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Apple's Total Cash Holdings Decline For The First Time Since Before Lehman

Zerohedge - 34 min 50 sec ago

Of all the charts from Apple's just released earnings' report, in which the company beat handily on both Revenue and EPS, driven exclusively by iPhone sales which came at 43.7 million units compared to 37.7 expected as iPad sales missed wildly at 16.4 million compared to the 19.7 million expected, such as this one showing the quarterly revenue...

 

... the margin breakdown

 

... and the unit sakes.

 

Perhaps this one is the most important: Apple's total cash and cash equivalents, for the simple reason that for the first time since before the Lehman collapse, Apple actually burned through cash, or $8.2 billion to be precise, which brought the company's cash hoard to just over $150 billion.

Why? Because of the very generous corporate dividend and buyback program, which is now about to increase by another 50% as AAPL just announced it would increase the amount of stock bought back from $60 billion to $90 billion.

And now, watch as Apple has no choice but to issue more and more debt to satisfy its investor dividend and stock buyback demands.

+++++++++++++++

At a glance:

The Earnings Headlines:

  • *APPLE 2Q SALES $45.65B , EST. $43.53B
  • *APPLE 2Q EPS $11.62 , EST. $10.17
  • *APPLE 2Q GROSS MARGIN 39.3%, EST. 37.7%
  • *APPLE SEES 3Q TAX RATE 26.1%
  • *APPLE SEES 3Q REV. $36B-$38B, EST. $37.88B
  • *APPLE SEES 3Q GROSS MARGIN 37%-38%, EST. 37.3%

The Capital Structure Shift:

  • *APPLE SETS 7 FOR 1 STOCK SPLIT, BOOSTS BUYBACK TO $90B
  • *APPLE BOOSTS QUARTERLY DIVIDEND TO $3.29-SHR FROM $3.05
  • *APPLE EXPECTS TO ACCESS PUBLIC DEBT MARKETS DURING 2014
  • *APPLE SEES ACCESSING PUBLIC DEBT MARKETS DOMESTICALLY, INTL
  • *APPLE SEES TERM DEBT SIMILAR TO AMOUNT RAISED IN 2013

The Unit Sales:

  • *APPLE SOLD 43.7M IPHONES IN 2Q, EST. 37.7M
  • *APPLE 2Q IPHONE ASP $596.2, EST. $610
  • *APPLE SOLD 16.35M IPADS IN 2Q, EST. 19.7M
  • *APPLE 2Q IPAD ASP $465.4, EST. $430
  • *APPLE SOLD 4.1M MACS IN 2Q, EST. 4.03M

 

Apple stock bounces - for now - just into the green for 2014...








Where Facebook's User Growth And Revenue Generation Is

Zerohedge - 54 min 56 sec ago

In the aftermath of Facebook's "blockbuster" Q1 report, the one thing everyone is talking about is the explosive, 15% growth, in Monthly Active Users to 1.28 billion. There is one problem: where said user growth is taking place.

The chart below shows MAU growth broken down by geography...

And this chart shows how much revenue Facebook generates in those specific geographies:

So yes, just 1 million users added in the US. Still, considering Facebook somehow counts 202 million monthly active users in the US, that is a phenomenal achievement considering there are 137.9 million working people. Oh well, those 62 million users who are unemployed - they will just grow into the labor force eventually and be able to buy all those products whose ads they click on.








Facebook Beats But CFO Leaving

Zerohedge - 1 hour 11 min ago

Moments ago Facebook reported its GAAP and non-GAAP results (a very important distinction). Here is the Non-GAAP (i.e., we enjoy keeping our head in the sand) summary:

  • Q1 revenue $2.5 billion, beats expectations of $2.36 billion
  • Q1 revenue from advertising $2.27 billion
  • Q1 EPS $0.34, beat expectations of $0.24
  • Free cash flow - Free cash flow for the first quarter of 2014 was $922 million.
  • Capital expenditures - Capital expenditures for the first quarter of 2014 were $363 million.
  • Cash and marketable securities - Cash and marketable securities were $12.63 billion at the end of the first quarter of 2014.
  • Monthly active users (MAUs) were 1.28 billion as of March 31, 2014, an increase of 15% year-over-year. Unclear how many of these are bots originating out of Egypt and India.
  • Daily active users (DAUs) were 802 million on average for March 2014, an increase of 21% year-over-year.
  • Mobile DAUs were 609 million on average for March 2014, an increase of 43% year-over-year.
  • Mobile MAUs were 1.01 billion as of March 31, 2014, an increase of 34% year-over-year. 

The results in a nutshell:

 

Far more important than FB Non-GAAP results was the announcement that the CFO is leaving:

CFO Transition - Facebook today also announced that David Ebersman has informed the company of his intention to step down as chief financial officer after serving in the position for almost five years. On June 1, 2014, he will be succeeded as CFO by David Wehner, currently Facebook's Vice President, Corporate Finance and Business Planning. Ebersman will remain with the company through September to ensure a seamless transition of his responsibilities.

 

Wehner joined Facebook in November 2012 from Zynga, where he served as CFO. Earlier, he spent nine years at Allen & Company where he was a managing director. Wehner has a B.S. in Chemistry from Georgetown University, and an M.S. in Applied Physics from Stanford University.

 

"David has been a great partner in building Facebook, and I'm grateful for everything he's done to help make the world more open and connected," said Zuckerberg. "David set us up to operate efficiently and make the long term investments we need, and built an incredibly strong team including Dave Wehner, our next CFO. I look forward to working with Dave in his new role."

 

"This has been a tough decision because Facebook is such a great company and has such a bright future ahead, but I've decided to move back into healthcare where I spent my career before Facebook," Ebersman said. "It's been a privilege working at Facebook and being part of such a great team. We have an incredibly talented finance organization, and I have complete confidence in Dave Wehner and his ability to lead the team going forward."

One wonders what exactly it is that Ebersman may have "cooked up" to be promptly leaving the world's "greatest" social media stock. We will find out soon.

In the meantime, it is also worth pointing out the vast gap, pardon the pun, between Facebook GAAP and non-GAAP results:

  • GAAP Q1 Net Income: $642MM, Non-GAAP: $885MM
  • GAAP Q1 EPS: $0.34, Non-GAAP: $0.25
  • GAAP Q1 Operating Margin: 43%; Non-GAAP: 55%.

For now, the stock is very much confused what it wants to do on these "blowout" earnings.








Nasdaq Winning Streak Snaps As Yield Curve Hits Fresh 5-Year Lows

Zerohedge - 1 hour 25 min ago

It seems yesterday's decoupling (stocks up, and everything else risk-off) has unwound today as equity markets were broadly weaker. The Dow and S&P traded in a very narrow range on the day closing slightly negative and breaking the 6-day winning streak. Nasdaq and Russell underperformed notably as "most shorted" stocks appeared to gain some momentum to the downside once again (ahead of tonight's AAPL/FB results) as high-beta caught down to low-beta today. Away from the oddly decoupled equity markets, Gold, silver and copper all closed unch to modestly higher as WTI crude prces dropped further (to $101.50). The USD rallied off European open weakness to end unchanged for the week (with notable AUD weakness overnight). Treasuries rallied with 30Y outperforming once again and the yield curve flattening to fresh 5 year lows. Credit markets continues to push wider and are not sustaining any of the exuberance remaining in the S&P.

 

High-beta caught down to low-beta on the week

 

On the day, growth stocks tumbled but remain up nicely on the week - apart from AMZN

 

As multiple sectors unwind the week's gains

 

Treasuries rallied all day with the long-end outperforming...

 

and the yield curve flattening to fresh 5 year lows...

 

Overnight AUD weakness removed it from the carry pair of choice today and lifted the USD back to unchanged on the week...

 

PMs seemed dead...

 

Credit markets continues to slide...

 

Charts: Bloomberg








Flash Boys Has Been Dethroned At The Top Of The Amazon Bestseller List By This Book

Zerohedge - 1 hour 59 min ago

From a critique of pure capitalist algorithmic frontrunning (which was at the top Amazon bestseller spot until a few days ago)...

 

... we go to a critique of pure capitalism.

 

Which of course, is merely a rehash of a critique of all capitalism as expounded some 150 years ago by this book.

 

 

 

And to think all it took was 147 years of 'capitalism' for the circle to be complete from Das Kapital's labor-vs-capital Marxist manifesto to Thomas Piketty's Capital "exposing capitalism's fatal flaw" topping the Amazon book charts. One wonders who finds the time to read the 696 page tome whose core thesis is  well-known for socialists the world over: under capitalism the rich, or hoarders of capital, get steadily richer in relation to everyone else; inequality gets worse and worse and it's all unavoidable, between #Selfies, The Voice semi-finals, and Dance Moms finales.

One thing is certain: the financial asset tax we warned about back in 2011 is coming with a bang.

So, communism's heyday is coming again, right? Maybe. One thing is certain: liberals couldn't be more delighted about mandatory equality. But as we discussed yesterday, there is one thing that no one seems to want to discuss about Piketty's findings... gold...

Well, feature the chart that Professor Piketty publishes showing inequality in America. This appears in the book at figure 9.8; a similar version, shown alongside here, is offered on his Web site. It’s an illuminating chart. It shows the share of national income of the top decile of the population. It started the century at a bit above 40% and edged above 45% in the Roaring Twenties. It plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile's share of income went from something like 33% in 1971 to above 47% by 2010.

Hmmm. What could account for that? Could it be the last broadcast of the “Lawrence Welk Show?” Or the blast off of the Apollo 14 mission to the Moon? Or could it have something to do with the mysterious D.B. Cooper, who bailed out of the plane he hijacked, never to be seen again? A timeline of 1971 offers so many possibilities. But, say, what about the possibility that it was in the middle of 1971, in August, that America closed the gold window at which it was supposed to redeem in specie dollars presented by foreign central banks. That was the default that ended the era of the Bretton Woods monetary system.

That’s the default that opened the age of fiat money. Or the era that President Nixon supposedly summed up in with Milton Friedman’s immortal words, “We’re all Keynesians now.” This is an age that has seen a sharp change in unemployment patterns. Before this date, unemployment was, by today’s standards, low. This was a pattern that held in Europe (these columns wrote about it in “George Soros’ Two Cents”) and in America (“Yellen’s Missing Jobs”). From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?

