With Yellen’s speech a bit of a letdown for the doves – she did not go full-dovish – markets anxiously await Mario Draghi to promise whetever for ever and ever… While financial markets don’t expect bombshells, his speech is an opportunity to underscore that ECB policy will stay looser for longer than that of the Fed and the Bank of England.

• DRAGHI SAYS FISCAL POLICY SHOULD PLAY GREATER ROLE IN RECOVERY
• DRAGHI SAYS HE’S ‘CONFIDENT’ JUNE STIMULUS WILL BOOST DEMAND
• DRAGHI URGES BETTER USE OF FISCAL FLEXIBILITY WITHIN EU RULES
• DRAGHI SEES ‘REAL RISK’ MONETARY POLICY LOSES EFFECTIVENESS
• DRAGHI CALLS FOR STRONGER EURO-AREA FISCAL COORDINATION
• DRAGHI SAYS EUROPE STRUCTURAL REFORMS CAN NO LONGER BE DELAYED

Full speech to follow:

Here is The Wall Street Journal’s 5 Key Things to watch for…

LABOR MARKETS
This is the topic of the conference. Euro-zone unemployment is far higher than in the U.S., giving Mr. Draghi a chance to stress that there’s much more economic slack in Europe than other regions, meaning the ECB can maintain ultra-loose policies.

INTEREST RATES
ECB officials have signaled that rates will likely stay near zero far longer than in other developed economies. With euro-zone labor markets weak and slack high, Mr. Draghi has a chance to cement that view. “If he wants to be dovish he certainly has the ammunition,” said analysts at Jefferies International.

QUANTITATIVE EASING
Mr. Draghi isn’t expected to break new ground here. But given the grim economic and inflation backdrop, he may want to at least reiterate that it is an option. It can’t hurt, and the threat of QE would help keep European bond yields low and maintain some downward pressure on the euro.

THE EURO
At his August press conference, Mr. Draghi appeared to endorse the euro’s recent slide, which boosts exports and inflation. The more dovish he sounds in Jackson Hole, the greater are the chances that this trend will continue.

GOVERNMENT SCOLDING
Mr. Draghi took European governments to task this month for the slow pace of structural reforms in some countries. The conference’s labor-markets theme gives him a chance to spotlight the role of governments—and not central banks–in making labor markets more flexible.

And the full Draghi speech below:

Speech by Mario Draghi, President of the ECB,
Annual central bank symposium in Jackson Hole,
22 August 2014

No one in society remains untouched by a situation of high unemployment. For the unemployed themselves, it is often a tragedy which has lasting effects on their lifetime income. For those in work, it raises job insecurity and undermines social cohesion. For governments, it weighs on public finances and harms election prospects. And unemployment is at the heart of the macro dynamics that shape short- and medium-term inflation, meaning it also affects central banks. Indeed, even when there are no risks to price stability, but unemployment is high and social cohesion at threat, pressure on the central bank to respond invariably increases.

1. The causes of unemployment in the euro area

The key issue, however, is how much we can really sustainably affect unemployment, which in turn is a question – as has been much discussed at this conference – of whether the drivers are predominantly cyclical or structural. As we are an 18 country monetary union this is necessarily a complex question in the euro area, but let me nonetheless give a brief overview of how the ECB currently assesses the situation.

Figure 1: Change in the unemployment rate since 2008 – the euro area and the US

The long recession in the euro area

The first point to make is that the euro area has suffered a large and particularly sustained negative shock to GDP, with serious consequences for employment. This is visible in Figure 1, which shows the evolution of unemployment in the euro area and the US since 2008. Whereas the US experienced a sharp and immediate rise in unemployment in the aftermath of the Great Recession, the euro area has endured two rises in unemployment associated with two sequential recessions.

From the start of 2008 to early 2011 the picture in both regions is similar: unemployment rates increase steeply, level off and then begin to gradually fall. This reflects the common sources of the shock: the synchronisation of the financial cycle across advanced economies, the contraction in global trade following the Lehman failure, coupled with a strong correction of asset prices – notably houses – in certain jurisdictions.

From 2011 onwards, however, developments in the two regions diverge. Unemployment in the US continues to fall at more or less the same rate. ^[1] In the euro area, on the other hand, it begins a second rise that does not peak until April 2013. This divergence reflects a second, euro area-specific shock emanating from the sovereign debt crisis, which resulted in a six quarter recession for the euro area economy. Unlike the post-Lehman shock, however, which affected all euro area economies, virtually all of the job losses observed in this second period were concentrated in countries that were adversely affected by government bond market tensions (Figure 2).

Figure 2: Relationship between financial stress and unemployment

The sovereign debt crisis operated through various channels, but one of its most important effects was to disable in part the tools of macroeconomic stabilisation.

On the fiscal side, non-market services – including public administration, education and healthcare – had contributed positively to employment in virtually all countries during the first phase of the crisis, thus somewhat cushioning the shock. In the second phase, however, fiscal policy was constrained by concerns over debt sustainability and the lack of a common backstop, especially as discussions related to sovereign debt restructuring began. The necessary fiscal consolidation had to be frontloaded to restore investor confidence, creating a fiscal drag and a downturn in public sector employment which added to the ongoing contraction in employment in other sectors.

Sovereign pressures also interrupted the homogenous transmission of monetary policy across the euro area. Despite very low policy rates, the cost of capital actually rose in stressed countries in this period, meaning monetary and fiscal policy effectively tightened in tandem. Hence, an important focus of our monetary policy in this period was – and still is – to repair the monetary transmission mechanism. Establishing a precise link between these impairments and unemployment performance is not straightforward. However, ECB staff estimates of the “credit gap” for stressed countries – the difference between the actual and normal volumes of credit in the absence of crisis effects – suggest that that credit supply conditions are exerting a significant drag on economic activity. ^[2]

Cyclical and structural factors

Cyclical factors have therefore certainly contributed to the rise in unemployment. And the economic situation in the euro area suggests they are still playing a role. The most recent GDP data confirm that the recovery in the euro area remains uniformly weak, with subdued wage growth even in non-stressed countries suggesting lacklustre demand. In these circumstances, it seems likely that uncertainty over the strength of the recovery is weighing on business investment and slowing the rate at which workers are being rehired.

That being said, there are signs that, in some countries at least, a significant share of unemployment is also structural.

