Friday, October 17, 2014

Nuclear Fusion: Close to Being a Reality?

A few interesting posts on Lockheed Martin's recent claims about nuclear fusion.  Of course, all such future possibilities appear to be "10 years away", but there's more noise to this than I've seen/read before, so let's see ... but ....

A compact fusion reactor?

What Does Fusion Mean for the Future?

Fusion Power Only Ten Years Away? Would It Solve the Problem of Man-Made Climate Change?

Just In From the "Department of WTF" Comes ...

... this mind-numbing, kangaroo court example of due process, America 2.0 style: SCOTUS accepts judicial sentencing tyranny in drug case:
It may sound like a case out of the kangaroo courts of North Korea or Cuba, but chillingly, it comes from the very heart of our republic.

In 2007 a Washington, D.C. man, Antwuan Ball, was convicted of one count of selling $600 worth of cocaine and acquitted of several other charges alleging a conspiracy of drug distribution, murder, and racketeering. However, the district court used the charges of which he was acquitted to increase his sentence from a few years for the one drug deal to 19 years for the conspiracy. Six years later, in 2013, the DC Circuit Court of Appeals upheld the sentence. And in a final act of injustice, the Supreme Court this week refused to hear the appeal, rendering permanent Ball’s sentence on charges for which he was acquitted.

The level of tyranny being tacitly endorsed here by 6 members of the highest court in the land is hard to exaggerate and to fathom. Judges should have a certain measure of discretion to level appropriate sentences after a conviction, but using charges for which the defendent was specifically acquitted for that purpose is against the entire spirit of due process and the Bill of Rights.

The Court needs only 4 justices to grant an appeal, not even a majority. But this case, Jones v. United States, received only 3: Scalia, who wrote a whithering dissent (PDF, pg 14-16), joined by Thomas, and, yep, Ginsburg. So much for the vaunted Libertarian Court.

Not one other justice thought it was worth hearing an appeal from an American citizen who was sentenced by a judge for a crime that a jury found he had not committed. Not Roberts, not Kagan, not Sotomayor… Though in the latter’s case, it shouldn’t be surprising. During Sotomayor’s term on the Second Circuit Court of Appeals, she ruled against defendants who had been similarly sentenced according to the guidelines for charges for which they were not convicted and for which they were acquitted.

One would be forgiven for thinking this sounds like one of the grievances the Continental Congress filed against King George in the Declaration of Independence. The list of tyrannies perpetuated, endorsed, or tolerated by our government grows similarly long.
 So this is America?

Short and To The Point: Deficits and Debt DO Matter

Megan McArdle is to the point in her post entitled Don't Care About the Deficit? Now You Should: [emphasis is mine]
I’ve said it before and I’ll say it again: Outside a few lonely hawks, no one cares about the budget deficit -- at least, not as long as they have any chance of getting some tax cut, or some spending, that they favor. Liberals were huge budget hawks in 2007, outraged about the George W. Bush deficit that was, by that point, running a little more than 1 percent a year. Fast-forward to 2014, when the Bush tax cuts have been partially repealed, helping President Barack Obama to slash the budget deficit to its lowest point in his administration -- 4 percent -- and the left is curiously uninterested in deficit reduction. See Note 1 Below Meanwhile, the Republicans who couldn’t be bothered with the deficit as long as it was going to fund tax cuts have suddenly rediscovered their inner accountants. Should the presidency flip parties, so will the outrage, with depressing predictability.

Unfortunately, as a new Bloomberg News article suggests, in the near future, we may not be able to afford the luxury of not caring. Congressional Budget Office projections currently show the deficit beginning to grow again in 2016, just in time for the presidential election. By 2019, it'll be above its historical average, where it will stay until the end of the forecast window -- and that historical average is itself a bit high, as it includes the post-war record deficit of the Obama administration, which ran close to 10 percent for several years.  See Note 2 Below

If the growth in health-care costs continues to moderate, that may help a bit, but mostly, the rising cost of health care is not the problem. The problem is the rising number of aging citizens who will require Social Security benefits, Medicare and, eventually, Medicaid to pay for their nursing homes. For the next decade or so, it is demographics, not compound cost growth, that will account for most of our budget problems. And you can’t fix the demographics by directing providers to charge 2.9 percent less for their senior citizens.

As the Bloomberg article points out, there’s another factor that’s going to drive deficits, one that few people are talking about in the public-policy sphere: As the Fed tightens up on monetary policy, our borrowing costs are going to rise, not just for the new debt we take on, but also for the debt we already have. As old debt matures, we’ve been borrowing at record-low interest rates, which has helped hold down the deficit. But as the Fed tightens, that party will end, and the numbers will start moving in the other direction. This will take time -- the Obama administration has been actively working to lengthen its debt maturities in order to take advantage of the low rates. But in future years, this will place constant upward pressure on our deficit.

With the Fed expected to begin tightening next year, and our demographic pressure beginning to press harder, the deficit may once again show up as an issue in the 2016 election. And it will certainly show up as an issue for the next president, who is going to have to make painful spending cuts -- or tax increases -- if they want room in the budget for any new initiatives. Those moves will be unpleasant, unpopular and unwillingly undertaken. The days when Democrats could promise to fund everything with tax hikes on a handful of rich people, or Republicans could promise to handle it all by cutting welfare fraud and foreign aid, are now officially at an end.

1 Yes, yes, I know: worst financial crisis in 70 years. But six years out, that’s a less resounding defense than it was in 2010.

2 No, seriously, I get it: worst financial crisis in 70 years. This is not a slam against Obama; it’s some basic arithmetic.

