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The Photo That Reveals Why US and EU Bankers Despise Russia’s Putin So Much | Zero Hedge

The Photo That Reveals Why US and EU Bankers Despise Russia’s Putin So Much | Zero Hedge.

Below is the photo that reveals why US and EU bankers despise Russian President Putin so much. As a quick experiment, type “Obama, gold” and “Cameron, gold” into Google images and conduct a search. You will discover that theses searches come up empty. Any similar photos to the one below by US President Obama or UK Prime Minister Cameron would be a massive betrayal of their puppet masters – the BIS, the IMF, the World Bank, the ECB, the BOE and the Federal Reserve.

Simply put, physical gold and physical silver are real money. The US dollar and the euro are not.

Russian President Vladimir Putin displays his fondness for gold

Russian President Vladimir Putin displays his fondness for gold

And in case you’ve missed them, our most recent SmartKnowledge videos are listed below:

What Bankers Want With Ukraine

The History of Gold and Silver Clearly Tell Us Where it is Heading in the Future

Another JP Morgan Banker Dead: It’s DefCon1 for the Criminal Banking Industry

Connect the Dots: The Power of the Lone Dissenter to Bring About Change

What the Chinese Yuan is Telling Us is Coming

 

Subscribe to the SmartKnowledgeU YouTube channel here and follow us on Twitter here.

The Photo That Reveals Why US and EU Bankers Despise Russia's Putin So Much | Zero Hedge

The Photo That Reveals Why US and EU Bankers Despise Russia’s Putin So Much | Zero Hedge.

Below is the photo that reveals why US and EU bankers despise Russian President Putin so much. As a quick experiment, type “Obama, gold” and “Cameron, gold” into Google images and conduct a search. You will discover that theses searches come up empty. Any similar photos to the one below by US President Obama or UK Prime Minister Cameron would be a massive betrayal of their puppet masters – the BIS, the IMF, the World Bank, the ECB, the BOE and the Federal Reserve.

Simply put, physical gold and physical silver are real money. The US dollar and the euro are not.

Russian President Vladimir Putin displays his fondness for gold

Russian President Vladimir Putin displays his fondness for gold

And in case you’ve missed them, our most recent SmartKnowledge videos are listed below:

What Bankers Want With Ukraine

The History of Gold and Silver Clearly Tell Us Where it is Heading in the Future

Another JP Morgan Banker Dead: It’s DefCon1 for the Criminal Banking Industry

Connect the Dots: The Power of the Lone Dissenter to Bring About Change

What the Chinese Yuan is Telling Us is Coming

 

Subscribe to the SmartKnowledgeU YouTube channel here and follow us on Twitter here.

A Visual History Of Gold: The Most Sought After Metal On Earth | Zero Hedge

A Visual History Of Gold: The Most Sought After Metal On Earth | Zero Hedge.

This infographic introduces the yellow metal and tells the story of how it became the most sought after metal on earth. Gold was one of the first metals discovered by ancient peoples and eventually gold grew to symbolize both wealth, royalty, and immortality. Gold began to be used as money by many cultures, but the Romans were the first to use it widespread.

The rarity, malleability, durability, ease to identify, and intrinsic value of gold made it perfect for money. While many civilizations throughout the world used gold for money, eventually its role would change with the coming of the gold standard system.

In modern history, gold was shaped by events such as Roosevelt’s confiscation order in 1933 and President Nixon ending the direct convertibility of gold to US dollars in 1971. Although gold is no longer the basis of the modern monetary system, there is more gold demand today than ever before.

See full infographic here

 

Source: VisualCapitalist

Here Is The FT’s Gold Price Manipulation Article That Was Removed | Zero Hedge

Here Is The FT’s Gold Price Manipulation Article That Was Removed | Zero Hedge.

Two days ago the FT released a clear, informative and fact-based article, titled simply enough “Gold price rigging fears put investors on alert” in which author Madison Marriage, citing a report by the Fideres consultancy, revealed that global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013.

To those who hve been following the price action of gold in the past four years, gold manipulation is not only not surprising, but accepted and widely appreciated (because like the Chinese those who buy gold would rather do so at artificially low rather than artificially high fiat prices) and at this point, after every other product has been exposed to be blatantly and maliciously manipulated by the banking estate, it is taken for granted that the central banks’ primary fiat alternative, and biggest threat to the monetary status quo, has not avoided a comparable fate.

What is surprising is that where the FT article once was, readers can now find only this:

 

 

And since we can only assume the article has been lost to FT readers due to some server glitch, and not due to post-editorial consorship or certainly an angry phone call from the Bank of England or some comparable institution, we are happy to recreate it in its entirety. Just in case someone is curious why gold price rigging fears should put investors on alert.

Gold price rigging fears put investors on alert

By Madison Marriage

Global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.

The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price, which is set twice a day by Deutsche Bank, HSBC, Barclays, Bank of Nova Scotia and Société Générale in a process known as the “London gold fixing”.

Fideres’ research found the gold price frequently climbs (or falls) once a twice-daily conference call between the five banks begins, peaks (or troughs) almost exactly as the call ends and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behaviour”.

“[This] is indicative of panel banks pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders,” Fideres concluded.

“The behaviour of the gold price is very suspicious in 50 per cent of cases. This is not something you would expect to see if you take into account normal market factors,“ said Alberto Thomas, a partner at Fideres.

Alasdair Macleod, head of research at GoldMoney, a dealer in physical gold, added: “When the banks fix the price, the advantage they have is that they know what orders they have in the pocket. There is a possibility that they are gaming the system.”

Pension funds, hedge funds, commodity trading advisers and futures traders are most likely to have suffered losses as a result, according to Mr Thomas, who said that many of these groups were “definitely ready” to file lawsuits.

Daniel Brockett, a partner at law firm Quinn Emanuel, also said he had spoken to several investors concerned about potential losses.

“It is fair to say that economic work suggests there are certain days when [the five banks] are not only tipping their clients off, but also colluding with one another,” he said.

Matt Johnson, head of distribution at ETF Securities, one of the largest providers of exchange traded products, said that if gold price collusion is proven, “investors in products with an expiry price based around the fixing could have been badly impacted”.

Gregory Asciolla, a partner at Labaton Sucharow, a US law firm, added: “There are certainly good reasons for investors to be concerned. They are paying close attention to this and if the investigations go somewhere, it would not surprise me if there were lawsuits filed around the world.”

