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Rajoy Slapped in the Face: Catalonia Elects Pro-Independence Speaker

Spain’s prime minister Mariano Rajoy received a well-deserved slap in the face today. Independents again rule Catalonia.

In October, prime minister Mariano Rajoy took direct control of Catalonia, jailing its leaders and dissolving its parliament after Catalan president Carles Puigdemont declared independence in October. Puigdemont is now in exile in Belgium.

Rajoy forced a new election, but the results are the same.

Catalan Parliament

Back in Control

Today, in a well-deserved slap in the face to prime minister Mariano Rajoy, Pro-Independence Groups Take Back Control of Catalonia’s Parliament.

Pro-independence parties took control of the Catalan parliament on Wednesday in what they hailed as the first step towards restoring the regional government after almost three months of direct rule from Madrid.

Celebrations erupted among flag-waving supporters in Barcelona as Roger Torrent, of the pro-independence Republican Left (ERC), was voted head of the speaker’s committee, the chamber’s decision-making body.

Addressing the chamber, Mr. Torrent denounced the legal proceedings against much of the pro-independence leadership. He said the imprisonment of three parliamentarians – including Oriol Junqueras, the former vice president and ERC leader – was “absolutely unjustified, and impedes them being able to freely exercise their rights”.

Opposition parties had tried to thwart the election of Mr. Torrent with a request – swiftly denied – that the parliament reject delegated votes from the three jailed politicians, whose empty seats were marked with yellow ribbons. Mr. Puigdemont and four former cabinet members in self-imposed exile in Brussels dropped their attempts to vote via delegates after Mariano Rajoy, the Spanish prime minister, warned he would appeal such a move at the Constitutional Court.

Parliament Reconvenes Pro-Independence Groups Win

The BBC reports Catalonia MPs Elect Separatist Speaker as Parliament Reconvenes.

…click on the above link to read the rest of the article…

Drastic Pension Cuts Will Hit California, Kentucky, Other States

The CA Supreme Court will rule on pension cuts. Curiously, the court’s ruling will be irrelevant in case of bankruptcy.

California Governor Jerry Brown said legal rulings may clear the way for making cuts to public pension benefits, which would go against long-standing assumptions and potentially provide financial relief to the state and its local governments.

Brown said he has a “hunch” the courts would “modify” the so-called California rule, which holds that benefits promised to public employees can’t be rolled back. The state’s Supreme Court is set to hear a case in which lower courts ruled that reductions to pensions are permissible if the payments remain “reasonable” for workers.

“There is more flexibility than there is currently assumed by those who discuss the California rule,” Brown said during a briefing on the budget in Sacramento. He said that in the next recession, the governor “will have the option of considering pension cutbacks for the first time.”

That would be a major shift in California, where municipal officials have long believed they couldn’t adjust the benefits even as they struggle to cover the cost. They have raised taxes and dipped into reserves to meet rising contributions. The California Public Employees’ Retirement System, the nation’s largest public pension, has about 68 percent of assets needed to cover its liabilities. For the fiscal year beginning in July, the state’s contribution to Calpers is double what it was in fiscal 2009.

“In the next downturn, when things look pretty dire, that would be one of the items on the chopping block,” Brown said.

Pension Cuts Are Coming

It’s refreshing to hear a politician admit the obvious: Pension cuts are coming.

However, whether or not the cuts are “reasonable” is irrelevant in cases of bankruptcy. Bankruptcy is under federal, not state law.

…click on the above link to read the rest of the article…

Reflections On “Pushing the Wrong Button” and US Drone Policy

A “ballistic missile threat inbound to Hawaii” notification was caused by an employee who “pushed the wrong button.”

Wrong Button

ABC News reports an [emergency alert notification] (http://wnep.com/2018/01/13/wrong-button-pushed-during-shift-change-blamed-for-false-hawaii-missile-alert/) sent out on Saturday claiming a “ballistic missile threat inbound to Hawaii” was a false alarm caused by an employee pressing the “wrong button” during a shift change, according to Hawaii Gov. David Ige.

‘Wrong button’ pushed during ‘shift change’ blamed for false Hawaii missile alert

“BALLISTIC MISSILE THREAT INBOUND TO HAWAII. SEEK IMMEDIATE SHELTER. THIS IS NOT A DRILL,” the initial emergency alert read.

