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Are any of the leaders at the heads of the Western world ‘statesmen’ in the true sense of the word? Do any of them, from Cameron, to Obama, via Merkel and Hollande have any idea what the definition of such an illustrious, historically-based politician means?

Statesmen are not just any old, run-of–the-mill, out-for-all-you-get folk that get elected to walk the corridors of power; those that don’t have the people at the heart of their worries or the center of the debate. Politicians are storytellers. They spin yarns and make people vote for them in the hope that things will change. But, they reap the benefits of what power procures for them. They are nothing more than fictitious enchanters that magic problems behind other problems so they are misinterpreted.

But, a statesman is everything that promotes public good. A statesman can be recognized for probity, for leadership, the qualities that are needed to govern a state. They are rare and few and far between today. Where have all the good statesmen gone? Are they incarnated in Bachar Al-Asad or Vladimir Putin? We criticize them for the dictatorial style of government, but they are perhaps honest enough to admit that they are not there for the common good of the people. That they have no decency; honesty or uprightness is not unvirtuous in their minds. The Obama’s and the Cameron’s of this world believe that they are statesmen; but are they really?

If they are there for the common good of the people, then let them give up all the trappings of power that confer benefit on them. Let them become true statesmen!

There are few today in the world. But, if they lived more like the President of Uruguay, José “Pepe” Mujica, the 40th President of the country, then we might be better off.

• A modest house on a small rural estate near the capital. 
• A personal and private car: a Beetle. 
• Dressed simply, even when it comes to international events. 
• 90% of his salary is given to charities and associations. 
• One single police car at his residence to make sure his safety is ensured.

Yes, we are equal, but others have become more equal than others. This is usually accompanied by arrogance.

Hiding behind the fact that we have to have all the trappings and the trimmings of power because it provides a public image, is from another era. Look at the differing lifestyle of the President of the USA. Where did the notion of common good go, when they spend as if they were disconnected from reality?

• Michele Obama arrived in Beijing on Thursday last week, with an entourage of 70 support staff. That’s some support! 
• The kids were brought along as well. 
• It’s like a family holiday with a coach load of servants following you. 
• Of course, five-star hotel, no less, at the hefty price of $8,400 per night. 
• 3,445 square feet of living space, kitchen, bar, (do the kids actually drink?), sauna, private gym, and butler on call 24 hours.
• It was too expensive for Biden when he was there and he had to stay at a cheaper hotel. 
• Biden’s trip cost some $384,479.19. How much will the Obama outing cost?
• 1, 345 room nights were reserved to deal with security and in preparation for Biden and we can suspect that Michele Obama will be ticking up an even greater sum. . 
• President Obama and the First Lady went to Africa in June 2013 and spent $100 million in costs.
• Michele Obama went to Ireland and spent $5 million for a two-day trip there. 
• Going to Nelson Mandela’s funeral cost $11 million. 
• President Obama spent $7,396,531.20 in flight expenses for 2013.
• That was only for three trips: to go on a vacation in Hawaii, Martha’s Vineyard and California (to go on a TV show).

Come on politicians. Want to go into history and be remembered? I imagine that there will be nobody that actually does give their money away. There will be nobody that dresses simply. It’s not taking off your tie at theG8 (sorry, G7, now) that means that you become a hipster, with cool attitude to boot. How many will forego their safety.

They have constructed this world in which they have led us to believe that the threat is outside the nation. The threat is from within. It is at the top of the country.

Originally posted: Why Our Leaders Need to Become Statesmen

 

via Zero Hedge http://ift.tt/1rHVK6a Pivotfarm

Submitted by Michael Snyder of The Economic Collapse blog,

Are you thinking of going to college?  If so, please consider that decision very carefully.  You probably have lots of people telling you that an "education" is the key to your future and that you will never be able to get a "good job" unless you go to college.  And it is true that those that go to college do earn more on average than those that do not.  However, there is also a downside. 

At most U.S. colleges, the quality of the education that you will receive is a joke, the goal of most colleges is to extract as much money from you and your parents as they possibly can, and there is a very good chance that there will not be a "good job" waiting for you once you graduate.  And unless you have someone that is willing to pay your tuition bills, you will probably be facing a lifetime of crippling student loan debt payments once you get out into the real world.  So is college a waste of time and money?  In the end, it really pays to listen to both sides of the debate.

Personally, I spent eight years at U.S. public universities, and I really enjoyed those times.

But would I trade my degrees today for the time and money that I spent to get them?

Absolutely.

Right now, Americans owe more than a trillion dollars on their student loans, and more than 124 billion dollars of that total is more than 90 days delinquent.

