No inflation Friday: the dollar has lost 97% of its value against stamps
No inflation Friday: the dollar has lost 97% of its value against stamps.
January 24, 2014
Sovereign Valley Farm, Chile
One of the greatest lies of the modern financial system (and that’s really saying something) is about inflation.
The puppet masters who control the system have managed to convince people that deflation = bad, and inflation = necessary evil.
Perhaps the even bigger lie is that of the actual inflation statistics. They tell us that there’s no inflation… or minimal inflation.
And they tell us that the ‘target’ rate is 2%. Bear in mind that 2% annual inflation means your currency will lose over 75% of its value during the course of your lifetime.
But these figures are massively understated. And you don’t have to look hard for proof.
US postage stamp rates, for example, are set to increase this weekend. They’ve been going up almost every year since 2006.
This weekend, the rate for a one-ounce first class letter will rise to 49c from 46c, a 6.5% increase. And the price to send a postcard will rise from 33c to 34c, a 3.0% increase.
If you take a longer-term view, the price of a postcard back in 1951 was just one cent. This means that the dollar has lost over 97% of its value against postcard shipping rates in the last six decades.
Let’s look at this another way.
According to the US Department of Labor, the average household income in 1950 was $4,237. This means that the average US household could afford to send 423,700 postcards back then.
Today’s median household income is $51,017 (and that’s from a majority of dual-income households). This means the average family in the Land of the Free can now afford to send about 150,050 postcards.
It’s a huge difference. The standard of living denominated in postcards has declined by nearly two-thirds since the 1950s.
Short-term, long-term, the conclusion is the same: Inflation exists.
And any suggestion to the contrary that inflation is ‘good’ or at least a ‘necessary evil’ is simply a lie. It destroys both purchasing power and standard of living.
Rational, thinking people need to be aware of this. If you hold a lot of your savings in a bank denominated in paper currencies like the dollar or euro, you will lose.
And I’d strongly urge you to consider holding at least a portion of your savings in stronger, more stable currencies, or better yet, alternative asset classes that cannot be inflated away by central bankers.
This includes productive real estate, precious metals, or even collectibles.
Europe’s Modest Proposal To End Unemployment: Slavery | Zero Hedge
Europe’s Modest Proposal To End Unemployment: Slavery | Zero Hedge.
Having spent weeks talking amongst themselves about the chronic and dangerous rise of youth unemployment in Europe (as we warned here), the Center of planning and Economic Research in Greece has proposed a controversial measure. As GreekReporter reports, the measure includes unpaid work for the young and unemployed up to 24 years old, so that companies would have a strong motive to hire young employees. “Unpaid” work sounds a lot like slavery to us… but it gets better; the report also suggested “exporting young unemployed persons.” No comment…
Europe’s youth unemployment problem is epic – 24.4% of Europe’s under-25 population is unemployed…
GreekReporter notes the solution to Greece’s problems…
Centre of planning and Economic Research in Greece has proposed a controversial measure in order to deal with the problem of increasing unemployment in the country.
The measure includes unpaid work for the young and unemployed up to 24 years old, so that companies would have a strong motive to hire young employees. Practically, what is proposed is the abolition of the basic salary for a year. At the same time the “export” of young unemployed persons was also proposed to other countries abroad, as Greek businesses do not appear able to hire new personnel.
According to the National Confederation of Hellenic Commerce, unemployment especially hits the ages between 15-24. The unemployment rate in Greece stands at 24.6% while 57.2% of young people are without a job. The majority of the unemployed (71%) have had no work for 12 months or more, while 23.3 % of the total have never worked. There were 3,635,905 people employed and 1,345,387 unemployed.
Whether it’s Europe in the 1930’s or the US during the same period (conflicts between strikers, the National Guard and armed militias), unemployment can create a powerful cocktail of unrest.