Worthy Economics and Financial Reads

Why is the Gold Standard Urgent? by Keith Weiner

12 Charts That Show The Permanent Damage That Has Been Done To The US Economy from ZeroHedge.  The charts aren't pretty, that's for damn sure!

Japanese Economy - Abenomics

Recall how Japanese recycled Prime Minister Shinzo Abe has printed stimulated the Japanese economy to the tune of $116B, all with the goal of course of ending Japan's journey through the economic doldrums (recession), which has been underway now for at least 30 years.  Of course, Abe said that "this time it would be different" as the stimulus would be "targeted" not on infrastructure, but on innovation and technology.  Well, all is not well and this time will be no different (well, at least if you're not counting being worse than before as 'different') than from the other failures in the past: Keynesianism does not work and you cannot borrow or print your way out-of-debt. 

So Abe-san, how's that stimulus working out for 'ya?

Why "This Time Won't Be Different" For Japan In Two Charts by Tyler Durden  [especially interesting is the impact of Japan's decision to shutdown all but one of its nuclear power plants after the tsunami]

Abe Says Fears Of Hyperinflation Are "Mostly" Unfounded As He Urges Companies To Hike Wages by Tyler Durden [last few sentences are all that need to be said]

Japan Food Prices Set To Soar As Government Hikes Wholesale Wheat Prices By 10% by Tyler Durden:
If the past three months have been any indication of what Japan has to look forward to from Abenomics, we have a feeling his tenure will be as short, if not shorter, than all of his recent (and numerous, among which he, himself) predecessors. Because while the stock market may have risen in lock step with the plunge in the Yen, what has also soared are costs. And while a very select few benefit from the transitory surge in the Nikkei, the rising costs, i.e., inflation, hit everyone equally.
But while the "no free lunch" reality has until now mostly been felt by those who need energy, as shown in "You Wanted Inflation, You Got It: Japanese Gasoline Price Rises To Eight Month High" the inflationary impact on Chinese imports is about to hit everyone like a sledgehammer right where it hurts the most: in the stomach, as the inevitable has finally happened, and the agriculture ministry announced that wholesale wheat prices are set to rise by a near-record 9.7% in April, which will shortly thereafter send regular food prices soaring.
And just like that Japan is about to learn that soaring stock prices always have a trade off, a lesson which even GETCO's S&P ramping algos will not be exempt from when the latest bout of soaring food inflation results in central banks scrambling to withdraw liquidity, just as they did in early 2011. The results will naturally be the same.

As for how long Abe's government will remain in power after energy and food inflation sweep through the net importing nation, that is anyone's guess.

Japan: Front-Runner Of Outright Monetization by Ryutaro Kono of BNP Paribas

Japanese Welfare Recipients Hit All-Time High by Tyler Durden

The Abenomics Farce Continues by Tyler Durden

Abenomics Tries To Make Sure Japan Is Going Down Swinging by Wolf Richter

Abenomics Utter Fail: Japan’s Crazy Exploding Trade Deficit  by Wolf Richter

Abenomics Wins: Budget And Inflation Both Jump (Over The Cliff) by Wolf Richter

“We Don’t Feel Any Impact Of Abenomics Here”  by Wolf Richter

Japan’s Frantic Redo Of An Artificial Boom Followed By A Bust  by Wolf Richter

BNP Warns Only 10% Chance That Abenomics "Ends Well" by Tyler Durden

Japanese Consumers, Hammered By Abenomics, Get Gloomier   by Wolf Richter

Cheered on by the OECD, Japan Announces Higher VAT Rate to Enable Bigger Government by Dan Mitchell

What Will It Take To Blow Up The Entire Japanese Banking System? (Not Much, According To The Bank of Japan)  by Wolf Richter

Chart Of The Day: "Japan Has No Alternative But To Print And Print And Print" by Tyler Durden

Abenomics One Year Later by Tyler Durden

Dismal Abenomics Leads To 16th Consecutive Decline In Japanese Wages by Tyler Durden

The Japanese Feel The Heat From The Big Lie Of Abenomics by Wolf Richter  [last for 2013]

*******************   2014 *******************************

Crazy Abenomics Orgy In Japan Is Ending Already – Pounding Hangover Next by Wolf Richter

The Madness Of Abenomics In One (Crazy) Chart by Wolf Richter

Total Abenomics Fail Slams Japan Where It Hurts Most by Wolf Richter

Double Data Whammy For Japan As PMI Tumbles & Industrial Production Misses By Most Since Abenomics by Tyler Durden

The Economic Catastrophe That Is Abenomics Sends Japanese Gas Prices To Five Year Highs by Tyler Durden

Abenomics At Work: Largest Ever Trade Deficit Slams Domestic Wages, Gooses Overseas Corporate Profits by Mike Mish Shedlock

Abenomics At Work: Japanese Consumer Confidence Plummets Due To Rising Prices, Stagnant Wages by Pater Tenebrarum

Abenomics Down The Memory Hole: Maniac Money Printing Has Not Stopped Japan’s Falling Wages by Jeffrey P. Snider

Abenomics At Work: Japan’s April Output And Orders Fall Sharply by Mike Mish Shedlock

Japan’s 10th Round Of QE: Still A Flat-Out Failure by Jeffrey P. Snider

Abenomics: Japan’s Live Fire Test Of Keynesian Central Banking Is A Growing Disaster by David Stockman

Abenomics' Legacy: Japan's Greatest "Misery" In 33 Years by Tyler Durden

Abenomics Nails Japan’s Workers: April Real Wages Down 3% Y/Y by Jeffrey P. Snider

