In a sluggish economic summer, no easy fix ahead

WASHINGTON – The Federal Reserve has little power left to lift the economy out of its rut. Congress, with an election looming, has no appetite for more stimulus. Shoppers are reluctant to spend, and businesses are slow to hire.

Let’s face it: There is no easy or imminent fix for the flagging recovery.

The sluggish economic summer wore on Friday with news that Americans spent less at most retail stores in July. Earlier this month came word that the trade deficit is ballooning and companies are not adding jobs fast enough to bring down unemployment.

Typically, the Fed can lower interest rates to encourage Americans to borrow money and spend it, invigorating the economy. But the benchmark interest rate controlled by the Fed has been almost zero for more than a year now.

The Fed this week took a new step by announcing it would use the proceeds from its huge portfolio of mortgage securities to buy government debt. The idea is to make cheap credit a little cheaper, particularly for things like mortgages.

The problem there: Americans who are worried about their jobs, not to mention volatility in the stock market, don’t want to borrow. They saved 6.2 percent of their disposable income this spring. Before the recession, it was more like 1.2 percent.

“You can’t force people to take out a loan or spend money that they don’t want to spend,” says Alice Rivlin, who served as the Fed’s No. 2 official in the late 1990s.

Sure, the Fed still has options. It could launch another trillion-plus-dollar program to buy government debt or mortgage securities like it did when it was battling the recession and financial crisis.

Or the Fed could cut to zero the rate it pays banks to keep money parked there, a move aimed at getting banks to lend more. But banks are not exactly feeling free with their cash, either.

“It’s a pervasive level of uncertainty that people and businesses feel about their economic futures,” says Ken Mayland, president of ClearView Economics. “It’s frozen them into inactivity.”

Congress has the power to regulate the economy by adjusting tax rates and passing stimulus programs — the side of the equation known as fiscal policy, as opposed to the Fed’s monetary policy.

But there is little interest on Capitol Hill to undertake a major new stimulus effort. The midterm elections are less than three months away, and Republicans and Democrats alike fear voters are worried about the federal budget’s $1.4 trillion — and rising — deficit.

A scholar of the Great Depression, Fed chief Ben Bernanke has warned Washington policymakers not to repeat mistakes made during the Great Depression by pulling in government stimulus too quickly.

Bernanke also suggested recently that extending the Bush tax cuts, at least for a while, would be “one way” to “maintain a reasonable degree of fiscal support — stimulus — for the economy.”

But Democrats and Republicans are divided on what to do. Most Republicans want to make permanent the tax cuts enacted under President George W. Bush in 2001 and 2003. That would amount to nearly $3 trillion over the next decade. Democratic leaders want the cuts for the wealthiest Americans to expire.

That leaves the work of jump-starting the economy for the time being to everyday Americans and businesses, who can spend money and accelerate the cycle of growth. But both are in a frugal mood.

Mortgage rates have sunk to record lows: Rates on 15-year mortgages dropped to 3.92 percent this week, 30-year mortgages to 4.44 percent. Still, people aren’t scrambling to buy homes or refinance the ones they already have.

Businesses, meanwhile, are sitting on a record $1.84 trillion pile of cash, according to the Fed. They aren’t using the money to expand operations or hire new workers because they, too, have doubts about the strength of the economic recovery.

The economy grew at a 2.4 percent pace in the second quarter, about half as fast as it was growing late last year. And it may turn out, as the manufacturing sector is hurt by declining exports, that growth right now is even slower than we think.

And the stock market, which had managed a significant rally in July, is now absorbing the blow of the economic pessimism. The Dow Jones industrial average fell this week from about 10,700 to about 10,300.

The key, says former Fed governor Randall Kroszner, is making people feel more comfortable and confident that their jobs are secure, and that the values of their homes and 401(k) accounts will stabilize.

It’s just that no one is sure where that confidence will come from.

“There is certainly no magic bullet to immediately turn things around,” he says.

If you work to earn money you need to watch this

Establishment’s Latest Desperate Rand Paul Hoax Explodes In Their Face

“Kidnapping” charge bogus as yet another hyped PR stunt to discredit Kentucky primary winner falls flat on its face.

Perhaps if rather than engaging in such an apparently horrendous prank as asking someone to smoke pot, Paul had instead lied naked in a coffin masterbating while kissing skulls and screaming as people like George W. Bush and John Kerry did at Yale for their Skull and Bones initiation, then the mainstream media wouldn’t have made such a big deal out of it.

Barely a week goes by within which Tea Party candidates, their supporters, or conservative media outlets are not the target of a manufactured smear, an attempted set-up, or another fabricated hoax, enthusiastically peddled by the corporate media ad infinitum.

This latest Rand Paul hoax arrives on the back of Obama campaign volunteer and long term Democratic operative Tyler Collins attempting to portray Paul’s supporters as racists by dressing up in a tin-foil hat and adopting a slack-jawed accent while carrying signs opposing illegal immigration.

