On The Failure Of Inflation Targeting, The Hubris Of Central Planning, The "Lost Pilot" Effect, And Economist IdiocySubmitted by Tyler Durden on 02/05/2012 - 11:49
As an ever greater portion of the world succumbs to authoritarian control (whether it is of military disposition, or as we first showed, a small room of economists defining the monetary fate of the future as central banks now hold nearly a third of world GDP within their balance sheets) we can't help but be amazed as the population simply sits idly by on the sidelines as the modern financial system repeats every single mistake of the past century, only this time with stakes so high not even Mars could bail out the world. Unfortunately, with the world having operated under patently false economic models spread by hacks whose only credibility is being endorsed by the same system that created these models over the past century, the only temporary solution to all financial problem is to "try harder." Sadly, the final outcome is well known - a global systematic reset, in which the foundation of all modern democracies - the myth of the welfare state (which at last check, was about $200 trillion underfunded on an NPV basis globally and is thus the most insolvent of all going concern entities in existence) is vaporized (there's that word again) leading to global conflict, misery and war. Sadly that is the price we will end up paying for over a century of flawed economic models, of "borrowing from the future", of ever more encroaching central planning, and of an economic paradigm so flawed that as Bill Buckler puts it, "Keynes’ response to those who questioned the “longer-term” consequences of his advocacy of credit-creation as a basis for money was - “In the long run, we are all dead”. It is difficult to overemphasise the venal arrogance of this remark or the destructiveness of its legacy." Alas, the last thing the central planning "fools" (more on that shortly) will admit is their erroneous hubris, which in the years to come will claims millions of lives. In the meantime, we can merely comfort ourselves with ever more insightful analyses into the heart of the broken system under which we all labor, such as this one by SocGen's Dylan Grice, whose latest letter on Popular Delusions is a call for "honest fools" - "Frequently, when we make mistakes we try to correct them not by changing the flawed thinking which led to the mistake in the first place, but by reapplying the same flawed thinking with even more determination. Behavioural psychologists call it the “lost pilot” effect, after the lost pilot who tried to reassure his passenger: “I have no idea where we’re going, but we’re making good time!” Policy makers on both sides of the Atlantic are treating today’s malaise with the same flaky thinking which created it in the first place. How can that work?" Simple answer: it can't.
Yesterday we presented why when it comes to Syria, the UN Security Council can forget any attempt at "overhauling" a regime that is a cornerstone for Russian naval presence in the Mediterranean and the middle east. Today, in the aftermath of the UN reminder that it is the world's biggest collection of post-facto hypocrites, not to mention, the world's most irrelevant and ineffectual organization, anger at the Russian and Chinese veto has already manifested itself, as protesters have attacked the Russian embassy in Tripoli and tore down the Russian flag, Al Jazeera reported on Sunday. As Itar-Tass reports, "According to Al Jazeera, the riots staged by the Syria opposition involved Libyans as well. No further details are available so far. None of the Russian diplomats has been hurt in an rally stage by the Syrian opposition in front of the Russian embassy in Tripoli on Sunday, an officer from the Russian embassy told Itar-Tass over the phone. “No one has managed to break into the territory of the Russian diplomatic mission, no one of the personnel has been hurt. All are safe and sound. Although the protesters have managed to tear down the Russian flag,” the diplomat said." Still, the wily occupiers of the Kremlin preempted what they perceived as potential 'displeasure' with Russian tactics to protect its own national interests. Because as Zero Hedge has been reminding readers on occasion, Russia has something that is far more valuable to Europe than the Goldman-alum controlled printing press: it has the world's largest natural gas reserves. Which for a continent gripped in one the coldest winters on record, whose heating infrastructure is based primarily on natgas, and where Russian imports account for 25% of total nat gas, Russia has the upper hand in, well, everything. Which it gladly reminded the world of yesterday. According to the AP: Russia's state-controlled Gazprom natural gas giant acknowledged for the first time Saturday that it "had briefly reduced gas supplies to Europe amid a spell of extreme cold." Oops... Just a fat finger there, nothing to worry about. Oh, and if anyone forgets that in the Eurasian continent it is Russia who increasingly holds all the cards, Gazprom may "briefly" cut all supplies to Europe, -40 C degree temperatures be damned. Briefly...
