JPMorgan’s Stunning Conclusion: An Italian Exit May Be Rome’s Best Option

With Europe having a near heart attack last week, as Italian bond yields exploded amid deja vu fears that the new populist government would press the “Quitaly” button and threaten the EU with exiting the Eurozone in order to get budget spending concessions from Brussels, the discussion about Europe’s record Target2 imbalances quietly resurfaced after years of dormancy. And with €426BN, Italy has the highest Target2 deficit with the Eurosystem (Spain is a close second with €377BN) any discussion about an Italian euro exit raises concerns about costs.

After all, as JPMorgan reminds us, it was only a year ago, in January 2017,  that in a letter to European Parliament MPs, ECB President Draghi made the stunning admission that a country can leave the Eurozone but only if it settles its bill first,  or as Draghi said “if a country were to leave the Eurosystem, its national central bank’s claims on  or liabilities to the ECB would need to be settled in full.”

By linking the Eurozone exit cost to Target2 balances, where Germany is on the other end with a receivable balance of nearly €1 trillion, Draghi “reminded” populist politicians in Europe that a euro exit or divorce would be difficult and even more costly relative to the past because of the continued rise in Target2 balances following the ECB’s QE program.

As the chart below shows, and as we and the BIS have discussed previously, due to QE induced cross border flows since 2015, Target2 balances have exploded since the launch of the ECB’s QE (and third Greek bailout in 2015), and surpassed the previous extremes from the depths of the euro debt crisis in the summer of 2012.

Here, it is worth noting that as the BIS explained last year, the Target2 balance deterioration since 2015 is different in nature than that seen during 2010-2012, it is not a merely technical consequence of QE but a reflection of investors’ preferences. At the time, during the 2010-2012 euro debt crisis period, the Target2 balance deterioration was driven by a loss of access to funding markets, inducing banks in peripheral countries to replace private sources of funding with central bank liquidity. However, since 2015 the rise in Target2 balances is more the result of the cross-border flows induced by investors’ response to QE. As JPM explains, “for example when the Bank of Italy, via its QE program, buys bonds from a German bank or a UK bank with an account in Germany, this flow causes a rise in Bank of Italy’s Target2 deficit and an increase in Bundesbank’s surplus. Or when the Bank of Italy buys bonds from a domestic investor but this domestic investor uses the proceeds to buy a foreign asset, then the Bank of Italy also builds up its liability with the Eurosystem. In both cases, the liquidity created by the Bank of Italy’s QE program does not stay within Italy, but leaks out to Germany or other jurisdictions.

Additionally, according to the ECB, the vast majority of bonds purchased by national central banks under the QE were sold by counterparties that are not resident in the same country as the purchasing national central bank, and roughly half of the purchases were from counterparties located outside the euro area, most of which mainly access the Target2 payments system via the Deutsche Bundesbank. In other words, due to investors’ preferences, the excess liquidity created by the ECB’s QE program since 2015 did not stay in peripheral countries, but leaked out to creditor nations such as Germany, which got flooded with even more liquidity.

Incidentally, this is precisely the opposite of what Mario Draghi described to policymakers and the general public was the stated intention of the ECB’s QE, which was meant to boost the periphery, not the core, as it was already benefiting thanks to the Euro’s fixed rate, effectively subsidizing core European exporters at the expense of peripheral nations desperate for external, or currency, devaluation.

In any case, the different nature of the Target2 balance deterioration since 2015 does not change that the fact that Target2 liabilities still represent a cost for a country exiting the euro, assuming of course that country intends to satisfy its unwritten contractual obligations.

In other words, Target 2 balances represent national central banks’ claims on or liabilities to the ECB that, according to Draghi, would need to be settled in full, and thus represented leverage that the Eurozone had over any potential quitters.

But, as JPM notes, this is where the controversy arises, because what if a departing country – most likely about to default on its external liabilities and already set to redenominate its currency – reneges on its Target2 liability? After all, not only are those intra-Eurosystem Target2 claims and liabilities uncollateralized, but any exiting country would have little to lose by burning all bridges with Europe when it gives up on using the “common currency.”

In this case, a euro exit by a debtor country would represent more of a cost to creditor countries such as Germany rather than to the exiting country itself. And, as shown in the chart above, Germany sure has a lot of implicit accumulated costs, roughly €1 trillion to be precise, as a result of preserving a currency union that allowed German exporters to benefit from a euro dragged lower by the periphery, relative to where the Deutsche Mark would be trading today.

But here the analysis gets slightly more complex, as Target2 does not provide the full picture of potential costs (or benefits, assuming a scorched earth approach).

As JPMorgan writes, the Target2 liabilities of a debtor country give only a partial picture of the cost to creditor  nations from that debtor country exiting. This is because Target2 balances represent only one component of the Net International Investment Position of a country, i.e. the difference between a country’s total external financial assets vs. liabilities.  The broader metric that one must use, is of the Net International Investment Position for euro area countries and is shown in the chart below. It shows that contrary to the Target2 imbalance, Italy leaving the euro would inflict a lot less damage to creditor nations than Spain leaving the euro.

