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Daily Archives: December 3, 2013

Detroit Bankruptcy Judge Rules To Allow Pension Haircuts, Says Detroit Eligible To File Chapter 9 | Zero Hedge

Detroit Bankruptcy Judge Rules To Allow Pension Haircuts, Says Detroit Eligible To File Chapter 9 | Zero Hedge.

Update, and it’s official: 

  • JUDGE: DETROIT ELIGIBLE FOR IMMEDIATE BANKRUPTCY PROTECTION
  • DETROIT TO REMAIN UNDER BANKRUPTCY COURT PROTECTION, JUDGE SAYS

As somewhat expected – though hoped against by many Detroit union workers – Judge Steven Rhodes appears to have confirmed Detroit is eligible for bankruptcy protection (after pointing out that the city’s accounting was accurate and it is indeed insolvent) making this the largest ever muni bankruptcy.

  • JUDGE RHODES SAYS HE WILL ALLOW PENSION CUTS IN DETROIT’S BANKRUPTCY
  • DETROIT JUDGE: NOTHING SEPARATES PENSIONS FROM OTHER DEBT

The city will now begin working toward its next major move – the submission of a plan to re-adjust its more than $18 billion in debt – including significant haircuts for pension funds (possibly 16c on the dollar recovery) and bondholders. With Detroit as precedent, we can only imagine the torrent of other cities in trouble that will be willing to fold.

He did provide an “out” though:

  • RHODES WARNS THE CITY THAT JUST BECAUSE PENSION RIGHTS CAN BE IMPAIRED, DOESN’T MEAN HE WILL APPROVE A PLAN WITH STEEP CUTS

Via Bloomberg,

Before the bankruptcy, Orr proposed canceling $3.5 billion in future pension obligations and at least $1.4 billion in unsecured bonds. The debts would be replaced with a $2 billion note paying 1.5 percent interest.

But, of cours,

Detroit must ask “what is necessary to invest to attract business?” Spiotto said in a phone interview. “If you don’t solve the systemic problem, you are just going to repeat it.”

 

 

Brits Draw Down Record Amounts Of Savings To Cover Rising Cost of Living | Zero Hedge

Brits Draw Down Record Amounts Of Savings To Cover Rising Cost of Living | Zero Hedge.

In the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding savingsYahoo UK reports that households are pulling money out of their savings accounts at the fastest rate in modern record, according to Bank of England figures. Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises, and while consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, “consumer strength usually reflects increased borrowing but this hasn’t been the key factor recently.”

In the year to October, the amount of cash in time deposits and cash ISAs fell by 4.7%, while the amount families have in their instant access current accounts or in their pockets rose by 11.2%. This inflationary shift of cash is the biggest since comparable records began in the 1970s.

 

Via Yahoo UK,

In the past year, families have withdrawn £23bn from their long-term savings accounts to convert into cash and put into current accounts – the equivalent of around £900 for every household in the country.

 

It is the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding their savings accounts.

 

 

According to economists, the shift of cash is the biggest since comparable records began in the 1970s, and reverses much of the sharp increase in saving that happened at the height of the recession.

 

On Thursday, the Chancellor’s Autumn Statement is expected to focus on measures to help households deal with the rising cost of living, including energy bills.

 

Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises.

 

 

Consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, and a further strong increase is implied by the Bank’s money figures.

 

But while the figures suggest that the economy is strengthening, they will also be taken as further evidence that savers are being deterred from putting money aside by record low interest rates.

 

 

Some also suspect that with households still facing a significant squeeze as a result of higher living costs, many are having to dig into their savings in order to afford day-to-day items.

So the UK economy is surging and being lauded as evidence of QE’s efficacy but the reality is inflation is eating away at people’s wealth and hot money flows have caused the cost of living to rise dragging out the mainstay of future growth – savings – to meet consumption needs today. How long before government inflation data reflects this?

 

Ontario power rates to rise under new plan – Toronto – CBC News

Ontario power rates to rise under new plan – Toronto – CBC News.

Energy rates to rise

Energy rates to rise 2:36

The Ontario government has unveiled its long-term energy strategy and if you’re paying a power bill, you can expect to pay up to 33 per cent more in coming years.

