The Real China Threat: Credit Chaos Submitted by Tyler Durden on 01/08/2014 20:08 -0500 China default Equity Markets George Soros Gross Domestic Product Jim Chanos Michael Pettis Real estate Shadow Banking in Share 3 As Michael Pettis , Jim Chanos , Zero Hedge (numerous times) , and now George Soros have explained . Simply put - "There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years." The "eerie resemblances" - as Soros previously noted - to the US in 2008 have profound consequences for China and the world - nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained below... Submitted by Minxin Pei via The National Interest , The spectacle of a game of financial chicken in the world’s second-largest economy is both entertaining and terrifying. Twice in 2013, the People’s Bank of China (PBOC), the country’s central bank, tried to demonstrate its resolve to rein in runaway credit growth. In June, it engineered a sudden credit squeeze that sent the interbank lending rates to more than 20 percent and caused a short-lived panic in the Chinese financial markets. Apparently, the financial turmoil was too much for the Chinese government, which quickly ordered the Chinese central bank to reverse course. As a result, the PBOC lost both face and credibility. However, as credit growth continued unabated and activities in the most risky segment of China’s financial sector – the so-called shadow banking system – displayed alarming recklessness, the PBOC was left with no choice but try one more time to send a strong message that it could not be counted on to provide unlimited liquidity to the banking system. It did so in December 2013 with a modified approach that provided liquidity only to the selected large banks but pressured smaller banks (which are the most active participants in the shadow banking system). Although interbank lending rates did not spike to nose-bleeding levels, as they did in June, they doubled quickly. Most Chinese banks held on to their cash and refused to lend to each other. Chinese equity markets fell nearly 10 percent, giving back nearly all the gains since mid-November, when the Chinese Communist Party’s (CCP) reform plan bolstered market sentiments. Unfortunately for the PBOC, the renewed turbulences in the Chinese banking sector were again viewed as too dangerous by the top leadership of the CCP even though it seemed that the PBOC initially received its support. Consequently, the PBOC had to beat another hasty retreat and inject enough liquidity to force down interbank lending rates. Thus, in the first two rounds of a stand-off between the PBOC and China’s shadow banking system, the latter is widely seen as the winner. The PBOC blinked first each time. For the moment, the conventional wisdom is that, as long as the PBOC maintains sufficient liquidity (translation: permitting credit growth at roughly the same pace as in previous years), China’s financial sector will remain more or less stable. This observation may be reassuring for the short-term, but overlooks the dangerous underlying dynamics in China’s banking system that prompted the PBOC to act in first place. Of these dynamics, two deserve special attention. The first one is the rapid rise in indebtedness (or financial leverage) in the Chinese economy since 2008 . In five years, the country’s total debt-to-GDP ratio (including both public and private debt) rose from 130 percent to 210 percent, an unprecedented increase for a major economy. Historically, such expansion of credit hasrarely failed to inflate a credit bubble and cause a financial crisis. In the Chinese case, what makes the credit explosion even more risky is the low creditworthiness of the major borrowers. Only a quarter of the debt is owed by those with relatively high creditworthiness (consumers and the central government). The remaining 75 percent has gone to state-owned enterprises, private real-estate developers, and local governments, all of which are known to have weak loan repayment capacity (most state-owned enterprises generate low cash profits, private real-estate developers are overleveraged, and local governments have a narrow tax base). Staggering under an unsustainable debt burden of roughly 160 percent of GDP (equivalent to $14 trillion), these borrowers are expected to default on a significant portion of their bank debt in the coming years. The second dynamic, closely related to the first one, is the growth of the shadow-banking sector. Two drivers shape activities in this sector, which operates outside the banking system. To minimize their exposure to risky borrowers, Chinese banks have curtailed their lending. But at the same time, these banks have embraced the shadow banking activities to increase their revenue. Specifically, Chinese banks peddle new “wealth management products” – short-term securities promising high interest rates – to their depositors. The issuers of such securities, which are not protected or insured by the government – are typically high-risk borrowers, such as local governments (and their financing vehicles) and real estate developers. In the meantime, these borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP). Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are. Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes. So the task for the PBOC in the coming year will remain as difficult as ever. It will have to navigate between gently disciplining the banks and avoiding a financial panic. Its ability to do so is anything but assured. It has already lost the first two rounds of this game of financial chicken. We can only hope that it can do better in the next round. Average: 4.5 Your rating: None Average: 4.5 ( 4 votes)
China's Gold Reserves At Least 2.5 Times Higher Than Reported, ‘De-Americanisation’ Continues Submitted by GoldCore on 10/25/2013 13:35 -0400 50 Day Moving Average Bond British Pound China Debt Ceiling default Dumb Money Federal Reserve Global Economy Hong Kong International Monetary Fund Monetary Policy Recession Reserve Currency Smart Money Technical Analysis World Bank in Share 8 Today’s AM fix was USD 1,341.75, EUR 971.79 and GBP 827.58 per ounce. Yesterday’s AM fix was USD 1,336.25, EUR 968.79 and GBP 825.76 per ounce. Gold climbed $12.10 or 0.91% yesterday, closing at $1,345.40/oz. Silver inched up $0.11 or 0.49% closing at $22.67. Platinum rose $15.45 or 1.1% to $1,445.75/oz, while palladium fell $0.53 or 0.1% to $743.47/oz. Gold Krugerrands (1 oz) are trading at $1,406.48 or premiums between 4.75% and 5.5% and Gold Kilo Bars (1 kilo) are trading at $44,451.89 or premiums between 3% and 3.5%. Premiums are steady. Bloomberg Industries - Precious Metal Mining Gold dipped below its three-week high in London on profit taking after a 2% gain this week, which put gold on course for a second week of higher prices. Gold closed above the 50-day moving average and this in conjunction with two weekly higher closes is bullish technically. Gold’s gains yesterday came due to increasing concerns that the Federal Reserve will maintain the pace of unprecedented monetary stimulus and debasement. Gold is on track for its first yearly drop in over 13 years, as speculators sold gold on the COMEX and some investors became nervous of the recent price falls. Gold is probably at a cyclical bottom and CPM sees gold prices rising sharply in 2016-2023, CPM Group’s Jeffrey Christian said in a speech in Toronto on Wednesday. The call is interesting as CPM have been notoriously bearish on gold in recent years - throughout much of the 11 year bull market. CPM Group sees the gold price at $1,240-$1,380/oz for “most of the next few months,” CPM managing partner Jeffrey Christian said. Gold may trade in a $1,240- to $1,500/oz range for “the next couple of years”. Gold in USD - Year To Day and 50 Day Moving Average - Bloomberg Gold may jump 7.5% or $100 to $1,450/oz by year end if prices break out of a pennant formation, according to technical analysis by Paul Kavanaugh of Future Path Trading as seen on Bloomberg. The chart above shows gold trading in a “pennant flag,” when the upper and lower trend lines for prices meet to form a triangle. The lower level is $1,251, and the upper is $1,434, Kavanaugh said. “Prices are clearly trying to move higher, and a close above the 50-day moving average means we could see some strength,” Kavanaugh said. Comments from state backed Xinhua that call for a "de-Americanised world" and a proposal to consider a new international reserve currency to replace the dollar mark a key event for gold prices. The official Xinhua News Agency and the voice of the Chinese government, offered a not so subtle, highly critical commentary on October 14 regarding the U.S.’ appalling fiscal, monetary and political situation as it stands today. While the Chinese echoed the notion of a "super-sovereign reserve currency" before, their statement is more important as the U.S. continues to struggle to reach agreements on debt ceiling talks and future monetary policy actions. “It is perhaps a good time for the befuddled world to start considering building a de-Americanised world”said the important op-ed. Bloomberg Industries - Precious Metal Mining Key among its proposals: the creation of a new international reserve currency to replace the present reliance on the U.S. dollar as reserve currency. The article suggested that this is a necessary step to prevent American bumbling and profligacy from further afflicting the world. “The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites.” “The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising the debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized,” says Xinhua. The Chinese have for a long number of years expressed concerns about the direction Washington, led by Wall Street, is leading the world financial system and the global economy. In March 2009, the governor of the People’s Bank of China, Zhou Xiaochuan, called for the creation of a new reserve currency, albeit in less forthright language. The world needs a new “super-sovereign reserve currency” to replace the current reliance on the dollar, Zhou wrote in a paper published on the People’s Bank of China’s website. Zhou Xiaochuan is still China’s central bank governor. The goal is to “create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.” This sounds like he may be referring to gold, as gold is an “international reserve currency that is disconnected from individual nations” and has remained “stable in the long run.” Toppling the dollar isn’t enough today, however: “Several cornerstones should be laid to underpin a de-Americanised world,” explains the Xinhua piece. Bloomberg Industries - Precious Metal Mining Along with a greater role for developing-market economies in both the World Bank and International Monetary Fund, “the authority of the United Nations in handling global hot-spot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate.” “A self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies,” the commentary continues. “Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.” Since the early 2000s, those positive on gold have rightly suggested that excessive money printing by the Federal Reserve would lead to a devaluation of the world's reserve currency as inflation picks up and hampers the currency. Those more concerned about the dollar’s fate has warned of a currency collapse and serious inflation. While the notion of the dollar losing its status as the world's reserve currency had appeared muted for some time given the lack of alternatives, it is now gaining credence. A deeper look into China's gold holdings warrants attention (see charts). Its last reported gold holdings in April 2009 were 1,054 metric tons. After adjusting for net imports from Hong Kong and domestic output, the figure is closer to 5,086 metric tons. If one were to take away gold uses for jewelry, industrial, and other categories and only add implied bar demand to central bank holdings, the figure is likely closer to 2,710 metric tons according to Bloomberg Industries’ Andrew Cosgrove and Kenneth Hoffman. In just 10 years, China’s gold holdings could catch up to the U.S., based on adjusted Chinese consumption for jewelry, industrial and other uses and using implied bar demand as the primary driver of incremental central bank additions (see chart). Bloomberg Industries - Precious Metal Mining At current run rates, China is on pace to add 622 metric tons of bars to its central bank holdings this year (380 mt in 2012). Given the low gold price, growing reserves in 2014 above this year's levels appears achievable. Gold will benefit from the continuing move away from the dollar as the world's reserve currency as some form of a gold-backed currency emerges. China's call for "de-Americanization" is likely just a posturing maneuver. A large-scale sale of China's U.S. Treasury holdings would likely cause a dramatic decline in the dollar, while increasing rates. This would cripple the U.S. economy and dent export demand for Chinese products. This therefore, is the “nuclear option” for the Chinese government and one that they will be keen to avoid. They will only adopt this position if forced to in extreme circumstances, such as a U.S. default or extreme debasement of the dollar. Already, the Chinese have stopped accumulating dollars - preferring safer currencies, infrastructure, hard assets and commodities and of course gold. Even a small amount of Chinese selling could lead to substantial dollar weakness and much higher bond yields plummeting the U.S. into another recession. The smart money, including the Chinese people and the People’s Bank of China, is concerned about currency debasement and continue to accumulate physical gold for the long term. The dumb money continues to not understand the ramifications of dollar currency debasement and the De-Americanising world and continues to see gold as a trade or a mere speculation rather than the essential safe haven asset that it is. Gold is heading for the first annual decline since 2000. The Chinese have lustily greeted gold’s 19% drop this year by continuing to buy record amounts of gold. They know the price drop has created a gift for physical buyers globally. 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Home Peter Schiff Asks "Is This The Green Light For Gold?" Submitted by Tyler Durden on 10/21/2013 22:04 -0400 China Consumer Prices Creditors Debt Ceiling default Fail Goldman Sachs goldman sachs India Mortgage Backed Securities None Peter Schiff Real estate Reality Recession recovery Reserve Currency Sovereign Debt in Share 0 Submitted by Peter Schiff via Euro Pacific Capital , It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments. The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker.This confidence has been fueled by three beliefs: A) the Fed will soon begin trimming its monthly purchases of Treasury and Mortgage Backed Securities (commonly called the "taper"), B) the growing strength of the U.S. economy is creating investment opportunities that will cause people to dump defensive assets like gold, and C) the renewed confidence in the U.S. economy will shore up the dollar and severely diminish gold's allure as a safe haven. All three of these assumptions are false. (Our new edition of the Global Investor Newsletter explores how the attraction never dimmed in India). Recent developments suggest the opposite, that: A) the Fed has no exit strategy and is more likely to expand its QE program than diminish it, B) the U. S. economy is stuck in below-trend growth and possibly headed for another recession C) America's refusal to deal with its fiscal problems will undermine international faith in the dollar. Parallel confusion can be found in Wall Street's reaction to the debt ceiling drama (for more on this see my prior commentary on the Debt Ceiling Delusions ).Many had concluded that the danger was that Congress would fail to raise the ceiling. But the real peril was that it would be raised without any mitigating effort to get in front of our debt problems. Of course, that is just what happened. These errors can be seen most clearly in the gold market. Last week, Goldman Sachs, the 800-pound gorilla of Wall Street, issued a research report that many read as gold's obituary.The report declared that any kind of agreement in Washington that would forestall an immediate debt default, and defuse the crisis, would be a "slam dunk sell" for gold.Given that most people never believed Congress would really force the issue, the Goldman final note to its report initiated a panic selling in gold. Of course, just as I stated on numerous radio and television appearances in the day or so following the Goldman report, the "smartest guys in the room" turned out to be wrong. As soon as Congress agreed to kick the can, gold futures climbed $40 in one day. Experts also warned that the dollar would decline if the debt ceiling was not raised. But when it was raised (actually it was suspended completely until February 2014) the dollar immediately sold off to a 8 ½ month low against the euro. Ironically many feared that failing to raise the debt ceiling would threaten the dollar's role as the world's reserve currency. In reality, it's the continued lifting of that ceiling that is undermining its credibility. The markets were similarly wrong-footed last month when the " The Taper That Wasn't " caught everyone by surprise. The shock stemmed from Wall Street's belief in the Fed's false bravado and the conclusions of mainstream economists that the economy was improving. I countered by saying that the signs of improvement (most notably rising stock and real estate prices) were simply the direct results of the QE itself and that a removal of the QE would stop the "recovery" dead in its tracks.Despite the Fed surprise, most people still believe that it is itching to pull the taper trigger and that it will do so at its earliest opportunity (although many now concede that it may have to wait until this political mess is resolved). In contrast, I believe we are now stuck in a trap of infinite QE (which is the theme of my Newsletter issued last week). The reality is that Washington has now committed itself to a policy of permanent debt increase and QE infinity that can only possibly end in one way: a currency crisis. While the dollar's status as reserve currency, and America's position as both the world's largest economy and its largest debtor, will create a difficult and unpredictable path towards that destination, the ultimate arrival can't be doubted. The fact that few investors are drawing these conclusions has allowed gold, and precious metal mining stocks,to remain close to multi year lows, even while these recent developments should be signaling otherwise. This creates an opportunity. Gold moved from $300 to $1,800 not because investors believed the government would hold the line on debt, but because they believed that the U.S. fiscal position would get progressively worse. That is what happened this week. By deciding to once again kick the can down the road, Washington did not avoid a debt crisis. They simply delayed it. That is why I tried to inform investors that gold should rally if the debt limit were raised.Instead most investors put their faith in Goldman Sachs. Investors should be concluding that America will never deal with its fiscal problems on its own terms.In fact, since we have now redefined the problem as the debt ceiling, rather than the debt itself, all efforts to solve the real problem may be cast aside. It now falls on our nation's creditors to provide the badly needed financial discipline that our own elected leaders lack the courage to face.That discipline will take the form of a dollar crisis, which will morph into a sovereign debt crisis.This would send U.S. consumer prices soaring, push the economy deeper into recession, and exert massive upward pressure on U.S. interest rates.At that point the Fed will have a very difficult decision to make:vastly expand QE to buy up all the bonds that the world is trying to unload (which could crash the dollar), or to allow bonds to fall and interest rates to soar (thereby crashing the economy instead). The hard choices that our leaders have just avoided will have to be made someday under far more burdensome circumstances. It will have to choose which promises to keep and which to break.Much of the government will be shut down, this time for real.If the Fed does the wrong thing and expands QE to keep rates low, the ensuing dollar collapse will be even more damaging to our economy and our creditors.Sure, none of the promises will be technically broken, but they will be rendered meaningless, as the bills will be paid with nearly worthless money. In fact, the Chinese may finally be getting the message. Late last week, as the debt ceiling farce gathered steam in Washington, China's state-run news agency issued perhaps its most dire warning to date on the subject: "it is perhaps a good time for the befuddled world to start considering building a de-Americanized world." Sometimes maps can be very easy to read. If the dollar is doomed, gold should rise. 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Gold, The Debt Ceiling, And The Fed Submitted by Tyler Durden on 10/12/2013 18:00 -0400 Bond Central Banks Debt Ceiling default Iceland Lehman Shadow Banking in Share 0 Submitted by Alasdair Macleod via GoldMoney.com , We are now into a second week of a partial Federal Government shut-down, which is causing considerable concern, centred on the Government’s ability to finance its debt and pay interest without a budget agreed for the new fiscal year. Should this continue into next week and beyond, the Fed will have to enter damage-limitation mode if the Treasury cannot issue any more bonds because of the separate problem of the debt ceiling. Most likely, QE will have to be switched from financing the government to buying Treasuries already owned by the private sector. Any attempt to reduce the monthly addition of raw money will simply result in bond yields and then interest rates rising. And indeed, already this week we have seen yields on short-term T-bills rise in anticipation of a possible default. The market is naturally beginning to discount the possibility that the Fed may not be able to control the situation. The T-bill issue is very serious, because they are the most liquid collateral for the $70 trillion shadow banking system. And without the liquidity they provide securities and derivative markets, we can say that Round Two of the banking crisis could make Lehman look like a picnic in the park. This is the sort of event deflationists have long been expecting. According to their analysis there comes a point where debt liquidation is triggered and there is a dash for cash as assets collapse. But they reckon without allowing for the fact that deposits can only be encashed at the margin; otherwise they are merely transferred, and only destroyed when banks go under. This is the risk the Fed anticipates, and we can be certain it will move heaven and earth to avoid bank insolvencies. Furthermore the deflationists do not have a satisfactory argument for the effect on currency exchange rates. Iceland went through a similar deflationary event to that risked in the US today when its banking system collapsed and the currency halved overnight. Today a dollar collapse on the back of a banking crisis would also disrupt all other fiat currencies, forcing central banks to coordinate intervention to conceal the currency effect. This leaves gold as the only true reflector of loss of confidence in the dollar and therefore all other fiat currencies. Those worrying about deflation ignore the fact that it is the fiat currency that takes it on the chin while gold rises – every time without exception. This was even the experience of the 1930s, when Roosevelt suspended convertibility, increased the price of gold by 40% to $35 per ounce, and the banking crisis was contained. Of course there is likely to be some short-term uncertainty; but against the Fiat Money Quantity (FMQ) gold is down 30% compared with the price pre-Lehman crisis . This is shown in the chart below. With gold at an extreme low in valuation terms, current events, whichever way they go, seem unlikely to drive it much lower. A wise man perhaps should copy the Asians, who know a thing or two about paper currencies, and are buying gold in ever-increasing quantities. 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Gold To Rise On $14.3 Trillion U.S. Debt Limit Increase – Bloomberg Chart of the Day
