Commentary: 2014 1st quarter musings
by Franco Seguso, April 2014

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From conspiracy theories...

In the span of just a few months we have seen all kind of conspiracy theories validated one way or another and exposed into the public domain. The NSA global spying outrage, the Libor scandal, the foreign exchange market rigging, the USAID manipulation of a social media to overthrow the government of Cuba, the high-frequency trading skimming just exposed by Michael Lewis dazzling book  (http://www.amazon.com/Flash-Boys-Wall-Street-Revolt/dp/0393244660/ref=la_B000APZ33E_1_1/175-3103087-8678860?s=books&ie=UTF8&qid=1397733834&sr=1-1), all seem to be a recurrent pattern whose purpose is to game the system, front-run the layman or skim the mass.

One unresolved present-day financial conspiracy, the manipulation of gold, will eventually be exposed as well, tearing apart the value of paper gold from that of physical bullion akin to when subprime mortgages were ultimately divorced from their counterfeit AAA ratings back in 2008.

What remains a mystery is not so much the existence of such systemic rigging; it is rather the absence of revulsion against the perpetrators of such abuses when exposed, as if our collective consciousness had abdicated its vigilance against issues that have become too complex to comprehend in the midst of such disinformation and tissue of lies.

Finance and geo-politics seem to share this general inclination to rig the game; no wonder the most unpopular US Congress in history is colonized by millionaire Congressmen funded by billionaire lobbyists from Wall Street ...

… to false flags

In the last few weeks we have learned on two separate false-flag attempts by Turkey against the regime of the Syrian president Assad; the first was the use of the appalling nerve agent Sarin against civilian populations around Damascus last summer, immediately and unequivocally ascribed at the time by the Obama administration to the Syrian dictator notwithstanding legitimate reservations from few independent quarters, not least its own intelligence apparatus.

If not for a last minute turnaround by Obama, Syria would have suffered the same fate as Iraq unsubstantiated WMD war: carpet bombing of its military and strategic infrastructure, forceful regime change and massive civilian casualties, not to mention the risk of engulfing a whole region into sectarian violence.
Since then evidence has surfaced implicating the Turkish secret services in procuring the Sarin, through a Libyan delivery channel created by none other than the CIA (http://www.lrb.co.uk/v36/n08/seymour-m-hersh/the-red-line-and-the-rat-line) and with the active collaboration of such democratic and human right stalwarts as Saudi Arabia and Qatar. Either the Turks tried to entrap the Obama administration into its own red-line on the use of chemical weapons, or the CIA used the Turks to carry out their dirty work against Assad: it was in both cases a false flag attempt to start a new illegitimate war by a NATO member.

The second false-flag was exposed just few days ago when a conversation between two high ranking Turkish officials discussing a bogus attack against the tomb of Suleiman Shah, in a small Turkish enclave within Syria, was released on YouTube. Once again Turkey was caught red-handed creating a false casus-belli, yet the Western alliance response has been deafening mute (Ukraine is getting all the noise and headlines these days).

This is Turkey, the largest Muslim country in Europe, a full NATO member, and a country aspiring to join the European Union, waging chemical warfare on a neighbor!

From Syria to Ukraine: a web of lies

Fast forward to Maidan Square in Kiev, Ukraine, on February 18th to 20th when 110 demonstrators and policemen were sequentially shot dead by sniper fire. The killing spree was immediately and unequivocally ascribed by the Obama administration to Ukrainian elected President Yanukovych notwithstanding legitimate reservations from few independent quarters (spot any similarities here?).

Yet again, what is remarkable in this incident is the speed with which both US and EU heads of State identified the culprits (since it was a brutal killing, it had to be ordered by Putin), the absence of any independent investigation so far and the abundance of red-flags all over the place, not least the hacked telephone conversation between the EU highest foreign affairs representative and the Estonian foreign minister discussing a probable link between the snipers and the Maidan protest leaders. The sheer coincidence between the Maidan killing spree and the Sochi winter-game closing ceremonies was also lost in translation: Putin would not dare to move during such a highly visible manifestation, would he?  (the answer is in Crimea).

In Kiev, under the appearance of a nonviolent revolution, there are all the classic tales of a coup d'état directed and funded from some western neo-conservative corner. The template remains the usual eastern-front ’color’ revolution: ferment anti-government activities with large injection of money through sponsored NGOs, flag a likely membership in the EU club (the ultimate Trojan horse of a future NATO expansion), then unleash a massive PR campaign in defense of freedom, free markets and democracy against the demons of autocracy, despotism and corruption, and finally (and discretely) arm a peaceful opposition for self-defense for when the bullets start flying under a false flag.

