marți, 8 octombrie 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

US Debt Already Exceeds Debt Limit by 48 Billion Minimum; Gold vs. Debt Ceiling

Posted: 08 Oct 2013 11:17 PM PDT

A few days ago, a reader sent me a chart of the price of gold vs. the national debt.

The chart was a bit out of date so I asked Nick at Sharelynx Gold (my favorite proprietor of historical and current gold charts) if he had a similar chart. He did. And here's the chart.

Debt and Debt Ceiling vs. Gold



click on chart for sharper image

Please note that the current debt limit is $16.699 trillion.

Debt to the Penny

Interestingly, the US Treasury website Debt to the Penny and Who Hold It shows the current public debt as 16,747,429,285,635.12 (the same as Nick shows in the above chart).



 Treasury Stops Updating National Debt

You do not have to be a math genius to figure out that "debt to the penny" already exceeds the debt limit.

I asked Nick about that and he replied ...
Since mid-May, "debt to the penny" hasn't been rising. When they postponed raising the debt limit they stopped showing any increase in the debt.

We're currently $48 billion over and have been there since May 21st or so.

I would like to know what the real figure now is but little chance of that until they raise the debt limit.

What's the "real" national debt? No one knows at the moment.

Cheers Nick
Gold Considerably Undervalued 

Given that over 4 months have passed since the Treasury stopped updating "debt to the penny",  the national debt is considerably more than $48 billion over the limit.

Finally, please take a good look at that from Sharelynx. Unless "it's different this time" gold is rather undervalued here.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Government Shutdown "Ironies of the Day": No Work, Free Vacations, No Shutdown Savings, Absurd Replies From Congress

Posted: 08 Oct 2013 08:26 PM PDT

Want to complain about the shutdown to your Senator? Make a suggestion? Tell him or her you approve of the shutdown?

Mish reader Keith did.
Here is the response Keith received:

From: senator@feinstein.senate.gov
Subject: Reply from Senator Dianne Feinstein

 As a result of the Government shutdown, my office is currently unable to respond to your email. I will respond to your concerns as soon as possible.

"Free" Taxpayer-Sponsored Vacations

Feel sorry for the displaced government workers temporarily out of a job? Don't be.

House votes to approve back pay for furloughed workers
As the fifth day of the federal government shutdown began, members of the House came together in a moment of rare bipartisanship to pass a bill, by a vote of 407 to 0, approving back pay for furloughed government workers.

President Obama has expressed his support for the measure.

Senate Majority Leader Harry M. Reid supports the measure, but said Saturday that if furloughed workers are guaranteed back pay, there's no reason to keep them out of work.

"It's really cruel to tell workers they'll receive back pay once the government opens and then refuse to open the government," Reid said on the Senate floor, suggesting that House Republicans have authorized a "paid vacation" for furloughed workers.
Furlough Pay Would Negate Shutdown Savings

The Boston Globe reports Furlough pay would negate shutdown savings
The conservatives who propelled the first federal shutdown in 17 years have argued they are fighting for smaller, less costly, less-intrusive government. But a vote over the weekend to grant back pay to furloughed federal workers would negate any savings from a government shutdown and is more likely to raise net costs to taxpayers, according to government and outside estimates.

The move highlights another peculiarity of shutting down the government: under Washington's political calculus, sending employees home for an indefinite period does not save money.

Instead, if the Senate agrees and President Obama signs the legislation as expected, it will mean hundreds of thousands of workers will get what amounts to extra paid holidays — which they didn't want — even as millions of Americans are unable to visit national monuments, process loans, or obtain other services.

But the act of shutting things down has resulted in a number of head-scratching scenarios, particularly in the nation's capital, which is heavily dependant on federal funds.

Law enforcement officials were guarding one entrance to the National Zoo last week, because employees were not supposed to be working there and visitors were not allowed inside. Yet just a few feet away, contractors were hard at work rebuilding a second entrance.

There was also a symbolic barricade placed in the middle of a major bicycle path that did nothing but force riders to weave momentarily before resuming their unauthorized rides. Such scenes were playing out across the country.
Want to Complain?