The provocateur was caught out by an attendee at the Fancy Farm political celebration in Kentucky who claimed he saw the man speaking with supporters and campaign officials of Paul’s opponent for the Kentucky Senate, Jack Conway, shortly before making his way into the crowds. Collins was later seen marching with fellow Conway supporters.

The Louisville Courier Journal even used footage of the man, portraying him as a legitimate Rand Paul supporter, in a video report about the event.

Another hoax revolved around what is one of the biggest platforms for anti-establishment candidates, the Drudge Report website, which back in March was falsely accused by Senate Democrats of serving malware viruses to its visitors, which in fact were coming from third party ad scripts. The New York Times and many other websites have inadvertently infected visitors with Malware viruses, but Democrats in the Senate seemed only interested in linking the viruses to Drudge in an effort to prevent people from visiting the website.

Sen. Jim Inhofe (R.-Okla.), dismissed the flap as an overhyped ploy to stop Senate staff from reading Drudge, “Because Drudge comes out with really good stuff and we want them to access the Drudge Report. We’re on the Drudge Report about half the time.”

Given the establishment left’s ceaseless attempts to frame Tea Party activists, and particularly Rand Paul, who is seen by many as the true voice of the Tea Party, expect to see many more dirty tricks and brazen hoaxes pulled before the midterm elections.

The corporate media has proven itself to be morally bankrupt in vigorously peddling hoax after hoax in an attempt to shoot down Ron Paul’s campaign. They are doing so not because any of the manufactured controversies hold any merit or importance, but because Paul’s grass roots candidacy represents a fundamental threat to the status quo in Washington.

Paul needs to file libel and slander lawsuits to send a message that more hoaxes, stunts, and set-ups will not be tolerated.

In the interests of time-saving, we’ve gone to the trouble of offering a selection of controversies which we made up out of thin air that the establishment can select from next time they attempt to smear Rand Paul.

– Rand Paul was the gunman behind the grassy knoll who shot JFK.

– Rand Paul convinced LeBron James to leave the Cleveland Cavaliers.

– Rand Paul was responsible for blowing up the BP oil well.

– Rand Paul, and not Yoko Ono, caused the Beatles to break up.

– Rand Paul is an 18 million year old space reptoid from the planet pop tart.

Although some of the above facts may sound a little far fetched, we were assured that they were true by an “anonymous source,” so we are now going to seriously debate how this will affect Paul’s Senatorial campaign for a good week or two, before quietly admitting that it’s all nonsense – but only after the mud has stuck of course

Paul Joseph Watson & Alex Jones
Prison Planet.com
Friday, August 13, 2010

The latest media hoax targeting Kentucky primary winner Rand Paul has exploded in the establishment’s face after a claim that Paul “kidnapped” a woman during a college prank was revealed to be completely mischaracterized, showing once again how desperate the system is to discredit Paul and prevent him from leading a populist revolt against the status quo.

The corporate media has now launched no less than three hyped or outright manufactured “controversies” in an effort to tear down Paul’s popularity in the less than three months since he won the Kentucky primary. The system is scared stiff of what Paul represents because he is a true constitutionalist with a real chance of winning in October after having brushed aside establishment Republican candidate Trey Grayson back in May.

On the very night of his primary success, the media kicked into high gear and instantly tried to characterize Paul as a hypocrite and a racist elitist simply because he held his victory celebration at a country club.

When this attempt to smear Paul fell flat on its face, the Civil Rights sideshow was ramped up, with MSNBC airing eight different segments totaling 37 minutes with every single guest attacking Rand Paul as a closet racist who wanted to repeal the Civil Rights Act, something which he never said. Indeed, although Paul expressed a nuanced view on the Civil Rights Act, he made it clear that he would not vote to repeal it. This didn’t stop Rachel Maddow and MSNBC from publishing an out of context script in a crass stunt to make it appear as if Paul had answered “yes” to Maddow’s question about whether businesses should have the right not to serve black people.

But with Paul still maintaining a healthy lead over his Democratic rival Jack Conway, the establishment was forced to launch its third absurd smear attack in as many months, by manufacturing a national controversy out of the claims of an anonymous woman who talked to GQ Magazine about a college prank Paul was involved in 30 years ago, alleging that Paul had “kidnapped” the woman and forced her to take drugs.

The hoax was unraveled when the woman later admitted to the Washington Post that she was not kidnapped, she was not forced drugged, and that “the whole thing has been blown out of proportion” because she willingly went along with the prank, which on the face of it is mild tomfoolery when measured against similar college hazing pranks performed today.

“That characterization of events supports Paul’s claim that, as he told Fox News yesterday, “No, I never was involved with kidnapping. No, I never was involved with forcibly drugging people,” concedes the Post.

