Public Intelligence Blog

Paul Craig Roberts

The Real Economic Picture

If you have any money and you want to understand the lies that “your” government tells you with statistics, subscribe to John Williams shadowstats.com.

John Williams is the best and utterly truthful statistician that we the people have.

The charts below come from John Williams Hyperinflation Report, January 25, 2012. The commentary is supplied by me.

Here is the chart of real average weekly earnings deflated by the US government’s own measure of inflation, which as I pointed out in my recent column, Economics Lesson 1, understates true inflation.

This chart (below) shows the behavior of inflation as measured by “our” government’s official measure, CPI-U (bottom line) and John Williams measure which uses the official methodology of when I was Assistant Secretary of the US Treasury. The gap between the top and bottom lines represents the amount of money that was due to Social Security recipients and others whose income was indexed to inflation that was diverted by the government to wars, police state, and bankers’ bailouts.

This next chart shows the gains that gold and the Swiss franc have made against the US dollar. The Swiss franc is the top line and gold is the bottom. When gold and the Swiss franc rise, the dollar is falling. Notice that during President Reagan’s first term, when I was in the Treasury, gold and the Swiss franc dropped, that is, the dollar rose in purchasing power. Obviously, the supply-side policy that Reagan implemented strengthened the US dollar. It was only with the advent of the Bush policy of endless trillion dollar wars, reaffirmed by Obama, that the US dollar and economy collapsed relative to gold and hard currencies.

The recent drop in the Swiss franc is due to the Swiss government announcing that the country’s exports could not tolerate any further run up in the franc’s value, and that the Swiss central bank would print new francs to accommodate future inflows of dollars and euros. In other words, Switzerland was forced to import US inflation in order to protect its exports.

Here is nonfarm payroll employment. As you can see, the US economy has been in recession for four years despite the easiest monetary policy and largest government deficits in US history.

Here is consumer confidence. Do you see a recovery despite all the recovery hype from politicians and the financial media?

Here is housing starts. Do you see a recovery?

Here is real GDP deflated according to the methodology used when I was in the US Treasury.

Here is real retail sales deflated by the traditional, as contrasted with the current, substitution-based, measure of inflation.

These graphs courtesy of John Williams make it completely clear that there is no economic recovery. In place of recovery, we have hype from politicians, Wall Street, and the presstitute media. The “recovery” is no more real than Iraqi “weapons of mass destruction” or Iranian “nukes” or the Obama regime’s phony story of assassinating last year an undefended Osama bin Laden, allegedly the mastermind of Islamic terrorism, left by al Qaeda to the mercy of a US Seal team, a man who was widely reported to have died from renal failure in December 2001, a man who denied any responsibility for 9/11.

A government and media that will deceive you about simple things such as inflation, unemployment, and GDP growth, will lie to you about everything.

Phi Beta Iota:  Here is the paraphrase as reported previously, from Ellen Seidman, former member of the National Economic Council:

CIA reports only focus on foreign economic conditions. They don’t do domestic economic conditions and so I cannot get a strategic analysis that compares and contrasts strengths and weaknesses of the industries I am responsible for. On the other hand, Treasury, Commerce, and the Fed are terrible at the business of intelligence — they don’t know how to produce intelligence.[1]

David Isenberg

Iran well prepared for the worst

David Isenberg

31 January 2012

Most discussions of possible United States military operations in the Persian Gulf, should Iran try to prevent maritime traffic from going through the Strait of Hormuz, generally say that while it would not be a cakewalk, it would not be an enormously difficult task either.

But that conventional wisdom is wrong, according to a recent report issued by an independent, non-profit public policy research institute in Washington DC. The report found that the traditional post-Cold War US military ability to project power overseas with few serious challenges to its freedom of action may be rapidly drawing to a close.

. . . . . . .

It stressed that “a Strait of Hormuz closure could trigger a much larger price spike, including by limiting offsetting supplies from other producers in the region”.

Read full article.

Phi Beta Iota:  Two themes are emerging in the open source world.  First, the depth and breadth of Israel’s clandestine agreements with its Arab neighbors is not clearly understood–a National Intelligence Estimate is required, but the collection, processing, and analysis capabilities are simply not there, and the management will to do this as a multinational task is not there either.  Second, as the US loses its ability to actually project force, the finance of war is being replaced by the theater of war, such that oil prices can still be manipulated, but at a fraction of the blood, sweat, and tears previously mobilized – financial fraud on the cheap, as it were.

Europe:  Updates. In an interview with a French daily on 25 December, International Monetary Fund (IMF) Managing Director Christine Lagarde stressed that Europe’s financial crisis is turning into “a crisis of confidence in public debt and the solidity of the financial system.

