Thursday, July 2, 2015

Everything's Fine With the Economy, Please Keep Moving

As I've repeatedly said: I believe not a single statistic provided by the USG, not one.  This is especially true with the BLS and the unemployment data.  The latest news is simply appalling and yet all the talking heads in the MSM especially never mention the labor participation rate, the one damn statistic that is worthy of being reported!

Americans Not In The Labor Force Soar By 640,000 To Record 93.6 Million; Participation Rate Drops To 1977 Levels:

The devastation of the US labor force continues.

In what was an "unambiguously" unpleasant June jobs payrolls report, with both April and May jobs revised lower, the fact that the number of Americans not in the labor force soared once again, this time by a whopping 640,000 or the most since April 2014 to a record 93.6 million, with the result being a participation rate of 62.6 or where itt was in September 1977, will merely catalyze even more upside to the so called "market" which continues to reflect nothing but central bank liquidity, and thus - the accelerating deterioration of the broader economy.


End result: with the civilian employment to population ratio dropping from last month to 59.3%, one can easily on the chart below why there will be no broad wage growth any time soon, which will merely allow the Fed to engage in its failed policies for a long, long time.

The Insidiousness of the Dependency Culture

An excellent piece from Jacob Hornberger on the destructive nature of the dole, of dependence on government.  Here's The Corrosive and Destructive Power of the Dole: [emphasis mine]
Imagine you’re on the Titanic and the ship captain says, “If everyone throws his luggage overboard, the ship will be saved” and everyone responds, “No way. I’ve got a right to my luggage. Everyone else can throw his luggage overboard if he wants, but not me.”

That pretty much describes the situation in Greece. The government is bankrupt and the private sector is unable to sustain the tax burden to fund the government’s pension system and other expenses. Yet, everyone on the dole refuses to even consider a repeal of the dole system. “We have a right to our dole,” people exclaim. “We have worked all our lives for it. We are now entitled to our dole.” When told that the dole system is taking the country down the road to ruin, the dole recipients respond, “That’s not our problem. Just get the money somehow and somewhere. We don’t care. Just keep sending us our dole.”

Of course, what the dole recipients don’t realize is that the government cannot squeeze blood out of a turnip. The only way for a government to fund the dole is by first taking the money from people in the private sector through taxation. The problem in Greece is that there is not enough wealth and income to tax to pay the dole, the government bureaucrats, the government’s expenses, and the government’s mountain of debt.

As we see in Greece, a government dole system is one of the most insidious things that a nation can ever adopt. It not only can bankrupt a nation, it also makes the dole recipient a dependent, frightened ward of the state. And it corrodes and ultimately destroys people’s sense of independence and self-worth.

Of course, it’s no different here in the United States, especially when we consider the crown jewel of America’s dole system, Social Security.

Whatever else might be said about President Franklin Roosevelt, he was one brilliant political strategist. FDR knew that once he got people on the dole, he had them. That’s because the dole is like a narcotic. Once a person is hooked, he can’t get off it. He becomes convinced that he could never survive without it.

Consider the fact that federal spending here in the United States far exceeds federal tax revenues, just like what happened in Greece. America is headed in the same direction as Greece — national bankruptcy.

Yet, if you did a survey of Social Security recipients and people approaching the age entitling them to receive Social Security and asked them if they’d be willing to support an immediate repeal of Social Security, my hunch is that 99 percent of them would say no. “Yes, the government is spending too much money,” they would acknowledge, “but don’t even think of taking our dole away from us. We are entitled to our dole. We put it in and we have a right to get it back.”

The mindset of Social Security recipients perfectly demonstrates how the dole corrupts people’s thinking and damages their sense of conscience and moral values.

The fact is that no one has put anything into Social Security. It’s just a welfare program, plain and simple. It’s no different from food stamps, farm subsidies, or foreign aid to dictators. That’s the way it’s been from the beginning. That’s how the law is written. That’s what the Supreme Court has held. Congress can repeal Social Security, just as it can repeal any welfare-state program, and no one can recover money damages in a lawsuit against the U.S. government.

People are taxed. When you’re taxed, it doesn’t mean that you’re putting your money into a fund. It simply means that the government is taking your money and spending it on whatever it wants to spend it on — invasions, torturers, warships, welfare, drug war, regulation enforcement, foreign aid, or whatever.

It doesn’t make any difference how they raise their taxes — through a FICA tax, a Social Security tax, a Medicare tax, an income tax, a sales tax, a flat tax, a property tax, or an income tax. The fact that people are taxed doesn’t give them the right to a dole.

There is no Social Security fund any more than there is a farm subsidy fund or a dictator fund. There never has been a Social Security fund. No one has ever paid into anything. Everyone has simply been taxed, and the money has been spent a long time ago.

So, where does the money come from that Social Security recipients receive? It comes from people who are working — i.e., young people and middle-aged people. The government taxes that group of people and gives the money to seniors.

Thus, the dole system is really nothing more than a system based on legalized stealing. The government uses its tax power to take money from those to whom it belongs and gives it to people to whom it does not belong.

Boiled down to its essence, the argument of seniors is, “People who are now dead did it to us and so we now have the right to do it to young people.”

Suppose I were to accost you in a dark alley and rob you of $1,000, which I give to an 80-year-old person. Would you consider me a good person? I don’t think so. I think you would consider me a thief. You’d probably report me to the cops and support my criminal prosecution.

But when the government does the same thing that the private thief does, the government is viewed as a compassionate, caring entity. It’s a classic demonstration of the corrupting and corrosive effect that the dole system has on people’s sense of moral values.

Look at what Social Security does to people’s mindsets. Recipients are convinced that they would never survive without their dole, ignoring the fact that the American people lived without this socialistic program for more than a century. In fact, have you ever wondered how it is that an economic emergency that was sure to be temporary in nature (i.e., the Great Depression), gave rise to a socialistic program that became a permanent part of America’s governmental structure? And where in the Constitution did it authorize the federal government to establish such a program?

Moreover, rarely do you see seniors taking a pubic, vocal stand against the U.S. government’s invasions, wars of aggression, torture programs, assassination programs, and surveillance programs. That’s because they fear that if they were to do that, the government might cut off their dole. They are like little children who know that their survival depends on their parents. Oh sure, seniors will throw tantrums, much like children do, and rail against bureaucracies or “waste, fraud, and abuse” in government programs or the need to elect a “better” president or “better” congressmen, but they’ll never publicly challenge the state at a fundamental level. They’re just too scared to do that. Their daddy might cut them off. Social Security converts people into submissive and deferential wards of the state.

The dole system doesn’t adversely affect only the dole recipient. Its destructive and corrosive power works its way throughout society. For example, many people honestly believe that they are good people for living under a governmental system that forces people to be good.

There is also the life of the lie involved in all this. Americans pride themselves on being a “free people” and living in a “free country,” unlike, say, people in Cuba and North Korea. There is one big problem, however, one that goes the heart of the life of the lie: Social Security is one of the core governmental programs in Cuba and North Korea.

The corrupting and corrosive effects of the dole system have also, unfortunately, affected the libertarian movement. Every libertarian knows that freedom necessarily entails people keeping everything they earn and deciding for themselves what to do with their own money. That means a separation of charity and the state and economy and the state. The government has no more business providing a dole to seniors than it does providing a dole to churches. Charity is not a legitimate function of government and it’s just not moral for government to take money from people to whom it belongs in order to give it to people to whom it does not belong. Every libertarian understands and agrees with these principles.

