Friday, September 2, 2016

The Secret Global Court: Why Corporate Criminals & Corrupt Politicians Desperately Want TPP

ORIGINAL LINK

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Obama needs to ensure he gets well compensated after leaving office for a job well done protecting, defending and further enriching the global oligarch class. This is precisely why he’s so adamant about passing the TPP during the upcoming lame duck session of Congress, when he knows “representatives” who no longer face reelection can be coerced or bribed into voting for this monumental public betrayal.

The Trans-Pacific Partnership (TPP) ins’t really a free trade deal, it’s a way for global oligarchs to consolidate, grow and protect their enormous wealth. The investor-state dispute settlement system (ISDS) is perhaps the most nefarious and objectionable aspect of the deal, with this shadowy court system being used to accomplish the following for the super rich and powerful:

1) Eliminate sovereign risk from their investments.

 

2) Earn money by scouring the world for potential ISDS “opportunities” and then speculating on them.

 

3) Escape prosecution from criminality on a global basis.

The whole thing is absolutely disgusting and epitomizes all that is wrong and unethical about the world today. As such, stopping the TPP from passage is probably the most important near-term challenge ahead for all of us who want to make the world a better place (or at least prevent it from getting much, much worse).

Before getting into today’s article, I want to commend Chris Hamby and BuzzFeed for publishing this extremely timely and important work. We can only hope that it will inform millions of Americans sufficiently to create the needed pushback to prevent the TPP from ever becoming law.

So without further ado, let’s get on with it. What follows are excerpts from Part 1 of a four part investigative series. My snippets don’t do this work the justice it deserves; as such, I strongly encourage you to read the entire piece and share it with everyone you know.

Now, from the blockbuster piece, The Court That Rules the World:

Imagine a private, global super court that empowers corporations to bend countries to their will.

 

Say a nation tries to prosecute a corrupt CEO or ban dangerous pollution. Imagine that a company could turn to this super court and sue the whole country for daring to interfere with its profits, demanding hundreds of millions or even billions of dollars as retribution.

 

Imagine that this court is so powerful that nations often must heed its rulings as if they came from their own supreme courts, with no meaningful way to appeal. That it operates unconstrained by precedent or any significant public oversight, often keeping its proceedings and sometimes even its decisions secret. That the people who decide its cases are largely elite Western corporate attorneys who have a vested interest in expanding the court’s authority because they profit from it directly, arguing cases one day and then sitting in judgment another. That some of them half-jokingly refer to themselves as “The Club” or “The Mafia.”

 

And imagine that the penalties this court has imposed have been so crushing — and its decisions so unpredictable — that some nations dare not risk a trial, responding to the mere threat of a lawsuit by offering vast concessions, such as rolling back their own laws or even wiping away the punishments of convicted criminals.

 

This system is already in place, operating behind closed doors in office buildings and conference rooms in cities around the world. Known as investor-state dispute settlement, or ISDS, it is written into a vast network of treaties that govern international trade and investment, including NAFTA and the Trans-Pacific Partnership, which Congress must soon decide whether to ratify.

 

The BuzzFeed News investigation explores four different aspects of ISDS. In coming days, it will show how the mere threat of an ISDS case can intimidate a nation into gutting its own laws, how some financial firms have transformed what was intended to be a system of justice into an engine of profit, and how America is surprisingly vulnerable to suits from foreign companies.

 

The series starts today with perhaps the least known and most jarring revelation: Companies and executives accused or even convicted of crimes have escaped punishment by turning to this special forum. Based on exclusive reporting from the Middle East, Central America, and Asia, BuzzFeed News has found the following:

 

  • A Dubai real estate mogul and former business partner of Donald Trump was sentenced to prison for collaborating on a deal that would swindle the Egyptian people out of millions of dollars — but then he turned to ISDS and got his prison sentence wiped away.
  • In El Salvador, a court found that a factory had poisoned a village — including dozens of children — with lead, failing for years to take government-ordered steps to prevent the toxic metal from seeping out. But the factory owners’ lawyers used ISDS to help the company dodge a criminal conviction and the responsibility for cleaning up the area and providing needed medical care.
  • Two financiers convicted of embezzling more than $300 million from an Indonesian bank used an ISDS finding to fend off Interpol, shield their assets, and effectively nullify their punishment.

 

When the US Congress votes on whether to give final approval to the sprawling Trans-Pacific Partnership, which President Barack Obama staunchly supports, it will be deciding on a massive expansion of ISDS. Donald Trump and Hillary Clinton oppose the overall treaty, but they have focused mainly on what they say would be the loss of American jobs. Clinton’s running mate, Tim Kaine, has voiced concern about ISDS in particular, and Sen. Elizabeth Warren has lambasted it. Last year, members of both houses of Congress tried to keep it out of the Pacific trade deal. They failed.

I wonder why they failed. Perhaps the following will provide some insight: New Report from Princeton and Northwestern Proves It: The U.S. is an Oligarchy 

ISDS is basically binding arbitration on a global scale, designed to settle disputes between countries and foreign companies that do business within their borders. Different treaties can mandate slightly different rules, but the system is broadly the same. When companies sue, their cases are usually heard in front of a tribunal of three arbitrators, often private attorneys. The business appoints one arbitrator and the country another, then both sides usually decide on the third together.

 

“It works,” said Charles Brower, a longtime ISDS arbitrator. “Like any system of law, there will be disappointments; you’re dealing with human systems. But this system fundamentally produces as good justice as the federal courts of the United States.”

I mean, it takes some nerve to make a statement like that.

But over the last two decades, ISDS has morphed from a rarely used last resort, designed for egregious cases of state theft or blatant discrimination, into a powerful tool that corporations brandish ever more frequently, often against broad public policies that they claim crimp profits.

 

Because the system is so secretive, it is not possible to know the total number of ISDS cases, but lawyers in the field say it is skyrocketing. Indeed, of the almost 700 publicly known cases across the last half century, more than a tenth were filed just last year.

Bull market in oligarch thievery continues unabated:

Screen Shot 2016-09-01 at 1.45.06 PM

Driving this expansion are the lawyers themselves. They have devised new and creative ways to deploy ISDS, and in the process bill millions to both the businesses and the governments they represent. At posh locales around the globe, members of The Club meet to swap strategies and drum up potential clients, some of which are household names, such as ExxonMobil or Eli Lilly, but many more of which are much lower profile. In specialty publications, the lawyers suggest novel ways to use ISDS as leverage against governments. It’s a sort of sophisticated, international version of the plaintiff’s attorney TV ad or billboard: Has your business been harmed by an increase in mining royalties in Mali? Our experienced team of lawyers may be able to help.

 

In a little-noticed 2014 dissent, US Chief Justice John Roberts warned that ISDS arbitration panels hold the alarming power to review a nation’s laws and “effectively annul the authoritative acts of its legislature, executive, and judiciary.” ISDS arbitrators, he continued, “can meet literally anywhere in the world” and “sit in judgment” on a nation’s “sovereign acts.”

 

Some entrepreneurial lawyers scout for ways to make money from ISDS. Selvyn Seidel, an attorney who represented clients in ISDS suits, now runs a specialty firm, one that finds investors willing to fund promising suits for a cut of the eventual award. Some lawyers, he said, monitor governments around the world in search of proposed laws and regulations that might spark objections from foreign companies. “You know it’s coming down the road,” he said, “so, in that year before it’s actually changed, you can line up the right claimants and the right law firms to bring a number of cases.”

Can you believe this? Outside of technology, pretty much all the big money being made these days is from purely parasitic, extractive activities.

