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Who Owns Organic Now? The Corporate Takeover of Organics by the Big GMO Food Conglomerates | Global Research

Who Owns Organic Now? The Corporate Takeover of Organics by the Big GMO Food Conglomerates | Global Research.

Global Research, March 05, 2014
organic-vegetable-cultivation

In 1995 there were 81 independent organic processing companies in the United States. A decade later, Big Food had gobbled up all but 15 of them.

Corporate consolidation of the food system has been largely hidden from consumers. That’s changing, thanks to tools such asPhilip H. Howard’s widely circulated “Who Owns Organic?” infographic. Originally published in 2003, the chart provides a snapshot of the structure of the organic industry, showing the acquisitions and alliances of the top 100 food processors in North America. The chart empowers consumers to see at a glance which companies dominate the organic marketplace.

The Cornucopia Institute has been proud to feature Dr. Howard’s work and help supply information helping the Michigan State University researcher keep abreast of the shifting ownership environment in the organic industry.

Dr. Howard released an update of the chart on February 13. It is posted at www.cornucopia.org.

CLICK IMAGE TO ENLARGE

 

Organic-chart-feb-2014-500

click on the poster image above to view a quick loading larger version,
and then click on it again for even larger detail

Download High Resolution PDF for printing purposes

In 1995 there were 81 independent organic processing companies in the United States. A decade later, Big Food had gobbled up all but 15 of them.

Corporate consolidation of the food system has been largely hidden from consumers. That’s changing, thanks to tools such as Philip H. Howard’s widely circulated “Who Owns Organic?” infographic. Originally published in 2003, the chart provides a snapshot of the structure of the organic industry, showing the acquisitions and alliances of the top 100 food processors in North America. The chart empowers consumers to see at a glance which companies dominate the organic marketplace.

The Cornucopia Institute has been proud to feature Dr. Howard’s work and help supply information helping the Michigan State University researcher keep abreast of the shifting ownership environment in the organic industry.

Dr. Howard released an update of the chart on February 13. It is posted prominently on the right-hand margin at www.cornucopia.org.

Major changes since the last version (May 2013) include WhiteWave’s December 2013 acquisition of Earthbound Farm, the nation’s largest organic produce supplier, for $600 million, said Howard, an associate professor in the Department of Community Sustainability at Michigan State. Additionally, Coca-Cola acquired a 10% stake in Green Mountain Coffee for $1.25 billion, and Bimbo Bakeries (Mexico) purchased Canada Bread from Maple Leaf Foods (Canada) for $1.7 billion.

The chart shows that many iconic organic brands are owned by the titans of junk food, processed food and sugary beverages—the same corporations that spent millions to defeat GMO labeling initiatives in California and Washington. General Mills (which owns Muir Glen, Cascadian Farm, and LaraBar), Coca-Cola (Honest Tea, Odwalla), J.M. Smucker (R.W. Knudsen, Santa Cruz Organic), and many other corporate owners of organic brands contributed big bucks to deny citizens’ right to know what is in their food.

“Consumers who want food companies that embody more of the original organic ideals would do well to seek out products from independent organic firms,” Howard advises. “Given the very uneven playing field they are competing in, independent organic processors are unlikely to survive without such support.”

Tools such as Howard’s infographic and The Cornucopia Institute’s scorecards rating organic brands of dairy, eggs, soy foods and breakfast cereals empower consumers to make those choices. The updated chart and scorecards are available for download at www.cornucopia.org.

Howard has created additional infographics and network animations on the wine, beer, soft drink, coffee and seed industries, as well as on foodborne illnesses and the structure of the food system (www.msu.edu/~howardp/index.html).

Copyright Cornupia.org, 2014

Who Owns Organic Now? The Corporate Takeover of Organics by the Big GMO Food Conglomerates | Global Research

Who Owns Organic Now? The Corporate Takeover of Organics by the Big GMO Food Conglomerates | Global Research.

Global Research, March 05, 2014
organic-vegetable-cultivation

In 1995 there were 81 independent organic processing companies in the United States. A decade later, Big Food had gobbled up all but 15 of them.

Corporate consolidation of the food system has been largely hidden from consumers. That’s changing, thanks to tools such asPhilip H. Howard’s widely circulated “Who Owns Organic?” infographic. Originally published in 2003, the chart provides a snapshot of the structure of the organic industry, showing the acquisitions and alliances of the top 100 food processors in North America. The chart empowers consumers to see at a glance which companies dominate the organic marketplace.

The Cornucopia Institute has been proud to feature Dr. Howard’s work and help supply information helping the Michigan State University researcher keep abreast of the shifting ownership environment in the organic industry.

Dr. Howard released an update of the chart on February 13. It is posted at www.cornucopia.org.

CLICK IMAGE TO ENLARGE

 

Organic-chart-feb-2014-500

click on the poster image above to view a quick loading larger version,
and then click on it again for even larger detail

Download High Resolution PDF for printing purposes

In 1995 there were 81 independent organic processing companies in the United States. A decade later, Big Food had gobbled up all but 15 of them.

Corporate consolidation of the food system has been largely hidden from consumers. That’s changing, thanks to tools such as Philip H. Howard’s widely circulated “Who Owns Organic?” infographic. Originally published in 2003, the chart provides a snapshot of the structure of the organic industry, showing the acquisitions and alliances of the top 100 food processors in North America. The chart empowers consumers to see at a glance which companies dominate the organic marketplace.

The Cornucopia Institute has been proud to feature Dr. Howard’s work and help supply information helping the Michigan State University researcher keep abreast of the shifting ownership environment in the organic industry.

Dr. Howard released an update of the chart on February 13. It is posted prominently on the right-hand margin at www.cornucopia.org.

Major changes since the last version (May 2013) include WhiteWave’s December 2013 acquisition of Earthbound Farm, the nation’s largest organic produce supplier, for $600 million, said Howard, an associate professor in the Department of Community Sustainability at Michigan State. Additionally, Coca-Cola acquired a 10% stake in Green Mountain Coffee for $1.25 billion, and Bimbo Bakeries (Mexico) purchased Canada Bread from Maple Leaf Foods (Canada) for $1.7 billion.

The chart shows that many iconic organic brands are owned by the titans of junk food, processed food and sugary beverages—the same corporations that spent millions to defeat GMO labeling initiatives in California and Washington. General Mills (which owns Muir Glen, Cascadian Farm, and LaraBar), Coca-Cola (Honest Tea, Odwalla), J.M. Smucker (R.W. Knudsen, Santa Cruz Organic), and many other corporate owners of organic brands contributed big bucks to deny citizens’ right to know what is in their food.

“Consumers who want food companies that embody more of the original organic ideals would do well to seek out products from independent organic firms,” Howard advises. “Given the very uneven playing field they are competing in, independent organic processors are unlikely to survive without such support.”

Tools such as Howard’s infographic and The Cornucopia Institute’s scorecards rating organic brands of dairy, eggs, soy foods and breakfast cereals empower consumers to make those choices. The updated chart and scorecards are available for download at www.cornucopia.org.

Howard has created additional infographics and network animations on the wine, beer, soft drink, coffee and seed industries, as well as on foodborne illnesses and the structure of the food system (www.msu.edu/~howardp/index.html).