All five banks declined to comment on the findings, which come amid growing regulatory scrutiny of gold and precious metal benchmarks.

BaFin, the German regulator, has launched an investigation into gold-price manipulation and demanded documents from Deutsche Bank. The bank last month decided to end its role in gold and silver pricing. The UK’s Financial Conduct Authority is also examining how the price of gold and other precious metals is set as part of a wider probe into benchmark manipulation following findings of wrongdoing with respect to Libor and similar allegations with respect to the foreign exchange market.

The US Commodity Futures Trading Commission has reportedly held private meetings to discuss gold manipulation, but declined to confirm or deny that an investigation was ongoing.

h/t Noel

Cassandra’s legacy: Gold and the beast: a brief history the Roman conquest of Dacia

Cassandra’s legacy: Gold and the beast: a brief history the Roman conquest of Dacia.

 

Roman soldiers bringing civilization to Dacia (from the Trajan column in Rome). The Roman empire invaded Dacia at the beginning of the 2nd century AD seeking the control of the Carpatian gold mines. 

The ascent of the Roman Empire is best understood if we think of it as a beast of prey. It grew on conquest, by gobbling its neighbors, one by one, and enlisting them as allies for more conquest. By the first century AD, the Roman Empire had conquered everything that could be conquered around the Mediterranean sea; that for good reasons the Romans called “Mare Nostrum”, “Our Sea.” But the beast was still hungry for prey.

And what a beast that was! Never before, the world had seen such a force as the Roman legions. Well organized, trained, disciplined, and equipped, they were the wonder weapon of their times. The great innovation that made the legions so powerful was not a special weapon or a special strategy. It had to do, rather, with a concept dear to the military: command and control. In the Roman system, command and control was based on gold (and silver). The Roman had not invented coinage, but they used systematically gold and silver coins to pay their soldiers. So, the size of the Roman army was not limited by the Roman population: almost anyone could enlist either as a legionnaire or as an auxiliary fighter; his reward was simply money. Gold was, in a sense, the secret weapon of the Roman Empire; it was the the blood, the lymph, and the nerves of the beast of prey.

Because of its command and control system, the Roman army could grow in size by means of a self-reinforcing mechanism. The more gold the Romans had, the larger their army could be. The larger their army, the more gold they could raid from their neighbors. Also, the more gold the Romans had, the more they could invest in extracting more gold from their Spanish gold mines. The beast kept growing bigger and, the more it grew, the more food it needed.

But even the mighty Roman legions had their limits. With the 1st century AD, the Spanish mines started showing signs of depletion. At the same time, the Empire had reached practical limits to its size and, with that, to the amount of gold it could loot from its neighbors. Already in 44 BC, the legions had been stopped at Carrhae in their attempt to expand in the rich East at the expense of the rival Parthian Empire. And in Teutoburg in 9 AD, a coalition of German tribes had inflicted a crushing defeat on the legions, stopping forever the attempt of the Romans to control Eastern Europe. There were no other places where the empire could expand: in the West, it faced the ocean; in the South, the dry Sahara desert. Confined in a closed space, the beast risked to starve.

Not only the Roman Empire couldn’t get any more gold; it couldn’t even keep the gold it had. The Roman economy was geared for war and it couldn’t produce much more than grain and legions, neither of which could be exported at long distances. At the same time, the Romans had a taste for expensive goods that they could not produce: silk from China, pearls from the Persian gulf, perfumes from India, ivory from Africa, and much more. The Roman gold was used for pay for all of that and, slowly, it made its way to the East through the winding silk road in central Asia and from Africa to India by sea. It was a wound that was slowly bleeding the beast to death.

With less and less gold available, the legions’ power could only decline. That the Empire was in deep trouble could be seen when, in 66 AD, the Jews of Palestine – then a Roman province – took arms against their masters. Rome reacted and crushed the rebellion in a campaign that ended in 70 AD with the conquest of Jerusalem and the burning of the Jewish Temple. It was a victory, but the campaign had been exceptionally harsh and the Empire had nearly gone to pieces in the effort. Nevertheless, the empire had managed to bring home a considerable amount of desperately needed gold and silver. The beast was eating itself but, for a while, it was satiated.

With the gold plundered in Palestine, the Roman Empire could gain some time, but the problem   remained: where to find more gold? It was at this point that the Romans turned their sight to a region just outside their borders: Dacia, an area at the North-East of the Empire that included Transylvania and the Carpatian mountains. The beast was smelling food.

We don’t know much about Dacia before the Roman conquest. We know that it was a thriving society that was expanding and that, probably, had ambitions of conquest of its own; so much that the Roman empire had agreed to pay to the Dacian kings a tribute. We know that the Carpatian region had been producing gold already in very ancient times and there is evidence (Bogden et al.) that, at the time of the Roman conquest, the Dacians were mining gold veins in the mountains. It may well be that they had learned new mining techniques from the Romans themselves. So, Dacia was probably experiencing a gold mining boom. It was a prey in the making.

The Dacians may have had plenty of gold at that time, but they were still building up their economy and their technology. The only gold coins that can be said to have a certain Dacian origin are a curious mix of Roman iconography and Greek characters spelling the term “Koson“, whose meaning is uncertain. We don’t know if these coins were actually minted in Dacia, although they were surely used there. It is possible that the Dacians had sent some of their  gold to Rome, to have it transformed into coins and brought back in Dacia – not unlike what oil producers are doing today when they send their oil to the United States to be transformed into dollar bills. The Romans were surely happy to work the Dacian gold, but they must have noticed that the Dacian mines were producing it. So, it was clear that a military conquest of Dacia could pay for itself. The beast had sighted its prey.

In the year 101 AD, a young and aggressive Roman Emperor, Trajan, invaded Dacia. It was a bold attempt, given the difficult terrain and the strong resistance of the Dacians. Surely, the nightmare of the Teutoburg disaster of nearly a century before must have haunted the Romans but, this time, the legions overcame all obstacles. After two campaigns and five years of war, the gamble paid off and Dacia was transformed into a Roman province. The beast had made another kill.

