Category Archives: Commentary

El-Erian: Janet Yellen Lays Out Her Policy Blueprint

“Over the weekend, I reread remarks that U.S. Federal Reserve chair Janet Yellen made last week at the International Monetary Fund and also read the transcript of her conversation with Christine Lagarde, the International Monetary Fund’s managing director.

The IMF event brought together a virtual who’s who of the international economic and financial community, and in one of her most significant policy speeches to date, Yellen seized the opportunity to address head-on some of the major questions confronting modern central bankers. Many of these center around the burden of trying to restore, almost singlehandedly, economic growth, more dynamic job creation, price stability, and durable market stability.

There are seven major takeaways from Yellen’s IMF speech. They collectively signal that the Fed will maintain a gradual policy approach for now. Markets, conditioned to expect strong and steadfast monetary support from the Fed, welcome that stance. But Yellen’s statements also point to the need for a delicate transition from policy-induced growth to more organic economic growth. If that transition is mishandled, it would trigger renewed financial and economic instability.

First, Yellen recognizes that we could well be in a world of steady-state interest rates that, in both nominal and inflation-adjusted terms, are lower than what historical experience would suggest.

Second, such rates, as Yellen noted, can “heighten the incentives of financial market participants to reach for yield and take on risk.” Indeed, she added, “such risk-taking can go too far, thereby contributing to fragility in the financial system.”

Third, financial stability cannot be divorced from the pursuit of economic well-being, because “a smoothly operating financial system promotes the efficient allocation of saving and investment, facilitating economic growth and employment.”

Fourth, this situation places even greater importance on the effectiveness of macro-prudential policies as “the main line of defense” against financial excess in the marketplace.

Fifth, while progress has been made in strengthening crisis prevention through better macro-prudential measures, more is needed at the policy level. With that in mind, Yellen stated that she “has not taken monetary policy totally off the table as a measure to be used when financial excesses are developing.” Since macro-prudential tools “have their limitations,” monetary policy should be “actively in the mix” even though it is “not a first line of defense.”

Sixth, central banks have to continue to think imaginatively about additional tools they can deploy to bolster the economy and maintain financial stability given the constraints they face in using interest rates as an effective macroeconomic tool…..”

Full article

Mike Maloney: The Dollar As We Know It Will Be Gone Within 6 Years

“This week’s podcast sees the return of Mike Maloney, monetary historian and founder of precious metals broker GoldSilver.com.

Based on historical patterns and the alarming state of our current monetary system, Mike believes the fiat US dollar is in its last years as a viable currency. He sees its replacement as inevitable in the near term — as in by or before the end of the decade:

All of this is converging with the crazy experiments the Federal Reserve has done.

 

I absolutely believe that there are economic consequences to this that are inescapable. The Fed is not just in a box; a trap has been set. And before the end of this decade, if there is still a US Dollar around it will not be this US Dollar. It will be a dollar that is tied to a very different monetary system.

 

The last three shifts in our monetary system were little baby steps off of the classical gold standard where it was fully backed. We went down to a 40% reserve ratio with the Federal Reserve in the United States during the Gold Exchange Standard. Then the Bretton Woods system didn’t have a reserve ratio specified, but I believe the dollar was about 8% backed by gold by the time Nixon took us off of gold in ’71. Now, the only backing that the US Dollar has is the promise to tax us all in the future: it is US Treasury bonds, or the Fed doing its quantitative easing and buying mortgage-backed securities.

 

And how corrupt is the notion that you can give some entity the power to have a check book that has a $0 balance and they can go out and buy anything they want with that and it just creates currency? That is corrupt in itself.

 

Think about how immoral this is. First of all, the Fed whipped up that currency not out of thin air but by indebting the public. They buy a Treasury bond or a mortgage-backed security, and now they own the mortgage on your house or they own a Treasury bond that you are going to work for in the future and pay taxes to pay off. And so they give all of this currency to the banks, and then they pay them interest to not loan it out or otherwise stimulate the economy. So they are giving them the gift of interest.

 

By the way, any profits that the Fed has at the end of the year are supposed to get turned over to the Treasury. Well, they are paying the banks interest that reduces the amount that they give to the Treasury by exactly that amount. So in other words, the public is paying those banks interest. That’s where all of the interest comes from. We’re not seeing those profits passed on to the Treasury anymore…..”

Full article

$GS Expects Feds to Raise Rates in Q3 of 2015

“Goldman Sachs Group Inc. brought forward its forecast for the Federal Reserve to raise interest rates after U.S. employers added more jobs than forecast, sending five-year Treasuries lower for a fourth day.