Copyright Cornupia.org, 2014

The Federal Reserve’s Transcripts: The Greatest Propaganda Coup of Our Time? | Global Research

The Federal Reserve’s Transcripts: The Greatest Propaganda Coup of Our Time? | Global Research.

The New York Times and the Fed’s Transcripts

Global Research, February 28, 2014
fed

There’s good propaganda and bad propaganda. Bad propaganda is generally crude, amateurish Judy Miller “mobile weapons lab-type” nonsense that figures that people are so stupid they’ll believe anything that appears in “the paper of record.” Good propaganda, on the other hand, uses factual, sometimes documented material in a coordinated campaign with the other major media to cobble-together a narrative that is credible, but false.

The so called Fed’s transcripts, which were released last week, fall into the latter category. The transcripts (1,865 pages) reveal the details of 14 emergency meetings of the Federal Open Market Committee (FOMC) in 2008, when the financial crisis was at its peak and the Fed braintrust was deliberating on how best to prevent a full-blown meltdown. But while the conversations between the members are accurately recorded, they don’t tell the gist of the story or provide the context that’s needed to grasp the bigger picture. Instead, they’re used to portray the members of the Fed as affable, well-meaning bunglers who did the best they could in ‘very trying circumstances’. While this is effective propaganda, it’s basically a lie, mainly because it diverts attention from the Fed’s role in crashing the financial system, preventing the remedies that were needed from being implemented (nationalizing the giant Wall Street banks), and coercing Congress into approving gigantic, economy-killing bailouts which shifted trillions of dollars to insolvent financial institutions that should have been euthanized.

What I’m saying is that the Fed’s transcripts are, perhaps, the greatest propaganda coup of our time. They take advantage of the fact that people simply forget a lot of what happened during the crisis and, as a result, absolve the Fed of any accountability for what is likely the crime of the century. It’s an accomplishment that PR-pioneer Edward Bernays would have applauded. After all, it was Bernays who argued that the sheeple need to be constantly bamboozled to keep them in line. Here’s a clip from his magnum opus “Propaganda”:

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.”

Sound familiar? My guess is that Bernays’ maxim probably features prominently in editors offices across the country where “manufacturing consent” is Job 1 and where no story so trivial that it can’t be spun in a way that serves the financial interests of the MSM’s constituents. (Should I say “clients”?) The Fed’s transcripts are just a particularly egregious example. Just look at the coverage in the New York Times and judge for yourself. Here’s an excerpt from an article titled “Fed Misread Crisis in 2008, Records Show”:

“The hundreds of pages of transcripts, based on recordings made at the time, reveal the ignorance of Fed officials about economic conditions during the climactic months of the financial crisis. Officials repeatedly fretted about overstimulating the economy, only to realize time and again that they needed to redouble efforts to contain the crisis.” (“Fed Misread Crisis in 2008, Records Show”, New York Times)

This quote is so misleading on so many levels it’s hard to know where to begin.

First of all, the New York Times is the ideological wellspring of elite propaganda in the US. They set the tone and the others follow. That’s the way the system works. So it always pays to go to the source and try to figure out what really lies behind the words, that is, the motive behind the smokescreen of half-truths, distortions, and lies. How is the Times trying to bend perceptions and steer the public in their corporate-friendly direction, that’s the question. In this case, the Times wants its readers to believe that the Fed members “misread the crisis”; that they were ‘behind the curve’ and stressed-out, but–dad-gum-it–they were trying their level-best to make things work out for everybody.

How believable is that? Not very believable at all.

Keep in mind, the crisis had been going on for a full year before the discussions in these transcripts took place, so it’s not like the members were plopped in a room the day before Lehman blew up and had to decide what to do. No. They had plenty of time to figure out the lay of the land, get their bearings and do what was in the best interests of the country. Here’s more from the Times:

 ”My initial takeaway from these voluminous transcripts is that they paint a disturbing picture of a central bank that was in the dark about each looming disaster throughout 2008. That meant that the nation’s top bank regulators were unprepared to deal with the consequences of each new event.”

Have you ever read such nonsense in your life? Of course, the Fed knew what was going on. How could they NOT know? Their buddies on Wall Street were taking it in the stern sheets every time their dingy asset pile was downgraded which was every damn day. It was costing them a bundle which means they were probably on the phone 24-7 to (Treasury Secretary) Henry Paulson whining for help. “You gotta give us a hand here, Hank. The whole Street is going toes-up. Please.”

Here’s more from the NYT:

“Some Fed officials have argued that the Fed was blind in 2008 because it relied, like everyone else, on a standard set of economic indicators. As late as August 2008, “there were no clear signs that many financial firms were about to fail catastrophically,” Mr. Bullard said in a November presentation in Arkansas that the St. Louis Fed recirculated on Friday. “There was a reasonable case that the U.S. could continue to ‘muddle through.’ (“Fed Misread Crisis in 2008, Records Show”, New York Times)

There’s that same refrain again, “Blind”, “In the dark”, “Behind the curve”, “Misread the crisis”.

Notice how the Times only invokes terminology that implies the Fed is blameless. But it’s all baloney. Everyone knew what was going on. Check out this excerpt from a post by Nouriel Roubini that was written nearly a full year before Lehman failed:

“The United States has now effectively entered into a serious and painful recession. The debate is not anymore on whether the economy will experience a soft landing or a hard landing; it is rather on how hard the hard landing recession will be. The factors that make the recession inevitable include the nation’s worst-ever housing recession, which is still getting worse; a severe liquidity and credit crunch in financial markets that is getting worse than when it started last summer; high oil and gasoline prices; falling capital spending by the corporate sector; a slackening labor market where few jobs are being created and the unemployment rate is sharply up; and shopped-out, savings-less and debt-burdened American consumers who — thanks to falling home prices — can no longer use their homes as ATM machines to allow them to spend more than their income. As private consumption in the US is over 70% of GDP the US consumer now retrenching and cutting spending ensures that a recession is now underway.

On top of this recession there are now serious risks of a systemic financial crisis in the US as the financial losses are spreading from subprime to near prime and prime mortgages, consumer debt (credit cards, auto loans, student loans), commercial real estate loans, leveraged loans and postponed/restructured/canceled LBO and, soon enough, sharply rising default rates on corporate bonds that will lead to a second round of large losses in credit default swaps. The total of all of these financial losses could be above $1 trillion thus triggering a massive credit crunch and a systemic financial sector crisis.” ( Nouriel Roubini Global EconoMonitor)

Roubini didn’t have some secret source for data that wasn’t available to the Fed. The financial system was collapsing and it had been collapsing for a full year. Everyone who followed the markets knew it. Hell, the Fed had already opened its Discount Window and the Term Auction Facility (TAF) in 2007 to prop up the ailing banks–something they’d never done before– so they certainly knew the system was cratering. So, why’s the Times prattling this silly fairytale that “the Fed was in the dark” in 2008?

I’ll tell you why: It’s because this whole transcript business is a big, freaking whitewash to absolve the shysters at the Fed of any legal accountability, that’s why. That’s why they’re stitching together this comical fable that the Fed was simply an innocent victim of circumstances beyond its control. And that’s why they want to focus attention on the members of the FOMC quibbling over meaningless technicalities –like non-existent inflation or interest rates–so people think they’re just kind-hearted buffoons who bumbled-along as best as they could. It’s all designed to deflect blame.

