Detroit Publishing Co. Congress 1908 "South corridor, Library of Congress, Washington, D.C."

It’s hard to miss the irony in the fact that perhaps the biggest stumbling block to the status quo financial elites in the Western world, who are attempting to kick the can a bit farther down the road, aside from the sheer impossibility of the underlying math, is democratic elections. 2012 may very well be the year where decades of political theater for the benefit of large corporations and financial consumers from sea to shining sea come back with a vengeance to bite the status quo politicians in the ass.

And let’s be clear, it is the run-up to elections and the accompanying theatrical drama that will prove to be the most difficult for the status quo, rather than the actual outcomes of these elections. There is little doubt that almost all of the politicians will end up singing the exact same tune once they are actually in office. The real problem for the perennial can-kickers is that they simply do not have enough time to wait around for the elections to finish and the winners to take office.

First and foremost, we have the elections in Greece to replace the unelected, technocratic government that was force-fed to its people late last year. Due to the increasingly large and vehement public opposition to bailouts for the banks and austerity for the poor, politicians in the "opposition" parties must be very careful not to align themselves too much with the Troika and it’s puppet PASOK party (of which former Prime Minister Georgios Papandreou was a member).

That’s why we see the leader of the New Democracy party, Antonin Samaras, who has his eyes fixated on the position of Prime Minister (I’m not really sure why anyone wants to be the leader of Greece anymore), continuously flounder and backtrack on what exactly he will agree to in the latest austerity package that all of the bailout money has been conditioned on. Last year, Samaras refused to sign any written commitment to the terms of the austerity package, which has since expanded, before finally giving in.

That was all just a prelude to the main show which is taking place now. Samaras has once again "pledged" in writing to implement the Troika’s austerity program, but is simultaneously saying that the program may have to be adjusted once he is in office, since it does not do enough to promote growth (no kidding!). Helena Smith reports on what she was told by a top adviser to Samaras for The Guardian:

Guardian Live Blog

 

"The letter has just gone. We have no problem expressing committment to a stabilisation progam. We are all for eliminating the deficit, controlling the debt and going on with the privatisation program things that right from the beginning we proposed.

 

It [the letter] makes very clear that we have full respect for the long-term objectives, targets and key policies of the programme.

 

We also said we should modify the plan to allow for prompt [economic] recovery. We don't want to make recovery a top priority but we insist that it becomes an additional priority, that it be be applied in tandem with other policies to allow the economy to breath. Is this such an irrational, stubborn view when the [rescue] plan to date clearly hasn't worked?"

 

It's not because the objectives are wrong. From the beginning we agreed with them. But there is a missing ingredient.

 

Even if it was perfectly implemented the numbers didn't add up. We are not saying that we are against austerity but we have to change the mix and allow for recovery.

 

We are feeling a little embarassed that again and again they want us to show our committment to the plan. When we say prioritize recovery we mean we want to discuss it with them, not do anything unilaterally. Even if they allowed us to do whatever we wanted to do we would still stick to the programme."

How about those statements for floundering and backtracking?? Now that Germany, Finland and the Netherlands are kicking around the idea of delaying Greece’s bailout money until after the elections, Samaras will have to put on an even bigger show about how he will protect the interests of Greek workers and pensioners against the abrasive Eurocrats, and perhaps even promise not to sign off on the current plan. Otherwise, everyone will just assume he is going to do exactly what the Troika requires of him once he gets in office, like the PASOK party he is running against, which is quite a safe assumption.

Secondly, there are elections in France and incumbent President Nicolas Sarkozy has been steadily dropping in the polls against Francois Hollande of the Socialist Party. As of early February 2012, Hollande is almost running at his all-time high of 60% against Sarkozy. If you thought Samaras was being a thorn in the side of the pan-European austerity hawks, then take a look at what Hollande has been saying. Steven Erlanger for the New York Times reports:

French Candidate Assails Plan for Greece

 

"The front-runner for the French presidency, the Socialist candidate François Hollande, criticized European policy on Greece on Monday, saying that mandatory austerity measures were too severe and would never produce the desired results because "everyone knows" that "there is no rebound in growth in Europe and in Greece."

 

Mr. Hollande’s remarks, one day after the Greek Parliament adopted austerity measures demanded by the European Union and the International Monetary Fund, while violent protests left many buildings in Athens in flames, offered a critical assessment of European and Greek leaders’ handling of the crisis. The Greek government, he said, would "have a short life," while the austerity plan forced on Greece amounted to a "purge."

 

The French presidential race is heating up with President Nicolas Sarkozy expected to make his candidacy for re-election official this week. Mr. Sarkozy is still running behind Mr. Hollande in the opinion polls for both the first round of voting on April 22 and in a runoff on May 6. In a luncheon interview with a group of foreign journalists here, Mr. Hollande was pleasant and expansive, but remained vague on the details of his programs."

Right, Politics 101 - keep all your plans and policies for office vague and uncertain, but stay sharply critical of the current administration. Yet, that’s exactly what the markets can’t continue to handle right now – vagueness and uncertainty about the future of fiscal and monetary policy. The French sovereign bond market has so far remained relatively quiet throughout the whole crisis, except for a brief spike upwards in the 10-year yield late last year. If all of Sarkozy’s repeated promises of implementing domestic austerity come into question, though, France's credit situation could change very fast, especially since it has already been downgraded from AAA by S&P and put on “negative outlook” by Moody’s.

We also have a Spanish regional election in Andalucía on March 25, which is a bit more trivial than those above, but it still has the potential to create some major disruption in the Spanish bond market over the next month. Spain has been one of the worst hit economies during the financial crisis, with its unemployment rate reaching 23% at the end of 2011, and it has so far failed to offer the Troika any "credible" austerity plan for reducing its budget deficit. Angela Benoit reports for Bloomberg:

Spain Risks Deficit Spiral as Election Postpones Budget Cuts: Euro Credit

 

"Spain’s month-old government may postpone deeper budget cuts until after a regional election in March, adding to the risk the nation misses its deficit goal for the second year.

 

The ruling People’s Party, led by Prime Minister Mariano Rajoy, will contest an election in the southern region of Andalusia to end 30 years of Socialist rule. Spain’s 10-year bond yields have risen 10 basis points to 5.5 percent since the PP government took over on Dec. 21, increasing the rate to 359 basis points more than German bunds of similar maturity.

 

"Rajoy doesn’t want to get burnt before the Andalusian election," Antonio Barroso, an analyst at Eurasia and a former Spanish government pollster, said in a telephone interview. "They’re so crucial for the PP that it won’t take any kind of measure that would undermine its ratings in the region."

 

Rajoy needs to slice the equivalent of 3.6 percent of gross domestic product off the budget deficit this year to meet a European Union target, just as the economy may be entering its second recession in two years. Postponing steps until after the March 25 election risks undermining confidence in Spain’s ability to meet its goal, which Fitch Ratings already has "doubts" the country will reach.