With $US 1 TRILLION plus annual deficits stretching out into the indefinite future, the Fed is certainly not going to “run out of Treasuries to purchase”. On top of that, there is the $US 2.8 TRILLION of maturing Treasury debt which must be rolled over this year. The simple truth of the matter is that ever since they were rescued by QE1 back in March 2009, the markets have become used to the idea that the financial “powers that be” will not let the concept of “risk” return to sully the rewards they now expect. The “Greenspan put” has turned into a “Bernanke guarantee”. Ben Bernanke reminded the world that the government does have such a thing as a “printing press” way back in 2002. Since he became Fed Chairman, he has left world markets in no doubt of that fact. And that is what they are relying on.
Instead of defaulting a long time ago (when we first suggested it should) when it could have pulled an Iceland, taken a bitter pill, hyperinflated the drachma and in the process delevered overnight, if at a big social cost of losing its welfare safety net (which it is about to lose anyway courtesy of the PSI and OSI), and not be held captive to bigger geopolitical interests, and hostage to the banker superclass, Greece very likely could have been on the road to recovery now, granted with a totally different political regime. Instead, the political regime is the same, Greece is more in debt than ever before, the economy is in shambles, the banks have seen two straight years of bank runs, and most importantly the people now are poorer and more disenchanted than ever, and as the following story indicates, about to get far angrier than any Syntagma square riot cam (which is about to come back with a PayPerView vengeance) has shown to date. According to Kathimerini, late on Saturday evening, "A group of between 30 and 50 youngsters attacked the house of President Karolos Papoulias."
One of the most ominous developments for us personally crawled out from under its rock in November. Again without any public debate, DHS unleashed its National Operations Center's Media Monitoring Initiative. Yep, it's exactly what it sounds like: The NOC's Office of Operations Coordination and Planning is going to collect information from news anchors, journalists, reporters, or anyone who may use "traditional and/or social media in real time to keep their audience situationally aware and informed." Thus Washington, D.C. unilaterally grants itself the right to monitor what you say. Doesn't matter if you're the New York Times, Brian Williams, a basement blogger, an online whistleblower, or known government critics like ourselves. They're gonna take note of your utterances and file them away for future use. Journalists are not the only targets, by the way. Also included among those subject to this surveillance are government officials (domestic or not) who make public statements; private-sector employees who do the same; and "persons known to have been involved in major crimes of Homeland Security interest," however large that umbrella might be....The larger speculation is: what's the endgame here?
Following up on our report from this morning that according to former Greek defense minister, German submarine chief procurer, and not to mention Jenny Twenty repeat offender, Evangelos "Xanax" Venizelos, we learn that the god of Deus Ex Machinae is about to abandon Greece, after an announcement by that most magic unicorn-infatuated of bureaucrats, Eurogroup head Jean-Claude Juncker made it clear that Greece is all but finished. As Reuters reports, "The possibility of a sovereign default by Greece cannot be ruled out, Jean-Claude Juncker, head of the Eurogroup of finance ministers from the single currency zone, said in a German magazine on Saturday." Translation: A Greek default on that €14.5 billion bond maturity D-day of March 20, is now inevitable. In an advance copy of comments to news weekly Der Spiegel, Jean-Claude Juncker was quoted as saying Greece could no longer expect solidarity from other euro zone members if it cannot implement reforms it has agreed. "If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy," he said. So after years of delaying the inevitable sovereign Lehman weekend, it is finally here. As a reminder, when Lehman filed, everyone, at least those in charge, thought the fall out could be contained. It couldn't, and the Fed had to step in with roughly $30 trillion in backstops, guarantees, and asset purchases. The same will happen this time.
Since there still is confusion regarding yesterday's whopping "surge" in non-farm payrolls, which represented a 243K jump in the Establishment survey (of which 490K was temp jobs, same as in the Household Survey where temp jobs soared by a record 699K), yet only to arrive at an employment number last seen ten years ago, when the US population was about 30 million lower (think about that: 30 million increase in population and no change in the total employed), here is the final explanation of what happened yesterday.