Opposition to ISDS is spreading across the political spectrum, with groups on the left and right attacking the system. Around the world, a growing number of countries are pushing for reforms or pulling out entirely. But most of the alarm has been focused on the potential use of ISDS by corporations to roll back public-interest laws, such as those banning the use of hazardous chemicals or raising the minimum wage. The system’s usefulness as a shield for the criminal and the corrupt has remained virtually unknown.

This is why Obama will try to pass it when the fewest members of government can be held accountable.

Most of the 35-plus cases are still ongoing. But in at least eight of the cases, bringing an ISDS claim got results for the accused wrongdoers, including a multimillion-dollar award, a dropped criminal investigation, and dropped criminal charges. In another, the tribunal has directed the government to halt a criminal case while the arbitration is pending.

 

One lawyer who regularly represents governments said he’s seen evidence of corporate criminality that he “couldn’t believe.” Speaking on the condition that he not be named because he’s currently handling ISDS cases, he said, “You have a lot of scuzzy sort-of thieves for whom this is a way to hit the jackpot.

Now here’s an example of ISDS abuse from Egypt.

But, though Mubarak was gone, he had left behind a gift for investors like Sajwani: one of the world’s largest networks of investment treaties — twice the size of the United States’ — that allowed foreign businesses to file ISDS claims against Egypt. Within a week of Sajwani’s conviction over the Red Sea deal, Damac invoked one of these treaties and sued Egypt before the international arbitration arm of the World Bank.

This argument — that the government at the time gave its blessing, so the sweetheart deal couldn’t be criminal — became the template for other businesses facing similar accusations.

By filing an ISDS claim, Sajwani took his case out of the Egyptian court system and placed it in the hands of three private lawyers convening in Paris. For the arbitrator he was entitled to choose, Sajwani appointed a prominent American lawyer who had often represented businesses in ISDS cases. And to press his case, Sajwani hired some of the world’s best ISDS attorneys.

 

For Egypt, the potential losses were big and would come as the country struggled to revive its floundering economy.

 

It decided to settle.

 

But the key benefit for Sajwani, according to all three: In exchange for dropping his ISDS case, Egypt would wipe away his five-year prison sentence and close out the probes of the other deals. The man who had been convicted of collaborating on a deal that would bilk the Egyptian people out of millions of dollars was now free and clear.

 

“Damac, followed by multiple other cases filed, made them say, ‘You know what, no; there should be another way,’” said Girgis Abd el-Shahid, a lawyer who represents corporate clients and assisted with Sajwani’s arbitration claim. “I believe that, after Damac, Egypt learned its lesson.”

 

Virtually across the board, the government began trying to settle.

 

In one case, an Egyptian court had declared a foreign company’s purchase of a factory corrupt and nullified the deal, court records show. But after the company filed an ISDS claim, the government agreed to pay $54 million in a settlement — roughly twice the price the company had paid for the factory just a few years earlier, according to news reports and documents reviewed by BuzzFeed News. A lawyer for the company said that his client had not been found guilty of a crime and that the company had made “significant investments” in the factory after acquiring it.

 

In another case, a second Dubai developer was under investigation — until he threatened an ISDS claim, according to the Cairo lawyer Hani Sarie-Eldin, who has represented the company. Instead of a criminal trial, the government opted for a settlement, and the mogul’s company went forward with its project, Sarie-Eldin said.

 

Meanwhile, the government has changed its laws, stripping public-interest lawyers and average citizens of the right to file court challenges to dubious public contracts, such as the sale of public land to a developer like Sajwani.

 

Heba Khalil, a researcher at an Egyptian human rights organization, recently recalled the chaotic but hopeful days after the fall of Mubarak. “No one knew what Egypt would be like,” she said. “International investors were kind of scared that the kind of deals that they did with the Mubarak regime wouldn’t be possible anymore.”

 

Then came the ISDS claims. “I think the impact of international arbitration,” Khalil said, was that Egyptians “started knowing that, ‘Oops, if we try to expose corruption, then those investors will take us to court internationally, and we will lose the case. Which means we had better just shut up and let the wrongs of Mubarak continue the way they are.’”

Here’s an example from El Salvador.

Not long after the battery factory set up shop on the edge of Sitio del Niño in 1998, people began noticing clouds of ash floating over from their new neighbor, descending on fields where children played soccer and seeping into their homes at night. It burned people’s throats and sent them into coughing fits.

 

Eventually, people started connecting the ash with the persistent headaches, dizziness, extreme fatigue, and constant bone and joint pain that children in particular were suffering. In 2004, a committee of local citizens began petitioning leaders for help, writing the town’s mayor, national government ministries, and eventually even other nations’ embassies and international aid organizations. For years, their efforts came to naught.

 

Then lead started showing up at potentially dangerous levels in the blood of the town’s children. Testing in 2006 and 2007 found that dozens of children, some as young as 3, had been contaminated.

 

In the midst of the trial, the prosecution agreed to settle. Prosecutors declined to comment on the role ISDS played, but the settlement document lays out the terms. The company agreed to pay for a limited cleanup of only the factory site, far short of the much more expansive cleanup the government has said is needed, and to establish a medical clinic in the village, albeit one that would provide only basic care and be funded for only three years. The company would also pay for some of the costs associated with the prosecution and make small donations to the community. And it agreed to drop its threat and not pursue an ISDS case.

 

Ultimately, the court concluded that the factory had contaminated the village. But that same court acquitted the three lower-level managers, so, it reasoned, it had no choice but to exonerate the company, too.

 

A force that helped persuade the judges, said Girón, the company’s lawyer, was the ISDS threat and its potential to slam the government with huge compensatory damages.

 

The failure to hold the factory accountable is an open wound for the impoverished residents of Sitio del Niño — a village whose very name, “Place of the Child,” is now a cruel joke. For six years, their community has been designated an “environmental emergency” by the government, which has warned them not to eat anything grown in the town’s contaminated soil. But many of them have no other option.

 

When NAFTA, the North American Free Trade Agreement, took effect in 1994, some lawyers at top firms took notice of ISDS for the first time. One heralded “a new territory” where some pioneering attorneys had ventured and “prepared maps showing a vast continent beyond.” What they saw was the opportunity to expand and reshape ISDS to their benefit, and the previously dormant system changed forever.

 

“A whole industry grew up,” said Muthucumaraswamy Sornarajah, an international lawyer and ISDS arbitrator who argued that the system is now being misused. Large law firms, he said, see ISDS “as a lucrative area of practice, so what happens is they think up new ways of bringing cases before the arbitration tribunals.”

 

A key service offered by the ISDS legal industry goes by various euphemisms: “corporate structuring,” “re-domiciling,” “nationality planning.” Critics have a different term: “treaty shopping.” It amounts to helping businesses figure out which countries’ treaties afford the most leeway for bringing ISDS claims, then setting up a holding company there — sometimes little more than some space in an office building — from which to launch attacks.

 

ISDS lawyers also grow the market for their services by advocating for new treaties, and some of the most outspoken are beneficiaries of the revolving door between the US government and top law firms.

Now meet a particularly nefarious cretin, Daniel Price.

Daniel M. Price negotiated the section of NAFTA containing ISDS when he was a lawyer at the Office of the US Trade Representative. He later served as a top international trade official in the George W. Bush White House.

 

In between these government stints, he worked as a private lawyer helping clients in ISDS cases. Twice he used the treaty he himself had helped negotiate to help US-based businesses pursue claims against Mexico.

 

He founded and chaired the unit handling ISDS claims at Sidley Austin, a leading global law firm. Today, he promotes his services as an arbitrator and, along with a powerhouse team that includes other former government lawyers, sells international expertise on ISDS and related matters.

