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Yellenomics – or the Coming Tragedy of Errors |

Yellenomics – or the Coming Tragedy of Errors |. (source)

Keynesian Paradigm to Be Revived

We have come across a recent article at Bloomberg that discusses the philosophical roots of Janet Yellen’s economics voodoo. This seems in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke’s erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman).

Janet Yellen, so Bloomberg informs us, was a student of the Keynesian James Tobin at Yale, the economist whose main claim to fame these days is that a tax is named after him. Tobin, like other Keynesians, was an apologist for central economic planning, which made him eligible for the central bank-sponsored Nobel Prize in Economics. He was undoubtedly a man after the heart of the ruling class. It is therefore not a big surprise that one of his students gets to run the Federal Reserve, which is one of the main agencies, if not the main agency, by which the rule of money power and central economic planning are perpetuated. It should be noted that the inflationist who runs the central bank of Argentina, Mercedes Marco del Pont, was also trained in Yale. Marcos del Pont once asserted sotto voce in a speech that the enormous ongoing plunge in the purchasing power of the Argentine peso was not a result of her incessant massive money printing. Since she didn’t deign to explain what actually causes it then (foreign speculators perhaps? Just guessing here…), it presumably is just a case of ‘sh*t happens’. This just as a hint as to what can be expected from economists trained at Yale.

From the Bloomberg article:

“When James Tobin joined President John F. Kennedy’s administration in 1961, the U.S. economy was struggling to recover from its third recession in seven years. As a member of Kennedy’s Council of Economic Advisers, the Yale University professor put his theoretical research on asset markets to work in fashioning a novel strategy — nicknamed Operation Twist — to reduce long-term interest rates.

Now, more than half a century later, two of Tobin’s Ph.D. students — Janet Yellen, nominated to be the next chairman of the Federal Reserve, and Koichi Hamada, a special adviser to Japanese Prime Minister Shinzo Abe — are applying some of those same concepts in their efforts to boost their respective countries’ economies.

Tobin’s work on asset markets with fellow Yale professor William Brainard “is essentially the backbone of quantitative easing,” said Edwin Truman, a former Fed official who taught at the school in New Haven, Connecticut, from 1967 to 1972.

The portfolio-balance theory found that policy makers had the ability to affect the prices of individual assets by altering their supply and demand in the financial markets. And that in turn would have an impact on the economy.

The research won Tobin the Nobel Prize in economics and formed the justification for the late economist’s strategy to twist the bond market’s yield curve in 1961 by selling shorter-dated securities and buying longer-term ones.”

(emphasis added)

Naturally, the Bloomberg article neglects to mention that Tobin’s toxic advice to Kennedy laid the foundation for the later Nixon gold default and the roaring ‘stagflation’ of the 1970s.

What is not surprising though is that one of the witch doctors advising Shinzo Abe on his hoary inflationist policies also turns out to be a Yalie indoctrinated by Tobin. The only good thing we have to say about this particular circumstance is that it will accelerate the inevitable collapse in Japan, and thus perhaps bring forward the moment in time when unsound debt and malinvestments in Japan are finally liquidated.

Unfortunately it is to be expected that this will involve massive theft from Japan’s savers and bring misery and misfortune to millions, as the statists will no doubt try everything to save the present system. The eventual confiscation of the citizenry’s wealth is undoubtedly high on their agenda for dealing with ‘fiscal emergencies’  (for proof, see the recent proposals by the IMF, which are more than just idle thought experiments. They are the blueprint for what we must expect to happen down the road).

Tobin

Keynesian economist James Tobin – he looks harmless enough, but was a wolf in sheep’s clothing. There is no government intervention in the economy he didn’t like or recommend. His work was directly responsible for the catastrophic ‘stagflation’ of the 1970s.

(Photo via AFP / Author unknown)

The Economic Illiteracy of the Planners

Bloomberg also  brings us a brief excerpt from a speech Ms. Yellen delivered on occasion of a reunion of the Yale economics department. The excerpt perfectly encapsulates her and the department’s philosophy (which is thoroughly Keynesian and downright scary):

“Fed Vice Chairman Yellen laid out what she called the “Yale macroeconomics paradigm” in a speech to a reunion of the economics department in April 1999.

“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not,” said Yellen, then chairman of President Bill Clinton’s Council of Economic Advisers. “Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes,” although there is “uncertainty with which to contend.”

(emphasis added)

She couldn’t be more wrong if she tried. We cannot even call someone like that an ‘economist’, because the above is in our opinion an example of utter economic illiteracy.

First of all, the premise she proposes is completely mistaken. The unhampered market economy is the only economic system that can guarantee maximum employment. Only in an economy where there is no intervention in prices and wages at all will all those who want to work actually find work. It is precisely because the state intervenes in the economy and fixes wages and prices that perpetual institutional unemployment exists. In other words, she has things exactly the wrong way around. Of course, we may concede that in a complete command economy, unemployment can be made to disappear as well – along with all traces of freedom, human dignity and wealth. There was no unemployment under Stalin, but we doubt that his army of slave laborers such as that he forced into digging the Baltic-White Sea canal was particularly happy.

