Peru Scrambles to Drive Out Illegal Gold
Mining and Save Precious Land

A force of marines and rangers is outnumbered as it tries to protect the area anchored by the Tambopata reserve, one of the most biologically diverse places on earth.

Written by SUZANNE DALEY; Photographs by TOMAS MUNITA

ON THE BORDER OF THE TAMBOPATA RESERVE, Peru — The raid began at dawn. In four small wooden boats, the forest rangers and Peruvian marines, checking and rechecking their automatic weapons, headed silently downriver toward the illegal gold miners.

They didn’t have to go far. Around the first bend was a ramshackle mining settlement, tarps stretched over tree poles. Soon, the marines were firing into the air, the miners and their families were on the run, and the rangers were moving in with machetes.

They speared bags of rice and plastic barrels of drinking water, kicked aside toys and smashed tools before setting everything on fire. High above the Amazon rain forest, home to trees that are more than 1,000 years old, heavy plumes of black smoke spiraled toward the clouds.

Trying to protect one of the most biologically diverse places on earth from an army of illegal miners that has carved a toxic path through the rain forest, the Peruvian government is setting up outposts and stepping up raids along the Malinowski River in the Tambopata Nature Reserve.

But some experts wonder whether it is far too little too late.
To get here, a remote front line in Latin America’s battle against illegal mining, I hiked nine and a half hours through the jungle, at times in water up to my armpits. But any sense of being in a pristine wilderness was lost at the river’s edge. Already, the miners had done so much damage that the water ran the color of milky coffee. The landscape was worthy of a “Mad Max” movie. Huge sandy craters, mounds of pebbles and poisoned waterways were everywhere. Garbage — rags, plastic bags, plastic foam food containers — clung to the freshly cut tree branches piled up in the river’s nooks and crannies. 

    Peruvian marines briefly held a man found during a raid on an illegal gold mining camp. Credit Tomas Munita for The New York Times       

    An illegal camp was destroyed in the Tambopata reserve. Credit Tomas Munita for The New York Times       

With the price of gold high for years, illegal mining has blossomed in many parts of Latin America, not just in Peru. But in this country, one of the world’s major gold producers, the problem has gotten particularly bad.

The amount of gold collected by unlicensed miners is far larger than elsewhere in Latin America. And it is ballooning so quickly that environmentalists fear that even a remote reserve like this one — home to thousands of species of plants and animals, some perhaps not even identified by humans — has little chance of survival.
For all the environmental damage done by corporate mining, illegal miners are far more destructive, experts say. While mining companies tend to concentrate on areas with rich underground veins of gold, illegal miners move swiftly across vast amounts of territory. They cut down broad swaths of jungle, sifting through perhaps 200 tons of topsoil to find enough flecks of gold for a single wedding ring.

Without help, some experts say, the areas they leave behind — robbed of all topsoil and loaded with mercury — could take 500 years to recover.

San Jacinto community of Peru’s Madre de Dios region has been designated for legal gold mining
by the government but many people are still awaiting formal approval. Credit Tomas Munita for The New York Times  
The miners use so much mercury to process the gold that the government declared a health emergency in much of the Madre de Dios region in May. Tests in 97 villages found that more than 40 percent of the people had absorbed dangerous levels of the heavy metal. Mercury poisoning affects people in many ways, from chronic headaches to kidney damage, but it is most harmful to children, who are likely to suffer permanent brain damage.

“The next generations will pay for what we are doing now,” said Manuel Pulgar-Vidal, who heads the Peruvian Ministry of the Environment.
Statistics undercount the amount of illegal mining. But Víctor Torres Cuzcano, an economist with the Universidad Nacional Mayor de San Marcos, calculated that unregistered and informal mining increased by 540 percent between 2006 and 2015, while production from legal mining, which brings in tax revenue, fell by 28.5 percent.

“I fear that illegal mining is crowding out the legal activities,” said Guillermo Arbe Carbonel, an economist with Scotiabank. “You see social protests against the legal mining all the time. But the illegal is growing, and it is the worst kind of mining when it comes to the environment.”

Deforestation from gold mining accelerated from 5,350 acres per year before 2008 to 15,180 acres each year after the 2008 global financial crisis that rocketed gold prices.

    A gold miner in the San Jacinto community used a hose to suck up mud in the Madre de Dios region. Credit Tomas Munita for The New York Times       

Indigenous miners pushing parts for a water pump to their camp near the Madre de Dios River. Credit Tomas Munita for The New York Times       

Less than a year ago, the Tambopata reserve, a roadless area about the size of Rhode Island, part forest and part savanna, was untouched. Now satellite photographs show telltale patches of wasteland in the reserve, and so much mining that the river on its edge — the Malinowski, named after a Polish explorer — has been pushed off its course, made wider and more shallow.
In areas where the miners work, the rangers say, the water is so polluted that the fish are all gone.

