Thursday, April 24, 2014

Time is running out for the US dollar

Time is running out for the US dollar

It is often speculated that some members of the US establishment are pushing Ukraine towards a military conflict with Russia. But why do it in such a hurry? A Russian economist claims t hat he know s the answer, alluding to the link between the latest international crisis and the fate of the US currency.

Russian diplomats have repeatedly criticized the US for not trying to restrain their Ukrainian underlings in order to make them respect the agreement reached during the recent Geneva meeting. US-sponsored Ukrainian junta is trying to provoke Russia to intervene in Ukraine in order to protect ethnic Russians and supporters of federalization. There can be only two results for such policy. Ukraine will either become the battleground for a long and bloody civil war or will become the target for a Russian military intervention. From the American point of view it is a win-win situation. If there is a civil war, the delivery of natural gas to Europe will be disrupted hurting both the European and the Russian economy. If Moscow decides that it has to intervene in Ukraine, Washington will ignore the ethic Russians killed by the US-sponsored junta and will claim that Russia is an aggressor. Such a strategy will give Washington a chance to force the EU to institute hard economic sanctions against Russia, but such sanctions will hurt the EU even more than Russia . According to Sergey Glazyev, economic advisor to President Putin, European Union stands to lose 1 trillion euro, if hard economic sanctions against Russia are enacted .
Mikhail Khazin, the president of Neokon economic advisory company, believes that the US is trying to preemptively hurt the regional currencies and their associated economies before the US dollar loses its status as the main global currency:
The US doesn't have that much time in order to prepare for a serious weakening of the US dollar on the global stage and, conversely, for a serious strengthening of regional currencies' role. The maximum amount of time they can count on is 18 months. During this period they must prepare for a situation in which their main instrument of global control, i.e. the control of the circulation of the main global reserve and trade currency, will become seriously weakened,” he wrote in a recent blogpost cited by the Russian media outlets.
During Obama's second term, the relations between the US and most global players including China, Russia, India and, to a certain extent, the EU have reached new low points. This situation is somewhat similar to the situation before WWII and WWI when America benefited from global conflicts that destroyed the economies of America's competitors. It is said that third time is charm, but the rest of the world would be better off if Washington can't pull the same trick for a third time in a row. The era in which Washington was the main beneficiary of global instability and regional conflicts must come to an end.

War Makes Us Poor

Top Economists Say War Is Bad for the Economy

Preface: Many Americans – including influential economists and talking heads - still wrongly assume that war is good for the economy. Many congressmen assume that cutting pork-barrel military spending would hurt their constituents’ jobs.
As demonstrated below, it isn’t true.
Nobel-prize winning economist Joseph Stiglitz says that war is bad for the economy:
Stiglitz wrote in 2003:
War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon. Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy.
Stiglitz has also said that this decade’s Iraq war has been very bad for the economy. See this, this and this.
Former Federal Reserve chairman Alan Greenspan also said in that war is bad for the economy.   In 1991, Greenspan said that a prolonged conflict in the Middle East would hurt the economy. And he made this point again in 1999:
Societies need to buy as much military insurance as they need, but to spend more than that is to squander money that could go toward improving the productivity of the economy as a whole: with more efficient transportation systems, a better educated citizenry, and so on. This is the point that retiring Rep. Barney Frank (D-Mass.) learned back in 1999 in a House Banking Committee hearing with then-Federal Reserve Chairman Alan Greenspan. Frank asked what factors were producing our then-strong economic performance. On Greenspan’s list: “The freeing up of resources previously employed to produce military products that was brought about by the end of the Cold War.” Are you saying, Frank asked, “that dollar for dollar, military products are there as insurance … and to the extent you could put those dollars into other areas, maybe education and job trainings, maybe into transportation … that is going to have a good economic effect?” Greenspan agreed.
Economist Dean Baker notes:
It is often believed that wars and military spending increases are good for the economy. In fact, most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment.