But turning your nation’s young into slaves does not seem like a good solution to us…
Kiev Burning: Molotov Cocktails, Rubber Bullets And Stun Grenades Exchanged – Live Webcast | Zero Hedge
Kiev Burning: Molotov Cocktails, Rubber Bullets And Stun Grenades Exchanged – Live Webcast | Zero Hedge.
It will be a long night in Kiev:
- KIEV CLASHES RESUME BETWEEN PROTESTERS, POLICE: CHANNEL 5 TV
- KIEV PROTESTERS ATTACKED AFTER POLICE INJURED ACTIVIST: TV 5
- UKRAINE PROTESTERS THROW MOLOTOV COCKTAILS, ROCKS AT POLICE
- UKRAINE POLICE RESPOND WITH RUBBER BULLETS, STUN GRENADES
- UKRAINE POLICE BLAME PROTESTERS FOR BREAKING TRUCE: STATEMENT
What Kiev looks like right now, via @PzFeed:
Live feed after the jump:
How the Paper Money Experiment Will End – Philipp Bagus – Mises Daily
How the Paper Money Experiment Will End – Philipp Bagus – Mises Daily.
A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this senario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt.
This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government.
We are now in a situation that looks like a dead end for the paper money system. After the last cycle, governments have bailed out malinvestments in the private sector and boosted their public welfare spending. Deficits and debts skyrocketed. Central banks printed money to buy public debts (or accept them as collateral in loans to the banking system) in unprecedented amounts. Interest rates were cut close to zero. Deficits remain large. No substantial real growth is in sight. At the same time banking systems and other financial players sit on large piles of public debt. A public default would immediately trigger the bankruptcy of the banking sector. Raising interest rates to more realistic levels or selling the assets purchased by the central bank would put into jeopardy the solvency of the banking sector, highly indebted companies, and the government. It looks like even the slowing down of money printing (now called “QE tapering”) could trigger a bankruptcy spiral. A drastic reduction of government spending and deficits does not seem very likely either, given the incentives for politicians in democracies.
So will money printing be a constant with interest rates close to zero until people lose their confidence in the paper currencies? Can the paper money system be maintained or will we necessarily get a hyperinflation sooner or later?
There are at least seven possibilities:
1. Inflate. Governments and central banks can simply proceed on the path of inflation and print all the money necessary to bail out the banking system, governments, and other over-indebted agents. This will further increase moral hazard. This option ultimately leads into hyperinflation, thereby eradicating debts. Debtors profit, savers lose. The paper wealth that people have saved over their life time will not be able to assure such a high standard of living as envisioned.
2. Default on Entitlements. Governments can improve their financial positions by simply not fulfilling their promises. Governments may, for instance, drastically cut public pensions, social security and unemployment benefits to eliminate deficits and pay down accumulated debts. Many entitlements, that people have planned upon, will prove to be worthless.
3. Repudiate Debt. Governments can also default outright on their debts. This leads to losses for banks and insurance companies that have invested the savings of their clients in government bonds. The people see the value of their mutual funds, investment funds, and insurance plummet thereby revealing the already-occurred losses. The default of the government could lead to the collapse of the banking system. The bankruptcy spiral of overindebted agents would be an economic Armageddon. Therefore, politicians until now have done everything to prevent this option from happening.
4. Financial Repression. Another way to get out of the debt trap is financial repression. Financial repression is a way of channeling more funds to the government thereby facilitating public debt liquidation. Financial repression may consist of legislation making investment alternatives less attractive or more directly in regulation inducing investors to buy government bonds. Together with real growth and spending cuts, financial repression may work to actually reduce government debt loads.