“They are getting about 12 to 18 grams a day in the official mining corridor,” said Victor Hugo Macedo, who oversees the reserve. “They are getting 60 to 80 grams in the buffer zone, and they are getting 150 to 200 in the reserve. The miners care more about that than what happens to Tambopata.”

The government has tried varied policies to contain illegal mining, including controls on the amount of fuel coming into the region, Mr. Pulgar-Vidal said. But he conceded that these efforts had had little success. The Peruvian tax authority recently estimated that more than $1 billion worth of gold had been smuggled out of the country just between February and October 2014.

In recent years, the authorities have sometimes swooped in by helicopter from the capital, Lima. But prosecutors said the miners often seemed to have been warned and were back in business within days. Corruption and organized crime, they said, helped drive illegal mining, and many of the mining camps were essentially lawless communities where slave labor and sex trafficking flourished. 

La Pampa, an area in the Madre de Dios region of Peru, left devastated from illegal mining. Credit Tomas Munita for The New York Times      
Mr. Pulgar-Vidal hopes that the constant presence of armed marines and a stream of raids will persuade the miners to leave the reserve alone.

Critics are skeptical. Some suggest that the government may not really be interested in stopping illegal miners. Some Peruvian politicians openly argue that the miners, many of them from indigenous communities, should be allowed to earn a living, a popular stance in a country where half the population is under the poverty level.

Up close, the raids look doomed to failure. The marines and rangers are outmanned and underequipped. Even getting to their outposts is a challenge. The best routes are controlled by the miners and considered too dangerous, even for armed soldiers. So on a rainy day, we walked down a narrow path from daybreak through afternoon, but the soldiers had no radios to call for help when it quickly became flooded for vast stretches.

In rushing water full of debris, we all took baby steps looking for solid footing as the rain forest suddenly turned into a turbid lake. Weighed down by backpacks filled with water, the soldiers carried their weapons over their heads and tried to keep from going under, not always successfully.

    A family in the Boca Inambari community fishing in the Inambari River, which is contaminated by mercury used by illegal miners to process gold. Credit Tomas Munita for The New York Times       

Repairing water pumps used for gold mining in Puerto Maldonado. Credit Tomas Munita for The New York Times                    

Yet there are at least 5,000 illegal miners in the area, and perhaps as many as 10,000. After a few raids, the marines were out of dynamite and resorted to a less sophisticated tactic: using mallets to smash the truck engines that miners use to power their derricks.

The boats used in the raids aren’t any faster than the ones the miners have, and they stalled often. While there has been no violence so far, a sense of menace was in the air. At times, the miners stood on the river’s edge, arms folded, as the marines and rangers sailed by.

Carlos Moscoso Garces, a marine, said it was a matter of time before trouble broke out. The miners shrugged off the occasional raid, but what happens once the cost of replacing destroyed mining equipment begins mounting?

“Then,” he said, “who knows what they will do.”

At one small encampment, a woman implored the soldiers not to destroy her home. She told the men she was just a single mother trying to make a living, so they put some food aside for her before setting everything else on fire.   

Los Amigos River in an isolated area of Madre de Dios. It is estimated that 400 tons of mercury have been dumped into rivers and the air by illegal miners. Credit Tomas Munita for The New York Times       

Downriver, as soldiers made a bonfire of several motorcycles they had found, one young man tried to grab his. Forced to his knees, he told the soldiers he was only visiting friends, a story that no one believed. But there was no thought of arresting him, or anyone else. Miles from the nearest paved road and with no facilities for holding prisoners, the logistics made that impossible. Like everyone else encountered, he had no identification and was released without so much as a summons.

The marines are realistic. When they passed a giant tent city, with satellite dishes poking up and poles for many more dwellings under construction, they sailed on in search of a more manageable target.

By day’s end, the raiders had destroyed two dozen encampments and 15 mining derricks, and invaded mining camps far better equipped than their own. Along the way, the soldiers helped themselves, taking home a freezer, a satellite dish, a VCR, a television set, a soccer ball, a black-and-white puppy and a young pig for dinner.

At night, you could hear the sounds of the mining derricks starting up again.

Big economic ideas

Breakthroughs and brickbats

What economists can learn from the discipline’s seminal papers

IT IS easy enough to criticise economists: too superior, too blinkered, too often wrong. Paul Samuelson, one of the discipline’s great figures, once lampooned stockmarkets for predicting nine out of the last five recessions. Economists, in contrast, barely ever see downturns coming.

They failed to predict the 2007-08 financial crisis.
Yet this is not the best test of success. Much as doctors understand diseases but cannot predict when you will fall ill, economists’ fundamental mission is not to forecast recessions but to explain how the world works. Over the next six weeks we will be running a series of briefs on important economic theories that did just that—from the Nash equilibrium, a cornerstone of game theory, to the Mundell-Fleming trilemma, which lays bare the trade-offs countries face in their management of capital flows, exchange rates and monetary policy; from the financial-instability hypothesis of Hyman Minsky to the insights of Samuelson and Wolfgang Stolper on trade and wages; from John Maynard Keynes’s thinking on the fiscal multiplier to George Akerlof’s work on information asymmetry, the topic of this week’s article. These breakthroughs are adverts not just for the value of economics, but also for three other things: theory, maths and outsiders.

