Category Archives: Economy

Billionaire Club’s Fear Of The Next Downturn Is Likely Understated

Eddie, Iron Maiden

“What scares me the most longer term is that we have limitations to monetary policy — which is our most valuable tool — at the same time we have greater political and social antagonism.” –Ray Dalio, Bridgewater Associates

Dalio made the remarks in a panel discussion at the World Economic Forum’s annual meeting in Davos on Tuesday where he reiterated that a limited monetary policy toolbox, rising populist pressures and other issues, including rising global trade tensions, are similar to the backdrop present in the latter part of the Great Depression in the late 1930s.

Before you dismiss Dalio’s view, Bridgewater’s Pure Alpha Strategy Fund posted a gain of 14.6% in 2018, while the average hedge fund dropped 6.7% in 2018 and the S&P 500 lost 4.4%.

The comments come at a time when a brief market correction has turned monetary and fiscal policy concerns on a dime. As noted by Michael Lebowitz yesterday afternoon at RIA PRO

“In our opinion, the Fed’s new warm and cuddly tone is all about supporting the stock market. The market fell nearly 20% from record highs in the fourth quarter and fear set in. There is no doubt President Trump’s tweets along with strong advisement from the shareholders of the Fed, the large banks, certainly played an influential role in persuading Powell to pivot.

Speaking on CNBC shortly after the Powell press conference, James Grant stated the current situation well.

“Jerome Powell is a prisoner of the institutions and the history that he has inherited. Among this inheritance is a $4 trillion balance sheet under which the Fed has $39 billon of capital representing 100-to-1 leverage. That’s a symptom of the overstretched state of our debts and the dollar as an institution.”

As Mike correctly notes, all it took for Jerome Powell to completely abandon any facsimile of “independence” was a rough December, pressure from Wall Street’s member banks, and a disgruntled White House to completely flip their thinking.

In other words, the Federal Reserve is now the “market’s bitch.”

However, while the markets are celebrating the very clear confirmation that the “Fed Put” is alive and well, it should be remembered these “emergency measures” are coming at a time when we are told the economy is booming.

“We’re the hottest economy in the world. Trillions of dollars are flowing here and building new plants and equipment. Almost every other data point suggests, that the economy is very strong. We will beat 3% economic growth in the fourth quarter when the Commerce Department reopens. 

We are seeing very strong chain sales. We don’t get the retail sales report right now and we see very strong manufacturing production. And in particular, this is my favorite with our corporate tax cuts and deregulation, we’re seeing a seven-month run-up of the production of business equipment, which is, you know, one way of saying business investment, which is another way of saying the kind of competitive business boom we expected to happen is happening.” – Larry Kudlow, Jan 24, 2019.

Of course, the reality is that while he is certainly “spinning the yarn” for the media, the Fed is likely more concerned about “reality” which, as the data through the end of December shows, the U.S. economy is beginning to slow.

“As shown, over the last six months, the decline in the LEI has actually been sharper than originally anticipated. Importantly, there is a strong historical correlation between the 6-month rate of change in the LEI and the EOCI index. As shown, the downturn in the LEI predicted the current economic weakness and suggests the data is likely to continue to weaken in the months ahead.”

https://www.zerohedge.com/s3/files/inline-images/EOCI-Composite-011519%20%281%29.png?itok=DlmGy_Qf

Limited Monetary Tool Box

As Dalio noted, one of the biggest issues facing global Central Banks is the ongoing effectiveness of “Quantitative Easing” programs. As previously discussed:

“Of course, after a decade of Central Bank interventions, it has become a commonly held belief the Fed will quickly jump in to forestall a market decline at every turn. While such may have indeed been the case previously, the problem for the Fed is their ability to ‘bail out’ markets in the event of a ‘credit-related’ crisis.”

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“In 2008, when the Fed launched into their “accommodative policy” emergency strategy to bail out the financial markets, the Fed’s balance sheet was only about $915 Billion. The Fed Funds rate was at 4.2%.

If the market fell into a recession tomorrow, the Fed would be starting with roughly a $4 Trillion dollar balance sheet with interest rates 2% lower than they were in 2009. In other words, the ability of the Fed to ‘bail out’ the markets today, is much more limited than it was in 2008.”

But it isn’t just the issue of the Fed’s limited toolbox, but the combination of other issues, outside of those noted by Dalio, which have the ability to spur a much larger.

The nonprofit National Institute on Retirement Security released a study in March stating that nearly 40 million working-age households (about 45 percent of the U.S. total) have no retirement savings at all. And those that do have retirement savings don’t have enough. As I discussed recently, the Federal Reserve’s 2016 Survey of consumer finances found that the mean holdings for the bottom 80% of families with holdings was only $199,750.

https://www.zerohedge.com/s3/files/inline-images/Fed-Survey-Median-Value-Net-Worth-012519.png?itok=D5M3gA-9

Such levels of financial “savings” are hardly sufficient to support individuals through retirement. This is particularly the case as life expectancy has grown, and healthcare costs skyrocket in the latter stages of life due historically high levels of obesity and poor physical health. The lack of financial stability will ultimately shift almost entirely onto the already grossly underfunded welfare system.

