JASON Research: May 2009

Saturday, May 30, 2009

Afghanistan

May 29, 2009 "Counterpunch" -- So far the principle result of the U.S. invasion of Afghanistan following the events of 9-11 has been the destabilization of Pakistan. That breakdown is peaking with the events in what AP calls the “Swat town” of Mingora---actually a city of 375,000 from which all but 20,000 have fled as government forces moved in, strafing it with gunships. We’re talking urban guerrilla warfare, house-to-house fighting, not on the Afghan border but 50 miles away in the Swat Valley. We’re talking about Pakistani troops fighting to reclaim the nearby Malam Jabba ski resort from the Tehreek-e-Taliban, who since last year have been using it as a training center and logistics base. We’re talking about two million people fleeing the fighting in the valley and 160,000 in government refugee camps.

And of course, “collateral damage”: As was reported in The News in Pakistan May 19:

Several persons, including women and children, were killed and a number of others sustained injuries when families fleeing the military operation in Swat’s Matta town were shelled while crossing a mountainous path to reach Karo Darra in Dir Upper on Monday, eyewitnesses and official sources said. Eyewitnesses, who escaped the attack or were able to reach Wari town of Dir Upper in injured condition, said they were targeted by gunship helicopters. However, police officials said they might have been hit by a stray shell. Local people said they saw some 12 to 14 bodies on a mountain on the Swat side but could not go near to retrieve them or help the injured for fear of another aerial attack.

What a nightmare scenario for Pakistan.

We’re talking about the Pakistani Army sometimes fighting over the last year to retake towns from Taliban forces in the Buner region of the North-West Frontier Province that are closer to the capital of Islamabad than the Afghan border. And while the Talibs apparently lack popular support, even among the Pashtuns (who are 15 % of the Pakistani population---26 million and 42% of the Afghan population---14 million) they have been able to inflict embarrassing defeats on the army.

Tehreek-i-Taliban leader Baitullah Mahsud, head of the militant forces in South Waziristan, established his credentials when his forces captured 300 Pakistani soldiers and traded them for about 30 imprisoned militants in the fall of 2007. Time and again the several (sometimes rival) “Taliban” forces, which did not exist before the U.S. invasion of Afghanistan created them, have forced the government to negotiate terms. Most recently in February Islamabad agreed to the implementation of the Sharia in the Swat Valley in exchange for peace. The Taliban broke the agreement in April, or so the story goes, and the army claims it’s killed 1,100 militants since.

But curiously as of Sunday it claimed to have killed only 10 Taliban, while boasting of seizing (according to AP) “a spot nicknamed ‘bloody intersection’ because militants routinely dumped the mutilated bodies of their victims there.” On Monday I read of another four dead militants but the Taliban announced through a spokesman that they would maintain “aides” in place in the city, cease fire, and advise civilians to return. It appears most have retreated to other towns, including Buner and Daggar where fighting goes on now. This they can do under cover of the masses of refugees of course.

Now think of what has happened here. Whether or not this was Osama bin Laden’s conscious plan, the local, ethnically-based, ideological movement most receptive to his own (i.e., the Taliban, or more precisely, multiple talibans on the Pakistan side of the border) has flourished since the U.S. attack upon Afghanistan in response to the 9-11 attacks. The imperialist response to 9-11 inflamed Pashtunistan. The toppling of the Taliban itself aroused indignation among many Pakistani as well as Afghan Pashtuns. Some militants fleeing east met with the traditional Pasthtunwali welcome, as they would under less stressful circumstances, and beyond that political sympathy.

The drone missile attacks, the civilian deaths, the contemptuous official denials, the repeated insults to national sovereignty, the connivance of the regime in power, have angered many, perhaps most, Pakistanis. While the Taliban has undergone a quiet resurgence in southern Afghanistan, leading U.S. generals to conclude that a military solution to the war is impossible, bands of religious “students” gathering around tribal leaders and warlords in Pakistan forming the umbrella “Movement of the Taliban” or Tehreek-e-Taliban under Mahsud have been able to generate this kind of chaos.

The Army had been deployed before against Indian and Chinese forces. But the disproportionately Pashtun force had never confronted or been trained to confront fanatical Pashtun jihadis---particularly when the issue was the implementation of the Sharia. Not surprisingly it performed badly and Islamabad wound up cutting a deal in February to implement Islamic law in the Swat Valley. U.S. Defense Secretary Gates can criticize that judgment in stating, “We want to support [the Pakistanis]. We want to help them in any way we can. But it is important that they recognize the real threats to their country.” And Secretary of State Hillary Clinton can tell Congress, “I think the Pakistani government is basically abdicating to the Taliban and the extremists [by making a peace deal in Swat]. Changing paradigms and mindsets is not easy, but I do believe there is an increasing awareness of not just the Pakistani government but the Pakistani people that this insurgency coming closer and closer to major cities does pose such a threat.”

It’s easy to lecture about such things, to judge the actions of another government facing a crisis. But isn’t it obvious that what Clinton has since at least April been calling Pakistan’s “existential threat” wouldn’t be closing in on the cities of that country had the U.S. not responded to 9-11 with the knee-jerk bombing of Afghanistan and the toppling of the Taliban? President Pervez Musharraf has recalled that Deputy Secretary of State Richard Armitage told him soon after 9-11 to “prepare to go back to the Stone Age” if he didn’t cooperate with the U.S. in the war on terrorism. The existential threat to Pakistan was the Bush administration!

The Bush administration pressured Musharraf to deploy the Pakistan Army in border provinces where it had never been deployed and where its very presence was perceived as a provocation. The result was the September 2005 “peace agreement” in which the government agreed to halt military operations along the border and dismantle checkpoints in return for tribal leaders’ commitment to end support for militancy and prevent cross-border incursions into Afghanistan. It was a face-saving defeat for the regime that drew U.S. criticism, as have all subsequent deals with the militants, which have in any case broken down, like the February deal in Swat.