This is because Spain’s net international investment liabilities stood at close to €1tr as of the end of last year, almost three times as large as its Target2 liabilities. In contrast Italy’s net international investment liabilities were much smaller and stood at only €115bn at the end of last year, around a quarter of its €426bn Target2 liabilities. This, as JPM explains, is because Italy has accumulated over the years more external assets than Spain and should thus be overall more able to repay its external liabilities.

In other words, while gross external liabilities are similar in Italy and Spain, from a net external liability point of view, an Italian euro exit should be a lot less threatening to creditor nations than a Spanish euro exit. That said, the assets and liabilities are not necessarily owned and owed by the same parties, meaning that one cannot ignore the nearly €3tr of gross liabilities of Italian residents to foreign residents.

Ironically, the surprisingly low net international investment liabilities of Italy are the result of the persistent current account surpluses the country has been running since the euro debt crisis of 2012, and smaller current account deficits compared to Spain before the crisis. The flipside is that the current account surplus – in theory – also makes it easier for a country like Italy to exit the euro relative to a current account deficit country. This is because the higher the current account deficit of a debtor country, the higher the cost of an exit for this country as the current account deficit would have to be closed abruptly following an exit. Similarly, the higher the current account surplus of a creditor country, the higher the cost of an exit, due to a potentially higher currency appreciation. On this metric Italy sits roughly in the middle as shown below.

Most importantly, this means that as a result of Italy’s decent current account surplus, from a narrow current account adjustment point of view, its own cost of a euro exit should be relatively small.

And it’s not only Italy. What is remarkable in the chart above is that, with the exception of Greece, all peripheral countries were running current account balances last year, a huge change from the large current account deficits of 2009-2010 before the emergence of the euro debt crisis. This is also shown in the next chart, which depicts this significant adjustment in the savings position of peripheral countries which effectively converged to that of core countries.

Besides Target2 and the current account, another important reflection of the improvement in the savings position of peripheral countries has been what JPMorgan calls the “domestication” of their government debt. On one hand, this represented by the sharp decline in foreign banks’ exposure to Italian debt.

The offset, of course, is that as foreign banks dumped their Italian exposure, one particular hedge fund stepped up and bought it all: the European Central Bank, and in doing so, it presented Rome with even more leverage over the ECB, which ironically is headed by an Italian.


Furthermore, the next chart shows that the domestication of Euro area government bond markets has been even more acute for peripheral banks, whose share of non-domestic non-MFI bonds has been hovering close to 15% in recent years vs. a peak of close to 40% in 2006.

Here, JPMorgan points out one curious implication from these government bond market ownership trends, which is often overlooked: debt relief via Private Sector Involvement (PSI) becomes a less attractive option for an indebted peripheral country when most of the bonds are held domestically.  In other words, it is less practical to default on your sovereign debt if you are screwing far fewer foreign creditors, and most impairing your own population.

As JPMorgan puts it, “this narrows the options that a country has in terms of adjusting its economy within a monetary union.

Here some big picture observations: within a monetary union, where currency depreciation and debt monetization are not possible – unless of course, there is divorce with said union – a country has effectively two options: default and internal devaluation.

Greece, for example,  has tried both: default via the Private Sector Involvement of 2012 and internal devaluation – i.e., collapsing wages, rising current account – via the Troika’s ongoing adjustment program.

And here things get interesting, because according to JPM calculations, the various Greek defaults, also known technically as Private Sector Involvements, provided a net debt relief to Greece of around €67bn or 33% of GDP (even though Greek debt/GDP still remains stratospheric and, as the IMF will remind on regular occasions, is unsustainable.

Applying the same haircut and PSI assumptions (i.e. only general government bonds are subjected to haircuts), the net debt relief to Italy from haircuts on non-domestic holders would be only €267bn or 15% of GDP. In other words, such a cost/benefit analysis of an effective default debt haircut suggests that a Greek-style PSI would be rather unattractive for Italy. Of course, one could imagine a wider restructuring than the Greek PSI, e.g. by including loans and regional or local government debt, but surely such an option would be more difficult to negotiate or keep voluntary and would present greater legal challenges. There are, of course, other far more structural challenges, namely that it is virtually impossible that what worked for Greece, will never work for Italy, where the associated numbers are orders of magnitude higher.

So with little to gain from a default, as indicated in the above analysis, Italy is left with just one adjustment option: internal devaluation. Unfortunately, as JPM calculates, this internal devaluation is not tracking well in the case of Italy. This can be seen in the chart below, which shows the changes in unit labor costs, current account balances
and unemployment rates since 2009.

It also shows that Greece and Ireland have made the biggest adjustment so far, i.e. biggest decline in unit labour costs and current account deficits, while Italy has instead seen a rise in unit labour costs since 2009. In other words, ten years since the Lehman crisis and six years since the euro debt crisis and Italy’s labour cost adjustment has not even begun, and if it does, it is safe to say that Rome faces a political crisis the likes of which it has not seen in a long time.

Putting this all together, the lack of any internal devaluation so far and the unattractiveness of a Greek style PSI leave limited options to Italy to adjust within the monetary union.