However, as for those with financial assets heading into retirement, after two major bear markets since the turn of the century, weak employment and wage growth, and an inability to expand debt levels, the majority of American families are financially barren. Here are some recent statistics:

  1. 78 million Americans are participating in the “gig economy” because full-time jobs just don’t pay enough to make ends meet these days.
  2. In 2011, the average home price was 3.56 times the average yearly salary in the United States. But by the time 2017 was finished, the average home price was 4.73 times the average yearly salary in the United States.
  3. In 1980, the average American worker’s debt was 1.96 times larger than his or her monthly salary. Today, that number has ballooned to 5.00.
  4. In the United States today, 66 percent of all jobs pay less than 20 dollars an hour.
  5. 102 million working age Americans do not have a job right now.  That number is higher than it was at any point during the last recession.
  6. Earnings for low-skill jobs have stayed very flat for the last 40 years.
  7. Americans have been spending more money than they make for 28 months in a row.
  8. In the United States today, the average young adult with student loan debt has a negative net worth.
  9. At this point, the average American household is nearly $140,000 in debt.
  10. Poverty rates in U.S. suburbs “have increased by 50 percent since 1990”.
  11. Almost 51 million U.S. households “can’t afford basics like rent and food”.
  12. The bottom 40 percent of all U.S. households bring home just 11.4 percent of all income.
  13. According to the Federal Reserve, 4 out of 10 Americans do not have enough money to cover an unexpected $400 expense without borrowing the money or selling something they own. 
  14. 22 percent of all Americans cannot pay all of their bills in a typical month.
  15. Today, U.S. households are collectively 13.15 trillion dollars in debt.  That is a new all-time record.

Here’s the problem with all of this.

Despite Central Bank’s best efforts globally to stoke economic growth by pushing asset prices higher, the effect is nearly entirely mitigated when only a very small percentage of the population actually benefit from rising asset prices. The problem for the Federal Reserve is in an economy that is roughly 70% based on consumption, when the vast majority of American’s are living paycheck-to-paycheck, the aggregate end demand is not sufficient to push economic growth higher.

While monetary policies increased the wealth of those that already have wealth, the Fed has been misguided in believing that the “trickle down” effect would be enough to stimulate the entire economy. It hasn’t. The sad reality is that these policies have only acted as a transfer of wealth from the middle class to the wealthy and created one of the largest “wealth gaps” in human history.

The real problem for the economy, wage growth and the future of the economy is clearly seen in the employment-to-population ratio of 16-54-year-olds. This is the group that SHOULD be working and saving for their retirement years.

https://www.zerohedge.com/s3/files/inline-images/Emploiyment-Population-16-54-012519.png?itok=7lWHnOZZ

The current economic expansion is already set to become the longest post-WWII expansion on record. Of course, that expansion was supported by repeated artificial interventions rather than stable organic economic growth. As noted, while the financial markets have soared higher in recent years, it has bypassed a large portion of Americans NOT because they were afraid to invest, but because they have NO CAPITAL to invest with.

To Dalio’s point, the real crisis will come during the next economic recession.

While the decline in asset prices, which are normally associated with recessions, will have the majority of its impact at the upper end of the income scale, it will be the job losses through the economy that will further damage and already ill-equipped population in their prime saving and retirement years.

Furthermore, the already grossly underfunded pension system will implode.

An April 2016 Moody’s analysis pegged the total 75-year unfunded liability for all state and local pension plans at $3.5 trillion. That’s the amount not covered by current fund assets, future expected contributions, and investment returns at assumed rates ranging from 3.7% to 4.1%. Another calculation from the American Enterprise Institute comes up with $5.2 trillion, presuming that long-term bond yields average 2.6%.

The massive amount of corporate debt, when it begins to default, will trigger further strains on the financial and credit systems of the economy.

https://www.zerohedge.com/s3/files/inline-images/Corporate-Debt-10-Yr-Rate-Crisis-092518_2.png?itok=IW3oC73R

Dalio’s View Is Likely Understated. 

The real crisis comes when there is a “run on pensions.” With a large number of pensioners already eligible for their pension, the next decline in the markets will likely spur the “fear” that benefits will be lost entirely. The combined run on the system, which is grossly underfunded, at a time when asset prices are dropping will cause a debacle of mass proportions. It will require a massive government bailout to resolve it.

But it doesn’t end there. Consumers are once again heavily leveraged with sub-prime auto loans, mortgages, and student debt. When the recession hits, the reduction in employment will further damage what remains of personal savings and consumption ability. The downturn will increase the strain on an already burdened government welfare system as an insufficient number of individuals paying into the scheme is being absorbed by a swelling pool of aging baby-boomers now forced to draw on it. Yes, more Government funding will be required to solve that problem as well. 

As debts and deficits swell in the coming years, the negative impact to economic growth will continue. At some point, there will be a realization of the real crisis. It isn’t a crash in the financial markets that is the real problem, but the ongoing structural shift in the economy that is depressing the living standards of the average American family. There has indeed been a redistribution of wealth in America since the turn of the century. Unfortunately, it has been in the wrong direction as the U.S. has created its own class of royalty and serfdom.

The issue for future politicians won’t be the “breadlines” of the 30’s, but rather the number of individuals collecting benefit checks and the dilemma of how to pay for it all.

The good news, if you want to call it that, is that the next “crisis,” will be the “great reset” which will also make it the “last crisis.”