The 2005 agreement followed the notorious Lal Masjid episode in Islamabad when the security forces stormed an important seminary and hotbed of Islamist activism. The khatib (prayer-leader) had been dismissed for issuing a fatwa stating no Pakistani Army officer could be given an Islamic burial if died fighting the Taliban, and then the mosque had risen up in general rebellion, sparking solidarity attacks on government forces by militants in North Waziristan and the North West Frontier Province (NWFP). The government was forced to back down.

That’s been the pattern ever sense. Get tough on the “insurgents,” with U.S. prodding, and funding, and threats of funding reduction and direct intervention. Then negotiate with tribal and religious leaders, recognizing locals’ mistrust of outsiders, the Pakistani state, and its international backers which the mullahs may identify as U.S. imperialism and Zionism. And watch both carrot and stick policies fail as Pakistan’s own homegrown Taliban insurgency swells alongside the recrudescent original next door.

Now, while the Pakistani Army is still struggling to take control of Mingora and the Taliban is regrouping, the insurgents have pulled off a brazen attack on the Inter-Services Intelligence (ISI) office compound in Lahore, in eastern Pakistan, on the border with India, killing about 30 and injuring 250. The irony here of course is that the Taliban was nurtured by the ISI in the 1990s and the attackers may well have known the location of ISI offices for that very reason.

Such terror has Bush’s war on terror visited on Pakistan, with no end in sight. And Obama’s war in “Af-Pak,” reliant on a troop surge, more Predator drone attacks, and maybe some “divide and conquer” tactics, hold out little promise for relief. U.S. officials screw up their faces as if genuinely puzzled about while the Pakistanis aren’t doing more---as if puzzled about why they don’t understand that their existence is at stake. The fact is that they are the ones on the outside looking in, who do not understand that the interests of U.S. imperialism do not cause religious and national and ethnic sensibilities to disappear or make it possible for local leaders, even those on the imperialist payroll, to snap their fingers, crush local resistance and produce social peace. The interests of U.S. imperialism in this case, in the form of regime change in Afghanistan, and the way it was done, have antagonized much of the Pakistani population.

This is Washington’s unwanted gift to Islamabad, for which Islamabad keeps getting paid and keeps paying.

http://informationclearinghouse.info/article22735.htm

Afghanistan is, as of March, 2008, the greatest illicit (in Western World standards) opium producer in the world, before Burma (Myanmar), part of the so-called "Golden Crescent". Opium production in Afghanistan has been a significant problem (or a significant business) for Afghanistan, especially since the downfall of the Taliban in 2001. Based on UNODC data, there has been more opium poppy cultivation in each of the past four growing seasons (2004-2007), than in any one year during Taliban rule.
http://en.wikipedia.org/wiki/Opium_Production_in_Afghanistan

Afghanistan's notorious, soaring drug trade is hitting home. The country now has one of the world's sharpest rising rates of drug use, especially in the cities. With few antidrug programs – and many of those poorly funded – aid agencies say drug abuse is now the fastest-growing social problem in the country.

There are twice as many heroin users on the streets of Kabul than just four years ago, says Mohammed Zafar, an official at the Ministry of Counter Narcotics.

The opium capital of the world, Afghanistan is responsible for 92 percent of global output. Each year, the country produces about $4 billion worth, or 53 percent of gross domestic product, making drug production easily Afghanistan's most lucrative industry, according to the United Nations Office on Drugs and Crime (UNODC).

About 1 million of Afghanistan's 34 million people are drug users, and the majority of these live in the country's principal cities, UNODC estimates.
http://www.csmonitor.com/2008/0313/p04s01-wogn.html

MOSCOW, November 20 (RIA Novosti) - Opium production in Afghanistan has increased by 150% since a NATO-led security and development mission entered the country in 2001, Russia's Federal Drug Control Service said on Thursday.

"Afghanistan has become the absolute leader in narcotics production, producing 93% of the world's entire opiates... Afghan drug dealers have in two years set up the successful production of cannabis [marijuana, hashish] with over 70,000 hectares of land being cultivated, taking Afghanistan into second place in the world behind Morocco in terms of the cultivation of such drugs," the service said in a statement.

Since the Taliban regime was overthrown in the 2001 U.S.-led campaign, Afghanistan, with almost all its arable land being used to grow opium poppies remains the world's leading producer of heroin.

According to the UN, Afghanistan's opium production increased from 6,100 tons in 2006 to 8,200 tons in 2007.

The narcotics trade has become an acute problem for the Central Asian republics due to a continual flow of illegal drugs from Afghanistan.
http://en.rian.ru/world/20081120/118431526.html

http://www.unodc.org/pdf/afg/afghanistan_opium_survey_2004.pdf

http://www.tcf.org/publications/internationalaffairs/dobbinscopy.pdf

The US has made some serious headway in Afghanistan. Scared Bin Laden out of the country...in fact assisted his escape from Tora Bora...kicked the Taliban's hindquarters...killed a bunch of people....boosted the drug trade...

North Korea

May 29, 2009 "The Guardian" -- The big power denunciation of North Korea's nuclear weapons test on Monday could not have been more sweeping. Barack Obama called the Hiroshima-scale underground explosion a "blatant violation of international law", and pledged to "stand up" to North Korea – as if it were a military giant of the Pacific – while Korea's former imperial master Japan branded the bomb a "clear crime", and even its long-suffering ally China declared itself "resolutely opposed" to what had taken place.

The protests were met with further North Korean missile tests, as UN security council members plotted tighter sanctions and South Korea signed up to a US programme to intercept ships suspected of carrying weapons of mass destruction. Pyongyang had already said it would regard such a move as an act of war. So yesterday, nearly 60 years after the conflagration that made a charnel house of the Korean peninsula, North Korea said it was no longer bound by the armistice that ended it and warned that any attempt to search or seize its vessels would be met with a "powerful military strike".

