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John Nash's Equilibrium Concept In Game Theory (Simplified)

Zerohedge - Mon, 06/01/2015 - 19:50

Submitted by Robert Murphy via Mises Canada,

With the tragic deaths (in a taxi accident) of John Nash and his wife, people have been explaining Nash’s contributions to the general public.

The single best piece I’ve seen so far is this one by John Cassidy. However, even Cassidy’s piece doesn’t really make clear exactly how Nash’s famous equilibrium concept works. I’ll give some simple examples in the present post so that the layperson can understand just what Nash accomplished in his celebrated 27-page doctoral dissertation. (Be sure to look at his bibliography on the last page.)

I have seen many commentators tell their readers that John Nash developed the theory of non-cooperative games, in (alleged) contrast to the work on cooperative games by John von Neumann and Oskar Morgenstern. However, it’s a bit misleading to talk in this way. It’s certainly true that von Neumann and Morgenstern (henceforth vNM) did a lot of work on cooperative games (which involve coalitions of players where the players in a coalition can make “joint” moves). But vNM also did pioneering work on non-cooperative games–games where there are no coalitions and every player chooses his own strategy to serve his own payoff. However, vNM only studied the special case of 2-person, zero-sum games. (A zero-sum game is one in which one player’s gain is exactly counterbalanced by the other player’s loss.) This actually covers a lot of what people have in mind when they think of a “game,” including chess, checkers, and card games (if only two people are playing).

The central result from the work of vNM was the minimax theorem. The full details are here, but the intuition is: In a finite two-person zero-sum game, there is a value V for the game such that one player can guarantee himself a payoff of at least V while the other player can limit his losses to V. The name comes from the fact that each player thinks, “Given what I do, what will the other guy do to maximize his payoff in response? Now, having computed my opponent’s best-response for every strategy I might pick, I want to pick my own strategy to minimize that value.” Since we are dealing with a zero-sum game, each player does best for himself by minimizing the other guy’s payoff.

This was a pretty neat result. However, even though plenty of games–especially the ones we have in mind with the term “game”–are two-person zero-sum, there are many strategic interactions where this is not the case. This is where John Nash came in. He invented a solution concept that would work for the entire class of non-cooperative games–meaning those with n players and where the game could be negative-sum, zero-sum, or positive-sum. Then he showed the broad conditions under which his equilibrium would exist. (In other words, it would not have been as impressive or useful if Nash had defined an equilibrium concept for these games, if it rarely existed for a particular n-person positive-sum game.)

For every game we analyze in this framework, we need to specify the set of players, the set of pure strategies available to each player, and finally the payoff function which takes a profile of actual strategies from each player as the input and spits out the payoffs to each player in that scenario. (One of the mathematical complexities is that players are allowed to choose mixed strategies, in which they assign probabilities to their set of pure strategies. So technically, the payoff function for the game as a whole maps from every possible combination of each player’s mixed strategies onto the list of payoffs for each player in that particular outcome.) Now that I’ve given the framework, we can illustrate it with some simple games.

One popular game is the so-called Battle of the Sexes. The story is that a husband and wife have to go either to an event the husband prefers (let’s say it’s an action movie) or an event the wife prefers (let’s say it’s a romantic comedy). But, the catch is that each person would rather watch the movie with his or her spouse, than be alone, and this consideration trumps the choice of the movie. We can (start to) model this story in game theoretic form like this:

  • Set of players = {Husband, Wife}
  • Husband’s set of pure strategies = {Action, RomCom}
  • Wife’s set of pure strategies = {Action, RomCom}

Rather than formally define a payoff function, it’s easier to construct a matrix showing the payoffs to our players from the four possible combinations of their pure strategies, like this (where the husband’s payoff is the first number in each cell and the wife’s payoff comes after the comma):

Let’s make some observations about the above game. First, it’s isn’t a zero-sum game, so the minimax result doesn’t work. In other words, the husband wouldn’t want to approach this situation with the goal of harming the other person as much as possible.

However, the situation is strategic, in the sense that the payoff to each person depends not just on the strategy that person chooses, but also on the strategy the other person chooses. This is what makes game theory different from more conventional settings in economic theory. For example, in mainstream textbook micro, the consumer has a “given” budget and takes market prices as “given,” and then maximizes utility according to those constraints. The consumer doesn’t have to “get into the head” of the producer and worry about whether the producer will change prices/output based on the consumer’s buying decision.

Anyway, back to our “battle of the sexes” game above. Even though the game is positive-sum, there is still the “battle” element because the husband would prefer they both choose the action movie. That yields the best outcome possible for him (a payoff of 3) but only a 2 for the wife. The wife, in contrast, would prefer they both go to the romantic comedy, because she gets a 3 in that outcome (and 3 > 2). Yet to reiterate, they both prefer the other’s company, rather than seeing the preferred movie in isolation (i.e. 2 > 1). And of course, the worst possible outcome–where each gets a payoff of 0–occurs if for some crazy reason the husband watches the romantic comedy (by himself) while the wife watches the action movie (by herself).

In this game, there are two Nash equilibria in pure strategies. In other words, if we (right now, for simplicity) are only allowing the husband and wife to pick either of their two available pure strategies, then there are only two combinations that form a Nash equilibrium. Specifically, the strategy profiles of (Action Movie, Action Movie) and (RomCom, RomCom) both constitute Nash equilibria.

Formally, a Nash equilibrium is defined as a profile of strategies (possibly mixed) in which each player’s chosen strategy constitutes a best-response, given every other player’s chosen strategy in the particular profile.

We can test our two stipulated profiles to see that they are indeed Nash equilibria. First let’s test (Action Movie, Action Movie). If the husband picks “Action Movie” as his strategy, then the wife’s available payoffs are either a 2 (if she also plays “Action Movie”) or a 1 (if she plays “RomCom”). Since 2>1, the wife would want to play “Action Movie” given that her husband is playing “Action Movie.” So that checks. Now for the husband: Given that his wife is playing “Action Movie,” he can get a payoff of either 3 or 0. Since 3>0, he also does better by playing “Action Movie” than “RomCom,” given that his wife is playing “Action Movie.” So that checks. We just proved that (Action Movie, Action Movie) is a Nash equilibrium.

We’ll go quicker for the other stipulated Nash equilibrium of (RomCom, RomCom): If the husband picks “RomCom,” then the wife’s best response is “RomCom” because 3>0. So that checks. And if the wife picks “RomCom,” then the husband’s best response is “RomCom” because 2>1. So that checks, and since we’ve verified that each player is best responding to the other strategies in the profile of (RomCom, RomCom), the whole thing is a Nash equilibrium.

Now for one last example, to show the robustness of Nash’s contribution. There are some games where there is no Nash equilibrium in pure strategies. For example, consider this classic game:


Note that in this game, there is no Nash equilibrium in pure strategies. If Joe plays “Rock,” then Mary’s best response is “Paper.” But if Mary is playing “Paper,” Joe wouldn’t want to play “Rock.” (He would do better playing “Scissors.”) And so on, for the nine possible combinations of pure strategies.

Although there’s no Nash equilibrium in pure strategies, there exists one in mixed strategies. In other words, if we allow Joe and Mary to assign probabilities to each of their pure strategies, then we can find a Nash equilibrium in that broader profile. To cut to the chase, if each player randomly picks each of his or her pure strategies one-third of the time, then we have a Nash equilibrium in those two mixed strategies.

Let’s check our stipulated result. Given that Joe is equally mixing over “Rock,” “Paper,” and “Scissors,” Mary is actually indifferent between her three pure strategies. No matter which of the pure strategies she picks, the mathematical expectation of her payoff is 0. For example, if she picks “Paper” with 100% probability, then 1/3 of the time Joe plays “Rock” and Mary gets 1, 1/3 of the time Joe plays “Paper” and Mary gets 0, and 1/3 of the time Joe plays “Scissors” and Mary gets -1. So her expected payoff before she sees Joe’s actual play is (1/3 x 1) + (1/3 x 0) + (1/3 x [-1]) = (1/3) – (1/3) = 0. We could do a similar calculation for Mary playing “Rock” and “Scissors” against Joe’s stipulated mixed strategy of 1/3 weight on each of his pure strategies.

Therefore, since Mary gets an expected payoff of 0 by playing any of her pure strategies against Joe’s even mixture, any of them constitutes a “best response,” and moreover any linear weighting of them is also a best response. In particular, Mary would be perfectly happy to mix 1/3 on each of her strategies against Joe’s stipulated strategy, because that too would give her an expected payoff of 0 and she can’t do any better than that. (I’m skipping the step of actually doing the math to show that mixing over pure strategies that have the same expected payoff, gives the same expected payoff. But I’m hoping it’s intuitive to the reader that if Mary gets 0 from playing any of her pure strategies, then if she assigns probabilities to two or three of them, she also gets an expected payoff of 0.)

Thus far we’ve just done half of the work to check that our stipulated mixed strategy profile is indeed a Nash equilibrium. Specifically, we just verified that if Joe is mixing equally over his pure strategies, then Mary is content to mix equally over her pure strategies in response. It remains to do the opposite, namely, to verify that Joe is content to mix equally over his pure strategies, given that Mary is doing so. But since this game is perfectly symmetric, I hope the reader can see that we don’t have any more work; we would just be doing the mirror image of our above calculations.

To bring things full circle, and to avoid confusion, I should mention that von Neumann and Morgenstern’s framework could handle our Rock, Paper, Scissors game, since it is a two-person zero-sum game. Specifically, the value V of the game is 0. If Joe mixes equally over his pure strategies, then he can minimize Mary’s expected payoff from her best response to 0, and Joe can limit his expected losses to 0. (The reason I chose a two-person zero-sum game to illustrate a mixed strategy Nash equilibrium is that I wanted to keep things as simple as possible.)