Eddie, Iron Maiden

Source: ZeroHedge

Authored by Lance Roberts via RealInvestmentAdvice.com,

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Naked Money Grabs

The Unprofitably Incompetent, by Robert Gore

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Those who can’t do, demand.

Profit propels civilization. When a producer can make an item or provide a service at a cost lower than a customer values that item or service, and the customer has the means and the freedom to buy, the difference between what’s paid over cost is profit. That profit is the producer’s incentive to produce, and in turn funds the producer’s consumption, savings, and investment, which creates other producers’ profits. Profit is the necessary prerequisite for consumption, savings, investment, and consequently, progress.

Many of us profit every day. We offer services and provide goods, supporting ourselves at a cost that is lower than what we’re paid. We’re profitably competent, engaging in honest production and peaceful, voluntary exchange. The only alternatives to profitable competence are living off of someone else’s profitable competency via inheritance or charity, or criminality—theft via fraud or violence.

Criminals cloak their thefts in all sorts of justifications, some of which, like socialism, become full-blown political doctrines. Ironically, a larcenous litany of demands and rationalizations are efflorescing at a time when whatever is left of the overall profit pool has been drained. It has been mortgaged multiple times, just as hordes of the unprofitably incompetent, who had no hand in producing it, clamor for their “fair share.” They’ll insist the profitably competent figure out how to pay for it, but the fair share of nothing is nothing, political promises to the contrary notwithstanding.

“Your means, my ends; I wish, you fulfill,” is the foundational fantasy of modern governance. The favored groups shelter in their safe spaces—government and its rackets, crony corporations, academia, the media, and Hollywood—living on the delusion that there will always be someone who will produce, without question or protest, for their benefit. Upon that foundation they’ve constructed a phantasmagorical edifice of illusory constructs and passages to nowhere.

As the foundational fantasy totters, the fantasies it supports become more fantastical. The profit pool exhausted, you would think everything possible would be done to succor the profitably competent who are supposed to replenish it. Instead, that illustrious group is demonized at every turn, and the demands on them become ever more absurd. They are guilty because they’re productive, and must expiate their guilt by producing for the unproductive, whose incompetence makes them morally superior.

The most “toxic” trait often associated with masculinity may be competence. It’s not exclusively masculine, but whether its possessors are male or female it has certainly become toxic, depriving them of any right to what they produce and any right to criticize those who steal it from them. Twits who can’t replace a light bulb demand free schooling and medical care, guaranteed jobs and incomes, trips to Mars, and who knows what else. Those who are to fund it all are to cheerfully regard doing so as a privilege.

The notion of reparations won’t die. Anyone with money (the only people who can pay) supposedly owe the descendants of various victim classes reparations for the supposed sins of their ancestors. To hold individuals guilty of crimes they couldn’t have committed is a moral obscenity. The demands for retribution are simply another naked money grab.

The rhetoric grows increasingly hateful. The slave class can be openly disparaged, denigrated, and deplored based on their race, gender, geographic location, religion, politics, the way they smile at a Native American, or any other characteristic the masters don’t like. But woe to the slaves who utter anything the tyrannical cult deems offensive or incorrect. Transgressors are put through social media hell, ostracized, ruined, and coming soon, incarcerated.

If you’ve found your safe space and you’re incapable of producing marketable value that exceeds its cost of production, you’re dependent on the profitably competent, but their very existence is a constant reproach, a reminder of your own inadequacy. So where gratitude would be appropriate, you instead hate, mock, and abuse your meal tickets. This isn’t PhD in psychology material—spoiled children have been abusing their parents for centuries. Interestingly—at least for psychology PhDs—the dependent get more abusive as they get more dependent.

Their safe spaces require little or nothing in the way of competency. They have become havens for personal predilections and peccadilloes that were once socially unacceptable, virtually free from any standards of comportment or dress, and citadels of venomous, self-serving ideologies.

One month into the partial shutdown of the largest safe space, it’s obvious that not only has the sky not fallen, but unsurprisingly, America is doing just fine without those 800,000 furloughed workers that even the government considers nonessential. Which elicits the question: What were they doing when they were on the job?

“Not much” is not necessarily the right answer. The 100,000 plus pages of the Federal Register and the tax code suggest that they’ve been spending a lot of time gumming up the works for and extracting money from the profitably competent many of them despise. The furlough may accomplish the first step of breaking America’s addiction to government: realizing that most of it is not only useless, but harmful. We’ll see if it leads to the next steps: getting rid of personnel, programs, agencies, and entire departments, and changing policy accordingly (we can dream). If things change in that direction, expect the denizens of what are no longer safe spaces to become increasingly vitriolic.

You can’t reach a point where dependents openly denigrate those who support them without the latter’s tacit or explicit consent. Parents who spoil their children and endure the brats’ abuse get what they deserve. Ayn Rand had it right. The people who make America go could bring it to a shuddering stop simply by stockpiling their resources and walking off their jobs for a month or two. An added turn of the screw would be withdrawing their funds from the banking system (see “The Yellow Vests Get it Right,” SLL).

It’s time to stop funding the abusers, time to stop excusing them with “they mean well, but…”, time to reject their claims to moral superiority, time to stop building safe space sanctuaries, time to stop apologizing for profitable competence, and time to recognize its moral value and reclaim the right to its profits. If it takes a strike to hurl the brats into the maw of their own incompetence and upend the tyrannical cult, so be it. The biggest crime hasn’t been that of the brats and the cult, it’s been the failure of those who haven’t defended what’s rightfully theirs.

