NSA Spying Directly Harms Internet Companies, Silicon Valley, California … And the Entire U.S. Economy

Mass surveillance by the NSA may directly harm the bottom of line of Internet companies, Silicon Valley, California … and the entire national economy.
Money News points out:
The company whose shares you own may be lying to you — while Uncle Sam looks the other way.
Let’s step through this. I think you will see the problem.
Fact 1: U.S. financial markets are the envy of the world because we have fair disclosure requirements, accounting standards and impartial courts. This is the foundation of shareholder value. The company may lose money, but they at least told you the truth.
Fact 2: We now know multiple public companies, including Microsoft (MSFT), Google (GOOG), Facebook (FB) and other, gave their user information to NSA. Forget the privacy implications for a minute. Assume for the sake of argument that everything complies with U.S. law. Even if true, the businesses may still be at risk.
Fact 3: All these companies operate globally. They get revenue from China, Japan, Russia, Germany, France and everywhere else. Did those governments consent to have their citizens monitored by the NSA? I think we can safely say no.
Politicians in Europe are especially outraged. Citizens are angry with the United States and losing faith in American brand names. Foreign companies are already using their non-American status as a competitive advantage. Some plan to redesign networks specifically to bypass U.S. companies.
By yielding to the NSA, U.S. companies likely broke laws elsewhere. They could face penalties and lose significant revenue. Right or wrong, their decisions could well have damaged the business.
Securities lawyers call this “materially adverse information” and companies are required to disclose it. But they are not. Only chief executives and a handful of technical people know when companies cooperate with the NSA. If the CEO can’t even tell his own board members he has placed the company at risk, you can bet it won’t be in the annual report.
The government also gives some executives immunity documents, according to Bloomberg. Immunity is unnecessary unless someone thinks they are breaking the law. So apparently, the regulators who ostensibly protect the public are actively helping the violators.
This is a new and different investment landscape. Public companies are hiding important facts that place their investors at risk. If you somehow find out, you will have no recourse because regulators gave the offender a “get out of jail free” card. The regulatory structure that theoretically protects you knowingly facilitates deception that may hurt you, and then silences any
This strikes to the very heart of the U.S. financial system. Our markets have lost any legitimate claim to “full and fair disclosure.” Every prospectus, quarterly report and news release now includes an unwritten NSA asterisk. Whenever a CEO speaks, we must assume his fingers are crossed.
Every individual investor or money manager now has a new risk factor to consider. Every disclosure by every company is in doubt. The rule of law that gave us the most-trusted markets in the world may be just an illusion.
In a subsequent article, Money News wrote:
Executives at publicly traded companies are lying to shareholders and probably their own boards of directors. They are exposing your investments to real, material, hard-dollar losses and not telling you.
The government that allegedly protects you, Mr. Small Investor, knows all this and actually encourages more of it.
Who lies? Ah, there’s the problem. We don’t know. Some people high in the government know. The CEOs themselves and a few of their tech people know. You and I don’t get to know. We just provide the money.
Since we don’t know which CEOs are government-approved liars, the prudent course is to assume all CEOs are government-approved liars. We can no longer give anyone the benefit of the doubt.
If you are a money manager with a fiduciary responsibility to your investors, you are hereby on notice. A CEO may sign those Securities and Exchange Commission filings where you get corporate information with his fingers crossed. Your clients pay you to know the facts and make good decisions. You’re losing that ability.
For example, consider a certain U.S. telecommunications giant with worldwide operations. It connects American businesses with customers everywhere. Fast-growing emerging markets like Brazil are very important to its future growth.
Thanks to data-sharing agreements with various phone providers in Brazil, this company has deep access to local phone calls. One day someone from NSA calls up the CEO and asks to tap into that stream. He says OK, tells his engineers to do it and moves on.
A few years later, Edward Snowden informs Brazilian media that U.S. intelligence is capturing these data. They tell the Brazilian public. It is not happy. Nor are its politicians, who are already on edge for entirely unrelated reasons.
What would you say are this company’s prospects for future business in Brazil? Your choices are “slim” and “none.” They won’t be the only ones hurt. If the U.S. government won’t identify which American company cheated its Brazilian partners, Brazil will just blame all of them. The company can kiss those growth plans good-bye.
