Sunday, June 15, 2014

The roots of Eric Cantor’s defeat

The House majority leader was involved in a lengthy war with his own party in Virginia

CLICK IMAGE for slideshow: House Majority Leader Eric Cantor, R-Va., center, joined at left by Speaker of the House John Boehner, R-Ohio, arrives to meet reporters after a Republican Conference meeting at the Capitol in Washington, Tuesday, June 10, 2014. With his internal polling showing he had a comfortable lead, Cantor was supposed to cruise to victory in Tuesday’s GOP primary over an underfunded political novice aligned with the tea party. Instead, the Republican leader was soundly defeated in one of the most stunning primary election upsets in congressional history. (AP Photo/J. Scott Applewhite)
House Majority Leader Eric Cantor, R-Va., center, joined at left by Speaker of the House John Boehner, R-Ohio, …
National reporters tend to prefer national storylines. So it made perfect sense, in the wake of House Majority Leader Eric Cantor’s stunning and perplexing loss in his Republican primary on Tuesday, that many attributed the outcome to a national controversy: immigration.
There’s no question that Cantor’s on-again, off-again support for some form of comprehensive immigration reform hurt his standing among some Republicans, or that his challenger — university professor Dave Brat — hammered the theme incessantly.
But Cantor wouldn’t have lost if Brat’s message hadn’t found fertile ground to flourish in the suburban and rural counties ringing Richmond. Instead, Tuesday’s upset is better seen as just the latest skirmish in a fierce battle for the soul and control of the Virginia GOP that has raged over the past few election cycles as Democrats have become increasingly adept at winning statewide races.
Virginia’s intraparty Republican war has pitted grass-roots activists — some of whom identify with the tea party movement and some of whom don’t — against the party establishment, peopled largely by big donors and Richmond’s lobbyist-consultant class.
Increasingly, Cantor and his allies had become the face of the “establishment” wing, on the wrong side of at least three defining internal fights that inflamed the GOP’s most passionate activists — exactly the kinds of people most likely to show up and vote in a primary. His loss is just the latest example of that establishment wing losing a fight against the insurgent activists in the state, who finally believe they can steer the party in their direction after years of frustration.
Bolling vs. Cuccinelli
Tuesday’s primary matchup had its roots in another GOP contest that never actually happened: the race between Bill Bolling and Ken Cuccinelli for the 2013 gubernatorial nomination.
The nod was supposed to go to Bolling, the congenial lieutenant governor, while Cuccinelli, the brash attorney general, waited his turn. That was the way the Republican establishment saw it, but Cuccinelli didn’t and decided to jump in anyway.
Cantor endorsed his friend Bolling, saying the lieutenant governor “has the right experience, the conservative values and the ability to unite our party so we can win in 2013.”
But Cuccinelli’s supporters in the state GOP engineered a switch, swapping out a primary in favor of a party convention to pick the nominee (more on that later). Bolling realized he could never win at a convention dominated by hard-core conservatives — he might not have been able to win a primary either, polls suggested — so he grudgingly exited the race.
Then Bolling did something that earned him the enduring enmity of many conservatives: He began telling anyone who would listen, and any reporter with his phone number, that the Virginia Republican Party was broken. That it had become too extreme, and Cuccinelli was too divisive to beat Democrat Terry McAuliffe for governor.
Bolling’s longtime consultant, Boyd Marcus, went even further, offering his full-throated endorsement to McAuliffe during the homestretch of the general election. After McAuliffe won, he tried to hand Marcus a lucrative job on the state Alcohol Beverage Control Board. The Republican-run state House killed that nomination, as the state party chairman likened Marcus to Judas Iscariot seeking his “30 pieces of silver.”