 

"Rajoy has yet to explain how he will reduce the deficit when the economy is shrinking," said Georg Grodzki, global head of credit research at London-based Legal & General Investment Management, which oversees about $515 billion. "I don’t think Spain can afford to wait for more than two months at the most."

There's obviously nothing Rajoy can do to achieve a "sustainable" budget deficit in Spain while the economy contracts, and implemented austerity will only make the latter worse, but he also can’t afford to not offer up any bogus policy promises. The regional election is now getting in the way of him doing so, though, because the Spanish people are simply against any Greek-style "structural reforms" (they are not senseless and can see what has happened over there). Rajoy realizes such opposition exists, and will therefore hold off on submitting a budget until after the election. It’s entirely unclear whether the credit markets will hold off on pounding Spanish bonds into the ground, though.

Last, but certainly not least, we have the 2012 Congressional and Presidential elections in the U.S. I have suggested before that the Obama Administration, in its consistent attempts to present a rosy economic story before November 2, may have effectively killed the capacity of the Fed to "print money" through QE3 asset purchases [Who Killed the Money Printer?]. That in and of itself would be a HUGE blow to the status quo elites who are banking on the Fed to step in with at least a trillion dollars or so in easing to keep the markets happy.

But the electioneering syndrome certainly doesn’t stop there. We also have the Republican Presidential front-runners and those up for re-election in the Senate who will harshly criticize and block any and all attempts of Obama to launch any significant stimulus measures or help bail out Europe through additional contributions to the IMF. Since the Republicans control the House of Representatives, these full frontal blocks will not be hard to carry out. For example, The Hill reports on the opposition to Obama’s latest mortgage refinancing plan.

White House to push housing plan despite Republican opposition

 

"The White House has recently promised major steps to boost the housing market and help struggling homeowners, but bruising fights with Congress loom over major pieces of the plan.

 

The housing market is widely seen in Washington as still struggling in the wake of the subprime mortgage crisis, and weighing down what would be a more robust economic recovery.

 

In recent days, the White House has made a concerted effort to address the housing sector, rolling out new plans to help homeowners avoid foreclosure and boost the housing sector.

 

But while the administration can nibble around the edges and implement changes, it needs Congress and regulators to get on board with any major initiatives, and this presents significant challenges."

There are, of course, many other elections occurring around the world, but these are the "democratic" ones that could be the most disruptive to maintaining the status quo, hopium-filled market environment over upcoming months. And, as mentioned earlier, the political theater of these elections is by no means the only thing that could throw a spanner into the works. Here’s another obvious one – all of the non-existent capital that was promised to backstop the Euro periphery through the IMF, EFSF, private bondholder "haircuts", etc., doesn’t materialize! All in all, 2012 should be a very disturbing year for the extenders and the pretenders alike.

Unknown Aftermath April 1865 "Richmond, Virginia. Destroyed Richmond & Petersburg locomotive." Aftermath of the Confederate evacuation in which Richmond's business district, accidentally torched by its own citizens, burned to the ground, the flames extinguished only with the aid of the occupying Federal Army

In response to the latest suicidal austerity demands of the Troika hit squad, protestors in Greece burned a German flag while the Greek daily paper Dimokratia adorned its front page with the headline, “Memorandum Macht Frei” [memorandum makes you free]. These elements of the populace are unsurprisingly reacting to the fact that bureaucrats in Washington, Berlin and Brussels are signing away the living standards of the Greek people while telling them that it’s all being done for their own good and is absolutely necessary for peace and prosperity in Europe.

Ambrose Evans-Prichard pointed out in a recent blog post that the Troika’s plans for Greece are far worse than what was demanded of [or offered to] Germany after the second World War, and much more similar to what was demanded of it after the first one (we all know how well that worked out). In 1953, the Western powers granted Germany 50% relief on its external debts with very few conditions attached, and now Greece is struggling to get that same amount with absolutely impossible conditions attached.

The main reasons for this difference in treatment are a) Greece is not nearly as strategically important to these Western capitalist powers as Germany was back then and b) the financial elites simply cannot afford to create a precedent of debt forgiveness in the current environment of unprecedented public and private debts. What is perfectly clear, though, is that the continuously shape-shifting complex of bailout, haircut and austerity measures advocated for Greece have been destined to fail since they were first conceived.

Germany's Carthaginian terms for Greece 

The EU deal will in theory cap Greece’s public debt at 120pc of GDP in 2020 - at the outer limit if viability - after eight years of belt-tightening and depression, if all goes perfectly.

 

Since nothing has gone to plan since Europe’s austerity police began to administer shock therapy eighteen months ago, even this grim promise seems too hopeful.

 

The Greek economy was expected to contract by 3pc in 2011 under the original EU-IMF Troika plan. In fact it shrank by 6pc, and is now entering what the IMF fears could become “a downward spiral of fiscal austerity, falling disposable incomes, and depressed sentiment.”

 

Manufacturing output fell 15.5pc in December. The M3 money supply crashed at a 15.9pc rate. Unemployment jumped to 20.9pc in November, up from 18.2pc the month before, and is already above the worse-case peak pencilled in by the Troika.

 

Some 60,000 small firms and family businesses have gone bankrupt since the summer, the chief reason why VAT revenues dropped 18.7pc in January. The violence of the slump is overwhelming the effects of fiscal retrenchment. So much Sisyphean effort for so little gain.

 

You can argue that Greece has dragged its feet on EU-IMF demands - though the IMF is careful not make such a crude claim, offering mixed praise in its last report.

 

But as Professor Vanis Varoufakis from Athens University says: “If we had better implemented the measures, the worse it would be: the economy would be comatose, and the debt-to-GDP ratio would be even more explosive.”

 

So yes, like Germany accepting the terms of the Carthaginian Peace with a gun to its head in 1919, Greece signed “an insincere acceptance of impossible conditions” - to borrow from Keynes - hoping that sense would prevail with time.

But now that politicians from nearly all parties in the Greek Parliament have once again passed a ruinous fiscal austerity package (most likely without bothering to read it), as both the technocratic leader Papdemos and the “opposition” leader Samaras warned that all hell would break loose if they voted against it, the people of Greece and of the world should rid themselves of any misplaced anger and remember where all the wealth is really going - supranational bankers and corporate elites.

Bureaucrats and politicians in Athens are just as complicit as those in Berlin and in Washington, and they are all serving a higher master. It’s not the German people who are benefitting, and, in fact, they are also paying a very hefty price to keep an impossible currency union in one piece. Through the IMF and EU bailout mechanisms, Germany has already sunk tens of billions of euros into Greece for no benefit whatsoever, except buying some time for “firewall” protections from financial contagion (i.e. the ECB’s LTRO).

Even that temporal benefit is very close to running out, as German politicians have reached the point where they may be upping the ante so high that the current bailout and austerity plans will be stopped dead in their tracks and Greece is forced to leave the Eurozone (of their own volition, of course). The tone of Merkel’s administration has noticeably shifted towards strong implications that nothing Greece does will be good enough anymore. German Finance Minister Wolfgang Schauble said on Friday that “we can’t keep sinking money into a bottomless pit”.