The hope must be that rhetorical inflation on both sides proves to be largely bluster, as in previous confrontations. Even the US doesn't believe North Korea poses any threat of aggression against the south, home to nearly 30,000 American troops and covered by its nuclear umbrella. But the idea, much canvassed in recent days, that there is something irrational in North Korea's attempt to acquire nuclear weapons is clearly absurd. This is, after all, a state that has been targeted for regime change by the US ever since the end of the cold war, included as one of the select group of three in George Bush's axis of evil in 2002, and whose Clinton administration guarantee of "no hostile intent" was explicitly withdrawn by his successor.

In April 2003, North Korea drew the obvious conclusion from the US and British aggression against Iraq. The war showed, it commented at the time, "that to allow disarmament through inspections does not help avert a war, but rather sparks it". Only "a tremendous military deterrent force", it stated with unavoidable logic, could prevent attacks on states the world's only superpower was determined to bring to heel.

The lesson could not be clearer. Of Bush's "axis" states, Iraq, which had no weapons of mass destruction, was invaded and occupied; North Korea, which already had some nuclear capacity, was left untouched and is most unlikely to be attacked in future; while Iran, which has yet to develop a nuclear capability, is still threatened with aggression by both the US and Israel.

Of course, the Obama administration is a different kettle of fish from its predecessor; it had earlier floated renewed dialogue with North Korea and has made welcome noises about nuclear disarmament. Whether such talk was ever going to impress the cash-strapped dynastic autocracy in Pyongyang – which had had its fill of broken US commitments and the new belligerence from its southern neighbour – seems doubtful. In any case, having gone so far, it was surely inevitable the regime would want to rerun its half-cocked 2006 test to demonstrate its now unquestioned nuclear power status.

Yet not only has America's heightened enthusiasm for invading other countries since the early 1990s created a powerful incentive for states in its firing line to acquire nuclear weapons for their own security. But all the main nuclear weapons states have, by their persistent failure to move towards serious disarmament, become the single greatest driver of nuclear proliferation.

It's not just the breathtaking hypocrisy that underpins every western pronouncement about the "threat to world peace" posed by the "illegal weapons" of the johnny-come-latelys to the nuclear club. Or the double standards that underpin the nuclear indulgence of Israel, India and Pakistan – now increasing its stock of nuclear weapons, even as the country is rocked by civil war – while Iran and North Korea are sanctioned and embargoed for "breaking the rules". It's that the obligation of the nuclear weapons states under the non-proliferation treaty – and the only justification of their privileged status – is to negotiate "complete disarmament".

Yet far from doing any such thing, both the US and Britain are investing in a new generation of nuclear weapons. Even the latest plans to agree new cuts in the US and Russian strategic arsenals would leave the two former superpower rivals in control of thousands of warheads, enough to wipe each other out, let alone the smaller fry of global conflict. So why North Korea, no longer even a signatory to the treaty and therefore not bound by its rules, or any other state seeking nuclear protection, should treat them as a reason to disarm is a mystery.

http://informationclearinghouse.info/article22734.htm

May 27 (Bloomberg) -- North Korea threatened a military response to South Korean participation in a U.S.-led program to seize weapons of mass destruction, and said it will no longer abide by the 1953 armistice that ended the Korean War.

“The Korean People’s Army will not be bound to the Armistice Agreement any longer,” the official Korean Central News Agency said in a statement today. Any attempt to inspect North Korean vessels will be countered with “prompt and strong military strikes.” South Korea’s military said it will “deal sternly with any provocation” from the North.

South Korean President Lee Myung Bak ordered his government to take “calm” measures on the threats, his office said in a statement today. Japan’s Chief Cabinet Secretary, Takeo Kawamura, echoed those remarks and called on North Korea to “refrain from taking actions that would elevate tensions in Asia.”

The threats are the strongest since North Korea tested a nuclear weapon on May 25, drawing international condemnation and the prospect of increased sanctions against the communist nation. South Korea dispatched a warship to its maritime border and is prepared to deploy aircraft, Yonhap News reported, citing military officials it didn’t identify.

“This rapid-fire provocation indicates a more aggressive shift in the Kim Jong Il regime,” said Ryoo Kihl Jae, a professor at the University of North Korean Studies in Seoul. “Kim is obviously using a strategy of maximum force.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=aS17xp.yHokM&refer=home

SEOUL, South Korea (AP) - North Korea's military says it considers South Korea's participation in a U.S.-led program to intercept ships suspected of spreading weapons of mass destruction tantamount to a declaration of war against the North.

The communist North's military said in a statement Wednesday that it will respond with "immediate, strong military measures" if the South actually stops and searches any North Korean ships under the Proliferation Security Initiative.

The statement, carried by the North's Korean Central News Agency, said North Korea no longer considers itself bound by the armistice that ended the Korean War, as a protest over the South's participation.

South Korea announced its participation in the anti-proliferation program Tuesday, one day after the North conducted a nuclear test.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

http://www.breitbart.com/article.php?id=D98EBO2G1&show_article=1

More with analysis...

http://zerohedge.blogspot.com/2009/05/nk-calls-sk-decision-to-join-anti.html

Update: Many people don’t realize this, but the UN Security Council has already spoken. See UNSC 1718 of 2006. The North has completely ignored every section of the resolution. The UN is powerless here, like it was with Iraq.

http://fwcon.wordpress.com/2009/05/27/north-korea-declares-war-on-south/

“In Korea in the state of armistice confrontation means escalated tension and it may lead to an uncontrollable and unavoidable military conflict and a war,” it said.

The states, technically still at war because their 1950-53 conflict ended with a cease fire and not a peace treaty, have more than 1 million troops near their border. There are about 28,000 U.S. troops in South Korea to defend the country.

The North’s bureaucracy works slowly to form policy and it may still be trying to figure out its approach with the new Obama team, analysts said, making it easier for Pyongyang to direct its anger at Washington’s allies, including Seoul.

The North in recent months has repeatedly threatened to destroy the conservative government of President Lee Myung-bak, which ended a decade of free-flowing aid to Pyongyang after taking office a year ago.