We have no reliable data on how much gold and silver the Romans looted in Dacia, although it had to be a considerable booty. We also know that the Romans invested in the Dacian mines, probably bringing in their expert miners from Spain. However, the overall effect of this inflow of gold seems to have been small on the Roman economy. If we look at the data for the silver content of Roman coins (data from Joseph Tainter) there is no evident effect of the Dacian conquest. We see an increase in silver content at about 90 AD, but that’s a decade before the Dacian campaign and we may attribute it, rather, to the inflow of precious metals deriving from the conquest of Palestine. The Dacian mines, apparently, couldn’t match the wealth that the Spanish mines had been produced in their heydays. The beast had become too huge to be fed just with crumbles.

But the content of silver in coins doesn’t depend only on the looting of foreign countries. It depends also on the policies of the government. So, if we look at the graph above, we see that both the Palestinian and the Dacian campaigns correspond to drops in the silver content of coins. That makes sense: of course the Roman government would see the advantage of debasing a little their currency when it was question of having to pay large numbers of troops. Trajan, indeed, didn’t stand still after the conquest of Dacia and, in 113 AD, he attempted another bold project: that of expanding in the East, attacking once more the Parthian Empire after the failed attempt at Carrhae, in 44 BC. But the task was too much even for an expert commander as Trajan. After some initial successes, the Romans simply had to stop; possibly they understood that the campaign had become too expensive. Asia was just too big for them to conquer. The beast had found a prey too big to swallow.

With the death of Trajan in 117 AD, the new emperor, Hadrian, took the decision of stopping all attempts of the Empire to conquer new territories, a policy that was basically kept by all his successors. In a sense, it was a wise decision because it prevented the Empire from collapsing. But the final result was unavoidable as gold continued to bleed away from the Roman territory and could not be replaced. The Western Empire, which included the city of Rome, disappeared forever after a few centuries as an impoverished shade of its former self. The beast was to die of starvation, slowly.

And Dacia? Over nearly two centuries of Roman rule, it was “romanized”, in the sense that it adopted Roman customs and the Latin language – at least in the cities. However, it was also one of the first Roman provinces to lose contact with the central government when, around 275 AD, the legions abandoned it (for comparison, Britannia was not abandoned before 383 AD). We have no data on gold production in Dacia during this period but the simple fact that the Romans decided to abandon the province means that the Dacian mines had been thoroughly depleted, just like the Spanish ones. There was no food left for the beast.

From then on, we have scant data. For sure, Dacia was exposed to all the invasions that were to sweep through Europe in the period we call “The Great Migrations”. Apparently, however, the region maintained its Roman roots better than Britannia. However, we have no records of a Dacian King who bravely fought the invaders, as King Arthur did in Britannia, and we don’t have to think that Dacia always remained a Roman fortress. Indeed, the earliest records we have of the Romanian language go back only to the 16th century and we have no clear evidence that its origin went back all the way to the times of the Roman colonization. However, it is a fact that, still today, the region we call “Romania” – the land of the Romans – is a Latinized island in a Slavic sea. Were the gold mines still producing some gold during this period? We cannot say but, if they did, it may be possible that the wealth they generated, even though modest, helped to maintain the cultural and social unity of Dacia.

This brief survey tells us a lot of how important is gold in human history. For the region that we call Romania today, the gold mines located in Roșia Montană, in the Carpatian Mountains, have been a fundamental element. Exploited from remote times, these mines have periodically experienced new waves of exploitation as technological improvements made it possible to recover lower and lower grade gold ores. And with these cycles of boom and bust, there went invasions, migrations, kingdoms, and empires. The cycle is continuing today with a project to restart exploiting these ancient mines using the last technological wonder in gold mining: the cyanide leaching process. But getting more gold from the exhausted Carpatian mines is costly and the damage it could do to the land is tremendous. The drop in gold prices of the past few years may soon make these new gold mines too expensive even to be dreamed of. Even existing gold mines may have to be closed.

So, it looks like the beast of prey that, today, we call “Globalization” is facing the same problem that the old Roman Empire was facing in its times: the disappearance of the vital minerals it is preying upon (and gold is just one of them). Since today there are no perspectives of conquering unexploited lands, it is an unsolvable problem. The globalized beast will have to die of starvation, or it will survive only if it will accept to change its diet.

Things That Make You Go Hmmm… Like “Anti-Gold Idiots” | Zero Hedge

Things That Make You Go Hmmm… Like “Anti-Gold Idiots” | Zero Hedge.

This next paragraph contains what Grant Williams believes is the fundamental principle of investing in gold and silver, which so few people genuinely understand — despite the multitudes of commentators expending countless thousands of words.

“So these anti-gold idiots are just that, idiots, or else they have the memory of a goldfish, because currencies come and currencies go, as sure as night follows day. It is the natural order of things. And as you can see, it’s not about trading gold to get rich or getting long gold or buying one by two call spreads or getting fancy, it literally is about protecting yourself in the end.It’s not like Williams got rich. He just stayed rich. Everyone else got poor.

It’s not like Williams got rich. He just stayed rich. Everyone else got poor.

That’s it. Right there.

If you talk to most people in the West about gold, they have no idea about the price or its recent direction. Narrow your sample audience down to those with a passing interest in finance, and they will likely know that gold is an awful investment whose price only goes down. (Had we conducted this little survey in 2011, the results would have been different, but that only illustrates the point.)

Ask a random group of people in the East about gold, however, and the conversation is completely different.

In this part of the world, people talk about how much gold they (or their parents or their grandparents) own. They will tell you stories of the first time they handled a gold coin (usually as a child), and they will know the price but not have much of an opinion on how good or bad gold’s performance has been — it will be far less relevant to them. They just know that you don’t trade gold; you own it.

To further illustrate this point, let’s talk about our old friends the world’s central banks.

The chart showing the 25 largest central bank holders of the world’s gold looks like this:

If we take a look at the changes in those holdings between 2008 and 2013, an interesting phenomenon emerges: central banks in the East, as their reserves have grown, have been accumulating gold:

Since 2008, the central banks of China, Russia, India, Turkey, Saudi Arabia, Thailand, and the Philippines have increased their gold holdings on average by 119.67%.

Central banks continually rubbish gold as a worthless asset class because it constricts their ability to produce money at the push of a button. Not only that, but it offers their citizens the means to reduce their reliance upon a nation’s fiat currency — one has only to look at the goings-on in India last year to see what THAT looks like.

