Citizen Spy: There's an App For That

Homeland Security officials in Delaware are hoping to enlist citizens as spies for the state by encouraging them to use a new app which allows smartphone users to attach pictures of “suspicious” vehicles or persons and send them directly to the federal government.

“The Delaware Information and Analysis Center (DIAC) now offers a mobile app to report suspicious activities in real-time by attaching a photo, sending location information, or entering details about suspicious vehicles or persons. In addition, users can choose to make their report anonymously or can include contact information for follow-up by law enforcement,” reports DailyFinance.com.

The new “Anti-Terrorism Mobile FORCE 1-2 App” is available for both iPhone and Android users and is being touted as a method of leveraging tips provided by citizens to “help protect the State”.

The information received is channeled through the the state Fusion Center (DIAC) and then shared amongst federal, state and local law enforcement.

The federal government has moved to aggressively protect federal Fusion Centers, which are littered across the country, from Congressional insight and has shielded their employees from taking responsibility for their actions.

Under the Department of Homeland Security’s See Something, Say Something initiative, all manner of banal activities have been characterized as “suspicious”.

 

A 2011 PSA for the program labeled behavior such as opposing surveillance, using a video camera, talking to police officers, wearing hoodies, driving vans, writing on a piece of paper, and using a cell phone recording application as potential indications of terrorism. 

The last example is particularly ironic given that the DIAC app requires people to take photographs in public to report suspicious activity – an activity which in itself has been characterized as suspicious by the authorities.

Earlier this year the FBI issued flyers under the Communities Against Terrorism (CAT) program which identified behavior such as paying for a cup of coffee with cash, showing concern for privacy when using the Internet in a public place, or using Google Maps as potential signs of terrorist activity.

Enlisting untrained citizens to be the eyes and ears of the state is a classic hallmark of an authoritarian society. History clearly tells us that using citizens to inform on their fellow countrymen does not make a nation safer and only serves to breed distrust and suspicion amongst a host population.

Having the state encourage citizens to report “suspicious activity” is not only un-American, it represents a direct attack on the idea that a law abiding citizen can go about their business without the onerous psychological pressure of knowing that their every behavior could be analyzed and misinterpreted by a fellow citizen.

This psychologically compels people not only to moderate their behavior, including their political speech and exercising of inherent freedoms, but it also bolsters the myth that terrorists are potentially lurking around every corner and that the vast bloated budgets swallowed up by federal Fusion Centers are justified.

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First 3-D Printing Store Opens In U.S.

MakerBot, the unofficial leader of the hobbyist 3-D printing movement, is putting the finishing touches on a consumer store located in the posh Manhattan neighborhood of NoHo.

Sure, the rare 3-D printer can be found in the corners of business service centers across the United States. But MakerBot claims their location at 298 Mulberry Street is the first one in the country dedicated to selling 3-D printers, supplies for the machines, and bespoke objects printed on-location.

If the new business proves successful, 3-D printing stands to expand from a relatively high-cost hobbyist venture into a mainstream consumer market.

Read full article

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Bailed Out Banks Still Making Risky Loans

According to a new report from the Bank of International Settlements — which provides research to the world's central bankers — bailed out banks in both the U.S. and around the world continued to be riskier than non-bailed out banks, even after they received taxpayer dollars during the financial crisis of 2008:

We find no evidence that rescued banks reduced the riskiness of their new lending more than non-rescued banks in response to the crisis and the public rescues. Even as lending volumes decreased across the board in 2009, rescued banks continued to write riskier syndicated loans, as reflected by their involvement in the leveraged loan segment and in the spreads charged on the facilities that they originated. We also find, unsurprisingly, that the syndicated lending of banks that later received a bailout was riskier before the crisis than that of non-rescued institutions. [...]
During the crisis, rescued banks did not reduce the riskiness of their new syndicated lending compared to their non-rescued peers. In fact, our results suggest that the relative riskiness of their lending increased.

