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With headlines crowing of gold’s worst year since 1981 as a signal that the status quo is winning and proof positive that fiat-currency naysayers must be wrong, it would appear that the rest of the world’s central banks (and banks) have used the price depreciation to stack the precious metal. As Bloomberg reports,
- *RUSSIAN BANKS BOUGHT 181.4 TONS OF RUSSIAN GOLD IN 2013: RIA
- *RUSSIAN BANKS BOUGHT ALMOST 90% OF RUSSIA 2013 GOLD OUTPUT: RIA
This 5.834 million ounce addition (8.3% YoY) is more than double that of Russia’s central bank additions in 2013 with Bitcoin-favoring Sberbank piling up 48.5 tons alone in 2013.
Russia’s central bank added 2.485 million ounces to November – so the bank additions are very large…
Biggest buyers according to Finance Ministry include Sberbank (48.5 tons), VTB (38.9 tons), Gazprombank (29.1 tons), Nomos Bank (19.6 tons), Lanta Bank (8.6 tons).
So, like China, we are sure Russia will be sending a big “Thank You” to the Fed (and BIS) for their efforts.
Why The Turkish Government May Be The Casualty Of A $119 Billion PetroDollar “Loophole” | Zero Hedge
It was in October 2012 when we explained how Iran evades the Western blockade (ostensibly with the implicit nod of none other than the US), and when we first defined the concept of PetroGold in the context of the Turkey-Dubai-Iran crude-for-gold triangle. For those who need a quick refresher, here it is:
In recent months there has been a lot of incorrect speculation that because Iran has been shut off from the petrodollar, SWIFT-mediated regime, its economy will implode as the country has no access to the all important greenback and can thus not conduct international trade – the driving factor behind the international sanctions that seek to topple the local government as Iran dies an economic death. And while there have been bouts of substantial inflation, which so far the local government appears to have managed to put a lid on by curbing gray market speculation, Iran continues to more or less operate on its merry ways with international trade most certainly taking place, especially with China, Russia and India as main trading partners. “How is this possible” those who support the Western-led embargo of all Iranian trade will ask? Simple – gold. Because while Iran may have no access to dollars, it has ample access to gold. This in itself is not new – we have reported in the past that Iran has imported substantial amounts of gold from Turkey, despite the Turkish government’s stern denials. Today, courtesy of Reuters, we learn precisely what the 21st century equivalent of the Great Silk Road looks like, and just how effective Iran has been as a lab rat in escaping the great petrodollar experiment, from which conventional wisdom tells us there is no escape. Presenting: petrogold.
One year later, following Iran’s unperturbed ability to exist in a world without US dollars, the blockade of Iran is a thing of the past, and the west has engaged in a full-blown detente with the country, much to the fury of both Israel and Saudi Arabia, in exchange for the symbolic gesture that Iran will limit its nuclear enrichment, lowering and in many cases outright eliminating Iran sanctions, which proved completely futile.
So a happy ending for Iran, if only for now thanks to the fact that despite all the status quo‘s lies gold is and always has been money and can substitute for dollars.
However, one country that has seen better days, whose government may be on the edge of collapse due to an unprecedented corruption scandal precisely for enabling said PetroGold scheme, and which has been in the news on a daily basis recently, is Turkey. As Turkey’s Today’s Zaman explains in “Iran’s Turkish Gold Rush“, the political crisis Turkey finds itself in may be nothing but a consequence of the PetroGold scheme conceived over a year ago, and in which Turkey played a crucial role.
Here is how the Turkey-Dubai-Iran PetroGold triangle, or as the Zaman calls it, “gas for gold“, may soon result in the toppling of yet another government, simply because it showed that existence outside of the clutches of the ‘Petrodollar’ is perfectly possible…
* * *
From Iran’s Turkish Gold Rush, highlights ours:
Turkey’s Islamist government is being rocked by the most sweeping corruption scandal of its tenure. Roughly two dozen figures, including well-connected business tycoons and the sons of top government ministers, have been charged with a wide range of financial crimes. The charges ballooned into a full-blown crisis on Dec. 25 when three ministers implicated in the scandal resigned, with one making a dramatic call for Prime Minister Recep Tayyip Erdogan to step down as well. An exhausted-looking Erdogan subsequently appeared on television in the evening to announce a cabinet reshuffle that replaced a total of 10 ministers.