The Proof Is In the Pudding

Mike Lofgren notes:
Military spending may at one time have been a genuine job creator when weapons were compatible with converted civilian production lines, but the days of Rosie the Riveter are long gone. [Indeed, WWII was different from current wars in many ways, and so its economic effects are not comparable to those of today's wars.]  Most weapons projects now require relatively little touch labor. Instead, a disproportionate share is siphoned into high-cost R&D (from which the civilian economy benefits little), exorbitant management expenditures, high overhead, and out-and-out padding, including money that flows back into political campaigns. A dollar appropriated for highway construction, health care, or education will likely create more jobs than a dollar for Pentagon weapons procurement.
During the decade of the 2000s, DOD budgets, including funds spent on the war, doubled in our nation’s longest sustained post-World War II defense increase. Yet during the same decade, jobs were created at the slowest rate since the Hoover administration. If defense helped the economy, it is not evident. And just the wars in Iraq and Afghanistan added over $1.4 trillion to deficits, according to the Congressional Research Service. Whether the wars were “worth it” or merely stirred up a hornet’s nest abroad is a policy discussion for another time; what is clear is that whether you are a Keynesian or a deficit hawk, war and associated military spending are no economic panacea.
The Institute for Economics & Peace (IEP) shows that any boost from war is temporary at best. For example, while WWII provided a temporary bump in GDP, GDP then fell back to the baseline trend. After the Korean War, GDP fell below the baseline trend:
IEP notes:
By examining the state of the economy at each of the major conflict periods since World War II, it can be seen that the positive effects of increased military spending were outweighed by longer term unintended negative macroeconomic consequences. While the stimulatory effect of military outlays is evidently associated with boosts in economic growth, adverse effects show up either immediately or soon after, through higher inflation, budget deficits, high taxes and reductions in consumption or investment. Rectifying these effects has required subsequent painful adjustments which are neither efficient nor desirable. When an economy has excess capacity and unemployment, it is possible that increasing military spending can provide an important stimulus. However, if there are budget constraints, as there are in the U.S. currently, then excessive military spending can displace more productive non-military outlays in other areas such as investments in high-tech industries, education, or infrastructure. The crowding-out effects of disproportionate government spending on military functions can affect service delivery or infrastructure development, ultimately affecting long-term growth rates.
Analysis of the macroeconomic components of GDP during World War II and in subsequent conflicts show heightened military spending had several adverse macroeconomic effects. These occurred as a direct consequence of the funding requirements of increased military spending. The U.S. has paid for its wars either through debt (World War II, Cold War, Afghanistan/Iraq), taxation (Korean War) or inflation (Vietnam). In each case, taxpayers have been burdened, and private sector consumption and investment have been constrained as a result. Other negative effects include larger budget deficits, higher taxes, and growth above trend leading to inflation pressure. These effects can run concurrent with major conflict or via lagging effects into the future. Regardless of the way a war is financed, the overall macroeconomic effect on the economy tends to be negative. For each of the periods after World War II, we need to ask, what would have happened in economic terms if these wars did not happen? On the specific evidence provided, it can be reasonably said, it is likely taxes would have been lower, inflation would have been lower, there would have been higher consumption and investment and certainly lower budget deficits. Some wars are necessary to fight and the negative effects of not fighting these wars can far outweigh the costs of fighting. However if there are other options, then it is prudent to exhaust them first as once wars do start, the outcome, duration and economic consequences are difficult to predict.
We noted in 2011:
This is a no-brainer, if you think about it. We’ve been in Afghanistan for almost twice as long as World War II. We’ve been in Iraq for years longer than WWII. We’ve been involved in 7 or 8 wars in the last decade. And yet [the economy is still unstable]. If wars really helped the economy, don’t you think things would have improved by now? Indeed, the Iraq war alone could end up costing more than World War II. And given the other wars we’ve been involved in this decade, I believe that the total price tag for the so-called “War on Terror” will definitely support that of the “Greatest War”.
Let’s look at the adverse effects of war in more detail …