 

The average monthly bill in Ontario right now is around $125 per month. By 2016, that will jump to $167 a month. Within 20 years, the average bill will rise to $210 per month.

 

One of the factors is the end of the Ontario Clean Energy Benefit, which currently knocks 10 per cent off part of your hydro bill. There are no plans to continue that program beyond 2015.

 

Instead, the Wynne government will introduce programs aimed an encouraging ratepayers to use less power.

Boost in conservation efforts

The government expects Ontarians to boost conservation by 11 per cent over 20 years by making the following changes:

  • A possible rise in the price difference between peak and off-peak hours for power use.
  • A new program to offer loans for renovations that boost energy efficiency, with the cost added to the user’s monthly hydro bill.
  • Changes to allow each ratepayer to view their electricity usage rates compared and contrasted with those of their neighbours.

The Liberals will still proceed with upgrades to nuclear reactors at the Darlington and Bruce generating stations starting in 2016. The government also plans to shut down the Pickering nuclear station by 2020.

 

The government says though rates are going up, they are not as high as predicted in the last energy plan released three years ago.

hi-ns-electricity-metreOntario’s Liberal government rolled out their energy plan Monday, and conceded that electricity bills will be going up. (CBC)

 

The opposition argues this is not good news, saying the reason the province doesn’t need new sources of power is because so many manufacturing jobs have been lost in Ontario.

The Progressive Conservatives said the Liberal power strategy will fail to bring back lost jobs and will drive companies out of the province.

 

 

“This is a government that’s actually doubled hydro rates and chased 300,000 manufacturing jobs out of the province,” said PC Leader Tim Hudak.

NDP Leader Andrea Horwath said Ontario families and businesses pay the highest electricity rates in Canada because of the Liberal government’s policies.

“This doesn’t look like a plan for affordable power,” Horwath told the legislature. “It looks like a desperate government trying to hold on to political power.”

With files from CBC’s Genevieve Tomney, The Canadian Press

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15 Signs That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble

15 Signs That We Are Near The Peak Of An Absolutely Massive Stock Market Bubble.

Bubble - Photo by Jeff Kubina

One of the men that won the Nobel Prize for economics this year says that “bubbles look like this” and that he is “most worried about the boom in the U.S. stock market.”  But you don’t have to be a Nobel Prize winner to see what is happening.  It should be glaringly apparent to anyone with half a brain.  The financial markets have been soaring while the overall economy has been stagnating.  Reckless injections of liquidity into the financial system by the Federal Reserve have pumped up stock prices to ridiculous extremes, and people are becoming concerned.  In fact, Google searches for the term “stock bubble” are now at the highest level that we have seen since November 2007.  Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before.  We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008.  So precisely when will the bubble burst this time?  Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point.  Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble…

#1 Bob Shiller, one of the winners of this year’s Nobel Prize for economics, says that “bubbles look like this” and that he is “most worried about the boom in the U.S. stock market.”

#2 The total amount of margin debt has risen by 50 percent since January 2012 and it is now at the highest level ever recorded.  The last two times that margin debt skyrocketed like this were just before the bursting of the dotcom bubble in 2000 and just before the financial crisis of 2008.  When this house of cards comes crashing down, things are going to get very messy

“When the tablecloth gets pulled out from under the place settings, you’re going to have a lot of them crash and smash on the floor,” said Uri Landesman, president of Platinum Partners hedge fund. “That margin’s going to get pulled and everyone’s going to have to cover. That’s when you get really serious corrections.”

#3 Since the bottom of the market in 2009, the Dow has jumped 143 percent, the S&P 500 is up 165 percent and the Nasdaq has risen an astounding 213 percent.  This does not reflect economic reality in any way, shape or form.

#4 Market research firm TrimTabs says that the S&P 500 is “very overpriced” right now.

#5 Marc Faber recently told CNBC that “we are in a gigantic speculative bubble”.

#6 In the United States, Google searches for the term “stock bubble” are at the highest level that we have seen since November 2007 – just before the last stock market crash.