It is a student loan debt bubble unlike anything that we have ever seen before, and now even those that make their living from this system are urging reform.  For example, consider what a law professor at the University of Tennessee recently wrote for the Wall Street Journal…

In the field of higher education, reality is outrunning parody. A recent feature on the satire website the Onion proclaimed, "30-Year-Old Has Earned $11 More Than He Would Have Without College Education." Allowing for tuition, interest on student loans, and four years of foregone income while in school, the fictional student "Patrick Moorhouse" wasn't much better off. His years of stress and study, the article japed, "have been more or less a financial wash."

 

"Patrick" shouldn't feel too bad. Many college graduates would be happy to be $11 ahead instead of thousands, or hundreds of thousands, behind. The credit-driven higher education bubble of the past several decades has left legions of students deep in debt without improving their job prospects. To make college a good value again, today's parents and students need to be skeptical, frugal and demanding.

When a lot of young Americans graduate from college and can't find a decent job, they are told that if they really want to "be successful" that what they really need is a graduate degree.

That means more years of education, and in most cases, even more debt.

But by the time many of these young achievers get through college and graduate school, the debt loads can be absolutely overwhelming…

The typical debt load of borrowers leaving school with a master's, medical, law or doctoral degree jumped an inflation-adjusted 43% between 2004 and 2012, according to a new report by the New America Foundation, a left-leaning Washington think tank. That translated into a median debt load—the point at which half of borrowers owed more and half owed less—of $57,600 in 2012.

 

The increases were sharper for those pursuing advanced degrees in the social sciences and humanities, versus professional degrees such as M.B.A.s or medical degrees that tend to yield greater long-term returns. The typical debt load of those earning a master's in education showed some of the largest increases, rising 66% to $50,879. It climbed 54% to $58,539 for those earning a master of arts.

In particular, many are questioning the value of a law school education these days.  Law schools are aggressively recruiting students even though they know that there are way, way too many lawyers already.  There is no way that the legal field can produce enough jobs for the huge flood of new law school graduates that are hitting the streets each year.

The criticism has become so harsh that even mainstream news outlets are writing about this.  For instance, the following comes from a recent CNN article…

For the past three years, the media has picked up the attacks with relish. The New York Times, in an article on a graduate with $250,000 in loans, put it this way: "Is Law School a Losing Game?" Referring to the graduate, the Times wrote, "His secret, if that's the right word, is to pretty much ignore all the calls and letters that he receives every day from the dozen or so creditors now hounding him for cash," writes the author.  Or consider this blunt headline from a recent Business Insider article: "'I Consider Law School A Waste Of My Life And An Extraordinary Waste Of Money.'" Even though the graduate profiled in the piece had a degree from a Top 20 law school, he's now bitterly mired in debt. "Because I went to law school, I don't see myself having a family, earning a comfortable wage, or having an enjoyable lifestyle," he writes. "I wouldn't wish my law school experience on my enemy."

In America today, approximately two-thirds of all college students graduate with student loan debt, and the average debt level has been steadily rising.  In fact, one study found that "70 percent of the class of 2013 is graduating with college-related debt – averaging $35,200 – including federal, state and private loans, as well as debt owed to family and accumulated through credit cards."

That would be bad enough if most of these students were getting decent jobs that enabled them to service that debt.

But unfortunately, that is often not the case.  It has been estimated that about half of all recent college graduates are working jobs that do not even require a college degree.

Could you imagine that?

Could you imagine investing four or five years and tens of thousands of dollars in a college degree and then working a job that does not even require a degree?

And the really sick thing is that the quality of the education that most college students are receiving is quite pathetic.

Recently, a film crew went down to American University and asked students some really basic questions about our country.  The results were absolutely stunning…

When asked if they could name a SINGLE U.S. senator, the students blanked. Also, very few knew that each state has two senators. The guesses were all over the map, with some crediting each state with twelve, thirteen, and five senators.

I have posted the YouTube video below.  How in the world is it possible that college students in America cannot name a single U.S. senator?…

 

These are the leaders of tomorrow?

That is a frightening thought.

If parents only knew what their children were being taught at college, in most instances they would be absolutely horrified.

The following is a list of actual college courses that have been taught at U.S. colleges in recent years…

-"What If Harry Potter Is Real?"

-"Lady Gaga and the Sociology of Fame"

-"Philosophy And Star Trek"

-"Invented Languages: Klingon and Beyond"

-"Learning From YouTube"

-"How To Watch Television"

-"Sport For The Spectator"

-"Oh, Look, a Chicken!"

That last one is my favorite.

The truth is that many of these colleges don't really care if  your sons and daughters learn much at all.  They just want the money to keep rolling in.

And our college students are discovering that when they do graduate that they are woefully unprepared for life on the outside.  In fact, one survey found that 70% of all college graduates wish that they had spent more time preparing for the "real world" while they were still in college.