Now that we’ve seen what a Nash equilibrium in mixed strategies looks like, I can relate Nash’s central result in his 27-page dissertation: Using a “fixed point theorem” from mathematics, Nash showed the general conditions under which we can prove that there exists at least one Nash equilibrium for a game. (Of course, Nash didn’t call his solution concept a “Nash equilibrium” in his dissertation, he called it an “equilibrium point.” The label “Nash equilibrium” came later from others.)

Oh, one last thing. Now that we know what Nash did at Princeton, can you appreciate how absurd the relevant scenes from the Ron Howard movie were?

When the movie’s Nash (played by Russell Crowe) tells his friends that they need to stop picking their approach to the ladies in terms of narrow self-interest, and instead figure out what the group as a whole needs to do in order to promote the interest of the group, that is arguably the exact opposite of the analysis in the real Nash’s doctoral dissertation. Indeed, if we analyzed the strategic environment of the bar in the way the movie Nash does so, the real Nash would say, “If all the guys could agree to ignore the pretty blonde woman and focus on her plainer friends, all the guys would be happier than if they each focused on the pretty blonde. But, that outcome doesn’t constitute a Nash equilibrium, so alas, we can’t expect it to work. If the rest of us focused on the plainer friends, we would each have an incentive to deviate and go after the pretty blonde. Ah, the limits of rational, self-interested behavior.”

(I hope the reader will forgive the possibly sexist overtones of the preceding paragraph, but it’s how Ron Howard chose to convey Nash’s insights to the world. I am playing the hand I was dealt.)

John Nash provided economists with a powerful framework for analyzing strategic interactions. If you want to see how economists took his neat result and applied it in settings where it leads to absurdity, read my articles here and here.

From The Keynesian Archives: Who Said In 2010 That "Europe Is An Economic Success"

Zerohedge - Mon, 06/01/2015 - 19:25

Paul Krugman says a lot of funny things. 

Indeed, if one is predisposed to being cynical about the 7-year bout of Keynesian madness that has infected DM central banks in the post crisis world, virtually everything Paul Krugman says is funny. 

But some caution is warranted because while Krugman may be an endless source of entertainment for anyone who has even a shred of respect for sound money policies, he is also — as we pointed out when the Nobel prize winner took his economic insanity on a field trip to its natural habitat in Japan last year — there are two words that should strike fear in the hearts of any rational-thinking citizen of the world, and those two words are “Paul Krugman.” 

At no time in history is the above more apparent than now, with seemingly the entire world on its way to becoming Japan because at the end of the day, everyone's answer to why central planning hasn’t delivered on its lofty promises is simply this: not enough Keynes.

Having thus set the stage, we bring you this classic Krugman throwback quote from 2010:

"The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works."

Shortly thereafter, that “economic success” would turn into an unmitigated nightmare both from an economic and political perspective, with the entire periphery losing bond market access in mid-2012 due to the perception of fiscal irresponsibility, an event which was promptly followed up by a Keynesian rhetorical haymaker from Mario Draghi that temporarily stemmed the crisis but wasn’t enough to bring the EU economy back to life and so finally, the ECB went (nearly) full-Kuroda in March, all just to celebrate the fact that "hey, at least inflation isn’t negative anymore" and at least now, only Greece is on its way out because, ironically, it has “too much debt.” 

Certainly doesn't look like “success” to us, although, as Krugman reminds us, you have to look past math when you’re evaluating economic outcomes:

“Actually, Europe’s economic success should be obvious even without statistics.”

And because we couldn’t resist, here's why things have gone from bad to worse in Greece over the past month:

Tomorrow I will be meeting with the Nobel Prize-winning economist @NYTimeskrugman #Greece

— Alexis Tsipras (@tsipras_eu) April 17, 2015

Carl Icahn Is "Extremely Worried" About Stocks, Warns "It's Not If, But When It Will Happen"

Zerohedge - Mon, 06/01/2015 - 19:00

"This market has a lot to be concerned about," warns Carl Icahn in an interview with FOX Business Network's Trish Regan, slamming Fed policy, "by keeping interest rates this low you are creating bubbles that you don’t even know about." While mainstream media pundits are instantly feverish over every bullish AAPL word the aging activist has to say (or tweet), it seems that when it comes to facing facts and reality of the broad market, few, if any, are willing to share his thoughts as he concludes, "it’s not just a question of it could be the beginning... It’s not will it happen. It’s when it will happen."


Interview via FOX Business Network...

Watch the latest video at


On the markets:

“I say you have to look at things simplistically, if you’re really making a lot of money and you hold it and you’re a successful investor you try to reduce to simplicity. And if you look at it simply this market has a lot to be concerned about and people say well ’07 they said nobody was concerned. People knew that the housing bubble was there. They knew it was a great worry and everybody ignored it... I’m not telling you this market is going to crash, going to go down next week, next month, even next year, but you have to be extremely concerned with what’s going on. I mean consumers really aren’t spending – by keeping interest rates this low you are creating bubbles that you don’t even know about. And I do think that sooner or later the Fed can’t just keep this market up by itself.

On whether he thinks this is the beginning of something problematic in the markets:

“I say it’s not just a question of it could be the beginning… It’s not will it happen. It’s when it will happen unless interest rate bubble is I think holding it up and I think the Fed has to be congratulated for what they did to save this economy in ’08. There is no question that the Fed did hold it up there, but I think now the time has come to stop the medicine and I think it will happen. It will stop.”

From Money To Psychology, Japan Reveals The Basis Of Economic Policy Corruption

Zerohedge - Mon, 06/01/2015 - 18:35

Submitted by Jeffrey Snider via Alhambra Investment Partners,

At some point in the middle of the last century, economics of money shifted to economics of psychology. When Milton Friedman wrote his 1963 book, A Monetary History, it was an effort that uncovered the role of money in the collapse of the Great Depression as he and his co-author, Anna Schwartz, saw it. Whether or not it was a full explanation, it wasn’t, it became widely adopted as the model for central bank behavior. At its heart, however, it was a treatise about the role of currency and liquidity.

It was still largely faithful to the Bagehot paradigm of central banks as agents of elasticity, with some modification about the terms at which that would be available. It is, however, nothing like what central banks around the world do today, even though outwardly there is a rough resemblance.

Almost as soon as A Monetary History was published there was a shift underway in more general economic theory about taking what was believed the next step – from monetary management to economic management. The impulse in that direction was not new, but the academy about its possibilities was. In 1958, AW Phillips in the UK put together an empirical analysis of a seeming durable correlation between inflation and employment. That was expanded in 1960 by Paul Samuelson and Robert Solow in the United States that posited the Phillips Curve, as it came to be known, as the means to exploit economic factors to introduce greater management and command.

Samuelson, in particular, was immediately welcomed into the Kennedy and then Johnson administrations as an advisor on the subject of that “exploitable Phillips Curve.” What we got out of it was the Great Inflation, a 15-year period of nearly unrelenting disaster that wasn’t just limited to economic malaise, it destroyed the last vestiges of the dollar and introduced the world to credit-based money in the eurodollar standard – the “dollar.”

Coming to terms with the Great Inflation was perfectly reasonable with a reasonable outlook free of determined bias for absolute control and command. Milton Friedman himself played a central role in discrediting the Phillips Curve, but that still left monetary theory short of the ancient Platonic ideal of the central banker as Philosopher King, if only in a limited capacity for creating and nurturing the “optimal” economic results. Despite the Great Inflation, economists did not turn away from trying to attain utopian command ideas, they only set about finding the “right” ones.

Robert Lucas was heavily invested in exactly that, as the allure of “general equilibrium” was so tantalizing to potential economic theory. It meant, as we know all too well now, that, if correct, there was some range of regression equations that could be assembled and constituted such that perfect predictability was possible. That is the idea of general equilibrium in the first place, to be able to model the utterly complex and heretofore mystifying nature of the true economy.

The world into which relatively primitive econometrics worked was centered around the idea of a “general equilibrium.” This was nothing new, as economists since the time of Malthus, Mill and Simon Newcomb believed that there was a method of quantifying any and all economic function. The equations would, as the name general equilibrium implies, have to balance. The central debate ranged around how price changes were set and modified especially owning to monetary and time variables.


What Lucas did, in his famous 1972 paper Expectations and the Neutrality of Money, was to assume generalized equilibrium from the very start. Departing from a regime of “adaptive expectations” Lucas asserted “rational expectations.” What that meant was neutralizing the equations of price expectations so that the difference between actual and expected prices is thus set to zero. In that sense, price behavior could then be adapted under a general equilibrium format, and the whole set of Freidman/Phelps “natural unemployment rate” econometrics would balance (I am simplifying here intentionally).

The generation of economists that undertook Lucas’ rational expectations assumptions saw its promise limited to the mathematical world of econometrics. The generation thereafter, including Ben Bernanke, sought to exploit it not unlike Samuelson and Solow’s attempt with Phillip’s scholarship. Rational expectations become the centerpoint of economic theory, and it has led the “discipline” in very strange directions.

The problem, as with quantum physics, is that “rational expectations” is not a real world phenomenon and certainly not directly relatable or transferable. It sounds as if it may be consistent with our experience of economic reality, as setting the differential of actual and expected prices to zero represents something like total market efficiency. It means that “market” prices are always correct and therefore econometric models need not concern themselves about initial equilibriums – they are always just assumed to be in that state. Inside the math, market prices are thus presupposed to always be market-clearing, and thus not subject to stochastic tests.


Even though the assumption of “rational expectations” is one in which there really appears to be no real-world counterpart, it dominates the centrality of all economic assumptions. Furthermore, like most economic and monetary paradigms, it is unfalsifiable. By adopting “rational expectations” at the start, any statistical tests are thus contained within the paradigm that all “market” prices are true and “correct.” That is a dangerous proposition when real world economic and financial parameters are supposed to flow solely from what is simply a means by which to find a solution within a system of stochastic equations describing only general equilibrium.