 

Price, who at first agreed to an interview but later stopped responding to messages, is only one of a number of private lawyers who have exerted outsize influence on American policy on ISDS.

Yes, America. This is your government.

Finally, companies can gain advantages by bringing an ISDS suit, even if they don’t expect to win the case. Krzysztof Pelc, an associate professor at McGill University, found that there has been a proliferation of frivolous cases primarily intended not to win compensation but rather to bully the government — and other nations that want to avoid a similar suit — into dropping public-interest regulations. These new cases, Pelc found, represent a fundamental transformation of ISDS: The system was designed to deal primarily with theft by autocrats, but, in the majority of cases today, businesses are suing democracies for enacting regulations.

Finally, here’s the third example of how ISDS allows powerful people convicted of crimes to escape justice.

The British financial guru Rafat Ali Rizvi had a big problem: In Indonesia, where he’d plied his trade, he and a business partner had been convicted of embezzling more than $300 million from one of the country’s banks. The government there had to bail out the bank — sparking enraged protests that police tried to quell with tear gas and water cannons — and Indonesian authorities were pursuing him and the money they said he’d stashed in accounts around the world.

 

Ensconced overseas, Rizvi was beyond the reach of the Indonesian authorities. But the conviction came with an Interpol “red notice,” meaning he risked extradition if he traveled abroad. Some of his bank accounts were frozen. And with this stain on his record, he was largely cut off from the world of global finance he’d played in for years.

Rizvi’s topflight criminal lawyer had threatened to sue Interpol if the agency didn’t delete the alert, but so far it hadn’t worked. What Rizvi needed was an entirely different type of lawyer. Someone like George Burn.

 

Burn had spent years representing businesses in corporate disputes, but, like many of his colleagues, he was drawn to ISDS as the system began to flourish in the 1990s. Now, he said, ISDS cases make up the majority of his work as a London-based partner at the U.S. firm Vinson & Elkins.

 

The strategy he crafted for Rizvi epitomizes the ingenuity of elite ISDS lawyers and the willingness of arbitrators — many of whom are also attorneys who argue ISDS cases — to expand their own authority. It is a stark example of how canny and audacious lawyers can work the system, crafting a win even when they technically lose. The only real losers: a nation of taxpayers.

As usual.

First, Burn needed to find a treaty that would apply to this case. His team discovered an obscure agreement among predominantly Islamic nations, including Indonesia, where the case was unfolding, and Saudi Arabia, where al-Warraq was a citizen. There was no record of anyone using that pact to file an ISDS claim before, but Burn audaciously forged ahead.

 

In fact, an official present at the creation of that treaty 30 years earlier told the tribunal that the agreement was not supposed to allow ISDS cases at all. The arbitrators waved off this objection as “irrelevant.”

 

The key argument that Burn planned to make was that the criminal trial in Jakarta had violated al-Warraq’s right to fair treatment as a foreign investor. This protection is now commonplace in investment treaties and trade deals, and it has become one of the most controversial aspects of ISDS.

 

Guaranteeing foreign businesses “fair and equitable treatment” sounds like common sense. But many treaties don’t say what exactly that means, so arbitrators have found that governments have acted unfairly even when they regulated the price of water or merely complied with European Union law. Critics argue that such judgments have transformed a system that was supposed to uphold the rule of law into one that places foreign businesses above the law, able to get out of obeying almost any statute or regulation, no matter how worthwhile, that cuts into profits.

 

Many scholars and activists say the “fair and equitable treatment” provision, which is included in the Trans-Pacific Partnership now being considered by Congress, is the most widely abused element of treaties containing ISDS. Numbers from the UN’s trade and development body show that arbitrators find violations of this controversial provision far more than any other.

 

As it happened, though, the treaty Burn had invoked didn’t include that clause. But the agreement did have another common and often controversial clause, which requires a government to treat foreign businesses covered under one treaty at least as well as businesses covered under any of its other treaties.

 

So Burn plucked the fair-treatment provision from another agreement and applied it to the Islamic nations pact. In effect, he constructed his own super-treaty.

 

And the ISDS arbitrators allowed it, giving themselves the authority to rule on the actual merits of the case.

 

Martha took that crucial finding and presented it to his former employer. He argued that, unless Interpol dropped its red alerts against Rizvi and al-Warraq, the international cops themselves would be violating international law. Interpol obliged, deleting the red notices.

 

“Unprecedented Concessions by Interpol,” trumpeted a press release put out on behalf of Martha’s firm. The international cops also had agreed to delete information about the two convicts from its files and to send letters to certain risk profiling and due diligence agencies, as well as the roughly 190 Interpol member countries, according to the release.

 

“As a result, Mr. Rizvi and Mr. Al-Warraq will be able to travel and conduct business without restriction,” the release boasted. “Such results have never been obtained before from INTERPOL.” Reached by BuzzFeed News, Martha at first agreed to an interview but didn’t respond to subsequent messages.

So gross.

Now the legal team is trying to use the ISDS decision to block Indonesia from seizing the men’s foreign bank accounts. Initially, Indonesian authorities had won a small victory when a Hong Kong court granted them access to a $4 million account. But that’s been put in doubt…

If all of this enraged you as much as it did me, please share this post as widely as possible and consider sending a message to Chris (chris.hamby@buzzfeed.com) thanking him for his work. Also, do whatever you possibly can to push back against Obama’s plan to pass this monstrosity after the election.

Finally, if all that wasn’t enough for you, I suggest reading the following article written by David Dayen a few days ago titled: The Big Problem With The Trans-Pacific Partnership’s Super Court That We’re Not Talking About.

For prior articles published at Liberty Blitzkrieg on the TPP, see:

Obama Administration Delays Release of Hillary Clinton TPP Emails Until After the Election

Obama to Push Passage of TPP Trade Deal Despite Rising Public Opposition

Julian Assange on the TPP – “Deal Isn’t About Trade, It’s About Corporate Control”

Trade Expert and TPP Whistleblower – “We Should Be Very Concerned about What’s Hidden in This Trade Deal”

As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP



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Thursday, September 1, 2016

Magical Thinking

ORIGINAL LINK

Submitted by Ben Hunt of Epsilon Theory

* * *

Duane Hall:     Can I confess something? I tell you this as an artist, I think you’ll understand. Sometimes when I’m driving … on the road at night … I see two headlights coming toward me. Fast. I have this sudden impulse to turn the wheel quickly, head-on into the oncoming car. I can anticipate the explosion. The sound of shattering glass. The … flames rising out of the flowing gasoline.
Alvy Singer:     Right. Well, I have to — I have to go now, Duane, because I … I’m due back on planet Earth.

“Annie Hall” (1977)

* * *

One of my all-time top-ten movie scenes. Of course, Duane ends up driving Alvy and Annie back to the airport that night. No one does crazy better than Christopher Walken. Except maybe the Fed’s #2, Stanley Fischer. We’re all just passengers in the backseat of the Fed-driven car.

* * *

Alvy Singer:    This guy goes to a psychiatrist and says, “Doc, my brother’s crazy; he thinks he’s a chicken.” And the doctor says, “Well, why don’t you turn him in?” The guy says, “I would, but I need the eggs.” Well, I guess that’s pretty much how I feel about relationships; y’know, they’re totally irrational, and crazy, and absurd … but, I guess we keep going through it because most of us … need the eggs.

“Annie Hall” (1977)

* * *

We’re all passengers in the backseat of the Fed-driven car, and we all suspect that our drivers might be high-functioning lunatics, and we’re all terrified about what they might do next.

But we need the eggs.