In America today, there are more than 300,000 waitresses that have college degrees, and close to three out of every ten adults in the United States under the age of 35 are still living at home with Mom and Dad.

Our system of higher education is not working, and it is crippling an entire generation of Americans.

So what do you think?

Do you believe that college is a waste of time and money?

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

When Abe, Kuroda, and their merry men unveiled their latest idea – Abenomics – the world’s macro tourists piled in and spent every waking second convincing the rest of the world’s suckers that this time was different for Japan. We, along with Kyle Bass and a short list of other realists, warned “be careful what you wish for.” It seems tonight’s data is the best example yet of the print-and-grow rock and inflate-and-die hard place that Abe finds himself between. Multi-year highs in inflation (pressing on to the BoJ’s target) combined with a total collapse in household spending (lowest in 27 months). Abe is cornered; and JPY and the Nikkei are confounded for now.

 

Yay – “inflation is rising just as we hoped” Abe pats himself on the back… “must be all those small firms raising wages by the equivalent of 4 Big Macs per month… oh and all the currency devaluation that has spiked our energy import costs… but that’s ok coz it’s not deflation”

 

And this:

• NEWS: JAPAN FEB CPI ENERGY COSTS +5.8% Y/Y VS JAN +6.9%
• NEWS: JAPAN FEB CPI ELECTRONICS GOODS +6.3% Y/Y VS JAN +4.7%
• NEWS: JAPAN FEB CPI FOOD EX-PERISHABLES +0.9% Y/Y; JAN +1.0%
• NEWS: JAPAN FEB CPI TVS +5.8% Y/Y VS JAN +3.7%
• NEWS: JAPAN FY13 CENTRAL TOKYO CORE CPI +0.4%, 1ST RISE IN 5 YEARS

 

But… said a quiet voice from the back… “the household is getting monkeyhammered by the higher prices and de minimus wage rises”… “how will we ever raise the consumption tax in this environment – which we need to do to show the world we have some fiscal responsibility – without crushing the economy entirely/”

• NEWS: JAPAN FEB HOUSEHOLD SPENDING -2.5% Y/Y; MNI MEDIAN +0.1%

 

 

Yes we know it snowed in Tokyo for a few days but come on…

Abe is totally cornered…

If Kuroda eases anymore to satsfy weak economic data, he risks runaway inflation which would leave BoJ in a vicious circle to soak up the JGB selling…

 

If Abe raises the consumption tax without easing monetary policy even more then the economy is just not able to handle it…

Of course, it didn’t take long for the sell-side to pull every trick in the book…

From Citi –

Print more…

• Expect additional BOJ easing in June or July, will drive yen to 108-110 per dollar
• CITIGROUP SEES ADDITIONAL BOJ EASING TO DRIVE DOWN YEN

And re-allocate more…

“We are somewhat bemused by growing expectations in the market that reform of Government Pension and Investment Fund will result in yen selling”

Conservative estimate of GPIF reallocation to 50% weighting JPY bonds would see 1 tln yen/yr of JPY sales, maybe less

 

Just ignore the spike in import costs and crushing pressure on the household’s pocketbook that has just been proved.

In summary:

So Japan now has overheating inflation, record trade deficit, plunging personal spending and a crashing current account. Good job Abe.

— zerohedge (@zerohedge) March 27, 2014

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

$20 billion yesterday for a “virtual” reality corporation… but it gets better, as Property Guru reports, Singapore-based game developer Planet Arkadia is offering investments in what is believed to be the world’s first million dollar virtual property. It offers the ‘investor’ a chance to participate (by spending real money) in the “vibrantly growing economy of Planet Arkadia” – which we note is entirely virtual. Top, much?

 

Via Property Guru,

Singapore-based game developer Planet Arkadia is offering investments in what is believed to be the world’s first million dollar virtual property.

 

The company is offering players of the Entropia Universe game the chance to invest in 200,000 deeds priced at US$5.00 each – or PED 50 which is the in-game currency.

 

This innovative offering has been launched in direct response to player demand for more opportunities to invest. According to the company, the ‘Real Cash Economy’ has been developed over a 10-year period, providing a solid foundation for the virtual economy as all in-game currency ‘PEDs’ are transferable to US$ at a fixed rate of 10 PED for each dollar.

 

Importantly, the company added, participants are able to withdraw their earnings back to their real life bank accounts at any time.

 

“Arkadia Underground has been highly anticipated within our Arkadian and Entropia Universe communities, especially now we have the ability for every player to earn revenues with such a low barrier to entry,” said David Dobson, Chief Executive Officer of Arkadia Studios. 

 

“Every player can now participate in Arkadia’s vibrantly growing economy which has enjoyed a quadrupling of activity year-on-year for three years. Where else can you make investments where you can also jump in to play for fun and be rewarded on so many levels?”