“It is satisfying to see the libelous and grossly irresponsible charges of kidnapping completely shot down,” Paul campaign spokesman Jesse Benton told the Post. “It remains puzzling to us why the drive-by media continues to focus on an alleged 30 year old teenage prank when our nation faces high unemployment, a thirteen trillion dollar debt and are threatened with a Cap and Trade national energy tax.”

But that’s not good enough for the Washington Post, who, with the “kidnap” hoax now firmly distinguished, still insist that Paul jokingly telling a college friend 30 years ago to “worship the Aqua Buddha,” is an issue of national importance, even as America enters a third great depression.

Perhaps if rather than engaging in such an apparently horrendous prank as asking someone to smoke pot, Paul had instead lied naked in a coffin masterbating while kissing skulls and screaming as people like George W. Bush and John Kerry did at Yale for their Skull and Bones initiation, then the mainstream media wouldn’t have made such a big deal out of it.

Barely a week goes by within which Tea Party candidates, their supporters, or conservative media outlets are not the target of a manufactured smear, an attempted set-up, or another fabricated hoax, enthusiastically peddled by the corporate media ad infinitum.

This latest Rand Paul hoax arrives on the back of Obama campaign volunteer and long term Democratic operative Tyler Collins attempting to portray Paul’s supporters as racists by dressing up in a tin-foil hat and adopting a slack-jawed accent while carrying signs opposing illegal immigration.

The provocateur was caught out by an attendee at the Fancy Farm political celebration in Kentucky who claimed he saw the man speaking with supporters and campaign officials of Paul’s opponent for the Kentucky Senate, Jack Conway, shortly before making his way into the crowds. Collins was later seen marching with fellow Conway supporters.

The Louisville Courier Journal even used footage of the man, portraying him as a legitimate Rand Paul supporter, in a video report about the event.

Another hoax revolved around what is one of the biggest platforms for anti-establishment candidates, the Drudge Report website, which back in March was falsely accused by Senate Democrats of serving malware viruses to its visitors, which in fact were coming from third party ad scripts. The New York Times and many other websites have inadvertently infected visitors with Malware viruses, but Democrats in the Senate seemed only interested in linking the viruses to Drudge in an effort to prevent people from visiting the website.

Sen. Jim Inhofe (R.-Okla.), dismissed the flap as an overhyped ploy to stop Senate staff from reading Drudge, “Because Drudge comes out with really good stuff and we want them to access the Drudge Report. We’re on the Drudge Report about half the time.”

Given the establishment left’s ceaseless attempts to frame Tea Party activists, and particularly Rand Paul, who is seen by many as the true voice of the Tea Party, expect to see many more dirty tricks and brazen hoaxes pulled before the midterm elections.

The corporate media has proven itself to be morally bankrupt in vigorously peddling hoax after hoax in an attempt to shoot down Ron Paul’s campaign. They are doing so not because any of the manufactured controversies hold any merit or importance, but because Paul’s grass roots candidacy represents a fundamental threat to the status quo in Washington.

Paul needs to file libel and slander lawsuits to send a message that more hoaxes, stunts, and set-ups will not be tolerated.

In the interests of time-saving, we’ve gone to the trouble of offering a selection of controversies which we made up out of thin air that the establishment can select from next time they attempt to smear Rand Paul.

– Rand Paul was the gunman behind the grassy knoll who shot JFK.

– Rand Paul convinced LeBron James to leave the Cleveland Cavaliers.

– Rand Paul was responsible for blowing up the BP oil well.

– Rand Paul, and not Yoko Ono, caused the Beatles to break up.

– Rand Paul is an 18 million year old space reptoid from the planet pop tart.

Although some of the above facts may sound a little far fetched, we were assured that they were true by an “anonymous source,” so we are now going to seriously debate how this will affect Paul’s Senatorial campaign for a good week or two, before quietly admitting that it’s all nonsense – but only after the mud has stuck of course

Capital Controls: The Final Phase in the Great Looting of America

Eric Blair
Activist Post
August 13, 2010

Instituting capital controls seems like the next big event in the government-banking-oligarchy’s great looting of America.

First, these vampires designed “free trade” agreements to use slave labor abroad at the expense of American jobs. Next, they moved their investment capital and assets abroad sucking the life-blood out of the U.S. economy. Then, they covertly used America’s remaining wealth to prop up their bogus financial instruments like credit default swaps and derivatives, which came crashing down. Finally, they got their taxpayer bailout, and now they want your pension funds and cash deposits to stay under their control.

This last stage of the mass looting requires your wealth to remain in their possession. They seem to be setting up several ways to control the remaining capital. One of the first tactics used by the banksters to control your money was to get the SEC to adopt a proposal to allow money market funds to suspend withdrawals during a financial crisis to prevent bank runs. As reported on ZeroHedge:

A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to ‘suspend redemptions to allow for the orderly liquidation of fund assets.’

