MacMillan has made available to us an excerpt of Pat Buchanan's Suicide of a Superpower audiobook. The atmosphere in this recording is, as you may expect, dark, grim, apocalyptic—one cannot help but imagine how this will sound on the other side of the catastrophe, once what we know today and once knew is gone, and this audio, surviving perhaps in fragments, found in some archeological site, petrified but somehow partially recovered and translated, provides the titans of the next manvantara with a glimpse of what it must have been like for people in the vanished American civilisation to live in the final slope of the Kali-Yuga.

You can hear the clip here.

Something strange is happening at the Fed; just look at this chart. 

The last time the Fed went nuts with monetary expansion, it did it in the wake of the Lehman collapse, on behalf, and likely at the behest, of the failing financial sector. The mood at the time was, "Consequences be damned, we've got to save Wall Street!"  No doubt, many truly believed that their world was ending.  

Now, however, the Fed has been pumping like mad for three months, even though, by all indicators, the media and financial industry seems to believe that all is hunky-dory. 

Graham Summers (via Zero Hedge):

This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it’s a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out.

You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn't go nuts pumping money until the stuff REALLY hit the fan.

You'll also note that there's only one other time when the monetary base went absolutely vertical: TODAY.

Indeed, the Fed has pumped nearly $500 billion into the system since the start of 2011. Don't even try to tell me  this is QE 2. If it was then the monetary base should have spiked in late 2010, NOT in 2011.

No, this is the Fed FREAKING OUT about the financial system again. And it's a freak out on par with 2008.

Part of me wants to feel sorry for this man, who seems to be descending into dementia. I become less sympathetic when I remind myself just how close he came to becoming president and how he still seeks to influence directly Washington's foreign policy.  

John McCain: Putin and Hu Should Watch Out

By Lucy Madison

CBS News

February 13, 2011

(CBS)  Arizona Sen. John McCain predicted on Sunday that the recent governmental overthrow in Egypt would likely spur similar movements throughout the world, and warned foreign leaders in countries like China and Russia that they might be "a little less secure" of their power in light of recent events.

"I don't think this is confined to the Middle East, just as we believe that human rights are universal," said McCain, in an interview with CBS' "Face the Nation."

"These winds of change that are blowing, I think I would be a little less cocky in the Kremlin with my KGB cronies today if I were [Russian Prime Minister] Vladimir Putin," he warned. "I would be a little less secure in the seaside resort that [Chinese] President Hu and a few men who govern and decide the fate of 1.3 billion people."

McCain, the ranking member of the Senate Armed Services Committee, said he could not yet determine the extent to which Egypt's revolution would impact the rest of the Middle East, but expressed concerns about how similar events might play out in surrounding countries.

"The Egyptian people are educated, they're sophisticated. They are not a country, in all due respect, one like Yemen where there are stark contradictions [existing] within that country," McCain said.

He also said he worried that, in countries like Iran and Syria, protests would be met with harsh governmental responses.

"The Syrians obviously and the Iranians will be much more harsh if demonstrations take place in their country," he said. "And the message to the Iranians is, let your people have peaceful demonstrations and let's have democracy in Iran, Syria and other countries, which are [not only] not our friends but are in many ways our enemies."

The Arizona Republican called the Egyptian revolution a "repudiation of al Qaeda," and praised the peaceful nature of the protests demanding Egyptian President Hosni Mubarak's ouster.

"The Egyptians helped us in the fight against al Qaeda," he said. "This revolution is a direct repudiation of al Qaeda, who believe that the only way you bring about change is through violence."

He added that while Eypt was "incredibly important in the Israeli-Palestinian peace process," Israel might have "reason for concern" as a result of Mubarak's loss of power in Egypt.

"Whatever government is going to come into power is not going to have a close relationship that they [had] with Mubarak - let's just make that assumption," he said. "Then the question is, what will be the nature of that relationship, and will there be places like Gaza that are flash points anyway that will cause the likelihood or possibility of conflict?"

Regardless, McCain said he thought the spread of anti-governmental demonstrations - even in traditional allies like Egypt - would ultimately benefit the United States.

"This is spreading and it's great news," he said. "It is fraught with uncertainty. But some of these things were bound to happen, number one. Number two is, it's good for everything we believe in. We've got to believe in the long run that countries that have free and open societies are going to be natural allies of ours over time." 

What's most ironic is that when the neocons & co. wax rapturously about the latest "democracy" wave that will soon threaten their autocratic enemies, they seem oblivious to the reality that the United States, too, is in serious danger of facing a mass protest from its underclass. If the welfare checks bounce, or the currency hyperinflates, and hundreds of thousands of welfare-dependent, undocumented, and otherwise down-and-out Blacks and Latinos march on public facilities demanding "democracy" and "regime change," would the senile senator from Arizona do anything but call for the national guard to open fire?    