This, coupled with Italy’s massive Target2 imbalance which becomes an instant asset the moment the country decides to exit the Eurozone and never repay it much to the chagrin of Mario Draghi, together with a decent current account surplus – one which would only soar should Italy revert to the lira supercharging the country’s exports, which as explained above reduces the own cost of exiting the euro from a narrow current account adjustment point of view, will likely continue to make the country vulnerable to populist pressures to exit the monetary union.

That is the gloomy, if stunning, JPMorgan conclusion, although as a hedge, the bank also notes that the road to Quitaly, as the Greek fiasco in 2015 showed all too clearly, would be anything but easy and neither Brussles nor the ECB would go down without a fight. JPMorgan also notes that the above take also ignores other potential costs from an exit highlighted by the market reaction this week, such as the possibility that it could trigger a broader crisis and, if the Greek script is repeated, capital controls.

Then again, if Italy ever got to the point where lines of panicked depositors form outside Italian banks a la Greek summer of 2015, one can wave goodbye to the euro and the European experiment.

Here’s Where Californians Are Moving To Escape Skyrocketing Prices

A new report using property searches and census data from reveals which states Californians are moving to when they realize that a $1.4 million McMansion on 1/16th of an acre while staring into their fat neighbor’s bedroom window just isn’t all it’s cracked up to be. 

Silicon Valley residents in particular are leaving in droves – more so than any other part of the state. Nearby San Mateo County which is home to Facebook came in Second, while Los Angeles County came in third.

They’re looking for affordability and not finding it in Santa Clara County,” said Danielle Hale, chief economist for

A tight housing supply combined with nearly a decade of exploding home values have pushed housing prices and rents through the roof. Take, for example, this 848 square foot home on Plymouth Drive in Sunnyvale, CA (which in the 90’s was the “poor” part of town vs. nearby Mountain View and Los Altos). 

After being listed in March for $1.45 million, it sold within 48 hours for $2 million, or $2,358 per square foot. With Sunnyvale’s 1.25% property tax, the new owners are paying $2,083 per month, or $250,000 every 10 years

The housing crunch has inspired a flurry of state legislation designed to boost new home construction and eventually lower prices, “including a sweeping proposal to add millions of homes by public transit. It died in April, but its author, Sen. Scott Wiener, D-San Francisco, has vowed to try again next year,” writes Kathy Murphy in the Mercury News.

As Michael Snyder of the Economic Collapse Blog pointed out in May…

Reasons for the mass exodus include rising crime, the worst traffic in the western world, a growing homelessness epidemic, wildfires, earthquakes and crazy politicians that do some of the stupidest things imaginable.  But for most families, the decision to leave California comes down to one basic factor…


It’s not just housing prices driving the exodus, of course. Punitive taxes – more than twice as much as some other states, are eating away at disposable income. Nearby Arizona’s income tax rate is 4.54% vs. California’s 9.3%, while the new tax bill may accelerate the exodus.

As Snyder notes:

“But now the new tax bill has made some major changes, and some experts believe that this will actually accelerate the exodus out of the state of California.  The following comes from CNBC…”

In an op-ed in the Wall Street Journal headlined “So Long, California. Sayonara, New York,” Laffer and Moore (who have both advised President Donald Trump) say the new tax bill will cause a net 800,000 people to move out of California and New York over the next three years.

The tax changes limit the deduction of state and local taxes to $10,000, so many high-earning taxpayers in high-tax states will actually face a tax increase under the new tax code.

So where are people going?

The top destination for Bay Area residents is either a cheaper part of the state such as Alameda, Sacramento, San Juaquin or Placer counties, where homes can be found for $500K – $894K less than Santa Clara. Silicon Valley residents heading out of state are setting up camp in Arizona, Nevada, Idaho and Texas. 

And as South Bay Silicon Valley residents in particular are flocking to nearby Alameda County – one of the top destinations for in-state moves, Alameda County residents are being pushed further east to lower-cost Contra Costa, San Juaquin, Sacramento and Placer counties. 

Meanwhile, the median home price in Sacramento County — $357,000 — has risen each month for the past six years, the Sacramento Bee reported last week, jumping by 12 percent in the past year. –Mercury News

Here are the top 10 California counties that people are leaving, and where they’re headed... ( via the Mercury News.)

1. Santa Clara County

Out of state destinations: Arizona, Nevada, Texas and Idaho

In state destinations: Alameda, Sacramento, San Joaquin, Santa Cruz and Placer counties

2. San Mateo County

Out of state destinations: Arizona, Nevada, Texas and Washington

In state destinations: Alameda, Contra Costa, Santa Clara, Sacramento, and San Francisco counties

3. Los Angeles County

Out of state destinations: Nevada, Arizona, and Idaho

In state destinations: San Bernardino, Riverside, Ventura and Kern counties

4. Napa County

Out of state destinations: Arizona, Idaho, Nevada, Florida and Oregon

In state destinations: Solano, Sonoma, Sacramento, Lake and El Dorado counties

5. Monterey County

Out of state destinations: Arizona, Nevada, and Idaho

In state destinations: San Luis Obispo, Fresno, Santa Cruz, Sacramento and San Diego counties

6. Alameda County

Out of state destinations: Arizona, Nevada, Idaho, and Hawaii.

