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Sunday, October 6, 2013

Gold World News Flash

Gold World News Flash

The True Price of Gold

Posted: 06 Oct 2013 12:30 AM PDT

by Robert Williams, SilverBearCafe.com:

As we speak gold is selling for far more than the quoted spot price we see on various web sites. That spot price is a dollar price which does not take into account the fact that this world is neither homogenous, informed, static nor safe.

But what price do people pay if it isn’t the spot price plus a couple of percentage points?

The individual who buys a piece of jewellery in a US or European shop could be paying up to four times the price of the gold content due to taxes, labour, overheads and profit margin. This puts the price at around $5,200 per oz.

Read More @ SilverBearCafe.com

There Is NO Endgame

Posted: 06 Oct 2013 12:00 AM PDT

From Cascading Complexity To Systemic Collapse: A Walk Thru "Society's Equivalent Of A Heart Attack"

Posted: 05 Oct 2013 08:59 PM PDT

Over a year ago, FEASTA's David Korowicz stunned the world with his fascinating analysis titled "Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse," in which he shone a much needed light on the "weakest link" choke points of modern hyper-complex society: a forensic investigation into a "Minsky Moment" thought experiment gone wrong, one crossing the systemic instability threshold, and culminating with society, economics and the modern world as we know it grinding to a halt and worse.

Since Korowicz' analysis is precisely the terminal outcome that awaits the world caught in a state of relentless denial that even refuses to contemplate "Plan B", what we said then is that "everyone who wishes to know what will happen unless everyone is aware of what may happen" should read said study in global systemic collapse. Before proceeding further, we urge all readers who are fascinated by the topic of crossing thresholds of social, systemic instability to read the original analysis if they have not done so already.

The original paper led to an eruption in opinions and responses both on the pages of Zero Hedge and elsewhere, to an issue that has chronically received virtually no media attention (for obvious confidence preserving reasons in a world in which centrally-planned ignorance confidence is bliss), we are delighted to present Korowicz's follow up, "Catastrophic Shocks through Complex Socio-Economic Systems—A Pandemic Perspective" which "provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems."

In a way that only Korowicz can, the author summarizes the increasingly more precarious state of systemic social equilibria, and how a more determined push away from a trendline (or back toward mean reversion as those who can see right through the central banks increasing desperation to preserve the world's legacy status quo "just one more day") could result in the end of modern society.

To wit: "The commonalities of global integration mean that diverse hazards may lead to common shock consequences. The systems that transmit shocks are also the systems we depend upon for our welfare and the operation of businesses, institutions and society, so to borrow Marshal McLuhan's phrase, the medium is the message. One of the primary consequences of a generic shock is an interruption in the flow of goods and services in the economy. This has diverse and profound implications - including food security crises', business shut-downs, critical infrastructure risks and social crises. This can in turn quickly destroy forward-looking confidence in an economy with major consequences for financial and monetary stability which depend ultimately on the collateral of real economic production. More generally it can entail multi-network and delocalised cascading failure leading to a collapse in societal complexity."

What follows is a "thought experimental" methodology which is used to look at the socio-economic implications of a major pandemic. In other words, a step by step walk through of how society transitions from its unstable current equilibrium state, one represented by the highest level of socio/economic/monetary entropy, to society's equivalent of a heart attack: a straight line collapse in social entropy once parametric thresholds are breached, leading to failure and halt of any and every process reliant on incremental, evolutionary complexity. It is here that epistemological assumptions about society's future can simply and subjectively be reduced to simple heuristics: "optimism" and "pessimism." The former holds that even in a complete systemic collapse, the system can eventually regroup and eventually return to its most recent, highest level of complexity. The latter.... does not.

This is how Korowicz frames it:

We imagine that after a pandemic wave people are again available for work. But people cannot however become productive immediately because other inputs are also needed. But those inputs are stalled because they rely upon other inputs and so on. More broadly we may define Recursion failure as: "the inability of a complex economy to easily resume production and trade after a significant collapse because in a complex and interdependent economy, production and trade must resume in order for production and trade to resume".

 

Further even if a government wanted to rebuild, it may be too complex to orchestrate resumption from the top down. This is firstly because the economy has evolved by self-organization, nobody has ever had, nor could they have put its elements together in the first place. Secondly, even if it could be done, the systems of command, control and supply that might do it would be the very systems that had been undermined.

 

Over time entropy would become an issue as engines rust, reagents become contaminated, and expected maintenance and repairs are left undone. This would all add to the cost and inputs needed for resumption. In a more complex society the degradation rate may be higher for thermodynamic reasons.

 

Overall, we are saying the longer a socio-economic system spends in the critical regime, the more likely it is to undergo a complete systemic collapse and loss of basic function. In addition, the longer it spends in this state, the more difficult it may be to ever return to its pre-pandemic state.

 

This is a complex society's equivalent of a heart attack. When a person has a heart attack, there is a brief period during which CPR can revive the person. But beyond a certain point when there has been cascading failure in co-dependent life support systems, the person cannot be revived. This means that the socio-economic system could be changed irretrievably and the job of society and government would be to both manage the crisis and plot a fundamentally different path.

 

The extent of our contemporary complex global system dependencies, and our habituation to a long period of broadly stable economic and complexity growth means a systemic collapse would present profound and existential challenges.

It is precisely this inevitable final denouement, and the fact that its mere contemplation simply acknowledges there is nothing society can do to prepare for a terminal outcome, which is why modern society is replete with pre-ordained distractions that seek to prevent the vast majority to contemplate a narrative in any way resembling the one above, and why nobody is willing to admit the contemplation of a "Plan B" as even merely the fact that "very serious people" - those whose actions have resulted in the current precarious systemic environment- are thinking about the "what if" potentiality, sets off events in motion that culminate with the entire system ultimately crashing under its own complexity.

Which, of course, is precisely why we present the full piece as everyone should be aware of what the absolutely worst case outcome may and will look like in a world in which sticking one's head in the sand has become a religion.