False Alarm Timeline

“I know first-hand how today’s false alarm affected all of us here in Hawaii, and I am sorry for the pain and confusion it caused. I, too, am extremely upset about this and am doing everything I can do to immediately improve our emergency management systems, procedures and staffing,” said Gov. David Ige.

Synopsis

  • 8:05 a.m. – A routine internal test during a shift change was initiated. This was a test that involved the Emergency Alert System, the Wireless Emergency Alert, but no warning sirens.
  • 8:07 a.m. – A warning test was triggered statewide by the State Warning Point, HI-EMA.
  • 8:10 a.m. – State Adjutant Maj. Gen. Joe Logan, validated with the U.S. Pacific Command that there was no missile launch.
  • Honolulu Police Department notified of the false alarm by HI-EMA.

…click on the above link to read the rest of the article…

Food: What’s In Your Basket? How Fast Are Prices Rising?

The BLS says the CPI rose 2.1% in December from a year ago. Food rose 1.6%. I called the BLS and filled in some numbers.

In CPI Up 0.1 Percent: How Much is the CPI Understated? I disputed the BLS’s year-over-year overall inflation figure of 2.1%, specifically citing housing and the cost of health insurance.

I found the reported food increase reasonable, others didn’t. Whether or not you find the food index believable depends on two things.

  1. What you buy
  2. How you shop

Reader AWC pointed out this BLS article from March of 2017: Prices for meats, poultry, fish, and eggs down 7 percent since August 2015 peak.​

I downloaded the data and started plugging in numbers for December 2017. The index numbers did not match, so I called the BLS. The person directed me to data downloads which I also found on my own. I still could not match the downloaded numbers.

What happened is the data for the the preceding chart was indexed to 2007 but the main index is to 1982.

I asked the BLS agent for year-over-year increases of items and the percentages matched.

CPI Select Food Items

I calculated all but the last row from the March article after verifying percentages with the BLS. The last row was read to me over the phone.

I created the main graph from the above chart.

How Do You Shop?

​Your percentages may vary substantially from the above chart.

Mine are cheaper because I buy items on sale and freeze them. Sale prices fluctuate less than non-sale prices.

Properly wrapped food will last a year or more.

…click on the above link to read the rest of the article…

Dangerous Idiot Category: “It’s Time to Bomb North Korea”

Edward Luttwak, an armchair foreign policy idiot, proposes bombing North Korea.

It’s Time to Bomb North Korea says Edward Luttwak, idiot of the day for Foreign Policy Magazine.

Check out his rationale:

It’s true that North Korea could retaliate for any attack by using its conventional rocket artillery against the South Korean capital of Seoul and its surroundings, where almost 20 million inhabitants live within 35 miles of the armistice line. U.S. military officers have cited the fear of a “sea of fire” to justify inaction. But this vulnerability should not paralyze U.S. policy for one simple reason: It is very largely self-inflicted.

OK so let’s not worry about 20 million people, disruption in trade, or the threat of starting WWII involving Russia or China for the very simply reason that if the US starts the war it will be “largely self inflicted.”

Luttwak’s Predictions

Wikipedia has an interesting list of Luttwak’s Predictions.

  • In 1983, Luttwak pronounced the Soviet invasion of Afghanistan a success.
  • Luttwak thought it likely that the Soviet Union would launch a limited war against China, especially if the West increased its military power (as it did in the 1980s, under President Ronald Reagan).
  • Just a few months before the Berlin Wall came down, Luttwak was worrying that Soviet President Mikhail Gorbachev’s policies of glasnost and perestroika would augment the military power of the Soviet Union. Instead, those policies precipitated the end of the Cold War and the dissolution of the Soviet Union”.
  • Luttwak predicted, shortly before the first Persian Gulf War, that Iraqi President Saddam Hussein would evacuate Kuwait “after a week or two of bombing (the bombing continued for six weeks without inducing him to do so).

…click on the above link to read the rest of the article…

Median Family Net Worth Under 1989 Level: Debt-to-Money Worst Since 62 

As the stock market soars to new highs, here’s some sobering statistics to consider.

The stock market is at an all-time high but Americans Owe More, Save Less, and are Poorer Than in Decades.

Negative Wealth Percentage On the Rise

Sobering Stats

  1. A greater share of Americans have more debt than money in the bank than at any point since 1962, according to Deutsche Bank economist Torsten Slok.
  2. 30.4% of US families have negative net worth despite the recovery in housing and the stock market.
  3. Median net worth is below where it was in 1989.
  4. Inflation adjusted, net worth may be the worst in history. $78,000 is not worth what it was in 1989, to say the least.

