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Can you say "Pakistan"?

What happens when you have a country with a huge army, nuclear weapons, religious fanatics, an unstable government, and a starving population? Can you say "Pakistan"?

WASHINGTON: The Pakistani state could collapse within six months if immediate steps are not taken to remedy the situation, warned a top adviser to the US Central Command. David Kilcullen, who advises CENTCOM commander Gen. David H. Petraeus on the war on terror, urged US policymakers to focus their attention on Pakistan as a failure there could have devastating consequences for the entire international community. Asked to explain why he thought Pakistan was so important, Kilcullen said: “Pakistan has 173 million people, 100 nuclear weapons, an army bigger than the US Army, and al-Qaeda headquarters sitting right there in the two-thirds of the country that the government doesnít control.” (Source.)

Let the free press die?

Journals ranging from Time, The New Yorker, The Atlantic and The New Republic to the New York Times and the Los Angeles Times concur on the diagnosis: newspapers, as we have known them, are disintegrating and are possibly on the verge of extinction. (Source.)

Newspapers are increasingly filing bankruptcy. Why is there no clamour to bail them out? Can government do that? Perhaps the government would be better off if some of the free press went away?

The GIVE Act

In July 2008, Obama told a rally in Colorado Springs, “We cannot continue to rely on our military in order to achieve the national security objectives we’ve set. We’ve got to have a civilian national security force that is just as powerful, just as strong, just as well funded.”

The Generations Invigorating Volunteerism and Education Act, known as the GIVE Act, was passed yesterday by a 321-105 margin and now goes to the Senate. The GIVE Act includes language indicating young people will be forced to undertake mandatory national service programs, President Barack Obama’s promised “civilian national security force.”

Section 6104 of the bill, entitled “Duties,” concerns, “a workable, fair, and reasonable mandatory service requirement for all able young people.” Section 120 of the bill discusses the “Youth Engagement Zone Program” and states that “service learning” will be “a mandatory part of the curriculum in all of the secondary schools served by the local educational agency.” The Senate is also considering a similar piece of legislation known as the “Serve America Act,” which also includes language about “Youth Engagement Zones”. (Source.)

The hippies were right

The hippies were right. http://www.youtube.com/watch?v=iKEZoY-TMG4

UK, the next Iceland? part 2

Britain is showing signs of heading towards 1930s-style depression, the Bank of England says today for the first time. (Source.)

Personal debt in the UK, £1.5trillion, is larger than the country's GDP. British corporate borrowing adds up to another £2 trillion. By next year the government will owe over £4 trillion. Total UK public debt and obligations come to a staggering 282% of annual GDP. British house prices could fall by another 55%, and there is a non-negligible chance that the whole country will go broke. (Source.)

What can’t be paid, won’t be paid

Recently in the news:

The Chairman of the US Federal Reserve, Ben Bernanke, made an unprecedented TV appearance on 60 Minutes last night. (WashingtonPost.com)

President Barack Obama will take his economic strategy to Jay Leno's comic couch on Thursday in the first appearance by a sitting U.S. president on a late-night TV talk show. (Source.)

Here is what they will NOT tell you:

What can’t be paid, won’t be paid.

The total American debt of $75 trillion ($250,000 for every American man, woman and child) is too great to ever be repaid in full. As a nation, we can’t pay our debts; not all of ‘em; not even most of ‘em. Individuals are currently holding [paper] debt instruments with a number like “$10,000,” “$100,000” or “$1 million” written on them and believe that those pieces of paper are assets actually worth their declared face value. (Source.)

Those waiting to hear the "D" word from economic experts, talking heads and TV anchors before taking action will most certainly regret their indecisiveness.

By the way, Anglo American has sold its remaining 11.3 percent stake in South Africa's AngloGold Ashanti for around $1.3 billion to Paulson & Co, the hedge fund run by John Paulson. You know, John Paulson, the same guy who shorted subprime two years ago and made an unearthly fortune.

Trust me . . . "This is your captain speaking, everyone remain calm, everything is under control."

Financial crisis becomes political crisis

Public outcry could derail future bailout plans. AIG on Sunday took out another $165 million from public funds for "executive bonuses." AIG, after imploding due to making stupid bets and demanding only $170 billion from US taxpayers, is giving these "retention" bonuses so it can keep "the best and brightest talent." The Federal Reserve still refuses to answer specific questions about where $2 trillion in bailout funds has gone, a subject that Bloomberg News sued the Fed simply to try and discover.

The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda. "The danger, aides said, is that if he were to become identified as an advocate for the banks and Wall Street, people could take out their anger on him." (Source.)