The drama surrounding two personalities are particularly eye-popping: Police reportedly discovered shoeboxes containing $4.5 million in the home of Süleyman Aslan, the CEO of state-owned Halkbank, and also arrested Reza Zarrab, an Iranian businessman who primarily deals in the gold trade, and who allegedly oversaw deals worth almost $10 billion last year alone.
The gold trade has long been at the center of controversial financial ties between Halkbank and Iran. Research conducted in May 2013 by the Foundation for Defense of Democracies and Roubini Global Economics revealed the bank exploited a “golden loophole” in the US-led financial sanctions regime designed to curb Iran’s nuclear ambitions. Here’s how it worked: The Turks exported some $13 billion of gold to Tehran directly, or through the UAE, between March 2012 and July 2013. In return, the Turks received Iranian natural gas and oil. But because sanctions prevented Iran from getting paid in dollars or euros, the Turks allowed Tehran to buy gold with their Turkish lira — and that gold found its way back to Iranian coffers.
This “gas-for-gold” scheme allowed the Iranians to replenish their dwindling foreign exchange reserves, which had been hit hard by the international sanctions placed on their banking system. It was puzzling that Ankara allowed this to continue: The Turks — NATO allies who have assured Washington that they oppose Iran’s military-nuclear program — brazenly conducted these massive gold transactions even after the Obama administration tightened sanctions on Iran’s precious metals trade in July 2012.
Turkey, however, chose to exploit a loophole that technically permitted the transfer of billions of dollars of gold to so-called “private” entities in Iran. Iranian Ambassador to Turkey Ali Reza Bikdeli recently praised Halkbank for its “smart management decisions in recent years [that] have played an important role in Iranian-Turkish relations.” Halkbank insists that its role in these transactions was entirely legal.
The US Congress and President Obama closed this “golden loophole” in January 2013. At the time, the Obama administration could have taken action against state-owned Halkbank, which processed these sanctions-busting transactions, using the sanctions already in place to cut the bank off from the US financial system. Instead, the administration lobbied to make sure the legislation that closed this loophole did not take effect for six months — effectively ensuring that the gold transactions continued apace until July 1. That helped Iran accrue billions of dollars more in gold, further undermining the sanctions regime.
In defending its decision not to enforce its own sanctions, the Obama administration insisted that Turkey only transferred gold to private Iranian citizens. The administration argued that, as a result, this wasn’t an explicit violation of its executive order.
It’s possible that the Obama administration didn’t have compelling evidence of the role of the Iranian government in the gold trade. However, the president may have also simply sought to protect his relationship with Ankara and didn’t want to get into a diplomatic spat with Erdogan, who he considers a key regional ally.
If the administration didn’t feel that the sanctions in place at the time were sufficient to take action against Halkbank, after all, it could have easily shut down the gold trade by amending its executive order. But at the time, Turkey was also playing a pivotal role in US policy in Syria, which included efforts to strengthen the more moderate opposition factions fighting President Bashar Assad’s regime.
It’s also possible, however, that the Obama administration’s decision had less to do with Turkey, and more to do with coaxing Iran into signing a nuclear deal. In the one-year period between July 2012, when the executive order was issued, and July 2013, when the “golden loophole” was closed, the Obama administration’s non-enforcement of its own sanctions reportedly provided Iran with $6 billion worth of gold. That windfall may have been an American olive branch to Iran — extended via Turkey — to persuade its leaders to continue backchannel negotiations with the United States, which reportedly began as early as July 2012. It could also have been a significant sweetener to the interim nuclear deal eventually reached at Geneva, which provided Iran with another $7 billion in sanctions relief.
Indeed, why else would the administration have allowed the Turkish gold trade to continue for an extra six months, when Congress made clear its intent to shut it down?
