lunes, octubre 17, 2016




How 2008 Changed Everything

The year is appearing to be a defining moment in history.

By George Friedman

Over the last few years, the question of immigration has become a dominant issue in the West.

In the United States, immigration has emerged as one of the pivot points in the presidential election. In Europe, as well, immigration has become a political pivot. Immigration has always been a contentious issue. In the United States, where immigration was indispensable for the construction of the nation, the arrival of Irish Catholic immigrants in the 1840s created a profound crisis. The dominant Protestants feared the loyalty of the Catholics. Similarly, the arrival of Jews from Russia into Central Europe in the 19th century generated fears of the Ostjuden (Jews from Eastern Europe) who were culturally different and seemed impossible to assimilate.

The European definition of the nation as one’s place of birth and one's culture made immigration particularly difficult. But in the United States as well, there is a serious fear that excessive immigration will cost the nation its culture. Those who trivialize or vilify this fear do not understand the centrality of culture to human life. Our community is what we are, and the shared values and beliefs are what make up the community. Immigration generates a reasonable fear that our shared culture will be lost, and with it, who we are. The fear that immigrants will not assimilate is the undertone of the immigration debate even in countries like the United States that were built on immigration.

But the recent surge in fear of immigration has a more specific origin: the crisis of 2008. And therefore it can only be understood as intermingled with other reverberations from that event.

In 2008, the global economy underwent a massive shift away from extremely high growth that started in 1982. Part of the problem was simply the financial chicanery and miscalculations of the subprime crisis. But there was a deeper crisis. An economic boom creates vast inefficiencies, as huge amounts of surplus cash flow into the hands of people who don’t spend that money on food, clothing and shelter, but rather invest it to make more money. Most of the time this works, as the investment, with decisions made by individuals rather than the state, generates wealth and Jobs.

Newspapers are seen for sale at a newsstand Sept. 16, 2008 in New York City. U.S. stocks were mixed following the Sept. 15, 2008 Dow Jones Industrial Average plunge of 4.4 percent or 504 points – the worst single day loss since the 9/11 attacks. Mario Tama/Getty Images

But toward the end of a cycle, two things happen. Opportunities for quality investment decline and productivity falls. The early advances that drove innovations (railroads, radio, the personal computer) lose their explosive growth capacity as they turn from game changers into commodities with trivial value. At that point, the opportunities for prudent investment decline.

Investors have a great deal of money, but money alone doesn’t generate high productivity.

The result is an intense search for investment opportunities. As there are few, mere speculative opportunities that would usually get passed over start to appear as investment opportunities.

The search for prudent investment created the subprime crisis. The assumption was that housing was an absolutely safe investment. Home prices always rise. Investing in mortgages was a conservative investment, and investing in the more exotic derivatives of mortgages was prudent and produced a handsome return. The core assumption – that home prices would always rise – proved incorrect. But at its root was not the financial snake oil salesman, but conservative investors wanting a place to invest safely in an environment where safe investments had become hard to find. The snake oil salesman simply took advantage of the natural greed in us all, promising vast riches at no risk.

What occurred in 2008 was a massive decompression of the system. The subprime crisis was the trigger. Excess capital without promising investment was the problem. Capitalism is not kind, but it is efficient, and that excess capital was destroyed to such a degree that the state had to invent cash to cushion the immolation of capital. Instead of an explosive decompression as happened in the United States in 1929, there was an explosion, but it eased itself into a longer-term decompression.

That decompression meant investors were suddenly more cautious and without investment capital. Then came an extended period in which the consequences of the event began playing out. It was a massive event, so it has been playing out for a long time. A reasonable assumption is that a generation-long boom will be replaced by a generation-long systemic dysfunction. The pressures must balance out over time.

This is not the first time this has happened, but there was something unique in it. Since the 1980s, nations and economies have grown substantially more interdependent. This was cheered wildly when it happened, but what it created was a forest fire with no fire breaks.

Interdependence in production and consumption – international trade coupled with the consequences of financial dislocation – was not confined to any one country. It became a global phenomenon. The irrationality of the idea that free trade and the free flow of money is essential to economic well-being was that any failure of the system meant that there was no place to hide.

If everything rose together, everything fell together as well. Economic exuberance had its twin brother in ideological exuberance. There were few places that could protect themselves from the consequences of the economic shift, and all of humanity suffered simultaneously. It has not been the deep and wide agony of the 1930s, but a long period of dysfunction instead.

The dilemma of interdependence could be seen most clearly in international trade. Ideologically, the strongest exporters were the most efficient economies. They were also the most vulnerable to any systemic failure. When the United States and Europe could no longer purchase goods at the same rate as before, China, an export giant, bore the brunt. When it became clear in the slow evolution of things that China would not recover, the producers of the industrial commodities China had needed to satisfy Europe and America were staggered as prices for oil and other commodities plunged. Australia, Saudi Arabia and Russia were affected, among many others. And others waited in the wings, such as Germany and South Korea, both countries that export almost half of their GDP to a sluggish and even contracting global market. In a slow but unavoidable march, everyone has been paying a price for globalization, and it is not over yet. The strongest economy, the U.S., exports least as a percent of GDP among major economies. And since much of that goes to Canada and Mexico, the limited ability to avoid excessive interdependence has cushioned the blow.

I have been talking about nations as a whole, but a crucial dimension is that people within nations experienced these events differently. The wealthy lost a great deal after 2008. But what they lost was investment capital and not rent money. The blow for most was not existential. It didn’t change their lives. For those who used their money for consumption, the impact was substantial. As the trade crisis spread, people lost their jobs, and those who found new jobs were being paid a fraction of their previous salary. 2008 had a different impact on average citizens. But political control remained in the hands of the investor class, which had organized its thinking around the ideology of interdependence. It remained focused on the stability of the financial system rather than the surge in unemployment, underemployment and the public’s loss of buying power. This played out differently in different countries, but it played out almost everywhere.

The financial crisis became an economic malaise. The economic malaise created a social crisis. The social crisis generated a global political crisis. The class that had absorbed the existential blow of 2008 turned on the elite and their values. The elite, focused obsessively on their interests and ideology, failed to notice the revolt. Donald Trump in the United States, Brexit in Britain and numerous parties throughout the European Continent challenged the orthodoxies of interdependence and the pre-eminence of the interests of the financial class. This class and its allies were completely unprepared for a fundamental challenge to the pre-2008 orthodoxies.

They were struggling to return to those halcyon days. Their challengers sensed that there was no going back and sought a completely different paradigm that appeared to be witless to the elite. But then the elite appeared brutally indifferent to any interests but their own.

The political upheaval was not confined to Euro-American society. It can be seen in the evolution of regimes into dictatorships, determined to retain the personnel in power. Russian President Vladimir Putin and Chinese President Xi Jinping are the great examples of this. As they shift to a more repressive stance, attacking their own financial elite, they gain popularity and power. Rather than a Trump or a Brexit emerging from the bottom, their intention is to appropriate the movement to enhance their power. This process of co-opting can be seen in Saudi Arabia and Turkey as well.

The issue that has been raised by 2008 is the importance of nations and the primacy of a national leadership to protect the interests of the nation as a whole and not the global system or the interests of the financial community. The re-emergence of nationalism is the logical outcome of the failure of interdependence. Part of the assumption of the pre-2008 ideology was that aggregate economic growth benefits everyone. Post-2008 ideology is that stagnation is paid for by the middle and lower classes. And this leads to a political showdown.

It also creates a situation where maximizing growth is not the primary interest. If the economy grows at 10 percent, but you are unemployed, your self-interest is not with maximal growth. If those above median income benefit from 10 percent growth but those below see their ability to consume contract, the conclusion is obvious. It is possible that free trade, for example, benefits the economy as a whole, but the benefits flow to the top and the costs are absorbed below. In this case, someone earning below median income will vote for someone prepared to sacrifice aggregate growth in the long run for higher incomes below the median for the next 20 years.