This isn’t a fantasy. It is happening right now. The legality of cooperating with the NSA within the United States is irrelevant. Immunity letters in the United States do not protect the company from liability elsewhere.
Shouldn’t shareholders get to know when their company’s CEO takes these risks? Shouldn’t the directors who hire the CEO have a say in the matter? Yes, they should. We now know that they don’t.
The trust that forms the bedrock under U.S. financial markets is crumbling. [A theme we frequently explore. ] If we cannot believe CEOs when they swear to tell the truth, if companies can hide material risks, if boards cannot know what the executives they hire are actually doing, any pretense of “fair markets” is gone.
When nothing is private, people and businesses soon cease to trust each other. Without trust, modern financial markets cannot function properly.
If U.S. disclosure standards are no better than those in the third world, then every domestic stock is overvalued. Our “rule of law” premium is gone.
This means a change for stock valuations — and it won’t be bullish.
CNN reports:
Officials throughout Europe, most notably French President Francois Hollande, said that NSA spying threatens trade talks.
For the Internet companies named in reports on NSA surveillance, their bottom line is at risk because European markets are crucial for them. It is too early assess the impact on them, but the stakes are clearly huge. For example, Facebook has about 261 million active monthly European users, compared with about 195 million in the U.S. and Canada, and 22% of Apple’s net income came from Europe in the first quarter of 2013.
In June 2011, Microsoft admitted that the United States could bypass EU privacy regulations to get vast amounts of cloud data from their European customers. Six months later, BAE Systems, based in the United Kingdom, stopped using the company’s cloud services because of this issue.
The NSA scandal has brought tensions over spying to a boil. German prosecutors may open a criminal investigation into NSA spying. On July 3, Germany’s interior minister said that people should stop using companies like Google and Facebook if they fear the U.S. is intercepting their data. On July 4, the European Parliament condemned spying on Europeans and ordered an investigation into mass surveillance. The same day, Neelie Kroes, the EU’s chief telecom and Internet official, warned of “multi-billion euro consequences for American companies” because of U.S. spying in the cloud.
Transparency is an important first step. Its absence only exacerbates a trust deficit that companies already had in Europe. And trust is crucial. Google’s chief legal officer recognized this on June 19 when he said, “Our business depends on the trust of our users,” during a Web chat about the NSA scandal. Some companies have been aggressive in trying to disclose more, and others have not. But unless the U.S. government loosens strictures and allows greater disclosure, all U.S. companies are likely to suffer the backlash.
The Obama administration needs to recognize and mitigate the serious economic risks of spying while trying to rebuild its credibility on Internet freedom. The July 9 hearing of the Privacy and Civil Liberties Oversight Board is a start, but much more is needed. More disclosure about the surveillance programs, more oversight, better laws, and a process to work with allied governments to increase privacy protections would be a start.
The European customers of Internet companies are not all al Qaeda or criminals, but that is essentially how U.S. surveillance efforts treat them. If this isn’t fixed, this may be the beginning of a very costly battle pitting U.S. surveillance against European business, trade, and human rights.
The Atlantic notes:
Most communications flow over the Internet and a very large percentage of key Internet infrastructure is in the United States. Thus, foreigners’ communications are much more likely to pass through U.S. facilities even when no U.S. person is a party to a particular message. Think about a foreigner using Gmail, or Facebook, or Twitter — billions of these communications originate elsewhere in the world but pass through, and are stored on, servers located in the U.S.
Foreigners … comprise a growing majority of any global company’s customers.
From the perspective of many foreign individuals and governments, global Internet companies headquartered in the U.S. are a security and privacy risk. And that means foreign governments offended by U.S. snooping are already looking for ways to make sure their citizens’ data never reaches the U.S. without privacy concessions. We can see the beginnings of this effort in the statement by the vice president of the European Commission, Viviane Reding, who called in her June 20 op-ed in the New York Times for new EU data protection rules to “ensure that E.U. citizens’ data are transferred to non-European law enforcement authorities only in situations that are well defined, exceptional and subject to judicial review.” While we cheer these limits on government access, the spying scandal also puts the U.S. government and American companies at a disadvantage in ongoing discussions with the EU about upcoming changes to its law enforcement and consumer-privacy-focused data directives, negotiations critical to the Internet industry’s ongoing operations in Europe.
