He Said That? 3/17/18

From Seneca (4 BC–AD 65),  Roman Stoic philosopher, statesman, dramatist, and—in one work—satirist of the Silver Age of Latin literature, Letters from a Stoic:

When a mind is impressionable and has none too firm a hold on what is right, it must be rescued from the crowd: it is so easy for it to go over to the majority.


If Sheep Could Vote, from The Burning Platform

Lies Can Lead To War, by Paul Craig Roberts

That the Russians don’t have much of a motive to poison a former Russian spy and his daughter hasn’t stopped the unsupported allegations that they did just that. Western governments are falling in with the British “narrative.” From Paul Craig Roberts at paulcraigroberts.org:

Notice that the governments of the US, UK, France, and Germany did not require any evidence to decide that the Russian government used military-grade nerve gas to attack two people on an English park bench and a UK policeman. It makes no sense. There is no Russian motive. http://www.informationclearinghouse.info/48963.htm

The motive lies in the West. It is the latest orchestration in the ongoing demonization of Russia. The demonization is a huge boost to the power and profit of the military/security complex and prevents President Trump from normalizing relations. The military/security’s budget and power require a major enemy, and Russia is the designated enemy and will not be allowed to escape that assigned role.

The false accusations against Russia are damaging the Western countries that make and support the accusations. There has never any evidence provided for any of the accusations. Consider them: the Malaysian airliner, Crimea, the polonium poisoning of a Russian in the UK, Putin’s alleged intention to restore the Soviet Empire, Russiagate and the stealing of the US presidential election, other charges of election theft or interference. The current Skripal poisoning. Accusations abound, but never any evidence. Eventually even insouciant Western peoples begin to wonder about the transformation of evidence-free accusations into truth.

What do leaders and peoples of the few independent and sovereign countries think when they see a signed condemnation of Russia for poisoning a long-retired UK double-agent without a scrap of evidence by the political heads of the four major Western countries? What do the Chinese think? The Iranians? The Indians? We know that the Russians are beginning to think that they are being set up by demonization for invasion, as was Saddam Hussein, Gaddafi, Assad, Yemen, and the attempt on Iran. It is finally dawning on Russia that all these accusations are not some kind of mistake that diplomacy can straighten out, but, instead, the setting up of Russia for military attack.

This is a reckless, irresponsible, and dangerous impression for the West to give Russia. Some commentators, who understand the falsity of the Skripal accusation, explain, in my view incorrectly, that UK prime minister May orchestrated the charge in order to divert attention from her Brexit difficulties. Others say, incorrectly, that it is an effort to turn the Russian election against Putin. Some have concluded that Skripal was involved in the fake “Steele dossier,” and was silenced by Western intelligence, whether UK or US.

To continue reading: Lies Can Lead To War

South Korean Report on Summit Discredits US Elites’ Assumption, by Gareth Porter

Dig enough and you soon discover the news outside the US is radically different from what’s reported within the US. Certainly the US media is either downplaying or ignoring South Korean reports that Kim Jong Un may be ready to give up North Korea’s nuclear arsenal. From Gareth Porter at antiwar.com:

Media coverage of and political reactions to Donald Trump’s announcement of a summit meeting with North Korean leader Kim Jong Un have been based on the assumption that it cannot succeed, because Kim will reject the idea of denuclearization. But the full report by South Korean president Moon Jae-in’s national security adviser on the meeting with Kim last week—covered by South Korea’s Yonhap news agency but not covered in U.S. news media—makes it clear that Kim will present Trump with a plan for complete denuclearization linked to the normalization of relations between the US and North Korea, or the Democratic People’s Republic of Korea (DPRK).

The report by Chung Eui-yong on a dinner hosted by Kim Jong UN for the 10-member South Korean delegation on March 5, said the North Korea leader had affirmed his “commitment to the denuclearization of the Korean Peninsula” and said he “would have no reason to possess nuclear weapons should the safety of its regime be guaranteed and military threats against North Korea removed.” Chung reported that Kim expressed his willingness to discuss “ways to realize the denuclearization of the peninsula and normalize [U.S.-DPRK] bilateral ties.”