Deep down, though, central bankers know what gold is for and why you hold it. They know.

In 1999, a group of central banks came together through the Washington Agreement on Gold to jointly manage sales of the precious metal.

The Washington Agreement worked when central banks were selling their gold because there were always buyers, at lower and lower prices — those were the investors soaking up the bullion.

NOW we have a bunch of central banks aggressively trying to BUY gold; and what they’re finding (unsurprisingly) is that the investors aren’t sellers, so the only people left from whom to acquire gold are the traders — and they have a very limited supply of actual metal

When Western central bankers rubbish gold as a “barbarous relic” or, as in the case of Ben Bernanke shortly before he started his job at The Brookings Institution left office in January, admit to a complete lack of understanding of it, does it not strike you as strange that, having accumulated significant stockpiles of gold over the years, they aren’t in a hurry to swap any of it for paper money(well, with the notable exception perhaps of the United Kingdom, thanks to the antics of Gordon Brown, King of the Idiot Chancellors)?

It shouldn’t.

Gold is held by Western central banks for exactly the same reason individuals ought to hold it: protection.

Central banks are accumulating gold because it cannot go BANG! like fiat currencies do.

Individuals should be doing the same — not being sidetracked by the distractions.

It’s not about price. The story Jared shared with us demonstrates that beyond any doubt.

If you own gold, it will do all the heavy lifting for you when the time comes

And that’s where Grant Williams gets really deep in his latest excellent letter…

TTMYGH_17_Feb_2014

“The Pig In The Python Is About To Be Expelled”: A Walk Thru Of China’s Hard Landing, And The Upcoming Global Harder Reset | Zero Hedge

“The Pig In The Python Is About To Be Expelled”: A Walk Thru Of China’s Hard Landing, And The Upcoming Global Harder Reset | Zero Hedge.

By now everyone knows that the Chinese credit bubble has hit unprecedented proportions. If they don’t, we remind them with the following chart of total bank “assets” (read debt) added since the collapse of Lehman: China literally puts the US to shame, where in addition to everything, the only actual source of incremental credit growth over the same time period has been the Fed as banks have used reserves as margin for risk purchases instead of lending.

 

Everyone should also know that like a metastatic cancer, the amount of non-performing, bad loans within the Chinese financial system is growing at an exponential pace.

 

Finally, what everyone learned over the past month, is that as the two massive, and unresolvable forces, come to a head, the first cracks in the facade are starting to appear as first one then another shadow-banking Trust product failed and had to be bailed out in the last minute.

However, as we showed last week, and then again last night, the default party in China is only just beginning as Trust failures in the coming months are set to accelerate at a breakneck pace.

 

The $64K question is will the various forms of government be able to intercept and bail these out in time, as they have been doing so far despite their hollow promises of cracking down on moral hazard: after all, everyone certainly knows what happened when Lehman was allowed to meet its destiny without a bailout – to say that the CNY10 trillion Chinese shadow banking industry will not have far more dire consequences if allowed to fall without government support is simply idiotic.

But what could be the catalyst for this outcome which inevitably would unleash the long-overdue Chinese hard landing, and with it, a new global depression?

Ironically, the culprit may be none other than the Fed with the recently instituted taper, and the gradual, at first, then quite rapid unwind of the global carry trade.

Bank of America explains:

QE and the Emerging Markets carry trade

 

The QE channel has worked through Emerging Markets and China is a key vehicle. By lowering the US government bond yields to a bare minimum, and zero –ish at the short end, a search for yield globally ensued. Emerging market banks and corporates have gone on an international leverage binge, yet another carry trade, the third in 20 years. The first one was driven by European banks, financing East Asian capex – that ended in 1997. The second one was global banks and equity-FDI supporting mainly capex in the BRICs. That ended in 2008. This time, it is increasingly non-equity: commercial banks and more importantly, the bond market – often undercounted in the BoP and external debt statistics that conventional analysis looks at.

 

Chart 9 shows the rise of EM external loans and bond issuance (both by residence and nationality). Since, end-3Q2008 to end-3Q2013, external borrowing from banks and bonds has risen USD1.9tn. Bank loans have risen by USD855bn and bond issuance in foreign currencies by nationality is up USD1,042bn. In the prior five-year period (i.e. end-3Q2003 – end-3Q2008), forex bond issuance rose only USD432bn. Clearly, the importance of external bond issuance is rising. See Table 5 for details.

 

In China, since, end-3Q2008 to end-3Q2013, outstanding external borrowing from banks and bonds has gone from USD207bn to USD849n – a net rise of USD655bn. Outstanding bank loans are up from USD161bn to USD609bn – a net rise of USD464bn. Bond issuance in foreign currencies by nationality is up from USD46bn to USD240bn – a net rise of USD191bn. In the prior five-year period (ie, end-3Q2003 – end-3Q2008), forex bond issuance rose only USD28bn in China. Clearly, the importance of external bond issuance is rising in China.

 

 

There is more to this story.

 

As mentioned earlier, for externally-issued bonds, USD1,042bn has been raised by the nationality of the EM borrower since end-3Q 2008, but USD724bn by residence of the borrower – a gap of USD318bn, or 44%. This undercount is USD165bn in China, USD100bn in Brazil, USD62bn in Russia, and USD37bn in India. The carry trade this time around was helped substantially by access to the bond market, especially from overseas affiliates of EM banks and corporations.

 

There are a lot of moving parts in the balance of payments that finally affect the change in international reserves at any EM central bank – eg, the current account, portfolio equity investment and direct equity investment, and debt flows – both from the bond market and lending from banks. We focus on the link between these debt flows and the international reserves in China. As Table 5 below shows, China’s external debt – from bond issuance and forex borrowing from banks – rose USD655bn during 3Q08-3013.

 

 

We posit that this large rise was in part driven by the carry trade offered up by QE – China banks and corporates issued substantial forex-denominated bonds, and borrowed straight loans from international banks. We recognize the caveat that correlation does not imply causation. The USD655bn rise in China debt issuance is highly correlated to the Fed’s balance sheet since late-2008. As Chart 11 shows, the rise in China debt issuance of USD 655bn has (along with FDI and the C/A surplus), boosted international reserves by USD1,773bn since late-2008. Also, as Chart 11 shows, the USD1,773bn rise in China international reserves mirrors the rise of USD2,585bn in the EM monetary base. Lastly, the rise of China’s monetary base of USD2,585bn correlates well with the USD10.9tr rise in China’s broad money expansion.

