Egypt hits the wall

Egypt to Start Foreign Exchange Auctions as Reserves Plunge
The North African nation’s central bank said the sales and purchases of U.S. dollars will take place periodically and aim to “preserve foreign-currency reserves and ration their use,” according to an e-mailed statement today. The new mechanism will support the dollar interbank market, it said. Egypt’s net international reserves have slumped almost 60 percent in the two years since the start of an uprising that ousted former President Hosni Mubarak.

“The current level of foreign-currency reserves constitutes the minimum and critical level that must be preserved” to meet necessary needs like repaying external debt and importing “strategic commodities,” the central bank said in the statement.
Egypt needs dollars for food. If food prices rise, Egypt will go hungry.

Market Vectors Egypt Index ETF (EGPT) rallied post-Spring, but it will reach new lows as the currency collapses.


Blurring of gender roles, rise of women during negative mood

From Hong Kong:
More teenage girls joining street gangs
Social workers at Youth Outreach, who take in 200 children off the streets every night at their Sai Wan Ho drop-in centre, say that in their early teens girls are often physically stronger than boys and have a more mature personality, making them natural authority figures.

"A lot of the gang leaders are now girls and they are getting younger and more masculine," said social worker Ted Tam Chung-hoi, 33, who has worked with Youth Outreach for 10 years.

Irrational hatred of guns is driven by negative social mood

Magical thinking dominates during periods of negative social mood, which is why people favor policies that do not work. The evidence overwhelmingly shows that guns are not responsible for crime or death, only the proximate cause. In other words, more people are shot in America because Americans own guns. In other nations, they are more likely to be stabbed, poisoned, run over by cars, blown up by homemade bombs, set of fire, etc. Furthermore, adjusted for gun ownership, the rate of gun deaths are extremely low. That is to say, there are nations with far less gun ownership that have higher rates of gun violence. What explains the higher American homicide rate is its diversity. A comparison of Hispanic murder rates with Latin American nations, a comparison of African-American murder rates with Caribbean or African nations, a comparison of Asian-American murder rates with Asian murder rates, and a comparison of white murder rates with European murder rates, shows the United States is generally safer. That is to say, the immigrants to the U.S. are generally less violent, especially when factoring in crimes such as assault, rape and home invasions, than people in their ancestral nation. Despite its much stricter gun control, Europe has been the scene of more mass school killings than the United States.

California gun sales jump; gun injuries, deaths fall

Civil unrest, civil war and secession coming to America? Or World War III?

I tend to dismiss articles such as the one linked below, which ascribe a conspiracy to the inevitable (such as the collapse of the dollar), but from the standpoint of socionomic analysis, it doesn't matter whether it is true or not. What matters is that people believe it, the mood it reveals, and for forecasting purposes, whether people will act on it. When we look at Catalonia, Scotland or any secession movement, it doesn't matter if Catalans or Scots believe there is a conspiracy against them, or if their post-secession economic forecast is 180 degrees wrong, what matters is what they believe going into a secession vote.

In socionomics, we are often looking from the center out, from the standpoint of a group or individual. However, one can also see action from without. That is to say, a nation may not feel negatively towards a foreign power, but the negative action of that power could lead to war. Similarly, when looking at secessionists and anti-government sentiment, we could be seeing the intentional instigation of anti-government behavior because the government is also beholden to social mood. To use a recent example, the Oklahoma City bombing was partially blamed on talk radio and anti-government media. However, one could have just as easily blamed government policies and propaganda targeting guns, since the assault weapon ban and Brady bill preceded the attacks.

Catalonian secession cropped up so quickly, that one can reasonably ask if the Spanish government or Spanish people have not taken some anti-Catalonian action? In the case of Quebec, it's almost entirely a domestically driven movement, but outside pressure could be the trigger that makes Quebecois decide to leave once and for all. In the U.S., we see secessionist talk, but often the response to Southern nationalism is to deride Southern rednecks and say that America is better off without them. And certainly, in the run-up to the Civil War, the North was pressing its economic and political advantage upon the South.

