THINKING IN SYSTEMS

The first day or so we all pointed to our countries. The third or fourth day we were pointing to our continents. By the fifth day we were aware of only one Earth!-Sultan Bin Salman Al-Saud, (1956 – ), astronaut, interviewed on returning from a shuttle mission, 1985

A Look Back At The Week

The week that was through the eyes of David Rosenberg.

1) Largest drop in real GDP since early 1980s

GDP fell 6.1% QoQ annualized in 1Q, well below consensus expectation of -4.6% and even below the BAS-ML forecast of down 5.5%. All investment-related segments of the economy showed significant pullback, reflecting the global recession and the ongoing credit crunch that is making it difficult to complete projects. Commercial construction fell 44.2% in 1Q, which is the largest quarterly decline ever recorded going back to the late 1940s. The BEA noted significant declines in energy-related drilling projects as well as sharp downturns in commercial, healthcare, power and communication building. Capex investment fell 33.8%, the 5th quarterly decline in a row and the deepest decline to date. The residential building sector fared just as poorly, down 38% in 1Q continuing a string of declines that stretch back to early 2006, but again the 1Q drop was the deepest decline so far in the cycle. Inventories were cut by $103.7B in 1Q and took 2.8ppt from top line growth; however, this was far short of our expectations and combined with the weaker than expected final sales pace suggests businesses will likely need to slash more inventories in the months to come.

The one bright note in the report was the consumer, which posted a 2.2% quarterly annualized gain, in the first upturn since 2Q 2008. Early tracking into 2Q, however, suggests that this positive pace likely will not be sustained – not surprising amid the steadily climbing unemployment rate. The saving rate continued to climb, resting at 4.2% in 1Q – a full percentage point higher than in 4Q. On the price side, the GDP price index increased by 2.9%, above consensus but in line with BAS-ML expectations. The more important consumer price index fell by 1.0% as expected and the core PCE advanced by an anemic 1.5% q/q annualized while the yearly pace slowed to a 4-year low of 1.8%.

2) Nominal GDP declines at a 3.5% annual rate

We must admit to being surprised at the bond market reaction as the yield on the 10-year note retests critical support around the 3% area, especially with NOMINAL GDP, which has the highest correlation with interest rates, in contraction phase. Nominal GDP declined at a 3.5% annual rate on top of a 5.8% slide in the fourth quarter of last year. This back-to-back slide dragged the year-on-year trend to -0.5% from +1.2% in 4Q and +4.7% a year ago. This is a historic event, in our view. Outside of the deepest part of the Great Depression from 1930-33, the only other times that nominal GDP was deflating were in 1938, 1946, 1949, 1954 and 1958. While the equity market turned in rather mixed showings during these periods, what is clear to us is that long-term bond yields traded in a 2-3% range with perfect consistency, which could be a signal that at current levels, we could have the makings of a pretty nice buying opportunity in the Treasury market. As for equities, a client made an interesting point to us in the aftermath of the data. The left side of the V does not surprise anyone anymore – it’s a done deal. What investors will likely have to see for this market to reverse course is the right side of the V prove elusive and end up looking like an L, an elongated U or a series of W’s.

3) Are the Fed and markets on the same page?

We find it rather difficult to square the Fed’s press statement this week with the extremely positive reversal in investor sentiment over the past several weeks. The equity market is, as we all know, a forward-looking barometer, and now seems to have gone further than merely pricing in “green shoots”, to discounting the right-hand side of the ‘V’. Mr. Market is to be respected, but he is not always correct. The Federal Reserve does possess the largest US macroeconomic model on the planet, and although the central bank acknowledged the obvious (that “the pace of contraction appears to be somewhat slower”, which was hardly a resounding endorsement for the second-derivative viewpoint, in our view), it seems to have a much more somber forecast of the economy (that “economic activity is likely to remain weak for a time”) compared to Mr. Market. Although the “outlook has improved modestly since the March meeting”, the operative word is “modestly”. In addition, the “remain weak for a time” quote resonated with us even if the market has largely shrugged it off. The Fed certainly does not have a perfect forecasting track record , but let’s just say that there does appear to be a disconnect between the central bank’s choice of words to describe the economic backdrop and Mr. Market’s ability to sustain this vigorous rally.

4) Deflation seen as the primary risk

As for Treasuries, the sell-off continues unabated, and came on a day when we learned that real GDP contracted at over a 6% annual rate, with confirmation of a deflationary environment with the gross domestic purchase deflator (GDP deflator ex trade) declining at a 1% annual rate on top of a 3.9% annualized slide in the fourth quarter of 2008. In fact, at no time in the past 60 years have we seen domestic prices fall this much over a six-month span. Perhaps the market was expecting that the Fed would announce more in terms of the size of its bondbuying program (which was not forthcoming) and viewed the press statement as a disappointment. But as we have stated, periods of deflation in the past were typically met with long-term yields in a 2-3% band with near consistency. The Fed may have tweaked how it portrayed the current climate in the statement, but what it did not change was its view that deflation remains a risk – “the Committee sees some risks that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term”.

The fact that the Fed can state this view, knowing full well that it has dramatically expanded its balance sheet and the money supply, is a testament to the view that the central bank has been leaning against the winds of deflation rather than creating inflation. In our view, the latter will be practically impossible to do in an environment where the underlying unemployment rate is approaching 16% and capacity utilization rates are at all-time lows of 66%. There is simply too much slack in the economy, in our view, for us to be worried over the prospect of inflation or a sustained bear market in bonds.

5) March spending decline implies weak 2Q start

Real consumer spending fell 0.2% MoM in March, after upwardly revised prints of 0.9% and 0.1% MoM respectively in January and February. Since so much of the 1Q gain was front-loaded into the beginning of the quarter it leaves an extremely weak hand-off of -0.4% (March/1Q annualized) heading into the second quarter. Thus the numbers are confirming our view that the 2.2% quarterly annualized gain in 1Q was little more than a short-lived rebound after the extreme bout of risk aversion seen in 4Q. Combined with the decline seen in April retail sales, this leaves our 2Q tracking for PCE at around -2.9%. Personal income fell 0.3% MoM in March, continuing an almost unbroken string of pullbacks dating back to last September. Real disposable personal income (DPI) was flat in March after a 0.3% drop in February, marking a renewed downturn after the boon to real income of the prior 6 months as energy prices collapsed. The statistical momentum (March/1Q annualized) of real DPI turned negative in March for the first time since last September.

6) This rally more rooted in technicals than fundamentals

We remain of the view that this is a rally more rooted in technicals than in fundamentals and that means that traders may well end up enjoying a further upleg to the 200-day moving average of 970. It is possible, though we choose not to participate. If you want risk, at least get paid something for the price of being wrong; for example, an 8-1/4% yield on a Baa corporate at least means investors will garner some income if the consensus view of a second half economic turnaround turns out to be off base. Everyone loves to point to that 1932-37 rally in the equity market when the economy bounced off its lows – then again, real GNP had plunged 33% peak-to-trough so there was space for a “bungee jump” and indeed, that stock market rally took place as the level of economic activity surged nearly 60%. We shall see the extent to which we see such a vigorous rebound this time around. For all we know, this is not 32-37 but perhaps the hiccup we saw in 1Q31 when we saw a 1.1% annualized growth rate followed by a 7.2% pop the very next quarter. We can only imagine how much excitement there must have been back then, but the reality is that the recovery in both the economy and the equity market was still more than a year away.

7) Homeownership out of vogue

Data from the Census Bureau on 1Q homeownership and vacancy rates revealed that the homeownership rate eased slightly from 67.5% in 4Q08 to 67.3% in 1Q09. Though down 2ppt from the peak of 69.2% in 4Q04, a reversion to the long-term average would still suggest another 2-3ppt correction. To date, the largest correction has been in the Midwest, where homeownership has dropped 3.5ppt from the 74.2% peak in 2Q04. At 62.8%, the homeownership rate in the West is now the lowest regionally – likely the result of surging foreclosure rates. By age of homeowner, those under the age of 44 years have seen the largest correction in homeownership, with rates falling to 40% for those under 35 years (from 43.3% in 1Q05) and to 65.7% for those between 35-44 years (from 70.1%) –this segment was likely the most active in market speculation and/or taking out subprime and Alt-A mortgages during the financing boom. The latest climb in delinquency and foreclosure rates suggests on ongoing shift of households into the rental market – a trend that stands to only add to current vacant housing stock.

19.1M homes stood vacant in 1Q – a record figure – including over 2.1M specifically for sale. Relative to pre-bubble levels, this is an 800K overhang of homes that can be expected to weigh heavily on prices for quite some time. In fact, at the current sales and housing start rates for single-family homes, it would take over 7 years to work through inventories. Simply calling an outright moratorium on homebuilding would require a 125% jump in new home sales to work through the housing stock in one year’s time. In short, these numbers indicate a work-out period in the housing market that will likely take quarters/years to resolve even with mortgage rates at record lows and affordability at record highs.

Consumer confidence — a hope and prayer

Consumer confidence jumped by the most in 3 years to 39.2 in April from 26.9 in March, almost exclusively on the expectation that the policies put in place will set the economy on a better glide path. This is still an extremely depressed level of sentiment, down 65% from the cycle peak back in February 2007. As such, we reserve judgment on whether the government policies will actually play out as optimistically as the US consumer predicts, but in the short term it is suggesting less of a pullback in consumer spending and a perhaps temporary slowing in the pace of saving rebuild.

Consumer assessment of the present situation rose by 1.8 points to a still very depressed 23.7 in April, with the job assessment (jobs plentiful minus jobs hard to get) up just 0.7 points to -43.4. Thus we have not changed our forecast for April payrolls of -670K with a 0.5ppt jump in the unemployment rate to 9.0%. Future expectations surged to 49.5 from 30.2, the largest jump since just after the Iraq invasion in April 2003. The net assessment of business conditions improved to -9.7, a 20-point jump from the previous month, which is the largest delta we have seen in this indicator since the end of the 1990 recession. Employment prospects performed equally as well as business prospects. Notably, however, the needle in income prospects barely moved, suggesting consumers remain wary about economic-based pay such as bonuses, tips and commissions.

9) March home price declines could be set to reaccelerate

The Case-Shiller home price index for the 20 largest US cities fell 2.2% M/M in February to stand down 18.6% Y/Y (a let-up from the record decline of -19% Y/Y in January). Results were in line with BAS-ML expectations but a tick lighter than consensus estimates. All 20 markets were in the red for the 6th straight month, with declines ranging from -0.3% M/M in Dallas (-4.5% Y/Y) to -5.0% M/M in Cleveland (-8.5% Y/Y). While the pace of deflation appears to have eased slightly in February, prices were still down -26.3% at a 3-month annualized rate. Further, sales transactions in March were driven by a higher share of distressed properties (50% versus 45% in February according to the NAR), suggesting that a reacceleration to the downside may lie ahead.

The hardest hit markets continue be those where sub-prime lending was pervasive and foreclosure rates have surged. Such areas include San Francisco, Phoenix, Las Vegas, Miami, and Los Angeles – all off by 40-50% from their respective peaks. At the same time, Cleveland, Detroit, Chicago and Minneapolis were among the cities to post the largest monthly declines in February, reflecting the spreading nature of real estate deflation. To be sure, malaise in the auto industry was also partly at play in some markets and can be expected to continue to weigh heavily on real estate prices in coming months. Looking ahead, depressed demand, tight credit, rising default rates and excess inventories will likely continue to lead prices lower. We estimate that an additional 10%-15% in downside is still in store, for a peak to trough decline of 40% (versus -30.7% at present).

10) Swine flu — a look back to SARS

With the world watching the swine flu situation, we thought it would be interesting to look at the market impact of the SARS breakout in the opening months of 2003, though we note that this cannot be considered predictive for the current situation. SARS certainly did exert a market impact, though it did not last for much more than 2-3 months. We also have to consider that at the time, the recession was over by well over a year and the economy was far less fragile than is now the case. Plus, the Fed had just announced that it was going to build a “firebreak” around deflation and was on the cusp of cutting the funds rate to 1%, and we also had the positive impact from the initial success in the Iraq war. But what was clear at the time was that (i) S&P food processors fell 15% as the stock market was building its base, and along with that we had airlines down 20%. The hotel/leisure/tourism segment of consumer discretionary pulled back 15% as well. The best ‘hedges’ were pharmaceuticals, which rallied 15%, and gold, which rose 10% during the peak of the pandemic. Emerging market equities were clocked, with the near-25% slide in the Korean Kospi at the time was just one indication. Commodity prices dropped 10% while bond yields managed to rally 100 basis points (though keep in mind that the Fed was still in the process of cutting rates)

Shooting The Shoots

Must read from David Rosenberg, who is on fire today, even taking on Larry Kudlow now.

It’s time to set the record straight

We acknowledge that we have felt like salmon swimming upstream. And, we constantly preach that everyone should keep an open mind and about the dangers of being perma-bears at the low (not our intention!) – but it’s time to set the record straight.

Big money investors have been on the sidelines

We have talked to so many bewildered clients about the massive equity market rally from the March lows that we’ve lost count. Few, if any (especially in the hedge fund community) seem to be celebrating the fact that the S&P 500 has rallied 30%, which tells us that big-money investors have been on the sidelines through this entire move. From our lens – and you can see this clearly from the twice-monthly NYSE data – the buying power for this market has actually come from severe short-covering as the bears head for the hills.

Few market-makers share enthusiasm of most economists

We don’t really share the view that the recovery, if and when it comes, will be sustained. We understand the historical record that even in the face of monumental fiscal and monetary easing, it takes a good four years for the economy to work through the aftershocks of a collapse in credit and asset values. While most economists are now waving the pom-poms, we find very few marketmakers who share their enthusiasm.

By and large, this rally has been a clear technical event

Gaps get filled rapidly and the primary source of buying power seems to be coming from a huge short-squeeze, and perhaps some pension fund rebalancing, which always seems to happen after the market makes a new low. To be sure, there is always the chance that the dry powder (money on the sidelines) is put to work and investors chase this rally. And nothing says that the S&P 500 cannot go as high as the 200-day moving average of 970 over the near term. We have seen these kinds of rallies in the past There were four of these kinds of rallies from 1929 to 1932; a half-dozen in the 19-year-old Japanese bear phase; and no fewer than 40,000 rally points in the Nasdaq that were fun to play in the 2000-2003 bear market – but the fundamental downtrend was obviously still intact.

Stock market not good at predicting inflection points

The stock market bottomed for good in the spring of 2003 because at that time, we were on the cusp of a 4%+ real GDP growth rate over the ensuing four quarters. The reason the rally of late 2001 to early 2002 failed was because the market realized the recovery would be delayed. Let’s just say that a 21% rally in the S&P 500 from Sept 2001 to January 2002 was not a bounce that was pricing in a 1.5% GDP growth rate for the ensuing four quarters, which is what we ended up with.

We can look at the situation in reverse. Did the 20% slide in the S&P 500 in the summer accurately predict the 4-1/2% GDP growth trend we were going to see the following year? No. And even in this cycle, the equity market was peaking just as the recession started in the fourth quarter of 2007. So, this notion that the equity market is telling us anything meaningful about the economic outlook, as Larry Kudlow would have us believe, is open for debate. The stock market’s track record is just about as good as the economics community at predicting the inflection points in the business cycle – and that’s not very good.

The market, as a whole, cannot be considered cheap

While there are some good blue-chip companies trading at low multiples, the market as a whole can hardly be considered cheap. That may have been the case two months ago, but no longer. As for the earnings landscape, it has become fashionable to talk about how the vast majority of companies are beating estimates in their 1Q results, but the bar was set extremely low to begin with after that epic 4Q operating and reported loss on S&P 500 EPS. In the meantime, earnings forecasts are being trimmed steadily for the balance of the year. In fact, forward P/E multiple of 15x operating and 30x on reported EPS are not that compelling. So, we do not have a strong valuation argument. We do not have a strong earnings argument. The seasonals (”sell in May”) are about to become less compelling too.

New lows in S&P won’t happen as soon as we thought

We would, at the same time, acknowledge that if the terms of engagement have changed, the Obama economics team and the Fed have made it exceedingly difficult for the shorts to make money in this market. Tail risks, notably in terms of the banking system, have been removed. This, in turn, does mean that even if we break to new lows in the S&P 500, it probably will not happen as soon as we had thought.

Government will do whatever it takes

At the March 9 lows, there was a real feeling of possible bankruptcy in the financial system. But it is now abundantly clear the government will not allow any big financial institution to fail. The end of mark-to-market accounting rules and the super-steep yield curve have returned most of the banks to profitability. Uncle Sam can be relied on to remain the capital provider of last resort, even for those banks that do not pass the coming stress test (which has been delayed, in part because the government wants to assess how to deal with the fallout of those particular institutions). More and more taxpayer money is being thrown at the credit crisis, and now we hear that $50 billion will be allocated toward easing debt-service strains among those households that took on second mortgages during the housing bubble. And, until recently when the green shoots started to appear, there was growing talk of yet another fiscal blockbuster coming down the pike to underpin the economy.

Green shoots can turn into a dandelion or a beanstalk

We are more impressed with solid roots than we are with green shoots. The economy and the capital markets are being held together by tape and glue, in our view. Private sector activity is contracting and will continue to lose its share of GDP as the government’s influence rises on a secular basis. Tax rates will inevitably rise, as they are already doing at the state and local government level. The public sector is now involved in the mortgage market, the insurance sector, the banking industry, and of course, the automotive business.

Economy transforming into an early 1980s European model

As economists, strategists, analysts, and the media, focus on the noise – which is what green shoots really are: a blip in a fundamental downtrend – a dramatic transformation of the economy toward a 1970s/early 1980s European model is unfolding. That post-Mitterrand, pre-Thatcher model, if memory serves us correctly, was one of low-potential real GDP growth rates, low-fair-value P/E multiples, low rates of return on capital and a sclerotic economic system. Economy is not in free-fall but is hardly stabilizing.

Now let’s get to the economy and those fabled green shoots

There is no doubt that the economy is no longer in free-fall, but it is hardly stabilizing, even if the data have improved from deeply negative trends at the turn of the year. There are pundits claiming that because initial jobless claims have managed to come off their recent highs, the end of the recession is in sight. That is a fairy tale, in our opinion.

Slack still being built up in the labor market

Given the looming wave of auto sector layoffs, we expect claims to break to above 700,000 this summer, which would be a new record. So, jobless claims do not appear to have peaked yet. In fact, the relentless surge in continuing claims signals that an ever-increasing amount of slack is being built up in the labor market. There has never been a peaking out in gross claims without there being a confirmation from a similar turn in the continuing jobless claim data. Moreover, initial jobless claims have topped the 600,000 threshold now for 13 weeks in a row, and that is the real story.

To suggest that claims have stabilized above 600,000 and that this is a good thing is ridiculous. It would mean that by this time next year, the unemployment rate could potentially reach 15%. The reason is because employment losses do not end until claims actually break below 400,000. No recession ever ended until claims broke below 600,000, and on average, recessions only end once claims drop below 500,000 (when the last recession ended in November 2001, as an example, claims were 450,000).

Job losses will not end until the end of the year

Employment is one of the four critical ingredients that go into the recession call, not jobless claims, and at over 600,000 on claims, we lose payrolls at a monthly rate of around 600,000. That is hardly what we would call a stable economic backdrop. We do not see job losses ending before the end of the year. Industrial production and real manufacturing/trade sales are two other components that go into the NBER recession-determination model, and our forecast suggests that they too will not bottom conclusively until 2010.

Real organic personal income decrease is unprecedented

What really caught our eye is the fourth horseman of the recession call – real organic personal income. This metric peaked in October 2007 and was early in predicting the official onset of the recession, which began in December of that year. This measure of household income – it nets out government benefits – slipped 0.5% in March and has declined for five months in a row (and six of the past seven). Over that stretch, it declined at over a 6% annual rate, which is unprecedented (the data series go back to 1954).

Expect consumer spending to lag because of lost income

Since August of last year, the consumer sector has lost $266 billion of organic income (in nominal dollars at an annual rate) as job losses mounted, hours worked cut back, and full-time positions shifted to part-time. This lost income – not to mention $20 trillion of evaporated net worth – will likely bring long lags in dampening consumer discretionary spending. We realize that one of the bright spots in the 1Q GDP report was the +2.2% print on real consumer spending. But let’s face facts: The bounce was concentrated in January after a record 30% plunge in retail sales (at an annual rate) in the final three months of 2008. We already know that sales were down in both February and March and that the statistical handoff with respect to consumer spending is negative as we head into the second quarter.

The government does not create income; it redistributes it

We mentioned tape and glue above because the only component of household income that is rising is government transfers (mostly jobless benefits), which rose 0.9% in March and by more than 12% on a year-over-year basis. The government share of personal income at 16.3% is higher today than at any other time in the past six decades (and that covers the LBJ Great Society social benefit transfer of the 1960s). But keep in mind that the government does not create income – it distributes income by borrowing from today’s bondholders and tomorrow’s taxpayer. Not until we begin to see real incomes rise without the crutch of Uncle Sam’s checkbook will it be safe to call for the end of the recession. And again, we see this as more a 2010 story than a 2009 story, although very clearly the markets are suggesting the latter (insofar as they are signaling anything about the economic outlook).

The worst is over

In any event, the economy has certainly passed its worst point of the cycle even if we do not yet see the bottom that many others do at this time. And it may very well be that we overstayed our bearish call on the equity market and that the lows were turned in on March 9. Many pundits who have been around far longer seem to believe that, and they could be right. But there is no sense crying over spilled milk, even after a 30% run-up in the S&P 500 and a 100 basis point surge in the 10-year note yield from the lows. It just broke above its 200-day moving average, and there is nothing but empty space on the chart to 3.8% – that is an observation, not a forecast, by the way.

Lessons learned from the Great Depression

With all that in mind, we thought it would be instructive to look back to the experience of the 1930s. A credit collapse, asset deflation and massive decline in economic activity were finally stopped in their tracks by massive doses of fiscal and monetary stimulus. The S&P 500 bottomed in the summer of 1932 and the trough in GDP occurred shortly thereafter. But if history is any indication, the depression did not end for another nine years. Even after the massive relief efforts and government intervention from the New Deal, we closed the 1930s with a 15% unemployment rate and consumer prices deflating at a 2% annual rate.

Focus on SIRP — safety and yield at a reasonable price

Because the attention now has shifted to the green shoots, as was likely the case after the 1932 low as well, we highly recommend that investors focus on the big picture, which is that the aftershocks of a credit collapse and an asset deflation of this magnitude last for years, even with public sector support. Now go back to that June 1932 low in the S&P 500 (below 5) and the initial surge was breathtaking – the market roared ahead by 75% in just the first three months. But guess what? For buy-and-hold investors, by the end of 1941, the S&P 500 was at the same level as in the fall of 1932. Nine years of nothing, unless you are the most astute trader around.

Folks who chased the rally after the market broke out of the gate woefully underperformed those who stuck with their focus on generating cash flows from the fixed-income market. The yield on long Treasuries fell from 3.8% to 2.5% (Fall of 1932 to the end of 1941) while Baa corporates did even better – rallying from 7.1% to 4.4%. So from this point forward, unless you are comfortable that you have the discipline as to when to get out, the lesson of the last post-credit crunch/asset deflation/depression seven decades ago is to retain your focus on SIRP – safety and yield at a reasonable price. Passive buy-and-hold strategies are destined to fail, in our view.

Parting Thoughts From Rosenberg – Ver 1.0

Some of David Rosenberg’s last thoughts as he is putting the bubble wrap in his boxes. It is not surprising that his parting gift to his bank is a moderate shift to a slightly bullish outlook, likely designed to make life for his “Economic Strategist” replacement a little easier. However, reading between the lines allows for the real Rosie to shine through. And is, as always, a breath of fresh air in an environment where the MSM has become utterly useless.

We are in year 9 of an 18-year secular bear market

The S&P 500 peaked in real terms back in August 2000. Adjusted for the CPI, it is down 58% since that time. So, we would say that we are in year 9 of what is likely to be an 18-year secular bear market, because if you look at long waves in the past, they tend to last about 18 years with near perfection.

What happened during the last secular bear market

As an example, go back to the last secular bear market, and you will see that the S&P 500 peaked, again in real terms, in January 1966 and bottomed in July 1982, 18 years later. But there were plenty of mini-cycles in between. In fact, there were four recessions and three expansions during that entire 18-year period and unless you were a completely passive investor, you definitely wanted to be in the game during the three expansions because the S&P 500 rallied an average of 50% during those phases. Again, it is important to note that these were rallies you
could rent, not own, but they did last an average of 20 months. So, it’s not exactly as if they have an extremely short shelf life.

Playing a game of devil’s advocate

With all this in mind, we went through an exercise over the weekend and played a game of devil’s advocate. If Rosie had to face off against Rosie, what would we say if we were forced to take the other side of the debate, keeping in mind that in fact, we may be overly bearish at the present time. And believe it or not, we did manage to come up with some pretty compelling material.

Past the half-way point in the recession

First, our in-house model of predicting where we are in the cycle, for the first time, gave us a signal late last week that we are past the half-way point in the recession. Considering that the stock market bottoms 60% of the way through, this is an encouraging signpost.

We’ve worked through the effects of the Lehman collapse

Second, our propriety proxy for private sector interest rates has come down from 8.11% at the nearby peak to 7.18% now despite the backup in Treasury yields, to stand at their lowest since last September. The TED spread is back to where it was last September, as are most credit spreads. The VIX has finally broken to 35, back to where it was last September. 10-year TIPS breakeven levels, which were predicting deflation at the end of last year, are now forecasting 1.5% average inflation rates for the next decade. Again, we last saw this in September of last year. This is interesting because even though the economy and the markets were clearly in the doldrums back in September, the fact that so many market barometers are back to where they were then means that at the very least, we have worked through the ill-effects of the post-Lehman collapse.

Stock market has lagged relative to other asset classes

All an equity bull really has to do is point to the fact that the S&P 500 last September was trading around 1200. The only difference is back then we were looking at it from the perspective of being 20% off the highs whereas a move back to September levels, which, after all, would only mimic what many other market indicators have accomplished, would be viewed as an 80% surge off the lows not to mention another 35% potential upside from where we are today. Even the CRB raw industrials are now back to where they last October when the S&P 500 was hovering around the 950 level. So again, if we were equity bulls, and maybe we should be, we would simply point out that of all the asset classes that have bounced back to life, the stock market has actually been a laggard.

Three indictors that suggest cyclical bear market is over

Third, we found three indicators that have stood the test of time and strongly suggest that the cyclical bear market in equities and the economy have drawn to a close: the ISM, the Conference Board’s coincident-to-lagging indicator and the University of Michigan consumer sentiment survey. The ISM bottomed in December 2008 at 32.9 and is now 40.1. Going back to 1950, we found that recessions end within three months of the ISM hitting bottom, and never by more than six months. The coincident-to-lagging ratio just turned in successive lows of 89.6. The data go back to 1960 and we found that recessions ended within two months of this indicator, 100% of the time. And, the U of M consumer sentiment index bottomed at 55.3 last November. As we saw on Friday it had rebounded to 65.1 as of the end of April. The data show recessions end typically within six months of the bottom in this key leading indicator, and not once was the lag longer than eight months.

We could be on the precipice of a cyclical upturn

This is not to say that our secular views have changed. However, we could well be on the precipice of a cyclical upturn, and whether it is sustainable or not may have to be a story for another day. We don’t see as many green shoots as others do, but then again, we endured more than a year of jobless recoveries following the market lows of 1990 and 2002.

The most glaring example

The most glaring example of all is the fact that the S&P 500 bottomed in the summer of 1932 and yet by the end of the 1930s, seven years after ‘New Deal’ stimulus, the unemployment rate was still 15%, consumer prices were deflating at a 2% annual rate, and let’s face it, the Great Depression did not actually end until 1941. But for investors, the worst was over in the summer of 1932 in the immediate aftermath of the acute government intervention at the time. While
there were recurring setbacks along the way, including the severe bear market of 1937-48, the fundamental lows had already been turned in long before.

Investors have been able to price out financial tail risks

Fast forward to March 2009, and the same mantra was heard – ‘nationalization’, ‘depression’ and ‘deflation’. As was the case with FDR’s early days as President, what the last half of Obama’s first ‘100 days’ managed to accomplish was to eliminate these words from the investment lexicon. The degree of intervention from the Treasury and the Fed has been so intense that investors have been able to price out financial ‘tail risks’ that had dominated the market landscape through much of the first quarter.

The market is gravitating to a new mean

So, the way to look at the situation is that by removing the ‘tail risks’ of an outright systemic financial collapse, the market has gravitated to a new ‘mean’ (in the sense that at any given point in time, market prices reflect some expected distribution of possible outcomes – a very bad potential outcome has been taken out of the probability distribution, at least according to Mr. Market). This is why if the bulls have a solid argument, it is the prospect that the S&P 500 can indeed approach those pre-Lehman levels, which back in September, seemed rather bearish, but is only bullish today benchmarked against where we are.

Still not sold on the bull case for equities

Despite all these powerful arguments, we are still not totally sold on the bull case for equities. Valuation is not compelling, in our view. Sentiment has completely swung towards a bullish consensus (which is a contrary negative). Home prices and employment are still in freefall, the former undermining the balance sheet and the latter exerting a drag on the income statement and suggestions that a mild improvement in the negative growth rate is something to be excited about seems off base.

Difficult to ascertain who the marginal buyer will be

It seems hard to believe that after being burned by two bubbles seven years apart that the baby boomer is going to line up at the trough one more time. So, it’s difficult to ascertain who the marginal buyer is going to be. Disposal of durable goods assets to pay off a record household debt burden seems like a multi-year deflation story as far as we are concerned. Since the boomer household is income constrained and underweight fixed-income securities on its balance sheet, we believe that demand for high-quality bonds is going to strengthen in coming years. Government policy will remain highly pro-cyclical but there is no match for the contractionary effects from a shrinking US household balance sheet.

Deflation will win out over inflation

We are concerned that deflation will win out over inflation this time around. While the data cited above are indeed impressive in terms of their track record, since this is not a manufacturing inventory recession but rather a downturn deeply rooted in asset deflation and credit contraction, we may find out that the economic releases that were tried, tested and true in the other post-war cycles may not be appropriate today given the overpowering secular trends of consumer deleveraging and frugality.

satan’s corporation

Hat tip: www.opednews.com
by amicus curiae

Monsanto is now suing the German government (and, by that, the people) to force them to grow their GM Corn. Monsanto files suit against Germany over GM ban:

MON810 maize is genetically engineered to produce Bacillus thuringiensis, which is toxic to the corn borer pest. Permitted in Europe since 1998 for animal feed, it is marketed as a way to save farmers money on insecticides and other pest controls.

However German agriculture minister Ilse Aigner claimed last week that she had “legitimate reasons” to believe the maize to be a danger to the environment – and believes the Environment Ministry to agree with the view. Although MON810 has been permitted in Germany since 2005, she scrapped plans for 3,600 hectares (8,892 acres) to be planted in the eastern states for this summer’s harvest.

Now the biotech giant has hit back, according to a Reuters article, filing a lawsuit against the Germany government in the administrative court in Braunschweig, northern Germany.

The wire quotes a spokesperson for Monsanto as saying the ban is “arbitrary”. A clause in EU law does allow member states to impose such a ban, but Monsanto claims they can only do so once a plant has already been approved if new scientific evidence has come to light.

If the outcome of the lawsuit is in Monsanto’s favour, the cost to the German government has been estimated at between €6m and €7m….

France also invoked the clause on new scientific evidence that cast doubt over its safety last year….

Other countries to implement bans are Hungary and Austria. Last month European ministers voted – for the fourth time – against forcing these countries to lift their bans, despite EFSA’s view.

Makes trying to refuse those sprouts at dinner seem familiar? Several other intelligent EU countries have reservations and have refused to grow these products that are inefficient, low producing, chemically ruinous, fertilizer intensive, UN-tested for toxicological harm to humans, and dubious safety for animals. This is a good indicator that not ALL the world has been fooled by Monsanto.

Some American growers are also moving away, after they have had land become so Roundup resistant they can no longer farm it! See ‘Superweed’ explosion threatens Monsanto heartlands:

“‘Superweeds’ are plaguing high-tech Monstanto crops in southern US states, driving farmers to use more herbicides, return to conventional crops or even abandon their farms.”

I do hope that Germany can not only win, but by doing so, set a precedent the rest of the world to follow. JUST SAY NO!! AND MEAN IT!

The Concise Maquarie Dictionary defines Megalomania as:

1. A form of mental alienation, marked by a delusion of greatness, wealth, etc.

2. A mania for big or great things.

I personally think a “form of mental alienation” is the correct term to sum up this news. The level of hubris that must exist for a corporation to attempt to force us to grow anything we do not want to grow, or eat anything we think is unsafe. Leave us to farm in peace without being harassed by GMO-contamination of our crops, animals, honey… whatever it is we produce.

This is a company forcing a government and a people to accept a product they do not want. Somebody certainly has a delusional issue, and it is NOT those who refuse to accept genetically altered food.

An Aussie who is disgusted at chem farming,gm and synth foods and big pharma. I study soil biota, and work with bees,what i see is worrying.

makes me ill

Feds Turn Their Sights on Third Pa. Judge as Part of Corruption Probe

The Legal Intelligencer

Hank Grezlak And Leo Strupczewski

March 13, 2009

Federal authorities are looking at Luzerne County Common Pleas Judge Michael Toole as part of their investigation into alleged corruption at the Luzerne County Courthouse, sources have confirmed to The Legal Intelligencer.

The focus of the investigation appears to stem from an allegation that Toole may have received a payment from attorney Robert Powell.

Federal authorities have previously charged that former President Judge Mark A. Ciavarella Jr. and former Senior Judge Michael T. Conahan accepted more than $2.6 million in kickbacks from Powell and another source while Powell was one of the owners of PA Child Care, a private juvenile detention facility. Both Ciavarella and Conahan pleaded guilty in February to both counts — honest services wire fraud and conspiracy to defraud the United States — in the criminal information filed against them.

The amount allegedly paid to Toole is believed to be substantially less than what Conahan and Ciavarella received, sources said. Those sources either would not, or could not, identify the reason for the alleged payment or the amount.

When asked if Toole had taken a payoff from Powell, one of Powell’s attorneys, Mark B. Sheppard, formerly of Sprague & Sprague and now a partner at Montgomery McCracken Walker & Rhoads, said he could not comment.

"It would be inappropriate for our client or I to comment at this time, except to say that Mr. Powell continues to cooperate fully with any investigation," Sheppard said.

Sheppard, along with other attorneys from Sprague & Sprague, had previously authored a letter released to the media in February disputing the notion that the money Powell paid to Conahan and Ciavarella amounted to kickbacks, and instead said that Powell was the victim of a judicial shakedown.

"First, it is grossly inaccurate to suggest that our client ever sought or had any influence in the sentencing of any juvenile offender. In fact, Bob Powell never offered to pay a single penny to these former judges. Instead, Bob Powell was a victim of their demands for payment," the letter said.

The letter goes on to say that, although Powell recognizes he made a mistake by not going to authorities, he remained silent about Conahan and Ciavarella’s demands because they exerted pressure on Powell and his clients.

"The record will show that despite this, Powell not only refused the judges’ continued demands for additional payments, but ultimately reported the conduct to authorities," the letter said.

The letter, also signed by Richard A. Sprague and Geoffrey R. Johnson, said Powell is continuing to cooperate with authorities and is integral to the U.S. attorney’s prosecution of Ciavarella and Conahan.

Toole did not return a call seeking comment Tuesday. A call to an attorney rumored to be representing Toole was not returned. A call to Martin C. Carlson, the U.S. attorney for the Middle District of Pennsylvania, was not returned.

Luzerne County Common Pleas Court President Judge Chester B. Muroski said he was not aware of any investigation involving Toole.

"I have not been notified by any law enforcement authorities that any such investigation is ongoing," Muroski said.

Muroski, who said last week that he was interviewed by federal investigators concerning court administration issues, would not say if Toole’s name had surfaced during questioning.

"I’m not going to discuss any portion of any discussions I’ve had with law enforcement authorities," he said.

Asked if he ever heard rumors that Toole allegedly accepted payoffs, Muroski responded immediately.

"Never," he said.

The only reported connection between Toole and Powell is a case from 2004 in which the newly elected judge allowed the former co-owner of PA Child Care to continue docking his yacht, "Reel Justice," at a Florida yacht club linked to Conahan and Ciavarella.

In the case, first reported by the Times-Leader newspaper in Wilkes-Barre, Jupiter Yacht Club Marina notified Powell in August 2004 that his lease would not be renewed because he had violated marina rules and regulations.

According to the Times-Leader , a member of Powell’s law firm, Stephen Seach, filed a complaint against the club in Luzerne County Common Pleas Court. Toole, the motions court judge, set a date for a hearing and held one on Oct. 21, 2004.

An attorney for the yacht club sent a letter to Toole, dated Oct. 20, 2004, questioning why the case was being heard in Pennsylvania and asking for a continuance, according to the Times-Leader. The attorney called the issues in the case "Florida matters."

According to the Times-Leader, the attorney for the yacht club had only been given one day’s notice for the hearing.

Toole’s order directed the marina to stop interfering with the renewal of Powell’s lease. He called for a full hearing on the issue, but the issue became moot. According to the Times-Leader, Powell withdrew his court action about two months later.

Toole had been on the bench for less than a year at the time.

According to a Feb. 10, 2009, article in the Times-Leader, Toole defended his decision and asserted that he had jurisdiction over the case because the plaintiff was from Pennsylvania.

"Our citizens, if they enter a contract here, shouldn’t have to fight a corporation in their hometown," Toole said, according to the Times-Leader.

While the initial charges in the federal probe centered around the allegations that Conahan and Ciavarella accepted kickbacks in exchange for sending kids to PA Child Care, sources have confirmed that the investigation has since grown to include allegations of case fixing in motor vehicle arbitration cases, alleged case fixing between Conahan and two admitted felons — including reputed mob boss William D’Elia — as well as scrutiny of other Luzerne County judges.

Sources have previously confirmed that D’Elia and his friend, admitted felon Robert Kulick — also a friend of Conahan’s, sources have confirmed — have been cooperating with law enforcement authorities in their investigation into alleged corruption in Luzerne County.

D’Elia has issued a statement through his attorney distancing himself from Kulick and Conahan.

"I in no way was involved with the judges and juvenile detention center and the Thomas Joseph lawsuit," D’Elia has said, according to his attorney James Swetz.

And late last week sources confirmed to The Legal Intelligencer that federal investigators are looking into a zoning case in which the owners of a hotel frequented by D’Elia challenged a zoning variance that would have allowed the county to build a new county-owned juvenile detention facility.

Before his election to the bench in 2003, Toole was a partner with Ciavarella at Lowery Ciavarella Rogers and Toole. Court records show that, on at least one occasion, Toole represented The Woodlands Inn & Resort — a hotel on the outskirts of Wilkes-Barre that has ties to D’Elia and that also received a pair of favorable rulings from Conahan in 2000 and 2003. There is no evidence to suggest that the plaintiffs improperly influenced either case.

The resort received another favorable ruling in 2003 from Judge Peter Paul Olszewski Jr. that blocked the construction of a county-owned juvenile detention facility near its property, because it might have scared away prospective guests. The decision essentially paved the way for the construction of PA Child Care.

That is a case federal investigators are looking into, sources have told The Legal Intelligencer. There is no evidence to suggest that the plaintiffs improperly influenced the outcome of the case.

During his time at the firm, Ciavarella represented Robert K. Mericle — the builder of PA Child Care.

Though he was not named in the criminal information filed by federal officials against Ciavarella and Conahan, Mericle’s construction company allegedly wired $1 million of the $2.6 million in kickbacks to a company over which the judges had control, according to the criminal information filed against the judges.

A review of Toole’s 2003 campaign contributions shows Mericle donated $600.

Subscribe to The Legal Intelligencer

“Class is a Dirty Word”

http://www.dissidentvoice.org/2008/12/%E2%80%9Cclass-is-a-dirty-word%E2%80%9D/

by Jason Miller / December 26th, 2008

Class is a dirty word in that it gets close to the truth about who governs and for whose benefit.

– Michael Parenti

Michael Parenti is an internationally known award-winning author and lecturer. He is one of the nation’s leading progressive political analysts. His highly informative and entertaining books and talks have reached a wide range of audiences in North America and abroad.

In the land of those who think they’re free and the home of savage capitalism, class is indeed a dirty word. Remember, we’re a nation of Joe the Plumbers. If we just work hard enough and fend off those socialist vampires who want to suck us dry by redistributing our hard-earned wealth, we can all be financial successes. And if you’re a faux-progressive presidential candidate—like Obama, you’re doomed to political perdition unless you sign a blood oath disavowing your ties to socialism.

Yet there are a few political analysts and academics who dare to blaspheme against capitalism, which is the “God” this benighted land truly worships—despite the disgustingly hypocritical veneer of faux Christianity. Remember that Michael Parenti has one of the filthiest mouths you’ll ever hear. He dares to repeatedly spew profane diatribes against capitalism, the sacrosanct basis for our precious American Way of Life. Parenti has the chutzpah to derisively attack our system, which we all know is the best that’s ever been (or will be), by asserting that there are divisions amongst US Americans based on socioeconomic standing. And worst of all? He uses the “C” word! Somebody needs to give his mouth a good cleansing with a bar of Dial!

Parenti recently answered a few questions Jason Miller threw his way. Let’s see how much further he traveled on the road to perdition…

Jason Miller: You’re one of the best kept secrets of the “American Left” (ridiculously marginalized and small in number as we are). Why is it that despite your brilliant critiques, particularly of bourgeois revisionist history, you remain relatively obscure even amongst the more radical segment of the US population?

Michael Parenti: It’s really not all that bad. People do describe me as “widely acclaimed” and “internationally known” etc. and I do reach varied audiences in North America and abroad with my writings, lectures, and interviews. But it is true that there are sectarian or small minded elements on the left – including some very prominent figures – who are quiet practitioners of McCarthyism in that they exclude or try to isolate anyone who (a) places a strong emphasis on the realities of class power (b) occasionally uses a Marxist analysis or (c) finds some things of value in existing socialist societies that are worthy of being preserved, such as human services, guaranteed right to a job, free education, free medical care, affordable housing for all, etc. These societies, now mostly defunct, have been deemed by most of the left as worthy of nothing but a constant unremitting denunciation.

JM: Do you think the bourgeoisie has begun demonizing environmentalists and animal rights advocates because they perceive us to be a legitimate threat to the system, is the Green Scare simply another aspect of the divide and conquer tactic, do animal and Earth exploiters wield that much power within the system, is it a combination of these, or something more?

MP: The purveyors of free-market global capitalism believe that they have a right to plunder the remaining natural resources of this planet as they choose. Anyone who challenges their agenda is to be subjected to whatever misrepresentation and calumny that serves the free market corporate agenda.

JM: How has the capitalist class in the US been so successful at convincing the masses that we live in a “classless society” and etching a cultural standard in granite that it is taboo to discuss class issues?

MP: Through control of the universe of discourse, including the media, the professions, the universities, the publishing industry, many of the churches, the consumer society, the job market, and even the very socialization of our children and the prefiguring of our own perceptions, the ruling interests are able to exercise a prevailing ideological control that excludes any reasoned critique of the dominant paradigm. Class is a dirty word in that it gets close to the truth about who governs and for whose benefit.

JM: What are your thoughts on Obama and what change we may see under his presidency?

MP: I greeted Obama’s electoral victory with very little enthusiasm but much relief that the lying slime-bag right-wing John McCain was defeated. I think Obama will be another Bill Clinton, perhaps not as bad. Some people see his accession to the White House as a great historic victory for African Americans and for democracy. But I am not all that impressed. When the victory is extended into social democratic policies that have a salutary effect on millions of struggling impoverished African-Americans and other working poor, then I’ll start dancing in the streets.

JM: Prior to Obama’s election, a number of radical thinkers posited that the US was in a pre-revolutionary stage. What impact do you think the Obama administration will have on the potential of consciousness, anger, and social unrest reaching critical mass amongst the working class in the US in the near future? Or better yet, are you even optimistic that the American people will catch fire and revolt against our wretchedly rapacious and imperialistic system?

MP: I do not think we are entering a pre-revolutionary stage. However political struggle can be a surprising phenomenon emerging with great democratic force and sudden movement in the most unexpected ways. We are approaching an economic crisis of momentous scope. The radical reactions may not be all that progressive and rational. The unfortunate thing about corporate capitalism is that it is often advantaged by the very wretched conditions it itself creates. I am hoping that the social groups that have been activated by Obama’s campaign will not go to sleep and will not let up the pressure for progressive change.

JM: What do you say to critics who assert that socialism is a utopian dream in the abstract and a nightmare in reality?

MP: Your question is a paraphrase of the one I posed in my book, Democracy for the Few. “Is socialism not just a dream in theory and a nightmare in practice?” In response I pointed out that the features which make life livable in capitalist society are mostly socialistic in practice, including human services, infrastructure development, environmental protections, and even many technological advances that are funded or even created by government sources.

JM: With Castro hanging in there and now Chavez, Morales, Correa, and Ortega in place, to what extent do you think socialism will continue to expand and flourish in Latin America?

MP: It is not likely that the reforms in Latin America will really lead to socialism but at least to some gains for the most desperately oppressed.

JM: Some argue that there is a “third way” that represents a better alternative to capitalism than socialism. Your thoughts?

MP: Maybe they are referring to the social democracy that is found in some Western European countries that provide decent human services and better regulation of corporate doings. But even these social democracies are under attack and face rollback. Look at what has happened to Britain.

Jason Miller is a wage slave of the American Empire who has freed himself intellectually and spiritually. He is Cyrano’s Journal Online’s associate editor. He welcomes constructive correspondence at JMiller@bestcyrano.org or via his blog, Thomas Paine’s Corner. Read other articles by Jason, or visit Jason’s website.

This article was posted on Friday, December 26th, 2008 at 8:00am and is filed under Capitalism, Interview. ShareThis

Mikhail Khazin: U.S. will soon face second “Great Depression”

Renowned economist Khazin predicted U.S. financial crisis in 2000
KP.RU, Yevgeniy Chernyx — 29.10.2008
Five years ago, I ran the cultural section at Komsomolskaya Pravda. Publishing houses used to send me their new releases now and again for review. One day, after digging through the latest shipment of such literature, I stumbled upon a book titled, “Sunset of the Dollar Empire and the End of the Pax Americana.”

I remember reading the title over to myself several times in disbelief. Way back when, Soviet Americanologists loved to debate the collapse of the U.S. financial empire. But this book was published in 2003.

I flipped through the pages, skimming over the text. The conclusions of the author — an economist named Mikhail Khazin — seemed convincing enough. So I gave the book to our economics columnist at KP Jenya Anisimov, who wrote a review and interviewed the author later at our editorial offices.

All these years, I kept Khazin in the back of my mind, and followed his career as he spoke at various conferences throughout Russia. He seemed certain the U.S. was teetering on the verge of an economic collapse, while other analysts were quick to refute his theory. Now, as his once unfathomable prognosis begins to come true, KP contacted Khazin for an interview.

Fired from the Kremlin!

KP: Mikhail Leonidovich, how did you end up predicting the current financial crisis?

Khazin: In the spring of 1997, the Kremlin established the Presidential Economic Department. I was made the deputy head of the unit. Our first task was to prepare a report for [former President Boris] Yeltsin about the economic situation. We realized an economic crisis was pending in Russia and would take place in the late summer or early fall of 1998 if the country’’s economic policies weren’t changed.

KP: What view did the higher echelons take of your report?

Khazin: They didn’t really take any view at all. No one read the text except for the deputy head of the administration and Yeltsin himself. In the summer of 1998, we were fired from the presidential administration for trying to stop a business project titled, “State Treasury Bills— Exchange Rate Corridor.” This was the biggest financial scheme of the post-Soviet era. Just as we had predicted, an economic crisis gave way that August. Together with my colleagues, I continued researching the reasons behind the crisis.

After becoming seriously consumed in our studies of the U.S. financial system, we found an unprecedented parallel. Just as our T-bill market had sucked all the juices out of the Russian economy, the U.S. financial market was sucking the resources out of the entire planet. We realized a similar fate awaited the U.S. financial system. Our article was published in the summer of 2000 in the “Ekspert” magazine, titled, “Is the U.S. Digging for an Apocalypse.” We concluded that it was just as impossible to avoid an economic crisis in the U.S. as the financial collapse in Russia.

Playing the idiot

KP: The U.S. obviously didn’t listen to the song written by [the renowned Russian rock group] LUBE during perestroika, “Don’t Play the Fool, America!” Seriously, though, what’s the real reason for the economic collapse? Let’s try to do this without any heavy duty financial terms…

Khazin: I’ll try! The economic model that led to the collapse was the result of a crisis in the 1970s. This was a terrible financial crisis that was the result of surplus capital. Even the 19th-Century classics in economics literature concluded that capital grows faster than labor provides compensation. As a result, there is a lack of demand. In traditional capitalism, this problem is solved on account of crises in excess production. And in an imperialistic system, the problem is solved on account of capital outflow. But by the 1970s, these solutions had run their course. However, the internatinoal situation demanded the U.S. either make a great scientific and technological leap forward or lose the Cold War to the USSR. The administration of [President Jimmy] Carter and the head of the Financial Reserve System Paul Walker developed a very tricky concept. For the first time in the history of capitalism, capitalists began helping others, issuing new currency in an effort to stimulate aggregate demand .

KP: They decided to switch on the printing press?

Khazin: Exactly. In the early 1980s, they started to stimulate demand through state support. For example, they launched the “Star Wars” program. As of 1983, they placed an emphasis on the household economies.

KP: You mean, they relied on the average citizens?

Khazin: Yes. For an entire quarter century, households received funds as a result of issuing new currency in larger and larger quantities.

KP: In other words, credit?

Khazin: Yes. The U.S. was able to make the next step in technological progress as a result of this excess demand. They accomplished the collapse of the USSR and numerous other significant fears. But… The boom took place thanks to resources that were supposed to provide for future growth. The country ate its own resources two generations ahead of time. The U.S. built up tremendous debt. This is clearly seen if we compare the growth of debt in U.S. households with the entire U.S. debt and GDP. The economy is growing at an annual rate of 2-3, or at a maximum 4 percent. But debt is increasing at a rate of 8-10 percent.
KP: Well, let the debt keep growing… The U.S. lived fine up until now without a problem… Better than we did!

Khazin: Yes, the U.S. did create a very high standard of living by stimulating consumer demand. Generations lived without having to experience poverty. But it’s impossible to live forever in debt. Household debt has now surpassed the national economy — more than $14 trillion. Now it’s time to pay up. Of course, Wall Street tried to postpone this collapse. I won’t go into detail about derivatives and other such financial assets, but this was just a gasp for air before an inevitable death.

Another problem in the U.S. is that powerful industries were built around this growing demand. Whatever decision Wall Street takes right now, the demand is going to fall. What will happen to these industries? In 2000, we estimated that 25 percent of the U.S. economy would disappear. Today, we think the number is closest to one-third — if not more.

KP: That’s a lot!

Khazin: That’s an incredible amount! But what exactly does this mean — the destruction of one-fourth of the U.S. economy? It means an uncontrollable increase in unemployment, a horrible depression, a sharp increase in the effect of social services on the budget… Now, the U.S. is jumping all over the place doing everything its can to rescue this fraction of the economy. The government is stimulating banks and manufacturing… But regardless, in 2-3 years, the U.S. will face a crisis similar to the Great Depression.

Who is Who

Mikhail Leonidovich Khazin was born in 1962. He studied mathematics at the Yaroslavl University and Moscow State University. In 1984-1991, he worked at the Soviet Academy of Sciences. In 1993-1994, he worked at the State Working Center of Economic Reforms. In 1995-1997, he was the head of the Credit Policy Department at the Economics Ministry. In 1997-1998, he was the deputy head of the Presidential Economics Department. In June 1998, he left state service. At the moment, he is president of the consulting firm, Neokon.

some good news – Day of Reckoning? Super Rich Tax Cheats Outed by Bank Clerk

Day of Reckoning? Super Rich Tax Cheats Outed by Bank Clerk
Technician in Liechtenstein Turns Over Names of Americans With Secret Bank Accounts
By BRIAN ROSS and RHONDA SCHWARTZ

July 15, 2008—

Hundreds of super-rich American tax cheats have, in effect, turned themselves in to the IRS after a bank computer technician in the tiny European country of Liechtenstein came forward with the names of US citizens who had set up secret accounts there, according to Washington lawyers investigating the scheme.

The bank clerk, Heinrich Kieber, has been branded a thief by the government of Liechtenstein for violating the country’s bank secrecy laws.

He is now in hiding but scheduled to testify to the Senate’s Permanent Subcommittee on Investigations Thursday via a video statement from a secret location, according to Congressional investigators.

Aides for committee chairman Carl Levin (D-MI) are scheduled to provide reporters with a background briefing later this morning in Washington on the committee’s investigation of tax haven banks in Liechtenstein and Switzerland.

Aides say the hearing will also focus on the role of the giant Swiss bank UBS and its alleged efforts to help wealthy Americans hide their money from the IRS through shell companies in Liechtenstein.

Liechtenstein’s veil of secrecy was pierced five years ago when the disgruntled technician, Kieber, downloaded the names of foreign citizens connected to the secret accounts.

Kieber reportedly sold three CD’s full of names and data to tax authorities to 12 countries including Germany, Great Britain, France, Italy and the United States.

Tax authorities in Italy published the full list of names.

In Germany, the disclosures led to the arrests of several prominent CEO’s on charges that had evaded millions of dollars in taxes.

A former UBS private banker, Bradley Birkenfeld, has agreed to a plea deal and is reported to be cooperating with US authorities in bring charges against American citizens on tax evasion charges.

The Liechtenstein bank, LGT, is owned by the tiny country’s ruling family led by Prince Hans-Adam II.

Kieber’s Washington lawyer, Jack Blum, says Kieber should be considered a whistleblower and a hero, not a thief, for revealing how the super rich hid billions of dollars using the Liechtenstein bank.

The names of the US citizens are now in the hands of the IRS and Senate investigators.

Washington lawyers say a number of prominent citizens have been subpoenaed to testify but have already indicated they will refuse to testify, asserting their Fifth Amendment right against self-incrimination.

It is not yet clear whether Senator Levin will insist they appear in front of the committee anyway.

Click Here for the Investigative Homepage.

Project Censored: The Top 10 Stories the US News Media Missed in the Past Year

Project Censored: The Top 10 Stories the US News Media Missed in the Past Year

By San Francisco Bay Guardian.

 

 

› BY AMANDA WITHERELL amanda@sfbg.com

 

The daily dispatches and nightly newscasts of the mainstream media regularly cover terrorism, but rarely discuss how the fear of attacks is used to manipulate the public and set policy. That’s the common thread of many unreported stories last year, according to an analysis by Project Censored.

 

Since 1976, Sonoma State University has released an annual survey of the top 25 stories the mainstream media failed to report or reported poorly. Culled from worldwide alternative news sources, vetted by students and faculty, and ranked by judges, the stories were not necessarily overtly censored. But their controversial subjects, challenges to the status quo, or general under-the-radar subject matter might have kept them from the front pages. Project Censored recounts them, accompanied by media analysis, in a book of the same name published annually by Seven Stories Press.

 

“This year, war and civil liberties stood out,” Peter Phillips, project director since 1996, said of the top stories. “They’re closely related and part of the War on Terror that has been the dominant theme of Project Censored for seven years, since 9/11.”

 

Whether it’s preventing what one piece of legislation calls “homegrown terrorism” by federally funding the study of radicalism, using vague concerns about security to quietly expand NAFTA, or refusing to count the number of Iraqi civilians killed in the war, the threat of terrorism is being used to silence people and expand power.

 

“The war on terror is a sort of mind terror,” said Nancy Snow, one of the project’s 24 judges and an associate professor of public diplomacy at the Newhouse School of Public Communications at Syracuse University. Snow — who has taught classes on war, media, and propaganda — elaborated: “You can’t declare war on terror. It’s a tactic used by groups to gain publicity and it will remain with us. But it’s unlikely that [the number of terrorist acts] will spike. It spikes in the minds of people.”

 

She pointed out that the number of terrorist attacks has dropped worldwide since 2003. Some use the absence of fresh attacks as evidence that the so-called war on terror is working. But a RAND Corporation study for the Department of Defense released in August said the war on terror hasn’t effectively undermined Al Qaeda. It suggested the phrase be replaced with the less loaded term “counterterrorism.”

 

Both Phillips and Snow agree that comprehensive, contextual reporting is missing from most of the coverage. “That’s one of my criticisms of the media,” Snow said. “They spotlight issues and don’t look at the entire landscape.”

 

This year the landscape of Project Censored itself is expanding. After talking with educators who bemoan the ongoing decline of news quality and want to help, Phillips launched the Truth Emergency Project, in which Sonoma State partners with 23 other universities. All will host classes for students to search out untold stories, vet them for accuracy, and submit them for consideration to Project Censored.

 

“There’s a renaissance of independent media,” Phillips said. He thinks bloggers and citizen journalists are filling crucial roles left vacant by staff cutbacks throughout the mainstream media. And, he said, it’s time for universities, educators, and media experts to step in and help. “It’s not just reforming the media, but supporting them in as many ways as they need, like validating stories by fact-checking.”

 

The Truth Emergency Project will also host a news service that aggregates the top 12 independent media sources and posts them on one page. “So you can get an RSS feed from all the major independent news sources we trust,” he said. Discerning newshounds can find reporting from the BBC, Democracy Now!, and Inter Press Service (IPS) in one spot. “The whole criteria,” he said, “is no corporate media.”

 

Carl Jensen, who started Project Censored in 1976, said the expansion is a new and necessary phase. “It answers the question I was always challenged with: how do you know this is the truth? Having 24 campuses reviewing all the stories and raising questions really provides a good answer. These stories will be vetted more than Sarah Palin.”

 

Phillips said he hopes to expand to 100 schools within the year, and would like the project to bring more attention to the dire need for public support for high quality news reporting. “I think it’s going to require government subsidies and nonprofit organizations doing community media projects,” he said. “It’s more than just reforming at the FCC level. It’s building independent media from the ground up.”

 

Phillips likens it to the boom in microbrewed beer and the spread of independently-owned pubs: “If we can have a renaissance in beer-making, following established purity standards, then we can do it with our media, too.” But for now, we have Project Censored, whose top 10 underreported stories for 2008 are:

 

1. HOW MANY IRAQIS HAVE DIED?

 

Nobody knows exactly how many lives the Iraq War has claimed. But even more astounding is that so few journalists have mentioned the issue or cited the top estimate: 1.2 million.

 

During August and September 2007, Opinion Research Business, a British polling group, surveyed 2,414 adults in 15 of 18 Iraqi provinces and found that more than 20 percent had experienced at least one war-related death since March 2003. Using common statistical study methods, it determined that as many as 1.2 million people had been killed since the war began.

 

The US military, claiming it keeps no count, still employs civilian death data as a marker of progress. For example, in a Sept. 10, 2007, report to Congress, Gen. David Petraeus said, “Civilian deaths of all categories, less natural causes, have also declined considerably, by over 45 percent Iraq-wide since the height of the sectarian violence in December.”

 

But whose number was he using? Estimates range wildly and are based on a variety of sources, including hospital, morgue, and media reports, as well as in-person surveys.

 

In October 2006, the British medical journal Lancet published a Johns Hopkins University study vetted by four independent sources that counted 655,000 dead, based on interviews with 1,849 households. It updated a similar study from 2004 that counted 100,000 dead. The Associated Press called it “controversial.”

 

The AP began its own count in 2005 and by 2006 said that at least 37,547 Iraqis had lost their lives due to war-related violence, but called it a minimum estimate at best and didn’t include insurgent deaths.

 

Iraq Body Count, a group of US and UK citizens who aggregate numbers from media reports on civilian deaths, puts the figure between 87,000 and 95,000. In January 2008, the World Health Organization and the Iraqi government did door-to-door surveys of nearly 10,000 households and put the number of dead at 151,000.

 

The 1.2 million figure is out there, too, which is higher than the Rwandan genocide death toll and closing in on the 1.7 million who perished in Cambodia’s killing fields. It raises questions about the real number of deaths from US aerial bombings and house raids, and challenges the common assumption that this is a war in which Iraqis are killing Iraqis.

 

Justifying the higher number, Michael Schwartz, writing on the blog AfterDowningStreet.org, pointed to a fact reported by the Brookings Institute that US troops have, over the past four years, conducted about 100 house raids a day — a number that has recently increased with assistance from Iraqi soldiers.

 

Brutality during these house searches has been documented by returning soldiers, Iraqi civilians, and independent journalists (See #9 below). Schwartz suggests the aggressive “element of surprise” tactics employed by soldiers is likely resulting in several thousands of deaths a day that either go unreported or are categorized as insurgent casualties.

 

The spin is having its intended effect: a February 2007 AP poll showed Americans gave a median estimate of 9,890 Iraqi deaths as a result of the war, a number far below that cited in any credible study.

 

Sources: “Is the United States killing 10,000 Iraqis every month? Or is it more?” Michael Schwartz, After Downing Street.org, July 6, 2007; “Iraq death toll rivals Rwanda Genocide, Cambodian killing fields,” Joshua Holland, AlterNet, Sept. 17, 2007; “Iraq conflict has killed a million: survey,” Luke Baker, Reuters, Jan. 30, 2008; “Iraq: Not our country to return to,” Maki al-Nazzal and Dahr Jamail, Inter Press Service, March 3, 2008.

 

2. NAFTA ON STEROIDS

 

Coupling the perennial issue of security with Wall Street’s measures of prosperity, the leaders of the three North American nations convened the Security and Prosperity Partnership. The White House–led initiative — launched at a March 23, 2005, meeting of President Bush, Mexico’s then-president Vicente Fox, and Canadian Prime Minister Paul Martin — joins beefed-up commerce with coordinated military operations to promote what it calls “borderless unity.”

 

Critics call it “NAFTA on steroids.” However, unlike NAFTA, the SPP was formed in secret, without public input.

 

“The SPP is not a law, or a treaty, or even a signed agreement,” Laura Carlsen wrote in a report for the Center for International Policy. “All these would require public debate and participation of Congress, both of which the SPP has scrupulously avoided.”

 

Instead the SPP has a special workgroup: the North American Competitiveness Council. It’s a coalition of private companies that are, according to the SPP Web site, “adding high-level business input [that] will assist governments in enhancing North America’s competitive position and engage the private sector as partners in finding solutions.”

 

The NACC includes the Chevron Corporation, Ford Motor Company, General Electric, Lockheed Martin Corporation, Merck & Co. Inc., New York Life Insurance Co., Procter & Gamble Co., and Wal-Mart Stores, Inc.

 

“Where are the environmental council, the labor council, and the citizen’s council in this process?” Carlsen asked.

 

A look at NAFTA’s unpopularity among citizens in all three nations is evidence of why its expansion would need to be disguised. “It’s a scheme to create a borderless North American Union under US control without barriers to trade and capital flows for corporate giants, mainly US ones,” wrote Steven Lendman in Global Research. “It’s also to insure America gets free and unlimited access to Canadian and Mexican resources, mainly oil, and in the case of Canada, water as well.”

 

Sources: “Deep Integration,” Laura Carlsen, Center for International Policy, May 30, 2007; “The Militarization and Annexation of North America,” Stephen Lendman, Global Research, July 19, 2007; “The North American Union,” Constance Fogal, Global Research, Aug. 2, 2007.

 

3. INFRAGARD GUARDS ITSELF

 

The FBI and Department of Homeland Security have effectively deputized 23,000 members of the business community, asking them to tip off the feds in exchange for preferential treatment in the event of a crisis. “The members of this rapidly growing group, called InfraGard, receive secret warnings of terrorist threats before the public does — and, at least on one occasion, before elected officials,” Matthew Rothschild wrote in the March 2008 issue of The Progressive.

 

InfraGard was created in 1996 in Cleveland as part of an FBI probe into cyberthreats. Yet after 9/11, membership jumped from 1,700 to more than 23,000, and now includes 350 of the nation’s Fortune 500 companies. Members typically have a stake in one of several crucial infrastructure industries, including agriculture, banking, defense, energy, food, telecommunications, law enforcement, and transportation. The group’s 86 chapters coordinate with 56 FBI field offices nationwide.

 

While FBI Director Robert Mueller has said he considers this segment of the private sector “the first line of defense,” the American Civil Liberties Union issued a grave warning about the potential for abuse. “There is evidence that InfraGard may be closer to a corporate TIPS program, turning private-sector corporations — some of which may be in a position to observe the activities of millions of individual customers — into surrogate eyes and ears for the FBI,” it cautioned in an August 2004 report.

 

“The FBI should not be creating a privileged class of Americans who get special treatment,” Jay Stanley, public education director of the ACLU’s technology and liberty program, told Rothschild.

 

And they are privileged: a DHS spokesperson told Rothschild that InfraGard members receive special training and readiness exercises. They’re also privy to protected information that is usually shielded from disclosure under the trade secrets provision of the Freedom of Information Act.

 

The information they have may be of critical importance to the general public, but first it goes to the privileged membership — sometimes before it’s released to elected officials. As Rothschild related in his story, on Nov. 1, 2001, the FBI sent an alert to InfraGard members about a potential threat to bridges in California. Barry Davis, who worked for Morgan Stanley, received the information and relayed it to his brother Gray, then governor of California, who released it to the public.

 

Steve Maviglio, Davis’s press secretary at the time, told Rothschild, “The governor got a lot of grief for releasing the information. In his defense, he said, ‘I was on the phone with my brother, who is an investment banker. And if he knows, why shouldn’t the public know?’<0×2009>”

 

Source: “The FBI deputizes business,” Matthew Rothschild, The Progressive, Feb. 7, 2008.

 

4. ILEA: TRAINING GROUND FOR ILLEGAL WARS?

 

The School of the Americas earned an unsavory reputation in Latin America after many graduates of the Fort Benning, Ga., facility turned into counterinsurgency death squad leaders. So the International Law Enforcement Academy recently installed by the Unites States in El Salvador — which looks, acts, and smells like the SOA — is also drawing scorn.

 

The school, which opened in June 2005 before the Salvadoran National Assembly approved it, has a satellite operation in Peru and is funded with $3.6 million from the US Treasury and staffed with instructors from the DEA, ICE, and FBI. It’s tasked with training 1,500 police officers, judges, prosecutors, and other law enforcement agents in counterterrorism techniques per year. It’s stated purpose is to make Latin America “safe for foreign investment” by “providing regional security and economic stability and combating crime.”

 

ILEAs aren’t new, but past schools located in Hungary, Thailand, Botswana, and Roswell, N.M., haven’t been terribly controversial. Yet Salvadoran human rights organizers take issue with the fact that, in true SOA fashion, the ILEA releases neither information about its curriculum nor a list of students and graduates. Additionally, the way the school slipped into existence without public oversight has raised ire.

 

As Wes Enzinna noted in a North American Congress on Latin America report, when the US decided it wanted a training ground in Latin America, El Salvador was not the first choice. In 2002 US officials selected Costa Rica as host — a country that doesn’t even have an army. The local government signed on and the plan made headlines. But when citizens learned about it, they revolted and demanded the government change the agreement. The US bailed for a more discreet second attempt in El Salvador.

 

“Members of the US Congress were not briefed about the academy, nor was the main opposition party in El Salvador, the Farabundo Martí-National Liberation Front (FMLN),” Enzinna wrote. “But once the news media reported that the two countries had signed an official agreement in September, activists in El Salvador demanded to see the text of the document.” Though they tried to garner enough opposition to kill the agreement, the National Assembly narrowly ratified it.

 

Now, after more than three years in operation, critics point out that Salvadoran police, who account for 25 percent of the graduates, have become more violent. A May 2007 report by Tutela Legal implicated Salvadoran National Police (PNC) officers in eight death squad–style assassinations in 2006.

 

El Salvador’s ILEA recently received another $2 million in US funding through the congressionally approved Mérida Initiative — but still refuses to adopt a more transparent curriculum and administration, despite partnering with a well-known human rights leader. Enzinna’s FOIA requests for course materials were rejected by the government, so no one knows exactly what the school is teaching, or to whom.

 

Sources: “Exporting US ‘Criminal Justice’ to Latin America,” “Community in Solidarity with the people of El Salvador,” Upside Down World, June 14, 2007; “Another SOA?” Wes Enzinna, NACLA Report on the Americas, March/April 2008; “ILEA funding approved by Salvadoran right wing legislators,” CISPES, March 15, 2007; “Is George Bush restarting Latin America’s ‘dirty wars?’<0×2009>” Benjamin Dangl, AlterNet, Aug. 31, 2007.

 

5. SEIZING PROTEST

 

Protesting war could get you into big trouble, according to a critical read of two executive orders recently signed by President Bush. The first, issued July 17, 2007, and titled, “Blocking property of certain persons who threaten stabilization efforts in Iraq,” allows the feds to seize assets from anyone who “directly or indirectly” poses a risk to the US war in Iraq. And, citing the modern technological ease of transferring funds and assets, the order states that no prior notice is necessary before the raid.

 

On Aug. 1, Bush signed another order, similar but directed toward anyone undermining the “sovereignty of Lebanon or its democratic processes and institutions.” In this case, the Secretary of the Treasury can seize the assets of anyone perceived as posing a risk of violence, as well as the assets of their spouses and dependents, and bans them from receiving any humanitarian aid.

 

Critics say the orders bypass the right to due process and the vague language makes manipulation and abuse possible. Protesting the war could be perceived as undermining or threatening US efforts in Iraq. “This is so sweeping, it’s staggering,” said Bruce Fein, a former Reagan administration official in the Justice Department who editorialized against it in theWashington Times. “It expands beyond terrorism, beyond seeking to use violence or the threat of violence to cower or intimidate a population.”

 

Sources: “Bush executive order: Criminalizing the antiwar movement,” Michel Chossudovsky,Global Research, July 2007; “Bush’s executive order even worse than the one on Iraq,” Matthew Rothschild, The Progressive, Aug. 2007.

 

6. RADICALS = TERRORISTS

 

On Oct. 23, 2007, the House of Representatives overwhelmingly passed — by a vote of 404-6 — the “Violent Radicalization and Homegrown Terrorism Prevention Act,” designed to root out the causes of radicalization in Americans.

 

With an estimated four-year cost of $22 million, the act establishes a 10-member National Commission on the Prevention of Violent Radicalization and Homegrown Terrorism, as well as a university-based Center of Excellence “to examine the social, criminal, political, psychological, and economic roots of domestic terrorism,” according to a press release from the bill’s author, Rep. Jane Harman (D-Los Angeles).

 

During debate on the bill, Harman said, “Free speech, espousing even very radical beliefs, is protected by our Constitution. But violent behavior is not.”

 

Jessica Lee, writing in the Indypendent, a newspaper put out by the New York Independent Media Center, pointed out that in a later press release Harman stated: “the National Commission [will] propose to both Congress and [Department of Homeland Security Secretary Michael] Chertoff initiatives to intercede before radicalized individuals turn violent.”

 

Which could be when they’re speaking, writing, and organizing in ways that are protected by the First Amendment. This redefines civil disobedience as terrorism, say civil rights experts, and the wording is too vague. For example, the definition of “violent radicalization” is “the process of adopting or promoting an extremist belief system for the purpose of facilitating ideologically based violence to advance political, religious, or social change.”

 

“What is an extremist belief system? Who defines this? These are broad definitions that encompass so much…. It is criminalizing thought and ideology,” said Alejandro Queral, executive director of the Northwest Constitutional Rights Center in Portland, Ore.

 

Though the ACLU recommended some changes that were adopted, it continued to criticize the bill. Harman, in a response letter, said free speech is still free and stood by the need to curb ideologically-based violence.

 

The story didn’t make it onto the CNN ticker, but enough independent sources reported on it that the equivalent Senate Bill 1959 has since stalled. After introducing the bill, Sen. Susan Collins (R-Me.), later joined forces with Sen. Joe Lieberman (I-Conn.) on a report criticizing the Internet as a tool for violent Islamic extremism.

 

Despite an outcry from civil liberties groups, days after the report was released Lieberman demanded that YouTube remove a number of Islamist propaganda videos. YouTube canned some that broke their rules regarding violence and hate speech, but resisted censoring others. The ensuing battle caught the attention of the New York Times, and on May 25 it editorialized against Lieberman and S 1959.

 

Sources: “Bringing the war on terrorism home,” Jessica Lee, Indypendent, Nov. 16, 2007; “Examining the Homegrown Terrorism Prevention Act,” Lindsay Beyerstein, In These Times, Nov. 2007; “The Violent Radicalization Homegrown Terrorism Prevention Act of 2007,” Matt Renner, Truthout, Nov. 20, 2007

 

7. SLAVERY’S RUNNER-UP

 

Every year, about 121,000 people legally enter the United States to work with H-2 visas, a program legislators are touting as part of future immigration reform. But Rep. Charles Rangel (D-N.Y.) called this guest worker program “the closest thing I’ve ever seen to slavery.”

 

The Southern Poverty Law Center likened it to “modern day indentured servitude.” They interviewed thousands of guest workers and reviewed legal cases for a report released in March 2007, in which authors Mary Bauer and Sarah Reynolds wrote, “Unlike US citizens, guest workers do not enjoy the most fundamental protection of a competitive labor market — the ability to change jobs if they are mistreated. Instead, they are bound to the employers who ‘import’ them. If guest workers complain about abuses, they face deportation, blacklisting, or other retaliation.”

 

When visas expire, workers must leave the country, hardly making this the path to permanent citizenship legislators are looking for. The H-2 program mimics the controversial bracero program, established through a joint agreement between Mexico and the United States in 1942 that brought 4.5 million workers over the border during the 22 years it was in effect.

 

Many legal protections were written into the program, but in most cases they existed only on paper in a language unreadable to employees. In 1964 the program was shuttered amid scores of human rights abuses and complaints that it undermined petitions for higher wages from US workers. Soon after, United Farm Workers organized, which César Chávez said would have been impossible if the bracero program still existed.

 

Years later, it essentially still does. The H-2A program, which accounted for 32,000 agricultural workers in 2005, has many of the same protections — and many of the same abuses. Even worse is the H-2B program, used by 89,000 non-agricultural workers annually. Created by the Immigration Reform and Control Act of 1986, none of the safeguards of the H-2A visa are legally required for H-2B workers.

 

Still, Mexicans are literally lining up for H-2B status, the stark details of which were reported by Felicia Mello in The Nation. Furthermore, thousands of illegal immigrants are employed throughout the country, providing cheap, unprotected labor and further undermining the scant provisions of the laws. Labor contractors who connect immigrants with employers are stuffing their pockets with cash, while the workers return home with very little money.

 

The Southern Poverty Law Center outlined a list of comprehensive changes needed in the program, concluding, “For too long, our country has benefited from the labor provided by guest workers but has failed to provide a fair system that respects their human rights and upholds the most basic values of our democracy. The time has come for Congress to overhaul our shamefully abusive guest worker system.”

 

Sources: “Close to Slavery,” Mary Bauer and Sarah Reynolds, Southern Poverty Law Center, March 2007; “Coming to America,” Felicia Mello, The Nation, June 25, 2007; “Trafficking racket,” Chidanand Rajghatta, Times of India, March 10, 2008.

 

8. BUSH CHANGES THE RULES

 

The Bush administration’s Office of Legal Counsel in the Department of Justice has been issuing classified legal opinions about surveillance for years. As a member of the Senate Intelligence Committee, Sen. Sheldon Whitehouse (D-R.I.) had access to the DOJ opinions on presidential power and had three declassified to show how the judicial branch has, in a bizarre and chilling way, assisted President Bush in circumventing its own power.

 

According to the three memos:

 

“There is no constitutional requirement for a President to issue a new executive order whenever he wishes to depart from the terms of a previous executive order. Rather than violate an executive order, the President has instead modified or waived it”;

 

“The President, exercising his constitutional authority under Article II, can determine whether an action is a lawful exercise of the President’s authority under Article II,” and

 

“The Department of Justice is bound by the President’s legal determinations.”

 

Or, as Whitehouse rephrased in a Dec. 7, 2007, Senate speech: “I don’t have to follow my own rules, and I don’t have to tell you when I’m breaking them. I get to determine what my own powers are. The Department of Justice doesn’t tell me what the law is. I tell the Department of Justice what the law is.”

 

The issue arose within the context of the Protect America Act, which expands government surveillance powers and gives telecom companies legal immunity for helping. Whitehouse called it “a second-rate piece of legislation passed in a stampede in August at the behest of the Bush administration.”

 

He pointed out that the act does not prohibit spying on Americans overseas — with the exception of an executive order that permits surveillance only of Americans whom the Attorney General determines to be “agents of a foreign power.”

 

“In other words, the only thing standing between Americans traveling overseas and government wiretap is an executive order,” Whitehouse said in an April 12 speech. “An order this president, under the first legal theory I cited, claims he has no legal obligation to obey.”

 

Whitehouse, a former US Attorney, legal counsel to Rhode Island’s governor, and Rhode Island Attorney General who took office in 2006, went on to point out that Marbury vs. Madison, written by Chief Justice John Marshall in 1803, established that it is “emphatically the province and duty of the judicial department to say what the law is.”

 

Sources: “In FISA Speech, Whitehouse sharply criticizes Bush Administration’s assertion of executive power,” Sheldon Whitehouse, Dec. 7, 2007; “Down the Rabbit Hole,” Marcy Wheeler, The Guardian (UK), Dec. 26, 2007.

 

9. SOLDIERS SPEAK OUT

 

Hearing soldiers recount their war experiences is the closest many people come to understanding the real horror, pain, and confusion of combat. One would think that might make compelling copy or powerful footage for a news outlet. But in March, when more than 300 veterans from the wars in Iraq and Afghanistan convened for four days of public testimony on the war, they were largely ignored by the media.

 

Winter Soldier was designed to give soldiers a public forum to air some of the atrocities they witnessed. Originally convened by Vietnam Vets Against the War in January 1971, more than 100 Vietnam veterans and 16 civilians described their war experiences, including rapes, torture, brutalities, and killing of non-combatants. The testimony was entered into the Congressional Record, filmed, and shown at the Cannes Film Festival.

 

Iraq Veterans Against the War hosted the 2008 reprise of the 1971 hearings. Aaron Glantz, writing in One World, recalled testimony from former Marine Cpl. Jason Washburn, who said, “his commanders encouraged lawless behavior. ‘We were encouraged to bring ‘drop weapons,’ or shovels. In case we accidentally shot a civilian, we could drop the weapon on the body and pretend they were an insurgent.’<0×2009>”

 

An investigation by Chris Hedges and Laila Al-Arian in The Nation that included interviews with 50 Iraq war veterans also revealed an overwhelming lack of training and resources, and a general disregard for the traditional rules of war.

 

Though most major news outlets sent staff to cover New York’s Fashion Week, few made it to Silver Spring, Md. for the Winter Soldier hearings. Fortunately, KPFA and Pacifica Radio broadcast the testimonies live and, in an update to the story, said they were “deluged with phone calls, e-mails, and blog posts from service members, veterans, and military families thanking us for breaking a cultural norm of silence about the reality of war.” Testimonies can still be heard atwww.ivaw.org.

 

Sources: “Winter Soldier: Iraq & Afghanistan eyewitness accounts of the occupation,” Iraq Veterans Against the War, March 13-16, 2008; “War comes home,” Aaron Glantz, Aimee Allison, and Esther Manilla, Pacifica Radio, March 14-16, 2008; “US Soldiers testify about war crimes,” Aaron Glantz, One World, March 19, 2008; “The Other War,” Chris Hedges and Laila Al-Arian, The Nation, July 30, 2007.

 

10. APA HELPS CIA TORTURE

 

Psychologists have been assisting the CIA and US military with interrogation and torture of Guantánamo detainees — which the American Psychological Association has said is fine, despite objections from many of its 148,000 members.

 

A 10-member APA task force convened on the divisive issue in July 2005 and found that assistance from psychologists was making the interrogations safe and the group deferred to US standards on torture over international human-rights organizations’ definitions.

 

The task force was criticized by APA members for deliberating in secret, and later it was revealed that six of the 10 participants had ties to the armed services. Not only that, but as Katherine Eban reported in Vanity Fair, “Psychologists, working in secrecy, had actually designed the tactics and trained interrogators in them while on contract to the CIA.”

 

In particular, psychologists James Mitchell and Bruce Jessen, neither of whom are APA members, honed a classified military training program known as SERE [Survival, Evasion, Resistance, Escape] that teaches soldiers how to tough out torture if captured by enemies. “Mitchell and Jessen reverse-engineered the tactics inflicted on SERE trainees for use on detainees in the global war on terror,” Eban wrote.

 

And, as Mark Benjamin noted in a Salon article, employing SERE training — which is designed to replicate torture tactics that don’t abide by Geneva Convention standards — refutes past administration assertions that current CIA torture techniques are safe and legal. “Soldiers undergoing SERE training are subject to forced nudity, stress positions, lengthy isolation, sleep deprivation, sexual humiliation, exhaustion from exercise, and the use of water to create a sensation of suffocation,” Benjamin wrote.

 

Eban’s story outlined how SERE tactics were spun as “science” despite a lack of data and the critique that building rapport works better than blows to the head. Specifically, he said, it’s been misreported that CIA torture techniques got Al Qaeda operative Abu Zubaydah to talk, when it was actually FBI rapport-building. In spite of this, SERE techniques became standards in interrogation manuals that eventually made their way to US officers guarding Abu Ghraib.

 

Ongoing uproar within the APA resulted in a petition to make an official policy limiting psychologists’ involvement in interrogations. On Sept. 17, a majority of 15,000 voting members approved a resolution stating that psychologists may not work in settings where “persons are held outside of, or in violation of, either International Law (e.g., the UN Convention Against Torture and the Geneva Conventions) or the US Constitution (where appropriate), unless they are working directly for the persons being detained or for an independent third party working to protect human rights.”

 

Sources: “The CIA’s torture teachers,” Mark Benjamin, Salon, June 21, 2007; “Rorschach and awe,” Katherine Eban, Vanity Fair, July 17, 2007.

 

OTHER STORIES IN THE TOP 25

 

11. El Salvador’s Water Privatization and the Global War on Terror

 

12. Bush Profiteers Collect Billions from No Child Left Behind

 

13. Tracking Billions of Dollars Lost in Iraq

 

14. Mainstreaming Nuclear Waste

 

15. Worldwide Slavery

 

16. Annual Survey on Trade Union Rights

 

17. UN’s Empty Declaration of Indigenous Rights

 

18. Cruelty and Death in Juvenile Detention Centers

 

19. Indigenous Herders and Small Farmers Fight Livestock Extinction

 

20. Marijuana Arrests Set New Record

 

21. NATO Considers “First Strike” Nuclear Option

 

22. CARE Rejects US Food Aid

 

23. FDA Complicit in Pushing Pharmaceutical Drugs

 

24. Japan Questions 9/11 and the Global War on Terror

 

25. Bush’s Real Problem with Eliot Spitzer

 

Read them all at projectcensored.org