Yet, some libertarians simply cannot bring themselves to call for the immediate repeal of Social Security? Why not? After all, they have no reservations about calling for the immediate repeal of farm subsidies, or subsidies to the arts, or foreign aid. Why not Social Security too?

Oftentimes, the answer lies with fear. Libertarians who won’t come out in favor of the immediate repeal of Social Security fear how they would be perceived by seniors and the mainstream press if they were to do so. Thus, instead of calling for the repeal of Social Security, as they do with farm subsidies, aid to the arts, or foreign aid, they come up with all sorts of Rube Goldberg schemes that are nothing more than a strange combination of socialism and economic fascism. Even worse, such schemes are sometimes billed as a “free-market-oriented” way to “advance freedom” by “fixing” Social Security, providing more evidence of the power of the dole system to corrupt sound thinking.

Actually, such Rube Goldberg schemes more deeply embed the state into the economic lives of the citizenry, either through economic fascism or a combination of socialism and economic fascism. In the process, the wrong message is conveyed to non-libertarians: that the federal government really does have a legitimate role to play in people’s retirement — or that Americans can’t trust freedom by simply repealing Social Security because seniors might really die in the streets if this socialist program were to be repealed — or even that it would be unfair to stop seniors from continuing to plunder the young and productive given that they’ve been taxed all their lives.

Freedom entails a dismantling, not a reform, of the governmental structures that infringe on freedom. That necessarily means a repeal of Social Security, not some convoluted reform plan to save or fix it. Moreover, freedom in fact does work. No one would be dying in the streets if Social Security were repealed today.

The question naturally arises: If libertarians won’t call for dismantling governmental structures that obstruct freedom and instead settle for reforming them, then how can we ever expect to achieve the free society? Or to put it another way, why would we expect non-libertarians to favor a free society if libertarians themselves won’t call for a free society?

A Ripple (Greece) That Will Turn Into a Tsunami (the EU and ...)

Before going into why, a few comments on Greece will set the scene. Last weekend it became clear that Greece is heading for both a default on its government debt and also a failure of its banking system. With the benefit of hindsight it appears that the Greek government was unwilling to pretend that it was solvent and extend its financial support as if it was. The other Eurozone finance ministers and the troika were not prepared to accept this reality.

There is no immediate benefit from debating why. What matters now are the economic and financial consequences, which are basically two: the Eurozone’s banking system is very fragile and cannot absorb any sovereign default shocks easily, and the ECB itself now needs refinancing. Let’s concentrate on the ECB first.

The losses the ECB face from Greece alone are about twice its equity capital and reserves. The emergency liquidity assistance (ELA) owed by Greece to the ECB totals some €89bn, and the TARGET2 balance owed by the Bank of Greece to the other Eurozone central banks is a further €100.3bn, which at the end of the day is the ECB’s liability. The total from these two liabilities on their own is roughly twice the ECB’s equity and reserves, which total only €98.5bn. Given the likely collapse of the Greek banking system and the government’s default on its debt, we can assume any collateral held against these loans, as well as any Greek bonds held by the ECB outright are more or less worthless.

The ECB has two courses of action: either it continues to support Greece to avoid crystallising its own losses or it recapitalises itself with a call upon its shareholders. The former appears to have been ruled out by last weekend’s events. For the latter a rights issue looks challenging to say the least, because not all the EU national central banks are in a position to contribute. Instead it is likely that some sort of qualifying perpetual bond will be issued for which there should be ready subscribers.

How this is handled is crucial, because there is considerable danger to the ECB from the instability of the whole Eurozone banking system, which is highly geared and extremely vulnerable to any reassessment of sovereign credit risk. If you believe that the Greek crisis has no implications for Italy, Spain, Portugal and even France, you will rest easy. This surely is how the ECB would like to represent the situation. If on the other hand you suspect that the collapse of the Greek banking system, plus their sovereign default, together with a knock-on effect in derivative markets, have important implications for euro-denominated bond markets, you will probably run for the hills. The latter being the case, highly geared Eurozone banks are likely to face difficulties, and they will affect the ECB’s own holdings of all bonds, both owned outright and held as collateral against loans to rickety banks.

In short, the ECB’s balance sheet, which is heavily dependent on Eurozone bond prices not collapsing, is itself extremely vulnerable to the knock-on effects from Greece. As the situation at the ECB becomes clear to financial markets, the euro’s legitimacy as a currency may be questioned, given it is no more than an artificial construct in circulation for only thirteen years.

In conclusion, the upsetting of the Greek applecart risks destabilising the euro itself, and a sub-par rate to the US dollar beckons.

End note on gold

This week should see the dollar strong against the euro and the euro price of gold can be expected to rise. The extent to which these happen may depend on whether or not central banks intervene. For what it’s worth last time this happened (over Cyprus February 2013) Europeans were reported to be requesting physical delivery against their unallocated gold accounts. The following April a co-ordinated bear raid of unprecedented size pushed the gold price down from $1580 to a low of $1183. The purpose of the raid was to disabuse investors of the safe-haven trade, in which it succeeded.

There is little such appetite for gold bullion today so a similar move is probably viewed by central banks as unnecessary; but if the gold price was to move significantly higher attempts to defuse the rise are less likely to succeed because there are very few sellers in western markets and the short positions on Comex in the Managed Money category start at record levels.
 Note: read any and everything you can by MacLeod!!!

Remembering Fouad Ajami

I have yet to read anything by Fouad Ajami, yet I have listened to several podcasts in which he spoke so passionately on topics about the Middle East, particularly Egypt.  He's gone one year now and Samuel Tadros' Remembering Fouad Ajami is a worthy read indeed.  I encourage readers of this blog to search out the podcasts and give a listen as well. 

Tuesday, June 30, 2015

The Bubble That Is The Chinese Economy

These are not pretty headlines, and when taken collectively, there's not much to be hopeful for in the Middle Kingdom ...

The Chinese Stock Bubble Bursts: Any Questions? by Charles Hugh Smith

"Blood On The Streets": Chinese 'Nasdaq' Crashes Most On Record, Morgan Stanley Warns "Don't Buy This Dip"

Chinese Stocks Crash Most In 19 Years, Re-Open Limit Down (Despite PBOC Hail Mary)

A Helpless China Tips Its Hand: A Market Crash "Poses Great Danger To Social Stability"

“Risk of Collapse” and “Panic” in the Air, China Cuts Rates 

It's 1929 In China—-Here’s The Chapter And Verse 

A Desperate China Cuts Key Policy Rates After Stock Market Crash; "It's Just Like 1987" [note: 1929 or 1987 - regardless - it's still a crash]

China’s $370 Billion Margin Call 

Bubble Trouble Strikes in China    

Chinese Regulator Blames Ongoing Market Crash On "Rumors", Demands Traders "Act Rational"

New:  Strap In! China Is Crashing Again 

New: Chart Of The Day: Is China Sending A Warning?  








The Venn Diagram of the American Oligarchy

This is how America is truly governed:


Source:  Former Senator Slams Washington As Corrupt "Sewer", Calls For Outraged Young Americans To Revolt

Get Ready To Pony Up to Save Greece

Here's a mind-numbing chart, from Charles Hugh Smith's The Global Template for Collapse: The Enchanting Charms of Cheap, Easy Credit:

The same transfer of risk and losses occurred in Europe, as these charts demonstrate: (Source: If Greece Defaults, Europe's Taxpayers Lose)
Here is the debt in 2009--mostly owed to private banks and bondholders:
Here is the debt in 2015--almost all was shifted onto the backs of taxpayers:



Granted, the French and Germans are on the hook for much more than Americans, however, just look at the transfer of risk from private investors to taxpayers!