For example, the euro area Beveridge curve – which summarises unemployment developments at a given level of labour demand (or vacancies) – suggests the emergence of a structural mismatch across euro area labour markets (Figure 3). In the first phase of the crisis strong declines in labour demand resulted in a steep rise in euro area unemployment, with a movement down along the Beveridge curve. The second recessionary episode, however, led to a further strong increase in the unemployment rate even though aggregate vacancy rates showed marked signs of improvement. This may imply a more permanent outward shift.

Figure 3: Evolution of the euro area Beveridge curve over the crisis

Part of the explanation for the movement of the Beveridge curve seems to be the sheer magnitude of the job destruction in some countries, which has led to reduced job-finding rates, extended durations of unemployment spells and a higher share of long-term unemployment. This reflects, in particular, the strong sectoral downsizing of the previously overblown construction sector (Figure 4), which, consistent with experience in the US, tends to lower match efficiency. ^[3] By the end of 2013, the stock of long-term unemployed (those unemployed for a year or more) accounted for over 6% of the total euro area labour force – more than double the pre-crisis level.

Figure 4: Evolution of euro area employment by sector and educational level

Another important explanation seems to be a lack of redeployment opportunities for displaced low-skilled workers, as evidenced by the growing disparity between the skills of the labour force and the skills required by employers. Analysis of the evolution of skill mismatch ^[4] suggests a notable increase in mismatch at regional, country and euro area level (Figure 5). As the previous figure shows, employment losses in the euro area are strongly concentrated among low skilled workers

Figure 5: Skill mismatch indices for the euro area

All in all, estimates provided by international organisations – in particular, the European Commission, the OECD and the IMF – suggest that the crisis has resulted in an increase in structural unemployment across the euro area, rising from an average (across the three institutions) of 8.8% in 2008 to 10.3% by 2013. ^[5]

Nuancing the picture

There are nevertheless two important qualifications to make here.

The first is that estimates of structural unemployment are surrounded by considerable uncertainty, in particular in real time. For example, research by the European Commission suggests that estimates of the Non-Accelerating Wage Rate of Unemployment (NAWRU) in the current situation are likely to overstate the magnitude of unemployment linked to structural factors, notably in the countries most severely hit by the crisis. ^[6]

The second qualification is that behind the aggregate data lies a very heterogeneous picture. The current unemployment rate in the euro area of 11.5% is the (weighted) average of unemployment rates close to 5% in Germany and 25% in Spain. Structural developments also differ: analysis of the Beveridge curve at the country level reveals, for example, a pronounced inward shift in Germany, whereas in France, Italy and in particular Spain, the curves move outward.

This heterogeneity reflects different initial conditions, such as varying sectoral compositions of employment (in particular the share employed in construction), as well as the fact that unemployment rates have historically been persistently higher in some euro area countries than others. ^[7] But it also reflects the relationship between labour market institutions and the impact of shocks on employment. ^[8] The economies that have weathered the crisis best in terms of employment tend also to be those with more flexibility in the labour market to adjust to economic conditions.

In Germany, for example, the inward shift in the Beveridge curve seen over the course of the crisis follows a trend that began in the mid-2000s after the introduction of the Hartz labour market reforms. Its relatively stronger employment performance was also linked to the fact that German firms had instruments available to reduce employees’ working time at reasonable costs – i.e. the intensive margin – including reducing overtime hours, greater working time flexibility at the firm level, and extensive use of short-time work schemes. ^[9]

Even within the group of countries that experienced the sovereign debt crisis most acutely, we can see a differential impact of labour market institutions on employment. Ireland and Spain, for example, both experienced a large destruction of employment in the construction sector after the Lehman shock, but fared quite differently during the sovereign debt crisis. Unemployment in Ireland stabilised and then fell, whereas in Spain it increased until January 2013 (Figure 6). From 2011 to 2013 structural unemployment is estimated to have risen by around 0.5 percentages points in Ireland, whereas it increased by more than 2.5 percentages points in Spain. ^[10]

This diverging performance can in part be accounted for by emigration, especially of foreign-born labour ^[11], which was much higher in Ireland. But it also reflects the fact that Ireland entered the crisis with a relatively flexible labour market and adopted further labour market reforms under its EU-IMF programme beginning in November 2010. Spain, on the other hand, entered the crisis with strong labour market rigidities and reform only started meaningfully in 2012.

Importantly, until then, the capacity of firms to adjust to the new economic conditions was hampered in Spain by sectoral and regional collective bargaining agreements and wage indexation. Survey evidence indicates that Spain was among the countries where indexation was more frequent – covering about 70% of firms. ^[12] As a result, as Figure 6 shows, nominal compensation per employee continued to rise in Spain until the third quarter of 2011, despite a more than 12 percentage point increase in unemployment in that time. In Ireland, by contrast, downward wage adjustment began already in the fourth quarter of 2008 and proceeded more quickly.

The upshot was that, whereas the Irish labour market facilitated some adjustment through prices, the Spanish labour market adjusted primarily through quantities: firms were forced to reduce labour costs by reducing employment. And due to a high degree of duality in the Spanish labour market, this burden of adjustment was concentrated in particular on a less protected group – those on temporary contracts. These had been particularly prevalent in Spain in advance of the crisis, accounting for around one third of all employment contracts. ^[13]

In Spain, as in other stressed countries, a number of these labour market rigidities have since been addressed through structural reforms with positive effects. For example, the OECD estimates that the 2012 labour market reform in Spain has improved transitions out of unemployment and into employment at all unemployment durations. ^[14]

Figure 6: Unemployment and nominal compensation developments in Ireland and Spain

To sum up, unemployment in the euro area is characterised by relatively complex interactions. There have been differentiated demand shocks across countries. These shocks have interacted with initial conditions and national labour market institutions in different ways – and the interactions have changed as new reforms have been adopted. Consequently, estimates of the degree of cyclical and structural unemployment have to be made with quite some caution. But it is clear that such heterogeneity in labour market institutions is a source of fragility for the monetary union.

2. Responding to high unemployment

So what conclusions can we draw from this as policymakers? The only conclusion we can safely draw, in my view, is that we need action on both sides of the economy: aggregate demand policies have to be accompanied by national structural policies.