As Reuters columnist James Saft noted, "This is both astounding and totally predictable. Astounding because it was so clear that those risks were not just foolish but destructive. Predictable because of course the banks realized that they had not been just lucky but had been given a special exemption from death which will be very hard to revoke."

Despite this and other clear evidence that the banks are totally uninterested in learning any lessons from the financial crisis, Republicans are attempting to bog down or repeal the Dodd-Frank financial reform law. But several prominent banking executives have said that the size and complexity of today's mega-banks makes them unmanageable. A recent report found that the financial crisis cost the U.S. economy $12.8 trillion. 

via ThinkProgress » Economy by Pat Garofalo on 9/19/12

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We Know More About the CIA Than the Federal Reserve

Judge Napolitano weighs in on the recent actions of the Federal Reserve, and asks why now is the opportune time to officially introduce the next round of quantitative easing:

The job of the CIA is to steal and keep secrets. We know far more about the CIA than we do about the Federal Reserve. Its members are appointed by the President and confirmed by the Senate, yet it's a private bank that makes its own money, regulates the economy, and can print money.

The Federal government doesn't print money.

The Federal Reserve prints money.

It's not federal. It's not a reserve. It's a private bank.

Why is it flooding the market with cash?

He's (Ben Bernanke) going to create out of thin air forty billion dollars in cash and put it in the accounts of the Federal government. That is more cash chasing, available for, the same amount of goods and service.

Answer: inflation.

What goes up first? The thing we use the most… Fuel, food….

In 2008, as Presidential election day was approaching, the rug was pulled out from under U.S. stock markets by restricting the flow of capital to banks and the broader economy. The crash and subsequent economic crisis was used as a means to torpedo John McCain's Presidential hopes and propel the policies of progessive socialists and Barack Obama into the spotlight.

It looks as if the Federal Reserve may very well be engaging in politics yet again, this time helping to maintain stock market levels. Barack Obama is in a close race with Mitt Romney, and a stock market crash would certainly put the final nail in the coffin of his campaign. The powers that be have decided that now is the time to pump more money into markets, which is strongly supportive of the current administration.

It's simple, really. If markets crash Obama is out and Romney is in.

Mitt Romney, for his part, has now come out against the Fed and called for transparency. He must know that they have conspired against him.

But is Mitt Romney really any different with respect to his position on the fractional reserve monetary system?

Today, this debasement that was at one time punishable by death is business as usual.

If you print money we call it counterfeiting and the punishments are severe.

When the Federal Reserve does the same thing we call it inflation and they are revered.

via SHTF Plan by Mac Slavo on 9/20/12

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Chinese Protesters Storm Japanese Embassy

Protests against Japan over its control of disputed islands spread across more than two dozen cities in China and turned violent at times Saturday, with protesters burning Japanese flags and clashing with Chinese paramilitary police at the Japanese Embassy before order was restored.

Thousands of protesters gathered in front of the embassy in Beijing. Hundreds tried to storm a metal barricade backed by riot police armed with shields, helmets and batons. Many threw rocks, bottles, eggs and traffic cones at the embassy.

The embassy said protesters around the country set fire to Japanese factories, sabotaged assembly lines, looted department stores and illegally entered Japanese businesses.

"We express regret over what has happened today and ask the Chinese government to ensure the safety of Japanese citizens and businesses in China," it said in a statement.

Anti-Japanese sentiment, never far from the surface in China, has been building for weeks, touched off by moves by Tokyo and fanned by a feverish campaign in Chinese state media. Passions grew more heated this past week after the Japanese government purchased the contested East China Sea islands from their private Japanese owners.

Japan's Kyodo News agency said more than 60,000 people protested in at least 28 Chinese cities, making the anti-Japanese demonstrations the largest since the two countries normalized diplomatic relations in 1972. The protests were expected to continue Sunday.

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Sudan: Marine Unit On Way To Secure Embassy

 

A U.S. official says an elite Marine rapid response team is headed to Sudan in the wake of violence and protests against the embassy in Khartoum. The deployment comes as Sudanese police opened fire on protesters trying to climb the walls of the U.S. Embassy.

