http://www.zerohedge.com/fullrss2.xml/component/option%2Ccom_docman/Itemid%2C200023/gid%2C397/BoomBustBlog/BoomBustBlog/BoomBustBlog/BoomBustBlog/2009/2009/07/2009/2009/2009/07/2009/07/2009/2009/07/2009/2009/07/2009/2009/07/2009/2009/07/2009/2009/2009/07/2009/07/news/iran-releases-video-captured-us-drone en Where Facebook's User Growth And Revenue Generation Is http://www.zerohedge.com/news/2014-04-23/where-facebooks-user-growth-and-revenue-generation <p>In the aftermath of Facebook's "blockbuster" Q1 report, the one thing everyone is talking about is the explosive, 15% growth, in Monthly Active Users to 1.28 billion. There is one problem: where said user growth is taking place. </p> <p>The chart below shows MAU growth broken down by geography...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/FB%20MAU%20Q1.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/FB%20MAU%20Q1_0.JPG" width="600" height="396" /></a></p> <p>And this chart shows how much revenue Facebook generates in those specific geographies:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/FB%20revenue%20growth.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/FB%20revenue%20growth_0.JPG" width="600" height="393" /></a></p> <p>So yes, just 1 million users added in the US. Still, considering Facebook somehow counts 202 million monthly active users in the US, that is a phenomenal achievement considering there are 137.9 million working people. Oh well, those 62 million users who are unemployed - they will just grow into the labor force eventually and be able to buy all those products whose ads they click on.</p> http://www.zerohedge.com/news/2014-04-23/where-facebooks-user-growth-and-revenue-generation#comments Wed, 23 Apr 2014 20:33:16 +0000 Tyler Durden 487635 at http://www.zerohedge.com Facebook Beats But CFO Leaving http://www.zerohedge.com/news/2014-04-23/facebook-beats-cfo-leaving <p>Moments ago Facebook reported its GAAP <strong>and </strong>non-GAAP results (a very important distinction). Here is the Non-GAAP (i.e., we enjoy keeping our head in the sand) summary:</p> <ul> <li>Q1 revenue $2.5 billion, beats expectations of $2.36 billion</li> <li>Q1 revenue from advertising $2.27 billion</li> <li>Q1 EPS $0.34, beat expectations of $0.24</li> <li>Free cash flow - Free cash flow for the first quarter of 2014 was $922 million.</li> <li>Capital expenditures - Capital expenditures for the first quarter of 2014 were $363 million.</li> <li>Cash and marketable securities - Cash and marketable securities were $12.63 billion at the end of the first quarter of 2014.</li> <li>Monthly active users (MAUs) were 1.28 billion as of March 31, 2014, an increase of 15% year-over-year. Unclear how many of these are bots originating out of Egypt and India.</li> <li>Daily active users (DAUs) were 802 million on average for March 2014, an increase of 21% year-over-year.</li> <li>Mobile DAUs were 609 million on average for March 2014, an increase of 43% year-over-year.</li> <li>Mobile MAUs were 1.01 billion as of March 31, 2014, an increase of 34% year-over-year.&nbsp; </li> </ul> <p>The results in a nutshell:</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/FB%20Q1_0.JPG" width="600" height="352" /></p> <p>&nbsp;</p> <p>Far more important than FB Non-GAAP results was the announcement that the CFO is leaving:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>CFO Transition - <strong>Facebook today also announced that David Ebersman has informed the company of his intention to step down as chief financial officer after serving in the position for almost five years. </strong>On June 1, 2014, he will be succeeded as CFO by David Wehner, currently Facebook's Vice President, Corporate Finance and Business Planning. Ebersman will remain with the company through September to ensure a seamless transition of his responsibilities.</p> <p>&nbsp;</p> <p><strong>Wehner joined Facebook in November 2012 from Zynga, where he served as CFO. </strong>Earlier, he spent nine years at Allen &amp; Company where he was a managing director. Wehner has a B.S. in Chemistry from Georgetown University, and an M.S. in Applied Physics from Stanford University.</p> <p>&nbsp;</p> <p>"David has been a great partner in building Facebook, and I'm grateful for everything he's done to help make the world more open and connected," said Zuckerberg. "David set us up to operate efficiently and make the long term investments we need, and built an incredibly strong team including Dave Wehner, our next CFO. I look forward to working with Dave in his new role."</p> <p>&nbsp;</p> <p>"<strong>This has been a tough decision because Facebook is such a great company and has such a bright future ahead, but I've decided to move back into healthcare where I spent my career before Facebook</strong>," Ebersman said. "It's been a privilege working at Facebook and being part of such a great team. We have an incredibly talented finance organization, and I have complete confidence in Dave Wehner and his ability to lead the team going forward."</p> </blockquote> <p>One wonders what exactly it is that Ebersman may have "cooked up" to be promptly leaving the world's "greatest" social media stock. We will find out soon. </p> <p>In the meantime, it is also worth pointing out the vast gap, pardon the pun, between Facebook GAAP and non-GAAP results:</p> <ul> <li>GAAP Q1 Net Income: $642MM, Non-GAAP: $885MM</li> <li>GAAP Q1 EPS: $0.34, Non-GAAP: $0.25</li> <li>GAAP Q1 Operating Margin: 43%; Non-GAAP: 55%.</li> </ul> <p>For now, the stock is very much confused what it wants to do on these "blowout" earnings.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_FB.png"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_FB_0.png" width="600" height="371" /></a></p> http://www.zerohedge.com/news/2014-04-23/facebook-beats-cfo-leaving#comments Capital Expenditures Corporate Finance GAAP India Wed, 23 Apr 2014 20:16:30 +0000 Tyler Durden 487634 at http://www.zerohedge.com Nasdaq Winning Streak Snaps As Yield Curve Hits Fresh 5-Year Lows http://www.zerohedge.com/news/2014-04-23/nasdaq-winning-streak-snaps-yield-curve-hits-fresh-5-year-lows <p>It seems yesterday&#39;s decoupling (stocks up, and everything else risk-off) has unwound today as equity markets were broadly weaker. The Dow and S&amp;P traded in a very narrow range on the day closing slightly negative and breaking the 6-day winning streak. Nasdaq and Russell underperformed notably as <strong>&quot;most shorted&quot; stocks appeared to gain some momentum to the downside once again</strong> (ahead of tonight&#39;s AAPL/FB results) as high-beta caught down to low-beta today. Away from the oddly decoupled equity markets, Gold, silver and copper all closed unch to modestly higher as WTI crude prces dropped further (to $101.50). The USD rallied off European open weakness to end unchanged for the week (with notable AUD weakness overnight). <strong>Treasuries rallied with 30Y outperforming once again and the yield curve flattening to fresh 5 year lows</strong>. Credit markets continues to push wider and are not sustaining any of the exuberance remaining in the S&amp;P.</p> <p>&nbsp;</p> <p>High-beta caught down to low-beta on the week</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD6.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD6_0.png" style="width: 600px; height: 429px;" /></a></p> <p>&nbsp;</p> <p>On the day, growth stocks tumbled but remain up nicely on the week - apart from AMZN</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD5.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD5_0.png" style="width: 600px; height: 663px;" /></a></p> <p>&nbsp;</p> <p>As multiple sectors unwind the week&#39;s gains</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD7.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD7_0.png" /></a></p> <p>&nbsp;</p> <p>Treasuries rallied all day with the long-end outperforming...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD2.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD2_0.png" style="width: 600px; height: 317px;" /></a></p> <p>&nbsp;</p> <p>and the yield curve flattening to fresh 5 year lows...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD4.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD4_0.png" style="width: 600px; height: 307px;" /></a></p> <p>&nbsp;</p> <p>Overnight AUD weakness removed it from the carry pair of choice today and lifted the USD back to unchanged on the week...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD3.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD3_0.png" style="width: 600px; height: 321px;" /></a></p> <p>&nbsp;</p> <p>PMs seemed dead...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD1.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD1_0.png" style="width: 600px; height: 322px;" /></a></p> <p>&nbsp;</p> <p>Credit markets continues to slide...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD8.png"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_EOD8_0.png" style="width: 600px; height: 321px;" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> http://www.zerohedge.com/news/2014-04-23/nasdaq-winning-streak-snaps-yield-curve-hits-fresh-5-year-lows#comments Copper Crude Equity Markets NASDAQ Yield Curve Wed, 23 Apr 2014 20:02:14 +0000 Tyler Durden 487633 at http://www.zerohedge.com Flash Boys Has Been Dethroned At The Top Of The Amazon Bestseller List By This Book http://www.zerohedge.com/news/2014-04-23/flash-boys-has-been-dethroned-top-amazon-bestseller-list-book <p>From a critique of pure capitalist algorithmic frontrunning (which was at the <a href="http://www.zerohedge.com/news/2014-03-31/lewis-top-high-freaks-storm-top-amazons-bestseller-list">top Amazon bestseller spot</a> until a few days ago)...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/03/book%20bestsellers.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/03/book%20bestsellers_0.JPG" width="600" height="465" /></a></p> <p>&nbsp;</p> <p>... we go to a <a href="http://www.amazon.com/best-sellers-books-Amazon/zgbs/books/ref=zg_bs_nav_0">critique of pure capitalism</a>.</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/Piketty%20book_0.jpg" width="600" height="479" /></p> <p>&nbsp;</p> <p>Which of course, is merely a rehash of a critique of <em>all </em>capitalism as expounded some 150 years ago by this book.</p> <p>&nbsp;</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/Das%20Kapital.jpg" width="384" height="384" /></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>And to think all it took was 147 years of 'capitalism' for the circle to be complete from <em><strong>Das Kapital's</strong></em> labor-vs-capital Marxist manifesto to Thomas Piketty's <em><strong>Capital </strong></em>"exposing capitalism's fatal flaw" topping the Amazon book charts. One wonders who finds the time to read the 696 page tome whose core thesis is&nbsp; well-known for socialists the world over: <em>under capitalism the rich, or hoarders of capital, get steadily richer in relation to everyone else; inequality gets worse and worse and it's all unavoidable,</em> between #Selfies, The Voice semi-finals, and Dance Moms finales.