The policy cannot command democratic consent over time. The once dominant Pasok party has collapsed to 8pc in the polls. Support is splintering to the far Left and far Right, just like Weimar Germany under the Bruning deflation.

 

The next Greek parliament will be packed with “anti-Memorandum” fire-breathers, and any attempt by Greek elites to prevent elections taking place must push street protests towards revolution.

 

In a sign of things to come, the Hellenic Police Federation has called for the arrest of Troika officials on Greek soil for attacks on “democracy and national sovereignty".

 

It is clear that Germany’s finance minister Wolfgang Schäuble wishes to expel Greece from the euro, calculating that Euroland is now strong enough to withstand contagion, and that the European Central Bank’s `Draghi bazooka’ for lenders has eliminated the risk of a financial collapse.

Schauble’s mindset and motive are much less than pure, but he is right - Greece cannot survive in the Eurozone without any bailouts or austerity, and it can’t survive with them either. Even the most measly sums of bailout money that have already been authorized to be used for the Greek people are not being delivered to them, because the Greek government is having trouble “absorbing” the funds. English Katherimini reports:

Delays in Absorption of EU Funds

 

The European Commission is closely monitoring 181 projects in Greece, for which some 11.5 billion euros will be dispersed. While much of this money is going toward infrastructure schemes, 4.3 billion euros is being allocated through the European Social Fund for projects to help with employment.

 

However, Kathimerini understands that of these 4.3 billion euros, more than 1.1 billion has not yet been absorbed despite the unemployment rate surpassing 20 percent in November. The schemes are meant to be overseen by the Education and Labor ministries but they are finding it difficult to get the projects off the ground.

 

The Labor Ministry says that the schemes it is responsible for were to be run by the OAED employment organization, but sources said that it is too weighed down at the moment dealing with the rapidly increasing number of unemployed Greeks. The total figure of Greeks without jobs passed the million mark in November.

 

As for the Education Ministry, sources said that staff shortages are making it difficult for officials to plan the programs that will absorb the EU structural funds which Brussels has made available.

The Germans must look at that and correctly assume that there is absolutely no reason for them to continue backstopping these funds for Greece, which is implicitly a bill for the rest of the EU periphery as well. They may have greatly benefitted from the all-consuming debt slaves of Southern Europe in the past, but not any longer. The only clear and efficiently carried out purpose of the bailout measures is keeping the major banks solvent as they scatter toxic assets across the smoldering remains of European and American taxpayers, and as their executives and directors continue to receive outrageous levels of compensation for nothing but negligence and fraud.

All of the major western banks are given access to virtually unlimited cheap credit at their respective central banks through ZIRP, discount loans, LTRO, etc., while the average citizens and small businesses have seen access to affordable credit plummet for years now. Thousands of these businesses, which actually have the capacity to hire workers, go bankrupt every month, while the major banks are kept out of bankruptcy proceedings at all costs. In the meantime, they can fraudulently foreclose on your home and settle any and all litigation surrounding the issue out of court in one fell swoop.

On top of that, many European banks have been at least partially nationalized and therefore have explicit guarantees from their respective governments, while those other wholly-private fat cats have to make do with only implicit guarantees. Why should the banks even care about taking a 50-70% haircut on the value of Greek bonds when the bailout funds will be directly transferred to them, their governments will be on the hook for any capital shortfalls and they can post all manner of toxic waste to the ECB as collateral for unlimited 3-year funds? These are the true perpetrators of mass injustice and exploitation in our system; our urban and suburban consumer complexes are their concentration camps.

They are the only ones who stand to gain from the systematic gutting of social safety nets and the imposition of slave wages across Europe and North America. Everyone else, including the Greeks, the Germans, the French, the British, the Americans, etc. stand to lose and lose big. The Greek people, especially, are now at a very important crossroads that will be difficult to navigate. They must stand up against the degrading farce that took place tonight in Athens behind closed doors, but they must also refrain from being swept up into anti-German, reactionary fervor. At the end of every painstaking day, only recognizing the true nature of collective oppression can make you free.

 

Arthur Rothstein Blatz on Tap Summer 1939. Butte, Montana "Men lounging in front of the Arcade"

Friday's NFP number brought us some altogether unprecedented BS from the BLS. Much has already been said about the filthy stench emanating from these "data points", so I will just review the most important points here. First thing to note is that squeezing a record 1.2 million people out of the "labor force"(people who don't waste time looking for jobs that don't exist) is apparently a sure fire way to get the headline unemployment rate down to only 8.3%

ZeroHedge, as usual, does an excellent job deconstructing the self-contradictory nonsense that is known as the NFP jobs report.

Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low

"A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million.

 

No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation.

 

As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing."

 

 

   

To make matters much worse, the number of long-term unemployed (27 weeks or longer) remains at a very high level of ~5.5 million and youth unemployment remains at 23%. And only 10% of the headline increase in jobs was due to additions for full-time employment, while a record 700,000 part-time workers were hired in January. ZeroHedge also follows up with a great analysis of the seasonal adjustment mechanism used by the BLS to turn manufacture millions of jobs out of thin air and turn a miss of expectations into a massive beat.

 

Explaining Yesterday's Seasonally Adjusted Nonfarm Payroll "Beat"

 

"What is very notable is that in January, absent BLS smoothing calculation, which are nowhere in the labor force, but solely in the mind of a few BLS employees, the real economy lost 2,689,000 jobs, while net of the adjustment, it actually gained 243,000 jobs: a delta of 2,932,000 jobs based solely on statistical assumptions in an excel spreadsheet!

 

So how does this data fit in specifically in the context of the just passed NFP whopper of a number? Simple. The chart below shows the January seasonal adjustment for the past 4 years, since 2009. The number of jobs added for "seasonal" purposes to the NFP number were as follows: 2009 - 2,006,000; 2010 - 1,970,000; 2011 - 2,129,000, and the all important 2012: 2,146,000.  

 

Once again, this is the number added to the NFP unrevised baseline to get a "final" number which is then blasted to the media. The chart below shows the historical January adjustment, to the NFP data, as well as the 2012 reported adjustment, and also what the statistical adjustment would be for the NFP number to have the NFP number come in line with expectations of a 140,000 beat.

 

Here is the kicker: the market mood yesterday would have been far more somber if instead of a seasonal fudge-factored statistical addition of 2,146,000 jobs, the BLS had decided on a number that is merely the simple average of the statistical adjustment of the past 3 years, which comes down to 2,035,000. In fact, had the BLS used this seasonal adjustment, the final NFP headline number (SA) would have been +132,000, or a miss of expectations of 8,000 (the Seasonal Adjustment number to get to consensus January expectations would have to be +2,043,000 to the NFP number).