 

 

 

As the Fed tapers, and the size of its balance sheet stabilizes/contracts, we should expect this sequence to reverse. Confidence is a fragile membrane. Not only does the Fed’s balance sheet matter as a source of funds, but we believe so does the attractiveness of the recipient of the carry trade – and the trust in its collateral. As Gary Gorton puts it…

 

The output of banks is money, in the form of short-term debt which is used to store value or used as a transaction medium. Such money is backed by a portfolio of bank loans in the case of demand deposits, or by collateral in the form of a specific bond in the case of repo. The backing is designed to make the bank debt as close to riskless as possible — in fact, so close to riskless than nobody wants to really do any due diligence on the money, just transact with it. But the private sector cannot produce riskless debt and so it can happen that the backing collateral is questioned. This typically happens at the peak of the business cycle. If its value is questioned, it loses its “moneyness” so no one wants it, and cash is preferred. But as we know, if everyone wants their cash at the same moment, their demands cannot be satisfied. In this sense, the financial system is insolvent. (interview with the FT) 

 

What makes sense for an individual carry trade – borrow low, invest at higher rates – falls prey to the fallacy of composition, when too many engage in the same carry trade. And eventually question the underlying collateral, now huge, and potentially suspect. China is a case in point. If our colleagues David Cui and Bin Gao are right, the trust sector in Chinacould create rollover risks that reverse a gluttonous carry trade within China, but partly financed overseas. In China’s case, this trade was between low global interest rates, low Chinese deposit rates, expectations of perpetual RMB appreciation on the one hand, and higher investment returns promised by Trusts on the other. A part of the debt funds raised overseas, we suspect were put to work in this Trust carry trade. The HK-based banks are big participants in intermediating the China carry trade – as Chart 12 shows, their net lending to China went from 18% of HK GDP in 2007 to 148% in late-2013.

 

There are always fancy names given to carry trades – financial liberalization of capital accounts, the Bangkok International Banking Facility, currency internationalization, etc. We remain skeptics of these buzzwords.

 

 

 

The potential consequences of Trust defaults and a China carry trade unwind

 

1. If the EM carry trade diminishes as a consequence of a changed Fed policy and/or less attractive risk-adjusted returns in EMs as collateral quality is questioned, the sources of China’s forex reserve accumulation will need to change. Perhaps to bigger current account surpluses, more equity FDI and portfolio investment through privatization and more open equity markets. If that does not happen, expanding the Chinese monetary base might require PBOC to increase net lending to the financial system and/or monetize fiscal deficits (this last part has not worked so well in EMs).

 

2. Potential asset deflation is a risk, as the carry trades diminish/unwind. Property prices are at risk – the collateral value for China’s financial systems. This is not a dire projection – it simply seeks to isolate the US QE as a key driver of China’s monetary policy and asset inflation, and highlights the magnitudes involved, and the transmission mechanism. Investors should not imbue stock-price movements and property price inflation in China with too much local flavor – this is mainly a US QE-driven story, in our view.

 

3. Currently, China’s real effective exchange rate is one of the strongest in the world. Concerns about China’s Trust sector, and its underlying collateral value, sees some of this carry trade unwound, the RMB could be under pressure.

 

 

4. Given HK’s role in the China carry trade, HK property prices and its banking system should be watched carefully for signs of stress.

 

5. UK, US, and Japan banking systems have been active lenders to China since QE. They should be on watch if the Trust rollover risk materializes and creates a growth shock in China. See Chart 15.

 

 

 

6. Safe haven bids for DM government bonds, overseas property and precious metals might emerge from China.

 

Could the party go on? Yes, if for some reason a significant deterioration in the US labor market, or a deflationary shock from China, or any other surprise that could lead to a cessation of the US tapering could prolong this carry trade. This is not the house base case. We believe it is better to start preparing for a post-QE world. As one of our smartest clients told us: “the main theme in the past five years was QE. If that is coming to an end, investments and themes that worked in the past five years must therefore be questioned.” We agree.

* * *

Yes, Bank of America said all of the above – every brutally honest last word of it.

The question, however, in addition to “why”, is whether the Fed also agrees with BofA’s stunningly frank, and quite disturbing conclusion, perhaps finally realizing that aside from the US, the biggest house of cards that would topple once the “flow”-free emperor is exposed in his nudity, is that of the world’s largest “growth” (and credit) dynamo of the past two decades – China.Because, as noted above, if Lehman’s collapse was bad, a deflationary collapse brought on by Chinese hard landing coupled with a full unwind of the global carry trade, would be disastrous and send the world into a depression the likes of which have never before been seen.

Finally, for those who want the blow by blow, here is BofA’s tentative take of what the preliminary steps of the next global great depression will look like:

If we do experience a sizable default, the knee-jerk market reaction will be cash hoarding since it will strike as a big surprise. Thus, we expect the repo rate to rise first, while the long term government bond would get bid due to risk aversion flows.

 

However, what follows will be quite uncertain, aside from PBoC injecting liquidity and easing monetary policy to help short term rate come down. It has been proven again and again the Chinese government will get involved and be proactive. The bond market reaction will be different depending on the government solution.

Alas, at that point, not even the world’s largest bazooka will be enough.

At this point one should conclude that reality – through massive, unprecedented liquidity injections – has been deferred long enough. It is time to let the markets finally return to some semblance ofuncentrally-planned normalcy: there is a reason why nature abhors a vacuum. Even if it means the eruption of the very painful grand reset, washing away decades of capital misallocation, lies and ill-gotten wealth, so very overdue.

Guest Post: The Merger Of State And Commerce | Zero Hedge

Guest Post: The Merger Of State And Commerce | Zero Hedge.

Submitted by Stephen Merrill, editor of the Alaska Freedom News. He served in the Navy Judge Advocate General’s Corps and as a Navy Reserve Intelligence Officer

The Merger of State and Commerce

The Leviathan’s Thumb

Many observers of the US economy have come to the realization there are now few truly free markets left within 21st Century Western capitalism.

