Tag: news

White House counsel Donald McGahn II, has been quietly cooperating extensively with special counsel Robert Mueller in his probe of possible collusion between the Trump campaign and Russia, according to an explosive New York Times report published Saturday afternoon.

Sources told the Times that McGahn has had at least three voluntary interviews with Mueller’s team totaling 30 hours, in which he discussed accounts of multiple episodes at the center of Mueller’s probe into whether President Trump obstructed justice, as well as the president’s furor toward the Russia investigation and the ways in which he urged McGahn to respond to it.

For a lawyer to share so much with investigators scrutinizing his client is unusual. Lawyers are rarely so open with investigators, not only because they are advocating on behalf of their clients but also because their conversations with clients are potentially shielded by attorney-client privilege, and in the case of presidents, executive privilege.

Among the episodes McGahn discussed with investigators is Trump’s firing last year of former FBI Director James Comey and the president’s repeated urging of Attorney General Jeff Sessions to claim oversight of the special counsel despite his recusal from Russia probes. McGahn was also centrally involved in Trump’s attempts to fire the special counsel, Robert S. Mueller III, which investigators might not have discovered without him.

Commenting on the report, Solomon L. Wisenberg, a deputy independent counsel in the Whitewater investigation “which did not have the same level of cooperation from President Bill Clinton’s lawyers”, said that “a prosecutor would kill for that. Oh my God, it would have been phenomenally helpful to us. It would have been like having the keys to the kingdom.”

McGahn began cooperating with Mueller’s team last year after Trump’s first round of personal lawyers decided to give investigators as much information as possible, believing the president had nothing to hide.

Trump assembled a personal legal team to defend him. He wanted to take on Mr. Mueller directly, attacking his credibility and impeding investigators. But two of his newly hired lawyers, John M. Dowd and Ty Cobb, have said they took Mr. Trump at his word that he did nothing wrong and sold him on an open-book strategy. As long as Mr. Trump and the White House cooperated with Mr. Mueller, they told him, they could bring an end to the investigation within months.

Mr. McGahn, who had objected to Mr. Cobb’s hiring, was dubious, according to people he spoke to around that time. As White House counsel, not a personal lawyer, he viewed his role as protector of the presidency, not of Mr. Trump. Allowing a special counsel to root around the West Wing could set a precedent harmful to future administrations.

However, McGahn eventually became concerned over his growing exposure in the investigation and began to suspect the president was setting him up to take the fall for any alleged obstruction of justice.

McGahn and his own lawyer, William Burck, then decided for the White House counsel to do as much on his own to cooperate with Mueller. According to the NYT, McGahn was worried that Mr. Trump would ultimately blame him in the inquiry; the lawyer then told people he was determined to avoid the fate of the White House counsel for President Richard M. Nixon, John W. Dean, who was imprisoned in the Watergate scandal.

The NYT also reports that Trump’s personal lawyers could have exercised attorney-client privilege to know what McGahn planned to tell investigators, but the president’s lawyers did not go through that process.

The times adds that “it is not clear that Mr. Trump appreciates the extent to which Mr. McGahn has cooperated with the special counsel”, meaning that Trump will likely be quite angry once again by what he perceives as betrayal by one more person close to him. The reason for that is that the president “wrongly believed that Mr. McGahn would act as a personal lawyer would for clients and solely defend his interests to investigators”

McGahn reportedly laid out how Mr. Trump tried to control the investigation, giving investigators a mix of information both potentially damaging and favorable to the president. Of note, McGahn cautioned to investigators that he never saw Trump overstep his legal authorities.

Whether McGahn reveals any groundbreaking information remains unknown. The Times report, however, does underscore the sprawling nature and depth of Mueller’s probe, which has moved to scrutinize people closer to Trump’s inner circle in recent months amid calls from Trump’s personal legal team for it to wrap up before the November midterm elections.

Asked for comment, the White House sought to quell the sense of tension.

“The president and Don have a great relationship,” the White House press secretary, Sarah Huckabee Sanders, said in a statement. “He appreciates all the hard work he’s done, particularly his help and expertise with the judges, and the Supreme Court” nominees.

For the real story keep an eye on Trump’s tweet: any imminent attacks on McGahn will not only indicate how much of a surprise today’s report is, but lead to further allegations that Trump is trying to further obstruct Mueller’s investigation.

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With Tesla stock crashing on Friday, suffering its worst weekly loss since 2016 as a result of the “tearful”, hour-long phone interview Elon Musk gave to the New York Times, in which the full state of his mental and emotional instability were finally revealed, many Tesla investors were unaware of a  bizarre subplot which played out on social media in the past week. It featured the rapper Azealia Banks and Elon Musk, who allegedly was tweeting while tripping on acid.