* * *

“What are the stars?” said O’Brien indifferently. “They are bits of fire a few kilometres away. We could reach them if we wanted to. Or we could blot them out. The earth is the centre of the universe. The sun and the stars go round it.”

“For certain purposes, of course, that is not true. When we navigate the ocean, or when we predict an eclipse, we often find it convenient to assume that the earth goes round the sun and that the stars are millions upon millions of kilometres away. But what of it? Do you suppose it is beyond us to produce a dual system of astronomy? The stars can be near or distant, according as we need them. Do you suppose our mathematicians are unequal to that? Have you forgotten doublethink?”

Winston shrank back upon the bed. Whatever he said, the swift answer crushed him like a bludgeon. And yet he knew, he knew, that he was in the right. The belief that nothing exists outside your own mind — surely there must be some way of demonstrating that it was false? Had it not been exposed long ago as a fallacy? There was even a name for it, which he had forgotten. A faint smile twitched the corners of O’Brien’s mouth as he looked down at him.

“I told you, Winston,” he said, ‘”that metaphysics is not your strong point. The word you are trying to think of is solipsism. But you are mistaken. This is not solipsism. Collective solipsism, if you like. But that is a different thing: in fact, the opposite thing.”

? George Orwell, “1984” (1949)

* * *

As O’Brien patiently explains to Winston between torture sessions, or what we would call today “FOMC meetings”, Collective Solipsism is the voluntary abdication of empirical and independent thought. But it’s not ordinary solipsism — a pathological egocentrism where reality is entirely defined by one’s own thoughts. Instead, Collective Solipsism annihilates one’s own thoughts and replaces them with state-sponsored thoughts. Your reality is just as fake. But you’re living someone else’s fantasy.

* * *

Grief turns out to be a place none of us know until we reach it. … We might expect that we will be prostrate, inconsolable, crazy with loss. We do not expect to be literally crazy, cool customers who believe that their husband is about to return and need his shoes.

In the version of grief we imagine, the model will be “healing.” A certain forward movement will prevail. The worst days will be the earliest days. We imagine that the moment to most severely test us will be the funeral, after which this hypothetical healing will take place. … We have no way of knowing that this will not be the issue.

There was a level on which I believed that what had happened was reversible.

? Joan Didion, “The Year of Magical Thinking” (2005)

* * *

The best book I’ve ever read on the emotion of grief. Central bankers today are grieving the death of the so-called Great Moderation, and they are expressing their grief in the same way that Didion expressed hers — through magical thinking, through the pathological belief that if only the right words are said and the right thoughts are thought, then the dearly departed might walk through the front door and ask for his shoes.

* * *

 Mr. Hilsenrath: What kind of compromise would it take to get the FOMC to move in September? I mean, so the tradition is there’s some kind of — like you say, some kind of agreement. What would it take to get them there?
 Mr. Bullard: Well, I have no idea, so — and it’s really — it’s really the chair’s job to fashion that. But I will say that — I’ll talk historically about the FOMC, the kinds of things that the FOMC would do. You would trade off. You would say, OK, we could hike today, but then we’ll not plan to do anything in the future. That would be one way to — one way to go about a consensus. So that often happens on the FOMC. Or vice versa. If you read the Greenspan-era transcripts, he’ll do things like, OK, we won’t go today, but we’ll kind of hint that we’re pretty sure we’re going to go next time.
 Mr. Hilsenrath: Right.
 Mr. Bullard: And so you get this inter-tempo kind of trade-off, and that often — that often is enough to get people to sign up.
 Mr. Hilsenrath: So, hike today and then delay.
 Mr. Bullard: Yeah. (Laughs.)
 Mr. Hilsenrath: Or, no hike today and then no more delay.
 Mr. Bullard: Yeah, yeah.
 Mr. Hilsenrath: Something like that.
Mr. Bullard: Yeah, those kinds of trade-offs are, historically speaking — I’m not saying I know what Janet’s doing, because I don’t. But, historically speaking, those are the kinds of things that the FOMC has done.
Mr. Hilsenrath: I came up with my catchphrase for the — for the month. (Laughter.)
Mr. Bullard: Those are great. That’s worthy of a T-shirt. (Laughs, laughter.) You could have one on the front and one on the back.
Ms. Torry: Or a headline.
Mr. Hilsenrath: Well, that’s the St. Louis framework now, right?
Mr. Bullard: Yeah.
Mr. Hilsenrath: Hike today and then delay.
Mr. Bullard: Yeah. That’s what it would be, yeah.
Mr. Hilsenrath: But if you decide to use that, maybe you can credit — you know, include a little footnote to the Wall Street Journal.
Mr. Bullard: OK. (Laughs.)
? Wall Street Journal, “Transcript: St. Louis Fed’s James Bullard’s Interview from Jackson Hole, Wyo.” (August 27, 2016)

* * *

Reading this transcript made me throw up in my mouth a little bit. And Bullard is the best of the lot. At least he’s honest about the intellectual poverty about the whole FOMC interest rate-setting exercise. They’re just making it up as they go along, a hallmark of magical thinking.

* * *

In point of fact magicians appear to have often developed into chiefs and kings.

? James George Frazer, “The Golden Bough” (1890)

* * *

Frazer’s book on the history and anthropological foundations of magic was a revelation to me when I first read it, as it was to as disparate a group of writers and poets as Yeats, TS Elliot, Freud, Hemingway, Joyce, and … Jim Morrison.

* * *

Courtier T.L. — Amid all the people starving, missionaries and nurses clamoring, students rioting, and police cracking heads, His Serene Majesty went to Eritrea, where he was received by his grandson, Fleet Commander Eskinder Desta, with whom he intended to make an official cruise on the flagship Ethiopia. They could only manage to start one engine, however, and the cruise had to be called off. His Highness then moved to the French ship Protet, where he was received on board by Hiele, the well-known admiral from Marseille. The next day, in the port of Massawa, His Most Ineffable Highness raised himself for the occasion to the rank of Grand Admiral of the Imperial Fleet, and made seven cadets officers, thereby increasing our naval power. Also he summoned the wretched notables from the north who had been accused by the missionaries and nurses of speculation and stealing from the starving, and he conferred high distinctions on them to prove that they were innocent and to curb the foreign gossip and slander.

? Ryszard Kapuscinski, “The Emperor” (1978)

* * *

f you can only read one book on the end of an ancien regime and the magical thinking that ALWAYS takes place in its wake, this is it. Kapuscinski chronicles the final years of Haile Selassie’s reign in Ethiopia from the inside out, interviewing dozens of courtiers to paint a first-hand portrait of an entire society lost in the fantasy world of Collective Solipsism.

Selassie and his Inner Party maintained the fantasy for years after it lost all connection with reality, so that a mighty fleet consisted of a single ship with a malfunctioning engine, promotions and medals were conflated with real-world power and influence, and bad people and bad ideas were constantly lauded and rewarded to keep hard questions from being asked.

Spoiler alert: it doesn’t end well for Selassie or for Ethiopia. In the words of another famous solipsist, Louis XIV, “après moi, le deluge.” After Selassie came The Dergue. Think Pol Pot in committee form.

The last years of Selassie’s rule are more than a parable for our times … they ARE our times.

Magical thinking is a term of art in both clinical psychology and cultural anthropology, and it refers to the common belief among both children and “primitive” societies (yes, intentional quotation marks there to show my arched eyebrow at the word) that thinking the right thoughts or saying the right words can control the invisible forces that shape our world.