Graham Summers on Ben Bernanke:

Bernanke is printing money and funneling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.

According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Five banks account for 95% of this. Can you guess which five?

Looks a lot like a list of the banks that Ben Bernanke has focused on bailing out/ backstopping/ funneling cash since the Financial Crisis began doesn’t it? When you consider the insane level of risk exposure here, you can see why the TRILLIONS he’s funneled into these institutions has failed to bring them even to pre-Lehman bankruptcy levels.

Ben Bernanke is a stooge and a fraud, but he is at least partially honest in his explanations of why he wants to keep printing money. The reason is to try to keep interest rates low. Granted he’s failing miserably at this, but at least he understands the goal.

Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn’t mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks’ balance sheets is related to interest rates.

Yes, $188 TRILLION. That’s thirteen times the US’s entire GDP and nearly four times WORLD GDP.

Now, of course, not ALL of this money is “at risk,” since the same derivatives can be traded/ spread out dozens of ways by different banks as a means of dispersing risk.

However, given the amount of money at stake, if even 4% of this money is “at risk” and 10% of that 4% goes wrong, you’ve wiped out ALL of the equity at the top five banks.

Put another way, Bank of America, JP Morgan, Goldman, and Citibank would CEASE to exist.

As many are aware, I’ve successfully predicted five of the last zero total breakdowns of the system. With that record in mind, here are some prognostications for 2011.

By This Time Next Year…

Israel will have bombed someone – An Israeli-led bombing of Iran’s nuclear facilities has seemed imminent since “Mission Accomplished” was declared in Iraq in 2003. Unable to convince Obama to lend it unconditional support, and unwilling to wait for a Christian-Zionist to take the Whitehouse in 2013, Israel will attack alone, like a thief in the night.

The Euro will be down; the dollar, up; the Dow Jones and housing, way down; gold, steady or up – It’s hard to look at the United States’ account deficits, and its unfathomable—certainly unpayable—liabilities and not conclude that the dollar will soon become Zimbabwe-ized. And this is inevitable. But it won’t happen in 2011.

The reality is that the world economy has been operating on a dollar-based currency system since 1944 (with semi-gold convertibility until 1971 and fiat “credibility” thereafter.) At some point, the center (i.e. the dollar) will not hold, but until that spectacular day, I expect the valence currencies surrounding the greenback to crack up first.

So, here’s my prediction: along with a loss of faith in the Euro, by next autumn, it will be clear that “QE” has utterly failed; housing will get closer to a full retracement of the gains of the past decade, and the 2008 lows in the Dow and S&P will be broken through. Everyone will be convinced of “deflation” and falling prices.

It will be the ultimate set-up for hyperinflation.

A major vestige of the Buckley-ite movement will have fallen by the wayside—If American “conservatism” is a movement at all, then it exists on the streets with the Tea Party and online with the various group blogs that have cropped up spontaneously since the Tea Party’s rise in 2009. The neoconservatives, on the other hand, are tacking leftward and increasingly viewing the Tea Partiers, and the Religious Right, as idiots who’ve lost their usefulness.

The tweed-clad redoubts of “respectability” that were established by Buckley and his allies over the past 60 years—ISI, National Review, The New Criterion etc.—are caught in the middle and have increasingly lost their purposes. Places like NR are well funded, but many of the others aren’t. One of them will fall apart before the year’s out.

The mainstream Right will be increasingly polarized between Red State nutjobs and urban neocons. Only a Middle East war could bring them back together again.

Sarah Palin will have won the Iowa Straw Poll and will hold a commanding lead in the 2012 Iowa Caucuses—I’m not really going out on a limb here. Does anyone out there think she’s not running?

A major party or politician in Germany will actively pursue the revival of the Deutschmark—The various sovereign debt crises may lead to the breakup of the EU, but not because Greece, or any of marginal Euro countries will splinter off. As long as Brussels dispenses bailouts, the “PIIGs” have every incentive to stay in the Euro zone—to draw closer to Brussels even. If the EU is to break up, it will be because one of the big countries that pays the bills decides it has had enough.

For the past 60 years, competitors have been able to restrict German independence through vague evocations of Hitler. With the Euro disintegrating, the idea of reviving older, harder currencies will be thrust into the mainstream.

All the best in 2011!

Forget the federal government's 14 trillion in debt--and some 100 trillion in unfunded liabilities--the first shoe to drop might very well be the debt markets of the state and local governments, which lack recourse to a printing press. 