 

The company was founded in 2010 and is supported by Singapore’s Media Development Authority according to its website. Entropia Universe is the world’s largest ‘Massively Multiplayer Online Real Cash Economy’ game.

Smells a little like Bitcoin… so as a gentle reminder MtGox was named for Magic -The Gathering… and that all ended well eh? Of course, the question this transaction really begs is – is there a virtual central banker?

via Zero Hedge http://ift.tt/1fpz3uR Tyler Durden

Submitted by David Stockman of Contra Corner blog,

If you are not Professor Paul Krugman you probably agree that Washington has left no stone unturned on the Keynesian stimulus front since the crisis of September 2008. The Fed’s balance sheet started that month at $900 billion – a figure it had accumulated mostly in dribs and drabs over the course of its first 94 years. Bubbles Ben then generated the next $900 billion in 7 weeks of mad money printing designed to keep the tottering gambling halls of Wall Street afloat. And by the time the “taper” is over later this year (?) the Fed’s balance sheet will exceed $4.7 trillion.

So $4 trillion in new central bank liabilities in six years. All conjured out of thin air. All monetary vaporware issued in exchange for treasury and GSE paper that had originally financed the consumption of real labor, material and capital resources.

And if $4 trillion of monetary magic was not enough, the action on the fiscal front was no less fulsome. At the time in March 2008 that Goldman’s plenipotentiary in Washington, Secretary Hank Paulson, joined hands with the People’s Tribune from Pacific Heights, Speaker Nancy Pelosi, to revive Jimmy Carter’s infamous $50 per family tax rebate, hoping America’s flagging consumers would be induced to buy a flat-screen TV, dinner at Red Lobster or new pair of shoes, the public debt was $9 trillion. It will be $18 trillion by the time the current “un-ceiling” on the Federal debt completes its election year leave of absence next March.

Yet $9 trillion of added national debt in six years is not the half of it. Even our Washington betters do not claim to have outlawed the business cycle, and we are now in month 57 of this expansion. Given that the average expansion during the ten “recovery” cycles since 1950 has been 53 months, it might be argued that we are already on borrowed time fiscally. That is, we have already used up the forward area on Uncle Sam’s balance sheet that is supposed to be available to absorb the predictable eruption of red ink that will occur during the next recession or financial bubble collapse or China melt-down etc.

In fact, peering at the future through its Keynesian goggles, the CBO assumes that the US economy will accelerate to  nearly 3.5 percent average GDP growth until it reaches “full employment” around 2017, and then will remain in that beneficent state for all remaining time, world without end!  Yet even then it projects a cumulative deficit of nearly $10 trillion under “current policy” (i.e. bipartisan can-kicking of expiring tax and spending giveaways) over the next decade.

Given the self-evident economic headwinds both at home and abroad, however, it  would not be unreasonable to set aside CBO’s Rosy Scenario 2.0—a delusion I have some personal familiarity with, having invented the original version 33-years ago to the day. Indeed, a more prudent 10-year macroeconomic scenario might be simply “copy and paste”. That is to say, take the average growth rate of GDP, jobs, income and investment over the past decade and assume that the inevitable macroeconomic bumps and grinds of the next decade will average out about the same.

To be sure, some pessimists might note that more than 27 million working age citizens have dropped off the employment rolls since 2000; that presently 10,000 more are retiring each and every day; and that the ingredients of future growth have been radically short-changed, given that real investment in business fixed assets has averaged less than 1% annually for the past 14 years. So “copy and paste” might be hard to achieve in the real world ahead, but even then the added cumulative Federal deficit would total $15 trillion over the next decade under current policy.

In other words, until the sleepwalking denizens of the Washington beltway “do something” about a fiscal doomsday machine that has been put on auto-pilot since the 2008 crisis, the nation is likely to end up with upwards of $35 trillion of national debt by the middle of the next decade, while a “copy and paste” growth rate of nominal GDP (2000-2013= 4.0%) would end up at $25 trillion. In short, what is built into our fiscal future right now is a Big Fat Greek debt ratio of 140%.

Now comes Professor Krugman proposing to “do something”:

 …. we should aggressively reverse the fiscal austerity of the last few years, getting government at all levels spending several points of GDP more to boost demand…. let’s say for the sake of argument that the right policy is two years of fiscal expansion amounting to 3 percent of GDP each year, plus a permanent rise in the inflation target to 4 percent. These wouldn’t be radical moves in terms of Econ 101 — they are in fact pretty much what textbook models would suggest make sense given what we have learned about macroeconomic vulnerabilities…

In short, Krugman wants to double-down on the lunacy we have already accomplished. His 4% inflation target is just code for re-accelerating the Fed’s money printing machine, thereby keeping real interest in deeply negative terrain for even more years beyond the seven-year ZIRP target the Fed has already promised. And while the Wall Street gamblers who prosper mightily from the free money carry trades enabled by this insult to honest financial markets might not even appreciate the favor, its possible that millions of Main Street households not “indexed” to Krugman’s beneficent 4% inflation target might well notice its impact.

The math is not promising. Under Krugman’s inflation RX, today’s median household income of $51,000 would compute out to $33,000 in constant dollars a decade hence—taking it back to pre-Korean War levels. But do not be troubled, of course, because right there in Krugman’s Dynamic Stochastic General Equilibrium Model (i.e. DSGE) it shows that every Wal-Mart shift supervisor will get at least a 4% wage increase each year, and that all retirees with a decent bundle of lifetime cash savings will earn at least a 4% annual return by investing in Dan Loeb’s hedge fund.

If you do not understand the DSGE, however, you might say good luck with that. And you might say that wantonly adding another $1 trillion to the national debt over the next two years, as Krugman has also prescribed, amounts to carrying “bathtub economics” to a downright absurd extreme.

At the end of the day, Professor Krugman and his Keynesian acolytes believe in a mysterious economic ether called “aggregate demand”.  And through the wonders of their DSGE models they can measure the precise shortfall between aggregate demand under the nirvana of  ”full employment” and the actual level of aggregate demand ( i.e GDP or spending”) generated by 150 million workers and 300 million consumers struggling to make ends meet in today’s real world.  The whole point of fiscal and monetary ”stimulus”, therefore, is to insure that America’s economic bathtub is filled right up to the brim with aggregate demand, thereby insuring maximum growth of jobs, GDP and societal bliss.

Except that “aggregate demand” is a Keynesian fairy-tale that has now been playing for more than a half-century. In fact, spending or GDP cannot be conjured by the fiscal and monetary tricks of the state. Spending can only come from current income, which is the reward for current production; or it can come from borrowing, which is a claim on future income that will reduce borrowing capacity tomorrow  in order to have more spending today.

In fact, four decades of fiscal and monetary stimulus have essentially layered spending from a one-time credit expansion on top of spending from current income. Unfortunately, we are presently nigh onto “peak debt”; that is, the balance sheets of households, business and the public sector have been used up after the great debt party (i.e. national LBO) since 1980 has taken the US economy’s historic leverage ratio (total credit market debt to GDP) from 1.5 turns to 3.5 turns.

That’s evident even in the specious GDP numbers from Washington’s statistical mills. If you set the aside short-run stocking and destocking of inventories in the quarterly GDP figures, the year-over-year gain in final real sales for Q4 2013 was 1.9%; and that’s also close enough for government work to the 2.5% gain ending in Q4 2012; the 1.8% rate in Q4 2011; and the 2.0% gain in Q4 2010.

In short, there is no “escape velocity” because the Fed’s credit channel is broken and done. Going forward, the American people will once again be required to live within their means, spending no more than they produce.

By contrast, Professor Krugman’s destructive recipes are entirely the product of a countrafactual economic universe that does not actually exist. He wants us to borrow and print even more because our macro-economic bathtub is not yet full. And that part is true. It doesn’t even exist.

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

The last few years have seen the high-tech darlings spending their freshly printed funny-money currency (shares) on all sorts of money-making (but mostly losing) ideas…

 

click image for huge legible version

 

We are sure this will all end well…

via Zero Hedge http://ift.tt/1hfI8um Tyler Durden

Submitted by LToddWood via LToddWood.com,

It has happened over and over again throughout history.  Nations, empires, and dynasties have made bad economic decisions which lead to their own destruction.  The scenario usually goes something like this–one generation sacrifices and works hard to overcome global challenges and creates an economic powerhouse, which in turn allows it to project military power.  Follow on generations take their elders work for granted and ignore and even denigrate the fruits of hard labor, they just want the benefits and start giving away the spoils for free.  The next generation indulges itself in sloth and corruption and is overrun by the barbarians. 

The Roman Empire was famous for giving out bread and circuses to satiate the citizens of Rome, all the while devaluing their currency with less and less precious metal.  They ignored their financial obligations to their military.  The Emperor became corrupt, handing out favors only to those closest to him and persecuting the opposition while ignoring the very real threats to the north until it was too late.  The Spanish also devalued their currency by reducing the precious metal content as they fought wars all over the world.  We all know how that turned out.  After WWI, the Deutschmark to the Dollar exchange rate was 4 to 1.  In order to pay their war reparations, the Weimar Republic started printing money.  A few short years later it was four million to one USD.  This destroyed the German economy and gave Hitler an opening to power. 

Today with convoys of Russian troops rolling through the Crimean Peninsula and Hind helicopter gunships controlling the skies, one doesn’t have to look far to see evidence of American weakness.  Whether or not you can understand the Russian position, the bottom line is that Putin does not fear a Western reaction to Russia projecting power in Ukraine.  This situation is the latest in a long list of examples of American economic weakness leading to serious national security threats.  Iran continuing to develop nuclear weapons, Syria defying the Russian brokered agreement to destroy its chemical weapons, Russia granting Snowden asylum, North Korea going nuclear, China threatening Japan, are a direct result of an absence of a serious American response or perceived threat.

Why is America no longer credible when our president draws a red line or two or three?  It is not just that Obama is a weak leader and naive in foreign affairs, although that is certainly true. It is because American owes $17 trillion dollars, a good chunk of  it to our adversaries.   It is because we are cutting the meat from our defense budget in order to fund bread and circuses to keep the people happy.  It is because pilots in the Air Force are flying the same tail numbers their grandfathers did.  The U.S. military used to train and equip to fight two wars simultaneously.  Now the world knows America is broke and cannot even sustain one long term conflict financially.  This status of affairs has not just happened under Obama.  A long list of Democratic and Republican administrations have not spent our money wisely.  And our allies in Europe are in no better shape.  In fact, their defense situation is worse after decades of relying on the Americans and running up their debt to GDP ratio as well. 

At some point, the FED will lose control of the bond market no matter how much money they print.  Then interest rates will be set based on the credit risk of the United States.  This will cause interest rates to shoot higher.  Each percent rise in interest rates is approximately $200 billion in increased debt service costs for the United States.  Soon the majority of the federal budget will go to paying interest and entitlements and defense will be squeezed even harder.  We have not even begun to see austerity yet.  This interest rate shock will also hurt the economy.  Do you remember the twenty percent mortgage rates in the seventies?  Federal revenue will shrink at the same time expenses are rising.  The future is not pretty.

America only has a short time to deal with this problem.  We need to stop spending money we don’t have and we need to grow the economy.  The government needs to get out the way.  If you are in a hole and want to get out the first thing you need to do is stop digging.

It is not our generation that will suffer.  It will be your children and grandchildren.  Do you hear that commotion to the north?  The barbarians are coming.

via Zero Hedge http://ift.tt/1hfx9Rv Tyler Durden

Via Guy Haselmann of Scotiabank,

A comment I posted on a Bloomberg Chat this morning says it all, “herd trading, policy pivots, and terrible market liquidity are a bad combination.”

This week, markets have been driven by position squaring and P&L management.   There have been extraordinary price movements in various commodities and currencies due to extreme weather, the decline in the Chinese Renminbi, capital flight, Fed taper, and geo-politics.  Such P&L volatility is causing decisions to be made in other, seemingly uncorrelated markets, due to the need to manage P&L risk.

These movements are of elevated concern because the investment climate of recent years has created a herd mentality.  Now that global stimulus is being withdrawn, those trades are under attack and a mini-contagion is unfolding (see my March 24th Commentary note)

Adding to recent concerns of increased volatility are the price declines, and loss of momentum, in many high-flying stocks, such as Twitter, Pandora, Tesla, Netflix, Solar City, Priceline, Facebook, Gilead, and Biogen, to name just a few.

Given how this is unfolding, it is worth revisiting a few points I made in my “2014 and Beyond” outlook paper (from January 3rd).

“…..investors and speculators receive ever-lower returns for ever-higher levels of risks. Over time, the ability of an investor to assess an asset’s fundamental value becomes ever-increasingly impaired.   It should be a warning sign to portfolio managers’ fiduciary responsibility to maximize return per unit of risk.

 

“In 2014, investors have asymmetric risk distributions that are skewed to the downside.  Risk-seeking investors are playing a high-stakes ‘game of chicken’ because the door to exit will be narrow. When risk needs to be pared, market liquidity will be challenging due to fewer market- makers, and potentially fewer new marginal buyers.”

 

“Investor behavior is partially being driven by fear of missing the upside:  they feel pressure to ‘not earn zero’, to beat inflation and benchmarks, or to simply outperform their peers.  This herd mentality is a powerful, yet dangerous force.  It should be a warning of the markets’ downside potential when markets are confronted with the next “risk-off” catalyst.

 

“Regulations and uncertain rules of trading have thoroughly compromised market liquidity. It is the ‘Greater Fool Theory’ for investors believe they will be able to monetize profits in aggregate.” 

 

“The FOMC wants markets to believe that they can navigate a soft landing through micro-managing the unwind process.  However, investors and traders care more about the “final destination than the journey”, to quote from Mohamed El-Erian, so there will become a time when the Fed tips investors from yield-seeking toward getting ‘ahead of the curve’.  This point will occur during the process of the Fed lowering the accommodation needle.

 

“The apt analogy is a playground see-saw where investors (and Fed) have a seat firmly on the ground and risk assets dangling in the air.  The Fed has started the process of tossing 10 pounds (billions of Treasuries) onto the seat in the air.  Every six weeks after each meeting, another 10 pounds will be tossed on the ‘high-side’. At some point, a few heavy investors will decide to jump-off the seat that they have been sharing with the Fed, causing the high-seat (risk assets) to come crashing down from its high perch. The Fed would like to balance the see-saw, but history suggests the chances are infinitesimal.”

The trades that have worked well during the Fed’s ‘pedal to the metal’ accommodation policies are now showing signs of strain as QE is being unwound.  As the calendar advances closer toward QE’s end, market volatility will edge higher and positions will adapt accordingly.  Investors will soon learn whether the QE policy (specifically designed to lift asset prices) was actually a pressure cooker that ultimately had to blow once the QE spigot was turned off.  Is this trade beginning now or could it pause until later in the fall?

Financial asset prices and positions will have to adjust and recalibrate to levels that properly reflect the asset’s fundamental value.   More importantly, expected returns will have to begin to more accurately reflect the true level of the risk of the asset. After all, the implicit Fed put that has placed a floor under the market, and powered it forward, is gradually being removed. 

 

I expect portfolio re-balancing to put a floor (this time) in Treasuries over the next several months.  This is one of several reasons, I remain a bond bull.  If you are not in yet, I would at least wait until after PCE (8:30 am), but I would not wait too long.

“A lot of people are afraid of heights.  Not me, I’m afraid of widths.” –Steven Wright

via Zero Hedge http://ift.tt/1jTtS9N Tyler Durden

Submitted by liberta blog,

In our previous article we explained why buying a house is often a very silly financial decision, especially for people who are young, or those that have a low net worth.

In this article we're going to explain why we think people are so infatuated with the idea of buying and owning a house, even though, if you look a the facts, it goes against many of the investment principles they believe in and hold dear.

But first, I need to address one of the myths about buying residential property…

Myth #1: Buying a house is a way to beat inflation

The theory is:

It is worth borrowing a huge amount of money to purchase a house because, not only will your property appreciate in value over time, your loan amount will also decrease in value in record time, partly because you are paying off a bit of your loan every month and partly because inflation eats away at the value of the amount you still owe!

And it is true – borrowing R1,000,000 to buy a house may seem like a scary amount right now, but a few years later, R1,000,000 will be considered a small amount of money.

If you would like to see just how effectively inflation destroys the value of money over time, plug a few numbers into the inflation calculator and see for yourself.

I have to admit: this theory makes for a very convincing argument.

But it is not.

The elephant in the room

The hole in the buying-a-house-is-a-way-to-beat-inflation-theory is the fact that the interest rates commercial banks charge their customers have always been higher than the inflation rate.

If you take out a loan, you pay more in interest to the bank, than you gain through the devaluation of the amount outstanding on your loan due to the effects of inflation.

The only real winner in this equation is the bank who was kind enough to grant you a loan to buy your property.

And when I say winner, I really mean it, because not only is the bank earning an above inflation return on the money they lend to you, they also create the money they lend to you, right there on the spot, out of thin air.

If I had to behave like a bank and you were a customer to whom I was granting a home loan, it would be pretty much the same as if I had a printing press in my basement, where I would quickly print up R1,000,000 in counterfeit currency to lend to you, make you sign a contract with dire consequences to yourself should you ever miss a loan payment and then, to make sure I get the best deal possible, charge you an above inflation interest rate on the counterfeit money I lend to you.

If you or I behave like this, it is called a scam and, of course, it is illegal.

When banks behave like this, it is called fractional reserve lending and, whether you like it or not, it is perfectly legal.

The wonders of fractional reserve banking

I know what you’re thinking.

But this is no conspiracy.

The fact that commercial banks create money when they grant loans is not a secret.

Not at all.

In fact, commercial banks create over 90% of all the money that circulates in our economy. It is just the way the system works.

If anything is suspicious, it is the fact that everybody uses money, but almost no-one understands where the money they use comes from.

How to make money from a Residential Property Boom

Once you understand the way the system works, you’ll understand that one of the best ways to make money out of a residential property boom is not to invest in residential property, but to invest in commercial banks that grant loans to people who buy residential properties.

During a residential property boom, banks are creating massive amounts of money out of thin air and lending it out, with interest, to many many customers who are lining up to buy the rapidly appreciating residential property.

If you own a part of the banking action, you can make a lot of money while the boom lasts.

There is only one problem with this approach: like all good parties, it eventually comes to an end and, the next day, you wake up with a massive hangover.

Booms usually lead to bubbles, and bubbles eventually pop. When bubbles burst , the very same banks who were raking in record profits just a few months prior to the bubble bursting are all suddenly bankrupt. A good example is the 2008/2009 housing bubble collapse.

But have no fear.

There is an even better way to make money out of a residential property boom, with just about zero risk:

At the start of a housing boom, find a job with a commercial bank and negotiate your salary in such a way that your bonus is linked to the profits the bank makes on residential property loans.

Trust me. It’s a slam-dunk.

So, who is spreading the propaganda?

This is pure speculation, but since bankers are the main beneficiaries of the fractional reserve banking system, I won’t be at all surprised if they are also the main players responsible for spreading propaganda about the home ownership myth I have attempted to debunk with these articles.

And if you’re a banker, who better to get on your side than the government?

Much has been written about the way politics work (especially in America), how lobbying costs money and how big business is the main contributor to political campaigns, so I’m not going to add my own thoughts here.

What I will say is this: if these concepts are new to you, perhaps it’s worth re-reading this article one more time. Perhaps click on some of the links and watch the youtube videos to make sure you understand everything.

Then, if you just want to feel patriotic and inspired, take a look at the video below. I’m sure you’ll love it. It nearly drove me to tears. Heart wrenching stuff.

Over to you

When, after many years of being an investor, I finally figured out how the monetary and banking systems work, it massively changed my perspective on investing.

Since the money we use is something that affects everybody on a daily basis, I find it astounding that so very few people understand where money comes from. I encourage you to do your own research. Reach your own conclusions.

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

Today’s AM fix was USD 1,295.00, EUR 942.09 and GBP 779.14 per ounce.

Yesterday’s AM fix was USD 1,314.50, EUR 952.74 and GBP 794.98 per ounce.

Gold bullion dropped to its lowest level in six weeks in London as better than expected durable goods hinted to a recovery in the U.S. and increased the case for the U.S. Fed to keep reducing stimulus and start to raise interest rates. Fed Chair Yellen commented after this month’s policy meeting that the bond buying program may end this fall and the first increase in the benchmark rate may follow six months after later.

 

 

U.S. President Barack Obama reiterated yesterday that the U.S. and its European allies stand united against Russian attempts to redraw Ukraine’s boundaries. Russia is the biggest supplier of palladium followed by South Africa, where workers have been on strike since Jan. 23rd.

 

Lord Adair Turner – (Bloomberg News Image)

Britain’s former chairman of the  Financial Services Authority (FSA), Lord Adair Turner, spoke at Cass Business school yesterday and warned that the UK could be repeating the 2008 financial crisis by fueling the property market. He commented that mortgage and commercial property lending in global economies had played a “central role” in nearly all financial crises and post-crisis recessions.

Lord Turner told the Telegraph, “We’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply”.

“If you do that the only thing that can give is the price.”

Lord Turner warns about the debt to income ratio. “Even the Office for Budget Responsibility has said the only way we’re going to get growth back in the next five years is for the ratio to return to 170% again. If in five years time debt has gone back up to 170%, and if interest rates have returned to 3%, 4% or 5%, then a lot of people are going to be struggling.”
 

Lord Turner elaborated that targeted reforms to limit credit fuelled growth were needed to prevent a repeat of the 2008 financial crisis. “The policies followed before the financial crisis failed to prevent it,” he said.

“In its wake major financial reforms have been introduced. These include higher capital and liquidity standards, more effective bank resolution procedures: measures to address risks in derivatives trading: and structural reforms such as ring fencing… While these reforms are valuable, they will be insufficient to ensure a more stable financial system and economy over the long term.

“We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes,” added Lord Turner.

“Policies relating to the supply of new real estate, and to its taxation will likely prove as important to to financial and macroeconomic stability as reforms specifically focused on the financial system itself.  “[Credit cannot be] constrained through the use of the interest rate lever alone.”

With interest rates at post war lows and unlikely to go much lower the risks of further systemic events developing within our global financial centres, is again rising. It would seem that the measures taken in oversight and reporting, albeit a massive improvement on previous regulatory mishaps, are again proving porous.

The rampant politicisation of interest rate policy and monetary tools are again creating new asset bubbles, most notably in the property and equity markets which may in the end pose even greater risk than the financial dislocations of 2008.

When money is debased on an industrial scale by monetary authorities the results can soon turn catastrophic. It is essential that prudent investment strategies take these risks into account and that investors allocate a modest percentage of their portfolios to hard assets such as gold and silver.

For more information on the best ways to invest in and own gold please download a copy of our Guide to Investing In Gold

via Zero Hedge http://ift.tt/1foUlbP GoldCore