Japan’s Great Keynesian Rebuke: Abenomics Has Wiped Out ItsTrade Accounts—-Exactly Opposite The Theory by Jeffrey P. Snider

The Essence Of Abenomics: Swapping Japan’s Historical Trade Mercantilism For Keynesian Financialization by Jeffrey P. Snider

The Wrath of Abenomics: Sales Collapse, Inflation Soars by Wolf Richter

Abe's Worst Nightmare: Household Spending Collapses As Inflation Spikes by Tyler Durden

Printing Press “Prosperity”: The Complete And Utter Failure Of Abenomics by Andy Sirkis

Japan’s ‘Surge’ Undone: The Abenomics Rebuke To Keynesian Money Printers by Jeffrey P. Snider

The Flame-Out Of Abenomics, in One Crucial Chart by Wolf Richter

 Pity The Japanese: They’ve Been Turned Into Keynesian Lab Rats  by Jeffrey P. Snider

 What Japan’s June Trade Disaster Really Means: Abenomics Is Flaming-Out by Wolf Richter

Abenomics Is Working: Japanese Households On Welfare Rise To Record by Tyler Durden 

The Raging “Success” of Abenomics in one Crucial Chart  by Wolf Richter

Japan’s Keynesian Money Printing Experiment Continues To Fail: Jobs, Real Incomes And Spending Plunge Again from ZeroHedge

Keynesian Central Banking Is An Economic Scourge: More Evidence From Japan from Jeffrey P. Snider

The Wrath of Abenomics Crushes Japanese Consumers, Eviscerates Economy by Wolf Richter:
So the hapless Japanese consumers are in the nightmarish situation of having to watch how the government that they themselves elected into power is executing its plan that had been part of its election platform. That plan is now destroying their earnings power and their life savings at a rate that middle-aged Japanese have only read about in history books.

Abenomics Crushes Sony: Electronics Giant Forced To Cancel Dividend For First Time Ever by Tyler Durden

Miraculous Impact of Abenomics on Trade, in One Chart by Wolf Richter

Prime Minister Abe’s Keynesian Delusions  by Jeffrey P. Snider

New:  Japanese Stocks Tumble After BoJ Bond-Buying Operation Fails For First Time Since Abenomics from ZeroHedge

This Time It IS Different, But Not In A Good Way ....

Please, read David Stockman's This Time Is Different—–For The First Time In 25-Years The Wall Street Gamblers Are Home Alone.  Reality does indeed bite, but then again, thank goodness we have the Ebola crisis, ISIS and football (American) to keep our attention (what little most Americans really have is highly debatable).

Quote of the Day

 "While the reduction of democracy to an auction in which the highest bidder controls the state is certainly one systemic reason for this abject failure,there is an even greater, more deeply systemic reason why the state cannot reform the rotten core of financialization. The state has become dependent on the wages and profits of finance for its own revenues." - Charles Hugh Smith, Why the State Has Failed to Reform Our Broken Financial System

Worthy Reads from Bruce Schneier

This essay, "Grooming students for a lifetime of surveillance," talks about the general trends in student surveillance.

Related: essay on the need for student privacy in online learning.

NSA Classification ECI = Exceptionally Controlled Information:

ECI is a classification above Top Secret. It's for things that are so sensitive they're basically not written down, like the names of companies whose cryptography has been deliberately weakened by the NSA, or the names of agents who have infiltrated foreign IT companies.

As part of the Intercept story on the NSA's using agents to infiltrate foreign companies and networks, it published a list of ECI compartments. It's just a list of code names and three-letter abbreviations, along with the group inside the NSA that is responsible for them. The descriptions of what they all mean would never be in a computer file, so it's only of value to those of us who like code names.

This designation is why there have been no documents in the Snowden archive listing specific company names. They're all referred to by these ECI code names.

Four Ways the Two Parties of the American Duopoly are Full of Sh*t

Contrary to popular belief, bipartisanship is alive and well in American politics!  After all, we live in a duopoly, plain and simple.  I refer to the Republicans and Democrats as simply one scumbag entity known as "Republicrats", because it matters not which party occupies the presidency or is the majority in the Senate or House: they all support the same thing!  Big government, war, welfare-warfare, and so on.  While I detest the use of "we" by politicians, they have no problem referring to themselves as "us".

Courtesy of Jason Keisling and J.D. Tuccille, come these excellent posts, each containing an infographic and a list of links that are all worthy reads!

4 Ways Republicans Are Full of Shit

4 Ways Democrats Are Full of Shit

Note to the FBI: F You!

In today's (October 17, 2014) Wall Street Journal comes this article by Devlin Barrett on page B2:
FBI Chief Warns on Phone Encryption
Here's the opening paragraph:
The head of the Federal Bureau of Investigation urged Silicon Valley Thursday to reverse course on encrypting  phone data, suggesting the pendulum privacy issues "has swung too far" against the government in the wake of revelations by former National Security Agency contractor Edward Snowden.
"Swung too far" - really?  The head of the FBI is one James Comey, and he believes that privacy is an issue that "swings" rather than believing it is a right guaranteed to all citizens of the United States in that seemingly unread document known as the Constitution.

In my opinion, privacy is an absolute.  Sorry Mr. Comey, if you want to challenge my right to privacy, have probable cause and get a warrant.  Let me add as well, that simply because I want to maintain my privacy does not implicitly or explicitly imply that I am "against the government".

