Cyprus: the world’s biggest “poker game”

Big picture, this is toxic and policy error

by Harvinder Sian and Michael Michaelides

While this kind of 'wealth tax' has been predicted, as we noted yesterday, this stunning move in Cyprus is likely only the beginning of this process (which seems only stoppable by social unrest now). To get a sense of both what just happened and what its implications are, RBS has put toegther an excellent summary of everything you need to know about what the Europeans did, why they did it, what the short- and medium-term market reaction is likely to be, and the big picture of this "toxic policy error." As RBS summarizes, "the deal to effectively haircut Cypriot deposits is an unprecedented move in the Euro crisis and highlights the limits of solidarity and the raw economics that somebody has to pay. It is also the most dangerous gambit that EMU leaders have made to date." And so we await Europe's open and what to expect as the rest of the PIIGSy Banks get plundered.

 The deal to effectively haircut Cypriot deposits is an unprecedented move in the Euro crisis and highlights the limits of solidarity and the raw economics that somebody has to pay. It is also the most dangerous gambit that EMU leaders have made to date.

• What did they do? Hit depositors.
• Why did they do it? Politics, economics, and because they think they can get away with it.
• Cyprus needs to vote on this and any delay of opening the banks on Tuesday is more risk-off.
• Short term market reaction: Risk-off. The situation is fluid but watch politics, Cyprus bank runs risk, weak periphery banks impact and rating agencies. Worst case scenario? EMU exit talk. The Best case scenario? Germany is correct and the ECB bridges the time to when this is clear.
• Big picture: This is toxic and a policy error.
• Long bunds, sell the euro, sell periphery, Spain could underperform Italy, but nobody in the periphery wins.

1. What did they do?

In the early hours of this weekend, the Troika decided to impose an effective haircut to both uninsured and even more interestingly insured (<€100k) Cypriot bank deposits. More precisely, the €10bn bank rescue in Cyprus will end up with a bail-in on junior bondholders and a one-time tax on depositors. Deposits below €100k will be taxed 6.75%, and those above at 9.9%, for a total contribution of €5.8bn. Depositors will receive bank equity as compensation and the Cypriot President has offered Gas-linked notes if deposits are kept in the country for two years.

In addition, the Eurogroup expects the Russian government to come to an agreement with Cyprus soon to make a contribution to the rescue.

The Eurogroup head, Dutchman Jeroen Dijsselbloem, has refused to rule out that Cyprus will be the last instance where deposit holders get hit. Olli Rehn however has ruled this out by saying Cyprus is unique. The difference is that Mr Dijsselbloem represents the views of national finance ministers and leaders.

2. Why did they do it?

There is an excess debt problem and somebody has to pay. The division of costs is a policy choice.

The typical choices beyond growth and inflation, are via (a) getting friendly foreigners to pay such as Germany/EFSF/ESM etc; (b) getting wealthy domestics to pay (c) forcing the debtor nation to make good the loans over time through austerity; and (d) force losses on creditors such as the expropriation of SNS Reaal subordinated bonds, losses on Anglo Irish senior bonds, OSI, and of course PSI.

The signal is on the limits of core solidarity

The haircut on the deposit base in Cyprus is unique in hitting the most secure ladder in bank capital, when Cypriot government bonds and senior bank paper are still planned to be made whole. That policy choice was unexpected. One key message is that the decision represents visible evidence of the limits of core EMU solidarity. In truth, this was already evident via the ESM’s seniority and the CACs in 1y+ new government bonds.

...and the limits of the economics

According to media reports (FT) the Cypriot leaders were felt to be left with little choice. We discuss this below but why should Germany, other core countries and even the ECB threaten to take down the Cyprus’ largest banks or threaten full bail-in of depositors? The answer is that resources are limited. Core EMU is not large enough to bailout the periphery risk and so default has to be part of the solution.