This is the question the liberals don’t want to discuss, even acknowledge.

h/t @Not_Jim_Cramer








James Clapper Begins Propaganda Tour After Students Identify Edward Snowden As "Personal Hero"

Zerohedge - 2 hours 30 min ago

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

Kevin Gosztola over at Firedoglake does some excellent work, and his latest story about the recent activities of perjuring Director of National Intelligence for the U.S., James Clapper, is no exception. To provide a little context, the Washington Post recently reported that:

Freitag skimmed the extracurriculars, read the first essay, rated it good. GW also asks students to list a role model and two words to describe themselves. As for herself, Freitag said, she would list “Martha Stewart/Tina Fey” and “sassy/classy.”This year, she’s seeing a lot of Edward Snowden citations.

Freitag is an admissions officer at George Washington University, and apparently this trend of college students accurately identifying Edward Snowden as a hero has given James Clapper a panic attack. So much so, that he is taking time away from protecting us from “terrorists” (a term that now apparently includes folks at the Bundy Ranch according to Harry Reid) to embark upon a propaganda speaking tour of U.S. college campuses to demonstrate to those silly young kids that Snowden is no hero, but actually a traitorous villain.

This whole thing is eerily similar to Banana Ben Bernanke’s college propaganda tour back in 2012, which demonstrates that the status quo simply has one playbook that it sticks to aggressively. The only question I have is how long before Clapper realizes he can earn $250,000 a speech once he leaves his current role, as Benny Bernanke is currently raking in.

From Firedoglake:

Director of National Intelligence James Clapper is touring universities and colleges in the United States in an attempt to persuade students that they should not consider former NSA contractor Edward Snowden a whistleblower or a hero.

 

Speaking at the GEOINT conference in Tampa, Florida, on April 15, Clapper addressed attendees and told university students at Georgetown University and the University of Georgia about a recent article in The Washington Post on college admissions.

 

“An admissions officer from George Washington University told The Post that for the admissions’ essay question, ‘Who’s your personal hero?’ the admissions officer observed that she was seeing a lot more of Edward Snowden citations. And the idea that young people see Edward Snowden as a hero really bothers me. So I thought I needed to talk about Snowden at Georgetown and Georgia and I am going to do the same elsewhere at colleges and universities.”

Seems like a great way to spend your time and taxpayer dollars.

The interior situation in Iraq, which is deteriorating, a “very assertive Russia” (“brings back memories”), “a competitive China,” a challenging Iran, “a dangerous unpredictable North Korea” and “global demands for resources” complicated by climate change were all mentioned as bugaboos for Clapper and the intelligence community. And Snowden’s leaks were accused of “complicating everything.”

No Clapper, the unconstitutional behavior of the intelligence agencies is what is “complicating everything.” Don’t try to deflect blame from where it belongs because a patriot decides to tell the public the truth about government criminality.

This is what statists never comprehend. The strength of a nation or culture does not come from government’s ability to do whatever it wants without having to adhere to the law, respect civil liberties or inform the public. The strength of a nation or culture comes from the rule of law, from freedom, from accountability, from enterprise and from faith in the institutions that define that nation or culture. Americans have been losing faith in all of the things that define America and for good reason. Snowden was just another nail in the coffin. Without genuine freedom in all aspects of life, politics, economics, communities, a culture will collapse and lose out to others. That is why the U.S. is in decline, not because Snowden revealed the cancer at the heart of U.S. intelligence and corporate America. He is just putting a mirror in front of us and forcing ourselves to look at the ugly reflection.

A good portion of Clapper’s speech was then spent addressing what he called the “myth of Edward Snowden.” He said he told students that “despite being a geezer” he got it.”

 

“I understand that a lot of young people see Snowden as a courageous whistleblower standing up to authority. I personally believe that whistleblowing in its highest form takes an incredible amount of courage and integrity. But Snowden isn’t a whistleblower,” Clapper declared.

Oh, ok Clapper. If you say so. You disingenuous perjuring creep.

“There’s an inspector general for NSA and another one for the entire intelligence community. My office has a civil liberties and privacy protection officer. Snowden could also have gone to the Justice Department or the Congress. And as we’ve seen Snowden is superb at finding information so I think he could have tracked those people down had he given it a little thought,” Clapper stated.

 

Actually, if he had gone to the NSA’s inspector general, George Ellard, according to Ellard himself, he would have said something like, “Hey, listen, fifteen federal judges have certified this program is okay.” He also would have tried to address Snowden’s “misperceptions” and his “lack of understanding what we do.”

 

So that’s what would have happened to Snowden if he tried to go through traditional channels. Absolutely nothing.

 

Perhaps, the biggest question might be how much will this tour of colleges and universities by Clapper cost. He spent a part of his speech bemoaning the budget cuts the intelligence community has managed to survive. Somehow they have come up with the money to fund traveling to talk to students about the “myth of Edward Snowden”?

 

Why should taxpayers be funding this propaganda? And doesn’t Clapper have a job to do as Director of National Intelligence?

Don’t worry taxpayers, pretty soon he will join Ben Bernanke on his magical mystery keynesian/statist bus tour and earn several hundred thousand dollars a speech.

USA! USA!

Keep chanting serfs.

Full article here.








Russia May Halt Oil Supplies On Ukraine Theft

Zerohedge - 2 hours 50 min ago

First it was concerns over whether Ukraine would 'steal' gas supplies bound for Europe as it passed through pipelines in the country and now, as bills remain unpaid, a Transneft unit is threatening to halt Ukraine oil products supply due to pipeline theft.

  • *TRANSNEFT COMMENTS ON OIL PRODUCTS PIPELINE IN UKRAINE
  • *TRANSNEFT MAY STOP WORK OF PRIKARPATZAPADTRANS PIPELINE SYSTEM
  • *TRANSNEFT: $62.7M IN OIL STOLEN FROM UKRAINE PIPE OVER 5 YRS

As Bloomberg reports,

57.9k tons of oil products have been lost from theft in Ukraine and "Transneft expresses hope that the Ukrainian authorities can evaluate the risks of the current situation and not allow a negative scenario to develop."

More boomerangs?








This Is How Empires Collapse

Zerohedge - 3 hours 17 min ago

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

This is how empires collapse: one complicit participant at a time.

Before an empire collapses, it first erodes from within. The collapse may appear sudden, but the processes of internal rot hollowed out the resilience, resolve, purpose and vitality of the empire long before its final implosion.
What are these processes of internal rot? Here are a few of the most pervasive and destructive forces of internal corrosion:

1. Each institution within the system loses sight of its original purpose of serving the populace and becomes self-serving. This erosion of common purpose serving the common good is so gradual that participants forget there was a time when the focus wasn't on gaming the system to avoid work and accountability but serving the common good.

2. The corrupt Status Quo corrupts every individual who works within the system.Once an institution loses its original purpose and becomes self-serving, everyone within either seeks to maximize their own personal share of the swag and minimize their accountability, or they are forced out as a potentially dangerous uncorrupted insider.

The justification is always the same: everybody else is getting away with it, why shouldn't I? Empires decline one corruptible individual at a time.
3. Self-serving institutions select sociopathic leaders whose skills are not competency or leadership but conning others into believing the institution is functioning optimally when in reality it is faltering/failing.

The late Roman Empire offers a fine example: entire Army legions in the hinterlands were listed as full-strength on the official rolls in Rome and payroll was issued accordingly, but the legions only existed on paper: corrupt officials pocketed the payroll for phantom legions.

Self-serving institutions reward con-artists in leadership roles because only con-artists can mask the internal rot with happy-story PR and get away with it.

4. The institutional memory rewards conserving the existing Status Quo and punishes innovation. Innovation necessarily entails risk, and those busy feathering their own nests (i.e. accepting money for phantom work, phantom legions, etc.) have no desire to place their share of the swag at risk just to improve sagging output and accountability.

So reforms and innovations that might salvage the institution are shelved or buried.

5. As the sunk costs of the subsystems increase, the institutional resistance to new technologies and processes increases accordingly. Those manufacturing steam locomotives in the early 20th century had an enormous amount of capital and institutional knowledge sunk in their factories. Tossing all of that out to invest in building diesel-electric locomotives that were much more efficient than the old-tech steam locomotives made little sense to those looking at sunk costs.
As a result, the steam locomotive manufacturers clung to the old ways and went out of business. The sunk costs of empire are enormous, as is the internal resistance to change.

6. Institutional memory and knowledge support "doing more of what worked in the past" even when it is clearly failing. I refer to this institutional risk-avoidance and lack of imagination as doing more of what has failed spectacularly.

Inept leadership keeps doing more of what once worked, even when it is clearly failing, in effect ignoring real-world feedback in favor of magical-thinking. The Federal Reserve is an excellent example.

7. These dynamics of eroding accountability, effectiveness and purpose lead to systemic diminishing returns. Each failing institution now needs more money to sustain its operations, as inefficiencies, corruption and incompetence reduce output while dramatically raising costs (phantom legions still get paid).

8. Incompetence is rewarded and competence punished. The classic example of this was "Good job, Brownie:" cronies and con-artists are elevated to leadership roles to reward loyalty and the ability to mask the rot with good PR. Serving the common good is set aside as sychophancy (obedient flattery) to incompetent leaders is rewarded and real competence is punished as a threat to the self-serving leadership.

9. As returns diminish and costs rise, systemic fragility increases. This can be illustrated as a rising wedge: as output declines and costs rise, the break-even point keeps edging higher, until even a modest reduction of input (revenue, energy, etc.) causes the system to break down:



A modern-day example is oil-exporting states that have bought the complicity of their citizenry with generous welfare benefits and subsidies. As their populations and welfare benefits keep rising, the revenues they need to keep the system going require an ever-higher price of oil. Should the price of oil decline, these regimes will be unable to fund their welfare. With the social contract broken, there is nothing left to stem the tide of revolt.

10. Economies of scale no longer generate returns. In the good old days, stretching out supply lines to reach lower-cost suppliers and digitizing management reaped huge gains in productivity. Now that the scale of enterprise is global, the gains from economies of scale have faltered and the high overhead costs of maintaining this vast managerial infrastructure have become a drain.

11. Redundancy is sacrificed to preserve a corrupt and failing core. Rather than demand sacrifices of the Roman Elites and the entertainment-addicted bread-and-circus masses to maintain the forces protecting the Imperial borders, late-Roman Empire leaders eliminated defense-in-depth (redundancy). This left the borders thinly defended. With no legions in reserve, an invasion could no longer be stopped without mobilizing the entire border defense, in effect leaving huge swaths of the border undefended to push back the invaders.

Phantom legions line the pockets of insiders and cronies while creating a useful illusion of stability and strength.

