H&S Still Forming on Euro

AGW collapses

Climate Change Consensus Tracked

A 2012 poll found that 43 percent of Americans believe scientists disagree on whether climate change is caused by human activities. A new study emphasizes just how wrong they were. Not only is there scientific consensus on the causes of greenhouse warming, there’s near-unanimity.

Advocates of anthropogenic global warming (AGW) are no longer making scientific argument, which makes sense considering:

A sensitive matter

OVER the past 15 years air temperatures at the Earth’s surface have been flat while greenhouse-gas emissions have continued to soar. The world added roughly 100 billion tonnes of carbon to the atmosphere between 2000 and 2010. That is about a quarter of all the CO₂ put there by humanity since 1750. And yet, as James Hansen, the head of NASA’s Goddard Institute for Space Studies, observes, “the five-year mean global temperature has been flat for a decade.”

Temperatures fluctuate over short periods, but this lack of new warming is a surprise. Ed Hawkins, of the University of Reading, in Britain, points out that surface temperatures since 2005 are already at the low end of the range of projections derived from 20 climate models (see chart 1). If they remain flat, they will fall outside the models’ range within a few years.

This article in the Economist uses the phrase "maybe" "maybe not" a lot.

My position has always been that one day climate science may give us a somewhat reliable model of the climate and it could show an impact by humans. As it stands today, however, there is not even a scientific justification for heading back to a pre-industrial economy in order to fight global warming. The amount of death and hardship that will definitely happen if climate change policies are enacted cannot be justified by "maybe, maybe not, we're not sure yet." AGW relies on climate models that assume knowledge man doesn't have yet. Wall Street thought it could hire mathematics Phds to model the financial economy, far less complex than climate, and it almost destroyed the global economy—and still might. We'll know the science is right when, as Vox says, it becomes engineering. When climate scientists can recommend a specific act that can be shown to deliver the predicted change in temperature, then we will be looking at a reliable model of the climate. Until then, they will fall back on political pressure and political arguments.

Finally, it might not matter if they could make a strong case for global warming today due to falling social mood. The climate change agenda requires a global consensus, and that consensus is collapsing by the day. Nations are finding more and more things to fight over; there's no way they will agree to global centralized control over the economy.

It takes time

A Brief History Of Cycles And Time, Part 2

Did the U.S.S.R. disappear overnight? No. It took time, the exact amount of time for people to recognize, test, explore, and adjust their behavior. For some slower, and others more quickly. That is to say it took years, each piece unfolding one person at a time, one personal realization and event at a time in their own order. Once the nation collapsed, did it suddenly reform into the functional and rising state Russia enjoys now?

No. Again, it took time, decades of unfolding from 1991 until 2013, another whole generation, one "turning." Not until those who carried the template of the old ways passed away and new, younger people with new thinking replaced them. Not one of them could have stopped it or hurried it along although many tried, no different than any other time in history. As for the other guy, it’s always been clear that we’re all in this together. If your neighbors have a problem, then you have a problem whether down the street or in the world. This is why we all help each other best we can according to our abilities, in our own time.

What we as bloggers and far-seers have been trying to do is to change the aggregate, which cannot be done. The aggregate WILL change, but it can only change in its own schedule. We can continue to tell the truth, but after decades of status quo, we should not expect our words to change the world, our nation, or to some extent even our community. The only thing we can realistically change is ourselves with our own actions, and that is where all real change comes from, one person: one action at a time. 6 billion tiny events, tiny tipping points, changing minds who realize themselves one by one.

So what revolutionary act can you make today? If you read OfTwoMinds.com, PeakProsperity.com or similar sites, you already know the direction of history and what may be needed by you and the nation in the years ahead. What can you do to fill those gaps and prepare in your own life? Because the Wheels of History, although grinding exceeding slow, do get there in the end, made up of the decisions of billions of human actors. You may not be able to change your nation or the desperate situation we find ourselves in, but each of you can change yourself. You can make your own lifeboat in the midst of our own national challenge or "collapse." Only through that individual preparation could we find a million safety nets which prevent collapse.

And if that is all that’s asked of you, it’s good, for that’s all that’s possible.

Start today. It’s time.

Things will take far longer than anyone can predict and when change finally arrives, it will happen far faster than anyone can imagine. This is good news, in that there's a calm before the storm, plenty of time to prepare.

Concretely, it doesn't matter today if the U.S. dollar is ultimately doomed and gold will rise in real value, what matters is how people behave should the U.S. dollar experience a major rally.

Death of the U.S. dollar greatly exaggerated; Historic U.S. dollar rally still likely

Argentines Are Hoarding 1 Of Every 15 Cash Dollars In The World

But as Bloomberg Businessweek reports, a lot of US Dollar bills are tucked away somewhere in Argentina (in stacks of $100 bills since the number in circulation has risen from 58% of the total to 62% since 2008). One table is a 2012 Fed paper on demand abroad for US currency shows net inflows to Russia and Argentina has increased by 500% since 2006 (compared to US demand up around 10%). In fact, demand for large dollar transfers to Argentina since 2006 has outstripped demand for dollar cash overall in the world.

What will Japanese hoard if the yen hyperinflates? What will Europeans turn to if the euro dies? None of this is good for the dollar in the long-run, far from it since it will guarantee a U.S. debt crisis by raising the value of U.S. debt relative to the global economy. But those looking for hyperinflation are betting against the odds, as the more likely path to U.S. dollar hyperinflation is first through hyperdeflation, the other side of which is the hyperinflation of other fiat currencies.

The U.S. dollar is the core of the global financial system and global powers, including China, will seek to preserve it as long as possible. As each nation passes through hyperinflation, however, they become freed from the global financial system via poverty. At that point, the cost of launching a new financial system have been paid up front. As each nation goes through hyperinflation, it puts the U.S. dollar in a more untenable situation and makes a nation more likely to defect to a new system. Since gold will likely be a part of a new financial order, even if there is deflation it is wise to obtain physical metal, but the ultimate denouement of the U.S. dollar may be years away.

