Tuesday 30 October 2012 | John Batchelor Show

Air Date:

October 30, 2012

Photo, above: 24 October air strike against a Khartoum munitions factory, thought to have been carried out by Israel. In the event, it took out a group of containers that had been there since 2005, just sitting in a mass of clutter. What was in them? "Sudan has complained to the UN security council that Israeli planes bombed a munitions plant in Khartoum, an attack that has been widely interpreted as a warning to Iran over its nuclear programme. Israeli military commentators said that the Yarmouk facility in the Sudanese capital was owned by Iran and had been used to supply weapons to Hamas fighters in the Gaza Strip. The "impressive" reach of the secret operation was said to have demonstrated an ability to hit Iran's nuclear facilities — a similar distance from Israel." --Guardian, UK

JOHN BATCHELOR SHOW

Co-host: Larry Kudlow, The Kudlow Report, CNBC, and Cumulus Networks

Tuesday 905P Eastern Time: Larry Kudlow, in re: Breezy Point in Queens, 150-year-old houses burning; downtown Manhattan is a mess. Claude Frédéric Bastiat: Broken Window Syndrome. [Parable of the Broken Window: 1850 essay, "Ce qu'on voit et ce qu'on ne voit pas" {"What Is Seen and What Is Unseen"}; through the parable of the broken window, he introduces the concept of opportunity cost in all but name.]

Tuesday 920P Eastern Time: John E McLaughlin, mclaughlinonline.com, in re: polling, and the storm, and The Maybe States - the purple pickups Romney may need. Does Obama cross the Delaware?

Tuesday 935P Eastern Time: Gregory Zuckerman, WSJ, in re: Keeping the exchanges open: NYSE feels more like a movie set than a trading floor – buncha guys [mincing] around; in a few years, it'll be archaic, Smithsonian stuff. Roy Gary Niederhoffer. Market open tomorrow: broken-glass kind of theory – much more attn to the election and the fiscal cliff. [Bonds?] were a smart play; some bearish guys turned on a dime and made money on subprime mortgages, but that's too late right now. Secondary plays on housing. Election risk plays into the fiscal cliff: Obama wd create high-end tax hikes, bad for stock mkt; if Romney wins, it'll all be postponed for a year and we'll all live happily ever after. Election may determine the tax hike determine the mkt sentiment. Bernanke not around? No, he'll stay til Jan 2014 because of the independence of the Fed. Also, Romney isn’t so opposed to easy money right now, Also, the Fed Board is full of Obama doves – Janet Yellin, for example,; 201 may be a different story. Reagan explicitly told Volcker: do what you have to do to slay inflation. A great turning point in economic history – he did slay inflation. Romney will appt his own guy – Glenn Hubbard, or whoever, in Jan 2014; he will not take on the Fed right away. John Paulson just offered $100 million to Central Park.

Tuesday 950P Eastern Time: David Malpass, Encima Global, in re: shrinking the Fed. Was all the gold in the New York Fed flooded last night? A shipment of gold went down in Russia, maybe $30bil in gold. The ship went missing – sunk, or diverted? 700 tons, Russian Polymetals.

Even with QE3, gold is over $1700 – pricing in some systemic risk (if you're in Spain or Japan, you’re nervous). Gold will go down a lot if the Fed stops its policy of demeaning the dollar. As you’re facing he fiscal cliff, Romney needs to emphasize over and over is growth in jobs, which can be done w better policies, and hereby mobilize all the capital sitting on the sidelines right now. We used to complain that the IMF would use bad economic policies so it could get bigger; the Fed is doing exactly that right now: self-fulfilling that the economy gets worse so the Fed has to get bigger and bigger, There's X amt of credit; Fed drives up the price of Treasuries and Fannie Mae and Freddie Mac bonds, which suck capital out of the growth side of the economy, There's maybe $1.6 trillion in excess reserves; it'll go up. Shouldn't they make the banks pay for that? That'd be like putting a tax on the bank – I'm not a fan of the banks . . . The Fed mustn't keep all that money on its balance sheet. Fed's balance sheet: has a monetary side, plus its big holding of long bonds: we're stuck with - like a sovereign wealth fund or a hedge fund sitting right in the Fed. The Consumer Protection Board also sitting right in the Fed. Fed is enabling the deficit – and the Fed's leverage is incredible: like 50 to 1, which is horribly dangerous for a financial institution.

Forbes Magazine, September 24, 2012. Fed Should Shrink, Too, by David Malpass A hopeful surprise in August was the intensity of the political outcry for a strong and stable dollar and for Federal Reserve restraint. Reversing the Fed’s expansion is an integral part of the sweeping upheaval needed to stop Washington’s overreach and a necessary condition for restarting private-sector job creation.