There May Be Only Painful Ways Out Of The Crisis

The "Muddle Through" Has Failed

By tyler drusden

Denial. Denial is safe. Comforting. Religiously and relentlessly abused by politicians who don't want nor can face reality. A word synonymous with "muddle through." Ah yes, that "muddle through" which so many C-grade economists and pundits believe is the long-term status quo for the US and the world just because it worked for Japan for the past three decades, or, said otherwise, "just because." Well, too bad. As the following absolutely must read report, which comes not from some trader of dubious credibility interviewed by BBC, nor even from an impassioned executive from a doomed Italian bank, but from consultancy powerhouse Boston Consulting Group confirms, the "muddle through" is dead. And now it is time to face the facts. What facts? The facts which state that between household, corporate and government debt, the developed world has $20 trillion in debt over and above the  sustainable threshold by the definition of "stable" debt to GDP of 180%. The facts according to which all attempts to eliminate the excess debt have failed, and for now even the Fed's relentless pursuit of inflating our way out this insurmountable debt load have been for nothing. The facts which state that the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world's financial asset holders: the middle-and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path. But not before the biggest episode of "transitory" pain, misery and suffering in the history of mankind. Good luck, politicians and holders of financial assets, you will need it because after Denial comes Anger, and only long after does Acceptance finally arrive.

First, let's recap why BCG thinks all the alternatives have been exhausted:

We believe that some politicians and central banks - in spite of protestations to the contrary - have been trying to solve the crisis by creating sizable inflation, largely because the alternatives are either not attractive or not feasible:

·         Austerity - essentially saving and paying back - is probably a recipe for a long, deep recession and social unrest

·         Higher growth is unachievable because of unfavorable demographic change and an inherent lack of competitiveness in some countries

·         Debt restructuring is out of reach because the banking sectors are not strong enough to absorb losses

·         Financial repression (holding interest rates below nominal GDP growth for many years) would be difficult to implement in a low-growth and low-inflation environment

Inflation will be the preferred option - in spite of the potential for social unrest and the difficult consequences for middle-class savers should it really take hold. However, boosting inflation has not worked so far because of the pressure to deleverage and because of the low demand for new credit. Moreover the inflation "solution" while becoming more tempting, may come to be seen as having economic and social implications that are too unpalatable. So what might the politicians and central banks do?

Since the publication of Stop Kicking The Can Down The Road, a number of readers have asked us what would happen if governments persisted in playing for time. To what measures might they have to resort? In this paper, we describe what might need to happen if the politicians muddle through for too much longer.

It is likely that wiping out the debt overhang will be at the heart of any solution. Such a course of action would not be new. In ancient Mesopotamia, debt was commonplace; individual debts were recorded on clay tablets. Periodically, upon the ascendancy of a new monarch, debts would be forgiven: in other news, the slate would be wiped clean. The challenge facing today's politicians is how clean to wipe the slates. In considering some of the potential measures likely to be required, the reader may be struck by the essential problem facing politicians: there may be only painful ways out of the crisis.

For Everyone Shocked By What Just Happened

And Why This Is Just The Beginning

by Harvinder Sian and Michael Michaelides

Today, lots of people woke up in shock and horror to what happened in Cyprus: a forced capital reallocation mandated by political elites under the guise of an "equity investment" in insolvent banks, which is really code for a "coercive, mandatory wealth tax." If less concerned about political correctness, one could say that what just happened was daylight robbery from savers to banks and the status quo. These same people may be even more shocked to learn that today's Cypriot "resolution" is merely the first of many such coercive interventions into personal wealth, first in Europe, and then everywhere else.

For the benefit of those people, we wish to point them to our article from September 2011, "The "Muddle Through" Has Failed: BCG Says "There May Be Only Painful Ways Out Of The Crisis", which predicted and explained all of this and much more. What else did the September BCG study conclude? Simply that such mandatory, coercive wealth tax is merely the beginning for a world in which there was some $21 trillion in excess debt as of 2009, a number which has since ballooned to over $30 trillion. And with inflation woefully late in appearing and "inflating away" said debt overhang, Europe first is finally moving to Plan B, and is using Cyrprus as its Guniea Pig.

For those who missed it the first time, here it is again. Somehow we think many more people will listen this time around:

Restructuring the debt overhang in the euro zone would require financing and would be a daunting task. In order to finance controlled restructuring, politicians could well conclude that it was necessary to tax the existing wealth of the private sector. Many politicians would see taxing financial assets as the fairest way of resolving the problem. Taxing existing financial assets would acknowledge one fact: these investments are not as valuable as their owners think, as the debtors (governments, households, and corporations) will be unable to meet their commitments. Exhibit 3 shows the one-time tax on financial assets required to provide the necessary funds for an orderly restructuring.