Money Market funds, which account for nearly 40% of all investment company assets. The next time there is a market crash, and you try to withdraw what you thought was “absolutely” safe money, a back office person will get back to you saying, ‘Sorry – your money is now frozen. Bank runs have become illegal.’

Now they have made it much more difficult to move your money out of the country using protectionist language disguised in a “Jobs Bill.” It is important to note that “free trade” agreements caused the exodus of American jobs overseas, taking massive investment capital out of the United States. Clearly, this capital would not have traveled offshore without the incentive provided by those agreements, thus we must realize that the capital leaving was the result, not the cause.

Yet, instead of repealing or modifying these trade agreements to truly stimulate job security at home, our caring leaders seek to restrict and control capital from leaving the shores as outlined in the Hiring Incentives to Restore Employment Act (HIRE Act – H.R.2487) this past March, also reported on ZeroHedge:

As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions – Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation’s domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It’s the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose – the law now says so. Capital Controls are now here and are now fully enforced by the law.

This under-reported piece of legislation is supposed to create jobs through limiting the capital allowed to leave America, and through weak tax incentives for companies to hire people at home. However, this bill is the perfect model for our government’s solutions: Attack the symptoms (capital leaving America) while not addressing the disease (unemployment because of unfair free trade agreements). And just to round out its perfection, the bill also limits the freedoms of average Americans while exempting Big Business.

Economist Mark Nestman reported that the law does not put in place strong “capital controls” yet, but definitely lays the groundwork for them:

It’s a terrible law that will make it much more difficult for U.S. citizens to invest, do business, or even live outside the United States. But it doesn’t impose capital controls, although it’s an important step in this direction.

Along with requiring U.S. citizens and permanent residents to disclose a great deal more information about their offshore investments than they currently do, the law imposes a 30% withholding tax on certain types of U.S-source income and gross sales proceeds to foreign financial institutions (FFIs) and certain foreign non-financial entities (FNFE). The only way to avoid the tax is for the FFI or a ‘withholding agent’ for the FNFE to enter into an information reporting agreement with the IRS. These rules become effective in 2013.

In other words, it will remain legal to move money to a foreign country, but you will now have to prove that you paid taxes to Uncle Sam on those funds prior to investing them. So, American citizens are guilty of tax evasion until proven innocent. Therefore, like other corrupt tax laws, you’ll pay massive tax penalties for noncompliance to scare you into submission. What’s more, private foreign banks are being forced to cooperate, as the U.S. government gave themselves the power to close foreign bank accounts for noncompliance.

Last, but certainly not least, an authoritarian measure of capital control has been proposed by some Elite economists who suggest forcing private sector savings into public sector debt, as explained in the Daily Reckoning:

During WWII, the US government needed investors to buy an unprecedented amount of Treasury bonds. Commercial banks loaded up on Treasuries, which limited the amount of credit that could be granted to the private sector. It may have been the patriotic thing to do, but the real returns from war bonds were very poor. Napier said, ‘That’s the type of society [the US and the UK] had to run to sustain our government debt. And I’m suggesting to you that these are exactly the sorts of things we have to look out for in our future.’

This is the process of forcing private sector savings into public sector debt. Most investors will tell you that this is impossible. But Napier ticked off two potential tools the government could use to strong-arm investors into Treasuries:

1. Capital controls: An example of this comes from the UK in the 1970s. For most of this decade, the yield on UK government bonds was below inflation. The government wouldn’t let investors take money out of the country.

2. The ‘Buffett tax’: Political leaders would say, ‘We love capitalism. It is the best thing America has ever had. And we would really, really like to promote it. And the best way we can promote capitalism is to get all you capitalists to invest with a long-term holding period.’ The idea would involve a 4% ‘transaction tax.’ This effectively forces shareholders to engage more deeply with corporate executives, rather than trading shares aggressively. The authorities would say, ‘This is a wonderful thing because Warren Buffett does it. And if Buffett does it, it has to be good. So as of tomorrow, we’ll have a 4% ‘Buffett’ tax for the trading of all financial instruments except for government debt.’

These steps are a slippery slope to complete control of your capital. It didn’t happen overnight, but the same tactics have been used recently in places like Venezuela, where well-off citizens are still allowed to leave the country; they just can’t take their money with them.

Given that most experts anticipate a severe worsening of the U.S. economy, we should be aware and prepare for the tyranny of capital controls that are coming. For those wishing to leave America with their money, doing so before 2013 seems like a good idea. For those looking to survive the continued collapse of the economy, perhaps now is the time to allocate your remaining wealth properly.

Is China Executing a Cunning Sun Tzu Strategy to Destroy the Dollar and Cause an Upward Price Explosion in Gold?