Whatever the Fed’s theory, the reality is that its attempts to prime the pump haven’t worked. They distort and weaken the economy and chase capital into such job losers as gold, government bonds and factories abroad. After years of buying government debt and imposing 0% interest rates, the Fed has piled on nearly $2 trillion in liabilities, yet the economy is suffering the weakest recovery in postwar history. Unemployment is over 8%, and the mortgage market, one of the Fed’s priorities, is still broken.

This isn’t some inevitable by-product of the financial crisis. It’s the direct result of unprecedented spending and of tax, regulatory and monetary policies that put the government first and the private sector way down the list.

By setting interest rates at zero and holding down selected longer-term bond yields, the Fed is explicitly rechanneling the financial system’s limited lending activity toward government and big corporations, sectors that aren’t known for job creation or innovation. This transforms the normal market-based allocation of capital—which in a free society must be based on private-sector assessments of risk versus return—into government-controlled credit rationing.

In buying trillions of dollars in government debt, the Fed is disguising the true cost to taxpayers. Government debt now exceeds total household debt, including mortgages, auto loans, student loans and credit cards. Current trends will increase this imbalance, creating a government that by this measure is markedly larger than the households it is supposed to serve.

In August the Federal Reserve hinted that unless the economy suddenly strengthens it would push the policy envelope further, creating even more dollars to buy government debt. Dubbed QE3, this latest Fed threat to debase the dollar lifted the price of gold, oil and other commodities in August, as investors priced in the prospect that the Fed will be dumping more dollars into the system before the election.

In the 1970s, prices rose faster than income when the Fed created money to hold interest rates down. This hurt the elderly and lower-income Americans. Today’s artificially low interest rates come at the expense of small, private-sector savers and retirees. An exhaustive Aug. 24 New York Times story documented the policy debacle, citing a decline in real incomes of 9.7%.

Many investors hold gold and government bonds at prices way above their economic value, on the view that the Fed will continue creating dollars to buy bonds. This leaves less investor interest in building companies that earn the old-fashioned way: hiring workers to make useful products and services. With the Fed promising to keep rates at zero through 2014 or even 2015, there’s little interest- rate risk in delaying home purchases or business loans.

The key policy breakthrough to unlock these dead resources is for the Fed to commit to maintaining the value of the dollar, with a stable gold price as a key metric and report card. This would allow more capital to flow to growing parts of the private sector and would begin a normalization of the financial system and the Fed’s balance sheet.

The Fed also needs to fight harder against its own tendency to grow and take on unaccountable missions. The latest is the plan to build huge new bureaucracies inside the Fed to shield controversial political tasks. In fact, the Fed’s narrow mandate, independence from the political process and unique access to unlimited funds outside congressional appropriations, require that the Fed reject systematic government expansionism.

Most of the remaining presidential campaign will be focused on whether voters want more government. If not, the Fed should lead by example, championing a smaller Fed, a strong and stable dollar and a market-based allocation of credit, all of which would help the economy grow faster.

Tuesday 1005P (705P Pacific Time): John Fund, National Review, and Mary Kissel, WSJ editorial board, in re: Mary the Floridian, anent hurricanes. Northern governors's responses were excellent. John Fund: 1938 hurricane, The Long Island Express. The campaigns, esp ad buys in Michigan; Romney side spending extremely heavy in Pennsylvania – the number of swing states is expanding: Pennsylvania and Minnesota are now in play. If you're fighting for new states, says you're in trouble. The auto bailout is not universally popular. Several of the car companies propped up have failed, e.g., the Chevy Volt. Also look at Wisconsin – pare back the state's budget. Benghazi: no one votes on foreign policy? New York Times poll on Libya: the public is not pleased with Washington's conduct. The several different stories out of the White House: could be problematic for the incumbent.

Gallup turnout indicators taken before superstorm Sandy suggest voter turnout in the 2012 presidential election will fall short of what it was in 2004 and 2008, but should be higher than in other recent election years.

Tuesday 1020P (720P Pacific Time): Bill Roggio, Long War Journal, in re: Mali.

Al Qaeda leader Rashid Rauf killed in drone strike, family says.Rauf's family is planning on suing the British government for providing information ("extensive intelligence") and he was ("killed in an extrajudicial manner" – Keystone Kops; was involved in planning multiple mass-murders) to the US that aided in targeting him. Lawfare! http://www.longwarjournal.org/#ixzz2AornEAbD

Foreign jihadists continue to pour into Mali: "The arrival of hundreds of young mujahideen from different areas across the Islamic world to support us in our war against the infidels and crusaders is not strange or surprising," Ansar Dine's spokesman said. Bamako, capital in the south; Timbuktu, in the north, taken over by Islamicists: now a haven specifically for AQIM – al Qaeda in the Mahgreb (Togo, Niger, Cote d'Ivoire, Chad, Pakistan, Sudan, Egypt – from all over West Africa) – flying the al Q flag, also into Syria, Egyptian Sinai, Algeria. Leaders are AQIM leaders. If you follow the leaders, you see what's happening.

http://www.longwarjournal.org/threat-matrix/archives/2012/10/foreign_jih... / http://www.longwarjournal.org/#ixzz2AorQXRIT

Last Friday, Egyptian authorities arrested five jihadists near the border with Gaza who were planning to carry out attacks against tourist sites in the Sinai Peninsula. http://www.longwarjournal.org/#ixzz2AorflBog

Tuesday 1035P (735P Pacific Time): Lara M Brown, Villanova, and Salena Zito, Pittsburgh Tribune-Review, in re: the elections; the campaigns, the voters. Moving this way and that. Dems worried about core base turnout; Republicans on ad attack. Ax and cohort are being careful to be sure that their base gets to the polls. If you're worried about Pennsylvania – what abut Ohio? Jacksonian Democrats are interested in pragmatic solutions, not ideology.

Tuesday 1050P (750P Pacific Time): Larry Johnson, No Quarter blog, in re: See: David Ignatius in today's Washington Post on the Benghazi timelime. So far, Fox has been keeping this alive; surprising that WaPo calls on the Administration for a timeline, Both Petraeus and Obama are in trouble on this. Jennifer Griffin's report. Once you get to the CIA at the annex, it shifts to the DoD side. Petraeus punted [disgracefully]. May not have had armed drones that could get there in time ("Call 1 800 predator?) There was an AC gunship that cd have been there in one hour, and ground forces that could have been there in two hours. Panetta's attempt to say we didn’t have good enough to react is demonstrably inaccurate. We have platforms to provide real-time, secure videos of events right into the White House; first time in the history of he world. The notion is laughable. Ignatius suggests we're being spun, given a poor glimpse of the facts – and the administration's story has changed repeatedly since Day One. SBU cables (sensitive but unclassified) – all the info was available within the first two hours.

Protesters stormed Libya's national assembly Oct. 30, forcing the cancellation of a vote on a proposed coalition government named by Libyan Prime Minister Ali Zeidan earlier in the day, Reuters reported. The mob, which consisted of civilians and former rebel fighters, numbered less than 100. Congress members negotiated with protesters to leave before resuming the vote, which was then interrupted a second time, leading to the postponement. Libya's new government is facing growing dissatisfaction toward the central government from both Islamists and regional power centers outside Tripoli.

Tuesday 1105P (805P Pacific Time): Bob Zimmerman, behind the black, in re: 1. A new rocket enters the field. New company, new rocket engine test, aimed at nanosat market. 2. Dragon returns home successfully. Experiments: frozen blood and other fluids from the astronauts; plus the investigation into the Falcon 9 engine failure. Next flight in January. 3. The spacewalk on ISS on Nov 1: fixing a coolant leak. Details on what will happen.

Tuesday 1120P (820P Pacific Time): Bob Zimmerman, behind the black, in re: 1. The housing to protect shuttle prototype Enterprise collapsed due to Hurricane Sandy. 2. Meghan McCain derides the GOP, claiming Hurricane Sandy is proof of global warming. 3. Scientists reject Sandy/Climate Link -- Warmists Go Full 'Tabloid Climatology' & Claim Sandy Speaks! 4. The first results from Curiosity's soil samples have come in, showing evidence of some REAL climate change, on Mars.

Tuesday 1135P (835P Pacific Time): Tyler Rogoway, AviationIntel, in re: Khartoum air strike. Four F15-I's, plus small aircraft, plus the most advanced sigint plane in the world hovering over all. Need to have at least one tanker; F15-I has a combat radius of 1200 miles. Factory was a Gaddafi-blt source for wide arms distributions. Same distance goes to downtown Teheran. They actually took out a group of containers that have been there since 2005, just sitting in a mass of clutter. Jamming and electronic warfare capabilities that Israel has are stunning. In future, one pilot will be able to lead an armada of drones. Benghazi: we're told the two SEALS died around 4 AM on the CIA annex roof, while painting a mortar – using a laser to bring in help – so an AC-130 gunship above could

-- the craft may never have been cleared, never allowed to take off and penetrate Libyan air space. Very alarming. Three likelihoods: F18 with smart bomb; gunship with ordnance, flies dark; Predator with missile. If a mortar team is painted, does the team know? [???] This is not an actual laser beam; it's a certain frequency. Enemy can't tell unless it has sophisticated eqpt. What I want to know is what actually happened on the ground, what command and control was doing in DC. Why were assets not launched and at least held overhead?

Tuesday 1150P (850P Pacific Time): Gene Countryman, KNSS in Wichita, in re: Storm could force creation of alternate poll sites

Tuesday/Wed 1205A (905 Pacific Time): Larry Kudlow, in re: Breezy Point in Queens, 150-year-old houses burning; downtown Manhattan is a mess. Claude Frédéric Bastiat: Broken Window Syndrome. [Parable of the Broken Window: 1850 essay, "Ce qu'on voit et ce qu'on ne voit pas" {"What Is Seen and What Is Unseen"}; through the parable of the broken window, he introduces the concept of opportunity cost in all but name.]

Tuesday/Wed 1220A (920 Pacific Time): John E McLaughlin, mclaughlinonline.com, in re: polling, and the storm, and The Maybe States - the purple pickups Romney may need. Does Obama cross the Delaware?

Tuesday/Wed 1235A (935P Pacific Time): Gregory Zuckerman, WSJ, in re: Keeping the exchanges open: NYSE feels more like a movie set than a trading floor – buncha guys [mincing] around; in a few years, it'll be archaic, Smithsonian stuff. Roy Gary Niederhoffer. Market open tomorrow: broken-glass kind of theory – much more attn to the election and the fiscal cliff. [Bonds?] were a smart play; some bearish guys turned on a dime and made money on subprime mortgages, but that's too late right now. Secondary plays on housing. Election risk plays into the fiscal cliff: Obama wd create high-end tax hikes, bad for stock mkt; if Romney wins, it'll all be postponed for a year and we'll all live happily ever after. Election may determine the tax hike determine the mkt sentiment. Bernanke not around? No, he'll stay til Jan 2014 because of the independence of the Fed. Also, Romney isn’t so opposed to easy money right now, Also, the Fed Board is full of Obama doves – Janet Yellin, for example,; 201 may be a different story. Reagan explicitly told Volcker: do what you have to do to slay inflation. A great turning point in economic history – he did slay inflation. Romney will appt his own guy – Glenn Hubbard, or whoever, in Jan 2014; he will not take on the Fed right away. John Paulson just offered $100 million to Central Park.

Tuesday/Wed 1250A (950P Pacific Time): Exeunt. David Malpass, Encima Global, in re: shrinking the Fed. Was all the gold in the New York Fed flooded last night? A shipment of gold went down in Russia, maybe $30bil in gold. The ship went missing – sunk, or diverted? 700 tons, Russian Polymetals.

Even with QE3, gold is over $1700 – pricing in some systemic risk (if you're in Spain or Japan, you’re nervous). Gold will go down a lot if the Fed stops its policy of demeaning the dollar. As you’re facing he fiscal cliff, Romney needs to emphasize over and over is growth in jobs, which can be done w better policies, and hereby mobilize all the capital sitting on the sidelines right now. We used to complain that the IMF would use bad economic policies so it could get bigger; the Fed is doing exactly that right now: self-fulfilling that the economy gets worse so the Fed has to get bigger and bigger, There's X amt of credit; Fed drives up the price of Treasuries and Fannie Mae and Freddie Mac bonds, which suck capital out of the growth side of the economy, There's maybe $1.6 trillion in excess reserves; it'll go up. Shouldn't they make the banks pay for that? That'd be like putting a tax on the bank – I'm not a fan of the banks . . . The Fed mustn't keep all that money on its balance sheet. Fed's balance sheet: has a monetary side, plus its big holding of long bonds: we're stuck with - like a sovereign wealth fund or a hedge fund sitting right in the Fed. The Consumer Protection Board also sitting right in the Fed. Fed is enabling the deficit – and the Fed's leverage is incredible: like 50 to 1, which is horribly dangerous for a financial institution.

Forbes Magazine, September 24, 2012. Fed Should Shrink, Too, by David Malpass A hopeful surprise in August was the intensity of the political outcry for a strong and stable dollar and for Federal Reserve restraint. Reversing the Fed’s expansion is an integral part of the sweeping upheaval needed to stop Washington’s overreach and a necessary condition for restarting private-sector job creation