Because of this one mathematical property designed only to “save” general equilibrium largely from its own very real limitations, rational expectations has been taken as a real phenomenon to be abused in monetary policy, and thus economic command. If prices are always rational, then the influence of prices will be the same. Monetary policy left money behind and become strictly a tool for influencing behavior – from money and currency to nothing but psychology and the equivalent of happy pills (placebos at that).

We see the results of this shift all around us, especially where economists and “experts” are always so upbeat no matter how ludicrous and isolated such an attitude may be. And then there are the asset prices, going higher and higher to “stimulate” some “wealth effect” of not actual income but, again, happiness over not the direction of the true economy but of what its makers want of your perceptions of it all. It is taken as self-revealing now that even recessions are not much more than “irrational pessimism.”

The lack of recovery everywhere QE is being tried is not actually surprising to anyone but those still believing that rational expectations is anything but a mathematical shortcut. That is true in the US but most especially Japan, where even the mighty QQE has failed to live up to its “unquestionable” power and has thus become to engender very dangerous doubts – unhappy feelings that are the dread of all central bankers under the rational expectations paradigm:

While analysts expect consumption to pick up in coming months, lingering weakness will keep policymakers under pressure to underpin a fragile economic recovery.


“It’s a pretty gloomy number … Consumption may take longer than expected to pick up,” said Taro Saito, director of economic research at NLI Research Institute.


“The mood is good but wages haven’t risen much yet. It might take until around summer for consumption to clearly rebound.”

Reading that economist’s summary would lead you to think that it really is nothing but psychology at work. It is, after all, fully consistent with the stated purpose of QQE to begin with.

Households spent less on leisure and dining out even as the jobless rate fell to a 18-year low, underscoring the challenge of eradicating the sticky “deflationary mindset” that has beset Japan for nearly two decades.

If you think that Japan, or the US for that matter, is suffering from an insufficiency of happiness, a quarter-century funk of nothing but a “deflationary mindset”, then QQE seems a consistent course (never mind the nine prior attempts). If, however, you look at Japan as suffering just madness emanating from monetary policy that is the equivalent of pop psychology, the malaise starts to make perfect sense. The Japanese must be the happiest recipients of impoverishment ever conceived, and the results show. The greatest trick about rational expectations is that it seems so plausible because confidence is a good part of the real economy, but hollow appeals to unrelated factors are not in any way the same as “animal spirits.”

Last month was a difficult comparison because of the April 2014 tax change which pulled forward spending activity into March 2014, and thus the base of the year-over-year comparison was off. So it was expected that household spending would rise in April, with average expectations for +2.8%. Instead, spending declined yet once more, as economists missed their prediction by an enormous 4.1%. The problem with being reliant on illusions is that you can’t spend them; the Japanese, for all the ultra-low unemployment rate jubilee, have very little actual income. Even more recently, real DPI has ticked up but more as a matter of lower CPI and tax comparisons.

Instead, in what matters most, real wages have shown absolutely no tendency toward everything that was expected. When starting QQE more than two years ago, it was fully intended that by now real wages would not just be rising but rising steadily and robustly. Japanese workers have suffered the opposite.

The reason for that is the very way in which the unemployment rate is misleadingly “happy”, connecting wages to what really looks like a still-gathering recession. In the past few months, when this post-tax recovery was supposed to materialize, Japanese businesses have been degrading their labor force, shifting a huge proportion at the margins out of full-time and into part-time. The Japanese still don’t do mass layoffs, instead they just cut hours strenuously while maintaining the “happy” unemployment rate.

I find it very revealing that this remaking of marginal labor utilization is largest in the wholesale and retail trade segments, further confirming the decimation of internal Japanese economics (in the truest sense, not the mathematical theories that dominate). The Japanese people are clearing buying less “stuff” meaning that those who sell stuff are requiring much less of workers in 2015. That is how recessions are made, in that they become self-feeding trends of reduced “demand” and then reduced labor utilization leading to further cuts in income and then demand again.

The problem for econometrics and rational expectations is that any scientific endeavor, and economics very much fancies itself as that, is governed by observation rather than academic stylings even of the most elegant and sophisticated math. Clear observation, now two full years into the emotional bastardization, rejects all conclusions and intentions of the orthodox theories right down to their base foundation. Yet, as noted by the quoted economist above, it will never be falsified by anything other than counter-emotion; rational expectations is so irrational in its persistence because it is no longer even a scientific-like pursuit but a full-blown ideology of religious fervor. No matter how back Japan gets, orthodox economists still say that recovery is later in the year, or next year, or just around some unspecified corner. And it never is; maybe not all prices, especially those highly managed and cajoled, are market-clearing?

The Japanese economy, to any clear mind, took a huge turn for the worst under Abenomics yet its practitioners are still, somehow, given the final word on judging its performance, meaning that the mainstream still, somehow, subscribes to the religion.

Spending by Japanese households slumped unexpectedly in April and consumer inflation came in roughly flat, casting doubt on the central bank’s view that a steady economic recovery will help move inflation toward its ambitious 2 percent target. [emphasis added]

By all scientific observation, there was nothing unexpected about the “gloom” in April.

Kyle Bass Was Right: Texas To Create Own Bullion Depository, Repatriate $1 Billion Of Gold

Zerohedge - Mon, 06/01/2015 - 18:10

Most investors have heard Kyle Bass' rather eloquent phrase, "buying gold is just buying a put against the idiocy of the political cycle. It's that simple." However, what few may remember was his warnings in 2011, suggesting the University of Texas Investment Management Co. take delivery of its gold - as opposed to trusting it in the 'safe' hands of COMEX massively levered paper warehouse. Now, as The Star Telegram reports, Texas is going one step further with State Rep. Giovanni Capriglione asking the Legislature to create a Texas Bullion Depository, where Texas could store its gold. The goal is to create a secure facility that would allow the state to bring home more than $1 billion in gold bars that are owned by UTIMCO and are now housed at HSBC in New York.


From 2011:

"The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion and is storing the bars in a New York vault, according to the fund’s board."


The decision to turn the fund’s investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment’s board, Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.


“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

And now, as The Star Telegram reports, UTMICO would prefer a Texas depository than a New York one...

“We are not talking Fort Knox,” Capriglione said. “But when I first announced this, I got so many emails and phone calls from people literally all over the world who said they want to store their gold … in a Texas depository.


“People have this image of Texas as big and powerful … so for a lot of people, this is exactly where they would want to go with their gold.” And other precious metals.


House Bill 483 would let the Texas comptroller’s office establish the state’s first bullion depository at a location yet to be determined.


Capriglione’s changes to the bill must be approved by Monday, the last day of the 84th legislative session.


The goal is to create a secure facility that would allow the state to bring home more than $1 billion in gold bars that are owned by the University of Texas Investment Management Co. and are now housed at the Hong Kong and Shanghai Bank in New York.


“The depository would be an agency of the state located in the Office of the Comptroller, directed by an administrator appointed by the Comptroller with the advice and consent of the Governor, Lieutenant Governor and Senate,” according to a fiscal analysis of the bill.


The depository could also hold deposits of gold and other precious metals from financial institutions, cities, school districts, businesses, individuals and countries.


“This will allow for bullion to be deposited here, as well as any other investments that … any state agencies, businesses or individuals have,” Capriglione said.


Storage fees will be charged, perhaps generating revenue for the state. For instance, Texas pays about $1 million a year to store its gold in New York, Capriglione said.


A fiscal note attached to the bill states that the depository will have “an indeterminate fiscal impact” on the state, depending on the number of transactions and fees, but says it’s too early to determine the extent.


“It’s unusual,” said Cal Jillson, a political science professor at Southern Methodist University. “So far as I know, there are no states with bullion depositories.”

*  *  *

Perhasps the fact that Texas doesn't trust New York suggests the unitedness of the states is starting to quake and surely "the idiocy of the political cycle" has only got worse...

"buying gold is just buying a put against the idiocy of the political cycle. It's that simple."

This is Capriglione’s second attempt to create the depository.

Two years ago, then-Gov. Rick Perry was on board, saying work was moving forward on “bringing gold that belongs to the state of Texas back into the state.”


“If we own it,” Perry has said, “I will suggest to you that that’s not someone else’s determination whether we can take possession of it back or not.”


In 2013, the Legislature ended before Capriglione could win approval of the bill.


Jillson said the bill’s sentiment is consistent with the anti-federal approach that conservative lawmakers have taken this year. “It’s in line with the idea that Texas is exceptional and needs to keep a distance from the federal government that respects individual states’ depositories,” he said.

Sounds like Texas - just like Austria, Germany, Russia, and China to name just four - no longer trusts the status quo.

Trendies Ready for Ultimate Wearable: “Chip Implanted in Their Skin Used for Payments”

SHTF Plan - Mon, 06/01/2015 - 18:00

The Mark of the Beast is more almost here than ever before.

As SHTF has previously noted, the likelihood of a forced RFID implant under the guise of a martial law pandemic emergency might be a little too obvious, as far as future tyranny goes.

Before it comes to that, it seems plenty of people will be voluntarily subjecting themselves to cattle-like status, by jumping at the chance to ditch the inconvenience of a wallet and get a “smarter” payment system that can be embedded under their skin.

Via the Business Insider:

A mind-boggling 25% of Australians say they are at least “slightly interested” at the prospect of having a chip implanted in their skin that could be used for payments, new research has found.

The research by credit card company Visa and the University of Technology Sydney found Australians are open to the prospect of paying for items using wearable tech including smart watches, rings, glasses and even a connected car.


“New technology like tokenisation makes it possible to turn any device into a secure vehicle for commerce. We’re already seeing smartphone payments take off in Australia.

Things are about to get creepier. The significance of the “mind-boggling 25% of Australians” is that the number is growing into a sizable portion of the population. They are ready to accept it.

