Kamis, 23 Januari 2014

FROM CRISIS TO CRISIS...??? !!! ...>>> PEAK CRISIS is Here! (What to do?).....>> Only the rich are getting richer. Our economy is basically stagnant. Incomes are declining, and 46,700,000 Americans are on food stamps. The war on poverty has kept poor people poor, and government intervention has only made matters worse. The "recovery" we keep hearing politicians take credit for is nothing but clever marketing — a few distorted statistics with a lot of underlying unmentionables....>>>..... ... This is a fundamental error of thought. Capital is not money. One is scarce, the other is infinite. And we might not have thought anything of this sloppy language had we not been talking to an economist a few days earlier who feared for the future of euro. The situation remained grave, he said, and there was surely no alternative than for the ECB eventually to "print more capital"... ... Capital comes from savings, and the policy of cheap credit with its inflation of time preference has encouraged spending, not saving. Scarce capital is growing ever scarcer. One day, the price of capital will reflect its underlying scarcity, because one day it must. But in the meantime we think very carefully about the capital requirements of the businesses we own, growing increasingly wary of those which depend on artificially cheap "financial capital" for their survival. We note in passing that physical gold bullion is the oldest and purest capital there is... ... Success in the long run requires that thought and action be fully independent from the false ideas of the herd. Yet today's language of inflation embeds so many of these false ideas that the full rottenness of what passes for financial thinking today is obscured. One increasingly reads of capital stewards complaining that things seem more difficult today. We think it's because they are. We are also increasingly mindful of conversations with friends, family and colleagues that reveal a widespread perception that something is very wrong, though people can't quite put their finger on what it is. As we have just argued, we think the answer is that the inflation of credit has driven an inflation of asset prices, which has driven an inflation of future expectations, which has driven an inflation of time preference... and that while the consequences of these various inflations are profound, the new language of inflation which it has spawned is shallow. Therefore, not only is there insufficient capital to ensure future prosperity and insufficient realism to deal with the future this implies, there is insufficient linguistic precision for most people to articulate the problem let alone understand it. And when language itself becomes so grotesquely distorted, how does one go about substituting the customers' unattainable hopes and expectations of never-ending growth with the need for principled and honest action?...>>>

PEAK CRISIS is Here! (What to do?)

How It'll Impact Your Portfolio & the Economy at Large

By Brittany Stepniak   

It's winter (post-festive holiday fun), the middle of a mundane week, and it's been polar-vortex-cold outside.
I couldn't think of anything I'd rather do after a long day's work than indulge in a little comedic satire, courtesy of my favorite TV host.
So I spent the last couple of nights sitting a little uncomfortably close to my space heater, curled up with a 50-pound puppy in my lap and catching up on a few missed episodes of The Colbert Report.
Because, let's face it, watching the regular news is just too depressing.
So when Stephen joked about it being harder to get a job at Wal-Mart than to get into Harvard (statistically-speaking), I lightly chuckled. But I remember watching broadcasters present that same information on Fox Business back in December, and I didn't chuckle then...
I sighed.
I find myself sighing a lot these days. I'm beyond frustrated with nearly everything I see in the news and even more frustrated that our country's leaders are trying to sell our situation as a fortunate one.
Don't get me wrong... I'm fortunate to live here, and I have much to be grateful for. But this isn't a recovery. People aren't getting richer. People aren't better off.

America is getting poorer, fatter, and a whole lot sadder.

Only the rich are getting richer. Our economy is basically stagnant. Incomes are declining, and 46,700,000 Americans are on food stamps.
The war on poverty has kept poor people poor, and government intervention has only made matters worse. The "recovery" we keep hearing politicians take credit for is nothing but clever marketing — a few distorted statistics with a lot of underlying unmentionables.
Yes, the stock market is improving (and I know many of you have been profiting from the recent bull market; kudos!). But to call this a "recovery" is a major fallacy.
If applicants looking for work at our nation's largest retailer and top employer — simply seeking minimum wage, no less — have only a 2.6% chance of winning that job, while 5.7% of college applicants seeking a position in one of the nation's most prestigious universities will get in, we might be in a crisis.
If 50% of our friends and neighbors are relying on government benefits to make ends meet, we might be in a crisis.
If 10% of our loved ones, colleagues, and acquaintances are on antidepressants and another 68.8% are overweight or obese, we might be in a crisis.
To say things are going well right now isn't fair to any of those people.