Care to issue a complaint about this blatant stupidity?

If so, Email Senator Dianne Feinstein

You may also wish to Email House Speaker John Boehner.

Contacting Boehner is more difficult because he makes you go through a form verifying your mailing address to make sure that you live in his district.

With a little playing around, I found a couple of zipcodes that work: Springfield Ohio 45502-1307 or Springfield Ohio 45502-1311.

In any case, don't expect an intelligent answer from Feinstein or Boehner (or from anyone else in Congress).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bitcoin, Encryption, Drug Use, and the FBI's Own Bitcoin Wallet; What's the War on Drugs "Really" About?

Posted: 08 Oct 2013 02:09 PM PDT

Last week, the FBI shut down the underground website known as "Silk Road" and confiscated the bitcoin wallet of Ross Ulbricht, the site operator, on drug charges.

The estimated value of Ulbricht's bitcoin wallet is $80 million, but the FBI has been unable to crack the encryption code. Escrow accounts were not as protected. The FBI also seized (stole if you prefer) various escrow accounts, moving the funds to its own bitcoin wallet.

Bitcoin Background

On the off chance you do not know what bitcoin is or how it works, Wikipedia offers a history and description of bitcoin that is rather fascinating.

Also consider Mish Interview With "Bitcoin Jesus"

FBI Unable to Crack Bitcoin Security

With that background, please consider the Extreme Tech report FBI unable to seize 600,000 Bitcoins from Silk Road operator
Closing down the Silk Road and arresting its alleged operator has left the FBI in uncharted territory. After shuttering the hidden site, law enforcement went to work confiscating the money and materials belonging to supposed drug kingpin Ross Ulbricht, but this usually routine procedure is proving especially troublesome in this case. The cache of more than 600,000 bitcoins in Ulbricht's personal fortune are still inaccessible to the FBI.

The only way to move Bitcoins out of a private wallet is to have the corresponding private key to authorize the transaction. The FBI has been unable to get through the encryption protecting Ulbricht's wallet, leaving all those Bitcoins — amounting to roughly $80 million at current rates — out of reach. Based on publicly available data, this is about 5% of all Bitcoins in existence right now.

Funds held by users of the site, however, were not so well-protected. Before completing transactions on the Silk Road, users would load Bitcoins into an escrow account on the site. The agreed upon coins would only be transferred to the seller's private wallet once the buyer had verified delivery of the goods. When the feds took over the Silk Road, there were over 26,000 Bitcoins in user accounts that were relatively easy to snatch up.

The FBI has transferred all 26,000-plus seized Bitcoins to its own personal wallet, but because Bitcoin transactions are tracked publicly, it didn't take the internet long to find the FBI's wallet address. Users have taken to transferring tiny fractions of a Bitcoin to the FBI with public comments attached decrying the war on drugs and the arrest of Ulbricht. Users have even helpfully tagged the wallet address as "Silkroad Seized Coins."

While authorities have control of Ulbricht's wallet, that's not the same as having the funds. It's akin to seizing a computer from a suspect with valuable data inside, but being unable to access it because strong encryption was used to prevent access. Ulbricht himself surely has the necessary information to unlock his wallet — otherwise there would be little use in accumulating $80 million worth of Bitcoins. It's possible prosecutors will use the leverage they have on him to work out a deal that includes turning over the encryption keys.
"Silkroad Seized Coins"

As Extreme Tech reports, bitcoin users located the FBI's wallet and tagged it with the address Silkroad Seized Coins.

People are transferring bitcoins to the FBI's wallet along with statements. Many of the transactions are for 0.00000001 BTC.

According to Bitcoin Calculator, 1 bitcoin is worth about $134 at current prices.

0.00000001 BTC is worth less than a thousandth of a penny (worthless).

What's the Seizure Really About?

Pater Tenebrarun on the Acting Man blog gets to the heart of the matter in Bitcoin and the Silk Road Bust.
By now it is well known that the proprietor of the 'Silk Road' internet marketplace for drugs and other illicit products has been busted by the FBI. Of course, the idea that the State should prohibit drug use by adults is highly questionable. If one studies the history of legislation in this regard, it soon becomes clear that while these prohibitions have been variously dressed up in Puritan morality or appeals to the need to preserve the 'Volksgesundheit' (the peoples' health), these laws really were largely protectionist measures.