5. Pay Off Debt. The problem of overindebtedness can also be solved through fiscal measures. The idea is to eliminate debts of governments and recapitalize banks through taxation. By reducing overindebtedness, the need for the central bank to keep interest low and to continue printing money is alleviated. The currency could be put on a sounder base again. To achieve this purpose, the government expropriates wealth on a massive scale to pay back government debts. The government simply increases existing tax rates or may employ one-time confiscatory expropriations of wealth. It uses these receipts to pay down its debts and recapitalize banks. Indeed the IMF has recently proposed a one-time 10-percent wealth tax in Europe in order to reduce the high levels of public debts. Large scale cuts in spending could also be employed to pay off debts. After WWII, the US managed to reduce its debt-to-GDP ratio from 130 percent in 1946 to 80 percent in 1952. However, it seems unlikely that such a debt reduction through spending cuts could work again. This time the US does not stand at the end of a successful war. Government spending was cut in half from $118 billion in 1945 to $58 billion in 1947, mostly through cuts in military spending. Similar spending cuts today do not seem likely without leading to massive political resistance and bankruptcies of overindebted agents depending on government spending.
6. Currency Reform. There is the option of a full-fledged currency reform including a (partial) default on government debt. This option is also very attractive if one wants to eliminate overindebtedness without engaging in a strong price inflation. It is like pressing the reset button and continuing with a paper money regime. Such a reform worked in Germany after the WWII (after the last war financial repression was not an option) when the old paper money, the Reichsmark, was substituted by a new paper money, the Deutsche Mark. In this case, savers who hold large amounts of the old currency are heavily expropriated, but debt loads for many people will decline.
7. Bail-in. There could be a bail-in amounting to a half-way currency reform. In a bail-in, such as occurred in Cyprus, bank creditors (savers) are converted into bank shareholders. Bank debts decrease and equity increases. The money supply is reduced. A bail-in recapitalizes the banking system, and eliminates bad debts at the same time. Equity may increase so much, that a partial default on government bonds would not threaten the stability of the banking system. Savers will suffer losses. For instance, people that invested in life insurances that in turn bought bank liabilities or government bonds will assume losses. As a result the overindebtedness of banks and governments is reduced.
Any of the seven options, or combinations of two or more options, may lie ahead. In any case they will reveal the losses incurred in and end the wealth illusion. Basically, taxpayers, savers, or currency users are exploited to reduce debts and put the currency on a more stable basis. A one-time wealth tax, a currency reform or a bail-in are not very popular policy options as they make losses brutally apparent at once. The first option of inflation is much more popular with governments as it hides the costs of the bail out of overindebted agents. However, there is the danger that the inflation at some point gets out of control. And the monopolist money producer does not want to spoil his privilege by a monetary meltdown. Before it gets to the point of a runaway inflation, governments will increasingly ponder the other options as these alternatives could enable a reset of the system.
Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.
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Philipp Bagus is an associate professor at Universidad Rey Juan Carlos. He is an associate scholar of the Ludwig von Mises Institute and was awarded the 2011 O.P. Alford III Prize in Libertarian Scholarship. He is the author of The Tragedy of the Euro and coauthor of Deep Freeze: Iceland’s Economic Collapse. The Tragedy of the Euro has so far been translated and published in German, French, Slovak, Polish, Italian, Romanian, Finnish, Spanish, Portuguese, British English, Dutch, Brazilian Portuguese, Bulgarian, and Chinese. See his website. Send him mail. Follow him on Twitter @PhilippBagus See Philipp Bagus’s article archives.
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Ukrainian Protesters Chant “Yankees Go Home”; Klitschko Warns Of “More Deaths” | Zero Hedge
Ukrainian Protesters Chant “Yankees Go Home”; Klitschko Warns Of “More Deaths” | Zero Hedge.
Ukrainian protesters erected more street barricades and occupied another government ministry building on Friday after the failure of crisis talks with President Yanukovich, as opposition leader Klitschko feared “more deaths” pointing to a weekend of increasingly violent protests. Reuters reports that Yanukovich’s party stated “the situation has grown sharper throughout the country,” and called on people to disregard the calls of “radical troublemakers” to turn out for protest rallies. Klitschko punched back, “Yanukovich has declared war on his own people. He is trying to hold on to power at the price of blood and de-stabilization of the situation in the country. He has to be stopped.” The international community is getting involved with Hollande calling for “dialogue” but it is Biden’s threat of “consequences” that spurred a different protest at the US embassy – “The US is behind everything that is happening in Kiev’s downtown right now.”