Catastrophic Shocks Through Complex Socio-Economic Systems: A Pandemic Perspective (pdf), source FEASTA

David Korowicz

Summary

The globalised economy has become more complex (connectivity, interdependence, and speed), de-localized, with increasing concentration within critical systems. This has made us all more vulnerable to systemic shocks. This paper provides an overview of the effect of a major pandemic on the operation of complex socio-economic systems using some simple models. It discusses the links between initial pandemic absenteeism and supply-chain contagion, and the evolution and rate of shock propagation. It discusses systemic collapse and the difficulties of re-booting socio-economic systems.

1. A New Age of Risk

Consider the following scenarios:

  • A highly contagious pandemic outbreak in South-East Asia (of comparable or greater human impact than the 1918 influenza outbreak).
  • A disorderly break-up of the Eurozone and global financial system implosion.
  • A 'perfect storm'- during a time of major global financial instability - there are terrorist attacks on North African oil installations (partially driven by social unrest arising from record food prices) & a category 5 hurricane hits a major population/ industrial/ oil producing regions of the US east coast.

These are all examples of potential global shocks, that is hazards that could drive fast and severe cascading impacts mediated through global systems. Global systems include telecommunications networks; financial and banking networks; trade networks; and critical infrastructure networks. These systems are themselves highly interdependent and together form part of the globalised economy. The interest in global shocks and how they manifest themselves has grown in recent years (WEF 2012, 2013; Helbing 2013,; Buldyrev et. al. 2010).

First it useful to acknowledge that the hazards referred to in the opening scenarios are increasingly likely. Potentially new pandemic strains are being encouraged by increasing human pressure on the biosphere, while mass global air transport could aid rapid global transmission. Ecological constraints, presently pre-eminent amongst them are food and oil flows and increasingly the effects of climate change are growing. Stresses in the credit backing of our financial and monetary systems are arguably increasing, with the additional vulnerability that such systems are the primary vector through which major ecological constraints in energy and food would be expressed (Korowicz 2011).

One of the primary issues for this paper are, given any significant hazard, how does the impact spread through the globalised economy and in what way are we vulnerable to the failure of interconnected systems. To answer this we need to understand how complex societies are connected and how they have changed over time.

The globalised economy is an example of a complex adaptive system that dynamically links people, goods, factories, services, institutions and commodities across the globe. Such systems can be represented by a'state' that is not in equilibrium, but defines a set of ordered characteristics that exist within a range of deviations from a mean and persist for a period of time. For example, the state is characterized by exponential growth in Gross World Product of about 3.5% per annum over nearly 200 years within a range of several percentage points. This had correlated with emergent and self-organizing growth in socio-economic complexity which is reflected in the growth of the:

  • Number of interacting parts (nodes): This includes exponential population growth; the 50,000+ different items available in Wal-Mart; the 6 billion+ digitally connected devices; the number of cars, factories, power plants, mines an so on.
  • Number of linkages (edges): This includes the 3 billion passengers traveling between 4000 airports on over 50 million flights each year; the 60,000 cargo ships moving between 5000 ports with about a million ship movements a year; the average number of media channels (internet sites, TV channels, twitter feeds) per person times the population; and the billions of daily financial transactions.
  • Levels of interdependence between nodes: The growing number of inputs necessary to make a good, service, livelihood, infrastructural output or the function of society as a whole.
  • The speed of processes (or time compression):This includes the increasing speed of financial transactions; transportation; digital signaling; and Just-In-Time logistics. If we consider the globalised economy as a form of singular organism, we can understand this process as an increasing metabolic rate.
  • Efficiency: increasing competition and global trade arbitrage driving down inventories; and globalised economies of scale.
  • Concentration: The emergence of 'hubs' within the globalised economy- a small number of very highly connected nodes whose function (or loss of function) have a disproportionate role in the operation of the globalised economy . For example, banks are not connected at random to other banks, rather a very small number of large banks are highly connected with lots of other banks, who have few connections to each other. These arrangements are sometimes known as scale-free networks. We can also see concentration in critical infrastructure, and trade networks.
  • De-localization: The conditions of personal welfare; business or service output; or country's economic output is smeared over the whole globalised economy. The corollary is that if there is a major failure of the systems integration in the globalised economy, a localised community may have extreme difficulties meeting its basic needs.

Economic and complexity growth have in many ways reduced risk. Localized agricultural failure once risked famine in isolated subsistence communities, but now such risk is spread globally. It has made critical infrastructure such as sewage treatment and clean water available and affordable. Global financial markets enable an array of risks, from home insurance and pensions to default risk and export credit insurance, to be dispersed and potential volatility reduced. Indeed, what is remarkable is just how reliable our complex society is given the number of time sensitive inter-connections.

Another way of saying all this is that our society is very resilient, within certain bounds, to a huge range interruptions in the flow of goods and services. Within those bounds our society is self-stabilizing. For example supply-chain shocks from the Japanese tsunami in 2011, the eruption of the Icelandic Eyjafjallajokull volcano in 2010 or the UK fuel blockades in 2000 all had severe localised effects in addition to shutting down some factories across the world as supply-chains were interrupted. However the impacts did not spread and amplify, and normal functioning of the local economy quickly resumed.

But we know from many complex systems in nature and society that a system can rapidly shift from onestate to another as a threshold is crossed (Scheffer 2009). One way a state shift can occur is when a shock drives the system out of its stability bounds. The form of those stability bounds can increase or decrease resilience to shocks depending upon whether the system is already stressed prior to the shock.

The commonalities of global integration mean that diverse hazards may lead to common shock consequences. The systems that transmit shocks are also the systems we depend upon for our welfare and the operation of businesses, institutions and society, so to borrow Marshal McLuhan's phrase, the medium is the message. One of the primary consequences of a generic shock is an interruption in the flow of goods and services in the economy. This has diverse and profound implications - including food security crises', business shut-downs, critical infrastructure risks and social crises. This can in turn quickly destroy forward-looking confidence in an economy with major consequences for financial and monetary stability which depend ultimately on the collateral of real economic production. More generally it can entail multi-network and de-localised cascading failure leading to a collapse in societal complexity.

