The Arrival of Japan's Sunset

The repercussions will be tremendous

by Gregor Macdonald

Waiting for Japan's economy to make a strong recovery has been an ongoing game since 1990. Shall we play that game one more time?

There have been many false dawns in Japan over the past 20 years. Struggling with a combination of crushing debt and deadly demographics, Japan’s economy has stubbornly refused to make progress, despite numerous government efforts that range from currency devaluation to endless public works projects.

None of this was enough, however, to prevent further declines in the country’s fertility rate, for example, which only exacerbated deflationary pressures on the economy. Nor were the collective set of policy measures enough to boot capital flows away from the bond market, as Japan’s savers simply kept on saving.

For the past twenty years, value investors have probed the individual names in the Nikkei for cash rich insurance companies, debt-free manufacturing companies, and for rock-bottom low P/E names, all in the hopes of riding a broader recovery higher. Alas, no sustainable recovery in Japan’s economy or stock market has ever unfolded.

One can only smile at the reaction that more senior, experienced Japan recoverists must now be feeling as they watch a new generation succumb to the excitement of the latest resurrection of Japan’s economy. That the Nikkei is up by 25% in just 90 days has triggered all sorts of congratulatory commentary, even from Nobel Prize winners like Paul Krugman, who also is swept up in the latest round of recovery fever:

Krugman explains that one of the problems with modern central banking is that people believe they're too credible in their desire to stamp out inflation when it starts to pick up. So in other words, the Central Bank may say it will let growth and inflation run hot for awhile (so that nominal GDP can catch up to trend) but nobody believes that they'll actually do that. What Japan may be in the process of doing -- by having the Bank of Japan take orders from the Ministry of Finance and the new Prime Minister -- is solve this problem, by having the bank commit to being irresponsible.

Thankfully, Japan’s latest attempt to recover by aggressive devaluation is almost assured to provide resolution to its generational quagmire. But the outcome will not look anything like recovery.

Instead, Japan has entered the terminal phase of its long, reflationary road.

Culturally, the frustration and exhaustion at the country’s lack of progress has unsurprisingly led to this important juncture. The Japan recoverists are correct that the latest round of monetary policy “is not like the others.” However, the results are likely to provide a real-world test case of the limits of Keynesian policy at a time when the world faces scarce resources.

This final chapter will be spectacular. So in a lurid sort of way, we should be thankful that Japan has now crossed the threshold and is ready to proceed to its denouement.

The Miracle of Post-War Japan & Resource Arbitrage

Students of ecological economics should pay close attention. Japan is about to add itself as a test case.

Ecological Economics is a thesis of elegant simplicity. Simply put, the economy is a subset of the environment – and not, as neoliberal economists would have you believe, the other way around. Economies can "grow" up to the limit of the natural resources which they can extract, or acquire.

In a time of cheap resources, when the cost of inputs is extremely low, the importance of these inputs tends to be ignored. Thus, we can see the most obvious implication of environmental economics is that extraordinary profits can be harvested when the price of resource inputs is low and the purchasing power of consumers in the market place is high.

The Great Singularity

The inmates are now in charge of the asylum

by Mark J. Grant

“Depend upon it, Sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.”   - Samuel Johnson

The world today does not smell of lavender and lilacs these days but more like old grease that has gone rancid. Always a skeptic, I find myself these days looking with more of a jaundiced eye than usual as I stare out on the fiscal landscape. Yesterday a High Court Examining Magistrate opened a second investigation into the ruling party in Spain examining new corruption charges that include Prime Minister Rajoy. These focused on money paid by the construction industry but a second article by Reuters made me wonder. This story centered on Santander selling off $393 million in troubled assets to a hedge fund. What caught my eye here was that they were apparently sold at four cents on the Dollar; a 96% discount. You might think write-off but the bank is having serious difficulties so that doesn’t quite fly. You might think some other reason in the normal course of business but at four cents on the dollar there is scant benefit to be gained. I wonder if Santander wasn’t, given the two ongoing investigations, not removing consumer loans from their books, as reported, but questionable loans that they did not wish to be investigated. If the loans are not there then they cannot be found and if they can’t be found then perhaps it lessens the chance of implication and criminality. I look at it all and wonder.

“Every man serves a useful purpose. A Prime Minister who has been caught stealing, for example, may make a perfect scapegoat for the next man that assumes his office.”