That is precisely what the argument against the pre-2008 ideology is saying. Free trade may benefit the economy as a whole, but devastate a class. That class will accept lower growth to avoid the consequences of lower wages. For the pre-2008 ideology, this view is incomprehensible. But it has become the prevailing ideology of roughly half of Euro-American society.

A new ideology has emerged. It is not yet in power, but it is growing. It argues that the nation-state controlling and limiting its dependence is superior to interdependence. It also argues that the nation-state provides benefits globalism cannot: a sense of community, the preservation of culture, a sense of self. This argument says that humans without a nation are humans without a community. They are alone, lonely and helpless. And at the root is the argument that there are more important things than money.

In this context, the Euro-American opposition to immigration can be understood. There is a growing rejection of interdependence, and that is not only a trade issue, but a question of the preservation of the nation. A massive influx of immigrants, particularly illegal immigrants, is a danger to the lifeboat that was left after 2008 – the nation-state – the people I know and whose fate I share. Hostility toward immigration is simply one minor dimension of a massive shift in values and beliefs.

The elite condemns this as racist. Whether it is or isn’t, it is the response to the dominant ideology after 2008. The repercussions of 2008 have been milder and slower in coming than in 1929. But that has ground down the system all the more dramatically. Still a simple truth remains. The world after 1929 changed and was never the same. That remains true today. All regimes have shifted the way they operate, most democratic elites have been stunned by the changes, and their contempt for the incivility of their challengers is not enough to maintain the status quo.

2008 is appearing to be a defining moment in history, like 1991, 1945 and 1929. It is a generational shift in the way the world Works.

Five Minutes to Trump

Lies and Lapses on the US Campaign Trail

Donald Trump is a proven liar. But Hillary Clinton is a flawed candidate as well. With eight weeks to go until Americans go to the polls, the prospect of a notorious charlatan moving into the White House is looking more realistic than ever.

By Klaus Brinkbäumer, Veit Medick, Gordon Repinski and Holger Stark

Donald Trump is a proven liar. But Hillary Clinton is a flawed candidate as well. With eight weeks to go until Americans go to the polls, the prospect of a notorious charlatan moving into the White House is looking more realistic than ever.

Perhaps it really does boil down to the name. The family comes from the town of Kallstadt in the state of Rhineland-Palatinate -- a wine-growing region of Germany with red rooftops and clean-swept streets. In their search, historians found many different variations on the name's spelling: Drumpf, Dromb, Tromb, Trum, Drumb, Tromp, Trumpff and Trumpf. None of them, though, sounds much like presidential material.

The small Friedrich, born in 1869, was a slender child of eight years when his father died. His was unable to help his mother in the vineyard and she sent him off to begin training as a hairdresser. But Friedrich didn't want to cut hair for a living, so he headed for Bremen and boarded the SS Eider. On Oct. 19, 1885, he arrived in New York. His file at the immigration authority lists him as "Friedrich Trumpf, farmer," but the "f" disappeared soon after his arrival for reasons of pronunciation.

That's how the Trumps were born.

The international community would be much more at ease today if the slim émigré from Kallstadt had brought another name along with him as he crossed the Atlantic Ocean, an awkward name like Hustekuchen, Grube, Kieselmüller or Drumpf. But Freidrich's grandson Donald Trump, 70, is named Donald Trump, and the name is both a promise and a brand.

The name sounds like that of a rock band, a neon sign, an exclamation or a craving. It's a name that promises boundless power and eternal greatness. "Make America great again! Trump."

Does a discriminating, earnest woman have a chance of prevailing over that?

Ever since Trump's Democratic Party rival Hillary Clinton collapsed after attending a 9/11 memorial service in New York and had to be helped into her van, the world has been faced with the realistic prospect that Donald Trump will become the 45th president of the United States.

Under normal circumstances, the man would be nothing but a joke. Whenever he feels that not everyone in a room sufficiently reveres him, he says, "I have a lot of money." When he encounters Jews, he tells them, "I'm a negotiator like you folks." He also thought it important during a television debate to ensure his audience that he didn't have a small penis.

The man should have been debunked long ago, because he's a notorious liar.

No Laughing Matter

Donald Trump says he spoke out early on against the war in Iraq. His supporters applauded him when he said those deaths wouldn't have happened under a President Trump. But it's nonsense. In 2002, radio host Howard Stern asked Trump if he supported the war. "Yeah, I guess so," Trump answered.

Crime in the inner cities of North America has "reached a record level," Trump has lamented. He continues to make this assertion all across the United States -- in all his speeches and on all the talk shows. But FBI statistics show that the crime rate is at its lowest in 25 years.

And Barack Obama is the "founder of ISIS" (Islamic State) Trump said in August and then tweeted it. Of course it outraged the Democrats, but it was also welcomed by the right-wing camp and the mainstream media barely even reacted.

Donald Trump's political ascent has long since ceased to be a laughing matter. Even though he has been exposed hundreds of times, the Trump juggernaut just keeps on going. Indeed, it's possible it may end inside the White House in eight weeks. Something astonishing has happened.

The one candidate, Clinton, isn't allowed to deceive. She has to apologize for every slip-up, no matter how minor, and any mistake she makes just refuses go away.

Trump, meanwhile, lies and stirs up hatred and it doesn't harm him in the least. It even helps him which, of course, he understands and thus continues to operate free of any scruples.

It is precisely this incendiary speech free of inhibitions that is the Trump hallmark. His fans see his lies as the courage to tell the truth, as chutzpah, as a revolt against those at the top. From the very beginning of his campaign, he has succeeded in stylizing himself as an outsider, a challenger to the thoroughly corrupt establishment, and every desperate attempt by the establishment to counter Trump's demagogy with numbers and data is taken by them as affirmation. They're ranting at Trump?

Then he must be right -- their reaction makes it clear. The facts contradict his assertions?

Who's to say the facts are true?

Carried Away in Anger

There is nothing elegant about this candidate. Those who look closely, or get close to him, can hardly stand this over-tanned, bloated man with the dyed blond, comb-over hair (or toupee or whatever it is). He stands there flailing, bellowing and spitting. And his tie is always too long.

He's not even an eloquent speaker. He uses few words, he constantly loses his train of thought and seldom finds it again and he often gets carried away in anger. He'll repeat a half sentence he seems to like two or three times, but there's nothing funny or intellectual about it.

All this has led journalist and economist Paul Krugman to believe that Hillary Clinton could suffer a fate similar to that of Al Gore 16 years ago. He was the smarter, better-educated candidate, harder working and even a better speaker, but instead his opponent became president -- a man who could get away with every impudence, lie and mistake: George W. Bush.

Then as now, it has to do with the left's eternal complexes and the self-assurance of the American right. The Democrats are gentler and less likely to attack their opponent as rabidly, and they don't defend their own people as decisively as the Republicans. It also has to do with the Tea Party's hatred and that of the Republicans on the extreme right. They consider President Barack Obama and candidate Clinton to be unpatriotic simply because they are different -- as a black man and as a woman, they must be traitors.

The gender issue of course plays a role. The man, Trump, uses course language and exhibits loutish behavior. The woman, Clinton, is questioned about every step she takes. The man can look however he pleases. The woman's hairstyle, pantsuits and weight are constantly scrutinized and commented on. If you were to imagine, purely theoretically, that the behavior were reversed in these two candidates and that Trump would be as punctilious as Clinton and Clinton as vulgar as Trump, then it becomes immediately clear that Trump can only get away with acting as he likes because his is a white American man running against a woman.