Previously the dynamics of such a scenario was studied when the initial shock was caused by a systemic banking collapse and monetary shock. This coupled the exchange of goods and services causing financial system supply-chain cross contagion and a re-enforcing cascade of de-localizing multi-system risk (Korowicz 2012).

In this paper a similar methodology is used to look at the socio-economic implications of a major pandemic. After a very brief review of other researchers work (section 2), some real life examples of partial systems failure are reviewed (section 3). This allows us to make make some estimates of shock spreading rates. In section 4 the links between pandemic absenteeism and supply-chain contagion is discussed and related to societal complexity. In section 5 we look at how contagion spreads, the rate, and the relationship to complexity.

In section 6 we look at some of the multi-system interactions. In 7, we look at why after a major collapse, the pre-shock socio-economic state may not be recoverable. Finally there is a short conclusion. This paper aims to broadly outline how very simple models can shed light on catastrophic shocks in complex socio-economic systems. A significantly more detailed discussion on several issues may be found here,(Korowicz 2012).

2. Socio-economic Impact of a Major Pandemic

We are interested in the socio-economic implications of a major influenza pandemic whose initial impact would be direct absenteeism from illness and death, and absenteeism for family and prophylactic reasons.

The pandemic wave (we will only consider one) lasts 10-15 weeks. We assume this causes an absenteeism rate of 20% or 40% over the peak period of 2-4 weeks, and a rate above 20% for 4-8 weeks when the peak is 40%. This represents our initial impact. Our question is then what happens next.

There are two general perspectives to studying such impacts. The first focuses on the impact on a specific industry or service, often with a view to Business Continuity Planning (BCP). Unsurprisingly, the question of how a health service would manage a pandemic when its own operation is compromised is of recurrent interest (Bartlett and Hayden 2005; Itzwerth et al. 2006). Or for example the effect of worker absenteeism on the movement of freight in a coupled US port-rail system (Jones et al. 2008). This analysis is important for local preparations however it suffers from having to isolate the system under consideration from the environment to avoid the analysis becoming too open and complex.

The alternative track is to use macroeconomic modeling to look at the impact on an economy as a whole. This type of modeling might be useful for low impact pandemics where the economy remains in its historical range of conditions, for example the impact of the 2003 SARS outbreak ( Knapp et al. 2004; Keogh-Brown and Smith 2008).

However when considering major pandemics (McKibbin and Sidorenko 2006; Keogh-Brown et al. 2010) it is highly questionable if such conventional macroeconomic modeling works, or would be very mis-leading. This is firstly because such models are built out of, and parameterized within the context of long run macroeconomic stability. A major pandemic could be highly de-stabilising, causing, as we shall see, cascading systemic disruption and failure.

Secondly, such models are blind to the issue of rising complexity and the speed of processes, which we argue here are essential for understanding major shocks. Finally, they have little to say about the dynamics of the impact, how it spreads through time and cascading failure. This is of most interest to actual risk manageent.

3. Vulnerability Revealed

One way to understand and even parameterize the structure and behavior of complex socio-economic systems is to empirically study occasions when there has been some systemic failure.

In September 2000 truckers in the United Kingdom, angry at rising diesel duties, blockaded refineries anad fuel distribution outlets (Public Safety and Emergency Preparedness Canada 2005; McKinnon 2006; Peck 2006). The petrol stations reliance on Just-In-Time re-supply meant the impact was rapid. Within 2 days of the blockade starting approximately half of the UK's petrol stations had run out of fuel and supplies to industry and utilities had begun to be severely affected. The initial impact was on transport - people couldn't get to work and businesses could not be re-supplied. This then began to have a systemic impact.

The protest finished a

In The News Today

Posted: 05 Oct 2013 06:44 PM PDT

My Dear Extended Family, There is no larger market on the planet than the currency market making this investigation huge, and quite close to the gold manipulation, both finding their home at the "Exchange Stabilization Fund." The Age of the Manipulator, from 1991 to present, is ending fast because Swiss Regulators are serious people. Morgan’s... Read more »

The post In The News Today appeared first on Jim Sinclair's Mineset.

Owners Per Ounce of Silver and Gold at the Comex

Posted: 05 Oct 2013 06:28 PM PDT

Owners Per Ounce of Silver and Gold at the Comex

Posted: 05 Oct 2013 06:28 PM PDT

Is The Multiple-Expansion "Dream" Over?

Posted: 05 Oct 2013 05:58 PM PDT

The current market environment of increasing event risk (suppressed by the all too visible un-tapering hand of the Fed) and slumping earnings expectations has had little to no effect on either the US equity market nominal level or the commission-taking asset-gatherers pitching the "long-term" buy that the market always is. Through the magic of multiple expansion, stocks remain at all-time highs and are pitched as "cheap" because multiples can still get bigger - remember March 2000 25.6x P/E... There is only one thing wrong with that dream. No matter how hard the Fed tries (mistakenly as we noted here) to pump the "economy" full of money to make consumers feel good, Consumer Sentiment has hit a wall...

 

The ubiquitous "but P/Es can expand much much more before they have hit a 'top" chart...

 

But aside from the dot-com bubble, current levels of valuation are at or near peak of the last 30 years...

On a historical earnings basis...

 

and a forward-looking basis...

 

But, it's all about confidence... investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable... And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels...

 

And remember - as we noted here - its the 80% that consume and the 80% are not benefitting from the wealth effect (much to the chagrin of the Fed).

So next time your "manager" or investment advisor proclaims stocks are cheap compared to historical peak levels, perhaps its worth asking him with "risk" priced into the market at almost all-time lows,

 

a Fed that is only capable of feeding the richest percentiles of the nation (the rich have never been more comfortable)

 

 

Where is the next doubling of Sentiment coming from? Especially in light of the collapse in economic confidence that Washington is inspiring...

