2016: The End Of The Global Debt Super Cycle
After the stock market crash of 1987, The Federal Reserve embarked on a path that led to the biggest debt bubble in the history of the world. The day after the 1987 crash (Oct. 20, 1987) Alan Greenspan, Chairman of the Fed, announced to the world that The Fed stood ready to provide whatever liquidity was needed by the banking system to prevent the crash from turning into a systemic financial crisis. That was the day the Fed “put” was born.
A put is an option that allows its owner to sell a specified amount of a particular asset at a predetermined price by a specific date. As an example, if an investor had a February 90 put on Apple’s stock that investor would have the right to sell 100 shares at 90 a share until the third Friday in February when the option expired. An investor would only exercise that put if Apple’s stock price dropped below 90 a share before expiration. As it stands Apple’s stock price is 94.02 as of Friday’s close so no rational investor would exercise that put. But if on Monday Apple’s stock crashed and was trading 60 a share than the investor would exercise his put and gladly sell his stock at 90 a share to the person who sold him the put.So in effect after 1987 The Fed was acting as a giant put for the financial markets, a role it had heretofore not played.
In September of 1998 Long Term Capital Management, a highly leveraged high profile hedge fund, sustained losses that threatened its solvency. The fund with a few billion in equity had $80 billion in assets and all of its trades were going against the firm. LTCM’s equity was going to be wiped out within days. Warren Buffet and a consortium of investors offered to bail out the fund by paying fire sale prices for the assets and shutting down the fund. LTCM’s management balked and looked to The Fed for a better solution. The Fed engineered a bailout by numerous banks that left LTCM’s management in place with some of their wealth to spare. Once again, The Fed intervened in a market calamity and this time bailed out an extremely reckless hedge fund that should have been allowed to fail. The Fed’s put engendered moral hazard in the hedge fund community by allowing reckless and destabilizing behavior to go unpunished.
In December of 1999, The Fed injected enormous amounts of liquidity into the banking system to fend off any potential problems from the Y2K problem. If you recall, The Fed was worried that banking computer systems might erroneously register 1900 as the year on January 1, 2000 due to perceived deficiencies in banking software. To avert any panic, The Fed stuffed money into the banking system to make sure no calamities ensued. The stock market which was already in the midst of a mania in the tech sector effectively had kerosene poured on the fire. The extra banking liquidity found its way into the stock market and sent the tech bubble into overdrive. After the new year passed without so much as a hiccup The Fed withdrew the excess liquidity and the tech bubble peaked in March 2000 and then collapsed.
This is where the story of the debt bubble begins. Prior interventions by The Fed promoted moral hazard and rampant speculation but up to this point they did not need to employ debt to prop up the U.S. economy. That all changed after the internet stock mania collapsed, trillions in wealth was destroyed, and the U.S. economy went into recession. The Fed was once again worried that the crash in technology stocks would cause a systemic financial crisis so they embarked on an interest rate cutting program that saw the Fed Funds Rate drop from 6.5% to 1% from 2000 to 2003. This in effect morphed the tech stock bubble into a housing bubble. Adjustable rate mortgage yields plunged in value and accelerated a housing boom already in progress. The public, encouraged by low rates and lax underwriting standards stampeded into housing sending prices through the roof. Mortgage debt exploded and home equity values skyrocketed buffeting the tech collapse induced recession. The average American increased their leverage to all-time highs. Figure 1 shows that by the fourth quarter of 2007 household debt payments as a percentage of disposable income hit a record 13.2% up from 10.5% just 15 years earlier.
The Fed meanwhile did not normalize rates until 2005 when the Fed Funds Rate was back up to 4% on its way to 5.25% by 2006, the year the housing boom peaked. Total debt in the U.S. went from $18 trillion in 2001 to $30 trillion by 2007. Comparatively speaking it took 35 years for total debt in the U.S. to go from under $1 trillion to $4 trillion. As we all know the collapse in housing prices revealed that trillions in mortgage backed securities were not actually AAA rated and the collapse in value of these securities almost took the financial system with them.