With A Looming Debt Ceiling X-Date And Still No Deal, Here Is Another Trade Idea Submitted by Tyler Durden on 10/07/2013 13:01 -0400 Barclays Bond Convexity Debt Ceiling default Federal Reserve Flattener Repo Market Shadow Banking System Open Market Account Treasury Coupons in Share 0 On September 26, when we wrote " As US Default Risk Spikes To 5-Month High, Here Is How To Trade The Debt Ceiling Showdown ", we suggested a simple 1M/1Y Bill flattener, which has since resulted in a massive profit to those who put on the trade with appropriate leverage, leading to the steepest outright inversion the short-end curve has seen on record. For those who engaged in this trade, it may be time to book profits and move on, as the risk of a negative catalyst - a shutdown/debt ceiling resolution - gets higher with every passing day that we move closer to the October 17 X-Date. However, those who wish to remain engaged in the short end of the bond market where the highest convexity to the daily newsflow can be found, one possible alternative trade is to shift away from cash markets, and into shadow banking, via the repo pathway. It is here that Barclays' Joseph Abate sees a substantial arbitrage opportunity, as "repo investors begin to focus on the underlying collateral" and "start to make a distinction between debt that is most subject to payment delay and paper that is not." The result would be that as cash leaves the funding market, "the financing rate on all Treasury collateral – regardless of its maturity cycle – will rise." Indeed, during the last debt crisis in the summer of 2011, Overnight repo soared from 1 bps to 28 bps in the span of a few weeks. It is this trade that may once again generate substantial alpha for those who wish to bet on continued Congressional dysfunction because the October US Treasury repo future is currently trading at an implied yield of just over 11bp, having cheapened by more than 3bp since September 23. "Depending on how quickly the debt ceiling is raised, we expect this implied yield could move higher ahead of October 17" Barclays concludes. Full note for those who are brave enough to fight if not the Fed, then certainly the specter of a congressional compromise: 1m bills have cheapened from barely 0bp (there were some negative rate trades a week ago) to 14bp on Friday morning. This sharp cheapening reflects the fact that while investors believe the US Treasury will not default and the risk of a delayed payment is extremely low, they are unwilling to take any chances. As a result, the 4wk bill is now trading about 4bp higher than the year bill and about 10bp above the 3m bill. Judging from the behavior of this market in July 2011 when the debt ceiling negotiations were last this intense, 4w bill yields probably have some more room to rise. Assuming the debt ceiling is not increased this weekend, we expect the 4w bill could reach 17-20bp by early next week. Primary dealers also appear to be taking no chances. In the week ending September 25, they reduced their bill inventories by more than 50% to just $20bn. We expect next week’s release will reveal a similarly sharp decline in bill holdings. Repo investors are also extremely risk averse. Our sense is that some investors, seeking to avoid the risk of payment delays on underlying collateral, may move away from the repo market entirely. As cash leaves the funding market, the financing rate on all Treasury collateral – regardless of its maturity cycle – will rise. Overnight Treasury repo was trading around 1bp in July 2011, but as the critical August 2, 2011 deadline approached, collateral rates began moving higher – rising to 28bp on August 1 . The October US Treasury repo future is currently trading at an implied yield of just over 11bp, having cheapened by more than 3bp since September 23. Depending on how quickly the debt ceiling is raised, we expect this implied yield could move higher ahead of October 17. As repo investors begin to focus on the underlying collateral, we expect they will start to make a distinction between debt that is most subject to payment delay and paper that is not. The Treasury coupons most sensitive to a payment delay or a maturity extension are those with a payment due on the late October/April cycle. There are 23 coupon CUSIPs in this series – totalling $773bn. Of these securities, $135bn are held by the Federal Reserve in its System Open Market account. At the end of August, money market funds held just over $6bn worth of April 30, 2014 debt. They held another $24bn worth of bills (or short coupons) maturing on October 31, 2013. Finally, as the debt ceiling negotiations continue, we expect some money to start flowing out of government-only money funds. Like other investors in the front end, these investors – although they attach a small probability of a Treasury payment delay – are unwilling to risk a “buck-breaking” event in their funds. In the run-up to the August 2011 debt ceiling increase, government-only money fund balances declined by 10% – in roughly a week. So far, however, these money fund balances have been very stable with few signs of a pick-up in redemptions. It goes without saying that once the debt ceiling is increased, all such distortions will quickly reverse. Of course, if the Treasury does go through the X-Date with no deal in store and ultimately succumbs to a technical default, the question of who owns what paper securities and has paper PL, will become irrelevant, as all attention will very quickly shift solely and exclusively to physical assets. Average: 4 Your rating: None Average: 4 ( 8 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - Login or register to post comments 9605 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Earnings Season Starts With Government Still Shut; 9 Days Till The Debt X-Date With The US Debt X-Date Just One Week Away, At Least Continuity At The Fed Is Preserved Key Treasury Cash Payments And Transactions After The X-Date Republican Kevin McCarthy Says No Debt Deal Likely Today, Or Over Weekend: Treasury Now Projected To Have -$15.5BN Cash Balance On August 15 $31BN Coupon Date 3 Potential "Taper" Surprises And FOMC Sugar-Coating
Guest Post: Gold And The Four Words That Define Western Economic Policy Submitted by Tyler Durden on 10/10/2013 13:54 -0400 Bond Debt Ceiling default Guest Post in Share 2 Submitted by Tim Price via Sovereign Man blog , Despite nearly $17 trillion reasons, there are investors stupid enough to believe that debt issued by the world’s largest debtor country (i.e. US Treasuries) should be treated as a risk-free asset. This is even more astounding given that the possibility of formal default is only a matter of days away. Treasury bond defenders will no doubt point out that in a fiat currency world where the central bank has the freedom to print ex nihilo money to its heart’s content, the very idea of default is absurd. But that is to confuse nominal returns with real ones. Yes, the Fed can expand its balance sheet indefinitely beyond the $3 trillion they have already conjured out of nowhere. The world need not fear a shortage of dollars. But in real terms, that’s precisely the point. The Fed can control the supply of dollars, but it cannot control their value on the foreign exchanges. The only reason that US QE hasn’t led to a dramatic erosion in the value of the dollar is that every other major economic bloc is up to the same tricks. This makes the rational analysis of international investments virtually impossible. It is also why we own gold – because it is a currency that cannot be printed by the Fed or anybody else. On the topic of gold, the indefatigable Ronni Stoeferle of Incrementum in Liechtenstein has published his latest magisterial gold chartbook. Set against the correction in the gold price 1974-1976, the current sell-off (September 2011 – TBD) is nothing new. The question is really whether financial and debt circumstances today are better than they were in the 1970s. We would suggest that debt fundamentals are objectively worse. Trying to establish a fair price for gold is obviously difficult, but treating it as a commodity like any other suggests that the current sell-off is not markedly different from any previous correction during its bull run: To cut to the chase, it makes sense to own gold because currencies are being printed to destruction; the long-term downtrend in paper money (as expressed in terms of gold) remains absolutely intact: And we cannot discuss the merits of gold as money insurance over the medium term without acknowledging the scale of the problem in (US) government debt, now closing in on $17 trillion. Whatever happens in the absurd and increasingly dangerous debate over raising the US debt ceiling, the fundamental problem remains throughout the western economic system. The piper must, at some point, be paid. And someone must pay him. As to whom? This is the foundation of western economic policy, distilled into just four words: the unborn cannot vote . Governments have lived beyond their means for decades and must tighten their belts. Taxes are certain to rise, and welfare systems certain to contract… especially for future generations. Even if western governments manage to rein in their morbidly obese consumption patterns without a disorderly market crisis, their legacy will be felt by generations yet to come. The debt mountain cannot and will not resolve itself. And this, again, is why we own gold; because we think there is a non-trivial chance of a gigantic financial system reset. Average: 4.761905 Your rating: None Average: 4.8 ( 21 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - Login or register to post comments 10047 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guest Post: Central Banks – Words and Deeds Guest Post: Government Shutdowns, The Debt Ceiling And Gold Guest Post: Into The Economic Abyss Guest Post: Yellen In, Syria Done, 8 Risks That Remain Guest Post: The Next Four Years Won't Be As Good As The Last
30 Mindblowing Statistics About Americans Under The Age Of 30 Submitted by Tyler Durden on 10/04/2013 19:03 -0400 default Default Rate Federal Reserve Gallup Italy National Debt recovery Student Loans Time Magazine Unemployment Wall Street Journal in Share 1 Submitted by Michael Snyder of The Economic Collapse blog , Why are young people in America so frustrated these days? You are about to find out. Most young adults started out having faith in the system. They worked hard, they got good grades, they stayed out of trouble and many of them went on to college. But when their educations where over, they discovered that the good jobs that they had been promised were not waiting for them at the end of the rainbow. Even in the midst of this so-called "economic recovery", the full-time employment rate for Americans under the age of 30 continues to fall. And incomes for that age group continue to fall as well. At the same time, young adults are dealing with record levels of student loan debt. As a result, more young Americans than ever are putting off getting married and having families, and more of them than ever are moving back in with their parents. It can be absolutely soul crushing when you discover that the "bright future" that the system had been promising you for so many years turns out to be a lie. A lot of young people ultimately give up on the system and many of them end up just kind of drifting aimlessly through life. The following is an example from a recent Wall Street Journal article ... James Roy, 26, has spent the past six years paying off $14,000 in student loans for two years of college by skating from job to job. Now working as a supervisor for a coffee shop in the Chicago suburb of St. Charles, Ill., Mr. Roy describes his outlook as "kind of grim." "It seems to me that if you went to college and took on student debt, there used to be greater assurance that you could pay it off with a good job," said the Colorado native, who majored in English before dropping out. "But now, for people living in this economy and in our age group, it's a rough deal." Young adults as a group have been experiencing a tremendous amount of economic pain in recent years. The following are 30 statistics about Americans under the age of 30 that will blow your mind... #1 The labor force participation rate for men in the 18 to 24 year old age bracket is at an all-time low . #2 The ratio of what men in the 18 to 29 year old age bracket are earning compared to the general population is at an all-time low . #3 Only about a third of all adults in their early 20s are working a full-time job. #4 For the entire 18 to 29 year old age bracket, the full-time employment rate continues to fall. In June 2012, 47 percent of that entire age group had a full-time job. One year later, in June 2013, only 43.6 percent of that entire age group had a full-time job. #5 Back in the year 2000, 80 percent of men in their late 20s had a full-time job. Today, only 65 percent do. #6 In 2007, the unemployment rate for the 20 to 29 year old age bracket was about 6.5 percent. Today, the unemployment rate for that same age group is about 13 percent . #7 American families that have a head of household that is under the age of 30 have a poverty rate of 37 percent . #8 During 2012, young adults under the age of 30 accounted for 23 percent of the workforce, but they accounted for a whopping 36 percent of the unemployed. #9 During 2011, 53 percent of all Americans with a bachelor’s degree under the age of 25 were either unemployed or underemployed. #10 At this point about half of all recent college graduates are working jobs that do not even require a college degree. #11 The number of Americans in the 16 to 29 year old age bracket with a job declined by 18 percent between 2000 and 2010. #12 According to one survey, 82 percent of all Americans believe that it is harder for young adults to find jobs today than it was for their parents to find jobs. #13 Incomes for U.S. households led by someone between the ages of 25 and 34 have fallen by about 12 percent after you adjust for inflation since the year 2000. #14 In 1984, the median net worth of households led by someone 65 or older was 10 times larger than the median net worth of households led by someone 35 or younger. Today, the median net worth of households led by someone 65 or older is 47 times larger than the median net worth of households led by someone 35 or younger. #15 In 2011, SAT scores for young men were the worst that they had been in 40 years . #16 Incredibly, approximately two-thirds of all college students graduate with student loans. #17 According to the Federal Reserve, the total amount of student loan debt has risen by 275 percent since 2003. #18 In America today, 40 percent of all households that are led by someone under the age of 35 are paying off student loan debt. Back in 1989, that figure was below 20 percent . #19 The total amount of student loan debt in the United States now exceeds the total amount of credit card debt in the United States. #20 According to the U.S. Department of Education, 11 percent of all student loans are at least 90 days delinquent. #21 The student loan default rate in the United States has nearly doubled since 2005. #22 One survey found that 70% of all college graduates wish that they had spent more time preparing for the "real world" while they were still in college. #23 In the United States today, there are more than 100,000 janitors that have college degrees. #24 In the United States today, 317,000 waiters and waitresses have college degrees. #25 Today, an all-time low 44.2 percent of all Americans between the ages of 25 and 34 are married. #26 According to the Pew Research Center, 57 percent of all Americans in the 18 to 24 year old age bracket lived with their parents during 2012. #27 One poll discovered that 29 percent of all Americans in the 25 to 34 year old age bracket are still living with their parents. #28 Young men are nearly twice as likely to live with their parents as young women the same age are. #29 Overall, approximately 25 million American adults are living with their parents according to Time Magazine. #30 Young Americans are becoming increasingly frustrated that previous generations have saddled them with a nearly 17 trillion dollar national debt that they are expected to make payments on for the rest of their lives. And this trend is not just limited to the United States. As I have written about frequently, unemployment rates for young adults throughout Europe have been soaring to unprecedented heights. For example, the unemployment rate for those under the age of 25 in Italy has now reached 40.1 percent . Simon Black of the Sovereign Man blog discussed this global trend in a recent article on his website... Youth unemployment rates in these countries are upwards of 40% to nearly 70%. The most recent figures published by the Italian government show yet another record high in youth unemployment. An entire generation is now coming of age without being able to leave the nest or have any prospect of earning a decent wage in their home country. This underscores an important point that I’ve been writing about for a long time: young people in particular get the sharp end of the stick. They’re the last to be hired, the first to be fired, the first to be sent off to fight and die in foreign lands, and the first to have their benefits cut. And if they’re ever lucky enough to find meaningful employment, they can count on working their entire lives to pay down the debts of previous generations through higher and higher taxes. But when it comes time to collect… finally… those benefits won’t be there for them. Meanwhile, the overall economy continues to get even weaker . In the United States, Gallup's daily economic confidence index is now the lowest that it has been in more than a year . For young people that are in high school or college right now, the future does not look bright. In fact, this is probably as good as the U.S. economy is going to get. It is probably only going to be downhill from here. The system is failing, and young people are going to become even angrier and even more frustrated. So what will that mean for our future? Average: 4.666665 Your rating: None Average: 4.7 ( 15 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - » Login or register to post comments 14806 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: 2012 Year In Review - Free Markets, Rule of Law, And Other Urban Legends Guest Post: 2011 - Catch-22 Year In Review Guest Post: 'Available' Guest Post: Apparitions In The Fog El-Erian Breaches The Final Frontier: What Happens If Central Banks Fail?
Meet The Monster Of The Housing Market: Presenting "Vampire REOs" Where Half Of Americans Live Mortgage-Free Submitted by Tyler Durden on 10/03/2013 09:44 -0400 default Foreclosures Housing Market RealtyTrac RealtyTrac Over a year ago, in addition to the money-laundering aspect ( confirmed previously ) and the REO-To-Rent scramble by PE firms and hedge funds (which is now over as PE become active sellers of apartment rental properties ), we highlighted the third implicit subsidy to the housing non-recovery: Foreclosure stuffing . We explained this scheme by banks to limit the amount of available for sale inventory as follows: "since the properties not entering the foreclosure pipeline are effectively kept out of inventory, even shadow inventory, and thus the distressed end market, the monthly drop in foreclosures has acted as a form of subsidy to the housing market, as month after month less inventory than otherwise should, enters the market.... What this has resulted in is a logical increase in prices of the properties that are on the market. " Today, the mainstream has finally caught on, and courtesy of RealtyTrac has come up with its own name for this subsidy: Vampire REOs. In a press release overnight, the foreclosure tracking service RealtyTrac , observed that a stunning 47% of bank-owned homes are still occupied by their previous owners who were foreclosed on, creating "vampire REOs. " Vampire REOs are bank-owned homes that are still occupied by the previous homeowner who was foreclosed on. On the surface these properties often will look like normal, non-distressed homes, but beneath the surface they represent a shadow inventory that is becoming more imminent as rising home prices motivate banks to sell off these homes to try to recoup their losses on soured loans . The vampires are particularly acute in Miami (64%), Houston (65%), Los Angeles (61%) which have nearly two thirds of bank-owned properties falling into the "vampire REO" category . This means that in order to generate a housing scarcity, millions of deadbeat Americans have been given a carte blanche to live mortgage-free, in some cases for years, and in a state of default in their existing homes, as the banks have no incentive to actually clear out the properties to which they have title, making home purchases for everyone else - those who have the funds and are willing to purchase a home - impossible due to artificially los supply and artificially high prices. Putting the problem in perspective, Emmett Laffey, CEO of Laffey Fine Homes International said that " The New York metro area is experiencing a spike in mortgage defaults, however, there are very few vacant foreclosures or bank-owned properties that are languishing on the market ." “Typically these types of properties are sold well within 30 days of hitting the market,” he added. Except when they never make the market. Of course, now that home prices have been artificially boosted courtesy of just this foreclosure process "stuffing", " banks likely wish to sell these homes sooner rather than later as home prices have been rising " predicts RealtyTrac. However, therein lies the dilemma: since the primary driver of home price appreciation has been fake scarcity, either due to Vampire REOs or Zombie foreclosures (the far more traditional homes that are still languishing in the foreclosure process but have been vacated by the homeowner being foreclosed), the second that banks unclog the foreclosure pipeline exit and begin selling this uber-shadow inventory, the entire facade of the fake housing non-recovery will begin to crumble as one after another bank scramble to hit the highest bid possible, before some other bank does so. Expect the broader mainstream media to begin reporting on this phenomenon in another 6-8 weeks, about the time when the Y/Y increase in home prices is solidly rolling over, and the usual 18 months delay behind Zero Hedge. Finally, those curious to see how many foreclosed homes are being occupied mortgage free in their metro area, the following interactive chart from RealtyTrac has the answer. Source: RealtyTrac Average: 4.77778 Your rating: None Average: 4.8 ( 18 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - Login or register to post comments 17989 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: As Foreclosure Activity Drops To 40 Month Low, Delinquent New Yorkers Have Lived Mortgage-Free For Nearly 3 Years Och-Ziff Calls Top Of "REO-To-Rental", And Distressed Housing Demand, With Exit Of Landlord Business John Paulson - A Credible Defense? A Detailed Analysis At Projected Home Prices: A Look At Underlying Supply And Demand Forces Foreclosure Activity Jumps, Reverses 4 Month Declining Trend
Someone Is Getting Very Nervous Submitted by Tyler Durden on 10/01/2013 13:21 -0400 Across the Curve Bond Debt Ceiling default Equity Markets Rating Agency in Share 1 A look at the stocks surge today and one would get the impression that not only should the government shutdown be permanent (closing the Fed would have a vastly different result on the SP), but that the debt ceiling is completely irrelevant and immaterial for risk assets. One would get a far different impression by looking at today's just concluded 4-Week Bill auction. Today's outlier rate on the just priced $35 billion in 4-week bills can be seen quite dramatically on the chart below, and is evidence that someone (or someone s ) is getting quite nervous ahead of the events in the next few weeks. What is going on here and why the spike? Recall what we said a week ago in " Here Is How To Trade The Debt Ceiling Showdown ." ... there is a simple pair trade for those who would like to position for a contentious debt ceiling fight with an ETA mid-October and skip the bipolar and HFT-dominated equity markets. Recall that in the summer of 2011 when the last big debt ceiling debacle loomed and resulted in a last minute outcome that also led to the downgrade of the US by a rating agency that has since sold out, rates of bills due just before the debt ceiling D-Date soared, while those sufficiently after the ceiling interval tightened. Well, the same trade is just as applicable this time. Sell October 31 Bills versus 12 Month Bills Supply dynamics and potential market concerns around a debt ceiling stand-off in Washington should push the 1M1Y bill curve flatter ... The October 31 bills are likely the most vulnerable, and should cheapen significantly versus 12 month bills in a protracted fight. One-month and three month bills are already trading close to zero, having briefly traded negative last week. With bill supply to remain flat heading into the end of October, suggesting that supply should keep bills yields across the curve under pressure. With bill yields largely beholden to supply dynamics, the greatest scope for further compression is in year bills, which are currently trading around 10bp. Given historical relationship between bills yields and bills outstanding, year bills are roughly 3bp rich to supply-implied fair value, while 3-month bills are about 3.5bp rich . This trade may be difficult to put on in size until after quarter end due to dealers balance sheet constraints. But as noted above, we believe that the market will not begin to fully price the risk to front end bills until about two weeks before the end date. We expect the opportunity to remain available at for the first week of October. Sure enough, today is the first day of the next quarter (window dressing is over), and the bond market, if not so much the stock market, has finally awakened that the government shutdown is merely an indication of just how contenuous the debt ceiling negotiation very likely ill be, and that it is increasingly likely that the X-Date of October 18 may come and go without a deal, which just may result in a technical default on the nearest maturity Bills. End result: today's auction was an absolute abortion and absent some deus ex machina agreement between the GOP and Democrats, one can expect the October 31 bills (and others just around them) to continue blowing wider as quietly but confidently those holding the most at risk paper exit stage left. But that's not all. We also noted the following: The last go-round, the 1m1y curve flattened to 3bp. Though the curve is just 6bp away from that right now, it is beginning from a starting point that is 10bp flatter than one month prior to the 2011 debt ceiling. The securities that the market viewed as “at risk” traded with yields above year bills, hence our recommendation to sell the October 31 issue rather than the current one month bills. We think that the curve has scope to flatten to zero, if not further, depending on how close to the wire negotiations come. As of moments ago, the curve has gone beyond flat and into " further " as the 1M1Y just went negative. Average: 4.52 Your rating: None Average: 4.5 ( 25 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - Login or register to post comments 54092 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: As US Default Risk Spikes To 5-Month High, Here Is How To Trade The Debt Ceiling Showdown The $700 Billion U.S. Funding Hole; Desperately Seeking A Very Indiscriminate Treasury Buyer Goldman On What A US Downgrade Will Bring: Spoiler Alert - Nothing Good (And Why It Is Nothing "Like Japan") Crossing Through The "X Date" - What Happens After The US "Default"? Summarizing The Various Debt Plans And What Happens After The Now Assured US Downgrade
