FedUpUSA

Archive for February 16th, 2010

Sure glad we wasted all that money on ‘stimulus’ – the real acceleration starts in February 2009.  Good thing we passed all that unneeded debt on to our children to pay for.

Tea Party Lights Fuse for Rebellion on Right

A Tea Party rally in Washington in September.

By DAVID BARSTOW

SANDPOINT, Idaho — Pam Stout has not always lived in fear of her government. She remembers her years working in federal housing programs, watching government lift struggling families with job training and education. She beams at the memory of helping a Vietnamese woman get into junior college.

But all that was before the Great Recession and the bank bailouts, before Barack Obama took the White House by promising sweeping change on multiple fronts, before her son lost his job and his house. Mrs. Stout said she awoke to see Washington as a threat, a place where crisis is manipulated — even manufactured — by both parties to grab power.

She was happily retired, and had never been active politically. But last April, she went to her first Tea Party rally, then to a meeting of the Sandpoint Tea Party Patriots. She did not know a soul, yet when they began electing board members, she stood up, swallowed hard, and nominated herself for president. “I was like, ‘Did I really just do that?’ ” she recalled.

Then she went even further.

Worried about hyperinflation, social unrest or even martial law, she and her Tea Party members joined a coalition, Friends for Liberty, that includes representatives from Glenn Beck’s 9/12 Project, the John Birch Society, and Oath Keepers, a new player in a resurgent militia movement.

When Friends for Liberty held its first public event, Mrs. Stout listened as Richard Mack, a former Arizona sheriff, brought 1,400 people to their feet with a speech about confronting a despotic federal government. Mrs. Stout said she felt as if she had been handed a road map to rebellion. Members of her family, she said, think she has disappeared down a rabbit hole of conspiracy theories. But Mrs. Stout said she has never felt so engaged.

“I can’t go on being the shy, quiet me,” she said. “I need to stand up.”

The Tea Party movement has become a platform for conservative populist discontent, a force in Republican politics for revival, as it was in the Massachusetts Senate election, or for division. But it is also about the profound private transformation of people like Mrs. Stout, people who not long ago were not especially interested in politics, yet now say they are bracing for tyranny.

These people are part of a significant undercurrent within the Tea Party movement that has less in common with the Republican Party than with the Patriot movement, a brand of politics historically associated with libertarians, militia groups, anti-immigration advocates and those who argue for the abolition of the Federal Reserve.

Urged on by conservative commentators, waves of newly minted activists are turning to once-obscure books and Web sites and discovering a set of ideas long dismissed as the preserve of conspiracy theorists, interviews conducted across the country over several months show. In this view, Mr. Obama and many of his predecessors (including George W. Bush) have deliberately undermined the Constitution and free enterprise for the benefit of a shadowy international network of wealthy elites.

Loose alliances like Friends for Liberty are popping up in many cities, forming hybrid entities of Tea Parties and groups rooted in the Patriot ethos. These coalitions are not content with simply making the Republican Party more conservative. They have a larger goal — a political reordering that would drastically shrink the federal government and sweep away not just Mr. Obama, but much of the Republican establishment, starting with Senator John McCain.

In many regions, including here in the inland Northwest, tense struggles have erupted over whether the Republican apparatus will co-opt these new coalitions or vice versa. Tea Party supporters are already singling out Republican candidates who they claim have “aided and abetted” what they call the slide to tyranny: Mark Steven Kirk, a candidate for the Senate from Illinois, for supporting global warming legislation; Gov. Charlie Crist of Florida, who is seeking a Senate seat, for supporting stimulus spending; and Meg Whitman, a candidate for governor in California, for saying she was a “big fan” of Van Jones, once Mr. Obama’s “green jobs czar.”

During a recent meeting with Congressional Republicans, Mr. Obama acknowledged the potency of these attacks when he complained that depicting him as a would-be despot was complicating efforts to find bipartisan solutions.