Large investment banks, like Bear Stearns and Merrill Lynch, became insolvent and were forced to merge with better capitalized banks. Lehman Bros. was allowed to fail and brought the global financial system to its knees. The Fed, now headed by Ben Bernanke, went into overdrive slashing the Fed Funds rate to zero percent and essentially backstopping all financial institutions and depositors’ cash and near cash investments.
A new tool was introduced by The Fed, called Quantitative Easing, which allowed The Fed to purchase mortgage backed securities and other long dated debt to push down long term interest rates and encourage lending. Rates at both the front end and the back end of the yield curve plunged to historic lows with the hope that people and businesses would begin to borrow again and get the economy growing. These extreme measures stopped the free fall in financial assets and began a six-year expansion that was both meager and debt fueled.
During and following The Global Financial Crisis consumers in some developed countries deleveraged but the rest of the economy, namely governments and businesses, leveraged up. From the first quarter of 2008 to the second quarter of 2015 total debt in the U.S. increased from $30 trillion to $40 trillion. Globally, total debt grew from $142 trillion in the fourth quarter of 2007 to $200 trillion in the second quarter of 2014, an increase of $58 trillion. Total global debt as a percentage of global GDP grew from 269% in 2007 to 286% in 2014. The massive central bank intervention during The Global Financial Crisis prevented a deleveraging of the global economy and actually encouraged more leverage to stimulate growth. Once again the planet was borrowing from future growth to propel current growth. This was indeed a short sighted solution to an existential crisis faced by the world. Kicking the can down to 2016 has now come to its logical end.
During 2015 the strength of the global economy began to be questioned as commodity prices collapsed, Chinese economic growth slowed, and global trade slowed. For the first time since the European Sovereign Debt Crisis credit spreads began to widen and low rated corporate debt and leveraged loans began declining in value. As seen by Figure 2 Corporate Net Debt to Ebitda rose to record levels while Ebitda began to decline.
This is the most precarious moment in financial market history because as the world slides into recession global central banks have no ability to soften the oncoming recession with debt creation. Globally interest rates are close to zero and even negative in Europe and Japan. Long term government bond yields are also extremely low. This is sending a very clear and ominous signal that the world cannot service more debt and in fact needs to deleverage and get on more solid financial footing.
The last time the world deleveraged was during The Great Depression. The defining quality of The Great Depression was the destructive deflation that gripped the economy. Deflation destroys financial asset values like stocks and corporate bonds and hard assets like real estate. It also lowers incomes while making debt more expensive to service as debt to income ratios rise. The world economy is on the precipice of another Great Depression.
This state of affairs demands a dramatic repositioning of investment portfolios. Investors who choose to remain passive but want to preserve their wealth need to liquidate their investments in stocks and corporate bonds and hold cash only. Investors who are more opportunistic can hold a combination of cash and U.S. government bonds. U.S. government bonds have already begun to rally so buying at current levels is not quite as attractive as it was a month ago but we expect negative interest rates to eventually visit America so there is still considerable upside. Figure 5 shows that inflation expectations continue to plunge even as The Fed erroneously is raising interest rates.
The more aggressive investor can find opportunities to earn high returns employing strategies that will benefit from a financial collapse and a severe, deflationary recession. These strategies include shorting stock index futures, getting long VIX futures, etfs, and options, getting long stock index option volatility via index etfs, and on a limited basis shorting individual company stocks whose business plans will be acutely affected by economic developments.
We would not simply be short financial assets every day because we recognize that the markets will initially be quite volatile which means sharp bear market rallies in between dramatic declines in financial assets. We would initially be positioned to benefit from this two-way volatility and as the declines become more severe and investors begin to throw in the towel the fund will be more short oriented.