But in what may be the most important finding in the report, Chung added, “What we must especially pay attention to is the fact that [Kim Jong UN] has clearly stated that the denuclearization of the Korean Peninsula was an instruction of his predecessor and that there has been no change to such an instruction.”

The South Korean national security adviser’s report directly contradicts the firmly held belief among US national security and political elites that Kim Jong UN would never give up the DPRK’s nuclear weapons. As Colin Kahl, former Pentagon official and adviser to Barack Obama, commented in response to the summit announcement, “It Is simply inconceivable that he will accept full denuclearization at this point.”

But Kahl’s dismissal of the possibility of any agreement at the summit assumes, without saying so, a continuation of the steadfast refusal of the Bush and Obama administrations for the United States to offer any incentive to North Korean in the form of a new peace treaty with North Korea and full normalization of diplomatic and economic relations.

To continue reading: South Korean Report on Summit Discredits US Elites’ Assumption


US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion, by Wolf Richter

The numbers on the US debt clock spin faster and faster. It seems like just yesterday that we hit $20 trillion. From Wolf Richter at wolfstreet.com:

These dang trillions are flying by so fast, they’re hard to see.

The US gross national debt jumped by $72.8 billion in one day, on Thursday, the Treasury Department reported Friday afternoon. This March 16 is a historic date of gloomy proportions, because on this date, the US gross national debt punched through the $21 trillion mark and reached $21.03 trillion.

Here’s the thing: On September 7, 2017, a little over six months ago, just before Congress suspended the debt ceiling, the gross national debt stood at $19.84 trillion.

In those six-plus months – 132 reporting days, to be precise – the gross national debt spiked by $1.186 trillion. I tell you, these dang trillions are flying by so fast, they’re hard to see. And we wonder: What was that? Where did it go?

Whatever it was and wherever it went, it added 6% to the gross national debt in just 6 months.

And with 2017 GDP at $19.74 trillion in current dollars, the gross national debt now amounts to 106.4% of GDP.

In the chart below, the flat spots are the various debt-ceiling periods. This is a uniquely American phenomenon when Congress forbids the Administration to borrow the money that it needs to borrow in order to spend it on the things that Congress told the Administration to spend it on via the appropriation bills. So that’s where we are, on this glorious day of March 16, 2018:

This was the largest spike in the gross national debt over a period of 132 reporting days, going back to 2011. Perhaps during the depth of the Financial Crisis, when all heck was breaking loose, and when credit was freezing up, and when millions of people lost their jobs, and when the government stopped receiving payroll deductions from them, and when capital gains turned into losses, and when corporations were drowning in red ink and not paying taxes either, in other words, when tax receipts collapsed due to the crisis, and expenditures for unemployment and other things jumped, well then the debt might have increased more sharply in a time span like this. But not since then.

To continue reading: US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion


“Where Will It Stop?”: Libor Spread Blows Out Beyond Eurocrisis Highs, Central Banks Intervention Awaited, by Tyler Durden

This article is somewhat technical, but the upshot is that key short-term interest rate spreads are climbing, which is often an indication of lurking financial stress. The OIS is the overnight indexed swap rate, and the FRA is the forward rate agreement rate, for those unfamiliar with those acronyms. From Tyler Durden at zerohedge.com:

Until two days ago, the critical level for both the Libor-OIS and FRA-OIS spread was the “psychological level” of 50bps. This, however, was breached on Wednesday when as we reported Libor pushed significantly higher without a matching move in swaps. And yet, despite the sharp push wider, both spreads remained below the peak levels observed during the European sovereign debt crisis of 2011/2012, with some speculating that open central bank swap lines at OIS+50bps would limit the move wider.

