Detroit

If your neighborhood is not as safe as it used to be, then you have something in common with the rest of the country.  All over America, crime is on the rise.  According to a government survey that was just released, violent crime in the United States increased by 15 percent last year, and property crime was up by 12 percent.  If violent crime keeps increasing at this rate, it will approximately double in just six years.  But as we wrote about the other day, when the next major economic downturn strikes it will probably greatly accelerate the growth of the crime rate in this country.  Desperate people do desperate things, and as you will read about below, there are people out there that are already stealing entire truckloads of food. 

The number one American export is U.S. dollars.  It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars.  The linchpin of this system is the petrodollar.  For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars.  But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly.  For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a "major shift" in relations with the United States.  In fact, the Saudis are so upset at the Obama administration that "all options" are reportedly "on the table".

If there was any doubt that the US housing "recovery" is anything but the latest speculative play by deep-pocketed (namely those who already have access to cheap funding) investors, who are now engaged in rotating cash gains out of capital markets and into real estate, on their way hoping to flip newly-acquired properties to other wealthy investors, then the most recent, September, RealtyTrac report will put that to rest. To wit: Institutional investors (purchasing 10 or more properties in the last 12 months) accounted for 14 percent of all sales in September, up from 9 percent in August and also 9 percent in September 2012. September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011....All-cash purchases nationwide represented 49 percent of all residential sales in September, up from a revised 40 percent in August and up from 30 percent in September 2012. In other words, institutional purchases are now at all time highs, with all-cash accounting for half of all transactions!

The collapse of American society is accelerating.  For the moment, much of our social decay is being masked by the tremendous level of affluence that we are experiencing in aggregate.  It has been reported that 4 out of every 5 adults in the United States "struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives", but in general Americans still enjoy a debt-fueled standard of living that is far beyond what most of the rest of the world enjoys.  When that debt-fueled standard of living permanently disappears, it is going to unleash chaos unlike anything that America has ever seen before. So how can we be so sure that this is going to happen?  After all, the United States didn't descend into complete and utter chaos during the Great Depression of the 1930s.  Wouldn't an economic depression unfold in a similar manner today? Unfortunately, a lot has changed since then.  A lot more Americans were self-sufficient back in those days, and the truth is that the character of our nation has been rotting and decaying for decades.

As RealtyTrac observes in its latest flipping report, while home-flipping among high-end homes, or those reserved exclusively for the New Normal aristocracy which buys and sells with reckless abandon almost exclusively on an all cash basis, is up 34% over the prior year with flipping on houses priced between $2 and $5 million was up a ridiculous 350%, overall flipping activity is finally starting to subside and in the third quarter was down by a third from Q3 and over 10% down from the the prior year. Not surprisingly, the bulk of the ultra-luxury flips were limited to New York and the four core California bubble markets. "More than three-fourths of all high-end flips were in five markets: the New York metro area and four coastal California markets — Los Angeles, San Francisco, San Jose and San Diego.  Flips on homes priced between $1 million and $2 million increased 42 percent year over year, while flips on homes priced between $2 million and $5 million increased 350 percent year over year."

If one looks at various sovereign states, it seemingly doesn't matter that their public debts continue to rise at a hefty clip. The largest ones are considered to have economies that are big and resilient enough to be able to support the growing debt load. Part of the calculus is no doubt the notion that they contain enough accumulated wealth to allow their governments to confiscate even more of their citizens property and income in order to make good on their debts. Then there are the small and mid-sized states in the EU that are getting bailed out by their larger brethren, or rather, the tax payers of their larger brethren. However, things are different when the territories or municipalities concerned are considered too small and have no such back-up. Detroit was a recent case in point, and it seems that the US territory of Puerto Rico is the next domino to fall.