For instance, it is no coincidence that marihuana use became illegal around the time chemical concerns such as Du Pont de Nemours introduced artificial fibers. Making the plant that produces marihuana illegal at the same time removed the biggest competition to artificial fibers – hemp.

Similarly, drug prohibition leaves the field of supplying the population with various uppers and downers in the hands of the pharmaceutical industry, which is producing dangerous psychoactive medication by the wagon loads these days. What the long term consequences of feeding the population with various benzodiazepines and other types of psychoactive drugs that influence the serotonin, norepinephrine or dopamine balance in the brain (such as the infamous and widely prescribed antidepressant Prozac) are is not really known, but we do know that a great many mass murderers that have gone 'postal' in modern times have been taking such psychotropic drugs. 

Today here is a vast variety of anti-depressants, stimulants, 'mood stabilizers', anxiolytics and anti-psychotic drugs on the market that produce billions in profits for the pharmaceutical industry. We would wager that if the prohibition of currently criminalized drugs (most of which are produced by nature) were rescinded, this business would suffer a steep decline.

The senseless 'war on drugs' has not achieved a single one of its purported objectives. Drug use has not decreased because of it. However, it has had a huge cost both in terms of money and lives. So why is it continuing in spite of the crushing weight of evidence proving that it does more harm than good? That's simple: if you want to know why, follow the money.

A huge amount of money is made because certain drugs are illegal. If prohibition were rescinded, a major source of revenue for criminal cartels would dry up, and a great many minions of the State would see their jobs becoming redundant. Moreover, a major source of their funding would disappear as well, which is currently available to them via 'civil forfeiture'. As we pointed out previously, this pays inter alia for the militarization of the police, which these days can deploy a great many lethal toys as a result of this source of income.

In Prohibition: Up in Smoke we argued that the changing social mood could actually lead to an end of prohibition in spite of all the vested interests arrayed in favor of maintaining it.

The 'Dread Pirate' apparently believed in non-coerced free markets, which he cited as a major reason to open his online drug bazaar. What is perhaps not widely known is that he was actually not busted because of any weaknesses in the TOR-based 'dark web'. He simply made a number of stupid mistakes that allowed the authorities to track him down by employing standard investigative procedures.

For readers interested in the technical aspects of the bust, this article at 'The Verge' has more detail on the topic. As the Verge maintains, the 'Dread Pirate' may have been busted, but the 'Dark Web' lives on. Note here that the TOR network is not merely something that is exclusively used by criminals. For many a regime critic and political dissident living in an authoritarian regime the anonymity of the 'Dark Web' is a literally a life saver. Naturally, governments everywhere dislike it, regardless of whether they are democratic or authoritarian: they dislike it simply because it is not under their control. However, there seems nothing they can do about it short of shutting down the internet altogether.
War on Drugs, a Failure

As Tenebrarum points out, there is no reason at all to stop consenting adults from taking whatever drugs they want. Ironically, many prescribed drugs are far worse.

The background on Hemp is rather interesting. I wrote about hemp in regards to biofuels way back in 2006 in The Politics of Ethanol. Here is the pertinent information, copied from my 2006 article, from a MIT.EDU report on "Hemp and the Environment" (the MIT link no longer works).

Hemp and the Environment
An acre of hemp produces four times as much paper as an acre of trees. Every pot-smoking hippy in the country knows that. The problem is, why doesn't anyone else? In this short article, I will attempt to educate you, the reader, of the many ways in which hemp can Save The Planet. No kidding.

Herbicides are also virtually unnecessary as the plants grow 6 to 16 feet tall in only 110 days. The complex root structure prevents erosion and decays quickly after harvest.

