Category Archives: Debt

Strip Mining the World, by Robert Gore

The richest vein in the history of predatory mining is just about played out.

A gigantic mine engages in every conceivable destructive practice—strip mining, heap leaching, tailings dams and ponds and so on. It pays such low wages its workers only make ends meet by borrowing from the company at usurious rates. The mine has befouled the air and poisoned the water. Many workers are chronically sick and their children are afflicted with birth defects. The mine’s absentee owners know that the mine is played out and the tailings dam is structurally unsound. They close the mine, count their profits, and move on. A month later the dam gives way. A deluge of noxious sludge inundates the town below the dam, sparing no one and rendering the area uninhabitable.

The government is a strip mining operation, plundering the dwindling residual value of a once wealthy America. Forget ostensible justifications, policy is crafted to allow those who control the government to maximize their take and put the costs on their victims, leaving devastation in their wake.

Wars are no longer about defending the country or even making the world safe for democracy. They are about appropriations, not to be won, but profitably prolonged. The Middle East and Northern Africa have been a mother lode. You would think their sixteen-year war in backward and impoverished Afghanistan would be a shameful disgrace for the military and the intelligence agencies. It’s not. They’ve milked that conflict for all its worth, and now brazenly talk about a “generational war”: many more years of more of the same.

We can also look forward to generational wars in Iraq, Syria, Libya, and Yemen. The strip miners are agitating for an Iranian foray. That’s got Into The 22nd Century written all over it, a rich, multi-generational vein, perhaps America’s first 100-year war.

The only rival for richest mother lode is medicine. Health care is around 28 percent of the federal budget, defense 21 percent. Medical spending no longer cures the sick; it’s the take for insurance, pharmaceutical, and hospital rackets. The US spends more per capita on health care than any other nation (36 percent more than second-place Switzerland) but quality of care ranks well down the list.

In education there is the same gap between per capita spending (the US ranks at or near the top) and value received, in this instance as measured by student performance. What’s paid is out of all proportion to what’s received, especially at a time when computer and communications technology should be driving down the costs of education across the board.

Indoctrination factories formerly known as schools, colleges, and universities dispense approved propaganda. For students, higher education is now on the government-sponsored installment plan. There’s a litany of excuses why Johnny, Joan, Juan, Juanita, Jamal and Jasmine can’t read, compute, or think, but lack of funding and student loans don’t wash. Education dollars fund teachers’ unions, their pensions, administrators, and edifice complexes; learning is an afterthought. This vein will play out as the pensions funds, and the governments that have swapped promises to fund them for educators’ votes, go bankrupt. Probably around the same time as the student loan bubble pops.

Money itself has become a faith-based construct, a strip mining operation jointly owned by the government, the central bank, and the banking cartel it supports. Replacing gold with paper promises, monetizing debt, interest rate suppression, inflation of the money supply and the central bank’s balance sheet, macroeconomic meddling, maintenance of a bankers’ cartel, and insider dealing within the cartel have immeasurably increased the wealth and power of the entire banking complex.

Twenty trillion dollars in debt, two-hundred-plus trillion in unfunded liabilities, and an economy that has barely cruised above stall speed for eight years are core samples indicating the mine is exhausted. The tailings dam has sprung visible leaks. However, the townspeople below the dam remain willfully oblivious to the danger.

Recognizing realty and doing something about it are hallmarks of mental toughness, once considered a virtue. Now, in various tangible and virtual sanctuaries against facts and logic, the demand is made for reality to conform to the delusions of those who refuse to confront it. In the safe space between their ears, the only danger is someone warning of danger.

Lower even than the level of mental fortitude is physical toughness. When the dam breaks, the obese, opiated, otiose endomorphs resting their girths on couches across America will have no chance of escaping the sludge, even with their motorized carts. President Kennedy christened the President’s Council on Physical Fitness to address what he saw as a soft and flabby America. Fifty years later, America is exponentially softer and flabbier—physically, intellectually, and spiritually. Most Americans are in no condition to handle the emotional and physical stresses crises will bring.