 

And the cyclical budget-spend now over (and absolutely not expected to pick up anytme soon given the "negotiations")...

 

As we noted before, Be Careful Of The Big Con...Be careful about being too quick to believe that the sluggish economic dynamic that has “dogged us” for the last 6 years is yet fully behind us. If we are correct then the Fed is likely going to have to agonize in the 4th quarter whether to stick with its implicit guidance and taper and even if they go ahead with that decision they may find themselves having to reverse it later.

For the 3rd time in this 17 year period we MAY be looking at a 4 year 4 month rise in consumer confidence before a turn lower again.

 

Silver - QE4ever, POMO4ever, Nevermore4ever

Posted: 05 Oct 2013 05:01 PM PDT

The central bankers have no rudder, adrift in a sea of fiat, taking everybody with them. Witness Cyprus and Greece being forced to walk the plank. Those who choose to stay on this Ship of Fools will suffer the same fate, even worse as ... Read More...

David Stockman Explains The Keynesian State-Wreck Ahead - Sundown In America

Posted: 05 Oct 2013 03:38 PM PDT

David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank... What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut... He calls this condition "Sundown in America".

  SUNDOWN IN AMERICA: THE KEYNESIAN STATE-WRECK AHEAD

Remarks of David A. Stockman at the Edmond J. Safra Center for Ethics, Harvard University, September  26, 2013

The median U.S. household income in 2012 was $51,000, but that’s nothing to crow about. That same figure was first reached way back in 1989--- meaning that the living standard of Main Street America has gone nowhere for the last quarter century. Since there was no prior span in U.S. history when real household incomes remained dead-in-the-water for 25 years, it cannot be gainsaid that the great American prosperity machine has stalled out.

Even worse, the bottom of the socio-economic ladder has actually slipped lower and, by some measures, significantly so. The current poverty rate of 15 percent was only 12.8 percent back in 1989; there are now 48 million people on food stamps compared to 18 million then; and more than 16 million children lived poverty households last year or one-third more than a quarter century back.

Likewise, last year the bottom quintile of households struggled to make ends meet on $11,500 annually ----a level 20 percent lower than the $14,000 of constant dollar income the bottom 20 million households had available on average twenty-five years ago. 

Then, again, not all of the vectors have pointed south. Back in 1989 the Dow-Jones index was at 3,000, and by 2012 it was up five-fold to 15,000.  Likewise, the aggregate wealth of the Forbes 400 clocked in at $300 billion back then, and now stands at more than $2 trillion---a gain of 7X.

 And the big gains were not just limited to the 400 billionaires. We have had a share the wealth movement of sorts--- at least among the top rungs of the ladder. By contrast to the plight of the lower ranks, there has been nothing dead-in-the-water about the incomes of the 5 million U.S. households which comprise the top five percent. They enjoyed an average income of $320,000 last year, representing a sprightly 33 percent gain from the $240,000 inflation-adjusted level of 1989.

The same top tier of households had combined net worth of about $10 trillion back at the end of Ronald Reagan’s second term.  And by the beginning of Barrack Obama’s second term that had grown to $50 trillion, meaning that just the $40 trillion gain among the very top 5 percent rung is nearly double the entire current net worth of the remaining 95 percent of American households.

So, no, Sean Hannity need not have fretted about the alleged left-wing disciple of Saul Alinsky and Bill Ayers who ascended to the oval office in early 2009. During Obama’s initial four years, in fact, 95 percent of the entire gain in household income in America was captured by the top 1 percent. 

Some other things were rising smartly during the last quarter century, too. The Pentagon budget was $450 billion in today’s dollars during the year in which the Berlin Wall came tumbling down.

Now we have no industrial state enemies left on the planet: Russia has become a kleptocracy led by a thief who prefers stealing from his own people rather than his neighbors; and China, as the Sneakers and Apple factory of the world, would collapse into economic chaos almost instantly---if it were actually foolish enough to bomb its 4,000 Wal-Mart outlets in America.

Still, facing no serious military threat to the homeland, the defense budget has risen to $650 billion----that is, it has ballooned by more than 40 percent in constant dollars since the Cold War ended 25 year ago. Washington obviously didn’t get the memo, nor did the Harvard “peace” candidate elected in 2008, who promptly re-hired the Bush national security team and then beat his mandate for plough shares into an even mightier sword than the one bequeathed him by the statesman from Yale he replaced.

Banks have been heading skyward, as well.  The top six Wall Street banks in 1989 had combined balance sheet footings of $0.6 trillion, representing 30 percent of the industry total. Today their combined asset footings are 17 times larger, amounting to $10 trillion and account for 65 percent of the industry.

 The fact that the big banks led by JPMorgan and Bank America have been assessed the incredible sum of $100 billion in fines, settlements and penalties since the 2008 financial crisis suggests that in bulking up their girth they have hardly become any more safe, sound or stable.

Then there’s the Washington DC metropolitan area where a rising tide did indeed lift a lot of boats. Whereas the nationwide real median income, as we have seen, has been stagnant for two-and-one-half decades, the DC metro area’s median income actually surged from $48,000 to $66,000 during that same interval or by nearly 40 percent in constant dollars.

Finally, we have the leading growth category among all others----namely, debt and the cheap central bank money that enables it. Notwithstanding the eight years of giant Reagan deficits, the national debt was just $3 trillion or 35 percent of GDP in 1989. Today, of course, it is $17 trillion, where it weighs in at 105 percent of GDP and is gaining heft more rapidly than Jonah Hill prepping for a Hollywood casting call.

Likewise, total US credit market debt---including that of households, business, financial institutions and government--- was $13 trillion or 2.3X national income in 1989. Even back then the national leverage ratio had already reached a new historic record, exceeding the World War II peak of 2.0X national income.

Nevertheless, since 1989 total US credit market debt has simply gone parabolic. Today it is nearly $58 trillion or 3.6X GDP and represents a leverage ratio far above the historic trend line of 1.6X national income---a level that held for most of the century prior to 1980.  In fact, owing to the madness of our rolling national LBO over the last quarter century, the American economy is now lugging a financial albatross which amounts to two extra turns of debt or about $30 trillion.