More than ever, economics today is an empirical discipline. Thanks to the power of big data, economists can track consumer behaviour in real time or know almost precisely how much a good teacher is worth to the lifetime income of children. But theory remains vital. Many policy failures might have been avoided if theoretical insights had been properly applied. The trilemma was outlined in the 1960s, and the fiscal multiplier dates back to the 1930s; both illuminate the current struggles of the euro zone and the sometimes self-defeating pursuit of austerity. The Nash equilibrium describes an outcome in which everyone is doing as well as they can given the strategies of others; it explains how countries compete with each other to cut tax rates in order to lure global capital.

Nor is the body of economic theory complete. Big gaps remain in the understanding of financial markets, for example, and on how best to regulate tech platforms like Facebook. The shortfalls are particularly glaring when it comes to modern macroeconomics. From “secular stagnation” to climate change, the discipline needs big thinkers as well as big data.

It also needs mathematics. Paul Romer, who is heading to the World Bank as its chief economist, has railed against “mathiness”, the habit of using algebra to disguise ideological positions. Economic papers are far too formulaic; models should be a means, not an end. But the symbols do matter. The job of economists is to impose mathematical rigour on intuitions about markets, economies and people. Maths was needed to formalise most of the ideas in our briefs.

Thinking far and wide
In economics, as in other fields, a fresh eye can also make a big difference. John Nash was only 21 when he set out the concept that became known as the Nash equilibrium; Mr Akerlof had not long completed his PhD when he wrote “The Market for Lemons”, the paper that made his name. New ideas often meet resistance. Mr Akerlof’s paper was rejected by several journals, one on the ground that if it was correct, “economics would be different”. Recognition came slowly for many of our theories: Minsky stayed in relative obscurity until his death, gaining superstar status only once the financial crisis hit.

Economists still tend to look down on outsiders. Behavioural economics has broken down one silo by incorporating insights from psychology. More need to disappear: like anthropologists, economists should think more about how individuals’ decision-making relates to social mores; like physicists, they should study instability instead of assuming that economies naturally self-correct. This could make the maths trickier still. But not as hard as getting the profession to eschew its natural insularity.

The Global Economy’s Hesitation Blues

Robert J. Shiller
. Newsart for The Global Economy’s Hesitation Blues

NEW HAVEN – Economic slowdowns can often be characterized as periods of hesitation.

Consumers hesitate to buy a new house or car, thinking that the old house or car will do just fine for a while longer. Managers hesitate to expand their workforce, buy a new office building, or build a new factory, waiting for news that will make them stop worrying about committing to new ideas. Viewed from this perspective, how worried should we be about the effects of hesitation today?
Hesitation is often like procrastination. One may have vague doubts and feel a need to mull things over; meanwhile, other issues intrude on thought and no decision is taken. Ask people why they procrastinate, and you probably won’t get a crisp answer.
So how does such behavior become sufficiently widespread to bring about an economic slump? In fact, the reasons for postponing activities that would stimulate the economy may be difficult to discern.
One thinks first of feedback from others who are hesitating. Income effects and crowd psychology may amplify individual vacillation. But there must have been some initial factor that started the feedback cycle – some underlying source of hesitation.
Loss of economic “confidence” is one possible cause. Published confidence indices, available since the 1950s, are based on polls that ask consumers or businesspeople about their perceptions of business activity and expectations of future income and employment.
“Uncertainty” about economic policy is another possible source of hesitation. If businesspeople don’t know what regulations, taxes, or worse, nationalizations, will be coming, they may dither. The idea is an old one, expressed during the Great Depression of the 1930s; but it was not measured well, at least until recently.
In a 2015 working paper, the economists Scott R. Baker, Nicholas Bloom, and Steven J. Davis constructed Economic Policy Uncertainty (EPU) indices for a dozen countries using digital news archives. The indices (covering Canada, China, France, Germany, India, Italy, Japan, Russia, South Korea, Spain, the United Kingdom, and the United States) were created by counting the number of newspaper articles in each country and each month that had the trifecta of terms “economy” (E), policy” (P) and “uncertainty” (U).
The index each month was the total number of articles with those three words, divided by the total number of articles in the targeted newspapers each month. Native speakers in each country were consulted on the appropriate translations of the three words. The indices spanned decades, and in two countries, the US and the UK, went all the way back to 1900. The US index correlates with implied equity-price volatility in the options markets (VIX).
They found that their EPU index foreshadows economic contractions in the 12 countries, and that for the two countries with long-term indices, the EPU values were high during the Great Depression. But do contractions cause uncertainty, they ask, or does uncertainty cause contractions? Given that we know that people are highly reactive to each other, the causality most likely runs both ways, in a feedback loop.
The deeper and more interesting question concerns what initiates this uncertainty. To answer it requires impressionistic characterizations of the extant stories and ideas that might influence public thinking – or avoidance of thinking – about the economy.
As for the Great Depression, one wonders if the high degree of EPU was linked to social trends after the excesses of the 1920s, fueling fear of Communism and, in the United States, of the New Deal.
One wonders if fear of fascist regimes, and of a coming war, prolonged the depression after Hitler came to power in 1933. The attention devoted to Johannes Steele’s 1934 book The Second World War, which predicted that eponymous event, indicates that fear of war must have been talked about enough to underpin some hesitation. To people who lived through World War I, the thought of a sequel must have seemed nightmarish.
Of course, whether the Great Depression was really prolonged by these stories or ideas cannot be proved. How do we know which stories were affecting people’s thinking? On the other hand, we can be fairly certain that some of these stories really do affect perceived economic uncertainty.
Psychologists have shown that people display an “affect heuristic,” or a tendency to tag memories with emotions and to let those emotions affect decision-making, even when the decision is unrelated to what caused the emotions. A mismatch of emotions can cause executive dysfunction, a failure to act, hesitation.
Some kinds of stories circulating today – related to growing nationalism or fear of challenges by immigrants to traditional cultural values – might underpin greater hesitation. The Brexit vote in the United Kingdom last month has been viewed worldwide with extraordinary alarm as a signal of political instability. The rising incidence of terrorism has added a vivid emotional edge to such developments.
Will these fears fuel enough economic hesitation to bring on another worldwide recession? Any answer at this time would be impressionistic and imprecise. Given the importance of the consequences, however, we should not shrink from considering how such fears are affecting economic decision-making.