Next, Mr. Comey wants the technology companies, namely Google and Apple to "... take a step back to pause to consider, I hope, a change of course."  then, a few words later, he goes on to add "We also need a legislative and regulatory fix".  Imagine that: a government official wants to use the power of the government to compel companies to do its bidding.   Allow me to state here that the personal pronoun "we" is offensive, for I do not believe, at all, any type of "fix" is required.

The U.S. Supreme Court (SCOTUS) opened the door to privacy invasion when it ruled in favor of government intrusion with its infamous Third Party Doctrine ruling.  In this case, the Court believes that when you permit others to host/store your data, you surrender your right to privacy.  In my opinion, until this ruling is once again challenged, and won, people like Mr. Comey will continue to view the U.S. Constitution as a set of guidelines rather the the law of the land.

Updated: Just found this from Cory Doctorow over at BoingBoing: FBI chief demands an end to cellphone security

Headlines That Make You Go "Hmmmm ...."

If the US Deficit is ‘only’ $483 Billion, why does the Government Have to Borrow $1.1 Trillion to Fill the Hole?   Note to my fellow citizens: debt matters.  Here's the entire piece:

On Wednesday, the Treasury Department released its Monthly Treasury Statement for September and the fiscal year 2014. It’s the official account of how the US government arrives at its infamous deficit. And it was a doozie.

Without giving it a second thought, the media gushed about the headline number, how good it looked, how the US government was getting its fiscal mess in order.

Receipts rose $247 billion to $3,021 billion, outlays rose $50 billion to $3,504 billion (including “on-budget” and “off-budget” items) for a deficit of $483 billion. At 2.8% of GDP, as the media gleefully pointed out, it was proportionately the smallest since 2007. The deficit monster has been tamed. And unthinkable as that seemed a couple of years ago, it has disappeared as a political issue, even before the election!

There is just one teeny-weeny problem:

To fill that $483 billion hole, the US government borrowed $1.086 trillion.

Turns out, the US gross national debt, as I’d reported in early October, ended fiscal 2014 at 17.824 trillion, up $1.086 trillion from fiscal 2013. This is the real increase in real Treasury debt that real taxpayers will have to deal with in the future.

The chart of the gross national debt below is a mesmerizing picture of America’s fiscal condition as it developed over the years, with some peculiarities:

One, the US, had four years of official “surpluses” between 1998 and 2001 that at one point exceeded 2% of GDP. They should have brought down the gross national debt by the amounts of the surpluses. But not these “surpluses!” Instead, the debt increased in every one of those four years, in total by $394 billion. That’s how much real debt it took to cover these government accounting “surpluses.”

Two, following four years of “surpluses,” the debt began to grow exponentially. Since 2002, the government has borrowed $12 trillion, or two-thirds of the total debt! Since 2008, it has borrowed $8.8 trillion, or about half of the total debt.

Three, in fiscal 2014, with that smallish deficit of $483 billion, well, look what happened: the debt soared by $1.1 trillion.

We’re shocked and appalled.

Are they lying to us here in the land of open and transparent governance? Well, they’re not actually lying. They’re using government accounting. It’s like corporate accounting: a purposeful mix of revelation and obfuscation.

Part of the discrepancy is a result of last year’s debt ceiling charade. In March 2013, Treasury debt hit the ceiling set by Congress. To fund the government deficit, the Treasury Department borrowed from other accounts to be repaid later. “Extraordinary measures,” it was called. On October 17 last year, so in fiscal 2014, after Congress and the White house had agreed on a deal to avoid default, the gross national debt jumped by $328 billion in one fell swoop. Since most of it was spent in fiscal 2013, we can subtract it from the $1.086 trillion debt increase in fiscal 2014, which brings it down to $758 billion.

In the same vein, the debt jumped on October 1 – the first day of fiscal 2015 – by $51 billion, which kicked that portion of the debt increase into fiscal 2015. So, to get a better feel for fiscal 2014, we add it to the $758 billion debt increase. Hence, $809 billion (more on that below).

And then what happened?

Government accounting. On page 3 of the Treasury Statement, under the bottom line of “Total On-Budget and Off-Budget Financing” of $483 billion – so the official deficit – there is a section with three more lines, called “Means of Financing.” It explains the mega-difference between the official deficit and the official increase in the debt.

It states right there, in clear text:

“Borrowing from the Public”: $797.6 billion. That’s how much the Treasury admitted it borrowed in fiscal 2014 to cover the deficit of $483 billion; one line beneath the other. Pretty close to my estimate above of $809 billion. So let’s go with the Treasury’s number. And how was that $797.6 billion in newly borrowed money used?
  • $483 billion of it covered the official deficit. Got it.
  • $69.9 billion was ascribed to an “Increase in operating cash.” Ok, makes sense.
  • And the remaining $244 billion in borrowed money? That’s the doozie. It’s in the last line labeled “By Other Means.” It’s over 50% of the “deficit.”
But it’s NOT included in the deficit.

That line doesn’t shows up again. After a brief appearance of how $244 billion was borrowed from the public and loaded onto future taxpayers, it disappeared from the statement into a complex web of government accounting to never be seen again by the public.

But it’s part of the deficit, as much as it is part of the debt. With it, the US deficit in fiscal 2014 amounted to $727 billion – over 50% higher than the stated deficit of $483 billion.
That’s one way to solve a nagging problem.

OK, I get it. Government accounting, like corporate accounting, is designed to pull a bag over our heads. We minions don’t need to know these silly details. This is the equivalent of Wall Street: don’t dig through the footnotes, just buy, buy, buy! It works with the mainstream media which abounded in praise for the economy and the government’s adroit fiscal management as the deficit is withering away before our very eyes. At this pace, pretty soon, they’re going to discuss once again how to spend the “surplus.”