One Simple Question

Why hasn't NSA Director James Clapper been arrested for perjury?

Yawn

NJ Gov. Chris Christie officially announces 2016 presidential bid.  Absolutely no shot at the presidency of course, so the goal must be to measure the primary results for 2020 and, to throw his hat in on the vice-presidency sweepstakes.  I'm ashamed to say that I had believed Christie to be a viable candidate, however, he's turned into just another scumbag.

Obamacare Wins - Again. The Nation Will Lose - Again

I held out hope that the SCOTUS would rule in favor of the challenge to Obamacare, yet once again, the highest court in the land hands yet another favor to progressivism.  The best single recap is Michael Cannon's Supreme Court Validates Obama’s Power Grab:
Today the Supreme Court allowed itself to be intimidated. Afraid that ObamaCare as written would throw the sickest patients out of their health plans a second time, the Court rewrote ObamaCare to save it—again. In doing so, the Court has sent a dangerous message to future administrations: If you are going to violate the law, make sure you go big.

The Court today validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim.

ObamaCare will continue to disrupt coverage for sick Americans until Congress repeals it and replaces it with reforms that make health care better, more affordable, and more secure. Despite today’s ruling, ObamaCare remains unpopular with the American public and the battle to set in place a health care system that works for all Americans is far from over.
And this one from Roger Pilon is worth reposting, for it contains a great quote from Justice Scalia - So Much for the Rule of Law:
Justice Scalia’s final paragraph in his dissent today in King v. Burwell pretty much says it all. Read the opinion and weep.
Perhaps the Patient Protection and Affordable Care Act will attain the enduring status of the Social Security Act or the Taft-Hartley Act; perhaps not. But this Court’s two decisions on the Act will surely be remembered through the years. The somersaults of statutory interpretation they have performed (“penalty” means tax, “further [Medicaid] payments to the State” means only incremental Medicaid payments to the State, “established by the State” means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence. And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.
We’ll have more on the decision in due course.

 In Upholding Obamacare’s Subsidies, Justice Roberts Rewrites the Law - Again from Peter Suderman.

Supreme Court Resigns Duties, Tortures English Language to Save Obamacare by Robby Soave

On Obamacare It's the Supreme Court vs. Rule of Law by David Harsany:
It was Roberts who helped rewrite Obamacare the first time around, making a penalty into a tax and, for the first time in history, allowing American government to coerce every citizen into buying a product from a private company as part of its power to regulate commerce.

Roberts, abandoning law, laments that Obamacare was drafted in a haphazard and vague way, right before ruling that laws can be implemented in any way the executive branch sees fit, as long as judges deem its intentions righteous.
John Roberts Urges Judicial Deference to Congress on Obamacare, Judicial Deference to State Legislatures on Gay Marriage by Damon Root

John Roberts’ Judicial Abdication by Damon Root

Scalia’s Obamacare Argument Is Stronger than Roberts’ by Ilya Shapiro

New:  Justice John Roberts’s Obamacare Decision Is an Orwellian Mess by Ilya Shapiro




Constitutional Ignorance and Dereliction

Walter Williams reminds us of the history of these United States in his latest work, Constitutional Ignorance and Dereliction: [emphasis mine]
The nation's demagogues and constitutionally ignorant are using the Charleston, South Carolina, AME church shooting to attack the Second Amendment's "right of the people to keep and bear Arms." A couple of years ago, President Barack Obama said, "I have a profound respect for the traditions of hunting that trace back in this country for generations." That's a vision shared by many Americans, namely that the Constitution's framers gave us the Second Amendment to protect our rights to go deer and duck hunting, do a bit of skeet shooting, and protect ourselves against criminals. That this vision is so widely held reflects the failure of gun rights advocates, such as the NRA and Gun Owners of America, to educate the American people. The following are some statements by the Founding Fathers. You tell me which one of them suggests that they gave us the Second Amendment for deer and duck hunting and protection against criminals.

Alexander Hamilton said, "The best we can hope for concerning the people at large is that they be properly armed," adding later, "If the representatives of the people betray their constituents, there is then no recourse left but in the exertion of that original right of self-defense which is paramount to all positive forms of government." What institution was Hamilton referring to when he said "the representatives of the people"?

Thomas Jefferson: "What country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms." Who are the rulers Jefferson had in mind?

James Madison, the "Father of the Constitution," said, "(The Constitution preserves) the advantage of being armed, which the Americans possess over the people of almost every other nation ... (where) the governments are afraid to trust the people with arms."

George Mason, author of the Virginia Bill of Rights, which served as inspiration for the U.S. Constitution's Bill of Rights, said, "To disarm the people — that was the best and most effectual way to enslave them," later saying, "I ask, sir, what is the militia? It is the whole people, except for a few public officials."

Richard Henry Lee said, "To preserve liberty, it is essential that the whole body of the people always possess arms, and be taught alike, especially when young, how to use them."

Here's a much more recent statement from a liberal, bearing no kinship to today's liberals/progressives: The late Vice President Hubert H. Humphrey said, "Certainly, one of the chief guarantees of freedom under any government, no matter how popular and respected, is the right of the citizen to keep and bear arms. ... The right of the citizen to bear arms is just one guarantee against arbitrary government, one more safeguard against the tyranny which now appears remote in America but which historically has proven to be always possible."

There are some historical anti-gun statements that might please America's gun grabbers. "Armas para que?" (Translated: "Guns, for what?") That's how Fidel Castro saw the right of citizens to possess guns. There's a more famous anti-gun statement: "The most foolish mistake we could possibly make would be to allow the subject races to possess arms. History shows that all conquerors who have allowed their subject races to carry arms have prepared their own downfall by so doing." That was Adolf Hitler.

At the heart of the original American ideal is the deep distrust and suspicion the founders of our nation had for Congress, distrust and suspicion not shared as much by today's Americans. Some of the founders' distrust is seen in our Constitution's language, such as Congress shall not abridge, infringe, deny, disparage, violate or deny. If the founders did not believe Congress would abuse our God-given rights, they would not have provided those protections.

Maybe there are Americans who would argue that we are moving toward greater liberty and less government control over our lives and no longer need to remain an armed citizenry. I'd like to see their evidence.

Monday, June 29, 2015

"All animals are equal, but some are more equal than others"

Here's one for those "more equal than others":  IRS Deleted Backups Of 24,000 Lois Lerner Emails Months After Subpoena.  And people worry about income inequality, when those they elect can get away with ignoring law and worrying nothing about the consequences of their illegal actions. 

Cash 101 (and the War on Cash 101)

Consider this Primer on Cash to be the single most important development to follow in the coming months.  Governments don't like cash, and neither do their central bankers.  With the failure of Keynesian economics: quantitative easing (QE); ZIRP and NIRP, the next step has to be in the form of bail-ins,  the elimination of cash and other capital controls.  Think it can't happen?  Remember, the federal government of the United States once made it a crime to own gold.  And know this: Negative Interest Rates (NIRP) is just that: a war on cash, i.e., banks are charging you to save/hold your cash!

All it takes for what seems like the improbable or the impossible to happen, is a real or manufactured crisis, in which the government takes whatever steps it says are necessary to "protect" its citizens.  Look back no further than 2008 when TARP was enacted, which started off with President George W. Bush saying "I've abolished free-market principles to save the free market system".  Say what?