We recognize that The Fed will not sit idly by as this bear market intensifies. However limited their options they will employ them and they may provide brief respite from the bear market. We believe The Fed will stop raising interest rates and begin cutting them in 2016 taking them into negative territory. We also believe The Fed will embark on QE4, although it is not clear what assets they will purchase. What is clear is that rate cuts and QE4 will offer brief pauses in financial asset declines but will not ultimately arrest those declines.
Major fiscal policy adjustments will be needed and this will depend on who takes the White House in 2017. A Democratic win would be a negative while a Republican win by certain candidates may pave the way for major fiscal policy changes. For instance, Ted Cruz’s flat tax would be particularly beneficial and soften the blow of the economic contraction as more money will be directly put into Americans’ hands.
We also believe the next President needs to strip The Fed of their dual mandate of price stability and full employment. The Fed should no longer be tasked with ensuring full employment and debt creation should be disincentivized through changes to the tax code.
Lastly, we would like to highlight we take no pleasure in what we see coming to pass in the financial markets and simply wants to offer investors the opportunity to earn high returns in what otherwise will be an environment devoid of financial opportunities and of declining employment.
These Five Trends In China Will Change The Gold Market
Apple spent about five years developing the iPhone, which has changed the smartphone market forever. Until the release, however, nobody could imagine what impact the iPhone would have on the market.
And most consumers didn’t know about it at all.
The same thing is happening with China and gold right now. The gold market will soon be very different than from what we see today – largely due to the current developments in China.
China’s influence will impact not just gold investors but everyone who has a vested interest in the global economy, stock markets, and the US dollar. After all, China will be a dominant force in all, as most analysts project.
Here are the five trends in China that will change the gold market forever…
(Hedge fund manager Dan Tapiero talks about some of these trends in his short interview, especially the #5 listed below.)
Trend #1: China now officially participates in the gold price fix
China has officially established a daily yuan price fix for gold.
Gold fixing was historically held at the London Bullion Market Association (LBMA). China was not part of that process, so it started its own pricing benchmark.
The Shanghai Gold Exchange’s program includes 12 “fixing” members, 10 of which are Chinese banks. The new gold benchmark will better reflect local market flows and, just as important, reduces gold’s price dependency on the US dollar.
The program has profound implications as the gold trade continues to move from West to East. It will increase China’s influence over the gold price and expand the yuan’s role as a global currency.
Trend #2: China also participates in setting the silver price
China Construction Bank, one of the country’s largest, recently joined the elite group of banks that set silver’s official daily price.
The Chinese bank now bids prices with HSBC, JPMorgan Chase, Bank of Nova Scotia, Toronto Dominion Bank, and UBS. That means China now has direct influence on the price of this key industrial and monetary metal.
These two moves makes sense, since some of the world’s top gold and silver consumers are in the East—India, Russia, Turkey, and of course China.
It is clear China wants more influence over gold and silver prices—and now it will get it.
Trend #3: The renminbi is in the IMF basket
Last November, the IMF added the renminbi to its reserve currency basket. The prestigious basket will include the yuan along with the dollar, euro, pound sterling, and yen when calculating the value of the Special Drawing Rights (SDRs).
The long-term implication is that the yuan may one day become as recognizable as the dollar or euro.
It also means China must accumulate enough bullion reserves to stand on the world stage. And by any measure, it doesn’t have enough.
Some analysts believe China has more than the official 1,797.5 tonnes it reported in March, but that amount is 4.5 times less than 8,133.5 tonnes the US holds. Even if China doesn’t want that much, the current total represents only 2.2% of its total reserves.
This means that not only does China need to continue buying gold in massive quantities, it will at some point need to announce it holds a much higher amount. And that announcement will light a fire under the gold price.
You may not trust the numbers coming out of Beijing, but keep in mind that China’s biggest goal is to become a first world economy. It wants to be on the same footing as the US, Japan, and Europe.