It seems all investments today are controlled to unfair advantage in some large way by the governments and financial firms operating the markets, especially the market in money itself.  The newly-invented powers of the central banks to buy anything, to fund any bailout, can reach into any area of the economy, either to grant large favors or to inflict great pain, typically with the cooperation of the too-big-to-jail banks that own the Federal Reserve and its policies.

The precious metals market is a good example of the Fed and its henchmen inflicting pain.  The Western paper gold market has been the long-used tool of Leviathan to bludgeon the world’s only true money.

In one of the Fed’s generous ways the second US housing bubble has been inflated from a river of counterfeit money and a wet-blanket of negative interest rates.  The QE Forever giveaway to the Fed’s banker friends through buying toxic mortgages at full price charges on.

A Swinging Pendulum

It is nothing at all new for a nation to defy the basic economic principle that allows for ever increasing wealth benefiting all layers of society.  In a word it is liberty.

The underlying concepts of capitalism were best set out by British author Adam Smith.  Smith postulated it is the magic of the invisible hand of a free market that best distributes economic resources and best energizes the people and industry and innovation.   Smith’s signature work The Wealth of Nations was written well over two hundred years ago.

The magic of Smith’s free market proved to be the model for the first sustained, rapid economic growth in global history, since at least the early Roman Empire.  It seems, whatever its academic merit in Ivy League halls, general economic liberty has clearly proven to be the best way to serve all society, given how humans themselves are created, as individuals each seeking a good life and secure family.

European medieval economics between the Romans and  the 18th Century Industrial Revolution showed how the vulture practices of monarchs and nobility eliminated even the hope for economic growth or of ever fostering a middle-class, while stifling innovation at every turn.  The private institutions empowered by law in that time were the lesser nobility and the Catholic Church.

With the Enlightenment period led by writers like Adam Smith, John Locke and Edmund Burke, the grip of elitism in commerce in Britain and France and beyond began to be replaced by private enterprise and capital quite completely.   Individual rewards for productivity and innovation and risk-taking became the driving force for economic decision-making, no longer centered on the whim of the lord or his knights as things have largely returned to in today’s fascist economy.   It was the belief in bottom-up capitalism in its rawest form.

The Europeans had suddenly become a juggernaut of innovation and growth after many centuries of stagnation.  The United States later in the cycle became the signal success of free-market capitalism.

In the wake of this revolution in society, the 19th Century saw the fastest economic growth in human history, all fueled by economic liberty.  For the first time a large prosperous middle-class of workers came into existence in many countries, no longer just the rulers lording over the peasants.

The same economic revolution is happening across most of Asia during our 20th and 21st Centuries.  Just one example, tiny city-state Singapore has proven once again the amazing achievements for all citizens from unbridled capitalism.  Singapore has risen from post-WWII devastation to the top of the world economic ladder without ever asking for or accepting foreign aid from any nation.  Singapore is the heir of Ancient Athens, the first free city, the founder of monetary silver.

Adam Smith’s Lassie Faire capitalism has become though the ancient, barbaric relic in our modern fiat money Western world economy, especially in America.  No living American has experienced an economic system that can be fairly described as general capitalism.

The US has now what is called a “mixed economy” involving many “public-private partnerships” and “professional self-regulation” and “social programs”.  These are modern phrases that explain the slow return to feudal ways.

Monopolies of political power or of markets yield huge profits for the few over generations without much having to change a thing.  Monopoly power is a distant mirror of feudal nobility.  It operates in both the public and the private sector and so often in direct combination with each other.  Power not only corrupts: power wins, power stagnates, power destroys.

The Money-Changers Above the Law

Then there are the market traders in a fiat, debt-fueled world.

Whenever free markets can be conned, fixed or disrupted there is a lot of money to be made in the process. There always has been short-term gain for those insiders who manage to fleece the public by harming the secure, uninterrupted flow of goods and services and finance and information.

Most economic transactions, at their base, rely on a large element of trust.  Deceit punishes trust to self-advantage.  Deceit harms the economic market itself, beyond the impact of the con-jobs in play.  A marketplace chocked with deceit is a fraud itself, the absence of the rule of law.  Only the law can fully deal with deceit in order to allow a free marketplace to even exist.

The more hidden processes used by modern bankers and traders to obtain unearned wealth is little different in its societal effects than robbing a convenience store is, or robbing hundreds of thousands of convenience stores actually, given the numbers typically involved in white collar crime at the highest levels.

The counterfeiting of the private-public central banks, that strangles the middle class to further enrich the wealthy, is daily theft on the grandest scale.  Counterfeiting by central banks now affects almost every investment decision.

In the end, it is little different than the peasants always giving a one-third share of their crops to the royal duke just because the King says so.

The Rule of the Cartels on Main Street

This collectivist syndrome in the United States is far from limited to the Congress-buying Wall Street cartel and the subject of finance.  The same general form of corruption permeates an increasing number of professions and businesses.  Even tattoo artists and legal process servers have earned their guild status by law in many states, hoping to, like others do, choke off low-price competition in their field.

The national health-care industry seems to have become almost a single cartel empowered by federal spending.  The Obamacare spending bonanza is designed to pay off every big healthcare interest in sight and the health-insurance industry to boot.

The provision of education in the United States has long been the fiefdom of rigged markets and systems.

The socialism model rules primary and secondary education almost alone.  Even 40-years of abject failure in effectively educating students has failed to dent the nationwide taxpayer spending spree for this state-imposed monopoly rule in the most crucial work there is for society.  Alaskans today pay over $18,000 per student for K-12 education.  Test scores are well below those of students from some third-world countries.

A mix of public and private institutions rule US higher education as a single-minded oligarchy.  This cartel is primarily empowered by federal spending in the form of student loans.  The younger generations are saddled now with a trillion dollar in debt to repay college tuition and fees that no longer deliver a good job.

The lawyer guild has controlled its market for professional services in every state in the union for generations.  Market-fixing remains one of the central goals of bar association rules:  ditto for the physician guild.

Part private business organization, part government institution, part professional guild, part bank regulator, entirely self-interested, the creature from Jekyll Island, the Federal Reserve, has become the go to mechanism for replacing free markets with aristocratic privilege.  He who issues the money controls the nation the phrase goes.

The Unifying Force

But the ultimate overarching rigged system in the US is the effective monopoly by two private political cartels sharing the same basic agenda, the Democratic Party and the Republican Party.  As a consequence of these two faces of modern fascism, the nation and its liberty has been for sale for more than two generations now.