Here’s where things got complicated for Cantor: Marcus wasn’t just a Bolling adviser; he had also worked for Cantor, even serving as the congressman’s chief of staff early in his Hill tenure. Plenty of conservatives around the state took note of the headlines: “Ex-Aide to Cantor Backs McAuliffe.”
And Marcus’ longtime consulting partner, Ray Allen, was even closer to Cantor, serving as his most important in-state adviser right up until Tuesday’s shocking loss.
Cuccinelli’s loss to McAuliffe sowed bitterness on both sides of the GOP divide. Some Republicans agreed with Bolling that their nominee was simply out of step with an increasingly purple state. But many conservatives believed their man was abandoned. Cuccinelli himself heaped blame on unnamed national Republican Party leaders (a group that would presumably include the leader from Virginia) for failing to give him more money and strategic help in the closing weeks of the race.
Conventions vs. Primaries
Cuccinelli and Cantor clashed more directly on the question of how the party should pick its nominees, an issue that sparked intense controversy in 2013.
Like the rest of Bolling’s team, Cantor preferred the idea of holding a primary to select the Republican gubernatorial nominee. But Cantor made it known he saw this as a larger problem. Conventions can be controlled by relatively small groups of conservative activists, he argued, hurting the GOP’s ability to grow the party. And conventions could make it easier for grass-roots movements to take out incumbents. (Ironically, that’s exactly what happened to Cantor on Tuesday — in a primary.)
The debate even prompted Cuccinelli to send Cantor a terse note in December 2012, first reported by Politico, in which Cuccinelli swore he “never supported any effort to eliminate primaries as a method of nomination” and added, “In the future, should you have any concerns, I would appreciate a call.”
Then came the 2013 convention in Richmond, which handed Cuccinelli the gubernatorial nomination but also led to the selection of E.W. Jackson, a Chesapeake minister with a long history of controversial statements and financial problems, for the lieutenant governor ballot line. Jackson’s disastrous campaign, which helped drag down the GOP ticket, was Exhibit A for those, like Cantor, who were anti-convention.
More recently, Ray Allen, Cantor's Richmond-based political adviser, earned the wrath of the grass roots by using controversial parliamentary tactics at local party committee meetings around the state to put allies in key positions. Those meetings helped determine which delegates got to attend conventions in each congressional district, as well as the statewide GOP convention held in Roanoke earlier this month.
Conservative activists took note, and in May they got some revenge: Cantor was booed at his own 7th Congressional District Convention, and the incumbent district chairman, a Cantor ally, was booted from his job in favor of a tea party-backed candidate. In retrospect, it was a portent of what was to come.
Deal-makers vs. Stand-takers
Of course, immigration did play a role in dooming Cantor’s re-election. But it wasn’t just because Republicans in his district don’t want a reform bill or “amnesty.” It was also because the issue helped confirm in the minds of activists that Cantor was what they most feared — a deal-maker.
The charge might surprise some on Capitol Hill, who view Speaker John Boehner, R-Ohio, as far more eager to negotiate with the enemy than his No. 2. Yet many on the right, in Washington and the Old Dominion, also see Cantor as a squish — a supporter of immigration reform who voted to raise the federal debt ceiling in 2011 and pass the TARP bank bailout in 2008, the measure that helped spark the entire tea party movement.
The deals haven’t just happened in Washington. In 2013, a divided General Assembly passed Republican Gov. Robert McDonnell’s massive transportation package, changing the way the state pays for infrastructure projects and raising a host of state taxes.
Most conservatives, including Cuccinelli, hated the bill and saw it as a symptom of all that was wrong with the Richmond power establishment. Cantor’s allies in Richmond supported the measure.
Conservatives in Cantor’s district have long feared that he might be willing to cut exactly that kind of bad bargain with President Barack Obama, whether on immigration or tax reform or entitlements. On Tuesday, they ensured Cantor will never get the chance.