In one of the clearest (and most optically pleasing) discussions of recent months, David McWiliams (of Punk Economics) succinctly explains how Europe has evolved from a democracy to a bankocracy, the implications of which lead to austerity for the people and a Franco-German imposition (the 'fiscal compact') that can only lead to social unrest and chaos. In this brief (and expertly illustrated) video, the Irish economist clarifies Europe's 'dirty little secret' where economic policy is being run almost exclusively for the banks which, as we see in Greece and Ireland, means the political elite are becoming more and more detached from the people. The terror of the r-word (referendum) looms large as McWilliams analogizes the two ways out of a debt crisis (squeeze the debtor or forgive the debtor) with the catholic and protestant perspectives on sin and forgiveness. While falling short of calling for governments to go full-Keynesian (everyone knows you never go full-Keynesian), he (focusing on the problems of the current hopeful solution) summarizes the fiscal union as envisaged by France and Germany (which actually penalizes countries that are in trouble, rather than help them) as not a friendly-union but a vindictive strait-jacket put in place to help banks, not countries. It comes as no surprise to him that the price of Gold (and Bunds) is firm as the 'example' that Greece is likely to set (or face extreme social upheaval) will domino-like stumble across the other troubled nations and as he points "we have been warned". Our view remains that austerity works if countries manage to cut expenses while keeping a balance. Alas, the balance is out of skew due to 30 years of runaway full-Keynesianism, which leads indeed to the problems that McWilliams so well espouses.
UPDATE: Hardly reassuring (from Bloomberg): *U.S. IS `DISGUSTED' WITH RUSSIA, AMBASSADOR RICE SAYS AT UN
The world is suddenly aflutter in its usual fake indignation (how many times have we seen this) having realized what has been going on in Syria for months on end. It was none other than the Headhunter In Chief who "condemned the "unspeakable assault" Saturday by Syrian forces on the city of Homs, a sustained attack that activists say killed more than 200 people in what may be the bloodiest confrontation of the uprising against Bashar Assad's regime. The assault sparked fierce international outcry ahead of a meeting Saturday of the U.N. Security Council, where the U.S. and other nations are pushing for a vote on an Arab League-backed resolution calling for Assad to step down." Needless to say, just like in the case of Libya, both China and Russia are now a confirmed veto for any security council resolution that enforces a regime change, no fly zone, or what have you. Only this time the stake for Russia (and China as well, as Syria is nothing but a gateway to Iran), are far higher. And as Zero Hedge noted regarding Iranian developments yesterday, "We've seen this play by play many times before and frankly at this point the posturing is getting just silly. What we do want to find out, however, is how will Russia get involved in all of this. Because if recent actions are any precedent, we fully expect Putin to send an aircraft carrier, purely symbolically, in the Arabian Sea himself, just to indicate that any invasion, pardon, liberation, of Iran crude, will first have to go through him. And not to mention China... or India." Sure enough, speaking of aircraft carriers, it was none other than the Russian navy's aircraft carrier Kuznetsov that landed at the Russian naval base in Tartus "in support of the al-Assad regime" back in November, and it is the Tartus base that is arguably one of the most critical locations for the US military vis-a-vis developments in the middle east. And here is why Russia will block any attempt by the west to impose its own will in Syria.
Following "Very Difficult" Troika Teleconference, Greece Nowhere Near A Deal As Sunday Night Deadline ApproachesSubmitted by Tyler Durden on 02/04/2012 - 12:40
It is not shaping up to be a pleasant weekend for Greek finance minister Evangelos Venizelos, who as a reminder until June 17, 2011 was the Greek defense minister and likely the man responsible for buying up all that European military equipment (with whose money nobody knows), or his boss, G-Pap successor and former ECB VP Lucas Papademos. The reason is that Greece is scrambling to reach a deal with the Troika that permits the €130 billion second bailout to be disbursed (unclear how the €15 billion add on would be theater), yet a key precondition of Troika demands is labor reform (a cut of the €750/month minimum wage, and various headcut reductions across the nation), which however as reported yesterday has seen all three coalition cabinet member throw up on. In other words, Greece has about 24 hours to do the impossible, unless of course it simply delays and does nothing once again. Alas, the real issue is that unlike before, there is a hard deadline of a bond maturity cash outflow on March 20, and absent resolution, which especially on the PSI issue should come far in advance as an exchange offer takes at least 6 weeks to finalize, there will be no deal. So while this weekend may come and go, without anything being resolved, the days can kicking, as Zero Hedge said back in January, are ending.