12. The feedback from those tasked with doing the real work of the Empire is ignored as Elites and vested interests dominate decision-making. As I noted yesterday in The Political Poison of Vested Interests, when this bottoms-up feedback is tossed out, ignored or marginalized, all decisions are necessarily unwise because they are no longer grounded in the consequences experienced by the 95% doing the real work.

This lack of feedback from the bottom 95% is captured by the expression "Let them eat cake." (Though attributed to Marie Antoinette, there is no evidence that she actually said Qu'ils mangent de la brioche.)

The point is that decisions made with no feedback from the real-world of the bottom 95%, that is, decisions made solely in response to the demands of cronies, vested interests and various elites, are intrinsically unsound and doomed to fail catastrophically.

How does an Empire end up with phantom legions? The same way the U.S. ended up with ObamaCare/Affordable Care Act. The payroll is being paid but there is no real-world feedback, no accountability, no purpose other than private profit/gain and no common good being served.

That's how empires collapse: one corrupted, self-serving individual at a time, gaming one corrupted, self-serving institution or another; it no longer matters which one because they're all equally compromised. It's not just the border legions that are phantom; the entire stability and strength of the empire is phantom. The uncorruptible and competent are banished or punished, and the corrupt, self-serving and inept are lavished with treasure.

This is how empires collapse: one complicit participant at a time.








The Chinese Housing Ponzi Exposed: "As We Sell Our First Apartments, We’ll Have Cash Flow To Build The Next Stage"

Zerohedge - 3 hours 23 min ago

Much has been said here and elsewhere about not only China's ghost cities - that final resting place where trillions in Chinese GDP "fixed investment" goes to quietly die but no before contributing to over half of China's GPD - over the past five years, but also about the bursting of the Chinese housing bubble in the past several months now that the Beijing Politburo has drastically slowed down the pace of loan creation and the country has shocked its bond investors by admitting failure is an all too real possibility. This post will therefore hardly reveal anything new, however it will provide some perspective on how from one of the most important industries for China's suddenly cooling economy, housing has becoming nothing more (or less) than one giant Ponzi scheme.

Here are some of the soundbites of a recent Bloomberg piece showing how "Xi’s Squeeze Leaves China’s Heartland Missing Boom" covering such exciting topics as:

... Bubbles:

Cities in China are facing some serious real estate bubbles, and the bubbles in third-, fourth-tier cities have the risks of total collapse,” said Tao Ran, director of the China Center for Public Economics and Governance at Renmin University in Beijing, in a phone interview on March 31. “The central government and banks tightened credit in the property market because they realized the risks.”

... Collateral

That makes it harder for Zhu Houlun, 43, who took over as Laohekou party secretary in August 2012 with plans to merge with neighboring Gucheng by building a new urban center on 70 square kilometers (27 square miles) of farming communities between the two. The project would create a city of 700,000 by 2020, more than double Laohekou’s existing urban population, according to a Xiangyang government report.

 

Zhu must rely on private developers like Liu Pingfeng, from neighboring Hunan province, who is building a 5 billion yuan project north of Laohekou called the Red River Valley Eco-Tourism Resort that includes apartments, a five-star hotel, a theme park and a polo club.

 

Raising funds is very difficult,” said Liu, 47, who has been building in Hunan for a decade. “I used to use land as collateral -- as long as I got the land certificate I could get the loan. Now it’s almost impossible.”

... Musical fountains:

In Red River’s muddy construction site by the river, there are clusters of concrete skeletons that Liu says are due to open in October as shops, cafes, bars and a fitness center. Nearby is a hole in the ground the size of a football field that will be a musical fountain.

... KFCs:

Downtown Laohekou shows how far the city has lagged behind development in the east. Rows of weather-stained four- and five-story buildings line the streets, with shopfronts selling liquor, cheap household goods and clothes. There’s no department store, no passenger railway station, no KFC -- the Yum! Brands Inc. (YUM) chain found in 900 other Chinese cities and townships. The nearest civilian airport is an hour’s drive away.

... Social problems:

“Local government officials are still very fixated on economic growth,” said Lynette Ong, an associate professor at the University of Toronto who wrote the 2012 book “Prosper or Perish: The Political Economy of Credit and Fiscal Systems in Rural China.” “Without growth, a lot of social problems like unemployment will surface.”

... from ashes to ashes, from ghost town to ghost town:

The expansion on the coast was largely fed by immigrants from provinces like Hubei that are now struggling to lure them back. On a February morning in Laohekou’s cavernous and unheated labor exchange, a single jobseeker scans the vacancies posted on the back wall, while five female staff clutch thermoses of hot drinks to keep warm.

 

“It’s hard to hire people here,” said Zhang Hongju, one of the staff. “The young people have all gone to Guangdong and those who haven’t need to stay home to take care of elderly family or kids.”

 

In Chen Genxin’s village, slated to be demolished to make way for China Dreamland, he says everyone is over 50. His sons left during the boom to get jobs in other cities. “If the country wants us to tear it down, we’ll tear it down,” said Chen, 71, as he harvests spinach from his small plot with his wife in the afternoon sun. “The earth will bury me wherever I go.”

... and, of course, the fact that it is all one massive Ponzi scheme:

In Red River’s muddy construction site by the river, there are clusters of concrete skeletons that Liu says are due to open in October as shops, cafes, bars and a fitness center. Nearby is a hole in the ground the size of a football field that will be a musical fountain.

 

The soaring cost of loans means Liu will build and sell Red River in stages. “As we sell our first batch of apartments, we’ll have cash flow to build the next stage,” he said in an interview in February in Laohekou.

Finally, some pictures:

A construction-site hoarding displays an artist's impression of a development containing Tiffany and Louis Vuitton shops in Luying village on the outskirts of Laohekou, Hubei Province, China

Chen Genxin, farmer, and his wife stand for a photograph at their plot of land which is going to be requisitioned to make way for the China Dreamland residential and tourism project by Sichuan Hengxinyuanda Investment Group on the outskirts of Laohekou, Hubei Province, China

 

The new Laohekou Number 1 Middle School stands under construction on the outskirts of Laohekou, Hubei Province, China, on Thursday, Feb. 20, 2014.

China Dreamland residential and tourism project by Sichuan Hengxinyuanda Investment Group stands under construction on the outskirts of Laohekou,








Biogen Stock Rallies After Admitting Feds Probing "Sales & Promotional Practices"

Zerohedge - 3 hours 35 min ago

Just when the whole congressional pricing debacle has been ignored and the bubble is back on in Biotechs as an "M&A frenzy" is unleashed, Bloomberg reports that Biogen Idec has admitted in its 10-Q that:

  • *BIOGEN SAYS IT RECEIVED FED SUBPOENA ON TIES TO CERTAIN Pharmacy Benefit Managers
  • *BIOGEN SAYS STATE, FEDERAL AUTHORITIES PROBING SALES PRACTICES

Buried quietly on page 27 of the 10-Q, they explain that state and federal governmental authorities are investigating sales and promotional practices... Of course, the small dip in the stock price was a great opportunity to reload and it is now trading higher on the news.

From page 27 of the 10-Q,

Government Matters

 

We have learned that state and federal governmental authorities are investigating our sales and promotional practices and have received related subpoenas.

 

We have also received a subpoena from the federal government for documents relating to our relationship with certain pharmacy benefit managers.

 

We are cooperating with the government in these matters.

And the market reaction...

 








War Makes Us Poor

Zerohedge - 3 hours 37 min ago

 

Image courtesy of Steve Hess

Top Economists Say War Is Bad for the Economy

Preface: Many Americans – including influential economists and talking heads - still wrongly assume that war is good for the economy. Many congressmen assume that cutting pork-barrel military spending would hurt their constituents’ jobs.

As demonstrated below, it isn’t true.

Nobel-prize winning economist Joseph Stiglitz says that war is bad for the economy:

Stiglitz wrote in 2003:

War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon. Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy.

Stiglitz has also said that this decade’s Iraq war has been very bad for the economy. See this, this and this.

Former Federal Reserve chairman Alan Greenspan also said in that war is bad for the economy.   In 1991, Greenspan said that a prolonged conflict in the Middle East would hurt the economy. And he made this point again in 1999:

Societies need to buy as much military insurance as they need, but to spend more than that is to squander money that could go toward improving the productivity of the economy as a whole: with more efficient transportation systems, a better educated citizenry, and so on. This is the point that retiring Rep. Barney Frank (D-Mass.) learned back in 1999 in a House Banking Committee hearing with then-Federal Reserve Chairman Alan Greenspan. Frank asked what factors were producing our then-strong economic performance. On Greenspan’s list: “The freeing up of resources previously employed to produce military products that was brought about by the end of the Cold War.” Are you saying, Frank asked, “that dollar for dollar, military products are there as insurance … and to the extent you could put those dollars into other areas, maybe education and job trainings, maybe into transportation … that is going to have a good economic effect?” Greenspan agreed.

Economist Dean Baker notes:

It is often believed that wars and military spending increases are good for the economy. In fact, most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment.

The Proof Is In the Pudding

Mike Lofgren notes:

Military spending may at one time have been a genuine job creator when weapons were compatible with converted civilian production lines, but the days of Rosie the Riveter are long gone. [Indeed, WWII was different from current wars in many ways, and so its economic effects are not comparable to those of today's wars.]  Most weapons projects now require relatively little touch labor. Instead, a disproportionate share is siphoned into high-cost R&D (from which the civilian economy benefits little), exorbitant management expenditures, high overhead, and out-and-out padding, including money that flows back into political campaigns. A dollar appropriated for highway construction, health care, or education will likely create more jobs than a dollar for Pentagon weapons procurement.

 

***

 

During the decade of the 2000s, DOD budgets, including funds spent on the war, doubled in our nation’s longest sustained post-World War II defense increase. Yet during the same decade, jobs were created at the slowest rate since the Hoover administration. If defense helped the economy, it is not evident. And just the wars in Iraq and Afghanistan added over $1.4 trillion to deficits, according to the Congressional Research Service. Whether the wars were “worth it” or merely stirred up a hornet’s nest abroad is a policy discussion for another time; what is clear is that whether you are a Keynesian or a deficit hawk, war and associated military spending are no economic panacea.