By Elizabeth Brinsden

Could China be coveting the role of the next economic superpower, thereby supplanting the USA? If so, is China planning to do this by design or is it simply awaiting this result by default as a result of the total collapse of the American economic system?

Whether we like it or not, China has already become the 800 lb Gorilla in the dining room, economically speaking. We ignore this fact at our peril. Thus it may be advisable to reorientate our thinking from that of the rationalist, pragmatic thought processes which arose out of the Enlightenment and complement our thinking with something more akin to that of the Chinese.

In order to accomplish this, it is constructive to take a closer look at the ancient Chinese philosopher, Master Sun Tzu. In an earlier article , based on a book by Harro von Senger on this theme[1], I have attempted to do this in connection with the Special Drawing Rights[2], as advocated by the Chinese earlier this year. However, I will now examine this idea in the context of the the Chinese possession of US Bonds, a subject not only of relevance to these two countries, but also for the stability of the entire international economic system.

At a superficial level, it may appear to the onlooker that China has been sucked into a giant malinvestment by purchasing these bonds, but a closer look at Master Sun’s stratagems may reveal a well conceived and even cunning plan.

At the outset, according to the US Treasury website, China stopped purchasing US bonds in May, 2009[3]. With that, our attention must turn towards the possibility of a massive sale of these bonds on the part of the Chinese and the consequences this would have for the international economic system. This scenario is not new; it was the subject of a very interesting book published at the beginning of the 1990’s by James Dale Davidson and Lord Rees Mogg[4] . At that time it was Japan which held the most US bonds but the principle, as expounded by these two authors, still applies today.

Could this ever happen? To the Western thinker, the massive sale of US Bonds would amount to the self infliction of wounds on the part of the Chinese and thus would be deemed inconceivable . But perhaps Master Sun can provide a different perspective into this matter.

Master Sun Tzu was born in 544 BC and died in 495BC. ( whereby it must be pointed out that there is no proof that this was a real person at all ) His most famous work was The Art of War , which laid out 36 stratagems, originally conceived for application in war , but which have since penetrated other fields as well, particularly that of the business sphere. Even in the West , business conjures up overtones of a battle field. The question now becomes which statagems could be applicable to this case and here it becomes relevant to divide the discussion into two broad categories; acts of commission and acts of omission.

First of all , those which can be described as acts of commission. In this case, at least four stratagems could be applicable.

Stratagem Nr. 15

To entice the tiger down from the mountain

Here the humiliation of the debtor, the USA, towards the creditor, China, forces the economic superpower to descend from its throne to a level playing field with the so called lesser power.

Stratagem Nr. 19

To withdraw the wood from under the boiling pot

Ceasing to purchase US bonds, must eventually have an impact on the debt driven economic growth of the borrower.

Stratagem Nr. 28

To entice onto the roof and then pull away the ladder

The easy sale of US bonds to the naive purchaser must automatically lull the debtor into complacency whilst the ladder (i.e. bond sales) is removed.

Stratagem Nr. 30

The reversal of roles in which the guest becomes the host.

This stratagem must be considered to be the most important for the purposes of this article whereby the once economic superpower, is forced to assume a role of subservience to the newly emerging power of the creditor, China.

What about an act of omission in the form of a default on the part of the USA? How can the 36 stratagems be applicable in this situation?

Stratagem Nr. 4

Awaiting at one’s ease the exhausted enemy

If America defaults the answer should be self explanatory. But the question arises, how do we account for the self affliction of damage onto the creditor? A look at the recent ascent of the gold price may offer a possible explanation.

From an article written on the 23rd September, 2009[5], we learn that China has been purchasing gold and has raised its level to nearly 1050 tons from a mere 400 in previous times. It is reasonable to assume that this trend will continue unabated and it might be of interest at this point to take a short look at the the history of paper money in China[6].

The Chinese were the first to use paper money , for a period of about 300 years between the years 1050 to 1450 – during the S’ung, Yuan (Mongol) and Ming dynasties. The first use of paper money resulted in abuses but the most successful period was that during the early Yuan dynasty. These currencies were theoretically redeemable in some form, and were therefore not fiat money as we have experienced it since President Nixon cut the last tie to gold redeemability in 1971.

In the opinion of this author, present day China may well be heading in the direction of pegging its currency in some form to something else and that that something else, is very likely to be gold. Then China could offload its US bonds by sale , once again raising the price of gold dramatically which in turn would compensate for the dollar losses. But this could spell disaster for the international economy if done so at a too rapid rate.

Not only would this give China the only trustworthy currency in the world, but it would simultaneously and conveniently constitute the knock-out blow to the USA as the economic superpower. In other words, stratagem 4 , the awaiting at ease of the exhausted enemy , may offer an explanation for an otherwise seemingly sensless act of omission on the part of the Chinese.