Source: by Robert Gore | Straight Line Logic

Massive Truckers’ Strike Exposes Political Chaos as Brazil Gears Up for Elections in October

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It’s rush hour in Brazil’s largest cities. But the traffic, which is nearly always chaotic, is flowing smoothly. It’s as if the inhabitants have fled some lethal epidemic: The main universities are closed; basic items like eggs and tomatoes can’t be found in grocery stores; and nearly half of the city buses sit idle in their garages. Worse yet, most of the gas stations in the country have no fuel to sell — the shortage prompts the closing of 10 major airports. In a country that exports more beef than any other, only two of the 109 meat-packing plants with export licenses are operating.

On May 21, a Monday, disorder seized Brazil, owing to a work stoppage by the country’s truckers, who were protesting the high price of diesel fuel. A large part of the fleet of 1.6 million tractor trailers, responsible for moving more than 60 percent of the goods transported throughout the country, were parked at 600 strategic locations on federal highways. Trucks blocked lanes and prevented the any type of cargo vehicle from making it through. Meat, eggs, and vegetables went undelivered. Organ transplants went unperformed. And livestock reportedly died in the fields after the feed ran out.

The strike that paralyzed the nation’s economy forced average Brazilians to pay attention to what was previously a high-level political affair: the battle over the oil company Petrobras, Brazil’s largest state-operated corporation. During the administration of President Dilma Rousseff, which ended in her impeachment and removal from office in August 2016, the oil giant was used as a means of controlling inflation. Fuel prices were subsidized, and although the price of a barrel of oil increased on the international market, the Brazilian government did not allow that increase to be fully reflected in the pump prices in the country.

The artificially low prices for gasoline and diesel put the company in debt and depleted its coffers, causing it to lose market value. The state of affairs after the subsidies compounded the effects of the sprawling “Car Wash” corruption scandal — which revealed a multibillion-dollar kickback scheme within Petrobras, benefiting executives and politicians from several parties — that has plagued its reputation and put a wrench in its operations since 2014.

https://theintercept.imgix.net/wp-uploads/sites/1/2018/06/brazil-truckers-strike-shortage-1527885972.jpg?auto=compress%2Cformat&q=90&w=1024&h=683View of the empty Brazilian family farmers’ stall at Brasília’s Central Food Supply, CEASA, on May 25, 2018. CEASA is supplied daily by more than 3,000 trucks, but due to the nationwide truckers’ strike, it is receiving less than 50 trucks per day, causing severe food shortages in Brasília, as well as the rocketing in the prices of fruits and vegetables in some places up to 400 percent.Photo: Evaristo Sa/AFP/Getty Images

After Rousseff’s removal, her vice president Michel Temer assumed office and rewrote the rules — one of many radical, pro-market changes he implemented. Temer established a new pricing policy for Petrobras that allowed international market fluctuations to dictate pump prices in Brazil. The company’s stock rallied on the São Paulo and New York exchanges, which thrilled investors. However, the change also resulted in the price of diesel changing 121 times in just two years — previously, readjustments had been made on a monthly basis, which provided transporters with greater predictability when negotiating contracts. In the month leading up to the truckers’ strike, the price of diesel changed 16 times and rose by 38.4 percent.

A few weeks ago, Temer declared himself triumphant on Twitter: “Two years ago, I took the helm of the Brazilian government with a tough mission: to rescue the country from its most severe recession, to stamp out unemployment, to return to fiscal responsibility, and to maintain social programs. In fact, I have done all of that.” But to the majority of Brazilians, Temer lives in a parallel universe. The economy has shown statistical signs of recovery — but a weak one, much slower than after past crises. Yet the shifts have yet to materialize in the lives of ordinary people. Temer even tried to sell new data showing an increase in the unemployment rate as a positive, but was contradicted by the Brazilian Institute of Geography and Statistics, the equivalent of the U.S. Census Bureau. With political disillusionment and economic anxiety raging, the high price of fuel was merely the spark that ignited a powder keg.

Forty-eight hours after the protests began, the price of food had already created an enormous crisis. Two weeks ago, the price of a sack of potatoes was less than $11. By Thursday last week, it had reached nearly $80 in some places. By the third day of the strike, potatoes began to disappear from markets because they could not be transported from the countryside to the cities.

https://theintercept.imgix.net/wp-uploads/sites/1/2018/06/brazil-truckers-strike-military-1527885958.jpg?auto=compress%2Cformat&q=90&w=1000&h=667Soldiers take part in an operation to clear highway Regis Bittencourt, about 20 miles from São Paulo, on May 30, 2018, as a truckers’ strike against rising fuel costs in Brazil that has left much of the country paralyzed is now over. Photo: Nelson Almeida/AFP/Getty Images

The government cannot claim to have been taken by surprise by the truckers’ strike. Last Friday, The Intercept Brasil published a document proving that Temer and six of his ministers had been alerted at least a week in advance that truck drivers were planning a strike to begin on May 21 if their concerns weren’t addressed. The drivers called for an emergency meeting with the president to avoid the chaos that would inevitably ensue, but the government ignored them. So they shut off their engines.

