He Said That? 8/24/16

From Dmitry Orlov, “A Thousand Balls of Flame“:

None of these justifications works vis-à-vis Russia. In dollar terms, the US outspends Russia on defense hands down. However, viewed in terms of purchasing parity, Russia manages to buy as much as ten times more defensive capability per unit national wealth than the US, largely negating this advantage. Also, what the US gets for its money is inferior: the Russian military gets the weapons it wants; the US military gets what the corrupt political establishment and their accomplices in the military-industrial complex want in order to enrich themselves. In terms of being an advertising campaign for weapons sales, watching Russian weaponry in action in Syria, effectively wiping out terrorists in short order through a relentless bombing campaign using scant resources, then seeing US weaponry used by the Saudis in Yemen, with much support and advice from the US, being continuously defeated by lightly armed insurgents, is unlikely to generate too many additional sales leads. Lastly, the project of maintaining US global hegemony seems to be on the rocks as well. Russia and China are now in a de facto military union. Russia’s superior weaponry, coupled with China’s almost infinitely huge infantry, make it an undefeatable combination. Russia now has a permanent air base in Syria, has made a deal with Iran to use Iranian military bases, and is in the process of prying Turkey away from NATO. As the US military, with its numerous useless bases around the world and piles of useless gadgets, turns into an international embarrassment, it remains, for the time being, a public jobs program for employing incompetents, and a rich source of graft.

This is What’s Wrong with US Oil, by Wolf Richter

The oil glut keeps growing, notwithstanding a widespread expectation that it will start to shrink. From Wolf Richter at wolfstreet.com:

It usually comes in small-sounding and unlarming increments. But add up enough of these increments, and pretty soon you have some real numbers.

Today was another one of those, and it hit a huge milestone. The Energy Information Administration released its new set of weekly petroleum data, including inventories. During the week ending August 19, US crude oil inventories rose by 2.5 million barrels to 523.6 million barrels.

Oil bulls weren’t tickled: West Texas Intermediate fell 2.8%, settling at $45.77.

This rise was, once again, “unexpected,” as the media put it. Analysts had expected a drop of 0.5 million barrels. This is after all the time of the year – driving season – when oil stocks are supposed to drop. The data “revived worries about the supply glut,” according to the media.

Alas, the supply glut has been getting relentlessly worse and worse and worse for two years. It has just shifted around some, with refiners trying to wind their way through it the best they can.

Soothsayers out there have been prophesying time and again, for over a year, that very soon, in fact next week, the supply glut will start to unwind; that production in the US is already coming down sharply, that demand is up, or whatever….

In the end, a glut comes down to whether inventories are rising, particularly during a time of the year when they’re supposed to be falling (glut gets worse), or whether they’re falling (glut stabilizes or abates).

It’s not just crude oil, but also the products that crude oil gets refined into for eventual use. And these stocks of petroleum products have been a doozie, particularly gasoline.

Gasoline stocks were essentially unchanged for the week, at 232.7 million barrels, a record for this time of the year, and up 8.5% from the already elevated inventory levels last year. This chart from the EIA shows the magnitude of the gasoline glut:

Distillate fuels rose by 200,000 barrels to 153.3 million barrels. And “all other oils” jumped by a total of 3.9 million barrels to 490.6 million barrels.

So total petroleum products stocks rose by 6.6 million barrels during the week, or 0.5%. Once again, this small-ish number, but over the period of the oil bust, total petroleum products stocks have soared by 30% and now exceed for the first time ever another huge milestone: 1.4 billion barrels.

This chart shows what a truly relentless glut looks like:

Note how, right after the Financial Crisis, petroleum products stocks began to rise and remained elevated over the years even as demand in the US was still languishing, hampered in part by the $100 price tag per barrel of oil. It was the perfect setup for the oil bust, when prices began to collapse in the summer of 2014.

It’s not often that a glut forms a line in a chart where inventories shoot skyward for two years straight. Normally, something happens along the way: prices crash, companies get in trouble, the money dries up, and production plunges. At the same time, demand, stimulated by the crashed prices, picks up. And gradually the glut unwinds.

To continue reading: This is What’s Wrong with US Oil

A Date Which Will Live in Infamy, by Antonius Aquinas

The world changed dramatically for the worse when President Nixon closed the gold window—the ability of foreign governments to redeem their US dollars for gold. From Antonius Aquinas at acting-man-com:

President Nixon’s Decision to Abandon the Gold Standard

Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.” Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.