The Institute for Economics & Peace (IEP) shows that any boost from war is temporary at best. For example, while WWII provided a temporary bump in GDP, GDP then fell back to the baseline trend. After the Korean War, GDP fell below the baseline trend:

IEP notes:

By examining the state of the economy at each of the major conflict periods since World War II, it can be seen that the positive effects of increased military spending were outweighed by longer term unintended negative macroeconomic consequences. While the stimulatory effect of military outlays is evidently associated with boosts in economic growth, adverse effects show up either immediately or soon after, through higher inflation, budget deficits, high taxes and reductions in consumption or investment. Rectifying these effects has required subsequent painful adjustments which are neither efficient nor desirable. When an economy has excess capacity and unemployment, it is possible that increasing military spending can provide an important stimulus. However, if there are budget constraints, as there are in the U.S. currently, then excessive military spending can displace more productive non-military outlays in other areas such as investments in high-tech industries, education, or infrastructure. The crowding-out effects of disproportionate government spending on military functions can affect service delivery or infrastructure development, ultimately affecting long-term growth rates.

 

***

 

Analysis of the macroeconomic components of GDP during World War II and in subsequent conflicts show heightened military spending had several adverse macroeconomic effects. These occurred as a direct consequence of the funding requirements of increased military spending. The U.S. has paid for its wars either through debt (World War II, Cold War, Afghanistan/Iraq), taxation (Korean War) or inflation (Vietnam). In each case, taxpayers have been burdened, and private sector consumption and investment have been constrained as a result. Other negative effects include larger budget deficits, higher taxes, and growth above trend leading to inflation pressure. These effects can run concurrent with major conflict or via lagging effects into the future. Regardless of the way a war is financed, the overall macroeconomic effect on the economy tends to be negative. For each of the periods after World War II, we need to ask, what would have happened in economic terms if these wars did not happen? On the specific evidence provided, it can be reasonably said, it is likely taxes would have been lower, inflation would have been lower, there would have been higher consumption and investment and certainly lower budget deficits. Some wars are necessary to fight and the negative effects of not fighting these wars can far outweigh the costs of fighting. However if there are other options, then it is prudent to exhaust them first as once wars do start, the outcome, duration and economic consequences are difficult to predict.

We noted in 2011:

This is a no-brainer, if you think about it. We’ve been in Afghanistan for almost twice as long as World War II. We’ve been in Iraq for years longer than WWII. We’ve been involved in 7 or 8 wars in the last decade. And yet [the economy is still unstable]. If wars really helped the economy, don’t you think things would have improved by now? Indeed, the Iraq war alone could end up costing more than World War II. And given the other wars we’ve been involved in this decade, I believe that the total price tag for the so-called “War on Terror” will definitely support that of the “Greatest War”.

Let’s look at the adverse effects of war in more detail …

War Spending Diverts Stimulus Away from the Real Civilian Economy

IEP notes that – even though the government spending soared – consumption and investment were flat during the Vietnam war:

The New Republic noted in 2009:

Conservative Harvard economist Robert Barro has argued that increased military spending during WWII actually depressed other parts of the economy.

(New Republic also points out that conservative economist Robert Higgs and liberal economists Larry Summers and Brad Delong have all shown that any stimulation to the economy from World War II has been greatly exaggerated.)

How could war actually hurt the economy, when so many say that it stimulates the economy?

Because of what economists call the “broken window fallacy”.

Specifically, if a window in a store is broken, it means that the window-maker gets paid to make a new window, and he, in turn, has money to pay others. However, economists long ago showed that – if the window hadn’t been broken – the shop-owner would have spent that money on other things, such as food, clothing, health care, consumer electronics or recreation, which would have helped the economy as much or more.

If the shop-owner hadn’t had to replace his window, he might have taken his family out to dinner, which would have circulated more money to the restaurant, and from there to other sectors of the economy. Similarly, the money spent on the war effort is money that cannot be spent on other sectors of the economy. Indeed, all of the military spending has just created military jobs, at the expense of the civilian economy.

As Austrian economist Ludwig Von Mises pointed out:

That is the essence of so-called war prosperity; it enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income.

We noted in 2010:

You know about America’s unemployment problem. You may have even heard that the U.S. may very well have suffered a permanent destruction of jobs.

 

But did you know that the defense employment sector is booming?

 

[P]ublic sector spending – and mainly defense spending – has accounted for virtually all of the new job creation in the past 10 years:

The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 1o years:

Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:

 

 

Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.

 

It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:

 

 

Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

 

But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.

  ***

 

Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.

 

Let me finish with a final chart.

 

 

Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back. [120]

***

 

So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.

And this shows military versus non-military durable goods shipments: [Click here to view full image.]

 

So we’re running up our debt (which will eventually decrease economic growth), but the only jobs we’re creating are military and other public sector jobs.

 

Economist Dean Baker points out that America’s massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:

Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

 

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

 

The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…

 

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.

The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.

 

So we’re running up our debt – which will eventually decrease economic growth – and creating many fewer jobs than if we spent the money on non-military purposes.

High Military Spending Drains Innovation, Investment and Manufacturing Strength from the Civilian Economy

Chalmers Johnson notes that high military spending diverts innovation and manufacturing capacity from the economy:

By the 1960s it was becoming apparent that turning over the nation’s largest manufacturing enterprises to the Department of Defense and producing goods without any investment or consumption value was starting to crowd out civilian economic activities. The historian Thomas E Woods Jr observes that, during the 1950s and 1960s, between one-third and two-thirds of all US research talent was siphoned off into the military sector. It is, of course, impossible to know what innovations never appeared as a result of this diversion of resources and brainpower into the service of the military, but it was during the 1960s that we first began to notice Japan was outpacing us in the design and quality of a range of consumer goods, including household electronics and automobiles.

 

***

 

Woods writes: “According to the US Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation’s plant and equipment, and infrastructure, at just over $7.29 trillion… The amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock”.

 

The fact that we did not modernise or replace our capital assets is one of the main reasons why, by the turn of the 21st century, our manufacturing base had all but evaporated. Machine tools, an industry on which Melman was an authority, are a particularly important symptom. In November 1968, a five-year inventory disclosed “that 64% of the metalworking machine tools used in US industry were 10 years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States’ machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of the second world war. This deterioration at the base of the industrial system certifies to the continuous debilitating and depleting effect that the military use of capital and research and development talent has had on American industry.”

Economist Robert Higgs makes the same pointabout World War II:

Yes, officially measured GDP soared during the war. Examination of that increased output shows, however, that it consisted entirely of military goods and services. Real civilian consumption and private investment both fell after 1941, and they did not recover fully until 1946. The privately owned capital stock actually shrank during the war. Some prosperity. (My article in the peer-reviewed Journal of Economic History, March 1992, presents many of the relevant details.)

 

It is high time that we come to appreciate the distinction between the government spending, especially the war spending, that bulks up official GDP figures and the kinds of production that create genuine economic prosperity. As Ludwig von Mises wrote in the aftermath of World War I, “war prosperity is like the prosperity that an earthquake or a plague brings.”

War Causes Inflation … Which Keynes and Bernanke Admit Taxes Consumers

As we noted in 2010, war causes inflation … which hurts consumers:

Liberal economist James Galbraith wrote in 2004:

Inflation applies the law of the jungle to war finance. Prices and profits rise, wages and their purchasing power fall. Thugs, profiteers and the well connected get rich. Working people and the poor make out as they can. Savings erode, through the unseen mechanism of the “inflation tax” — meaning that the government runs a big deficit in nominal terms, but a smaller one when inflation is factored in.

 

***

 

There is profiteering. Firms with monopoly power usually keep some in reserve. In wartime, if the climate is permissive, they bring it out and use it. Gas prices can go up when refining capacity becomes short — due partly to too many mergers. More generally, when sales to consumers are slow, businesses ought to cut prices — but many of them don’t. Instead, they raise prices to meet their income targets and hope that the market won’t collapse.

Ron Paul agreed in 2007:

Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular. The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny. Monetary policy is utterly ignored in Washington, even though the Federal Reserve system is a creation of Congress.

 

The result of this arrangement is inflation. And inflation finances war.

Blanchard Economic Research pointed out in 2001:

War has a profound effect on the economy, our government and its fiscal and monetary policies. These effects have consistently led to high inflation.

 

***

 

David Hackett Fischer is a Professor of History and Economic History at Brandeis. [H]is book, The Great Wave, Price Revolutions and the Rhythm of History … finds that … periods of high inflation are caused by, and cause, a breakdown in order and a loss of faith in political institutions. He also finds that war is a triggering influence on inflation, political disorder, social conflict and economic disruption.

 

***

 

Other economists agree with Professor Fischer’s link between inflation and war.

 

James Grant, the respected editor of Grant’s Interest Rate Observer, supplies us with the most timely perspective on the effect of war on inflation in the September 14 issue of his newsletter:

“War is inflationary. It is always wasteful no matter how just the cause. It is cost without income, destruction financed (more often than not) by credit creation. It is the essence of inflation.”

Libertarian economics writer Lew Rockwell noted in 2008:

You can line up 100 professional war historians and political scientists to talk about the 20th century, and not one is likely to mention the role of the Fed in funding US militarism. And yet it is true: the Fed is the institution that has created the money to fund the wars. In this role, it has solved a major problem that the state has confronted for all of human history. A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state. It is not a problem for the people. The inability of the state to fund its unlimited ambitions is worth more for the people than every kind of legal check and balance. It is more valuable than all the constitutions every devised.

 

***

 

Reflecting on the calamity of this war, Ludwig von Mises wrote in 1919

One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.***

 

In the entire run-up to war, George Bush just assumed as a matter of policy that it was his decision alone whether to invade Iraq. The objections by Ron Paul and some other members of Congress and vast numbers of the American population were reduced to little more than white noise in the background. Imagine if he had to raise the money for the war through taxes. It never would have happened. But he didn’t have to. He knew the money would be there. So despite a $200 billion deficit, a $9 trillion debt, $5 trillion in outstanding debt instruments held by the public, a federal budget of $3 trillion, and falling tax receipts in 2001, Bush contemplated a war that has cost $525 billion dollars — or $4,681 per household. Imagine if he had gone to the American people to request that. What would have happened? I think we know the answer to that question. And those are government figures; the actual cost of this war will be far higher — perhaps $20,000 per household.

 

***

 

If the state has the power and is asked to choose between doing good and waging war, what will it choose? Certainly in the American context, the choice has always been for war.

And progressive economics writer Chris Martenson explains as part of his “Crash Course” on economics:

If we look at the entire sweep of history, we can make an utterly obvious claim: All wars are inflationary. Period. No exceptions.

 

***

 

So if anybody tries to tell you that you haven’t sacrificed for the war, let them know you sacrificed a large portion of your savings and your paycheck to the effort, thank you very much.

The bottom line is that war always causes inflation, at least when it is funded through money-printing instead of a pay-as-you-go system of taxes and/or bonds. It might be great for a handful of defense contractors, but war is bad for Main Street, stealing wealth from people by making their dollars worth less.