This welfare-warfare party, one bent on ever expanding centralized power, has owned the Congress and most of the Presidents going back to WWI and the founding of the Federal Reserve.  The success in keeping the “two-party system” in place has had far more to do with the special privileges granted by law to Democratic and Republican candidates than to any good reason for a lack of meaningful political competition.

What is the fundamental error of governance made in all of this modern injustice?

It is the practice of the government surrendering open elections and free markets to officially anointed regulatory systems that then form an unchallengeable oligopoly within their bailiwick.

In the case of public regulation rather than a guild system, the regulated industry invariably become the effective master of the industry regulators, like Democrats and Republicans have for instance in US politics.  Within any regulated business, the temptation of well-heeled collegiality from industry always wins over government regulators eventually or, more often, the people that appoint the regulators.

With professional guilds in power its officials take over entirely for the government in controlling the business and its participants.  Professional guilds as a rule disconnect their own disciplinary code and market-rigging from the courts as much as possible, the place where everyone else is required to go for such matters.

Self-regulation for a profession invariably becomes mostly a program for less competition for guild members.  It freezes the present elite in their power and position, a never ending goal of humanity it seems.

In a wider sense, the officially anointed protector of the public safety, whether it is the state bureaucrat or a private guild official, over time becomes an enabler of reduced accountability for wrongdoing, a way to keep standards low for the industry or service by locking out competition and even the law, to the extent possible.

The US economy has regressed to feudal ways like these in such force that a variety of private guilds, cartels, unions and oligopolies exercise, officially or in practice, many of the powers of government itself, especially those powers assumed by but never granted by a constitution to the government.  It has all become a part of the “the law”.

The Revolution Looms Anew

Today’s economic model was best summed up by dictator Benito Mussolini in one short sentence: “Fascism … is the perfect merger of power between the corporations and the state”.

But tyranny also has its life-cycle within the balance between the past and the future.  Once the past becomes far too much of a millstone for the future generations to carry any longer, governments fall and debt and servitude recede.

Empires can fall largely without violence and allow a new, freer system to emerge, as most of the satellite states of the Soviet Union achieved.   Or the legacy of fallen empire becomes violent chaos followed by renewed oppression, like the French Revolution.

This bottom-up style revolution is happening to nations across our 21st Century.  The future lies in the balance.  The bell tolls for all Western nations, too.

So, in the United States, it seems, liberty will have its chance again before too long.

“The Vampire Squid Strikes Again”- Matt Taibbi Takes On Blythe Masters And The Banker Commodity Cartel | Zero Hedge

“The Vampire Squid Strikes Again”- Matt Taibbi Takes On Blythe Masters And The Banker Commodity Cartel | Zero Hedge.

The story of how JPMorgan, Goldman and the rest of the Too Big To Fails and Prosecutes, cornered, monopolized and became a full-blown cartel – with the Fed’s explicit blessing – in the physical commodity market is nothing new to regular readers: to those new to this story, we suggest reading of our story from June 2011 (over two and a half years ago),  “Goldman, JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers’ Diamond Monopoly.” That, or Matt Taibbi’s latest article written in his usual florid and accessible style, in which he explains how the “Vampire Squid strikes again” courtesy of the “loophole that destroyed the world” to wit: “it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is “complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.” Complementary to a financial activity. What the hell did that mean?… Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination.

Some key excerpts:

Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum. And they’re doing it not just here but abroad as well: In Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government’s ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid.

The motive for the Kochs, or anyone else, to hoard a commodity like oil can be almost beautiful in its simplicity. Basically, a bank or a trading company wants to buy commodities cheap in the present and sell them for a premium as futures. This trade, sometimes called “arbitraging the contango,” works best if the cost of storing your oil or metals or whatever you’re dealing with is negligible – you make more money off the futures trade if you don’t have to pay rent while you wait to deliver.

 

So when financial firms suddenly start buying oil tankers or warehouses, they could be doing so to make bets pay off, as part of a speculative strategy – which is why the banks’ sudden acquisitions of metals-storage companies in 2010 is so noteworthy.

 

These were not minor projects. The firms put high-ranking executives in charge of these operations. Goldman’s acquisition of Metro was the project of Isabelle Ealet, the bank’s then-global commodities chief. (In a curious coincidence commented upon by several sources for this story, many of Goldman’s most senior officials, including CEO Lloyd Blankfein and president Gary Cohn, started their careers in Goldman’s commodities division.)

Then there are the political connections:

In 2010, a decade after the Rich pardon, Holder was attorney general, but under Barack Obama, and two Rich-created firms, along with two banks that have been major donors to the Democratic Party, all made moves to buy up metals warehouses. In near simultaneous fashion, Goldman, Chase, Glencore and Trafigura bought companies that control warehouses all over the world for the LME, or London Metals Exchange. The LME is a privately owned exchange for world metals trading. It’s the world’s primary hub for determining metals prices and also for trading metals-based futures, options, swaps and other instruments.

 

“If they were just interested in collecting rent for metals storage, they’d have bought all kinds of warehouses,” says Manal Mehta, the founder of Sunesis Capital, a hedge fund that has done extensive research on the banks’ forays into the commodities markets. “But they seemed to focus on these official LME facilities.”

 

The JPMorgan deal seemed to be in direct violation of an order sent to the bank by the Fed in 2005, which declared the bank was not authorized to “own, operate, or invest in facilities for the extraction, transportation, storage, or distribution of commodities.” The way the Fed later explained this to the Senate was that the purchase of Henry Bath was OK because it considered the acquisition of this commodities company kosher within the context of a larger sale that the Fed was cool with – “If the bulk of the acquisition is a permissible activity, they’re allowed to include a small amount of impermissible activities.”

 

What’s more, according to LME regulations, no warehouse company can also own metal or make trades on the exchange. While they may have been following the letter of the law, they were certainly violating the spirit: Goldman preposterously seems to have engaged in all three activities simultaneously, changing a hat every time it wanted to switch roles. It conducted its metal trades through its commodities subsidiary J. Aron, and then put Metro, its warehouse company, in charge of the storage, and according to industry experts, Goldman most likely owned some metal, though the company has remained vague on the subject.