And one way to achieve that is to accumulate a lot more gold.
Trend #4: Chinese gold production is slowing
China produces more gold than any other nation.
But even the world’s top producer isn’t immune to the effects of the four-year bear market in gold. Mine production is slowing and is poised to decline for at least several years just like everywhere else.
That’s because the cost of production has risen, ore grades are falling, and reserves in the country are limited.
And get this: China doesn’t export gold in any meaningful amount. So whatever gets produced there, stays there.
Bottom line: China’s gold production won’t make it to world markets. Its output is in decline and won’t be available to meet global demand.
Trend #5: Lack of other alternatives for Chinese investors
This trend is explosive…
As hedge fund manager Dan Tapiero points out, Chinese investors will be increasingly attracted to gold because they won’t want their savings at a zero percent interest rate.
Yet, Beijing has made it clear that it will bring rates lower. So what will investors buy? Government debt yields just 1–2%. High-yield corporate debt pays more, but only 15% of Chinese debt is rated by foreign agencies like Moody’s and S&P, so it comes with a lot of potential credit risk. The stock market wiped out many investors, and real estate petered out.
UBS analysts agree:
Deterioration in China’s macro backdrop could trigger flows towards gold; there are a limited number of investment alternatives and gold is poised to benefit should outlooks across the different options turn sour… rotation into gold ETFs would be a relatively easy switch for local equity investors and could gain further traction if equity markets continue to weaken.
That’s not all.
Chinese savers have huge exposure to a devaluation of their currency, as their wealth is tied directly to the fate of the renminbi. Devaluation fears have prompted massive capital outflows from both the currency and the country—some of which is fleeing into gold.
Looking at the big picture over the next 3-5 years—these changes signal that China will be a big driver of the gold price.
“It’s A Rotten System” Ron Paul Says: US Elections Are Rigged, Voting Simply Used To Pacify The Public
Dr. Ron Paul says the American electoral system is rigged to keep “independent thinkers” from succeeding.
“I see elections as so much of a charade,” the former Texas congressman said during an April 11 appearance on RT America’s “The Fishtank.” “So much deceit goes on.”
Paul is no stranger to the twisted rules of the American presidential horse race. He ran for the highest office as a Libertarian in 1988, and in 2008 and 2012 as a Republican.
He arguably came closest to the nomination in 2012, when the GOP amended its party regulations to prevent the former Texas representative from stealing Mitt Romney’s thunder.
Rule 40(b) of “The Rules of the Republican Party” was changed so the Republican National Committee could “limit the visibility and power of libertarian-minded Texas Rep. Ron Paul at the convention and thus present a unified front behind Mitt Romney, the presumptive nominee,” according to David Byler, an elections analyst at RealClearPolitics. The rule requires that, in order to win the nomination, a candidate must have the support of a majority of delegates from eight states.
Although recent wins have tipped Sen. Ted Cruz past the cut off, the rule as written came close to helping Trump take the nomination. Paul warned that the GOP’s machinations to block Donald Trump are a sign of a corrupt, undemocratic system.
“I’ve worked on the assumption … for many, many decades, that whether there’s a Republican or a Democrat president, the people who want to keep the status quo seems to have their finger in the pot and can control things,” he said in the interview.
“They just get so nervous, though, if they have an independent thinker out there — whether it’s Sanders, or Trump or Ron Paul, they’re going to be very desperate to try to change things.”
Paul had nothing but scorn for Trump’s policies: “He’s offering us nothing new, and he’s going backward in many ways.”
He suggested that the 2016 election is “a lot more entertainment than anything else” because none of the candidates “have answers” to modern political problems.
Even so, Paul interprets the success of these outsider candidates as a sign that “more people are discovering that the system is all rigged and voting is just pacification for the voters and it really doesn’t count.”
“I don’t think there’s an easy way out for the establishment or the parties,” he noted, explaining that Democrats and Republicans would both rather risk “further alienation of the people” than allow a candidate to succeed who could shake up the system.