U.S. In Eye Of ‘Gigantic Financial Hurricane’

Casey said the US economy is in the eye of a “gigantic financial hurricane.”

Youth Unemployment is at Extreme Highs

Repatriating Taxes: An Unwarranted Gift to Unpatriotic Corporations

June 14 is Flag Day. It marks an important day in the nation’s history: the Continental Congress passed a resolution that established the nation’s first flag on June 14, 1777. This used to be a national secular holiday, when most households showed their patriotism and loyalty to the United States by flying its flag. But the nation doesn’t seem to be in a celebratory mood these days, and Flag Day may not offer a lift to our national pride.
We have a growing pile of unmet needs and yet are constantly told we can’t afford to address them. In recent days, bridges along major roadways have been closed because the lack of ongoing maintenance has made them too unsafe to travel. We’ve watched as the number of long-term unemployed denied access to emergency unemployment benefits has passed 3 million. And we’ve seen the annual struggle of cities seeking funds for summer jobs programs for youth since federal funding has dried up.
We are told there is no money for these important public services.
And yet, U.S. corporations reported record profits and the median pay of large-company CEOs has reached record levels. Corporate profits as a share of the total economy exceeded 12 percent last year while their share of federal taxes as a percent of the economy shrank to less than two percent, near an all-time low. A recent study by Citizens for Tax Justice found that, over the last five years, the average large corporation in America paid less than 20 percent of its profits in federal income taxes, substantially less than the posted 35 percent corporate tax rate and less than many middle-class families pay.
In the prosperous 1950s, under the leadership of Republican President Dwight Eisenhower, corporate profits accounted for around ten percent of the economy and their federal taxes accounted for more than four percent of the economy. Corporations, with fewer profits in those days, were asked to provide more toward the common good through the taxes they paid. They still had plenty of money to reinvest in their companies and prosper, and their taxes helped pay for public services like schools, roads, and investments in basic research that kept our nation strong and competitive.
Today, more and more companies are abandoning their incorporation in the U.S. and shifting their registrations to foreign countries. They are doing so to avoid paying U.S. taxes. Pfizer’s recently abandoned attempt to buy Britain’s Astra Zeneca was in large part about reducing the drug giant’s tax bill. Later this year, Walgreen’s shareholders will be asked to support a more direct path, simply swapping their registration as a U.S. corporation for new corporate papers issued by Switzerland. Efforts by these corporations to lower their tax bills mean they are choosing to contribute less to the upkeep of America.
Hundreds of other U.S. corporations are taking a simpler path, using gaping loopholes in the corporate tax code to legally shift profits earned  in the United States to places like the Cayman Islands, Bermuda, or Lichtenstein, where those profits are lightly taxed, if at all. Seventy-two percent of Fortune 500 corporations have subsidiaries in offshore tax havens, according to new research by U.S. PIRG and Citizens for Tax Justice. Offshore tax abuse by corporations costs the U.S. Treasury $90 billion a year, according to Reed College Professor Kimberly Clausing.
Now many in Congress – from both political parties – are seeking to recycle an old idea that has failed before. They say we need to give corporations a big tax break to entice them to bring some of the $2 trillion they have stashed offshore back to America to invest in this country. They say we can use the trickle of tax money that comes from this one-time deal to repair our nation’s roads and bridges.
This construction is wrong on three counts. First, the premise that those funds are “trapped offshore” and not available for investment at home is false. Most large companies are able to use these offshore funds as collateral to obtain low-cost loans, which means that while their profits technically remain offshore and therefore untaxed, they are able to use these funds to make investments in the U.S.
Second, giving corporations a tax holiday to pay for infrastructure projects forces taxpayers to pay twice – once for the tax break and again for the cost of the infrastructure project. A recent Joint Committee on Taxation report estimated that a tax holiday similar to the one passed by Congress in 2004 would cost almost $96 billion over ten years. Using trickles of funding from corporate tax holidays is a really expensive way to pay for roads and bridges.  It is far cheaper to pay for infrastructure spending directly out of tax revenues.
Third, such an approach is a one-time fix to a problem that needs a long-term solution.
A much better approach would be to close the loopholes that have turned the tax code into a sieve that leaks tax revenue from the public treasury. Instead of generating $100 billion of new money for infrastructure once, we need a steady flow. Closing offshore tax loopholes would deliver hundreds of billions of dollars of tax revenue to help fix our roads, improve our kids’ schools, and strengthen Social Security.
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License. Scott Klinger is Director of Revenue and Spending Policies at the Center for Effective Government. Prior to joining Center for Effective Government, Scott was the Tax Policy Director at the American Sustainable Business Council and an Associate Fellow at the Institute for Policy Studies, where he wrote about issues of tax and economic inequality.

How (and When) the Dollar Will Collapse | Jerry Robinson

NEGATIVE Interest Rates & Point of NO RETURN | Andy Hoffman

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Good Riddance To Rep. Eric Cantor: Bagman For Wall Street And The War Party