Several days after Musk shocked markets with his Aug. 7 tweet proposal to take Tesla into a private company “funding secured”, Banks took to Instagram and her 600,000 to say that she had stayed at Musk’s house, an experience she compared to “a real-life episode” of the movie “Get Out.” She then made an explosive allegation:

“I waited around all weekend while grimes coddled her boyfriend for being too stupid to know not to go on twitter while on acid,” Banks wrote, referring to Mr. Musk’s girlfriend, the musician known as Grimes  a Canadian electronic-music singer and producer whose real name is Claire Boucher.

Musk initially said he had never met Banks after she said she saw him freaking out about his going private tweet; this prompted much confusion whether Banks had been in the house in the first place despite her perhaps overly detailed description.

“I saw him in the kitchen tucking his tail in between his legs scrounging for investors to cover his ass after that tweet,” Banks told Business Insider of her meeting with Musk last weekend. “He was stressed and red in the face.”

Banks also claimed that she could hear “that he was scrambling because he in fact – didn’t have any funding secured.“

Musk denied, and told Gizmodo that he “has never even met [Banks] or communicated with her in any way.”

This denial echoed one made by his company Tesla earlier in the day when a spokesperson told Jalopnik that Banks’ claim that he tweeted while on drugs was “complete nonsense.”

But, on Friday, as part of his extensive interview with the NYT, Musk reversed his story and admitted that some of Banks’ claims were true:

“I saw her on Friday morning, for two seconds at about a 30-foot distance as she was leaving the house,” he said. “I’d just finished working out. She was not within hearing range. I didn’t even realize who it was. That’s literally the only time I’ve ever laid eyes on her.”

She did, however, lay her eyes on him and her story added further fuel to the market’s concerns about Musk’s mental instability.

Banks had apparently been invited to stay at Musk’s home by his girlfriend Grimes, who was planning to collaborate with Banks. The NYT reports that Banks had arrived in the predawn hours, invited to the house by Grimes. The two women had announced plans in June to collaborate on a project, and studio sessions were scheduled for that weekend.

But there was a miscommunication over the plans, Grimes’s representatives said, because Grimes and Mr. Musk had instead made arrangements to go out of town, the NYT reported.

Banks was left alone in the house, hanging waiting for Grimes to return. She said she arrived at one of Musk’s homes in Los Angeles early on Friday, August 10, but said she was left alone for days while Grimes comforted her boyfriend.

Banks finally left on Sunday night, at which point she lashed out at Musk and Grimes on her Instagram account.

“Staying in Elon musks house has been like a real like episode of ‘Get Out’, she wrote.

Azealia Banks exposing Elon Musk for tweeting while on Acid.. while she was waiting for Grimes at her home … whewwww lord 😳 pic.twitter.com/i9BXWWrLAD

— sadhoeflo (@sadhoeflo) August 13, 2018

She then slammed Musk and Grimes, saying “they’re both two fucking crackheads. He’s on tweeting on acid fucking up own stocks and whatnot. A real life dummy.”

“They bring me out there on the premise that we would hang and make music,” Banks said. “But his dumbass kept tweeting and tucked his dick in between his ass cheeks once shit hit the fan.”

In subsequent posts, Banks even suggested that the couple may have invited her to their home for “some weird threesome sex shit to begin with.” She also went on a vicious rant about Grimes, who she branded an ‘idiot, Musk who she called a ‘beta male’ and branded them both ‘crackhead’ in a rambling attack.

Her posts quickly went viral and her account of a brief interlude at the intersection of celebrity and technology was covered everywhere from Vogue to CNBC.

In the NYT interview, Musk who “alternated between laughter and tears”, denied he was “on weed” or “stoned” when he sent the tweet claiming to be taking Tesla private for a $420 share, although he acknowledged the value could be taken as a reference to marijuana. He said: “It seemed like better karma at $420 than at $419. But I was not on weed, to be clear.”

“But I was not on weed, to be clear. Weed is not helpful for productivity. There’s a reason for the word ‘stoned.’ You just sit there like a stone on weed.”

Musk did repeat he only used ambien: “It is often a choice of no sleep or Ambien,” he told the newspaper. However, rather than put him to sleep, the drug has sometimes led Musk to spend his nights on Twitter, worrying some board members, the NYT said.

That said, the board would probably be far more concerned if Musk was tweeting while tripping on acid as Banks alleged, however the topic mercifully did not come up in the NYT interview.

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Spending at U.S. restaurants surged over the past three months by the most on record.

As Bloomberg reports, sales at food-service and drinking establishments rose 1.3% in July to $61.6 billion, the Commerce Department reported this week, almost catching up to the total spent on buying food and beverages from grocery stores.

