Meltdown

The 2008 elections were contested on the basis of rescuing the banks and financial markets while claiming that this was ESSENTIAL to save the economy. Four years later, the 2012 elections are being contested on the basis that the economy HAS been saved, but more needs to be done to ensure that it  STAYS saved. Wall Street, as one of the first recipients of the new “money” cascading from both the Fed and the Treasury, has been happy to buy this. Main Street does NOT buy it. The result is an election campaign in the context of a comparative calm on financial markets and a seething discontent in the electorate.

In the immortal words of Bruce-the-shark from Finding Nemo: "Fish are friends, not food"; but in Fukushima, they are neither! As Bloomberg reports, radiation levels of fish caught off the coast of Northern Japan are as high as they were a year ago with contamination levels particularly high among bottom-dwellers. There remains a fishing ban on these bottom-dwelling fish as 40% are still above the limit for human consumption. As one scientist noted, "This means that even if these sources were to be shut off completely, the sediments would remain contaminated for decades to come." So, today's lesson is, Fukushima fish are neither friends nor food, but more like lava lamps we suspect.

"The price action over the past few weeks in the wake of the markets getting more from the Fed than they could have ever expected heading into an election is a clue that the times indeed could be a changing. The 1987 paradigm underwent a similar period of choppy trade before melting down. Of course, crashes by their nature are a rare breed and the probability of one occurring is astronomically low. That said, should the S&P 500 fail to hold the 1400 level over the next few days (especially on a closing basis) we wouldn’t wait around too long in anticipation that the modern day version of LOR will save the day. The chart makes it clear that quantitative easing has diminishing returns. Soon they could be negative."

Japan's economy has stagnated for two decades despite the global economy experiencing one of its greatest economic booms ever. Japan continues to avoid fiscal or financial crisis, and perhaps it can do so for decades to come. But we should note that Japan has had the incredible, once-in-a-lifetime tailwind of a global boom for the past 23 years. That has enabled Japan, and all the other developed economies, the means to avoid facing their structural and demographic problems. If Japan's economy has stagnated during a global boom, what will it do during a global bust? Japan's stable stagnation will continue in a linear fashion--until it doesn't.

If you want to know how the Keynesian Cargo Cult's grand experiment in borrowing money to fund bloated fiefdoms, rapacious cartels and bridges to nowhere ends, just look west (from California) to Japan. The Japanese State, partly because they seem to believe in the Cargo Cult, and partly to avoid exposing the insolvency of their crony-capitalist financial sector, has been borrowing and spending money on a vast scale for two decades. Rather than face the fraud and corruption at the heart of American (and Japanese) finance and governance, the Keynesians just want to leave the predatory, parasitic crony-capitalist Status Quo intact and create an illusory world of bogus "demand" and grotesque malinvestment funded by ever-increasing debt. Does anyone seriously think this is the "road to recovery"? If you want a look at the fiscal future of the U.S., look west to Japan, a nation that sits precariously on a fiscal cliff a thousand feet high.

On a regular basis we are placated by commercials to satisfy our craving to know which bathroom tissue is the most absorbent; debates 'infomercials' assuaging our fears over which vice-presidential candidate has the best dentist; and reality-shows that comfort our 'at least I am not as bad as...' need; there is an inescapable reality occurring right under our propagandized nose (as we noted here). Economic Reason has gathered together the Top 15 'reality' economic documentaries - so turn-on, tune-in, and drop-out of the mainstream for a few hours...

Readers may know the Chicago Fed best for its president: arguably the greatest dove in the history of central banking, Charles Evans, for whom QEternity is so insufficient, it is just the beginning, and he is already looking forward to QEternity^infinity. In fact, just today he reiterated his support for QE3 for the second time since the program's announcement on Thursday the 13th (a day which will live in infamy), saying the recovery has so far been so "disappointing" (which at least means one can safely ignore all those pundits who claimed over the past 3 years the economy was growing, so roughly 99% of them) that the Fed should do even more. So far so good. But where it gets scary is that just today, the same Fed, which is so sure about the affirmative impact of its actions, asks "what are asset price bubbles" (answer: always and without fail the direct effect of ultra loose monetary policy combined with unleashed animal spirits, but what do we know: we have no Econ PhD), confirming it has no clue what the adverse consequences of monetary policy are. And this is the Fed - one which does not grasp the very simple nature of asset bubbles in a fiat world - that is saying Bernanke should print until he literally runs out of toner cartridge. Why whatever can possibly go wrong?

The consensus view of China is that the country is imploding due to the collapse of the export sector.  Such arguments make sense.  But they may also be dead wrong. 

We believe an unsustainable new global financial architecture that arose in response to the US and European financial crises has replaced an older, more sustainable, architecture. The old architecture was crystallized in Washington- and IMF-inspired policy responses to the numerous sovereign defaults, banking system failures, and currency collapses. Most importantly, the previous architecture recognized limits on fiscal and central bank balance sheets. The new architecture attempts to 'back', perhaps unconsciously, the entire liability side of the global financial system. This framing is consistent with a purely political—institutional stylized—fact that it is nearly impossible to penetrate the US political parties if the message is that there are limits to their power…or that their power requires great effort and sacrifice. This is why Keynesians (at least US ones) who argue there are no limits to a fiscal balance sheet are so popular with Democrats, and why monetarists (at least US ones) who argue there are no limits to a central bank balance sheet are popular with (a decreasing number of) Republicans. Party on! Again, nobody chooses hard-currency regimes – they are forced on non-credible policymakers. Let me put it more positively. If politicians want the power of fiat money, let alone the global reserve currency, they need to behave differently than they have - or the consequences for Gold are extraordinary.

Justices Souter and O’Connor, Intelligence Agency Heads and Congressmen All Warn of Tyranny in America

Nuclear News Roundup

The unremitting deterioration of the eurozone’s sovereign debt landscape continues to fuel uncertainties about the longevity of the euro as a hard currency. Such uncertainties are not only leading to capital flight from the EMU’s periphery to the core and destabilizing markets worldwide, but they are also beginning to frighten southern European savers into seeking refuge outside their 10-year-old currency. Such is the case of Spain – the latest tumbling economy to threaten the euro’s survival. As the crisis deepens, there is still a window of opportunity for Spaniards to turn to gold as a means to protect their wealth against the risks of increased foreign exchange volatility, forced re-denomination, or even a total currency collapse.

China and India have always been crazy for gold, and the yellow metal remains the choice store of value in those two countries, says Don Coxe, a strategic advisor to the BMO Financial Group. In an exclusive interview with The Gold Report, Coxe explains how demographic shifts are affecting the price of gold and delves into the logic of investing in gold as a long-term strategy. Coxe also draws an important lesson in economics from his reading of Lenin.

Who knows? not me.

Even the hardiest investors have been lamenting that gold prices have been stuck in a rut for a long time. Others with less experience have watched the market waiting for something to happen... And as always, many bailed out of the market entirely, licking their wounds. But some, have been stocking up. Regardless of the date, we're confident that a new high in the gold price will come. The highs will come because many major currencies are unsound, overburdened with debt, and being actively diluted by governments. Indeed, the ultimate high could be frighteningly higher than current levels. As such, we suggest taking advantage of prices that won't be available indefinitely. I think we all need some of nature's cure for man's monetary ills.