Olduvaiblog: Musings on the coming collapse

Home » Posts tagged 'Germany' (Page 3)

Tag Archives: Germany

Greece Is Back: Germany, France, Creditors Hold Secret Meeting Due To Greek Bailout “Mounting Concerns” | Zero Hedge

Greece Is Back: Germany, France, Creditors Hold Secret Meeting Due To Greek Bailout “Mounting Concerns” | Zero Hedge.

There was a time – roughly between May 2010 and the spring fall of 2011 – when all the world had to worry about was Greece. Then the realization finally dawned that since a Grexit from the Eurozone would kill the EUR and the European integration dream with so much “political capital” invested, crush Deutsche Bank, and bring back the much dreaded (by German exporters) Deutsche Mark, it became clear that there is no fear that Greece, which is now a decrepit shell of a country with a collapsed economy and society in shambles, has now become a slave state to European bureaucrats, business and banks (in Nigel Farage’s words), will never be formally kicked out of Europe and only an internal coup would allow it to finally break free from the clutches of unelected European tyrants. And then the world moved on to more important things: like Japan, China Emerging Markets and how they are all enjoying the Fed’s taper. Sadly, we have to reportthat Greece is once again baaaaack.

According to the WSJ, “top officials peeled away from colleagues after a euro-zone finance ministers meeting in Brussels Monday evening for a secret meeting to discuss mounting concerns over Greece’s bailout.

WSJ adds:

High-level officials from the International Monetary Fund, the European Commission, the European Central Bank, senior euro-zone officials and the German and French finance ministers were present, according to people with direct knowledge of the situation. They spoke on condition of anonymity because they aren’t authorized to talk to the press.

 

They were trying to figure out how to tackle two issues threatening to unsettle the fragile economic recovery in Greece and the broader euro zone.

 

They discussed how to press the Greek government to forge ahead with unpopular structural reforms; and second, how to scramble together extra cash to cover a shortfall in the country’s financing for the second half of the year, estimated at €5 billion-€6 billion ($6.81 billion-$8.17 billion).

Of course, this being Europe, nothing was decided: “The meeting was inconclusive, the people familiar with the situation said. Talks with the Greek authorities continue remotely—though representatives of the three institutions, known as the troika, have put on hold their plans to travel to Athens. Concerns are growing because Greece faces a large maturity of government bonds in May of €11 billion. The IMF hasn’t disbursed any aid to Greece since July and is €3.8 billion behind in scheduled aid payments. The IMF insists on having a clear view of the country’s finances 12 months ahead, and this condition hasn’t been met.”

And so the posturing resumes, with the Troika pretending it won’t hand over the funds unless Greece “reforms”, and Greece promising the “reform” as soon as it gets the funds. Nothing new here. What is new, is that finally the facade of Greek sovereignty and independence was stripped away as decisions regarding Greece took place… without
Greece: “Greek Finance Minister Yiannis Stournaras, who was briefing the
press in the same building at the time, wasn’t invited.”

Which is right – after all when a nation is enslaved and has no sovereignty, it doesn’t deserve to have a voice in its future.

On Death and Derivatives » Golem XIV – Thoughts

On Death and Derivatives » Golem XIV – Thoughts.

On Sunday a former Senior Deutsche Bank manager, William Broeksmit,  was found hanged at his house. He was the retired Head of Risk Optimization for the bank and a close personal friend of Deutsche’s Co-Chief Executive, Anshu Jain. Mr Broeksmit became head of Risk Optimization in 2008. He retired in February 2013.

Early this morning, Gabriel Magee, a Vice President of CIB (Corporate and Investment Banking) Technology at JP Morgan jumped to his death from the top of the bank’s 33 story European Headquarters in Canary Wharf.  As a VP of CIB Technology Mr Magee’s job would have been to work closely with the Bank’s senior Risk Managers providing the technology which monitored every aspect of the bank’s exposure to financial risk.

These deaths could well be completely unrelated and just terribly sad for their respective families. On the other hand neither of these men had any obvious problems and both were immensely wealthy. So why would two senior bankers commit suicide within a couple of days of each other?

One place to start is to note that JP Morgan Chase had, at the end of 2012,  a mind boggling, but only silver medal, $69.5 Trillion with a ‘T’ gross notional Deriviatives exposure . While the gold medal for exposure to Derivative risk goes to …Deutsche Bank, with $72.8 or €55.6 Trillion Gross Notional Exposure. Gross Notional means this is the face value of all the derivative deals it has signed. Which the bank would be very quick to tell you would Net Out to far, far less. Netting Out, for those of you who do not know just means that a bet/contract in one direction is considered to balance or cancel out a similar sized bet/contract betting the other way. But as I wrote in Propaganda War – Risk Weighted Lies and further in Propaganda Wars – Balance Sheet Instabilities ,

…this sort of cancelling out is fine on paper but in reality is more akin to  people trying to swap sides in a rowing boat.

