Fed Gives Middle Finger to Congress, Commodities Customers, and Public, Proposes to Allow More Banks to Participate in Commodities Business

Nothing like watching a captured regulator like the Fed use a public hue and cry to execute a big bait and switch. Here the ploy is to change rules to further disadvantage the parties making complaints. But it takes finesse to make the finger in the eye look plausible and reasonable, so that when the well-understood bad effects show up later, the perp can pretend to be mystified.

The issue at hand is commodities speculation and price manipulation by major financial firms. In 2003, the Fed relaxed the rules that had formerly prohibited depositing-taking banks from trading commodities. In the early summer of this year, four members of Congress wrote to Bernanke asking whether the Fed had given adequate consideration of the systemic risk of letting major banks participate in the physical commodities. What, for instance, if a systemically important bank had its commodities trading operation fail? And these questions were raised in the backdrop of more general concerns about bank participation in the commodities business leading to other troubling outcomes, such as increased financialization and price volatility, which works to the detriment of real economy users.

A timely bit of reporting by David Kocieniewski of the New York Times in July showed that these reservations were valid and used Goldman to provide a concrete example of demonstrable, measurable harm. And that harm was the direct result of rule changes that allowed financial firms to operate in physical commodities, not just as traders in financial contracts (update: these were not the 2003 rule changes that applied to banks, but earlier liberalization of the investment banking rules, which were grandfathered for 5 years when Goldman became a bank in 2008 to give it access to the Fed window). They started backward integrating into owning major components of the delivery and inventorying systems. They gained not only a big information advantage by having better access to underlying buying and selling activity. but also the ability to manipulate inventories, and thus, prices. This piece created a firestorm at the time of its release and increased pressure on the Fed to take the Congressional inquires seriously. And Congress kept the heat on: the Senate Banking Committee held a hearing in late July.

The Goldman Example of How Letting Financial Firms Operate in Physical Commodities Activities Hurts Real Economy Users

Kocieniewski showed how Goldman had identified and exploited a critical choke point in the aluminum market. The new rules allowed Goldman to buy Metro International Trade Services, a business in Detroit with 27 warehouses that handles a bit over 25% of the aluminum available for delivery. Metro proceeded to lengthen delivery to end customers from six weeks to 16 months. And despite the firm’s pious claims that, really, it was doing the best it could, many warehouse employees reported that Goldman was using its trucks and staff not to deliver to customers, but to run ore around among the warehouses:

Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.

To encourage aluminum speculators to renew their leases, Metro offers some clients incentives of up to $230 a ton, and usually moves their metal from one warehouse to another, according to industry analysts and current and former company employees.

To metal owners, the incentives mean cash upfront and the chance to make more profit if the premiums increase…metal analysts, like Mr. Vazquez at Harbor Aluminum Intelligence, estimate that 90 percent or more of the metal moved at Metro each day goes to another warehouse to play the same game. That figure was confirmed by current and former employees familiar with Metro’s books, who spoke on condition of anonymity because of company policy…

Despite the persistent backlogs, many Metro warehouses operate only one shift and usually sit idle 12 or more hours a day. In a town like Detroit, where factories routinely operate round the clock when necessary, warehouse workers say that low-key pace is uncommon.

When they do work, forklift drivers say, there is much more urgency moving aluminum into, and among, the warehouses than shipping it out. Mr. Clay, the forklift driver, who worked at the Mount Clemens warehouse until February, said that while aluminum was delivered in huge loads by rail car, it left in a relative trickle by truck.

Now here is the nasty bit:

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

So here is the beauty of this scheme: Goldman is able to increase prices as if it were cornering the market without taking the risk of a corner (buying the all the extra aluminum and warehousing it). And as the party controlling the squeeze, it can profit both from the price increases on the inventory accumulation (which every good neoclassical economist agrees will increase prices over the normal market clearing level) and the downdraft if it decided to let up and reduce the excess inventories. And there is ample evidence this is happening. As we wrote:

The Times’s sources estimate the price impact across the market at 6 cents per pound, which adds $12 to the price of a typical car. Goldman piously claims it obey all the rules, but obeying the rules is far from operating in a fair or pro-customer manner. Metro’s inventories ballooned from 50,000 tons in 2008 to 850,000 tons in 2010. By 2011, Coca Cola complained to the London Metals Exchange, which attempted to address the situation by increasing the amount that warehouses must ship daily from 1,500 tons to 3,000 tons. But all that appears to have taken place is that Goldman simply shuffles more inventory among the 27 Metro warehouses while thumbing its nose at the LME (its inventories have almost doubled again from the 2010 levels, standing at 1.5 million tons).

