Friday, October 21, 2016

David Stockman was Ronald Reagan's top economist ...and possibly the best of all times. And he says that: "The fact is, the stock market is priced far more irrationally at the moment than at either the dotcom bubble peak or the October 2007 pre-crisis high." and "The only possible outcome is to be carried down in a crash far more severe and violent than the previous two meltdowns since the turn of the century." He created his 'Contra Corner' to explain the best way to survive it. You can join Contra Corner and get his new book free (but for the cost of shipping). If you are wealty, he will charge you something for the best ways to protect your wealth.

Chop, Chop, Choppin' In Harm's Way

By David Stockman. Posted On Wednesday, October 19th, 2016
The stock market has been chopping sideways for the last 100 days, but it's not evidence of a pause that refreshes. What is actually happening is that the smart money is getting out of dodge---even as the clueless day traders and headline-stalking algos keep the bubble inflated on purely speculative fumes.

The fact is, the stock market is priced far more irrationally at the moment than at either the dotcom bubble peak or the October 2007 pre-crisis high. Reported earnings for the September LTM are now estimated at $90.59 per share, meaning that the S&P 500 was valued at 23.6X at Tuesday's close.
But here's the thing.  Reported LTM earnings way back in September 2014 came in at $106 per share at a time when the S&P 500 was at 1950.  Thus, earnings are down by nearly 15%, while the S&P 500 index has gained 10%.

Needless to say, that's multiple expansion with a vengeance----since back at the September 2014 peak the PE multiples stood at just 18.4X.  As a matter of reality, the latter wasn't all that plausible, either. But more than 5 points of multiple expansion in today's tenuous global economic and financial environment is just plain nuts.

The robo-machines and gamblers left in the casino, therefore, are truly chopping away in harm's way. The only possible outcome is to be carried down in a crash far more severe and violent than the previous two meltdowns since the turn of the century.

Yet they dither on the edge of the gathering storm owing to a wholly misplaced confidence in the Fed and other central banks. In fact, our monetary politburo is utterly clueless about the rampant speculation it has encouraged throughout the warp and woof of the entire financial system. 

So when the black swan arrives once again, the Fed  will be caught even more flat-footed than in September 2008, and with virtually no dry powder to smoother the blaze as Bernanke did last time around.

That our monetary central planners are leading the casino into catastrophe was made evident again earlier this week in the blather delivered by vice-chairman Stanley Fischer to the New York Economic  Club:
And the third concern is that low interest rates may also threaten financial stability as some investors reach for yield and compressed net interest margins make it harder for some financial institutions to build up capital buffers. I should say that while this is a reason for concern and bears continual monitoring, the evidence so far does not suggest a heightened threat of financial instability in the post-financial-crisis United States stemming from ultralow interest rates.
Exactly what planet does this man live on? The entire financial system has been falsified by the massive and continuous intrusion of the central banks. These artificially inflated bond and stock prices have, in turn, triggered a manic process of collateralization in which inflated financial assets are hocked to obtain  more financing, which then begets even higher bids from the proceeds and then even more rounds of rinse and repeat.

In short, the end product of massive interest rate repression by central bankers is always and everywhere the same. That is, an explosion of debt fueled speculation, destruction of market stabilizing forces like short-sellers and expensive hedging insurance and one-way markets that inflate to lunatic heights before they inexorably rollover, crash and burn.
Indeed, the silver lining in the coming traumatic implosion of the global financial bubble is that the academic snobs like Fischer will be unmasked as the Keynesian knuckleheads that they actually are.

Last time our monetary central bankers escaped blame because they fooled the world into believing that they had saved the system from Great Depression 2.0 by doubling down on what had already been reckless monetary expansion. But this time they won't be able to generate a phony financial asset reflation to cover their tracks after the coming crash.
Instead, like Stanley Fischer at the New York Economics Club, they will be all over the record insisting that the financial system was fixed and there was nary a bubble or instability risk in sight.

Actually, you don't have to get many paragraphs into the text of Fischer recent speech to realize that he really is an academic knucklehead. Thus, the whole speech, which is a pretentious rumination about the cause of very low interest rates,  begins with this assertion:
To explain why interest rates are low, we look for factors that are boosting saving, depressing investment, or both.
He then goes on to finger low productivity, aging demographics, weak investment and slowing foreign economic growth. But that's not just specious nonsense-----it self-evidently ignores the monetary elephant crowding the entire room.

To wit, the Big Fat Bid of the central banks is what has caused interest rates to be so low for so long. As we showed in the Chart of the Day recently, the balance sheet of the top 10 central banks has soared fr0m $6 trillion in 2006 to more than $21 trillion at present. Compared to just $2 trillion less than two decades ago, the combined footings of the world's central banks have experienced an incredible 11X expansion.

Apparently, no one has explained to the good professor that despite their best efforts, central bankers have not yet abolished the law of supply and demand.  It is they, and they alone, who have crushed the yields on sovereign debt by buying it and its near substitutes hand-over fist; and not with savings from current production, but with printing press credits conjured from thin air.

This rampant sequestering of sovereign debt and its official cousins in the vaults of central banks to the tune of more than $20 trillion, in turn, has caused sheer desperation among the bond and investment fund managers of the world, thereby driving prices on even risky sub-investment grade securities skywards and  taking their yields to rock bottom levels.

