The Return of the Debt Limit

Posted on March 17th, 2015

Debt Ceiling

By Romina Boccia

It’s March 16, 2015, and it is the day the debt limit returns—with a vengeance.

Since Congress suspended the debt limit for more than a year last February, the debt subject to the limit has grown by nearly $1 trillion, from $17.2 trillion to more than $18.1 trillion. A $900 billion increase in the national debt adds more than $2,800 in additional government debt for every American.

Over the past 13 years, the debt subject to the limit has increased by nearly $12 trillion. The largest share of this debt is called U.S. public debt. This is the debt the government has sold in credit markets to investors in the U.S. and abroad, including China, Japan, and European nation countries.

Public debt doubled since before the Great Recession, and is now at levels not seen since right after World War II. Now it’s at $41,000 for every American, and a child born in 2015 will be faced with a public debt of $142,000 by the time he or she leaves college, absent budget reforms.

The other part of the debt subject to the limit is debt that government agencies have borrowed from each other, like payroll taxes borrowed from the Social Security trust fund to fund other government spending. As these debts come due, the federal government sells more treasury securities in credit markets and over time more and more of the intragovernmental debt will become public debt.

Congress Should Cut Spending

Why does the debt matter? Extensive research shows that excessive debt burdens harm job growth and ultimately lower Americans’ personal incomes. Unless America changes course soon, younger and future generations will inherit a massive national debt and a less prosperous nation.

To help all Americans understand what our nation’s spending, debt, and taxes mean for them and their families—as well as what solutions can point the way forward—The Heritage Foundation’s Federal Budget in Pictures, released today, offers a unique tool to learn about these vital issues in a clear, compelling way.

In 21 easily accessible and downloadable charts, the Federal Budget in Pictures lays out who pays how much in taxes, where every federal dollar goes, which programs are growing and which are shrinking, and how high the debt will grow if Congress fails to reform the budget in time.

The 2015 Federal Budget in Pictures helps Americans understand the severity of the nation’s current fiscal situation. Lawmakers must make the tough choices to cut government spending, just as American households have trimmed back their own unnecessary spending in recent years.

As the new Congress debates its fiscal year 2016 budget it should seek to change the nation’s dangerous fiscal course, support a budget based on real constitutional priorities, and unshackle the enormous power of free people to create jobs, wealth, and prosperity.   (my emphasis)

By Romina Boccia for The Daily Signal

By permission The Daily Signal

http://dailysignal.com

http://dailysignal.com/2015/03/16/the-return-of-the-debt-limit/

Romina Boccia focuses on federal spending and the national debt as the Grover M. Hermann fellow in federal budgetary affairs in the Roe Institute for Economic Policy Studies at The Heritage Foundation.

Obama’s Proposal Would Make Effective Death Tax Rate as High as 68%

Posted on February 19th, 2015

Obama side view during SOTU speech

By Stephen Moore

President Obama’s proposed changes to inheritance and capital gains taxes could raise the estate tax rate in the U.S. to the highest in the industrialized world.

The plan, announced during the State of the Union address, would eliminate what is called “step-up basis at death” on capital gains taxation. And the top capital gains rate would jump to 28 percent from 20 percent.

Under current law, when a parent or grandparent dies, the increase in the valuation of his or her asset from when it was originally purchased is not taxed.

This is to offset the effects of the estate tax.

Obama’s plan would tax estates and impose the regular capital gains tax on inherited assets — a business, property or stocks.

This could bring the effective death tax rate to 57 percent, according to Dick Patten, chairman of the American Business Defense Council.

Including state inheritance taxes, the rate would average 65 percent but could go as high as 68 percent.

Of 38 industrialized countries tracked by Ernst & Young, only Belgium would have a higher death tax, at 80 percent. But Belgium provides a lower 60 percent rate to immediate family members.

Add in state estate taxes, and the U.S. would have the highest rate in the world. At least a dozen nations, including Sweden, Russia and China, impose no death tax at all.

The Obama proposal would raise about $200 billion over the next decade, according to White House projections. Spouses would not have to pay the tax, but other family members, including children, would.

‘Dagger’ For Family Firms

The Obama plan is effectively a dagger in the heart of family-owned businesses,” said Patten, who is leading an effort in Congress to eliminate the death tax altogether. “If the tax were to ever get this high, most family businesses would have to be sold at the time of death in order to pay the taxes owed. This seems almost un-American.”

In many plans to eliminate the estate tax entirely, the step-up basis at death on capital gains would go away. So heirs would have to pay only the capital gains tax rate (now 23.8%) on the increase in the valuation of an asset once it is sold.

What makes the Obama plan shocking to estate-tax planners is that he would tax the estates as capital gains and as an inheritance — a double-tax whammy.

Making matters worse, the new plan to soak the rich would continue to raise the capital gains tax. When he entered office, it was 15 percent. He imposed an income-tax surcharge of 3.8% to help pay for ObamaCare. Then he raised the rate an additional five percentage points as part of his tax increase on the rich in 2012.

Obama has proposed raising that 23.8 percent rate to 28 percent — the highest since the late 1980s and nearly double the rate when he entered office.

Not Just The 1 Percet

Obama has been trying to sell the plan on rich-vs.-poor rhetoric. The White House fact sheet on the plan begins by saying: “Our tax system has changed over time in ways that make it easier for the wealthy to avoid paying their fair share.”

The administration calls the step-up basis at death policy on capital gains “perhaps the single largest loophole in the entire individual income-tax code.”

What the White House has not acknowledged is that under its proposal to end the “trust fund loophole,” hundreds of thousands of families with small or midsize estates would get hammered with the Obama death tax, according to estate tax planners.

Under current law, estates of less than $5 million are exempt from estate taxation. Under Obama’s plan, the new capital gains tax on inherited assets would exempt only the first $200,000 of inherited assets for a married couple and only $100,000 for singles.

Take a daughter who inherits from her deceased father a family home worth $1 million. If she sells the home, and it has risen in value by, say, $500,000 from its original purchase price, the first $250,000 of gain is tax-free.

But the woman would have to pay a 28 percent tax on the rest of the $250,000 net gain. She would have to write a check to the IRS for about $70,000, whether she is rich or not. This means that many estates with an asset appreciation valuation of $250,000 to $5 million that are not currently subject to tax now could be.

“So much for only taxing millionaires and billionaires,” said Grover Norquist, president of Americans for Tax Reform. This looks like yet another Obama tax lie.”

For those who are rich, the combined estate and capital gains tax for major estates could reach more than 60%. “This isn’t fair,” Patten said, “because remember, the income was already taxed when it was originally earned.”