Bomb Cyclone Hits East Coast: Record Tide Floods Boston

Blizzards hit the East coast, record high tides flood Boston and in New Jersey, Christie declared a state of emergency.

The National Guard has been called out in several states as a bombogenesis or bomb cyclone makes its way up the East coast of the US.

“it is not the lowest pressure that defines bombogenisis but rather how quickly the pressure within the storm plummets. When the barometric pressure falls at least 0.71 of an inch (24 millibars) in 24 hours, a storm has undergone bombogenesis.”

Record High Tide


We appear to be near the record high water level in . However, it is within a few tenths of an inch and this will need to be confirmed with the NOAA’s National Ocean Service (NOS) @noaaocean before we can confirm or deny whether the record was tied or broken


Record or near-record high tides accompanied the cyclone causing severe coastal flooding. Over 4,000 flights have been canceled. Newark and LaGuardia account for about half the total.

…click on the above link to read the rest of the article…

Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong 

Let’s investigate six reasons economists think inflation is about to pick in 2018, and why I think they are dreaming.

Reason Number One – Wage Hikes

Minimum wages rise in 18 states starting in 2018.

Former Fed Vice-Chairman Stanley Fischer told Bloomberg TV on October 4, “I still believe we will have higher inflation. The basic mechanism here is unemployment is declining all the time, wages will start going up at some stage.”

Wage Hike Rebuttal

The National Bureau of Economic Research paper: Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle, 2017 concludes there was a negative benefit to low wage workers as a result of wage hike.

  1. A 9% reduction in hours worked at wages below $19/hour.
  2. A reduction of over $100 million per year in total payroll for low-wage jobs, measured as total sum of increased wages received less wages lost due to employment reductions. Total payroll losses average about $125 per job per month.
  3. The findings that total payroll for low-wage jobs declined rather than rose as a consequence of the 2016 minimum wage increase is at odds with most prior studies of minimum wage laws. These differences likely reflect methodological improvements made possible by Washington State’s exceptional individual-level data. When we replicate methods used in previous studies, we produce the same results as previously found.

This is an issue that’s debated over and over again, mostly with poor methodologies to come to the desired conclusion.

In contrast, the NBER had “exceptional individual-level data”.

Adding support the NBER’s conclusion, the Bank of Canada estimates Minimum Wage Hikes Could Cost Canada’s Economy 60,000 jobs by 2019.

By the way, and as discussed in Staggering Rent Increases in 2017, the median U.S. rental now requires 29% of median monthly income, according to Zillow. Between 1985 and 2000, renters spent about 25.8% of their income on housing.

Next, factor in student debt.

…click on the above link to read the rest of the article…

Eight-Year Positive Cycle for Gold Starting Now

McClellan Financial says an eight-year cycle for gold is about to start and the next five years will likely be good ones

Via email from Tom McClellan, please consider Gold’s 8-Year Cycle.

We are now entering the upward phase of gold’s 8-year cycle, and that should bring some fun gains. And this comes at a time when gold has not been getting much of investors’ attention. If gold stays flat for a year, and Bitcoin twinkles to get all of the attention, speculators eventually drift away from gold. That sets up a great opportunity for gold to start getting more attention, and more money thrown its way.

As with most market cycles, gold’s 8-year cycle is measured bottom-to-bottom. But there is more to it than just that 8-year period between major bottoms. It typically sees a 3-year upward phase, which is where most of the big gains are seen. Then the 5-year downward phase actually has a 3-wave process of going down.

This has been evident since shortly after gold started trading freely in 1975. The cycle was probably lurking out in the wild, but it was just not evident with the Treasury department fixing gold prices prior to the 1970s. The 3-up, 5-down pattern saw one anomaly in the 2000s, when prices were mostly up all the time during that cycle. But if you look hard enough, you can see the inflection points of the 3-wave down move within that upward trend.

Now that we are in the 2010s, the pattern appears to have returned to its normal 3-year up, 5-year down phase, and reset for the next 3-year up phase. So why has gold not started screaming higher already?

My answer is that there is another independent cycle also at work that has kept gold price down in late 2017, and that is the 13-1/2 month cycle.

…click on the above link to read the rest of the article…

Debt to GDP: Only 4 Major Countries Worse Off Than the US

Of major nations, only Japan, Greece, Italy, and Portugal have debt-to-GDP ratios higher than the US.