How Does the Fed React? Of Course, It Sides With the Banks

An excellent report at Quartz explains how an anodyne-seeming response from the Fed is actually another huge gimmie to the banks:

Last week, Federal Reserve officials leaked to the Wall Street Journal their tentative plan to limit the ability of Goldman Sachs and big banks to own metals warehouses, power plants, and other physical commodity assets.

But experts say that, if implemented, the policy the Fed is floating would actually expand the rights of all banks to enter these physical markets, by creating an official entrance instead of locking the door shut. Presented like a deterrent, it would also be a novel enabler.

According to the Wall Street Journal, the Fed’s plan would call for balancing out the new right to hold assets with a requirement that banks hold more capital to cover the potential risks posed by these activities…

Some experts believe that this additional cost will lead most banks to abandon these lines of business. But it’s an unsafe bet. Not only is it not clear how the Fed would structure these surcharges, there is no guarantee that a steep fee would push banks out. “When you have regulatory costs associated with highly lucrative businesses, the banks just typically pass them through to customers and end users,” said Josh Rosner, managing director of Graham Fisher & Co, who testified in July on a Senate hearing about whether banks should be doubling as oil refiners and coal miners.

The Fed’s given the public no insight into its thinking on this crucial decision, but a surcharge generally works like a tax, meaning it makes sense for banks to continue these businesses if they bring in significant revenue. In other words, a surcharge could actually encourage banks to scoop up warehouses and refineries any time profits from trading metals and oil soar. As Marcus Stanley, policy director at Americans for Financial Reform, explained, “Next time there is a commodity boom, you could get very nice returns even with capital surcharges.”

Rosner’s and Stanley’s concerns are spot on. The Fed officials, if they are at all competent, should recognize that a tax is the wrong remedy for this sort of situation. First, we’ve already seen that Goldman was able to act as an oligopolist through its control of warehouses. Taxes don’t undermine the ability of oligopolists to push prices higher than where they would be otherwise. Second, in general, the alternatives for dealing with a situation like this is to consider prohibition versus taxation. Which you favor depends on which party bears the greater costs. In this case, the answer is clearly prohibition. Andrew Haldane of the Bank of England explained:

The taxation versus prohibition question crops up repeatedly in public choice economics. For centuries it has been central to the international trade debate on the use of quotas versus subsidies. During this century, it has become central to the debate on appropriate policies to curtail carbon emissions.

In making these choices, economists have often drawn on Martin Weitzman’s classic public goods framework from the early 1970s. Under this framework, the optimal amount of pollution control is found by equating the marginal social benefits of pollution-control and the marginal private costs of this control. With no uncertainty about either costs or benefits, a policymaker would be indifferent between taxation and restri
ctions when striking this cost/benefit balance.

In the real world, there is considerable uncertainty about both costs and benefits. Weitzman’s framework tells us how to choose between pollution- control instruments in this setting. If the marginal social benefits foregone of the wrong choice are large, relative to the private costs incurred, then quantitative restrictions are optimal. Why? Because fixing quantities to achieve pollution control, while letting prices vary, does not have large private costs. When the marginal social benefit curve is steeper than the marginal private cost curve, restrictions dominate.

The results flip when the marginal cost/benefit trade-offs are reversed. If the private costs of the wrong choice are high, relative to the social benefits foregone, fi xing these costs through taxation is likely to deliver the better welfare outcome. When the marginal social benefit curve is flatter than the marginal private cost curve, taxation dominates. So the choice of taxation versus prohibition in controlling pollution is ultimately an empirical issue.

Sports fans, the “should we give too-big-to-fail banks more running room in commodities land?” is as clear cut a case as you will ever find in the Weitzman framework. There is NO policy reason for letting the banks in save their own profits. We have efficient and well functioning physical commodities markets without their participation. So when we are considering “private benefit”, it is the additional profit to a handful of firms that are already too powerful, too sprawling, and have repeatedly demonstrated their tendency towards predatory behavior, rule-breaking, and regulatory arbitrage. There isn’t an obvious reason why they should get any breaks at all, save the Fed is working on their behalf, not the public at large.