Surveys might indicate that a majority of Americans may now be prepared to accept a woman as president, but the populace holds women to a stricter standard than men. That's why the seconds when Clinton lost consciousness are so disastrous. Men are tough, women are frail and delicate. The cliché of the fainting woman has long been with us in the world of literature and opera -- and it's nonsense.
A New Campaign Chief from Breitbart News

Nevertheless, or therefore, Clinton's fainting spell on Sept. 11 has the potential to decide this race.

Both candidates are under constant scrutiny -- every word is parsed, every sentence is examined for possible mistakes and privacy is at a premium. Having to temporarily suspend a campaign for health reasons isn't accepted. If most politicians are expected to exude good health and vitality, this rule applies tenfold to presidential candidates in the United States.

"It is extremely important that presidential candidates and also elected presidents are viewed as being healthy," says Robert Gilbert, professor emeritus of political science at Northeastern University in Boston, who has written about presidential health. "But pneumonia is easily treatable, medically speaking, it's a minor thing." Why, then, was the issue discussed as if it were a life and death momento?

Clinton is judged differently -- without mercy -- believes Dianne Bystrom, director of the Carrie Chapman Catt Center for Women and Politics at the University of Iowa. "The bar is higher for Hillary Clinton than it is for Donald Trump," says Bystrom, "simply because she's a woman. Women in politics are expected to be both good leaders and good women," in the centuries-old, maternal sense. In other words, it's a contradiction and impossibility. How does a person come across as assertive and at the same time sweet and warm-hearted? A man can be cold and hard -- that comes across as masculine. "Clinton would even be criticized for not smiling in a debate about terror and war," says Bystrom.

For Trump, Clinton's pneumonia is an unexpected gift. "There's little doubt Donald Trump dug himself a very deep hole in the aftermath of the nominating conventions," Republic pollster Robert Blizzard told the New York Times. At the beginning of August, Trump had fallen almost eight points behind Clinton in the polls, with his biggest losses in decisive swing states like Florida and Ohio. He's now leading in those states and his victory appears to be a realistic possibility.

In mid-August, Trump swapped out his senior campaign team. He replaced his former campaign chair Paul Manafort with media entrepreneur Steven Bannon, 62. Republican strategist Kellyanne Conway took over as campaign manager. For the first time since the beginning of his campaign, Trump suddenly no longer came across as some kind of "Me Incorporated," but rather as the head of an organization. "Since Conway and Bannon took over this ship, it's been sailing remarkably straight," says former Trump adviser Michael Caputo.

A Trip to Mexico

Like Trump, campaign chair Bannon doesn't think much of multiculturalism or of making the Republican Party more attractive to new groups of voters. He's instead focusing on the still existent white majority and on the right-wing. Bannon has taken over the reins at Trump Tower on Fifth Avenue in New York and is in charge of putting the candidate in the best possible light, which he is doing to perfection. He has become Trump's most important man.

Suddenly, the candidate is coming across more statesman-like, even if for only a few seconds at a time. He has even been able to contain himself throughout entire interviews -- which earlier would have been inconceivable.

On a Wednesday at the end of August, Trump stood in front of a dark green marble wall adorned with an oversized Mexican coat of arms, framed by two national flags. Mexican President Enrique Peña Nieto was speaking. For Trump, it was an unusual role: He had come as a listener and had to wait, kneading his fingers, touching one foot with the other. But he managed to control himself and when Peña Nieto turned over the podium, he politely thanked Mexico for its hospitality.

The trip had been Bannon's idea. The campaign chief wanted to stage an event in the place where his candidate faced the greatest headwinds: in Mexico, the very country whose people Trump disparaged as "criminals," people who could only be kept out of the United States by building a wall. Bannon had to overcome significant resistance; not everyone close to Trump thought it was a good idea. They thought it too risky -- no, too smarmy. But there Trump was, standing in the Presidential Palace, and he actually managed not to insult anyone. His hands and words remained under control and Bannon got the images he had hoped for.

The evening after he returned from Mexico, Trump made an appearance in Phoenix, Arizona.

The venue was only two-thirds full but, as always, Trump's people would later say that the arena had been too small.

Arizona is something of a political home to Trump, and it shares a border with Mexico. Trump is a like a marketing firm and his best-selling product is the wall. "Most illegal immigrants are lower-skilled workers," Trump said. "Deport them!" shouted one woman in the audience.

"Frankly, illegal immigrants get treated better than many of our vets -- it's a disgrace!" Trump said, soliciting boos and whistles in the arena. Trump licked his lips before saying how he wants to deal with immigrants. In addition to the wall ("including … sensors" to detect tunnels, "towers, aerial surveillance!"), his 10-point immigration plan includes tough provisions for deportations. Only when we have "truly ended illegal immigration for good … will we be in a position to consider the appropriate disposition of those who remain," he said, bringing visible pleasure to his audience.

From Erratic Egoist to Future President

That Wednesday, within a timeframe of just a few hours, Trump showed the two faces that constitute the decisive phase of the election: He is no longer randomly spewing out delirium, his attacks are more precise and he is trying to come across as presidential. At the same time, he remains merciless when it comes to minorities or weaker segments of society. This strategy of transforming an erratic egoist into a future president has much to do with Steve Bannon and his idea of politics.

Trump's campaign chief comes from a Democratic family, but for years showed little passion for politics. After high school, he served on a destroyer in the Pacific before getting hired as an investment banker at Goldman Sachs. He got rich through a Hollywood deal involving royalties from the sitcom "Seinfeld."

It's easy to underestimate Bannon at first. He sports a three-day stubble and wears wrinkled shirts and shorts in stuffy Washington, where he owns an 11-room home near the capital. "He's dressed like a homeless guy," says former co-worker Ben Shapiro.

When it comes to the establishment, Bannon has only one thing: contempt. He abhors the Democrats and says of the Republicans, "We don't believe there is a functional conservative party in this country and we certainly don't think the Republican Party is that." When the Tea Party emerged on the right at the beginning of the 2000s, Bannon was fascinated. He got to know Sarah Palin, who at the time was still governor of Alaska and a rising star among conservatives.

He first became truly influential in 2012 when he took over leadership of the conservative website Breitbart News, after founder Andrew Breitbart died of a heart attack. Under Bannon, Breitbart News developed into a combat organ for the radical right. The site cozied up with the Tea Party and the so-called alt-right, essentially the intellectual arm of white racists.

Bannon's positions were politically incorrect and included openly xenophobic ideas -- and he found success with them. The Breitbart site has 31 million visitors a month and is one of the 250 most visited websites in the United States. Its influence is difficult to overstate. Ben Shapiro considers Bannon to be a "manipulator" who divides the world into two camps, supporters and detractors. In terms of foreign policy, Bannon is an isolationist like Trump. Economically, he shares Trumps reluctance about international trade agreements. "But more important to him than everything else is being strong," says Shapiro. "Trump has hired his spitting image to head his campaign."
The Making of Trump

The degree of Bannon's influence on Trump could be observed a week ago Sunday after Clinton collapsed in New York. It was initially agreed that Trump would remain silent, with Breitbart tending to the dirty business in an all-capped headline that appeared on the site just hours after her fainting spell: "Democrats Considering Meeting To Discuss Replacing Hillary Clinton on Ticket." The site also criticized Clinton for having played with children after being diagnosed with pneumonia and even had an article quoting a former Secret Service agent saying, "I've never seen a protectee go down like that, ever."

Bannon and Trump are both unscrupulous and radical, more populist than ideological. They have recognized the degree of anger harbored by disappointed white voters and they are united in their desire to channel this anger on behalf of their own interests -- Trump for his campaign and Bannon for his website and for Trump. It is a pact that has benefitted both so far and is intended to carry them into the White House: Trump as president and Bannon as his chief of staff.