The Marine unit, known as a fleet antiterrorism security team, was sent in response to Friday's violence and as a precautionary measure, 

The move follows news that Marines arrived on the ground in Yemen to deal with the aftermath of another attack on the U.S. Embassy in the capital city of Sanaa. They arrived in addition to an earlier contingent dispatched to Tripoli.

The day of protests, which spread to around 20 countries, started small and mostly peacefully in countries such as Indonesia, Malaysia, India, Afghanistan and Pakistan. The most violent demonstrations took place in the Middle East. In many places, only a few hundred took to the streets, mostly ultraconservative Islamists -- but the mood was often furious.

One protester was killed in the northern Lebanese city of Tripoli in clashes with security forces, after a crowd of protesters set fire to a KFC and a Hardee's restaurant. Protesters hurled stones and glass at police in a furious melee that left 25 people wounded, 18 of them police. 

Security forces in Egypt and Yemen fired tear gas and clashed with protesters to keep them away from U.S. embassies. And Germany's Foreign Minister says the country's embassy in the Sudanese capital of Khartoum has been stormed by protesters and set partially on fire.
 
The intense demonstrations, purportedly by people upset over an anti-Islam film, follow warnings by the State Department that the protests could spread across the region. The department, on its Twitter account, cautioned Thursday of sustained protests in Egypt, Oman and Jordan, among other places. 

The Department of Homeland Security and the FBI also issued a joint intelligence bulletin warning that the violent outrage aimed at U.S. embassies could be spread to America by extremist groups.

A DHS official said that there is no specific, credible information at this time to indicate that the attacks have increased the threat of violent reaction in the U.S., but it will continue to identify potential threats and take appropriate measures. 

Four Americans were killed in an attack on the U.S. Consulate in Benghazi, Libya, on Tuesday. A Marine unit was dispatched earlier in the week to Tripoli, to help fortify the U.S. Embassy there in the wake of the attack in the eastern part of the country. 

The Associated Press contributed to this report.

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Nakoula Basseley Nakoula's 'Innocence Of Muslims'

U.S. Ambassador Chris Stevens

The search for those behind the provocative, anti-Muslim film implicated in violent protests in Egypt and Libya led Wednesday to a California Coptic Christian convicted of financial crimes who acknowledged his role in managing and providing logistics for the production.

Nakoula Basseley Nakoula, 55, told The Associated Press in an interview outside Los Angeles that he was manager for the company that produced "Innocence of Muslims (video)," which mocked Muslims and the prophet Muhammad and may have caused inflamed mobs that attacked U.S. missions in Egypt and Libya.

Nakoula provided the first details about a shadowy production group behind the film.

Nakoula denied he directed the film and said he knew the self-described filmmaker, Sam Bacile. But the cellphone number that AP contacted Tuesday to reach the filmmaker who identified himself as Sam Bacile traced to the same address near Los Angeles where AP found Nakoula. Federal court papers said Nakoula's aliases included Nicola Bacily, Erwin Salameh and others.

Nakoula told the AP that he was a Coptic Christian and said the film's director supported the concerns of Christian Copts about their treatment by Muslims.

Nakoula denied he had posed as Bacile. During a conversation outside his home, he offered his driver's license to show his identity but kept his thumb over his middle name, Basseley. Records checks by the AP subsequently found it and other connections to the Bacile persona.

The AP located Bacile after obtaining his cell phone number from Morris Sadek, a conservative Coptic Christian in the U.S. who had promoted the anti-Muslim film in recent days on his website. Egypt's Christian Coptic population has long decried what they describe as a history of discrimination and occasional violence from the country's Arab majority.

Pastor Terry Jones of Gainesville, Fla., who burned Qurans on the ninth anniversary of 9/11, said he spoke with the movie's director on the phone Wednesday and prayed for him. He said he has not met the filmmaker in person, but the man contacted him a few weeks ago about promoting the movie.