For example, as Jean Piaget (the father of developmental psychology) noted, children from the ages of 2 to 7 tend to have very little conception of real-world causality. Tell your four-year-old son that the family dog has died, and he is likely to a) blame himself for something he did or didn’t do for “causing” the death, and b) believe that there is some combination of proper words and proper thoughts and proper actions that can make the dog come back to life. That’s magical thinking. It’s a profoundly ego-centric conception of the world, and if you’re a parent you know exactly what Piaget is talking about. Every four-year-old child is an egomaniac, in the clinical, non-judgmental sense of the word.salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-crocodile-tooth

It’s the same thing with what cultural anthropologist Claude Levi-Strauss called “The Savage Mind” in his groundbreaking 1962 book. Societies without a causal explanation for, say, the weather will always construct some sort of combination of words and thoughts and actions to be performed by privileged caste members like priests or kings, through which the entire society convinces itself that humans exercise some sort of control over these incredibly powerful real-world forces and that they aren’t just buffeted this way and that by the inexorable might of a big bad world that really couldn’t care less about them. In fact, that’s the literal origin of the word “inexorable”, from the Latin in (not), ex (away), orare (to pray) — something that cannot be prayed away.

In early days of any human society, this sort of magic usually emphasizes some form of sympathetic or like-for-like object … for example, you might rub a banana-shaped crocodile tooth against a banana plant to make it bear fruit (I’m not making this up). Over time, however, the spellcasting caste and society at large convince themselves that you don’t really need actual crocodile teeth, but you can instead invoke the power of a crocodile tooth by calling it by its secret name. Maybe you need to write down that secret name using the secret language of the priests in order to make the spell work, but you definitely don’t need to go out and hunt down a real-world crocodile. It’s at this point that hunter/soldier-kings are replaced by academic/priest-kings … the pen is truly mightier than the sword, or at least writing “crocodile” carries a longer life expectancy than hunting crocodiles. Over still more time, the secret names and the secret language of the priest-kings become a vast edifice of magical thinking, an edifice that provides great comfort and stability to the entire society. Because there is nothing more important to societal stability than the belief that nature is under control. That the invisible forces of nature can, in fact, be prayed away.

Until they can’t. Until all the banana plants die because of some rare nematode infestation in the roots, and all the secret words and secret languages and even the “old magic” of the actual crocodile teeth are useless. They were useless all along, of course, as the banana plants would have borne fruit for the past 50 years with or without the spells, but hey … until this year there was a 98% correlation between the spells and a healthy banana crop! And my VAR was really quite negligible!

Okay, Ben, we see what you’ve done here. Yes, yes … quite droll, really … you’ve found a clever metaphor for railing against our central banker ruling class. Again. Thanks for the diversion, but now we need to get back to planet Earth. Important work to be done, and all that. Love your quotes, by the way.

Wait! This is not a metaphor. This is not an anthropological parable for our times. This IS our times. Want to see what a magic spell looks like? Here you go:

salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-gaussian-copula-spell

This is the Gaussian Copula spell. It’s what you write down to make sure that your AAA-rated slice of a massive bunch of mortgages pays you 6% a year with only an infinitesimal risk of default. It’s not a metaphor for a spell. It is an actual magic spell, exactly the same in form and function as the talismanic scripts written on, say, Egyptian funerary urns in 1000 BC to make sure that your body and soul get to the afterlife with only an infinitesimal risk of default.

Secret language no one can read or understand? Check. Not really comprehensible even by most magicians? Check. Administered by a privileged caste with appropriate pomp and ceremony? Check. Reflective of an innate human desire to control invisible forces that are, in fact, uncontrollable and inexorable, like death and business cycles? Check. Highly effective in motivating human behavior and supporting status quo political institutions? Check. And mate.

The Gaussian Copula spell wishes away the possibility of a nationwide decline in U.S. home prices (if you haven’t already, please read Felix Salmon’s 2009 Wired magazine article on the Gaussian Copula — “The Formula That Broke Wall Street” — my all-time favorite piece of financial market journalism). The magical thinking embedded in this spell is that a nationwide decline in U.S. home prices is not just unlikely, it is — literally — unthinkable. It is an incantation that generated enormous societal stability and wealth, creating out of whole cloth a belief that a $10 trillion (yes, that’s trillion with a T) asset class in residential mortgage-backed securities (RMBS) was a solid thing, a triumph of Science (why, just look at all those Greek letters and the mathematical stuff!), an example of man’s mastery over the invisible vagaries of nature.

And then we had a nationwide decline in U.S. home prices. Which broke our world.

Here’s another spell:

salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-taylor-rule-spell

This is the Taylor Rule spell. It’s what you write down to make sure that the inflation rate in your economy goes up or down the way you want it to go up or down. There are lots of other spells that go along with the Taylor Rule spell for “controlling” inflation, but it’s the main one, I’d say. This is the spell that has created a $12 trillion asset class in negative yielding sovereign debt. Because, you know, the lower interest rates go, the more you’re going to borrow and spend, and the higher inflation goes. Right? Right?

If the Gaussian Copula is like a funerary spell, trying to assure investors that they will get to investor heaven like dead Egyptian Pharaohs were assured of getting to dead Egyptian Pharaoh heaven, the Taylor Rule is like a weather spell. When I read this from James Frazer’s The Golden Bough:

So in Scotland witches used to raise the wind by dipping a rag in water and beating it thrice on a stone, saying:

I knok this rag upone this stane
To raise the wind in the divellis name,
It sall not lye till I please againe.

I can’t help but think of Stanley Fischer, vice-warlock of the Fed coven, saying in Jackson Hole that we need thrice interest rate raises (one last December, two more this year) to quell the inflationary winds. Or raise them. Or whatever sort of weather that Fischer is trying to manufacture. It’s really hard to tell.

But here’s the kicker. When a spell doesn’t work, no one in the magically thinking society believes it’s because spell-casting itself doesn’t work. It means that the spell wasn’t performed properly. Either the priest-kings said the words wrong or they didn’t think the right thoughts or there’s some other invisible force that we need to propitiate first. So what always happens, and I mean “always” in the sense of This. Is. Human. Nature. and has been happening in a rhyming sense for tens of thousands of years across every human society that ever lived, is this:

In phase 1, the priest-kings try harder. They seek out purer ingredients for their spells. They speak more loudly, more convincingly, more stridently. If two crocodile teeth were used in the past, now they use four. Or eight. It’s not just “more”, it’s “MOAR!”. Often there’s an internal purge near the end of phase 1.

In phase 2, the priest-kings regroup and tweak the spell. Maybe instead of “targeting” (another word for “praying for”) a 2% inflation rate, we need to “target” a 4% inflation rate. Maybe we should change the magic word “inflation” to “nominal GDP growth” and see if that works any better. Sure, why not? This tweaking process has happened, it is happening now, and it will happen all the way to the bitter end. What will never happen is that the priest-kings quit. There’s always another tweak, always another word choice, always another order in which the words can be said.

salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-dead-banana-plantsIn phase 3 — and this is where we are now in the historical process, somewhere near the end of phase 2 and the beginning of phase 3 — the priest-kings are challenged by a rogue priest in their midst (rare) or an alt-priest coming out of nowhere (common). By “nowhere” I mean that the alt-priest is an Other, whether that’s a foreign religion or a foreign geography or a foreign (i.e., non-priestly) caste. The alt-priest isn’t about tweaking the spell or casting it louder. He’s about doing an entirely different spell, and he’s about accusing the incumbent priests of incompetence or worse. The alt-priest is always a populist, and populism comes easy when the incumbent spells have been failing … and failing … and failing.

So what happens? It depends on reality. It depends on whether the banana plants get better on their own or if they die. If they get better on their own (and this happens more often than you might think), then the incumbent priest-kings remain. If the banana plants give up the ghost, then the incumbents are swept away. For future reference, this is what dead banana plants look like.