#7 Price to earnings ratios are very high right now…

The Dow was trading at 17.8 times the past four quarters of earnings of its 30 components, according to The Wall Street Journal on Friday. That was up from 13.7 times its earnings a year ago. The S&P 500 is trading at 18.7 times earnings. The Nasdaq-100 Index is trading at 21.5 times earnings. At the very least, the ratios are signaling that stock prices are rich.

#8 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.

#9 Twitter is a seven-year-old company that has never made a profit.  It actually lost 64.6 million dollars last quarter.  But according to the financial markets it is currently worth about 22 billion dollars.

#10 Right now, Facebook is trading at a valuation that is equivalent to approximately 100 years of earnings, and it is currently supposedly worth about 115 billion dollars.

#11 Howard Marks of Oaktree Capital recently stated that he believes that “markets are riskier than at any time since the depths of the 2008/9 crisis”.

#12 As Graham Summers recently noted, retail investors are buying stocks at a level not seen since the peak of the dotcom bubble back in 2000.

#13 David Stockman, a former director of the Office of Management and Budget under President Ronald Reagan, believes that this financial bubble is going to end very badly

“We have a massive bubble everywhere, from Japan, to China, Europe, to the UK.  As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future.”

#14 Bob Janjuah of Nomura Securities believes that there “could be a 25% to 50% sell off in global stock markets” over the next couple of years.

#15 According to Tyler Durden of Zero Hedge, the U.S. stock market is repeating a pattern that we have seen many times before.  According to him, we are experiencing “a well-defined syndrome of ‘overvalued, overbought, overbullish, rising-yield’ conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today.”

As I mentioned at the top of this article, this stock market bubble has been fueled by quantitative easing.  Easy money from the Fed has been artificially inflating stock prices, and this has greatly benefited a very small percentage of the U.S. population.  In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.

When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain.

But there are some people out there that argue that what we are witnessing is not a stock market bubble at all.  That includes Janet Yellen, the new head of the Federal Reserve.  Recently, she insistedthat there is absolutely nothing to be worried about…

“Stock prices have risen pretty robustly,” Yellen said. “But I think that if you look at traditional valuation measures, you would not see stock prices in territory that suggests bubble-like conditions.”

We shall see who was right and who was wrong.  Let’s all file that one away and come back to it in a few years.

So where are stocks going next?

If you had the answer to that question, you could probably make a lot of money.

Yes, the current bubble could burst at any moment, or stocks could continue going up for a little while longer.

After all, the S&P 500 has risen in December about 80 percent of the time over the past thirty years.

Perhaps that will be the case this December as well.

Perhaps not.

Do you feel lucky?

 

Washington’s Blog | Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology Washington’s Blog

Washington’s Blog | Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology Washington’s Blog.

Veteran Journalists Reveal that – Contrary to It’s Claims of “Openness” and “Transparency” – This Administration Is the Most Closed Ever

Long-time CNN political reporter Bob Franken (now with MSNBC) said last week:

FRANKEN: Well, let’s use the “P” word here. This is propaganda when it comes from the White House: government covering the government. It’s not what you’re supposed to do in the United States of America. But we have an administration, every president gets to the point where he dislikes the press. It’s that simple. And every administration tries to manipulate the press. But this is the most hostile to the media that has been in United States history. Not only do we have this thing where they’re…

[Interviewer]: Wait, you would go that far?

FRANKEN: I would go that far.

[Interviewer]: The most hostile in history?

FRANKEN: The most hostile because first of all, we have the situation where they are in fact shutting out the press. And by the way, when they say you can’t have every photographer in, they know full-well that there’s a thing called a pool, which is to say you have one representative from each of the media that represents all of them and shares the pictures and the sound and all that kind of thing. So that’s totally disingenuous, which is a polite word.

But the reason I say most hostile is because of the Justice Department moves that they’ve made against the press. Obviously they have a contempt for the journalistic process. Those of us who are in journalism, of course, believe that it is vital if you’re going to have informed electorate as opposed to one that’s been propagandized.