Of course Ms. Yellen’s contention that the class of philosopher kings to which she belongs “has the knowledge and ability to improve macroeconomic outcomes rather than make matters worse”, must be answered with a resounding ‘No’!

The historical record of interventionism speaks for itself: it is a history of constant, recurring failure, that quite possibly has thrown back economic and technological progress by decades, perhaps even centuries.

It can not be otherwise; if it were otherwise, then socialism would work, but socialism demonstrably cannot work. The same problem that makes socialism a literal impossibility – the calculation problem identified by Mises in 1920 – applies in variations to all attempts at economic planning. Central banks are a special case of the socialist calculation problem as it pertains to the modern financial and monetary system (see also J.H. De Soto’s work on this point). Similar to the planners of a putative socialist economy in which the means of production have been nationalized and where therefore prices for the means of production no longer exist, the interventionists populating central banks cannot ‘calculate’.

They cannot gauge the opportunity costs involved in their actions and compare them to the outcomes, as they are not subject to the market test –  the categories of profit and loss have no meaning for them. There is in fact nothing on which such a calculation could be based. It is an absolute certainty that their interventions will result in precisely what Yellen asserts will not happen: they will “make matters worse”. It is simply not possible for a central economic planning agency to ‘improve’ on a market-derived outcome. The Federal Reserve’s handful of board members cannot ‘know’ what the ideal level of interest rates for the entire market economy is. Only the market itself can determine the state of society-wide time preference, and thereby establish the natural interest rate. The interventions of the central bank are intended to impose an interest rate that deviates from the natural rate, on the absurd theory that a gaggle of bureaucrats ‘knows more’ than the entire market!

The reality of what they know and don’t know is amply demonstrated by the outcomes of their policies: the recurring booms and busts that have consistently damaged the economy structurally, and which have finally led to a situation where the economy found itself actually worse off when the last boom ended than it was on the eve of the boom. This demonstrates a rare gift for destruction, as normally credit booms cannot crimp the progress of capitalist economies completely. With the Fed at the helm, it has however apparently become possible now to actually enter a cycle of economic regression. Not only are we worse off than we would have been otherwise, we are now worse off in absolute terms as well. These people know less than nothing, which is to say, they do possess knowledge, but it is in a sense negative knowledge, due to the destruction it brings.

Here is Ms Yellen at a post 2008 bust hearing – from a report in the NYT that was dug up by Zerohedge a while ago (here is a link to the audio recording):

“Ms. Yellen told the Financial Crisis Inquiry Commission in 2010 that she and other San Francisco Fed officials pressed Washington for new guidance, sharing the problems they were seeing. But Ms. Yellen did not raise those concerns publicly, and she said that she had not explored the San Francisco Fed’s ability to act unilaterally, taking the view that it had to do what Washington said. “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.” Her startled interviewers noted that almost none of the officials who testified had offered a similar acknowledgment of an almost universal failure.”

(emphasis added)

Robert Wenzel among others already reported on Ms. Yellen’s absolutely dismal forecasting record. The reason why we are bringing this point up is that it has to be contrasted with the picture painted of her in the mainstream press, where she is regularly portrayed as a veritable Cassandra who foresaw the crash taking before anyone else did – but curiously did absolutely nothing about it, in spite of her position as a Fed governor. For another excellent and very detailed deconstruction of the myth that Ms. Yellen ever knew what she was doing, here is a video by Peter Schiff, who has dug into all the evidence (these days it is luckily very easy to fact-check and expose the lies the media want us to believe). Note that although Schiff is obviously philosophically opposed to Ms. Yellen and everything she stands for, his assessment is very fair. Even so, it is utterly damning:


Peter Schiff on the myth that Ms. Yellen has ‘forecast the crisis’. She forecast absolutely nada.

What To Expect

It will probably be best to prepare the funeral rites for the US economy. The seemingly inexorable lurch toward socialism is going to be taken up another notch with Ms. Yellen’s nomination to Fed chair.  From the Bloomberg article we learn that Anglo-Saxon central banking socialism is indeed going global these days – and that Ms. Yellen is one of its foremost proponents:

“Janet was a force — perhaps ‘the’ force — behind the FOMC’s decision to move to an even more accommodative policy last December,” said Laurence Meyer, a former Fed governor who is now a senior managing director at St. Louis-based Macroeconomic Advisers LLC.

Hamada, who retired from Yale this year after a 27-year tenure, also has been aggressive in pushing for more monetary stimulus in Japan, going so far as to publicly criticize his former star pupil Masaaki Shirakawa for not doing enough to lift growth when Shirakawa headed the central bank from 2008 to March of this year.

That was “a little bit of stepping out of the Japanese character,” said Richard Cooper, who taught Hamada at Yale and is now professor of international economics at Harvard University in Cambridge, Massachusetts. “It shows the American influence.”