Demand side policies are not only justified by the significant cyclical component in unemployment. They are also relevant because, given prevailing uncertainty, they help insure against the risk that a weak economy is contributing to hysteresis effects. Indeed, while in normal conditions uncertainty would imply a higher degree of caution for fear of over-shooting, at present the situation is different. The risks of “doing too little” – i.e. that cyclical unemployment becomes structural – outweigh those of “doing too much” – that is, excessive upward wage and price pressures.

At the same time, such aggregate demand policies will ultimately not be effective without action in parallel on the supply side. Like all advanced economies, we are operating in a set of initial conditions determined by the last financial cycle, which include low inflation, low interest rates and a large debt overhang in the private and public sectors. In such circumstances, due to the zero lower bound constraint, there is a real risk that monetary policy loses some effectiveness in generating aggregate demand. The debt overhang also inevitably reduces fiscal space.

In this context, engineering a higher level and trend of potential growth – and thereby also government income – can help recover a margin for manoeuvre and allow both policies regain traction over the economic cycle. Reducing structural unemployment and raising labour participation is a key part of that. This is also particularly relevant for the euro area as, to list just one channel, higher unemployment in certain countries could lead to elevated loan losses, less resilient banks and hence a more fragmented transmission of monetary policy.

Boosting aggregate demand

On the demand side, monetary policy can and should play a central role, which currently means an accommodative monetary policy for an extended period of time. I am confident that the package of measures we announced in June will indeed provide the intended boost to demand, and we stand ready to adjust our policy stance further.

We have already seen exchange rate movements that should support both aggregate demand and inflation, which we expect to be sustained by the diverging expected paths of policy in the US and the euro area (Figure 7). We will launch our first Targeted Long-Term Refinancing Operation in September, which has so far garnered significant interest from banks. And our preparation for outright purchases in asset-backed security (ABS) markets is fast moving forward and we expect that it should contribute to further credit easing. Indeed, such outright purchases would meaningfully contribute to diversifying the channels for us to generate liquidity.

Figure 7: Expected real interest rate path in the euro area and the US

Inflation has been on a downward path from around 2.5% in the summer of 2012 to 0.4% most recently. Acknowledging this, the Governing Council would use also unconventional instruments to safeguard the firm anchoring of inflation expectations over the medium- to long -term.

Turning to fiscal policy, since 2010 the euro area has suffered from fiscal policy being less available and effective, especially compared with other large advanced economies. This is not so much a consequence of high initial debt ratios – public debt is in aggregate not higher in the euro area than in the US or Japan. It reflects the fact that the central bank in those countries could act and has acted as a backstop for government funding. This is an important reason why markets spared their fiscal authorities the loss of confidence that constrained many euro area governments’ market access. This has in turn allowed fiscal consolidation in the US and Japan to be more backloaded.

Thus, it would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this, while taking into account our specific initial conditions and legal constraints. These initial conditions include levels of government expenditure and taxation in the euro area that are, in relation to GDP, already among the highest in the world. And we are operating within a set of fiscal rules – the Stability and Growth Pact – which acts as an anchor for confidence and that would be self-defeating to break.

Let me in this context emphasise four elements.

First, the existing flexibility within the rules could be used to better address the weak recovery and to make room for the cost of needed structural reforms.

Second, there is leeway to achieve a more growth-friendly composition of fiscal policies. As a start, it should be possible to lower the tax burden in a budget-neutral way. ^[15] This strategy could have positive effects even in the short-term if taxes are lowered in those areas where the short-term fiscal multiplier is higher, and expenditures cut in unproductive areas where the multiplier is lower. Research suggests positive second-round effects on business confidence and private investment could also be achieved in the short-term. ^[16]

Third, in parallel it may be useful to have a discussion on the overall fiscal stance of the euro area. Unlike in other major advanced economies, our fiscal stance is not based on a single budget voted for by a single parliament, but on the aggregation of eighteen national budgets and the EU budget. Stronger coordination among the different national fiscal stances should in principle allow us to achieve a more growth-friendly overall fiscal stance for the euro area.

Fourth, complementary action at the EU level would also seem to be necessary to ensure both an appropriate aggregate position and a large public investment programme – which is consistent with proposals by the incoming President of the European Commission. ^[17]

Reforming structural policies

No amount of fiscal or monetary accommodation, however, can compensate for the necessary structural reforms in the euro area. As I said, structural unemployment was already estimated to be very high coming into the crisis (around 9%). Indeed, some research suggests it has been high since the 1970s. ^[18] And given the interactions I described, there are important reasons why national structural reforms that tackle this problem can no longer be delayed.

This reform agenda spans labour markets, product markets and actions to improve the business environment. I will however focus here on labour markets, where there are two cross-cutting themes that I see as a priority.

The first is policies that allow workers to redeploy quickly to new job opportunities and hence lower unemployment duration. Such policies include enabling firm-level agreements that allow wages to better reflect local labour market conditions and productivity developments; allowing for greater wage differentiation across workers and between sectors; reductions in employment adjustment rigidities and especially labour market dualities; and product market reforms which help to speed up the reallocation of resources and employment to more productive sectors.

The second theme is raising the skill intensity of the workforce. We have already seen the disproportionate effect of the crisis on low skilled workers, which implies a period of re-skilling will be necessary to get people back into work. The longer-term effects of high youth unemployment also point to this conclusion. The number of unemployed aged between 15 and 24, relative to the labour force of the same age group, increased from an already high level of around 15% in 2007 to 24% in 2013. This has most likely left significant “scarring” as the young have lost access to a crucial step of on-the-job training.

The issue of skill intensity is also very relevant for potential growth. While raising labour participation is crucial, demographic prospects imply that it will provide a diminishing contribution to future potential. Lifting trend growth will have to come mainly through raising labour productivity. Thus, we need to ensure that, to the extent possible, employment is concentrated in high-value added, high-productivity sectors, which in turn is a function of skills.

What is more, in the global economy the euro area cannot compete on costs alone with emerging countries, if only because of our social model. Our comparative advantage therefore has to come from combining cost competitiveness with specialisation in high-value added activities – a business model that countries such as Germany have successfully demonstrated. Seen from this perspective, insufficient skill levels will effectively raise the non-accelerating inflation rate of unemployment (NAIRU) by causing more workers to drop out of the ‘competitiveness zone’ and become unemployable.

