Mike Shedlock - Reflections on Conspiracy Theories; True Meaning of Banking Safely
Posted: 9/23/2013 10:46:00 AM EST

I received several emails regarding my post on Risk-Free Banking and Fractional Reserve Lending that I would like to share.

Reader Alice who travels the world at a ripe young age of 89, says ...

Hello Mish

It is wise always for professionals to stand aside from conspiracy theories, There is no sense compromising the future because the past misread the tea leaves.

Bernanke is doing what he was appointed to do....keep the money coming for the US Government to spend, thereby monetizing all expenditures no matter the purpose.

The growing call from citizens for some form of fiscal sanity is beyond the purlieu of the Fed. It never was established to settle accounts, or keep them within bounds.

The founder of modern international finance, Amschel Rothschild, gave the aims and direction of his enterprise simple instruction when he declared he cared not what governments did, all he wanted was the right to control, print their money. Governments took him at his word and his business grew exponentially so he must have been doing something right or as Lloyd Blankfein said "doing God's work!"

Bernanke knows Obamacare may be "defunded" and other excesses curbed, and he doesn't like that. His stewardship of the Fed is not to maintain status quo but to expand its power, its "credit" base worldwide, to continue the momentum his predecessors started. He doesn't have to curry favor with politicians, since they love to spend and he provides the means to do so across national borders and in all commodities sold worldwide. So long as that function maintains any semblance of order, the Fed goes on and on, gathering more followers in every year.

I would love to see a return to "sensible accounting" but I am hard pressed as to what constitutes "sensible" these days. When I began investing, one looked at the real property on balance sheets. In today's tech driven world, the definition of value is more cloudy than ever before, especially since all transactions and exchanges are literally fabricated from thin air and deposited in "The Cloud".

The third dimension is printing money as if it was a magic wand to create everyone's dream.

All I know is that when I travel the world, (and I do every year) I see people who have never lived so well in any other time in history, including the poor and downtrodden. I know the American Century has something to do with that but I also know the British Empire had almost the same effect in its time at bat and I am waiting to see what happens, progresses next.

Alas, I don't have much time to assay such things. At coming of age at 89, I may have to settle down here in Florida in my small villa and get reports second hand.

I do love your approach and you can be assured I will be reading you as you write.

Thank you,

Alice Maxwell

Moral Hazards

Reader Rick comments on the moral hazards of Fed policy.

Hi Mish

The title of Megan McArdle's article is "Banking Without Risk Is Impossible", yet she supports a policy that creates moral hazards. Instead of a system where both parties take a risk, one party is off the hook. This leads to bad lending policies because there are hardly any consequences to bad lending policies.


Indeed, as it stands banks are always bailed out at taxpayer expense, the very epitome of "moral hazard". In effect, the Fed encourages excess risk taking, and bubbles are the inevitable result.

True Meaning of Banking Safely

Reader Bruce pinged me with his thoughts on teaching his children the true meaning of "risk-free".

Hello Mish

I have tried to educate my children on this very subject. We as a family are working our way to being debt free.

This is the only way I can see to bank safely. We have purchased rental property, business property, and are in the process of paying off our last home. We are also building up a large cash reserve (aware that inflation takes it toll).

We also have gold reserves, and liquid assets.

Owning property free and clear, especially income property, gives one options that those with mortgages don't have.


Thanks to all who wrote regarding fractional reserve lending (whether I commented or replied).

And also thanks to many of those who commented on Attack of the "Digger Bees".

Yes, I knew that "digger bees" (yellow jackets) are not bees but wasps.

Bees, as many readers pointed out are generally docile. I like bees actually and put out a "humble bumble" home and nests for mason bees.

We are looking into the EpiPen antidote system, because this is now the third stinging event regarding yellow jackets on my property.

Mike "Mish" Shedlock

Mike Shedlock - The German Grand Fantasy
Posted: 9/20/2013 1:58:00 PM EST

s I watch the latest polls from Germany there are numerous outcomes, none of which will be pleasing to chancellor Angela Merkel, except outright victory by CDU/CSU +- FDP.

If anything but a CDU/CSU +- FDP majority happens, the chancellor will face seriously unwelcome choices.

For example: Reader Bernd pinged me with this comment yesterday "I just watched the last TV discussion. SPD has made it clear that EUROBONDS will be part and parcel of the package, if they come in with a coalition. Merkel was dead set against those up to now. Grand Coalition ??"

Indeed. Recall that Merkel is dead set against Eurobonds. Also recall eurobonds are against the German constitution.

And what is the price to pay for other coalitions?

Grand Coalition or Grand Fantasy?

A close friend continually points out: the German population wants a "Grand Coalition". And I agree with his assessment. But politically speaking, how stable would it be?

That is Merkel's concern, and that is why she is on a public campaign for voters to not split their votes.

But what if that is not good enough?

Latest Polls

Here are the latest polls.

As INSA reports things, there are numerous possibilities.

Give or take a mere 1-2% there are many possibilities.

  1. CDU/CSU + SPD (the "Grand Coalition")
  2. CDU/CSU + AFD
  3. CDU/CSU + FDP
  5. SPD + GRUE + Die Linke

The only coalition that does not pose serious problems for Merkel is #3: CDU/CSU + FDP.

Mainstream Media Finally Catches On!

I have been talking about these issues since March. On September 19, CNBC finally reports Anti-euro party powers ahead as German elections near.

With just days to go until Germans head to the polls, the likelihood of Chancellor Angela Merkel retaining her crown grows ever larger. But Germany's establishment could still be in for a shock.

On Thursday, the anti-euro Alternative fur Deutschland (AfD) hit the 5 percent threshold for the first time that parties need to gain a seat in parliament, according to an INSA poll. The poll suggested Merkel may not be able to re-form her center-right coalition with the liberal FDP.

The poll gave Merkel's CDU/CSU coalition 38 percent of the vote, while the FDP got 6 percent. Their combined 44 percent would not give them a majority in parliament.

If the AfD makes it into parliament and the current liberal coalition partners don't, the party could prove a headache for Merkel. She will be faced with tough talks to form a new "grand" coalition and would have to join forces with Steinbrueck's SPD.

The margin of error on these polls is +-3% and given the 5% threshold, that makes many of the polls useless.

But notice the trend. And the trend by media was to completely ignore the possibility that AfD would make it into parliament.

The secondary trend assumption was that a "Grand Coalition" was likely.

While a "Grand Coalition" is possible, it is not a given, just as I have stated. And if it does happen, it will not be stable, as demand after demand will be placed on Merkel.

Biggest Political Chameleon in History

Of course Merkel could be ready and willing to sell voters straight down the river. Otherwise, some major compromises are in store.

The above discussion assumes that Merkel is really against Eurobonds except as a matter of political expediency. Is she? Or will the biggest political chameleon in history change colors once again?

Barring an outright majority by CDU/CSU + FDP, we may soon find out.

Mike "Mish" Shedlock

Mike Shedlock - The Morning After; Price Discovery is Zero; PUT on the Bond Market? Is Inflation Really Under 2%?
Posted: 9/19/2013 9:05:00 PM EST

Steen Jakobsen, Chief economist at Saxo Bank in Denmark, pinged me today with his thoughts on "the morning after" and "price discovery".

In my opinion these two paragraphs of the FOMC Statement are the key ones:

  1. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.
  2. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

#1 – Tighter monetary conditions clearly concerns them – the only reason for forward guidance as per Vice-chairman Yellen is to “direct market” to FOMC central projection – this got out of control and we now effectively have not only a put on the stock market, but also a put on the bond market. The whole financial market is now “government controlled” – Price discovery has been reduced close to ZERO – as even the term-premium (expected rate expectations) is ignored and considered invalid by Fed and its merry men.

# 2 – The wording is mild, but it’s a real concern. I have no doubt inflation, or lack of, played bigger role than anything else in taking decision to not taper. An economy with weak inflation, is an economy with excess capacity – An economy with excess capacity is not an economy healing and creating jobs – hence – Fed also de facto yesterday stated: the unemployment rate is invalid to use as gauge for future monetary policy but also as statistical indicator.

Whole Financial Market Government Controlled

In regards to Steen's comments "The whole financial market is now “government controlled” – Price discovery has been reduced close to ZERO", I agree 100% (for now).

But will "control" last forever? If you think it will, then why did we have a housing and stock market crash?

Price Stability

In regards to inflation, I have to shake my head. Inflation is not a good thing, not now, not ever. And with so many boomers headed into retirement on fixed income with few assets, inflation is even more crippling.

I have a question: Does the following chart look like price stability?

Inflation Targeting at 2% a Year

The next chart will show you what happens when wages do not keep up with prices.

Real Disposable Personal Income Per Capita Detail

The above two charts from my post Huge Problem With Bernanke's 2% Inflation Target Explained in Pictures.

Click on the link for still more charts.

Is Inflation Really Under 2%?

I think not. In fact I know it isn't. You just have to know where to look.

Inflation is only under 2% if you ignore soaring money supply, the stock market bubble, bond market bubbles, a reblowing of the housing bubble, and other global bubbles.

And what is so magical about 2% anyway? Why not 1%, 3%, 5% or some other number?

Asset Bubbles

Actually any price-inflation target is ridiculous. Price targets of any kind cannot accurately be measured precisely because price targets, by definition, ignore asset bubbles (including housing, which is not directly a part of the CPI).

And didn't we go down this path before? Twice?

Yes we did: first with a dot-com stock market bubble, then with an even bigger credit-housing bubble.

Was there anything stable about that? Indeed not. The Fed has a history of blowing bubbles of increasing amplitude over time.

Ridiculous Comment of the Day Revisited

Yesterday in Ridiculous Comment of the Day, I took exception to statement made by Paul Denoon, head of emerging-market debt at AllianceBernstein Holding LP (AB), who regarding the Fed's decision not to taper said "This creates stability."

My reply ...

Really? The Fed buying $85 billion in assets a month creates stability? Denoon must live in Bizarro World along with Ben Bernanke and the rest of the Fed.

In Fed Bizarro World; One-Sided Risk Assessment; The $64 Trillion Question I asked "How in the hell is the Fed going to normalize interest rates with a recovery in full bloom, with interest rates three or four full percentages points below normal?"

Some people prefer short-term stability even when the outcome is long-term disaster.

Is the Fed doing all of this on purpose? I think not. For further discussion, please see Purposeful Class Warfare? Breathing Room for Rupee? Sheer Stupidity?

Not My Fault Says Bernanke

Whether on purpose or not (and I strongly suggest "not"), the result is the same and it looks like this comic from Merk Investments, via email from Steen.

Bernanke Wants 2% Inflation in a Deflationary World

Here's the problem in a nutshell: Bernanke Wants 2% Inflation in a Deflationary World; Who Pays the Price?

Asset bubbles and massive income inequality are the direct results of Fed policies.

For still more reading, or in case you are unconvinced about who is to blame, please see Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else).

Even though the problem is the Fed (central banks in general), coupled with fractional reserve lending and pseudo-money created out of thin air, many seriously misguided souls (including Keynesian high-priest Paul Krugman) think the answer is a destabilizing rise in the minimum wage and still more inflation!

Mike "Mish" Shedlock

Mike Shedlock - "Bubbles Ben to be Replaced by Calamity Janet"
Posted: 9/18/2013 10:42:00 PM EST

The quote of the day goes to David Stockman. In a Bloomberg video, Stockman claims (and I agree) "Bubbles Ben to be Replaced by Calamity Janet".

Partial Transcript

They are stumbling into the endgame of this whole misbegotten spree of QE, ZIRP, and massive manipulation of financial markets.

We are going to basically replace bubbles Ben with calamity Janet.

She has no clue how to wean wall street from the pathetic addiction to this massive stimulus, easy money that has been going on for the entire century.

I backed that up because she has spent her whole life as a monetary bureaucrat in the Fed system, and has no clue what honest capital and genuine free markets are about.

[She] believes the entire system has to be run by a monetary politburo, turning all the dials and short-term interest rates and yield curves and the entire financial system.

She is part of group-think, part of the Keynesian consensus that 12 people are running at $16 trillion economy.

They are delusional.

Link if video does not play: Yellen Has No Clue How To Run the Fed


David Stockman was Ronald Reagan's Budget director.

Stockman is also the author of The Great Deformation: The Corruption of Capitalism in America and the #1 New York Times bestseller The Triumph of Politics: Why the Reagan Revolution Failed.

For more on Stockman, please see ...

End of U.S. Imperium—Finally!?

Heart of the War-Mongering Hypocrisy

Stockman nails the heart of US war-mongering hypocrisy with this question [on Syria]:

"After having rained napalm, white phosphorous, bunker busters, drone missiles, and the most violent machinery of conventional warfare ever assembled upon millions of innocent Vietnamese, Cambodians, Serbs, Somalis, Iraqis, Afghans, Pakistanis, Yemeni, Libyans, and countless more, Washington now presupposes to be in the moral-sanctions business?"

There is much more in the article. Please take a look.

Mike "Mish" Shedlock

Mike Shedlock - Spain on Track to Meet Budget Targets Says Economy Minister; Data Strongly Suggests Otherwise
Posted: 9/18/2013 2:03:00 PM EST

On September 16, Spain's economy minister, Luis de Guindos, said Spain on Track to Meet Budget.

Spain is on track to meet the 2013 budget deficit target it agreed on with its European Union partners and should emerge from recession before the end of the year, the economy minister said on Monday.

After the financial crisis burst Spain’s construction bubble in 2008, “no doubt 2014 will be the first year when Spain will have some recovery,” the minister said.

Given the depth of Spain’s recession, the European Commission agreed in May to give Madrid more time to reach its budgetary targets. Mr. de Guindos said he expected Spain’s deficit to fall to the new target of 6.5 percent of gross domestic product — rather than the initial target of 4.5 percent — from 7 percent last year.

Although officials from the International Monetary Fund and other creditors started another review of Spain’s banking progress on Monday, Mr. de Guindos suggested that “Spanish banks don’t have an important capital need,” implying that Spain would not require an extension of its bank bailout.

How many lies and distortions can one man present in a few short paragraphs?

If by some miracle Spain meets this year's target, it is only because the target changed 4 times in the past two years.

Yet, I still have to ask: how likely is that?

Spain Budget Deficit Soars

On September 17, Dow Jones Business News reported Spain Budget Deficit Soars

Spain's government said late Monday the country's budget deficit stood at 5.3% of gross domestic product in the first seven months of the year, an indication that the euro zone's fourth-largest economy may miss its deficit target for the fourth consecutive year.

Spain is looking to bring its budget deficit to 6.5% of GDP this year, down from 10.6% last year. The target, set by the European Union Commission, was already relaxed earlier this year from a previous 6.3% of GDP, but many economists say even the easier target may be hard to attain, as the economy was in recession at least until the second quarter, and only moderate economic growth is anticipated in the second half, which should keep tax receipts at low levels.

Just Monday, think tank Funcas said 19 economists surveyed were expecting, on average, that the economy will grow 0.1% in the third quarter from the second, and Spain will post a budget deficit of 6.7% of GDP for the full year. The economists surveyed are also expecting that Spain will miss next year's deficit target, of 5.5% of GDP.

This is important because a string of large deficits has driven Spain's government debt to the highest level in over a hundred years. Last week, the country's central bank said debt stood at 92.2% of GDP as of June--well above the year-end target of 91.4% of GDP.

This reinforces the view held by many private sector economists, and the International Monetary Fund, that Spain's government debt will rise significantly above 100% of GDP before it peaks, despite government assurances to the contrary.

Spain's Budget Deficit €54 Billion Through July

Via translation from Guru's Blog, please consider Spain's Budget Deficit Rises to €54 Billion Through July.

Let's try not to lose the debt and deficit data since our politicians have a special ability to change forecasts as if nothing had happened.

The deficit totaled €54.293 billion in the first seven months of the year, and representing 5.27% of GDP against a target of 6.5% set for the full year, according to the latest data released Monday by the Ministry Finance and Public Administration.

The odds of meeting the deficit target, barring last-minute window dressing is quite low.

Total government debt is €947.184 billion, a new record. The ratio of public debt to GDP level is 92.6%, according to the Bank of Spain.

Recall that in September 2012, the government forecast for year-end 2013 was debt-to-GDP ratio 90.5%. Unless miracles, we will be well above that figure.

By the way, the total debt of €87.660 billion in short-term securities matures within one year.

Is Spain going to meet even four-times reduced targets? I highly doubt it.

Mike "Mish" Shedlock

Mike Shedlock - M1 Money Supply vs. Real GDP
Posted: 9/17/2013 1:30:00 PM EST
Here are a few interesting charts of M1 money supply vs. Real GDP/10 from reader WendyBG.


M1 consists of: (1) currency outside the U.S. Treasury, Federal reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts.

Click on any chart to see a sharper image.

M1 vs. Real GDP/10 1959-Present

M1 vs. Real GDP/10 2000-Present

M1 vs. Annualized Change in Real GDP

The third chart shows annualized change in GDP vs. M1.

Increases in M1 no longer have the same effect on growth or jobs.

M1 as Percentage of GDP

M1 money supply has increased under Bernanke at a faster pace than ever before relative to GDP.

I will take a look at GDP vs. other money supply measures later this week.

Mike "Mish" Shedlock

Mike Shedlock - Yellen 100% Assured to Make a Mess
Posted: 9/16/2013 10:35:00 PM EST

Anyone smart enough to withdraw from the race to replace Ben Bernanke as next Fed chairman must have something on the ball, at least temporarily.

The Larry Summers' haters got their wish today as Summers withdrew his name from consideration.

Summers called president Obama, then issued a a formal withdrawal letter stating "I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation's ongoing economic recovery."

In response, the White House issued a statement "Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for Chairman of the Federal Reserve. Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today. I will always be grateful to Larry for his tireless work and service on behalf of his country, and I look forward to continuing to seek his guidance and counsel in the future."

Barry Ritholtz at the Big Picture mocked the withdrawal with a spoof Translated into Truth: On Summers Withdrawing Name

“Earlier today, I spoke with Larry Summers and accepted his decision to withdraw his name from consideration for Chairman of the Federal Reserve.

Larry was a critical contributor to the radical deregulation that was one of many causes of the worst economic crisis since the Great Depression. It was in no small part because of his lack of expertise, false wisdom, and inept leadership that the economy crashed and burned and even today is still failing to be to back to its full growth potential.

As Treasury Secretary, he helped to pass the Commodity Futures Modernization Act. This turned derivatives into a unique financial instrument with no oversight, reserve requirements, mandated disclosures, or listing minimums. The CFMA all but guaranteed that Derivatives would eventually implode. Summers further contributed to the crisis by Summers by overseeing the repeal of Glass Steagall. With this firebreak between Wall Street and Main Street effectively removed, the financial conflagration of 2008 spread from Wall Street to every corner of the economy.

Further, his terrible advice and lack of insight is in large part the reason we see so little progress being made today — the lack of economic growth, the concentrated bank power, the still dangerous financial system and of course, the sub par job creation.

I will always blame Larry for the way he damaged my presidency. To anyone who to seek his guidance and counsel in the future, please don’t make the same naive errors I did.
Will Yellen Be Any Better?

The criticism of Summers is justified, but will Yellen be any better?

I suggest the answer is a resounding no. She is more dovish than Bernanke, and that is saying quite a lot.

Let's compare ...

Tweedle Dum vs. Tweedle Dee; Does Janet Yellen Have What It Takes?

In Tweedle Dum vs. Tweedle Dee; Does Janet Yellen Have What It Takes? I stated ...
The Detractors Win

The detractors win both sides. Neither Yellen nor Summers is qualified. In fact, there is not a single person who would take the job that is qualified. There should not be a Fed at all.

The idea that a group of economic wonks can sit down and micromanage the economy to health is preposterous. Central bank clowns have proven time and time again they have no idea what the interest rate should be.

A massive bubble in dotcom stocks followed by a massive bubble in housing is proof enough. And this Fed on which Yellen sits has triggered asset bubbles in stocks and bonds and she cannot even see it.

Crisis Management Needed

Curiously, lots of analysts suggest we do not need Larry Summers because there is not going to be another crisis.

Rest assured there will be another crisis, and much sooner than most think. But that does not make Summers qualified. His role is to help create crises, not stop them.

Tweedle Dum vs. Tweedle Dee

The only candidate that makes sense is the candidate who will set a target date to end the Fed. Unfortunately, no such candidate is on the short list.

The choice is between Tweedle-Dee who rates to slosh money around even more than Bernanke in a futile effort to create jobs, and Tweedle-Dum who will do whatever Wall Street wants.

Practically speaking, is there really a difference?
Yellen 100% Assured to Make a Mess

Yellen is 100% assured to make a mess of things. So would Summers. But Summers has one thing over Yellen: He is smart enough to not want the job.

I might point out there was some small chance that Summers would be more fiscally responsible than Yellen. We will never know because "Yellen it is".
Mike "Mish" Shedlock

Mike Shedlock - MBS Clobbered and Treasury Yields Soar Following Purportedly Good Job Numbers
Posted: 7/5/2013 3:39:00 PM EST
Curve Watchers Anonymous notes that treasury yields surged higher and mortgage backed securities (MBS) had a steep selloff following purportedly good job numbers.

Beneath the surface, the economy actually shed 326,000 full-time jobs.

In the short-term what matters is the reaction, so let's take a look at how treasury yields reacted to the news.

$TNX: 10-Year Treasury Yield

Yield on the 10-year treasury note is up 21.8 basis points to 2.719%. The yield is up 110 basis points (1.1 percentage points) since the May low of 1.614%.

$TYX: 30-Year Treasury Yield

Yield on the 30-year long bond is up 18.2 basis points on the day to 3.679%. The yield is up 86.9 basis points since the May low of 2.81%.

$FVX: 5-Year Treasury Yield

Yield on the 5-year treasury note is up 18.6 basis points on the day to 1.86%. The yield is up 95.7 basis points since the May low of .641%.

Historical Perspective

click on chart for sharper image

Charts were captured at slightly different times (minutes apart) so yields on two sets of charts do not match precisely.


  • $TYX - Green: 30-Year
  • $TNX - Orange: 10-Year
  • $FVX - Blue: 5-Year
  • $IRX - Brown: 3-Month

Yields have generally been rising since mid-2012 and have blasted higher since May-2013.

A 1.1 percentage point rise on treasures will have a significant impact on housing.

Mortgage Backed Securities Clobbered

Michael Becker at WCS Funding Group says today is one of the worst selloffs in mortgage backed securities (MBS) that he has ever seen.

For example a 30-year FHA loan that Becker placed on Tuesday at 4 1/8% would be 4 3/4% today.

The Fed is probably having a conniption-fit over these reactions. Expect the Fed to come out in full-force again, with repeated attempts to talk rates down.

Mike "Mish" Shedlock
Mike Shedlock - Big Brother Français; Don't Worry It's Only "Alegal"; Mish Definition of "Alegal"
Posted: 7/5/2013 8:49:00 AM EST
It did not take too long to discover that France operates its own "Big Brother" network gathering systems after demanding explanations from the US.

The Financial Times reports Veil lifted on France’s ‘Big Brother’ Network.
France operates an “immense” surveillance system of telephone, email and internet traffic similar to the US operation revealed last month by whistleblower Edward Snowden, Le Monde newspaper reported on Thursday.

Like the systems apparently operated by the National Security Agency in the US, the DGSE surveillance covers the identity, place, date, duration and “weight” of telephone calls, but not the content.

Similarly, the “metadata” of text messages, faxes, emails and “all internet activity” on networks run by companies such as Google, Facebook, Microsoft, Apple and Yahoo are collected, Le Monde said.

President François Hollande reacted sharply to Mr Snowden’s allegations that the NSA had spied on EU and European offices, including the French embassy in Washington.

He said such activities were “unacceptable” and should “cease immediately”. He has called for a full explanation from the US government, linking any progress on key EU-US trade talks due to start next week to full disclosure from Washington.

Paris insisted it does not spy on its allies, but Mr Hollande’s outburst raised some sceptical eyebrows among the diplomatic community in the French capital.

Le Monde said the DGSE system was conducted with “complete discretion, at the margins of legality and outside all serious control”.

It quoted Bernard Barbier, technical director of the DGSE, as saying at public seminars that France “probably has the biggest information centre in Europe after the English”.
"Margins of Legality"

Let's turn our attention to a Google translation from Le Monde Révélations sur le Big Brother français.
If the revelations about the U.S. spying program Prism led a chorus of indignation in Europe , France, she did minor quibbles. For two good reasons: Paris already knew. And does the same thing.

The World is able to prove that the Directorate General for External Security (DGSE, the services special) systematically collect electromagnetic signals from computers or phones in France, as well as flows between French and abroad: all our communications are spied. All e-mails, text messages, telephone records, access to Facebook , Twitter , are then stored for years.

If this huge database was used by the DGSE who officiates as outside French borders, the case is already illegal. But six other intelligence services, including the Central Directorate of Internal Intelligence (DCRI), customs or Tracfin service fight against money laundering, including the data that draw interest daily. Discreetly on the sidelines of the legality and beyond serious control. Political know perfectly, but the secret is the rule.

An Illegal Device

This Big Brother French, brother of U.S. services is illegal. However, its existence appears discreetly in parliamentary documents.

The Target: "Metadata"

DGSE and collecting the phone records of millions of subscribers - the identifier of the calling and called the place, date, time, the weight of the message. Same for mail (with possibility to read the mail subject), SMS, fax ... And all Internet activity, which involves Google , Facebook, Microsoft , Apple , Yahoo! ... This is what the parliamentary delegation intelligence rightly calls "the signals intelligence" (SIGINT), translation of SIGINT (signal intelligence) of the NSA.

Supercomputer at Boulevard Mortier

DGSE and collecting trillions of data compressed and stored in Paris, on three levels, boulevard Mortier, in the basement of the headquarters of the DGSE.

Bernard Barber then spoke of the "development of a computer-based FPGAs" (programmable logic circuits), which is "probably the biggest center computer in Europe after the English ", able to handle tens of petabytes of data - that is to say tens of millions of gigabytes. The heat generated by the computers enough to heat buildings DGSE ...

Lack of Control

The device is completely illegal - "a-legal", corrects one of the bosses of the intelligence agencies "The legal regime for security intercepts prohibited implementation by the intelligence services of such a procedure. Prism that ensures the National Commission on Informatics and Liberties ( CNIL ). Each requisition for data or interception is targeted and can not be done on a massive scale, as quantitatively as temporally. Such practices would therefore legally unfounded.
Don't Worry It's Only "Alegal"

Inquiring minds just may be interested in the Meaning of Alegal.

According to the Urban Dictionary ...
An unambiguously wrong, disruptive and often deliberately committed act for which there is not yet a specific law making that act expressly illegal. (See Extralegal) Financial and white collar crimes, such as offshore banking, misrepresenting the value of investments and temporarily selling 'junk' assets to create cashflow are prime examples of "a"legal activities. Alegality is a corollary of the distinction between amoral and imoral reasoning as applied to legality.

Broker#1: We're putting together a portfolio of failing investments so we can sell it investors then short against it and make a killing.
Broker#2: Isn't that illegal?
Broker#1: Nope, just alegal... Now lets get some lattes.
Mish Definition of Alegal

A blatantly illegal action conducted with immunity, because perpetraitors understand they will never be prosecuted or held accountable in any way.

Over the Line

On very rare occasions someone like Ollie North steps way over the line and is prosecuted. 

Please see the Iran Contra Indictments at the bottom of the above link for how prosecutions eventually pan out (numerous presidential pardons, convictions overturned, etc)

When the President Does It, That Means It's Not Illegal

In France as with the US, such spy activities are clearly illegal.  But it's easy for the spies to do whatever the hell they want because none of them will ever be prosecuted for what they do.

In the US, such activities have the approval of the Obama administration (and the preceding Bush administration as well).

And as we all know "When the President Does It, That Means It's Not Illegal"

Please play the clip. It's only 4 seconds long.

Mike "Mish" Shedlock
Mike Shedlock - Rand Paul Walks Fine Line to Prove He is Not His Dad; Reflections on Pragmatic Pandering
Posted: 7/1/2013 3:20:00 PM EST
To win, the 2016 election, Rand Paul has to prove he is not his dad, that he is still a libertarian, and most importantly that he is not "weak on defense, a phrase that has different meanings to different people.

It's a tough line to follow but Paul is handling himself very well as noted by the Daily Beast in Rand Paul: I'm Not My Dad.
With 2016 in his sights, Rand Paul is distancing himself from some of his father's more extreme views. David Catanese on why the apple must fall just far enough from the tree.

Standing in front of more than 100 South Carolina GOP activists in West Columbia Friday night, the Kentucky senator largely steered clear of the week's two dominant, divisive issues that are tying his party in knots: Gay rights and immigration reform.

Instead, he diverted from his early presidential-primary-state speech script and went for the jugular on a topic that, while not necessarily timely, would surely please a military-friendly crowd: A full-throated defense of profiling.

“After 9-11 we had a special program for student visas . . . Why?" Paul asked. "Because 16 of the 19 hijackers were overstaying their students visas. Was it targeting? Was it profiling? Yes. Because only certain people are attacking us. Why don’t we use some brain sense to go after the people who are attacking us?"

The guests ate it up, rewarding Paul with sustained thunderclaps. It was one of his biggest applause lines of the night. But it was also a curious statement from a likely 2016 White House contender who built his brand on a libertarian approach to government. This, from the same guy who stood on the Senate floor for 14 hours to protest the potential use of drones to target Americans?

The address was almost exclusively devoted to foreign affairs and tactics employed in the country’s struggle against terrorism -- a marked change from his previous early state primary speeches and a subtle acknowledgment that he must prove he’s no softy when it comes to national security.

It's not that Paul walked away from his core libertarian philosophy. He stood by his belief that even those charged with the most heinous, evil crimes --- like the Boston bombing -- deserve a day in court.

“You may not all agree on this but it’s worth thinking about,” Paul cautioned before explaining his rationale to halt indefinite detentions of possible terrorists.

When he bravely posited his idea of a full audit of the Pentagon, he was met with complete silence. But he strived to emphasize that greater oversight of the military isn’t incongruent with support for troops on the ground.

Hogan Gidley, a former state party official who advised Rick Santorum’s 2012 presidential bid, said it was evident Rand’s mission was to wipe away any perception that he was weak on defense.

“His father, rightly or wrongly, was saddled with being anti-military. I think he wanted to say, ‘I’m a little tougher’ from the foreign policy standpoint. South Carolinians love that stance. He wanted to get out front of being outflanked on the right on military issues,” Gidley said.

It’s a thin line to walk for a candidate-in-the-making whose libertarian streak helped define his identity, but could ultimately limit his ambitions. He is astute enough to address his vulnerabilities with large sections of the party. But with every speech or position that’s calibrated to win converts and broaden his appeal, there’s the risk that he could end up losing part of the fervent base built for him by his father.

Rep. Mick Mulvaney, a close friend of Rand’s who jogs and plays baseball with him, said he believes what most significantly separates the senator from his father is his ability to crisply articulate his ideas in a marketable fashion.

“Rand knows how to deliver the libertarian-leaning conservative message better than anybody, at least as well as anybody,” praised Mulvaney. “Some folks might’ve looked at Ron Paul and dismiss him out of hand because he was far too extreme to them. They’ll not be able to do the same thing with Rand after they meet him. If you sit and talk to Rand, he comes across as extremely bright, extremely articulate and the farthest thing from crazy or extreme.”

The speech in South Carolina offers an acute example of Paul’s crafty approach to winning over a room -- with some instant evidence of success. But ironically, it simultaneously exposes the outline of a potential attack that could be used against him by a 2016 rival: That Paul has morphed into a panderer, all too willing to tweak his positioning in the pursuit of politics.
Reflections on Pandering

Any candidate, from either political party, must pander to some extent to win the nomination. Then to win the presidency, the nominees must pander in different directions to prove they are not who they said they were during the nomination process.

Unfortunately, that's the nature of the game.

The winning approach is to pander as little as possible in both phases of the campaign. So far, Rand Paul is doing and saying the right things, while still maintaining his overall libertarian stance.

Paul is doing  enough to maintain his and his father's core (and very fervent) libertarian constituency. Unless he strays too far from that line, and he hasn't, where else is the libertarian core going?

Cautious Libertarian

Philosophically, I would rather Paul not have to give in at all on some of these issues, especially defense spending. Pragmatically speaking, however, I would rather he bend a little and win the nomination, than not bend at all and lose it.

Kowtowing to the extreme right-wing, as Mitt Romney did with his "teach Iran a lesson" war-mongering talk, then attempting to back out of it in the general election was a losing approach in 2012 and will be a losing approach in 2016. 

And Kowtowing to the extreme right-wing is wrong on any issue, not just defense. After all, the extreme right is never going to vote Democratic. It's the independents and moderates that hold the key to winning the election. So upsetting moderates to appease the fervent far-right core is simply bad politics.

Rand Paul is what the country needs, and I like his cautious libertarian approach.

And if Paul wins the nomination, I think he can deliver the right platform that will win over the independents and the Reagan Democrats (and thus the election).

Mike "Mish" Shedlock

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