As merely one example of the financial instability caused by the systemic price falsification, consider the $300 billion plus of junk bonds issued by companies in the shale patch. Upwards of $100 billion of actual and mark-to-market loses have already been incurred by holders of those high yield bonds; and the big losses from another leg down in the global oil price which will be triggered by the next recession have not even happened yet.

So there are financial bubbles in plain sight everywhere. The busted shale bonds, the lunatic valuations of momentum stocks like the FANGs (Facebook, Amazon, Netflix and Google), white hot commercial real estate markets in Silicon Valley and New York, rampant frauds like Tesla and Valeant and vastly excessive PEs in the broader stock markets are just a few examples.

Yet ignoring all of these consequences of central bank interest rate repression, professor Fischer instructed his audience to dust off their economics 101 textbooks and look elsewhere for the cause of ultralow interest rates.
For those of you lucky enough to remember the economics you learned many years ago, we are looking at a point that is on the IS curve--the investment-equals-saving curve. And because we are considering the long-run equilibrium interest rate, we are looking at the interest rate that equilibrates investment and saving when the economy is at full employment...
As I said, the man is an outright knucklehead, yet he is supposedly the intellectual leader not only of the Fed, but Keynesian central bankers on a worldwide basis. After all, he even supervised Ben Bernanke's PhD dissertation at MIT during the 1970s.

In any event, are we to actually believe that the $21 trillion of fiat credit that has now been manufactured by the world's central banks does not impact the price of debt and therefore the vaunted IS curve?

Yep. According to professor Fischer the cause of low interest rates is not monetary falsification----which, by the way, is exactly what they say they are doing to stimulate more borrowing and spending---but too much savings and too little opportunity for profitable investment.

That's complete rubbish, of course, oozing out of an intellectual time warp. Before the era of massive central bank bond purchases there surely was an interest rate on the I/S curve that reflected the balance between true savings out of current income and demand for debt and other investment funding. But that world is long gone owing to the full throttle monetary central planning that Fischer himself is engaged in.

But never mind. Fischer claimed that the real culprit behind low interest rates is the sharp deceleration of productivity growth from more than 2% annually prior to the turn of the century to just o.5% in the last five years. That has resulted in lower trend economic growth owing to the obvious fact that by definition real output growth comes from more labor hours and/or higher productivity.

By Fischer's lights, however, this non-explanatory truism has far more ominous implications. To wit, it means that the invisible, arbitrary and made-up economic realm called "potential GDP" has experienced a  sharp slowdown from a purported historical norm of about 3.0% to exactly 1.75% annually.

In turn, this unmeasurable and unproveable slowdown in the theoretical full employment economy, according to the Fed's FRB/US model, as cited by Fischer:
 ".....would trim 120 basis points from the longer-run equilibrium federal funds rate".
Say what?

Well, reduced "potential GDP" growth is supposed to adversely affect the balance between savings and weakened investment demand, thereby lowering the equilibrium interest rate. But here's another idea. Lower income growth means lower aggregate savings at any given savings rate. So  there would be no impact at all from lower economic growth on the market clearing interest rate unless the savings rate changes.

But on that very point is where Fischer really veers off into economic crazy town. A reduced rate of theoretical GDP growth purportedly causes consumers to "save" too much:
Lower productivity growth also reduces the future income prospects of households, lowering their consumption spending today and boosting their demand for savings. Thus, slower productivity growth implies both lower investment and higher savings, both of which tend to push down interest rates.
That's right!  More than half of US households have saved less than $1,000 and most of them are so busy keeping up with the Kardashians that they don't even think about saving for the long haul. Yet the vice-suzerain of out monetary system claims they are actually discounting their income streams into the distant future, and upping their lifetime savings rates accordingly!

Anyone who stays in the casino based on confidence in the likes of Stanley Fischer deserves to have their head handed to them on a platter.

Besides that, Fischer's ruminations about people upping their savings rate is not remotely true empirically. Interest rates have been pushed steadily lower for decades by the Fed and other central banks, but the household savings rate in the US has steadily fallen, not risen as Fischer claims.

Indeed, Japan is the test bed for Fischer's theorizing about high savings causing low interest rates. The BOJ has had the money market rate on the zero bound for the entirety of this century so far, and is on the verge of pushing all of Japan monumental government debt into subzero land.  Yet Japan's once vaunted household savings rate has now disappeared entirely.

Indeed, even a knucklehead could see that a surplus of savings is not why the Japanese economy is stumbling toward national bankruptcy on the zero bound.

But that's not the extent of the rubbish emanating from the Eccles Building. The monetary central planners domiciled there are so ensnared in group think that they actually claim to scientifically ascertain the otherwise invisible "natural rate of interest" which is compatible with full employment in the current macroeconomic setting.

And since that benchmark is asserted to be exceedingly low owing to the type of spurious reasoning contained in Fischer's speech, they conclude they have no choice except to keep interest rates pinned close to the zero bound.

For example, Fischer claims that the aging of the labor force alone causes the real rate of interest to be 75 basis points lower than in the 1980s.

Really?  The massive retirement wave of baby boomers is liquidating its savings and will be doing so at an accelerating rate as the retirement wave crests a decade from now. All other things being equal, therefore,  US demographic trends would tend to raise interest rates in an honest financial market. That is, one cleared by the law of supply and demand rather than the whim of Stanley Fischer and his coterie of monetary central planners.

And the nonsense just kept coming in Fischer's speech. He claimed, for example, that another 60 basis points may be attributable to under-investment.