Raising skills is clearly first and foremost about education, where there is much that could still be done. The percentage of the working age population that has completed upper secondary or tertiary education in the euro area ranges from a high of more than 90% in some countries to a low of around 40% in others. But there is also an important role for active labour market policies, such as lifelong learning, and for eradicating distortions such labour market duality. The latter would, among other things, help reduce inefficient worker turnover and increase incentives for employers and employees to invest in developing job-specific skills.

3. Conclusion

Let me conclude.

Unemployment in the euro area is a complex phenomenon, but the solution is not overly complicated to understand. A coherent strategy to reduce unemployment has to involve both demand and supply side policies, at both the euro area and the national levels. And only if the strategy is truly coherent can it be successful.

Without higher aggregate demand, we risk higher structural unemployment, and governments that introduce structural reforms could end up running just to stand still. But without determined structural reforms, aggregate demand measures will quickly run out of steam and may ultimately become less effective. The way back to higher employment, in other words, is a policy mix that combines monetary, fiscal and structural measures at the union level and at the national level. This will allow each member of our union to achieve a sustainably high level of employment.

We should not forget that the stakes for our monetary union are high. It is not unusual to have regional disparities in unemployment within countries, but the euro area is not a formal political union and hence does not have permanent mechanisms to share risk, namely through fiscal transfers. ^[19] Cross-country migration flows are relatively small and are unlikely to ever become a key driver of labour market adjustment after large shocks. ^[20]

Thus, the long-term cohesion of the euro area depends on each country in the union achieving a sustainably high level of employment. And given the very high costs if the cohesion of the union is threatened, all countries should have an interest in achieving this.

via Zero Hedge http://ift.tt/1q5fb7S Tyler Durden

Last night it was SecDef Chuck Hagel who warned ISIS was a bigger threat to America than 9/11 and primed the narrative for the next round of defense-spending (and this deficit-boosting, QE-enabling money printing). Today it is Senate Armed Services Committee member Jim Inhofe who told Fox that “we’re in the most dangerous position we’ve ever been in as a nation.” While that seems a little bit of stretch (oh and hasn’t the Senator seen stocks?) he adds – rather ominously, “they’re crazy out there and they’re rapidly developing a method of blowing up a major U.S. city and people just can’t believe that’s happening.” But then again, when have we ever needed to ‘believe’ anything anyway (especially without YouTube clips to prove it).

 

Senator Inhofe explains…

 

As Fox notes,

“ISIS, they are really bad terrorists, they’re so bad even Al Qaida is afraid of them,” Inhofe said reflecting on the recent beheading of American journalist James Foley. Beyond the beheading, Inhofe said the current terror organizations are not going to stay contained to the Middle East. “They’re crazy out there and they’re rapidly developing a method of blowing up a major U.S. city and people just can’t believe that’s happening.”

 

Inhofe blames policy decisions from the Obama administration and cuts in defense spending for putting the country in what he calls a dangerous situation.

 

“He’s [President Obama] going to have to come up with something that we’re going to do because they’re holding another hostage in place and the problem is, the President says all these things and he never does them,” Inhofe said.

 

Inhofe said he hopes after the mid-term elections there will be more Republicans in the Senate and more of a willingness for both parties to work on restoring cuts to defense spending.

*  *  *

So – to confirm – this is a massive threat that needs a solution, that is Obama’s fault because he cut spending, but we need to cut spending more? Okeydokey then…

via Zero Hedge http://ift.tt/1q5fb7L Tyler Durden

 

 