For most countries, a haircut of 11 to 30 percent would be sufficient to cover the costs of an orderly debt restructuring. Only in Greece, Spain, and Portugal would the burden for the private sector be significantly higher; in Ireland, it would be too high because the financial assets of the Irish people are smaller than the required adjustment of debt levels. This underscores the dimension of the Irish real estate and debt bubble.

In the overall context of the future of the euro zone, politicians would need to propose a broader sharing of the burden so that taxpayers in  such countries as Germany, France, and the Netherlands would contribute more than the share required to reduce their own debt load. This would be unpopular, but the banks and insurance companies in these countries would benefit. To ensure a socially acceptable sharing of the burden, politicians would no doubt decide to tax financial assets only above a certain threshold—€100,000, for example. Given that any such tax would be meant as a one-time correction of current debt levels, they would need to balance it by removing wealth taxes and capital-gains taxes. The drastic action of imposing a tax on assets would probably make it easier politically to lower income taxes in order to stimulate further growth. (See Exhibit 4.) 

Monsieur Unpopular

Hollande's Spectacular Fall from Grace

By Mathieu von Rohr
Never before has a French president fallen in public sentiment as quickly as François Hollande. Only 10 months after entering into office, his popularity rating is plummeting. An event aimed at getting closer to the people this week didn't help.

On a recent trip by French President François Hollande to the eastern city of Dijon, everything that could have gone wrong, went wrong. The visit earlier this week was intended to improve the president's miserable approval ratings and "renew direct contact with the French." Instead, Hollande found himself so clearly confronted with the wrath of the people as never before. He was visibly overwhelmed.

"Monsieur Hollande, where have your promises gone?" one young man hollered out to the president as he arrived in the working-class quarter of Les Grésilles. Two bodyguards immediately and violently carried the man out of the crowd. The image of the scene was too disastrous for the television news crews to pass up. Hollande's predecessor, Nicolas Sarkozy, once told a heckler to "get lost, you poor jerk!" He never lived the phrase down.

Before Hollande arrived, the police had already dispersed a group of unionists who were holding up a picture of early French Socialist leader Jean Jaurès, "to remind him that he's a Socialist." French newspaper Le Monde reported another resident was silenced after calling out to Hollande, "We're still waiting for your change, François!"

The 'President of Kisses'

After Hollande became the Socialists' candidate for president -- in the party's first-ever direct primary election -- he relished the public strolls that brought him closer to his supporters. They were scheduled at every campaign event, and Hollande was happy to take the time for them. So many elderly women wanted kisses on the cheek from him that, shortly after his election, he jokingly called himself le président des bisous, or "the president of kisses."

Since taking office 10 months ago, Hollande has experienced the fastest drop in popularity ever seen in French presidential politics. In June of last year, those who said they had confidence in him numbered between 51 and 63 percent, depending on the polling institute. That number is now 30 to 37 percent, nearing the lowest approval rating of any French president on record: Nicolas Sarkozy in May 2011, at 20 percent.

Something has changed among the people, evidenced by not just opinion polls, but also Hollande's two-day, meet-the-people trip to Dijon. A few hours after leaving behind the unhappy hecklers, Hollande asked a woman who was passing by if she wanted to take a photo with him. She answered coldly, "We see enough of you on TV."

Euro Zone Reaches Deal on Cyprus Bailout

Hitting the Savers

by Spiegel

After fraught negotiations, euro-zone finance ministers reached a deal early Saturday to provide up to €10 billion ($13 billion) bailout funds to Cyprus, which faces bankruptcy in May. For the first time, deposits at banks in a country are being seized to assist in the rescue.

Euro-zone finance ministers and the International Monetary Fund reached a deal with Cyprus early Saturday morning on a bailout package for the country that has been the subject of dispute for months now. It will mark the first time that savers in a country in the euro zone are required to participate in a bailout.

"The Euro Group was able to reach a political agreement with the Cypriot authorities on the cornerstones of this agreement," Euro Group President Jeroen Dijsselbloem said. "The assistance is warranted to safeguard stability in Cyprus and the euro zone as a whole," he said. Dijselbloem added that a letter of intent would be completed next week so that the deal could be approved by national parliaments.

International Monetary Fund chief Christine Lagarde said the fund would contribute to the bailout but did not specify the exact amount.