In due course we will identify the major villainous forces behind these lamentable trends, but note this in passing: The Federal Reserve was created in 1913, and during its first 73 years it grew its balance sheet in turtle-like fashion at a few billion dollars a year, reaching $250 billion by 1987---at which time Alan Greenspan, the lapsed gold bug disciple of Ayn Rand, took over the Fed and chanced to discover the printing press in the basement of the Eccles Building.

Alas, the Fed’s balance sheet is now nearly $4 trillion, meaning that it exploded by sixteen hundred percent in the last 25 years, and is currently emitting $4 billion of make-believe money each and every business day.

So we can summarize the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government which are domiciled there---that is, the warfare state, the welfare state and the central bank.

What is flailing, by contrast, is the vast expanse of the Main Street economy where the great majority has experienced stagnant living standards, rising job insecurity, failure to accumulate any material savings, rapidly approaching old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut.

 And what is positively falling is the lower ranks of society whose prospects for jobs, income and a decent living standard have been steadily darkening.

I call this condition “Sundown in America”.  It marks the arrival of a dystopic “new normal” where historic notions of perpetual progress and robust economic growth no longer pertain. Even more crucially, these baleful realities are being dangerously obfuscated by the ideological nostrums of both Left and Right.

Contrary to their respective talking points, what needs fixing is not the remnants of our private capitalist economy ---which both parties propose to artificially goose, stimulate, incentivize and otherwise levitate by means of one or another beltway originated policy interventions.

Instead, what is failing is the American state itself----a floundering leviathan which has been given one assignment after another over the past eight decades to manage the business cycle, even out the regions, roll out a giant social insurance blanket, end poverty, save the cities, house the nation, flood higher education with hundreds of billions, massively subsidize medical care, prop-up old industries like wheat and the merchant marine, foster new ones like wind turbines and electric cars, and most especially, police the world and bring the blessings of Coca Cola, the ballot box and satellite TV to the backward peoples of the earth.

In the fullness of time, therefore, the Federal government has become corpulent and distended---a Savior State which can no longer save the economy and society because it has fallen victim to its own inherent short-comings and inefficacies.

 Taking on too many functions and missions, it has become paralyzed by political conflict and decision overload. Swamped with insatiable demand on the public purse and deepening taxpayer resistance, it has become unable to maintain even a semblance of balance between its income and outgo.

Exposed to constant raids by powerful organized lobby groups, it has lost all pretenses that the public interest is distinguishable from private looting. Indeed, the fact that Goldman Sachs got a $1.5 billion tax break to subsidize its new headquarters in the New Year’s eve fiscal cliff bill--- legislation allegedly to save the middle class from tax hikes--- is just the most recent striking albeit odorous case.

Now the American state----the agency which was supposed to save capitalism from its inherent flaws and imperfections----careens wildly into dysfunction and incoherence. One week Washington proposes to bomb a nation that can’t possibly harm us and the next week its floods Wall Street speculators, who can’t possibly help us, with continued flows of maniacal monetary stimulus.

Meanwhile, the White House pompously eschews the first responsibility of government---that is, to make an honest budget, which is the essence of what the Tea Party is demanding in return for yet another debilitating increase in the national debt.

To be sure, the mainstream press is pleased to dismiss this latest outburst of fiscal mayhem as evidence of partisan irresponsibility---that is, a dearth of “statesmanship” which presumably could be cured by stiffer backbones and greater enlightenment.  Well, to use a phrase I learned from Daniel Patrick Moynihan during my school days here, “would that it were”.

What is really happening is that Washington’s machinery of national governance is literally melting-down.  It is the victim of 80 years of Keynesian error---much of it nurtured in the environs of Harvard Yard---- about the nature of the business cycle and the capacity of the state---especially its central banking branch--- to ameliorate the alleged imperfections of free market capitalism.

As to the proof, we need look no further than last week’s unaccountable decision by the Fed to keep Wall Street on its monetary heroin addiction by continuing to purchase $85 billion per month of government and GSE debt.

Never mind that the first $2.5 trillion of QE has done virtually nothing for jobs and the Main Street economy or that we are now in month number 51 of the current economic recovery--- a milestone that approximates the average total duration of all ten business cycle expansions since 1950. So why does the Fed have the stimulus accelerator pressed to the floor board when the business cycle is already so long in the tooth----and when it is evident that the problem is structural, not cyclical?

The answer is capture by its clients, that is, it is doing the bidding of Wall Street and the vast machinery of hedge funds and speculation that have built-up during decades of cheap money and financial market coddling by the Greenspan and Bernanke regimes.  The truth is that the monetary politburo of 12 men and women holed up in the Eccles Building is terrified that Wall Street will have a hissy fit if it tapers its daily injections of dope.

So we now have the spectacle of the state’s central banking branch blindly adhering to a policy that has but one principal effect: namely, the massive and continuous transfer of income and wealth from the middle and lower ranks of American society to the 1 percent.

The great hedge fund industry founder and legendary trader who broke the Bank of England in 1992, Stanley Druckenmiller, summed-up the case succinctly after Bernanke’s abject capitulation last week. “I love this stuff”, he said, “…. (Its) fantastic for every rich person. It’s the biggest redistribution of wealth from the poor and middles classes to the rich ever”.

Indeed, a zero Federal funds rate and a rigged market for short-term repo finance is the mother’s milk of the carry trade: speculators can buy anything with a yield----such as treasuries notes, Fannie Mae MBS, Turkish debt, junk bonds and even busted commercial real estate securities--- and fund them 90 cents or better on the dollar with overnight repo loans costing hardly ten basis points.

 Not only do speculators laugh all the way to the bank collecting this huge spread, but they sleep like babies at night because the central banking branch of the state has incessantly promised that it will prop up bond prices and other assets values come hell or high water, while keeping the cost of repo funding at essentially zero for years to come.