Asian and European social mood deterioriates

The Philippine strafing of a Taiwanese fishing vessel is spiraling into a larger confrontation.

Taiwan threatens Philippines with sanctions

Taiwan has demanded Manila apologise and compensate the victim's family or face a freeze on the hiring of its nationals.

It also asked the Philippines to bring to justice the coastguards responsible and start negotiating a fisheries agreement.

Taiwan threatens to hold naval drill near Philippines

Taiwan stepped up pressure on Manila Tuesday, saying it would conduct a naval drill in waters near the Philippines if Manila did not officially apologize for the killing of a Taiwanese fisherman.
Taiwan has demanded the Philippines apologize by midnight Tuesday (1600 GMT) over the killing of the 65-year-old fisherman by coastguards last week or face a potential freeze in sending workers to the island.

Meanwhile in Europe as Social Mood Darkens in Europe, Especially France, as Eurozone Economy in Freefall

A PEW study on European Attitudes shows social mood is darkening in the Eurozone, but especially in France.

In America, political scandal is beginning, but relative to Asia and Europe the mood is this:

Is Benghazi about to blow sky high?

In a previous post on socionomics and impeachment, I looked at Benghazi. I linked to this post, Bracken: Did Obama Withhold Cross-Border Authority?, which speculated:

Now, as far as Obama / Huma Abedin / Valerie Jarrett etc actually wanting Ambassador Stevens dead, to terminate the end of the very dirty Libyan arms to Syrian AQ programs, I can’t speculate. Obama is not competent enough, I’m thinking.

But for sure, the ambassador going to unsecure Benghazi on 9-11 of all days stinks to me of a setup. You can bet Stevens would have told the Turks, “No, 9-11 is not a good day for us,” and stayed in Tripoli behind many high and thick walls. For him to go to dangerous Benghazi on 9-11 means the Turks totally insisted, but why would they care about the meeting date, unless they were in on a “hit” as the Judas goat?

Alternatively, ordering Stevens to meet the Turks in Benghazi on 9-11 may have come from down OUR chain of command. Stevens seems to have been wearing two hats as ambassador and CIA arms shipper. Moving between more-secure Tripoli, the Benghazi “consulate,” and the CIA “annex.” So orders to him might come down the State or the CIA commo channels, or both. I am unclear on his job title and true position, but either the CIA or State sends him final instructions. How this works with “dual-hatted” ambassadors, I haven’t a clue.

I didn't quote the beginning part because it seemed sensational and off target, but I had heard discussion of arms deals previously. Karl Denninger has also noted this, such as in Hint: Quit Blowing Obama:

The press will not hold the government's feet to the fire on Benghazi, because then we have to admit that Chris Stevens was basically assassinated with our government's permission, and one must then ask the obvious question: What the hell were we actually doing over there that led those folks to want to kill him? Was it an attempt to "take back" arms we had given a group of people known hostile to the United States? That leads to some damned uncomfortable places if you're on your knees before Obama with his pants around his ankles, doesn't it?

This sounds like conspiracy talk right? Just right-of-center guys who are throwing out ideas, including some which paint the President in the worst possible light.

But then today I see this: An alternative explanation for the Benghazi talking points: Bureaucratic knife fight

First, some important context: Although the ambassador was killed, the Benghazi “consulate” was not a consulate at all but basically a secret CIA operation which included an effort to round up shoulder-launched missiles. In fact, only seven of the 30 Americans evacuated from Benghazi had any connection to the State Department; the rest were affiliated with the CIA.

Well this seems to be news: it wasn't a State Department mission, but a CIA mission to round up weapons.

So, from the State Department perspective, this was an attack on a CIA operation, perhaps by the very people the CIA was battling, and the ambassador tragically was in the wrong place at the wrong time. But, for obvious reasons, the administration could not publicly admit that Benghazi was mostly a secret CIA effort.

The talking points were originally developed by the CIA at the request of a member of the House Intelligence Committee. Interestingly, all of the versions are consistent on one point — that the attacks were “spontaneously inspired by protests at the U.S. embassy in Cairo,” a fact later deemed to be incorrect.

The Washington Post looks at the story entirely from the inside baseball of politics, but this raises the issue of what was really going on. It seems it's widely known by those following the story that this was as CIA mission to collect arms and that the attack likely was related to this mission, perhaps these were even the terrorists armed by the U.S. who killed the ambassador. Now it makes sense why this was covered up......but I get the sense from a cursory following of the story that most Americans, including many in the media, aren't aware of the real story.

How Fake Exports Caused The Yuan Rally

How Fake Exports Caused The Yuan Rally

Chinese exporters on the brink of bankruptcy have turned to currency arbitrage to stay alive, distorting Chinese trade data and the Chinese banking system.

Gold Lied, Inflation Died

At the end of 2008, total federal debt in the credit market stood at $6.4 trillion. At the end of 2012, it stood at $11.6 trillion, an increase of $5.2 trillion. Thus, on net, the credit market ex-federal debt contracted by $2.2 trillion. If it were not for the massive federal deficit, total credit would be contracting. We can see this change in the makeup of the credit market:

This is not the picture of a healthy credit market. Instead, it is the picture of a credit market where the federal deficit is the only thing preventing a full on depression. There is no inflation in the total supply of credit without the obscenely large annual federal deficit and the outstanding amount of credit dwarfs money supply.