If that continues, polls might soon show that 60% and 80% of the population are interested in these devices, and that a 25% or 33% of them are already using them.

Whereas firms like VeriChip met fierce resistance in introducing implantable RFID chips in the wake of 9/11, the furious trend to buy smart technology is making biometrics and data tracking seem passive and benign – even in the face of Edward Snowden’s revelations about mass surveillance through a partnership between the government and private industry.

To make matters more conspiratorial, this poll linking the popularity of wearables, implants and digital payments coincides with numerous calls in the financial sector to ban cash and force people to use electronic currency in order to make the enforcement of certain economic policies easier (and to enrich banks with deposit fees, transaction fees and fines, of course).

SHTF reported:

The Federal Reserve bank and its owners, the largest banks on Wall Street, want badly to be able to charge you interest for the privilege of depositing your funds. The problem is getting you to stand for it.

[T]hey can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.

Cash therefore gives people an easy and effective way of avoiding negative nominal rates.


Abolish currency.

Tax currency.

But of course… there are definitely some drawbacks to a cashless system.

Switching exclusively to electronic payments may create new security and operational risks.

Abolishing currency would inevitably be associated with a loss of privacy and create risks of excessive intrusion by the government.

Nevertheless, it is coming down the pipe – and privacy (and the protections of the 4th Amendment), as we have learned well, doesn’t mean much to those controlling the system.

Will forced RFID implants on a cashless control grid inside an electronic prison planet really be our future?

There are many who will draw a firm red line against it, who will even die before they take it.

But there are others who will line up for it the same way they have lined up for any other release of the latest techno gadget.

As with any other new technology, acceptance by the masses depends upon the early adopters, who typically pay premium prices to get consumer electronic systems before they become the standard, or before most people on the block have them. These are the trendies, who help decide the fate of dualing formats like BetaMax and VHS, HD DVD or BluRay, or iPhone or Android, and set the tone for consumer attitudes, closely monitored by the system.

For something ominous and apocalyptic like the RFID chip – and the soon-to-be dominate consumer field of smart tech and wearables – it is important for the system to gauge what the public will accept, and just how many care about the implications for privacy, etc. compared with all those willing to embrace the conveniences at any social cost.

Will you stand for it?

“And he causes all, the small and the great, and the rich and the poor, and the free men and the slaves, to be given a mark on their right hand or on their forehead, and he provides that no one will be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name.…” -Revelation 13:16-17

Greece Abandons "Red Lines" As Troika Meets In Berlin To Craft "Deal"

Zerohedge - Mon, 06/01/2015 - 17:48

We’ve been saying for months that the troika’s ultimate goal in negotiations with Greek PM Alexis Tsipras is to use financial leverage to force Syriza into abandoning its campaign mandate, thus sending a strong message to the EU periphery’s other ascendant socialists that threatening to disprove the idea of ‘euro indissolubility’ is not a viable bargaining strategy when it comes to extracting austerity concessions from creditors. 

Over the past several days the political situation has come to a head with Tsipras expressing his extreme displeasure at the troika’s “coordinated leaks” and unwillingness to give even an inch on what the PM calls “absurd” demands.

Meanwhile, Syriza has splintered with the far-left faction demanding a return to the drachma and a default to the IMF. We’ve contended that Tsipras will not be willing to go that route and risk an economic meltdown that would likely see him lose power altogether. The more likely scenario, we have argued, is that Tsipras caves to the troika, compromises on the government’s ‘red lines’ (pension reform being the most critical) and risks a government reshuffle on the way to a third program, thus averting a euro exit and keeping Greece from descending into a drachma death spiral, even as the “solution” effectively strips the Greek people of their right to choose how they want to be governed — a tragically absurd outcome in what is the birthplace of democracy.

Sure enough, it appears as though this is precisely what will unfold over the coming weeks as Tsipras has now indicated he is willing to compromise on pension reform. Reuters has more:

Greek Prime Minister Alexis Tsipras is ready to discuss pension reforms in negotiations with international creditors over a cash-for-reforms deal, German newspaper Die Welt reported on Monday.


Labour and pension reforms are believed to be among the big sticking points with Athens.


Die Welt cited participants in the negotiations as saying the prime minister had signalled he was ready to discuss pension cuts and a higher retirement age.


The Greeks has not yet submitted a concrete proposal, the paper added in a preview of an article to run in its Tuesday print edition.

And with that it will be missioned accomplished for the troika. The Greeks will remain debt serfs, Germany will have made its point and sent a strong message to the rest of the EU periphery, and the IMF… well, that’s still up in the air because Christine Lagarde has made it abundantly clear that the Fund does not wish to participate in perpetuating this ponzi any further unless Greece’s EU debtors agree to a writedown of their Greek bonds. Largarde and Draghi reportedly met with Merkel and Hollande in Berlin today, perhaps sensing that the charade is finally coming to an end. 

Via Reuters again:

The chiefs of the European Central Bank and the International Monetary Funded headed to Berlin for talks late on Monday with the leaders of France and Germany on how to proceed with Greek debt negotiations.


EU officials said ECB chief Mario Draghi and Christine Lagarde of the IMF were joining the German and French leaders, and the president of the European Commission, with the aim of reaching a joint position on how to negotiate with Greece.


The unexpected development came after Greek Prime Minister Alexis Tsipras fired a broadside at international creditors that officials said bore little resemblance to his private talks with EU leaders.

Once again, here’s a flowchart which diagrams what comes next:

*  *  *

For those interested to know what these "absurd" demands from the troika are, we bring you the following from KeepTalkingGreece who has the story:

Creditors command and demand, Greece is willing but … some red lines cannot be set aside. Apart from that, creditors’ commands are anything but logical as their demands could be only described as crazy. Furthermore the creditors seem divided as to what they demand from Greece with the logical consequence that the negotiations talks have ended into a deadlock.

According to Greek media reports,

While the European Commissions wants austerity measures worth 4-5 billion euro for the second half of 2015 and the 2016, the International Monetary Fund raises the lot to 7 billion euro for 2016. The all-inclusive austerity package should include among others €2.7 billion cuts in pensions.

The Pensions Chapter is one of the thorns among the negotiation partners, and Greece would love to postpone it for after the provisional agreement with the creditors, call them: Institutions.

While it is not clear whether it is the IMF or the EC or both, it comes down to the command that

“Pensions should not be higher of 53% of the salary due to the financial situation of the social security funds.”


Pension for a civil servant (director, 37 years of work) should come down to €900 from €1,386 today after the pension cuts during the austerity years.


Pension for private sector – IKA insurer (37 years of work, 11,000 IKA stamps) and salary €2,300 should come down to €1,250 from €1,452 today after the austerity cuts. (examples* via here)

Of course, with the PSI in March 2012, Greece’s social security funds suffered a huge slap in their deposits in Greek bonds.

According to the Bank of Greece report of 2012, social security funds were holding Greek bonds with nominal value €18.7 billion euro. The PSI gave them a new look with a nice hair cut of 53.5%. Guess, how many billions euros were left behind.

If one adds the loss of contributions due to high unemployment, part-time jobs, uninsured jobs and the disappearance of full time jobs in the last 3-4 years, the estimations concerning the money available at the Greek social insurance funds are … priceless!

Another thorn in the negotiations is the Value Added Tax rates.

Creditors reportedly want Value Added Tax hikes in the utility bills, electricity and water charged with 23% V.A.T. from 13% now.

Do I hear you say that the austerity recipe imposed to Greece is wrong? You’re totally right.

But creditors insist on it and then wonder why the soufflé dramatically sinks once it comes out of the oven in Brussels.

*examples: the pensions issue is a huge labyrinth as full or reduced (early retirement) pension calculation depends on several criteria in addition to the 37 years +11,000 IKA-stamps scheme. There is no average and therefore there can be no average cuts.

Before the crisis, pension was 80% of the salary of the last 5 work years. Now it has come down to 60% of either last salary after the salary & wages sharp cuts or of the best salary. And creditors want it down to 53%! Go figure…

What is fact is that pensions in private sector sank at 26% in the last 3 years.

The Commerce Department Will Throw You In Jail For Not Filling Out This Survey

Zerohedge - Mon, 06/01/2015 - 17:30

Submitted by Simon Black of Sovereign Man

The Commerce Department will throw you in jail for not filling out this survey

Chances are that you’ve never heard of the International Investment and Trade in Services Survey Act that was originally passed nearly 40 years ago.

And chances are you didn’t catch the November 20, 2014 edition of the ‘Federal Register’, the US government’s daily opus of new rules and regulations that ran 331 pages that day.

So, chances are, you have no idea that the Department of Commerce might just want to throw you in jail right now. I’ll explain.

Back in 1976, Congress decided that they needed more information on US companies’ international trade activities.

So they passed a law requiring the Department of Commerce to survey the biggest businesses in America to find out more about what they were doing abroad.

These days, the survey is conducted every five years. And like most surveys it’s a bunch of useless bureaucratic drivel that only wastes the time of the poor souls who have to fill it out.

Now it’s something that can get you thrown in jail.

Late last year the Commerce Department quietly published a new ‘rule’ in the Federal Register requiring every American with certain investments abroad to fill out their survey, regardless of whether or not they were notified.

In other words, you’re just supposed to know that you have to fill out this form.

And if you don’t, the penalties are severe.

For the first time ever the government is imposing both civil and CRIMINAL penalties for non-compliance.

The fine for not filling out the survey (known as BE-10) ranges from $2,500 all the way to $25,000.

And if they think you intentionally didn’t file, you “may be imprisoned for not more than one year.”

Either way, even if you had no earthly idea and had never heard of this survey, they reserve the right to seek “injunctive relief commanding such person to comply.”

So if you don’t fill out the form, they’ll get a judge to order you to comply.

This really borders on insanity.

The federal government of the United States of America… the Land of the Free… is willing to clog up the court system to either force people to fill out a survey, or to prosecute them for not doing so.

Forget about rapists, murderers, and thieves. The government’s priority is to imprison people who don’t fill out surveys.

What’s really amazing is that your elected representatives in Congress weren’t the ones to enact these absurd criminal penalties.

The Department of Commerce’s Bureau of Economic Analysis (BEA) did this all on its own. They simply created a new ‘rule’, then buried it under hundreds of pages of other regulations.

And even though Congress never even sees them, and no reasonable person has ever heard of them, these rules have the same weight and effect as the law.

So much for representative democracy.

Two important questions come to mind:

  1. How many other rules that carry criminal penalties might we be breaking at this very moment without even realizing it?
  2. Just who the hell do these people think they are?

Regardless of whether or not the penalties are ever exacted is irrelevant.

It’s disgusting to even be threatened with such atrocity, simply because some bureaucratic functionary needs to justify his/her position.

It’s a clear sign that in today’s system, the government doesn’t exist to serve the people. They think the people exist to support the government.

Abraham Lincoln once told a war-torn nation that a government of the people, by the people, for the people, shall not perish from this earth.

Tragically, Lincoln was totally wrong. Because this is what freedom has become in America.

Have you reached your breaking point yet?

QE forever and ever and ever and ever............

Zerohedge - Mon, 06/01/2015 - 17:24

QE forever ever and ever,ever....

 QE has potentially severe implications for inflation, but not directly from the QE itself. Instead the inflation will come as a result of a dramatically increased total money supply resulting from bank lending. QE does enable more bank lending, but the lending must take place for the total money supply to grow....which it still isnt...


It is said that if consumers know that something will cost less in the future (even if it’s just 2% less) they will defer their purchases indefinitely, perhaps waiting for the cost of their desired product or service to approach zero. They argue that this can push an economy into a deflationary spiral of falling prices and diminished demand which may be impossible to escape

But this idea ignores the time value of a product or service (people will tend to pay more for something they can enjoy sooner rather than later re;I-phones etc) and the economic law that shows how demand goes up as the price falls. But common sense has absolutely nothing to do with the current practice of economics. Instead, the argument is that inflation is needed to seed the economy with demand.

However, this argument is merely a smoke screen. The only thing that inflation can do is to help governments spend. Economies do just fine with low inflation. In fact during the late 19th century, the United States experienced sustained deflation while creating much faster economic growth than we have seen in the last few generations. As recently as during the early 1960s the U.S. experienced consistently low inflation (barely 2%) and strong economic growth based on government figures. But in their call for more inflation, modern economists tend to forget or downplay those periods. 


Stopped...for now....

The Fed has ceased its program of quantitative easing (QE) and may soon begin to raise interest rates. Japan has embarked on an even more aggressive program of QE. The European Central Bank (ECB) has just begun QE. In a related development, the Swiss National Bank (SNB) recently stopped pegging the Swiss franc to the euro. 


What does it all mean?

QE’s direct and indirect effects are complex, and the fact that various policies are at different stages of implementation doesn’t make it any easier to understand the dynamics.

In the normal functioning of a reserve banking system ,commercial banks create money when they take deposits and make loans.

Central banks limit the amount of money that commercial banks can create by managing reserve requirements. They provide liquidity to the banking system by lending directly to banks through the discount window. Central banks also influence interest rates and the pace of money creation by buying and selling securities through open market operations.

 The primary objective and typical standard of success for central banks is for stable prices....HA! Well at least thats the plan...


Quantitative Easing for dummies..which is probably all of us,including the Fed

QE is not money creation; it’s more accurately a reserve creation. A central bank buys securities and pays for them with bank reserves (liabilities of the central bank and assets of commercial banks), thereby increasing the central bank’s balance sheet and the reserves of its member banks.

 The linkage between QE and the money supply is indirect. Banks will use new reserves to create money, but only when reserves are an active constraint on lending. When banks do not wish to lend and/or borrowers do not wish to borrow, then reserves are an inactive constraint. When banks seek to increase their capital and borrowers strive to pay down their debts, QE does not increase the money supply and therefore does not cause inflation. 


Has it worked??? 

During the global financial crisis , the first round of QE was effective in averting a financial collapse. A central bank can act as lender of last resort by making loans directly to individual banks through its discount window. During 2008, however, many distressed financial institutions were not banks and so did not have access to the discount window. Through QE, the Fed and the Bank of England (BOE) provided liquidity to the financial system by buying large quantities of securities from the market rather than waiting for banks to show up at the discount window.


Beyond providing the liquidity necessary to avoid financial panics and bank runs, can QE increase economic output and employment? 

Some believe that, when an economy is operating below its potential growth rate, lowering interest rates to inflate capital asset prices indirectly stimulates the economy through a wealth effect: People who own stocks, bonds, and houses will spend more if they feel wealthier.

However in this case people are becoming ,more and more aware that by intentionally inflating capital asset prices distorts markets, creates bubbles, and leads to a probable repeat of what was seen in 2008. And with the banks unwilling to loan ,the "wealth effect" is barely being felt.


Money Printing

Money printing is different from QE. Money printing is inflationary by definition. If the central bank rapidly prints a lot more currency and immediately puts it into circulation, then more money is chasing the same amount of goods and services. 

 A central bank may monetize the national debt—and facilitate increasing the deficit—by purchasing newly issued government bonds with the proceeds transferred into the checking accounts of government agencies. This, too, amounts to printing money. In other words, QE plus substantial fiscal stimulus is money printing and may cause inflation.


What’s Happening Now?

Initially QE was not paired with fiscal stimulus. Banks chose to hold the proceeds of QE as excess reserves rather than increasing their pace of lending and thereby creating money. While QE was in progress, the Fed and the BOE were pushing on a wet noodle. 


So far then, QE is not inflationary. It may become inflationary if it achieves its intended purpose of stimulating more economic activity by fueling bank lending and money creation..


The ECB have just started their QE game. Because of the concern about already unsustainable levels of government debt, Europe appears unlikely to pair this QE with fiscal stimulus. The ECB will probably be pushing on the same wet noodle, as were the Fed and BOE. 

Japan, however, is flirting with a more aggressive form of debt monetization, combining QE with increasing fiscal deficits. The country seems close to testing what happens to a modern developed economy when it intentionally chooses money printing as its macro-economic policy….so if you want to know what we may have to look forward to,it’s the land of the Rising Sun that will probably give us the best clues,which means that there could very well be years more of the same old.... 


Even the mainstream media is waking up to the problems created by central bank manipulation

It is expected for a return to "happy days" that annual growth of about 2.5% is required,however since the peak in 2007 we have a compounded growth rate of just 1%!!!!

It would be nice if market participants could actually agree on what all these years of bond buying has done for the economy. But they can’t. So it’s not surprise that why no one can agree on what the end of QE will actually mean for the markets or the economy.

Take, for instance, the difference between the Federal Reserve’s own predictions for inflation and the future path of interest rates and what the bond markets think will happen. 

The main goal seems to have been the hope that an expensive stock market will give people the confidence to spend. Fed officials would probably argue that higher asset prices are merely a second-order effect of their policy and that Zero rate policy was implemented  in an effort to get businesses to invest. But either way, the policy requires growth in demand to organically materialize within the economy so that there are people and firms willing to invest at these new low interest rates.

And it’s this last part that really hasn’t come to fruition. Job gains continue to accelerate, but wage growth is flat.

Economic growth in 2015 has been lackluster at best,with  YOY GDP forecasts from Goldmans, Barclays, Nomura and JP Morgan between 2% to 2.2%.. this is  still far below what you would normally see in a recovery.


We seem more and more reliant on the US to support global growth,but with so many other issues to look forward to this month (NFP,OPEC meeting,currency wars,Bond market stability,Grexit & Chinese stock market volatility) ,by the end of it we may have a better idea if the US will raise rates this year or if we will be on hold for ever and ever and ever and ever.......



In regards to more detailed options and futures advice ,please contact Darren Krett through or


The Caitlyn Jenner Rally Clipped - Now You See It, Now You Don't

Zerohedge - Mon, 06/01/2015 - 17:05

Why did the market go up? The same reason Bruce Jenner is now a woman... why not? (oh and Media Coverage)

The USDollar Index perhaps shows today's market events best...

  • 0700ET Early rumors of an imminent Greek deal sparked EUR buying, USD selling...
  • 0845ET US PMI missed and dropped to Jan lows (USD weaker... pushes off rate hikes)
  • 1000ET Construction Spending surges (USD spikes... rate hikes coming soon)

So - just remember, this is all priced in (as today's market action showed)


Stocks limped higher overnight on China strength (and despite missed PMI expectations in Europe)... ramped vertically on Greece rumors, stalled on denials, then plunged on 'good' data... but ince Europe had closed it was off to the races until Carl Icahn spoke at around 1445ET - *ICAHN TELLS FBN HE HAS CONCERNS ABOUT STOCK MARKET,  IT'S TIME FOR FED TO 'STOP THE MEDICINE'


Futures show the volatility intraday...


The S&P 500 (cash) has oscillated up and down making lower highs since last week's tumble...


A gentle reminder about 'bubbles'...


Trannies were inspired...melting up to fill the Friday gap down open and flip-flopping once again with respect to oil price moves...


Treasury yields increased notably on both "good' data and the pending issuance of a 100Y Petrobras bond (which would have demanded much of an illiqud market for rate locks) especially given chatter of a $10 bn order book!! *PETROBRAS $2.5B 100Y BONDS LAUNCH AT 8.45%

NOTE: Once the bond was issued, TSYs rallied and stocks dumped

As an aside -  a zero-coupon 100 year bond issued at a yield of 8.45% implies a price of around 2.54c... so $2.5bn face means Petrobras actually raised $63.6 million cash (which will accrue to a $2.56bn cost in 100 years).