What it boils down to in places such as the United States, where there are no established movements, is that secessionist movements will not be organic. Secession will be a reaction, not the action. The action will be oppression, the rise in authoritarianism that comes during negative social mood. The drive for secession will be the reaction to authoritarianism; it is the asymmetric response to a threat from a superior enemy.

As I've written before, negative social mood is necessary, it is part of the cycle of history. Negative social mood is the reaction that balances the positive social mood, cleaning out the failed policies of government, bankrupting the failed businesses, and settling long-simmering disputes. The particulars of how it is settled can be a net positive or negative for a nation: the United States, Russia, Germany, Japan and China all traveled divergent paths in the early 20th Century, and the choices they made impacted their nations for decades.

There's no need for secession or violent conflict, civil or international. However, governments that fail to understand social mood will make mistakes. They will behave in ways that leave their opposition with no way to act except via violent means, or they will respond to peaceful movements with violence.

Consider the current gun debate in the United States. The history is clear: last time this debate took place, there was a major act of domestic terrorism, and that happened while social mood was still net positive. Today, social mood is negative and falling. A wise government would look to defuse the situation, but instead, nearly every action of the government feeds conspiracy theories. Those inclined to believe conspiracy theories will always believe in them, but those who normally do not believe in them, start believing them when the government behaves as predicted by the theorists.

The latest from “DHS Insider”
RB: [Over talk/Unintelligible] ...know who was selected or elected twice now. You know who his associates are. And you are saying this is way over the top? Don’t forget what Ayers said - you talked to Larry Grathwohl. This guy is a revolutionary. He does not want to transform our country in the traditional sense. He will destroy it. And he’s not working alone. He’s not working for himself, either. He has his handlers. So don’t think this is going to be a walk in the park, with some type of attempt to rescue the country. Cloward-Piven. Alinsky. Marx. All rolled into one. And he won’t need the rest of his four years to do it.

DH: I need you to be clear. Let’s go back again, I mean, to those who speak out about what’s happening.

RB: [Edit note: Obviously irritated] How much clearer do you want it? The Second Amendment will be gone, along with the first, at least practically or operationally. The Constitution will be gone, suspended, at least in an operational sense. Maybe they won’t actually say that they are suspending it, but will do it. Like saying the sky is purple when it’s actually blue. How many people will look at the sky and say yeah, it’s purple? They see what they want to see.

So the DHS, working with other law enforcement organizations, especially the TSA as it stands right now, will oversee the confiscation of assault weapons, which includes all semi-automatic weapons following a period of so-called amnesty. It also includes shotguns that hold multiple rounds, or have pistol grips. They will go after the high capacity magazines, anything over, say 5 rounds.

They will also go after the ammunition, especially at the manufacturer’s level. They will require a special license for certain weapons, and make it impossible to own anything. More draconian than England. This is a global thing too.
People are agitated about guns, and nothing the government is doing today is designed to calm the population. It's doing the exact opposite, driving people to buy more guns and ammunition.

Now here's more of the conspiracy:
During all of this, and you’ve got to remember that the dollar collapse is a big part of this, our country is going to have to be redone. I’ve seen - personally - a map of North America without borders. Done this year. The number 2015 was written across the top, and I believe that was meant as a year. Along with this map - in the same area where this was - was another map showing the United States cut up into sectors. I’m not talking about what people have seen on the internet, but something entirely different. Zones. And a big star on the city of Denver.

Sound like conspiracy stuff on the Internet? Yup. But maybe they were right. It sure looks that way. It will read that way if you decide to write about this. Good luck with that. Anyway, the country seemed to be split into sectors, but not the kind shown on the internet. Different.

DH: What is the context of that?

RB: Across the bottom of this was written economic sectors. It looked like a work in progress, so I can’t tell you any more than that. From the context I think it has to do with the collapse of the dollar.