Gold Lied, Inflation Died

Chinese exporters import gold as part of currency arbitrage schemes

Below is the Google Translate of a story on how the Chinese firms conduct currency arbitrage. Gold may have been used in some cases due to its high value to weigh ratio. The article closes with a key point: currency reform involves arbitrage and China cannot reform without arbitrage becoming part of the market. With the new leadership looking to press forward with reforms, the days of stable exchange rates are in the past.
The secret false trade arbitrage arbitrage the three model dismantling

import and export data reported in April soon as he announced the the false trade debate was detonated.
　　The interpretation of the data, close to the "absurd": China's exports in April year-on-year growth accelerated to 14.7%, 10% higher than the year-on-year in March, well above market expectations of 9.2%. Imports grew by 16.8%, higher than market expectations of 13%. These two data again disappointing trade data conflict with South Korea and Taiwan.
　　SG interpretation, data compared with Taiwan, mainland to Taiwan's exports growing faster than 51.9% (49.2% vs. -2.7%), while the mainland to Taiwan import growth the fast 58.6 percentage points (55.7% vs. -2.9% )! Among them, the most "do not fly" data import and export data. Where the water?
　　"Even if the import and export air line?
　　Popular RMB loans backed by a million can be rolled into billions of deposits, zero-risk, welcomed the consultation. "Along a microblogging clues, the reporter in Wuhan, a medium-sized foreign trade enterprises in Hong Kong on behalf of the identity, called the Fu surname "intermediaries" phone. Listen that what he wanted, he started Detailed lawful arbitrage entire process.
　　"First of all, business license and financial statements and other documents, before other bank line of credit, the fastest two weeks by the bank's credit investigation
　　company size requirements? "
　　real trading background, the registered capital more than 100 million yuan to review by not less than 50 million yuan deposited HSBC outlets, issuing letters of credit guarantees by the domestic branch of the HSBC Hong Kong counterparts highest operational efficiency, three days around each spreads about annualized 0.9%. "
　　reporter questioned whether it is necessary to provide true declarations with "Free Trade Zone, a day trip to deceive the public. The opposite came a laugh.
　　Customs to really check, Shenzhen Free Trade Zone, the first ones to suffer in the end you are not to do foreign trade? Documents, the contract can be false, why waste logistics costs. "
　　According to the body in Shanghai, "intermediaries" said the SAFE The reason why the introduction of four measures to strike hard re-export trade, which dealt with a number of non-foreign trade enterprises doping. "Some manufacturers engaged in the wholesale and retail profit-jealous, never export to customs, and this pierce the windows of paper."
　　intermediaries Fu said that he preferred Class A enterprises to direct their export declarations, contracts or invoices able to prove the authenticity of the transaction documents and any other kind of direct bank in the process of payment, import and export exchange earnings without online verification. "Excellent credit record B enterprises (trade foreign exchange receipts and payments by the bank to the implementation of electronic data verification), can also be involved in less than 100 million yuan arbitrage."
　　However, the Hang Seng Corporate and Commercial Banking, said Lin Yansheng accepted to our inquiries, Hong Kong after receiving the onshore guarantee, the Bank had not had actual contact, requires companies to submit all the documents again, does not exclude to send personnel to the Free Trade Zone or mark personally inspect the declaration of goods take up to a month.
　　Senior trade sources, the bank is generally more stringent review in the credit phase, the territory branch successfully issued a letter of guarantee, foreign counterparts deny the possibility of the RMB trade finance is almost zero.
　　100 million yuan loans from Hong Kong banks, and the latter in urgent need of reflux. Fu agent said the bank account manager will provide Hong Kong or offshore company registration, money circulation at least two or more times in order to apply for a trade reflux.
　　"If often to settle trade with the Mainland, Hong Kong companies will be better." A Hong Kong company registration agency believes that offshore corporate easy to give the impression of leaving tax evasion, from the regulatory point of view, the Hong Kong company's concern about the relative low. According to regulations, the Hong Kong banking sector RMB funds through trade channels, pay for the imports of goods from China directly back to the Mainland.
　　The offshore renminbi loans after repeated account to go, quite covert. Finally, Habitat housing just signed a new trade contracts with domestic parent company, the procurement of raw materials, gold and the name of a new bank, the completion of the trade under reflux.
　　Three models arbitrage
　　arbitrage secret expansion of trade data according to Merrill Lynch's report of May 10, arbitrage model can have several.
　　First, starting from the fourth quarter of last year, the offshore market for RMB assets rose, which led to the offshore RMB / USD (offshore RMB trade), compared to onshore RMB / USD (onshore RMB trade) are much more expensive. The peak in January, the offshore RMB onshore RMB expensive 0.6%. Therefore, offshore and onshore RMB between the arbitrage opportunities. "It looks very complicated, in fact, very simple arbitrage." Said Bank of America Merrill Lynch, for example:
　　arbitrage in the Mainland to borrow $ 1 million for 6.2 million yuan onshore exchange rate of 6.20, and then imported from Hong Kong gold and other goods of low logistics costs and pay by RMB 6.2 million yuan flows to Hong Kong as an offshore RMB, by Hong Kong partner, offshore exchange rate of 6.15 into dollars, get $ 1,008,130. Finally, then the original imported gold exports to Hong Kong partnership and profit of $ 8.13 thousand U.S. dollars (without regard to logistics and other costs), the end of the process.
　　However, there are people in the industry, imports of gold involved 13% of the value-added tax, the actual profit will be deducted for tax expenditures, arbitrage profits will be badly affected.
　　Bank of America Merrill Lynch judgment, the benefits of import and export of gold is small size, high value, and therefore is an ideal subject of such arbitrage. According to the data of the Customs and Excise Department, the first quarter of recent years, the Mainland to Hong Kong's gold exports rose year-on-year to 300%, the mainland from Hong Kong's gold imports soared 175%, which can be a gold cross-border arbitrage between the Mainland and Hong Kong mobile strong evidence.
　　The second model is offshore arbitrage between the onshore RMB interest rate. This arbitrage is very simple, is based on the arbitrage between the two different interest rates. Arbitrageurs can borrow offshore RMB of low interest rates, side-by-side into the high interest rates in the onshore RMB.
　　Arbitrage interest rate of 6% in the Mainland to borrow 100 million yuan two weeks, and then the interest rate of 3% in the bank, to require banks to issue letters of credit. The letter of credit, arbitrageurs partner or a related company of RMB 100 million yuan a year to get loans from banks in Hong Kong. Then arbitrageurs from the Mainland's exports of some low-volume, high-value goods to its Hong Kong partner, and receivables of 100 million yuan, and 100 million he returned to the bank. How to make a profit? RMB deposit interest rate and the cost of the offshore renminbi financing is his profit. Currently, after deducting the costs spread of 70 basis points. 1 billion two weeks Gross profit 700,000 250,000 loans a month cost to be deducted, and ultimately profit 450,000.
　　The third model is arbitrage between the spreads and the appreciation of the renminbi. This is the most complex model in onshore RMB offshore U.S. dollar, as well as between the shore RMB / USD and offshore RMB / USD.