Its possible to describe Rep.Eric Cantor as a serial sell-out. But that would be giving an unprincipled politician driven by an unalloyed ambition to climb the greasy pole of Washington power too much credit. In truth, Cantor never campaigned for any recognizable principle; he merely maneuvered his way to the top of the House GOP hierarchy by following in the tawdry footsteps of modern GOP bagmen like Tom DeLay and Roy Blunt.
One commentator had Cantor pegged right on the money, as it were, years ago. One the heels of the 2010 GOP landslide, it was evident that Cantor’s true ambition was to accumulate a massive war chest to further his own ambitions, not to seize on the tea party momentum to fundamentally reverse the tide of Big Government:
Hand-picked by Majority Whip Roy “Abramoff-R-Us” Blunt early in his tenure to be a deputy whip, sort of an official water-carrier, Cantor moved up swiftly through the ranks as a Blunt protégé, because he was cheerfully obedient when sitting in the room with Friends of Abramoff and because he was unusually good at the money. “He’s about the money,” one wag offers admiringly.
But he was never about conservative principles. Instead, Cantor is one of those post-Reagan Republicans who have managed to reduce conservative policy to such grandiose, content-free platitudes that there is never any danger that their stump speeches at home, or even on the floor of the House, will get in the way of doing Washington business as usual.
There are certain litmus tests that cogently demonstrate the difference between platitude and principle—-and one of them pertains to the matter of crony capitalist subsidies and tax breaks for big business. On that score, I once heard Cantor give a stem-winder in behalf of free markets at a conference full of business and financial types who nodded, applauded and whooped it up. But that was just a pro forma sermon. The next day he was back in Washington making sure that the Ex-Im bank authorization was extended for another 3-years.
In this case, Washington business as usual amounts to salving the spurious complaint of Boeing and General Electric lobbyists that the Brits, EU and Japan subsidize export finance for aircraft, jet engines and heavy capital equipment—-so American taxpayers need to level the playing field. Well, yes, if US policy is to be driven by the statist and socialist mistakes of foreign governments then by all means tax American farmers and bus drivers so that Boeing will make its quarterly EPS.
There is an alternative. Let Boeing and GE suffer a hairline reduction in EPS by providing their own concessional pricing to customers, while shielding millions of innocent US taxpayers and business from being dunned for the tab on April 15. Then let the free market decide where to allocate capital; and let America’s businesses, not Washington bureaucrats, discover where they have the greatest competitive advantage in both domestic and foreign markets, including the ones that are rigged by foreign governments which have an addiction to wasting taxpayer money.
What the beltway statists like Cantor do not understand is that there is no magic level of GDP, or Washington enabled quarterly rate of growth to get there. And most certainly there is no reason to believe that higher taxes on most of the economy to boost a thin but politically noisy sub-segment— commercial aircraft and jet engines—will make the GDP bigger and the nation wealthier.
The true conservative touchstone, therefore, is to let the free market decide how much GDP and how much growth. These should be an unplanned outcome on the free market, not a consequence of Washington-divined targets and beltway-directed policy interventions.
And the political rhetoric that goes with that proposition would intuitively resonant with the American public. Namely, that Washington meddling, regulating, subsidizing and taxing will make things worse, not better; and that the job of generating economic growth and employment belongs to the collectivity of American business, labor, entrepreneurs, savers and investors, not a handful of fixers inside the beltway. That is, twin peas-in-a-pod like Senator Chuck Schumer on the Left and Rep. Eric Cantor on the Right.
So his record speaks for itself. Rep. Cantor was a statist who had learned to lip-sync the platitudes of the modern Republican right. But on the defining issues of our times, he did not trust the free market for a moment, and did not have the slightest clue as to what fiscal rectitude requires after decades of Keynesian borrow and spend.
The fraught moment came on October 3, 2008 when he helped Hank Paulson, the Goldman Sachs plenipotentiary then occupying the 3rd floor of the Treasury Building, force the House GOP rank-and-file into a catastrophic retreat. That is, after properly rebuking the White House demand to bail-out the Wall Street gambling houses by voting “no” on the first TARP consideration, House Republicans were forced into a shameful about face on the second vote.
As much as anyone else, Eric Cantor bears the blame for this final and irreversible triumph of Big Government. It marked the full-dress return of the Keynesian policy model—-the prior defeat of which had been the one and only victory that the Reagan era actually accomplished on the battlefield of ideas. But Cantor’s platitudinal conservatism was so shallow that in the hour of crisis when principle actually matters, he could not recognize that he was being led down the primrose path by an out-and-out Keynesian money printer at the Fed and an economically illiterate Wall Street front-man at the Treasury.
And this goes to the heart of the phony economic conservatism of the Eric Cantor’s and Paul Ryan’s. Both voted for TARP and the auto bailouts because they are complete ignoramuses about the elephant in the room which is leading the Washington policy assault on free markets and fiscal rectitude. Namely, the Federal reserve and the monetary central planning model that has become national policy since the Greenspan era.
But that’s why we had the September 2008 crisis. It did not reflect a fundamental flaw of capitalism, or an outbreak of unusual greed, or insufficient regulation of investment banks—and most especially not a once-in-a-hundred-years outbreak of something called “contagion” that required throwing away the rules of the free market to save it, as the clueless occupant of the White House then phrased it.
No, it was just another central bank enabled financial bubble bursting. That is the inherent and inexorable result of destroying honest price discovery on Wall Street and placing “puts”, props and pegs under the price and yields of securities in the capital and money markets.