Given that John Maynard Keynes and former Federal Reserve chair Ben Bernanke both say that inflation is a tax on the American people, war-induced inflation is a theft of our wealth.

IEP gives a graphic example – the Vietnam war helping to push inflation through the roof:

War Causes Runaway Debt

We noted in 2010:

All of the spending on unnecessary wars adds up.

 

The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.

Indeed, IEP – commenting on the war in Afghanistan and Iraq – notes:

This was also the first time in U.S. history where taxes were cut during a war which then resulted in both wars completely financed by deficit spending. A loose monetary policy was also implemented while interest rates were kept low and banking regulations were relaxed to stimulate the economy. All of these factors have contributed to the U.S. having severe unsustainable structural imbalances in its government finances.

We also pointed out in 2010:

It is ironic that America’s huge military spending is what made us an empire … but our huge military is what is bankrupting us … thus destroying our status as an empire.

Economist Michel Chossudovsky told Washington’s Blog:

War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.

(and remember Greenspan’s comment.)

It’s not just civilians saying this …

The former head of the Joint Chiefs of Staff – Admiral Mullen – agrees:

The Pentagon needs to cut back on spending.

 

“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”

Indeed, Mullen said:

For industry and adequate defense funding to survive … the two must work together. Otherwise, he added, “this wave of debt” will carry over from year to year, and eventually, the defense budget will be cut just to facilitate the debt.

Former Secretary of Defense Robert Gates agrees as well. As David Ignatius wrote in the Washington Post in 2010:

After a decade of war and financial crisis, America has run up debts that pose a national security problem, not just an economic one.

 

***

 

One of the strongest voices arguing for fiscal responsibility as a national security issue has been Defense Secretary Bob Gates. He gave a landmark speech in Kansas on May 8, invoking President Dwight Eisenhower’s warnings about the dangers of an imbalanced military-industrial state.

 

“Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state — militarily strong, but economically stagnant and strategically insolvent,” Gates said. He warned that America was in a “parlous fiscal condition” and that the “gusher” of military spending that followed Sept. 11, 2001, must be capped. “We can’t have a strong military if we have a weak economy,” Gates told reporters who covered the Kansas speech.

 

On Thursday the defense secretary reiterated his pitch that Congress must stop shoveling money at the military, telling Pentagon reporters: “The defense budget process should no longer be characterized by ‘business as usual’ within this building — or outside of it.”

While war might make a handful in the military-industrial complex and big banks rich, America’s top military leaders and economists say that would be a very bad idea for the American people.

Indeed, military strategists have known for 2,500 years that prolonged wars are disastrous for the nation.

War Increases Terrorism … And Terrorism Hurts the Economy

Security experts – conservative hawks and liberal doves alike – agree that waging war in the Middle East weakens national security and increases terrorism. See this, this, this, this, this, this and this.

Terrorism – in turn – terrorism is bad for the economy. Specifically, a study by Harvard and the National Bureau of Economic Research (NBER) points out:

From an economic standpoint, terrorism has been described to have four main effects (see, e.g., US Congress, Joint Economic Committee, 2002). First, the capital stock (human and physical) of a country is reduced as a result of terrorist attacks. Second, the terrorist threat induces higher levels of uncertainty. Third, terrorism promotes increases in counter-terrorism expenditures, drawing resources from productive sectors for use in security. Fourth, terrorism is known to affect negatively specific industries such as tourism.

The Harvard/NBER concludes:

In accordance with the predictions of the model, higher levels of terrorist risks are associated with lower levels of net foreign direct investment positions, even after controlling for other types of country risks. On average, a standard deviation increase in the terrorist risk is associated with a fall in the net foreign direct investment position of about 5 percent of GDP.

So the more unnecessary wars American launches and the more innocent civilians we kill, the less foreign investment in America, the more destruction to our capital stock, the higher the level of uncertainty, the more counter-terrorism expenditures and the less expenditures in more productive sectors, and the greater the hit to tourism and some other industries. Moreover:

Terrorism has contributed to a decline in the global economy (for example, European Commission, 2001).

So military adventurism increases terrorism which hurts the world economy. And see this.

Postscript: Attacking a country which controls the flow of oil has special impacts on the economy. For example, well-known economist Nouriel Roubini says that attacking Iran would lead to global recession. The IMF says that Iran cutting off oil supplies could raise crude prices 30%.

 








Putin Gets Paid? IMF Agrees $17bn Loan To Ukraine

Zerohedge - 3 hours 58 min ago

It seems Russia won't have to wait too long for the billions that Ukraine owes it for energy supplies past, present, and future pre-billings. Bloomberg reports that:

  • *IMF STAFF SAID TO BACK $17B UKRAINE LOAN
  • *IMF STAFF SAID TO SEEK APRIL 30 BOARD MEETING ON UKRAINE LOAN

The always-accurate staff at the IMF project a mere 5% contraction in Ukraine's economy (so that means more like 15%).

 

As Bloomberg reports,

International Monetary Fund staff endorsed a $17 billion loan to Ukraine to help the government pay its bills amid a projected economic contraction of 5 percent this year, according to government officials who have seen the recommendations.

 

The staff’s report was delivered to members of the IMF’s 24-seat board late yesterday, according to the officials, who spoke on condition of anonymity to discuss internal documents. The staff proposed an April 30 board meeting to consider the loan package, they said.

 

Conny Lotze, a spokeswoman for the IMF, declined to comment.

 

After weeks of talks with the government in Kiev, IMF staff concluded that Ukraine needs financing from the fund that’s at the higher end of the $14 billion to $18 billion range initially announced. The IMF loan will clear the way for additional aid from the European Union and other donors.

We await the small-print to see just how much is "allowed" to be spent on paying bills to Russia vs paying off interest on bonds due to Western banks...








Man Eats Twelve Gold Bars To Avoid Taxes ! Tell Nouriel

Zerohedge - 4 hours 4 min ago

Today’s AM fix was USD 1,283.50, EUR 927.38 and GBP 763.76 per ounce.                                     

Yesterday’s AM fix was USD 1,290.75, EUR 935.19 and GBP 767.34 per ounce.


Spot gold bullion prices ticked fractionally lower today and bullion remained below the $1,300/oz psychological level and not far off yesterday’s two-and-a-half-month lows.




Spot gold stood at $1,283.75/1,284.55 per ounce, up just 20 cents from Tuesday, when prices briefly dipped below technical support to hit $1,276.35, the lowest since February 11.
 

Silver bullion ticked 0.5% higher to $19.45/oz and the dollar, which touched a two-week high against the euro in the previous session, retreated somewhat to around 1.3845. Asian shares were mixed and European shares were lower after three days of gains.


Gold in U.S. Dollars - YTD 2014 - (Thomson Reuters)

Increasing geopolitical risks due to the very unstable situation in Ukraine is being ignored for now. There is also increasing geopolitical tension between China and Japan after China seized a Japanese trading vessel, resurrecting a World War II dispute.

Business Man Found With 12 Gold Bars In Stomach In India
You’ve heard of people described as having hearts of gold. But what about someone with a belly full of gold? That’s what doctors in New Delhi found, when a man arrived from overseas in severe discomfort.

CNN reports on the curious incident of the man with the golden belly in Delhi:


New Delhi, India (CNN) -- When a team of Indian surgeons opened up the stomach of a patient complaining of abdominal pain, they had no idea they'd extract a fortune.

The patient, whose name was not released, was hiding 12 gold bars in his belly. He apparently smuggled them into India to evade import duty, police and doctors said Tuesday.


Each bar weighed 33 grams, said C.S. Ramachandran, who conducted the surgery at a hospital in New Delhi on April 9. The 63-year-old patient, an Indian citizen, visited the hospital a day before with severe stomach pain and nausea.


"He told us he had accidentally swallowed the cap of a plastic bottle," Ramachandran said.


Investigations could not confirm his claim. "We couldn't (either) make out they were gold bars," the doctor said. "But yes, X-Rays showed there was intestinal blockage, which required surgery."

On the day of surgery, stunned doctors pulled out the yellow metal from his stomach. "It was unexpected," Ramachandran said.

The hospital handed over the precious extraction to local police. The bars have since been sent to customs, which is conducting a probe, said Alok Kumar, a deputy commissioner of police.

He didn't disclose the name of the patient. Nor did he reveal which country he smuggled the gold from. The patient was discharged after the surgery, and is doing fine. CNN story here


The gold bars are now in the care of Indian customs and the patient is under investigation for tax evasion, which certainly takes the shine off his import experiment. Fortunately for him, the export experiment under the surgeons knife was a success.
 

The gold bars are valued not just by the owner but by the Indian government. In total they’d command an import duty of $17,000 dollars. It’s little wonder some people would go to extreme lengths to try to avoid that.

Yes, this is what the process of removing twelve gold bars from the stomach of a 63-year-old looks like. Each of the objects weighs 33 grams, which might not sound much. A warning here, some of what you’ll see next, may upset your stomach.


VIEWER DISCRETION ADVISED DUE TO GRAPHIC NATURE OF IMAGES OF SURGERY

It is not known if the man intended selling the gold bars on or keeping them as a store of value.

It is interesting to note that while thousands of Indians have engaged in gold smuggling in recent months, smuggling in the western world consists primarily of drugs. This says something about the values system of India and Eastern societies versus that of the western world.

This is the lengths that people in Asia will go to own gold and also to avoid punitive taxes on gold. Middle class and wealthy Indian and people all over Asia are choosing to escape financial repression by owning gold, including gold in vaults overseas and allocated gold storage in Singapore is attractive to them due to the lack of punitive taxes and the safety of Singapore as a jurisdiction.

India remains the world's second largest gold market after China and despite a punitive tax of 10%  levied on gold imports in India, Indian investment in gold bars recorded an increase of 16% in 2013, according to the World Gold Council.


Official demand surged as did unofficial demand in the form of a massive wave of gold smuggling.
The World Gold Council estimates that a huge 200 tonnes of gold may have been smuggled into India in 2013 - in flower pots, stomachs and other orifices…on ships, trains, planes and automobiles.

 

Gold is the metal most precious to the peoples of India, China and much of Asia. It is a symbol of wealth, power and beauty and the ultimate store of value. This is in contrast to people in the West, the majority of whom do not understand gold and it’s value.

This will change in the coming years.


P.s. Can someone please tell Nouriel that contrary to his assertion - you can eat gold.

 








What Google Autocomplete Tells Us About America

Zerohedge - 4 hours 9 min ago

Submitted by Simon Black via Sovereign Man blog,

“Why does Obama suck?”

