The FED'S Campaign

By Peter Schiff

This past Friday, as Fed Chairman Ben Bernanke delivered his annual address from Jackson Hole - the State of the Dollar, if you will - I couldn't help but hear it as an incumbent's campaign speech. While Wall Street was hoping for some concrete announcement, what we got was a mushy appraisal of the Fed's handling of the financial crisis so far and a suggestion that more 'help' is on the way.

It is important to remember that it's not just President Obama's job on the line in this election; in two years time, the next President will have the opportunity to either reappoint Bernanke or choose someone else. So we must understand what platform Bernanke is running on, as his office has an even greater effect on global markets than the President's.

Bernanke has been the perfect tag-team partner for George W. Bush and then Barack Obama as they have pursued an economic policy of deficits, bailouts, and stimulus. Without the Fed providing artificial support to housing and US debt, Washington would have already been shut out of foreign credit markets. In other words, they would have faced a debt ceiling that no amount of bipartisan support could raise. Fortunately for the politicians, Helicopter Ben was there to monetize the debts.

As far back as his time as an academic, Bernanke made clear that when the going got tough, he wouldn't hesitate to fire up the printing presses. He specialized in studying the Great Depression and, contrary to greater minds like Murray Rothbard, determined that the problem was too little money printing. He went on to propose several ways the central bank could create inflation even when interest rates had been dropped to zerothrough large-scale asset purchases (LSAPs). Sure enough, the credit crunch of 2008 gave the Fed Chairman an opportunity to test his theory.

All told, the Fed spent $2.35 trillion on LSAPs, including $1.25 trillion in mortgage-backed securities, $900 billion in Treasury debt, and $200 billion of other debt from federal agencies. That means the Fed printed the equivalent of 15% of US GDP in a couple of years. That's a lot of new dollars for the real economy to absorb, and a tremendous subsidy to the phony economy.

This has bought time for President Obama to enact an $800 billion stimulus program, an auto industry bailout, socialized medicine, and other economically damaging measures. In short, because of the Fed's interventions, Obama got the time and money needed to push the US further down the road to a centrally planned economy. It is also now much more unlikely that Washington will be able to manage a controlled descent to lower standards of living. Instead, we're going to head right off a fiscal cliff.

The Fed Chairman even admitted to this reality in his statement. Here are two choice quotes:

"As I noted, the Federal Reserve is limited by law mainly to the purchase of Treasury and agency securities. ... Conceivably, if the Federal Reserve became too dominant a buyer in certain segments of these markets, trading among private agents could dry up, degrading liquidity and price discovery." [emphasis added]

"...expansions of the balance sheet could reduce public confidence in the Fed's ability to exit smoothly from its accommodative policies at the appropriate time. ... such a reduction in confidence might increase the risk of a costly unanchoring of inflation expectations, leading in turn to financial and economic instability." [emphasis added]

So we all agree that the prospect of inflationary depression was made worse by the Fed's actions - but at least Ben Bernanke has pleased his boss. As a guaranteed monetary dove, Ben Bernanke appears to be a shoo-in if Obama is re-elected.

Meanwhile, Mitt Romney has pledged to fire Bernanke if elected. While I am not confident that Mr. Romney has the economic understanding to appoint a competent replacement - let alone pursue a policy of restoring the gold standard or legalizing competing currencies - he may well be seen as a threat not only to the Fed Chairman's self-interest, but also to his inflationary agenda.

Given this background, let's look at Bernanke's quotes that have been the focus of media speculation for the past week: the US economy is "far from satisfactory," unemployment is a "grave concern," and the Fed "will provide additional policy accommodation as needed." These comments seem designed to reassure markets (and Washington) that there will be no major shift toward austerity in the near future. The party can go on. But they also hint that Bernanke might be planning to double down again. I have long written that another round of quantitative easing is all but inevitable. It now seems to be imminent.

In reality, when the money drops may have more to do with politics than economics. The Fed may not want to appear to be directly interfering in the election by stimulating the economy this fall, but there are strong incentives for Bernanke to try to perk up the phony recovery before November and deliver the election to Obama. However, if Romney wins, Bernanke can at least fall back on his appeal as a team player as he lobbies for another term.

Peter Schiff

As the Euro tumbles, spaniards look to gold

By
J. Luis Martín

The unremitting deterioration of the eurozone's sovereign debt landscape continues to fuel uncertainties about the longevity of the euro as a hard currency. Such uncertainties are not only leading to capital flight from the EMU's periphery to the core and destabilizing markets worldwide, but they are also beginning to frighten southern European savers into seeking refuge outside their 10-year-old currency.