On the “social benefit” which might also be framed as “public costs avoided” we have systemic risk and higher commodities prices. The stunning part of the New York Times article is that that market participants had firm estimates of the price impact, and across the market it was $5 billion. Aluminum is not an essential commodity, but even so, the harm in dollar terms was considerable. Banks can seek to find similar ways to either gain price advantage or use key choke points to manipulate prices.

And many commodities have an important, direct impact on consumer prices, particularly grains and energy commodities. Even small increases can have devastating impact on the hundreds of millions of people who are on the edge of survival. For instance, the Arab Spring outbreak was a direct result of increase in food and cooking fuel costs pushing more people into desperation and starvation. Analysts at Nomura even looked at the percentage of people in various countries who would be pushed into distress at an assumed further increase in fuel and food prices to determine which were at the greatest risk of similar revolts. So the potential public costs are large, and the private gains comparatively small (you could even omit them completely, since these are already highly subsidized companies with lavishly paid employees; what is the possible justification for giving them new looting opportunities?)

Finally, this is not the first time the Fed has tried to operate in bad faith, in terms of being asked to act on behalf of the greater public and using underhanded means to do the reverse. During the Audit the Fed discussions, the Fed lobbied Congress intensely, and said it had bill language that would do much of what Ron Paul and Alan Grayson had asked. Most Congressmen felt they could hardly deny the Fed its request if it was largely conceding what Paul and Grayson had asked for.

The Fed submitted its proposal the day before the vote. But rather than present a stand-alone bill, it instead presented a raft of amendments and definition changes to scattered pieces of existing legislation. Alan Grayson worked straight through to analyze it, and ascertained that the Fed had lied, and its language actually set out to weaken transparency and Congress’ oversight powers. The Fed’s clever ploy backfired. When Grayson presented how the proposed changes actually worked, it hardened sentiment against the Fed and helped secure the bill’s passage.

So the central bank looks to be up to its old tricks again, again hoping that the public doesn’t understand the ramifications of its commodities proposal. While we haven’t seen the exact language yet, even at this remove, it’s a big step in the wrong direction. I hope the Congressmen who are pushing the Fed on this issue are as appalled by this ploy as the House was during Audit the Fed and use their bully pulpits to beat back this shameless scheme.

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  1. TheCatSaid

    What can I do about this as a concerned member of the public? Who should I contact to make my objections known?

    (If the public doesn’t speak up, the only ones with a voice will be the lobbyists for the banks.)

      1. TheCatSaid

        Yes, I was serious.

        Granted that everyone needs to wake up. But what next? What do we DO with this awareness? Even on this one “small” issue?

        I’m not underestimating the hurdles. Doing nothing does not seem likely to create constructive change–so what are the options for constructive engagement?

        1. TheCatSaid

          I am aware of the high-up manipulations, and of the extent to which Congress / Judiciary / Executive branch participants have been bought & sold long before achieving office.

          Even so–are there any suggestions here for push back in relation to the specific issue at the heart of this post? If I want to register my dismay and disgust at these tactics which aim to sneak in more giveaways to the big banks, to whom should my correspondence be directed?

          1. anon y'mouse

            beyond your local representatives, and the Fed itself, and the members of any gov’t committees overseeing it, you mean?

            1. TheCatSaid

              “beyond your local representatives, and the Fed itself, and the members of any gov’t committees overseeing it, you mean?”

              Yes, that’s my question.

              If my local representatives aren’t on relevant oversight committees, would it be (marginally) better to contact them anyways? Or better to contact committee members / chairs? Or the Fed (any specific people at the Fed more sensitive to pressure than others, or more directly relevant to this specific issue?)

              I have no sense of where push back might be (marginally) more effective than another.

              1. anon y'mouse

                ya know, i’ll readily admit I am the last person who should be giving any ‘advice’ in this line.

                if you are talking about giving a stern letter, then you can do that to as many people as you can pay for stamps and stationery. whether it will do any good is the eternally open question.

                another question: if that does absolutely nothing, and you get back the typical “-We- have heard your concerns, and they are duly noted, and here’s how we have workedsohardinYOURfavorpleasevoteforusagain, &donatethanks!” which means you have not really gotten anywhere, then what next?

                here i’m lost again. join up with local activists? join up with regional/national activists? are they front-groups, ala Tea Party/Koch or ALEC or whatever for Da Man? and who are THEY putting pressure on?

                i’m not making fun of you. I frequently get tangled in this very same web and am curious as well. just throwing stuff out there for consideration.