The Role Of Fannie And Freddie In The US Housing Market In One Chart Submitted by Tyler Durden on 09/23/2013 10:49 -0400 Capital Markets default fixed Housing Market Lehman Savings And Loan lang: en_U in Share 8 Once upon a time, US thrift institutions were the primary provider of credit to keep the American housing market humming along. Then the great Savings and Loan crisis happened, and by and large thrifts disappeared from the housing credit landscape. The result was the advent of Fannie and Freddie (i.e., the GSEs) as the "rug" that tied the US housing market room together. The chart below shows the dramatic increase in the role that the GSEs started playing following the SL crisis, and which culminated with the great financial crisis, or rather the failure of the GSEs a month ahead of the Lehman bankruptcy. As the WSJ's Nick Timiraos explains : The government plays an unusually large role in the U.S. mortgage market because banks don't like holding 30-year mortgages. During the 1980s, many savings-and-loan associations failed when rates jumped because the interest they had to pay to depositors soared above the payments they received on those 30-year mortgages. This is known as "interest-rate risk." Enter Fannie and Freddie. They don't make loans. Instead, they buy them from lenders, package them into securities, and sell those to investors. They promise to make investors whole when mortgages default. In other words, they take the credit risk . Then August 2008 happened and the GSEs - that so important source of shadow credit - were effectively nationalized (even if their trillions in debt, inexplicably, never made it on the sovereign balance sheet much to Peter Orszag's chagrin ). Which is usually what happens when a third party takes on indefinite interest-rate risk , and when the interest rate punchbowl resulting from three decades of "Great moderation" is finally pulled away. Since then nobody has come up with any actionable proposal how to maintain housing storming along, while concurrently pushing Fannie and Freddie off of the taxpayer's tab, despite numerous attempts to "resolve" this sticking issue resulting not from the blow up of one but two financial crises . The WSJ has some further clarity: Those who want the government out of the mortgage business say the 30-year fixed isn't all it's cracked up to be. Because borrowers pay a lot of interest during the first few years of the loan, it's hard to quickly build equity. This makes the loan less practical in an era where people move, switch jobs, and get divorced more often than in the past. Defenders, however, say it's the wrong time to push more people into adjustable-rate loans because interest rates are likely to rise over the coming decade. Wouldn't banks still offer the 30-year fixed mortgage without a government guarantee if it's so popular? Maybe, but they would likely require bigger down payments and higher rates. It's a math issue. There is nearly $10 trillion in mortgage debt outstanding today with around $4.5 trillion backed by Fannie and Freddie. Scrapping the government's role means finding trillions of dollars ready to absorb the credit and interest-rate risk for new mortgages, since the firms have backed around two-thirds of those made since 2009. Our two cents: just like with HFT-infested broken capital markets, and the centrally-planned economy in general ("planned" by a Fed whose communication skills are put increasingly under the confidence microscope), don't expect any material (or even superficial) changes until the next big crash, which hopefully does not double down as the great systemic reset that increasingly more seem to believe is no longer avoidable but simply a matter of time. Average: 4.90909 Your rating: None Average: 4.9 ( 11 votes)
Japan: From Quagmire To Abenomics To Collapse Submitted by Eugen Bohm-Bawerk on 07/28/2013 12:34 -0400 Activist Shareholder Bank of Japan Bond Census Bureau default Demographics Fractional Reserve Banking Japan Monetary Base Monetary Policy Money Supply None Twitter Yen Japan: From Quagmire To Abenomics To Collapse This blog post was originally posted at Bawerk.net . You may also follow us on twitter @EBawerk Part I: Toward the abyss Japan has been in a stable, but unsustainable, equilibrium for years. Its leaders know it is unsustainable and in their immense wisdom, decided to manage the whole system in order to achieve a sustainable development. However, this will prove fraught with danger since moving an unsustainable system away from its steady-state runs the risk of unleashing a gale wave of unintended consequences. The problem of course is that the peoplenow in charge of moving the Japanese system from its current constellation have absolutely no idea on how to get it from where it is back on sound footing. The reason is simple, as with most policy quacks they are taught by other quacks. Some of the teachers even have Ph.D.’s. in quackery to prove to lesser quacks who truly master the art of quacking; we call them economists. Economists are a group of people that look upon the social structure called the economy with condescension and arrogance. They see it as their task to manipulate other people in order to build confidence. If confidence is high, then economic growth, prosperity and bliss will come automatically. The problem is that when people feel down they do not spend money. And when people do not spend money, economic growth turns into contraction and people feel even worse in what turns out to be a self-reinforcing cycle of less growth, less confidence and even less growth and so on in perpetuity. This is basically how Prime Minister Abe and his newly installed lackeys at the Bank of Japan see as the situation in Japan today. In the early 1990s people lost confidence for some unexplained reason, and because the supposedly omniscient masters did not do enough manipulation back then, confidence was never regained; which essentially explains the predicament Japan is in now. The real reason is more fundamental though and we will explain what happened in Japan. Before we do so, it is of the utmost importance for the reader to know what gross domestic production, or gross domestic consumption (GDC) as we call it, really is. It is essentially the amount of money spent on goods and services over a specified period of time. In other, and more “technical terms”, we can say that GDC is comprised of the monetary base * leverage in the fractional reserve banking system * money circulation. The central bank manufactures monetary base at its own discretion. However, the broader money supply is dependent on a solvent banking system. If banks under the jurisdiction of the central bank are insolvent they cannot increase their balance sheet, or leverage up on the base money. After a financial crisis it is therefore hard for the central bank to create inflation since legacy assets held by the banks will weigh on their ability to create additional demand deposits. In addition, as banks hold back on money creation, transactions will inevitably drop. As you can see, it is actually true that an activist monetary policy can create growth in gross domestic production, but only because the very concept measures inflation of broad money supply and nothing else. From this follows a surprisingly well hidden fact; the debt to GDC ratio is important only because it measures whether debt is created at a rate faster or slower than monetary inflation. This is why it has become so important for the new Japanese administration to create nominal GDC growth. They are desperate to inflate away the big pile of debt they have accumulated of which there is zero chance of ever being repaid. Put bluntly, they want to default covertly through inflationary resource confiscation. If we look at the monetary breakdown of Japanese GDC we see a negative velocity effect. That means only a fraction of existing money circulates during the period of measurement (one year). However, by raising it to something greater than one – ceterius paribus – Japan could lift its GDC from the current level of Yen500tr to Yen800tr and simultaneously reduce the debt ratio from 230 per cent to 140 per cent! Alternatively, they could double the monetary base and again – ceterius paribus – reduce the debt ratio to around 100 per cent. Please note that none of this creates any value at all, but only help to redistribute real wealth to the government which can squander it as the ruling class see fit. Source: Bank of Japan (BoJ), Cabinet Office (CAO), own calculations The second thing the reader needs to know about economics is that debt can have a positive or a negative effect on wealth creation, depending on what kind of deb. If the debt is made with the intent of making a subsequent sale, id est. a business loan, it will help increase capital accumulation. However, if the debt is taken on to fund current consumption it will decumulate the capital stock and make society poorer. In our work, we usually divide between good, bad and destructive debt. Good debt consists of business loans. Bad debt is defined as household and financial sector loans while government debt fit right into our category called destructive debt. Basically, debt need to have an intrinsic yield high enough to pay back the resources it helped claim from society, plus interest, for it to be considered good. Note, debt that is dependent on others yield or production, such as taxpayers, is not self-sufficient and cannot create prosperity. With this in mind we look at what happened to Japan before and after it crashed in the 1990s Source: Bank of Japan – Flow of Funds (BoJ), own calculations Japan in the 1980s and 1990s show a remarkable resemblance to the US during the 2000s. In the midst of bubble finance, the system funded bad debt in droves. This pulled capital out of the system without replenishing it. Conventional wisdom tells you that the 1980s was a decade of spectacular growth for Japan, but truth be told they actually got a lot poorer by consuming capital. When the Bank of Japan (BoJ) felt compelled to raise interest rates sharply from 1989 to 1990 the malinvestments could no longer be funded. The bust was inevitable. When the bubble finally burst as a consequence of the misaligned capital structure, the government stepped in and bailed out the bad debt by adding destructive debt. Of course, this policy benefitted the corporative part of the economy, such as big banks and politically connected businesses, but at the expense of zombifying the economy. Bad investments continued to drain the system of scarce capital, while the government doubled down in a desperate attempt to kick-start money multipliers and velocity. But money multipliers could not be expanded because the banking system was rendered unable to increase base money leverage since they continued to fund capital projects that bled the economy dry. In a desperate attempt to rectify the lack of “private sector” initiative the Japanese leaders schooled in Keynesian multipliers knew that their wasteful spending would at one point fund itself through higher tax income. Now, that did not work out as they hoped as spending soared while income kept falling. Source: Ministry of Finance (MoF), own calculations and projections Note that bond issuance has been larger than tax revenues since 2009 and under very conservative assumption will continue to be so for the foreseeable future. Japan has ended up in a rather peculiar situation in which revenue abide by the” laws” of deflation while spending reflects that of a system in inflation. Conclusion In an attempt to bail out unsound investments, Japan cemented an economic structure that was unsustainable. This lead directly to persistent capital consumption and a “lost decade(s)” Part II: From quagmire to Abenomics. Unsurprisingly the policy lead to a massive increase in debt levels. In order to feed the unsustainable system, consecutive Japanese governments threw money at it with the perverted consequence of depriving corporations of capital. Government debt grew inexorably while corporations got squeezed. Source: Bank of Japan – Flow of Funds (BoJ), Cabinet Office (CaO), own calculations The central bank reacted by lowering interest rates from a peak of 6 per cent in the winter of 1990/91 to a low of 0.5 per cent in 1995. In addition they expanded their balance sheet by lending to banks against legacy assets. The insolvent banking system and the overleveraged household sector did not crave liquidity for more than refinancing outstanding bad debt, so the increased base money ended up as excessive reserves in the BoJ deposit account. Sounds familiar? Source: Bank of Japan (BoJ) Source: Bank of Japan – Flow of Funds (BoJ), own calculations Now, the initial measures taken may seem tepid compared to what we have been accustomed to today, but these were dramatic and unprecedented steps back then. It is also striking to see how similar the development prior to the bust and response taken after was compared to what we see across the western world today. Needless to say, it does not bode well for the future. As Japan moved forward in the 1990s and 2000s it became obvious, even to the policy makers, that the situation was unsustainable, with nothing less than a Greek style fiscal Armageddon on the horizon. Tax revenues were dropping and bond issuance rising. New taxes introduced to fund the rapidly growing state harmed private capital accumulation even more. The corresponding spending growth was found mostly in debt service- and social costs. Those two categories account today for more than 50 per cent of total spending, and bar a default or dramatic cut in transfers to a rapidly ageing population, will only continue to eat into the overall budget. Source: Ministry of Finance (MoF), own calculations For Japan is not only in a dire fiscal situation, they are also the oldest country in the world. Social spending is growing exponentially and the demographic dividend they enjoyed up to the mid-1990s is now turning against them. There will be many more dependents and far fewer breadwinners as we move forward. The demographics in Japan would overwhelm the country even if their fiscal situation was sound. Source: US Census Bureau, own calculations Source: Ministry of Finance (MoF), own calculations The only thing clueless policy makers could come up with in this dire situation was even more of the same. With the election of Shinzo Abe in December 16 th the people of Japan elected a man based on a promise of shake up the Bank of Japan. The resemblance to William Jennings Bryan and his famous “Cross of Gold” speech is eerie. The Japanese would not be “crucified on a cross of gold” any more. They elected a man who promised to free them of the shackles from a strong yen and save the day with creation of paper wealth. This is the perfect recipe for disaster. Conclusion: Public debt is reaching ridiculous levels and spending will only grow from here. When big bulges of old people start to retire they will be dissaving and it will be impossible for the big banks to use excess deposits to roll over government debt. Collapse is at this stage inevitable. Part III has recently been submitted to Bawerk.net Average: 4.545455 Your rating: None Average: 4.5 ( 11 votes)
Guest Post: Analysis of the Global Insurrection Against Neo-Liberal Economic Domination and the Coming American Rebellion Submitted by Tyler Durden on 02/26/2011 21:53 -0400 AIG Alan Greenspan American International Group Bank of America Bank of America Barack Obama Ben Bernanke Ben Bernanke Boeing CDO China Citibank Citigroup Collateralized Debt Obligations Corruption Crude Crude Oil David Rosenberg default Demographics Department of Justice Detroit Dylan Ratigan Enron ETC Fail FBI Federal Reserve First Amendment Florida Foreclosures France Freedom of Information Act Germany Global Economy goldman sachs Goldman Sachs Greece Gross Domestic Product Guest Post Hank Paulson Hank Paulson Henry Paulson Hyperinflation Illinois International Monetary Fund Iraq Ireland Italy Jamie Dimon Japan Joseph Stiglitz Ken Lewis Larry Summers Lehman Lehman Brothers Lloyd Blankfein Matt Taibbi Meltdown Mexico Michigan Middle East Morgan Stanley Muni Bonds national security Obama Administration Ohio Poland Portugal Private Equity Quantitative Easing ratings Reality Recession Robert Rubin Rosenberg Saudi Arabia South Carolina SPY Tim Geithner Timothy Geithner Too Big To Fail Transparency Twitter Unemployment Unemployment Benefits Vikram Pandit Wells Fargo White House World Bank Submitted by David DeGraw from Amped Status Guest Post: Analysis of the Global Insurrection Against Neo-Liberal Economic Domination and the Coming American Rebellion – We Are Egypt If you think what’s happening in Egypt won’t happen within the United States, you’ve been watching too much TV. The statistics speak for themselves. In previous Revolution Roundups , before we were knocked offline, we featured mass protests by the people of Ireland, Italy, Britain, Austria, Greece, France and Portugal, as the Global Insurrection contagion spread throughout Europe. And now, as we have seen over the past month, North African and Middle Eastern nations have joined the movement as the people of Egypt, Tunisia, Jordan, Morocco, Gabon, Mauritania, Yemen, Bahrain, Libya, Palestine, Iraq, Sudan and Algeria have taken to the streets en masse. The connection between this latest round of uprisings and the prior protests throughout Europe is one the mainstream media is not making. We are witnessing a decentralized global rebellion against Neo-Liberal economic imperialism. While each national uprising has its own internal characteristics, each one, at its core, is about the rising costs of living and lack of financial opportunity and security. Throughout the world the situation is the same: increasing levels of unemployment and poverty, as price inflation on food and basic necessities is soaring. Whether national populations realize it or not, these uprisings are against systemic global economic policies that are strategically designed to exploit the working class, reduce living standards, increase personal debt and create severe inequalities of wealth. These global uprising, which have only just begun, are the first wave of the inevitable reaction to the implementation of a centralized worldwide Neo-Feudal economic order. The global banking cartel, centered at the IMF, World Bank and Federal Reserve, have paid off politicians and dictators the world over — from Washington to Greece to Egypt. In country after country, they have looted national economies at the expense of local populations, consolidating wealth in unprecedented fashion – the top economic one-tenth of one percent is currently holding over $40 trillion in investible wealth, not counting an equally significant amount of wealth hidden in offshore accounts. IMF imperial operations designed to extract wealth and suppress populations have been ongoing for decades. As anyone researching economic imperialism will know, a centrally planned Neo-Liberal aristocracy controls the global economy. I: Centrally Planned Economic Repression The IMF has a well-worn strategy that they use to conquer national economies. As I warned four months ago, we have now progressed into Step 3.5: World Wide IMF Riots. Back in October, in a TV interview with Max Keiser, we discussed leaked World Bank documents that revealed the IMF’s strategy. I stated the following: “They have a four-step strategy for destroying national economies…. We are about to enter what they would call Step Three. Step Three is when you’ve looted the economy and now food and basic necessities all of a sudden become more expensive, harder to get to. And then, Step 3.5 is when you get the riots. We are fastly approaching that…. We are headed to, as the IMF said, and as they plan, Step 3.5: IMF Riots. That’s what’s coming…” Fast-forward four months to today, and now we see country after country rebelling against high food prices. Since our October interview, food prices have spiked 15%. According to new World Bank data, since June 2010, “Rising food have pushed about 44 million people into poverty in developing countries.” As Federal Reserve Chairman Ben Bernanke announced another round of Quantitative Easing (QE2), those of us paying attention knew that the trigger had been pulled and Step Three had been executed. It was a declaration of economic war, an economic death sentence for tens of millions of people – deliberately devaluing the dollar and sparking inflation in commodities/basic necessities. It was a vicious policy that would impact people from Boston to Cairo. When QE2 was announced, I warned : “Food and Gas Prices Will Skyrocket, The Federal Reserve Just Dropped An Economic Nuclear Bomb On Us.” I also wrote : “The Federal Reserve is deliberately devaluing the dollar to enrich a small group of a global bankers, which will cause significant harm to the people of the United States and severe ramifications throughout the world…. The Federal Reserve’s actions are already causing the price of food and gas to increase and will cause hyperinflation on most basic necessities.” To be clear, there are several significant factors contributing to rising food prices, such as extreme weather conditions, biofuel production and Wall Street speculation ; but the Federal Reserve’s policies deliberately threw gasoline all over those brush fires. QE2 was another economic napalm bomb from the global banking cartel. In a recent McClathy news article entitled, “Egypt’s unrest may have roots in food prices, US Fed policy,” Kevin Hall reports : “‘The truth of the matter is that when the Federal Reserve moved on the quantitative easing, it did export inflation to a lot of these emerging markets…. There’s no doubt that one of the side effects of the weak dollar and quantitative easing has been rising commodity prices. It helped create this bullish environment for commodities. This is a very delicate balancing act.’ It’s a view shared by Ed Yardeni, a veteran financial market analyst, who reached a similar conclusion in a research note to investors…. He joked that Fed Chairman Ben Bernanke should be added to a list of revolutionaries, since his quantitative easing policy, unveiled last year in Wyoming, has provoked unrest and change in the developing world. ‘Since he first indicated his support for such a revolutionary monetary change… the prices of corn, soybeans and wheat have risen 53 percent, 37 percent and 24.4 percent through Friday’s close,’ Yardeni noted. ‘The price of crude oil rose 19.8 percent over this period from $75.17 to $90.09 this (Monday) morning. Soaring food and fuel prices are compounding anger attributable to widespread unemployment in the countries currently experiencing riots.’” The people throughout the Middle East and Northern Africa, on the fringe of the Neo-Liberal economic empire and most vulnerable to the Fed’s inflationary policies, are the first to rebel. Before analyzing the situation within the US, let’s take a closer look at the global Neo-Liberal economic policies that led to the Egyptian and Tunisian revolts. II :: Economic Imperialism: IMF Plunder of Egypt and Tunisia In the Middle East and North Africa populations are rising against their local dictators. However, these “dictators” take orders from the IMF. A report from the Center for Research on Globalization revealed some background and historical context: “The Alliance between Global Capitalism and Arab Dictators It is paramount to understand that the Arab dictators and tyrants serve the interests of organized capital. This is their primary function. They are elements of the global system formed by organized capital. Looking back, protests and riots started in 1977 against the regime of Mohammed Anwar Al-Sadat, Mubarak’s predecessor. The causes of these protests were the neo-liberal policies that the I.M.F. had handed down to Sadat. The I.M.F. policies ended government subsidies on basic daily commodities of life. Food prices jumped and Egyptians became hard-hit…. The Arab people grasp the fact that their ruling class and governments are not only corrupt regimes, but also comprador elites, namely the local representatives of foreign corporations, governments, and interests…. In Egypt, Gamal Mubarak (who was being groomed by his father for the presidency) worked for Bank of America. In Tunisia, Zine Al-Abidine Ben Ali was a military officer trained in French and American military schools who, once in power, served U.S. and French economic interests. In Lebanon, Fouad Siniora was a former Citibank official before he became prime minister…. Within the corrupt Palestinian Authority, Salam Fayyad worked for one of the banks forming the U.S. Federal Reserve and the World Bank…. Moreover, almost all Arab finance ministers are affiliated to the major global banking institutions. All of them also strictly adhere to the Washington Consensus of the International Monetary Fund (I.M.F.) and the World Bank…” Samer Shehata, professor of Arab politics at Georgetown University, summed up the situation in Egypt and Tunisia: “Beginning in 2004… Egypt began implementing economic reforms called for by the IMF—or really forced on them by the IMF and the World Bank… a new government was appointed, new ministers were appointed, who believed wholeheartedly in the ideas of the IMF and the World Bank. And they quite vigorously pursued these policies. And there was at one level, at the level of macroeconomic indicators, statistics, GDP growth rates, foreign direct investment and so on—Egypt seemed to be a miracle. And this, of course, was the case with the Tunisian model earlier. You’ll remember that Jacques Chirac called it the ‘economic miracle,’ and it was the darling of the IMF and the World Bank, because it implemented these types of reforms earlier. Well, of course, we saw what happened in Tunisia. In Egypt, from 2004 until the present, the government and its reforms were applauded in Washington by World Bank, IMF and US officials…. Egypt received the top reformer award from the IMF and the World Bank…” Former Goldman Sachs executive Nomi Prins reveals more details : The Egyptian Uprising Is a Direct Response to Ruthless Global Capitalism “The revolution in Egypt is as much a rebellion against the painful deterioration of economic conditions as it is about opposing a dictator…. When people are facing a dim future, in a country hijacked by a corrupt regime that destabilized its economy through what the CIA termed, ‘aggressively pursuing economic reforms to attract foreign investment’ (in other words, the privatization and sale of its country’s financial system to international sharks), waiting doesn’t cut it…. Tunisia’s dismal economic environment was a direct result of its increasingly ‘liberal’ policy toward foreign speculators. Of the five countries covered by the World Bank’s, Investment Across Sectors Indicator, Tunisia had the fewest limits on foreign investment…. Egypt adopted a similar come-and-get-it policy, on steroids…. But, as we learned in the U.S., what goes up with artificial helium plummets under real gravity…. Not surprisingly, those foreign speculation