This brings us back to the current corruption drama in Turkey. The ruling Justice and Development Party (AKP) has been claiming that it is a victim of a vast conspiracy, blaming everyone from Washington to Israel to US-based Islamic cleric Fethullah Gulen for its woes. Some Turkish media have pointed a finger at David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence, who happened to be in Turkey as the news began to break. Erdogan even raised the possibility of expelling the US ambassador to Ankara, Francis Ricciardone.
But if the charges stand against the panoply of well-connected figures fingered, the AKP will have only itself to blame. While the gas-for-gold scheme may have been technically legal before Congress finally shut it down in July, it appears to have exposed the Turkish political elite to a vast Iranian underworld. According to Today’s Zaman, suspicious transactions between Iran and Turkey could exceed $119 billion — nine times the total of gas-for-gold transactions reported.
Even if the Turkish-Iranian gold trade represents only a small part of the wider corruption probe, the ongoing investigation could provide a window into some nagging questions about the relationship between Ankara and Tehran. Perhaps we will finally learn why the Turkish government allowed Iran to stock up on gold while it was defiantly pursuing its illicit nuclear program — and whether the Obama administration could have done more to prevent it.
* * *
Bottom line: dare to mess with the Petrodollar and the wrath of the US government will hunt you down… sooner or later.
And so in his valedictory, Federal Reserve chief Ben Bernanke pulls one last dead rabbit out of his hat — it suffocated while the head-fake taper percolated in Ben’s brain lo these many months of jive talkin’. As the year turns, the central bank will supposedly monetize $10 billion less debt per month — $75 billion down from $85 billion — with $5 billion each deducted from the US Treasury stream and the rotten mortgage barrel. Was there a catch?
You could say that. For instance, what to make of the curious report out of the American Enterprise Institute by John H. Makin saying that the Fed’s actual purchase of debt paper amounted to an average $94 billion a month through the year 2013, not $85 billion? I have averred often in this space to the Fed’s ability to conduct back-door buying operations of all kinds of janky financial crapola — and in a world where claims on promises to pay hugely exceed anyone’s ability to pay or re-pay, there’s as much of it out there as there are plastic grocery bags floating in the horse latitudes of the Pacific Ocean. The Fed can hose up bad paper all the live-long day and apparently get away with mis-reporting what it is doing, and is the country any the worse for it?
At the end of that live-long day the American people are left in a matrix of lies so thick and sticky that all the de-greasing agents supposedly vested in freedom of the press will not avail to liberate them, and they are suspended like little morsels of winged prey to be sucked dry by the descending spiders of crony capital.
Bottom line: the taper so far is just $1 billion shy of being completely fake (so far as anyone knows), a magician’s mis-direction from the real action of the gag, which was removing the previous “threshold” of a 6.5 percent unemployment figure for raising interest rates — in other words, promising ZIRP (zero interest rate policy) forever! That would green light a never-ending continued carry trade (i.e. looting operation) of Too-Big-To-Fail-or-Jail primary dealer banks extracting “free” money from the Fed window for conversion, abracadabra, into, say, student loans at 5 percent, guaranteed to enslave the generation now coming into adult flower. (The catch there being that they might flower into revolutionaries eager to string up such bankers from every lamp post in the Hamptons.)
I know there is a lot of confusion “out there” about what constitutes inflation — is it a so-called “monetary phenomenon” or just shit costing more? — but that’s probably too fine a distinction for “folks” (to use the president’s favorite term) who can’t pay five bucks for a jar of peanut butter. The price of everything except the yellow junk called gold, seems to be shooting up. Pretty soon, they’ll be using that worthless gold to solder the drain pipes on bathroom fixtures out where the housing starts roam.
Which brings us to the interesting question: exactly what mysterious entities have been systematically pounding the price of the yellow stuff down in the PM markets like Tony Soprano’s crew “tuning up” some pathetic vic with thirty-inch lengths of re-bar and a fungo bat? And, per corollary, who are the anonymous agents yanking the equity indexes such as we saw on Wednesday, December 18, when a holy host of stock shorts was magically deployed in anticipation of Ben Bernanke’s taper announcement so as to inspire a short-covering mega-rally when he opened the hole in his beard? What I wonder: if we have so much fabulous surveillance technology, why doesn’t some enterprising nerd team find out who’s behind all these pushing-pullings, yanking-and-crankings? Where is the Snowden of the financial markets who will unmask these actors?