  2. Norman

    Another give away to the Banking boys. Let’s see which one gives the ol boy treatment to Mr. B., perhaps a seat on the board, or maybe even a gold golf cart.

  3. Mcmike

    If this were football, it is as if we are letting the referees and team doctors gamble on the games, we let the offensive coach see the opponents game plan, and we pay for the stadium and salaries, and also if the quarterback throws an interception, we give him the ball back.

  4. JGordon

    Well, quite literally the banks that the private “Federal” “Reserve” corporation is there to ostensibly regulate own the Federal Reserve. And considering that the Federal Reserve system was designed from the ground up as a way of extracting real assets from the poor and gifting them to the rich via the process of credit expansion (or “money printing” for the less sophisticated) ex nihilo, this new policy that they are announcing makes 100% perfect sense: the Fed is wonderfully serving its function of stripping the poor and (former) middle class of everything so that the owners of the Fed can grab it (and they have incidentally used a small portion of the money they’ve been printint to also by all the politicians; they come cheap).

    Or if you don’t want to accept that explanation you could imagine to yourself that these guys are just really, really incompent at their job of promoting full employment and a stable currency. And that their policies are making rich people a whole lot richer and everyone else a lot poorer is just an unforseeable and unhappy coincidence–a set of misguided policies than could be corrected if only we could make the wise and goodhearted Fed people in control of this sinking pig aware of their gross stupidity.

  5. clarence swinney

    President Obama is being hit hard by opponents as big Spender and Big Borrower
    History check-o-meter numbers rounded
    Clinton took 1100B to 1800B=+64%
    Bush took 1800B to 3500B=+94%
    Obama took 3500B to 3700B=+6% (4 years)

    Clinton took 4400B to 5800B=+31%
    Bush took 5800B to 11,900B=+105%
    Obama took 11,900B to 16,500B=+ 39% (4 years)
    How much of Obama debt can be credited to Bush two wars—Tax cuts—Part D
    and– to –Obama 800B Stimulus, Payroll Tax Cut and add 30,000 troops to Afghan War.

    1. Massinissa

      Jesus lord mercy I hope youre being paid by the hour.

      Because I dont want to imagine that youre deluded enough to post propaganda messages like this in your free time.

      Personally my time is too valuable to do propaganda for a political party that I know doesnt give a Sh#t about me.

        1. Mcmike

          O-bot or not (I have no idea), it remains a fact that the “debt crisis” is largely a manufactured myth, and that the notion of Obama as an excessive spender (relative to previous presidents since Reagan) is a easily-disproven farce planted by the right to panic easily-fooled wingnuts, and to provide cover for the continued pilfering of the middle class and yet-more expansion of inequality.

          One need not support Obama, which I do not, to insist that we evaluate our situation based on truths and true data. And by that standard, we must give Obama’s tenure credit where it is due, and give previous administrations blame where it is earned.

  6. mk

    Trying to read this beyond Yves’ introduction gives me a headache and heartache. When the Fed gives you the middle finger, try to find ways to give it back, like this guy:

    The Man Who Lives Without Money

    If someone told me seven years ago, in my final year of a business and economics degree, that I’d now be living without money, I’d have probably choked on my microwaved ready meal. The plan back then was to get a ‘good’ job, make as much money as possible, and buy the stuff that would show society I was successful.

    For a while I did it – I had a fantastic job managing a big organic food company; had myself a yacht on the harbour. If it hadn’t been for the chance purchase of a video called Gandhi, I’d still be doing it today. Instead, for the last fifteen months, I haven’t spent or received a single penny. Zilch.

    The change in life path came one evening on the yacht whilst philosophising with a friend over a glass of merlot. Whilst I had been significantly influenced by the Mahatma’s quote “be the change you want to see in the world”, I had no idea what that change was up until then. We began talking about all major issues in the world – environmental destruction, resource wars, factory farms, sweatshop labour – and wondering which of these we would be best devoting our time to. Not that we felt we could make any difference, being two small drops in a highly polluted ocean.

