Corruption

Here in the U.S., I think that The Bernank’s plan was to pretend they didn’t need to print more money, get commodity prices down and then hope that the economy would respond favorably to that development.  This wouldn’t have negated the need for more printing; however, it would have bought time and allowed for a potentially lesser degree of action.  Instead, what has happened is that the global ponzi is completely and totally incapable of holding itself together without consistent and increasingly large infusions of Central Bank money.  The debt burden is too large, the mal-investments too pervasive, the corruption too systemic.  The whole house of cards that is the global economy will vanish into dust rather quickly without more and more printing.  So what do you think they are going to do? If I am correct, and the U.S. economy itself is now in the early stages of what will probably turn into a serious economic slowdown, then it will not be easily stopped with incremental Central Bank policies.  The fact that they have waited this long and the fact that the global economy is in the midst of a serious slowdown tells me one thing.  They are way behind the curve and by the time they realize this it will be too late to stem the momentum.  That said, I do expect them to respond and the fact that things will have gotten much worse than they expected will mean a major response.  I’m not talking operation twist part deux.  I mean a serious print.  Potentially the BIG ONE.

"The next big financial crisis we will face will not come from Europe", Charles Biderman of TrimTabs notes, "but rather from China." In a brief but thought-provoking clip, Charles takes on the corruption in the 'manufactured' GDP data and outlines three more critical real-time (hard-to-fake) data points (electricity consumption, railcar-loadings, and bank-loans) that suggest China is potentially already in a recession. "Most investors do not even think this is possible", he adds, as China is the hope that so many market participants hold on to as the engine of global growth. Add to this the collapsing real-estate bubble, on which the TrimTabs-Truthsayer provides some interesting color - relating to private-public relationships and demand (and prices) are dropping rapidly. This dismal (and somewhat shocking) conclusion that China could already be in recession only stokes the fires of money-printing-expectations of course - though Charles does add (and in keeping with our 'there's no such thing as decoupling' meme) - "What a mess this world is becoming as Europe and now China is contracting - leaving very little to justify global stock prices to be as high as they currently are" and while collapse may not be imminent, Biderman ends by stating that "The Central Banks cannot levitate asset prices forever" - leaving the question of when not if the drop occurs.

• Hilsenrath: Fed Pondering Why Inflation and Deflation Threats Ebbed (WSJ)
• The Naivete: France to push for eurozone bonds (FT)
• The rebuke: Merkel Says She Won’t Shy From Clash With Hollande at EU Summit (Bloomberg)
• The Euro-love: Hollande's euro arguments "nonsense": Austria's Fekter (Reuters)
• Obama Campaign Does Damage Control After Dems Question Anti-Bain Strategy (ABC)
• Greece: four major banks recapitalized by Friday (L'Echo)... and if they aren't?
• China to fast-track infrastructure investments (Reuters)... because China needs more cement
• Jeeps Sell for $189,750 as China Demand Offsets Tariffs (Bloomberg)
• As Facebook’s Stock Struggles, Fingers Start Pointing (NYT)
• Facebook 11% Drop Means Morgan Stanley Gets Blame (Bloomberg)

Michael Hudson argues that Mr. Krugman is a conservative in disguise.

I had the privilege of seeing Roger Waters perform ‘The Wall’ to a live crowd of over 40,000 fans at the LA Coliseum on Saturday night– the second time I’ve seen the show on this tour. It was an amazing production– I wholeheartedly recommend the experience as it’s something that no DVD or album recording could possibly reproduce. At one point, Waters paused his set and began telling the audience about Jean Charles de Menezes, a 27-year old Brazilian national who was shot *8-times* by British police several years ago at a south London tube station after being mistakenly identified as a terrorist. The police, adhering to the ‘shoot first, ask questions later’ model of peace enforcement, have never been held accountable for taking the life of an innocent man at point blank range. “If we stand at the top of the slope and give our governments, and particularly our police, too much power, it’s a very long and dangerous slippery slope to the bottom,” Waters said. The crowd went berserk, roaring with approval.