If this sounds like the next best thing to legalized bank robbery, it is. And dubious economics is only the half of it.

 This reverse Robin Hood policy is also an open affront to the essence of political democracy.  After all, the other side of the virtually free money being manufactured by the Fed on behalf of speculators is massive thievery from savers. Tens of millions of the latter are earning infinitesimal returns on upwards of $8 trillion of bank deposits not because the free market in the supply and demand for saving produces bank account yields of 0.4 percent, but because price controllers at the Fed have decreed it.

For all intents and purposes, in fact, the Fed is conducting a massive fiscal transfer from the have nots to the haves without so much as a House vote or even a Senate filibuster. The scale of the transfer---upwards of $300 billion per year----causes most other Capitol Hill pursuits to pale into insignificance, and, in any event, would be shouted down in a hail of thunderous outrage were it ever to actually be put to the people’s representatives for a vote.

To be sure, all of this madness is justified by our out-of-control monetary politburo in terms of a specious claim that Humphrey-Hawkins makes them do it---that is, print money until unemployment virtually disappears or at least hits some target rate which is arbitrary, ever-changing and impossible to consistently measure over time.

 In fact, however, this ballyhooed statute is a wholly elastic and content-free expression of Congressional sentiment.  In their wisdom, our legislators essentially said that less inflation and more jobs would be a swell thing. So the act contains no quantitative targets for unemployment, inflation or anything else and was no less open-ended when Paul Volcker chose to crush the speculators of his day than it was last week when Bernanke elected (once again) to pander obsequiously to them.

In truth, the Fed’s entire macro-economic management enterprise is a stunning case of bureaucratic mission creep that has virtually no statutory mandate. Certainly the author of the Federal Reserve Act, the incomparable Carter Glass of Glass-Steagall fame, abhorred the notion that the central bank would become a tool of Wall Street.

To that end, the Fed originally had no authority to own government debt or to conduct open market operations buying and selling treasury securities on Wall Street. And Carter Glass would be rolling in his grave upon discovery that the Fed was rigging interest rates, manipulating the yield curve, providing succor to financial speculators by propping-up risk asset markets, placing a Put under the S&P 500 or bragging, as Bubbles Ben did recently, that he had levitated an ultra-speculative stock index called the Russell 2000.

Summing up a wholly opposite Congressional intent in the early 1920s, Senator Glass was almost lyrical:  “We cured this financial cancer by making the regional reserve banks, not Wall Street, the custodian of the nation’s reserve funds… (And) by making them minister to commerce and industry rather than the schemes of speculative adventure. The country banks were made free. Business was unshackled. Aspiration and enterprise were loosened. Never again would there be a money panic.”

Except…except….except that the Fed eventually strayed from its original modest mandate to be a “banker’s bank”----and in due course we got the crashes of 1929, 1974, 1987, 1998, 2000, and 2008,  to name those so far. In the original formulation, however, these cycles of bubble and bust would not have happened: the Federal Reserve’s only job was the humble matter of passively supplying cash to member banks at a penalty spread above the free market interest rate.

In this modality, the Fed was to function as a redoubt of green-eyeshades, not the committee to save the world. Central bankers would dispense cash at the Fed’s discount window only upon the presentation of good collateral. Moreover, eligible collateral was to originate in trade receivables and other short-term paper arising out of the ebb and flow of free enterprise commerce throughout the hinterlands, not the push and pull of confusion and double-talk among monetary central planners domiciled in the nation’s political capital.

Accordingly, the Federal Reserve that Carter Glass built could not have become a serial bubble machine like the rogue central banks of today. The primary reason is that under the Glassian scheme the free market set the interest rate, not price controllers in Washington.

This meant, in turn, that any sustained outbreak of speculative excess---- what Alan Greenspan once warned was “irrational exuberance” and then promptly hit the delete button when Wall Street objected---would be crushed in the bud by soaring money market interest rates. In effect, leveraged speculators would cure their own euphoria and greed by pushing carry trades---that is, buying long and borrowing short---to the point where they would turn upside down. When spreads went negative, the bubble would promptly stop inflating as overly exuberant speculators were carried off to meet their financial maker---or at least their banker.

And, yes, Carter Glass’ Fed did function under the ancient regime of the gold standard, but there was nothing especially “barbarous” about it----J. M. Keynes to the contrary notwithstanding.  It merely insured that if the central bank was ever tempted to violate its own rules and repress interest rates in order to accommodate speculators and debtors, more prudent members of the financial community could dump dollar deposits for gold, thereby bringing bank credit expansion up short and aborting incipient financial bubbles before they swelled-up.

Needless to say, a central bank which could not create credit-fueled financial bubbles cou

Gold and the Unemployment Rate

Posted: 05 Oct 2013 03:06 PM PDT

Bullion Vault

How to Tell if Your Gold is Fake With Tungsten Centers

Posted: 05 Oct 2013 02:49 PM PDT

How do you determine if your gold is fake, without cutting the bars in half? Archimedes figured it out, while running naked through the streets of ancient Greece and I'm going to reveal that method...

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Robert Ian's "Conquer Change" on Gold Seek Radio - Oct 4, 2013

Posted: 05 Oct 2013 10:59 AM PDT

Robert Ian's "Conquer Change" on GSR - Oct 4, 2013

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The Fed Is Going To Shock The World By Increasing QE

Posted: 05 Oct 2013 10:41 AM PDT

Today one of the top economists in the world predicted that the Fed will shock the world by increasing QE. He also discussed what all of this means for major markets around the world, including gold and silver. Michael Pento, founder of Pento Portfolio Strategies, wrote the following exclusive piece for KWN.

This posting includes an audio/video/photo media file: Download Now

Don’t Believe the Lies – THIS Is the Economic Reality – Take a Look… Then Get Prepared

Posted: 05 Oct 2013 09:53 AM PDT

Reality has become a big lie which most live in… the big lie that:

  1. you can have something for nothing,
  2. the government can support you and provide for your needs rather you providing for yourself…
  3. the U.S. economy can generate enough economic growth and output that the owners of treasuries will get their money back with interest,
  4. the dollar and treasuries, which are the reserves of the global financial system, are promises which are as good as gold. 