Interestingly — and this was Frazer’s big point in The Golden Bough — even if the incumbent mode of magical thinking survives, it’s necessary for societal stability to perform a public human sacrifice of the primary incumbent priest-king. The king is dead. Long live the king. Fortunately for all involved, human sacrifice today is a lot less literal than it was during, I dunno, the heyday of the Etruscans. A little public shaming, a tearful interview with Anderson Cooper, a quiet hermitage in the form of a deanship at a small New England college … yeah, that should do the trick.

salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-anderson-cooperThe way this all plays out also depends on how deeply the incumbent priest-kings retreat into their fantasy world of tweaking spells and magical thinking, and that’s where I’m most concerned. The fact is that the global economy — particularly the U.S. economy and the Chinese economy — is more robust than the alt-priests tend to let on. Amazingly enough, the U.S. can still grow its way out of the massive debt we’ve taken on. I know … hard to believe. But it’s true. The power of compounding is truly inexorable, and it’s amazing what a steady 3.5% growth rate on a huge economic base can do to make manageable even trillions of dollars in debt. The rest of the developed world? Impossible to grow their way out of debt. They’re finished. Or rather, to use the lingo of my distressed debt friends, Japan and Europe ex-Germany are now “work-out situations”. But if the U.S. could just get out of its own way … if we could stop arguing about who gets to use what bathroom and start arguing about how to increase productivity (i.e., how to make technology a tool for humans doing more stuff rather than a replacement for humans doing stuff at all) … then we could actually come out of this okay.

I know, I know … I’m a dreamer. And for all the political fragmentation and polarization reasons that I write about ad nauseam, or at least here, here, here, and here, the politics of identity are unlikely to be replaced by the politics of growth anytime soon. Not in the West, anyway. But that’s why I want to pull my hair out when I watch the Jackson Hole theatre. Guys, you’re not helping!

I was dumbfounded by the stultifying, excruciating more-of-the-sameness that came out of Jackson Hole. Oh my god, are we really saying that the entire FOMC decision-making process comes down to whether there’s a good jobs report on Friday? Why don’t we just inspect the entrails of a goat? Are we really still arguing about one-raise-or-two when LIBOR is now pushing 90 basis points? Was there any mention — any mention at all — of LIBOR during the entire Jackson Hole meeting? Do these people, and it’s not just the central bankers themselves but all the courtiers — the journalists, the academics, the hangers-on — do they even recognize that a world exists outside of their imaginations and theories? Answer: NO.

Yep, at first I was disappointed in them. But on reflection I became more and more disappointed in us.

See, the problem isn’t with the Fed. They’re going to do what solipsistic, magical thinking priest-kings have done for ten thousand years … more of THAT. More solipsism. More magical thinking. More 4 year old egomaniacal determination that their spell casting efforts are the ONLY thing that stand between us and utter ruin.

salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-old-magicNo, the bigger problem is with us. The bigger problem is that we cannot imagine a solution for our current economic and political problems that does not rely on greater and greater state-directed spell casting. Monetary policy spells not working? Well, golly, I guess our ONLY alternative is to try some fiscal policy spells. Really? That’s the best we can come up with? I understand that this is what the courtiers are going to say. But I expect more from the rest of us. I expect more from myself.

Look, I get it. To riff on Woody Allen’s famous joke, we need the eggs. We need a stock market that goes up, not down. We need financial asset price inflation. We need the eggs so badly that we’re willing to support the magical thinking crew and smile at their courtiers even though we think they’re totally out of touch with reality. We’ve become so used to getting our eggs delivered on time and without fail that our first, second, and third responses are to ask for more magical thinking from the incumbent priest-kings, not less.

salient-epsilon-theory-ben-hunt-magical-thinking-september-1-2016-hamiltonThis is a dangerous, myopic game. Because we will get what we ask for. We will get more magical thinking. Only it won’t come just from the status quo magicians. It will also come from the alt-priests, some of whom will represent the absolute worst impulses of humanity. There are really bad ideas lurking on the wings today — there always are — but these really bad ideas about how human society should be organized always resurface and grow more powerful at times like this. Because it’s the old magic, an old magic that the human animal is hard-wired to respond to.

Maybe we’ll get lucky. Maybe the banana plants of global growth will turn green again, and we can have a grand celebration of the particular variant of the policy spell that was coincidentally cast at the same time. That could happen. As Otto von Bismarck, the Iron Chancellor of 19th century Europe supposedly said, “there is a special providence for children, fools, and the United States of America.” Any portfolio manager with long enough tenure knows what it’s like to be bailed out by the market, and it’s a beautiful thing. Now we just need that to happen on a much larger scale.

But we should do better than just trust to luck. I’m not saying that we have to deny our human nature and stop believing in the act of spell-casting itself. I’m not (that) delusional. What I’m saying is that the more we embrace and encourage state-directed magical thinking, whether it’s of the monetary or fiscal policy sort, what we are actually doing is opening the city gates to the old evil magic and the alt-priests of fascism and totalitarianism. We don’t need the eggs that badly. What I’m saying is that we need to think less about Scottish witchcraft, a la Macbeth and James Frazer and Stanley Fischer, and more about the Scottish Enlightenment, a la David Hume and Adam Smith and Alexander Hamilton. What I’m saying is that we need to focus on empiricism and on what works in the real world, not theory and what “works” as an equation. What I’m saying is that usually the better course of state-directed action is to do less, not more, and the better course of individually-directed action is to do more, not less. What I’m saying is that the old good magic of small-l liberalism and technological innovation in the service of man rather than the replacement of man is pretty darn powerful itself, and the stories still inspire. Let’s embrace and encourage THAT as we make our way through what is still a largely inexorable world.

It matters whether or not we call things by their proper names, because the words and the spells motivate human behavior like nothing else. It matters whether or not we sleepwalk our way through our own fin de siècle, because the really bad people and the really bad ideas that periodically wreck our world can’t be wished away. It matters whether or not we become courtiers ourselves, because the courtiers always fall the farthest. The problem with magical thinking run amok and its perpetuation of a fantasy world is that sooner or later the dream of the delusional king becomes a real world nightmare for real world people. It’s time to wake up.



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Wednesday, August 31, 2016

The "Secret Sauce" of the Byzantine Empire: Stable Currency, Social Mobility

ORIGINAL LINK
How did Byzantium endure for 1,000 years after the fall of Rome?
One of my reading projects over the past year is to learn more about empires:how they are established, why they endure and why they crumble.

To this end, I've recently read seven books on a wide variety of empires. The literature on empires is vast, so this is only a tiny slice of the available books. Nonetheless I think these 7 titles offer a fairly comprehensive spectrum:

How Rome Fell: Death of a Superpower (Adrian Goldsworthy)

War and Peace and War: The Rise and Fall of Empires (Peter Turchin)

The Rise of Rome: The Making of the World's Greatest Empire (Anthony Everitt)

428 AD: An Ordinary Year at the End of the Roman Empire (Giusto Traina)

Genghis Khan and the Making of the Modern World (Jack Weatherford)

Venice: A New History (Thomas F. Madden)

Byzantium: The Surprising Life of a Medieval Empire (Judith Herrin)

I was not exposed to much history of the Byzantine Empire in high school or college, so I found the last book of particular interest, despite its dry academic style.

The Byzantine Empire, based in Constantinople (now Istanbul), began as the Eastern Roman Empire when the Roman Empire was split into East and West to facilitate defense.