From The Economic Collapse blog,

Once upon a time, municipal bonds (used to fund such things as roads, sewer systems and government buildings) were viewed as incredibly safe investments.  They were considered to have virtually no risk.  But now all of that has changed.  Many analysts are now openly speaking of the possibility of a municipal bond market crash in 2011.  The truth is that dozens upon dozens of city and county governments are teetering on the brink of bankruptcy.  Even the debt of some of our biggest state governments, such as Illinois and California, is essentially considered to be "junk" at this point.  There are literally hundreds of governmental financial implosions happening in slow motion from coast to coast, and up to this point not a lot of people in the mainstream media have been talking about it.  [...]

Unlike the federal government, state and local governments cannot just ask the Federal Reserve to print up endless amounts of cash.  If state and local governments want to spend more than they bring in, they must borrow it from investors.

If the municipal bond market crashes, and investors around the world are no longer willing to hand over gigantic sacks of cash to state and local governments in the United States, then the game is over.  Either state and local governments will have to raise taxes or they will have to start spending within their means.

Most Americans have no idea what this would mean.  For decade after decade, state and local governments throughout the nation have been living way, way, way above their means.  If the debt cycle gets cut off, it is going to mean that many local communities around the nation will start degenerating into rotting hellholes nearly overnight.

We are already seeing this happen in places such as Detroit, Michigan and Camden, New Jersey but if the municipal bond market totally collapses we are quickly going to have dozens of Detroits and Camdens from coast to coast.

Let's take a closer look at some of the state and local governments that are in some of the biggest trouble....

California

California is facing a 19 billion dollar budget deficit next year, and incoming governor Jerry Brown is scrambling to find billions more to cut from the California state budget.  At this point, investors are becoming increasingly wary about loaning any more money to the state.  The following quote from Brown about the desperate condition of California state finances is not going to do much to inspire confidence in California's financial situation around the globe....

"We've been living in fantasy land. It is much worse than I thought. I'm shocked."

Unfortunately, the economic situation in California continues to degenerate.  For example, 24.3 percent of the residents of El Centro, California are now unemployed.  In fact, the number of people unemployed in the state of California is approximately equivalent to the populations of Nevada, New Hampshire and Vermont combined.

The housing market in the state is also a major drag on the economy there. For instance, the average home in Merced, California has declined in value by 63 percent over the past four years.

The state of California is swamped with so much debt that there literally appears to be no way out.

Arizona

The state government of Arizona is so incredibly starved for cash that it actually sold off the state capitol building, the state supreme court building and the legislative chambers.  Now they are leasing those buildings back from the investors that they sold them to.

Arizona also recently announced that it has decided to stop paying for many types of organ transplants for people enrolled in its Medicaid program.

Illinois

Illinois is widely regarded to be in the worst financial condition of all the U.S. states.  At this point, Illinois has approximately $5 billion in outstanding bills that have not been paid.

According to 60 Minutes,  the state of Illinois is six months behind on bill payments.  60 Minutes correspondent Steve Croft asked Illinois state Comptroller Dan Hynes how many people and organizations are waiting to be paid by the state, and this is how Hynes responded....

"It's fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state."

The University of Illinois alone is owed 400 million dollars.  There are approximately two thousand not-for-profit organizations that are collectively owed a billion dollars by the Illinois state government.

New Jersey

The New Jersey state budget has been slashed by 26 percent, a billion dollars have been cut from education and thousands of teachers have been laid off.

But even with all of those cuts, New Jersey is still facing a $10 billion budget deficit next year, and the state has $46 billion in unfunded pension liabilities and $65 billion in unfunded health care liabilities that it is somehow going to have to address in the future.

Detroit

Detroit Mayor Dave Bing has come up with a new way to save money.  He wants to cut 20 percent of Detroit off from essential social services such as road repairs, police patrols, functioning street lights and garbage collection.

Miami

One Miami commissioner declared earlier this year that bankruptcy may be the city's only financial hope.

Philadelphia, Baltimore and Sacramento

Major cities such as Philadelphia, Baltimore and Sacramento have instituted "rolling brownouts" in which various city fire stations are shut down on a rotating basis.

Camden

The second most dangerous city in the United States - Camden, New Jersey - is about to lay off about half its police in a desperate attempt to save money.

Oakland

Oakland, California Police Chief Anthony Batts has announced that due to severe budget cuts there are a number of crimes that his department will simply not be able to respond to any longer.  The crimes that the Oakland police will no longer be responding to include grand theft, burglary, car wrecks, identity theft and vandalism.

Nassau County, New York

In New York, the country of Nassau (one of the wealthiest counties in the state) has a budget deficit that is approaching 350 million dollars.

The endgame will take one of two possible forms: 1) the federal government says no, and the downward pressures of cancelled pensions, higher taxes, and unemployment push the economy into a deflationary depression; or 2) the Feds say yes, fire up the printing press, meet every state and local obligation in nominal terms, and create, eventually, hyperinflation.

I'd bet on scenario two.   

