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Putin Signs Crimean “Absorption” Law As Visa, MasterCard Halt Payment Services For Bank Rossiya | Zero Hedge

Putin Signs Crimean “Absorption” Law As Visa, MasterCard Halt Payment Services For Bank Rossiya | Zero Hedge.

Moments ago the “absorption” of Crimea into the Russian Federation was completed after Putin signed the final previously passed by parliament. And with that, in less than a month, the Crimean “question” has been answered. The only question is whether Putin will stop here or will the ease with which he just expanded the Russian political map leave him hungry for more.

In other news, as part of the Western escalations against Russia, Bank Rossiya, the one bank exclusively identified in the sanctions list, announced that Visa and MasterCard have stopped, without notification, providing services for payment transactions for clients. Another bank that saw the drop of merchant credit card services was SMP bank, co-owned by brothers Boris and Arkady Rotenberg, who were also on the latest U.S. sanctions list.

SMP bank said in a statement that it considered the credit card giants’ move unlawful, because the U.S. sanctions targeted shareholders and not the bank itself, Reuters reported Friday.

Earlier in the day, Bank Rossiya said it was working in a “stable regime” and was taking all the necessary legal measures to defend its rights and its clients’ rights and legal interests.

“In connection with the information about U.S. sanctions being imposed on Rossiya we can report that the bank is working in a stable regime. The bank is meeting and will, without a doubt, fully meet all its obligations to its clients and partners,” the bank said in a statement.

“The management of Rossiya understands the difficulties of clients in the current situation and will do all it can to solve them,” the bank said in a statement.

These moves in turn promptly led to Putin announcing that he wants to open an account with the Bank Rossiya. From Moscow Times:

“I don’t have an account there, but I will certainly open one there on Monday,” Putin said Friday, while speaking at a Security Council meeting, Interfax reported.

Putin later asked for his salary to be transferred to Bank Rossiya and ordered Russia’s Central Bank to take the sanction-hit lender’s clients under protection and provide all possible assistance to them, The Associated Press reported.

U.S. President Barack Obama on Thursday announced that Washington was levying a new round of sanctions affecting 20 Russian officials and businessmen, but also Bank Rossiya, which is chaired and part owned by businessman Yuri Kovalchuk, who is one of the 20.

Why was the bank singled out?

The United States Treasury Department stated that Bank Rossiya is used by senior Russian officials and that its shareholders include members of Putin’s inner circle.

Putin Signs Crimean "Absorption" Law As Visa, MasterCard Halt Payment Services For Bank Rossiya | Zero Hedge

Putin Signs Crimean “Absorption” Law As Visa, MasterCard Halt Payment Services For Bank Rossiya | Zero Hedge.

Moments ago the “absorption” of Crimea into the Russian Federation was completed after Putin signed the final previously passed by parliament. And with that, in less than a month, the Crimean “question” has been answered. The only question is whether Putin will stop here or will the ease with which he just expanded the Russian political map leave him hungry for more.

In other news, as part of the Western escalations against Russia, Bank Rossiya, the one bank exclusively identified in the sanctions list, announced that Visa and MasterCard have stopped, without notification, providing services for payment transactions for clients. Another bank that saw the drop of merchant credit card services was SMP bank, co-owned by brothers Boris and Arkady Rotenberg, who were also on the latest U.S. sanctions list.

SMP bank said in a statement that it considered the credit card giants’ move unlawful, because the U.S. sanctions targeted shareholders and not the bank itself, Reuters reported Friday.

Earlier in the day, Bank Rossiya said it was working in a “stable regime” and was taking all the necessary legal measures to defend its rights and its clients’ rights and legal interests.

“In connection with the information about U.S. sanctions being imposed on Rossiya we can report that the bank is working in a stable regime. The bank is meeting and will, without a doubt, fully meet all its obligations to its clients and partners,” the bank said in a statement.

“The management of Rossiya understands the difficulties of clients in the current situation and will do all it can to solve them,” the bank said in a statement.

These moves in turn promptly led to Putin announcing that he wants to open an account with the Bank Rossiya. From Moscow Times:

“I don’t have an account there, but I will certainly open one there on Monday,” Putin said Friday, while speaking at a Security Council meeting, Interfax reported.

Putin later asked for his salary to be transferred to Bank Rossiya and ordered Russia’s Central Bank to take the sanction-hit lender’s clients under protection and provide all possible assistance to them, The Associated Press reported.

U.S. President Barack Obama on Thursday announced that Washington was levying a new round of sanctions affecting 20 Russian officials and businessmen, but also Bank Rossiya, which is chaired and part owned by businessman Yuri Kovalchuk, who is one of the 20.

Why was the bank singled out?

The United States Treasury Department stated that Bank Rossiya is used by senior Russian officials and that its shareholders include members of Putin’s inner circle.

Goldilocks And The Dog That Didn’t Bark | Zero Hedge

Goldilocks And The Dog That Didn’t Bark | Zero Hedge.

Submitted by Ben Hunt of Epsilon Theory

Det. Gregory: Is there any other point to which you would wish to draw my attention?

Holmes: To the curious incident of the dog in the night-time.

Det. Gregory: The dog did nothing in the night-time.

Holmes: That was the curious incident.