　　For example, in Mainland China loan of 100 million yuan, an interest rate of 6% loan-to-two weeks, $ 1 billion to the bank to deposit into a one-year time deposits, the interest rate of 3%, let banks issue letters of credit, assuming that offshore USD / CNY 6.15, outside related enterprises in Hong Kong at 2% interest rate to borrow $ 16,260,000. Domestic enterprises through the export of gold or high-tech products, dollar loans reflux. At this point in the shore exchange rate of 6.2, to remove the loan interest, profit 56 million yuan in profits into time deposits. Year, fixed deposits of 1.036 billion yuan, net profit of about 360 million within one year 2% appreciation of the RMB against the U.S. dollar, the profits to be $ 592,000.
　　Bank financing "wade"
　　If the rhythm is faster? If the flow of capital and then "change" mean?
　　According to this reporter, the flow of capital arbitrage, has entered the bank financing, reap higher profits than the deposit.
　　Huang Qun (a pseudonym), a logistics company in Shenzhen Free Trade Zone to work in the past year, he has been involved in rumors of Shenzhen Futian Free Trade Zone, drove business now.
　　"Free Trade Zone and Hong Kong exchanges belonging to the re-export trade, not taxable," said Huang Qun, "so the cost is very low, as long as there is sufficient demand and resources, you can do great." Huang Qun said "demand" is refers to the Free Trade Zone of warehousing enterprises, foreign trade settlement limits through the re-warehousing business, business loans backed by a bank to obtain low-interest funds from Hong Kong. These funds transferred to the mainland, mainly through the purchase of financial products arbitrage.
　　The reporter of a Free Trade Zone, warehousing enterprises of foreign trade foreign exchange financing operational processes: (registered enterprises) in the bank set up a margin account and a financial account and associated information; preparation of related documents submitted to the bank, according to the amount required by the bank to handle the knot and payment procedures.
　　Margin account deposits can be recycled by T2 (2 working days cycle time) to do, T1 (1 working day cycle) to do. "Said Huang Qun.
　　For example, foreign trade warehousing companies in the margin account deposit 100 million margin, in accordance with the 20 working days of the month and T2, a month corresponds to one billion foreign capital inflows. This session, the Bank in accordance with 4 ‰ -5 ‰ "drove" from knot and payment amount to the bonded area of foreign trade warehousing company "dividends", "you can get up to six thousandths.
　　Ping An Bank financial markets related to the reporter said, "a lot of profit-taking after the inflow of hot money, real estate, the stock market can be, but the bank financing is a relatively way to gain a solid and flexible way."
　　According to the Ping An Bank Financial Markets Department sources, the bank in this session not only a margin deposit to increase the sales of financial products, but also a lot of money in the middle income "within the warranty credit business," the bank's enthusiasm is also very high. " 　　In fact,
　　after the frenzy
, Free Trade Zone and day trips, or exchange differences arbitrage, is not a new trick. New, in the context of the internationalization of the RMB, the new channel opened up, so that the return of the offshore renminbi loan funds more smoothly.
　　"Since the fall of 2012, China's trade data, especially the export data has been seriously distorted." Merrill Lynch chief economist Ting Lu believes.
　　HKMA data show that in March of this year, trade finance has also become the major promoter driven growth in the size of loans, compared with December last year, trade finance grew by 20.1% to HK $ 460.2 billion, compared with the same period last year, this an increase of 22.4%.
　　In October last year, between the onshore and offshore RMB exchange differences are very small, and by the fourth quarter of last year, conditions began to mature. "Ting Lu pointed out that, on the one hand, the RMB against the U.S. dollar appreciation again, the Chinese economy has begun rebound, on the other hand, offshore, in the onshore RMB against the U.S. dollar exchange differences to expand, expand the arbitrage profit margins, and people gradually mastered the secret of how to use the difference between onshore and offshore exchange rates and interest profit.
　　Spreads and exchange differences driven, arbitrage activity is rampant, the export growth bubble inflate. Ting Lu, after reasonable adjustments, from January to April this year, the growth rate of exports, but up and down 5%, much lower than the 17.3% increase data show.
　　(Trade distortion) reflecting the survival of small and medium-sized enterprises in the Mainland increasingly difficult, and the deteriorating economic situation in the Mainland, forcing enterprises to take the risk. "Hu Yifan, chief economist of Haitong International.
　　In the short-term cross-border trade RMB settlement of the case, the decline of the Industrial environment, so that the charm of arbitrage activities greatly increased, foreign trade enterprises, the fastest three days to achieve a return of 0.9%, will undoubtedly become more attractive following the real estate financial products.
　　"The excessive growth of RMB trade finance to cover the illegal arbitrage worry; currency appreciation is expected to attract foreign capital influx, the domestic document fraud introduction of offshore RMB against the countries to open 'within loans backed' to support domestic enterprises to go out of mind, its side effects, in turn, will hinder the the the RMB capital liberalization process. "CITIC Bank (International) business chief economic strategist Liao Qun.
　　For any similar space market spreads, copy a similar pattern is not impossible.
　　"Taiwan's trade with some water." Hu Yifan, Taiwan imports year-on-year increase of up to 55.7% in April, exports and imports of high-tech products year-on-year by a significant increase of 25.5% and 41.7%, but most other categories of products The level of growth is significantly weaker, and even showed a year-on-year downward trend or a weak single-digit growth, this may also reflect forged import and export invoices.
　　Ting Lu also pointed out that the same problem, the fourth quarter of last year and the first quarter of this year, the growth rate of exports of the mainland to Taiwan are 32%, while Taiwan Customs statistics show that in the same period, the mainland increase in imports from Taiwan were only 2% and 6 %.
　　The arbitrage activity itself is an important prerequisite to ensure market efficiency and capital mobility can not kill all arbitrage activities. "Deutsche Bank Greater China chief economist Jun Ma pointed out that, to the U.S. dollar offshore market, for example, 96% of the transactions arbitrage, hedging or investment functions, only less than 4% for the actual trade settlement. Therefore, capital arbitrage itself is the only way for a national financial markets from a closed to an open.
　　Since the inevitable question is placed in front of the regulators, how to solve the problem?
　　Regulatory authorities must be in the process of transition, the gradual opening of the capital account, can not let the arbitrage activities in the trade under development is too fast. "Ma Jun, otherwise, the import and export business entities indulged in capital operation, not only caused the trade figures virtual The increase in hot money from foreign exchange to offshore renminbi inflows, but not conducive to the national management of liquidity.
　　Hu Yifan funds indulge in arbitrage activities, but also to the domestic monetary authorities issued a real signal - only 4% of the market price of RMB loans given, Mainland approximately 6% of the level of interest rates is clearly too high.
　　"With the expansion of the market, arbitrage is bound to be more, will be more obvious, it is now in the hands of concessions to make the difference." Hu Yifan, in addition to strengthen customs links check file, cargo and other measures, regulatory The layer also needs to conform to market pricing consider adjusting the level of interest rates.