...except when it is money printing... such as when Ben Bernanke last appeared on 60 Minutes. 

Of course, Bernanke’s double-talk makes sense in the context of PR and “expectation management” (two fields which are all about double-talk.) When he first appeared on 60 Minutes in mid-March 2009, the Dow Jones was bottoming at sub-7000 levels, everything was on sale for 40% off, and most commentators were worried about a deflationary death spiral. “Money printing” seemed like a good idea, or at worst a harmless one, since prices were collapsing. In 2010, the failure of “money printing” (QE1) is clear to all with eyes to see; and, more important, high oil, gold, and commodity prices have summoned once again the spectre of hyperinflation. Now is not the time to conjure up images of Weimar wheelbarrows, and so Bernanke felt it best to dispel the “money printing” rumors.

Then again, one should remember that Bernanke does have a point when he says that QE isn’t "money printing" … exactly … as I pointed out when QE2 was first announced:

Whenever the Austrians criticize QE, they’re apt to call it “money printing” and make analogies to the Weimar Republic and wheelbarrows full of cash. I’m part of this camp, of course, and I think such shocking comparisons are warranted. (Note that Bernanke himself referred to QE as “printing money” in a 60 Minutes interview from last year! See 7:55 of this video).

But it’s important to remember that though Bernanke might be creating money, he isn’t handing it out on the street -- much as he famously threatened to drop dollars from helicopters in a 2002 paper. The Fed’s money creation will, in the near term at least, remain confined to the bond and mortgage markets. This will, no doubt, create distortions and new variations on the dollar “carry trade,” but it won’t achieve the desired effect of immediate, readily perceptible inflation.

It’s similarly unlikely that QE2 will spur new credit creation from the banking sector for the simple reason that no matter how low the Fed has pushed its fund rate, banks don’t want to lend out their reserves. The Fed has set short-term rates at near zero for the past two years, with little effect in the way of loans to consumers, homebuyers, corporations, and small businesses. With high unemployment, falling home prices, and political uncertainty, banks would prefer to sit on their cash -- or else borrow money from the Fed to buy Treasuries and fund the government while collecting interest.

My guess is that we will head into late winter and spring of 2011 with no discernible positive effect from QE2 -- housing will still be floundering; unemployment will remain in double digits; the public mood will be depresed etc. -- resulting in a precipitous crash in most asset categories and a new consensus that deflation can’t be stopped. (That sentiment will be wrong, of course, and the first sign that run-away-inflation -- that is, the consequences of QE -- is just around the corner.)

And as alluded to above, Q3 is by no means that last arrow in the Fed’s quiver. That is printing money and handing it out directly to the public, much like the “stimulus checks” George Bush sent to consumers in the spring of 2008 -- only bigger and worse. And though it might sound unlikely now, the government might choose to federally mandate that banks make loans to consumers and businesses and extend credit limits.

Money from helicopters.

Over the coming years, we will experience two distinct phases of the collapse of an imperial currency.  The first round of “money printing” will be an expansion of the monetary base in order to temporarily shore up the Treasury and asset markets; the inflation will, for the most part, be confined to the financial sector. The second round of “money printing” will be actual money printing—checks for $10,000 sent to every American, federal mandates that banks make loans, money from helicopters. When this stage begins, watch out.

[ht: LRC]

This week, we experienced an earth-shaking political event that will affect the daily lives of every American and billions of people around the world.

I’m, of course, referring to the release of the minutes of the latest meeting of the board of governors of the Federal Reserve System. (What? Did you think I was referencing yesterday’s election pageant? Nah, if voting could change anything, they wouldn’t let you do it.)

Anyway, this was by far and away the most hotly anticipated Fed meeting of the year, mainly because it was widely reported that Chairman Ben Bernanke would announce the commencement of the second round of “quantitative easy,” commonly known as “QE2.”

As euphemisms go, QE rivals “Diversity” in both mendaciousness and malign effect. “Easing” was formerly known as money printing. Essentially, the Fed will try to push down long-term interest rates by creating new dollars out of thin air and using them to buy Treasuries, mortgage-backed securities, and other junk. The increased demand -- which the Fed can potentially expand infinitely since it creates money as paper and digits backed by nothing -- will, the Fed hopes, lower bond yields and long-term interest rates and spur Americans and businesses to become more indebted. We’re saved!

Over the past two years, every country in the industrialized world has been printing money like mad. Japan’s actions yesterday -- in which it directly intervened in the currency markets by issuing yen and buying dollars -- were particularly brazen, but ultimately just more of the same.

“But where’s the price inflation?” asks, among others, interventionists of the Paul Krugman type, who believe that Obama’s and Bernanke’s greatest faults were that they haven’t printed nearly enough.

The answer is that inflation is here … though it’s often difficult for average people to perceive.