Quote of the Day: Government Price Fixing of Markets

The government makes prices by buying certain assets but also by compelling you to buy them too. The whole point of QE is to make debt less valuable and to force you into equities. The point of asset purchases is to compel you to buy bonds even though you know it's not smart.

The strategy goes far beyond the equity and bond markets. More and more governments are also forcing businesses to spend money on things that serve the public interest.

Health care is one such issue. In the US now, 'Obamacare' is becoming so expensive to employers that they are starting to encourage workers to hold two part-time jobs in different firms so that neither employer is obliged to pay the full health care cost of a full-time employee.

This has the added advantage of keeping unemployment higher for longer, thus permitting governments to continuously justify their ever increasing role in setting market prices.

In the UK, pension funds are told by the regulators that they should put more capital into investments that are associated with public goals such as social housing and the building of schools or domestic infrastructure.

This is from Dr. Pippa Malmgren who is a  policy expert, (Wikipedia.org) former Special Assistant to the President of the United States for Economic Policy on the National Economic Council and former member of the U.S. President's Working Group on Financial Markets and serves as adviser to many firms, at her website.  A political insider talks about how 'gamed' or rigged the system is.

Was the 1996 Crash Trans World Airline Flight 800 been due to a wayward missile?

First the furor has been about the NSA spying exposé by whistleblower Edward Snowden, and now, another revelation on the alleged US government cover up on the 1996 crash of Trans World Airline Flight 800 

From the Daily Mail

A new documentary about the deadly Trans World Airline Flight 800 featuring interviews with former investigators claims that the official explanation given for the ill-fated flight is wrong.

The flight crashed off the coast of Long Island in 1996, killing all 230 people on board in what is the third-deadliest aviation accident in U.S. history.

The official explanation given by the National Transportation Safety Board was that the crash was caused by a gas tank explosion, but the documentary gives 'solid proof' there was an external detonation, its co-producer said.

Many eye-witnesses claimed they had seen a streak of fire heading towards the plane before it crashed. Theories have suggested it was a missile strike from a terrorist or U.S. Navy vessel, and that the incident was subject to a government cover-up.

But now the producers of TWA FLIGHT 800, which premieres on July 17, the anniversary of the crash, on cable network EPIX, said they have more than just eye-witness statements to call on.

'Of course, everyone knows about the eyewitness statements, but we also have corroborating information from the radar data, and the radar data shows a(n) asymmetric explosion coming out of that plane - something that didn't happen in the official theory,' Tom Stalcup told CNN's New Day.

Are crashing markets and increasing number of political exposes indicative of imploding governments?

War on Bitcoin: US Government Seizes Assets of Mt Gox

The US government has officially launched a campaign against bitcoin by seizing accounts tied to one of the largest bitcoin exchange.

From the Wall Street Journal:

WASHINGTON—U.S. officials dealt a blow to the fledgling digital currency called bitcoin, freezing an account that is tied to the largest bitcoin exchange just months after regulators warned that such entities should follow traditional rules on money laundering.

The authorities obtained a warrant Tuesday to seize an account of a subsidiary of Mt. Gox held at the online payments firm Dwolla, according to a copy of the warrant provided by the Department of Homeland Security on Wednesday. The department declined to comment further on the matter.

The scrutiny from law enforcement comes after the Treasury Department ruled in March that the same money-laundering rules that apply to traditional money-order providers, such as Western Union Co., WU +0.98% would also be applied to firms that issue or exchange online cash, including currencies not backed by a central bank.

Bitcoins are supposedly decentralized. So technically speaking the US government cannot directly strike at bitcoin without taking on the internet itself. Thus the US government’s campaign against bitcoin has been channeled through the financing facilities of the trading platforms and not bitcoin itself. 

But so far, other exchanges as US-based competitors Seattle-based CoinLab and San Francisco-based Coinbase or bitcoin exchanges registered with the Treasury Department has not been subjected to the same harassment. On the other hand, the Mt. Gox case should benefit them.

The US government wants bitcoin dealers to operate under their umbrella and has assailed or harassed those operating outside their ambit.

In short, the governments will work on controlling cryptocurrencies covering all variants; aside from Bitcoin: Litecoin, PPcoin, Freicoin, Solidcoin, BBQcoin, Fairbrix, Geistgeld among the many more.

Besides, it may come as a coincidence but the Mt. Gox crackdown comes in the light of the second wave of selling pressure on gold prices. Gold fell 2.34% last night to close below the psychological $1,400 threshold level.

Remember that the Wall Street initiated flash crash in gold came alongside the crash in bitcoin prices during mid April. (chart from stockcharts.com and bitcoincharts.com)

The current actions against Mt.Gox’s bitcoin platform has so far unaffected prices of bitcoins.

The crux is--bitcoins and gold appear to be simultaneously under political pressure as expressed through prices or through direct government intervention

Yet look at the irony with the following headline: US Stocks Rise on Stimulus bets as Manufacturing Falls.

This means more bad news is good news; which also implies that stocks have been totally dependent on steroids, thus the parallel universe: stagnant economies yet surging stocks on steroids.

This also impresses on the public that the connection between gold and government steroids have become detached. People are being made to believe that gold have lost its “inflation hedge” function. (Although in the real world this hasn’t been true: Just take a look at the seminal hyperinflation phase in Argentina where the average citizens flee to gold and bitcoins as refuge)

What else am I saying? Well, governments simply hates competition. So currency alternatives as gold and bitcoins are not just being manipulated, they are being attacked.