"I have not met him. Sam Bacile, that is not his real name," Jones said. "I just talked to him on the phone. He is definitely in hiding and does not reveal his identity. He was quite honestly fairly shook up concerning the events and what is happening. A lot of people are not supporting him. He was generally a little shook up concerning this situation."

The film resulted in the burning of the U.S. consulate Tuesday in the Libyan city of Benghazi.

Libyan officials said Wednesday that Ambassador Chris Stevens and three other embassy employees were killed during the mob violence, but U.S. officials now say they are investigating whether the assault was a planned terrorist strike linked to Tuesday's 11-year anniversary of the 9/11 terror attacks.

Nakoula, who talked guardedly about his role, pleaded no contest in 2010 to federal bank fraud charges in California and was ordered to pay more than $790,000 in restitution. He was also sentenced to 21 months in federal prison and ordered not to use computers or the Internet for five years without approval from his probation officer.

The Youtube account, "Sam Bacile," which was used to publish excerpts of the provocative movie in July, was used to post comments online as recently as Tuesday, including this defense of the film written in Arabic: "It is a 100 percent American movie, you cows."

Assistant U.S. Attorney Jennifer Leigh Williams said Nakoula set up fraudulent bank accounts using stolen identities and Social Security numbers, then checks from those accounts would be deposited into other bogus accounts from which Nakoula would withdraw money at ATM machines.

It was "basically a check-kiting scheme," the prosecutor told the AP. "You try to get the money out of the bank before the bank realizes they are drawn from a fraudulent account. There basically is no money."

The actors in the film issued a joint statement Wednesday saying they were misled about the project and said some of their dialogue was crudely dubbed during post-production.

"The entire cast and crew are extremely upset and feel taken advantage of by the producer," said the statement, obtained by the Los Angeles Times. "We are 100 percent not behind this film and were grossly misled about its intent and purpose. We are shocked by the drastic rewrites of the script and lies that were told to all involved. We are deeply saddened by the tragedies that have occurred."

The person who identified himself as Bacile and described himself as the film's writer and director told the AP on Tuesday that he has gone into hiding. But doubts rose about the man's identity amid a flurry of false claims about his background and role in the purported film.

Bacile told the AP he was an Israeli-born, 56-year-old, Jewish writer and director. But a Christian activist involved in the film project, Steve Klein, told The Atlantic on Wednesday that Bacile was a pseudonym, he was not Jewish or Israeli and a group of Americans of Mideast origin collaborated on the film. Klein had earlier told the AP that the filmmaker was an Israeli Jew who was concerned for family members who live in Egypt.

"Nobody is anything but an active American citizen," Klein told the Atlantic. "They're from Syria, Turkey, Pakistan, there are some that are from Egypt. Some are Copts but the vast majority are evangelical."

Klein did not return phone messages by the AP on Wednesday. Officials in Israel also said there was no record of Bacile as an Israeli citizen.

When the AP initially left a message for Bacille, Klein contacted the AP from another number to confirm the interview request was legitimate then Bacille called back from his own cell phone.

The Southern Poverty Law Center, which monitors hate groups, said Klein is a former Marine and longtime religious-right activist who has helped train paramilitary militias at a California church. It described Klein as founder of Courageous Christians United, which conducts protests outside abortion clinics, Mormon temples and mosques.

It quoted Klein as saying he believes that California is riddled with Muslim Brotherhood sleeper cells "who are awaiting the trigger date and will begin randomly killing as many of us as they can."

In his brief interview with the AP, Bacile defiantly called Islam a cancer and said he intended the film to be a provocative political statement condemning the religion.

But several key facts Bacile provided proved false or questionable. Bacile told AP he was 56 but identified himself on his YouTube profile as 74. Bacile said he is a real estate developer, but Bacile does not appear in searches of California state licenses, including the Department of Real Estate.

Hollywood and California film industry groups and permit agencies said they had no records of the project. A man who answered a phone listed for the Vine Theater, a faded Hollywood movie house, confirmed that the film had run for a least a day, and possibly longer, several months ago, arranged by a customer known as "Sam."