The strike has a novel component for Brazil: Rather than being led by union representatives crowded into trucks with bullhorns leading the marches, the strike emerged out of a haphazard process organized through WhatsApp groups. In those groups, interspersed with self-help messages and pornography, political videos began to appear that inflamed protesters’ sentiments, sometimes offering hearty helpings of “fake news,” upping the octane of the revolt. Eventually, marching orders began to appear, and the protest movement emerged from the digital chats into the real world.

Journalists gained access to the WhatsApp groups in an attempt to make sense of the movement’s structure. They found few real leaders and instead, got a peek into a movement with disputes in every corner of the country — as if some strikers attempted to settle petty feuds while watching Rome burn. Despite a lack of clear leadership, the picket lines were ruthlessly enforced: Truckers that tried to ignore the blockades risked being beaten, some trucks were pelted with rocks or even set on fire.

The federal government reacted with panic. Officials tried to corral the discontent by handing some measure of political power to unions and businesspeople in the trucking sector, with whom they tried to negotiate. But fewer than 10 percent of the truckers belong to a union; no labor leader reigns over the WhatsApp republic. The government and the unions drew up two truces that never materialized.

The strike saw the redrawing of some of the traditional lines between labor and management and an alliance rarely seen in movements in Brazil emerged. Bosses and employees seem to have joined forces to call for a reduction in the price of diesel — a type of coordinated work stoppage considered a lockout and prohibited by law. Federal authorities quickly began investigating this supposed collusions, and one businessperson was arrested and charged. The precariousness of the workers in the industry — who are often owner-operators that bear the cost of fuel, tolls, repairs, and heavily financed vehicles — helped make that possible.

Outside pressure groups leveraged the popularity of the strike — a survey conducted by the Datafolha Institute last Tuesday showed that 87 percent of Brazilians supported the truckers, and 56 percent believed that the strike should continue — to try to call attention to unrelated interests. The image of a mass of useful, desperate people with reasonable demands and relatable complaints was too good to pass up. The most visible of these outside interests was the seemingly growing minority of Brazilians who long for the return of the military regime, which have tried to hitch a ride on the popular support for the strike. Those pushing a military coup had the support of some truckers, but how much of the movement would back a putsch remains unclear.

https://theintercept.imgix.net/wp-uploads/sites/1/2018/06/brazil-truckers-strike-military-intervention-1527886272.jpg?auto=compress%2Cformat&q=90&w=1024&h=683Members of the Brazilian Military Police and São Paulo’s traffic police stand beside a truck with its windscreen reading “military intervention” during an operation to clear blocked “Rodoanel Mrio Covas” Road, on May 26, 2018, in the city of São Bernardo do Campo, some 15 miles from São Paulo, Brazil, on the sixth day of a truckers’ strike protesting rising fuel costs. Photo: Miguel Schincariol/AFP/Getty Images

After a week, the truckers lost control of the situation. The strike had ballooned into a full-blown political crisis.

The militarists were quick to seize onto the chaos. A contingent of merchants, businesspeople, professionals, and middle-class people — long fed up with corruption, high taxes, ineffective governance, and rampant crime — saw in the tumult a golden opportunity to take to the streets and demand the army to seize power. That the army had subjected the country to a 20-yearlong military dictatorship — during which it tortured and killed hundreds of people and censored any news about its own rampant corruption — seemed a barely perceptible background fact.

While the militarists flung themselves headlong into the crisis to make their fine-tuned propaganda points, national politicians seemed to do the opposite. Normally garrulous types who seek attention at almost any cost, Brazilian politicians fell mute — flitting in any direction that would allow them to avoid taking a firm position. Without clearly defined enemies to attack, members of Congress bravely absconded from Brasília, some within the first days of the strike, fearing that a shortage of jet fuel would isolate the city and force them to take public positions at the insistence of journalists.

Former President Luiz Inácio Lula da Silva — who leads the polls for the upcoming presidential election despite being in prison on a controversial conviction for corruption — has long been known as an astute political observer. Yet he declared himself “perplexed” by the strike, according to politicians who visited him in his prison cell in Curitiba. Jair Bolsonaro, the reactionary Army Reserve captain who polls second, behind Lula, initially called for the people to take to the streets, inciting protesters and declaring his support for the stoppage. Days later, frightened, he radically changed his position and said that it was “time to end” the revolt.

The anemic state of Lula’s Workers’ Party was the same as that of other candidates of the Brazilian left, who also failed to capitalize on the protest. The Workers’ Party, which historically had the ability to speak to the masses, hardly garnered any notice. With no ties to the truckers, the party seemed to be speaking to itself on social networks. The same was true of other candidates who have tried to pass themselves off as moderates but are, in fact, representatives of conservatism, such as Geraldo Alckmin, the establishment’s main contender for the presidency.

