wise policymaking for the years and decades to come.

The endgame, of course, is to pay off the old 'expensive' dollars with new 'cheap' dollars… quietly taxing the citizenry to death…

via http://ift.tt/2s9Gxmh Tyler Durden

The American Architects Of The South-African Catastrophe

Authored by Ilana Mercer via The Mises Institute,

Yes, it has happened. A mere 23 years after the 1994 transition, in South Africa, to raw ripe democracy, six years following the publication of a wide-ranging analysis of that catastrophe, Into the Cannibal's Pot: Lessons for America from Post-Apartheid South Africa, a Beltway libertarian think tank has convened to address the problem that is South Africa.

The reference is to an upcoming CATO “Policy Forum,” euphemized as “South Africa at a Crossroad.” One of the individuals to headline the “Forum” is Princeton Lyman, described in a CATO email tease as having “served as the U.S. Ambassador to South Africa at the time of the transfer of power from white minority to black majority.” At the “Forum,” former ambassador Lyman will be discussing “America’s original hopes for a new South Africa and the extent to which America’s expectations have been left unfulfilled.” (Italics added.)

The chutzpah!

The CATO Institute’s disappointment in the South Africa the United States helped bring about is nothing compared to the depredations suffered by South Africans, due to America’s insistence that their country pass into the hands of a voracious majority. Unwise South African leaders acquiesced. Federalism was discounted. Minority rights for the Afrikaner, Anglo and Zulu were dismissed.

Aborted Attempts at South African Decentralization

This audacity of empire is covered in a self-explanatory chapter of Into the Cannibal’s Pot, titled “The Anglo-American Axis of Evil,” in which Lyman makes a cameo. (It’s not flattering.) From the comfort of the CATO headquarters, in 2017, the former ambassador will also be pondering whether “growing opposition will remove the African National Congress [ANC] from power.” The mindset of the DC establishment, CATO libertarians included, has it that changing the guard  —replacing one strongman with another — will fix South Africa, or any other of the sites of American foreign-policy interventions. 

So, what exactly did Princeton Nathan Lyman do on behalf of America in South Africa? Or, more precisely, who did he sideline? 

Ronald Reagan, who favored “constructive engagement” with South Africa, foresaw the chaos and carnage of an abrupt transition of power. So did the South Africans Fredrick van Zyl Slabbert, RIP (he died in May 2010), and Dr. Mangosuthu Buthelezi. The first was leader of the opposition Progressive Federal Party, who, alongside the late, intrepid Helen Suzman became the PFP’s chief critic of Nationalist policy (namely Apartheid). The second was Chief Minister of the KwaZulu homeland and leader of the Zulu people and their Inkatha Freedom Party (IFP). At the time, Buthelezi was the only black leader with any mass following who could act as a counter to the ANC. These men were not “lunch-pail liberals” from the West, but indigenous, classical liberal Africans — one white, one black — who understood and loved the county of their ancestors and wished to safeguard it for their posterity.

Both Buthelezi and Slabbert had applied their astringent minds to power-sharing constitutional dispensations. Both leaders were bright enough to recognize democracy for the disaster it would bring to a country as divided as theirs; they understood that “a mass-based black party that received enough votes could avoid having to enter into a coalition and could sweep aside the minority vote.” Thus, Buthelezi espoused a multi-racial, decentralized federation, in which “elites of the various groups” would “agree to share executive power and abide by a system of mutual vetoes and spheres of communal autonomy.” Paramount to Buthelezi was “the preservation of the rights of cultural groups and the protection of minorities.” Slabbert studied a “new system that entrenched individual rights, encouraged power-sharing through a grand coalition of black and white parties, and gave a veto right to minorities in crucial issues.”

Although he eventually threw his intellectual heft behind simple majority rule, in better days, Slabbert had spoken with circumspection about “unrestrained majoritarianism,” expressing the eminently educated opinion that, were majority rule to be made an inevitable corollary of South Africa’s political system, the outcomes would be severely undemocratic. It’s worth considering that even Zimbabwe for its first seven, fat years of independence, allowed “white members of parliament [to be] elected on a special roll to represent white interests.”