— Arthur Conan Doyle, “Silver Blaze”

Goldilocks And The Dog That Didn’t Bark

The market was down more than 2% last Monday. Why? According to the WSJ, CNBC, and all the other media outlets it was “because” investors were freaked out (to use the technical term) by poor US growth data. Disappointing ISM number, car sales, yada, yada, yada. But then the market was up more than 2% last Thursday and Friday (and another 1% this Tuesday), despite a Friday jobs report that was more negative in its own right than the ISM number by a mile. Why? According to those same media arbiters, investors were now “looking through” the weak data.

Please. This is nonsense. Or rather, it’s an explanation that predicts nothing, which means that it’s not an explanation at all. It’s a tautology. What we want to understand is what makes investors either react badly to bad news like on Monday or rejoice and “look through” bad news like on Friday. To understand this, I sing the Epsilon Theory song, once more with feeling … it’s not the data! It’s how the data is molded or interpreted in the context of the dominant market Narratives.

We have two dominant market Narratives – the same ones we’ve had for almost 4 years now – Self-Sustaining US Growth and Central Bank Omnipotence.

The former is pretty self-explanatory. It’s what every politician, every asset manager, and every media outlet wants to sell you. Is it true? I have no idea. Probably yes (technological innovation, shale-based energy resources) and probably no (global trade/currency conflict, growth-diminishing policy decisions). Regardless of what I believe or what you believe, though, it IS, and it’s not going away so long as all of our status quo institutions have such a vested interest in its “truth”.

The latter – Central Bank Omnipotence – is something I’ve written a lot about, so I won’t repeat all that here. Just remember that this Narrative does NOT mean that the Fed always makes the market go up. It means that all market outcomes – up and down – are determined by Fed policy. If the Fed is not decelerating an easy money policy (what we’ve taken to calling the Taper), the market goes up. If the Fed is decelerating its easy money policy, the market goes down. But make no mistake, the Common Knowledge information structure of this market is that Fed policy is responsible for everything. It was Barzini all along!

How do Narratives of growth and monetary policy come together? Well, there’s one combination that the stock market truly and dearly loves – the Goldilocks scenario. That’s when growth is strong enough so that there’s no fear of recession (terrible for stocks), but not so strong as to whip the flames of inflation (not necessarily terrible for stocks, but sure to provoke the Fed tightening which is terrible for stocks).

Over the past few years the Goldilocks scenario has changed. Inflation is … well, let’s be straight here … inflation is dead. I know, I know … our official measures of inflation are all messed up and intentionally constructed to keep the concept of “inflation” and the Inflation Narrative in check. I get that. But it’s the Narratives that I care about for trying to predict market behaviors, not the Truth with a capital T about inflation. If you want to buy your inflation hedge and protect yourself from the ultimate wealth-destroyer, go right ahead. At some point I’m sure you’ll be right. But I’m in a business where the path matters, and I can’t afford to make a guess about where the world may be in 5 to 10 years and just close my eyes. The Inflation Narrative is, for the foreseeable future, dead. It’s a zombie, as all powerful Narratives are, so it will return one day. But today Goldilocks has nothing to do with inflation.

The Goldilocks scenario today is macro data that’s strong enough to keep the Self-Sustaining US Growth Narrative from collapsing (ISM >50 and positive monthly job growth) but weak enough to keep the market-positive side of the Central Bank Omnipotence Narrative in play. That’s the scenario we’ve enjoyed for the past few years, particularly last year, and it’s the scenario that our political, economic, and media “leaders” are desperate to preserve. So they will.

On Monday we had bad macro data on the heels of the Fed establishing a focal point of $10 billion in additional Taper cuts per FOMC meeting, a clear signal that monetary easing is decelerating on a predictable path. This is the market-negative side of the Central Bank Omnipotence coin, which turns bad macro news into bad market news. And so we were down 2%. And so the Powers That Be started to freak out. Did you see Liesman on CNBC after the Monday debacle? He was adamant that the Fed needed to reconsider the path and pace of the Taper.

And then we had Friday. Honest to God, I thought Liesman was going to collapse of apoplexy, what my Grandmother would have called a conniption fit, right there on the CNBC set. The Fed MUST reconsider its Taper path. The Fed MUST do everything in its power to avoid even a whiff of deflationary pressures. Heady stuff. By 10 am ET that morning the WSJ was running an online lead story titled “U.S Stocks Rise as Focus Returns to Fed”, acknowledging and promulgating the dynamic behind bad macro news driving good market news.

It’s not necessary (and is in fact counter-productive from a Narrative construction viewpoint) to switch the Fed trajectory 180 degrees from Taper to no-Taper. What’s necessary is to inject ambiguity into Fed communication policy, particularly after the non-ambiguous FOMC signal of two weeks ago that led directly to Monday’s horror show. The need for ambiguity is also something I’ve written a lot about so won’t repeat here. But this is why Hilsenrath and Zandi and all the rest of the in-crowd are writing that the Taper is still on track … probably. Unless, you know, the data continues to be weak. What you’re NOT seeing are the articles and statements by the Powers That Be placing a final number on QE3, extrapolating from the last FOMC meeting to a projected QE conclusion. And that’s the dog that didn’t bark. It’s the projection that Yellen won’t be asked about in her testimony; it’s the article that won’t be written in the WSJ or the FT. Is the Taper still on? Two weeks ago the common knowledge here was “Yes, and how.” Today, after a stellar bout of Narrative construction, the answer is back to “Yes, but.” That’s the ambiguous, “data dependent” script that Yellen and all the other Fed Governors now have the freedom to re-assert.