In state destinations: Contra Costa, San Joaquin, Sacramento, Placer, and El Dorado counties

7. Marin County

Out of state destinations: Nevada, Arizona, Oregon and Idaho.

In state destinations: Sonoma, Contra Costa, Solano and San Francisco counties

8. Orange County

Out of state destinations: Arizona, Nevada and Idaho

In state destinations: Riverside, Los Angeles, San Bernardino, San Diego and San Luis Obispo

9. Santa Barbara County

Out of state destinations: Arizona, Nevada and Idaho.

In state destinations: San Luis Obispo, Ventura, Los Angeles, Riverside and Kern counties

10. San Diego County

Out of state destinations: Arizona and Nevada

In state destinations: Riverside, San Bernardino, Imperial, Orange County and Los Angeles

The Happytime Murders

Crude & hilarious: THE HAPPYTIME MURDERS is a filthy comedy set in the seedy underbelly of Los Angeles where puppets and humans coexist. Two clashing detectives with a shared secret, one human (Melissa McCarthy) and one puppet, are forced to work together again to solve the brutal murders of the former cast of a beloved…

Read More

The post The Happytime Murders appeared first on The Big Picture.

The American Empire & Its Media

Via Swiss Propaganda Research,

Largely unbeknownst to the general public, executives and top journalists of almost all major US news outlets have long been members of the influential Council on Foreign Relations (CFR). 

Established in 1921 as a private, bipartisan organization to “awaken America to its worldwide responsibilities”, the CFR and its close to 5000 elite members have for decades shaped U.S. foreign policy and public discourse about it. As a well-known Council member once explained, the goal has indeed been to establish a global Empire, albeit a “benevolent” one.

Based on official membership rosters, the following illustration for the first time depicts the extensive media network of the CFR and its two main international affiliate organizations: the Bilderberg Group(covering mainly the U.S. and Europe) and the Trilateral Commission (covering North America, Europe and East Asia), both established by Council leaders to foster elite cooperation at the international level.

In a column entitled “Ruling Class Journalists”, former Washington Post senior editor and ombudsman Richard Harwood once described the Council and its members approvingly as “the nearest thing we have to a ruling establishment in the United States”.

Harwood continued:

“The membership of these journalists in the Council, however they may think of themselves, is an acknowledgment of their active and important role in public affairs and of their ascension into the American ruling class. They do not merely analyze and interpret foreign policy for the United States; they help make it. 

They are part of that establishment whether they like it or not, sharing most of its values and world views.”

However, media personalities constitute only about five percent of the overall CFR network. As the following illustration shows, key members of the private Council on Foreign Relations have included:

  • several U.S. Presidents and Vice Presidents of both parties;

  • almost all Secretaries of State, Defense, and the Treasury;

  • many high-ranking commanders of the U.S. military and NATO;

  • almost all National Security Advisors, CIA Directors, Ambassadors to the U.N., Chairs of the Federal Reserve, Presidents of the World Bank, and Directors of the National Economic Council;

  • some of the most influential Members of Congress (notably in foreign & security policy matters);

  • many top jounalists, media executives, and entertainment industry directors;

  • many prominent academics, especially in key fields such as Economics, International Relations, Political Science, History, and Journalism;

  • many top executives of Wall Street, policy think tanks, universities, and NGOs;

  • as well as the key members of both the 9/11 Commission and the Warren Commission (JFK)

Eminent economist and Kennedy supporter, John K. Galbraith, confirmed the Council’s influence: “Those of us who had worked for the Kennedy election were tolerated in the government for that reason and had a say, but foreign policy was still with the Council on Foreign Relations people.”

And no less than John J. McCloy, the longtime chairman of the Council and advisor to nine U.S. presidents, told the New York Times about his time in Washington: “Whenever we needed a man we thumbed through the roll of the Council members and put through a call to New York.”

German news magazine Der Spiegel once described the CFR as the “most influential private institution of the United States and the Western world“ and a “politburo of capitalism”. Both the Roman-inspired logo of the Council (top right in the illustration above) as well as its slogan (ubique – omnipresent) appear to emphasize that ambition.

In his famous article about “The American Establishment”, political columnist Richard H. Rovere noted:

“The directors of the CFR make up a sort of Presidium for that part of the Establishment that guides our destiny as a nation.

[I]t rarely fails to get one of its members, or at least one of its allies, into the White House. In fact, it generally is able to see to it that both nominees are men acceptable to it.”

Until recently, this assessment had indeed been justified. Thus, in 1993 former CFR director George H.W. Bush was followed by CFR member Bill Clinton, who in turn was followed by CFR “family member” George W. Bush. In 2008, CFR member John McCain lost against CFR candidate of choice, Barack Obama, who received the names of his entire Cabinet already one month prior to his election by CFR Senior Fellow (and Citigroup banker) Michael Froman. Froman later negotiated the TTP and TTIP free trade agreements, before returning to the CFR as a Distinguished Fellow.