“The fact of the matter is that many of you, if you voted with the administration on something, are politically vulnerable in your own base, in your own party,” Mr. Obama said. “You’ve given yourselves very little room to work in a bipartisan fashion because what you’ve been telling your constituents is, ‘This guy’s doing all kinds of crazy stuff that is going to destroy America.’ ”

The ebbs and flows of the Tea Party ferment are hardly uniform. It is an amorphous, factionalized uprising with no clear leadership and no centralized structure. Not everyone flocking to the Tea Party movement is worried about dictatorship. Some have a basic aversion to big government, or Mr. Obama, or progressives in general. What’s more, some Tea Party groups are essentially appendages of the local Republican Party.

But most are not. They are frequently led by political neophytes who prize independence and tell strikingly similar stories of having been awakened by the recession. Their families upended by lost jobs, foreclosed homes and depleted retirement funds, they said they wanted to know why it happened and whom to blame.

That is often the point when Tea Party supporters say they began listening to Glenn Beck. With his guidance, they explored the Federalist Papers, exposés on the Federal Reserve, the work of Ayn Rand and George Orwell. Some went to constitutional seminars. Online, they discovered radical critiques of Washington on Web sites like ResistNet.com (“Home of the Patriotic Resistance”) and Infowars.com (“Because there is a war on for your mind.”).

Many describe emerging from their research as if reborn to a new reality. Some have gone so far as to stock up on ammunition, gold and survival food in anticipation of the worst. For others, though, transformation seems to amount to trying on a new ideological outfit — embracing the rhetoric and buying the books.

Tea Party leaders say they know their complaints about shredded constitutional principles and excessive spending ring hollow to some, given their relative passivity through the Bush years. In some ways, though, their main answer — strict adherence to the Constitution — would comfort every card-carrying A.C.L.U. member.

But their vision of the federal government is frequently at odds with the one that both parties have constructed. Tea Party gatherings are full of people who say they would do away with the Federal Reserve, the federal income tax and countless agencies, not to mention bailouts and stimulus packages. Nor is it unusual to hear calls to eliminate Social Security, Medicare and Medicaid. A remarkable number say this despite having recently lost jobs or health coverage. Some of the prescriptions they are debating — secession, tax boycotts, states “nullifying” federal laws, forming citizen militias — are outside the mainstream, too.

At a recent meeting of the Sandpoint Tea Party, Mrs. Stout presided with brisk efficiency until a member interrupted with urgent news. Because of the stimulus bill, he insisted, private medical records were being shipped to federal bureaucrats. A woman said her doctor had told her the same thing. There were gasps of rage. Everyone already viewed health reform as a ruse to control their medical choices and drive them into the grip of insurance conglomerates. Debate erupted. Could state medical authorities intervene? Should they call Congress?

As the meeting ended, Carolyn L. Whaley, 76, held up her copy of the Constitution. She carries it everywhere, she explained, and she was prepared to lay down her life to protect it from the likes of Mr. Obama.

“I would not hesitate,” she said, perfectly calm.

A Sprawling Rebellion

The Tea Party movement defies easy definition, largely because there is no single Tea Party.

At the grass-roots level, it consists of hundreds of autonomous Tea Party groups, widely varying in size and priorities, each influenced by the peculiarities of local history.

In the inland Northwest, the Tea Party movement has been shaped by the growing popularity in eastern Washington of Ron Paul, the libertarian congressman from Texas, and by a legacy of anti-government activism in northern Idaho. Outside Sandpoint, federal agents laid siege to Randy Weaver’s compound on Ruby Ridge in 1992, resulting in the deaths of a marshal and Mr. Weaver’s wife and son. To the south, Richard Butler, leader of the Aryan Nations, preached white separatism from a compound near Coeur d’Alene until he was shut down.

Local Tea Party groups are often loosely affiliated with one of several competing national Tea Party organizations. In the background, offering advice and organizational muscle, are an array of conservative lobbying groups, most notably FreedomWorks. Further complicating matters, Tea Party events have become a magnet for other groups and causes — including gun rights activists, anti-tax crusaders, libertarians, militia organizers, the “birthers” who doubt President Obama’s citizenship, Lyndon LaRouche supporters and proponents of the sovereign states movement.

It is a sprawling rebellion, but running through it is a narrative of impending tyranny. This narrative permeates Tea Party Web sites, Facebook pages, Twitter feeds and YouTube videos. It is a prominent theme of their favored media outlets and commentators, and it connects the disparate issues that preoccupy many Tea Party supporters — from the concern that the community organization Acorn is stealing elections to the belief that Mr. Obama is trying to control the Internet and restrict gun ownership.