If I’m right, what does this mean for markets? It means that our default is a Goldilocks scenario between now and the next FOMC meeting in mid-March. It means that bad macro news is good market news, and vice versa. If the next ISM manufacturing number (no one cares about ISM services) is a big jump upwards, the market goes down. Ditto for the February jobs number. If they’re weak, though, that’s more pressure on the Fed and another leg up for markets.

Place your bets, ladies and gentlemen, the croupier is about to spin the roulette wheel. Pardon me if I sit this one out, though. My crystal ball is broken.

If I’m right, what does this mean for the real world? It means an Entropic Ending to the story … disappointing, slow and uneven growth as far as the eye can see, but never negative growth, never an honest assignment of losses to clear the field or cull the herd. That’s not my vision of a good investment world, but who cares? I’ve got to live in the world as it is, even if it’s a long gray slog.

How Central Banks Cause Income Inequality – Frank Hollenbeck – Mises Daily

How Central Banks Cause Income Inequality – Frank Hollenbeck – Mises Daily.

The gap between the rich and poor continues to grow. The wealthiest 1 percent held 8 percent of the economic pie in 1975 but now hold over 20 percent. This is a striking change from the 1950s and 1960s when their share of all incomes was slightly over 10 percent. A study by Emmanuel Saez found that between 2009 and 2012 the real incomes of the top 1 percent jumped 31.4 percent. The richest 10 percent now receive 50.5 percent of all incomes, the largest share since data was first recorded in 1917. The wealthiest are becoming disproportionally wealthier at an ever increasing rate.

Most of the literature on income inequalities is written by professors from the sociology departments of universities. They have identified factors such as technology, the reduced role of labor unions, the decline in the real value of the minimum wage, and, everyone’s favorite scapegoat, the growing importance of China.

Those factors may have played a role, but there are really two overriding factors that are the real cause of income differentials. One is desirable and justified while the other is the exact opposite.

In a capitalist economy, prices and profit play a critical role in ensuring resources are allocated where they are most needed and used to produce goods and services that best meets society’s needs. When Apple took the risk of producing the iPad, many commentators expected it to flop. Its success brought profits while at the same time sent a signal to all other producers that society wanted more of this product. The profits were a reward for the risks taken. It is the profit motive that has given us a multitude of new products and an ever-increasing standard of living. Yet, profits and income inequalities go hand in hand. We cannot have one without the other, and if we try to eliminate one, we will eliminate, or significantly reduce, the other. Income inequalities are an integral outcome of the profit-and-loss characteristic of capitalism; they cannot be divorced.

Prime Minister Margaret Thatcher understood this inseparability well. She once said it is better to have large income inequalities and have everyone near the top of the ladder, than have little income differences and have everyone closer to the bottom of the ladder.

Yet, the middle class has been sinking toward poverty: that is not climbing the ladder. Over the period between 1979 and 2007, incomes for the middle 60 percent increased less than 40 percent while inflation was 186 percent. According to the Saez study, the remaining 99 percent saw their real incomes increase a mere .4 percent between 2009 and 2012. However, this does not come close to recovering the loss of 11.6 percent suffered between 2007 and 2009, the largest two-year decline since the Great Depression. When adjusted for inflation, low-wage workers are actually making less now than they did 50 years ago.

This brings us to the second undesirable and unjustified source of income inequalities, i.e., the creation of money out of thin air, or legal counterfeiting, by central banks. It should be no surprise the growing gap in income inequalities has coincided with the adoption of fiat currencies worldwide. Every dollar the central bank creates benefits the early recipients of the money—the government and the banking sector — at the expense of the late recipients of the money, the wage earners, and the poor. Since the creation of a fiat currency system in 1971, the dollar has lost 82 percent of its value while the banking sector has gone from 4 percent of GDP to well over 10 percent today.

The central bank does not create anything real; neither resources nor goods and services. When it creates money it causes the price of transactions to increase. The original quantity theory of money clearly related money to the price of anything money can buy, including assets. When the central bank creates money, traders, hedge funds and banks — being first in line — benefit from the increased variability and upward trend in asset prices. Also, future contracts and other derivative products on exchange rates or interest rates were unnecessary prior to 1971, since hedging activity was mostly unnecessary. The central bank is responsible for this added risk, variability, and surge in asset prices unjustified by fundamentals.

The banking sector has been able to significantly increase its profits or claims on goods and services. However, more claims held by one sector, which essentially does not create anything of real value, means less claims on real goods and services for everyone else. This is why counterfeiting is illegal. Hence, the central bank has been playing a central role as a “reverse Robin Hood” by increasing the economic pie going to the rich and by slowly sinking the middle class toward poverty.

Janet Yellen recently said “I am hopeful that … inflation will move back toward our longer-run goal of 2 percent,” demonstrating her commitment to an institutionalized policy of theft and wealth redistribution. The European central bank is no better. Its LTRO strategy was to give longer term loans to banks on dodgy collateral to buy government bonds which they promptly turned around and deposited with the central bank for more cheap loans for more government bonds. This has nothing to do with liquidity and everything to do with boosting bank profits. Yet, every euro the central bank creates is a tax on everyone that uses the euro. It is a tax on cash balances. It is taking from the working man to give to the rich European bankers. This is clearly a back door monetization of the debt with the banking sector acting as a middle man and taking a nice juicy cut. The same logic applies to the redistribution created by paying interest on reserves to U.S. banks.