Most people cannot conceive of a collapse in the U.S. dollar. Despite the economic forecasts that have existed for nearly 40 years now, the vast majority of people do not expect a collapse of the dollar. Even those who buy precious metals and expect the dollar to undergo a crisis haven't thought through what the world will look like if the dollar collapses. I would bet that a larger percentage of the population believes that Obama wants to destroy America and the U.S. dollar. Therefore, if the dollar does collapse, what's going to be the response? Besides anger at Wall Street and Washington, will people have serious debates about the monetary system? Will they gravitate to Ron Paul? Or will they believe that the collapse was a conspiracy, part of a plot by a government that is simultaneously trying to confiscate their weapons and violate the most important right listed in the Bill of Rights?

A Survey of U.S. Secessionism: Negative Social Mood Will Vent — but Where?
Examples from the past and present show that common enemies often forestall civil wars. War with Carthage redirected ancient Rome’s internal conflict for many years. Once Rome defeated its enemy, civil war intensified and the empire began its famous decline. The Spanish-American War in the decades following the U.S. Civil War provided a common enemy that helped to heal the residual bitterness between North and South. The 1919 Anglo-Afghan War united long-adversarial Pashtun tribes against the British. As Euan Wilson described in the January 2010 Socionomist, the intensity of the Chinese Civil War waned when Japan expanded its incursion from northern China into Manchuria. After Finland lost its common enemy and oppressor, Russia, during the Russo-Japanese war, it promptly erupted in civil war. A prolonged political enmity followed, but it eased when Finns again faced a common enemy in World War II. In 2009, previously hostile Pakistan and Afghan Taliban factions united to oppose the buildup of 17,000 U.S. troops. Recent reports show Taliban groups again bonding as they face the current 30,000 troop American surge.

...Politicians and government propagandists are well aware that the portrayal of a common enemy can rouse emotional solidarity and group identity, which in turn redirects internal dissent and discord. Alexander De Conde’s History of American Foreign Policy says William Seward, Lincoln’s Secretary of State, advocated “a policy of hostility or war” against several European nations to “win back the loyalty of the seceded states and avoid civil war.” But Lincoln famously urged “one war at a time” and refused to initiate or respond to foreign provocations during the war.
What's the most likely response to growing secessionist talk in the United States? A foreign war.

No to gold standard, Yes to gold reserves

Arguments for using gold in the monetary system range from those advocating a hard gold standard to the concept of Freegold. One would need to read through the archives of FOFOA to fully understand freegold, but I like to state it simply as allowing gold to freely float against other currencies. Gold would function as a wealth preservation asset for the wealthy and central banks, and to the extent it was needed, it could be used to balance accounts between nations. There would still be fiat money, in essence the role of money and savings are bifurcated—central banks accumulate gold instead of dollars or U.S. Treasuries. However, it is a voluntary system, in the sense that no formal laws are written requiring gold. This voluntary system would essentially function as a formal system, however, since central banks that do not have gold would have trouble maintaining the value of their currency in the absence of extremely prudent management.

You may think the concept of freegold or a free floating gold price isn't going to happen. If you believe this, however, you aren't watching the reserves of central banks. Central banks have switched from selling gold to buying gold, led by China and other emerging markets. However, even central banks that do not buy gold have seen their gold reserves increase due to the rising gold price.

Here is the euro reserves:

The price of gold has increased more than 500% from its lows in 2000, lifting it's share of reserves from 30% to more than 60% of the Eurosystem. A double in the gold price, to $3300 an ounce, would lift gold reserves to more than 80% of assets (holding foreign currency steady).

Gold is well on its way to balancing the balance sheets of central banks. The Federal Reserve and other central bankers are expanding their balance sheets to prop up their banking systems, which means gold needs to rise higher to balance the books. The trend is obvious though, to any who are watching. Gold will balance the books of the central banks, and gold will replace foreign currency holdings, particularly the U.S. dollar. The dollar as reserve currency is coming to an end; gold as reserve asset is coming into being.


China's aristocrats

Chairman Mao was an emperor, and although there is no emperor today, the ruling Communist Party resembles the aristocracy under empire more than anything else. Bloomberg has the family trees and connections between the founding families.

Mapping China’s Red Nobility


For those with time to spare

Here's Kyle Bass talking about sovereign debt risk and Japan.