War Spending Diverts Stimulus Away from the Real Civilian Economy

IEP notes that – even though the government spending soared – consumption and investment were flat during the Vietnam war:
The New Republic noted in 2009:
Conservative Harvard economist Robert Barro has argued that increased military spending during WWII actually depressed other parts of the economy.
(New Republic also points out that conservative economist Robert Higgs and liberal economists Larry Summers and Brad Delong have all shown that any stimulation to the economy from World War II has been greatly exaggerated.)
How could war actually hurt the economy, when so many say that it stimulates the economy?
Because of what economists call the “broken window fallacy”.
Specifically, if a window in a store is broken, it means that the window-maker gets paid to make a new window, and he, in turn, has money to pay others. However, economists long ago showed that – if the window hadn’t been broken – the shop-owner would have spent that money on other things, such as food, clothing, health care, consumer electronics or recreation, which would have helped the economy as much or more.
If the shop-owner hadn’t had to replace his window, he might have taken his family out to dinner, which would have circulated more money to the restaurant, and from there to other sectors of the economy. Similarly, the money spent on the war effort is money that cannot be spent on other sectors of the economy. Indeed, all of the military spending has just created military jobs, at the expense of the civilian economy.
As Austrian economist Ludwig Von Mises pointed out:
That is the essence of so-called war prosperity; it enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income.
We noted in 2010:
You know about America’s unemployment problem. You may have even heard that the U.S. may very well have suffered a permanent destruction of jobs.
But did you know that the defense employment sector is booming?
[P]ublic sector spending – and mainly defense spending – has accounted for virtually all of the new job creation in the past 10 years:
The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 1o years:
Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:
longjobs1 The Military Industrial Complex is Ruining the Economy
Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.
It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:
longjobs2 The Military Industrial Complex is Ruining the Economy
Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.
But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.
Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.
Let me finish with a final chart.
longjobs4 The Military Industrial Complex is Ruining the Economy
Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back. [120]
So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.
And this shows military versus non-military durable goods shipments: us collapse 18 11 The Military Industrial Complex is Ruining the Economy [Click here to view full image.]
So we’re running up our debt (which will eventually decrease economic growth), but the only jobs we’re creating are military and other public sector jobs.
PhD economist Dean Baker points out that America’s massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:
Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.
A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.
Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.
The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…
The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.
The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.
So we’re running up our debt – which will eventually decrease economic growth – and creating many fewer jobs than if we spent the money on non-military purposes.

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

Chalmers Johnson notes that high military spending diverts innovation and manufacturing capacity from the economy:
By the 1960s it was becoming apparent that turning over the nation’s largest manufacturing enterprises to the Department of Defense and producing goods without any investment or consumption value was starting to crowd out civilian economic activities. The historian Thomas E Woods Jr observes that, during the 1950s and 1960s, between one-third and two-thirds of all US research talent was siphoned off into the military sector. It is, of course, impossible to know what innovations never appeared as a result of this diversion of resources and brainpower into the service of the military, but it was during the 1960s that we first began to notice Japan was outpacing us in the design and quality of a range of consumer goods, including household electronics and automobiles.
Woods writes: “According to the US Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation’s plant and equipment, and infrastructure, at just over $7.29 trillion… The amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock”.
The fact that we did not modernise or replace our capital assets is one of the main reasons why, by the turn of the 21st century, our manufacturing base had all but evaporated. Machine tools, an industry on which Melman was an authority, are a particularly important symptom. In November 1968, a five-year inventory disclosed “that 64% of the metalworking machine tools used in US industry were 10 years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States’ machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of the second world war. This deterioration at the base of the industrial system certifies to the continuous debilitating and depleting effect that the military use of capital and research and development talent has had on American industry.”
Economist Robert Higgs makes the same pointabout World War II:
Yes, officially measured GDP soared during the war. Examination of that increased output shows, however, that it consisted entirely of military goods and services. Real civilian consumption and private investment both fell after 1941, and they did not recover fully until 1946. The privately owned capital stock actually shrank during the war. Some prosperity. (My article in the peer-reviewed Journal of Economic History, March 1992, presents many of the relevant details.)
It is high time that we come to appreciate the distinction between the government spending, especially the war spending, that bulks up official GDP figures and the kinds of production that create genuine economic prosperity. As Ludwig von Mises wrote in the aftermath of World War I, “war prosperity is like the prosperity that an earthquake or a plague brings.”