Impeach Obama? It's all in the DJIA

George Will: IRS Actions Against Conservatives An Impeachable Offense

If stocks fall, Obama will be impeached or his administration will be effectively shut down by investigations. The IRS scandal is critical because the IRS is used to implement Obamacare. If conservative groups were targeted for audits and harassment, it means conservatives (or any group out of favor with the current administration) could see their healthcare denied. On top of Benghazi and Fast & Furious, this is a wicthes brew. The only reason scandals aren't shutting down the administration today is because Republicans do not control the Senate. The way things are going, that is unlikely to remain the case. With both Houses, all the scandals of the prior 6 years will be investigated thoroughly. Eric Holder and other officials will not be able to remain in office.

If the Fed were all powerful, you could say only the Bernank could save him. But even Bernanke isn't powerful enough to reverse social mood. The question is whether this boom survives through the 2014 elections or not. Obama might survive impeachment like Clinton because Republicans may gain power in the same manner and ignore the social mood clues, fighting the old battle. However, the long-term Elliot Wave forecast suggests if thinks break, they will break down severely and Obama will not make it out.

Q: How did Clinton survive all those scandals?

Prechter: Actually, anyone who doubts my socionomic thesis need only consider the amazing case of Bill Clinton. As Congress got ready to vote on his ouster, the bull market resumed. The higher the market went, the more feelings against him waned. His popularity remained high, and it saved him. It was the same reason that no one cared when Reagan faced the Iran-Contra scandal. The Lewinsky scandal and lies to the American public didn’t hurt Clinton’s popularity because the president’s popularity reflects social mood, and its best meter, the stock averages, were still on their way to final all-time highs and record valuation in December 1998, the month of his impeachment by the House. That month, Clinton’s approval rating was 73%, which turned out to be his all-time high. Public mood is the key to his resilience, and that comes from the unconscious part of the mind, not the part that weighs facts.

Q: The lies and his behavior didn’t matter?

Prechter: Nope!

Q: What about the next guy?

Prechter: The next president, and maybe even one or two after that, should watch out. They will have to ride out the slide into a deflationary crash and depression. The party of the person who is in office during the worst of it will be devastated politically.

Q: You apparently don’t take sides.

Prechter: No, my analysis is non-partisan.

Q: Can you apply the rules of Elliott to political analysis?

Prechter: The guideline of alternation seems to apply. It has a specific technical meaning in wave formation, but also pertains to social trends. For example, you might recall that Richard Nixon won re-election in a landslide in late 1972 at the peak of a bull market. Despite everyone’s high hopes, he was hounded as a law-breaker and ultimately driven from office in August 1974 by the social mood reflected by the bear market. Bill Clinton took office with the market at a new all-time high amidst strong popularity, a Time “Man of the Year” cover, and high hopes for his performance. Like Nixon, he was hounded as a lawbreaker as the market corrected in 1994. Instead of Watergate, it was Whitewater. But one was a Republican and the other a Democrat. The specifics alternate. The essence repeats.

Excerpt from Why Was Ronald Reagan, Born 100 Years Ago, So Popular?

Update on the Slow Death of Democracy

In The Slow Death of Democracy, I looked at the emergency takeover of Detroit. No matter how it is spun, it is a failure of democracy and based on current trends in politics and public finances, it is the start of a trend. Now we have the results of the emergency manager's assessment, and as expected by everyone with a brain, it's far were than people were led to believe.

Detroit insolvent, EM Kevyn Orr says

Emergency Manager Kevyn Orr says the city of Detroit's cash-flow crisis makes it "insolvent" and unable to borrow more money to mask over debts being made worse by skipping millions in payments for retiree pensions and health care.

After 45 days on the job, Orr's initial assessment of Detroit's perilous finances is laid bare in a 41-page report to be delivered today to state Treasurer Andy Dillon.

Calling it "a sobering wake-up call about the dire financial straits the city of Detroit faces," Orr said he will use the report as a baseline for paring down the city's $15.6 billion in debt and long-term liabilities.