Washington Destroyed South African Federalism Before It Began

In his tome, Partner to History: The US Role in South Africa’s Transition to Democracy (2002), Princeton Lyman, the American Ambassador to South Africa from 1992 to 1995, records the active role Americans performed in the transition to democracy, especially in “dissuading spoilers” — the author’s pejorative, it would appear, for perfectly legitimate partners to the negotiations. One such partner, introduced above, was Buthelezi; another was military hero and former chief of the Defense Force, Constand Viljoen.

Avoid “wrecking the process”: This ultimatum was the message transmitted to the Afrikaner general and the African gentleman, loud and clear. The United States, with Lyman in the lead, failed to lean on the African National Congress (Nelson Mandela’s goons) to accommodate a federal structure. It promised merely to hold a future South African government to its “pre-election commitments, including shared power and the protection of minorities.” Until then, the skeptical Buthelezi was instructed to trust the ANC to relinquish the requisite power. Enraged, Buthelezi threatened to take his case to the American people and “spotlight” the knavish confederacy between their government and the ANC. (Then, Republicans were generally with Buthelezi, Democrats with the ANC. These days, both parties are with the ANC.) Being the man Prime Minister, F. W. de Klerk was not, Buthelezi rejected the pressure and overtures from the West. “I am utterly sick of being told how wrong I am by a world out there,” he wrote to Lyman. The dispensation being hatched was “an instrument for the annihilation of KwaZulu.”

Viljoen, who represented the hardliner Afrikaners and the security forces, believed de Klerk had abdicated his responsibilities to this electorate. He planned on leading a coalition that would have deposed the freelancing de Klerk and negotiated for an Afrikaner ethnic state. Likewise, Buthelezi, whose championship of self-determination had been denied, was fed up to the back teeth with being sidelined. He and his Zulu impis were every bit as fractious as Viljoen; every bit as willing to fight for their rightful corner of the African Eden. For setting his sights on sovereignty, the Zulu royal and his following (close on twenty percent of the population) were condemned as reactionaries by the West (and by CATO’s point person).

Hardly a dog of an American commentator missed the opportunity to lift his leg in protest against Buthelezi, for making common cause with Afrikaner decentralists and against the ANC. “Wreckers” is how the gray eminence of American newspapers — The New York Times, also known as “Pravda on the Hudson” — dubbed the two leaders and the millions whom they represented. The two, alleged the Times in a 1994 editorial, were locked in an “unscrupulous alliance to disrupt the first elections in South Africa in which all races will have a vote.” Following the might-makes-right maxim — and committing a non sequitur in the process — Times editorialists demanded that the leaders of these African and Afrikaner ethnic minorities relinquish demands for sovereign status because their political power was at best “anemic.” Meanwhile the Times dismissed Buthelezi as a puppet in Pretoria’s blackface minstrelsy.

This was drivel. Buthelezi, a crafty leader who had rejected “the ignoble independence accorded to other homelands” within apartheid’s framework, was never a collaborator. Understand: For two centuries Africans and Afrikaners had been clashing and alternately collaborating on the continent. Shaka (1787–1828), Dingane (1795–1840), Mpande (1798–1872), Cetshwayo (1826–1884) — Buthelezi was heir to these Zulu kings who had been wheeling, dealing, and warring with Boers well before the inception of The New York Times.

Masters of mass mobilization, the ANC used the political tinderbox ignited in the ramp-up to the first democratic elections to great effect in discrediting the security forces, and claiming that the apartheid government was fomenting the intra-ethnic violence between Inkatha (Zulu) and the ANC (Xhosa). But while the ANC accused the security forces of arming Inkatha, the latter faction blamed the security forces for allying themselves with the ANC, especially when Zulu hostels and squatter camps were raided in response to ANC pressure. For the National Party government, the ongoing ethnic conflict was a lose-lose proposition.

But not for the savvy ANC.

Nelson Mandela harnessed the situation by accusing Prime Minister de Klerk of “either complicity or of not caring enough about black deaths” to stop black-on-black violence. The foreign press helped fuse fact with fancy by transmitting this claim, later to be dismissed by the Truth and Reconciliation Commission. (That body eventually determined that there was “little evidence of a centrally directed, coherent and formally instituted third force.”) Nevertheless, a constellation of unfavorable circumstances was aligned against Buthelezi, who capitulated in the end.