    But that evening I had a realisation. These issues weren’t as unrelated as I had previously thought – they had a common root cause. I believe the fact that we no longer see the direct repercussions our purchases have on the people, environment and animals they affect is the factor that unites these problems.

    The degrees of separation between the consumer and the consumed have increased so much that it now means we’re completely unaware of the levels of destruction and suffering embodied in the ‘stuff’ we buy.

    Very few people actually want to cause suffering to others; most just don’t have any idea that they directly are. The tool that has enabled this separation is money, especially in its globalised format.

    Take this for an example: if we grew our own food, we wouldn’t waste a third of it as we do today.

    If we made our own tables and chairs, we wouldn’t throw them out the moment we changed the interior décor.

    If we had to clean our own drinking water, we probably wouldn’t shit in it.

    So to be the change I wanted to see in the world, it unfortunately meant I was going to have to give up money, which I decided to do for a year initially. So I made a list of the basics I’d need to survive. I adore food, so it was at the top. There are four legs to the food-for-free table: foraging wild food, growing your own, bartering and using waste grub, of which there far too much.

    1. anon y'mouse

      hence, neo-primitivism and locavore-ism.

      everything beyond your personal experience becomes an abstraction. a pawn on the board, from which you can readily require sacrifice if it improves your final position.

      it is very difficult to ask someone in person to do something for you that will cost them significant time and resources (not necessarily money, but can include that) unless it will make the both of you better off in the end than if they had not. veryvery hard.

      don’t let people become a datapoint on the chart towards your path to money-glory. and the only way you can do that is by actually interacting with each other.

      1. mk

        right… I recently started walking dogs at a couple of local shelters, the interaction is wonderful for me and them.

        I love the people I’m meeting at the activities organized around the shelters, people caring about something outside themselves is nice to be around.

        1. anon y'mouse

          this is right in line with my own impulses, and yet I have to say, and NOT as a criticism in any way:

          is there anything you learned in from all of this education and experience that could help solve the problem? we are probably not going to return to a band of hunter-gatherer horticulture/scavengers in the short term (well, maybe that last part will be true–yikes!). I mean, can bidness, or economics, or some of their techniques be used for more just purposes?

          or is the entire thing rotten from top to bottom, and those who hope to transform the world with local, worker-owned co-op type organizational systems, when they engage with money, merely fooling themselves that they are not becoming what they despise?

          perhaps you get my confused drift here. if you could use all of that stuff you learned for good, do you think it would do any good? or is that rather like trying to take a vampire’s body hostage and use him to repel garlic or somesuch? meaning, idiotic and useless at the outset.

          1. mk

            I have learned that I have no control over other humans, I can only change my own behavior and I suppose by example I can possibly influence others. I can’t do what this guy is doing, dropping out of this economic system completely by not using money, but I can reduce my spending and spend local as much as possible and have done so since 2006. I have no debt, have started a new business where my clients have to be local. These activities along with volunteering at the shelters gets me involved in a local community. It’s taking to heart to be the change I want to see.

            If my business becomes successful, I suppose that instead of hiring a part time worker, I can look for a partner and grow a worker-owned business. I hadn’t thought of it before this conversation with you here… That could help contribute to the change I want to see, but like you said, it could possibly turn out to be just another business putting profits before the welfare of the planet, animals, humans…

            Will it do any good? Probably not beyond my own little community, but do any of us have any reason to believe we can make any more change than that? I say I want an evolution, well you know, we all want to change the world. Can’t happen if we all don’t be the change we want to see (and agree on what that change is). I believe the whole system is rotten to the core, it’s time to create something new. Easy for me to say, my kid is grown, I’m moving beyond middle age, I got to live in the “good ol’ days” and have not suffered much in life. But things like Fukushima change the whole meaning of a future so bright you have to wear shades. We can’t control these governments captured by corporate interests… I feel we’re doomed. Which is very sad because I used to believe something I read when I was 19 years old by Buckminster Fuller – we have everything we need right here right now to create heaven on earth – I don’t believe we will every reach our human potential for that.

    1. Yves Smith Post author

      It appears to be both. But the point is these practices should be prohibited.

      The issue is that the Congressmen can harass the Fed only in terms of systemic risk issues, so the Fed can in turn just treat this as a systemic risk issue, not a “bad for everyone but the predatory banks” issue.