</p> <p>One thing is certain: the financial asset tax we warned about back in 2011 is <a href="http://www.zerohedge.com/news/muddle-through-has-failed-bcg-says-there-may-be-only-painful-ways-out-crisis">coming with a bang</a>.</p> <p>So, communism's heyday is coming again, right? Maybe. One thing is certain: liberals couldn't be more delighted about mandatory equality. But as <a href="http://www.zerohedge.com/news/2014-04-22/guest-post-pikettys-gold">we discussed yesterday, there is one thing that no one seems to want to discuss about Piketty's findings... gold...</a></p> <p><strong>Well, feature the chart that Professor Piketty publishes showing inequality in America.</strong> This appears in the book at figure 9.8; a similar version, shown alongside here, is offered on his Web site. It’s an illuminating chart. It shows the share of national income of the top decile of the population. It started the century at a bit above 40% and edged above 45% in the Roaring Twenties. It plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile's share of income went from something like 33% in 1971 to above 47% by 2010.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140422_piketty.png"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140422_piketty_0.png" style="width: 600px; height: 450px;" /></a></p> <p>Hmmm. What could account for that? Could it be the last broadcast of the “Lawrence Welk Show?” Or the blast off of the Apollo 14 mission to the Moon? Or could it have something to do with the mysterious D.B. Cooper, who bailed out of the plane he hijacked, never to be seen again? A timeline of 1971 offers so many possibilities. But, say, what about the possibility that it was in the middle of 1971, in August, that America closed the gold window at which it was supposed to redeem in specie dollars presented by foreign central banks. That was the default that ended the era of the Bretton Woods monetary system.</p> <p><span style="text-decoration: underline;">That’s the default that opened the age of fiat money.</span> Or the era that President Nixon supposedly summed up in with Milton Friedman’s immortal words, “We’re all Keynesians now.” This is an age that has seen a sharp change in unemployment patterns. Before this date, unemployment was, by today’s standards, low. This was a pattern that held in Europe (these columns wrote about it in “George Soros’ Two Cents”) and in America (“Yellen’s Missing Jobs”). From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?</p> <p>This is the question the liberals don’t want to discuss, even acknowledge.</p> <p><em>h/t @Not_Jim_Cramer</em></p> http://www.zerohedge.com/news/2014-04-23/flash-boys-has-been-dethroned-top-amazon-bestseller-list-book#comments Central Banks default Foreign Central Banks Great Depression Jim Cramer Unemployment Wed, 23 Apr 2014 19:28:53 +0000 Tyler Durden 487632 at http://www.zerohedge.com James Clapper Begins Propaganda Tour After Students Identify Edward Snowden As "Personal Hero" http://www.zerohedge.com/news/2014-04-23/james-clapper-begins-propaganda-tour-after-students-identify-edward-snowden-personal <p><em>Submitted by Mike Krieger of <a href="http://libertyblitzkrieg.com/2014/04/23/james-clapper-embarks-on-propaganda-college-speaking-tour-after-droves-of-students-name-snowden-personal-hero/">Liberty Blitzkrieg blog</a>,</em></p> <p>Kevin Gosztola over at <a href="http://firedoglake.com">Firedoglake</a> does some excellent work, and his latest story about the recent activities of perjuring Director of National Intelligence for the U.S., James Clapper, is no exception. To provide a little context, the Washington Post <a href="http://www.washingtonpost.com/local/education/inside-the-admissions-process-at-george-washington-university/2014/03/22/f86b85fa-aee6-11e3-a49e-76adc9210f19_story.html">recently reported </a>that:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>Freitag skimmed the extracurriculars, read the first essay, rated it good. <strong><span style="text-decoration: underline;">GW also asks students to list a role model and two words to describe themselves. </span></strong>As for herself, Freitag said, she would list &ldquo;Martha Stewart/Tina Fey&rdquo; and &ldquo;sassy/classy.&rdquo;<strong><span style="text-decoration: underline;">This year, she&rsquo;s seeing a lot of Edward Snowden citations.</span></strong></em></p> </blockquote> <p>Freitag is an admissions officer at&nbsp;George Washington University, and apparently this trend of college students accurately identifying Edward Snowden as a hero has given James Clapper a panic attack. So much so, that he is taking time away from protecting us from &ldquo;terrorists&rdquo; (a term that now apparently includes folks at the Bundy Ranch <a href="http://www.washingtonpost.com/opinions/sen-harry-reids-baseless-domestic-terror-accusations/2014/04/21/9ee485fa-c952-11e3-93eb-6c0037dde2ad_story.html">according to Harry Reid</a>) to embark upon a propaganda speaking tour of U.S. college campuses to demonstrate to those silly young kids that Snowden is no hero, but actually a traitorous villain.</p> <p>This whole thing is eerily similar to Banana Ben Bernanke&rsquo;s college <a href="http://www.federalreserve.gov/newsevents/lectures/about.htm">propaganda tour back in 2012</a>, which demonstrates that the status quo simply has one playbook that it sticks to aggressively. The only question I have is how long before Clapper realizes he can earn $250,000 a speech once he leaves his current role, as <strong><a href="http://libertyblitzkrieg.com/2014/03/04/bernankes-not-wasting-any-time-he-will-earn-250000-for-a-speech-in-abu-dhabi/">Benny Bernanke is currently raking in.</a></strong></p> <p>From <em>Firedoglake</em>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><div> <p><strong><span style="text-decoration: underline;"><em>Director of National Intelligence James Clapper is touring universities and colleges in the United States in an attempt to persuade students that they should not consider former NSA contractor Edward Snowden a whistleblower or a hero.</em></span></strong></p> <p>&nbsp;</p> <p><em>Speaking at the GEOINT conference in Tampa, Florida, on April 15, Clapper&nbsp;<a href="http://www.dni.gov/index.php/newsroom/speeches-and-interviews/202-speeches-interviews-2014/1048-dni-clapper-keynote-address-from-geoint-2013">addressed</a>&nbsp;attendees and told university students at Georgetown University and the University of Georgia about a recent article in The Washington Post on college admissions.</em></p> <p>&nbsp;</p> <p><em>&ldquo;An admissions officer from George Washington University told The Post that for the admissions&rsquo; essay question, &lsquo;Who&rsquo;s your personal hero?&rsquo; the admissions officer observed that she was seeing a lot more of Edward Snowden citations. And the idea that young people see Edward Snowden as a hero really bothers me. <strong><span style="text-decoration: underline;">So I thought I needed to talk about Snowden at Georgetown and Georgia and I am going to do the same elsewhere at colleges and universities.&rdquo;</span></strong></em></p> </div> </blockquote> <p>Seems like a great way to spend your time and taxpayer dollars.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>The interior situation in Iraq, which is deteriorating, a &ldquo;very assertive Russia&rdquo; (&ldquo;brings back memories&rdquo;), &ldquo;a competitive China,&rdquo; a challenging Iran, &ldquo;a dangerous unpredictable North Korea&rdquo; and &ldquo;global demands for resources&rdquo; complicated by climate change were all mentioned as bugaboos for Clapper and the intelligence community. <strong><span style="text-decoration: underline;">And Snowden&rsquo;s leaks were accused of &ldquo;complicating everything.&rdquo;</span></strong></em></p> </blockquote> <p>No Clapper, the unconstitutional behavior of the intelligence agencies is what is &ldquo;complicating everything.&rdquo; Don&rsquo;t try to deflect blame from where it belongs because a patriot decides to tell the public the truth about government criminality.</p> <p>This is what statists never comprehend. The strength of a nation or culture does not come from government&rsquo;s ability to do whatever it wants without having to adhere to the law, respect civil liberties or inform the public. The strength of a nation or culture comes from the rule of law, from freedom, from accountability, from enterprise and from faith in the institutions that define that nation or culture. Americans have been losing faith in all of the things that define America and for good reason. Snowden was just another nail in the coffin. Without genuine freedom in all aspects of life, politics, economics, communities, a culture will collapse and lose out to others. That is why the U.S. is in decline, not because Snowden revealed the cancer at the heart of U.S. intelligence and corporate America. He is just putting a mirror in front of us and forcing ourselves to look at the ugly reflection.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>A good portion of Clapper&rsquo;s speech was then spent addressing what he called the &ldquo;myth of Edward Snowden.&rdquo; He said he told students that &ldquo;despite being a geezer&rdquo; he got it.&rdquo;</em></p> <p>&nbsp;</p> <p><em>&ldquo;I understand that a lot of young people see Snowden as a courageous whistleblower standing up to authority. <strong><span style="text-decoration: underline;">I personally believe that whistleblowing in its highest form takes an incredible amount of courage and integrity. But Snowden isn&rsquo;t a whistleblower,&rdquo; Clapper declared.</span></strong></em></p> </blockquote> <p>Oh, ok Clapper. If you say so. You disingenuous <strong><a href="http://libertyblitzkrieg.com/2013/10/11/patriot-act-author-prepares-strong-bill-to-reign-in-nsa-abuses-calls-for-prosecution-of-james-clapper/">perjuring creep.</a></strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;There&rsquo;s an inspector general for NSA and another one for the entire intelligence community. My office has a civil liberties and privacy protection officer. Snowden could also have gone to the Justice Department or the Congress. And as we&rsquo;ve seen Snowden is superb at finding information so I think he could have tracked those people down had he given it a little thought,&rdquo; Clapper stated.</em></p> <p>&nbsp;</p> <p><strong><span style="text-decoration: underline;"><em>Actually, if he had gone to the NSA&rsquo;s inspector general, George Ellard,&nbsp;<a href="http://dissenter.firedoglake.com/2014/02/25/nsa-inspector-general-speaks-on-snowden-for-first-time-says-he-was-manic-in-his-thievery/">according to Ellard himself</a>, he would have said something like, &ldquo;Hey, listen, fifteen federal judges have certified this program is okay.&rdquo; He also would have tried to address Snowden&rsquo;s &ldquo;misperceptions&rdquo; and his &ldquo;lack of understanding what we do.&rdquo;</em></span></strong></p> <p>&nbsp;</p> <p>So that&rsquo;s what would have happened to Snowden if he tried to go through traditional channels. Absolutely nothing.</p> <p>&nbsp;</p> <p><em><strong><span style="text-decoration: underline;">Perhaps, the biggest question might be how much will this tour of colleges and universities by Clapper cost.