Posts Tagged ‘Finance & Economics’

Will a European Revolution emerge out of the Greek tragedy

July 1, 2012

By Dark Politrcks

I’ve just watched a documentary about the problems facing the Greek people at the moment during these times of austerity and supposed “solidarity” between Euro nations.

Some facts from the documentary include:

  • 1 in 3 Greeks are now living below the poverty line.
  • Over 50% of young people are unemployed.
  • New measures have meant that charges for public services that were once free – for example any visit to the hospital now incurs a charge even if you are skint.
  • Whole government departments are being shut down with the poorest Greeks suffering the most. For example they have just closed down the social housing department. This is the department that manages housing for the poorest people who might have no jobs, money or place to live. I cannot even imagine living in a country without a social housing department. Thousands of people have lost their jobs and  millions of poor people will be affected by the closure of this department.
We all know the reasons for the Greek crisis but the person making the documentary didn’t seem to realise the reasons the Greek people were in the position they were.
The complaints of the people on the streets were those heard all around the world from the Occupy Movement to the real Tea Party to protest movements all across Europe.
  • Why should the poor and middle class pay for the mistakes of the Government?
  • Why are  the banks bailed out with tax payer money but then carry on with their casino banking ways. Not providing loans to small businesses whilst betting and losing millions daily on the stock exchange casino.
  • The bailouts are not for the benefit of the people suffering to pay them back they are going straight to pay off debts to other countries and banks. All the while the people suffer austerity measures and the future generations are thrown away to pay off the mistakes of the current banksters and corrupt politicians.
  • Corrupt politicians have taken the shilling to allow corporations build, permits given, eyes turned and so on even if their corrupt measures mean more suffering for the people.
  • Massive tax evasion has left a big hole which would help pay back debt straight away. From the poor to the rich tax evasion has been a national pass time according to some. Apparently 15 billion euros a year in Greece are lost through tax evasion and a new law being brought in means if even €1 is evaded the person faces jail time.

Proud people who once had jobs and money are now going to the many free charity doctors, food handout outlets and clothing swaps that have cropped up all around Greece.

People covered their faces in shame as they saw the camera as they didn’t want people to see how far they have fallen, from someone with a job and money to someone siting in a handout shelter.

The Greek circle of doom is one of debt piled upon debt, job cuts and tax increases all to stay in the magical club of prosperity the EU.

  1. Who will pay these taxes if there are no jobs?
  2. Who is going to pay to go to the hospital when you are injured but have no money?
  3. Who wants to work but can’t find any jobs because the tourism industry has collapsed and the government is decimating public service jobs?
  4. Who wants to survive on food handouts and get their clothes from charity shops and clothing swaps?

We now how the Greeks got in this mess and they should never have been let into the EU in the first place if it wasn’t for that moralist of banks Goldman Sachs helping to hide Greek debt so that they could pass EU tests.

Who went to jail for this massive fraud that has caused immense suffering and will do for years ahead?

We all know the EU was a political project and that the politicians and globalists behind the scenes want to keep it alive at all costs even if millions of people across Europe don’t want to. The Euro is a failure and a single Europe has been a politicians wet dream of politicians from Roman times, to Napoleon, Hitler and now the string pulling puppet masters of Europe.

The question is how long before these politicians realise this massive failure or new ones are elected that will demand real change?

I already know the answer never.

With their nice fat wages, pensions and benefits that are all designed to effect even the most populist politician and bring them into the “establishment fold” politicians ethics and morals are easily turned to dust. I could count on both hands the politicians I know around the world that stick to their words and vote according to their principles rather than their party line or because promises are made to benefit them personally.

If change comes to Europe it will be through a popular revolution as people can only put up with so much before they resort to kicking off.

Whatever happens in Greece will spread across Europe like wildfire. To Spain, Portugal, Italy and if the northern countries start suffering even more then I can see a popular revolution across Europe easily spreading by the younger generation as it’s the youth who’s future has been sold off to pay for the older generations mistakes.

They will take things into their own hands. There is only so much hopelessness a person can take, and a person with a head full of ideas but no outlet for them will find revolutionary groups attractive prospects for their thoughts and dreams.

We are having it bad at the moment in the UK but nothing like Greece.

However if it gets to the stage where whole European countries are going bankrupt and debt piled upon debt is seen as the only answer then we are in for major trouble and we aint seen nothing yet.

If the youth in London riot for fun, joining in looting and arson just because “they can” then imagine what it will be like if Greek austerity measures hit us full on hard like a steam train.

As the poor in Hackney watch from their council flats as the banksters continue to reap in huge rewards even as story after story of banking failures, missing billions, bad bets and hidden fraud fill the papers then they won’t stay happy for long.

When their council homes are taken away and charges increased or cut altogether for public services people rely on then it is only a matter of time.

The Euro has failed the question is how will it be dismantled by the votes of politicians or by the bare hands of the suffering people.

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U.S. May Lose 824,000 Jobs as Employment Data Revised: Analysis

February 3, 2010

Bloomberg News

Wednesday, February 3, 2010

Feb. 3 (Bloomberg Multimedia) — The U.S. may lose 824,000 jobs when the government releases its annual revision to employment data on Feb. 5, showing the labor market was in worse shape during the recession than known at the time.

Click here for a Bloomberg Multimedia interactive visual analysis of the economy’s job losses.