If you’re not sure, ask Google. It seems that millions of Americans already have asked this question, along with:

“Why does the government want to kill us?”, and

“Can the government take your gold?”

These are among the jewels of Google autocomplete– instantly displaying results from the most popular searches.

Try it yourself. The results vary slightly based on geography, but if you type, for example, “Obama is “, I get the following:

Not exactly the hope and change he was looking for I suppose.

(Canadians and Brits, don’t feel left out. Google tells us that Stephen Harper is “the anti-christ” and David Cameron is “a lizard”.)

While I’m sure we can all appreciate the humor, the reason these searches show up instantly in Google is because so many people are looking.

For example, when I type “Is America”, Google completes it with the most popular hit– “Is America doomed”…

Typing in “Why does the government” conjures all sorts of interesting queries, ranging from:

- need to collect taxes?
- want to kill us?
- lie?
- restrict seditious speech?

Or, typing “Why does the Federal Reserve. . . “, Google asks, “still exist?” Good question.

On the topic of the dollar, Google tells us “the dollar is” collapsing, dead, crashing, dying, devalued, not backed by gold, losing value, etc.

Apparently more and more people are starting to question the value and worth of their currency.

They’re starting to have second thoughts about a system in which we award a tiny banking elite with totalitarian control of the money supply.

And they’re starting to realize that that their government is corrupt, far too powerful, and overrun with liars and thieves.

In fact, for proof, I typed “does homeland s”, and Google completes with:

“Does Homeland Security pay well?” – and -
“Does Homeland Security hire felons?”

So it seems that convicted felons are looking for highly paid government employment. Perfect.

This is rather fitting given that typing “Will Ob” (not even the full word) returns “Will Obama declare martial law?”

People are certainly wondering.

Getting to this point of mistrust has taken years of endless warfare. The embarrassing failures of Obamacare. NSA and IRS scandals. Constant stories of police brutality. Higher taxes. Higher consumer prices.

It didn’t happen overnight. But over time, people have lost confidence not only in individual politicians, but in the system itself.

The institution of government is now viewed as the problem, not the solution. And this represents a complete breakdown in the social contract.

From the Romans to the Ottoman Empire to the Venetians, history is full of examples which show that once societies lose confidence in the system, substantial change and turmoil often follows.

I suspect that if Google had been around in the mid-1780s, autocomplete would probably tell us things like “Why does the King Louis” suck? And, “Will France” collapse?

It did. And when the French stormed the Bastille in 1789, they entered a 26-year period of revolution, civil war, hyperinflation, and genocide.

I’m not suggesting that we’re in for exactly the same fate. But we would be foolish to presume that this lost confidence and mistrust is a consequence-free environment.








Housing Bubble Pop 2.0: Remodeling Collapses To 1 Year Low

Zerohedge - 4 hours 39 min ago

On the way up, every sell-side strategist points to remodeling as a leading indicator for the housing recovery as confidence in the value of their home prompts real people to "invest" in upgrades and remodel their homes. That has been the story... until now. As NARI reports, the Remodeling Business Pulse (RBP) data of current and future remodeling business conditions show current condition ratings fell significantly in March - in fact they fell from multi-year highs to one-year lows as "homeowners remain slow to make the decision to move ahead with higher-priced projects." Of course, weather is blamed, and they are 'optimistic' about the future, but one look at the chart below and it is clear something changed...

 

 

As NARI reports,

Business conditions during the first three months of 2014 dropped to 6.07, down from 6.51 in December.

 

There was a decline in all but one of the sub-components that drive the overall current rating. Conversion of bids and sales value of jobs had the largest dip.

 

Growth indicators in the first quarter of 2014 are as follows (rating is from 1 to 9, where 1 is much worse than a year ago and 9 is much better; 5 is about the same as last year):

  • Current business conditions fell to 6.07 (from 6.51 last quarter)
  • Number of inquiries remained flat at 6.24.
  • Requests for bids had a slight drop to 6.16 (down from  6.22 last quarter)
  • Conversion of bids fell significantly from 6.03 to 5.71.
  • Sales value of jobs sold declined to 5.84 (down from 6.27 from last quarter).

More certainty about the future moved down to the No. 3 spot, at 39 percent.

h/t @CalConfidence








Pre-Crime Systems Now Actively Monitoring the Internet: “The Computer Algorithm Learns the Pattern and Produces a Prediction”

SHTF Plan - 4 hours 45 min ago

With revelations that the National Security Agency has collected some 20 trillion phone calls and emails via an expansive nationwide surveillance network, most Americans have already come to the realization that everything they do is being monitored.

But many shrug off Big Brother’s prying eyes by suggesting that, since they aren’t doing anything wrong, they have nothing to worry about.

That may have been true several years ago, but the digital surveillance systems of today are far more advanced than most people understand. No longer are these machines simply recording the data and storing them in some historical archive to be pulled at a later date should the government ever have reason to take a closer look at your personal life.

The next generation of systems are being used to actively monitor your digital interactions, surfing habits, conversations and daily sentiment in an effort to predict your future behavior. Nowhere is this more apparent than in the systems currently operating within the social media sphere.

Researchers at the University of Virginia funded by the U.S. Army recently demonstrated that they can not only gather information from your personal Twitter account just like the NSA, but also aggregate and analyze that information with advanced predictive algorithms designed to determine what you’re going to do next. In this case, the researches focused specifically on predicting crime by individuals, as well as in crime “hot spots” around the country.

Here’s the kicker. The algorithms being used don’t just look for obvious keyword phrases associated with criminal activity like “I’m going to kill you” or “meet me later and we’ll give him a beat down,” but focus in on routine activities, geo-location, and aggregate historical information to calculate the chance of a particular individual being involved in a crime at some point in the future.

Researchers at the University of Virginia demonstrated tweets could predict certain kinds of crimes if the correct analysis is applied.

A research paper published in the scientific journal Decision Support Systems last month said the analysis of geo-tagged tweets can be useful in predicting 19 to 25 kinds of crimes, especially for offenses such as stalking, thefts and certain kinds of assault.

The results are surprising, especially when one considers that people rarely tweet about crimes directly, said lead researcher Matthew Gerber of the university’s Predictive Technology Lab.

Gerber said even tweets that have no direct link to crimes may contain information about activities often associated with them.

Gerber said Twitter data can be relatively easy to use because tweets are publicly available, and many of them are tagged with location information.

In addition, researchers, themselves, do not need to go into the high-crime areas to study the information.

Instead, “I send our algorithms to these locations and see what people are talking about,” Gerber said.

“The computer algorithm learns the pattern and produces a prediction.”

The study was funded by the US Army, which Gerber said uses similar techniques to determine threats in places such as Iraq and Afghanistan.

It’s no surprise then, that police departments all over the country are interested in the new technology. The New York Police Department has already showed asked for a demonstration.

To give you an idea of how this technology can be used to not only predict traditional crimes but domestic terrorism related activity, consider an earlier report out of Auburn, NY which indicates that the Department of Homeland Security is asking local businesses to keep an eye out for terrorists going so far as to provide retailers with a shopping list of possible items a terrorist might purchase such as MRE’s (Meals Ready to Eat), flashlights and other products readily available at local surplus shops and camping stores. The implications of these new algorithms, which will be taught that anyone discussing the purchase or ownership of these types of items should be flagged for review and visited by Homeland Security personnel as a person of interest, are staggering.

With the definitions for domestic terrorism being expanded to include everyone from kids making gun-like gestures with their hands to Americans joining a large protest against government over-reach, it’s only a matter of time before just about every American with a gripe or opposing view is flagged, investigated and incarcerated for a “crime” that they “may” commit in the future.

Though the notion may seem far fetched to some, this technology is being designed for a reason. Given the ever expanding intervention and interference of government into our lives on every level by way of relentlessly supplanting our protections under the U.S. Constitution, are we to believe these developing technologies won’t be used strike fear and compliance into the hearts and minds of Americans?

Central Banks Have Realized Their Worst Nightmares Are Approaching

Zerohedge - 5 hours 17 min ago

 

 

 

Central Bankers will never openly admit that they or their policies have failed. Moreover, they do not rush into sudden tightening (more on this in a moment). But one can begin to notice subtle changes in their language and actions that indicate they have noticed what’s happening in Japan (the failure of the BoJ’s “shock and awe” QE program to generate growth).

 

Nowhere is this more clear than at the US’s Federal Reserve or Fed. Indeed, starting in August 2013, various Fed officials began questioning the efficacy of QE.

 

First came the San Francisco Fed with a study revealing that QE generally doesn’t appear to generate economic growth:

 

Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small.

 

Moreover, the magnitude of LSAP effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.

 

http://www.frbsf.org/economic-research/publications/economic-letter/2013/august/large-scale-asset-purchase-stimulus-interest-rate/

 

A few months later, the former Fed official in charge of the Fed’s first round of QE, penned a Wall Street Journal article stating that QE was in fact a Wall Street bailout.

 

I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time…

 

It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program [QE] wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

 

http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

 

Around this time, the Fed began to taper QE first by $10 billion in December… and another $10 billion in January. By this point even uber-dove Fed President Bill Dudley (he formerly claimed inflation is low because iPads are getting cheaper) even admitted the following:

 

We don't understand fully how large-scale asset purchase programs work to ease financial market conditions—is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?

 

http://www.ny.frb.org/newsevents/speeches/2014/dud140104.html

 

At this point, Ben Bernanke handed off the reins for Fed Chairman to Janet Yellen. Yellen has since continued Bernanke’s tapering projects, reducing the monthly QE spend from $65 billion to $55 billion.

 

The failure of the Bank of Japan’s massive QE program and the Fed’s decision to taper are not unrelated. Take a look at the timeline.

 

·      April 2013: Japan announces a “shock and awe” QE program.

·      August 2013: San Francisco Fed economists (where future Chairman of the Fed Janet Yellen is President) write a study showing QE is ineffective at generating economic growth.

·      November 2013: Former Fed officials admit QE was not meant to help Main Street.

·      December 2013: the Fed begins to taper its QE programs by $10 billion

·      January 2014: Bernanke’s last FOMC as Fed Chairman, Fed announces another $10 billion taper

·      March 2014: Janet Yellen takes over at the Fed and announces another $10 billion QE taper.

 

This represents a tectonic shift in the financial markets. It does not mean that Central Banks will never engage in QE again. But it does show that they are increasingly aware that QE is no longer the “be all, end all” for monetary policy.

Investors take note. One of the primary market props of the last five years is being removed. What happens when the markets finally catch on?