It was not until the 2016 election that the Council couldn’t, apparently, prevail. At any rate, not yet.

Trump Auto Tariffs Would Be “Net Negative” – Destroy 157,000 American Jobs

New tariffs on imported automobiles and parts under consideration by President Trump could threaten more than 157,000 American jobs, according to a recent policy briefing published by the Trade Partnership WorldWide, an international trade and economic consulting firm.

President Donald Trump talks with auto industry leaders, including General Motors CEO Mary Barra (4th L) and United Auto Workers (UAW) President Dennis Williams (4th R) at the American Center for Mobility in Michigan in March 2017. (Source: Reuters) 

The six-page policy report said automobile tariffs introduced by President Trump would ultimately be detrimental to American workers. The organization analyzed the potential net impacts on American jobs and the economy from a 25 percent tariffs imposed on U.S. imports from all trading partners of automobiles, lightweight trucks, other vehicles, and parts.

“We find that the tariffs would have a very small positive impact on high-skilled workers in the motor vehicle and parts sectors, but very large negative impacts on workers – both high- and lower-skilled – in other sectors of the economy. Overall, U.S. economic output would decline,” the report warned.

The organization’s models indicate that Trump’s auto tariffs would boost employment in the auto sector by about 92,000, however, then eliminate 250,000 jobs across many industries throughout the broad economy. On top of that, American consumers will dish out about $6,400 more for an imported automobile that would cost around $30,000, which accounts for nearly a 21 percent increase in overall price. All in all, the report stated the economy would lose about .01 percent of its value if the auto tariffs were enacted. The study found:

  • The tariffs would result in a net loss of 157,000 U.S. jobs. A net loss of 250,000 jobs in the rest of the economy would more than offset an increase in U.S. motor vehicle and parts sector employment of 92,000 jobs.

  • About three jobs would be lost for every job gained in the motor vehicle and parts sector.

  • GDP would decline by 0.1 percent as higher costs, net job losses, and declines in producer and consumer spending power work their ways through the economy

  • Tariffs would add about $6,400 to the price of an imported $30,000 car.

The briefing notes that its trade analysts did not take into account any potential retaliation measures by American trade partners for the tariffs.

Table 1. U.S. Macroeconomic Effects of 25% Tariffs on Motor Vehicles and Parts

“Table 1 shows that the tariffs are estimated to cause a net decline in the output of the U.S. economy of 0.1 percent in the time frame considered here. The decline results from higher costs that ripple through the economy, making U.S. exports less competitive, and new car purchases more expensive, for example.”

 (Source: Trade Partnership WorldWide)

“Tariffs would reduce GDP by $18 billion and overall U.S. exports by nearly 2 percent annually,” the report stated.

Tariffs will increase prices for both imported vehicles and the U.S.- made cars with foreign components.

 (Source: Trade Partnership WorldWide)

Table 2. Net Number of U.S. Jobs Impacted by 25% Tariffs on Motor Vehicles and Parts (Number). 

“Table 2 summarizes the estimated net job impacts. Overall, 157,291 net jobs would be lost, including 45,450 jobs in nonmotor vehicle manufacturing sectors. Most job losses would come from services sectors that feel the impacts of the tariffs as the U.S. economy slows. Many of those services jobs are tied to production in manufacturing sectors that are negatively impacted by higher costs for motor vehicles and parts – trade and distribution, construction, and high-skilled business and professional services. Within the motor vehicle and parts increase, just 17,676 of them – or 19 percent – are the higher-skilled jobs the Administration cited in launching the review.”

The report concludes that President Trump’s automobile tariffs would be an overall “net negative” for American jobs and the economy.

“Motor vehicle and parts tariffs of 25 percent would have serious net negative impacts on the U.S. economy overall. They would adversely impact many workers in manufacturing sectors, and hundreds of thousands of workers in services sectors that depend on the health of manufacturing. The tariffs would boost automobile prices, both domestic and imported. If supporting jobs and strengthening the economy are the motivations for invoking national security reasons for imposing protection, such tariffs would have the opposite impact from that intended.”

President Trump’s threat of stoking a trade war between its trading partners is unsettling. The administration has threatened 25 percent tariffs on Chinese products, steel and aluminum tariffs on Europe, and has attempted to renegotiate the North American Free Trade Agreement (NAFTA) with Canada and Mexico.

Trade organization and politicians who back free trade have been radically opposed to the administration’s trade tariff proposals.

“Extending the reach of these tariffs and quotas to additional countries is certain to provoke widespread retaliation from abroad and would put at risk the economic momentum achieved through the administration’s tax and regulatory reforms. We urge the administration to take this risk seriously,” U.S. Chamber of Commerce Executive Vice President Myron Brilliant said Wednesday.

The cautionary tale of the Smoot–Hawley Tariff Act of 1930 exacerbated the Great Depression as retaliatory tariffs by America’s trading partners reduced global growth. In a Central Bank induced economic expansion that is now entering the second longest cycle — and nearing the latter innings of the credit cycle. President Trump’s proposed trade war with trading partners might not be the best solution this late in the game if history means anything.