Thus it seems highly likely, that China has America well and truly cornered from whichever angle one cares to examine the situation.

What could constitute a refutation of this conclusion?

One possible reservation could jusitfiably be raised that the gold reserves do not constitute the entire economy. That is indeed the case but from a historical point of view,i.e. for the last two hundred years at least, the country which has had the largest gold reserves, has also been annointed the economic superpower.( England in the 19th century, America in the 20th)

Now another possible objection could take the form of pointing out that America still has the largest gold reserves in the world, something in the vicinity of 8,700 tons. However , according to a chart from the year 2005[7], these reserves are encumbered , i.e. either sold or leased. In fact rumours are rife , (in their most extreme form) , that maintain that the once almighty Fort Knox may even be empty! Indeed the ultimate irony would have to be if some of these reserves should already have found their way into the vaults of China.

In conclusion ,when approached from the perspectives adapted from Master Sun’s 36 Stratagems, it is indeed highly likely that China is in fact intending to supplant the USA as the next economic super power and may very well succeed in so doing.

On this note , it may well be prudent for all Central Bankers et al., to take heed of something another famous Chinese thinker, Confucious, once said:”hold gold.”

Dr. Elizabeth Brinsden is a senior lecturer on the Faculty of Socioeconomics at the University of Jana Evangelisty Purkyne in the Czech Republic. . She can be reached at mailto:elizabeth.brinsden@ujep.cz

Investigation: Could background check have prevented alleged rape?

Pascagoula, Mississippi (CNN) — A lack of screening of oil spill cleanup workers meant a sex offender got a job, and left him free to rape a colleague according to a Mississippi county sheriff.

A CNN investigation into the incident reveals that basic background checks were not done on those hired to remove oil from the beaches in and around Pascagoula.

Jackson County Sheriff Mike Byrd told CNN he was shocked when he met with the head of BP security for the area several weeks before the alleged rape took place. He said the BP representative told him that only drug screenings, not background checks, were being conducted on the cleanup workers.

“I said, ‘You’re kidding me.’ He said, ‘No.’ He said, ‘There’s so many of them, we were told to do drug screens and that was it.’ And I said, ‘Well, that’s not good at all.’ ”

Byrd said he told the BP official that “you’re going to have every type of person coming in here looking for a job, and you’re going to have the criminal element in here, and we’re not going to know who we’re dealing with if we don’t do background checks on these people.”

“It’s sad because you got a victim now by a sex offender, and he’s in our jail. Had we have known this, he would have been arrested before the crime could have been committed,” said Byrd, who also said that if asked, his department would have done the background checks for free.

Rundy Charles Robertson, 41, who faces charges of sexual battery and failure to register as a sex offender, is in the Jackson County, Mississippi, jail with bail set at $505,000. He told police that he had consensual sex with the woman. He has not yet entered a plea.

Robertson has a criminal history dating back to 1991, according to police records. He was put on the national sex offender registry for a 1996 conviction for contributing to the delinquency of a minor in Louisiana. He is also on probation after being convicted in 2003 in Georgia for cruelty to children.

Robertson had been supervising a crew of cleanup workers, including the alleged victim. She told CNN he offered to take her home one day in June because she was not feeling well.

However, she said, when he dropped her off, he asked to use the bathroom in her motel room. When he came out, she said, he raped her.

The woman told CNN she is scared and angry that this happened.

“If they would have ran the background checks, they wouldn’t have a man like that working,” she said.

“Emotionally, it’s really, really messed me up. I get real upset at times, I go through anxiety. I feel angry, I feel dirty. I don’t understand what gave him the right to take something — or felt he could do what he wanted. … I’m scared. I’m real scared.”

She said she was laid off and is now unemployed.

“I find it unbelievable because BP and their subcontractors had relationships with all local law enforcement,” said Adam Miller, the woman’s attorney. “They had the opportunity and the ability to clearly check all of these people that they were hiring and bringing in to ensure the safety of the public.”

He said since the incident happened in June, it’s been “a living hell for her.”

“She gave up her housing where she was living to come here,” Miller said. “Now she’s been raped, she doesn’t have a job, and everybody walked away.”

BP hired a company called Miller Environmental Group for the beach cleanup project. Miller hired Aerotek to find workers.

In a statement to CNN, BP spokesman Robert Wine said, “BP does conduct full checks on its employees, and under normal business conditions can make it a part of the contract for full backgrounds to be conducted by our long-term contractors. This was not done for all contractors in this response; the responsibility lies with the employing company for their own staff. The requirement on sub-contractors to BP’s contractors is one further step beyond BP’s scope of control.”

Jeff Reichert, the general counsel for Aerotek, the company that hired Robertson, said his company was only following the contract it had with Miller Environmental Group, which did not require background checks.

“We are a staffing company. Our policy is at the client’s request,” Reichert said.