Following his "yearslong scheme to shakedown contractors and reward allies," Kwame Kilpatrick - who served as Detroit Mayor from 2002 to 2008 - was this morning sentenced to 28 years in prison for corruption. Regarded by many as a key contributor to Detroit's eventual downfall, it seems Kilpatrick is somewhat repentant, stating, "the people here are suffering, they're hurting. A great deal of that hurt I accept responsibility for." Agents who pored over bank accounts and credit cards said Kilpatrick spent $840,000 beyond his salary during his time as mayor. Having resigned in 2008 over a sexting scandal, the scale of his corruption, prosecutors added, "exacerbated the crisis."

One of the biggest laughs of the conference came when Smith presented the slide, ‘Emperor … With No Clothes’  which compared how the value of the Roman denarius, silver coin and the U.S. paper dollar have fared during periods of currency debasement. 

The chart shows the silver denarius since Nero and the dollar since Nixon and looked at the level of debasement during the reign of each Roman Emperor and the term of each Presidency.

Want to fund your "grilled cheesus" project? Need money to continue your "edible cup" business? Kickstarter is the platform of choice. But now, with the muni bond market suffering from outflows in retail funds and bankruptcies mounting across the nation, cities are increasingly turning to 'crowd-funding'. As Bloomberg reports, Central Falls (which filed for bankruptcy 2 years ago) is using Citizinvestor to seek $10,044 in funds for 5 new trash cans. "Even with attractive yields, there aren't a lot of people lining up to get involved with places that have gone through bankruptcy," as the initiative has raised $295 so far...

"This is the third act in an improbable triple-fucking of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.... It's a scam of almost unmatchable balls and cruelty, accomplished with the aid of some singularly spineless politicians. And it hasn't happened overnight. This has been in the works for decades, and the fighting has been dirty all the way."

• House GOP banking on Plan C (Politico)
• Pimco shook hands with the Fed - and made a killing (Reuters)
• BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
• JPMorgan Urged to Pay More in Mortgage Deal (NYT)
• Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
• U.N. Members Agree on Syria Disarmament (WSJ)
• U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
• The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
• Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)

You may have seen recent revelations that Detroit routinely raided its pension funds to award extra cash – including bonuses dubbed “the 13th check” – to both retirees and active employees. These payments were far in excess of the city’s negotiated obligations and hidden from both the public and Detroit’s bond investors. There may be no cleaner account of the repercussions of handing power to those who show their compassion with the public purse. However well meaning the union reps controlling Detroit’s pension board may have been, their politics clearly compromised the city’s long-term health.

Beggars once again have become choosers it would appear. As Bloomberg reports, a Detroit city union is demanding that the bankruptcy judge reinstate a policy that enables a "13th" monthly check to be cut for pensioners every year. The policy, which was ended in 2001, cost the city $1.92 billion, according to a reporty commissioned by the city. We are just not sure whether this an "Onion" headline or real.

If anyone had reservations about the monthly Case-Shiller report, or at least the logic in the methodology used by the S&P data collectors, we present Exhibit A, which should solidify any such doubts. Below we show Detroit "home prices", which according to the just announced July NSA data, soared even higher, to level of 90.8, which just happens to be a 17% increase Y/Y, and the highest print since August 2008. Bankruptcy? Pfft - who cares when the government is funding Blackstone REO-to-Rent made-to-flip purchases.

• Iran Icebreaker Set at U.N.  (WSJ)
• Chrysler Feud Triggers IPO Filing  (WSJ)
• JPMorgan Chase, 12 More Banks Said to Be Sued Over Libor (BBG)
• Regulator sues Morgan Stanley, eight others over faulty securities (Reuters)
• Monte Paschi Seen Boosting Cost Goals to Meet EU Demands (BBG)
• Here we go again - "not enough funds": CFTC chair Gary Gensler warns on fund cuts to police derivatives (FT)
• Congress Fuels Private Jails Detaining 34,000 Immigrants (BBG)
• KKR, Sycamore looking to buy Jones Group this week (NYPost) - take with lots of salt
• Fiat rethinks alliance with Chrysler after IPO filing (Reuters)
• Young Invincibles Caught in Crossfire Over Obamacare Cost (BBG)
• Mayfair Office Squeeze Spawns New London Real Estate Hubs (BBG)