Orr, a Washington, D.C., bankruptcy attorney, did not use the word "bankruptcy" anywhere in his report but said the city is "insolvent" and has "effectively exhausted its ability to borrow" after years of issuing long-term debt to pay its bills. Previously, he has said he hopes to avoid a Chapter 9 filing.

The report hints that city employees who were not hit by last year's wage reductions could face pay cuts in the near future and that Wall Street bondholders will be asked to take a haircut to relieve a city that shelled out $133 million in debt payments last year on a $1.23 billion budget.

Orr also says he will evaluate "options to reduce or eliminate certain health care costs for both active and retired employees" in light of a $5.7 billion unfunded health care benefit for 18,500 retired city workers and 10,000 active employees.

"No one should underestimate the severity of the financial crisis," he said Sunday in a statement.

......The Detroit General Retirement System and Police & Fire Retirement System claim to have been 83 and 100 percent funded, respectively, as of June 2011. But Orr and a team of consultants aiding the restructuring of city government are beginning to question mathematical assumptions used to determine the value of the funds.

The city's June 2011 report showed the pensions having a $646 million accrued unfunded liability. But Orr said the market value of the two pension funds' assets — such as real estate — were more than $1 billion less than the actuarial assumptions.

Much more to the story. I expect this will become a huge issue in the coming days and weeks because there are dozens of cities in similar situations, not as bad as Detroit perhaps, but bad enough that they will need to take similar steps. If Detroit takes out "holy grail" items like retiree pensions and healthcare, other cities will take advantage of the precedent. This is a huge, huge battle.

If you're wondering how they got into this mess, just look to the idiocy of union leaders who had the prior government's ear:

Ed McNeil, a representative for the city's largest union, AFSCME Council 25, said the rising legacy costs are nothing new and as the city continues to privatize and reduce its workforce, it is losing funds that could have been paid back into the system.

"If you stop hiring people to pay into the system, then your money is gone," said McNeil, whose union represents about 2,000 city workers. "This is a 'set up to fail' situation."

By this logic, increasing payrolls exponentially would result in an exponential rise in tax revenue.

The view from the top

Diamonds to Blazers: Gatsby Mania Inspires Retailers

Inspired by the glitz and glamour of "The Great Gatsby's" 1920s backdrop (and hoping to capitalize on some free press), several retailers have launched collections to help consumers to live it up West Egg style.

No movie could better represent the mid-Depression mood better than The Great Gatsby. In the 1930s, comedies were popular during the 1934-1937 recovery. Today, after trillions in global central bank printing, the perfect movie comes out and plays up the perfect angle. It is an opulent feast for the eyes, a glitzy take on the 1920s timed perfectly for new stock market highs. Yes, the 1920s are here again! But for how long?

Social mood: Mystery Aircraft Frightens Quincy Residents

Mystery Aircraft Frightens Quincy Residents

Social mood may explain a lot of the fear, but this is interesting: a city councilor asked the FAA if it was law enforcement, and they said they couldn't say. Then he asked was it at least something the people don't need to be worried about, and the FAA said, "I can't tell you that."

Yuan Arbitrage Replaces Trade as Exporters Go Bust; Endgame Begins for China Bubble

How Fake Exports Caused The Yuan Rally

Chinese exporters on the brink of bankruptcy have turned to currency arbitrage to stay alive, distorting Chinese trade data and the Chinese banking system.

Here Comes the Global Rebalancing; What Happens to USD/XXX If XXX Goes to Zero?

All the U.S. dollar haters have a good reason to think the U.S. dollar is a bad bet in the long-term. Currencies move in long-term cycles though, and the dollar devaluation cycle ended in 2008. An up cycle of 5-10 years is underway and given that the dollar has yet to meaningfully appreciate, the rally may yet get started. Calls for hyperinflation are correct if they did not specify the currency, because hyperinflation is coming, but not to the U.S. dollar in the near future. Instead, other countries will hyper-inflate and as they towards zero, the U.S. dollar will experience a rally that could be the largest ever in history.

ZeroHedge points us to two stock charts in Name These Two Markets. It shows the Merval and the Nikkei, the Argentinian and Japanese stock markets going vertical as their currencies head lower. Here's a look at the two currencies:


This isn't yet hyperinflation, but this is what hyperinflation looks like at the beginning. Furthermore, Argentina is already in hyperinflation: Global Dollar Demand Keeps Inflation Tame At Least In U.S.

Inflation is just getting started in Argentina. The rate is officially about 10%. Unofficially, it’s about 30%. Officially, you can trade a dollar for 5.4 pesos. Unofficially, you’d be a fool to do so. The black market rate is eight pesos to the dollar — and more.

Looking at the chart above, it implies a more than 50% drop in the exchange rate for the peso. Technically one can quibble about where the line is drawn on hyperinflation, but Argentina is getting to the point where the debate ends. I go with the shorthand of 50% annual inflation, which is really close for Argentina because at these levels, 50% is not far from 30%. Past that point, a nation runs the risk that people will flat out abandon the currency, sending inflation into the hundreds or thousands of percents.

Argentina is another study in failed economic policies, but its impact will be limited due to the size of the economy. In contrast, the decline in the yen is critically important because it is an exporting powerhouse. As the yen declines, it will increase its exports at the expense of competitors such as South Korea and Germany, and this will have secondary effects on exporters such as China. The decline in the yen will accelerate the global rebalacing because it will destroy the export economies. If Japan moves towards hyperinflation, exporters such as Germany and South Korea have two choices: let their currencies appreciate and suffer a depression (SK exports account for 60% of GDP) or join in the devaluation. In the case of Germany and China, they may have no choice because of their fragile financial systems. Major deflation will ultimately lead to hyperinflation as the financial system fails and requires massive central bank intervention to save.

The big wildcard is China.

The yuan is moving in the wrong direction. China targets hot money inflows with new forex rules

Indeed, the hot money is showing up as faster money supply growth: China April New Yuan Loans, Money Supply Exceed Estimates. Something will have to give in China.

All the while, the U.S. dollar and U.S. assets will absorb capital seeking a safe haven. It doesn't matter that gold should be a safe haven in this scenario because so many investors have gotten it wrong. The gold bulls nearly all expect U.S. hyperinflation and a major U.S. dollar rally could crush the gold bulls, while the rest of the market is anti-gold and will look to other assets. Therefore, I can foresee a massive decline in gold prices if this scenario plays out. It will be the buy of at least three lifetimes because a U.S. dollar will be wholly temporary, as the U.S. will eventually succumbs to deflation, but investors may continue selling it even when it reaches insanely cheap levels.

Dylan Grice - Japan

Meanwhile in Asia......

UK does not support an independent Tibet: David Cameron

Japan protests over Chinese article on Okinawa sovereignty

Taiwan protests to Philippines over fisherman's death

Taiwan demanded compensation from the Philippines Thursday over the killing of a crew member of a Taiwanese fishing trawler which allegedly came under fire from a Philippine government boat.

According to the Chinese reports, the Philippine vessel strafed the ship.

Japanese Government Bonds Halted Limit Down; Yields Spike To 10 Week High; Worst Day In 5 Years

South Korea Joins India-to-Europe Rate Cuts for Growth

Australian dollar rebounds after rate cut sell-off

China Yuan Hits New High on PBOC Guidance

Things are starting to pick up the pace. China is going to be squeezed by the plunging yen and now the won is likely to follow. The Australian dollar will start weakening as well. The rise in the yuan is coming at the worst possible time, as the U.S. dollar sets out on its own rally against other major currencies. China may be headed for a serious deflationary crisis.

Obama impeachment a matter of the stock market?

Diplomat Says Questions Over Benghazi Led to Demotion

It's clear now that President Obama and Secretary of State Hillary Clinton lied to the public, either directly or through subordinates, about the attack in Benghazi. The full story may never come to light, with speculations of arms trafficking at this point uninvestigated.

Bracken: Did Obama Withhold Cross-Border Authority?

Stevens seems to have been wearing two hats as ambassador and CIA arms shipper. Moving between more-secure Tripoli, the Benghazi “consulate,” and the CIA “annex.” So orders to him might come down the State or the CIA commo channels, or both. I am unclear on his job title and true position, but either the CIA or State sends him final instructions. How this works with “dual-hatted” ambassadors, I haven’t a clue.

But Stevens meeting the Turks at the unsecure Benghazi “consulate” on 9-11 stinks to me of a deliberate setup

Between the existing lies and cover-ups, if it were revealed that the State Department was arming terrorists, it would surpass the current level of scandal, which is already at Iran-Contra levels.

No one today is predicting impeachment for Obama or Clinton, but there's enough dirt here to justify it. Therefore, we need to look to social mood. Both Clinton and Reagan survived major scandals during rising social mood. Currently, social mood is on the uptick. If social mood were to tumble, then the public has all the ammunition they need to take it out on the leadership.

Social mood and 100 year predictions

China may not overtake America this century after all

Yes, after a nearly 90% difference in performance since 2009, now it is popular to be bullish on the U.S. and bearish on China. The China slowdown is real, but is U.S. optimism warranted?

Japan's coming implosion

This chart crystallizes the problem. You can hear discussion of it in this video from Otterwood Capital posted yesterday.



Japan's debt payments are rising and they interest rate is still falling. When the interest rate turns, the debt service costs will explode.

Epic dollar rally coming

If Japan goes, the euro and yuan will follow. The euro is interesting because it could disintegrate politically rather than evaporate through hyperinflation.

Prepare for the convertible yuan

For Yuan, Convertibility Countdown Starts Now

People's Bank of China Governor Zhou Xiaochuan recently said China's foreign exchange reserves are too high. A fundamental solution to the problem, I think, lies in making the yuan freely convertible and adding it to the basket of international reserve currencies.

I remain optimistic about the yuan becoming basically convertible during the 12th Five-Year Plan period. With the gradual opening of the nation's capital account, the establishment of an offshore yuan market, and reforms to the exchange rate and interest rate regimes, the yuan will become substantially more active in international transactions.

The yuan will see basic convertibility in 2015, laying a solid foundation for the currency to join the international reserve basket.

China swings right

Five times more conservatives than liberals in China, says survey

Some 38.1 per cent of those surveyed held more conservative values, were more critical of overall individualism and leaned towards the "left", a term that commonly refers to those more patriotic, according to the study by scholar Zhang Mingshu, director of the political culture research centre at the academy.

The left-right divide is different because of the revolution in China, but the sentiments are the same as seen in Japan and Europe.

Japan, UK, Hungary, Russia swing right; U.S. right begins to organize

As always, there's a great gulf between what each party stands for in each country, but the general trend is away from left-wing politics.

In the UK, a major victory for UKIP: Local Council Elections: UKIP Make Big Gains

With UKIP averaging 26% of the vote in county council polls, leader Nigel Farage said he was "astonished" by the party's breakthrough, and put it down to what he described as the "total disconnect" between the "career politics" of Westminster and ordinary people on the streets.

Current PM David Cameron said in 2006 that UKIP was full of "fruitcakes, loonies and closet racists." After these results, he said he will fight to win their votes back.

Japan PM's 'stealth' constitution plan raises civil rights fears

Many Japanese conservatives see the constitution, unchanged since its adoption in 1947 during the U.S.-led Allied Occupation, as an embodiment of Western-style, individualistic mores they believe eroded Japan's group-oriented traditions.

Just to be clear about the Japanese trend:




In Hungary: Jobbik rally against World Jewish Congress in Budapest

"The Israeli conquerors, these investors, should look for another country in the world for themselves because Hungary is not for sale," party chairman Gabor Vona told the rally, according to Reuters news agency.

Marton Gyongyosi said Hungary had "become subjugated to Zionism, it has become a target of colonisation while we, the indigenous people, can play only the role of extras".

Last year, Mr Gyongyosi had sparked outrage by saying all government officials of Jewish origin should be officially listed, as they might be a "national security risk".

Jobbik isn't likely to win any significant power in Hungary, but they have moved criticism of foreigners into the mainstream. What many of the articles on Hungary and other nations often fail to report is that the tone of the debate is shifting and positions considered racist/xenophobic are being expressed more freely. As I've written before discussing other policies, this is partially a reaction against the extreme peak social mood. When social mood is extremely negative, people not only reject the presence of foreigners, they reject foreign influence from any source, including food or music. In normal periods, there is an open debate about whether something foreign is good or bad for the native cultures. When social mood is extremely positive, everything foreign is considered good and those who express reservations are labeled as xenophobic or racist. In reading Western media accounts, for example, one finds the anti-Semitic Jobbik often described in much the same was as UKIP because the Western media is still operating on peak social mood.

In Russia, the Orthodox Church continues to return to its traditional place in Russian society.

Who needs the Flying Elvises?

The Airborne Forces were established in the 1930s, during the worst of Stalinist repressions. I can’t help but a find a bit of tasty irony in the fact that, having survived the Bolshevik nightmare, the Orthodox Church is back in the field, among the Russian military, doing what it has done for two thousand years.

As for the U.S., the extreme political right have begun coalescing around the term "neo-reactionary." For the most part the movement is still completely under the radar and has no formal structure, but this map is the first formal sign of self-awareness. Unlike the political changes in the UK, Japan and Hungary, the U.S. movement is more fundamental and cultural and will probably not express itself formally in politics for at least a decade, as most adherents appear to skew young.

Euro trend resolved for now, but is that a head and shoulders I see before me?

Drug resistant STDs emerging

Sex Superbug Could Be 'Worse Than AIDS'

"It's an emergency situation," said William Smith, executive director of the National Coalition of STD Directors. "As time moves on, it's getting more hazardous."

This gonorrhea strain, HO41, was discovered in Japan two years ago in a 31-year-old female sex worker who had been screened in 2009. The bacteria has since been found in Hawaii, California and Norway.

The government laws are in place. Substitute promiscuity and homosexuality for smoking or obesity. Declining social mood, authoritarian control over healthcare and an eventual swing rightward culturally will combine for potent social control.

More global cooling news: 200 year solar cycle may keep temperatures low for two centuries

Cooling in the Arctic: what to expect?

Global warming which has been the subject of so many discussions in recent years, may give way to global cooling. According to scientists from the Pulkovo Observatory in St.Petersburg, solar activity is waning, so the average yearly temperature will begin to decline as well. Scientists from Britain and the US chime in saying that forecasts for global cooling are far from groundless. Some experts warn that a change in the climate may affect the ambitious projects for the exploration of the Arctic that have been launched by many countries.
Just recently, experts said that the Arctic ice cover was becoming thinner while journalists warned that the oncoming global warming would make it possible to grow oranges in the north of Siberia. Now, they say a cold spell will set in. Apparently, this will not occur overnight, Yuri Nagovitsyn of the Pulkovo Observatory, says.

These scientists estimate the major effects may not arrive until 2030 or 2040.

Euro at a crossroads

COTS reflects the technical crossroads on the chart of the euro.

More global cooling

Anthropogenic global warming (AGW) models predicted rising temperatures. Climate models/predictions from scientists adhering to historic cycles or solar output predicted cooling. The results continue to favor the latter:

Second Coldest Start To Spring In US History

The slow death of AGW continues. Negative social mood will finish it off because the it was an over-hyped rising social mood phenomena. These headlines don't actually refute the case, as each individual story is one data point, but focusing solely on the social/media sphere, every cold weather story is a strike against the hysterical proponents of climate change legislation. It became a political/cultural story and it will die as one. It will be unfortunate if, in the long-run, it turns out the AGW theories were right, but fortunately the odds of this being the case continue to decline.

Switzerland shuts the door

Switzerland shuts the door on EU migrants: A new 'us vs. them' in Europe?

As I happened to be standing in the most intolerable immigration line that I've ever faced – more on that later – I read on my Twitter account that the Swiss government on Wednesday announced a new policy to cap residence permits for all of Western Europe. Switzerland, which is not part of the EU but joined the Schengen bloc that allows freedom of movement of people across European borders, says that it is being overwhelmed by arrivals from across the continent, to the tune of 80,000 people each year.

The U.S. is going to shut the door as well if amnesty passes. A majority of Americans want restrictions on legal immigration, and when the amnesty reveals not 12 million illegals, but more like 20-25 million, the American people will say enough and shut the door.

Andy Xie on the plunge in gold prices

After the Flash Crash

The recent crash has cleansed the gold market of speculative liquidity. The demand for gold is mainly from emerging economies that face chronically high inflation. The recent growth deceleration pushes these economies into stagflation. Their demand for gold is likely to be persistent.

At the beginning of the year, I was positive on gold for the second half of 2013. I was expecting a rising dollar and strong stock market to dampen gold demand. As a weak global economy eventually cools stock markets, gold will come back.

Now I believe that gold has bottomed. Speculative money in gold has left. Inflation and slowing growth are favorable for gold. Stock markets are likely to struggle for the next few months. The dollar's rise is pausing for now. It seems that the headwinds for gold are removed and the tailwinds are getting stronger. Gold should perform quite well for remainder of the year. Even a new high is possible.

Retail investors must be vigilant on market manipulation. Physical gold demand is mainly from emerging economies like China, India and Middle Eastern countries. The gold financial markets are in New York and London. The financial players can make money from emerging market retail investors by creating artificial cycles, creating euphoria and panics. Gold buyers should not buy after a price surge. Now is a good buying opportunity.