  7. down2long

    Thank you Yves. You have been busy.

    A couple of thoughts: Does this mean Slimin’ won’t sell of his commodities subs? I read somewhere in my reading lately that the lustre is off of Chase’s commodities trading. Chase is trying to make this up with underwriting fees taking companies private.

    And of course, Goldman had a disastrous quarter trading wise, earning down 44%. Only a fool would be a counterparty to Goldman. Of course, Blankface said once the consumer economy improves (HAH!) all will be well with the world. As if that’s gonna happen.

    While these banks own the Fed, and thus control its evil machinations I am starting to think TBTF may implode from their own greed and incompetence. The question is will the implosion be slow enough not to set off a stampede by the pigs at the public trough to bail them out again?

    B of A lays off 3,000 more in mortgage unit. Cash sales up to 40 % of home purchases in Cali. Where is the big banks’ cut in this? Congress will probably pass a “utility tax” of 3 percent or so that will be directly transferred to the big banks to keep them in business, since they serve a “public utility function” in our economy, and if they can’t get a piece of the pie legitimately, they’ll get a piece (surprise) by fiat.

    1. John Mc

      “Blankface said once the consumer economy improves (HAH!) all will be well with the world.”

      Oh shit, you mean “God’s work” is contingent upon the American consumer?

      I wonder if God knows he/she/it is being outsourced.

  8. jfleni

    Naturally this had to be done before a new chair is confirmed, otherwise it might well fail.

    Barry Bubba and his posse want to make double sure that he (and they) can collect all those “honoraria” in a few years.

  9. Chauncey Gardiner

    So, where are the CEO’s of the major transnational corporations and leaders of major commodities exporting nations on this matter? If I’m understanding all this correctly, seems to me that both they and the major transnational corporations they control will also be placed in a very vulnerable position by these policies.

    Are the CEOs going to perform their jobs in an ethical manner and in accordance with their fiduciary responsibilities, and prospectively take the personal hit as members of the “Big Network”?… or will they decide to play ball with GS et al?

    Ultimately, this matter is beyond the Fed’s control and certainly falls outside their “dual mandate”. Maybe it’s time for the K Street gang, Obie and the Legislators to ratchet up the policy costs. After all, no project ROI even comes close to generating such a high level of return.

  10. Hugh

    We live in a kleptocracy. The Fed is an engine of kleptocracy. Ergo the Fed will pursue policies that favor the kleptocrats.

    The truth is that banks and financial institutions should be banned from both contract and physical trading of commodities. We have ten years experience with this and we know that the only result of such trading is speculation and looting. Of course, the Fed condones and promotes it precisely because it is looting. It is after all a private banking cartel and the looters are banks.

  11. kevinearick

    The Blame Game

    What it boils down to is that you have a responsibility, to your self and others, to employ the tools God has granted you to the best of your ability, and to go where you have to go to do so. If taking care of some weirdo rich person’s animals stuck in a house with white carpet and white furniture is the best you can do to raise your family, that’s the best you can do. It’s a job, which has absolutely nothing to do with your value as a person.

    If you choose to socialize with critters that value people based upon their empire-assigned job, you get what you get. Blaming America for becoming a ‘reality’ infomercial of itself because its practice has reached the limit of diminishing returns isn’t going to help. Americans are like sea lions competing for rewards from handlers at Sea World, to perform, like all participants in all empire before them. Its politicians are paid to deflect blame into the vapor, big surprise.

    Sorry folks, the empire is just a machine, gravity with momentum. It was here long before you were born and it will be here long after you are gone. The only thing that changes is the color of the false flag. Blaming the top 1% at the cliff edge while competing to become one of them may temporarily serve to make you feel better, or serve to misdirect others, but the practice casts you inside the law of self-fulfilling prophesy, relative to those who ignore the machine. The universe ground isn’t going to change any time soon.

    Social schooling, placing children of the same age and socio-economic background in the same class simply re-enforces the gravity. Each child has a learning rate and associated stages of learning preoccupation. They are all different, and they learn best from each other. The ‘rich’ isn’t any happier than the middle class, which isn’t any happier than the homeless. Each simply has a different set of trade-offs presented to them.