In the original conception, the two halves would be jointly ruled by two emperors. But as the Western Roman Empire frayed and devolved, power shifted to the still-vibrant Eastern Roman Empire, which spoke Greek rather than Latin and was Orthodox Christian rather than Catholic.

The Byzantine (Eastern Roman) Empire endured from the western empire's fall in 476 A.D.  to 1453 A.D., when Constantinople fell to invading Turkish forces.

Thus the Byzantine Empire endured for roughly 1,000 years after the Fall of Rome (977 years, to be exact).  It was an Empire that spanned the Medieval ages, that reached its zenith around 1025 A.D., and lasted right up to the dawn of the Renaissance.
Byzantine-Empire.jpg
How did Byzantium endure for 1,000 years after the fall of Rome? There are many factors, of course, but I think these four elements are the "secret sauce" of the Eastern Roman Imperial longevity:

1. A stable currency. When the Empire devalued its currency for the first time in the 13th century, it triggered a long-lasting loss of faith in the currency. This devaluation was the beginning of the end, as the Empire never recovered its financial footing.

Lesson: you cannot devalue your way to stability, influence, power or prosperity.

2. Multiple pathways of social mobility via the church, military and civil bureaucracy. Men from poor provincial villages and towns could make their mark and rise to positions of wealth and power via joining the church or military hierarchies, or by serving ably in the Imperial bureaucracy.  Women could rise to positions of wealth and influence via marrying well.

3. Pervasive tax collection to fund defense. Empires and states were under essentially constant attack for much of this 1,000 year period of history, and the empire collected land and other taxes via a vast bureaucracy of tax records and collections. Interestingly, it is estimated that the Imperial taxes absorbed about 20% of all income--roughly the same percentage the U.S. government absorbs.

When the tax system fell into disrepair, revenues sagged and defenses almost failed.  Competent leadership restored the tax system and defenses, giving the Empire another few hundred years of life.

4. Safe trading routes and markets. The Empire provided protected sea and land routes for traders from everywhere, and Constantinople offered a vast depot for trading and manufacture. Much of the Empire's wealth and tax revenues flowed from trade, and the Empire maintained a long history of offering lucrative trade deals with allies such as Venice.

I see these dynamics as being just as critical in the present age. If a nation's currency loses value, the ladders of social mobility are broken, the tax system is corrupt and/or unfair and trade is restricted or suppressed, the nation/empire is doomed to erosion and collapse.
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The Central Banks Are Now Ready To Launch Their 'Brave New World'

ORIGINAL LINK

Submitted by Brandon Smith via Alt-Market.com,

The latest Federal Reserve meeting in Jackson Hole, Wyoming, is over and so far it would seem that the general investment world is not too happy about Janet Yellen’s statements as well as those of other Fed officials.  In fact, many people are looking for some simple clarity as to what the central bank is actually planning.

Most importantly, investors want to know why the Fed is suddenly so adamant about continued interest rate hikes in 2016.  Only a couple months ago, almost everyone (including alternative economic analysts) was arguing that the Fed would “never dare” to raise rates again so soon, and that there was no chance of a rate hike so close to the presidential elections.

Instead, investors have been greeted with surging rate-hike odds as Fed officials openly hint of another boost, probably in September.

As I have been saying for years, if you think the Fed’s motivation is to protect or prolong the U.S. economy, then you will never understand why they do the things that they do.  Only when people are willing to accept the reality that the Fed’s job is to undermine the U.S. economy can they grasp central bank behavior.

Here is the issue that scares mainstream markets — many day traders are greedy, but not necessarily dumb.  They KNOW full well that the only pillar holding up stocks at record highs has been central bank intervention.  A vital part of this intervention has been the use of near-zero interest rates.  That is to say, cheap and free overnight loans through the Fed have allowed banks and other corporations to remain “solvent,” and these loans have been the fuel companies have used for corporate buybacks of stocks.

Corporate buybacks have been a primary driver in the bull market rally that supposedly saved the world from the ongoing deflationary destruction of capital.  In 2015, buybacks reached historic levels and garnered one of the largest equities reversals in history.   While these buybacks do little or nothing to heal the economy on Main Street, they certainly do wonders for equities portfolios.  By buying up their own shares, corporations boost the value of remaining shares through a brand of legal trickery.  And, in the process, these corporations also boost the overall perceived value of global stock markets.

As Edward Swanson, author of a study from Texas A&M, noted on stock buybacks used to offset poor fundamentals:

“We can’t say for sure what would have happened without the repurchase, but it really looks like the stock would have kept going down because of the decline in fundamentals… these repurchases seem to hold up the stock price.”

Yes, to us he seems to be stating the obvious, but for the average American, a green stock market means a recovering economy.  There is no deeper question of why the markets are rallying, and this lack of understanding is dangerous for our country.

Even marginal hikes in borrowing costs will kill the party and, while people not involved in finance and stocks are oblivious, day traders know exactly what is going on.  This is the reason for the underlying panic felt by the investment world at any hint of a rate hike by the Fed.

As we saw with the limited audit of TARP, the Fed was pumping tens of trillions in overnight loans into distressed banks and companies, even foreign companies overseas.  I suggest that if a FULL audit of the Fed were ever conducted, we would find tens of trillions more in overnight loans since 2008.

Imagine for a moment if those loans never stopped.  Imagine that such loans have been an ongoing mainstay of our financial system and stock markets in general.  Now, ask yourself, what would happen if the companies reliant on these free loans suddenly had to pay interest on them?

Think about it; what would the interest cost be on a mere .5% to 1% of $16 trillion in overnight loans through TARP?  What would the cumulative cost be on all the loans banks and companies need to survive every quarter?   In the end, corporations would either drown in billions of dollars in exponential debt or they would have to stop accessing loans from the Fed.  Once the loans stop, the stock buybacks stop.  Once the buybacks stop, stock markets crumble.

Without free cash from the Fed, the bubble in stock markets will finally and thoroughly implode, crashing down to meet all other fundamentals.

Why would the central bank pull the plug on life support to stock markets?  There are multiple reasons, but a top reason is that this is the Federal Reserve’s modus operandi.  They consistently seem to raise rates into recessionary conditions that they also tend to create.  In essence, the Fed likes to acclimate and addict markets to low interest percentages, and then increase those percentages to agitate and elicit a chaotic reaction.

In my article Brexit Aftermath - Here’s What Will Happen Next, I stated:

“Really, the only safe measure the Fed can take from now on is to do nothing.  I highly doubt that they will do nothing.  In fact, even in the face of the Brexit I still believe the Fed will raise rates a second time before the end of the year.  Why?  This is what the Fed has always done as recession takes hold.  Historically, the Fed raises rates at the worst possible times.  As with the Brexit, I am going to have to take the contrary position to most analysts on this.”

What analysts out there need to understand, whether they are independent or mainstream, is that a great shift in central bank policy and attitude is coming. Christine Lagarde at the IMF calls it the “economic reset,” some Fed officials, like Atlanta Fed President Dennis Lockhart, state that central banks are entering a “brave new world.” These are highly loaded phrases that represent a drastic overhaul of the global financial system; an overhaul that is quite deliberate and inevitably destructive for certain nations and economies, including the U.S.

If we examine the policy pursuits and recently stated goals of central banks around the world, and those statements made after the Brexit referendum, we find that a process of complete global centralization is underway. This includes a push for all central banks to “coordinate policy” under a single directive.

Alternative analysts already know that all central banks are ALREADY covertly coordinated by the Bank for International Settlements.  So, when central bankers call for policy coordination in the mainstream press, what they really mean is, they want the existing coordination that is covert to become publicly accepted and celebrated.  They want that which is illegal to become legal.  That which is morally reprehensible to become morally relative.