It’s viciously ironic that many of them will look to the strip miners for salvation. A captive government that has turned America into a field of rackets, its string-pullers extracting power and wealth while ordinary people have seen their incomes stagnate, their meager savings dwindle, and opportunities shrink, is somehow going to make financial and economic catastrophe all better.

In one sense Hillary Clinton’s use of the term “deplorable” was unfortunate, in that it implies that the strip miners care enough about the townspeople to deprecate them. They don’t. The townspeople have had their uses, but they’re expendable once the mine is played out. Let someone else worry about pulling them from the sludge, or just leave them buried. The strip miners chose America first because it had the richest vein, now exhausted. The strip miners will move on to other, albeit less lucrative, lodes. That is what is meant by globalization.

WHO’S EXPENDABLE?

AMAZON

KINDLE

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How the Elites Betrayed Working-Class America, by Bill Bonner

Perhaps the saddest part of the working class’s plight in America is that most don’t know how badly they’ve been betrayed by the elite. From Bill Bonner at internationalman.com:

Win-win deals get people more of what they want. Win-lose deals – usually imposed by government – bring them less. The few (the insiders) use government to exploit the many (the rest of us).

Win-lose deals also depress economic progress for everybody. Partly, this happens for an obvious reason.

Dropping the atom bomb on Hiroshima was a technical milestone, but not the kind of progress we’re talking about. Progress only makes sense if it means that people are able to get more of what they want.

By definition, when a person is forced into a bad deal, he gets less of what he wants.

Progress is also a learning process. You try something. You see what works and what doesn’t. As people experiment in this way, they learn… and the economy accumulates knowledge and wealth.

They learn to get to work in the morning, for example… to say please and thank you… to save their money… and to invest it wisely.

Win-lose deals interrupt the learning process. That’s why welfare programs fail: People get money without learning.

Temptation to Cheat

That is the real reason the Soviet Union failed, too.

Consumers were forced to buy whatever shoddy products were made available to them; producers had no way to learn how to make good ones.

Toward the end, products available for purchase in the Soviet Union were worth less than the raw materials and labor that went into them.

What do you need for win-win deals?

Three things:

1) People must be free to make choices with their time and money.

2) They must have money they can trust.

3) They must trust each other to respect their rights and property.

These things don’t happen smoothly and without interruption.

Progress is cyclical. Win-win deals add wealth and move society forward. But they depend on trust. And as trust increases, so does the temptation to cheat. When everyone leaves his liquor cabinet open, for example, who can resist having a drink?

Then trust declines. Barriers go up. Costs increase. Win-win gives way to win-lose. Progress goes into reverse.

To continue reading: How the Elites Betrayed Working-Class America

The Imperial City’s Fiscal Waterloo, by David Stockman

David Stockman lays out the impending bloodbath. From Stockman at dailyreckoning.com:

It’s all over now except the shouting about Obamacare repeal and replace, but that’s not the half of it.

The stand by Senators Lee and Moran was much bigger than putting the latest iteration of McConnell-Care out of its misery. The move rang the bell loud and clear that the Imperial City has become fiscally ungovernable.

That means there is a chamber of horrors coming. With it, an endless political and fiscal crisis that will dominate Washington for years to come. Its cause is deep and structural.

Found Fathers, Fiscal Crisis and the Washington of Today

The founders, in fact, were small government de-centralists and non-interventionists. That’s why they agreed to Madison’s contraption of redundant checks and balances.

Aside from ruthlessly ambitious Alexander Hamilton, the founders wanted a national government that was hobbled by levels of hurdles and vetoes. They wanted a government that could act sparingly and only after thorough deliberation and consensus building.

And that made sense. After all, most believed that the 10th amendment was the cornerstone of the Constitution.  Neither Washington or Jefferson envisioned the political and fiscal burdens of running an empire.

“It is our true policy to steer clear of permanent alliance with any portion of the foreign world.” That was George Washington’s Farewell Address to us.