Why is cash a threat to government?
  • It provides anonymity to its users. 
  • It cannot be easily traced.
  • It's harder to manipulate since it can be hoarded (saved) outside the banking (and shadow banking) system

Readings:

New:  Why Banks Rob Depositors: "Because That's Where the Money Is"

New:   Why We're Headed Toward A "Cashless Society"

Bundesbank Chief Says "Nein" To Cash Ban  [I like this German]

They’re Coming to Take Away Your Cash

The Next Round of the War on Cash Will be Even More Aggressive

Capital controls explained: Argentina edition

The European "Template" For Dealing With Crises: Freezing Accounts, Bank Holidays, and Capital Controls…

Our (Not So) Safe Deposit Boxes--Will Texans Ride to the Rescue?:
As I reported recently, banks are beginning to collaborate in the campaign by governments to stamp out the use of cash among the public.  Chase, for example, rolled out a new program in several markets in March that restricts borrowers from using cash for making payments on credit cards, equity lines, mortgages and auto loans.  Even more troubling is Chases' revised policy governing the use of its safe deposit boxes.  In a letter dated April 1, Chase informed its customers of the new policy, which included the following provision:  "You agree not to store any cash or coins other than those found to have a collectible value."
Your ATM Won't Work 

Financial Tyranny: The Dawn of a New Totalitarianism

The “Better Than Cash Alliance” Has An Orwellian Plan

The War on Cash is Now a Global Phenomenon

The Coming Capital Controls Are Designed To Protect The Banks From You
According to the Federal Reserve, the amount of physical US currency in circulation is about $1.3 trillion. Yet the amount of “M2” money supply is nearly ten times that amount.
More and More Outlets Are Suggesting a Carry Tax on Physical Cash

The Secret Meeting in London to End Cash

Abolish Cash? Hell No, Says German Economist. Notes and Coins Are 'Printed Freedom.'

A Cashless Society?

Control Freaks' Solution to Shadow Economy: Nag People and Abolish Cash

“Cash Is Coined Freedom”: War on Cash Becomes Official in Germany, Reaches G-7, Draws Withering Fire 

Leading German Keynesian Economist Calls For Cash Ban

The War on Cash Destroys a Small Entrepreneur

The Secret Fed Paper That Advocated a "Carry Tax" on All Physical Cash

Why Central Banks HATE Cash and Will Begin to Tax It Shortly

Abolishing Cash – New Age of Economic Totalitarianism

 The Trouble With Cash [by Alasdair MacLeod - read ANYTHING you can by this expert!]

Gordon Brown Adopts Marx’s Theory – Eliminate Cash Will Eliminate the Boom Bust Cycle

Stupid Or Satire? Bond Manager Suggests "Make Cash Illegal" To End Boom & Bust

The Situation Escalates – Greece Is Now Taxing Cash Withdrawals 
[Note: This action by the Greek government is just an example of what happens when the government needs money and the very banks that "hold" that money are nothing but co-conspirators.]

Russell Napier Explains What's In Store For Gold If Cash Is Outlawed

Danes Grab for Tax Revenues By Killing Cash

Greece Floats Surcharge On Withdrawals As ECB Considers Cuts To Liquidity Lifeline

France Restricts the Movement of Gold, Cash, & Crypto-Currencies

Why They Hate Cash——It’s A Check On Subzero Interest Rates 

Australia First to Introduce a Compulsory Tax on Money Itself:
The new compulsory control is provided in the 2015 Australian budget, so that everyone who has any savings must pay taxes on their savings. The measure is expected to serve as a global test balloon for Europe and North America, who will watch for the outcome in Australia. If there is no massive resistance of Australian savers, the rest of the world should expect this outright confiscation very rapidly.

Why The Powers That Be Are Pushing A Cashless Society

The Collapse Of Cash 

The Government War On Cash—-Its Going Global 

The War on Cash: Transparently Totalitarian

Prove You’re Not a Terrorist

Cash Is King (And That Scares the Hell Out of Governments, So ....

The “War on Cash” in 10 Spine-Chilling Quotes [some truly scary sh*t is said by 'experts']

We Are Sleepwalking Towards a Cashless Society

The “War on Cash” Migrates to Switzerland

The Death Of Cash 

Negative Interest Rates: The Black Hole of The Financial System [remember: NIRP is for all intents and purposes, a confiscation of cash]

The Euthanasia of the Saver

Thursday, June 25, 2015

Fasting: The Key to It (Life) All?

Fasting ...




Eat, Fast & Live Longer HD by limoslight

Camden's Residents Are STILL Screwed: Money for Corporations - Not for Residents

I've penned several posts on the "investments" that New Jersey government is making in Camden which can be found using the label below this post.  Of course, what's happening is that government is giving away its citizens' money as political favors to their cronies.  I know, what I really meant to say is that politicians are making investments in the future of Camden by luring businesses to set up shop in the city.  It's clearly evident that government's answer to the despair and poverty in Camden is to use gentrification to "revitalize" the city.  Few, if any, of the jobs promised by companies to be "in Camden" will actually be filled by residents of Camden.  When I read New $260M factory to be constructed in Camden, I could imagine government coming in, putting the residents on buses, and moving them "away", which of course is not without precedent, as the USG did forcibly imprison Japanese-Americans in California, during WWII.  To the impoverished in Camden: your lament will continue so long as politics prevails.  

Bubble Headlines

New:  There’s Something Wrong With Growth All Around The Planet - It’s The Serial Bubble Age Since 1995

Primer:  A World of Bubbles

Inside China’s IPO Bubble——-Its Rigged And Dangerous

Bubble Alert: How A 29-Year-Old Grew A $1 billion Tech ETF In 7 Months That Trades At 660X Earnings

Who Is Stoking The Trillion Dollar Student Debt Bubble?

Australia’s Housing Bubble—–The Mania Down Under

Silicon Valley’s Fantastic ‘Dry Bubble’   


The Punchbowl Stays by Peter Schiff


Toronto’s Epic Condo Bubble Suddenly Turns into Condo Glut

"Stratospheric", "Irrational" Chinese Rally "Screams Speculative Bubble" To BNP

Australia’s “Largest Housing Bubble on Record” in 4 Charts

A Bubble On Thin Ice

The $750 Billion VC Start-Up Bubble—-Calling The Greater Fools 

C-Suite Gamblers—–The Real ‘Dumb Money’ Inflating The Bubble

How To Spot A Bubble

What’s Pumping The Stock Bubble——$4.2 Trillion In Corporate Bond Issuance In Last 3 Years

A Tale Of Two Bubbles: China vs Nasdaq

Why China Is So Desperate To Blow The Most Epic Stock Bubble

Is The 505 Trillion Dollar Interest Rate Derivatives Bubble In Imminent Jeopardy?

Memo To Blogger Ben—–The TWC/Charter Deal Is A “Bubble” Staring You In The Face 

Here’s How The Fed’s Trickle Down Bubble Is Working For US Manufacturers 

Snapchat CEO Warns "Easy Money Policy" Has Created The Tech Bubble, "Matter Of Time Til It Bursts"

Wall Street R.I.P——The Bubble Is Dying At The Zero Bound

When the Current Housing Bubble Finally Bursts

Presenting The $77 Billion P2P Bubble

Bubble In Higher Education: When Will It Pop?