The Fed will increase its benchmark in the third quarter of 2015, rather than the first three months of 2016, Goldman Sachs Chief Economist Jan Hatzius wrote in a report yesterday. The investment bank joins companies including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in moving up its Fed estimates after U.S. data last week showed the economy added 288,000 workers in June, compared with the 215,000 projected by a Bloomberg News survey of analysts.

“We might see more U.S. banks bringing forward their rate-hike expectations this week,” said Piet Lammens, head of research at KBC Bank NV in Brussels. “It was an important jobs report. It may be that we get more losses for Treasuries and higher yields today.”

The U.S. five-year yield climbed two basis points, or 0.02 percentage point, to 1.75 percent at 6:49 a.m. New York time, according to Bloomberg Bond Trader prices. The 1.63 percent note maturing in June 2019 dropped 3/32, or 94 cents per $1,000 face amount, to 99 13/32.

The two-year yield rose one basis point to 0.52 percent and the 10-year yield was little changed at 2.64 percent after rising 10 basis points last week.

Spread Widens….”

Full article

Barclays: Draghi’s $1.4 T Liquidity Plan is No Silver Bullet

“Mario Draghi’s plan to end the euro area’s lending drought risks missing the target.

While the European Central Bank president says a program to hand as much as 1 trillion euros ($1.4 trillion) to banks has built-in incentives to spur lending to the real economy, analysts from Barclays Plc to Commerzbank AG have doubts on how well it will work. In fact, the measure allows banks to borrow cheaply from the ECB even without increasing credit supply.

Draghi has identified weak lending as an obstacle to the euro area’s recovery and is committed to reversing a slump that has eroded more than 600 billion euros in loans to companies and households since 2009. The risk is that if the latest plan fails, the currency bloc slips closer to deflation and to the need for more radical action such as quantitative easing.

“It’s not the silver bullet,” said Philippe Gudin, chief European economist at Barclays in Paris. “Every incentive for banks to lend is a good thing, but I wouldn’t say I’m reassured that credit will pick up.”

The ECB’s latest plan differs from its previous liquidity measures in the way it tries to nudge banks into lending more to the real economy. In contrast, three-year loans issued in late 2011 and early 2012 were used largely to buy higher-yielding government bonds, a practice known as the carry trade.

Attractive Option

Targeted longer-term refinancing operations will offer banks an initial total of as much as 400 billion euros this year that they can hold until 2016 with no strings attached. They can keep it another two years if they meet specific new lending targets set by the ECB, and they can borrow more funds starting in March if they exceed those thresholds. At his monthly press conference on July 3, Draghi said the total take-up could be 1 trillion euros.

“If this sounds a little complicated, I think you’re right,” he told reporters in Frankfurt. “But I’m confident that the banks will quickly understand that even though it’s complicated, it’s also quite attractive.”

Still, to keep the initial batch of funding for the full term, banks aren’t required to expand their loan books. They are only obliged to boost credit if they wish to borrow more cash starting next year, when the ECB will provide as much as 3 euros for every 1 euro of net new lending.

Bank Review….”

Full article

U.S. Jobs Report Shows Growth of 288k, The Unemployment Rate Falls to 6.1%

 

“NEW YORK (MarketWatch) — Investors have been content to take a summer slumber as central bankers sing easy-money lullabies. But don’t discount the possibility that a strong jobs report could shake traders awake.

It would take a particularly strong U.S. nonfarm payrolls report on Thursday to alter market expectations about the economy. But should it sharply exceed expectations of 215,000 nonfarm jobs and a steady 6.3% unemployment rate, it could force a rethink toward a Federal Reserve that’s less committed to low-rate policies, investors and strategists say.

Enlarge Image

Wednesday’s report from Automatic Data Processing Inc. provided one surprise:281,000 new private-sector jobs last month, and the most since November 2012. The report is often used as an early indicator of the payrolls number. Despite its mixed record in predicting that part of the official monthly jobs report, it’s the latest in a string of improving data points that many say shows an economy gaining steam.

“The risks are on the upside in terms of the number of jobs created” after that ADP report, said Robert Tipp, chief investment strategist at Prudential Fixed Income.

Think about Fed rate expectations like a trip in the family minivan. Federal Reserve Chairwoman Janet Yellen and her policy committee are in the driver’s seat, slowly and steadily cruising toward the first rate hike. The numbers on employment and inflation are quietly cooperating in the back seat. But if data keep improving more rapidly, that will add to the “are we there yet?” clamors, and Yellen eventually may speed up.

If that happens, the S&P 500 SPX +0.07% , already near record levels, could rise further, Treasury yields10_YEAR -0.04% could climb, and the dollar DXY +0.14% could strengthen against its rivals.