The inaugural pledge of Thomas Jefferson was no less clear in stating, “Peace, commerce, and honest friendship with all nations-entangling alliances with none.”

So when Woodrow Wilson embarked the nation on the route of Empire in April 1917 and FDR launched the domestic interventionism of the New Deal in March 1933, the die was cast. It was only a matter of time before the disconnect between a robust Big Government and the structural infirmities of Madison’s republican contraption resulted in a deadly impasse.

The Fed has now backed itself into a corner and is out of dry powder. Even its Keynesian managers are determined to normalize and shrink a hideously bloated balance sheet. The current account has no basis in sustainable or sound finance.

The time of fiscal reckoning has come. With the financial sedative of monetization on hold, bond vigilantes will soon awaken from their 30 year slumber.

To continue reading: The Imperial City’s Fiscal Waterloo

The ECB Morphs into the Mother of All “Bad Banks”, by Don Quijones

The European banking system is still one of the prime contenders to kick off the next global financial crisis. From Don Quijones at wolfstreet.com:

More than just a few “fallen angels.”

As part of its QE operations, the ECB continues to pour billions of freshly created euros each month into corporate bonds – and sometimes when it buys bonds via “private placements” directly into some of Europe’s biggest corporations and the European subsidiaries of non-European transnationals. Its total corporate bond purchases recently passed the €100 billion threshold. And it’s growing at a rate of roughly €7 billion a month. And it’s in the process of becoming the biggest “bad bank.”

When the ECB first embarked on its corporate bond-buying scheme in March 2016, it stated that it would buy only investment-grade rated debt. But shortly after that, concerns were raised about what might happen if a name it owned was downgraded to below investment grade. A few months later a representative of the bank put such fears to rest by announcing that it “is not required to sell its holdings in the event of a downgrade” to junk, raising the prospect of it holding so-called “fallen angels.”

Now, sixteen months into the program, it turns out that the ECB has bought into 981 different corporate bond issuances, of which 34 are currently rated BB+, so non-investment grade, or junk. And 208 of the issuances are non-rated (NR). So in total, a quarter of the bond issuances it purchased are either junk or not rated (red bars):

The ECB initially said it would only buy bonds that are “rated” — and rated investment grade. Thus having a quarter of the bonds on its books either junk or not rated represents a major violation of that promise.

To continue reading: The ECB Morphs into the Mother of All “Bad Banks”

Social Security Will Be Paying Out More Than It Receives In Just Five Years, by Mac Slavo

One interesting fact: Social Security taxes have been raised more than twenty times since the program’s inception and it’s still going broke. There’s a lesson there for those who think the solution to governments’ fiscal woes is raising taxes. From Mac Slavo at shtfplan.com:

When social security was first implemented in the 1930’s, America was a very different country. Especially in regards to demographics. The average life expectancy was roughly 18 years younger than it is now, and birth rates were a bit higher than they are now. By the 1950’s, the fertility rate was twice as high as it is in the 21st century.

In other words, for the first few decades, social security seemed very sustainable. Most people would only live long enough to benefit from it for a few years, and there was an abundance of young workers who could pay into the system. Those days are long gone. As birth rates plummet and people live longer, (which otherwise should be considered a positive development) social security’s future is looking more and more bleak.

No matter how you slice it, it doesn’t seem possible to keep social security funded. In fact, social security is going to start paying out more money than it receives in just a few short years. It may even be insolvent before the baby boomer generation dies off.

According to the Social Security Board of Trustees, the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be depleted in 2034.

When this happens, only 77 percent of benefits will be payable. That estimate is no change from last year’s estimate.

In addition, the Disability Insurance trust fund will be depleted in 2028, which is an improvement from last year’s estimate of 2023. Once that fund is depleted, 93 percent of benefits will be paid.

Right now, Social Security continues to take in through revenue more than it pays it through benefits, which is expected to continue until 2022. Once Social Security begins to pay out more than it takes in, it will be forced to liquidate the assets held by the trust funds.

In 2016, Social Security generated $957 billion in income. It only paid out $922 billion including $911 billion in benefits to 61 million beneficiaries.