strategies didn’t bring less poverty or more jobs either. Indeed, the insatiable hunt for great deals, whether by banks, hedge funds, or private equity funds, as it inevitably does, had the opposite effect…. Ironically, the brochure touted the large college graduate population entering the job market each year — 325,000. The same graduates are the core of the current revolution. They failed to find adequate jobs and are faced with an official unemployment rate of just below 10 percent (though, similar to the U.S., that figure doesn’t account for underemployment, poor job quality or long-term prospects)…. Meanwhile, 20 percent of Egypt lives in poverty… For in the United States, economic statistics are no better. By certain measures, like income inequality, they are worse than in Egypt.” III :: US-Egypt Economic Parallels, Inequality Poverty Comparable economic statistics between the US and Egypt are facts that US mainstream media propagandists are not reporting. Inequality of Wealth Income inequality has reached a record level within Egypt, as Pat Garofalo explained : “One of the driving factors behind the protests is the… growing sense of inequality. ‘They’re all protesting about growing inequalities…. The top of the pyramid was getting richer and richer,’ said Emile Hokayem of the International Institute for Strategic Studies in the Middle East. As Yasser El-Shimy, former diplomatic attaché at the Egyptian Ministry of Foreign Affairs, wrote in Foreign Policy, ‘income inequality has reached levels not before seen in Egypt’s modern history.’” As the US mainstream media references the “oppressive” and “corrupt” inequality of wealth throughout Egypt, the hypocrisy is shameful. The inequality of wealth in the United States is currently the most severe it has ever been. Gini coefficient ratings are a measure of a nation’s inequality – the higher a nation scores, the more unequal the society is. The US has a Gini coefficient rating of 45, compared to Egypt’s 34.4, Yemen’s 37 and Tunisia’s 40, making the US the most unequal, “oppressive” and “corrupt” of the four. As John Dewey once said, “There is no such thing as the liberty or effective power of an individual, group, or class, except in relation to the liberties, the effective powers, of other individuals, groups or classes.” Poverty When well-paid “experts” in expensive suits sitting behind desks in state of the art studios discuss the hardships of the Egyptian people, something tells me that these pundits haven’t spent much time interacting with tens of millions of people living in inner city America – just because the mainstream media doesn’t cover them, doesn’t mean they don’t exist. They exist in larger numbers in the US than they do in most rebelling countries. The rising price of food has played a pivotal role in sparking the uprisings, food prices have a larger impact in countries like Egypt and Tunisia, as they represent a more significant percentage of total income. However, the overall costs of living in the US are significantly higher. When these costs are factored in — medical expenses, housing, transportation, education, etc. – the US poverty level of $22k per year, for a family of four, is comparable to the poverty rate measure in Egypt. According to the CIA, the poverty rate in Egypt is 20%. With a population size of 83 million people, this would put 16.6 million Egyptians living in poverty. In the US, the current poverty rate is 16.8% , with a population of 309 million, this puts 52 million Americans living below the poverty line. When you consider that the US has 52 million people currently living in poverty, you realize, as shocking as it may sound, that we have a larger number of desperate people in the US than rebelling populations in countries throughout the Middle East and Europe. Overall, in comparison to Egypt, the US population is obviously more geographically spread out, but if you breakdown the demographics, many large US cities have a poverty rate higher than the 20 percent rate in Egypt. Consider that, according to low-ball government statistics, nine major US cities have a poverty rate over 25%. IV :: Debt Slavery: Unemployed, Underemployed, Underpaid, In Debt The unemployment rate in Egypt mirrors the unemployment rate in the US, currently fluctuating between nine and ten percent, according to government sources. The unemployment rate among recent graduates attempting to enter the workforce also mirrors the crisis in the US. The young unemployed and underemployed demographic has played a pivotal role in leading the rebellion. Reporting for the Financial Times in an article entitled, “ At hand, an Arab awakening ,” Roula Khalaf sums it up this way: “In Egypt, as in Tunisia, the young people who initiated the street campaigns were educated, internet-savvy activists with no political affiliation. After watching the fervour unleashed in the past month, young Syrians, Bahrainis, Algerians and even the quiescent Libyans are turning to Facebook and Twitter to call for their own ‘day of rage’. As Mr Khashoggi puts it: ‘The 25-year-old unemployed today has become the strong man.’” A report from Business Week entitled, “ The Youth Unemployment Bomb ,” provides more detail: “In Tunisia, the young people who helped bring down a dictator are called hittistes—French-Arabic slang for those who lean against the wall. Their counterparts in Egypt… are the shabab atileen, unemployed youths… In Britain, they are NEETs – ‘not in education, employment, or training.’ In Japan, they are freeters: an amalgam of the English word freelance and the German word Arbeiter, or worker. Spaniards call them mileuristas, meaning they earn no more than 1,000 euros a month. In the U.S., they’re ‘boomerang’ kids who move back home after college because they can’t find work. Even fast-growing China… has its ‘ant tribe’ – recent college graduates who crowd together in cheap flats on the fringes of big cities because they can’t find well-paying work. In each of these nations, an economy that can’t generate enough jobs to absorb its young people has created a lost generation of the disaffected, unemployed, or underemployed—including growing numbers of recent college graduates for whom the post-crash economy has little to offer…. More common is the quiet desperation of a generation in ‘waithood,’ suspended short of fully employed adulthood. At 26, Sandy Brown of Brooklyn, N.Y., is a college graduate and a mother of two who hasn’t worked in seven months. ‘I used to be a manager at a Duane Reade in Manhattan, but they laid me off. I’ve looked for work everywhere and I can’t find anything,’ she says. ‘It’s like I got my diploma for nothing.’” The collapsing job market, declining wages, loss of benefits and skyrocketing cost of education has created a “lost generation” of young college graduates with little options and massive debt. When millions of American students took out tens of thousands of dollars in student loans to pay for an education which they assumed would give them the skills needed to make a good living, they never imagined that they would be either unemployed, working part-time, or making significantly less than people in their chosen profession have traditionally made. The majority of young workers in their twenties and early thirties have debt that they will spend most of their life trying to pay back. They’ve been sentenced to a life of… Debt Slavery Mike Whitney recently interviewed Alan Nasser on CounterPunch for a piece entitled, “ The Student Loan Swindle .” Here’s an excerpt: “ MW: Is it possible to ‘walk away’ from a student loan and declare bankruptcy? Alan Nasser: No, it’s not possible for student debtors to escape financial devastation by declaring bankruptcy. This most fundamental of consumer protections would have been available to student debtors were it not for legislation explicitly designed to withhold a whole range of basic protections from student borrowers. I’m not talking only about bankruptcy protection, but also truth in lending requirements, statutes of limitations, refinancing rights and even state usury laws – Congress has rendered all these protections inapplicable to federally guaranteed student loans. The same legislation also gave collection agencies hitherto unimaginable powers, for example to garnish wages, tax returns, Social Security benefits and – believe it or not – Disability income. Twisting the knife, legislators made the suspension of state-issued professional licenses, termination of public employment and denial of security clearances legitimate measures to enable collection companies to wring financial blood from bankrupt student-loan borrowers. Student loan debt is the most punishable of all forms of debt – most of those draconian measures are unavailable to credit card companies…. MW: Is it fair to say that the student loan industry is a scam that targets borrowers who will never be able to repay their debts? Are these students like the people who were seduced into taking out subprime loans? How much money is involved and how much of that money is either presently in default or headed for default? Alan Nasser: It’s as fair as fair can be. First, the student loan industry is huge – a large majority of students from every type of school are in debt. Debt is held by 62 percent of students enrolled at public colleges and universities, 72 percent at private non-profit schools and 96 percent at private, for-profit (‘proprietary’) schools. It was announced last summer that total student loan debt, at $830 billion, now exceeds total US credit card debt, which is itself bloated to the bubble level of $827 billion. And student loan debt is growing at the rate of $90 billion a year.” These students weren’t expecting an economic crisis to occur, and, unlike the banks that lent them the money, they’re not getting a bailout. Also factor in that the overwhelming majority of new jobs, the few that are being added, are either part-time, temporary or in low paying fields without health or retirement benefits. Mix all of this together, and you have a vicious cycle with devastating consequences. Given the size of this segment of the population, carrying this much debt, at such a young age, with limited prospects, you can feel the winds of revolution blowing. Contrary to all the propaganda you hear from the mainstream media and politicians, the economy is still shedding jobs at a staggering pace. ZeroHedge recently featured a report entitled, “ Just How Ugly Is The Truth Of America’s Unemployment ” by economist David Rosenberg: “It is laughable that everyone believes the labor market in the U.S.A. is improving.… The data from the Household survey are truly insane. The labor force has plunged an epic 764k in the past two months. The level of unemployment has collapsed 1.2 million, which has never happened before. People not counted in the labor force soared 753k in the past two months. These numbers are simply off the charts and likely reflect the throngs of unemployed people starting to lose their extended benefits and no longer continuing their job search (for the two-thirds of them not finding a new job). These folks either go on welfare or they rely on their spouse or other family members or friends for support…. Of all the analysis we saw over the weekend, the only one that made any sense was the editorial by Bob Herbert: ‘The policy makers don’t tell us that most of the new jobs being created in such meager numbers are, in fact, poor ones, with lousy pay and few or no benefits. What we hear is what the data zealots pump out week after week, that the market is up, retail sales are strong, Wall Street salaries and bonuses are streaking, as always, to the moon, and that businesses are sitting on mountains of cash. So all must be right with the world. Jobs? Well, the less said the better. What’s really happening, of course, is the same thing that’s been happening in this country for the longest time — the folks at the top are doing fabulously well and they are not interested in the least in spreading the wealth around. The people running the country — the ones with the real clout, whether Democrats or Republicans — are all part of this power elite. Ordinary people may be struggling, but both the Obama administration and the Republican Party leadership are down on their knees, slavishly kissing the rings of the financial and corporate kingpins.’ … the civilian population rose 1.872 million last year. At the same time, the labor force fell 167k. Those not in the labor force soared 2.094 million. Just in January, we saw 319,000 people drop out of the work force. These numbers are incredible. This is a highly dysfunctional labor market. People are falling through the cracks at an alarming rate as they come off their extended jobless benefits….” In the US, we have over six million people who have now been unemployed for over six months, the highest total we have ever had. Factoring long-term unemployed and part-time workers looking for full-time work in to the total unemployment count, we now have over 30 million Americans in need of employment. V :: The American Dream Foreclosed Upon The foreclosure crisis in the United States, which has already affected over seven million people since the crisis began, is not slowing down, it’s accelerating. Economist Joseph Stiglitz recently predicated another two million foreclosures in 2011 . David Walsh sums up the growing crisis : Nearly 30 percent of US homeowners now ‘underwater’ “Year over year, home values were down 5.9 percent nationally, and have fallen 27 percent since their peak in June 2006. The total value of US single-family homes fell a staggering $798 billion in 2010’s fourth quarter, and for the entire year, more than $2 trillion…. The number of US homeowners ‘underwater,’ i.e., owing more than their homes were worth, at the end of 2010, jumped to 27 percent, up from 23.2 percent in the third quarter…. ‘The rate of homes selling for a loss reached a new peak in December, with more than one-third (34.1 percent) selling for a loss. The rate of homes sold for a loss has increased steadily for the past six months.’ Some 15.7 million homeowners had negative equity at the end of the fourth quarter, in households home to more than 40 million people. The massive number of those underwater will ‘surely lead to higher foreclosure rates soon,’ notes CNNMoney…. Economist Joseph Stiglitz, speaking at a conference in Mauritius February 9, predicted that another 2 million foreclosures would take place in the US in 2011, adding to the 7 million already recorded since the financial meltdown of 2008. Banks repossessed 1 million homes in 2010, and this year is expected to be bleaker. Approximately 5 million borrowers are at least two months behind in their mortgage payments.” VI :: A Recipe For Revolution: Tax Breaks for the Rich, Budget Cuts for the Poor Let’s recap the statistics: we have 59 million people without healthcare, 52 million in poverty, 44 million on food stamps, 30 million in need of work, seven million foreclosed upon and five million homes over two months late in their mortgage payments. Meanwhile, all new political policies and proposals on the table, on the state and federal level, are committed to major cuts in social services. In a sign of what’s to come, Obama’s first disclosed spending cut targets the poor. As Salon recently reported : New Obama strategy: Beat up poor people “To prove it is ‘serious’ about the deficit, the White House proposes cutting a program that helps pay heating bills. The Obama administration… will propose big cuts to a program that provides energy assistance to poor people when it unveils its suggested 2012 budget. ‘The Low Income Home Energy Assistance Program, or LIHEAP… would see funding drop by about $2.5 billion from an authorized 2009 total of $5.1 billion.’ The news is generating a lot of outrage… in large part because of a paragraph that suggests that the White House wants to gain political advantage from being seen as tough on the most vulnerable Americans — people who can’t afford heating oil during cold winters…. If the White House wants to convince Americans that it is serious about budget discipline, it should do so by ‘going after powerful vested interests rather than those least able to defend themselves within the political arena.’ The White House could redouble its efforts to cut oil company subsidies or repeal tax cuts for the rich, for example.” As The Independent reported , “Obama to set out painful budget plans for austerity in America. Americans are about to get a first glimpse of what tight-fisted federal government looks like with President Barack Obama releasing an austerity-tinged draft budget.” In a report we featured on the AmpedStatus Hot List with the headline, “US Democracy Crushed By Economic Elite,” Bob Herbert sums it up : “One state after another is reporting that it cannot pay its bills. Public employees across the country are walking the plank by the tens of thousands. Camden, N.J., a stricken city with a serious crime problem, laid off nearly half of its police force. Medicaid, the program that provides health benefits to the poor, is under savage assault from nearly all quarters. The poor, who are suffering from an all-out depression, are never heard from. In terms of their clout, they might as well not exist. The Obama forces reportedly want to raise a billion dollars or more for the president’s re-election bid. Politicians in search of that kind of cash won’t be talking much about the wants and needs of the poor. They’ll be genuflecting before the very rich.” Austerity measures and draconian cuts to the social safety net are occurring just after passing hundreds of billions of dollars in tax breaks to multi-millionaires and billionaires. On the state level, the Center on Budget and Policy Priorities released a report revealing, “Thirty-one states have released their initial budget proposals for fiscal year 2012 (which begins July 1 in most states), and, for the fourth year in a row, these budgets propose deep cuts in education, health care, and other important public services…” After committing trillions of dollars to bailing out the big banks, the Federal Reserve and government officials have now made it clear that the states will not receive the same treatment. In fact, the bailed out players on Wall Street, who have taken our tax dollars and given themselves all-time record-breaking bonuses, are looking to cash in on the suffering of states across the country. As Lynn Parramore recently put it : Crank Up the Casino! Hedge Funds to Short American States and Cities “The looming possibility of municipal defaults, which some say could total hundreds of billions of dollars, is causing grave concern. Hedge funds are also deeply concerned about America’s municipal debt crisis. They worry about how to best profit from it. The Wizards of Wall Street have looked over the catastrophe of cash-strapped America and found it good for business. In their corporate laboratories, they are working furiously to whip up wondrous new financial products that will allow them to reap millions from misery. You might think that after plunging the country into said Recession with their fancy financial products, these Wizards might feel a little indelicate about gearing up for a game of shorting a community near you. Clearly you don’t know Wall Street. The Financial Times reports that once-boring muni bonds are suddenly sexy.” Speaking of reaping millions from misery, the food stamp racket pays off just as well as the war racket. The economic parasites profit off of food stamps: Food Stamps: JPMorgan Banking Industry Profit From Misery “JPMorgan’s division that makes food stamp debit cards made $5.47 billion in net revenue in 2010. As the head of this division, Christopher Paton, says, ‘This business is a very important business to JPMorgan in terms of its size and scale.’ According to the company’s most recent quarterly filing with the SEC, the Treasury Securities Services segment, which is the division that includes the food stamp business, was up 2% in the last three months of last quarter and brought in $5.47 billion in net revenue for most of 2010.” Republicans and Democrats, along with their Wall Street masters, are so arrogant, deluded with wealth, completely lacking perspective, shortsighted and, quite frankly, ignorant. As the economic top one-tenth of one percent has more wealth than they have ever had, the middle class is quickly disappearing and poverty is soaring. As politicians ignore the needs of the suffering masses in favor of a Kleptocratic Oligarchy, which operates above the law, it is only a matter of time before an uprising takes hold. After analyzing societal and economic indicators within the US, in comparison to rebelling countries, it is not a matter of whether people will revolt or not, it’s a matter of when. There are two significant differences between the United States and other rebelling nations: 1) The US has a much more powerful, sophisticated and omnipresent propaganda media system to keep the populace suppressed – isolated and confused. 2) The US keeps 52 million people temporarily pacified in anti-poverty programs by giving them food stamps, unemployment benefits or other forms of life-sustaining government assistance. Both of these differences are temporary, and not in any way sustainable. The safety nets here are unraveling and cuts in vital social services will be implemented just as millions more will need them. At the same time, food stamps and other forms of limited government assistance will be worth less and less as food and gas prices continue to rise. Rising commodity prices will push the 239 million Americans currently living paycheck to paycheck over the edge. Also factor in healthcare costs, which have been skyrocketing even faster. On a personal level, my health insurance provider just notified me that my family has to pay 45% more for coverage – and we already had the world’s most expensive healthcare system. For my wife, one child and myself, we will now have to pay over $1100 per month for a basic health insurance plan. There are currently 59 million Americans who don’t even have healthcare insurance. The health system has become vintage Grapes of Wrath , as have most aspects of the centrally planned system of economic despotism that we live under. Add all of these factors together and you have a recipe for revolution. The mainstream propaganda news outlets and “Reality” TV soma will only keep people at bay for so long. The propaganda system collapses when people can’t afford to eat. Americans may be late to the party, but once one city revolts, the dominos will fall and a wave of protest will sweep through the country like a tsunami. The only questions are: when will it happen, and how it will begin? VII :: “Hungry People Don’t Stay Hungry For Long” Food prices have been a leading indicator for rebellion thus far. Given the Federal Reserve’s commitment to driving food prices higher, as a matter of policy, and the government’s commitment to cutting assistance programs, people lining up at Wal-Mart on the last day of the month, waiting for the clock to strike midnight so they can buy their family milk and bread on their food stamp debit card, seem to be the most likely to rebel first. As food prices increase, food stamps are obviously going to buy you less food. On top of that, as food prices escalate, millions more will need food assistance, right at the point when the current safety net can least afford it. Let’s analyze the most recent food stamp data to see how America’s inevitable revolution may begin. With 43.6 million Americans currently relying on food stamps, there are 13 states with over a million people already on food stamps: · Texas 3,925,119 (number of people on food stamps) — 15.6% (of state population) · California 3,521,881 — 9.5% · Florida 2,994,413 — 15.9% · New York 2,934,493 — 15.1% · Michigan 1,920,330 – 19.4% · Ohio 1,772,608 — 15.4% · Georgia 1,732,865 — 17.9% · Illinois 1,732,169 — 13.5% · Pennsylvania 1,673,714 — 13.2% · North Carolina 1,531,255 — 16.1% · Tennessee 1,264,407 — 19.9% · Arizona 1,050,181 — 16.4% · Washington 1,019,791 — 15.2% States with over 18% of the population on food stamps: · Mississippi 612,889 — 20.7% · Tennessee 1,264,407 — 19.9% · Oregon 749,498 — 19.6% · Michigan 1,920,330 — 19.4% · New Mexico 399,454 — 19.4% · Louisiana 866,905 — 19.1% · West Virginia 345,683 — 18.7% · Kentucky 813,041 — 18.7% · Maine 241,117 — 18.2% · South Carolina 839,109 — 18.1% · Alabama 863,606 — 18.1% In our nation’s capital, the District of Columbia, there are 131,611 people on food stamps, which is a stunning 21.9% of the population. As mentioned before, cities with a poverty rate over 25% – Detroit 36%, Cleveland 35%, Buffalo 29%, Milwaukee 28%, St. Louis 27%, Miami 27%, Memphis 26%, Cincinnati 26% and Philadelphia 25% – are also highly vulnerable to revolt. VIII :: The Empire State Rebellion Given all the data, due to New York’s geographical lay out, population size and proximity to power, it is a prime candidate for insurrection. There are currently 2.9 million people living in New York that are on food stamps, which is equivalent to the entire population of Manhattan. Just imagine three million people flooding into lower Manhattan. Imagine if three million people decided to take a 15-30 minute subway ride down to the Financial District and camped out from Wall Street to the NY Fed, spilling over to the corporate offices of JP Morgan, Goldman Sachs, Citigroup, Wells Fargo, Morgan Stanley and Bank of America. Perhaps the one million people on food stamps from New Jersey and Connecticut will make a short trip into lower Manhattan as well, four million strong shutting down lower Manhattan, the economic capital of the world. How would that play out in the global media? One million people gathering in Cairo, Egypt sent shock waves throughout the world, and rightfully so, but just wait until millions of Americans begin flooding the streets. The revolution contagion will spread throughout the world like a category five hurricane. “The civilization may still seem brilliant because it possesses an outward front, the work of a long past, but is in reality an edifice crumbling to ruin and destined to fall in at the first storm.” – Gustave Le Bon, The Crowd: A Study of the Popular Mind IX :: The Battle in Madison: A Sign of Things to Come While bloated federal and state spending has grown to staggering levels of debt, and demands immediate attention, any cut in spending or attempts to reduce the deficit must first come at the expense of the organized criminal class that has looted the national economy. Any cuts that happen before that need to be understood as an escalation and extension of the attacks on the American people. While continuing their attacks on American small businesses and private-sector workers, the global financial elite are now stepping up their attacks on public workers. In this context, the Wisconsin state government attacks against the state teachers’ union doesn’t have anything to do with the old Democrat Vs. Republican divide and conquer debates of the past. This is about people fighting back against their economic oppressors. In Egypt, Mubarak was the Neo-Liberal Aristocracy’s local enforcer. In Wisconsin, Scott Walker is the Neo-Liberal Aristocracy’s local enforcer. This battle in Madison, Wisconsin, between the American people and the global financial elite, represents the opening salvo, the awakening of an American resistance movement and a sign of what’s to come. In a report entitled, “Wisconsin governor threatens to call National Guard on state workers,” Andre Damon explains the situation: “Scott Walker, the governor of Wisconsin, announced an assault against state…. Walker’s proposal, which he said would quickly pass in the state legislature, drastically limits collective bargaining, removing the right of unions to negotiate pensions, retirement and benefits…. When asked by a reporter what will happen if workers resist, Walker replied that he would call out the National Guard. He said that the National Guard is ‘prepared … for whatever the governor, their commander-in-chief, might call for … I am fully prepared for whatever may happen.’ Walker’s proposal allows state authorities to arbitrarily fire workers who ‘participate in an organized action to stop or slow work,’ or who ‘are absent for three days without approval of the employer,’ according to the governor’s press release.” Democracy Now pointed out: “… the governor’s actions could have national ramifications: ‘If Governor Walker pulls this off… if he takes down one of the strongest and most effective teachers’ unions, WEAC, in the country, then we really are going to see this sweep across the United States.’” As a recent Washington Post report summed it up: Workers toppled a dictator in Egypt, but might be silenced in Wisconsin “In Egypt, workers are having a revolutionary February. In the United States, by contrast, February is shaping up as the cruelest month workers have known in decades. The coup de grace that toppled Hosni Mubarak came after tens of thousands of Egyptian workers went on strike beginning last Tuesday. By Friday, when Egypt’s military leaders apparently decided that unrest had reached the point where Mubarak had to go, the Egyptians who operate the Suez Canal and their fellow workers in steel, textile and bottling factories; in hospitals, museums and schools; and those who drive buses and trains had left their jobs to protest their conditions of employment and governance. As Jim Hoagland noted in The Post, Egypt was barreling down the path that Poland, East Germany and the Philippines had taken, the path where workers join student protesters in the streets and jointly sweep away an authoritarian regime. But even as workers were helping topple the regime in Cairo, one state government in particular was moving to topple workers’ organizations here in the United States…. Scott Walker, Wisconsin’s new Republican governor, proposed taking away most collective bargaining rights of public employees. Under his legislation… the unions representing teachers, sanitation workers, doctors and nurses at public hospitals, and a host of other public employees, would lose the right to bargain over health coverage, pensions and other benefits. (To make his proposal more politically palatable, the governor exempted from his hit list the unions representing firefighters and police.)…. often profess admiration for foreign workers’ bravery in protesting and undermining authoritarian regimes. Letting workers exercise their rights at home, however, threatens to undermine some of our own regimes, and shouldn’t be permitted. Now that Wisconsin’s governor has given the Guard its marching orders, we can discern a new pattern of global repressive solidarity emerging – from the chastened pharaoh of the Middle East to the cheesehead pharaoh of the Middle West.” Part Two :: The Most Repressive Regime: US Police State X :: Torture: Made in the USA It is extremely hypocritical when well-paid mainstream “news” people talk about how repressive and barbaric the Mubarak regime is in Egypt. Once again, I doubt they’ve been to inner city America recently. If you want to report on Egypt participating in torture, it is vital to point out where they were getting their weapons, training and funding from. Who paid them to commit horrific crimes against humanity? Look in the mirror US taxpayers; you may not like what you see. WikiLeaks revealed information on a US-Egyptian torture program : WikiLeaks Docs: Torture-Linked Egyptian Police Trained in U.S. “Newly released classified U.S. diplomatic cables from WikiLeaks have shed more light on the key U.S. support for human rights abuses under Mubarak’s regime in Egypt. The cables show Egyptian secret police received training at the FBI’s facility in Quantico, Virginia, even as U.S. diplomats in Egypt sent dispatches alleging extensive abuse under their watch. Coincidentally, Quantico also hosts the military base where alleged WikiLeaks whistleblower U.S. Army Private Bradley Manning is being held in solitary confinement. A cable from October 2009 cites allegations from ‘credible’ sources that some prisoners were tortured ‘with electric shocks and sleep deprivation to reduce them to a ‘zombie state.’ One cable from November 2007 shows then-FBI deputy director John Pistole praised the head of Egypt’s secret police for ‘excellent and strong’ cooperation between the two agencies. Pistole currently heads the Transportation Security Administration in the United States.” America the beautiful… The Transportation Security Administration, from electric shocks, sleep deprivation and zombie states in Egypt, to cancer causing, civil liberty-destroying Naked Scanners at an airport near you. XI :: American Gulag: World’s Largest Prison Complex If you want to report on Egypt putting their citizens in prison, again, the hypocrisy is astonishing. The US, by far, has more of its citizens in prison than any other nation on earth. China, with a billion citizens, doesn’t imprison as many people as the US, with only 309 million American citizens. The US per capita statistics are 700 per 100,000 citizens. In comparison, China has 110 per 100,000. In the Middle East, the repressive regime in Saudi Arabia imprisons 45 per 100,000. US per capita levels are equivalent to the darkest days of the Soviet Gulag . The majority of prisoners are locked up for non-violent crimes, with tens of thousands in Supermax cells. In addition to the heinous torture programs that the US government has carried out in Abu Ghraib, Bagram and Gitmo, we have our own solitary confinement torture programs for Americans in Supermax Units throughout the country. As Jim Ridgeway from Solitary Watch explains: “Solitary confinement has grown dramatically in the past two decades. Today, at least 25,000 prisoners are being held in long-term lockdown in the nation’s ‘supermax’ facilities; some 50,000 to 80,000 more are held in isolation in ‘administrative segregation’ or ‘special housing’ units at other facilities. In other words, on any given day, as many as 100,000 people are living in solitary confinement in America’s prisons. This widespread practice has received scant media attention, and has yet to find a place in the public discourse or on political platforms.” The US prison industry is thriving and expecting major growth over the next few years. A report from the Hartford Advocate titled “ Incarceration Nation ” revealed, “A new prison opens every week somewhere in America.” If you want to report on the brutal suppression of citizens, consider that somewhere in America, every week, a new prison is being built to literally “house the poor.” A Boston Globe article by James Carroll shined a light on our repressive regime: “… as federal corrections budgets increased by $19 billion, money for housing was cut by $17 billion, ‘effectively making the construction of prisons the nation’s main housing program for the poor.’ State budgets took their cues from Washington in a new but unspoken national consensus: poverty itself was criminalized. Although ‘law and order’ was taken to be a Republican mantra, this phenomenon was fully bipartisan.” Again, just because you don’t hear this reported on TV, doesn’t mean it’s not happening. XII :: Loss of Civil Liberties In addition to the record-breaking imprisonment of the American population, since 9/11 our civil liberties have been violated in unprecedented fashion. Tom Burghardt, in an article entitled, “American Police State: FBI Abuses Reveals Contempt for Political Rights, Civil Liberties,” summed up a new report from the Electronic Frontier Foundation “documenting the lawless, constitutional-free zone under construction in America for nearly a decade:” “As mass revolt spreads across Egypt and the Middle East and citizens there demand jobs, civil liberties and an end to police state abuses from repressive, U.S.-backed torture regimes, the Obama administration and their congressional allies aim to expand one right here at home. Last week, the Electronic Frontier Foundation (EFF) released an explosive new report documenting the lawless, constitutional-free zone under construction in America for nearly a decade. That report, ‘Patterns of Misconduct: FBI Intelligence Violations from 2001-2008,’ reveals that the domestic political intelligence apparat spearheaded by the Federal Bureau of Investigation, continues to systematically violate the rights of American citizens and legal residents…. According to EFF, more than 2,500 documents obtained under the Freedom of Information Act revealed that: * From 2001 to 2008, the FBI reported to the IOB approximately 800 violations of laws, Executive Orders, or other regulations governing intelligence investigations, although this number likely significantly under-represents the number of violations that actually occurred. * From 2001 to 2008, the FBI investigated, at minimum, 7000 potential violations of laws, Executive Orders, or other regulations governing intelligence investigations. * Based on the proportion of violations reported to the IOB and the FBI’s own statements regarding the number of NSL violations that occurred, the actual number of violations that may have occurred from 2001 to 2008 could approach 40,000 possible violations of law, Executive Order, or other regulations governing intelligence investigations. But FBI lawbreaking didn’t stop there. Citing internal documents, EFF revealed that the Bureau also ‘engaged in a number of flagrant legal violations’ that included, ‘submitting false or inaccurate declarations to courts,’ ‘using improper evidence to obtain federal grand jury subpoenas’ and ‘accessing password protected documents without a warrant.’ In other words, in order to illegally spy on Americans and haul political dissidents before Star Chamber-style grand juries, the FBI routinely committed perjury and did so with absolute impunity. Reviewing the more than 2,500 documents EFF analysts averred that they had ‘uncovered alarming trends in the Bureau’s intelligence investigation practices’ and that the ‘documents suggest the FBI’s intelligence investigations have compromised the civil liberties of American citizens far more frequently, and to a greater extent, than was previously assumed.’” XIII :: Internet Crackdown When the Egyptian regime shut down the Internet, they did so by using American made technology. Having been knocked offline here at AmpedStatus.com, we have firsthand experience in what it feels like to have your ability to communicate and First Amendment rights stripped away. We still don’t know who was behind the attacks on our website, but the situation in Egypt was an interesting case study. As it turned out, Obama’s new Chief of Staff, Bill Daley’s company provided the technology used to shut down the Internet in Egypt. No, I’m not referring to JP Morgan, it was the other company Bill Daley was a board member of up until last month, Boeing. As media reform organization Free Press revealed : “The Mubarak regime shut down Internet and cell phone communications before launching a violent crackdown against political protesters. Free Press has discovered that an American company — Boeing-owned Narus of Sunnyvale, CA — had sold Egypt ‘Deep Packet Inspection’ (DPI) equipment that can be used to help the regime track, target and crush political dissent over the Internet and mobile phones. Narus is selling this spying technology to other regimes with deplorable human rights records. The power to control the Internet and the resulting harm to democracy are so disturbing that the threshold for using DPI must be very high. That’s why, before DPI becomes more widely used around the world and at home, the U.S. government must establish clear and legitimate criteria for preventing the use of such surveillance and control technology.” It is probably just be an odd coincidence, but it was soon after we published the following report that we were knocked offline: Obama Renews Commitment to Complete Destruction of the Middle Class – Meet the New Economic Death Squad “…. Boeing certainly does love Wall Street. For those of you out of the loop, you may not recall that the most powerful and destructive WMD that Boeing executives ever helped develop was the CDO, that’s a Collateralized Debt (Damage) Obligation. Do you remember Edward Liddy? Liddy and Bill Daley were both Boeing board members, before Liddy temporarily moved to Goldman Sachs where he oversaw their Audit Committee. Liddy was the person who had the most knowledge of Goldman’s CDO exposure insured through, what was that company’s name?… Oh, AIG. Yeah, that was it. Then, Hank ‘Pentagon-Watergate-Goldman’ Paulson unilaterally made Liddy the CEO of AIG, before teaming up with Tim ‘Kissinger-Rubin-Summers-IMF’ Geithner to flush $183 billion tax dollars down the ‘too big to fail’ drain. And then… after the government was finished pumping our tax dollars to financial terrorists through the AIG SPV, Liddy scurried back to the board of Boeing where he could have cocktails with his ole pal Billy-Boy Daley. Yep, Goldman, JP Morgan, Boeing and the destruction of the US economy, birds of a feather…” Within an hour of publishing that report , our site was knocked offline. Something that has become very clear to me: when you accurately criticize the most powerful people, most people will ignore you, except the people who have the most power. They notice right away, and they let you know about it. As I said, this is all probably just a coincidence. However, this tangled web of interests between the Pentagon, Wall Street and the White House is fully exposed, yet again, with Obama’s special envoy to Egypt, Frank Wisner Jr. Wisner has just as many conflicts of interest as Bill Daley and Edward Liddy. Some reports have mentioned that Wisner was biased toward supporting the Mubarak regime because he is a longtime friend of Mubarak, and worked for a law firm that represented the regime, Patton Boggs. But that’s only part of the story. Wisner, like Bill Daley, is a Council on Foreign Relations member . He is the son of legendary CIA propaganda expert Frank Wisner Sr., who created and ran Operation Mockingbird . For those of you who haven’t heard of Frank Wisner Sr., he used to report on “his ‘mighty Wurlitzer,’ on which he could play any propaganda tune.” Frank Jr. was also a board member of Enron , up until its collapse, and like Edward Liddy, he also worked for AIG, from 1997 until 2009 . Wisner oversaw two of the greatest corporate catastrophes in American history, back to back. Given his track record, Barack “mighty Wurlitzer” Obama must have thought he was the perfect guy for a collapsing corporate puppet regime in Egypt. Wisner is a disaster capitalism expert, right up there with Edward Liddy and Chief of Staff Bill Daley. Birds of a feather… XIV :: Silencing Dissent The recent internal emails from cyber-security firm HB Gary, released by WikiLeaks, exposing online campaigns to crackdown on critical journalists, reveals some of the other common methods used by the financial elite, like the Chamber of Commerce and Bank of America, to target and silence political adversaries. As one of the targets of the revealed campaign, Brad Friedman reported : US Chamber of Commerce Thugs Used ‘Terror Tools’ for Disinfo Scheme Targeting Me, My Family, Other Progressive U.S. Citizens, Groups “The US Chamber of Commerce, the most powerful Rightwing lobbying group in the country, was revealed to have been working with their law firm and a number of private cyber security and intelligence firms to target progressive organizations, journalists and citizens who they felt were in opposition to their political activism, tactics and points of view.” Glenn Greenwald, a journalist who was a constitutional law and civil rights litigator, was also a target of these planned attacks. In a report on the campaign to smear and discredit him, he focused on how common these illegal attacks are: The leaked campaign to attack WikiLeaks and its supporters “The real issue highlighted by this episode is just how lawless and unrestrained the unified axis of government and corporate power is. As creepy and odious as this is, there’s nothing unusual about these kinds of smear campaigns. The only unusual aspect here is that we happened to learn about it this time because of Anonymous’ hacking. That a similar scheme was quickly discovered by ThinkProgress demonstrates how common this behavior is. The very idea of trying to threaten the careers of journalists and activists to punish and deter their advocacy is self-evidently pernicious; that it’s being so freely and casually proposed to groups as powerful as the Bank of America, the Chamber of Commerce, and the DOJ-recommended Hunton Williams demonstrates how common this is. “ Greenwald later added : “Given the players involved and the facts that continue to emerge — this story is far too significant to allow to die due to lack of attention…. As the episode… demonstrates, simply relying on the voluntary statements of the corporations involved ensures that the actual facts will remain concealed if not actively distorted…. Entities of this type routinely engage in conduct like this with impunity, and the serendipity that led to their exposure in this case should be seized to impose some accountability… that these firms felt so free to propose these schemes in writing and, at least from what is known, not a single person raised any objection at all — underscores how common this behavior is.” Dylan Ratigan recently interviewed Glenn Greenwald and they summed up the situation , here’s a brief excerpt: DYLAN: Am I correct in understanding that substantial, legitimate, serious, powerful private security firms were pitching Bank of America and the Chamber of Commerce a campaign for which they would be paid money, in which they would assassinate the reputations and intimidate and threaten the well-being of targeted private individuals. Is that true? GLENN: Yes, the journalists, activists, political groups, and the like. DYLAN: Whoever it may be. And that the law firm that brought these private security firms in was recommended by the U.S. Department of Justice. So it’s on a recommendation from the DOJ that private and substantial security firms are being brought in to pitch smear and intimidation campaigns against those who support transparency in information. Fair? GLENN: Yes, exactly…. DYLAN: … they were saying, ‘You pay me money and those who are validating the efforts of WikiLeaks or the efforts of transparency, period, in the modern information world, we will threaten their careers such that they’ll give up the cause, if you pay us.’ GLENN: Right. ‘We’ll investigate them. We’ll find out dirt on them. We will destroy their reputation using all kinds of schemes and techniques.’ DYLAN: And this came out through another leak which is the ironic twist… GLENN: Well, one ironic twist is that it came out through a leak and the other ironic twist is that these are internet security firms that held their expertise in providing internet security and yet their e-mail system was hacked. XV :: Protected By Anonymous Propaganda doesn’t work as well when you have the Internet, a cyberspace Underground Railroad, a form of mass communication that allows citizens to interact without corporate gatekeepers effectively censoring critical thought. All of these attacks show the desperation of the ruling class, in attempting to maintain an obsolete propaganda system. Just look at how common and accepted unlawful practices have become in pursuit of their goals. It is a strategic imperative that we protect Internet freedom from the forces of media concentration and censorship. Organizations such as WikiLeaks and Anonymous are playing a critical role in exposing information and protecting those who are critical of the most powerful and corrupt elements within society. Part 3: Bring the Tyrants Down Henry David Thoreau, On the Duty of Civil Disobedience : “All people recognize the right of revolution; that is, the right to refuse allegiance to, and to resist, the government, when its tyranny or its inefficiency is great and unendurable. And oppression and robbery are organized, I say; let us not have such a machine any longer. I think that it is not too soon for honest people to rebel and revolutionize.” XVI :: The Denial of Wealth As I wrote in The Economic Elite Vs. The People : “When you take the time to research and analyze the wealth that has gone to the economic top one percent, you begin to realize just how much we have been robbed. Trillions upon trillions of dollars that could make the lives of all hard-working Americans much easier have been strategically funneled into the coffers of the Economic Elite. The denial of wealth is the key to the Economic Elite’s power. An entire generation of massive wealth creation has been strategically withheld from 99% of the US population.” In a new report entitled, “ Nine Pictures of the Extreme Income/Wealth Gap ,” Dave Johnson helps make the point: “Many people don’t understand our country’s problem of concentration of income and wealth because they don’t see it. People just don’t understand how much wealth there is at the top now. The wealth at the top is so extreme that it is beyond most people’s ability to comprehend. If people understood just how concentrated wealth has become in our country and the effect it has on our politics, our democracy and our people, they would demand our politicians do something about it…. Top 1% owns more than 90% of us combined…. 400 people have as much wealth as half of our population.” XVII :: Economic Death Squad A report entitled, “ Grapes of Wrath – 2011 ,” presents a challenge to us: “The American people have a choice…. The current path, forged by a minority of privileged wealthy elite, will lead to the destruction of this country and misery on an unprecedented scale…. Are you prepared to incur the wrath of the vested interests and meet their lies and propaganda with the fury of your own wrath in search for the truth? These men are sure you don’t have the courage, fortitude and wrath to defeat them.” In an article and video entitled, “ The Wall Street Economic Death Squad ,” as I reported back in October, 2009: “We need to focus our strategy on the small group of men who carried out the financial coup. These 13 men played leading roles in first crashing the economy, and then stealing trillions in taxpayer funds. Some of them are now calling the shots and running the government to insure that their obscene profits keep pouring into their coffers. Know Our Enemies, EHMs – Meet The Wall Street Economic Death Squad: Hank Paulson, Tim Geithner, Ben Bernanke, Robert Rubin, Larry Summers, Alan Greenspan, Lloyd Blankfein, Jamie Dimon, John Mack, Vikram Pandit, John Thain, Hank Greenberg, Ken Lewis. These men ‘presided over the largest transfer of wealth in history, from the working class to the flamboyant super rich.’ What these men have done is obscene. After crashing the economy, trillions, literally trillions of dollars have been funneled into the pockets of a select few, in secrecy, while billions of people suffer in poverty, billions suffer to survive. This small tight-knit Wall Street cadre has committed a crime against humanity .” Ralph J. Dolan, writing on Dissident Voice, declares, “Bring the Tyrants Down!” “… while we’re observing these historic events in Egypt we might take a lesson in justice. We might come to our senses and freeze the assets of Lloyd Blankfein of Goldman Sachs, Vikram Pandit of Citigroup, Brian Moynihan of Bank of America, Jamie Dimon of J.P. Morgan Chase and John Strumpf of Wells Fargo – for starters. Then we could go after the other major players in orchestrating the financial meltdown – Timothy Geithner, Henry Paulson, Ben Bernanke, Lawrence Summers, Robert Rubin, Alan Greenspan, etc. These guys who waltz away with billions in profits while they create misery and dislocation for many millions of struggling working people are beneath contempt…. We seem ready to kneel at the feet and kiss the hands of those who would rob us blind. Enough! Let us bring these tyrants down!” If Egyptians can seize the assets of a dictator like Mubarak, why can’t we seize the assets of Jamie Dimon and Llyod Blankfein? A new report from Matt Taibbi in Rolling Stone harshly sums up Banana Republic USA: “A former Senate investigator laughed as he polished off his beer. ‘Everything’s fucked up, and nobody goes to jail,’ he said. ‘That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.’ I put down my notebook. ‘Just that?’ ‘That’s right,’ he said. ‘Everything’s fucked up, and nobody goes to jail. You can end the piece right there.’ Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft.” Once again, veteran financial journalist Paul B. Farrell hits the nail on the head. Writing for Market Watch, Farrell doesn’t pull any punches in summing up what needs to be done, and it can’t be said enough: Fed Dictator Bernanke Needs To Be Toppled “Fed boss Ben Bernanke is the most dangerous human on earth, far more dangerous than Hosni Mubarak, Egypt’s 30-year dictator, ever was. Bernanke rules a monetary dictatorship… But this reign of economic terror will end. Just as Mubarak was blind to the economic needs of the masses and democratic reforms, Bernanke is blind to the easy-money legacy that’s set the stage for revolution, turning the rich into super rich while the middle class stagnates and peanuts trickle down to the poor.” You can’t sentence the overwhelming majority of the population to slow death through economic policy and expect to get away with it. While one-tenth of one percent of the population rolls around in obscene wealth, they may want to take a look outside of their groupthink short-sighted delusional perspective and notice the outside world. You cannot ignore the suffering of the masses. They will show up at your doorstep next. I hear footsteps… XVIII :: 99.9% Vs. 0.1% Egypt exposed the power that the people have. One million Egyptians proved that you can shut down a powerful regime through a mass demonstration of non-violent force. Here in the US, according to public opinion polls, 75-80% of the population believes the government doesn’t have the consent of the governed. The mainstream media leaves Americans feeling isolated and powerless to create change, but in reality, average Americans have all the power that they need to end the economic suffering and injustices that they endure. The overwhelming majority of people feel powerless to create change, if they would just realize that they are the overwhelming majority, we would have the change we so desperately need. As I’ve written in the past : “To those Americans who feel powerless to change things, I say that your feelings are only a result of your induced delusion. You have become so propagandized that you do not even understand the significant position that you are in…. We are still a mass of people who have the power to change the course of history…. we are 99.9% of the US population, and they are only 0.1%. If we fight, we win!” The people of Tunisia and Egypt has shown us the way. People are rising up throughout the world against the exact same people who looted America. The economic central planners that have launched an economic war on Americans, are also plundering the rest of the global economy with devastating consequences for 99.9 percent of the global population. As John Pilger points out : The Egyptian Revolt Is Coming Home “The uprising in Egypt is our theatre of the possible. It is what people across the world have struggled for and their thought controllers have feared…. Across the world, public awareness is rising and bypassing them. In Washington and London, the regimes are fragile and barely democratic. Having long burned down societies abroad, they are now doing something similar at home, with lies and without a mandate. To their victims, the resistance in Cairo’s Liberation Square must seem an inspiration.” We are, as fate has it, the most power group of people on the planet. The sooner a critical mass can understand this, and the urgency of the moment, the better chance we have of solving this crisis through non-violent means. When the aware but passive realize that they too will face increasingly harsh consequences, that’s when we will have a chance to fix things. Until then, the hole gets deeper by the day. As nations continue to fall to internal revolt, the more covert and militaristic elements of power will move to the fore. In a world of collapsing economies, limited resources and extreme weather, it appears we are on a road to worldwide war . As the people of Egypt have demonstrated, the non-violent movement has to assert itself before the situation gets so dire that outbreaks of violence will be commonplace, thus insuring a further, much harsher crackdown, police state and Neo-Feudal economic order. As Chris Hedges makes clear : “The longer we believe in the fiction that we are included in the corporate power structure, the more easily corporations pillage the country without the threat of rebellion…. No system of total control, including corporate control, exhibits its extreme forms at the beginning. These forms expand as they fail to encounter resistance…. All centralized power, once restraints and regulations are abolished, once it is no longer accountable to citizens, knows no limit to internal and external plunder. The corporate state, which has emasculated our government, is creating a new form of feudalism, a world of masters and serfs.” If we do not stand and rebel now, devastating consequences are sure to drastically lower our living standards within the near future. If we rise, people across the globe will continue to rise. “We must conclude that a changeover is imminent and ineluctable in the co-opted cast who serve the interests of domination, and above all manage the protection of that domination. In such an affair, innovation will surely not be displayed . It appears instead like lightening, which we only know when it strikes.” – Guy DeBord When revolution returns to America, the point won’t be to take down a figure head puppet politician like Mubarak or Obama, mere public relations moves will not suffice. We will take down the system behind them. We will take down the global banks, break them up, end the campaign finance racket, end closed-door lobbying, end the system of political bribery, end the two-party oligarchy, remove puppet judges who voted for unlimited spending by private economic elites, end corporate welfare and the various financial rackets which loot national wealth at the expense of the people. “All countries are basically social arrangements, accommodations to changing circumstances. No matter how permanent and even sacred they may seem at any one time, in fact they are all artificial and temporary.” – Strobe Talbott We must enact common sense polices to deter organized corruption. The devil is always in the details, so rain RICO laws down upon them. They shall reap what they sow. Their day of reckoning is fast approaching. Thomas Jefferson was correct when he said, “I believe that banking institutions are more dangerous to our liberties than standing armies.” As Jefferson rightfully declared, “Every generation needs a new revolution.” Great ready… here it comes. As a wise man once said, “Rise like Lions after slumber In unvanquishable number Shake your chains to earth like dew Which in sleep had fallen on you Ye are many they are few ” 49431 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Overallotment: June 8 Doug Kass Predicts 2010's Big Colored Swans And Turkeys Presenting The Upcoming Bestseller: Quantitative Ponzinomics For Dummies Following Doug Kass' Prediction Of A 25% Drop In Gold, Here Is How His Other Recent Forecasts Have Fared Guest Post: A World Crisis No Bailout Can Stop
China's Red Flags Submitted by Tyler Durden on 06/19/2013 22:49 -0400 China Copper default Government Stimulus Gross Domestic Product Money Supply Newspaper Recession Shadow Banking Yield Curve UPDATE: China 7-day repo +374bps to 12%! China Flash PMI 48.2 (49.1 exp) - lowest in 9 months; worst 3-month plunge since Feb 2011. Via Market News International: HSBC chief China economist Qu Hongbin on June flash PMI (48.3 vs 49.2): "The HSBC China Flash Manufacturing PMI dropped to a nine-month low of 48.3 in June, following on the sequential reduction in both production and demand. Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures. Beijing prefers to use reforms rather than stimulus to sustain growth. While reforms can boost long-term growth prospects, they will have a limited impact in the short term. As such we expect slightly weaker growth in 2Q ." All these major liquidiaty problems do make us think a little about the end of CCFDs and as we warned "The Bronze Swan" as financing via copper collateral is under pressure and the bank that 'own; the warehoused copper have no need to hold (and in fact are willing sellers as the carry costs rise)... Following the hushed-up default by Everbright Bank last week , the liquidity situation in China has gone from bad to worse - with 1Y IRS now at all-time record highs. Many are now questioning whether the dramatic elevation in short-term financing rates is "here to stay," and with the Chinese yield curve now inverted... ...in a similar fashion as the US Treasury market prior to the US recession in 2007... and for a similar period before the US recession... the clarion call for government stimulus is loud from the addicts. However, as HSBC notes today, since the government is now putting more emphasis on balanced growth and market reforms , it will tolerate GDP growth in the 7-7.5% range and will therefore take no strong measures to boost growth unless there is a risk of growth slowing to 7%. The markets, even though the Shangahi Composite is trading at near-seven-month lows... ...will be disappointed; and we suspect, as the FT notes , that "the central bank wants to send a warning signal to commercial banks and other credit issuers that unchecked credit expansion, particularly through the shadow banking system, will not be accommodated ." As the PBoC itself noted (via its state-owned newspaper) and we confirmed yesterday , " we cannot use fast money supply growth as in the past, or even faster, to promote economic growth , and must control the pace of money supply growth." But macro data is almost as bad as it has ever been... Simply put, as Stan Druckenmiller noted here previously , In essence, the frantic stimulus China put together at the end of 2008 sowed the seeds of slower growth in the future by crowding out more productive investments. Despite all efforts to slow inflation (and rein in the credit bubble ), the hot money imported from the Fed and the BOJ continues to push home prices ever higher which continues to be the key marginal variable for the PBOC - as long as the hot "carry" money is exported by the Fed and the BOJ , the Chinese economy will continue to suffer . Average: 5 !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- Login or register to post comments 4705 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: On The Fun (But Pointless) Debate Between Rick Santelli And Rich Bernstein On What The Yield Curve Indicates (In A Time Of Central Planning) Goldman Reveals The First 5 Of Its Top Trades For 2011 Guest Post: The Economic Death Spiral Has Been Triggered IMF Cuts Global Growth, Warns Central Banks, Whose Capital Is An "Arbitrary Number", Is Only Game In Town Financial Lexicon 101: Summary Of Key Terms
Are We On The Verge Of Witnessing The Death Of The Paper Gold Scam? Submitted by Tyler Durden on 05/09/2013 17:25 -0400 Central Banks China default Eric Sprott Fail Germany Hong Kong John Paulson KIM Physical Settlement Precious Metals Reality recovery Switzerland Too Big To Fail Turkey Volatility Submitted by Michael Snyder of The Economic Collapse blog , The legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin. And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate. So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold? When that moment arrives, it will represent the end of the paper gold scam. Many believe that the recent takedown of the price of paper gold was a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them. Instead of cooling off demand for precious metals, it has unleashed a massive " gold rush " all over the globe . Meanwhile, word has been spreading among wealthy families in both North America and Europe that they had better grab their physical gold out of the banks while they still can. This is creating havoc in the financial community , and at least one major international bank has already declared that it will only be settling those accounts in cash from now on. The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets. For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver , but we have never reached a moment of such crisis before. Posted below are quotes from people that know precious metals far better than I do. What these experts are saying is more than a little bit disturbing... - CME President Terry Duffy : What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product. - Billionaire Eric Sprott : So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what’s going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes. When we hear about the LBMA not willing to deliver gold, and JP Morgan’s inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It’s the real physical market that you have to rely on. - JS Kim : FACT #1 : COMEX gold vaults were recently drained of 2 million ounces of physical gold in one quarter, the largest withdrawal of physical gold bullion from COMEX vaults in one quarter during this entire 12-year gold and silver bull. There has been speculation about the reasons that spurred these massive withdrawals of gold from COMEX vaults, but the most reasonable speculation is that no one trusts the bankers to hold on to their physical gold anymore, especially in light of Fact #2 . Note below, that both registered AND eligible stocks of gold had heavily declined in recent months. Such an event signals a general distrust of the banking system from everyone holding gold in registered COMEX vaults. FACT #2 : One of the largest European banks, ABN Amro, defaulted on their gold contracts and informed their clients that they would only settle their gold bullion contracts in cash and not in physical. So much for the supposed legality of financial contracts as a "binding" contract. So whether Fact #1 caused Fact #2 or vice versa is irrelevant. What IS apparent is that the level of trust in bankers to safekeep physical gold and physical silver is disappearing, as it should be, and as it should have already been for years now. But truth always takes some time to catch up to banker spread lies and that is what is happening now. I have been warning people never to trust bankers in deals involving gold and silver for years now, as in this article I wrote nearly four years ago informing the public that the SLV and GLD are likely a banker invented scam as well. FACT #3 : Silver fraud whistleblower and London trader Andrew Maguire stated that the LBMA was having trouble settling gold contracts in bullion as well and stated that institutions that asked for physical settlement “were told they would be cash settled instead by a bullion bank.” In plain English, this is a default. So Andrew Maguire reported that the LBMA had already gone into default. In light of Fact #1 and Fact #2 , the dominoes were starting to tumble and the house of cards that the bankers had built in gold and silver paper derivatives to deceive and hide the true fundamentals of the physical gold and physical markets from the entire world was rapidly starting to crumble. A financial earthquake of magnitude 2.5 was quickly threatening to evolve into one of the biggest financial earthquakes of all time in which the world’s confidence in all global fiat currencies would effectively have a well-deserved funeral. - Jim Sinclair : I think the reality is the supply situation is extremely volatile at this point, and even discussing it is like rubbing a raw nerve to the people who are in charge. The amount of discussion on the subject of warehouse supply, supply that is represented by the gold leases, indicated to the central planners that the demand for physical was going to continue to effect the exchanges. Although they did not expect any grandstand delivery, the mere continued draining of physical inventories was threatening the very functioning of the paper exchange. That threatening of the paper exchange and its ability to continue functioning is really taking off the blinders and revealing the truth behind the critical question, ‘Where is the gold?’ The question now is, ‘Where has the gold gone?’ Who has all of this gold? Because of the nature of gold leasing, all of this gold has been purchased and it has gone somewhere. The reality of the empty vaults reveal that the gold has gone missing. - Ronald Stoeferle : We’re seeing this rush to physical gold not only in the retail market, but also for the institutional players... just overwhelming…I a 130-to-1 …and I think in the last week we were really close to a default of the paper market. - Gerhard Schubert, head of Precious Metals at Emirates NBD : I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts… I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce. - James Turk : Another indication of the demand for large bars is the huge drawdown in the gold stock in COMEX warehouses. It is noteworthy that COMEX reports show the drawdown is largely the result of dealers removing their inventory, their working stock. When that happens, you know the availability of supply is constrained. What all of this means, Eric, is one thing. If the central planners want to keep the precious metals at these low prices, to meet the demand for physical metal they will need to empty more metal from central bank vaults, or borrow metal from the ETFs as some have suggested is happening. Otherwise, the central planners will have to step back and stop their intervention, thereby letting the price of gold and silver rise so that demand tapers off, bringing demand and supply of physical metal back toward some kind of balance. We've seen this same situation several times over the last twelve years. It is what I have been calling a “managed retreat.” Despite the current weakness, I firmly believe we have again entered a critical period where the central planners will need to retreat once again in order to let the gold and silver prices climb higher. - The Golden Truth : And then I get a call from a close friend in NYC last Friday. His career has been in private wealth management in the private bank department of the Too Big To Fail banks. He's been looking for work and chats with old colleagues all the time. He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago. This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact. He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment. The Bundesbank/Fed and the ABN/Amro situations triggered this move. He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it's very wealthy clients assuring them their bars were safe, in allocated accounts. He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100's of millions in investment portfolios to competitors. His wording was "these people are putting a gun to the heads of private banks and demanding their gold." I know this information is good because I know my friend's background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend's source said that there's no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares. Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting - supposedly - in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes. After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years. To this day, the time required for that shipment has never been explained. Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months. And regarding the ABN/Amro situation. ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out. About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption. I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway. ***** So what does all of this mean? It means that we are entering a period when there will be unprecedented volatility for precious metals. There will be tremendous ups and downs as this crisis plays out and the bankers try to keep the paper gold scam from completely unraveling. Meanwhile, nations such as China continue to stockpile gold as if the end of the world was coming. According to Zero Hedge , Chinese gold imports set a brand new all-time record high in March... Quite the contrary: as export data released by the Hong Kong Census and Statistics Department overnight showed, Chinese gold imports in March exploded to an all time record high of 223.5 tons. And the number for April is expected to be even higher. Does China know something that the rest of us do not? We are also seeing a rapid decoupling between spot prices and physical prices. In fact, it is quickly getting to the point where the spot price of gold and the spot price of silver are becoming irrelevant. For example, demand for silver coins has become so intense that some dealers are charging premiums of up to 30 percent over spot price for silver eagles. That would have been regarded as insane a few years ago, but people are now willing to pay these kinds of premiums. People are recognizing the importance of actually having physical gold and silver in their possession and they are willing to pay a significant premium in order to get it. We are moving into uncharted territory. The paper gold scam is rapidly coming to an end. In the long-term, this will greatly benefit those that are holding significant amounts of physical gold and silver. Average: 4.77049 Your rating: None Average: 4.8 ( 61 votes) Tweet - advertisements - Change is about to catch Republicans by surprise. A financial journalist says a scandal brewing in DC will catch most Republicans by surprise, and will alter the political system. 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A Short History Of Currency Swaps (And Why Asset Confiscation Is Inevitable) Submitted by Tyler Durden on 05/05/2013 14:55 -0400 Belgium Ben Bernanke Central Banks Creditors default EuroDollar European Central Bank Eurozone Federal Reserve Foreign Central Banks France Germany Guest Post Hungary Investment Grade Italy Lehman Mark To Market Monetary Base national security Purchasing Power Reserve Currency Sovereign Debt Sovereign Risk Sovereign Risk Sovereigns Trade Deficit World Trade Submitted by Martin Sibileau of A View From The Trenches blog , I want to offer today an historical perspective on the favorite liquidity injection tool: Currency swaps. These coordinated interventions are not a solution to the crashes, but their cause, within a game of chicken and egg. But I’ve just given you the conclusion. I need to back it now… To read this article in pdf format, click here: May 5 2013 With equity valuations no longer levitating but in a different, 4th dimension altogether, and credit spreads compressing... Which fiduciary portfolio manager can still afford to hedge? Any price to hedge seems expensive and with no demand, the price of protection falls almost daily. The CDX NA IG20 index (i.e. the investment grade credit default swap index series 20, tracking the credit risk of 125 North American investment grade companies in the credit default swap market) closed the week at 70-71bps. The index was at this level back in the spring of 2005. By the summer of 2007, any credit portfolio manager that would have wanted to cautiously hedge with this index would have seen a further compression of 75% in spreads, completely wiping him/her out. It is in situations like these, when the crash comes, that the proverbial run for liquidity forces central banks to coordinate liquidity injections. However, something tells me that this time, the trick won’t work. In anticipation to the next and perhaps final attempt, I want to offer today an historical perspective on the favorite liquidity injection tool: Currency swaps. These coordinated interventions are not a solution to the crashes, but their cause, within a game of chicken and egg. But I’ve just given you the conclusion. I need to back it now… How it all began Let me clarify: By currency swaps, I refer to a transaction carried out between two central banks. This means that currency swaps cannot be older than the central banks that extend them. On the other hand, foreign exchange swaps between corporations may date back to the late Middle Ages, when trade began to resurface in the Italian cities and the Hansastdte . Having said this, I believe that currency swaps were born in 1922, during the International Monetary Conference that took place in Geneva. This conference marked the beginning of the Gold Exchange Standard, with the goal of stabilizing exchange rates (in terms of gold) back to the pre-World War I. According to Prof. Giovanni B. Pittaluga (Univ. di Genova), there were two key resolutions from the conference, which opened the door to currency swaps. Resolution No. 9 proposed that central banks “… centralise and coordinate the demand for gold, and so avoid those wide fluctuations in the purchasing power of gold which might otherwise result from the simultaneous and competitive efforts of a number of countries to secure metallic reserves… ” Resolution No. 9 also spelled how the cooperation among central banks would work, which “…should embody some means of economizing the use of gold maintaining reserves in the form of foreign balance, such, for example, as the gold exchange standard or an international clearing system… ” In Resolution No. 11, we learn that: “…The convention will thus be based on a gold exchange standard.” (…) “ …A participating country, in addition to any gold reserve held at home, may maintain in any other participating country reserves of approved assets in the form of bank balances, bills, short-term Securities, or other suitable liquid assets …. when progress permits, certain of the participating countries will establish a free market in gold and thus become gold centers ”. Lastly, gold or foreign exchange would back no less than 40% of the monetary base of central banks. With this agreement, the stage was set to manipulate liquidity in a coordinated way to a degree the world had never witnessed before. The reserve multiplier, composed by gold and foreign exchange could be “managed” and through an international clearing system, it could be managed globally. How adjustments worked under the Gold Standard Before 1922, adjustments within the Gold Standard involved the free movement of gold. In the figure below, I show what an adjustment would have looked like, as the United States underwent a balance of trade deficit, for instance: Gold would have left the United States, reducing the asset side of the balance sheet of the Federal Reserve. Matching this movement, the monetary base (i.e. US dollars) would have fallen too. The gold would have eventually entered the balance sheet of the Banque of France, which would have issue a corresponding marginal amount of French Francs. It is worth noting that the interest rate, in gold, would have increased in the United States, providing a stabilizing/balancing mechanism, to repatriate the gold that originally left, thanks to arbitraging opportunities. As Brendan Brown (Head of Economic Research at Mitsubishi UFJ Securities International) explained ( here ), with free determination of interest rates and even considerable