View online      Forward   August 22, 2014   Useful Idiots and the Something For Nothing Society – Part 4 of 5 Send To A Friend | View Past Articles | Subscribe | PDF Version                      In this next chapter of Useful Idiots and the Something for Nothing Society, we will put the final nails into a century’s UNFOLDING MADNESS.  A country of free men has been transformed into an authoritarian state on its road to totalitarianism as the final denouement unfolds under their policies. The final connecting dots of from whence we came, where we are today, and the inevitable destination of societal and economic collapse of empire as has been seen throughout history and Austrian economics.  It’s been an EXTREMELY interesting journey, one which has been full of opportunities and heartbreaks.  I have witnessed much of it in my 58 years.  At the time of many events, I did not understand the significance of them. Now, I believe I do.  This is not a story of doom and gloom. It is the story of man, human behavior and history repeating.  In the Rise and Fall of empires and societies such as ours, it is always darkest before the dawn. We are in the late evening (9pm) heading towards midnight in my opinion.  Soon the destruction will come to an end with a bang, and spring can emerge as the global economic system and societies are rebuilt from the ashes.  It has always been so throughout history.  This time will be no different. When people ask you what’s wrong with the world and you tell them and they stare back at you with an empty look, you can print this series out and hand it to them and they can read it in a hour.   In Part I of this series we covered the transformation of the monetary system from sound reserve backed constitutionally mandated currency system to what now has become completely unsound Fiat currency and credit system.  Money has changed from a system for storing wealth, purchasing power and ones labor for the future to a confiscation scheme run for the benefit of Banksters and socialist progressive government.  Do not miss this as UNSOUND money and Reserveless banking is the master thread and foundation of all the chaos unfolding in the world today.   In PART II of this series we thoroughly covered how the ACCOUNTABLE, LOCALLY controlled education systems have been high jacked and transformed into FEDERALLY CONTROLLED, UNACCOUNTABLE, public school MONOPOLIES designed to create sheeple and Useful Idiots ripe for exploitation.   The Locally controlled school systems that created the most prosperous country in the history of man are now nothing more than PROGRESSIVE SOCIALIST indoctrination centers designed to mentally cripple the futures of our children.  It is now an insidious system to create morally and fiscally insolvent citizens, bereft of histories lessons, contemptuous of what created our exceptional country and its burgeoning middle classes, unable to produce more than they consume.  They do not know how to live prudent and productive lives and DO NOT have the BASIC knowledge needed to build a prosperous and independent life.   In Part III of this series, we covered the impoverishment of the masses and how they have been turned from free men into debt and tax slaves through the scheme known as Fiat currency and credit creation and creeping centralized government.  We learned how the value of their wages has been reduced and debased by the very people in whom they have placed their trust: the government and banking/financial systems.  In reality, the powers that be have created a land of serfs in the developed world.  Only serfs had it better as they only gave 25% of their incomes to their masters and dealt in coin based sound money.   In history, one man’s taking of the fruits of another man’s labor was called SLAVERY.  Now, in the land of George Orwell we have become, it is called FAIRNESS.  Real money is basically EXTINCT in today’s world, except for gold and silver, killed by the elites who control the world today.  All three previous parts of this series are critical foundations to this edition: DON’T MISS THEM.   Now onto today’s missive:   While government has grown, so has its CONTROL over and destruction of the PRIVATE sector, and FREE ENTERPRISE!  Regulating personal freedom, free market capitalism and opportunity away from the private sector and entrepreneurs to their crony capitalist partners in crime. This is the imposition of the socialist fascist state the US has BECOME!  The EU, Japan and UK are WORSE.         Small business is where most if not all job creation comes from.  It is entrepreneurs with better ideas entering the economy in the quest of the holy grail of providing MORE GOODS AND SERVICES TO THE PUBLIC FOR LESS MONEY.  It is the ultimate PUBLIC service as it lets people get MORE FOR THEIR MONEY and thus gives their families a better standard of living.  In the Something for Nothing Society, corrupt public officials and crony capitalists stand against this process.  They want to take the fruits of the industrious and transfer it to themselves as entitlements and to their crony supporters as regulated demand to themselves.  Just another way to KILL their emerging new COMPETITORS, they raise the price of entry into business for them.  Look at this disparity of the costs of the regulatory state by enterprise size:     PENALIZED for creating a business and new jobs, these numbers are from 2008 so the regulatory freight train since that time has added considerably to this disparity and crime against the private sector which is where wealth and incomes come from.  These last two illustrations are from a working paper called 10,000 Commandments by the American Enterprise Institute, and are the picture of loss of PERSONAL and BUSINESS freedoms.   It represents CAPITALISM, entrepreneurism, competition, productivity and innovation PROHIBITED by LAW.  It is the imposition of SLAVERY of those that produce by those who DO NOT!  It is also central government tyranny, crony capitalism, less goods and services for more money, and economic central planning being IMPOSED BY LAW!  What you see here is but the tip of a regulatory ICEBERG.  Icebergs sink things: in this case it is the US and European economies.  Progressive socialists have become totalitarians in the past and this is one way they do it.   “Like many of the challenges we're facing, the tipping point we're approaching is the result of a liberal progressive mindset that seeks a larger, more active government and lets bureaucrats decide what's best for everyone instead of allowing citizens to govern themselves. Its response to every social problem is more government, more bureaucracy and more taxpayer money.” – Rep Paul Ryan   This is reported by NO ONE in the main stream media and few outside it, as it is a SILENT KILLER working in the shadows of Brussels and Washington DC. It is SEIZING and hammering away at your freedoms, cementing their interests into place above yours and passing laws to attempt to stop future change.  Can you imagine a world where unsuccessful policies are NEVER REFORMED or REPEALED? This is IT!   “If you have ten thousand regulations you destroy all respect for the law.” – Winston Churchill   “Beware the greedy hand of government, thrusting itself into every corner and crevice of industry.”  – Thomas Paine   Those regulations number in the millions.  We are expected to know and comply with them all.  Not knowing them is no excuse. Men’s rea, has been SUSPENDED (men’s rea is the idea that you have to have the knowledge and intent to violate the law, if you did not you were not guilty).  Now, we are expected to know and comply with millions of words of regulatory and legal gibberish, indecipherable to the common man.  Everyone’s behavior and endeavors must comply with the thoughts of a bureaucrat who has no idea of the realities of business, nor the problems or situations they are trying to regulate. This was done to you by your elected representatives in Washington DC and Brussels.  They turned every one of us into habitual criminals OVERNIGHT, just waiting to be picked up, or challenge them PUBLICLY. Then, they will roll out the law and TAKE YOU and YOUR family down for challenging their POWER OVER YOU and your behavior.  FREEDOM DENIED!   "Government is not reason, it is not eloquence, it is force, like fire it is a dangerous servant, and a fearful master." – George Washington   A totalitarian state has been put in place; you just haven’t been notified yet.   You are subject to ARREST if you do not COMPLY to rules which DO NOT WORK in REAL LIFE.  Real life problems will not yield to faraway and fairytale solutions.  They think themselves GODS but are imbeciles of hubris.  Mostly PROBLEMS must be solved by those directly confronted with them, think doctor/patient relationships.  Should that between patient and their doctors be handled by a RULE BOOK?  Obamacare, Medicaid and increasingly Medicare are RULE BOOK medicine. Their explanation for this behavior: you have no knowledge of the issues you are bring confronted with and they are doing this to save and protect you.  Of course, the public school monopolies work to insure general stupidity.   Government rulebooks now exist for almost EVERY activity in the PRIVATE SECTOR.  The rules they have for themselves (constitution, IRS, Immigration, NSA, etc.) are ROUTINELY IGNORED, with no penalty to themselves for their CRIMES against the rule of law or the public at large.     "The two enemies of the people are criminals and Government, so let us tie the second down with the chains of the constitution so the second will not become the legalized version of the first.” – Thomas Jefferson   Washington DC regularly ignores and works to undo the supreme laws of the land, and insists we comply with laws and regulations which are blatantly UNCONSTITUTIONAL.  Progressive socialists and their useful idiot supporters call the constitution a LIVING document subject to endless reinterpretation.  No! It is not.  Only weasel word lawyers and “would be” MONARCHS and RULERS think this. They are working to impose this on the something for nothing societies and useful idiots.  We are in a constant constitutional crisis. Our Constitution is being completely eviscerated on a daily basis by the powers that be in Washington DC (District of Corruption). How many people really understand that FEDERAL EMPLOYEES are not subject to being FIRED?  Do you think they can be held accountable for their actions if they can’t be fired?  Once again: NEVER REPORTED.  This is the destruction of private sector opportunities, common sense solutions, and the middle class.   None of this is new.  Wise men and women have written about it for centuries. It happens over and over again throughout HISTORY.  It is the decline, destruction and demise of EMPIRES!  They kill what made them great.   The last time TAXES and REGULATIONS were reduced was the presidency of Ronald Reagan.  He tore the chains of overregulation off the American economy and it BOOMED as you shall see later in this missive.  Take a look…     Ronald Reagan cut the regulatory chains on the private sector by ONE THIRD, and people reacted accordingly.  They went to work because it PAID to do so.  They innovated, started small businesses, hired people and the economy BOOMED after a DECADE of STAGFLATION.  Reagan was MORNING IN AMERICA as he cut the government regulations and confiscatory taxes that were binding us.  That ECONOMIC miracle can be REPEATED!   Just lift the chains of overregulation and taxation off the American people!  Chance of that NIL.  It is why Reagan’s memory and the truth of the economy at that time is VILIFIED, and misreported by progressive socialists.  He stood AGAINST everything they stand FOR.  The results are a testament to the different outcomes of the two approaches to societal wealth creation.  Freedom and reward for hard work versus government authoritarianism and confiscatory taxation of the fruits of your labor.   "I think we have more machinery of Government than is necessary, to many parasites living on the labor of the industrious." – Thomas Jefferson   “The more corrupt the state the more it legislates.” – Cicero   “We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.”  – Ayn Rand   "It doesn't require expropriation or confiscation of private property or business to impose socialism on a people. What does it mean whether you hold the deed or the title to your business or property if the government holds the power of life and death over that business or property? Such machinery already exists." – Ronald Reagan   Tocqueville also foresaw exactly how this regulatory state would suffocate the spirit of free enterprise:   "It rarely forces one to act, but it constantly opposes itself to one's acting; it does not destroy, it prevents things from being born; it does not tyrannize, it hinders, compromises, enervates, extinguishes, dazes, and finally reduces [the] nation to being nothing more than a herd of timid and industrious animals of which the government is the shepherd." – Alexis de Tocqueville   "Whenever men are allowed liberty, and freedom of choice, they will make mistakes. Liberty is not a guarantee of omniscience. But neither are the mistakes of free-men a valid excuse to take away their liberty, and impose Government controls in its stead, on the ground that all wisdom and disinterestedness resides in the people who are going to do the controlling."  – Henry Hazlitt   Bureaucracies have life cycles as all things do in nature and God’s world.  Here is an excellent illustration explaining them by Charles Hugh Smith of www.oftwominds.com. We are firmly on the bottom row depending on what state or country you reside in:     This is why the economy can’t recover as State and Federal bureaucracy has grown to a point of poisoning the economic system in the US and Europe.  It does not pay to start a business or hire a worker as the obstacles are just growing and growing.  Take a look at this chart from the Brookings institution showing more businesses closing than beginning. It is NO COINCIDENCE that this began in 2008 when the president took office:     This is a picture of the entrepreneurism and dynamism of the US economy GRINDING to a STOP as it no longer pays to take the risk of starting a business while expectations of the future of the economy under government policies are so NEGATIVE.  This is the face of a something for nothing society destroying and outlawing the incentives to produce. RUNAWAY REGULATIONS and mindless BUREAUCRACIES are now blocking the blood system of the economy, throwing EVER GROWING sand in the gears of the system.   The more it grows, the more it destroys the economy going forward.  That is actually its reason to exist – to take over more and more of your lives, confiscate your freedoms and opportunities and transfer it to themselves and their cronies.  This is one of the BASIC REASONS Europe and AMERICA CANNOT recover.  This REGULATORY STATE must be REFORMED before the economy will resume real growth. Do you really think the SOMETHING for NOTHING family is getting $14,758 dollars’ worth of safety from the federal government and its regulations? Or would that money be better served in their POCKETS? This COST goes UNREPORTED by the main stream media.  As the government legislates and regulates, COMPLIANCE officers will be entering our lives more and more to document and punish those that don’t COMPLY.  Compliance officers are now the largest job opportunity in America and Dodd Frank, the Affordable Care Act and other malevolent legislation from the president’s first term will just grow and grow.  It is an ever growing python squeezing the life out of America.   Backing out misstated inflation and illustrating the cost of runaway government and regulation, the REAL economy has been in SECULAR DECLINE since 1971.     The NUMBERS don’t LIE. Notice how Growth in REAL terms skyrocketed when REAGAN CUT TAXES and SLASHED REGULATION rolling back the Something for Nothing Society and WELFARE STATE?  The economic expansion ENDED as the same time his presidency did (Bush was a socialist progressive in disguise as a conservative just as his son was and is).  May Ronnie rest in peace, he was the greatest president of my lifetime in my opinion and you can see it in the numbers.  Most if not all GDP since 2000 is courtesy of MISREPORTED INFLATION to FOOL the USEFUL idiots and Something for nothing society. All GDP growth is nominal (measured in fake DEPRECIATING dollars and misreported inflation) not real wealth creation. Our standards of living and economies are IN FREEFALL; the Middle class is desperate for an improving economy and the ability to GET ahead.  THOSE DAYS ARE GONE courtesy of the money printers, banksters, public servants, bureaucrats and the elites which CONTROL THEM. Useful idiots will vote for any CHARLETON who promises an ability to get ahead as it SOUNDS GOOD. The same people the USEFUL idiots have PUT in CHARGE! Author’s Note: In my opinion the greatest manmade disaster and OPPORTUNITY in history is unfolding in every corner of the world. Are you diversified or operating with EYES WIDE SHUT? Are you prepared to turn it into opportunity by properly diversifying your portfolio? Adding absolute return investments which are designed with the potential to thrive (up and down markets) regardless of what unfolds economically or politically? This is what I do for investors; help them diversify into investments which are created to potentially thrive in the storm. For a personal consultation with me CLICK HERE! In closing, today we learned of the totalitarian state being cemented into place by Washington DC and Brussels (European Commission).  Statehouses and individual countries in the EU have done all this and more.  Putting two layers of economic and personal destruction upon their SUBJECTS.  They are not your servants, you are theirs.  The word “public servant” is an oxymoron and doublespeak.  One meaning for you, another for them.  It is corruption on plain display, but largely unseen until it smashes you in the face and diminishes your futures like the silent KILLER.  What I have just detailed has EXPLODED in size since the Global financial crisis.   As Rahm Emanual for chief of staff to the president once said:   "You never want to let a serious crisis go to waste."  – Rahm Emanuel   Well, they didn’t waste it on either side of the Atlantic.   Reform may be something the political class utters but makes no actions to do so.  The REQUIRED road to recovery has become much FARTHER AWAY.  Many MAIN STREAM leaders say this is urgent priority but their admonitions go unaddressed.   The socialists in charge today say this is to protect you as you are too stupid to protect yourself.  Of course, much of that is true as almost 40% of the public has now been dumbed down and mentally disabled by design in the public school monopolies they have IMPOSED upon us.  For those poor souls, the future is very bleak and, for those that can take care of themselves, slavery lies ahead as the people the useful idiots support and vote for legislate are the DUMBEST AMONG US.  The developed world is increasingly being brought on a sociopathic road.  It is the definition of useful idiots and something for nothing societies.  As they grow, so grows the insane behavior and outcomes throughout our lives.   Laws must be simple, easily understood and widely known to be complied with.  We all want the rule of law versus the rule of man.  The rule of man is known as dictatorship, while the rule of law is known as a constitutional republic, what was given to us by the founding fathers.  The insidious nature of the imposed legal and regulatory systems is a crime against all free men.  These systems are contrary to the constitution and magna carta, which enshrined the powers over government to the man on the street aka the public.  This is enslavement, freedoms and private property rolling back in plain sight to a public, which does not know or has not been taught history.   Laws and regulations are NEVER REPEALED or REFORMED, only left on the books to expand government power over the people and economy.  I can’t imagine a better way to poison our futures than not policing ourselves and throwing out what no longer works.  Government is not the solution to problems, it is the cause of them.  Useful idiots have been taught just the opposite and vote for it.  It is another example of how the suicide of the greatest nation ever on earth is unstoppable as their legions just grow and grow, manufactured by the school systems in which we have misplaced our trust and our children.   Don’t miss the explosive final edition of USEFUL IDIOTS and the Something for Nothing Society and its alarming conclusions.  You may have it delivered to your inbox as Subscriptions to this commentary are FREE – CLICK HERE.  The momentum to the fall of empire is unstoppable and the system which spawns it is in place.  Take the time to read the first 3 parts of the series as they are the foundations of the subsequent letter.  They are available to you – CLICK HERE!   May God Bless you all,  Ty DISCLAIMER AND TERMS OF USE: While TedBits strives to present accurate and useful information, we make no guarantee of accuracy or completeness. All information and opinion expressed herein is subject to change without notice. Opinions and recommendations contained herein should not be construed as investment advice. Under no circumstances does the information in this column represent a recommendation to buy or sell any securities or commodities. Do not assume that any recommendations, insights, charts, theories or philosophies will ensure profitable investment. The information contained herein is for personal use only. Any redistribution of this information is strictly prohibited. Gold and silver backed means that various commodity options strategies in gold and/or silver may be used. When buying options, you may lose all of the money paid for the option. When selling options, you may lose more than the funds received for selling the option. Strategies using combinations of positions, such as spreads or straddles, may be as risky as taking a simple long or short position. A high degree of leverage is used to buy or sell a sufficient quantity of options and/or underlying futures contracts equal to the value of the entire portfolio. The high degree of leverage can work against you as well as for you and lead to large losses as well as large gains. Absolute-return is not meant to imply that a positive return can or will be achieved. Absolute-return describes investment strategies which are designed to have the potential to succeed in rising, market-neutral and falling market conditions. Gold and silver backed and absolute return investments do not mean the investor will take actual physical possessions of any precious metal. Nor should any promise or guarantee be implied that such investments will perform better than any other investment in any possible future scenario described herein nor that such investments can or will preserve or protect in such possible future scenarios. TedBits may include information obtained from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made to ensure its accuracy or completeness. Many of the statements and views made are the opinions of the author. Opinions expressed are subject to change without notice. This report is not a request to engage in any transaction involving the purchase or sale of futures contracts or options on futures. There is a substantial risk of loss associated with trading futures, foreign exchange and options on futures. This letter is not intended as investment advice, and its use in any respect is entirely the responsibility of the user. Past performance in never a guarantee of future results.   You are currently signed up to The Ted Bits newsletters. To unsubscribe click here