The Dollar was all about EUR once again today... (ahead of Wednesday's ECB bollocks)


Across the commodity space there was plenty of volatility but by the close, everything was practically unch (despite USD strength)...


Gold and Silver were smashed higher in the pre-open, running stops over $1200 and $17 respectively, only to roundtrip perfectly as the dollar surged...


To summarize the day: "good" headline data sparks weakness in stocks but they are bid by the machines on the back ofg 10Y weakness driven by rate-lock buying due to the issuance of 'idiot-maker' bonds by the world's largest insolvent energy company.


Charts: Bloomberg

Bonus Chart: What exactly do investors think will happen when this kind of volatility is added to the MSCI index next week? (Spoiler Alert - fixed risk budgets will mean reduced exposure NOT increased)

A Cynical Look At Tim Cook's Commencement Speech

Zerohedge - Mon, 06/01/2015 - 16:55
If there’s one message we hope has been received loud and clear by any recent college graduates who peruse these pages, it’s that maintaining a bit of cynicism regarding your future is not only healthy, but in fact imperative. 


Why? There a number of reasons.

First, the average amount of debt for graduating seniors has risen every year since at least 1993, hitting $35,000 for this year’s graduating class even as some evidence suggests that these degrees are worth less than they have ever been in terms of helping students find gainful post-graduation employment. One reason for this is that college degrees — indeed, even advanced degrees — are commonplace, meaning that even those with master’s degrees may find themselves joining what we have dubbed the “waiter and bartender” recovery, as ‘qualified’ applicants outnumber high-level positions. There’s also the fact that according to the OECD, $35,000 degrees do not necessarily prepare students for the real world and there are now serious questions as to whether colleges and universities are teaching the right skills. 


Meanwhile, the “resilient” jobs market and US economic “recovery” are pure fiction — a myth created by the BLS and BEA who vanish workers and double-adjust the numbers in a shameless goal-seeking exercise designed to perpetuate the idea that the Fed and its post-crisis policies have the country on its way back to prosperity.

In reality, the central bank has done nothing more than “destroy creative destruction” (to use Citi’s words), pushing an inevitable bad asset purge later into the future and embedding untold amounts of risk into the financial system in the mean time while simultaneously exacerbating class segregation by widening the gap between the wealthy and everyone else. 

As for the country’s social fabric, well, the events that unfolded in Baltimore in late April underscore the degree to which racial tensions have once again served as the catalyst for violent protests, some five decades after the Civil Rights Movement. 

It’s against this backdrop that LA Times columnist Chris Erksine takes aim at a commencement speech given by Apple CEO Tim Cook at George Washington University. 

Via LA Times:

In an address at George Washington University, Apple's Tim Cook urged grads to tune out the cynics.


"There will always be cynics and critics on the sidelines tearing people down," he said.


OK, Cookie. And where do I send the thank-you note and a small gift?


Keep in mind, there is nothing as excruciating as a graduation address. Steve Jobs famously nailed a Stanford commencement in 2005, but most graduations mean prolonged suffering in airless arenas. What do they ask grads and trustees to wear? Heavy robes. In May, no less. Right there, you know some sort of punishment is at hand.


Doesn't help that graduation advice always seems to come from someone so successful that he or she will never need to balance a checkbook again, or worry that the car will hold out or learn how to care for an aging mother who keeps setting her stove on fire in the home she swears she'll never leave.


It's understandable that commencement planners pick speakers of means and accomplishment. They'd be better off picking cynics, those wandering minstrels of a vibrant nation.


Thomas Jefferson. Bob Dylan. Jon Stewart. To this day, our nation's greatest global achievement was the 1st Amendment, based in part on French philosophers who spent lazy, liquored afternoons figuring out ways to provoke politicians and afflict the affluent. Such ornery subversives are as necessary as rain. A little fragrant under their robes, perhaps. But that's what democracy smells like sometimes.


Our country doesn't produce philosophers. What we have is late-night talk-show hosts, who do a pretty reasonable job, with a soapbox Voltaire or Diogenes would've envied.


That greatest of cynics, David Letterman, retired recently, a setback for cranky truthfulness in general.


That he will be missed more than most presidents is a tribute to the appeal of his honest rants. Letterman was our Will Rogers, our H.L. Mencken, a witty and real Sultan of Snark. Miss him already.


I miss the late Christopher Hitchens as well. It was Hitchens who once noted, of children: "It's a solid lesson in the limitations of self to realize that your heart is running around inside someone else's body."


Or: "I became a journalist partly so that I wouldn't ever have to rely on the press for my information."


So see, Mr. Cook, we need our wry and fearless cynics, not corporate types who can't help but plug the product, as you shamelessly did in your commencement address. After all, your hero Jobs was a cynic at heart, a different and artful drummer, a philosopher in the first degree.


I love millennials, have several myself, and recommend them to everyone...


In his address, Cook also told these millennials, "Don't shrink from risk."


That's a musty old standard for commencement addresses: Find your passion, follow your dreams, take some risks, blah-blah-blah-blah-blah-blah 


It cannot be lost among the most discerning grads that these commencement tips are coming from a generation that left them with crushing student debt, a wobbly job market, unaffordable real estate and cities increasingly ablaze. In the '70s, we'd have jeered them from the stage.


What I do sense from my encounters with millennials is that they prefer authenticity over everything else...


So please grasp at least this: In a world that over-worships corporate bottom lines, grads should be encouraged to embrace the healthy cynicism we all require to survive.


Read the full article here

*  *  *

Here is the full commencement speech:

Chart Of The Day: It's Worse Than 2000!

Zerohedge - Mon, 06/01/2015 - 16:35

All too often investors are bombarded with bullshit presented as facts by talking heads in constant denial and forever protecting their commissions - as opposed to protecting their client's interests. One notable case in point is the "it's different this time" meme surrounding IPOs and their apparent 'realness' in the current new normal vs the 199/2000 dotcom boom/bust. As the following chart shows: yes, this time is different - there has never, ever, been a greater perecentage of unprofitable companies IPOing...


h/t @Lach1435

So, talking head bullshit or fact-based data? You decide...



Spot What's Wrong With This Headline

Zerohedge - Mon, 06/01/2015 - 16:31

Bloomberg reports the following.



Federal Reserve Vice Chairman Stanley Fischer said bankers who have engaged in wrongdoing should be punished, and he chided the industry for pushing back against financial regulations adopted to prevent another conflagration.


“Individuals should be punished for any misconduct they personally engaged in,” Fischer said in a speech to bankers Monday in Toronto. 

Well then... if a Fed vice chairman says bankers should be punished for, you know, "crimes" then so be it.

Which in retrospect seems a little odd: why would anyone, let alone the second most important person on the planet, feel the need to state something that, for every other human being is self-evident?

Which reminds us, just how many of the market's caught-red-handed criminal manipulators have gone to jail?

Stanley? Anyone?

Inside Q1's Punk GDP Numbers - Why Bubble Vision Doesn't Get It

Zerohedge - Mon, 06/01/2015 - 16:20

Submitted by David Stockman via Contra Corner blog,

Promptly upon release of today’s GDP update, Steve Liesman and his Wall Street economist pals spent 10 minutes bloviating about why the negative print should be completely ignored. Herein is an essay on why it is they who should be given the heave-ho.

According to Liesman & Co the GDP shrinkage reported by the BEA for Q1 was all a mistake due to winter, strikes and unseasonal seasonals. So don’t sweat the small stuff, they brayed to what remains of the CNBC audience, the US economy actually continues bounding along at a 2.5% growth rate, as it has for the entire recovery.

Well, hold it right there. I am all for ignoring the quarterly jerks and flops embedded in the GDP data, too. But if you want to talk trend and context—-let’s do exactly that. And first and foremost there is no such trend as 2.5% growth.

After all, Liesman and his Wall Street cronies have been cheerleaders for the Fed’s insane 80 months of ZIRP and massive QE on the grounds that extraordinary measures were needed to combat the deep economic plunge known as the Great Recession. In fact, measured from peak to trough, the latter was the worst downturn since 1950. Real GDP shrank by 4.2% compared to an average of 1.7% during the previous nine recessions, and handily topped the 2.6% decline in 1981-1982 and the 3.0% decline in 1973-1975.

So you would think that after a recessionary plunge that was in a league all by itself that some account of that would be taken in assessing the recovery. Indeed, that’s particularly pertinent in the present instance because the depth of the Great Recession was exacerbated by a violent inventory liquidation in the fall and winter quarters right after the Wall Street meltdown in September-October 2008.

In fact, fully one-third of the $636 billion (2009 dollars) real GDP decline from peak to trough was accounted for by inventory liquidation; real final sales dropped by a far more modest 2.8%. Accordingly, the appropriate way to measure the trend is to remove the violent inventory swings from the numbers, and then to look at the path of real final sales after the peak—-averaging in the down quarters and the subsequent rebound.

Well, the present cycle is not even close to the purportedly favorable, steady eddie 2.5% trend that the bubblevision commentariat was gumming about again this AM. The compound annual growth rate over the 29 quarters since the pre-crisis peak in Q4 2007 is just 1.0%.

That’s right. This recovery is pinned deep in the sub-basement of history. During the comparably deep recessionary cycles of the late 1950s, mid-1970s and early 1980s, as shown below, real final sales grew at 3-4% annual rates over the 29 quarters subsequent to the pre-recession peak.

That is, the US economy dug out of its recessionary hole via several years of above trend rebound, thereby generating a 29- quarter gain that amounted to a cumulative 25-30 percent expansion. During the current cycle, by contrast, there was no compensatory rebound, just a languid climb from a deep recessionary hole.

Cumulative growth in real final sales has been only 8%. There is no 29-quarter period even remotely this bad since the early 1930s.