Even more troubling, some European activists are calling for data-storage rules to thwart the U.S. government’s surveillance advantage. The best way to keep the American government from snooping is to have foreigners’ data stored locally so that local governments – and not U.S. spy agencies — get to say when and how that data may be used. And that means nations will force U.S.-based Internet giants like Google, Facebook, and Twitter, to store their user data in-country, or will redirect users to domestic businesses that are not so easily bent to the American government’s wishes.
So the first unintended consequence of mass NSA surveillance may be to diminish the power and profitability of the U.S. Internet economy. America invented the Internet, and our Internet companies are dominant around the world. The U.S. government, in its rush to spy on everybody, may end up killing our most productive golden goose.
San Diego Union-Tribune writes:
California and its businesses have a problem. It’s called the National Security Agency.
The problem for California is not that the feds are collecting all of our communications. It is that the feds are (totally unapologetically) doing the same to foreigners, especially in communications with the U.S. California depends for its livelihood on people overseas — as customers, trade partners, as sources of talent. Our leading industries — shipping, tourism, technology, and entertainment — could not survive, much less prosper, without the trust and goodwill of foreigners. We are home to two of the world’s busiest container ports, and we are a leading exporter of engineering, architectural, design, financial, insurance, legal, and educational services. All of our signature companies — Apple, Google, Facebook, Oracle, Intel, Hewlett-Packard, Chevron, Disney — rely on sales and growth overseas. And our families and workplaces are full of foreigners; more than one in four of us were born abroad, and more than 50 countries have diaspora populations in California of more than 10,000.
News that our government is collecting our foreign friends’ phone records, emails, video chats, online conversations, photos, and even stored data, tarnishes the California and American brands.
Will tourists balk at visiting us because they fear U.S. monitoring? Will overseas business owners think twice about trading with us because they fear that their communications might be intercepted and used for commercial gain by American competitors? Most chilling of all: Will foreigners stop using the products and services of California technology and media companies — Facebook, Google, Skype, and Apple among them — that have been accomplices (they say unwillingly) to the federal surveillance?
The answer to that last question: Yes. It’s already happening. Asian governments and businesses are now moving their employees and systems off Google’s Gmail and other U.S.-based systems, according to Asian news reports. German prosecutors are investigating some of the American surveillance. The issue is becoming a stumbling block in negotiations with the European Union over a new trade agreement. Technology experts are warning of a big loss of foreign business.
John Dvorak, the PCMag.com columnist, wrote recently, “Our companies have billions and billions of dollars in overseas sales and none of the American companies can guarantee security from American spies. Does anyone but me think this is a problem for commerce?”
It doesn’t help when our own U.S. Sen. Dianne Feinstein is backing the surveillance without acknowledgment of the huge potential costs to her state.
It’s time for her and House Minority Leader Nancy Pelosi, who has been nearly as tone-deaf on this issue, to be forcefully reminded that protecting California industry, and the culture of openness and trust that is so vital to it, is at least as important as protecting massive government data-mining. Such reminders should take the force not merely of public statements but of law.
California has a robust history of going its own way — on vehicle standards, energy efficiency, immigration, marijuana. Now is the time for another departure — this one on the privacy of communications.
We need laws, perhaps even a state constitutional amendment, to make plain that California considers the personal data and communications of all people, be they American or foreign, to be private and worthy of protection.
And see this.
The bigger picture is that a country’s economic health is correlated with a strong rule of law more than any other factor.
Yet America has rapidly fallen into a state of lawlessness, where fundamental rights – such as protection against mass spying by the government – have been jettisoned.
The government is spying on just about everything we do.  Even the government’s attempted denials of this fact confirm it.