Central bankers also want their position of authority over the global economy to become a public priority.  Ten years ago, when I asked average people what they knew about the Federal Reserve, most of them responded with confusion.  They had never heard of the institution, let alone what its function was.  Today, almost everyone knows about the Fed, but there is also an assumption attached that central banks, whether they are successful or not, are supposed to maintain economic stability.  Keep in mind that global stocks barely vibrate today until a central bank somewhere publishes a policy statement.  This is not how investment is supposed to function.  The jawboning of central banks should be mostly meaningless.

The brave new world of central banking is a plan to expand on this corrupt correlation.  That is to say, the general public and the mainstream should be questioning whether central banks should exist at all.  Instead, people are arguing over what policies are better for central banks to adapt.  The existence of central banks is considered an absolute.  The masses are only given the option to debate what faces and what hats central banks should wear.  If we get anything out of this deal, we only get to choose the form of our destructor.

I should point out also the growing trend in the mainstream media of criticism against the Fed.  This is a relatively new thing.  For the past several years the more effectively critical the alternative media became against the Fed, the louder MSM talking heads would cheerlead for the establishment.  With central bankers becoming more open about their global shift into something "different", a new program of stabbing at the Fed has been initiated.  This is not a coincidence.

As I have argued in various articles, the Fed itself may be just as sacrificial to the elites as the U.S. economy.  In the process of global centralization, the Fed would eventually have to take a back seat to the IMF, World Bank and the BIS.  It is not surprising to me in the slightest that the bought-and-paid-for mainstream media is changing gears and attacking the institution they once desperately defended.  Priorities are evolving.

I believe that with the advent of a second rate hike in 2016, many conditions will change.  The Dow and some emerging markets will no longer enjoy unmitigated support, and they will begin to fall going into the elections.  As I have mentioned many times in past articles, Donald Trump is the most likely candidate to take up residence in the White House.  Conservatives will be lulled into a temporary euphoria, happy just to have defeated she-demon Hillary Clinton, only to discover that an overall global implosion has entered a new stage.  This implosion will of course be blamed on those same conservative movements.

In the meantime, central banks around the world are going to start openly coordinating while the IMF will take up a “leadership role” in managing international policy.  Central banks will also be branching out and taking on new powers.  As suggested at Jackson Hole, many central bankers are arguing for “new tools” to fight future fiscal downturns, and no, this does not mean negative interest rates.  Instead, watch for central banks to change the definition of inflation on a whim, or adjust the relative value of currencies through agreements with other countries instead of allowing free markets to determine values, and watch for complete overhauls in how economic instability is calculated.

What we are heading for is a world in which many nations will suffer from reductions in living standards and where some first world nations will be reduced to third world conditions.  In order to normalize increased global poverty, you have to stop calling it poverty and start calling it a “brave new world.”  You have to convince the populace that the economic degradation is not a problem that can be solved — rather, it is a problem we must all adapt to and accept.

Be very wary when elites and international financiers mention “global reset,” or a “brave new world,” or a “new world order.”  What they are talking about is not a program that is in your best interest.  What they are talking about is the deliberate creation of chaos; a slow burning calamity that can be exploited to derive the benefits of even more centralization and even more power.

They will call it random.  They will call it coincidence or fate or even blame it all on their ideological opponents.  In the end, they will eventually call it a natural progression of events; a social and financial evolution.  They will call it inevitable.  None of this will be true.  There is nothing natural about a totalitarian framework — it is a machine that is carefully crafted piece by piece, maintained by the hands of a select few tyrants and fed with the labor, sacrifice and fear of the innocent.

The only solution is to expunge the parasites from our fiscal body.  These institutions and the people behind them should not exist.  Most if not all of our sociopolitical distress today could be cured if a “brave new world” meant wiping the slate clean and dispelling financial elites and central bankers into a bottomless pit.



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Tuesday, August 30, 2016

Newly Revealed Benghazi Emails Bring Hillary Clinton's Server Scandal Full Circle

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The FBI successfully recovered nearly 15,000 emails previously deleted from Hillary Clinton's private server, and we now know that at least 30 of those emails discussed the 2012 terrorist attack in Benghazi, Libya.

These newly discovered Benghazi emails will add fuel to the fire surrounding Clinton's decision to use a private email server while she was Secretary of State and could raise further questions about whether she fully cooperated with an investigation into the attack that killed four American diplomats in Libya on September 11, 2012.

Even as this revelation adds a new dimension to Clinton's ongoing email scandal, it also brings the whole investigation back to where it started. It was the congressional inquiry into Clinton's handling of the Benghazi attack that initially uncovered Clinton's use of a private email server. After being ordered to turn over the content of that private server to the committee investigating Benghazi, Clinton's lawyers hastily deleted nearly 15,000 emails and claimed they were not connected to official government business. The FBI's subsequent criminal investigation of her use of a private server while being Secretary of State resulted in some of those deleted emails being recovered via a variety of different means and, well, now here we are back at Benghazi.

The Associated Press reports that the existence of the emails was confirmed by the State Department on Tuesday in a federal court hearing. The hearing was part of an ongoing lawsuit brought by Judicial Watch, a conservative group that has filed federal Freedom of Information Act lawsuits seeking the disclosure of Clinton's emails. In response, the State Department said the FBI has turned over about 14,900 emails "purported not to have been among those previously released," the AP reported.

Previously, Clinton has told reporters and a congressional committee that all work-related emails were turned over last year—and even though these new emails may well turn out to be of a personal nature, it's hard to believe that any discussion by a sitting Secretary of State about a terrorist attack on a U.S. consulate would be completely non-work-related. The text of the emails will not be released for at least another month, while the Department of State reviews and redacts them, according to the AP.

This isn't the first time questions have been raised about whether Clinton actually turned over all the relevent emails from her work at the State Department. In June, the Wall Street Journal reported on a 2010 email exchange between Clinton and Huma Abedin, her top aide, in which the secretary worried about her personal email becoming accessible to the public. That exchange was included in the State Department Inspector General's report on Clinton's email use but it was absent from the files turned over to the FBI and released to the public—a sign that was "raising questions about the thoroughness of her disclosures to the government and her record-keeping practices as secretary of state," the paper said.

Those questions will be raised again in the wake of Tuesday's disclosure—more loudly, one would expect, since the public has more awareness of the Benghazi attack than it does about internal State Department IT policies.

Clinton was cleared of any criminal wrongdoing in July by FBI Director James Comey, though he said she was "extremely careless" in handling important government information. It's too soon to know whether the content of those 30 emails (or any others) will bolster a potential perjury case against Clinton.

Even if there are no additional legal repercussions for Clinton, the very existance of these deleted Benghazi emails could hurt her politically by giving voters another reason to distrust the Democratic nominee.

"Clinton swore before a federal court and told the American people she handed over all of her work-related emails. If Clinton did not consider emails about something as important as Benghazi to be work-related, one has to wonder what is contained in the other emails she attempted to wipe from her server," said Jason Miller, a spokesman for Donald Trump's presidential campaign, in a statement.

As of Tuesday afternoon, Clinton's campaign has not commented on the discovery of the Benghazi emails.

Having Benghazi back in the news is bad for Clinton on another front, too, though the Trump campaign may not be deft enough to exploit it.

On top of her handling (or mishandling) of the Benghazi incident, Clinton should face tougher questions over her decision while Secretary of State to push the Obama administration into attacking Libya—a move that has left the country in turmoil and potentially turned it into a breeding ground for terrorism. Obama has admitted that the Libyan intervention was a mistake, but Clinton has not given any indication that she would approach foreign affairs any differently as a result of lessons learned there.



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