Buthelezi was the intellectual bête noire of the communist ANC — and one of the few leaders in South Africa to mine the Western canon widely and wisely for what it teaches about liberty and the dangers of centralizing political power. He cited with characteristic passion and poignancy, in July 2009, a poem (“The Second Coming”) that W. B. Yeats wrote in January 1919:

Things fall apart; the center cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned …

In contrast to what South Africa became, the United States is a country where the constitution was supposed to thwart the tyranny of the majority. This averting was meant to occur by means of a federal structure, in which powers are divided and dispersed between — and within — a central government and the constituent states. Yet the Americans sided with the ANC — the consequence of which has been the raw, ripe rule of the mob and its dominant, anointed party. 

 

via http://ift.tt/2sPnagk Tyler Durden

Jeff Sessions To Testify Tuesday Before Senate Intel Committee

Attorney General Jeff Sessions has agreed to appear before the Senate Intelligence Committee on Tuesday, the Associated Press reports.

Sessions’ testimony will come less than a week after former FBI Director James Comey appeared before the committee and declined to say that President Donald Trump tried to interfere in the FBI’s investigation of former National Security Adviser Mike Flynn.

Sessions had been scheduled to discuss the Justice Department budget before a Senate panel chaired by Shelby. The AG said it’s clear the Russian investigation would become the focus of questioning, according to the AP.

"The Senate Intelligence Committee is the most appropriate forum for such matters, as it has been conducting an investigation and has access to relevant, classified information," Sessions explained.

CNN reported on Friday that Comey told members of the intelligence committee that the FBI had been investigating the possibility that there was a third undisclosed meeting between Sessions and Russian ambassador Sergey Kislyak that allegedly took place at Washington's Mayflower Hotel in April 2016.

It is unclear whether the upcoming intelligence committee hearing will be open or closed, according to CNN.

via http://ift.tt/2t7tYFk Tyler Durden

Infrastructure ‘Stimulus’ – Chinese Ghost Cities & The Big Money Drain

As President Trump's "Infrastructure Week" comes to an ignominious end, NIRP Umbrella's Alex Deluce reminds us that spending money on bridges to nowhere and cities of the future is anything but the stimulating panacea it is talked up to be…

Is a Chinese credit bubble in the cards? Well, it will be interesting to see if China’s authorities can get through the unwind of US $3 trillion worth of excess credit and the distressed debt on banks’ balance sheets.

From 2009 to 2016, more than 10 trillion of Chinese investment was thrown at infrastructure, ghost cities, and corruption thanks to a helping hand from the Chinese banks and foreign lenders eager to participate in the Chinese growth story.

In fact, hundreds of new cities in China are essentially empty. The hope is that rural population someday move in.

Roughly 40% of the 300 million Chinese expected to move into a town by 2030 will mostly be moving to smaller cities in the “chengzhenhua” system.

*  *  *

As OfTwoMinds' Charles Hugh Smith recently explained, building bridges to nowhere isn't just a waste of money in the present; it saddles the economy with productivity-draining costs for decades to come.

If there is anything the political left, right and center can agree upon, it's the lasting benefits of spending more (borrowed) money on infrastructure: roadways, rail lines, airports, seaports, pipelines, dams, electrical lines and so on: the physical networks of advanced civilization.

That Roman roadways constructed 2,000 years ago are still visible illustrates the longstanding value of reliable infrastructure: Roman political control and trade depended on roadways and sea transport to tie the sprawling empire together.

This is the basic assumption behind the notion that virtually any and all infrastructure spending will create value far into the future.

But is this really true? Does rebuilding and/or adding infrastructure create economic value?

To answer, we need to look at two issues: productivity and cost-benefit.

Infrastructure creates new value when it boosts productivity, generally by lowering costs of moving goods, energy, etc.

The value created by increased productivity must far outweigh the cost.

Consider the classic "bridge to nowhere" infrastructure project: a bridge is constructed between a sparsely populated island and the mainland. The payoff is a handful of residents are spared the time and inconvenience required to ship their vehicles between the island and mainland on a ferry.