That brought the three-month annualized gain to 25.3 percent, the fastest pace in figures going back to 1992…

Three major factors may be driving this regime shift in spending:

First, Americans are eating out more and spending their extra cash from tax cuts on dining out (consumer confidence is elevated and the fiscal stimulus may be having an effect on the data);

Second, major restaurant companies have recently hiked menu prices to keep up with rising food costs, higher minimum wages, and rent costs (the retail figures are adjusted for seasonal variation but not for inflation); and

Third, across the industry, restaurants are increasingly pushing delivery services such as DoorDash to attract diners.

However, as Bloomberg notes, such historic gains caught the attention of economists. 

Kevin Cummins and Michelle Girard at NatWest Markets said the figures indicate “…consumers remain quite comfortable with their personal financial situation and the economic outlook.” 

Omair Sharif of Societe Generale noted that restaurants accounted for 30 percent of the July increase in retail sales but just 12 percent of the total.

“Any mean reversion here would lead to a noticeably slower pace of retail sales in the coming months,” Sharif wrote in a research note.

Industry data show restaurant sales are growing while customer traffic declines, resulting in higher average checks, according to MillerPulse figures cited by Bloomberg Intelligence analyst Jennifer Bartashus.

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Authored by Tuomas Malinen via GNSEconomics.com,

The economic crisis brewing in Turkey seems to have surprised many. This was probably, at least partly, due to the ‘period of tranquility’ created by the central banks with theirs ‘unorthodox measures’. Many seem to have imagined that the “synchronized global growth” spurt were here to last. But, it was just a mirage, run by the stimulus of China and the major central banks.

As we warned in May, the global quantitative tightening will bring an end to the current business cycle. This is for a multitude of reasons (see Q-review 1/2018), but the most pressing of them is the fact that QT will raise interest rates and suppress liquidity. It will raise the costs of indebted companies, drive zombie companies to insolvency and ultimately crash the asset markets. A global debt crisis of epic proportions and depression are likely to follow. Turkey is showing what it might look like.

The debt conundrum

The current business cycle has had two exceptional features.

First has been the steep rise in the balance sheets of central banks and the second the very fast growth of the non-financial sector debt, especially in the emerging economies. Figure 1 presents the private non-financial sector debt as a percentage of GDP in advanced and emerging economies. It shows the miniscule deleveraging in advanced economies and the harrowing rise in the private non-financial debt in the emerging economies since 2009.

Figure 1. Credit (debt) to non-financial private sector as a share of GDP in advanced and emerging economies. Source: GnS Economics, BIS

The rise of the non-financial private debt in emerging economies coincides with the QE programs of the major central banks. QE of the Fed started in November 2009, QE2 in November 2011 and QE3 in October 2012. QE of the Bank of Japan started in late 2010 and the QE of the ECB started in March 2015. These contributed especially on the global capital flows (see this and this).

From the major central banks, the Fed has switched to quantitative tightening (QT), the ECB should taper its purchases during the fall and the BoJ is diminishing its purchases. All this is expected to lead to a contraction in the global balance sheet of the major central banks. This contraction may already have started or it will start in the fall. It will be the first time in history when the global central bank balance sheet shrinks in a trending manner. Global QT will deflate the global debt bubble the global QE helped to create.

The central bankers thus have a debt conundrum. The early signals of inflation in the US and the ability to counter the approaching recession compel the central banks raise interest rates. But, just the effort to prepare for a recession by raising rates may generate a global debt crisis and recession. Effectively, the central bankers have painted themselves into the corner.

It truly will be different this time

Thus far, most debt crises have been triggered by mistrust towards the finances and currency of  the indebted governments. This time, the private companies are considerably more indebted than the governments. Because of this, the coming debt crisis will be harder to defeat than the previous ones. If the companies have borrowed massively from abroad, the falling external value of the currency will increase their interest payments and diminish their ability service their debts thus feeding the currency crisis. This is the heart of the crisis in Turkey (see Figure 2 below).

The common response to a debt and/or currency crisis has been raising the interest rates and shoring up the government finances (with e.g. structural reforms) to increase the confidence of the international investors. More drastic measures have included capital controls, defaults or calling the IMF for assistance. However, with a highly indebted private sector, the rate raises damage the ability of companies to service their debt and to roll them over especially, if they are unable to halt the fall of the currency. Although the “order” of President Erdogan not to raise rates may seem counterintuitive, the interest rate rises could just wreak more havoc by bringing more burden to the already damaged corporate sector.

An alternative response, a structural reform, improves the long-term growth prospects of an economy but may be detrimental to the private sector in the short-run by cutting the excess lending, running down government sponsored enterprises and by cutting government spending. Capital controls, in turn, would seize the flow of capital out of the country, but they would also almost surely kill the ability of the companies and banks to borrow from the international financial markets. Default in foreign currency denominated debt would do the same.

Further, the IMF programs would bring some financial relief, diminish illiquidity in the banking/corporate sector and enforce economic and financial reforms. But, they would also establish austerity measures, force structural reforms and increase competition in the private sector, which could damage the already fragile and indebted corporate sector thus flaming the crisis. Therefore, the IMF programs need probably to be designed differently. There’s is also no guarantee that they will be efficient in curbing the crisis this time around. Still, it may be the best option for Turkey.