Both of the men who killed themselves were intimately concerned with judging and safeguarding their bank from risk.

To give you an idea what sort of risk that size of a derivatives book is consider that the entire GDP of Germany is €2.7 Trillion. Remember that Derivatives are what Warren Buffet dubbed “weapons of financial mass destruction.”

Next question might be, when do these weapons become dangerous? The answer obvioulsy varies in accordance with the type of derivative you are considering. One huge group of derivatives that both JP Morgan and Deutsche both deal very heavily in are currency and interest rate swaps. They become dangerous when there are large moves in currency values and interest rates.

At the moment The Tukish Lira has been in free fall for days. The Turkish central bank tried to defend it and could not stem an unstoppable tide. It then stunned everyone by raising its over-night lending rate (the interst rate it charges to lend to banks over-night) from 4.25% to 12 %!

This did not work either and today the Lira continues to be in crisis, as is the whole Turkish stock market.

The Hungarian Florint is also crashing. As is the entire Argentinian economy. The Peso fell 10% in a single day recently. At the same time there is massive uncertainty surrounding Ukraine as there is also surrounding the interest rates and stability of South Africa.

So imagine you are a large bank with huge derivatives business much of which covers bets in your equally large Foreign Exchange business. Essentially that boat in which you are hoping you can ‘net out’ about 70  Trillion dollar’s worth of derivatives positions is now being bounced about by several large storms.

Many of those derivatives contracts would have been entered into during Mr Broeksmit’s tenure at Deutsche, while Mr Magee would have been overseeing and advising on his bank’s risk exposure as it swayed about over at JP Morgan.

All in all I don’t think it is far fetched to think both these men may have been under huge strain and possibly more afraid than the rest of us, because they were in prime position to know much more than the rest of us.

All of which brings to mind yet another banker who recently fell to his death.

Just under a year ago, in March of 2013, David Rossi, head of communications at one of Itay’s largest and most catastrophically insolvent banks, Monte dei Paschi, fell from the balcony of his third story office at the bank’s head-quarters. How a man who isn’t drunk and who, as far as I am aware, left no suicide note just ‘falls’ from a balcony is a mystery. But the Italian authorities, I have no doubt, did a bang up job.

It turns out that,

Monte dei Pasche…had engaged with shady derivatives deals with Deutsche Bank to cover up hundreds of millions of euros in loses, and then employed some creative accounting to hide the trades from share holders and the public.(My emphasis).

Now what I find strange about this man’s death is that as Head of Communications he would not have done any banking himself. Therefore, he would not have been guilty of any wrongdoing. So why would he kill himself? It seems to me the worst that could have happened to him is that he became aware of rather serious wrongdoing that other people and other banks even,  might have not wanted brought to light….

And then I remembered one more death. Pierre Wauthier, the former Chief Financial Officer (CFO) of Zurich Insurance Group hung himself last year, at his home. Now this death you might think has no possible connection with the others. In fact it has two. Both are, as with the rest of what I freely admit is a speculative piece, circumstantial.

The CEO of Zurich Insurance group at the time of Mr Wauthier’s suicide was Josef Ackermann, former CEO of Deutsche Bank. Mr Ackermann resigned shortly after it was revealed that Mr Wautheir, in his suicide note, had named Mr Ackermann. According to Mr Wauthier’s widow it was Ackermann who had placed her husband under intolerable strain. Of course we don’t know what the issue was that caused the ‘intolerable strain’.  But let’s look a little closer at what tied these two men together.

Mr Ackermann stepped down as CEO of Deutsche Bank in 2012 after ten years at the helm. During that time he had transformed Germany’s largest bank from a large but slightly dull national player into one of the very largest and most agressive of the global banks. One of the ways Ackermann had grown Deutsche so spectacularly was to make it the world’s largest player  in the derivatives market. Nearly all of that 72 Trillion dollars’ worth of derivative exposure was accumulated under his leadership.

Mr Ackermann had built a derivatives position 18 times larger than the GDP of Germany itself.

A year and a half after Mr Ackermann took over at Zurich Insurance Group, Zurich announced it was going to start offering banks a way of holding less capital against their risky assets/loans by offering to insure or ‘buy’ the risk from them. This is know as Regulatory Capital Trade. As one of the archtiects of the trade was quoted at the time,

“We are looking at products where banks would buy insurance for their operational risks issues. These are normally risks that are not covered by traditional insurance.”