For now, Yellen has been keeping the steering wheel steady…”

Full article

What to look for in the report

Full employment report

 

Bill Gross: Covenant-Lite Loans Enters Bubble Territory

“Many financial commentators are concerned about banks loosening their standards on loans, and Bill Gross, chief investment officer at Pimco, is one of them.

“There are bubbly aspects in the terms and conditions of bank loans,” he told CNBC.

Financial institutions are issuing covenant-lite loans at a record pace. Covenants are financial restrictions placed on companies that borrow to give lenders assurance that they will receive their money back. Covenant-lite loans carry fewer of these restrictions.

U.S. cov-lite loan issuance totaled $83.6 billion for 2014 through mid-June, up 41 percent from $59.4 billion in the same period of 2013, according to Dealogic, CNBC reports.

“There can be easy types of covenants and restrictions,” Gross said. “Certainly the Fed sees, and we see as well, that over the past 12 to 18 months those standards have eased and perhaps are a little bit bubbly.”

He maintains that the prices of most risk assets stand at a “normal level if the new neutral [level for federal funds] stays low at 2 percent, which is where we expect.”

The Office of the Comptroller of the Currency, which regulates banks, also is concerned about the easing of banks’ lending policies….”

Full article

Watch the Greenback Closely, Breakout or Breakdown is Coming Soon

“A few notes first off…the US Dollar Index has broken below 80.0, but for this to mean anything, the US Dollar must close below 79.40 on a weekly basis. The critical levels of upper support and resistance are so tight right now, that the volatility we have seen has caused many players to go long when its wrong and go short when they should abort. The trend finally does “appear” as if the 79.40 level will break, but nothing is better than waiting for confirmation than speculation.

If the US Dollar Index does go lower, then this would allow US exports to become cheaper and further enhance the stock market. The note below is very important, so please consider this: a decline in the US Dollar Index from 80.0 to 73.0 represents a loss of 8.75%. If the S&P were to retain its S&P/US Dollar Index valuation, then it would have to rise from 1960 to 2148. So even though the S&P could rise to this level, which remains our longer-term target into August 2015 next year (Please Google Contacting Fibonacci Spiral (CFS) and CFS chiral inversion with my name to get an understanding of this longer-term stock market cycle and its implications for how things unfold into 2020), it merely becomes an extension based upon a declining currency. If the US economy strengthens, then this number could become even higher.

The outcome for such an event if it does unfold as expected (things have been going as expected, just a few bumps in the road have happened) will result in many other regions of the globe experiencing sharp reductions in global GDP and rising energy prices (since oil is primarily priced in US Dollars). Rising energy costs are instrumental in throwing the global economy into a deflationary spiral, coupled to demographics so a sharp spike in energy prices to $150-160/barrel (our target for next year) is seen as the catalyst. Based upon the chiral inversion that the CFS had last year, it is expected the market tops out next year, followed by a series of lower lows in 2016, 2018, 2019 and 2020 (3,2,1,1 to complete the Fibonacci spiral). This would be expected for the broad stock market indices of the US and not necessarily expected for commodities or their related stocks, particularly gold and silver.

A shift into gold and silver as a store of value will happen en masse once people see that governments will do whatever they can to try to steal the wealth of citizens. This will raise their sought value, alongside stocks that mine gold and silver.

The very last few charts of this update provides an update of the Elliott Wave count for the S&P 500 Index. I did not understand how this count was possible because I really doubted it. So far, it seems to be holding out and does have some interesting twists over the next 10-13 months if things continue to unfold in somewhat of an expected fashion, then the period of time between 2015 and 2020 will not be nice.

If we do get a 5 year period of cycling deflation/inflation, with the overall trend being deflationary, then keeping money in cash equivalent funds will be of utmost importance for preserving wealth. For those who can time things right, buying near the coming bottoms and selling near their short-term tops stand to generate significant returns. For those that have pension funds or RRSP’s LIRA’s etc. that are are defined contribution plans (i.e. YOUR money, not money thrown into corporate or unionized pots that are invested for everyone (think pyramid scheme)) the above may work well. In the end, those with defined contribution plans for their own pensions may see government take them over and put them into a pot…this is out of everyone’s control, but one can only do the best to preserve what they have.

Continue to pay down debt and minimally invest money into RRSP’s or LIRA’s as this could be taken over by government. Keep money in on hand investments and of course, continue to accumulate gold and silver bullion. This piece should keep everyone afloat with knowledge for what to expect over the coming 12-14 months out.