And if they have to lie in order to make that happen, they will do exactly that.

Lying, of course, is not without tradition in the world of politics, but it has always been considered to be a last resort. Donald Trump, though, lies constantly and profits from it, which is why he has made lying a part of everyday politics. Last Tuesday, he announced he would introduce six weeks of paid maternity leave if elected and said Hillary Clinton "has no child care plan. She never will and if it ever evolves into a plan it'll never get done anyway. All talk. No action." But Clinton announced her plan to introduce 12 weeks of paid maternity leave a year ago.

Trump's supporters don't care. They aren't looking for the truth - they just want affirmation of their own beliefs. They view Trump's deceptions as a political show and assess them as such.

America, including the American media, has allowed itself to be hypnotized over the past 18 months by a con artist.

Trump's success is the story of an outsider who has broken with all the rules of the world of politics and has done so very successfully. But there's also a second narrative to be told: a story of longing for attention and an insatiable craving for recognition. His ghostwriter Tony Schwartz is more inclined to believe the latter version. Schwartz accompanied Trump daily in 1985 in order to write his autobiography, "The Art of the Deal," which the presidential candidate praises today as "the best-selling business book of all time."

The Decisive Move

Donald Trump inherited his wealth and then earned millions with real estate in New York and elsewhere. He lost lots of money and earned lots back. Now he wanted to make his name glisten with something other than polished artificial gold. But Schwartz had a problem: Trump couldn't concentrate and would interrupt interviews after only a short time. "It's impossible to keep him focused on any topic, other than his own self-aggrandizement, for more than a few minutes," Schwartz recently told the New Yorker magazine of his encounters with Trump.

That's why he suggested a new way of approaching the project: He would shadow Trump, observing his discussions, listening in on his conference calls and watch his negotiations -- a proposal that most business titans would have angrily rejected. "He loved the attention," Schwartz said. "If he could have had 300,000 people listening in, he would have been even happier."

Trump's role in the reality-TV show "The Apprentice" is often described as being an episode in his glamourous biography, but it was actually the decisive move in Trump's career. It brought the real estate magnate to the attention of an audience of millions and made him a star, but somewhere along the line he got addicted to the attention. There aren't many jobs out there that that bring more attention than being president of the United States.

Trump first considered a run for the presidency in the early 2000s and continued flirting with the idea but constantly decided against it. It became a running gag -- at least until he made good on his word.

Michael Caputo, an adviser in Republican circles and one of the many movers and shakers in American politics, has known Trump since the 1980s. He says that Republican Party officials in the state of New York came to visit him in 2013 looking for a candidate to run against the Democrats in the next gubernatorial election there. They were thinking about Trump. Caputo arranged a meeting.

Trump listened to the proposal and then answered that he had his eye on something bigger, Caputo recalls.

Caputo was curious and he asked Trump how exactly he intended to do that.

Trump replied that he would set the agenda with a constant flurry of announcements and with brash and spectacular proposals. "I will suck all the air out of the room," Trump said, with a cold smile, Caputo recalls. According to this interpretation, Trump is less interested in strict right-wing politics than he is in generating interest in himself.

Trump's ghostwriter Tony Schwartz also believes that, at his core, the candidate has no ideology and is focused primarily on himself. But Schwarz believes that doesn't make him any less dangerous. "I genuinely believe that if Trump wins and gets the nuclear codes there is an excellent possibility it will lead to the end of civilization," he told the New Yorker. Schwartz, who has been tapped by Clinton's people as an advisor for the upcoming debates, says he regrets having written Trump's memoir. If he could give the book a different title today, he told the magazine he would call it "The Sociopath."

Channeling David Duke

Because even if there are now serious Trump moments, a responsible party would have prevented a dangerous man like this from getting as far as he has -- a xenophobic choleric, a racist, a man who believes in the superiority of the white race. A man not unlike David Duke.

The beige brick home is located on a quiet street in the north of New Orleans, a white Mercedes S-class sedan parked in the carport. This is where the man who once led the Klu Klux Klan has built up his propaganda center.

David Duke was sitting in his office last Tuesday, a Confederate flag pinned to his lapel. A webcam was attached to a computer monitor with a sign above it reminding him to look into the camera when recording his video podcasts. Mostly, those podcasts focus on alleged Zionist conspiracies and on the "Jewish matrix of power" made up of media, finance and politics. He publishes them on his website.

In July, 66-year-old Duke announced his candidacy for the US Senate in his home state of Louisiana.

Like Trump, Duke is running as a Republican and like the presidential candidate, Duke is also receiving little support from the GOP party establishment. But that doesn't matter, Duke believes, because something much bigger is at stake. "The climate of the country has moved in my direction," Duke says.

Duke no longer wants to be seen as the outsider with links to the Ku Klux Klan. It's 2016 and times have changed, as he sees it, and he has now arrived in the mainstream. "Trump says things these days that sound a lot like what I said decades ago," Duke says, "except I was a bit more literate."

Duke is one of the most notorious right-wing extremists in the United States. He has served time in prison and has fled abroad to escape charges. His comeback is one of the side effects of Trump's rise: Rarely before has an anti-Semite and Holocaust denier been able to snuggle up to a candidate for US president the way Duke has with Trump.

If you ask Duke what his three most important political goals are, it sounds as though he coordinated them with the Trump campaign: Limit immigration, no more wars and disempower the establishment in Washington and on Wall Street. Beyond that, Duke is also fighting for the preservation of "European-American culture," for the "beauty of creation," as he calls it. The segregation of blacks and whites would help, he says. "There are many possibilities. The country is vast and there are many unpopulated areas," he says. But it would only work on a voluntary basis, he insists.
The Demons He Has Awoken

On the bookshelf of his office stands a biography of the Nazi propagandist Joseph Goebbels in addition to two editions of "Mein Kampf," by Adolf Hitler. A battered campaign poster advertising "David Duke for Senate 2016" leans in front. Duke believes his time has come, thanks to Trump.

The Republican candidate has taken white supremacism out of the fringe and made it socially acceptable. In addition to Duke, Trump also enjoys the support of the right-wing extremist website The Daily Stormer. And Trump has done little to rid himself of the demons he has awoken. Trump initially didn't even distance himself from Duke's support before ultimately -- tepidly -- rejecting it.

When he was asked about it in the spring, he only said: "I don't know anything about David Duke, okay?" It was only his campaign leadership that later said they didn't want to have anything to do with Duke.

But was that merely a tactical move? Or was it the truth, for a change?

In Trump's world, in the world of real estate where he grew up, a cleverly placed lie can be the expression of singular resourcefulness. Assertions help strengthen one's own position and if you win, you're right. But politicians are not competing for a contract, they are laboring to serve the common good. In a democracy, voters have a right to truthfulness.

In 2011, Trump tested the efficacy of his brand of political discourse when he claimed that Obama was a Muslim. He then went on to demand that the US president produce his birth certificate, arguing that Obama had been born in Kenya. There was no proof for Trump's claims but they were effective nonetheless: Even today, 29 percent of Americans are convinced that Obama is a Muslim and 9 percent continue to believe he wasn't born in the US, even though Obama released his birth certificate, which clearly states he was born in Honolulu, Hawaii. The principle of aspersion had proven itself effective. Trump has since perfected the method.

Innumerable Examples of Untruths

Trump attacked his Republican adversary Ted Cruz by openly doubting whether he was allowed to run for president because he was born in Canada. He also spoke of photos allegedly showing Cruz's father together with Lee Harvey Oswald, who would later go on to assassinate John F. Kennedy. Regarding his Democratic opponent, he said: "We don't know anything about Hillary in terms of religion," though she is a Methodist like her parents.