“Not A Step Back” – warns opposition:
The problem started…
Hundreds of thousands took to the streets in the capital after Yanukovich backed away from signing a free trade deal with the European Union, which many people saw as the key to a European future, in favor of financial aid from Ukraine’s old Soviet master Russia.
But the movement has since widened into broader protests against perceived misrule and corruption in the Yanukovich leadership.
Protesters have been enraged too by sweeping anti-protest legislation that was rammed through parliament last week by Yanukovich loyalists in the assembly.
and is spreading…
Yanukovich’s Party of the Regions confirmed reports that two months of anti-government protests were spreading to other parts of the country, particularly the west, where “extremists” had seized regional administration buildings.
And will get worse…
Opposition leader Vitaly Klitschko, who with two other opposition leaders failed to wring any concessions from Yanukovich late last night, said the only way out of the impasse lay with international mediation.
“Any discussion of how to settle the crisis in Ukraine must take place with the involvement of the international mediators of the highest level,” a statement from his Udar party quoted him as saying.
“Instead of shifting to solving the situation by common sense, Yanukovich has declared war on his own people. He is trying to hold on to power at the price of blood and de-stabilization of the situation in the country. He has to be stopped,” the boxer-turned-politician said.
Masked protesters, some carrying riot police shields seized as trophies, stood guard as others piled up sandbags packed with frozen snow to form new ramparts across the road leading down into the square.
Opposition leader Vitaly Klitschko, after leaving a second round of talks with Yanukovich empty handed, late on Thursday voiced fears the impasse could now lead to further bloodshed.
But at the US embassy, a different crowd is revolting…
…a new faction of intelligent Ukrainian protesters has sprung up this week.
They see right through the covert western operation:
“The US is behind everything that is happening in Kiev’s downtown right now.”
From yesterday afternoon, this new group have begun to encircle the US Embassy in Kiev. Their demand to the US:
‘Stop meddling in our affairs, and stop sponsoring unrest mobs in our country’.
Following John McCain’s recent trip to Kiev practicing his new brand of international racketeering by threatening the Ukraine if they did not join the EU, it seems that the real Ukrainians have finally figured out that the pro-EU mobs have been staged by a conclave of western NGO’s and ‘democracy foundations’ – the very same nest of hornets who brought on the fabled ‘Arab Spring’ to the Middle East three years ago.
The main goal for Washington and the City of London is to separate Kiev from Moscow, and thus weaken Russia’s hand in Eurasia.
For EU central bankers, the prospect of raping and privatising the Urkraine economy- is also a big incentive.
It looks like the old tricks are no longer working. At last, the ‘colour revolution’ jig may finally be up…
A huge crowd of demonstrators has surrounded the US embassy in the Ukrainian capital of Kiev, protesting against Washington’s meddling in the country’s internal affairs.
Follow RT’s live updates.
The event was organized by Kievans for Clean City, a new pro-government activist group which has spoken out against the rioters and violence in downtown Kiev.
Several thousand demonstrators are taking part, urging the US to “stop sponsoring” mass unrests, local media reported.
“The US is behind everything that is happening in Kiev’s downtown right now. The financing is coming from over there. This has to be stopped. That is what we came out here to say to the whole world: ‘US – stop! US – there needs to be peace in Ukraine,’” said Ivan Protsenko, one of the movement’s leaders.
UN report sounds alarm on farming land-use crisis | Peak Oil News and Message Boards
UN report sounds alarm on farming land-use crisis | Peak Oil News and Message Boards.
To feed the world’s burgeoning population while saving it from exhausting natural land resources, the United Nations today issued a report for policymakers, “Assessing Global Land Use: Balancing Consumption With Sustainable Supply,” published Jan. 24 by the International Resource Panel of the United Nations Environment Programme.