Lee’s government mostly ignores Pyongyang’s taunts.

http://defencedebates.wordpress.com/2009/02/01/north-korea-warned-on-sunday-that-the-downward-spiral-of-relations-with-the-south-has-pushed-the-peninsula-to-the-brink-of-war/

Friday, May 29, 2009

The Stimulus Package

Economic stimulus refers to the use of fiscal policy -- government spending or tax measures -- to support or revive an economy in recession. In February 2008, as signs of a slowdown emerged, Congress passed a $168 billion package of tax cuts and rebates. Later in the year, after Wall Street crumbled and economic activity contracted sharply, Democrats called for a far larger stimulus, and after his election as president, Barack Obama declared that what he preferred to call a "recovery" package would be his top priority.

On Jan. 28, 2009, the House of Representatives passed an $819 billion stimulus plan by a vote of 244 to 188. The measure passed without a single Republican vote in favor. Intensive negotiations in the Senate led three moderate Republicans to lend their support to an $838 billion version of the bill, getting Democrats over the 60-vote hurdle needed to prevent a filibuster. Final passage of the Senate measure on Feb. 10 by a 61 to 37 vote was followed by a whirlwind round of negotiations with the House that produced agreement the next day on a $789 billion final version of the bill.

In scale and scope, both bills were closer to the biggest stimulus effort of all, the New Deal, than those that had been developed to cope with other postwar slowdowns. In many recessions, no stimulus was adopted at all.

Over the decades since the Depression, a consensus had developed among economists that fiscal policy was an ineffective tool in combating recessions compared with monetary policy, that is, the ability of the Federal Reserve to make more money available -- thereby increasing demand -- by lowering interest rates. The stimulus passed in early 2008 was held up as an example of the shortcomings of fiscal policy. It consisted primarily of tax rebates, and surveys showed that much of the extra money was saved or used to pay debts, neither of which generates direct economic activity.

But in the most dire situations, monetary policy can cease to have traction, when banks are so shellshocked that they are unwilling or unable to make new loans even if a central bank provides the money with no interest charges at all. The United States appeared to be in such a "liquidity trap'' in the winter of 2008 and early 2009, as the credit crisis that followed Wall Street's implosion barely eased even as the Fed reduced its rates to virtually zero.

The final bill includes $507 billion in spending programs and $282 billion in tax relief, including a scaled-back version of Mr. Obama's middle-class tax cut proposal, which would give credits of up to $400 for individuals and $800 for families within certain income limits. It will also provide a one-time payment of $250 to recipients of Social Security and government disability support.

Even trimmed to $789 billion, the recovery measure, signed by President Obama on Feb. 17, will be the most expansive unleashing of the government's fiscal firepower in the face of a recession since World War II. And yet it seemed almost trifling compared with the $2.5 trillion rescue plan for the financial system - a combination of loans to banks and incentives to bring private capital into the banking system - announced on Tuesday by Treasury Secretary Timothy F. Geithner.

In early May, some states and cities began to complain that the money had yet to reach them. Some states have been slow to get their paperwork to Washington; as of mid-May, Virginia had yet to send the Transportation Department its list of road projects.

The Obama administration has committed to spending 70 percent of the money, or $550.9 billion, within the first two years. By that benchmark, an administration official said, the government is 8 percent toward its goal.

The government has reported spending more than $10 billion in stimulus money, and officials have said that the speed will increase as the program grows.

http://topics.nytimes.com/topics/reference/timestopics/subjects/u/united_states_economy/economic_stimulus/index.html

Nearly three months after President Obama approved a $787 billion economic stimulus package, intended to create or save jobs, the federal government has paid out less than 6 percent of the money, largely in the form of social service payments to states.

The stimulus bill has directly injected around $45.6 billion into the economy, mostly to help states cover the costs of Medicaid and unemployment benefits, one-time $250 checks that were mailed to Social Security recipients last week, and income tax cuts that began to take effect this spring.

Although states around the country are beginning roadwork projects, the Department of Transportation had spent only about $11 million on highway projects through the first week of May.

The intent of the stimulus program was to pump money into the economy quickly, and many members of Congress said at the time of its passage that speed was of the essence. But the huge program has been a challenge to administer for both a new administration and for states and local governments grappling with their own fiscal problems.

Some states and cities are beginning to complain that the money has yet to reach them. Others have been slow to get their paperwork to Washington; Virginia has yet to send the Transportation Department its list of road projects.

At the same time, some economists have questioned the administration’s claims that the bill has saved or created 150,000 jobs.

Obama administration officials, however, say the pace of the stimulus program is on schedule, and even if the federal checks are not yet in the mail the effects of the stimulus are beginning to reverberate: the promise of the federal money has been enough to get states to start construction work and to retain some jobs that were in jeopardy.

http://www.nytimes.com/2009/05/13/us/politics/13stimulus.html?_r=1

Couple key points....1) more illusion than reality 2) enticed states to spend more money that they don't have thereby hastening the transition to Federal power....or in other words....oligarchy!

FYI - democracy is a word used to describe the transition from Republic to Oligarchy...

compare the progress of $45.6 billion in spending to the advertised injection time line...

Notice where the spending is....Fed vs State/Private/Individual...

http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html

With waves of bad news rolling in from Wall Street and Main Street, the Society of Marketing for Professional Services Foundation held a think tank to explore "The Upside of a Down Economy." Participants at the Feb. 20 conference in Atlanta found little in the way of an upside, but a panel of nine senior industry experts came away with a meaningful to-do list for firms hoping to cope—and even prosper—in an era of diminished opportunity.

Stimulus measures enacted by Congress and the Obama administration, while helpful, will not significantly impact the general outlook for business. The amounts slated for additional federal spending in 2009 in nonresidential construction, one panelist noted, is "just too small to make a difference." Even stimulus spending for state highway work in 2009—the largest section of the stimulus—is "a drop in the bucket," said Laurin McCracken, chief marketing officer for Jacobs Global Buildings NA.

Panelists agreed the virtual collapse of the credit and bond markets for new project financing was the single biggest factor holding back new projects. The stimulus package "pales in comparison to the credit issues we’re facing," said Al Potter, chief strategy officer for Gilbane Building Co.