There are innumerable examples. Trump has said there are "30 million, it could be 34 million" illegal immigrants in the US, though the actual number is around 11 million. He said that the unemployment rate was 42 percent, when it is only 4.9 percent. To substantiate his demand that all Muslims be banned from entering the United States, he claimed that in New Jersey he had watched "thousands and thousands" of people celebrating the deadly Sept. 11, 2001 terror attacks, though no eyewitnesses have been found to confirm the incident. The institute PolitiFacts, which checks the veracity of claims made by politicians, looked into 168 statements made by Trump and found 70 percent of them to be "mostly false," "false" or "pants on fire."

Never before, the institute says, has a politician lied so often.

The negativity of this campaign would likely not be quite as extreme were the Clintons more obsessed with truthfulness, but Bill Clinton, at least, is a pioneer of "post-truth politics," as it has been called in the US. His claim during the 1992 campaign that he had smoked marijuana but didn't inhale was not meant as a joke. His nationally televised address in 1998, in which he claimed to have had no sexual relations with the White House intern Monica Lewinsky, was deception at its finest.

Hillary Clinton is paying the price. Fifty-six percent of Americans say they don't believe her, a point of view that was only amplified by the affair surrounding her private email server.

Clinton repeatedly made unclear statements regarding her emails, making it look as though she were prevaricating. The unending affair is comparatively minor and the investigation did not result in charges being filed, but it has made it easier for Trump to attack her rectitude in the Internet, which he does on the site

A Weak Flank

Trump, the notorious liar, has branded Clinton, a serious politician, as a liar and there isn't much she can do to defend herself or escape the absurdity of the situation because she does in fact have a weak flank.

That is hardly fair, nor is it justified. Clinton is far more transparent than her opponent. She has released her tax returns whereas he has thus far refused to do so. She has engaged in detailed discussions about the purpose and aims of the controversial Clinton Foundation, an organization that doesn't have much to hide: It focuses on education, access to drinking water and other classic philanthropic pursuits. It has been demonstrated that 90 percent of the money donated to the foundation ends up being spent directly on the projects it supports and that the Clintons and the rest of the foundation board work on a volunteer basis. Trump, by contrast, doesn't talk about the Trump Foundation, which donates little and instead buys oil paintings depicting Donald Trump. He speaks even less about the Trump Organization, which funnels money around the world through a convoluted network of companies until it ultimately ends up in tax shelters. The potential for conflict of interest should he become president is vast.

The two actually shouldn't be compared at all since they operate on completely different planes.

Clinton's mistakes are orders of magnitude less significant than the lunacy that Trump serves up on a regular basis. And as a female candidate, her challenge is great enough already: After 43 male presidents, she would be the first woman in the White House.

It is also a question of culture. Trump is contemptuous of education, women, migration, diversity, the media and freedom of speech. He admires Russian President Vladimir Putin and wants to build walls. Clinton wants an America that is more tolerant and less obsessed with weapons. It is no surprise that all of America's international partners hope that she wins.

Yet as Trump has continued flying across the country without pause, Hillary Clinton was recently forced to take a break. The candidate headed home to Chappaqua, a small town of 1,400 people about an hour north of New York City. She has lived there for the last 16 years together with Bill and their house is on a dead-end road called Old House Lane.

The Candidate's Aloofness

The property is only protected by a high fence, but when Hillary announced her candidacy for the presidency, the police declared the street to be a private road. The part of the street that leads to the Clintons has now been transformed into an obstacle course made of orange barricades and gray cement blocks. "That must be how Donald Trump envisions the border to Mexico," says one neighbor.

These days, the protective walls seem to emphasize the candidate's aloofness, which has become a problem for her. Following her fainting spell, Clinton followed the playbook she has used so often in the past, informing only close advisors of her health problems and telling the public nothing at first.

Just a few weeks before the election, Clinton seemed once again to be the mistress of secrecy -- a woman who has been in the public eye forever but about whom little is known.

"Antibiotics can take care of pneumonia. What's the cure for an unhealthy penchant for privacy that repeatedly creates unnecessary problems?" tweeted David Axelrod, Obama's former advisor. This presidential race "shouldn't be close, but it's close," said Obama.

Initially, her rival Trump said little about Clinton's health problems other than to wish her a speedy recovery, a clever tactical move. But last Wednesday, Trump abandoned his civility and wondered if Clinton could handle standing for an hour in an overheated auditorium as he could. No, his audience screamed. No, Trump said, unfortunately she couldn't.

At a fund raising dinner in New York two days prior to her fainting spell, Clinton said that half of Trump's supporters belong in a "basket of deplorables" full of racists and sexists. "The disdain that Hillary Clinton expressed towards millions of decent Americans disqualifies her from public service," Trump subsequently said at a campaign appearance in Baltimore. "You cannot run for president if you have such contempt in your heart for the American voter."

Can someone who has spent months disparaging women, veterans and immigrants suddenly score points as an appeaser? Not really. Of course not. But Trump is an easy man to underestimate.

Because it is continually forgotten that Donald Trump has been an American star for the last 40 years: rich, omnipresent and an entertainer in a country that is addicted to entertainment.

He acts like many Americans have always wanted to act: free of fear. He says what he thinks and gets the women he wants to get. A real man in this effete age.
Rooted in Scandal

Trump has been part of the talk show circuit for four decades and the hero of celebrity zines. He is the embodiment of the American dream, proof that it once worked -- and not all that long ago. And now he says that the dream no longer works because the system is "crooked" and "rotten" -- which is exactly what many Americans feel to be true. Trump claims that he can fix the system, make America great again and fulfill the dream for all those who vote for him. What they hear is: I will make it possible for you to be as rich as I am.

Last Tuesday, Trump made an appearance in Aston, Pennsylvania, a suburb of Philadelphia.

Outside the auditorium, screaming Trump fans stood face-to-face with screaming Clinton fans.

Measured debate is a thing of the past in America.

Trump was there to present his plan for affordable childcare and had brought along his daughter Ivanka. "We want higher pay, better wages and a growing economy for everyone," Trump said. He promised to introduce significant tax cuts to families with children to make childcare more affordable, a pledge that was met with loud cheering. "Wow, I'm hearing wow.
I like to hear wow. ...

Makes your life a lot easier, right?" He took in a breath through his teeth, like he always does during public appearances when he is even more satisfied with himself than usual. Somewhere in the audience, a child cried. "See? We'll start with that child. That will be our first child. That's cute." Can this kind of a campaign actually work?

A candidate like Trump, of course, doesn't just suddenly appear on the American political scene.

Someone like him is the product of a long development. He is made possible. Both politics and the voting public have changed in the past several decades, and that change was propelled by four key figures.

All the rules on the American political scene changed with Gary Hart and Newt Gingrich -- they helped America discover self-hatred and self-destructiveness.

In 1987, Gary Hart stormed into the political limelight, blessed as he was with confidence, humor, charm and charisma. But Hart's career crashed and burned due to an affair he had with a beautiful blonde woman named Donna Rice, who was photographed sitting on his lap and who also spent some time with him on a handsome yacht called Monkey Business. His was the first of this new type of scandal and he became an archetype. Reporters from the Miami Herald badgered Hart, searching for a Watergate-type scoop -- and didn't realize that in their pursuit of the story, they were fundamentally changing the ground rules of political reporting.

Aggressive Talk Radio

Even before Gary Hart, plenty of candidates and presidents had cheated on their spouses.

Franklin D. Roosevelt, John F. Kennedy and Lyndon B. Johnson were seldom alone, but why should the public know?

Why shouldn't the public know? After the Hart debacle, that was the approach taken by Republican Newt Gingrich. He became manic in his desire to topple Bill Clinton and transformed the president's private life into a political spectacle -- and he found plenty of media outlets willing to go along.