</span></strong> He spent a part of his speech bemoaning the budget cuts the intelligence community has managed to survive. Somehow they have come up with the money to fund traveling to talk to students about the &ldquo;myth of Edward Snowden&rdquo;?</em></p> <p>&nbsp;</p> <p><em>Why should taxpayers be funding this propaganda? And doesn&rsquo;t Clapper have a job to do as Director of National Intelligence?</em></p> </blockquote> <p>Don&rsquo;t worry taxpayers, pretty soon he will join Ben Bernanke on his magical mystery keynesian/statist bus tour&nbsp;and earn several hundred thousand dollars a speech.</p> <p>USA! USA!</p> <p>Keep chanting serfs.</p> <p>Full article <a href="http://dissenter.firedoglake.com/2014/04/18/clapper-goes-on-tour-to-persuade-university-students-snowden-is-no-whistleblower-not-a-hero/">here</a>.</p> http://www.zerohedge.com/news/2014-04-23/james-clapper-begins-propaganda-tour-after-students-identify-edward-snowden-personal#comments Ben Bernanke Ben Bernanke China Corporate America Florida Iran Iraq national intelligence North Korea Wed, 23 Apr 2014 18:57:42 +0000 Tyler Durden 487631 at http://www.zerohedge.com Russia May Halt Oil Supplies On Ukraine Theft http://www.zerohedge.com/news/2014-04-23/russia-may-halt-oil-supplies-ukraine-theft <p>First it was concerns over whether Ukraine would 'steal' gas supplies bound for Europe as it passed through pipelines in the country and now, as bills remain unpaid, a <strong>Transneft unit is threatening to halt Ukraine oil products supply due to pipeline theft</strong>. </p> <ul> <li><strong>*TRANSNEFT COMMENTS ON OIL PRODUCTS PIPELINE IN UKRAINE</strong></li> <li><strong>*TRANSNEFT MAY STOP WORK OF PRIKARPATZAPADTRANS PIPELINE SYSTEM</strong></li> <li><strong>*TRANSNEFT: $62.7M IN OIL STOLEN FROM UKRAINE PIPE OVER 5 YRS</strong></li> </ul> <p>As Bloomberg reports, </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>57.9k tons of oil products have been lost from theft in Ukraine and "Transneft expresses hope that the <strong>Ukrainian authorities can evaluate the risks of the current situation and not allow a negative scenario to develop</strong>."</p> </blockquote> <p>More boomerangs?</p> http://www.zerohedge.com/news/2014-04-23/russia-may-halt-oil-supplies-ukraine-theft#comments Ukraine Wed, 23 Apr 2014 18:37:52 +0000 Tyler Durden 487630 at http://www.zerohedge.com This Is How Empires Collapse http://www.zerohedge.com/news/2014-04-23/how-empires-collapse <p><em>Submitted by Charles Hugh-Smith of <a href="http://charleshughsmith.blogspot.com/2014/04/this-is-how-empires-collapse.html">OfTwoMinds blog</a>,</em></p> <p><span style="margin: 0px; padding: 0px; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: white; color: rgb(64, 64, 64); font-family: Verdana, sans-serif; line-height: normal; text-align: -webkit-left;"><i style="margin: 0px; padding: 0px;">This is how empires collapse: one complicit participant at a time.</i></span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">Before an empire collapses, it first erodes from within.</b>&nbsp;The collapse may appear sudden, but the processes of internal rot hollowed out the resilience, resolve, purpose and vitality of the empire long before its final implosion.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">What are these processes of internal rot?</b>&nbsp;Here are a few of the most pervasive and destructive forces of internal corrosion:</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">1. Each institution within the system loses sight of its original purpose of serving the populace and becomes self-serving.</b>&nbsp;This erosion of common purpose serving the common good is so gradual that participants forget there was a time when the focus wasn&#39;t on gaming the system to avoid work and accountability but serving the common good.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">2. The corrupt Status Quo corrupts every individual who works within the system.</b>Once an institution loses its original purpose and becomes self-serving, everyone within either seeks to maximize their own personal share of the swag and minimize their accountability, or they are forced out as a potentially dangerous uncorrupted insider.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">The justification is always the same: everybody else is getting away with it, why shouldn&#39;t I?&nbsp;<b style="margin: 0px; padding: 0px;">Empires decline one corruptible individual at a time.</b></span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">3. Self-serving institutions select sociopathic leaders whose skills are not competency or leadership but conning others</b>&nbsp;into believing the institution is functioning optimally when in reality it is faltering/failing.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">The late Roman Empire offers a fine example: entire Army legions in the hinterlands were listed as full-strength on the official rolls in Rome and payroll was issued accordingly, but the legions only existed on paper: corrupt officials pocketed the payroll for phantom legions.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">Self-serving institutions reward con-artists in leadership roles because only con-artists can mask the internal rot with happy-story PR and get away with it.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">4. The institutional memory rewards conserving the existing Status Quo and punishes innovation.</b>&nbsp;Innovation necessarily entails risk, and those busy feathering their own nests (i.e. accepting money for phantom work, phantom legions, etc.) have no desire to place their share of the swag at risk just to improve sagging output and accountability.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">So reforms and innovations that might salvage the institution are shelved or buried.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">5. As the&nbsp;<i style="margin: 0px; padding: 0px;">sunk costs</i>&nbsp;of the subsystems increase, the institutional resistance to new technologies and processes increases accordingly.</b>&nbsp;Those manufacturing steam locomotives in the early 20th century had an enormous amount of capital and institutional knowledge sunk in their factories. Tossing all of that out to invest in building diesel-electric locomotives that were much more efficient than the old-tech steam locomotives made little sense to those looking at sunk costs.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">As a result, the steam locomotive manufacturers clung to the old ways and went out of business.&nbsp;<b style="margin: 0px; padding: 0px;">The sunk costs of empire are enormous, as is the internal resistance to change.</b></span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">6. Institutional memory and knowledge support &quot;doing more of what worked in the past&quot; even when it is clearly failing.</b>&nbsp;I refer to this institutional risk-avoidance and lack of imagination as&nbsp;<i style="margin: 0px; padding: 0px;">doing more of what has failed spectacularly.</i></span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">Inept leadership keeps doing more of what once worked, even when it is clearly failing, in effect ignoring real-world feedback in favor of magical-thinking. The Federal Reserve is an excellent example.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">7. These dynamics of eroding accountability, effectiveness and purpose lead to systemic&nbsp;<i style="margin: 0px; padding: 0px;">diminishing returns.</i></b>&nbsp;Each failing institution now needs more money to sustain its operations, as inefficiencies, corruption and incompetence reduce output while dramatically raising costs (phantom legions still get paid).</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">8. Incompetence is rewarded and competence punished.</b>&nbsp;The classic example of this was &quot;Good job, Brownie:&quot; cronies and con-artists are elevated to leadership roles to reward loyalty and the ability to mask the rot with good PR. Serving the common good is set aside as sychophancy (obedient flattery) to incompetent leaders is rewarded and real competence is punished as a threat to the self-serving leadership.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">9. As returns diminish and costs rise, systemic fragility increases.</b>&nbsp;This can be illustrated as a rising wedge: as output declines and costs rise, the break-even point keeps edging higher, until even a modest reduction of input (revenue, energy, etc.) causes the system to break down:</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><img align="middle" border="0" src="http://www.oftwominds.com/photos2012/rising-wedge.gif" style="margin: 5px; padding: 5px; background-color: rgb(255, 255, 255); border: 1px solid rgb(238, 238, 238); background-position: initial initial; background-repeat: initial initial;" /></span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">A modern-day example is oil-exporting states that have bought the complicity of their citizenry with generous welfare benefits and subsidies. As their populations and welfare benefits keep rising, the revenues they need to keep the system going require an ever-higher price of oil. Should the price of oil decline, these regimes will be unable to fund their welfare. With the social contract broken, there is nothing left to stem the tide of revolt.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">10. Economies of scale no longer generate returns.</b>&nbsp;In the good old days, stretching out supply lines to reach lower-cost suppliers and digitizing management reaped huge gains in productivity. Now that the scale of enterprise is global, the gains from economies of scale have faltered and the high overhead costs of maintaining this vast managerial infrastructure have become a drain.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">11. Redundancy is sacrificed to preserve a corrupt and failing core.</b>&nbsp;Rather than demand sacrifices of the Roman Elites and the entertainment-addicted bread-and-circus masses to maintain the forces protecting the Imperial borders, late-Roman Empire leaders eliminated defense-in-depth (redundancy). This left the borders thinly defended. With no legions in reserve, an invasion could no longer be stopped without mobilizing the entire border defense, in effect leaving huge swaths of the border undefended to push back the invaders.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">Phantom legions line the pockets of insiders and cronies while creating a useful illusion of stability and strength.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">12. The feedback from those tasked with doing the real work of the Empire is ignored as Elites and vested interests dominate decision-making.</b>&nbsp;As I noted yesterday in&nbsp;<a href="http://www.oftwominds.com/blogapr14/vested-poison4-14.html" style="margin: 0px; padding: 0px; color: rgb(0, 67, 135); text-decoration: underline;" target="resource">The Political Poison of Vested Interests</a>, when this bottoms-up feedback is tossed out, ignored or marginalized,&nbsp;<i style="margin: 0px; padding: 0px;">all decisions are necessarily unwise because they are no longer grounded in the consequences experienced by the 95% doing the real work.