Appearances vs. Realities in China

Beijing projects an image of strength but its weakness often shapes its polices.

By Jacob L. Shapiro

It has been a week since the Permanent Court of Arbitration (PCA) based in The Hague ruled that China’s claims in the South China sea are “without lawful effect.” In the interim, China has continued to loudly denounce the ruling to anyone who will listen. Just yesterday, the commander of the People’s Liberation Army insisted after meeting U.S. Chief of Naval Operations Adm. John Richardson that China would never give up its sovereignty claims in the area. Chinese nationalist protests targeted, of all places, Kentucky Fried Chicken (KFC) outlets in China. Apparently, KFC is just as much a symbol of the United States as its embassy in Beijing (where more protests were held over the weekend).

China was also in the news yesterday as the European Commission (EC) discussed whether China should be granted market economy status by the World Trade Organization (WTO) at the end of the year. The EC ultimately punted on the question, essentially saying that whatever label China ends up with will be unimportant, as the EU will ensure that it is protected from intentionally cheap Chinese exports supported by Chinese state controls.

Both of these issues are important, but not for the reasons that are often given. The important part of the first story is not that China is upset about the PCA ruling and is continuing its policy of saber rattling in the South China Sea. Rather, it is important because, in response to demonstrations against the PCA decision, China has clamped down on protests since the ruling.

The latter story about China’s economic status at the WTO is important not because countries like the U.S. and India may recognize China as a market economy but rather because Beijing is having trouble implementing its national priorities for the steel industry. 

Let’s examine the court ruling first. On the day the PCA handed down its ruling, Peking University (one of China’s top universities) sent out a notice that clearly stated that there were to be “no assemblies or demonstrations, and no participation in potential demonstrations outside of campus” by anyone associated with the faculty or the students. A China Daily op-ed on Tuesday said that personal acts of protest were understandable, but that protests such as those held outside the KFC restaurants should result in the police restoring order. A Xinhua News Agency editorial made similar conclusions; smashing iPhones and protesting at a KFC were characterized as “not the right way[s] to express patriotism.” Weiboscope, a service based out of the University of Hong Kong that monitors Chinese social media, has noted that “South China Sea” and “KFC” were among the most censored phrases on Chinese social media in the last few days.

The nationalist or patriotic reaction should not be a surprise. The Chinese education system is like any other education system in the sense that it teaches its young students about the geography of China and the importance of sovereignty. The various islands and shoals that are being argued over are, to many Chinese citizens, simply part of China. Most American schoolchildren are taught that the United States extends from “California to the New York Islands, from the Red Wood Forests to the Gulf Stream Waters.” Imagine if a little-known international court of arbitration ruled that some part of the U.S. actually belonged to Mexico. I don’t think the protests would stop at the local Mexican restaurant. After all, the U.S. Congress once served “freedom fries” in its cafeterias.