WorldNetDaily.com trumpets “exclusives” reporting that the Army is seeking “Internment/Resettlement” specialists. On ResistNet.com, bloggers warn that Mr. Obama is trying to convert Interpol, the international police organization, into his personal police force. They call on “fellow Patriots” to “grab their guns.”

Mr. Beck frequently echoes Patriot rhetoric, discussing the possible arrival of a “New World Order” and arguing that Mr. Obama is using a strategy of manufactured crisis to destroy the economy and pave the way for dictatorship.

At recent Tea Party events around the country, these concerns surfaced repeatedly.

In New Mexico, Mary Johnson, recording secretary of the Las Cruces Tea Party steering committee, described why she fears the government. She pointed out how much easier it is since Sept. 11 for the government to tap telephones and scour e-mail, bank accounts and library records. “Twenty years ago that would have been a paranoid statement,” Ms. Johnson said. “It’s not anymore.”

In Texas, Toby Marie Walker, president of the Waco Tea Party, stood on a stage before several thousand people, ticking off the institutions she no longer trusts — the federal government, both the major political parties, Wall Street. “Many of us don’t believe they have our best interests at heart,” Ms. Walker said. She choked back tears, but the crowd urged her on with shouts of “Go, Toby!”

As it happened in the inland Northwest with Friends for Liberty, the fear of Washington and the disgust for both parties is producing new coalitions of Tea Party supporters and groups affiliated with the Patriot movement. In Indiana, for example, a group called the Defenders of Liberty is helping organize “meet-ups” with Tea Party groups and more than 50 Patriot organizations. The Ohio Freedom Alliance, meanwhile, is bringing together Tea Party supporters, Ohio sovereignty advocates and members of the Constitution and Libertarian Parties. The alliance is also helping to organize five “liberty conferences” in March, each featuring Richard Mack, the same speaker invited to address Friends for Liberty.

Politicians courting the Tea Party movement are also alluding to Patriot dogma. At a Tea Party protest in Las Vegas, Joe Heck, a Republican running for Congress, blamed both the Democratic and Republican Parties for moving the country toward “socialistic tyranny.” In Texas, Gov. Rick Perry, a Republican seeking re-election, threw his support behind the state sovereignty movement. And in Indiana, Richard Behney, a Republican Senate candidate, told Tea Party supporters what he would do if the 2010 elections did not produce results to his liking: “I’m cleaning my guns and getting ready for the big show. And I’m serious about that, and I bet you are, too.”

Turning Points

Fear of co-option — a perpetual topic in the Tea Party movement — lay behind the formation of Friends for Liberty.

The new grass-roots leaders of the inland Northwest had grown weary of fending off what they jokingly called “hijack attempts” by the state and county Republican Parties. Whether the issue was picking speakers or scheduling events, they suspected party leaders of trying to choke off their revolution with Chamber of Commerce incrementalism.

“We had to stand our ground, I’ll be blunt,” said Dann Selle, president of the Official Tea Party of Spokane.

In October, Mr. Selle, Mrs. Stout and about 20 others from across the region met in Liberty Lake, Wash., a small town on the Idaho border, to discuss how to achieve broad political change without sacrificing independence. The local Republican Party was excluded.

Most of the people there had paid only passing attention to national politics in years past. “I voted twice and I failed political science twice,” said Darin Stevens, leader of the Spokane 9/12 Project.

Until the recession, Mr. Stevens, 33, had poured his energies into his family and his business installing wireless networks. He had to lay off employees, and he struggled to pay credit cards, a home equity loan, even his taxes. “It hits you physically when you start getting the calls,” he said.

He discovered Glenn Beck, and began to think of Washington as a conspiracy to fleece the little guy. “I had no clue that my country was being taken from me,” Mr. Stevens explained. He could not understand why his progressive friends did not see what he saw.

He felt compelled to do something, so he decided to start a chapter of Mr. Beck’s 9/12 Project. He reserved a room at a pizza parlor for a Glenn Beck viewing party and posted the event on Craigslist. “We had 110 people there,” Mr. Stevens said. He recalled looking around the room and thinking, “All these people — they agree with me.”