The 77-year-old Hamada is one of the architects of the reflationary policies known as Abenomics and played a role in choosing Haruhiko Kuroda to replace Shirakawa as governor of the Bank of Japan. Under Kuroda, the BOJ is buying more than 7 trillion yen ($71.3 billion) in bonds a month in a bid to spur growth in the world’s third largest economy. The central bank today maintained its unprecedented easing and forecast that inflation will reach its target, even as some board members cautioned the price outlook was too optimistic.

The BOJ program “is an extension of the Yale Tobin-Brainard approach,” Hamada said in an interview. The Japanese central bank is “enhancing activity in asset markets” to “activate the real, stagnated economy.”

(emphasis added)

That ‘American influence’ is certainly pernicious and we should perhaps add here that the whole idea that central economic planning and money printing are panaceas for economic ills is at its root actually deeply un-American. The leftist ivory tower economists who propagate it are certainly not representative of the American spirit, which was always oriented toward liberty, including of course economic liberty. These people are the anti-thesis of this spirit, but we can offer some consolation: before all of this is over, central banks will be utterly discredited and be among the most reviled institutions ever.

Bloomberg offers the views of a sole critic (in the interest of ‘fairness’)– a proponent of the Friedmanite Chicago School. In other words, a school of thought that as recently as in the 1940s was regarded as part of the ‘leftist fringe’ as Hans-Hermann Hoppe once pointed out, is brought up as the lone spokesman against central planning a la Keynes and Tobin. These views are then curtly brushed off as irrelevant:

“The lessons Yellen and Hamada learned from Tobin back then aren’t producing the intended results today, said Brendan Brown, who attended the University of Chicago in the 1970s and is now executive director of Mitsubishi UFJ Securities in London.

Echoing some of Friedman’s skepticism, Brown argues the Fed’s effort to boost bond and stock prices artificially won’t help the economy because investors and companies realize the run-up won’t last and so will hold back on spending.

Rather than stepping up capital investment, companies are responding to the rise in stock prices by buying back shares or increasing dividends, he said. Orders for U.S. equipment such as computers and machinery fell 1.1 percent in September, according to the Commerce Department in Washington.

“QE is not working,” said Brown, author of “The Global Curse of the Federal Reserve.”

Former central bank official Joseph Gagnon takes issue with that assessment. He supports the Fed’s actions and said the economy has been restrained by households paying off debts, the on-again off-again crisis in the euro region and a “massive” fiscal squeeze.”

(emphasis added)

It is not surprising that a ‘former central bank official’ takes issue with Mr. Brown’s entirely correct assertion that ‘QE is not working’. We also take issue with it – not only is it ‘not working’, it is positively destructive. It will leave the economy’s capital structure extremely distorted and misaligned with consumer preferences. The bust that will follow in the wake of this huge policy error is going to be one for the history books.

Bloomberg then quotes Gagnon further:

“This is just Operation Twist redone,” said Gagnon, who taught at the University of California’s Haas School of Business in Berkeley in 1990 and 1991 when Yellen was a professor there. “And what we now know is that Operation Twist did work. They just needed to do more.”

(emphasis added)

Really? Is that what we ‘know’ today? That ‘Operation Twist’ somehow worked in spite of not working, and that it actuallywould have worked if only they ‘had done more’?  It is emblematic dear readers that the article closes out with the standard Keynesian excuse fore why Keynesian policies never seem to work:

“They haven’t done enough of it”

The logic behind this excuse is quite baffling, to say the least. Something that doesn’t work will work if only more of it is done? Has not Japan demonstrated conclusively by now that ‘doing more’ of the same only ends with government finances in tatters and on the brink of crisis?

Anyway, after reading this paean to Yellen and her teacher Tobin (we haven’t quoted from the article’s extensive praise of Tobin, but it is as uncritical, unreflected and flattering as such portrayals ever get), we conclude that one must fear the worst. If you thought that after Greenspan and Bernanke things couldn’t possibly get worse, you are probably in for a surprise.


AP_janet_yellen_tk_131009_16x9_608

Keynesian central planner Janet Yellen: believes the free market doesn’t work and needs utterly clueless people like her to function ‘better’.

(Photo via AP / Author unknown)

How Much Energy do we Really Need?

How Much Energy do we Really Need?. (source)

By Breakthrough Institute | Fri, 01 November 2013 23:22 |
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.

In the early 1920s, when my grandparents were just small children, only about 40% of Americans had access to electricity. Over the course of a generation that number reached close to 100%. Today, inexpensive, reliable and plentiful access to electricity is something that most people in OECD countries take for granted. I was reminded about this when I attended the recent annual meeting of the Colorado Rural Electric Association, a group that decidedly does not take electricity for granted. The meeting was opened by appealing to core shared values: “The greatest thing on earth is to have the love of God in your heart, and the next greatest thing is to have electricity in your house.”

Yet billions of people around the world today do not have electricity in their houses. And while most projections see energy use expanding greatly in the coming decades, they also expect 1 to 2 billion to be living without electricity even by 2035. That may very well be the future we get. But it doesn’t have to be the future we work toward. To the extent that we allow such forecasts to constrain our debates over global energy and climate change mitigation, we do a disservice to the global poor, whose future wellbeing will undoubtedly require more-robust energy access.

Related article: Institutional Investors Concerned About “Unburnable Carbon” Fallout

The US Energy Information Administration, for example, projects that world energy consumption will increase by the equivalent of about 4,000 power plants in 2035 (about 1.7% per year) — or from 500 quads to 770 quads. A “quad” is a quadrillion BTUs, or about the same energy produced over a year by 15 1-gigawatt power plants, e.g., nuclear, coal or gas. While 4,000 new power plants worth of energy consumption sounds like a lot, after taking projected population growth into account, by 2035 global per capita energy use increases only by about 23% (data from the World Bank and the United Nations). In other words, from 2010 to 2035 global per capita energy consumption is projected to grow from about the average per capita consumption of Chile today to that of Croatia today, which is not a big change.

Advancing global human development requires that we ask different questions.

Rather than starting from today and asking how much energy the world might consume in 2035, let’s turn the question upside down. Let’s postulate different levels of energy access, efficiency, and equity for 2035, and ask what it would imply in terms of required energy supply, applying an approach that policy wonks call “backcasting.”

For instance, consider sub-Saharan Africa (minus South Africa), which today has about 30 gigawatts of electricity generating capacity, according to Morgan Bazilian, Deputy Director of the Joint Institute for Strategic Energy Analysis. To raise the region to the average per capita electricity access available in South Africa would require 1,000 gigawatts (source here in PDF). In other words, sub-Saharan Africa would need to increase its installed capacity by 33 times to reach the level of energy use enjoyed by South Africans — and 100 times to reach that of Americans.  The scale of the energy access challenge is enormous.

For this exercise I am going to start with a focus on electricity consumption, and use three countries in 2010 as analogies — Bulgaria, Germany and the United States — to represent low, medium and high levels of energy access assuming levels of efficiency and equity similar to each. In 2010 Bulgaria saw about 4,500 kWh of electricity consumption per capita per year, Germany 7,100 and the US 13,400. For comparison, the International Energy Agency defines “energy access” to be about 250 kWh per household per year, or about 2% of that used in the average American household. The global average in 2010 was just under 3,000 kWh per capita per year.

Ambition Gap in GLobal Energy Access

The implied increase in electricity consumption by 2035 to bring the world average to Bulgaria, Germany and US 2010 levels is 88%, 200% and 460%. These represent annual increases in electricity consumption of 2.6%, 4.5% and 7.2% respectively.  Because the EIA projects electricity production to grow at a rate faster than overall energy consumption, the Bulgaria (low) scenario is similar to its projection for overall growth in global energy consumption to 2035.

Bulgaria’s 2010 GDP was $14,160 (World Bank PPP Dollars), and the world average was $11,500. Attaining a 2035 global average per capita GDP equal to that of Bulgaria in 2010 implies an annual GDP global growth rate of 0.8%, which seems low, both in historical perspective and with respect to expectations. In contrast, Germany’s 2010 GDP was $40,230 and the US was $48,820, which if were to be the global average in 2035 imply annual growth rates of 4.5% and 7.2% respectively.

Global Energy Access

Let’s try to put these numbers into perspective with respect to total energy consumption in 2035. In terms of quads, the low, medium and high scenarios imply a total 2035 consumption of 940, 1,500 and 2,310 quads, or an increase over the EIA 2035 projection of 170, 1,000 and 1,810 quads. These represent the equivalent of a doubling, a tripling and more than a quadrupling of global energy consumption in 2010. Of course, different assumptions (e.g., about electricity vs. liquid fuels, etc.) will lead to different numbers, but qualitatively much the same results. Global energy access as you and I understand the concept implies massive amounts of new energy.

Related article: Fukushima Amplifies Japanese Energy Import Dependence

Another way to evaluate these numbers is to compare them to the magnitude of the energy challenge implied by policies seeking to address climate change. Decarbonizing the global economy to a degree consistent with low stabilization targets for atmospheric carbon dioxide implies replacing about 80% of current energy – about 400 quads – and meeting all future energy demand with carbon free sources of energy.  A 2035 world which consumes energy at the level of 2010 Bulgaria implies more than a doubling of needed carbon-free energy. Germany and US equivalency implies almost a quadrupling and close to a sextupling, respectively. Is it any wonder that many stabilization scenarios used in climate policy analyses keep poor people mostly poor?

So what to take from these numbers? I suggest three conclusions.

First, a world of energy access as that concept is understood by most people in the wealthy parts of the world implies a level of energy consumption far beyond that contained in conventional projections of consumption for the next several decades. Securing such energy access will require much greater policy attention than has so far been devoted to the issue. Just as in the US in my grandparents’ generation, market forces alone will be insufficient to provide energy for all. Concerted public action, perhaps coordinated to some degree globally, will be necessary.

Second, the magnitude of the challenge of providing energy for all is at least as large as the challenge implied by accumulating carbon dioxide in the atmosphere, and perhaps many times larger. Independent of the climate issue, there are good justifications why diversifying the global energy mix beyond fossil fuels makes sense, for security, environmental, health and economic reasons.

It would therefore seem obvious that those who prioritize climate might find common ground with those who favor increasing energy access to support major new initiatives in energy innovation and deployment. Such an approach would at least address the split between rich and poor nations that has characterized international climate policies for decades. Further, a wealthier world with more equity in energy access will be far better positioned to deal with the technological challenges of decarbonization. Those in the climate movement who express frustration that their issue has not been judged important enough to motivate aggressive steps toward energy innovation have overlooked energy access as a much broader base for securing and sustaining broad support around the world for advances in energy technologies and their deployment.

Finally, independent of time scale, the world is irreversibly moving towards greater energy access – in fits and starts to be sure — but there can be no doubt about the aspirations of the almost 6 billion people in non-OECD countries who collectively consume as much energy as the 1.2 billion in OECD countries. The world of the future will consume vastly more energy than the world today. The only questions are how efficiently and effectively we get to that high energy world. Putting energy access at the center of policy discussions would be a smart first step.

By. Roger Pielke Jr.

 

Noam Chomsky Criticises Canada’s Energy Ambitions

Noam Chomsky Criticises Canada’s Energy Ambitions. (source)

Noam Chomsky, the famed linguist, philosopher, and political commentator has recently taken part in aninterview with the Guardian, to discuss Canadian Prime Minister Steven Harper’s exploitation of the Alberta tar sands in an effort to pursue economic development no matter the cost.

“It means taking every drop of hydrocarbon out of the ground, whether it’s shale gas in New Brunswick or tar sands in Alberta and trying to destroy the environment as fast as possible, with barely a question raised about what the world will look like as a result,” he said.

Referencing the indigenous Canadian’s opposition to the expansion plans at the Alberta tar sands, one of the most polluting and fastest growing sources of oil in the world, Chomsky said that “it is pretty ironic that the so-called ‘least advanced’ people are the ones taking the lead in trying to protect all of us, while the richest and most powerful among us are the ones who are trying to drive the society to destruction.”

Related article: U.S., Canada Lead World in Shale Gas Production

Idle No More

Recently, in response to an indigenous movement called ‘Idle No More’, which was set up to oppose Harper’s aggressive promotion and expansion of polluting tar sands projects and his disregard for the environment, armed Canadian police forces raided a camp of shale gas protestors in New Brunswick. A sign that the conflict between the government and environmentalists is becoming more heavy-handed.

Chomsky explained that the calls to save the environment are currently ineffective, and that they must be worded in a way that emphasises how fighting climate change is can improve people’s lives.

“If it’s a prophecy of doom, it will act as a dampener, and people’s reaction will be ok, I’ll enjoy myself for a couple of years while there’s still a chance. But as a call to action, it can be energising. Like, do you want your children, and grandchildren, to have a decent life?”

Related article: Canada and China Deepen Cooperation but Potential Roadblocks Loom

He suggests that mass transportation, localised agriculture, and higher energy efficiency are easy ways to reduce energy consumption and therefore reduce emissions, giving an example that it is much better for an individual, and the environment, to spend 10 minutes on the underground travelling across a city, than an hour stuck in traffic on the surface.

One of the greatest foes of climate change, according to Chomsky, are the markets. “Markets are lethal, if only because of ignoring externalities, the impacts of their transactions on the environment. When you turn to energy production, in market exchanges each participant is asking what can I gain from it? You don’t ask what are the costs to others. In this case the cost to others is the destruction of the environment. So the externalities are not trivial.”

After the 2008 financial crisis banks were able to ignore free market systems and ask the government to bail them out, unfortunately “in the case of the environment there’s no one to bail it out,” and it is fast approaching a major crisis point.

By. James Burgess of Oilprice.com

 

Guest Post: Finland’s Gold | Zero Hedge

Guest Post: Finland’s Gold | Zero Hedge. (source)

On Wednesday Finland gave in to public pressure and revealed where she stores her gold reserves. The statement followed a press release by the Bank of Sweden on similar lines released on Monday.

The totals (in tonnes) for these two Scandinavian countries are as follows:

Location Sweden Finland
Bank of England 61.4 25.0
Swedish Riksbank 15.1 9.8
New York Fed 13.2 8.8
Swiss National Bank 2.8 3.4
Bank of Finland 2.0
Bank of Canada 33.2
Total 125.7 49.0

So far, so good. But then the Head of Communications for the Bank of Finland added some more information in Finnish in a blog run on the Bank’s website. It is not available in English, so I asked her for a translation, but I am still waiting.

Instead, a Finnish reader of my own blog and a Finnish journalist who has been following this topic have independently given me an English translation of a highly relevant and interesting paragraph, three from the end. This is the journalist’s:

“Maximum half of the gold has been within investment activity over the years. Gold has been invested among other things in deposits similar to money market deposits and using gold interest rate swaps. Gold investment activity is common for central banks. The risks associated with gold investments are controlled using limits, investment diversification and limitations concerning duration.”

And my reader’s translation:

“Throughout these years no more than half of the gold has been invested. Gold has been invested in for example deposits similar to money market deposits and gold interest rate swap agreements. Gold investment activities are common for central banks. Risks related to gold investments are controlled with limits, decentralising investments and limits regarding run times.”

Half Finland’s gold is stored at the Bank of England, and “no more than half” is “invested”. If any “investment” is to take place it would be in London. It is not immediately clear what is meant by invested, but presumably this is a result of translation of what has happened from English into Finnish plus explanation for a non-specialist readership. However if it has been invested, then by definition it is no longer in the possession of the Bank of Finland, and will most probably have been sold into the market in return for a promise to redeliver at a later date. This follows the Austrian National Bank’s admission to a parliamentary committee a year ago that it had earned EUR300m by leasing its gold through London.

The evidence is mounting that Western central banks through the Bank of England have been feeding monetary gold into the market through leasing operations. Indeed, the Finnish blog says as much: “Gold investment activities are common for central banks”.

This explains in part how the voracious appetite for gold by China, India and South-East Asia is being satisfied, without the gold price rising to reflect this demand. It is also consistent with my disclosure earlier this year of the discrepancy of up to 1,300 tonnes between the gold in custody as recorded in the Bank of England’s Annual Report, dated 28th February 2013 and the amount recorded on the virtual tour on the Bank’s website the following June.

Related articles

 

Climate change draft report predicts war, heat waves, starvation – Technology & Science – CBC News

Climate change draft report predicts war, heat waves, starvation – Technology & Science – CBC News. (source)

A man rows through dead fish floating on Lake Rei during a month long drought near the Amazon town of Careiro da Varzea, Brazil.  Heat waves and droughts are expected to be worse as the climate changes, according to the leaked report.A man rows through dead fish floating on Lake Rei during a month long drought near the Amazon town of Careiro da Varzea, Brazil. Heat waves and droughts are expected to be worse as the climate changes, according to the leaked report. (Marcio Silva/The Associated Press)

Many of the ills of the modern world — starvation, poverty, flooding, heat waves, droughts, war and disease — are likely to worsen as the world warms from man-made climate change, a leaked draft of an international scientific report forecasts.

The report uses the word “exacerbate” repeatedly to describe warming’s effect on poverty, lack of water, disease and even the causes of war.

The Nobel Peace Prize-winning Intergovernmental Panel on Climate Change will issue a report next March on how global warming is already affecting the way people live and what will happen in the future, including a worldwide drop in income.

A leaked copy of a draft of the summary of the report appeared online Friday on a climate skeptic’s website. Governments will spend the next few months making comments about the draft.

“We’ve seen a lot of impacts and they’ve had consequences,” Carnegie Institution climate scientist Chris Field, who heads the report, told The Associated Press on Saturday. “And we will see more in the future.”

Latin America ClimateThere will also be more floods because of climate change, experts say. (Nelson Antoine/The Associated Press)

Cities, where most of the world now lives, have the highest vulnerability, as do the globe’s poorest people.

“Throughout the 21st century, climate change impacts will slow down economic growth and poverty reduction, further erode food security and trigger new poverty traps, the latter particularly in urban areas and emerging hotspots of hunger,” the report says. “Climate change will exacerbate poverty in low- and lower-middle income countries and create new poverty pockets in upper-middle to high-income countries with increasing inequality.”

For people living in poverty, the report says, “climate-related hazards constitute an additional burden.”

The report says scientists have high confidence especially in what it calls certain “key risks”:

People dying from warming- and sea rise-related flooding, especially in big cities.

  • Famine because of temperature and rain changes, especially for poorer nations.
  • Farmers going broke because of lack of water.
  • Infrastructure failures because of extreme weather.
  • Dangerous and deadly heat waves worsening.
  • Certain land and marine ecosystems failing.

“Human interface with the climate system is occurring and climate change poses risks for human and natural systems,” the 29-page summary says.

Exacerbating current health problems

None of the harms talked about in the report is solely due to global warming nor is climate change even the No. 1 cause, the scientists say. But a warmer world, with bursts of heavy rain and prolonged drought, will worsen some of these existing effects, they say.

For example, in disease, the report says until about 2050 “climate change will impact human health mainly by exacerbating health problems that already exist” and then it will lead to worse health compared to a future with no further warming.

‘Climate change indirectly increases risks from violent conflict in the form of civil war, intergroup violence and violent protests.’– Report

If emissions of carbon dioxide from the burning of coal, oil and gas continue at current trajectories, “the combination of high temperature and humidity in some areas for parts of the year will compromise normal human activities including growing food or working outdoors,” the report says.

Scientists say the global economy may continue to grow, but once the global temperature hits about 3 degrees Fahrenheit warmer than now, it could lead to worldwide economic losses between 0.2 and 2.0 percent of income.

One of the more controversial sections of the report involves climate change and war.

Climate ImpactsDisease, poverty, droughts and war will all be exacerbated by changes to the climate says the report. (Mohamed Sheikh Nor/The Associated Press)

“Climate change indirectly increases risks from violent conflict in the form of civil war, intergroup violence and violent protests by exacerbating well-established drivers of these conflicts such as poverty and economic shocks,” the report says.

Pennsylvania State University climate scientist Michael Mann, who wasn’t part of the international study team, told the AP that the report’s summary confirms what researchers have known for a long time: “Climate change threatens our health, land, food and water security.”

The summary went through each continent detailing risks and possible ways that countries can adapt to them.

‘Not depressed’

For North America, the highest risks over the long term are from wildfires, heat waves and flooding. Water — too much and too little — and heat are the biggest risks for Europe, South America and Asia, with South America and Asia having to deal with drought-related food shortages.

Africa gets those risks and more: starvation, pests and disease. Australia and New Zealand get the unique risk of losing their coral reef ecosystems, and small island nations have to be worried about being inundated by rising seas.

Field said experts paint a dramatic contrast of possible futures, but because countries can lessen some of the harms through reduced fossil fuel emissions and systems to cope with other changes, he said he doesn’t find working on the report depressing.

“The reason I’m not depressed is because I see the difference between a world in which we don’t do anything and a world in which we try hard to get our arms around the problem,” he said.

Indian Inflation: Out of Control? | ToTheTick™ToTheTick™

Indian Inflation: Out of Control? | ToTheTick™ToTheTick™. (source)

While some harp on about the growing dangers of yet another housing bubble in the western world, there are other more important things perhaps that are going on in other countries in the world. But, they are of little interest since we are not directly concerned by them. How is it that we only care about what’s actually happening in the back yard while someone round the block might be doing something or on the receiving end of something pretty bad and yet we don’t give a damn about what happens to them? While we are concerned with our bubbles, there are people in India that are suffering from the rise in prices that is drastically changing the way they live.

Over the past year inflation has been driven up by food prices. In September alone food prices were at their highest level for the past seven months and it seems that India is now going through the worst financial crisis that it has ever experienced since 1991.

  • The Indian wholesale price index (WPI) rose by 6.46% in September.
  • This was largely due to the fact that food prices have increased beyond control.
  • Since the start of this year onions have increased by 322%, for example.
  • Food prices have increased by an annual rate of 18.4% so far according to data released by the Indian government on Monday this week.

Food prices have been increasing due to supply shortages in India which were brought about to climatic conditions and rain. Today the price of a kilogram of onions amounts to 75 rupees today (or $1.22). One third of the Indian population still earns less than $1.25 per day in the country and that means that buying basic foodstuffs is pretty much out of their price range today. Food prices have hit the political agenda as a result and have been made a key issue in the run-up to the general elections that are going to take place within the next 7-month period.

Food Inflation in India

Traders and shop owners are reaping the rewards of a rapid rise in prices today. But, the shopkeepers will not be able to keep hiking prices to recoup on the price increases as the people will run out of money. The real people are at the short end of the stick and suffering from the consequences of the hike that is almost daily now.

India is not the only one suffering from high inflation today in the world. Other emerging countries have also recently seen highs in their own rates. China had a consumer-inflation rate that hit 3.1%in September. That was also the highest it had been for the past seven months. Food prices in China have increased by 6.1% so far this year. However, in comparison with Indian data, that seems as if it is insignificant.

  • India is having immense difficulty increasing economic growth in the country and it has a 5%-growth rate that hasn’t been seen for the past decade.
  • The rupee has already hit lows that have rarely been seen before (it has lost 10% since the start of the year against the dollar) and inflation looks as if it will be fuelled by the interest rates that have been increased by theReserve Bank of India.
  • There has been a general outflow of capital from India since the start of this year due to the slow-down in the economy.
  • Inflation stood at 2.1% in September for India and it’s that which is the most worrying element perhaps today (at least for the population).

While India has problems with its economy and price stability, it’s the people that will be suffering the most. When food prices increase and they get out of control, it’s the third of the population that is living with just over a dollar a day that will have trouble making ends meet more than they already did in the past.

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The “Oh Crap” Moment For Housing Is Now In The Can | Zero Hedge

The “Oh Crap” Moment For Housing Is Now In The Can | Zero Hedge. (source)

Real estate guru Mark Hanson updates his housing view following this week’s dismal housing industry data: 
  • Sept. Pending Sales… the largest MoM drop since Sept 2001… not 2011… yes, 2001.

Don’t let them tell you ‘this is normal for Sept’. The ‘oh-crap’ moment is now in the can. Going forward, “Existing Sales” volume will disappoint on a YoY basis for several quarters. There is no way around it…

Fool me once, shame on you; fool me twice, shame on me; fool me thrice, shame on the Fed…

 

Via Mark Hanson,

Existing Sales is terribly backward looking and you can’t change history no matter how hard certain parties try.

‘House Prices’ have already fallen sharply post-surge and continue to weaken — prices are set at contract but not recorded until “closing” — simply awaiting printing by lagging surveys.

Contrary to ‘New’ Home Sales, Existing Sales are where the Fed’s go-go juice really showed up thanks to the Twist/QE 3, 4 increase in “purchasing power” beginning in Q4 2011 and the new-era “investor” rush to market in mid-2012. This is evident in the demand divergence between the two series. As such, the “post-surge” housing market “demand collapse” will be much more evident in this series than it was by the 27% MoM drop in New Home Sales in July.

In short, over the next few months we will see the two series quickly “converge” — Existing Sales weaken considerably to be more in-line with the weak builder demand — reflecting conditions more akin to the “hangover” period following the sunset of the Homebuyer Tax Credit.

Along with this comes lower YoY Existing and New Sales volume along with down trending MoM house prices as far out as July 2014, at which point house prices have a good shot at being negative YoY as well.

Sept Pending Home Sales Low-lights

1) US Pendings Fell 21.1% MoM on an NSA basis(down more not including last month’s revision), the most on record for any Sept since Sept 2001…that’s a terrible period to comp against.

2) On a YoY basis Pendings were down 4.3% on a daily basis (Sept 2013 had 1 extra business day YoY). And remember, in Sept demand was still being pulled forward due to rates and fear of Gov’t shutdown.

3) Levels of Sept Pendings virtually ensure Oct through April Existing Sales” are lower YoY. A year ago volume outperformed (muted seasonality) in winter & spring, as new-era “investors” all dove in at the same time. This year the market will underperform (heavier than normal seasonality) due to the stimulus “hangover”. This delta will produce meaningful YoY Existing Sales declines especially through April 2014.

4) Leading indicating Western region absolute Pending Sales lowest since 2007. 

5) Heavily weighted, leading-indicating Northeast & West Sept Pendings down 31% & 20% MoM NSA respectively,also 12-year record drops.

6) YoY, Northeast & West Pendings down YoY by 3.1% and 5.2% respectively…the first YoY drop since after the 2010 sunset of the Homebuyer Tax Credit.

7) MoM, Sept national Pendings dropped 54% and 40% more than the 10-year average and post housing market crash avg Sept respective seasonal drops.

**note, items 5 & 6 were straight from NAR and not normalized for more business days this Sept than last. In short, the YoY drop is larger than reflected in 5 & 6.

 

Edward Snowden Releases “A Manifesto For The Truth” | Zero Hedge

Edward Snowden Releases “A Manifesto For The Truth” | Zero Hedge. (source)

While Edward Snowden may be reviled at the top echelons of Western developed nations and is wanted in his native US on espionage charges for peeling back the curtain on how the gargantuan government machine truly works when it is not only engaged in chronic spying on anyone abroad, but worse, on its own people, the reality is that his whistleblowing revelations have done more to shift the narrative to the topic of dwindling individual liberties abused pervasively in the US and elsewhere, than anything else in recent years. And alongside that, have led to the first reform momentum of a system that is deeply broken. Which also happens to be the topic of a five-paragraph opinion piece he released today in German weekly Der Spiegel titled “A Manifesto For The Truth” in which he writes that his revelations have been useful and society will benefit from them and that he was therefore justified in revealing the methods and targets of the US secret service.

In the Op-Ed we read that “Instead of causing damage, the usefulness of the new public knowledge for society is now clear because reforms to politics, supervision and laws are being suggested.”

RT adds“Spying as a global problem requires global solutions, he said, stressing that “criminal surveillance programs” by secret services threaten open societies, individual privacy and freedom of opinion.

“Citizens have to fight against the suppression of information about affairs of essential importance for the public,” Snowden said in his five-paragraph manifesto. Hence, “those who speak the truth are not committing a crime.”
Even with the existence of mass surveillance, spying should not define politics, Snowden said.

We have a moral duty to ensure that our laws and values limit surveillance programs and protect human rights,” he wrote.

The type of persecution campaigns that governments started after being exposed, and threats of prosecution against journalists, who blew the whistle, were “a mistake” and did not “serve the public interest,” Snowden concluded.

But “at that time the public was not in a position to judge the usefulness of these revelations. People trusted that their governments would make the right decisions,” he said.

Needless to say, all of the above points are spot on, which is why one hopes that Snowden does not intend on returning to the US to defend himself with only truth and justice to lean on, because the US Judicial system is just as broken, if not more, as every other aspect of a tentacular government, intent on growing to even more epic proportions and silencing anyone and everyone who stands in its way.

 

How The World Really Works – The Documentary | Zero Hedge

How The World Really Works – The Documentary | Zero Hedge. (source)

Renegade Economist’s “Four Horsemen” documentary lifts the lid on how the world really works. “Four Horsemen is abreathtakingly composed jeremiad against the folly of Neo-classical economics and the threats it represents to all we should hold dear.” Free from mainstream media propaganda — the film doesn’t bash bankers, criticize politicians or get involved in conspiracy theories. It ignites the debate about how to usher a new economic paradigm into the world which would dramatically improve the quality of life for billions. Since it is becoming abundantly clear that we will never return to ‘business as usual’, 23 international thinkers, government advisers and Wall Street money-men break their silence and explain how to establish a moral and just society.

 

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