Steve Forbes of Forbes magazine calls the estate tax an indefensible double tax on family businesses. It runs contrary to the American ideal.” Meanwhile, Republicans in Congress are moving ahead aggressively with a plan to eliminate the estate tax altogether.

“This is Obama’s way to try to head off our estate-tax repeal legislation,” said one GOP staffer on Capitol Hill. “But we are very close to having the votes in the House and Senate now to get rid of this hated tax.”

Republicans point to a 2012 study by the Joint Economic Committee that found the estate tax has reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion since its introduction as a permanent tax in 1916.”

It also concluded the tax is an overwhelming cause of the dissolution of family businesses. The estate tax is a significant hindrance to entrepreneurial activity because many family businesses lack sufficient liquid assets to pay estate tax liabilities.”

The issue and coming battle over the estate tax highlights the deep ideological divide between the Republican Congress and the Obama White House: The GOP wants to get rid of the death tax; the president wants to nearly double it.     (my emphasis)

By Stephen Moore for The Daily Signal

By permission The Daily Signal

http://dailysignal.com

http://dailysignal.com/2015/02/08/obamas-proposal-make-effective-death-tax-rate-high-68/

Stephen Moore, who formerly wrote on the economy and public policy for The Wall Street Journal, is chief economist at The Heritage Foundation.

Now Watch Denmark

Posted on February 11th, 2015

Obverse side of a 1000 Danish kroner banknote from the 2009 series

EDITOR’S COMMENT: Every time that I hear or read about the various countries having to devalue their fiat currencies, while other more stable countries are struggling to defend their own fiat currencies from soaring relative to others, I keep wondering what would happen, if one of these countries would introduce a gold-backed currency. There are many theories as to what would happen, but I believe the results for that particular country would be better than what they may be facing in the very near future.

By John Rubino

One of the reasons we’ve all heard of George Soros is that back in 1992 he pulled off an epic financial coup by “breaking” the Bank of England. At the time the UK was trying to maintain a loose peg with the German Deutsche Mark, despite the fact that the two countries had very different rates of inflation (UK’s high, Germany’s low).

To Soros’ practiced eye, this imbalance was clearly unsustainable and would eventually force the UK to devalue its currency to reflect the fact that it was living beyond its means and printing way too many pounds. Soros placed a big bet against the pound and sat back while the fundamentals won out. When Britain gave in and devalued, Soros made a billion dollars and became a household name.

Ever since, currency traders have dreamed of such conjunctions of government mismanagement and central bank cluelessness, hoping for their own Soros-level killings. But during the past couple of decades such sure things have been rare because currencies have floated more or less freely, which prevented huge imbalances from building up.

Now, however, thanks to the mess that is the eurozone and several other countries’ ill-advised dollar pegs, the world is once again a target-rich environment for speculators. The Swiss, for instance, have been going a little crazy trying to decide whether and/or how to peg the franc to the euro. And China, which runs a loose peg to the dollar, is looking like it might have to adjust its thinking in the not too distant future.

But right now the juiciest target is Denmark. A generally well-run country, it finds itself on the wrong side of the currency war, with the European Central Bank actively devaluing the euro against which the Danish krone is pegged. Capital has been flowing into Danish bonds seeking the relative safety of low inflation and stable state finances, which is pushing up the value of the krone. Maintaining the peg thus requires the Danes to create a lot of new kroner and use them to buy euros.

A soaring supply of national currency is inherently inflationary and destabilizing, which is the opposite of “well-run”. So just as the Swiss did last year, the Danes are both promising to maintain the peg and stressing out over the cost of doing so. Now the speculators smell blood:

Speculation Against Danish Euro Peg Proving Relentless

(Bloomberg) — Less than a week after Denmark resorted to its deepest rate cut ever amid historic currency interventions, forward rates suggest some traders and investors still aren’t convinced the central bank can save its euro peg.

SEB AB, the largest Nordic currency trader, says capital flows into AAA-rated Denmark forced the central bank to dump about $4.6 billion in kroner in the first three days of February alone, almost a third the record amount it sold in all of January. Nordea Bank AB, Scandinavia’s biggest lender, says Denmark will need to deliver another 25 basis-point cut to fight back demand for kroner, bringing the benchmark deposit rate to minus 1 percent.

“The pressure on the krone hasn’t eased yet,” Jens Naervig Pedersen, an economist at Danske Bank A/S in Copenhagen, said by phone. “We can see from the forward rates that the market views the current upward pressure on the krone as the greatest ever.”

Governor Lars Rohde addressed speculators last week in what he characterized as a verbal intervention to persuade them he won’t let the krone’s peg to the euro collapse. Such a scenario is “unthinkable” and the central bank will do “whatever it takes” to avoid it, he said after delivering a fourth rate cut in less than three weeks.

Denmark’s largest institutional investor, ATP, sent a clear message of trust in the peg the same day, revealing it hasn’t bothered to hedge its $110 billion in assets against the possibility that the nation’s currency regime might break.

Make no mistake, the Danes are the victims here. They’re behaving the way a country should behave, with an eye to long term stability. But the rest of the world — the eurozone in particular — is so indebted that its only choice is to inflate or die.

Which leaves solid countries like Denmark and Switzerland with a similar choice: inflate and throw decades of prudent management out the window, or watch their currencies soar against those of a profligate world, causing their export sectors to go extinct and their economies to slip into Depression.

The speculators, meanwhile, are not the villains in this story. They’re just pointing out the truth with their capital. And their honesty will be rewarded very soon.     (my emphasis)

By John Rubino for Dollar Collapse

By permission John Rubino

http://dollarcollapse.com

http://dollarcollapse.com/currency-war-2/now-watch-denmark/

Predictions of Economic Disaster in 2015 from Top Experts All Over the Globe

Posted on January 15th, 2015

2015 SignBy Michael Snyder

Will 2015 be a year of financial crashes, economic chaos and the start of the next great worldwide depression?  Over the past couple of years, we have all watched as global financial bubbles have gotten larger and larger.  Despite predictions that they could burst at any time, they have just continued to expand.  But just like we witnessed in 2001 and 2008, all financial bubbles come to an end at some point, and when they do implode the pain can be extreme.  Personally, I am entirely convinced that the financial markets are more primed for a financial collapse now than they have been at any other time since the last crisis happened nearly seven years ago.  And I am certainly not alone.  At this point, the warning cries have become a deafening roar as a whole host of prominent voices have stepped forward to sound the alarm.  The following are 11 predictions of economic disaster in 2015 from top experts all over the globe…

#1 Bill Fleckenstein: “They are trying to make the stock market go up and drag the economy along with it. It’s not going to work. There’s going to be a big accident. When people realize that it’s all a charade, the dollar will tank, the stock market will tank, and hopefully bond markets will tank. Gold will rally in that period of time because it’s done what it’s done because people have assumed complete infallibility on the part of the central bankers.”

#2 John Ficenec: “In the US, Professor Robert Shiller’s cyclically adjusted price earnings ratio – or Shiller CAPE – for the S&P 500 is currently at 27.2, some 64pc above the historic average of 16.6. On only three occasions since 1882 has it been higher – in 1929, 2000 and 2007.”

#3 Ambrose Evans-Pritchard, one of the most respected economic journalists on the entire planet: “The eurozone will be in deflation by February, forlornly trying to ignite its damp wood by rubbing stones. Real interest rates will ratchet higher. The debt load will continue to rise at a faster pace than nominal GDP across Club Med. The region will sink deeper into a compound interest trap.”

#4 The Jerome Levy Forecasting Center, which correctly predicted the bursting of the subprime mortgage bubble in 2007: “Clearly the direction of most of the recent global economic news suggests movement toward a 2015 downturn.”

#5 Paul Craig Roberts: “At any time the Western house of cards could collapse. It (the financial system) is a house of cards. There are no economic fundamentals that support stock prices — the Dow Jones. There are no economic fundamentals that support the strong dollar…”

#6 David Tice: “I have the same kind of feel in ’98 and ’99; also ’05 and ’06.  This is going to end badly. I have every confidence in the world.”

#7 Liz Capo McCormick and Susanne Walker: “Get ready for a disastrous year for U.S. government bonds. That’s the message forecasters on Wall Street are sending.”

#8 Phoenix Capital Research: “Just about everything will be hit as well. Most of the ‘recovery’ of the last five years has been fueled by cheap borrowed Dollars. Now that the US Dollar has broken out of a multi-year range, you’re going to see more and more ‘risk assets’ (read: projects or investments fueled by borrowed Dollars) blow up. Oil is just the beginning, not a standalone story.

If things really pick up steam, there’s over $9 TRILLION worth of potential explosions waiting in the wings. Imagine if the entire economies of both Germany and Japan exploded and you’ve got a decent idea of the size of the potential impact on the financial system.”

#9 Rob Kirby: “What this breakdown in the crude oil price is going to spawn another financial crisis.  It will be tied to the junk debt that has been issued to finance the shale oil plays in North America.  It is reported to be in the area of half a trillion dollars worth of junk debt that is held largely on the books of large financial institutions in the western world.  When these bonds start to fail, they will jeopardize the future of these financial institutions.  I do believe that will be the signal for the Fed to come riding to the rescue with QE4.  I also think QE4 is likely going to be accompanied by bank bail-ins because we all know all western world countries have adopted bail-in legislation in their most recent budgets.  The financial elites are engineering the excuse for their next round of money printing . . .  and they will be confiscating money out of savings accounts and pension accounts.  That’s what I think is coming in the very near future.”

#10 John Ing: The 2008 collapse was just a dress rehearsal compared to what the world is going to face this time around. This time we have governments which are even more highly leveraged than the private sector was.

So this time the collapse will be on a scale that is many magnitudes greater than what the world witnessed in 2008.”

#11 Gerald Celente: “What does the word confidence mean? Break it down. In this case confidence = con men and con game. That’s all it is. So people will lose confidence in the con men because they have already shown their cards. It’s a Ponzi scheme. So the con game is running out and they don’t have any more cards to play.

What are they going to do? They can’t raise interest rates. We saw what happened in the beginning of December when the equity markets started to unravel. So it will be a loss of confidence in the con game and the con game is soon coming to an end. That is when you are going to see panic on Wall Street and around the world.”

If you have been following my website, you know that I have been pointing to 2015 for quite some time now.

For example, in my article entitled “The Seven Year Cycle Of Economic Crashes That Everyone Is Talking About“, I discussed the pattern of financial crashes that we have witnessed every seven years that goes all the way back to the Great Depression.  The last two major stock market crashes began in 2001 and 2008, and now here we are seven years later.

Will the same pattern hold up once again?

In addition, there are many other economic cycles that seem to indicate that we are due for a major economic downturn.  I discussed quite a few of these theories in my article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.

But just like in 2000 and 2007, there are a whole host of doubters that are fully convinced that the party can continue indefinitely.  Even though our economic fundamentals continue to get worse, our debt levels continue to grow and every objective measurement shows that Wall Street is more reckless and more vulnerable to collapse than ever before, they mock the idea that a financial collapse is imminent.

So let’s see what happens in 2015.

I have a feeling that it is going to be an extremely “interesting” year.    (my emphasis)

By Michael Snyder for Economic Collapse

By permission Economic Collapse Blog

http://theeconomiccollapseblog.com

http://theeconomiccollapseblog.com/archives/11-predictions-economic-disaster-2015-top-experts-globe

If They Only Knew How Little You Know

Posted on December 15th, 2014

World Financial Crisis Word 44853460EDITOR’S COMMENT: Another very insightful and timely commentary from John Rubino for Dollar Collapse, which is written from the perspective of a beleaguered money manager trying to ‘manage’ with all the ‘manipulation’ everywhere these days.

By John Rubino

Pretend, for a minute, that you’re a money manager in today’s manipulated world. You understand that most of what’s happening is the result of governments and central banks forcing down interest rates and pumping up asset prices. You don’t trust this process but since “the markets are recovering” you’ve felt compelled to play along, putting your clients into a standard mix of stocks, bonds and cash.

But you’re not feeling the love. With stocks outperforming bonds and cash, your blended portfolios have failed to match the S&P 500 and your clients are asking snarky questions like “What exactly am I paying you for when I could do better by just buying an ETF?”

So finally, as equity prices march ever higher and governments around the world reiterate their promises of unlimited cheap money from here to eternity, you throw up your hands and give the clients what they want, loading up on growth stocks, especially from the hottest emerging markets.

Then, out of the blue, the dollar spikes, oil tanks and the world tips into chaos. US stocks have their worst week in three years, emerging markets collapse, and clients who last month demanded double-digit gains now start begging for reassurance that their savings won’t just melt away.

You, of course, have no idea what to tell them. Your training was all about markets and cash flows and how to analyze them. And today there are no markets. Instead of millions of more-or-less rational, self-interested producers and consumers, all you see when you look out the window is a handful of large, politically-motivated entities playing games with make-believe currency to get through the next election cycle or bonus period. Fundamentals like P/E ratios and dividend yields offer no insight into what might happen, and traditional asset allocation formulas, based as they are on the assumption of free capital flows and rational actors, give results that are random at best and exactly the opposite of what was intended at worst.

And this is just the first month in what might — if oil keeps falling and energy-company junk bonds blow up and the eurozone falls back into recession and Greece, Italy, Spain, and France elect anti-euro leaders and emerging market governments start defaulting and some other less obvious black swans all land at once — turn out to be 2008 all over again. You barely made it to 2010 with your career and sanity intact, and now here you are again, staring into the abyss and hoping the abyss doesn’t stare back.

OR, some central bank talking head might appear on TV with a promise of free money for every imprudent bank and insane oil driller, and the markets might resume their march into fantasy land. So here you sit on a Sunday morning wondering whether to sell everything and move your clients to 100% cash — as you wish you had when the housing bubble started to burst in 2007 — or load up on high-beta growth stocks, trusting the Fed, ECB, and BoJ to pay off on the Greenspan put one more time.

The killer is that whatever you do, it’s strictly a guess. Financial fundamentals don’t matter, geopolitics doesn’t matter, and those cook-book financial planning guidelines are irrelevant. You’re flying blind with the fate of dozens of people in your hands, people who trust you and have no idea how little you know.

Sometime in the next 24 hours you’ll simply roll the dice with their futures. There must, you think, be an easier, more honest way to make a living.   (my emphasis)

By John Rubino for Dollar Collapse

By permission John Rubino

http://dollarcollapse.com

http://dollarcollapse.com/money-management/if-they-only-knew-how-little-you-know/

We’re Relying on Phantom Wealth to Fund Our Retirement

Posted on October 14th, 2014

Retirement Forecast by RJ Matson, The St. Louis Post Dispatch

By Charles Hugh Smith

Phantom wealth cannot possibly fund unprecedented retirement and healthcare promises.

The narrative that Social Security, Medicare and pension funds invested in stocks and bonds can fund the retirement of 65 million people is a misleading fantasy. The sad reality is we can’t fund the enormous expense of retirement/healthcare for 20% of the populace out of our national earned income, and the savings that have been set aside are either fictitious (the Social Security Trust Fund) or based on phantom wealth created by speculative asset bubbles in stocks, bonds and real estate.

I explain the fraud of the Social Security Trust Fund in detail in The Fraud at the Heart of Social Security (January 17, 2011).

In the bogus “Trust Fund,” the cash has been siphoned off and spent on Federal government outlays. The Fund holds no cash. Instead, it has been given IOUs “backed by the full faith and credit of the United States,” the non-marketable securities.

Now what happens when the Social Security system redeems $100 billion of those securities? the Treasury goes out and borrows the $100 billion on the global bond market, and taxpayers are on the hook for the debt and the interest on that freshly issued debt.

This isn’t that difficult to understand, but let’s go through it again:

In a real Trust Fund, taxpayers pay in their cash, and the surplus cash is invested in marketable bonds–not IOUs, but real assets that pile up in the Trust Fund just like savings in a savings account. That cash is then withdrawn later, as needed, via the sale of bonds purchased with the cash. Taxpayers (employees and employers) pay nothing above and beyond their payroll taxes to fund Social Security.

In the fraudulent “Trust Fund,” taxpayers’ Social Security taxes have been squandered on other Federal expenses, and they have to pay interest on Treasury debt which is borrowed to pay their SSA benefits. In other words, taxpayers pay twice: once via Social Security taxes, a substantial 12.4% of all wages, and then they pay again to borrow cash on the bond market to actually pay the Social Security benefits.

Medicare is equally unsustainable: please read these for the full story:

The Problem with Social Security and Medicare (July 17, 2013)

The Problem with Pay-As-You-Go Social Programs: They’re Ponzi Schemes (November 5, 2013)

Rather than face up to the reality that we face an impossible dilemma–either workers will be slowly impoverished by taxes that must go up to fund unrealistic retirement/healthcare promises, or those promises will have to be drastically scaled back–we have chosen to believe the happy illusion that inflating asset bubbles will painlessly conjure up enough phantom wealth to pay all those promises.

How can an unprecedented number of people (65 million Baby Boomers) all retire with unprecedented pension payouts and unprecedented healthcare expenses, and do so without raising taxes? Easy–just inflate asset bubbles that create trillions of dollars in magical wealth.

But as I explained in The Happy Story of Boomers Retiring on Their Generational Wealth Is Wrong (June 25, 2014), the assumption that there will be buyers of stocks, bonds and real estate at bubble-level valuations is not based on demographic realities.

The phantom wealth of asset bubbles is based on anomalously low interest rates and equally anomalous central bank intervention in capital markets. The base assumption is that these anomalous conditions are not anomalous but the New Normal: central banks can intervene without any negative consequences forever, interest rates can be suppressed to near-zero without any negative consequences forever, and sovereign debt (government deficits) can rise indefinitely without any negative consequences forever.

Oh, and corporate profits can also rise indefinitely, too, even as earned income (as a share of gross domestic product–GDP) declines:

Non Financial CP GDP vs Wages and Salaries thru March 2013 Graph

To tap this phantom wealth, assets must be sold at bubblicious valuations; this raise the question, Who Will Boomers Sell Their Stocks To? (June 23, 2014)

Consider the fundamental relationship of stocks to the nation’s gross domestic product (GDP). Current sky-high stock valuations are not just aberrations in terms of previous stock prices–they’re aberrations in terms of stocks’ valuations compared to the nation’s entire economy.

Dow GDP Ratio Graph

So if bonds decline by 50% as interest rates normalize (i.e. rise), and stocks fall 50% as corporate profits and central bank intervention normalize, and real estate declines 50% in most locales as declining wages meet rising interest rates, then what source of funding will replace the $30 trillion in phantom wealth that evaporated?

Declining wages? A new speculative asset bubble in bat guano?

Perhaps it’s time that we face up to the fiscal reality that unprecedented promises can only be paid out of current income and hard assets that can be sold in vast quantities without depressing the price of those assets. As earned income declines as a share of the economy and asset bubbles based on liquidity and financialization pop, we will eventually have to deal with the difficult reality that government debt is not a hard asset that can be sold in vast quantities without depressing the value of that asset.

In sum, phantom wealth cannot possibly fund unprecedented retirement and healthcare promises. Only real wealth can do that, and central bank liquidity and the asset bubbles it inflates are not real wealth.    (my emphasis)

By Charles Hugh Smith for Of Two Minds

By permission Charles Hugh Smith

www.oftwominds.com

http://www.oftwominds.com/blogaug14/phantom-wealth8-14.html

A Market Reset Due

Posted on October 13th, 2014

Investment In Gold As Gold Bullion_9526103By Alasdair Macleod

Recent evidence points increasingly towards global economic contraction.

Parts of the Eurozone are in great difficulty, and only last weekend S&P the rating agency warned that Greece will default on its debts “at some point in the next fifteen months“. Japan is collapsing under the wealth-destruction of Abenomics. China is juggling with a debt bubble that threatens to implode. The US tells us through government statistics that their outlook is promising, but the reality is very different with one-third of employable adults not working; furthermore the GDP deflator is significantly greater than officially admitted. And the UK is financially over-geared and over-dependent on a failing Eurozone.

This is hardly surprising, because the monetary inflation of recent years has transferred wealth from the majority of the saving and working population to a financial minority. A stealth tax through monetary inflation has been imposed on the majority of people trying to earn an honest living on a fixed salary. It has been under-recorded in consumer price statistics but has occurred nonetheless. Six years of this wealth transfer may have enriched Wall Street, but it has also impoverished Main Street.

The developed world is now in deep financial trouble. This is a situation which may be coming to a debt-laden conclusion. Those in charge of our money know that monetary expansion has failed to stimulate recovery. They also know that their management of financial markets, always with the objective of fostering confidence, has left them with market distortions that now threaten to derail bonds, equities and derivatives.

Today, central banking’s greatest worry is falling prices. The early signs are now upon us, reflected in dollar strength, as well as falling commodity and energy prices. In an economic contraction exposure to foreign currencies is the primary risk faced by international businesses and investors. The world’s financial system is based on the dollar as reserve currency for all the others: it is the back-to-base option for international exposure. The trouble is that leverage between foreign currencies and the US dollar has grown to highly dangerous levels, as shown below.

Total World Money 2013 Graph

Plainly, there is great potential for currency instability, compounded by over-priced bond markets. Greece, facing another default, borrows ten-year money in euros at about 6.5%, while Spain and Italy at 2.1% and 2.3% respectively. Investors accepting these low returns should be asking themselves what will be the marginal cost of financing a large increase in government deficits brought on by an economic slump.

A slump will obviously escalate risk for owners of government bonds. The principal holders are banks whose asset-to-equity ratios can be as much as 40-50 times excluding goodwill, particularly when derivative exposure is taken into account. The stark reality is that banks risk failure not because of Irving Fisher’s debt-deflation theory, but because they are exposed to a government debt bubble that will inevitably burst: only a two per cent rise in Eurozone bond yields may be sufficient to trigger a global banking crisis. Fisher’s nightmare of bad debts from failing businesses and falling loan collateral values will merely be an additional burden.

Prices

Macro-economists refer to a slump as deflation, but we face something far more complex worth taking the trouble to understand.

The weakness of modern macro-economics is it is not based on a credible theory of prices. Instead of a mechanical relationship between changes in the quantity of money and prices, the purchasing power of a fiat currency is mainly dependent on the confidence its users have in it. This is expressed in preferences for money compared with goods, and these preferences can change for any number of reasons.

When an indebted individual is unable to access further credit, he may be forced to raise cash by selling marketable assets and by reducing consumption. In a normal economy, there are always some people doing this, but when they are outnumbered by others in a happier position, overall the economy progresses. A slump occurs when those that need or want to reduce their financial commitments outnumber those that don’t. There arises an overall shift in preferences in favour of cash, so all other things being equal prices fall.

Shifts in these preferences are almost always the result of past and anticipated state intervention, which replaces the randomness of a free market with a behavioural bias. But this is just one factor that sets price relationships: confidence in the purchasing power of government-issued currency must also be considered and will be uppermost in the minds of those not facing financial difficulties. This is reflected by markets reacting, among other things, to the changing outlook for the issuing government’s finances. If it appears to enough people that the issuing government’s finances are likely to deteriorate significantly, there will be a run against the currency, usually in favour of the dollar upon which all currencies are based. And those holding dollars and aware of the increasing risk to the dollar’s own future purchasing power can only turn to gold and subsequently those goods that represent the necessities of life. And when that happens we have a crack-up boom and the final destruction of the dollar as money.

So the idea that the outlook is for either deflation or inflation is incorrect, and betrays a superficial analysis founded on the misconceptions of macro-economics. Nor does one lead to the other: what really happens is the overall preference between money and goods shifts, influenced not only by current events but by anticipated ones as well.

Gold

Recently a rising dollar has led to a falling gold price. This raises the question as to whether further dollar strength against other currencies will continue to undermine the gold price.

Let us assume that the central banks will at some time in the future try to prevent a financial crisis triggered by an economic slump. Their natural response is to expand money and credit. However, this policy-route will be closed off for non-dollar currencies already weakened by a flight into the dollar, leaving us with the bulk of the world’s monetary reflation the responsibility of the Fed.

With this background to the gold price, Asians in their domestic markets are likely to continue to accumulate physical gold, perhaps accelerating their purchases to reflect a renewed bout of scepticism over the local currency. Wealthy investors in Europe will also buy gold, partly through bullion banks, but on the margin demand for delivered physical seems likely to increase. Investment managers and hedge funds in North America will likely close their paper-gold shorts and go long when their computers (which do most of the trading) detect a change in trend.

It seems likely that a change in trend for the gold price in western capital markets will be a component part of a wider reset for all financial markets, because it will signal a change in perceptions of risk for bonds and currencies. With a growing realisation that the great welfare economies are all sliding into a slump, the moment for this reset has moved an important step closer.     (my emphasis)

By Alasdair Macleod for Gold Money

By permission Alasdair Macleod and Gold Money

www.goldmoney.com and www.financeandeconomics.org

The World Order Becomes Disorder

Posted on September 17th, 2014

Global Economy by Bill Day, Cagle Cartoons

By Donald G. M. Coxe, Chairman, Coxe Advisors LLC.

Is the post-Cold War global boom over?

Since the fall of Bolshevism, the world has seen remarkably sustained growth in international cooperation, brought about by freer trade and new technologies. Financial assets have generally performed well, increasing prosperity across most of the world. There were just two major interruptions—the tech crash in 2000, and the financial crash in 2008.

The world warmed up fast after the Cold War. Prices of most commodities rose, despite major corrections:

  • Oil climbed from $15 per barrel to as high as $140. It collapsed with the crash, but climbed back swiftly to near $100.
  • Corn climbed from $2 to as high as $8 before sliding to $3.60.
  • Copper climbed from 80 cents to $4.30 before sliding to $3.
  • Gold shot up from $350 to $1,900 before pulling back toward $1,200.

So what’s happening with commodity prices now? Is this just another correction, or has the game really changed?

Commodity prices have risen against a backdrop of falling interest rates:

Ten Year US Treasury Yield Graph

The US ten-year Treasury yielded 8% as recently as 1994, and as low as 2.1% during the crash. Recently the consensus target was 4%—before fears of outright deflation drove it to 2.4%. Bond yields have fallen below 1%. Even the bonds of the southern members of the Eurozone yield Treasury-esque returns.

Remarkably, those low yields persist even as major geopolitical outbursts have ended the mostly benign post-Cold War era. The foundations of global economic progress are being shaken by geopolitical earthquakes from Russia and Ukraine to Syria and Iraq, where a new caliphate has been proclaimed.

It seems bizarre, but the world is heading toward a revival of both the Cold War and the Ottoman Empire.

Unfortunately, these concurrent crises are occurring at a time when the great democracies’ leaders bear scant resemblance to those leaders responsible for the end of the Cold War and the launch of global cooperation and free trade: Reagan, Thatcher, and George HW Bush. Mr. Obama won his nomination by voting against the invasion of Iraq. He ran on the promise of ending wars, not starting them. Now, faced with sinking popularity in an election year that could give Republicans complete control of Congress, he naturally fears dragging America into the ISIS chaos—or Ukraine.

Obama is also haunted by the collapse of his most daring and creative foreign policy achievement—the reset with Russia. Last week, Mr. Putin doubled down on his Ukrainian attacks by warning that Russia should be taken seriously, because it is a major nuclear power and is strengthening its nuclear arsenal. Those with long memories recall Khrushchev banging his shoe at the United Nations and shouting, “We will bury you!”

Meanwhile, Western Europe’s leaders show few signs of being prepared for either crisis. Angela Merkel, raised in East Germany, is cautious to a fault. British Premier David Cameron is struggling to prevent Scottish secession and to deal with the likely return of hundreds of ISIS-trained British citizens. (Military analysts generally agree that well-funded returnees with ISIS training are much greater threats than Al Qaeda ever was… yet Cameron has failed to convince his coalition partner to support restraining their re-entry into British Muslim communities.)

The backdrop for long-term investing has, in less than a year, swung from promising to promises broken by wars and threats of more-terrifying wars.

Another unlikely threat is deflation.

DEflation?

When central bankers have been running the printing presses 24/7?

Most economists, strategists, and investors would have deemed deflation a near-impossibility with government debts at all-time highs, funded by money printed at banana-republic rates. Who thought that the Fed would quadruple its balance sheet? And who dreamt that such drastic policies would be sustained for six years and would be accompanied by outright deflation in much of Europe and minimal inflation in the USA?

So why have Brent oil prices fallen from $125 in two years despite production outages in Syria and Libya and repeated cutbacks in Nigeria? Are Teslas taking over the world?

The answer is that the US is once again #1 in oil production, thanks to fracking (in states that allow it). Mr. Obama likes to boast about the new US oil boom, but he has been a bystander to this petro-revolution. According to an oil company executive interviewed in the New York Times last week, without fracking, global oil prices might be at $200 a barrel, and the world would be in a deep recession. He’s a Texan and thus inclined toward hyperbole, but his point is directionally valid.

US frackers—deploying advances in science and technology with guts and skill—have averted fuel inflation. And farmers, using the tools of modern agriculture—GMO and hybridized seed, farm machinery equipped with GPS and logistics, and carefully monitored fertilizers—have combined with Mother Nature to unleash record crops of corn and soybeans. So much for food inflation.

Capitalism is doing its job: to expand output of goods and services, thereby preventing shortages from derailing recoveries through inflation. That success story means central bankers can keep printing away.

So what should investors do? The S&P’s rally has been sustained through near-zero-cost money used to: (1) buy back stock to enrich insiders and please activist hedge funds which have borrowed big to buy big; and (2) prop up the overall market because investors have learned that buying on margin when the costs are minimal—and below dividend yields—just keeps paying off. Stein’s law says, “If something cannot go on forever, it will stop.” Too bad it doesn’t say when.

Gold loses its luster when: (1) inflation seems to be as remote as a pot of gold at the end of the rainbow; and (2) even a concatenation of crises fails to send investors rushing into the time-tested crisis consoler.

We had predicted in February that 2014 would be the year of increasing geopolitical risks that would challenge conventional asset allocations. We see geopolitical risks expanding from here—not contracting—and stick to our investment advice that the broad stock market is precariously valued. A range of options is available for those who wish to hedge themselves against even worse news.

Gold is part of any such risk mitigation. So are long government bonds.

Most importantly, we have entered an era when wise investors will devote as much time to reading the foreign news as they allocate to reading the investment section.

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Benghazi Bombshell: Clinton State Department Official Reveals Details of Alleged Document Review

Posted on September 16th, 2014

Secretary Raymond MaxwellEDITOR’S COMMENT: You may have already heard about some of this breaking news story late yesterday. Here is the original and complete article from investigative journalist, Sharyl Attkisson, which is definitely worth reading, as this latest information will certainly be reported upon in the news over the next few weeks, as the House Select Committee on Benghazi begins its hearings in the next day or so.

By Sharyl Attkisson

As the House Select Committee on Benghazi prepares for its first hearing this week, a former State Department diplomat is coming forward with a startling allegation: Hillary Clinton confidants were part of an operation to “separate” damaging documents before they were turned over to the Accountability Review Board investigating security lapses surrounding the Sept. 11, 2012, terrorist attacks on the U.S. mission in Benghazi, Libya.

New Benghazi allegation puts spotlight on Hillary Clinton confidants, alleged after-hours document review.

According to former Deputy Assistant Secretary Raymond Maxwell, the after-hours session took place over a weekend in a basement operations-type center at State Department headquarters in Washington, D.C. This is the first time Maxwell has publicly come forward with the story.

At the time, Maxwell was a leader in the State Department’s Bureau of Near Eastern Affairs (NEA), which was charged with collecting emails and documents relevant to the Benghazi probe.

Raymond Maxwell, former State Dept. Deputy Assistant Secretary (Photo: Sharyl Attkisson)

“I was not invited to that after-hours endeavor, but I heard about it and decided to check it out on a Sunday afternoon,” says Maxwell.

He didn’t know it then, but Maxwell would ultimately become one of four State Department officials singled out for discipline—he says scapegoated—then later cleared for devastating security lapses leading up to the attacks. Four Americans, including U.S. Ambassador Christopher Stevens, were murdered during the Benghazi attacks.

“Basement Operation”

Maxwell says the weekend document session was held in the basement of the State Department’s Foggy Bottom headquarters in a room underneath the “jogger’s entrance.” He describes it as a large space, outfitted with computers and big screen monitors, intended for emergency planning, and with small offices on the periphery.

When he arrived, Maxwell says he observed boxes and stacks of documents. He says a State Department office director, whom Maxwell described as close to Clinton’s top advisers, was there. Though the office director technically worked for him, Maxwell says he wasn’t consulted about her weekend assignment.

She told me, ‘Ray, we are to go through these stacks and pull out anything that Department of State building in Washington, DCmight put anybody in the [Near Eastern Affairs] front office or the seventh floor in a bad light,’” says Maxwell. He says “seventh floor” was State Department shorthand for then-Secretary of State Clinton and her principal advisors.

“I asked her, ‘But isn’t that unethical?’ She responded, ‘Ray, those are our orders.’ ”

Did Hillary Clinton aides withhold damaging Benghazi documents?

A few minutes after he arrived, Maxwell says in walked two high-ranking State Department officials.

In an interview Monday morning on Fox News, Rep. Jason Chaffetz, R-Utah, named the two Hillary Clinton confidants who were allegedly present: Cheryl Mills, Clinton’s chief of staff and former White House counsel who defended President Bill Clinton during his impeachment trial; and Deputy Chief of Staff Jake Sullivan, who previously worked on Hillary Clinton’s and then Barack Obama’s presidential campaigns.

“When Cheryl saw me, she snapped, ‘Who are you?’” Maxwell says. “Jake explained, ‘That’s Ray Maxwell, an NEA Deputy Assistant Secretary. She conceded, ‘Well, OK.”

Maxwell says the two officials, close confidants of Clinton, appeared to check in on the operation and soon left.

Maxwell says after Mills and Sullivan arrived, he, the office director and an intern moved into a small office where they looked through some papers. Maxwell says his stack included pre-attack telegrams and cables between the U.S. embassy in Tripoli and State Department headquarters. After a short time, Maxwell says he decided to leave.

“I didn’t feel good about it,” he said.

We contacted Mills and Sullivan to ask about the allegations and the purpose of allegedly separating documents, but they did not return calls or emails. We reached out to Clinton, who declined an interview request and offered no comment. A State Department spokesman told us it would have been impossible for anybody outside the Accountability Review Board (ARB) to control the flow of information because the board cultivated so many sources.

“Unfettered access”?

When the ARB issued its call for documents in early October 2012, the executive directorate of the State Department’s Bureau of Near Eastern Affairs was put in charge of collecting all emails and relevant material. It was gathered, boxed and—Maxwell says—ended up in the basement room prior to being turned over.

In May 2013, when critics questioned the ARB’s investigation as not thorough enough, co-chairmen Ambassador Thomas Pickering and Adm. Mike Mullen stated, “we had unfettered access to everyone and everything including all the documentation we needed.”

Maxwell says when he heard that statement, he couldn’t help but wonder if the ARB—perhaps unknowingly—had received from his bureau a scrubbed set of documents with the most damaging material missing.

Maxwell also criticizes the ARB as “anything but independent,” pointing to Mullen’s admission in congressional testimony that he called Mills to give her inside advice after the ARB interviewed a potential congressional witness.

In an interview in September 2013, Pickering told me that he would not have done what Mullen did. But both co-chairmen strongly defend their probe as “fiercely independent.”

Maxwell also criticizes the ARB for failing to interview key people at the White House, State Department and the CIA, including Secretary Clinton; Deputy Secretary of State Thomas Nides, who managed department resources in Libya; Assistant Secretary of State for Political Military Affairs Andrew Shapiro; and White House National Security Council Director for Libya Ben Fishman.

“The ARB inquiry was, at best, a shoddily executed attempt at damage control, both in Foggy Bottom and on Capitol Hill,” says Maxwell. He views the after-hours operation he witnessed in the State Department basement as “an exercise in misdirection.”

Sullivan did not respond to emails or to messages sent to him through his current teaching job at Yale Law School. Mills did not respond to a message passed to her through Black Rock, a major global investment firm where she is a member of the board of directors. Clinton’s press officer ultimately referred us to the State Department, though none of the three currently works there.

State Department Response

A State Department spokesman calls the implication that documents were withheld “totally without merit.” Spokesman Alec Gerlach says “The range of sources that the ARB’s investigation drew on would have made it impossible for anyone outside of the ARB to control its access to information.”

The allegations are as serious as it gets,” says one lawmaker of the alleged Benghazi document review.

Gerlach says the State Department instructed all employees to cooperate “fully and promptly” with the ARB, which invited anyone with relevant information to contact them directly.

“So individuals with information were reaching out proactively to the board. And, the ARB was also directly engaged with individuals and the [State] Department’s bureaus and offices to request information and pull on whichever threads it chose to,” says Gerlach.

Benghazi Select Committee

Maxwell says he has been privately interviewed by several members of Congress in recent months, including Chaffetz, a member of the House Oversight Committee, and Rep. Trey Gowdy, R-S.C., chairman of the House Select Committee on Benghazi.

When reached for comment, Chaffetz told me that Maxwell’s allegations “go to the heart of the integrity of the State Department.”

“The allegations are as serious as it gets, and it’s something we have obviously followed up and pursued,” Chaffetz says. “I’m 100 percent confident the Benghazi Select Committee is going to dive deep on that issue.”

Former Obama Supporter

Maxwell, 58, strongly supported Barack Obama and personally contributed to his presidential campaign. But post-Benghazi, he has soured on both Obama and Clinton, saying he had nothing to do with security and was sacrificed as a scapegoat while higher-up officials directly responsible escaped discipline. He spent a year on paid administrative leave with no official charge ever levied. Ultimately, the State Department cleared Maxwell of wrongdoing and reinstated him. He retired a short time later in November 2013.

Former Deputy Assistant Secretary for the Maghreb Region Raymond Maxwell during a visit to Algiers in 2011. (Photo: YouTube via U.S. Embassy in Algiers)Maxwell worked in foreign service for 21 years as the well-respected deputy assistant secretary for Maghreb Affairs in the Near East Bureau and former chief of staff to the ambassador in Baghdad. Fluent in Portuguese, Maxwell is also an ex-Navy “mustanger,” which means he successfully made the leap from enlisted ranks to commissioned officer.

He’s also a prolific poet. While on administrative leave, he published poems online: allegories hinting at his post-Benghazi observations and experiences.

A poem entitled “Invitation,” refers to Maxwell’s placement on administrative leave in December 2012: “The Queen’s Henchmen / request the pleasure of your company / at a Lynching – / to be held / at 23rd and C Streets NW [State Dept. building] / on Tuesday, December 18, 2012 / just past sunset. / Dress: Formal, Masks and Hoods- / the four being lynched / must never know the identities/ of their executioners, or what/ whose sin required their sacrifice./ A blood sacrifice- / to divert the hounds- / to appease the gods- / to cleanse our filth and /satisfy our guilty consciences…”

In another poem called “Trapped in a purgatory of their own deceit,” Maxwell wrote: “The web of lies they weave / gets tighter and tighter / in its deceit / until it bottoms out – / at a very low frequency – / and implodes…Yet all the while, / the more they talk, / the more they lie, / and the deeper down the hole they go… Just wait…/ just wait and feed them the rope.”

Former Deputy Assistant Secretary for the Maghreb Region Raymond Maxwell during a visit to Algiers in 2011

Several weeks after he was placed on leave with no formal accusations, Maxwell made an appointment to address his status with a State Department ombudsman.

“She told me, ‘You are taking this all too personally, Raymond. It is not about you,’” Maxwell says.

“I told her that ‘My name is on TV and I’m on administrative leave, it seems like it’s about me.’ Then she said, ‘You’re not harmed, you’re still getting paid. Don’t watch TV. Take your wife on a cruise. It’s not about you; it’s about Hillary and 2016.”

Since Maxwell retired from the State Department, he has obtained a master’s degree in library information science.

By Sharyl Attkisson for The Daily Signal

By permission The Daily Signal

http://dailysignal.com

http://dailysignal.com/2014/09/15/benghazi-bombshell-clinton-state-department-official-reveals-alleged-details-document-review/

Sharyl Attkisson, an Emmy award-winning investigative journalist, is a senior independent contributor to The Daily Signal. She is the author of the forthcoming book, “Sonewalled”.  

This is a Daily Signal special feature.

Wall Street Admits That A Cyberattack Could Crash Our Banking System At Any Time

Posted on September 5th, 2014

CyberattackBy Michael Snyder

Wall Street banks are getting hit by cyber attacks every single minute of every single day.  It is a massive onslaught that is not highly publicized because the bankers do not want to alarm the public.  But as you will see below, one big Wall Street bank is spending 250 million dollars a year just by themselves to combat this growing problem.  The truth is that our financial system is not nearly as stable as most Americans think that it is.  We have become more dependent on technology than ever before, and that comes with a potentially huge downsideAn electromagnetic pulse weapon or an incredibly massive cyberattack could conceivably take down part or all of our banking system at any time.

This week, the mainstream news is reporting on an attack on our major banks that was so massive that the FBI and the Secret Service have decided to get involved.  The following is how Forbes described what is going on…

The FBI and the Secret Service are investigating a huge wave of cyber attacks on Wall Street banks, reportedly including JP Morgan Chase, that took place in recent weeks.

The attacks may have involved the theft of multiple gigabytes of sensitive data, according to reports. Joshua Campbell, supervisory special agent at the FBI, tells Forbes: “We are working with the United States Secret Service to determine the scope of recently reported cyber attacks against several American financial institutions.”

When most people think of “cyber attacks”, they think of a handful of hackers working out of lonely apartments or the basements of their parents.  But that is not primarily what we are dealing with anymore.  Today, big banks are dealing with cyberattackers that are extremely organized and that are incredibly sophisticated.

The threat grows with each passing day, and that is why JPMorgan Chase says that “not every battle will be won” even though it is spending 250 million dollars a year in a relentless fight against cyberattacks…

JPMorgan Chase this year will spend $250 million and dedicate 1,000 people to protecting itself from cybercrime — and it still might not be completely successful, CEO Jamie Dimon warned in April.

Cyberattacks are growing every day in strength and velocity across the globe. It is going to be continual and likely never-ending battle to stay ahead of it — and, unfortunately, not every battle will be won,” Dimon said in his annual letter to shareholders.

Other big Wall Street banks have a similar perspective.  Just consider the following two quotes from a recent USA Today article

Bank of America: “Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future.”

Citigroup: “Citi has been subject to intentional cyber incidents from external sources, including (i) denial of service attacks, which attempted to interrupt service to clients and customers; (ii) data breaches, which aimed to obtain unauthorized access to customer account data; and (iii) malicious software attacks on client systems, which attempted to allow unauthorized entrance to Citi’s systems under the guise of a client and the extraction of client data. For example, in 2013 Citi and other U.S. financial institutions experienced distributed denial of service attacks which were intended to disrupt consumer online banking services. …

“… because the methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, Citi may be unable to implement effective preventive measures or proactively address these methods.”

I don’t know about you, but those quotes do not exactly fill me with confidence.

Another potential threat that banking executives lose sleep over is the threat of electromagnetic pulse weapons.  The technology of these weapons has advanced so much that they can fit inside a briefcase now.  Just consider the following excerpt from an article that was posted on an engineering website entitled “Electromagnetic Warfare Is Here“…

The problem is growing because the technology available to attackers has improved even as the technology being attacked has become more vulnerable. Our infrastructure increasingly depends on closely integrated, high-speed electronic systems operating at low internal voltages. That means they can be laid low by short, sharp pulses high in voltage but low in energy—output that can now be generated by a machine the size of a suitcase, batteries included.

Electromagnetic (EM) attacks are not only possible—they are happening. One may be under way as you read this. Even so, you would probably never hear of it: These stories are typically hushed up, for the sake of security or the victims’ reputation.

That same article described how an attack might possibly happen…

An attack might be staged as follows. A larger electromagnetic weapon could be hidden in a small van with side panels made of fiberglass, which is transparent to EM radiation. If the van is parked about 5 to 10 meters away from the target, the EM fields propagating to the wall of the building can be very high. If, as is usually the case, the walls are mere masonry, without metal shielding, the fields will attenuate only slightly. You can tell just how well shielded a building is by a simple test: If your cellphone works well when you’re inside, then you are probably wide open to attack.

And with electromagnetic pulse weapons, terrorists or cyberattackers can try again and again until they finally get it right

And, unlike other means of attack, EM weapons can be used without much risk. A terrorist gang can be caught at the gates, and a hacker may raise alarms while attempting to slip through the firewalls, but an EM attacker can try and try again, and no one will notice until computer systems begin to fail (and even then the victims may still not know why).

Never before have our financial institutions faced potential threats on this scale.

According to the Telegraph, our banks are under assault from cyberattacks “every minute of every day”, and these attacks are continually growing in size and scope…

Every minute, of every hour, of every day, a major financial institution is under attack.

Threats range from teenagers in their bedrooms engaging in adolescent “hacktivism”, to sophisticated criminal gangs and state-sponsored terrorists attempting everything from extortion to industrial espionage. Though the details of these crimes remain scant, cyber security experts are clear that behind-the-scenes online attacks have already had far reaching consequences for banks and the financial markets.

In the end, it is probably only a matter of time until we experience a technological 9/11.

When that day arrives, will your money be safe?    (my emphasis)

By Michael Snyder for Economic Collapse

By permission Economic Collapse Blog

http://theeconomiccollapseblog.com

http://theeconomiccollapseblog.com/archives/wall-street-admits-that-a-cyberattack-could-crash-our-banking-system-at-any-time

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