To continue reading: Social Security Will Be Paying Out More Than It Receives In Just Five Years

 

I read the news today, oh boy, by Raúl Ilargi Meijer

Raúl Ilargi Meijer provides a useful catalogue of today’s debt-driven financial bubbles. From Meijer at theautomaticearth.com:

Reading the news on America should scare everyone, and every day, but it doesn’t. We’re immune, largely. Take this morning. The US Republican party can’t get its healthcare plan through the Senate. And they apparently don’t want to be seen working with the Democrats on a plan either. Or is that the other way around? You’d think if these people realize they were elected to represent the interests of their voters, they could get together and hammer out a single payer plan that is cheaper than anything they’ve managed so far. But they’re all in the pockets of so many sponsors and lobbyists they can’t really move anymore, or risk growing a conscience. Or a pair.

What we’re witnessing is the demise of the American political system, in real time. We just don’t know it. Actually, we’re witnessing the downfall of the entire western system. And it turns out the media are an integral part of that system. The reason we’re seeing it happen now is that although the narratives and memes emanating from both politics and the press point to economic recovery and a future full of hope and technological solutions to all our problems, people are not buying the memes anymore. And the people are right.

Tyler Durden ran a Credit Suisse graph overnight that should give everyone a heart attack, or something in that order. It shows that nobody’s being stocks anymore, other than the companies who issue them. They use ultra-cheap leveraged loans to make it look like they’re doing fine. Instead of using the money/credit to invest in, well, anything, really. You can be a successful US/European company these days just by purchasing your own shares. How long for, you ask?

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.” What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

Why this rush by companies to buyback their own stock, and in the process artificially boost their Earning per Share? There is one very simple reason: as Reuters explained some time ago, “Stock buybacks enrich the bosses even when business sags.” And since bond investor are rushing over themselves to fund these buyback plans with “yielding” paper at a time when central banks have eliminated risk, who is to fault them.

To continue reading: I read the news today, oh boy

Fears of “Doom Loop” between Italian Banks and Government Bonds Resurface by Don Quijones

What happens when insolvent banks hold the bonds of insolvent governments? That’s a question that will soon confront Europe. From Don Quijones at wolfstreet.com:

What will Draghi do? 

After two controversial bank rescue operations that stretched Europe’s bank resolution laws beyond recognition, things are beginning to look a little less desperate for Italy’s banking sector. The initial market reaction to the interventions has been overwhelmingly positive. For the first time in years Italian banks are leading Europe’s Stoxx 600 bank Index — upwards, not downwards.

Even the recent announcement of a capital raising and bad-loan sale plan by troubled bank Banca Carige was met with enthusiasm, sending its shares up 30%.

One of the Italian banking sector’s biggest problems — its sky-high bad loan ratio — will soon be under control, claimed Bank of Italy Governor Ignazio Visco in a recent speech to the Italian banking association. The interventions in Monte dei Paschi di Siena and the two Veneto-based banks, Popolare di Vicenza and Veneto Banca, will take almost €50 billion of bad loans off their balance sheets, leaving about €275 billion in the system. Within a year Italy’s non-performing loan ratio will be down to an almost respectable 8% of total loans, Visco said.

To that end the government will create a new semi-publicly owned national asset management company (NAMC) that will help “develop the market for bad loans.” To lend the scheme legitimacy, European finance ministers rushed through approval of NAMCs for all Eurozone economies last week.

These NAMCs will vacuum up some of the nonperforming loans from bank balance sheets and sell them at a discount on the secondary market. According to Visco, the only way such a scheme would be “useful” is if it is applied on a purely voluntary basis and the assets are transferred at a price “not too far from their real economic value” — i.e. the value assigned to them by the banks. Untold billions of euros of taxpayer funds will be used to make up the difference between what market participants are willing to pay for the banks’ impaired assets and the price the banks want for them. This is the more covert part of Italy’s publicly funded bank rescue program.

To continue reading: Fears of “Doom Loop” between Italian Banks and Government Bonds Resurface