China Is Crashing and Greece Is Spinning Out of Control

Reading Time: 2 minutes

The world is even more fragile than it was in 2007. The big banks are bigger. Aggregate bank assets are concentrated in fewer hands. The bank derivatives books are much larger. Market liquidity is worse.

James Rickards, The Daily Reckoning

Well, ain’t that just dandy?

And it’s undeniably true. We were told that the 2008 financial meltdown was caused by entities that had grown too large: banks, insurance companies, corporations, derivitives. They’d grown too big to survive and too big to fail.

Their investors and lenders were wealthy and connected. They used their connections to nudge politicians to transfer their losses from private companies and individuals to government balance sheets. Governments, after all, can collect debts at the point of a gun while private companies are limited to annoying debt collection calls.

To cover their tracks, politicians passed ridiculous laws written by the very failed business people who caused the problem in the first place: big banks, Wall Streeters.

And the result has been predictable. As James Rickards reminds us:

  • The big banks are bigger
  • Bank assets are concentrated in fewer, more powerful hands
  • Derivitives are bigger and more opaque
  • Liquidity is worse
  • And the central banksters are out of ammunition

Obama’s State Department is busy giving away the farm to Iran in pursuit of a “legacy.” But Obama’s legacy will be this: he left the world less stable, less democratic, less equal, and less optimistic than he found it.

We have a hell of a mess to clean up. It will likely consume the rest of our lives. At least, the rest of the lives of Boomers and Gen Xers. Millinnials may enjoy a brighter future after the storm.

Left vs. right, liberal vs. conservative, Democrat vs. Republican are all false dichotomies.The real fight today is Elites vs. Us.

China is crashing.

Greece is out of control.

Buckle up. We live in a world more fragile than it’s ever been. And fragile things break.

There are so many fragile things, after all. People break so easily, and so do dreams and hearts.

― Neil Gaiman, Fragile Things: Short Fictions and Wonders

Feature image by djoe clipped from http://djoe.deviantart.com/art/Human-fragility-21891471

The Masque of the Red Death – American Style

Reading Time: 4 minutes

The “Red Death” had long devastated the country. No pestilence had ever been so fatal, or so hideous. Blood was its Avatar and its seal—the redness and the horror of blood. There were sharp pains, and sudden dizziness, and then profuse bleeding at the pores, with dissolution. The scarlet stains upon the body and especially upon the face of the victim, were the pest ban which shut him out from the aid and from the sympathy of his fellow-men.

—Edgar Allen Poe, The Masque of the Red Death

We’re facing a different kind of death—economic death. Self-determination death. Self-ownership death. The world seems to be going up in flames. Ukraine vs. Russia. Syria’s brutal Assad vs. al Qaeda. China vs. Japan and Vietnam. The United States vs. Everyone.

 

But mostly, the political dichotomy here and around the world is the elites vs. the plebeians.

Martin Armstrong (via ZeroHedge.com):

The Guardian reported that some 50,000 people marched in London to protest against austerity. They cried: “Who is really responsible for the mess this country is in? Is it the Polish fruit pickers or the Nigerian nurses? Or is it the bankers who plunged it into economic disaster – or the tax avoiders? It is selective anger.”

In the United States, both the federal government and the states have lost control of our borders. I don’t mean this as hyperbole, as many have over the years. There are literally thousands of destitute children taking over the border states of the US, and no one can stop it. No one. These refugees bring with them disease, poverty, and ignorance. And the President has no clue what to do.

Meanwhile, the world’s economies are facades hiding an empty bank managed by champagne-bathing, corrupt bankers. Congress and the White House and the press and the Fed keep the mask in place.

Yet we all know, deep down, the mask is slipping. Gravity drags the mask down. The banksters sweat a bit more, lubricating the mask and assisting gravity.