Paul recalled his own 2012 encounter with Rule 40(b) as an important political lesson for both himself and the American people.
“I was upset about it but didn’t want to waste too much energy being angry because this is the way the system works,” he said. “It’s a rotten system.”
Watch the entire interview below:
“Worse Than 2008” World Trade Collapses To 10 Year Lows
This wasn’t part of the rosy scenario.
The Merchandise World Trade Monitor by the CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, tracks global imports and exports in two measures: by volume and by unit price in US dollars. And the just released data for January was a doozie beneath the lackluster surface.
The World Trade Monitor for January, as measured in seasonally adjusted volume, declined 0.4% from December and was up a measly 1.1% from January a year ago. While the sub-index for import volumes rose 3% from a year ago, export volumes fell 0.7%. This sort of “growth,” languishing between slightly negative and slightly positive has been the rule last year.
The report added this about trade momentum:
Regional outcomes were mixed. Both import and export momentum became more negative in the United States. Both became more positive in the Euro Area. Import momentum in emerging Asia rose further, whereas export momentum in emerging Asia has been negative for four consecutive months.
This is also what the world’s largest container carrier, Maersk Lines, and others forecast for 2016: a growth rate of about zero to 1% in terms of volume. So not exactly an endorsement of a booming global economy.
But here’s the doozie: In terms of prices per unit expressed in US dollars, world trade dropped 3.8% in January from December and is down 12.1% from January a year ago, continuing a rout that started in June 2014. Not that the index was all that strong at the time, after having cascaded lower from its peak in May 2011.
If June 2014 sounds familiar as a recent high point, it’s because a lot of indices started heading south after that, including the price of oil, revenues of S&P 500 companies, total business revenues in the US…. That’s when the Fed was in the middle of tapering QE out of existence and folks realized that it would be gone soon. That’s when the dollar began to strengthen against other key currencies. Shortly after that, inventories of all kinds in the US began to bloat.
Starting from that propitious month, the unit price index of world trade has plunged 23%. It’s now lower than it had been at the trough of the Financial Crisis. It hit the lowest level since March 2006:
This chart puts in perspective what Nils Andersen, the CEO of Danish conglomerate AP Møller-Maersk, which owns Maersk Lines, had said last month in an interview following the company’s dreary earnings report and guidance: “It is worse than in 2008.”[Read… “Worse than 2008”: World’s Largest Container Carrier on the Slowdown in Global Trade.]
But why the difference between the stagnation scenario in world trade in terms of volume and the total collapse of the index that measures world trade in unit prices in US dollars?
The volume measure is a reflection of a languishing global economy. It says that global trade may be sick, but it’s not collapsing. It’s worse than it was in 2011. This sort of thing was never part of the rosy scenario. But now it’s here.
The unit price measure in US dollars is a reflection of two forces, occurring simultaneously: the collapsed prices of the commodities complex, ranging from oil to corn; and the strength of the US dollar, or rather the weakness of certain other currencies, particularly the euro. It didn’t help that since last summer, the Chinese yuan has swooned against the dollar as well. So exports and imports from and to China, measured in dollars, have crashed further than when measured in yuan.
And these forces coagulated at a time of lackluster global demand despite, or because of, seven years of QE, zero-interest-rate policies, and now negative-interest-rate policies. It forms another indictment of central bank policies that have failed to stimulate demand though they have succeeded wonderfully in stimulating asset prices, malinvestment, and overcapacity.
World trade in goods is just one factor in the global economy. Now the global financial sector is getting hit too as the artful QE bonanza is bumping into real-world limits. And for global investment banking revenues, a key income source for “systemically important” banks, it has been one heck of a terrible first quarter. Read… The Big Unwind Hits Investment Banking
The Cyprus Template for Bail-ins Comes to Canada, Next Up the US
Canada has joined the “bail-in” posse.