Indeed! Reality Bites

All chickens come home to roost, that's a fact.  Thanks to Steve Hanke's The Great Society Meets the Taxpayer, here's what happens when good intentions are implemented via legislation, proving Margart Thatcher true when she said of socialism: "Eventually you run out of other people's money." It all sounded good in the 60's ...

President Lyndon Johnson’s legacy was the so-called Great Society (read: entitlement programs). As these programs have matured, along with the U.S. population, the proportion of the people dependent on the State has soared. Indeed, spending on entitlement programs gobbles up bigger and bigger chunks of the federal budget.

As the population grows older, entitlements will grow. Worryingly, the ratio of people receiving government benefits to those paying taxes will continue to climb, too. As the accompanying chart shows, those who receive government goodies already number the same as those who pay taxes (the ratio is one). With the steady progression of the ratio, it will be very hard to put the genie of the Great Society back in the bottle. Can you just imagine how difficult it will be to cut entitlement programs when those who are dependent on the government outnumber taxpayers by two to one?


Thursday, October 16, 2014

Quote of the Day

"Here is a curious situation indeed. The government has become our enemy, out of  control, and we have to depend on computer companies for any safety we may have." - Fred Reed, Gapple and Oogle, Our Defenders, Names Encrypted for Their Security

Wednesday, October 15, 2014

Much Deserved: Obama Smackdowns

Two excellent pieces worth reading on our imperial, Nobel Peace Prize-winning, president. 

Victor Davis Hanson's From Comedy to Farce

Marc A. Thiessen's Obama's 'Blizzard of Lies'

HT: Newmark's Door

Tuesday, October 14, 2014

Must Read: Why We Have Permanent War

I have often written in this illustrious medium of mine that the end of the Cold War was the worst thing that could happen to neo-cons: they no longer had an enemy to fight, or one in which they could stir up nationalism within the country.  The Soviet Union and the specter of communism created justification for a bloated "defense" budget, thereby greasing the wheels of the military-industrial complex, or as I prefer, adding back in "congressional" from Eisenhower's original text (though not spoken) of his speech on January 17th 1961. In addition, I add 'security', which represents the militarization of our police departments,  and call it the military-industrial-congressional-security complex (MICS).  It was a short-lived victory for the potential of peace in our time.  After 9/11, "terrorism" became the enemy that would live in perpetuity.  Government, regardless of which side of the aisle one sat, ensured it would not make the same mistake again, i.e., have an enemy it could actually defeat.  Nothing ensures the political survival of the ruling elite as does terrorism.  Please, read Justin Raimondo's Why We Have Permanent War: The Progressive Idea And Washington’s Quest For Empire.  When both the Left and the Right agree on something like the war on terror and openly talk about "endless war" or a war that could go on for "thirty years or more", we're screwed.  Welcome to the f'ing jungle.  After digesting Raimondo's work, try his other excellent article entitled Liberalism Vs. Empire: The Great Antithesis.  What a writer.

Must Read: Pol Pot And ISIS: Mutant Offspring Of Washington’s Bombing And Nation Crushing

Please read John Pilger's Pol Pot And ISIS: Mutant Offspring Of Washington’s Bombing And Nation Crushing.  History is a bitch and truth is often hard to fathom.

Quote of the Day: Richard Epstein on a Flat Tax

"The flat tax proportionate to either income or consumption offers the most attractive option, because it allows the government to set the overall levels of revenue as high or as low as seems necessary, without inviting various factions to game the system for partisan advantage." - Richard Epstein, We Need a Real Flat Tax

Please, read the full article.

Direct From the Departments of WTF and Can't Make This Stuff Up, Comes This ....

With dollar signs in their eyes, Pentagon officials have jumped on the global warming bandwagon and ”released a report Monday asserting decisively that climate change poses an immediate threat to national security, with increased risks from terrorism, infectious disease, global poverty and food shortages.” What’s the answer to these many woes? Why, to give the military-industrial complex lots and lots and lots of money.

Why is ISIS gaining ground? Because global warming. The climate experts at the DOD say so.

Not that the Defense Department was ever at risk of seeing any real cuts. What backers of the Pentagon call “draconian cuts” are never more than tiny trims to the rate of increase in Pentagon spending, and of course, the Pentagon is awash on money today, just as it has always been every single day since 1945.

Conservatives and other pro-military groups will likely take issue with this latest bid for more cash from the Pentagon, not because they think the Pentagon is already overfunded but because they’re against the acceptance of global warming/climate change as a real phenomenon. This will be mentioned in the right wing press, but largely overlooked, because for them, the Pentagon is to always be treated with deference and credulity whenever it demands more money.

Not that it will make much difference either way. This global warming report is just a way for the Pentagon to pile on its already huge lobbying effort to keep the money flowing, and there’s no shortage of right wing politicians and pundits calling for an even bigger river of cash flowing to the government in the name of “defense.” This latest report simply offers an opportunity to get a few center-left politicians on board who might have been reluctant to sign yet another balnk check for the Pentagon. It also offers a few talking points to the administration in its climate change efforts.

The generals, all of whom are political appointees and lifelong bureaucrats who haven’t held real jobs in decades, will be more than happy to come up with exciting new plans for dealing with global warming, and all the manpower and trillions of dollars that will require over the next 30 or 40 years. It would unpatriotic to do anything less. National security is at stake.
How intelligent military personnel sit around a table and make this stuff up is beyond belief.  