And yet on Wall Street the band plays on. The worse the economic news, the higher the market goes. From ZeroHedge.com on Friday:

It was a busy week… Shittiest GDP print in 5 years, dismal consumption data, and European confidence and PMIs plunge (and Japanese macro data just collapsed)

  • JPY’s biggest gain in 14 weeks
  • 10Y Yield’s biggest drop in 6 weeks
  • USD Index worst week in 14 weeks
  • European stock’s worst week in 14 weeks

“Most Shorted” stocks continue to surge back to what looks like a great double top forming (7th week in a row)…

And the market responded with panic-buying to close Friday in the green.

Back to Poe:

But the Prince Prospero was happy and dauntless and sagacious. When his dominions were half depopulated, he summoned to his presence a thousand hale and light-hearted friends from among the knights and dames of his court, and with these retired to the deep seclusion of one of his castellated abbeys.

—Edgar Allen Poe, The Masque of the Red Death

Did he call these people to warn them? To prepare? To train them in the medical arts?

Of course not. He told them buy stocks.

It was towards the close of the fifth or sixth month of his seclusion, and while the pestilence raged most furiously abroad, that the Prince Prospero entertained his thousand friends at a masked ball of the most unusual magnificence.

—Edgar Allen Poe, The Masque of the Red Death

Maybe Edgar Allen Poe saw 2014 coming. And maybe Martin Armstrong sees what lies ahead.

The solutions from politics will always be the same – grab more power. We are in a downward spiral of liberty and how far we go down this path to the future will be determined by the people and if they at least wise up and see this is not class warfare, it is the people against government. This is why I say career politicians are dangerous for they can be bought way too easily as Clinton was to open the flood gates for the bankers.

This is why I now write about the new political dichotomy and what we can about it. And why I’ve lost faith in the GOP’s ability or willingness to stop the red death.

In Virginia, people did wise up–enough to jettison Eric Cantor, who will now work with massive corporations and TBTF banksters and their PACs to destroy David Brat. The GOP Establishment doesn’t want just any Republican economics professor to win—they want their candidates to win. As Mitch McConnell told us, the Republican Party’s only purpose now is to crush the tea party.

A couple of nights ago, I was in my garage putting tools away. A wicked looking black spider ran across the floor right in front of me. We have a Black Widow problem, so I didn’t bother to get the details of this bug. I stepped on it. Then I felt my body shiver as if the temperature had dropped to -5. The spider popped and hundreds of tiny, miniature versions of the spider scurried out from under my topsider. I killed the one and unleashed hundreds. (Others have experienced this freaky phenomenon.)

Maybe the GOP will succeed in crushing the tea party. But we’re like that black spider. Crush one and hundreds run from your shoe.

Let’s hope it’s tea partiers. Here’s Martin Armstrong’s depressing close:

This is not going to end pretty. The question is when does society wake up? Just how high will this price be that we have to pay? They will blame the rich and the idiots will cheer – get them. What will happen when there is no more wealth to hunt? We end up with a communist state by default – no wealth, just career politicians who blame everyone but themselves.

I’m sure my elephant-hat-wearing Republican friends are unhappy with my recent turn toward independence. But saving the Republican Party isn’t my mission. I’m trying to save self-governance. I’m trying to save self-determination. I’m trying to avoid totalitarianism and fascism. I’m trying to destroy the Red Death before it destroys us. And the GOP isn’t helping just now.

And now was acknowledged the presence of the Red Death. He had come like a thief in the night. And one by one dropped the revellers in the blood-bedewed halls of their revel, and died each in the despairing posture of his fall. And the life of the ebony clock went out with that of the last of the gay. And the flames of the tripods expired. And Darkness and Decay and the Red Death held illimitable dominion over all.

—Edgar Allen Poe, The Masque of the Red Death

Tomorrow I plan to profile some candidates you haven’t heard of. You haven’t heard of them because they don’t represent an establishment party. When you vote, I want you to know your choices, not just the choices your establishment overlords want you to know.

What Will Putin Do?