Nixon points out where numerous evil speculators were suspected to be hiding. No, wait… actually, Nixon points to the black hole that has swallowed countless lives and a great deal of treasure under his and his predecessor’s watch – ultimately leading to the US default on the Bretton Woods gold exchange standard. Photo credit: Richard Nixon Presidential Library

On August 15, 1971 in a televised address to the nation outlining a new economic policy entitled, “The Challenge of Peace,” Nixon instructed the Treasury Department “to take the action necessary to defend the dollar against speculators.”*

Nixon continued:

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interests of monetary stability and in the best interests of the United States.”**

Of course, any objective student of history knows that this was a lie and that it was not “speculators” which were causing monetary instability, but the U.S.’s own crazed inflationary policy which attempted to fund its imperialistic endeavor in Vietnam while expanding the welfare state at home.

This resulted in the Treasury losing an alarmingly amount of gold reserves to other central banks who rightly sought real value in exchange for depreciated American greenbacks.

The televised announcement of the gold default, with Nixon telling blatant lies to defend the decision, in addition to lying about its “temporary” status while revealing his economic illiteracy at the same time, all in the space of a mere four minutes.

In essence, Nixon’s decision ended gold redemption and placed the U.S. and the rest of the world on a purely fiat paper standard for the first time in recorded history. By doing so, the U.S., in effect, became a deadbeat nation which no longer honored its obligations and was set on the road to its current banana republic status.

Instead of impeachment proceedings and his ultimate resignation for the juvenile break in at the headquarters of the nation’s other ruling crime syndicate, Nixon should have been imprisoned for this deliberate and destructive act which has led, in large measure, to the nation’s crushing and insurmountable debt burden, reoccurring booms and busts, and now economic stagnation.

To continue reading: A Date Which Will Live in Infamy

 

The Blessing of Cash, by Joseph T. Salerno

The government wants to trap your money, and cash is a hindrance and a nuisance. From Joseph T. Salerno at mises.org via lewrockwell.com:

Starting today, the Royal Bank of Scotland will become the first bank in the U.K. to impose a negative interest rate on depositors. The negative rate will apply only to corporate customers, including mutual fund managers and pension funds, holding deposits of certain foreign currencies including euros. This means that RBS—in which the U.K. government still maintains a majority ownership stake since its 2008 bailout—will actually charge these customers to “borrow” their deposits. A few weeks ago, RBS notified more than one million small-business customers that they could also be charged for deposits if the Bank of England lowered the target interest rate, which now stands at .25%, into negative territory. Experts are warning that the latest move by RBS would “set alarm bells ringing” among small businesses and ordinary customers. The stage is set for a glorious and long overdue old-fashioned bank run if the BOE ventures to push rates into negative territory.

Meanwhile in the eurozone, since the ECB rate cut the interest rate in March to minus 0.4%, banks have paid a total of about 2.64 billion euros to keep their funds on deposit at the eurozone’s 19 central banks. With European central bankers threatening further rate cuts, private financial institutions are exploring the feasibility of circumventing the charges by converting central bank electronic deposit credits into cash and storing it in nonbank facilities. The German insurance company Munich Re is reportedly already storing tens of millions of euros at “a manageable cost,” and Commerzbank, Germany’s second-biggest lender, is considering a similar option.

Of course, any significant movement to convert bank reserves into cash would undermine the goal of central bank rate cutting because the cost of holding bank reserves in cold hard cash would not respond to a change in interest rates, short-circuiting central bank efforts to stimulate further bank lending. More significant, if the movement to convert deposits into cash spreads to the nonbank public, it would bring down the fractional-reserve banking system in short order. And herein lies the real reason why prominent establishment economists are now leading the charge in the War on Cash. By abolishing cash, they seek to lock everyone’s money holdings into the fractional-reserve banking system and make the system completely run-proof for all time. This would preserve and strengthen the so-called “transmission mechanism” of monetary policy, whose central element is fractional-reserve bank lending, which creates new deposits out of thin air.

Not coincidentally, Harvard and former IMF economist Kenneth Rogoff has just published a book a few days ago bearing the lurid title The Curse of Cash. The book garners effusive praise in back-cover endorsements from leading professional economists such as Ben Bernanke, Alan Blinder, and Michael Woodford. Rogoff reportedly calls for the abolition of all cash, not merely large-denomination notes. While admitting that cash has some advantages, Rogoff makes the sensational claim that the bulk of the $1.4 trillion of US currency in circulation is used to facilitate tax evasion and to finance illegal activities like human trafficking and terrorism. Oh yes—Rogoff also argues that a cashless economy would make monetary policy more efficient by preventing savers from hoarding cash whenever central bankers—advised by sage macroeconomists like Rogoff—decide that the “natural” or optimal rate of interest for the economy has become deeply negative.