 

In other words, the difference between a + and - 2% move in the stock market is based on less than a 5% variation to the entire January seasonal adjustment, as had the BLS add just the simple average, the BLS report would have been a disappointing miss, and the market would have likely dropped (although with 5 momos in charge of the entire market, the thesis would have likely promptly shifted to "more QE coming" so who really knows)."

 

 

   

The combiniation of a horrendously exclusive "labor force" definition, extremely weak internals and a goal-seeked seasonal adjustment (significantly higher than recent average) make the NFP report the most highly manipulated and misleading piece of work to come oozing out of Obama's Administration yet. And Karl Denninger does a few more calculations to determine that, not only was this not a very good employment report as claimed, but it was actually the worst since January of 2009!

 

Employment Report: Blatant And Outrageous Lies 

 

"Indeed, the total number of employed persons fell. A lot. To put a number on it, the total number of employed persons fell by 737,000 by actual count.

 

Now the cheerleaders will state that this is a common thing in January, and indeed it is. But the correct adjustment is to look at the population increase and subtract that back off as well. In other words, we take the loss of employment and add the population growth. When we do this we get a whopping 2.422 million in the wrong direction which was bested only by the -2.618 million in January of 2009 through the process of this downturn!

 

In fact other than January 2009 there has never been a single month in my table, which dates back to 1999, that put up a worse combined number. This "performance" rates a literal "second from utter despair and disaster", and the employment rate shows it:"

 

 

   

This sort of aggravated manipulation/miscontruction will become commonplace in the months ahead of November’s elections and it does carry real consequences, beyond simply buying a few points with the market. Sports radio pundits are reporting that some 5 million (!) Americans are going to buy new televisions to watch The Superbowl, and jobs reports such as this one will give them unjustified comfort when making such horrible decisions.

Why put off a several hundred dollar purchase on credit when you are confident that there are plenty of jobs waiting for you or that your current job is safe? Why not take out a few loans from Sallie Mae and enroll in that graduate program when the economy is in full recovery mode? The people lured into consumer-friendly complacency by these faux reports and the media lackeys who shill for the status quo will have a very rude awakening when all their bills come due, and it turns out the jobs were never there to begin with.

Yet, there is also a growing section of disenfranchised Americans who will be forced to trust their own lying eyes and [lack of] paychecks over the juked statistics from federal agencies or Jim Cramer's insufferable blather. Perhaps the biggest consequence of these manipulations will be to completely undermine confidence in the crony corporatist establishment. Still, it may take some more time for the harsh realities of Depression to set in across the all-consuming middle-class of America, which starkly contrasts with the situation in Europe.

Say what you will about the Eurocrats – they are power-hungry shysters who work through endless circuits of Summits and acronymous funds, turning their citizens into full-blown debt slaves just so they can keep the current crop of banksters and politicians in power, while the latter bumble, tumble and stumble towards any temporary “solution” to be had, no matter how useless, unjust or counter-productive it is – BUT they do produce much more legitimate economic and financial data than their American counterparts.

They still offer a hint of transparency to their citizens; something that has been utterly stripped away from the American populace over these increasingly painful years. There is no doubt that the peoples' plight is much more acute in Europe right now, where many of those living in the periphery are struggling to make ends meet every hour of every waking day. Eurostat gives us the latest unemployment data for the EU-27 and the Eurozone (17), and it’s grim.

Unemployment Statistics

"Eurostat estimates that 23.816 million men and women in the EU-27, of whom 16.469 million were in the euro area (EA-17), were unemployed in December 2011. Compared with November 2011, the number of persons unemployed increased by 24 000 in the EU-27 and by 20 000 in the euro area. Compared with December 2010, unemployment increased by 923 000 in the EU-27 and by 751 000 in the euro area.

 

The euro area seasonally-adjusted unemployment rate was 10.4 % in December 2011, unchanged compared with November 2011; it was 10.0 % in December 2010. The EU-27 unemployment rate was 9.9 % in December 2011, also unchanged compared with November 2011; it was 9.5 % in December 2010.

 

Among the Member States, the lowest unemployment rates were recorded in Austria (4.1 %), the Netherlands (4.9 %)and Luxembourg (5.2 %), and the highest rates in Spain (22.9 %), Greece (19.2 % in October) and Lithuania (15.3 % in the third quarter of 2011).

 

________

 

In December 2011, 5.493 million young people (under 25) were unemployed in the EU-27, of which 3.290 in the euro area. Compared with December 2010, youth unemployment increased by 241 000 in the EU-27 and by 113 000 in the euro area. In December 2011, the youth unemployment rate was 22.1 % in the EU-27 and 21.3 % in the euro area. In December 2010 it was 21.0 % and 20.6 % respectively. The lowest rates were observed in Germany (7.8 %), Austria (8.2 %) and the Netherlands (8.6 %) and the highest in Spain (48.7 %), Greece (47.2 % in October) and Slovakia (35.6 %)."

 

 

 

   

These levels of youth unemployment are obviously a recipe for disaster, economically and socially. EU peripheral nations are tasked with growing themselves out of severe, structural deficits, but the figures above, among many others, tell us just how unrealistic that has been all along. Spain wants to cut its budget deficit nearly in half over two years when close to a quarter of its population, and almost half of those under 25, are not earning a regular income.

If the Troika and Mariano Rajoy get their way and spending on healthcare, education, etc. is gutted across Spanish regions, it will be even harder for any of these people to find employment, pay off various debts and consume at anything close to levels that sustain growth. The numbers put out by the EU may be more accurate than those pubished in America, but that’s little consolation to the men, women and children across the Continent who those numbers represent.

I’d like to get back to the BLS’ latest propaganda, though, and point out one other very important consequence of the report. It appears the rabid momentum chasers are once again picking up pennies in front of a gigantic steamroller, since everything in Europe is still as uncertain and unstable as it ever was and, on top of that, the bogus U.S. data may have just killed the one thing that investors have been taking to the bank for many months now – large asset purchases by the Fed.

I wouldn’t go so far as to say that some scale of QE3 has been “priced in”, but it is clear that the markets are now thoroughly addicted to credible promises of cheap, never-ending liquidity; or, as they would tell you in AA meetings, one sip is too much and one trillion sips are never enough. The problem for them now is that there is very little credibility left underlying the Fed’s “promises”, thanks to the complete joke of a jobs report produced by the incumbent politicians guiding the BLS.

With unemployment data suddenly showing massive improvement above expectations last month (and the non-manufacturing ISM reporting price increases across several commodities), the U.S. government has placed itself back in a position where there is simply no justification for any monetary easing. The Administration will continue to goose any and all economic data it can get its hands on going into elections, which will make it that much more difficult for the Fed to act, which, in turn, will make it very difficult for the market to keep up its appearances.

I believe it would be a mistake to assume that this fact has been lost on large money managers, as the following snippet from The Guardian Blog suggests.