Google Inc., which owns YouTube, pulled down the video Wednesday in Egypt, citing a legal complaint. It was still accessible in the U.S. and other countries.

Click Here to Watch the 'Innocence of Muslims' trailer

Klein told the AP that he vowed to help make the movie but warned the filmmaker that "you're going to be the next Theo van Gogh." Van Gogh was a Dutch filmmaker killed by a Muslim extremist in 2004 after making a film that was perceived as insulting to Islam.

"We went into this knowing this was probably going to happen," Klein said.

Associated Press writers Shaya Tayefe Mohajer and Michael Blood in Los Angeles, Tamara Lush in Tampa, Fla., and AP researcher Rhonda Shafner in New York contributed to this report.

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QE3: Banks Already Drowning In Liquidity

It's become apparent that the "solution" to the growing complexity of the financial system is more complexity.  The Federal Reserve planning concept of fixing debt by adding more debt, especially as we just crossed $16 trillion in public debt last week. With a new QE round between $200 and $500 billion the world is drowning in liquidity.  In other words, not only is debt the fix to record debt, but liquidity is about to be unleashed on a world that is already drowning in liquidity. 

The bad news: everything being tried now will fail, as it did before, because nothing has changed, except for the scale, meaning the blow up will be all that more spectacular. The good news: at least the Keynesians (or is it simply Socialists now?) out there will not be able to say we should have just added one more [    ]illion in debt/liquidity and all would have worked, just as our textbooks predicted. Because by the time it's over, that too will have happened.

From JPM's Michael Cembalest:

"It has been a strange year. If you were concerned about the global economy this year, you were right:  

• Leading indicators of manufacturing, such as new orders, are weakening just about everywhere
• Chinese, Korean and Taiwanese exports are slowing sharply; China may be growing at only 6%
• European growth is ~0%, with the periphery in recession. Germany business surveys also fading
• Last week’s US jobs report was weak across the board (payrolls, work week, labor force participation and wages)
• US capital spending trends are slowing (e.g., capital goods orders ex-aircraft)
• Countries like Brazil are showing signs of industrial fatigue due to an overly strong currency in 2010-2011
• The US election does not look like it will bring clarity to the US fiscal/debt ceiling divide (polls show Democrats keeping the White House and Republicans keeping the House of Representatives)
• US housing is staging a modest recovery, but it’s not a game-changer given its smaller contribution to employment
• Corporate profits are high, but the trend in EPS revisions is negative and profits growth is slowing

However, global equity markets have done well, up 13% so far in 2012. The bottom line: with the world drowning in liquidity, the right portfolio moves this year have been to take advantage of low equity valuations, look through all the economic weakness and expect that continued monetary stimulus will  eventually bear fruit. We have done some of that but not as much as we might have, and as things stand now, global equity markets have outperformed what I had expected. The world’s Central Banks have made it clear that inflating their way out is preferable to the alternatives, an environment that is conducive to risky assets that are priced very cheaply, until and unless they lose control of inflation."

For those confused, Cembalest only added "unless" out of political courtesy, because as even the Fed itself admitted last night, first via St. Louis Fed's James Bullard and soon everyone else, the Fed has finally been exposed as being nothing but a puppet tool of politicians, who in turn have always been sponsored muppets of Wall Street (Who can possibly forget Chuck Schumer telling Bernanke to "get to work Mr. Chairman"). In other words, we now know politicians run not only fiscal, but monetary policy. How to hedge against this apocalyptic proposition? Simple. Cue Kyle Bass: "Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple."

It really is.

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No More Free Meals for the Banks

The economic recovery remains fragile. But the government should make markets stand on their own two feet where it can.

One example: unlimited insurance for $1.5 trillion in noninterest-bearing deposits at banks, largely used by businesses to park cash. This is a different program from the $250,000 insurance provided to most accounts. The Federal Deposit Insurance Corp. first provided the special backing in October 2008 during the worst of the financial crisis.