</i></span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">This lack of feedback from the bottom 95% is captured by the expression &quot;Let them eat cake.&quot; (Though attributed to Marie Antoinette, there is no evidence that she actually said&nbsp;<a href="http://en.wikipedia.org/wiki/Let_them_eat_cake" style="margin: 0px; padding: 0px; color: rgb(0, 67, 135); text-decoration: underline;" target="resource"><i style="margin: 0px; padding: 0px;">Qu&#39;ils mangent de la brioche</i></a>.)</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;">The point is that decisions made with no feedback from the real-world of the bottom 95%, that is, decisions made solely in response to the demands of cronies, vested interests and various elites, are intrinsically unsound and doomed to fail catastrophically.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">How does an Empire end up with phantom legions? The same way the U.S. ended up with ObamaCare/Affordable Care Act.</b>&nbsp;The payroll is being paid but there is no real-world feedback, no accountability, no purpose other than private profit/gain and no common good being served.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">That&#39;s how empires collapse:</b>&nbsp;one corrupted, self-serving individual at a time, gaming one corrupted, self-serving institution or another; it no longer matters which one because they&#39;re all equally compromised. It&#39;s not just the border legions that are phantom; the entire stability and strength of the empire is phantom. The uncorruptible and competent are banished or punished, and the corrupt, self-serving and inept are lavished with treasure.</span><br style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-family: Georgia, Times, serif; font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255);" /><br style="margin: 0px; padding: 0px;" /><span style="margin: 0px; padding: 0px; color: rgb(0, 0, 0); font-size: 13px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 20.992000579833984px; orphans: auto; text-align: justify; text-indent: 0px; text-transform: none; white-space: normal; widows: auto; word-spacing: 0px; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); font-family: Verdana, sans-serif;"><b style="margin: 0px; padding: 0px;">This is how empires collapse:</b>&nbsp;one complicit participant at a time.</span></p> http://www.zerohedge.com/news/2014-04-23/how-empires-collapse#comments Corruption ETC Fail Federal Reserve Obamacare Reality Roman Empire Swag Wed, 23 Apr 2014 18:10:27 +0000 Tyler Durden 487629 at http://www.zerohedge.com The Chinese Housing Ponzi Exposed: "As We Sell Our First Apartments, We’ll Have Cash Flow To Build The Next Stage" http://www.zerohedge.com/news/2014-04-23/chinese-housing-ponzi-exposedd-we-sell-our-first-apartments-we%E2%80%99ll-have-cash-flow-bui <p>Much has been said here and elsewhere about not only China's ghost cities - that final resting place where trillions in Chinese GDP "fixed investment" goes to quietly die but no before contributing to over half of China's GPD - over the past five years, but also about the bursting of the Chinese housing bubble in the past several months now that the Beijing Politburo has drastically slowed down the pace of loan creation and the country has shocked its bond investors by admitting failure is an all too real possibility. This post will therefore hardly reveal anything new, however it will provide some perspective on how from one of the most important industries for China's suddenly cooling economy, <strong>housing has becoming nothing more (or less) than one giant Ponzi scheme. </strong></p> <p>Here are some of the soundbites of a recent Bloomberg piece showing how "<a href="http://www.bloomberg.com/news/2014-04-21/china-s-forgotten-cities-miss-boom-as-xi-s-credit-squeeze-bites.html">Xi’s Squeeze Leaves China’s Heartland Missing Boom</a>" covering such exciting topics as: </p> <p>... Bubbles:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“<strong>Cities in China are facing some serious real estate bubbles, and the bubbles in third-, fourth-tier cities have the risks of total collapse,</strong>” said Tao Ran, director of the China Center for Public Economics and Governance at Renmin University in Beijing, in a phone interview on March 31. “The central government and banks tightened credit in the property market because they realized the risks.” </p> </blockquote> <p>... Collateral</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>That makes it harder for Zhu Houlun, 43, who took over as Laohekou party secretary in August 2012 with plans to merge with neighboring Gucheng by building a new urban center on 70 square kilometers (27 square miles) of farming communities between the two. The project would create a city of 700,000 by 2020, more than double Laohekou’s existing urban population, according to a Xiangyang government report.</p> <p>&nbsp;</p> <p>Zhu must rely on private developers like Liu Pingfeng, from neighboring Hunan province, who is building a 5 billion yuan project north of Laohekou called the Red River Valley Eco-Tourism Resort that includes apartments, a five-star hotel, a theme park and a polo club.</p> <p>&nbsp;</p> <p>“<strong>Raising funds is very difficult</strong>,” said Liu, 47, who has been building in Hunan for a decade. “I used to use land as collateral -- as long as I got the land certificate I could get the loan. Now it’s almost impossible.” </p> </blockquote> <p>... Musical fountains:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>In Red River’s muddy construction site by the river, there are clusters of concrete skeletons that Liu says are due to open in October as shops, cafes, bars and a fitness center. Nearby is a hole in the ground the size of a football field that <strong>will be a musical fountain</strong>. </p> </blockquote> <p>... KFCs:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Downtown Laohekou shows how far the city has lagged behind development in the east. Rows of weather-stained four- and five-story buildings line the streets, with shopfronts selling liquor, cheap household goods and clothes. <strong>There’s no department store, no passenger railway station, no KFC </strong>-- the Yum! Brands Inc. (YUM) chain found in 900 other Chinese cities and townships. The nearest civilian airport is an hour’s drive away. </p> </blockquote> <p>... Social problems:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“Local government officials are still very fixated on economic growth,” said Lynette Ong, an associate professor at the University of Toronto who wrote the 2012 book “Prosper or Perish: The Political Economy of Credit and Fiscal Systems in Rural China.” “<strong>Without growth, a lot of social problems like unemployment will surface.” </strong></p> </blockquote> <p>... from ashes to ashes, from ghost town to ghost town:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The expansion on the coast was largely fed by immigrants from provinces like Hubei that are now struggling to lure them back. On a February morning in Laohekou’s cavernous and unheated labor exchange, a single jobseeker scans the vacancies posted on the back wall, while five female staff clutch thermoses of hot drinks to keep warm. </p> <p>&nbsp;</p> <p>“It’s hard to hire people here,” said Zhang Hongju, one of the staff. “<strong>The young people have all gone to Guangdong and those who haven’t need to stay home to take care of elderly family or kids.”</strong></p> <p>&nbsp;</p> <p>In Chen Genxin’s village, slated to be demolished to make way for China Dreamland, he says everyone is over 50. His sons left during the boom to get jobs in other cities. <strong>“If the country wants us to tear it down, we’ll tear it down</strong>,” said Chen, 71, as he harvests spinach from his small plot with his wife in the afternoon sun. “The earth will bury me wherever I go.” </p> </blockquote> <p>... and, of course, the fact that it is all one massive Ponzi scheme:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>In Red River’s muddy construction site by the river, there are clusters of concrete skeletons that Liu says are due to open in October as shops, cafes, bars and a fitness center. Nearby is a hole in the ground the size of a football field that will be a musical fountain.</p> <p>&nbsp;</p> <p>The soaring cost of loans means Liu will build and sell Red River in stages. “<strong>As we sell our first batch of apartments, we’ll have cash flow to build the next stage,</strong>” he said in an interview in February in Laohekou. </p> </blockquote> <p>Finally, some pictures:</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/ghost%201_0.jpg" width="500" height="334" /></p> <p><em>A construction-site hoarding displays an artist's impression of a development containing Tiffany and Louis Vuitton shops in Luying village on the outskirts of Laohekou, Hubei Province, China</em></p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/ghost%202_0.jpg" width="500" height="333" /></p> <p><em>Chen Genxin, farmer, and his wife stand for a photograph at their plot of land which is going to be requisitioned to make way for the China Dreamland residential and tourism project by Sichuan Hengxinyuanda Investment Group on the outskirts of Laohekou, Hubei Province, China</em></p> <p>&nbsp;</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/ghost%203_0.jpg" width="500" height="334" /></p> <p><em>The new Laohekou Number 1 Middle School stands under construction on the outskirts of Laohekou, Hubei Province, China, on Thursday, Feb. 20, 2014. </em></p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/ghost%204_0.jpg" width="500" height="334" /></p> <p><em>China Dreamland residential and tourism project by Sichuan Hengxinyuanda Investment Group stands under construction on the outskirts of Laohekou, </em></p> http://www.zerohedge.com/news/2014-04-23/chinese-housing-ponzi-exposedd-we-sell-our-first-apartments-we%E2%80%99ll-have-cash-flow-bui#comments Bond China fixed Gross Domestic Product Housing Bubble Real estate Unemployment Yuan Wed, 23 Apr 2014 18:05:09 +0000 Tyler Durden 487622 at http://www.zerohedge.com Biogen Stock Rallies After Admitting Feds Probing "Sales & Promotional Practices" http://www.zerohedge.com/news/2014-04-23/biogen-stock-rallies-after-admitting-feds-probing-sales-promotional-practices <p>Just when the whole congressional pricing debacle has been ignored and the bubble is back on in Biotechs as an "M&amp;A frenzy" is unleashed, Bloomberg reports that Biogen Idec has admitted in its 10-Q that:</p> <ul> <li><strong>*BIOGEN SAYS IT RECEIVED FED SUBPOENA ON TIES TO CERTAIN Pharmacy Benefit Managers</strong></li> <li><strong>*BIOGEN SAYS STATE, FEDERAL AUTHORITIES PROBING SALES PRACTICES</strong></li> </ul> <p>Buried quietly on page 27 of the 10-Q, they explain that state and federal governmental authorities are investigating sales and promotional practices... Of course, the small dip in the stock price was a great opportunity to reload and it is now<span style="text-decoration: underline;"><strong> trading higher on the news.