Around 20 years ago, ultra-conservative radio stations began pursuing a new form of aggressive talk radio and the best and best-known hosts among them quickly became stars.

That is how someone like Glenn Beck came to be a household name -- a weapons junkie, a racist and someone who spoke of the superiority of the white race even before Trump did.

That's also how Rush Limbaugh became prominent, a man who grieved for an America he believed had been betrayed by the liberal elite. He demonized abortion and simply refused to accept that a black man had become president.

Everything began with this quartet. Newspapers, television stations and websites like Breitbart followed in the footsteps of Beck and Limbaugh -- because reporting is expensive and anger is cheap. Plus, anger is widely read. Trump is the continuation, or perhaps perfection, of Newt Gingrich.

The sad part about this development is that so much has been lost. The US of today can no longer agree on what the truth is. There are no longer any objective facts, no common ground. Everything is torn apart, bent, used and abused in the public arena. Not even statistics or unimpeachable data counts for much anymore.

Obama's healthcare reform program, widely known as Obamacare, was controversial because conservatives saw it as an encroachment on freedom and American self-determination. That is a political debate, and it's one worth having. But a few years later, data from the Department of Health shows that 20 million Americans now have health insurance that used to have none. Furthermore, medical costs have dropped in places where the insurance program has been implemented. But such findings have played no role in the ongoing debate. "It's socialism," scream Beck, Limbaugh, Bannon and Trump -- and Trump has pledged to repeal the law as soon as he sets foot in the White House.

An Expert at Getting Attention

In this frame of mind, the country is no longer able to see the news media as neutral and every single outlet carries a stigma -- Fox as right-wing extreme, the New York Times as East-Coast liberal -- and that has led to an atmosphere in which it is no longer possible to communicate the truth even in instances where the truth is clear.

The cacophony of the Internet is another factor, transforming everybody with a Twitter account into a journalist. Media expert Bernhard Pörksen, a professor of media studies at the University of Tübingen in Germany, describes the phenomenon as "cybernetic agitation, a convulsion driven by feedback loops and alerts."

Donald Trump is both the product of this new world and its puppet master, one who is an expert at getting attention. With his 11.6 million Twitter followers, he reaches a mass of people that publishers can only dream of. And that is where Trump publishes most of his lies, on a platform where there is no corrective. It is simply too fast: By the time institutes like PolitiFact have checked a tweet, the next couple missives have already been posted.

This campaign has demonstrated that it is possible for the media to lose the ability to establish a dividing line between lies and truth in the public conscience. Indeed, that is already the situation in which the US finds itself -- and that is a bitter finding for the health of democracy.

And then comes Trump, promising to renew this ailing American democracy. Trump suggests that his political style is verbally robust, but his policies are immaculate. His biggest lie is his claim that he is telling the truth in the service of the greater good. On Sept. 26, in the first televised debate, Clinton will have her next opportunity to expose him.

President Obama could play a significant role in the coming weeks. Clinton now needs Obama, who is ending his presidency with a 52 percent approval rating. The Clinton camp is hoping that the more popular Obama is, the less effective will be the demons that Trump has summoned. One of Trump's favorite sentences is that a Clinton presidency would be akin to a third term for Obama. In these difficult times for Clinton, it is a claim that the Democrats are happy to hear.

A 'National Disgrace'
The remaining weeks of the campaign are likely to be dramatic for both teams. A Donald Trump presidency has become realistic, even if it looked just two weeks ago as though Clinton had built an insurmountable lead. But the trend is shifting and at the end of last week, Trump was hanging on to a slim lead in public opinion polls in the important swing states of Ohio and Florida.

Trump is a "national disgrace and an international pariah," wrote the former Republican Secretary of State Colin Powell in a private email that was released last Wednesday by hackers along with a large amount of additional personal correspondence. "He appeals to the worst angels of the GOP nature and poor white folks," Powell wrote in another email. Trump's claim that "within four years he would have 95 percent of blacks voting for him is a schizo fantasy."

But in the hacked emails, Powell likewise wasn't particularly complimentary of Clinton, his successor in the State Department.

"Everything HRC touches, she kind of screws up with hubris," he wrote, using Clinton's initials.

Whoever emerges victorious in the election on Nov. 8 will likely be the president-elect with the least amount of popular support since World War II. The loser will presumably speak of a conspiracy and complain of the numerous untruths that poisoned the campaign. The phenomenon of Donald Trump, who can trace his roots back 131 years ago to the village of Kallstadt, near Mannheim, will certainly not be the end of this toxic development. He likely won't even be its apex.

Liars, after all, are no longer on the political fringe.

Why the Bosnian Serb Referendum Really Matters

It is a sign that, even in Europe, groups are still fighting for self-determination.

By Jacob L. Shapiro

The summer (at least in the Northern Hemisphere) began with an important referendum in Britain over sovereignty. It is only fitting then that summer should end with another important referendum on sovereignty, this time in the Balkans. Voters in Bosnia and Herzegovina’s Serb-dominated Republika Srpska – one of the two constituent states that make up the larger political entity – yesterday went to the polls to express their views on whether Jan. 9 should remain a holiday to mark the day Bosnian Serbs declared their own state. At the time of writing, preliminary results show voters have chosen to keep the holiday on Jan. 9. However, the fact that the referendum even moved forward is the real story here.

Bosnia and Herzegovina’s constitutional court ruled that the holiday discriminates against other religious and ethnic groups in the country and that therefore its celebration should be considered unconstitutional. The constitutional court on Sept. 17 also approved a temporary ban on yesterday’s referendum. Obviously, the court’s writ in Republika Srpska is lacking. Before the ban, Republika Srpska President Milorad Dodik said the referendum would go forward anyway, and so it did.

The tension between ethnicities and religions has long been a reality in the Balkans. This has always been a diverse and contested battleground, a mountainous and hard-to-control meeting point of civilizations. But the current tension has its most immediate roots in the fall of the Soviet Union. In the wake of the USSR’s dissolution, a series of conflagrations erupted on the fault line between the Soviet Union and the West (and its various allies). The Balkan Peninsula was one of the places where this conflict was fiercest. Yugoslavia collapsed in 1992, amid a series of wars fought along ethnic, national and religious lines. One of these wars was the Bosnian War – it lasted until December 1995, when the Dayton Agreement was signed.

The Dayton Agreement was responsible for setting up Bosnia’s unique political structure. The country was divided into two distinct entities: Republika Srpska, which has a population that is roughly 80 percent Serb and Orthodox Christian, and the Federation of Bosnia and Herzegovina, roughly 70 percent of which is populated by Muslim Bosniaks, along with a significant Catholic Croat minority. (There is also a third entity, Brčko District, which is both self-governing and shared by the two other sides.) The Dayton Agreement also established the constitutional court, and the political leadership of Republika Srpska is undercutting the Dayton Agreement’s legitimacy by defying the ruling of the court.

The court’s ruling, however, is not the reason close attention should be paid to yesterday’s referendum. On the face of it, this referendum is just about whether Jan. 9 should be celebrated as a holiday. The deeper truth is that merely by having the referendum, Republika Srpska is declaring its disillusion with the current political arrangement. It communicates a desire on the part of its people to rule their own affairs, to celebrate their own holidays and to speak their own language.

The desire of nations to have national homelands is not an unreasonable one. National self-determination is the backbone of the international political system. After World War I, the League of Nations and the mandate system were partly designed to bring immature political entities closer to realizing the dream of a nation-state. Self-determination was also not just an organizational principle; it was a moral one that was widely accepted. Even the United Nations was founded on this principle.

Article 1 explicitly says that the purpose of the United Nations is “to develop friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples.”

Somewhere along the way, the fact that national self-determination was the organizing principle of the political world was forgotten, or at least swept under the rug. Not only that, it was increasingly denigrated over time as a less-than-ideal pursuit. Part of this made sense.