Copper Chart

I thought I would include the monthly chart of copper, because today it broke out of this very long diametric triangle structure, that has a measured move up to $4.80/pound if this analysis is correct. Bollinger bands are not providing any indication of trend, but a pop above the upper trend line (which is what has happened today) should provide further bullishness in this metal. Nickel and other base metals are rising, so copper is one of the most critical to confirm this trend. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Extrapolation of the %K trend in stochastic 1 has yet to rise above the %D, but follow through over the next few months in copper prices would be enough to indicate a change in trend. The latter half of the diametric triangle pattern (not a diametric Elliott Wave triangle) has seen an evermore narrowing of the trading range in price. Given the way everything is expected to occur over the coming year (higher inflation due to a declining US Dollar, which further fans the global economy due to more potential for the US to export goods at cheaper prices), it stands to reason that copper prices head higher. We have one copper stock (producer/explorer) that we follow that trades well below $1/share but has significant opportunity for rising in price, pending it is not bought out beforehand.

Gold Ratios

The daily chart of the gold/silver ratio is shown below, with several price excursions beyond lower Bollinger bands over the past week strongly suggests an oversold condition has been generated, which should see gold outperform silver over the course of the next few weeks. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and beneath the %D in 2 and 3. Although there could be a change in trend with respect to the ratio, weakness could remain in effect, with a longer-term trend being down (i.e. Silver would outperform gold under this scenario).

The daily chart of the gold/oil ratio index is shown below, with the US Dollar Index denoted in black. Bollinger bands are providing no indication of trend, while the %K in all three stochastics are above the %D, indicating gold is likely to continue outperforming oil over the next 5-7 weeks (based upon the depth of the %K in stochastic 3). The ratio is likely to only rise no higher than 14 over the short-term, which would represent 12% higher gold prices than current levels, assuming oil remains fixed around $105/barrel…that would work out to $1484/ounce, which is right in line with the expected high for gold over the course of the next 12-14 months. Since gold stocks generally outperform gold by a factor of 3, that would suggest the HUI tacks on around 36% above current levels, which works out to a move to 320. Things finally appear to be pointing towards higher commodity prices, but remember, THIS IS ONLY A TRADE UNTIL AROUND THIS TIME NEXT YEAR, because from late 2015 and into 2020, a severe global contraction will likely result in a bear market across many fronts. Precious metals are likely to rise in value as fewer people trust government and a rush into tangibles happens.

The weekly chart of the HUI/gold ratio is shown below, with gold denoted in black. This is probably the most important chart in the Universe for those who hold precious metal stocks, because it gives an indication of whether or not shares will outperform gold on a relative basis. Bollinger bands are extremely tight as a base has been built over the past 12 months. Based upon this, a move higher is very likely since lower lows did not happen. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. Down trend lines for the %K in stochastics 2 and 3 are included which illustrates the %K in stochastic 3 breaking above its downtrend line. Notice the %K in stochastic 2 was recently repelled by this downtrend line, yet has curled up and appears set to break higher. ….”

 

Full article

El-Erian: Markets Are Sprinkled With Lots of Fairy Dust

“Financial markets sure did well in the first half of the year, despite an unexpected share of economic disappointments, policy misses and geopolitical drama. They will need better news in the next six months to sustain that performance, and if they succeed it is unlikely that they will repeat those same, broad-based gains.

At the start of the year, few expected the U.S. economy to shrink by a stunning 2.9 percent in the first quarter, Russia to annex Crimea, and Iraq to fall victim to a sectarian insurgency — all of which served to amplify the challenges facing already-weak economies.

More predictable was the series of policy slips such as disappointing progress on Japan’s “third arrow” reforms and a persistently unbalanced macroeconomic stance elsewhere that relied excessively and for too long on monetary tools alone.

Yet you would be hard pressed to point to many markets that suffered any meaningful consequences. Rather than sell off, global equities have gained, as have corporate bonds, commodities and emerging-markets securities.

Historically, such broad-based gains would suggest that the global economy is improving. Not this time. Instead, analysts spent much of the first half not only lowering their growth estimates for 2014 but scaling back their assessment of even longer-term growth for a number of countries — including the U.S.

The answer to this puzzle is found in yet another asset class that did well in the first half — government bonds,including those issued by Germany and the U.S., the benchmark risk-free assets. The fact that government bonds rallied in the first half of the year speaks to the continued influence that central-bank policy wields in financial markets.

Motivated both by long-standing concerns about sluggish growth and newer worries about price deflation, the European Central Bank joined others in committing to a more stimulative monetary policy over a longer period of time…..”

Full article

The Four Horsemen of the Geopolitical Apocalypse

“Ian Bremmer, NYU professor and head of the geopolitical consulting powerhouse Eurasia Group, consults at the highest levels with both governments and companies because he brings to the table robust geopolitical analysis and a compelling thesis: that we are witnessing “the creative destruction of the old geopolitical order.” We live, as his last book told us, in a “G-0” world. In today’s Outside the Box, Ian spells out what that creative destruction means in terms of events on the ground today. As Ian notes, the most prominent feature of the international landscape this year has been the expansion of geopolitical conflict. That expansion is gaining momentum, he says, creating larger-scale crises and sharpening market volatility.

Hold on to the reins now as Ian take us for a ride with the “Four Horsemen of the Geopolitical Apocalypse.” (For more information about the Eurasia Group or to contact Ian Bremmer, please email Kim Tran at tran@eurasiagroup.net.)

We’ll follow up Ian’s piece with an excellent short analysis of the Iraq situation from a Middle East expert at a large hedge fund I correspond with. Pretty straightforward take on the situation with regard to ISIS. This quagmire has real implications for the world oil supply. (It appears that the Sunni rebel forces are now in complete control of the key Baiji Refinery, which produces a third of Iraq’s output.)

Back in Dallas, it’s a little hard to focus on geopolitical events when seemingly all the news is about ongoing domestic crises. But the outrageous IRS loss of emails doesn’t really affect our portfolios all that much. What happens in Iraq or with China does. There’s just not the emotional impact.

One domestic humanitarian crisis that is brewing just south of me is the massive influx of very young children across the US-Mexican border. When this was first brought to my attention a few weeks ago, I must admit that I questioned the credibility of the source. We have had young children walking across the Texas border for decades but always in rather small numbers. The first source I read said that 40,000 had already come over this year. I just found that to be non-credible, but then with a little reasonable research it not only became believable but could be a bit low – it looks as many as 90,000 children will cross the border this year.

What in the name of the Wide Wide World of Sports is going on? First of all, how do you cover up something of this magnitude until it is a true crisis? When the administration and other authorities clearly knew about it last year? (The evidence is irrefutable. They knew.)

I am the father of five adopted children. In an earlier phase of my life, I was somewhat involved with Child Protective Services here in Texas. It was an emotionally difficult and heartrending experience. (One of my children came out of that system and three from outside of the United States). I have no idea how you care for 90,000 children who don’t speak the language and have no connection to their new locale. Forget the dollar cost, which could run into the tens of billions over time. These are children, and they are on our doorstep and our watch. You simply can’t ignore them and say, “They are not supposed to be here, so it’s not our responsibility.” They are children. Someone, and that means here in the US, is going to have to figure out how to take care of them, even if it is only to learn why they try to come and figure out where to send them back to. And frankly, trying to to send them back is going to be a logistical and legal nightmare, not to mention psychologically traumatic to the children.

Maybe someone thought that waiting until there was a crisis to let this information slip out (and we found out about it because of photos posted anonymously of children packed together in holding cells) would create momentum for immigration reform. And they may be right. But I’m not certain it’s going to result in the type of immigration reform they were hoping to get.

I have to admit that I’ve been rather tolerant of illegal immigrants over the course of my life. There are a dozen or so key issues that I think this country should focus on, but I’ve just never gotten that worked up about illegal immigration. The simple fact is that everyone here in the US is either an immigrant or descended from immigrants. It may be, too, that I’ve hired a few undocumented workers here and there in my life. As an economist, I know that we should be trying to figure out how to get more capable immigrants here, not less. What you want are educated young people who are motivated to create and work, not children as young as four or five years old who are going to need housing, education, adult supervision, healthcare, and most of all a loving environment where they can grow up.

It is one thing for undocumented workers to come across the border looking for jobs or for families to come across together. It is a completely different matter when tens of thousands of preteen children come across the border without parents or supervision. They didn’t get across 1500 miles of desert without significant support and a great deal of planning. This couldn’t be happening without the awareness of authorities in Mexico and the Central American countries from which these children come, and if this is truly a surprise to Homeland Security, then there is a significant failure somewhere in the system.

And if it was not a surprise? That begs a whole different series of questions.

This is a major humanitarian crisis, and it is not in the Middle East or Africa. It is on our border, and we need to figure out what to do about it NOW!

I don’t care whether you think we need to build a 20-foot-high wall across the southern border of the United States or give amnesty to anyone who wants to come in (or both), something has to be done with these children. It is a staggering problem of enormous logistical proportions, and we have a simple human responsibility to take care of those who cannot take care of themselves.