</strong></span></p> <p>From page 27 of the 10-Q,</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="text-decoration: underline;"><strong>Government Matters</strong></span></p> <p>&nbsp;</p> <p>We have learned that state and federal governmental authorities are <strong>investigating our sales and promotional practices and have received related subpoenas.</strong></p> <p>&nbsp;</p> <p><strong>We have also received a subpoena from the federal government for documents relating to our relationship with certain pharmacy benefit managers.</strong></p> <p>&nbsp;</p> <p>We are cooperating with the government in these matters.</p> </blockquote> <p>And the market reaction...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_BIIB.png"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/04-overflow/20140423_BIIB.png" width="552" height="678" /></a></p> <p>&nbsp;</p> http://www.zerohedge.com/news/2014-04-23/biogen-stock-rallies-after-admitting-feds-probing-sales-promotional-practices#comments Wed, 23 Apr 2014 17:53:10 +0000 Tyler Durden 487628 at http://www.zerohedge.com War Makes Us Poor http://www.zerohedge.com/contributed/2014-04-23/war-makes-us-poor <div class="entry-content"> <p>&nbsp;</p> <p style="text-align: center;"><img alt="http://ourgovernmentisbroke.com/wordpress/wp-content/uploads/2013/06/Uncle-Sam-11-e1370881400909.jpg" class="aligncenter" height="400" src="http://ourgovernmentisbroke.com/wordpress/wp-content/uploads/2013/06/Uncle-Sam-11-e1370881400909.jpg" width="283" /></p> <p style="text-align: center;"><em><small>Image courtesy of <a href="http://ourgovernmentisbroke.com/about/" target="_blank" title="Steve Hess">Steve Hess</a></small></em></p> <h3 style="color: #000099;">Top Economists Say War Is Bad for the Economy</h3> <p><span style="font-style: italic;">Preface: Many Americans &ndash; including influential <a href="http://online.wsj.com/article/SB123008280526532053.html" target="_blank" title="economists">economists</a> and <a href="http://www.washingtonpost.com/wp-dyn/content/article/2010/10/29/AR2010102907404.html" target="_blank" title="talking heads ">talking heads </a>- <span style="text-decoration: underline;">still</span> wrongly assume that war is good for the economy. Many <a href="http://www.mcclatchydc.com/2012/01/30/137359/f-35-story-shows-why-its-so-hard.html" target="_blank" title="congressmen">congressmen</a> assume that cutting pork-barrel military spending would hurt their constituents&rsquo; jobs. </span></p> <p><span style="font-style: italic;">As demonstrated below, it isn&rsquo;t true.</span></p> <p>Nobel-prize winning economist Joseph Stiglitz says that <a href="http://www.washingtonsblog.com/2011/11/nobel-prize-winning-economist-war-is-widely-thought-to-be-linked-to-economic-good-times-nonsense.html" title="war is bad for the economy">war is bad for the economy</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Stiglitz <a href="http://www.guardian.co.uk/politics/2003/jan/22/iraq.economy" target="_blank" title="wrote">wrote</a> in 2003:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>War is widely thought to be linked to economic good times.</strong> The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon. <strong>Today, we know that this is nonsense.</strong> The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that <strong>wars can actually be bad for an economy</strong>.</p> </blockquote> <p>Stiglitz has also said that this decade&rsquo;s Iraq war has been <span style="font-style: italic;">very bad</span> for the economy. See <a href="http://www.spiegel.de/international/spiegel/0,1518,409710,00.html" target="_blank" title="this">this</a>, <a href="http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article3419840.ece" target="_blank" title="this">this</a> and <a href="http://www.youtube.com/watch?v=CFQyQ9nLZSw" target="_blank" title="this">this</a>.</p> </blockquote> <p>Former Federal Reserve chairman Alan Greenspan also said in that war is bad for the economy.&nbsp;&nbsp; In 1991, Greenspan said that <a href="http://news.google.com/newspapers?nid=1314&amp;dat=19910201&amp;id=mQ0zAAAAIBAJ&amp;sjid=l_ADAAAAIBAJ&amp;pg=2887,40938" target="_blank" title="a prolonged conflict in the Middle East would hurt the economy">a prolonged conflict in the Middle East would hurt the economy</a>. And he <a href="http://thehill.com/opinion/op-ed/197999-military-spending-is-the-weakest-job-creator" target="_blank" title="pointed out">made this point again</a> in 1999:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Societies need to buy as much military insurance as they need, but to spend more than that is to squander money that could go toward improving the productivity of the economy as a whole: with more efficient transportation systems, a better educated citizenry, and so on. This is the point that retiring Rep. Barney Frank (D-Mass.) learned back in 1999 in a House Banking Committee hearing with then-Federal Reserve Chairman Alan Greenspan. Frank asked what factors were producing our then-strong economic performance. On Greenspan&rsquo;s list: <strong>&ldquo;The freeing up of resources previously employed to produce military products that was brought about by the end of the Cold War.&rdquo;</strong> Are you saying, Frank asked, &ldquo;that <strong>dollar for dollar, military products are there as insurance &hellip; and to the extent you could put those dollars into other areas, maybe education and job trainings, maybe into transportation &hellip; that is going to have a good economic effect?&rdquo; <span style="text-decoration: underline;">Greenspan</span> <span style="text-decoration: underline;">agreed</span>.</strong></p> </blockquote> <p>Economist Dean Baker <a href="http://www.cepr.net/content/view/1157/77/" target="_blank" title="notes">notes</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>It is often believed that wars and military spending increases are good for the economy. In fact, <strong>most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment</strong>.</p> </blockquote> <h3 style="color: #000099;">The Proof Is In the Pudding</h3> <p>Mike Lofgren <a href="http://www.huffingtonpost.com/michael-s-lofgren/is-war-good-for-the-econo_1_b_3185569.html" target="_blank" title="notes">notes</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Military spending may at one time have been a genuine job creator when weapons were compatible with converted civilian production lines, but the days of Rosie the Riveter are long gone.&nbsp;[Indeed, WWII was different from current wars in <a href="http://www.washingtonsblog.com/2012/02/military-keynesianism-cant-work-because-wwii-was-different.html" title="many ways">many ways</a>, and so its economic effects are <a href="http://www.washingtonsblog.com/2012/02/military-keynesianism-cant-work-because-wwii-was-different.html" title="not comparable">not comparable</a> to those of today&#39;s wars.]&nbsp; Most weapons projects now require relatively little touch labor. Instead, a disproportionate share is siphoned into high-cost R&amp;D (from which the civilian economy benefits little), exorbitant management expenditures, high overhead, and out-and-out padding, including money that flows back into political campaigns. A dollar appropriated for highway construction, health care, or education will likely create more jobs than a dollar for Pentagon weapons procurement.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>During the decade of the 2000s, DOD budgets, including funds spent on the war, doubled in our nation&rsquo;s longest sustained post-World War II defense increase. Yet <strong>during the same decade, jobs were created at the slowest rate since the Hoover administration</strong>. <strong>If defense helped the economy, it is not evident</strong>. And just the wars in Iraq and Afghanistan added over $1.4 trillion to deficits, <a href="http://www.fas.org/sgp/crs/natsec/RL33110.pdf" target="_hplink" title="according to the Congressional Research Service">according to the Congressional Research Service</a>. Whether the wars were &ldquo;worth it&rdquo; or merely stirred up a hornet&rsquo;s nest abroad is a policy discussion for another time; what is clear is that whether you are a Keynesian or a deficit hawk, war and associated military spending are no economic panacea.</p> </blockquote> <p style="text-align: left;">The Institute for Economics &amp; Peace (IEP) <a href="http://www.thereformedbroker.com/wp-content/uploads/2012/02/Economic-Consequences-of-War.pdf" target="_blank" title="shows">shows</a> that any boost from war is temporary at best. For example, while WWII provided a temporary bump in GDP, GDP then fell back to the baseline trend. After the Korean War, GDP fell <em>below</em> the baseline trend:</p> <p style="text-align: center;"><a href="http://www.washingtonsblog.com/wp-content/uploads/2014/04/WW.jpg" target="_blank"><img alt="" class="aligncenter" height="443" src="http://www.washingtonsblog.com/wp-content/uploads/2014/04/WW.jpg" title="WW" width="661" /></a></p> <p style="text-align: left;">IEP notes:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>By examining the state of the economy at each of the major conflict periods since World War II, it can be seen that the <strong>positive effects of increased military spending were outweighed by longer term unintended negative macroeconomic consequences</strong>. While the stimulatory effect of military outlays is evidently associated with boosts in economic growth, adverse effects show up either immediately or soon after, through <strong>higher inflation, budget deficits, high taxes and reductions in consumption or investment</strong>. Rectifying these effects has required <strong>subsequent painful adjustments</strong> which are neither efficient nor desirable. When an economy has excess capacity and unemployment, it is possible that increasing military spending can provide an important stimulus. However, <strong>if there are budget constraints, as there are in the U.S. currently, then excessive military spending can displace more productive non-military outlays in other areas such as investments in high-tech industries, education, or infrastructure</strong>. The crowding-out effects of disproportionate government spending on military functions can affect service delivery or infrastructure development, ultimately <strong>affecting long-term growth rates</strong>.