Such is the case in my home country of Spain - the latest tumbling economy to threaten the euro's survival. As the crisis deepens, there is still a window of opportunity for Spaniards to turn to gold as a means to protect their wealth against the risks of increased foreign exchange volatility, forced re-denomination, or even a total currency collapse.

Spain: Too Big To Ignore

While the general consensus among analysts is that the common currency may withstand (and even desire) Greece's exit, Spain is both "too big to fail" and "too big to rescue."

Indeed, as the crisis finally hits Spain, the eurozone's fourth-largest economy, the country has witnessed the flight of €315bn ($397bn) worth of foreign capital in the past year - the equivalent of 22% of its GDP. Of this amount, €220bn ($274bn) vanished during the first six months of 2012. And in just-released numbers from the European Central Bank (ECB), private sector deposits at Spanish banks fell almost 5% in July (the biggest drop since the ECB began to record this data in 1997).

Brussels' inability to stop Spain (and potentially Italy) from spinning into an uncontrollable solvency crisis has spurred fear over a potential disintegration of the euro system.

Others warn, however, that signs of economic stagnation spreading to the core, along with rising political and social tensions across the continent, may be conducive to an equally wealth-destructing picture: the desperate adoption of expansionary monetary and debt mutualization policies long prescribed by officials in Brussels to "save the euro." In fact, ECB President Mario Draghi promised as much in his latest remarks on Thursday. 
Naturally, either of these scenarios will severely punish creditors and savers in euro-denominated assets.

From Cement Bricks to Gold Bars?

For years, Spaniards have trusted home ownership as a safe and profitable savings channel. Up until the late 1990s, "investing in bricks," as the Spanish call it, was a relatively easy and affordable wealth accumulation strategy (according to the government, 83% of Spaniards are homeowners). The coupling of Spaniards' blind faith in ever-rising real estate values with the artificially low interest rates that came with the euro - as well as a financial system plagued by politicians recklessly managing savings banks - conjured up a massive housing bubble.

Since Spain's entry into the euro system, the country has experienced such economic myopia that in the spring of 2007, Pedro Solbes, the then Socialist government's Minister of Finance, revealed the sale of a large portion of the country's gold. At the time, Minister Solbes argued that the precious metal "was no longer profitable," and that the proceeds from the sale would be "reinvested in sounder assets," such as Spanish sovereign debt. That year, Spain sold 157.8 tons of gold (32% of the national reserves) at an average $630 an ounce. We lost over $5bn of appreciation in the intervening years.



As the real estate bubble burst, and as Spaniards watched with astonishment the dire economic developments in Ireland, Portugal, and Greece, the prospect that an era of prosperity (albeit artificial) had come to a sudden end began to finally sink in.

This past May was a turning point for Spain, when BFA-Bankia, the country's fourth-largest bank, became de facto nationalized. Foreign capital flight spiked (€41.3bn left the country in May, and €56.6bn in June) and small depositors noticeably started to look for ways to protect their savings.

Following Bankia's debacle, Spain's Budget Minister Cristóbal Montoro was quick to address the media in an attempt to calm the public. Montoro said that a "corralito,"or bank holiday, was a technical impossibility in Spain due to the country's membership in the euro system, and that all bank deposits were safe. The damage, however, had already been done - evidence of a failed financial system demanding billions of foreign aid to fill its holes and the possibility of Spain following Greece's path to economic meltdown had become too evident to conceal.

The sale of safe deposit boxes has since surged and mainstream media have begun to run stories on how to legally open accounts in foreign currencies abroad to protect savings.

Furthermore, since the ongoing "financial sector restructuring" is far from over and an estimated 2 million homes remain empty, the value of the real estate Spaniards possess continues to decline.

So, Spaniards are now seeing the value of their cherished "bricks" plummeting, the government raising taxes, and the future of their paper money - and even its mere existence - uncertain.

Under the current environment, gold may turn out to be the Spaniards' best hedge.

The Gold Market in Spain

According to Marion Mueller, vice president of the Spanish Precious Metals Association (Asociación Española de Metales Preciosos, or AEMP) and founder ofOrno y Finanzas, an online publication which specializes in gold and finance, Spaniards' interest in gold is experiencing a noticeable boost.

"Up until very recently, to speak about gold as an investment or as wealth protection insurance was grin-provoking. That is changing," says Mueller.

