Tag: finance

“The Liberation Of Southeast Ukraine Has Begun” – Crimean Vice Premier

On the day in which “pro-Russian separatists” are again claiming one after another city in east Ukraine, and when Russia has formally warned that any crackdown on protesters is “unacceptable” implicitly threatening retaliation should the promised use of special forces be implemented, moments ago Rustan Temirgaliev, Deputy Chairman of the Council of Miniisters of recently annexed by Russia Crimea, poured some more fuel into the fire and announced on his Facebook page that “the liberation of Southeast Ukraine has begun.”

His full statement:

 

With things rapidly escalating out of control once more, Ukraine acting president has finally decided to, well, act:

  • TURCHYNOV CALLS UKRAINE SECURITY COUNCIL MTG ON EAST CRISIS

Sadly for Kiev, as the even the Euromadian movement admits, following the seizure of regional police derpartments, Kiev no longer has a way in.

We expect NATO to promptly join in the chorus, as well as the US and Europe threatening with more severe and “costly” sanctions, even as Russia is set to expand its territory for the second time in under a month. All that is needed now is a spark, such as this one:




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While You Are Sleeping, the Revolution is in Fact Being Televised

Just in case you are missing what’s going on in the rugged southern desert lands in Clark County, republic of Nevada…I’m not saying the next American revolution is unfolding before our eyes there, but what I did see for the first time in memory was the people drawing a line in the sand standing up against armed lunatics from the Federal corporatocracy, and not only holding their ground against the corporate goons but forcing their retreat.

This is almost unprecedented in this day and age.  With all the rights that the imperious servant class in D.C. deigns to strip from their masters, and their cronies they’ve dispersed throughout the country to enforce their petty tyrancies, and after watching for too long now a painful progression of police abuse videos that have become all too common on the youtubes (some of them even technically being “snuff” films), to see the people actually redeeming themselves using the power and authority granted to them by the creator brought a tear to Chumba’s eye.

 

This sordid episode naturally conjures up memories of Waco and Ruby Ridge (I implore my younger brothers and sisters to stop right here, follow those two previous links, and give those two horror stories at least a cursory reading, because history does not repeat, it rhymes, and how it does depends on who and what we are here and now, and to know who you are now you must know how you got here).  Those stories, while very different, end the same: a bunch of fanatical thugs acting under color of law kill pregnant women, children, and other innocents; the murderers, sanctioned killers of the corporate cleptocracy, go unpunished (after all, they were just doing their job); the policymakers and their faithful sycophants cover it up with televised hearings that are merely pomp & circumstance preceding the preordained conclusion, already written, sealed, and ready for release upon the conclusion of the introductory theatrics.

But this time…I don’t know.  Did you see what happened in that video?  Ammon Bundy, son of rancher Cliven Bundy, kicked away their attack dogs and ripped the wires of a taser out of his chest not once, not twice, but thrice, and kept coming back to confront the agents at his line in the sand, the soil that is his birthright, the soil where he was born and raised, and not the soil of the foreign thugs that contemptuously defiled it and came as usurpers and aggressors.  Call these simple folk what you will, but that’s good country upbringing.  In that moment, if you were paying attention, that man taught the rest of us the true meaning of courage.  This is how it goes down, people.  Through time immemorial, it is the man or woman who did not relent, who kept coming back and tauntingly asking the aggressors, “THANK YOU, SIR, MAY I HAVE ANOTHER” that marked the turning point from tyranny to liberty.

Assuming this continues, and the degenerates from D.C. and their private thugs escalate their siege on the Bundy homestead to (as they will likely put it) “send a message of law and order”, militia members (Americans) from across the country will be converging on that spot of god’s creation to defend Clive Bundy and his family and property and rights.  They (Americans) will of course be demonized.  Already, one of the commissioners of Clark County has allegedly told the arriving militiamen (Americans) they “better have funeral plans“.  Please do not be informed by the scorn and ridicule that will be heaped upon these American men (and women) by the corporate media.  Just know this: if it was you being besieged, they would come to your aid, too.  Because they know, we either hang together, or separately.

If you take the time to get deeper into this story, as with everything today, you start to find out it has little to do with cattle and grazing and tortoises and everything to do with filthy lucre.  Because it’s always about filthy lucre.  That’s all these psychopaths know.  It seems it has a lot to do with fracking leases that are raking in $$$ for the BLM, and–surprise bitches!–the honorable Senator Harry Reid and other of his fellow psychopaths is elbow deep in this shitpile.