Figure 2. Credit to non-financial private sector and to general government as a percentage of GDP. Source: GnS Economics, BIS

Almost no places to hide

The world seems to be utterly unprepared for what’s about to be unleashed. Prior heroes, the central bankers, are now the culprits because they have been the ones to provoke the almost uncontrollable rise in debt with their zero interest rates and QE –programs. The standard crisis fighting measures are likely to prove insufficient and even counterproductive in some cases. It will require a truly new approach to counter the global debt crisis and depression that are well on their way. Still, when the crisis hits, it’s likely that the “new old” measures (like QE) will be tried over and over again until their effectiveness will be totally gone and/or the value of the fiat moneys will be lost.

Property (land), physical gold and cash of respected (sound) currencies and countries are the only safe havens this time around. This is because the coming crisis will be likely to engulf all corners of the world. On the flip side, the crisis will create a buying opportunity of a life-time. One just needs to secure liquidity of assets when the crisis hits. Because of the magnitude and reach of the coming economic collapse, this will not be easy. Time is of the essence.

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Via TheAntiMedia.com,

The California state legislature passed a bill this week requiring restaurants to make the default drinks for kids’ menus either water or milk.

According to the text of S.B. 1192:

“This bill would require a restaurant, as defined, that sells a children’s meal that includes a beverage, to make the default beverage water, sparkling water, or flavored water, as specified, or unflavored milk or a nondairy milk alternative, as specified. The bill would not prohibit a restaurant’s ability to sell, or a customer’s ability to purchase, an alternative beverage if the purchaser requests one.”

The bill does not prohibit restaurants from selling other drinks to children, but it forces them to offer water or milk first. The penalties are as follows:

“The bill would make a violation of its provisions an infraction, but would make the first violation subject to a notice of violation. Under the bill, the 2nd and 3rd violations would be punishable by fines of not more than $250 and $500, respectively. By imposing additional duties on local enforcement agencies and by creating a new crime, the bill would impose a state-mandated local program.”

Lawmakers say the new law is intended to help combat childhood obesity in the state, but not all parents are convinced. “It’s a good idea, but ultimately it’s up to the parents,” one California mother told CBS News.

“Cancer is fought in the halls of government, not just in the halls of the hospital,” said Stephanie Winn of the American Cancer Society, which supports the bill.

“Some of these kids are drinking up to three sodas a day. This is setting them up for tremendous cancer risks down the road. Because now we know that 20 percent of all cancers are tied to being overweight,” she said.

Some lawmakers objected.

 “Seriously, like, what’s next?” asked Assemblyman Matthew Harper, R-Huntington Beach. “Are we going to insist that you have to have kale in your salad unless you specifically ask otherwise?”

Nevertheless, the bill, which was introduced in the Senate by majority leader Sen. Bill Monning, was just passed by the Assembly. It will return to the Senate for one more vote before it is sent to Governor Jerry Brown’s desk. The bill passed easily in both houses.

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“Russian influence will flow through that pipeline right into Europe, and that is what we are going to prevent,” an unnamed U.S. official told the Wall Street Journal just as Russian President Vladimir Putin hold talks with Chancellor Angela Merkel outside of Berlin on Saturday centered on the two countries moving forward with the controversial Russian-German Nord Stream 2 gas pipeline, but also involving issues from the Iran nuclear deal to ending the war in Syria. 

Intense pressure from Washington is overshadowing the project, construction of which is already in advanced stages, as the WSJ cites current and former US officials who say sanctions are under discussion and could be mobilized in a mere matter of weeks.

These potential sanctions, ostensibly being discussed in response to US intelligence claims of Russian interference in the 2016 election, could target companies and financial firms involved in the massive pipeline’s construction.

This comes after comments from President Trump at the opening of a NATO summit in July made things uncomfortable for his German counterpart when he said that Germany is so dependent on Russia for energy that it’s essentially being “held captive” by Vladimir Putin and his government.

“Germany is captive of Russia because it is getting so much of its energy from Russia. They pay billions of dollars to Russia and we have to defend them against Russia,” Trump told NATO chief Jens Stoltenberg at a televised opening breakfast. 

The pipeline has been opposed by multiple US administrations, who have long accuse the Kremlin of seeking to accrue political leverage over Europe given the latter’s already high dependence on Russian natural gas. The pipeline has been a frequent talking point and target of attacks by Trump, who threatened to escalate the trade war against Germany going back months ago if it supported the construction of the pipeline.