Here's an alternative idea. During the last 10 years US businesses have borrowed like there is no tomorrow, but they channeled the overwhelming share of proceeds into financial engineering, not productive investment. In fact, more than $10 trillion was spent on stock buybacks, M&A deals and leveraged buyouts and recaps during that period.

Needless to say, this massive channeling of capital into the casino would not have happened on the free market. It is the direct result of the Bubble Finance policies of the nation's central bank.

At the same time, the resulting drastic inflation of financial asset values was not harmless, and not just because it showered stupendous amounts of unearned riches on speculators and the elites who own most of the financial assets.

Bubble Finance also turned the C-suites of corporate American into stock trading rooms and financial engineering parlors. In pursuits of unspeakably large stock option gains, like the $100 million plus recently pocketed by John Stumpf,  the balance sheets of companies have been strip-mined and investments in long-range growth and competitive enhancement have been starved.

The numbers speak the truth. After inflation and current consumption of fixed assets (i.e. depreciation and amortization), the rate of real net investment in productive business assets is today 22% lower than it was in the year 2000.

There is no mystery, therefore, as to why productivity has vanished. Stanley Fischer and his posse of money printers have been the culprits all along.

Indeed, the above chart puts you in mind of the young boy who killed both of his parents and then threw himself upon the mercy of the court on the grounds that he was an orphan!

At the end of the day, the financial markets have morphed into dangerous, unstable casinos owing to the kind of Keynesian central banking now practiced by Fischer and the Fed. Among the many resulting ills is the fact that the link between financial asset prices and the real main street economy has been totally severed.

This weeks "incoming" data provided yet another piece of evidence. Industrial production posted lower on a Y/Y basis for the 13th straight quarter, and now stands 2.3% below its November 2014 peak.

More importantly, it is also below the pre-crisis peak and at a level first crossed nearly 10 years ago.

That's right. The S&P 500 is up by 55% from early 2007, yet US industrial production----which represents nearly two-thirds of GDP----is stuck on the flat-line, even as the US economy slides toward the next recession.

As we said, the corporals' guard of day traders and robo-machines left in the casino are indeed chop, chop, choppin' in harm's way. But their troubles will soon be over.

Saturday, October 15, 2016

No wonder! Janet Yellen's repeated assertion that there is full employment is believed implicitly by the mavens of the stock markets. However, smarter people know that (1) 23% of working-age Americans have given up looking for a job, because there are virtually none to be had, whereas (2) Yellen treats those 23% as though dead. However, the not so bright mavens of industry and the stock market read her claim of full employment as a signal that there are millions of Americans out there who can and will buy their products. Wrong! Because of their stupidity the mavens of the stock market push their stocks ever higher. In the meanwhile those with common sense know that the deepest stock market crash of all times will soon take place. Corrolary: The silver and gold presently being depressed will skyrockt when the crash arrives.

The stock market is turning into a sloppy, ugly mess—and it could get worse

Published: Oct 14, 2016 5:06 p.m. ET

Dow industrials on pace for longest streak of monthly losses in 5 years. Here are some of the reasons behind the slide

It is rough out there.

 It is getting dicey out there for Wall Street investors, although stocks eked out a modest rise on Friday.

U.S. equities have been bouncing around lately. And the trend has been predominantly lower. Although it hasn’t been the sort of dizzying tumble for equities that would elicit an instant spike in fear, it has been, however, the kind of plodding descent that has the Dow Jones Industrial Average DJIA, +0.22%  down nearly 300 points since the end of July.
In fact, the Dow and the S&P 500 index SPX, +0.02%  are on the verge of tallying three straight months of declines, with October shaping up to be the ugliest monthly fall since January—the month after the Federal Reserve raised rates for the first time in a decade. (Friday’s jump on better bank earnings will have to be factored after the close.)

But, if the Dow posts a loss in October it would be the first time the blue-chip index logged three consecutive monthly declines since the period ended in September 2011. The S&P 500 notched three consecutive monthly loses earlier this year, ended February.

On Friday, stocks ended nearly flat, with only the Dow posting a significant gain buoyed by a rise in the banking sector’s Goldman Sachs Group GS, +1.85% Friday’s wobbly moves, where stocks started off sharply higher before fading, has characterized a market that appears to be increasingly on tenterhooks. Here’s what may be contributing to the recent spike in Wall Street anxiety levels:

1. October trade
Ryan Detrick, senior market strategist at LPL Financial, points out that October is inherently a volatile month for stocks. “October has a reputation as a month you better buckle your seat belts for a reason. Nearly all the volatility records seem to take place during this month,” Detrick said in a recent research note.
Read: Will October kill yet another bull market?

Detrick points out that 10 of the largest one-day drops were in October, dating back to 1928 (as the following table shows):

2. Ominous charts point to a crash (a la October 1987)
A number of analysts are pointing to the possibility of a big selloff in stocks, citing bearish technical patterns. Murray Gunn, technical analyst at HSBC, in a Wednesday note said investors should look out below if the S&P 500 closes between 2,116-1,991 and if the Dow industrials breach the 17,992-17,063 level. The thinking behind that call is those levels represent recent lows that may trigger buying by computer-driven traders and other investors. In other words, those levels then tend to act as so-called support. But slipping below them can mean a painful dip into darkness.

Other market statisticians, including Carter Braxton Worth of Cornerstone Macro, have pointed out that although stocks have been hovering around all-time records, their recent crawl lower is a bad sign and suggests that equities are gradually breaking down.