price fluctuations, agents in this system had the legitimate expectation that key relative prices would return to a “perpetual” level. This expectation provided “…the negative real interest rate which Bernanke so desperately tries to create today with hyped inflation expectations…” There is an excellent work on the mechanics of this adjustment published by Mary Tone Rodgers and Berry K. Wilson, with regards to the Panic of 1907 (see here ). The authors sustain that the gold flows that ensued from Europe into the United States provided the liquidity necessary to mitigate the panic, without the need of intervention. This success in reducing systemic risk was due to the existence of US corporate bonds (mainly from railroads) with coupon and principal payable in gold, in bearer or registered form (at the option of the holder) that facilitated transferability, tradable jointly in the US and European exchanges, and within a payment system operating largely out of reach from banksters outside of the bank clearinghouse systems. The official story is that the system was saved by a $25MM JPM-led pool of liquidity injected to the call loan market. How adjustments worked under the Gold Exchange Standard During the 1920s and particularly with the stock imbalances resulting from World War I, the search for sustainable financing of reparation payments began. Complicating things, the beginning of this decade saw thehyper inflationaryprocesses in Germany and Hungary. By 1924, England and the United States rolled out the Dawes Plan and between 1926 and 1928, the so called Poincaré Stabilization Plan in France. The former got Charles G. Dawes the Nobel Prize Peace, in 1925. As the figure below shows, against a stable stock of gold, fiat currency would be loaned between central banks. In the case of a swap for the Banque de France, US dollars would be available/loaned, which were supposedly backed by gold. The reserve multiplier vs. gold expanded, of course: With these transactions central banks would now be able to influence monetary (i.e. paper) interest rates. The balancing mechanism provided by gold interest rate differentials had been lost. As we saw under the Gold Standard before, an outflow of US dollars would have caused US dollar rates to rise, impacting on the purchasing power of Americans. Now, the reserve multiplier versus gold expanded and the purchasing power of the nation that provided the financing was left untouched. The US dollar would depreciate ( on the margin and ceteris paribus ) against the countriesbenefitingfrom these swaps. Inflation was exported therefore from the issuing nation (USA) to the receiving nations (Europe). The party lasted until 1931, when the collapse of the KreditAnstalt triggered a unanimous wave of deflation. How the perspective changed as the US became a debtor nation Fast forward to 1965, two decades after World War II, and currency swaps are no longer seen as a tool to temporarily “stabilize” the financing of flows, like balance of trade deficits or war reparation payments, but stocks of debt. By 1965, central bankers are already worried with the creation of reserve assets, just like they are today; with the creation of collate ral (see this great post by Zerohedge on the latter). Indeed, 48 years ago, the Group of Ten presented what was called the Ossola Report , after Rinaldo Ossola , chairman of the study group involved in its preparation and also vice-chairman of the Bank of Italy. This report was specifically concerned with the creation of reserve assets. At least back then, gold was still considered to be one of them. In an amazing confession (although the document was initially restricted), the Ossola Group explicitly declared that the problem “… arises from the considered expectation that the future flow of gold into reserves cannot be prudently relied upon to meet all needs for an expansion of reserves associated with a growing volume of world trade and payments and that the contribution of dollar holdings to the growth of reserves seems unlikely to continue as in the past…” Currency swaps were once again considered part of the solution. Under the so called “currency assets”, the swaps were included by the Ossola Group, as a useful tool for the creation of alternative reserves. Three months, during a Hearing before the Subcommittee on National Security and International Operations, William McChesney Martin, Jr., at that time Chairman of the Board of Governors of the Federal Reserve System, acknowledged a much greater role to currency swaps, in maintaining the role of the US dollar as the global reserve currency. In McChesney Martin’s words: “…Under the swap agreements, both the System (i.e. Federal Reserve System) and its partners make drawings only for the purpose of counteracting the effects on exchange markets and reserve positions of temporary or transitional fluctuations in payments flows. About half of the drawings ever made by the System, and most of the drawings made by foreign central banks, have been repaid within three months; nearly 90 per cent of the recent drawings made by the System and 100 per cent of the drawings made by foreign central banks have been repaid within six months. In any event, no drawing is permitted to remain outstanding for more than twelve months. This policy ensures that drawings will be made, either by the System or by a foreign central, bank, only for temporary purposes and not for the purpose of financing a persistent payments deficit. In all swap arrangements both parties are fully protected from the danger of exchange-rate fluctuations. If a foreign central bank draws dollars, its obligation to repay dollars would not be altered if in the meantime its currency were devalued. Moreover, the drawings are exchanges of currencies rather than credits. For instance, if, say, the National Bank of Belgium draws dollars, the System receives the equivalent in Belgian francs; and since the National Bank of Belgium has to make repayment in dollars, the System is at all times protected from any possibility of loss. Obviously, the same protection is given to foreign central banks whenever the System draws a foreign currency. The interest rates for drawings are identical for both parties. Hence, until one party disburses the currency drawn, there is no net interest burden for either party. Amounts drawn and actually disbursed incur an interest cost, needless to say; the interest charge is generally close to the U.S. Treasury bill rate…” My graph below should help visualize the mechanism: Essentially, with these currency swaps, foreign central banks that during the war had shifted their gold to the USA, became middlemen of a product that was a first-degree derivative of the US dollar, and a second-degree derivative of gold. On September 24th 1965, someone called this Ponzi scheme out. In an article published by Le Monde, Jacques Rueff publicly responded to this nonsense, under the hilarious title “ Des plans d’irrigation pendant le déluge ” (i.e. Irrigation plans during the flood). He minced no words and wrote: “… C’est un euphénisme inacceptable et une scandaleuse hyprocrisie que de qualifier de création de “liquidités internationales” les multiples operations, tells que (currency) swaps…” “C’est commetre une fraude de meme nature que de présenter comme la consequence d’une insuffiscance générale de liquidités l’insufficance des moyens dont disposent les Etats-Unis et l’Anglaterre pour le réglement de leur déficit exterieur” My translation: “…It is an unacceptable euphemism and an outrageous hypocrisy to qualify as creation of “international liquidity” multiple transactions, like (currency) swaps…”…“…In the same fashion, it is a fraud to present as the consequence of a general lack of liquidity, the lack of means available to the USA and England to settle their external deficits …” Comparing the USA and England to underdeveloped countries, Rueff added that these also lack external resources, but those that are needed cannot be provided to them but by credit operations, rather than the superstition of a monetary invention disguised as necessary and in the general interest of the public (i.e. rest of the world). With impressive prediction, Rueff warned that the problem would present itself in all its greatness, the day these two countries decide to recover their financial independence by reimbursing with their dangerous liabilities (i.e. currencies). That day, said Rueff, international coordination would be necessary and legitimate. But such coordination would not revolve around the creation of alternative instruments of reserve, demanded by a starving-for-liquidity world. That day would be a day of liquidation, where debtors and creditors would be equally interested and would share the common responsibility of the lightness with which they jointly accepted the monetary difficulties that are present ….Sadly, Rueff’s call could not sound more familiar to the observer in 2013… How adjustments work today, without currency swaps Until the end of the Gold Exchange Standard, even if the reserve multiplier suppressed the value of gold (like today), gold was still the ultimate reserve and had in itself no counterparty risk. After August 15th, 1971, when Nixon issued the Executive Order 11615 (watch announcement here ), the ultimate reserve was simply cash (i.e. US dollars) or its counterpart, US Treasuries. And unlike gold, these reserve assets could be created or destroyed ex-nihilo. When they are re-hypothecated, leverage grows unlimited and when their value falls, valuations dive unstoppable. Because (and unlike in 1907) the transmission channel for these reserves today is the banking system, when they become scarce, counterparty risk morphs into systemic risk. When Rueff discussed currency swaps, he had imbalances in mind. In the 21st century, we no longer have time to worry about these superfluous things. Balance of trade deficits? Current account deficits? Fiscal deficits? In the 21st century, we cannot afford to see the big picture. We can only see the “here and now”. Therefore, when we talk about currency swaps, the only thing we have in mind is counterparty risk within the financial system. The thermometer that measures such risk is the Eurodollar swap basis, shown below (source: Bloomberg). As the US dollar became the carry currency, the cost of accessing to it became the cornerstone of value for the rest of the asset spectrum, widely known as “risk”. In the chat below, we can see two big gaps in the Eurodollar swap basis. The one in 2008 corresponds to the Lehman event. The one in 2011 corresponds to the banking crisis in the Eurozone that was contained with a reduction in the cost of USDEUR swaps and with the Long-Term Refinancing Operations done by the European Central Bank. In both events, the financial system was in danger and banks were forced to delever. How would the adjustment process have worked, had there not been currency swaps to extend? In the figure below, I explain the adjustment process, in the absence of a currency swap. As we see in step 1, given the default risk of sovereign debt held by Eurozone banks, capital leaves the Eurozone, appreciating the US dollar. We see loan loss reserves increase (bringing the aggregate value of assets and equity down). As these banks have liabilities in US dollars and take deposits in Euros, this mismatch and the devaluation of the Euro deteriorates their risk profile Eurozone banks are forced to sell US dollar loans, shown on step 2. As they sell them below par, the banks have to book losses. The non-Eurozone banks that purchase these loans cannot book immediate gains. We live in a fiat currency world, and banks simply let their loans amortize; there’s no mark to market. With these purchases, capital re-enters the Eurozone, depreciating the US dollar. In the end, there is no credit crunch. As long as this process is left to the market to work itself out smoothly, borrowers don’t suffer, because ownership of the loans is simply transferred. This is neutral to sovereign risk, but going forward, if the sovereigns don’t improve their risk profile, lending capacity will be constrained. In the end, an adjustment takes place in (a) the foreign exchange market, (b) the value of the bank capital of Eurozone banks, and (c) the amount of capital being transferred from outside the Eurozone into the Eurozone. How adjustments work today, with currency swaps Let’s now proceed to examine the adjustment –or better said, lack thereof- in the presence of currency swaps. The adjustment is delayed. In the figure below, we can see that the Fed intervenes indirectly, lending to Eurozone banks through the ECB. Capital does not leave the US. Dollars are printed instead and the US dollar depreciates. On November 30th, of 2011, upon the Fed’s announcement at 8am, the Euro gained two cents vs. the US dollar. As no capital is transferred, no further savings are required to sustain the Eurozone and the misallocation of resources continues, because no loans are sold. This is bullish of sovereign risk. The Fed becomes a creditor of the Eurozone. If systemic risk deteriorates in the Eurozone, the Fed is forced to first keep reducing the cost of the swaps and later to roll them indefinitely, as long as there is a European Central Bank as a counterparty for the Fed , to avoid an increase in interest rates in the US dollar funding market. But if the Euro zone broke up, there would not be any “safe” counterparty –at least in the short term- for the Fed to lend US dollars to. In the presence of a European central bank, the swaps would be bullish for gold. In the absence of one, the difficulty in establishing swap lines would temporarily be very bearish for gold (and the rest of the asset spectrum). Final words Over almost a century, we have witnessed the slow and progressive destruction of the best global mechanism available to cooperate in the creation and allocation of resources. This process began with the loss of the ability to address flow imbalances (i.e. savings, trade). After the World Wars, it became clear that we had also lost the ability to address stock imbalances, and by 1971 we ensured that any price flexibility left to reset the system in the face of an adjustment would be wiped out too. This occurred in two steps: First at a global level, with the irredeemability of gold: The world could no longer devalue. Second, at a local and inter-temporal level, with zero interest rates: Countries can no longer produce consumption adjustments. From this moment, adjustments can only make way through a growing series of global systemic risk events with increasingly relevant consequences. Swaps, as a tool, will no longer be able to face the upcoming challenges. When this fact finally sets in, governments will be forced to resort directly to basic asset confiscation. Average: 4.78261 Your rating: None Average: 4.8 ( 23 votes)
proc report data=sasuser.houses nowd; column style sqfeet bedrooms price; run; a list report that displays a row for each observation in the input data set and which calculates the SUM statistic for numeric variables Answer: By default, PROC REPORT displays character variables as display variables. A report that contains one or more display variables has a detail row for each observation in the data set. By default, PROC REPORT displays numeric variables as analysis variables, which are used to calculate the default statistic SUM. 疑问： 全部是数字以及有字符型变量结果不同。不是添加一个sum数据行的事。 proc report data=resdat.class nowd; column age weight height; run; OUT: SAS 系统 2013年03月18日 星期一 上午12时34分57秒 12 Age Weight Height 253 1900.5 1184.4 proc report data=resdat.class nowd; column sex age weight height; run; SAS 系统 2013年03月18日 星期一 上午12时34分57秒 13 S e x Age Weight Height F 11 50.5 51.3 F 12 77 56.3 F 13 84 56.5 M 12 83 57.3 M 11 85 57.5 M 12 99.5 59 F 12 84.5 59.8 F 15 112.5 62.5 M 13 84 62.5 F 14 102.5 62.8 M 14 102.5 63.5 F 14 90 64.3 M 12 128 64.8 F 13 98 65.3 F 15 112 66.5 M 15 112 66.5 M 15 133 67 M 14 112.5 69 M 16 150 72
If you do not specify the LIBRARY= option, formats are stored in a default format catalog named Work.Formats. As the libref Work implies, any format that is stored in Work.Formats is a temporary format that exists only for the current SAS session.
W(h)ither China? "The End Of Extrapolation" By Tyler Durden Created 11/22/2012 - 22:55 Submitted by Tyler Durden on 11/22/2012 22:55 -0500 China Corporate Leverage Corruption default Eurozone fixed France Global Economy Gross Domestic Product Reality Sovereign Debt On November 5, just as the 18th Chinese Congress was about to elect a leadership that would merely perpetuate the status quo, in " The Chinese Credit Bubble - Full Frontal " we presented a little known fact: namely that while China's sovereign debt is whatever the country wishes it to be (which due to the SOE basis of its banks is really a hybrid of sovereign and financial debt), one bubble that the country can not hide is that of its corporate debt level, which has hit the highest relative to GDP level in the enitre world. Ten days later Businessweek followed up with " Corporate China's Black Hole of Debt ", which contained the following replica chart: And so the cat of China's real debt bubble is out of the bag and out for general consumption. Yet as promptly as it appeared, it was forgotten, as a desperate for any favorable economic news punditry has ignored the fact that economic data coming out of China is merely for propaganda purposes and consumption by the gullible (not our words, they belong to China's current Vice Premier and the man who will soon take the post of Premier, Li Keqiang, who 5 years ago said that " China's GDP figures are "man-made" and therefore unreliable ... figures, especially GDP statistics, are 'for reference only,' he said smiling. "), and has latched on to the prior month of modestly more favorable, "rebounding" economic statistics. As UBS George Magnus says, "Many people think the downswing has now ended, pointing to slightly feistier data in September and October for industrial production, fixed asset investment, retail sales, and exports, continued high levels of total social financing, and a renewed rise in corporate leverage." The trivial rebound will soon end but a far bigger problem will then reemerge: " the short-term outlook for growth pales into significance against the view that China will continue to grow at 7-8.5% for the foreseeable future ." And herein lies the rub: because while China is currently experiencing a brief dead cat bounce, a far greater question remains open: can China reverse its declining GDP growth rate and continue growing at what most realists now perceive as an unsustainable pace . Says Magnus in attempting to provide an answer: "This rests on three critical but questionable propositions: political will and capacity, the insensitivity of consumption to the investment outlook, and the nature of rebalancing, itself." Magnus then proceeds to share his vision of whether China can "rise above" the reality of an economy forced to transition from investment driven to one of consumption: a vision which is the topic of his latest paper titled " China: the end of extrapolation ." In short, his answer (which at 11 single-spaced pages is hardly short) is that the party in China has ended. Of course, he is far more diplomatic: After a decade or more of turbo-charged growth, the economic model that drove it has led to deep imbalances, especially as regards the investment and consumption shares of GDP, significant increases in both the investment- and credit-intensity of GDP growth, and the distribution of income between profits and wages. A host of institutional, monetary, financial, tax and other fiscal arrangements has been developed to support this economic model. As we will explain below, changing this model has become of paramount importance if China is to avoid a disruptive bust in investment in the next 1-2 years, and lapse into a middle income trap in the medium-term. A change is all the more important as China’s competitive advantages in the global economy are slowly being chipped away by rising wage and labour cost pressures at home, and the development of cheap energy and new lower-cost, advanced manufacturing technologies in the US, South Korea and other OECD countries. The biggest issue for a largely welfare safety-net free China has been balancing economic growth with broad prosperity. Focusing just on one, can and will promptly lead to social instability and "rising pressure": Social pressures have continued to build with respect to income inequality, corruption, living and working conditions of migrant workers, miscarriages of justice and ‘land grabs’ by local government officials, and air and water quality and environmental degradation. According to one Chinese sociologist, the number of incidents of unrest may have been of the order of 180,000 in 2010. So China has to keep growing at the required pace of 7%+ to keep the population mostly satisfied. But how, now that as noted above, the "turbo-charged" growth period is over. And how when the new Chinese Politburo leaders are even more conservative than the old ones, and even less willing to force the much required transition from an investment-driven to a consumption-led model. The first proposition, following on from the political economy issues discussed above, is that the government has the political will and capacity to introduce reforms that lead to both a sharp fall in the investment share of GDP, and a roughly equivalent rise in the consumption share by strengthening or introducing important adjustment mechanisms discussed earlier. But we don’t know yet how strong the climate for reform in China is, even though there is a popular feeling that things can’t carry on as before. Some initiatives of political reform, aimed at restoring trust in the Party by curbing corruption and ‘purifying’ the Party so as to prevent the abuse of power for personal gain, certainly seem likely. More radical political reform, though, doesn’t look likely. ... This raises questions about the wider significance of rebalancing, which means reforms that would abandon the key drivers of the ‘old model’, including wage rises significantly below productivity growth, repressed interest rates, a managed exchange rate, and other subdued factor prices, that is, of land, water, energy, and importantly, of capital. There is little question that, over a decade and more, a correction of repressed factor prices, money and capital especially, would help to generate the resource shift needed to drive a more household- and private enterprise-oriented economy, and strengthen resource allocation, efficiency, innovation and total factor productivity. We can be hopeful that China’s new leaders will reform gradually in this direction. But intent will count for little in the face of inertia or a concerted push-back or resistance from others in the Party and the state apparatus, and it may be prudent to remain cautious. Remember that fundamental economic reforms are all about politics that are highly controversial and could, in some respects perhaps, prove to be of existential significance to the Party. So while politics is certainly the primary consideration for what is still largely a centrally-planned economy, an even bigger concern may be simple math. The maths are problematic . If investment is 50% of GDP and the growth rate falls from 15% to say, 5% per annum, consumption growth has to accelerate from about 8% to an unprecedented 12% per annum or so if the underlying GDP growth rate is to stay at 7.5%. You can do the maths of alternative scenarios at leisure, but the bottom line is that rebalancing requires investment to grow more slowly than GDP, and consumption significantly faster over an extended period of time. Otherwise the model isn’t changing. The more structural reason is that the mechanisms that would allow consumer spending to strengthen further don’t yet exist, and would, in any event, compromise the legacy sources of economic growth that have generated structural imbalances in the first place. For example, higher wages dent corporate profits and investment; higher interest rates and a stronger exchange rate help consumers, but to the disadvantage of companies, whose debt-servicing capacity would be compromised; pro-household tax, income and social security reforms have to be financed, one way or another, by companies, or the government . The issue, specifically in China, is more about the speed of capital accumulation, and misallocation of capital, given that, uniquely, the investment share of GDP has been in a range of 40-50% for about a decade now. Roughly two-thirds of the stock of capital has been built in the last decade, and half of infrastructure investment since 2000, for example, has been in transportation projects, many of which serve the same objectives, and must, for a while at least, be redundant or not viable commercially.15 And while total factor productivity growth, which is a measure of the efficiency of capital and labour utilisation, did rise strongly during the 2000s to about 4% per annum as the pre-imbalances apex boom gathered momentum, it has fallen back to around 2% per annum since. But perhaps the biggest concern is the one that needs no introduction on this website, and is always summarized simply in what is the real four letter word: debt . It is well known that China has experienced strong credit expansion. The growth in regular RMB loans by banks may have slowed down from about 35% in 2009, to a more modest 15% since the middle of 2011, but these loans capture only half of China’s credit creation. Total social financing includes also a number of informal financing arrangements, including commercial bills, trust and entrusted loans, other trust assets and corporate bonds not held by banks. The last item, in particular has been growing rapidly, reaching a record RMB 300bn in October 2012. The different definitions of credit creation are shown in the following chart, which comes from a research note by UBS China economist, Tao Wang. The chart differentiates between regular bank loans, the total of bank credit and off-balance sheet credit, and total credit in the economy. As hown, the broadest credit share of GDP has grown from about 150% in 2007 to around 200% in the last 5 years, quite unprecedented for a country of China’s size. The rising credit intensity in the economy is also evident in the changes in the relationship between total social financing and GDP. Between 2002 when the former data start and 2007, credit outstanding grew by