The Fed as Giant Counterfeiter

February 3, 2010

Robert Murphy
Campaign For Liberty
Wednesday, February 3rd, 2010

San Jose State economics professor Jeffrey Rogers Hummel tells all his students that the easiest way to understand the Federal Reserve is to think of it as a giant, legalized counterfeiter. I had always known that the Fed and other central banks were like counterfeiters, but I still thought that the actual mechanics of open-market operations and so forth actually provided some important distinctions.

In large part because of my frequent email exchanges with Hummel, I now realize that I was being naïve. Once you understand the details of modern central banking, you are able to step back and see that it truly is a way for the government to use the printing press to pay its bills. All of the complicated process of targeting interest rates through buying Treasuries simply hides this essential point — and perhaps deliberately so.

An Old-Fashioned Monarch With a Printing Press

Before we examine Fed operations, let’s start with something simpler. Suppose there is a powerful monarch reigning over a large, industrialized country. The monarch has managed to wean his subjects off commodity money such as gold or silver, and instead they use fiat notes, rectangular slips of paper featuring the king’s portrait. The king has a printing press at his disposal, which gives him unlimited ability to create more slips of paper with which he can buy goods throughout his kingdom.

At first, one might think that our hypothetical king has infinite wealth. But upon reflection, we see that there are actually pragmatic limits on how much new money he will print up each year. It’s true that there are no legal constraints on how many notes he can create, but the more monetary inflation he sows, the greater the price inflation he will reap.

At some point, the monarch would actually make himself poorer in the long run by running the printing press too heavily in the present. For example, if he doubled the stock of money in one year, the resulting price inflation would destabilize his economy and cause much needless capital consumption. His subjects would be less willing to invest in their businesses and retirement portfolios, knowing that he might effectively confiscate their savings again through massive creation of new money. Foreign investors too would be wary of exposing themselves to his country if he made his fiat currency too volatile.

Because of these considerations, the monarch would no doubt run off new money every year from his printing press, but he wouldn’t overdo it. He would aim for a moderate level of constant price inflation, with the purchasing power of his fiat currency slowly falling over time in a predictable manner. Each year, the new influx of money into the economy would represent a transfer of wealth from all other currency holders into the king’s possession.

Now what if our monarch is really profligate? What if he wants to spend more money than the income and tribute he earns in his position as monarch, even including the amount of new money he dares to create each year with his printing press, can support? In this case, the monarch can still resort to old-fashioned borrowing. Therefore in any given year, the monarch can only spend what he collects in tribute (taxes), debt financing, and inflation.

Modern Counterfeiting, Fed Style

At first glance, our present monetary system is nothing like the simple tale of a king with a printing press. For one thing, the US Treasury is a distinct entity from the Federal Reserve. When the US federal government runs a budget deficit, it can’t simply have the Fed print up enough $100 bills to cover the shortfall. No, the Treasury always covers its budget deficits by issuing debt, referred to as Treasuries. These are bonds, IOUs sold by the Treasury to outside investors who lend the Treasury money today in the hopes of being paid back in the future.

But wait, there’s more to the story. One of the main buyers of this Treasury debt is the Federal Reserve itself. This phenomenon is especially pronounced during emergencies such as major wars and the current financial crisis. Indeed, in the second quarter of 2009, the Federal Reserve was the effective buyer of some 48 percent of the new Treasury debt issued that period, as part of its “quantitative easing.” It’s true, the Fed doesn’t show up at the Treasury auctions and directly buy the new T-bills and so forth, but private dealers pay higher prices for the Treasuries knowing that the Fed is waiting in the wings to pick them up.

At this point let’s review exactly what happens when the Federal Reserve buys Treasuries from private dealers. Let’s say the Fed wants to buy $1 million worth of T-bills from Joe Smith. So it writes Joe a check for $1 million, drawn on the Fed itself. Joe hands the T-bills over to the Fed, where they end up on the asset side of its balance sheet. Joe then deposits the check in his personal checking account, which goes up by $1 million.

“If nothing else, the Fed’s massive buying of Treasury debt pushes up the auction price of the Treasuries, meaning the federal government can borrow at cheaper interest rates.”

So at this point the Fed has increased the money supply by $1 million. In normal times, because of the fractional-reserve banking system, Joe’s bank would lend out $900,000 of the new deposit to another customer, so that the money supply would grow even further. But that’s not what interests us in this article, so we’ll leave that train of thought.

What we want to focus on is the effect of the Fed’s purchase on the US Treasury. By entering the bond market and buying Treasuries (with money created out of thin air), the Fed pushes up the price of the bonds. That of course means that their yield drops. So, for example, if the Treasury issues a T-bill promising to pay the holder $10,000 in 12 months, then the auction price determines how much money the Treasury actually gets to borrow now in exchange for this promise to pay back $10,000 in one year. If the demand is such that people pay $9,901 for each T-bill with a face value of $10,000, then the Treasury gets to borrow money for a year at an interest rate of 1 percent.

Already we see why the folks at the Treasury are big fans of the Fed’s “quantitative easing” program, in which Bernanke decided it was in the national interest to begin adding more than a trillion dollars’ worth of Treasury debt to the Fed’s balance sheet. If nothing else, the Fed’s massive buying of Treasury debt pushes up the auction price of the Treasuries, meaning the federal government can borrow at cheaper interest rates.

Now, if this were the whole story, it would be fishy but not nearly as bad as our hypothetical monarch with the printing press. Sure, the Fed would create new dollars (which would push up dollar prices of goods and services) in order to keep the Treasury’s borrowing costs low. But still, the Treasury would have to pay some interest on its debt, especially for longer-dated debt with higher yields, like 10-year Treasury notes. So although the mechanism we have described would encourage the Treasury to run higher deficits at the expense of average people, who suffer from rising prices, things don’t seem nearly as crooked as they were in the case of our monarch.

Ah, but we’re not done yet. Not only does the Fed’s accumulation of Treasury debt artificially push down the interest rate, but the Fed gives the interest payments right back to the Treasury! After all, interest is how the Fed “makes money.” It writes checks on itself (created out of thin air) and accumulates assets, and then earns the interest and (in some cases) capital gains on the assets. But after the Fed pays its employees, pays its electric bill, and throws the staff Christmas party, it remits the excess earnings back to the Treasury.

For example, in fiscal year 2008 the Federal Reserve distributed to the US Treasury some $31.7 billion (page 173)Download PDF of its net earnings. To repeat, much of this money consisted of interest payments that the Treasury paid out to the holders of its debt, who just so happened to be the Fed for much of it. So not only is the official rate of interest kept artificially low by the Fed’s money-creation, but the interest payments themselves are largely refunded to the Treasury, to the extent that the Fed ends up holding the Treasuries rather than outsiders.

“But after the Fed pays its employees, pays its electric bill, and throws the staff Christmas party, it remits the excess earnings back to the Treasury.”

All right, so the Fed (a) suppresses the interest rate on Treasury debt and (b) refunds virtually all of the interest payments on Treasury debt held by the Fed. And remember, the way the Fed does this is through creating new dollars out of thin air, in order to buy the Treasury debt from the original investors who lent money to the Treasury. Therefore the Fed is clearly giving aid to the US government’s deficit spending at the expense of everyone holding assets denominated in US dollars.

Still, the one thing holding back the complete recklessness of the feds is that they still have to pay off the principal of their bonds when they mature, right? In other words, all we’ve really shown is that the Fed allows the Treasury to run deficits virtually at zero interest expense, at least for debt held by the Fed. But this is still a far cry from our hypothetical monarch, who had a whole component of his expenses which he met year in and year out by running the printing press.

Sorry, but our own monetary system has the same feature. When the Treasury securities held by the Fed mature — so that the Treasury has to pay back the face value in principal — the Fed rolls over the debt. Over time, the nominal market value of the Fed’s holdings of Treasury debt continually grows. Barring a sudden reversal in this policy, the Treasury knows that it will never have to pay off this debt. For all practical purposes, any Treasury debt ultimately finding its way onto the Fed’s balance sheet is economically equivalent to our monarch running the printing press to pay his bills.[1]

We have just one last consideration. Up till now we’ve seen that the modern US government, with its complicated central bank and fiat money system, operates essentially as a king with a simple printing press, to the extent that the Fed is willing to accumulate larger holdings of Treasury debt. But what determines how much the Fed is willing to take on? At what point would the Fed decide to ease off on its open-market operations and stop creating so many new dollars to (indirectly) hand over to the government?

The ultimate constraint on the Fed’s operations is the same one our hypothetical king faced: investor and citizen backlash in response to rising prices. That is, the Federal Reserve can only absorb so much of the Treasury’s new debt each year because too much dollar-creation would lead to unacceptably high price inflation. Thus our profligate government, like the hypothetical monarch, must finance some of its spending through traditional borrowing from private citizens and other governments.

Conclusion

Stripped of its fancy terminology and confusing mechanics, modern central banking boils down to a legalized counterfeiting operation. If there were suddenly a widespread public outcry to “punt the press,” we can bet our hypothetical monarch would mobilize all his allies in the media to discredit the people threatening his source of revenue. In that light, we can understand the reaction today to people calling to “end the Fed.”

Notes

[1] Actually, because private banks typically cause further money creation by pyramiding more loans on top of the Fed’s initial injection of new money, our financial system is arguably worse than the hypothetical monarch’s. In order for the king to finance a $1 billion deficit through inflation, he had to print up $1 billion worth of new currency. But if the Fed creates $1 billion in order to absorb that much in new Treasury debt, typically the actual money supply can end up rising by $10 billion. Thus modern inflation through central banking in democratic states is arguably less “efficient” than under a monarchy with an explicit printing press.

Obama’s Budget Has One Small, Missing Piece…. For $6.3 Trillion Dollars

February 2, 2010

Tyler Durden
Zero Hedge
Tuesday, February 2nd, 2010

Today, to much fanfare, the administration released its ridiculous $3+ trillion budget (we say + because at that size the one thing certain is that the budget will certainly never hit the target and while we wish it would be lower, we are certain it will end up materially higher), which consists of a “short” 192-page summary section and a 1420 page appendix. We are confident that not one politician will read the whole thing from cover to cover. We won’t either. Not because we don’t care about what’s in it, but because we are much more concerned with what is not included, namely $2.8 Trillion and $1.9 Trillion of MBS guaranteed portfolios at Fannie and Freddie, and an additional $782 billion and $809 billion in company debt outstanding for the two GSEs, respectively. This amounts to a total of $6.3 trillion in liabilities which should be counted toward the budget. And yet, oddly, the error-checker somehow made this rather justifiable omission: after all if we were to look at a number which written out looks as follows $6,264,000,000,000.00, we would also probably just avoid it – it is somewhat difficult to hide a number that big even in the 1,420 pages of the budget’s appendix. That’s ok, we are here to remind them about the omission, and also to remind Mr. Orszag, who himself, in that long ago 2008, espoused that these companies should be put on the Federal Budget. Isn’t it strange what one and a half years worth of realizations just how broken beyond repair the system is, will do to one’s convictions?

Let’s remind our readers of what then-CBO director Peter Orszag said on September 8, 2008, at the press conference announcing the conservatorship of the bankrupt mortgage titans. Below we transcribe the relevant Q&A:

QUESTION:  (OFF-MIKE) completely incorporated into the federal budget?
ORSZAG:  What I— what I said was it is our view that at this point they should be incorporated into the federal budget, that we intend to do that in our January baseline and that with regard to the budget of the United States, which is put together by the administration’s Office of Management and Budget, that—the treatment therein will obviously be up to OMB, but it is our hope that working with the budget committees and OMB we can have a consistent treatment between our baseline and their budget.
QUESTION:  This may be a little repetitive, but can you give—and if—if you do what you just said you would do, incorporating the mortgage companies into the federal budget directly, can you estimate at all the impact on federal receipts and federal outlays?
ORSZAG:  I don’t—I could but I don’t want to. And the reason is that—is that again that can depend very sensitively—there is a lot of mortgage-backed security activity, and it can depend a lot on how this tension between whether if you buy a hundred-dollar’s worth of mortgage-backed securities that is scored as a hundred dollars in spending or whether that’s evaluated at its subsidy value, the numbers can be dramatically different. So I’m—until we reach judgment on, in particular, that issue but a few others, it’s premature for me to give you the raw (ph) numbers.
Christian (ph) and then (inaudible).
QUESTION:  Sure, but just in a conceptual sense, though, you are ruling that—that Fannie and Freddie are now part of the public sector. They’re now part of the government. They are in effect nationalized.
ORSZAG:  We are saying that the degree of control exercised by the federal government over these entities is so strong that the best treatment is to incorporate them into the federal budget.

Alas now-White House budget director is singing a radically different tune. According to a statement from the administration: “The administration continues to monitor the situation of the GSEs closely and will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate.” We hope this update will come at least a few days before America files for bankruptcy. Oh, and what is this difference in MBS scoring between “spending” and “subsidy value.” Could we maybe please got some color on which of these two concepts applied to the nearly $100 billion in MBS sales initiatied by Bill Gross, with the US taxpayer as an unwitting buyer.

As there may have been some confusion as to the magnitude of the numbers we are discussing here, we are providing a break down of total GSE debt introduced just a few days ago by Neil Barofsky.

As readers can see, we are not talking about just any paltry amount: the most recent US total debt balance was $12.222 trillion. It would seem a little presumptuous that an amount representing more than half of the total US sovereign debt is conveniently swept under the rug.

And with the omission from the Federal Budget, America’s population once again has absolutely no visibility into the real fiscal costs associated with the government’s support for the Debtor Nation Sponsored Entities (aka DeNSEs). Not only that, but at some point we really should have a discussion over just what the delicate transition from the existing “conserved” [sic] status to a full nationalization and permanent US debt onboarding. Because otherwise the ignorant morts may think that the Federal Reserve was responsible for purchasing just $300 billion worth of US debt, when in reality, courtesy of what should have been a Budget liability, the Bernanke policy will have been responsible for purchasing essentially $1.7 trillion worth of US securities. And the whole MBS-UST rotation by China, PIMCO and everyone else who was clever enough to hold the worst possible security around, would just have been a little more formalized than assorted discussions in the fringe media.

Luckily for the administration, today’s budget provided absolutely no color, and further confirmed that Orzsag is nothing but a pure-blood hypocrite who says whether is suitable for the occasion. Seeing how the Volcker plan is about to be retracted, we reserve judgment for the President until such time as he formally announces his prop trading ban was simply the result of an HFT algorithm gone amok in his telepromter. But we digress. As for the whole “GSE-reform” thing, the administration will do it soon. Not today… But soon. After all: what is 40% of GDP? Bernanke can print that in like 2 days.

What we do know, is that recently the Treasury formally gave itself unlimited bailout capacity as pertains to the GSEs, once again making the case that in the grand scheme of things Treasury and GSEs liabilities are essentially the same concept. Of course, the public’s, media’s, and assorted CDS traders’ reactions, were they to suddenly uncover that the US debt-to-GDP is actually more like 130% than 90%, would be quite amusing. We also know that by this action the administration has avoided the recognition of about $100 billion in cash outlays compared to the prior CBO estimate. Oh yes, we almost forgot how self-congratulatory the Treasury was when it announced that its January-March and March-June quarter borrowing needs would be lower than expected.

What we definitely know is that we now live in a system where delusion is the norm: we have an administration that willfully and consistently deludes its population from representing just how bad our economic debacle really is, and we have a population, that willfully and consistently is happy to accept lies and delusions from every media and administrative outlet, and in turn deludes the administration that it will pays it taxes, or not walk away from yet another underwater mortgage. Rinse. Repeat.

What we are positive, is that this arrangement of mutual delusion will persist will spectacular success. Until it doesn’t.

Implications For Gold In The Aftermath Of The Greek Crisis

February 1, 2010

Tyler Durden
Zero Hedge
Monday, February 1st, 2010

With the euro having dropped substantially from a high of around $1.51 to less than $1.40 in the span of a few short months, it has sent gold buyers looking for cover, mostly as a function of the linear (and at times sigmoidal) inverse correlation between gold prices and the DXY which throughout 2009 has held surprisingly strong. Yet will a dollar scramble prove that the recent flight to gold has been premature? BofA believes that while the near-term implications for gold are as of yet undecided, relying on both € (bearish) and risk (bullish) signals, the long-term drivers for gold should be price supportive, especially for EUR-based investors. Proper positioning can be adopted using OTM gold calls, which are not only no longer as rich as they were a mere month ago, but would benefit substantially should Greece indeed follow through with an actual default and result in a flaring of all risk indicators, further precipitating a flight to euro alternatives, among which the dollar, and gold, are dominant.

Bank of America suggests:

In the case of an actual default, even an orderly one, increased systemic risk is likely to support gold prices as investors look for a safe haven. The more disorderly the default turns out to be, the more upside we see on gold. However, if Greece just muddled through the crisis or ends up being bailed out, gold may not fare that well. If the Greek problem does not spread to other countries in the Euro area, gold prices are likely to suffer due to a weaker EUR against the USD.

[T]he long-term consequences of Greece’s debt crisis for gold prices are clearly constructive, in our view. Emerging Market central banks are ever more aware that gold is one of the few viable alternatives to the USD. A deterioration of Greece’s creditworthiness, even if bad for the EUR, should support gold prices in the long run, in our view.

The main question, as discussed previously, is how will EM central banks decide to allocate their trade surplus FX reserves. Contrary to some gold-bearish perceptions, it is very likely that an increasingly deteriorating Greek situation, will force EM CBs not only to unwind € holdings and use the resulting capital to purchase dollars, but to augment their gold reserves as well. Thus the price determining factor will be decided in the marginal scramble for dollars versus gold.

Emerging market central banks (EM CB) are ever more aware that gold is really one of the few viable alternatives to the USD. Top holders of currency reserves like China, Russia or India will likely need to increase their exposure to gold over the coming months and years as the value of fiat currency reserve holdings like the USD or the EUR comes into question. The obvious problem with diversification is that there is simply not enough gold to go around. So a deterioration of Greece’s creditworthiness, even if negative for the EUR, should be supportive of gold prices in the long run, in our view.

And with gold prices still, presumably, reflective of a dollar-destruction rampage courtesy of the Federal Reserve, what would be the proper way to express a cheap bullish bias toward a spike in gold prices should a risk-flaring episode come back once again? BofA suggests that clients look to gold OTM calls, which are no longer a ripoff compared to ATM calls. In fact the call skew in gold, which still bullish, is half as expensive as it was on November 20, 2009. Yet investors most likely to benefit from such appreciation would likely not be USD-based speculators but those found in a EUR regime.

In our view, gold OTM calls look appealing for investors willing to play a potential Greek default through the gold market. Volatility levels have been declining and 3M ATM implied vols are now trading at levels last seen in late 2007. While the gold options market continues to price in appreciation, together with the CNY and the JPY, the call skews in gold have become less pronounced. That is, OTM calls are no longer as rich as they used to be when compared to ATM calls. In the event of a default, gold prices and volatility are likely to spike. If Greece’s problems are contained and the EUR (and gold prices) suffers, investors are protected on the downside. USD-based investors may find gold to be an ineffective hedge in this event. However, EUR-based investors could, in our view, hedge by buying gold calls in EUR, as the price of gold in EUR terms should remain well supported.

The biggest concern for outright gold longs will be whether the transfer in mentality from one of continuous dollar debasement in which the demand would come from traditional USD-based investors seeking to hedge and capture stock gains by allocating increasing capital to gold, to a perspective of gold as an increasing investment allocation for central banks, who seek to abandon the euro as a capital flow and pursue less risky exposure. Should this increased central bank demand be coupled with lack of incremental selling by those who already are in possession of Gold spot and future positions, and the probability for increasing gains in the fiat-alternative seem to accelerate. Lastly, for some additional insight into the crystallizing plight of the German government vis-a-vis Greece, as well as the increasingly torn fabric of the European Monetary Union, we strongly recommend the latest piece by Evans-Pritchard, “Should Germany bail out Club Med or leave the Euro altogether?”

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Iceland president: We are being bullied

January 31, 2010

By Anouk Lorie
CNN
30th January 2010

Iceland’s president accused the United Kingdom and the Netherlands on Friday of financially “bullying” his country.

Olafur Ragnar Grimsson said the two countries had been “using their influence within the International Monetary Fund” to stop it lending Iceland billions of dollars needed to rebuild the country’s debt-ridden economy.

“We are being bullied. The British and the Dutch are using their influence within the IMF to prevent the IMF program from going forward,” Grimsson told CNN’s Richard Quest.

“We have a situation, where a small nation is in fact ready to shoulder part of this burden but doesn’t want to be put in a corner where the very survival of its economy in the next 10 years would be at stake.”

The comments came after the UK expressed anger at the highly controversial decision by Iceland’s president’s to veto a bill that would pay back billions of dollars Iceland owes the UK and Netherlands. Britain was forced to spend $3.69 billion last year to cover the losses that British savers incurred when Icelandic banks collapsed.

The British and Dutch governments condemned the decision by President Grimsson and hinted at repercussions for Iceland’s bid to join the European Union and for its $10bn international economic rescue program.

Despite being already approved by Iceland’s parliament, Grimsson refused to sign the bill and called for a national referendum.

Grimsson told CNN:  “May I remind that if you take the sum that the Icelandic taxpayers are asked to shoulder and you transform it in to the British economic system to get the relative size, this is equal to the British taxpayers being asked to pay £700 billion ($1.1 trillion) for the years and decades to come.”

Icelandic Prime Minister Johanna Sigurdardottir hinted that the move could further tarnish the country’s image and crush its hopes to become a member of the European Union.

“Uncertainty… in the formal dealings with others countries can have unforeseen, wide-ranging and potentially damaging consequences for our society,” she warned.

And while the repayment of Iceland’s debt to the UK and the Netherlands is not theoretically a pre-condition for it to receive IMF funding, the president’s actions could hinder it.

But Grimsson told CNN his move was in the name of democracy. He said he acted in response to the one-quarter of Icelanders who petitioned against the compensation bill that would cost about $17,300 per Icelandic citizen.

“We have forgotten that there are two pillars in the western heritage that we are proud of. One is the evolution of the free market but the second is the evolution of democracy,” Grimsson told CNN.

“And what I did was when I was faced with a decision between the financial concerns on the one hand, and democracy on the other, I decided to go with democracy.”

Grimsson’s veto also reflects his country’s anger with their treatment at British hands at the height of the economic crisis, when the UK employed anti-terror legislation to freeze Icelandic assets.

“They put my country, on the official Web site, the British government Web site, side by side with al Qaeda and the Taliban.

“And the second thing was that Gordon Brown in October and Alistair Darling went on global television, including CNN and stated that Iceland was a bankrupt country.

“Which was utter nonsense at its best and financial terrorism on their part at its worst.” He added: “This meant that companies all over the world, who had had dealings with Iceland, closed their operations down.”

As a result, said Grimsson, his economy was damaged by the British “to a greater extent than otherwise would have been the case.”

In a statement on January 6, however, a spokesperson for the British prime minister said that “the Government expects the loan to be repaid.

“We are obviously very disappointed by the decision by the Icelandic President, but we do expect Iceland to live up to its legal obligations and repay the money.”

View the original article at CNN

Bankers in favour of paying global tax

January 30, 2010

Patrick Jenkins and Tom Braithwaite
Financial Times
Saturday, January 30th, 2010

Some of the world’s most prominent bankers have come out in favour of a global bank wind-down fund, a concession from the industry after weeks of fighting proposals for new taxes in the US and Europe.

Josef Ackermann, chief executive of Deutsche Bank, told the Financial Times on Friday : “To help solve the too-big-to-fail problem I’m advocating a European rescue and resolution fund for banks. Of course, the capital for this fund would have to come from banks to a large degree.”

Bob Diamond, president of Barclays , also supported the idea of a global levy, which could see banks contribute tens or even hundreds of billions of dollars over a period of years.

“I think every G20 country would like to have an insurance scheme that would help cover the cost of any future bank failure,” he told the FT at the World Economic Forum in Davos. “A co-ordinated global system is preferable to an unlevel playing field.”

Full article here

Davos 2010: George Soros warns gold is now the ‘ultimate bubble’

January 29, 2010

Edmund Conway
London Telegraph
Friday, January 29th, 2010

Gold is now “the ultimate bubble”, billionaire investor George Soros has declared, sparking fears that prices for the precious metal may soon suffer a tumble.

Mr Soros, arguably the most famous hedge fund manager in history, warned that with interest rates low around the world, policymakers were risking generating new bubbles which could cause crashes in the future. In comments delivered on the fringe of the World Economic Forum, Mr Soros said: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”

Full article here

A New Approach To Regulating Wall Street Could Be More Than Wishful Thinking

January 29, 2010

Bob Chapman
International Forecaster
Friday, January 29th, 2010

The return of Paul Volcker, bailed out banks out of touch, greedy and arrogant and are due for a change, can there be jail time for Wall Street gangsters? Other countries in a fragile economic state, just as ours is, Bernanke bailed out himself, SEC secret files.

Paul Volcker is back and things are about to change in Washington. A split has occurred between the paper forces of Goldman Sachs and JP Morgan Chase. Mr. Volcker represents Morgan interests. Both sides are Illuminists, but the Morgan side is tired of Goldman’s greed and arrogance. Volcker cannot be called old school or anachronistic. He represents sanity in an insane financial world even though he is an integral and powerful part of the elitist structure. He represents a change in gears and approach. The present administration and the Democratic Party has lost its moorings and is in on a path of political suicide. They have tried to get passed impossible legislation that the American people do not want, and they will abandoning those positions, because they are no longer tenable. The election of Scott Brown in Massachusetts was a major defeat for all administration programs. As you will see Mr. Obama and fellow Democrats will start sounding like popular conservatives and populist talk show hosts, as they attempt to win back their center. That is where Paul Volcker fits in. He is back and major changes are about to take place financially and politically.

Goldman Sachs, Citigroup and others in their greed have lost touch with economic and financial reality and they looted the system. Not that JP Morgan chase was blameless, they did their looting and damage to the system as well, but not in the high handed arrogant way the others did. The recall of Volcker is an attempt to reverse the damage as much as possible. That means the influence of Geithner, Summers, Rubin, et al will be put on the back shelf at least for now, as will be the Goldman influence. It will be slowly and subtly phased out. One of the things we have always believed is that Volcker was never out of touch. He is brilliant, brash, irreverent and successful.

There is a real split that has developed over the past year between the Morgan and Goldman forces. For Goldman it has been a difficult year; they got caught stealing. First in naked shorts, then front-running the market, both of which they are still doing, as the SEC looks the other way, and then selling MBS-CDOs to their best clients and simultaneously shorting them. Such unethical, despicable behavior is criminal. As criminal as Berkshire Hathaway’s $100 million fine for fraud, but no jail time for the crooks, which includes Warren Buffett. As a result of the antics of Goldman and Buffett, Washington needs a new face on Wall Street, not that of a criminal syndicate. Mr. Obama and the Democrats need a cleaner Wall Street, that can be respected, and that can assist the administration of strong markets, higher employment and sustainable economic recovery. An economy that has floundered and made little gain in spite of a major infusion of stimulus, bailouts and $13.7 trillion in monetary injections.

The attempt will be to bring the financial system back to brass tacks. No more arrogant fat cats. A subtle quieter Wall Street. Stability is what is needed and Volcker can bring that if he is allowed too. That would include little or no MBS and CDOs, the regulation of derivatives and hedge funds and the end of massive market manipulation, both by Treasury, Fed and Wall Street players. Congress has to end the “President’s Working Group on Financial Markets,” or at least limit its use to real emergencies. Needless to say, the Fed has to be eliminated and that power returned to our Treasury Department as we close the revolving door between Wall Street and Washington. In a new terrible wrinkle the recent Supreme Court decision allowing corporate America to buy politicians has to be reversed by Congress ASAP. The SEC and the CFTC have to stop aiding and abetting Wall Street and become protectors of the investors. If that cannot happen they should be replaced by quasi-government entities that will catch the crooks on Wall Street and really punish them. Not with fines but with time in jail. The Glass-Steagall Act should be reintroduced into the system and lobbying and campaign contributions should end. How is that for cleaning house?

Securities firms should not be allowed to be or own banks, and insurance companies. Banks, insurance companies and brokerage firms should only be allowed to control a portion of their markets. No more monopolies and no more too big to fail. All books at corporations should always have to mark-to-market, not mark-to-model and two sets of books should be banned. The BIS and the FASD should be allowed to set guidelines that protect the public as well as participants. What we have now is political force. Fannie Mae, Freddie Mac, Ginny Mae and FHA should be sold to private interests. The government should not be in the insurance or real estate business. No more politics in lending and banks should be limited to a lending ratio of 10 to 1. If they do not comply they should be shut down. It is bad enough they have the leverage that they have. State banks such as North Dakota’s are a better idea.

This brings us back to the administration and Mr. Volcker. We know they cannot accomplish these changes; only a few would be helpful. It is obvious there will be little or no recovery and solutions have to be found for immediate problems. We see no way the current credit mechanism can reinvigorate what is left of the system. The money machine will be allowed to because the minute it is turned off the game is over. Mr. Volcker is well aware of that. It could be that will be his solution as it was in the early 1980s. The politicians, particularly the Democrats and the administration are outraged at what Wall Street has done, particularly Goldman Sachs. There are many changes coming and we will have to try to anticipate which way things are headed.

We believe the Treasury Department is in desperate demand for investors to buy Treasuries. After many years the world has finally awakened to the fact that the US is broke and has been for a long time. Now fewer and fewer investors consider Treasuries as a safe haven. Who in their right mind would buy a Treasury bill with a negative or zero return? We would guess because the buyer perceives them to be safe, perhaps willing to lose some 7% to 8% to inflation. These sales are averaging $50 billion weekly. As the buyers dry up and in order to avoid Fed purchase and monetization, government is eyeing your retirement investments to be the source of their new annuity scheme. This past week the PPT allowed the market to fall just to scare investors into buying Treasuries. It fell 552 points in three days from 10,725 to 10,172, in an atmosphere where for a long time, via the PPT it has been controlling the market. Something serious is definitely up and we probably are approaching the next wave of trouble. We are not alone. Japan is wobbling; China has gone too far with stimulus and is facing hyperinflation, and the eurozone could be facing a breakup, a reduction in size, and perhaps eventually a total breakup. These problems and all the problems in G-20 countries we need like we need a hole-in-the-head. They have all made the same stupid mistakes. We could be facing a perfect storm, and this time it won’t be different; it will be worse. History tells us it will be worse. This is not bad judgment or incompetence it is a takedown of the world economies and financial structure in order to implement World Government. It has been tried over and over again for centuries for the past more than a thousand years; the attempt to bring back the control that the Roman Empire once had for longer than their 500 year reign. Empires collapse and have over this period in time in part due to greed and power, the power to control people. The theme is not the mismanagement of markets and things fiscal and monetary, but the deliberate takedown of today’s financial structure. In history have you ever heard of financial experts collectively in total buying AAA rated bonds that were Triple B? Can their attorneys not read the fine print? Of course they can. Or have you ever heard of lenders lending 40 to 70 times underlying assets, deposits, when 8 to 10 times is normal? Of course you haven’t, because it is prescription for destruction. Why would lenders simultaneously do such things? Because they were acting in concert to take down the system. There are only a handful of writers who recognize the true meaning of what is happening to our civilization. That is because other writers want to be accepted by their peers and within their society. They do not want to step outside the limits; they do not want to end up in an internment camp. That is why they are seldom correct and why we have the problems we have today. All the economic and financial answers do not add up, don’t work, if you truly understand what is going on behind the scenes.

Tiny Tim has warned us again, like his predecessor Henry Paulson, that if you do not reappoint Helicopter Ben then the market will collapse. This again makes it plain that we live in a corporate fascist thugocracy. This gives even greater importance to auditing the Fed and abolishing it. We need US notes, not Federal Reserve Notes.

The Senate results in Massachusetts have really thrown a monkey wrench into the plans of the Democratic Party. No Cap & Trade, perhaps no medical reform, no immigration reform and not enough votes to pass a new limit of debt of $14.294 trillion. In order to service such giant debt, official short-term Fed rates have to be kept at current levels.

States, provinces, cities, towns, counties and Federal Governments worldwide are in debt for more than they should be and are suspects for bankruptcy. Remember as famous economist Franz Pick once told us that debt paper is guaranteed certificates of future confiscation. Almost all governments have followed the lead of the G-20 trying to stimulate their way out of recession or depression.

Governments within the US are in terrible shape financially. The federal government has unfunded liabilities for pension and medical benefits of some $3 trillion. The November trade deficit was $34.6 billion. The December deficit is $91.9 billion, almost double year-on-year. Quarter-on-quarter the deficit was 17% higher. The deficit for October 30, 2009 was $1.4 trillion and 2010’s deficit will be higher than $1.70 trillion. No sane person would buy government bonds after looking at these numbers. You might say this is the future and we do not like the looks of it.

During this past week the Dow lost 4.1%, S&P 4.3%, the Russell 2000 3.4% and the Nasdaq 100 fell 3.9%. Banks slipped 0.8%; utilities 1.4%; high tech 4.5%; semis 4.6%; Internets 4.2% and biotech’s 2.2%. Bullion sank $36.00 and the HUI fell 8.6%. The dollar gained 1.3% to 78.29.

Two-year T-bills fell 7 bps to 0.75%; the 10’s fell 7 bps to 3.59%; the 15’s fell 5 bps to 4.40% and the one-year ARMs fell 7 bps to 4.32%. The 30-year jumbos fell 6 bps to 5.96%.

Fed credit increased $5.1 billion to a 52-week high of $2.231 trillion. Year-on-year it is up $181.6 billion. Fed foreign holdings of Treasury and Agency debt fell $5 billion to $2.946 trillion. Custody holdings for foreign central banks rose $405 billion or 15.9% yoy.

M2 narrow money supply fell $9.4 billion to $8.452 trillion.

Total money market fund assets fell $46 billion to $3.240 trillion. Year-on-year that is off 16.8%.

In Friday’s FDIC Financial Follies, five more banks went under. All were absorbed by other institutions. Last year 140 failed. It could be as high as 1,000 to 2,000 over the next 1-1/2 years.

Ben “Helicopter” Bernanke has supposedly been bailed out by the White House and the Senate Republican leadership, with Republican flex-spending accounts to buy off Senators. Corporate America owns our country and almost all incumbents have to be thrown out of office in November from both parties. Again, Americans strongly oppose the reappointment of Mr. Bernanke, but that doesn’t mean anything in our corrupt government. Let’s make sure the political spin doesn’t work anymore. Scream at the top of your lungs non-confirmation and the resignation of Geithner.

We found it of great interest that the SEC has disclosed in an e-mail to the Fed that they keep secret financial records related to national security that only two people at the SEC are allowed to access. We heard of such files 30 years ago from our sources in Washington, but were never able to get concrete confirmation. We have been told it is not only for financial records, but regarding individuals as well. We have been a political target of the SEC since 1967. We believe this same safe holds the records pertaining to the manipulation of all markets by the “Working Group on Financial Markets.”

Senior executives from J.P. Morgan Chase & Co. also got involved. Rainmaker James B. Lee, who serves as a firm vice chairman, and Jes Staley, who runs the investment bank, each placed calls to senators over the weekend urging support for Mr. Bernanke, according to a person familiar with the situation.

Obama and big-government socialists still don’t get it. Instead of restructuring the US economy and recharging the small business jobs machine, they will try to bribe voters with chump-change tax credits and cost-hike mandates on businesses, which will retard job creation. It’s Sen. Brown’s fault!!

President Obama will propose in his State of the Union address a package of modest initiatives intended to help middle-class families, including tax credits for child care, caps on some student loan payments…the president is calling on Congress to nearly double the child care tax credit for families earning less than $85,000…But the credit would not be refundable, meaning that families would not get extra money back on a tax refund.

Another of the president’s proposals, a cap on federal loan payments for recent college graduates at 10 percent of income above a basic living allowance, would cost taxpayers roughly $1 billion. The expanded financing to help families care for elderly relatives would cost $102.5 million — a pittance in a federal budget where programs are often measured in tens if not hundreds of billions of dollars.

President Obama has also proposed an innocuous deficit reduction plan that would reduce the budget deficit $25B per year for 10 years, if all those rosy projections come true. They seldom do.

The plan entails freezing $447B of discretionary domestic spending, which is only about 1/6 of the budget. The freeze would NOT include military, foreign aid, national security and mandatory-spending programs such as Social Security and Medicare.

S&P Issues a Warning on Japan’s Credit Rating

January 28, 2010

DOUGLAS MCINTYRE
Daily Finance
Thursday, January 28th, 2010

Credit rating agency Standard & Poor’s says it may downgrade Japan’s current AA sovereign debt rating by one “notch,” which would bring it to AA-. That’s particularly noteworthy because Japan is either the world’s No. 2 or No. 3 economy by GDP, virtually tied with China. S&P has officially changed its outlook on Japan’s debt from stable to negative.

In a statement S&P says an actual rating downgrade could occur “if economic data remain weak and measures to boost medium-term growth are not forthcoming, given the country’s high government debt burden and its weak demographic profile.” Japan’s problems don’t begin to approach those of Greece and Ireland, where national solvency is an issue. It does, however, point to the extent to which the debt of the world’s largest and most developed economies are under scrutiny.

S&P and other credit rating agencies have recently expressed their concerns about U.S. and U.K. sovereign debt, however without directly threatening changes in their rating status.

But the problems in the largest Western nations are not unlike Japan’s. The U.S. federal budget deficit is expected to rise by $8 trillion over the next decade. The actual figure may be somewhat higher or lower, depending on the source of the analysis. Still, any increase certainly means higher annual debt service, which will put additional strain on the nation’s annual budgets.

Full article here