The politicians’ temerity has recent precedent: protests against bus fare hikes in June 2013. State and local governments were slow to react to discontent and a protest movement popped up, led by small groups initially focused on public transportation fares. The movement quickly blossomed into gigantic popular demonstrations that, when the government realized they could not be contained, were met with police violence. In the wake of 2013, new extremist movements emerged and haven’t left the streets since. These groups, like the Free Brazil Movement, were instrumental in bringing down Rousseff.

https://theintercept.imgix.net/wp-uploads/sites/1/2018/06/brazil-truckers-strike-gasoline-1527885947.jpg?auto=compress%2Cformat&q=90&w=1024&h=683Days after concessions from the federal government brought a partial end to the strike, drivers await the arrival of fuel to supply motorcycles and cars during the truckers’ strike on May 29, 2018 in São Paulo, Brazil. Queues to fuel vehicles stretched for kilometers as tanker trucks trickled into the major cities. Photo: Victor Moriyama/Getty Images

Last Sunday, during the country’s highest-rated television show, Fantástico, Temer announced a series of measures to appease the protesters. Among them, he pledged to lower the price of diesel and repeal the international price policy he had created — without saying who was going to cover the multibillion-dollar losses for Petrobras. Truckers began to start up their rigs again. But many were unable to get off the road, hindered by violent groups who had, by then, taken over many of the roadblocks. Temer called on the military and the police to disperse the holdouts.

Last week, even after their demands were met by the government, some truckers were still blocking highways. Worse yet, those who wanted to go home were not allowed to leave. One trucker who tried to cross the picket line was stoned to death.

Journalists covering tensions in various parts of the country brought grim reports. The escalating violence had been promoted by groups that the government is calling “infiltrated militias.” These militia members, authorities say, are not truck drivers and are threatening the dissidents. However, the television program Profissão Repórter showed that many of them are, in fact, truck drivers. Those who manage to get out of the demonstrations say that the pickets have become havens of banditry and violence.

So even if vegetables are back in the supermarkets and the gas stations have been replenished, the strike continues, more or less. The government says the strike has ended, but trucker WhatsApp groups are abuzz trying to build support for a new stoppage this week.

It’s still not clear what is keeping the violent protesters on the streets and if they are acting alone or at the behest of more powerful interests. The social and economic impact remains a mystery. Will we remember this moment as the flashpoint that provoked an enormous change or just a temporary panic? What is clear, however, is that the truckers’ strike has shed light on several Brazilian realities: the palpable and almost universal rancor toward the government; the fragility of the supply chain and democratic system; the ineffectiveness of the entire political class; the fraud of the supposed economic recovery Temer tries to hock every change he gets; and the fear and despair that permeates a society that, panicked, even clamors for a return to the tragedy of a military government.

Brazil’s elections will take place in October. Until then, it will be a long and winding road, semi-trucks or not.

Source: by Leandro Demori & Piero Locatelli | The Intercept

The Fruits of Graft – Great Depressions Then and Now

Wayne Jett, author of “Fruits of Graft”, interviewed by Sarah Westall in an eight part (video) series to discuss in depth the amazing history of events and actions leading up to the Great Depression. They also discuss the activities and actions taken during the Great Depression that caused increased misery for millions of Americans. This is an epic historical view of the Great Depression you have not heard before; that also serves to explain what is really driving most current events we are living through today.

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Classical Capital

Video Series Links

Part 1

Part 2

Part 3


Part 4


Part 5


Part 6

The Elitist Manifesto

The Red Symphony

Progress And Poverty by Henry George

A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins

Somewhere in the mountains near Switzerland’s Lake Lucerne lies a hidden underground vault containing a vast fortune.

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Lake Lucerne, Switzerland

It’s no ordinary vault, according to Quartz. Built inside a decommissioned Swiss military bunker dug into a granite mountain, it’s precise location is a closely guarded secret, and access is limited by myriad security precautions.

But instead of gold bars, the bunker contains hard drives on which customers’ bitcoins are being kept in what’s call “cold storage” – i.e. the owners’ private keys are protected by an air-gapped hard drive. The vault is one of many operated by Xapo, an early bitcoin company known for its cold storage wallet products and a debit card that pays for transactions in digital currencies.

The company won’t disclose how much bitcoin is stored in the vault, but one employee who spoke with Quartz said he sometimes takes customers with millions of dollars in bitcoin on tours of the vaults where their fortune is stored. Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as “patient zero” of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.

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As Quartz explains, the bitcoin vault doesn’t store actual bitcoin units. Instead, what’s being stored are the owners’ private cryptographic keys that allow the owner to access and transfer his or her bitcoins by matching the key with a public key that’s used to identify the coin on the blockchain. Gaining unauthorized access to someone’s private keys is akin to making off with a gold bar.

The inexorable rise in bitcoin’s valuation has been marred by notable hacking incidents like the collapse of Mt. Gox, which ushered in the longest bear market in bitcoin’s history. Security fears appear to have subsided as bitcoin’s price has soared to all-time highs, but incidents like the collapse of the DAO have inspired investors with substantial bitcoin wealth to look into protecting it.

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To store the coins, Xapos contracts Deltalis, the company that technically operates the 10,000-square-foot data-center that now inhabits the decommissioned bunker.

Server racks for banks, and any client who needs secure data processing, fill a cavity dug over 320 meters deep in the granite mountain. The Swiss military built the facility in 1947, and it served as the army’s secret headquarters during the Cold War, Agence-France Presse has reported. Inside, walls covered with detailed maps and ancient radio electronics serve as vestiges of its military past.

To enter Xapo’s private vault in the Deltalis data center, visitors must endure an exhausting series of security procedures.

Streiff leads us to a concrete facade jutting out of the mountainside, the bunker’s entrance. We step through about a foot of concrete and enter the lobby. I sign in as I would at any office building, except I also have to present my fingerprints and be photographed. After that I step through a “man-trap”—a phone booth-sized cylinder made of bullet-proof glass that shuts me in until an operator opens the door on the opposite side.