Amid “Russiagate” Hysteria, What Are The Facts?

Authored by Jack Matlock via The Nation,

We must end this Russophobic insanity…

“Whom the gods would destroy, they first make mad.”

That saying – often misattributed to Euripides – comes to mind most mornings when I pick up The New York Times and read the latest “Russiagate” headlines, which are frequently featured across two or three columns on the front page above the fold. This is an almost daily reminder of the hysteria that dominates our Congress and much of our media.

A glaring example, just one of many from recent months, arrived at my door on February 17. My outrage spiked when I opened to the Times’ lead editorial: “Stop Letting the Russians Get Away With It, Mr. Trump.” I had to ask myself:

“Did the Times’ editors perform even the rudiments of due diligence before they climbed on their high horse in this long editorial, which excoriated ‘Russia’ (not individual Russians) for ‘interference’ in the election and demanded increased sanctions against Russia ‘to protect American democracy’?”

It had never occurred to me that our admittedly dysfunctional political system is so weak, undeveloped, or diseased that inept internet trolls could damage it. If that is the case, we better look at a lot of other countries as well, not just Russia!

The New York Times, of course, is not the only offender. Their editorial attitude has been duplicated or exaggerated by most other media outlets in the United States, electronic and print. Unless there is a mass shooting in progress, it can be hard to find a discussion of anything else on CNN. Increasingly, both in Congress and in our media, it has been accepted as a fact that “Russia” interfered in the 2016 election.

So what are the facts?

  1. It is a fact that some Russians paid people to act as online trolls and bought advertisements on Facebook during and after the 2016 presidential campaign. Most of these were taken from elsewhere, and they comprised a tiny fraction of all the advertisements purchased on Facebook during this period. This continued after the election and included organizing a demonstration against President-elect Trump.

  2. It is a fact that e-mails in the memory of the Democratic National Committee’s computer were furnished to Wikileaks. The US intelligence agencies that issued the January 2017 report were confident that Russians hacked the e-mails and supplied them to Wikileaks, but offered no evidence to substantiate their claim. Even if one accepts that Russians were the perpetrators, however, the e-mails were genuine, as the US intelligence report certified. I have always thought that the truth was supposed to make us free, not degrade our democracy.

  3. It is a fact that the Russian government established a sophisticated television service (RT) that purveyed entertainment, news, and—yes—propaganda to foreign audiences, including those in the United States. Its audience is several magnitudes smaller than that of Fox News. Basically, its task is to picture Russia in more favorable light than has been available in Western media. There has been no analysis of its effect, if any, on voting in the United States. The January 2017 US intelligence report states at the outset, “We did not make an assessment of the impact that Russian activities had on the outcome of the 2016 election.” Nevertheless, that report has been cited repeatedly by politicians and the media as having done so.

  4. It is a fact that many senior Russian officials (though not all, by any means) expressed a preference for Trump’s candidacy. After all, Secretary of State Hillary Clinton had compared President Putin to Hitler and had urged more active US military intervention abroad, while Trump had said it would be better to cooperate with Russia than to treat it as an enemy. It should not require the judgment of professional analysts to understand why many Russians would find Trump’s statements more congenial than Clinton’s. On a personal level, most of my Russian friends and contacts were dubious of Trump, but all resented the Clinton’s Russophobic tone, as well as those made by Obama from 2014 onward. They considered Obama’s public comment that “Russia doesn’t make anything” a gratuitous insult (which it was), and were alarmed by Clinton’s expressed desire to provide additional military support to the “moderates” in Syria. But the average Russian, and certainly the typical Putin administration official, understood Trump’s comments as favoring improved relations, which they definitely favored.

  5. There is no evidence that Russian leaders thought Trump would win or that they could have a direct influence on the outcome. This is an allegation that has not been substantiated. The January 2017 report from the intelligence community actually states that Russian leaders, like most others, thought Clinton would be elected.

  6. There is no evidence that Russian activities had any tangible impact on the outcome of the election. Nobody seems to have done even a superficial study of the effect Russian actions actually had on the vote. The intelligence-community report, however, states explicitly, “the types of systems we observed Russian actors targeting or compromising are not involved in vote tallying.” Also both former FBI director James Comey and NSA director Mike Rogers have testified that there is no proof Russian activities had an effect on the vote count.

  7. There is also no evidence that there was direct coordination between the Trump campaign (hardly a well-organized effort) and Russian officials. The indictments brought by the special prosecutor so far are either for lying to the FBI or for offenses unrelated to the campaign such as money laundering or not registering as a foreign agent.

So, what is the most important fact regarding the 2016 US presidential election?

The most important fact, obscured in Russiagate hysteria, is that Americans elected Trump under the terms set forth in the Constitution. Americans created the Electoral College, which allows a candidate with the minority of popular votes to become president. Americans were those who gerrymandered electoral districts to rig them in favor of a given political party. The Supreme Court issued the infamous Citizens United decision that allows corporate financing of candidates for political office. (Hey, money talks and exercises freedom of speech; corporations are people!) Americans created a Senate that is anything but democratic since it gives disproportionate representation to states with relatively small populations. It was American senators who established non-democratic procedures that allow minorities, even sometimes single senators, to block legislation or confirmation of appointments.