Reading Time: 5 minutes

Ask yourself this: why did the stock markets rally today after Obama announced sanctions against Russians? I’ll get back to that, but first some background.

I’ve often said that Putin plays chess while Obama fumbles with checkers. I picture our president, chin resting on fist, brows squeezed in childlike concentration, as he carefully chooses between jumping Putin’s piece to end the game or getting another of his pieces “kinged.”

Of course, Obama goes for the kingship.

But my chess-checkers analogy misses a key ingredient: empathy. America’s political class doesn’t understand a key Russian strategic trait.

Money, Money, Money

Money rules the West. Central bankers dominate every decision in the United States. The single goal of Fed policy is to push up stocks. It doesn’t care about profits, employment, interest, or inflation. It cares about the S&P 500.

Fed policy makers, and their enablers in Washington, also take an classical economics view of people. They missed out on the science of behavioral economics. They believe everyone, everywhere decides solely on the basis of economic self-interest.

Sure, Yellen-Bernanke has played The Ultimatum Game. It found the game amusing, like a parlor trick. Yellen-Bernanke sees no connection between the game and real-life, though. It believes people  always choose economic gain for themselves. The Yellen-Bernanke believes Putin and the Russians will always choose the option that gives Russia an economic gain.

Yellen-Bernanke is wrong.

Russians Think Longer Than Money

According to STATFOR founder George Friedman, Russians think in 20-year cycles, just like generational historians William Strauss and Neil Howe. But I’ve observed a key difference between Americans and Russians. This observation leads me to believe that US sanctions won’t bother Putin.

Something struck me about the batch of Russian software engineers my company imported in the late 1990s. Unlike American engineers, the Russian engineers had deep interest in the humanities and art.

For example, I know several software engineers who graduated from Washington University. They took not a single class in English, History, or any other non-engineering subject. They were, like Yellen-Bernanke, pure numbers people. Engineering, to the Americans, seemed like a religion.

The Russians, on the other hand, seemed to treat engineering like a trade to support their real loves. One Russian engineer I knew was a published poet in Russia. Another had recorded an album of original music. A younger Russian coder was an accomplished painter. The Russians’ parties were full of vodka and music. And the tobacco smoke was filled with air.

Not all US engineers are blind to the humanities, of course. Many engineers I know buck the trend. But put 100 US engineers in a room with 100 Russian engineers, and the Russians will dominate the humanities and arts. At least, that’s been my experience.

I admit my example represents a small sample size. Still, I came away from that experience with a strong sense of difference between Russian and American engineers. Russian engineers empathize with human beings in a way American engineers tend to avoid. Let’s call it an empathy gap.

This empathy gap showed itself in software design. The Americans favored efficient algorithms and complex UIs that would give expert users maximum control. The Russians favored usability and user experience that gave the user maximum pleasure and convenience. More importantly, this empathy gap leads Russians to observe people for who they are, and it leads Americans to see people as mirror images of themselves. 

As Russia embarks on a mission to re-establish  its Warsaw Pact buffer and to extend  its sphere of influence, American strategists expect that Putin will think like an American bankster. I expect Putin will think like a Russian.

So What Will Russia Do?

First, let’s look at history. What’s Russia’s famous war strategy to repel invasions? Come on, you know the phrase.

Scorched Earth.

Russia sustains unimaginable damage when foreigners invade. Think of Muhammad Ali’s Rope-a-Dope. Russia hunkers down and lets its enemy punch itself out.

Russia will employ that strategy again, only this time the invasion and counter might not be military. Russia could adopt a scorched economy strategy.

Last week, a record $104 billion of foreign-owned US Treasuries was moved out of Fed custodianship. Some people jumped to the conclusion that Russia was dumping US Treasuries. But Russia did not sell the debt. She simply took it under her control.