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Too Much Has Accomplished Too Little

The government has done a lot to remedy the aforementioned problems. Perhaps the government has over-exerted itself in championing efforts to "help." Good intentions or not, they're not working.
The stock market has been climbing to historic heights, while many of our community members can't even afford winter coats for their children.
Cities are bankrupt, families are increasingly dependent on government assistance, and the Fed has single-handedly destroyed the purchasing power of the dollar.
As Reagan used to say, America was the "shining city upon a hill whose beacon light guides freedom-loving people everywhere." Our free market economy was that light shining on the American Dream in the distance.
Success came naturally out of healthy competition and ingenious innovation. No matter where one came from, one could reach for the stars with a little ambition, a lot of hard work, and a strong commitment to excellence.
Now, the chains of tyranny are holding us back.
I'm talking about the $1 trillion in student loan debt. The $7.9 trillion in mortgage debt. The eroding middle class income. The government's lack of fiscal responsibility. The NSA's infringement upon individual privacy. The market manipulation. The big banksters' schemes.
After decades of foolish decisions, our status as a global power is under threat.
In trying to control everything (with plenty of good and bad ideas along the way), the government has killed free market capitalism. And it's well on its way to killing freedom entirely...

Crony Capitalism

Capitalism now is little more than corrupt collusion among key market players. Special alliances, trade associations, subsidies, and industry trade groups are of course beneficial to a small group of powerful entities. However, that web of dominance is bad for the economy when you get the government too involved.
For those outside of that elite group, it becomes all but impossible to compete and thrive. The private market becomes unsustainable without big government buddies already in alliances with the mega-corp guys.
This creates a web of dependability. For those who fail in their own small businesses or can't get ahead financially because of school-related debt, health care crises, and the like, many resort to low-paying jobs and/or government assistance.
But the tide is turning. The world is beginning to rise above the manipulation schemes, and the mega-corp guys are finally facing retribution.
Just this week, The Wall Street Journal reported that J.P. Morgan agreed to a $2.6 billion settlement in response to allegations that it failed to properly police Madoff's illicit activities. And further investigation is currently underway at Wall Street banks to determine whether they deliberately mispriced mortgage bonds in the aftermath of the 2008 financial meltdown (spoiler alert: they did).

American Turning

Last month, I wrote to you about America's "Unwinding" — as examined in George Packer's latest bestseller. Packer shows how the U.S. exudes all the telltale signs of a great superpower in danger of coming apart at the seams... with old institutions crumbling as a new America emerges.
A crisis isn't coming; it's already here. That's the bad news. But the good news is we're starting to see major shifts in the way the system works. And unless you're already a billionaire Insider, this is great news.
The growing sense of mistrust in the institutions that used to define America's excellence (public schools, government, etc.) is about to peak. In response, the vast majority of the public will come to realize that the system is failing those who work the hardest and rewarding the crony plutocrats instead.
As our faulty but dominant institutions lose power, the opportunity gap will begin to widen, and economic mobility will be restored. And we want you to be prepared for the major changes coming over the course of the next decade...
Indeed, these changes will have a ripple effect on your portfolio and the economy at large.
Are you ready for a post-crisis America? I know we are.

Farewell for now,
Brittany Stepniak Signature
Brittany Stepniak
Brittany Stepniak is the Project Manager and Editor for the Outsider Club. Her “big picture” insights have helped guide thousands of investors towards achieving and maintaining personal and financial liberties while pursuing their individual dreams in lieu of all the modern-day chaos. For more on Brittany, take a look at her editor's page.
*Follow Outsider Club on Facebook and Twitter.

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One Lesson from Crisis to Crisis

Repeating the Same Mistake

By Adam English   

John Thain got a phone call one Friday evening, demanding his presence at the New York Federal Reserve building within the hour.
The chairman of Merrill Lynch ditched his normal contingent of assistants and employees and went alone. As he was shown into the meeting room, he saw a collection of the most powerful CEOs from the largest investment and commercial banks.
As the room quieted, the host had one thing to say: “There will be no bailout for Lehman... the only possible way out is a private-sector solution."
At 3 a.m. early one Saturday morning, 120 bank and trust company officials assembled to hear a full report on the status of failing companies. After filing into the library, they realized their host had locked the doors behind them.
If the men wanted to go free, they would have to strike a private sector deal to contain a domino effect of failing credit and cash reserves from destroying Wall Street.
There are only three miles between the Fed building and the library... but the events were over a century apart.
What ties them together are unprecedented interventions and economic malaise.