Initial reports suggest the bailout package, which will be provided by the long-term euro rescue fund, the European Stability Mechanism (ESM), will carry a total value of up to €10 billion ($13 billion). In return, Cyprus has pledged to recapitalize its ailing banks and clean up government spending. Without the bailout, the country would default in May.

Levy To Raise €5.8 Billion

The deal followed intense negotiations and the main sticking point during the 10-hours of talks had been the demand that savers at Cypriot banks also be required to contribute to the bailouts of the beleaguered financial institutions. Under the deal, any bank account holder in Cyprus with deposits exceeding €100,000 will be subjected to a one-off levy of 9.9 percent of their savings. Accounts with less than a €100,000 would be required to make a 6.75 percent payment. In total, the deposit tax is expected to generate around €5.8 billion.

Large sums of money have been deposited in Cypriot banks by foreign customers, particularly wealthy Russians and Brits. Russian oligarchs have billions in deposits in the banks, and almost half of the deposits in the country are believed to be from non-resident Russian citizens. Together, the country's banks hold close to €70 billion in deposits. Cyprus also agreed to raise the country's nominal corporate tax rate, the lowest in Europe, by 2.5 percentage points to 12.5 percent. But sources said the country would not be given a debt haircut.

Beppe Grillo Is the Most Dangerous Man in Europe

Green Facism

by Jan Fleischhauer

Beppe Grillo, leader of the populist Five Star Movement in Italy, prides himself on his ridicule of the parliamentary system. Yet while his anti-establishment rhetoric sounds appealing, at heart it's actually anti-democratic. And very similar to that of an infamous Italian from the past.

The man whom German center-left leader Peer Steinbrück called a "clown" does have entertainment value, that much we can agree on. Italy and the euro? "De facto, Italy is already out of the euro zone." Rome and the parliamentary system? "I give all the parties six more months, then it's over here." And these quotes are only the highlights from a recent interview with Beppe Grillo published by the German business daily Handeslblatt. When it comes to straight talking, even Steinbrück, reknowned for his lack of a filter, is surpassed by Grillo.

Steinbrück got a fair amount of flack for his clown comparison. If he had used the term to describe only Berlusconi, everyone would have simply nodded in agreement. But Grillo? The leader of the streets and hero of the youth, whose third-placed Five Star Movement demonstrated the degree to which Merkel's austerity diktat is pushing Italy to its limits? The advocate for shorter terms of office and a cleaner way of doing politics? Even within the ranks of Steinbrück's Social Democrats (SPD), people were calling for their candidate to be put in his place.

A part of the sympathy that Grillo enjoys in Germany is undoubtedly thanks to his proximity to the political left. Much of what the Five Star Movement espouses could easily be found in the platforms of the Attac movement or Germany's Green party: the passion for alternative sources of energy, the promise of more civic engagement, the protest against the "fat cats" of international finance and the calls to put them on a diet. But that's just the surface. Such fluff doesn't propel a party to the top in just a few short years, neither in Italy nor anywhere else.

Grillo derives his energy from resentment. The real key to his success lies in the exploitation of anger -- at Germany, at Brussels bureaucrats, at the whole system. That is what makes him great, not the appeal to reason or the love of democracy.

As with all other revolutionaries, Grillo's answer to the malaise of the present age is extremely simple. You just have to do away with the politicians or, better yet, jettison everything that smells of power and privilege. "We are young," it says on his blog. "We have no structure, heirarchy, leaders or secretaries. We take orders from no one." Grillo's comparison of his movement to the French Revolution, which took its ideas of equality with bloody seriousness, is no accident. He relativizes by saying, "without the guillotine," but the stipulation means little. When people are incited into rage, those who fueled their passions never take the blame.

An unstable truce with the Axis of Crazy

A business model that no longer makes any sense

By mark steyn
I greatly enjoy the new Hollywood genre in which dysfunctional American families fly to a foreign city and slaughter large numbers of the inhabitants as a kind of bonding experience. Liam Neeson takes his estranged wife and their teenage daughter for just such a vacation in "Taken 2," in which the spectacular mountain of corpses in Istanbul brings the family back together again and ends with them (spoiler alert) enjoying a chocolate malt back at the soda fountain in California and getting to know the daughter's new boyfriend. "Don't shoot this one, Dad," she cautions. "I really like him." And they all have a good chuckle over it. In "Die Hard 5" or whatever we're up to, Bruce Willis and his estranged son fly to Moscow and do to the Russians what Neeson does to the Turks and Albanians. I gather that in the forthcoming "Finding Nemo 2," Marlin and Dory's marriage is going through a rocky patch until Nemo is kidnapped by a Ukrainian sex cartel, and Marlin and Dory swim up the Dnieper River and gun down every pimp in Kiev.