The difference is that the U.S. does not face a strong enough challenger that would present a significant territorial threat and the U.S. political system is not being propped up by the government telling its people how strong and mighty the American military is. China likes to make noise about fighting the U.S., but it isn’t ready for a fight in the South China Sea and won’t be ready anytime soon. President Xi Jinping has arguably pushed nationalist sentiments more than his predecessors. The notion of China as a strong, unified country capable of protecting its sovereignty is one of the Communist Party’s core claims to legitimacy and, as the economy has struggled, this anchor has become all the more important. He uses nationalism, but also knows he’s playing with a double-edged sword that could be used against the Communist Party. It is China’s weakness that defines the way it behaves in the South China Sea.

There is a similar gap between appearances and realities when it comes to the question of China’s status at the WTO. China admits that it has a large surplus of steel that it needs to get rid of and steel importers, including the EU and the U.S., feel that China is undercutting market prices, doing significant damage to domestic steel industries. Other exports are also controversial, but steel is emblematic. Earlier this year, the U.S. imposed high punitive tariffs on Chinese steel in May and the president of the European Commission Jean-Claude Juncker said in June that the issue of China’s steel overcapacity and its status as a market economy were clearly linked.

China wants to achieve market economy status with the WTO. It would make China less susceptible to antidumping investigations at the WTO and that is not insignificant. A third of all WTO antidumping investigations since 2011 have been targeted at China according to a report by the Transnational Economic Law Research Center. It might also open up new avenues of investment into China, as China tries to attract as much foreign investment as it can. On Tuesday, the Chinese government eased investment rules on four free trade zones in the country to attract investment.

China has been trying to solve the steel issue. It has said it will cut steel production in the next five years by more than the total amount of steel the U.S. produces in one year. Since January, the government has made reform of the steel and coal sectors a top priority. On Feb. 29, a Chinese minister said publicly that 1.8 million jobs would be eliminated in the coal and steel industries, while anonymous sources told Reuters the number would be around 6 million. The government has also tried to restrict access to credit for struggling steel companies plagued by excess capacity.

But in regions like Shanxi, Hebei and Henan, province officials have pushed for local banks to continue supplying funding and even the China Banking Regulatory Commission has softened its stance on lending to some of these overcapacity companies. The government in Beijing has a sense of the types of economic reforms that the country needs as a whole and it knows that those reforms would help make its case for market economy status. But those reforms involve either the loss of many jobs or an endless supply of credit; the former puts pressure on the Communist Party and we are already seeing signs of the latter, as non-performing loans creep upwards. As is often the case, the theory is much harder to apply in practice.

China appears bellicose in the South China Sea and opportunistic in terms of its steel exports.

It is routinely criticized by most of the international community for both. In reality, China is too weak right now to back up its tough talk on the South China and is struggling to reform the steel industry, as well as other industries, in such a way that won’t result in massive unemployment. KFC and the WTO aren’t what’s important. Censoring nationalism and the catch-22s of massive internal economic restructuring are.

Gold At Risk Of Forming Long Term Bearish Candlestick Pattern, Most Bullish 2 Months Of The Year Begins Next Week

by: Robert Sinn

- Gold peaked at $1377.50 earlier this month near previous resistance and the Psychological $1400 level.

- The monthly chart is at risk of printing a 'tweezers top' bearish candlestick pattern which adds importance to this week's closing level.

- August/September is the most bullish two month period of the year for gold historically with an average gain of 4.3% since 1997.
Gold in US dollar terms peaked at $1377.50 earlier this month and has since corrected roughly 5%.
Given the amount of confluence in the $1400 area it not surprising that gold ran out of steam just shy of the round number psychological level. In addition, the $1400 price level has been a target for a number of outspoken market commentators including famed hedge fund manager Jeffrey Gundlach.
The monthly chart of gold offers some perspective, especially the significance of the $1375-$1425 area:

The 2016 gold rally came within a few dollars of the 38.2% Fibonacci retracement of the entire 2011-2015 decline. More importantly with just a few days left in the month of July gold is at risk of forming a 'tweezers top' which is a bearish candlestick pattern denoting buying exhaustion.
Monthly patterns tend to carry more weight because of the longer time frame. As a rule traders should use longer time frame patterns and trends as a compass for shorter term trades. Therefore, a tweezers top at key support/resistance on the monthly is significant and should not be taken lightly.
There are still a few trading days left in July, however, if things remain as they are this could mean that the 2016 gold rally will be taking an extended pause.
While upside resistance for gold is quite clear ($1375-$1425) there is a strong zone of confluence just below which has yet to be fully tested during the recent correction:
Previous resistance near $1300 lines up nicely with the rising 50-day moving average (currently at $1291). A hold of support near $1300 would be standard and quite healthy, whereas, a move below $1290 would turn the outlook for gold much more bearish.
Meanwhile, we are about to enter the most bullish two months of the year for gold historically:
Since 1997 gold has averaged a 4.3% gain during August/September, by far the best two month stretch of the year.
Will seasonal tailwinds prevail or has price peaked for the year?