The Spanish government has promised to reform the public sector to make it thinner and more efficient. In practice, however, the political machinery based on spoils is being kept intact while some very critical public functions are coming apart at the seams. This results, for example, in overcrowded courts with insufficient staff and resources that bear no resemblance to a developed nation's judiciary. Angry and less motivated public employees feel robbed of their dignity and pockets while the general population’s dissatisfaction with tax-draining, yet increasingly inefficient, public services grows. Public workers fear a new wave of cuts in their salaries as a result of the debt-laden regional governments’ asking for more "solidarity" from those who have a secure job. Naturally, in a nation with almost 6 million unemployed, public servants will not find much support from society if they opt to go on strikes to protest additional salary cutbacks. Just how far is the government willing to make itself redundant, especially in a time of economic crisis? Does Spain need state-journalists working for state-owned radio and television stations (there are 48 public television stations across the country)? How about the double, triple and sometimes quadruple existence of government officials and agencies due to layers and layers of local, regional and central government institutions? Unions and political parties sustained with taxpayers' money? As far as public servants are concerned, more and more are realizing that a false concept of merit astutely devised by mediocre politicians secured them not a job for life, but a lifetime of serfdom.

“The Greeks are still debt slaves, and will be until they tell Brussels to take a hike.”

The Kobayashi Maru test of Star Trek fame is a classic no-win situation. Star Fleet Academy students are given command in a no-win scenario: either ignore a distress call of a Federation ship inside the Klingon (enemy) zone or enter the zone on a doomed rescue mission and lose your own ship in a hopeless battle against vastly superior forces. Captain Kirk evaded the no-win choices by reprogramming the computers to enable him to win. I think the job market can be profitably viewed as a Kobayashi Maru test: the conventional either/or choice--do something you dislike for job security or go to grad/law school for an advanced degree--is a false choice.

You just have to admire Ron Paul for his non-flip-flopping tenacity.

But the system is gummed up.

There is little doubt, even amongst the most uninterested and apathetic of people, that America has reached the threshold of a dangerous new era in 2012.  Economically, the paper thin facade of recovery created by Federal Reserve fiat easing is beginning to fade, and the debt turmoil we currently see in the European Union is beginning to surface right here at home.  Socially, Americans are being subversively divided by the false left/right paradigm and the exploitation of artificially induced race tensions by the mainstream media.  Politically, Barack Obama’s presidential approval rating has hit all time lows, and the approval rating for Congress has hit a historic bottom.  The path our country has been set upon can only lead to disaster; that much is certain. 

Fraud ... What Fraud?

If the greatest trick the devil ever pulled was convincing the world he didn’t exist, the greatest trick our central bank ever pulled was convincing the world we couldn’t live without it. For most of that past twenty years, that PR campaign has been centered on the Great “Moderation”, so called because it apparently represented the full embodiment of economic management – a period of unparalleled prosperity, a Golden Age of soft economic central planning. Give the central bank enough “flexibility” and it will produce unmatched economic and financial satisfaction.

While normally we stay away from outright political commentary especially of the kind that has no direct relation to finance or the economy, the fact is that if the US had a functioning, uncompromised, uncorrupt, and effective Justice Department, much of what we see every day on Wall Street would be vastly different since if crime did indeed have punishment, then a vast portion of the questionable behavior that is exhibited by financiers would have been eliminated long ago. Which is why we find the news just released from The Hill that "Rep. Darrell Issa (R-Calif.) has circulated a draft copy of a resolution that would hold Attorney General Eric Holder in contempt of Congress" particularly relevant. For it is none other than Holder's complete lack of involvement and intervention to outright daily crimes conducted in the financial world that is as much a reason for the deplorable economic state of this country and the world, as are all those other factor extensively discussed in books and documentaries each and every day.

The dispersion across European nations in terms of growth and unemployment (as we noted earlier) are just two indications of the dramatic amount of economic hubris, as JP Morgan's Michael Cembalest describes it, associated with the belief in a sustainable European monetary union. Using the World Economic Forum's multitude of competitive factors (across economic, social, and political characteristics), the JPM CIO notes that compared to hypothetical and actual monetary unions in the world that the EMU exhibits the largest differences between member nations of any (current or historical), and still Europe soldiers on. "Countries in the European Monetary Union are more different than just about any other monetary union you could imagine" so it’s hard to know how it will turn out. It’s a tough road, and this data helps explain why. Europe’s problem is not just one of public sector deficit spending differences, but also of deeper, more fundamental differences across its various private sector economies. Whether it’s equities, credit or real estate, EMU valuations need to be considerably more attractive than US counterparts to justify investment given the challenges of the European project.