In 2010, Congress extended it through 2012. Now, with Congress returning this week and the Dec. 31 deadline looming, banks are fighting for yet another extension. At the end of August, 80 state bankers' groups wrote to congressional leaders in favor of this.

But the government should hold its ground. Banks are in far better shape than in 2008. There is no liquidity issue, capital is stronger and credit quality is improving. Meanwhile, businesses that have parked funds in these accounts aren't likely to pull the money out en masse. They have few alternatives. Multinationals aren't about to shift funds to, say, shaky European banks. And businesses can't pick up much in the way of additional yield by transferring funds to money-market accounts.

The unlimited insurance also acts as a subsidy to banks, helping keep down their cost of funding. That is one likely reason why banks are arguing for an extension, given that the superlow-interest-rate environment is squeezing net interest margins.

Small banks argue that an abrupt end to the insurance plan would lead businesses to move deposits to too-big-to-fail banks, giving them yet another advantage. As it is, though, the program has disproportionately benefited the biggest banks.

Noninterest-bearing deposits have more than doubled at bigger banks from the period just before the program started to June. Smaller banks, meanwhile, have seen such deposits grow just 28%. And nearly half of all such deposits are held by just the four, biggest U.S. banks J.P. Morgan Chase, Bank of America, Citigroup and Wells Fargo.

In letters to Congress, banks have tried to link the expiration of this insurance to the looming "fiscal cliff." The argument is that a loss of the insurance will lead to an outflow of deposits, curtailing lending at the worst possible time.

Yet that sounds spurious. Banks themselves have argued that tepid lending growth is due to a lack of demand, not supply of credit. And it isn't as if banks don't have a cushion in this regard.

FDIC data showed that at the end of June, net loans and leases were equal to 73% of deposits at banks with less than $1 billion in assets and 71% for banks with assets above this level. This is a historically low level.

What's more, the potentially flighty nature of these deposits argues against banks using them to fund most loans anyway.

Some might argue for a gradual wind down to give businesses and banks time to adjust and for the interest-rate environment to become more "normal." Yet that is what Congress essentially did with its 2010 extension. A further two-year delay risks making the program permanent, especially since there is no telling how long the Federal Reserve may keep rates at superlow levels.

The government and Fed have already taken huge risks by intervening so heavily in the economy and financial markets. The last thing they should do is send signals that such intervention will become permanent.

Gas Prices Indicate Economic Collapse

In Sept. of 2008, gas prices reached a median record high of $3.84 per gallon, peaking just before the economic crash and credit crisis in the economy and banking system. Two years later, as the recession hit full steam in the U.S., and oil prices dropped down to $35 a barrel, the price of a gallon of gas had fallen back under $2.50.

However, since reaching that bottom in 2010, gas prices across the country have been climbing steadily higher, even as fuel consumption by most Americans has remained low. Now, just two years later, these same economic indicators are mirroring those of 2008 , and gas prices on Sept. 1 are once again nearing record highs, foreshadowing a potential new economic crash.

AAA said the national average price of gasoline was $3.83 per gallon Saturday, a decline from Friday, but still a record high for a Labor Day weekend.

The record Labor Day weekend pump price is a sharp increase from the previous high for the holiday, which was $3.67 per gallon in 2008, the year crude oil prices set a record high in July above $147 per barrel.

CNN reported Saturday that the average price of gasoline jumped 9.4 percent in August, the largest monthly climb in more than three years. - UPI

On Friday, oil prices, along with other commodities, rose on the outlook given by Fed Chairman Ben Bernanke following his speech in Jackson Hole, Wyoming. In Aug. of 2008, Chairman Bernanke gave a similar speech regarding systematic risk, that would become a self-fulfilling prophecy for the economy a little over a month later.

Contrary to government, or Federal Reserve analysis, the economic landscape, both in Europe, and in the U.S., has not improved beyond minor fluctuations upward after vast amounts of quantitative easing programs. GDP projections for 2012 have increasingly been lowered, with estimates by Goldman Sachs and other investment banks focusing on numbers below 2% growth. Consumer spending, which makes up nearly 75% of our entire GDP, is falling so much that GM had to shutdown some automobile plants due to excessive inventories, and lowered demand.