Read This, Spike That

The U.S. Has a Misguided Faith in Real Estate

Though Americans believe land and houses are great long-term investments, the data beg to differ.

By John Kimelman          


What’s the better long-term investment: stocks or real estate?

As a litmus-test question, it’s right up there with boxers or briefs, Beatles or Stones, or even Trump or Clinton.

Apparently, if you poll Americans on this question, you’ll get an answer that deviates from the right answer.

According to a recently released national survey conducted for in July, 25% of the respondents said that real estate was the best way to invest money over a 10-year period. In fact, real estate won over all other asset classes.

Were stocks the second choice? No, that honor goes to “cash investments,” which includes bank certificates of deposit.

Stocks, as it turns out, were tied with “gold or precious metals,” as a third-choice investment.

According to the study, real estate’s leg up may have something to do with the fact that it’s more tangible (and in many instances more enjoyable). Stocks are merely a fractional ownership of corporate equity that shows up as a line of type on a brokerage statement.

In addition, stock meltdowns in both the year 2000 and in 2008 have left many with bad tastes in their mouths about stock investing.

And those risk-averse millennials seem to like cash a lot more than middle-aged investors, according to the survey, even though millennials are at an age where they can afford to take more risk.
But should Americans be placing that much faith in real estate?

Clearly not, argues Robert Shiller, the influential Yale economist. In a recent piece in the New York Times, Shiller writes that despite solid price increases in “the last few years, land and homes have been disappointing investments.”

Shiller provided data on both farmland and home values to make his case.

“Over the century from 1915 to 2015, though, the real value of American farmland (deflated by the Consumer Price Index) increased only 3.1 times, according to the Department of Agriculture. That comes to an average increase of only 1.1 percent a year — and with a growing population, that’s barely enough to keep per capita real land value unchanged,” Shiller writes.

As for inflation-adjusted home prices, he adds, they rose even more slowly over the same period — a total increase of 1.8 times, which comes to an average of only 0.6% a year.

“What all that amounts to is that neither farmland nor housing has been a great place to invest money over the long term,” adds Shiller. 

The Yale professor further points out that real or inflation-adjusted gross domestic product in the United States grew 15.5 times — or, on average, 3.2% a year — from 1929, the year official GDP numbers began to be kept, to 2015.

“That’s a much higher growth rate than for real estate. But why? For home prices, a good part of the answer comes from supply and demand. As prices rise, companies build more houses and the supply floods the market, keeping prices down,” he adds.

By contrast, most studies of stock performance going back over the past century show annualized returns in the low double-digits.

For readers who want to probe the relative merits of stocks versus real estate investment, I would suggest starting with this primer on the topic that I found surfing the Web.

As for me, I don’t confuse assets I enjoy with ones that are truly making me money over the long run. For me, it’s two homes to live in, and stocks and exchange-traded funds for the long run, along with bonds for ballast.

A Failed Coup… An Unrecognized Republic… And Triggers for a Global Economic Meltdown

by Nick Giambruno

The country is one giant powder keg… and the fuse is already lit.

I’m talking about Turkey. When the next global crisis explodes, there’s a good chance Turkey will be involved somehow.

Turkey was founded from the ashes of the Ottoman Empire. It’s where Europe meets Asia. Naturally, it’s a geopolitically significant country.

Today, it’s at the epicenter of many crises that are destabilizing the world… the migrant disaster in Europe, the ongoing carnage in Iraq and Syria, the conflict with ISIS, and the new Cold War with Russia.

In light of all these potential triggers for a global meltdown—as well as the recent failed military coup d’état—I think it’s time to take a closer look at Turkey.

Bad Blood

There’s one aspect of Turkey and its myriad of crises that nobody is talking about. That brings us to Greece, Turkey’s historical rival, and where a number of the coup plotters fled after their recent failed putsch.

It’s no secret that the Greeks and Turks have been at each other’s throats since at least the 16th century.

It’s a rivalry of historic proportions because, literally since the days of Homer, most of what is now Western and Southern Turkey had been populated by Greeks. That started changing with the Ottoman conquest of the 16th century, and after World War I, when Turkey ethnically cleansed the area by deporting hundreds of thousands of Greeks and stripping them of their ancestral homes without compensation.

The bad feeling that type of thing causes lasts generations, especially in this part of the world.

The Eastern Mediterranean island of Cyprus has been the object of the never-settled tug of war between the two rivals.

The Turks gained decisive control of the island after the Ottoman invasion in 1571 and remained in charge for the next 300 years.

In 1878, the faltering Ottoman Empire surrendered the administration of Cyprus to the British.

Following World War I, the British took full control of Cyprus. It became a British colony until its independence in 1960. To this day, there are two large strips of land on the southern coast of Cyprus that remain sovereign British territory and serve as Royal Air Force military bases.

Following independence from Britain, tensions between Greek and Turkish Cypriots simmered for 14 years. In 1974, they boiled over.