"The sources of funding are just not there," agreed Art Gensler, chairman of San Francisco-based Gensler. He says there are 250 major projects on hold at his firm. Gensler related a story in which his firm was days away from signing a design-services contract totaling $850 million for a major project in Dubai, only to have the plug pulled. With the current global outlook, he says, "In my lifetime you won’t see another project of that type."

Another less visible issue killing the ability to finance new project starts is the unprecedented overhang of existing commercial mortgage backed securities. Beebe noted that the amount of loans coming due on commercial properties over the next three years, including many that are already financially distressed, "is just staggering." Banks are so highly leveraged with existing real estate loan portfolios that they can’t make new loans, added McCracken. "Until that huge debt load gets corrected, they can’t lend money on new projects," he said.

Turning to the business outlook, all agreed the current economic downturn is fundamentally more severe than previous recessions. Based on recent research, James P. Cramer, publisher of Design Intelligence, Norcross, Ga., estimates that a net loss of $7 billion in design fees will occur over the next 18 months in the U.S. design market. "There will be deep cuts at design firms," in some cases up to 50% of staff, he said.

Potter pointed out that the AEC industry in the U.S. has had a relatively uninterrupted growth for the last 16 years. That run of growth has clearly been interrupted, with owners putting projects on hold and financing almost nonexistent. "This downturn does feel different, doesn’t it?" he asked.

http://enr.construction.com/business_management/finance/2009/0225-CreditCrunchImpact.asp

Americans are understandably angered and frustrated over the stimulus bill. But ask yourself this: Why is it the stimulus package is getting so much more attention than the bank bailout plans, both from Congress and the mainstream media?

One possible answer is the stimulus bill is easier to comprehend and there's a relatively straightforward outlet for our anger: Congress, particularly the Democratic leadership for failing to craft a bill that more than three Republicans could support in both Houses (combined).

The issues behind the bank bailout are certainly more complex and there's more-than plenty of blame to go around - from Wall Street fat cats to Congress (both parties) and regulators (of all stripes), as well as the rating agencies and investors, plus individuals who took on way too much debt.

But given the cost of the bank bailout is orders of magnitude more than the stimulus package, and getting the bailout right far more important to our long-term economic health, let's hope Congress (and the media) will now turn its full attention to finding a legitimate solution to the financial crisis.

http://finance.yahoo.com/tech-ticker/article/173830/Why-Americans-Should-Care-More-About-the-2-5T-Bailout-vs.-the-789B-Stimulus?tickers=^dji,^gspc,SPY,DIA,QQQQ,XLF,SKF

At your request, the Congressional Budget Office (CBO) has prepared a year-by-year
analysis of the economic effects of pending stimulus legislation. This analysis is based
on an average of the effects of two versions of H.R. 1—as passed by the House and as
passed by the Senate. (The economic effects of those two bills are broadly similar.)

In contrast to its positive near-term macroeconomic effects, the legislation would reduce
output slightly in the long run, CBO estimates, as would other similar proposals. The
principal channel for this effect is that the legislation would result in an increase in
government debt. To the extent that people hold their wealth as government bonds
rather than in a form that can be used to finance private investment, the increased debt
would tend to reduce the stock of productive private capital. In economic parlance, the
debt would “crowd out” private investment. (Crowding out is unlikely to occur in the
short run under current conditions, because most firms are lowering investment in
response to reduced demand, which stimulus can offset in part.) CBO’s basic
assumption is that, in the long run, each dollar of additional debt crowds out about a
third of a dollar’s worth of private domestic capital (with the remainder of the rise in
debt offset by increases in private saving and inflows of foreign capital). Because of
uncertainty about the degree of crowding out, however, CBO has incorporated both
more and less crowding out into its range of estimates of the long-run effects of the
stimulus legislation.

http://www.cbo.gov/ftpdocs/99xx/doc9987/Gregg_Year-by-Year_Stimulus.pdf

Folks, this is the most frightening statement I've read from the FOMC - ever.

Notice what's missing - the statement just a few days ago from Ben Bernanke in which he said that the economy would recover in early 2010, and the recession would end in late 2009.

If this was the base case the FOMC believed, there would be no reason for the actions taken today. Monetary policy has a six month (or thereabouts) leadtime, which means that should Ben believe what he spewed on 60 Minutes then his actions to date were sufficient to fix the problem, needing only the fullness of time to flow through the system and restart credit creation.

I believe Ben knows what he said on 60 minutes was a lie.

But this action also tells us a few other things about the short term:

*
The banks aren't in as much trouble as we've been led to believe. That is, imminent business failure is not going to happen; this action had a dramatic and instantaneous impact in flattening the yield curve, which means the banks earn less in net interest margin. In the short term this means that the risk of upside surprises in earnings for next quarter are very real, even if those earnings are "cooked". Short take-away: beware if you're short banks.
*
Bernanke and pals have in their possession enough non-public information on the credit markets (likely TIC data - that is, foreign investment flows) that they have been effectively forced into doing this, lest something even worse happen immediately. Has China (along with others) finally woken up and said "no mas"? The sabre-rattling makes one wonder, especially in conjunction with this action yesterday.

Now $300 billion in purchases out the curve, to be sure, isn't all that much. In fact its about half of the issue expected over the next three months - significant to be sure, but not huge. More important to the market is the GSE ("agency") debt and coupon being purchased; a program that has been underway for some time, but has now been more than doubled in size. This program would appear to be low risk but really isn't, as Fannie and Freddie (where this paper is mostly coming from) are both bleeding money like crazy, and as such one has to wonder whether these notes being bought are really "money good" or not. The answer is almost certainly "not", which in turn strongly implies that there are monstrous hidden embedded losses that will appear down the road.

The problem with the direct Treasury purchase is the potential precedent.