Once again a conspiracy theory (to bring Ukraine into NATO against Russia), a false flag (Maidan snipers), another overt US operation to subvert an elected government (http://www.reuters.com/article/2014/02/07/us-usa-ukraine-tape-idUSBREA1601G20140207) have collided with real-politik (Russian sphere of influence), bringing yet another country on the brink of civil war.

Financial warfare

The US, and to some extent NATO, seems to be in perpetual warfare: from Afghanistan, Pakistan and Iraq to Libya, Yemen, Somalia, Sudan, Syria and now Ukraine (tomorrow Iran?), enforced regime-change is on a roller-coaster since the fall of the Berlin Wall.  As much as Wall Street needs a never-ending dollop of credit creation to roll the dices, so the military complex needs continuous warfare, enemies to chase from rough nation-states to terrorist groups. Both have become perpetual power machines fuelled by unlimited issuance of money and debts.

The similarities between the military and financial worlds are troubling, almost symbiotic. Both are in hypertrophy, fasting on disinformation, manipulation and deception. Both are funded and levered by massive amounts of debts that are systematically socialized (few trillions of banks and wars debts this decade alone). Both have a tremendous control on the financing medium (the ability to issue unlimited amounts of debt in the reserve currency), on the narrative (disinformation, propaganda), on the judicial process (too-big-to-prosecute, use of national secrecy laws, selective disclosure etc), and on regulation (underfunded agencies, regulatory capture).Both systems have systemic revolving doors mechanism for its elite members.

Each system is driven by big money, acts with overwhelming force and dominates society decision-making processes and institutions.

The US dollar, and the ability to issue unredeemable amounts of debt denominated in it (an US exorbitant privilege) has become the financial equivalent of a weapon of mass destruction: it allow the funding of an oversized army, advanced military research, perpetual warfare, regimes change across the world and financial supremacy, all at almost no cost fiscally speaking; debts don’t matter if you are never required to pay them back.

Market warfare: manipulations and rigged valuations

Wall Street has become the ground zero of financial manipulation as they control not only the worlds of investment and credit, but also the physical supply of crucial industrial commodities and the derivatives that trade such commodities (http://www.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212).

The good news is that these shenanigans get increasingly exposed, named and shamed. The bad news is that the offenders get away with crime through a mix of regulatory loopholes and capture, legal gimmicks and too-big-to-fail blackmail. Free money buys lots of outstanding lawyers and regulatory compromises.

Even the mighty Fed does not bother any longer to hide its systemic manipulation of the yield curve to reflate asset prices (and bubbles) and to lower credit costs, aligning itself with Wall Street and the great credit speculation under cover of employment and inflation targets. By manipulating interest rates along the whole yield curve through ZIRP and QE, the Fed keeps not only inflating asset bubbles, but also crushing savers to the tune of between 1 to 2% of GDP per year with no end in sight.

With ZIRP and QE entering their sixth consecutive year, the whole asset price structure has moved to a new (dis)equilibrium level: the discount model channel drives all asset valuations, and when you discount close to zero, the theoretical value of any cash flow is closer to infinity. Like in warfare, ZIRP and QE operate like false-flags not only on all financial assets discounted valuations, but also on the creation of ostensibly cost-free debts.

At the zero bound, debt is dirty cheap if not outright free when mixed with a little dose of inflation. No wonder the world has added over $30 trillion of new marketable debts since the 2008 crisis, an increase of 40% in just five short years. China alone has added $14 trillion, the equivalent of the US banking total outstanding liabilities.

The poster child of this money for free is a marketable debt bubble now towering at a cool $100 trillion, 1.5X worldwide GDP, and a non-marketable debt of several multiple of global GDP (mortgage and consumer debt, intra-government debt, social entitlements).

Such financial hypertrophy is too big to deflate, too interconnected to endure a tolerable debt detox: in this over-leveraged world, debt and price deflation would be the equivalent of a horror scenario, so we should expect more of the same credit inflation until the credit bubble pops under its own weight. And pop it will, one day, vaporizing in the process paper wealth on an epic scale.

 

End-game

That day, finance and geo-politics (debts and wars) will once again collude to socialize the losses and crystallize the power of the few at everyone else expenses.
 
The Middle-East, North-Africa, the South China Sea and now Crimea and Ukraine are testament to a darkening geopolitical backdrop. Unrelenting quantitative easing of debts and zero interest rates are their equivalent on the financial and economic fronts.

In this world of mirrors, false flags and systemic manipulations, the investment game is rigged. More specifically, the paper-game from fiat money to debts to entitlement promises is rigged. Equity valuations are rigged by false discounting mechanisms. Those who plan to enjoy the party until it lasts should make sure they have sufficient real productive assets and lots of insurance in their portfolio for when the music stops and losses are ultimately socialized through default, inflation or war.

 

April 24th, 2014

Franco