War Causes Inflation … Which Keynes and Bernanke Admit Taxes Consumers

As we noted in 2010, war causes inflation … which hurts consumers:
Liberal economist James Galbraith wrote in 2004:
Inflation applies the law of the jungle to war finance. Prices and profits rise, wages and their purchasing power fall. Thugs, profiteers and the well connected get rich. Working people and the poor make out as they can. Savings erode, through the unseen mechanism of the “inflation tax” — meaning that the government runs a big deficit in nominal terms, but a smaller one when inflation is factored in.
There is profiteering. Firms with monopoly power usually keep some in reserve. In wartime, if the climate is permissive, they bring it out and use it. Gas prices can go up when refining capacity becomes short — due partly to too many mergers. More generally, when sales to consumers are slow, businesses ought to cut prices — but many of them don’t. Instead, they raise prices to meet their income targets and hope that the market won’t collapse.
Ron Paul agreed in 2007:
Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular. The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny. Monetary policy is utterly ignored in Washington, even though the Federal Reserve system is a creation of Congress.
The result of this arrangement is inflation. And inflation finances war.
Blanchard Economic Research pointed out in 2001:
War has a profound effect on the economy, our government and its fiscal and monetary policies. These effects have consistently led to high inflation.
David Hackett Fischer is a Professor of History and Economic History at Brandeis. [H]is book, The Great Wave, Price Revolutions and the Rhythm of History … finds that … periods of high inflation are caused by, and cause, a breakdown in order and a loss of faith in political institutions. He also finds that war is a triggering influence on inflation, political disorder, social conflict and economic disruption.
Other economists agree with Professor Fischer’s link between inflation and war.
James Grant, the respected editor of Grant’s Interest Rate Observer, supplies us with the most timely perspective on the effect of war on inflation in the September 14 issue of his newsletter:
“War is inflationary. It is always wasteful no matter how just the cause. It is cost without income, destruction financed (more often than not) by credit creation. It is the essence of inflation.”
Libertarian economics writer Lew Rockwell noted in 2008:
You can line up 100 professional war historians and political scientists to talk about the 20th century, and not one is likely to mention the role of the Fed in funding US militarism. And yet it is true: the Fed is the institution that has created the money to fund the wars. In this role, it has solved a major problem that the state has confronted for all of human history. A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state. It is not a problem for the people. The inability of the state to fund its unlimited ambitions is worth more for the people than every kind of legal check and balance. It is more valuable than all the constitutions every devised.
Reflecting on the calamity of this war, Ludwig von Mises wrote in 1919
One can say without exaggeration that inflation is an indispensable means of militarism. Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.***

In the entire run-up to war, George Bush just assumed as a matter of policy that it was his decision alone whether to invade Iraq. The objections by Ron Paul and some other members of Congress and vast numbers of the American population were reduced to little more than white noise in the background. Imagine if he had to raise the money for the war through taxes. It never would have happened. But he didn’t have to. He knew the money would be there. So despite a $200 billion deficit, a $9 trillion debt, $5 trillion in outstanding debt instruments held by the public, a federal budget of $3 trillion, and falling tax receipts in 2001, Bush contemplated a war that has cost $525 billion dollars — or $4,681 per household. Imagine if he had gone to the American people to request that. What would have happened? I think we know the answer to that question. And those are government figures; the actual cost of this war will be far higher — perhaps $20,000 per household.
If the state has the power and is asked to choose between doing good and waging war, what will it choose? Certainly in the American context, the choice has always been for war.
And progressive economics writer Chris Martenson explains as part of his “Crash Course” on economics:
If we look at the entire sweep of history, we can make an utterly obvious claim: All wars are inflationary. Period. No exceptions.
So if anybody tries to tell you that you haven’t sacrificed for the war, let them know you sacrificed a large portion of your savings and your paycheck to the effort, thank you very much.
The bottom line is that war always causes inflation, at least when it is funded through money-printing instead of a pay-as-you-go system of taxes and/or bonds. It might be great for a handful of defense contractors, but war is bad for Main Street, stealing wealth from people by making their dollars worth less.
Given that John Maynard Keynes and former Federal Reserve chair Ben Bernanke both say that inflation is a tax on the American people, war-induced inflation is a theft of our wealth.
IEP gives a graphic example – the Vietnam war helping to push inflation through the roof:

War Causes Runaway Debt

We noted in 2010:
All of the spending on unnecessary wars adds up.
The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.
Indeed, IEP – commenting on the war in Afghanistan and Iraq – notes:
This was also the first time in U.S. history where taxes were cut during a war which then resulted in both wars completely financed by deficit spending. A loose monetary policy was also implemented while interest rates were kept low and banking regulations were relaxed to stimulate the economy. All of these factors have contributed to the U.S. having severe unsustainable structural imbalances in its government finances.
We also pointed out in 2010:
It is ironic that America’s huge military spending is what made us an empire … but our huge military is what is bankrupting us … thus destroying our status as an empire.
Economist Michel Chossudovsky told Washington’s Blog:
War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.
Indeed, we’ve known for 2,500 years that prolonged war bankrupts an economy (and remember Greenspan’s comment.)
It’s not just civilians saying this …
The former head of the Joint Chiefs of Staff – Admiral Mullen – agrees:
The Pentagon needs to cut back on spending.
“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”
Indeed, Mullen said:
For industry and adequate defense funding to survive … the two must work together. Otherwise, he added, “this wave of debt” will carry over from year to year, and eventually, the defense budget will be cut just to facilitate the debt.
Former Secretary of Defense Robert Gates agrees as well. As David Ignatius wrote in the Washington Post in 2010:
After a decade of war and financial crisis, America has run up debts that pose a national security problem, not just an economic one.
One of the strongest voices arguing for fiscal responsibility as a national security issue has been Defense Secretary Bob Gates. He gave a landmark speech in Kansas on May 8, invoking President Dwight Eisenhower’s warnings about the dangers of an imbalanced military-industrial state.
“Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state — militarily strong, but economically stagnant and strategically insolvent,” Gates said. He warned that America was in a “parlous fiscal condition” and that the “gusher” of military spending that followed Sept. 11, 2001, must be capped. “We can’t have a strong military if we have a weak economy,” Gates told reporters who covered the Kansas speech.
On Thursday the defense secretary reiterated his pitch that Congress must stop shoveling money at the military, telling Pentagon reporters: “The defense budget process should no longer be characterized by ‘business as usual’ within this building — or outside of it.”
While war might make a handful in the military-industrial complex and big banks rich, America’s top military leaders and economists say that would be a very bad idea for the American people.
Indeed, military strategists have known for 2,500 years that prolonged wars are disastrous for the nation.

War Increases Terrorism … And Terrorism Hurts the Economy

Security experts – conservative hawks and liberal doves alike – agree that waging war in the Middle East weakens national security and increases terrorism. See this, this, this, this, this, this and this.
Terrorism – in turn – terrorism is bad for the economy. Specifically, a study by Harvard and the National Bureau of Economic Research (NBER) points out:
From an economic standpoint, terrorism has been described to have four main effects (see, e.g., US Congress, Joint Economic Committee, 2002). First, the capital stock (human and physical) of a country is reduced as a result of terrorist attacks. Second, the terrorist threat induces higher levels of uncertainty. Third, terrorism promotes increases in counter-terrorism expenditures, drawing resources from productive sectors for use in security. Fourth, terrorism is known to affect negatively specific industries such as tourism.
The Harvard/NBER concludes:
In accordance with the predictions of the model, higher levels of terrorist risks are associated with lower levels of net foreign direct investment positions, even after controlling for other types of country risks. On average, a standard deviation increase in the terrorist risk is associated with a fall in the net foreign direct investment position of about 5 percent of GDP.
So the more unnecessary wars American launches and the more innocent civilians we kill, the less foreign investment in America, the more destruction to our capital stock, the higher the level of uncertainty, the more counter-terrorism expenditures and the less expenditures in more productive sectors, and the greater the hit to tourism and some other industries. Moreover:
Terrorism has contributed to a decline in the global economy (for example, European Commission, 2001).
So military adventurism increases terrorism which hurts the world economy. And see this.
Postscript: Attacking a country which controls the flow of oil has special impacts on the economy. For example, well-known economist Nouriel Roubini says that attacking Iran would lead to global recession. The IMF says that Iran cutting off oil supplies could raise crude prices 30%.

The US Government Has Been Printing Money Without Limit, The BRICS Countries Are Setting Up Their Own IMF