J.P. Morgan and the Panic of 1907

The Panic of 1907 was underway well before J.P. Morgan summoned the heads of prominent companies, banks, and trusts to his library.
It all started with a failed scheme to corner the copper market by Augustus and Otto Heinze, majority owners of United Copper.
In spite of concerns that they didn't have the cash to pull it off, the brothers pushed ahead with a bold scheme to force investors with short positions to sell their shares to them for pennies on the dollar.
On October 14, shares of United Copper rose from $39 to $52 per share as the brothers bought up all the shares they could.
But too many others sold their shares. They couldn't set their own price.
The next day, the share price fell to $10, and they were ruined.
The State Savings Bank of Butte, Montana, owned by Otto Heinze, failed because it held United Copper shares as collateral for many deals. Contagion and loss of faith spread to the Mercantile National Bank, of which Augustus was president, and then on to any bank with business or personal ties to the brothers.
Not knowing who would survive, banks and trust companies froze short-term lending. Overnight rates hit 70%. The credit crunch hit brokers in need of cash and led to stock prices falling to seven-year lows.
Dozens of smaller banks subsequently failed, and New York's largest trusts were poised to collapse. No one would absorb the Knickerbocker Trust, and it was forced into liquidation. The Trust Company of America and the Lincoln Trust Company barely survived.
By the time J.P. Morgan locked 120 bankers in a room, he had already bought $30 million of bonds to save New York City and strong-armed bankers into pooling over $40 million for loans to struggling banks.
$100 million in loan certificates was issued by the New York Clearing House. Secretary of the Treasury George Cortelyou was convinced to injected $25 million of taxpayer money into New York banks.
John D. Rockefeller put in $10 million and pledged half his wealth to maintain America's credit.
Yet banks in New York still were reluctant to make short-term loans, even after over $200 million in orchestrated interventions flowed into banks and trusts desperate for any reprieve.
Morgan entered the talks demanding another loan of $25 million to save weaker institutions — otherwise a complete collapse of the banking system was inevitable. Cowed by Morgan's legendary prominence and influence, the bankers emerged at 4:45 a.m. with a forced solution.
Morgan had his deal, but one last obstacle stood in his path...

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President Theodore Roosevelt had made breaking up monopolies a central focus, and he would have to suspend enforcement of the Sherman Anti-Trust Law to allow the deal to go forward.
One of the largest brokerage firms was heavily in debt and used massive amounts of Tennessee Coal, Iron and Railroad Company (TC&I) stock as collateral.
To prevent the brokerage and TC&I from failing and causing more panic, Roosevelt was convinced to allow Andrew Carnegie's U.S. Steel to buy its competitor.
"The relief furnished by this transaction was instant and far-reaching," according to Commercial & Financial Chronicle, and the panic subsided. Yet the U.S. economy and markets continued to languish for another year.

Paulson's Failed Attempt

Henry Paulson, then Secretary of Treasury, had already struggled to contain the panic and fallout from the subprime mortgage fiasco for months before summoning the CEOs of the most powerful banks to the Federal Reserve building in New York City late Friday, September 12, 2008.
A run on investment banks and hedge funds in the shadow banking sector was rapidly accelerating out of control, although it wasn't apparent because of overly complex trading and off-the-balance-sheet positions.
Bear Stearns had already imploded and been sold for a pittance to J.P. Morgan Chase on the condition that the Fed provide $30 billion in funds to cover losses.
IndyMac Bank had already failed, marking the fourth-largest bank failure in U.S. history. Fannie Mae and Freddie Mac, with their $6 trillion exposure to the tanking mortgage market, had been nationalized already as well.
The next bank to fail was going to be Lehman Brothers. Paulson, determined to avoid another government bailout that could set a precedent for others, was the point man for finding a private buyer.
Unfortunately, it wouldn't work. Paulson didn't have the clout or leverage of J.P. Morgan. That Friday evening, none of the CEOs would commit. There was no safety net, and it was time to panic.
By the time the Troubled Asset Relief Program bill was signed into law on October 13, 2008, Lehman Brothers failed, Merrill Lynch was swallowed by Bank of America, AIG had received $85 billion in Fed loans, investigations into dozens of banks had begun, and the Dow had shed 3,000 points.
Between Paulson and Bernanke meeting with key members of Congress to propose the bailout, the Fed had to lend nearly $1 trillion to banks and $1.3 trillion to non-financial U.S. companies.
By the time the dust settled and the Dow hit a bottom on March 6, 2009, it had shed nearly 5,000 points and 54% of its value from an October 9, 2007 high. The Fed already held $1.75 trillion of bank debt, mortgage-backed securities, and Treasury notes by then.

History Repeats Itself

There are plenty of differences between the Great Panic of 1907 and the run up to the credit crunch and panic that led to the Great Recession in 2008.
However, there are two key conclusions that tie them together... and one very important lesson to learn.
Whenever there are credit squeezes, bank runs, or market turmoil, the temptation to let the end justify the means is too great. Ultimately, this compromises sound policy and erodes the free market.
Roosevelt compromised his adamant anti-trust efforts, and the Treasury pledged taxpayer funding to banks to keep them afloat. Within the decade, the monopolies desperately clinging to the coattails of the gilded age reached their height.
J.P. Morgan whipped bankers with no good reason to loan each other money into a cabal of financiers for their weakest competitors. He also convinced the Secretary of the Treasury to put taxpayer money into private hands.
Ultimately, the Panic of 1907 led to the creation of the Federal Reserve and a vast expansion of centralized monetary control that was designed to mirror the pooled liquidity of J.P. Morgan and the bankers he controlled.
By the time the Great Recession loomed, the Fed provided unilateral bailouts and wielded influence like J.P. Morgan while pooling money like the beleaguered bankers and waiving policies like Teddy Roosevelt.
It absorbed an unprecedented $3.5 trillion expansion of quasi-governmental debt without hesitation, guaranteed $16 trillion of debt worldwide, and dictated the terms of the government's TARP bailout.
Former investment banks have kept their out-sized, price-rigging commodity arms intact, and risky derivative trading and murky balance sheets are still the norm.
Control over interest rates has virtually been given to institutional investors that dominate the exchanges. Any hint of the Fed moving to increase interest rates without their blessing results in a punitive blow to stocks.
The second key conclusion is that it doesn't matter if the money used to shore up banks comes from the private or public sector. All that can be accomplished is an end to panic selling and credit crunches.
After confidence was restored in 1907, unemployment continued to spike and production continued to lag for a year. That year saw unemployment rise to 8% from under 3%. Industrial production fell 11%.
From the beginning of 2008 until late 2009, unemployment jumped up 5% to top 10%. Between the start of the recession and the end, industrial production fell 16%.
Even with all of the power invested in the Federal Reserve, we're five years into the weakest, most protracted economic recovery in modern history.
Too-big-to-fail banks are larger than ever, a resurgence in shadow banking is gathering speed, and warning calls about asset bubbles are popping up at an ever-increasing rate.
The lesson to learn is that history will repeat itself, and we will face similar credit crunches, bank runs, and panics. But the economy will eventually sort itself out on its own timetable, regardless of how it is manipulated.
Ultimately, there is no reason to abdicate more power to a select few that will exclusively use it for their own advantage.
At least from what Nick's shown me, there is good reason to believe we're finally starting to learn this lesson.
Take Care,
Adam English
Adam English
Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page
*Follow Outsider Club on Facebook and Twitter.