This new insurance venture was, on the one hand, in response to the European regulators insisting that banks had to hold more capital against their risky assets and on the other, a result of the dire need of Insurers to find products that could yield them a profit. The trade is a classic result of a period of extended low interest rates where traditionally safe investments like Soveriegn bonds and vanilla loans and securities just don’t pay enough to cover insurers’ needs let alone let them make a tidy profit. In other words those insurers who understood what banks were exposed to and were willing to take the risk on themselves – because they thought they were cleverer – could find yield where others feared to tread. And of course one of the largest pots of risky assets on bank books is derivatives. All those lovely foreign exchange bets and interest rate bets, and derivative trades which underpin the rapidly growing European ETF market (in which guess who is a massive palyer?  Yes, that’s right, Deutsche) – they would all have levels of risk the banks would love to off-load.

Holding more capital against risk might be prudent but it is hell on bank growth and bonuses. Regulatory Capital Arbitrage, is how you game (quite legally, of course) that particuar regulation. The bank gets to keep the underlying asset, while the risk is ‘sold’ to or insured by (depends on how you account for it at both ends) someone else. In this case Ackermann’s Zurich Insurance Group.

In some ways it was a creative move – in the way finance is creative , like making a better land mine I suppose – since Zurich already ran the world largest derivative trading exchange, Eurex. With the new trade Zurich would not just be running the exchange but would now become a major player in the risk trade. Of course this is fine so long as the risk never materializes. Which brings us back to the present spreading turbulence in markets from Ukraine, to Argentina and Turkey.  It is also worth noting Zurich also offers insurance against about 50 or so emerging market banks going under.  Might not seem quite so safe a market to be in just at the moment.

As Chief Financial Officer Mr Wauthier would have had to be on side with Mr Ackermann about the wisdom of this bank-risk insurance trade.

Now I realize, as I said above, that this is all circumstantial and speculative. But derivatives are, as Warren Buffett said, very dangerous. Deutsche is sitting on the world’s biggest pile of them and J P Morgan the second biggest pile. And right now global events are making those risks sweat. When HSBC tries to limit cash withdrawals and so does one of Russia’s largest banks then something somewhere is not healthy. We are , I think, circling around another Morgan Stanley moment.

Welcome To Phase Three Of The Global Financial Crisis | Zero Hedge

Welcome To Phase Three Of The Global Financial Crisis | Zero Hedge.

It’s deliciously ironic that emerging market (EM) problems have flared so soon after the meeting of the rich and powerful in Davos. According to the central bankers at Davos, the financial crisis is behind us and brighter days lay ahead. According to these bankers, the EM issues which have since arisen are confined to a handful of developing countries and they won’t impact the West.

If only were that so. What the eruptions of the past week really show is that the system based on easy money created by these bankers remains deeply flawed and these flaws have been exposed by moves to tighten liquidity in the U.S. and China. The system broke down in 2008, and again in Europe in 2011 and now in EM in 2013-2014.

The market reaction to the latest events has been abrupt and violent, particularly in the currency world. In my experience, markets generally cope well when there is one crisis. If the current issue was isolated to Turkey, markets outside of this country would probably shrug their shoulders and move on. But when there are multiple spot fires like the last week, markets don’t cope as well.

What are investors supposed to do now? Well, going into this year, Asia Confidential suggested (herehere and here) being cautious on stocks given increasing deflationary risks from U.S. tapering and a China slowdown. And to go long government bonds in developed markets (the U.S) given these risks and junior gold miners due to the extraordinarily cheap valuations on offer. These recommendations have performed well year-to-date and should continue to out-perform for the remainder of 2014.

Simple explanations for the crisis

Much ink has been spilled (or keyboards worn, in this day and age) trying to make sense of the past week’s event. China’s economic slowdown has copped much of the blame. As has QE tapering. And idiosyncratic issues in Turkey and Argentina have received their fair share of attention.

There have also been more sophisticated explanations such as this one from Kit Juckes at Societe Generale:

“There has been a shift in the balance of growth as Chinese demand for raw material wanes, and as higher wages and strong currencies make many EM economies less competitive. Meanwhile, the Fed policy cycle IS turning, and 4 years of capital being pushed out in a quest for less derisory yields, are ending. This isn’t a repeat of the 1990s Asian crises, because domestic conditions are completely different but it is a turn in the global market cycle. We need to transition from a world where investment is pushed out of the US/Europe/Japan to one where it is pulled in by attractive prospects. When that happens, flows will be differentiated much more from one country (EM or otherwise) to another. But for now, we’re just waiting for global capital flows to calm down.”

Now I have a large issue with the purported attractive prospects of the US, Europe and Japan, but let’s put that aside. The bigger issue is that the explanation here appears to be addressing the symptoms of the crisis (global capital flows) rather than the disease (excess credit and an unstable global economic system).