 

 

Many other veteran reporters agree.  For example, the Washington Post reported recently:

With the passage of the Patriot Act after the Sept. 11, 2001, terrorist attacks, a vast expansion of intelligence agencies and their powers, the aggressive exploitation of intrusive digital surveillance capabilities, the excessive classification of public documents and officials’ sophisticated control of the news media’s access to the workings of government, journalists who cover national security are facing vast and unprecedented challenges in their efforts to hold the government accountable to its citizens. They find that government officials are increasingly fearful of talking to them, and they worry that their communications with sources can be monitored at any time.So what are they doing? Many reporters covering national security and government policy in Washington these days are taking precautions to keep their sources from becoming casualties in the Obama administration’s war on leaks. They and their remaining government sources often avoid telephone conversations and e-mail exchanges, arranging furtive one-on-one meetings instead. A few news organizations have even set up separate computer networks and safe rooms for journalists trained in encryption and other ways to thwart surveillance.

“I worry now about calling somebody because the contact can be found out through a check of phone records or e-mails,” said veteran national security journalist R. Jeffrey Smith of the Center for Public Integrity, a nonprofit accountability news organization. “It leaves a digital trail that makes it easier for government to monitor those contacts.”

“We have to think more about when we use cellphones, when we use e-mail and when we need to meet sources in person,” said Michael Oreskes, senior managing editor of the Associated Press. “We need to be more and more aware that government can track our work without talking to our reporters, without letting us know.”

These concerns, expressed by numerous journalists I interviewed, are well-founded. Relying on the 1917 Espionage Act, which was rarely invoked before President Obama took office, this administration has secretly used the phone and e-mail records of government officials and reporters to identify and prosecute government sources for national security stories.

***

In addition to ongoing leak investigations, six government employees and two contractors, including fugitive NSA contractor Edward Snowden, have been prosecuted since 2009 under the Espionage Act for providing information to reporters about, among other subjects, the NSA’s communications surveillance, the CIA’s aggressive interrogation of terrorism suspects and, in the case of Army Pvt. Bradley Manning, diplomatic cables and Iraq and Afghanistan war documents.

***

The Obama administration has drawn a dubious distinction between whistleblowing that reveals bureaucratic waste or fraud, and leaks to the news media about unexamined secret government policies and activities; it punishes the latter as espionage.

***

Every disclosure to the press of classified information now triggers a leak investigation, said Washington Post national news editor Cameron Barr. “Investigations can be done electronically. They don’t need to compel journalists to reveal sources.”

The Post’s Justice Department reporter, Sari Horwitz, said a Justice official told her that “access to e-mail, phone records and cellphones make it easier to do now.”

After the New York Times published a 2012 story by David E. Sanger about covert cyberattacks by the United States and Israel against Iran’s nuclear enrichment facilities, federal prosecutors and the FBI questioned scores of officials throughout the government who were identified in computer analyses of phone, text and e-mail records as having contact with Sanger.

“A memo went out from the chief of staff a year ago to White House employees and the intelligence agencies that told people to freeze and retain any e-mail, and presumably phone logs, of communications with me,” Sanger said. As a result, longtime sources no longer talk to him. “They tell me: ‘David, I love you, but don’t e-mail me. Let’s don’t chat until this blows over.’ ”

Sanger, who has worked for the Times in Washington for two decades, said, “This is most closed, control-freak administration I’ve ever covered.”

***

A survey of government departments and agencies this summer by the Washington bureau of McClatchy newspapers found that they had wide latitude in defining what kinds of behavior constitute a threat. “Government documents reviewed by McClatchy illustrate how some agencies are using that latitude to pursue unauthorized disclosures of any information, not just classified material,” it reported in June. “They also show how millions of federal employees and contractors must watch for ‘high-risk persons or behaviors’ among co-workers and could face penalties, including criminal charges, for failing to report them. Leaks to the media are equated with espionage.”

Steven Aftergood, director of the Project on Government Secrecy at the Federation of American Scientists, told me that the Insider Threat Program has already “created internal surveillance, heightened a degree of paranoia in government and made people conscious of contacts with the public, advocates and the press.”

***

“People think they’re looking at reporters’ records,” Post national security reporter Dana Priest told me. “I’m writing fewer things in e-mail. I’m even afraid to tell officials what I want to talk about because it’s all going into one giant computer.”