Now, that does not mean that Trump’s presidency is good for the country just because Americans elected him. In my opinion, the 2016 presidential and congressional elections pose an imminent danger to the republic. They have created potential disasters that will severely try the checks and balances built into our Constitution. This is especially true since both houses of Congress are controlled by the Republican Party, which itself represents fewer voters than the opposition party.

I did not personally vote for Trump, but I consider the charges that Russian actions interfered in the election, or – for that matter – damaged the quality of our democracy ludicrous, pathetic, and shameful.

Ludicrous” because there is no logical reason to think that anything that the Russians did affected how people voted. In the past, when Soviet leaders tried to influence American elections, it backfired—as foreign interference usually does everywhere. In 1984, Yuri Andropov, the then Soviet leader made preventing Ronald Reagan’s reelection the second-most-important task of the KGB. (The first was to detect US plans for a nuclear strike on the Soviet Union.) Everything the Soviets did—in painting Reagan out to be a warmonger while Andropov refused to negotiate on nuclear weapons—helped Reagan win 49 out of 50 states.

Pathetic” because it is clear that the Democratic Party lost the election. Yes, it won the popular vote, but presidents are not elected by popular vote. To blame someone else for one’s own mistakes is a pathetic case of self-deception.

Shameful” because it is an evasion of responsibility. It prevents the Democrats, and those Republicans who want responsible, fact-based government in Washington, from concentrating on practical ways to reduce the threat the Trump presidency poses to our political values and even to our future existence. After all, Trump would not be president if the Republican Party had not nominated him. He also is most unlikely to have won the Electoral College if the Democrats had nominated someone—almost anyone—other than the candidate they chose, or if that candidate had run a more competent campaign. I don’t argue that any of this was fair, or rational, but then who is so naive as to assume that American politics are either fair or rational?

Instead of facing the facts and coping with the current reality, the Russiagate promoters in both the government and the media, are diverting our attention from the real threats.

I should add “dangerous” to those three adjectives. “Dangerous” because making an enemy of Russia, the other nuclear superpower—yes, there are still two—comes as close to political insanity as anything I can think of. Denying global warming may rank up there too in the long run, but only nuclear weapons pose, by their very existence in the quantities that are on station in Russia and the United States, an immediate threat to mankind—not just to the United States and Russia and not just to “civilization.” The sad, frequently forgotten fact is that since the creation of nuclear weapons, mankind has the capacity to destroy itself and join other extinct species.

In their first meeting, President Ronald Reagan and then General Secretary Mikhail Gorbachev agreed that “a nuclear war cannot be won and must never be fought.” Both believed that simple and obvious truth and their conviction enabled them to set both countries on a course that ended the Cold War. We should think hard to determine how and why that simple and obvious truth has been ignored of late by the governments of both countries.

We must desist from our current Russophobic insanity and encourage Presidents Trump and Putin to restore cooperation in issues of nuclear safety, non-proliferation, control of nuclear materials, and nuclear-arms reduction. This is in the vital interest of both the United States and Russia. That is the central issue on which sane governments, and sane publics, would focus their attention.

“Uncomfortable” Starbucks Employees Respond To Becoming “World’s Biggest Public Toilet”

Starbucks employees are bristling after being forced to sit through an entire day of training on racial bias on Tuesday, following an April incident in which a Philadelphia manager called the police on a pair of black men who were sitting in the store without having purchased anything, which sparked a nationwide protest and culminated with Starbucks becoming “America’s largest public toilet.”

In order to atone for the now-fired manager’s poor judgement, Starbucks rolled out a new “inclusiveness” policy – shuttering 8,000 locations for a day of “Color Brave” training which included several documentary videos, notebooks for employees to record their “private thoughts,” and a 68-page employee guidebook which teaches employees about topics such as institutional racism and the history of prejudice. 

According to the WSJ, “they also listened to a series of audio recordings of Starbucks employees describing interactions they have had with customers in which their own biases became apparent.”

The whole thing made many employees, especially African Americans, highly uncomfortable.

I don’t think Starbucks realized how uncomfortable it would be for people of color to have to watch these videos and talk about this,” said biracial shift supervisor Jamie Prater to the Journal, adding “But sometimes we need to be uncomfortable.”

“Cordell Lewis, manager of the Ferguson, Mo., Starbucks, was among the employees who said the training seemed to make some African-Americans uncomfortable. He said he could see employees’ shoulders tighten as they leaned forward in their chairs.”

The company’s new inclusiveness training also warned employees not to accidentally mistake scruffy looking husbands for homeless men.

In one, an employee recalled seeing a scruffy-looking man approach a woman in line and hold out his hand to her, after which the woman got money out of her purse. The employee said she went up to the man and told him panhandling isn’t allowed in the store. The woman informed her the man was her husband.

As we noted yesterday, Starbucks rolled back a key provision in their new “inclusiveness” policy which would allow vagrants to use the coffee chain as a homeless shelter. 