Here’s a chart of important levels for the S&P 500 put together by MarketWatch’s Tomi Kilgore:

On Thursday, the S&P 500 hit a low of 2,114 before bouncing back, while the Dow’s Thursday low was 17,959, before rebounding somewhat. Still, Murray said “the possibility of a severe fall in the stock market is now very high,” and compared recent moves in stocks with those that preceded the 1987 stock-market crash.

3. Weak corporate earnings
Alcoa Inc. AA, -1.16% delivered weak third-quarter results to unofficially kick off earnings season. S&P Global Market Intelligence warned that earnings season is turning out to be a story of tepid growth, down 1.2% for the third quarter. S&P said particular attention needs to be paid to the consumer-discretionary sector, which includes brands like Nike Inc. NKE, -0.79% Ford Motor Co. F, +0.00% and Staples Inc. SPLS, -1.18% and is on track to report its lowest quarterly results since 2012 (as the chart below shows):

Why is this bad? Weak earnings can mean there is not a lot of fundamental justification to buy stocks, which are considered risky compared with, say, the U.S. 10-year Treasury note TMUBMUSD10Y, +0.00% Better earnings from stocks mean that investors are getting good value for their buck. Weak or stagnant earnings suggest that investors are overpaying. And there have been a raft of market participants pointing to bubbles forming in the market, citing things like price-to-earnings ratios.

Indeed, S&P 500 companies are expected to post their sixth straight quarter of declining earnings, according to FactSet data. And although it is still early in the season, several corporations have issued profit and/or sales warnings over the past few weeks. That all implies that there is still weakness in the economy, despite a labor market that has been chugging along. Tepid earnings are a big reason the market is bound to sink, or, at the very least, can’t go much higher, some industry experts argue.

4. Biotech woes
The biotech market can be a canary in the coal mine as a measure of risk-taking. And it is starting to lose steam after a nice run, trading below both its 50-day and 200-day moving averages, as gauged by the iShares Nasdaq Biotechnology ETF IBB, -1.86% Falling below or trading above a moving average is usually interpreted as a measure of momentum.
Problems in biotech are multiple, but the primary forces could be centered on a scaling back of general risk appetite, as the sector is a proxy for bullish bets on U.S. stocks, and as a bet on the outcome of the U.S. presidential election. Democratic candidate Hillary Clinton has been critical of biotech companies, which can pressure the sector if investors believe she’s likely to win the race for the White House.

5. The pound and the dollar
The pound GBPUSD, -0.5386% which has been battered by intensifying talk of the U.K.’s plan to exit from the European Union, is hovering around its trade-weighted low, while the dollar has been creeping higher.
The dollar DXY, +0.55% has been a headwind for stocks and its abrupt surges higher on shifting views of a rate increase by the Federal Reserve have been disruptive to markets of late. A stronger buck means reduced sales for U.S. multinationals when money is repatriated into dollars. And a sustained rise could cause companies to lower their earnings outlooks for future quarters. The dollar has surged almost 3% so far in October.

Meanwhile, the pound’s steady drop has been a cause for worry because it is unclear how the U.K.’s economy will fare amid the tumbling currency, despite the benefits it offers the FTSE 100 UKX, +0.62% which is comprised predominantly of multinational companies that profit from exporting goods. Uncertainty in Europe is a problem that can cause jitters for the U.S., because it hints at broader global problems.

6. China
Concerns about China’s economy have resurfaced. Lackluster export data on Thursday reminded investors of the view that the world’s second-largest economy is petering. In August 2015, it was China’s stock-market woes and its sluggish economy that sent global markets into a tailspin.

7. U.S. presidential election
Like the market, Trump has been on a losing streak.
Republican candidate Donald Trump’s recent debacles have begun to lead some strategists to believe that a victory for Clinton isn't just assured, but that Democrats might see sufficient gains during the November elections to gain control of the House. That is not viewed as a categorical good thing for the market—financials KBE, +0.48% XLF, +0.47%  and the aforementioned biotech sector have been wobbly

To be sure, there is plenty of time to right the stock-market ship. Earnings could surprise to the upside and calm may set in after the election, pushing the S&P 500 and the Dow to fresh records, but right now it is looking a bit iffy.

Market columnist Mark Hulbert says the market is setting up for a monster rally and points out that the Dow has gained an average of 6.8% from its lowest point in October through the end of that same year.

Saturday, October 08, 2016

You won't learn this from the so-called mainstream media. "Russia has a sufficient nuclear arsenal capable of inflicting a deadly blow on the United States. Washington recognizes this as well." "the State Department’s statement was immediately followed by the Pentagon's announcement that it is ready to launch a preventative nuclear strike on Russia." Thank goodness that Putin does not want a war with the US. But "we don’t know what choice Washington will make."

Following the president of the Russian Federation’s decree on suspending Russia’s compliance with agreements with the US on the disposal of weapons-grade plutonium and the submission of the corresponding bill to the State Duma, disputes have begun in the media on whether this is connected to the rupture of the Syria deal. The second stumbling block is a question: Why is Russia, having known that the US has not fulfilled its part of the deal, only reacted now after a few years?

Some nuclear experts argue that the deal was objectively beneficial for Russia. Maybe. I’m not an expert in this sphere and it’s difficult for me to say how objective they are. Moreover, that which is beneficial from the standpoint of the nuclear industry might be disadvantageous from the point of view of security.

In principle, I think that there were no particular security problems. Russia has a sufficient nuclear arsenal capable of inflicting a deadly blow on the United States. Washington recognizes this as well. There was also more than enough material for the production of new warheads. In the event of full-scale nuclear strike exchanges, the production of another batch of weapons would already be redundant and, indeed, physically impossible. The real problem would be physically preserving the remains of civilization at least at the level of the stone age.

As for the Syria, this is not the first time, and not only in Syria, that the US concludes agreements only to disrupt their fulfillment and then conclude them again. The form of the Russian reaction is clearly not comparable to Washington’s public rejection of cooperation which, in fact, it has yet to do.

I think that in order to understand the scale of this incident, it is necessary to pay attention to the fact that Putin has not simply taken Russia out of a contract. He has announced the possibility of returning to it, but he has furnished certain conditions.

Let’s look at these conditions:

(1) the US must lift all sanctions against Russia;
(2) compensation should be paid not only for the losses from American sanctions, but also for the losses incurred by Russian counter-sanctions;
(3) the Magnitsky Act should be repealed;
(4) the US’ military presence in Eastern Europe should be sharply reduced; and
(5) the US should abandon its policy of confrontation with Moscow.
Only one word fits in determining the essence of Putin’s demands: “ultimatum.”

As far as a I remember, the last time that Washington was given an ultimatum was by the United Kingdom over the Trent vessel incident. And that was in 1861 during the American Civil War. Even then, in extremely difficult conditions, America agreed to partially meet British demands.

It should be noted that the British demands in  1861 did not contain anything humiliating for the US. The captain of a US Navy ship had indeed broken international law, arrested people on a neutral (British) ship, and thereby encroached upon the sovereignty of the UK, nearly provoking a war. Then America disavowed the actions of its captain and freed the prisoners, albeit refusing to apologize.

But Putin is not demanding any apologies or the release of a few prisoners, but for all of American policy to be changed, and still more for Russia to be compensated for losses due to the US’ sanctions. This is an unmeetable, humiliating demand. This demand essentially means complete and unconditional surrender in the hybrid war which Washington does not consider to be irreversibly lost. And there’s still all those indemnities payments and reparations.

Something similar was demanded from the US by the British Crown before the end of the war for independence, when the Americans were still King George III’s rebellious subjects. For the last 100 years no one has even imagined talking with Washington in such a tone.

And so, the first conclusion is: Putin has deliberately and demonstratively humiliated the US. He has shown that it is possible to talk tough to the US, even tougher than the US itself has gotten used to talking down to the rest of the world. 

How was this done? What did Putin actually react to? Did he actually think that the US would fulfill the Kerry-Lavrov deal and is now upset over what happened? Russia also knew that Washington has not been observing the plutonium deal for years, but Moscow has extracted serious profit from this for its nuclear industry by nearly becoming a global monopoly and is clearly not perturbed by the US’ technological backwardness preventing them from disposing of weapons-grade plutonium as stipulated in the agreement.  

Russia’s tough and almost immediate reaction followed the statements of the US Secretary of State’s spokesperson to the effect that Russia will have to start sending its troops home from Syria in body bags, is going to start losing planes, and that terrorist attacks will begin to plague Russian cities.

In addition, the State Department’s statement was immediately followed by the Pentagon's announcement that it is ready to launch a preventative nuclear strike on Russia. The Russian Ministry of Foreign Affairs also reported that Moscow knows about the US’ intention to launch an air war against Syrian government forces, which also means against the Russian contingent legally stationed in Syria. 

What else formed the background for Putin’s ultimatum?: The exercises from six months ago involving air and missile defense and strategic missile systems which practiced repelling a nuclear attack on Russia and then launching a responsive counter strike. Add to this the other day's emergency exercises involving up to 40 million Russian citizens that inspected the readiness of infrastructure and civil defense structures for a nuclear war and provided additional information to citizens on the plan of action in the cause of “X hour.”

If we take all of this together, then we can see that the US has long since informally frightened Russia with a nuclear conflict, and Moscow has regularly hinted that it is ready for such a turn of events and is not going to back down.

However, given the end of Obama’s rule and lacking absolute confidence in a Hillary Clinton victory in presidential elections, the Washington hawks have decided to raise their bets once again. And now things have reached an extremely dangerous limit in which conflict begins to reach the stage of developing independently. At this stage, nuclear Armageddon could begin over any kind of incident, including due to the incompetence of some senior Pentagon officials or White House administrators. 

At this precise moment, Moscow has seized the initiative and upped the ante, but by moving the confrontation onto another plane. Unlike America, Russia is not threatening war. It is simply demonstrating its capability of giving a harsh political and economic response which can, in the event of further inappropriate behavior by the US, realize just the opposite of Obama’s dream: tearing apart Washington’s economy and financial system.

In addition, with these actions, Russia has seriously undermined the international prestige of the US by showing the whole world that America can be beaten with its own weapons. The boomerang has come back. Given such dynamics and turn of events, we might see hundreds of representatives of the American elite at the dock in the Hague not only in our lifetime, but even before the next American president serves their first four-year term in the White House.

The US has been given a choice. Either it will carry through with its threats and start a nuclear war, or it will accept the fact that the world is no longer unipolar, and begin to integrate into the new format.

We don’t know what choice Washington will make. The American political establishment has a sufficient number of ideologically-blinded, incompetent figures who are ready to burn up in a nuclear fire with the rest of a humanity rather than recognize the end of US world hegemony, which has turned out to be short-lived, senseless, and criminal. But they have to make a choice, because the longer that Washington pretends that nothing has happened, the greater the number of its vassals (who are called their allies, but have long since been bogged down in dependency) will openly and explicitly ignore American ambitions and cross over to the other side of the new perspectives of global power arrangement.