The aforementioned is NOT reality, regardless of the words the Federal Reserve present. [The following charts illustrate just what IS reality. Take a look and then get prepared for when the ---- hits the fan!]

So writes Ty Andros (traderview.com) in edited, and in some cases paraphrased, excerpts from his original article* as posted on Zerohedge.com entitled WITCHES BREW: FINGERS OF INSTABILITY! 

[The following article is presented by  Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Andros goes on to say in further edited, and perhaps paraphrased in some places, excerpts:

The Federal Reserve must conform to reality regardless of the words they present [and the following charts show exactly what reality really is at this point in time].

1. The stock market is leveraged to a point that has preceded every market crash in the last 15 years.

 

2. The financial system is sitting on a pile of over-the-counter derivatives valued at $296.8 trillion dollars (courtesy of www.cross-currents.net).

These derivatives are 17.6 times US GDP and 15.6 times total stock market capitalization and the banks that are counter parties to this are holding no margin to secure their counter parties along with running over 33 to 1 leverage.  A mere 2 % move against them will vaporize a years' worth of US GDP.

3. The economy has not grown in real terms, after inflation, for almost two decades.
4. Job growth is nothing but a political fiction and in real terms is over 22%.
5. The U.S. government is deeply insolvent.
a) The market for its "bills of credit" (also known as treasury bills) and notes total over $16.9 trillion (16,900,000 million) and is going straight up.
b) In GAAP (generally accepted accounting principles) terms the actual debt is over $80 trillion ($80 million million) and the debt and future obligations is actually growing over $7 trillion ($7 million million) dollars a year.
c) The central bank's balance sheet is exploding to buy US government bonds which the private sector won't buy:
6. The government has grown over 280% yet average household earnings have grown only 24% since 1970.

It now takes $12.50 cents of new debt to create $1 dollar of GDP. If this leverage fails so will the financial system and economy.

 
7. Government spending is not being controlled.
8. …Government has morphed from your servant to your master since Breton Woods II 1971 – UP 500% since the 1970's in spite of competition, innovation, productivity and more goods and services for less money (aka capitalism) being prohibited by law!…
9. Volatility has been suppressed for over 58 years by negative interest rates, excess money and credit creation rather than letting nature purge the excesses.

The red volatility that has stopped in the last 55 years has not disappeared but, rather, has been stored up and will be released at some point when the Federal Reserve and financial systems lose control of the markets which they manipulate with their unlimited supply of dollars, also known as IOU's and junk bonds.

10. Unsound money has allowed for the theft of your well-being and the value of the dollars you are paid and store your wealth in while it sits in the bank appearing to hold its value.

Notice how the purchasing power of the dollar has declined about 80% while wages in a previous chart are up nominally 24%. Do the math…

11. [The Federal Reserve]…may have lost control of the…bond markets with their forward guidance…spawning outside down reversals on quarterly charts on virtually every bond market in the world…as a result of their failure to tighten…

[This loss of control of interest rates will cause them] to print a lot more before the global Ponzi scheme collapses on them.  They will not take the chance of a spiral higher in interest rates.  The financial and currency systems which they control and manipulate for personal gain and plunder will be rescued at any cost, which to them is virtually nothing except an electronic book entry.

These reversals are the source of the emerging market routes in currency values and fixed income. Massive losses occurred on too big to fail bank balance sheets and bond inventories, just on the mentioning of the taper and withdrawal of liquidity and stimulus.

The central banks (BOE, Federal Reserve, ECB, Bank of China, Swiss National Bank, and Bank of Japan) mission impossible is to stop this bull market from reversing.  The leveraged financial assets (mal-investments) in the financial and banking systems will collapse in value when interest rates rise!!!  The leverage they operate under guarantees it….

12. Money supply growth throughout the world's largest economies has slowed to the point which has preceded every major financial crash in in recent history.

When reviewing the latest TICs data detailing flow of funds into and out of the United States, one thing stood out like a sore thumb.  The flow of funds of treasuries was negative for every central bank in the world except Japan which bought approximately $70 Trillion dollars' worth.
Think about that, the most insolvent government in the world is financing another insolvent government via what else - the printing press! That is another $70 trillion dollars of debt monetization on top of their current domestic monetization.  Once they receive the bonds which will never be repaid except from new borrowing, they then call them assets. What a joke!

In conclusion:

Whereas G20 leaders proclaim that the crisis has ended based on small economic anecdotes the insolvencies have, [in fact,] only grown since 2008.  The printing can never end, only grow, until the policies of insolvency built up over the last five decades are repealed and reformed!

“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”  Frederic Bastiat

The very idea that the politicians, and the banks and corporations which control them, will undo their handiwork is a pipedream.

  • They have bent the developed world's laws and institutions to their advantage, while increasingly victimizing the public and private sectors at large.
  • They have spent the last 5 decades taking control of the free world, and subverting capitalism to give it up now.
  • The thought of returning freedom, undoing the centrally controlled economies massive regulatory and tax systems, and the restoring [of] incentives to produce to the masses (the only solution) is inconceivable to them.
  • Those that created these problems are incapable of solving them.  No amount of money printing will. It just postpones the unfolding crisis and exasperates it.

It's INFLATE or DIE!  The taper talk is just that: TALK.  They can NEVER withdraw the monetary heroin and I believe must step on the gas and increase money and credit creation SOON or risk the issues outlined in this commentary beginning a game of DOMINOES!  Hi ho hi ho it's back to the printing press they MUST go.