Rise of the Crypto Wars Entangles Apple and Google

Since Apple first announced three weeks ago that it was expanding the scope of what types of data would be encrypted on devices running iOS 8, law enforcement has been ablaze with indignation. When Google followed suit and announced that Android L would also come with encryption on by default, it only added fuel to the fire.

All sorts of law enforcement officials have angrily decried Apple and Google’s decisions, using all sorts of arguments against the idea of default encryption (including that old chestnut, the “think of the children” argument). One former DHS and NSA official even suggested that because China might forbid Apple from selling a device with encryption by default, the US should sink to the same level and forbid Apple from doing so here, in some sort of strange privacy race to the bottom (To see a former high-ranking American security official claim the US should match China in terms of restricting the use of privacy-enhancing technology is disconcerting, to put it mildly). The common thread amongst all of this hysteria is that encryption will put vital evidence outside of the reach of law enforcement.

But the fact that Apple will no longer be in a position to retrieve a device’s contents on behalf of law enforcement is only a side effect. Apple’s decision, first and foremost, is about protecting the security of its customers. Before this change, if your iPhone was stolen or lost a criminal could break into it with relative ease, accessing your private information using the same backdoor as law enforcement. Now that Apple has sealed that backdoor, you no longer have to worry. In an era when our mobile devices contain incredibly private information, these companies have listened to their customers. They have made a sound engineering decision to make mobile security as strong as they know how, by bringing it in line with laptop and desktop security.

Nothing in this change will stop law enforcement from seeking a warrant for the contents of an encrypted phone, just as they can seek a warrant for the contents of an encrypted laptop or desktop. Apple’s decision is simply setting the privacy standard for mobile devices in the same place as non-mobile ones. It’s only a fluke that it hasn’t been the default all along.

It’s also important to note that the amount of information available to law enforcement about someone’s electronic communications, movements, transactions, and relationships is staggering, even if they never analyze a suspect’s mobile device. Law enforcement can still seek a phone company’s calls records about a suspect, any text messages stored by the phone company, and a suspect’s email accounts or any other information stored in the cloud–which for most of us these days is a lot, as Hollywood stars recently learned. While EFF thinks that some of those investigative tools have insufficient protections and go too far, turning on encryption by default on devices hasn’t changed any of this.

Unfortunately, that hasn’t stopped law enforcement from twisting the nature of Apple’s announcement in order to convince the public that encryption on mobile devices will bring about a doomsday scenario of criminals using “technological fortresses” to hide from the law. Sadly, some of the public seems to be buying this propaganda. Just last Friday, the Washington Post’s Editorial Board published an Op-Ed calling for Apple and Google to use “their wizardry” to “invent a kind of secure golden key they would retain and use only when a court has approved a search warrant.”

Many on social media found the Post’s suggestion that sufficiently advanced technology cryptography was equivalent to magic very amusing. We at EFF had another reason to find it amusing: in 1996 we ran a “golden key” campaign against the government’s demand for back doors into strong cryptography, complete with a GIF file (at left) for websites to post in solidarity against back doors.

All joking aside, while the Washington Post’s Editorial Board may think technologists can bend cryptography to their every whim, unfortunately it just isn’t so. Cryptography is all about math, and math is made up of fundamental laws that nobody, not even the geniuses at Apple and Google, can break. One of those laws is that any key, even a golden one, can be stolen by ne’er-do-wells. Simply put, there is no such thing as a key that only law enforcement can use—any universal key creates a new backdoor that becomes a target for criminals, industrial spies, or foreign adversaries. Since everyone from the Post’s Editorial Board to the current Attorney General seems not to understand this basic technical fact, let’s emphasize it again:

There is no way to put in a backdoor or magic key for law enforcement that malevolent actors won’t also be able to abuse.

So the next time you hear a law enforcement official angrily demand that Apple and Google put backdoors back into their products, remember what they’re really demanding: that everyone’s security be sacrificed in order to make their job marginally easier. Given that decreased security is only one of the nine problems raised by the prospect of cryptography regulation, you should ask yourself: is that trade worth making? We certainly don’t think so, and we applaud Apple and Google for standing up for their customers’ security even if law enforcement doesn’t like it.

Crony-Capitalism is Still Alive and Well in Camden, New Jersey

First there were the theft tax credits provided to the Philadelphia 76er's to construct a practice facility in Camden New Jersey.  Of course, the team is owned by millionaires who likely know that Camden exists, yet have never actually been through the city, and they're in need of tax credits.  Now we learn:
The New Jersey Economic Development Authority is weighing a plan to provide $107 million in tax breaks to Lockheed Martin to build an unspecified project in Camden, N.J.
So once again, the government CAN create jobs after all!! It's easy! Simply take money from the citizens of New Jersey as well as others that invest in it, and give it to companies.  Actually, I'm all for Camden getting the help, but it's just the fact that political scumbags continue to manage the process.  I just want to see some of the benefits actually accrue to Camden itself and to its many lost souls.  What I really want to see is a company put their own money on the line and do something without having to have the citizens and investors pay for it.  The article's a hard read, but especially so when Chris Christie is involved and many believe that this is a payback (cronyism) for Lockheed Martin's "investment" in his PAC.  It's disgusting really.

Good News, Bad News

While I'm happy about the ruling (that will likely be appealed of course), I do have empathy for those pensioners and future pensioners of California's CalPERS public pension system.  The harm created, maintained and perpetrated by politicians knows no boundaries - until now.  Read Bankruptcy Judge Hammers Unions by Allowing Stockton Pension Cut.  

Update on 10/14/2014:

Here's CalPERS CEO Shows Callous Disregard for Others:  
Re “CalPERS will stand up for workers” (Another View, Oct. 9): CalPERS CEO Anne Stausboll writes, “If pensions are reduced in bankruptcies, the only losers are public employees.” This statement shows a callous disregard for others.

Local governments entering bankruptcy typically owe the most money to their public pension fund. So, to paraphrase Willie Sutton, to cut debts in bankruptcy you have to go where the debt is.

Stausboll argues that public employee pensions deserve special protection from cuts. Why should public employees be treated better than other creditors such as mom-and-pop vendors or moderate-income worker who entrusted their savings with an investment firm that bought bonds?

The purpose of municipal bankruptcy is to reduce debts in a fair manner so the city can provide public services again. Stausboll does not explain why fairness dictates that public employees be protected while other creditors get hammered.

—Lawrence J. McQuillan, Oakland

Must Read: On Central Banking

Michael Pollaro's Central Bank Credibility, the Equity Markets and Gold is a must read: [emphasis mine]

Central bank credibility is at all-time highs. As a consequence, we suggest, equities are near all-time highs too while gold is scraping multi-year lows. A change though may be in the offing with all three. Not today, nor tomorrow. But perhaps sooner than most think.

Here’s how we see it…

In the context of five plus years of the most unconventional monetary policies the world has ever seen, there is a near universal belief that a group of Keynesian/Monetarist schooled, largely academic economists have got it all figured out; namely, that super-sized, well-orchestrated, easy money policies – zero even negative benchmark interest rates, a smorgasbord of essentially free lending programs and of course mega-size asset purchase programs (QE) – can produce sustainable, economic growth. In other words, central bank credibility and the efficacy of their policies are in the heavens.

No central bank is more revered in this regard than the Federal Reserve. As we discussed here, the Federal Reserve, it is said, is “pulling it off.” Because of its heroic, unconventional, all-in easy money policies, the Federal Reserve is said to have “saved” America from an almost certain depression and then, because of its continued easy money policies, is the driving force behind America’s now accelerating economic growth. Just look at the economic numbers, say the pundits. The Federal Reserve’s monetary policies are working. Yes, not as fast as we would like, but going in the right direction. Only one task left – a well-calibrated, data-driven exit from these unconventional policies. The strengthening economy can take it, they say. In fact, the exit should be welcomed because it signals a strong and growing economy, one that will no longer require any Federal Reserve support.

Of course, this is music to U.S. equity market investors and speculators alike, so much so that U.S. equities have become the asset class de jure. You can’t lose, proclaim one investment manager after another. Don’t “fight the Fed,” they say, embrace it.

This unwavering faith in the prowess of central banks is seen with greatest clarity in the Euro zone. Observe the near universal belief that if only the Germans would get out of the way and allow ECB head Mario Draghi to implement a Federal Reserve style, open-ended, sovereign debt based QE program, the Euro zone economy and especially its equity markets would boom. Isn’t that what the recent sell-off in Euro zone equities is saying, post the disappointing news that the ECB has no plans for a such a QE program. To us it’s obvious why so many people think this way. It’s because recent U.S. economic data seems to confirm that the Federal Reserve’s unconventional, all-in easy money policies are working. And if such policies can work in America why not in the Euro zone too?

We reject this unwavering belief in central banks and their policies, outright. As the Austrians teach, easy monetary policies sow the seeds of their own demise. Flooding the economy and financial markets with money (and credit) created out of thin air – thereby distorting interest rates and price signals and, in so doing, creating malinvestments – is no way to create sustainable, economic growth and ever rising equity prices. Sure, at first glance, the malinvestments and attendant booming equity prices look like genuine growth and wealth creation. But they are not. As we explored here, they are instead unsustainable bubbles that turn to bust when the growth in those money supply (and credit) footings decelerate; i.e., when the easy money abates.

Today we posit some questions we think every equity investor needs to answer. What if the Austrians are right? What if unconventional, all-in easy money policies do not produce sustainable, economic growth? Contrary to the expectations of nearly everyone, what if the next big event is in fact a bust? What will that mean to the equity markets going forward? And then, what will that say about the credibility of central banks?

Well, if the Austrians are right, as we wrote here, given the size of this monetary experiment, one can expect a pretty big swoon in equity prices if not an ugly crash. More important though is the very real possibility that a bust could put a dagger in central bank credibility, severely damaging if not destroying the belief that unconventional, all-in easy money policies can goose the economy and equity markets anywhere near as effectively as in the past. Maybe, in real terms, not at all. Truly a problematic situation the next time central banks step in to “save” us. This we think is especially true if a bust occurs right here in America. Consider this: The former Federal Reserve Chairperson Ben Bernanke (and world renowned expert on the Great Depression) and his closest adviser current Chairperson Janet Yellen birthed the largest, most heralded, monetary support apparatus in world history and it was found unable to produce sustainable, economic growth, unable to float equity prices ever higher. Instead, it did the exact opposite. How many investors/speculators will then put their unswerving faith in any central bank, at least for the foreseeable future? We’re thinking a lot, lot less than today.

The Federal Reserve is in the process of exiting its grand experiment in unconventional monetary policy. QE3, a two plus year asset purchase program that at its peak injected an annualized $1 trillion of monetary fuel directly into the financial markets, is winding down. What’s more, though “data dependent,” the Federal Reserve is signaling that it will begin raising interest rates in mid-2015. Of course, nearly every economist and nearly every investor expects this plan to work. Yes, a bit of transitional weakness in the financial markets – like we are seeing now – but after that, up and away.

We of course say not so fast. Given the fact that this exit means a further deceleration in the already decelerating trend in the rate of monetary inflation, the risks are growing that the next big move in the economy and the equity market is not up but down. In fact, if the banking system does not step up and fill the monetary inflation void being vacated by the Federal Reserve we think a bust could begin rearing its ugly head sooner than anyone thinks.*

Enter gold, the much maligned, near universally hated asset. It’s presently on no one’s radar screen, except maybe the shorts. And why should it be. Thanks to supposed central bank infallibility, economic growth appears to be strengthening and the equity markets are in a major bull run. As James Grant, editor of Grant’s Interest Rate Observer likes to say, gold is the reciprocal of central bank credibility. We agree. Central bank credibility is at a peak, so gold is in the dumps.

Gold wasn’t always in the dumps. It rose right along with equities, indeed outperformed equities, from the 2009 Great Recession bottom – when central banks the world over first began implementing their unconventional monetary policies – straight through to its September 2011 top. The reason we think it did is quite simple. Coming out of the Great Recession, central bank credibility – their ability to “pull us out” of the Recession – was being severely questioned by investors. Thus, a good portion of investor money found its way into gold. That changed in 2011. Underwritten by these same central bank easy money policies, the as yet unresolved malinvestments of the Housing Bubble turn Credit Bust turn Great Recession, which were in the process of a healthy liquidation, were short circuited, while new, yet to be revealed malinvestments (we think the largest being anything in and around financial engineering) were starting to bear fruit. The belief took hold that the heroic policies of these central banks were finally working, finally restoring long term vitality to the economy. Gold then sunk while equities marched ever higher.

So here we are…
gold spx

In our minds, get that bust in America (or even a real scare playing out in the U.S. financial markets in anticipation of a bust); then, get the near certain response from the Federal Reserve; i.e., another perhaps even bigger round of easy money policies, and maybe investors will be looking to overweight their portfolios with the reciprocal of central bank credibility instead of equities,

* We will have more on this important dynamic in future posts.

So True

Isis fighters are closing in on the city of Kobani near the Turkish border. ISIS evades air strikes simply by scattering when planes approach.

The Guardian reports Air Strikes Against Isis are not Working, say Syrian Kurds.
US-led air strikes in northern Syria have failed to interrupt the advance of Islamic State (Isis) fighters closing in on a key city on the Turkish border, raising questions about the western strategy for defeating the jihadi movement.
Almost two weeks after the Pentagon extended its aerial campaign from Iraq to neighbouring Syria in an attempt to take on Isis militants in their desert strongholds, Kurdish fighters said the bombing campaign was having little impact in driving them back.

Isis units have edged to within two kilometres of the centre of Kobani, according to Kurds fighting a rearguard action inside the city. The jihadis, who this weekend generated further outrage with the murder of the British hostage Alan Henning, are simply too numerous to be cowed by the air assault by US fighter jets, the Kurds say.

“Air strikes alone are really not enough to defeat Isis in Kobani,” said Idris Nassan, a senior spokesman for the Kurdish fighters desperately trying to defend the important strategic redoubt from the advancing militants. “They are besieging the city on three sides, and fighter jets simply cannot hit each and every Isis fighter on the ground.”

He said Isis had adapted its tactics to military strikes from the air. “Each time a jet approaches, they leave their open positions, they scatter and hide. What we really need is ground support. We need heavy weapons and ammunition in order to fend them off and defeat them.”

What’s Next?

Most likely the US will drop more and more bombs, with 20% of the finding the right targets, 40% the wrong targets, and the remaining 20% doing nothing. This will be labeled as a “success”.

However, many so-called moderates will get fed up with US action and join ISIS.

Then, after another beheading or two, Obama will send in more ground troops and weapons, but purportedly only for training and aiding moderates who will take the weapons and training in directions contrary to the stated intentions.

My Take

The US and UK should issue a travel advisory labeled “beheadings happen”. The advisory should tell everyone, including journalists to get the hell out of the region and if they don’t, they are on their own.

Tax dollars should not go to protect those who voluntarily put themselves in harm’s way. This is not a disparaging comment on journalists, who choose to do what they do. I commend them for wanting to get the story out.

Rather, my comments are a simple practical matter: The US has no obligation to protect anyone who voluntarily puts themselves in harm’s way outside the US.

America's Casualness Towards War

October 14, 2014: Today's front page of the print version of the Wall Street Journal reflects so much of what is wrong with America, us citizens and our complete desensitized view of war.  The picture is of a detonating bomb in the Syrian city of Kobani.  The tagline above the picture reads:
U.S.-Led Coalition Bombards City in Effort to Save It
What??  Let's read that again:
U.S.-Led Coalition Bombards City in Effort to Save It
Really? I just cannot begin to parse either the idiocy of that statement or those that read it and just move on, or worse yet, those that actually believe it.

Next, the headline, which is in the middle of the page, reads:
Retail CEOs Go Back to Basics
What?  So let's step back for a moment.  We have picture of people being killed in Kobani.  Granted, some or all may be "bad" but the likelihood of civilian casualties must be high given the population density of such cities.  Then, we can drink our coffee, skim that item about bombing a city in order to "save it" and then read how the:
New Penney Chief Shows Growing Industry Preference for Operators Over Trend Spotters
This is American Exceptionalism?  If one desires to read more about the bombing, the caption on the picture tells us where to go:
AIR FORCE: Planes hit Kobani, Syria, near the Turkish border Monday in an effort to break a siege of the Kurdish city by Islamic State fighters. A10.
Of course, we have to go to section A, page 10 to read more about our nation at war.