                                                                                  -The Wizard

Meanwhile in Italy the spaghetti sauce continues to boil. It once simmered but the heat has been turned up and it is a full boil now. Every political leader on the Continent is hoping for a deal. I can almost visualize them wandering around, “Deal, deal where is the deal?” I can see Signore Grillo on the dais, “No Deal,” he proclaims to the audience as the contestants hem and haw in frustration and the crowd goes wild. What is worse for the people in Berlin and Brussels is that every indicator points to that if another election were held that Signore Grillo would emerge with even more votes and maybe a majority of votes. This is not politics as usual in Italy. The 5 Star Party does not wish to play by the old rules. They want to re-write the Rulebook.

Drones too convenient to keep overseas

It will not be pretty

by mark steyn

I shall leave it to others to argue the legal and constitutional questions surrounding drones, but they are not without practical application. For the past couple of years, Janet Napolitano, the Secretary of Homeland Security, has had Predator drones patrolling the U.S. border. No, silly, not the southern border. The northern one. You gotta be able to prioritize, right? At Derby Line, Vt., the international frontier runs through the middle of the town library and its second-floor opera house. If memory serves, the stage and the best seats are in Canada, but the concession stand and the cheap seats are in America. Despite the zealots of Homeland Security's best efforts at afflicting residents of this cross-border community with ever more obstacles to daily life, I don't recall seeing any Predator drones hovering over Non-Fiction E-L. But, if there are, I'm sure they're entirely capable of identifying which delinquent borrower is a Quebecer and which a Vermonter before dispatching a Hellfire missile to vaporize him in front of the Large Print Romance shelves.

I'm a long, long way from Rand Paul's view of the world (I'm basically a 19th century imperialist a hundred years past sell-by date), but I'm far from sanguine about America's drone fever. For all its advantages to this administration – no awkward prisoners to be housed at Gitmo, no military casualties for the evening news – the unheard, unseen, unmanned drone raining down death from the skies confirms for those on the receiving end al-Qaida's critique of its enemies: as they see it, we have the best technology and the worst will; we choose aerial assassination and its attendant collateral damage because we are risk-averse, and so remote, antiseptic, long-distance, computer-programmed warfare is all that we can bear. Our technological strength betrays our psychological weakness.

And, in a certain sense, they're right: Afghanistan is winding down, at best, to join the long list of America's unwon wars, in which, 48 hours after departure, there will be no trace that we were ever there. The guys with drones are losing to the guys with fertilizer – because they mean it, and we don't. The drone thus has come to symbolize the central defect of America's "war on terror," which is that it's all means and no end: We're fighting the symptoms rather than the cause.

For a war without strategic purpose, a drone'll do. Anwar al-Awlaki, an American citizen born in New Mexico, was whacked by a Predator not on a battlefield but after an apparently convivial lunch at a favorite Yemeni restaurant. Two weeks later, al-Awlaki's son Abdulrahman was dining on the terrace of another local eatery when the CIA served him the old Hellfire Special and he wound up splattered all over the patio. Abdulrahman was 16, and born in Denver. As I understand it, the Supreme Court has ruled that American minors, convicted of the most heinous crimes, cannot be executed. But you can gaily atomize them halfway round the planet. My brief experience of Yemeni restaurants was not a happy one but, granted that, I couldn't honestly say they met any recognized definition of a "battlefield."

Terrorist's triumph over USA

Did the Department of Justice Really Say that the Government Would Not Assassinate Americans?

by George Washington

After a 13-hour filibuster by Senator Paul asking for a yes-or-no answer, on the question of whether the government could kill Americans on U.S. soil with drones, the Attorney General responded:

Dear Senator Paul:

It has come to my attention that you have now asked an additional question: “Does the President have the authority to use a weaponized drone to kill an American not engaged in combat on American soil?” The answer to that question is no.

Sincerely,

Eric Holder

But – as anyone who has worked in the legal or legislative field knows – statements which do not pin down all possibilities create loopholes large enough to drive trucks through.

Remember, Holder’s letter to Paul can’t be taken in a vacuum. The government has said for many months that it has the power to assassinate Americans on U.S. soil.

William Grigg notes:

This brief message from Holder … should be read in terms of the supposed authority claimed thereby. This means removing useless qualifiers in the interest of clarity.