 

Guardian Live Blog  

 

"The drop in the unemployment rate to 8.3% means it is at the lower end of the Federal Reserve's forecast range - which could provide fuel to those in the Fed who want to hold back from further measures to boost the economy. Joshua Raymond, chief market strategist at City Index, said:

 

'This is a really stellar set of numbers and has surprised many who had expected a slowing of jobs growth after the December holiday period.

 

The jobs figures paint quite a different picture to the tone of voice used by the Federal Reserve last week, which applied a somewhat dovish tone towards US growth expectations. This naturally poses the question what are the Fed seeing further down the path that the market isn't right now?

 

And what's more, a stronger than expected labour market goes directly against the rational to increase asset purchases through quantitative easing, and this may pose a somewhat negative impact in the medium term for those investors that had factored this into their trading.'

 

Within the figures private sector jobs rose 257,000 while government jobs fell by 14,000, compared to expectations of a 20,000 drop. The increase in non-farm payrolls is the biggest since April 2011."

 

We could call it the mirror image of 2009-10, when all that mattered to the American political and financial elites was goosing the markets to manage perceptions of economic health and churn trading profits. As housing, jobs and manufacturing data naturally worsened (with exactly zero jobs created in August 2011, later revised slightly upwards) and the electioneering switch was flipped, the politicians have taken precedence over the bankers and are manipulating the source data with the belief that the markets will naturally play along.

What the politicians fail to understand is that the feedback between the real economy and the markets, to the extent it existed, has been irreversibly corrupted over the last few years through centralized intervention. You can goose all the data you want, but the increasingly fewer traders [or robots] that make up "the market" these days only want one thing – more monetization of debt. And, until now, most of them have been too clueless to figure out that unrestricted printing of money is not a guaranteed outcome in 2012.

This is something that TAE has consistently pointed out for quite some time now, while others have declared that money printing is the end all and be all of the system. Ultra-loose monetary policy and some form of printing will be a staple feature of our world for some time to come, but let’s remember that the financial system is not isolated from the sociopolitical system or vice versa. Both the probability and effectiveness of money printing will hinge on numerous variables, three of the most important being systemic deleveraging, social confidence/mood and political manuevering, and all three of those are coming to a head this year.

Unknown Dreaming of great fortunes 1858California gold miner joining the British Columbia goldrush

After the Fed’s latest announcement on January 25, in which the central bank said very little more than the obvious ("exceptionally low" fed funds rate at least through late 2014), we have returned to typical speculations about how much “money printing” (or quantitative easing) by central banks we will see in upcoming months to accompany these low rates. Perhaps the Chief Speculator is Tyler Durden at ZeroHedge, who never backs down from an opportunity to re-assert (or manufacture) the near-term bullish arguments for gold. This article will review some of the more notable and ridiculous opportunities seized over the course of only a few day following the FOMC release. Each one was a relatively short and sweet post that showcased a nifty-looking correlation chart. I do realize that Durden wasn't claiming any of these posts as an extensive and irreproachable analysis, but the fact is that he decided to put them up for a reason. Soon after the Fed’s announcement, ZH ran the following headline and analysis [emphasis mine]:

Market Now Pricing In $770 Billion Increase In Fed Balance Sheet As we have pointed out previously, the primary if not only driver of relative risk returns (because in a world of relative fiat value destruction, it is all relative, except for gold which is revalued relative to all on a pro rata basis), will be who of the big two - the Fed and the ECB - can print more. And up until now, at least since the end of December when the market "suddenly" realized that the ECB's balance sheet has soared to unseen records, the consensus was that it was the ECB that would be the primary source of easing. Especially when considering that there is another ~€500 billion LTRO due on February 29. Yet today's rapid reversal in the EURUSD, driven by Bernanke's uber-dovish comments suggest that something has changed and that the Fed is now expected to ease substantially. How much? For that we look to the latest balance sheet cross-correlation, where if we go by simple correlation, the market is now pricing in (based on the EURUSD cross ratio) that the relationship of the two balance sheets will rise from a multi year low of 1.08 as of a few days ago to 1.15, at least based on the rapid move in the EURUSD higher as can be seen in the chart below. Indicatively, the actual value of the two balance sheets is €2.706 trillion for the ECB and $2.92 trillion for the Fed (or a 1.08 ratio). So now that the EURUSD has risen as high as it has, it implies that the pro forma "priced in" ratio is about 1.15. But wait: one should also factor in the fact that the ECB's balance sheet will rise by at least another €500 billion in just over a month, which will bring the ECB's balance sheet to €3.2 trillion. Which means that to retain the 1.15 cross balance sheet relationship, the Fed's own balance sheet will have to rise to $3,687 billion, or a whopping $767 billion increase!"

Essentially, he is saying that the reaction in the EUR/USD pair after Bernanke’s statement had implied that the movers and shakers in the currency markets expected the dollar to be devalued by the Fed in the near future through quantitative asset purchases. Since the pair moved to levels that "imply" a ratio between the size of the Fed and ECB's balance sheets higher than currently established (based on loosely-correlated movements over the course of 2 years), and the ECB is expected to unleash at least another €500bn next month, we can project that the Fed will unleash a response of $767bn (or thereabouts). To Durden’s credit, he provides a partial explanation of why we should probably dismiss this entire train of thought in the very next sentence that he writes.

Naturally, that's a simple heuristic based on only what the EURUSD pair is implying. Of course, this is not a scientific way of predicting where Bernanke will go, but that is at least what the market seems to be telling us.

To only say that this mode of prediction is non-scientific is to do all forms of non-scientific economic analysis a huge disservice. It is patently ridiculous to think there is any connection whatsoever between the immediate reaction of a currency pair to a Fed announcement and either the expectations OR the actual value of future asset purchases by the Fed (even ignoring the fact that Bernanke's comments were not much more "uber-dovish" than they have ever been over the past year). It is much more likely that the EUR/USD has simply been moving with the perception of financial risk in the Eurozone this whole time, and perhaps with the expectation of ECB “money printing” since mid-2011. The markets' perception of risk is most certainly tied into the Fed’s QE asset purchases (or the lack of them in 2H 2011) during waves of greed/fear, but all of that is a very far cry from the currency pair acting as a predictive indicator of money printing. Durden almost admits as much above before reverting back to his goal-seeked analysis in pursuit of a predictable conclusion.

So at the end of the day, the balance sheets of the world's two biggest central banks will increase by about €500 billion for the ECB and ~$770 for the Fed and $655 billion for the ECB. Incidentally, this analysis assumes all else equal which, with Greece on the verge of default and Portugal potentially in its footsteps, isn't... Thus our question is: gold is not on its way to $2000 yet why again?

It is really unfortunate that such an informative and clever site occasionally feels forced to produce such weak arguments in favor of, what else, gold. The truth is that no one can be certain when Bernanke will decide to pull the trigger on QE3 or how much the Fed’s balance sheet will actually be expanded in nominal terms or relative to the ECB’s balance sheet, and analyses such as the one above provide us with no clearer picture of those possibilities than we had before. It only serves to confuse the issues at hand and provide us with a sense of predictive confidence that we simply can’t have. What we do know is that the Fed’s perpetually low interest rates and the potential for another few hundred billion in QE are very unlikely to make a dent in the ongoing global deleveraging tsunami, and therefore the natural flight to safety away from currencies such as the Euro for U.S. Treasuries and the U.S. Dollar. That is even truer if the ECB floods the European banks with another €500b to €1tn of LTRO funds in February, since very little of that money will actually make it to the distressed consumers, businesses and sovereigns that need it the most. The next day, ZeroHedge asked semi-rhetorically whether Bernanke has become a “gold bug’s best friend”. The logic contained within this brief analysis is similar to the one presented above, as it tries to connect the Fed’s statement and Bernanke’s comments on Wednesday to the subsequent positive returns of gold (and “implicitly silver”) over the 24 hours that came after [emphasis mine].

Has Bernanke Become A Gold Bug's Best Friend? Below we present the indexed return of ES (or stocks) and of gold over the past 24 hours since the Bernanke announcement of virtually infinite ZIRP, and the latent threat of QE3 any time the Russell 2000 has a downtick. It is unnecessary to point out just when Bernanke made it all too clear that the Fed has nothing left up its sleeve, expect to directly compete with the ECB over "whose (balance sheet) is bigger," as it is quite obvious. What is not so obvious, is that for all intents and purposes, Bernanke may have unwillingly, become a gold bug's best friend, as gold (and implicitly silver) has benefited substantially more than general risk. Much more. So for the sake of all gold bugs out there, could the Fed perhaps add a few more FOMC statements and press conferences? At this rate gold should be at well over $2000 by the June 20 FOMC meeting.

Granted, the first bolded statement above is quasi-hyperbole, but, then again, it’s not. ZeroHedge and others have been identifying the “latent threat of QE3” in the Fed’s various statements since the early days of 2011, well before QE2 even ended, which may as well be "any time the Russell 2000 has a downtick". The reality is that the Fed has no other choice but to leave open the possibility of further monetary easing in the near future, because otherwise it would be responsible for an uncontrollable downward cascade of markets around the world. And if one is looking hard enough to be vindicated for consistently repeated predictions of money printing to, as Buzz Lightyear would declare, “infinity and beyond”, then one will certainly find latent threats of such printing contained within almost all of the statements released by almost every central banker in the world. What’s much more disturbing is the notion that knee-jerk market reactions to these statements by precious metals (which is fittingly compared to “general risk” in the graph) are somehow indicative of a sustainable price trend. In the next paragraph, we get the caveat that it is not all “smooth sailing” for gold, because rumors of CME margin hikes or actual hikes could surface at any moment and destroy the otherwise developing moonshoot in gold and silver. That’s actually not really a caveat as much as a re-assertion of the flawed premise that market demand for PMs is indestructible outside of centrally-coordinated “takedowns”. What they don’t mention is that debt deleveraging (something quite prevalent these days) is the equivalent of demand destruction, and that’s all a margin hike really is. To top off a series of highly flawed and misleading analyses, Durden follows up the next day with a posting in which he states that Tim Geithner has been added to ZeroHedge’s list of “best Goldbug friends”. Why, you ask? Because there appears to be at least some correlation between increases in the U.S. debt ceiling and increases in the price of gold over the last 10 years. Therefore, the latest increase of $1.2tn in the debt ceiling means Geithner can spend more money for at least a few more months, which means gold can keep going up!

Tim Geithner Added To List Of Gold Bugs' Best Friend

Today we note that it is not only the Fed, but the US Treasury, and specifically the ravenous Mr. Geithner, who just got a green light to issue another $1.2 trillion in debt, and bring total debt to $16.4 trillion, which would still be 107% of today's GDP (which we don't see growing much if at all over the next year), that can be added to the list of best Goldbug friends. As the chart below demonstrates quite vividly, in addition to global and local monetary expansion, the price of gold tends to correlate quite well with the US debt ceiling. Which means that per yesterday's Senate 52-44 vote authorizing Timmy to go hog wild (which in turn means that Bernanke will have to step in and monetize much of this new debt issuance), the price of gold just got a green light for at least $250 in upside - the implied price just got raised to $1960. Of course, anyone who thinks the US will stop issuing debt there needs a brain MRI stat. Thank you Senate. And thank you Timmy. And, of course, thank you Ben.

Frankly, I don’t see much of a correlation until at least 2005, besides both the debt ceiling and price of gold steadily increasing over the last decade, which should be no surprise for either of them (excluding the sharp declines in gold price during risk-off phases of 2008 and late last year). To the extent a meaningful correlation does exist, there is really no reason to infer any sort of causation when a whole slew of variables independent of the debt ceiling can explain why gold has generally been on the rise since 2009, including all of the policies that have suppressed the dollar (such as low interest rates and monetization of MBS/Treasuries). Of course there is a connection between the government spending/borrowing and the Fed monetizing debt in unprecedented amounts. The USG already made clear it would be spending/borrowing this money last year (and more), and of course it will end up becoming a huge problem for the U.S. and its currency down the line. How exactly any of that, or this specific instance of Congress raising the debt ceiling, translates into a “green light” for gold to reach $1960/oz. soon is a very different story. It is a story that really has no credible basis in reality and serves only to support a pre-determined objective. Among the plethora of very useful reports/analyses produced by ZeroHedge on a daily basis, these brief postings may not seem like such a big deal. However, they represent a goal-seeked mentality and modus operandi that is frequently on display within the HI/gold crowd and can lead to very misleading conclusions. I can’t be certain, but I’m pretty sure we will see many, many more postings like the ones above over the course of this year, and they will appear almost exclusively when it comes time to discuss gold. None of the above is meant to suggest that the price of gold will plunge into the abyss in the near future, but it is meant to suggest that there are significant risks of gold failing to hold its current valuations around $1700/oz, let alone reach $2000/oz and beyond. These risks are especially formidable when we stop pretending like the Fed, ECB, Bernanke, Geithner or anyone else is in a good financial or sociopolitical position to halt the upcoming waves of debt deflation. We here at The Automatic Earth only ask that you keep these risks in mind as you continue to read and contemplate your future allocations of cash.

Detroit Publishing Co. Curb Market 1905 "New York City, Broad Street exchange and curb brokers"

Ilargi: In a nice coincidence, while Nicole Foss (Stoneleigh) wrote about decentralization a few days ago in The Storm Surge of Decentralization, today Ashvin Pandurangi, independently from Nicole, also focuses on that theme, albeit from a completely different angle.

Perhaps even from the 180 degree opposite angle: it's precisely because the 1% push so hard for centralization that it's crucial for the 99% to push back and decentralize. And it's precisely becauseour economic models exist only by the grace of growth unchecked that we need to get out and take a step back, or that growth will surely eat us alive.

It's exactly like Arthur Miller's Willy Loman, as quoted by Ashvin, says: "After all the highways, and the trains, and the appointments, and the years, you end up worth more dead than alive".

That's what societies founded on perpetual growth and its inevitable companion, centralization, end up doing to 99% of their citizens: they degrade and pervert their dignity, their lives, and their value. In that sense, decentralization marks the beginning of a return to our true human potential, since it restores the values and dignity that make our lives worth living.

Unfortunately, today most of the 99% will not recognize this, and if they did it would scare them senseless, so they help push the growth paradigm forward even as it's gnawing at their bones. Life as a cog in a machine is the only life they've ever known. What else could there be? When you're told a hundred times a day that you live in the land of the free, what's not to believe?

It's high time we begin to understand to what extent the interests of the politicians and bankers and CEOs that we allow to make our decisions for us (read: against us), differ from our own. But since our education systems and media have denied the very existence of any such difference all of our lives, this understanding will be very hard to come by for 99% of the 99%.

 

"After all the highways, and the trains, and the appointments, and the years, you end up worth more dead than alive." -Arthur Miller, Death of a Salesman

Ashvin Pandurangi: The word of the last few centuries is centralize. That's what "institutions" do, whether they are technically financial, political, educational, "corrective", religious or medical; private or public. Those labels are largely irrelevant when you want to understand the fundamental nature of an institution. They are simply structured hierarchies of distributed power that strive to grow larger and more influential with each passing day.

Perhaps they are trying to influence the outcome of an election, the direction of foreign policy, the prices of a market, the focus of scientific research or the psychology of society's youth, but, rest assured, they are trying very hard to influence something. Some institutions are much more influential than others, and typically these are the most self-serving.

These institutions are also inherently self-limiting structures; fractal constructs that are self-similar and limiting at every scale, right up to that of our global economy and civilization. They never freely compete with each other to reach some generally productive equilibrium, but rather coerce their respective sectors to become more and more dependent on their functions over time.

By exercising more power and influence in a given field, they crowd out both their own opportunities for further expansion and the opportunity of other institutions to enter the sector and grow. The world's "too big to fail" financial institutions have clearly demonstrated how a few giant players can grow so large to threaten the collapse of the entire global economy when they can no longer grow.

The current crises of capitalism also demonstrate a rapidly progressing, yet age old trend which reveals the strategy of almost all of society's "industries" and their respective institutions - boundless aggregation. One of the major pieces of propaganda in today's financial world is that increasing mergers & acquisitions ("M&A") activity is a sign of growth and health in the economy.

It is, in reality, a sign of desperation and a harbinger of decreased resilience (a.k.a. "impending doom"), and that becomes quite clear when we consider the type of M&A activity that has been occurring over the last few years. Relatively large companies are suddenly finding themselves in a position of pure desperation, where they must either combine with other companies through some legal process or die.

I recently met a guy who was finishing his second year in Wharton Business School at the University of Pennsylvania, and had an internship position with an unnamed investment banking firm. He told me that his responsibilities at the firm were related to conducting "fairness opinions" for corporate clients that were involved in merger deals and wanted to insulate themselves from shareholder liability (if the bankersays it’s a fair deal, then it must be).

He also told me that M&A activity had unsurprisingly slowed down immensely since the onset of the "recession", in terms of total valuation of deals, but that it was markedly off its lows in 2009 and there were still many companies pursuing deals because they simply have no other options to remain viable. Many of these deals are increasingly conducted at the international scale, since domestic markets have already been picked clean to the bone.

These are mid-sized companies in manufacturing, IT, telecommunications, retail or services with a depressed consumer base, relatively high debt to equity ratios and very little ability to access the credit markets and obtain affordable financing; the institutions that have struggled for years to become "successful" business operations, but are now nothing more than basement bargains for much larger institutions.

They are the last remaining dust particles of competition within those industries, waiting to be vacuumed up as soon as the slightest window of opportunity presents itself. These opportunities are pervasive in the current volatile environment, where share prices of public companies are frequently pummeled down in tandem and the markets remain in an indefinite state of uncertainty due to opaque asset valuations and government policy.

As a targeted company's share price continuously comes under pressure, it becomes more vulnerable to "hostile takeovers", since it is cheaper and the larger acquiring company holds significantly more leverage, literally and figuratively, with the company's shareholders (which typically include its executives and directors). The latter must hastily decide whether to remain independent and hope for a miraculous recovery, or give in to a proposed merger.

As soon as the deal is announced and before it is even finalized, share prices could stabilize and increase on expectations of "synergies" from centralization (a.k.a. "a temporary bailout"), but only afterthe small-time, passive investors have already jumped ship. Indeed, it is no coincidence that U.S. M&A activity picked up in 2009-10, right in time for the Fed's QE asset purchases and the stock market rally. Companies who have remained off of public exchanges are by no means immune to this scourge of centralization, either.

That fact has become especially true in recent years, when "private equity groups" re-surged as a popular and relatively discreet vehicle for institutional investors (such as pension funds) and extremely wealthy individuals to conduct leveraged buyouts of various companies around the world. Ironically, the private "equity" group typically uses substantially less than 50% of investor equity in the buyout, and finances most of the deal through debt.

Dan Primack for CNNMoney reported on M&A trends in early 2011.

Report: 2011 M&A gaining on 2007 record-breaker "The 2011 total represents a 58% increase over the same period in 2008, inclusive of a 52% increase in private equity-sponsored transactions. About half of the deal volume is for U.S. targets (up 36%) and around one-quarter is for European targets (up more than 100%), while both emerging market and cross-border deals experienced declines.

Energy and financials were the leading sectors, although materials experienced the largest year-over-year growth (see chart). Financials were sparked by the $59 billion restructuring for AIG -- a deal whose inclusion here is questionable -- while energy got a boost from Duke Energy agreeing to buy Progress Energy for $26 billion. Those are the first and third-largest so far in 2011, sandwiched around AT&T buying T-Mobile for $39 billion.

Graph: Fortune; Source: Thomson Reuters On the private equity side, the largest deal is Blackstone Group's (BX) agreement to acquire the U.S. shopping mall assets of Australia's CentroProperties for $9.4 billion. It's followed by Apax Partners buying Smiths Medical for nearly $3.9 billion and Clayton Dubilier & Rice taking Emergency Medical Services private for $2.9 billion.

In a separate report, S&P Leveraged Commentary & Data reports that leverage multiples for large deals have climbed half a turn to 5.2x -- lower than the heights of 2007, but besting 2008, 2009 or 2010.

Since private equity funds are illiquid investment vehicles that require long-term commitments, much of the capital invested during the boom of the mid-2000s is still in the process of being deployed, despite the horrendous macro-economic situation. Small to mid-sized companies can neither run nor hide from the slithering tentacles of leveraged capital seeking returns, which have only increased in length since 2010.

It should be pointed out, though, that the massive $39 billion deal between AT&T and T-Mobile has recently fallen apart, costing the former $4 billion simply to walk away from the deal. Even the highly-conflicted Federal Communications Commission and Department of Justice couldn’t ignore how damaging this monopolistic merger activity would be to the telecommunications industry, and therefore they decided to block the deal. [1]. That’s the official story, anyway.

Now that we have reached the end of 2011 and the European sovereign debt crisis has reached a crescendo from which there is no turning back, M&A volumes are once again being pummeled down as they were in 2008. Once again, though, we are talking about total valuation of deals and not necessarily the number of mergers and acquisitions that will be taking place in 2012.

Helen Thomas and Anousha Sakoui of the Financial Times report on the opportunities for further centralization of corporate assets:

Collapse in M&A Amid Debt Turbulence "Fourth-quarter M&A volumes fell 32 percent to $375.3 billion from the previous three months, led by a 41 per cent decline in Europe. The drop, combined with a pullback in equity issuance amid turbulent markets, contributed to an 8 per cent fall in investment banking fees to $72.6bn for 2011, against 2010.

In Europe, fees totalled only $2.57 billion across all products, the worst quarter since records began at data-provider Thomson Reuters in 2000. "Volumes in equity and debt capital markets and M&A in 2012 are likely to be challenged, but with a crisis comes opportunity," said Manuel Falco, co-head of European investment banking at Citigroup.

"There will be huge opportunities in the public sector to acquire state-owned assets, and companies will need to issue equity [for] defensive [purposes]. The crisis presents the best buying opportunity for acquiring a company in Europe."

Should we be surprised that the wholesale destruction of European economies is described as presenting the "best buying opportunities" in history? Perhaps we should call them the "best opportunities for institutional cannibalism in all of history". This centralization process does not only take the form of "voluntary" mergers, especially in present times, but more often results from bankruptcy filings that force companies to liquidate or restructure their assets.

There have been quite a few examples of this dynamic in the world of high-stakes international finance over recent years, and there are many more to come. While the number of actual US "bank failures" in 2011 reached a 3-year low of 90, perhaps due in part to the pickup in financial merger activity noted above, the number of "problem banks" listed by the FDIC has remained pretty much constant over this same time period.

The largest, most recent victim of the global debt crisis was MF Global, a large broker-dealer, which was bankrupted and is in the process of being liquidated. Many of MF Global’s European sovereign debt assets were already sold off to investors such as George Soros and JP Morgan at huge discounts (5%) to fair market value. [2]. There are also claims that MF Global fraudulently filed Chapter 7 as a securities broker, rather than a commodities broker, to give major creditors access to the company’s cash before its clients.

So as the lower and upper "middle class" citizenry of the developed world are being rapidly digested in the acidic bowels of financial capitalism, the "big, yet not quite big enough" institutions are systematically having their "assets" aggregated on the books of a few supranationalgiants at not only cheap prices, but through illegal transfers and illegally discounted prices. As the weak wither and die, the strong draw lots to see who among them will be devoured first (JPM and Goldman always draw the biggest straw).

Whether it's Bear Stearns and Lehman handed over to Barclays and JP Morgan for a pittance, a large telecommunications provider targeted by AT&T, a few executive agencies rolled up into the Federal Reserve via Dodd-Frank or MF Global’s assets auctioned off at discounts to Soros and JPM, there is very little choice in the matter for either side of the deal. Either you submit to the "mercy" of centralization, or you are shoved out of the "market" and lose every speck of institutional value you had left.

Make no mistake, these are not rational economic actors acting in the best interests of their stakeholders and maximizing long-term institutional value, but desperate, irrational and short-sighted actors coerced into deals for a quick payoff. The low-level employees and mid-level managers of the acquired institutions usually find themselves joining a line in the local unemployment office or perhaps attending a "networking seminar", designed to create the illusion that they remain important to the system.

Meanwhile, there are millions of new, starry-eyed faces that have been spewed out of various "educational" institutions, wading tens of thousands deep in debt, who are now "willing" to work longer hours for much less salary and fewer benefits. Your degree, work experience and interpersonal skills mean next to nothing, because there is simply no more room for your specialized "credentials" in the institutional system.

As the unsurprisingly misleading chart from the BLS shows below, "mass layoff events" (at least 50 initial claims for UI filed against an institution in a 5-week period) have hovered around 1500/month for the last two years. [3]. Initial unemployment claims are generally revised upwards after initial publication and still remain well above what is necessary to actually improve the unemployment situation. Expect these mass layoffs to only get worse in 2012.

As noted above, much of this shake-up is occurring in the financial industry right now, where large banks are shedding assets like skin cells to raise capital, and of course this process starts with the only asset that can’t afford to be shed, their low to mid-level employees. The graph constructed below only captures those banks which have announced mass layoffs over the next year or so, and both the number of banks and number of planned layoffs are sure to increase as the year progresses. It is also important to remember many of these banks already conducted mass layoffs in the shake-ups and restructurings of 2008-09.

The only thing that matters now is how much of an institutional slave you can force yourself to be, which means lower wages for more hours and no benefits; unless, of course, you can count yourself among the entrenched class of the top 1-5%. These corporate directors, high-level officers and government officials, who bled their respective institutions dry, will typically secure positions in an acquiring institution. That, or they will secure a similar position at another large institution somewhere in our global society, only a private jet ride and a gated complex away.

At the very least, they can retire with a healthy severance package and/or pension, start up a "non-profit" organization and invariably use it as a front for a corporate interest lobby. Most of the small and mid-sized clients/customers in these industries are also squeezed like the small-fry employees, because they are not benefiting from "economies of scale", but instead are paying for the privilege to access the centralized market. Nowhere is this fact more evident than in the financial industry, where individual and small business debtors are charged ever-more interest and have to put up ever-more collateral to obtain credit and/or rollover obligations.

While the effect of the institutional squeeze is to generally depress wages and asset/consumer prices, the effect of that depression is to eliminate choices and make everything much less affordable. Meanwhile, the unfortunate (and relatively large) clients of failing institutions such as MF Global have their funds outright stolen from them and transferred to large institutional creditors who were engaged in "repo" lending and derivative trades with the now bankrupt entity.

Welcome to the world of exponential centralization, where 99% of the population reeks of desperation and the other 1% personifies destruction in the form of "synergistic" acquisitions. The latter will inject a few more drops of lifeblood into the heart of ponzi-aggregation capitalism, but it too is rapidly losing its ability to create the illusion of economic stability and growth. That driving force of capitalism, capital, has become much too scarce for the centralization ponzi to continue outside of direct totalitarian force.

The largest institutions are clearly the least flexible to "new and unexpected" conditions that will arise, and therefore are the most acutely vulnerable to "black swans" and systemic shocks in the near-term. When, not if, some politician, bureaucrat or banker takes one wrong step on the tightropes stretching across every line of latitude from the North to South Pole, look out below. Despite what we are told, nothing material of man is immortal and we only get one chance to survive this world. Our global institutions already blew theirs many years ago, and most are now worth much more dead than alive.