That changed this morning when the day’s 3M USD Libor fixing jumped higher for the 27th consecutive session, rising to 2.2018% from 2.1775%, and the highest since December 2008. And, as has been the case for the past two months, the move was again not matched by OIS, resulting in the Libor-OIS spread jumping to 51.4bp, surpassing the 2011/2012 highs and the widest level since May 2009.

At the same time, the FRA-OIS also spread spiked to a new multi-year high of 53.3bps, the highest in years.

Commenting on the move, NatWest Markets strategist Blake Gwinn urgent clients “don’t fade FRA/OIS’ recommendation is still in effect, but certainly on watch”, adding that the most frequently asked question this week has been “where will Libor stop?

While the clear answer – at least for now – is not here”, Gwinn repeated what we said on March 14, noting that the Fed’s central bank swap lines should “theoretically put a cap on USD funding rates” as the banks are authorized to offer terms out to three months at OIS+50bp, and also echoed BofA’s comments on the topic, noting that among the impediments are haircuts that add roughly another 10bp to the effective rate, the stigma of going to central banks for funding, and lack of availability of swap lines.

And yet, should Libor keep pushing wider, the Fed will have to notice.

To continue reading: “Where Will It Stop?”: Libor Spread Blows Out Beyond Eurocrisis Highs, Central Banks Intervention Awaited

Is The U.S. Economy Really Growing? by Peter Cook

Back out federal debt issuance, which counts as an addition to the GDP once the proceeds are spent, and the US economy is growing very little, if at all. This has been true since 2009. From Peter Cook at realinvestmentadvice.com, with one of the most analytically correct assessments of the economy SLL has seen (most economists are idiots, charlatans, or both):

“Peter Cook is the author of the ‘Is That True?’ series of articles, which help explain the many statements and theories circulating in the mainstream financial media often presented as “truths.” The motives and psychology of market participants, which drives the difference between truth and partial-truth, are explored.”

Most people are aware that GDP growth has been lower than expected in the aftermath of the Global Financial Crisis of 2008 (GFC).  For example, real GDP growth for the past decade has been closer to 1.5% than the 3% experienced in the 50 years prior to 2008.  As a result of the combination of slow economic growth and deficit spending, most people are also aware that the debt/GDP ratio has been rising.

However, what most people don’t know is that, over the past ten years, the dollar amount of cumulative government deficit spending exceeded the dollar amount of GDP growth.  Put another way, in the absence of deficit spending, GDP growth would have been less than zero for the past decade.  Could that be true?

Let’s begin with a shocking chart that confirms the statements above, and begins to answer the question.  The black line shows the difference between quarterly GDP growth and the quarterly increase in Treasury debt outstanding (TDO).  When the black line is above zero (red dotted line), the dollar amount is GDP is growing faster than the increase in TDO.  From 1971 to 2008, the amount of GDP typically grew at a faster rate than the increase in TDO, which is why the black line is generally above the red dotted line.

Chart 1

During the 1971-2008 period, inflation, budget deficits, and trade deficits varied widely, meaning that the relationship between GDP growth and TDO was stable even in the face of changes in other economic variables. Regardless of those changing economic variables, the US economy tended to grow at a pace faster than TDO for four decades.  The only interruptions to the pattern occurred during recessions of the early 1980s, early 1990s, and early 2000s when GDP fell while budget deficits did not.

The pattern of GDP growth exceeding TDO changed after 2008, which is why the black line is consistently below the red dotted line after 2008.  A change in a previously-stable relationship is known as a “regime change.”  Focusing first on 2008-2012, the increase in TDO far exceeded GDP growth, due to an unprecedented amount of deficit spending compared to historical norms.  Focusing next on 2013-2017, the blue line has been closer to the red dotted line, meaning that the dollar amount of GDP growth was roughly equal to TDO.


To continue reading: Is The U.S. Economy Really Growing?