 

If you’re wondering why the LME would permit a seemingly blatant violation of its own rules, a good place to start would be to look at who owned the LME at the time. Although it eventual­ly sold itself to a Hong Kong company in 2012, in 2010 the LME was owned by a consortium of banks and financial companies. The two largest shareholders? Goldman and JPMorgan Chase.

 

Humorously, another was Koch Metals (2.32 percent), a commodities concern that’s part of the Koch brothers’ empire. The Kochs have been caught up in their own commodity-manipulation schemes, including an episode in 2008, in which they rented out huge tankers and sed them to store excess oil offshore essentially as floating warehouses, taking cheap oil out of available supply and thereby helping to drive up energy prices. Additionally, some banks have been accused of similar oil-hoarding schemes.

And then there is of course Blythe, who is now looking for a new job precisely as a result of the cartel story:

Chase’s own head of commodities operations, Blythe Masters – an even more famed Wall Street figure, sometimes described as the inventor of the credit default swap – admitted that her company’s warehouse interests weren’t just a casual thing. “Just being able to trade financial commodities is a serious limitation because financial commodities represent only a tiny fraction of the reality of the real commodity exposure picture,” she said in 2010.

 

Loosely translated, Masters was saying that there was a limited amount of money to be made simply trading commodities in the traditional legal manner. The solution? “We need to be active in the underlying physical commodity markets,” she said, “in order to understand and make prices.”

 

We need to make prices. The head of Chase’s commodities division actually said this, out loud, and it speaks to both the general unlikelihood of God’s existence and the consistently low level of competence of America’s regulators that she was not immediately zapped between the eyebrows with a thunderbolt upon doing so. Instead, the government sat by and watched as a curious phenomenon developed at all of these new bank-owned warehouses, in the aluminum markets in particular.

Finally, the big picture:

[T]he potential for wide-scale manipulation and/or new financial disasters is only part of the nightmare that this new merger of banking and industry has created. The other, perhaps even darker problem involves the new existential dangers both to the environment and to the stability of the financial system. Long before Goldman and Chase started buying up metals warehouses, for instance, Morgan Stanley had already bought up a substantial empire of physical businesses – electricity plants in a number of states, a firm that trades in heating oil, jet fuels, fertilizers, asphalt, chemicals, pipelines and a global operator of oil tankers.

 

How long before one of these fully loaded monster ships capsizes, and Morgan Stanley becomes the next BP, not only killing a gazillion birds and sea mammals off some unlucky country’s shores but also taking the financial system down with them, as lawsuits plunge the company into bankruptcy with Lehman-style repercussions? Morgan Stanley’s CEO, James Gorman, even admitted how risky his firm’s new acquisitions were last year, when he reportedly told staff that a hypothetical oil spill was “a risk we just can’t take.”

 

The regulators are almost worse. Remember the 2008 collapse happened when government bodies like the Fed, the Office of the Comptroller of the Currency and the Office of Thrift Supervision – whose entire expertise supposedly revolves around monitoring the safety and soundness of financial companies – somehow missed that half of Wall Street was functionally bankrupt.

 

Now that many of those financial companies have been bailed out, those same regulators who couldn’t or wouldn’t smell smoke in a raging fire last time around are suddenly in charge of deciding if companies like Morgan Stanley are taking out enough insurance on their oil tankers, or if banks like Goldman Sachs are properly handling their uranium deposits.

 

“The Fed isn’t the most enthusiastic regulator in the best of times,” says Brown. “And now we’re asking them to take this on?”

Read the full story here (Rolling Stone link), or alternatively for those curious, here is a presentation highlighting all the key aspects of the aluminum price manipulation story by the big banks.

BOE Stress Testing Banks For Property Crash – Risk Of Bail-Ins | www.goldcore.com

BOE Stress Testing Banks For Property Crash – Risk Of Bail-Ins | www.goldcore.com.

Published in Market Update  Precious Metals  on 12 February 2014

By Mark O’Byrne

 

Today’s AM fix was USD 1,286.50, EUR 942.84 and GBP 778.47 per ounce.
Yesterday’s AM fix was USD 1,282.75, EUR 938.09 and GBP 780.83 per ounce.

Gold climbed $15.30 or 1.2% yesterday to $1,289.90/oz. Silver rose $0.15 or 0.75% to $20.20/oz.


Gold in British Pounds, 10 Years – (Bloomberg)

Gold is marginally lower today in all currencies after eking out more gains yesterday after Yellen confirmed in her testimony that ultra loose monetary policies and zero percent interest rate policies will continue.

Citi Futures are looking for gold to increase by a further 8.5% by the end of March after gold closed above its 50 DMA every day for the last two weeks and closed above its 100 DMA for two straight days. RBC are less bullish but expect gold prices to increase another 10% and surpass $1,400/oz in 2014.

Gold touched resistance at $1,294/oz  yesterday. A close above the $1,294/oz to $1,300/oz level should see gold quickly rally to test the next level of resistance at $1,360/oz. Support is now at $1,240/oz and $1,180/oz.

Yellen confirmed that the U.S. recovery is fragile and said more work is needed to restore the labor market. She signalled the Fed’s ultra loose monetary policies will continue and the Fed will continue printing $65 billion every month in order to buy U.S. government debt.

The dovish take from Yellen’s testimony yesterday should support gold prices. Continuing QE makes gold attractive from a diversification perspective.

Market focus shifts from the U.S. to the UK today and the Bank of England’s quarterly inflation report.

The U.K. has already almost breached the unemployment level that was a target for considering tightening policy, and Governor Mark Carney is widely expected to update the market on interest rate guidance.

Possibly of more importance is the fact that the Bank of England is to test whether UK banks and building societies would go bust if house prices crash. A ‘stress test’ will examine whether banks will need bailing out, or bailing in as seems more likely now, if house prices materially correct again.

Preparations have been or are being put in place by the international monetary and financial authorities, including the Bank of England for bail-ins. The majority of the public are unaware of these developments, the risks and the ramifications.

The test is being drawn up by the Bank’s Financial Policy Committee, whose members include Governor Mark Carney.

A Nationwide Building Society survey just out showed house prices had risen by 8.8% in January over the same month last year. London house prices have all the symptoms of a classic bubble.

Many UK banks are already over extended and the real risk is that many banks would not be able to withstand house price falls. This heightens the risk of bail-ins.

Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages)

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