Let’s cut to the chase. You heard it here: not only will the Fed eventually (i.e. soon) fail to taper in any meaningful sense; before this is over they will ramp up the purchases of worthless securities beyond $100 billion a month through every back door and trap door in the infamous Eccles Building, including perhaps Janet Yellen’s dainty fundament. The inflation — whatever that is — will sitting out there waiting behind the Hoover Dam of the Fed’s balance sheet. I wouldn’t want to be in Las Vegas when the first cracks appear on it. Merry Christmas everyone.
Define “Market” Irony: When JPMorgan’s Chief Currency Dealer Is Head Of An FX Manipulation “Cartel” | Zero Hedge
Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic…
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Banks have been accused of manipulating energy markets in California and other states.
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.
As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.
Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously. It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”
Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…
What are some of the other recent revelations?
Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:
At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.
The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.
One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.
Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.
And after that came unprecedented hubris and a sense of invincibility:
The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.
The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.
Since nobody investigated, next naturally, come the profits and the crimes:
Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.
While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.
A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.
“If nobody is monitoring these benchmarks, and since the gains from moving the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.”
… along with a lot of banging the close:
Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.
… and much golf and “envelopes stuffed with cash”
On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.
Such transactions were common and also took place in tavern parking lots in Essex, the person said.
Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.
In short – so simple the underwear gnomes could do it:
- Create a cartel
- Corner and manipulate the market
And that’s why they (and especially Jamie Dimon) are richer than you.
The rich continue to grow richer, and as David McWilliams (of Punk Economics) so eloquently explains in this brief clip, this has pushed the Fed into a corner. As the Federal Reserve gets a new chair and decides what to do next, whether to print $85 billion a month more or not, McWilliams examines the heist that is the new normal financialized economy – who gets all the loot and why today’s kidnappers wear Prada. “Wake up,” he blasts, explaining the uncomfortable reality of what happens when financial kidnappers dress up as loyal patriots and extort money in the name of the common good.
“Today’s ransom is the billions of dollars in the form of QE; today’s hostage is the US economy which the kidnappers threaten to kill by a collapse in asset prices if they don’t get more and more free money… and who is paying the ransom… it is the Federal Reserve…
The message from Wall Street – the kidnapper – is: if you don’t give us what we want, we will killl the economy.”
Despite the world of mainstream media pundits proclaiming the US is recovering nicely and that a taper is priced in (and the warning that the 5Y auction gave this morning that it’s not), markets are already reacting violently to the Fed’s decision to announce a small ‘taper’ (and more dovish forward guidance)…
- *FED TAPERS QE TO $75 BLN MONTHLY PACE, STARTING IN JANUARY
- *FED SAYS `FURTHER MEASURED STEPS’ POSSIBLE ON TAPERING
- *FED: EXCEPTIONALLY LOW RATES UNTIL JOBLESS FALLS WELL PAST 6.5%
We now leave it to Ben and his final press conference to explain his decision… and, of course, make sure everyone remembers “QE is for Main Street”, ‘tapering is not tightening’ (despite Jim Bullard telling us it is), and just how effective ‘forward guidance’ is.
Pre-FOMC: S&P Fut 1771 (spiked pre-FOMC), 5Y 1.55%, 10Y 2.875%, VIX 16.5%, Gold $1236 (which was spiking pre-FOMC), EUR 1.376
As a reminder, here are the 4 reasons why the Fed was cornered into tapering… as we have noted numerous times before; the “taper” is all about economic cover for a forced move the Fed has to make:
1. Deficits are shrinking and the Fed has less and less room for its buying
2. Under the surface, various non-mainstream technicalities are breaking in the markets due to the size of the Fed’s position (repo markets, bond specialness, and fail-to-delivers among them).
