Sunday, February 13, 2011

Algeria shuts down internet and Facebook as protest mounts

From the UK Telegraph:

Internet providers were shut down and Facebook accounts deleted across Algeria on Saturday as thousands of pro-democracy demonstrators were arrested in violent street demonstrations.

Plastic bullets and tear gas were used to try and disperse large crowds in major cities and towns, with 30,000 riot police taking to the streets in Algiers alone.

There were also reports of journalists being targeted by state-sponsored thugs to stop reports of the disturbances being broadcast to the outside world.

But it was the government attack on the internet which was of particular significance to those calling for an end to President Abdelaziz Boutifleka's repressive regime.

Protesters mobilising through the internet were largely credited with bringing about revolutions in Egypt and Tunisia.......read on

Escaping the Great Depression - And Extending the Greater Depression

Doug Casey, The Casey Report
Here at Casey Research, our view of the Great Depression of the 1930s is a little different from that of most people. In our eyes, Franklin Roosevelt wasn't a hero, he was a villain. Nearly everything he did served to extend and deepen the economic downturn.

With the exception of supporting the 21st Amendment for the repeal of Prohibition, Roosevelt's involvement in the economy was an unmitigated disaster. But in popular memory, that failure is obscured by U.S. success in WW2, over which Roosevelt presided.

Today, unfortunately, Obama and his minions are taking Roosevelt as a model and are straining to repeat his mistakes. Because the distortions in today's economy are far greater than those in the 1920s and 1930s, and since the public now relies upon government far more than it did in those days, I don't see any way around a more serious depression - the Greater Depression. It's been going on since 2008, will get much worse, and has years left to run.

FDR himself was extraordinarily lucky. His performance looks successful because when he entered office, both the economy and the stock market were overdue for a cyclical recovery (nothing goes straight down forever). He was elected when the depression had already been going on for four years and the stock market had already fallen 90%. That fortunate timing was partly a gift from Hoover, whose large-scale interference in the economy had kept the depression going. (It's odd how people believe Hoover was the free-marketeer and Roosevelt was the interventionist. Roosevelt really just continued and extended Hoover's policies, but with more enthusiasm and far better PR.)

Roosevelt had more good luck (for him) with the arrival of WW2; the victories in Europe and the Pacific forever idealized every aspect of his administration. In many ways, the cult of FDR resembles that of Russia's Joseph Stalin, who is still worshipped there as a demigod.

Although Obama seems bright enough, there's little reason to believe he's a student of history and no reason to believe he's a student of economics. It's more likely that he's just a student of power politics, so he's inclined to follow the conventional wisdom, which is that a combination of Roosevelt's "bold action" in the New Deal plus World War 2 brought the country out of the Great Depression. What we hope to show here is that those notions are nonsense.

The Last Depression

How, in fact, did America recover from the Great Depression? The stock answer is: "World War 2." But a closer look at the data reveals a different answer.

Standard mythology claims that war production - beginning in 1939 - ended our economic troubles. But the American economy didn't truly recover until two years after the fighting stopped in 1945. In point of fact, the last depression ran from 1929 to 1947, about 18 years.

And it wasn't a single terrible decline. As the chart above shows, GDP growth was falling in 1930, recovered from 1932 to 1936, and then began a second collapse in 1937, a down-leg due mostly to Roosevelt's policies.

Then, in 1939, industrial production began a tremendous expansion. The unemployed were put to work either fighting or manufacturing armaments. But neither activity contributed to the general standard of living. And even if it had, the growth in production wasn't and couldn't have been self-sustaining, since it was in fact a growth in the squandering of resources.

The conventions for measuring GDP include government expenditures, so GDP is a poor measure of underlying economic health. The government might, for instance, hire 10 million people to dig ditches during the day, 10 million more to fill them in at night, and 5 million bureaucrats to monitor the work. That would pump up GDP and reduce unemployment, but it wouldn't increase society's wealth. It would decrease it.

In any event, as soon as the government's large wartime expenditures started dropping in 1945, GDP resumed the shrinking that had begun in 1930.

The GDP growth of the war years was a prosperity mirage that dissipated when government spending stopped, unlike the wealth-creating expansion from 1932 to 1936 that had been fueled by private investment. In 1936, GDP rose $10.5 billion while government spending rose just $2.2 billion. In 1942, GDP rose $35.2 billion while government spending rose $36.1 billion. The apparent growth during the war was all government spending.

Roosevelt's Second Act

What caused the recovery to collapse in 1936?