Cash is an unambiguously a blessing to productive workers, savers, and entrepreneurs who wish to protect their hard earned money from the crazed theories and swindling schemes promoted by statists like Rogoff and the central bankers he advises.

https://www.lewrockwell.com/2016/08/joseph-salerno/cash-blessing/

Illinois governor’s office warns of crippling pension payment hike, by Davd McKinney and Karen Pierog

If Illinois decides to use a more realistic rate of return assumption for its biggest public pension fund, it will blow a much bigger hole in it’s already problematic budget. From Dave McKinney and Karen Pierog at reuters.com:

Potential action this week by Illinois’ biggest public pension fund could put a big dent in the state’s already fragile finances, Governor Bruce Rauner’s administration warned.

A Monday memo from a top Rauner aide said the Teachers’ Retirement System (TRS) board could decide at its meeting this week to lower the assumed investment return rate, a move that would automatically boost Illinois’ annual pension payment.

“If the (TRS) board were to approve a lower assumed rate of return taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services,” Michael Mahoney, Rauner’s senior advisor for revenue and pensions, wrote to the governor’s chief of staff, Richard Goldberg.

When TRS lowered the investment return rate to 7.5 percent from 8 percent in 2014 the state’s pension payment increased by more than $200 million, according to the memo.

Illinois’ fiscal 2017 pension payment to its five retirement systems was estimated at $7.9 billion, up from $7.617 billion in fiscal 2016 and $6.9 billion in fiscal 2015, according to a March report by a bipartisan legislative commission.

The country’s fifth-largest state’s unfunded pension liability stood at $111 billion at the end of fiscal 2015, with TRS accounting for more than 55 percent of that gap. The funded ratio was a weak 41.9 percent.

An impasse between the Republican governor and Democrats who control the legislature left Illinois as the only state without a complete 2016 budget. A six-month fiscal 2017 spending plan was passed in June.

Mahoney cautioned that “unforeseen and unknown automatic cost increases would have a devastating impact” on Illinois’ ability to fund social services and education.

One of Rauner’s top Republican legislative allies, Senate Minority Leader Christine Radogno, urged the TRS board to delay a vote Friday to give the public time to weigh in on its possible actions.

“This issue is important enough at the very least to put the TRS board on notice we don’t want them taking any action that could cost taxpayers $200 to $300 million without appropriate scrutiny,” she said.

TRS spokesman Dave Urbanek said the pension system was not aware of Mahoney’s memo until Tuesday and that Rauner’s office had requested “information about the scenarios under consideration.”

He added TRS did not offer “potential scenarios” either to the governor’s office or legislative leaders and noted the TRS board has not yet discussed the matter.

http://www.reuters.com/article/us-illinois-pensions-idUSKCN10Y28Z

 

The Foreign Invasion of American Politics, by Justin Raimondo

The US military-industrial-intelligence complex aren’t the only ones worried about Donald Trump. It turns out so are many of our so-called friends who we’ve been subsidizing. From Justin Raimondo at antiwar.com:

As one of my Twitter followers put it so succinctly: “Globalization: Where leaders from any country get to pick US Presidents.” As the Clinton campaign’s Robby Mook tears a page out of Joe McCarthy’s book and smears Donald Trump as being “Putin’s puppet,” the irony is that this election has seen foreign interference in American politics to an unprecedented degree – on Hillary’s behalf.

In the past, foreign actors tried to hide such activities, rightly thinking that they might encounter resentment – or even legal consequences – for trying to meddle in affairs that are none of their damned business. Not anymore. Now that we’re a global empire, with our leaders proclaiming the supreme importance of exercising “US leadership” and sticking our noses in every petty squabble on earth, our client states are openly interfering in our internal affairs. After all, if we can engage in “regime change” campaigns, and dictate the terms and results of Lower Slobbovia’s elections, why can’t they interfere in ours? To this end they employ legions of publicists, lobbyists, and tame congressmen to pursue their national interests, mostly at our expense: the billions in “foreign aid” we ship overseas come back to our shores in the form of exorbitant fees paid to PR firms – a rare trade deal where American firms actually come out ahead!

Most of this is relatively subtle, and covert – or, at least, it has been up to now. However, the Trump phenomenon has changed the rules of the game, and foreign actors are now openly coming out of the closet – so to speak – and brazenly attacking the GOP candidate. I can’t recall a presidential contest where a foreign ambassador has written an op-ed piece attacking one of the candidates, but this election season has Ukraine’s ambassador to the US, Valeriy Chaly, publishing a piece in the Ukrainian Weekly echoing the Mookarthyite charge that Trump is the Manchurian candidate. Trump’s comments on the Ukraine issue “have raised serious concerns,” we are told, as Chaly goes on to write that:

“Since the Russian aggression, there has been bipartisan support for U.S. sanctions against Russia, and for such sanctions to remain in place until the territorial integrity of Ukraine is restored. Efforts to enhance Ukraine’s defense capacity are supported across the aisle, as well, to ensure that Ukraine becomes strong enough to deter Russia’s aggression.