***

“Whenever I’m asked what is the most manipulative and secretive administration I’ve covered, I always say it’s the one in office now,” Bob Schieffer, CBS News anchor and chief Washington correspondent, told me.“Every administration learns from the previous administration. They become more secretive and put tighter clamps on information. This administration exercises more control than George W. Bush’s did, and his before that.”

While Obama says he’s running the most transparent administration ever, he’s actually running themost secretive administration ever (background).

The government has taken to protecting criminal wrongdoing by attacking whistleblowers … and any journalists who have the nerve to report on the beans spilled by the whistleblowers.  (The government has also repealed long-standing laws against using propaganda against Americans on U.S. soil, and the government is manipulating social media – more proof here and here).

The Obama administration has prosecuted more whistleblowers than all other presidents combined.

And it goes out of its way to smear whistleblowersthreaten reporters who discuss whistleblower information and harass honest analysts.

Journalism is not only being criminalized in America, but investigative reporting is actually treated liketerrorism.

The government admits that journalists could be targeted with counter-terrorism laws (and here). For example, after Pulitzer Prize winning journalist Chris Hedges, journalist Naomi Wolf, Pentagon Papers whistleblower Daniel Ellsberg and others sued the government to enjoin the NDAA’s allowance of the indefinite detention of Americans – the judge asked the government attorneys 5 times whether journalists like Hedges could be indefinitely detained simply for interviewing and then writing aboutbad guys. The government refused to promise that journalists like Hedges won’t be thrown in a dungeon for the rest of their lives without any right to talk to a judge

After the government’s spying on the Associated Press made it clear to everyone that the government is trying to put a chill journalism, the senior national-security correspondent for Newsweek tweeted:

Serious idea. Instead of calling it Obama’s war on whistleblowers, let’s just call it what it is: Obama’s war on journalism.

Moreover:

  • The Bush White House worked hard to smear CIA officersbloggers and anyone else who criticized the Iraq war

And the American government has been instrumental in locking up journalists in America (and here),Yemen and elsewhere for the crime of … embarrassing the U.S. government.

 

Ukraine PM warns of a coup as protests rage – Europe – Al Jazeera English

Ukraine PM warns of a coup as protests rage – Europe – Al Jazeera English.

No-confidence vote at parliament breaks into shouting and shoving match between members of rival political parties.

Last updated: 03 Dec 2013 

 

Thousands gather outiside parliament in Kiev as lawmakers debate a no confidence vote against the government [AFP]
Ukraine’s Prime Minister Mykola Azarov has warned that the anti-government demonstrations in the capital Kiev are becoming “out of control” and could turn into a coup.

Azarov issued the statement as the parliament votes on Tuesday on a no confidence motion against his government.

Al Jazeera’s Rory Challands, reporting from Kiev, said that the ongoing debate inside the parliament has broken into “shouting and shoving” between administration and opposition politicians.

“There’s a fair amount of chaos inside the parliament,” Challands said.

Opposition members shouted “shame” and “revolution” as pro-government lawmakers spoke, while opposition speakers drew boos and jeer.

Outside, demonstrations are continuing and crowds are now blockading the main government buildings, in an ongoing standoff after President Viktor Yanukovych failed to sign a key EU pact.

“Blocking the work of state institutions is not a peaceful demonstration. This has all the signs of a coup,” Azarov told ambassadors from the European Union, Canada, and the United States. “That is very serious.”

Over the weekend, police forced the protesters off the square, causing injuries to nearly 200 people, including journalists.

The crackdown led to a horrified reaction in the West and the demand by current EU chair Lithuania to launch a probe.

Azarov said Ukraine’s authorities were “ready for dialogue” with the protesters and promised that violence would not be used against peaceful demonstrators.

“The authorities are guaranteeing non-use of force against peaceful protesters,” he said.

As the demonstration rages, Yanukovych is set to travel to China, leaving the country plunged into crisis by his decision to spurn a landmark EU deal, and boost ties with Ukraine’s Soviet ally Russia.

Our correspondent said Yanukovych’s decision to leave for China is seen as “running away from the country at a time when he should be here.”