Leah Southwell’s turning point came when she stumbled on Mr. Paul’s speeches on YouTube. (“He blew me away.”) Until recently, Mrs. Southwell was in the top 1 percent of all Mary Kay sales representatives, with a company car and a frenetic corporate life. “I knew zero about the Constitution,” Mrs. Southwell confessed. Today, when asked about her commitment to the uprising, she recites a line from the Declaration of Independence, a Tea Party favorite: “We mutually pledge to each other our lives, our fortunes, and our sacred honor.”

Mr. Paul led Mrs. Southwell to Patriot ideology, which holds that governments and economies are controlled by networks of elites who wield power through exclusive entities like the Bilderberg Group, the Trilateral Commission and the Council on Foreign Relations.

This idea has a long history, with variations found at both ends of the political spectrum. But to Mrs. Southwell, the government’s culpability for the recession — the serial failures of regulation, the Federal Reserve’s epic blunders, the cozy bailouts for big banks — made it resonate all the more, especially as she witnessed the impact on family and friends.

“The more you know, the madder you are,” she said. “I mean when you finally learn what the Federal Reserve is!”

Last spring, Mrs. Southwell quit her job and became a national development officer for the John Birch Society, recruiting and raising money across the West, often at Tea Party events. She has been stunned by the number of Tea Party supporters gravitating toward Patriot ideology. “Most of these people are just waking up,” she said.

Converging Paths

At Liberty Lake, the participants settled on a “big tent” strategy, with each group supporting the others in the coalition they called Friends for Liberty.

One local group represented at Liberty Lake was Arm in Arm, which aims to organize neighborhoods for possible civil strife by stockpiling food and survival gear, and forming armed neighborhood groups.

Also represented was Oath Keepers, whose members call themselves “guardians of the Republic.” Oath Keepers recruits military and law enforcement officials who are asked to disobey orders the group deems unconstitutional. These include orders to conduct warrantless searches, arrest Americans as unlawful enemy combatants or force civilians into “any form of detention camps.”

Oath Keepers, which has been recruiting at Tea Party events around the country and forging informal ties with militia groups, has an enthusiastic following in Friends for Liberty. “A lot of my people are Oath Keepers,” Mr. Stevens said. “I’m an honorary Oath Keeper myself.”

Mrs. Stout became an honorary Oath Keeper, too, and sent an e-mail message urging her members to sign up. “They may be very important for our future,” she wrote.

By inviting Richard Mack to speak at their first event, leaders of Friends for Liberty were trying to attract militia support. They knew Mr. Mack had many militia fans, and not simply because he had helped Randy Weaver write a book about Ruby Ridge. As a sheriff in Arizona, Mr. Mack had sued the Clinton administration over the Brady gun control law, which resulted in a Supreme Court ruling that the law violated state sovereignty by requiring local officials to conduct background checks on gun buyers.

Mr. Mack was selling Cadillacs in Arizona, his political career seemingly over, when Mr. Obama was elected. Disheartened by the results, he wrote a 50-page booklet branding the federal government “the greatest threat we face.” The booklet argued that only local sheriffs supported by citizen militias could save the nation from “utter despotism.” He titled his booklet “The County Sheriff: America’s Last Hope,” offered it for sale on his Web site and returned to selling cars.

But last February he was invited to appear on “Infowars,” the Internet radio program hosted by Alex Jones, a well-known figure in the Patriot movement. Then Mr. Mack went on “The Power Hour,” another Internet radio program popular in the Patriot movement.

After those appearances, Mr. Mack said, he was inundated with invitations to speak to Tea Parties and Patriot groups. Demand was so great, he said, that he quit selling cars. Then Andrew P. Napolitano, a Fox News legal analyst, invited him to New York to appear on his podcast.

“It’s taken over my life,” Mr. Mack said in an interview.

He said he has found audiences everywhere struggling to make sense of why they were wiped out last year. These audiences, he said, are far more receptive to critiques once dismissed as paranoia. It is no longer considered all that radical, he said, to portray the Federal Reserve as a plaything of the big banks — a point the Birch Society, among others, has argued for decades.

People are more willing, he said, to imagine a government that would lock up political opponents, or ration health care with “death panels,” or fake global warming. And if global warming is a fraud, is it so crazy to wonder about a president’s birth certificate?

“People just do not trust any of this,” Mr. Mack said. “It’s not just the fringe people anymore. These are just ordinary people — teachers, bankers, housewives.”

The dog track opened at 5:45 p.m. for Mr. Mack’s speech, and the parking lot quickly filled. Inside, each Friends for Liberty sponsor had its own recruiting table. Several sheriffs and state legislators worked the crowd. “I came out to talk with folks and listen to Sheriff Mack,” Ozzie Knezovich, the sheriff of Spokane County, Wash., explained.

Gazing out at his overwhelmingly white audience, Mr. Mack felt the need to say, “This meeting is not racist.” Nor, he said, was it a call to insurrection. What is needed, he said, is “a whole army of sheriffs” marching on Washington to deliver an unambiguous warning: “Any violation of the Constitution we will consider a criminal offense.”

The crowd roared.

Mr. Mack shared his vision of the ideal sheriff. The setting was Montgomery, Ala., on the day Rosa Parks refused to give up her bus seat for a white passenger. Imagine the local sheriff, he said, rather than arresting Ms. Parks, escorting her home, stopping to buy her a meal at an all-white diner.

“Edmund Burke said the essence of tyranny is the enforcement of stupid laws,” he said. Likewise, Mr. Mack argued, sheriffs should have ignored “stupid laws” and protected the Branch Davidians at Waco, Tex., and the Weaver family at Ruby Ridge.

Legacy

A popular T-shirt at Tea Party rallies reads, “Proud Right-Wing Extremist.”

It is a defiant and mocking rejoinder to last April’s intelligence assessment from the Department of Homeland Security warning that recession and the election of the nation’s first black president “present unique drivers for right wing radicalization.”

“Historically,” the assessment said, “domestic right wing extremists have feared, predicted and anticipated a cataclysmic economic collapse in the United States.” Those predictions, it noted, are typically rooted in “antigovernment conspiracy theories” featuring impending martial law. The assessment said extremist groups were already preparing for this scenario by stockpiling weapons and food and by resuming paramilitary exercises.

The report does not mention the Tea Party movement, but among Tea Party activists it is viewed with open scorn, evidence of a larger campaign by liberals to marginalize them as “racist wingnuts.”

But Tony Stewart, a leading civil rights activist in the inland Northwest, took careful note of the report. Almost 30 years ago, Mr. Stewart cofounded the Kootenai County Task Force on Human Relations in Coeur d’Alene. The task force has campaigned relentlessly to rid north Idaho of its reputation as a haven for anti-government extremists. The task force tactics brought many successes, including a $6.3 million civil judgment that effectively bankrupted Richard Butler’s Aryan Nations.

When the Tea Party uprising gathered force last spring, Mr. Stewart saw painfully familiar cultural and rhetorical overtones. Mr. Stewart viewed the questions about Mr. Obama’s birthplace as a proxy for racism, and he was bothered by the “common message of intolerance for the opposition.”

“It’s either you’re with us or you’re the enemy,” he said.

Mr. Stewart heard similar concerns from other civil rights activists around the country. They could not help but wonder why the explosion of conservative anger coincided with a series of violent acts by right wing extremists. In the Inland Northwest there had been a puzzling return of racist rhetoric and violence.

Mr. Stewart said it would be unfair to attribute any of these incidents to the Tea Party movement. “We don’t have any evidence they are connected,” he said.

Still, he sees troubling parallels. Branding Mr. Obama a tyrant, Mr. Stewart said, constructs a logic that could be used to rationalize violence. “When people start wearing guns to rallies, what’s the next thing that happens?” Mr. Stewart asked.

Rachel Dolezal, curator of the Human Rights Education Institute in Coeur d’Alene, has also watched the Tea Party movement with trepidation. Though raised in a conservative family, Ms. Dolezal, who is multiracial, said she could not imagine showing her face at a Tea Party event. To her, what stands out are the all-white crowds, the crude depictions of Mr. Obama as an African witch doctor and the signs labeling him a terrorist. “It would make me nervous to be there unless I went with a big group,” she said.

The Future

Pam Stout wakes each morning, turns on Fox News, grabs coffee and an Atkins bar, and hits the computer. She is the hub of a rapidly expanding and highly viral political network, keeping a running correspondence with her 400 members in Sandpoint, state and national Tea Party leaders and other conservative activists.

Mrs. Stout forwards along petitions to impeach Mr. Obama; petitions to audit the Federal Reserve; petitions to support Sarah Palin; appeals urging defiance of any federal law requiring health insurance; and on and on.

Meanwhile, she and her husband are studying the Constitution line by line. She has the Congressional switchboard programmed into her cellphone. “I just signed up for a Twitter class,” said Mrs. Stout, 66, laughing at the improbability of it all.

Yet for all her efforts, Mrs. Stout is gripped by a sense that it may be too little too late. Yes, there have been victories — including polls showing support for the Tea Party movement — but in her view none of it has diminished the fundamental threat of tyranny, a point underscored by Mr. Obama’s drive to pass a health care overhaul.

She and her members are becoming convinced that rallies alone will not save the Republic. They are searching for some larger answer, she said. They are also waiting for a leader, someone capable of uniting their rebellion, someone like Ms. Palin, who made Sandpoint one of the final stops on her book tour and who has announced plans to attend a series of high-profile Tea Party events in the next few months.

“We need to really decide where we’re going to go,” Mrs. Stout said.

These questions of strategy, direction and leadership were clearly on the minds of Mrs. Stout’s members at a recent monthly meeting.

Their task seemed endless, almost overwhelming, especially with only $517 in their Tea Party bank account. There were rallies against illegal immigration to attend. There was a coming lecture about the hoax of global warming. There were shooting classes to schedule, and tips to share about the right survival food.

The group struggled fitfully for direction. Maybe they should start vetting candidates. Someone mentioned boycotting ABC, CBS, NBC and MSNBC. Maybe they should do more recruiting.

“How do you keep on fighting?” Mrs. Stout asked in exasperation.

Lenore Generaux, a local wildlife artist, had an idea: They should raise money for Freedom Force, a group that says it wants to “reclaim America via the Patriot movement.” The group is trying to unite the Tea Parties and other groups to form a powerful “Patriot lobby.” One goal is to build a “Patriot war chest” big enough to take control of the Republican Party.

Not long ago, Mrs. Stout sent an e-mail message to her members under the subject line: “Revolution.” It linked to an article by Greg Evensen, a leader in the militia movement, titled “The Anatomy of an American Revolution,” that listed “grievances” he said “would justify a declaration of war against any criminal enterprise including that which is killing our nation from Washington, D.C.”

Mrs. Stout said she has begun to contemplate the possibility of “another civil war.” It is her deepest fear, she said. Yet she believes the stakes are that high. Basic freedoms are threatened, she said. Economic collapse, food shortages and civil unrest all seem imminent.

“I don’t see us being the ones to start it, but I would give up my life for my country,” Mrs. Stout said.

She paused, considering her next words.

“Peaceful means,” she continued, “are the best way of going about it. But sometimes you are not given a choice.”

60 Minutes – Yes, It Was All A Scam

Posted by Karl Denninger

Poking through the wreckage, many experts believe the root cause was a perfect storm: a monsoon of gullibility colliding with a tidal wave of greed.

“This was a massive Ponzi scheme. And it’s the biggest crime against the American economy in our lifetimes, in fact, ever,” analyst Janet Tavakoli explained.

Tavakoli is an analyst specializing in derivatives, the exotic financial instruments at the heart of the meltdown. She argues that the bad mortgage loans that fueled the crisis were repackaged by investment banks, sliced into increasingly complex derivatives and resold to other investors, even though the underlying mortgages were often virtually worthless.

“You had various traders buying each others’ products to artificially keep the prices up so that the bubble didn’t collapse,” she told Safer.

Not only that. But the mortgage derivatives being traded were so mind-numbingly complicated, nobody understood them fully. Certainly not the pigeons: the buyers at banks, mutual funds, pension funds and insurance companies who wound up holding a bag full of worthless paper.

“But these guys are smart guys. They’re all graduates of the finest business school, correct?” Safer asked.