[Editor's Note: The author's views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.zerohedge.com/contributed/2013-09-27/witches-brew-fingers-instability-part-iv (Copyright © 2009-2012 TraderView All rights reserved. Authors Note:  Most of the world is operating with EYES WIDE SHUT and in willful blindness for which they will pay a price.  In my opinion the greatest man-made disaster and OPPORTUNITY in history is unfolding in every corner of the world. Are you prepared to turn it into opportunity by properly diversifying your portfolio?  Adding investments which have the potential to thrive regardless of what unfolds economically?  Hedging the printing presses impact on your paper money?  This is what I do for investors; help them diversify into investments which are created to potentially thrive.  No one knows when the "you know what" will hit the fan but if you aren't already in place it will probably too late to do so. For a personal consultation with me CLICK HERE. Don't miss the next edition of TedBits subscriptions are free CLICK HERE.)

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Gold And Silver -- Central Bank Death Dance, Part II. Good News/Bad News

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Central Bank Death Dance: Good & Bad News For Gold & Silver

Posted: 05 Oct 2013 04:28 AM PDT

Last week, we began an article on the Central Bank Death Dance, and made it part 1. The main premise we want to address is why the broadly known demand factors for gold and silver are not being reflected in higher values.

People are not asking the right question[s] in determining that answer. What few are considering, or may not be aware of, is the US government defense of its fiat currency. Part 1 attempted to put the fiat Federal Reserve Note into its true context, for its defense is what keeps gold and silver at purposefully suppressed levels.

The entire Western world has its fiat teat caught in a financial ringer from which it will never extract itself at the expense of non-banking businesses and the man and woman on the street, all of whom will suffer badly. To allow gold to rise in value exposes the fiat sham being perpetrated by all Western governments. They will not let that happen.

Right now, the federal government has become isolated by the fast-rising Eastern powers, most notably China and Russia, along with the other BRICS nations. They have had it with the US exporting inflation to the rest of the world, via the petro-dollar as a world reserve currency, and the endless issuing of Treasury Bonds, bonds which have become toxic and are being avoided by the BRICS countries, and soon even Europe, already under water with them but still in bed with Western central banks as the [mis]guiding forces.

The US is losing the war against Russia for supremacy in supplying energy to Europe. Gazprom is the largest energy producer in the world, yet few in America know of it. Russia seeks to be the energy supplier for Europe, and that would end the dominance of the US petro-dollar, aka world reserve currency status. Losing that status puts the US into the Third-World status it has already entered, starting well over a decade ago.

The US has no place to turn to sell its [unwanted]Treasury Bonds because the BRICS nations are now using non-dollar denominated contracts, cutting the US out of the picture. Enter China, and the rise of the petro-yuan. China will become the world's largest oil importer some time next year, and it has already become Saudi Arabia's largest customer. China is converting its huge oil imports into the Yuan, not the dollar.

More and more countries are setting up currency swaps with China, including the UK! Even the US' closest ally is forming important financial links with China as it becomes more and more financially isolated. More on the UK?US relations in a moment.

In the entire world, which government is the only government beating the drums for war? The regime led by a Nobel Peace Prize winner, Barack Obama. Why has he been so desperate to bomb Syria? Because of a few hundred deaths from chemicals, versus the hundreds of thousands of deaths caused by the US in it use of chemical warfare? That is a "chemical" smoke screen to hide the more [poorly]calculated reasons.

Syria is the last link for Iran's natural gas pipeline that leads to Mediterranean ports. Qatar and Iran have a joint deal involving natural gas. Russia has been building massive amounts of pipelines to serve Europe, China, and all the former USSR countries. The US is being cut out, entirely, and once Syria goes with Russia, the US [FRN]dollar is done, as is the US, increasingly becoming financially crippled.

Because Russia now supplies energy to Europe AND the UK, one need not wonder too much why the UK decided not to back the US in bombing Syria. While the Peace Prize regime has been doing everything possible to start a war with Syria, it has been totally out-maneuvered by the Russian president, making Obama look like a rank amateur in the game of political chess. Where Japan was a country of the Rising Sun, the US has become a country of the Setting Sun.

Always, always follow the money. It is always about money, for money is the lifeblood of the failing central banking system.

China, Russia, BRICS nations are setting up their own trade policies which do not include the increasingly isolated US, fast becoming a financial pariah, and these Eastern-led countries are going to use a gold-backed contract, in all likelihood. This is the kind of information one does not read about in the bought-and-paid-for-main-stream-media, but for many of the reasons cited above, the fight for survival of the fiat dollar is why central bankers are keeping their foot on the gold/silver suppression pedal.

This is the good news and bad news. The good is recognizing the forces of financial evil are doing everything possible to suppress PM prices, which means when those forces eventually fail, gold and silver will soar to new levels. The bad news is, no one knows for how long these forces will continue to exert control.

Some are counting in months. We continue to lean more in the year[s] camp, for these forces maintain enormous financial control over everything, and that control will not be easily given up, for it would mean the end for central bankers.

The Death Dance continues to unfold. It will get uglier and much worse before it ends. The fiat "dollar" is wearing no financial "clothes," but most of the watchers seem not to notice, or care. Those who care do not matter, while those that matter do not care. In the end, it is all about taking personal responsibility and acting responsibly.

When the end comes, it will be fast and furious. Those who failed to act and those who acted too prudently for timing will miss out. No one knows the when, but if it is months or years, what we know for certain is regardless of the when, we are prepared, even if it were tomorrow. Do you have your gold and silver safely in hand? Get more while the getting is good. You never know when when will strike.

The charts continue to tell a story, even if it is an artificial one. The story told is not very compelling, but it addresses the reasons why gold has not risen in value relative to the incredible demand. The information outlined above is the flip side to the incredible unseen forces at work on the "supply" side, and ones that still have the upper hand.

Gold And Silver Central Bank Death Dance, Good News/Bad News

Posted: 05 Oct 2013 03:05 AM PDT

Last week, we began an article on the Central Bank Death Dance, and made it part 1, [here]. The main premise we want to address is why the broadly known demand factors for gold and silver are not being reflected in higher values. People are not asking the right question[s] in determining that answer. What few are considering, or may not be aware of, is the US government defense of its fiat currency. Part 1 attempted to put the fiat Federal Reserve Note into its true context, for its defense is what keeps gold and silver at purposefully suppressed levels.
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