An exceptionally brutal military junta (backed, as often is the case, by the U.S.) was running Greece at the time. As insecure governments often do, the leaders attempted to justify their existence and distract from their flaws by fomenting a war. In this case, it was a civil war in Cyprus, which they hoped would end in merging the island with Greece.

Turkey, responding to the prospect of a genocide on the scale of the unpleasantness they had perpetrated against the Greeks in Anatolia after World War I, sent in their own army, which divided the country into the northern (Turkish) third, and the southern (Greek) two-thirds.

The 1974 battle over Cyprus was a rare example of two NATO powers (Greece and Turkey, which had both joined the alliance in 1952) facing each other in combat.

Who was right, and who was wrong?

As is almost always the case, the root of the problem is one group of people reaching for an excuse to dominate another.

One group does something nasty, which the targeted second group takes as a license to retaliate, which the first group takes as an order from God for serious mayhem.

After a while, they both forget how it all started. And the fighting continues almost like a tradition, much in the style of the Hatfields and McCoys.

The effects of the 1974 conflict go deep and are still felt today.

The Turks use the event as a continuing excuse to keep 40,000 troops on the island.

That military presence gives life to the political entity known as the Turkish Republic of Northern Cyprus.

It’s an “unrecognized republic.”

Turkey is the only country in the world that recognizes Northern Cyprus as a distinct country. To the rest of the world, it’s occupied Cypriot territory.

It brings up an interesting point that most people don’t think about.

Not every square inch of land in this world falls neatly into the paradigm of the nation-state.

Some pieces of real estate are not recognized by the United Nations as being a “legitimate” country.

A couple of such outliers in the international order include Palestine, Kosovo, the Western Sahara, Abkhazia, South Ossetia, the Donetsk and Luhansk People's Republics, Transnistria, Nagorno-Karabakh, and the Turkish Republic of Northern Cyprus.

I’ve been to a number of these unrecognized republics, including the Turkish Republic of Northern Cyprus. I think they’re fascinating places for the adventurous.

It’s pretty simple to cross the border into Turkish Cyprus in Nicosia, the divided capital city, on foot.

For the most part, it’s like going through any other passport control, but one with a Berlin Wall ambience. A small buffer zone, which armed UN troops supposedly patrol, is full of abandoned buildings and divides the two sides.

By far the most stunning thing I saw when I visited the Turkish North was the city of Varosha, now a veritable ghost town. When the Turkish army invaded in 1974, the residents fled with only the clothes on their backs, and the town has been empty ever since. But, before then, it was Cyprus’ top tourist spot.

Left photo shows the dividing line on the beach with Varosha in the background. Right shows an aerial view of abandoned buildings.

Varosha is no small area. It has many homes, hotels, and businesses that have been left trapped in time. Some of the buildings display the scars of war; others are exactly as they were in 1974. There is a car dealership that is still fully stocked with new 1974 Toyotas, just as it was the day the owner abandoned it.

I bring up the story of Varosha because it’s a rather blatant example of how fast things can unravel in a crisis.

And also because Turkey is likely to be connected somehow when the next global crisis explodes.
That’s because Turkey is at the center of the European migrant crisis, the ongoing carnage in Iraq and Syria, the conflict with ISIS, and the new Cold War with Russia.

It’s hard to think of another place that has more tripwires for a global meltdown. And in this coming crisis America is likely to be ground zero.

Stay Home, Order Take-Out, And Fondle Your Gold

by: John Rubino

For an example of how far we've fallen from the old days of free-range First World entitlement, consider the fact that investment analysts are now judging companies by how well they cater to the needs of the terrified:

Papa John's upgraded on belief civil unrest is encouraging more pizza delivery 
(MarketWatch) - Papa John's International Inc. was upgraded to overweight from sector weight at KeyBanc Capital Markets with analysts expressing the surprising view that diners, concerned about political and civil unrest, are choosing to stay home for pizza delivery rather than head out for a meal. 
"After speaking with several large operators and industry contacts, we believe the recent decline in casual dining restaurant segment fundamentals -- traffic down 3% to 5% the past several weeks -- may be the result of consumers eating more at home amid the current political/social backdrop, which we believe could last through the November election," KeyBanc analysts wrote in a note published Tuesday. 
Diners' shift to a preference for convenience will benefit pizza delivery businesses like Papa John's, according to KeyBanc. 
Papa John's shares, which jumped 3.8% Wednesday, are up 23.0% over the past three months. The S&P 500 is up 2.9% for the last three months.