The spying cheat sheet

Congress Is Holding Hearings on Government Spying … Here’s a Cheat Sheet

If you’ve been too busy to catch up on the details of the spying scandal, here’s an overview:
  • IT and security professionals are quite concerned about government spying
  • A Congressman noted that – even if a mass surveillance program is started for good purposes – it will inevitably turn into a witch hunt

The spying cheat sheet

Congress Is Holding Hearings on Government Spying … Here’s a Cheat Sheet

If you’ve been too busy to catch up on the details of the spying scandal, here’s an overview:
  • IT and security professionals are quite concerned about government spying
  • A Congressman noted that – even if a mass surveillance program is started for good purposes – it will inevitably turn into a witch hunt

Global Intel Hub

Global Intel Hub is an online information brokerage service with a focus on analysis, intelligence, and research. Breaking news research – When events such as 911, Hurricane Katrina, a plane crash in San Francisco, or the Fukushima event in Japan happen; it may take weeks or longer for a wide understanding of key facts.  In […]

Shocking ‘extermination’ fantasies by the people running America’s Empire on full display at Aspen Summit

Max BlumenthalAlternet.orgTue, 30 Jul 2013 08:51 CDTNot “ogres”, but certainly snakes in suitsSecurity Forum participants expressed total confidence in American empire, but could not contain their panic at the mention of Snowden.Seated on a stool befor…

What Happens When The Oil Runs Out?

Authored by Professor Chris Rhodes via OilPrice.com [14],

Summary of a lecture by Professor Chris Rhodes to the Conway Hall Ethical Society, Conway Hall, Red Lion Square, London. 11.00 am, Sunday July 28th, 2013.
The world supply of crude oil isn’t going to run out any time soon, and we will be producing oil for decades to come. However, what we won’t be doing is producing crude oil – petroleum – at the present rate of around 30 billion barrels per year. For a global civilization that is based almost entirely on a plentiful supply of cheap, crude oil, this is going to present some considerable challenges. If we look over a 40 year period, from 1965 to 2005, we see that by the end of it, humanity was using two and a half times as much oil, twice as much coal and three times as much natural gas, as at the start, and overall, around three times as much energy: this for a population that had “only” doubled. Hence our individual average carbon footprint had increased substantially – not, of course, that this increase in the use of energy, and all else, was by any means equally distributed across the globe.
From the latest document that I can find – the B.P. Statistical Review – we see that the majority form of energy used by humans on earth is crude oil, accounting for 33% of our total, closely followed by coal at 30%: a figure that is rapidly catching up with oil, as coal is the principal and increasing source of energy in developing nations such as China and India. Natural gas follows in a close third place, at 24%; nuclear and hydroelectric power at 5-6% each; and the tiny fraction of our overall energy that comes from “renewables”, is just 1.6%. Thus, we are dependent on the fossil fuels for 87% of our energy. Now, such a comparison is almost misleading and naïve, because it tacitly presumes that if our oil supply becomes compromised, we can make a simple substitution for it using some other energy source.
However, this is not so readily done in practice, because oil is a particular and unique substance, having both a high energy content, and that it is readily refined into liquid fuels – effectively by distillation – to provide the petrol and diesel that runs practically all of the world’s transportation. Moreover, everything we depend upon – literally everything: food, materials, clothes, computers, mobile phones, pharmaceuticals etc. – for our daily existence is underpinned by a plentiful supply of cheap crude oil. So, the loss of this provision is going to have a profound, and shattering effect on human civilization.
In the “good old days”, e.g. the Humphrey Jones “Giant Gusher” drilled in Texas in 1922, it was necessary only to drill a hole in the ground to get oil. An oil well contains not only oil, but gas at high pressure, meaning that once the cap-rock that holds it all in place is broken, the oil is forced out in that familiar jet of black gold. The good old days indeed, because then it was necessary only to expend an amount of energy equal to that contained in one barrel of oil to recover a hundred barrels, which is like investing a pound and getting a return of a hundred pounds – a very good net profit. In 2013, the return is maybe twenty pounds or just three for extra-heavy oil, or for “oil” derived from tar sands, once it has been upgraded into liquid fuel.
Of greatest concern is how much oil is remaining. As noted, we currently use 30 billion barrels a year – 84 million barrels a day, or a thousand barrels every second. When it is trumpeted about some new and huge find of oil, e.g. the Tupi field off Brazil, thought to contain 8 billion barrels, in reality this is only enough to run the world for three months. Context should not be lost in these matters. The quality of the oil is also at issue. For example, much of the remaining oil is of the “heavy”, “sour” kind, meaning that it is not necessarily liquid at all, but bitumen, and contains relatively high levels of sulphur, necessitating complex and energy-intensive processing to get the sulphur out – which would otherwise be corrosive toward the steel used in the refinery – and to crack the heavier material into lighter fractions that can be used as fuel, or as feedstocks for industry.
So, it’s not just that we have got through much of our original bestowal of oil, but that what remains is of poorer quality – in other words, we have used-up most of the “good stuff”! Oil shale is not oil at all, but contains a material called “kerogen” which is a solid and needs to be heated to five hundred degrees Centigrade to break it down into a liquid form that in any way resembles what we normally think of as “oil”. So, when it is claimed that there are “three trillion barrels” of oil under America, really this is only to encourage voters and investors, because the actual Energy return on Energy Invested (EROEI) is so poor that there has been no serious commercial exploitation of oil shale to date, and probably there never will be.
Not only are we entirely dependent on crude oil for all our fuel and materials, but without cheap crude oil, and natural gas to make nitrogen fertilizers, we could grow no food. If we look at a field of soya beans being harvested in Brazil, we see a number of features. For one, those beans are not consumed at source, but are transported around Brazil and around the world. So, oil-derived fuels are necessary not only to run the tractors and combine harvesters, but the trucks, ships and planes to move the crop onto the world markets. In addition, we see the vast clouds of dust being thrown up behind the marching array of mighty machines – combine harvesters – which represents the loss of top-soil.
Even if we could solve all our energy problems, we are consuming the living and fragile portion of the earth’s surface that is our soil, and upon which we are utterly dependent to grow any food at all. We have “lost” around one third of our soil in the past half century – much of this through unsound and unsustainable agricultural practices – which does not bode well for the survival of a burgeoning human population. Another feature is that this land was once rain forest, which has been cleared to use the land for farming.
This is done either simply by setting fire to the forest, or by more exquisite means, such as taking a ship’s anchor chain, four hundred feet long – and if it is two inches in diameter, weighing five tonnes – then stringing it between two one hundred tonne tractors and simply driving over the terrain, so that the chain rips through everything that is there, tearing the trees out by their roots and destroying the structure of the soil in the process. The upshot is that the soil becomes unproductive within only a few years and so it is necessary to move on and do the same thing elsewhere.
In Britain we import about 40% of what we eat, and we use around 7 million tonnes of crude oil each year to fuel our food-chain. It can be said that we literally “eat oil”.
The concept of “Peak Oil” is due to Marion King Hubbert, a petroleum geologist working for the Shell Development Company in Texas, who predicted that oil production in America would peak in 1970. At that time, Texas was “awash” with oil – America being the world’s major oil-exporting nation then – and so no one took him seriously: but when in 1970, he was proved correct, Hubbert’s Peak entered the realm both of hard science and folklore. According to Hubbert, there is a 40 year lag between the year of peak discovery and that of peak production. If we apply this to the world situation, where global oil discovery peaked in 1965, we expect a global production in 2005. Indeed world production of oil has been on a flat line since 2005, and it is thought that we are at the production limit.
The price of oil has quadrupled in the past 10 years, reflecting the more strenuous efforts that are necessary to maintain production: deepwater drilling, fracking, tar sands, all of which have much lower energy returns than for conventional crude oil. Indeed, oil that is recovered from fracking costs about $105 a barrel to produce which until recently was more than it could be sold for. However, the price of oil is creeping up, and the industry is prepared to bear the loss for now, because it knows that the price of a barrel of oil will shortly rocket, and having cornered this “new” portion of the industry, will make big profits. Oil companies are not charities, after all. I emphasis the word “new” because fracking – properly called hydraulic fracturing – has been around since 1947: what is new is the combination of this technique with horizontal drilling, meaning that porous but impermeable rocks can be drilled-out laterally, then “fracked” to break them open thus releasing the oil or gas that they contain.
Fracking is a controversial matter, and there are grave concerns about groundwater contamination from the process. It is not only the fear that the chemicals that were originally present in the fracking fluid might migrate upward into the water table, but that other toxic materials, e.g. radon, that were confined safely within the natural prevailing geology, might be exhumed too. The Royal Society (U.K. equivalent of a national academy of sciences) has concluded that the procedure is safe, so long as it is strictly regulated, but how can this be guaranteed, when profits are the order of the day, and if the technology is to be employed across the world?
What too will become of the millions of gallons of contaminated water, injected under great pressure into the wells to fracture the rock, that remains? Will this be disposed of safely or simply left behind, potentially to leak into and contaminate the groundwater and the soil? This would be a tragic and cruel legacy for future generations.
Analyses made by both the International Energy Administration (IEA; effectively part of the U.S. Department of Energy) and its counterpart organisation, the Paris-based Energy Information Agency (EIA), concur that we will have lost around half our production of conventional crude oil by 2030. This is equivalent to four times the present output of Saudi Arabia, and it seems highly unlikely that this gap in supply can be filled from unconventional sources. Since we are entirely dependent on crude oil to fuel the world’s transportation, and looking at the amount of oil we are likely to be left with, we may conclude that it will be necessary to curb transportation by about 70% over the next 20 years.
This means the loss mainly of personalized transport and it is unfeasible that there will be 34 million electric cars in the U.K. (the current number of oil-fuelled cars) any time soon, and in reality, never. The only sensible means to move people around using electric power is by light rail and tramways, i.e. mass-transit systems.
If we can’t address the problem from the supply side we have to curb our demand. In the absence of cheap and widely accessible transport we will need to produce far more of our food and materials at the local level. Such a metamorphosis of human civilization from the global to the local, will be underpinned by building strong, resilient communities in which people share their skills and knowledge, to provide as much as possible at the local, grass-roots level. This is the underpinning philosophy of the growing network of Transition Towns. Frightening though all of this is, we may evolve into a happier and more fulfilling state of living than a perceived status quo, that in truth is all too rapidly running through our fingers.


12 facts all investors should know

1) The Federal Reserve is a private bank.  It is not a part of the US Government.  Ironically, the FDIC is owned and operated by the US Government, as are many other government sponsored organizations that would bear the burden of any crisis. “Some people think that the Federal Reserve Banks are United States Government […]

Asia is in Collapse. The Next Fed Chairman Doesn’t Matter

The big news is what’s going on in Asia.
The US financial media continues to focus on who will be the next Fed Chairman, which is unimportant in the grand scheme of things. Greenspan created the biggest asset bubble in history. Bernanke bankrupted the republic and created an even bigger bubble trying to prove his misguided theories. Whoever takes over the reins at the Fed next will simply have the honor of being in the driver’s seat when the whole mess goes over the cliff.
Ignore the next Fed Chairman debate, the world has much bigger problems to worry about.
Let’s start with China.
China’s economy is based on fraud, not actual growth. The talking heads believe China will hit 7% GDP growth this year. Their electricity consumption is only up 2.9%. Can anyone explain how a country can be consuming electricity at 2.9% growth and hit GDP growth at 7%?
Take a look at the Chinese stock market. We’ve just taken out the “recovery” trendline going back to 2009. And we’ve done this at a time when China has just pumped $1.6 trillion in new credit (that’s 21% of GDP) into its economy in the last two quarters…
When you put an amount equal to 21% of your GDP into your banking system in six months and the stock market still falls, it’s GAME OVER.
Take a look at Japan. Abenomics (print even more money faster) was supposed to bring about growth. Instead, all it’s done is increase consumer prices. This in turn hurts incomes. And that implodes an economy (one which hasn’t seen major growth in 20+ years I might add).
The Abenomics bubble has burst. The Nikkei has failed to reclaim its trendline. This bull market is OVER.
So the second and third largest economies in the world are in collapse with stock market crashes.
What are the odds the world is somehow going to continue to grow through this? What are the odds that the next Fed Chairman will be able to manage this mess?
The Great Crisis, the one to which 2008 was just a warm up, is approaching. The time to prepare for it is BEFORE the US stock market bubble bursts.
We offer a free special report outlining how to prepare your portfolio for the coming crisis. You can pick up a copy at:

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This analysis is about debunking the myth that China has some power over the US because of it’s large debt holdings.  Let’s just say this is a myth created by propaganda or lack of understanding.  It’s nonsense. Another myth is that China is a currency manipulator.  The Yuan is pegged to the US Dollar (although […]

Forex Broker Research

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How to hedge Argentinian Peso

Explanation of example hedge for Argentinian Peso [stream flv=x:/globalintelhub.com/wp-content/uploads/2013/07/usdarsweb1.swf img=x:/globalintelhub.com/wp-content/uploads/2013/07/globalintelhub1.jpg embed=false share=false width=640 height=360 dock=true controlbar=over bandwidth=high autostart=false responsive=16:9 /]

Are We Investing Or Are We Just Dodging Thieves?

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The individual with complete control of all his assets is the only truly wealthy person in a kleptocracy.
Correspondent Jeff W. recently posed a deeply insightful question: are we investing or are we really just trying to dodge thieves?
This question slices right through the carefully cultivated illusion of trust and prosperity and plunges straight into the heart of our cartel-state financial system.
Here are Jeff’s initial thoughts on the question:

“As we try to preserve capital and earn a return on it, are we investing today or are we really just trying to dodge thieves?

First of all I question how much real investing is going on in America today. We continue to lose manufacturing in this country, so in manufacturing, disinvestment is what is going on. People speak of investing in houses, but today’s McMansions, if you look at how they are built, do not qualify as long-term investments. They are built more to allow their owners to participate in a real estate asset bubble rather than to live in and enjoy for generations (which is the purpose houses would be built for in a sane and honest world).
Investments in strip malls and big-box stores do not increase the wealth of the nation. When you have enough retailing, it is enough. You don’t need any more. Adding more retail space is malinvestment. A lot of retail space that is being added now will have to close down if The Federal Reserve ever starts tapering in a serious way.
So there is reason to suspect that not very much productive investment is really taking place in American at all. Regardless of that, investors still have to dodge the ubiquitous thieves who are swarming all over the landscape.
If you leave your money parked in cash, you will lose it to inflation. As you have pointed out, each person experiences a differing inflation rate; for some people, today’s rate could easily be 10%-15%. That’s how much they lose if they stay in cash.
If you buy commodities futures, you are at the mercy of the thieves who suppress prices with massive naked shorting. Price manipulation is a form of stealing, and many precious metal investors have been victimized lately by the thieves who do it.
If you buy bonds, you are likely buying at the top of a bubble. Running Ponzis in the form of asset bubbles is, of course, another kind of theft.
How about stocks? Looking at the disinvestment going on in the U.S., an investor might think that Chinese stocks would be the way to go. That’s where manufacturing is booming. But if an investor were to go that route in recent years, he would also have been burned. I believe that Chinese stocks, like commodity prices, have been manipulated in recent years by the Powers That Be.
Does it make sense that Chinese stocks should have lost 40% of their value since 2010 if their economy is growing 8-10% a year? Does it make sense that U.S. stocks should have gone up as they have? The whole investment environment today stinks of price manipulation.
So the skill we need today is not traditional investing skill; it is thief-dodging skill. It consists of knowing the thieves’ techniques and whom they are targeting, of knowing the bad neighborhoods to avoid, knowing how to avoid being a target, trying to stay one jump ahead of them as they target new victim groups. These are skills people had back in the Dark Ages, and as we enter a new Dark Ages, these are skills we need again.
Millions of middle class Americans are being wiped out by thieves, and millions more will be wiped out as trends continue. But those who can successfully dodge the thieves can continue to maintain some civilized standards as they hope for better days.”