Does this time savings translate into increased productivity, or merely extra leisure? And what was the cost to gain this very modest increase in leisure/productivity? Spending tens of millions of dollars on the bridge actually reduces the productivity of the entire economy due to the opportunity cost: the millions of dollars could have been more productively invested elsewhere, and spending the money on a low-value-creating bridge deprived the economy of the capital, labor etc. that could have been better invested in productivity-generating projects.

As correspondent Bart D. explains, opportunities to boost productivity via new infrastructure are scarce:

Why anyone believes that building 'infrastructure' somehow promotes economic growth in this day and age (as though it were 1950’s) is delusional. The reason 'infrastructure' worked back then to build economic activity was simply because it lagged behind the burgeoning private industry. These days there is no ‘hard industry’ left to 'lag behind.' Building a bigger road between the suburbs and the Mall won’t create prosperity for anyone except the owners of the road building company. Unlike a 1950’s road linking a steelworks to a port or a Beef farm to a meatworks."

In other words, when commerce already exists but is cumbersome, infrastructure that smooths the flow yields enormous productivity gains.

One example of this from history is the construction of the first stone bridge across the Seine River in Paris. This single structure changed commerce, tourism and social relations in the city, as it enabled two carts to pass side by side and enable pedestrians to cross the river safely.

For more on this impact of a single durable, commerce-enabling bridge in Paris, read this book: How Paris Became Paris: The Invention of the Modern City.

Replacing existing infrastructure is also problematic. It may well be necessary, but since it won't boost regional productivity (since it's merely replacing existing structures), it acts as a tax on the regional economy: if the replacement costs $1 billion and generates no real gains in productivity, it is in essence a tax that bleeds capital from the economy that could have been productively invested elsewhere.

Rebuilding a bridge generates higher spending on materials and wages, but if it doesn't generate additional productive capacity equal to its cost, this additional spending (in our world, always paid for with borrowed money that accrues interest for decades to come) runs out once the project is complete, but the costs of paying for the replacement continue on for decades.

As a rule of thumb, if a replacement bridge costs $1 billion, it will cost users and taxpayers $3 billion over the life of the loan/bond that funded the project.

Borrowing immense sums to spend on infrastructure that doesn't boost productivity actually cripples an economy by channeling scarce capital and tax revenues into projects that only boost spending for a few years at best, while the costs of borrowing the money pile up for decades to come.

In other words, building bridges to nowhere isn't just a waste of money in the present; it saddles the economy with productivity-draining costs for decades to come.

This high future cost for no-productivity gain infrastructure effectively bleeds the economy of income and capital for decades, for the temporary sugar-high of infrastucture spending today.

A rigorous cost-benefit analysis might conclude that some aging, marginal infrastructure should be torn down rather than replaced. If self-driving vehicles will reduce vehicles on the roads significantly– and some estimates range as high as an 80% reduction in traffic–perhaps we should wait for this technology to mature before spending trillions of dollars on infrastructure that is about to be under-utilized.

We should instead ask: where are the big gains in productivity going to come from going forward? The answers to that question should guide our public and private investment decisions.

In the meantime, we should question whether proposed infrastructure spending is actually an "investment in our future" or just another bureaucratic boondoggle designed to enrich crony-cartels and justify rising bureaucratic budgets:

via http://ift.tt/2s9OEz2 Tyler Durden

When Will The European Super-Bubble Pop?

Authored by Nick Giambruno via The Mises Institute,

France’s new president can’t keep the European Union together.

In early May, France elected globalist darling Emmanuel Macron. His victory gave the EU a short-term boost. However, it did not change the fundamental problems with Europe’s artificial mega-state.

Doug Casey agrees:

The EU was built upon a foundation of sand, doomed to failure from the very start. The idea was ill-fated because the Swedes and the Sicilians are as different from each other as the Poles and the Irish. There are linguistic, religious, and cultural differences, and big differences in the standard of living.

 

Artificial political constructs never last. The EU is great for the “elites” in Brussels; not so much for the average citizen.

 

Meanwhile, there’s a centrifugal force even within these European countries. In Spain, the Basques and the Catalans want to split off, and in the UK, the Scots want to make the United Kingdom quite a bit less united.

 

You’ve got to remember that before Garibaldi, Italy was scores of little dukedoms and principalities that all spoke their own variations of the Italian language. And the same was true in what’s now Germany before Bismarck in 1871.