“Even if Mr. Trump’s comments are only speculative, and do not really reflect a future foreign policy, they call for appeasement of an aggressor and support the violation of a sovereign country’s territorial integrity and another’s breach of international law.”

Chaly doesn’t get it, but that’s not surprising – he’s a foreigner, after all. Trump doesn’t care about the “bipartisan” consensus that has ruled Washington and mandated US intervention in every two-bit border dispute. The whole point of the Trump campaign, and the reason for his overwhelming victory in the primaries, is that the bipartisan internationalism of the past is over, finished, kaput. Trump isn’t buying into the new cold war hysteria being drummed up by the political class: he has said he wants to get along with the Russians, and for that the Mookarthyites in the Democratic party and their journalistic camarilla are up in arms. Well, let them rant and rave all they want: the American people couldn’t give a sh*t about Ukraine – a ramshackle “nation” of corrupt oligarchs, neo-Nazi skinheads, and a national “cuisine” consisting of greasy dumplings and sour cabbage – and if that be “isolationism,” let Hillary Clinton and her neocon allies make the most of it.

To continue reading: The Foreign Invasion of American Politics

Media Worried Too Many Americans Will Question Legitimacy of 2016 Election, by Nick Bernabe

The media’s biggest concern is that many Americans are questioning the legitimacy of the media. From Nick Bernabe at theantimedia.org:

2016 is the year many, many Americans began to question whether or not our elections, and to a lesser extent, our democracy (insert “it’s a constitutional republic, big difference!” here) are rigged. As I’ve argued many times in the past year, there is plenty of evidence suggesting these skeptical Americans are, indeed, onto something with their suspicions.

But the corporate media has come out in defense of America’s “democracy” — and political elites are defending the system, too. In the wake of Trump’s recent rhetoric regarding the “rigged” system, the ruling class of the United States is peddling the fiction that somehow Trump’s irresponsible sensationalism is solely to blame for the newfound feelings of illegitimacy plaguing our elections.
Take, for example, Monday’s POLITICO piece entitled “What if Trump won’t accept defeat?”:

“Trump’s [rigged election] words are having an effect. Just 38 percent of Trump supporters believe their votes will be counted accurately, and only 49 percent of all registered voters are ‘very confident’ their votes will be tabulated without error, according to a Pew Research survey last week.”

You see, according to the corporate media, the only reason Americans think their elections are rigged in one way or another is because Trump said so. It has nothing to do with the explosive DNC email leaks that showed the Democrats manipulated the corporate media in favor of Hillary Clinton. It has nothing to do with superdelegates who get to override the voters. It has nothing to do with the Republican establishment choosing to shut down Colorado’s primary, handing all the delegates to Ted Cruz. It has nothing to do with now-former DNC chairwoman Debbie Wasserman Schultz admitting the role of superdelegates is to fend off grassroots political challengers. It also must have nothing to do with an RNC committee member openly wondering why the Republican Party has primary elections to begin with since the party chooses the nominee anyway — not the voters. That makes sense, right?

And while Bernie Sanders fades into the matrix with his endorsement of Hillary Clinton and recent decision to hit the campaign trail for her, many of his supporters feel the same way Trump supporters feel. The Democratic primary was rife with inconsistencies, voter suppression, and suspect voting machines — all of which have culminated into several high-profile lawsuits alleging wrongdoing by the DNC. Coincidentally, Shawn Lucas, the man who was spearheading one of the lawsuits, was recently found dead on his bathroom floor. But this is all Trump’s fault, right? Or maybe Russia’s?

But rest assured, as POLITICO notes, even though voting inconsistencies became famous in the 2000 Bush v. Gore presidential election, Gore was a good boy and didn’t bother questioning the findings. He did the right thing and conceded defeat despite vocal cries from his ardent supporters that he contest the election.

What’s interesting is that according to the Emmy-nominated HBO documentary Hacking Democracy, which followed the trail of investigators in Florida in an attempt to get to the bottom of the voter inconsistencies, the Gore campaign was made aware of verifiable issues with the vote counts but still encouraged the investigators to drop their cause and shut up. They were silenced by the candidate they were trying to help. This is what Trump should do if there are any questionable results in November, POLITICO suggests.

To continue reading: Media Worried Too Many Americans Will Question Legitimacy of 2016 Election