Mark Hanson Is In "Full-Blown, Black-Swan Lookout Mode" For Housing Bubble 2.0

Here We Go Again: Verizon To Buy AOL Marking Another Tech Bubble Top  [scary thing is that I didn't even know AOL was still around!]
A Tale Of Two Graphs——Why Bubble Finance Will Fail

Chinese Stock Bubble Now Plumbing Depths Of Human Stupidity

Bursting Bund Bubble: 2 Charts And Some Lessons From History

High End Real Estate in Canada in Frenzied Bubble Blow-Off


Mind The $76 Trillion Global Bond Bubble——Even The ‘Experts’ Are Getting Scared 

Housing Bubble 2: Investor Purchases Hit Record, Small Investors Pile in, ‘Smart Money’ Gets Out

The US Equity Bubble Depends On Corporate Buybacks; Here's The Proof

What Bubble? Wall Street To Turn P2P Loans Into CDOs

How Shale Is Becoming The .COM Bubble Of The 21st Century

Grantham Says Fed "Bound And Determined" To Engineer "Full-Fledged Bubble"

Stocks Bubble Right As the Economy Rolls Over… Next Up the Bloodbath

One More Reason Why The Student Debt Bubble Is About To Get A Lot Larger

One Bubble at a Time: 3D-Printing Stocks Implode

Biotech Bubble Breaking Bad: 10% "Correction" To 1-Month Lows

Meet IBR, The Student Loan Bubble's Dirty Secret [read this one, please! "Your [student loan] payment may be as low as $0.00"]

Canada’s Magnificent Housing Bubble Goes Nuts, Cracks

Biotech Bubble Buckles: Tumbles Almost 7% To 3-Week Lows

"Highway Robbery": Are Patients Paying For Biotech M&A Bubble?

The Fate of The Tech Bubble Is In The Hands Of Just One Company

How The Second Tech Bubble Will Burst, In The Words Of Silicon Valley's "Poster Child" And World's Youngest Billionaire

"Too Many Zeros": China's Stock Bubble Proves Too Much For Computers 

Is The Credibility Bubble Bursting?

Technology Indices and Creative Destruction – When Might the Bubble Burst?

The South (China) Sea Bubble

U.S. And Global Property Bubble Fears Mount

Futures Slump As Asian Stock Bubble Calls A Timeout

Three Daggers Aimed At The Equity Bubble 

Nikkei Hits 20,000 After Japan's Economy Minister Says "Bubbles Are Good"

Asia Superbubble Unstoppable: Hong Kong Up 10% In Past Week; Soaring Dollar Pushes Euro Back Under 1.06

Auto-Loan Bubble Endgame - Used-Car Prices Have Stalled

Euro Corporate Bond Market Is "Tenacious Bubble," UBS Says

China Tech Bubble Alert——Valuations More Extreme Than Dotcom Mania

The Fed’s Stimulus Bubble At Work—–Vacation Home Sales Booming In Cape Cod, Hamptons, Miami, Lake Tahoe, Etc. 

Bubblecovery—–Why The Two-Decade Up-Cycle In Stocks Is Heading For Disaster 

If Anyone Doubts We Are In A Stock Market Bubble, Show Them This

Bubble Confirmed: From Sock Puppets To Action Heroes

Hedge Fund Legend Julian Robertson Warns Of A "Complete Explosion" Unless Fed Contains "Boiling, Bubble" Market

“The Mother of All Bubbles” in Stocks and Bonds: Bank CEO

Stocks Are In an Epic Bubble Second Only to the 1999 Tech Bubble

$100 Trillion Global Bond Bubble Poses “Systemic Risk” To Financial System

Why The China Bubble Is Incendiary—–Beijing Flinches, Reopens Empty Apartment (2nd Mortgage) Spigot 

Last Time this Happened with Healthcare Stocks, it was a Bubble, and it Collapsed:
Healthcare has some advantages over other industries. It’s the only place in the economy where consumers have no clue at the time of purchase what the products and services will cost them or their insurers. Yet these could be big-ticket items, costing more than a car or even a house in some cases. Pricing is more than opaque, and purposefully so. The industry knows how to use fear to motivate consumers to buy. And it’s full of state-protected monopolies and anticompetitive structures dedicated to taking an ever bigger bite out of the economy. It wreaks havoc on federal, state, and municipal budgets. It strains consumers. And a considerable part of that glorious revenue stream is sooner or later funded by taxpayers.  

The Bubble Machine Is Complete: Soaring Stocks Push Investors Into Bonds Whose Issuers Buy More Stocks

Are We In A Biotech Bubble? You Decide

Why Yellen & The Feds Are Bubble Blind - They Apparently Believe Wall Street’s EPS Scam 

US Housing Bubble 2.0 In One Chart: Home Prices Outpace Wage Growth 13:1 

It’s Not Different This Time: The Biotech Bubble Is The New Dotcom

How Governments Worked WIth the Banks to Create the $555 Trillion Interest Rate Bubble

Why The Dollar Is Rising As The Global Monetary Bubble Craters

Massive Malinvestment Eviscerating Global Iron Ore Industry—–Prices Heading Toward $30/Ton

The $1.2 Trillion Student Loan Bubble - The Ultimate Subprime Debacle

Subprime Auto Market Begins To Crack - Delinquencies At 2008 Highs 

NFIB Chief Economist Warns "Bubble In US Net Worth Has Reached Unsustainable Heights"

Thanks For The Corporate Bond Bubble, Fed

Why This Tech Bubble is Worse Than the Tech Bubble of 2000

Alan Greenspan Warns Stocks Are "Without Doubt Extremely Overvalued"  [this from the man who was the master bubble maker!]

No Laughing Matter: Fed Laughed As Bubble Burst
 

The Ultimate Cause of the Financial Meltdown: Government

Six minutes well-spent ...

On The Call to "Buy Local" (Not So Fast ...)

Nothing like a short video with GMU Professor Don Boudreaux on the myth that buying local is good for the economy:

Interesting Idea

Replacing the National Debt with Equity:
What if, instead of borrowing money to sustain its spending, the U.S. government instead sold equity shares of the future performance of the U.S. economy?

Evan Schulman, the president and founder of Tykhe LLC, who received a patent in 2006 for his concept of sales participation certificates—a way for businesses and other entities to raise capital to fund their operations—offers an intriguing proposal:
The problem with the federal debt is not only its size but when it needs to be refinanced. A shade less than 70% of the $16 trillion of outstanding federal debt matures in 5 years or less. A 2% rise in rates would, very quickly, almost double Treasury’s interest costs.

Why doesn’t Treasury extend the maturity of this debt to protect us? Interest rates on longer term debt are greater than on short term debt. Every 1% increase in rates today will cost the taxpayer $10 billion annually per $1 trillion; Treasury officials are playing the current low short term rates for every penny. So far they have been correct.

However, let’s ask: “Couldn’t financial engineers design a better instrument than debt?” Debt saddles the issuer with fixed costs, offering no relief if the future does not live up to expectations; and debt exposes the investor to the ravages of unanticipated inflation.

Let Treasury offer a more equity-like instrument, one that paid the investor a constant percent of nominal Gross Domestic Product (“GDP”), and nothing more, for, say, 30 years. Then the investor would have protection from inflation, Treasury would get some relief when the economy was in recession and, since it self-liquidates, there would be no need to refinance the issue; hence we would no longer burden our progeny with our profligate ways.
It’s an intriguing proposal because the U.S. government’s revenues, from which equity payments would be made, have represented a relatively stable percentage of the nation’s GDP for decades—about 17.5% of GDP with a standard deviation of 1.2% of GDP. So long as the equity payments are a fraction of that percentage, it would be a sustainable replacement for debt.

But there is a downside to equity financing a national government this way. Investopedia explains using the example of a business that has used equity financing:
The downside is large. In order to gain the funding, you will have to give the investor a percentage of your company. You will have to share your profits and consult with your new partners any time you make decisions affecting the company. The only way to remove investors is to buy them out, but that will likely be more expensive than the money they originally gave you.
On the plus side, it would make for an interesting episode of Shark Tank if the U.S. President and Treasury Secretary showed up together looking to make a deal.