One element was Roosevelt's attack on the rich. In 1935, he launched a barrage of new taxes, including a corporate income tax of 15%, a dividend tax, higher estate and gift taxes, and additional taxes on those earning more than $50,000. The top rate on individual income taxes rose to 79% in 1936, a large jump from 63% just the previous year.

On top of this, Roosevelt's rhetoric and actions turned increasingly anti-business. Roosevelt began to strongly support organized labor - which was nice for those who had union cards, but no help for those who didn't have the connections or skin color to get one, and great harm for the economy as a whole. His support got results. In 1935, there were only 3.8 million union members in the U.S. By 1941, there were about 10 million, approximately a quarter of the workforce.

The 1936 elections gave the country de facto one-party rule - 76 Democrats in the Senate and 331 Democrats in the House of Representatives. Each new piece of legislation berated and punished business - such as the Wagner Act, the ever higher taxing Revenue Acts, and Undistributed Profits Tax. With the government growing larger while business lacked strong representation in the halls of power, it is no wonder that private investment stalled.

Government Versus Private Investment

Government expenditure as a percentage of GDP drives the point home even more. Throughout World War 2, the private market remained in the dumps.

War spending added to the GDP numbers. And there was real progress in areas like aviation, electronics, and atomic energy - albeit at a gigantic cost. But none of this jump-started the private economy, which focuses on the products and services people really want.

You don't need a doctorate in economics to understand this chart. The only major peak during the war marks the end of hostilities - and FDR's death. (We'll get to that in a moment). Note that the 1932-1936 recovery was far more significant than the often-glorified war economy.

Why didn't FDR's immense spending jolt the private market back to life? Remember that a wartime economy comes with strings attached; it's not free money. Wartime regulations made operating any business almost impossible. Nearly everything required government permission. Taxes skyrocketed, leaving less capital for investment. Further, forget about competing for resources with the war industry; even if you had a good business idea, you wouldn't be allowed to execute it.

An economy can't prosper when markets are being overruled by command-and-control rationing. During the war, companies found it easier and more profitable to produce for government than to produce for consumers. Even companies such as Eastman Kodak, the film and camera company, began manufacturing rifle scopes and hand grenades for the military. GM stopped making cars for civilians and made military vehicles instead. Tires, gasoline, shoes, beef, sugar, coffee and much else were rationed. The standard of living in the U.S. during the war collapsed; conditions for consumers were much worse than in the '30s. Remember that the best definition of a depression is: A period of time when most people's standard of living falls significantly.

Without productive private investment, recovery is impossible. Near the end of the war, as government spending subsided, private investment did return to the U.S. But that never happened in the USSR, China, or Eastern Europe, which is why they never did recover. Lack of private investment is why Britain remained something of a dump right up to the election of Thatcher. Wartime spending didn't help the recovery, it slowed it.

During the war, a majority of businessmen - typically over 75% - believed the U.S. would retain the fascist-style economic system that it had grown into during the '30s and that it seemed to be cemented into by the war. With that thought so widespread, the lack of private investment is no surprise.

But with the closing of WWII, the fear of being locked into a command-and-control economy began to ease - an unintended consequence of FDR's wiliness. FDR knew that the business world would cooperate in wartime production only if business leaders were running the show. He slowly began replacing New Dealers in his administration with the businessmen who had been squashed by New Deal policies. The new recruits worked behind the scenes in Washington to undo what the early New Dealers had accomplished. Necessity had overcome ideology.

On top of that, the Democrats were losing their grip on Congress. By 1944, they had only 56 senators and 242 representatives. In 1946, the Republicans regained both houses of Congress.

And FDR himself died, which left businessmen feeling a lot safer. The long dark night of anti-business tirades and crusades had ended. The Dow made a significant jump, and so did the daily volume on his death.

Sure, Truman was still around, but he didn't have Roosevelt's dangerous popularity. As a result, private investment flooded the post-war market, and a boom followed. Where did the capital to fuel the post-war boom come from? In a way, it was an accident of wartime policies.

During the war, the personal savings rate skyrocketed. There were plenty of reasons for that. For one, quality durable goods exempt from wartime rationing were difficult to find even if one wanted to buy them. Second, a big war creates uncertainty. If you're not sure whether a husband or father will return alive, saving makes sense. The importance of savings in the 1940s is a reason for pessimism about our prospects today: unlike during WW2, today's savings rate is still negligible. And the artificially low interest rates the government has engineered continue to discourage saving and to encourage consumption, debt, and speculation.

When the war ended, the accumulated savings supported both investing and consumer spending. It's an experience that refutes the Keynesian notion that consumer spending stimulates the economy and saving suppresses it.