What Holder is saying, in substantive terms, is that the President does have the supposed authority to use a drone to kill an American who is engaged in “combat,” whether here or abroad. “Combat” can consist of expressing support for Muslims mounting armed resistance against U.S. military aggression, which was the supposed crime committed by Anwar al-Awlaki, or sharing the surname and DNA of a known enemy of the state, which was the offense committed by Awlaki’s 16-year-old son, Abdel. Under the rules of engagement used by the Obama Regime in Pakistan, Yemen, and Afghanistan, any “military-age” male found within a targeted “kill zone” is likewise designated a “combatant,” albeit usually after the fact [update: children too]. This is a murderous application of the “Texas Sharpshooter Fallacy,” and it will be used when — not if — Obama or a successor starts conducting domestic drone-killing operations.

Holder selected a carefully qualified question in order to justify a narrowly tailored answer that reserves an expansive claim of executive power to authorize summary executions by the president.

Indeed, the Supreme Court ruled in Hamdi that American citizens can be treated as enemy combatants.

But the determination of who is a “combatant” is made in secret and without judicial review.  For example, AP notes:

Pentagon counsel Jeh Johnson … said only the executive branch, not the courts, is equipped to make military battlefield targeting decisions about who qualifies as an enemy.

Secretive, unaccountable agencies are making life and death decisions which effect our most basic rights. They provide “secret evidence” to courts which cannot be checked … and often withhold any such “evidence” even from the judges. For example:

“I find myself stuck in a paradoxical situation in which I cannot solve a problem because of contradictory constraints and rules — a veritable Catch-22,” the judge wrote. “I can find no way around the thicket of laws and precedents that effectively allow the Executive Branch of our Government to proclaim as perfectly lawful certain actions that seem on their face incompatible with our Constitution and laws, while keeping the reasons for their conclusion a secret.”

The government uses “secret evidence” to spy on Americans, prosecute leaking or terrorism charges (even against U.S. soldiers) and even assassinate people.

Secretive, unaccountable agencies are making life and death decisions which effect our most basic rights. They provide “secret evidence” to courts which cannot be checked … and often withhold any such “evidence” even from the judges. For example:

“I find myself stuck in a paradoxical situation in which I cannot solve a problem because of contradictory constraints and rules — a veritable Catch-22,” the judge wrote. “I can find no way around the thicket of laws and precedents that effectively allow the Executive Branch of our Government to proclaim as perfectly lawful certain actions [i.e. assassinations] that seem on their face incompatible with our Constitution and laws, while keeping the reasons for their conclusion a secret.”

Moreover:

The immorality of ‘sin taxes’

First Do No Harm

by Rob Lyons 

The apparent benefits of ‘sin taxes’ are greatly overstated for a variety of reasons. But the biggest problem of all is what they say about the relationship between the state and the citizen today.

Taxes on alcohol, smoking and ‘junk’ food are proposed ostensibly to reduce the incidence of a variety of diseases. But these diseases overwhelmingly affect older people. So we are being asked to pay more money or forego certain pleasures in exchange for a few extra weeks or months of life, on average. Alternatively, these taxes target conditions, like obesity, whose negative effects have been greatly exaggerated.

Such taxes do not hit the pockets of everyone in society equally; they are regressive, in that they hit poorer people disproportionately for a variety of reasons. So it seems that governments have come to save the poor by making them poorer.

It is claimed by some penny-pinching campaigners and medics that sin taxes save the state money by reducing ill health. It’s not true. To the marginal extent that such taxes do change behaviour in the desired fashion, the result will be people living longer and incurring greater costs in pensions and other old-age benefits, social care and healthcare. I’m definitely in favour of people living longer, but the argument that sin taxes are required to stop the National Health Service from being bankrupted is just wrong. If we were to take such a mean-minded approach to its logical conclusion, we should be congratulating smokers, for on average dying earlier than non-smokers, rather than trying to restrict smoking.

While taxes on tobacco and alcohol have been around for a long time, the idea that we should start modifying people’s behaviour in relation to food only really become fashionable recently. So when the Academy of Medical Royal Colleges (AoMRC) came out with a 10-point plan on reducing obesity a couple of weeks ago, the headline-grabber was the suggestion of a 20 per cent tax on sugary drinks.

Hugo Chavez R.I.P.