On occasion, the circumstances of a customer’s disruptive behavior may make it necessary to prohibit that customer from returning to our stores.

And while the “inclusiveness” training taught employees about institutional racism and not to discriminate against the homeless, others – predictably – felt Starbucks wasn’t inclusive enough.

Mr. Lewis, who is biracial, also said the emphasis on relations between black and white people left some employees feeling excluded, something he raised with company leaders. “I have trans partners and Philippine partners, and they were like, ‘What about me?’”

Yet other employees were turned off by the whole thing.

One black barista in Connecticut told The Journal “it’s just to save face. It doesn’t mean anything.” Another barista from Ohio who is white said that he found the training “wishy-washy,” and that “I went in with an open mind. I was hoping we’d go through scenarios of how customers might feel in certain scenario and how to make them not feel that way.” 

Still, some white employees found the training eye-opening.

Krystie Ward, a barista in Patchogue, N.Y., said Tuesday’s training was enlightening, particularly a short documentary produced for Starbucks by filmmaker Stanley Nelson Jr. that detailed the history of access to public spaces for African-Americans. It featured a black man describing how he is often followed around stores by employees who suspect he is going to steal something. He said he has to be aware of the way he acts every time he leaves his house, like making sure to keep his hands visible in certain places.

“That was really powerful to me, because I couldn’t imagine living my life like that,” said Ward, who is white.

* * *

Starbucks said there will be continuing education around diversity and bias, but the company hasn’t shared details of what that will entail. in doing so, it risks alienating the silent majority of employees who are already on the fence about the company’s virtue signalling policies:

“The baristas are already doing five or 10 things, including taking out the garbage and cleaning the bathrooms,” said Prater. “We’re already struggling to provide the bare minimum of customer service, so when you throw in this, how do we even do this? This is a lot.”

De-Dollarization Escalates: “African Economy Needs More Usage Of Chinese Yuan”

The world’s push towards de-dollarization continues to accelerate as Americans go about their daily lives worrying more about blasphemous comedians, participation trophies, and Kim and Kanye’s traitorous behavior.

From yuan-denominated oil futures (and soon to be yuan-denominated metals contracts) to Europe’s decision to use Yuan to pay for Iranian oil; and from non-dollar settlement systems for Russia/Chinese trade to Turkey’s call for citizens to dump the dollar, it appears each action of the Trump administration deepens the distrust in the dollar hegemony, coalescing the world against Washington’s reserve currency unipolar order.

All of which leads to this…

In a well-placed interview in China’s Xinhua news – the official press agency of the People’s Republic of China – officials from Africa are seen calling for more yuanification of the massive continent’s economies.

There has been a general consensus among some eastern and southern African countries that there should be more usage of the Chinese yuan in the region because of China’s growing influence in business and trade, a financial expert said Thursday.

Executive director of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) Caleb Fundanga said a forum for financial experts earlier in the week had agreed that there was need to use the Chinese yuan as a reserve currency because China was playing an active role in their economies.

The forum was attended by deputy central bank governors and deputy permanent secretaries of finance from 14 countries that fall under MEFMI.

“The general conclusion is that we should use the yuan more because its time has come. We are doing more business (with China) so it’s natural that we use the currency of the country with which we are trading.

“Just the way we have been using the (U.S.) dollar and the Euro, we want to use the Chinese currency more in our transactions because it is to our benefit,” he said.

He said use of the yuan could protect the region from currency volatilities.

The forum had also discussed the implications of using the Chinese currency and agreed that there was need for more information on markets and products on which it could be invested.

“At the moment that information is not freely available,” he said, suggesting further that Chinese financial experts should make the information available at such fora.

Fundanga said the coming in of the yuan would give the region more options for managing its reserves.

The use of the yuan also came in handy because China was giving loans to the region and other African countries.

“One of the issues we discussed though was that sometimes if you have borrowed from China they want to bill you in U.S. dollars. Now we are saying our government must start discussing with Chinese enterprises (and) government so that we’re billed in yuan and then we can pay in yuan. Because there is no point if we start keeping our reserves in yuan but we’re billed in dollars. It is no good,” he said.

He acknowledged, however, that some countries were already being billed in yuan for Chinese goods and services.

Fundanga said there was also discussion on possible currency swaps like what China had done with Nigeria, where Nigerians travelling to China could easily access the yuan from their local banks.

MEFMI argues that the bulk of reserves for most countries in the region are invested in U.S. dollars, yet their composition has not kept pace with the large shifts in the world economy. This is particularly so since China and India continue to shape global economic trends as they remain major trade partners for the region.

MEFMI countries comprise Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

*  *  *

Bear in mind that we began to warn of China’s growing ‘colonization’ of Africa back in 2010, noted China’s increasing militarization of Africa in 2015, and recent warnings from US Generals that China and US are “on a collision course in Africa,” it appears President Trump’s “old friend” Xi is quietly making massive moves against the prevailing status quo.

Is the tide turning on the USDollar’s reserve status? Remember, nothing lasts forever

Even The World Bank’s former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.

“The dominance of the greenback is the root cause of global financial and economic crises,” Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. “The solution to this is to replace the national currency with a global currency.”