At one point, he relates a conversation with a Japanese central bank official. Bass says something to the effect of, "How can you complain about monetization of debt, when you're doing it?" And the central bank official replies, "It will be money printing when the market says it is money printing." Bass rightly views this as talking out both sides of the mouth, but the official is also correct. Global central banks are monetizing debt at a rate sufficient to generate substantial inflation (easily 10% per annum as a low estimate), but this is being offset by massive credit destruction and a reluctance to loan/borrow on the part of banks and individuals.

Eventually, this will change and it will be a psychological change. At the time of the shift, people will explain it as fundamental, but it really isn't. Central bankers are playing musical chairs, only they do not know how many chairs are remaining. Therefore, they will continue inflation until the music stops and the first central bank has no chair.

Thus, the central bank official is correct in his reading of the market. His mistake is that he is making policy. There will be no escape when the music stops.

Social mood can provide a clue as to when a shift will occur, and the direction doesn't matter. If there is a greater negative mood, foreigners may impose a devaluation on the yen. If social mood suddenly improves, Japanese borrowers will generate the inflation. Any volatility, up or down, will puncture the equilibrium and send the yen careening.


One vote for Prechter's Grand Supercycle top

Some perspectives from Prudentius
"The past isn't dead; it isn't even past." And we all know that America is Rome. Late Rome.

But which late Rome? The late Republic? Or the late Empire? Do we deserve an Augustus? Or are we just waiting for our Alaric?

Tonight I thought we'd hear from one of the leading experts on the subject. That's right - let's give a big hand to Aurelius Prudentius Clemens (no relation to Sam). Courtesy of our capable medium, Sister M. Clement Eagan, C.C.V.I. (Incarnate Word College, San Antonio, TX, 1965), we'll speak with Prudentius live and in blank verse - from the very special year 403.
He goes on to quote the Roman poet:
To curb this madness, God has everywhere
Taught nations to accept the selfsame laws
And Romans to become -- all by the Rhine
And Danube washed, by Tagus' golden flood,
The great Ebro and Hesperia's horned stream,
The Ganges and warm Nile with seven mouths,
He bound them by a common law and name
And brought them into bonds of brotherhood.
In all the world they live as citizens
Within their native city's sheltering walls,
United round the same ancestral hearth.
Tribes far apart and sundered by the sea
Are brought together through appeals and trials
In common courts, through their commerce and trades
In crowded marts, through intermarriage
With those of other climes; for many bloods
Are intermingled in a single race.

This Roman poet is expressing the exact same ideas expressed by Americans today, a world united by a single government, even bringing forth a single race through intermarriage. A peak social mood sentiment, only made possible by a global peace kept by a global hegemon.


America is doomed; Neo-Hoover/FDR administration is about to crush the economy

China has only two years to rebalance before the U.S. consumer is removed from the global economy by a tax storm. China will be forced to rebalance away from the U.S. in two years if they don't take action now, as the entire global economy finally "decouples" from the United States.

Obamacare will blow a hole through the budget and cause a debt and currency crisis in the United States unless there are massive tax increases to close the hole. Currently, taxes must rise by 5% of GDP to close the budget deficit, but when Obamacare kicks in, it will add a couple more percentage points. The most likely tax is a VAT tax, which will also hit imports, and cause the price of retail products to rise substantially, killing off the consumer economy.

Any company, industry or nation relying on the U.S. consumer is headed for major trouble because this will hammer the economy worse than 2008. If taxes do not rise, the U.S. dollar is toilet paper. If global growth is strong, emerging markets will pick up U.S. slack, keeping commodity prices elevated. If the global economy weakens, commodities could take a bruising, especially since a China rebalancing means a drop in infrastructure investment, and therefore commodity demand will fall. Gold and possibly silver will be the exception as this crisis could metastasize into a major financial crisis, reminiscent of the United Kingdom in the 1970s.

Here's a conversation about the coming taxes, most likely a VAT tax by 2014. Financial Sense News Hour December 22, 2012.