3. Sentiment is critical; if the public starts to believe (as Kyle Bass warned) that the central bank is monetizing the government’s debt (which it clearly is), then the game accelerates away from them very quickly – and we suspect they fear we are close to that tipping point
4. The rest of the world is not happy. As Canada just noted, the US monetary policy will be discussed at the G-20
Simply put, they were cornered and needed to Taper sooner rather later…
and as Jim Bullard previously noted,
“Financial market reaction to the June and September FOMC meetings provides sharp evidence that changes in the expected pace of asset purchases have conventional monetary policy effects.
Using the pace of purchases as the policy instrument is just as effective as normal monetary policy actions would be in normal times”
Or – in other words:
Tapering Is Tightening
And as BAML noted previously, forward guidance is ineffective as,
…policy makers are finding it harder to convince markets that central bankers have more insight into the future course of the economy and policy than they actually do.Meanwhile, markets are learning that it can be painful to rely too heavily on forward guidance when the risk/reward of being long fixed income is asymmetrical when close to the zero lower bound.
Full Statement redline below:
On January 29, 1845, the New York Evening Mirror published a poem that would go on to be one of the most celebrated narrative poems ever penned. It depicted a tragic romantic’s desperate descent into madness over the loss of his love; and it made its author, Edgar Allan Poe, one of the most feted poets of his time.
The poem was entitled “The Raven,” and its star was an ominous black bird that visits an unnamed narrator who is lamenting the loss of his true love…
So, with the vision firmly planted in your mind’s eye of a man completely out of touch with reality, seeking wisdom from a mysterious talking bird — knowing that there is only one response, no matter the question — Dear Reader, allow me to present to you a chart. It is one I have used before, but its importance is enormous, and it will form the foundation of this week’s discussion (alongside a few others that break it down into its constituent parts).
Ladies and gentlemen, I give you (drumroll please) total outstanding credit versus GDP in the United States from 1929 to 2012:
This one chart shows exactly WHY we are where we are, folks.
From the moment Richard Nixon toppled the US dollar from its golden foundation and ushered in the era of pure fiat money (oxymoron though that may be) on August 15, 1971, there has been a ubiquitous and dangerous synonym for “growth”: credit.
The world embarked upon a multi-decade credit-fueled binge and claimed the results as growth.
Floated ever higher on a cushion of credit that has expanded exponentially, as you can see. (The expansion of true growth would have been largely linear — though one can only speculate as to the trajectory of that GDP line had so much credit NOT been extended.) The world has congratulated itself on its “outperformance,” when the truth is that bills have been run up relentlessly, with only the occasional hiccup along the way (each of which has manifested itself as a violent reaction to the over-extension of cheap money).
Folks, rates WILL have to go up again. They cannot stay at zero forever. We all know that. When they DO, because of all the additional debt that has been ladled atop the existing pile, the whole thing will come tumbling down.
All of it.
There is simply no way out, I am afraid. But that is clearly a problem for another day. Right now, everything is fine, so we can all go on pretending it will continue that way.
So now, if you’ll indulge me in a little poetic license (not to mention there being not one but four mysterious strangers in my offering), I give you, “The Maven” (abridged version):
Once upon a midnight dreary, while I pondered, weak and weary,
Over many a quaint and curious volume of financial lore
While I nodded, nearly napping, suddenly there came a tapping,
As of some one gently rapping, rapping at my chamber door.
“‘Tis some visiter,” I muttered, “tapping at my chamber door
Only this and nothing more.”
Ah, distinctly I remember it was in the bleak December;
And each separate dying ember wrought its ghost upon the floor.
Eagerly I wished the morrow; — for the world had sought to borrow
From both friend and foe and neighbour — borrow, borrow, borrow more
For the cheap and easy money which the bankers forth did pour
Shall be paid back nevermore.
Deep into that darkness peering, long I stood there wondering, fearing,
Doubting, dreaming dreams no mortal ever dared to dream before;
But the silence was unbroken, and the stillness gave no token,
And the only word there spoken was the whispered words, “Some More?”