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>Analysis of the macroeconomic components of GDP during World War II and in subsequent conflicts show heightened military spending had several adverse macroeconomic effects. These occurred as a direct consequence of the funding requirements of increased military spending. The U.S. has paid for its wars either through debt (World War II, Cold War, Afghanistan/Iraq), taxation (Korean War) or inflation (Vietnam). In each case,<strong> taxpayers have been burdened, and private sector consumption and investment have been constrained as a result</strong>. Other negative effects include <strong>larger budget deficits, higher taxes, and growth above trend leading to inflation pressure</strong>. These effects can run concurrent with major conflict or via lagging effects into the future. <strong>Regardless of the way a war is financed, the overall macroeconomic effect on the economy tends to be negative</strong>. For each of the periods after World War II, we need to ask, what would have happened in economic terms if these wars did not happen? On the specific evidence provided, it can be reasonably said, it is likely <strong>taxes would have been lower, inflation would have been lower, there would have been higher consumption and investment and certainly lower budget deficits</strong>. Some wars are necessary to fight and the negative effects of not fighting these wars can far outweigh the costs of fighting. However if there are other options, then it is prudent to exhaust them first as once wars do start, the outcome, duration and economic consequences are difficult to predict.</p> </blockquote> <p>We <a href="http://www.washingtonsblog.com/2011/11/nobel-prize-winning-economist-war-is-widely-thought-to-be-linked-to-economic-good-times-nonsense.html" title="noted">noted</a> in 2011:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>This is a no-brainer, if you think about it. We&rsquo;ve been in Afghanistan for almost twice as long as World War II. We&rsquo;ve been in Iraq for years longer than WWII. We&rsquo;ve been involved in <a href="http://my.firedoglake.com/freesociety/2011/03/21/obama-and-his-seven-wars/" target="_blank" title="7">7</a> or <a href="http://www.cnn.com/2011/10/14/world/africa/africa-obama-troops/" target="_blank" title="8">8</a> wars in the last decade. And yet [the economy is still unstable]. If wars really helped the economy, don&rsquo;t you think things would have improved by now? Indeed, <a href="http://www.dodbuzz.com/2011/10/25/report-iraq-war-could-end-up-costing-more-than-wwii/" target="_blank" title="the Iraq war alone could end up costing more than World War II">the Iraq war alone could end up costing more than World War II</a>. And given the other wars we&rsquo;ve been involved in this decade, I believe that the total price tag for the so-called &ldquo;War on Terror&rdquo; will definitely support that of the &ldquo;Greatest War&rdquo;.</p> </blockquote> <p>Let&rsquo;s look at the adverse effects of war in more detail &hellip;</p> <h3 style="color: #000099;">War Spending Diverts Stimulus Away from the Real Civilian Economy</h3> <p>IEP <a href="http://www.thereformedbroker.com/wp-content/uploads/2012/02/Economic-Consequences-of-War.pdf" target="_blank" title="notes">notes</a> that &ndash; even though the government spending <em>soared</em> &ndash; consumption and investment were <em>flat</em> during the Vietnam war:</p> <p style="text-align: center;"><a href="http://www.washingtonsblog.com/wp-content/uploads/2014/04/WV.jpg" target="_blank"><img alt="" class="aligncenter" height="503" src="http://www.washingtonsblog.com/wp-content/uploads/2014/04/WV.jpg" title="WV" width="581" /></a></p> <p>The New Republic <a href="http://www.tnr.com/blog/the-stash/military-spending-fiscal-stimulus" target="_blank" title="noted">noted</a> in 2009:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Conservative Harvard economist Robert Barro <a href="http://online.wsj.com/article/SB123258618204604599.html" target="_blank" title="has argued">has argued</a> that increased military spending during WWII actually <strong>depressed other parts of the economy</strong>.</p> </blockquote> <p>(New Republic also <a href="http://www.tnr.com/blog/the-stash/military-spending-fiscal-stimulus" target="_blank" title="noted">points out</a> that conservative economist Robert Higgs and liberal economists Larry Summers and Brad Delong have all shown that any stimulation to the economy from World War II has been greatly exaggerated.)</p> <p>How could war actually hurt the economy, when so many say that it stimulates the economy?</p> <p>Because of what economists call the &ldquo;broken window fallacy&rdquo;.</p> <p>Specifically, if a window in a store is broken, it means that the window-maker gets paid to make a new window, and he, in turn, has money to pay others. However, economists long ago showed that &ndash; if the window hadn&rsquo;t been broken &ndash; the shop-owner <a href="http://en.wikipedia.org/wiki/Parable_of_the_broken_window" target="_blank" title="would have spent that money on other things, such as food, clothing, health care, consumer electronics or recreation">would have spent that money on <em>other things</em>, such as food, clothing, health care, consumer electronics or recreation</a>, which would have helped the economy <em>as much or more</em>.</p> <p>If the shop-owner hadn&rsquo;t had to replace his window, he might have taken his family out to dinner, which would have circulated more money to the restaurant, and from there to other sectors of the economy. Similarly, the money spent on the war effort is money that cannot be spent on <em>other sectors</em> of the economy. Indeed, all of the military spending has just created military jobs, <em>at the expense </em>of the civilian economy.</p> <p>As Austrian economist Ludwig Von Mises <a href="http://mises.org/nsande/pt2ch4.asp" target="_blank" title="pointed out">pointed out</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>That is the essence of so-called war prosperity; it enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income.</p> </blockquote> <p>We <a href="http://www.washingtonsblog.com/2010/01/the-military-industrial-complex-is-ruining-the-economy.html" title="noted">noted</a> in 2010:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>You know about America&rsquo;s unemployment problem. You may have even heard that the U.S. may very well have suffered a <a href="http://www.washingtonsblog.com/2009/12/has-america-suffered-permanent-loss-of.html" title="permanent destruction of jobs"><span style="font-style: italic;">permanent </span>destruction of jobs</a>.</p> <p>&nbsp;</p> <p>But did you know that the defense employment sector is booming?</p> <p>&nbsp;</p> <p>[P]ublic sector spending &ndash; and mainly defense spending &ndash; has accounted for virtually all of the new job creation in the past 10 years:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 1o years:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:</p> <p>&nbsp;</p> <p><img alt="longjobs1 The Military Industrial Complex is Ruining the Economy" class="lazy" height="455" src="http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs1.gif" style="display: inline;" title="The Military Industrial Complex is Ruining the Economy" width="477" /></p> <p>&nbsp;</p> <p>Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.</p> <p>&nbsp;</p> <p>It&rsquo;s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:</p> <p>&nbsp;</p> <p><img alt="longjobs2 The Military Industrial Complex is Ruining the Economy" class="lazy" height="403" src="http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs2.gif" style="display: inline;" title="The Military Industrial Complex is Ruining the Economy" width="460" /></p> <p>&nbsp;</p> <p>Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.</p> <p>&nbsp;</p> <p>But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.</p> <div align="left">&nbsp;</div> <div align="left" id="newhealth_5506">***</div> <p>&nbsp;</p> <p>Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.</p> <p>&nbsp;</p> <p>Let me finish with a final chart.</p> <p>&nbsp;</p> <p><img alt="longjobs4 The Military Industrial Complex is Ruining the Economy" class="lazy" height="419" src="http://www.businessweek.com/the_thread/economicsunbound/archives/longjobs4.gif" style="display: inline;" title="The Military Industrial Complex is Ruining the Economy" width="437" /></p> <p>&nbsp;</p> <p>Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back. <a href="http://blogs.businessweek.com/mt/mt-tb.cgi/14742.1362013618" target="_blank" title="[120]">[120]</a></p> </blockquote> <p>***</p> <p>&nbsp;</p> <p>So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.</p> </blockquote> <p>And this shows military versus non-military durable goods shipments: <a href="http://marketoracle.co.uk/images/2010/Jan/us-collapse-18-11.gif" target="_blank"><img alt="us collapse 18 11 The Military Industrial Complex is Ruining the Economy" border="0" class="lazy" src="http://marketoracle.co.uk/images/2010/Jan/us-collapse-18-11.gif" style="display: inline;" title="The Military Industrial Complex is Ruining the Economy" /></a> [<a href="http://marketoracle.co.uk/images/2010/Jan/us-collapse-18-11.gif" target="_blank" title="Click here">Click here</a> to view full image.]</p> <p>&nbsp;</p> <p>So we&rsquo;re running up our debt (which will eventually decrease economic growth), but the only jobs we&rsquo;re creating are military and other public sector jobs.</p> <p>&nbsp;</p> <p>Economist Dean Baker <a href="http://www.cepr.net/index.php/op-eds-&amp;-columns/op-eds-&amp;-columns/defense-spending-job-loss/" target="_blank" title="points out">points out</a> that America&rsquo;s massive military spending on unnecessary and unpopular wars <span style="font-style: italic;">lowers </span>economic growth and <span style="font-style: italic; font-weight: bold;">increases </span>unemployment:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.</p> </blockquote> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.</p> <p>&nbsp;</p> <p>Global Insight&rsquo;s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.</p> <p>&nbsp;</p> <p>The scenario we asked Global Insight [recognized as the most consistently <a href="http://www.ihsglobalinsight.com/accolades" target="_blank" title="accurate">accurate</a> forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low&hellip;</p> <p>&nbsp;</p> <p><span style="font-weight: bold;">The projected job loss from this increase in defense spending would be close to 2 million.</span> In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.</p> </blockquote> <p>The Political Economy Research Institute at the University of Massachusetts, Amherst has also <a href="http://www.peri.umass.edu/fileadmin/pdf/published_study/spending_priorities_PERI.pdf" target="_blank" title="shown">shown</a> that non-military spending creates more jobs than military spending.</p> <p>&nbsp;</p> <p>So we&rsquo;re running up our debt &ndash; which will eventually decrease economic growth &ndash; and creating many fewer jobs than if we spent the money on non-military purposes.</p> </blockquote> <h3 style="color: #000099;">High Military Spending Drains Innovation, Investment and Manufacturing Strength from the Civilian Economy</h3> <p>Chalmers Johnson <a href="http://mondediplo.com/2008/02/05military" target="_blank" title="notes">notes</a> that high military spending diverts innovation and manufacturing capacity from the economy:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>By the 1960s it was becoming apparent that turning over the nation&rsquo;s largest manufacturing enterprises to the Department of Defense and producing goods without any investment or consumption value was starting to crowd out civilian economic activities. The historian Thomas E Woods Jr <a href="http://www.lewrockwell.com/woods/woods81.html" target="_blank" title="observes">observes</a> that, during the 1950s and 1960s, between one-third and two-thirds of all US research talent was siphoned off into the military sector. It is, of course, impossible to know what innovations never appeared as a result of this diversion of resources and brainpower into the service of the military, but it was during the 1960s that we first began to notice Japan was outpacing us in the design and quality of a range of consumer goods, including household electronics and automobiles.