He said only drug screenings and physicals were done.

“We are not liable for anything that happens,” he said. “Once we deliver the people to be supervised by our client, we don’t have anything to do with them anymore.”

He said, “I don’t know what Miller [Environmental Group’s] obligation to BP is. It’s BP’s project. We are providing them the people they asked for per the contract.”

In a statement sent to CNN on Thursday afternoon, Aerotek said that about 23 days after the incident, Miller “informed Aerotek that it wanted criminal background checks conducted on current and future temporary employees assigned to the oil spill clean-up effort.”

However, a tropical storm hit the area, and “all Aerotek temporary workers assigned to the clean-up efforts at this site were terminated.”

“Aerotek’s thoughts and support continue to go out to the alleged victim and her family,” the statement said.

CNN contacted Miller Environmental Group but did not get an immediate response.

Leonard Nelson, who was Robertson’s manager at Aerotek, said, “There were quite a few, quite a few drug dealers from what I saw, people from all walks of life. There was no way that there was any kind of comprehensive background checks done. There’s no way. You had guys walking in who actually had collars on, you know, the bands for house arrests. … I don’t know about you, but that strikes me as people you don’t want working here.”

Several other police departments on the Gulf Coast contacted by CNN said they conducted background checks. Euris Dubois, chief of police in Grand Isle, Louisiana, said he contacted BP and contractors about background checks.

“My residents in Grand Isle were concerned about these people,” Dubois said. “Everybody was kind of scared. So we started running background checks.”

He said about one-fourth of the workers had a criminal history, but most of the crimes were misdemeanors. He said there were three registered sex offenders who were closely supervised by his officers.

In LaFourche Parish, Louisiana, the sheriff’s office screened about 1,500 workers and found 20 sex offenders and others with active arrest warrants, Sgt. Lesley Hill said.

“Many workers who heard of the screenings did not show up for work,” she said.

Party Like It’s 1929

Tuesday, the Fed announced that it will reinvest the proceeds from maturing mortgage-backed securities into US Treasuries. The process is called Quantitative Easing. In theory, Q.E. increases inflation expectations so that consumers spend more before their money loses value and thus rev up the economy. That’s the theory. But adding to bank reserves when the banks are already loaded to the gills, achieves nothing. It doesn’t put money in the hands of people who will spend it, generate more economic activity or increase growth. It’s a big zero. Oddly enough, the Fed even admits this. According to an article in Bloomberg News, “The Central Bank posted a paper co-written by Seth Carpenter, associate director of the Fed’s monetary-affairs division, finding that the “quantity of reserve balances itself is not likely to trigger a rapid increase in lending.” No “increase in lending” means no credit expansion and no rebound. Thus, QE will have no real impact.

From the FOMC Statement:

“Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated…..

“The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.”

There’s not a glimmer of light in the Fed’s statement, and yet, “the Committee anticipates a gradual return to higher levels of resource utilization”. But how? And on what is the Fed basing its prediction? Certainly not the data. Maybe tea leaves? The truth is the economy is in very bad shape and getting worse. This is from Wednesday’s New York Times:

“The government’s preliminary estimate for economic growth in the second quarter is likely to be revised substantially lower….”Combining the bigger-than-expected trade deficit with other weak data suggests that Q2 growth was only 1.2 percent rather than the 2.4 percent originally estimated, placing the economy on even shakier ground than it seemed,” wrote Nigel Gault, chief United States economist at IHS Global Insight.” (New York Times)

The Fed has dramatically revised its growth forecast downward since its last meeting. The fiscal stimulus is petering out and inventory restocking is nearly over. Now the economy will have to stand on its own without the support of fiscal and monetary aid. But is it strong enough? Households are still patching their balance sheets, credit is tight, and businesses have no incentive to invest due to flagging demand. So where’s the growth going to come from? If the government does not provide more stimulus, asset prices will tumble, unemployment will rise, and the economy will contract.

This is from Wednesday’s Wall Street Journal:

“A Wall Street Journal survey found that by a two-to-one margin Wall Street economists see deflation as a bigger threat to the U.S. economy over the next three years than inflation.

“‘Deflation is dangerously close,’ said David Resler of Nomura Securities, one of 53 economists surveyed by the Wall Street Journal. Among economists who answered the question, nearly two-thirds said that deflation poses the bigger risk to the economy over the next three years; the remainder said inflation is the bigger threat. That compares to an April survey, when the economists were split 50/50 over whether inflation or disinflation posed the bigger risk over the next year.” (“WSJ Survey: Risks of Deflation on the Rise, Fed on Hold Longer”, Phil Izzo, Wall Street Journal)

The looming risk of deflation is what makes the future so “unusually uncertain”. (Bernanke’s words) But investors don’t like uncertainty, which is why they pulling their money out of equities and moving it into bonds. That’s also why the flight to safety has continued for more than two years, since the crisis began. No one knows what the policy is or what the rules are.

