Mish's Global Economic Trend Analysis

Federal Judge Smacks CalPERS on Sanctity of Pensions; CalPERS Liens Null and Void
Argentine Central Bank Chief Quits in Currency Dispute; Hyperinflation On the Way?
Congressman Rangel Calls for War Tax, Draft; Why Not Bomb the Entire Muslim World? Draft Worse Than Slavery

Federal Judge Smacks CalPERS on Sanctity of Pensions; CalPERS Liens Null and Void

Posted: 01 Oct 2014 09:41 PM PDT

Exceptionally good news from California today: A federal judge ruled CALpers claim of "Sanctity of Pensions" is invalid. Today's ruling went even further than the bankrupt city of Stockton originally sought in court.

For details, please consider the New York Times article In Ruling on California Town's Bankruptcy, Judge Challenges Sanctity of Pensions.

A federal bankruptcy judge on Wednesday upended the widely held belief that public workers' pensions have a special status in California that makes them impossible to cut, further chipping away at the idea that pensions are sacrosanct in a municipal bankruptcy.

The ruling, which came during a hearing on a plan by the City of Stockton to exit bankruptcy, did not order the city to cut its pension plan or take any specific action. The judge said that he needed more time to reflect on Stockton's situation and that he would decide Oct. 30 whether the city could emerge from its two-year bankruptcy or whether it still had more work to do.

But the decision, by Judge Christopher M. Klein of the Eastern District of California, dealt a blow to California's giant state-led pension system, known as Calpers, which has been leading efforts to preserve defined-benefit pensions nationwide.

Calpers had argued that if Stockton stopped making payments and dropped out of the state pension system, the lien would let it claim $1.6 billion of its assets. But Judge Klein said those statutory powers were suspended once a California city received federal bankruptcy protection.

"Why should I take that lien seriously?" he asked a lawyer for Calpers, Michael Gearin. "I may avoid it as a black-letter matter of bankruptcy law," he said, referring to well-established legal principles.

He did not dispute that Stockton would be billed $1.6 billion to leave Calpers and said such a termination fee "can be seen as a golden handcuff." But in bankruptcy, he said, Stockton could legally refuse to pay the bill because it arose from the city's contract with Calpers, and contracts are broken routinely in bankruptcy.

"The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim," Judge Klein said.

In court proceedings in July, Judge Klein said it was not clear to him that Calpers was even a creditor. He adjourned the hearings until the city and other parties could brief him on Stockton's relationship with Calpers.

Bizarre Position of Stockton's lawyer

One has to wonder just what side Sockton's lawyer is on.

In oral arguments on Wednesday, Stockton's lawyer, Marc A. Levinson, said that for Stockton to switch to another retirement plan administered by a different entity would probably take two years, and in the meantime all the city's workers were likely to quit. Their first choice would be to seek similar jobs in cities that were still part of Calpers, he said, adding that he thought Calpers was a more efficient plan administrator than any other entity Stockton might try.

The idea that the entire city force would quit is lunacy. Moreover, it would be a good thing if they did!

All Stockton need do is submit a bankruptcy plan that stipulates employees lose 100% of their benefits if they quit before some stipulated date. How many would leave? None.

The position of Sockton's lawyer is so bizarre, one wonders if he is attempting to protect his own pension.

Stockton does not need another defined benefit retirement plan. Rather, it needs to eliminate the one it has. And this excellent, common-sense ruling from Judge Klein paves the way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Argentine Central Bank Chief Quits in Currency Dispute; Hyperinflation On the Way?

Posted: 01 Oct 2014 07:26 PM PDT

On Tuesday evening, Argentine President Cristina Fernández accused Juan Carlos Fábrega, head of Argentina's central bank, of "provoking a devaluation of the peso".

In response Head of Argentine Central Bank Quits.

Without naming Mr Fábrega directly, Ms Fernández accused the central bank during a nationwide address on Tuesday night of failing to control "manoeuvres" by banks and brokers to provoke a devaluation of the peso, and suggested that "privileged information" had been leaked.

After continual clashes over economic policy with Argentina's economy minister Axel Kicillof, there are fears that Mr Fábrega's departure may clear the way for greater government control over the central bank.

"Kicillof has increased his power, he will have a bigger say on monetary issues and we should expect an acceleration in the pace of the worsening of financial conditions," said Miguel Kiguel, who runs the EconViews consultancy.