See, Ben will effectively "overpay" for these bonds. As we saw in England with their buy this results in an immediate "sold to you!" response. Their "bid to cover" was insane, showing that essentially everyone and their brother was attempting to unload these bonds into the Bank of England - knowing full well that once this policy starts it always ends badly, and when you are given the opportunity to sell at higher than actual market value you take it.

The danger is that in trying to suppress the long end of the curve is that it can fail. That is, the move we had today (which was massive) can be fleeting - and then reverse. This of course would force Ben to do it again, and again, and again. Ultimately he could wind up owning the entire long end of the curve or even worse, the entire $6 trillion public Treasury float.

This is the "economic collapse" scenario, because further government spending in such a situation requires the dilution of all existing money in the system by the same amount spent. This is a circle jerk - you're not actually able to spend that money and get the goods and services you want as a government, since you are creating and consuming at the same time. As such the operations cancel each other in effect and the government finds it cannot fund its internal operations with Treasury issuance any more, being forced back onto whatever tax base it has left (which won't be much at that point!)

Here is the problem, graphically illustrated:

see link below for graphic...

Note the breakdown. We are anticipating at least a $1 trillion shortfall this year, and frankly, that's unreasonably "good"; the real shortfall is likely closer to $2 trillion.

So what happens if half of that $2 trillion is no longer "money" from foreigners - it is a circle-jerk from The Fed and Treasury? You can basically remove it, that's what.

Now look at that chart - you can't remove the "net interest" (about $250 billion), because that has to be paid. "Other spending", that is, other than defense, interest, and social programs, is about $700 billion. Defense is also about $700 billion.

If we find ourselves unable to sell debt to actual investors with actual money, and are circle-jerking ourselves; to balance this budget we would need to contract spending to roughly $1.0-1.5 trillion in total.

Since the interest payments are inviolate, that leaves us $1.25 trillion for everything else. Assume we can cut half of the defense budget, and we've got $800 billion left. Cutting "other spending" (that is, all other programs) by 50% would leave us with about $500 billion net-net for social programs - forcing a reduction of about sixty percent in Social Security, Medicare and Medicaid - all at once.

In short this would wind up costing us roughly a 50% across-the-board cut in every program within government on an immediate basis. That in turn would force further reductions in GDP, which would further shrink tax revenues.

You can see where this leads, I'm sure, and it's not pretty.

http://market-ticker.denninger.net/archives/879-Bernanke-Inserts-Gun-In-Mouth.html

For more current analysis and news see post...

http://yophat.blogspot.com/2009/04/foundation-for-pyramid.html

and/or...

http://yophat.blogspot.com/2009/02/state-bankruptcies.html

For my predictions see post....

http://yophat.blogspot.com/2009/02/impending-incident.html

For possible solutions see post...

http://yophat.blogspot.com/2009/02/economic-survival.html

for stimulus humor...

http://yophat.blogspot.com/2009/03/stimulus-analysis.html

Future Forecast...

Update: 5/29/2009

For economic background see my post - Foundation of the Pyramid...

http://yophat.blogspot.com/2009/04/foundation-for-pyramid.html

I see unemployment payments running out between Aug & Oct. When that happens credit card defaults will spike while credit limits are curtailed. California is starting to awaken...

http://yophat.blogspot.com/2009/01/californification.html

The stimulus payments are mostly geared towards big government....this is the biggest & fastest transition to oligarchy yet...

See here's the trick with the stimulus money - its a giant injection into government agencies while the state & local stuff dries up. Case in point - rumor has it the INEL "Idaho Nuclear Engineering Laboratory" is getting $400 million in stimulus money and can't figure out how to spend it all.....to put that in perspective Walmart's total revenue last year was a hair over $400 million...

Bigger than Europe's Carrefour, Tesco, and Metro AG combined, it is the world's #1 retailer, with more than 7,870 stores, including about 890 discount stores, 2,970 combination discount and grocery stores (Wal-Mart Supercenters in the US and ASDA in the UK), and 600 warehouse stores (SAM'S CLUB). About 55% of its stores are in the US, but Wal-Mart continues expanding internationally; it is the #1 retailer in Canada and Mexico and it has operations in Asia (where it owns a 95% stake in Japanese retailer SEIYU), Europe, and South America.

meanwhile the local stuff looks like this...

The police department was asked to reduce their budget the first time by 12%, then the city asked for another 10%, then another cut at ???% – By the time they were done, or thought they were done, there was nothing left to cut unless you got rid of officers. They have no ammunition budget, no training budget and $2400 for the dog program. They reduced all civilian positions in the PD to part-time, cut the buy-back on comp time (you used to be able to get compensated for part of your unused paid time off), and required everyone to take unpaid time off. This week the mayor asked the chief to cut another $150,000. They’ve finally backed off the police department though, as the city manager stepped up and said there was nothing left to cut at the PD. Good thing the city manager took a hefty raise right before they started the worst of the budget cutting.

They asked the officers this week to think of things/ideas of more ways to cut costs. They have a small mounted patrol and it’s being cut to only the volunteer civilian mounted personnel. .... thinks they might cut the funding for the SWAT team and the K-9 program. They are applying for funding for a school resource officer from the stimulus money, but it won’t really be a full-time resource officer, and the town will absorb that money into their own budget. They took on the airport security and will use officers to staff it, and are receiving money for 3 positions, but (of course) won’t let the PD hire the 3 positions to staff it. The chief is looking at cutting the schedule so there is no graveyard shift (which he doesn’t want to do, as it will leave the entire county without any law enforcement during the early morning hours). That option is especially dangerous as there is a 2 hour call out delay because most of the officers don’t live anywhere near town. The chief doesn’t have a lot of options as officers are already left alone without backup on the current 24-hour schedule.

FYI: This is one of the largest cities in an oil rich state and one of four states that employment levels in 2008 exceeded 2007...

or like this...

Council's finance committee received a report from the city's finance department Monday saying the city was already $7.7 million behind its revenue forecast by the end of April. And, if the trend continues, the city could face a deficit of about $40 million through next year.