    If there is anyone else on this planet that has fired and hired more people with words on a piece of paper than me, I haven’t met that person. I can tell you that all the economic theories are rubbish, management theory and practice is all about people, who cannot do anything, attempting to control others who can, and the self-help books are written by blind squirrels repeating and interpreting something they heard from someone else to make stupid feel good about stupid. They all go nowhere, with lots of busy work in the middle.

    Empire regulation is all about prohibition, to feed all the middlemen, with entitlement to stupid, increasing return at less risk, to prevent you from finding your self in nature and adapting as necessary. Funny, how none of the other critters on this planet need money to interact effectively, and only humans are dumb enough to take property paper seriously.

    Assuming you have restructured your education and communication systems accordingly, here are a few practical things you can do:

    If you have property or income, help grow your local food bank, provide your citizens with a nutritious option out, and rid your community of food stamps, to put them in a position to learn for themselves. Look at the artificial borders/assumptions depriving your citizens of the necessary resources and change them. And for God’s sake, do F-ing something to put all that dead real estate back to work, for your community. In short, provide a productive feedback signal, out of all the noise, for your children.

    If you have neither property nor income, you might want to consider labor, focusing on time…keep learning and keep discussing, here. Help remove observers prism, with free speech.

    1. Banger

      The general problems you are alluding to are due to a massive “failure of nerve” due to a fear of change and the expansion of consciousness. The system we are under today is increasingly fictional and impractical. Rather then get on with the job of creating a friendly world we are perpetually circling our wagons and shooting at zombies and other artifact of our imaginations.

    2. kevinearick

      “The nerds and geeks are making tons of money…even as the typical American suffers from stagnant wages and worries about layoffs.”

      Careful who you bully, because they will be bullying you in the next round, in this case, on a computer from 6000 miles away, built for the purpose, to grow the empire, again. You cannot expect young people in the bully cycle to make good decisions for your family. Re-route their comm lines back to themselves, with the expected delay, proving the assumed equation, and get on with building your community.

      If you sell the city critters your land for city money, who do you expect to end up on the zoning board, “to celebrate growing tourist economy,” and what do you expect to happen to utility price and quality? Don’t F your children and expect them not to F you back. Leave that game to others.

      What does History tell you about the people that want to play policeman, or robbers? Whatever you do, do not deprive your self of nutrition, with empire substitutes designed for the purpose. There is no substitute for loving parents as the positive terminal on the economic battery. Undermine it at the cost of your own material depravity.

      Short the divide and conquer war of wars back into the empire, with a public and private divide.

  12. craazyboy

    Warehouse OFF Warehouse ON, Risk OFF – Risk ON. Ya, looks like fun and profitable game. Greatly simplifies HFT bot logic code too – so I think we get more robust trading out of it as well. (tho they still have to program the CANCEL state)

    I guess if we had a commodity trading system that worked reasonably well, the Fed could always fix what ain’t broke and have the banks get involved and improve things. haha.

    Seems kinda weird that you’d want the bank credit money multiplier to be commodity currency. Very weird. Like banks can create energy from a vacuum? Or food? Wonder what the Taylor Rule would say about that. Maybe need to do sumthin on the z-axis?

    1. Chauncey Gardiner

      Thanks, craazy. Re Taylor Rule justification: Interesting 2nd derivative claim regarding inflation (dual mandate magic) to justify control and manipulation of Commodity markets in a centrally planned economy. Suspect we’ll see that Z axis.

      1. craazyboy

        Sure looks tricky if now low interest rates could cause less capacity utilization and job losses because biz might cut costs elsewhere to compensate for higher input and transportation cost and consumers may spend less on anything besides healthcare, food and energy.

        But that’s why we have our “Best and Brightest” work on hard stuff like this. Betcha a 3D Taylor Rule graph looks like one of those outer space gravity well maps. Besides that, banks have run out of people to lend money to, so they need some way to make a little cash.

        But there is one interesting opportunity here. Since the Fed likes to look at “core” inflation rather than volatile food and energy, (volatile meaning to the upside only) Shadowstats may be able to graph this using the complex numerical plane. Food and energy goes on the imaginary axis.

  13. Waking Up


    What does it mean for the future of this country if the two largest holders of U.S. Treasury Debt are the Federal Reserve and the Social Security Trust Fund?

    1. psychohistorian

      It means that when the SHTF those private owners of the Federal Reserve will be in a position (they bought) ahead of those Social Security folks…..brought to you by Reagan and Greenspan….and the folks that bought them.

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