Greece: According to an IMF source involved in discussions with Greece, the situation in Athens is “deteriorating” and “a further 10-15 billion euros ($13.1-19.6 billion) still needs to be found.” Banks may be asked to agree to write off 65 % instead of 50% of Greece’s debt.

France: The French National Institute for Statistics and Economic Studies (INSEE) said on 26 December that there were 29,000 new job seekers “without any occupation” in November, up 1.1% over October. The year-on-year increase reached 5.2%. In total, 2,844,800 people did not have any occupation, the highest such figure since November 1999.

An economist at the French Observatory of Economic Conditions speculated that France’s unemployment rate — which currently stands at 9.3% — will reach 10.7% by the end of 2012, and predicted that Paris will not succeed in bringing the deficit down to 3% of GDP by 2013.

Spain: At a news conference on 26 December, Spanish Economy Minister Luis De Guindos said that the Spanish economy had suffered a “relapse” and would record negative growth in the fourth quarter of 2011. De Guindos warned that “the next two months are not going to be easy, neither from a growth nor a jobs point of view.”

Comment: According to the Financial Times and multiple economists the fate of the euro depends on what happens in Italy. This week Italy intends to auction bonds worth Euros 20 billion. The market reaction to the auction will be an important indicator of whether the central bankers have found a way to stabilize the financial crisis, or have just made it worse.

All analysts of European economics predict a recession in 2012. They differ only about how severe it will be. In an integrated global economy, the ripple effects from Europe will drag the US and the Chinese economies, among all others.

Phi Beta Iota:  Christine Lagarde, perhaps because she is a woman with a smaller ego and larger intuition than most men, appears to be the first Epoch A leader to “get” that we are all calling into question the very existence of the Western financial system that is rooted in fraud, waste, and abuse.  When she begins to point to Iceland as an example, and to demand that Western countries arrest and try Goldman Sachs, Morgan, Citi-Bank, Bank of America, and other officials for high crimes against the public, the healing can begin.  Until then, the West is avoiding the fundamentals.

NIGHTWATCH KGS Home

See Also:

Mini-Me: Iceland Breaks the Back of Western Banking

Chuck Spinney: Financial Coups Destroying Europe

Michel Bauwens: Human Evolution – Who Are We Becoming?

Mini-Me: European-US Banking–Tangled Web — Tell Me Again, Why Shouldn’t We Default and Let the Banks Fry? + Financial Terrorism RECAP

Marcus Aurelius

It’s a real shame Gates could not connect to his integrity while in office.

Gates on D.C. lawmakers: ‘Oversized egos and undersized backbones’

Chuck Spinney

On 12 December, I described a concatenation of warmongering pressures that were shaping the popular psyche in favor of bombing Iran.  Now, in a 21 December essay [also attached below], Steven Walt describes a further escalation of these pressures — in this case, via the profoundly flawed pro-bombing analysis, Time to Attack Iran: Why a Strike is the Least Bad Option, penned by Matthew Kroenig in January/February 2012 issue of the influential journal Foreign Affairs.

One would think that our recent experiences in Iraq and Afghanistan and our growing strategic problems in Pakistan, not to mention our economic problems and political paralysis at home, would temper our enthusiasm for launching yet another so-called preventative war.  But that is not the case, as Kroenig’s analysis and the growing anti-Iran hysteria in the debates among the the Republican running for president show (Ron Paul excepted) show.  Moreover, President Obama’s Clintonesque efforts to triangulate the pro-war political pressures of the Republicans, while appeasing the Israelis, may be smart domestic politics in the short term, but they add fuel to the pro-war fires shaping the popular psyche. Finally, as I wrote last January, lurking beneath the fiery anti-Iran rhetoric are more deeply rooted domestic political-economic reasons for promoting perpetual war — reasons that have more to do with sustaining the money flowing into the Military – Industrial – Congressional Complex in the post-Cold War era than in shaping a foreign policy based on national interests.

While it is easy to whip up popular enthusiasm for launching a new war, our misadventures in Iraq and Afghanistan have shown that successfully prosecuting wars of choice are quite another matter.  Nevertheless, as my good friend Mike Lofgren explains in his recent essay, Propagandizing for Perpetual War, devastating rebuttals like Walt’s are likely to have little effect on the course of events.

One final point … a surprise attack on Iran would trigger a far tougher war to prosecute successfully that either Iraq or Afghanistan.  If you  doubt this, I suggest you study Anthony Cordesman’s 2009 analysis of the operational problems confronting Israel, should it decide to launch a surprise attack on Iran’s nuclear facilities.