[Well, duh . . . how do you like being played for a fool?]

According to the NY Times: "A Charming visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. . . 'President Obama may not realize it yet, but his Katrina moment has arrived.'” (Source.)

Here is some info on the recent AIG bonuses: 73 individuals received bonuses of $1 million or more; 11 of the individuals who received "retention" bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million. (Source.)

Global trade collapsing

The global economy is likely to shrink this year for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said this week. "The global volume of trade has collapsed," said Christopher Low, chief economist at FTN Financial.

U.S. gross domestic product is forecast to contract again this quarter after shrinking at a 6.2 percent annual pace from October to December, the most since 1982. U.S. imports and exports both slumped for a sixth straight month in January in what may be the biggest collapse of world trade since the 1930s, raising the threat of protectionist measures to shield domestic industries. The figures may add to pressure on the Obama administration to rework international agreements and include protections for U.S. workers and the environment. (Source.)

Chance coincidence?

U.S. unemployment will approach 10 percent as the country endures its worst recession since World War Two, leaving more than 13 million Americans jobless, according to a Reuters poll of economists. (Source.)

The number of U.S. home mortgages that are delinquent or in foreclosure has climbed to a record high of 11 percent, according to a report Thursday from the Mortgage Bankers Association. (Source.)

The MBA

MBAs today are haunted by the thought that the tag really stands for Mediocre But Arrogant, Mighty Big Attitude, Me Before Anyone and Management By Accident. For today’s purposes, perhaps it should be Masters of the Business Apocalypse.

Harvard Business School alumni include Stan O’Neal and John Thain, the last two heads of Merrill Lynch, plus Andy Hornby, former chief executive of HBOS, who graduated top of his class. And then of course, there’s George W Bush, Hank Paulson, the former US Treasury secretary, and Christopher Cox, the former chairman of the Securities and Exchange Commission (SEC), a remarkable trinity who more than fulfilled the mission of their alma mater: “To educate leaders who make a difference in the world.” It just wasn’t the difference the school had hoped for.

You can draw up a list of the greatest entrepreneurs of recent history, from Steve Jobs at Apple, to Larry Page and Sergey Brin of Google and Bill Gates of Microsoft, to Michael Dell, Richard Branson, Lak-shmi Mittal – and there’s not an MBA between them.

Yet the MBA industry continues to grow, and business schools provide vital income to academic institutions: 500,000 people around the world now graduate each year with an MBA, 150,000 of those in the United States, creating their own management class within global business. Applications to business schools in America and Europe are broadly up, as people search for a safe haven from the recession.

What are they thinking? Many MBA jobs will not be coming back. (Source)

Meanwhile, in another study . . . "A study of cheating among graduate students, published in 2006 in the journal Academy of Management Learning & Education, found that 56 percent of all M.B.A. students cheated regularly - more than in any other discipline. The authors attributed that to "perceived peer behavior" - in other words, students believed everyone else was doing it." (Source.)

US assassination ring?

Am-Bushed: Seymour Hersh claims that under Bush/Cheny (1) The CIA "was very deeply involved in domestic activities against ... enemies of the state." (2) The Joint Special Operations Command operates without oversight by DoD or Congress, reported directly to Cheney's office, and operated as " an executive assassination ring". Mr. Hersh always cites multiple sources for his reporting.

Japan's economy in trouble

Japan's 4Q GDP revision confirms deep recession
Japan's economy shrank a bit less than first estimated in the fourth quarter, but the revised government data Thursday is hardly good news, serving only to underscore the increasingly grim picture for the world's second-largest economy. Export demand has collapsed, corporate profits are swerving into losses, and job losses are accelerating nationwide amid Japan's steepest slump since the end of World War II. Analysts say the current downturn — and the response of Japanese companies to it — have combined into a new kind of recession, that's swifter and deeper than ever before. "The Japanese economy was simply collapsing and nose-diving toward the end of last year," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.

The People versus the Oligarchs

Former chief of the IMF Simon Johnson believes we have been and continue to be ravaged by the business elites in the US (source). Just look at the large number of Goldman alumni who have taken over positions of immense political-economic power. Can you say "coup d’état"?

Global Reset: Did it ever really exist, or was it just on paper?

The CEO of Blackstone says 45 percent of world's wealth destroyed. "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."

Follow the money. Money was borrowed and spent and ends up in someone's hands--who's?

Mexico: governed soon by a drug cartel?

Mexico: A Collapse Update

Predicting the collapse of the Mexican Nation-State. Mexico is once again in the headlines. Oil production continues to fall, border violence is up, and the government is preparing for a showdown with the drug cartels. The Mexican state will collapse, ushering in the beginning of the end of the Nation-State. The US military’s Joint Forces Command issued their Joint Operating Environment 2008 report recently that listed Mexico and Pakistan as the most likely states to collapse in the immediate future (PDF, see p.35 for analysis of Mexico). Even 60 minutes ran a segment about the rising drug violence. Root causes of the problems in Mexico are the precipitous decline of Mexican oil production, declining remittance incomes being sent home by migrant workers in America, declining tourist revenues, and lower revenue per barrel of oil exported. Clearly the drug cartels smell blood—-and tactics like forcing the resignation of the Juarez police chief by killing one or more police officers every 48 hours demonstrate their desire for a decisive engagement. Additionally, the motivation behind a recent truce among rival drug cartels may be to facilitate a joint offensive against the government.

Overt Ops: : The US military has briefed the president on the US military capability to influence or intervene, presumably on the side of the government, in the growing civil war between the Mexican government and the drug cartels that control large portions of the country.

According to the The Washington Post, March 22, 2009, "Obama Pledges American Agents to Fight Mexican Drug Cartels. President Obama is finalizing plans to move federal agents, equipment and other resources to the border with Mexico to support Mexican President Felipe Calderón’s campaign against violent drug cartels." (Source.)

Are you scared yet? . . .Why not?

Downsized: Global financial assets (stocks, bonds, used bikes...) lost at least $50 trillion in 2008, an amount equal to an entire year's global output in goods and services.

Thought Experiment: The current economic crisis seems intractable, with no easy solution in view. Think how much harder solving the economic crisis will be after the global food system collapses; for food is but petroleum converted to carbohydrates, protein and fat through the catalytic application of credit.

What's Dead (Short Answer: All Of It)

What's Dead (Short Answer: All Of It)

• All pension funds, private and public, are done. If you are receiving one, you won't be. If you think you will in the future, you won't be. PBGC will fail as well. Pension funds will be forced to start eating their "seed corn" within the next 12 months and once that begins there is no way to recover.
• All annuities will be defaulted to the state insurance protection (if any) on them. The state insurance funds will be bankrupted and unable to be replenished. Essentially, all annuities are toast. Expect zero, be ecstatic if you do better. All insurance companies with material exposure to these obligations will go bankrupt, without exception. Some of these firms are dangerously close to this happening right here and now; the rest will die within the next 6-12 months. If you have other insured interests with these firms, be prepared to pay a LOT more with a new company that can't earn anything off investments, and if you have a claim in process at the time it happens, it won't get paid. The probability of you getting "boned" on any transaction with an insurance company is extremely high - I rate this risk in excess of 90%.
• The FDIC will be unable to cover bank failure obligations. They will attempt to do more of what they're doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success. Congress will backstop them (because they must lest shotguns come out) with disastrous results. In short, FDIC backstops will take precedence even over Social Security and Medicare.
• Government debt costs will ramp. This warning has already been issued and is being ignored by President Obama. When (not if) it happens debt-based Federal Funding will disappear. This leads to....
• Tax receipts are cratering and will continue to. I expect total tax receipts to fall to under $1 trillion within the next 12 months. Combined with the impossibility of continued debt issue (rollover will only remain possible at the short duration Treasury has committed to over the last ten years if they cease new issue) a 66% cut in the Federal Budget will become necessary. This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs. That will likely get close.
• Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest). If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more. Count on this happening - it is essentially a certainty.
• Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way. Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop. This will in turn lead to....
• The unemployed will have 5-10 million in direct layoffs added within the next 12 months. Collateral damage (suppliers, customers, etc) will add at least another 5-10 million workers to that, perhaps double that many. U-3 (official unemployment rate) will go beyond 15%, U-6 (broad form) will reach 30%.
• Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.

One in five U.S. mortgage borrowers

One in five U.S. homeowners with mortgages owe more to their lenders than their properties are worth, and the rate will increase as housing values drop in states that have so far avoided the worst of the crisis, a new study shows. » Full Story on Yahoo! News

Help?: The Treasury Department claims its mortgage relief plan will help 9 million homeowners temporarily avoid foreclosure. What they really mean is that it will serve to trick these people in continuing to make payments while the house keeps losing value.

Sacrifice the environment--maybe that will help?

Microcosm: Citing the state's economic problems, Florida politicians are rushing to gut environmental laws and growth-management regulations in favor of re-inflating the economy.