Chavez belongs to the ages ... like Peron and Melgarejo

by Bill Bonner

Today, we struggle to hold back tears. Another world leader has bit the dust. This time Venezuela's big chief. Some bleak corner of Hell took him in on Tuesday, if not before.

Chavez was a great entertainer. Real life was too small for him. He had to stretch the truth out... bend the real world into a larger, more fantastic shape... and puff it up with hot air until it could hold him.

In real life people go about their business, taking what fortune sends their way and doing their best with it. That stage was much too restricted for Chavez. He aimed to play a more important role under a much bigger proscenium arch. Naturally, he took up politics (the refuge of all fantasists) and tried to overthrow the Venezuelan government; he landed in jail.

The authorities let him out after a couple of years. He went right back to his mischief. A few years later and he was elected president of the country. But even that wasn't enough. He conspired to twist the nation's constitution to make himself "President for Life," which, in an act of divine mercy toward the Venezuelan people, ended this week.

Chavez was a great showman. He kept TV audiences entertained for hours, concocting a larger-than-life fairy tale about how terrible the foreign capitalists were and how his "Bolivarian Revolution" was setting things straight.

Alas, his lines were written by hacks; perhaps he wrote them himself. It took a real A-list actor to deliver his speeches with a straight face. The idea of a 21st Century Socialism, for example, that he claimed to have invented himself, was so transparently hollow and self-serving that a lesser thespian would have been laughed off stage.

A Magisterial Presence

Chavez followed in a long South American tradition of crowd-pleasing strongmen. Like Peron, Castro and Melgarejo, he was not only a leader the masses could adore, but he was also one they deserved.

Melgarejo has been largely forgotten. But he was one of the great standup guys of Bolivian politics. In 1854, like Chavez, he attempted a coup d'etat against the legitimate dictatorship of the time. He was captured. He was tried and found guilty. That should have been the end of him, but he came out with a convincing argument for clemency: that he was drunk at the time and not responsible for his actions.

President Belzu pardoned Melgarejo. A few years later, just to show his gratitude, Melgarejo murdered Belzu. Then came a real tour de force of political theatre, illustrating not only Melgarejo's magisterial stage presence, but also the masses' deep attachment to their leaders.

A crowd had gathered in front of the presidential palace demanding the return of Belzu. "Viva Belzu," they chanted.

Melgarejo appeared on the balcony. He had the dead body brought out and displayed to the crowd.

"Who lives now?" he asked them.

"Viva Melgarejo," they replied.

Having whacked his rival, Melgarejo soon became perhaps the most disastrous leader in the history of South America -- a hotly contested title. He is said to have signed the Treaty of Ayacucho with Brazil, in which he traded millions of acres of Bolivian territory for a "magnificent white horse."

In 1870, France and Germany went to war. Hearing reports of the German assault on Paris, Melgarejo rushed to defend the City of Lights.

He reputedly could not locate it on a map, but he was fascinated by what he had heard of it. So, he told his army to march to Europe. His military commanders informed him that they had no means to cross the Atlantic Ocean. Melgarejo replied: "Don't be stupid! We will take a shortcut through the brush!"

Cash and Claptrap

That was the sort of Bolivarian tradition to which Chavez was heir.

But Melgarejo was hardly the only legator. Chavez learned from Juan Peron too. Argentina had been one of the richest countries in the world, in the early 20th century. You can see the residue of it here today -- broad, tree-lined avenues and beautiful beaux arts, belle époque and arts nouveaux private buildings and public monuments. (The Argentines were great admirers of the French too!)

Now, Argentina is way down the list of the world's richest countries. Today, it is No. 54 on the CIA Factbook list -- with Trinidad and Tobago, Equatorial Guinea and Greece far ahead of it. That, along with periodic financial crises, massive strikes, disappearances and pointless wars, is the legacy given Argentina by Peron and his Peronist successors.

You'd think the gauchos and the porteños would have had enough of it by now. But they still elect Cristina Fernandez de Kirchner, a Peronist candidate, just as they voted for Chavez in Venezuela despite an economic record worthy of Mariano Melgarejo.

That's what makes the masses so attractive to leaders like Chavez: They are incredibly stupid. Consumer prices rise even faster in Caracas than in Buenos Aires. The power goes out, too. Despite being one of the world's top oil producers, supplies are so tight people are urged to take "socialist showers" to conserve energy. And the murder rate is among the highest in the world -- so high that even people from Baltimore are afraid to go there.