RMB17 trillion, compared with a rise in GDP of RMB14.5 trillion, a ratio of 1.2, but since then, credit has soared by nearly RMB61 trillion, compared to a rise in GDP of RMB25.5 trillion, or a ratio of 2.. The biggest expansion in debt financing has occurred in the corporate sector. Chinese companies’ debt ratios have risen to join some of the most indebted corporate sectors in major countries, according to Li Yang, vice-president of the Chinese Academy of Social Sciences.19 At 107%, the ratio is right up there with those of the US, Canada, France and the Eurozone, though the standardised OECD ratios may not accord to Li Yang’s definition. But he noted the recent BIS warning that corporate debt levels over 90% of GDP make companies increasingly sensitive to changes in income and interest rates, financial fragility and default risk. These things are liable to weigh on SOEs and other companies, as GDP growth slows, profits and cash flows weaken and in the wake of expected financial liberalisation. And, inevitably, tougher times for orrowers mean tougher times for banks. Most people doubt the officially estimated 0.97% is a realistic number, and higher loan losses are inevitable. China is better equipped financially than most to deal with banking sector loan loss or recapitalisation issues. The point, though, is that someone has to pay: the cost is almost bound to fall on the household sector, one way or another, and so where does that leave rebalancing? Most ominously, however, is the realization that China too is now engaging in the developed world's favorite pastime, simply known as "kicking the can". Unfortunately, it isn’t really possible for us, or more to the point, China’s government, to know precisely where the country stands in this process, any more than people were able to gauge where the West was in 2006, for example. A Chinese Minsky Moment, to coin another phrase, may not be imminent. In a highly managed economy with dominant state industrial and banking sectors, the state can deploy policies, and sources of finance to minimise cyclical fluctuations (as now), helping to sustain the status quo and lowering perceptions of risk. But this is the equivalent of ‘kicking the can’ at the risk of a harsher and more disruptive adjustment later Finally, Magnus on what happens if instead of the hoped for 8% trendline growth, China can at best muster half of the previous 10% growth rate: The incremental changes in economic rebalancing, and gradual deceleration in investment spending, which are implicit in the extrapolations of 7-8% GDP growth, don’t stack up for this scribe. A more significant fall to 5% over the coming decade – to pick a number – need not be the cataclysm that springs to mind, unless you’re a dyed-in-the-wool industrial commodities and commodity currency bull.... A halving of China’s superlative growth rate would still see GDP double by 2027, and continue to converge on the US. And since we can imagine China’s citizens care more about living standards than GDP, a change in the economic model and in its incentive systems need not be threatening, if the process is managed well and in a timely fashion. But there’s an unfortunate truth about changing your development model, which is that when you get to the point of having to do so, sustainable and stable growth and prosperity are about politics, institutions and legitimacy. You have reached the end of extrapolation. Much more in the full paper below, which is a perceptive analysis to be sure, but really one which puts into words what the simple chart at the very top of this article succinctly summarizes without a single word: that the age of credit-driven expansion is over, in the entire developed world, as well as in China, as China too succumbs to the tractor beam of peak consolidated (or is that fungible?) leverage . Because without the ability to create any more debt, and thus money, out of thin air without the threat of an ensuing debt delinquency, discharge and default avalanche, there is no more growth. Full George Magnus paper on China : Tweet
America's Demographic Cliff: The Real Issue In The Coming, And All Future Presidential Elections Submitted by Tyler Durden on 08/18/2012 15:30 -0400 BLS Bureau of Labor Statistics Census Bureau Congressional Budget Office default Department of Justice FBI Gallup Germany Gross Domestic Product Japan Medicare None Obamacare Unemployment In four months the debate over America's Fiscal cliff will come to a crescendo, and if Goldman is correct (and in this case it likely is), it will probably be resolved in some sort of compromise, but not before the market swoons in a replica of the August 2011 pre- and post-debt ceiling fiasco: after all politicians only act when they (and their more influential, read richer, voters and lobbyists) see one or two 0's in their 401(k)s get chopped off. But while the Fiscal cliff is unlikely to be a key point of contention far past December, another cliff is only starting to be appreciated, let alone priced in: America's Demographic cliff , which in a decade or two will put Japan's ongoing demographic crunch to shame, and with barely 2 US workers for every retired person in 2035 , we can see why both presidential candidates are doing their darnedest to skirt around the key issue that is at stake not only now, be every day hence. Sadly, the market which due to central-planner meddling, has long lost its discounting capabilities, and is now merely a re active mechanism, will ignore this biggest threat to the US financial system until it is far too late. After all it is the unsustainability of America's $100+ trillion in underfunded welfare liabilities that is the biggest danger to preserving the American way of life, and will be the sticking point in the presidential election in 80 days. However, don't expect either candidate to have a resolution to the demographic catastrophe into which America is headed for one simple reason. There is none. The problem in a nutshell: the first wave of Baby Boomers, born between the years of 1946 and 1964, officially reached retirement age in 2011. There are a whole lot of Baby Boomers - just under 76 million, to be exact - that will depend on new money flowing into the system to help keep the entitlements coming. According to the latest Social Security and Medicare Board of Trustees 2012 Annual Reports Social Security now pays out more than it takes in, and is expected to do so for the next 75 years. And while the market, and its "discounting" may now be largely irrelevant, those who care to be educated about the facts behind America's Demographic Cliff, here is ConvergEx and " Talkin' 'bout your generation " According to the Census Bureau’s Current Population Survey, about 40.2 million people – 13% of the entire US population – are 65 years or older and eligible to receive government entitlements such as Medicare and Social Security. At current levels, spending on these entitlements make up about 8.7% of GDP – about $1.3 trillion. While this may sound sustainable over the short term, in coming years the amount of entitlement outlays necessary to keep up with retiring Baby Boomers is going to send spending through the roof. By 2030, for example, a full 19.3% of the population will be claiming SSI and Medicare benefits, based on the Census Bureau’s population projections (the CB uses an adjustment factor for the age cohorts based on mortality rates, foreign-born immigration, and life expectancy). For simplicity’s sake, here’s a decade-by-decade look at where the aging population – and expenditures – will be in the years to come, courtesy of the Census Bureau and the Congressional Budget Office (CBO): In 1900, 4.1% of the US population was 65+. By 1950, this number had almost doubled to 8.1%. As the chart following the text shows , the Baby Boomers (now ages 48-66) represent the most significant population wave in US history. According to the CBO, the population aged 65 and over will increase by 87% over the next 25 years as Baby Boomers enter retirement, compared to an increase of only 12% in those aged 20-64. This year, 13% of the US population is 65+ and entitlement spending accounts for 8.7% of GDP . And that number only includes SSI and Medicare, not Medicaid and future Obamacare subsidies which add to these outlays. In 10 years (2022): 16.1% of the population will be 65+, entitlement spending estimated at 9.6% ($1.5 trillion, based on 2011 US GDP) 2037 (25 years on): 20 % of the US population will be 65+, entitlement spending estimated at 12.2% of GDP ($2.0 trillion) Not surprisingly, there will be far more women than men in the 65+ population . Women currently live about five years longer than their male peers, on average. Accordingly, the Census Bureau estimates that in 2030, there will be about 8 million more women than men that are 65 and older by 2030: 27.8 million versus 35.7 million. It’s a pretty tough picture, to say the least; as the population ages, we’re looking at more and more money dedicated to retirement benefits with a smaller workforce to fund the spending. We’re not the only ones, either: Japan is in worse shape than the US, with 23.1% of the population already over 65. In 2050, government statistics forecast that number to be 39.6%. Europe’s in the same boat: 17.4% of the population in EU countries was 65+ in 2010, and it’s expected to be about 30% by 2060. The developed world, essentially, is facing a demographic “Fiscal cliff” with no clear-cut strategies for how to fund the liabilities inherent in an entirely predictably aging population . Are there any social positives that might mitigate this plethora of indisputable financial concerns ? The math is the math, as quants are fond of saying, so I don’t expect that there are overwhelming offsets to the problem of an aging population. But there are some notable “Positives” which don’t get the attention they deserve because they offer such a lightweight counterbalance to the challenges I outlined above. Still, here are a few thoughts: Stronger voter turnout/greater engagement in the political process . The 65+ age group has beaten out every other age cohort in voter turnout in every Presidential and Congressional election since 1980. In the latest presidential election, 68.1% of those aged 65+ went to the polls, versus and average of 51.2% for the rest of the voting-age population. The reason for this differential is straightforward: it easier for retired persons to vote given fewer time restrictions, allowing the higher turnout rate. But given an average turnout of 58.2% overall in 2008 for Obama’s election, compared to an average of 70-80% in other developed countries (Japan, Germany, Canada, Spain), the growing 65+ population will certainly help the U.S. come closer to its developed country peers on this metric. The stronger turnout of these voters, and their sheer numbers, are also likely to have an important impact on US political races in the years to come . They’re going to be the biggest voting bloc in American history, if patterns hold: 68% of them is almost 52 million, larger than the entire Black/African American voter population, for example. And like other older generations, according to a study by the Pew Research Center done in late 2011, Boomers have become slightly more conservative as they’ve aged, and slightly more of them (45% vs. 51%) intend to vote for Governor Romney in the upcoming election. However, given that one of their main concerns is the maintenance of entitlement spending, it seems unlikely that Boomers will continue to support a party that recommends reducing the deficit by cutting entitlements. All candidates, then, and especially the GOP, will need to take a hard look at the wants and needs of the Boomers. The 2012 Presidential election – and many others afterwards - will quite literally depend on their votes. Lower crime rates . The younger population is by far the more crime-prone age cohort, according to the Department of Justice and the FBI Uniform Crime report. The DOJ publishes an annual report on arrests by age, the first occurring in 1980 and the latest in 2009. Over these years, the number of total arrests has increased by 30.9% for the entire population; for the 65+ population, it’s gone up 0.3%. Moreover, the Baby Boomer generation (in 2009, ages 45-53) accounted for only about 7% of all crimes. What were their most “Popular” crimes? Drunkeness and DUI. Violent crimes are almost exclusively the MO of the 18-29 cohort, who account for almost half (44%) of all arrests. It’s not too far of a stretch, then, to think that as our population ages, we can expect less and less violent crime across the country – though you may want to be careful on the roads. Lower resource consumption. The older population tends to cut down on resource consumption after retirement, particularly in the case of gasoline. Once they no longer need to commute to work and move into smaller, more affordable houses, the amount of fuel needed for transportation and heating/cooling should drop, perhaps significantly. Take motor gasoline usage as a benchmark . Just under 60 million Baby Boomers consider themselves a part of the labor force, according to BLS data. 85% of all Americans drive to work, according to a late 2010 Gallup poll, with an average commute of 30 miles round-trip – about 45 minutes – and an average of 20mpg (courtesy of the Bureau of Transportation Statistics). Using these estimates, we can calculate that the average Baby Boomer commuter uses about 33 gallons of gas each month; assuming that 85% of them drive every day, that’s about 1.7 billion gallons of gas being used per month. As they retire, there are actually fewer new entrants into the workforce to replace them, meaning fewer drivers and less fuel consumption. Growing domestic service economy . An older population becomes more and more dependent on services as they age, particularly in the realms of healthcare and transportation. More and more people will be needed to fill the void in these service areas as the Boomers retire. Luckily for the US workforce, these are jobs that can’t be outsourced: healthcare especially depends on on-site care and personal service. In fact, as the population has begun to age, the US has already seen some steady growth in service-related positions . The BLS’s Occupational Employment data logs the number of occupations across the US in major industry sectors as well as almost 800 detailed occupations. According to the survey, the US has seen a -3.3% drop in job growth overall. Healthcare and “Personal Care”, however, have grown 13% and 11% each since that year. Occupations such as physician’s assistants, pharmacy technicians, and home health aides are in high demand, and will most likely continue to be so as the population ages and begins to rely more heavily on these services. Declining unemployment and increased labor force participation for this segment of the workforce . One of the most unique aspects of today’s aging population is their continued presence in the workforce. According to the BLS, 23.4% of Americans age 65+ were in the labor force as of June 2012, making up a full 4.5% of the total civilian labor force. They also had a below-average unemployment rate of 6.9%. If this trend continues, we’re likely to see more productivity from the upper end of the age spectrum in years to come as Boomers delay retirement in favor of working. On the flip side, as more of the aging population retires and leaves the workforce, more job opportunities will open up for those who are currently unemployed. The youngest members of the workforce, ages 18-24, will be the biggest beneficiaries of this shift, as they typically seek the same kind of jobs that the older population currently occupies. When these positions are vacated by the older group, then, and refilled by the younger groups, we may see a decline in youth unemployment rates. The older workforce also opens an interesting opportunity for some employers . The younger half of the Baby Boomer generation is tech-savvy, experienced, and definitely needs the money. This set of skills won’t go unnoticed in the labor market. Unfortunately, these societal “benefits” are only a thin silver lining on a very, very dark cloud. Social Security and Medicare spending are projected to grow exponentially as healthcare costs explode and the biggest population wave in the history of the US starts to enter retirement. The Congressional Budget Office expects spending to increase by 150% over the next 25 years, which is hardly sustainable with barely 2 workers for every retired person in 2035... there’s a storm a comin’ Sources here: http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook.pdf http://www.census.gov/prod/2010pubs/p25-1138.pdf http://www.census.gov/compendia/statab/cats/elections/voting-age_population_and_voter_participation.html http://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htm http://www.bls.gov/emp/ep_table_304.htm http://www.bts.gov/publications/national_transportation_statistics/html/table_04_23.html http://www.openleft.com/diary/13242/the-future-of-the-electorate-age-and-party-id http://www.people-press.org/files/legacy-pdf/11-3-11%20Generations%20Release.pdf http://www.bjs.gov/index.cfm?ty=datoolsurl=/arrests/index.cfm# Average: 4.77778 Your rating: None Average: 4.8 ( 9 votes) Tweet Login or register to post comments 7833 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: The Ever-Increasing Age Of Retirement Japan's Demographic Death Rattle In 3 Charts And 333 Words The twin lost decades in housing and stocks What The US Government Spends Its Money On Inside America's Economic Machine - An Infographic
Diagnosing Liquidity Addiction Submitted by Tyler Durden on 06/22/2012 08:47 -0400 Central Banks Commercial Paper CRB CRB Index default Deutsche Bank Gross Domestic Product Lehman Market Crash Nominal GDP Primary Dealer Credit Facility recovery Over the last few weeks markets have recovered from the significant stresses that were building towards the end of May (until yesterday's slow realization). The recovery has been in no small part due to expectations of intervention and that fresh rounds of QE and their equivalents will soon be implemented around the developed world. Deutsche Bank believes that markets are now addicted to stimulus and can’t function properly without it as they show that the periods between central bank balance sheet activity have actually been fairly poor/average periods for risk assets over the last three years. There is little evidence yet to suggest that markets in this post crisis world have the ability to prosper in a period without heavy intervention, though empirically asset prices benefit from liquidity but that the environment remains fragile enough for them to struggle to maintain their levels when the liquidity stops. Finally, they note that while QE in the US was partly implemented to bring long-term yields down to encourage investors into riskier assets and help lower borrowing/funding rates, the evidence is actually contrary to this. Critically, they agree with us that the structural problems the West faces mean that QE and its equivalents and refinements will likely need to be around for several years to come to ensure that the financial system and its economies don’t relapse into a depressionary tail-spin. There is no evidence that we are currently close to being able to wean ourselves off our liquidity addiction. The hope would be that with further injections we can prevent the worst case scenario but the base case remains for the stress and intervention cycle repeating itself as far as the eye can see. Central banks still have much to do. Deutsche Bank: A World Addicted To Liquidity Risk assets before, during and after monetary stimulus in the US Here we focus on the performance of risk assets through QE1 and QE2 as well as through Operation Twist. For each program we look not just at the actual announcement dates and program start and finish dates but also the date when it might be argued that further stimulus started to be priced in. Below in Figure 1 we provide a brief description for each of the three programs along with the relevant dates and explanations for those dates. The Fed’s balance sheet In Figure 2, we first take a look at the Fed’s balance sheet growth since the crisis started. The shaded areas highlight the three phases of monetary stimulus that have taken place and we have split each of them into three sections, as described below. The period where we have argued that QE/stimulus started to be expected until it was actually announced. The period from the announcement date to the actual start date. The period from the start date to the end date. The first major step change occurred in the weeks immediately after the Lehman default where the Fed looked to provide short-term funding to the market as interbank lending ground to a halt. These facilities included the Primary Dealer Credit Facility, the Term Auction Facility, the foreign-exchange swaps with other central banks, the Commercial Paper Funding Facility and the various money market support facilities. After that, the two rounds of QE did see the balance sheet increase by several hundred Billion Dollars. However since QE2 officially ended on June 30th 2011 the Fed’s balance sheet has been broadly static which is understandable given that Operation Twist simply extends the duration of their balance sheet rather than increasing it. Equities and credit performance In Figure 3 and Figure 4 we look at the performance of equities and credit through each of the three distinct monetary stimulus programs. Highlighting these phases of stimulus as described above. The take away from all three programs is that both credit and equities definitely seemed to benefit from the stimulus as in general risk assets had been quite weak leading up to the stimulus before generally performing through much of the stimulus period. It’s also probably worth noting that the magnitude of the performance seems to have diminished with each round of QE/stimulus . Of perhaps more interest is that since QE2 ended almost exactly a year ago, the SP 500 has essentially been flat. One would have to say that balance sheet expansion has been more risk positive than simply Twisting. Commodities – Benefitting from balance sheet expansion but not from Twist? The story for commodities is fairly interesting. As we can see in Figure 5, focusing on the CRB index, commodities certainly seemed to benefit from the liquidity boost provided by both QE1 and QE2. It’s also interesting to note towards the end of both QE1 and QE2 commodities started to weaken quite aggressively perhaps indicating their correlation to actual injections of liquidity. Indeed the period around Operation Twist has seen the CRB index fall by around 20%. Perhaps this is not entirely surprising. If our hypothesis about liquidity being the main reason for the rally during QE1 and QE2 then the fact that Operation Twist didn’t actually add any more liquidity could be a key reason for the lack of positive momentum for commodities . Treasuries – A confusing picture With regards to 10 year Treasuries the picture is slightly more confusing. The original broad intention of QE was to bring down yields to encourage money into riskier assets and investments. Figure 6 shows that QE1 actually saw yields rise sharply from around 2% as speculation of QE started to 2.5% on the announcement to 4% as the first round ended. This perhaps shows that the market believed that QE was very positive for the economy which outweighed the reduction of supply of Treasuries in the market place . Like with QE1, QE2 actually sent yields higher again to around 3.75% within 6 months as hope again prevailed that QE could restore health to the economy . However the data turned in early 2011 and yields fell back to around 3% by the time QE2 ended. Immediately after QE2 ended we then saw 10 year yields rally to below 1.65% in less than 3 months which repeated the extreme rally seen after QE1 ended. This is pretty much where yields are today as Operation Twist hasn’t had any lasting impact on yields. So overall, although QE was supposed to lower yields, the two largest rallies of the last 3 years have occurred in the period between QE1 and QE2 and then the period between QE2 and Operation Twist. The US economy before, during and after monetary stimulus We now turn our attention to how the US economy has reacted to the various stimulus programs. In order to have a fairly timely indicator of economic activity we have used the ISM manufacturing PMI, showing its progression through the various stages of QE. Focusing initially on QE1 we can see that the US economy saw a strong recovery based on the ISM as it rose from below 35 to around the 60 level. Where QE1 was very successful was that it pulled the economy out of a potential depressionary tailspin. For both QE2 and Operation Twist although the ISM has remained above the important 50 level throughout we have not seen the same kind of improvement in the PMI. In fact during QE2 it actually fell from around 60 to the low 50s where it broadly stands today. Indeed if we look back through history this recovery is one of the weakest on record in spite of all the Fed actions, plus the three largest peacetime deficits in the US on record. Figure 8 reminds us that only the recovery of 1927 (that ran into the 1929 stock market crash) has been weaker than this one in Nominal GDP terms. This probably tells us that a) the structural problems that encouraged QE were much larger than most believed at the time and b) that QE has limited power to actually power growth forward in such an environment. With regards to the European economy, it’s also interesting that the PMIs did pick up over the period of the LTROs before falling again immediately after their completion. Europe more than anyone is perhaps addicted and in need of constant intervention to prosper. Average: 4.857145 Your rating: None Average: 4.9 ( 7 votes) Tweet Login or register to post comments 6317 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: San Fran Fed Defends QE2 By Comparing It To Gold Scramble Prevention Contraption "Operation Twist" BofA's Jeffrey Rosenberg Blasts QE2, Says It Will Lead To Bubbles And Further Confidence Destruction Why QE2 + QE Lite Mean The Fed Will Purchase Almost $3 Trillion In Treasurys And Set The Stage For The Monetary Endgame Rosenberg Joins Chorus Of Those Accusing Bernanke Of Asset (Read Stock) Price Targeting Hilsenrath Speaks: "Fed Prepares To Act"
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