She notes that since 2010, when the Spanish economic downturn became inescapable, a growing tendency to invest in physical gold developed among Spanish investors, brokers, and financial institutions. Demand for physical gold from the general public is also growing, but Spaniards are not yet as educated about the market as northern Europeans. "There is still confusion and lack of information about gold as a way to protect one's purchasing power," she explains, "and our goal at the AEMP and at Oro y Finanzas is precisely to try to inform people about gold." 

Cash-for-gold sign walkers in Madrid (Photo: Luis Hernando)

Evidence of the growing demand for investment gold is also found in the rapid proliferation of cash-for-gold shops in Spain. This particular market responds to a different side of the crisis, as it caters to people who need to sell their jewelry to pay debts or make ends meet. However, in terms of its relationship with the upswing in bullion demand, scrap gold is not going back to the jewelry sector. Instead, Mueller explains, "100% of it is going back to feed the international gold bullion industry in places such as England, Switzerland, and Belgium."

As per a European directive, gold bullion in Spain enjoys a favorable tax treatment, as the investment-grade metal is exempt from Value Added Tax (VAT). In addition, in Spain, there are no special taxes or levies specific to the resale of gold bullion. There is thus great potential for gold (and silver) to become a money substitute among the population.

According to Mueller, Spain's increasing demand for physical gold has led to the emergence of specialized dealers in Spain. Not only are Spanish precious metals distributors sprouting, but well-known French and German dealers are beginning to offer bullion in Spain.

While access to physical gold in Spain is becoming easier and more widespread, "things might change," warns Mueller.

"The rise in gold prices is a reflection not of the crisis, but rather of the end of a monetary cycle," Mueller emphasizes. In her view, the current debacle in Europe may turn governments to intervene in the gold market. "We live in a period of maximum government control... you can rest assured that, if [the government] decides to intervene, it will."

Owning physical gold now, Mueller says, "remains the best protection against wealth confiscation."

Because the next several months may prove critical to the future of the euro system, the ECB has charted a course for devaluation. This may continue to buy the eurozone additional time before its endgame finally plays out, but any number of factors could still split the common currency. Either way, this is a critical window of opportunity for Spaniards to learn how to safeguard their wealth.


Luis Martin

The Coming World Leader - Chuck Missler

Italy recession deeper than first estimated

The Italian economy shrank by 0.8% between April and June, slightly more than previously estimated, official figures have shown.

A bigger drop in investment and consumer spending accounted for the downward revision from the 0.7% contraction estimated last month.

Meanwhile, the French central bank has said it expects the country's economy to contract in the third quarter.

This is despite figures showing a surprise rise in industrial production.'Nasty surprise'

Italy's economy shrank by 2.6% compared with a year earlier, compared with the previous estimate of 2.5%, the national statistics institute Istat said.

Compared with the previous quarter, domestic consumption fell by 0.7%, while investment dropped by 2.3%.

"It's worse than we expected and the size of the contraction in consumer spending is a particularly nasty surprise," said Unicredit economist Loredana Federico.

The Italian economy - the eurozone's third largest - has contracted for the past four quarters as the government has implemented a series of drastic spending cuts designed to cut its debt levels, which currently stand at more than the country's annual economic output.

Another eurozone heavyweight economy, France, is also set for contraction, following three consecutive quarters of zero growth.

On Monday, the country's central bank confirmed it expected the economy to shrink by 0.1% in the current quarter.

This is despite figures from the national statistics institute, Insee, showing that industrial production rose by a higher-than-expected 0.2% in July compared with the previous month.

On Sunday, French President Francois Hollande said he expected economic growth in France to be "barely above zero" in 2012, which chimes with the latest forecast from the OECD of 0.1% growth this year.

The body has forecast a contraction in the Italian economy of 2.4% this year.

BBC

Yangtze River Turns Red and Turns Up a Mystery

For a river known as the "golden watercourse," red is a strange color to see.

Yet that's the shade turning up in the Yangtze River and officials have no idea why.

The red began appearing in the Yangtze, the longest and largest river in China and the third longest river in the world, yesterday near the city of Chongquing, where the Yangtze connects to the Jialin River.

The Yangtze, called "golden" because of the heavy rainfall it receives year-round, runs throughChongqing, Southwest China's largest industrial and commercial center, also known as the "mountain city" because of the hills and peaks upon which its many buildings and factories stand.

The red color stopped some residents in their tracks. They put water from the river in bottles to save it. Fishermen and other workers who rely on the river for income kept going about their business,according to the UK's Daily Mail.