Alas, outside Hollywood, foreigners are somewhat less pliable than the body count of Liam Neeson's and Bruce Willis' obliging extras would suggest. The funniest line in "Taken 2" was Neeson's advice to his daughter in an emergency: "Go to the U.S. Embassy. You'll be safe there." It opened a couple of weeks after Benghazi.

There are drones, of course, which offer the consolations of technological bad-assery, as if Liam Neeson could take out all the Albanians from the X-Box in his basement. But don't worry. According to Politico, at a recent meeting with Senate Democrats, President Obama assured them that they had no need to worry about his awesome power to rain down death from the skies because, as he put it, he's not Dick Cheney.

Meanwhile, back at the GOP, Sen. Rand Paul is no Dick Cheney, either: At CPAC this week, the narrow bounds of his smash-hit filibuster – questioning drone assassinations of Americans in America – broadened somewhat, not just to questioning drone assassinations of Americans anywhere, nor to questioning drone assassinations of anyone, nor even to questioning the "war on terror" or war in general, but to questioning the very assumptions of American global order, starting with our bankrolling of Mohamed Morsi in Cairo. The Egyptians send mobs to torch the U.S. embassy, the Saudis wage ideological warfare against Western civilization, the Turks call Israel a "crime against humanity" and threaten a cultural and demographic takeover of Europe, the Pakistanis are ramping up nuke production to sell to any loon in town – and those are just our "allies." With friends like these, who needs foreign policy? There are fewer and fewer takers for the burdens of global superpower, and whoever wins the nomination in 2016 will be considerably less Cheney and more Randy.

Iraq war 10 years on

At least 116,000 civilians killed

The war in Iraq claimed more than 116,000 civilian lives in the space of eight years and cost the US about £530 billion, according to new research.

By David Blair

A study in “The Lancet”, a specialist medical journal, lays bare the price of the Anglo-American invasion that began 10 years ago.

From the moment that the first air strikes took place on March 19 2003, Iraqi civilians began to die.

By the time the last US soldiers left in December 2011, “at least 116,903 Iraqi non-combatants” had been killed, according to Barry Levy and Victor Sidel, two American professors of public health from Tufts University and the Albert Einstein College of Medicine respectively.

^{Many Iraqi civilians were injured or became ill because of damage to the health-supporting infrastructure of the country}

In addition, 4,487 American and 179 British troops were also killed.

This calculation of civilian fatalities is significantly lower than other estimates. In 2006, “The Lancet” published a study comparing Iraq’s population growth rates before and after the invasion. This concluded that 655,000 “excess deaths” had taken place since the war began in 2003. However, the methodology of that survey was widely criticised.

Iraq Body Count, a website that totals the reported number of dead in each incident, has reached a similar conclusion to the latest study. It currently places the number of civilian deaths at between 111,687 and 122,108.

As for the financial cost, the new study makes conservative assumptions, omitting the interest payments on the higher US national debt caused by the Iraq war.

If those are included, the bill could eventually reach £2 trillion.

It’s the antibiotics apocalypse! Again…

Ignore the Chief Medical Officer’s fearmongering: antibiotic resistance can be tackled with new antibiotics.

by Robin Walsh 

The UK’s chief medical officer (CMO), Professor Dame Sally Davies, made a splash in the media this week with her warning that antibiotic resistance is the new climate change. There is a ‘catastrophic threat’ of ‘untreatable’ diseases, she said, which promise to return us to a ‘nineteenth century’ state of affairs. The CMO has form: she warned the House of Commons health select committee about the same problem in similarly stringent terms back in January – a case not so much of apocalypse now, as apocalypse again.