With the new tax overhaul, U.S. government debt will rise by one to two trillion dollars over the next decade. I view that assessment as majorly optimistic as it assumes no recession and unlikely growth.

Citing IMF statistics, the Wall Street Journal reports Just Four Large Countries Have a Higher Debt Burden Than the U.S.

Japan’s government carries debts at 240.3% of gross domestic product, far and away the world’s largest burden. Japan has struggled in recent decades to tackle its debt, in part because its economy has been stagnant. Attempts to raise revenue via higher taxes have often knocked the economy into recessions. Tax cuts haven’t generated enough growth to ease debt burdens.

The Bank of Japan has embarked on the world’s most aggressive monetary policies, including decades of rates near zero, and the world’s largest asset-purchase program. None of it has revived growth or inflation, meaning Japan’s debt burden has been slowly grinding higher. (Although the low rates have meant the costs to the government of servicing that debt have remained under control.)

Japan’s government debt has been a persistent fiscal challenge, but never quite blossomed into a full-blown crisis.

The next three nations haven’t been so lucky. Greece’s debt-to-GDP stands at 180.2% of GDP, Italy’s at 133% and Portugal’s at 125.7%. When the global financial crisis struck, and government revenues plunged around the world, Greece and Portugal found themselves unable to manage debts on their own. Both nations turned to international bailouts to make it through the years of weak growth that followed. All three nations have had to bail out some of their largest banks in order to keep their financial systems from collapsing.

…click on the above link to read the rest of the article…

Lacy Hunt on the Unintended Consequences of Federal Reserve Policies

The Financial Repression Authority interviewed Lacy Hunt, Chief Economist at Hoisington Management on Fed policies.

The interview below first appeared on the FRA website along with a video. The emphasis in italics is mine.

FRA: Hi, welcome to FRA’s Roundtable Insight. Today, we have Dr. Lacy Hunt. He’s an internationally recognized economist and the Executive V.P. and Chief Economist of Hoisington Investment Management Company, a firm that manages over $4.5 billion USD and specializing in the management of fixed income accounts for large institutional clients. He also served in the past as Senior Economist for the Federal Reserve Bank of Dallas, where he was a member of the Federal Reserve System Committee on Financial Analysis. Welcome. Dr. Hunt.

Dr. Lacy Hunt: Nice to be with you, Richard.

FRA: Great. I thought we’d have a discussion on a variety of topics relating to the economy and the financial markets. You recently mentioned that you thought this was the worst economic expansion recovery in U.S. history since 1790. Wow. Can you elaborate?

Dr. Lacy Hunt: If you calculate the average growth rate in the expansions since 1790, this is a long-running expansion, but it’s the slowest and in the last 10 years the household sector lagged very, very badly. The rate of growth in real disposable household income per capita is only 0.9 percent per year. And in the last 12 months, we’re up only 0.6 percent per year. So it’s a long-running expansion, but it’s been a poor expansion. There are certainly problems with some of the earlier data, but this appears to be the slowest expansion since the turn of the 18th Century and our households are the main problem for the growth rate lag.

FRA: And do you point a finger for this cause as primarily on the Federal Reserve or do you see structural changes happening to the economy?

…click on the above link to read the rest of the article…

EU Opens Article Seven Process Against Poland: Poland to Leave the EU?

The EU opened up Article 7 charges against Poland for having non-EU values. Poland is a serious risk to leave the EU.

Article seven is a charge against a country for having non-European values.

Specifically, the charge against Poland relates to its judiciary, but the EU also took Poland, Hungary, the Czech Republic, and Slovakia to the European Court of Justice (ECJ) over migrant issues.

Eurointelligence Synopsis of Poland

Yesterday the European Commission triggered an Article 7 procedure under the Lisbon treaty, which could, in theory, lead to the imposition of sanctions against a member state. This procedure’s final vote by the European Council will require unanimity, and Hungary has already said it would veto any attempt to impose sanctions on Poland. For that reason alone, the procedure is likely to fail. The Commission is going ahead because the symbolic act of starting the procedure matters more than the eventual outcome.

In the next step of the process, the Council has to pass a vote by a majority of four-fifths to determine that there is a serious risk of a member state failing to comply with the democratic values of the EU. The European Parliament will first have to give its consent. The procedure culminates with a vote at the European Council, where unanimity would apply. A veto by Hungary ends the process. The question is whether Hungary will actually come to the aid of Poland, and risk political isolation in the EU, or whether they will stick to their pre-announced position.

…click on the above link to read the rest of the article…

St. Louis Fed Promotes the Mathematically Impossible

It’s bad enough when economic writers are clueless about how markets work. It’s worse when Fed economists are clueless.

Check out this Tweet by @StLoiusFed.

Negative interest rates may seem ludicrous, but not if they succeed in pushing people to invest in something more stimulating to the economy than government bonds http://bit.ly/2ASFrRz 


170 people liked this Tweet.

Understanding the Math

  • Negative interest rates cannot push people into more stimulating investments.
  • No matter how negative the rate, someone has to hold every treasury bond and someone has to hold every dollar in circulation.
  • In the equity markets, for every buyer of stocks, there is a seller, thus the sideline cash argument fails as well.

It’s bad enough when analysts fail to understand basic economics, but even Fed economists are clueless about how markets work.

Negative rates cannot possibly do what the Fed suggests, but they can foster an artificial wealth effect when people borrow or spend more than they should.

Any economic gain spurred on by reckless borrowing will all be taken back and then some, in the next recession.

Zombie Corporations

Negative real rates also foster zombie corporations. The BIS defines Zombie firms as those with a ratio of earnings before interest and taxes to interest expenses below one, with the firm aged 10 years or more.

As it sits, 10% of corporations are zombies, unable to make interest payments from profits.They need cheap money to survive.

If the St. Louis Fed economists see a sustainable benefit from spurring zombie corporations, they are wrong about that too.

CNN & MSNBC Attempt Coverup of Bogus Story They Started 

CNN & MSNBC refuse to provide any transparency on how they blew a major anti-trump story.

The headline image is from the BBC story Russia-Trump: Who’s who in the drama to end all dramas?

The BBC names the key players, but it missed one: the media.

In a nutshell, three news outlets, starting with CNN and followed by MSNBC broke a bombshell story on Trump that false. CBS jumped on the bandwagon but later blamed CNN.

Supposedly, multiple, credible sources said Trump had access to Wikileaks information on Russia before Wikileaks posted it.

The story timeline was false.

Coverup Begins

Days later, CNN refuses to disclose its sources or say what happened.

Greenwald blasted CNN in a Tweet again today.


Slate notes that because CNN & MSNBC completely refuse to provide even the most minimal transparency about how they got their big story so wrong, we still don’t know the answer to the key question – and probablynever will, since they’re burying it: https://slate.com/news-and-politics/2017/12/medias-wikileaks-trump-jr-email-date-screwup-still-unexplained.html 

We Still Don’t Know Why Three Different Outlets “Confirmed” the Same Bogus Russia Story Last Week

Why did so many “sources” suddenly confuse the numbers 14 and 4?

slate.com


How Did It Happen?

“None of the outlets disclosed anything about the identities and/or motivations of the sources—and there are supposedly at least two of them!—who made such a consequential error of reading comprehension.

…click on the above link to read the rest of the article…

114 Italian Banks (Roughly 23%) Have NPLs Exceeding Tangible Assets

114 Italian Banks (Roughly 23%) Have NPLs Exceeding Tangible Assets

114 Italian banks have non-performing loans that exceed tangible assets. Ratios above 100% are signs of severe stress.

The headline image is from the from ilsole24ore.com. The article is dated March 25, 2017. The translated headline reads “Here are the 114 Italian banks at risk for suffering

The image shows 24 banks where non-performing loans total 200% or more of tangible assets.

The image title “Texas Highest Rate” refers to a measure of banking stress called the “Texas Ratio“.

The Texas Ratio was developed by Gerard Cassidy and others at RBC Capital Markets. It is calculated by dividing the value of the lender’s non-performing assets (NPL + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s.

Texas Ratio Analysis

In 2012, the Dallas Fed did an article on the So-Called Texas Ratio.

“So-called” pertains to a discussion as to whether or not the measured should be renamed the “Georgia Ratio”.

Georgia Ratio?

US vs Italy (6% vs 23%)

At the peak of the SNL crisis in the 1980s, just over 5% of US banks had Texas ratios over 100%.

In the Great Financial crisis the number approached but did not top 6%.

In Italy, 114 of “almost” 500 banks have NPLs that exceed tangible assets. If were to add real estate owned (bank-owned real estate) to the Italian banks, they would be in even worse shape.

2015 Data

The caveat in this analysis is the article’s numbers are from 2015. But are Italian banks better or worse today?

I suspect worse.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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