This I whispered, and an echo murmured back the words, “Some More”
Merely this and nothing more.
Open here I flung the shutter, when, with many a flirt and flutter,
In there stepped four stately Mavens from the Central Banks of yore;
Not the least obeisance made they; not a minute stopped or stayed they;
But, with air of lord or lady, stood inside my chamber door —
Standing by a mug from Dallas just inside my chamber door —
Stood, and stared, and nothing more.
Then these tired-looking men beguiling my sad fancy into smiling,
By the grave and stern decorum of the countenance they wore,
“Though thy faces look unshaven, thou,” I said, “art sure enslaven’d,
Ghastly grim and ancient Mavens wandering from the Nightly shore —
To free money ever after lest the markets pitch and yaw.”
Quoth the Mavens, “Evermore.”
While I marvelled this ungainly bearded man explained so plainly,
Though his answer little meaning — little relevancy bore;
For he cannot help a-printing, brand new currency a-minting
Ever yet was blessed with seeing nothing wrong in doing more
Mortgage bonds upon his balance sheet he’ll place, then markets jaw
With the promise “Evermore.”
“You there” said I, “standing muted — what is there to do aboot it?”
In a heavy accent quoth he — that by God he was quite sure
That more money being printed and, new measures being hinted
At would quell all fear of meltdown and the markets all would soar
Would this mean the printing presses would forever roar?
Quoth the Maven, “Evermore.”
Lastly to the fore there strode a small and bookish man, Kuroda,
Who with glint of eye did warn that he was happy to explore
Measures once thought so outrageous as to never mark the pages
In the history of finance — but those times were days of yore
Drastic printing was required, this was tantamount to war
Quoth the Maven, “Evermore.”
And the Mavens, never blinking, only sitting, only thinking
By the Cowboys mug from Dallas just inside my chamber door;
Really do believe their action has created decent traction,
And that freshly printed money can spew forth for evermore;
But the truth about the ending shall be seen when markets, bending
Shall be lifted — nevermore!
The full must-read Grant Williams letter is below:
By now it is a well-known fact that the Fed’s monetary policies over the past 5 years (and really ever since Greenspan unleashed the Great Moderation) have been very successful at one thing: transferring wealth from the US (and global) middle class and handing it over to the already wealthiest strata of society, either through financial repression, zero savings rates, or generally boosting financial asset values, which as we showed hit a record $63.9 trillion in Q3, or over 70% of total. However, just like the general public’s attention is focused on the quantitative components of the monthly payroll number and completely ignores the qualitative gains or losses in the US labor force, so the broad definition of “middle class” leaves quite a bit to be desired. So what happens if one quantizes society instead of by class with wealth of income cutoff ranges but instead by age? In that case, one gets the following chart prepared by the Urban Institute showing the change in net worth in the period 1983-2010 by age group.
The discrepancy summarized:
Young adults’ ability to grow their personal assets over the past 30 years has decreased considerably. Average wealth for individuals in their 20s and 30s dropped 7 percent from 1983 to 2010, while those 74 and over have seen wealth increase by 149 percent in the same time period. Figure 7 highlights the substantial changes in net worth by age, showing that Millennials today are financially worse off than their parents were at the same age
It is meaningless to make ethical judgments based on the above chart, however the data does confirm one of the most troubling hurdles before any dreams of a virtuous economic recovery can be realized: because it is the younger age groups that drive household formation, and are responsible for the bulk of organic demand for homes – that so critical, missing variable in what would be a true housing recovery (instead of merely using houses as flippable hot potato assets whereby one investor sells homes to another investor with no intention of occupying, in the process making that entry-level home ever more unaffordable for the average young American).
And a question: in a society increasingly torn by conflicts (some of which as if created on purpose): by social status, by race, by ethnicity, by gender, and so many more, how long until one can add age as an ever growing source of social discontent?