You can't solve today's problem of overconsumption and debt with more overconsumption and debt. The conditions that pulled America out of the Great Depression underscore that point. Once savings rates increased and made capital available for the economy, private investment soared, and shortly afterward, so did the rest of the economy.

Although history doesn't repeat, this time it definitely rhymes. The Obama administration is trying to replay all of Roosevelt's moves, and it's making all of FDR's mistakes in spades and more. The Obama bailouts of public companies are a new twist - even FDR didn't go that far. The U.S. is already in a war economy. Will Obama ramp up the wars, thinking that what's been done so far isn't enough?

The bottom line is that, based on everything we know about the Great Depression, the Greater Depression, which is still in its early stages, is going to be nasty indeed.

Art Cashin discusses the current market action


Art Cashin discusses the current market action with Eric King of King World News.....listen here

Egypt: Hosni Mubarak used last 18 days in power to secure his fortune

Although as reported in this blog the panic to move his and his cronies assets' started a few weeks before the uprising.....read here

From the UK Telegraph:

Hosni Mubarak used the 18 days it took for protesters to topple him to shift his vast wealth into untraceable accounts overseas, Western intelligence sources have said.

The former Egyptian president is accused of amassing a fortune of more than £3 billion - although some suggest it could be as much as £40 billion - during his 30 years in power. It is claimed his wealth was tied up in foreign banks, investments, bullion and properties in London, New York, Paris and Beverly Hills.

In the knowledge his downfall was imminent, Mr Mubarak is understood to have attempted to place his assets out of reach of potential investigators.

On Friday night Swiss authorities announced they were freezing any assets Mubarak and his family may hold in the country's banks while pressure was growing for the UK to do the same. Mr Mubarak has strong connections to London and it is thought many millions of pounds are stashed in the UK.

But a senior Western intelligence source claimed that Mubarak had begun moving his fortune in recent weeks.

"We're aware of some urgent conversations within the Mubarak family about how to save these assets," said the source, "And we think their financial advisers have moved some of the money around. If he had real money in Zurich, it may be gone by now."............

A US official told The Sunday Telegraph: "There's no doubt that there will have been some frantic financial activity behind the scenes. They can lose the homes and some of the bank accounts, but they will have wanted to get the gold bars and other investments to safe quarters."

The Mubaraks are understood to have wanted to shift assets to Gulf states where they have considerable investments already – and, crucially, friendly relations. The United Arab Emirates and Saudi Arabia have frequently been mentioned as likely final destinations for Mr Mubarak and possibly his family............

Quite how much Mubarak has stashed away - and where he has hidden that fortune - in the past 30 years is open to speculation. His 69-year-old wife Suzanne Mubarak - known in some circles as the Marie Antoinette of Egypt - is half-Welsh while it is claimed the couple's two sons Gamal and Alaa may even have British passports.

Intelligence sources indicate that the Mubarak fortune may be most easily traced via the business dealings of Gamal Mubarak, 47.

He once lived in a six-storey house in Belgravia in central London and worked in banking before setting up an investment and consulting firm in London. He resigned as a director of the company 10 years ago.

The president made his two sons the "go to" men for any companies that sought to do business in Egypt...........It said it was routine for businesses to be required to hand a cut – between 20 to 50 per cent - to Gamal or Alaa simply to set up shop. Favoured entrepreneurs who worked with the brothers were given virtual monopolies in return.....read on

On the Edge with Catherine Austin Fitts

Max interviews Catherine Austin Fitts (GATA founding member). They talk revolution, Ben Bernanke and the US dollar being a unit of war.






Frost over the World

In a special compilation programme, Sir David Frost looks back at the highlights of the past few months, including an exclusive interview with Julian Assange and Raila Odinga, the Kenyan prime minister.


Swiss freeze Mubarak's loot

WASHINGTON (CNNMoney)

Switzerland's government moved Friday to freeze any assets in the country's banks that might belong to former Egyptian President Hosni Mubarak or his family, the Swiss Federal Department of Foreign Affairs said Friday.Mubarak ended his 30-year reign Friday, stepping down following 18 days of protests against his rule.

An official statement from the Swiss Federal Department of Foreign Affairs said the Swiss cabinet had frozen all funds belong to Mubarak or "his circles."

"The [government] intends in doing so to avoid any risk of embezzlement of Egyptian state property," the statement read. "At the same time, the cabinet calls on responsible authorities in Egypt to comply with the justified demands of the Egyptian people in a quick, credible, participatory and transparent manner."

The government does not know what assets, if any, the banks have, said Norbert Baerlocher, a spokesman for the Swiss embassy in Washington.