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Op-Ed Contributor

Lessons From a Crisis

WASHINGTON — A few days ago, a bipartisan majority in Congress voted to reopen the federal government and remove the cloud of uncertainty hanging over our economy. This put an end to a messy, and at times downright ugly, political process. But when you look through the noise of the moment, it showed that America’s leaders are committed, on a bipartisan basis, to doing the right thing for our economy and our standing around the world. The dollar is the world’s reserve currency and, for over 200 years, we have established ourselves as the backbone of the global financial system. The world now knows we are and will remain the safest, most reliable place to invest.
Make no mistake: What took place was a political crisis, not an economic one. When faced with a true economic crisis in 2008 — the worst since the Great Depression — our economy proved its resilience. Since then, the American people have painstakingly fought their way back from the brink. Now businesses are hiring, our economy is growing, and we have cut our deficits in half. Throughout this period, the United States once again became a source of strength for the global economy.
But we are not where we want to be. Growth is not strong enough, and job creation needs to accelerate. And one of the fundamental reasons our economy is not firing on all cylinders is Washington. Our economy has been poised to make serious strides over the last few years, but self-inflicted political wounds have gotten in the way time after time.
Without question, the government shutdown and the debt ceiling impasse have led to economic hardship in every corner of the country. While we do not yet know the exact magnitude of the damage, these events have generated unnecessary headwinds for the economy. We should never again take this country to the point of near-default in order to exact political gain.
It is time to put an end to governing by crisis and focus on accelerating economic growth and job creation. If we are open to what we can achieve together rather than simply setting our sights on our divisions, there is a lot we can do to support America’s workers and businesses. This is what the American people expect from their leaders in Washington.
We can start by hammering out a budget agreement that builds on the progress we have already made to lower our budget deficits. This is an opportunity to improve our nation’s long-term fiscal health, and it should be achieved through a comprehensive package that shrinks our deficits, protects Medicare and Social Security for those who rely on it, and expands our economy well into the future. That means closing wasteful tax loopholes and making targeted investments to improve our education system, increase domestic energy production, and expand our manufacturing base.
We must come together to fix the blunt spending cuts known as sequestration, once and for all. These indiscriminate, across-the-board cuts, which went into effect earlier this year, were intended to be so mutually disagreeable that they would force Congress to find agreement on a balanced package of deficit reduction measures. But that agreement was not reached in time. As independent economists and business leaders will tell you, these cuts have already slowed economic growth, just as the economy was getting traction. The nonpartisan Congressional Budget Office has estimated that by the third quarter of next year, sequestration will have reduced real gross domestic product by as much as 1.2 percent, which means as many as 1.6 million fewer American jobs.
In addition to tackling our budget challenges, Washington can take several actions to support economic growth.
Congress should pass comprehensive immigration reform. The bipartisan bill already passed by the Senate would strengthen our borders, provide a pathway to earned citizenship, and boost growth by more than a trillion dollars while reducing our deficits.
Another piece of bipartisan legislation that has passed the Senate, but not the House of Representatives, is the farm bill. Getting this bill signed into law is not only important for America’s farmers and protecting America’s most vulnerable children, it is important for our economy.
Finally, we need to come together soon to complete the bipartisan work that has already begun to reform our business tax code, modernize our housing finance system and renew trade promotion authority while repairing our deteriorating roads, highways and bridges.
As we move past the government shutdown and debt ceiling crisis, it is important to remember that the foundation of our democracy is the healthy competition of ideas. It is the lifeblood of our country.
But we must work across party and ideological lines for the good of the United States. I am once again hopeful that Democrats and Republicans can come together to accomplish meaningful things to help grow our economy. The truth is, the sensible center is not out of reach. We demonstrated that in recent days. And I believe we can demonstrate that again as we move forward.
Jacob J. Lew is the United States secretary of the Treasury.
INTERNATIONAL NEW YORK TIMES 
 

The Government Spent Millions on Pancakes and Penises

Tax Waste Hits a New Low

By Jimmy Mengel   

We all know that the government wastes a ton of our money...that isn't news. But when you look at individual expenditures, the abuse of our tax dollars becomes all the more enraging.
It was just reported that 'penis pumps' for erectile dysfunction cost the U.S. $172 million in taxpayer money. The ethics of government-subsidized penis pumps aside, if the government had paid retail for them in the free market, it would have been half that...
But that's not the only penis-related costs we are bearing...
The National Institute of Health spent $224,863 to test "custom-fitted" condoms.
Bloomberg just released a video that exposes some of the most ridiculous uses of our money. Here are a couple of the most egregious:
  • $800,000 for an International House of Pancakes in Washington D.C.?
  • A million bucks for a full service astronaut menu on Mars?
  • $2.5 BILLION spent in back pay to government employees stiffed during the government shutdown?
If it sounds too ridiculous to be true, you can see the proof for yourself in the video below...

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