Yet, the beat goes on.

Chuck Spinney
The Blaster

The worst case for war with Iran

Stephen M. Walt

Foreign Policy, 22 December 2011

If you’d like to read a textbook example of war-mongering disguised as “analysis,” I recommend Matthew Kroenig’s forthcoming article in Foreign Affairs, titled “Time to Attack Iran: Why a Strike Is the Least Bad Option.” It is a remarkably poor piece of advocacy, all the more surprising because Kroenig is a smart scholar who has done some good work in the past. It makes one wonder if there’s something peculiar in the D.C. water supply.

There is a simple and time-honored formula for making the case for war, especially preventive war. First, you portray the supposed threat as dire and growing, and then try to convince people that if we don’t act now, horrible things will happen down the road. (Remember Condi Rice’s infamous warnings about Saddam’s “mushroom cloud”?) All this step requires is a bit of imagination and a willingness to assume the worst. Second, you have to persuade readers that the costs and risks of going to war aren’t that great. If you want to sound sophisticated and balanced, you acknowledge that there are counterarguments and risks involved. But then you do your best to shoot down the objections and emphasize all the ways that those risks can be minimized. In short: In Step 1 you adopt a relentlessly gloomy view of the consequences of inaction; in Step 2 you switch to bulletproof optimism about how the war will play out.

Kroenig’s piece follows this blueprint perfectly.

Read full article.

Lynn Wheeler

Financial Cryptography

Where the crypto rubber meets the Road of Finance…

December 11, 2011

Why (my, all) financial systems fail — information complexity

I spent over a decade building the snappiest financial system around. In that time I pursued one goal of efficiency: reduction of complexity. This wasn’t only goodness in an angelic sense, it was a pragmatic goal to reduce my own costs in building systems.

The result was pretty spectacular: we were settling trades in seconds and doing so with every leg firmly fastened to the ground. That is, the whole thing was running with direct concrete ties to assets.

But, the big players weren’t interested. Indeed they were more than uninterested, they were highly interested in making sure this would never ever happen. Time after time, the message was delivered: Never. Other companies received the same message, so after a few years, I started to take it seriously.

At the time I hypothesised that the reason for this was insider fraud, or at least profits capture. The complexities were endemic and there were very few people who could see the whole picture. So, I theorised that those who could understand the complexities were cashing in on their advantage; from the inside. And some very few who cashed in were also driving the information agenda, as their success made them both wealthy and influential:  more complexity.

Of course such a hypothesis is unlikely to find proof. By its very nature, how do you prove such a tendency towards chaos? Here comes an alternate perspective from ZeroHedge, citing two papers (1, 2):

And the punchline: “Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities, including the design of debt and securitization.” Reread the last statement as it explains perhaps better than anything, the true functioning of modern capital markets and why they are terminally broken: in order to preserve the system, the banking cartel need to make everything of virtually infinite complexity so that no one has a clear understanding of what is going on!

Read full posting.

Phi Beta Iota:  In brief, finance is fraud.  As William Greider documents in his book, The Soul of Capitalism, financial instruments (incomprehensible to their own vendors) appreciated seventeen times while real assets appreciated five times.  Twelve is the fraud-complexity-corruption delta.

See Also:

Mini-Me: European-US Banking–Tangled Web — Tell Me Again, Why Shouldn’t We Default and Let the Banks Fry? + Financial Terrorism RECAP

John Robb

Here’s a scenario from William Buiter (the chief economist at Citi) on what could happen if the EU collapses:

Disorderly sovereign defaults and eurozone exits by all five periphery states would drag down not just the European banking system but also the north Atlantic financial system and the internationally exposed parts of the rest of the global banking system. The resulting financial crisis would trigger a global depression that would last for years, with GDP likely falling by more than 10 per cent and unemployment in the West reaching 20 per cent or more. Emerging markets would be dragged down too.

I have a couple of additions to William’s scenario:

• We are seeing crisis and depression scenarios like this with regularity now.  They are all presented as being on the cusp of occurring.  It should be very clear to everyone by now, that something fundamental is wrong with the global system and the crisis de jour is just its symptom.  Nobody “in charge” seems to be able to diagnose the real problems with our system.
• The solutions being proposed are either a) more confidence (through bailouts) and b) more confidence (through more deficit spending).  In other words:  the problem is merely psychological and all you and I need to do is take some anti-depressants to eradicate any lingering pessimism (why worry, let’s party!).  In short: there aren’t any real solutions being offered.
• None of the bad actors that profit from the behavior that led us into this crisis, either in government or in the financial sector, are held to account.  The moral hazard here is so vast, it can (and likely will) swallow the current economic system.

WIM:  What does it Mean?

It’s very simple.  It is almost a certainty that a global economic depression is on its way and there is absolutely nothing you or I can do to stop it (a ballot box solution now would be as effective as replacing the Captain of the Titanic after the ship hit the iceberg).  So, what can you and I do?  We can take control of our environment.  Our objective is to build or buy access to a community that has the resilience to not only help us survive a global depression, but thrive during it.  A resilient community that:

• Negates the impact of inevitable supply disruptions, rationing, and price spikes.
• Protects you from the political violence that will erupt (mobs and police states).
• Has a functional local economy that has the potential to network with other functional local economies.

John Steiner

Click here to sign your name:
“Google, stand up for democracy and your users—quit the U.S. Chamber of Commerce!”

Dear MoveOn member,

Right now we have a huge opportunity to deal what’s being called a “serious blow to one of Washington’s most powerful lobbies.”1

The U.S. Chamber of Commerce is an army of lobbyists for hire by mega-corporations like banks and those in the fossil fuel industry. In 2009, it spent more corporate money on lobbying than the next five biggest spenders combined.2 And 93% of its campaign spending goes to support Republicans and attack Democrats.3

Google is a paying member of the Chamber, which means that part of the money they make from Google users—ordinary people like us using Gmail, Google search, and other Google products—goes into the Chamber’s pockets to fight for Wall Street and Big Oil. But the Washington Post and Politico recently reported that at Google headquarters, employees are intensely debating whether Google should quit the Chamber in the next few weeks.4

Read the rest of this entry »

Steve Denning

Lest We Forget: Why We Had A Financial Crisis

Steve Denning

Forbes, 22 November 2011

When a true genius appears in the world you may know him by this infallible sign, that the dunces are all in confederacy against him.

Jonathan Swift

It is clear to anyone who has studied the financial crisis of 2008 that the private sector’s drive for short-term profit was behind it. More than 84 percent of the sub-prime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. Out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations. The nonbank underwriters made more than 12 million subprime mortgages with a value of nearly $2 trillion. The lenders who made these were exempt from federal regulations.

How then could the Mayor of New York, Michael Bloomberg say the following at a business breakfast in mid-town Manhattan on November 1, 2011?

It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t have gotten them without that. But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it’s one target, it’s easy to blame them and Congress certainly isn’t going to blame themselves.”

Barry Ritholtz in the Washington Post calls the notion that the US Congress was behind the financial crisis of 2008 “the Big Lie”. As we have seen in other contexts, if a lie is big enough, people begin to believe it.

Full Story Below the Line with BLOCKBUSTER Itemization

Read the rest of this entry »

Jon Lebkowsky

The truth about OWS

Naomi Wolf in The Guardian: we hear that Occupy Wall Street has no clear message, but is it precisely because the dis-organization has a clear message, set of goals, and growing force that we’re seeing efforts to shut the 24/7 demonstrations down?

The mainstream media was declaring continually “OWS has no message”. Frustrated, I simply asked them. I began soliciting online “What is it you want?” answers from Occupy. In the first 15 minutes, I received 100 answers. These were truly eye-opening.

The No 1 agenda item: get the money out of politics. Most often cited was legislation to blunt the effect of the Citizens United ruling, which lets boundless sums enter the campaign process.

Click on Image to Enlarge

No 2: reform the banking system to prevent fraud and manipulation, with the most frequent item being to restore the Glass-Steagall Act – the Depression-era law, done away with by President Clinton, that separates investment banks from commercial banks. This law would correct the conditions for the recent crisis, as investment banks could not take risks for profit that create kale derivatives out of thin air, and wipe out the commercial and savings banks.

No 3 was the most clarifying: draft laws against the little-known loophole that currently allows members of Congress to pass legislation affecting Delaware-based corporations in which they themselves are investors.

When I saw this list – and especially the last agenda item – the scales fell from my eyes. Of course, these unarmed people would be having the shit kicked out of them.

Update: Joshua Holland at AlterNet says Naomi Wolf’s piece “takes an enormous leap away from any known facts to suggest that Congress is ordering cities to smash the Occupy Movement in order to preserve their own economic privilege.”

Photo by Lily Rothrock

Phi Beta Iota:  It is not Congress that is ordering the leap; it is a combination of Wall Street/Goldman Sachs, Representative Peter King of New York/Michael Bloomberg, and the national security mafia using the Department of Homeland Security (DHS) as its stalking horse.   Congress is corrupt, inept, and incoherent.