“Yes. If they were gullible, they’re sophisticated investors. So they can’t really go back to the investment banks that sold them this product and say, ‘We’ve been had.’ Because they held themselves out to be experts in these kinds of securities,” Tavakoli replied.

All of which proves that whether you’re on Wall Street or Main Street, brain power is no defense against con men. In fact, smart guys may be the biggest suckers of all.

JT Note:

Also from the interview: “’We wouldn’t want to live in a world where we couldn’t be conned because in effect we would then be living in a world where we mistrusted or refused to trust anyone. So this is the price we pay,’ [Ricky] Jay said.”

I agree with Mr. Jay.  Who would want to live in a world like that?  But equally, who would want to live in a world where trusting hardworking taxpayers are unprotected by government so they become the easy prey of exploiters?  That’s why we have laws.  That way, we can remedy wrongs and make criminals pay the price.  It’s time to put that theory into practice.

Here’s the unasked question though (except by Janet!) - conning people is still against the law!  How comes we don’t see anyone being perp-walked among all those who conned these “wise men”?

AGAIN: WHERE ARE THE DAMN COPS?

Goldman Says “Something Brewing” in China on Currency; What’s Really Brewing Is “Trouble”

With a lot of eyes focused on the PIIGS (Portugal, Ireland, Italy, Greece, Spain), especially Greece and Spain, please don’t forget about China. Goldman’s O’Neill Says ‘Something Brewing’ in China on Currency.

Goldman Sachs Group Inc. Chief Economist Jim O’Neill said China may be poised to let its currency strengthen as much as 5 percent to slow the world’s fastest growing major economy.

“I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”

Chinese policy makers are seeking to restrain credit growth after their economy grew the fastest since 2007 in the fourth quarter. Banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January as property prices climbed the most in 21 months.

O’Neill, who coined the term “BRICs” in 2001, anticipating the boom in the emerging economies of Brazil, Russia, India and China, said China may allow the yuan to rise as much as 5 percent in a one-off revaluation and to then trade within a bigger band or against a larger basket of currencies. That would help counter international pressure, he said.

Record lending last year and a 4 trillion yuan stimulus package helped China lead the recovery from the deepest global recession since World War II. Investors’ concern about investment bubbles in China, and what action the government may take to prevent or deflate them, has mounted this year.

Traffic Signal With No Red Light

In China, when the Central bank says “lend”, banks lend.

“Don’t lend” does not seem have the same effect. It’s as if the central bank traffic signal only has green and yellow lights, not red.

If China wants to make less money available then what is it doing with stimulus at 14% of GDP, the highest in the world?

And what pray tell will China do with vacant shopping centers, vacant office space, and even vacant cities?

50% Office Vacancy Rate In Beijing

Inquiring minds are reading Beijing Seen Vacant for 50% Commercial as Chanos Predicts Crash.

Beijing’s office vacancy rate of 22.4 percent in the third quarter of last year was the ninth-highest of 103 markets tracked by CB Richard Ellis Group Inc., a real estate broker. Those figures don’t include many buildings about to open, such as the city’s tallest, the 6.6-billion yuan ($965 million) 74- story China World Tower 3.

Empty buildings are sprouting across China as companies with access to some of the $1.4 trillion in new loans last year build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country’s property market is in a bubble.

“There’s a monumental property bubble and fixed-asset investment bubble that China has underway right now,” Chanos said in a Jan. 25 Bloomberg Television interview. “And deflating that gently will be difficult at best.”

A glut of factories in China is “wreaking far-reaching damage on the global economy,” stoking trade tensions and raising the risk of bad loans, the European Union Chamber of Commerce in China said in November.

The risks are so great that a decade of little or no growth, as Japan experienced in the 1990s, can’t be dismissed, said Patrick Chovanec, an associate professor in the School of Economics and Management at Beijing’s Tsinghua University, ranked China’s top university by the Times newspaper in London.

“You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land — not even desirable plots of land — in Beijing to astronomical rates,” Chovanec said. “At the same time you have 30 percent-plus vacancy rates and slumping rents in commercial property so it’s just a case of when you recognize the losses — or don’t.”

China’s lending surged to 1.39 trillion yuan in January, more than in the previous three months combined.

