14th December 2014: That Was the Week That Was

Well what a week it has been...

The results of today's Japanese election (an overwhelming victory for Abe the King of Global Quantative Easing). The Associated Press wrote "Despite weakening popularity ratings, a recession and messy campaign finance scandals, the Liberal Democrats were virtually certain to triumph thanks to voter apathy and a weak opposition."

And there you have it: the apathetic Japanese people have spoken, or rather chosen not to. As a result, when the entire Japanese house of Ponzi cards comes crashing down for the final time, they will have nobody but themselves to blame. Which, incidentally, is the case in every other "developed" nation including Jersey.

Because UAE's Energy Minister Suhail Al-Mazrouei said OPEC will stand by its decision not to cut crude output "even if oil prices fall as low as $40 a barrel" and will wait at least three months before considering an emergency meeting.

In doing so, OPEC not only confirms that the once mighty cartel is essentially non-existant and has been replaced by the veto vote of the lowest-cost exporters, but that all those energy hedge funds (and not only) who hoped that by allowing margin calls to go straight to voicemail on Friday afternoon, their troubles would go away because of some magical intervention by OPEC over the weekend, are about to have a very unpleasant Monday - now that the next oil price bogey has been set: $40 per barrel.

But this is seen as a good thing by the average American Idiot according to the latest Index of Consumer Sentiment who cannot make the connection between jobs in shale oil exploration and the price of oil.

U.S. consumers also saw sharp drops in gasoline prices as a shot in the arm, and the survey added heft to strong November retail sales data that has showed Americans getting into the holiday shopping season with gusto. “Surging expectations signal very strong consumption over the next few months,” said Ian Shepherdson, an economist at Pantheon Macroeconomics.

When asked in the survey about recent economic developments, more consumers volunteered good news than bad news than in any month since 1984, said the poll’s director, Richard Curtin. "Their expectations run quite counter to recent price data."

Meanwhile the idiots in the US Senate late last night, (proving that the Senate can work on weekends when a piece of Citigroup-penned legislation is on the table), in a 56-40 vote (21 democrats, 18 republicans, 1 independent voting No), the Senate joined the House in voting itself $1.1 trillion for the next 9 months, with the bill now heading for the final signature: Obama's.

There is some argument whether the executive will join the legislative in confirming the US government is now (and always has been) merely a puppet of Wall Street, although we expect all it will take Jamie Dimon is just one more phone call of "encouragement" to Obama to make sure Wall Street's will is done in the White House.

The US also limited itself - at least on paper - to non-lethal assistance to the Ukraine, now the US is finally preparing to send in weapons, and potentially "military advisors" as well.

"On paper", because in late November hacked US documents revealed the extent of secret US "Lethal Aid" for the Ukraine army. And since America's under-the-table support for Ukraine's insolvent armed forces has been revealed, there is little point in pretending to keep a moral upper hand (especially in light of recent "other" revelations involving the US, most notably its intelligence services).

Russian MPs have demanded that the Kremlin take adequate measures including deploying forces into Ukraine in response.

Are the rats ready to leave the sinking ship?

So what a day today was in the world; it started in China -

China Securities Depository and Clearing Corp (CSDC) said in an announcement after the market closed on Monday that with immediate effect, only corporate bonds with the highest rating of AAA and those issued by firms with a high rating of AA and above could be used for bond repurchase. Analysts say the regulators' exclusion of lower grade bonds from being used in bond repurchase contracts, a key source of secondary liquidity in trade, increases the risk of trading such bonds, depressing demand and putting upward pressure on yields. (You may recall that for example, Amazon Inc bonds, are rated BBA and so would be excluded). This immediately removed $80 billion of eligible collateral and lowered the fx rate to 6.2 Yuan per dollar.

The knock on effect was that money that banks had borrowed in Japan (at 0% interest) and placed in Chinese bonds (earning 2% interest was swiftly repaid).

This 2% money for nothing earnt by borrowing at a lower rate and than is collected from the money borrowed (also known as the Carry Trade) has been going on since 1987 when Japan first lowered its interest rate to 0%.