In the end, the US could be faced with the status of one of the centers of the multipolar world no longer being available for it. Not only Africans, Asians, and Latin Americans, but also Europeans will gladly take revenge against the former hegemon for their former humiliation. And they are not so humane and peace-loving as Russia.

Finally, Putin’s ultimatum is a response to all of those who were outraged that Russian tanks didn’t take Kiev, Lvov, Warsaw, and Paris in 2014 and pondered over what Putin’s plan could possibly be. 

I can only repeat what I wrote back then. If you are going to confront the global hegemon, then you have to be sure that you will be capable of responding to any of its actions. The economy, army, society, and state and administrative structures should all be ready. If everything is not fully ready, then one needs to buy time and build muscle.

Now things are ready and the cards have been put on the table. Let us see what the US will respond with. But the geopolitical reality will never be the same. The world has already changed. The US has had the gauntlet publicly thrown down before it and they have not dared to pick it up right away. 

Saturday, October 01, 2016

As many of you know by now, I am only one year older than Paul Craig Roberts, and we both completed our four-year undergraduate degrees at technical schools (mine Carnegie Tech, his Georgia Tech). Then we both spent six years in grad school (me getting my PhD in physics at Brown University and he getting his PhD in economics from the University of Virginia after one-year stints in U. California at Berkley and Merton College Oxford). This dichotomy focused him on national and international events, whereas I stuck to physics, joining the Naval Research Laboratory in 1998 where I researched deeply the effects of radiation on glassy materials and fiber optics. But early on I became at NRL a Principle Investigator in the NASA Lunar Sample Program. I advanced to a mid-level appointment at NRL where for a while I was made Section Head but thankfully was relieved of that by my superiors. To pay them back I offered to take a then-empty seat at DARPA, where for two years halftime I picked the high quality projects among the many submissions hoping to be funded. Twenty years later, my last decade at NRL, I was required to get my own funding, which came almost entirely from Eisenhower’s “military/industrial complex.” However, when I asked people from the complex, even ones I used to know personally, they refused me on the ground that they no longer supported basic science. In fact, the $666,000 that I did bring in was considered not sufficient by my superiors. Therefore I arranged to exit NRL after 33 years in January of 2001 to take up professorships of research at Universités de Paris 6 & 7 and Tokyo Institute of Technology, after which my wife and I were “without fixed address” until we finally found or present home in Mexico. About the same time, PCR sensed that our country was doing away with the Constitution and our Bill of Rights and began to write on the subject, with only donors to supplement his well-deserved government pension. Here below is his latest, and most important, blog to date treating the danger to all mankind if the neocons running Washington (abetted by the so called mainstream media, AKA journalists replaced by propagandists) should force a nuclear war with Russia. Wake up America before it’s too late!

Bring Back The Cold War — Paul Craig Roberts

September 30 , 2016 | Original Here | If you wish to receive his newsletter via email go to Original and sign up at bottom. 

Bring Back The Cold War

Paul Craig Roberts

Pundits have declared a “New Cold War.” If only! The Cold War was a time when leaders focused on reducing tensions between nuclear powers. What we have today is much more dangerous: Washington’s reckless and irresponsible aggression toward the other major nuclear powers, Russia and China.

During my lifetime American presidents worked to defuse tensions with Russia. President John F. Kennedy worked with Khrushchev to defuse the Cuban Missile Crisis. President Richard Nixon negotiated SALT I and the anti-ballistic missile treaty, and Nixon opened to Communist China. President Carter negotiated SALT II. Reagan worked with Soviet leader Gorbachev and ended the Cold War. The Berlin Wall came down. Gorbachev was promised that in exchange for the Soviet Union’s agreement to the reunification of Germany, NATO would not move one inch to the East.

Peace was at hand. And then the neoconservatives, rehabilitated by the Israeli influence in the American press, went to work to destroy the peace that Reagan and Gorbachev had achieved. It was a short-lasting peace. Peace is costly to the profits of the military/security complex. Washington’s gigantic military and security interests are far more powerful than the peace lobby.

Since the advent of the criminal Clinton regime, every American president has worked overtime to raise tensions with Russia and China.

China is confronted with the crazed and criminal Obama regime’s declaration of the “pivot to Asia” and the prospect of the US Navy controlling the sea lanes that provision China.
Russia is even more dangerously threatened with US nuclear missile bases on her border and with US and NATO military bases stretching from the Baltics to the Black Sea.

Russia is also threatened with endless provocations and with demonization that is clearly intended to prepare Western peoples for war against “the Russian threat.” Extreme and hostile words stream from the mouth of the Democratic presidential candidate, Hillary Clinton, who has called the president of Russia “the new Hitler” and threatened Russia with military force. Insouciant Americans are capable of electing this warmonger who would bring Armageddon upon the earth.

Yesterday, Israel’s voice in the US, the , added to Hillary’s demonization of the most responsible leader in the world with this editorial: “Vladimir Putin’s Outlaw State.” This irresponsible and propagandistic editorial, no doubt written by the neoconservatives, blames all the troubles in Ukraine and Syria on Putin. The NYT presstitutes know that they have no case, so they drag in the US-orchestrated false report on MH-17 recently released by Washington’s Netherlands vassal.