There was a sharp sell-off in the benchmark Merval stock index after Mr Fábrega's departure was announced. But Luis Secco, an economist, argues that the central bank has been "absolutely subordinated" to the executive's decisions "for a long time".

Mr Fábrega leaves the central bank as annual inflation has climbed to around 40 per cent, and presided over huge monetary emission to finance a growing fiscal deficit, with negative real interest rates of about 20 per cent.

Argentine Central Bank "Absolutely Subordinated"

Inquiring minds may be seeking proof the central bank has been "absolutely subordinated for a long time".

Here's a chart that shows just that.

Argentine Peso vs. US Dollar

64% "Official" Decline Since July 2008

On July 31, 2008, the peso had been relatively stable an traded at 3.03 pesos to the US dollar. Today the peso trades at 8.45 to the US dollar. That's a decline of 64%.

Does a 64% decline constitute hyperinflation? No not quite. Hyperinflation is generally defined as a complete collapse in currency.

Nonetheless, such a decline does constitute severe inflation, especially since the decline has gone increasingly hyperbolic in the past two years.

Black Market Rate Shows 78% Decline

The black market exchange rate is about 14 pesos to the dollar. That's a decline of 78%. And that is arguably hyperinflation territory depending on how fast that decline occurred.

Here's a Black Market exchange rate chart form the Wall Street Journal as of the end of August.

Another Devaluation Coming Up

On September 5, the Wall Street Journal reported Argentina Moves to Limit Dollar Purchases.

Argentina limited the number of people who can buy U.S. dollars on Friday, following record demand for greenbacks amid fears that a debt default and hard-currency shortages could lead to a second peso devaluation this year.

Argentine taxpayers seeking to legally buy up to $2,000 a month are now required to have a monthly salary of at least 8,800 pesos ($1,046). The increase from the previous floor of 7,200 pesos comes amid growing concerns about the central bank's declining foreign-currency reserves.

Argentines have bought almost $1.5 billion since the program was launched in January, when the government devalued the peso by about 20% in an ultimately successful bid to halt a run on the currency and reserves. In just the first four days of September, taxpayers bought $147 million, compared with $260 million for all of August.

The dollar purchases speak volumes about where some Argentines think the exchange rate is headed because buyers pay a 20% tax on those transactions, which effectively means they are paying about 10.10 pesos for each greenback. The local Rofex futures market quotes the peso at 9.1650 to the dollar in December.

Argentines have few reasons to hold pesos. Benchmark deposit rates are at 21%, while inflation is widely believed to be nearly 40%. A black-market exchange rate of around 14 pesos to the dollar makes the official exchange rate of 8.41 pesos look overvalued and hurts confidence in the currency.

The government has been selling limited amounts of dollars to taxpayers to keep them from turning to an underground currency market that is feeding inflation and devaluation expectations. But the default has rekindled demand for U.S. currency, causing the black-market dollar rate to surge from 12.30 pesos in late July and leading people to buy more dollars from the government.

Spotlight on Exports

Argentina is generally perceived as a commodity exporter, especially grains. With that in mind, please consider Against the Grain

AGRICULTURE ought to be Argentina's strength. Instead, incessant intervention has turned it into a source of weakness. The government has meddled in wheat production since 2006 by raising export taxes and setting export quotas. This interference, defended by the government as "protecting the tables" of Argentine consumers, has simply discouraged farmers from planting the crop.

The interventions show no sign of stopping. Last year's unexpectedly poor wheat harvest caused the price of bread to double, prompting the government to suspend exports of the crop. Last month was the first December in 25 years that Argentina did not export any wheat.

Wheat production in Argentina has plunged—from nearly 16m tonnes in 2005 to 8.2m tonnes in 2013. Not all the intervening years have been terrible, says Santiago del Solar, an Argentine agronomist and farmer. There were decent wheat harvests in 2008, 2011 and 2012, as high international prices incentivised farmers to plant wheat despite the unpredictability of government policy. But with export restrictions becoming tighter and tighter, Mr del Solar has slashed the area he plants with wheat. He expects other farmers will do the same.

The retreat from wheat has devastated exports. According to the US Department of Agriculture, Argentina was the world's fourth-largest exporter of wheat in 2006. By 2013, it had dropped to tenth place.

Exports Down, Prices Down Too

Not only are exports in tons down, prices are down even more.