That's all well and good, but what do you do with the hemp? Well, as I mentioned above, its great for making paper. That's most of the reason that industrial hemp is illegal in the U.S. See, in the mid-1930's, there were two industries that had just made breakthrough machines that would make paper productions much more cost-effective. One was the hemp industry, the other was DuPont. Coincidentally, the 1937 Marijuana Tax Act was passed, effectively making hemp illegal by charging transfers $1/ounce or, for unregistered dealers, $100/ounce, even for industrial grade hemp.

So, with hemp out of the way, DuPont was free to become the giant corporation that it is today, and to produce the great majority of the toxic sludge that contaminates our Northwestern and Southeastern rivers. Had hemp become our primary paper source, this pollution would have been vastly reduced, and here is why: Hemp means no deforestation, which results in less topsoil erosion, more oxygen, less carbon dioxide, less destruction of natural habitats, etc. Hemp paper is much easier to bleach, and does not require chlorine, which means no more thousands of tons of toxic sludge pouring into the water. Scientists in Sweden have developed a hemp-bleaching process that uses only natural enzymes and some pounding of the pulp.

Cotton, the other big evil, is grown on 3% of the world's arable land and uses 26% (wow!) of the world's pesticides and 7% of the world's fertilizer annually. It requires heavy irrigation, depleting the water supply even as it poisons it. Many developing countries grow cotton as a cash crop, trying desperately to pay off foreign debt. While the country's land and water is being destroyed, food crops are neglected, so the people go hungry.

Hemp can be used to make clothing that is, if treated properly, soft like cotton and far more durable, thus rendering cotton unnecessary. Adidas and Ralph Lauren already have hemp products, and Calvin Klein insists that hemp will hit the fashion industry full-force in the years to come.

While an acre of trees is about 60% cellulose, an acre of hemp is nearly 75%. How much hemp is necessary to meet current US energy needs? Somewhere between 10 million and 90 million acres, depending on how efficient the production is. Every year, the US government pays farmers (in cash or "kind") to *not* farm what they call the "soil bank", which happens to be about 90 million acres of farmland. The math is pretty simple.

Hemp seed oil is very similar to petroleum diesel fuel, and produces full engine power with reduced carbon monoxide and 75% less soot and particulates. Hemp stalk (different than the part that can make paper and textiles) can be converted into 500 gallons of methanol/acre.

It seems so simple, you must be saying. If this is true, why are we still using petroleum and paper and cotton? Well, there are corporations who sponsor politicians that have a reason to keep hemp down, like, the oil industry, etc.
So here we are. Hemp is still illegal, but numerous psychic drugs promoted by the health-care industry are readily available (at an insane price of course).

And some states like California have a three-strikes policy of prison for life, promoted by the unions who make inordinate sums of money as prison guards. 

US Incarceration

Wikipedia discloses the sorry story of US Incarceration.
The United States has the highest documented incarceration rate in the world. At year-end 2009, it was 743 adults incarcerated per 100,000 population.

According to the U.S. Bureau of Justice Statistics (BJS), 2,266,800 adults were incarcerated in U.S. federal and state prisons, and county jails at year-end 2011 – about 0.7% of adults in the U.S. resident population. Additionally, 4,814,200 adults at year-end 2011 were on probation or on parole.[11] In total, 6,977,700 adults were under correctional supervision (probation, parole, jail, or prison) in 2011 – about 2.9% of adults in the U.S. resident population.

In addition, there were 70,792 juveniles in juvenile detention in 2010.

Although debtor's prisons no longer exist in the United States, residents of some U.S. states can still be incarcerated for debt as of 2011.


 What's the War on Drugs "Really" About?

One of the alleged reasons for the war on drugs is to prevent money from getting into the hands of terrorists. But if drugs were legal, prices would crash,  theft would plunge (drugs are expensive and addicts don't have the money),  and terrorists would not make anything off drugs. Millions in prisons would not be there, and the pension problem of states would be far less.

Clothes would be made out of hemp, which has fiber softer than cotton. Hemp plants and seeds can be converted into biofuel far better than corn (which requires high quantities of fertilizer and water, and needs to be replanted every year).

Yet the extremely costly war and economically asinine war on drugs continues. Why?