This report is so absurd as to cast doubt on whether intelligence exists anywhere in the Western world. Russia and the now independent Russian provinces that have separated from Ukraine have no interest whatsoever in shooting down a Malaysian airliner. But despite this fact, Russia, according to the orchesrated report, sent a surface-to-air missile, useful only at high altitude, an altitude far higher than the Ukrainian planes fly that are attacking Russians in the separated republics, to the “rebels” so that the “rebels” could shoot down a Malaysian airliner. Then the missile system was sent back to Russia.

How insouciant does a person have to be to believe this propaganda from the New York Times?

Does the New York Times write this nonsense because it is bankrupt and lives on CIA subsidies?

It is obvious that the Malaysian airliner was destroyed for the purpose of blaming Russia so that Washington could force Europe to cooperate in applying illegal sanctions on Russia in an attempt to destabilize Russia, a country that placed itself in the way of Washington’s determination to destabilize Syria and Iran.

In a recent speech, the mindless cipher, who in his role as US Secretary of Defense serves as a front man for the armaments industry, declared the one trillion dollars (1,000 billion dollars or 1,000,000 million dollars, that is, one million dollars one million times) that Washington is going to spend of Americans’ money for nuclear force renewal is so we can “get up in the morning to go to school, to go to work, to live our lives, to dream our dreams and to give our children a better future.”

But Russia’s response to this buildup in Washington’s strategic nuclear weapons is, according to Defense Secretary Aston B. Carter, “saber rattling” that “raises serious questions about Russia’s leaders commitment to strategic stability.”

Do you get the picture? Or are you an insouciant American? Washington’s buildup is only so that we can get up in the morning and go to school and work, but Russia’s buildup in response to Washington’s buildup upsets “strategic stability.”

What the Pentagon chief means is that Russia is supposed to sit there and let Washington gain the upper hand so Washington can maintain “strategic stability” by dictating to Russia. By not letting Washington prevail, Russia is upsetting “strategic stability.”

US Secretary of State John Kerry, who has been broken and tamed by the neoconservatives, recently displayed the same point of view with his “ultimatum” to Russian Foreign Minister Sergey Lavrov. In effect, Kerry told Lavrov that Russia must stop helping Syria resist the jihadist forces and allow the US-supported ISIS to regain the initiative and reduce Syria to the chaos in which Washington left Libya and Iraq. Otherwise, Kerry said that the agreement to cooperate is off.

There can be no cooperation between the US and Russia over Syria, because the two government’s goals are entirely different. Russia wants to defeat ISIS, and the US wants to use ISIS to overthrow Assad. This should be clear to the Russians. Yet they still enter into “agreements” that Washington has no intention of keeping. Washington breaks the agreements and blames Russia, thus creating more opportunities to paint Russia as untrustworthy. Without Russia’s cooperation in setting themselves up for blame, Russia’s portrait would not be so black.

On September 28, 2016, the New York Times gave us a good example of how Washington’s propaganda system works.
The headline set the stage: “Russia’s Brutal Bombing of Aleppo May Be Calculated, and It May Be Working.” According to the NYT report, Russia was not bombing ISIS. Russia was “destroying hospitals and schools, choking off basic supplies, and killing aid workers and hundereds of civilians.”

The NYT asks: “What could possibly motivate such brutality?”

The NYT answers: Russia is “massacring Aleppo’s civilians as part of a calculated strategy . . . designed to pressure [moderates] to ally themselves with extremists,” thereby discrediting the forces that Washington has sent to overthrow Syria and to reduce the country to chaos.

When America’s Newspaper of Record is nothing but a propaganda ministry, what is America?

Pundits keep explaining that Washington’s 15 year old wars in the Middle East are about controlling the routing of energy pipelines. Little doubt this is a factor as it brings on board powerful American energy and financial interests. But this is not the motive for the wars. Washington, or the neoconservatives who control the US government, intend to destabilize the Russian Federation, the former Soviet Central Asian countries, and China’s Muslim province by adding Syria and then Iran to the chaos that Washington has created in Iraq and Libya. If Washington succeeds in destroying Syria as it succeeded in destroying Libya and Iraq, Iran becomes the last buffer for Russia. If Washington then knocks off Iran, Russia is set up for destabilization by jihadists operating in Muslim regions of the Russian Federation.

This is clear as day. Putin understands this. But Russia, which existed under Washington’s domination during the Yeltsin years, has been left threatened by Washington’s Fifth Columns in Russia. There are a large number of foreign-financed NGOs in Russia that Putin finally realized were Washington’s agents. These Washington operatives have been made to register as foreign-financed, but they are still functioning.

Russia is also betrayed by a section of its elite who are allied economically, politically, and emotionally with Washington. I have termed these Russians “America Worshipers.” Their over-riding cause is to have Russia integrated with the West, which means to be a vassal of Washington.

Washington’s money even seems to have found its way into Russian “think tanks” and academic institutions. According to this report (, two think tanks, one Russian one American, possibly funded by Washington’s money, have concluded that “US,Russia ‘Have far more common interests than differences’ in Asia-Pacific.”

This “academic report” is a direct assault on the Russian/Chinese alliance. It makes one wonder whether the report was funded by the CIA. The Russian media fall for the “common interest” propaganda, because they desire to be included in the West. Like Russian academics, the Russian media know English, not Chinese. Russia’s history since Peter the Great is with the West. So that is where they want to be. However, these America Worshiping Russians cannot understand that to be part of the West means being Washington’s vassal, or if they do understand the price, they are content with a vassal’s status like Germany, Great Britain, France, and the rest of the European puppet states.