Canada will introduce legislation to implement a “bail-in” regime for systemically important banks that would shift some of the responsibility for propping up failing institutions to creditors.
The proposed plan outlined in the federal budget released on Tuesday would allow authorities to convert eligible long-term debt of a failing lender into common shares in order to recapitalize the bank, allowing it to remain operating.
The above story suggests that only bondholders would be at risk of a bail-in but we all know that is just some sugar to make what’s coming go down easier.
Savings deposits being used to bail-in banks. Legislation is in the works in Canada, New Zealand, the UK, Germany, and even the US to do precisely this.
This whole template was laid out in Europe in 2012. Europe is ground zero for Keynesian Central Planning: a massive welfare state overseen by non-elected officials and Central Bankers who willingly break the rule of law whenever it suits them,
The guinea pig for the template was Cyprus.
The quick timeline for what happened in Cyprus is as follows:
· June 25, 2012: Cyprus formally requests a bailout from the EU.
· November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).
· February 25, 2013: Democratic Rally candidate Nicos Anastasiades wins Cypriot election defeating his opponent, an anti-austerity Communist.
· March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.
· March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.
· March 18 2013: Bank holiday extended until March 21 2013.
· March 19 2013: Cyprus parliament rejects bail-in bill.
· March 20 2013: Bank holiday extended until March 26 2013.
· March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.
· March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).
The most important thing we want you to focus on is how lies and propaganda were spread for months leading up to the collapse. Then in the space of a single weekend, the whole mess came unhinged and accounts were frozen.
One weekend. The process was not gradual. It was sudden and it was total: once it began in earnest, the banks were closed and you couldn’t get your money out.
Depositors lost between 40% and 60% of their savings above €100,000 as it was converted into bank equity. However, once it became equity, it could go to ZERO just like any stock.
That’s precisely what happened.
Account holders at Bank of Cyprus lost almost half their money above the €100,000 level, receiving stock in the bank as compensation. Those shares have since plummeted in value.
Uninsured depositors in Laiki Bank, also known as Cyprus Popular Bank, the nation’s second-largest lender, lost everything because the bank failed.
Source: NY TIMES.
As for those trying to get their money out of Cyprus, it took TWO YEARS before the final capital controls were lifted.
And the last remaining restrictions on transfers of money outside of Cyprus, imposed two years ago, will be lifted next month (APRIL 2015), said Chrystalla Georghadji, the governor of the country’s central bank.
Source: NY TIMES.
So… depositors had 40% to 60% of their deposits above €100,000 converted into bank equity… equity which could then go to ZERO… and those who tried to get their money out of the country had restrictions in place for TWO YEARS.
This is the template for what’s going to be implemented globally in the coming months. When push comes to shove, it will be taxpayers, NOT Central Banks who are on the hook for the next round of bailouts.
Indeed, we’ve uncovered a secret document outlining how the Feds plan to take hold of savings during the next round of the crisis to stop individuals from getting their money out.
We detail this paper and outline three investment strategies you can implement right now to protect your capital from this sinister plan in our Special Report
Survive the Fed’s War on Cash.
We are making 1,000 copies available for FREE the general public.
To pick up yours, swing by….
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These Are The 8 Biggest Barriers To Economic Growth
Last month I ran across a fascinating study by economist John Cochrane. He is a senior fellow at the Hoover Institution, former University of Chicago professor, and adjunct scholar with the Cato Institute.
Cochrane wrote a paper on economic growth last year as part of a project to design presidential debate questions where he took a matter-of-fact approach to the growth problem.
What are the barriers to productivity growth, and what can we do to remove them? Not surprisingly, most barriers are the result of counterproductive government policies. I’ll highlight here a few from Cochrane’s paper.
Barrier #1: Government Interference
The government interferes in just about every segment of the economy. Sometimes it brings benefits like traffic safety and clean air. More often, regulation simply slows growth in order to transfer wealth from one group to another.