 

The chances are better in the future that the remaining countries in Europe are going to fall apart as opposed to being compressed together artificially.

I think it’s unlikely the Europe of tomorrow will look anything like the picture below.

fools-europe.jpg

A Fool’s Vision of Europe’s Future

Europe is far more likely to splinter and eventually resemble the map below. It shows what Europe would look like if all its current separatist movements were to succeed.

europe-separate.png

Europe—If All Its Current Separatist Movements Succeed

Right Now, Italy is Europe’s Weakest Link

Italy has one of the most indebted governments in the world. It’s borrowed over $2.4 trillion. Its debt-to-GDP ratio is north of 130%. (For comparison, the US debt-to-GDP ratio is 104%.)

But the situation is actually much worse.

GDP measures a country’s economic output. However, it’s highly misleading. Mainstream economists count government spending as a positive when calculating GDP. A more honest approach would count it as a big negative.

In Italy, government spending accounts for a whopping 50%-plus of GDP. Remove that from the calculation, and I suspect we’d see how hopelessly insolvent the Italian government truly is.

In other words, Italy is flat broke.

I don’t see how the Italian government could possibly extract enough in taxes from the productive part of the economy to ever pay back what it’s borrowed.

Meanwhile, Italian Government Bonds Are in a Super Bubble

They’re currently trading near record-low yields. (When bond prices go up, bond yields do down.)

Over $1 trillion worth of Italian bonds actually have negative yields.

It’s a bizarre and perverse situation.

Lending money to the bankrupt Italian government carries huge risks. So the yields on Italian government bonds should be near record highs, not record lows.

Negative yields could not exist in a free market. They’re only possible in the current “Alice in Wonderland” economy created by central bankers.

You see, the European Central Bank (ECB) has been printing money to buy Italian government bonds hand over fist. Since 2008, the ECB and Italian banks have bought over 88% of Italian government debt, according to a recent study.

This is stunning. It means that Italy’s financial system depends completely on ECB money printing.

Italian government bonds are, without a doubt, in super-bubble territory. It won’t be long before a pin pricks this bubble and… pop.

That could happen soon.

Earlier this month, the credit rating agency Fitch downgraded Italy’s credit rating from BBB+ to BBB.

And Mario Draghi, the head of the ECB, recently announced that after five years of manic money printing, he’s finally achieved his wrongheaded goal of 2% inflation.

Casey continues: 

Inflation is one of the most misused words; few even think about its actual meaning. What is inflation? “Well, that’s prices going up.” No, it’s not. To say that is to confuse cause and effect. Inflation is an increase in the money supply. You inflate when the money supply is increased by more than real wealth increases.

 

Prices go up as a result. People have forgotten about that. Today, inflation seems to come from out of nowhere, like a freak storm. No cause. Unless it’s blamed on the butcher, or the baker, or an evil oil company. Nobody ever thinks it’s a central bank—the Fed in the US—that actually creates more money, and causes inflation.

 

You’ve heard that central banks are trying to create a little bit of inflation because, they say, “A little bit of inflation is good.” No, even a little bit of inflation is deadly poisonous. For two reasons: It creates the business cycle. And it destroys the value of savings. Saving is the basis of capital creation.

 

People who say that a little inflation is a good thing are dangerous fools.

Now that the ECB has reached its 2% inflation target, Germany and other EU countries are pushing the central bank to stop printing so much money.

This is the last thing the Italian government wants. Remember, the ECB buys a lot of Italian government bonds with those freshly printed euros.

If the ECB stops buying Italian government bonds, who will step up? The answer is nobody.  Italian banks are already completely saturated with government bonds.

Germany wants the money printing to stop. Italy wants it to continue.

But, since the ECB has reached its stated inflation target and Germany has crucial elections later this year, I think Germany will get its way. This is very bad news for Italy’s government and banking system.

Once the ECB—the only large buyer—steps away, Italian government bonds will crash and rates will soar.

Soon it will be impossible for the Italian government to finance itself.

Italian banks—which are already insolvent—will be decimated. They hold an estimated €235 billion worth of Italian government bonds. So the coming bond crash will pummel their balance sheets.

It’s shaping up to be a lovely train wreck.

I think we’ll see a full-blown crisis in Europe soon.

So, why should Americans or anyone outside of Europe care?