All financial markets are being manipulated, but at different degrees. Assets that benefits the political objectives of governments such as stocks, bonds and the property sector are being subsidized (directly and indirectly) whereas those opposed such as short sellers, commodities and bitcoins are being marginalized. 

But the real economy, which allegedly has been the target of all these assistance, has been ignoring them.  

And yet the real objective behind all these has been to save or preserve the cartel of the political institutions of the banking system-central bank-welfare/warfare state. Remember rising asset prices buoy the balance sheets of insolvent banks and governments, thereby the cumulative inflationist policies.

Thus the parallel universe or the huge detachment between the real economy and prices of financial assets.

All these are really signs of bubble blowing activities everywhere and of how terribly desperate governments have become. 

Yet all failed government actions would translate to deeper confiscations of people's savings by governments. Hence, governments are working around the clock to close all possible loopholes as seen by the attack on Mt. Gox or from the Indian government's ban on gold imports.

Peter Schiff on US GDP Accounting Hocus Focus

Slow economic growth? No problem. All what is needed is for the government to change the methodology of computation. 

Explains Peter Schiff  at the lewrockwell.com (bold mine) [italics-my comment]

In the simplest terms, GDP is calculated by combining a nation's private spending, government spending, and investments (while adding trade surplus or subtracting trade deficits). Business spending on R&D, a portion of which comes in the form of salaries, has traditionally been considered an expense that does not explicitly add to GDP. But now, the United States will lead the rest of the world in redefining GDP. Washington has now declared that the $400 billion spent annually by U.S. businesses on R&D will count towards GDP. This equates to about 2.7% of our nearly $16 Trillion GDP. The argument goes that, for example, the GDP generated by iPhones has far exceeded the cost spent by Apple to develop the product. Therefore, Apple's R&D is not an expense but an investment.

The BEA also argues that the cost of producing television shows, movies, and music should count as investments that add to GDP. Supporters of the change often hold up the blockbuster television comedy Seinfeld as an example. Given that the show's billions in earnings far exceeded its initial costs, they argue that the production expenses should be considered "investments" (like R&D) and be added into GDP.

Economists who have staked their reputations on the efficacy of Keynesian growth strategies have argued that such changes will more accurately reflect the realities of our 21st century information economy. But their analysis ignores the failures so often associated with R&D and artistic productions. For every breakthrough iPhone there are dozens of ill-conceived gizmos that never get off the drawing board. For every Seinfeld, there are countless failures and bombs that leave nothing but losses. (Such is called survivorship bias-Benson)

In essence, the new methodology is an exercise in double accounting. For instance, suppose a company employs an accountant who works in the sales department, who is then transferred to the R&D department at the same salary. He still counts beans but now his salary will be billed to the R&D budget rather than sales. In the old methodology, the accountant's impact on GDP would come only from the personal consumption that his salary allows. Going forward, he will add to GDP in two ways: from his personal consumption and his salary's addition to his company's R&D budget. The same formula would apply to a trucker who switches from a freight company to a movie production company (for the same salary). If he moves refrigerators, he only adds to GDP through his personal spending, but if he hauls movie lights, his contribution to GDP is doubled. It makes no difference if the movie bombs.

These double shots are different from traditional investments, which inject savings (or idle cash) back into the marketplace. Until money from personal or corporate savings is invested, it is not adding to GDP. (This is why statistical GDP is an unreliable gauge for real growth-Benson)

Another change that will artificially boost GDP concerns how government salaries will be counted. Unlike most private sector compensation, wages, salaries, and pension contributions paid to government workers are added directly to GDP. This distinction makes sense and eliminates potentially double accounting. Profits generated by private companies add to GDP when they are ultimately spent or invested by the company. Wages reduce profits, and therefore reduce GDP. But that reduction is cancelled out by the consumption of the employee receiving the wages. Governments do not generate profits, so salaries are the only way that public spending adds back to GDP.

The new system magnifies the GDP impact of government pensions, which are a principal component of public sector compensation. Going forward, the pensions will be calculated not from actual contributions, but from what governments have promised. Under the old system, if a state had a $10,000 pension obligation but only contributed $1,000, only the $1,000 would be added to GDP. Under the new system the entire $10,000 would be counted. So now governments can magically grow the economy simply by making promises they can't keep.

The bottom line is that now certain private sector salaries (in R&D and entertainment) will be counted twice and public pension contributions will be counted even if they aren't made. The economy will not actually be any larger or grow any faster, but the statistics will claim otherwise. With the stroke of a pen, our debt to GDP ratio will come down. Will this soothe the fears of our creditors? Will critics of big government take comfort that spending as a share of GDP may be lower? My guess is that the government is confident that its trick will work, and that distracting attention with a statistical illusion is the sole motivation for the change.

Pls read more of the accounting chicanery here.

So by changing the accounting method, the US government hopes that the risks will be simply wished away from her profligate spending ways which also justifies more of the same. 

Yet another proof that governments have been engaged in wholesale manipulation markets directly and indirectly.

Rep. Alan Grayson: "Has the Federal Reserve Ever Tried to Manipulate the Stock Market?"

Rep Grayson questions Federal Reserve Council Scott Alvarez on possible attempts by the FED to directly or indirectly (via prime brokers) manipulate the stock market (Hat Tip: Zero Hedge)