It interferes with growth by impeding competition and distorting economic incentives. It distorts the signal that individuals send markets about their preferences and adds a great deal of noise and cost, which distorts economic activity from being its most efficient.
Barrier #2: The Dodd-Frank Financial Regulations
The Dodd-Frank financial regulations had the laudable goal of preventing future bank crises, but in reality, they simply work against other government policies. Washington encourages and subsidizes debt and then tries to prevent the inevitable consequences.
We wouldn’t need Dodd-Frank if the government were not rewarding excessive debt. Excessive, unproductive debt of the type we are generating in the US and Europe actually inhibits growth.
Barrier #3: Obamacare
We’re all frustrated by Obamacare and health insurance generally. What we need is simple, portable, catastrophic health insurance. Instead of promoting it, the government makes it illegal.
Barrier #4: Energy Subsidies
Here again the government works at cross-purposes with itself. It subsidizes energy so that it costs less, then tries to prevent us from using too much of it. Cochrane says the ethanol mandate helps no one but the large corn-producing companies. Ditto for solar subsidies.
Barrier #5: Taxes
Taxes should raise revenue, but instead we use them to redistribute income and encourage/discourage behavior. A simpler tax code would remove massive economic distortions, and it would be far better to tax consumption instead of income.
Barrier #6: Income-Based Social Programs
Cochrane sees no need to be stingy with helping people in genuine need. Welfare programs are far less costly than the many subsidies we give the middle class and large corporations.
The problem is that perverse incentives trap people and make them permanently dependent. He suggests consolidating all the aid programs and making them time-based, like unemployment benefits, rather than income-based.
Barrier #7: Immigration Terms
We can end illegal immigration overnight, says Cochrane, by making it legal. The question is the terms we apply to legal immigration. We should welcome skilled workers who want to stay in the US and contribute to our economy. He also points out, wisely, that whether someone should be here is a separate question from whether they should be allowed to work here.
Barrier #8: Public Schools
Public schools do not need more money; they need correct incentives. The way to deliver them and ensure better opportunities for all is to adopt vouchers and charter schools. The government doesn’t have to directly provide the service in order to help people afford it.
Implementing these reforms is a political challenge, not an economic one. One man’s waste is another man’s subsidy. People naturally resist when they perceive they are on the losing end of the bargain. Serious change is very hard if everyone insists on keeping whatever benefits they presently have.
Recipe For Collapse: Rising Military & Social Welfare Spending
Great comparison of history – The Roman Empire – and our current situation in the US with entitlement programs.
And dramatically increasing taxes on the 1% (or worse .1%) cannot overcome the upside down numbers!
Leaders faced with unrest, rising demands and dwindling coffers always debauch their currency as the politically expedient “solution.”
Whatever you think of former Fed chair Alan Greenspan, he is one of the few public voices identifying runaway entitlement costs as a structural threat to the economy and nation. We can summarize Greenspan’s comments very succinctly: there is no free lunch. The more money that is siphoned off for entitlements, the less there is for investment needed to maintain productivity gains that are the foundation of future income generation: Greenspan: Worried About Inflation, Says “Entitlements Crowding Out Investment, Productivity is Dead” (via Mish)
Many people look to the rising costs of the U.S. military as the structural problem, and they have a point: there is no upper limit on military spending, and the demands (by the civilian leadership of the nation) on the services and the Pentagon’s demands for new weaponry are constantly pushing budgets higher.
But the truth is entitlement spending now dwarfs military spending: entitlements are more than $1.75 trillion, half of all Federal spending, while the Pentagon, VA, etc. costs around $700 billion annually.
We have a model for what happens when military and social welfare spending exceed the state’s resources to pay the rising costs: the state/empire collapses. The Western Roman Empire offers an excellent example of this dynamic.