Concerned with income inequalities, President Obama and democrats have suggested even higher taxes on the rich and boosting the minimum wage. They are wrongly focusing on the results instead of the causes of income inequalities. If they succeed, they will be throwing the baby out with the bathwater. If they are serious about reducing income inequalities, they should focus on its main cause, the central bank.

In 1923, Germany returned to its pre-war currency and the gold standard with essentially no gold. It did it by pledging never to print again. We should do the same.

Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.

Comment on this article. When commenting, please post a concise, civil, and informative comment.
Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank. See Frank Hollenbeck’s article archives.

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Argentina Scrambles To Raise $10 Billion, Avoid Reserve Collapse; BONARs Bidless | Zero Hedge

Argentina Scrambles To Raise $10 Billion, Avoid Reserve Collapse; BONARs Bidless | Zero Hedge.

A few days ago, in the aftermath of Argentina’s shocking devaluation announcement, we showed the one most important chart for the future of that country’s economy: the correlation between the value of the Arg Peso and the amount of Central Bank foreign reserves, both crashing. And as we predicted when we, before anyone else, started our countdown of Argentina’s reserves, once the number hits zero it’s game over for the Latin American country. Or rather, game over again, considering the number of times in the past Argentina has defaulted. Unfortunately over the past week, things for the Central Bank have gone from bad to worse and were capped overnight with the following headline:

  • ARGENTINE CENTRAL BANK SAYS RESERVES FELL $170M TO 28.1B TODAY

To summarize: Argentina has now burned through $2 billion in less than two weeks, the fastest outflow since 2006, and a trend which if sustained (and we see no reason why it would change), means it has just over half a year left of reserves projecting a linear decline. However, since the lower the amount of reserves, the faster the withdrawals will come, it is safe to predict that the endgame for Argentina will come far sooner, just as its suddenly crashing bonds seem to have realized.

Which is perhaps why, as Argentina’s La Nacion reports, the country is suddenly, and long overdue, scrambling to raise $10 billion to “counter the flight of capital” from the country.

 Alas, it just may be too late.

According to the website, Argentina’s economy minister Axel Kicillof secretly approached international banks, the same one he has been criticizing over the past months, with a simple request: please give me $10 billion. Alas, considering the country’s track record of “honoring” its debt repayment promises, not even promising the required interest rate of +? will do much to generate interest in this particular offer banks can not refuse. Or, rather, can and will.

From La Nacion, Google translated:

Nacion reporters say that the meeting was held in strictest confidence, just in the days before major upheaval in the exchange market. When asked about it, the Economy Ministry spokesman did not confirm nor denied the information, in ABA did not respond to calls from this newspaper.

 

It is imperative for Argentina to get the dollars that can counter the flight of capital, which in January alone cost the Central Bank (BCRA) U.S. $ 2.499 billion of its reserves. It was the biggest drop since 2006, when the country repaid its entire debt of more than U.S. $ 9 billion to the International Monetary Fund (IMF).

 

The minister confided bankers requesting leave to look for dollars abroad, either by issuing new debt or through commercial credit lines that banks could get. Some entities, according to sources consulted by the NATION, and would have set to work to organize a tour to Kicillof investment to New York this month.

In other words, Argentina will be meeting Goldman shortly. So, in the aftermath of the Denmark Dong affair, we can probably expect another government “overhaul” in a few months, mediated by everyone’s favorite vampire squid who is about to make Argentina an offer it can’t refuse. Or maybe even Goldman won’t touch this any more:

The order of Kicillof, noted the sources, was debated this week between ABA bankers. Although they pledged to work in private they also recognized that it will be difficult in the current context for Argentina to access fresh funding at a reasonable rate of interest and, especially, in the amounts the Government needs, somewhere around U.S. $ 10,000 million.

It gets worse:

In addition, they assert, although the Government intends to solve their conflicts with the Paris Club and Repsol, the devaluation of 18.6% recorded in January, the highest in the last 12 years,quite complicated negotiations, and that sowed new doubts about the ability to repay debt Argentina.

Yes, well, losing 20% of your investment “gains” overnight due to an arbitrary decision by the government does kinda make one want to invest in said government for a bit to quite a bit. As for the inflationary panic that has already gripped the country, and which we already commented on, well – it’s only just begun.

Still, all of the above is largely expected, and was perfectly predictable by anyone not caught up in overconsumption of hopium pills, or having their head stuck in the sand of denial. The one thing wedid learn is something which will soon make the front pages of all serious media publications around the globe.

After sharp declines in recent weeks, a sovereign dollar bond Bonar 17 yielded 16.2% yesterday…. Several weeks ago Kicillof announced his intentions to return to the debt markets. The National Social Security Administration (Anses) began in early January to sell their bonds in the market Bonar 18 to contain the escalation of the “dollar bag” on one hand, but also to begin to make a curve in the medium term rates.

Curious what the BONAR is?  Courtesy of this handy glossary of Argentine financial terms and acronyms, we now know that it is the formal name of an Argentina dollar-denominated bond issued under domestic law. Or, as in the case of Greece, precisely the instrument that will quite soon be crammed down due to non-existent covenant protection for creditors.

In other words, in a worst case for Argentina scenario, watch as hundreds of millions of BONARs suddenly deflate to nothing in a bidless market.