Know your social mood: North Korea is opening up

North Korea is slowly opening up the country with economic reforms. Chinese businessmen are the main participants given North Korea's political isolation.

Evolving Pyongyang
However, the interpreter also told him that the unofficial private markets in North Korea, which were highly opposed by Kim Jong Il, are thriving nowadays. The middle-aged women who sell products on the streets of Dacheng and Shunan districts no longer need to worry about being arrested. Farmers are allowed to sell 30-50 percent of their harvest in these markets.


Euro shorts evaporate

Speculators may have turned net long this week, if the trend continued into Friday. However, the euro is surprisingly weak given the amount of buying. A volatile move is coming, one way or the other.


SEC cracks down on Chinese auditors, stocks could face delisting

This is from early December:

SEC Starts Proceedings against Affiliates of Five Accounting Firms
The Chinese affiliates of Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers and BDO were charged with violating the Securities Exchange Act and the Sarbanes-Oxley Act, the SEC said on December 3.
The Sarbanes-Oxley Act requires foreign public accounting firms to provide the regulator with audit paperwork involving companies trading on U.S. markets.

The SEC did not reveal the names of the nine Chinese companies in connection with its charge.
An administrative judge will schedule a hearing and determine the appropriate "remedial sanction" against the firms, it said.

This is the latest:

Auditing Spat Dividing U.S. and China Turns Ugly
"It concerns national sovereignty and is against the (Chinese government's) secrecy law for foreign regulators to get China-based accounting firms' auditing papers as they wish," the official said. "We have different thinking on securities regulation" than the SEC. "China cannot give the U.S. the freedom to enter China and investigate wherever they want."
If there isn't a resolution, all the Chinese stocks on the U.S. exchanges may be forced to delist.


Voters continue swerving from left to right, right to left

It is almost a truism in this period of negative mood: voters will elect the opposite end of the political spectrum in the next election. The only potential exception to the rule is, if the winning party pursues a radical agenda, they can secure reelection.

Japan is now about to test this exception: LDP wins absolute majority
The LDP has won 277 seats, more than the absolute majority of 266, in the 480-member House of Representatives. Absolute majority allows the party to allocate chairpersons to all 17 standing committees of the chamber and also secure a majority in all of them.

The LDP's coalition partner, New Komeito, has won 28 seats.

Combined, they have 305 seats. Attention is now focused on whether the 2 parties will win a total of 320, the two-thirds majority that allow bills to be enacted in a re-vote if they are rejected by the upper house. The LDP and New Komeito are short of a majority in the upper house.

The Democrats have won only 48 seats and are likely to lose more than two-thirds of the party's pre-election strength of 230 seats.

Newly-formed Japan Restoration Party led by former Tokyo Governor Shintaro Ishihara has won 43 seats.

Your Party led by former administrative reform minister Yoshimi Watanabe has won 13 seats.
This represents a major win for right-wing parties. The four parties mentioned all have right-wing economic platforms. For political reasons, those not in power may vote against the majority, but at least in theory, there's a 75-80% coalition in favor of tax cutting and deregulation.

LDP leader Shinzo Abe has a radical agenda that goes well beyond tax cutting though.

Everyone Is Talking About A Japanese Game-Change That Could Finally Break The Back of The Yen
BOJ's Shirakawa Calls Abe's 3% Inflation Target Unrealistic
The right-wing politician, who has recently returned to head the main opposition Liberal Democratic Party after giving up his premiership five years ago due to poor heath, is also calling for "unlimited" monetary easing by the BOJ and a reduction in the policy rate to zero or below zero from the current range of zero to 0.1%.

Shirakawa brushed off Abe's call for underwriting construction bonds to be issued for financing public works spending, saying that the BOJ has already been buying large amounts of JGBs, and even that could be interpreted as financing fiscal needs.
One big difference between the LDP and the Restoration Party is that the former favors a Keynesian approach, whereas the latter prefers a supply-side approach. However, the key policy shift is the 3% inflation target. If successful, it would change the global economy, let alone Japan.

Abe will need to hit his target if he wants to avoid his earlier fate and the fate of every Japanese PM since the mid-2000s. Here's what the LDP is up against:

Source: Prime-Ministerial Unpopularity Contest at the Edge of the Japanese Abyss


Massachusetts is stupid

Amazon To Collect Taxes From Massachusetts Residents
Online retailer Amazon.com has reached a deal with Massachusetts to start collecting the state’s 6.25 percent sales tax from Bay State residents.

...Gonzalez says the deal will help level the playing field for traditional “brick and mortar” stores in Massachusetts that are competing with Internet retailers.

I Want It Today
But now Amazon has a new game. Now that it has agreed to collect sales taxes, the company can legally set up warehouses right inside some of the largest metropolitan areas in the nation. Why would it want to do that? Because Amazon’s new goal is to get stuff to you immediately—as soon as a few hours after you hit Buy.
Kiss local retail good-bye.

Disease spike in NYC

Study Shows Soaring STD Rates In Many Areas Of New York City
The study said 33 percent of all the ZIP codes in New York City were in the top quintile citywide for multiple sexually-transmitted diseases during a survey taken in 2010. Among the most severe examples is ZIP code 10474 in Hunts Point, the Bronx, where rates of hepatitis C, chlamydia, gonorrhea and HIV/AIDS all ranked in the top 20 percent of all New York City ZIP codes.
Disease outbreaks increase during periods of negative social mood.


More thoughts on dematerialized gold, or paper gold

Last week I wrote in Dematerialized gold in India—it's about the rupee, not gold
Many gold bugs are pointing to this story as evidence of a lack of physical gold. The reality is much simpler: India is trying to defend its currency and cut imports. The aim is to redirect speculative and financial demand into a paper market, with the goal of reducing imports. There's not really a conspiracy here, at least not the one the gold bugs are looking for. If there's a "real" reason behind the move, it is to protect the value of the rupee.
The gold bugs are transferring their belief about paper gold onto the Indian government's attempts to spread the gold demand into financial products. One of the constant arguments made by gold bugs is that many people who buy paper gold think they are getting physical.

I do not believe this is the case. There are derivative products for everything, including single-stock futures, for those who wish to engage in speculation. In the grand scheme of things we could argue about the growth of simulacra, but at the micro level, there are people who simply wish to speculate and who prefer the virtual nature of the transaction.

That said, the move to paper gold does reflect a great truth in the gold bugs' argument. Without the existence of gold futures, gold ETFs and gold derivatives, physical gold prices would be higher. India wouldn't care about gold imports if the rupee were stronger; it cares because gold is becoming a drag on the rupee and could result in a self-reinforcing cycle that wrecks the currency. Gold bugs will say that will happen to all fiat paper eventually (and I agree), but the reality is that if India had a domestic supply of gold, the Indian government would not be pushing paper gold today.

The issue with gold is that it is money. Some countries lack food, others energy, others consumer goods. If their citizens run a large trade deficit, this will put pressure on the currency, pushing its exchange value lower (in the long-term). In the case of gold, however, it is also a signal of the health of a currency.

In the end, India's problem is not really gold. It is about weakness in the political-economy. They are dealing with a symptom, rather than a cause. The greatest proof of this is China. Why has Chinese gold demand surpassed that of Indians? China is India's mirror case: the government promotes physical ownership of gold. Physical gold products are on sale at state-owned banks, alongside brochures for precious metals accounts.

China has a politically dangerous trade imbalance and the concurrent problem of massive fiat currency reserves piling up on the central bank's balance sheet. Gold importation is a perfect solution: it reverses the trade balance and slows the flow of foreign currency. It also has the effect of being non-competitive with Chinese firms: instead of importing consumer goods, Chinese are saving. They may use those savings to consumer foreign goods in the future, or not. Buying gold today is the ultimate currency "sterilization" for the Chinese central bank. Instead of the PBOC issuing renminbi to buy U.S. dollars from Chinese importers, Chinese are using the dollars to import gold. They achieve all of their policy goals without the cost of rapidly rising forex reserves.