National self-determination is all well and good if a group has a defined territory on which to set up a nation-state. Reality, however, is rarely so simple, and different groups have competing claims over areas with mixed demographics. This is the case in the Balkans – in part because of geography. It is a hodgepodge of borders, religions and ethnicities. But ignoring the divisions and pretending that such competing claims could be permanently solved with intricate political institutions makes much less sense, as is becoming more clear all the time.

Austrian diplomat Wolfgang Petritsch served as the high representative for Bosnia and Herzegovina from 1999 to 2002. It is the responsibility of the high representative to make sure that the Dayton Agreement is properly implemented. In 2006, reflecting on his time in this role, Petritsch said that the Dayton Agreement had been such a success that it could be used as a model by the rest of the international community for resolving conflicts, and that Bosnia had been put “on the road to Brussels.”

Petritsch meant this positively, and indeed, in 2006, the European Union was arguably at the height of its power and Continental appeal. Since then, much has changed. The European Union has struggled to weather both financial and political crises, and most important, prosperity, which membership once promised, is no longer guaranteed. All of the western Balkans are on the edge of the European Union, and all have weak economies that are under a great deal of pressure and will come under even more pressure as economies on the Continent continue to unravel.

What hasn’t changed is that these various ethnic groups in the Balkans still have strong identities, and without the promise of being part of a unified Europe, they want to have countries of their own. The United Kingdom is far more powerful and far richer than any of the Balkan countries, and so the vote of its people to leave the EU carried with it a deep sense of consequence to the future of the European project. But yesterday’s banned referendum also has serious implications. It reflects the fact that many on the periphery don’t want to be on the road to Brussels anymore. It also is a blow to NATO, the United States and all the countries that were involved in the Balkan Wars and sought a way to keep such different and hostile groups together without giving each their own nation-state.

The rest of Europe has always looked down on the countries of the western Balkans – they are seen as behind the times, as economic basket cases, as constantly squabbling, as the last vestige of real barbarism on a now peaceful continent. I don’t view the Balkans as behind the times. I view them as trendsetters in this regard. Yesterday’s referendum may well turn out to be an inconsequential vote over a national holiday in an extremely fractured and relatively unimportant country. But it is also an example of a national group on the European Continent without a state of its own defying what it sees as an unacceptable political status quo. There are deep forces at work hidden beneath Europe’s official borders, and they are only going to get more pronounced in the coming months and years.

We Are Stuck In Depression Until The Legend Of The 'Maestro' Finally Dies

by: Jeffrey Snider

Alan Greenspan is confused - again. The man who admitted to the world a decade ago he didn't know much if anything about interest rates is now trying to change that reputation by suggesting yet again interest rates are set to rise. In testimony before Congress in February 2005, the then-Chairman of the Federal Reserve actually said:
For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum. Bond price movements may be a short-term aberration, but it will be some time before we are able to better judge the forces underlying recent experience.
To an economist, it was a "conundrum" especially where econometrics and statistics and take the dominant view (if it can be called that). That is one facet to the Greenspan story that is so odd yet so compelling in all the wrong ways. Though he was an economist by schooling, he had more practical experience in the "real" world. He served on boards of such illustrious companies as Alcoa, General Foods, even Mobil. But he was also a director for JP Morgan and Morgan Guaranty.
He should have known better, as his infamous 1966 essay on gold reveals. Thus, we can reasonably assume that what transformed his worldview was not economics (small "e") but rather power. Not only had he been appointed to major corporate boards, he was heavily involved in politics, including the kinds that are the stuff of conspiracy theories.
By 1995, as Fed Chairman, Greenspan was widely and wildly credited as guiding the US economy through what he claimed was an existential crisis with the Savings & Loan industry bust. Though George HW Bush would blame Greenspan's Fed in part for his 1992 election lost because of the first "jobless recovery" (a major clue no economist or policymaker investigated honestly), by the middle 1990's it was believed he had created the recovery itself and then tamed it when he raised rates in 1994 and engineered what many still call a "soft landing."
There have been many who have been dubbed the "bond market king", but for a long time Dr. Greenspan's status in that regard was a cut above.

His confusion and "conundrum" in the 21st century belies the reputation that had been given him in the 20th. The US (and global) economy of the middle 1990's didn't bother about rate hikes because there were other processes at work, especially with the S&L's no longer a further restraint on finance (yes, restraint). With traditional banking all but relegated to second tier status, wholesale finance of the eurodollar had been given an unrestricted path to all marginal growth - money as well as credit.
And Alan Greenspan knew it, or at least he knew of it and what it was doing. Many times during this period he would acknowledge the changing nature of money including in his "irrational exuberance" speech. By the dawn of the new millennium, that's all there was - eurodollars were the dominant setting. The real world got a close look at what it was doing first with the dot-com bubble and then the mania of the coincident housing bubble. Overseas, the eurodollar system was financing the EM "miracles" in what might fairly be called the third major bubble (the one yet to be fully reckoned with, though in some places like Brazil it has started to be).
By the middle 2000's, monetary behavior was no longer as economists had come to expect and what they had encoded in their econometric models. In trying to reconcile the bond market with those models, Greenspan had his conundrum which Ben Bernanke put into the concept of a "global savings glut." It was the final signal that economics, especially mainstream monetary economics, had lost all connection with actual, operative finance.
Because, however, his pedigree and credentials remain impeccable, his opinion still carries some weight; that is the world we live in, especially where the media is concerned. It doesn't matter how much you failed, it matters where you went to school and what jobs you held while you failed. Appearing on BloombergTV yesterday Dr. Greenspan claimed yet again that the treasury bull market is over with, and once more demonstrating his confusion.

"Whenever you have a bull market, it looks as though it is never going to turn," Greenspan, the second-longest serving Fed chairman, said in an interview on Bloomberg Television. "This is a classic case of a peak in a speculative security."
I doubt there was any mention of his other such "calls" between his "conundrum" and now, including one just last year. Speaking at a private conference in DC in May 2015 before "global turmoil" erupted globally (it was only "overseas turmoil" at that time), Greenspan said:
Just remember we had the taper tantrum. And we are going to get another one.
He made that proclamation as interest rates were, in fact, rising. In late January, the 10-year UST yield had fallen all the way below 1.70%; but from that point through the spring interest rates had been increasing again as Janet Yellen's "transitory" theme seemed to gain evidence.
By the time Greenspan spoke of this next "tantrum", the 10s had moved back up in yield to around 2.30%. Rather than continue toward 3.30% as he was suggesting, the benchmark bond yield would be nearly 1.30% by this July and proving yet again he is nothing more than an empty suit with a filled out resume.
It's not just that he has been wrong about the direction of interest rates, it is why he has been wrong but more so because it perpetuates this same, very basic financial misunderstanding. In putting together the story on Greenspan's BloombergTV appearance, the article's authors clearly share the former Fed Chair's muddled misunderstanding.
Investors globally have regarded monetary policy with growing skepticism that there's more central banks can do to stoke inflation and economic growth. Asset-purchase programs and negative interest rates have pushed yields on more than $9 trillion of government securities worldwide below zero, according to Bloomberg Barclays index data. The European Central Bank triggered a global selloff this month after signaling it wouldn't pursue further stimulus.
This is all demonstrably false and backward. The bond market hasn't sold off because it is just now losing faith in central banks; bond rates have been falling for years as that market no longer has any faith in them whatsoever. The history of UST yields since 2007 is, pardon the pun, unyielding on this score. Bond rates rose in the aftermath of the panic because of ZIRP and all throughout QE1 as bond market participants didn't understand what QE actually was.
Believing it to be actual money printing, bond rates reflected both increased inflation and economic growth that were judged likely to result - only to stumble into shocking illiquidity in early 2010.