As pressures along the Empire’s borders rose, Rome did not have enough tax revenues to fully fund the army. Hired mercenaries had become a significant part of the Roman army, and if they weren’t paid, then the spoils of war became their default pay.
This erosion of steady pay also eroded the troops’ loyalty to Rome; their loyalties switched to their commanders, who often decided to take his loyal army to Italy and declare himself Emperor.
Meanwhile, the costs of free bread and other foodstuffs and public entertainments (bread and circuses) exhausted the Imperial coffers. Originally intended to alleviate the suffering of the poor, the free bread program had expanded from feeding 40,000 citizens of Rome in 71 B.C. to 320,000 under Augustus–roughly one-third of the entire populace of Rome. (The free bread was by then augmented by free cooking oil and other goodies.)
(Source: page 85, Food in History)
Costly entertainments such as bloody gladiator fights that had once been staged on rare public holidays were commonplace by the late Empire, another drain on the state coffers.
Like all states under financial pressure, the Empire devalued its currency as a means of stretching sagging resources. A measure of wheat that cost 6 drachmas in the first century A.D. cost two million drachmas after 344 A.D.
How’s that for inflation?
Today, we face the same crunch: the costs of entitlements are outracing the economy’s ability to fund them.Entitlements already consume half the federal budget:
To pay for entitlements, federal tax rates will have to double:Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens
Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.
The Romans were not interested in facing the problem, either. Once the masses became dependent on the free bread, near-riots ensued when the grain shipments were late.
Leaders faced with unrest, rising demands and dwindling coffers always debauch their currency as the politically expedient “solution.” Our own Establishment is readying the “free money” of helicopter drops and printing money to subsidize federal deficits, willfully blind to the eventual destruction of the currency this will inevitably cause. (Even Greenspan admitted as much.)
Sadly, nations get the leadership they deserve. Turning a blind eye to reality is not a sustainable “solution.”
Islamic State Unveils Next Attack: “What Awaits You Will Be Tougher And More Bitter”
How can liberals continue to discuss that the US is “causing” radical islamist to be radical towards us.
It is overly obvious that regardless of what we do or say, they want to destroy us because we are part of the “crusader nations!”
We cannot change their minds as it is part of their religion as they practice it!
We can only prepare and protect ourselves!
Earlier today, Belgian prosecutors held a press conference at which officials detailed the latest developments in the search for the third suspect seen in CCTV footage shot just before two suicide bombers detonated suitcases in front of a Starbucks in Brussels airport on Tuesday.
The man police are frantically searching for is almost certainly bomb maker Najim Laachraoui, who has emerged as a key figure in the Belgium cell once commanded by Paris ringleader Abdelhamid Abaaoud. Laachraoui was identified on Friday after police captured Salah Abdeslam in Molenbeek following a firefight. Authorities are understandably concerned about the fact that an explosives expert is on the loose in Brussels where he presumably has contacts to still more members of the sleeper cell (which isn’t so “sleepy” anymore).
The thinking now is that ISIS cells have been given a certain amount of autonomy from central command in Raqqa and Mosul because, well, because there’s really no telling if there even is a central command at this juncture. One gets the impression that al-Hayat Media Center just kind of waits to see what happens and then if there’s a “successful” attack (Allahu akbar), then the propaganda arm simply claims it after the fact.
That dynamic in many ways makes the group more unpredictable, as semi-autonomous cells do not need al-Baghdadi’s approval before carrying out attacks.
With all of that in mind, we present the full statment from ISIS regarding the attacks on Brussels and a reading of the proclamation in French (the .mp3 is of course from al-Bayan, the caliphate’s radio network).
As you’ll see (and hear if you speak French) below, ISIS has now promised a larger attack on Belgium. In the context of what we said above, consider that in reality it’s probably not a more spectacular attack that Belgians should fear, but rather a series of “small” attacks like what unfolded Tuesday, perpetrated by a collection of individuals who do not need to appeal to a central authority and thus are free to hit soft targets spontaneously.