Once through the man-trap, we touch our ID cards and pass through a set of steel revolving doors, then walk down a 100-meter long passageway through the granite. At the end of the passageway are two red steel doors that I’m told can survive a nuclear blast. Streiff invites me to try to close one—my 90 kg (198 pound) frame can’t budge it. “They’re closed every night,” he tells me, showing me how to hang off the handle and use his body’s momentum to gradually swing it shut.

Streiff and Kon are taking me to see Xapo’s “private suite,” an ultra-secure, customized, portion of the data center. We pass through a second man-trap and then end up in front of a nondescript white door. “This is further than anyone outside Xapo has been,” Streiff tells me, as he unlocks it. Inside is a space about the size of a walk-in closet containing a cooling unit, and yet another door. But that’s as far as they’ll let me go, and I’m not allowed to take photographs.

Security is similarly tight inside the vault. Nobody is allowed the enter the “cold room” where the bitcoins are stored on air-gapped hard drives. To protect against an electromagnetic pulse attack, the cold room is equipped with a Faraday cage, a type of barrier meant to block electromagnetic fields.

Beyond that door, I rely on what Carlos Rienzi, Xapo’s head of security, tells me later, when I’m back in London. Rienzi chose the vault for Xapo, and he designed the private suite and its security protocols. His “threat model,” as computer security jargon goes, is to protect against attacks from “well-funded terrorist groups or hackers.”

There are two more portals inside the suite: the first leads to an operators’ room, and the second to a “cold room.” The cold room is encircled with steel slabs to form a Faraday cage: a barrier that protects against a possible electromagnetic pulse (EMP) attack that could wipe out the data—and thus the keys to the bitcoin—stored in the room. For digital assets like bitcoin, thick walls and a secret location are not enough. A shield against invisible modes of attack like an EMP bomb must be provided for.

No one, not even the operator, enters the cold room. Its door is sealed with tape—like a crime scene—to ensure it’s not tampered with. The cold room contains hardware, which is never connected to the internet, used to sign bitcoin transactions. Signing a transaction can be performed offline. The operator accesses that hardware using “special cabling,” sending encrypted data to the hardware for signing. Finally, before a transaction can be approved, two more sign-offs, in two other vaults located on separate continents, must be performed.

I ask Rienzi if he feels pretty confident about the security measures he has in place in Switzerland. “We are under attack 24/7,” he tells me, referring to the terrorists and hackers he designed the vault to guard against. “This is not a race. It is a chess game. You have to think about the opponent’s next movement. You can never relax.”

Of course, all the security measures in the world can’t protect investors from a sudden plunge in the bitcoin price. However, the digital currency’s indomitable – for now – performance has silenced at least one of its most prominent critics. Then said, unlike precious metal specie, one carefully targeted EMP would be all it takes to sever the ownership chain for a long, long time.

Still, with the digital currency recently reaching yet another record high, despite relentless jawboning and rhetoric by everyone from Jamie Dimon to central bankers to China, we can only imagine the business of protecting bitcoin fortunes is set to boom.

Source: ZeroHedge

Teachers Demand Extra $3,200 From Each Kentucky Household To Fund Busted Pension Ponzi For 2 Years

We have written frequently over the past couple of weeks about the disastrous public pension funds in Kentucky that are anywhere from $42 – $84 billion underfunded, depending on which discount rate you feel inclined to use. As we’ve argued before, these pensions, like the ones in Illinois and other states, are so hopelessly underfunded that they haven’t a prayer of ever again being made whole.

That said, logic and math have never before stopped pissed off teachers and/or clueless legislators from throwing good money after bad in an effort to ‘kick the can down the road’ on their pension crises. As such, it should come as no surprise at all that the Lexington Herald Leader reported today that Kentucky’s 365,000 teachers and other public employees are now demanding that taxpayers contribute a staggering $5.4 billion to their insolvent ponzi schemes over the next two years alone. To put that number in perspective, $5.4 billion is roughly $3,200 for each household in the state of Kentucky and 25% of the state’s entire budget over a two-year period. 

Kentucky’s General Assembly will need to find an estimated $5.4 billion to fund the pension systems for state workers and school teachers in the next two-year state budget, officials told the Public Pension Oversight Board on Monday.

That amount would be a hefty funding increase and a painful squeeze for a state General Fund that — at about $20 billion over two years — also is expected to pay for education, prisons, social services and other state programs.

“We realize this challenge is in front of us. That’s obviously part of the need for us to address pension reform,” said state Sen. Joe Bowen, R-Owensboro, co-chairman of the oversight board.

“In the short-term, yeah, we’re obligated to find this money,” Bowen said. “And everybody is committed to do that. We have revealed this great challenge. We have embraced this great challenge, as opposed to previous members of the legislature, perhaps.”

In presentations on Monday, the pension oversight board was told that total employer contributions for KRS in Fiscal Years 2019 and 2020 would be an estimated $2.47 billion each year, up from $1.52 billion in the current fiscal year. Nearly $995 million of that would be owed by local governments. The remaining $1.48 billion is what the state would owe.