And on that note I will go ahead and hit the send button, and let’s focus on the critical geopolitical events happening around the globe. Iraq is a disaster. Ukraine is a crisis. What’s happening in the China Sea is troubling. It just seems to come at you from everywhere. Even on a beautiful summer day.

Your stunned by the magnitude of it all at analyst,

John Mauldin, Editor
Outside the Box
subscribers@mauldineconomics.com


(From Ian Bremmer)

dear john,

we’re halfway through 2014, and the single most notable feature of the international landscape has been the expansion of geopolitical conflict. why should we care? what’s the impact; what does it mean for the global economy? how should we think about geopolitics?

my thoughts on the topic, looking at the four key geopolitical pieces “in play”–in eurasia, the middle east, asia, and the transatlantic.

geopolitics

i’ve written for several years about the root causes of the geopolitical instability the world is presently experiencing. a new, g-zero world where the united states is less interested in providing global leadership and nobody else is willing or able to step into that role. that primary leadership vacuum is set against a context of competing foreign policy priorities from increasingly powerful emerging markets (with very different political and economic systems) and a germany-led europe; challenges to the international system from a revisionist russia in decline; and difficulties in coordination from a proliferation of relevant state and non-state actors even when interests are aligned. all of this has stirred tensions in the aftermath of the financial crisis: instability across the middle east after a stillborn arab spring; a three-year syrian civil war; a failed russia “reset”; rising conflict between china and japan; fraying american alliances with countries like brazil, germany, and saudi arabia.

and yet geopolitical concerns haven’t particularly changed our views on global markets. each conflict has been small and self-contained (or the spillover wasn’t perceived to matter much). geopolitics has been troubling on the margins but not worth more than a fret.

that’s about to change. though perceived as discrete events, the rise of these geopolitical tensions are all directly linked to the creative destruction of the old geopolitical order. it’s a process that’s gaining momentum, creating in turn larger-scale crises and broader market volatility. we’ve now reached the point where near- to mid-term outcomes of several geopolitical conflicts could become major drivers of the global economy. that’s true of russia/ukraine, iraq, the east and south china seas and us/europe. in each, the status quo is unsustainable (though for very different reasons). and so, as it were, the four horsemen of the geopolitical apocalypse.

Russia/IUkraine….”

Full article

ACLU Report: War Comes Home

“As the number of troop-heavy foreign interventions decreases, the warcraft and weaponry used in battle are now being deployed in neighborhoods as members and machines of law enforcement become increasingly indistinguishable from those of the military.

This is the situation as revealed in a new report published by the American Civil Liberties Union (ACLU) entitled “War Comes Home: The Excessive Militarization of American Policing.”

A SWAT team blew a hole in my 2 year-old son” is perhaps the best example of a headline announcing the horrific impact this conversion can have when left unchecked.

As reported by The New American, a toddler is in a medically induced coma after a Cornelia, Georgia, SWAT team tossed a flash-bang grenade into his crib during the execution of a “no-knock” warrant.

Bounkham Phonesavanh is 19 months old and was asleep in his crib when police broke down the front door in the early morning hours on May 28 and threw the grenade into the front room. His mother, father, and three sisters were in the room as well.

Earlier this week, the baby’s mother, Alecia Phonesavanh, described the ordeal in detail, including the relevant account of the near fatal blurring of the line between soldier and cop:

Flashbang grenades were created for soldiers to use during battle. When they explode, the noise is so loud and the flash is so bright that anyone close by is temporarily blinded and deafened. It’s been three weeks since the flashbang exploded next to my sleeping baby, and he’s still covered in burns.

The ACLU provides a brief history of the creation and transformation of SWAT:

SWAT [Special Weapons And Tactics] teams were created in the late 1960s as “quasi-militaristic” squads capable of addressing serious and violent situations that presented imminent threats such as riots, barricade and hostage scenarios, and active shooter or sniper situations. The first SWAT team, at the Los Angeles Police Department, was developed in the wake of a series of emergency situations in which local police felt unable to respond as swiftly or as effectively as was necessary. SWAT teams have since expanded in number, and are used with greater frequency and, increasingly, for purposes for which they were not originally intended — overwhelmingly to serve search warrants in drug investigations.

In the case of Bounkham Phonesavanh, SWAT team members executed the no-knock warrant after receiving a tip from an informant that he had bought methamphetamine from a man named Wanis Thometheva earlier that day. Precisely the perversion of the power documented in the ACLU report.

“War Comes Home” observes 818 SWAT operations from July 2010 to October 2013. These operations were carried out by more than 20 law enforcement agencies in 11 states.