Turkey Central Bank Intervention Halflife 12 Hours As USDTRY Roundtrips | Zero Hedge

Turkey Central Bank Intervention Halflife 12 Hours As USDTRY Roundtrips | Zero Hedge.

So much for the credibility of the CBRT? After the Lira soared, and the USDTRY plummeted by just under 1000 pips yesterday when the Turkish Central Bank announced its “shock and awe” intervention, it has since pared back virtually all gains, and at last check was just over 2.24 having nearly roundtripped in 12 hours. Why the loss of faith? Two reasons: First, as we pointed out yesterday, suddenly the domestic situation in Turkey takes front stage again, with 4.25% added elements of instability, causing the political instability to soar, leading to an even higher probability of a social and political overhaul. Second, as Goldman pointed out overnight, “the CBRT stated that liquidity “… will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period”. This implies that the effective rate hike is 225bp (to 10.00%; the 1-week repo rate), as the Non-PD lending rate was 7.75% prior to the announcement.”

In other words, when looked at on a corridor basis, the CBRT hiked not by a shocking and awing 425 bps but by precisely the predicted 225 bps!

Which means the central bankers merely went along consensus, and not a basis point above it, which is the worst of all worlds – giving the impression of massive tightening (for domestic political purposes), while in reality not doing all that much.

The end result, well – see for yourselves:

Shock And Awe From Turkey Which Hikes Overnight Rate By 4.25% To 12%, Blows Away Expectations | Zero Hedge

Shock And Awe From Turkey Which Hikes Overnight Rate By 4.25% To 12%, Blows Away Expectations | Zero Hedge.

The much anticipated Turkey Central Bank Decision is out and it is a stunner:

  • TURKEY’S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 12.00% – this is the key rate, and it was at 7.75% until now, so an epic 4.25% increase, far greater than the 2.50% expected. 
  • TURKEY’S CENTRAL BANK RAISES BENCHMARK REPO RATE TO 10.00% – from 4.50%
  • TURKEY’S CENTRAL BANK RAISES OVERNIGHT BORROWING RATE TO 8.00% from 3.50%
  • TURKEY CENTRAL BANK SETS PRIMARY DEALER RATE AT 11.5% VS 6.75%
  • TURKEY CENTRAL BANK RAISES LATE LIQUIDITY WINDOW RATE TO 15%
     

The full release from the TCMB:

The Monetary Policy Committee (the Committee) has decided to adjust the short term interest rates as follows:

 

a) Overnight Interest Rates: Marginal Funding Rate is increased from 7.75 percent to 12 percent, borrowing rate from 3.5 percent to 8 percent, and the interest rate on borrowing facilities provided for primary dealers via repo transactions from 6.75 to 11.5 percent.

 

b) One-week repo rate is increased from 4.5 percent to 10 percent.

 

c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate is kept at 0 percent, lending rate is increased from 10.25 percent to 15 percent.

 

Recent domestic and external developments are having an adverse impact on risk perceptions, leading to a significant depreciation in the Turkish lira and a pronounced increase in the risk premium. The Central Bank will implement necessary measures at its disposal to contain the negative impact of these developments on inflation and macroeconomic stability. In this respect, the Committee decided to implement a strong monetary tightening and to simplify the operational framework. Accordingly, (i) one-week repo rate is increased from 4.5 percent to 10 percent; (ii) the Central Bank liquidity will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period.

 

Tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook. Under this policy stance, inflation is expected to reach the 5 percent target by mid-2015.

 

It should be emphasized that any new data or information may lead the Committee to revise its stance.

 

The summary of the Monetary Policy Committee Meeting will be released within five working days.

This is what a shock and awe move is. And it better work. This is how the revised Turkish “corridor” looks as of this moment:

 

For now the TRY (as well as the USDJPY and thus, equity futures) is loving the move, plunging 500 pips against the dollar.

Here is the bottom line: a $10 billion taper (out of $85 billion) just caused Turkey to hike its rate by 4.25%. This is just the beginning.

In the meantime, we hope our Turkish readers don’t suddenly need to take out a loan tomorrow morning. It may just be a tad more expensive.

Ukrainian Currency Plunges As Justice Minister Set To Call For “State Of Emergency” | Zero Hedge

Ukrainian Currency Plunges As Justice Minister Set To Call For “State Of Emergency” | Zero Hedge.

Following the rejection of President Yanukovych’s offers of key positions to opposition leaders (because key demands were not met), unrest is now spreading further into the country’s east, which is seen as Mr Yanukovych’s support base (as we discussed here). As The BBC reports, at least a dozen attempts by protesters to seize government buildings were made with the Justice Ministry successfully over-run. Justice Minister Olena Lukash, an ally of Yanukovych and involved in the negotiations, has called for a “state of emergency” if protesters – who claim “the seizure of the Ministry of Justice is a symbolic act of the people of the uprising. Now, these authorities are stripped of justice,” – do not leave. Furthermore, he said she would be “forced to turn to the Ukrainian president with a request to stop the negotiations unless the justice ministry building is vacated without delay.” The Ukraine Hyrvnia has weakened markedly despite the central bank’s intervention.

The UAH is now at its weakest since September 2009…

 

This is the biggest plunge in the UAH since August 2009…

Even though – Ukraine’s central bank was selling currency (dollars) today to commercial banks at 8.4 hryvnia per dollar, Interfax reported, citing bank dealers

 

Via The BBC,

Ukraine’s justice minister has warned anti-government protesters occupying her ministry she will call for a state of emergency if they do not leave.

 

Olena Lukash told local media she would ask the National Security and Defence Council to introduce the measures.

 

The ministry became the latest government building to be occupied on Sunday, with protesters setting up bags of snow as barricades outside.

 

Unrest and occupations of municipal buildings are spreading across Ukraine.

 

Buildings have come under attack even in eastern areas, which have traditionally had closer ties with Russia and where President Viktor Yanukovych has enjoyed strong support.

 

 

The seizure of the Ministry of Justice is a symbolic act of the people of the uprising. Now, these authorities are stripped of justice,” one protester told reporters.

 

One of the organisers of the occupation, who gave his name as Oleg, told the Associated Press news agency: “We are not going to do any hooliganism, or have anyone hurt. We are peaceful people, we are for justice.”

 

But Ms Lukash told Inter TV channel: “If the protesters do not leave the justice ministry building… I will ask the National Security and Defence Council of Ukraine to impose the state of emergency.”

 

The minister is an ally of President Yanukovych and involved in the ongoing negotiations between the government and protest leaders.

 

 

She said she would be “forced to turn to the Ukrainian president with a request to stop the negotiations unless the justice ministry building is vacated without delay and the negotiators are given a chance to find a peaceful solution to the conflict”.

 

 

The fresh unrest comes after opposition leader Arseniy Yatsenyuk rejected President Yanukovych’s offer to appoint him prime minister, saying the key demands must be met.

 

Although the protest movement – the EuroMaidan – is largely peaceful, a hardcore of radicals have been fighting battles with police away from the main protest camp in Kiev’s Maidan, or Independence Square.

 

The unrest is now spreading further into the country’s east, which is seen as Mr Yanukovych’s support base.

Fed’s Dirty Little Secret: “The Gold Isn’t There… Exists as Paper IOU’s”

Fed’s Dirty Little Secret: “The Gold Isn’t There… Exists as Paper IOU’s”.

The assumption by global depositors who have entrusted their national savings with the Federal Reserve and US Government has always been that when they request to repatriate their holdings the Fed would simply open the vault, access said assets and ship them back to where they belong.

That’s exactly what Germany expected would happen last year when the country requested that the Federal Reserve return about one-fifth of their gold reserves. But that’s when things got really dicey. The Fed announced that Germany’s gold would be returned… but it would take seven years to get back home.

The response to Germany’s request turned heads all over the world and raised concerns that the Federal Reserve had squandered its gold holdings. But this isn’t the only red flag that was raised. Public pressure reached such levels that the Fed was forced to take steps to maintain confidence in its operations, so it started shipping gold to Germany. Except it turns out that the gold being sent back to the Bundesbank wasn’t actually German gold. It contained none of the original serial numbers, had no hallmarks, and was reportedly just recently melted.

The implications are earth shattering and hit the very core of the problems facing America today. The whole system as it exists is just one big paper IOU.

In this must-watch interview with Future Money TrendsJefferson Financial CEO Brien Lunden weighs in on Germany’s gold, what is happening at the Fed and what other central banks are doing right now. Brien also shares his thoughts on where the gold market is today, what to expect in coming years as gold supplies tighten up, how mining companies like Brazil Resources are taking advantage of the current environment, and how to profit from gold in coming years.


(Full transcript and interview)

For the reply to be that it would take seven years for this Gold to be sent back to you, your Gold to be sent back to you, was an obvious admission that the Gold just isn’t there.

Yes, it’s an admission that the German reserves were not still sitting there in the vault in the same form that they were sent there after WWII. They were not the original Central Bank Gold bars, same serial numbers etc. It’s an admission that at some point since then, that Gold has been used for other purposes.

So the dirty little secret here, is that a significant portion of central bank Gold reserves, including the U.S., don’t exist now in their original bar form. In fact, they exist as IOU’s, paper IOU’s, from the very banks that were bailed out in 2008 by the Federal Reserve.

So the Gold isn’t there, and the secret that they’re hiding is that it’s been replaced by IOU’s, and importantly those IOU’s are for Gold that was borrowed at much lower prices.

The Fed, through their recent actions, has essentially admitted that the gold stored in their vaults isn’t really there. Just as our government refuses to be openly transparent to with the American people, the Fed has resisted all calls to open their books (and vaults) to impartial third-party accountants for review.

The whole system, it seems, is now operating on IOU’s. Be it consumers, banks, the Fed or even the US government, all of the US dollars being exchanged are nothing but worthless pieces of paper, because given the lack of transparency at the Fed, we have to assume that the physical assets supposedly backing all this currency have already been spent.

Are we wrong in making this assumption?

If you were to store some emergency funds with a friend who promised to get them back to you whenever you asked, and then you ask and are told it’ll be a few years before he’ll get you the cash, what assumption would you make?  That your friend has the money on him right now, or that he’s used it for other purposes and doesn’t really know exactly when he’ll have it available for repayment?

Our entire consumer economy, as well as the credit worthiness of our nation, is built upon confidence. It’s took decades to get America in a position where our country’s monetary issues and services would be trusted by the international community. It’s taken just a few years for that confidence to be lost.

It’s now only a matter of time before our creditors and global investors pull the plug on the whole thing.

Over-financialisation – the Casino Metaphor

Over-financialisation – the Casino Metaphor.

The casino metaphor has been widely used as a part-description of the phenomenon of over-financialisation. It’s a handy pejorative tag but can it give us any real insights? This article pursues the metaphor to extremes so that we can file & forget/get back to the football or possibly graduate to next level thinking.

What is the Financialised Economy (FE) and how big is it?

The FE can be loosely described as ‘making money out of money’ as opposed to making money out of something; or ‘profiting without producing’ [1]. Its primacy derives largely from two sources – the ability of the commercial banks to create credit out of thin air and then lend it and charge and retain interest; and their ability to direct the first use of capital created in this fashion to friends of the casino as opposed to investing it in real economy (RE) businesses. So the FE has the ability to create money and direct where it is used. Given those powers it is perhaps unsurprising that it chooses to feed itself before it feeds the RE. The FE’s key legitimate roles – in insurance and banking services – have morphed into a self-serving parasite. The tail is wagging the dog.

The FE’s power over the allocation of capital has been re-exposed, for those who were perhaps unaware of it, as we see the massive liquidity injected by the central banks via QE disappearing into the depths of bank balance sheets and inflated asset values leaving mid/small RE businesses gasping for liquidity.

By giving preferential access to any capital allocated to the RE to its big business buddies the FE enables those companies to take out better run smaller competitors via leveraged buy outs. By ‘investing’ in regulators and politicians via revolving doors and backhanders, it captures the legislative process and effectively writes its own rule book.

Five years after the 2008 crisis hit, as carefully catalogued by FinanceWatch [2], economies are more financialised than ever. If the politicians and regulators ever had any balls they have been amputated by the casino managers, under the anaesthesis of perceived self-interest. They have become the casino eunuchs. An apparent early consensus on the systemic problems of over financialisation has melted away into a misconceived search for ‘business as usual’.

Derivatives

Derivatives are one of the most popular games in the casino.

Over the counter derivatives, which are essentially bets on the performance of asset prices, stocks, indices or interest rates, have a nominal value (as of December 2012 [2]) of USD 632 trillion – 6% up from 2007 levels – and 9 times world GDP. If the world decided to stop living and buy back derivatives instead of food, energy, shelter and all the stuff we currently consume, it would take nine years to spend this amount.

OK – it’s a nominal value. Many observers believe (even hope) that its real value is a minute fraction of this, but the only way we will ever find out is if the derivative contracts unwind. That is, prompted presumably by some form of crisis, parties progressively withdraw from the contracts or fold. The regulators (and the FE itself of course) will do everything they can to prevent this from happening, including grinding the population into the dust via austerity, because while no-one knows who precisely holds the unwound risk, most will certainly belong to the FE’s top tier.

Many of these derivatives started life as sensible financial products. Businesses need to insure against an uncertain harvest, or hedge against uncertain currency movements. But only a small proportion of current holders now have an insurable risk. So whereas in the past you could say we insured against our own house burning down, now they bet on their neighbour’s house burning; whereas in the past we bet on our own life expectancy, they now bet on the deaths of others; whereas in the past we insured against currency losses we experienced in our own business transactions, now they bet on currency movements in general. What might be expected when there are incentives to burn your neighbour’s house down? Organisations have even purposely set up junk asset classes, had them AAA rated, sold them to outsiders and then bet on their failure.

Government & Politicians

Politics operates as a debating society in a rented corner of the casino. The rent is high but largely invisible to the populace. The debaters are themselves well off, at least in the U.S. they are [3].

Now the strange thing is that the government actually owns the casino, but they have forgotten this. For the last 40 years or so, they have asked the casino managers to issue all the chips. The government use the same chips to spend on public services, and require us all to pay taxes in those chips. Mostly they don’t have enough chips for all the services they provide, so they ask the casino managers for loans. The casino managers are happy with this, provided the government pay interest on the loan of chips. This hidden subsidy effectively funds the casino. It’s perverse because the government pays interest on money they could issue themselves debt-free.

It’s not entirely clear why the government thinks the casino managers are better at managing chips than they would be. Arguably the government is elected to carry out a programme and they should be the arbiters of the country’s strategic priorities, so there should be some strategic guidance over the way the chips are spent.

But the government is only here for five years, and the casino managers are here permanently. So perhaps they think it’s safer just to trust the casino managers to get on with it. When asked, the casino managers explain that they allocate chips according to ‘what the market needs’ and no-one quite understands why that doesn’t seem to include much real investment. In any case the government have forgotten that they could issue the chips themselves, and although prompted (e.g. [4]), have failed to show any interest in reclaiming that power. Occasionally they create a whole new batch of chips themselves (QE) – if they think the tables are quiet – but give them straight back to the casino managers. Maybe it’s too complicated for politicians. Many of them haven’t had proper jobs. There are a few civil servants who understand what’s happening, but most of them don’t want to rock the boat – they are here permanently too and have good pensions. They research for the debaters and have lunch with the casino managers. That keeps them quite busy enough, thank you.

The Real Economy

The Real Economy also operates from a corner of the casino. It’s hard to put an exact figure on it, but perhaps 3-5% of the overall floor space depending how you measure.

It’s a very important corner of the casino, but not for the reasons it should be. It should be important because it’s the place where food is grown, houses are built, energy for warmth and work is created and so on. But these precious things are taken for granted by the casino managers. They have always had enough chips to buy whatever they need – they issue them for God’s sake – and they think food, shelter and energy will always be available to them. Crucially though, they have also managed to financialise this remaining RE corner, and this ‘support’ is trotted out as a continuing justification for the FE’s central importance .

The RE corner has always included important social and cultural, non-GDP activities. The enormous real value of these activities is now being properly articulated and is spawning citizen-led initiatives (e.g. sharing economy approaches, basic unconditional income) but they are often presented as beggars who annoyingly keep petitioning for their ‘entitlements’ and generally clutter up this remote corner of the casino.

On the finance side, individuals and businesses are exploring ways of funding their future activity without going cap-in-hand to the casino managers. They are exploring peer-to-peer finance, crowdfunding, prepayment instruments and so on. What these initiatives have in common is the disintermediation of the casino. They provide ways for people to invest more directly and take more control over their savings and investments. Of course a new breed of intermediary is surfacing to broker and risk-insure these new models, and these new intermediaries can also be captured.

With transparency and short-circuit communication via social media though, there is definitely scope to do things differently. We must hope for progress because the casino managers have little interest in what’s going on outside.

The Planet – outside the casino

The planet outside is used by the casino in two ways – as a source of materials and as a dumping ground for waste.

The materials are not essential to the core FE which is all about making money out of money and needs nothing but ideas, a few arcane mathematical models to give spurious gravitas, and credulous or naive investors. But RE activity performs a valuable role for the casino managers – it provides them with an endless stream of innovative ways of using chips. The shale gas bonanza for example is apparently grounded in the real world need for energy, and is presented as such. Its significance to the FE is as another bubble based partly at least on land-lease ‘flipping’ [5].

Without an RE-related rationale/narrative, the FE might disappear up its own waste pipe as it re-invested/sliced-and-diced/marketised its own products to itself. So materials from outside the casino are important for the managers’ big corporate proxies in the RE.

FE-favoured RE activities also create lots of waste, some of which is toxic, and may eventually prove terminal, as it builds up. This fact is of little interest to the casino managers. There is a minor interest in waste-related financialised vehicles – carbon markets for example are a relatively new casino game – and in the slight impact on some of the FE’s RE-friends like big energy companies. But mostly the casino managers are too busy with their games and their chips. Occasionally a manager will wake up to the dangers and defect to the real world where they, somewhat perversely, carry more credibility because of their casino experience. A small minority of managers stay within the casino and try to gently modify its behaviour. This is portrayed as a healthy sign of openness; the casino is secure in the knowledge that their ways cannot easily be re-engineered.

Combating the casino’s influence

Essentially there would appear to be three possible lines of response for those who believe there should be more to life than casino capitalism. Marginalise, convert or destroy……

These approaches map on to the three ‘broad strategies of emancipatory transformation’ suggested by sociologist Erik Olin Wright [6] – interstitial, symbiotic and ruptural. I have a fourth suggestion/ variation of which more in a moment.

The challenge for interstitial initiatives is the sheer pervasiveness of the FE. There are few spaces left where the effects of the FE can be ignored. They may not be well understood, but whenever we pursue dreams, they pop up in front of us, usually as obstacles. Developments that are most heavily attacked by the FE establishment perhaps merit the most attention – community scale renewable energy, crypto currencies, co-ops, the sharing economy, and so on. The more these alternative directions are attacked as utopian or uneconomic the more we can be sure they offer promising interstitial opportunities.

Symbiotic opportunities may represent the triumph of hope over experience. Armed with the power of ideas, we back our ability to persuade policy makers and business leaders to change the game. The main challenges here are the arrogance of the powerful and the danger of being captured by supping with the devil. Vested interests generally feel secure enough that they don’t need to negotiate or even to spend brain power on listening and evaluating alternatives. If enough interest is manifested that symbiotic trial projects are begun, their champions can be captured by being made comfortable.

Ruptural alternatives come in a spectrum from those that would destroy business models to those that would destroy societies. They probably share the above analysis but differ in their degree of radicalism and disconnection from the main. The impact of FE-driven globalisation is beyond the scope of this article, save to note that its effects have unnecessarily radicalised whole populations making more measured responses more difficult to promote than they might have been.

The role of the internet and social media in progressing both interstitial and ruptural initiatives is significant. Most of the space to develop and assemble communities of interest and mission-partners is here, explaining why both are likely to experience increasingly determined attempts to capture.

The nature of one’s chosen response will be a matter of personal choice. We should not be judgemental of those who don’t have the will, energy or resourcefulness to play a more active role. We all suffer from our subservience to a dysfunctional system, some much more than others. The fourth response? Perhaps there’s some mileage in judo principles [7].

References

[1]: http://rikowski.wordpress.com/2013/12/12/profiting-without-producing-how-finance-exploits-u s-all/
[2]: http://www.finance-watch.org/
[3]: http://www.bbc.co.uk/news/world-us-canada-25691066
[4]: http://www.positivemoney.org/
[5]: “It seems fairly clear at this time that the land is the play, and not the gas. The extremely high prices for land in all of these plays has produced a commodity market more attractive than the natural gas produced.” Art Berman quoted athttp://theautomaticearth.blogspot.ie/2011/07/july-8-2011-get-ready-for-north.html
[6]: http://realutopias.org/
[7]: http://judoinfo.com/unbalance.htm

Featured image: Luxor, Las Vegas. Author: David Marshall jr. Source: http://www.sxc.hu/browse.phtml?f=view&id=90604

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