Wednesday, June 24, 2015

Sacré Bleu!!

French Unemployment Hits Record High: 80th Consecutive Month Of Rising Joblessness.  You read that correctly: 80 consecutive months of rising unemployment! The truly sad part about this bad news is there are people that continue to believe government is the solution to the problem!  Open the link and look at the graph and tell me that things aren't truly fucked up!

No, Absolutely Not

Should NCAA serve as NBA's minor league?  Nor should it serve as the NFL's minor league either.  Here's a quote from the piece that just riles me up a bit:
"I think the question that players have to start asking themselves is, 'Where is the best use of my time if my vocation is to play basketball?'" said a Western Conference general manager who also said he believes AAU games resemble the NBA style of play much more than college basketball's do.

"The question is, where is their time better spent? On a campus where they're going through the motions academically and they're playing a style that probably does more to hinder their chances?

"The daily lifestyle in college, if that's not what you're interested in, just pulls you away from the game. If that's going to be your profession, that's what your goals are, one year in college is not making you a student, OK? Especially not when half of them start leaving in the middle of the second semester whenever their teams are eliminated. So let's be honest about what it really is. It's about continuing to promote the college game."
"... going through the motions ... " Sorry, but that alone should provide the answer to the question.  Of course, there's money involved, so it's cheaper to allow colleges to be the minor leagues vs. the NBA creating and funding a real minor league system.  While basketball bothers me quite a bit, it is FBS college football that truly fires me up.

And The Other Reason Is the Religion That Environmentalism Has Become

American recycling is stalling, and the big blue bin is one reason why

Boudreaux on Commercialism and Politics

GMU Professor Don Boudreaux at his best in Politics & commerce, crass & mass:
If, on June 16, you Googled “crass commercialism,” you got 88,500 hits. If you Googled “crass politics,” you got 7,830 hits — fewer than one-tenth the number of hits for “crass commercialism.”

Why do we accept so readily the classification of commerce as “crass” while politics does not commonly get criticized as such? What can possibly be more crass than political campaigns featuring adults dissembling, lying, and shifting — and kissing babies and posing with hardhats for the cameras — in order to persuade the masses that they are secular saviors?

One possibility is that “crass commercialism” is more alliterative than “crass politics.” But given the contempt that intellectuals typically pour on the likes of Wal-Mart, McDonald's and commerce generally — and given also the plaudits that these same intellectuals bestow on politicians who excel at demonizing commerce — “crass commercialism” catches on as a phrase because too many people really do despise commerce.

Why? Those activities that regularly get labeled as “crass” are those that appeal to the masses. Hollywood blockbusters are “crass”; indie movies are cool. McDonald's is “crass”; artisan cheesemakers are cool. Wal-Mart is “crass”; a boutique merchant selling hand-knitted sweaters is cool. Supermarkets are “crass”; farmers' markets are cool. Shopping malls are “crass”; tiny stores tucked into basements along Bleecker Street are cool. Disney World is “crass”; Iceland's fjords are cool. The suburbs are “crass”; Georgetown is cool. Budweiser is “crass”; Sierra Nevada brews are cool.

Whenever entrepreneurs adopt business models that appeal to large numbers of people, they are called “crass.” Far more appealing, apparently, are entrepreneurs who refuse to seek higher profits by catering to large numbers of people. Cool are the entrepreneurs who ignore the desires of the masses and concentrate their attentions on serving only select handfuls of customers.

Strangely, the opposite holds in politics. While catering to the masses commercially is criticized as crass, catering to the masses politically is celebrated as commendable.

Yet almost all of the commerce labeled as “crass” is commerce that equalizes. When the talented indie filmmaker “sells out” by using his skills to make a Hollywood blockbuster, he shares his talents with a far larger number of people than he did when he made esoteric indie films that won the applause only of the film critic of The Village Voice. This filmmaker, by “selling out” — by pursuing crass commerce — spreads more evenly throughout the population the fruits of his unique talents. When the celebrated chef “sells out” by creating fine cuisine with mass appeal for sale at airports and shopping malls — rather than continuing to cook exclusively for high-dollar diners in the French Quarter — she makes more equal the distribution of gastronomic delights. When the acclaimed designer of chic wardrobes for the rich and famous “sells out” by starting a line of clothing to be offered for sale at Target, he helps to deconcentrate the wealth of access to uniquely designed clothing.

“Crass commercialism,” in other words, is really mass commercialism. It is commerce — driven chiefly by the “crass” pursuit of profits by the “sellouts” — in which creative talents of producers are “distributed” more evenly throughout the population rather than hoarded by elites. In contrast, mass politics is simply crass politics.

Enough Already! Allow Bigots Their Opportunity to Display Their Bigotry

Seriously, people, settle down with this incessant call to do away with the Confederate flag.  Granted, the recent tragedy in Charleston, S.C. was abhorrent for the simple reason that nine beautiful people were murdered for no reason whatsoever.  While I understand the reaction, the necessity, to channel anger and frustration, forcing something underground, behind closed doors, is not the answer.  So, as I read yet another headline about the Confederate flag, this time local here in the Philly area:  Major flag maker in Berks County to halt Confederate flag production, I reflect upon what this reaction actually encourages: forcing bigotry behind closed doors.  Allow me a disclaimer though: I do agree that the Confederate flag should not be flown on public buildings, as many do find it offensive.

As with recent attempts to limit free speech, I find the result of forcing private citizens to do something they normally do in public, only in private, dangerous.  As I've said before, I'd rather see and hear someone's opinions, beliefs, etc.  There is no right "not to be offended", and to call for one is so very dangerous indeed, primarily for the simple reason as to who gets to determine what is offensive.  So, allow people to say and do what they want, so long as it does not violate the natural rights of anyone else.  Nothing changes bigotry and ignorance like transparency.

Enough Already With this "American Dream" Bullshit

Seriously, I've just about had it with this incessant chirping about the "American Dream", of which no two people, when queried, can give me the same answer to the question "What is the American Dream?"  As I read The American dream is not what it used to be, I again had a visceral reaction to this nonsense of home ownership being a requisite dream for Americans.  Please, spare me the patriotic bullshit too. Here's the first sentence from the post:
Owning a home is no longer the American dream it once was.
Sorry, but am I the only one who understands that to own a home means that one day you're more than likely going to have to sell it, and therein lies one of its several problems.  Nothing kills the "dream" like the trials and tribulations of selling a home, especially when strangers walk through your "dream" and have rather snide comments about that kitchen you worked so hard on remodeling and was special because that's where your little Joey first said "daddy": your buyers don't give a fuck, sorry!  Take the low-ball offer or wait another three months.  It's at precisely this moment you realize that your house is not the investment your mortgage broker said it would be!  Of course, we do have the housing bubble burst of 2008 to demonstrate the realities of putting people in homes they could not afford.

The American Reality is that in most cases, people will have to move, and nothing limits mobility like the anchor of a mortgage.  This necessity to move could be for a multitude of reasons, from starting a family which requires a larger home, in a better school district, to changing jobs and moving to where the opportunities are located.  Some may have to move to downsize and/or move to a more tax friendly location e.g., where property taxes and taxes on pension incomes are less (people move to Florida for more than just the weather).  Gone are the days where generations of families can stay in one locale, and in fact, families are now spread out not only across the country, but around the globe as well. 

So my fellow Americans, let's dispel once and for all that home ownership is somehow part of an "American Dream".  The American Dream is whatever you want it to be.  Listen, if owning a home is what you want to do, great, but just don't expect bail-outs when it doesn't go your way.  The greatness of this country is that we can all have our own dreams and aspirations, and any attempt to somehow collectivize them is wrong, if not dangerous.