"Hell would have to freeze over for us to get out of this,'' said Council member Leslie Ghiz. "There will be layoffs. There will be cuts. And it will be painful."

For the short term, City Manager Milton Dohoney has called for a five percent cut in 2009 spending from all city departments; and ordered department heads to submit plans to him by the end of the week on how they will do that.

The city administration had expected to collect nearly $82.6 million in income taxes through April, but the actual receipts were about $76.5 million. Admission tax revenue - the money the city gets from the sale of tickets to entertainment and sporting events - is down as well; and the city took a $1.3 million hit when the state of Ohio reduced the amount of money municipalities get from the state's Local Government Fund.

http://news.cincinnati.com/article/20090519/NEWS0108/905200319/Huge+deficit+stuns+city

You can expect more of that....as tax revenue falls and social costs increase...

I expect the retail sector to dry up by Jan/Feb as Christmas doesn't come around this year...sporadic riots in the larger metropolitan areas over the winter....picking up in frequency, intensity and duration by summer/fall 2010...the state, county, city budgets will bleed out by July 2010 when the new budgets roll around and I expect many of them won't survive as coherent organizations by Fall/Winter 2010...

Update: 5/11/2009

If Bernanke does not back off he will find himself in a tightening monetary flat spin. As he comes to own more and more of the public float of the long end the impact of each sale into his program by private holders is magnified in the market.

That is, if there is $1 trillion of something outstanding and you buy $100 billion of it (10% of the float) the impact is X. If there is now $900 billion outstanding (after the first operation) and you buy another $100 billion you have in fact sucked up about 11%. When you get to owning $500 billion another $100 billion sucks up 20% of the float. Each tender operation of the same size thus creates an ever-increasing impact on the underlying price, and since nobody in their right mind will continue to hold something they believe is overvalued, the spiral will tighten precipitously, forcing even more purchases until The Fed owns it all.

At or before that point the long end becomes unavailable to Treasury as a funding source. Forcing all the issue to the short end now starts to ramp short yields (supply and demand, remember - add massive supply and what happens to price?) and Bernanke will then be urged to buy down the time line.

This path leads to a singularity - and both monetary and political failure. The bad news is that the event horizon is far before Bernanke actually winds up owning the entire float, but nobody knows exactly where it is.

Yet once crossed, there is no escape from the outcome.

We best not go there, because if we go down that road too far Americans will be needing all those firearms that they've been buying since Obama was elected - not for a revolution, as some suppose, but rather for self-defense as our political, social and economic structures collapse.
http://market-ticker.denninger.net/archives/1030-The-Economic-Tsunami-Is-Curling-Over.html

Feb 09 - Here's my predictions...

The stock market, at a minimum, will fall below early 90's levels. Keep in mind that I forecast in the spring of 2008 that the S&P 500 would be 800 or below January 1st 2009. I was off by a little.

Mexico will collapse into riots and civil war before the end of 2009.

California will collapse into chaos and anarchy by the end of 2009.

Sporadic riots and anarchy will spring up across the United States by the end of 2009.

The banking roll up will be complete or nearly complete by the end of 2009.

Foundation:

Baby Boomers - 401k/investment collapses, bankruptcy of social security and medicare, housing collapse, etc etc

Middle class decline -

A Vermont mother wrote, "We have at times had to choose between baby food and heating fuel." A 55-year-old man from rural Pennsylvania said, "I am just tired, the harder that I work the harder it gets." A retired couple in Vermont asked, "Does anybody in Washington care?"

It is one thing to read dry economic statistics which describe the collapse of the American middle class. Since George W. Bush has been in office 5 million Americans have slipped into poverty, 8 million have lost their health insurance and 3 million have lost their pensions. In the last seven years median household income for working-age Americans has declined by $2,500. Our country, for the first time since the Great Depression, now has a zero personal savings rate and, all across the nation, emergency food shelves are being flooded with working families whose inadequate wages prevent them from feeding their families.

It is another thing to understand, in flesh-and-blood terms, what that means in the lives of ordinary Americans. The responses that I received describe the decline of the American middle class from the perspective of those people who are living that decline. They speak about families who, not long ago, thought they were economically secure, but now find themselves sinking into desperation and hopelessness.
http://www.huffingtonpost.com/rep-bernie-sanders/the-collapse-of-the-middl_b_105658.html

Feb. 26 (Bloomberg) — In California’s Contra Costa County, 40,000 families are applying for just 350 affordable-housing vouchers. Church-operated pantries are running out of food. Crisis calls have more than doubled in the city of Antioch, where the Family Stress Center occupies the site of a former bank.

The worst financial crisis in seven decades is forcing thousands of previously middle-income workers to seek social services, overwhelming local agencies, clinics and nonprofits. Each month 16,000 people, including many who were making $60,000 to $100,000 annually just a few years ago, fill four county offices requesting financial, medical or food assistance.

“Unless we do things differently, not only will we continue to be on life support, but the power to the machine is going to die,” said county Supervisor Federal Glover, who represents Antioch and the cities of Pittsburg and Oakley about 50 miles (80 kilometers) east of San Francisco.

Here's a summary for those interested, but not that patient. Professor Warren studied economic data on spending and income gathered by the government for the "iconic" middle class family, trying to figure out the differences between the seventies and the current situation. The family from the seventies was single income with a stay-at-home Mom, whereas today it would primarily have two incomes.

Key points (as percentage of annual income):

* Saving went from 11% to less than nothing
* Credit Card Debt went from 1.4% to 15%

So basically what was once saved has instead been spent. But spent on what?

Consumption spending on: Clothing, Appliances, and Food all decreased. So where did the money go? The increases are found in important areas (which she describes as "fixed, relentless expenses"):

* 76% Mortgage (People buy bigger houses; true "entry level", affordable homes are not being built)
* 74% Health Insurance
* 52% Cars (People need two cars)
* 100% Child care (Stay-at-home Mom's save money)
* 25% Taxes (Two incomes = bigger tax bracket)

The seventies single-income family spent about half it's income on the basic expenses, whereas the current two-income family spends about three quarters of their income on these basic expenses.

She makes the point that two income families are necessary today, and almost all the income is already "fully budgeted." In the seventies, if the primary bread winner gets sick or fired, the stay-at-home Mom could go to work to provide a cushion.

She also points out that income volatility (the likelihood of getting fired) has gone up drastically since the seventies. The odds of suffering an economic blow for a family with two children has gone up 95%. The cost of a new home for a family with two children has gone up 100%, which she attributes to people buying homes near a good school.

She also points out that the widespread belief in the seventies was that if you had a good work ethic and a high school diploma, you'd make it into the middle class. The widespread belief today is that preschool and a university degree are required to make it into the middle class.
http://www.reddit.com/r/business/comments/7vy9o/the_coming_collapse_of_the_middle_class/

The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

“We’re going to see the end of the retail Christmas….we’re going to see a fundamental shift take place….putting food on the table is going to be more important that putting gifts under the Christmas tree,” said Celente, adding that the situation would be “worse than the great depression”.

“America’s going to go through a transition the likes of which no one is prepared for,” said Celente, noting that people’s refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.
http://www.infowars.com/celente-predicts-revolution-food-riots-tax-rebellions-by-2012/

He cites the warning of respected LSE economist Robert Wade, who recently told a protest meeting in Reykjavik that the world was approaching a tipping point and that March to May would be marked by widespread global civil unrest.

“It will be caused by the rise of general awareness throughout Europe, America and Asia that hundreds of millions of people in rich and poor countries are experiencing rapidly falling consumption standards; that the crisis is getting worse not better; and that it has escaped the control of public authorities, national and international,” said Wade.
http://www.infowars.com/2009-heralds-%E2%80%9Ca-new-age-of-rebellion%E2%80%9D/

MOSCOW -- For a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument -- that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. -- very seriously. Now he's found an eager audience: Russian state media.

Prof. Panarin, 50 years old, is not a fringe figure. A former KGB analyst, he is dean of the Russian Foreign Ministry's academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations.

"There's a 55-45% chance right now that disintegration will occur," he says. "One could rejoice in that process," he adds, poker-faced. "But if we're talking reasonably, it's not the best scenario -- for Russia." Though Russia would become more powerful on the global stage, he says, its economy would suffer because it currently depends heavily on the dollar and on trade with the U.S.

Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces -- with Alaska reverting to Russian control.
http://online.wsj.com/article/SB123051100709638419.html

Pastor Lindsey Williams called the meltdown, along with dropping crude oil prices on 7-28-08 in an interview with Alex Jones. If you have never listened or watched Jones' program I suggest you start. He has the truth about this world and what is coming and has been broadcasting the warning for over a decade now. (www.infowars.com, www,prisonplanet.tv, also on shortwave radio)

The United States of America and its citizenry has been assessed, warned, plotted against, and sold out by internationalists in government, business, and the banking industry. Its workforce has been decimated, its standard of living shredded and its working people made financial slaves through unjust taxation, socialist government practices, rules and regulations at all levels in society that would make any communist dictator grin with envy.

Our role as partners in governmental affairs has been reduced to a whisper that is not heard by any elected official anywhere—with very, very few exceptions. Our representative government has become 535 regional dictators who live a life of luxury, self-importance and as arrogant master over the populace. The congress of the United States has carefully exempted itself from virtually all repressive laws they choose not to adhere to and have given themselves retirement pensions, health care and other perks, the rest of us can only dream of. They have become the Duma (Soviet Parliament) types who exemplify nothing other than crass selfishness at the expense of every American working citizen.

The past and present Administration has been pursuing a blending of Canada, America and Mexico into the “North American Union.” They have done it under the cover of governmental darkness. They have been running a race as to how fast they can manipulate our great nation into a “no going back” strategic position with these other two nations. The president and his cabal of sell-out White House/Congressional turncoats have intentionally kept the American people in a state of confusion (war on terror, etc.) so that organized resistance to this national sovereignty killing plan can not be formulated. Business and banking interests are salivating at the thought of trillions of dollars in “free trade” being exchanged throughout North America.

The cultures of Canada and Mexico are not that of the United States and its citizens. A disaster of Biblical proportions is on its way WHEN this plan is forced upon our nation. It is only one of several scenarios that are nearing completion and will spell the absolute end of the United States as we know it. Some will argue that the USA needs drastic overhauling and that this is the natural result of “planned obsolescence” in American culture. There are huge problems that must be addressed now by the American public, or the last opportunity to do so under “open and free” conditions will be lost.
http://www.thecitizen.com/~citizen0/node/35170

What others have said....

Former Vice President Dick Cheney warned that there is a “high probability” that terrorists will attempt a catastrophic nuclear or biological attack in coming years, and said he fears the Obama administration’s policies will make it more likely the attempt will succeed.
http://www.politico.com/news/stories/0209/18390.html

Video Link...
http://link.brightcove.com/services/player/bcpid1155201977?bctid=10116015001

Lord West, who advises the Prime Minister on security matters, told the House of Lords: "There is another great plot building up again and we are monitoring this."

He told peers: "Some of the measures that we have put into place in the past 15 months have made us safer, but that does not mean that we are safe.

"The threat is huge. It dipped slightly and is now rising again within the context of 'severe'.

"There are large complex plots. We unravelled one, which caused damage to al-Qaeda and the plots faded slightly.

"However, another great plot is building up again, which we are monitoring.
Lord West, the former First Sea Lord, is now Parliamentary Under-Secretary of State at the Home Office with responsibility for Security and an advisor to the Prime Minister.
http://www.telegraph.co.uk/news/uknews/3198082/Lord-West-Terror-plot-being-investigated.html

SYDNEY (AFP) — The world is on the brink of an avalanche in the spread of devastating weaponry, a new global non-proliferation group warned Tuesday, saying that a nuclear incident would dwarf the September 11 attacks.
http://afp.google.com/article/ALeqM5gtW4R5X16sSsWPtKlo-SCugZ42qg