As with all such stories, reading the actual CMO’s report leavens some of the hysterical excesses of the press, which were stoked up by the CMO’s excitable media appearances. Setting out the epidemiology of infectious diseases in the UK, the report highlights that while some drug-resistant infections, such as the well-known Clostridium difficile (C diff) and MRSA, are becoming less widespread, there is an increasing occurence of harder to treat multi-drug resistant bacterial infections, which, although still only in the hundreds of cases per year, are on the rise. The report states that only five antibiotics to fight such infections are currently in phase II or III trials, so the cupboard seems worryingly bare of new, necessary drugs.

So if we’re running short on drugs, how can we make more? A sensible article in the British Medical Journal from 2010 clearly set out the challenges facing the development of new antibiotics. Firstly, there are many regulatory hurdles that make running clinical trials in this area difficult. More importantly, there is a major financial disincentive for drug companies to develop antibiotics. Currently, drugs which are profitable are those for chronic conditions that are prescribed lifelong: painkillers for arthritis, diabetes drugs, and the like. A drug that you take once to cure you is unprofitable; doubly so if it is likely to be husbanded to prevent resistance developing until the patent runs out. A change in government payments to incentivise new antibiotics, like that which already applies to so-called ‘orphan’ drugs for rare diseases, would be an easy and rational step towards producing more drugs that meet our needs.

While there is some discussion as to whether the low-hanging fruit of easily produced effective drugs have already been picked, if you’re not even trying to harvest from the tree, you’re not going to find any fruit. As the BMJ article states, only 1.6 per cent of all drugs in development by big pharmaceutical companies are antibiotics.

The Show Trial of Sergei Magnitsky

Russia puts a dead man in the dock

A tombstone on the grave of lawyer Sergei Magnitsky

It sounds like something out of a Nikolai Gogol story, but it's true: Sergei Magnitsky, killed by abuse and neglect in a Russian prison at the age of 37, is now on trial more than three years after his death.

On Tuesday a Russian court held the second hearing of a sham trial to convict him posthumously of tax evasion. That hearing was postponed at the request of Magnitsky's state-appointed defense attorney, who pleaded for more time to prepare a defense.

Assuming this gesture was not part of the charade, he needn't have bothered. As in the show trials of the 1930s, the outcome is assured. The whole point of putting this dead man on trial is to secure a conviction and rob the victim of his status as an international martyr. Last year the U.S. passed the Magnitsky Act, which sanctions and bans from travel to the U.S. Russians implicated in his murder. Some countries in Europe may do the same.

The Putin government has no interest in seeing Magnitsky's name cleared. Yet it is revealing that Moscow feels bound to produce a verdict. Even Vladimir Putin's Russia seeks to adopt the trappings if not the substance of criminal justice.

Magnitsky's real "crime," the one for which he was killed, was to expose official corruption and the theft of state assets after his client, investor Bill Browder of Hermitage Capital, was expelled from Russia in 2005 and forced to liquidate his holdings there. Perhaps conscious of the absurdity of trying a corpse, prosecutors last week added Mr. Browder to the dock in absentia. So the world will be treated to the spectacle of a trial of a dead man and a foreigner living in Britain—all to improve the image of Putin's regime.

The Russian state, in its benevolence, granted the defense attorney the time he requested this week. But there can be no stay of execution for Sergei Magnitsky, and his trial deserves the full measure of the world's contempt.

The Dogma of Multiculturalism

Multiculturalism, like the caste system, paints people into the corner where they happened to have been born

By Thomas Sowell

Among the many irrational ideas about racial and ethnic groups that have polarized societies over the centuries and around the world, few have been more irrational and counterproductive than the current dogma of multiculturalism.

Intellectuals who imagine that they are helping racial or ethnic groups that lag behind by redefining their lags out of existence with multicultural rhetoric are in fact leading them into a blind alley.

Multiculturalism is a tempting quick fix for groups that lag; it simply pronounces their cultures to be equal with others, or “equally valid,” in some vague and lofty sense. Cultural features are just different, not better or worse, according to this dogma.

Yet the borrowing of particular features from other cultures — such as replacing Roman numerals with Arabic numerals, even in Western cultures that derived from Rome — implies that some features are not simply different but better. Some of the most advanced cultures in history have borrowed from other cultures, because no given collection of human beings has created the best answers to all the questions of life.

Nevertheless, since multiculturalists see all cultures as equal or “equally valid,” they see no justification for schools to insist that black children learn standard English, for example. Instead, each group is encouraged to cling to its own culture and to take pride in its own past glories, real or imaginary.