At the same time, falling bond yields are a referendum on Bernanke’s performance. Historic low yields on Treasuries indicate that the Fed has been unable to restore confidence or allay investor fears. Recent surveys of small business owners (National Federation of Independent Business) and CEOs show that confidence continues to plunge. Consumer confidence is in the dumps, too. Bottom line: No one has faith in the Fed’s approach.

Bernanke hoped that restarting his bond purchasing program would convince Wall Street that he was prepared to provide as much liquidity as needed. But traders saw through the ruse. The bond market cast its ballot immediately, driving yields into the ground. Investor pessimism pushed the 10-year below 3 per cent while 2-year Treasuries slumped to historic lows. Investors are betting that the economy is headed into another vicious cycle of debt-liquidation and depression. They don’t believe the Fed can stop the freefall, so they are shifting into risk-free liquid assets.

It took the stock market a bit longer to grasp what was going on, but 24 hours later, the rout on Wall Street began. Shares plunged throughout the session pushing down the Dow Jones 265 points by the end of the day. The other indexes were battered as well. The dollar strengthened on fears of deflation while bond yields on short-term notes fell sharply. Bernanke thinks the economy can muddle through on its own, but Wall Street isn’t buying it. They want more monetary stimulus, and they want it now.

Party like it’s 1929!

This is from David Rosenberg’s “Breakfast with Dave”:

“I know this sounds a bit dire, but little has changed from where we were a year ago……we had a huge bounce off the lows, but we had a similar bounce off the lows in 1930. The equity market was up something like 50 per cent in the opening months of 1930, and while I am sure there was euphoria at the time that the worst of the recession and the contraction in credit was over, it’s interesting to see today that nobody talks about the great run-up of 1930 even though it must have hurt not to have participated in that wonderful rally. Instead, when we talk about 1930 today, the images that are conjured up are hardly very joyous. I’m not saying that we are into something that is entirely like the 1930s. But at the same time, we’re not in Kansas any more.” (“Not in Kansas Anymore”, David Rosenberg, Gluskin Schef)

The economy is on the rocks and another round of quantitative easing won’t help. The Obama administration will have to toughen up and push through another fiscal stimulus program. It’s the only way. QE, low interest loans, zero rates, consumer subsidies, tax cuts or more bank reserves will not do the trick. Private sector deleveraging is beginning to accelerate, which means that economic contraction is unavoidable unless government spending increases substantially for an extended period of time. The budget deficits are going to balloon. Get used to it. That’s what it will take to get back on track. Obama’s stimulus was never big enough. Experts like Paul Krugman, Joseph Stiglitz and Obama’s-own Christiana Romer figured it would take roughly $1.4 trillion to suck up the excess capacity in the system and really put a dent in unemployment. $787 billion is a pittance compared to the $6 trillion in home equity and $4 trillion in retirement funds that were lost in the housing bubble flameout. When that much money vanishes from the system, it takes time to regroup. It blows a hole in personal balance sheets and forces people to cut back on spending. That’s why the personal savings rate has skyrocketed to 6.4 per cent in a matter of months. People are strapped and trying to pull themselves of the red. It’s government’s job to give them a hand.

Here’s an excerpt from a report by Goldman Sachs:

“The economic landscape has changed significantly during the last two months. The macroeconomic data that seemed to indicate improvement in April and May deteriorated sharply in June and early July. Cutting our 2011 EPS estimate to $89 represents a reversal for us and reflects the more challenging economic environment we now face compared with the backdrop just a few months ago.”

Bernanke maintains the recovery is on track and that the economy is slowly improving, but as economist Dean Baker points out, demand has been weak throughout the crisis and is showing no signs of a rebound. Here’s Baker:

“Growth has been boosted over the last 4 quarters by an inventory cycle as firms went from depleting to building their inventories. This cycle has now ended. Inventory growth is unlikely to accelerate further in the quarters ahead. This means that GDP growth will be close to final demand growth. Final demand growth has averaged 1.2 per cent in the last four quarters and was 1.3 per cent in the most recent quarter. There is no obvious reason to expect that the rate will increase in the near future.” (Dean Baker, CEPR)

Bernanke’s no-jobs, no-growth recovery has run aground. Now we need a real solution, a fiscal solution; a solution that will lower unemployment, put the country back to work and restore public confidence in government. And there’s not much time to act either. As pessimism spreads and economic atrophy sets in, the prospect of a general fall in the price level becomes more likely. That will lead to more layoffs, more excess capacity, more plummeting asset prices, more debt-liquidation, more defaults and more bankruptcies. It’s up to Obama and Co. to get this thing right and change course fast. Otherwise, we’ll be really back in the soup. Right now it’s heading up to our knees.