Much has been said about the key aspect of the Ponzi scheme behind America’s welfare state (if not enough where it matters as the three living Fed Chairmen currently joke around during the Fed’s shindig on the central bank’s 100th anniversary), namely that all those who have paid in money to entitlements, are entitled to benefit from entitlement distributions in the future. On paper this is absolutely correct, and in an efficient market, without capital allocation distortions this would work (ignoring that a Ponzi scheme, is, by definition, a Ponzi scheme and is reliant on ever greater inflows of money and participants or, as some may call them, suckers). More importantly, this is also fair. Sadly, as recent experiments within the Obama administration and elsewhere, most notably France, when the entire developed world has hit “peak debt” levels, the fairness doctrine no longer works, especially if and when it is enforced upon a destitute population.
Since we don’t live in a paper world, one should be able to quantify the disparity between the “haves” and the “have nots” when it comes to entitlements. This is precisely what Larry Kotlikoff did in August 2013 in “How the millennial generation will pay the price of Washington’s paralysis.” The results, charted, show what JPM’s Michael Cembalest has dubbed, accurately, “generational theft”, or the difference between how much excess some Americans will have received in government benefits (the older ones), compared to how great the funding deficit is for others – mostly young Americans, those who are about to graduated from college with record amounts of student loans (on average) and those yet unborn.
After you graduate, the US will be in the thick of the “generational theft” issue; here’s a heads-up on what this is all about. Generational accounting is an estimate of who benefits from and who pays for government programs. As shown in the first chart, the average person in the generation that turned 65 this year received $327 thousand dollars more in lifetime government benefits than they paid in Federal taxes. On the other hand, children born in the future (e.g., yours) will have a lifetime deficit on this basis of -$421 thousand dollars. If it sounds unfair, it is.
It seems that these days few things are fair. Which is perhaps why the rulers are desperate to do everything in their power to “enforce” their idea of fairness on everyone.
If you don’t like the frequency of your air-quality alerts, you don’t have to keep them. That is the message that the Chinese government has made loud and clear as Bloomberg reports, Shanghai’s environmental authority took decisive action to address the pollution – it cynically adjusted the threshold for “alerts” to ensure there won’t be so many. In a move remininscent of Japan’s raising of the “safe” radioactive threshold level, China has apparently decided – rather than accept responsibility for the disaster – to avoid it by making the “safe” pollution level over 50% more polluted (up from 75 to 115 micrograms per cubic meter) – almost 5 times the WHO’s “safe” level of 25 micrograms.
As the smog that has choked Shanghai for much of the last week reached hazardous levels, the city’s environmental authority took decisive action to address the frequent air-quality alerts: It adjusted standards downward to ensure that there won’t be so many.
It was a cynical move, surely made to protect the bureau’s image in the face of unrelenting pollution that only seems to grow worse, despite government promises to address it.At this advanced stage in China’s development, nobody in the country (or elsewhere) — not even the loyal state news media — seems to believe that the problem is solvable, at least not any time soon. Even worse, nobody — not the state and certainly not the growing number of middle-class consumers (and car buyers) — seems ready to take responsibility for the mess.
If you can’t fix it, you might as well try to avoid responsibility for it, the thinking seems to go. It therefore comes as no surprise that Shanghai’s Environmental Protection Bureau decided to lower the benchmark for alerting the public about pollution risks. It will now issue alerts only when the concentration of the most dangerous particulates in the city’s air, known asPM2.5 (particulates smaller than 2.5 micometers in diameter) reach 115 micrograms per cubic meter. The previous standard was 75 micrograms per cubic meter. (The World Health Organization recommends not exceeding 25 micrograms per cubic meter in a 24-hour period.)
The state-owned English-language China Daily explained the decision in tone that almost obscured the absurdity of the maneuver: “The bureau said it believes the original standard is too strict, given that haze is common in the Yangtze River Delta region in winter.”
“On social networks like Weibo and Wechat, Beijingers now show photos of blue skies and white clouds as if they’re on vacation.” This show-off behavior left a bad taste, he concedes, before concluding with a final sentence that ought to serve as a rallying cry in China: “I really hope that someday people will resume reacting to blue skies and white clouds in a ‘normal’ manner.”
That’s a hope that probably won’t be fulfilled in this decade or even the next.