The Econs explained that Russia wouldn’t dump Treasuries because doing so would hurt Russia more than it hurts the West. Those Econs were thinking like an American, not like a Russian. Russians will sustain damage in the short run for a win in the long run. And their long run is 20 years, while the American long run is the next fiscal quarter. The next election, at most.

While the Fed could easily buy up $100 billion in dumped treasuries, the Fed would have trouble absorbing $100 billion from Russia and, say, $500 billion from China. And if Russians think in 20-year cycles, Chinese think in 200-year cycles.

So I expect Russia will use its growing coziness with China to dangle the threat of dumping Treasuries over the West’s head. And it will scare the US Chamber of Commerce and the Banksters enough to limit Obama’s potential moves.

After Crimea and Ukraine

While the US and allies apply incremental sanctions against Russia, Russian tanks continue to roll. The Putin Doctrine says that whenever Russian-speaking peoples ask for help, Russia has the right to intervene. In other words, Putin has granted himself the right to take any land inhabited by ethnic Russians. Maybe even people who’ve reached Level 3 in Rosetta Stone’s Russian courses, who knows?

We all know Putin couldn’t care less about ethnic Russians. Putin cares about re-establishing Russia’s Cold War buffer zones in Europe, the Caucasses, and Asia. Pockets of ethnic Russians in those areas give Putin cover for invasion.

STRATFOR’s George Friedman on Ukraine:

A second, more worrying effect of the competition between the West and Russia over Ukraine extends beyond Ukrainian borders. As competition over the fate of Ukraine has escalated, it has also intensified Western-Russian competition elsewhere in the region.

Georgia and Moldova, two former Soviet countries that have sought stronger ties with the West, have accelerated their attempts to further integrate with the European Union — and in Georgia’s case, with NATO. On the other hand, countries such as Belarus and Armenia have sought to strengthen their economic and security ties with Russia. Countries already strongly integrated with the West like the Baltics are glad to see Western powers stand up to Russia, but meanwhile they know that they could be the next in line in the struggle between Russia and the West. Russia could hit them economically, and Moscow could also offer what it calls protection to their sizable Russian minorities as it did in Crimea. Russia already has hinted at this in discussions to extend Russian citizenship to ethnic Russians and Russian speakers throughout the former Soviet Union.

As I wrote on Saturday, Putin believes he needs to bring Poland and Baltic States back into the Russian fold.

The question then becomes, will the West’s plodding, careful, incremental sanctions stop Putin? Or will Putin press his advantage to stay ahead of sanctions?

The Problem With a Weak President

Like it or not, the US is the only western nation with the power to frighten Russia. That power means little when wielded by a president who lacks both the political and the intellectual capital to compete with Putin.

Barack Obama may have been an ace student in his Affirmative Action class at Harvard. He doesn’t do so well in the real world, though. He failed miserably in two of three debates against Mitt Romney, only to be rescued by “moderator” Candy Crowley. Obama was outwitted by the Syrian dictator and by Iran’s regime. He looks weak and confused by the aftermath of the Arab Spring, which he personally helped engineer.

At home, Obama has little support from Democrats in Congress facing re-election. His signature legislation, Obamacare, is unpopular even with the its initial champions, young voters. In fact, the President himself is becoming increasingly unpopular among Millennials, especially the younger ones who were still watching Hannah Montana when their older siblings powered Obama’s election in 2008.

It’s Putin’s Game

So Putin’s adversary is a weakened, unpopular, lame duck President who plays geopolitics like a chicken playing checkers, as Tyler Durden put it. Obama talks tough and carries a little stick–a stick to which China, Russia, Japan, and the Millennials hold the mortgage.

Back to the question of why markets rallied on Obama’s sanctions. The banksters realized Obama’s sanctions are too weak to hurt their schemes. Obama won’t let Russian military expansionism interfere with their Fed-induced bull market.

Returning one last time to the question “What will Putin do?” I can only assume the answer: if you were Putin, and you knew Obama was hostage to the banksters who want only for the S&P to rise, what would you do?