A more nuanced view

Let me elaborate on this. In a previous post, I echoed the thoughts of India’s new central bank chief in suggesting that there were four main causes for the 2008 financial crisis:

  • Rising inequality and the push for housing credit in the U.S.. Growing income inequality in America, exacerbated by technology replacing low-wage jobs and an inadequate education system which failed to re-skill people, led to politicians allowing easier credit conditions to boost asset prices and make people feel wealthier. That resulted in the subprime and housing crisis.
  • Export-led growth and dependency of several countries including China, Japan and Germany. The debt-fueled consumption in the U.S. would have been inflationary were it not for these countries not meeting the consumption needs of Americans. In other words, they aided and abetted the consumption binge in the U.S.
  • A clash of cultures between developed and developing countries. This relates back to 1997 when the Asian crisis force countries in the region to go from being net importers to substantial net exporters, thereby creating the conditions for a global glut in goods.
  • U.S central bank policy pandering to political considerations by focusing on jobs and inflation at any cost. The bank acted in accordance with the wishes of politicians by keeping interest rates too low for too long. They did this to maintain high employment, one of the bank’s two central mandates.

It’s important to note that none of these issues has been resolved. In fact, many of them have worsened. And any hint of adjustments to one or more of these problems results in further crises (like Europe in 2011 and in EM mid-last year and today).

This isn’t to excuse the governance issues in the likes of Argentina and Turkey. But it is to suggest that they are merely symptoms of a deeper malaise.

Deflation is winning battle over inflation

If these adjustments were to happen in full, it would result in plunging global asset prices as excessive debt loads are unwound. De-leveraging, in economic terms. This deflationary action is anathema to the world’s central bankers as deflation is enemy number one. Hence, they’ll do “whatever it takes” to produce inflation. And if that means flushing currencies down the urinal, so be it. The battle between inflation and deflation is ongoing, though the latter has the upper hand right now.

The weapons of choice for central bankers to fight off deflation are QE and zero interest rates. Central bankers tell us that these policies are necessary for economies to heal. I’d suggest this is baloney and they’re exacerbating the aforementioned problems.

To see why, it’s important to understand that interest rates are the central price signal off which all assets are priced. If central banks keep rates artificially low, it distorts these asset prices. And if you keep rates low for long enough, it distorts prices to such an extent that it’s impossible to know what the real value of certain assets are.

Another issue is that by keeping rates low, businesses which should go bankrupt stay alive. That’s why government bail-outs of almost any private company are a bad idea. Keeping zombies businesses alive means economies become less competitive over time. Witness Japan since 1990.

These are but a few of the unintended consequences of the current policies.

The endgame

There are three possible endgames to the current situation:

  1. There’s a global deflationary shock where all asset prices fall and fall hard. A la 2008. In this instance, central banks would go in all guns blazing with more money printing on an even grander scale. This would risk inflation if not hyperinflation as faith in currencies is diminished, if not lost.
  2. You have a gradual global recovery and inflation stays tame enough for a smooth exit from current policies.
  3. There’s a recovery but central banks are slow to raise rates and inflation gallops, which forces tightening and a subsequent economic slowdown.

My bet remains on the first scenario given intensifying deflationary forces from a China economic slowdown and Japan currency debasement (which aids exporters in being more price competitive).

If I’m right, there may be deflation followed by extreme inflation (or one quickly followed by the other). That makes investing a tough game. Under both of those scenarios, stocks and bonds would under-perform in a big way (my current call to own developed market government bonds is a 6-12 month one, not long-term). That’s why cash (which would out-perform in deflation), gold (which would prosper under extreme inflation) and select property and other tangible assets such as agriculture (which may out-perform under extreme inflation on a relative rather than absolute basis) should be part of any diverse investment portfolio.

This post was originally published at Asia Confidential
http://asiaconf.com/2014/01/29/phase-three-financial-crisis/

Citi Warns The Greatest Monetary Experiment In The History Of The World Is Being Wound Down | Zero Hedge

Citi Warns The Greatest Monetary Experiment In The History Of The World Is Being Wound Down | Zero Hedge.

As Citi’s Tom Fitzpatrick, a number of local market currencies are increasingly coming under pressure and look likely to fall even further. Whether this will turn into a dynamic as severe as 1997-1998 in unclear; however, at minimum Citi believes the “change in course” by the Fed in December (guided since May) has become a “game changer” for the EM World. The greatest monetary experiment in the history of the World is being wound down. In a globally interlinked economy it would be “naïve” to believe that the big beneficiaries of this “monetary excess” in recent years would be immune to the “punch bowl” no longer being refilled constantly.

Via Citi FX Technicals,

A look at some Subemerging currencies of interest.

There are a number of local market currencies that are increasingly coming under pressure and look likely to fall even further:

  • In Latam we look at BRL,MXN,CLP and COP as well as the LACI (Latin America currency index)
  • In Asia we look at PHP,KRW,SGD,IDR, TWD and MYR as well as the ADXY (Asia Dollar index)
  • In CEEMA we look at TRY, ZAR and RUB

USDBRL long term chart continues to look ominous. (BRL is 33% of the LACI)

The uptrend in USDBRL that began off the double bottom formed in 2011(As the 2008 low held) has continued to develop steadily with a series of higher highs and higher lows.