“Over the past 30 years, we’ve been increasing production on agricultural land, but scientists are now seeing evidence of reaching limits,” says Robert W. Howarth, Cornell’s David R. Atkinson Professor of Ecology and Environmental Biology and a lead author of the United Nations report.
“We need to stop over-consuming land-based products. For example, one of our key challenges is overusing agricultural land for growing meat. There is just not enough land on Earth for everyone in the world to eat like Americans and Europeans,” says Howarth. “We don’t need to become complete vegetarians, but to put this into context and to help sustain feeding a burgeoning global population, we need to reduce our meat consumption by 60 percent – which is about 1940s era levels.”
The U.N. predicts the world’s population will be around 9.2 billion people in 2050, with the world’s less-developed regions contributing the most people. More cropland will be required to feed them. The report explains wide-ranging scientific options for sustainable, global land management. Expanding global cropland forever depletes environmentally needed savannahs, grasslands and forests.
If current conditions continue, by 2050 the world could have between 320 million and 849 million hectares more natural land converted to cropland. “To put things into perspective, the higher range of this estimate would cover an extension of land nearly the size of Brazil,” says the report.
Further, the U.N. report – compiled by noted international scientists – says that decoupling fuel and food markets would be a major component of sustainable resource management. Howarth says that countries must halve their current biofuel expectations to ease potential crises. “With widespread use of biofuels, rising petroleum prices will inevitably also drive food prices because biofuels are derived from cropland,” says the report. “Intolerable price increases for food may lead to spreading hunger, cause riots and sociopolitical disturbances.”
This difficult challenge reaches beyond agriculture and forestry. The report delves into energy, transportation, manufacturing, global health and family planning, climate protection and conservation.
Large areas with degraded soils must be restored, and improved land-use planning must be implemented to avoid building on fertile land, according to the report. An estimated one-fourth of all global crop soils is degraded, but nearly 40 percent of this degenerated land has strong potential for easy restoration.
To ease land pressures, the U.N. suggests more programs for economywide sustainable resource management; promoting a healthy diet in countries high in meat consumption; programs in family planning that slow population growth; and reducing food loss at the production and harvest stage in developing countries by increasing infrastructure, storage facilities and bolstering cooperatives.
Obama Administration Preps ‘Weaponized’ IRS For Deployment Against Conservatives In 2014 : Personal Liberty™
Obama Administration Preps ‘Weaponized’ IRS For Deployment Against Conservatives In 2014 : Personal Liberty™.
Last week, reports began circulating that President Barack Obama was readying a new series of regulatory recommendations that, if approved, would essentially equip the Internal Revenue Service with sufficient power to choke conservative grass-roots organizations out of effectiveness in time for the 2014 midterm elections.
The new rules, of course, would apply equally to nonprofits of all ideological persuasions — in theory. But thanks to the specific areas of operation the Obama Administration seeks to empower the IRS to scrutinize, it’s clear they were tailor-made to hobble conservatives. On top of that, the Obama Administration has set a precedent for picking and choosing which fish it wants to shoot out of the partisan barrel.
There’s no better phrasing to explain that well-established fact than that delivered by Tea Party Patriots member Ernest Istook, whose column in The Washington Times last week condemned Obama even as it lamented how little is likely to change:
The power to tax is the power to destroy. Its new powers will let the IRS destroy certain groups, especially those connected to the Tea Party, by imposing a tax on their work and messages during campaign seasons.
[T]he Obama Administration is notorious for selective enforcement, meaning it could choose to give a pass to friendly groups while it puts conservatives out of business. They could use this in efforts to shut down groups like the Faith and Freedom Coalition, Club for Growth, Americans for Prosperity and the National Rifle Association, while ignoring People for the American Way, American Civil Liberties Union, USAction and the Democratic Leadership Council.
The new rules would institute a litany of new no-nos to cover both 501(c)(4) nonprofits and, if the Administration wishes to strictly enforce the rules, 501(c)(3)s as well.
But how do the new changes manage to target conservatives if, technically, they apply generally to nonprofits of every stripe? Because the proposal specifically exempts the left’s grass-roots bread and butter: labor unions and trade groups.
Here’s a sampling of what conservative groups — now a year removed from the same IRS scandal that was supposed to put a stop to further discrimination — will face in 2014 (H/T:Matt Barber for WND):
In an explosive  scandal that continues to grow, the Obama IRS was caught — smoking gun in hand — intentionally targeting conservative and Christian organizations and individuals for harassment, intimidation and, ultimately, for political destruction.
…Not only has Obama faced zero accountability for these arguably impeachable offenses, he has since doubled down. With jaw-dropping gall, his administration has now moved to officially weaponize the IRS against conservatives once and for all.
…Specifically, here’s what the proposed regulations would do to conservative groups and their leaders:
- Prohibit using words like “oppose,” “vote,” “support,” “defeat,” and “reject.”
- Prohibit mentioning, on its website or on any communication (email, letter, etc.) that would reach 500 people or more, the name of a candidate for office, 30 days before a primary election and 60 days before a general election.
- Prohibit mentioning the name of a political party, 30 days before a primary election and 60 days before a general election, if that party has a candidate running for office.
- Prohibit voter registration drives or conducting a non-partisan “get-out-the-vote drive.”
- Prohibit creating or distributing voter guides outlining how incumbents voted on particular bills.
- Prohibit hosting candidates for office at any event, including debates and charitable fundraisers, 30 days before a primary election or 60 days before the general election, if the candidate is part of the event’s program.
- Restrict employees of such organizations from volunteering for campaigns.
- Prohibit distributing any materials prepared on behalf a candidate for office.
- Restrict the ability of officers and leaders of such organizations to publicly speak about incumbents, legislation, and/or voting records.
- Restrict the ability of officers and leaders of such organizations to make public statements regarding the nomination of judges.
- Create a 90-day blackout period, on an election year, that restricts the speech of 501(c)(4) organizations.
- Declare political activity as contrary to the promotion of social welfare.
- Protect labor unions and trade associations by exempting them from the proposed regulations.
These regulations are timed to coincide with the onset of election season. And a new set of discriminatory rules isn’t the only enforcement tactic the IRS is ready to deploy. The New York Times reported Wednesday on Friends of Abe, a conservative group composed of mostly anonymous Hollywood types, that’s found itself in the agency’s crosshairs after applying for tax-exempt status under the existing guidelines:
Last week, federal tax authorities presented the group with a 10-point request for detailed information about its meetings with politicians like Paul D. Ryan, Thaddeus McCotter and Herman Cain, among other matters, according to people briefed on the inquiry.
The people spoke on the condition of anonymity because of the organization’s confidentiality strictures, and to avoid complicating discussions with the I.R.S.
…Friends of Abe — the name refers to Abraham Lincoln — has strongly discouraged the naming of its members. That policy even prohibits the use of cameras at group events, to avoid the unwilling identification of all but a few associates — the actors Gary Sinise, Jon Voight and Kelsey Grammer, or the writer-producer Lionel Chetwynd, for instance — who have spoken openly about their conservative political views.
Tellingly, the IRS has been after the group for two years. Even in the wake of last year’s scandal (which a very friendly Department of Justice is supposedly investigating), the IRS remains emboldened in targeting conservatives under the very rules it has admitted it selectively applied.
Remember that bit earlier about the Obama Administration picking and choosing whether to target 501(c)(3)s based on the political benefits? That’s exactly what’s happening with Friends of Abe.
“[U]nlike most of [last year’s targeted] groups, which had sought I.R.S. approval for a mix of election campaigning and nonpartisan issue advocacy, Friends of Abe is seeking a far more restrictive tax status, known as 501(c)(3), that would let donors claim a tax deduction, but strictly prohibits any form of partisan activity,” The Times reported.
So the Tea Party’s concern isn’t merely academic.
You can file a public comment on the proposals until Feb. 27, and you can sign a petitionsponsored by Liberty Counsel Action (another targeted conservative group) imploring the Senate Committee on Finance: Taxation and IRS Oversight “to ensure all 501(c)(4) organizations formed to promote conservative values will be treated fairly by the IRS.”
Emerging market sell-off spills over to Europe, U.S. | Reuters
Emerging market sell-off spills over to Europe, U.S. | Reuters.
(Reuters) – A full-scale flight from emerging market assets accelerated on Friday, setting global shares on course for their worst week this year and driving investors to safe-haven assets including U.S. Treasuries, the yen and gold.
U.S. stocks slumped, putting the benchmark S&P 500 on track for its worst drop since November 7 and pushing the index down 1.8 percent for the week. Concerns about slower growth in China, reduced support from U.S. monetary policy and political problems in Turkey, Argentina and Ukraine drove the selling.
The Turkish lira hit a record low. Argentina’s peso fell again after the country’s central bank abandoned its support of the currency.
The declines mirror moves from last June when developing country stocks fell almost 18 percent over about two months and hit global shares.
The broad nature of the selloff combines country-specific problems with the reality that reduced U.S. Federal Reserve bond buying reduces the liquidity that has in the past boosted higher-yielding emerging markets assets.
The Fed last month pared its monthly purchases of bonds by $10 billion to $75 billion. The U.S. central bank will hold a policy meeting on Tuesday and Wednesday and is widely expected to again pare its stimulus program.
“We expect the emerging market selloff to get worse before it starts getting better,” said Lorne Baring, managing director of B Capital Wealth Management in Geneva. “There’s definitely contagion spreading and it’s crossing over from emerging to developed in terms of sentiment.”
Activity was heavy in exchange-traded funds focused on emerging markets. The iShares Morgan Stanley EM ETF was the second-most active issue in New York trading, trailing only the S&P 500’s tracking ETF.
An MSCI index of emerging market shares fell as much as 1.6 percent. Since mid-October, the index has lost more than 9 percent. The MSCI all-country world equity index was down 1.6 percent.
Funds have continued to flee emerging market equities. In the week ended January 22, data from Thomson Reuters Lipper service showed outflows from U.S.-domiciled emerging market equity funds of $422.41 million, the sixth week of outflows out of the last seven.
Emerging market debt funds saw a 32nd week of outflows out of the last 35, with $200 million in net redemptions from the 250 funds tracked by Lipper.
“It’s just the final realization that they can’t continue to grow as an economy the same way they did before,” said Andres Garcia-Amaya, global market strategist at J.P. Morgan Funds in New York. “It’s a combination of less liquidity for these countries that depended on foreign money and China kind of throwing some curve balls as well.”
The Turkish lira hit a record low of 2.33 to the dollar, even after the central bank spent at least $2 billion trying to prop it up on Thursday.
Turkey’s new dollar bond, first sold on Wednesday, fell below its launch price. The cost of insuring against a Turkish default rose to an 18-month high and Ukraine’s debt insurance costs hit their highest level since Kiev agreed a rescue deal with Russia in December.
Argentina decided to loosen strict foreign exchange controls a day after the peso suffered its steepest daily decline since the country’s 2002 financial crisis [ID:nL2N0KY0FC]. On Friday, it was down 2.8 percent.
On Wall Street shares sank.
The Dow Jones industrial average was down 205.12 points, or 1.27 percent, at 15,992.23. The Standard & Poor’s 500 Index was down 24.93 points, or 1.36 percent, at 1,803.53. The Nasdaq Composite Index was down 66.82 points, or 1.58 percent, at 4,152.05.
But in a signal that the selling may be overextended, investors were willing to pay more for protection against a drop in the S&P 500 on Friday than for three months down the road. The last time the spread between the CBOE volatility index and three-month VIX futuresturned negative was in mid- October, shortly after a 4.8 percent pullback in the S&P 500 opened the door to the last leg of the 2013 market rally.
