Baltimore burns, while Nero fiddles

While Baltimore burns, Nero fiddles

By Karl Spain

Mr. Spain is the former publisher of The Journal Newspapers in Virginia and Maryland.

Baltimore got out of control tonight. Race relations in this country are an all time low in my lifetime (55 years) and that’s saying a lot.

From The Los Angeles Times — “Basically we are tired of police officers killing black men,” said one of the bystanders, who would identify himself only as Keyon W., 23 and unemployed. “Not only men but black leaders.” He added, “Our voices are not being heard, so this is the result.”

Gangs of young black thugs are burning down Baltimore and the ostensible reason is the death in police custody of Freddie Gray. Of course this response is really about something else, as the quote above reveals. Obama and Sharpton have not done one positive, constructive, or even logical thing on bridging race tensions since he’s taken office – in fact – he’s been part of the problem and even tonight, still is.

The person most responsible for the rioting tonight in Baltimore, that will disproportionately hurt blacks in Baltimore, is the black President of the United States, elected twice by a majority white country. I don’t say this without serious thought.

The “Reverend” Al Sharpton and his divisive, manipulative, hate filled, duplicitous race baiting should be the anti-thesis of what this President could have espoused.

Instead, to the bewilderment of every Republican and now about half the Democrats, he personally got himself into some of these messes (usually on the wrong side) and even echoed some of Sharpton’s highly destructive rhetoric — and tragically gave him unrestricted access to the White House. If Sharpton wasn’t bad enough, senior White House staff have been sniffling about racism over the Iranian deal, the Attorney General appointment delay, and 3 or 4 other policy disputes, none of which have a damn thing to do with whether the president is black or not.

I would throw my hands up in disgust over this embarrassment, and that is what a black nurse on the street in Baltimore called it tonight, an “embarrassment” — and wait for a different administration — but I can’t in good conscience do that because I believe some of these situations the president has created are on the verge of exponential growth.

Race related violence and inner city rioting between the black gangs like the Black Guerilla Family is now credible. Presidential candidate Martin O’Malley allowed this same gang to run a prison in Baltimore and now the Baltimore PD have credible information the gang has mobilized to kill a cop. Hence the curfew for the next week at least.

Tragically, and I’m sincere on this, I don’t think this racism problem is even going to be front burner for the president in the next few months. How can that be you say? Because war and money trump all and unless the president is very careful on the following crisis flash points, and maybe even if he is, these momentous world issues will dominate, not the domestic race friction.

This may seem absudedly off topic, but part of that is the point, I’m predicting the president will be forced to turn from the domestic arena to address these other issues because it is our own government that is either doing the exact wrong thing to foment the problem, or doing nothing where they should be acting.

Things are spinning out of control and intervention by a skillful America is necessary but not happening, or, Rome is burning while Nero fiddles.

The President needs to do a long list of things if he doesn’t want the U.S. and the world to hit any one of three of four big sets of breakers foaming before our bow.

Convene a Chinese and American only summit with Xi.

There are big problems in the world and the American/Chinese economy, and if the President and Xi work together right now, a lot of the crisis described below, can be avoided. Essentially the dollar and the Yuan are badly out of balance in the world money system. If you’re wondering why none of the world’s financial markets are acting normally, this is the reason.

The productive engine of the Chinese economy and the American economy are both smothering under debt the engine part of the economy didn’t create (the Federal reserve did). China has the same problem although the PBoC forex balance masks that reality.

This is wonky; but, because the entire debt load of the world must be serviced by the productive engine side of the economy, regardless of direct linkage, the ratio between those two entities and the ratio of productivity increase divided by the marginal debt increase then determines something called “real” interest rates.

This real interest is currently more in the negative, on more total debt, than ever in world history. This is true in both real and percentage measures; meaning that core ratio between world debt (say 250T) vs the productive engine (say 60T), is badly is out of whack. 

This is still wonky but until the President and Xi (they control the greatest part of the productive engine and their engines are intertwined) fix this debt to productivity problem, the world economy cannot grow it’s way out of this mess without a massive deflationary event. By the way, this deflationary event has begun even though you may have (or not) noticed it.

Basically, some time in the next 6 months, the world’s credit markets are going to freeze up again. I theorize this already happened 3 big times in the last15 years and the next big hit is coming. Essentially, early 2002 was the first assault, the productive engine shrank dramatically after 9-11, (this is very unusual situation and requires monetary adjustments we failed to make out of ignorance) pushing the marginal propensity to invest vs the marginal propensity to consume ratio out of balance, (driving the Current Account imbalances, see Beck) and the repo markets drained of liquidity.

Bernanke dismisses MPI/MPC ratio responsibility as impossible because he badly interprets Keynes here; Keynes isn’t applying the MPI/MPC ratio to the addition gdp and extrapolating, (which Bernanke accurately judges as insufficient force) he’s saying the entire engine, or asset base, is willful and can change it’s mind about that balance/ratio/calculus and this does extrapolate correctly into the percentage changes we have experienced.

I further theorize this repo freeze has happened repeatedly in small crashes from 2005 to 2008 as U.S. home mortgage debt kept adding to the wrong side of the ratio, culminating in the second big crash in 2008. The 2011 crash was the most spectacular although it went largely unnoticed by the public, because by then, the stimulus and QE mechanisms, which can mask this effect, were functional and in place. Public, private, corporate and financial debt must all be counted to see this.

Ben Bernanke credits this combination of major monetary manipulation and relatively minor fiscal stimulus with stabilizing the world economy and I (and Larry Summers) couldn’t disagree more. His model (and therefore algorithm) most assuredly predicted massive inflationary core pressure across the board over the past decade and it hasn’t happened.

In addition to ignoring this clear warning sign that his math formula is wrong, he’s ignoring the massive deflationary spiral unfolding before his eyes because these real interest rates (which are very negative) are not far from the official rates at zero or near zero. However, all the room in this equation has been exhausted, and next, the money crashes.

This is from Larry Summers rebuttal to Bernanke, which by the way is dead on:

To use a phrase Ben has popularized in a different context, negative real rates are phenomenon that we observe in practice if not always in theory. The paper by Hamilton, Harris, Hatzius, and West that he cites demonstrates that during the twentieth century, rates in America have been negative at least 30 percent of the time. In Germany right now, the 10-year nominal rate is 18 basis points suggesting a negative real rate, and the rate is around 60 basis points for 30 years! In Britain, yields on 50-year indexed bonds have been negative for long periods of time.”

I’m not going to list the technical details of what needs to be done with SDR’s, the Yuan trading band, PBoC policy, U.S. participation and integration of the AIIB, and inclusion of Japan (and a few others) into this international group for coordination and support during the coming financial crisis.

Either these countries will cooperate through this coming economic mess — or war with each other — as their economic, fiscal, monetary, and world financial market reactions bounce off each country and market, one after another like hate filled ping pong balls — and we have 10 Greece’s, 40 Baltimore’s and a nuclear Middle East with Israel, Iran, Saudi Arabia and Pakistan all eyeballing each other from very different perspectives, while measuring missile ranges and iron dome capabilities.

One huge short already exists by a man named Gross, on German long bonds, the very ones described above. If he gets paid, it means we are in a crash and he’s almost never wrong. You can see why, look at Summers point, for how long will the investment community allow their funds to support the world economy at negative real interest rates?

Our fiscal, monetary and stimulus policy must also be integrated with our tax, credit, and corporate governance (anti-trust) policies or we will not get the growth rate of the productive engine high enough. The debt cannot disappear without a crash, and even then it’s just slashed, but usually not without blood in the streets. We need a bigger engine.

The existing engine can easily produce the net number we need.

 And the secret is Taxes and China.

Taxes first. The centerpiece of this must be a new corporate tax plan (3% of gross revenues) that taxes gross revenues not profit. Tax rates can be lowered, tax evaders have no shelter (the laws are all aimed at protecting profit), entire groups of non-payers will contribute for the first time (5013C, Churches, all economic entities) and best of all, some of the big boys like GE and Exxon, will finally have to pony up. Madison had this right in Federalist #10, income inequality, over the generations, will be the greatest source of violent faction, be it in Tehran or Baltimore, and blunting those effects in the only answer.

China basically is in the same pinch, they cannot simultaneously stimulate (the temptation is building as growth slips below 7.3%) and legitimize the Yuan into a second or third reserve currency, which would help the world economy — and is also a big PBoC goal. It’s difficult to do both because one of these requires artificially holding the Yuan in a currency-trading band that favors Chinese manufacturers (a CCP goal) and the other requires loosening that band or removing it all together so the currency can move and become liquid. This conflict must be resolved at a high level and it must be resolved now.

The Middle East fire is hot and is on the verge of getting very hot. The president needs to reach out to Sisi, Saudi Arabia, and the GCC and join the anti-ISIS coalition wholeheartedly. Secure Afghanistan. Re-secure Iraq. Free Kurdistan. Cede the Shiite portion of old Iraq to Iran if you want to salve the wound of round filing the Nuke deal. Iran can have territory and their own people back, but you can’t give them a bomb and if Xi doesn’t also clearly see this when you discuss it at the summit proposed above, I’m an idiot, and I don’t care how much oil Xi buys from Iran or will buy, he can’t want them to have a bomb, I’m sure of this.

Which leads to the very first thing the president needs to do, scrape this Iranian deal. History isn’t going to judge his presidency by whether or not he gets a signature on this piece of paper. They’re going to judge his administration historically by whether that turns out to be the right thing to have done. Consider the odds.

What’s more likely, that they’ll cheat, lie, build a bomb, circumvent the rules (at the best), and ruthlessly pursue their Iranian Kingdom building Jihad in at least 4 different countries battlefields or turn over a new leaf; release the American hostages they plan to execute, give back the neutron triggers Kerry was forced to stop asking about, and allow invasive inspections – a claim they’ve already repudiated at every level?

This is the time for the president to offer Boehner a deal on Obamacare and Immigration, if Boehner will deal on the corporate tax plan change. The president should curtail wheeling and dealing with Mullahs and wheel and deal on Capitol Hill more.

That’s what the American people want him to do in poll after poll, and they’re pretty smart collectively, in the end. It’s a shame the black rioters in Baltimore don’t have as much faith in their black president, black mayor and black attorney general as the whites who elected him twice do.

He can do something about that, and all this other stuff — and only he can. I won’t presume to advise him on what to say, but I definitely know he shouldn’t echo one shred of what Sharpton’s been spewing — or he’ll face nothing but derision from both perspectives, and the consequences of that, more deaths.


About karlspain

20 year Newspaperman. Lifelong Inventor. Wrote 2 books so far, working on more. The Revelation, 1st book, about your brain & the universe, and math. Hooked together! God I trust, America I love, 2nd book, is the biography of Aris Mardirossian, a great man. Also owned a software company, an IT integration company, a gas station and a fuzzy logic software title along the way.
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One Response to Baltimore burns, while Nero fiddles

  1. karlspain says:

    Reblogged this on karlspain and commented:

    Baltimore burns, while Nero fiddles

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