Meltdown

Maybe its time for a new version of the old regime at the Fed. That is, for the Eccles Building to eschew interest rate-pegging and ZIRP entirely, and thereby allow financial markets to once again engage in honest price discovery and two-way trading; and to allow the natural business cycle to meander along its own capitalist path as determined not by the 12 members of the monetary politburo, but the 317 million consumers, producers, investors, entrepreneurs and even speculators who comprise the real main street economy.

It’s vogue, trendy and appropriate to look to dystopian literature as a harbinger of what we’re experiencing at the hands of the government. Certainly, George Orwell’s 1984 and Animal Farm have much to say about government tyranny, corruption, and control, as does Aldous Huxley’s Brave New World and Philip K. Dick’s Minority Report. Yet there are also older, simpler, more timeless stories - folk tales and fairy tales - that speak just as powerfully to the follies and foibles in our nature as citizens and rulers alike that give rise to tyrants and dictatorships. One such tale, Hans Christian Andersen’s fable of the Emperor’s New Clothes, is a perfect paradigm of life today in the fiefdom that is the American police state, only instead of an imperial president spending money wantonly on lavish vacations, entertainment, and questionable government programs aimed at amassing greater power, Andersen presents us with a vain and thoughtless emperor, concerned only with satisfying his own needs at the expense of his people, even when it means taxing them unmercifully, bankrupting his kingdom, and harshly punishing his people for daring to challenge his edicts.

"America is a marvelous idea, a unique idea, fantastic idea. I’m extremely pro-American. But America has ceased to exist,” says Doug Casey in this fascinating interview with Reason TV’s Nick Gillespie. Casey warns of the political, social, and economic challenges the US must conquer as well as lessons we can learn from failed states.

Having surrendered our independence for the quick, easy fix, we will inevitably surrender our health, liberty and freedom.

Ever since 2012, when we first revealed that the biggest problem plaguing Europe's financial sector is the $2 trillion+ in bad debt on the books of European banks (not our numbers, the IMF's), it became clear that the only way Europe can avoid a complete financial meltdown coupled with currency disintegration, is if it can constantly keep rolling over said bad debt (obviously the only way to do that would be to create an epic debt bubble leading managers of other people's money to do idiotic things like buy Spanish debt at 2.75%). This is why not only the BOJ launched its mega QE in 2013, but why Draghi also kicked in with NIRP a month ago: the logic - do anything and everything to reflate the biggest credit bubble possible as otherwise European banks will have no choice but to face up to their trillions in bad loans.

Opinions about the U.S. economy boil down to two views: 1) the recovery is now self-sustaining, meaning that the Federal Reserve can taper and end its unprecedented interventions without hurting growth, or 2) the current uptick in auto sales, new jobs, housing sales, etc. is as good as it gets, and the weak recovery unravels from here. The reality is that nothing has been done to address the structural rot at the heart of the U.S. economy. You keep shoving in the same inputs, and you guarantee the same output: another crash of credit bubbles and all the malinvestments enabled by monetary heroin.

The bottom line is the Fed can only keep the machine duct-taped together by suppressing the market's pricing of risk. Suppressing the market's ability to price risk is throwing common-sense fiscal caution to the winds; when risk arises from its drugged slumber despite the Fed's best efforts to eliminate it, we will all reap what the Fed has sown.

Some basic suggestions for those who are seeking shelter from the coming storms of global financial crisis and recession.

• Ceasefire over, Ukraine forces attack rebel positions (Reuters)
• No Good Iraq Options for Obama as Russia, Iran Jump In (BBG)
• Japan’s Cabinet Agrees to Allow Military to Help Defend Allies (BBG)
• Obama says to reform immigration on his own, bypassing Congress (Reuters)
• South Stream Pipeline Project in Bulgaria Is Delayed (NYT)
• Foreign Banks Still in the Dark About Missing Metals in China (WSJ)
• Quelle indignity: several bankers at French bank BNP Paribas will face demotions and cuts to their pay and bonuses (FT)
• Symantec Warns of Hacker Threat Against Energy Companies (BBG)
• Shrinking Office Spaces Slow Recovery (WSJ)
• Rand Paul Slams ‘Fat Cats’ With Hedge Fund in Top Donors (BBG)

Janet Yellen is an officious school marm. She constantly lectures us on Keynesian verities as if they were the equivalent of Newton’s Law or the Pythagorean Theorem. In fact, they constitute self-serving dogma of modern vintage that is marshaled to justify what is at bottom an economic absurdity. Namely, that through the primitive act of banging the securities “buy” key over and over and thereby massively expanding its balance sheet, the Fed can cause real wealth - embodying the sweat of labor, the consumption of capital and the fruits of enterprise - to magically expand beyond what the free market would generate on its own steam. Dr. Yellen, of course, claims there are no financial bubbles to worry about because the Keynesian bathtub of potential GDP has not yet been filled to the brim. Perhaps she would like to put in a bid for one of these homes...

"...On June 28, 1914, a Slavic nationalist in Sarajevo murdered Archduke Franz Ferdinand, heir to the Austrian throne. The battle lines were drawn. Austria positioned itself against Serbia. Russia announced support of Serbia against Austria, Germany backed Austria, and France backed Russia. Military mobilization orders traversed Europe. The national and private finances that had helped build up shipping and weapons arsenals in the last years of the nineteenth century and the early years of the twentieth would spill into deadly battle. Wilson knew exactly whose help he needed. He invited Jack Morgan to a luncheon at the White House. The media erupted with rumors about the encounter. Though Wilson explained this did not signify the start of a series of talks with “men high in the world of finance,” rumors of a closer alliance between the president and Wall Street financiers persisted..." Woodrow Wilson and Jack Morgan’s collaboration to finance the Allies in the early days of the war - aside from its timeliness - provides one of the strongest examples of the intimate cooperation between the presidency and the highest levels of banking to drive American interests.

Ghandi was once asked, "What do you think about Western Civilization?" to which he famously replied "I think it's a good idea." He may as well have been talking about free market capitalism. Capital in the 21st Century has hit the world like a new teen idol sensation. Everybody is drinking the Kool-Aid and it's being held up as the most important book ever written on the subject of how runaway capitalism leads to wealth inequality. Paul Krugman of course, loves it. As does every head of state and political hack in the (formerly) free world. So let's do something different here and accept a core premise of Capital, and say that wealth inequality is increasing, and that it's a bad thing. Where the point is completely missed is in what causes it (ostensibly "free market capitalism") and what to do about it (increase government control, induce more inflation and raise taxes). The point of this essay is to assert that it is not unchecked capital or runaway free markets that cause increasing wealth inequality, but rather that the underlying monetary system itself is hard-coded by an inner temple of ruling elites in a way which creates that inequality.

Coming to the understanding that the Status Quo is not sustainable is often a crooked path of overcoming programming, propaganda, denial and fear...

It's Friday... which can mean only one thing., The entirely unrigged (but ridiculously ubiquitous) meltdown in VIX starting at 330ET to ensure whatever momentum ignition is left will get flushed higher and ensure higher highs in stocks... These are your "markets"... (just as we predicted this morning)

We already know that Wall Street manipulates everything (not conspiracy theory, but now open conspiracy fact), but Reuters' Jamie McGeever exposes the ugly chatroom realities of just how FX traders shared orders, split trades, front-ran clients in million of electronic messages providing fresh evidence of collusion among top currency traders. Traders pooled order details and discussed the 'spread' they would offer, "I don't like this guy...I'd show 6 to good guys but guys like that I'm going to show 7 in future," the trader added. Unrigged?