European shares suffered their biggest fall in seven months. The FTSEurofirst 300 index of top European shares closed down 2.4 percent at 1,301.34 points. The index has now erased all its gains for 2014, and is down 1.1 percent on the year.
Spain’s IBEX index, highly exposed to Latin America, was the worst-hit in Europe, falling 3.69 percent.
The dollar index was flat, a day after falling 0.9 percent against a basket of majorcurrencies, including the euro, yen, Swiss franc and sterling. That was its worst one-day performance in three months.
A flight to safety lifted currencies backed by a current account surplus, such as the Japanese yen and Swiss franc, and highly rated government bonds. German Bund futures rose and 10-year U.S. Treasury yields hit an eight-week low below 2.75 percent.
Gold traded close to its highest level in nine weeks and was poised for a fifth straight weekly climb as weaker equities burnished its safe-haven appeal. Spot gold rose to $1265.10, up from $1263.95.
(Reporting by Barani Krishnan; Additional reporting by Dan Bases and Toni Vorobyova; Editing by Nigel Stephenson, Nick Zieminski and Leslie Adler)
Eric Holder Just Announced A Major Shift On U.S. Marijuana Policy
Eric Holder Just Announced A Major Shift On U.S. Marijuana Policy.
Jan 23 (Reuters) – U.S. treasury and law enforcement agencies will soon issue regulations opening banking services to state-sanctioned marijuana businesses even though cannabis remains classified an illegal narcotic under federal law, Attorney General Eric Holder said on Thursday.
Holder said the new rules would address problems faced by newly licensed recreational pot retailers in Colorado, and medical marijuana dispensaries in other states, in operating on a cash-only basis, without access to banking services or credit.
Proprietors of state-licensed marijuana distributors in Colorado and elsewhere have complained of having to purchase inventory, pay employees and conduct sales entirely in cash, requiring elaborate and expensive security measures and putting them at a high risk of robbery.
It also makes accounting for state sales tax-collection purposes difficult.
“You don’t want just huge amounts of cash in these places,” Holder told the audience at the University of Virginia. “They want to be able to use the banking system. And so we will be issuing some regulations I think very soon to deal with that issue.”
Holder’s comments echoed remarks by his deputy, James Cole, in September during a Senate Judiciary Committee hearing on Capitol Hill.
Colorado this month became the first state to open retail outlets legally permitted to sell marijuana to adults for recreational purposes, in a system similar to what many states have long had in place for alcohol sales.
Washington state is slated to launch its own marijuana retail network later this year, and several other states, including California, Oregon and Alaska, are expected to consider legalizing recreational weed in 2014.
The number of states approving marijuana for medical purposes has also been growing. California was the first in 1996, and has since been followed by about 20 other states and the District of Columbia.
But the fledgling recreational pot markets in Colorado and Washington state have sent a new wave of cannabis proprietors clamoring to obtain loans and make deposits in banks and credit unions.
The Justice Department announced in August that the administration would give new latitude to states experimenting with taxation and regulation of marijuana.
But with the drug still outlawed at the federal level, banks are barred under money-laundering rules from handling proceeds from marijuana sales even in states where pot sales have been made legal.
The lack of credit for marijuana businesses, however, poses its own criminal justice concerns, Holder said.
“There’s a public safety component to this,” he said. “Huge amounts of cash – substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited – is something that would worry me just from a law enforcement perspective.”
Holder did not offer any specifics on a timeline for action on banking services for marijuana. Cole in September said the Justice Department was working on the issue with the Treasury Department’s financial crimes enforcement network.
Critics of liberalized marijuana laws have said the lack of credit faced by pot retailers was beside the point.
“We are in the midst of creating a corporate, for-profit marijuana industry that has to rely on addiction for profit, and that’s a much bigger issue than whether these stores take American Express,” said Kevin Sabet, co-founder of the anti-legalization group Smart Approaches to Marijuana. (Reporting by David Ingram in Charlottesville, Virginia; Writing by Alex Dobuzinskis; Editing by Steve Gorman and Lisa Shumaker)