While the river's red coloring was most pronounced near Chongqing it was also reported at several other points.

Officials are reportedly investigating the cause.

ABC

How the feds are tracking us

Evidence continues to mount that the U.S. government is keen on tracking its citizens.

The FBI has started rolling out its $1 billion biometric Next Generation Identification (NGI) system, a nationwide database of mug shots, iris scans, DNA samples, voice recordings, palm prints, and other biometrics collected from more than 100 million Americans and intended to help identify and catch criminals.

The FBI has been piloting the program with several states and by the time it’s fully deployed in 2014 will have at its fingertips a facial recognition database that includes at least 12 million photos of people’s faces.

Privacy watchdog groups have some concerns. According to the Electronic Frontier Foundation, the NGI system will allow photo submissions independent of arrests.

“This is a problem because the FBI has stated it wants to use its facial recognition system to ‘identify subjects in public datasets’ and ‘conduct automated surveillance at lookout locations,’” the EFF writes in a blog post. “This suggests the FBI wants to be able to search and identify people in photos of crowds and in pictures posted on social media sites—even if the people in those photos haven’t been arrested for or even suspected of a crime. The FBI may also want to incorporate those crowd or social media photos into its face recognition database.”

When an EFF representative testified at a U.S. Senate Subcommittee hearing on facial recognition in July, the organization said Americans should be concerned about the government’s plans to bolster its facial recognition capabilities because it “allows for covert, remote, and mass capture and identification of images, and the photos that may end up in a database include not just a person’s face but also what she is wearing, what she might be carrying, and who she is associated with.”

And there’s much more.

TrapWire is 'person of interest' technology
Last month Wikileaks released a huge cache of leaked e-mail from private intelligence firm Stratfor regarding surveillance software called TrapWire. Used by both private industry and the U.S. government and its allies, TrapWire lets both public and private sector users contribute to counter-terrorism and anti-crime efforts.

“The software uses algorithms and data from a variety of surveillance sources -- including CCTV and human-input from spotted 'suspicious' behavior -- to, in essence, 'predict' potentially criminal activity,” explained ZDNet’s Zach Whittaker in a fantastic FAQ on the subject.

According to the leaks, TrapWire is in use in public places in Washington D.C., New York, Los Angeles, Seattle, London, some Canadian cities, and in privately owned Las Vegas casinos.

Apple IDs pilfered from an FBI laptop
A hacker collective known as AntiSec this week published more than a million UDIDs—Unique Device Identifier numbers associated with Apple mobile devices—that the group claims it stole from the laptop of an FBI agent. The information was acquired and released as a political statement by the hackers.

“[Expletive] FBI IS USING YOUR DEVICE INFO FOR A TRACKING PEOPLE PROJECT OR SOME [expletive],” reads AntiSec’s announcement on Pastebin.

The details stolen from the FBI laptop included more personal information as well—such as full names, cell phone numbers, addresses, and zip codes, but AntiSec did not release that data.

The FBI says there’s no evidence one of its laptops was compromised and AntiSec has followed up with cryptic evidence that it says validate its claims.

In any case, the UDIDs are legit and many people who have looked up the alphanumeric string of characters associated with their Apple devices are finding them on AntiSec’s list. So if what AntiSec says is true, the big question is why does the FBI have people’s device identification and personal info?

Other Evidence
Legislation pending in the U.S. Congress—CISPA in the House and SECURE IT in the Senate—aims to protect the U.S. from cyberterrorism but would actually make it easier for the government to spy on people. The measures would allow companies to share users’ private data with the government without a warrant or any oversight.

And in January the Supreme Court ruled that police and the FBI violated the Fourth Amendment when they secretly attached a GPS tracker to a man’s car and tracked him for 28 days. However, in preliminary proceedings surrounding the man’s retrial,his attorney says prosecutors have records that indicate the locations of his cell phone for five months.

The American Civil Liberties Union takes issue with this and says tracking someone’s cell phone without a warrant is also unconstitutional, yet hundreds of law enforcement entities do it all the time.

The ACLU says the Geolocation Privacy and Surveillance (GPS) Act currently in Congress would require law enforcement agents to obtain a warrant before accessing a person’s location information. To support the legislation, the ACLU has a tool on its website that will auto-generate a message to your legislators urging them to vote for the bill.

PCworld

China Now Using a Cruise Ship to Haul Troops and Tanks

The media freaked out about China’s crappy aircraft carrier and hyperventilated over the J-20 stealth fighter. But China’s newest addition to its military is more subtle, and stylish. It’s a 36,000-ton pleasure boat capable of disgorging thousands of troops and hundreds of vehicles held inside its belly.