 

Thailand Police & Military Step Aside As Anti-Government Protesters Reach PM’s Office; Declare Victory | Zero Hedge

Thailand Police & Military Step Aside As Anti-Government Protesters Reach PM’s Office; Declare Victory | Zero Hedge.

As the “peoples’ coup” in Thailand gets the blessing of the country’s Military leader (who stated he would not intervene), the police have also undertaken an unexpected reversal of strategy by removing barriers from the heavily fortified police and government buildings. The government no longer wants to confront the protesters in the 3rd of fighting with 3 dead and at least 230 injured. As AP reports, the protesters have made no attempts (yet) to enter Government House but are milling around the entrance. The government has ‘asked’ people to stay inside and police helicopters are reportedly dropping leaflets warning demonstrators to move out of the rally sites (on grounds of insurrection and possibel death penalty)The anti-government protesters have declared “victory” as the police state “there will be no tear gas today.”

 

The protests come as “the people” rise up against “the elites” – a familar story (via The Economist):

The “people’s coup”, declared by Suthep Thaugsuban, a former deputy prime minister from the opposition Democrat party, states that“Thailand ruled by the Shinawatras is intolerable, and therefore the clan, including Miss Yingluck, Mr Thaksin and the rest, must be removed from power and replaced by a “perfectly democratic People’s Council.”

 

Alt-Thai News Network sums up the people’s view of the current leader:

In a particularly cogent op-ed titled, “Yingluck can’t duck responsibility for protest fatalities,” former editor Veera Prateepchaikul sums up perfectly the state of illegitimacy within which the current regime in Thailand resides.

 

He begins by describing Yingluck Shinawatra, current prime minister and sister of deposed US-backed dictator Thaksin Shinawatra, as aloft and absent. During the rare occasion she does attend any sort of government function, she appears lost and confused, and often bluntly states she does not know the answers to questions any other national leader would be embarrassed not to answer. This illustrates her role as placeholder for her brother, not the “democratically elected leader” she is portrayed as being by the Western media.

and while we have seen this kind of unrest before, this time is different (via The Economist):

For as long as Thais can recall, their governments have built up their majorities in the provinces. The same governments have been unmade rather handily in the capital, to the perennial relief of the Bangkok elite who enjoy ties with the royal palace. The notion that power has shifted permanently from the centre to the provinces—where the Shinawatras have their base—seems to be unacceptable to many of the old guard. The elite are used to thinking that power can always be clawed back in Bangkok.

As the last few days have been bloody and violent as this amazing drone clip shows:

 

 

Thailand’s Military appear to implicitly bless the coup…

Thailand’s armed forces will “stand from afar and monitor” anti-govt protests, Army chief Prayuth Chan-Ocha tells reporters, adding that political problems should “be solved by politics.”

Which has lead to this…

A collapse in Thai Consumer Confidence

 

and this… (via Alt-Thai News Network)

Anti-regime protesters, outnumbering police at two locations in Bangkok, Police Head Quarters and Government House, are poised to take over and occupy both locations peacefully as they have other government sites throughout the city.

 

However, the regime has dropped leaflets over the protesters claiming that the anti-regime protests constitute “insurrection” (which carries a maximum penalty of death), that the leaders are to be arrested, and protesters are to return home.

And the following…

 

@W7VOA

However, we would be surprised if the regime just allowed itself to be overthrown:

Average:Select ratingPoorOkayGoodGreatAwesome

 

Chinese Yuan Surpasses Euro, Becomes Second Most Used Currency In Trade Finance | Zero Hedge

Chinese Yuan Surpasses Euro, Becomes Second Most Used Currency In Trade Finance | Zero Hedge.

Slowly but surely the Chinese currency is catching up to the world’s reserve and moments ago, according to SWIFT, the Yuan just surpassed the Euro in trade (remember trade: that’s how countries once upon a time would generate capital flows in a time when central banks weren’t there to literally print domestic funding needs) finance usage leaving just the USD in front.