This concludes this article, swing by www.gainspainscapital.com for a FREE investment reports Protect Your Portfolio, which outlines how to protect your portfolio from bear market collapses.

 

Best Regards

 

Phoenix Capital Research

 

 








Cost Of "Breakfast In America" Soars To Highest In Over 2 Years

Zerohedge - 5 hours 44 min ago

Another day, another indication that 'real' inflation - the kind that reduces standards of living and leeches away purchasing power for 'real' people - is anything but under control... and anything but stable. With the Oz-ians in the Eccles Building pulling levers to run the world based on their "inflation" measures, it seems that if the price of 'things that matter' soars but the Fed doesn't see them, there is no need to tighten. Last week we discussed the surge in the price of beef, pork, eggs, and shrimp, but this week, as Bloomberg notes, the price of breakfast is soaring. Between droughts affecting coffee prices and insects spreading disease in Florida, the "breakfast beverage" index is at its highest in over 2 years.

 

 

Source: Bloomberg








Happy Mother Earth Day, Citizen!

Mises Canada - 6 hours 17 min ago

I’ll bet you forgot to buy a card and gift, didn’t you? Boy, is your face red!

Did you even know it’s International Mother Earth Day today, citizen? Socialist despot Evo Morales and his buddies at the United Nations sure do. You see, in April 2009, they passed a unanimous resolution to celebrate this important event every year.[1] In the accompanying speech, Morales explained to his colleagues that “Mother Earth was now having her rights recognized” and expressed his hope that the present century will be known as the “century of the rights of Mother Earth.” He explained to the UN that its member states “now had the opportunity to begin laying out a Declaration on the Rights of Mother Earth.”[2]

And don’t worry — you’ll be pleased to know that they’re making great progress toward this goal. This month, Morales and the Bolivian government will table a draft UN treaty recognizing and enunciating the rights of the Earth — ahem, excuse me, the rights of Mother Earth.[3] The issue will also be considered in an upcoming UN debate entitled “Nature Has Rights,” where environmentalists from various activist groups will lend their support to the treaty and tell us why it’s time we all recognize that Mother Earth has rights.

The proposed UN treaty will recognize the Earth as a living entity that humans have sought to “dominate and exploit.” To prevent this exploitation, the draft treaty will “[grant] the Earth a series of specific rights that include rights to life, water and clear air; the right to repair livelihoods affected by human activities, and the right to be free from pollution.”[4] In case it is not clear, let me stress that the treaty will recognize that the Earth has these rights — not you or me, citizen, but that big ball of minerals we are standing on.

The treaty will establish a “Ministry of Mother Earth” to hear the Earth’s complaints against those who continue to dominate and exploit it — um, excuse me, dominate and exploit her. But don’t worry; the building for the Ministry won’t need to be quite as big as you might think. If you’re concerned that the Earth will have trouble fitting into the complainant’s chair, or the witness box, it’s alright. You see, complaints will be voiced, not by the Earth itself, but by its human “representatives,” consisting of environmental-activist groups and governments.

But let’s not get too far ahead of ourselves in celebration just yet citizen. Before we break out the Mother Earth Day hooch, party poppers, and giant foam-rubber hands, let me just take a moment to explain a few things about this Earth-rights doctrine that has been steadily working its way through the UN. Let’s take a moment to consider the relationship between life and rights, the purpose of the present doctrine, and the role of government as “representative” of Mother Earth.

1. Living Entities and the Alleged Rights of “Mother Earth”

To understand rights, we need to know not only what their content is but also the kinds of entities to which they accrue. To know this, we need to know what the concept of rights is for, and how it is derived. Philosopher Ayn Rand explains that the concept of rights is a part of moral philosophy, its purpose being to provide moral guidance on how to treat others.[5] According to Rand, the notion of “rights” is a moral concept:

the concept that provides a logical transition from the principles guiding an individual’s actions to the principles guiding his relationship with others — the concept that preserves and protects individual morality in a social context — the link between ethics and politics.[6]

The purpose of ethics is to provide us with guidance on how to survive and prosper in our lives. Politics is that subset of ethics that deals with the use of force, and that studies the institutions of society with respect to the moral principles pertaining to the use of force. Rights, therefore, are the moral principles that tell us when the use of force is and is not morally right — they are the particular subset of objective moral principles that tell us who may use physical violence against whom, and when.

Since rights are a moral concept, it follows that they can only pertain to things that have some interests and will of their own. In particular, it is clear that moral obligations can only accrue to beings in need of moral guidance and are capable of sufficiently high levels of abstraction to understand and apply moral principles. Such beings must be conscious and must also be capable of sufficiently high levels of abstraction to understand moral principles and obey them — in short, they must be rational, conscious beings. If they are not, then they lack the means to understand and apply moral principles, and it is senseless to ascribe such principles to them.

Though this reasoning applies most clearly to moral obligations, rather than rights, we can actually say more than this. In fact, moral obligations are merely the obverse of rights: if A has a right to do X, and this right is enforceable against B, then it follows that B has a corresponding obligation not to forcibly interfere with A doing X. There can be no rights without corresponding moral obligations, and there can be no such thing as an entity having rights without corresponding moral obligations.[7] Since it is senseless to ascribe moral principles to beings that lack consciousness, it is therefore senseless to ascribe rights to these entities.

Since life is a necessary condition for consciousness, it is also a necessary condition for rights. But it is not a sufficient condition — there are plenty of living things that are either nonconscious, or are conscious but incapable of sufficiently abstract thought to accrue rights and their corresponding moral obligations.

“To suppose that such a thing as a big ball of minerals hurtling through space can be capable of holding rights is to completely misconstrue the nature and purpose of rights.”

Since nonconscious living entities like trees and other plants have no awareness of their own existence or anything else around them, they have no need for, or capacity to understand, moral principles. Though a tree is a living thing, it is not conscious.[8] It has no mind, and therefore has no awareness of its own existence — it has no thoughts, no desires, no fears, no feelings, no pain or pleasure. It acts automatically to preserve its own life and flourish, but it has no awareness of this, and no opinion on any matter associated with it.[9] It imposes itself on other entities automatically, with no awareness of either itself or others. When other entities impose themselves on it, it remains unaware of this fact, and has no opinion about their actions. A tree does not need moral guidance to help it grow, nor would it be aware of any moral instruction it was given. It has no use for rights, and as a nonconscious thing, it has no rights or obligations. If a tree is cut up for timber, or poisoned, or torn out of the ground, it has no awareness of this ever happening. It had no awareness of ever being alive, and no awareness of being killed. Nor can a tree ever be said to have violated the rights of others. If the roots of a tree invade my property, or strangle another tree to death, the tree is not violating rights; it is just being a tree.

By the same token, we can see that the Earth also has no rights. The Earth has no mind or awareness of its own existence. It has no awareness of the state it is in and no opinion on this state. It feels no pleasure or pain. It has no views, no desires, and no fears. The notion that “Mother Earth” would ever have cause to complain of its treatment at the hands of humans is pure mysticism — the ascription of feelings and desires to a nonconscious entity. (In fact, it is highly dubious even to classify the Earth as a living thing. It is an entity composed mostly of nonliving material, and covered, relatively sparsely, with living plant and animal life.[10] )

To suppose that such a thing as a big ball of minerals hurtling through space can be capable of holding rights is to completely misconstrue the nature and purpose of rights. Rights are moral prerogatives for conscious beings that are capable of sufficiently abstract thought to require, and comply with, abstract moral principles. Rights cannot be divorced from their corresponding obligations, and hence rights can only apply to beings that are capable of understanding and applying moral principles. Rights allow conscious rational beings to interact with one another in a way that is compatible with their own survival.

(The present essay is focused on the alleged rights of nonconscious entities, which is a simple case. Things get a bit trickier once we look at arguments for animal rights. Animals have minds, feel pleasure and pain, have desires and fears, and are capable of a very small amount of simple abstraction. They are incapable of sufficiently abstract thought to grasp moral principles, and hence they are incapable of complying with moral obligations. Their use of force against other living beings is neither moral nor immoral, and cannot be considered a rights violation.[11])

2. The Purpose of the Earth-Rights Doctrine

The Earth-rights doctrine has no basis in reason. It is pure mysticism, resting, as it does, on the attempt to ascribe interests and moral prerogatives to a nonconscious entity. Nor is the actual purpose of this doctrine the protection of the environment. Its real purpose is the acquisition of power, not for nature, but for people — or rather, for certain people.

In fact, the Earth-rights doctrine is primarily a doctrine aiming at the total control of man, and the extinguishment of human rights. Its power to accomplish this consists in two simple facts:

that the Earth encompasses all resources that humans deal with, and these resources form a part of the “body” of the Earth; and

that the Earth is incapable of expressing any desires pertaining to its own alleged rights (since it doesn’t actually have any desires), and hence it requires some human “representatives” to speak “on its behalf.”

Though the Earth-rights doctrine alleges that “Mother Earth” has rights that are the same as, or analogous to, the rights of humans, this cannot actually be the case. Since the Earth is an entity that encompasses all available physical resources as part of its own body this means that humans are always, by necessity, encroaching upon the physical body of the Earth. They encroach upon the body of the Earth merely by being located on some piece of land, and they encroach further in all their actions dealing with things that form part of the body of the Earth. Indeed, every aspect of human survival requires some appropriation of physical resources that are a part of the body of “Mother Earth,” and hence the entire process of human survival is an encroachment upon this body.

” A tree does not need moral guidance to help it grow, nor would it be aware of any moral instruction it was given.”

It is a standard and well-established part of the theory of rights that the right to exclude others from one’s own body precedes the right to acquire a proprietary interest in outside resources, and that it is therefore impossible to acquire a proprietary interest in the body of another. A person’s own body is their first and primary piece of property, with any further appropriation of outside material resting on this fundamental right of self-ownership. But since all physical resources available to humans form a part of the body of the Earth, it follows that any attempt by humans to use resources (or even exist on Earth) must necessarily impinge on the right of Earth to exclude others from interference with its own physical body. If the Earth has a right of self-ownership, as does man, then we are dancing all over it, figuratively and sometimes literally. Under this doctrine we are quite literally raping the Earth — i.e., intruding into parts of its physical body without its consent.

If the Earth really is a rights-holding entity, on par with a human being, then this implies that humans may not interfere with the body of the Earth without its permission, just as a person cannot interfere with the body of another person without their permission. Since all physical resources required for human survival come from the Earth, and are a part of this “living system,” this implies that humans cannot do anything — they cannot even exist on Earth — without the permission of the Earth. And if governments are the representatives of the Earth in exercising its rights, then this logically implies that people cannot do anything without the permission of their government. This is the real purpose of the doctrine. It logically eradicates any possible human rights.