The unions, the religious-wrong, the plastic manufacturers like Du Pont, the fertilizer companies, and the economic fools all want it that way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Calendar is Running, But Time Won't Expire; Split Screen Sniping; New Senate-Proposed Option

Posted: 08 Oct 2013 11:11 AM PDT

President Obama has called for a news conference at 2:00 PM but what can he say that he already hasn't said.

1. A default would be catastrophic
2. He will not negotiate the budget until a "clean" debt ceiling bill is passed
3. Boehner should put a "clean" bill up for vote in the House

Split Screen Sniping

Bloomberg reports
The White House, in a statement, urged Boehner to allow a vote on raising the debt limit and repeated that only Congress can authorize more borrowing. Obama, who will make a statement and take questions in the White House briefing room, is willing to negotiate after Republicans end the shutdown and remove the risk of default, the statement said.

The split-screen sniping -- with Boehner speaking to reporters and Reid speaking on the Senate floor -- came as lawmakers are taking the first tentative steps toward resolving the standoff.

Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama authority to raise the $16.7 trillion debt ceiling, probably for a year unless two-thirds of both chambers of Congress disapprove.

"The American people are watching an unwillingness by one side to negotiate and compromise," Representative Tom McClintock, a California Republican, told reporters in Washington today. "They are watching utterly vindictive actions by the administration to intensify the pain of the shutdown and I think they watching the collapse of the admininstration's signature program, Obamacare."

House Democrats rejected the idea, saying it would recreate the 2011 bipartisan supercommittee that deadlocked.

"We don't need a supercommittee," said Representative Xavier Becerra, a California Democrat. "The votes exist right now" to reopen the government.  

If all Senate Democrats along with six Republicans vote for giving Obama authority, they could send a debt-limit increase without policy conditions to the Republican-controlled House early next week. That would put pressure on Boehner, who opposes a clean debt-limit bill.

A spokesman for Mark Kirk, an Illinois Republican, said in an e-mail that Kirk would vote for raising the debt ceiling without conditions.

At least four Senate Republicans -- Murkowski, John McCain of Arizona, Bob Corker of Tennessee and Susan Collins of Maine -- kept open the option of voting for a debt-limit increase without conditions or helping one pass.

Senate Six

For the Senate Democrats' plan to work, at least some Republicans would have to allow it to happen. Giving Obama the authority would require the support of at least six Republicans on procedural votes.

In the House, Boehner would have to allow a vote on the plan and at least 16 Republicans would have to support it for it to succeed. He has said the House won't pass a clean debt-limit bill.
Calendar is Running

The calendar is running but time will not expire.

If six Republican senators sign on to the concept (as I expect), Boehnner will be under extreme pressure to put the proposal up for a vote.

 Boehner's Lie

Boehner claims he does not have the votes to pass a clean bill, but that's a lie. The Huffington Post tallies 27 Republicans who would sign a clean bill.

If Boehner actually wanted to pass that bill he could easily muster 40 Republican votes.

How Many Votes Needed?

Here's the Makeup of the House:

  • 435 Members
  • 232 Republicans
  • 200 Democrats
  • 003 Vacancies

218 votes constitutes a majority. All Democrats would sign a clean bill, so the House would only need to pickup 18 out of 232 Republicans. That total is in the bag.

Supporters of a clean bill have enough votes now to force an up-or-down vote, but many Republicans do not want to overrule Boehner.

Currently, the Hill reports GOP centrists won't force 'clean' CR vote. However it could come down to that, so Boehner needs to be very careful here.

Hardball

The face-saving mechanism for Boehner is if the Senate passes a clean measure, with at least six Republicans, that Boehner will put to the floor of the House for vote. Otherwise Boehner runs the risk that 218 House members will force a vote.

In the end, something will give. Boehner will agree to put a clean bill to vote, or it will be crammed down his throat by moderate Republicans who will not want to take the blame for a default. It will be the end of Boehner as House Speaker if he is forced into a vote.

The calendar is running, but time won't expire. There will be no default, one way or another.

Addendum:

The required number of votes is 217, because of three vacancies. I got this information from Christopher Caron, Government Affairs Advisor at Steptoe & Johnson, who specializes in the House.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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