It’s simple.

The EU is the world’s largest economy.

The euro currency is the second most widely held currency in the world.

Financial chaos in Europe means financial chaos worldwide.

The Financial Times commented on what would happen if the EU were to collapse: "It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash."

A crisis in Europe would send a lethal lightning rod through the world’s currency and stock markets. Unparalleled economic turmoil — far worse than 2008 — could follow.

via http://ift.tt/2rN95kL Tyler Durden

The Value Of “Lunch With Warren Buffett” Plunges 22%

The winning bidder in legendary investor Warren Buffett’s annual charity auction has pledged $2.68 million for the privilege of eating lunch with the billionaire investor, according to Bloomberg.

While the sum is far greater than the $25,000 paid in 2000 – the first year Buffett held the fundraiser – it’s about $800,000 shy of the record sum of $3,456,789 paid in 2012 and 2016.

Warren Buffett

 

The proceeds benefit Glide, a San Francisco-based charity that serves meals to the homeless and provides treatment for drug addiction.

The winner of this year’s auction, who, like last year’s winner, opted to remain anonymous, can bring up to seven friends to dine with Buffett during a lunch at Manhattan’s Smith & Wollensky steakhouse. At least one former winner – Ted Weschler – later joined Buffett’s Berkshire Hathaway Inc. to help oversee investments. Last year’s winner chose to remain anonymous, Bloomberg reported.

According to eBay, the five-day auction attracted 41 offers. The top bid lingered below $2.4 million as interest in the auction seemed to dissipate on Friday, until the winner placed his bid during the closing seconds.

Given the market’s performance this year, it’s a little surprising that the winning bid failed to top the prior year’s offer  – the first time that’s happened in five years. Perhaps hedge fund luminaries like David Einhorn – who paid just over a quarter of a million dollars to dine with Buffett in 2003 – have been stung by Buffett’s incessant bashing of their industry.

Or maybe portfolio managers are exercising some restraint as the centrally-planned economy cultivated by the Federal Reserve continues to make like difficult for long-short equity funds.

As Bloomberg notes, Buffett – who is Berkshire’s chairman, chief executive officer and biggest shareholder – used stock picks and acquisitions to build Berkshire from a failing textiles maker into a $419 billion company with holdings in energy, insurance, retail and manufacturing.

Some of Buffett’s long-time holdings have underperformed lately, causing some to second-guess the 86-year-old Buffett. Shrinking revenues at IBM Corp., Buffett’s sixth-largest holding, have turned the stock into a dog of the Dow Jones Industrial Average. And shares of Wells Fargo & Co., his second-largest holding, have yet to recover from a cross-selling scandal that led to the ouster of former CEO John Stumpf and the clawback of more than $70 million in compensation from him and another former executive.

But Buffett & Co. have made at least one savvy investing decision this year. Berkshire’s latest 13-F filing revealed that the company has increased its stake in Apple Inc. to just shy of 130 million shares – worth more than $19 billion as of Friday’s close. Apple, Alphabet Inc., Amazon, Facebook and Microsoft – what Goldman Sachs has termed the “FAAMG” stocks – are responsible for nearly 40% of the S&P 500’s gains year-to-date, and more than half of the Nasdaq’s.

The rest of Berkshire’s holdings are available in the table below:

As a reminder, Dark-Bid.com's Daniel Drew notes that Warren Buffett's annual letter this year praised Jack Bogle as his "hero" for promoting index investing. The irony is that investors would have been better off buying Berkshire shares. Over the last 10 years, Berkshire stock is up 139% while the S&P 500 is up 71%. The real question is why Buffett just doesn't tout his own stock rather than promote index investing. He tries to explain himself:

"Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price – it's no fun having owners who are disappointed with their purchases – nor one too low."

Buffett is doing something every skilled salesman does: managing expectations. Buffett's own performance is compared against the S&P 500, and what better way to win that game than by putting a floor under the Berkshire price with the promise of share buybacks and then putting a ceiling on the stock by promoting index investing? The real secret is Buffett is talking his book by not talking it: Rather than tell investors to buy Berkshire at any price, he tells people to invest passively through an index, which leads to the very market inefficiencies that he profits from.

via http://ift.tt/2rdkls9 Tyler Durden