In short, the Fed has turned Wall Street into a dangerous gambling casino and Washington into ceaseless fiscal auction. And that’s where Cantor’s real sin comes into play. Not once after the financial crisis did Cantor or the so-called establishment GOP leadership take on the elephant in the room. Never did he even remotely recognize that the monetary politburo ensconced in the Eccles Building has accomplished what amounts to an economic coup d tat.
Stated differently, financial repression, ZIRP, QE, wealth effects and the Greenspan/Bernanke/Yellen “put” under the stock market and risk assets generally are not just a major policy mistake; they are a full-throttle assault on the heart and soul of conservative economics.
You can not expect to have fiscal rectitude in a modern democracy, for example, when the central bank since the year 2000 has monetized nearly $4 trillion of public debt—and once Paulson’s “bazooka” failed in September 2008, the GSE securities among that total most surely are de facto public debt. Indeed, financial repression makes the carry cost of the public debt so painless—-that is, probably about $400 billion per year less than it would be under a regime of free market interest rates—that not one in a hundred politicians can see they virtue of fallen on the fiscal sword in the here and now in behalf of unborn generations of taxpayers who will carry the burden of today’s fiscal folly.
So it has been Keynesian central bankers, ironically, that have enabled platitudinous conservatives like Cantor to have their cake and eat it, too. To be sure, the latter have never missed an opportunity to scold the self-avowed big spender currently in the White House for his sorry fiscal record, but look what they have done instead.
Year after year they have proposed phony baloney budgets based on accounting fairy dust and pie-in-the sky economic assumptions two or more decades down the road that give constituents not a single clue as to the sacrifices and pain that will be needed to tame the endless profligacy of the nation’s Welfare State and Warfare State. At the same time, they have folded like a lawn chair every time push has come to shove on continuing resolution and debt ceiling crises in the here and now.
Cantor’s record on this score is so horrendous that he ought to spend the next decade in sackcloth and ashes doing penance to the god of fiscal rectitude, if there is one. On the first point, he has been an avid backer of the serial “Ryan” budgets, but each and every one of these dopey plans have significantly increased defense spending and given a free pass to the nation’s massive social insurance system. Yet the latter costs $1.5 trillion per year and embodies the sheer myth that social security and Medicare are earned retirement insurance and are funded out of “assets” that have been accumulated over decades.
In fact, there is nothing in those trust funds except Treasury IOUs. And there are few things more destructive of job creation in the high-cost American economy than the 15% payroll tax that currently underfunds the system, and which will inexorably become even more economically destructive as it rises in the future.
So there is no alternative accept to call the social insurance Ponzi for what it is and to impose a sweeping means test on the millions of affluent retires getting combined social security/Medicare benefits of upwards of $50,000 per year which they didn’t earn. That could then be accompanied with a switch to general revenue funding from a consumption tax—so that the  onerous payroll levy which parades as an “insurance premium” could be sharply reduced or eliminated.
Yet Cantor and Ryan just pretended that social insurance didn’t matter: Social Security got a free pass forever and Medicare was always to be fixed after a decade into the future—a point which never comes. Instead, they made their numbers add up with savage cuts in the means tested safety net, but even these cuts were phony.  They were to occur by block granting food stamps, Medicaid and other welfare programs and then returning them to the states with a 20-25% haircut.
House Republicans invented that ploy way back in the early 1980s in order to duck voting for real reforms, but the political scam was immediately self-evident. Not a single GOP governor wanted the task of being the “out-sourced” budget cutter!
The same has been true ever since. So the Ryan-Cantor position on the entire $2.5 trillion domestic budget is to punt on the huge social insurance portion and to scam on  the rest.  Yet once actual defense increases are thrown into the budget pot, the fraudulence of the Cantor-Ryan fiscal position becomes all the more evident.
Without providing an iota of honest disclosure or even a semblance of a credible outline for shrinking a Federal budget which will spend upwards of $50 trillion over the next decade, they insist that taxes are too high and that the secret to the fiscal challenge is even more tax cuts so that we get even more rosy scenario economic growth than is built into the CBO’s Keynesian economic forecasts to begin with.
In short, this is just kidstuff. Cantor and Ryan have effectively removed the GOP from the field of fiscal battle by serving up budgetary platitudes for home consumption by the rank and file. At the same time, they have whiffed each and every time they have faced an action forcing deadline. In the spring of 2011, for example, in connection with the CR expiration crisis, the served up $39 billion in “cuts” that were so transparently phony that the CBO scored them as saving $4 billion at best. And then spending as usual resumed.
In the summer of that year they caved again—this time on the debt ceiling crisis. The solution of the budget super-committee and the automatic sequester speaks for itself.  The latter never had any possibility of producing a real budget shrinkage plan. And when the sequester threatened to actually bite into spending, it was Ryan and Cantor who lead the charge in  behalf of a compromise to restore $22 billion of spending for defense by giving the liberals $22 billion in higher spending for domestic programs.
At the end of the day, that ignominious Ryan-Murray compromise goes to the very heart of Cantor’s betrayal of the cause of free markets and small government. He has been an unabashed servant of the Washington War Party during his entire career. Time and time again, he helped whip the GOP rank and file into a frenzy of militaristic bombast about imaginary threats to America’s security in places all over the globe which are none of our business. That absolute nonsense of sanctions and unrelenting hostility to the regime in Tehran is perhaps the most egregious example.
So Eric Cantor made a career of milking the Warfare State and pandering to Wall Street. This brought him nearly to the top of the Washington heap. But in the end, it did not fool his constituents.  And most certainly it set back the conservative cause immeasurably.

Spot The Troubling Signs Behind The Market Records

We’re all saps in the stock market’s shell game
Insight: Investors’ exuberance will end badly, as it always does
…And just like in Three-Card Monte, investors are looking in the wrong places for information. Instead of being mesmerized by the all-time highs, investors should be focused on the market’s deteriorating internal conditions.
For example, as the market climbs higher on lower volume, fewer and fewer stocks are participating (i.e. making new highs). This is a red flag.
Also, sentiment indicators are reaching extreme levels. The VIX VIX +3.36%  is at a six-year low; the RSI (relative strength indicator) has surpassed 70 (meaning the market is overbought), Investor’s Intelligence is over 60% bullish (the second-highest ever). So many large cap stocks have gone parabolic, there has to be a day of reckoning.
Moreover, margin balances are at record levels. When the market goes south, the excess margin will accelerate the downturn.
All of this translates into a stealth market bubble that keeps growing, but is happening so slowly few see it.

Everyone’s a winner

As the market makes all-time highs, more investors are lured into the game. One exuberant host on a financial program boldly stated: “This is a market that will never go down!” Another guest recently predicted that the stock market won’t go down for another two years.
Read more:
May Retail Sales Miss, Core Retail Sales Unchanged, Control Group Declines
Another swing and a miss for the so-called Q2 GDP surge.
After April data was revised higher, with headline retail sales pushed from 0.1% to 0.5%, and core retail sales ex-autos and gas boosted from -0.1% to 0.3%, May showed a big drop in whatever momentum may have resulted from the March spending spree. As a result May headline retail sales missed expectations of a 0.6% increase, printing at 0.3%, with the entire positive print due to auto and gas sales. Indeed, when looking at core retail sales excluding autos and gas, these were unchanged from April, printing at 0.0%, far below the 0.4% expected.
As the table below shows, segments that saw a decline in May were Electronics stores (again), as well as food and beverage stores, health and personal care, clothing stores, sporting goods stores, restaurants, as well as general merchandise stores. In other words a decline across the board.
IMF Warns Of Housing Crashes- World Bank Says ‘Now Is The Time To Prepare For Next Crisis’
Yesterday, the IMF and World Bank issued warnings about the global economy.
The International Monetary Fund (IMF) warned that the world must act to contain the risk of another devastating housing crash. The World Bank warned that the anticipated rise in interest rates will hit global growth this year – and presumably house prices too.
“We are not totally out of the woods yet,” Kaushik Basu, the World Bank’s Senior Vice President and chief economist and he warned that “now is the time to prepare for the next crisis.”
The warning from the IMF came as it published new data showing house prices are well above their historical average in many countries as covered in theFinancial Times today. The data shows how an acceleration in house prices in many countries from already high levels has emerged as one of the major threats to global economic stability.

The Winter Was So Cold No One Got Sick! Lower Health Spending To Push Q1 GDP To -2%
The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government.
Some analysts said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession.
The Commerce Department’s latest estimate of gross domestic product, the broadest measure of output across the economy, said GDP shrank at a seasonally adjusted annual rate of 1% in the first quarter. A revised estimate will be released June 25, and it could show an even larger contraction.
Goldman Slashes Q1 GDP Estimate To -1.9%
Global Death Cross Accelerates As World Bank Slashes Growth
IMF: Housing Markets Are ‘Overheating’ Again
Three charts you need to see before you buy another stock
Wall Street’s “fear gauge” flashed a sell signal at the end of May.
But since then, the stock market has continued to work even higher. The S&P 500 hit a new all-time high last Friday. And some folks might be wondering if the sell signal is a bust.
It’s not.
As you can see from the following chart, the Volatility Index (“VIX”) once again closed below its lower Bollinger Band last Friday…

Once the VIX rallies and closes back inside its Bollinger Bands, it’ll generate another broad stock market sell signal. That will be its second sell signal in about two weeks.
And this time, a couple other indicators are shouting “sell” as well…
12 Numbers About The Global Financial Ponzi Scheme That Should Be Burned Into Your Brain
When Americans think about the financial crisis that we are facing, the largest number that they usually can think of is the size of the U.S. national debt.  And at over 17 trillion dollars, it truly is massive.  But it is actually the 2nd-smallest number on the list below.  The following are 12 numbers about the global financial Ponzi scheme that should be burned into your brain…
-$1,280,000,000,000 - Most people are really surprised when they hear this number.  Right now, there is only 1.28 trillion dollars worth of U.S. currency floating around out there.
-$17,555,165,805,212.27 - This is the size of the U.S. national debt.  It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 - This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
-$48,611,684,000,000 - This is the total exposure that Goldman Sachs has to derivatives contracts.
-$59,398,590,000,000 - This is the total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.  40 years ago, this number was just a little bit above 2 trillion dollars.
-$70,088,625,000,000 - This is the total exposure that JPMorgan Chase has to derivatives contracts.
-$71,830,000,000,000 - This is the approximate size of the GDP of the entire world.
-$75,000,000,000,000 - This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
-$100,000,000,000,000 - This is the total amount of government debt in the entire world.  This amount has grown by $30 trillion just since mid-2007.
-$223,300,000,000,000 - This is the approximate size of the total amount of debt in the entire world.
-$236,637,271,000,000 - According to the U.S. government, this is the total exposure that the top 25 banks in the United States have to derivatives contracts.  But those banks only have total assets of about 9.4 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 25 to 1.
-$710,000,000,000,000 to $1,500,000,000,000,000 - The estimates of the total notional value of all global derivatives contracts generally fall within this range.  At the high end of the range, the ratio of derivatives exposure to global GDP is about 21 to 1.
Most people tend to assume that the “authorities” have fixed whatever caused the financial world to almost end back in 2008, but that is not the case at all.
In fact, the total amount of government debt around the globe has grown by about 40 percent since then, and the “too big to fail banks” have collectively gotten 37 percent larger since then.
Our “authorities” didn’t fix anything.  All they did was reinflate the bubble and kick the can down the road for a little while.
I don’t know how anyone can take an honest look at the numbers and not come to the conclusion that this is completely and totally unsustainable.
How much debt can the global financial system take before it utterly collapses?
How recklessly can the big banks behave before the house of cards that they have constructed implodes underneath them?
For the moment, everything seems fine.  Stock markets around the world have been setting record highs and credit is flowing like wine.
But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
If you plan on getting ready before it strikes, now is the time to do so.

This $1 Trillion M&A Quarter Is “Different”: What Turnip Truck Did Bloomberg Reporter McCracken Ride To Wall Street!

If Bloomberg weren’t shilling for the Fed/Wall Street bubble economy— then Reuters, the WSJ and countless others would pick up the slack. But the article below by Bloomberg’s Jeffrey McCracken needs no pointers from Rupert Murdoch’s Cool-Aid drinkers.
Noting that we have at last gotten back to a trillion dollar global M&A quarter and have thereby reached the peak financial engineering insanity of Q3 2007, McCracken spends the bulk of the article quoting a Wall Street M&A dealster explaining why “this time is different”.
Exactly which turnip truck did McCracken ride down to Wall Street? Of course, this time is different. Its always different!
Here’s the line from McCracken’s M&A peddler. It amounts to the proposition that last time it got out of hand because the mountains of cheap debt were used to fund going private transaction—that is, LBO’s.  This time, by contrast, corporate America is not bothering to claim “hidden” value which can only be unlocked under private ownership. They are going to do it directly by investing in “compelling”  growth plans that have a “strategic foundation” in their own public enterprises.
In truth, this time they are just loading up the corporate wagons with mountains of debt to fund an alternative form of financial engineering—that is, cash M&A deals and share buybacks.  So McCracken’s source didn’t bother to acknowledge that it doesn’t take monster LBOs to have a debt spree in today’s Wall Street casino:
“The last time we had this kind of run rate, back in 2007, a good amount of those deals involved private-equity buyers and the transactions were highly leveraged,” said Andrew Bednar, M&A partner at Perella Weinberg Partners LP inNew York. “These more recent deals are on a better foundation, more compelling and more strategic.”
Not on your life!  Here’s the point about the corporate debt spree. At the peak of the prior cycle in Q4 2007 and right before the Wall Street meltdown, total non-financial business debt outstanding was $11 trillion. But as of Q1 2014 that giant figure had exploded by 26% to $13.9 trillion.
What the Bernanke/Yellen experiment in ZIRP and QE has actually produced, therefore, is one of the greatest 5-year sprees of corporate debt issuance in American history—nearly $3 trillion worth. Not only are today’s Wall Street journalistic shills totally unaware of this fact, but they have actually embraced its opposite—the hoary notion that corporate America is drowning in cash:
 Instead, confident chief executives and shareholders who are rewarding risk-taking have companies tapping more than $4 trillion of cash on corporate balance sheets and low interest rates to fund deals.

In fact, cash on the balance sheet of US non-financial business has risen from $2.7 trillion in Q4 2007 to $3.0 trillion in Q1 2014. Not only is this a rounding error in the scheme of things and dwarfed by the massive simultaneous build-up of debt obligations (i.e. 10X more), but it is being used to make a completely invalid point.
It is not an upwelling of CEO “confidence” that is causing “surplus cash” to be put to work in M&A deals. What this modest gain represents is simply cash that is being hoarded because the Fed has made the carry cost of debt so cheap that corporations cannot restrain themselves from loading up on gifts from the Eccles Building.
In truth, nearly all the massive corporate borrowing is going to the same place is did last time. Namely, to the Wall Street gamblers and hedge funds who chase “merger Monday” stocks and shares being boosted by record stock buybacks.  But such uses of debt do not lead to economic growth; they simply result in the inflation of existing stock prices and windfalls to the adept gamblers who buy on leverage, trade on rumors and move along quickly to the next  allegedly “undervalued” play.
But here are the real facts of the matter. Virtually none of this massive increase in business debt since the last crisis has gone into productive investment in plant and equipment. We are now 77 months on from the last peak in December 2007, yet real investment in business plant and equipment is still $70 billion or 5% lower than before the crisis!
Needless to say, this has never happened before. In every cycle going back to the 1950s, business investment had fully recovered by the 77 month mark and was higher by double digit amounts. But then, in none of those earlier cycles was the Fed run by out-and-out Keynesian money printers determined to gift the 1% with “wealth effects” under the misbegotten notion that this would goose job growth and the main street economy.
So, yes, ironically, this time is different.  The Fed is so far off the deep-end that today’s trillion dollar M&A quarter surely represents a ticking time bomb that will dwarf the LBO blow-up last time around.
By Jeffrey McCracken at Bloomberg News
The $1 trillion M&A quarter, not seen since before the global financial crisis, is back.
Global deal volume this quarter is $992 billion, according to data compiled by Bloomberg that includes pending, completed and proposed transactions. That number puts this three-month period on pace to be the biggest for M&A since the third quarter of 2007 — the best year ever for deals — before Lehman Brothers Holdings Inc.’s 2008 bankruptcy gave Wall Street a near-death experience.
Unlike 2007, the tail end of history’s biggest leveraged buyout boom, this time the private-equity buyers are sitting things out. Instead, confident chief executives and shareholders who are rewarding risk-taking have companies tapping more than $4 trillion of cash on corporate balance sheets and lowinterest rates to fund deals.
“The last time we had this kind of run rate, back in 2007, a good amount of those deals involved private-equity buyers and the transactions were highly leveraged,” said Andrew Bednar, M&A partner at Perella Weinberg Partners LP inNew York. “These more recent deals are on a better foundation, more compelling and more strategic.”
There were three $1 trillion-plus quarters in 2007 — a year in which total M&A hit $4.8 trillion. Since then, the quarterly average has been about $650 billion, for annual volume of around $2.6 trillion. According to data compiled by Bloomberg going back 12 years, the $1 trillion in quarterly value was only breached six times, all in 2006 and 2007.


The 2007 rush marked a time when deals of questionable value were completed. The biggest was the $48 billion buyout of Energy Future Holdings Corp., formerly known as TXU, the Texas power company taken private in the biggest ever leveraged buyout. It filed for bankruptcy in April. Also announced in 2007 was the $20 billion buyout of Lyondell Chemical Co. and the Tribune Co. buyout led by real estate developer Sam Zell for more than $13 billion including debt. Both filed for bankruptcy.
Lehman Brothers and a partner bought apartment-complex company Archstone Inc. for more than $20 billion that year — to sell it later at about a $6 billion loss.
In contrast, global deal volume this year can’t be attributed to private-equity deals. Instead, the year so far has been characterized by large corporate hook-ups, often cross-border in nature, many of which had been contemplated or discussed in previous years.
M&A volume in 2014 has reached $1.8 trillion.

AT&T, Lafarge

The driver, dramatically so, is corporate purchases of at least $10 billion. The largest announced transaction of the quarter was AT&T Inc.’s purchase of DirecTV for about $67 billion, including debt. There was also the merger of Lafarge SA with Holcim Ltd., the biggest cement deal ever, and General Electric Co.’s proposed $17.1 billion purchase of Alstom SA’s energy assets, which would be its largest acquisition.
Additionally, a slew of large pharmaceutical deals has been announced since April, including Valeant Pharmaceuticals International Inc.’s $54 billion offer for Allergan Inc.; Bayer AG’s $14.2 billion purchase of Merck & Co.’s consumer-health products business; and Novartis AG’s $14.5 billion acquisition of GlaxoSmithKline Plc’s oncology unit.
This quarter’s numbers are skewed slightly by Pfizer Inc.’s so-far stifled effort to acquire AstraZeneca Plc for $117 billion, which is included in the data compiled by Bloomberg. Even without it, the second quarter of 2014 is still the strongest since before Lehman Brothers failed — with three weeks left in the period.

CEO Confidence

The large deals compensate for a notable drop in the actual number of deals. So far this quarter there have been 5,626 transactions. In 2007, each $1 trillion quarter required more than 9,000 deals to hit that figure.
A different mindset in the boardroom is at play. The CEO Confidence Index — a measure of confidence in the economy a year from now — registered at 6.09 in April, according to Chief Executive Magazine. That’s near where it stood in late 2006 and double the level of early 2009. The index has been on a steady increase for three years.