The Teachers’ Retirement System estimated that it would need a total of $1.22 billion in Fiscal Year 2019 and $1.22 billion in Fiscal Year 2020. That would include not only an additional $1 billion to pay down the system’s unfunded liabilities but also $139 million to continue paying the debt service on a pension bond that won’t be paid off until the year 2024.

Of course, the $5.4 billion will do absolutely nothing to avoid an inevitable failure of Kentucky’s pension system but what the hell…

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As we’ve said before, the problem is that the aggregate underfunded liability of pensions in states like Kentucky have become so incredibly large that massive increases in annual contributions, courtesy of taxpayers, can’t possibly offset liability growth and annual payouts.  All the while, the funding for these ever increasing annual contributions comes out of budgets for things like public schools even though the incremental funding has no shot of fixing a system that is hopelessly “too big to bail.”

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So what can Kentucky do to solve their pension crisis?  Well, as it turns out they hired a pension consultant, PFM Group, in May of last year to answer that exact question.  Unfortunately, we suspect that PFM’s conclusions, which include freezing current pension plans, slashing benefit payments for current retirees and converting future employees to a 401(k), are somewhat less than palatable for both pensioners and elected officials who depend upon votes from public employee unions in order to keep their jobs…it’s a nice little circular ref that ensures that taxpayers will always lose in the fight to fix America’s broken pension system.

Be that as it may, here is a recap of PFM’s suggestions to Kentucky’s Public Pension Oversight Board courtesy of the Lexington Herald Leader:

An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.

If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers. All of those workers would then be shifted to a 401(k)-style investment plan that offers defined employer contributions rather than a defined retirement benefit.

PFM also recommended increasing the retirement age to 65 for most workers.

The 401 (k)-style plans would require a mandatory employee contribution of 3 percent of their salary and a guaranteed employer contribution of 2 percent of their salary. The state also would provide a 50 percent match on the next 6 percent of income contributed by the employee, bringing the state’s maximum contribution to 5 percent. The maximum total contribution from the employer and the employee would be 14 percent.

For those already retired, the consultant recommended taking away all cost of living benefits that state and local government retirees received between 1996 and 2012, a move that could significantly reduce the monthly checks that many retirees receive. For example, a government worker who retired in 2001 or before could see their benefit rolled back by 25 percent or more, PFM calculated.

The consultant also recommended eliminating the use of unused sick days and compensatory leave to increase pension benefits.

Meanwhile, PFM warned that the typical “kick the can down the road approach” would not work in Kentucky and that current retiree benefits would have to be cut.

“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”

“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”

Of course, no amount of math and logic will ever be sufficient to convince a bunch of retired public employees that they have been sold a lie that will inevitably fail now or fail later (take your pick) if drastic measures aren’t taken in the very near future. 

Source: ZeroHedge

 

Trump Wants To Add More Water To The Swamp

If you’re wondering what’s dragging the dollar down to 32-month lows, perhaps you should add this to the calculus…

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Politico reports that President Donald Trump suggested to congressional leaders on Wednesday morning that votes to raise the debt ceiling could be done away with altogether, according to three people familiar with the conversation.

In a meeting with GOP and Democratic leaders, in which Trump sided with the Democrats on a fiscal deal to raise the debt ceiling, the president said he believes the votes are unproductive, those people said.

With Congress set to lift the debt ceiling into December as part of the deal, Trump floated the idea that the next time Congress votes to raise the debt ceiling, it could be the last.

He said conversations should happen over the next three months, according to people in the room.

President Trump has now added his thoughts, telling reporters “we have great respect for the sanctity of the debt ceiling,” as he meets with Emir of Kuwait. “There are a lot of good reasons” to get rid of debt ceiling altogether, Trump says, adding that he discussed it with congressional leaders yesterday, and adding that “there will never be a problem” on the debt ceiling.

The Dems, are of course, delighted by Trump’s shocking U-turn:

Schumer said such a move could not be accomplished now, but indicated he would talk to his caucus about considering structural changes to the debt limit in December, a conversation Trump supported.

House Minority Leader Nancy Pelosi (D-Calif.) also appeared interested in the deal but was noncommittal. The debt ceiling is a key leverage point for members of the minority, particularly because it can be filibustered in the Senate and require 60 votes.

As WaPo confirms, President Trump and Senate Minority Leader Chuck Schumer have agreed to pursue a deal that would permanently remove the requirement that Congress repeatedly raise the debt ceiling, three people familiar with the decision said.

Trump and Schumer discussed the idea Wednesday during an Oval Office meeting. Schumer, Trump, and House Minority Leader Nancy Pelosi (D.–Calif.) agreed to work together over the next several months to see if they can finalize a plan, which would need to be approved by Congress.

One of the people familiar described it as a “gentlemen’s agreement.”

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We suspect Reps won’t be so happy…

Freedom Caucus legislators, angry about Wednesday’s deal, promised a spirited fight in December over the debt ceiling.

Conservatives are unhappy that the White House and congressional leaders have agreed to raise the debt ceiling without spending cuts.

However, Orrin Hatch – Republican Senator for Utah and Chair of Senate Finance Committee – says he wants to abolish debt ceiling votes.

Translated: Trump suggests that there should be no constraint at all, not even the fiscally conservative pretense of the debt ceiling law, over how much debt the government can pile on the backs of future generations of Americans. If Obama can add $10 trillion, we are sure Trump can do “better.”

Source: ZeroHedge