Indeed, what is truly notable about the chart is that the next weakest cycle on the chart is the subpar gain of 2.2% per annum for 2001-2008. During that period the Fed expanded its balance sheet in an unprecedented manner from $500 billion to $900 billion but got a housing boom and bust, not an improvement in real growth.

A “Recovery” In The Sub-basement Of Modern History – Click to enlarge

Throwing the rule-book of sound money to the winds, it then ballooned its footings by 5X to $4.5 trillion during the current cycle, and got even less to show for it. That is, a 1% economy, and that’s on the generous side. During the same 29 quarter period, the BEA claims the GDP deflator advanced at only a 1.5% annualized rate. Throw in some windage for a more honest and accurate pick-up in the economy-wide price level, and you have an economy that is essentially impaled on the flat line

Needless to say, a flat-lining economy is utterly incompatible with the Wall Street/Washington recovery narrative. Yet since today’s real final sales number, which clocked in at a negative 1.1% rate for Q1, further dramatized that unwelcome truth—it was simply ignored. The MSM financial commentariat, exemplified by Liesman and Wall Street’s so-called economists and strategists, is simply too invested in the Fed’s bubble finance policy model to even notice what is really happening.

On that score, another thing which is really happening is that the current sub-basement recovery is getting long in the tooth from both a calendar perspective and relative to leading indicators that really matter, such as inventory ratios, productivity trends and the quality mix of hiring gains.

The bullish chatter today was that since job gains have allegedly been so robust, the long awaited—and perpetually delayed—-escape velocity is just around the corner. But why do these  purported financial experts keep assuming that the BLS’ one job/one vote establishment payroll number actually measures economic progress?

The fact of the matter is that as of the first quarter, labor hours in the business sector were essentially no higher than in Q2 2000. During the last 15 years, they US economy has been bicycling the same old labor hours; all the labor hour gains since the recession bottom have been born again hours, not additional inputs to economic growth.

The implicit assumption in the escape velocity mantra is that the US economy has all the time in the world—-that there will never be another recession. Therefore the index line shown above will keep rising indefinitely, transforming born again labor hours into actual gains.

Why?  This expansion at 70 months is already long in the tooth from a calendar perspective, and faces the near certainty that ZIRP will eventually end and that the dollar will rise with it.

In fact, the jobs report is a lagging indicator. That’s especially true in the present US business world dominated by a stock market obsessed C-suite. Just like in the run-up to 2008, they are over-inventorying labor, believing that the stock averages are forecasting higher sales and demand just around the corner.

Unfortunately, what is around the corner is a flaming meltdown of the Fed’s third financial bubble this century. When the markets finally break, we will witness once again a dual liquidation of excess labor and stockpiled goods.

Indeed, we are already at the highest ratio of business inventories to final sales since October 2008. It is only a matter of time before a black swan shows up in the casino, causing the stock averages to plunge and the C-suites to lunge into another panicked liquidation of labor and goods, as they did in late 2008

The same pattern holds on the productivity front. Just like last time, bullish minded business is over-hiring at the expense of productivity growth. On a year over year basis, Q1 productivity in the business sector posted a tepid gain of just 0.5%—-the same figure as the prior year. In fact, after an initial surge during the excess labor liquidation of 2008-2009, productivity has flat lined ever since.

Indeed, the CAGR for the 5-years ending in Q1 2105 is a paltry 0.6%. There is no comparable five-year period this bad at any time since 1950. It means that the business sector is building toward another excess labor purge, awaiting only the C-suite panic that will be triggered when today’s vastly over-valued options packages are flushed in the next financial meltdown.

In fact, the current cycle exhibits a replay of the last one—–only in even more exaggerated form. On a peak-to-peak basis between Q1 2001 and Q4 2007, labor productivity in the business sector grew by 2.7% per annum, but all the gain was in the early years. During the final 5-years of the expansion, labor productivity growth slowed to 0.8% per annum.

This time the comparable numbers are a paltry 1.2% annual gain for the peak-to-peak period ( 2007:4 through 2015:1) and, as indicated, just 0.6% for the last five years.

Needless to say, when the C-suite belatedly initiated its excess labor purge in the fall of 2008, it turned into a bloodbath. During the next six quarters, payroll employment dropped by upwards of 9 million.

But check the CNBC archives. During the better part of 2008, the narrative was still all about the “goldilocks economy” and the fact that plentiful monthly gains on the BLS establishment survey meant clear sailing ahead.

So history is repeating itself, but here’s the irony. Now that the household credit channel of monetary policy transmission is over and done due to the arrival of “peak debt”, the Fed’s flood of credits conjured from thin air never leave the canyons of Wall Street. Furious money pumping reflates the casino, not the main street economy.

The resulting false signals of returning prosperity, in turn, have caused US business executives—-who have become even more stock options obsessed—– to indulge in their own form of irrational exuberance. That’s especially true for businesses in the service sector which cater to the top 10% of consumers, who own 85% of financial assets and are presently still feeling bullish.

But they also account for 40% of total consumption spending, and a considerably higher portion of discretionary purchases of luxury and “aspirational” goods and services. In keeping with the zeitgeist of our false bubble finance,  the top 10% will spend with abandon——until plunging stock averages abruptly halt the party.

In short, the MSM cheerleaders like Liesman and his pals cannot see the handwriting on the wall because central bank bubble finance has essentially abolished the old rules of macro-economics. Someone should tell them that an economic deja vu is about to happen…….all over again!

Chocolatey Goodness

Zerohedge - Mon, 06/01/2015 - 16:11

With all the grumbling and grousing I do here, I thought I'd share a feel-good story I happened upon last night. It's about the Hershey Company. Specifically, it's about a secret arrangement the founder of the company made to help orphans. As revealed on Wikipedia: (with some boldface emphasis by me):

Unable to have children of his own, Milton S. Hershey founded the Milton Hershey School in 1909 for orphans. In 1918, Milton S. Hershey and his wife, Catherine Hershey, donated all of their considerable wealth, of around 60 million dollars, to the boarding school upon Catherine Hershey's death. The Hershey Trust Company is now the largest shareholder and beneficiary to the School. Before his death, Milton Hershey ensured the school would live on by donating 30% of all future Hershey profits to the school. Due to this generous donation by America's largest chocolate company, MHS now has over 7 billion dollars in assets, making it one of the richest schools in the world. Today, the Milton Hershey School provides free education, health care, counseling and a friendly home to 2000 orphans in financial need.

The school's programs include sports, arts, religious studies, sciences, math, language and many other subjects. School colors are gold and brown. Students must wear a uniform to class provided to them by the School to encourage equality. Their admissions is primarily based on age and financial need for the orphans. The school also provides "House Parents", which are hired couples, paid to take care of and nurture the students. The school's "fellowship" project provides students with Hershey employee visits to build long lasting relationships and provide career counseling. Additionally, the school is located in Hershey, Pennsylvania, a city created by Milton Hershey himself. The city offers security, a church, a post office and other services for the students. Many of its designs resemble Hershey chocolate products, such as the Hershey Kisses light posts. Most notably perhaps is the fact that Mr. Milton Hershey prohibited The Hershey Company from using the School as an advertisement or marketing strategy. The school's primary goal is to provide young orphans with the skills necessary to support themselves and their families in the future.

Isn't that cool? Can you imagine, say, Steve Jobs allocating 30% of Apple's profits - - forever - - to a given charitable cause? And, the real kicker - - to expressly forbid the company from exploiting this generosity for marketing or advertising purposes?

Here in Palo Alto, for instance, there is the Ronald McDonald house. It's a very well-funded hospital for very sick children. I think it's terrific that McDonald's funds this (setting aside the fact that the food they've given the country the past fifty years hasn't exactly been a boon for good health), but when I see all the posters of Ronald McDonald given kids with, say, cancer a big Ronald hug, my cynicism meter does go "ping" a bit.

But never did I suspect, with all the Hershey's I've bought over the years to create my award-winning s'mores, that a big chunk of the company's profits during its entire history were causing to this worthy cause. Mr. Hershey must have been a good egg.

When you build with branches the walls are loose and flimsy during construction....

Natural Homes - Mon, 06/01/2015 - 16:01
When you build with branches the walls are loose and flimsy during construction. This allows you to adapt the shape of the building to suit your needs as you start to understand the space you are creating. It's pattern No.208 from the design book 'A Pattern Language'.

A Tiny Bubble House
This tiny home in Cordoba, Argentina is made from stones, branches, bottles, cob, lime, cactus juice and beeswax.

Europe Shocked When Russia Does To It What Europe Did To Russia

Zerohedge - Mon, 06/01/2015 - 16:00

The EU issued a press release this morning which could perhaps be summed up in 2 words - "not fair." Following the denial-of-entry by Russia of several EU politicians, Russia has released a list of 89 names who will face travel bans - of exactly the same type as EU and US enforced upon numerous Russian elites. Europe is displeased that Russia would dare do unto them as they have done unto others... "we deem this measure as totally arbitrary and unjustified," they exclaimed, adding, "we don’t have any further information on the legal basis or the criteria or the process of these decisions."

The travel bans by Russia appear to be a response to the E.U.’s imposing several rounds of sanctions on Russia for its role in destabilizing Ukraine, including asset freezes and travel bans on 150 officials.

Full European Union press release...

Statement by the EU Spokesperson on the Russian "Stop List"


In the past few months several EU politicians have been denied entry when arriving at the Russian border. The Russian authorities justified these refusals by referring to the inclusion of these individuals on a confidential "stop list".


After each of these refusals, the EU and the Member States whose nationals were affected had repeatedly requested transparency about the content of this list.


The list with 89 names has now been shared by the Russian authorities. We don't have any other information on legal basis, criteria and process of this decision. We consider this measure as totally arbitrary and unjustified, especially in the absence of any further clarification and transparency.


We are keeping in close contact with the Member States involved.