To that, the Fed responded with QE2 and the process started all over again. Treasury rates rose once more, not fell, while the Fed was purchasing UST's - only to stumble all over again into even more shocking illiquidity in the middle of 2011 that finally registered as the realization of this eurodollar chasm between money and the actual role of bank reserves. Yet, despite all that, the bond market gave the Fed one more chance, though this time it was after QE3 and QE4, waiting to act in the same manner only when the Fed was willing to taper them.
In other words, the bond market on the third try demanded some confirmation first that QE had worked before reflecting expectations of inflation and growth. The idea of taper itself was that confirmation; thus, the "tantrum" of 2013 wasn't that the Fed was no longer buying bonds (at least as far as the treasury market was concerned) but that the bond market judged the success of QE at that point in time the most likely.
It didn't last, of course, and ever since the bond market no longer has much faith in "stimulus", harkening back to the questions about money and balance sheet expansion exposed by the 2011 crisis. Declining yields and a flattening curve leave no doubt as to the scenario that has been expected, one that has already been proved true. These periodic, almost regular selloffs that occur are not "growing skepticism" of global monetary policy, rather they are the brief and comparatively subdued flirtations with renewed faith that policy might achieve some results.

And, as usual, those hopes are dashed in relatively quick fashion by reality.

Economists view everything in finance through the filter of monetary policy, and therefore attribute all results to that perspective no matter how illogical and strained. That is why their view of the world is so often upside down and/or backward. It is the legacy of the myth of the "maestro." There is no reason, however, for that to have become and further remain the mainstream view propagated through the media. Greenspan's credentials say nothing; his track record is all that should matter when judging the worth of his opinions. He doesn't know what he is talking about and there is a mountain of evidence, including his own words, that show that he never did.
We are stuck in this economic depression not just because of his past tenure, but more so now because constant reverence prevents acceptance of these facts. The recovery doesn't start until the "maestro's" legend dies, and with it all the confusion and misconstruction about how markets and the economy actually work.

Weekend Edition: Are You Ready for the 2017 Recession?

Editor’s note: Yesterday, Agora founder Bill Bonner debunked the idea that the biggest threat to your wealth, well-being, and liberty is a foreign enemy or terrorist. Today, Bill challenges another popular myth: the economy is growing.

On the surface, America’s economy looks like it’s doing OK. GDP is positive. Stocks are trading at all-time highs.

But as Bill explains, the economy is actually rotting away below the surface. By one measure, the U.S. is already in a recession. What’s worse, years of reckless monetary policies are starting to burn a hole in the average American’s wallet. According to Bill, it’s only a matter of time before the public realizes the recovery is a giant hoax.

[This essay was originally published on September 16, 2016, in Bill Bonner’s Diary.]

We continue our work with the bomb squad.

Myth disposal is dangerous work: People love their myths more than they love life itself.

They may kill for money. But they die for their religions, their governments, their clans… and their ideas.

Great Cause

Some people think that even an idea as abstract as “freedom of speech” is worth dying for.

It was Voltaire who said: “I disapprove of what you say, but I will defend to the death your right to say it.”

Most people jump onboard the train of a Great Cause with enthusiasm and conviction. But many have the good sense to hop off quietly before their lives are in real danger.

We suspect that Mr. Voltaire would have done the same.

That’s why the deadliest myths are those that you can ride along with at no personal risk.

Foreign wars, for example, are always a favorite.

When Pericles proclaimed that the honor of Athens was at stake, and that it must take up the imperial burden and continue its war with Sparta, he was not offering to invade Sicily himself.

Nor was George W. Bush, in announcing his War on Terror, suggesting that he would personally march into Mosul.

But when you act on a myth, you are soon hostage to it; if you cannot win, you will lose.

As it happened, Pericles died in his bed; Athens was destroyed; its population was either killed or enslaved.

The War on Terror, meanwhile, has cost about $3.6 trillion so far (according to the latest estimates from Brown University), and has left more than 7,000 U.S. soldiers dead.

But George Bush, Dick Cheney, Michael Ledeen, Elliott Abrams, Paul Wolfowitz, and John Bolton are still alive.

In fact, as far as we know, not a single one of those killed was a leading proponent of the war.

Anywhere between 60,000 and 1.2 million people died on the other side (so many… and so difficult to verify… a whole industry has arisen trying to count them all).

Saddam Hussein, who had kept a lid on Islamic terrorism, was executed. Now there is a terrorist government in the area – ISIS – with U.S.-made weapons and a U.S.-trained head-of-state.

Recession Warning

But today we turn back to the world of money (pausing only to wonder if $3.6 trillion would have been squandered so readily had it been real money).

Markets are rousing from their summer sleep. We need to pay attention.

Here’s the situation:

The U.S. economy is still growing. But barely. And the pattern is clear. Instead of gathering strength, it is weakening… with lower GDP growth, quarter after quarter.

“Nominal” GDP growth is now 2.4% – the lowest rate, outside of recession, since World War II.

To get “real” GDP growth, you need to subtract inflation (the GDP deflator)… which, according to one official measurement, is 2.2%, not including food and energy. If those numbers were correct, it would mean the U.S. economy is essentially stagnant. Dead in the water.

Most likely, official inflation is understated.

President Reagan’s budget advisor, David Stockman, recalculates, taking out much of the statistical hocus-pocus from the feds’ numbers. He figures the real rate of price increases that most Americans suffer – his “Flyover CPI” – has been averaging 3.3% for this entire century.

Using that number, we see the real economy is now in recession, with a growth rate of MINUS 0.9%.

Most likely, the downward drift of output will continue. If so, you should expect an official recession before the end of 2017.

And most likely, that will sooner or later lead to a sudden sell-off in the stock market, when the myth of “recovery” finally dies.

This will lead to more intervention – “Drone Money” – from the feds… and to higher rates of consumer price inflation.

Inflation Threat

But wait… Inflation is already stalking the whole capital structure.

Bonds, for example, now depend on low rates of consumer price inflation… as far as the eye can see.

That’s because bond prices fall when interest rates rise. And interest rates rise along with inflation.

At today’s ultra-low yields, even a small uptick in interest rates will wallop bondholders.

That’s why investors pay such close attention to the Fed’s hints and teases. They know that today’s elevated bond prices depend on the lowest rates in 5,000 years.

If the rate of annual CPI growth is 3.3%, as Stockman calculates, and you have put your money into U.S. 10-year Treasuries yielding 1.5%, you are losing 1.8% a year in terms of purchasing power.

And if your money is in stocks paying a 2% dividend, you are losing 1.3% a year (more than that when you include taxes) in purchasing power.

Cockamamie Myth

In today’s markets, with such low yields everywhere, almost everyone must be losing money!

Let consumer price inflation move up just a little, and you will see a mass flight from both stocks and bonds.

It may have already begun. Since the middle of July, U.S. stocks have been bouncing up and down… with no clear trend, higher or lower.

But look at what has happened to the bond market. Ambrose Evans Pritchard, in The Telegraph:

Yields on 10-year Treasuries – the benchmark borrowing cost for international finance – have jumped 19 basis points to 1.7% since the middle of last week. [With bond yields rising, prices are falling.]

The amount of global government debt trading at rates below zero has suddenly fallen from $10 trillion to $8.3 trillion, with parallel effects for corporate bonds.

Investors, businesses, and households are now hostage to their debts. Their debts are hostage to interest rates. Interest rates are hostage to inflation. And the Fed is hostage to its cockamamie myth: that it can control and improve a market economy.

The Fed can mint new money to buy stocks and bonds… driving up asset prices. But the more money it creates, the closer the day approaches when consumer prices rise, too.

Then the whole shebang explodes.