All this money which had been freshly pulled out of China was paid back to Japan raising the value of the Yen from 122 to the dollar to 118 to the dollar collapsing the Japanese Stock Market from 18,200 to 17,500.

But this was not the only country to suffer...

In Greece the stock market also crashed by 13% with banks dropping by 25% and the interest yield on Greek debt (both 3 year and 10 year) soared back over 8%. Thus we are back to the position we were in prior to the bailouts of European Countries with nations struggling to borrow money and then subsequently to make interest repayments.

The reason is that all western banks are heavily leveraged in the carry trade; including those banks that we are dependent on to over pay our civil servants.

This prompted both Moody's and S&P (the ratings agencies) to issue warnings about European banks and highlight the risk that bank bail ins (where depositor's money is taken to pay the debts of the banks) were likely to occur in 2015.

On the bright side gold jumped 2.3% and so we know how this is going to play out and where the sensible money is, well since only gold and silver are money, it is the same place it has always been.

So there we have it the first rumblings of the imminent crash in the western financial system and a warning from the ratings agency (yes the very ones who maintained Jersey's AA+ rating recently) that the end is less than a year away.

The towering morass of financial derivatives built on sand has given its first shudder, the collapse is now just a matter of time.

What plans have our government made for this or have they just got their private gold vaults overseas ready to leave the sinking ship like the rats they are?

Mises Canada: What is Equality?

Egalitarianism is the favorite religion of the left.

It has gotten to the point that no one even bothers to question whether equality is in fact a desirable goal for society. It is taken as given.

The problem is that “equality” is a very, very broad term, with myriad meanings and interpretations. When conservatives and libertarians talk about equality, they usually mean equality of rights, of treatment under the law, and to a certain extent, of opportunity.

By contrast, when progressives talk about equality, they mean it in a much more sweeping sense. Everyone should be given equal medical care, men and women should be paid the same amounts, and the fact that CEOs make more than factory workers is somehow to be decried.

Both of these approaches have their problems, the most important being that it only makes sense to treat things as equals if they actually are equal, a condition that is rarely met in the real world.

A perfect example is the continual harping on “equal pay for equal work” when it comes to women’s wages. Defenders of the idea claim that women make 70% for doing the same work as men. This is a flat out lie. The statistic being cited is calculated by averaging all wages of women across the entire economy, and then comparing them to all wages of men. Nowhere in this number is anything said about “equal work” and the assumption that the average woman is performing exactly the same job as the average man is pure fantasy,

Imagine if we were to perform the same calculation, comparing 18-year-olds to 45-year olds. Of course, we would find that the average 45-year-old makes far more money than the average 18-year-old. But it would make no sense to complain about this discrepancy and demand equality, because these two groups perform drastically different kinds of work and have drastically different levels of experience.

Similarly, women make different choices than men in the labour market. They opt for different kinds of jobs, they tend to spend less time in the workforce and take more time off for family. These choices are reflected in the pay gap. Circumstances are not equal, so it makes no sense to apply equal outcomes.

Another example can be seen in a new push to achieve equal treatment in  schools. The Department of Education is trying to eliminate racial disparities between suspension and other disciplinary rates in public schools, arguing that it is unfair to punish black students more heavily than white students. There would be some merit to this argument if black and white students engaged in disruptive behavior and other rule violations at the same rates, but they most emphatically do not.

Punishments are meted out in proportion to the offenses committed, regardless of who commits them. Trying to equalize them is a fundamentally unfair approach, require either undue leniency on one group or undue severity to another based purely on the color of their skin. What could be a more inherently racist policy than that?

Imagine if we were to apply the same standard on the basis of gender? Everyone knows that boys misbehave in schools more often than girls do. Should we punish the girls more or let the boys get away with their antics all for the sake of equality? This is obvious nonsense.

The cult of egalitarianism demands equal treatment of unequal circumstances, a model that can lead only to tyranny and oppression. We have to stop thinking of equality as a necessary feature of a healthy society. The only sense in which people are truly equal is in their right to life and the control of their own actions.

Any interference with these must be closely guarded against, but the politically correct imposition of equal outcomes on diverse personalities destroys individualism and abolishes freedom.