The 96-page report reveals that the increasingly militaristic police — forces equipped, trained, and often outfitted by the Pentagon — are behaving with a belligerence more at home on the battlefield in the face of an armed enemy than in neighborhoods while performing routine duties once accomplished with little more than a squad car and a badge……”

Full article

Islamic Caliphate is Born, World War III has BEGUN!

“Insanity is coming at US in huge waves. This week really saw a lot of new tea leaves presented to those working through the puzzle of the MAN MADE disaster. We are indeed living in interesting times, and I believe they will be studied and written about for decades and centuries into the future. I also believe this time period offers the greatest opportunity’s in history if played from an applied Austrian economic perspective, and a good handle on history. They are one and the same actually. So let’s look at some of the vignettes we covered this week:

  • An Islamic Caliphate has been born, World War III has BEGUN!
  • Central Banks Lifeboating themselves
  • Highest Market Cap for US bank since 2001?
  • The Dollar and the DODO bird
  • Friday night info dump
  • UNRELIABLE SUPPLY
  • SILVER coiled and ready to LAUNCH?
  • Federal Reserve FOLLIES
  • Political correctness that short circuits an invaluable gathering of EXPERIENCE

An Islamic Caliphate has been born, World War III has BEGUN!

Lightly covered by the Mainstream News, a new and vicious ISLAMIC caliphate has been born and World War III has commenced. The Middle East will be irreparably changed in the near future or should I say engulfed in FLAMES. The spineless leaders of the developed world have allowed order to be DESTROYED rather than place the proper emphasis on peace through strength. Now we will pay the price of the breach for their fiduciary duties. Teddy Roosevelt in 1907 said: “walk softly and carry a big stick”, sadly those wise words have been lost and forgotten. Relearning this will be extremely difficult as humpty dumpty has fallen, and putting him back together again may be an impossible task. Global and regional leadership is dead in the developed world: where are the Reagans, Churchill’s and Thatcher’s of the world for this generation. The bold leaders NOW with visions for the future reside in the Chinas, Russias, Singapores and al Qaedas of the world.

“If history teaches anything, it teaches that simple-minded appeasement or wishful thinking about our adversaries is folly. It means the betrayal of our past, the squandering of our freedom.”

- President Ronald Reagan, 1983

The Caliphate calls itself ISIS (the Islamic States of Iraq and Syria) and is a ruthless Al Qaeda political force. Numerous reports of beheadings, mass executions and random killings to foster TERROR in the eyes of their opponents are occurring and it is working. If you are a Christian or Shiite Muslim, the sentence is immediate death upon discovery or capture. Thousands have already been executed already and posted on the internet. A small army of less than 10,000 men has faced and beaten forces 10 times their size.

Soldiers are taking off their uniforms to avoid certain death that capture insures. Then, the terrorists take the discarded uniforms and use them to move freely behind enemy lines. They have now captured major IRAQI military bases and are well armed and supplied with MODERN WEAPONS. At this point, stopping them is not an option. They then retain the territory, oil fields, refineries and the funds for future JIHAD. I can promise you 10′s of thousands of jihadists are making their way there from around the world to participate in the JIHAD state. They have already looted over $450,000,000 million dollars from banks, while the oil insures ongoing income. This is not a group that wants to live peacefully with their neighbors. No, they want to consolidate long enough to develop plans for the next excursion to expand their territory, treasure and sharia law.

“The Syrians and the Iraqis have made their own beds–so why stick our noses in now? The answer is that al Qaeda, ISIS and others will not stop at Iraq and Syria. Lebanon, Jordan, Israel, Turkey, Egypt, Yemen, Saudi Arabia, the United Arab Emirates and others will be next.”

- General Jack Keane ret.

To them, it is convert to Sunni Islam or be killed as INFIDELS. For many of the terrorists that will not be enough and if they capture the US embassy (to me this is just a matter of time, just like the Viet Nam War). The carnage and death to many Americans is assured. Mercy is and will not be considered. It is part of their power over their adversaries. The power of abject FEAR!

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The main stream news breathlessly reports the news without telling the audience the grim conclusions that can already be made. The administration is calling for a multi ethnic reconciliation of the Sunnis, Shiites and Kurds before help is considered, placing an impossible task for the Iraqi government on the table to prevent the US from having any possibility providing assistance. This type of reconciliation takes weeks and months to accomplish… do you really think that republicans and democrats could reconcile overnight in Washington? The world knows through the experience of the last 6 years that there is no challenge or previous commitment from which America will not retreat. This administration in Washington has systematically undermined the strongmen of the Middle East and, if we ever find out the truth, maybe had a hand in overthrowing them. Did any of you think someday you would be rooting for IRAN to prevail in IRAQ? Me neither but now it is in my daily prayers as the developed world will just sit around and let us be destroyed. There is no shrinking from this moment. We must confront it or be killed by it as we shall soon see!