Wheat

Things do not look promising for Argentina.

Four Signs Hyperinflation On the Way

Black market rates show a 78% increasingly hyperbolic decline
Governments taking over central banks is a strong indication of futher trouble.
That Argentine citizens willingly pay a 20% tax to escape the peso is another sign.
A fourth factor is falling commodity prices.

If Argentina uses up all of its foreign currency reserves, it's lights out for the Argentina peso.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Congressman Rangel Calls for War Tax, Draft; Why Not Bomb the Entire Muslim World? Draft Worse Than Slavery

Posted: 01 Oct 2014 12:20 PM PDT

In a Time Magazine Op-Ed, Congressman Charles Rangel (Democrat from New York), a combat veteran says It's Time for a War Tax and a Reinstated Draft.

While I am optimistic about our Commander-in-Chief's strategy to defeat the Islamic State of Iraq and Syria, I voted against the Continuing Appropriations Resolution 2015 that would grant the President the authority to provide funds to train and arm Syrian rebels against the enemy. I opposed the amendment because I strongly believe amassing additional debt to go to war should involve all of America debating the matter. That is why I have called for levying a war tax in addition to bringing back the military draft.

Both the war surcharge and conscription will give everyone in America a real stake in any decision on going to war, and compel the public to think twice before they make a commitment to send their loved ones into harm's way.

For a decade I have been calling for the reinstatement of the draft because our military personnel and their families bear a tremendous cost each time we send them to fight.

Draft Worse Than Slavery

Slavery is involuntary servitude. Is a draft anything less than slavery?

Actually, it's worse. You take a guy's freedom away, ship him overseas, give him a rifle, and force him to kill other people against whom he has no direct grievance, when the best such a person can ever hope for is to come back in one piece, years later, possibly with huge psychological stress after needless killing.

Rangel points out the "tremendous cost each time we send them [US troops] to fight" then proposes the stupidest solution possible, to force everyone to have the same opportunity.

I propose there can be no debate on a draft just as there can be no debate on whether we should revive slave trade from Africa.

Financing Wars

Rather than admit the stupidity of wasting $6 trillion in Iraq and Afghanistan and vowing to never do it again, Rangel proposes a War Tax.

The United States has borrowed almost $2 trillion to fund our military engagements on foreign soil. It is estimated that the total cost would be close to $6 trillion; we continue to pay a heavy toll for these conflicts. Each dollar spent on war is a dollar not spent on education, energy, housing, or healthcare. We cannot afford to tread this same path when we are slashing domestic programs that are the lifelines for so many Americans. I will soon introduce a bill that will impose war tax to ensure that we do not have to choose between further gutting the social safety net and adding to the $17.7 trillion of national debt.

Rangel was once Chairman of the House Ways and Means Committee.

Let's Bomb the Entire Muslim World

George Monbiot, writer for the Guardian, says "Humanitarian arguments, if consistently applied, could be used to flatten the entire Middle East".

Monbiot sarcastically asks Why stop at Isis when we could bomb the whole Muslim world?

Let's bomb the Muslim world – all of it – to save the lives of its people. Surely this is the only consistent moral course? Why stop at Islamic State (Isis), when the Syrian government has murdered and tortured so many? This, after all, was last year's moral imperative. What's changed?

In Gaza this year, 2,100 Palestinians were massacred: including people taking shelter in schools and hospitals. Surely these atrocities demand an air war against Israel? And what's the moral basis for refusing to liquidate Iran? Mohsen Amir-Aslani was hanged there last week for making "innovations in the religion" (suggesting that the story of Jonah in the Qur'an was symbolic rather than literal). Surely that should inspire humanitarian action from above? Pakistan is crying out for friendly bombs.

Is there not an urgent duty to blow up Saudi Arabia? It has beheaded 59 people so far this year, for offences that include adultery, sorcery and witchcraft. It has long presented a far greater threat to the west than Isis now poses. In 2009 Hillary Clinton warned in a secret memo that "Saudi Arabia remains a critical financial support base for al-Qaida, the Taliban … and other terrorist groups".

The humanitarian arguments aired in parliament last week, if consistently applied, could be used to flatten the entire Middle East and west Asia. By this means you could end all human suffering, liberating the people of these regions from the vale of tears in which they live.

Yes, the agenda and practices of Isis are disgusting. It murders and tortures, terrorises and threatens. As Obama says, it is a "network of death". But it's one of many networks of death. Worse still, a western crusade appears to be exactly what Isis wants.

And if the bombing succeeds? If – and it's a big if – it manages to tilt the balance against Isis, what then? Then we'll start hearing once more about Shia death squads and the moral imperative to destroy them too – and any civilians who happen to get in the way. The targets change; the policy doesn't. Never mind the question, the answer is bombs. In the name of peace and the preservation of life, our governments wage perpetual war.

While the bombs fall, our states befriend and defend other networks of death. The US government still refuses – despite Obama's promise – to release the 28 redacted pages from the joint congressional inquiry into 9/11, which document Saudi Arabian complicity in the US attack. In the UK, in 2004 the Serious Fraud Office began investigating allegations of massive bribes paid by the British weapons company BAE to Saudi ministers and middlemen. Just as crucial evidence was about to be released, Tony Blair intervened to stop the investigation.

Last week's Private Eye, drawing on a dossier of recordings and emails, alleges that a British company has paid £300m in bribes to facilitate weapons sales to the Saudi national guard. When a whistleblower in the company reported these payments to the British Ministry of Defence, instead of taking action it alerted his bosses. He had to flee the country to avoid being thrown into a Saudi jail.

There are no good solutions that military intervention by the UK or the US can engineer. Whenever our armed forces have bombed or invaded Muslim nations, they have made life worse for those who live there. The regions in which our governments have intervened most are those that suffer most from terrorism and war. That is neither coincidental nor surprising.

Yet our politicians affect to learn nothing. Insisting that more killing will magically resolve deep-rooted conflicts, they scatter bombs like fairy dust.

Fraud of Humanitarin Wars

For humanitarian reasons, 2009 Nobel Peace Laureate Barack Obama has bombed seven Muslim nations: Iraq, Syria, Afghanistan, Pakistan, Yemen, Somalia, and Libya.

The utter lack of interest in what possible legal authority Obama has to bomb Syria is telling indeed: Empires bomb who they want, when they want, for whatever reason (indeed, recall that Obama bombed Libya even after Congress explicitly voted against authorization to use force, and very few people seemed to mind that abject act of lawlessness; constitutional constraints are not for warriors and emperors).

It was just over a year ago that Obama officials [Sec of State John Kerry] were insisting that bombing and attacking Assad was a moral and strategic imperative. Instead, Obama is now bombing Assad's enemies while politely informing his regime of its targets in advance. It seems irrelevant on whom the U.S. wages war; what matters it that it will be at war, always and forever.

Six weeks of bombing hasn't budged ISIS in Iraq, but it has caused ISIS recruitment to soar. That's all predictable: the U.S. has known for years that what fuels and strengthens anti-American sentiment (and thus anti-American extremism) is exactly what they keep doing: aggression in that region. If you know that, then they know that.

As the disastrous Libya "intervention" should conclusively and permanently demonstrate, the U.S. does not bomb countries for humanitarian objectives. Humanitarianism is the pretense, not the purpose.

On May 2, Glenn Greenwald wrote about The Fraud of Humanitarian Wars. "All wars, even the most unjustifiably aggressive, are wrapped in the same pretty rhetorical packaging."

Goering at the Nuremberg Trials

Please recall what Reichsmarschall Hermann Wilhelm Göring (in English his name is also spelled as Hermann Goering) Nazi founder of the Gestapo, Head of the Luftwaffe, said at the Nuremberg Trials.

Here is a clip of the interview in Goering's cell in prison, after the war.

Göring: Why, of course, the people don't want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece? Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.

Gilbert: There is one difference. In a democracy, the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars.

Göring: Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.

We Gotta Do Something!

Please note that all it took was a couple of beheadings for warmongers to get the rest of Congress behind bombing ISIS in Syria. And that's all it took for Obama to break his promise to get out of Afghanistan. Instead, we will be there until 2024 "at least".

For details, please see "Come Hell or High Water" Promise Morphs Into "Infinity and Beyond"

Public sentiment following the beheadings is "We Gotta Do Something!"

Indeed we do.

Instead of a draft coupled with a war tax, I propose we kick the warmongers out of office and stop all war funding except what's explicitly needed to protect US borders here, not half-way around the globe.

Unfortunately that goal is next to impossible. The industrial-military war machine backs every candidate who is in favor of perpetual war.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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