via Zero Hedge http://ift.tt/YJzwGE tedbits

In a historic first, three days ago, South Africa’s Rand Merchant Bank, a division of FirstRand Bank Limited, announced it would issue the FirstRand Gold Bond, or a bond denominated in South African Krugerrand gold coins. In other words, for the first time “holding” gold will pay a dividend (or in this case, interest). Sound odd? Maybe because it is.

Here is the statement from the Johannesburg Stock Exchange:

The Gold Bond has a term of five years and the first issue amounts to R2 billion. It requires investors to buy Krugerrands, which they then lend to FirstRand when purchasing the bond. At its expiry the value of the bond is determined by the current gold price, the Dollar/Rand exchange rate and the interest earned. This interest is calculated in terms of ounces of gold as represented by Krugerrands. Investors may take physical delivery of the Krugerrands on maturity or opt to get settled in cash.

Or they may end up with nothing if the bank is “suddenly” found to be insolvent. The marketing pitch is clear: have your gold and collect interest on it:

“The notes provide direct exposure to the rand gold price and a positive yield in the form of interest ounces payable on maturity. It offers both inflation and rand/dollar exchange rate protection while avoiding the significant storage and administration costs associated with other direct gold investment options available. Current market conditions are particularly attractive for gold investment because of rand/dollar weakness and expectations of higher inflation,” says RMB Debt Capital Markets co-head Dale Wood.

 

Investors may not hold gold in unwrought form according to South African law; however they still need to pay for the administrative costs associated with holding and storing gold when they invest in products which track the price of gold. These costs are eliminated by the Gold Bond because investors earn a yield on the bond instead of paying fees. Investors can also opt to take physical delivery of the underlying gold because it is in the form of Krugerrands which are legal tender in South Africa. “Investors also benefit as they are able to buy and sell the Gold Bonds on the JSE, with RMB acting as a market facilitator to ensure liquidity and price transparency of the notes,” says Wood.

In an attempt to get as many possible investors, the issuer has made the smallest bond denomination anyone can participate in this once in a lifetime opportunity to collect 0.5% per year for their gold: “Investors can also get a Gold Bond note with a single Kruger rand, which means that retail investors can use it to gain exposure to the gold price. Investors who already own Krugerrands can use the Gold Bond to achieve the same exposure to the gold price they would have enjoyed when physically holding Krugerrand coins, while also earning interest on the bond.”

So is this truly a can’t miss opportunity for institutions and, better yet, retail investors?

It all depends on one’s quantification of counterparty risk: if the owner of gold believes that it makes sense to have someone else hold the gold in exchange for a meager sliver of interest, then by all means yes. The problem is that increasingly gold owners realize that possession is critical when it comes to the shiny metal in a world in which paper claims on gold are rehypothecated countless times. Which is surely the main attraction of the physical metal for all those who increasingly believe that the financial system is the precipice of completely collapse. Perhaps FirstRand Bank underestimated this part of the sales pitch.

However, one entity for which the deal makes perfect sense is none other than FirstRand Bank, because all the bank is doing is paying someone a nominal fee in order to be a gold holder. What it does with that gold subsequently is anyone’s guess, and good luck trying to demand receipt of physical if something should happen to the bank.

But perhaps the biggest question is why now? This BBC report from two days ago should answer the question:

Shares in South Africa’s largest banks fell on Wednesday, following downgrades from the ratings agency Moody’s.

Standard Bank, FNB, Nedbank and ABSA, which is owned by Barclays, were all downgraded on Tuesday and Moody’s warned of more possible ratings cuts.

 

The move comes a week after South Africa’s central bank bailed out the smaller lender African Bank. Last week the South African Reserve Bank (SARB) announced a rescue plan for African Bank, a smaller lender that specialised in unsecured loans. The SARB bought up around $700m of bad loans from African Bank, but some investors still lost out.

 

On Monday, another lender, Capitec, saw its shares plunge after seeing its rating downgraded.

And some more from BusinessReport:

South Africa’s decision to rescue a small lender seen as neither “too big” nor “too interconnected” to fail shows that taxpayers worldwide may have to accept that bank bailouts are here to stay.

 

When South Africa’s central bank recently announced a $700 million (520 million euro) rescue of faltering African Bank Investments Limited, it scarcely made a splash outside the country. The bottom line, at least for the rest of the world, was that African Bank is not very big and not very important.

 

The bank’s managers made far too many bad loans to too many South Africans who could not afford to pay them back.

Because it had not asked borrowers to put up their car or any other asset as collateral, it was left with a massive hole in its balance sheet when they failed to pay.

 

African Bank is not one of South Africa’s “big-four” – Standard Bank, FNB, Nedbank or ABSA (Barclays Africa) – which are deeply enmeshed in the global financial system.

In other words, South Africa is just the latest country to undergo a banking sector crisis. But don’t worry: “The South African Reserve Bank insisted the country’s banking sector remained “healthy and robust.”

So what does one of these “healhty and robust”, but not systematic, banks do? It has a modest proposal: please give us your gold, for which generous offer we will pay you a whopping 0.5% per year.

Good luck.

P.S. why not just borrow the gold from the BIS, or are they also out?

via Zero Hedge http://ift.tt/1wi0RPj Tyler Durden

Bloomberg reports: Apple Soars to Record Amid Optimism About Coming ProductsApple Soars to Record Amid Optimism About Coming Products

Apple Inc.’s stock soared to an all-time high, surpassing a 2012 record as investors look ahead to new products such as bigger-screen iPhones and a wristwatch-like device that may jump-start revenue growth.

Apple rose 1.4 percent to $100.53 yesterday, topping the split-adjusted record of $100.30 reached on Sept. 19, 2012, just before the iPhone 5 went on sale. The shares, which have advanced 25 percent this year, extended their gains today before the markets opened, trading as high as $100.98.

After rising more than sevenfold following the 2007 debut of its smartphone, Apple’s stock lost a third of its value in the year after the iPhone 5’s release on concerns that the company was running out of hit product ideas without co-founder Steve Jobs. The tenor has changed, with analysts estimating record sales for the next batch of iPhones, set to be released later this year.

Those that follow me know that I’ve always been a contrarian on Apple. I’ve actually been quite accurate on the company’s stock valuation over the last 4 years, calling the top within a week of its dramatic downward turn (reference Deconstructing The Most Accurate Apple Analysis Ever).

I personally do not see Apple’s pipeline as comparable to its major competitors. Apple’s anticipated larger screen phones are playing catch-up with the Android competition from three years ago, and their stock buybacks, Beats purchase and apparent dearth in innovative products (iWatch, 4.5 inch screens do not make the cut) pale in comparison to the pipelines from Google (Glass, self-driving cars, Project Ara $50 Modular Smartphone, etc.) and Samsung (flexible phones, foldable screens, quarterly hardware updates, etc.).

This is what a bear (contrarian) trade on Apple looks like in UltraCoin…

To illustrate the flexibility of the UltraCoin trading system, I’ve presented a scenario where you can actually swap Apple returns for Google returns in lieu of simply going long Apple or short Apple.

You can also swap Apple returns for USD, EUR, GBP, or RMB – which is essentially shorting it in various currencies. If you are bullish on Apple, simple click the “switch” button, which will reverse the exposures.

This is probably the best interview on the topic of Bitcoin smart contracts and investments that I know of. Go to the 4:00 minute mark to begin.

Download the UltraCoin client here. Anyone who wants to try the system out with small trades of .01BTC can simple create them and email me to take the other side of the trade (I’ll take the opposite side of any trade).

These are my latest Tweets on the topic.

#AAPL now facing same problems competitors faced in 2009/10. Component sourcing market is crowded & Samsung/LG/HTC/Sony have it cornered

— ReggieMiddleton (@ReggieMiddleton) August 22, 2014

Re: big screen phones, AAPL will be hard pressed 2 do as well as guys that make screens Samsung/Sony/LG/Sharp & will hav 2 fight 4 resources

— ReggieMiddleton (@ReggieMiddleton) August 22, 2014

Anybody who disagrees with my previous assertion is free to explain APPL’s current shortage during its arguably most important release ever!

— ReggieMiddleton (@ReggieMiddleton) August 22, 2014

All long term #APPL bulls, meet me & those who truly delve into realm of fundamental analysis for a “short fest” at http://t.co/GtXP2ZDMRF

— ReggieMiddleton (@ReggieMiddleton) August 22, 2014

via Zero Hedge http://ift.tt/1v684jK Reggie Middleton

via Zero Hedge http://ift.tt/1qxrabI williambanzai7