  • YUAN OVERTAKES EURO IN TRADE FINANCE USAGE: SWIFT
  • YUAN IS SECOND MOST-USED CURRENCY IN TRADE FINANCE: SWIFT

More from Bloomberg:

  • Chinese currency had 8.66% share in letters of credit and collections, or trade finance, in Oct., Society for Worldwide Interbank Financial Telecommunications says in statement today.
  • Euro’s shr in trade finance was 6.64% in Oct.
  • Top 5 countries using yuan for trade finance in Oct. were China, Hong Kong, Singapore, Germany and Australia
  • Yuan mkt shr in global payments was 0.84% in Oct. vs. 0.86% in Sept.
  • Yuan payments value rose 1.5% in Oct. vs. 4.6% growth for all currencies: Swift

And so while the “developed” world is busy crushing its fiat through trillions in annual currency dilution and debasement in an attempt to make its exports cheaper and outtrade its peers through beggar thy neighbor policies (not to mention inflate away its debt), the leader of the “emerging” world, China, is doing just that.

 

The Mythical Merits of Paper Money

The Mythical Merits of Paper Money.

One economic myth is that paper money is wealth. The proponents of big government oppose honest money for a very specific reason. Inflation, the creation of new money, is used to finance government programs not generally endorsed by the producing members of society. It is a deceptive tool whereby a “tax” is levied without the people as a whole being aware of it. Since the recipients of the newly created money, as well as the politicians, whose only concern is the next election, benefit from this practice, it’s in their interest to perpetuate it.

For this reason, misconceptions are promulgated about the “merits” of paper money and the “demerits” of gold. Some of the myths are promoted deliberately, but many times they are a result of convenient rationalizations and ignorance.

Paper money is not wealth. Wealth comes from production. There’s no other way to create it.

Paper money managers and proponents of government intervention believe that money itself — especially if created out of thin air — is wealth. A close corollary of this myth — which they also believe — is that money supply growth is required for economic growth.

Paper money is not wealth. Wealth comes from production. There’s no other way to create it. Capital comes from production in excess of consumption. This excess is either reinvested, saved, or loaned to others to be used to further produce and invest. Duplicating paper money units creates no wealth whatsoever, it distorts the economy, and it steals wealth from savers. It acts as capital in the early stages of inflation only because it staels real wealth from those who hold dollars or have loaned them to someone.

Instead of economic growth being dependent on money growth as the paper money advocates claim, great economic harm comes from central banks creating new money out of thin air. This leads to the sort of economic stagnation and economic decline that we are experiencing today. Inflation — increasing the supply of paper money — is the cause of malinvestment and the business cycle, and literally destroys the capital needed for economic growth and stability. The formation of capital through savings is discouraged or eliminated by a paper money system. Instead of paper money producing economic growth, it accomplished the opposite. If money growth were necessary for economic growth, the 1970’s would have been a great decade. During this period of time the Federal Reserve nearly tripled the total money supply but the economy grew only 37 percent.

Although the supply under a gold standard would in all probability increase at the rate of two to three percent per year, this growth is not a requirement for gold to function as a sound currency. This natural or market increase in the money supply easily accommodates population growth and economic growth as long as prices are freely adjusting.

If population or economic growth presents a need for “more” purchasing media, prices merely adjust downward if the money supply is not growing. In the latter part of the nineteenth century this occurred. Wholesale prices dropped 47 percent from 1879 to 1900 and economic growth averaged nearly four percent per year. Obviously, although prices were decreasing, there was no depression. While an increase in the supply of money is never needed to produce economic growth, under a gold standard there might be honest money growth (i.e. not money created out of thin air by the politicians and bankers for the benefit of special interests) and this would serve to smooth out price adjustments.

The myth that paper money is wealth has another corollary: the myth that there’s “not enough gold” for reestablishing a gold standard. But this is merely a device used by paper money advocates to confuse the uninformed, and should carry no weight in the debate of gold versus paper. Hans Sennholz explains this clearly in his essay “No Shortage of Gold”:

On the other hand, if the supply of goods increases while that of money remains unchanged, a tendency toward enhancement of the purchasing power of money results. This fact is probably the most popular reason advanced today for policies of monetary expansion. “Our expanding national economy,” economic and monetary authorities proclaim, “requires an ever-growing supply of money and credit in order to assure economic stability.”

No one can seriously maintain that present expansionary policies have brought about economic stability. During the last forty years of almost continuous monetary expansion, whatever else it may have achieved, did not facilitate economic stability. Rather it gave our age it’s economic characteristic — unprecedented instability.

Ludwig von Mises, in his book A Critique of Interventionism (1929), clearly denounces the belief that government can create wealth by printing paper money. He explains:

By its very nature, a government decree that “it be” cannot create anything that has not been created before. Only the naive inflationists could believe that government can create anything; its orders cannot even evict anything from the world of reality, but they can evict from the world of the permissible. Government cannot make man richer, but it can make man poorer.

This is a powerful political and economic message, and yet it seems that so few understand it. Unfortunately, the poorer the people get, the moe economic problems we have, the more inflation we endure, and the higher the interest rates go, since more people demand government intervention. This trend has to be changed if we expect to preserve our freedoms and our standard of living.

Fact: Paper money is not wealth, it steals wealth.

A second myth is that “easy” money causes low interest rates. This myth is based on the erroneous assumption, itself a myth about government, that government officials — the Federal Reserve Board, the Congress, or the Treasury — can actually set interest rates. In reality the market determined interest rates. Governments can dictate rates, but if these rates are contrary to the market, government will not achieve the intended goal. For instance, if a usury law establishes a ten percent interest rate and the market rate if fifteen percent, no funds will be available except those allocated through government force and the creation of new money.

One reason this myth is so persistent is that in the early stages of inflation, an “easy” monetary policy temporarily lowers interest rates below market levels. Before the people are aware of the depreciation of their currency and do not yet anticipate higher prices, the law of supply and demand serves to lower “cost” of money and interest rates fall. But when the people become aware of the depreciation of the dollar’s value and anticipate future loss of purchasing power, this prompts higher interest rates due to inflationary expectations.

This expectation of future inflation and higher risk is determined subjectively by all borrowers and lenders and not by an objective calculation of money supply increases. These increases in the money supply certainly are important and contribute to the setting of the interest rates, but they are not the entire story. Interest rates vary from day to day, week to week, and year to year. There is no close correlation between money supply figures and interest rates.

Crises and panics can occur for political as well as financial reasons; and interest rates can be pushed higher than monetarist theory says they “should be.” In the early stage of inflation, rates may be lower than they “should be,” and in the latter stages frequently are higher than they “should be,” if by “should be” one means commensurate with money supply growth. Nevertheless, wrong ideas die slowly. “Easy” money, that is, inflation of the paper money supply, is still thought of as an absolute method by which the monetary authorities can achieve low interest rates.

This is not to say the Federal Reserve is helpless in manipulating interest rates. If it alters the discount rate and injects new money into the market, the immediate reaction can be that of lowering rates. But a gold-backed dollar, even if only partially backed, is a different sort, and at the time of the ’30s and the ’40s rates were at historic lows.

If the demand for lower interest rates is great enough and not accompanied by a call for sound currency — gold — the politicians will be “forced” to accommodate the demand by means of massive inflation of the money supply with strict credit controls and credit allocation. This would solve nothing, would serve to worsen economic conditions, and real interest rates in the markets would eventually soar. There is no substitute for sound money, and the sooner we realize this the better.

“Easy” money causes hard times.

Regards,

Ron Paul
for The Daily Reckoning

Excerpted with permission from Dr. Paul’s FREE Foundation work

Ed. Note: People blindly trust that “easy money” will bring about growth. They assume that those in power know what they’re doing and that, in the end, the U.S. is simply far to great to fall into the traps that have snared so many other countries throughout history. Of course, you know better. But this is only half the story. The other half is detailed every day in The Daily Reckoning email edition. To get the full analysis, sign up for the FREE Daily Reckoning email edition, right here.

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Ron PaulDr. Ron Paul is a former Republican member of Congress from Texas and perhaps the only voice in Washington still advocating “limited” government in the Jeffersonian tradition. He has delivered several stunning addresses before Congress, including: “Sorry, Mr. Franklin, We Are All Democrats Now” and “We’ve Been Neo-Conned.” Ron Paul is also the author of The Revolution: A Manifesto,End The FedLiberty Defined, and The School Revolution: A New Answer for Our Broken Education System.
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