“The liquidity bubble last year went to the property market,” said Taizo Ishida, San Francisco-based lead manager for the $212-million Matthews Asia Pacific Fund, in a phone interview. “I was in Shanghai and Shenzhen three weeks ago and the prices were just eye-popping, just really amazing. Generally I’m not buying Chinese stocks.”

Chanos, founder of New York-based Kynikos Associates Ltd., predicted that China could be “Dubai times 100 or 1,000.” Real estate prices there have fallen almost 50 percent from their 2008 peak as the emirate struggles under at least $80 billion of debt. The economy may shrink 0.4 percent this year, Shuaa Capital, the biggest U.A.E. investment bank, says.

The commercial property space under construction in China at the end of November was the equivalent of 6,800 Burj Khalifas — the 160-story Dubai skyscraper that’s the world’s tallest.

Overcapacity may be looming in manufacturing as well. China’s investments in new factories and properties surged 67 percent last year to 15.2 trillion yuan, more than Russia’s gross domestic product. Excess steel capacity may have reached about 132 million tons in 2009, more than the 87.5 million tons from Japan, the world’s second-biggest producer. The Beijing- based EU Chamber of Commerce report said a “looming deluge” of extra cement capacity is being built.

That is a lengthy snip but there is still a lot more in the article. Bloomberg columnist Michael Forsythe did an excellent job piecing that information together.

Currency Inflows and Outflows

Assuming China does peg the Renmimbi 5% higher as O’Neill thinks, will that slow speculative currency inflows or increase them?

If the carry trade crowd is convinced more upward revaluations will occur, then speculative inflows would increase. That influx of money would make it harder for the central bank to restrain lending via hikes in reserve requirements alone.

On the other hand, if existing carry-trade players think 5% is all they get, perhaps they take their money and run right after a revaluation. By the way, one reason China needs to keep all those US dollar reserves is there will be capital flight by speculators at some point down the road.

China could drain money from the system to slow down lending, but that would put more upward pressure on interest rates and upward pressure on the Renminbi as well (at least temporarily). Draining money supply would also be contrary to its need for stimulus measures.

A-Tisket A-Tasket You Can’t Peg To A Basket

O’Neill offered the opinion “China may allow the yuan to trade against a larger basket of currencies.”

If he means peg to multiple currencies simultaneously, it cannot be done.

A country can peg its currency to at most one currency, otherwise there will be a guaranteed arbitrage play somewhere. If China pegs to the US dollar, all moves against any other currency will move in exact relation to how the US dollar moves against those other currencies.

The way to let a currency trade against multiple currencies is to let it float.

Given China’s rampant speculation, unsound bank lending practices, and enormous property bubble, if China was so bold as to float the Renminbi right now, it might collapse, perhaps after an initial move higher.

Faber On Chinese Economy

Marc Faber says China Economy Will Slow, Hurt Commodities.

China’s economy will slow down “meaningfully” and may even be at risk of a “crash” because of the nation’s excess capacity and as loan growth slows, investor Marc Faber said.

China’s fragile economy may undermine industrial commodities in the “near term,” the publisher of the Gloom, Boom and Doom report said. Faber added that he’s pessimistic on the euro as a possible bailout of Greece by other European countries increases deficits in the region.

“The economy, for sure, will slow down meaningfully this year,” Faber said in an interview with Bloomberg Television in Hong Kong. “It has the potential to crash because of the overcapacities that have developed, and when loan growth slows down, we don’t know how the economy will react.”

A possible crash in China’s economy will be “disastrous” for raw materials used in industrial production, Faber said. He instead favors commodities including wheat, corn and soya beans and also said he doesn’t see a “huge downside risk” for gold.

Something Brewing

Pressures mount as China attempts to walk a fine line between overheating and an economic bust accompanied by massive social unrest.

Elsewhere, central bankers assume the global economy is in recovery. In reality, the global economy is in another speculative binge fueled by reckless global stimulus, with China at the head of the pack.

Meanwhile, global imbalances grow with most eyes on Greece and Spain. Let’s not forget the massive property bubbles in Australia and Canada, and massive speculation in China. In the US, cities and states are on the verge of bankruptcy.

Something is brewing alright. That something is “trouble”, and not just for China.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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