Don’t get me wrong; I’m not saying these conversations didn’t happen. They did, at least I think they did. I just think that the revisionist media is being employed to spin the facts in a way that minimizes the culpability of the central bank in its dodgy, collaborationist engineering of the bailouts. (You don’t hear the Times talking about Hank Paulson’s 50 or 60 phone calls to G-Sax headquarters in the week before Lehman kicked the bucket, do you? But, that’s where a real reporter would look for the truth.)

The purpose of the NYT article is to create plausible deniability for the perpetrators of the biggest ripoff in world history, a ripoff which continues to this very day since the same policies are in place, the same thieving fraudsters are being protected from prosecution, and the same boundless chasm of private debt is being concealed through accounting flim-flam to prevent losses to the insatiable bondholders who have the country by the balls and who set policy on everything from capital requirements on complex derivatives to toppling democratically-elected governments in Ukraine. These are the big money guys behind the vacillating-hologram poseurs like Obama and Bernanke, who are nothing more than kowtowing sock puppets who jump whenever they’re told. Here’s more bunkum from the Gray Lady:

 ”By early March, the Fed was moving to replace investors as a source of funding for Wall Street.

Financial firms, particularly in the mortgage business, were beginning to fail because they could not borrow money. Investors had lost confidence in their ability to predict which loans would be repaid. Countrywide Financial, the nation’s largest mortgage lender, sold itself for a relative pittance to Bank of America. Bear Stearns, one of the largest packagers and sellers of mortgage-backed securities, was teetering toward collapse.

On March 7, the Fed offered companies up to $200 billion in funding. Three days later, Mr. Bernanke secured the Fed policy-making committee’s approval to double that amount to $400 billion, telling his colleagues, “We live in a very special time.”

Finally, on March 16, the Fed effectively removed any limit on Wall Street funding even as it arranged the Bear Stearns rescue.” (“Fed Misread Crisis in 2008, Records Show”, New York Times)

This part deserves a little more explanation. The author says “the Fed was moving to replace investors as a source of funding for Wall Street.” Uh, yeah; because the whole flimsy house of cards came crashing down when investors figured out Wall Street was peddling toxic assets. So the money dried up. No one buys crap assets after they find out they’re crap; it’s a simple fact of life. The Times makes this sound like this was some kind of unavoidable natural disaster, like an earthquake or a tornado. It wasn’t. It was a crime, a crime for which no one has been indicted or sent to prison. That might have been worth mentioning, don’t you think?

More from the NYT: “…on March 16, the Fed effectively removed any limit on Wall Street funding even as it arranged the Bear Stearns rescue.”

Yipee! Free money for all the crooks who blew up the financial system and plunged the economy into recession. The Fed assumed blatantly-illegal powers it was never provided under its charter and used them to reward the people who were responsible for the crash, namely, the Fed’s moneybags constituents on Wall Street. It was a straightforward transfer of wealth to the Bank Mafia. Don’t you think the author should have mentioned something about that, just for the sake of context, maybe?

Again, the Times wants us to believe that the men who made these extraordinary decisions were just ordinary guys like you and me trying to muddle through a rough patch doing the best they could.

Right. I mean, c’mon, this is some pretty impressive propaganda, don’t you think? It takes a real talent to come up with this stuff, which is why most of these NYT guys probably got their sheepskin at Harvard or Yale, the establishment’s petri-dish for serial liars.

By September 2008, Bernanke and Paulson knew the game was over. The crisis had been raging for more than a year and the nation’s biggest banks were broke. (Bernanke even admitted as much in testimony before the Financial Crisis Inquiry Commission in 2011 when he said “only one ….out of maybe the 13 of the most important financial institutions in the United States…was not at serious risk of failure within a period of a week or two.” He knew the banks were busted, and so did Paulson.) Their only chance to save their buddies was a Hail Mary pass in the form of Lehman Brothers. In other words, they had to create a “Financial 9-11″, a big enough crisis to blackmail congress into $700 no-strings-attached bailout called the TARP. And it worked too. They pushed Lehman to its death, scared the bejesus out of congress, and walked away with 700 billion smackers for their shifty gangster friends on Wall Street. Chalk up one for Hank and Bennie.

The only good thing to emerge from the Fed’s transcripts is that it proves that the people who’ve been saying all along that Lehman was deliberately snuffed-out in order to swindle money out of congress were right. Here’s how economist Dean Baker summed it up the other day on his blog:

“Gretchen Morgensen (NYT financial reporter) picks up an important point in the Fed transcripts from 2008. The discussion around the decision to allow Lehman to go bankrupt makes it very clear that it was a decision. In other words the Fed did not rescue Lehman because it chose not to.

This is important because the key regulators involved in this decision, Ben Bernanke, Hank Paulson, and Timothy Geithner, have been allowed to rewrite history and claim that they didn’t rescue Lehman because they lacked the legal authority to rescue it. This is transparent tripe, which should be evident to any knowledgeable observer.” (“The Decision to Let Lehman Fail”, Dean Baker, CEPR)

Here’s the quote from Morgenson’s piece to which Baker is alluding:

“In public statements since that time, the Fed has maintained that the government didn’t have the tools to save Lehman. These documents appear to tell a different story. Some comments made at the Sept. 16 meeting, directly after Lehman filed for bankruptcy, indicate that letting Lehman fail was more of a policy decision than a passive one.” (“A New Light on Regulators in the Dark”, Gretchen Morgenson, New York Times)

Ah ha! So it was a planned demolition after all. At least that’s settled.

Here’s something else you’ll want to know: It was always within Bernanke’s power to stop the bank run and end to the panic, but if he relieved the pressure in the markets too soon (he figured), then Congress wouldn’t cave in to his demands and approve the TARP. Because, at the time, a solid majority of Republicans and Democrats in congress were adamantly opposed to the TARP and even voted it down on the first ballot. Here’s a clip from a speech by, Rep Dennis Kucinich (D-Ohio) in September 2008 which sums up the grassroots opposition to the bailouts:

“The $700 bailout bill is being driven by fear not fact. This is too much money, in too short of time, going to too few people, while too many questions remain unanswered. Why aren’t we having hearings…Why aren’t we considering any other alternatives other than giving $700 billion to Wall Street? Why aren’t we passing new laws to stop the speculation which triggered this? Why aren’t we putting up new regulatory structures to protect the investors? Why aren’t we directly helping homeowners with their debt burdens? Why aren’t we helping American families faced with bankruptcy? Isn’t time for fundamental change to our debt-based monetary system so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the US Congress or the Board of Directors of Goldman Sachs?”

But despite overwhelming public resistance, the TARP was pushed through and Wall Street prevailed. mainly by sabotaging the democratic process the way they always do when it doesn’t suit their objectives.)

Of course, as we said earlier, Bernanke never really needed the money from TARP to stop the panic anyway. (Not one penny of the $700 bil was used to shore up the money markets or commercial paper markets where the bank run took place.) All Bernanke needed to do was to provide backstops for those two markets and, Voila, the problem was solved. Here’s Dean Baker with the details:

“Bernanke deliberately misled Congress to help pass the Troubled Asset Relief Program (TARP). He told them that the commercial paper market was shutting down, raising the prospect that most of corporate America would be unable to get the short-term credit needed to meet its payroll and pay other bills. Bernanke neglected to mention that he could singlehandedly keep the commercial paper market operating by setting up a special Fed lending facility for this purpose. He announced the establishment of a lending facility to buy commercial paper the weekend after Congress approved TARP.” (“Ben Bernanke; Wall Street’s Servant”, Dean Baker, Guardian)

So, there you have it. The American people were fleeced in broad daylight by the same dissembling cutthroats the NYT is now trying to characterize as well-meaning bunglers who were just trying to save the country from another Great Depression.

I could be wrong, but I think we’ve reached Peak Propaganda on this one.

(Note: By “good” propaganda, I mean “effective” propaganda. From an ethical point of view, propaganda can never be good because its objective is to intentionally mislead people…..which is bad.)

Mike Whitney lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

G-20 Agrees To Grow Global Economy By $2 Trillion, Has No Idea How To Actually Achieve It | Zero Hedge

G-20 Agrees To Grow Global Economy By $2 Trillion, Has No Idea How To Actually Achieve It | Zero Hedge.

Apparently all it takes to kick the world out of a secular recession and back into growth mode, is for several dozen finance ministers and central bankers to sit down and sign on the dotted line, agreeing it has to be done. That is the take home message from the just concluded latest G-20 meeting in Syndey, where said leaders agreed that it is time to finally grow the world economy by 2% over the next 5 years.

The final G-20 communiqué announced its member nations would take concrete action to increase investment and employment, among other reforms. “We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming 5 years,” the G20 statement said.

Australian Treasurer Joe Hockey, who hosted the meeting, sold the plan as a new day for cooperation in the G20.

“We are putting a number to it for the first time — putting a real number to what we are trying to achieve,” Hockey told a news conference. “We want to add over $2 trillion more in economic activity and tens of millions of new jobs.

And to think all it took was several dozen of politicians sitting down for 2 days in balny Syndey and agreeing. So over five years after the start of the second great depression the G-20 has finally agreed and decided it is time to grow the economy: supposedly the reason there was no such growth previously is because the G-20 never willed it…

There is only one problem: the G-20 has absolutely no idea how to actually achieve its goal of boosting global output by more than the world’s eighth largest economy Russia produces in a year. Nor does it have any measures to prod and punish any laggards from this most grand of central planning schemes. From Reuters:

There was no road map on how nations intend to get there or repercussions if they never arrive. The aim was to come up with the goal now, then have each country develop an action plan and a growth strategy for delivery at a November summit of G20 leaders in Brisbane.

 

“Each country will bring its own plan for economic growth,” said Hockey. “Each country has to do the heavy lifting.”

 

Agreeing on any goal is a step forward for the group that has failed in the past to agree on fiscal and current account targets. And it was a sea change from recent meetings where the debate was still on where their focus should lie: on growth or budget austerity.

So who is the mastermind behind this grand plan? Why the IMF of course: “The growth plan borrows wholesale from an IMF paper prepared for the Sydney meeting, which estimated that structural reforms would raise world economic output by about 0.5 percent per year over the next five years, boosting global output by $2.25 trillion.”

The same IMF whose “forecasts” can best be summarized in the following chart (which will be revised lower shortly to account for all the snow in the Northeast US):

 

Aside from this idiocy, the other topic under boondoggle discussion was the fate of the taper, and specifically how emerging markets will (continue to) suffer should the Fed continue to withdraw liquidity. Here, once again, the developed nations won out, leaving the EMs, and particularly India’s Raghuram Rajan – who has been pleading for far more coordination between central banks in a time of globla tightening – high and dry.

  • RBI’S RAJAN: POLICY TIGHTENING MUSTN’T UPSET GLOBAL ECONOMY
  • RAJAN SAYS INFLATION IS HURTING GROWTH
  • INDIA’S RAJAN SAYS BRINGING DOWN INFLATION BIGGEST CHALLENGE
  • RAJAN: DEVELOPED, EM NATIONS AGREE ON NEED TO CALIBRATE POLICY

What inflation? As for coordination, here is what the G-20 did agree on: whatever Yellen says, goes:

Financial markets had been wary of the possibility of friction between advanced and emerging economies, but nothing suggested the meeting would cause ripples on Monday. “The text of the communiqué indicates that the standard U.S. line that what is good for the core of the world economy is good for all seems to have won out,” said Huw McKay, a senior economist at Westpac, noting there was nothing that could be taken as “inflammatory” about recent volatility in markets.

 

There was a nod to concerns by emerging nations that the Federal Reserve consider the impact of its policy tapering, which has led to bouts of capital flight from some of the more vulnerable markets.

 

“All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy,” the communiqué read. There was never much expectation the Fed would consider actually slowing the pace of tapering, but its emerging peers had at least hoped for more cooperation on policy.

 

Hockey said there had been honest discussions among members on the impact of tapering and that newly installed Fed Chair Janet Yellen was “hugely impressive” when dealing with them.

Indeed, in the three weeks that Yellen has been Chairmanwoman, she has been truly hugely impressive. It’s the next three years that may be more problematic.

Chinese Capital Markets Frozen As Bad Loans Soar To Highest Since Crisis | Zero Hedge

Chinese Capital Markets Frozen As Bad Loans Soar To Highest Since Crisis | Zero Hedge.

Chinese capital markets are quietly turmoiling as debt issues are delayed and demand for “Trust” products – the shadow-banking-system’s wealth management ‘investments’ – is tumbling. AsNikkei reports, since January, 9 companies have postponed or canceled issuance plans (around $1 billion) and is most pronounced in privately-owned companies (who lack an implicit government guarantee). This, of course, is exactly what the PBOC wanted (to instill some fear into these high-yield investors – demand – and thus slow the supply of credit to the riskiest over-capacity compenies) but as non-performing loans in China surge to post-crisis highs, fear remains prescient that they will be unable to “contain” the problem once real defaults begin (as opposed to ‘delays of payment’ that we have seen so far).

Via Bloomberg,

Chinese banks’ bad loans increased for the ninth straight quarter to the highest level since the 2008 financial crisis, highlighting pressures on asset quality and profit growth as the world’s second-largest economy slows.

Non-performing loans rose by 28.5 billion yuan ($4.7 billion) in the last quarter of 2013 to 592.1 billion yuan, the highest since September 2008, the China Banking Regulatory Commission said in a statement on its website yesterday.

Chinese banks are struggling to keep soured loans in check and extend earnings growth as the slowing economy and government efforts to curb shadow financing make it harder for borrowers to repay debt.

“China’s economic growth turned downward with the new leadership switching policy focus to reform and risk management from emphasizing stable expansion,” said Wang Yichuan, a Wuhan-based analyst at Changjiang Securities Co. “Naturally the bad loans will increase along with the change. We expect the deterioration to continue for two more years.”

Chinese banks added 89 trillion yuan of assets, mostly through loans, in the past five years, equivalent to the entire U.S. banking industry’s, CBRC data show. By comparison, U.S. commercial banks held $14.6 trillion of assets at the end of September, according to the Federal Deposit Insurance Corp.

Investors are increasingly concerned that China’s investment through borrowing since 2008 may trigger a financial crisis

Via Nikkei,

Concerns over potential defaults on high-yield financial products are making Chinese companies put some debt issues on hold due to wary investors, as well as posing a potential new risk to the global economy.

Since January, nine companies have postponed or canceled issuance plans for a total of 5.75 billion yuan ($948.24 million) in bonds and commercial paper, equivalent to about 2% of the debt issued over the period.

This is most pronounced among privately operated companies, whose lack of government backing has meant less interest from potential investors than hoped.

Demand has been dulled by worries over defaults on so-called wealth management products, a feature of China’s shadow banking system.

Broader credit risks have driven interest rates up, and the gap between corporate debt and more-creditworthy government bonds is widening. Average yields on AA-rated seven-year corporate bonds reached 8.44% in mid-January.

So even if companies offer bonds, they will be unable to raise money if they cannot pay these higher rates.

“There’s a possibility that the Chinese government will step in to keep the negative impact from spreading,” says Hiromichi Tamura, chief strategist at Nomura Securities, “but if these types of repayment delays continue, they could trigger a global stock market downturn.”

Sri Mulyani Indrawati considers the reforms that emerging economies must undertake to succeed in the post-QE era. – Project Syndicate

Sri Mulyani Indrawati considers the reforms that emerging economies must undertake to succeed in the post-QE era. – Project Syndicate.

FEB 4, 2014 2

The Global Economy Without Steroids

WASHINGTON, DC – Economic growth is back. Not only are the United States, Europe, and Japan finally expanding at the same time, but developing countries are also regaining strength. As a result, world GDP will rise by 3.2% this year, up from 2.4% in 2013 – meaning that 2014 may well be the year when the global economy turns the corner.

The fact that the advanced economies are bouncing back is good news for everyone. But, for the emerging and developing economies that dominated global growth over the last five years, it raises an important question: Now, with high-income countries joining them, is business as usual good enough to compete?The simple answer is no. Just as an athlete might use steroids to get quick results, while avoiding the tough workouts that are needed to develop endurance and ensure long-term health, some emerging economies have relied on short-term capital inflows (so-called “hot money”) to support growth, while delaying or even avoiding difficult but necessary economic and financial reforms. With the US Federal Reserve set to tighten the exceptionally generous monetary conditions that have driven this “easy growth,” such emerging economies will have to change their approach, despite much tighter room for maneuver, or risk losing the ground that they have gained in recent years.

As the Fed’s monetary-policy tightening becomes a reality, the World Bank predicts that capital flows to developing countries will fall from 4.6% of their GDP in 2013 to around 4% in 2016. But, if long-term US interest rates rise too fast, or policy shifts are not communicated well enough, or markets become volatile, capital flows could quickly plummet – possibly by more than 50% for a few months.

This scenario has the potential to disrupt growth in those emerging economies that have failed to take advantage of the recent capital inflows by pursuing reforms. The likely rise in interest rates will put considerable pressure on countries with large current-account deficits and high levels of foreign debt – a result of five years of credit expansion.

Indeed, last summer, when speculation that the Fed would soon begin to taper its purchases of long-term assets (so-called quantitative easing), financial-market pressures were strongest in markets suspected of having weak fundamentals. Turkey, Brazil, Indonesia, India, and South Africa – dubbed the “Fragile Five” – were hit particularly hard.

Similarly, some emerging-market currencies have come under renewed pressure in recent days, triggered in part by the devaluation of the Argentine peso and signs of a slowdown in Chinese growth, as well as doubts about these economies’ real strengths amid generally skittish market sentiment. Like the turbulence last summer, the current bout of market pressure is mainly affecting economies characterized by either domestic political tensions or economic imbalances.

But, for most developing countries, the story has not been so bleak. Financial markets in many developing countries have not come under significant pressure – either in the summer or now. Indeed, more than three-fifths of developing countries – many of which are strong economic performers that benefited from pre-crisis reforms (and thus attracted more stable capital inflows like foreign-direct investment) – actually appreciated last spring and summer.

Furthermore, returning to the athletic metaphor, some have continued to exercise their muscles and improve their stamina – even under pressure. Mexico, for example, opened its energy sector to foreign partnerships last year – a politically difficult reform that is likely to bring significant long-term benefits. Indeed, it arguably helped Mexico avoid joining the Fragile Five.

Stronger growth in high-income economies will also create opportunities for developing countries – for example, through increased import demand and new sources of investment. While these opportunities will be more difficult to capture than the easy capital inflows of the quantitative-easing era, the payoffs will be far more durable. But, in order to take advantage of them, countries, like athletes, must put in the work needed to compete successfully – through sound domestic policies that foster a business-friendly pro-competition environment, an attractive foreign-trade regime, and a healthy financial sector.

Part of the challenge in many countries will be to rebuild macroeconomic buffers that have been depleted during years of fiscal and monetary stimulus. Reducing fiscal deficits and bringing monetary policy to a more neutral plane will be particularly difficult in countries like the Fragile Five, where growth has been lagging.

As is true of an exhausted athlete who needs to rebuild strength, it is never easy for a political leader to take tough reform steps under pressure. But, for emerging economies, doing so is critical to restoring growth and enhancing citizens’ wellbeing. Surviving the crisis is one thing; emerging as a winner is something else entirely.

Read more at http://www.project-syndicate.org/commentary/sri-mulyani-indrawati-considers-the-reforms-that-emerging-economies-must-undertake-to-succeed-in-the-post-qe-era#TDimksyJSLIH6RAo.99

JPMorgan Vice President’s Death Shines Light on Bank’s Close Ties to the CIA | Global Research

JPMorgan Vice President’s Death Shines Light on Bank’s Close Ties to the CIA | Global Research.

Global Research, February 13, 2014
wallstreet

By Pam Martens and Russ Martens

The nonstop crime news swirling around JPMorgan Chase for a solid 18 months has started to feel a little spooky – they do lots of crime but never any time; and with each closed case, a trail of unanswered questions remains in the public’s mind.

Just last month, JPMorgan Chase acknowledged that it facilitated the largest Ponzi scheme in history, looking the other way as Bernie Madoff brazenly turned his business bank account at JPMorgan Chase into an unprecedented money laundering operation that would have set off bells, whistles and sirens at any other bank.

The U.S. Justice Department allowed JPMorgan to pay $1.7 billion and sign a deferred prosecution agreement, meaning no one goes to jail at JPMorgan — again. The largest question that no one can or will answer is how the compliance, legal and anti-money laundering personnel at JPMorgan ignored for years hundreds of transfers and billions of dollars in round trip maneuvers between Madoff and the account of Norman Levy. Even one such maneuver should set off an investigation. (Levy is now deceased and the Trustee for Madoff’s victims has settled with his estate.)

Then there was the report done by the U.S. Senate’s Permanent Subcommittee on Investigations of the London Whale episode which left the public in the dark about just what JPMorgan was doing with stock trading in its Chief Investment Office in London, redacting all information in the 300-page report that related to that topic.

Wall Street On Parade has been filing Freedom of Information Act (FOIA) requests with the Federal government in these matters, and despite the pledge from our President to set a new era of transparency, thus far we have had few answers coming our way.

One reason that JPMorgan may have such a spooky feel is that it has aligned itself in no small way with real-life spooks, the CIA kind.

Just when the public was numbing itself to the endless stream of financial malfeasance which cost JPMorgan over $30 billion in fines and settlements in just the past 13 months, we learned on January 28 of this year that a happy, healthy 39-year old technology Vice President, Gabriel Magee, was found dead on a 9th level rooftop of the bank’s 33-story European headquarters building in the Canary Wharf section of London.

The way the news of this tragic and sudden death was stage-managed by highly skilled but invisible hands, turning a demonstrably suspicious incident into a cut-and-dried suicide leap from the rooftop (devoid of eyewitnesses or  motivation) had all the hallmarks of a sophisticated covert operation or coverup.

The London Evening Standard newspaper reported the same day that “A man plunged to his death from a Canary Wharf tower in front of thousands of horrified commuters today.” Who gave that completely fabricated story to the press? Commuters on the street had no view of the body because it was 9 floors up on a rooftop – a rooftop that is accessible from a stairwell inside the building, not just via a fall from the roof. Adding to the suspicions, Magee had emailed his girlfriend the evening before telling her he was finishing up and would be home shortly.

If JPMorgan’s CEO, Jamie Dimon, needed a little crisis management help from operatives, he has no shortage of people to call upon. Thomas Higgins was, until a few months ago, a Managing Director and Global Head of Operational Control for JPMorgan. (A BusinessWeek profile shows Higgins still employed at JPMorgan while the New York Post reported that he left late last year.) What is not in question is that Higgins was previously the Senior Officer and Station Chief in the CIA’s National Clandestine Service, a component of which is the National Resources Division. (Higgins’ bio is printed in past brochures of the CIA Officers Memorial Foundation, where Higgins is listed with his JPMorgan job title, former CIA job title, and as a member of the Foundation’s Board of Directors for 2013.)

According to Jeff Stein, writing in Newsweek on November 14, the National Resources Division (NR) is the “biggest little CIA shop you’ve never heard of.” One good reason you’ve never heard of it until now is that the New York Times was asked not to name it in 2001. James Risen writes in a New York Times piece:

[the CIA’s] “New York station was behind the false front of another federal organization, which intelligence officials requested that The Times not identify. The station was, among other things, a base of operations to spy on and recruit foreign diplomats stationed at the United Nations, while debriefing selected American business executives and others willing to talk to the C.I.A. after returning from overseas.”

Stein gets much of that out in the open in his piece for Newsweek, citing sources who say that “its intimate relations with top U.S. corporate executives willing to have their companies fronting for the CIA invites trouble at home and abroad.” Stein goes on to say that NR operatives “cultivate their own sources on Wall Street, especially looking for help keeping track of foreign money sloshing around in the global financial system, while recruiting companies to provide cover for CIA operations abroad. And once they’ve seen how the other 1 percent lives, CIA operatives, some say, are tempted to go over to the other side.”

We now know that it was not only the Securities and Exchange Commission, the U.S. Treasury Department’s FinCEN, and bank examiners from the Comptroller of the Currency who missed the Madoff fraud, it was top snoops at the CIA in the very city where Madoff was headquartered.

Stein gives us even less reason to feel confident about this situation, writing that the NR “knows some titans of finance are not above being romanced. Most love hanging out with the agency’s top spies — James Bond and all that — and being solicited for their views on everything from the street’s latest tricks to their meetings with, say, China’s finance minister. JPMorgan Chase’s Jamie Dimon and Goldman Sach’s Lloyd Blankfein, one former CIA executive recalls, loved to get visitors from Langley. And the CIA loves them back, not just for their patriotic cooperation with the spy agency, sources say, but for the influence they have on Capitol Hill, where the intelligence budgets are hashed out.”

Higgins is not the only former CIA operative to work at JPMorgan. According to aLinkedIn profile, Bud Cato, a Regional Security Manager for JPMorgan Chase, worked for the CIA in foreign clandestine operations from 1982 to 1995; then went to work for The Coca-Cola Company until 2001; then back to the CIA as an Operations Officer in Afghanistan, Iraq and other Middle East countries until he joined JPMorgan in 2011.

In addition to Higgins and Cato, JPMorgan has a large roster of former Secret Service, former FBI and former law enforcement personnel employed in security jobs. And, as we have reported repeatedly, it still shares a space with the NYPD in a massive surveillance operation in lower Manhattan which has been dubbed the Lower Manhattan Security Coordination Center.

JPMorgan and Jamie Dimon have received a great deal of press attention for the whopping $4.6 million that JPMorgan donated to the New York City Police Foundation. Leonard Levitt, of NYPD Confidential, wrote in 2011 that New York City Police Commissioner Ray Kelly “has amended his financial disclosure forms after this column revealed last October that the Police Foundation had paid his dues and meals at the Harvard Club for the past eight years. Kelly now acknowledges he spent $30,000 at the Harvard Club between 2006 and 2009, according to the Daily News.”

JPMorgan is also listed as one of the largest donors to a nonprofit Foundation that provides college tuition assistance to the children of fallen CIA operatives, the CIA Officers Memorial Foundation. The Foundation also notes in a November 2013 publication, the Compass, that it has enjoyed the fundraising support of Maurice (Hank) Greenberg. According to the publication, Greenberg “sponsored a fundraiser on our behalf. His guest list included the who’s who of the financial services industry in New York, and they gave generously.”

Hank Greenberg is the former Chairman and CEO of AIG which collapsed into the arms of the U.S. taxpayer, requiring a $182 billion bailout. In 2006, AIG paid $1.64 billion to settle federal and state probes into fraudulent activities. In 2010, the company settled a shareholders’ lawsuit for $725 million that accused it of accounting fraud and stock price manipulation. In 2009, Greenberg settled SEC fraud charges against him related to AIG for $15 million.

Before the death of Gabriel Magee, the public had lost trust in the Justice Department and Wall Street regulators to bring these financial firms to justice for an unending spree of fleecing the public. Now there is a young man’s unexplained death at JPMorgan. This is no longer about money. This is about a heartbroken family that will never be the same again; who can never find peace or closure until credible and documented facts are put before them by independent, credible law enforcement.

The London Coroner’s office will hold a formal inquest into the death of Gabriel Magee on May 15. Wall Street On Parade has asked that the inquest be available on a live webcast as well as an archived webcast so that the American public can observe for itself if this matter has been given the kind of serious investigation it deserves. We ask other media outlets who were initially misled about the facts in this case to do the same.

Marc Faber Fears “A Vicious Circle To The Downside” Is Just Beginning | Zero Hedge

Marc Faber Fears “A Vicious Circle To The Downside” Is Just Beginning | Zero Hedge.

It’s not just tapering that is putting pressure on markets,” Marc Faber warns in thie brief clip. “Emerging economies have practically no growth and we have a slowdown in China that is more meaningful than strategists are willing to believe,” he adds and this is “causing a vicious circle to the downside” in inflated asset markets as most of the growth in the world over the last five years has come from emerging markets. Faber suggests Treasuries as a safe haven in the short-term; but is nervous of their value in the long-term as “debt is becoming burdensome on the system.”

“A lot of economic growth was driven by soaring asset prices”

 

On Treasuries:

For the next three to six months probably they are a better place to be than equities,”

 

I don’t like [10-year Treasurys] for the long-term because the maximum you can earn is something like 2.65 percent per annum for the next 10 years, but Treasurys are expected to rally because of economic weakness and a stock market decline. In the last few years at least there was a flight into quality – that is, a flight into Treasurys.”

On China and shadow banking defaults:

China can handle it by printing money but it will again have unintended negative consequences… but the

problem is real… but it’s not just in China…”

Faber warned of the risks of the present global credit bubble and said another slowdown could follow on the back of rising consumer debt levels – which had previously helped to create growth.

Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows.”

Paul Singer’s “Vision” Of The Coming “Riot Point” And The Fed’s “Formula For Destruction” | Zero Hedge

Paul Singer’s “Vision” Of The Coming “Riot Point” And The Fed’s “Formula For Destruction” | Zero Hedge.

We sympathize with traditional stock and bond investors, who are faced with extremely poor choices today. QE has distorted the prices of all traditional asset classes to such an extent that none currently promises a fair return with modest risk…. Because the dominant force in securities-price movements today is government policy, particularly the governmental buying of bonds and stocks, there is a vulnerability to all trading and investing prospects that cannot be assessed or measured with confidence… Since there is no history of Americans losing confidence in the basic soundness of their currency and their government, and since monetary policy today is so manipulative and large, it will be hard to parse the reasons for any particular market moves in 2014.

      – Paul Singer, Elliott Management

As always, perhaps the best periodic commentary on the state of the “markets” (even if such a thing has not existed for the past 5 years) and global economy comes from the person whose opinion has not been swayed by fly-by-night screechers and book-peddling pundits who fit in CNBC’s octobox and who come fast and are forgotten even faster, and whose 37 year track record at Elliott Management, whose assets he has grown from $1.3 million to $23 billion, speaks for itself: Paul Singer.

 

 

Below are the key excerpts from his January letter.

VISION

Imagine how mainstream experts would have reacted to the following set of predictions in 2006: “In two years Lehman will be bankrupt; Merrill and Bear will be acquired in distressed takeunders; Citicorp, AIG, Chrysler, GM, Delphi, Fannie and Freddie will be taken over by the government facing possibly hundreds of billions of dollars of losses; and only 13 global megabanks will survive.”

The 2008 crisis had a lasting and profound impact on virtually the entire developed world. The financial system was brought to the brink of collapse; conditions were created for the radical monetary policy of the past five years and a severely distorted recovery; the plans and dreams of hundreds of millions of people were disrupted, in some cases catastrophically; and societal values were significantly twisted away from individual responsibility toward dependency. In fact, the consequences of the bubble, the bust and the policy aftermath are not yet in full historical view. Despite all the pain, policymakers
refuse to take responsibility for the bubble, the distortions of the bubble years, the ensuing failure to lay the groundwork for strong post-bust growth, the continued riskiness and fragility of the major financial institutions, the lack of appropriate policies to deal with the bust, or their total inability to deal with competitive and technological challenges in the labor market.

It is not that the path toward destruction was impossible to see. On the contrary, a number of people saw the disaster coming, even if they did not all see the timing or the shape of it. The strangest part of the whole series of events is that only a few large professional investors noticed the smoke and shouted “fire.” Policymakers, particularly at the Fed and including (importantly) Janet Yellen, paid some small lip service to the building risks, but they were wedded to their primitive “models” and had a completely inadequate grasp of modern financial instruments, leverage and the interconnectivity of financial institutions. Not only did policymakers fail to understand what was happening and how to deal with the crisis and its aftermath, but also many of those same policymakers, and ALL of the structures and assumptions that prevailed pre-crash, are still in place today. No apologies have been issued. There has been a great deal of partisan back-and-forth and successful lobbying, but sadly the financial system is still not sound. This may be impossible to prove until the next crisis, but you could have said the same about conditions leading up to the last one.

Policymakers were and remain asleep at the wheel. The lack of introspection at the Treasury, the Fed, Congress, the White House and other regulatory bodies is astounding. Instead of taking reasonable and conservative steps to strengthen the financial system and to reach consensus on what is necessary to generate growth, there has been a series of cronyist, ideological, punitive steps that have neither catalyzed the growth that this country needs nor made financial institutions safe. At the same time, the Administration has allowed (and encouraged) the Fed to carry the ball all by itself, heaping praise on it for saving the world at the very time that the White House is shirking its own responsibilities. The Fed’s “dual mandate” (to promote “maximum employment” as well as “price stability”) is bunk in today’s context. It seems as if the entire world is acting as if the Fed actually has a “total mandate” and the rest of the federal government gets to stand around and applaud its heroic efforts. In fact, what we have now is a lopsided recovery, gigantic price risk in financial markets because of QE, and unknown but potentially massive risks of inflation and the ultimate loss of confidence in the major paper currencies, all because the federal government is more interested in ideology than in getting the country back on track, and the Europeans are more interested in preserving the euro than promoting the prosperity of the sovereign nations of Europe.

* * *

For private investment firms like hedge funds, leverage in the modern world is a matter of semi-volition. True, it is much more readily available than in the past, but there are credit departments and initial margins limiting the size of positions. The big financial institutions, on the other hand, found themselves in an  environment starting a couple of dozen years ago in which leverage was entirely voluntary, subject to no real constraint because they were not required to post initial margins with each other. Since many of their positions were “hedges” in similar securities, they risk-underwrote those trades using models that projected very little possibility of generating losses. As a result, the entire system has become super-leveraged, super-interconnected and very brittle. Given the benefits of hindsight, we do not have to prove the proposition that the limits of leverage were exceeded in the recent past and that the system was improperly risk-managed by governments and by the managements of financial institutions. It is frustrating, therefore, that no meaningful de-risking of the financial system has occurred since the crisis. You will see a system primed for a rerun of 2008, perhaps even faster and more intense this time.

***

MONETARY POLICY GOING FORWARD

QE has created asset price booms, but historically high excess bank reserves are still generally not being lent, and monetary velocity remains relatively low. But last spring, we witnessed the first tangible sign that the Fed may be trapped in its current posture. The Fed cannot retreat due to excessive debt in the system, the fragility of major financial institutions (still opaque and overleveraged) and the prospect that a collapse of bond prices could lead to a quick, deep recession. This situation may be the early stages of a phase in which the Fed is afraid to act because it has the “tiger by the tail,” and perhaps is beginning to realize that the current situation carries significant risks. QE has not generated a sharp upsurge of sustaining and self-reinforcing growth thus far. What it has done is lift stock and asset prices and exacerbate inequality. If investors lose confidence in paper money, as evidenced by either a hard sell-off in one of the major currencies or a sharp fall in bond prices, the Fed and other major central bankers will be in a pickle. If they stop QE and/or raise short-term rates to deal with the loss of confidence, it could throw global markets into a tailspin and the worldwide economy into a severe new recession. However, if they try to deal with the loss of confidence by stepping up QE or keeping interest rates at zero, there could be an explosion in commodity and other asset prices and a sharp acceleration in inflation. What would be the “exit” from extraordinary Fed policy at that point? The current, benign-looking environment (low inflation and
stable economies) is by no means ordained to be the permanent state of things. At the moment, “tapering” is expected to get underway, but that prospect represents a tentative, slight diminution of bond-buying. It contains no real promise of normalizing monetary conditions. If the economy does not light up, the impact of another year of full-bore QE is impossible to predict. Five years and $4 trillion have created economic and moral distortions but very little sustainable value. Maybe the sixth year will produce the “riot point.” Nobody knows, including the Fed.

 

As we and others have said, the Fed is overly reliant upon models that do not account for real-world elements of instruments, markets and traders in the derivatives age. Models cannot possibly take into account unpredictable interactions among huge positions and traders in new and very complicated instruments. Thus, the Fed should be careful, humble and conservative. Instead, it is just blithely plowing ahead as if it knows exactly what is going on. Intelligent captains sail uncharted waters with extra caution and high alert; only fools think that each mile they sail without sinking the vessel further demonstrates that they are wise and the naysayers were fools. This is a formula for destruction. The crash of 2008 should have been smoking-gun evidence of the folly of this approach, but every mistake leading up to the crash, especially excessive and “invisible” leverage and interest rates that were too low, has been doubled down upon in the years since.

Why is the Federal Reserve Tapering the Gold Market? | Global Research

Why is the Federal Reserve Tapering the Gold Market? | Global Research.

 

On January 17, 2014, we explained “The Hows and Whys of Gold Price Manipulation.”

Naked Gold Shorts: The Inside Story of Gold Price Manipulation By Dr. Paul Craig Roberts and David Kranzler,

In former times, the rise in the gold price was held down by central banks selling gold or leasing gold to bullion dealers who sold the gold. The supply added in this way to the market absorbed some of the demand, thus holding down the rise in the gold price.

As the supply of physical gold on hand diminished, increasingly recourse was taken to selling gold short in the paper futures market. We illustrated a recent episode in our article. Below we illustrate the uncovered short-selling that took the gold price down today (January 30, 2014).

When the Comex trading floor opened January 30 at 8:20AM NY time, the price of gold inexplicably plunged $17 over the next 30 minutes. The price plunge was triggered when sell orders flooded the Comex trading floor. Over the course of the previous 23 hours of trading, an average of 202 gold contracts per minute had traded. But starting at the 8:20AM Comex, there were four 1-minute windows of trading here’s what happened:

8:21AM: 1766 contracts sold
8:22AM: 5172 contracts sold
8:31AM: 3242 contracts sold
8:47AM: 3515 contracts sold

 

image

 

Over those four minutes of trading, an average of 3,424 contracts per minute traded, or 17 times the average per minute volume of the previous 23 hours, including yesterday’s Comex trading session.

The yellow arrow indicates when the Comex floor opened for gold futures trading. There was not any news events or related market events that would have triggered a sell-off like this in gold. If an entity holding many contracts wanted to sell down its position, it would accomplish this by slowly feeding its position to the market over the course of the entire trading day in order to avoid disturbing the price or “telegraphing” its intent to sell to the market.

Instead, today’s selling was designed to flood the Comex trading floor with a high volume of sell orders in rapid succession in order to drive the price of gold as low as possible before buyers stepped in.

The reason for this is two-fold: Driving down the price of gold assists the Fed in its efforts to support the dollar, and the Comex is running out of physical gold available to be delivered to those who decide to take delivery of gold instead of cash settlement.

The February gold contract is subject to delivery starting on January 31st. As of January 29th, 2 days before the delivery period starts, there were 2,223,000 ounces of gold futures open against 375,000 ounces of gold available to be to be delivered. The primary banks who trade Comex gold (JP Morgan, HSBC, Bank Nova Scotia) are the primary entities who are short those Comex contracts.

Typically toward the end of a delivery month, these banks drive the price of gold lower for the purpose of coercing holders of the contracts to sell. This avoids the problem of having a shortage of gold available to deliver to the entities who decide to take delivery. With an enormous amount of physical gold moving from the western bank vaults to the large Asian buyers of gold, the Comex ultimately does not have enough gold to honor delivery obligations should the day arrive when a fifth or a fourth of the contracts are presented for delivery. Prior to a delivery period or due date on the contracts, manipulation is used to drive the Comex price of gold as low as possible in order to induce enough selling to avoid a possible default on gold delivery.

Following the taper announcement on January 29, the gold price rose $14 to $1270, and the Dow Jones Index dropped 100 points, closing down 74 points from its trading level at the time the tapering was announced. These reactions might have surprised the Fed, leading to the stock market support and gold price suppression on January 30.

Manipulation of the gold price is a foregone conclusion. The question is: why is the Fed tapering?

The official reason is that the recovery is now strong enough not to need the stimulus. There are two problems with the official explanation. One is that the purpose of QE has always been to support the prices of the debt-related derivatives on the balance sheets of the banks too big to fail. The other is that the Fed has enough economists and statisticians to know that the recovery is a statistical artifact of deflating GDP with an understated measure of inflation. No other indicator–employment, labor force participation, real median family income, real retail sales, or new construction–indicates economic recovery. Moreover, if in fact the economy has been in recovery since June 2009, after 4.5 years of recovery it is time for a new recession.

One possible explanation for the tapering is that the Fed has created enough new dollars with which to purchase the worst part of the banks’ balance sheet problems and transfer them to the Fed’s balance sheet, while in other ways enhancing the banks’ profits. With the job done, the Fed can slowly back off.

The problem with this explanation is that the liquidity that the Fed has created found its way into the stock and bond markets and into emerging economies. Curtailing the flow of liquidity crashes the markets, bringing on a new financial crisis.

We offer two explanations for the tapering. One is technical, and one is strategic.

First the technical explanation. The Fed’s bond purchases and the banks’ interest rate swap derivatives have made a dent in the supply of Treasuries. With income tax payments starting to flow in, fewer Treasuries are being issued to put pressure on interest rates. This permits the Fed to make a show of doing the right thing and reduce bond purchases. As a weakening economy becomes apparent as the year progresses, calls for the Fed to support the economy will permit the Fed to broaden the array of instruments that it purchases.

A strategic explanation for tapering is that the growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.

Currently the Russian Duma is discussing legislation that would eliminate the dollar’s use and presence in Russia. Other countries are moving away from the dollar. Recently the Nigerian central bank reduced its dollar reserves and increased its holdings of Chinese yuan. Zimbabwe, which was using the US dollar as its own currency, switched to Chinese yuan. The former chief economist of the World Bank recently called for terminating the use of the dollar as world reserve currency. He said that “the dominance of the greenback is the root cause of global financial and economic crises.” Moreover, the Federal Reserve is very much aware of the flight away from the dollar into gold, because it is this flight that causes the Fed to manipulate the gold price in order to hold it down and in order to be able to free up gold for delivery.

The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.

In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?

Paul Craig Roberts is a former Assistant Secretary of the US Treasury for Economic Policy.

Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.

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