Europe Preparing Greek Bankruptcy Loan “In Event Of Grexit”

Earlier today, we learned that, contrary to what Greek government officials had been implying for the better part of a week, Athens did not have enough money to make a €750 million payment to the IMF on Tuesday. Instead, Greece borrowed most of the money (€650 million according to unnamed officials) from its IMF SDR reserves. This money must be paid back within 30 days. This effectively means that the IMF paid itself and it sets up a hilariously absurd scenario wherein assuming Greece manages to convince creditors to disburse a €7.2 billion tranche of aid later this month, the IMF will send money to Greece, who will send it right back to the IMF to replenish an IMF fund, which was drawn down by the IMF to pay itself back for money it loaned to Greece a long time ago. Put simply: Greece has taken circular funding schemes to a whole new level.

Meanwhile, the IMF is understandably fed up and according to El Mundo, the Fund will not participate in a new program for the Greeks, something which German FinMin Wolfgang Schaeuble indicated may be a dealbreaker when it comes to structuring another bailout for Athens.

America’s Achilles’ Heel

Submitted by Dmitry Orlov via Club Orlov blog,

Last Saturday, a massive Victory Parade was held in Moscow commemorating the 70-year anniversary of the surrender of Nazi Germany to the Red Army and the erection of the Soviet flag atop the Reichstag in Berlin. There were a few unusual aspects to this parade, which I would like to point out, because they conflict with the western official propaganda narrative.

First, it wasn't just Russian troops that marched in the parade: the troops of 10 other nations took part in it, including the Chinese honor guard and a contingent of Grenadiers from India. Dignitaries from these nations were present in the stands, and the Chinese President Xi Jinping and his wife were seated next to President Vladimir Putin, who, in his speech at the start of the parade, warned against attempts to create a unipolar world—sharp words aimed squarely at the United States and its western allies.

Second, a look at the military hardware that rolled through Red Square or flew over it would indicate that, short of an outright nuclear mutual self-annihilation, there isn't much that the US military could throw at Russia that Russia couldn't neutralize.

It would appear that American attempts to isolate Russia have resulted in the exact opposite: if 10 nations, among them the world's largest economy, comprising some 3 billion people, are willing to set aside their differences and stand shoulder to shoulder with the Russians to counter American attempts at global dominance, then clearly the American plan isn't going to work at all. Western media focused on the fact that western leaders declined to attend the celebration, either in a fit of pique or because so ordered by the Obama administration, but this only highlights their combined irrelevance, be it in defeating Hitler, or in commemorating his defeat 70 years later. Nevertheless, in his speech Putin specifically thanked the French, the British and the Americans for their contribution to the war effort. I am sorry that he left out the Belgians, who had been so helpful at Dunkirk.

One small detail about the parade is nevertheless stunning: Defense Minister Sergei Shoigu, a Tuvan Buddhist and one of the most respected Russian leaders, who presided over the Emergencies Ministry prior to becoming the Defense Minister, did something none of his predecessors ever did: at the beginning of the ceremony, he made the sign of the cross, in the Russian Orthodox manner. This simple gesture transformed the parade from a display of military pomp to a sacred ritual. Then followed the slow march with two flags side by side: the Russian flag, and the Soviet flag that flew on top of the Reichstag in Berlin on Victory Day 70 years ago. The march was accompanied by a popular World War II song? Its title? “The Sacred War.” The message is clear: the Russian military, and the Russian people, have put themselves in God's hands, to do God's work, to once again sacrifice themselves to save the world from the ravages of an evil empire.

If you try to dismiss any of this as Russian state propaganda, then here is something else you should be aware of. Did you hear of the spontaneously organized procession in which, after the official parade, half a million people marched through Moscow with portraits of their relatives who died in World War II? The event was called “The Eternal Regiment” (??????????? ????). Similar processions took place in many cities throughout Russia, and the total number of participants is estimated at around 4 million. Western press either panned it or billed it as an attempt by Putin to whip up anti-western sentiment. Now that sort of “press coverage,” my fellow space travelers, is pure propaganda! No, it was an enthusiastic, spontaneous outpouring of genuine public sentiment. If you think about it just a tiny bit, nothing on this scale could be contrived artificially, and the thought that millions of people would prostitute their dead for propaganda purposes is, frankly, both cynical and insulting.

* * *

Instead of collapsing quietly, the US has decided to pick a fight with Russia. It appears to have already lost the fight, but a question remains: How many more countries will the US manage to destroy before the reality of its inevitable defeat and disintegration finally catches up with it?

As Putin said last summer when speaking at the Seliger youth forum, “I get the feeling that no matter what the Americans touch, they end up with Libya or Iraq.” Indeed, the Americans have been on a tear, destroying one country after another. Iraq has been dismembered, Libya is a no-go zone, Syria is a humanitarian disaster, Egypt is a military dictatorship executing a program of mass imprisonment. The latest fiasco is Yemen, where the pro-American government was recently overthrown, and the American nationals who found themselves trapped there had to wait for the Russians and the Chinese to extract them and send them home. But it was the previous American foreign policy fiasco, in the Ukraine, which prompted the Russians, along with the Chinese, to signal that the US has taken a step too far, and that all further steps will result in automatic escalation.

The Russian plan, along with China, India, and much of the rest of the world, is to prepare for war with the US, but to do everything possible to avoid it. Time is on their side, because with each passing day they become stronger while America grows weaker. But while this process runs its course, America might “touch” a few more countries, turning them into a Libya or an Iraq. Is Greece next on the list? What about throwing under the bus the Baltic states (Estonia, Latvia, Lithuania), which are now NATO members (i.e., sacrificial lambs)? Estonia is a short drive from Russia's second-largest city, St. Petersburg, it has a large Russian population, it has a majority-Russian capital city, and it has a rabidly anti-Russian government. Of those four facts, just one is incongruous. Is it being set up to self-destruct? Some Central Asian republics, in Russia's ticklish underbelly, might be ripe for being “touched” too.

There is no question that the Americans will continue to try to create mischief around the world, “touching” vulnerable, exploitable countries, for as long as they can. But there is another question that deserves to be asked: Do the Americans “touch” themselves? Because if they do, then the next candidate for extreme makeover into a bombed-out wasteland might be the United States itself. Let's consider this option.

As the events in Ferguson, and more recently in Baltimore, have indicated, the tensions between African-Americans and the police have escalated to a point where explosions become likely. The American “war on drugs” has been essentially a war on young black (and Latino) men; about a third of young blacks are behind bars. They also run a high risk of being shot by the police. To be fair, the police also run a high risk of getting shot by young black males, causing them to be jumpy and to overreact. Given the gradually collapsing economy—close to 100 million working-age Americans are unemployed (“outside the labor force,” if you wish to split hairs)—it would seem that for an ever-increasing chunk of the population cooperating with the authorities is no longer a useful strategy: you get locked up or killed anyway, but you get none of the temporary benefits that come from ignoring the law.

There is an interesting asymmetry in the American media's ability to block out information about civil unrest and insurgency: if it is happening overseas, then news of it can be carefully calibrated or suppressed outright. (Did American television tell you about the recent resumption of shelling of civilian districts by the Ukrainian military? Of course not!) This is possible because Americans are notoriously narcissistic and largely indifferent to the rest of the world, of which most of them know little, and what they think they know is often wrong. But if the unrest is within the US itself, then the various media outlets find themselves competing against each other in who can sensationalize it better, in order to get more viewership, and more advertising revenue. The mainstream media in the US is tightly controlled by a handful of large conglomerates, making it one big monopoly on information, but at the level of selling advertising market principles still prevail.

Thus there is the potential for a positive feedback loop: more civil unrest generates more sensationalized news coverage, which in turn amplifies the civil unrest, which further sensationalizes the news coverage. And there is a second positive feedback loop as well: the more civil unrest there is, the more the police overreact in trying to control the situation, thereby generating more rage, amplifying the civil unrest. These two positive feedback loops can continue to run out of control for a while, but the end result, in all such recent incidents, is the same: the introduction of National Guard troops and the imposition of curfew and martial law.

The swift introduction of the military might seem a bit odd, considering that most police departments, even small-town ones, have been heavily militarized in recent years, and even the security people at some school districts now have military vehicles and machine guns. But the progression is a natural one. On the one hand, when people who habitually resort to brute force find that it isn't working, they naturally assume that this is because they aren't using enough of it. On the other hand, if the criminal justice system is already a travesty and a shambles, then why not just cut through the red tape and impose martial law?

There is an awful lot of weapons of all sorts in the US already, and more will come in all the time as the US is forced to close overseas military bases due to lack of funds. And they will probably get used, for the same reason and in the same fashion that red bricks came to be used in Boston. You see, plenty of red bricks kept coming into Boston aboard British ships, where they were used as ballast for the return trip. This created the impetus to do something with them. But putting up brick buildings is a difficult, demanding process, especially if laborers are always drunk. And so the solution was to use the bricks to pave sidewalks—something one can do on one's hands and knees. Similarly with the military hardware sloshing back into the US from abroad. It will be used, because it's there; and it will be used in the stupidest way possible: shooting at one's own people.

But bad things happen to militaries when they are ordered to shoot at their own people. It is one thing to shoot at “towel-heads” in a far-away land; it is quite another to be ordered shoot at somebody who could be your own brother down the street from where you grew up. Such orders result in fragging (shooting your own officers), in refusal to follow orders, and in attempts to stand up for the other side.

And that's where things get interesting. Because, you see, if you shoot at, imprison, and otherwise abuse a defenseless civilian population long enough, what you get in response is an armed insurgency. The place insurgencies are easiest to organize is in prison. For instance, ISIS, or the Islamic Caliphate, was masterminded by people who had previously worked for Saddam Hussein, while they were imprisoned by the Americans. They took this opportunity to work out an efficient organizational structure and, upon release, found each other and got down to work. Having a third of young American blacks locked up gives them all the opportunity they need to organize an effective insurgency.

To be effective, an insurgency needs lots of weapons. Here, again, there is a procedure for acquiring military technology that has become almost routine. What weapons are being used by ISIS? Why, of course, American ones, which the Americans provided to the regime in Baghdad, and which ISIS took as trophies when the Iraqi army refused to fight and ran away. And what weapons are being used by the Houthi rebels in Yemen? Why, of course, the American ones, which the Americans provided to the now overthrown pro-American regime there. And what are some of the weapons being used by the Syrian regime of Bashar Assad? Why, of course, American ones, sold to them by the Ukrainian government, which got them from the Americans. There is a pattern here: it seems that whenever Americans arm, train and equip an army, that army stands a really big chance of simply melting away, with the weapons falling into the hands of those who want to use them against American interests. It is hard to see why this same pattern wouldn't hold once the US places much of itself under military occupation.

And that's where things get really interesting: a well-armed, well-organized insurgency composed of thoroughly radicalized, outraged people who have absolutely nothing to lose and are fighting for their home turf and their families squaring off against a demoralized, defeated US military that has just failed spectacularly in every country it “touched.”

They say that “You can't fight city hall.” But what if you have a tank battalion that can control four intersections all around city hall, turrets pointed in all directions, firing at anything that moves? And what if you have enough infantry to go around and ring the doorbells of all the key city hall bureaucrats? Wouldn't that change one's odds of victory in fighting city hall?

The US might get to “touch” a few more countries before this scenario unfolds, but it seems likely that (excepting the possibility of all-out war) eventually America will “touch” itself, and then all those countries whose troops marched through Red Square last Saturday won't have America to kick around any more.

More Spending Is Not The Answer To A Slow Economy

Submitted by Dr. Richard Ebeling via The Cobden Centre blog,

Old fallacies never seem to die, they just fad away to reemerge once again later on. One such fallacy is that if there is significant unemployment and slow economic growth it must be due to not enough consumers’ spending in the economy, what Keynesian economists call a “failure of aggregate demand.”

This fallacy has been voiced, once more, in a recent interview with Joseph Stiglitz, professor of economics at Columbia University and the 2001 recipient of the Nobel Prize in Economics.

In an interview that appears in the British “Globe and Mail” on May 8, 2015, Stiglitz blames the sluggish economic growth in the U.S. and around the world, with accompanying unemployment, on weak market demand due to income inequality.

“You are not going to have robust growth without adequate demand,” says Stiglitz. “The people at the top who have seen big income gains are saving large portions of their income, on average 35 percent. Those at the very top are not spending their money. People at the bottom, on the other hand, have no choice. To just get by, they have to spend all their income.”

Stiglitz goes on to say, “The contention that people at the top are the job creators and, if you tax them at higher rates, they won’t create jobs is nonsense. The fact is there is talented entrepreneurs at all levels of the U.S. economy. Whenever there is demand, jobs get created and entrepreneurship flourishes. Our big corporations are sitting on upwards of $2-trillion. The reason they are not investing it is there’s no demand for their goods.”

Stiglitz argues that what is needed is to “get the economy growing by more equitably sharing income gains and investing in our future.”

Taxing or Deficit Spending Do Not Create Jobs

First, if the government attempts to “stimulate” the economy through more of its own spending, the question has to be asked: From where will come the financial means for the government to increase its expenditures?

If the government taxes the citizenry to finance its increased spending, then every dollar more that the government spends by necessity reduces taxpayers’ spending by an equivalent amount. The net change in overall or total spending in the economy would be zero.

If the government runs a budget deficit, it must borrow the dollars it wishes to spend above what it takes in, in taxes. Every dollar borrowed by the government in the loan and financial markets is one dollar less of people’s savings available for someone in the private sector to borrow for some investment or consumer purchase. Again, the net change in overall or total spending in the economy would be zero.

If it is argued that the government need not siphon away a dollar from a private-sector borrower because it can offer a higher rate of interest to attract more savings, the net result will still tend to be the same. Why?

If income earners decide to save more due to an attractively higher rate of interest the government offers to pay for some of those borrowed dollars, it means that that saver is spending fewer dollars, himself, on consumption or some other spending.

In addition, pushing up market interest rates to attract savers to lend to the government also raises the cost of borrowing for private businesses. The higher the rates of interest the more likely that some businessmen “at the margin” will find that the cost of borrowing is now greater than the anticipated rate of profit from investing a borrowed sum.

Economists call this the “crowding-out effect.” Part of the cost of funding the government’s budget deficit comes from a reduction in private sector borrowing and spending due to the higher interest costs. Thus, again, the net effect on total spending in the economy tends towards zero.

Save or Invest cartoon

Good Ideas Need Savings and Investment

Joseph Stiglitz is certainly correct that there are potentially talented entrepreneurs in all walks of life and levels of income in the United States and around the world. But having a good idea and even willingness to take a chance and start or expand an enterprise is not enough.

In most instances, you need capital to begin and operate a business over a period of time before you have anything ready to sell. You need sufficient funds to cover some of the losses that often will occur before you find a niche and attract enough consumer interest and demand to defray the costs of doing business.

In other words, there first has to be the savings that facilitates the time-consuming production that will eventually generate the product or services that can earn consumer dollars at some point in the future.

The Simple Logic of Saving, Investing and Capital Formation

Let take a simple example first. Imagine Robinson Crusoe alone on his island. If he is to escape from extremely primitive conditions of existence of mere “survival” by picking berries and attempting to catch fish in a stream with his bare hands, Crusoe must invest in the manufacture of “capital,” – tools – to assist in improving and increasing the productivity derivable from his human labor.

But to do so Crusoe must “save,” that is, he must out of his daily efforts to have enough for survival set aside a sufficient amount of berries and fish as a “store” of goods to live off to free up his time and resources that would otherwise go into immediate production for his present consumption.

He uses that freed up time and resources to, perhaps, make a bow and arrows, or a canoe and fishing net, so that after the requisite “period of investment” during which he has lived off his “savings,” he will have the capital goods – the tools of production – that will then assist him increasing the quantities, varieties and qualities of the consumption goods that previously were beyond his bare labor’s potential to obtain.

In this way, he has employed himself in making capital goods with his store of saved consumption goods to live off so his own labor can be diverted from more immediate berry picking and fishing with his bare hands.

Production Time Results in More Desired Goods

The manufacture of those capital goods and their use over a period of time once in existence must logically and temporally precede the greater availability of consumer goods that that capital’s existence now makes possible. In other words, besides the time taken to making the canoe and net, he must now paddle out into the waters off his island to first catch that larger harvest of fish that his capital goods enables him to have before he can have that increased and more varied fish supply to eat as part of his dinner.

At the same time, using his bow and arrows for hunting and utilizing his net for fishing will result in “wear and tear.” That is, capital – tools and equipment – get used up in their use, and Crusoe will have to devote part of his labors and time to maintenance and repair if his ability to hunt and fish is not to be diminished.

Furthermore, if he is to increase his supply of desired consumer goods even more from their existing availabilities and amounts he must again divert an increased amount of his labor time and resource use to “investing” in more and/or better capital goods above that required to maintain his existing capital.

Thus, the more he invests in making the capital equipment that increases his capacity to produce greater quantities, varieties and qualities of the finished goods he would like to use and consume, the more resources, time, and labor effort he has to equivalently devote to maintaining his enlarged stock of capital to sustain whatever the standard of living he has been able to establish for himself through savings and investment.

In the Market, Prices Guide Production for Consumption and Investment

Of course, in “modern society” the process is more complex than presented when using Robinson Crusoe as a first approximation. In our world, today, this all works in a competitive market system of independent private entrepreneurs who employ and directing the men and material they hire, rent or buy in the arena of exchange.

In this market setting entrepreneurial decision-makers are guided by the system of market prices that reflect the types and amounts of goods that consumers desire, and on the basis of which entrepreneurs hope to make their profits. Changes in consumer demands are expressed in changes in the relative prices for the various goods offered on the market, and these prices then direct entrepreneurs to shift the types and amounts of goods they decide to produce.

This also applies to changes people make concerning consumption and savings, that is, their demand for consumer goods in the present versus consumer goods in the future for which they put their savings aside.

In a properly functioning free market, competitive economy, a decision to consume less and save more may reduce the current demand for some consumer goods. But the greater savings reemerges as spending on investment activities and other types of borrowing when the increased savings results in lower rates of interest to attract willing borrowers in the financial markets where that greater savings has been deposited.

But why would investors borrow this greater savings, even at lower rates of interest, if the current demand for goods on the market has not increased or maybe even gone down?

Fire as the Next Big Investment

Saving “Today” Means a Desire to Demand More “Tomorrow”

This was explained by the famous Austrian economist, Eugen von Böhm-Bawerk (1851-1914) near the beginning the twentieth century.

“The man who saves curtails his demand for present goods but by no means his desire for pleasure-affording goods generally . . .

“More Probable Than Not”

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

The only thing that I ask from this group today and the American people is to judge me from this day forward. That’s all I can ask for.
– Alex Rodriguez press conference, February 17, 2009, regarding his steroid use from 2001 – 2003.

I’m ready to put this chapter behind me and play some ball.
– Alex Rodriguez “apology” letter, February 17, 2015, regarding his steroid use from 2010 – 2012.


I would never do something that was outside of the rules of play.