He’s here! Putin has arrived at Schloss Meseberg, for the first Merkel-Putin bilateral meeting since the annexation of the Crimean Peninsula in March of 2014. pic.twitter.com/MmU6iw0JUx

— dwnews (@dwnews) August 18, 2018

US officials have also expressed concern that Russia will pull pack significantly from delivering natural gas via Ukraine when its Gazprom tranit contract expires by the close of 2019. Ukraine is currently the chief Russian natural-gas export point to the EU and depends heavily on levying its fee on this trade. 

Both Russia and Germany have sought to calm US concerns over the Ukraine issue, with Putin himself reportedly telling both Merkel and Trump that he was “ready to preserve” gas transit through Ukraine even after Nord Stream 2 was completed. 

US officials speaking to the WSJ, however, downplayed the Ukraine issue, instead focusing on the urgency of allowing such significant and irreversible Russian economic and political inroads into the heart of Europe. 

Richard Grenell, the U.S. ambassador to Germany, told the WSJ, “We have been clear that firms working in the Russian energy export-pipeline sector are engaging in a line of business that carries sanctions risk,” — something which he’s repeatedly emphasized with officials in Berlin. President Trump himself has also reportedly raised the issue directly with Chancellor Merkel on multiple occasions. 

But for all the shrill US media claims that Trump is somehow doing Putin’s bidding, the WSJ has this illuminating line: “Officially, the European Commission, the EU’s executive body, is coordinating the gas-transit talks, but Ms. Merkel also has played a leading role because of her regular contacts and longstanding relationship with Mr. Putin, European officials say.”

Meanwhile, it appears that Washington has a losing hand even while making threats of sanctions in an attempt to block the pipeline project.

Crucially, the WSJ report provides further confirmation the following previously known but hugely significant detail: 

A European energy executive familiar with the discussions said company representatives had told John McCarrick, deputy assistant secretary in the State Department’s Bureau of Energy Resources, that the five European companies and Gazprom had already provided €5.5 billion ($6.3 billion) in financing and that the project wouldn’t be stopped even if the U.S. were to impose sanctions.

The Nord Stream 2 project was started in 2015 is a joint venture between Russia’s Gazprom and European partners, including German Uniper, Austria’s OMV, France’s Engie, Wintershall and the British-Dutch multinational Royal Dutch Shell. The pipeline is set to run from Russia to Germany under the Baltic Sea – doubling the existing pipeline’s capacity of 55 cubic meters per year, and is therefore critical for Europe’s future energy needs.

Currently, the second phase involves utilizing an existing pipeline already channelling smaller amount of gas from Russia to Germany. Construction for the second phase started in May of this year. 

 

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The FBI has been dealt a major blow after a Washington DC judge ruled that the agency must respond to a FOIA request for documents concerning the bureau’s efforts to verify the controversial Steele Dossier, before it was used as the foundation of a FISA surveillance warrant application and subsequent renewals. 

US District Court Judge Amit Mehta – who in January sided with the FBI’s decision to ignore the FOIA request, said that President Trump’s release of two House Intelligence Committee documents (the “Nunes” and “Schiff” memos) changed everything.

Considering that the FBI offered Steele $50,000 to verify the Dossier’s claims yet never paid him, BuzzFeed has unsuccessfully tried to do the same to defend themselves in a dossier-related lawsuit, and a $50 million Soros-funded investigation  to continue the hunt have turned up nothing that we know of – whatever documents the FBI may be forced to cough up regarding their attempts to verify the Dossier could prove highly embarrassing for the agency. 

[I]f Mr. Steele could get solid corroboration of his reports, the F.B.I. would pay him $50,000 for his efforts, according to two people familiar with the offer. Ultimately, he was not paid. –NYT

What’s more, forcing the FBI to prove they had an empty hand will likely embolden calls to disband the special counsel investigation – as the agency’s mercenary and politicized approach to “investigations” will be laid all the more bare for the world to see. Then again, who knows – maybe the FBI verified everything in the dossier and it simply hasn’t leaked. 

That said, while the FBI will likely be forced to acknowledge the documents thanks to the Thursday ruling, the agency will still be able to try and convince the judge that there are other grounds to withhold the records. 

In January, Mehta blessed the FBI’s decision not to disclose the existence of any records containing the agency’s efforts to verify the dossier – ruling that Trump’s tweets about the dossier didn’t require the FBI and other intelligence agencies to act on records requests. 

“But then the ground shifted,” writes Mehta of Trump declassifying the House memos. “As a result of the Nunes and Schiff Memos, there is now in the public domain meaningful information about how the FBI acquired the Dossier and how the agency used it to investigate Russian meddling.” 

The DOJ also sought to distinguish between the Steele Dossier and a synopsis of the dossier presented to both Trump and then-President Obama in 2016, however Mehta rejected the attempt, writing “That position defies logic,” while also rejecting the government’s refusal to even say if the FBI has a copy of that synopsis. 

“It remains no longer logical nor plausible for the FBI to maintain that it cannot confirm nor deny the existence of documents,” Mehta wrote. 

It is simply not plausible to believe that, to whatever extent the FBI has made efforts to verify Steele’s reporting, some portion of that work has not been devoted to allegations that made their way into the synopsis. After all, if the reporting was important enough to brief the President-elect, then surely the FBI thought enough of those key charges to attempt to verify their accuracy. It will be up to the FBI to determine which of the records in its possession relating to the reliability of the Dossier concerns Steele’s reporting as discussed in the synopsis. 

“This ruling represents another incremental step in revealing just how much the FBI has been able to verify or discredit the rather personal allegations contained in that synopsis derived from the Steele dossier,” said Brad Moss, a lawyer pressing the lawsuit for the pro-transparency group, the James Madison Project. “It will be rather ironic if the president’s peripheral actions that resulted in this ruling wind up disclosing that the FBI has been able to corroborate any of the ‘salacious’ allegations.”

In other words, the FBI must show what they did to verify the claims contained within the Nunes and Schiff memos. 

Because the case was heard on appeal, the ruling will not take immediate effect, notes Politico, which adds that the appeals court is now likely to remand the case to Mehta, while the FBI is going to try and convince him the records should remain unreleased. 

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Authored by John Rubino via DollarCollapse.com,

Emerging market currencies are collapsing pretty much everywhere these days. But it’s safe to assume that most people don’t understand exactly what’s causing this outbreak, why it’s happening now, or what “external dollar debt” has to do with it.

So here’s a quick primer followed by the obligatory apocalyptic prediction:

Prelude: cheap dollar financing

Pretend for a second that you’re Brazil. Your economy is in pretty good shape and your currency – the real – is getting stronger. Because of this, people are willing to lend you money.

Your internal interest rates – that is, what you’d have to pay to borrow real – are around 6%.

But when you look overseas you notice that US dollars – which have been trending down for a while – can be borrowed for around 2%. So you run some numbers and conclude that if you borrow dollars and assume that the real continues to rise against the dollar, you’ll make out two ways, on the spread between what you pay for those dollars and what you earn by investing them, and when you pay back the loans with depreciated dollars. So you borrow dollars, not just a little but a lot because with a lot you make a fortune.

So far so good. For a while the dollar keeps falling versus the real and you earn a nice spread. You feel smart, like you’ve figured out international finance and henceforth will will have a seat at the big table.

The turn

But then the unexpected (for you at least) happens. The dollar stops falling and starts rising.

And suddenly the spread you’re making on your external dollar debt no longer offsets the cost of paying back those ever-more-expensive dollars. That’s bad but manageable as long as the trend (dollar rising versus the real) doesn’t get too extreme. But the financial markets don’t like what they’re seeing and traders start selling real, forcing its value down further. Now you’re looking at massively negative cash flow and a possible death spiral as the markets sell your currency, which makes your dollar loans even more unmanageable and so on, with no end in sight.

Your only consolation at this point is that other countries have made the same mistake on an even bigger scale. Turkey, for instance, has a much higher external dollar debt relative to GDP than you do, and is therefore reaping a bigger whirlwind. See Talking Turkey: ‘This Will Be The Single Largest Default In Financial History’.

But this is not really that comforting because in a suddenly-spooked world, a problem in one developing country sends the markets into a frenzy of “who’s next???” speculation, which which produces a very long list that, alas, includes you. So Turkey’s chart is a potential glimpse of your future.

Systemic Issues

So far the story has been about the problems of emerging markets which, while interesting and maybe disturbing, aren’t really a big deal for fat and happy Europeans or Americans. But this is the age of globalization when everything is interconnected. Which is a fancy way of saying that someone lent all those dollars to Turkey et al, and is therefore on the hook for whatever isn’t repaid. Busted emerging market currencies are now everyone’s problem. Here’s the bank exposure data for Turkey:

Note that Spanish banks for some reason really, really liked Turkey back in the day, and are now on the hook for an astounding 5% of Spanish GDP. For other developing countries the exposure varies among banks and nations, but in the aggregate the risk reaches well into “systemic” territory. That is, if allowed to default, the emerging markets could take down some major developed world banks and threaten the fiat currencies of those countries. Now it’s serious.

History rhymes

We’ve been here before, of course. Emerging markets seem to implode about once a decade, and each and every time since Alan Greenspan’s tenure as Fed chair in the 1990s, the developed world’s governments and central banks have responded exactly as they should in a capitalist system, allowing the offending banks to fail, thus sending the message that risky behavior carries a downside as well as an upside.

Just kidding. They bailed out everyone in sight every time, convincing the major banks that no risk is too great in pursuit of outsized profits because once an institution achieves “too big to fail” status it has the government permanently at its back. And so here we are, with yet another set of systemically-threatening crises bubbling up and another round of massive bail-outs soon to follow.

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Most of the post-Lehman era has been characterized by unprecedented easy monetary policy meant to inflate asset prices, and sure enough after 705 rate cuts, and $12.4trillion in QE, the S&P is just shy of its all time highs. However, over the past year, a different dynamic has taken place: the Fed’s tightening cycle and ongoing rate hikes have resulted in a sharp drain of USD-liquidity across the globe.

Meanwhile, with the ECB set to end its QE and the BOJ taking tentative steps toward tightening while engaging in a shadow taper of its own QE, central bank balance sheets are set to shrink for the first time since the financial crisis.

It is this tightening in financial conditions in general, and dollar liquidity in particular that ultimately has been the catalyst that led to a near record divergence in FX volatility between emerging markets and developed nations, incidentally that last time we saw such deltas was just after 9/11 and the great financial crisis.

While leads us to the bigger problem: as the dollar becomes more attractive and as carry trades collapse, emerging markets are forced to respond to currency weakness with interest rate hikes to stem capital outflows. And, most concerning as the chart below shows, the pace of global central bank rate hikes has already visibly jumped since EM weakness began in February this year. In fact, the current pace of rate hikes is almost on par with the pre-Lehman period – a time where policy makers were trying to slow a global economy that felt too good to be true.

And as Bank of America writes, not only will global economic growth slow down as a result of monetary tightness and higher interest rates, but as a result of the rapid pace of central bank hikes across the globe, “crowding” into risky assets will inevitably slow.

More ominously, it’s not just an EM phenomenon: dollar strength has emerged as a major negative for European markets too. As the next chart below shows, retail inflows into Euro credit funds have fizzed-out this year, and this has coincided with the period of Dollar strength from March onwards in ’18. Coupled with very attractive front-end rates on the Treasury curve, European retail money is simply leaking to the US market now and explains not only the persistent weakness of the Euro – despite the ECB’s recent taper announcement – but also the ongoing decoupling between the US and the rest of the world.

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Authored by Chris Martenson via PeakProsperity.com,

…and how do things usually work out for the rat?

There are ample warning signs that another serious financial crisis is on the way.

These warning signs are being soundly ignored by the majority, though. Perhaps understandably so.

After 10 years of near-constant central bank interventions to prop up markets and make stocks, bonds and real estate rise in price — while also simultaneously hammering commodities to mask the inflationary impact of their money printing from the masses — it’s difficult to imagine that “they” will allow markets to ever fall again.

This is known as the “central bank put”: whenever the markets begin to teeter, the central banks will step in to prop/nudge/cajole the markets back towards the “correct” direction, which is always: Up!

It’s easy in retrospect to see how the central banks have become caught in this trap of their own making, where they’re now responsible for supporting all the markets all the time.

The 2008 crisis really spooked them. Hence their massive money printing spree to “rescue” the system.

But instead of admitting that Great Financial Crisis was the logical result of flawed policies implemented after the 2000 Dot-Com crash (which, in turn, was the result of flawed policies pursued in the 1990’s), the central banks decided after 2008 to double down on their bets — implementing even worse policies.

The Largest-Ever Monetary Experiment In Human History

It’s not hyperbole to say that the monetary experiment conducted over the past ten years by the world’s leading central banks (and its resulting social and political ramifications) is the largest-ever in human history:

(Source)

This global flood of freshly-printed ‘thin air’ money has no parallel in the historical records. All around the world, each of us is part of a grand experiment being conducted without the benefits of either prior experience or controls. Its outcome will be binary: either super-great or spectacularly awful.

If the former, then no worries. We’ll just continue to borrow and spend in ever-greater amounts — forever. Perpetual prosperity for everyone!

But if things hit a breaking point, then you had better be prepared for some truly bad times.

Excessive money printing leads to the destruction of currency. Fiat money (like the US dollar, the Euro, the Yen, and every other world currency) is a social contract and has an associated set of related agreements. When that contract and those agreements are broken by reckless expansion of the currency base, things fall apart fast. We need look no further than current-day Venezuela to understand that.

It’s important to remember that money — whether physical cash or in digital form, stocks, or bonds — is just a claim on real wealth. Real wealth is land, clothes, food, oil…you know, real things.

We expect that our cash will be able to buy us the real things we want when we want them. We trust that our stocks give us an ownership stake in a real company producing real things for real profits. We rely on our bonds being re-paid in the future along with interest; but if not, we expect that our bond becomes a claim on valuable collateral.

Ideally, the money supply and the amount of real wealth should exist in balance. As money is a claim on “stuff”, as economic output (i.e. “stuff”) increases, than so should the claims. And vice-versa during periods of economic contraction.

But what happens when the claims start to far outweigh the real “stuff”? That’s when things get precarious.

Note how dramatically the claims represented by just the S&P 500 index alone have quadrupaled since the start of 2009, driven by the central banks’ quantitative easing programs:

(Source)

The flood of money unleashed by QE didn’t result in vast amounts of new actual wealth being created (i.e. greater productive output per capita). But it did result in grotesquely-inflated financial asset prices that have helped to create the most profound wealth and income inequality seen in our lifetime (perhaps ever).

The Many Sins Of The Central Banks

The list of central bank-induced injustices is long. It reads like the rap sheet of a virulent psychopath: $trillions looted from savers and handed to the big banks and leveraged speculators, ruined pensions, shattered retirement dreams for millions, record amounts of debt in every corner of the global economy, and an increasingly unaffordable cost of living for everyone but the elite 1%.

“But we had to save the system!” cry the central bankers in their defense.

Even if that were the case (and I dispute whether the world is really better off for having saved Citibank et al.), that rescue should have ended back in mid-2009, at the latest.

But instead, the central banks ramped up their wanton ways in the years since the GFC. Did you know that their largest-ever printing spree happened over the past two years? (2016 to 2017):

The bigger the printing spree the bigger the fundamental distortions. In such a world, up becomes down, black becomes white, and right becomes wrong.

All of which means that fundamental analysis, has been all but useless as a predictor of prices. All that has mattered is the answer to the question: “How much will the central banks print next?”

In such an environment, there’s no room for investors. It forces all of us to become speculators, trying to predict what a small cabal of bankers are thinking.

But among their very worst offenses has been the manipulation of sentiment. The prices of financial assets and commodities have become political and propaganda tools, which means that nothing can be left to chance. All prices have to send the “right” signals at all times, in the same way that certain news outlets pump a point of view endlessly. Repetition creates its own reality.

Because of the increasingly frequent (probably daily), interventions by central banks and their proxies, the financial markets have become ““markets””. They no provide us with any useful signals about the future or about the current health of the economy.

Instead, they only tell us what the authorities want us to hear.

To them, all that matters is strength and stability. As long as those conditions contine to be met for stocks, bonds and real estate prices, most people are content to let things ride and not probe too deeply.

But when this scam comes to its inevitable end, the crash will be spectacular when it arrives.

This reckoning is already way overdue.  At this point, we find ourselves in the odd positin of rooting for it to happen soon, as the potential energy in the system builds with every passing day. Our worry is that if the crash is delayed for much longer, its resulting carnage will be so large that it will be unsurvivable.

And while we mean that in the figurative sense for people’s portfolios, it’s possible that the crash could become literally unsurvivable if the political “solution” to deflect blame away from the the central banks and their DC partners-in-crime is a kinetic war.

When viewed in that light, America’s histrionic attempts to demonize Russia over the past few years begin to make frighteningly more sense.

It’s Time To Talk Turkey

We’ve been vocal of late about the numerous signs that another great financial crisis is building. The gut-punch Turkey hit global markets with this week is just one example.

Yes, it will be painful to crash from here. But once the needed correction is underway, we’ll have the opportunity to make the best of it.

We can pick up the pieces and begin building towards a future we can all believe in.

Yes, there’s no avoiding the pain of taking our lumps for the the past mistakes we’ve made. But we don’t have to compound our misery by continuing to do more of exactly what got us into this mess in the first place. We simply need the courage to face the psychological burden of admitting to our prior failings.

That’s doable.

It all starts with being honest with ourselves.

Look, we all know the world is finite. Infinite economic growth on a finite planet is an impossibility. We have all the data we need to make that conclusion. Every passing day where we pretend that’s somehow untrue or avoidable makes the eventual adjustment that much more wrenching.

It’s an intellectually simple exercise to conduct. But an emotionally impossible task for those whose internal belief systems would be hopelessly compromised by allowing that logic to penetrate their world view.

And so the future will be represented by two sorts of people: those able to face what’s coming head on and prepare accordingly, and those who can’t.

I sincerely hope that you’re not among those deterred from preparing by the last gleaming of today’s glittering stock prices. We’re going to need as many prepared people as possible in the coming future.

And we may need them soon. The severe recent deterioration in the Emerging Markets threatens a contagion that could well start the next crisis.

Turkey is currently in a major currency crisis threatening to metastisize into a full-blown sovereign debt crisis. Defaults there will spill over into Europe’s banking system (which has made loads of shaky loans to Turkey), and from there cause domino effects throughout the rest of the world.

But Turkey isn’t the weakest or the most worrying country faltering: Italy is stumbling, as is Brazil, and even China. But Asia ex-China is the real powderkeg. Their unserviceable debts dwarf everybody else.

In Part 2: The Emerging Market Threat, we detail out the specific concerns to watch for in the fast-unfolding Emerging Markets drama. Which countries pose the greatest threat? And how bad could things get if the contagion indeed spreads?

For years we have predicted that the next crisis will progress “from the outside in” as the weaker players succumb first. That appears to be what we are seeing now, and it’s causing me to advance my own personal preparations.

I recommend you do the same.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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