In other words, members of minority groups that lag educationally, economically, or otherwise are to continue to behave in the future as they have in the past — and, if they do not get the same outcomes as others, it is society’s fault. That is the bottom-line message of multiculturalism.

George Orwell once said that some ideas are so foolish that only an intellectual could believe them. Multiculturalism is one of those ideas. The intelligentsia burst into indignation or outrage at “gaps” or “disparities” in educational, economic, or other outcomes — and denounce any cultural explanation of these group differences as “blaming the victim.”

There is no question that some races or whole nations have been victimized by others, any more than there is any question that cancers can cause death. But that is very different from saying that deaths can automatically be blamed on cancer. You might think that intellectuals could make that distinction. But many do not.

The Client State

Cutting Corporate Welfare Queens Off from the Dole Would be the Best Way to Cut the Debt

by George Washington

In previous installments, we’ve noted that we could more than offset the need for the “sequestration” budget cuts by doing any one or combination of the following:

• Ending massive subsidies to the giant banks

• Reducing fraud and waste

• Ending the failed drug war

• Ending subsidies to the nuclear industry

• Stopping the counter-productive quantitative easing by the Fed

Here’s another way to offset the need for budget cuts: cut off the welfare queens. (Jamie Dimon – shown above- and the other Wall Street queens are the largest recipients of welfare.)

Liberals and conservatives agree that we should stop subsidizing the fatcats. For example, the conservative Cato Institute points out that corporate welfare amounts to almost $100 billion per year. Cato notes:

Corporate welfare often subsidizes failing and mismanaged businesses and induces firms to spend more time on lobbying rather than on making better products. Instead of correcting market failures, federal subsidies misallocate resources and introduce government failures into the marketplace.

While corporate welfare may be popular with policymakers who want to aid home-state businesses, it undermines the broader economy and transfers wealth from average taxpaying households to favored firms.  Corporate welfare also creates strong ties between politicians and business leaders, and these ties are often the source of corruption scandals in Washington. Americans are sick and tired of “crony capitalism,” and the way to solve the problem is to eliminate business subsidy programs.

Cato also notes:

The federal government continues to subsidize some of the biggest companies in America. Boeing, Xerox, IBM, Motorola, Dow Chemical, General Electric, and others have received millions in taxpayer-funded benefits …. In addition, the federal crop subsidy programs continue to fund the wealthiest farmers.

A Community-Based Alternative To The Welfare State

Freedom of choice and competition are the only real alternative

It is important to discuss alternatives before the Status Quo devolves and collapses, so we have an intellectual framework to guide healthier, more sustainable alternatives once the current system implodes.

by Charles Hugh-Smith
Two of the key characteristics of an empire in terminal decline are complacency and intellectual sclerosis, what I have termed a failure of imagination. (The others are military over-reach, chronic deficits, a parasitic Elite that is immune to what's left of the rule of law, weak leadership, mass dependence on the Central State and excessive consumption.)

Michael Grant described these causes of decline in his excellent account The Fall of the Roman Empire:

There was no room at all, in these ways of thinking, for the novel, apocalyptic situation which had now arisen, a situation which needed solutions as radical as itself. (The Status Quo) attitude is a complacent acceptance of things as they are, without a single new idea.

This acceptance was accompanied by greatly excessive optimism about the present and future. Even when the end was only sixty years away, and the Empire was already crumbling fast, Rutilius continued to address the spirit of Rome with the same supreme assurance.

This blind adherence to the ideas of the past ranks high among the principal causes of the downfall of Rome. If you were sufficiently lulled by these traditional fictions, there was no call to take any practical first-aid measures at all.

In other words, if our idea of intellectual rigor and honesty is Paul Krugman dancing around the Neo-Keynesian Cargo Cult campfire waving dead chickens and mumbling the same old nonsensical chants about aggregate demand, we are well and truly doomed.

This same intellectual sclerosis and spiritual vacuum characterizes our acceptance of the current welfare state. That dependence on the State is destructive to the the well-being and productivity of the dependents and to the fiscal health of the State is self-evident. As management guru Peter Drucker observed in his 1993 book, Post-Capitalist Society:

Joseph Schumpeter warned in 1918 that the fiscal state would in the end undermine government's ability to govern. Fifteen years later, Keynes hailed the fiscal state as the great liberator; no longer limited by restraints on spending, government in the fiscal state could govern effectively, Keynes maintained. We now know Schumpeter was right.