If you are a bit imaginative, you might wonder whether we could escape this tyranny by one day fleeing to another planet, and leaving the Earth alone and unmolested. But this misses the point. If the Earth-rights doctrine is correct, then there is no reason that this doctrine could not be extended to any entity that is composed of living things — a domestic garden, a football field, an ocean, the Earth, our solar system, our galaxy, the universe! All are macroscopic entities composed of living things and are “living systems” in the exact same respect as the Earth. Hence, the entire universe could just as easily be regarded as a rights-holding entity, with governments and environmental groups as its proper representatives. Stop raping the universe, citizen! Don’t you know it has rights?

(Incidentally, it is no answer to this objection to say that the present draft treaty does not give the Earth such far-reaching rights against humans as I have stated here, and does not totally eradicate human rights. No evil philosophy can ever be implemented consistently without the complete destruction of its subjects, and this is no exception. Moreover, political power is acquired precisely by the piecemeal application of ideas whose logical consequence is total power and domination — by implementing oppressive principles, while hiding their true meaning and logical implications. The present draft treaty puts forward only a small number of actual “rights” for the Earth, and this is done primarily for political expedience. The fact remains that the principle of Earth rights leads logically to the conclusion that these rights must expand, and expand, to the point that they eradicate human rights.)

3. The State-Representation Doctrine

It is the notion of representation that is the most obvious clue to the real purpose of the Earth-rights doctrine and the nature of the environmentalist view of rights. Governments seek power to dominate those they rule, and to do so, they seek to “represent” all — to hold out the fiction that acts of government and its officials represent the “will” of the public, the environment, the oceans, the Earth, the universe. The purpose of the Earth-rights doctrine, and the accompanying notion that government may represent the Earth in issues pertaining to its rights, is to acquire power that the government itself denies having of its own accord.

Service Above Self

“Every aspect of human survival requires some appropriation of physical resources that are a part of the body of ‘Mother Earth,’ and hence the entire process of human survival is an encroachment upon this body.”

The Earth-rights doctrine propagating through the UN circumvents the liberal idea that rights vest in individual people, and restores the effects of the absolutist notion of the divine right of kings. In mediaeval times, when religion was a more powerful emotive force in politics than it is now, monarchical rulers would claim that they were God’s representatives on Earth, and that all property was vested in the Crown as the proper representative of God. Now that “Gaia” has supplanted God among modern mystics, the environmentalists alter the form of the absolutist doctrine to achieve the same effect: government is the representative of Mother Earth, and therefore ownership of all physical property, i.e., all parts of Mother Earth, is vested in government as the representative of the entity from which it came. It is a doctrine of de facto absolutism, analogous in form, and equivalent in consequence to the doctrine of the divine right of kings.

Just as easily, the Earth-rights doctrine could be extended to the universe as a whole, with government as its representative. Hence, the logical consequence of recognizing rights claims of this kind is universal socialism — literally universal, i.e., extending to the entire universe — with the government having de facto property ownership of all physical resources in the universe. This much is tangentially admitted by its advocates when they state that their goal is to end capitalism — i.e., end the prerogative for people to hold private property.[12]

Some would probably argue that the state-representation doctrine is just a practical means of allowing for the Earth to exercise its rights. Since “Mother Earth” is not a conscious being, and cannot express its will (i.e., the will it does not actually have, since it is not a conscious being), as a practical matter, someone needs to speak for it. And what better entity to take on this job than our own “representative,” the state? Well, what the hell? This is probably as “practical” a way as any to try to represent the nonexistent will of a giant nonconscious ball of minerals. Once we are through the looking glass, I suppose it is just as “practical” to say that Morales is the representative for talking walruses as to say that I am. Nevertheless, the point remains that any such representation is a fantasy — it is the attempt to represent the interests of an entity that has no interests. And the state-representation doctrine is therefore only “practical” as a means of ensuring that it is our government masters who take on the alleged prerogatives of the Earth, and not someone else.

Though it is gratuitous to point out the compounding absurdities of this kind of doctrine, let me just quickly note one more. Observe that the assertion of state representation of “Mother Earth” runs counter to the normal social-contract argument for government power. This theory (which is itself hopelessly flawed) holds that the state is the representative of “the people” by virtue of their ability to vote in its elections, and from their choice not to leave its jurisdiction. Clearly both of these are impossible for the Earth, and for the plants that live upon it. In the present case, governments are held to represent not only the people, i.e., the exploiters and destroyers of the Earth, but also the entity that is being destroyed! They are the representatives of the plaintiff and the defendants all at the same time! Government is the judge, the jury, and both sets of legal counsel — it is the representative of all.

4. Mysticism as the Basis for the Earth-Rights Doctrine

If this all sounds a bit mystical, that it because the philosophy of environmentalism is pure mysticism. The essence of the philosophy is that nature has inherent value — not value to any particular conscious beings, but value in and of itself — value divorced from any valuer. It rests on the fantasy that there can exist value without a valuer, will without a mind, desires and interests without consciousness, and representation without consent.

In his inaugural Mother Earth Day speech to the UN, President Morales noted that environmental destruction is “offensive to the many faiths, wisdom traditions and indigenous cultures for whom Mother Earth is sacred.” In doing so he explicitly appealed to faith, not reason, as the standard of moral judgment. Those in the UN did not object to this invocation of mysticism as a basis for their resolutions. Rather, they passed his resolution for Mother Earth Day unanimously, setting the stage for the present UN draft treaty.

It is difficult to make satire of something like this, because the supporters of this proposition have already done the job for us. Those who dream up UN treaties to establish a “Ministry for Mother Earth” are the kinds of people who mistakenly thought that Orwell was writing an instruction manual, not a work of dystopian fiction.[13] The notion that governments should “represent” the will and interests of a giant ball of minerals with no mind or desires is the outcome of environmentalist philosophy in action. It is as absurd as a ficus tree running for Congress, or a barrister attempting to take instructions from a blade of grass.

Happy Mother Earth Day, citizen! Now bow down to the almighty state in celebration!

Notes

[1] United Nations, “General Assembly proclaims 22 April ‘International Mother Earth Day,’” April 22, 2009. See the UN homepage for Mother Earth Day.

[2] Ibid.

[3] Steven Edwards, “UN Resolution Looks to Give ‘Mother Earth’ Same Rights as Humans,” National Post, April 11, 2011.

[4] Ibid.

[5] Ayn Rand, Capitalism: The Unknown Ideal (New York: Signet, 1967), pp. 320–28.

[6] Ibid, p. 320.

[7] For discussion on this issue, as applied to the question of animal rights, see Tibor R. Machan, “Why Animal Rights Don’t Exist” (Strike the Root, 2004). For a contrary position, discussing the argument from marginal cases, see David Graham, “A Libertarian Replies to Tibor Machan’s ‘Why Animal Rights Don’t Exist’” (Strike the Root, 2004). For a rejoinder to this and other arguments, see Shawn E. Klein, “The Problem of Animal Rights”(The Atlas Society, 2004).The issue of moral obligations to conscious nonrational beings (e.g., animals) and rights accruing to those beings is beyond the scope of the present paper and is more involved than we have space for here. What is relevant here is that nonconscious beings cannot accrue rights or moral obligations.

[8] We know this because we know that consciousness is generated by the brain, and we know that trees do not have brains.

[9] The concept of “flourishing” does not require consciousness, and so this does not constitute a stolen concept. The concept of flourishing merely requires objective recognition of the fact that there is a natural continuum of states of a living organism that determine whether it is close to or far away from being dead (ignoring external circumstances). A healthy plant is, in this sense, more alive (i.e., further from death) than a wilting plant, and hence we can correctly say that the former is “flourishing.”

[10] It is certainly true that the Earth is composed of things, some of which are living. A thing is “living” if it is engaged in a process of self-generated, self-sustaining action, and this is true of a great many things existing on Earth. Trees grow and develop through their own action, using nutrients that they collect themselves from the soil and rain, as does other plant life. Since the Earth is composed, in part, of living plant life, as well as a great deal of nonliving matter, it can, in some sense, be thought of as a “living system,” so long as it is understood that this refers merely to an entity composed, in part, of living things that interact with one another. Though the Earth orbits around the sun and its parts change, with many powerful chemical reactions occurring inside its core, it is not accurate to say that the planet itself is engaged in self-generated, self-sustaining action. Rather, its parts act, and the Earth as a whole is acted upon. Living thingson the planet are engaged in self-generated action, but the planet itself it essentially a big ball of nonliving materials (covered relatively sparsely with living things) being hurled around the solar system by the gravitational pull of the Sun. To say that the Earth itself is a living thing is either false, or it is just an imprecise shorthand way of saying that the Earth is an entity composed, in part, of smaller living things.

[11] Whether or not animals have rights rests, in large part, on something called the “argument from marginal cases.” This argument grounds animal rights in their alleged analogy to damaged humans (e.g., a severely mentally disabled person who cannot understand abstract ideas). It argues that consistency requires either the acceptance of animal rights or the rejection of rights for certain kinds of “marginal” humans. However, there are good nonarbitrary reasons to distinguish between the two cases. Animals are beings that, even in the normal course of their development, cannot abstract sufficiently to understand moral principles. Disabled humans are beings that, in the normal course of their development would be able to do this, but unfortunately cannot, because they have been damaged in some way. They nonetheless belong to the class of beings that, if they develop normally, can understand moral principles. For discussion see Machan (2004),Graham (2004), and Klein (2004).

[12] At a UN summit in 2008, prior to Evo Morales’s successful enactment of Mother Earth Day at the UN, representatives of Morales and the Bolivian government distributed a pamphlet stating their “ten commandments” and setting out the government’s plan to save the planet, “beginning with the need ‘to end with capitalism.’” See Edwards (2011).

[13] See George Orwell, 1984 (London: Secker and Warburg, 1949). In this book, the collectivist totalitarian society of Oceania operates through bodies such as the Ministry of Truth (responsible for the propagation of lies), the Ministry of Plenty (responsible for rationing goods), the Ministry of Peace (responsible for war), and the Ministry of Love (responsible for brainwashing and torture).

Fed’s Plan To Use Stocks To Boost U.S. Economy Has Failed

King World News - 6 hours 18 min ago
Today one of the legends in the business explains why the Fed’s plan to use the stock market to boost the U.S.economy has failed. 50-year veteran Art Cashin, who is Director of Floor Operations at UBS ($650 billion under management), also included a guest commentary discussing the Fed’s failure.

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