There are a number of legitimate reasons for gas prices being higher going into labor day weekend, especially with recent fires occurring at two refineries, and oil drilling shutdowns due to Hurricane Isaac, however, these events do not account for the decrease in consumption by many Americans out of work, and those taking fewer trips on the nation's highways. Thus the primary catalyst for near record gas prices is inflation.

The Federal Reserve, along with Congress, spent a vast amount of resources staving off complete economic collapse in 2008. Yet four years later, neither agency has these tools available in case of another market crash since interest rates have remained near zero for over four years, and the national debt has increased to where America now owes more than our annual GDP.

With bank runs taking place all across Europe, and analysts like Peter Schiff and Jim Rogers projecting economic collapse occurring very soon, the entire global economic system stands on the edge of a cliff, and the lifeblood of all industry, that of oil and gasoline, are foreshadowing a repeat of the economic crash that encompassed the West just four years ago.

QE3: Watering the Money Tree

A third quantitative easing program almost certainly awaits because the Fed is incapable of letting interest rates rise due to the detrimental effects this would have on their balance sheet. The only way they can secure interest rates at a lower level than they were purchased is to keep on buying more securities with printed money and enforce a cap/ceiling on market interest rates. 

The Fed is certainly not going to sell assets because they are currently the major purchasers of the asset markets they participate in, i.e. Treasuries, agency debt and mortgage backed securities. The Fed being the major holder and purchaser of particular assets has led the Fed to mark their assets to prices which they would pay, not necessarily the price of an outside buyer, and should the Fed become a major seller of these assets the need for mark downs versus current valuations is highly likely. In this circumstance, the Fed will again come face to face with their tiny capital base as they are unable to absorb losses of even 1% on their current asset markings without going insolvent.

Without QE3, interest rates can be expected to rise, and this should influence the Fed to step in and try restrain yields. Even though money printing has continued since the end of QE2, this is insufficient to maintain the Fed?s bubble. If interest rates rise substantively, this will put major pressure on sovereign, state and household solvency and could lead to near future bankruptcies across the board. The Fed will not stand idle and will come in to try paper over the markets problems in an illusory rescue attempt.

Bill Gross, manager of the world?s largest bond hedge fund, says bond yields should rise after the Fed ends QE2. Who is going to buy those treasures when a trillion dollars of purchasing power exits the market, he asks? (see video interview) With the Fed?s intent to restrain bond yields from rising, another money printing program is the only solution in their tool kit.

Whether preemptive or responsive, the Fed?s reaction this time around will likely be much faster than in previous episodes. The Fed is much more equipped now, after having several new powers resolved by congress and experiencing the 2008 chapter of the crisis, and are now unlikely to be as timid and lagging going forward.

Another way of seeing the inevitability of QE3 is realizing that the Fed has two mandates, price stability and low unemployment. The Fed has convinced themselves that inflation is not a problem so the only responsibility left for them is to ensure a high level of employment. The only measure the Fed has to even attempt to influence this is to print money, and yesterday's Fed statement indicated that they are concerned about the level of unemployment, meaning they're getting ready for a new money printing program to try and address this.

All of the above points to good times ahead for gold and silver as the money printing spigot is more easily turned on rather than addressing the core issues.

Source

2013 Economic Outlook: Grim

Anyone still wondering why they call economics the dismal science need only take a look at the latest budget forecast from the Congressional Budget Office. It lays out a grim fiscal future no matter what voters and Congress do between now and Jan. 1. 

The current path leads straight to the fiscal cliff — nearly $500 billion in tax increases in 2013, combined with sharp cuts in federal spending. Without changing course, CBO warns, economic conditions in 2013 “will probably be considered a recession,” with unemployment around 9 percent late in the year. 