Germany's Green Energy Disaster

A Cautionary Tale For World Leaders

By Howard Rich

There’s nothing wrong with expanding renewable energy sources. The more choices available in this (or any) marketplace the better consumers will be served – both from a price and a quality standpoint. However serious problems are caused when government starts using taxpayer resources to subsidize or incentivize these expansions. Things get even worse when centralized planners start manipulating market choices or trying to manage the marketplace itself by controlling the generation of power.

This is precisely what is happening in Germany – where command economists have failed spectacularly in their bid to force a national transition to renewable energy.

In 2000 Germany passed a major green initiative which forced providers to purchase renewable energy at exorbitant fixed prices and feed that power through their grids for a period of twenty years. Promulgated by a Socialist-Green coalition government – this initiative has since been embraced by Germany’s Conservative-Liberal majority, led by Chancellor Angela Merkel. In fact Merkel has doubled down on Germany’s renewable energy push in the wake of the 2011 Fukushima nuclear disaster in Japan – ramping up government’s plan to phase in renewables while taking the country’s nuclear power industry offline.

Merkel’s government shut down eight reactors in the immediate aftermath of the Fukushima disaster (which was caused by a tsunami – a threat Germany isn’t exposed to) and has vowed to shut down all remaining nuclear facilities by 2022. The problem? Despite heavy government subsidization, renewable energies simply aren’t filling the void.

“After deciding to exit nuclear energy, it seems as if Ms. Merkel’s coalition stopped its work,” a former German environmental minister told The New York Times last year. “There is great danger that this project will fail, with devastating economic and social consequences.”

A year later the project is failing – resulting in what one German industry expert termed a “chaotic standstill.”

Because It Worked So Well For Stalin...

Five-year plans in the Land of the Free? Apparently it’s not that far off from reality.

by Simon Black

Yesterday Senator Tom Harkin introduced S. 544, “a bill to require the President to develop a comprehensive national manufacturing strategy.”

In effect, Senator Harkin wants the President to centrally plan the economy. Never mind that the President has zero experience in business or manufacturing. But hey, this worked out so well for Stalinist Russia, it’s no wonder Mr. Harkin wants to copy that model.

Not to be outdone by Mr. Harkin’s long-sighted vision, President Obama is drawing up plans to turn over Americans’ financial data to the nation’s spy agencies. So now, on top of everyone else, law-abiding citizens in the Land of the Free can count on the CIA and NSA combing through their bank statements.

Of course, it’s all for your protection against men in caves who wish to do you harm.

This is the same reason they irradiate and/or sexually assault airline passengers. It’s why they have to be able to assassinate Americans on US soil by remote control plane. It’s why they’ve authorized military detention of US citizens. Etc.

When you step back and look at the big picture, it really makes one wonder – how big of a piano needs to be dropped on people’s heads before they notice what’s happening..?

I acknowledge that people have roots. I understand that folks can’t easily pick up and leave their jobs, friends, and family. I understand there’s a lot of inertia involved.

But if you see the writing on the wall, there’s so much you can do to protect yourself against this lunacy. Own precious metals, preferably stored overseas. Open a foreign bank account. Ship your retirement savings abroad. Travel a little bit. Know, in advance, where you would go if you finally hit your breaking point and needed to leave the country.

The trend is clear. Every single day the political elite gives us even more evidence that they’re working overtime to destroy the economy and what few remaining civil liberties still exist.

It’s a difficult truth to acknowledge given that most people have been brainwashed from a very early age in public schools to trust in their government. But placing any amount of confidence in this system utter folly. And dangerous.

There’s no need to panic; rather, it’s important to take measured, rational action. The above recommendations are not alarmist, they’re steps that make sense no matter what happens.

In almost any scenario, you won’t be worse off for having gold and silver stashed away overseas. You won’t be worse off for traveling abroad and finding a nice place you enjoy. You won’t be worse off for taking back control of your retirement savings.

Yet it the bottom falls out, you’ll be one of the few people left standing. Unless, of course, you’d rather wait for the next five-year plan to kick in.