Headline That Will Make a Progressive Vomit

Wal-Mart to start charging suppliers as costs of wake hikes rise.  You know, those nasty businesses have to rein in their greed and support a higher minimum wage, and you know, do it without impacting customers.  Well, now it's time to wake up liberals, progressives and general 'do-gooders' everywhere: nothing's free, and this example by Wal-Mart is just one of many, as the costs to do business are passed onto those that pay for them: customers.  The absolute ignorance of even basic economics is appalling.  Of course, no one that supports the minimum wage has been able to answer my one simple question: Why stop at a minimum wage of $15/hour?  Why not make it $50 or even $100/hour?  "That's a stupid question Paul! No one could pay $50 an hour".   They stare back at my rather irksome smile and just can't see, let alone understand, the reason for my smugness. 

The Myth of Voting

Of course, I was tempted to name this post The Myth of the Rational Voter, but Bryan Caplan has already penned the best book ever on voting, which happens to have that title wrapped up.  Ever since reading and reflecting upon Caplan's book, I have come to loathe voting, primarily due to the fact that the facade, the model, the patriotic act of voting is so diametrically opposed to its actual practice, those that actually vote, their ability to recognize and understand the issues, and of course, the actual outcome. Though I have attempted to explain my position to those that talk to me about the "duty to vote", my arguments usually fall on deaf ears, primarily because most view the act of voting not only patriotic, they view the act of not voting as ___________ (communistic; socialist; unpatriotic; stupid; immoral, well, you get it).  This being said, I found this innocuous example of both the actual act of voting as well as the calling for votes, rather supportive of my position:  Cast your vote for the Schuylkill River Trail.  Here's a call to vote for the Schuylkill River Trail (SRT), which I cycle regularly, a rather innocent call of course, to have it be placed in the "10 Best Urban Trails in USA Today’s 10 Best Reader’s Choice Awards."  What's wrong with this you might ask?  Well, though I would not say it's "wrong", it's certainly questionable, and here's why: I'd argue that an overwhelming majority of voters have never cycled any of the other trails on the list, so the vote itself is an encouragement to chose based upon simple familiarity and, well quite frankly, being a "homer".  I'd argue that this is exactly the way many people, if not the majority, in political elections: vote a party; a person they know and "like", and without real knowledge/awareness of the other candidates, and most importantly, without knowledge of the actual issues (in this example, the issues are akin to the other trails).  There's no moral hazard, no real negative impact of voting for the "wrong trail", however, voting for a party, a name (e.g., Bush or Clinton) because one "likes" the name, well, that does have real impact on outcomes and likely has real moral hazard.  As Bryan Caplan explains in his book, most people, and I include myself in this statement, are rationally ignorant, that is, we do not have the time to invest in becoming fully aware, fully expert enough in all the issues, and most are not an expert in even a single one, and yet we (and I do not include myself in "we") cast votes.  Granted, my example here is rather benign, and some may even say it's childish or absurd, but I truly believe it reflects how most people vote.

Tuesday, June 23, 2015

Today's "Everything's Fine With the Economy" Headlines

Durable Goods Order Bounce Dead; Biggest Drop Since 2009

Economically Key Industrial Metals Complex Is Breaking Down

The Economy’s All Fixed—–Only 70 Million Adults Teetering On The Edge Of Ruin  

US Manufacturing PMI Slumps To Weakest Since Oct 2013

China’s Auto Exports Plunge, at Worst Possible Time  

How About Trying To No Longer Be Part of the Problem to Begin With?

How Do You Fix a Problem Like Korea? by Doug Bandow.  As usual, Bandow's grasp of history is as remarkable as his ability to propose common sense solutions to what most politicians believe are intractable problems.  I've long been for "turning over" North Korea to the South Koreans in particular, and to China, in general.  The Hermit Kingdom is in their backyards, literally, and both are rich and wise enough to deal with the madness north of the 38th Parallel.  America's presence only serves to exacerbate the problem, so let's just walk away.  
Out of all America’s massive foreign policy challenges — China, Russia, the Middle East, to name only the most obvious — North Korea is perhaps the least tractable. For a quarter century, Washington has tried both engagement and isolation, but the Hermit Kingdom’s behavior has remained unchanged, except that it is now a nuclear power and could develop an arsenal to match Israel’s or Pakistan’s fairly soon.

That’s not good news, but it’s not as bad as it seems. The tyranny in Pyongyang has never been and doesn’t pretend to be a global power competing with Washington. It aims its rhetoric and weapons at America simply because we’re the superpower on its border. War with Pyongyang poses an existential threat to the Republic of Korea, but it’s a matter of choice for Washington.

North Korea has existed longer than the People’s Republic of China and almost as long as the Soviet Union did. It emerged from the rubble of the Second World War after Japan’s defeat. Washington and Moscow divided the Korean peninsula between them with each occupying approximately half, and created two client states — both authoritarian, aggressive, impoverished and dependent. The Soviets armed the north, headed by former guerrilla leader Kim Il-sung, but Washington denied the republic equivalent arms because President Syngman Rhee threatened to use them in a march north. The Korean War began barely five years after Hiroshima was destroyed, and it was greatly prolonged by China’s joining in and fighting alongside the north.

Millions died or were displaced, both Koreas’ economies were wrecked, and the peninsula was devastated. As the Cold War deepened, the so-called Demilitarized Zone along the 38th parallel dividing north and south, became the most heavily militarized frontier on earth. The two Koreas fell into their own cold war, with occasional hot-war flare-ups, and it has lasted long after the point at which the original Cold War is regarded as ancient history by the millennial generation. Yet America reluctantly remains in the middle of it all.

Kim Il-sung created the most totalitarian state on Earth, with a suffocating personality cult, a system of social classification and a security apparatus that continues to mete out barbarous punishments to the many people whom the regime deems to be its enemies. At one point, North Koreans were sorted into 51 different categories, and 150,000 or more were imprisoned in labor camps. At least half a million people died of starvation in the late 1990s.

Some outside observers hoped Kim’s successors would lift the tyranny, but it has persisted as brutally as ever through the regimes of his son and now his grandson. Political repression is harsher than ever and escape to China is more difficult. People no longer are starving, but obtaining adequate food remains a challenge for many.

North Korea is not much better a friend than it is a foe. Neither Moscow nor Beijing has found it a predictable partner. Kim Il-sung cemented his control by purging Koreans aligned with either of his communist allies. He criticized minimal reforms in Russia after Stalin, and was scathing about China’s for the Cultural Revolution. He vilified Moscow for recognizing the south after the end of the Cold War, although of necessity it reluctantly accepted China’s normalization of relations with Seoul. Until recently, North Korea’s had virtually no relationship with Russia, and ties with China are increasingly strained.

North Korea has evolved into a communist monarchy, with Kim Jong-il succeeding his father in 1994, and being followed by his third son, Kim Jong-un, in 2011. What do we know of Jong-un? That he briefly attended school in Switzerland and is apparently a fan of the Chicago Bulls basketball team (hence his apparently-reciprocated fascination with Dennis Rodman).

Although the despots have routinely inflicted horrors on the populace, they have until recently given some measure of security to their courtiers. Once Kim Il-sung had destroyed opposing factions, those around him were largely loyalists, many of whom had served with him against the Japanese. Officials rose and fell, and some occasionally suffered from mysterious deaths. But public executions, especially of family members, were rare.

But Pyongyang politics now appear to have become far bloodier. Defense Minister Hyon Yong-chol was executed recently, ostensibly for falling asleep at meetings. His fate, both quick and unexpected, suggested something more serious, however, such as involvement in plots against the younger leader.

At least half of North Korea’s top 218 officials have been shifted since Jong-un came to power. Most of those who carried Kim Jong-il’s coffin have disappeared. One of three “regents” created by Kim Jong-il for his son, Vice Marshal Ri Yong-ho, unexpectedly “retired” after an unusual Presidium meeting in July 2012. He is rumored to have been imprisoned or murdered. Jang, another “regent,” was charged with treason and quickly executed. Aunt Kim Kyong-hui, the third “regent,” has disappeared.

Overall, some 500 officials have been executed since Kim Jong-un took power, 70 of them high-level. Fifteen have been killed so far this year. While the sheer numbers are significant, so too is the fact they many have been made public.

A Hong Kong newspaper claimed, falsely, that Uncle Jang was fed to a pack of starving dogs. Minister Hyon was said to be shot with an anti-aircraft gun. The Hermit Kingdom has been a land in which the improbable is actually fairly likely. But there are also many false ideas about the place, because reliable information is so scarce. After I first visited more than two decades ago, for example, a State Department official asked me if North Koreans wore socks. (The answer was yes).

A supposedly knowledgeable analyst once claimed that trucks were not allowed in Pyongyang when in truth they are more common that normal cars. The story about the execution by hungry dog pack was invented as satire. The anti-aircraft fire story reflects one interpretation of satellite photos, not reliable eye-witness accounts.

Jong-un’s behavior sustains the belief that he is impulsive. He appears to be either uniquely cruel or fearful, perhaps both. After consolidating power, his grandfather was able to relax a little. Il-sung’s son, Jong-il, was also secure before succeeding his father because he had made so many senior appointments while his father was still alive. So he, too, saw no need to take precipitous action against his colleagues. Equally important, no one may have been willing to challenge his rule for the same reason.

The newest despot, however, enjoyed no such advantages. His succession was rushed. He was surrounded by officials appointed by his father. The capital probably teemed with party apparatchiks, soldiers, security officials and family members who believed it was their turn to take control. It is far better in Pyongyang to be No. 1 than to be anywhere else in the hierarchy.

Kim probably has only a shaky grip on power, and knows it. He may hope to eliminate even the slightest hint of opposition, and if he cows his court sufficiently he might be able to moderate his approach accordingly. But the lesson offered by Joseph Stalin, who was at his bloodiest after taking complete control, does not suggest this is likely. And in the short-term, at least, Kim has made his regime even more unstable by changing Pyongyang’s political game so radically. If dozing off in a meeting means death, regicide makes some sense.

Still, the chief problem with North Korea for the rest of the world is not the “grotesque, grisly, horrendous public displays of executions on a whim and a fancy,” mentioned by Secretary of State John Kerry. Nor is it the breathtaking human rights violations against ordinary people.

No, the nature of the North Korean regime matters because it possesses advanced conventional military forces and a growing arsenal of missiles and weapons of mass destruction. It has chemical weapons and abundant missiles. It is working on longer-range missiles that could strike North America. While no one actually knows its nuclear capabilities in detail, recent estimates suggest it will have 20 warheads by next year and 50-100 by 2020. Analysts disagree about whether Pyonyang has miniaturized weapons so they can be mounted on missiles, and it almost certainly faked photos of a submarine missile launch. But that episode suggests a North Korean goal.

The Kim dynasty’s chief objective appears to be survival. Kim and company would doubtless be pleased to forcibly reunify the peninsula. but behind their rhetorical threats against America appears to be a realistic appreciation of U.S. power. South Korea, with twice the population of the north, can defend itself. It has far more advanced technology and greater international reach, having formed strong relationships with the north’s only potential allies, China and Russia. Probably neither would help Pyongyang if it started another war.

But even if a North Korean attack is unlikely, its nukes make this small, bankrupt and isolated dictatorship a problem, for they create opportunities for extortion against wealthy, fearful neighbors such as South Korea and Japan. Developing the ultimate weapon also rewards the military for its loyalty.

The north has never followed through on its threat to turn Seoul into a “lake of fire,” but it does commit lesser provocations. In 2010, it sank a South Korean ship and bombarded a South Korean island, but then backed off in the face of South Korean threats of retaliation. Kim Jong-un may lack his father’s sure touch about how far to go, but he has avoided any serious international missteps so far.

Despite fears that it would sell nuclear materials to terrorists, Pyongyang has made them available only to governments, and thus has not crossed what would surely be a red line triggering American action. Nothing suggests Pyongyang will take such a step, risking the new security that its nuclear advances brought it.

Simply put, the Kim dynasty is evil, but not remotely suicidal. They prefer their virgins in this world rather than the next.

What makes the north such a challenge is that there is no obvious solution to any aspect of its malignant behavior. There isn’t much that Washington and its allies, or even China, can do to keep it in check.

Current policy, combining isolation with an offer to negotiate if the north moves toward denuclearization, has failed. Pyongyang steadily built its nuclear arsenal and improved its missiles with international condemnation as background noise. It has proved more likely to behave provocatively when it thinks it was being ignored.

Some policymakers, such as Sen. John McCain, R-Ariz., suggested war is an option. But even without nuclear weapons, the north could turn the south’s political, industrial and population heart into the threatened lake of fire. And Pyongyang is likely to see any military action as the start of full-scale war and an effort at regime change, prompting massive retaliation.

Decades of international sanctions have achieved little. North Koreans have suffered but the regime remains. It has made a virtue of isolation, calling it “Juche,” the philosophy of self-reliance. The new Kim appears to be reaching out more overseas, but the bulk of North Korea’s trade remains with China. Tightened controls would have little impact without Beijing’s backing. China can veto any United Nations measure with which it disagrees and so far has consistently undercut American proposals for tougher action. It remains Pyongyang’s economic lifeline.

The Obama administration has asked Beijing without success to press North Korea to be reasonable by cutting off food and energy supplies. China is unhappy with its unpredictable client but values stability over denuclearization, and is unwilling to make North Korean collapse more likely. It doesn’t want conflict on its doorstep with loose nukes and mass refugee flows. Nor does Beijing want to encourage Korean reunification that would put the peninsula under American control with U.S. troops on its border.

All this means negotiation is the only remaining option, not that it is possible to retain illusions of success. Virtually no one believes Pyongyang will give up its nukes. The benefits of keeping them are too great. Jong-un is unlikely to provoke his marginally loyal military by negotiating away their most powerful weapon.

But the north might be willing to agree to other U.S. objectives, such as a cap on nuclear activity, pull-back of conventional forces, greater international transparency or discussion on human rights. Beginning a dialogue, even initiating a diplomatic presence, however small, would at least offer the U.S. a window into an otherwise mysterious and closed society.

More importantly, the U.S. should turn South Korea’s defense over to Seoul. North Korea threatens America only because the U.S. has stations troops in the Korean peninsula. The need for such a presence disappeared years ago. South Korea developed a prosperous democracy, racing far past the north on almost every measure. Seoul has taken on an increasingly important international role. Its final step should be to take over the task of deterring the north. It’s a dirty job, but it should be the responsibility of South Koreans rather than Americans after all these years.

Washington would no longer be a scapegoat for North Korea, useful as a demon to inflame support for the regime. South Korea no longer would look to America as the lead in dealing with North Korea. China no longer could take advantage of the U.S. by demanding concessions from Washington to “help” by pushing Pyongyang into one set of international talks or another. Washington should still be interested in Northeast Asia and ready to cooperate with its friends.

North Korea’s communist monarchy could last decades longer.