I am not saying, “this is it”, because It is what has been
happening for a long time now.  But what we see in the video above is the kind of episode that is
going to increasingly happen across the nation, first in disparate pockets, and then seemingly everywhere, until we as a people finally arrive at the crossroads, where decisions have to be made.  How will you decide?  Of course, you can’t know until you’ve been presented with the proposition, but just know that you will have to make a call, or one will be made for you.  You will bear that cross.  I’ve spent 8 nights in jail across 3 separate incidents within 3 years, all for a bunch of petty bullshit.  I could have just given the cop my name,
or my I.D., and let them take my car and avoided the whole mess, but like my brother Ammon, I drew my line: I established my sovereign boundaries and I am going to defend them.

Everyone is going to bear their cross in this lifetime, and I believe
it’s better to choose the cross you’re going to bear.  When the
time comes (and it shall), and it’s your turn to bear your cross, don’t worry about being inconvenienced, and don’t be afraid.  The story always ends well if you have the right perspective.

Please keep your eyes on this story.  And please pray for Cliven and his family and neighbors, and for the thugs that are besieging them.

I am Chumbawamba.




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Higher Taxes Don’t Make Capitalism “Work Better”

Submitted by James E Miller of Mises Canada,

“Would Capitalism Work Better With Higher Taxes?”

That’s the title of a new Globe and Mail editorial written by Doug Saunders. The question is innocent enough. The article treads lightly on the topic without ideological moralizing. The dilemma of how to make capitalism “work better” is a common trope in mainstream rags. Saunders wants to come off as a moderate thinker who’s just trying to do what’s best for everyone. I suspect there’s something more sinister behind his motives.=

Anyone who understands the basics of capitalism knows taxation acts as a hindrance. There is no question about this. Capitalism is the free trading of goods and services; taxation is the violent extortion of the gains of voluntary trade. Anything that gets in the way of the capitalist process necessarily hinders it.

In no possible way will higher taxes make capitalism “work better.” Those who claim otherwise are either one of two things: ignorant of what capitalism is, or insidiously plotting its demise. I suspect Mr. Saunders knows what he is doing. In his piece, he gives slight deference to the orthodox view that higher taxes create a disincentive to produce. He even cites the fact that the James Bond flick Moonraker was shot all over the globe, except for the place where the Ian Fleming story takes place: England. The producers did everything they could to avoid paying Britain’s top income-tax rate of 83%. Hardly anyone could blame them for taking such measures. Even the Beatles and the Rolling Stones departed their home country for places with a softer tax burden.

Saunders understands this but it affects him not. He is convinced data disproves the idea that people want to keep more of their own income. Like any good news columnist, he has an academic to back him up. Thomas Piketty, a French economist, has focused much of his latest work on diving into the historic trends of income inequality. He discovered that wide income inequality acts as a large deterrent to raising living standards. Saunders, being the susceptible stooge waiting for an excuse to flex his statism, now has a scholar to throw in everyone’s face. Of Piketty’s theory, he writes,

“normal market economies, if left to themselves, will always enter a dangerous spiral in which previously existing wealth will grow in value much faster than either wages or sales.”

For Piketty, in unfettered markets, the rate of return on capital putatively outraces worker income. This is bad because it necessarily puts the rich capital owners in a privileged position when compared to the lower classes. The buildup of “dead wealth” is acting as an anchor on economic growth since too much capital remains underutilized. Therefore, Piketty proposes a number of methods to jolt life back into the capitalist class by forcing them to put their assets to work. Saunders is all for this approach and says it’s “bound to become mainstream policy sooner or later.” The only problem is, this approach to economic micromanagement has been in use since the days of Keynes. There’s nothing novel about using government authority to rid the rich of their wealth.

The underlying basis for the Piketty view is the positively Keynesian idea that idle resources are somehow bad; that if machinery, factories, plant equipment, and other forms of capital are going unused, then people are losing the opportunity to work. Economist William H. Hutt destroyed this entire notion in his The Theory of Idle Resources, where he pointed out that unused capital is never really worthless. There is always the possibility for future use. As he wrote,

“[R]esources may, however, be held up for some more wanted employment in such a way that they are not actually idle. The process of investment in them, or of continuous receipt of ‘availability’ services is still present.”

The idea that sitting capital is somehow a benefit to the wealthy is asinine. Sitting, functionless capital doesn’t get a return. It must be put to work. If it appears to be out of use, there is a good reason for it. Either the owner sees no profit opportunities presently or has bigger plans waiting to be implemented.

Economic central planners tend to think they know how to best use other people’s property. Their goal is accounted for in aggregate terms rather than individual preference. They see resources as things that exist to employ others. The very concept of personal ownership screws up their plans; so they attack it in the name of curing unemployment.

In Piketty’s work, he does his best to come off as friendly towards markets and claims to be apprehensive about increasing the size of government. But even so, his worry over capital’s dominance is tainted with Marxist thinking. His solution to the wealthy becoming too powerful is, according to Saunders, “targeting inheritance and extremely high salaries with deterrent taxes.” He even claims that inheritance – that is passing down the fruits of your labor to your children – actually “contradicts the basic principles of capitalism.”

If handing down your own property to your loved ones contradicts capitalism, then so does profit-making in general. People don’t invest, produce, work, and risk their wealth to make sure the trains run on time for everyone. They do so for their own benefit. The same goes for inheritance; which by its nature is a long-view approach to accumulating wealth.

Holding capital does not exact significant harm on the lower rungs of society. On the contrary, it provides the very basis of elongated production methods that produce intricate goods. Without the capitalist, there are no funds to pay workers. The capitalist, as economist Richard Ebeling writes, “saves, forgoing consumption or other uses of his wealth, and those savings are the source of the workers’ wages during the production process.” Punishing someone who saves capital for a later date is a good way to guarantee the stagnation of rising living standards. It’s hard enough for producers and investors to foresee consumer wants; academics and pundits are necessarily in a worst position to decide.

So do higher taxes make capitalism better? The answer is unequivocally “no.” But that won’t stop statist apparatchiks like Doug Saunders from cherry-picking data and sources to make the case for higher taxes. There can be a number of reasons for low economic growth. Low taxation and capital-hoarding businessmen are never one of them.




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Russia Tells Ukraine It Won’t “Accept” Force Against Demonstrators

Ukraine may have drawn its own red line overnight by saying it will send “special forces” into the latest east Ukraine city captured by “pro-Russia separatists” as we just reported, but Russia wasted no time in explaining how it would deal with it. Bloomberg cites Russian foreign minister Lavrov who stated that, “Russia Won’t Accept Ukraine Force Versus Demonstrators.”

Threats to use force against pro- Russian activists in southeast Ukraine are “unacceptable,” Foreign Minister Sergei Lavrov says in phone call today with Ukrainian counterpart Andriy Deshchytsia, Russian Foreign Ministry says in e-mailed statement. Lavrov added that he sees “no grounds” to accuse Russia of sending agents to destabilize situation in Ukraine.

Ball is in Kiev’s court.




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Ukraine Sends Special Forces To “Deal” With Separatists Who Take Over Another East Ukraine City

While the primary story regarding the Ukraine remains the stand off between Russia and Ukraine over nat Gazprom’s gas deliveries and Kiev’s overdue, and as of today – officially halted payments – not a weekend passes without some city in eastern Ukraine falling to what are now called “pro-Russian separatists” and this Saturday is no different. While last week it was the eastern cities of Luhansk, Donestk and Kharkiv that saw their government building taken over and occupied by the “separatists”, today it was the turn of Slaviansk, where masked men armed with pistols and rifles stood guard near the police station as hundreds of locals gathered around, some building barricades with car tyres.

According to Reuters, the masked men were wearing orange and black ribbons, a symbol of the Soviet victory in World War II that has been adopted by pro-Russian separatists in Ukraine.

Slaviansk is in the Donetsk region about 150 km (90 miles) from the Russia-Ukraine border. Pro-Russian groups have also occupied public buildings in the cities of Donetsk and Luhansk, and are demanding autonomy from Kiev.

As is well known by now, officials in Kiev’s Western-leaning interim government say Russian forces may be preparing to cross the frontier into Ukraine on the pretext of protecting the pro-Russian activists from persecution, though Moscow denies this. And since the narrative is quite clear, and since Kiev itself has been the most desperate to escalate the conflict with Russia into outright war in hopes of getting NATO backing, it is never quite clear just who is behind any provocation.

And as if to formally accelerate the fallout Ukrainian Interior Minister Arsen Avakov said police would deal very firmly with the group in Slaviansk. “There is a difference between protesters and terrorists,” he wrote on his Facebook page.

Bloomberg added that Ukraine has sent special forces troops to deal with camouflaged gunmen occupying police station in Slovyansk in Donetsk region of east Ukraine, also citing Avakov’s Facebook account. He added that the ministry response “will be very tough” with “zero tolerance for armed terrorists.”

Earlier on Saturday in the nearby city of Donetsk, a group of young people armed with wooden bats briefly took over a floor of the general prosecutor’s office. They later left after talks, Donetsk police said in a statement.

Ukrainian Foreign Minister Andrii Deshchytsia said Kiev was ready to listen to the demands of protesters in eastern Ukraine, but if negotiations fail, the police were ready to act. “We do consider that these actions are inspired and prepared in Russia and encouraged by some of the Russia agents in Ukraine,” he told BBC radio.

Of course, it is indeed true that Russia is merely waiting for the opportunity to respond to “special forces” retaliation and escalate a la Crimea to protect the ethnic Russians living there.

Here is RT’s take on events:

Anti-Kiev demonstrators have taken control of police office in the town of Slavyansk, Eastern Ukraine. The town’s mayor, however, believes police have taken the side of the protesters, and are going to back their calls for a secession referendum. Kiev has promised a heavy-handed response and sent special forces there, but they are being blocked by demonstrators in the regional centre, Donetsk.

Clips from the scene:

Slaviansk is not the only city where separatists are revolting against the Kiev regime today: Donetsk is once again in the spotlight.

 

And in other news, Ukraine officially announced it was suspending payments to Russia for deliveries of gas. As has been extensively reported here, a large proportion of the natural gas which EU states buy from Russia is pumped via Ukrainian territory, so if Russia makes good on a threat to cut off Ukraine for non-payment of its bills, customers further west will have supplies disrupted.

Andriy Kobolev, chief executive of Ukraine’s state-run energy company Naftogaz, said the increased price Russia was demanding for its gas was unjustified and unacceptable.

“Accordingly, we have suspended payments for the period of the price negotiations,” Kobolev was quoted as saying in an interview with Ukraine’s Zerkalo Nedely newspaper.

So congratulations America and Europe: you are now officially on the hook to pay for Gazprom’s invoices. And to think it all started as a noble mission to “preserve democracy”… in a country that sent its president in exile through a violent coup.




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Dollar Breakout or Range-bound?

The US dollar had a difficult week. It lost ground against all the major currencies. Falling interest rates, sparked by the FOMC minutes that reassured investors that an early US rate hike is highly unlikely and a drop in the equity markets that wiped out the first quarter gains, appears to have been the main culprit.  

 

Recall that the dollar-bloc had led the move against the dollar last month, but since the new quarter began the euro and yen have participated. Last week, the yen and Swiss franc were the strongest of the majors, while the dollar-bloc seemed to tire.

 

Given the technical damage inflicted on the dollar and the decline in US interest rates, it is tempting to look for the greenback’s losses to accelerate. Yet ,we are more inclined to think that rather than breaking out, the dollar simply moved to the lower end of its ranges.  

 

This means that the greenback may do a bit better in the days ahead as participants will likely be denied fresh incentives. The pullback in US interest rates has likely run its course, US data, including retail sales and industrial production, will point to a recovery from the sluggish start of the year, and important chart levels have been approached. 

 

Dollar Index: From the high on April 4 through the low set on April 10, the Dollar Index fell about 1.6%. Last week, it posted its largest decline since late Q3 13. However, it the bears stalled in front of last month’s lows, just below 79.30, which also corresponds to the bottom of the Bollinger Band. A move now above 78.80 would help stabilize the tone.

 

Euro: After the ECB meeting and the US employment report in the first week in April, the euro had probed the bottom of its Bollinger Band and finished last week near the upper band ($1.3935). Given the psychological importance of the $1.40 area, and what will be a long holiday weekend for many, we suspect the short-term participants will shy away from pushing the euro much higher in the days ahead. Support is likely to be found in the $1.3780-$1.3800 initially.

 

Yen: The dollar also fell to the lower end of its range against the yen near JPY101.30. We suspect a break would require US 10-year rates to fall through the 1.60%. The stronger economic data we expect should prevent this. An upside correction for the dollar would likely encounter initial resistance near JPY102, which corresponds to the 5-day moving average. The dollar has not closed above it since April 3.

 

Sterling: The push above $1.68 on April 10 appears to have exhausted the short-term sterling bulls. Sterling stalled just in front of the multi-year high set in mid-February near $1.6825. The gains had lifted sterling above the upper Bollinger Band. On April 9, sterling closed above the upper band for the third time this year and after each of the other times sterling came off at least two cents. Downside potential extends toward $1.6600-40. Sterling also looks heavy against the euro. The euro’s move toward GBP0.8230 appears to have completed the drop from GBP0.8400 in late March.

 

Canadian dollar: From the FOMC meeting on March 19 through the middle of last week, the US dollar lost about 3.8% against the Canadian dollar. The move to CAD1.0860 appears to have completed the greenback’s decline. The RSI has already turned up, and the MACDs are about to cross. The initial retracement target is CAD1.1020 and then CAD1.1070, which roughly corresponds to the 20-day moving average.

 

Australian dollar: The head and shoulders bottom we have discussed, projects to about $0.9500.  The Australian dollar reached $0.9460 on April 10, before giving up a cent on profit-taking ahead of the weekend.  That pullback met a minimum retracement objective of the bounce from the test on $0.9200 on April 3.  Provided this area holds,  the bulls may be emboldened.  

 

Mexican peso:   The dollar is likely to recover against the peso.  The RSI is neutral but the MACDs are about to cross.  The dollar traded below the MXN13.00 level in five of the past six sessions and managed to finish only once below there, which seems to have been a clue of the waning downside momentum.  The initial retracement target near MXN13.1330 was approached before the weekend.  The MXN13.1750-MXN13.20 area represents a more important resistance area. 

 

Observations from the speculative positioning in the CME currency futures:

 

1.  The net speculative Australian dollar futures position swung to the long side (3k contracts from -5k) for the first time since last May.  As recently as early February, speculators had a gross short position of 80k contracts.  It has been more than halved to a little more than 34k contracts.  The gross long position bottomed a month ago around 9k contracts.  It is now almost 38k contracts.

 

2.  There were four gross position changes that are significant (more than 10k contracts).  The gross short yen positions was shaved by 10k contracts to 101k.  The net position did not change much as 9k longs also moved to the sidelines.  The gross long sterling position jumped almost 16k to 92k contracts.  This is a new 7-year high.  The Mexican peso accounted for the other two significant gross position adjusted.  Gross longs surged 21k contracts to 70.k.  Shorts were halved to about 14k contracts.

 

3.   It is interesting to think about the positioning a year ago.  Then the net speculative position was short the European currency futures.  Now it is long.  It has been about a 74k contract swing to create the net long 23k contracts has now.  For sterling it was more than 116k contract swing to produce the net long 47k it has now.  The net speculative yen position at -88k contracts is about 10k more shorts than it was a year ago. Speculators are net short half as many Canadian dollar futures as the 71k contracts that they had a year ago. At 3.3k contracts, the net long Australian dollar position is a sliver of last year’s 78k contracts. Even though the net long peso position of 57k contracts is the largest among the currency futures, is a little more than third of the size of it year ago position (143k contracts).

 

4.  The gross long euro position fell by 10% to 92.6k contracts, which is the largest gross long position among the currency futures.  It just edged out sterling with its 91.6k contracts.  The yen’s gross short position of 101k contracts is easily the largest.  Next is the gross short euro position of 69k contracts.




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Meltdown America: The Movie

Listening to the Canary, submitted by Casey Research

By Terry Coxon, Senior Economist

During World War II, the British Royal Air Force (RAF) undertook a plan of misdirection to allow a squadron of bombers to approach an exceptionally valuable target in Europe undetected. The target was so heavily guarded that destroying it would require more than the usual degree of surprise.

Although the RAF was equipped to jam the electronic detection of aircraft along the route to the target (a primitive forebear of radar was then in use), they feared that the jamming itself would alert the defending forces. Their solution was to “train” the defending German personnel to believe something that wasn’t true. The RAF had a great advantage in undertaking the training: The intended trainees were operating equipment that was novel and far from reliable; and those operators were trying to interpret signals without the help of direct observation, such as actually seeing what they were charged with detecting.

At sunrise on the first day, the RAF broadcast a jamming signal for just a fraction of minute. On the second day, it broadcast a jamming signal for a bit longer than a minute, also around sunrise. On each successive day, it sent the signal for a somewhat longer and longer time, but always starting just before sunrise.

The training continued for nearly three months, and the German radar personnel interpreted the signals their equipment gave them in just the way the British intended. They concluded that their equipment operates poorly in the atmospheric conditions present at sunrise and that the problem grows as the season progresses. That mistaken inference allowed an RAF squadron to fly unnoticed far enough into Europe to destroy the target.

People will get used to almost anything if it goes on for long enough. And the getting-used-to-it process doesn’t take long at all if it’s something that people don’t understand well and that they can’t experience directly. They hear about Quantitative Easing and money printing and government deficits, but they never see those things happening in plain view, unlike a car wreck or burnt toast, and they never feel it happening to themselves.

QE has become just a story, and it’s been going on for so long that it has no scare value left. That’s why so few investors notice that the present situation of the US economy and world investment markets is beyond unusual. The situation is weird, and dangerously so. But we’ve all gotten used to it.

Here are the four main points of weirdness:

  1. The Federal Reserve is still fleeing the ghost of the dot-com bubble. It was so worried that the collapse of the dot-com bubble (beginning in March 2000) would damage the economy that it stepped hard on the monetary accelerator. The growth rate of the M1 money supply jumped from near 0% to near 10%. This had the hoped-for result of making the recession that began the following year brief and mild.
  1. A nice result, if that had been all. But there was more. Injecting a big dose of money to inoculate the economy against recession set off a bubble in the housing market. Starting in 2003, the Fed began gradually lowering the growth rate of the money supply to cool the rise in housing prices. That, too, produced the intended result; in 2006, housing prices began drifting lower.

    But again, there was a further consequence—the financial collapse that began in 2008. This time, the Federal Reserve stomped on the monetary accelerator with both feet, and the growth of the money supply hit a year-over-year rate of 21%. It’s still growing rapidly, at an annual rate of 9%.

  1. The nonstop expansion of the money supply since 2008 has kept money market interest close to zero. Rates on longer-term debt aren’t zero but are extraordinarily low. The ten-year Treasury bond currently yields just 2.7%; that’s up from a low of 1.7%.

    The flow of new money has been irrigating all financial markets. In the US, stocks and bonds tremble at each hint the Fed is going to turn the faucet down just a little. And it’s not just US markets that are affected. When credit in the US is ultra-cheap, billions are borrowed here and invested elsewhere, all around the world, which pushes up investment prices almost everywhere.

  1. US federal debt management is living on borrowed time. The deficit for 2013 was only $600 billion, down from trillion-dollar-plus levels of recent years. But this less-terrible-than-before figure was achieved only by the grace of extraordinarily low interest rates, which limit the cost of servicing existing government debt. Should interest rates rise, less-than-terrible will seem like happy times.

Almost no one imagines that the current situation can continue indefinitely. But is there a way for it to end nicely? For most investors, the expectation (or perhaps just the hope) that things can gracefully return to normal rests on confidence that the people in charge, especially the Federal Reserve governors, are really, really smart and know what they’re doing. The best minds are on the job.

If the best minds were in charge of designing a bridge, I would expect the bridge to hold up well even in a storm. If the best minds were in charge of designing an airplane, I would expect it to fly reliably. But if the best minds were in charge of something no one really knows how to do, I would be ready for a failure, albeit a failure with superb academic credentials.

Despite all the mathematics that has been spray-painted on it, economics isn’t a modern science. It’s a primitive science still weighted with cherished beliefs and unproven dogma. It’s in about the same stage of development today that medicine was in the 17th century, when the best minds of science were arguing whether the blood circulates through the body or just sits in the veins. Today economists argue whether newly created cash will circulate through the economy or just sit in the hands of the recipients.

Let’s look at the puzzle the best minds now face.

If the Federal Reserve were simply to continue on with the money printing that began in 2008, the economy would continue its slow recovery, with unemployment drifting lower and lower. Then the accumulated increase in the money supply would start pushing up the rate of price inflation, and it would push hard. Only a sharp and prolonged slowdown in monetary growth would rein in price inflation. But that would be reflected in much higher interest rates, which would push the federal deficit back above the trillion-dollar mark and also push the economy back into recession.

So the Fed is trying something else. They’ve begun the so-called taper, which is a slowing of the growth of the money supply. Their hope is that if they go about it with sufficient precision and delicacy, they can head off catastrophic price inflation without undoing the recovery. What is their chance of success?

My unhappy answer is “very low.” The reason is that they aren’t dealing with a linear system. It’s not like trying to squeeze just the right amount of lemon juice into your iced tea. With that task, even if you don’t get a perfect result, being a drop or two off the ideal won’t produce a bad result. Tinkering with the money supply, on the other hand, is more like disarming a bomb—and going about it according to the current theory as to whether it’s the blue wire or the red wire that needs to be cut means a small failure isn’t possible.

Adjusting the growth of the money supply sets off multiple reactions, some of which can come back to bite. Suppose, for example, that the taper proceeds with such a light touch that the US economy doesn’t tank. But that won’t be the end of the story. Stock and bond markets in most countries have been living on the Fed’s money printing. The touch that’s light enough for the US markets might pull the props out from under foreign markets—which would have consequences for foreign economies that would feed back into the US through investment losses by US investors, loan defaults against US lenders, and damage to US export markets. With that feedback, even the light touch could turn out not to have been light enough.

To see what the consequences of economic mismanagement can be, and how stealthily disaster can creep up on you, watch the 30-minute documentary, Meltdown America. Witness the harrowing tales of three ordinary people who lived through a crisis, and how their experiences warn of the turmoil that could soon reach the US. Click here to watch it now.




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Peak “Hope”

The gap between current Q1 reality and forward-looking, hope-stuffed, unicorn-tear-fueled expectations for US economic growth has reached a new peak of Keynesian ‘faith’. This week saw “economists” downgrade Q1 GDP expectations once again to a mere 1.6% growth (from 2.6% in January) – meaning that cold weather is responsible for a 46% collapse in US economic growth expectation. As the chart below ‘hints’ at, it appears we have reached “peak hope.”

 

 

h/t @Not_Jim_Cramer




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Shipbuilding Orders Evaporate As Baltic Dry Collapses

The silence is deafening still about the ongoing collapse in the Baltic Dry Index among mainstream media types (as it just might challenge the hope/hype that growth is coming back). At the dismal level of 1002, BDIY is at 8-month lows and has fallen 14 days in a row… but now it is having a real world impact. As Sea News reports, Korean shipping companies are failing to place orders for large vessels and anxiety over the future is forcing some local companies to dispose of their assets despite the relatively low shipbuilding costs as of late.

 

The Baltic Dry is down 14 days in a row at $1002 – its lowest in 8 months (and worst start to a year on record)

 

And As Sea News reports,

Korean shipping companies are failing to place orders for large vessels. Under the circumstances, the domestic shipping industry is expected to get more and more enervated, because major shipbuilding contracts are an effective means for tiding over a slump in the sector. Some of the local companies are even disposing of their assets despite the relatively low shipbuilding costs as of late.

It seems Korea is particularly hard hit since its government won’t subsidize the losing proposition like Denmark and China is willing to…

Industry insiders attribute the current situation to the local shipping finance system. An increasing number of governments, such as the Danish and Chinese governments, have provided large-scale funds for the industry in the form of direct loan and payment guarantees since the outbreak of the recent global financial crisis. CMA-CGM, for instance, returned as the world’s third-largest shipping company thanks to US$150 million from the French government.

 

In contrast, the Korean government is providing little shipping finance support. “The establishment of the Shipping Finance Corporation has been foundered and the foundation of the Shipping Guarantee Fund, one of its alternatives, is showing little progress for now,” said Senior Analyst Song Min-joon at the Korea Investors Service.

 

“Our competitors are likely to be steps ahead from late this year, when the vessels will begin to be delivered one after another,” the Korea Shipowners Associations added, continuing, “Then, Korea’s shipping industry will be facing even greater difficulties, unless there are some measures to turn the tables.”

We are sure the fact that the industry has been overbuilt – based on Keynesian-policy-inspired mal-investment and mispriced signals from global markets – will be used as the excuse for the collapsing price of shiiping dry bulk… but that argument s entirely circular and fallacious as it merely reinfoces the unintended consequences of the oh so visible hand in the world’s markets and leaves more zombie entities clogging up any potential economic growth that is possible in a world of peak debt.




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