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>Woods <a href="http://www.lewrockwell.com/woods/woods81.html" target="_blank" title="writes">writes</a>: &ldquo;According to the US Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation&rsquo;s plant and equipment, and infrastructure, at just over $7.29 trillion&hellip; <strong>The amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock</strong>&rdquo;.</p> <p>&nbsp;</p> <p>The fact that we did not modernise or replace our capital assets is one of the main reasons why, by the turn of the 21st century, <strong>our manufacturing base had all but evaporated</strong>. Machine tools, an industry on which Melman was an authority, are a particularly important symptom. In November 1968, a five-year inventory disclosed &ldquo;that 64% of the metalworking machine tools used in US industry were 10 years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States&rsquo; machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of the second world war. This deterioration at the base of the industrial system certifies to the continuous <strong>debilitating and depleting effect that the military use of capital and research and development talent has had on American industry</strong>.&rdquo;</p> </blockquote> <p>Economist Robert Higgs makes <a href="http://www.independent.org/newsroom/article.asp?id=442" target="_blank" title="the same point">the same point</a>about World War II:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Yes, officially measured GDP soared during the war. Examination of that increased output shows, however, that it consisted entirely of military goods and services. <strong>Real civilian consumption and private investment both fell after 1941, and they did not recover fully until 1946. The privately owned capital stock actually shrank during the war</strong>. Some prosperity. (<a href="http://www.independent.org/newsroom/article.asp?id=138" target="_blank" title="My article in the peer-reviewed Journal of Economic History">My article in the peer-reviewed <em>Journal of Economic History</em></a>, March 1992, presents many of the relevant details.)</p> <p>&nbsp;</p> <p>It is high time that we come to appreciate the distinction between the government spending, especially the war spending, that bulks up official GDP figures and the kinds of production that create genuine economic prosperity. <a href="http://www.amazon.com/exec/obidos/ASIN/0814796591/theindepeende-20" target="_blank" title="As Ludwig von Mises wrote in the aftermath of World War I">As Ludwig von Mises wrote in the aftermath of World War I</a>, &ldquo;war prosperity is like the prosperity that an earthquake or a plague brings.&rdquo;</p> </blockquote> <h3 style="color: #000099;">War Causes Inflation &hellip; Which Keynes and Bernanke Admit Taxes Consumers</h3> <p>As we <a href="http://www.washingtonsblog.com/2011/01/war-causes-inflation-and-inflation-allows-the-government-to-start-unnecessary-wars.html" title="noted">noted</a> in 2010, war causes inflation &hellip; which hurts consumers:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>Liberal economist James Galbraith <a href="http://dir.salon.com/story/opinion/feature/2004/04/20/war_inflation/index.html" target="_blank" title="wrote">wrote</a> in 2004:</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Inflation applies the law of the jungle to war finance. Prices and profits rise, wages and their purchasing power fall. <span style="font-weight: bold;">Thugs, profiteers and the well connected get rich. Working people and the poor make out as they can. Savings erode, through the unseen mechanism of the &ldquo;inflation tax&rdquo;</span> &mdash; meaning that the government runs a big deficit in nominal terms, but a smaller one when inflation is factored in.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p><span style="font-weight: bold;">There is profiteering. Firms with monopoly power usually keep some in reserve. In wartime, if the climate is permissive, they bring it out and use it. </span>Gas prices can go up when refining capacity becomes short &mdash; due partly to too many mergers. More generally, when sales to consumers are slow, businesses ought to cut prices &mdash; but many of them don&rsquo;t. Instead, they <em>raise</em> prices to meet their income targets and hope that the market won&rsquo;t collapse.</p> </blockquote> <p><em>Ron Paul <a href="http://www.safehaven.com/article/6801/inflation-and-war-finance" target="_blank" title="agreed">agreed</a> in 2007:</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="font-weight: bold;">Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular. The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. </span>In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny. Monetary policy is utterly ignored in Washington, even though the Federal Reserve system is a creation of Congress.</p> <p>&nbsp;</p> <p>The result of this arrangement is inflation. And inflation finances war.</p> </blockquote> <p><em>Blanchard Economic Research <a href="http://www.gold-eagle.com/editorials_01/blanchard110501.html" target="_blank" title="pointed out">pointed out</a> in 2001:</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>War has a profound effect on the economy, our government and its fiscal and monetary policies. These effects have consistently led to high inflation.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>David Hackett Fischer is a Professor of History and Economic History at Brandeis. [H]is book, The Great Wave, Price Revolutions and the Rhythm of History &hellip; finds that &hellip; <span style="font-weight: bold;">periods of high inflation are caused by, and cause, a breakdown in order and a loss of faith in political institutions. He also finds that war is a triggering influence on inflation, political disorder, social conflict and economic disruption.</span></p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>Other economists agree with Professor Fischer&rsquo;s link between inflation and war.</p> <p>&nbsp;</p> <p>James Grant, the respected editor of Grant&rsquo;s Interest Rate Observer, supplies us with the most timely perspective on the effect of war on inflation in the September 14 issue of his newsletter:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;War is inflationary. <span style="font-weight: bold;">It is always wasteful no matter how just the cause. It is cost without income, destruction financed (more often than not) by credit creation. It is the essence of inflation.&rdquo;</span></p> </blockquote> </blockquote> <p><em>Libertarian economics writer Lew Rockwell <a href="http://mises.org/daily/3010" target="_blank" title="noted">noted</a> in 2008:</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>You can line up 100 professional war historians and political scientists to talk about the 20th century, and not one is likely to mention the role of the Fed in funding US militarism. And yet it is true: <span style="font-weight: bold;">the Fed is the institution that has created the money to fund the wars.</span> In this role, it has solved a major problem that the state has confronted for all of human history. <span style="font-weight: bold;">A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state. It is not a problem for the people. The inability of the state to fund its unlimited ambitions is worth more for the people than every kind of legal check and balance. It is more valuable than all the constitutions every devised.</span></p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p><em>Reflecting on the calamity of this war, Ludwig von Mises <a href="http://mises.org/store/Nation-State-and-Economy-P320.aspx" target="_blank" title="wrote">wrote</a> in 1919</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><div class="quote-in"><span style="font-weight: bold;">One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.*** </span></div> </blockquote> <p>&nbsp;</p> <p>In the entire run-up to war, <span style="font-weight: bold;">George Bush just assumed as a matter of policy that it was his decision alone whether to invade Iraq. The objections by Ron Paul and some other members of Congress and vast numbers of the American population were reduced to little more than white noise in the background. Imagine if he had to raise the money for the war through taxes. It never would have happened. </span>But he didn&rsquo;t have to. He knew the money would be there. So despite a $200 billion deficit, a $9 trillion debt, $5 trillion in outstanding debt instruments held by the public, a federal budget of $3 trillion, and falling tax receipts in 2001, Bush contemplated a war that has cost $525 billion dollars &mdash; or $4,681 per household. Imagine if he had gone to the American people to request that. What would have happened? I think we know the answer to that question. And those are government figures; the actual cost of this war will be far higher &mdash; perhaps $20,000 per household.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>If the state has the power and is asked to choose between doing good and waging war, what will it choose? Certainly in the American context, the choice has always been for war.</p> </blockquote> <p><em>And progressive economics writer Chris Martenson <a href="http://www.chrismartenson.com/crashcourse/chapter-10-inflation" target="_blank" title="explains">explains</a> as part of his &ldquo;Crash Course&rdquo; on economics:</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>If we look at the entire sweep of history, we can make an utterly obvious claim: <span style="font-weight: bold; font-style: italic;">All wars are inflationary. Period. No exceptions.</span></p> <p>&nbsp;</p> <p><span style="font-weight: bold;">***</span></p> <p>&nbsp;</p> <p><span style="font-weight: bold; font-style: italic;">So if anybody tries to tell you that you haven&rsquo;t sacrificed for the war, let them know you sacrificed a large portion of </span><em>your</em><span style="font-weight: bold; font-style: italic;"> savings and </span><em>your</em><span style="font-weight: bold;"> paycheck to the effort, thank you very much.</span></p> </blockquote> <p>The bottom line is that war always causes inflation, at least when it is funded through money-printing instead of a pay-as-you-go system of taxes and/or bonds. It might be great for a handful of defense contractors, but war is <span style="font-style: italic;">bad </span>for Main Street, stealing wealth from people by making their dollars worth less.