“Think subcontracting the job to Iran is the right call? Surely, no one wishes a Middle East managed by the ayatollahs in Tehran. Don’t care? Remember the admonition of the 9/11 Commission: “The most important failure was one of imagination.” Imagine what controlling vast areas of the Middle East will do for extremists of all stripes.”

- General Jack Keane ret.

Say what you will about Saddam Hussein, Moamar Qaddafi and Hosni Mubarak, strong men and dictators who held power in an iron and sadistic grip. But they all understood the DEADLY NATURE of FUNDAMENTALIST ISLAM and DID NOT ALLOW IT TO GAIN FOOTHOLDS in their COUNTRIES. They also controlled the thousands of years of tribal animosities in their countries, which as we can see was and is enormous. Just stopping ISIS is insufficient. They must completely be vanquished and the territory they hold liberated. Nothing less, or a regional war will widen into conflicts/attacks throughout Europe and then the world. Nothing like that will be considered by the developed world and many in the Middle East wish to see the latter happen. ISIS has been primarily funded by Saudi Arabia, Qatar, and Kuwait up to this point. Since the conflict has flared, Putin has sent arms, tanks and supplies into Ukraine in the last week. When can we expect the next move by China to be? Will they widen their grasp of the South China Sea? SOON! A weak US military and NATO will be challenged as NEVER BEFORE around the world. The socialists and leaders of the developed world are weak as kittens and spineless as worms. Mark my word, World War III has JUST BEGUN!

 

It has been a wild and woolly weekend as the news just keeps shocking a numb population too weary to keep up with the tea leaves: Important announcements about central banks lifeboating themselves from their own money printing, rotating HUGE parts of their reserves from INTANGIBLE financial assets to tangibles.

Central Banks Lifeboating themselves…..”

 

Full article

Fed’s Plosser: We May Need to Raise Rates Sooner Than Expected

 

“The U.S. economy is approaching the Fed’s economic targets faster than expected and might push the central bank to accelerate plans to increase interest rates, Philadelphia Federal Reserve Bank President Charles Plosser said on Tuesday.

Plosser said he had increasing confidence in economic growth, and addedthat inflation was trending higher and unemployment likely to fall faster than many of his central bank colleagues project.

“The current data suggest economic strength is fairly broad-based,” Plosser, who is a voting member of the Fed’s policy-setting committee this year, said in morning remarks at the Economic Club of New York.

While he supported the Fed’s most recent policy statement, which seems to place an initial interest rate increase sometime next year, Plosser said he had “growing concerns that we may have to adjust our communications in the not-too-distant future. Specifically, I believe the forward guidance in the statement may be too passive.”

Using different variations of what is known as the Taylor Rule, for example, Plosser said the current economic projections of Fed officials would produce a target interest rate of anywhere from 1.5 percent to as much as 4 percent by the end of next year—higher than that currently expected by most policymakers. Depending on economic conditions, the appropriate rate could even be as much as 4.7 percent…..”

Full article

Mohamed El-Erian Sees a Trio of Problems for Europe

 

“There is a specter haunting Europe: a trio of economic problems that threaten the continent’s prosperity and social stability, all of which revolve around the notion of the “One Percent.”

Similar to many other parts of the world, Europe’s first One Percent challenge involves the relative and absolute enrichment of an already fortunate class — the one percent who are Europe’s wealthiest citizens. The One Percent problems are the possibility of too many years of anemic economic growth of about one percent and “lowflation” — or an inflation rate that hovers around one percent.

Combined, this One Percent Troika translates into the persistence of excessively high unemployment and a damaging debt burden, accentuating what the European Central Bank president, Mario Draghi, has already described as a fragile and uneven recovery. And the longer this persists, the greater the damage to Europe’s political and social well-being.

All of this is the result of both history and current policies. With the notable exception of Germany, most countries have dragged their feet in implementing reforms to spark economic growth and create jobs. The situation has been further aggravated by an unbalanced economic and financial policy stance that favors those who already control substantial financial assets over the needs of average workers.

Given how close Europe was two years ago to financial fragmentation and economic implosion, some may be tempted to think that the One Percent Troika is not that bad after all. Worsening inequality is tempered by Europe’s welfare system; one percent growth is better than the recession that the region recently experienced; and stable lowflation is not as harmful as outright deflation or unanchored inflation.

It could also be that this troika is sustainable for a while…”

Full article

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