*  *  *

Germans are displeased...


The Brits are unhappy at the treatment too:

"if Russia thinks this action will cause the E.U. to change its position on sanctions, it is wrong,” said a spokeswoman from the British Foreign Office.


“Basically, what the Russians are doing is having a tantrum,” Malcolm Rifkind, a former British foreign secretary, told the BBC. “It shows we are making an impact because they wouldn’t have reacted unless they felt very sore at what had happened.”

*  *  *

Are politicians immune to hypocrisy?

As The Washington Post reports however, the Russians have their reasons...

An unnamed official from Russia’s Foreign Ministry told the Russian Interfax news agency that “it was done as a response to the campaign of sanctions that has been unleashed against Russia by some of the European Union states, with Germany at the head.”

The official also said that there is a similar list of Americans but noted, without elaboration, that the Americans had been handling the issue “more constructively than the Europeans.”

*  *  *

The list - for now - has not been publicly disseminated but details are leaking out...

Among those listed is Uwe Corsepius, current secretary general of the European Union council in Brussels, who is due to take over as foreign affairs advisor to German Chancellor Angela Merkel. 


The document also includes Bruno Le Roux, the leader of President Francois Hollande's Socialists in parliament, Britain's former deputy prime minister Nick Clegg and former Belgian premier Guy Verhofstadt, who heads the Liberal group in the European parliament.


Poland, which has been the sternest EU critic of Russia's policy towards Ukraine, had 18 names on the list.


"For some time we've seen that Russia is not necessarily trying to mitigate tensions but rather strengthen them," a spokeswoman for Poland's government told Reuters.


Last Monday, Germany protested to Russia over its refusal to let a conservative German lawmaker, Karl-Georg Wellmann, who had called Russia a "warmonger" earlier this year, into the country.

Other countries with names on the list include Latvia, Lithuania, Estonia, Denmark, Finland, Sweden, Czech Republic, Romania, Bulgaria and Spain.

Protecting Perks, Power, & Profits Has Perverted The Entire System

Zerohedge - Mon, 06/01/2015 - 15:39

Submitted by Bill Bonner via Bonner & Partners,

We’ve been trying to find something good to say about our generation – the baby boomers, who have dominated life back in the U.S. for at least the last 30 years.

But we keep running into the same problem: We have been so eager to protect our perks, power, and profits we have perverted the entire system.

Capitalism takes you into the future... with innovation, failure, and surprise. You invest, you lose your money, you try something different, and you stumble forward. Capitalism is constantly burying its mistakes and discovering tomorrow.

Cronyism, on the other hand, keeps you in the past. It is today and yesterday trying to stop tomorrow from happening. bribing public officials (they are remarkably cheap; in terms of return on investment nothing else comes close)… restricting… regulating… controlling… central planning… bailing out well-established businesses… rewarding stockholders… paying off voters, lobbyists, and special interests… and distorting the political establishment, with its geriatric candidates and tired themes.

And guess what? Cronyism depends on the credit bubble. The future is where new wealth is created. When you try to stop or twist the future into the shape want, you prevent this wealth from ever happening.

So, you switch from creating wealth now to taking wealth from the future, so you can consume it now. That’s how the credit bubble got so big. And that’s why almost nobody wants to see it pop.

Cronies owe money. They borrow money. They depend on borrowed money for their budgets, their spending, their bonuses, their portfolios, their welfare checks, and their special privileges.

They all depend so heavily on borrowing that few of them – whether in academia, media, business, finance, or government – can see the truth… let alone speak it.

They are all paid not to see it. And if they do see it, they keep their mouths shut.

Who is left on the other side? Who is left to say something?

A Hurt Ben Bernanke Explains That He Is Not Responsible For Record Inequality, Epic Hilarity Ensues

Zerohedge - Mon, 06/01/2015 - 15:21

One might be predisposed to thinking that monetary policies aimed explicitly at inflating prices for the assets most likely to be concentrated in the hands of the wealthy would have a high likelihood of exacerbating the wealth divide, especially when those policies are carried out over the course of nearly 7 years and to the tune of trillions of dollars. 

Not so, says Ben Bernanke. 

Bernanke took a break today from advising PIMCO and, let us not forget, the world’s most levered hedge fund, Citadel, to put his ‘Blogger Ben’ cap back on and explain why, in fact, QE did not disproportionately benefit the rich. 

Bernanke starts by conceding that QE inflates asset prices (phew, there for a second we thought reality was going to be completely suspended). However, Bernanke notes that poor people have been getting poorer for a long, long time, so sure, maybe the Fed contributed a little bit, but probably not a whole lot:

First, widening inequality is a very long-term trend, one that has been decades in the making. The degree of inequality we see today is primarily the result of deep structural changes in our economy that have taken place over many years, including globalization, technological progress, demographic trends, and institutional change in the labor market and elsewhere. By comparison to the influence of these long-term factors, the effects of monetary policy on inequality are almost certainly modest and transient.

Got that? Next, Bernanke falls back on the old Keynesian go-to: the smoothing of economic cycles. 

Second, monetary policy, if properly managed, promotes greater economic stability and prosperity for the economy as a whole, by mitigating the effects of recessions on the labor market and keeping inflation low and stable. 

Yes, “greater economic stability”, much like that promoted by Bernanke’s predecessor whose policies created what was perhaps the most dramatic boom and bust in the history of financial markets. He continues…

Perhaps most important, easier monetary policies promote job creation as well as increases in asset prices. A stronger labor market—more jobs at better wages—obviously benefits the middle class, and it is the best weapon we have against poverty.

We needn’t spend too much time on this ridiculous point because as we’ve shown time and again, the “stronger labor market” is a BLS fabrication which vanishes workers in order to produce goalseeked jobs prints and as for wage growth — there is none. At least not for the 80% of US workers classified by the BLS as "non-supervisors."

Stock prices have risen rapidly over the past six years or so, but they were also severely depressed during and just after the financial crisis. Arguably, the Fed's actions have not led to permanent increases in stock prices, but instead have returned them to trend. 

Ok, you've got us there Ben, the Fed's goal was certainly to get stocks back to trend. Thanks for conceding that point.

Finally, Bernanke patiently explains that the idea of ZIRP punishing savers is nonsensical because after all, poor people don’t have savings, so if anyone is getting hurt by lower rates, it’s the rich.

Interestingly, some of the same critics who say that the Fed's policies disproportionately help the wealthy also claim that they "hurt savers" by lowering rates of return. Since the wealthy tend to be savers, and the middle class and poor tend to be borrowers, the assertions that Fed policy helps the wealthy and hurts savers cannot generally both be true.

We would point Blogger Ben to a recent paper by the St. Louis Fed itself (some audacity to contribute to inequality and then write a paper proving what you did, but at least they're honest about it) which shows that in fact, the income divide as certainly grown in the post-crisis years and the widening gap is almost certainly in large part due to Fed policy. In case you do not want to read the entire paper Ben, our summary is here.

Incidentally, even the 'very serious' people now acknowledge that the emperor is naked, but as this latest set of ruminations from Bernanke proves, conditions on the ground never stopped anyone in an Ivory Tower from pontificating.

Shock Security Report: TSA Has a 95% Failure Rate Finding Weapons and Explosives

SHTF Plan - Mon, 06/01/2015 - 15:15

With an annual budget of over $7 billion Transportation Security Administration officials claim that they set the standard for excellence in transportation security and counterterrorism.

But a recent investigation reveals that when undercover operatives attempted to smuggle banned weapons and even explosives through checkpoints nationwide the TSA failed to stop them 95% of the time.

The shocking security report shows that despite the billions of dollars spent and the millions of American citizens being inconvenienced, and often humiliated, America’s airports are no safer today than they were before the attacks of September 11th, 2001:

An internal investigation of the Transportation Security Administration revealed security failures at dozens of the nation’s busiest airports, where undercover investigators were able to smuggle mock explosives or banned weapons through checkpoints in 95 percent of trials, ABC News has learned.

The series of tests were conducted by Homeland Security Red Teams who pose as passengers, setting out to beat the system.

According to officials briefed on the results of a recent Homeland Security Inspector General’s report, TSA agents failed 67 out of 70 tests, with Red Team members repeatedly able to get potential weapons through checkpoints.

In one test an undercover agent was stopped after setting off an alarm at a magnetometer, but TSA screeners failed to detect a fake explosive device that was taped to his back during a follow-on pat down.

Officials would not divulge the exact time period of the testing other than to say it concluded recently.

Source: ABC News

The government claims that because undercover “Red Teams” are familiar with TSA protocols and vulnerabilities the security investigation results are not reflective of real world results.  According to former TSA administrator John Pistole that because these “super terrorists” have access to TSA procedures “they can create and devise and conceal items that … not even the best terrorists would be able to do.” 

In effect the government is telling us that even though TSA failed to catch 95% of the explosives and weapons being smuggled onto planes, Americans have nothing to worry about because an actual terrorist would never know how to compromise the system.  A real terrorist, whose sole purpose in life is to kill as many Americans as possible, would not have the time, resources, commitment or brains to identify weak points and gather intelligence about the vulnerabilities within the TSA’s security protocols.

But what can we expect from an organization whose front-line officers make just a hair over minimum wage?

For one, we can expect these highly trained agents of counter-terrorism to laugh and snicker while Americans go through demeaning screening procedures while being fondled.

And as for those highly secretive protocols, perhaps if the TSA focused on searching potential terrorists before they board public transportation, as opposed to pat-downs of moms and their children after they disembark from their travels, they’d be a bit more successful in stopping people who were trying to smuggle weapons aboard.

But no matter how wasteful or ineffective the Transportation Security Administration may be with respect to their actual duties, there are still those, fully one-third actually, who have succumbed to the years of propaganda and would gladly and without protest accept a full body cavity search for the privilege of flying.


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