This kind of mirco-fear is, not surprisingly, reflected in macro trends like defense stocks, which are now analyst favorites:

CNBC: Defense Stocks Play Offence

And of course gold and silver are always key parts of the chaos story. If we can't trust the big systems to function safely or efficiently, and the biggest systems of all are fiat currency and fractional reserve banking, then opting out of paper money begins to make sense. Hence the monster run in precious metals miners during the first half of the year:

HUI Hold Bugs Index 1-Year Chart

This breakdown of global civilization seems to baffle mainstream economists, leading to more or less random predictions:
IMF Called "Clowns" After Admitting They Fabricated Brexit Doom And Gloom 
(Zero Hedge) - "The IMF has serious credibility problems. It has been seriously wrong for years. I hope that one of the things that the new government does is push to have some credible people running this institution... rather than the clowns currently running it," exclaimed UKIP MP Douglas Carswell, pointing out Lagarde's legion of fools flip-flop that the British economy will grow faster than Germany and France in the next two years - only weeks after its doom-laden warnings about Brexit. 
As The Daily Mail reports, after saying that leaving the European Union could trigger a UK recession, the International Monetary Fund now expects the British economy to grow by 1.7 per cent this year and 1.3 per cent next year. 
That is weaker than the 1.9 and 2.2 per cent growth forecasts before the referendum, but the UK is still set to be the second-fastest growing economy in the Group of Seven industrialised nations this year - behind the United States - and third-fastest next year, behind the US and Canada. 
Of course, this is not the first time The IMF has unleashed comedic genius on the world... 
IMF's Revisions of China Growth
But the new UK forecasts represent a climbdown for the global financial watchdog after it issued a string of doom-laden warnings over the damage Brexit would do. 
Ahead of the referendum, IMF managing director Christine Lagarde, an ally of former chancellor George Osborne, said Brexit would be 'pretty bad, to very, very bad' for the UK. 
But the latest forecasts - and an admission that a recession is now unlikely - suggest the outlook is not as bleak as the watchdog claimed. 
And again, as The Mail notes, it is not the first time the IMF has had to row back from damaging comments about the UK economy. In April 2013, the fund's then chief economist Olivier Blanchard said Britain was 'playing with fire' by pressing ahead with austerity at a time of 'very low growth'. But the IMF was quickly forced into a dramatic volte face as the UK economy sprang into life, forcing Mrs Lagarde to admit 'we got it wrong'. 
The IMF's new chief economist Maury Obstfeld said yesterday there were 'promising signs' for the global economy in the first half of 2016, but added: 'Brexit has thrown a spanner in the works.'

And finally, here's a short excerpt from a longer, must-read article titled The world is taking its revenge against elites. When will America's wake up? by Thomas Frank, whose provocative work has been, um, discussed on for many years.

The world of accepted ideas was coming apart, and no one caught the new mood better than the New York Times's David Brooks, a man who has spent his career describing the inner lives of the nation's prosperous white-collar elite. Ordinarily a dealer in witty aphorisms and upper-crust humor, Brooks now wrote a column entitled "Are We On the Path to National Ruin?" in which he speculated darkly about the possibility of fascism in America. "The crack of some abyss opened up for a moment by the end of last week," he wrote. "It's very easy to see this country on a nightmare trajectory." 
Brooks-in-despair is a pitiful sight, and one can't help but sympathize. But what's really remarkable about the response to these shocks of people like him has been their inability to acknowledge that their own satisfied white-collar class might be part of the problem. On this they are utterly in denial and whatever the disaster, the answer they give is always ... more of the same. More "innovation". More venture capital. More sharp young global Stanford entrepreneurs. There is no problem that more people like they themselves can't solve. 
It's easy to see the problems presented by a cliquish elite when they happen elsewhere. In the countries of Old Europe, maybe, powerful politicians sell out grotesquely to Goldman Sachs; but when an idealistic American president announces that he wants to seek a career in venture capital, we have trouble saying much of anything. In Britain, maybe, they have an "establishment"; but what we have in America, we think, are talented people who deserve to be on top. One wonders what kind of a shock it will take to shake us out of this meritocratic complacency once and for all.

It's important to understand that all of this, while seemingly coming out of left field for mainstream economists and politicians, was completely predictable for both Austrian School economists (who focus on a society's balance sheet rather than irrelevancies like money supply or aggregate demand, and correctly see rising leverage as a sign of trouble) and pretty much anyone else with simple common sense.

It's actually fairly simple: When you borrow too much money your life spins out of control.

Individuals, families, and societies all live under the same set of economic laws, and suffer similar penalties for violating them.

The fact that this bit of kitchen-table wisdom is not apparent to the people in charge just reinforces the impression that they're completely clueless, which in turn elevates the fear that the average person experiences when police are systematically killed and random assemblages are attacked with weapons ranging from assault rifles to tractor/trailers to axes. Or when interest rates fall to the point that retirement savings earn literally nothing while assets with unacceptable levels of risk (junk bonds, growth stocks, leveraged ETFs) are making fortunes for speculators.

Since the process of hyper-leveraging the world is shifting into an even higher gear as this is written, expect the mainstream to be surprised again - and regular people to even more terrified -- by the result. Which means our future will include even more gold, missiles and pizza.