</p> </blockquote> <p style="text-align: left;">Given that John Maynard Keynes and former Federal Reserve chair Ben Bernanke both say that <a href="http://www.washingtonsblog.com/2011/09/inflation-causes-problems-hidden-inflation.html" title="inflation is a tax on the American people">inflation is a tax on the American people</a>, war-induced inflation <em>is</em> a theft of our wealth.</p> <p style="text-align: left;">IEP <a href="http://www.thereformedbroker.com/wp-content/uploads/2012/02/Economic-Consequences-of-War.pdf" target="_blank" title="gives">gives</a> a graphic example &ndash; the Vietnam war helping to push inflation through the roof:</p> <p style="text-align: center;"><a href="http://www.washingtonsblog.com/wp-content/uploads/2014/04/WVI.jpg" target="_blank"><img alt="" class="aligncenter" height="455" src="http://www.washingtonsblog.com/wp-content/uploads/2014/04/WVI.jpg" title="WVI" width="625" /></a></p> <h3 style="color: #000099;">War Causes Runaway Debt</h3> <p><a name="military"></a>We <a href="http://www.washingtonsblog.com/2010/01/the-military-industrial-complex-is-ruining-the-economy.html" title="noted">noted</a> in 2010:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>All of the spending on unnecessary wars adds up.</p> <p>&nbsp;</p> <p>The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.</p> </blockquote> <p>Indeed, IEP &ndash; commenting on the war in Afghanistan and Iraq &ndash; notes:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>This was also the <strong>first time in U.S. history where taxes were cut during a war which then resulted in both wars completely financed by deficit spending</strong>. A loose monetary policy was also implemented while interest rates were kept low and banking regulations were relaxed to stimulate the economy. All of these factors have contributed to the U.S. having severe unsustainable structural imbalances in its government finances.</p> </blockquote> <p>We also <a href="http://www.washingtonsblog.com/2010/07/irony-our-huge-military-is-what-made-us.html" title="wrote">pointed out</a> in 2010:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>It is ironic that America&rsquo;s huge military spending is what made us an empire &hellip; but our huge military is what is bankrupting us &hellip; thus destroying our status as an empire.</p> </blockquote> <p>Economist Michel Chossudovsky told Washington&rsquo;s Blog:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.</p> </blockquote> <p>(and remember Greenspan&rsquo;s <a href="http://news.google.com/newspapers?nid=1314&amp;dat=19910201&amp;id=mQ0zAAAAIBAJ&amp;sjid=l_ADAAAAIBAJ&amp;pg=2887,40938" target="_blank" title="comment">comment</a>.)</p> <p>It&rsquo;s not just civilians saying this &hellip;</p> <p>The former head of the Joint Chiefs of Staff &ndash; Admiral Mullen &ndash; <a href="http://www.defense.gov/news/newsarticle.aspx?id=60621" target="_blank" title="agrees">agrees</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>The Pentagon needs to cut back on spending.</strong></p> <p>&nbsp;</p> <p>&ldquo;We&rsquo;re going to have to do that if it&rsquo;s going to survive at all,&rdquo; Mullen said, &ldquo;and do it in a way that is predictable.&rdquo;</p> </blockquote> <p>Indeed, Mullen <a href="http://www.defense.gov/news/newsarticle.aspx?id=60621" target="_blank" title="said">said</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>For industry and adequate defense funding to survive &hellip; the two must work together. Otherwise, he added, <span style="font-weight: bold;">&ldquo;this wave of debt&rdquo; will carry over from year to year, and eventually, the defense budget will be cut just to facilitate the debt.</span></p> </blockquote> <p>Former Secretary of Defense Robert Gates agrees as well. As David Ignatius <a href="http://www.washingtonpost.com/wp-dyn/content/article/2010/05/21/AR2010052103260.html" target="_blank" title="wrote">wrote</a> in the Washington Post in 2010:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>After a decade of war and financial crisis, America has run up debts that pose a national security problem, not just an economic one.</p> <p>&nbsp;</p> <p>***</p> <p>&nbsp;</p> <p>One of the strongest voices arguing for fiscal responsibility as a national security issue has been Defense Secretary Bob Gates. He gave a <a href="http://www.defense.gov/Transcripts/Transcript.aspx?TranscriptID=4621" target="_blank" title="landmark speech in Kansas on May 8, invoking President Dwight Eisenhower’s warnings">landmark speech in Kansas on May 8, invoking President Dwight Eisenhower&rsquo;s warnings</a> about the dangers of an imbalanced military-industrial state.</p> <p>&nbsp;</p> <p>&ldquo;Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state &mdash; militarily strong, but economically stagnant and strategically insolvent,&rdquo; Gates said. He warned that America was in a &ldquo;parlous fiscal condition&rdquo; and that <strong>the &ldquo;gusher&rdquo; of military spending that followed Sept. 11, 2001, must be capped</strong>. &ldquo;We can&rsquo;t have a strong military if we have a weak economy,&rdquo; Gates told reporters who covered the Kansas speech.</p> <p>&nbsp;</p> <p>On Thursday <strong>the defense secretary reiterated his pitch that Congress must stop shoveling money at the military</strong>, telling Pentagon reporters: &ldquo;The defense budget process should no longer be characterized by &lsquo;business as usual&rsquo; within this building &mdash; or outside of it.&rdquo;</p> </blockquote> <p>While war might make a handful in the <a href="http://www.washingtonsblog.com/2011/11/war-is-great-for-the-1-but-makes-the-99-poorer.html" title="military-industrial complex">military-industrial complex</a> and <a href="http://www.washingtonsblog.com/2014/04/wars-bankers-wars.html" title="big banks">big banks</a> rich, America&rsquo;s top military leaders and economists say that would be a <em>very bad</em> idea for the American people.</p> <p>Indeed, military strategists have known for <span style="font-style: italic;"><a href="http://www.washingtonsblog.com/2010/11/military-strategists-have-known-for.html" title="known">2,500 years</a></span> that prolonged wars are disastrous for the nation.<a name="inflation"></a></p> <h3 style="color: #000099;">War Increases Terrorism &hellip; And Terrorism Hurts the Economy</h3> <p>Security experts &ndash; conservative hawks and liberal doves alike &ndash; agree that waging war in the Middle East <span style="text-decoration: underline;">weakens</span> national security and <span style="text-decoration: underline;">increases</span> terrorism. See <a href="http://www.foreignpolicy.com/articles/2010/10/18/it_s_the_occupation_stupid" target="_blank" title="this">this</a>, <a href="http://www.washingtonpost.com/wp-dyn/content/article/2006/09/23/AR2006092301130.html" target="_blank" title="this">this</a>, <a href="http://www.counterpunch.org/feingold09292005.html" target="_blank" title="this">this</a>, <a href="http://www.fromthewilderness.com/free/ww3/100102_against_war.html" target="_blank" title="this">this</a>, <a href="http://www.rand.org/news/press/2008/07/29/" target="_blank" title="this">this</a>, <a href="http://www.salon.com/news/opinion/glenn_greenwald/2010/10/12/terrorism" target="_blank" title="this">this</a> and <a href="http://www.salon.com/news/opinion/glenn_greenwald/2010/10/06/terrorism" target="_blank" title="this">this</a>.</p> <p>Terrorism &ndash; in turn &ndash; terrorism is bad for the economy. Specifically, a <a href="http://www.hks.harvard.edu/fs/aabadie/twe.pdf" target="_blank" title="study">study</a> by Harvard and the National Bureau of Economic Research (NBER) points out:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>From an economic standpoint, terrorism has been described to have four main effects (see, e.g., US Congress, Joint Economic Committee, 2002). First, the capital stock (human and physical) of a country is reduced as a result of terrorist attacks. Second, the terrorist threat induces higher levels of uncertainty. Third, terrorism promotes increases in counter-terrorism expenditures, drawing resources from productive sectors for use in security. Fourth, terrorism is known to affect negatively specific industries such as tourism.</p> </blockquote> <p>The Harvard/NBER concludes:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>In accordance with the predictions of the model, higher levels of terrorist risks are associated with lower levels of net foreign direct investment positions, even after controlling for other types of country risks. On average, a standard deviation increase in the terrorist risk is associated with a fall in the net foreign direct investment position of about 5 percent of GDP.</p> </blockquote> <p>So the more unnecessary wars American launches and the more innocent civilians we kill, the less foreign investment in America, the more destruction to our capital stock, the higher the level of uncertainty, the more counter-terrorism expenditures and the less expenditures in more productive sectors, and the greater the hit to tourism and some other industries. <a href="http://books.google.com/books?id=sguW9zgK5V4C&amp;pg=PA43&amp;dq=%22Terrorism+has+contributed+to+a+decline+in+the+global+economy+%28for+example,+European+Commission,+2001%29%22&amp;ei=vW1JS-mAH5PIlATG86SVDg&amp;cd=1#v=onepage&amp;q=%22Terrorism%20has%20contributed%20to%20a%20decline%20in%20the%20global%20economy%20%28for%20example%2C%20European%20Commission%2C%202001%29%22&amp;f=false" target="_blank" title="Moreover">Moreover</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Terrorism has contributed to a decline in the global economy (for example, European Commission, 2001).</p> </blockquote> <p>So military adventurism increases terrorism which hurts the world economy. And see <a href="http://www.oppapers.com/essays/Cost-Of-Terrorism/216304" target="_blank" title="this">this</a>.</p> <p>Postscript: Attacking a country which controls the flow of oil has special impacts on the economy. For example, well-known economist Nouriel Roubini says that <a href="http://www.moneynews.com/StreetTalk/Roubini-Iran-Global-Recession/2012/01/30/id/426006" target="_blank" title="attacking Iran would lead to global recession">attacking Iran would lead to global recession</a>. The IMF says that Iran cutting off oil supplies could <a href="http://www.reuters.com/article/2012/01/25/us-imf-oil-iran-idUSTRE80O1LH20120125" target="_blank" title="raise crude prices 30%">raise crude prices 30%</a>.</p> </div> <p>&nbsp;</p> http://www.zerohedge.com/contributed/2014-04-23/war-makes-us-poor#comments Afghanistan Alan Greenspan Barney Frank Ben Bernanke Ben Bernanke China Chris Martenson Congressional Budget Office Crude Dean Baker Deficit Spending Department Of Commerce ETC Federal Reserve Federal Reserve Bank Global Economy Global Warming Gross Domestic Product International Monetary Fund Iran Iraq James Galbraith Japan John Maynard Keynes Joint Economic Committee Joseph Stiglitz Larry Summers Ludwig von Mises Main Street Maynard Keynes Middle East Monetary Policy national security Nouriel Nouriel Roubini Purchasing Power Recession Robert Gates Ron Paul Treasury Department Unemployment Wed, 23 Apr 2014 17:50:27 +0000 George Washington 487627 at http://www.zerohedge.com