Thank you, Jeff, for posing a thought-provoking question and commentary.

How do we avoid thieves when the financial system itself is theft? The obvious answer is to peel away from the crowd of lemmings running full tilt for the cliff edge of asset bubbles.
This requires substituting skepticism for blind faith. Please glance at this chart and ask yourself if this bubble is different and boom will not be followed by bust for the first time in human history:
The first step to avoid losing to thieves is avoid being a mark in the thieves’ game.To some degree, this may mean absorbing a smaller, known loss (inflation by holding cash) to avoid the thieves’ high-risk asset-bubble games where a potential loss of 40% of one’s capital is not just possible but the unstated purpose of the game.
Another is to remove as many assets as possible from exposure to the thieves’ systems. This means withdrawing your capital from Too Big to Fail Banks, pulling capital out of Wall Street, and limiting the amount of cash you hold in any one bank to limit losses from “bail-ins” where your cash is stolen to pay off banking-sector thieves.
The cartel-state debtocracy indentures the unwary with debt. Debt is the thieves’ poisoned-sugar method of addiction and servitude. The high from debt is like the high from crack cocaine: it seems so “cheap” at first, and then the addiction kicks in and withdrawal becomes impossibly painful.
Welcome to the Thieves’ Den of Debtocracy.
Since the system yokes those with high earned incomes into teams of tax donkeys, one way to minimize one’s time on the tax donkey team is to reduce one’s earned income, either by working less or by deploying one of the vanishingly few incontestably legal tax shelters open to the lower 99.9% (for example, socking away money for retirement).
The cartel-state Den of Thieves will naturally skim and steal what is most easily stolen, which is money and assets held in their own systems (banks, Wall Street, Treasury bonds, etc.).
This explains the popularity of the coffee-tin/glass-jar bank in kleptocracies: the cost to the authorities of trying to locate and confiscate millions of coffee-tin banks is prohibitive, and prone to marginal returns. Stealing money from depositors via a “bail-in” is effortless and essentially cost-free to the state, as is requiring all retirement funds be invested in Treasury bonds (“for your own good,” of course).
No matter how desperate the cartel-state thieves are for more cash, they know that confiscating the serfs’ tools and land without the cover of taxes and debt would trigger revolt. So assets that are physical objects or immaterial assets such as human and social capital are beyond the easy reach of the cartel-state thieves.
Taxes and debt are the two methods used for wholesale thievery via confiscation.Can’t pay your mortgage or property taxes? Oops, your assets, land and home are confiscated. The ideal situation is not have a mortgage or any other debt, as debt is what gives the thieves leverage over you. The only protection against wholesale theft via suddenly higher property taxes is a limit on annual tax increases (a.k.a. Prop 13).
Our financial system is structurally a kleptocracy. The less exposure one has to Wall Street and the financial debtocracy, the lower one’s exposure to the thieves.
It’s called opting out, or voluntary poverty. Poverty is of course a relative term. If all one’s assets are real-world possessions and immaterial assets such as skills, personal integrity and networks of trusted associates, one is indeed poor in financial assets. But if control of one’s assets is the only real measure of wealth, then the individual with complete control of all his assets is the only truly wealthy person in a kleptocracy.