To be a vassal is not an unusual choice in history. For example, many peoples chose to be Rome’s vassals, so those elements in Russia who desire to be Washington’s vassal have precedents for their decision.

To reduce Russia’s status to Washington’s vassal, we have Russian-US cooperation between the Moscow-based Institute of World Economy and International Relations and the US-based International Institute for Strategic Studies. These two co-conspirators against Russian sovereignty are working to destroy Russia’s strategic alliance with China and to create a US-Russian Pacific Alliance in its place. One of the benefits, the joint report declares, is “maintaining freedom of navigation and maritime security.”

“Freedom of navigation” is Washington’s term for controlling the sea lanes that supply China. So now we have a Russian institute supporting Washington’s plans to cut off resource flow into China. This idiocy on the part of the Moscow-based Institute of World Economy and International Relations is unlikely to reassure China about its alliance with Russia. If the alliance is broken, Washington can more easily deal with the two constraints on its unilateralism.

Additionally, the joint report says that Moscow could cooperate with Washington in confidence-building measures to resolve territorial disputes in the Asia-Pacific region. What this means is that Russia should help Washington pressure China to give up its territorial claims.

One cannot but wonder if the Moscow-based Institute of World Economy and International Relations is a CIA front. If it is not, the CIA is getting a free ride.

The foreign policy of the United States rests entirely on propagandistic lies. The presstitute media, a Ministry of Propaganda, establishes an orchestrated reality by treating lies as fact. News organizations around the world, accustomed as they are to following Washington’s lead, echo the lies as if they are facts.

Thus Washington’s lies–such as Saddam Hussein’s weapons of mass destruction, Iranian nukes, Assad’s use of chemical weapons, Russian invasions–become the reality.

Russia’s very capable spokeswoman, Maria Zakharova, understands that Washington uses the Western media to control explanations by shaping public opinion. She terms it a “reality show.” However, Zakharova thinks the problem is that Washington misuses “international relations and international platforms for addressing internal issues.” By this she means that Obama’s foreign policy failures have made him hysterical and impudent as he strives to leave a legacy, and that American/Russian relations are poisoned by the US presidential campaign that is painting Trump as a “Putin stooge” for not seeing the point of conflict with Russia.

The US presstitutes are disreputable. This morning NPR presented us with a report on Chinese censorship of the media as if this was something that never happens in the US. Yet NPR not only censors the news, but uses disinformation as a weapon in behalf of Washington and Israel’s agendas. Anyone who depends on NPR is presented a very controlled picture of the world. And do not forget German newspaper editor Udo Ulfkotte, who admits he planted stories for the CIA in the Frankfurter Allgemeine Zeitnung and says that there is no significant European journalist who doesn’t do the same thing.

The situation is far more serious than Zakharova realizes. Russians seem unable to get their minds around the fact that the neoconservatives are serious about imposing Washington’s hegemony on the rest of the world. The neoconservative doctrine declares that it is the principal goal of US foreign policy to prevent the rise of any country that would have sufficient power to serve as a check on American unilateralism. This neoconservative doctrine puts Russia and China in Washington’s cross hairs. If the Russian and Chinese governments do not yet understand this, they are not long for this world.

The neoconservative doctrine fits perfectly with the material interests of the US military/security complex. The US armaments and spy industries have had 70 years to entrench themselves with a huge claim on the US budget. This politically powerful interest group has no intention of letting go of its hold on US resources.

As long ago as 1961, President Dwight D. Eisenhower in his last public address to the American people warned that the Cold War confronted Americans with a new internal danger as large as the external Soviet threat:

“Our military organization today bears little relation to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea.

“Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.

“This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

“We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

President Eisenhower’s warning that our liberties were equally at stake from the military/security complex as from the Soviet Threat did not last 24 hours. The military/security complex buried Eisenhower’s warning with extraordinary hype of the Soviet Threat.

In truth, there was no Soviet threat. Stalin had buffered Russia from the West with his control of Eastern Europe, just as Washington controlled Western Europe. Stalin had eliminated Trotsky and his supporters who stood for world revolution. Stalin declared “socialism in one country.”

Stalin terminated international communism. But the American military/security complex had much money to gain from the American taxpayers in order to “protect America from International Communism.” So the fact that there was no effort on the part of the Soviet Union to subvert the world was ignored. Instead, every national liberation movement was declared by the US military/industrial complex to be a “falling domino” of the Communist takeover of the world.

Ho Chi Minh begged Washington for help against the French colonialists in Vietnam. Washington told him to go to hell. It was Washington that sent Ho Cho Minh to seek communist support.

The long Vietnam war went on for years. It enriched the military/security complex and officers’ pensions. But it was otherwise entirely pointless. There were no dominoes to fall. Vietnam won the war but is open to American influence and commerce.

Because of the military/security complex more than 50,000 Americans died in the war and many thousands more suffered physical and psychological wounds. Millions of Vietnamese suffered death, maiming, birth defects and illnesses associated with Washington’s use of Agent Orange.

The entire war was totally pointless. It achieved nothing but destruction of innocents.
This is Washington’s preferred way. The corrupt capitalism that rules in America has no interest in life, only in profit. Profit is all that counts. If entire countries are destroyed and left in ruins, all the better for American armaments industries.

Yes, please, a new Cold War. We need one desperately, a conflict responsibly managed in place of the reckless, insane drive for world hegemony emanating from the crazed, evil criminals in Washington who are driving the world to Armageddon.