That would be the Bahai Sea Green Pearl, a 36,000-ton ferry and cruise ship commissioned in August at Yantai Port in China’s northeastern Shandong Province. At heart a vessel for pleasure and civilian transport, the ship is intended to normally ferry cars and passengers across the Yellow Sea. But when needed by the People’s Liberation Army, the Green Pearl can double as a troop carrier. During its launching ceremony and demonstration on Aug. 8, PLA troops could be seen loading dozens of tanks, artillery pieces and armored vehicles on board.

Photos from Chinese state television posted to the China Defense Blog show some of the action, including what looks like fully loaded soldiers running through a corridor. Tanks and artillery pieces are also seen inside one of the ship’s three vehicle compartments. How they got there: via the ship’s roll-on/roll-off (or ro-ro) ramp on its stern.

China also has three more of the vessels under construction, which Zhang Wei, chief of the PLA’s Military Transportation Department under the PLA General Logistics Department, said is a “new leap in our military use of civilian vessels to improve the strategic projection.” The Green Pearl reportedly has room for more than 2,000 people and 300 cars. It’s even got a helicopter pad.

It’s also got luxury. When the ship isn’t ferrying civilians, China’s troops could take in the pleasure of tall windows for observing “the beautiful scenery of the sea,” reported the Yantai Daily Media Group. Not only that, but rooms — which range from first to third class — are equipped with televisions, cellphone signal amplifiers and wireless internet access. And if the troops get bored in their rooms, there’s always mingling in one of two staterooms and a cafe. There are even rooms set aside for reading and chess. And no cruise ship would be complete without some collective entertainment at a multi-purpose auditorium. If troops are feeling cooped up, they can always go above deck for excursions in the sun.




Armored vehicles from China’s People’s Liberation Army prepare to board the Green Pearl in August 2012. Photo: CCTV via China Defense Blog

However, the Green Pearl is by no means a true amphibious assault ship. There’s no indication of any landing craft, or any ability to launch them. The ship needs a proper dock to gets its heavier equipment onto land. That mostly rules out launching an invasion of troops while sitting (relatively) safely off-shore. Instead, the ship is more accurately called something like an “amphibious augmentation” platform. It can base a helicopter, and it can follow up an amphibious assault with more troops — after a landing site is secure.

It’s also not a new concept. Using civilian ships for double duty is “entirely in keeping with Chinese practices reaching back for centuries,” Jim Holmes, an associate professor of strategy at the Navy War College, tells Danger Room. For Western navies, that practice dated up until the 18th century. And today, the U.S. uses mixed military and commercial ships to refuel at sea, Holmes says.

China has also been building up its fleet of amphibious assault ships, which could be at the front line of an invasion of Taiwan, say. That is, if China could conceivably launch one. But probably not. Since 2008, China has launched four Yuzhao-class, or Type 081 amphibious assault ships. The lead ship was deployed to fight pirates near Somalia. China is also reportedly working on a newer, bigger amphibious ship called the Type 081.

What’s more likely is using the Green Pearl for “soft power” operations distant from China’s shores. “Beijing seems rather comfortable with the situation in the Taiwan Strait and is clearly looking beyond Taiwan, as it has been for some time now,” Holmes says. “Such a vessel could be a workhorse for any mission involving amphibious operations, meaning humanitarian relief.”

That could mean delivering aid, transporting doctors and engineers to a country beset by an emergency. And there’s always port calls. That is, making stops in countries friendly to China while carrying a contingent of visiting officers and diplomats on board.

And not that China’s new cruise ships of war have any chance of matching the United States’ own massive fleet of commercial transport ships available for military duties. The U.S. has 60 privately owned commercial ships available to be called upon by the Navy under the Department of Transportation’s Maritime Security Program. Most of those are heavy-duty container vessels, but 17 of them are ro-ro ships.

According to the DoT’s Maritime Administration (.pdf), the Navy has relied on them to lift troops during the Persian Gulf War, and into Bosnia, Somalia and Kosovo, and has had to rely on those commercial ships even more in recent years to fight the war in Iraq. The United Kingdom famously hauled troops during the Falklands War with the Queen Elizabeth 2.

In the meantime, let the PLA take in the scenic views and relax to the soothing hum of the Green Pearl‘s engines. Unlike the U.S. and British cruise and ro-ro ships of war, there’s not a huge chance of China’s new pleasureboat invading anyone any time soon.

Wired