Each new high (including the last one at 2.4550) has tended to result in a retracement back to test and hold the prior high.

If this trend is to continue (which we think it will) we would expect to see a successful break above that August 2013 high at 2.45 (possibly even within the next month) en route to a test of the major 2.62 resistance level. This is the major high from December 2008 and a decisive break above would complete the long term double bottom.

The target on such a development would be for a move towards 3.70 in the medium term

USDMXN starting to break out (MXN is 33% of the LACI)

USDMXN has clearly broken out of the triangle consolidation in place for most of the 2nd half of 2013.It did so while completing a bullish outside week last week after seeing strong support hold in recent months at the converged 55 and 200 week moving averages.(12.75-12.78)

It seems only a matter of time before pivotal resistance at 13.46-13.47 is likely to be tested.

A successful breach of this range should open up the way for further gains with little resistance of note evident before the downward sloping trend line at 14.09.

USDCLP now moving towards major resistance (CLP is 12% of the LACI)

Having broken through the 2011 highs at 535.75 USDCLP now looks set to rally further and test a whole range of resistance levels in the 551-556 range.

A decisive close above this range would suggest continued gains with next good resistance met around 622 (Downward sloping trend line from 2003 and 2008 peaks.

USDCOP attempting to complete a major double bottom (COP is 7% of the LACI)

A weekly close above the 1988 area would complete this formation and target a move as high as 2,200-2,225

Overall these 4 currencies make up 85% of the LACI (PEN is 5% and ARS 10%) suggesting further losses in this index are likely.

LACI (Latin America currency index) has really only 1 support level left

Having only been created in 2004 we now find that the only support level of note left in this index is the 2009 low at 89.39.(Around 3.4% below here)

We fully expect this level to be tested in the medium term and given the magnitude of moves possible in USDBRL, USDMXN, USDCLP and USDCOP new lifetime lows in this index are a distinct possibility.

USDKRW- Forming a base? (KRW is 13% of the ADXY)

For the 3rd time since 2011 USDKRW has held good support around 1,048. It now looks to be forming a double bottom with a neckline at 1,163. A break above here would target as high as 1,275.

Such a move, if seen, would complete an even bigger basing formation on a break of 1,208 that would suggest as high as 1,365-1,370

USDSGD testing good resistance (SGD is 10.27% of the ADXY)

Now testing good trend line and 200 week moving average resistance in the 1.27-1.28 area

A break through here would suggest extended gains towards horizontal resistance in the 1.3200-50 range.

A break above this latter range would open up the way for extended USD gains.

USDTWD: Breaking good resistance (TWD is 5.11% of the ADXY)

Has broken decisively above the 200 week moving average for the first time since Sept. 2009 and also completed a very clear inverted head and shoulders and horizontal trend line break (see insert).

The target for this move is at least 31.50

USDMYR: Re-testing the 2013 highs (MYR is 4.6% of the ADXY)

Having broken above good resistance around 3.21 (Double bottom neckline) USDMYR retraced back below and tested the 200 week moving average before rallying again.

It regained the 3.21 level and is now re-testing the 2013 high at 3.3377.

A break above here would put the double bottom well “back on track” and suggest a move to at least 3.48-3.50 again.

USDIDR: End of a 15 year consolidation? (IDR is 2.69% of the ADXY)

USDIDR looks simply to have been treading water for the past 15 years with signs growing that it may be in danger of break out.

A move above 13,000 would further support this view and suggest that the 1998 peak close to 17,000 could ultimately be tested again.

USDPHP breaking out (PHP is 1.64% of the ADXY)

Having broken out of the 8 year downtrend in May 2013 USDPHP has now completed a well-defined inverted head and shoulders that suggests a move towards 49.

In addition good resistance is met at 50.17 (2008 peak). A break through this latter level, if seen, would suggest continued gains to new all-time highs close to 60.

The ADXY has started to move lower again in recent weeks

So far it remains comfortably above pivotal support in the 113.60-114.00 area.

Only a break below this range would raise concerns about the potential for more extended losses in these Asian currencies.

While the currencies above only make up about 38% of this index the HKD and CNY together make up 49%. Therefore it is likely that moves in the charts above would be instrumental in determining the direction of the ADXY.

USDZAR looks like a long term breakout

We believe that USDZAR has now decisively broken out of a 12 year consolidation at the end of 2013.

We would expect a quick move up to test the 11.87 highs seen in 2008 and thereafter the 13.84 highs seen in 2001.

Ultimately we would not be surprised to see new all-time highs in the coming years.

USDTRY: The sky is the limit

Like USDZAR, we believe we have broken up out of a 12+ year consolidation. However looking at the pace of USDTRY prior to that we have no idea how far this can go, but it looks to be a long way.

As an initial level to watch, the inverted head and shoulders (see insert) targets the 2.60 area

USDRUB testing a breakout point

USDRUB is testing the 2012 high at 34.14 and a break above there suggests a move towards 36.50, the converging 2009 high and channel top

So overall in an environment of relative calm in the US Bond market in recent months the currencies above have continued to weaken albeit to different degrees. If this is as good as they can do with US Bond yields stable/drifting lower what does that suggest if and when bond yields start to push up again?

We have focused previously on how the FX markets have traded in a similar path to that seen in the late 1980’s/late 1990’s…

1989-1991: Savings and loan and housing crisis- USD index hits its low in 1992

1992-1994: Exchange rate mechanism crisis hits Europe and existing financial architecture comes apart. USD weakens in 1994 as bond yields turn off their lows.

1995: USD-Index starts to rise again as the USD and fixed income both look cheap

1997-1998: Structurally low rates in US and then Europe led to carry trades and money flowing into local markets in search for yield. During this time European currencies performed well on the back of the “convergence trade”. Peripheral European bond yields and spreads collapsed versus Germany into late 1998. Emerging markets (Asia and Russia in particular) got hit hard as money flowed out again.

We have no idea if this will turn into a dynamic as severe as 1997-1998 (This caused the Fed to back off its tightening bias in 1998 as EM markets got hit hard and LTCM went bankrupt as its convergence trades “blew up”. The US Equity market (S&P) fell over 20% in July-October 1998.)

However, at minimum we believe the “change in course” by the Fed in December (guided since May) has become a “game changer” for the EM World.

The greatest monetary experiment in the history of the World is being wound down.

In a globally interlinked economy it would be “naïve” to believe that the big beneficiaries of this “monetary excess” in recent years would be immune to the “punch bowl” no longer being refilled constantly.

 

» Soros Activists Take Over Ukrainian Government Buildings Alex Jones’ Infowars: There’s a war on for your mind!

» Soros Activists Take Over Ukrainian Government Buildings Alex Jones’ Infowars: There’s a war on for your mind!.

Early Monday members of Spilna Sprava took over the Justice Ministry in Kiev and demanded President Viktor Yanukovych resign. They smashed windows and erected barricades. In response, the government has threatened to impose a state of emergency.

Soros and EU activists leave Ukrainian Justice Ministry.

Justice Minister Olena Lukash said negotiations between the protesters and the government should be discontinued if Spilna Sprava activists do not leave the ministry and other government buildings. “I will be forced to ask the president of Ukraine to stop the talks if the building is not freed immediately and negotiators are not given a chance to find a peaceful solution to the conflict,” Lukash told Ukraine’s Inter channel. Lukash said she would also demand Ukraine’s national security council “discuss imposing a state of emergency in this country.”

Following the action at the Justice Ministry, Spilna Sprava announced on its Facebook page it had decided to blockade the building instead of occupying it following Justice Minister Olena Lukash’s threat to declare a national emergency. “The activists form a tight cordon and are not allowing media representatives into the building,” the Ukrainian News Agency reported on Monday. “According to them, all Spilna Sprava activists have left the building because continued occupation of the Ministry of Justice could have led to an escalation of the conflict.”

Occupiers Work for Soros and the EU

Spilna Sprava, translated as “The Right Deed,” is an Open Society Institute supported and funded group. George Soros’ Open Society Institute, now known as Open Society Foundations (OSF), doles out grants to activist NGOs in central Europe attempting to undermine the Russian Federation. It builds upon andcontinues the work of the Ford Foundation. Since the early 1950s, the CIA has used the Ford Foundation as a funding cover.

Spilna Sprava is mentioned in the 2009 annual report of the International Renaissance Foundation (IRF), an organization described as “an integral part of the Open Society Institute network (established by American philanthropist George Soros) that incorporates national and regional foundations in more than thirty countries around the world, including Africa, Central and Eastern Europe and the former Soviet Union.” IRF cooperates with the International Monetary Fund and European banksters interested in “economic reforms” and “integration processes and trends” in Ukraine and Moldova.

The IRF report describes Spilna Sprava as “[s]haring best practices, facilitating cooperation between Ukrainian, Polish and German NGOs through creation of a network of support for migrants and refugees.” It is partnered with a Polish NGO, the Euro-Concret Association, that conforms to the “the standards of the EU countries” and works closely with Arbeiterwohlfahrt Kreisverband Bremerhaven, a German NGO funded with support from the European Commission.

“Germany, the EU and the US are pursuing not only economic, but also geopolitical, objectives in Ukraine. Given Russia’s loss of influence in Eastern Europe since the dissolution of the Soviet Union, the incorporation of Ukraine into the EU would push Russia off to the edge of Europe,” writes Peter Schwarz.

The destabilization of the Ukrainian government is part of an ongoing geostrategic move by the globalists to undermine any challenge to their hegemonic designs:

Since the end of the 18th Century, Ukraine formed an important part of the Russian and Soviet state. Moreover, the Russian Black Sea Fleet is located in Crimea at a port leased to Russia by Ukraine.

Both the US and the EU have an interest in weakening Russia, which is considered to be an important ally of China. Immediately after his election in March, Chinese President Xi Jinping traveled to Moscow to strengthen the two countries’ “strategic partnership.” Both countries feel threatened economically and strategically by the aggressive incursions of the US and its allies in Asia, the Middle East and Africa.

(…)

The offensive against Ukraine raises profound historical questions. In two world wars, Germany sought to bring Ukraine under its control and committed abominable crimes in the process. The current brazenness of the German government is fraught with new dangers. The growing international tensions can quickly turn into armed conflict.

These international tensions and the globalist connection to the escalating protests not only in Kiev but now across Ukraine are naturally ignored by the corporatist media. Significant developments on Monday were overshadowed by the usual pablum, notably ad nauseam coverage of the 56th annual Grammy Awards ceremony on Sunday night.

Is a Major Gold Scandal Going Mainstream? Washington’s Blog

Is a Major Gold Scandal Going Mainstream? Washington’s Blog.

Allegation that Central Banks Have Rehypothecated, Leased or Outright Sold the Gold They Claim to Have Is Gaining Momentum

We noted in 2012 that there are serious questions as to whether the Fed and other central banks really have the gold holdings which they claim.

This story is starting to go mainstream.

The Financial Times writes today (h/t Zero Hedge):

A year ago the Bundesbank announced that it intended to repatriate 700 tons of Germany’s gold from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.

Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?

In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.

The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.

The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.

Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?

John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts, who a year ago forecast an average $1700 for 2013. It is currently $1,260.

As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.

And last week, Glenn Beck – hate him or love him, he’s got the 594th most popular website in the world and many viewers on Dish network and various cable providers – did an entire 20-minute episode on the issue:

This story hasn’t yet made it to the New York Times, the Washington Post or network television … but it is gaining momentum.

Bundesbank’s Stunner To Broke Eurozone Nations: First “Bail In” Your Rich Citizens | Zero Hedge

Bundesbank’s Stunner To Broke Eurozone Nations: First “Bail In” Your Rich Citizens | Zero Hedge.

In what is sure to be met with cries of derision across the European Union, in line with what the IMF had previously recommended (and we had previously warned as inevitable), the Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help. As Reuters reports, the Bundesbank states, “(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required.” However, they note that they will not support an implementation of a recurrent wealth tax in Germany, saying it would harm growth. We await the refutation (or Draghi’s jawbone solution to this line in the sand.)

 

Via Reuters,

Germany’s Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.

 

The Bundesbank’s tough stance comes after years of euro zone crisis that saw five government bailouts. There have also bond market interventions by the European Central Bank in, for example, Italy where households’ average net wealth is higher than in Germany.

 

(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required,” the Bundesbank said in its monthly report.

 

It warned that such a levy carried significant risks and its implementation would not be easy, adding it should only be considered in absolute exceptional cases, for example to avert a looming sovereign insolvency.

 

 

The German Institute for Economic Research calculated in 2012 that in Germany a 10-percent levy on a tax base derived from a personal allowance of 250,000 euros would add up to around 230 billion euros. It did not give a figure for crisis countries due to lack of sufficient data.

 

Greece has been granted bailout funds of 240 billion euros from the euro area, its national central banks and IMF to protect it from a chaotic default and possible exit from the euro zone. Not all funds have been paid out yet.

 

In Germany, however, the Bundesbank said it would not support an implementation of a recurrent wealth tax, saying it would harm growth.

 

 

It is not the purpose of European monetary policy to ensure solvency of national banking systems or governments and it cannot replace necessary economic adjustments or bank balance sheet clean ups,” the Bundesbank said.

 

As BCG concluded previously:

In considering some of the potential measures likely to be required, the reader may be struck by the essential problem facing politicians: there may be only painful ways out of the crisis.

 

 

There is one thing we would like to bring to our readers’ attention because we are confident, that one way or another, sooner or later, it will be implemented. Namely a one-time wealth tax: in other words, instead of stealth inflation, the government will be forced to proceed with over transfer of wealth. According to BCG, the amount of developed world debt between household, corporate and government that needs to be eliminated is just over $21 trillion. Which unfortunately means that there is an equity shortfall that will have to be funded with incremental cash which will have to come from somewhere. That somewhere is tax of the middle and upper classes, which are in possession of $74 trillion in financial assets, which in turn will have to be taxed at a blended rate of 28.7%.

 

The programs BCG (and the Bundesbank) described would be drastic. They would not be popular, and they would require broad political coordinate and leadership – something that politicians have replaced up til now with playing for time, in spite of a deteriorating outlook. Acknowledgment of the facts may be the biggest hurdle. Politicians and central bankers still do not agree on the full scale of the crisis and are therefore placing too much hope on easy solutions. We need to understand that balance sheet recessions are very different from normal recessions.  The longer the politicians and bankers wait, the more necessary will be the response outlined in this paper.  Unfortunately, reaching consensus on such tough action might requiring an environment last seen in the 1930s

 

The FT Goes There: “Demand Physical Gold” As One Day Paper Price Manipulation Will End “Catastrophically” | Zero Hedge

The FT Goes There: “Demand Physical Gold” As One Day Paper Price Manipulation Will End “Catastrophically” | Zero Hedge.

What have we done: after a series of reports in late 2012 in which we showed, with no ambiguity, that not only might the Bundesbank’s offshore held gold be severely “diluted” (follow our 2012 exposes on German gold hereherehere, and here), but that on at least one occassion, the Fed and the Bank of England conspired against the Buba in returning subpar quality gold, the Bundesbank shocked everyone in early January 2013 when it announced it would repatriate 300 tons of gold helt in New York and all of its 374 tons of gold held in Paris. But convincing the Bundebsbank to demand delivery was peanuts compared to changing the tune of the Financial Times – that bastion of fiat “money”, and where the word gold is mocked and ridiculed, and those who see the daily improprieties in the gold market as nothing but “conspiracy theorists” – to say the magic words: “Learn from Buba and demand delivery for true price of gold”, adding that “one day the ties that bind this pixelated gold may break, with potentially catastrophic results.

In other words, precisely what we have been saying since the beginning.

Welcome to the ‘conspiracy theorist’ club, boys.

From the FT’s Neil Collins: “Learn from Buba and demand delivery for true price of gold: One day the ties that bind the actual and the traded commodity will snap:

A year ago the Bundesbank announced that it intended to repatriate 700 tons of Germany’s gold from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.

Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?

In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.

The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.

The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.

Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. Thedrones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?

John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts, who a year ago forecast an average $1700 for 2013. It is currently $1,260.

As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.

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.

Comment on this article. When commenting, please post a concise, civil, and informative comment.
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 CollapseThe Tragedy of the Euro has so far been translated and published in GermanFrenchSlovakPolishItalianRomanianFinnishSpanishPortugueseBritish EnglishDutchBrazilian PortugueseBulgarian, and Chinese. See his website. Send him mail. Follow him on Twitter @PhilippBagus See Philipp Bagus’s article archives.

You can subscribe to future articles by Philipp Bagus via this RSS feed.

Kiev protesters expand street barricades – Europe – Al Jazeera English

Kiev protesters expand street barricades – Europe – Al Jazeera English.

Ukrainian protesters have erected more street barricades and occupied a government ministry building, fuelling tension after the failure of crisis talks with the president, Viktor Yanukovich.In response to opposition calls, about 1,000 demonstrators moved away from Kiev’s Independence Square in the early hours of Friday and began to erect new barricades closer to the presidential headquarters.

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.

After leaving a second round of talks with Yanukovich empty handed late on Thursday, opposition leader Vitaly Klitschko voiced fears the impasse could now lead to further bloodshed.

After speaking first to protesters manning the barricades, Klitschko then went to Independence Square where he declared: “Hours of conversation were spent about nothing. There is no sense sitting at a negotiating table with someone who has already decided to deceive you.”

Klitschko had earlier brokered a truce in the violence between protesters and police, and the ceasefire appears to be holding so far.

A group of protesters took control of the main agricultural ministry building in the centre. “We need the place for our people to warm up,” a local protest leader was quoted as saying by Interfax news agency.

Meanwhile, protesters near Dynamo Kiev football stadium, the new flashpoint in the city, cranked up their action, setting tyres ablaze again and sending a pall of black smoke over the area.

There were no signs that protesters were heeding an appeal from general prosecutor Viktor Pshonka who said early on Friday that those so far arrested would be treated leniently by the courts if protest action was halted.

At least three protesters have been killed so far after clashes between protesters and riot police.

East-West tensions

Hundreds of thousands have taken to the streets in the capital after Yanukovich backed away from signing a free trade deal with the EU, which many people saw as the key to a European future, in favour 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.

Earlier on Thursday, Yanukovich had suggested he might be prepared to make concessions to the opposition when he called for a special session of parliament next week to consider the opposition demands and find a way out of the crisis. But this did not impress opposition leaders.

Underlining the level of mistrust between the government and opposition, the prime minister Mykola Azarov on Thursday accused protesters of trying to stage a coup and dismissed the possibility of an early presidential election.

%d bloggers like this: