Monthly Archives: November 2012

Flash Point: How Badly the MSM Got Morsi Wrong

From Bloomberg we got the typical MSM’s view of events in Egypt: How Egypt’s Mursi Can Find the Path Back Toward Democracy. Generally the reaction of the West has been to condemn Morsi’s act as an attempt to assume dictatorial power. There is almost no mention of his relationship with the Muslim Brotherhood (MB). After all, didn’t he, like a good Western political aspirant, forsake his ties to the MB? A few of the statements that we found incredibly naive in the Bloomberg article are as follows (our comments in-line  in red):

Flash Point: The Fed is Dead!

We have written extensively on the Fed’s broken interest rate policies which along with propaganda (the use of  communications such as FOMC minutes and members’ speeches,  to influence investors and markets), are the main tools the Fed has to affect the economy. In short, lower interest rates encourage borrowing which stimulates the economy through added consumption (spending) and business investment. This traditional tool of using the Federal Funds Rate to control short term borrowing costs, broke in 2009 when effectively the zero rate lower bound was reached (ZIRP).

Unable to stimulate spending by this means, the Fed began a series of quantitative easing (QE) measures to bring down interest rates right across the yield curve to the 30-year long bond. The latest, dubbed QE3, was supposed to increase the downward pressure on long-term rates giving investors money to buy stocks, stimulating company investment.

In an article today titled QE Backfires as Dividend Quest Usurps Growth: Cutting Research, Bloomberg explains how this is not working as planned. Instead of increasing their debt load to invest in high-risk stocks with no return, investors are choosing to invest in the stocks of low-risk blue-chip stocks that pay a dividend and that by buying back their stock, raise the price giving investors a capital gain.

In driving real interest rates negative at the short end of the curve and well below 1-2% at the long end of the curve, the Fed has forced investors into equities to get some minimal positive return. It’s just that the investors didn’t quite go where the Fed wanted them to in terms of equities.

So QE has reached the end of its effectiveness leaving the Fed with what? The only question now is whether any further flatulent announcements and policy proposals are the product of a bad case of monetary overindulgent indigestion or the emissions of a rotting corpse. The Fed is not smart enough to realize that the problem is that of a debt cycle and not a business cycle. The consumer on the other hand, once again demonstrates wisdom as he manages his wealth.

Increasing European Fragmentation (Agenda)

Here is an 8:27 minute video on the timely topic of European unity. The current divisive issue is the EU budget for the next 5 years. Large national differences, particularly around subsidies and exemptions are causing strong national dissent in this poor economic environment. The issues are diverse, complex, and numerous but Stratfor highlights the major ones.

Latin America’s Economic Divide

Here’s a 3:00 minute video from Stratfor on Latin America:

Flash Point: What Obama Math Portends for the Fiscal Cliff

Put a dollar in a taxpayer’s hand and you’ve raised his disposable income by $1. This is what people spend and this spending spurs business development and stimulates the economy. Take a dollar out of his hand and the opposite effect occurs. In this light, consider the MarketWatch report: Obama seeks $1.6 trillion in tax increases: WSJ.

The White House wants both $1.6 trillion in tax increases as part of a fiscal cliff deal … [and] for at least $50 billion in new spending to spur the economy …

So lets do the math on the total stimulus effect of these two measures (in billions of dollars). $50 – $1,600 = -$1,550. Now that’s impressive stimulus – not. We can hardly wait to see what the Obama solution to the fiscal cliff turns out to be.

Coal Industry and Shadow Lending in China

In this video, Strafor looks at the coal industry in China (3:30) minutes). Contractions in the economy have negatively impacted demand, production and the ability to repay loans leading to a risk of major defaults on the books of China’s major banks,

The U.S.-Israeli Relationship


By Robert D. Kaplan
Chief Geopolitical Analyst

The United States is a virtual island. Bordered by two oceans and with nothing to its north except a thin band of middle-class Canadian settlements, its only geographic challenge is with a burgeoning Mexican population to its south. Israel, by contrast, lies half a world away and is a small and claustrophobic country bordered by enemies on three sides. Because the geographic situations of the United States and Israel are so utterly different, the idea that their geopolitical interests must always and completely overlap is just plain silly.

Socialism: A Terminal Disease of Democracy

This is the introductory note on the topic of Socialism. Our intuition is that our Western democratic societies are in terminal decline. The primary cause we attribute to the growth of command and control economies and the implementation of entitlement programs in the form of a so-called social safety net. The irony in the term most likely escapes the majority of believers in it. Nets can rescue falling people. They can also entrap as we are beginning to discover.

This is  a huge theme that the left in our society defend with a religious dogmatism and fervor. It is a topic that is wide and deep enough to consume all a person’s time and energy. We have neither the time nor the desire to make this kind of commitment. Yet we are convinced that it is one of the dominant forces of our age. As such we have decided to begin an open series on the topic. We will use short posts based on particular issues, articles, events and ideas as they arise or come to our attention, similar to our “Flash Point” series.

Socialism: “When Work Is Punished: The Tragedy Of America’s Welfare State”

In a post today titled When Work Is Punished: The Tragedy Of America’s Welfare State, Zero Hedge (ZH) reviewed a report published by the State of Pennsylvania titled Welfare’s Failure and the Solution, which we append below.

Perhaps the clearest statement of the idea is conveyed by this chart from the report (click on it to open in a new window).

Gaza, Catalonia and Romantic Nationalism

Gaza, Catalonia and Romantic Nationalism

November 27, 2012 | 1000 GMT


By George Friedman
Founder and Chief Executive Officer

Last week was spent obsessed with Gaza. In the end, nothing changed. A war was fought without an Israeli ground assault but with massive air and rocket attacks on both sides. Israel did not have the appetite and perhaps the power to crush Hamas. Hamas did not have the power to compel Israel to change its policies but wanted to achieve a symbolic victory against Israel. Both decided that continued fighting made little sense and allowed the Americans and Egyptians to bless a settlement. Everyone from Iran to the Egyptian Muslim Brotherhood played a role, and then the curtain on this act went down. It will come up again. It was not trivial for those who lived through the conflict, but in the end it changed little.

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