It is widely believed that Mubarak and his family are extremely wealthy, but estimates as to his total net worth vary widely and haven't been confirmed......read on

John Embry - The Silver Price is going to Explode

John Embry of Sprott Asset Management discusses gold, silver, bonds and the US$ with Eric King of King World News......listen here

Max Keiser Exclusive: Ireland, Art, Bono & Money

Good point Max raises about where the hell is Bono....as I asked in this post.

The Two Faces of Ben Bernanke


Peter Schiff
10 February 2011
Based on his recent public comments, Fed Chairman Bernanke seems determined to give the U.S. dollar the reputation of Egypt's Hosni Mubarak: an unwanted relic of the past that everyone agrees must go, but stubbornly clings to a privileged position. The dollar is currently the world's ruling currency, but, as with Mubarak, I believe that growing public discontent will spur regime change quicker than most pundits expect.

Clearly, the most significant problem facing central bankers around the world is the recent eruption of inflation, which is sparking unrest in Asia and the Middle East. With respect to this issue, Bernanke is alternating his responses through two different personas.

Sometimes he chooses to act like Baghdad Bob, the Iraqi Information Minister who, in the opening days of the 2003 invasion of Iraq, continued to deny the presence of American troops even as U.S. tanks rumbled behind him. The parallel to Bernanke's testimony to Congress today is striking.

Speaking to the House Budget Committee, Baghdad Ben not only claimed that there is no evidence of overall inflation in the U.S., but that even food and energy prices are rising less than 1% annually. This is simply not true. He then claimed that the Fed's massive QE purchases of U.S. Treasuries do not distort the yield curve, despite the fact that he has stated repeatedly that the program was specifically designed to lower long-term rates.

The reason behind these lies should be evident. Acknowledging inflationary threats would force him to raise rates. But Baghdad Ben knows that the current economic "expansion" is a lie built on a weak foundation of ultra-low interest rates. He knows that even marginally higher rates will trigger a savage return to recession. In his view, the only choice is to sell us an elaborate fiction - even when it obviously conflicts with the facts.

At other times, Chairman Bernanke assumes the persona of Marie Antoinette by professing regal indifference to how his own actions negatively impact the great unwashed. In a rare Fed press conference last week, Bennie Antoinette showcased this "let them eat cake" attitude by declaring that U.S. monetary policy is solely designed to benefit the U.S., and that any adverse consequences in other countries are not his problem. As a result, he broadly absolved the Fed of any blame for global inflation, putting it instead on foreign governments for not allowing their currencies to appreciate and for keeping their interest rates too low.

It is this type of attitude from our top monetary policy maker - to either deny inflation or to lay blame elsewhere - that will accelerate the day of reckoning for the dollar.

Amazingly, for all its flaws, the buck remains the world's reserve currency. So, for now, the U.S. continues to enjoy all the rights and privileges that come from that status, including lower consumer prices and lower interest rates. But along with those benefits comes the great responsibility of not conducting monetary policy in a vacuum. Since the dollar is the benchmark currency, when it is debased, other currencies must follow suit. Because of the massive printing effort underway for some time now, the dollar has gone from an instrument of stability to an instrument of inflation.

A reserve currency must not go on in perpetual decline. Since abandoning the dollar as a reserve implies radical change with unknown consequences, governments have been very reluctant to take the chance. So, they are acting to preserve the status quo. But, in so doing, they're creating inflation in their own countries. Unfortunately, this strategy may prove more risky in the end.

Other factors are also influencing foreign central bankers to stick with the devil they know. For one, as emerging markets compete to export to the United States, no one wants to surrender what it perceives to be its competitive advantage. None of these governments yet understand that if the dollar were to collapse, new customers would be instantly created in those countries whose currencies appreciate against the dollar.

Emerging markets also feel obligated to protect the value of the trillions of dollars that they already hold in reserve. Like traders throwing good money after bad, their instinct is to average down their cost of their position. The reality is that the more dollars they buy, the more they will ultimately lose. Once they realize that the rise in their own currency will more than offset their dollar losses, they will cut their losses and run.

When emerging-market governments decide they do not want to eat Bennie's cake, but rather keep their own bread prices from rising, they will have to pursue the tighter monetary policies. When that happens, the dollar will lose its reserve status.

When the rest of the world no longer links their currencies to ours, the Fed will truly not have to worry about fueling global inflation. Instead, all of its inflation will burn through our banks accounts right here at home. And that blaze, so concentrated, will burn a lot hotter than the fires we see abroad.

Peter Schiff is CEO of Euro Pacific Capital and host of The Peter Schiff Show.

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