Martenson Interviews Dines: 'Wealth In The Ground' Is Your Best Bet to Surviving the Coming 'Supernova of Inflations'Submitted by Tyler Durden on 02/04/2012 - 12:04
James Dines has been in the business of making bold calls for over 50 years. In this deep-diving interview, he minces no words about the dire risks the US economy - and the world at large - faces at this juncture. Simply put, he sees the excessive credit in the financial system as having placed the global economy on a collision-course with hyperinflation. Unlike past periods of turmoil, there are no truly 'safe' places for investment capital to hide. Geographic markets and almost all asset classes are positively correlated these days. They share many of the same risks and if a systemic crash occurs, they will crash together. At this point, says Mr Dines, you want to invest in assets that can not be printed away by government desperation. You want to hold hard assets; "wealth in the ground" as Dines says (physical commodities, mining companies, etc). They're your best best to make money faster at a rate faster than inflation is going to happen.
The real meaning of a treasury bear market may not be a flight out of treasuries into another asset class. Rather it real import could be the lack of liquidity available anywhere for nearly any asset class... Liquidity acts in a financial system like ample water, ambient temperature, and clean air act in an ecosystem. It makes trading strategies proliferate. Further, it makes meaningful intermediation possible, fostering the growth in high yield bonds and marketable loans. Yes, derivatives like vanilla stock options and others too. A financial system without liquidity is like a tropical ecosystem dried into a desert. Without liquidity, it is an open question whether the arbitrage pricing revolution will outlast the antiquated mark-ups of reinsurers. Liquidity makes random processes stationary, which is crucial to make the probabilistic foundations of risk neutral pricing work. Is it intuitively possible to price (and even more buy and sell) credit and interest rate risk without some liquidity in the underlying? How can a bank generate carry when the curve is flat and there is no appreciable differential anywhere that has a minimum tolerance of liquidity?
While Marc Faber shares the usual stock of insightful market commentary, together with timing inflection points, and extended thoughts in the attached Bloomberg TV clip, it is the fact that he has officially joined Bill Gross, and so many others, in supporting the candidacy of Ron Paul as president. It is rather sad that only those who see beyond the surface of the current pyramid scheme facade, are bold enough to endorse the only man who is right for the White House. Fast forward to 15 minutes into the video to hear Marc Faber: "Ron Paul would be a very good president."
While the world rejoices in the aftermath of the enjoyable diversion in which a fake market surges on fake, politically-motivated data, which incidentally refutes the warning voiced last week by the Fed Chairman who has a far better grasp of the economy than the BLS, warned last week, the confluence of real events continues to indicate that something is brewing in the middle east. Only this time it is not the US adding another aircraft carrier to the three already situated by the Straits of Hormuz. This time the smoke and fire come from Israel. ABC reports that "Israeli facilities in North America -- and around the world -- are on high alert, according to an internal security document obtained by ABC News that predicted the threat from Iran against Jewish targets will increase. "We predict that the threat on our sites around the world will increase … on both our guarded sites and 'soft' sites," stated a letter circulated by the head of security for the Consul General for the Mid-Atlantic States. Guarded sites refers to government facilities like embassies and consulates, while 'soft sites' means Jewish synagogues, and schools, as well as community centers like the one hit by a terrorist bombing in Buenos Aires in 1994 that killed 85 people." Hopefully the head of security's prediction track record is better than that of the CBO, and that the very act of prediction does not in effect "make it so." At least courtesy of this latest escalation by Israel we get a clue of what to focus on, if not so much who the actual aggressors will be. In the meantime, Iran, which has been dealing with hyperinflation for weeks now, and likely has bigger problems to worry about than focusing on "soft sites" will naturally sense this escalation as the provocation it may well be meant to be, respond in kind, which will lead to further responses of definite attacks imminent by Iran's adversaries, and so on, and so forth, until finally the dam wall finally cracks.