US dollar dying as tensions over Ukraine heat up: Analyst
The US dollar is losing its dominance on global trade amid spiraling tensions between Washington and Moscow over Ukraine, says an analyst.
In his Friday column for Press TV website, F. William Engdahl said Russia and leading trading countries are developing “alternatives to using the US dollar for their bilateral trade.”
The analyst said the US government has been printing “money without limit, in order to rescue the bankrupt Wall Street banks with what the Federal Reserve calls Quantitative Easing.”
Washington’s decision to go for the military coup in Ukraine [has]…isolated the power of US hegemony and opened the door for a genuine multipolar world where peaceful cooperation replaced military threats and sole superpower domination,” Engdahl stated.
BRICS Countries to Set Up Their Own IMF
Very soon, the IMF will cease to be the world’s only organization capable of rendering international financial assistance. The BRICS countries are setting up alternative institutions, including a currency reserve pool & a development bank.
The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.
Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.
In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. “Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory,” Lukov said.
It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries’ economies.
Source: Russia Beyond the Headlines -
Rob Kirby – Fiat Money Is Failing, Federal Reserve Fraud And More… - Macroeconomic researcher Rob Kirby thinks the global economy is in deep trouble. What is the problem? Kirby contends, “The real problem is with the money itself. We need to revert back to real capitalism which is real weights and measures and honest commerce. Otherwise, we are going to devolve into a very dark period of feudalist oppression.”Why is this happening? Kirby thinks, “It doesn’t really matter who occupies the Oval Office. The office of the President has been captured, and it has been captured by the bankers. We are living under banker rule. What we are witnessing, in real time, is this experiment with central banking, and fiat money is failing. The evidence is written all over the walls. It’s completely clear. Anyone who is not paying attention to this, at this point, is delusional.”China opens Beijing to gold imports, cutting into Hong Kong’s transit roleOpening the capital as the third shipment point will help the PBOC keep purchases discreet as it is believed to be adding to its bullion reserves 
China Goes Dark – PBOC To Keep Goldbugs Clueless About Its Gold Buying Spree“in a move that would help keep purchases by the world’s top bullion buyer discreet at a time when it might be boosting official reserves.” It is only a matter of time before this demand finally manifests itself in the manipulated price as well
Near-Record Silver Sales at US Mint in Q1The U.S. Mint sold 13,879,000 ounces of silver bullion coins in the first quarter, compared with 14,223,000 ounces in the first quarter of record-breaking 2013.

LEGAL WAYS TO AVOID PAYING TAX – The Super Rich Elite are Doing It, So Why Dont You?

There’s Only One Way Out for America’s Sinking Middle Class


More Bad News for America's Middle Class

More Bad News for America’s Middle Class – For decades, America’s middle class have held the title of the most affluent “middle class” in the world. But according to new data, this is no longer true.
According to the NY Times:
“After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.”
The new figures, based on surveys conducted over the past 35 years by the Luxembourg Income Study Database, reveal a stark division between America’s wealthy upper-classes and its working poor.
The report adds:
“The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.”
As I have long stated, America’s slow and steady decline is not only going to be painful financially, but it will also hurt psychologically. America’s pride is being bruised. And just as the sun finally set on the British empire at the turn of the 20th century, America’s proverbial “sun” is setting here at the turn of the 21st century. Global powers are rising up and are eager to take America’s crown of global hegemony.
Of course, there’s little that you and I can do about the rise and fall of empires. However, if we are aware, we can avoid some of the inevitable financial pain that awaits this nation.
One solution to dealing with this historic power shift is to insulate your finances through wise diversification. But investing alone won’t protect you. And neither will a “good job.”
If you want to truly secure your financial future, you MUST create multiple sources of income. Income diversification is the only way out for America’s sinking middle class.
As this recent article proves, America’s wealthy upper-class did not achieve their wealth by working for someone else or by investing in penny stocks. Instead, their wealth came through starting their own business and placing the profits in stable investments like real estate and precious metals.
Have you ever thought about starting your own business? If so, what’s holding you back?
Until tomorrow,
Jerry Robinson

Is It Time To Freak Out About U.S. Economy?

U.S. stocks fall; PMI, home sales disappoint
NEW YORK (MarketWatch) — U.S. stocks deepened losses after a pair of disappointing reports on manufacturing and the housing market, putting the S&P 500 and Nasdaq Composite on track to break their six-day winning streaks.
Investors also focused on a batch of mixed earnings releases, while awaiting results after the bell from heavyweights Apple, Inc. and Facebook, Inc.
The S&P 500 SPX -0.20%  fell 3 points, or 0.2%, at 1,876.42. The Dow Jones Industrial Average DJIA -0.13%  slipped 24 points, or 0.1%, to 16,490.41.The Nasdaq CompositeCOMP -0.79%  is down 27 points, or 0.7%, to 4,133.70.
Markit’s preliminary U.S. manufacturing PMI survey is out.
The headline index slipped to 55.4 in April from 55.5 in March.
Economists had estimated the number would climb to 56.0.
Sales of new homes plunge 14.5% in March
WASHINGTON (MarketWatch) — Sales of new single-family homes plunged last month, hitting the slowest pace since July, according to data released Wednesday.
Sales of new single-family homes plunged 14.5% to a seasonally adjusted annual rate of 384,000 last month, hitting the lowest level since July, with drops in three of four U.S. regions.
Economists polled by MarketWatch had expected a March sales pace of 450,000, compared with an originally estimated rate of 440,000 in February. On Wednesday, the U.S. Commerce Department revised February’s sales pace to 449,000.
WASHINGTON (MarketWatch) — Housing is not looking good, that’s for sure.
The new-home sales report is and always has been a volatile report, but 14.5% drops in a single month aren’t easily explained. Not after months of sluggish readings, and in view of mediocre numbers for existing-home sales and low readings of prospective-buyer traffic by builders.
Smoothing out over six months, and the rate of growth in new-home sales is pretty painfully slow given the depths of how far housing tumbled after the Great Recession.
The March report is a particular head-scratcher, seeing how the weather actually improved and mortgage rates have dropped. New Home Sales Plunge 14.5%; It’s Not the Weather; Steen Jakobsen on Consensus vs. Reality
The Census Bureau report New Residential Sales Report shows sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000.
  • Sales are 14.5 percent below the revised February rate of 449,000
  • Sales are 13.3 percent below the March 2013 estimate of 443,000
  • Median sales price was $290,000 vs. $260,900 in February, $257,500 in March of 2013
  • Average sales price was $334,200 vs. $318,900 in February, $300,200 in March of 2013
  • Median sales price was up 11.5% from last month, 12.6% from year ago
  • Average sales price was up 4.8% from last month, 11.3% from year ago
  • New houses for sale was 193,000
  • Supply is 6.0 months at the current sales rate
Sales of new single-family homes surprisingly slid to an eight-month low in March, falling 14.5 percent to a seasonally adjusted 384,000, when economists polled by Reuters had expected to see a reading of 450,000. And although the S&P 500 dipped slightly on the 10 a.m. ET report, many traders were confused about why stocks weren’t hurt more.
“I am surprised that the market wasn’t hurt by that awful home sales number,” wrote Jim Iuorio of TJM Institutional Services. “It has to be that the market needs a couple more numbers to erase the positive vibe, or that the Yellen ‘put’ is still in play. Either way, it is strange.”
Author Piketty: Income Disparity Puts Financial System at Risk Rising income inequality played a role in the financial crisis of 2007-09, and it could so again if we’re not careful, says economist Thomas Piketty, author of “Capital in the Twenty-First Century.”

Exactly Like 7 Years Ago? 2014 Is Turning Out To Be Eerily Similar To 2007

Bubble - Photo by Jeff Kubina
The similarities between 2007 and 2014 continue to pile up.  As you are about to see, U.S. home sales fell dramatically throughout 2007 even as the mainstream media, our politicians andFederal Reserve Chairman Ben Bernankepromised us that everything was going to be just fine and that we definitely were not going to experience a recession.  Of course we remember precisely what followed.  It was the worst economic crisis since the days of the Great Depression.  And you know what they say – if we do not learn from history we are doomed to repeat it.  Just like seven years ago, the stock market has soared to all-time high after all-time high.  Just like seven years ago, the authorities are telling us that there is nothing to worry about.  Unfortunately, just like seven years ago, a housing bubble is imploding and another great economic crisis is rapidly approaching.
Posted below is a chart of existing home sales in the United States during 2007.  As you can see, existing home sales declined precipitously throughout the year…
Existing Home Sales 2007
Now look at this chart which shows what has happened to existing home sales in the United States in recent months.  If you compare the two charts, you will see that the numbers are eerily similar…
Existing Home Sales Today
New home sales are also following a similar pattern.  In fact, we just learned that new home sales have collapsed to an 8 month low
Sales of new single-family homes dropped sharply last month as severe winter weather and higher mortgage rates continued to slow the housing recovery.
New home sales fell 14.5% to a seasonally adjusted annual rate of 385,000, down from February’s revised pace of 449,000, the Census Bureau said.
Once again, this is so similar to what we witnessed back in 2007.  The following is a chart that shows how new home sales declined dramatically throughout that year…
New Home Sales 2007
And this chart shows what has happened to new homes sales during the past several months.  Sadly, we have never even gotten close to returning to the level that we were at back in 2007.  But even the modest “recovery” that we have experienced is now quickly unraveling…
New Home Sales Today
If history does repeat, then what we are witnessing right now is a very troubling sign for the months to come.  As you can see from this chart, new home sales usually start going down before a recession begins.
And don’t expect these housing numbers to rebound any time soon.  The demand for mortgages has dropped through the floor.  Just check out the following excerpt from a recent article by Michael Lombardi
One of the key indicators I follow in respect to the state of the housing market is mortgage originations. This data gives me an idea about demand for homes, as rising demand for mortgages means more people are buying homes. And as demand increases, prices should be increasing.
But the opposite is happening…
In the first quarter of 2014, mortgage originations at Citigroup Inc. (NYSE/C) declined 71% from the same period a year ago. The bank issued $5.2 billion in mortgages in the first quarter of 2014, compared to $8.3 billion in the previous quarter and $18.0 billion in the first quarter of 2013. (Source: Citigroup Inc. web site, last accessed April 14, 2014.)
Total mortgage origination volume at JPMorgan Chase & Co. (NYSE/JPM) declined by 68% in the first quarter of 2014 from the same period a year ago. At JPMorgan, in the first quarter of 2014, $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago. (Source: JPMorgan Chase & Co. web site, last accessed April 14, 2014.)
It is almost as if we are watching a replay of 2007 all over again, and yet nobody is talking about this.
Everyone wants to believe that this time will be different.
The human capacity for self-delusion is absolutely amazing.
There are a lot of other similarities between 2007 and today as well.
Just the other day, I noted that retail stores are closing in the United States at the fastest pace that we have seen since the collapse of Lehman Brothers.
Back in 2007, we saw margin debt on Wall Street spike dramatically and help fuel a remarkable run in the stock market.  Just check out the chart inthis article.  But that spike in margin debt also made the eventual stock market collapse much worse than it had to be.
And just like 2007, consumer credit is totally out of control.  As I noted inone recent article, during the fourth quarter of 2013 we witnessed the biggest increase in consumer debt in the U.S. that we have seen since 2007.  Total consumer credit in the U.S. has risen by 22 percent over the past three years, and 56 percent of all Americans have “subprime credit” at this point.
Are you starting to get the picture?  It is only 7 years later, and the same things that happened just prior to the last great financial crisis are happening again.  Only this time we are in much worse shape to handle an economic meltdown.  The following is a brief excerpt from my recent article entitled “We Are In FAR Worse Shape Than We Were Just Prior To The Last Great Financial Crisis“…
None of the problems that caused the last financial crisis have been fixed.  In fact, they have all gotten worse.  The total amount of debt in the world has grown by more than 40 percent since 2007, the too big to fail banks have gotten 37 percent larger, and the colossal derivatives bubble has spiraled so far out of control that the only thing left to do is to watch the spectacular crash landing that is inevitably coming.
You can read the rest of that article right here.
For a long time, I have been convinced that this two year time period is going to represent a major “turning point” for America.
Right now, 2014 is turning out to be eerily similar to 2007.
Will 2015 turn out to be a repeat of 2008?
Please feel free to share what you think by posting a comment below…

Is The Petrodollar Doomed | Jay Taylor

GM Shipping Kits To Finally Repair Ignition Defect Responsible For 13 Deaths

Amid probes from legislators, regulators, lawyers and criminal investigators into how General Motors managed to get away with allowing more than a million vehicles to hit the road with defective ignition switches tied to at least 13 deaths, the car maker has finally begun shipping out kits to its dealerships so they can start fixing the problem. The Wall Street Journal reports that GM has already sent out thousands of kits containing ignition switches, ignition cylinders and key sets to replace the defective switch that the car company had known about since 2001 — before the first of the recalled vehicles hit the road — but did nothing to fix until issuing the recall earlier this year.
Additionally, GM says it has mailed letters to the approximately 1.4 million owners of the various vehicles built before 2008 that had the defective switch installed from the get-go. The notices instruct the owners to contact a GM dealer to schedule the necessary repairs.
There is a second group about about 1 million owners who were later added to the recall because their vehicles might have the defective switch. GM failed to change the part number when it had the bad switch upgraded in 2007, meaning some of the defective parts may have been unwittingly used instead of the newer, safer switches.
Owners these vehicles will receive a letter in early May providing them with more information about whether or not they need to have their vehicles repaired.