Chavez made their lives more miserable, but the masses still loved him. Of course, he paid for their affection. He took $100 billion in annual oil revenues and spread it around. Realizing that it would go further in poor neighborhoods than in rich ones, he built his popular support on cash and claptrap.

And now he is gone. The performances have come to an end. The show's over.

"Now he belongs to the ages," said Secretary of War Edwin M. Stanton when Abe Lincoln died. Now Chavez belongs to the ages too... like Peron and Melgarejo.

Good riddance.

Clowns Never Learn

Federal Spending in Inflation-Adjusted Terms

President Obama said the sequester cuts would be "catastrophic".

Reader Tim Wallace pinged me with a few comments to help put those catastrophic cuts in perspective.

Tim asks: If you were making $50,000 per year in 2007 and you income went up to $70,000 (a 40% increase in six years), would a $1,750 pay cut to $68,250 be catastrophic?

Apparently it would be for the Obama administration. The federal budget is up 40% from 2007 and the Democrats and President are telling us they cannot afford to cut spending 2.5%.

Not that the "cuts" are real in the first place. All that is really being cut is a decrease in the projected increase. A chart of Federal Spending from PJMedia will add another perspective.
Backing Away From Catastrophic Talk
For obvious reasons (shown above) Larry Kudlow notes The 'Catastrophic' Sequester Narrative Dies a Quick Death 

However you calculate the sequester spending cuts, and however uneven they may be, the reality is that the sequester at least moves the ball in the right direction. I maintain that by reducing the government spending share of GDP, the sequester is pro-growth.

The White House and the CBO are predicting a 0.5 percent to 0.7 percent decline in GDP, post-sequester, and a loss of 750,000 jobs. All this from a spending reduction of roughly 2.4 percent over the next ten years, in which Uncle Sam's spending growth will be $44.8 trillion rather than $46 trillion. 

Fed chairman Ben Bernanke and other demand-siders have called for a slow, gradual federal-spending reduction. Well, that's exactly what they're going to get. The first fiscal year of sequester will see $44 billion in spending cuts, which is about one quarter of 1 percent of GDP. That's pretty gradual. 

And compare that $44 billion 2013 spending cut (most of which is slower baseline growth, not a cut in spending levels) to a roughly $150 billion 2013 tax hike. Hmm, let me get this right: It's okay to raise taxes, because that won't hurt the economy, but it's not okay to cut spending, because that will lower output?

And while the business sector has survived to become highly profitable, the federal sector has become bloated, edging ever closer to debt bankruptcy.

A Storm Is Brewing

Tone-Deaf Eurocrats

The reaction of the European leadership to the Italian post-election predicament has been quite predictable so far: there is no choice, so the consensus, but to basically continue where Monti has left off. This seems quite odd, given that Monti actually left Italy with a new post war record high public debt relative to economic output. What has he done except raising taxes and harassing the public with his 'shadow economy' clampdown? What has been achieved in terms of genuine economic reform or slimming down of the State? Nothing. “Euro Leaders Demand Austerity” writes Bloomberg. Mind, there is nothing wrong in principle with austerity, especially not the kind that involves a lowering of the burden on the economy imposed by government spending, ideally combined with meaningful economic liberalization. This has become nigh impossible though in view of the thicket of regulations emanating from Brussels. As this article from last year argues, Brussels makes regulations tailored for big companies – but big companies only represent 0.2% of all European businesses. They love the regulatory State of course, because it kills their competition for them without them having to lift a finger. Big companies are the only ones that can actually afford dealing with all these regulations.

What Monti has left behind: the biggest debtberg since Mussolini

Mrs. Merkel is actually right with what she says below, in principle. However, the implication of what she says is that something needs to be done that actually ends up producing growth. Doing little besides trying to lower budget deficits by jacking up taxes is not going to produce any. 

“Now in Europe, after the Italian election, it seems to be a case of either austerity and savings programs or growth, but that’s a completely false premise,” German Chancellor Angela Merkelsaid at March 1 event. EU Economic and Monetary Affairs Commissioner Olli Rehn echoed those comments, telling Germany’s Der Spiegel magazine this weekend that there’s no scope for the bloc to let up on budget discipline.

Italian political instability, after last week’s election ended in a four-way split, threatens to reignite concern about the deepening of the debt crisis.Voters in the bloc’s third- largest economy revolted against German-inspired austerity measures, handing the party of comedian-turned-politician Beppe Grillo more than 25 percent of the vote with its anti-spending cut message and a call for a referendum on euro membership.” (emphasis added)

The above sounds almost as though Grillo's movement wanted to increase government spending again, but that is actually not quite true as it turns out.

As Der Spiegel reports:

“The Grillini like to point out that they too intend to cut spending. What that means can be seen in the city of Parma, saddled with €800 million in debts. For the past three-quarters of a year, Parma has been governed by Mayor Federico Pizzarotti, 39, a member of the movement who has been busy trimming the fat from the municipal budget. He rides a bicycle to work and has exchanged two official sedans for an Opel natural gas vehicle. He adheres to the rules of the movement and doesn't spend more than what he collects in taxes, but he's still not seen as the Germans' cost-cutting commissioner.” (emphasis added)

What makes Grillo suspect to the eurocratic elites is that he is an anti-establishment figure; that he doesn't regard euro membership as sacrosanct, and intends to increase the level of direct democracy in Italy. This is not to say that the man's economic policy ideas are necessarily better than what has been on tap so far, as he has a number of ideas that strike one as steeped in a kind of naïve romantic socialism.

Green Economics Turns Brown In The UK

Pulling the plug on Green Pipe-Dreams

By Chriss Street

The United Kingdom has been the heralded as the most committed country on earth to embrace green economics. Powered by huge government subsidies, environmental and low-carbon businesses now claim to employ over one million people and make up 8% of the UK’s GDP – from biofuels, electric cars, wind turbines and solar installations.

But with the nation heading into its third recession in four years and losing its AAA credit rating, the British public seems ready to pull the plug on green economics and join the “Dash for Gas” to begin fracking the nation’s immense deep coal deposits.

Following the Financial Crisis of 2008-09, the UK government committed to Keynesian deficit-spending stimulus to “grow” the country into the world leader in green economics. Through public spending and government direct guarantees of high returns to private leveraged investors, total investments in UK renewable energy projects grew from $6.9 billion in 2010 to $9.4 in 2011. More than 800 MW of wind, 300 MW of solar and 500 MW of biomass generating capacity was funded. Phyllis Cuttino, author of the Pew Charitable Trust Energy Report, "Who’s Winning the Clean Energy Race?" stated: 

“In part, investment growth in the United Kingdom can be attributed to investors initiating new projects before policy incentives are curtailed. To maintain growth, the UK must provide consistent, long-term market signals that provide certainty to investors.”

Despite international media adulation for investing public funds in the “industries of the future”, the UK fell back into recession in 2011. Facing falling tax revenue and rising feed-in tariff subsidies for solar panels, the government attempted to cut subsidies to spare slashing social spending. But the UK Supreme Court ruled cutting solar subsidies was “legally flawed”. Despite public protests, the government’s March 2012 budget cut $14 billion in child and welfare spending.

How Many Billions Of Drug-Laundered Money Does It Take To Shut Down A Bank?

The Big Sleep

by Tyler Durden 

It's an odd question, we know - especially ahead of today's Stress Tests, but given today's testimony on assessing the bank secrecy act, apparent trouble-maker Elizabeth Warren pokes and prods (correctly we would add) at the surreality that exists between the Department of Justice, The Treasury, and the financial system. David Cohen, Tom Curry, and Jerome Powell dodged bullets and blame, "does that mean essentially we have a prosecution-free zone for large banks in America?" But Warren wasn't going to be fobbed off with useless banter as she pointed out, "if you're caught with an ounce of cocaine, the chances are good you're going to go to jail...for the rest of your life. But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night - I think that's fundamentally wrong." Indeed Ms. Warren.

Here is the transcript - note the Treasury officials never actually answer anything...

WARREN: ... As Senator Reed just pointed out, the United States government takes money laundering very seriously for a very good reason. ...

Now in December, HSBC admitted to money laundering. To laundering $881 million that we know of for Mexican and Colombian drug cartels. And also admitted to violating our sanctions for Iran, Libya, Cuba, Burma, the Sudan. And they didn't do it just one time. It wasn't like a mistake. They did it over and over and over again across a period of years. And they were caught doing it. Warned not to do it. And kept right on doing it. And evidently making profits doing it.

Now HSBC paid a fine, but no one individual went to trial. No individual was banned from banking. And there was no hearing to consider shutting down HSBC's activities here in the United States. So what I'd like is, you're the experts on money laundering. I'd like your opinion. What does it take? How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this? Mr. Cohen, can we start with you?

COHEN: Certainly Senator. No question the activity that was the subject of the enforcement action against HSBC was egregious...

WARREN: But let me just move you along here on the point Mr. Cohen. My question is,given that this is what you did, what does it take to get you to move towards even a hearing? Even considering shutting down banking operations for money laundering?

COHEN: Senator, we at the Treasury Department under OFAC and (ph) authority, we don't have the authority to shut down a financial institution...

WARREN: I understand that. I'm asking, in your opinion, you are the ones who are supposed to be the experts on money laundering. You work with everyone else, including the Department of Justice. In your opinion, how many billions of dollars do you have to launder for drug lords, before somebody says, we're shutting you down?

...

WARREN: ... And I'm asking, what does it take, even to say, here's where the line is. We're going to draw a line here, and if you cross that line, you're at risk for having your bank closed?

...

COHEN: But I'm not going to get into some hypothetical line drawing exercise.

WARREN: Well it's somewhere beyond $881 million of drug money.

COHEN: Well Senator the actions, and I'm sure the regulators can address this issue. The actions that we took in the HSBC case, we thought were appropriate in that instance.

...

WARREN: So what you're saying to me is you are responsible for these banks, and again, I read your testimony and you talk about the importance of vigorous enforcement here. But you're telling me you have no view when it's appropriate to consider even a hearing to raise the question of whether or not these banks should have to close their operations when they engage in money laundering for drug cartels?

...

WARREN: I understand that I'm over my time. And I'll just say here, if you're caught with an ounce of cocaine, the chances are good you're going to go to jail. If it happens repeatedly you may go to jail for the rest of your life. But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night. Every single individual associated with this. I just, I think that's fundamentally wrong.

North Korean "Insanity" Part of Geopolitical Game

The ball, it would seem, is in Denis Rodman’s court

By Jen Alic 
North Korean leader Kim Jong-un may be colorful, but he isn’t crazy.

There is logic behind the intensified war rhetoric, and while it may be convenient for the American public to believe that they are about to be attacked unprovoked by the unhinged dictator of an eerily isolated country, the truth of the matter is that the US and its allies have been doing some offensive posturing that has Pyongyang very much on edge.  

North Korea on Tuesday threatened to attack the US and South Korea with “lighter and smaller nukes”. This threat has prompted South Korea to threaten to strike North Korea’s military command if “provoked” and the UN to move closer to slapping new sanctions on Pyongyang’s banking sector and diplomats.

The sanctions resolution was introduced by the US and China and specifically targets North Korean bankers and overseas cash mules. It also targets diplomats and seeks to lend added strength to air and sea cargo inspections going in and out of North Korea.

While mainstream media outlets are wont to describe North Korea’s rhetoric as increasingly bold, the threats and recent tests of long-range rockets and nuclear weapons are not the result of bravado, rather of fear.

The US and its East Asia allies (namely South Korea and Japan) have been preparing for an offensive on North Korea ever since the death of Kim Jong-il. They see a window of opportunity in the instability of the fragile succession. 

Pyongyang has no choice now but to rattle its sabers--and rattling them at traditionally quiet South Korea is the most effective strategy. This is where North Korea can do the greatest damage, and if it feels that a US offensive is imminent, South Korea will come under attack. At the same time, an attack on South Korea will be the final justification for an all-out US-led offensive on North Korea.

Right now, Pyongyang is hedging its bets on whether the US is willing to sacrifice its ally to this conflict.

The Right to Self-Defense

Kings and tyrants have taken this right away

by Andrew P. Napolitano

In all the noise caused by the Obama administration’s direct assault on the right of every person to keep and bear arms, the essence of the issue has been drowned out. The president and his big-government colleagues want you to believe that only the government can keep you free and safe, so to them, the essence of this debate is about obedience to law.

To those who have killed innocents among us, obedience to law is the last of their thoughts. And to those who believe that the Constitution means what it says, the essence of this debate is not about the law; it is about personal liberty in a free society. It is the exercise of this particular personal liberty – the freedom to defend yourself when the police cannot or will not and the freedom to use weapons to repel tyrants if they take over the government – that the big-government crowd fears the most.

Let’s be candid: All government fears liberty. By its nature, government is the negation of liberty. God has given us freedom, and the government has taken it away. George Washington recognized this when he argued that government is not reason or eloquence but force. If the government had its way, it would have a monopoly on force.

Government compels, restrains and takes. Thomas Jefferson understood that when he wrote that our liberties are inalienable and endowed by our Creator, and the only reason we have formed governments is to engage them to protect our liberties. We enacted the Constitution as the supreme law of the land to restrain the government. Yet somewhere along the way, government got the idea that it can more easily protect the freedom of us all from the abuses of a few by curtailing the freedom of us all. I know that sounds ridiculous, but that’s where we are today.

When Postmodern Art Attacks Western Civilization

Honoring envious losers

By Bill Frezza

Most people don’t give much thought to how our cultural institutions shape our world view, and the impact this has on politics, but I’m one of those who do. This can make it problematic to attend a modern art museum with me, a task my wife, a genuine and sophisticated art lover, approaches with a mixture of caution and bravado. While I’ve learned to stifle my public outbursts and gesticulations, her uncanny ability to read my mind invariably generates a burst of frisson best resolved by leaving the museum to take her to an expensive lunch.

It’s not the fraud that I mind—more power to any artist who can con a patron into paying outrageous sums of money for something as banal as a black stripe on a blank white canvas or a rusty bicycle hanging from a rope. There is no harm in separating a fool from his money as long as it’s not mine.

I can even accommodate myself to the widespread and concerted effort to destroy the very idea of artistic talent evident in most contemporary art, giving talentless frauds the opportunity to pursue lucrative careers and teaching positions. The world will still be filled with beauty and genius even if the public is snookered into believing a million dead and rotting flies glued to a canvas merits display in the Boston Museum of Fine Art. (I kid you not. Since being drawn to that stinking canvas by the odor some years ago I have never again set foot in the MFA.)

Recent Oil Discovery off Lebanese Coast Draws Naval Powers to East Med

Eastern Mediterranean will probably be either the safest place in the world in which to sail or the most volatile

By Claude Salhani 

The discovery a few years ago of an important deposit of oil and gas reserves in the waters just off the Lebanese, Israeli and Cypriot coasts has raised the interest of foreign militaries who have in recent weeks become attracted to the region, adding ingredients at sea to an already explosive atmosphere on land.

From China to Iran, not forgetting Turkey, Israel, the United States, Britain, and France, all the principal actors in the region are now present in the waters of the Eastern Mediterranean.

In addition to the important oil fields under the sea waiting to be exploited, the bloody civil war that has been raging in next door Syria for the past two years has brought renewed interest in these troubled waters.

Russia, primarily, is very concerned by what the future holds for the Assad regime in Damascus as the Syrian Mediterranean port of Tartous serves as the Russian Mediterranean Fleet’s main port of call, where the Russians continue to hold onto an important facility established back in the days of the Soviet Union. For Russia, whose northern Baltic ports freeze over during the long cold winter months, having access to a friendly port for its Med fleet is a matter of national security. To reiterate just how important the Eastern Mediterranean Sea plays in Russian affairs, Moscow has just dispatched a naval task force comprised of about 10 vessels, including its only aircraft carrier, the Admiral Kuznetzov, to the region.

The Chinese, who much like the West are quickly discovering their addiction to oil in order to keep those million of cars that the new middle class is buying up faster than the Koreans and Japanese can manufacture them, are starting to be drawn into this great game of nations, albeit the aquatic version. In recent months units of the Chinese Navy have been seen in the vicinity.

The Iranians, who have always aspired to become a regional force to be reckoned with, have announced last January that they too will be dispatching naval forces to the Eastern Mediterranean.

European powers, France, Britain and to a lesser degree, the Italians and the Germans have all sent naval forces to the region, some as part of the UNIFIL (United Nations Interim Forces in Lebanon) some unilaterally.

The US, who traditionally have maintained an impressive array of naval forces comprised of units of the Sixth Fleet, had decided to reduce its naval presence in the Eastern Med, but in view of the increased traffic, especially by Russia, China and probably the most worrisome of all for the Western allies, the Islamic Republic of Iran, has now changed its mind and will continue to retain an important naval force in the Med.