The CBO’s “alternative” scenario assumes that Congress will head off steep tax hikes and deep budget cuts. If that happens, the agency projects that unemployment and growth will remain at about the same levels as in 2012, with another $1 trillion budget deficit likely in 2013. 

If that sounds like a terrible choice, it’s because it is grounded in a stubborn belief that government spending is the main driver of the nation’s economy. Cut spending, the CBO economists figure, and you necessarily stall the economy. 

The dismal record of stimulus spending and quantitative easing over the last few years should by now have persuaded Capitol Hill, Wall Street and Main Street alike of the need for a different approach. 

That approach would combine restrained government spending, lower tax rates, entitlement reform, and the repeal of unwelcome government mandates that increase uncertainty. Letting American businesses, workers and consumers keep, save and invest more of the money they earn is the way to economic health. 

Whoever voters put at the helm of the ship of state on Nov. 6, they must insist on the plotting of a new economic course. 

However, I'm afraid it' too little too late. We're in for a tough road ahead no matter who wins this election.

America Going Over the Fiscal Cliff

The economy will slip back into a recession next year if the country goes over the “fiscal cliff” due to inaction by the White House and Congress. That’s the dire warning of the nonpartisan Congressional Budget Office without an agreement to cut spending and prevent tax hikes by the end of the year.

Automatic spending cuts of $100 billion in spending on the military and domestic programs (except Medicare, Medicaid and social Security) will take effect in January after a congressional supercommittee last year was unable to agree on $1.2 rillion in long-term deficit reduction under the Budget Control Act of 2011.

The stalemate has blocked a decision on whether to extend Bush-era tax cuts due to expire at the end of the year.

President Obama and Democrats want to extend tax cuts for everyone except individuals earning more than $200,000 and couples earning above $250,000. Republicans reject that approach as raising taxes on job-producing small businesses. Both sides have dug in with no action expected until after the election, if then.

Doing nothing, which would implement spending cuts and tax hikes, would reduce the federal deficit from just over $1 trillion to about $641 billion, the CBO said. But that is money that would also come out of the economy. In this scenario, the budget office predicts the economy will shrink by 0.5 percent next year.

Without some agreement, the pending combination of tax increases on more than 100 million Americans and spending cuts would total nearly $500 billion next year, according to the budget office.

It “would lead to economic conditions in 2013 that will probably be considered a recession.” It would result in the loss of 2 million jobs and push the unemployment rate from about 8 percent now to almost 9 percent by late next year.

Douglas Elmendorf, the budget office’s director, said the “economy right now is being held back by anticipation of this fiscal tightening.”

In contrast, delaying the tax increase and holding off on spending cuts would allow the economy to grow by 1.7 percent next year and save 2 million jobs.

With Congress reconvening after a 5 week recess I'm sure they'll do just what they've done the past four years. Nothing.

David Stockman: The Fed is the Heart of the Problem

Former Reagan OMB Director David Stockman was 'allowed' on CNBC this morning - much to their chagrin now we suspect - and espoused his own brand of truthiness, starting with this epic tirade:


"Ron Paul is the only one who is right about the Fed, and the Fed is the heart of the problem. They have destroyed the capital markets and the money markets; interest rates mean nothing; everything is trading off the Fed and Wall Street isn't even home - as it's now a bunch of computers trading word-clouds emitted by this central banker and that."

In this environment, he goes on, everyone is being given the wrong signal - i.e. the Ryan/Romney campaign is abnout restoring vibrant capitalism; how can you do that when the financial markets are dead - the lifeblood of a capitalist system. And that is the problem today.

An excellent discussion ensues diving into the lack of fiscal discipline (that is enabled by a Fed ZIRP) as "[politicians] will never do it when you can keep borrowing free-money forever" and summed up nicely with this subtle sentence:

"The Fed (and the lunatics that run it) are telling the whole world untruths about the cost of money and the price of risk."

Related articles

• "Ron Paul Is Right: The Fed, And The Lunatics That Run It, Are The Heart Of The Problem" - Former Reagan OMB Director David Stockman
• David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank"