MAX KEISER PLANTS HIS FLAG: TOTAL GLOBAL ECONOMIC COLLAPSE BY APRIL 2013; COUNTRIES WILL BEGIN TO IMPLODE ONE BY ONE; ONE WORLD GOVERNMENT IS HERE; WORLD TAX IS HERE
October 6, 2012 37 Comments
-
MAX KEISER PREDICTS GREAT BRITAIN, GREECE AND SPAIN ARE ON THE VERGE OF HISTORIC COLLAPSE; TOTAL GLOBAL ECONOMIC COLLAPSE BY APRIL 2013
-
MAX KEISER: 2013 WILL BE THE YEAR OF THE GREAT GLOBAL ECONOMIC COLLAPSE; TOTAL GLOBAL ECONOMIC COLLAPSE BY APRIL 2013
-
MAX KEISER: THE MOTHER OF ALL BANKING COLLAPSES IS COMING; WILL BE THE BIGGEST COLLAPSE IN WORLD HISTORY; BIGGEST WEALTH CONFISCATION IN WORLD HISTORY
-
KEISER REPORT WITH PETER SCHIFF: THE CENTRAL BANKING REVOLUTION WILL END IN DISASTER; 2013 WILL BE THE YEAR OF CRAZYFLATION
Max Keiser and Stacy Herbert look at the the central bank revolution that will end in disaster with Japan leading the way after voters have demanded even more aggression with the nation’s monetary policy. They also look at Moody’s ratings getting no respect because nobody has done better than flipping a coin for 50 years in a slow burning prison. In the second half, Max Keiser talks to Peter Schiff about bonds, dollars and governments buying their own debt.
-
MAX KEISER: WEALTH, WAGES, AND LIBERTY EXTINCTION TO BEGIN IN 2013
-
MAX KEISER: WHY FOREIGNERS ARE PULLING THEIR GOLD; TOTAL GLOBAL ECONOMIC COLLAPSE TO BEGIN APRIL 2013
-
RELATED POSTS:
PRESIDENT OBAMA’S ELECTION NIGHT VICTORY SPEECH – NOVEMBER 6, 2012 IN CHICAGO, ILLINOIS
.
.
WHO RUNS THE WORLD? SOLID PROOF THAT A CORE GROUP OF WEALTHY ELITISTS IS PULLING THE STRINGS
.
LINDSEY WILLIAMS: THE TIMELINE TO AMERICA’S TOTAL DESTRUCTION
.
.
THE GLASS-STEAGALL SIGNING REVOLUTION
.
.
WALTER ZIMMERMANN: MAJOR STOCK MARKET CRASH BY DECEMBER 2012
-
DR. PAUL CRAIG ROBERTS: TRIPLE BUBBLE IMPLOSION IS COMING
Infowars.com
March 23, 2013
Alex welcomes American economist and renowned columnist Paul Craig Roberts to examine the Cyprus bank crisis situation and America’s own crumbling economy.
-
MARC FABER: NOT EVEN GOLD WILL BE ABLE TO SAVE YOU FROM WHAT IS COMING
By Matthew Boesler |Business Insider
March 27, 2013
Marc Faber, who authors the Gloom Boom & Doom newsletter, is usually pretty bearish on stocks and bullish on gold.
Lately, though, gold doesn’t seem like it can catch a bid.
“Despite the continued reverberations regarding the Cyprus bailout and its involvement of bank deposits, gold struggled to maintain the positive momentum created in the first two weeks of March and instead now looks very likely to move lower, towards $1580/oz,” wrote Deutsche Bank commodities analyst Xiao Fu in a note this morning.
So, what does Faber have to say about it?
This morning, on Bloomberg Surveillance with Tom Keene and Alix Steel, Dr. Doom was asked why gold wasn’t holding up.
Here’s his explanation:
When you print money, the money does not flow evenly into the economic system. It stays essentially in the financial
service industry and among people that have access to these funds, mostly well-to-do people. It does not go to the worker. I just mentioned that it doesn’t flow evenly into the system.
Now from time to time it will lift the NASDAQ like between 1997 and March 2000. Then it lifted home prices in the U.S. until 2007. Then it lifted the commodity prices in 2008 until July 2008 when the global economy was already in recession. More recently it has lifted selected emerging economies, stock markets in Indonesia, Philippines, Thailand, up four times from 2009 lows and now the U.S.
So we are creating bubbles and bubbles and bubbles. This bubble will come to an end. My concern is that we are going to have a systemic crisis where it is going to be very difficult to hide. Even in gold, it will be difficult to hide.
Faber is, of course, still bearish on U.S. stocks. He told Bloomberg that he sees “considerable downside risk” in the market.
-
WHY IS THE WORLD ECONOMY DOOMED? THE GLOBAL FINANCIAL PYRAMID SCHEME BY THE NUMBERS
Michael Snyder
Economic Collapse
March 21, 2013
Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed. As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point. A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.
We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.
Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about. Just look at the numbers that I have posted below.
The following is the global financial pyramid scheme by the numbers…
-$9,283,000,000,000 – The total amount of all bank deposits in the United States. The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits. In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.
-$10,012,800,000,000 – The total amount of mortgage debt in the United States. As you can see, you could take every penny out of every bank account in America and it still would not cover it.
-$10,409,500,000,000 – The M2 money supply in the United States. This is probably the most commonly used measure of the total amount of money in the U.S. economy.
-$15,094,000,000,000 – U.S. GDP. It is a measure of all economic activity in the United States for a single year.
-$16,749,269,587,407.53 – The size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).
-$50,230,844,000,000 – The total amount of government debt in the world.
-$56,280,790,000,000 – The total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.
-$61,000,000,000,000 – The combined total assets of the 50 largest banks in the world.
-$70,000,000,000,000 – The approximate size of total world GDP.
-$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.
-$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
-$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
Are you starting to get the picture?
Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.
What we witnessed back in 2008 was just a little “hiccup” in the system. It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.
Next time it won’t be so easy.
The next wave of the economic collapse is quickly approaching. A full-blown economic depression has already started in southern Europe. Unemployment is at record highs and economic activity is contracting rapidly.
The major offshore banking centers in Cyprus are on the verge of collapsing. It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen. And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.
And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.
The dominoes are starting to tumble, and the United States won’t be immune. In fact, the greatest financial problems that the United States has ever seen are on the horizon.
But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.
The mainstream media will provide you with all of the positive economic news that you could possibly want. They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery. You can listen to them if you want to.
But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.
There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer. At some point it is going to totally collapse. When that happens, will you be ready?
-
17 SIGNS THAT A FULL-BLOWN ECONOMIC DEPRESSION IS RAGING IN SOUTHERN EUROPE – IS THE UNITED STATES NEXT?
Michael Snyder
Economic Collapse
When you get into too much debt, eventually really bad things start to happen. This is a very painful lesson that southern Europe is learning right now, and it is a lesson that the United States will soon learn as well. It simply is not possible to live way beyond your means forever. You can do it for a while though, and politicians in the U.S. and in Europe keep trying to kick the can down the road and extend the party, but the truth is that debt is a very cruel master and at some point it inevitably catches up with you. And when it catches up with you, the results can be absolutely devastating. Greece, Italy, Spain and Portugal all tried to just slow down the rate at which their government debts were increasing, and look at what happened to their economies. In each case, GDP is shrinking, unemployment is skyrocketing, credit is freezing up and manufacturing is declining. And you know what? None of those countries has even gotten close to a balanced budget yet. They are all still going into even more debt. Just imagine what would happen if they actually tried to only spend the money that they brought in?
I have always said that the next wave of the economic collapse would start in Europe and that is exactly what is happening. So keep watching Europe. What is happening to them will eventually happen to us.
The following are 17 signs that a full-blown economic depression is raging in southern Europe…
#1 The Italian economy is in the midst of a horrifying “credit crunch” that is causing thousands of companies to go bankrupt…
Confindustria, the business federation, said 29pc of Italian firms cannot meet “operational expenses” and are starved of liquidity. A “third phase of the credit crunch” is underway that matches the shocks in 2008-2009 and again in 2011.
In a research report the group said the economy was caught in a “vicious circle” where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.
#2 During the 4th quarter of 2012, the unemployment rate in Greece was 26.4 percent. That was 2.6 percent higher than the third quarter of 2012, and it was 5.7 percent higher than the fourth quarter of 2011.
#3 During the 4th quarter of 2012, the youth unemployment rate in Greece was 57.8 percent.
#4 The unemployment rate in Spain has reached 26 percent.
#5 In Spain there are 107 unemployed workers for every available job.
#6 The unemployment rate in Italy is now 11.7 percent. That is the highest that it has been since Italy joined the euro.
#7 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.
#8 Unemployment in the eurozone as a whole has reached a new all-time high of 11.9 percent.
#9 Italy’s economy is starting to shrink at a frightening pace…
Data from Italy’s national statistics institute ISTAT showed that the country’s economy shrank by 0.9pc in the fourth quarter of last year and gross domestic product was down a revised 2.8pc year-on-year.
#10 The Greek economy is contracting even faster than the Italian economy is…
Greece also sank further into recession during the fourth quarter of 2012, with figures on Monday showing the economy contracted by 5.7pc year-on-year.
#11 Overall, the Greek economy has contracted by more than 20 percent since 2008.
#12 Manufacturing activity is declining just about everywhere in Europe except for Germany…
Research group Markit said its index of activity in UK manufacturing – where 50 is the cut off between growth and decline – sank from 50.5 in January to 47.9 in February. It left Britain on the brink of a third recession in five years after the economy shrank by 0.3 per cent in the final quarter of 2012.
Chris Williamson, chief economist at Markit, said: ‘This represents a major setback to hopes that the UK economy can return to growth in the first quarter and avoid a triple-dip recession.’
The eurozone manufacturing index also read 47.9. Germany scored 50.3 but Spain hit 46.8, Italy 45.8 and France 43.9.
#13 The percentage of bad loans in Italian banks has risen to 12.2 percent. Back in 2007, that number was sitting at just 4.5 percent.
#14 Bank deposits experienced significant declines all over Europe during the month of January.
#15 Private bond default rates are soaring all over southern Europe…
S&P said the default rate for Italian non-investment grade bonds jumped to 9.5pc last year from 5.7pc in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3pc.
The default rate in France rocketed from 0.8pc to 8.7pc, the latest in a blizzard of bad news from the country as the delayed effects of tax rises, fiscal tightening, and the strong euro do their worst.
#16 Lars Feld, a key economic adviser to German Chancellor Angela Merkel, recently said the following…
“The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance.”
#17 Things have gotten so bad in Greece that the Greek government plans to sell off 28 state-owned buildings – including the main police headquarters in Athens.
One of the few politicians in Europe that actually understands what is happening in Europe is Nigel Farage. A video of one of his recent rants is posted below. Farage believes that “the Eurozone has been a complete economic disaster” and that the worst is yet to come…
-
-
Most people believe that the eurozone has been “saved”, but that is not even close to the truth.
In fact, it becomes more likely that we will see the eurozone break up with each passing day.
So who would leave first?
Well, recently there have been rumblings among some German politicians that Greece should be the first to leave. The following is from a recent Reuters article…
Greece remains the biggest risk for the euro zone despite a calming of its economic and political crisis and may still have to leave the common currency, a senior conservative ally of German Chancellor Angela Merkel said.
But there is also a chance that Germany could eventually be the first nation that decides to leave the euro. In fact, a new political party is forming in Germany that is committed to getting Germany out of the euro. The following is a brief excerpt from a recent article by Ambrose Evans-Pritchard…
A new party led by economists, jurists, and Christian Democrat rebels will kick off this week, calling for the break-up of monetary union before it can do any more damage.
“An end to this euro,” is the first line on the webpage of Alternative für Deutschland (AfD). “The introduction of the euro has proved to be a fatal mistake, that threatens the welfare of us all. The old parties are used up. They stubbornly refuse to admit their mistakes.”
They propose German withdrawl from EMU and return to the D-Mark, or a breakaway currency with the Dutch, Austrians, Finns, and like-minded nations. The French are not among them. The borders run along the ancient line of cleavage dividing Latins from Germanic tribes.
However this all plays out, the reality is that things are about to get much more interesting in Europe.
No debt bubble lasts forever. The Europeans are finding that out right now, and the U.S. won’t be too far behind.
But for the moment, most Americans assume that everything is going to be okay because the Dow keeps setting new all-time record highs.
Well, enjoy this little bubble of debt-fueled false prosperity while you can, because it won’t last for long.
A massive wake up call is coming, and it will be exceedingly painful for those that are not ready for it.
-
GERALD CELENTE: CYPRUS LOOTING IS ONLY THE BEGINNING FOR GLOBAL ELITE
Infowars.com
March 19, 2013
Alex Jones talks with economic trend forecaster and publisher of the Trends Journal Gerald Celente to discuss the looting of Cypriot bank accounts, and what the future holds for Italy, which may be the next nation to be similarly plundered.
-
CYPRUS TO REOPEN BANKS AND IMPOSE CAPITAL CONTROLS
By Michele Kambas and Costas Pitas
MARCH 27, 2013
NICOSIA (Reuters) – Cyprus trucked out cash for its banks on Wednesday night to prepare them to reopen to a siege by anxious depositors, with tough controls imposed on the use of currency to avert a bank run as a result of its harsh rescue deal.
The Central Bank said banks would open their doors at midday (5 a.m. EST) on Thursday after nearly two weeks when Cypriots could get cash only through limited ATM withdrawals, while the government hashed out the rescue to stave off financial ruin.
Among measures imposed to prevent savers from stripping the bank vaults clean when the doors open: withdrawals will be capped at 300 euros ($380) per day, travelers may take no more than 3,000 euros abroad per trip, and funds can be sent abroad only by businesses that can prove they are paying for imports.
The European Central Bank delivered extra banknotes to Cypriot banks on Wednesday evening to meet demand, a source familiar with the situation said. The ECB declined to comment.
At least three container trucks loaded with cash pulled up inside the compound of the central bank in Nicosia in early evening, a Cyprus central bank source said. A helicopter hovered overhead and police with rifles were stationed around the compound.
The controls, announced in a finance ministry decree, would allow unlimited use of credit cards within Cyprus, but set a monthly limit of 5,000 euros for Cypriots using credit cards abroad. Payment by cheques would be banned.
The central bank would review all commercial transactions between 5,000 and 200,000 euros, and scrutinize any larger transactions on a case-by-case basis.
A central bank official said the measures would initially be imposed for four days, and would be reviewed and relaxed as soon as possible.
“The rationale is that these measures will be reviewed on a daily basis, so if there is the possibility of relaxing them we will,” Yiangos Demetriou, head of internal audit at the Central Bank, said on state television.
Cyprus’s financial difficulties have sent tremors through the already fragile single European currency. The imposition of capital controls has led economists to suggest that a second-class “Cyprus euro” could emerge, with currency trapped on the island worth less than money that can be freely used abroad.
Cyprus has a huge financial sector with 68 billion euros in deposits, operating as an offshore haven for rich Russians and other foreigners. Its bailout is the first time that EU officials have demanded bank depositors take losses as the price of a rescue, causing outrage on the streets and fear that savers will flee with their cash.
Finance Minister Michael Sarris has said capital controls will be “within the realms of reason”. But Cypriots, fearing for their savings and angered by the bailout deal struck on Monday in Brussels, are expected to besiege banks.
Under the bailout, Cyprus’s second largest bank will be closed and its guaranteed deposits of up to 100,000 euros transferred to the biggest bank. Deposits of more than 100,000 euros at both banks would be frozen.
Big depositors will lose money, but the authorities say deposits up to 100,000 euros will be protected, a reversal from an earlier plan that would have hit small depositors as well.
Cypriots have taken to the streets of Nicosia in their thousands to protest against a bailout deal that will push their country into an economic slump and cost many their jobs.
Some 2,500 protesters gathered outside the presidential palace on Wednesday, waving banners and flags. They chanted: “I’ll pay nothing; I owe nothing.”
European leaders said the bailout deal averted a chaotic national bankruptcy that might have forced Cyprus out of the euro.
Critics said the capital controls, which contradict the EU principle of free flow of money and goods, might be hard to give up.
“This is a typical set of exchange control measures, more reminiscent of Latin America or Africa,” said Bob Lyddon, General Secretary of the international banking association IBOS.
He doubted that they would be in force for only a matter of days. “These are permanent controls until the economy recovers,” he said.
A Reuters poll of economists this week showed 30 out of 46 believed the controls would last months, while 13 expected they would endure a matter of weeks. Three said they could last years.
POPULAR ANGER
The terms of the 10-billion euro ($13-billion) rescue from the European Union, International Monetary Fund and European Central Bank have stirred popular anger within Cyprus at the country’s partners in the EU, notably Germany, the bloc’s main paymaster and fiercest advocate of austerity.
The measures have caused alarm among ordinary Cypriots, who worry that they will not be able to pay their bills or draw wages normally paid by cheque.
A 42-year-old Romanian hotel maid, who gave her name as Maria, said she was worried she would not be able to cash her pay cheque due on Friday.
“What shall I do?” she asked. “Hold up the cheque and look at it?”
-
-
GREGORY MANNARINO: COUNTDOWN TO GLOBAL FINANCIAL FREE-FALL
-
CYPRUS TO BRING IN WEEKLY CASH CURBS
By BBC News
Cyprus finance ministers are planning to impose a weekly limit on cash withdrawals, the BBC has learned.
The country’s draft capital controls include export limits on euros and a ban on cashing cheques, says Newsnight economics editor Paul Mason.
In addition, fixed-term deposits will have to be held until maturity.
Cyprus’s finance minister earlier confirmed that depositors with more than 100,000 euros could see 40% of their funds converted into bank shares.
But Michalis Sarris also said that Cypriot depositors with less than 100,000 euros in their accounts “will not be hit”.
“The exact percentage is not… yet decided but it is going to be significant,” he told the BBC.
Bank of Cyprus chairman Andreas Artemis later handed in his resignation.
Media reports said his letter would be examined by the bank’s board of directors when they convened in the afternoon.
His resignation suggests the country’s financial establishment is still reeling, says the BBC’s Europe correspondent Chris Morris, reporting from Nicosia.
Later, Mr Sarris told reporters: “The exit of Cyprus from the eurozone, which could mean the exit from the EU, would be disastrous, politically and economically. We do not even want to contemplate it.”
In other Cyprus-related developments:
- The Department for Work and Pensions has said British pensions will not be paid into Cypriot bank accounts for the foreseeable future and has advised expats to open UK accounts
- Piraeus, Greece’s third-biggest lender, said it has signed an agreement to acquire all of the deposits, loans and branches owned by the Greek subsidiaries of three Cypriot banks – Bank of Cyprus, Laiki, and the Hellenic Bank – for 524m euros (£445m)
- The head of the eurozone group of finance ministers, Jeroen Dijsselbloem, said there were no apparent signs of increased withdrawals of savings from peripheral to core countries in the region as a result of the Cyprus crisis.
- Chancellor George Osborne has said the Treasury is working on a “British solution” for the 13,000 UK customers of Cyprus Popular Bank, part of Laiki Bank, who could lose a proportion of their savings above the 100,000 euros (£85,000) cut-off limit.
Capital controls
The final size of the loss faced by investors will depend on how the government decides to protect pensions, Mr Sarris said.
He confirmed that all Cypriot banks will remain closed until Thursday and that capital controls will be placed on the size and the amount of money people will be allowed to withdraw once the banks have reopened.
These restrictions would “probably be a bit stricter” on the country’s two largest banks, Bank of Cyprus and Laiki, and would remain in place until the banking system “stabilises”, he said.
The exact details of this “two tier system” would be hammered out with the banks later on Tuesday, he said.
Mr Sarris is expecting “some bleeding, some outflow” of funds once the banks reopen, but believes that once EU bailout funds begin flowing “in a matter of weeks”, confidence will return.
Although the economy would be badly hit by the economic crisis, Mr Sarris admitted, he maintained that it could benefit from “an energy boom”, referring to the exploratory Aphrodite gas fields off the southern coast of the island.
“Yes, there will be a problem but we will overcome it in a relatively short period of time”, he said. He also said his government had renegotiated more favourable loans terms with Russia.
The Cypriot authorities had said all but the biggest two banks would open on Tuesday.
Banks have not been open since 15 March. Their reopening had been expected after Cyprus agreed a deal with the International Monetary Fund (IMF) and the European Union (EU) that releases 10bn euros in support.
It was conditional on Cyprus itself raising 5.8bn euros, most of which looks likely to come from depositors with more than 100,000 euros (£85,000) in Bank of Cyprus and Laiki or Popular Bank.
‘Unique case’
Members of the European Central Bank (ECB) have been emphasising their view that Cyprus is an isolated case within the eurozone, and that the proposed rescue plan would not be applicable to other eurozone countries.
Speaking to reporters at a conference in Prague, Ewald Nowotny, member of the ECB’s governing council, said: “Cyprus is a special case. It is no model for other instances” – a view earlier expressed by Benoit Coeure, ECB executive board member.
On Monday, Jeroen Dijsselbloem, head of the eurozone’s finance ministers, had spooked the markets when he suggested Cyprus’s bailout could serve as template for crises elsewhere – comments he later retracted.
Many analysts had been concerned that the Cyprus crisis would spread to the wider eurozone had the country been forced to give up the single currency.
There were fears that the country’s possible exit from the euro would trigger a loss of confidence across the single currency bloc, and prompt investors to withdraw from other troubled economies, such as Greece.
-
-
G4S READIES GUARDS AS CYPRIOT BANKS PREPARE TO OPEN
REUTERS
MARCH 27, 2013
Cyprus reopens its banks on Thursday while limiting withdrawals, banning cheques and curbing the use of Cypriot credit cards abroad, among measures imposed to avert a bank run after it agreed a tough rescue deal with international lenders.
The Central Bank said banks would open their doors at midday (6 a.m. EST) on Thursday after nearly two weeks when Cypriots could only get cash through limited ATM withdrawals.
A central bank official said Cypriots would be allowed to withdraw no more than 300 euros ($380) a day.
Yiangos Demetriou, head of internal audit at the Central Bank, said on state television that the controls would allow unlimited use of credit cards within Cyprus, but set a limit of 5,000 euros per month abroad. He said the measures would last four days but could be reviewed.
A British security firm that transports cash for Cypriot banks, meanwhile, is working round the clock, sending teams out with police protection to stock bank machines and readying guards for when banks reopen.
The world’s largest security firm, G4S, moves cash and will provide guards for Cypriot lenders including Bank of Cyprus and Cyprus Popular Bank, the two biggest, which are to be combined and see large depositors’ accounts frozen under a bailout agreed at the weekend.
Cypriot banks have been shut for more than a week while the government worked out the bailout and will stay closed until Thursday to prevent a run. Meanwhile, Cypriots have been queuing to withdraw cash from automatic teller machines, with limits at some shrinking down to 100 euros a day.
John Arghyrou, managing director of the Cyprus business for G4S, said its 750 employees have been working through the night, going out to replenish cash machines with police guard. Licensing rules prevented the firm from bringing in extra staff to handle the unprecedented workload.
“Demand is greater than we can provide… We haven’t closed since the crisis started,” he told Reuters. “I’ve never seen anything like it in terms of what is going on from a security perspective. I would say the workload has quadrupled because the whole system has changed.”
Arghyrou would not comment on whether more cash has been flown in to replenish the vaults so that banks are ready to open on Thursday, but said he did not expect a bank run.
“People have had time to digest the agreement so maybe there won’t be that scenario whereby people run to the banks to withdraw,” he said.
“I don’t see people panicking, I see people worrying about what the next day will hold for them, whether the next day they will have a job. I see people having a lot of questions and waiting for answers.”
While the banks have been closed, businesses have been calling on the security company to find places to keep their cash and asking for guards and alarms to protect their assets.
They are also using G4S as an intermediary to bring money from overseas to pay wages and suppliers, and drawing on its systems for shipping cash to provide guarantees for payments abroad, effectively using it as a kind of bank.
The next big test will come on Thursday when 180 G4S guards will be deployed at bank branches to help handle an anticipated surge of customers demanding cash and answers.
Arghyrou said his unarmed teams had been ready to go into action late on Monday night, when a last-minute decision was made to delay the banks’ opening until Thursday.
“The staff will be based outside branches and are there to control queues, if there are any queues,” he said. “We will be in contact with the police. Basically it is to make the banking people feel safe and the customers as well.”
G4S earns 18 percent of its 7.3 billion pound turnover from its cash transporting business, which is struggling for growth in developed markets. The rest comes from running services like prisons, manned guarding and port protection.
The firm achieved notoriety for admitting just weeks before the start of last year’s London Olympics that it could not provide a promised 10,400 venue guards, hitting its profit and reputation.
-
PETER SCHIFF: CYPRUS BANKS AND THE END GAME IS A HUGE CRISIS…IT IS A WAKE UP CALL FOR EVERYBODY WHO HAS A BANK DEPOSIT
By Greg Hunter’s USAWatchdog.com
MARCH 27, 2013
Money manager Peter Schiff says, “Cyprus is a wake-up call for everybody who has a bank deposit. . . . When you are depositor, you are, in fact, . . . lending your money to the bank.” Schiff predicts, “There’s no question . . . banks will fail. The question is will government do the right thing and allow depositors to lose money. Or, do the wrong thing and bail out depositors by printing a bunch of money which, in the long run, means deposits will lose even more value.” The FDIC has just $33 billion to insure more than $10.8 trillion in deposits. Schiff is not expecting bank runs anytime soon. “Don’t expect an immediate stampede on the banks because I don’t think most people are smart enough to realize what the danger is,” says Schiff. What’s the best way to protect yourself? Schiff says, “Why would you leave any extra money in a bank to get zero percent interest. . . . I think pull your money out, put it into some kind of investment. . . . anything other than a piece of paper that’s going to lose value.” Join Greg Hunter as he goes One-on-One with Peter Schiff of Euro Pacific Precious Metals.
-
HOW THE UNITED STATES WENT FROM OVER 13,000 BANKS IN 1987 TO 6,000 TODAY…U.S. BANKS HAVE $7.4 TRILLION IN DEPOSITS BACKED BY $32 BILLION FROM THE FDIC
Remember when too big to fail brought our economy to a grinding halt? Of course you do because this is a recent financial event with dramatic ramifications. In the time since the buffet of bailouts was rolled out you might be surprised that the too big to fail banks have only grown even larger and if they were too big to fail before, what happens when they become even bigger? Some walk around in a financially comfortable delusion about our current system even though we all realize that we will never payback our $16 trillion in national debt. You also have a banking system backing $7.4 trillion in insured deposits with $32 billion (that is, 0.43 percent). Yet in our current system the Fed is digitally inflating away our currency and limiting available banking options. Are we simply ignoring the too big to fail?
Shrinking the number of banks while becoming even bigger
The US banking industry has been consolidating for many years. In fact, we have gone from over 13,000 banks in the US in 1987 to roughly 6,000 today:
At the same time, you can track the trend that banks have gotten much larger in this same period of time in terms of the assets they carry:
You need to remember what banks consider “assets” because it will be a different definition from what you would consider an asset. For a bank, a mortgage is an asset. This is money that you owe the bank while the mortgage is a liability on your balance sheet. The home is an asset but certainly not the mortgage. Think you own your home? Stop paying on that mortgage and find out who really owns it. Yet banks can increase their asset column by the simple act of writing more mortgages. This is good when housing prices only go up but when they go down, suddenly those assets can go underwater. Deposits are not an asset to a bank since these are liabilities that must be paid back to customers. That is why the fact that $7.4 trillion in deposits is backed up by only $32 billion is somewhat astonishing. I think few people realize this but in reality, the Fed and U.S. Treasury would simply turn on the printing press and inflate away our currency if they had to (and they are).
We have more than 50 banks with $20 billion in assets or more. Take JP Morgan Chase for example. Chase had $2.031 trillion in assets under management in 2009. Today? That number is $2.359 trillion (an increase of $328 billion at a time when we fully realized that too big to fail was the central culprit of our economic collapse). Yet here we are simply allowing the banking sector to get even larger with the full unbridled support of the Federal Reserve.
What occurred in Cyprus is somewhat telling even though this was a tiny island in Europe. To preserve the central currency the Euro exacted some tough measures on Cyprus and their banks. Cyprus is a tiny part of the EU but it is part of the union. This is very telling in terms of how central banks will act when push comes to shove. In a way, we see similar actions of how the government and banking system is essentially forcing states where cost of living is more modest to subsidize the spending of expensive states (i.e., New York and California). One clear example of this is the mortgage deduction. Most people get very little benefit from this because the typical home in the US is roughly $170,000. So the deduction only helps out a little. But what about people that take on $500,000, $750,000, or even million dollar mortgages? These people can claim a ridiculously high deduction and this comes at a cost to the rest of the nation. Banks benefit of course because they can carry more “assets” on their books and appear larger.
The financial system encourages heavy leverage. It is a big reason why student debt is now well over $1 trillion as well. There is little reason why the banking system would want to put any sensible brakes on this until of course, we have another financial crisis that will hit because the same risks are being taken just in slightly different forms. Yet people are getting more in tune to this and the standard of living for most Americans has gone stagnant. Sure the press is focused on the Dow reaching a record peak but a very tiny portion of Americans even own stock and a good part of gains came from slashing labor and reducing wages. Too big to fail has become too big to ignore but ignoring is exactly what we are doing. Let us all rest assured and feel comfortable that $7.4 trillion is backed by $32 billion.
-
THE GAME WILL END QUITE SUDDENLY
Posted By Mac Slavo
March 26, 2013
Paper is poverty, and merely the ghost of money.
Thomas Jefferson
The majority of Americans, and citizens of the world for that matter, have no concept of what money is or how it actually works. For most, money, whether in a paper roll or represented by digits on their computer screen, means wealth.
That the very issuance of money is creation of debt is simply not something most people can understand, or want to. For if they did, their entire world view would necessarily change.
Chris Duane of Truth Never Told [1] explains the difference between modern money, wealth, and real assets:
The men that own this world know that in order to maintain control they must keep all the wealth to themselves, and have us chase after illusions of wealth.
This process has taken nearly a century to detach humanity from understanding what real wealth is.
Today there are very few that have ever even held a gold coin, much less owned one. Many of the objects that they have are merely consumer products that are almost worthless the day that they buy them.
The criminal elite first replaced real wealth of gold and silver, with paper receipts for them in the form of gold and silver certificates. They then removed the claim of the real wealth by creating fiat paper backed by legal tender laws and the threat of violence.
We know right off the bat that if someone has to threaten you to use it, it’s probably something you wouldn’t do willingly.
Now our money has become so detached from reality that most never even touch the paper claims on wealth that does not even exist.
…
At the end of all these schemes there will come a time where it is no longer profitable to maintain the illusion of wealth, and the game will end quite suddenly.
It will send shock waves through every aspect of our lives and nothing will ever be the same again.
All that will be left is the real wealth that you have in your friends, skills, and assets.
When the paper currency schemes of elite bankers come crashing down like they did this month in Cyprus or last month in Argentina, you’ll be positioned to thrive in a society that will be in a state of hopeless panic, as everything they believed to be reality is exposed for the illusion that it is.
It’s time to prepare [3] for an environment where money as we have been taught to understand it no longer exists. Position yourself now with post-collapse skills [4] and assets that retain real value [5] when the system goes belly-up.
Once they ‘tax’ your personal deposit or close your bank for a ‘holiday’ it’ll be too late.
The ‘event’ will come suddenly, when no one expects it.
-
ANDY HOFFMAN: CYPRUS AND THE EUROPEAN UNION – CHAOS AND COLLAPSE
-
CYPRUS FACES DEEP RECESSION, HIGH UNEMPLOYMENT AFTER BANK BAILOUT
By Julie Hyland
27 March 2013
Thousands of workers and youth took to the streets of Cyprus Tuesday to protest terms imposed by European authorities in exchange for a €10 billion ($12.9 billion) loan to avert state bankruptcy. The Mediterranean island remained under financial lock-down, and its working population face the prospect of economic collapse and penury.
Bank staff fearing mass layoffs demonstrated outside the central bank headquarters in the capital Nicosia, while high school and university students walked out of classes and gathered in front of the presidential palace. Their slogans were “Troika go home,” and “those who stole our money should go to jail and pay.”
The Cypriot government reached a deal with the troika—the European Union (EU), European Central Bank (ECB) and the International Monetary Fund—on Monday.
Under its terms, the country’s financial sector is to undergo massive restructuring with its second largest bank, Laiki, wound up and its debts to the ECB transferred to the Bank of Cyprus. In addition, Cyprus must raise €5.8 billion by imposing a levy on bank deposits.
Initially, the Cypriot government had proposed a levy on all bank accounts, both small and large. Its aim was to protect wealthy depositors—particularly Russian and British—attracted by the island’s tax haven status, which had helped swell its financial sector to eight times the size of its entire economy.
The levy broke guarantees protecting banking deposits below €100,000. Amidst angry protests, parliament voted it down.
On Tuesday, Cyprus’s central bank confirmed that the new agreement, imposed in defiance of public opinion without so much as a vote in parliament, will see a 40 percent levy on deposits above €100,000 held in the Bank of Cyprus, in addition to wiping out €4.2 billion of deposits at Laiki. This is to be accompanied by capital controls, including a weekly limit on cash withdrawals and curbs on the export of euros.
In a televised address Monday evening, President Nicos Anastasiades claimed that the deal had averted “the collapse and the bankruptcy of the state,” enabling the country to return to “normalcy,”
“The danger for the bankruptcy of Cyprus is definitely left behind and the tragic consequences for the economy and the society are averted,” he said.
In fact, the restructuring plan is tied in with the loss of thousands of jobs in the banking sector, privatisations, and severe austerity on a par with measures that have devastated Greece.
As the BBC’s Robert Peston commented, “The rescue of Cyprus won’t feel like one to its people.” It amounted, he continued, to “An economy that will be starved of credit, and will therefore shrink rapidly and very painfully for citizens,” and whose “main industry, offshore banking, is being shut.”
The Fitch rating agency has put Cyprus on “watch negative,” stating that “the shock resulting from the systemic failure of Cyprus’s banking system will have profound negative implications for the domestic economy, which heightens the risk to public finances.”
Analysts forecast the country’s economy will contract by 20 percent in the next three years. Unemployment, currently at 14 percent, is projected to rise to more than a quarter of the population.
Nicholas Papadopolous, chairman of the Cypriot parliament’s finance committee, bluntly admitted: “We are heading for a deep recession, high unemployment.”
The European bourgeoisie, which has turned the entire continent into an austerity zone on behalf of finance capital, is now looting another defenceless country.
The EU was prepared to target larger bank deposits in Cyprus because it would mainly hit medium-size depositors, and weaken Russian influence over the island. Europe’s major banks also saw their opportunity to court Russian investors forced out of Cyprus.
That is why financial markets initially rose on news of Monday’s deal. They only started to go into reverse as concern spread that bank levies could become a template for the euro zone.
This was triggered by the statement of Eurogroup President Jeroen Dijsselbloem, who indicated that Cyprus was a model for future bank bailouts of other European countries. As his remarks rattled international markets, Dijsselbloem sought to backtrack, stating that Cyprus was a “specific case with exceptional challenges.”
Nonetheless, the opening of Cypriot banks and the stock exchange was delayed for a further two days at least, until March 28.
Stratfor complained that “By seizing money from bank deposits and putting towards bailout funds,” the EU had set a “new and possibly destabilizing precedent in Europe.”
Deposit seizures and limitations on the free movement of capital meant that the EU “has now made it official policy, under certain circumstances, to encourage member states to seize depositors’ assets to pay for the stabilization of financial institutions.”
“If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?” it asked.
Such fears were strengthened by reports that the Spanish government is to impose losses of up to 60 percent on investors at five nationalised banks. In addition, a European Commission spokesperson confirmed Tuesday that large uninsured depositors could be “bailed-in” to future bank rescues, under draft legislation being prepared by the EU.
Several Russian financiers and oligarchs made statements indicating that wealthy investors in Cyprus would not be hit by the bailout, which will primarily affect mid-level investors and the Cypriot population.
Alexander Orlov, from the Arbat Investment Services in Moscow said there was “no real victims [of the Cypriot levy] at the highest level of the decision-making apparatus.”
Orlov said that €20 billion—much of it Russian—had already been withdrawn from Cypriot banks over the last year, adding, “I think the €2.5bn loan given by the government previously could have been in order to buy time for ‘whom it may concern’ to withdraw their funds.”
His statement was backed up by Russian oligarch Alexander Lebedev, who said that he stood to lose less than €8,000 in Cyprus. “It’s not worth talking about,” he said.
Referring to the effectiveness of capital controls on the super-rich, Lebedev, who owns the Independent and the London Evening Standard, said “Certain schemes can be put into place…. This is how Cyprus was making money.”
Cyprus was a financial “transit jurisdiction” en route to “Lithuania, Latvia, Belize, Switzerland, everywhere, he said, adding “there are plenty of ways [to avoid capital controls], they can split accounts.”
Meanwhile, Britain’s Chancellor George Osborne announced that he had authorised €13 million to be sent to the island as a “contingency fund” for the UK’s armed forces stationed there, and that the treasury was working with the Cypriot authorities to protect customers at British branches of Laiki from being “sucked into the Cypriot resolution process.”
-
UNCERTAINTY AND NERVOUSNESS REIGN IN THE EUROZONE AFTER CYPRUS DEAL
The brutal “deal” imposed on Cyprus has provoked total uncertainty and nervousness in the entire eurozone, despite vehement insistence from EU and EC officials that Cyprus was clearly a “unique” case and not a generalized policy for the region.
London’s Telegraph blared today, as did other dailies using similar language, “Cyprus bailout: savers will be raided to save euro in future crises.” Finnish Finance Minister Alexander Stubb said quite openly of the Cyprus deal, that “now we’re bailing in as well as bailing out, to decouple the bank from the sovereign and move toward a banking union. Banks are not simply vaults, but risky institutions, in which clients are also responsible. The message is that the private investor must take a hit. It’s a new principle and a good one!”
But there is great concern over the “messy” way the Cyprus crisis was handled and its implications for the future of the eurozone. Britain’s Chancellor of the Exchequer, George Osborne, feigned concern for the Cypriots today when he told the Treasury Select Committee that “unfortunately for the Cypriot people, this is just the beginning. They are facing a sharp contraction on GDP, which I wouldn’t wish on anyone.” He denied statements by Dutch Finance Minister Jeroen Dijsselbloem that the Cyprus deal represented a kind of “template” for future eurozone bailouts. To cover their rear ends, EU officials are now characterizing Dijsselbloem’s public remarks as a colossal “gaffe.”
The Cyprus deal puts the European Stability Mechanism (ESM) on the chopping block, creating serious problems for Spain and Ireland, which were counting on it to recapitalize their banks “without killing off their financial sector by inflicting huge losses on investors,” the Telegraph commented. As Dijsselbloem put it, “I think the approach needs to be, let’s deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side.”
As The Guardian’s Bill Emmott worriedly expressed it, continued demands for austerity by Germany and other “northern European” nations, could also unleash political chaos. Yes, says Emmott, the Cyprus deal was necessary “tough love,” but if “tough” is continued, and not the “love” (!), “the rebellion against austerity, the euro and above all Germany, is likely to intensify.” Never-ending recession, with high youth unemployment in Greece, Italy, and Spain, “is a much greater hazard” than even banking crises in southern Europe, Emmott warns. He adds that if Germany waits until after its federal elections to change its “sado-masochistic” policy, it might by then be faced with “a vehemently anti-German government” in Italy, possibly led by Bebe Grillo or even Berlusconi.
“Cyprus Bailout May Not be Last,” was The Wall Street Journal’s headline today, as it called into question the “credibility” of the entire bailout package, and what might be the fate of the banking sector — no mention of people. “The risk is that the loss of confidence is so severe that, as in the case of Greece, further bailouts are needed.”
-
CYPRUS SITUATION FAR FROM SETTLED
The situation in Cyprus remains as turbulent as ever. The implementation of this bailout condition promises to simply create another crisis.
First of all, the banks don’t dare open. The opening was postponed from Tuesday to Thursday, March 28, but Finance Minister Michalis Sarris is quoted as saying that capital controls could continue for “weeks.” Meanwhile, citizens can withdraw only EU100 at a time from the automatic teller machines (ATMs). But imagine if you don’t have money in the bank, and you depend on your paycheck: Your employer has no access to his own accounts, let alone a normal credit line.
Key aspects of the Cyprus deal: The bankrupting of Laiki Bank (or Cyprus Popular Bank) should be seen in light of the fact that it was already bailed out once by the government, for the EU1.8 billion, and became 84% owned by the government; so, the losses were not only suffered by depositors with more than EU100,000 and other investors, but also directly by the Cypriot taxpayers.
Laiki Bank’s EU4.2 billion in deposits over EU100,000 will be placed in a “bad bank,” meaning that they could lose up to 40%, according to a statement by the Finance Minister Sarris, or even be wiped out entirely. The accounts at Laiki whose deposits are smaller, will be transferred to the largest commercial lender, Bank of Cyprus. According to Britain’s Guardian, all lenders to Laiki will see their investments wiped out.
The Bank of Cyprus might be surviving the axe, but it will not only be restructured, it will also take on the EU9 billion of liquidity that the ECB pumped into Laiki, so the Bank of Cyprus gets a huge load of debt on its books. The bank is to be recapitalized by its shareholders and bondholders. It is thought that depositors with over EU100,000 will also be “involved in” the recapitalization and face losses of 40%.
If true, this implies that all euro banks will be recapitalized by their depositors, whether they like it or not.
The EU10 billion they have to get as a “bailout” will increase Cyprus’s debt to around 143% of GDP. But once the economy collapses, how is it supposed to pay this back? The insane finance minister is quoted by the Guardian as saying, “I think it’s fair to say we have taken a step backwards. As you know the Irish economy had similar problems and contracted by as much as 20%. We now have to pick up the pieces, but we have faced difficult situations before, and we now have the prospect of an energy boom. There will be adjustment downwards of the standard of living and income, but Cypriots have shown entrepreneurship and ingenuity. We will overcome it in time.”
-
CYPRUS MUST CONSIDER LEAVING THE EURO, SAYS TOP GOVERNMENT ECONOMIC ADVISER
Nobel Laureate in Economics and head of Cyprus’s economic policy council Christopher Pissarides told Bloomberg TV that Cyprus and other small countries should consider leaving the Eurozone. The rather hard-hitting interview called the bailout “disastrous” for the country and likened it to a patient going to the doctor with a bad leg and having his leg amputated.
Pissarides, who is the top economist advising President Nicos Anastasiades, said that the EU-ECB-IMF Troika is treating Cyprus “far worse” than other EU bailout cases and predicts that “the way we deal with this situation has implications for the rest of Europe.” “We have a German finance minister who comes and tells us Cypriots that ‘We don’t like your economic model, bankrupt your banks and you can sort it out on the way’…. The difference with Cyprus is that it is small. Is Luxembourg going to be next in line? Is Malta going to be next in line? Small members of the Eurozone: beware,” he cautioned.
While saying that an exit from the euro isn’t something Cyprus should think about now, “going outside the Eurozone means you have a government with no money issuing money — no one will have confidence in it.” Nonetheless, he said, when the dust settles “we should sit down and think very carefully about the future of this country and whether it’s better to be within the Eurozone or without. We’ve seen that if you run into trouble you’re not necessarily going to be rescued in a way that’s most beneficial to your economy,” he observed.
Pissarides said the precedent set by the nation’s treatment means other small nations such as Malta and Luxembourg should also assess the benefits of membership in the bloc. “The behavior of the Eurogroup [of Eurozone finance ministers] wasn’t one that would give you the impression, if not convince you, that here was a single unit of 17 partners trying to do the best for their continent and their currency,” he said. “It was more like: Here is a little guy who has misbehaved, and we’ll put him down.”
“We now have a new type of rule, and everyone within the Eurozone has to sit down and see what that implies for their own finances,” warned Pissarides. He also warned that the true nature of the so-called banking union has been revealed. The powerful countries like Germany tell you whether you can be a banking center or not.
-
EUROZONE CHIEF: PERSONAL SAVINGS ACCOUNTS IN SPAIN AND ITALY WILL BE RAIDED TO SAVE THE EURO
-
CYPRUS BAIL-OUT: SAVERS WILL BE RAIDED TO SAVE EURO IN FUTURE CRISIS, SAYS EUROZONE CHIEF
Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failing banks, a senior eurozone official has announced.
By Bruno Waterfield, in Brussels | telegraph.co.uk
MARCH 25, 2013
The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.
The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’,” he said.
“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.”
Ditching a three-year-old policy of protecting senior bondholders and large depositors, over €100,000, in banks, Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.
“If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, there where you take on the risks, you must deal with them, and if you can’t deal with them, then you shouldn’t have taken them on,’” he said.
“The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.”
The announcement is highly significant as it signals the mothballing of the euro’s €700bn bailout fund, the European Stability Mechanism (ESM), which Spain and Ireland wants to be used to recapitalise their troubled banks.
“We should aim at a situation where we will never need to even consider direct recapitalisation,” he said.
“If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller.”
The eurozone had been planning to roll out the ESM as a “big bazooka” in mid-2014 that could help save banks and prevent financial turmoil in countries such Spain or Italy, a development that has been delayed by German resistance.
Mr Dijesselbloem’s comments will alarm countries like Ireland and Spain that had been hoping to access the ESM in order to restructure banks without killing off their financial sector by inflicting huge losses on investors.
“I think the approach needs to be, let’s deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side,” he said.
“Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible.”
In a note published on Monday following the Cyprus bailout deal, Barclays warned that “the decision to bail in senior bank debt and large depositors will likely have a price impact on equity and credit instruments of those euro area banks that are perceived as the weakest”.
Mr Dijsselbloem acknowledged that “there is still nervousness” but claimed that any jitters on financial markets caused by the new approach would be a good thing because it would raise the cost of borrowing for unsound banks, an argument unlikely to win friend in Madrid or Rome.
“If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that,” he said.
“I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector.”
Last night, the Dutch finance minister tried to row back from his comments by insisting that “Cyprus is a specific case”.
“Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used,” he said.
Cypriot President Nicos Anastasiades admitted the eurozone bailout deal he struck in Brussels on Monday was painful but said Cyprus could now make a fresh start after having come a “breath away” from collapse. He also said there would be a criminal investigation into the crisis.
Banks in Cyprus will remain closed until Thursday, the nation’s central bank announced. It had said earlier that banks would reopen today after a week-long shutdown, except for Laiki and Bank of Cyprus.
-
EURO GROUP HEAD: LOOTING OF BANK ACCOUNTS A “TEMPLATE FOR EUROPEAN UNION”
More deposits to be plundered across continent
Paul Joseph Watson
Infowars.com
March 25, 2013
The looting of private bank accounts to cover the gambling losses of big banks is a new template for the euro zone, according to Dutch Finance Minister and President of the Eurogroup of euro zone finance ministers Jeroen Dijsselbloem.
-
Jeroen Dijsselbloem. Image: Wikimedia Commons-With savers in Cyprus set to have 40% of their wealth plundered in order to fund an EU bailout package, Dijsselbloem indicated that this new model of “bank restructuring” was set to be replicated across the continent.
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders,” Dijsselbloem told Reuters.
“Uninsured deposit holders” means anyone unfortunate enough to have squirreled away more than 100,000 euros under the delusion that it wouldn’t be swiped from under their noses by EU technocrats.
His remarks helped send the euro single currency plummeting, before a spokeswoman for Dijsselbloem ludicrously attempted to re-write history and claim that he didn’t say Cyprus was a template for bank restructurings.
In reality, the minister is merely echoing what other banking chiefs have already admitted in the wake of the Cyprus crisis – that no one in Europe is safe from having their savings looted.
Hours after the announcement that Cypriot savers were set to see their deposits plundered, Joerg Kraemer, chief economist of the German Commerzbank, called for private savings accounts in Italy to be similarly plundered. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product,” he told Handelsblatt.
As Zero Hedge reports, by calling the Cyprus looting a “bank restructuring” and not a “tax,” technocrats were able to bypass the democratic process.
“What Cyprus allowed was the effective usurpation of democracy – the only reason the Cypriot bailout “passed” (at least so far) is because it was structured as a bank restructuring, a financial system “resolution”, not a tax, and thus not in need of a parliamentary, democratic vote. Because as Cyprus also showed, votes to deprive depositors of cash, whether insured or uninsured, simply won’t fly.”
-
THE CYPRUS EUROCRISIS: THE BEGINNING OF THE END OF THE EUROZONE?
The Cyprus crisis is essentially a Eurozone crisis which threatens the very foundations of the European Union (EU). This small island economy, only 0.2 per cent of the Eurozone, is proving to be ‘systemic’ at the political, social and economic level. The Cyprus crisis is a manifestation of a deep crisis of democracy and equality in EU institutions, which subordinates the democratic will of the people to finance interests. More significantly, it is threatening the European integration project itself as it is only the beginning of a process.
In the early hours of Saturday, 16 March 2013, the Eurogroup resolved that the only way for Cyprus to receive its promised banking rescue was to impose a hair-cut tax on deposits including guaranteed deposits (i.e. under €100,000). This was an unprecedented confiscation of 6.75 per cent of deposits under €100,000 and 9.9 per cent for those with over €100,000. It amounted to shock therapy-type liquidation of the banking and financial services of a small island state economy with a banking sector that was (and is no more) 8 times larger than the country’s GDP.
The Cyprus Crisis: A Chronicle of Eurocrisis Foretold
The Eurogroup decision has already destroyed the finance sector; eventually, there will be an exodus of foreign, most notably Russian companies and deposits from Cyprus, despite the capital controls and emergency measures introduced. The Republic of Cyprus (RoC) is no longer an isolated island: it may prove to be deeply ‘systemic,’ triggering a domino effect for the periphery of the EU.
Cyprus, with its complex social and political history, has to be located within its turbulent regional context: it is the border zone of the EU with the Middle East and North Africa. The significant discovery of hydrocarbons off the southern coast of Cyprus and regional wars over the Middle East, the civil war in Syria as proxy war between Israel/West versus Iran and the repercussions for Lebanon, the Arab revolts and the recent Obama-brokered apology of the Israeli Prime Minister to Ankara for the Mavi Marmara massacre, an attempt to mend the regional rivalry between Turkey and Israel – all these recent developments have a significant part to play in the future of the conflict zones in the Middle East.
With the transformations in the political and economic architecture of the globe, the roles of global, regional and national forces in the area, its frontiers and fault-lines are also being transformed. Declining U.S. hegemony increases regional rivalries and redefines the fault-lines in regional geopolitical, energy and security contests.
The Eurogroup Decision on the Cyprus Crisis and its Global Implications
In the regional power games which are articulated within the context of Eurozone politics, the leaders of the Eurogroup seemed to have grossly underestimated and miscalculated some crucial factors.
Firstly, legal implications aside, the decision over the haircut of the guaranteed deposits was met with severe indignation by the Cypriot people and was condemned across the globe; it was simply politically and socially unacceptable, and accordingly unanimously rejected, causing a shockwave. It remains unclear whose initiative this was between the Cypriot authorities, the Troika or Germany. The fact remains that all parties agreed in the end.
Secondly, the decision has not only permanently damaged the country’s economy, but was also a huge blow to the confidence in international banking in the EU as a whole, unfolding a long crisis with no-one knows what end-result: international investors can no longer trust EU banks. The small economy of Cyprus has not only joined the southern European ‘PIGS.’ It was unfortunately selected as the ‘guinea pig’ for a sick experiment of the new ‘bail-in proposals’ contained in the relevant draft Directive.[1] The draft directive provides:
“The bail-in tool whereby the bank would be recapitalised with shareholders wiped out or diluted, and creditors would have their claims reduced or converted to shares. … To this end, banks would be required to have a minimum percentage of their total liabilities in the shape of instruments eligible for bail-in. If triggered, they would be written down in a pre-defined order in terms of seniority of claims in order for the institution to regain viability.”
This was essentially a shock therapy treatment that left everyone stunned. As the Economist remarked:
“The biggest question Cypriots are asking is perhaps the hardest of all to answer: why are they having to resolve all this in a single weekend? After all, Cyprus asked for a bail-out last June. And a country can hardly change its business model and restructure its two biggest banks in just two days. It will be a long time before Cypriots forgive this week’s blunders of the Eurogroup and of their own parliament and government.”
Perhaps we can now understand what the recent smears accusing Cyprus of being a money laundering country were about. They were preparing the ground for the ‘treatment’ to come. The fact that the driving force were Dutch and German political leaders is quite remarkable: Germany has an estimated €50 to €60-billion ($65-billion to $78-billion (U.S.)) stemming from illegal activities such as blackmail, drugs or arms trading, while the European Commission has launched an infringement procedure in response to Germany’s reticence and non-pursuit of money-laundering that might enable the funding of terrorist activities.[2] Interestingly, Russian investors bank with German and Dutch banks such as Rabobank, Deutsche Bank, ABN AMRO Bank etc.; so targeting Russian investors in Cyprus makes a lot of sense.
Third, as the Troika’s decision, a sword of Damocles, hangs over Cyprus, either scenario within the current Eurozone/EU regime will prove to be nightmarish. However, for the ‘EU partners’ it may well prove to be the beginning of a meltdown of the Eurozone, deeply wounding the EU integration project. The so-called ‘optimistic scenario,’ i.e. under duress a ‘new deal,’ as a desperate damage limitation exercise to avoid bankruptcy would mean that the Republic of Cyprus would be transformed into a protectorate of unending economic and social austerity. The Eurogroup proposal has essentially dissolved the country’s offshore banking industry. Cypriot banks hold €68-billion in deposits, including €38-billion in accounts of more than €100,000 – enormous sums for an island of 1.1 million people. It is estimated that the decision on Saturday, despite its rejection by the Cypriot Parliament, has slashed the Cypriot GDP by up to a quarter; unemployment is expected to rise to 20 per cent (currently it already stands at 15 per cent and 57 per cent for under 25s). We are talking about an economic and social crisis reaching proportions as high as those that resulted from the Turkish invasion in 1974, which left the county and people divided by a barbed wire with 34 per cent of its territory under the control of Ankara.[3] The so-called ‘pessimistic scenario’ is that Cyprus will be forced out of the Eurozone; a new Cypriot pound would be massively devalued and living standards would drop dramatically over night. But in the long run (i.e. in the next five years) the country might well bounce back, as happened with Iceland.
Unaccountable Bankers
In the case of Cyprus, at the heart of the establishment was the banking system, particularly the two big banks that are closing now or being restructured as per the second Eurogroup decision following the Cypriot Parliamentary rejection of what was on the table: Laiki Popular Bank is already wound up; deposits of the Bank of Cyprus will receive a haircut of over 40 per cent. The pro-EU Greek-Cypriot economic and political elites, who were fully committed to EU integration, benefited from the network of business and services around the two major banks – professionals such as lawyers, accountants, financial and insurance consultants as well as politicians and media tycoons were all in their pay roll. EU accession in 2004 did little if anything to make the bankers accountable; on the contrary, the so-called institutional ‘independence’ of the Central Bank, that made the Governor of the CB accountable to the ECB rather than having any democratic accountability to the people who would be immediately affected, has made the bankers more unaccountable. A large part of profits of the years 2004 to 2008 were invested in the financial sector where rates of return on capital were increased. In 2009, three billion Euros were given to the banks to boost liquidity in response to the crisis. Instead of fixing the long-term problems of the sector and providing the Cypriot economy with its badly needed liquidity, they chose to take high risk investment in Greek Bonds in the secondary market. During the crisis years, private banks invested heavily in Greek bonds with speculative intent and following bad advice from the Cypriot Central Bank.[4] As a result, the RoC banks were downgraded by international markets.
Cyprus entered the Eurozone in 2008, four years after accession. Private consumption was the growth engine of the Cypriot economy during the recovery years 2004-2008, although the average real wage did not increase. This apparent contradiction was resolved through plentiful lending to workers’ households. Consumer spending and residential investments were fuelled by loans to workers, although the purchasing power of their wages remained constant. Therefore, at the end of this period (2008), profitability was high after five years of constant wages and income redistribution, workers’ households were highly indebted, private consumption was approximately 20 per cent higher than in 2004, residential investment and banking profitability were at historical highs, and the current account deficit was unsustainable. The recovery and boom of the years 2004-2008 achieved its exploding profits and financial euphoria at the cost of a historically high current account deficit and the high debt burden of households. These are the reasons that the RoC economy is now in a process of adjustment with falling real wages and domestic demand, slow growth and exploding unemployment, decreasing imports and a current account deficit.
It is a paradoxical fact that it was during the time when AKEL was in Government that the first austerity measures were introduced: a pre-agreement was forced on Demetris Christofias. The agreement was reached between the Cypriot government and the Troika as regards the terms of the bailout agreement and the measures introduced, even while the Memorandum of Understanding was still being negotiated. The terms included salary cuts and pay freezes in the public sector, an increase in the retirement age, and an increase of the working hours of teachers as well as a number of other measures.
Many experts and scholars repeatedly warned at the time that the most serious threat to economic growth derived from the exposure of the two larger banks to the Greek crisis – the only way out was public ownership and control of these banks. Now this is forced on the RoC for reasons related to the IMF, ECB and German agendas. But the options have significantly shrunk: unless there is systemic transformation within the EU, if Cyprus has any hope for equitable recovery and growth it has to depart from the TROIKA-driven austerity programmes, risking being forced out of the Eurozone.
The Return of the Social Question to Politics
Contrary to the prevailing media coverage about Cyprus, there is a vibrant civic and political culture which cannot be ignored by the elites. From 1 March, the right-wing leader of DISY (Democratic Rally), Nicos Anastasiades took office, carrying a fresh mandate that in any other EU country would be tantamount to the ‘right’ to bulldoze through Parliament the deal he agreed in the Eurogroup.
Not in Cyprus; the deal was seen for what it was – not only illegal but also socially unjust, forcing small earners to pay for the Bank haircut. However, the decision heavily damaged the economy of the country as it amounted to a forcible liquidation of the financial and banking sector by shock therapy. Anastasiades’ authority has been badly wounded as a result of submitting to (if not actively encouraging) Eurogroup instructions, but also for his obstinate address to the nation that the package had to be approved, come what may. No one believed him, not even the MPs of the party he presides over responded to his call.
It is questionable whether he will recover any of his lost authority. He no longer commands a steadfast Parliamentary majority, as he has lost support from the small nationalist parties EVROKO and the Green party, and even his main coalition partner DIKO is shaky. Mr. Anastasiades is now presiding over the worst crisis since 1974 and is pushing for the kind of austerity measures that have wrecked governments throughout Europe. More importantly, we have seen unprecedented mass mobilizations and a process of radicalization of the middle classes and working-class people, who are now bearing the brunt of the crisis.
Cyprus has a tradition of organized trade unions, a workers and peoples’ movement built around AKEL (the continuation of the Communist party of Cyprus) in alliance with PEO, the Pancyprian Federation of Labour, being the largest force.[5] A proper reading of the role of the Left (i.e. AKEL and its allies) within civil society reveals an alternative perspective on the potential role of civil society in the modernization and the development of Cypriot/Greek Cypriot political culture. Historically, the Left played a crucial role in Cyprus’ own route to modernity in the twentieth century. But the contest for hegemony between the Greek Cypriot and the Turkish Cypriot elite resulted in a distorted public sphere and has shaped civil society accordingly.[6]
The right has been organized around nationalism; the right-wing trade union SEK (Confederation of Workers in Cyprus) is in a difficult position as it has allied itself with the President. Public sector trade unions and mostly banking unions have already been out on the streets.
The notion of an alternative strategy beyond the Troika and outside the Eurozone is only now emerging. As AKEL is no longer in power and having successfully presided over the EU Presidency for RoC in the second half of 2012, the party is capturing the public mood. It is playing a leading role in the revolt following the Eurogroup decision which outraged 7 out of 10 Cypriots.[7] There has been a similar mood amongst the Turkish-Cypriots for some time now, as they face their own austerity programme imposed by Ankara.[8]
It is early days yet, but a more militant public mood seems to have been triggered as the RoC enters the era of austerity. What can be termed as the ‘social questions’ are featuring more strongly than ever and endowing our society with a new politics of protest.
Bursting the Bubble of the Cyprus Economic Miracle:
Destroying an EU tax haven and its runaway banking
Post-1974 development in areas under the control of the RoC was depicted as an ‘economic miracle,’[9] and indeed the growth rate in the post-1974 years particularly in the early years after the war up to the late 1980s was remarkable, The exhaustion of the model marks the end of a strategy of accumulation as the RoC is nearing the limits of ‘development’ and convergence with the countries in the Eurozone.
The ‘economic miracle’ was structured by a number of ‘external’ factors such as the Turkish occupation of the north since 1974. This fact, together with a concerted effort by Government, political parties and trade unions, created the conditions for economic growth subsequently experienced in Cyprus based on the massive expansion of ‘mass tourism.’
Despite these socio-economic transformations, up to 1974 the post-colonial social class structure retained essentially the same pyramid of wealth and income: the church continued to be the largest land-owner and expanded its commercial activities, whilst at the same time there was a growth in the Greek-Cypriot commercial classes. An abrupt change occurred in 1974 – the Turkish military invasion and occupation of the north and the mass expulsion of Greek-Cypriots in 1974, by default created the preconditions for rapid (capitalist) ‘modernization,’ in what Harvey (2004) refers to as conditions for “accumulation by dispossession.” In spite of the severe drop in the GDP during 1973-75 and the sharp rise in unemployment and mass poverty, cheap labour was provided by Greek-Cypriot displaced persons, forcibly expelled and living in government refugee camps. The conditions of rapid development were therefore reminiscent of nothing so much as the early industrialization of western Europe. This fact, together with a concerted effort by the government, political parties and trade unions created the conditions for the development that was subsequently experienced in Cyprus.
The process of tertiarization has continued undeterred, shaping Cyprus as a ‘paradise-like destination’ for tourism and a modern EU tax haven. De-industrialization is now setting in as the industrial output to GDP has dropped from 18 per cent in the early 1980s to less than 11 per cent in the late 1990s. The signs of a slowdown began to show as the over-dependence on financial and service sectors made them more susceptible to fluctuations. The post-colonial ‘developmental state’ took the lead in development and encouraged private investment.[10] Economic growth continued until it was hit by the economic crisis in 2011, yet it was apparent that it was approaching the limits of growth finding itself up against a technological frontier as the limitations of the ‘mass tourism model’ became more apparent.[11] The dependence on tourism has receded from 22 per cent in 1990 to less than 10 per cent in 2012. Nevertheless, the process of tertiarization continues unabated due to the dominance of the service industry in the economy.
Examining the economy and society of the small island of Cyprus, one is struck by a number of crucial features.
First, Cyprus as a “border society”[12] is well-integrated in the regional economic system; in this sense it is also a border economy, operating as a bridge and a hub in the eastern Mediterranean. It is a southern European economy open to the west as a European Union (EU) member since 2004, which is connected to northeast Africa, Middle East and Asia, drawing on the labour reserves, tourism and financial services exported from its neighbours. It is listed as one of the high-income island economies, an off-shore financial center with associated tourism.
A second feature is the de facto divide, which generates multiple “states of exception” and contradictions in what can be described as a “non-border” of the EU[13] tearing the country apart. The so-called “Green Line” is not only a buffer zone, but a ceasefire line that since 1974, has been patrolled by one of the longest standing UN-stationed peace-keeping forces. The United Nations Force in Cyprus (UNFCYP) has been in the country since 1964. This situation is even today, after the end of the cold war, considered by all interested actors to be unsustainable and unacceptable and may threaten the stability of the southern flank of the North Atlantic Treaty Organization (NATO) and the wider region.
The situation is simultaneously perceived as a “deluxe partition,” a tolerable compromise in the absence of a settlement and a “mini cold war” in what the UN has described as one of the world’s most militarized zones. In this multiplicity of paradoxes, the evidence of growing economic interdependence[14] as well as the various initiatives from trade unions, teachers and activists in the Buffer Zone groups are worthwhile projects which counter the overall disappointing picture in the quest for reunification.
The third important feature is the centrality of migrant labour, which makes the country comparable to the southern European and Mediterranean island economies.[15] On both sides of the barbed wire, precarious migrant labour is a crucial feature in the accumulation regimes and the developmental models, which is radically affecting economic development and society at large. There are similarities in terms of the exploitation patterns; however there are crucial differences in the regulation and market operation of the migratory system, but this is beyond the scope of this paper.
The fourth feature is the specific mode of tertiarization of the economy: the motor of the economy is the service-based economy organized around financial/banking services and tourism. Paul Krugman is right to spot the three key characteristics which have allowed for prolonging the “Cyprus economic miracle” from the 1980s into the new millennium but which has now turned sour: ‘runaway banking’; a big domestic real estate bubble; massive overvaluation. In general the country’s economy is based on services: mostly financial services, tourism and education.
However, it is the long-lasting banking crisis that has generated the immediate problems. Cyprus ‘runaway banking’ is based on offshore money, low tax, high rates and good opportunities for tax avoidance/evasion. It has an English-law-based system of regulation and implemented the main EU and international regulations on banking and money laundering control and many double taxation bilateral agreements. With the collapse of Beirut as a financial centre in the early 1980s, its geographical location, good relations with its Arab neighbours and with the eastern bloc and later the collapse of the USSR and its allies allowed the sector to grow massively. The financialization of the 1990s and 2000s allowed for the growth of its finance and offshore sector.
With its accession to the EU in 2004, the RoC managed to preserve a competitive tax regime of 10 per cent for international companies, allowing it to compete favourably with other EU tax havens (Liechtenstein, Gibraltar, Luxembourg and the British Isles). This bloated sector became all too powerful and unaccountable – as the globalization and EU deregulation programmes steadily allowed this to happen. Banks took high risks for huge returns, fat-cat directors made massive bonuses, various professional companies all benefited as well (accountants, lawyers and financial advice, services etc). Almost 78 per cent of all school leavers continued their studies beyond secondary education, of which 42 per cent attended higher educational institutions abroad and 36 per cent in Cyprus.
These banks expanded their business massively to Greece, Russia and Ukraine. Then came the crisis, with huge government injections to boost liquidity, but with the former Cyprus Central Governor failing to fulfil his role and the Government which faced pressing internal problems and as a result dried up the local market. Overall, we can say that there are three important conclusions from the dramatic events that brought a small and divided island to the attention of the world stage.
Conclusion
There will be a lasting legacy of the Cypriot popular mobilization against the Eurogroup and their own newly-elected President’s decision which generated the first unanimous Parliamentary rejection to the Troika-imposed austerity programme: the ‘guaranteed’ €100,000 for the deposit had to be ‘re-won’ if the EU power-elites were to keep their word. This immediately triggered mass solidarity.
How will it affect Cyprus, the Eurozone and relations in the eastern Mediterranean? This is a region which has assumed greater significance recently with a renewed interest by all global and regional powers (such as the USA, the EU, Russia, Turkey, Egypt and Israel) as the discovery of gas reserves and the upheavals in the Middle East are causing new turbulence and polarization.
Mainstream or hegemonic discourses on ‘good economic governance’ often gloss over and obscure the ‘social question.’ It was the neoliberal governance model relating to the banking and finance sector that generated the massive bank debt crisis in Cyprus, threatening the robust economy of a country based on services. The Troika ‘recipes’ have not only sunk the RoC economy into crisis, but are likely to cause a major social crisis of the same proportion to the crisis in Greece.
The public debt of the RoC was relatively low (65 per cent) compared to the Euro area average (88 per cent) or the corresponding debt of Germany (82 per cent), France (85 per cent), or Italy (120 per cent) at the beginning of the crisis. However, the public debt ratio in Cyprus is set to rise as the government seeks international lending either from third countries or from the EU financial stabilization mechanism in order to finance the banking system’s recapitalization requirements and the budget deficit and debt refinancing needs. The banking crisis in Cyprus is mostly related to the Cyprus banks’ exposure to Greek public bonds and to the expected bad debts of the subsidiaries of Cyprus banks operating in Greece. This is set to modify dramatically both the public debt level of the Cyprus economy and the future prospects for economic development.
Cyprus needs a broader vision based on new principles of governance, to break down the ethnopolitical barriers and economic interests that generate and perpetuate its structural problems. Planning for an alternative model of economic and social development with due consideration of environmental protection taken into account means learning from the past, knowing that a continuation of the existing mode of economic and social organization will inevitably lead to renewed limitations and constraints in the not too distant future.
The institutional framework for the achievement of such objectives, which is made more complicated in a federal state context, must be robust. Embarking on an alternative path of sustainable development is a complex and ambitious objective that requires not only an appropriate institutional and governance framework but also political and social struggles to support it, challenging the resistance of vested interests.
Essential steps in the direction of an alternative sustainable model of economic development include moving away from the speculative, profit-seeking private banking system to social development banking which includes the cooperative banking sector, and moving beyond the mass tourism model. It means giving priority to knowledge-intensive industries, extending social provision, and protecting the environment. The issue of the democratic accountability and good governance of the banking sector is crucial.
Cyprus can certainly learn from Iceland when it decided to allow the banks to go bankrupt, fundamentally, and not taking on public debts to rescue the banks. It must protect the depositors who put their savings in the banks, but allow large bondholders, shareholders, and large deposit holders, to take the shock: the banking and financial sectors are completely distinct anyway. The domestic economy must be protected and particularly small deposit holders and businesses.[16]
The bubble which has maintained within it the bloated Cypriot middle classes and the many sections of the working-class who enjoyed high salaries and privileges, in stark contrast to the lower echelons of the working-class (migrants, precarious workers) – has burst. Cypriot people seem to have little choice but to struggle, inside or outside the Eurozone. This is a struggle for Cyprus – it is also a struggle for Europe and the world that is worth believing and living in.
-
IT’S OFFICIAL: CYPRUS TO SEIZE CITIZENS’ CASH…40% GRAB ON ACCOUNTS ABOVE €100,000…RUSSIANS STAND TO LOSE BILLIONS
-
EUROPEAN UNION DEAL SHUTS BANK TO GET $13 BILLION
Cyprus dodged a disorderly sovereign default and unprecedented exit from the euro by bowing to demands from creditors to shrink its banking system in exchange for 10 billion euros ($13 billion) of aid.
Cypriot President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc in an overnight negotiating melodrama that threatened to rekindle the European debt crisis and rattle markets.
“It’s been yet another hard day’s night,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels early today. “There were no optimal solutions available, only hard choices.”
It was the second time in nine days that Cyprus struck a deal with its euro partners and the International Monetary Fund, capping a tumultuous week that underscored the contradictions of euro-crisis management that has dominated European policy making for more than three years. Cyprus, the euro area’s third- smallest economy, is the fifth country to tap international aid since the crisis broke out in Greece in 2009.
The first Cypriot accord, reached March 16, fell apart three days later when the parliament in Nicosia rejected a key plank, a tax on all bank accounts that sparked the indignation of smaller depositors. Efforts to win an alternative bailout from Russia, which loaned Cyprus 2.5 billion euros in 2011 when the nation was shut out of international markets, failed.
German Chancellor Angela Merkel lauded the agreement as lawmakers in her coalition embraced the package, which should go to a vote in Berlin in the coming weeks. The agreement goes a “long way” toward satisfying Germany’s Bundestag, Christian Democratic lawmaker Norbert Barthle said in an interview.
Bartering
The breakthrough came after Anastasiades bartered with officials including EU President Herman Van Rompuy, European Central Bank President Mario Draghi and IMF Managing Director Christine Lagarde. It was then sealed by the finance ministers, some of whom went out to dinner while the talks were ongoing.
With the ECB threatening to cut off emergency financing for tottering banks as soon as today, Cyprus’s leaders engineered another way of shrinking the island’s financial system.
The revised accord spares bank accounts below the insured limit of 100,000 euros. It imposes losses that two EU officials said would be no more than 40 percent on uninsured depositors at Bank of Cyprus Plc, the largest bank, which will take over the viable assets of Cyprus Popular Bank Pcl (CPB), the second biggest.
Cyprus Popular Bank, 84 percent owned by the government, will be wound down. Those who will be largely wiped out include uninsured depositors and bondholders, including senior creditors. Senior bondholders will also contribute to the recapitalization of Bank of Cyprus.
Debt Doubts
The squeezed banking industry will likely lead to a “sharp drop” in Cyprus’s gross domestic product this year and next, according to Reinhard Cluse, a London-based economist at UBS AG. As a result, the euro group’s debt-to-GDP ratio target of 100 percent by 2020 “must be doubted,” he said.
The Cypriot Finance Ministry said in a January presentation that bailing out the country may push debt to a peak of about 140 percent of GDP next year.
“Cyprus’s sovereign debt problems will remain an issue of concern — for European policy makers and for the markets,” Cluse wrote in a note to clients today.
Banks in Cyprus, which have been shut for the past week, will remain closed until further notice. Lawmakers in Cyprus voted last week to impose capital controls to prevent a run on deposits when they reopen.
The union representing Cypriot banking workers said today the Mediterranean island is faced with a “painful compromise,” according to a statement posted on its website. It urged employees to be ready to return to work when banks reopen.
Better Solution
“This solution we reached tonight doesn’t have the downsides that the solution of last week did,” said Dutch Finance Minister Jeroen Dijsselbloem, chairman of the euro ministers’ panel. He said the deal was beyond the range of “political possibilities” a week ago.
The Cypriot parliament won’t have to vote again because it has already passed laws on bank restructuring, officials said. On the creditors’ side, legislatures in Germany, Finland and the Netherlands may hold votes to approve loans to Cyprus from the European Stability Mechanism, the 500 billion-euro rescue fund.
Klaus Regling, managing director of the rescue fund, said approval by creditor governments in mid-April will pave the way for the first payouts to Cyprus in early May.
Lagarde said she will recommend that the IMF provide loans, without giving a figure. “There might have been a bit of friction here and there,” she said of the talks.
Solvent Banks
The next step lies with the ECB, which needs to keep funds flowing to solvent Cypriot banks to enable them to open. While Draghi and Executive Board member Joerg Asmussen left Brussels without commenting to reporters, a statement by the ministers said the bank will channel liquidity to Bank of Cyprus “in line with applicable rules.”
The seizure of larger deposits may spark tensions with Russia, the source of an estimated $31 billion in holdings in Cypriot banks according to Moody’s Investors Service. A Cypriot mission to Moscow last week failed to yield an alternative to the European-sponsored bailout.
Still, Russian President Vladimir Putin ordered his government to discuss restructuring a 2011 loan to Cyprus, Russian news service RIA Novosti cited a spokesman as saying.
The effort to go after insured deposits, while abandoned, may have harmful repercussions, said Moody’s in a note early today. “Policy makers’ recent decisions raise the risk of deposit outflows, capital flight, increased bank and sovereign funding costs and broader financial-market dislocation throughout the euro area in the future,” Moody’s said.
Nine Months
In a replay of tensions over aid for Greece at the outset of the crisis, European governments had wrangled over aid for Cyprus for nine months, exposing holes in the revamped economic management system that was built in three years of emergency policymaking, often at all-night summits.
A tightening of Europe’s budget-deficit restrictions and new rules to penalize countries with unbalanced economies or asset bubbles failed to stop the rot in Cyprus, which makes up less than 0.2 percent of euro-region output.
Hundreds of protesters massed outside the floodlit presidential palace in Nicosia late yesterday, one group brandishing a banner that said: “It’s capitalism, stupid.”
-
CYPRUS STRIKES LAST-MINUTE EUROPEAN UNION BAILOUT DEAL
Agreement set to involve heavy losses for wealthy investors, while those with savings under €100,000 will be spared
European leaders reached an agreement with Cyprus early on Monday morning that closes down the island’s second-biggest bank and inflicts huge losses on wealthy savers.
Russians would lose billions of euros under draconian terms that are aimed at preventing the Mediterranean tax haven becoming the first country forced out of the single currency.
“Herman Van Rompuy has brokered an agreement between the troika and Cyprus,” said an EU source, referring to the president of the European council and Cyprus’s trio of creditors: the European commission, the European Central Bank and the International Monetary Fund.
A meeting of eurozone finance ministers that started six hours late reached an agreement in the early hours of Monday morning to finalise the fine print of the deal. Savers with deposits of less than €100,000 (£85,000) would be spared but it was thought there would be heavy losses inflicted on the deposits of the wealthy.
Laiki, or Cyprus Popular Bank, is to be closed, with its good assets transferred to Bank of Cyprus, the country’s biggest bank, where savers would suffer big losses in return for equity shares. Those with more than €100,000 in Laiki would also be hit hard.
Negotiations got under way amid a hardening of the stance by the IMF and Germany, which insisted that depositors must take the hit for bailing out the eurozone’s latest crisis economy.
There were signs of panic in Cyprus as a €100 limit was imposed on ATM withdrawals, with more stringent capital controls to follow if the deal is finalised.
The European Central Bank had threatened to cut off funds propping up Cypriot banks on Monday, which would have precipitated the island’s exit from the euro if agreement was not reached at the emergency meeting.
“The numbers have not changed. If anything they’ve got worse,” said Wolfgang Schäuble, Germany’s finance minister. He said the aims of last week’s agreement to raise €5.8bn – details of which were rejected by Cyprus – had to be achieved. This time, however, savers with less than €100,000 will be spared, meaning the burden falls much more heavily on the wealthy than the 9.9% levy proposed last week for their accounts.
Germany is determined that the island deflate a bloated financial sector that exceeds the size of the Cypriot economy by a factor of seven.
“It is well known that I won’t allow myself to be blackmailed by no one or nothing,” said Schäuble. “I’m aware of my responsibility for the stability of the euro. If we take the wrong decisions we’ll be doing the euro a great disservice,” he told a German Sunday newspaper.
Russians are estimated to hold more than €20bn of the €68bn deposited in Cypriot banks. Bank of Cyprus holds €28bn in deposits although it was not clear how much of that would qualify for the “haircut”. But it was clear that the losses would amount to several billion.
The Cypriot president, Nicos Anastasiades, held meetings with EU officials in Brussels before the meeting of the euro group – the 17 finance ministers of the single-currency area – which included troika representatives Christine Lagarde, head of the IMF, Mario Draghi, president of the ECB, and Olli Rehn, European commissioner for economic and monetary affairs.
Little progress was reported from the earlier meetings on resolving the stalemate over how to structure a €17bn bailout, with creditors unwilling to offer more than €10bn while expressing dissatisfaction with Cypriot proposals to supply the remainder.
The agreement outlined early on Monday came close to what Lagarde had demanded a week ago and which had been rebuffed by Anastasiades.
Over the weekend Nicosia moved on legislation to wind up Cyprus Popular Bank and introduce capital controls to try to prevent a bank run and the flight of money out of the country.
-
CYPRUS BRACES FOR RUN ON BANKS AFTER BAILOUT DEAL
By Michele Kambas and Karolina Tagaris
NICOSIA (Reuters) – The president of Cyprus assured his people a bailout deal he struck with the European Union was in their best interests and would end anxiety, but he also announced “very temporary” capital controls to stem a run on the island’s banks.
Returning on Monday from fraught overnight negotiations in Brussels, the conservative leader said the 10-billion euro ($13 billion) rescue plan agreed there in the early hours of the morning was “painful” but essential to avoid economic meltdown.
He has agreed to close down the second-largest bank, Cyprus Popular, and inflict heavy losses on big depositors, many of them Russian, after Cyprus’s outsize financial sector ran into trouble when its investments in neighboring Greece went sour.
“The agreement we reached is difficult but, under the circumstances, the best that we could achieve,” Anastasiades said in a televised address to the nation on Monday evening.
“We leave behind the uncertainty and anxiety that we all lived through over the last few months and we look forward now to the future with optimism,” he told compatriots who face an immediate deep recession and years of economic hardship.
Many Cypriots say they feel anything but reassured by the bailout deal, however, and are expected to besiege banks when they reopen after a week-long shutdown.
The central bank said most would open their doors again on Tuesday, while the top two local banks most affected by the bailout – Bank of Cyprus and Cyprus Popular Bank, known as Laiki – would remain closed until Thursday.
Little is known about the restrictions on transactions that Anastasiades said the central bank would impose, but he told Cypriots: “I want to assure you that this will be a very temporary measure that will gradually be relaxed.”
Capital controls, preventing people moving funds out of the country, are at odds with the European Union’s ideals of a common market but the government may fear an ebb tide of panic that would cause even more disruption to the economy.
Without an agreement by the end of Monday, Cyprus had faced certain banking collapse and risked becoming the first country to be pushed out of the European single currency – a fate that Germany and other northern creditors seemed willing to inflict on a nation that accounts for just a tiny fraction of the euro economy and whose banks they believed had suffered fatal hubris.
Backed by euro zone finance ministers, the plan will wind down the largely state-owned Popular Bank and shift deposits under 100,000 euros to the Bank of Cyprus to create a “good bank”, leaving problems behind in, effectively, a “bad bank”.
Deposits above 100,000 euros in both banks, which are not guaranteed by the state under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize the Bank of Cyprus, the island’s biggest, through a deposit/equity conversion.
BILLIONS RAISED
The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros of the 5.8 billion euros the EU and IMF had told Cyprus to raise as a contribution to the bailout, Dutch Finance Minister Jeroen Dijssebloem said.
Cyprus government spokesman Christos Stylianides told state radio that losses on uninsured depositors would be “under or around 30 percent”.
Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution – setting a precedent for the euro zone.
Dijsselbloem’s comments on the need for lenders to banks to accept the potential risks of their failure had a knock-on effect in the euro zone, raising the cost of insuring holdings of bonds issued by other banks, notably in Italy and Spain.
Global equity markets and the euro retreated on his comment that the Cyprus bailout could be a template for solving other problems, by shifting more risk to depositors and stakeholders:
“What we’ve done last night is what I call pushing back the risks,” Dijsselbloem, who heads the Eurogroup of euro zone finance ministers, told Reuters and the Financial Times.
A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits, large and small. That proposal outraged ordinary Cypriots, leading to queues at bank cash machines.
The central bank has imposed a 100-euro daily limit on withdrawals from ATMs at the two biggest banks to avert a run.
UNFORESEEABLE CONSEQUENCES
Russia signaled it would back the bailout even though it would impose big losses on Russian depositors, who by some estimates may hold a third of all deposits in Cypriot banks.
President Vladimir Putin ordered officials to restructure a loan Moscow granted to Cyprus in 2011 – having rejected Nicosia’s request for easier terms in crisis talks last week.
Prime Minister Dmitry Medvedev – who ranks below Putin – earlier criticized the bailout, voiced the anger expressed by Russian depositors, saying: “The stealing of what has already been stolen continues.”
Among Cypriots sipping coffee in warm sunshine, there was a mood of wariness about the deal: “How long will it last?” asked Georgia Xenophontos, 23, a hotel receptionist in Nicosia.
“Why should anyone believe anything this government says?”
In the morning, a public holiday, residents of the capital lined the streets to watch a parade by soldiers and students to mark Greek Independence Day, waving the Greek and Cypriot flags.
“On this day I’m proud to be Greek, but at the same time I feel humiliated,” said Marios Charalambous, a 56-year-old print-shop owner.
“I’m worried what will happen when the banks reopen,” he said. “There’s so much anger.”
Turkish-speakers in the north of the island have run their own affairs since a Turkish army invasion in 1974 divided Cyprus. Only Turkey recognizes the administration of the north.
Chancellor Angela Merkel, anxious to show German voters she is not wasting their taxes six months before an election, said the deal was right because it ensured that those who contributed to the crisis were required to pay towards its resolution.
“I am very pleased that a solution was found last night and that we have been able to avoid an insolvency,” said Merkel. She was portrayed by some Cypriots, as by recipients of earlier EU bailouts, as an unfeeling driver of German hegemony in Europe.
RESIGNATION THREAT
A senior source in the Brussels talks said Anastasiades threatened to resign at one stage on Sunday if pushed too far.
The conservative leader, barely a month in office and wrestling with Cyprus’s worst crisis since the 1974 invasion, was forced to abandon his efforts to shield big account holders.
Diplomats said the president had fought hard to preserve the country’s business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons but had lost. Cyprus has retained links with Britain since its days as a colony.
The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.
The U.S. Treasury, noting the importance to the United States of financial stability in Europe, its largest trading partner, said it was now up to Cypriots to rebuild their economy: “It is critical to lay the foundation for a return to financial stability and growth in Cyprus,” the Treasury said.
Analysts had said failure to clinch a deal could have caused a financial market sell-off, but some said the island’s small size – it accounts for just 0.2 percent of the euro zone’s economic output – would have limited contagion.
Cyprus’s banking sector, with assets eight times the size of the economy, has been crippled by exposure to Greece, where private bondholders suffered a 75-percent “haircut” last year.
The tottering banks held 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros – enormous sums for an nation of 860,000 people that could never sustain such a big financial system on its own.
-
EUROPE: €100,000 SAVINGS NOW CONSIDERED “WEALTHY”
Cyprus bailout deal loots 40% of bank deposits
Paul Joseph Watson
Infowars.com
March 25, 2013
The deal to “save” Cyprus which, according to Cypriot President Anastasiades was struck “in the the best interests of the EU,” will inflict “huge losses on wealthy savers” of up to 40% of their bank deposits.
While savings accounts containing under €100,000 will remain untouched, those who have scrimped and saved all their lives to amass a relatively modest sum of anything over that amount face a “haircut” amounting to almost half of their wealth.
While the initial plan to take 9.9% of savings over €100,000 was met with protests and widespread fury, the media is characterizing the new deal as a huge victory worthy of celebration, without asking the key question;
Since when did having €100,000 euros in savings make anyone “wealthy”?
According to dictionary.com, the term “wealthy” means “having great wealth; rich; affluent.” Since when did working your entire life to accrue €100,000 euros make you “rich”?
When we think of the term “wealthy,” we think of old money, family legacies, aristocracy, mansion houses and lavish estates. In most European countries, including Cyprus, €100,000 euros wouldn’t even buy you a tiny 3 bedroom house in a good area.
Indeed, miniscule one bedroom apartments in the Cypriot capital of Nicosia start at around €135,000.
So according to the new definition of “wealthy” now being bandied about by European Union leaders and the mass media reporting on the Cypriot “bailout,” the “wealthy” who will be forced to pay a debt for which they have no responsibility include savers who could not even afford to buy their modest own home without a mortgage.
As Henry Blodget explains, the precedent is now set. Bankers can seize the deposits of anyone with over €100,000 euros in the bank to cover their gambling losses.
In addition, the outcome in Cyprus now communicates a clear message to millions of middle class people throughout Europe who have more than €100,000 euros in savings – your money could be swiped next.
“It makes the euro zone more susceptible to bank deposit runs in the event that banks come under question,” states a CitiGroup analysis. “This may make any future bank-related crisis more intense. The fact that deposit insurance was called into question so casually will make other depositors wary of policymaker assurances that they would not behave similarly.”
Anyone with an ounce of common sense who has over €100,000 euros deposited in European banks should now be scrambling to convert some of it to precious metals or at least spreading it out in smaller amounts between different banks.
Forget Russian oligarchs, the great looting in Cyprus has taught us that the vampires running the European Union and the IMF are now ready to sink their teeth into Europe’s middle classes with total disregard for the consequences – a systematic collapse in the confidence of the banking system which threatens to engulf the entire continent.
-
CYPRUS BANK BAILOUT AGREEMENT IS PURE THEFT: 40% OF PRIVATE DEPOSITS TO BE LOOTED FROM SELECTED ACCOUNTS
Mike Adams
Natural News
March 25, 2013
A brand new looting arrangement has been reached concerning Cypriot banks. It involves seizing the funds of all accounts over 100,000 euros, then stealing up to 40% of those funds sometime over the next few weeks, or whenever EU bureaucrats get around to deciding exactly how much to steal.
So instead of 10% being stolen from most accounts, as was originally proposed, the new deal is that 40% will be stolen from selected accounts, but not from accounts holding less than 100,000 euros. Why the 100,000 threshold for having your money stolen by the banking system? Because all EU bank accounts are insured up to 100,000 euros. So the banksters figured they could just steal anything over 100,000 and say, “Heh, it wasn’t insured, your loss!”
IMF chief Christine Lagarde characterized the theft as “a lasting, durable and fully financed solution.” And if that’s not enough of a solution, they can always loot more private accounts to reach a new solution!
Sure, it’s a great solution… if you’re the banksters stealing all the money from private account holders. But from the point of view of depositors, this “solution” looks a lot more like a mugging.
Entire accounts seized indefinitely
It’s actually worse than just the 40% being stolen from private accounts: all accounts over 100,000 euros are now indefinitely frozen (seized) until the banksters figure out exactly how much to steal. “Large deposits with Bank of Cyprus above the insured level will be frozen until it becomes clear whether or to what extent they will also be forced to take losses, the Eurogroup of finance ministers said in a statement.” (USA Today)
Not everybody is fooled by all the bankster happy talk, of course. As Colm McCarthy writes on the Independent.ie website:
…the eurozone countries collectively do not have an actual deposit guarantee fund in place, and the volume of deposits in many eurozone countries, not just those already in financial distress, is large relative to the fiscal capacity of the state. Bank runs by retail depositors are a serious risk, particularly in those countries whose governments lack financial credibility.
And from Mats Persson of GulfNews.com:
The Eurozone set a risky precedent when it decided to go for depositors. Images of long queues outside ATMs will have registered in other parts of the Mediterranean. If Cypriot depositors are forced to pay today, why not Spaniards tomorrow? …Events in Cyprus have shown just what a high-risk gamble the euro was… If you could design a system whereby a splinter could take down an elephant, this would be it.
No deposits are ever safe while the central banks are running things
The bottom line truth in all this is that no deposits are ever safe in any bank run by a government. Governments are inherently liars, and when it comes down to a crisis, it’s always easier to just STEAL money from depositors and call it a “tax.”
The business of banking, it seems, has largely become a business of theft. No wonder everybody’s flocking to bitcoin, the decentralized crypto-currency that’s not controlled by any government anywhere: www.weusecoins.com
That’s also why the Natural News Store has just announced it is now accepting bitcoin currency as payment for orders. Anyone with bitcoins can now buy prepared foods, superfoods, organics, supplements and much more, directly from the Natural News Store.
-
WORDS OF WARNING: GET YOUR MONEY OUT OF EUROPEAN BANKS
Michael Snyder
Economic Collapse
March 25, 2013
If you still have money in European banks, you need to get it out. This is particularly true if you have money in southern European banks. As I write this, the final details of the Cyprus bailout are being worked out, but one thing has become abundantly clear: at least some depositors are going to lose a substantial amount of money. Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be considered 100% safe ever again. Without trust, a banking system simply cannot function, and right now there are prominent voices on both sides of the Atlantic that are loudly warning that trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can. Even if you don’t end up losing a significant chunk of your money, you could still end up dealing with very serious capital controls that greatly restrict what you are able to do with your money. Just look at what is already happening in Cyprus. Cash withdrawals through ATMs have now been limited to 100 euros per day, and when the banks finally do reopen there will be strict limits on financial transactions in order to prevent a full-blown bank run. And of course anyone with half a brain will be trying to get as much of their money as they can out of those banks once they do reopen. So the truth is that the problems for Cyprus banks are just beginning. The size of the “bailout” that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn. Cyprus is heading for a complete and total banking meltdown, and because the economy of the island is so dependent on banking that means that the economy of the entire nation is going to collapse. Sadly, similar scenarios will soon start playing out all over Europe.
So if you hear that a “deal” has been reached to “bail out” Cyprus, please keep in mind that the economy of Cyprus is going to collapse no matter what happens. It is just a matter of apportioning the pain at this point.
According to the New York Times, it looks like much of the pain is going to be placed on the backs of those with deposits of over 100,000 euros…
The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole.
A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.
Does that sound bad to you?
Well, if a deal is not reached, there is a possibility that those with uninsured deposits could lose everything. According to Ekathimerini, EU officials are telling Cyprus to choose between a “bad scenario” and a “very bad scenario”…
The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 percent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.
The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.
When asked by Kathimerini how the Cypriot economy will survive if all company and personal deposits above 100,000 euros disappear from the country’s two biggest lenders, the EU official said: “Unfortunately, Cyprus’s choices are between a bad scenario and a very bad scenario.”
So what percentage of the deposits in Cyprus are uninsured deposits?
Well, nobody knows for sure, but according to JPMorgan close to halfof the total amount of money on deposit in EU banks as a whole is uninsured.
Do you think that some of those people will start moving their money to safer locations after watching how things are going down in Cyprus?
They would be crazy if they didn’t.
And if you think that “deposit insurance” will keep you safe, you are just being delusional.
According to CNBC, very strict capital controls are coming to Cyprus. These rules will apply even to accounts that contain less than 100,000 euros…
Financial controls are coming. Depositors with less than 100,000 euros may not lose their money outright, but they won’t like the restrictions–no matter how much they have in the bank. Limits on withdrawals, limits on check cashing, and perhaps even outright conversion of checking accounts into fixed term deposits are coming (translation: you don’t have a checking account, you have a bond from the bank).
A lot of people are going to lose a lot of money in Cyprus banks, and a significant percentage of them are going to be Russian.
And as I wrote about the other day, you don’t want to have the Russians mad at you.
According to the Guardian, Moscow is already considering various ways that it might “punish” the EU…
However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: “If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.
“Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy.”
Could this be the start of a bit of “economic warfare” between east and west?
One thing is for sure – the Russians simply do not allow people to walk all over them.
Meanwhile, things in Cyprus are getting more desperate with each passing day. Because they cannot get money out of the banks, many retail stores find themselves running low on cash. In a few more days many of them may not be able to function at all…
Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus’s Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”
But do you know who was able to get their money out in time?
The insiders.
According to the Daily Mail, the President of Cyprus actually warned “close friends” about what was going to happen and told them to get their money out Cyprus…
Cypriot president Nikos Anastasiades ‘warned’ close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.
Overall, approximately 4.5 billion euros was moved out of Cyprus during the week just before the crisis struck.
Wouldn’t you like to get advance warning like that?
Well, at this point it does not take a genius to figure out what to do about any money that you may have in European banks. The following is from a recent Forbes article by economist Laurence Kotlikoff…
Whatever happens, no one is going to trust or use Cypriot banks. This will shut down the country’s financial highway and flip Cyprus’ economy to a truly awful equilibrium in a replay of our own country’s Great Depression, which was kicked off by the failure of one-in-three U.S. banks.
Cyprus is a small country. Still, the failure of its banks could trigger massive bank runs in Greece. After all, if the European Central Bank is abandoning Cypriot depositors, they may abandon Greek depositors next. A run on Greek banks could then spread to Portugal, Ireland, Spain, and Italy and from there to Belgium and France and, you get the picture, to other countries around the globe, including, drum roll, the U.S. Every bank in each of these countries has made promises they can’t keep were push come to shove, i.e., if all depositors demand their money back immediately.
We’ve seen this movie before. And not just in real life. Every Christmas our tellys show It’s a Wonderful Life in which banker Jimmy Stewart barely saves his small town from economic ruin arising from a banking panic.
Others are being even more blunt with their warnings. For example, Nigel Farage, a member of the European Parliament, is warning everyone to get their money out of southern European banks while they still can…
The appalling events in Cyprus over the course of the past week have surpassed even my direst of predictions.
Even I didn’t think that they would stoop to stealing money from people’s bank accounts. I find that astonishing.
There are 750,000 British people who own properties, or who live, many of them in retirement down in Spain.
Our message to expats now that the EU has crossed this line, must be: Get your money out of there while you’ve still got a chance.
And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your head examined…
What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them. They don’t really know where their deposits went to and they also ignore what jurisdiction they really belong to. Finally, depositors are paid mere basis points for their trust in the system vs. the 20% p.a. Argentina offered in 2001 (thanks to the zero-interest rate policies of the 21stcentury). In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!
So where should you put your money?
I don’t know that there is anywhere that is 100% safe at this point. But many are pointing to hard assets such as gold and silver. The following is what trends forecaster Gerald Celente had to say during one recent interview…
“People always say to me, ‘Mr. Celente you are always talking about gold. What are you going to do with gold when everything collapses and there is no money?’ Well, let’s say you are a Cypriot and all of the ATM machines are out of money and the banks are closed? Do you think those pieces of silver are going to buy you what you need? Do you think that ounce of gold is going to get you what you want?
That’s the real money. There is no other money. When it all comes down, gold and silver are the only things you have to buy what you need, get what you want, or even get out if you need to.”
I used to tell people that putting their money in U.S. banks was safer than putting it other places because U.S. bank deposits are covered by deposit insurance up to a certain amount.
But now we see that deposit insurance means absolutely nothing. If they decide to “tax” (i.e. steal) your money from your bank accounts they will just go ahead and do it.
So what should we all do?
Personally, I think that not having all of your eggs in one basket is a wise approach. If you have your wealth a bunch of different places and in several different forms, I think that will help.
But as the global financial system falls apart, there will be no such thing as 100% safety. So if you are looking for that you can stop trying.
Our world is becoming a very unstable place, and things are going to get a lot worse. We are all going to have to adjust to this new paradigm and do the best that we can.
-
THE CYPRUS BANK BATTLE: THE LONG-PLANNED DEPOSIT CONFISCATION SCHEME
A Safe and a Shotgun or Public Sector Banks?
“If these worries become really serious, . . . [s]mall savers will take their money out of banks and resort to household safes and a shotgun.” — Martin Hutchinson on the attempted EU raid on private deposits in Cyprus banks
The deposit confiscation scheme has long been in the making. US depositors could be next …
On Tuesday, March 19, the national legislature of Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout. Reuters called it “a stunning setback for the 17-nation currency bloc,” but it was a stunning victory for democracy. As Reuters quoted one 65-year-old pensioner, “The voice of the people was heard.”
The EU had warned that it would withhold €10 billion in bailout loans, and the European Central Bank (ECB) had threatened to end emergency lending assistance for distressed Cypriot banks, unless depositors – including small savers – shared the cost of the rescue. In the deal rejected by the legislature, a one-time levy on depositors would be required in return for a bailout of the banking system. Deposits below €100,000 would be subject to a 6.75% levy or “haircut”, while those over €100,000 would have been subject to a 9.99% “fine.”
The move was bold, but the battle isn’t over yet. The EU has now given Cyprus until Monday to raise the billions of euros it needs to clinch an international bailout or face the threatened collapse of its financial system and likely exit from the euro currency zone.
The Long-planned Confiscation Scheme
The deal pushed by the “troika” – the EU, ECB and IMF – has been characterized as a one-off event devised as an emergency measure in this one extreme case. But the confiscation plan has long been in the making, and it isn’t limited to Cyprus.
In a September 2011 article in the Bulletin of the Reserve Bank of New Zealand titled “A Primer on Open Bank Resolution,” Kevin Hoskin and Ian Woolford discussed a very similar haircut plan that had been in the works, they said, since the 1997 Asian financial crisis. The article referenced recommendations made in 2010 and 2011 by the Basel Committee of the Bank for International Settlements, the “central bankers’ central bank” in Switzerland.
The purpose of the plan, called the Open Bank Resolution (OBR) , is to deal with bank failures when they have become so expensive that governments are no longer willing to bail out the lenders. The authors wrote that the primary objectives of OBR are to:
- ensure that, as far as possible, any losses are ultimately borne by the bank’s shareholders and creditors . . . .
The spectrum of “creditors” is defined to include depositors:
At one end of the spectrum, there are large international financial institutions that invest in debt issued by the bank (commonly referred to as wholesale funding). At the other end of the spectrum, are customers with cheque and savings accounts and term deposits.
Most people would be surprised to learn that they are legally considered “creditors” of their banks rather than customers who have trusted the bank with their money for safekeeping, but that seems to be the case. According to Wikipedia:
In most legal systems, . . . the funds deposited are no longer the property of the customer. The funds become the property of the bank, and the customer in turn receives an asset called a deposit account (a checking or savings account). That deposit account is a liability of the bank on the bank’s books and on its balance sheet. Because the bank is authorized by law to make loans up to a multiple of its reserves, the bank’s reserves on hand to satisfy payment of deposit liabilities amounts to only a fraction of the total which the bank is obligated to pay in satisfaction of its demand deposits.
The bank gets the money. The depositor becomes only a creditor with an IOU. The bank is not required to keep the deposits available for withdrawal but can lend them out, keeping only a “fraction” on reserve, following accepted fractional reserve banking principles. When too many creditors come for their money at once, the result can be a run on the banks and bank failure.
The New Zealand OBR said the creditors had all enjoyed a return on their investments and had freely accepted the risk, but most people would be surprised to learn that too. What return do you get from a bank on a deposit account these days? And isn’t your deposit protected against risk by FDIC deposit insurance?
Not anymore, apparently. As Martin Hutchinson observed in Money Morning, “if governments can just seize deposits by means of a ‘tax’ then deposit insurance is worth absolutely zippo.”
The Real Profiteers Get Off Scot-Free
Felix Salmon wrote in Reuters of the Cyprus confiscation:
Meanwhile, people who deserve to lose money here, won’t. If you lent money to Cyprus’s banks by buying their debt rather than by depositing money, you will suffer no losses at all. And if you lent money to the insolvent Cypriot government, then you too will be paid off at 100 cents on the euro. . . .
The big winner here is the ECB, which has extended a lot of credit to dubiously-solvent Cypriot banks and which is taking no losses at all.
It is the ECB that can most afford to take the hit, because it has the power to print euros. It could simply create the money to bail out the Cyprus banks and take no loss at all. But imposing austerity on the people is apparently part of the plan. Salmon writes:
From a drily technocratic perspective, this move can be seen as simply being part of a standard Euro-austerity program: the EU wants tax hikes and spending cuts, and this is a kind of tax . . . .
The big losers are working-class Cypriots, whose elected government has proved powerless . . . . The Eurozone has always had a democratic deficit: monetary union was imposed by the elite on unthankful and unwilling citizens. Now the citizens are revolting: just look at Beppe Grillo.
But that was before the Cyprus government stood up for the depositors and refused to go along with the plan, in what will be a stunning victory for democracy if they can hold their ground.
It CAN Happen Here
Cyprus is a small island, of little apparent significance. But one day, the bold move of its legislators may be compared to the Battle of Marathon, the pivotal moment in European history when their Greek forebears fended off the Persians, allowing classical Greek civilization to flourish. The current battle on this tiny island has taken on global significance. If the technocrat bankers can push through their confiscation scheme there, precedent will be established for doing it elsewhere when bank bailouts become prohibitive for governments.
That situation could be looming even now in the United States. As Gretchen Morgenson warned in a recent article on the 307-page Senate report detailing last year’s $6.2 billion trading fiasco at JPMorganChase: “Be afraid.” The report resoundingly disproves the premise that the Dodd-Frank legislation has made our system safe from the reckless banking activities that brought the economy to its knees in 2008. Writes Morgenson:
JPMorgan . . . Is the largest derivatives dealer in the world. Trillions of dollars in such instruments sit on its and other big banks’ balance sheets. The ease with which the bank hid losses and fiddled with valuations should be a major concern to investors.
Pam Martens observed in a March 18th article that JPMorgan was gambling in the stock market with depositor funds. She writes, “trading stocks with customers’ savings deposits – that truly has the ring of the excesses of 1929 . . . .”
The large institutional banks not only could fail; they are likely to fail. When the derivative scheme collapses and the US government refuses a bailout, JPMorgan could be giving its depositors’ accounts sizeable “haircuts” along guidelines established by the BIS and Reserve Bank of New Zealand.
Time for Some Public Sector Banks?
The bold moves of the Cypriots and such firebrand political activists as Italy’s Grillo are not the only bulwarks against bankster confiscation. While the credit crisis is strangling the Western banking system, the BRIC countries – Brazil, Russia, India and China – have sailed through largely unscathed. According to a May 2010 article in The Economist, what has allowed them to escape are their strong and stable publicly-owned banks.
Professor Kurt von Mettenheim of the Sao Paulo Business School of Brazil writes, “The credit policies of BRIC government banks help explain why these countries experienced shorter and milder economic downturns during 2007-2008.” Government banks countered the effects of the financial crisis by providing counter-cyclical credit and greater client confidence.
Russia is an Eastern European country that weathered the credit crisis although being very close to the Eurozone. According to a March 2010 article in Forbes:
As in other countries, the [2008] crisis prompted the state to take on a greater role in the banking system. State-owned systemic banks . . . have been used to carry out anticrisis measures, such as driving growth in lending (however limited) and supporting private institutions.
In the 1998 Asian crisis, many Russians who had put all their savings in private banks lost everything; and the credit crisis of 2008 has reinforced their distrust of private banks. Russian businesses as well as individuals have turned to their government-owned banks as the more trustworthy alternative. As a result, state-owned banks are expected to continue dominating the Russian banking industry for the foreseeable future.
The entire Eurozone conundrum is unnecessary. It is the result of too little money in a system in which the money supply is fixed, and the Eurozone governments and their central banks cannot issue their own currencies. There are insufficient euros to pay principal plus interest in a pyramid scheme in which only the principal is injected by the banks that create money as “bank credit” on their books. A central bank with the power to issue money could remedy that systemic flaw, by injecting the liquidity needed to jumpstart the economy and turn back the tide of austerity choking the people.
The push to confiscate the savings of hard-working Cypriot citizens is a shot across the bow for every working person in the world, a wake-up call to the perils of a system in which tiny cadres of elites call the shots and the rest of us pay the price. When we finally pull back the veils of power to expose the men pulling the levers in an age-old game they devised, we will see that prosperity is indeed possible for all.
-
CYPRUS: SAVAGE AUSTERITY MEASURES AND ECONOMIC DICTATORSHIP
Cyprus’ fate illustrates how the European Union imposes the dictatorship of the global speculators, banks and corporations on the working class. The EU yesterday continued to demand massive austerity in Cyprus to raise €6 billion ($7.8 billion) in return for a €10 billion bank bailout.
The island country has been the centre of an escalating financial crisis, with its parliament voting Wednesday to reject proposals to raise the necessary funds by taking money from anyone with deposits in Cypriot banks.
A new vote on whether to impose a “haircut” on depositors was delayed until today. The EU and European Central Bank (ECB) dismissed proposals by Cypriot politicians—themselves wholly reactionary—to create a “solidarity fund” to raise the six billion demanded.
Cyprus’s aim was to preserve its financial relations with Russia and force workers to pay the price by nationalising pension funds to pay the debts of the super-rich. Other proposals included seeking contributions from the church and selling gold reserves—all in order to avoid levying a significant one-off levy on major depositors.
However, the EU bluntly dismissed these measures as insufficient. German Chancellor Angela Merkel declared baldly after a parliamentary meeting of the Christian Democratic Union (CDU), “We want Cyprus to remain in the euro zone”, but insisted that its “current business model is dead.”
The ECB has insisted that the levy on investors should be re-imposed—this time with a widely-anticipated penalty of 15 percent on depositors with balances over €100,000, as initially rejected by Nicosia. If not, it was made clear that proposals had been discussed to prepare for and limit the impact of a Cypriot exit from the euro zone.
With Cyprus unable to offer Moscow any guarantees in return for an appeal for additional funds towards the bailout shortfall, the island’s ruling elite has been thrown back on the tender mercies of the EU. After travelling to Moscow Tuesday, Finance Minister Michalis Sarris left on Thursday without any further funding from Russia and only an agreement to extend terms on the €2.5 billion loan first agreed in 2011 and due for repayment in 2016.
Russian Prime Minister Dmitri Medvedev said “the door had not been closed” to possible future support, after the EU and Cyprus had concluded an agreement. But the EU has done all it can to slam the door on Russia. In the process it intends to seal the fate of Cyprus’s inflated banking sector to the benefit of Europe’s major banks.
The troika—the EU, ECB and the International Monetary Fund—are determined to put Cyprus on rations, demanding savage cuts. On Thursday, reports had already begun to emerge of the crippling impact of the shutdown of the country’s financial sector. Medication was beginning to run out in hospitals, and many businesses were demanding payment in cash for fear that credit cards would never be charged, should the banks fail to re-open.
To enforce what amounts to social warfare against the island’s inhabitants, the Cypriot government is to impose draconian powers over the running of the economy.
Primarily, the Central Bank of Cyprus will be granted powers to determine whether or not transfers outside of Cyprus will be allowed. This measure is necessary from the point of view of Europe’s ruling class to protect against contagion from the crisis in Cyprus, which could trigger massive losses on the markets globally and the outflow of capital from other crisis-ridden countries of the euro zone.
While power over the flow of money in and out of the island is formally held by Cyprus, Germany’s leading financial publication Handelsblatt noted that, in reality, the ECB will exercise control. This will include controlling the payment of pensions and other state benefits. Handelsblatt remarked chillingly that Cypriot citizens would “receive the necessary funds to live.”
Other proposals for Cyprus’ banks are targeted against the country’s own citizens. They include restrictions on daily withdrawals, a ban on premature termination and compulsory renewal of all time savings deposits upon maturity, the conversion of current accounts to time deposits and restrictions on use of debit, credit or prepaid debit cards and on cashing in checks.
In addition, the legislation provides for the implementation of any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary “for reasons of public order and safety.”
This is a recipe for a de facto financial dictatorship. And this must find its corollary in repressive police measures to quell social and political opposition in the working class.
The focus may now be on Cyprus, but working people across Europe confront similar prospects: an ever escalating and devastating decline in living standards, attacks on basic services, and the creation of mass poverty. In threatening the nuclear option of provoking state bankruptcy and being thrown out of the euro zone, the EU and ECB are putting Greece, Spain, Portugal, Italy and Ireland on notice that their economies, too, will face destruction if there is any let up in the imposition of austerity.
On Thursday, Dutch Finance Minister Jeroen Dijsselbloem warned the European Parliament that the Cyprus debt crisis posed a “systemic risk” to the euro zone. Even the strongest economy, Germany, is not immune. A poll published by Der Spiegel on Friday showed that one in two Germans feared for their bank savings and a survey of business confidence showed an unexpected fall after four months of growth, with industrial orders to German firms declining in January by 1.9 percent, mainly due to a drop in orders from Europe’s crisis-hit periphery.
The spur for the downfall of Cyprus came initially from the collapse of Greece. The Greek-Cypriot-controlled south lost more than €4 billion when President Demetris Christofias agreed to a “haircut” of Greek sovereign bondholders without exempting Cyprus—increasing debts by 25 percent at a stroke.
No compromise is possible with the dictates of either the EU or the governments in its member states that act as nothing more than glorified enforcers of the rapacious demands of the super-rich. Whatever promises are made that austerity will restore the economy are lies.
-
THE SECRET PLAN TO AIRLIFT STRANDED BRITONS FROM CYPRUS: MILITARY TO RESCUE UP TO 60,000 EXPATS AS ISLAND FACES FINANCIAL MELTDOWN
-
Estimated 60,000 British expatriates in Cyprus and 3,000 British soldiers based there
-
Cyprus’s government reached a deal with EU authorities on a financial bail-out essential to avoid the country sliding further into chaos
By Simon Walters, Simon Watkins and Ian Gallagher | dailymail.co.uk
23 March 2013
Secret plans to airlift penniless Britons stranded in Cyprus back home have been drawn up by the Government.
Senior Whitehall sources say that if the crisis spirals out of control, British citizens who want to come back will be offered airline tickets.
If necessary, they will also be given transport to get to airports, probably by the British Army.
There are an estimated 60,000 British expatriates in Cyprus and 3,000 British soldiers based there.
News of plans to rescue Brits from the island comes as Cyprus’s government reached a deal with EU authorities on a financial bail-out essential to avoid the country sliding further into chaos.
The latest proposal will see people with more than €100,000 (about £85,000) in the Bank of Cyprus lose 20 per cent of their money. Savers with more than €100,000 in any other bank will pay four per cent. Last weekend’s proposal to raid all bank accounts on the island – as revealed by The Mail on Sunday last week – was dropped amid public and international outrage.
The new scheme has been approved by the European Union, the European Central Bank and the International Monetary Fund, known jointly as the Troika. The levy is needed to raise €5.8billion (£4.9bn) as Cyprus’s contribution to the bail-out. The EU is expected to provide a further €10billion (£8.5bn) to rescue Cyprus’s struggling banks. The European Central Bank had said it would pull the plug on Cyprus banks on Tuesday morning without a deal.
Cyprus President Nicos Anastasiades is expected to travel to Brussels today to finalise the agreement.
Whitehall officials refused to discuss details of the contingency plan for ex-pats, but a well-placed source said: ‘We are confident we will not need to put this plan into action. But clearly, we have to be ready to help British citizens in all circumstances, wherever they are in the world.’
The Mail on Sunday understands there have been detailed talks between Downing Street, the Ministry of Defence and the Foreign Office on the plan to airlift Britons.
‘This is something we have been looking at for a considerable period of time,’ said one insider. ‘We have been aware for many months that there was a possibility of something like this happening in Cyprus and we have taken the appropriate and prudent measures to prepare for it.
‘If British people cannot get their own money and want to come home, we have to help.’
Cyprus banks have been closed since last weekend and are not due to re-open until Tuesday morning. With limits placed on withdrawals from cash machines, many residents – including some Britons on the island – are running dangerously short of cash.
Whitehall’s secret airlift plan includes arranging extra commercial flights and paying for airline tickets for Britons who wish to return home but who cannot get hold of cash or use their credit cards to pay for them. It is not known whether they will be expected to repay the Government when they reach the UK.
The detailed plans even cover the possibility that British subjects won’t be able to get to the airport if they cannot pay for transport or petrol for their cars. It is thought the British Army will lay on transport.
As part of its bail-out plan, the Cyprus Parliament passed laws on Friday to stop significant amounts of money being removed from the country.
The introduction of so-called ‘capital controls’ was seen as essential to stop cash flooding out of the country when banks re-open on Tuesday. The levy and the block on taking money off the island will hit all residents, including British citizens, and thousands of Russians in Cyprus and in Russia who have billions of euros deposited in Cyprus banks.
The island has become a haven for wealthy Russians amid allegations that much of the Russian money is illegal.
The threat of a raid on its citizens’ cash prompted Russia last week to consider helping Cyprus bail out its banks in exchange for access to gas reserves off the Cyprus coast.
Cyprus’ finance minister Michalis Sarris held talks in Russia late last week but returned empty-handed.
Without the backing of the Troika for the new bail-out plan, the ECB had warned it would cut off emergency support for Cyprus’s banks, which would have left the banks bust, plunged the island into further chaos and driven Cyprus out of the euro.
ATMs are running on empty, nobody will take my cards – and I’m down to my last 64 euros
In her ‘old life’ back in Britain, Lesley Sutton was a designer-clad interior designer who enjoyed all the accoutrements of success.
She gave it up – the parties, the exotic holidays, the 4×4 and her luxury home – for a more humble existence in Cyprus. Now, 12 years on, there can be few expats on the blighted island who are suffering more because of the banking crisis.
Lesley, who runs an animal sanctuary in the mountains above Limassol, is down to her last 64 euros. Before the crisis, many of her 15 dogs and 20 cats were sponsored – 20 euros a month each – and that, supplemented by cleaning work, was her chief source of income.
‘It’s drying up because people haven’t now got the money to sponsor animals. Who can blame them?
At the moment I’ve got 50 euros in my purse and just 14 in the bank and that, sadly, is it,’ she said.
‘I am worried about feeding the animals. As it is, some of the dogs are, like me, living on pasta.’
Whatever the outcome of rescue talks, the crisis has already dealt an irreparable blow to Lesley’s livelihood – and that of many other Britons in Cyprus. Some expressed fears yesterday that they are days away from closing their businesses.
And growing numbers are said to be preparing to return to Britain.
The past 48 hours has seen a vicious circle develop. Banks are running out of cash, yet small business suppliers, supermarkets and petrol stations are refusing to accept credit cards. For many, this has overtaken the ever-growing limits on ATM withdrawals as their biggest concern.
‘It’s cash or nothing now,’ explained Briton Angela Rose, who runs a pet grooming business in Larnaca. ‘Like lots of others I know who own small businesses, suppliers are demanding cash rather than post-dated cheques, which they have always been happy with in the past.
‘It is this more than anything that is stifling business and making it hard to get by. I’ll have to close down in a couple of days; I can’t go on like this.’
Others spoke of angry scenes as customers try to pay with credit cards.
‘There have been plenty of tears, screaming and shouting and, I’m told, even scuffles breaking out.
It’s mayhem,’ said builder Peter Scrimgeour who moved to Cyprus from Exeter nine years ago.
‘People fill up their cars, go to pay with a credit card and then find that they aren’t accepted.’
With time running out for Cyprus, the island’s 60,000 expatriates face a nerve-racking few days.
Some Britons with foresight switched their savings to UK accounts several months ago and now those with the means to do so, many retired, are making plans to sell their properties and return home.
However, the vast majority, particularly those without financial interests in Britain, simply cannot afford to go.
‘Things have got increasingly desperate over the last 48 hours and I am fearful of what will happen next,’ said Ms Rose, 39.
‘My business has come to a standstill, no one is coming through the door and I am having to tell my staff not to come in. I can’t see how I am going to pay them. And I certainly don’t have the money to move back to the UK.’
Neither does Lesley Sutton, whose husband Terry, a builder, died last year. Lesley, from Essex, was diagnosed with thyroid cancer last year. But she is more concerned about her animals’ ailments and paying her vet’s bill.
‘I am having some treatment soon, paid for by a friend. We shall have to see what happens,’ she said.
UKIP leader Nigel Farage yesterday called for Cyprus to leave the euro. ‘The human suffering caused by the euro-thugs has shown that for Cyprus, like the other indebted countries, the best thing to do is leave the single currency.
‘The perceived benefits of joining have long since passed and there is no trust left,’ he said.
-
HARLEY SCHLANGER: THE RAPE OF CYPRUS AND THE EURO ZONE
-
CYPRUS POISONS TRUST IN BANKING
By Joel Skousen | World Affairs Brief
The ongoing story about Cyprus’ intent to raid all savings accounts in this tiny republic is really about a heist mandated by the EU bailout commission—and that’s because the shady bank economy in this island tax haven is around eight times the size of the real economy there. The EU decided to force Cyprus to raid bank deposits, the only ready source of funds. The announcement came on a Saturday when banks were closed but news of the “tax” caused a firestorm of protest and thousands ran to the ATMs and tried to empty as much of their accounts as possible.
None of the banks have been allowed to open until a decision is made. Meanwhile local businesses are struggling to make ends meet with credit cards. When the banks ever do open they will be hard pressed to convince anyone to keep their money there. Most of the big money in Cyprus belongs to the Russian Oligarchs and Mafia, who aren’t ones to take this lying down, but this move by the EU has poisoned the trust in banks all over Europe creating instability for most Western economies. EU and Russian stock prices and currencies are all in decline with the Russian decline particularly steep.
Even US and British citizens are nervously watching this situation and bankers are very worried that this kind of scare could infuse distrust among all banks in the West—since the debt crisis is widespread. The government promised to open banks on Thursday, but then demurred, postponing any opening until next Tuesday, hoping the weekend and Monday holiday will allow time for EU and Cypriot officials to come to some less draconian solution that won’t set off another wave of withdrawals.
Good luck with that! Public confidence in the security and sanctity of bank deposits is gone, and only a daily withdrawal limit is going to slow the inevitable run on banks when they do finally reopen. Withdrawal limits will surely remain in place until confidence can be restored—which may take months.
In the meantime, all Cypriot banks are required to keep at least one ATM open for cash withdrawals so that people have something to survive on. Lines are long and constant as people queue up to withdraw at most 260 Euros ($340) per day. But businesses and companies have zero access to their accounts and that spells trouble soon. Many small businesses are resorting to personal credit cards and checks to keep business alive, but if this continues much longer, even those forms of credit may not be acceptable to others.
As for the big Russian depositors, they are really over a barrel. As Cyprus’ reputation for banking privacy and favorable tax laws grew in past decades, so did their deposits—especially by “former” Russian Communist leaders who were on the receiving end of the phony privatization of key industries after the so-called fall of the Soviet Union. The US was also sending the Russian elite weekly suitcases of $100 bills which ended up in Swiss and Cypriot banks—not to mention all over Europe in the form of lavish spending.
Trouble is, there wasn’t enough of an economy in Cyprus to provide the banks with suitable investment vehicles to absorb these deposits, so they started lending the money to Greece buying high interest-bearing sovereign bonds. When Greece could no longer pay the interest or redeem their bonds, the EU sovereign debt crisis began in earnest and bailouts began—but stakeholders like Cypriot banks had to take a 50 percent haircut along with others in the bailout process. So, that’s why Cypriot banks themselves are now insolvent and need a bailout.
In short, the money is not coming back on its own. It’s all been a big Ponzi scheme. The Russians’ money is mostly gone, and everyone is looking for an EU bailout to make them whole again. No market economic solution is possible with most EU countries drowning in red ink—the inevitable legacy of social welfare states which promise more benefits than the semi-free markets can sustain.
Only Germany, Switzerland and Norway are in positive economic territory in Europe, and their people are in no mood to bail out the rest of Europe—though their globalist politicians are, and that is why they keep supporting bailouts. But there are limits to German patience. German chancellor Angela Merkel is under pressure to require the EU southern tier problem countries like Greece, Italy, Spain and Cyprus to tax and cut spending as their part of the bailout deal.
Correct as that position is, there is no way to grab savings accounts or enforce strong austerity measures that won’t cause a firestorm of protest. Sadly, with the power to vote out politicians who cut benefits, democratic socialism can never be made to be fiscally responsible, so deficit spending, borrowing, and eventual bankruptcy and are always the inexorable result.
That doesn’t mean, however, that collapse is imminent. They can keep creating money and bailouts for a lot longer than people think, as long as they keep inflation moderate. Remember, there is a globalist control agenda behind all of this, and they won’t give up easily.
The one time savings tax (9.9%) was a particularly unwise move as it has the air of theft about it and also unfairly penalizes the smaller account holders who aren’t part of the bigger Russian money-laundering system. They precipitated the bank run. This savings grab was so roundly decried by the Cypriots that the government backtracked immediately and is desperately searching for softer solutions, but that’s not going to be easy either.
This week, a conciliatory proposal was floated to cut the tax to about 6.75% for the small guys with total deposits less than $130,000 and raise the tax on the wealthy to 15%. That, however, was still too high for regular people and unacceptable to the Russians who have the muscle to apply a lot of external pressure.
The move to load up the big boys with more tax pain simultaneously set in motion some heavy intervention by Russian PM Vladimir Putin who was forced to consider another bridge loan to postpone the crisis. They’ve already loaned Cyprus $2.5B and are said to be considering lowering the interest rate and extending the maturity of that loan—but only if the EU starts including the Russians in the bailout talks. Russia and China are always looking for a place at the table and won’t hesitate to use their financial strength to open the way for influence.
But even Putin can’t squeeze blood out of a turnip, so there has got to be something for the Russians in return for more money or credit. I think we’ll see that the Russians may be shooting for a controlling interest in new gas fields discovered in Cypriot waters. As Armstrong Economics wrote this week:
Cyprus expects about 200 billion cubic meters of natural gas worth some $80 billion at current prices which is in Cypriot waters. That amount of gas would be enough to cover around 40% of the European Union’s annual gas consumption. Cyprus has been counting on starting to export by 2018, however, this may be optimistic in the long-run.
If those gas fields come online, Cyprus could hold the key to breaking the stranglehold Russia has on Europe, so it will be very important for the EU not to allow Russia a controlling interest in Cypriot gas.
Meanwhile, there’s a lot of pressure on the EU bailout commission to come up with a less politically explosive way to bailout the Cypriot banks. The “Eurogroup” of finance ministers has been in emergency meetings all this week trying to calm fears and offer more flexibility over the bank tax. However, they are still insisting that Cyprus raise 5.8 billion Euros from the tax.
And, that “program” means extracting more taxes—and Cyprus really has no good choices. $5B is a lot of money to extract from this small economy. The only plums available for the picking are the wealthy bank depositors.
New Cypriot Bonds may be the only way to postpone this crisis without taxes, but that just kicks the can down the road and is not a true solution. The big question is: Who will buy Cypriot bonds given the current risk of default? To make bonds work, the government is going to either have to offer up some guarantees based on future gas field income, or the EU powers that be (PTB) are going to have to create some new derivative insurance to back these bonds. Few have ever collected on derivative insurance, so it has all the makings of a Ponzi scheme as well.
The EU leadership is desperately looking for a way to postpone the crisis and this may be the least painful way out without ejecting Cyprus from the EU. At least one major EU official indicated that Cyprus may be a sufficiently small player in the EU agenda to allow it to leave:
A senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
That would be a first, and I’m not sure the globalists want to risk even one defection for fear that Greece and others might follow. Other EU economists continue to insist that Cyprus is a special case and the contagion of taxing bank accounts is unlikely to spread. I think that is true for the short term. But, I think they are hoping to at least get their tax foot in the door, so you may see them reduce the tax to a level they can get away with—just to get people used to the idea, and then expand it later.
Others can clearly see that the whole southern tier of EU countries will someday be in the same boat as Cyprus. Will they, too, turn on deposit holdings? I think so, but only have this crisis softens—and not only bank deposits but pension plans as well.
Governments are hungry for new revenue. Part of the reason why banking and finance is the target is because this is the core of the speculative economy where the wealthy and the elite keep their money churning for profit. Everyone, including those looking to fund the UN or the NWO, are eager to start taxing monetary transactions, which has a chilling effect on legitimate investment. The tax may be “only” 1% but that tax gets collected every time you move your funds to buy and sell, making the tax much more aggressive. The government is going to collect that tax many times over for the same money if it moves often enough.
I’ve seen at least one of the many “imminent threat of banking collapse” purveyors claim that everyone ought to get their money out of the banks before they do it here. I disagree. It’s almost impossible to run a business on cash and it triggers a lot of IRS reports when you run a lot of cash in and out of your accounts. I don’t think taxing bank deposits here in the States is imminent at all, so don’t rush to withdraw all your money. The only other safe way to store value is in precious metals, but that’s a real hassle to turn back into liquid cash for paying bills.
All of this does, however, send a strong warning to Americans who have taken a lot of money offshore or to Europe, thinking that it will be safe from the greed of the US government. That may be true for the short term, but I can guarantee that anyone who has large sums of money overseas will someday lose access to it by the same kind of bank edict we are seeing in Cyprus.
-
EUROPE THREATENS CYPRUS WITH BANKRUPTCY IN POWER STRUGGLE WITH RUSSIA
By Alex Lantier
22 March 2013
The European Central Bank told Cyprus yesterday to find funding to secure a €10 billion ($12.9 billion) European Union (EU) bailout by Monday, or face a cut-off of ECB credit and the bankruptcy of Cyprus’ banks and government.
Last night Cyprus’ parliament passed legislation granting the state emergency powers, including capital controls to block sudden outflows of money from Cyprus, amid mass protests and withdrawals of cash at banks’ ATMs by Cypriot depositors.
On Wednesday, the Cypriot parliament voted 36-19 to reject an EU bailout demanding a €5.8 billion contribution from Cyprus. This was to be paid by taking money from all bank accounts in Cyprus—both small depositors and larger account holders, primarily Russians and British, who use the island country as an offshore financial center.
Cypriot bank workers fearing the loss of their jobs protested in front of the Cypriot Parliament in Nicosia yesterday, clashing with riot police. They held signs reading “Merkel = fascist,” attacking German Chancellor Angela Merkel, whose government was the key force behind EU demands that the bailout be paid for by confiscating money from Cypriot bank accounts.
Yesterday the government also announced the formation of a so-called National Solidarity Fund. This misnamed entity would take money from Cypriot pensions, the Church of Cyprus, and donations from private citizens to help fund bank bailouts.
Central Bank of Cyprus Governor Panicos Demetriades also announced that Laiki Bank would be restructured and merged with Bank of Cyprus. These banks, the country’s two largest private banks, have been hit hard by the economic crisis and EU austerity measures in nearby Greece, relying on emergency funding from the Central Bank of Cyprus to avoid bankruptcy. As Cyprus uses the euro, however, the ECB can order its central bank to cut off so-called Emergency Lending Assistance (ELA) to the country’s private banks.
Cypriot Finance Minister Michalis Sarris and Energy Minister George Lakkotrypis were both in Moscow yesterday, trying to obtain Russian funding. Cyprus is reportedly considering offering Russia partial ownership of its financial sector, access to offshore natural gas deposits near Cyprus, and the use of a naval base at Limassol.
Currently, Russia’s only naval base in the Mediterranean is at Tartus in nearby Syria—now the target of a US- and EU-led proxy war against Russian-backed Syrian President Bashar al Assad.
Russian Deputy Prime Minister Arkady Dvorkovich warned that the EU’s move to confiscate money from depositors in Cyprus undermined confidence in the global banking system: “If such a solution is possible in Cyprus, it’s possible everywhere … It will mean there’s no place to keep money and that the banking system has stopped working.”
Major Russian banks, including Alfa Bank and VTB, stand to lose large sums if Cyprus’ banks collapse or Cypriot capital controls cut them off from their assets in Cyprus.
Cypriot workers and pensioners are being looted by the extension of reactionary EU austerity measures to Cyprus, which is also caught in the rising confrontation between NATO and Russia in the eastern Mediterranean. This not only takes the form of US and European imperialism’s bloody proxy war in Syria, but of European capitalism’s moves to destroy Cyprus’ financial system.
EU officials’ attempts to present their attack on Cyprus as a popular measure—aimed at taxing Russian oligarchs with billions stashed in Cyprus—are cynical and false. This campaign received perhaps unwitting assistance from Russian President Dmitri Medvedev, who absurdly denounced the EU bailout as a reminding him of “decisions made by Soviet authorities.”
The looting of Cyprus has nothing to do with expropriating capitalists in the interests of working people. While workers lose their savings and pensions, the EU is seeking to force the transfer of cash and business from Cyprus and Russia to the wealthiest, most powerful sections of finance capital.
EU officials have made quite clear that they want to significantly reduce the size of Cyprus’ financial sector. On Tuesday, German Finance Minister Wolfgang Schäuble said that the Cypriot banking system was simply “not sustainable.” He said, “Cyprus has a banking sector that is way too big and they are insolvent with that model, and no one outside of Cyprus is at fault for that.”
Financial commentators noted that the Cypriot crisis effectively forces businesses now banking in Cyprus to move their financial operations into larger Western European countries. These countries’ banks themselves are desperate for such an infusion of cash, amid an accelerating economic downturn driven by deep austerity measures across the continent.
The Moscow Times cited financier Michael Pugh, who had worked in Russia and Cyprus: “It is difficult to imagine that the EU and the IMF believed that the cap on deposits would stabilize the situation … [T]hey picked up Cyprus like a dusty rug to give it a good shake and drive certain businesses over to what appear to be more stable Western European jurisdictions.”
Emotions reportedly ran “very high” at Wednesday night’s teleconference of the Eurogroup Working Group of euro zone deputy finance ministers, discussing Cyprus. Cyprus’ deputy finance minister did not bother to attend the call, which participants described as “a mess.”
Participants asked whether a financial collapse in Cyprus would hit the entire euro zone or whether it would be possible to “ring-fence” the losses. Others openly discussed whether the collapse of the Cypriot banking system would force Nicosia to leave the euro, allowing its central bank to begin printing money—though these would be Cypriot pounds, not euros.
One participant reportedly warned that investors might be underestimating the risks posed by the deep international tensions driving the Cypriot crisis: “Markets believe that we will find a solution and that we will provide the money, and this might not be the case.”
-
CYPRUS: A VIEW FROM EUROPE
Published on Mar 21, 2013
March 19, 2012 – With the situation breaking minute to minute in Cyprus, LaRouchePAC interviewed members of the European LaRouche Movement. The Eurozone crisis, now centered on Cyprus, is the clearest signal of the move to the new money system as Lyndon LaRouche forecast on February 15, 2013.
-
MASS PANIC IN CYPRUS: THE BANKS ARE COLLAPSING AND ATMs ARE RUNNING OUT OF MONEY
Michael Snyder
Economic Collapse
March 22, 2013
European officials are openly admitting that the two largest banks in Cyprus are “insolvent“, and it is now being reported that Cyprus Popular Bank only has “enough liquidity to cover the next few hours“. Of course all banks in Cyprus are officially closed until Tuesday at the earliest, but there have been long lines at ATMs all over Cyprus as people scramble to get whatever money they can out of the banks. Unfortunately, some ATMs appear to be “malfunctioning” and others appear to have already run out of cash. You can see some photos of huge lines at one ATM in Cyprus right here. Some businesses are now even refusing to take credit card payments. This is creating an atmosphere of panic on the streets of Cyprus. Meanwhile, the EU is holding a gun to the head of the Cyprus financial system. Either Cyprus meets EU demands by Monday, or liquidity for the banks will be totally cut off and Cyprus will be forced out of the euro. It is being reported that European officials believe that the “economy is going to tank in Cyprus no matter what“, and that it would be okay to let the financial system of Cyprus crash and burn if politicians in Cyprus are not willing to do what they have been ordered to do. Apparently European officials are very confident that the situation in Cyprus can be contained and that it will not spread to other European nations.
Unfortunately, European officials are losing sight of the bigger picture. If the largest banks in Cyprus are allowed to fail, it will be another “Lehman Brothers moment“. The faith that people have in banks all over Europe will be called into question, and everyone will be wondering what major European banks will be allowed to fail next.
Meanwhile, European officials have already completely shatteredconfidence in deposit insurance at this point. Everyone now knows that when there is a major bank failure that depositors will be expected to share in the pain. Expect to see “bank jogs” all over southern Europe over the coming weeks.
The banks in Cyprus had been scheduled to reopen on Tuesday, but very few people expect that to actually happen at this point. In fact,Bloomberg is reporting that EU officials are actually thinking about shutting down the two biggest banks in Cyprus and freezing their assets…
Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.
Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said. Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.
Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. The proposal, a version of which was rejected last week, is considered a better option than taxing insured deposits or allowing Cypriot banks to collapse in a disorderly fashion if they lose access to ECB aid, the officials said.
Such a scenario would be an utter disaster.
How would you feel if you woke up someday and 40 percent of your life savings was suddenly gone?
According to Greek newspaper Kathimerini, European officials are also openly discussing the possibility of a Cyprus exit from the eurozone if a suitable bailout agreement is not worked out…
The possibility of Cyprus exiting the eurozone was discussed during teleconference involving technocrats from the Euro Working Group on Wednesday, Kathimerini understands.
A reliable source told Kathimerini that the technical implications of a euro exit, as well as the adoption of capital controls were debated by the Euro Working Group officials during the teleconference.
As I mentioned above, European officials seemed resigned to the fact that there will be an economic collapse in Cyprus “no matter what”, and so letting Cyprus leave the euro would not make that much of a difference. Either way, the banks are going to have to be “reorganized” and capital controls will be imposed…
In detailed notes of the call seen by Reuters, the group’s chair Austria’s Thomas Wieser said: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Never before have we seen European officials impose such a harsh ultimatum with such a short deadline. It is almost as if they want to boot Cyprus out of the euro. The following comes from a recent CNBCreport…
In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
And European officials are even publicly talking about the possibility that Cyprus will soon need to start using “their own currency”…
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.
This is absolutely shocking. Everyone always thought that Greece would be the first to leave the euro, but now it looks like it might be Cyprus.
However, there is still a chance that Cyprus may find a way to comply with EU demands. Politicians in Cyprus are frantically searching for a way to raise the needed cash without raiding private bank accounts. The following is what CNN is saying about the latest efforts…
Leaders of Cyprus’ political parties agreed Thursday to create an “investment solidarity fund,” which would issue bonds backed by state and church assets.
The plan was due to be discussed by the Cypriot government and parliament on Thursday evening, but few details were available and it was not clear how much the fund would be worth.
According to Reuters, other proposals have been under consideration as well…
The government said a “Plan B” was in the works.
Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.
At this point it is unclear whether any of those proposals will turn out to be acceptable to European officials.
In fact, the tone of European officials has noticeably changed from previous bailout efforts. They now seem much more willing to play hardball. For example, just check out what German Finance Minister Wolfgang Schaeuble is saying about the situation in Cyprus…
German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he “took note with regret” of the Cypriot parliament’s rejection of the bailout deal, but insisted that the terms will stay the same.
Asked if the eurozone was willing to let Cyprus go bust, he answered: “Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don’t want to have any of this.”
He added: “It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it.”
Schaeuble knows that the EU is holding all of the cards and that Cyprus is doomed without their help…
“The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know”
But the truth is that the EU can’t really afford to allow major banks to fail or for a single member to leave the eurozone. If either of those things happen, the confidence game that has been holding the European financial system together will begin to rapidly evaporate.
If the EU thinks that they can abandon Cyprus without the crisis spreading to the rest of southern Europe they are just being delusional.
At least there are a few politicians in Europe that understand what is happening. Nigel Farage, a very outspoken member of the European Parliament, is telling people to get their money out of banks in southern Europe as quickly as they can. He is warning that a great collapse of the European financial system is coming and that people need to get prepared for it.
-
JUDGE NAPOLITANO: “YES! U.S. CONGRESS CAN PASS A LAW TO IMPOSE BANK ACCOUNT TAX!”
MARCH 20, 2013
-
BERNANKE FAILS TO ANSWER CONCERNS ABOUT A CYPRUS-STYLE SEIZURE OF AMERICAN BANK DEPOSITS
Washington’s Blog
March 22, 2013
The government of Cyprus wants to grab bank deposits, and the chief economist of the German Commerzbank has called for private savings accounts in Italy to be similarly plundered, and other nations may be moving in that direction as well.
The American government has seized private assets before, and President Obama authorized seizure of property again last year. (The Argentinian government grabbed 401k assets; and some in the American government have mulled the same thing. And the U.S. government’s take-down of Megaupload was also an exercise of the power to seize all of the legal property held in a storage facility because a handful of crooks have illegal property in theirs. )
Zero Hedge has been warning for years that Western governments – including the U.S. – would eventually seize bank assets.
Bernanke was asked yesterday whether a Cyprus-style grab of bank deposits is possible in the U.S. :
Question: I was wondering if you can tell me how if a run on the banks happens in Cyprus, how that might affect U.S. markets. And also is it possible for the U.S. to levy a tax on regular deposits here? Or why not?
Bernanke: As someone mentioned Cyprus is a tiny economy. I don’t think these issues as worrisome as they are and as concerned as we would be for the Cyprus people, I don’t think that they have a direct implications for the U.S. economy.
The only way that they would create a problem would be if the runs became contagious in some sense, if depositors in other countries lost confidence. But to this point I’m not aware of any evidence that that is in fact the case.
The argument the Europeans are making is that Cyprus is a unique situation, very different situation, and indeed, it is quite unusual to have a banking sector as large as they have relative to their economy.
In terms of the United States, the FDIC was founded in 1934, and we have insured deposits and they are very proud of the fact that no one has ever lost a dime in insured deposits.
And during the crisis the response of the government was in fact to increase the level of deposit or account sizes that were insured. So I consider that to be extremely unlikely in the United States.
-
-
Bernanke’s response is unsatisfactory for 2 reasons.
Initially, the FDIC only insures deposits up to $250,000. So deposits over that amount are unprotected.
Indeed, the FDIC has, in fact, come very close to being insolvent at various times. See the following articles from the New York Times, American Banker, Bloomberg, Zero Hedge and Mish.
True, the Treasury Department would likely just bail out the FDIC if the FDIC really went belly up. But that would take a political act of will. And so Bernanke should have said, “we will always make sure the FDIC has enough money”.
Second – and more important - Bernanke failed to answer the question altogether. The question was not about whether the government would save bank depositors from economic conditions caused by others. The question was whether the government itself would grab deposits.
People didn’t think any European country would seize bank deposit assets. But the EU demanded that the government of Cyprus seize private bank deposits. The attempt of a government to seize private property is undermining confidence in Europe … and many people worry that that contagion will spread. That is what the question was about.
Bernanke entirely failed to answer the question which was actually asked … and has thereby caused a tsunami of distrust on the Internet.
In the same way that the Department of Justice’s wishy-washy assurances that it probably wouldn’t assassinate Americans on U.S. soil hasn’t reassured anyone, Bernanke shouldn’t have given a half-hearted reply. He should have said:
The U.S. will never, ever seize any American’s bank deposits under any scenariowhatsoever … without exception. We respect the rule of law as the basis for our economy, and we will never do anything which interferes with private property rights.
Bernanke’s failure to reassure couldn’t have come at a worse time.
British MP Nigel Farage just gave the following advice in response to the Cyprus bank deposit grab:
Get your money out while you still can.
The failure of American economic “leaders” to provide real reassurance regarding our bank deposits will just increase mistrust.
Indeed, more and more Americans realize that the government has bailed out the super-elite of the big banks, and enabled their fraud … while hosing the little guy again and again (and again). People see that we have socialism for the rich, but cut-throat, sink-or-swim capitalism for everyone else. They see that we have a malignant synergism between D.C. politicians and giant companies. Look here, here, here.
Indeed, after Wall Street giants such as MF Global and JP Morgan got caught seizing segregated client funds – but were never prosecuted by the government – both amateur and sophisticated investors have lost trust in the American financial system and financial regulators. (It has become obvious to all that the government is trying to cover up for the stunning crimes of the big banks.)
-
CYPRUS RIOTS BEGIN
zerohedge.com
March 21, 2013
Local TV station CYBC reports that police in the Cyprus’ capital are scuffling with protesters (including employees of Cyprus Popular Bank) outside the nation’s parliament:
– *CYPRUS POLICE CLASH WITH BANK EMPLOYEES OUTSIDE PARLIAMENT
– *CYPRUS SCUFFLES BROADCAST LIVE ON STATE-RUN CYBC
CYBC says more protesters gathering at Parliament House
Via @giopso
Via @MCaruso_Cabrera
-
-
EUROPEAN UNION GIVES CYPRUS BAILOUT ULTIMATUM, RISKS EURO EXIT
By Michele Kambas and Paul Carrel
NICOSIA/FRANKFURT (Reuters) – The European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout or face a collapse of its financial system that could push it out of the euro currency zone.
In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
The ECB ultimatum came as the island’s leaders struggled to craft a “Plan B” to raise the 5.8-billion euro contribution demanded by the EU in return for a 10-billion euro ($13-billion) bailout from the EU and IMF; angry Cypriot lawmakers threw out a tax on deposits, calling the EU-backed proposal “bank robbery”.
In a mark of strained relations and confusion, euro zone officials conceded during a conference call on the crisis which Cyprus failed even to join that the situation was “in a mess”.
The Cypriot government said party leaders had agreed to create a “solidarity fund” that would bundle state assets as the basis for an emergency bond issue, but the speaker of parliament, Yiannakis Omirou, insisted a revised levy on uninsured bank deposits was not on the table.
The European Central Bank, which has kept Cyprus’s banks operating with a liquidity lifeline, said the government had until Monday to get a deal in place, or funds would be cut off – putting not just the Cypriot economy in jeopardy but billions of euros held on the island by foreigners, notably from Russia.
“Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF program is in place that would ensure the solvency of the concerned banks,” the ECB said.
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.
Bank branches have been closed all week and are not due to reopen until Tuesday, though ATMs have continued to issue cash.
Several hundred protesters, many of them bank employees, rallied outside parliament after rumors that the island’s second-largest lender, Cyprus Popular Bank, was to be wound up. The central bank issued a swift denial of that.
Demonstrators chanted “Hands off the bank!” and several jostled with riot police, briefly breaking through a cordon. Cyprus has so far avoided the kind of unrest seen in neighboring Greece, the epicenter of the euro zone debt crisis and the origin of many of the losses undermining Cypriot banks.
Until this week, the expectation in Brussels and on financial markets had been that the election of a new Cypriot president in February would smooth the path to a bailout deal.
But although conservative President Nicos Anastasiades struck a deal last weekend in Brussels, it was unanimously rejected by parliament on Tuesday. While EU lenders, notably Germany, wanted uninsured bank depositors to help ease banks’ debts, Cyprus feared for its future reputation as an offshore banking haven and planned to spread the tax also to small savers whose deposits under 100,000 were covered by state insurance.
Cyprus’s central bank governor said he expected to clinch a financial support package by Monday. He did not say how.
Bank of Cyprus, the country’s largest lender, issued a statement pleading with the political leadership to strike a deal “to save the Cypriot economy”.
In Moscow, Cypriot Finance Minister Michael Sarris said he was discussing possible Russian investments in banks and energy resources to reduce its debt burden, as well as an extension of an existing 2.5-billion-euro Russian loan.
“The banks are the ultimate objective in any support we get, so it’ll either be a direct support to the banks or the support that we get through other sectors will be channeled to the banks,” Sarris told Reuters during a second day of talks with his Russian counterpart, Anton Siluanov.
He said Cyprus had no plans to borrow more money from Russia and add to its debt mountain. The Russian Finance Ministry had said on Monday that Nicosia sought an extra 5-billion-euro loan.
LIMITED OPTIONS
The chairman of euro zone finance ministers, Dutchman Jeroen Dijsselbloem, told the European Parliament in Brussels that Moscow had informed the EU it had no intention of ploughing more money into Cyprus beyond the existing loan.
“Any other options, to go further, another loan or an investment in the banks, the Russians let us know that they are not willing to do that,” he said, adding that that might change.
But Dijsselbloem said new loans from Russia would in any case not solve the country’s debt problem, and that a revised levy on larger bank deposits was also still a possibility.
“I’m not sure that this package is completely gone and failed, because I don’t see many alternatives,” he said.
Senior euro zone officials acknowledged in a confidential conference call on Wednesday that they were “in a mess” and discussed imposing capital controls to insulate the currency area from a possible collapse of the small Cypriot economy.
Cyprus itself refused to take part in the call, minutes of which were seen by Reuters. Several participants described its absence as troubling and reflecting the wider confusion surrounding the island’s predicament.
EU officials believe at least some of the 5.8 billion they are demanding should come from the 68 billion euros in Cypriot banks, 38 billion of which are in large deposits of more than 100,000 euros, mainly from Russians and other foreigners.
Hitting small savers caused visceral outrage, but the Cypriot government fears that foisting too big a burden on large depositors would wreck the offshore financial industry that accounts for much of the country’s economy.
Among the other options, nationalizing pension funds of semi-public companies could yield between 2 billion and 3 billion euros. Issuing bonds linked to future natural gas revenue is problematic because pumping any gas is years away.
Doubts about the fate of the small nation of just 1.1 million people has shaken confidence in the euro zone and raised geopolitical tension between the EU and Russia.
Russian Prime Minister Dmitry Medvedev said the bloc had behaved “like a bull in a china shop”.
Tuesday’s parliamentary vote marked a stunning rejection of the kind of strict austerity accepted over the past three years by crisis-hit Greece, Portugal, Ireland, Spain and Italy.
European officials were growing increasingly exasperated.
Austrian Finance Minister Maria Fekter told the newspaper Oesterreich: “I cannot rule out a Cyprus insolvency.”
-
EXCLUSIVE: EURO ZONE CALL NOTES REVEAL EXTENT OF ALARM OVER CYPRUS
BRUSSELS (Reuters) – Euro zone finance officials acknowledged being “in a mess” over Cyprus during a conference call on Wednesday and discussed imposing capital controls to insulate the region from a possible collapse of the Cypriot economy.
In detailed notes of the call seen by Reuters, one official described emotions as running “very high”, making it difficult to come up with rational solutions, and referred to “open talk in regards of (Cyprus) leaving the euro zone”.
The call was among members of the Eurogroup Working Group, which consists of deputy finance ministers or senior treasury officials from the 17 euro zone countries as well as representatives from the European Central Bank and the European Commission. The group is chaired by Austria’s Thomas Wieser.
Cyprus decided not to take part in the call, a decision that several participants described as troubling and reflecting the wider confusion surrounding the island’s predicament.
“The (Cypriot) parliament is obviously too emotional and will not decide on anything, if Cyprus does not even feel that they can attend the call it is a big problem for us,” the French representative said, according to the notes seen by Reuters.
“We have never seen this.”
The German representative raised the need to learn more about capital outflows from Cyprus to Russia and Britain, and emphasized that “we stand ready to find a solution immediately” as long as the parameters of the bailout agreed among euro zone finance ministers on Saturday are respected.
The official also referred to the need to resolve the issue of Cyprus’s two biggest banks, both of which are close to collapse, and mentioned the possibility of Cyprus leaving the euro zone.
In the event of an exit, the official said steps needed to be taken to “ring-fence” the rest of the euro zone from the impact and to ensure there was no contagion to Greece.
One issue repeatedly raised on the call was the risk of large outflows of capital once Cypriot banks reopen, probably on Tuesday. The ECB representative said the situation was being closely monitored and “technical preparations” were being made to try to limit the amount of any outflow.
“Some additional laws need to be passed. Overall we are in a very difficult situation,” the official said, according to the notes. “(We’re) trying to do everything within the powers to limit any unauthorized outflows.”
Cyprus’s finance minister continued discussions in Moscow on Thursday to see whether a way can be found to involve Russia in the bailout so that large depositors in Cypriot banks, many of whom are Russian, are not hit with a one-off levy.
Financial markets have largely taken the problems in Cyprus in their stride, perhaps calculating that any collapse of an economy worth only around 17 billion euros, will have only a limited impact, or that a solution will be found in the end.
“Markets believe that we will find a solution and that we will provide more money and this might not be the case,” one of the participants on the call said, according to the notes.
In wrapping up the teleconference, the chairman described the situation as “foggy” and expressed concern about Cyprus’s decision not to take part in the call.
“The economy is going to tank in Cyprus no matter what,” the notes quoted him as saying. “Restrictions on capital will probably be imposed,” he said, adding that further conference calls would be organized in the coming days.
-
THE CYPRUS CRISIS: IT ISN’T WHAT IT SEEMS
by John Galt
March 20, 2013
In August of 2011 this blogger observed the following in an article titled “The Most Dangerous Stock Market in the World is now down over 90%“:
In the nation of Cyprus, divided for decades between Turks and Greeks. Orthodox Christian and Muslim, the danger is real and somewhat buried in the back pages as other more pressing issues which impact geopolitics surpassed the region in importance. With the nation divided at gunpoint and distrust at all time highs, the last thing the people need there is a spark and the already charged activities of the Islamist minded leader of Turkey in addition to a deterioration in the economic conditions on Cyprus and in Greece are the perfect formula for disaster.
The stock market chart which I embedded in the article told a tale of woe as the markets had crashed so severely then, that doubts about the viability of the Cypriot financial system were obvious 2 years ago:
Last Friday, the same index opened at a new low of 98.91, indicating a total loss since the peak in 2007 of 98.3% of its total value. Today the discussion on talk radio and throughout the blogosphere has been the proposed seizure of bank deposits from Cypriot citizens and select foreigners keeping deposits in those banks as a “tax” to complete an ECB/IMF ordered bail-in as opposed to borrowing the money from their printing presses and diluting the value of the fiat funny money known as the Euro even further. There is this belief permeating the commentary that I have been listening to and reading that this is a play by the banksters to seize control of the financial system in Cyprus by forcing a new, popular government to capitulate to their demands.
Taking all of the commentary into account, I think that this obviously is not what it seems. Let’s review what is happening in the past which has led to this point and the dramatic attempt to usurp a country’s sovereignty over the weekend. The following are entries from this blog which ties the real reason, in my opinion, behind the attempt to destroy the Cypriot government and install a crony which is more accommodating to the European Central Bank and the various institutions allied with our Federal Reserve involved in a new world cabal designed to erase national borders and rights to that nation’s natural resources:
March 13, 2012:
Moody’s Adds Gasoline to the Fire in Cyprus – Downgraded to Junk
May 7, 2012:
Greek and Cypriot Stock Markets Imploding this Morning
May 10, 2012:
Cyprus Crisis Update: Turkey threatens Oil Companies and Israel to deploy 20,000 Commandos
July 8, 2012:
Cyprus Could be the Next Domino to Fall to Russia
At that point in time, almost a year ago, the Russians realized that Assad was in grave trouble and began making inquiries to the nation of Turkey about locating a naval base on Turkish territory either in Anatolia or on the island of Cyprus. The price was going to be a bailout for the government of Cyprus and guarantees that the Israeli pipeline project would be halted and all pipelines from Southern Russia to transit via the nation of Turkey itself. Needless to say the Greek Cypriots were enraged which put a halt to this idea yet no one has paid attention tot he headline above where Israel is quietly building a military base to protect the natural gas transfer station for the Israeli pipeline and Cypriot pipelines from their respective natural gas platforms in the Eastern Mediterranean.
In April of 2012, the hedge fund/financial advisory group in Cyprus issued a presentation pointing out the advantages to Southern Europe for completing an Israel-Cyprus-Greece natural gas pipeline in the presentation linked here.
The presentation pointed out that:
- Russia is an unreliable partner willing to exploit the European Union for hydrocarbon energy supplies
- The North African region of existing pipelines is both unstable and potentially unreliable for consistent pricing and supply
- Turkey can not be trusted once the Russian supply transits through their nation to ensure consistent supply at a reasonable price
- Israel and Cyprus are obvious partners to the poor sisters (my words, not theirs) of Southern Europe needing a ready, secure, cheap supply of natural gas
The proposed supply of natural gas from Israeli and Cypriot fields not only endangers the virtual monopoly that Russia holds at this time with Gazprom, but also could alter the financial landscape of the continent by removing the dependency of the Southern European nations on the dictates of the financial centers in France, Germany, the Netherlands, and United Kingdom. This eradication of the dependency on Russia provides a degree of independence not just from the mafia like influence of the Putin regime but destabilizes the traditional new world financiers who wish to impose political control using manufacture shortages and financial crises to force the population to ascribe to their viewpoint on world affairs. Greece has already surrendered to the re-invasion of Germany’s financial Illuminati, yet Cyprus’ population took a moment and paused this week to refuse to submit.
This decision has crucial consequences as the truth behind what is happening in Cyprus is not the minute amount of Euros the hedge funds of the European and Federal Reserve banksters are poised to lose, but control of the Eastern Mediterranean natural resources without dependency on the Russian Bear or the insanity of the “Arab Spring.” At this moment, one has to visualize the reality of the situation as displayed in the map below:
(Map from the Pytheas presentation linked above)
The fields from the Eastern Med are projected to have over 1 trillion cubic feet of natural gas and well over 20 billion barrels of oil according to independent estimates. The question is who would object to a cheap supply of petroleum products to the Southern European debtor economies (the proverbial PIIGS) who need cheap energy the most? Try this list on for size:
- Russia – Losing its monopoly and ability to manipulate political events in Europe and the Middle East
- OPEC – The Arab nations fear losing their influence on Europe and the ability to manage prices and deprive Israel of not just energy independence but financial freedom from Europe and the United States; it is quite possible that the Arabs are pressuring Russia to threaten the European Union to prevent completion of this pipeline complex in favor of their supply via Turkish territory
- The Fed/ECB banking cartel – Without the ability to control natural resources and the independence of economies in North America and Europe, regardless of size, their ability to profit from advances or misery within the economies disappears and the independence which results weakens their geopolitical influence
The results of this week’s abandonment of the deposit tax which was a blatant attempt to remove sovereignty from the Greek Cypriot population has now shifted with the news tonight from the Cyprus Times:
Last hope now appears to lie with Russia
Russia appears more than willing to bail out the Cypriot banking system in exchange for an obscene raping of their control of the natural resources within their grasp and being developed now. From the article:
Finance minister Michalis Sarris flew out to Moscow some 24 hours before initially announced.
The economy chief’s mission, informed sources said, was to sell the Russians the latest idea geared at preventing the flight of billions of euros from the island’s already hammered banks.
They said the finance minister’s trip to Moscow was moved forward to give Sarris the chance of striking a deal with the Russians as it was a foregone conclusion that the Cyprus parliament would reject the bank levy as it stood yesterday.
The cornerstone of Sarris’ proposal to the Russians, the same sources said, is for deposits over €100,000 to be guaranteed at 100 per cent of the cash they would lose via the bank tax. The collateral guarantee would come in the form of bank shares backed up by future state revenues from the sale of Cyprus gas.
The proposal is an improvement on a previous one, where only 50 per cent of the taxed amount was guaranteed.
The guarantee was targeted at Russian investors with over €100,000, to dissuade them from pulling their money out of Cyprus – or to at least contain the phenomenon as far as possible.
Issued jointly by the government and the state hydrocarbons company, the guarantee would be activated provided depositors kept their money in Cyprus for a period of two years.
In other words, the wealthy and average persons are guaranteed financial security if they surrender their natural resources, or control thereof, to the Russian Bear instead of the ever reliable British Petroleum, Royal Dutch Shell, Total Fina, etc. which are working with the ECB banking cartel. This trade off is reflected by the fury of the IMF and ECB in the actions of the Cypriot parliament yet the rest of the world is under the perception that the banking crisis in Cyprus is self-inflicted. Sadly, it is much more than it seems. The Greek and Cypriot banks which are in trouble acted as fronts for the European banking cartel’s hedge funds which speculate in Cypriot real estate which eventually led to this crisis. The bankers have demanded, much like within the United States, that the citizens of Cyprus absorb losses for overseas investors and bypass the democratic processes to protect their principle.
If the people of Cyprus are wise, they will absorb a period of short term financial and economic misery where they remove themselves from the European Union and central banking cartel and re-introduce the Cypriot Pound at a 10:1 or 100:1 ratio to the Euro. As the Israeli-Cypriot-Southern European pipeline realizes production and viability in the next three years, total economic independence would be realize and the ability to repay its Euro denominated debts concluded in a very short time period, unlike the true default of Iceland. The people of Cyprus are not in the midst of an economic crisis but a geopolitical one, which could decide if national sovereignty is more important than the globalist economic system.
Let us hope the people of that island nation are brave enough to endure the firestorm that is on their doorstep and make the right choices in the weeks to come.
-
ECB THREATENS CYPRUS WITH LIQUIDITY CUTOFF
According to a small report in France’s Le Figaro, the European Central Bank warned it would cut off Cyprus banks from all liquidity, if Nicosia doesn’t agree to the Troika’s “bailout plan.”
ECB President Mario Draghi “knows how to use force if he thinks it’s required,” says Le Figaro. After “noting” that Cyprus’ Parliament had rejected the so-called bailout, the ECB “brought out its weapon of mass dissuasion”: “monetary blockade.” The ECB warned that it would shut off Cyprus banks from all liquidity. According to Reuters today, “We did not threaten [to cut off liquidity], but just pointed out as a matter of fact that we can provide emergency liquidity only to solvent banks and that the solvency of Cypriot banks cannot be assumed if an aid program is not agreed on soon, which would allow for a quick recapitalization of the banking sector,” Asmussen told German weekly Die Zeit in an interview last night.
Asmussen was also quoted as saying that no other country in the Eurozone had a banking sector crisis comparable to Cyprus — which, of course, is not true: why else plan to rob Cypriot bank depositors to bail out the bankrupt European banking system?
Although not quoting Asmussen’s little white lie, Le Figaro insists, “Never has the ECB brandished such a threat,” adding that if the ECB were to carry it out, Cyprus Finance Minister Michael Sarris and the Central Bank Governor Panicos O. Demetriades would have no choice other than to keep the banks closed in the meantime.
Le Figaro then quotes Deutsche Bank analyst and specialist in European monetary affairs Gilles Moec: “If the banks open, while the ECB is cutting access to liquidity, there will be a bank run. … Depositors would no longer be able to take out cash, for lack of banknotes, and those wanting to make wire transfers overseas would be told that it’s impossible because the ECB no longer authorizes it.”
As we report elsewhere in the briefing, ATMs remain open with central bank reserves, and debit and credit cards are being used — but, asks the Paris daily, for how long? Most serious, it notes, major companies, especially Cypriot airlines, will become unable to pay their jet fuel suppliers, because they can’t receive overseas bank transfers. “If the situation is prolonged, the monetary embargo can rapidly be turned into an economic embargo. Never seen in the European Union!” worries Figaro.
-
CYPRUS BANKS REMAIN CLOSED, MAY OPEN NEXT WEEK – OR NOT AT ALL
Cyprus’s banks will remain shut on Thursday and Friday of this week, and with Monday being a scheduled bank holiday, the earliest the banks could open appears to be Tuesday, March 26. But some German officials are saying that the banks in Cyprus may never reopen, if there is no agreement on a bailout, according to many news sources. German Finance Minister Wolfgang Schaeuble, for example, is quoted as warning Cyprus that its banks might never be able to reopen, if it rejects the bailout.
The ECB’s chief negotiator on Cyprus, Joerg Asmussen, said the ECB would have to pull the plug on Cypriot banks unless Cyprus takes a bailout quickly. “We can provide emergency liquidity only to solvent banks and … the solvency of Cypriot banks cannot be assumed if an aid program is not agreed on soon, which would allow for a quick recapitalization of the banking sector,” Asmussen told Die Zeit in an interview conducted on Tuesday evening, according to Reuters.
NBC News reported today that Cyprus leaders are holding crisis talks “to avert financial meltdown” after rejecting the terms of the EU bailout. Others report that one of the measures under consideration is capital controls, to keep capital from fleeing the county. Bloomberg reported earlier today that “European policy makers are weighing how far to push Cyprus” after the parliament rejected the bailout package. The ECB Governing Council was meeting today in Frankfurt. Luxembourg Finance Minister Luc Frieden called for the 17 Euro finance ministers to reconvene as soon as possible, to forge a new bailout.
“This is not a good result — neither for Cyprus, nor for the euro zone, and we have to look together for alternatives to the negotiated package,” Frieden said yesterday in a phone interview from Frankfurt. “What matters now is to undertake all necessary measures to ensure the stability of the euro zone.”
Cabinet discussions were continuing into the night on Wednesday, according to Deutsche Welle. “We will not sleep tonight until we find a solution… I am confident we will find a solution so we do not go bankrupt,” said acting leader of the ruling Democratic Rally party, Averof Neophytou. “We don’t have days or weeks; we have only hours to save our country.
-
EUROPE IN CRISIS AS CYPRUS FACES NATIONAL BANKRUPTCY
By Jordan Shilton and Chris Marsden
21 March 2013
The vote by Cyprus’s parliament Tuesday evening to reject the terms of the European Union (EU) bailout agreed last Saturday has deepened a crisis which threatens to spread across Europe, posing the risk of national bankruptcy.
Thirty-six parliamentarians voted against the deal, while 19 abstained and none voted in favour. The initial bailout plan would have charged investors with deposits in Cypriot bank accounts a tax of 9.9 percent for those with account balances of more than €100,000, and 6.75 per cent for those with balances between €25,000 and 100,000. This would have raised €5.8 billion to support the proposed €10-billion-euro EU bailout for Cyprus’ banks.
With thousands gathered outside parliament to protest, a last-minute adjustment to exempt those with less than €20,000 from the levy had no impact.
President Nikos Anastasiades called an emergency meeting of all political parties to work on a “Plan B.” But a proposed alternative it drew up yesterday was rejected by the troika—the European Commission, the European Central Bank and the International Monetary Fund.
The total collapse of Cyprus’s financial system is being avoided only by the continued closure of the banks, which will now be kept shut until next Tuesday. The stock market also announced on Tuesday it would close for two days, amid fears that investors would withdraw large quantities of capital.
Negotiations with the EU are on-going, but EU officials insist that Cyprus raise €5.8 billion as a contribution to the bailout.
German Finance Minister Wolfgang Schäuble remarked after the vote, “The ECB has made it clear that without a reform programme, the aid can’t continue. Someone has to explain this to the Cypriots and I think there is a danger that they won’t be able to open the banks again at all.”
“Two big Cypriot banks are insolvent if there are no emergency funds from the European Central Bank,” he added.
The island’s two main banks, Laiki and Bank of Cyprus, are being kept afloat only by emergency credit made available by the ECB. ECB officials have warned that the failure to ratify the bailout agreement would result in the ending of this support.
The EU’s hard line indicates thinking within European ruling circles that Cyprus’s bloated banking system cannot be saved and that, in some quarters including German Chancellor Merkel’s coalition partners in the Free Democrats (FDP), it should be allowed to fail.
Bernd Riegert titled a comment published by Deutsche Welle “Time for Cyprus to leave the Euro zone.”
Bailing out Cyprus’s banks is no small feat. Martin Wolf pointed out in the Financial Times that Cyprus gross government debt reached 87 percent of gross domestic product last year and would reach 106 per cent of GDP by 2017, without the bailout. Its sovereign credit rating is also far below investment grade at CCC+ due to having banking sector assets over seven times GDP.
“Without taxing depositors, the proposed rescue package would have had to be €17.2bn, instead of €10bn, or close to 70 percent of GDP,” he wrote. “This would have brought sovereign debt to some 160 percent of GDP: an unsustainable burden. Indeed even the actual bailout package looks unsustainable, since it would appear to bring gross debt to 130 percent of GDP.”
Allowing a bank collapse is a high-risk strategy, however. The chaotic developments are exacerbating the instability of the euro zone. Amid a deepening recession across the continent, on-going negotiations over a working government in Italy, and the unresolved problems of the massive debts of European banks, the response in ruling circles has been characterised by mounting panic and uncertainty as to the potential impact of events.
Stocks fell in other so-called peripheral European economies. Values of Italian and Spanish banks fell by up to 5 percent on Tuesday, and the stock exchange in Athens was down by over 3 percent. The euro reached its lowest level in four months, falling below 1.29 against the US dollar, before rising slightly after the ECB’s assurance that it would support Cypriot banks for the time being.
The BBC’s economics correspondent Stephanie Flanders summed up the mood, writing Tuesday, “We don’t know yet whether the damage done in the past few days will turn out to be fixable. But we can say everyone seriously miscalculated.”
Klaus Regling, head of the EU’s permanent bailout fund, the ESM, told the German daily Bild that an uncontrolled default in Cyprus could place the euro as a whole at risk.
James Mackintosh, in the Financial Times asked whether a refusal to bailout Cyprus would “prompt a renewed euro crisis” and replied, “For sure.”
As well as the fear of contagion emanating from this small island, the European powers will be worried about the possibility that abandoning Cyprus will drive it decisively into the orbit of Russia.
The agreement to levy investors in Cyprus’s banks angered Moscow, because upwards of $45 billion of Russian money is held on the island. Wholly eliminating the levy on deposits below €100,000 would mean raising the higher levy to 15 percent—hitting the oligarchs, mafia elements and other Russian nationals even harder. This would prompt massive withdrawals and probably collapse the banks.
Cyprus therefore increasingly relies on Russian patronage, amid escalating international tensions, at the risk of antagonizing the European powers and ultimately the United States.
Its finance minister,Michalis Sarris, arrived in Moscow Tuesday to renegotiate the terms of a 2.5 billion euro loan made by Russia in 2011, with lower interest payments and an extended deadline to 2020. More significantly he has sought a further five billion euros on top—almost the entire shortfall on the EU bailout.
Worse still for the European powers, speculation is rife that Moscow is seeking the right to use the Cypriot port of Limassol as a naval base. Currently, Russia relies on a base at Tartus in Syria to access the Mediterranean. However, the current Syrian regime of President Bashar al-Assad is the target of a US-led war for regime change also directed against Russia and China.
There might also be a trade-off based on Russia’s Gazprom accessing as-yet untapped offshore gas reserves, estimated by Noble Energy to be well in excess of 5 to 8 trillion cubic feet based upon an initial investigation in 2011. Cyprus’s energy minister accompanies Sarris.
An unstated but no less pressing concern is the potential for the outbreak of mass opposition to the EU and its drive to bail out the financial elite at the expense of working people.
Proposals to reach a Plan B will do nothing to change the fundamental character of the bailout, which demands a massive attack on the living standards of the working class. Coming after a large anti-EU vote in the Italian elections, on-going strikes and protests in Portugal, Greece and Spain, and the toppling of the Bulgarian government last month, ruling circles are well aware that class relations in Europe are at the breaking point.
-
RUN ON ATMs IN CYPRUS CONTINUE…
By Tyler Durden | Zero Hedge
For a few days, the people of Cyprus were calm, quietly and orderly accepting the unreality of the levy being imposed upon them – incredulous that it was even possible. As we reach the 4th day of bank closures, amid rolling rumors and ECB threats, it appears the people have reached a tipping point as this series of images from Cyprus ATM lines indicates – the bank-jog has arrived. When will it become a full blown sprint?
It appears the catalyst for this latest move is the ECB threat and EU concerns over the future of the two biggest insolvent banks: As AFP reports: EU calls on Cyprus to set capital controls and merge 2 biggest banks Laiki and Bank of Cyprus.
- *EU WANTS CYPRUS TO ADOPT MEASURES BEFORE BANKS RE-OPEN, ANSA
- *EU WANTS CYPRUS TO ADOPT MEASURES TO STOP DEPOSIT FLIGHT: ANSA
Via @Imeldaflattery
Via NYT
-
CYRPUS WEIGHS NEW BAILOUT PLAN AS MELTDOWN LOOMS
MARCH 21, 2013
AFP – Cyprus was on Thursday fine-tuning a “Plan B” aimed at securing a eurozone bailout that the European Central Bank warned should be adopted by the weekend to avoid a banking meltdown on the debt-hit island.
As President Nicos Anastasiades huddled with political party leaders over the revised plan, Eurogroup head Jeroen Dijsselbloem warned in Brussels the crisis poses a “systemic risk” that threatens to ricochet through the eurozone.
The warning was echoed by ratings agency Fitch, which warned on Thursday that any support package for Cyprus that includes a stability levy “inevitably increases the danger of contagion risks within the eurozone.”
And in Moscow, Prime Minister Dmitry Medvedev slammed the European proposals to solve the Cyprus crisis as “absolutely absurd,” further raising tension between Russia and the European Union.
With financial transactions at a standstill and banks shut since Saturday not due to reopen until next Tuesday, queues formed outside cash points and retailers complained they were unable to restock because suppliers were demanding cash on delivery.
The European Central Bank abruptly warned that it could pull the plug on emergency funding for the Cypriot banking system before the banks reopen if no new bailout deal is agreed by then.
“The governing council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, March 25. Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks,” the ECB said in a short statement in Frankfurt.
Cyprus’s banks Already on Wednesday, ECB executive board member Joerg Asmussen had hinted that Cyprus’s banks could not count on emergency funding if Nicosia did not agree to a bailout deal, complete with a restructuring of its banking system.
Local media said Plan B, thrashed out by technical experts through the night and expected to be put to parliament later Thursday, has an option to nationalise state and provident funds, with bonds issued against future natural gas revenues.
Phileleftheros newspaper said this would raise around 3.5 billion euros of the 5.8 billion euros Cyprus is required to amass to secure the eurozone bailout.
The remaining 2.3 billion euros would come from a tax on bank deposits above 100,00 euros, it said, reviving a “haircut” option that torpedoed the original plan.
The troika of lenders — the European Union, European Central Bank and International Monetary Fund — agreed the bailout on Saturday on condition Cyprus raised another 5.8 billion euros.
That plan that would have seen all bank savings hit with a one-time levy of up to 9.9 percent was rejected outright by parliament in a Tuesday vote in which ruling party MPs abstained.
The revised plan was hastily drawn up after Finance Minister Michalis Sarris failed to make any progress in Moscow talks to secure aid as a rough-bargaining Russia sought lucrative assets in exchange for more help.
Officials familiar with Wednesday’s talks were cited by Vedomosti business daily as saying there were no concrete results and that Cyprus did not make any offers to Russia that were immediately attractive, although Moscow was analysing them.
Sarris was to hold further meetings on Thursday although the prevailing mood offered little optimism.
At the opening of a conference in Moscow with the head of the European Commission, Jose Manuel Barroso, Medvedev slammed the European strategy to bail out the near-bankrupt eurozone member.
“This scheme that is being discussed on Cyprus now looks absolutely absurd,” Medvedev said.
“I think that in any case the Eurogroup could examine a future plan of regulating Cyprus with the participation of all the interested sides, including Russian structures.”
In an interview published early Thursday on the Russian government website, Medvedev compared the actions of the European Union, the European Commission and the Cyprus government to regulate the debt problem to “a bull in a china shop.”
Russians including wealthy tycoons hold between a third and half of all Cypriot deposits and are believed to have more than $30 billion in private and corporate cash in the island’s banks.
Eurogroup head Dijsselbloem said in Brussels a fresh loan from Russia would be the wrong approach to take, as this would only pile up debt to an unsustainable level. The Cypriot banking model needs a total overhaul, he said.
Referring to “worries about the stability of the eurozone,” Dijsselbloem said the “present situation (was) definitely a systemic risk — the unrest of the last couple of days has proven this.”
-
WILL THE BANKING MELTDOWN IN CYPRUS BE A “LEHMAN BROTHERS MOMENT”: FOR ALL OF EUROPE?
Michael Snyder
Economic Collapse
March 20, 2013
Cyprus lawmakers may have rejected the bank account tax, but the truth is that the financial crisis in Cyprus is just getting started. Right now, the two largest banks in Cyprus are dangerously close to a meltdown. If they fail, depositors could end up losing virtually all of their money. You see, the banking system of Cyprus absolutely dwarfs the GDP of that small island nation. Cyprus is known all over the world as a major offshore tax haven, and wealthy Russians and wealthy Europeans have been pouring massive amounts of money into the banking system over the last several decades. Yes, those bank deposits are supposed to be insured, but the truth is that there is no way that the government of Cyprus could ever come up with enough money to cover the massive losses that we are potentially looking at. This is a case where the banking system of a nation has gotten so large that the national government is absolutely powerless to stop a collapse from happening. If those banks fail, depositors may end up getting 50 percent of their money or they may end up getting nothing. We just don’t know how bad the damage is yet. And considering the fact that many of the largest corporations and many of the wealthiest individuals in Europe have huge mountains of cash stashed in Cyprus, the fallout from a banking collapse could potentially be absolutely catastrophic.
So Cyprus needs to come up with some money from somewhere in order to keep that from happening.
Basically, there are three options at this point…
1) Even though the bank account confiscation tax was voted down today, there is talk that it could come back in another form. This is really the only place inside of Cyprus where enough money can be raised to bail out the banks.
2) Cyprus could go back and beg the IMF and the EU for money, but the IMF and the EU have already said that they want depositors to share in the pain.
3) Cyprus could get the money that they need from the Russians. This will be discussed in more detail later.
A lot of people will see the headlines proclaiming that Cyprus has voted against the wealth tax and think that everything is going to be okay now, but that is very far from the truth.
The reality is that this is only the first move in a very complicated chess game. The problems for Cyprus are only just the beginning…
“This is not the end of the process, but instead kicks off a further round of negotiation with Moscow and Berlin,” JPMorgan economist Alex White wrote in a research note. “The Cypriot authorities wanted to conduct the vote so that they could reaffirm the extent of their difficulties to the Europeans.”
When the banks of Cyprus reopen in a few days, there is going to be a stampede of people trying to pull their money out of the banks.
In fact, this was starting to happen even before the “bank holiday” was declared. According to The Sun, bank insiders were tipping people off about what was going to happen in the days leading up to the crisis…
But Russian oligarchs and big investors emptied accounts in the days beforehand, prompting claims they were tipped off by bank insiders. A source told The Sun: “It leaked out. Bankers warned their best clients. Government officials warned their friends and relatives.
“Billions disappeared from accounts in days, most from accounts held by Russians.”
And according to David Zervos, we could see billions more euros withdrawn from banks in Cyprus once they reopen. There will be mass panic as depositors scramble to reclaim their money before it can be taxed…
The die is cast. There is no going back for the Cypriots or the Eurozone leaders. As soon as the banks open in Cyprus there will be billions in withdrawals. The question of course is – “where will the money come from?”. Well, if the parliament votes YES, then the Euros will have to come from the Eurosystem. But there is a glitch. The Cypriots have already borrowed 10b euro via the ELA and Target2. How can Mario just wire over 20 billion more (less the 10 to 15 percent haircut) for the Russians, and another 20 to 30 billion for the wealthy Greeks. What collateral will an economy with 20b in GDP post to get this cash? Unless Mario violates every collateral rule at the ECB, the Cypriot financial system will collapse even with a YES vote. Its a wonderful life – Cyprus style.
It may not even matter what Cyprus eventually decides to do about a “wealth tax”. The bank run that is about to happen may be enough to bring down the banks of Cyprus all by itself.
And of course people all over southern Europe are watching developments in Cyprus very closely. As former British Chancellor of the Exchequer Alistair Darling recently noted, if depositors in southern Europe start getting nervous that their bank accounts will be targeted too, they will be likely to start pulling money out of the banks very rapidly…
“They have actually now said to people ‘We will come after your deposits, no matter how small your savings are’ and that seems to me to make it more likely that, if you are a saver in Spain or in Italy, for example, and you have just the sniff of the EU or the IMF coming your way, you will take your money out and you will get a run on the bank”
Cyprus could actually get out of this mess by turning to Russia, but the United States and Europe really do not want to see Russia gain so much control over that very strategic island nation.
So why would Russia get involved? Well, it has been estimated that Russians have approximately $31 billion stashed in banks in Cyprus. It is the favorite offshore banking destination for the Russian oligarchs. Dennis Gartman recently detailed why the tiny island nation is so appealing to the Russians…
Cyprus has been their own private Switzerland for many years. Legal and non-legal Russian cash has swamped the banking system in Cyprus since the early 90’s. The beauty of the island; the ease of admission too and exit from the island via boat or plane; the secrecy of the banking laws; the warm Mediterranean climate and the ease of which Cypriot authorities could be bribed and bought all worked to make Cyprus the center of Russian capital flight.
And right now the Russians are not happy at all that their money is being threatened.
In particular, the Russian mafia launders a lot of money in Cyprus. The Russian mafia is not about to let anyone steal their money, and they have an international reputation for being absolutely brutal. In the end, pressure from the mafia may have been one of the primary reasons why many Cyprus lawmakers voted against the bank account tax. As Dennis Gartman astutely noted, by voting against the wealth tax they may have literally been saving their own lives…
“One could only laugh as such a comment; of course Cyprus was complacent about laundering. To think otherwise was and is naïve. Ah, but now you’ve stolen Russia money… or soon shall depending upon the vote in the Cypriot parliament… and that is dangerous… very. One does not steal Russian mafia money and get away with it. There are fewer statements of fact that are more certain, more factual, more unyielding than this statement. Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of. We see no reason to mince words at this point: People will be hurt over this decision; some shall be killed.”
And the Russians definitely do not want to see the banking system of Cyprus collapse. In fact, proposals have been made that would provide the money necessary to keep it afloat. But of course that money would not come cheaply.
Some of the proposals that Russia has put forward were summarized by the Daily Mail…
But in a move that has raised eyebrows, the Russian energy giant Gazprom offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas on the island.
Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening.
It is also rumoured that the Kremlin is privately offering to help bail out Cyprus in exchange for the right to use a naval base in the Greek part of the island.
In addition, as I wrote about yesterday, some Russian investors have stepped forward and have offered to buy majority stakes in the two largest banks in Cyprus.
So why hasn’t Cyprus accepted help from Russia yet? Well, it is a geopolitical thing. Cyprus is a part of the EU, and European officials do not want Russia to become the dominant influence in Cyprus.
But if the IMF and the EU are not going to step up and help Cyprus, the Russian offers will become more tempting with each passing day.
Meanwhile, the attempted attack on bank accounts in Cyprus is making people nervous all over Europe. For example, the following is whatGerman economist Peter Bofinger had to say about what the situation in Cyprus is doing to confidence in the European financial system…
Making small-scale savers pay is extremely dangerous. It will shake the trust of depositors across the Continent. Europe’s citizens now have to fear for their money.
And if you don’t think that this could ever happen anywhere else, you are just being delusional.
In fact, it is already happening. In fact, the Finance Minister of New Zealand is now proposing that depositors in his nation should be required to “take a haircut” if any banks in his nation fail…
The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.
“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.
“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.”
But surely there will never be any major banking problems in the United States, right?
Well, large numbers of Chase customers that logged into their accounts on Monday discovered that a “computer glitch” had reset all of their account balances to zero…
Chase bank experienced a problem Monday that had customers scrambling to figure out where their money went.
JP Morgan Chase said it hadn’t been hacked but was having a problem “related to an internal issue” as customers found their accounts showing zero balances.
Some customers shared their frustration on Twitter and showed screen shots of zero balances.
How would you feel if you suddenly discovered that you had no money in the bank?
Most Americans just assume that their money will always be there because their bank accounts are “guaranteed” by deposit insurance and by the full faith and credit of the federal government.
But that is exactly what the people of Cyprus thought too, and look how that turned out.
It would be hard to overstate how dangerous the situation in Cyprus is. Yes, their nation is very small but their banking system is absolutely huge.
If the banking system of Cyprus fails, it could be a “Lehman Brothers moment” for all of Europe. At this point, the entire European banking system is leveraged 26 to 1, and once European banks start to fail they could start falling like dominoes.
There is also a very strong possibility that Cyprus could be forced to leave the euro, and if that happens everyone will be wondering who will be next to leave the common currency.
So don’t think for a second that the crisis in Cyprus is over. The banking meltdown is just getting started, and the consequences could end up being far more dramatic than any of us could possibly imagine.
-
THE GREAT CYPRUS BANK ROBBERY SHOWS THAT NO BANK ACCOUNT IS SAFE
Michael Snyder
Economic Collapse
March 19, 2013
The global elite have now proven that when the chips are down they are going to go after any big pile of money that they think they can get their hands on. That means that no bank account, no retirement fund and no stock portfolio on earth is safe. Up until now, most people assumed that private bank accounts were untouchable and that deposit insurance actually meant something. Now we see that there is no pile of money that is considered “off limits” by the global elite and deposit insurance means absolutely nothing. The number one thing that any financial system depends on is faith. If people do not have faith in the safety and stability of a financial system, it will not work. Well, the people that rule the world have just taken a sledgehammer to the trust that we all had in the global financial system. They have broken the unwritten social contract that global banking depends on. So now we will see a run on the banks, and this will not just be limited to a few countries in southern Europe. Rather, this will be worldwide in scope. Yoda may have put it this way: “Begun, the global bank run has.” All over the world, frightened people are going to start pulling money out of the banks. A lot of that money will go into gold, silver and other hard assets. And as money starts coming out of the banks, this could cause many of the large banks that have been teetering on the edge of disaster to finally collapse.
Many of you may not believe that they would ever come after bank accounts, retirement funds or stock portfolios in the United States.
Many of you may be entirely convinced that the Great Cyprus Bank Robbery could never happen in America.
Well, where do you think this whole plan was dreamed up?
It was the IMF that reportedly pushed the hardest for the wealth tax in Cyprus, and the IMF is headquartered right in the heart of Washington D.C.
Almost every nation on the planet has to deal with the IMF. It is an organization that is dominated by the United States and that is always involved when there is an international debt crisis.
If the IMF thinks that it is a great idea to steal from bank accounts to solve a financial crisis in Cyprus, why wouldn’t they impose a similar solution in other countries in the future?
And if bank accounts are no longer safe, are there any truly safe places to put your money?
You can trust the politicians when they tell you that an unannounced “wealth tax” will never happen where you live if you want, but that is the exact same lie that the politicians in Cyprus were telling their people until the day that it happened. The following is from an article in the Cyprus Mail…
And after all, President Anastasiades had emphatically declared in his inauguration speech that “absolutely no reference to a haircut on public debt or deposits will be tolerated,” adding that “such an issue isn’t even up for discussion.” Finance Minister Michalis Sarris made similarly reassuring statements, arguing that it would be lunacy for the EU to impose such a measure because it would threaten the euro system.
At this point, politicians in Cyprus have been given two very unappealing options. Either they vote yes on the wealth tax and destroy all faith in the banking system of Cyprus, or they vote no and they are forced out of the eurozone. In either case, we will probably see the financial system of Cyprus collapse and their economy plunge deep into depression.
At this point, the vote has been delayed until Tuesday. Apparently some additional “arm twisting” was required to get the needed votes.
And there have been proposals to change the terms of the wealth tax. Reportedly, some politicians want to impose a maximum rate of up to 15 percent on bank accounts of over 500,000 euros so that the rate on smaller accounts can be decreased.
It has also been announced that the earliest that banks in Cyprus will reopen will be Thursday.
But what is happening in Cyprus is small potatoes compared to how this will affect the rest of the world. The entire planet is watching this unfold, and as a recent article by Lucas Jackson described, faith in the global financial system is being greatly shaken…
It would be hard to over-emphasize how significant the Cyprus situation is. The EU demonstrated under no uncertain circumstances that they will destroy the rule of law to maintain their own power. It was a recognition of tyranny that many of us have always assumed was the case but yesterday became reality.
The damage done here is not related to the size of the haircut – currently discussed between 3 and 13% – but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite. To the power elite making the major decisions in DC, London, Berlin, France, Brussels, et. al., laws are like ice cream, easily melted.
Which begs the question, who is next? Will it be Portugal? Greece? Spain? Italy? France???
Will they impose a “one-time” tax on your bank account? Your house? Your stocks and bonds? Retirement accounts?
The global elite have declared open season on all large piles of money, and now many people all over the world will consider taking money out of the bank to be the rational thing to do. This will especially be true in countries in southern Europe since they would probably be the next to have wealth confiscated.
This is so abundantly clear that even Paul Krugman of the New York Times understands this…
It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying “time to stage a run on your banks!”
Tomorrow and the days immediately following should be very interesting.
The global elite have truly “crossed the Rubicon” by going after private bank accounts. It is almost as if they purposely chose the most damaging solution possible to the financial crisis in Cyprus.
Many in the financial world are absolutely stunned by all of this. For example, David Zervos is describing this move as a “nuclear war on savings and wealth“…
All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world. This was not a Bernanke style slow moving financial repression against risk free savings that is meant to stir up animal spirits and force risk taking. This is a nuclear war on savings and wealth – something that will likely crush animal spirits. This is a policy move you expect from a dictatorial regime in sub-Saharan Africa, not in an EMU member state. If the European governments can clandestinely expropriate 7 to 10 percent of their hard working citizen’s precautionary savings after the close of business on a Friday night, what else are they capable of doing? Why even hold money in a bank account? Are they trying to start a bank run?
So what motivated the global elite to do this?
According to CNBC, one of the motivations was to go after the Russians that had been using the banking system of Cyprus to launder money…
Indeed, the IMF is reported to have been keen on the levy as a way to stem the flood of Russian money into the island over the last few years which has promptedconcerns over money laundering.
Russian money accounts for about 25 percent of all money in the banking system of Cyprus, and obviously the Russians are quite upsetby what the IMF and the EU have decided to do. Even Vladimir Putin is loudly denouncing this move…
Russian President Vladimir Putin called the tax “unfair, unprofessional and dangerous,” according to a statement posted on the Kremlin website. Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s.
And you haven’t heard a lot about this in the western media, but the Russians have actually stepped forward and have offered to help Cyprus out of this jam. For example, there are reports that Russian investorsare interested in buying the two banks that were the primary cause of this bailout…
Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus – the two biggest banks on the Mediterranean island.
And according to Sky News, Gazprom has offered Cyprus a very large sum of money for the right to explore their offshore gas reserves that have not been developed yet…
The uncertainty comes as Russia’s finance minister said his country would consider restructuring its loans to Cyprus.
Russian energy giant Gazprom has also reportedly offered financial assistance to Cyprus in exchange for access to the island’s gas reserves.
So far the government of Cyprus has rejected the help of the Russians, but could they change their mind at some point? Apparently the Russians are offering enough money to completely fund the bank bailout…
According Greek Reporter, Gazprom made an offer over the weekend to the Cypriot government to fund the bank restructuring planned under the Cypriot bailout (which is set to cost up to €10bn) in exchange for exclusive exploration rights for Cypriot territorial waters. How reliable this story is remains to be seen, but it does hint at the geopolitical tension which we have been warning about.
Gazprom is known to be very close to the Russian government and despite Russian President Vladimir Putin overtly slamming the deposit tax – calling it “unfair, unprofessional and dangerous” - it is unlikely that they would let this opportunity pass untouched. Fortunately, the Cypriot government is said to have rejected the deal off the bat, but if displeasure towards the eurozone and the EU grows, the Russian option may become increasingly appealing.
It will be very interesting to see what happens.
Meanwhile, some European officials are already suggesting that other nations in southern Europe should have a “wealth tax” imposed upon them. The following comes from an article by Paul Joseph Watson…
Joerg Kraemer, chief economist of the German Commerzbank, has called for private savings accounts in Italy to be similarly plundered. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product,” he told Handelsblatt.
A “tax” of 15 percent on all financial assets?
Could you imagine if you woke up one morning and the government had decided to suddenly steal 15 percent of all the money that you had in bank accounts, retirement funds and stock portfolios?
If I had a bank account in Italy I would be very nervous right about now.
Under normal circumstances these kinds of things don’t happen, but governments will use an “emergency” to justify all kinds of things. I recently came across an article that included a great quote by Herbert Hoover that put this beautifully…
“Every collectivist revolution rides in on a Trojan horse of ‘emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ‘emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains.”
This is what the elite love to do.
They love to create order out of chaos.
And this is just the beginning. The Great Cyprus Bank Robbery was just a beta test for what is coming next.
As the global financial system crumbles, the global elite are going to target our bank accounts, our retirement funds and our stock portfolios. You might want to start thinking about how you will protect yourself.
-
NIGEL FARAGE MESSAGE TO EUROPEANS: “GET YOUR MONEY OUT WHILE YOU CAN”
Zero Hedge
March 20, 2013
In Nigel Farage’s first TV appearance since the Cypriot wealth tax was announced, the Englishman pulls no punches. In all his years and all his experience of the desperation of the European Union’s leadership “never did [he] think they would resort to stealing money from people’s savings accounts.” The simple fact is that they know they cannot let any country leave, no matter how small, for “once one country goes, the whole deck of cards will come tumbling down.” There is now “clear irreconcilable differences” between the North and the South of Europe and now that they have done this in one country, “they are quite capable of doing it in Italy, Spain and anywhere.” The message that sends to people is ”get your money out while you can.” As far as his British constituents, he strongly recommends George Osborne (UK Chancellor) urge ex-pats to remove all their money and do monthly transfers from home. “Do Not Invest In The Euro-Zone,” he concludes,“you have to be mad to do so – as it is now run by people who do not respect democracy, the rule of law, or the basic principles upon which Western civilization is based.”
“They are propping up a Eurozone that, in the end, will collapse in disastrous failure and they are prepared to do anything to do so.”
5 minutes of reality from a European MP – must watch…
-
IT’S NOT A ‘HAIRCUT’ – IT’S THEFT WHEN GOVERNMENTS LOOT YOUR PRIVATE BANK ACCOUNTS
Mike Adams
Natural News
March 19, 2013
This use of the term “haircut” to describe government theft of private banking accounts has got to stop. It’s not a haircut, it’s outright thievery. When a person breaks into your home with a gun and steals your jewelry or cash, do we call that a “haircut?” Of course not. It’s a criminal act, not a trip to the salon.
I’m referring to the government bank raids in Cyprus, of course, where up to 10% of private accounts are simply being stolen by the government. It’s being called the great EU bank robbery, and there is a lot of speculation that this may set off bank runs across European nations. But the media calls it nothing more than a “haircut.”
Why is everybody using the term “haircut” to describe this outright theft? The reason, of course, is because the term “haircut” is a mind game. Its purpose is to make it sound like it’s not outright theft. By calling it a “haircut,” it seems more polite, almost as if the government there is doing everybody a favor.
But I’m pretty sure if you or I walked into a bank with an AK-47 and demanded everybody’s money, the evening news wouldn’t call it a “haircut.” They would call it “armed robbery,” as they should.
Robbery is not a haircut. It’s theft, and when a government blatantly steals money right out of the checking or savings accounts of millions of people, that’s a criminal act. Sure, they can slap nice-sounding labels on it such as “haircut” or even a “tax,” but it’s still essentially the same thing as being mugged at gunpoint on the street.
Consider this: If the government went door to door, confiscating everybody’s cash, gold and jewelry, would the media also call that a “haircut?”
Notice who never takes a haircut? The globalist banks
There’s so much hair cutting going on these days that it almost feels like we’re trapped in a demonic salon. But there’s one institution that never takes a hair cut: the global banking elite.
In fact, they are the recipients of all the financial theft “haircuts” that are harming everyone else. Have you ever wondered where all this stolen money ends up going? Directly into the hands of the banksters, of course.
Why don’t nations tell the banksters to take a hair cut instead of allowing them to steal money from all the people? Iceland did, actually: They told the bankers to go to Hell and threatened to have them arrested. By taking this stand, Icelanders saved their country from economic collapse — without being plundered by the global banksters.
It’s time the people of the world woke up to the total criminality of the banking cartels and gave those bankers a “reverse haircut.” Central banks and global banking institutions have been stealing our wealth and our savings for so long that people seem to have become accustomed to it. So they fail to find the proper response when faced with criminals stealing money from them right under their noses. The correct response is to arrest the bankers and throw them in prison. Cancel the fraudulent debts, take back national sovereignty over money supplies (which means ending the Fed, of course) and end the era of bankster looting and theft that now functions as an economic cancer ravaging our world economies.
-
CYPRUS BANK INSOLVENCY CRISIS QUICKLY ESCALATING
Mike Adams
Natural News
March 22, 2013
As you may have suspected, there’s far more to the Cyprus bank crisis story than meets the eye. It turns out the shutdown of Cypriot banks has caused a large-scale financial shutdown of the Russian government which uses Cyprus banks for most transactions.
On top of that, the EU central bank (ECB) has now issued an ultimatum that threatens to revoke all financial support and crash the Cypriot banks if they can’t come up with 5.8 billion Euros by Monday. Reuters reports:
The European Central Bank, which has kept Cyprus’s banks operating with a liquidity lifeline, said the government had until Monday to get a deal in place, or funds would be cut off – putting not just the Cypriot economy in jeopardy but billions of euros held on the island by foreigners, notably from Russia.
USA Today reports, “If it does not find a way by Monday, the European Central Bank said it will cut off emergency support to the banks, letting them collapse. That would throw the country into financial chaos and, ultimately, cause it to leave the eurozone, with unpredictable consequences for the region.”
Until then, the banks remain closed, and everybody knows the minute they open, every account holder will immediately transfer their money out of the banks, causing a near-instant bank run and a collapse.
The worry across the eurozone now is that this imminent bank collapse will trigger account holders in Greece to start taking their money out of the bank, too. The Greek banking system is already in such sad shape that it only takes a very small percentage of account holders withdrawing their funds — perhaps 5% or so — to topple Greek banks. That’s because the banks are roughly 95% leveraged with fractional reserve accounts and complex debt instruments.
Once bank runs begin in Greece, they will spread across the EU. Fear will kick in everywhere and depositors will run on the banks in Spain, Italy and even the UK. Germany is arguably in the safest position to defend against bank runs, but even its banks are unwisely leveraged beyond reasonable ratios.
We are about to witness massive wealth destruction
It’s important to understand that fractional reserve banking wealth is a fictional construct that does not exist in reality. Thus, the wealth created by fractional reserve banking is nothing more than a mirage that can be destroyed literally overnight.
Importantly — and here’s the real point nobody is talking about – Russia may be willing to let Cypriot banks collapse and lose a lot of money itself, knowing that the aftermath of a collapse may set off a chain reaction of bank collapses across the EU.
EU authorities seem to anticipate this possibility and they are already talking about dropping Cyprus from the EU as quickly as possible. As Yahoo News reports:
The official also referred to the need to resolve the issue of Cyprus’s two biggest banks, both of which are close to collapse, and mentioned the possibility of Cyprus leaving the euro zone. In the event of an exit, the official said steps needed to be taken to “ring-fence” the rest of the euro zone from the impact and to ensure there was no contagion to Greece.
“Contagion” is the right word, because if this situation doesn’t get resolved very, very quickly, we may be witnessing the start of the collapse of the EU — an outcome that would very well serve the political interests of Russia. So don’t expect Russia to try to resolve any of this. It may be waiting in the wings and actually hoping to help set off a kind of “bankageddon” that, once begun, will be impossible to stop.
-
TECHNOCRATS IN CYPRUS STEAL CUSTOMER DEPOSITS AND HOW IT MAY EFFECT YOU
Susanne Posel
Occupy Corporatism
March 18, 2013
Over the weekend, in Cyprus, depositors are being forced to hand over a portion to the tune of 10% of their deposits to help pay for the $13 billion bailout packaged by European partners and the International Monetary Fund (IMF).
This has caused a run on ATMs across the nation as residents attempt to drain their bank accounts.
The IMF released a statement on March16th wherein Christine Lagarde, managing director of the IMF said: “I welcome the agreement reached today to address Cyprus’ economic challenges. The IMF has always said that we would support a solution that is sustainable, that is fully financed, and that appropriately allocates the burden sharing. I believe that the agreed package meets these three objectives. On this basis, I intend to make a recommendation to our Executive Board for the IMF to contribute to the financing of the package.”
The agreement Lagarde referred to is an “adjustment program” of the Cypriot financial system allegedly enforced to encourage “sustainable and balanced growth” of the nation.
In order to deter money laundering through Cyprus banks, an audit would be implemented. Financial assistance by the IMF and CBE would be given in exchange for a tax to be passed onto the people of Cyprus as the first phase of the scheme. In addition, “further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalization of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders.”
An anonymous source claims correctly that the deal between the Cyprus government and the IMF was struck just ahead of the announcement for taxing customer deposits in banks.
President Nicos Anastasisades asserted that the government had no other option; with regard to accepting the bailout. He claimed that his country was in a state-of-emergency.
The costs were then turned over to the citizens in the form of a tax, or a levy, to recoup funds. The central bankers are currently in the process of draining customer accounts of every citizen in Cyprus.
Anastasisades claims the European Central Bank (ECB) was threatening to halt much needed money which would have crippled Cyprus banks further and confirmed the expected financial collapse.
According to Anastasisades, this levy will rescue the banking institutions. The decision to allocate private banking deposits from customer accounts was made to ensure that billions of dollars would be salvaged. The government estimates that due to the deposit levy 5.8 Euros will be acquired from the people of Cyprus.
Customers with less than 100,000 Euros will be charged a one-time tax of 6.75% while those with more money in their account will be charged 9.9% until the bailout money is recouped.
Cypriot Finance Minister Michalis Sarris stated: “This decision should not be compared to the ideal, but to the very real possibility that much more money could have been lost in bankruptcy of the banking system or indeed of the country.”
Sarris added that steps “have [been] taken” to stifle “electronic transfers” that cannot be made before the banks reopen during the business week.
In response, citizens began forming lines at ATM machines to remove their money from bank accounts. This caused many ATM machines to be left dry as citizens claimed their cash before the banking elite stole it.
Customers were restricted from removing more than 400 Euros from ATMs and many banks closed their doors to avoid dealing with the enraged public.
Restrictions on the amount customers could withdraw from their accounts began to be implemented as many banking customer also attempted to move their money out of the country.
The message to Cypriots is that they would do well to take their money out of the bank before the technocrats. The government, who has strong ties to Briton, had 3,000 British service men and women station on Cyprus in anticipation of problems created by the deposit tax.
George Osborne committed 60,000 British military to guard European banking elite in Cyprus from the citizens should be situation become volatile.
Jacob Funk Kirkegaard, member of the Peterson Institute for International Economics explains that: “There is a general political sentiment that it is not acceptable to be bailing out a country, and thereby putting European taxpayers’ money at risk, to basically protect Russian depositors in Cypriot banks.”
What is happening in Cyprus could be applied to the US with slight modifications.
Because of the ruling on August 9th of 2012 in the 7th Circuit Court of Appeals (CCA) that Bank of New York Melon (BNYM) can be moved to first in line of creditors over the customers that had their funds stolen by Sentinel Management Group (SMG) a bank can use customer funds to pay off debts if they are insolvent, under duress and in bankruptcy.
Since the ruling gives banks the right to co-mingle customer funds with their own, no crime can be committed for the use of customer deposited monies.
According to Walker Todd, former lawyer for the Federal Reserve Bank of New York and Cleveland: “Basically, there is a new 7th Circuit opinion saying that there is no reason to impose a constructive trust on a lender’s takings of customers’ funds from client commodity firms that were used (inappropriately) to secure the firms’ borrowings, as long as the lender can say that it did not know WITH CERTAINTY that customers’ funds were being repledged. Negligence and misappropriation (vs. knowing criminal intent) are now a sufficient excuse for letting the lender keep the money and go to the head of the line for distributions in bankruptcies of the client commodity firms.”
When a customer deposits money into a bank, the bank essentially issues a promise to have those funds available when the customer returns to withdraw the deposited amount. When the same customer withdraws funds from their account (whether checking or savings) the customer assumes that the bank has enough funds to cover their withdrawal; including the presumption that their monies are separate from the bank’s assets.
Now, those funds are up for grabs by the bank at their discretion without explanation to the customer – nor is the bank obligated to recoup the customer should they “lose” those funds due to bad loans, bankruptcy or stock market loss.
Our financial institutions have been planning for a financial collapse wherein the US government will not offer assistance. The resolution plans required by the Federal Reserve Bank, described schemes to have the major domestic banks remain afloat by selling off assets, finding alternative sources of funding, reducing risky measures that make a quick buck. These strategies were to be perfected with “no assumption of extraordinary support from the public sector.”
The mega-banks, through Wall Street, are also acquiring firearms, ammunition and control over private mercenary corporations like DynCorp and ‘Blackwater” as authorized by the Department of Defense (DoD) directive 3025.18.
Take a tip from Cyprus. Now is the time to close your bank account.
-
CEO: CYPRUS BANK ACCOUNT LOOTING COULD BLOW UP EUROPE
Bailout tax could lead to civil unrest
Paul Joseph Watson
Infowars.com
March 18, 2013
Pimco CEO Mohamed El-Erian told CNBC today that the decision to loot the bank accounts of Cypriot savers could blow up Europe and lead to civil unrest across the continent.
El-Erian said that the European Union had lit two sticks of dynamite in backing a proposal that could see bank accounts raided for up to 15% of their value in what has ludicrously been described as a “wealth tax” yet amounts to nothing less than an act of wanton financial plunder.
“By including small depositors, they are risking social unrest, political disorder, and potentially an exit from the eurozone,” said El-Erian, referring to people with under 100,000 euros who will still be hit by a levy of 6.75% under current proposals. Savers with 500,000 euros in the bank face losing as much as 75,000 euros.
“The worst outcome is that you get complete political breakdown, social unrest, and then Cyprus is forced to exit,” said El-Erian, adding that the move had accelerated the journey to disorder which could lead to more countries exiting the eurozone.
“The other stick of dynamite that’s been lit is much more complicated and more uncertain,” El-Erian stated. “That is a question mark about the sanctity of bank deposits in Europe,” alluding to the threat of bank runs in other Mediterranean countries.
Although El-Erian and CNBC hosts professed ignorance as to why the IMF would knowingly enforce policies that could foster domestic disorder, a brief look at the organization’s track record in Greece and Argentina answers the question.
As we discussed in our earlier article concerning a potential move to loot Italians of 15% of their savings, the infamous “IMF riot” is a deliberate move designed to engender civil unrest, scare away investors and allow western banks to buy up assets on the cheap in exchange for the target country’s dependency on IMF loans.
Fearing an escalated bank run, Cyprus today delayed a vote on the “bailout tax” until tomorrow and announced that all banks would remain closed until Thursday.
Large protests are set to take place in the Mediterranean country tonight as well as during tomorrow’s parliamentary vote. Demonstrators have already begun congregating with signs that read “hands off Cyprus”.
-
EUROPE IS RISKING A BANK RUN
By Wolfgang Munchau By Wolfgang Münchau | The Financial Times
Creditor nations will now insist bank rescues must be co-funded by depositors
Sir Mervyn King once said it was not rational to start a bank run but rational to participate in one once it has started. The governor of the Bank of England was right, of course. On Saturday morning, the finance ministers of the eurozone may well have started a bank run.
With the agreement on a depositor haircut for Cyprus – in all but name – the eurozone has effectively defaulted on a deposit insurance guarantee for bank deposits. That guarantee was given in 2008 after the collapse of Lehman Brothers. It consisted of a series of nationally co-ordinated guarantees. They wanted to make the political point that all savings are safe.
I am using the expressions “in all but name” and “effectively” because legally, Cyprus is not defaulting or imposing losses on depositors. The country is levying a tax of 6.75 per cent on deposits of up to €100,000, and a tax of 9.9 per cent above that threshold. Legally, this is a wealth tax. Economically, it is a haircut.
I myself had favoured a haircut, or tax, on deposits of more than €100,000 – the portion not covered by the deposit insurance guarantee. There is no moral or economic reason to protect foreigners who have decided to park large sums in a Cypriot bank account for whatever reason. Such a haircut would also have been in line with the philosophy of deposit insurance. Its purpose is not to provide absolute certainty, but to prevent bank runs, which is what happens when you go after small depositors. Well-designed deposit insurance schemes thus impose ceilings.
I just could not believe it when I heard that eurozone finance ministers went after the small depositors in Cyprus. I understand the purely technical reason why they did it. The eurozone could not agree a full bailout, which would have cost €17bn.
The Germans rejected a loan which they were certain Cyprus would invariably default on. So the sum was cut to €10bn. A depositor haircut was the only way to co-finance this. When they did the maths, they found the big deposits would not have sufficed.
So they opted for a wealth tax with hardly any progression. There is not even an exemption for people with only very small savings.
If one wanted to feed the political mood of insurrection in southern Europe, this was the way to do it. The long-term political damage of this agreement is going to be huge. In the short term, the danger consists of a generalised bank run, not just in Cyprus.
As in the case of Greece, the finance ministers said: “Don’t worry, this is a unique situation”. This is true only in a very narrow legal sense. The bond haircut in Greece is indeed different to the depositor haircut in Cyprus. And when they repeat this elsewhere, it will be unique once more.
Unless there is a last-minute reprieve for small savers, most Cypriot savers would act rationally if they withdrew the rest of their money simply to protect them from further haircuts or taxes. It would be equally rational for savers elsewhere in southern Europe to join them. The experience of Cyprus tells them that the solvency of a deposit insurance scheme is only as good as that of the state. In view of Italy’s public sector debt ratio, or the combined public and private sector indebtedness of Spain and Portugal, there is no way that these governments can insure all banks’ deposits on their own.
The Cyprus rescue has shown that the creditor nations will insist from now that any bank rescue must be co-funded by depositors.
The really puzzling thing is why did people not withdraw their money before? Did they not read the newspapers? Maybe they trusted the new president of Cyprus, who had promised them that he would never accept this? And why has there been so little deposit flight elsewhere in southern Europe? Did they, too, trust their governments? More importantly, will they continue to do so now?
There are some institutional impediments against bank runs within the eurozone. Some countries impose daily withdrawal limits, ostensibly as a measure against money laundering. Nor is it easy to open a bank account in a foreign country. In many cases, you need to have residency. You may need to travel there in person, and you need to speak the local language – or at least English.
But I would not take too much comfort from those impediments. Once fear reaches a critical mass, people will act, and then a bank run becomes a self-perpetuating process. There has been a lot of complacency about the eurozone crisis in the past eight months.
Many people even thought the crisis was over because Mario Draghi, president of the European Central Bank, gave a lender-of-last-resort guarantee. Bank depositors now understand that if the crisis was over, then that was only because the eurozone had found a new source of funding: their savings.
I have no idea whether or not there will be a bank run in the next few weeks. But surely it would be rational.
-
GREGORY MANNARINO: CASH CONFISCATION BEGINS NOW!
March 18, 2013
-
“ALL THE CONDITIONS FOR A TOTAL DISASTER ARE IN PLACE”
zerohedge.com
March 18, 2013
Authored by Charles Wyplosz, originally posted at VOXeu,
Cyprus: The Next Blunder
The Cyprus bailout package contains a tax on bank deposits. This column argues that the tax is a deeply dangerous policy that creates a new situation, more perilous than ever. It is a radical change that potentially undermines a perfectly reasonable deposit guarantee and the euro itself. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors in Spain and Italy.
The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:
— In the unlikely event that all goes well, the government will receive a bit of cash – but not enough to cover the loan generously offered by its European partners – and the Cypriot banking system will be history.
— The alternative is a massive bank crisis in many Eurozone countries – a huge blow to the euro, maybe even a fatal one.
Not an emergency measure
Policymakers have been debating the Cyprus bailout for nearly a year; this cannot be classified an ‘emergency action’. They engaged in a lively debate whether Cyprus is ‘systemic’ or not, the answer to which can only be ‘it depends’. It depends not on the size of Cypriot banks but on the way the Eurozone acts. They also debated the Russian deposits that apparently represent a sizeable proportion of bank liabilities. The debate turned around the issues of how dirty this money is and how to do the laundry. They also debated on the size of a possible loan to the Cypriot government. The government itself requested something to the tune of 100% of its GDP, why not? After all this amounts to 0.2% of Eurozone GDP.
Eurozone’s help: Suffocating solidarity
From what is known:
— Cyprus will receive a loan of about half the requested size under the usual austerity conditions.
— The gross public debt of Cyprus will rise from its current level of some 90% of GDP to about 140%, a level that is unsustainable and will eventually require some deep restructuring.
This debt trajectory is a forecast, of course, but well in line with experience.
The effects of this Eurozone austerity programme are now well known. Cyprus joins a distinguished list of countries that benefit from suffocating Eurozone solidarity (Wyplosz, 2011).
— The programme will impose tough austerity;
— Its public-debt-to-GDP ratio will grow because deficits will not go away and because GDP will decline.
— There will the need for more loans as economic predictions will be found to be ‘disappointing’ over and over again.
— Unemployment will skyrocket, spreading intense economic and social suffering.
Who knows, populist parties could well be on the rise, adding political drama to economic pain. This technology is now well oiled.
The bank deposit ‘confiscation’
What is new is that bank deposits will be ‘taxed’. The proper term is ‘confiscated’. Like everywhere in the EU, bank deposits in Cyprus are guaranteed up to €100,000. Depositors have arranged their wealth accordingly, only to be told that the guarantee has been changed ex post.
Taxing stocks is optimally time-inconsistent (Kydland and Prescott, 1977). It is a great way of raising money but it has deep incentive effects as it destroys property rights. What is at stake is the credibility of the bank deposit guarantee system throughout Europe.
The system was shaken in 2008 but in the opposite direction. Followed by all other countries, Ireland offered a full guarantee in a successful effort to stem an impending bank run. The cost to the government was such that it triggered a run on the public debt that led to the second bailout after the Greek ‘unique and exceptional’ one.
That move has now been recognised as a mistake, which may explain how Cyprus is now being treated.
The Eurozone’s ‘corralito’
Because it is time-inconsistent, the decision to tax deposits has been preceded by a freezing of bank deposits. This is remindful of the Argentinean corralito of 2001, which led to economic dislocation, immense suffering and such anger that two governments fell (Cavallo 2011). Hopefully, the Cypriot corralito will not last too long.
The question is: how bank depositors will react in Cyprus and elsewhere? The short answer is that we don’t know but we can build scenarios:
— The benign scenario is that depositors in Cypriot banks will accept the tax and keep their remaining money where it is. Depositors in other troubled countries will accept that Cyprus is special and remain unmoved.
— A less benign scenario is that depositors in Cypriot banks come to fear another round of optimal, time-inconsistent levies. This is what theory predicts. After all, if policymakers found it optimal once, why not twice, or more?
Under the less benign scenario:
— We will have a full-fledged bank run as soon as the corralito is lifted. Since bank assets amount to some 900% of GDP, there is no hope of any bailout by the Cypriot government.
— Any new European loan would immediately translate into a run on the public debt.
Enter ECB, stage right
At this point in the scenario script, the ECB enters the play. Being the only lender of last resort, the ECB will have to decide what to do.
— In principle, it could stabilise the situation at little cost as total Cypriot bank assets represent less than 0.2% of Eurozone GDP or 0.5% of the central bank’s own balance sheet.
— But this would involve the risk that it could suffer losses – especially if the banks are badly resolved, i.e. the bankruptcies are badly handled.
This is not unlikely since the ECB does not control Cypriot bank resolution.
Remember that the current version of the banking union explicitly leaves resolution authority in national hands. In Cyprus, as almost everywhere else, national authorities are deeply conflicted when it comes to their banking systems. Powerful special-interest groups become engaged when banks go bust and governments decide who pays the price. Thus, it is a good bet that Cyprus’s bank resolution will be deeply flawed. The risk to the ECB is real.
Proper resolution under European control could have been part of the conditions for the loan just agreed. But this does not seem be the case. The omission most likely reflects a belief by policymakers that the Cyprus crisis has been solved successfully. The problem is that this belief is false: Cyprus’s predicament remains even under the benign scenario.
All the conditions for a total disaster are in place
The really worrisome scenario is that the Cypriot bailout becomes euro-systemic – in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus.
All the ingredients of a self-fulfilling crisis are now in place:
— It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax.
— As depositors learn what others do and proceed to withdraw funds, a bank run will occur.
— The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals.
This would probably be the end of the euro.
Conclusions
The likelihoods of these three scenarios – benign, less benign, and total disaster – are difficult to assess.
— What is clear is that the Cyprus bailout has created a new situation, more perilous than ever before.
— Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.
It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily.
We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.
-
NATIONAL PLANNING CYPRUS-STYLE SOLUTION FOR NEW ZEALAND
19 March 2013
The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.
“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.
“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.
“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.
“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.
“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”
Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.
“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.
“OBR is not in line with Australia, which protects bank deposits up to $250,000.
“A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure.
“Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”
-
TECHNOCRATS TURN THEIR ATTENTION TO NEW ZEALAND FOR CYPRUS-STYLE DEPOSIT TAX
Susanne Posel
Occupy Corporatism
March 20, 2013
Government officials in New Zealand are taking a tip from Cyprus and pushing for a similar solution to be implemented in the Kiwi nation, according the Green Party. Dr. Russel Norman, co-leader of the Green Party stated: “Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts.”
The current monetary plan implemented is the Retail Deposit Guarantee Scheme (RDGS) that expires at the end of 2013. English, finance minister, explains that during the last global financial crisis this plan offered assurance to nations that financial institutions were “safe”.
Now only a small portion of banks are covered by the RDGS which translates to protection for “only $2 billion of the $210 B New Zealanders have on deposit and will not be extended beyond 31 December this year. Looking ahead, the Government is considering a number of permanent options to manage any future financial market difficulties.”
English complains that banks cannot properly monitor and insure deposits while anticipating “future financial market difficulties.”
For this reason, English has publically endorsed the Open Bank Resolution (OBR) which outlines that should a bank fail under the OBR, depositors would be subject to a portion of their deposits confiscated by technocrats to pay for that bank’s bailout.
English states that the OBR “aims to provide continuity of core banking services, allow the banking system to get back to normal and limit the costs to taxpayers” while “maintaining investor confidence.”
Norman explains that: “The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank. Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat. While the details are still to be finalized, nearly all depositors will see their savings reduced by the same proportions. Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming. If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”
While the New Zealand government is insisting that the OBR be adhered to, Norman asserts: “Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000. “OBR is not in line with Australia, which protects bank deposits up to $250,000. A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure. Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”
The Reserve Bank in New Zealand is gearing up to implement the OBR; a policy that is reserved for “extreme cases like insolvency” to protect shareholders and creditors. The Reserve Bank can put a freeze on any account and deposit since they have now the mechanisms and will have met the financial requirements as of July 1st of 2013.
For the OBR can be enacted, English will have to give his approval. The chain of command dictates that once a locally incorporated bank has failed, a statutory manager is assigned to access the bank’s liabilities and part of those liabilities is deposits from customers because they can be extracted before the next trading day.
Over last weekend, Cypriots stormed ATMs, extracting as much of their funds in bank accounts as possible because of an agreement between the government of Cyprus and the International Monetary Fund (IMF) to pay back the $13 billion bailout by syphoning money from customer deposits.
The IMF released a statement on March16th wherein Christine Lagarde, managing director of the IMF said: “I welcome the agreement reached today to address Cyprus’ economic challenges. The IMF has always said that we would support a solution that is sustainable, that is fully financed, and that appropriately allocates the burden sharing. I believe that the agreed package meets these three objectives. On this basis, I intend to make a recommendation to our Executive Board for the IMF to contribute to the financing of the package.”
The agreement Lagarde referred to is an “adjustment program” of the Cypriot financial system allegedly enforced to encourage “sustainable and balanced growth” of the nation.
In order to deter money laundering through Cyprus banks, an audit would be implemented. Financial assistance by the IMF and CBE would be given in exchange for a tax to be passed onto the people of Cyprus as the first phase of the scheme. In addition, “further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalization of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders.”
Cypriot President Nicos Anastasisades asserted that the government had no other option; with regard to accepting the bailout. He claimed that his country was in a state-of-emergency.
The costs were then turned over to the citizens in the form of a tax, or a levy, to recoup funds. The central bankers are currently in the process of draining customer accounts of every citizen in Cyprus.
Anastasisades claims the European Central Bank (ECB) was threatening to halt much needed money which would have crippled Cyprus banks further and confirmed the expected financial collapse.
According to Anastasisades, this levy will rescue the banking institutions. The decision to allocate private banking deposits from customer accounts was made to ensure that billions of dollars would be salvaged. The government estimates that due to the deposit levy 5.8 Euros will be acquired from the people of Cyprus.
Customers with less than 100,000 Euros will be charged a one-time tax of 6.75% while those with more money in their account will be charged 9.9% until the bailout money is recouped.
According to Joerg Kraemer, chief economist of the German Commerzbank: “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product.”
Kraemer has been able to extract his money out of his private savings accounts before the same situation occurs in Italy.
Disseminating the tax to citizens who make deposits to their banks to pay back the money’s loaned out for the bailout was altered slightly from every depositor with less than €100,000 at 6.75% and those over that amount at 9.9% to smaller depositors with up to €100,000 would be taxed at 3%; savers with €100,000 to €500,000 would be taxed at 10%; and those with more than €500,000 at 15%.
The facts still stand that the people of Cyprus have not defaulted while their cash is being stolen for simply making a deposit into a bank. Regardless of insurance coverage by the Cypriot version of the FDIC, because the government accepted a bailout by the IMF, the well-designed scheme redirects money into the coffers of the Eurozone finance ministers.
Beyond the concept of a wealth tax, this “levy” punished citizens for having a bank account. In the short term this means a bank run – in the long term this could have resounding consequences for both the current Cypriot government and the people.
Finance ministers in Greece are telling themselves that this is a “unique” situation and not to “worry” although signs point to the danger that could be imposed by not taking this warning seriously.
Governmental deposit insurance can become solvent just as corporations can. And in fact, the deposit insurance appears to be a simple scheme to allow for trust between the public and the government as a mediator between them and the banking institutions.
However, when the time comes to collect, the government simply shrugs their proverbial shoulders and decries inadequate funding to replace customer deposits. To mitigate damages, banks have imposed ATM withdrawal restrictions.
-
12 THINGS THAT JUST HAPPENED THAT SHOW THE NEXT WAVE OF THE ECONOMIC COLLAPSE IS ALMOST HERE
Michael Snyder
Economic Collapse
March 4, 2013
Are we running out of time? For the last several years, we have been living in a false bubble of hope that has been fueled by massive amounts of debt and bailout money. This illusion of economic stability has convinced most people that the great economic crisis of 2008 was just an “aberration” and that now things are back to normal. Unfortunately, that is not the case at all. The truth is that the financial crash of 2008 was just the first wave of our economic troubles. We have not even come close to recovering from that wave, and the next wave of the economic collapse is rapidly approaching. Our economy is like a giant sand castle that has been built on a foundation of debt and toilet paper currency. As each wave of the crisis hits us, the solutions that our leaders will present to us will involve even more debt and even more money printing. And each time, those “solutions” will only make our problems even worse. Right now, events are unfolding in Europe and in the United States that are pushing us toward the next major crisis moment. I sincerely hope that we have some more time before the next crisis overwhelms us, but as you will see, time is rapidly running out.
The following are 12 things that just happened that show the next wave of the economic collapse is almost here…
#1 According to TrimTab’s CEO Charles Biderman, corporate insider purchases of stock have hit an all-time low, and the ratio of corporate insider selling to corporate insider buying has now reached an astounding 50 to 1….
While retail is being told to buy-buy-buy, Biderman exclaims that “insiders at U.S. companies have bought the least amount of shares in any one month,” and that the ratio of insider selling to buying is now 50-to-1 – a monthly record.
#2 On Friday we learned that personal income in the United States experienced its largest one month decline in 20 years…
Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That’s the most dramatic decline since January 1993, according to the Commerce Department.
#3 In a stunning move, Michigan Governor Rick Snyder says that he will appoint an emergency financial manager to take care of Detroit’s financial affairs…
Snyder, 54, took a step he avoided a year ago, empowering an emergency financial manager who can sweep aside union contracts, sell municipal assets, restructure services and reorder finances. He announced the move yesterday at a public meeting in Detroit.
If this does not work, Detroit will almost certainly have to declare bankruptcy. If that happens, it will be the largest municipal bankruptcy in U.S. history.
#4 On Friday it was announced that the unemployment rate in Italy had risen to 11.7 percent. That was a huge jump from 11.3 percent the previous month, and Italy now has the highest unemployment rate that it has experienced in 21 years.
#5 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.
#6 On Friday it was announced that the unemployment rate in the eurozone as a whole had just hit a brand new record high of 11.9 percent.
#7 On Friday it was announced that the unemployment rate in Greece has now reached 27 percent, and it is being projected that it will reach 30 percent by the end of the year.
#8 The youth unemployment rate in Greece is now an almost unbelievable 59.4 percent.
#9 On Saturday, hundreds of thousands of protesters filled the streets of Lisbon and other Portuguese cities to protest the austerity measures that are being imposed upon them. It was reportedly the largest protest in the history of Portugal.
#10 According to Goldman Sachs, bank deposits declined all over Europe during the month of January.
#11 Over the weekend, the deputy governor of China’s central bank declared that China is prepared for a “currency war“…
A top Chinese banker said Beijing is “fully prepared” for a currency war as he urged the world to abide by a consensus reached by the G20 to avert confrontation, state media reported on Saturday.
Yi Gang, deputy governor of China’s central bank, issued the call after G20 finance ministers last month moved to calm fears of a looming war on the currency markets at a meeting in Moscow.
Those fears have largely been fuelled by the recent steep decline in the Japanese yen, which critics have accused Tokyo of manipulating to give its manufacturers a competitive edge in key export markets over Asian rivals.
#12 Italy is an economic basket case at this point, and the political gridlock in Italy is certainly not helping matters. Former comedian Beppe Grillo’s party could potentially tip the balance of power one way or the other in Italy, and over the weekend he made some comments that are really shaking things up over in Europe. For one thing, he is suggesting that Italy should hold a referendum on the euro…
“I am a strong advocate of Europe. I am in favor of an online referendum on the euro,” Beppe Grillo told Bild am Sonntag.
Such a vote would not be legally binding in Italy, where referendums can only be used to repeal laws or parts of laws, but would carry political weight. Grillo has said in the past that membership of the euro should be up to the Italian people.
In addition, Grillo is also suggesting that Italy’s debt has gotten so large that renegotiation is the only option…
In an interview with a German magazine published on Saturday, Mr Grillo said that “if conditions do not change” Italy “will want” to leave the euro and return to its former national currency.
The 64-year-old comic-turned-political activist also said Italy needs to renegotiate its €2 trillion debt.
At 127 per cent of gross domestic product (GDP), it is the highest in the euro zone after Greece.
“Right now we are being crushed, not by the euro, but by our debt. When the interest payments reach €100 billion a year, we’re dead. There’s no alternative,” he told Focus, a weekly news magazine.
He said Italy was in such dire economic straits that “in six months, we will no longer be able to pay pensions and the wages of public employees.”
And of course government debt has taken center stage in the United States as well.
The sequester cuts have now gone into effect, and they will definitely have an effect on the U.S. economy. Of course that effect will not be nearly as dramatic as many Democrats are suggesting, but without a doubt those cuts will cause the U.S. economy to slow down a bit.
And of course the U.S. economy has already been showing plenty of signs of slowing down lately. If you doubt this, please see my previous article entitled “Consumer Spending Drought: 16 Signs That The Middle Class Is Running Out Of Money“.
So what comes next?
Well, everyone should keep watching Europe very closely, and it will also be important to keep an eye on Wall Street. There are a whole bunch of indications that the stock market is at or near a peak. For example, just check out what one prominent stock market analyst recently had to say…
“Every reliable technical tool is warning of major peaking action,” said Walter Zimmerman, the senior technical analyst at United-ICAP. “This includes sentiment, momentum, classical chart patterns, and Elliott wave analysis.
“Most of the rally in the stock market since 2009 can be chalked up to the Federal Reserve’s attempt to create a ‘wealth effect’ through higher stock market prices. This only exacerbates the downside risk. Why? The stock market no is longer a lead indicator for the economy. It is instead reflecting Fed manipulation. Pushing the stock market higher while the real economy languishes has resulted in another bubble.
“The next leg down will not be a partial correction of the advance since the 2009 lows. It will be another major financial crisis. The worst is yet to come.”
Sadly, most people will continue to deny that anything is wrong until it is far too late.
Many areas of Europe are already experiencing economic depression, and it is only a matter of time before the U.S. follows suit.
Time is running out, and I hope that you are getting ready.
-
MOODY’S DOWNGRADES UK RATING FROM AAA TO AA1
Credit ratings agency Moody’s downgrades UK from AAA to AA1, cites weak medium-term outlook
By Jill Lawless, Associated Press
February 23, 2013
LONDON (AP) — Credit ratings agency Moody’s Investors Service downgraded Britain’s government bond rating one notch from the top AAA to AA1 Friday, saying sluggish growth and rising debt were weakening the country’s medium-term outlook.
Treasury chief George Osborne said the blow only redoubled his resolve “to deliver our economic recovery plan,” based on deep spending cuts.
Moody’s said “subdued” growth prospects and a “high and rising debt burden” were weighing on the British economy.
The agency said rising debt meant “a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016.”
It said, though, that “the U.K.’s creditworthiness remains extremely high,” and its outlook was stable.
Moody’s said that “a combination of political will and medium-term fundamental underlying economic strengths will, in time, allow the government to implement its fiscal consolidation plan and reverse the U.K.’s debt trajectory.”
For the British government, the move was unwelcome but not unexpected. All three of the big rating agencies — Moody’s, Standard & Poor’s and Fitch — had placed Britain’s rating on negative watch, as the economy continues to struggle.
The Conservative-led government is cutting 50 billion pounds ($80 billion) in spending through 2015 in a bid to slash the national debt, which stands at more than 1 trillion pounds, over 70 percent of GDP.
Moody’s said it expected that level to peak at just over 96 percent of GDP in 2016.
Public sector borrowing remains stubbornly high, and is forecast by the government’s Office for Budget Responsibility to be 120 billion pounds for 2013.
Critics say the government’s austerity policy has failed to kick-start the economy, which has been through two periods of recession since 2008.
The U.K. emerged from a nine-month recession in the third quarter, when GDP grew by 0.9 percent. But the economy contracted by a worse-than-expected 0.3 percent in the last three months of 2012.
Glimmers of good news for the government include a stable unemployment rate — 7.8 percent in the last quarter — and low interest rates.
The yield on the 10-year Treasury bond fell over the year from 2.29 percent in February of 2012 to 2.11 percent now.
Osborne said in a statement that the downgrade was “a stark reminder of the debt problems facing our country,” with a debt accumulated over the years exacerbated by Europe’s economic crisis.
“Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it,” he said, promising to press on with debt-cutting.
“We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs,” Osborne said.
-
ERIC SPROTT: THE GLOBAL FINANCIAL SYSTEM – AT SOME POINT IT BLOWS
By Greg Hunter’s USAWatchdog.com
Eric Sprott manages $10 billion, and he’s worried about the global financial system. He says, “There is this huge chaos going on in the financial business which I think we all sense. They are using desperate measures here to hold it together. . . . at some point it blows. There’s no doubt about it.” Sprott says the price of gold and silver are being suppressed because, “It’s the canary in the coal mine.” Rising prices in precious metals, according to Sprott, would tell people, “Central bank policies are ridiculous and irresponsible, and people would realize that with the price of gold and silver going up.” When it comes to silver, Sprott says, “People keep buying at a rate to 50 to 1 to gold.” As far as gold is concerned, Sprott contends, “Physical demand for gold is out of line with supply. How can all these new people come into this market when there has been no increase in supply . . . for the last 12 years?” Sprott’s analysis shows central banks are selling to make up for the shortfall and opines, “I would hate to think what happens when we all find out there is no gold in the Treasury.” Join Greg Hunter as he goes One-on-One with Eric Sprott of Sprott Asset Management.
-
GLOBAL ECONOMIC COLLAPSE IN PROCESS: BILLIONAIRES CONTINUE TO DUMP STOCKS, TRADERS ARE BETTING AGAINST THE ECONOMY, HEDGE FUNDS PREPARING FOR MARKET SELL-OFF, AND ARE STARTING TO BET AGAINST CURRENCIES AS THE WORLD PLUNGES INTO RECESSION
February 16th, 2013
Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.
Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.
In the latest filing for Buffett’s holding company Berkshire Hathaway, Buffett has been drastically reducing his exposure to stocks that depend on consumer purchasing habits. Berkshire sold roughly 19 million shares of Johnson & Johnson, and reduced his overall stake in “consumer product stocks” by 21%. Berkshire Hathaway also sold its entire stake in California-based computer parts supplier Intel.
With 70% of the U.S. economy dependent on consumer spending, Buffett’s apparent lack of faith in these companies’ future prospects is worrisome.
Unfortunately Buffett isn’t alone.
Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee
….
No investors, let alone billionaires, will want to own stocks with falling profit margins and shrinking dividends. So if that’s why Buffett, Paulson, and Soros are dumping stocks, they have decided to cash out early and leave Main Street investors holding the bag.
Something happened this week that brings back haunting memories of the 2001 put options of airline stocks, except this “bet” is against the entire U.S. economy. This week, an anonymous trader bought 100,000 put options on the ETF, which is an acronym for an exchange-traded fund. One commonly traded ETF is XLF, which, in the most unscientific and basic terms, is a group of funds that is like a barometer for the stock market.
High-Level Executives Suddenly Dumping JP Morgan Stock En-Masse
Over the last week and a half, high level JP Morgan executives have dumped over $6 million in shares in what experts have described as ‘unusual activity’.
Anyone believe JPM’s October 12th earnings report which beat expectations? Looks like accounting BS engineered to dump legacy positions on the general public.A chorus of high-level executives inside JPMorgan (JPM) are selling down their stakes in the company, in what some experts are citing as “unusual” activity within the nation’s largest bank by deposits. CNBC reports that JPM execs have dumped $6 million in the past 10 days!
-
-
WORLD PLUNGES INTO RECESSION
By Dwaine van Vuuren | Financial Sense
February 15, 2013
With the disappointing initial GDP releases for Q42012 from Europe out, the “world” as defined by 41 OECD countries across the globe, has plunged into recession. We define “recession” through two alternative definitions for our comparison, either the presence of a single negative quarter-on-quarter growth or the more traditional two consecutive negative quarterly growths. Whichever way you look at it, the number of countries in expansion plunged dramatically between 3Q2013 and 4Q2012 as shown below:
Now this is a diffusion index, with each country receiving equal weightings, and so it appears that 60% seems to be a viable threshold for the definition of “global recession” using the single-quarter definition (black) and 70% is probably the appropriate threshold for the 2-quarter definition (blue).
Countries in “recession” for the 18 countries we have data for so far in 4Q are: Austria, Belgium*, Czech Republic*, France, Germany, Hungary*, Italy*, Japan*, Netherlands*, Portugal*, Spain*, Greece*, U.S and UK. Countries with 2 consecutive negative q-on-q growths are highlighted with “*” next to their names.
We should add that 4Q2012 GDP figures are preliminary releases, subject to revisions (we expect the US to revise upward) and we also only have data for 18 countries for the fourth quarter so far, and a heavy sprinkling of EU-based entities to boot that could be skewing the numbers to the downside. As the figures roll in during the course of the month/s we will update clients accordingly.
It is clear the U.S is faring far better than most, but one has to question how long she can remain above water with the drag of her economic peers weighing upon her economy. Whilst most long leading indicators for the US are pointing strongly up, the co-incident U.S data is on the brink. We will be watching the two co-incident stalwarts - NBER Recession Model and the GDP/GDI Recession Models very closely indeed.
-
CENTRAL BANKS BUY THE MOST GOLD SINCE 1964
By Jon C. Ogg| 24/7 Wall Street
February 14, 2013
Worldwide gold demand in 2012 was another record high of $236.4 billion in the World Gold Council’s latest report. This was up 6% in value terms in the fourth quarter to $66.2 billion, the highest fourth quarter on record. Global gold demand in the fourth quarter of 2012 was up 4% to 1,195.9 tonnes.
Central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes. As far as central bank gold buying, this was the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter. That is up 9% from the fourth quarter of 2011, and the eighth consecutive quarter in which central banks were net purchasers of gold.
The World Gold Council said:
Central banks’ move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace. The official sector purchases across the world are now at their highest level for almost half a century.
If you want to know why Silver Wheaton Corp. (NYSE: SLW) is changing its mix to gold and silver, now you know. Investors of the SPDR Gold Shares (NYSEMKT: GLD) and ETFS Physical Swiss Gold Shares (NYSEMKT: SGOL) will want to pay attention to lower gold demand. There were some interesting observations:
While Indian full year demand was down 12% on the previous year, the fourth quarter jump of 41% to 261.9 tonnes saved the day as jewelry and investment demand hit a six-quarter high. Demand for jewelry was up 35% to reach 153.0 tonnes, and strong retail demand led to 108.9 tonnes of investment buying.
Chinese demand was flat due to the economic slowdown, but the slowdown there was said to be shorter than expected. Total demand was up 1% in the fourth quarter to 202.5 tonnes. Jewelry demand was up 1% to 137.0 tonnes in the fourth quarter, and investment demand was up 2% to 65.5 tonnes.
The fourth-quarter 2012 average gold price reached a record level of $1,721.8 an oz., up 1% on the previous record average price in the third quarter of 2011. The fourth-quarter 2012 supply of gold from mines was up 2% year-on-year, while recycling was down 5% against the same period.
Investment demand (the sum of ETFs and total bar and coin demand) was 424.7 tonnes, down 8% compared to the same quarter last year, but was 19% above the five-year quarterly average. Demand for ETFs and similar products in the fourth quarter was down by 16% on the corresponding quarter in 2011 to 88.1 tonnes, but was up by 51% on the full year.
-
GLOBAL DEBT CLOCK – MARCH 9, 2013
The global debt clock, interactive overview of government debt across the planet. See more here-http://econ.st/Rs2ZAn
-
-
-
The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock (updated September 2012) shows the global figure for almost all government debts in dollar terms.
The rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as various euro-zone governments have done, and the country (and its neighbours) can be plunged into crisis.
-
-
This is the way the world ends…Not with a bang but a whimper. – T.S. Eliot
-
BILL GROSS: CREDIT SUPERNOVA!
a) As it expands at a rate of trillions per year, real growth in the economy has failed to respond. More credit goes to pay interest than future investment.b) Zero-based interest rates, which are the result of QE and credit creation, have negative as well as positive effects. Historic business models may be negatively affected and investment spending may be dampened.c) Look to the Japanese historical example.
a) Seek inflation protection in credit market assets/ shorten durations.b) Increase real assets/commodities/stable cash flow equities at the margin.c) Accept lower future returns in portfolio planning.
† Outstanding credit includes all government debt as well as corporate, household and personal debt. Does not include “shadow” debt estimated at $20-30 trillion.
-
GREGORY MANNARINO: GLOBAL DEBT AND THE HUMAN BUBBLE
-
THE SOVEREIGN DEBT BUBBLE WILL CONTINUE TO EXPAND UNTIL THE SYSTEM IMPLODES
Michael Snyder
Economic Collapse
Jan 21, 2013
Why are so many politicians around the world declaring that the debt crisis is “over” when debt to GDP ratios all over the planet continue to skyrocket? The global economy has never seen anything like the sovereign debt bubble that we are experiencing today. The United States, Japan, and nearly every major nation in Europe are absolutely drowning in debt. We have heard a lot about “austerity” over in Europe in recent years, but debt to GDP ratios continue to rise in Greece, Spain, Italy, Ireland and Portugal. In general, most economists consider a debt to GDP ratio of 100% to be a “danger level”, and most of the economies of the western world have either already surpassed that level or are rapidly approaching it. Of course the biggest debt offender of all in many ways is the United States. The U.S. debt to GDP ratio has risen from 66.6 percent to 103 percent since 2007, and the U.S. government accumulated more new debt during Barack Obama’s first term than it did under the first 42 U.S. presidents combined. This insane sovereign debt bubble will continue to expand until a day of reckoning arrives and the system implodes. Nobody knows exactly when that moment will be reached, but without a doubt it is coming.
But if you listen to the mainstream media in the United States, you would be tempted to think that this giant bubble of debt is not much of a concern at all. For example, in a recent article in the Washington Post entitled “The case for deficit optimism“, Ezra Klein wrote the following…
“Here’s a secret: For all the sound and fury, Washington’s actually making real progress on debt.”
How many times have we heard that before?
About a decade ago, government officials were projecting that we would be swimming in gigantic government surpluses by now.
Instead, we are running trillion dollar deficits.
But right now there is a lot of optimism about the economy. The stock market recently hit a 5 year high and the business community is loving all of the false prosperity that all of this debt is buying us.
Even Warren Buffett does not really seem concerned about the exploding U.S. government debt. He recently made the following statement…
“It is not a good thing to have it going up in relation to GDP. That should be stabilized. But the debt itself is not a problem.”
Oh really?
A debt of 16 trillion dollars “is not a problem”?
Perhaps we should all run our finances that way.
Why don’t we all go out and open up 20 different credit cards, run them all up to the max, and then tell the credit card companies that we can’t pay them back but that it “is not a problem”.
Of course real life does not work that way.
The truth is that government debt is becoming a monstrous problem all over the globe. Just check out how debt to GDP ratios all over the planet have grown over the past five years…
United States
Debt to GDP ratio in 2007: 66.6 percent
Debt to GDP ratio in 2012: 103 percent
United Kingdom
Debt to GDP ratio in 2007: 43.4 percent
Debt to GDP ratio in 2012: 85.0 percent
France
Debt to GDP ratio in 2007: 63.7 percent
Debt to GDP ratio in 2012: 86 percent
Germany
Debt to GDP ratio in 2007: 67.6 percent
Debt to GDP ratio in 2012: 80.5 percent
Spain
Debt to GDP ratio in 2007: 39.6 percent
Debt to GDP ratio in 2012: 69.3 percent
Ireland
Debt to GDP ratio in 2007: 24.8 percent
Debt to GDP ratio in 2012: 106.4 percent
Portugal
Debt to GDP ratio in 2007: 63.9 percent
Debt to GDP ratio in 2012: 108.1 percent
Italy
Debt to GDP ratio in 2007: 106.6 percent
Debt to GDP ratio in 2012: 120.7 percent
Greece
Debt to GDP ratio in 2007: 106.1 percent
Debt to GDP ratio in 2012: 170.6 percent
The Eurozone As A Whole
Debt to GDP ratio in 2007: 68.4 percent
Debt to GDP ratio in 2012: 87.3 percent
Japan
Debt to GDP ratio in 2007: 172.1 percent
Debt to GDP ratio in 2012: 211.7 percent
Some nations, such as Japan, are able to handle very high debt loads because they have a very high level of domestic saving. Up to this point, an astounding 95 percent of all Japanese government bonds have been purchased domestically. But other nations collapse under the weight of government debt even before they reach a debt to GDP ratio of 100%. The following is an excerpt from a recent Congressional Research Service report…
It is hard to predict at what point bond holders would deem it to be unsustainable. A few other advanced economies have debt-to-GDP ratios higher than that of the United States. Some of those countries in Europe have recently seen their financing costs rise to the point that they are unable to finance their deficits solely through private markets. But Japan has the highest debt-to-GDP ratio of any advanced economy, and it has continued to be able to finance its debt at extremely low costs.
When a government runs up massive amounts of debt, it is playing with fire. You can pile up mountains of government debt for a while, but eventually it catches up with you.
Over the past 10 years, the U.S. national debt has grown by an average of 9.3 percent per year, but the overall U.S. economy has only grown by an average of just 1.8 percent per year. That is unsustainable by definition.
There is going to be a tremendous price to pay for the debt binge that the U.S. government has indulged in over the past decade. During Barack Obama’s first term, the amount of new debt accumulated by the federal government breaks down to about $50,521 for every single household in the United States. That is utter insanity.
If you can believe it, we have accumulated more new government debt under Obama than we did from the inauguration of George Washington to the end of the Clinton administration.
And most Americans realize that something is seriously wrong. One recent poll found that only 34 percent of all Americans believe that the country is heading in the right direction, and 60 percent of all Americans believe that the country is heading in the wrong direction.
If we keep piling up so much debt, at some point a moment of great crisis will arrive. When that moment arrives, we could see havoc throughout the entire global financial system. For instance, most people don’t really understand the key role that U.S. Treasuries play in the derivatives market. The following is from a recent article posted onZero Hedge…
This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.
As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.
For much more on the danger that derivatives pose to our financial system, please see this article: “The Coming Derivatives Panic That Will Destroy Global Financial Markets“.
Once again, nobody knows exactly when the sovereign debt bubble will burst, but if we continue down the path that we are currently on, it will inevitably happen at some point.
And according to Professor Carmen Reinhart, when this bubble does burst things could unravel very rapidly…
“These processes are not linear,” warns Prof. Reinhart. “You can increase debt for a while and nothing happens. Then you hit the wall, and—bang!—what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big.”
At some point the global financial system will hit the wall that Professor Reinhart has warned about.
So how does all of this end? It ends through world war.
Watch Kyle Bass:
Full Speech at the AmerCatalyst 2012 Conference (Approx 1 hour)
21 SIGNS THAT THE GLOBAL ECONOMIC CRISIS IS ABOUT TO GO TO A WHOLE NEW LEVEL
Michael Snyder
Economic Collapse
OCTOBER 21, 2012
The global debt crisis has reached a dangerous new phase. Unfortunately, most Americans are not taking notice of it yet because most of the action is taking place overseas, and because U.S. financial markets are riding high. But just because the global economic crisis is unfolding at the pace of a “slow-motion train wreck” right now does not mean that it isn’t incredibly dangerous.
The following are 21 signs that the global economic crisis is about to go to a whole new level….
#1 Bank of Israel Governor Stanley Fischer says that the global economy is “awfully close” to recession.
#2 It was announced last week that the unemployment rate in Greece has reached an all-time high of 25.1 percent. Unemployment among those 24 years old or younger is now more than 54 percent. Back in April 2010, the unemployment rate in Greece was only sitting at 11.8 percent.
#3 The IMF is warning that Greek debt may have to be “restructured” yet again.
#4 Swedish Finance Minister Anders Borg says that it is “probable” that Greece will leave the euro, and that it might happen within the next six months.
#5 An angry crowd of approximately 40,000 angry Greeks recently descended on Athens to protest a visit by German Chancellor Angela Merkel…
From high-school students to pensioners, tens of thousands of Greek demonstrators swarmed into Athens yesterday to show the visiting German Chancellor, Angela Merkel, their indignation at their country’s continued austerity measures.
Flouting the government’s ban on protests, an estimated 40,000 people – many carrying posters depicting Ms Merkel as a Nazi – descended on Syntagma Square near the parliament building. Masked youths pelted riot police with rocks as the officers responded with tear gas.
The authorities had deployed 7,000 police, water cannon and a helicopter. Snipers were placed on rooftops to ensure the German leader’s safety.
#6 The debt crisis is Argentina is becoming increasingly troublesome.
#7 The government debt to GDP ratio in Italy is expected to hit 126 percent this year. In Greece, it is expected to hit198 percent. In Japan, it is expected to hit a whopping 237 percent.
#8 Standard & Poor’s has slashed the credit rating on Spanish government debt to BBB-, which is just one level above junk status.
#9 Back in the year 2000, the ratio of total debt to GDP in Spain was 192 percent. By 2011, it had reached 363 percent.
#10 Record amounts of money are being pulled out of Spanish banks, and many large Spanish banks are rapidly heading toward insolvency.
#11 Manufacturing activity in Spain has contracted for 17 months in a row.
#12 It is being projected that home prices in Spain will fall by another 15 percent by the end of 2013.
#13 The unemployment rate in France is now above 10 percent, and it has risen for 16 months in a row.
#14 There are signs that Switzerland may be preparing for “major civil unrest” throughout Europe.
#15 The former top economist at the European Central Bank says that the ECB has fallen into a state of “panic” as it desperately tries to solve the European debt crisis.
#16 According to a recent IMF report, European banks may need to sell off 4.5 trillion dollars in assets over the next 14 months in order to meet strict new capital requirements.
#17 In August, U.S. exports dropped to the lowest level that we have seen since last February.
#18 Economics Professor Barry Eichengreen is very concerned about what is coming next for stocks in the United States…
“I’m worried that stock markets in the United States in particular have gotten ahead of economic growth”
#19 During the week ending October 3rd, investors pulled more than 10 billion dollars out of U.S. mutual funds. Overall, a total of more than 100 billion dollars has been pulled out of U.S. mutual funds so far this year.
#20 As I wrote about the other day, the IMF is warning that there is an “alarmingly high” risk of a deeper global economic slowdown.
#21 When shipping companies start laying off workers, that is one of the best signs that economic activity is slowing down. That is why it was so troubling when it was announced that FedEx is planning to get rid of “several thousand” workers over the coming months. According to AFP, “its business is being hit by the global economic slowdown”.
For even more signs that the global economy is rapidly crumbling, please see my previous article entitled “The Largest Economy In The World Is Imploding Right In Front Of Our Eyes“.
So is anyone doing well right now?
Yes, it turns out that QE3 is padding the profits of the big banks in the United States and making the wealthy even wealthier just like I warned that it would.
According to the Washington Post, QE3 is helping the big banks much more than it is helping consumers. Is this what the Fed intended all along?…
JPMorgan Chase and Wells Fargo, the nation’s largest mortgage lenders, said Friday they won’t make home loans much cheaper for consumers, even as they reported booming profits from that business.
Those bottom lines have been padded by federal initiatives to stimulate the economy. The Federal Reserve is spending $40 billion a month to reduce mortgage rates to encourage Americans to buy homes. Instead, its policies may be generating more benefits for banks than borrowers.
So exactly how much has QE3 helped out the big banks? Just check out these numbers…
Revenue from mortgages was up 57 percent in the third quarter compared with the same period last year at JPMorgan and more than 50 percent up at Wells Fargo.
But should we expect anything else from the Federal Reserve?
The American people are trusting the Fed to protect our economy, and yet they cannot even protect their own shipments of money. In fact, the Fed recently lost a large shipment of new $100 bills.
Or perhaps could letting people steal money from their own trucks be another way that the Fed is trying to “stimulate the economy”?
Stranger things have happened.
In any event, the truth is that the U.S. economy and the U.S. financial system are unsustainablefrom any angle that you want to look at things.
We are drowning in government debt, we are drowning in consumer debt, Wall Street has been transformed into a high risk casino where our largest financial institutions are putting it all on the line on a daily basis, we are consuming far more than we are producing, there are more than 100 million Americans on welfare and we are stealing more than 100 million dollars an hour from future generations to pay for it all.
Anyone that believes that we are in “good shape” does not know the first thing about economics.
Sadly, the U.S. is not alone. Nations all over the globe are experiencing similar problems.
The global economic crisis is just beginning and it is going to get much, much worse.
I hope you’re ready
-
INVESTORS PREPARE FOR EURO COLLAPSE
By Martin Hesse | Der Spiegel
–
GREYERZ: WE ARE HEADED RIGHT INTO A GLOBAL FINANCIAL CRASH
-
JOHN BUTLER: COUNTDOWN TO THE COLLAPSE
January 30, 2013
On multiple fronts there appears to have been a resumption of hostilities in the global currency wars. A subtle indication of this is the recently released report, Gold, the Renminbi and the Multi-Currency Reserve System, which I believe is highly significant for two reasons: First, it demonstrates that major global actors are now keenly aware and frightened of the possibility of a major breakdown in international monetary relations. Second, it suggests that these same actors are trying to contain the growing demand for gold as an alternative reserve asset and pre-empt an uncontrolled gold remonetization. These efforts will fail. A collapse of the current, unstable global monetary equilibrium is inevitable. Recent events indicate that the countdown has begun.
Breaking the Cease-Fire
Curiously, in the second half of 2011 and through most of 2012, notwithstanding the escalating euro-crisis, US ratings downgrade, Japan’s protracted nuclear disaster and sharply divergent global growth rates, there was surprisingly little volatility in foreign exchange markets. EUR/USD traded mostly in the historically narrow range of 1.40-1.25. USD/JPY was in a range of from 76-82. The Chinese renminbi held between 6.4 and 6.2. GBP/USD moved within 1.54-162. The Swiss franc was also steady at around 1.20 versus the euro, although this was the result of an explicit Swiss policy of capping the franc at that level.
In retrospect, it appears that this period was characterised by a general ‘cease-fire’ in the global currency wars ignited by the global financial crisis of 2008.[1] Rather than attempt directly to devalue currencies to stimulate exports at trading partners’ expense, the focus during this period was primarily on measures to support domestic demand.
There has now been a resumption of hostilities. The first shots were fired by the Japanese, where national elections were held in December. The victorious LDP party campaigned on a platform that, if elected, they would increase the powers of the Ministry of Finance to force the Bank of Japan into more aggressive monetary easing. The LDP also has voiced support for either a higher BoJ inflation target or a nominal GDP growth target.
Combined with poor economic data, this had a dramatic impact on the yen, which has subsequently declined by about 10% versus the dollar and 15% versus the euro. This is the weakest the yen has been in broad, trade-weighted terms since 2011.
Now it is understandable that Japan should desire a weaker yen. Japan is no longer running a trade surplus, in part because it is importing a record amount of energy following the decision to scale back the production of nuclear energy. Moreover, demographics are such that the proportion of retired Japanese is growing rapidly. As Japan’s ageing population draws down its savings to fund retirement, this implies that Japan will be saving less and consuming more relative to the rest of the world.
But while Japan has an interest in a weaker yen, many other countries have an interest in weaker currencies too. Much of Asia has been following a classic, mercantilist growth model ever since the Asian credit/currency crises of 1997-98, seeking to export more than they import. They are still inclined to follow this model, as it has succeeded in the past.
Of course it is impossible for all countries to be net exporters. The US is by far the world’s biggest importer. But given structural economic problems and associated high unemployment, US policymakers also have reasons to desire a weaker currency to stimulate exports and jobs. Much the same is true of the UK, arguably the leading candidate for the next big devaluation. Then there is the euro-area, which is suffering under a huge debt burden and desires to stimulate exports abroad to offset ‘austerity’ at home.
The BRICs (Brazil, Russia, India, China, South Africa) and other developing economies are well aware of mature economies’ problems and do not want to be the ones that pay for what they perceive, quite justifiably, as economic hypocrisy. Just who has been living beyond their means? Who has been borrowing and consuming, rather than saving?
It does, of course, take two to tango. The BRICs have been financing mature economies’ largesse—including financial bailouts—with their surpluses. But as the BRICs have stated on multiple occasions, they would far prefer for the developed economies to take their necessary economic medicine at the local, structural, supply-side level rather than to try and pass the pain of adjustment off on them.
A recent sign of such concern includes some rather provocative statements by Russian central banker Alexyi Ulyukayev. Russia is currently the Chair of the G-20 countries who seek to cooperate on global economic matters. Back in 2009 the G-20 agreed not to engage in competitive currency devaluations. Well they’re not exactly cooperating at present according to Mr. Ulyukayev, who has specifically accused Japan of breaking the cease-fire: “Japan is weakening the yen and other countries may follow,” he said recently. South Korea, one of Japan’s closest competitors in several major industries, has warned of possible retaliation for the weaker yen and both South Korea’s and Taiwan’s currencies weakened sharply this week. Even Norway, with a healthy economy at present, has recently indicated that it is concerned by the strength of the krone.[2]
The sad fact of the matter is, currency wars (ie competitive devaluations) are ‘zero-sum’ at best. At worst, they severely distort global price signals, thereby misallocating resources, and eventually morph into trade wars, in which economic protectionism destroys the international division of labor and capital, making economic regression all but certain. The 1920s/1930s are a classic case in point but there were similar such episodes in the 18th-19th centuries, the era of mercantilist economic policy debunked by, among others, Adam Smith and David Ricardo. (While the classicists were right about mercantilism, it should be noted that classical economic theory is deeply flawed in key respects.)
Given the destructive power of currency and trade wars, it should come as no surprise that policymakers in the developed economies are increasingly desperate to find a way to de-escalate and contain the conflict. But is this possible?
-
IF THE EURO COLLAPSES, THE SWISS ARMY IS READY AND PREPARING FOR CHAOS
As snipers fanned out over the rooftops of the Alpine resort and the Swiss Armed Forces rolled miles of barbed wire through the town, officers had more than the security of Mario Draghi and Lloyd Blankfein in mind. They were also preparing for European chaos should the euro ever collapse.
At their annual exercise in September, the Swiss army drilled for an imagined conflict between two neighboring states (the landlocked nation borders Austria, France, Germany, and Italy). The aim: Turn Switzerland into a secure fortress that could keep out the flood of refugees a regional economic meltdown might send its way. “Rising nationalism in Europe is a trend that needs to be monitored,” says Major-General Jean-Marc Halter, Switzerland’s second-highest-ranking officer, who took charge of the war game and oversaw security at Davos. “It’s the army’s job to protect the country against all possible security threats.”
Switzerland hasn’t seen armed conflict at home since the Sonderbund civil war of 1847. The country’s embrace of armed neutrality kept it out of both World Wars. Adolf Hitler called the Alpine nation “a pimple on the face of Europe” and drew up a plan to subjugate it. Operation Christmas Tree was ultimately shelved, most likely because conquering Switzerland would have required as many as half a million troops.
Despite the country’s mostly conflict-free past, the Swiss are right not to be complacent, says James Galbraith, a professor of government and business relations at the University of Texas at Austin. “Europe is still heading toward a social and human crisis,” says Galbraith, who last year published a book titled Inequality and Instability: A Study of the World Economy Just Before the Great Crisis.
As evidence, Galbraith points to the latest unrest in Greece, where there’s been a spate of fire bombings around the capital. On Jan. 14, a gunman fired at Greek Prime Minister Antonis Samaras’s office at his party’s Athens headquarters. The Italian government said last May it would step up the use of armed forces to safeguard more than 14,000 “sensitive” sites across the country in the face of increasing violence. Spain, which is plagued by regional divisions, could break apart if it were to leave the euro, Galbraith says. “These things have the potential to escalate very rapidly, which is what we saw in Yugoslavia,” where a series of wars killed more than 120,000 people after the state disintegrated in 1991, he says.
In September’s 16-day exercise, code-named Stabilo Due, a hypothetical clash between two fictional nations, Elbonia and Danubia, sparked a refugee crisis, prompting deployments of planes and tanks by the Swiss military. “These exercises in the field are indispensable,” Brigadier René Wellinger, commander of the 29th tank battalion, said in an interview posted on the army’s website. “Shooting ranges and simulators don’t present these types of leadership problems.”
Social strife across Europe may help Swiss Defense Minister Ueli Maurer make the case for boosting the nation’s annual defense spending of almost 4 billion Swiss francs ($4.3 billion). “We have had an almost free fall in the budget for 20 years,” Maurer says. “I just hope that the budgetary pressures will lead to more efficiency, cutting fat but not the muscles.” The Swiss spent 6.3 percent of total government outlays on defense in 2010. That was higher than any country in the European Union that year.
At Davos this year, about 3,300 Swiss troops were deployed to protect heads of governments and secure the airspace in a 28-mile radius around the Alpine village. “In Davos, we gain insight into the effectiveness of our training, procedures, and chain of command,” says Halter, adding that instability on Europe’s periphery is “a scenario that needs to be thought through.”
The role of the army at Davos has been questioned by some Swiss politicians as the cost to taxpayers of providing security for the forum has ballooned to 8 million francs. “The army should be used when Switzerland is threatened by a foreign power,” says Geri Müller, a lawmaker for the Green Party of Switzerland. “It has no business being there.”
The risk that civil unrest in Europe would trigger a wave of refugees into Switzerland is slim, says Anand Menon, an associate fellow at Chatham House in London and professor of West European politics at the University of Birmingham. Wide-scale migration requires “something cataclysmic,” says Menon, who sees Islamic terrorism as a bigger threat, especially since France’s intervention in Mali. “Greece, to a significant extent, is no longer self-governing, and that will cause problems there,” Menon says. “But I don’t think it represents a security threat to other countries, certainly not as far afield as Switzerland.”
The bottom line: The Swiss army has been carrying out military drills to prepare for a tide of refugees should the euro zone fragment.
-
CHRIS MARTENSON: GLOBAL GROWTH WILL NEVER RETURN TO THE GLORY DAYS; WE ARE ON AN UNSUSTAINABLE COURSE; WE’RE GOING TO HAVE A WORLD CLASS CURRENCY CRISIS AND THE CRISIS IS REALLY GOING TO BELONG TO THE PEOPLE WHO DON’T SEE IT COMING
By Greg Hunter’s USAWatchdog.com
Chris Martenson of PeakProsperity.com says, “We have an economy that requires constant exponential growth . . . that won’t happen. We’re on an unsustainable course.” Martenson says the next 20 years will look nothing like the last 20 years. He predicts, “The crisis really is going to belong to the people who don’t see it coming.” Martenson believes, “Global growth will never return to its former glory days.” The days of cheap natural resources are gone. Martenson says to go along with that phenomenon, “The risks are piling up in the financial system. . . . The Federal Reserve is printing, printing, printing . . . we’re going to have a world class currency crisis.” Given the current situation of a broken money system and dwindling natural resources, Martenson says, “I don’t see how you avoid a hard landing at this point.” Join Greg Hunter as he goes One-on-One with Chris Martenson from PeakProsperity.com.
-
JIM ROGERS, SCIENTISTS, ECONOMISTS, AND GEOPOLITICAL ANALYSTS ISSUE A DRAMATIC WARNING OF A GLOBAL ECONOMIC COLLAPSE
August 12, 2012
Rogers, who for years has been an outspoken critic of the Feds policies of “Quantitative Easing,” says the world is “drowning in too much debt.” He put the blame squarely on U.S. and European governments for abusing their “license to print money.” In the U.S. alone, the national debt has surged to nearly $16 trillion, that’s more than $50,000 for every American man, woman and child.
“[They] need to stop spending money they don’t have,” Rogers said. “The solution to too much debt is not more debt… What would make me very excited is if a few people [in the government] went bankrupt…” Rogers added.
Rogers also charged Obama and German Chancellor Angela Merkel with promoting dangerous policies that create the illusion the economy is stable… but are really only intended to buy time before their upcoming elections.
“Mrs. Merkle has an election next year,” Rogers said. “Mr. Obama has an election in November. The Americans and the Germans – they want to do everything they can to hold the world up until after the next election.”
“It’s going to be bad after the next election.”
In a newly released documentary that went viral last month, a team of influential economic experts say they have discovered a “frightening pattern” they believe points to a massive economic catastrophe unlike anything ever seen in the history of the world.
The work of this team of scientists, economists, and geopolitical analysts has garnered so much attention, they were brought in front of the United Nations, UK Parliament, and numerous Fortune 500 companies to share much of their findings.
And according to these experts – who have presented their findings to the United Nations, the UK Parliament and a long list of world governments – the catastrophe may happen well before Americans hit the polls in November.
“What this pattern represents is a dangerous countdown clock that’s quickly approaching zero,” said Keith Fitz-Gerald, the Chief Investment Strategist for the Money Map Press, who predicted the 2008 oil shock, the credit default swap crisis that helped bring about the recession, and the Greek and European fiscal catastrophe that is still wreaking havoc until this day.
“The resulting chaos is going to crush Americans.”
Another member of this team, Chris Martenson, a global economic trend forecaster, former VP of a Fortune 300, and an internationally recognized expert on the dangers of exponential growth in the economy, explained their findings further:
“We found an identical pattern in our debt, total credit market, and money supply that guarantees they’re going to fail,” Martenson said. “This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.”
“And what’s really disturbing about these findings is that the pattern isn’t limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well.”
According to Martenson, these systems could all implode at the same time.
“Food, water, energy, money. Everything.”
Dr. Kent Moors, one of the world’s leading energy analysts, who advices 16 world governments on energy matters and who currently serves on two State Department task forces on energy, also voiced concerns over what he and his colleagues uncovered.
“Most frightening of all is how this exact same pattern keeps appearing in virtually every system critical to our society and way of life,” Dr. Moors stated.
“It’s a pattern that’s hard to see unless you understand the way a catastrophe like this gains traction,” Dr. Moors says. “At first, it’s almost impossible to perceive. Everything looks fine, just like in every pyramid scheme. Yet the insidious growth of the virus keeps doubling in size, over and over again – in shorter and shorter periods of time – until it hits unsustainable levels. And it collapses the system.”
Martenson points to the U.S. total credit market debt as an example of this unnerving pattern.
“For 30 years – from the 1940s through the 1970s – our total credit market debt was moderate and entirely reasonable,” he says. “But then in seven years, from 1970 to 1977, it quickly doubled. And then it doubled again in seven more years. Then five years to double a third time. And then it doubled two more times after that.
“Where we were sitting at a total credit market debt that was 158% larger than our GDP in the early 1940s… By 2011 that figure was 357%.”
Dr. Moors warns this type of unsustainable road to collapse can be seen today in our energy, food and water production. All are tightly connected and contributing to the economic disaster that lies directly ahead.
According to polls, the average American is sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming – yet only 15% feel prepared for such a deeply troubling event.
Fitz-Gerald says people should take immediate steps to protect themselves from what is happening.
“If our research is right,” says Fitz-Gerald, “Americans will have to make some tough choices on how they’ll go about surviving when basic necessities become nearly unaffordable and the economy becomes dangerously unstable.”
“People need to begin to make preparations with their investments, retirement savings, and personal finances before it’s too late,” says Fitz-Gerald.
–
Click on the video below to see the eerie pattern.
–
YOUR FUTURE: THE ULTIMATE PYRAMID SCHEME
–
–
–
–
–
-
RELATED POSTS:
UNITED NATIONS WARNS OF LOOMING WORLDWIDE FOOD CRISIS IN 2013
GUS LUBIN: THE COMING GLOBAL WATER CRISIS THAT WILL SHAKE HUMANITY TO ITS CORE
DOOMSDAY SURVEY: 51% OF AMERICANS BELIEVE A FINANCIAL COLLAPSE IS IMMINENT
-
JAMES RICKARDS: WORLD CURRENCY SYSTEM MOVING TOWARDS CATASTROPHE
February 9, 2013
“The world currency system is riding down the road to catastrophe.” Those were the words from James Rickards during a recent interview on Wall Street Journal, senior managing director of Tangent Capital Partners and author of the book Currency Wars: The Making of the Next Global Crises. “The world already has entered a currency war that began in 2010 on the heels of the Federal Reserve’s massive easing program. Since then, plenty of nations have joined in, including Brazil, Switzerland and Japan.”
Japan has been devaluing significantly their Yen over the past two months as we wrote here. There is a new competitor in the room. The most recent news, as reported by Bloomberg, is that Venezuela just decided to weaken the exchange rate by 32 percent to 6.3 bolivars per dollar starting February 13th. The currency war has clearly and openly started.
In order to exactly understand what is going on, we need to go back to an earlier interview Jim Rickards gave to Bloomberg. In it, he explained the following:
What the Fed is trying to do is get inflation. They have tried already everything: QE, Operation Twist, communications … but everything has failed. They now try to cheapen the dollar and import inflation from abroad. It’s not because the Fed tries to do so, that it works. The aim of the Fed is to take the dollar down 20 to 30%.
There are two catalysts for the currency war to hit and lead to a weaker dollar. First, if the US trading partners will decide to let their currencies go stronger, we will begin to import inflation through the exchange rate mechanism. The other point is that, based on the quantity theory of money, the Fed can create inflation whenever it wants.
The quantity theory of money looks as follows: M x V = p x Y. It is an equation in which the monetary base times the velocity of money equals price inflation times real GDP. Central banks use this equation for their monetary policies. It is the reason why one of their focus points is to influence the psychology (mood) of people: if people “feel” that everything is going well, they will spend more, raising the velocity of money and resulting in a higher gross GDP. Given the fact that the economies are not really producing more, for sure not in the in US and Japan, it implies that the central bank efforts to create inflation could very well result in a much higher inflation rate than targeted. While aiming for 2%, the result could very fast be 6%.
Furthermore, on Yahoo! Finance, in another interview, he referred on to a speech Ben Bernanke gave at the end of September in Tokyo on an IMF event. He warned the other countries by saying the following:
“You have two choices. You can fight the currency wars in which case we are continuing printing to create inflation. Or you let your currency appreciate, and you will not get the inflation (in which case the country’s exports will go down). What Bernanke said between the lines is: We will continue printing until the dollar gets weaker, so your choices are inflation or higher export prices.”
Those are pieces of information one needs in order to understand the current situation. The central banks of both the United States and Japan are trying to import inflation in order to get their economies growing through a weaker currency. They do so instead of trying to boost their exports.
The result in the dollar and the yen are shown in the following chart, courtesy Wall Street Journal:
Jim Rickards says that the European Central Bank is actually doing the right thing: easing for liquidity reasons rather than to depress its currency. “The euro has risen to a 14-month high against the dollar as a result, and he thinks it can keep ascending.” (source MoneyNews)
Based on the dire state of the world currency system, it should be clear why Jim Rickards expects gold to trade in a range between $3,000 and $10,000. He adds to it: “We’re not going to get there all at once.” Indeed, based on the news out of Venezuela, it is obvious that lower dollar, higher gold could take some time. From the Venezuelan point of view, the holders of their currency are losing significant purchasing power while holders of gold are simply preserving it.
Are you holding paper based money or physical gold / silver? The choice is yours, so are the consequences!
-
CURRENCY WARS: TECHNOCRATS LOSING THEIR GRIP ON ECONOMIC TERRORISM
Susanne Posel
Occupy Corporatism
January 23, 2013
According to Iranian officials, the US government is engaged in a currency war with the purpose of destroying and destabilizing the nation economically. The Ri’al, Iran’s fiat currency, has lost 40% of its worth since sanctions were placed against the country in 2012.
In October of last year the manufactured Arab Spring protests made its way to Iran with riots in the streets over Iranian currency declining. Trading houses reported that global market trading had halted completely.
Thanks to the International Republican Institute (IRI), the use of synthetic nonviolent resistance movements has been successful at bringing down governments in the Middle East that suit the agendas of US and Israeli agendas.
Ahmadinejad maintains that there is a psychological war being played in Iran by the US and Zionist-controlled Israel. He said “sanctions hurt the people, not the government.” There is a clear and present danger for the people of Iran to be forced into revolt because of the pressure these sanctions causes. Lack of access to basic necessities can cause an uprising.
Concerning Iran, AIPAC coerced the US Congress to impose stricter sanctions on Iran with HR 1905 and the desire to inspire the revolution of Iranian citizens against their government.
Rumors of Iranian President Mahmoud Ahmadinejad being unfit to guide the Islamic nation are beginning to circulate. Meanwhile protesters are beginning to surface in a curious way – nearly just as the US-sponsored Free Syrian Army (FSA) suddenly developed.
Kaushik Basu, economist for the World Bank (WB), predicts that that there is a global currency war brewing that cannot be prevented. Because nations are inter-connected by currency, taking advantage through trade can devastate a nation.
Adam Posen, president of the Peterson Institute for International Economics, maintains that organizations such as the BRICs nations, who intervene with regard to currency, are tipping the value of currency itself.
The International Monetary Fund is bailing out every country experiencing a fiat devaluation, causing a politicization of currency.
Jack Lew, newly appointed Secretary of the US Treasury, will lie about the strength of the US dollar to assure global markets when he takes hold of his position in an attempt to use chicanery to convince other world leaders that Asian fiat is not disrupting the US dollar.
Alexei Ulyukayev, deputy chairman of the Russian Central Bank, explains: “Japan is weakening the yen and other countries may follow.”
With the Euro failing and scandals purveying the global interest rate with cuts coming out of these bankster debacles, governments are coming under economic attack by central banks with regard to financial stability.
Central banks everywhere are quickly working toward devaluing their currency. The Bank of International Settlements (IBS) has ordered all central banks to liquidate their fiat by 2019.
Consequences of the liquidation have been evidenced in governmental austerity and movement toward sovereign debt by the technocrats. Any asset assessed by BIS can and is being used as collateral of the banksters in an anything goes temperament while the squandering of wealth continues.
Michel Barnier, commissioner of BIS, stated that the Basel Committee has “revised liquidity coverage ratio and the gradual approach for its phasing-in by clearly defined dates. This is significant progress which addresses issues already raised by the European Commission. We now need to make full use of the observation period, and learn from the reports that the European Banking Authority will prepare on the results of the observation period, before formally implementing in 2015 the liquidity coverage ratio under EU law in line with the Basel standards.”
Under the guise of preventing a system failure during the global financial crisis, there will be “an extension of the existing temporary US dollar liquidity swap arrangements until February, 1 2014.” This action allows the central bankers to liquidate currencies under their jurisdiction “should market conditions so warrant.” Under this plan, euros backed by nothing can continue to pour into the system throughout the Eurozone “in addition to the existing liquidity-providing operations” in the US. This liquidation will take place “until further notice.”
UN has proposed a complete overhaul in the report entitled, “Adapting the International Monetary System to Face 21st Century Challenges”.
They call for a “more intense debate on and reforms to the international monetary system imply that the current system is unable to respond appropriately and adequately to challenges that have appeared, or become more acute, in recent years. This paper focuses on four such challenges: ensuring an orderly exit from global imbalances, facilitating more complementary adjustments between surplus and deficit countries without recessionary impacts, better supporting international trade by reducing currency volatility and better providing development and climate finance. After describing them, it proposes reforms to enable the international monetary system to better respond to these challenges.”
As the value of the US dollar drops consistently, BRICs nations have begun backing their fiat with precious metals like gold. When China trades with Iran from oil with gold, Organization of the Petroleum Exporting Countries (OPEC) cannot manipulate the system which they have done for decades wherein they took excess US dollars acquired and purchased US Treasury bonds to prop-up the US financial system.
The result of the actions of BRICs nations is the systematic death of the petrol dollar, and the US dollar as the global reserve currency. Without money laundered from OPEC to the US Treasury, there is less financial backing for the Zionist funding for war in the Middle East.
To further punish BRICs nations for circumventing the technocrats, the New York Department of Financial Services announced that the Standard Chartered Bank, housed in the UK, would have their operations suspended because of $250 billion that were transacted to Iran as US regulators use financial terrorism against this Middle Eastern nation.
-
MAX KEISER: FINANCIAL PEARL HARBOR
Published on Mar 16, 2013
In this episode of the Keiser Report, Max Keiser and Stacy Herbert ask why China fears currency war. They also look at Johnson & Johnson’s big loss on Venezuela’s currency devaluation and what this means in a currency war world where major devaluations can happen at any moment. In the second half of the show, Max Keiser talks to Jim Rickards, author of Currency Wars, about which nations are winning the war.
-
MAX KEISER AND JAMES RICKARDS: GOLD, CURRENCY AND WAR
-
JIM RICKARDS: CURRENCY WARS SIMULATION
-
JIM RICKARDS: CURRENCY WAR 3 HAS JUST BEGUN
Last two ran for 15 to 20 years
Jim Rickards, Pentagon advisor, investment banker and author of the famous book, Currency Wars, speaks with Jim Puplava on the Financial Sense Newshour to discuss the new age of global financial warfare and its potential outcome on savers and investors around the world.
-
-
-
-
YRA HARRIS: CURRENCY WARS ARE REAL
By Greg Hunter’s USAWatchdog.com
Legendary trader Yra Harris says, “The currency wars are real, and the game is on.” Harris says the global currency war is what helped Volkswagen gain market share in the last few years. So, what is Japan doing? It is cutting the value of its currency so Toyota will gain market share. The currency war is also what’s been driving gold higher. Harris says, “Is gold in a bull market? Absolutely. Is gold a tired bull for the moment? Absolutely. . . . I think you’d be crazy to sell because there are so many variables of uncertainty.” Harris goes on to predict, “What do I think is the most explosive event for gold? It is the day Draghi (President of the ECB) can no longer jawbone quantitative easing. He actually has to step up to the plate.” Harris is counting on the Fed to continue to pump out dollars. He says, “I can go to sleep at night and know one thing–the Fed will not allow deflation.” The reason is simple, according to Harris, “We live on debt in this society. Debt based societies cannot absorb a deflationary spiral.” Join Greg Hunter as he goes One-on-One with analyst and trader Yra Harris.
-
CURRENCY WARS RETURN, 1930s STYLE: WHO WILL LOSE OUT?
As countries try to weaken their currencies to boost exports, the risk of a currency war similar to events seen in the 1930s has heightened, and policymakers are making sure they are on the winning side, according to Morgan Stanley.
The balance of power now rests with Japan, according to the bank, as Japan’s policy-makers’ more dovish approach looks set to bring the world a step closer to a currency war.
The Bank of Japan doubled its inflation target to 2 percent in January and made an open-ended commitment to continue buying assets from next year. This follows a leadership change, with new Prime Minister Shinzo Abe openly calling for aggressive monetary stimulus from the country’s central bank.
This move, Morgan Stanley said, is a “game changer” as Japan tries to invigorate its stagnating economy .
“If a weaker yen is an important pillar of the strategy to make this export-oriented economy more competitive again, it brings into the picture something that was missing from earlier interactions among central banks of the advanced economies – competitive depreciation,” it said in a research note.
“This, in turn, takes us one step closer to a currency war.”
Manoj Pradhan, an economist at the bank details the 1930s war and highlights the lessons that we can learn from the past.
The U.K. was the first to leave the gold standard on September 19, 1931 due to painfully high unemployment. Sterling depreciated, setting off a volatile chain of events with the U.S., Norway, Sweden, France and Germany all following suit.
Those countries that moved early benefited at the expense of others on the gold bloc, a “beggar-thy-neighbor” outcome, according to Pradhan.
“Similarly, it is the domestic agenda that could drive competitive depreciation today,” he said.
“Since global demand is likely to remain sluggish, a revival of Japan’s export sector on the back of yen weakness is likely to eat into the market share of other exporters – something that could well invite measures to curb significant weakening of the yen.”
In a detailed scenario of what could follow, Pradhan highlights that the European Central Bank and the Federal Reserve would ease further, using quantitative easing to dampen euro strength and debt ceiling fears.
Capital controls could be brought in by Latin American and other Asian economies, he said, which could be transaction taxes or even some sort of verbal interaction.
“In the particularly interesting cases of Korea and Taiwan, our economist Sharon Lam believes that verbal intervention (already under way to some extent), intervention in the foreign exchange markets and capital controls represent the most likely policy reactions,” he said, adding that the emerging markets of Colombia, Mexico, Peru and Chile have even u-turned towards a more dovish stance.
“While a currency war is not our base case, the new-found commitment of Japan’s policy-makers does raise the risk of retaliatory action to keep the yen weak,” he said.
“The experience of the 1930s suggests to us that such large currency crises are likely triggered by domestic issues, and that they do create distinct winners and losers. EM (emerging market) policy-makers are already gearing up to make sure they remain on the winning side, but the balance of power for now rests with Japan.”
-
WHO WILL WIN THE CURRENCY WARS?
By James Gruber, Forbes
As debate about potential currency wars heats up, commentators including myself have called out the likely losers, the Japanese yen and South Korean won being high on most lists. Much less discussed has been which countries will win from the currency wars. After all, the currency market is a zero-sum game – as one currency declines, another must go up. In this issue, I’m going to suggest that Singapore and to a lesser extent, Thailand and Malaysia, will be relative winners. And I’m also going to explain why some supposed currency safe havens - including Australia, China, Canada, Switzerland and Norway – are unlikely to perform as well.
Now I know that some will point to gold being money and the ultimate winner of the race to the currency bottom. I too am a gold bull and suggest the metal should be a core component of any investment portfolio. Having written about gold on previous occasions though, today the focus will be on currencies.
The wars are just beginning
In early January I wrote the following in a newsletter called Sayonara To The Yen:
“The yen could collapse. Anyone for 200, perhaps 300, yen to the dollar? … The impact from any Japanese financial crisis will go well beyond Japan though. After all, Japan is the world’s third largest economy, accounting for 8.3% of global GDP. Its banks finance a lot of business both in Asia and elsewhere. Japan is also a major exporter competing with South Korea and Taiwan on high-end electronics, auto and industrial goods.
Think about the potential impact on South Korea for a moment. Exports account for 52% of GDP there … South Korea and other countries won’t allow their exporters to become totally uncompetitive against their Japanese counterparts though. They’ll join the fight to trash their currencies in order to help their exporters.”
Since then, the yen has tanked. I had thought there’d be some short-term respite in February but that hasn’t been the case. The reason is that the Bank of Japan Governor, Masaaki Shirakawa, has announced that he will resign on March 19, three weeks before this term was due to end. This means Japanese Prime Minister Shinzo Abe will be able to appoint a new Governor that is more in line with his inflationist policies. Simply put, money printing is on the way sooner than markets thought and the yen has got pummelled further.
Just as important has been the reaction to yen weakening. Many countries have voiced their concerns. Those concerns are intensifying, particularly in Europe given continued euro strength. European Central Bank President Mario Draghi has signalled policymakers are worried the euro’s advance could dampen inflation and hamper an economic recovery. France has been a particularly vocal critic of the rising euro.
The broader issue is simple: the developed world has too much debt and to reduce this debt, they want to create inflation and depreciate the value of their currencies (thereby reducing the value of the debt). It’s not going to be able to grow its way out of the debt or cut spending enough to make the debt more manageable.
Which currencies won’t win
The losers from currency wars are relatively easy to identify, with the Japanese yen, South Korean won and British sterling being high up on the list. Less easy to identify are those currencies that will prove safe havens. There are a number of currently perceived safe havens that could prove anything but.
Let’s start with the commodity currencies. Depreciating currencies mean tangible assets such as commodities should perform reasonably well. Those currencies largely dependent on commodities should also outperform. On a long-term basis (five years) though, the current commodities bull market is likely to end. The safe haven status of the Australian dollar, Canadian loonie and Norwegian krone will be under threat.
Let’s turn to the Australian dollar or Aussie as it’s commonly known. On a long-term basis, the Aussie is extremely risky. Australia has benefited from a three decade property boom and 12-year commodities boom. The problem is that the property boom is unwinding as highly indebted consumers pay down their debt and worry about job security as unemployment rises. When the commodity boom ends too, there will be nothing to fill the gap.
Australia has been poorly governed over the past decade, leaving few globally competitive industries other than mining. That might be ok if the country’s balance sheet was in good shape. Unfortunately though, even during boom times, Australia has consistently run budget and trade deficits. In sum, long-term investors should stay away from the Aussie. As an Australian resident, I hope I’m wrong though!
-
CURRENCY WAR FEARS THREATEN FRAGILE GLOBAL ECONOMIC RECOVERY AS G-20 MEETS
By: PAN PYLAS | NewsMax
February 15, 2013
The world economy faces a new threat. Instead of a banking collapse or too much debt, fears are growing that countries are using their currencies as an economic weapon.
History suggests that’s never a good thing.
If too many countries try to weaken their currencies for economic gain — sparking a so-called “currency war” — then the fragile global economic recovery could be derailed and the international financial system thrown into chaos.
Financial representatives from the world’s leading 20 industrial and developing nations are gathering in Moscow for a meeting this weekend that looks set to be dominated by these concerns and they will have their work cut out to douse the fires.
Why is everyone suddenly talking about currencies?
• During the financial crisis of the past few years, the value of currencies wasn’t a high priority — governments and central banks around the world co-operated to fix the global economy. But, five years down the line, a full recovery is still a long way off.
To encourage their consumers and businesses to keep spending, central banks in the U.S., Europe and beyond have made it a priority to keep interest rates extremely low. One way of doing this it to use their power to print money to buy up large quantities of bonds. Boosting the amount of currency in circulation also has a knock-on effect: it can drive down the value of that currency.
Japan, the world’s third-largest economy, is currently facing charges that it is trying first and foremost to lower the value of its currency, the yen, to stimulate its economy and get the edge over other countries. The new government is trying to get Japan, which is in recession, motoring again after a two-decade bout of stagnant growth and deflation.
Earlier this week, the yen fell to a 21-month low against the dollar and a near three-year trough against the euro. As the yen falls, its exports become cheaper and those of Asian neighbors South Korea and Taiwan, and further afield in Europe, become relatively more expensive.
Is Japan trying to weaken the yen?
• Yes and no. Though it’s not directly intervening in the foreign exchange markets by selling yen and buying other currencies, the new Japanese government has embarked on an economic course it hopes will finally kick-start the economy. The government has already pushed the Bank of Japan to accept a higher inflation target. This has triggered speculation the bank will create more money. The prospect of more yen in circulation has been the main reason behind the yen’s recent fall to a 21-month low against the dollar and a near three-year record against the euro.
Japan’s Finance Minister Taro Aso doesn’t appear to be holding back on the success of the policy. Though he insists the government hasn’t been directly intervening in the currency markets, he says the world “has been awed” by the recent surge in share prices and that the weakening yen has “brought huge benefits to the export sector.”
Will a lower yen help Japan?
• It can help exporters, such as Sony and Toyota, thereby lifting growth. A lower currency can also stoke inflation by making imports more expensive. For a country that’s seen prices fall for a large chunk of the past two decades, that may be no bad thing. But if other countries respond to the falling yen by devaluing their currencies, Japan will struggle to achieve its objectives — back to square one.
Have other countries been manipulating their currencies?
• In Sept. 2011, Switzerland took action to arrest the rise of its currency, the Swiss franc. The rise was triggered by the debt crisis afflicting the 17-country eurozone — investors were looking for somewhere safe to park their cash and the Swiss franc has traditionally fulfilled that role. The Swiss intervention was viewed as an attempt to protect the country’s exporters.
The appropriate level of currencies was a hot topic of debate before the financial crisis. For years, U.S. politicians have accused China of keeping its currency artificially weak in order to industrialize fast. And the U.S. was widely seen to have abandoned the “strong dollar” policy at the core of the Clinton administration’s economic policy in a dash for growth.
So why the fears that Japan might start a new currency war?
• Getting an edge from a lower currency may be seen as an easy way of “trying to spark economic recovery,” according to Neil MacKinnon, global macro strategist at VTB Capital.
It’s the desire to eke out growth that’s behind the talk of currency wars and the focus on the yen.
So far, Europe has felt the impact of the falling yen the most. At the height of the eurozone’s financial crisis last year, the euro was worth $1.21 — to the potential benefit of big exporters like BMW or Airbus. However, this week it’s at $1.33 even though the eurozone is still the laggard of the world economy. Figures Thursday showed that the economic output of the 17 European Union countries that use the euro shrank at an annualized rate of around 2.5 percent in the last quarter of 2012.
A rise in the value of euro, which is also partly to do with the diminishing threat of a collapse of the currency, will do little to help companies in the eurozone — and will hardly help getting it growing again.
Politicians have voiced concerns about the euro’s value — notably French President Francois Hollande, who indicated he was open to calls for a more managed exchange rate. European Central Bank President Mario Draghi said last week that the bank will monitor the economic impact of the euro’s rising value. Several analysts took that to mean the ECB could cut interest rates to bolster growth, which in theory could weaken the euro — an indirect tit-for-tat response to the yen’s fall, some say.
Earlier this week, the volatility in the currency markets prompted the Group of Seven leading industrial nations, which includes the U.S, Germany as well as Japan, to warn that volatile movements in exchange rates could adversely hit the global economy and to reaffirm their commitment to market-driven exchange rates this week.
How bad could a currency war get?
• Since World War II, one of the key objectives of international economic policymaking has been to avoid a repeat of the 1930s, when countries round the world engaged in a tit-for-tat battle with their exchange rates. That decimated global trade, accentuating the depression and providing another catalyst to war.
Assuming the world doesn’t descend into a similar abyss, a currency war can still harm the global economy. For example, central banks, particularly in the developing world, may resort to controlling the amount of capital that can be moved out of a country to affect exchange rates.
“Increasing impediments to the free flow of capital might be thought to lower the potential growth of the world economy,” said Stephen Lewis, chief economist at Monument Securities.
And even if capital controls are avoided, violent fluctuations in the value of currencies sparked by a currency war don’t encourage businesses to invest— raw materials and components shipped in from abroad would become increasingly difficult to cost and the value of any money invested in a country could quickly be wiped out.
Can the world’s leaders and central bankers calm the situation?
• No doubt, a communique will emerge from this weekend’s G-20 meeting in Moscow that pours scorn at competitive devaluations. Most of the action, though, is likely to take place behind-the-scenes with pressure expected to be put on the Japanese finance minister and central bank governor not to allow the yen to fall much further.
“Expect smoke and mirrors,” said Simon Evenett, a professor of economics at the University of St. Gallen in Switzerland and a former World Bank official. “It’s not the G-20′s style to point fingers.”
-
RUSSIA AND CHINA KNOW FINAL CURRENCY DEVALUATION IS COMING
By Robert Fitzwilson
February 14, 2013
“In the 1920s a popular phrase was ‘Follow the bouncing ball.’ The phrase was created by Max Fleischer of Fleischer Studios. Included among the characters attributed to Fleischer Studios were Superman, Popeye, and Fitz the Dog, later to be renamed Bimbo.
“Following the ball was an early form of a sing-a-long. As the audience watched a cartoon, subtitles for the music appeared at the bottom of the screen, and a bouncing ball would hover over the words to the song so that the audience could participate.
An economic and investment version of following the bouncing ball is the Dollar Index….
“The largest component of the Dollar Index is the euro. The rest of the mix contains a few other European currencies and the Japanese yen.
In recent years, we have become transfixed by the back and forth oscillations of the index. Other than the precipitous decline from the highs prior to the introduction of the euro to the current level of roughly 80, it has been an insight-devoid oscillation appropriate only for traders.
We have been following the bouncing ball as intended. The dollar goes up, the euro weakens. Coincidentally, swaps occur between central banks at the same time. For example, if the U.S. Fed provides dollars to the Europeans, the dollar weakens as they are converted into euros and the euro rises. It often occurs around solvency crises, keeping the aggregate banking system from capsizing and on a seemingly even keel. The pattern then reverses. It is all part of the charade.
We find that following the Dollar Index is a worthless exercise if one wants to gauge the condition of the currency markets. Will it go to 50 as some suggest? Perhaps, but that will only occur if the current range of the high 70s to low 80s cannot be defended. The usefulness of the Index is to divert our attention from the real battle being waged between the fiat currency bloc, the yuan, and gold.
The currencies that comprise the Dollar Index and the dollar itself are really part of the same team. The components move around a bit to create excitement, but those countries and their currencies are joined at the financial hip. We recently saw Japan appear to be getting out of line with Mr. Abe’s call for unlimited printing, but then subsequently saw an announcement that the yen had depreciated “enough”.
This is all part of the pretend drama that the fiat currencies are engaged in a currency war. If there is a war, it is the fiat group against gold and the yuan. A wondering mind, however, might consider the possibility that the latest moves by Japan are really about rearmament given their growing tensions with China and North Korea. An announcement of rearmament would be politically problematic. Unlimited stimulus would provide the perfect politically correct cover for rearmament. One can only ruminate on the possibilities.
Talk of currency wars continues to dominate the financial news. Ghosts of the ‘30s and the “beggar thy neighbor” policies have been resurrected. This is not about beggaring a neighbor this time around. This is not about nationalistic policies to provide markets for goods and employment for citizens.
In the Western bloc countries, this time around it is about allowing citizens to remain unemployed. It is about maintaining banking systems at all costs. It is really a policy of “beggaring thy citizens”, not thy neighbor. It is about power. It is about China wanting to regain what they consider their historic role as the economic powerhouse. Russia and China both know that gold is sovereignty and power.
Gold, oil and the success or failure of the yuan as a reserve currency are the only bouncing balls that matter in this game of Titans. As investors, we can only step out of the fiat currency arena and acquire what the powerful desire, primarily oil and precious metals. Tangible assets should also be accumulated, not for their role in global supremacy, but their intrinsic value for whatever comes next.
The devaluation of fiat currency is on a non-linear trajectory. The dollar deteriorated relatively slowly for 90 years. It deteriorated rapidly in the next 10 years. The final destruction will take only a few years. It could virtually happen overnight as we saw with Venezuela and North Korea.
The template was unveiled in the ‘30s with Roosevelt, and that was to confiscate the gold first and then devalue. Venezuela followed that same approach which was to reclaim their gold and then devalue. Russia and China know that the final devaluation of the fiat currencies is coming soon. Their version of the template is to produce and purchase as much gold as possible in anticipation of the final throes of the dollar as the reserve currency. One needs only to be following the relatively few real bouncing balls to know how and when this story ends.”
-
TOP ECONOMIC ADVISERS FORECAST WAR AND UNREST
Washington’s Blog
Feb 13, 2013
We’re already at war in numerous countries all over the world.
But top economic advisers warn that economic factors could lead to a new world war.
Kyle Bass writes:
Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation.
Larry Edelson wrote an email to subscribers entitled “What the “Cycles of War” are saying for 2013″, which states:
Since the 1980s, I’ve been studying the so-called “cycles of war” — the natural rhythms that predispose societies to descend into chaos, into hatred, into civil and even international war.
I’m certainly not the first person to examine these very distinctive patterns in history. There have been many before me, notably, Raymond Wheeler, who published the most authoritative chronicle of war ever, covering a period of 2,600 years of data.
However, there are very few people who are willing to even discuss the issue right now. And based on what I’m seeing, the implications could be absolutely huge in 2013.
Former Goldman Sachs technical analyst Charles Nenner – who has made some big accurate calls, and counts major hedge funds, banks, brokerage houses, and high net worth individuals as clients – saysthere will be “a major war starting at the end of 2012 to 2013”, which will drive the Dow to 5,000.
Veteran investor adviser James Dines forecast a war is epochal as World Wars I and II, starting in the Middle East.
Nouriel Roubini has warned of war with Iran. And when Roubini was asked:
Where does this all lead us? The risk in your view is of another Great Depression. But even respectable European politicians are talking not just an economic depression but possibly even worse consequences over the next decade or so. Bearing European history in mind, where does this take us?
He responded:
In the 1930s, because we made a major policy mistake, we went through financial instability, defaults, currency devaluations, printing money, capital controls, trade wars, populism, a bunch of radical, populist, aggressive regimes coming to power from Germany to Italy to Spain to Japan, and then we ended up with World War II.
Now I’m not predicting World War III but seriously, if there was a global financial crisis after the first one, then we go into depression: the political and social instability in Europe and other advanced economies is going to become extremely severe. And that’s something we have to worry about.
Billionaire investor Jim Rogers notes:
A continuation of bailouts in Europe could ultimately spark another world war, says international investor Jim Rogers.
***
“Add debt, the situation gets worse, and eventually it just collapses. Then everybody is looking for scapegoats. Politicians blame foreigners, and we’re in World War II or World War whatever.”
Marc Faber says that the American government will start new wars in response to the economic crisis:
We’re in the middle of a global currency war – i.e. a situation where nations all compete to devalue their currencies the most in order to boost exports. And Brazilian president-elect Rousseff said in 2010:
The last time there was a series of competitive devaluations … it ended in world war two.
Jim Rickards agrees:
Currency wars lead to trade wars, which often lead to hot wars. In 2009, Rickards participated in the Pentagon’s first-ever “financial” war games. While expressing confidence in America’s ability to defeat any other nation-state in battle, Rickards says the U.S. could get dragged into “asymmetric warfare,” if currency wars lead to rising inflation and global economic uncertainty.
As does Jim Rogers:
Trade wars always lead to wars.
And given that many influential economists wrongly believe that war is good for the economy … many are overtly or quietly pushing for war.
Moreover, former Federal Reserve chairman Alan Greenspan said that the Iraq war was really about oil , and former Treasury Secretary Paul O’Neill says that Bush planned the Iraq war before 9/11. And seethis and this. If that war was for petroleum, other oil-rich countries might be invaded as well.
And the American policy of using the military to contain China’s growing economic influence – and of considering economic rivalry to be a basis for war – are creating a tinderbox.
Finally, multi-billionaire investor Hugo Salinas Price says:
What happened to [Libya's] Mr. Gaddafi, many speculate the real reason he was ousted was that he was planning an all-African currency for conducting trade. The same thing happened to him that happened to Saddam because the US doesn’t want any solid competing currency out there vs the dollar. You know Gaddafi was talking about a golddinar.
Indeed, senior CNBC editor John Carney noted:
Is this the first time a revolutionary group has created a central bank while it is still in the midst of fighting the entrenched political power? It certainly seems to indicate how extraordinarily powerful central bankers have become in our era.
Robert Wenzel of Economic Policy Journal thinks the central banking initiative reveals that foreign powers may have a strong influence over the rebels.
This suggests we have a bit more than a ragtag bunch of rebels running around and that there are some pretty sophisticated influences. “I have never before heard of a central bank being created in just a matter of weeks out of a popular uprising,” Wenzel writes.
Indeed, some say that recent wars have really been about bringing all countries into the fold of Western central banking.
-
CURRENCY WARS OFTEN LEAD TO TRADE WARS, WHICH THEN EVOLVE INTO HOT WARS
by George Washington | Zero Hedge
Currency War → Trade War → Hot War
According to numerous high-level insiders, the global currency war is accelerating:
- Current Bundesbank president Jens Weidmann
- St. Louis Federal Reserve Bank president James Bullard
- Philadelphia Federal Reserve Bank president Charles Plosser
- Outgoing Bank of England chief Mervyn King
- Russian Central Banker Alexei Ulyakeyev
- European Central Bank board member Benoit Coeure
- Reserve Bank of Australia Governor Glenn Stevens
- Brazil’s finance minister Guido Mantega
- German chancellor Angela Merkel
- Billionaire investor George Soros
And Japan’s escalation of the currency war has caused leaders in the Eurozone (more), Norway, Sweden, South Korea, Taiwan, Columbia, Mexico, Peru, Chile, Venezuela and many other regions to devalue or consider further devaluing their currencies. China may be joining as well. (And James Rickard and Reggie Middleton think that Germany’s demand for its gold is part of the currency war.)
We’ve been in a global currency war for years.
As the Wall Street Journal asked in 2010:
Beggar-thy-neighbor currency devaluations proved ruinous for the global economy in the 1930s. Is the world setting off down the same slippery slope again?
Yes, we are.
Despite drivel from ignorant sources, currency wars don’t help the average person.
Quantitative easing – the main lever to depreciate currency – hurts the little guy and only helps the super-elite.
Former Secretary of Labor Robert Reich points out that a weak dollar makes everyone poorer … and any new jobs created by a a policy of devaluation are low-wage jobs.
Economist Mark Thoma noted in 2010:
While the positive effects a currency war produced in the 1930s [many disagree] are unlikely to reappear, there is a chance of large negative effects such as a simultaneous trade war or the breakdown of the international monetary system, so let’s hope a currency war can be avoided.
Philadelphia Federal Reserve Bank president Charles Plosser notes that currency wars would only hurt world trade and the economies that were involved.
The IMF noted in 2010 that currency wars “would represent a very serious risk to the global recovery”.
Even Paul Krugman is not that keen on currency wars.
Trade Wars
It is widely accepted that currency wars can lead to trade wars. As Time notes:
A competitive devaluation game can turn into a trade war, whereby losing countries start slapping tariffs on imports and exports to punish countries deemed to be “manipulating” their currencies. Trade wars, of course, make stuff more expensive for everyone, and that’s just about the last thing global consumers – increasingly squeezed by rising unemployment and inflation – need.
Nouriel Roubini agrees.
Indeed, there are signs that currency war induced trade wars are already starting. And see this.
Hot Wars
Brazilian president-elect Rousseff said in 2010:
The last time there was a series of competitive devaluations … it ended in world war two.
Billionaire investor Jim Rogers says:
Trade wars always lead to wars.
Top trend forecaster Gerald Celente has said for years that currency wars turn into trade wars … which in turn lead to hot wars.
Jim Rickards agrees:
Currency wars lead to trade wars, which often lead to hot wars. In 2009, Rickards participated in the Pentagon’s first-ever “financial” war games. While expressing confidence in America’s ability to defeat any other nation-state in battle, Rickards says the U.S. could get dragged into “asymmetric warfare,” if currency wars lead to rising inflation and global economic uncertainty.
Indeed, trade wars have been leading to hot wars for thousands of years. For example, the war between Rome and Carthage – leading to elephants in the mountains surrounding Rome – essentially started as a trade war.
Indeed, with top economic forecasters predicting war, the American policy of using the military to contain China’s growing economic influence, and the U.S. considering economic rivalry to be a basis for war, the global currency and trade wars are creating a tinderbox.
-
WATCH THE FINANCIAL MARKETS IN EUROPE
Michael Snyder
Economic Collapse
Feb 8, 2013
Is the financial system of Europe on the verge of a meltdown? I have always maintained that the next wave of the economic crisis would begin in Europe, and right now the situation in Europe is unraveling at a frightening pace. On Monday, European stocks had their worst day in over six months, and over the past four days we have seen the EUR/USD decline by the most that it has in nearly seven months. Meanwhile, scandals are erupting all over the continent. A political scandal in Spain, a derivatives scandal in Italy andbanking scandals all over the eurozone are seriously shaking confidence in the system. If things move much farther in a negative direction, we could be facing a full-blown financial crisis in Europe very rapidly. So watch the financial markets in Europe very carefully. Yes, most Americans tend to ignore Europe because they are convinced that the U.S. is “the center of the universe”, but the truth is that Europe actually has a bigger population than we do, they have a bigger economy then we do, and they have a much larger banking system than we do. The global financial system is more integrated today than it ever has been before, and if there is a major stock market crash in Europe it is going to deeply affect the United States and the rest of the globe as well. So pay close attention to what is going on in Europe, because events over there could spark a chain reaction that would have very serious implications for every man, woman and child on the planet.
As I noted above, European markets started off the week very badly and things have certainly not improved since then. The following is how Zero Hedge summarized what happened on Thursday…
EuroStoxx (Europe’s Dow) closed today -1% for 2013. France, Germany, and Spain are all lower on the year now. Italy, following ENI’s CEO fraud, collapsed almost 3% from the US day-session open, leaving it up less than 1% for the year. Just as we argued, credit markets have been warning that all is not well and today’s afternoon free-fall begins the catch-down.
In addition, the euro has been dropping like a rock all of a sudden. Just check out this chart which shows what happened to the euro on Thursday. It is very rare to see the euro move that dramatically.
So what is causing all of this?
Well, we already know that the economic fundamentals in Europe are absolutely horrible. Unemployment in the eurozone is at a record high, and the unemployment rates in both Greece and Spain are over 26 percent. Those are depression-level numbers.
But up until now there had still been a tremendous amount of confidence in the European financial system. But now that confidence is being shaken by a whole host of scandals.
In recent days, a number of major banking scandals have begun to emerge all over Europe. Just check out this article which summarizes many of them.
One of the worst banking scandals is in Italy. A horrible derivatives scandal has pushed the third largest bank in Italy to the verge of collapse…
Monte dei Paschi di Siena (BMPS.MI), Italy’s third biggest lender, said on Wednesday losses linked to three problematic derivative trades totaled 730 million euros ($988.3 million) as it sought to draw a line under a scandal over risky financial transactions.
There is that word “derivative” that I keep telling people to watch for. Of course this is not the big “derivatives panic” that I have been talking about, but it is an example of how these toxic financial instruments can bring down even the biggest banks. Monte dei Paschi is the oldest bank in the world, and now the only way it is able to survive is with government bailouts.
Another big scandal that is shaking up Europe right now is happening over in Spain. It is being alleged that Spanish Prime Minister Mariano Rajoy and other members of his party have been receiving illegal cash payments. The following summary of the scandal comes from a recentBloomberg article…
On Jan. 31, the Spanish newspaper El Pais published copies of what it said were ledgers from secret accounts held by Luis Barcenas, the former treasurer of the ruling People’s Party, which revealed the existence of a party slush fund. The newspaper said 7.5 million euros in corporate donations were channeled into the fund and allegedly doled out from 1997 to 2009 to senior party members, including Rajoy.
That doesn’t sound good at all.
So what is the truth?
Could Rajoy actually be innocent?
Well, at this point most of the population of Spain does not believe that is the case. Just check out the following poll numbers from the Bloomberg article quoted above…
According to the Metroscopia poll, 76 percent of Spaniards don’t believe the People’s Party’s denials of the slush-fund allegations. Even more damning, 58 percent of the party’s supporters think it’s lying. All of the Spanish businessmen with whom I discussed the latest scandal expect it to get worse before it gets better. Their assumption that there are more skeletons in the government’s closet indicates what little trust they have in their leaders.
Meanwhile, the underlying economic fundamentals in Europe just continue to get worse. One of the biggest concerns right now is France. Just check out this excerpt from a recent report by Phoenix Capital Research…
The house of cards that is Europe is close to collapsing as those widely held responsible for solving the Crisis (Prime Ministers, Treasurers and ECB head Mario Draghi) have all been recently implicated in corruption scandals.
Those EU leaders who have yet to be implicated in scandals are not faring much better than their more corrupt counterparts. In France, socialist Prime Minister Francois Hollande, has proven yet again that socialism doesn’t work by chasing after the wealthy and trying to grow France’s public sector… when the public sector already accounts for 56% of French employment.
France was already suffering from a lack of competitiveness. Now that wealthy businesspeople are fleeing the country (meaning investment will dry up), the economy has begun to positively implode.
As the report goes on to mention, over the past few months the economic numbers coming out of France have been absolutely frightful…
Auto sales for 2012 fell 13% from those of 2011. Sales of existing homes outside of Paris fell 20% year over year for the third quarter of 2012. New home sales fell 25%. Even the high-end real estate markets are collapsing with sales for apartments in Paris that cost over €2 million collapsing an incredible 42% in 2012.
Today, the jobless rate in France is at a 15-year high, and industrial production is headed into the toilet. The wealthy are fleeing France in droves because of the recent tax increases, and the nation is absolutely drowning in debt. Even the French jobs minister recently admitted that France is essentially “bankrupt” at this point…
France’s government was plunged into an embarrassing row yesterday after a minister said the country was ‘totally bankrupt’.
Employment secretary Michel Sapin said cuts were needed to put the damaged economy back on track.
‘There is a state but it is a totally bankrupt state,’ he said.
So what does all of this mean?
It means that the crisis in Europe is just beginning. Things are going to be getting a lot worse.
Perhaps that is one reason why corporate insiders are dumping so much stock right now as I noted in my article yesterday entitled “Do Wall Street Insiders Expect Something Really BIG To Happen Very Soon?“ There are a whole host of signs that both the United Statesand Europe are heading for recession, and a lot of financial experts are warning that stocks are way overdue for a “correction”.
For example, Blackstone’s Byron Wien told CNBC the other day that he expects the S&P 500 to drop by 200 points during the first half of 2013.
Seabreeze Partners portfolio manager Doug Kass recently told CNBCthat what is happening right now in the financial markets very much reminds him of the stock market crash of 1987…
“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”
Toward the end of 2012 and at the very beginning of 2013 we saw markets both in the U.S. and in Europe move up steadily even though the underlying economic fundamentals did not justify such a move.
In many ways, that move up reminded me of the “head fakes” that we have seen prior to many of the largest “market corrections” of the past. Often financial markets are at their most “euphoric” just before a crash hits.
So get ready.
Even if you don’t have a penny in the financial markets, now is the timeto prepare for what is ahead.
We all need to learn from what Europe is going through right now. In Greece, formerly middle class citizens are now trampling one another for food. We all need to prepare financially, mentally, emotionally, spiritually and physically so that we can weather the economic storm that is coming.
Most Americans are accustomed to living paycheck to paycheck and being constantly up to their eyeballs in debt, but that is incredibly foolish. Even in the animal kingdom, animals work hard during the warm months to prepare for the winter months. Even so, we should all be working very hard to prepare during prosperous times so that we will have something stored up for the lean years that are coming.
Unfortunately, if events in Europe are any indication, we may be rapidly running out of time.
-
PATRICK YOUNG: EUROPEAN UNION BUILT ON SAND, FACADE IS CRACKING, COLLAPSE IS IMMINENT
Thousands of medical workers have marched in the Spanish capital against plans to privatize hospitals, with more anti-austerity protests planned over the next few days. Madrid insists the harsh financial measures are crucial to help the country climb out of its deep recession. Investment advisor Patrick Young believes the government’s approach to the crisis is what landed Spain in trouble in the first place.
-
FRANCOFAIL: ‘IF FRANCE HITS BUFFERS, THE END OF THE EURO IS INEVITABLE’
–
10 REASONS WHY THE EURO CRISIS MAY BE INCURABLE
Commentary: Many forces could act to prolong the agony
By David Marsh, MarketWatch
BERLIN (MarketWatch) — The late German economist Rüdiger Dornbusch told us that a crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.
The point is that the euro (ICAPC:EURUSD) saga can persist for a while yet. History shows how unstable equilibrium can last surprisingly long periods. During the First World War the Western Front of mud and murder was frozen into the terrain for 3 1/2 years. The Cold War between the Soviet Union and the U.S. lasted 40 years. For four centuries, Greece was part of the Ottoman Empire.
Perhaps we should give up all hope of a solution. A long period of further confusion lies before us, similar to the continuous, inexplicable, unwinnable conflict among Oceania, Eurasia and Eastasia in George Orwell’s “1984” novel of a war-torn totalitarian state.
There are 10 reasons why the crisis may be incurable.
1. The Italian election result was a deep setback for euro optimists. Many say the populists’ victory was a vote against austerity. But more broadly it was a vote against the country being led in a way that no longer benefits Italians. The real structural reforms needed to get Italy out of the mess have not been introduced. Not reassuring: comedian-turned-vote-winner Beppe Grillo said at the weekend Italy would collapse financially in six months.
2. Fundamental disagreements over monetary union between the two key euro members Germany and France are increasing. Questioning over the compatibility of the two countries’ objectives and methods — France wants “solidarity”, Germany “competitiveness” — is getting louder. Mutual willingness to make concessions is falling.
3. The lack of a reform-minded Italian government has made more or less inoperable the European Central Bank’s promised rescue mechanism, the untested OMT program to buy government bonds. A pivot of this mechanism, at least as applied to the larger countries of Italy and Spain, is that they should obey conditionality ordained by the European Union and the International Monetary Fund. Who in Rome can be expected to carry out orders?
4. Germany will not and cannot stimulate its economy sufficiently to haul the distressed southern states out of the abyss. And in contrast to the favorable international environment of the German reform years 2003-05, when former Chancellor Gerhard Schröder brought in his controversial but successful Agenda 2010 initiative, Europe offers these countries no external growth impulses to cushion the painful effects of domestic reforms.
5. Chancellor Angela Merkel’s political inhibitions against taking bold and creative euro repair measures will grow noticeably larger before the German federal elections on Sept. 22. Few in Europe think the Germans have been particularly generous up to now with help for other countries. But they have been. The bitter truth is that we have now probably passed the high point of German readiness for European assistance.
6. The southern states still see enormous barriers against departing from the euro. Why should they want to when the money keeps flowing, from the ECB and other sources? And Germany and the other creditor countries will not and cannot simply force them out.
7. Similar considerations apply to any German readiness to leave unilaterally. Even though the Germans would take others with them, the political and economic consequences of a reversal of 60 years of post-Second World War German foreign policy would be earth-shattering. For the time being, there is a perfect stalemate. But this, too, may not last for ever.
8. The other major economic powers — the U.S., China and Japan — are not likely to press in the next few months for radical euro healing measures. They have no interest in provoking a firestorm that would lead to a destabilizing appreciation of their own currencies and hamper recovery efforts. It may look like a move away from globalization — and perhaps it is — but each country is too preoccupied with its own problems to force the euro area to get its act together.
9. In the run-up to the German election, where Merkel is the opinion poll leader right now, the French government will be increasingly tempted to cooperate with the opposition German Social Democrats to diminish Merkel’s political prospects. It’s difficult to see how intervention from President François Hollande can make much difference to German electoral attitudes. But he may try it. For the vaunted Paris-Berlin tandem, not positive news.
10. Should the ECB succumb to the temptation to buy Italian government bonds without accompanying government-agreed conditionality, that would represent a 100% reversal of repeated solemn promises by ECB President Mario Draghi. The result in Germany would be a storm of indignation that would take many by surprise and could sweep away much that has been accomplished. As in “1984” we should prepare ourselves for bleak times.
-
THE FEDERAL RESERVE’S BAILOUT OF EUROPE CONTINUES WITH A RECORD $237 BILLION INJECTED INTO FOREIGN BANKS IN THE PAST MONTH
by Tyler Durden | Zero Hedge
February 9, 2013
Last weekend Zero Hedge once again broke the news that just like back in June 2011, when as part of the launch of QE2 we demonstrated that all the incremental cash resulting form the $600 billion surge in the Fed’s excess reserves, had gone not to domestically-chartered US banks, but to subsidiaries of foreign banks operating on US soil. To be sure, various other secondary outlets picked up on the story without proper attribution, most notably the WSJ, which cited a Stone McCarthy report adding the caveat that “interpreting the data released by the Federal Reserve is a bit challenging” and also adding the usual incorrect attempts at interpretation for why this is happening. To the contrary: interpreting the data is quite simple, which is why we made an explicit prediction: ‘We urge readers to check the weekly status of the H.8 when it comes out every Friday night, and specifically line item 25 on page 18, as we have a sinking feeling that as the Fed creates $85 billion in reserves every month… it will do just one thing: hand the cash right over straight to still hopelessly insolvent European banks.” So with Friday having come and gone, we did just the check we suggested. As the chart below shows, we were right.
Another way of showing what has happened: in the past 4 weeks, the Fed has injected a record $237 billion of cash into foreign banks with access to the Fed’s excess reserves: a number greater than both the cash influx surge seen after the Lehman collapse, and faster and more acute than the massive build up of cash during the spring and summer of 2011 when all the Fed’s brand new QE2 cash was once again, solely used to overfund European bank cash.
Another way of showing precisely what we said would happen, and what is happening: in the past month, as $237 billion in cash was being handed over by Ben Bernanke to foreign banks, cash to both small and large domestically-chartered banks declined.
The result is that of the record $1.8 trillion in cash sloshing within the US financial system (consisting of US and foreign banks), a record $955 billion, or 52.6% of total is now allocated to foreign banks.
Do we know that the cash in the US financial system is purely a result of the latest open-ended QE? Yes we do, because as the chart below shows, every dollar change in excess reserves created by the Fed is tracked tick by tick by the total amount of cash held by US and foreign banks. And as the yellow area – foreign bank cash – in chart further shows, all the cash generated by QEternity has gone straight to foreign banks.
Another way of showing this correlation: the change in excess reserves vs just the change in cash assets held by foreign banks. There is no doubt on which banks’ balance sheets the Fed’s “excess reserves” are appearing as cash.
Finally, as a reminder there was a second part in our forecast as to what these European banks will do with this fresh prop-trade funding cash courtesy of Bernanke – they will “push the EURUSD higher, until, as in the summer of 2011 it goes far too high, crushes German, and any other net European exports, and precipitates yet another wholesale bailout of Europe by the global central bankers. Just as the Fed did in 2011.”
Sure enough, it required the intervention of none other than Mario Draghi last Thursday to stop the massive, sharp ascent in the EUR in the past two months, which as we showed in the morning before the ECB’s announcement on Thursday, had resulted the EUR surge by over 10% on trade-weighted terms. The reason for this intervention: to prevent the collapse of what little is left of Europe’s export economy. However, unlike previously, now that Japan is also actively crushing its own currency to promote its exports over those from Germany and France, things will be just a little bit more acute as everyone scramble to be the exporter of only resort to what little import demand remains in a world where everyone is desperate to grow their trade balance through currency manipulation.
So whether European banks will continue buying the EURUSD, or redirect their Fed-cash into purchasing the ES outright, or invest in other even riskier assets, remains unknown.
What is, however, known beyond a reasonable doubt is that at least through this point, the sole beneficiary of the Fed’s open-ended quantitative easing which launched in September of 2012, and which was supposed to help lower US unemployment and raise inflation (it will certainly succeed in that eventually, and what a smashing success it will be), are once again solely foreign – read almost exclusively European – banks.
-
TECHNOCRATS CONTINUE TURNING FIAT INTO PROPERTY AS GLOBAL FINANCIAL CRISIS CONTINUES
Susanne Posel
Occupy Corporatism
December 14, 2012
The European Central Bank (ECB) is setting the stage of a complete financial collapse of fiat currencies across the globe. Joining in the scheme are other technocratic institutions such as the Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank.
Under the guise of preventing a system failure during the global financial crisis, there will be “an extension of the existing temporary US dollar liquidity swap arrangements until February, 1 2014.” This action allows the central bankers to liquidate currencies under their jurisdiction “should market conditions so warrant.” Under this plan, euros backed by nothing can continue to pour into the system throughout the Eurozone “in addition to the existing liquidity-providing operations” in the US. This liquidation will take place “until further notice.”
The ECB Governing Council will oversee the operations of this scheme along with the other technocrats involved. The schedule of liquidity operations will “repurchase transactions against eligible collateral.”
The technocrats are posturing themselves to destroy all fiat currencies in order to make way for a new global currency under their complete control.
True to the intricate plans of the technocrats, the UN has proposed a complete overhaul in the report entitled, “Adapting the International Monetary System to Face 21st Century Challenges”.
They call for a “more intense debate on and reforms to the international monetary system imply that the current system is unable to respond appropriately and adequately to challenges that have appeared, or become more acute, in recent years. This paper focuses on four such challenges: ensuring an orderly exit from global imbalances, facilitating more complementary adjustments between surplus and deficit countries without recessionary impacts, better supporting international trade by reducing currency volatility and better providing development and climate finance. After describing them, it proposes reforms to enable the international monetary system to better respond to these challenges.”
Earlier this week, the Fed announced more stimulus admit the looming fiscal cliff, unemployment and strategic inflation caused by QE3. More bond buying is taking place, which means the Fed continues to become America’s biggest land owner.
The third round of quantitative easing enacted by Ben Bernanke, chairman of the Federal Reserve Bank is nothing more than a massive land-grab in the domestic US by the technocrats under the guise of purchasing the mortgage-backed securities through the Federal Reserve to alleviate the pressure the banks are feeling from the bait-and-switch they caused.
Essentially, as the Fed buys the mortgage-backed securities, the central bankers will now own all those properties which were bundled and securitized. The experts are still coming to terms with how many homes, small business, small farms and other lands were mixed-up into this Ponzi scheme. The sum total numbers of victimized Americans are continuing to rise and are currently unknown. However, it is clear that as this monster grows, it will be the Federal Reserve at the helm, making sure that more Americans are displaced and foreclosed on.
Quantitative easing and its effects, according to the Bank of England, benefit “mainly the wealthy.” This plan boosts “the value of stocks and bonds by 26 percent, or about $970 billion.” It is understood that quantitative easing incites “social anger and unrest.”
Herman Van Rompuy, president of the EU said: “Even if the worse of the eurozone crisis is behind us, much still needs to be done. But all the hard work is beginning to pay off. A lot has been achieved over the course of a year.”
The technocrats, after having destroyed Greece financially, are in the process of a buy-back program in which Greek banks will become further indebted to the central bankers until they are complete stripped of sovereign debt (when the leaders of the nation had over the country to the banksters).
The ECB agreed to give any nation in the Euro-Zone a bailout if they agreed to hand over the country to them under the guise of “new rules and conditions when applying for assistance.”
Greece is very attractive to the technocrats. The nation has massive untouched resources of gold, oil and natural gas – literally under the feet of the Greek people. With Greece slated to be the biggest producer of gold in 2016, the motives behind the bankster’s coercion of the Greek government into sovereign debt begins to make sense.
The Greek government agreed to the technocratic demands for sovereign debt in exchange for the bailout which will push the Greek economy further down with more fiat pumped into the system. Meanwhile, the citizens of Greece will lose their independence, benefits and become serfs to the central banking cartels.
Greece has large deposits of gold. The Canadian based Eldorado Gold Corp (EGC) is more than willing to be part of the creation of gold mines in lieu of the financial collapse in Greece. Along with the Australian-owned Glory Resources, EGC is hoping their efforts will add 425,000 ounces of gold (worth an estimated $757 million) to the institution that ends up controlling Greece’s finances.
Other resources in Greece which places the nation in the hands of the banking cartels are the substantial sub-Mediterranean natural gas and petrol fields at the precipice of the country. Controlling Greek energy exports would be extremely profitable for the technocrats. Numerous European-based corporations are bidding to have contracts for the extraction of these resources.
The Swiss Federal Institute (SFI) in Zurich released a study entitled “The Network of Global Corporate Control” that proves a small consortiums of corporations – mainly banks – run the world. A mere 147 corporations which form a “super entity” have control 40% of the world’s wealth; which is the real economy. These mega-corporations are at the center of the global economy. The banks found to be most influential include:
• Barclays
• Goldman Sachs
• JPMorgan Chase & Co
• Vanguard Group
• UBS
• Deutsche Bank
• Bank of New York Melon Corp
• Morgan Stanley
• Bank of America Corp
• Société Générale
Using mathematic models normally applied to natural systems, the researchers analyzed the world’s economy. Their data was taken from Orbis 2007, a database which lists 37 million corporations and investors. The evidence showed that the world’s largest corporations are interconnected to all other companies and their professional decisions affect all markets across the globe.
-
STANDSTILL: THE CHARTS THAT PROVE THE GLOBAL ECONOMY IS IN SERIOUS TROUBLE
Mac Slavo
SHTFPlan.com
Dec 13, 2012
Amid growing concern that the global economy is teetering on the edge of a total collapse, governments in Europe, China and the United States continue to manipulate statistics in an effort to paint a picture of recovery and a return to normalcy.
But despite their best efforts to fabricate positive employment numbers, GDP growth, currency stability and stock market health, the stark reality is that the global economy is at a standstill, and has been since before the crash of 2008.
Economic growth is measured by how much we produce and consume, and before the bursting of the bubble there was an unprecedented level of consumption in America and throughout the rest of the world. But when credit markets and lending froze in response to a loss of confidence in the financial system following the collapse of investment giants Bear Stearns and Merrill Lynch, the economy as we had come to know it fell apart.
Consumption fell off a cliff and left America in its deepest recessionary environment since the 1930′s.
For those paying attention to the Baltic Dry Index, a global measure of the costs to transport raw materials, this collapse was reflected several months before panic gripped investors and led to stock market crashes around the world.
Introduced in 1985, the Baltic Dry Index first and foremost is a measure of the global shipping rates of dry bulk goods, mostly consisting of vital raw materials used in the creation of other products. However, it is also a measure of demand for said materials in comparison to previous months and years.
Source: Alt Market
-
-
In essence, the price of transporting goods collapsed – to its lowest levels ever. That old theory of supply and demand was the culprit. You see, when there is no money to buy goods, there is no demand for said goods. This puts pressure on transportation companies who make a living moving products from port to port around the world. But because no one was able to consume, there was no need to ship anything. This forced transportation companies to reduce their freight rates in an effort to stay competitive.
As the chart above demonstrates, there was a massive drop-off in prices during the summer of 2008, at right about the time Americans were getting wind a recession was looming. There was a slight bounce in response to the multi-trillion dollar bailouts promised by Congress and Presidents Bush and Obama, but the bubble created on cheap borrowing and negligent lending couldn’t be blown back up.
Four years on, with literally tens of trillions of dollars infused into the system by central banks all over the world, transportation rates for goods remain at near all time lows, suggesting that our governments’ best efforts have failed miserably.
And rather than the economic improvement touted by the best and brightest of our politicians, economists and financial gurus, we are nowhere near where we were before the crash.
In fact, it’s getting worse, as evidenced by the latest Baltic Dry Index report, which this morning experienced its biggest single day drop since 2008:
It has been a while since we looked at the Baltic Dry Index, which when normalizing for the excess glut in dry container ship supply (such as right now – 5 years after all the excess supply in the industry – has long been normalized), continues to be one of the best concurrent indicators of global shipping and trade. We look at it today, moments ago it just posted an epic 8.2% plunge, crashing from 900 to 826, or the biggest drop since 2008! Of course, conisdering the collapse in global trade confirmed in past days by both Chinese and US data, this should not come as a surprise, although we are certain it will merely bring out the BDIY apologists who tell us that supply and demand here (like in every other Fed-supported market) are completely uncorrelated.
Source: Zero Hedge
-
-
The bottom line is that American consumers are broke (and hungry). But not only are we broke, we owe more than we can ever hope to make to pay back the loans we took on during ‘the boom times.’
The notion that we are somehow in an economic recovery while 100 million Americas are classified as poor, with hundreds of thousands entering poverty on a monthly basisis ridiculous on its face.
We are in serious trouble folks.
Had you asked Americans in the Spring of 2008 if they were ready for the coming real estate bubble collapse and stock market crash that would see 40% of their wealth wiped out they would have laughed in your face.
They’ll laugh in your face today, too, should you tell them things are only going to get worse. But the numbers don’t lie.
We are in what many have referred to as America’s next great depression.
Laugh if you want, but reality will soon take that smile right off your face.
-
DEUTSCHE BANK’S JIM REID PRESENTS A EUROPEAN NIGHTMARE SCENARIO THAT THE ECB WOULD BE POWERLESS TO PREVENT
Matthew Boesler | Business Insider
Dec. 7, 2012
The major development in yesterday’s European Central Bank policy meeting was a significant downgrade to the ECB’s staff projections for GDP growth and inflation in the euro area over the course of 2013.
Since the ECB introduced it’s “Outright Monetary Transactions” (OMT) bond market intervention program in August 2012, market volatility has been almost completely muted, and sovereign bond yields have fallen steadily throughout the course of the second half of the year. Concurrently, European stocks have been on a tear.
These two developments have put the euro crisis conversation squarely in the growth arena. The common line is that the ECB’s OMT pledge has sufficiently removed tail risks from financial markets for the foreseeable future. This, then, should allow policymakers to focus their full attention on measures aimed at reviving economic growth in the euro area.
Pursuant to this worldview, most strategists are calling for even higher stocks and even lower yields in the eurozone in 2013 as current trends continue and the currency bloc “muddles through” a mild recession.
In his 2013 outlook, titled In Authorities We (have to) Trust, Deutsche Bank credit strategist Jim Reid highlights a small problem with that narrative: the growth crisis and the market crisis are inextricably linked, and the ECB has actually done little to change that.
In fact, Reid argues that disappointing economic data – the one thing seemingly out of the ECB’s control – are what have driven the last two major selloffs in European markets:
The last two major European Sovereign risk off catalysts have been growth disappointments. In July 2011, the first sub-50 PMI print since 2009 for Italy started a 3-month savage sell-off that culminated in Berlusconi’s resignation, a technocrat Government and a couple of months later the first of two massive LTROs from the ECB. A period of calm and risk-on then ensued for 3-6 months as markets waited patiently (but expectantly) for a growth rebound after stability had been restored.
The growth rebound failed to materialise as we moved through Q2 2012 and the sell-off returned with a vengeance with Italian and Spanish equities hitting lows not seen for well over a decade in the former and for 9 years in the latter. 10 year bond yields in these two countries climbed above 6.5% and 7.5% respectively. The ECB finally rode to the rescue with the promise of the OMT program thus sparking the current large rally in peripheral risk and global markets generally.
So, what are the catalysts for a return of financial market turmoil in Europe in 2013?
Reid highlights three major issues.
To start, European stocks – and stocks in markets around the world, for that matter – are considerably overvalued based on historical correlations to PMI data:
-
-
In other words, markets may be considerably “overbought” at these prices, and they have a lot of room to move lower.
The second problem is austerity. Most accept that austerity measures weigh on economic growth in the short term, yet euro-area governments are moving forward with plans attempting to bring fiscal budgets back into balance anyway.
To make matters worse, the IMF recently concluded that the “fiscal multiplier,” or how much economic growth contracts for each dollar of spending cuts or tax hikes implemented by the government, is much higher than they previously estimated.
The IMF’s revelation helps to explain the third problem: namely, that governments have consistently set economic forecasts too high and then failed to meet their own targets.
The charts below provide a nice illustration of this dynamic. They show that governments have missed forecasts even issued as recently as 2011 (with the exception of Germany), and the further you go back through the years, the more off base those forecasts have turned out to be.
-
-
This unstable growth picture causes Reid to warn of “huge risk-off moments” materializing in Europe in 2013.
The reason: it brings concerns about solvency back to the fore, and Reid doesn’t see the ECB’s OMT program as any match for such fears arising in the market:
In 2012 the ECB prevented a financial meltdown by announcing its intention to buy short-dated bonds for countries in need via the OMT program. This is a huge step from the ECB but it remains a liquidity facility and not a solution to any solvency concerns that there may be in the future. For it to work successfully over the medium-term it needs to be proved that growth can stabilise in the most vulnerable countries and then show signs of picking up.
If we see some indication of this in 2013 then the European Sovereign crisis will continue to be on hold. However our fear is that if economists again under-estimate the negative growth consequences of this crisis and indeed austerity in the most vulnerable countries, then it’s possible we can have solvency concerns reasserting themselves even though a liquidity program is operational.
Reid continues:
…the OMT program is a conditional liquidity scheme and if conditions are not met (for whatever reason) or there are doubts surrounding the solvency of any European country in 2013 due to weak growth, it is unlikely to be enough to prevent a sell-off in longer-dated periphery bonds and a general risk aversion that might require yet more extraordinary levels of intervention from the central bank to avoid the unthinkable.
Summing up the argument:
Spread valuations are still reasonable if defaults stay low as seems likely but expect a sell-off by mid-year if growth stalls as we expect. This will likely provoke the authorities and a buying opportunity will precede this. Such a pattern will likely repeat itself many times before this long crisis is truly over.
It’s difficult to assess where we’ll be in one of these mini-cycles by the time the calendar ticks over into 2014 but we think that these sharp market swings will dominate as the poor macro fundamentals continue to battle it out against extraordinary monetary intervention.
In short, Deutsche Bank thinks the crisis is far from over, and Europe is likely going to have a lot tougher time in 2013 than it did in 2012.
-
EUROZONE CRISIS AND UNITED STATES FISCAL CLIFF RISK DOMINATE SOVEREIGN OUTLOOK
The News International
LONDON: Fitch Ratings says in its latest bi-annual global Sovereign Review and Outlook report that the weaknesses in the major advanced economies (MAEs) – dominated by the continuing eurozone crisis and the looming threat of the US fiscal cliff are exerting a negative influence on global sovereign credit quality. While emerging market (EM) economies are proving more resilient, their continuing exposure to the MAEs, combined with their own vulnerabilities, is constraining the upward rating momentum of EM sovereigns.
The report notes that the ratings of seven of the world’s 10 largest economies are currently on Negative Outlook, including three major ‘AAA’-rated sovereigns the US, the UK and France, highlighting the strained credit quality of the countries underpinning the global economy. Fitch expects to resolve these three Negative Outlooks in 2013, against a challenging backdrop, with the eurozone back in recession and a US recovery not expected to gain traction until the latter part of 2013.
The eurozone crisis has entered a period of relative calm, influenced heavily by the announcement of the European Central Bank’s (ECB) “Outright Monetary Transactions” (OMT) programme in early September. Mario Draghi’s policy initiative has effectively addressed near term liquidity risks for troubled eurozone sovereigns, buying time for the necessary but painful adjustments required to secure solvency. However, notwithstanding some progress on banking union at last week’s EU summit, significant challenges still confront policy-makers, both in terms of moving towards greater fiscal and financial risk sharing and in breaking the negative feedback loop between sovereigns and their banking systems.
Fitch is concerned that the current easing of market pressure on sovereign bond yields – combined with the specifics of 2013’s electoral calendar, including Italian and German general elections could induce complacency and slow policy momentum to a crawl. More positively, the recent Troika agreement to provide additional debt service relief measures in order to secure Greek sovereign debt sustainability reflected a concerted commitment to avoid a Greek exit and supported Fitch’s view that a eurozone break-up will be avoided.
Fitch has identified the US fiscal cliff as the single biggest, near-term threat to the world economy, given its potential to tip the US into an unnecessary and avoidable recession, with negative implications for global growth. However, the agency’s base case expectation is that a compromise will be reached to avoid the USD600bn of tax increases and spending cuts due to come into effect on 1 January 2013. Fitch still anticipates a material fiscal tightening of 1.5% in the US economy in 2013, but this falls well short of the 5 percent implied by the fiscal cliff. If the negotiations on the fiscal cliff and raising the debt ceiling extend into 2013 and appear likely to be prolonged with adverse implications for the economy and financial stability, the US sovereign rating could be subject to review, potentially leading to a negative rating action.
The crisis took a further heavy toll on ratings in 2012, as Fitch downgraded six eurozone sovereigns by a total of 19 notches (15 excluding Greece), although the vast majority of the downgrades occurred in H112, indicating an easing of tail risks in the second half of the year following the OMT announcement. Spain was particularly hard hit by two multi-notch downgrades, taking its rating to ‘BBB’.
In March, Greece set a record EUR199bn sovereign default, the first in an advanced economy as classified by the IMF in the modern era.
In May, Fitch also downgraded Japan, the world’s second largest debtor, to ‘A+’/Negative. 10 developed market countries are on Negative Outlook and none on Positive Outlook, although – in one more positive development – the Outlook on Ireland’s ‘BBB+’ rating was revised to Stable in November, representing the first positive rating action Fitch has taken on a eurozone peripheral sovereign since the crisis began, reflecting Ireland’s progress with its fiscal consolidation, external adjustment and economic recovery, as well as its improved financing options.
Global growth outturns are undershooting expectations and risks remain skewed to the downside. The contraction in the eurozone and Japan, as well as weaker growth in Brazil and India in Q312, highlights the underlying weaknesses and risks still facing the global economy. Fitch anticipates fragile global growth in 2013, with the MAEs in particular likely to record only a marginal improvement year-on-year as the weak recovery from the 2008 financial crisis continues.
For the MAEs, Fitch forecasts economic growth of 0.9 percent in 2012, followed by 1.2 percent in 2013 and 1.9% in 2014. Global growth is forecast at 2.0 percent in 2012, 2.4 percent in 2013 and 2.9 percent in 2014.
EM economies are continuing to show relative resilience to tough global conditions and to outperform so-called advanced countries. Although the overall medium-term trend is one of moderating growth, Fitch expects that the major EM economies, particularly China (‘A+’/Stable), India (‘BBB-’/Negative) and Brazil (‘BBB’/Stable), will regain momentum in 2013, with GDP growing by 8.0 percent, 7.0 percent (to March 2014) and 4.0 percent respectively. However, this will fall some way short of recent multi-year peaks, and reflects the combination of weak import demand from the MAEs and domestic vulnerabilities reflected in tighter policy settings and the need to address longer term structural issues, such as China’s rebalancing towards higher domestic consumption and lower investment to generate growth.
Upward momentum in EM sovereign ratings has slowed. There have been six EM sovereign upgrades so far in 2012, following 18 in 2011 and 13 in 2010, although all six occurred in H2, again indicating an improved trajectory since the first half of the year.
The balance of Negative Outlooks to Positive for EM sovereigns now stands at 2:1, representing a clear deterioration from the December 2011 ratio of 1:1. However, bucking the general weakening trend were significant upgrades for Turkey – to ‘BBB-’/Stable from ‘BB+’ – and Korea to ‘AA-’/Stable from ‘A+’
-
GEOPOLITICAL DISLOCATION AND WORLDWIDE ECONOMIC CHAOS: PROFILING EUROLAND “AFTER THE CRISIS”
It will be a somber year for the United States, as it loses its status as the sole superpower and finds itself unable to influence the construction of a new global governance. For if all players are desperately seeking a way to gain the upper hand in the game, only those countries and regions prepared for the shockwaves can even hope to influence the emergence of the “world after.”
Alliances of any kind (CELAC, UNASUR, MERCOSUR, ALBA, CAN, ALADI, NAFTA, OAS, AU, NEPAD, SADC, COMESA, ECOWAS, UEMOA, CEMAC, the Arab League, EU, EFTA, ASEAN, APT, EAC, BRICS, CASSH, Eurasian Union, etc.) all reflect such attempts, but they are all more or less advanced, more or less homogenous, and more or less resistant to the coming storm.
Euroland, born in the crisis and strengthening with each wave like a tidal power plant, Asia, and South America are better equipped to become the big winners in the “reshuffled” world, while the old powers, like the United States, the United Kingdom, Israel, Japan, etc., are failing to adapt to the multi-polar, post-crisis world and find themselves utterly destitute. There is an extraordinary open world game afoot, one providing numerous opportunities to those willing to seize them. This is evident in the Middle East, where populations are taking the opportunity to change the region in accordance with their aspirations; in the BRICS, where their advancing pawns approach declining powers; and in Europe, where each attack by the crisis creates the energy to adapt to the challenges of tomorrow.
The economic situation (recession) and geopolitics (major tensions in the Middle East, but also in Asia (1), etc.) make 2013 a difficult and dangerous period, with mishaps likely, making stable regions that benefit from this state of affairs more attractive by comparison. Everything is relative, of course, but global violence in 2013 figures to make Euroland one of the few havens of peace, stability, and comfort… and for investors it will be one of the few regions offering some visibility for the future (2). This will create a powerful engine for exiting the European crisis in 2013.
A rapprochement of Euroland with BRICS, another future-bearer group of countries, would weigh in favor of the necessary (3) reforms in global governance. The next G20 summit in September in St. Petersburg, outside of Western influence for the first time, is the last opportunity to address issues paramount to global governance, including the international monetary system’s reform. For in 2014, the best-adapted regions are already making their way in the “world after”.
-
Profiling Euroland in the world after the crisis
This should not obscure the many problems in Greece and Spain, for example; no one said it would be painless to recover from the bursting of the housing bubble and a historic global systemic crisis; as a matter of fact these countries could benefit more from technical assistance and expertise from other European countries. But overall, the situation is improving, the new Greek debt restructuring has been successful (6), deficits are reduced in Greece and Spain (7), Italy was put back on track by Monti (8), the Anglo-Saxon media themselves no longer speak of an eventual Greek exit from the Eurozone, and more recently the US media has even began praising European progress… (9)
Let there be no mistake: 2013 will be difficult for a Europe in recession. But whether it is through the banking union which will begin functioning in early 2014, through increased political integration or through the European Stability Mechanism, the independence of Euroland states is affirmed (10). One sees it in disagreements with the IMF on Greece (11): by 2015, the European Stability Mechanism will have sufficient credibility and skills to let the IMF deal with developing countries (or save the US or UK) and concentrate only on European problems.
This decoupling from the institutions of the “world before” and from the United States allows Euroland to engage in the constructive dynamic of adaptation to the “world after”, through custom-made tools.Visible signs of the decoupling and independence of Euroland, despite criticism, are the solutions to the crisis, ones at odds with those practiced in the US. It is indeed “austerity” (12) that prevails in Europe, and avoids the faltering evident in the US budget.Euroland’s resistance also involves the pooling of public debt. With the launch of “project bonds” (13) to finance EU infrastructure projects, increased pooling is underway, and the way is open for Eurobonds.
A weakened German Chancellor, after the 2013 elections (as we shall see), has little discretion to refuse the Eurobonds requested by the SPD, which will be in the coalition government. Since only the voice of the Germans was lacking on the subject, aside from the banking union, 2014 will be the year of Eurobonds.
Despite the approach of the elections, Angela Merkel has already yielded on the subject of Greek debt (14), a sensitive issue for Germans; but it is of course in her interest to ensure the proper functioning of the Eurozone, a large outlet for the country’s exports.Finally, far from being the foil that the Anglo-Saxon media would make it out to be, the Eurozone is attractive despite the crisis: Poland wants to become a member (15), regional separatists do not envisage an exit from the Euro (16)… Another sign of the fact that it belongs to the “world after” landscape and that it is a zone with visibility within the crisis: it provides shelter to members states from geopolitical tensions.
Euroland : en route towards political union
Thus, with the progress that has been accomplished, and despite a slight recession in 2013, in the view of LEAP/E2020, the end of next year will mark the end of Euroland’s crisis. The worldwide tempest of 2013 will cause disruptions but will not destabilize Euroland, which will find itself well anchored and increasingly sturdy. Though they may not yet be entirely visible, the mechanisms allowing an exit from the current crisis will be set in place starting in 2013, and will gain strength throughout the year, allowing for a clear recovery in 2014.However, for the relief from crisis to last, necessary democratization must be undertaken. This is, furthermore, what the European Parliament (17) is requesting. Paradoxically, the latter is aided by the marginalization of the traditional national parties: in France, the UMP has exploded (18), as predicted in GEAB n°64; in the United Kingdom, Ukip is casting a shadow on the Tories (19); in Germany, the CSU and the CDU are also bogged down in ‘‘their’’ scandals (20)…
This marginalization can be explained by the increasing integration in Euroland: it has become evident to everyone that henceforth the real power is situated at the European, rather than national, level. Therefore it is only natural that the parties are Europeanizing, and Barroso has asked political parties to put forward in the European elections a “principal candidate” for all countries (21), which is a real revolution after 30 years of total deafness to the issue of democratization (22) on the part of European institutions! These 2014 elections, therefore, will consequently be the catalyst for the emergence of Euroland.One word on the Erasmus program, which is now threatened by budgetary shortfalls as a result of austerity measures.
Some politicians no longer have much political sense!! In a full-on crisis of the Euro, which has no doubt been managed efficiently, but contrary to any democratic principle, and by means of rigorous policies that are at times quite painful for the population, and within a context of endemic unemployment, particularly high among the young, the one and only positive European reference, i.e. the Erasmus program, is going to lose not only its financial means (23) but also its name (24)… If a considerable reform of this 20 year-old student mobility program is necessary in order for it to adapt to the immense European stakes of the 21st (25) century, its name must quite obviously be preserved (why drop off the winning team) and its budget must be sufficiently augmented to guarantee its longevity through the new budgetary period that will run from 2014 to 2020, therefore long past the end of the crisis. Show some vision, for goodness sake!
However, national political ambitions are of course always in play, and European advances are evaluated in light of the balance of power between nations. In giving back to France the voice that Nicolas Sarkozy, totally in step with Merkel, caused it to lose, the arrival of François Hollande, has allowed other voices to be heard, has broken the polarization of the Franco-German block against the rest of Europe, and has in brief reopened European debate, and it was certainly time. But the economic powerhouse that is Germany, in comparison notably with the current dreariness of the French economy, confers upon Angela Merkel considerable influence.In the next section we will analyze the future of German politics, and namely the federal elections that will be held in Autumn 2013.
From here on, the Chancellor will be campaigning and will avoid any unnecessary risks and any proposition that could displease the electorate. In this difficult year, the other heads of state will have to succeed in convincing a hesitant Chancellor. To a lesser extent, the situation will continue afterwards as well, for Angela Merkel will be on even more fragile ground after the elections. In this regard, the unblocking of multilateral discussions in Europe is a positive sign.
Notes:
(2) In this present world chaos, Euroland presents many similarities with Switzerland during the European wars of the last century.
(3) “Necessary”, since, as determined by the Euro-BRICS seminar held on September 27-28 in Cannes, by LEAP and MGIMO, without renovated global governance that harmoniously integrates the diverse new global powers, the chaos of 2013 will lead to a multipolar world consisting of opposed blocs, an immense geopolitical danger.
(4) While slowly changing those rules, so that they are no longer just those of the markets: the banking regulations, supervision of credit rating agencies, etc.
(5) As anticipated by LEAP/E2020, the election of François Hollande in France has renewed debates and discussions in Europe. This contrasts with Sarkozy, who blindly followed Merkel, and frustrated those other countries not part of the Franco-German “engine”. The arrival of a new government was experienced by all other Europeans as a relief and a breath of fresh air.
(6) Source: Le Monde, 13/12/2012
(7) Sources : Greek Reporter (11/12/2012) et Business Standard (05/12/2012)
(8) Monti figures to remain influential despite the theatrics of Berlusconi, who has little chance of being elected. Source: Le Nouvel Observateur, 11/12/2012.
(9) See for example Bloomberg (11/12/2012), CNBC (23/11/2012), FoxBusiness (28/11/2012), etc.
(10) The US media has spoken of it themselves: CNBC (26/11/2012) titled The Euro Zone Is ‘Shaping Up Quite Well’ recounts a story of progress in Euroland.
(11) Source: Der Spiegel, 21/11/2012
(12) Austerity remains measured in many countries; in others, it is to get the same effect as monetary devaluation, which the rules of the Eurozone cannot allow.
(13) Source: European Parliament, 05/07/2012
(14) Source: Le Monde, 03/12/2012
(15) Source: Le Monde, 30/11/2012
(16) This is also part of what may explain the difference between polls and the last minute results in Catalonia: just before the election the debate focused on the potential exiting from Europe of the new sovereign region (source elPeriodico, 22/11/2012); together, the CiU and ERC separatist parties then lost a seat in contrast to the stated fears of a tidal wave of separatism.
(17) Source: RTBF, 20/11/2012.
(18) Source: Le Figaro, 26/11/2012.
(19) Source: The Guardian, 26/11/2012.
(20) See infra.
(21) Source: Euractiv, 17/09/2012.
(22) We know of what we speak: for almost the past 30 years, the democratization of the European Union was the warhorse of our Director of Studies and of Strategy, Franck Biancheri, who passed away this past October 30, and who led a very uneven battle against the European and national political and institutional systems that were completely reluctant towards any change in this area. Six years ago, seeing the clouds building on the horizon for the oncoming global crisis, Franck Biancheri knew that at last he held the tool for this democratization: the crisis itself would allow the project of political integration to move forward, by creating a new engine for European construction, lightened from the United Kingdown and therefore adapted to advance a new political union: Euroland.
(23) Source: Le Monde, 05/10/2012
(24) The grouping together of different European educational programs (Comenius, Leonardo, Erasmus, etc.) at first led to the name of “Erasmus for all” then to “Yes for Europe”. Apparently there are Europeans in Brussels who find that for a European educational program, the name of the great Dutch humanist of the 15th century isn’t good enough… They wanted at least a “Yes for Europe” and perhaps even a “Yeah-rope”!! It is essential that such saboteurs of Europe be swiftly brought to reason…
(25) In 2003, Franck Biancheri, who was also one the fathers of Erasmus, wrote, for example, this article entitled : « Erasmus… et après ? » (Erasmus. . . and then what ?), Europe 2020.
-
THE ECONOMIC CRISIS IN EUROPE: AUSTERITY IMPOSED BY THE BANKS, SOARING UNEMPLOYMENT, POVERTY
A two-day summit of European heads of state and finance ministers ended on Friday with general agreement to extend and deepen the austerity measures which have already plunged millions of Europeans into unemployment and poverty while reaping huge returns for the banks.
The original mandate of the December summit was to flesh out proposals originally presented by the European Commission in June this year for moves towards the fiscal and political union of Europe.
During the last six months of fierce haggling between nation states, however, all that really remains of the original “European roadmap” is a firm commitment by all parties to press ahead with their plans for a social counterrevolution across the continent. This was underlined by an opinion piece published in the Financial Times by the vice president of the European Commission, Olli Rehn, three days before the summit. The comment was titled: “Europe must stay the austerity course.”
In the run-up to this week’s summit, European Commission President José Manuel Barroso and European Council President Herman Van Rompuy put forward a series of proposals, including euro zone bonds and some very limited funding for industrial projects, aimed at encouraging bigger European nations to play a greater role in the financial bailout of ailing economies.
In fact, the eurobonds proposal was struck from the agenda even before talks began, and plans by Barroso and Van Rompuy for a European “solidarity mechanism” to encourage growth were whittled down to a pittance by the end of the summit.
At a news conference after day one of the summit, Van Rompuy told reporters he would only present proposals for an embryonic form of “solidarity mechanism” for the summer of next year. In the same breath he made clear that any transfer of funds from the “mechanism” would be dependent on applicant states carrying out cuts and structural reforms.
In her own comments to the press, German Chancellor Angela Merkel stressed that any common euro zone funding for such “solidarity” measures would be minimal. “It’s a question of a very limited budget”, Merkel said. “… maybe €10bn or €15bn.”
The only substantive measure agreed by the summit were moves towards the banking supervision of European banks. Once again on this issue Germany was largely allowed to dictate the agenda.
A week earlier, European finance ministers had been unable to come to a final agreement on moves towards a banking union. The main opposition came from Germany, which is resisting proposals that the European Central Bank be given powers to directly fund bankrupt banks. Germany also opposes European supervision of its dozens of local savings banks which play an important role in funding German industry at a state level.
For its part, France, with the support of a number of smaller European countries, has called for extended powers for the ECB and its ability to supervise all of the continent’s 6,000 banks.
On both issues Germany was able to make an accommodation with France and get its way at this week’s summit. The agreement struck by European leaders on Thursday was that supervisory powers be extended only to around 200 of the continent’s biggest banks and that supervisory operations only commence in March 2014 at the earliest. In comments to the press, the German finance minister, Wolfgang Schäuble, stressed that even at this later date the direct funding of European banks by the ECB was “a relatively unlikely scenario.”
The postponement of supervision of European banks until 2014 means that the policy which permits the European Commission and ECB to dictate harsh austerity terms and exercise control over the economies of countries applying for loans will continue unhindered for the next 18 months.
This is the single most significant decision to emerge from the agreement by a majority of EU members on a European banking union. At the same time, Germany and France plan to tighten the austerity screws by supporting a proposal from the European Commission for establishing “bilateral contracts” with each member of the euro zone. The aim of such contracts is to stipulate labour market and tax reforms aimed at boosting competitiveness.
In an article dealing with the German insistence on such structural reforms the Financial Times noted: “Ms Merkel wants agreement on the parameters to be used to design such contracts, using countries such as China, India and Brazil as benchmarks for global competitiveness.”
While huge new financial injections are being prepared for the banks, the wages and working conditions for the population of Europe are to be reduced to the level of those prevailing in the sweatshops of Asia.
As has been the case for the past five years, Greece is the test laboratory for the social reaction to be introduced all over Europe. On Thursday, euro zone finance ministers finally agreed to pay a loan to Greece which was originally scheduled for June of this year. Payment of the loan was made conditional on the government in Athens introducing yet another round of vicious austerity measures.
Not a cent of the €34 billion loan will end up in the hands of working people and their families struggling to survive after five years of recession. €16 billion are earmarked for re-capitalising Greek banks, €7 billion for the financing of state-owned enterprise and the remaining €11 billion for buying back government debt.
Years more of austerity, misery and crisis for all of Europe. This was the message from the latest European summit. Four years after the outbreak of the finance crisis in 2008, Europe is officially in a double dip recession. Britain is in the throes of a triple dip recession.
Unemployment has soared across the continent and the indebtedness of many leading European nations has doubled or even trebled as the banks rake in billions. And the worst is yet to come.
In her remarks to the press Merkel pointedly praised the austerity measures of Italian prime minister Mario Monti for boosting “trust in Italy in the international markets” and warned at the same time that Europe faced years of pain ahead.
-
DRAGHI’S RALLYING CRY FOR NEW EUROPEAN UNION POWERS
By Michael Steen and Lionel Barber in Frankfurt | The Financial Times
The EU needs fresh powers to wind up failing banks in a speedy push to the next phase of banking union, according to Mario Draghi, president of the European Central Bank, after a landmark agreement on centralised supervision.
The hard-won agreement among eurozone finance ministers on Thursday to appoint the ECB as the “single supervisory mechanism” (SSM) is just the first, and easiest, step in a banking union plan designed to prevent a repeat of the financial contagion that dragged down banks and sovereigns in the debt crisis.
The next phase – agreeing on a common resolution authority to oversee the orderly winding down of insolvent lenders – is likely to be even more fraught, as it implies that taxpayers might have to pay for the mistakes of a bank in another country.
“A European resolution authority is an important complement to the SSM and it will probably be in place by the time the SSM takes up its responsibilities,” Mr Draghi told the Financial Times on the eve of Thursday’s agreement. The bank expects to take a year to prepare itself to assume responsibility for supervising lenders with assets of more than €30bn.
Mr Draghi’s confidence that wind-up powers will be in place by early 2014 comes despite a Franco-German battle about the speed and scope of banking union, with Berlin urging less haste for fear of sharing the burden of losses from winding down a foreign bank.
The bailout authority was due to be discussed at a summit of EU leaders on Thursday night, which followed 24 hours of uncharacteristically rapid decision-making by eurozone ministers.
Only hours after agreeing the framework for a new supervisor on Thursday morning, finance ministers agreed to release a long-delayed €34.4bn aid payment to Greece after agreeing to a contentious debt relief plan. Antonis Samaras, the Greek prime minister, hailed the deal as historic. “Grexit is dead,” he said as he arrived in Brussels.
Asked what the bank would do if Europe’s leaders were not able to agree on a common resolution scheme quickly, Mr Draghi indicated that it would be prepared in effect to shame local supervisors and national governments to take action.
“Even in [the resolution mechanism’s] absence, the single supervisor’s assessment of the possible non-viability of a bank would be such a strong statement that it would likely trigger the national government’s policy response,” he said.
The ECB chief reiterated that the bank was a “passive actor” in the banking union debate – disagreements about which have already laid bare Franco-German divisions over the scope of the banks to be covered and the timing.
However, the ECB also faces risks to its reputation if it finds itself nominally in charge of supervising lenders but unable to enforce its decisions. It will have the power to withdraw banking licences, but not to oversee resolution.
“National authorities will still have to do the job, but they may not be willing or able to do the job,” said Harald Benink, professor of banking at Tilburg university in the Netherlands. He also expressed doubt that a resolution authority could be agreed on soon since “it’s about European burden-sharing and it’s highly sensitive”.
Prof Benink and a group of 14 other banking and regulation experts have called on the ECB to open formal “resolution contracts” with member states. These would give it formal powers to demand banks enter national resolution schemes as a condition of ECB supervision.
-
EUROZONE TO STAY IN RECESSION FOR ANOTHER YEAR
Unemployment in Europe is “unacceptably high” and threatens “grave social consequences”, the European Commission has warned as it painted a gloomy picture of the eurozone’s troubled economy.
-
-
By Rachel Cooper, and agencies | telegraph.co.uk
February 23, 2013
Publishing its winter forecast on Friday, the commission predicted that joblessness in the eurozone will peak at 12.2pc, or more than 19m people, this year as the currency bloc continues to struggle.
Marco Butti, the EC’s director general for economic and financial affairs, described Europe’s labour market as a “serious concern”.
“Employment is forecast to shrink further for some quarters, and unemployment remains unacceptably high in the EU as whole and even more so in the Member States facing the largest adjustment needs,” he said.
“This has grave social consequences and will, if unemployment becomes structurally entrenched, also weigh on growth perspectives going forward.”
Slashing growth forecasts for the eurozone, the EC indicated it will remain mired in recession for a year longer than originally foreseen.
The commission said that the eurozone will not return to growth until 2014, reversing its prediction for an end to recession this year.
Having forecast late last year that the eurozone would grow 0.1pc this year, it changed its position, forecasting that the 17-nation bloc would shrink 0.3pc in 2013.
The delayed recovery, which was blamed on a lack of bank lending and record joblessness, means that the eurozone will remain in its second recession since 2009 for a year longer than originally foreseen.
Next year, the commission expects the eurozone economy to grow 1.4pc.
Olli Rehn, commission vice-president for economic and monetary affairs and the euro said: “The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term.
“The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past, and growing investor confidence in the future.”
“The decisive policy action undertaken recently is paving the way for a return to recovery,” he added.
“We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation.”
-
Table comparing national economic forecasts vs European Commission’s. Source: OpenEurope-
The commission predicted that France’s economy would grow 0.1pc this year and 1.2pc next year. German is expected to expand by 0.5pc in 2013 while Spain is forecast to shrink by 1.4pc this year.
The European Central Bank’s promise last year to do what it takes to defend its common currency has removed the risk of a break-up of the euro zone, and member countries’ borrowing costs have come down from unsustainable levels.
But the damage from the global financial crisis and the ensuing eurozone debt crisis has been greater than expected on the real economy, with global demand for eurozone exports one of the few saviours in terms of generating growth.
-
IMF: GLOBAL ECONOMIC RECOVERY WEAKENING
The International Monetary Fund (IMF) has warned again of a weakening global economic recovery despite government efforts to stimulate growth.
BBC | January 23, 2013
The global economy is likely to grow at a slower rate than previously forecast over the next two years, the organisation said in its latest report.
It said it now expected the eurozone to remain in recession in 2013, having previously predicted growth.
The UK’s growth forecasts have also been revised down.
The IMF said continued problems in the eurozone were weighing on the global economy.
“The euro area continues to pose a large downside risk to the global outlook,” the IMF report said.
“In particular, risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained.”
Same challenges
The eurozone’s economy is now forecast to shrink by 0.1% this year. Just three months ago the IMF had forecast 0.2% growth.
Earlier there were signs that some confidence had returned to European markets, with Portugal returning to the bond market to borrow money from investors for the first time since seeking a eurozone bailout in 2011.
Its offering of 2bn euros of five-year bonds was four times oversubscribed by investors.
But overall, the IMF now forecasts that the world economy to grow by 3.5% this year and 4.1% in 2014, 0.1 percentage points lower than stated in October’s forecasts.
Most of that growth is predicted to come from developing economies, rather than the developed countries still emerging from recession.
Earlier this month, the World Bank also cut its global growth forecasts blaming the slow recovery of developed nations.
The prospects for the UK’s economy have also worsened in the last three months, the IMF forecasts suggest.
Previously it forecast growth of 1.1% this year and 2.2% next year. That has now been revised down to 1% and 1.9% growth respectively.
The IMF said the challenges facing developed economies remained the same.
“Most advanced economies face two challenges. First, they need steady and sustained fiscal consolidation. Second, financial sector reform must continue to decrease risks in the financial system,” the report said.
“Addressing these challenges will support recovery and reduce downside risks.”
-
IMF REPORT POINTS TO GROWING FINANCIAL INSTABILITY
Feb 12, 2013
Global Financial Stability Report published by the International Monetary Fund (IMF) makes clear that the threat of a complete meltdown of the international financial system remains. And the dangers of such an event are increasing. The International Monetary fund has reports that the global financial system is going into a state of instability. The most immediate concern is the Euro zone which is going in the opposite direction of all analyzed and projected currency flow. Instead of liquid money being recycled back into the economies of the needy “Periphery” Euro zone it is all being stored in banks in the core Euro zone economy. This is defeating the entire purpose of creating the euro which was to have a stabilizing affect across all the countries.
If this fragmentation of the Eurozone economy continues it will mean an attack on the global economy. As well as the Euro zone, The IMF has commented on Japan and The United states as two key factors towards the growing instability of the global financial system, the biggest concern being Japan because it is so close to the situation in European countries. If domestic Japanese banks keep investing in government bonds and at any point there was a fall in bond prices then the capital loss incurred by the banks would lead to another Euro zone like crisis.
Because of these perceived threats the IMF is encouraging austerity measures and putting the burden on the workers. They are framing these measures in such a way as to hide the fact that the burden will be placed on the working people.
-
IMF SEES EUROPEAN BANKS FACING $4.5 TRILLION SELL-OFF
The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18 percent from its April estimate.
Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks fromUniCredit SpA (UCG) to Deutsche Bank AG (DBK) to shrink assets, the IMF wrote in its Global Financial Stability Report released today. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.
“There is definitely a need for deleveraging in Europe,” said Michael Seufert, an analyst at Norddeutsche Landesbank in Hanover, Germany, with a “negative” rating on the European banking sector. “The danger is that this produced a downward spiral as the regulation gets stricter and stricter and the global economy cools, potentially meaning more writedowns for banks. States in the periphery are hit hardest.”
The IMF doesn’t need to lend money to Spain to help the country tackle its fiscal crisis, Managing Director Christine Lagarde indicated today. The Washington-based fund earlier this week cut its global growth forecasts and warned of even slower expansion if European officials don’t address threats to their economies.
‘Credible Conditionality’
Asian stocks fell for a third day today on global growth concerns, with the MSCI Asia Pacific Index down 0.9 percent. The Stoxx Europe 600 Index declined 0.2 percent at 2:14 p.m. in Frankfurt and the euro was little changed, trading at $1.2893.
While the European Central Bank’s plan to purchase bonds of debt-burdened countries has pushed down bond yields, officials are waiting for a bailout request from Spain before putting the program into action.
See the Latest Data: Euro zoneeconomies and the European debt crisis
The European rescue mechanism and the ECB bond program “must be regarded by markets as real, not ‘virtual’ and should be coupled with credible conditionality,” Jose Vinals, the director of the IMF’s monetary and capital markets department, said in prepared remarks for a press conference in Tokyo today.
ECB President Mario Draghi in July pledged to do “whatever it takes” to preserve the monetary union, which has been battered by a three-year debt crisis triggered by Greece’s hidden budget shortfall. He said in September that the Frankfurt-based bank may buy the bonds of nations that submit to the conditions of a rescue loan to lower yields.
‘QE-Type’ Program
Jose Manuel Gonzalez-Paramo, a former ECB Executive Board member, said in an interview in Madrid that the central bank could offer more long-term loans such as the three-year operations it introduced last year or ease collateral rules to feed more liquidity into the European economy. There’s “nothing that prevents the ECB from executing some QE-type” program, he said, referring to quantitative easing.
Still, Germany’s Bundesbank openly opposes Draghi’s plan to buy bonds on the secondary market, saying it comes too close to financing governments. ECB council member Jens Weidmann said in a speech in Frankfurt today that central banks “have to remain independent and they have to have a mandate that puts the goal of stable money ahead of all others.”
Since Draghi’s pledge, the yield on Spain’s 10-year bond has fallen from above 7.6 percent to 5.8 percent today. Prime Minister Mariano Rajoy, who meets his French counterpart Francois Holland in Paris today, has said he is still weighing up whether his country needs a bailout since the ECB’s safety net has already offered investors some reassurance and lowered borrowing costs.
Economic Slump
Still, governments may find it more difficult to plug their budget gaps as the euro-region economy shows signs of a deepening slump. Euro-area services and manufacturing industries contracted in September and economic confidence dropped. Unemployment held at 11.4 percent in August, a record.
“Some people say unless you have skin in the game, meaning money, you are not really respected, you are not heard,” the IMF’s Lagarde said in a Bloomberg Television interview with Sara Eisen in Sendai, Japan. “I am not so focused on that as I am on the monitoring. I think we would rather act in our framework, use one of the tools that is frequently used, but as I said we can be flexible.”
The fund is helping monitor a 100 billion-euro bailout of Spanish banks and is co-financing rescue packages for Greece, Ireland and Portugal. While the ECB has said the IMF should be involved in overseeing the economic programs of countries asking the central bank to buy their bonds, the fund’s exact role has not yet been defined.
Industrial Output
In France, industrial production unexpectedly increased in August, rising 1.5 percent from the previous month, when it advanced 0.6 percent, French statistics office Insee in Paris said today. Italian output also increased, rising 1.7 percent in August from July, a separate report showed.
The IMF said that “both Spain and Italy have suffered large-scale capital outflows” in the 12 months through June, with $296 billion and $235 billion, respectively.
“Unless confidence in the euro area is restored, fragmentation forces are likely to intensify bank deleveraging, restrict lending, add to the economic woes of the periphery, and spill over to the core,” the IMF said.
Baseline Scenario
In April, the IMF forecast asset sales of $3.8 trillion in a “weak policies scenario.” Since then, policy makers’ delay in taking decisions to solve the crisis worsened funding pressures while the relief provided by the ECB’s program of unlimited three-year loans faded.
Under a baseline scenario that has governments follow up on their commitments, the IMF sees a reduction in bank assets of $2.8 trillion, compared with $2.6 trillion in April.
“Intensification of the crisis has manifested itself in capital outflows from the periphery to the core at a pace typically associated with currency crises or sudden stops,” the IMF said. “Restoring confidence among private investors is paramount for the stabilization of the euro area.”
Bank deleveraging is being driven by five main factors, the IMF said. The impact of weaker earnings and higher asset impairments on capital level funding pressures from frozen interbank markets and declining deposits, growing trend for banks to match loan and deposit levels in some subsidiaries, pressure to increase domestic government bond holdings at the expense other assets as well as rising sovereign debt spreads.
$600 Billion
So far, the IMF estimates that deleveraging among sample banks has reached more than $600 billion in the year through June. Progress has been most pronounced among U.K. banks, which have cut non-core business, French banks, which have reduced U.S. dollar-denominated assets including structured products and Dutch banks, which have sold subsidiaries in the Americas, the IMF said. Efforts to raise capital cushions have helped strengthen balance sheets and prevent larger asset sales, it said.
Looking at other countries, the report stressed that the U.S. and Japan also face risks to financial stability.
“The present difficulties in the euro area provide a cautionary tale for Japan, given the latter’s high public debt load and interdependence between banks and the sovereign that is expected to deepen over the medium term,” the IMF said.
While emerging markets have managed to weather global shocks so far, the IMF said many countries in central and eastern Europe are vulnerable to the European turmoil, while Asia and Latin America seem more resilient.
In Asian economic releases today, South Korea said its workforce expanded last month, with the unemployment rate unchanged from August at 3.1 percent. A report on Australian consumer confidence for October showed sentiment climbed.
IMF SEES ‘ALARMINGLY HIGH’ RISK OF DEEPER GLOBAL SLUMP
The International Monetary Fund cut its global growth forecasts as the euro area’s debt crisis intensifies and warned of even slower expansion unless officials in the U.S. and Europe address threats to their economies.
The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said today, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown, with a one-in-six chance of growth slipping below 2 percent.
“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component,” the IMF said in its World Economic Outlook report. “The answer depends on whether European and U.S. policy makers deal proactively with their major short-term economic challenges.”
The IMF’s 188 member countries convene in Tokyo this week as low growth damped by fiscal consolidation in the richest economies hurts developing counterparts from China to Brazil. As the IMF urged measures to boost confidence, uncertainties out of Europe show no sign of abating, with leaders still divided over a banking union and Spain resisting a bailout.
Confidence Fragile
“Confidence in the global financial system remains exceptionally fragile,” the IMF said. “Bank lending has remained sluggish across advanced economies” and increased risk aversion has damped capital flows to emerging markets, it said.
European stocks were little changed as the region’s finance ministers met in Luxembourg to discuss the sovereign-debt crisis. The Stoxx Europe 600 Index slipped less than 0.1 percent at 11:02 a.m. in London.
In Seoul, World Bank President Jim Yong Kim told a forum today that he saw mildly encouraging signs in Europe. In Tokyo, IMF Chief Economist Olivier Blanchard indicated that yields on Spanish and Italian bonds, which decreased after the European Central Bank’s bond-buying plan announcement, could rise if the countries don’t request bailouts.
The IMF report called for U.S. policy makers to find an alternative to planned automatic tax increases and spending cuts that would trigger a recession. Europeans must follow on their commitments for a more integrated monetary union, and many emerging markets can afford to cutinterest rates or pause tightening to fight off risks to their economies, the IMF said.
“It is a call to action,” Blanchard told Bloomberg Television.
Europe’s Contraction
The 17-country euro area economy will contract 0.4 percent this year, 0.1 percentage point worse than forecast in July, and grow 0.2 percent in 2013, less than the 0.7 percent predicted three months ago, the IMF said.
The U.S. is seen expanding 2.2 percent this year, higher than an earlier forecast, and growing 2.1 percent next year, less than previously predicted. Japan’s estimate was cut to 2.2 percent this year and to 1.2 percent in 2013.
Spain’s economy will shrink 1.3 percent next year, 0.7 percentage point worse than predicted in July. German growth is seen at 0.9 percent each year, with the 2013 estimate half a percentage point less than previously forecast.
“Spain and Italy must follow through with adjustment plans that re-establish competitiveness and fiscal balance and maintain growth,” Blanchard wrote in a foreword to the report. “To do so, they must be able to recapitalize their banks without adding to their sovereign debt. And they must be able to borrow at reasonable rates.”
Emerging Economies
Growth forecasts were also lowered for emerging markets, where domestic factors add to external constraints, the IMF said. Brazil had some of the steepest cuts, with growth seen at 1.5 percent this year from 2.5 percent and 4 percent next year.
India’s economy may grow 4.9 percent this year and 6 percent next year, lower than previous forecasts of 6.2 percent and 6.6 percent respectively. China’s estimate was cut by 0.2 percentage point each year to 7.8 percent in 2012 and 8.2 percent in 2013.
Monetary policy should remain accommodative in developed economies, with expectations for slower inflation giving the European Central Bank “ample justification for keeping policy rates very low or cutting them further,” the IMF said. The Bank of Japan may need to ease further, it said.
Other risks to the global economic outlook in the short term include a renewed increase in oil prices and an inability to raise the U.S. debt ceiling, it said.
The IMF forecasts assume oil at $106.18 a barrel this year and $105.10 next year, based on the average prices of U.K. Brent, Dubai and West Texas Intermediate crudes. That compares with estimates of $101.80 and $94.16 in July.
Japan’s Trade
In economic releases in the Asia Pacific region today, Japan reported a larger-than-estimated 454.7 billion yen ($5.8 billion) current-account surplus. In Australia, business confidence recovered in September as the prospect of interest- rate reductions overshadowed weaker sentiment among miners and manufacturers, a private survey showed.
In South Korea, the central bank said today that the nation’s economy faces increased external risks and the finance ministry said it will step up efforts to boost growth.
In Europe, the U.K. may report today that industrial production fell in August, a Bloomberg News survey of economists indicates.
WORLD TRADE ORGANIZATION CHIEF WARNS OF LOOMING POLITICAL UNREST
Feb 7, 2009
BERLIN (AFP) — The global economic crisis could trigger political unrest equal to that seen during the 1930s, the head of the World Trade Organization (WTO) said in a German newspaper interview Saturday.
“The crisis today is spreading even faster (than the Great Depression) and affects more countries at the same time,” Pascal Lamy told the Die Welt newspaper.
Questioned about the risks of political instability, Lamy — who wraps up his four-year term as WTO director-general in September — responded that that was “the main danger”.
“This crisis weighs heavily on politics and puts peace in danger,” he said.
“Some democracies are old and sufficiently stable to overcome such problems, (but) others are going to be confronted by unrest and inter-religious and inter-ethnic conflicts.”
He went on to warn against protectionism, saying it would be “wrongly easy” for nations to throw up trade barriers in response to the economic and financial downturn.
Launched in January 1995, and now with 153 member states, the WTO’s mandate is to liberalise international trade.
GLOBAL ECONOMIC CRISIS: EUROPE SLIDES DEEPER INTO RECESSION
According to figures released Monday by the European Union statistics agency, Eurostat, industrial output across the 17 countries of the euro zone fell in November for the third successive month.
The 0.3 percent decline for November was worse than forecast by financial analysts, who had anticipated a slight recovery. Compared to the same month in 2011, industrial production in the euro zone was down by 3.7 percent.
Separate figures released Monday revealed that Europe’s biggest economy, Germany, suffered a sharp contraction in the final quarter of 2012. The German economy, which accounts for 28 percent of all gross domestic product (GDP) in the euro zone, contracted by 0.5 percent. This slashed Germany’s growth rate for all of 2012 to just 0.7 percent, down sharply from the country’s growth rate of 3.0 percent in 2011.
The most significant expression of the economic downturn in Germany is the slump in investment by German companies in plant and machinery. Despite benchmark interest rates close to zero as set by the European Central Bank, investment in plant and machinery fell by 4.1 per cent during 2012. This compares to a 7.3 percent growth in such investment one year earlier.
In line with the latest figures, the German government has cut its forecast for economic growth in 2013 from an already meager 1.0 percent to just 0.4 percent.
The decline in investment in plant and machinery is the clearest indication that German executives expect the contraction in the country’s key economic markets in Europe to continue and deepen. German exports to Europe declined by 2.0 percent in 2012. A full-scale disaster was prevented only by increased German exports to North America, Mexico and the Far East.
Germany’s export industry is also threatened by the rise in the value of the euro, which has gained 8 percent against the US dollar in the past six months. At a meeting of business leaders in Luxembourg at the start of this week, the outgoing head of euro-area finance ministers, Jean-Claude Juncker, expressed concern over the rise in the value of the euro for European exports.
Germany is currently the only major European country to be experiencing even a minimal level of growth. According to figures from the French Central Bank, the continent’s second largest economy, France, barely avoided sinking officially into recession by posting 0.1 growth in the third quarter of 2012. In both the second and fourth quarters the national economy contracted.
Inside the euro zone itself, seven countries are officially in recession, with Greece, Portugal, Spain and Italy mired in deep slumps. Outside the euro zone, Great Britain is expected to slide into a “triple dip” recession in 2013.
The increasingly precarious nature of the European economy is underscored by the situation of one of its key industries—auto. Although some German companies, in particular Volkswagen, were able to expand their sales in some parts of the world, auto markets in Europe are shrinking dramatically. VW sales dropped by 6.5 percent in Western Europe, excluding Germany.
According to the region’s biggest car makers, new car registrations in the European Union fell by 8.2 percent in 2012 to a little more than 12 million units, the lowest level since 1995. In Germany, the drop in car sales was relatively modest—2.9 percent in 2012 compared with the previous year, but in other European countries the slump was far more pronounced.
Auto sales in Spain fell by 13.4 percent, in France by 13.9 percent and in Italy by 19.9 percent. Auto registrations in Greece slumped by over 40 percent compared to 2011.
The recession in the auto industry is worsening. December was the worst month for new car registrations in 2012, declining by 16.3 percent across the EU. Auto sales have now been falling for the past 15 months.
Auto makers have responded to the downturn in sales with a new wave of job cuts. A month ago, GM-Opel announced it was winding down its operations at its German plant in Bochum.
Just last week France’s Peugeot-Citroen reported a 16.5 percent fall in sales worldwide, blaming “the crisis affecting the European automobile market,” and on Tuesday, Renault announced plans to cut 7,500 jobs in France by 2016.
Across the channel, the Japanese carmaker Honda issued a statement Friday announcing 800 job cuts at its UK plant near Swindon, citing the fall in demand across Europe.
The economic and social catastrophe enveloping Europe is being intensified and exploited by the European ruling class to slash the wages and social conditions of the continent’s workers to a level approaching those in the special economic zones of China and the Far East.
Fully aware of the dire social implications, European leaders are determined to intensify austerity measures. In his discussions Monday with Alexis Tsipras, leader of the Greek SYRIZA movement, German Finance Minister Wolfgang Schäuble declared once again that there is no alternative to austerity in Europe.
The lack of profitable returns in European industry combined with the readiness of the world’s leading central banks to make virtually interest-free credit available to the banks is fueling a new junk bond bubble. The Financial Times on Monday noted that the year 2012 was characterized by a “dash for trash in global markets,” and, in a reference to the financial crash of 2008, evoked a “sense of déjà vu.”
NIGEL FARAGE: MY OUTLOOK FOR EUROPE AND THE GLOBE IN 2013
“What really has me worried, and this may go beyond 2013, but I think the one thing that is going to change is we’ve been through a period, since 2008, of interest rates being virtually zero. During that period of time, governments have racked up vast, vast amounts of debt, and are continuing to run huge budget deficits.”
“I noticed at the end of last week that the 10-Year British bond suddenly traded out at 2%. That to me is a marker. It’s a marker that says, ‘Low interest rate environments don’t last forever.’ Actually, as you and I have discussed before, all of these programs, such as QE, in the end must be inflationary.
And I think we are going to be heading into a world of rising interest rates. That is when our governments, who are continuing to run these deficits, are going to be in real, real trouble….
“I know it’s a small country compared to America, but take the UK, debt repayment on our national debt annually is already bigger than our defense budget. But that’s with interest rates where they are at the moment. What happens if rates become 2%, 3%, 4%, 5%? The implications of that for government finances, and perhaps worst of all for taxpayers, are almost too horrible for anybody in politics at the moment to even think about.
I’m focusing my mind and my thoughts going ahead on my concerns about interest rates. And I shall continue to make the argument that Western governments, if they are going to continue to have any ascendancy in terms of the world, are going to have to start getting these budget deficits under control, or that transfer of power from West to East will just accelerate.”
Farage also added: “The Commission President, Mr. Barroso, said yesterday (paraphrased), ‘The euro crisis is all over. Everything is fine and dandy. So you can pack your bags, euro skeptics, and go home. There is nothing to see here, move along now.’ Well, I can only conclude that he’s an idiot. I mean, what other conclusion could one possibly draw?
Yes, it’s true that Mr. Draghi, the President of the ECB, a few ago months said, ‘We will do whatever it takes (to save the euro).’ And Mrs. Merkel in her election year has made it clear that the Germans will throw as much as they can at it to stop it cracking before those elections in the autumn of this year.
But nothing has changed. The fundamentals haven’t changed. Youth unemployment is still nearly 60% in those Mediterranean countries. The economies are still contracting. They are still being asked to fulfill measures that are frankly totally unsustainable in every way. So, to say that it (the crisis) is over is just ridiculous. The crisis is resting, but no more than that.”
Eric King: “Nigel, I did want to ask you about Greece. From Bloomberg:
“Greece is facing a heating oil crisis. With an economy that has contracted for 5 years and an unemployment rate at a record 25%, residents in Northern Greece can’t heat their homes. Kastoria hasn’t received funds from the central government to warm schools, and the mayor said he will close all 53 of them rather than let the children freeze. At a Kastoria senior center several dozen gray haired men play cards. Among them is Kostas Tsitskos, who said the suffering he sees now reminds him of the devastation caused by the German occupation in World War II. “People were looking in the garbage for food then and they are now. In World War II, people were selling furniture for food. If the situation continues now, we will be selling our furniture.”
Your thoughts on what’s happening in Greece?”
Farage: “Do you know what I’m going to do? I’m going to take that story about the heating oil, and the fact that schools may have to close, and the sheer level of desperation that many people not just in Athens, but outside of Athens that the people are going through, and next Wednesday when I meet Mr. Barroso face to face in the European Parliament, I’m going to ram it down his throat, and tell him, ‘You know, you may think the euro crisis is over, but just look at the misery you’re inflicting upon these people. Do not be surprised when they rebel against you, because in the end, it will be all they’ve got left.’
I’ve been warning on this show for years that we were headed to a very bad place. And do you know something? We’re almost there.”
-
803 YEARS OF GLOBAL INFLATION
by Tyler Durden | ZeroHedge
Spot the point in this 803 year timeline of world inflation, when the Fed was created. 
The chart above comes courtesy of Jim Reid’s fantastic “Journey into the Unknown” which we will dissect in much more detail shortly. For now we wanted to bring our readers attention to what is arguably the most important aspect of modern monetary times: the advent of persistent inflation, and the disappearance of deflation.
Figure 18 shows median global inflation first from 1209 (left) and then from 1900 (right). As we’ve discussed in previous notes inflation took on a totally different persona after the start of the twentieth century. The charts are again on a log scale to allow us to easily see the near exponential increase in inflation over the last 100 years or so, especially relative to what occurred before. Note that had we used average instead of median, the chart would look almost absurd given the extreme levels of hyperinflation seen in several countries over the last century. The data behind the graph is based on a full set of 24 countries where we have inflation data back to 19001. Prior to this many countries have data that goes back several decades with some back through the centuries. We have included data as and when it becomes available.
It’s not just the general trend of higher prices, it’s the fact that even single years of deflation have been increasingly hard to find globally over the last century. Figure 20 shows the same data set as used above but shows the median YoY inflation back to 1209 (left) and over the shorter period since 1800 (right).
Prior to the twentieth century years of deflation were almost as common as years of inflation. However as discussed above, this all changed over the last 100 years or so. Indeed we haven’t seen a year of deflation on this median Global YoY measure since 1933. So we’ve now had nearly 80 years without a global year on year fall in prices.
Figure 21 extends this analysis showing the percentage of countries in our sample with a negative YoY inflation print and the total number of countries in our sample each year. The number of countries in annual deflation has certainly fallen over the last 100 years and particularly since the Gold Standard link was broken in 1971. Indeed since 1987 no more than 2 countries (out of the maximum 24 in our sample) have seen deflation in any one year and in most cases one of these two countries was Japan.
So although the last 30 years has been a period where inflation was perceived to be under control across the globe, there has generally been a persistent positive bias not seen through longer-term history. The break with Gold has ensured that countries can mostly ensure they don’t have deflation by being free to conduct money creation policies.
Although the hyperinflation list perhaps isn’t 100% inclusive, the trend is absolutely beyond dispute. The 1980s and 1990s saw the vast majority of the examples of these occurrences through history. Although all these have been outside of the developed world, this region has also seen many countries with high inflation over the period and with wide divergence between countries.
Much more coming: in terms of both Reid’s report, and inflation.
-Art Cashin: Key Indicator That Just Spiked Is Huge Warning. It took the United States 200 years to get to a certain level of national debt. It took us something like 20 years to then double that. Then, in a matter of 3 years we’ve quintupled it. Up until now it has not been a burning problem, and the reason is fear. You have to lend money or spend money to get inflation. That having been said, the Federal Reserve Bank of St. Louis puts out what is called the ‘Monetary Stock.’ It is the ‘raw material’ of the money supply, and it has been dormant throughout the year.
The report for the first part of this year suddenly spiked higher, and it’s something that I’m going to keep a very close look at. It may be, and there is some seasonality, but I think people need to begin watching the money supply, particularly the M2, and see if that starts to accelerate. If the velocity of money begins to accelerate and M2 begins to move up, then you will begin to hear people talking about or at least worrying about inflation again.
That could be the really critical story for the next month or so (Bond) vigilantes will require some sign that inflation is beginning to show. That’s why I will be watching that spike in the monetary stock, and I will look to see if M2 begins to grow rapidly and the velocity of money begins to flow. If money begins to change hands rapidly, the risk of inflation rises dramatically. I will tell you this, historically, throughout hundreds of years, you have virtually never seen the expansion of available money and assets as we’ve seen here without inflation popping up.
Now that having been said, we’re living in the exceptional world, if you would. But you go back and look at history, you look at things like the Weimar Repulbic in Germany in the 20s. There it was very strange too because they actually printed money, and for months no inflation showed up, even though the money supply was increasing and increasing. Somebody once asked a famous literary character (who lived through the Weimar hyperinflation) how did he go broke? He said, ‘Slowly and then suddenly.’ The Weimar Republic saw inflation develop very slowly, and then suddenly. Once it developed it was almost like Zimbabwe except it was in a major nation, and destroyed the moral values of a whole civilization and basically led to the underpinnings of World War II. Read more here-http://bit.ly/14SRhRC
THE INFLATION MONSTER
How Monetary Policy Threatens Savings
By Ferdinand Dyck, Martin Hesse and Alexander Jung | Der Spiegel
Germany’s central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country’s monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.
The confidence of visitors, however, is seriously shaken in the museum shop, just before the exit, where, for €8.95 ($11.65) they can buy a quarter of a million euros, shredded into tiny pieces and sealed into plastic. It’s meant as a gag gift, but the sight of this stack of colorful bits of currency could lead some to arrive at a simple and disturbing conclusion: A banknote is essentially nothing more than a piece of printed paper.
It has been years since Germans harbored the kind of substantial doubts about the value of their currency that they have today in the midst of the debt crisis. A poll conducted in September by Faktenkontor, a consulting company, and the market research firm Toluna, found that one in four Germans is already trying to protect his or her assets from the threat of inflation by investing in material assets, for example.
Germans Fear Assets at Risk
The German economy may be doing relatively well, with low unemployment and better economic performance than in many other industrialized countries. But Germans sense that they will end up paying for the current debt crisis, one in which politicians and monetary watchdogs are playing for time, through inflation that will gradually reduce the value of their savings.
It’s a silent but insidious and cold form of expropriation that has now begun.
Andrew Bosomworth can offer some insights into how this form of indirect theft of assets is taking place. When Bosomworth, the head of portfolio management in Germany for PIMCO, the world’s largest investment management firm, talks about the calamity that the debt crisis will bring upon mankind, he sounds like a concerned doctor. “The industrialized world is stuck in a severe debt and growth crisis,” he warns. “The central banks are fighting the disease with monetary infusions of previously unknown proportions, and the side effect is a slow but dangerous devaluation of money.”
Bosomworth argues that a gigantic redistribution from the bottom to the top has begun. “Gradual inflation has a numbing effect. It impoverishes the lower and middle class, but they don’t notice,” says Bosomworth. He believes that the Germans’ fear of inflation is more than justified.
For the past five years, governments from Berlin to London and from Brussels to Washington have been in crisis mode. They rescued the banks in 2007 and 2008, then they stimulated the economy and, since 2010, have threatened to drown in their own debts. The burdens are being pushed up the line, from private investors to central banks and government bailout funds. But this doesn’t make the debts any smaller. In fact, the opposite is true, as the example of Greece and other countries shows.
Governments Accepting Higher Inflation
Since September, when the central banks of the United States, the euro zone, Great Britain and Japan jointly announced their intention to pump even more cheap money into the financial markets, the people have become increasingly aware of the growing influence of highly indebted governments on central banks. They also recognize that governments seem to be willing to accept higher inflation if it facilitates debt reduction.
The official inflation rates are still moderate. According to recent figures, consumer prices rose by 1.7 percent in the United States, 2.2 percent in Germany and 2.6 percent in the euro zone as a whole, compared with the goal of about 2 percent inflation set by the European Central Bank (ECB). Nevertheless, economists, like American Nobel laureate Paul Krugman and Peter Bofinger, a member of Germany’s Council of Economic Experts, which advises the government in Berlin, believe that fears of a new era of inflation are nothing but hysteria. They argue that unemployment is too high and demand is too weak for companies to be able to achieve higher prices in the long term.
But perhaps the public does have a good nose for what is really happening, because consumer prices don’t tell the whole story. “The inflation debate is being conducted in an extremely abbreviated way,” says Thomas Mayer, a former chief economist at Deutsche Bank who still serves as an advisor to the company.
“The consumer price index does not reflect major purchases, like real estate, so that perceived inflation is higher than official inflation. Real consumer buying power is consistently declining.” And didn’t Anshu Jain, the new co-CEO of Deutsche Bank — who as a man born in India is less likely to be burdened by thoughts of hyperinflation that worry many average Germans — recently declare, with great conviction, that inflation will come?
The truth is that inflation isn’t some specter. It’s already here — still halting, but unmistakable and insidious.
It is evident at gas pumps in Germany, where the price of gasoline reached a new record high in September of €1.70 per liter (about $8.35 a gallon). It’s evident in real estate ads, which reveal considerable price increases in major cities like Munich, Hamburg and Berlin. And it’s also reached the precious metal markets, where gold is currently being traded at the record price of $1,775 per ounce.
Inflation, in the form of inflation of asset values, is already taking place in the financial markets.
The new price bubbles are being fed with cheap money from central banks, as well as by investors and savers fleeing into supposedly safe material assets. And there is something else people have figured out: If they are earning minimal interest or no interest at all on their savings, a hint of inflation is already chipping away at reserves.
The Flood of Money from Central Banks
One word from Italian economist Mario Draghi on Sept. 6 was enough to trigger jubilation in the financial markets. “Unlimited,” the head of the European Central Bank (ECB) said, along with his trademark crooked smile. What he meant was that the ECB would buy unlimited quantities of government bonds from euro-zone countries if they requested aid from the European Stability Mechanism (ESM), the permanent euro bailout fund that went into operation this week, and accepted the conditions of their euro partners — a statement Draghi reiterated last Thursday.
The ECB has already spent more than €200 billion on government bonds, and now the central bank’s balance sheet could continue to swell. The mood in the markets was further improved when the central banks in London and Tokyo also announced their intention to continue their bond purchase programs and, above all, when “Helicopter Ben” Bernanke, chairman of the US Federal Reserve, lifted off for another rescue flight.
In a speech in 2002, Bernanke cited economist Milton Friedman, who had once recommended throwing money out of a helicopter to avert deflation, which is when prices decline throughout the economy.
Bernanke certainly earned his nickname with his announcement, on Sept. 13, that the Fed would buy up $40 billion in mortgage loans every month to bolster the housing market and stimulate demand. It’s the third load of money that “Helicopter Ben” is tossing out over America since 2008. The Fed’s balance sheet already contains close to $3 trillion in government bonds, mortgages and other securities.
But that isn’t everything. The prime rate has been at zero since the end of 2008, and now Bernanke has announced that banks will likely be able to continue borrowing money for free from the Fed until at least mid-2015. “Helicopter Ben” is promising not to land before the American economy takes off and there is a significant drop in unemployment.
That may all sound good and well, but it no longer has very much to do with monetary policy.
In the eyes of PIMCO executive Bosomworth, Bernanke’s approach marks a departure from the Fed’s independence. “We are experiencing a ‘reverse Volcker moment’ in the United States,” he says. What he’s referring to is this: After the oil crises of the 1970s had driven up inflation in the United States, former Fed Chairman Paul Volcker rigorously combatted inflation with high interest rates. During that period, the Fed emancipated itself from the government’s influence. “Today the Fed is increasingly becoming subservient to fiscal policy,” Bosomworth says critically.
The US government debt has just exceeded the $16 trillion threshold. Inflation could help reduce this enormous mountain of debt. “The alternative is to reform and save — and to accept higher unemployment as a short-term consequence,” says Bosomworth. “But that isn’t as attractive politically.”
Instead, the US government is behaving the way governments have always behaved when their debts have gotten out of hand. The history of money is a history of almost constant devaluations.
The Return of Inflation
It began in the 4th century B.C. with Dionysius, the tyrant of Syracuse. When he was broke, he had all coins collected and re-minted, turning one drachma into two. He then returned half of the new coins to the people and used the other half to pay his debts.Later on, following the introduction of paper currency, monetary value could be manipulated even more easily. Now all it took was a money-printing press to inflate the money supply and devalue the currency. This was how the German Reich, overwhelmed with war debts and reparation claims after 1918, averted national bankruptcy, albeit at the cost of galloping inflation. The trauma of 1923 can still be felt to this day.
For American economist Friedman, this historic borderline experience was the best proof of a relationship between the money supply and inflation. The central message of the so-called monetarist is that if the volume of money is expanded while the supply of goods remains unchanged, inflation will be the inevitable outcome. Inflation, Friedman said, “is always and everywhere a monetary phenomenon.”
But inflation can also be triggered by rising costs — when, for example, workers succeed with their demands for higher wages or spending on commodities imports rises. This happened in 1973, when the increase in the price of oil raised the overall price level. Psychology also plays a role. When people lose their faith in money and question its stable value, a dangerous dynamic can develop as a result.
Many developments that have led to inflation in the past are evident once again today. The central banks are printing money, high commodity prices are driving up costs and both businesses and households distrust the stability of banks and, to some extent, that of the political system. But no one really knows when and to what extent this mélange will lead to inflation.
The central banks, by flooding the markets with money, are still offsetting the reluctance of commercial banks to lend money. At some point, however, the floodgates will have to close and will in fact do so, as those who are optimistic about inflation, like German expert Bofinger, believe. But will the central banks truly step on the brakes?
Economist Mayer is especially skeptical when it comes to the United States. “When the Fed raised interest rates in 2006 to offset inflation, the US real estate bubble, which the Fed and the government had helped to inflate, burst,” says Mayer. “After that experience, the Fed is unlikely to decisively step on the brakes this time.” And that is precisely when the ECB will struggle with raising interest rates again, because if the gap in interest rates between Europe and the United States becomes too large, the euro will likely appreciate, jeopardizing the economic recovery.
An Acceleration in Prices
The large money supply is already indirectly stimulating prices today. International borders no longer apply in the global financial game of Monopoly. “The US’s extremely loose monetary policy affects large emerging economies like China, which don’t have these problems,” says Mayer. “Interest rates are too low there, and the main problem there is that the economy is becoming overheated.” Through these growing markets, hungry as they are for commodities and machinery, the acceleration in prices could also increase in Europe.
As early as the 1990s, globalization prompted economists like Briton Robert Bootle to proclaim the “end of inflation.” They conjectured that higher wages and prices could no longer be achieved, due to cost pressure from the emerging economies. “For a long time, globalization slowed down rising prices. But the effect is running out, and the example of Foxconn shows that the limits of outsourcing have been reached,” says major investor Bosomworth.
One day, the name Foxconn could become a beacon for the end of an era in which globalization kept inflation in check. There has been unrest in recent months at the Taiwanese technology company, which operates plants in China that produce for Apple. Workers in emerging economies are increasingly demanding higher wages and better working conditions.
It is possible that weak demand in Europe will continue to prevent the company from achieving significantly higher prices for a long time to come, particularly given that the United States, with its policy of the weak dollar, has set a devaluation race in motion to boost its export economy. If Europe loses this currency war and the value of the euro rises, it could become even more difficult for the struggling peripheral countries to get back on their feet.
If this does happen, it will be yet another indication that inflation is already here, although it is largely restricted to the financial markets today. “Monetary policy drives the prices of financial instruments more strongly than growth and employment,” Bosomworth says, explaining the phenomenon. “In this way, it drives a dangerous wedge between the financial economy and the real economy.” The first consequences can already be seen today.
The Bubble Economy
The German Stock Index, or DAX, is above 7,000, a level normally seen in the best of times, even though there is every indication that the economy is cooling down. The situation with the commodities markets is similar. For months, the price of a barrel of crude oil has been almost consistently above $100.
Anyone who can afford it is seeking protection from inflation and fleeing to material assets. This includes the customers of Berenberg Bank. The Hamburg institution, founded in 1590, is the oldest private bank in Germany. Its offices are located directly on the shore of the Binnenalster, a man-made lake in Hamburg.
Berenberg sponsors a golf tournament, polo matches and classic-car races at Germany’s Nürburgring racetrack — the sorts of things a bank does for its exclusive customers. Anyone interested in having the bank manage his or her money has to show up with assets of at least €1 million, and the customers classified as “ultra high net worth individuals,” or people with assets of more than €30 million, numbers in the hundreds. These are the sorts of people who have a lot to lose.
Today’s Investor Focus: Preserving Value
In the past, the most important goal for these customers was to earn returns, says Berenberg Managing Director Jürgen Raeke. Today the emphasis is on preserving value. “Customers want to know that their assets are safe,” says Raeke. This means investing in anything that’s tangible. Raeke runs a Berenberg subsidiary that specializes in material assets, from apartment buildings to precious metals like gold and silver. Land, including forestry and agricultural land, is especially popular at the moment, although it takes a few hundred hectares of land to make an investment worthwhile. Depending on the quality, the price per hectare of land in Germany ranges from €5,000 to €40,000.
According to Raeke, art is also a hot investment at the moment, with buyers especially interested in the Old Masters, including famous names from Canaletto to Rubens, as well as Impressionists and Expressionists. Raeke views such works of art as “blue chips” in the art market, or “almost foolproof investments.” Average investments in art range from €25,000 to €500,000, and higher.
Precious stones, says Raeke, are also now being viewed as alternative investments. Rough diamonds are rare, and the better qualities, in particular, have become noticeably more expensive. Some gems have doubled in value in the last 10 years.
Nevertheless, Raeke remains cautious, warning that the diamond market requires special knowledge, and that markups of 30 to 60 percent are common in the wholesale trade. Besides, he says, a 19-percent turnover tax is also assessed in Germany. “In addition, you can’t just sell the gems to a jeweler.”
A Dramatic Surge in Gold Prices
These are the luxury problems of the rich. Everyone else in German society is left to invest their savings in the two classic material assets: real estate and gold.
That goes a long way toward explaining why business has become dynamic to the point of hysteria. Last week, the price of a gram of gold rose to a record €44.48. The price of gold has increased sixfold within the last decade. Whereas only a small group of currency apocalypticists nurtured the cult surrounding gold in the past, today the upper middle class, consisting of skilled craftsmen, doctors and university instructors, is starting to invest some of its assets in gold.
Another option is the real estate market. Residential real estate has become especially sought-after and expensive in Munich, where the average price per square meter of a mid-level condominium is €2,850, or 21.3 percent more than a year earlier. Even in Berlin, years of disinterest on the part of investors have turned into wild speculation.
When Markus Gruhn talks about the real estate market in the German capital, he doesn’t use words like “bubble” or “speculation,” of course, instead calling it “the big commotion.” It began five years ago, says Gruhn, the chairman of the Berlin branch of the German Realty Association, in his conference room on Kaiserdamm, decorated with oil paintings and a wall clock. At the time, a large comparative study on real estate prices in European capital concluded that Berlin was the most inexpensive market of all.
Only then did the Austrians, Danes and Norwegians arrive, followed by Spaniards and Italians, says Gruhn. The investors bought up entire blocks, often paid for with 100-percent credit financing. And when the euro crisis struck fear into the hearts of investors in 2010, historic apartment buildings in formerly troubled neighborhoods like Kreuzberg and Neukölln suddenly became hot investments for attorneys from Stuttgart and general practitioners from Upper Bavaria.
“With them, it’s often a mixture of naïveté, media hype and a lack of investment alternatives,” says Gruhn. The broker remembers one older building in the eastern part of the city, in particular. There was mold on the basement walls, the groundwater level was high and an unattractive ground-floor commercial unit was empty. There were no real prospective buyers for years.
“I wouldn’t have bought the building, either,” says Gruhn. But suddenly everything happened very quickly. Three of four bidders drove up the price, and a year ago a private investor bought the property for €820,000. It would be sold for €900,000 today.
The real estate boom is also beginning to spread to rental apartments. In the eastern city of Dresden, rents have gone up by almost 14 percent in only 12 months. This is how the inflation in asset prices ultimately affects the broader population. And the poor end up paying for the anxiety of the rich.
Financial Repression
Udo Reifner, founder of the Hamburg Institute for Financial Services (IFF), doesn’t think much of the attempt to protect assets by fleeing into supposedly stable real values. “If you’re going into material assets now, you really must be desperate. The security of these assets is an illusion, as the burst real estate bubbles in the United States and Spain have recently shown.” The dangerous moments will come, he says, when too many people begin to doubt that “the spiral in which the financial economy is circling itself can be turned up any higher,” says Reifner, a former board member of the Hamburg Consumer Assistance Office.”If the new bubble bursts, the central banks will hardly be able to react anymore,” says PIMCO manager Bosomworth. “That’s when things will get exciting.”
But it isn’t just the danger of a crash invoked by Reifner and others that should have savers and investors worried. There is yet another distortion in the markets that is worrying people in a far more subtle way.
“The bubble is the biggest with German and American government bonds,” says Deutsche Bank advisor Mayer. The United States and Germany are also deeply in debt, and their debt levels are only increasing. Nevertheless, investors are currently even paying, at least in real terms, for the privilege of investing in German government bonds. Things are no different in the United States.
One could see this as a result of the flight into supposedly safe government bonds. But there may be a method behind interest rates approaching zero, at least in the United States: With the combination of very low interest rates and palpable inflation, the government can pay off a portion of its debt over the years and borrow money at cheap rates. Economists call this financial repression.
This is how the trick works: The central bank buys government bonds, thereby pushing the interest rates to levels below the rate of inflation. This means that inflation is greater than the growth in interest rates, so that real interest rates become negative. Put differently, inflation consumes assets. Or, to put it even more bluntly: Saving becomes pointless.
After World War II, the United States, through a combination of growth, low interest rates and an average of four percent inflation, was able to reduce the ratio of debt to economic output from 109 percent to about 25 percent within three decades.
A similar scenario would also be conceivable today. The initial situation is similar, as US economists Joshua Aizenman and Nancy Marion have determined: Then, as today, the crisis was preceded by a period of borrowing and low inflation rates. “Both factors increase the temptation to reduce the debt burden through inflation,” Aizenman and Marion conclude.
A model calculation shows that a 6-percent rate of inflation could push the debt ratio down by 20 percent within four years. The saver, be it a giant country like the People’s Republic of China or a small investor in Germany, foots the bill.
Thomas Mayer has already calculated what this means for private retirement funds. “If I go into retirement in Germany today and hope for a supplementary private pension of €2,500 a month for 20 years, I have to have €500,000 in initial capital, at an interest rate of 2 percent a year,” the economist explains.
But if the interest rate is pushed down to zero, the fund would only yield €2,100 a month. “And if another 3 percent of annual inflation eats away at my savings, after 20 years my pension will only have a purchasing power of €1,100.” In other words, even moderate inflation leads to a loss of purchasing power of more than 50 percent.
Triple Redistribution
Inflation, speculative bubbles and financial repression don’t affect all citizens in the same way. As a result of the sovereign debt crisis and the way in which governments deal with it, billions are being redistributed and risks are being deferred.
“The aspect of the debt crisis that relates to distribution policy is underestimated, even though the effect is enormous,” says Harald Hau. A finance expert at the University of Geneva, Hau studied at Princeton University under US economist Kenneth Rogoff, considered something of a godfather of government debt research. According to Hau, banks in Europe have managed to unload a large share of their risks onto governments.
“From the standpoint of private lenders, it’s the best strategy for deferring a government bankruptcy and unloading the risk onto others, such as taxpayers or creditor countries. That’s exactly what is happening in the euro zone.”
Ironically, it was the governments, which ought to be advocates for taxpayers, that helped the financial companies. “The relationships between the banking economy and the political world are generally such that the transfer of risks can succeed,” says Hau. For example, he explains, government regulators have a natural interest in avoiding problems among “their” institutions. “If government bonds are reallocated from private investors to the ESM and the ECB, risks are shifted from rich to poor, and from foreign financial investors to domestic taxpayers,” says Hau. It would be different if a government bankruptcy had been allowed to occur. According to Hau, the ownership of financial stocks is very heavily concentrated among extremely affluent households. If a bank runs into difficulties as a result of losses on government bonds, this primarily affects the rich, and not savers who have their money in life insurance policies. “Contrary to what the banking lobby is suggesting, life insurance policies are very widespread in their investments and, therefore, tend to be exposed to relatively little risk in the peripheral countries of the euro zone,” says Hau.
In contrast, if governments reduce their debt through low interest rates and inflation, says Hau, this primarily affects the holders of life insurance policies and similar types of investments. “Those who buy highly regulated products like life insurance are forced into bonds, where the low interest rates make a big dent,” explains economist Mayer. That’s because insurance companies and pension funds are required by law to invest their depositors’ money in supposedly safe havens, like government bonds. “If people watching the news everyday could see how their savings are losing value as a result of low interest rates, they would be appalled,” says Mayer.
The Solution?
So what is to be done? Should people simply go into debt, like major borrowers? Consumer advocate Reifner doesn’t see that as a solution for people with average incomes. “They’re always saying that interest rates are low. But even in Germany, rates for weaker borrowers, including hidden commissions, are often higher than 20 percent.”
This is why consumers are being squeezed from two sides. “Ordinary citizens are taken advantage of as borrowers and, as savers, are slowly being expropriated through negative real interest rates.”
But there are alternatives to more and more debt excesses, inflation and price bubbles. The euro-zone countries, at least, are still trying to get their debt under control through austerity budgets and reforms. And although all eyes are on Southern Europe at the moment, the German government could also face some uncomfortable questions soon.
Investor Bosomworth sees Germany in a situation similar to that of Ireland, Spain and Greece after the euro introduction, when these countries profited from low interest rates. “Now Germany mustn’t repeat the mistake that led to speculation bubbles and the current problems in those countries,” says Bosomworth.
He suggests curbing the real estate market. “Possibilities include higher real estate transfer taxes, a speculation tax on real estate or limiting the issuance of loans in relation to the value of properties.” Besides, he adds, the government should generate surpluses to reduce debt.
A bankruptcy regulation for countries would also be necessary so that debts could be reduced in a more orderly fashion in the future, and at the expense of creditors instead of taxpayers. “Government bankruptcies are not at all unusual. In the last 200 years, this already occurred at a debt level of 40 to 50 percent of GDP,” says Geneva financial expert Hau.
And the central banks? ECB President Draghi and “Helicopter Ben” Bernanke should, once again, pay closer attention to making sure that the money supply and economic growth are in equilibrium.
Anyone paying a visit to the Bundesbank’s money museum can see how difficult this is. All it takes is to step up to a podium and move a joystick. When you pull back on the stick, liquidity is withdrawn from the economy, and when you push it forward the economy supplied with fresh capital. Two light pillars demonstrate how the money supply circulates and the corresponding volume of goods develops. The goal is to achieve a highly fragile balance. Whoever moves the stick too forcefully is immediately punished by the computer: “Sorry: Complete failure!”
-
CASH STRAPPED RED CROSS PREDICTS VIOLENT RIOTS IN EUROPE
Red Cross boss warns of upheaval similar to the Arab Spring.
Kurt Nimmo
Infowars.com
January 2, 2013
The International Committee of the Red Cross said on Tuesday that the organization’s staff experienced working in conflict areas will now concentrate on Europe.
“We need to prepare for more violence here,” ICRC Director General Yves Daccord told the Danish daily Politiken.
“For the first time we see growing pressure on Europeans, where more and more people have become really poor. Secondly, European countries use less money on social welfare due to the economic crisis,” Daccord said. “That creates new challenges for the Red Cross that we have not experienced previously.”
In Spain, the ICRC now supports about 300,000 “extremely vulnerable” people unable to fend for themselves and helps millions more who cannot make ends meet. Meanwhile, in Greece, the organization’s operation is preparing to go bankrupt.
Eurostat, the European Union’s statistical agency, reports that almost 120 million EU citizens live below the European poverty line, which is defined as less than 60 percent of median income.
The European Commission has set aside about 18.6 billion euros ($24.7 billion) for a poverty fund. “We need new mechanisms if we are to help all the poor people who in many cases are now living in a real social emergency,” said Jonathan Todd, spokesperson for the EU social affairs commissioner.
Daccord said southern Europe may experience the sort of violence and upheaval that the so-called Arab Spring produced in Arab and Muslim nations. Rising food prices, mistrust of government and demands for more political freedom are said to be contributing factors in the uprisings, Europe Online reports.
In November, labor strikes in opposition to austerity measures in Spain led to violent clashes between police and protesters. In Rome, students attacked police and international rail service was interrupted in Belgium. Workers in Greece, Italy and France demonstrated as part of a “European Day of Action and Solidarity” in response to mass unemployment and the ongoing eurozone financial crisis.
-
-CHART OF THE WEEK: 18 Scary Charts That Show The Real Crisis In Europe. In Spain, the epicenter of Europe’s youth unemployment crisis, the rate has soared to 55.6%. Spain is second only to Greece, where 57.6% of those under 25 are unemployed. Read more here-http://read.bi/VXwBlS
-
-CHART OF THE WEEK: U.K. Natural Gas Stores May Empty in Two Weeks. Read more here-http://bloom.bg/ZfPP6Y
-CHART OF THE WEEK: Europe’s Unemployment Chart Says It All. Read more here-http://read.bi/W66E6N
-CHART OF THE WEEK: Italy’s Debt Highest Since Dictator Mussolini. Italy’s public debt rose to the highest level since Benito Mussolini won elections 89 years ago, paving the way for his 20-year dictatorship. Read more here-http://bloom.bg/14v48HJ
-
CLASS TENSIONS IN EUROPE ARE AT THE BREAKING POINT
Peter Schwarz
11 February 2013
Class tensions in Europe are rapidly intensifying. The ruling class will not rest until it has imposed the full burden of the international financial crisis on the working class. Its aim is to destroy the social gains of the post-war period and slash wages in Europe to a level comparable with those in China and India.
Greece, where five successive austerity packages have thrown broad layers of the population into unemployment and poverty, is only the beginning. Portugal, Ireland, Slovenia, Romania, Spain and Italy are all being subjected to similar austerity policies.
The Süddeutsche Zeitung noted smugly that since his election last spring, French President François Hollande has undergone a “radical paradigm shift.” His predecessor Nicolas Sarkozy, the newspaper commented, talked a great deal about social “reform,” but accomplished little. The new Socialist Party president, on the other hand, has launched significant “reforms”—i.e., attacks on the working class—without making a fuss about it.
Hollande’s government has cut labor costs by €20 billion, begun to make the labor market more “flexible,” and resolved to reduce state spending by €12 billion every year. This, however, according to the Süddeutsche Zeitung, is just the beginning. “The task is to carry through a backlog of reforms going back decades.”
In Germany, Chancellor Angela Merkel of the Christian Democratic Union (CDU) and Peer Steinbrück of the Social Democratic Party (SPD), the two leading candidates in parliamentary elections to be held in September, are both unconditional advocates of attacks on the European working class and committed to initiating new social attacks after the elections.
Hand in hand with this social counterrevolution comes a revival of militarism. Whereas the continental European powers in the past intervened in the wake of the United States, or largely abstained, as in the wars in Afghanistan and Iraq, they are now the leading aggressors in a new “scramble for Africa.” The war against Libya was largely a French initiative, and in Mali, France has acted unilaterally. Britain and Germany urgently want to be on board when it comes to the recolonization of this resource-rich continent and have pledged military support for France.
In foreign policy as well as domestic, Hollande has undergone a “radical paradigm shift.” In his election campaign, he promised to break with the policy of “Françafrique,” i.e., the policy of sponsoring corrupt potentates in the former French colonies. Now in Mali he assumes the garb of a colonial conqueror.
Domestic as well as international considerations play a considerable role in this about-face. The Nouvel Observateur wrote approvingly that with his intervention in Mali, Hollande had shown his true qualities as president and strengthened his authority at home.
Workers seeking to resist the social counterrevolution and defend their jobs and past social gains are confronted with the reality that this is not possible on the basis of the methods of struggle employed in previous decades.
Not just the French Socialist Party, but all of the social democratic parties once identified with social reform are today fully committed to austerity measures and the destruction of past reforms. The trail blazed by Labour Party leader Tony Blair in Britain and SPD leader Gerhard Schröder in Germany has been taken up by José Zapatero in Spain and George Papandreou in Greece.
Likewise the trade unions, which have been transformed into appendages of the corporations and the state, function as an arm of corporate management in the imposition of layoffs and wage cuts. At a political level, they see to it that social resistance is suppressed or limited to token protests that represent no threat to the state.
The European governments respond to any expression of working class opposition with more serious consequences for corporate profits and government policy by imposing strike bans and employing methods of state violence traditionally associated with dictatorships.
Two years ago, the social democratic Zapatero government in Spain mobilized the army to break a strike by air traffic controllers.
In France, Interior Minister Manuel Valls has instructed police and intelligence agencies to “closely” follow developments at troubled companies where labor unrest could break out and to watch for “threats to production in the event of a radicalization of the conflict.” Steel workers who recently demonstrated in Strasbourg against mass redundancies were detained by the French police, searched and attacked with tear gas.
In Greece, the government forced striking ferry workers back to work last week by imposing martial law for the fourth time since the beginning of austerity measures. Under penalty of long prison terms, the government broke the strike by workers who have not been paid for months. Two weeks earlier, the Greek government invoked the same emergency powers to break a strike by Athens subway workers.
The democratic right to strike has, in practice, been abolished. Any effective strike is illegal. Only protests and strikes that are purely symbolic are permitted.
Under these conditions, the fight to defend social and political rights confronts the working class with new political tasks. When all of the old mechanisms of compromise and concessions fail to resolve social conflict, when governments respond to social pressure with state repression, and the unions form a united front with the employers against the workers, then the class struggle must inevitably assume an insurgent and revolutionary character.
If it is no longer possible to defend jobs, wages and social gains through pressure on corporations and governments, the working class is called upon to take into its own hands the control of society and the economy. This requires an independent, international mass movement of the working class fighting for a socialist program and the establishment of workers’ governments within the framework of a United Socialist States of Europe.
A crucial obstacle standing in the way of such a policy is the array of pseudo-left parties—SYRIZA in Greece; Die Linke in Germany; the Communist Party, the Left Party and the New Anti-capitalist Party in France. These organizations oppose the establishment of the political independence of the working class from all sections of the capitalist class and seek to block an independent mobilization of the working class. They defend the unions, encourage illusions in social democracy, and support the European Union. They embody a prosperous section of the middle class that seeks to hide its right-wing politics behind left-sounding phrases.
In order to establish the political independence of the working class and prepare for the great social struggles ahead, it is necessary for workers to oppose these fake-left organizations and expose their reactionary role before the entire working class.
-
WORLD FINANCIAL REPORT MARCH 22, 2013
-
DOW JONES INDUSTRIAL AVERAGE CLOSE MARCH 8, 2013: 14397.07
-
VOLATILITY INDEX CLOSE MARCH 8, 2013: 12.59
-
HARRY DENT: DOW HEADED TO 3,000
By Matthew Boesler | Business Insider
July 24, 2012
Harry Dent, the financial newsletter writer and CEO of economic forecasting firm HS Dent, has one of the most bearish calls on stocks we’ve ever heard.Appearing on CNBC, Dent explained the demographics-driven thesis behind his Dow 3,000 call: We track demographics.
We were more bullish than anybody in the 1990s and 2000s because we saw the Baby Boom generation spending more money, borrowing more money, as well as technologies and the Internet rising.
Now, it’s the opposite. From 2008 to 2020, there’s going to be less home buying and less spending. The Baby Boomers are going to be saving for retirement, and there’s no way you can stimulate your way out of this.
Over the next decade, we think the worst is likely to happen when this big debt bubble deleverages. The government has been preventing this by forcing money into the banking system. We don’t just have $16 trillion in government debt – we have $42 trillion in private debt that is deleveraging, and $66 trillion (or $80 trillion by different estimates) in unfunded entitlements.
We have the biggest debt bubble in history. This debt bubble needs to deleverage. That’s when stocks collapse the most. We had a big debt bubble deleverage from 1930 to 1933. That’s why we saw such an extreme crash at that time.
-
-”Spending by baby boomers hit its peak in countries like the U.S. in 2007. On average, baby boomers will spend less and less in the years ahead as they move toward retirement. Governments and central banks around the world keep stimulating to keep their economies up and to keep their banks from failing, but they are fighting against the largest generation in history. Stimulus works less well with an older population that does not have kids to raise and put through college. Demographics will make stimulus plans more and more difficult, and at some point they will fail.” Harry Dent
-
ART CASHIN: TRADERS ON THE FLOOR ARE PASSING AROUND THIS GLOOMY QUOTE FROM INVESTING GURU SETH KLARMAN
By Sam Ro | Business Insider
Feb. 20, 2013
Art Cashin, UBS Financial Services Director of Floor Operations, is always on top of what the NYSE traders are buzzing about.
They were passing around this gloomy nugget, from this morning’s Cashin’s Comments:
Cautionary Comments From Investing Icons – Near legendary investor, Seth Klarman caused a good deal of buzz yesterday. I could not locate his letter in full but here is a note from “Seeking Alpha” that traders kept passing around:
“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter. The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments. “(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.
As noted, Klarman has reached near legendary status among some of the Wall Street community. He wrote a book some time back and now copies of that limited edition are said to trade for thousands of dollars apiece. We’ll try to get more on his letter and views.
Meanwhile, stocks closed at a fresh post-crisis high.
-
EX-GOLDMAN SACHS ANALYST CHARLES NENNER FORECASTS DOW AT 5,000 AND A MAJOR WAR BY THE END OF 2012
Charles Nenner on March 10, 2011 predicted deflationary pressures will lower the Dow to 5,000 points – along with a major war by the end of 2012 and into 2013.
-
-CHART OF THE WEEK: The Dow Is Nowhere Near Its All-Time High Priced In Gold. Read more here-http://read.bi/W6Lzcj
-Zerohedge: The Last Time The Dow Was Here. “Mission Accomplished” With CNBC now lost for countdown-able targets (though 20,000 is so close), we leave it to none other than Jim Cramer, quoting Stanley Druckenmiller, to sum up where we stand (oh and the following list of remarkable then-and-now macro, micro, and market variables), namely that “we all know it’s going to end badly, but in the meantime we can make some money” ZH translation: “just make sure to sell ahead of everyone else”, just like everyone sold ahead of everyone else on October 11th 2007, the last time stocks were here. Read more here-http://bit.ly/XSMA8s
- Dow Jones Industrial Average: Then 14164.5; Now 14164.5
- Regular Gas Price: Then $2.75; Now $3.73
- GDP Growth: Then +2.5%; Now +1.6%
- Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
- Americans On Food Stamps: Then 26.9 million; Now 47.69 million
- Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
- US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
- US Deficit (LTM): Then $97 billion; Now $975.6 billion
- Total US Debt Outstanding: Then $9.008 trillion; Now $16.43 trillion
- US Household Debt: Then $13.5 trillion; Now 12.87 trillion
- Labor Force Participation Rate: Then 65.8%; Now 63.6%
- Consumer Confidence: Then 99.5; Now 69.6
- S&P Rating of the US: Then AAA; Now AA+
- VIX: Then 17.5%; Now 14%
- 10 Year Treasury Yield: Then 4.64%; Now 1.89%
- USDJPY: Then 117; Now 93
- EURUSD: Then 1.4145; Now 1.3050
- Gold: Then $748; Now $1583
- NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares
-Dow Average Jumps to Record as Profits, Fed Stoke Rebound. The Dow Jones Industrial Average rose to its highest level ever, erasing losses from the financial crisis after a four-year rally fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve. About $10 trillion has been restored to U.S. equities as retailers, banks and manufacturers led the recovery from the worst bear market since the 1930s.
It took the Dow less than 65 months to rise above its previous high set on Oct. 9, 2007, more than a year faster than the recovery from the Internet bubble. While the Dow has more than doubled in the four years since its bear-market low, its valuation remains 19 percent less than the price-earnings ratio at the previous peak and 14 percent below its 20-year average. Bulls say that’s a signal stocks have room to keep rallying, while to bears it shows a lack of confidence in earnings growth and concern over the Fed’s ability to continue spurring the economy. Read more here-http://bloom.bg/10gtZWW
-An Uneven Recovery for Dow Companies. Behind the bull market that drove the Dow Jones industrial average to a record high on Tuesday is a startling gulf in the fortunes of some of the nation’s largest corporations. The new peak came almost exactly four years after the Dow sank to a low of 6,547.05 in March 2009, during the depths of the financial crisis. But not every blue-chip stock has bounced back. In fact, 12 of the 30 stocks in the Dow are still down from their peaks, some of them spectacularly so. The Dow’s winners and losers are a reminder of how the nation’s uneven economic recovery is playing out in the business world, and suggest the caution of investors even as the market has rallied. Read more here-http://bit.ly/107bsZy
-Dow Jones high on Fed steroids. Read more here-http://usat.ly/12uJR9X
-Rich Bernstein: This Looks Like The Raging Bull Market Of The 1980s. Read more here-http://read.bi/XtnFZB
-BofA: NYSE Margin Debt Is Generating A Sell Signal We Haven’t Seen In Three Years. We’ve noted that margin debt at the NYSE has been rising steadily as stocks have advanced in recent months. Like the stock market, total margin is close to all-time highs. BofA Merrill Lynch technical analyst Mary Ann Bartels writes in a note to clients that cash balances in those margin accounts have fallen to such a low level that they are now generating a sell signal not seen in three years. Read more here-http://read.bi/VFqjvn
-Art Cashin: Warren Buffett Is Being Inconsistent. Read more here-http://read.bi/WKb4gK
-Berkshire Profit Advances 49% on Buffett’s Derivatives. Berkshire Hathaway Inc. said fourth-quarter profit rose 49 percent on gains tied to derivatives wagers made by billionaire Chairman and Chief Executive Officer Warren Buffett. Read more here-http://bloom.bg/ZcGrEA and http://bloom.bg/14uciQx
-
WALTER ZIMMERMAN: EVERY INDICATOR I FOLLOW SHOWS THE MARKET IS GOING TO TANK, AND THERE WILL BE A NEW FINANCIAL CRISIS
The stock market is hitting an all-time high.
However, there is no shortage experts who are waving red flags. Earnings expectations have been falling, profit margins appear to be unsustainably high, and sentiment is so high that it seems investors are being complacent about the risks.
“Every reliable technical tool is warning of major peaking action,” said Walter Zimmerman, the senior technical analyst at United-ICAP. “This includes sentiment, momentum, classical chart patterns, and Elliott wave analysis.
“Most of the rally in the stock market since 2009 can be chalked up to the Federal Reserve’s attempt to create a ‘wealth effect’ through higher stock market prices. This only exacerbates the downside risk. Why? The stock market no is longer a lead indicator for the economy. It is instead reflecting Fed manipulation. Pushing the stock market higher while the real economy languishes has resulted in another bubble.
“The next leg down will not be a partial correction of the advance since the 2009 lows. It will be another major financial crisis. The worst is yet to come.”
Zimmerman sent a brief presentation laying out his thesis.
The rally is slowing in a very bearish way.
Walter Zimmerman, ICAP
Sentiment is far too positive, which means it can quickly turn.
Walter Zimmerman, ICAP
The last time the Nasdaq hit this level, it soon fell.
Walter Zimmerman, ICAP
Priced in gold, the S&P 500 has been underperforming. This suggest purchasing power is falling.
Walter Zimmerman, ICAP
The stock market has been driven by inflation, not real returns.
Walter Zimmerman, ICAP
The wealth effect is an illusion.
Walter Zimmerman, ICAP
Real incomes are way down.
Walter Zimmerman, ICAP
Real retail sales are nowhere near pre-crisis levels.
Walter Zimmerman, ICAP
Industrial production appears to be up.
Walter Zimmerman, ICAP
But real industrial production is nowhere near pre-crisis levels.
Walter Zimmerman, ICAP
And consumer sentiment has only continued to trend lower.
Walter Zimmerman, ICAP
Those aren’t the only reasons why you should be worried.
THE NEXT STOCK MARKET CRASH: Why Many Pros Think It Has Already Begun >
-
RICHARD RUSSELL: HISTORY IS ABOUT TO REPEAT – HANG ON TO GOLD
With key global markets at or near breakout levels, and the “Metal of Kings” marking time before reasserting its dominance, the Godfather of newsletter writers, Richard Russell, writes about Americans still partying, gold, the Fed, and stocks in a note to subscribers: “The central banks of the world are on a mission to keep the world economy going. A great bull market started in 1980. It ended in 2007, a period of 27 years. As such, it was, in duration, the longest bull market in US history. A bear market started in October 2007.”
“Bear markets tend to last from one-half to one-third as long as the preceding bull market. On that basis, the bear market that started in 2007 might be expected to continue for at least nine years (one-third of 27) or until 2016. However, the Central banks, and certainly President Obama, have attempted to halt the bear market and thus continue the prosperity we have enjoyed ever since World War II.
As proof of the Fed’s success, I would expect both the D-J Transportation and Industrial Averages to advance to new highs, thereby signaling that the tide had reversed to bullish (a bull market). According to classic Dow Theory, the primary trend of the market cannot be manipulated. Further, according to classic Dow Theory, the movements of one Average, unconfirmed by the other Average, are useless as guides to direction, and are more than likely to prove deceptive.
Sundry Observations — From what I see, Americans are still spending and partying as if nothing has changed. Here in Southern California, the restaurants are full, and this is especially true of the breakfast places (in my opinion, the height of free-spending is going to a restaurant for an expensive breakfast when you could have had an inexpensive breakfast at home).
The Fed and the government have bent over backwards in their crude and dishonest program to show the American public that the punch bowl is still full to the brim, and that “all is well” at home. We might even possess some hidden or inside information regarding what’s coming up, but we never know how the markets will react to that news. Usually, it is the market itself that will provide the only reliable hints as to where the market is going. Of course, this entails our learning to read the market.
But right now is not one of those times. For instance, I know that the US is choking on debt — everybody is aware of that FACT. Further, I know that every nation’s chosen way of addressing its debt problem is to devalue its currency. Thus, the fate of the dollar is almost assured. The dollar, as a unit of purchasing power, appears to be doomed.
Really, then why don’t you and I follow the lead of China and start getting rid of our dollars — swap them for another currency or for silver and gold? … this is one of those times when we have to think, and sit — and wait. If you don’t know what you are doing, don’t do anything — or at least, don’t do anything stupid.
To tell the truth, I am excited and fascinated as I watch the market unfold. Will the Dow confirm the Transports or won’t it? This is the trillion dollar question that only the market, in its own good time, can answer. From the bull’s standpoint, it is a plus that the Dow tends, on all declines, to find support at the 13,850 level or better.
From the pessimist’s standpoint, day after day goes by and the Dow is never able to rise above 14,015. Further, what we are seeing are too many distribution days. And lastly, from a contrary opinion standpoint, bullish advisors outnumber bearish advisors 2 to 1.
Below is GLD, my proxy for gold. A pennant has appeared and GLD has fallen out of the pennant to 159.50. Thus, we are in what I believe is the ‘clean out’ correction for gold. This is the correction that will scare out all the in-and-out traders and the newcomers. It is here that those who hold gold in physical form will do best, since they won’t be tempted to sell.
My advice is to hold all gold positions and wait patiently for the correction to end. Just before the huge 1979-80 surge, we saw a big ‘clean out’ correction in gold. I believe history is about repeat.”
-
PETER SCHIFF: DOW AT 14,000 IS NOT A BIG DEAL
-
GREGORY MANNARINO: DOW AT 14,000 IS A GRAND DECEPTION
-
GREGORY MANNARINO: U.S. MARKETS ARE FLASHING A RED SIGNAL
-
DO WALL STREET INSIDERS EXPECT SOMETHING REALLY BIG TO HAPPEN VERY SOON?
Michael Snyder
Economic Collapse
Feb 7, 2013
Why are corporate insiders dumping huge numbers of shares in their own companies right now? Why are some very large investors suddenly making gigantic bets that the stock market will crash at some point in the next 60 days? Do Wall Street insiders expect something really BIG to happen very soon? Do they know something that we do not know? What you are about to read below is startling. Every time that the market has fallen in recent years, insiders have been able to get out ahead of time. David Coleman of the Vickers Weekly Insider report recently notedthat Wall Street insiders have shown “a remarkable ability of late to identify both market peaks and troughs”. That is why it is so alarming that corporate insiders are selling nine times as many shares as they are buying right now. In addition, some extraordinarily large bets have just been made that will only pay off if the financial markets in the U.S. crash by the end of April. So what does all of this mean? Well, it could mean absolutely nothing or it could mean that there are people out there that actually have insider knowledge that a market crash is coming. Evaluate the evidence below and decide for yourself…
For some reason, corporate insiders have chosen this moment to unload huge amounts of stock. According to a CNN article, corporate insiders are now selling nine times more of their own shares than they are buying…
Corporate insiders have one word for investors: sell.
Insiders were nine times more likely to sell shares of their companies than buy new ones last week, according to the Vickers Weekly Insider report by Argus Research.
What makes this so alarming is that corporate insiders have been exceedingly good at “timing the market” in recent years. The following comes from a recent CNBC article entitled “Sucker Alert? Insider Selling Surges After Dow 14,000“…
“In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply — falling to its lowest level since late March 2012,” wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. “Insiders are waving the cautionary flag in an increasingly aggressive manner.”
There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company’s stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year.
“Insiders know more than the vast majority of market participants,” said Enis Taner, global macro editor for RiskReversal.com. “And they’re usually right over a long period of time.”
There are other indications that the stock market may be headed for a significant tumble in the months ahead. For example, as a Zero Hedge article recently pointed out, the last time that the financial markets in the U.S. were as “euphoric” as they are now was right before the financial crisis of 2008.
And as I mentioned above, some people out there have recently made some absolutely jaw-dropping bets against stocks which will only pay off if there is a financial crash at some point in the next few months.
According to Business Insider, the recent purchase of 100,000 put options by a mystery investor has a lot of people on Wall Street talking…
According to Barron’s columnist Steven Sears,someone made a big bet against the financialsETF yesterday (ticker symbol XLF), and it has everybody buzzing.
The trader bought 100,000 put options on the ETF (a put option increases in value when the price of the underlying asset, in this case, the ETF, goes down).
To put that number in perspective, Sears writes, “Few investors ever trade more than 500 contracts, so a 100,000 order tends to stop traffic and prompt all sorts of speculation about what’s motivating the trade.” According to Sears, the trade “has sparked conversations across the market.”
Reportedly, those put options expire in April.
And as Art Cashin of UBS has noted, there was also another extremely large bet that was placed recently that is banking on a financial crash within the next two months…
A Very Big Bet In A Somewhat Unlikely Instrument – My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade. Here’s what he wrote in last night’s edition of his valuable newsletter:
In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event. Sometimes those were massive put positions on the S&P. A new trade just appeared that suggests there will be a market event in the near future. Last week somebody put on a call spread on the VIX using the April 20 and 25 puts. They bought 150,000 contracts for a net of $75 per contract. That is an $11,250,000 bet that the VIX will move over 20 over the next 60 days. You would have to be VERY confident in your outlook to risk $11 million on a directional position with the VIX at five year lows and the markets trying to break out to new highs.
So does all of this guarantee that the stock market is going to move a certain way?
Of course not.
But when you step back and look at the bigger picture, it does appear that Wall Street insiders are preparing for something.
Meanwhile, the government continues to assure us that happy days are here again for the U.S. economy and that we don’t have anything to worry about.
The Congressional Budget Office has just released a report that contains their outlook for the next decade. The report is entitled “The Budget and Economic Outlook: Fiscal Years 2013 to 2023″, and if you want a good laugh you should read it.
Here are some of the things that the CBO believes will happen…
-The CBO believes that government revenues will more than double by 2023.
-The CBO believes that government revenue as a percentage of GDP will rise from 15.8 percent today to 19.1 percent in 2023.
-The CBO believes that the unemployment rate will continually fall over the next decade.
-The CBO believes that the federal budget deficit will fall to just 2.4% of GDP in fiscal year 2015.
-The CBO believes that the federal budget deficit will only be $430 billion in 2015.
-The CBO believes that we will not have a single recession over the next decade.
-The CBO believes that inflation will stay at about 2 percent for the next decade.
-The CBO believes that U.S. GDP will grow by a total of 67 percent by 2023.
Wow, all of that sounds great until you go back and take a look at how CBO projections have fared in the past.
In fact, Bruce Krasting has gone back and looked at the numbers from the Congressional Budget Office’s Budget and Economic Outlook 2003. I think that you will find the differences between the CBO projections and what really happened to be very humorous…
Estimated 10-year budget surplus = $5.6T.
Reality = $6.6T deficit. A 200+% miss.
Estimate for 2012 Debt Held by Public = $1.2T (5% of GDP).
Reality = Debt Held by Public = $11.6T. A 1000% miss.
Estimated fiscal 2012 GDP = $17.4T.
Reality = $15.8T. A $1.6T (10%) miss.
So should we trust what the CBO is telling us now?
Of course not.
Instead, perhaps we should listen to some of the men that successfully warned us about the last financial crisis…
-”Dr. Doom” Marc Faber recently stated that he “loves the high odds of a ‘big-time’ market crash“.
-Economist Nouriel Roubini says that we should “prepare for a perfect storm“.
-Pimco’s Bill Gross says that we are heading for a “credit supernova“.
-Nomura’s Bob Janjuah believes that the financial markets will experience one more huge spike before collapsing by up to 50%…
I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top. I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high (the real high was of course seen over a decade ago – so much for equities as a long-term vehicle for wealth creation!). A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in “their system”.
The truth is that no matter how much money printing the Federal Reserve does, it is only a matter of time before the financial markets catch up with economic reality.
The U.S. economy has been in decline for a very long time, and things just continue to get even worse. Here are just a few numbers…
-The percentage of the civilian labor force that is employed has fallen every single year since 2006.
-According to John Williams of shadowstats.com, truly accurate numbers would show that U.S. GDP growth has actually been continuously negative all the way back to 2005.
-U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.
-One recent survey found that nearly half of all Americans are living on the edge of financial ruin.
-According to the U.S. Census Bureau, there are more than 146 million Americans that are considered to be either “poor” or “low income” at this point.
For many more statistics that demonstrate that the U.S. economy has continued to decline in recent years, please see this article: “37 Statistics Which Show How Four Years Of Obama Have Wrecked The U.S. Economy“.
So where is all of this headed?
Well, after the next major financial crisis in America things are going to get very tough.
We can get a hint for how things are going to be by taking a look at what is going on over in Europe right now.
Can you imagine people trampling each other for food? That is what is happening in Greece. Just check out this excerpt from a Reuters article…
Hundreds of people jostled for free vegetables handed out by farmers in a symbolic protest earlier on Wednesday, trampling one man and prompting an outcry over the growing desperation created by economic crisis.
Images of people struggling to seize bags of tomatoes and leeks thrown from a truck dominated television, triggering a bout of soul-searching over the new depths of poverty in the debt-laden country.
The suffering that the Greeks are experiencing right now will come to this country soon enough.
So enjoy this false bubble of debt-fueled prosperity while you can. It is going to end way too soon, and after that there will be a whole lot of pain.
-
FEDERAL RESERVE MONEY PRINTING IS THE REAL REASON WHY THE STOCK MARKET IS SOARING
Michael Snyder
Economic Collapse
Jan 29, 2013
You can thank the reckless money printing that the Federal Reserve has been doing for the incredible bull market that we have seen in recent months. When the Federal Reserve does more “quantitative easing”, it is the financial markets that benefit the most. The Dow and the S&P 500 have both hit levels not seen since 2007 this month, and many analysts are projecting that 2013 will be a banner year for stocks. But is a rising stock market really a sign that the overall economy is rapidly improving as many are suggesting? Of course not. Just because the Federal Reserve has inflated another false stock market bubble with a bunch of funny money does not mean that the U.S. economy is in great shape. In fact, the truth is that things just keep getting worse for average Americans. The percentage of working age Americans with a job has fallen from 60.6% to 58.6% while Barack Obama has been president, 40 percent of all American workers are making $20,000 a year or less, median household income has declined for four years in a row, and poverty in the United States is absolutely exploding. So quantitative easing has definitely not made things better for the middle class. But all of the money printing that the Fed has been doing has worked out wonderfully for Wall Street. Profits are soaring at Goldman Sachs and luxury estates in the Hamptons are selling briskly. Unfortunately, this is how things work in America these days. Our “leaders” seem far more concerned with the welfare of Wall Street than they do about the welfare of the American people. When things get rocky, their first priority always seems to be to do whatever it takes to pump up the financial markets.
When QE3 was announced, it was heralded as the grand solution to all of our economic problems. But the truth is that those running things knew exactly what it would do. Quantitative easing always pumps up the financial markets, and that overwhelmingly benefits those that are wealthy. In fact, a while back a CNBC article discussed a very interesting study from the Bank of England which showed a clear correlation between quantitative easing and rising stock prices…
It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.
Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.
Many said the BOE’s easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”
So should we be surprised that stocks are now the highest that they have been in more than 5 years?
Of course not.
And who benefits from this?
The wealthy do. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.
Unfortunately, all of this reckless money printing has a very negative impact on all the rest of us. When the Fed floods the financial system with money, that causes inflation. That means that the cost of living has gone up even though your paycheck may not have.
If you go to the supermarket frequently, you know exactly what I am talking about. The new “sale prices” are what the old “regular prices” used to be. They keep shrinking many of the package sizes in order to try to hide the inflation, but I don’t think many people are fooled. Our food dollars are not stretching nearly as far as they used to, and we can blame the Federal Reserve for that.
For much more on rising prices in America, please see this article: “Somebody Should Start The ‘Stuff Costs Too Much’ Party“.
Sadly, this is what the Federal Reserve does. The system was designed to create inflation. Before the Federal Reserve came into existence, the United States never had an ongoing problem with inflation. But since the Fed was created, the United States has endured constant inflation. In fact, we have come to accept it as “normal”. Just check out the amazing chart in the video posted below…
-
-
The chart in that video kind of reminds me of a chart that I shared in aprevious article…
Not that I expect the United States to enter a period of hyperinflation in the near future.
Actually, despite all of the reckless money printing that the Fed has been doing, I expect that at some point we are going to see another wave of panic hit the financial markets like we saw back in 2008. The false stock market bubble will burst, major banks will fail and the financial system will implode. It could unfold something like this…
1 – A derivatives panic hits the “too big to fail” banks.
2 – Financial markets all over the globe crash.
3 – The credit markets freeze up.
4 – Economic activity in the United States starts to grind to a halt.
5 – Unemployment rises above 20 percent and mortgage defaults soar to unprecedented levels.
6 – Tax revenues fall dramatically and austerity measures are implemented by the federal government, state governments and local governments.
7 – The rest of the globe rapidly loses confidence in the U.S. financial system and begins to dump U.S. debt and U.S. dollars.
I write about derivatives a lot, because they are one of the greatest threats that the global financial system is facing. In fact, right now a derivatives scandal is threatening to take down the oldest bank in the world…
Banca Monte dei Paschi di Siena, the world’s oldest bank, was making loans when Michelangelo and Leonardo da Vinci were young men and before Columbus sailed to the New World. The bank survived the Italian War, which saw Siena’s surrender to Spain in 1555, the Napoleonic campaign, the Second World War and assorted bouts of plague and poverty.
But MPS may not survive the twin threats of a gruesomely expensive takeover gone bad and a derivatives scandal that may result in legal action against the bank’s former executives. After five centuries of independence, MPS may have to be nationalized as its losses soar and its value sinks.
So when you hear the word “derivatives” in the news, pay close attention. The bankers have turned our financial system into a giant casino, and at some point the entire house of cards is going to come crashing down.
In response to the coming financial crisis, I believe that our “leaders” will eventually resort to money printing unlike anything we have ever seen before in a desperate attempt to resuscitate the system. When that happens, I believe that we will see the kind of rampant inflation that so many people have been warning about.
-
RELATED POST: THE BIG WALL STREET BANKS ARE ABOUT TO ENTER A DEATH SPIRAL; THE DERIVATIVES TSUNAMI AND THE DOLLAR BUBBLE
-
MARC FABER: BETTER ENJOY THE MARKET RALLY WHILE YOU CAN
Investor “euphoria” is taking stocks higher but eventually will be their undoing, market bear Marc Faber told CNBC.
The author of the widely followed Gloom Boom & Doom Report said the current rally, which has seen the Standard & Poor’s 500 gain more than 5 percent in 2013 and 12 percent since its November 2012 low, is getting tired and will run out of steam soon.
“We are very overbought, but it is also possible that we have a mild correction in February and then a further increase in stock prices,” Faber said on “Closing Bell.”
He added it would be “something that would be similar to ’87 where in the first half of the year until August the market went up by 41 percent (only) to lose 40 percent in months in October and November. So it’s a possibility that we have a lot of volatility this year in equity prices.”
Though he is more widely known for his dour outlook on stocks and the global economy, Faber occasionally has advocated for the U.S. stock market.Now, though, he is unwinding his long positions.
“I am selling shares at the present time. I am reducing positions because there is euphoria building up,” Faber said. (Read More: Dow Nears Record, but Is It Just Another Bubble?)
Indeed, there are some signs that investors have amped up their bullishness.
Money flows to mutual funds that track stocks have soared to record levels of $55 billion in January, and sentiment surveys are showing a strong positive bias for equities. (Read More: Are Mutual Fund Investors Really ‘Dumb Money’?)
“There is a chance that corporate profits will disappoint in 2013. But, by the way, there could also be some geopolitical problems, he said. Faber said he recently returned from a trip the Middle East and it “is a boiling pot.”
Faber continues to utilize gold as a large part of the portfolio and he does like mining stocks. He also advocated for foreign stocks, particularly the markets in the Ukraine, Vietnam and China.
Closer to home he likes miners but believes housing shares have rallied too much and are “ahead of the fundamentals.”
“I buy gold because I’m fearful that we will still have a systemic crisis, that we will have wars and so forth,” he said.
-
-Major Contrarian Sell Signal: Investors Are More Bullish Than In 99% Of All Periods Since 2002. BofA’s proprietary measure of investor sentiment is clocking in at extreme levels. According to the firm’s Bull & Bear Index, which tracks sentiment using indicators like hedge fund market exposure, fund flows, long-only investor positioning and so forth, investors are more bullish than they were in 99% of periods since 2002. Read more here-http://read.bi/XBRpyY
-Felix Zulauf: If The Stock Market Doesn’t Correct Soon, Then We Could Repeat 1987. It’s a top building process that we are in. If the markets do not correct as I expect some time in spring, if the markets would continue to go up, and not be confirmed by internal technical’s, then it gets very, very dangerous. Then we would resemble much more a market situation that has some similarities to 1987 I’m just saying we are in dangerous territory, and people should be aware of that and take precautionary steps. Read more here-http://read.bi/X81ffO
-Warren Buffett’s Favorite Valuation Metric Has Breached The 100% Level. Read more here-http://read.bi/11Jk7Gv
-Japanese Economic Minister: We Want The Stock Market To Surge Another 17% By The End Of March. Read more here-http://read.bi/YurWYO
-Fidelity Sees Japan Investing Program Reaching 2020 Target. A Japanese program that will provide tax breaks to spur people to buy stocks may achieve the government’s targeted 25 trillion yen ($268 billion) in investments by 2020, a Fidelity Japan researcher said. The tax-free Individual Savings Account initiative, which is set to start in 2014, can grow by more than 3 trillion yen a year over the next seven years, Satoshi Nojiri, head of Fidelity Investor Education Institute in Tokyo, said in an interview. Prime Minister Shinzo Abe’s government last month approved the plan, which was first proposed under the previous administration. Japanese policy makers are seeking to encourage households to move assets from cash to equities to fund growing industries and spur the world’s third-largest economy. Read more here-http://bloom.bg/VXJCvF
-Presenting: The Secret Trading Strategy From The 1930s That Hedge Funders Don’t Want You To Know About. Read more here-http://read.bi/VjocMl
-
BOND BUBBLE EXPECTATIONS
James Hall | batr.org
February 13, 2013
Bonds are loans that have the expectation of payback with interest. Government bonds are viewed as the safest financial instrument since the primary fiscal obligation of the state is to honor the terms of their own notes. However, in the fevered climate of currency wars among central banksters, the security factor of capital repayment is rapidly coming into question. As interest rates rise, the economic value of the bond diminishes. This inverted normal relationship is the essential dynamic of lending money with the purchase of Treasury Bonds. So what is all the talk about a bond bubble and likelihood that it will destroy your underwriting capital?
Bloomberg Businessweek warns in the article, The Rising Bubble in Bond-Bubble Chatter.
“An asset price bubble is when the expectation that the price can only go higher forms the only rationale for purchase,” remarked BlackRock’s (BLK) bond honcho Jeffrey Rosenberg Thursday at the CFA Society of Los Angeles’s Economic & Investments Forecast Dinner, at which the “wherefore bond bubble” discussion dominated. “But the main motivation of investors for buying fixed income is the opposite of typical bubbles—the fear of losing money rather than the greed of potential profit has fueled the historic shift of assets into fixed income.”
Just how safe is your money when you are holding T-Bonds? The U.S. Treasury wants you to believe that no other form of currency has the protection of first guarantee of the full faith and credit of your own government. Well, the mere questioning of this mythical assurance breeds deep distrust and instability of confidence into the entire fiscal system.
Morningstar offers an assessment in The Bond Bubble Threat, which on the surface is very sensible.
“To understand the implications of where we are, consider the history of the benchmark 10-year Treasury note. From 1900 to 2012, the average interest rate (yield) was 4.99% (often quoted as 5%). On Jan. 30, 2013, the yield was 1.99%, well below the long-term average. The prime interest rate, which the Fed has a role in setting, is 3.25%. It is the break-even rate for banks pricing loans.
When the performance of an asset class runs substantially above or below a long-term average, the odds increase that at some point performance will move back toward the long-term average. It may take a while for the interest rate on 10-year Treasury paper to re-approach 5%, but at some point, it will. As interest rates creep up, we see a shift away from fixed debt instruments to variable rate paper, stocks and various inflation hedges.”
Regretfully, when was the last time that economic fundamentals applied to the money debasement manipulations of the Federal Reserve? No doubt, a day of reckoning will come if market principles are allowed to work out their natural balance. However, the moneychangers design a fantasyland of monetary assessment that distort and prop up the price of the “Reserved Currency”.
John Plender writes in the Financial Times, Central bank hot air pumps up bond bubble, presents an analytical evaluation of worth in the current bond values.
“In the fixed interest sector something irrational is undoubtedly going on, but it is less a matter of exuberance than desperation in the pursuit of yield. In higher yielding parts of the market prices are out of touch with default risk.
Despite the oft-heard central bankers’ refrain that bubbles are impossible to identify until after they have been pricked, historical comparisons leave little doubt that this is a bubble – one, moreover, to which central banks have contributed their fair share of hot air. It is rare indeed for investors to pay a multiple of more than 50 times for the income stream on a 10-year Treasury bond.”
Nevertheless, this inflated bubble just keeps expanding from the unlimited flow of repurchases by the Federal Reserve of Treasury debt. What else is left to do, when the global financial markets are reluctant to buy into the next round of T-Bill offerings? Indefinite aggressive QE is here to stay as long as the need to roll over the debt exists. This view is shared in the latest report, Treasury Bond Bubble Will Not Pop, Fed Will Simply Increase QE. Guru Jim Sinclair offers the conventional-politicized viewpoint that the printing press will just keep running.
“Essentially Sinclair is stating that interest rates will continue to manipulated at an artificially low level by uneconomic buying of T-bonds by the Federal reserve governor typing on a keyboard, and that the pace of QE will keep pace with the pace of the US budget deficit/ funding gap, until which point the US dollar faces a collapse in the confidence of the currency itself.”
Of course, the operative circumstance is when will the collapse of the Dollar currency come? The interest rates charged to purchase T-Bonds will rise, when the Fed decides that the underreported rate of inflation can no longer be concealed from institutional transactions. When the Street panics over, the artificially low levels on Treasury Bonds rates, and refuse further purchases, the international exchange rate of the Dollar will plummet.
The global rush to devalue currencies is in full force and over time will affect the options that the Fed has in their toolbox. This chicken and egg dilemma will test the legal tender equation to its core. While the government can coerce the acceptance of a failing currency to be used as money, the same cannot be inferred about the purchasing power of T-Bonds.
The linkage between the underlying capital used to purchase the government note and the final return received for holding the bond until maturity has a profound disconnect. Selling your T-Bonds is a wise practice even if an imminent bubble is not ready to blow.
The harm to the financial markets from another precipitated house of cards should scare everyone. Expectations have a funny way of influencing financial results more often than sound evaluations. The prospect of a default by the Treasury is embedded, even under synthetically low interest rates. Just how long will this anticipation hold true?
-
TWENTY PREDICTIONS FOR 2013, THE YEAR OF OPPRESSION AND INSANITY
Mike Adams
NaturalNews
January 1, 2013
2013 will go down in history as the year of global insanity. The Earth isn’t going crazy, but many of the people who inhabit it certainly are. Madness is about to be unleashed on many fronts: economic, social, political, financial and more. In the near future, you will look back on the Christmas of 2012 and think, “Wow, those were the GOOD times!”
Do not read this article if you wish to continue frolicking in the land of TV delusions, fake news and celebrity gossip. These are the darkest real-world predictions I’ve ever published, and they are not things I ever wish to see come true. But I can’t deny the reality of where things are headed. If we project present-day trends into 2013, 2014 and 2015, the picture becomes a multi-front nightmare.
The madness in America has reached a crescendo. Nearly half the population is now under the mind control of a “cult of personality” political figure named Obama who is deliberately dismantling America one day at a time. Unlike Bush who was simply a tyrant, Obama is a charismatic tyrant, and that’s far more dangerous. As you may recall, Adolf Hitler was also highly charismatic and won over the hearts and minds of his followers, using many of the very same speech patterns as Obama, an expert in neurolinguistic programming and emotional manipulation.
Because the population has been mesmerized into a state of near-total complacency, an actual police state society is being rolled out right before our eyes, complete with the planned destruction of the Bill of Rights and the characterization of anyone who believes in the Constitution as a “terrorist.”
Both Republicans and Democrats are doing nothing to stop it, as they have been taken over by corporate interests or have been promised positions of power in the new society that they plan to install after they crush the Republic.
With Obama at the helm, America is being turned into a gulag nation, complete with the sexual abuse of the citizens by federal agents (TSA), secret execution lists of American citizens (NDAA), secret gulag prisons and the government’s continued staging of mass shootings (Aurora and more) to keep the population psychologically controlled in a never-ending state of fear.
2013 will be 1984 on steroids
The ultimate plan, as you will see rolled out over the next few years, is installing Communism in America, which requires the complete government takeover of the economy, the total disarmament of the population so that people cannot fight back, the “elimination” of all who believe in freedom and liberty, and the official destruction of the Constitution and the Bill of Rights.
I wish I could say 2013 would be the year of “love” and “peace,” but unfortunately these will be used to provide a cover story for hatred, destruction and war. President Obama, the Nobel Peace Prize winner, is already one of the most repugnant war criminals in human history, having launched or continued eight regional wars, complete with the dropping of “peace bombs” on innocent women and children.
As long as Obama talks about “love” at home — even while firing drone missiles at innocent children in the Middle East — he is worshipped by his mind-slave minions in the USA. By invoking LOVE, Obama emotionally disarms the People and furthers his agenda of hatred, destruction and enslavement. His supporters have lost discernment and unknowingly are supporting the rise of the next tyrannical dictator.
If we even have a Presidential election in 2016, I will be surprised. 2012 may have witnessed the last shreds of the Republic being deliberately terminated.
The following predictions apply from 2013 to the end of 2015, as I always make predictions in three-year blocks.
#1) The global debt collapse arrives
The so-called “fiscal cliff” is only the beginning of what we’re about to witness. When record-low tax revenues are reported in April because of Obama’s planned destruction of the U.S. economy, ratings organizations will downgrade U.S. debt, setting off a global selloff that could thrust America into a “nightmare” scenario of being unable to sell more debt (or at least not at reasonable interest rates).
This, in turn, would result in the Fed turning solely to printing new money to buy U.S. debt, quickly accelerating into compounding hyperinflation.
#2) Obama administration attempts to gut the Second Amendment
Obama is coming after the guns, and he’s aided by some of the most insidious and psychotic individuals walking the planet today: Joe Biden, Dianne Feinstein, Michael Moore and others.
Their goal is the complete disarmament of the American people so that the government has total control over all firepower, just like in China, North Korea and Hitler’s Germany.
It’s all pure hypocrisy, of course, because all of these people have their own armed bodyguards. Obama’s children are protected by eleven armed guards in a private school. Michael Moore has armed body guards. Dianne Feinstein has a concealed weapons permit in California. They all want themselves to be able to have weapons, but not YOU, the “little people” of America.
#3) Martial Law declared across America
2013 is the year things may break out into mass violence in America. Look for Obama to declare Martial Law and announce a mandatory nationwide gun confiscation measure.
This, of course, will lead to even more violence as armed citizens begin fighting back against an out-of-control federal government that attempts to seize power and nullify the entire U.S. Constitution and its Bill of Rights.
#4) Extreme shortages of guns, ammo, magazines as their barter value skyrockets
Already, guns, ammo and magazines are virtually impossible to find and buy. This shortage will continue throughout 2013 and even well into 2014. Even if strict new gun control laws are not passed, the existing shortage cannot be filled until roughly the end of 2013.
The wait time on purchase many new rifles has already reached one year. It’s likely to get even worse in 2013.
#5) Tactical weapon strikes target Iran
The U.S. is very likely to be involved in military strikes on Iran. The excuse will be that “Iran has nuclear weapons,” but of course so does America, and the leadership of America is clinically insane.
This old “weapons of mass destruction” sham was the same excuse President Bush used to attack Iraq, remember? Now Obama will use essentially the same ploy to launch another “Peace Prize” war on a nation of innocent people. After all, he’s the President of LOVE, right? And there’s no better way to express LOVE for people than to bomb their children into bloody bits, Obama believes.
#6) Massive false flag attack carried out in USA and blamed on patriots
This is the big prediction for 2013 – 2015. A very large false flag attack will be carried out by the government and used to blame patriots and gun owners. This attack will be, on the small side, another school massacre or the bombing of a government building. On the large side, it could even be the release of a radiological weapon in a major U.S. city.
The false flag 9/11 attack worked so well to strip away America’s rights and freedoms that it will be repeated. But this time it could be much larger, potentially involving the death of hundreds of thousands of people. There is no limit to the evil of Big Government. They will do anything to maintain power and destroy liberty, even if it means “sacrificing” a few hundred thousand innocent lives. Once this happens, Obama will once again take to the airways and pronounce his “LOVE” for the American people.
#7) DHS arms the TSA and begins insane abuses of Americans on roadway checkpoints
The TSA will soon be armed. That’s the plan, didn’t you know? Take the most psychotic government workers in the nation — who are already known pedophiles, drug dealers, child porn dealers, thieves and shakedown artists — and arm them with government weapons to be used against the American people.
Soon, the roadway checkpoints will be set up and armed TSA goons will be molesting women and children on highways just like they already do in the airports!
Remember, TSA “officers” receive no police training. They take no oath of office. They are not “law enforcement” by any stretch of the imagination. They receive a week’s worth of training and then are let loose on the American people. (A typical police officer, in great contrast, will receive many months of training and swear an oath to protect the Constitution.) The uniforms worn by TSA are actually costumes with fake badges that mean nothing more than a plastic badge you might buy at a toy store.
#8) The rise of the Resistance: Secret resistance groups begin to form across America
As the crushing of liberties continues across America (censorship, destroying the Bill of Rights, secret arrests, etc.) you will witness the rise of resistance groups. They may take many forms, including info-warriors, online resistance, protests, and possibly even physical resistance groups that carry out missions in the physical world.
The more aggressive, abuse and outrageous the government becomes, the more easily resistance groups will be able to recruit members. This is just an historical fact. In times of peace and fairness, there is little or no resistance. But in times of government oppression and tyranny, resistance grows quickly.
#9) Attacks on the First Amendment accelerate as government seizes websites
You can expect websites like NaturalNews.com, InfoWars.com and many others to be seized by the government following a declaration of Martial Law. The purpose of this is to prevent people from asking questions or being informed. The U.S. press, already tightly controlled by the White House, will be completely taken over to become state-run media much like exists in China.
Natural News is right now working on an “information underground railroad” technology that can allow readers to stay in touch with us without using websites, browsers or email.
#10) The rise of violent rhetoric among the population as disagreements turn to threats
The irreconcilable differences between government worshippers and government skeptics will reach a boiling point, especially over the issue of gun control. Those who worship government vehemently believe that all people should be disarmed and tightly controlled by the “all knowing” government, which they see as the ultimate source of wisdom and love. True Americans, on the other hand, rightfully see government as inherently evil and destructive, and they believe in individual liberty, the Constitution, and genuine patriotism.
Expect to see isolated acts of violence between these two groups. Remember, the government worshippers want to see all the Constitutionalists rounded up and sent to concentration camps (FEMA camps). But Constitutionalists will not willingly go. They will fight back against tyranny.
#11) Global government makes its move
Expect to see UN troops in U.S. cities before the end of 2015. The planned rollout of conflict in the USA is going to be followed by UN troops arriving on the scene to “rescue” the USA.
The whole point of all this is to take over America, disarm the entire nation, and move toward global government run by the insanely criminal United Nations. The military occupation of America will be called a “peacekeeping mission” just like it’s called everywhere else that UN troops invade another nation.
Once UN troops start showing up in America, you can expect armed resistance to really kick into high gear. Blue helmets make easy targets for American sharpshooters, and the American people have stored away billions of bullets for a rainy day. There will be no hesitation to fight back against enemy occupation.
#12) Accelerated mainstream media attacks on patriots, preppers and veterans
As all this is happening, the media will unleash a wave of vicious attacks on anyone who owns a gun or believes in the Constitution. Gun owners will be immediately labeled “terrorists,” and anyone who talks about the Bill of Rights or the Constitution will be subject to arrest and imprisonment in Obama’s secret gulag prisons (NDAA).
#13) Disagreement with the government characterized a “mental disorder”
The criminally-run industry of psychiatry will enter into the fray, providing a convenient “mental disorder” label that can be used to arrest and medicate anyone who opposes government.
“Obedience Defiance Disorder” is already on the books in the industry of psychiatry, and it will be used to deny firearms to anyone who makes any statement whatsoever against the government. If you post a pro-gun comment on Facebook, for example, not only will your Facebook account be terminated, you can also be arrested and drugged for having a “mental disorder.”
#14) Continued rise in unemployment, food stamps, welfare as Obama accelerates deliberate destruction of U.S. economy
Obama’s planned destruction of the U.S. economy will accelerate from 2013 – 2015, causing millions more people to lose their jobs. Employers will continue offshoring jobs, slashing job positions and job hours. Food stamp rolls will balloon, and the ultimate goal is to make more people entirely dependent on the government so that they will continue to vote for whichever candidates promise the most aggressive expansion of collectivist government.
#15) Criminalization of preparedness activities as government outlaws ammo storage of private citizens
The storage of ammunition, firearms and even food will be outlawed in America. Preparedness activities will be considered “acts of treason” against the nation, and people will be arrested and imprisoned for “prepping.”
The government, of course, will continue to stockpile ammo, weapons, food and survival gear. But that’s only for government. All private citizens will be criminalized for such actions.
#16) Riots in the streets, followed by Martial Law
At some point in all this, riots will break out. This could be triggered by any number of things: financial crash, bank holidays, the announcement of Martial Law, food shortages, etc.
No matter what the cause, riots will be used to further monopolize power in the hands of government by having government instigators join the riots and start throwing explosives or firing guns. This will allow the media and the government to characterize all crowds as “terrorists” and start opening fire on protesters everywhere. If this happens, it will accelerate the rise of the resistance.
#17) Deliberate food shortages used as a weapon of government control
Thanks to record crop failures in 2012, food shortages are already going to hit in 2013. But they could be made far worse by the government announcing Martial Law and then declaring price controls on food staples. This will result in immediate shortages. The government will then try to step in and control food distribution and supply, creating a total nightmare scenario for citizens.
Food will be denied to areas that have a large number of resistance members. This will primarily target urban areas, where most people own firearms and know how to use them. The strategy of the dictatorial government will become, “Starve ‘em out!” (It won’t work, of course, because country folks know how to raise their own food.)
#18) Weather becomes even more radicalized, with droughts, floods, freezes
You can fully expect 2013 to be another year of radical weather around the globe. Expect yet more food shortages to occur as crops fail due to floods, droughts and freezes.
#19) Solar weather gets nasty: Solar flares threaten communications
Speaking of weather, solar weather will also take a turn toward the extreme. The sun is entering a high-activity phase of its cycle, and this could play havoc with satellites and even the power grid.
If a large solar flare achieves a direct hit on the planet, it could cause widespread power grid failures followed by a chain of nuclear power plant meltdowns globally.
This could cause a massive population collapse and render large sections of the planet uninhabitable for centuries.
#20) You will be told the answer to all our problems is “MORE government!”
No matter what happens in 2013 – 2015, you will be told that the answer is to have bigger government controlling more of your money and your life. The only reason we have problems today, we’re told, is because government doesn’t yet have enough control. If we would only give up our paychecks, our jobs, our private property, our rights and our freedoms, government will “provide” for everyone!
Obamatopia!
Of course, there are countries where this has already been tried. Those countries are called North Korea, China, Cuba, etc. Are these countries shining examples of freedom and utopia? Nope, they’re the hell holes of the world where disarmed populations suffer under the brutality of communist regimes.
That’s the future that lays ahead for America if something doesn’t change. Obama has been installed in the White House precisely for the purpose of “terraforming” America into a communist nation. If the American people remain asleep and apathetic, he may actually succeed.
-
50 PREDICTIONS FOR 2013
Michael Snyder
The Economic Collapse
Jan 2, 2013
Are you ready for a wild 2013? It should be a very interesting year. When the calendar flips over each January, lots of people make lots of lists. They make lists of “resolutions”, but most people never follow through on them. They make lists of “predictions”, but most of those predictions always seem to end up failing. Well, I have decided to put out my own list of predictions for 2013. I openly admit that I won’t get all of these predictions right, and that is okay. Hopefully I will at least be more accurate than most of the other armchair prognosticators out there. It is important to look ahead and try to get a handle on what is coming, because I believe that the rest of this decade is going to be extraordinarily chaotic for the U.S. economy. The false bubble of debt-fueled prosperity that we are enjoying right now is not going to last much longer. When it comes to an end, the “adjustment” is going to be extremely painful. Those that understand what is happening and have prepared for it will have the best chance of surviving what is about to hit us. I honestly don’t know what everybody else is going to do. Many of the people that don’t see the coming collapse approaching will be totally blindsided by it and will totally give in to despair when they realize what has happened. But there is no excuse for not seeing what is coming – the signs are everywhere.
So with that being said, the following are 50 bold predictions for 2013…
#1 There will be a major fight between the Republicans and the Democrats over raising the debt ceiling. This will be one of the stories that dominates news headlines in the months of February and March.
#2 Most of the new “revenue” that will be raised by tax increases in 2013 will come out of the pockets of the middle class.
#3 No matter what “fiscal deals” the Democrats and the Republicans make in 2013, the federal budget deficit will still end up being greater than a trillion dollars for the fifth consecutive year.
#4 The credit rating of the U.S. government will be downgraded again in 2013.
#5 The Federal Reserve, along with major central banks all over the globe, will continue to wildly print money.
#6 There will be more criticism of the Federal Reserve in 2013 than at any other time since it was created back in 1913.
#7 The term “currency war” will be used by the media more in 2013 than it was in 2012.
#8 The movement away from the U.S. dollar as the primary reserve currency of the world will pick up momentum. This will especially be true in Asia.
#9 The economic depressions in Greece and Spain will get even worse and unemployment in the eurozone will go even higher in 2013.
#10 A financial crisis in Europe will cause officials to grasp for “radical solutions” that will surprise many analysts.
#11 The unemployment rate in the United States will be higher by the end of 2013 than it is now.
#12 The percentage of working age Americans with a job will fallbelow 58 percent by the end of the year.
#13 At least one “too big to fail” bank will fail in the United States by the end of 2013.
#14 By the end of the year, more people than ever will understand what “derivatives” are, and that will be because they have caused major problems in the financial world.
#15 We will see the beginnings of another major housing crisis before the end of 2013 and foreclosure activity will start rising once again.
#16 We will see another new wave of “tent cities” start to go up in communities around the nation before the end of the year.
#17 There will be another major drought in the United States this upcoming summer and there will be widespread crop failures once again.
#18 The massive dust storms that we have seen roll through cities like Phoenix in recent years will become even larger and even more intense.
#19 Traffic along the Mississippi River will be significantly interrupted at some point during 2013. This will be a very negative thing for the economy.
#20 Food prices will soar in 2013. This will especially be true for meat products.
#21 In some of the poorer areas of the globe, major food riots will break out. Governments will have trouble containing the civil unrest.
#22 There will be more genetically-modified foods in our supermarkets than ever before, and more Americans than ever will reject them and will seek out alternatives.
#23 The average price of a gallon of gasoline in 2012 was about$3.60. The average price of a gallon of gasoline in 2013 will be lowerthan that. Yes, you read that correctly.
#24 The number of vehicle miles driven in the United States will continue to decline in 2013.
#25 The Dow will end 2013 significantly lower than it is right now.
#26 When the final statistics for 2013 are compiled, U.S. share of global GDP will be less than 20 percent for the first time in modern history. Back in the year 2001, our share of global GDP was 31.8 percent.
#27 The U.S. Postal Service will continue to experience massive financial difficulties and will lay off personnel.
#28 As violence in our public schools becomes increasingly worse, more Americans families than ever will decide to home school their children.
#29 The Obama administration and Democrats in Congress will makean all-out attempt to pass gun control measures in 2013. When their efforts on the legislative front are stalled somewhat by Republicans in the House, Obama will use his executive powers to further his gun control agenda.
#30 One of the cities with the strongest gun laws in the nation, Chicago, had 532 murders in 2012 and it is now considered to be one of the most dangerous cities on the planet. By the end of 2013, the murder total in Chicago will be above 600.
#31 There will be an increasing amount of tension between state governments and the federal government. The issue of “states rights” will move front and center at various points in 2013.
#32 CNN will continue to sink to horrifying new lows. Piers Morgan will end up leaving the network before the end of the year.
#33 The number of Americans on food stamps will surpass 50 million for the first time ever at some point during 2013.
#34 The U.S. trade deficit with China in 2013 will be well over 300 billion dollars.
#35 The phrase “made in China” will increasingly be viewed as a reason not to buy a product as Americans become more educated about the millions of good jobs that we have lost to China over the past decade.
#36 We will see increasing cooperation between the governments of the United States, Canada and Mexico and border restrictions will be loosened.
#37 There will continue to be a mass exodus of families and businesses out of the state of California. The favorite destination will continue to be Texas, but Texas residents will become increasingly resentful of all of these new transplants.
#38 There will be some truly jaw-dropping examples of violence by parents against their own children in 2013. Many of these stories will make headlines all over the nation.
#39 The percentage of Americans that are obese will continue to riseand will set another new all-time record in 2013.
#40 There will be more war in the Middle East in 2013. But it will only set the stage for even more war in the Middle East in 2014 and 2015.
#41 U.S. troops will be deployed in more countries than ever before in 2013.
#42 Volcanic eruptions and major earthquakes along the Ring of Fire will make headlines all over the globe in 2013.
#43 Giant sinkholes will continue to appear all over the United Statesand all over the globe, and scientists will continue to struggle to find an explanation for why it is happening.
#44 The peak of the solar cycle in 2013 will cause significant problems for satellite communications.
#45 The U.S. government will put more resources into the surveillance of the American people than ever before, but most Americans won’t mind all of this surveillance because they have become convinced that it is important to give up some of our liberties for more “security”.
#46 Our infrastructure (roads, bridges, tunnels, airports, sewers, electrical grids, etc.) will be in worse shape by the end of 2013 than it is now.
#47 The percentage of “two parent households” in the United States will continue to decline.
#48 “Political correctness” will reach ridiculous new heights during 2013, and more Americans than ever will start to rebel against it.
#49 There will be more anger at the wealthy in 2013 than at any other time in modern history.
#50 There will be some shocking political scandals in Washington D.C. in 2013. We will see some high profile resignations by the end of the year.
Once again, please keep in mind that I do not expect to be 100% correct about all of these things. I am just trying to put all of the pieces of the puzzle together just like everyone else is.
But I do hope to have a better track record than most of the other people putting out lists of predictions at the beginning of this year. So save this list and let’s revisit it at the end of the year.
-
GERALD CELENTE: TRENDS OUTLOOK FOR 2013
Published on Jan 23, 2013
Gerald Celente, TrendsJournal.com, who identifies important trends he sees ahead in 2013.
-
GERALD CELENTE: ON 2013, GOLD, SILVER, AND WORLD WAR III
By Greg Hunter’s USAWatchdog.com
Trends forecaster Gerald Celente predicts the global financial system will continue to be propped up. Celente says, “The scheme continues to go, the scheme being dumping cheap money into the system to perpetuate an economy that should have crashed in 2008. So, for 2013, our best shot is more of the same, but worse.” Celente’s advice for people who want to protect themselves financially, “Continue to buy gold and silver because a currency war has broken out.” Celente says gold’s assent has stalled because the financial elite “rigged the game” just like the $800 trillion global LIBOR interest rate market. Celente asks, “Don’t you think they’re rigging the gold and silver markets?” Celente contends the fuse is lit on the Middle East and North Africa. He thinks, “The Arab Spring has nothing to do with a democracy movement. It has to do with far too few having much too much and way too many having much too little.” Celente predicts, “If anybody attacks Iran, it will be full-fledged World War III.” Join Greg Hunter as he goes One-on-One with Gerald Celente, publisher of The Trends Journal.
-
YOU KNOW HOW ALL THIS ENDS RIGHT? THIS ENDS THROUGH WORLD WAR
Mac Slavo
SHTFplan.com
January 1, 2013
In 2006, when Americans were flying high on ever-expanding credit and double digit real estate growth, hedge fund manager Kyle Bass came to the conclusion that something was very wrong. He and his investors determined that a massive real estate bubble was forming in sub-prime mortgages. But rather than just making a prediction, they put their money where their mouth was, and took a $4 billion gamble that the real estate market was about to detonate.
At the time, many in the industry and within financial circles thought him crazy.
History, however, proves he was right.
When the real estate bubble did finally burst, stock markets plummeted and mortgage backed securities fell to pennies on the dollar. Bass and his hedge fund made billions in the process.
Bass’ foresight was 20/20, and now he has issued a warning so dire that it, like the real estate crisis and recession that followed, is unimaginable for most Americans.
In many of these situations the quantitative analysis is already done. It’s just a question of when will this unravel and how will it unravel, which I think is the key when we’re thinking about the chronology of events and the likelihood of events going forward.
—
Something that I think is really important to pay attention to, in the last 10 years debts around the world – this is total credit market debts, this is on balance sheets, sovereign obligations, corporate debt, household debt – has grown from $80 trillion to just over $200 trillion.
—
We sit today at the world’s largest peacetime accumulation of debt in world history…
…You know how this ends right?
This ends through war…
…I don’t know who’s going to fight who, but I’m fairly certain in the next few years you will see wars erupt, and not just small ones…
—
You’re going to see more social unrest.
You saw HUGE riots in Greece, and you’re seeing HUGE riots in other parts of the world over food (and lack of food) and those are actually derivatives of the financial problems that we’re seeing. We’re exporting inflation to some other nations. Going forward it’s going to be a problem.
—
They’re not going to tell you [that a collapse is coming]. You’re going to have to see it for yourself. [During the Tequila crisis], the Mexican government affirmed they would not default, that they would not devalue, almost daily. The day after they said “we wont devalue,” they devalued by 60%.
The government’s never going to tell you that it’s going to happen.
Greece’s Yunker said recently, ‘When it becomes serious—you have to lie’. These guys are never going to tell you the truth, because they can’t tell you the truth. Their job is to promote confidence, not to tell you the truth.
Watch Kyle Bass:
Full Speech at the AmerCatalyst 2012 Conference (Approx 1 hour)
-
The United States, Europe and the rest of the world have created more debt than has ever existed in the history of the world. Debt is nothing more than a representation (and expectation) of future earnings – future work. But, as many of us know, there has been so much money borrowed that we can’t possible every expect to pay it back. In fact, the only thing we can expect is that we will continue to take on even more debt.
At some point in the (near) future, the plug is going to be pulled and no one is going to lend anyone any more money. We saw this on a small scale in 2008 when credit markets around the world froze up. No one was lending money. There was so much risk that banks not only refused to lend money to individuals and businesses, but they refused to even lend each other money.
Central banks around the world, namely the U.S. Federal Reserve, calmed financial markets by pumping out trillions of dollars in emergency lending. This gave many a perception that things were returning to normal, but as Kyle Bass points out, we are in anything but a normal situation.
Debt has sky rocketed and we’re not going to pay it back – ever.
Like the mafia does when debts don’t get paid, our creditors are eventually going to resort to ‘breaking some legs.’
But we’re talking about debts of entire sovereign nations here, so the tools used to ‘take care of it’ won’t be crowbars or baseball bats, but rather, soldiers, tanks and intercontinental ballistic missiles.
War is coming – just as it has throughout history.
And the 99% of Americans who believe in a benevolent, all knowing, all caring government will be the last ones to get the memo.
Ignore the warnings at your peril.
-
THE THREE COMING FALSE FLAG ATTACKS
-
THE DAY THE WORLD ENDED: WORLD WAR III SIMULATION - ISRAEL STRIKES IRANIAN NUCLEAR SITES
Published on Nov 21, 2012 by visionvictory
-
-
FutureMoneyTrends.com, a top trends research newsletter, has released a World War 3 simulation video, “The Day The World Ended.” The purpose of this simulation is to show people just how fast things could get ugly if we go to war with Iran. During the simulation, oil prices spike to $130 per barrel, but by the end of the day are trading for $405. Gold and silver become unavailable as the world floods into safety as oil prices force a systemic economic collapse. Riots, civil unrest, and drastic government action are taken during the start of this war.
FutureMoneyTrends.com helps many investors strategically look at how future trends and scenarios will help or hurt their portfolio. This simulation is not an exact prediction, however FutureMoneyTrends.com does believe events could unfold quickly if Iran responds striking at the heart of the world’s petroleum market.
Much in the press is about Iran and Israel, but military planners and pundits should take note that Iran is also enemies with Saudi Arabia and they know that the U.S. cannot survive without oil. Though 90% of U.S. oil imports come from areas not in the middle east, prices are set on a global market, so crisis in the middle east will be a direct crisis for the U.S. economy. During the FutureMoneyTrends.com war simulation, Iran strikes Saudi oil fields in response to Israel striking Iranian nuclear sites. Once this happens, to put it nicely, all hell breaks loose.
Those who watch “The Day The World Ended – WW3 Simulation” by FutureMoneyTrends.com, be prepared for an intense 8 minute simulation. Once finished, you can visit FutureMoneyTrends.com/theend to watch more, as well as download their free report on how to survive and thrive during a currency crisis.
In order to watch Part 2, Visit: http://FutureMoneyTrends.com/TheEnd
-
RELATED POSTS:
UNITED NATIONS NOW SEEKS TOTAL CONTROL OVER THE INTERNET
ISRAELI WARPLANES STRIKE TARGETS ON SYRIA-LEBANON BORDER AMID WEAPONS FEARS
BREAKING NEWS: RUSSIA THREATENS THE UNITED STATES WITH NUCLEAR ATTACK
CHOSSUDOVSKY: TOWARDS A WORLD WAR III SCENARIO
READ THE FULL E-BOOK FREE: TOWARDS A WORLD WAR III SCENARIO
PAUL FARRELL: WORLD WAR III: THE GREAT COMMODITIES WAR TO END ALL WARS
PRESIDENT OBAMA’S ELECTION NIGHT VICTORY SPEECH – NOVEMBER 6, 2012 IN CHICAGO, ILLINOIS
-
MICHAEL PENTO: “Israel will finally address the Iran issue in 2013. I think they attack Iran in April or May. That sends oil prices of WTI (West Texas Intermediate Crude Oil) to $170 a barrel. If that’s the case, then you can kiss whatever nascent recovery that we have in this country [United States] and around the globe goodbye.”
-
OBAMA’S POST ELECTION MILITANCY
By Stephen Lendman | Global Research
Obama didn’t miss a beat. He picked up where he left off. He’s America’s most belligerent leader. He’s waging multiple direct and proxy wars abroad and at home by other means.
Despite pressing unresolved domestic issues, he celebrated his electoral victory belligerently.
On November 7, he bombed Yemen. Washington’s been waging proxy war there for years. Daily attacks occur. Drones are the weapon of choice.
Remote warriors conduct sanitized killing on the cheap. Death and injury tolls rise. Mostly civilians are harmed. On November 8, Press TV headlined “US drone kills three in Yemen.” US mainstream media ignored it.
Hours after Obama’s reelection, a “drone strike near the Yemeni capital has killed three people and injured two others.”
Deadly attacks persist. International, constitutional, and US statute laws are violated. Ordinary people are harmed most. Civilian men, women and children are terrorized and traumatized.
Obama’s victory lap also included more Iranian sanctions. Multiple rounds imposed are illegal. A November 8 State Department press release announced the latest measure, headlining:
“Designations of Iranian Individuals and Entities for Censorship Activities Under the Iran Threat Reduction and Syria Human Rights Act and Executive Order 13628.”
Five Iranian entities and four individuals were targeted. Accusations are part of America’s longstanding anti-Iranian hostility.
Washington claims they engage in “censorship or other activities that prohibit, limit, or penalize freedom of expression or assembly by citizens of Iran, or that limit access to print or broadcast media, including by jamming international satellite broadcasts into Iran, and related activities.”
“U.S. persons are prohibited from engaging in transactions involving the designated individuals or entities, and all designated individuals and members of designated entities are subject to a ban on travel to the United States. This action also blocks, or freezes, the property and interests in property of designated individuals or entities.”
The press release disingenuously claimed Washington “will continue to stand with the Iranian people in their quest to protect their dignity and freedoms and prevent the Iranian Government from creating an ‘electronic curtain’ to cut Iranian citizens off from the rest of the world.”
Sanctions in place impose enormous hardships on Iranian civilians. A health crisis exists. Vital medications aren’t available or are in short supply. Medical equipment breaks down for lack of spare parts.
Human suffering and deaths result. Crimes against humanity breach fundamental international law. Civilians must be protected at all times.
Targeting nonbelligerent countries is lawless and unconscionable. Washington prioritizes it. Obama is America’s most belligerent president in history. He exceeded the worst of his predecessor. His second term may eclipse his war on humanity so far.
A previous article explained US and Israeli anti-Iranian red lines, timelines, deadlines, sanctions, sabotage, subversion, cyber attacks, assassinations, saber rattling, falsified IAEA hype, ad nauseam warmongering, Obama/Netanyahu bluster, spurious accusations, manipulated to fail P5+1 talks, and inflammatory headlines intended to promote regime change and war.
Iran and Syria top America’s target list. Syrian opposition groups wrap up their Doha meeting Friday. AFP said opposition elements are “under pressure to unite and bring in all parties (under) new leadership with Islamists heavily represented.”
On Thursday, a 40-member general secretariat was elected. On Friday, a president will be chosen. Dissension and disarray marked days of discussions.
Washington wants officials in place serving US interests. Russia’s Foreign Ministry said Clinton issued “direct orders about what the Syrian opposition should do to form a ‘government in exile’ and” who’d be permitted to join it.
Syrian National Council (SNC) head Abdelbaset Sieda objected to being marginalized and perhaps shut out. It’s unclear what’s in place.
On November 7, the UK Telegraph headlined “Syrian opposition plan falls apart on eve of Doha conference,” saying:
Ahead of Thursday’s meeting, three dissident factions pulled out. Representatives from the National Coordinating Committee, Syrian Democratic Platform, and Kurdish minority rejected Clinton’s plan. An unnamed Western source said, “There are too many people against this initiative for it to work now.”
SNC military representative Jamal al-Wa’ard said, “The components that were not in the SNC are not coming. The idea of a bigger coalition initiative has failed.”
SNC members rejected Western efforts to impose a solution on Syria. Deputy Revolutionary Council head Ahmed Zaidan said, “Everyone feels that this initiative is imposed. They’ve weaved the cloth but now there is no one to wear it.”
Washington-style diplomacy imposes its will on others whether or not they concur. America, Britain and France announced their support for newly appointed Secretariat members “as the legitimate representative of the Syrian people.”
Financial and military support will be provided. It’s been ongoing since last year. Most weapons used come from Washington, Britain, France, and other NATO members.
British Prime Minister David Cameron toured Middle East countries to sell arms. He also wants the 2011 Syrian weapons embargo lifted. The measure’s text in part says:
“By way of derogation….the competent authorities in the Member States….may authorize the sale, supply, transfer or export of equipment which might be used for internal repression, under such conditions as they deem appropriate, if they determine that such equipment is intended solely for humanitarian or protective use.”
Cameron wants the meaning twisted to do openly what’s been ongoing covertly since conflict began last year. The London Guardian said he’ll press Obama to prioritize Syria. He wants stepped up efforts to oust Assad.
He said he’s determined to act. “That means more help for the opposition, more pressure at the UN, more help for the refugees, more work with the neighbors but also a general sort of:”
“Look, let’s be frank what we’ve done for the last 18 months hasn’t been enough. The slaughter continues. The bloodshed is appalling, the bad effects it’s having on the region, the radicalization but also the humanitarian crisis that is engulfing Syria.”
“So let’s work together on really pushing what more we can do, what other steps we can take to hasten the end of this regime.”
He wants more aggressive options on the table. Expect direct Western intervention if what he has in mind fails. With US elections concluded, it’s more likely. It could happen early next year or sooner.
On November 8, Russia Today interviewed Assad. He’ll not leave Syria, he stressed. He’ll live or die there. He was frank and clear, saying:
“We are the last stronghold of secularism and stability in the region and coexistence, let’s say, it will have a domino effect that will affect the world from the Atlantic to the Pacific and you know the implication on the rest of the world.”
“I am not a puppet. I was not made by the West to go to the West or to any other country,” he said. “I am Syrian, I was made in Syria, I have to live in Syria and die in Syria.”
He doesn’t expect direct Western intervention, but isn’t sure what’s next. He calls “the price of (possible foreign) invasion….more than the whole world can afford.”
“My enemy is terrorism and instability in Syria.”
“The West creates enemies. In the past, it was the communism then it became Islam, and then it became Saddam Hussein for a different reason. Now, they want to create a new enemy represented by Bashar.”
“The fight now is not the president’s fight – it is Syrians’ fight to defend their country.”
It’s “not about the power of the President. It is about the whole society.”
“Syria faces not a civil war, but terrorism by proxies….(F)oreign fighters (came) from abroad.”
“Without foreign rebel fighters and smuggled weapons, we could finish everything in weeks.”
“Al-Qaeda’s final aim is an Islamic emirate in Syria.”
He’ll talk with anyone willing to help Syrians. He won’t waste time with elements wanting conflict to persist for their own interests.
“We are fighting terrorism. We are implementing our constitution by protecting the Syrian people.
Asked if he’d do anything differently from when protests began last March, he said, “I would do what I did on March 15 (2011).”
“Exactly the same. (He’d) ask different parties to have dialogue and stand against terrorists because that is how it started. It did not start as marches.”
“The umbrella or cover was the marches, but within those marches you had militants who started shooting civilians and the army at the same time.”
“Maybe on the tactical level, you could have done something different but as a president you are not tactical. You always take the decision on a strategic level which is something different.”
He hopes Syria will emerge from conflict safe, stable, secure, and more prosperous. He knows it won’t happen soon. Washington’s regime change plans won’t change. Achieving them is something else entirely.
A Final Comment
Daily violence rages in Syria. Terror attacks are a way of life. Car bombs and other violence happen regularly. No place is safe.
The longer conflict persists, the more public support grows for Assad. He’s the last line of defense for ordinary Syrians. Even those against him rely on security forces for help.
Western-backed foreign mercenaries lack support and credibility. Syrians deplore who they are and what they stand for. They want Syria transformed into a fundamentalist caliphate. They want Sharia replacing secular law.
Syrians want to choose their own form of government. They don’t want outsiders doing it for them. Foreign invader control will make Syria ungovernable like Libya. People know what’s going on there and want no part of it.
Even The New York Times expressed some rare candor. It admitted that “rebel fighters….are losing crucial support from a public increasingly disgusted by the actions of some rebels, including poorly planned missions, senseless destruction, criminal behavior and the coldblooded killing of prisoners.”
The shift in public sentiment is palpable. Radicalized opposition elements scare people. Daily bloodshed reminds everyone of what’s coming if they gain control.
An unnamed Saraqib Syrian said, “They were supposed to be the people on whom we depend to build a civil society.” Instead, they’re destroying it.
An Aleppo resident “begged rebels not to camp in a neighborhood telecommunications office. But they did, and government attacks knocked out phone service.”
“One fighter shot into the air when customers at a bakery did not let him cut into a long line for bread. Another was enraged when a man washing his car accidentally splashed him. He shot at him.” He escaped unharmed.
Twenty months after conflict began, people “are trapped in a darkening mood of despair, revulsion and fear that neither side can end the conflict.”
“The most significant change is (that people openly) criticize rebels.”
“Small acts of petty humiliation and atrocities like executions have led many more Syrians to believe that (many) rebels are (morally) depraved….”
They “forced government soldiers from a milk factory, then destroyed it, even though residents needed the milk and had good relations with the owner.”
“They shelled the factory and stole everything. Those are repulsive acts.”
Syrians also know who bears responsibility for months of conflict and what’s at stake. LIke others throughout the region, they deplore Washington for good reason. They want to live free from Western dominance. They may end up dying for it.
-
CHOSSUDOVSKY: UNITED STATES WILL START WORLD WAR III BY ATTACKING IRAN
-
U.S. GIVES IRAN UNTIL MARCH 2013 TO COOPERATE WITH IAEA
By Fredrik Dahl
VIENNA (Reuters) – The United States set a March deadline on Thursday for Iran to start cooperating in substance with a U.N. nuclear agency investigation, warning Tehran the issue may otherwise be referred to the U.N. Security Council.
The comments by U.S. diplomat Robert Wood to the board of the International Atomic Energy Agency signaled Washington’s growing frustration at a lack of progress in the IAEA’s inquiry into possible military dimensions to Tehran’s nuclear program.
Iran – which was first reported to the U.N. Security Council over its nuclear program by the IAEA’s 35-nation board in 2006 and then was hit by U.N. sanctions – rejects suspicions it is on a covert quest for atomic bomb capability.
But its refusal to curb nuclear work with both civilian and military applications, and its lack of openness with the IAEA, have drawn tough Western punitive measures and a threat of pre-emptive military strikes by Israel.
A year ago, the IAEA published a report with a trove of intelligence indicating past, and some possibly continuing, research in Iran that could be relevant for nuclear weapons.
The IAEA has since tried to gain access to Iranian sites, officials and documents it says it needs for the inquiry, but so far without any concrete results in a series of meetings with Iran since January. The two sides will meet again in December.
In his statement, Wood requested IAEA Director-General Yukiya Amano to say in his next quarterly report on Iran, likely due in late February, whether Tehran has taken “any substantive steps” to address the agency’s concerns.
“If by March Iran has not begun substantive cooperation with the IAEA, the United States will work with other board members to pursue appropriate board action, and would urge the board to consider reporting this lack of progress to the U.N. Security Council,” Wood said, according to a copy of his statement.
“Iran cannot be allowed to indefinitely ignore its obligations … Iran must act now, in substance,” Wood said.
Amano earlier told the board that there had been no progress in his agency’s year-long push to clarify concerns about suspected atom bomb research in Iran, but said he would continue his efforts.
EU SEES IRANIAN “PROCRASTINATION”
A simple majority in the IAEA board would be required to refer an issue to the U.N. Security Council, which has imposed four sanctions resolutions on Iran since 2006.
It is unclear whether Russia and China – which have criticized unilateral Western sanctions on Iran – would back any U.S. initiative to report Iran again to the Security Council.
Wood later told reporters he hoped the December talks between the IAEA and Iran would be fruitful. But, he added, “I have my doubts about the sincerity of Iran.”
The 27-nation European Union told the board that Iran’s “procrastination” was unacceptable. “Iran must act now, in a substantive way, to address the serious and continuing international concerns on its nuclear program,” it said.
Iran’s ambassador to the IAEA, Ali Asghar Soltanieh, criticised what he called “political noise” and “pressure” from the United States and the EU.
Diplomacy between Iran and the powers – the United States, China, Russia, France, Germany, and Britain – has been deadlocked since a June meeting that ended without success.
Both sides now say they want to resume talks soon, after the re-election of U.S. President Barack Obama, and diplomats expect a new meeting in Istanbul in December or January.
Iran is ready for a “face-saving” negotiated solution to the nuclear dispute, but the West must accept the reality that Tehran would never suspend uranium enrichment, Soltanieh said.
Refined uranium can be used to fuel nuclear energy plants, Iran’s stated aim, and also provide bomb material if processed further, which the West suspects is Iran’s ultimate aim.
The West wants Iran to suspend enrichment, but Iran is showing no sign of backing down.
Iran “has provocatively snubbed the international community by expanding its enrichment capacity in defiance of multiple United Nations Security Council resolutions,” Wood said.
-
NETANYAHU TO DELAY IRAN ATTACK UNTIL 2013
Paul Joseph Watson
Infowars.com
Wednesday, April 4, 2012
A senior Likud politician has revealed that Israeli Prime Minister Benjamin Netanyahu has decided to delay an attack on Iran until weeks or months before next year’s scheduled Israeli election, dovetailing with other reports that the military assault targeting Iran’s nuclear facilities has been postponed until 2013.
“A senior Likud politician told my confidential Israeli source that Bibi Netanyahu has decided to delay an Israeli attack on Iran until some weeks or possibly months before the next scheduled Israeli election. That will happen by October 2013 unless Bibi determines he wants to go to the nation earlier,”writes Richard Silverstein.
According to the source, Netanyahu is preparing to take a huge gamble by following the strategy of Menachem Begin, whose decision to attack Saddam Hussein’s Osirak nuclear plant shortly before the election in 1981 was a key factor in securing victory at the polls.
Netanyahu will be able to position himself as a war leader and rally the population around getting behind him to face an external threat if he launches the attack prior to the election.
Silverstein’s report coincides with an article published today by the Jerusalem Post which also cites anonymous defense establishment officials who suggest the attack will not take place this year.
“It could happen this year, but also 2013 is a possibility,” said the source. “We will need to wait to see the effect sanctions and diplomacy have on Iran and what the regime decides to do.”
According to the report, Israel is waiting on the outcome of talks between Iran and the P5+1 group comprised of the US, UK, France, Germany, Russia and China, discussions set to begin in mid-April, before making a firm decision.
However, if Iran begins the enrichment of high grade uranium and clearly takes steps to build a nuclear device, Israel could change the timeline and swiftly launch the attack.
Haaretz correspondent Amir Oren’s assertion that the attack had been delayed until spring 2013 as a consequence of a joint US-Israeli wargame that did not produce the desired results.
Oren also claimed that Israeli Defense Minister Ehud Barak’s acknowledgment that Israel would not launch the attack without U.S. support before the American presidential election represented, “An announcement that this war was being postponed until at least the spring of 2013.”
However, with two U.S. aircraft carriers currently positioned in the Persian Gulf, and with another, the USS Enterprise, on its way, along with a number of smaller warships in the region, it remains to be seen whether this is all just a bluff to take the Iranians by surprise.
*********************
Paul Joseph Watson is the editor and writer for Prison Planet.com. He is the author of Order Out Of Chaos. Watson is also a regular fill-in host for The Alex Jones Show and Infowars Nightly News.
-
IRAN ATTACK POSTPONED UNTIL SPRING 2013
Paul Joseph Watson
Infowars.com
Thursday, March 29, 2012
Israel’s plan to attack Iran has been postponed until spring 2013 following a war simulation that showed Iran could kill 200 Americans with a single missile strike, according to a report by senior Haaretz correspondent Amir Oren.
“At 8:58 P.M. on Tuesday, Israel’s 2012 war against Iran came to a quiet end. The capricious plans for a huge aerial attack were returned to the deep recesses of safes and hearts. The war may not have been canceled but it has certainly been postponed. For a while, at least, we can sound the all clear: It won’t happen this year. Until further notice, Israel Air Force Flight 007 will not be taking off,” writes Oren.
According to the report, a war simulation conducted by the U.S. Central Command found that an Israeli attack on Iran’s nuclear facilities would immediately be followed by an Iranian missile launch that would kill 200 Americans, a price deemed not worth paying by U.S. generals.
During the same meeting, Israeli Defense Minister Ehud Barak also acknowledged that Israel would not act alone in striking Iran before the U.S. presidential elections in November, according to Oren, meaning that, “For all intents and purposes, it was an announcement that this war was being postponed until at least the spring of 2013.”
A delay in launching the attack until next spring would scupper expectations that the military assault was set to take place before the end of this year, a time frame that Russia understood the Israelis were working to. Last month, Chief of the General Staff of the Russian Armed Forces Nikolai Makarov stated that an Israeli decision on whether or not to attack would be made before the summer.
In January, the U.S. cancelled a joint military exercise with Israel which was perceived by many as a sign that the Americans were getting cold feet.
Earlier this month it was also reported that Israel had “agreed to hold off a strike on Iran’s nuclear sites this year in exchange for receiving U.S. military equipment,” including bunker-busting bombs and refueling planes. The deal was seen as a tacit admission that the Obama administration would support Israel in launching the attack but only after the election in November.
If a decision has been made to postpone the attack, expect the United States to withdraw at least some of its naval might from the Persian Gulf. The U.S. currently has the USS Carl Vinson and the USS Abraham aircraft carriers patrolling the Strait of Hormuz, along with the USS Makin Island, a Wasp-class amphibious assault ship. Earlier this month it was announced that four additional mine countermeasure ships were also heading for the region.
As the Stratfor Naval Update map below illustrates, the USS Enterprise, which many speculated was also heading to the Strait of Hormuz in preparation for a strike on Iran, is now scheduled to visit Piraeus, Greece instead, suggesting a cooling of tensions could be taking place – at least for the time being.
-
-
MARTIN INDYK: THE UNITED STATES WILL GO TO WAR WITH IRAN BY 2013
Martin Indyk believes US likely to go to war with Iran in 2013; says Israel’s insistence that US publicly declare ‘red line’ for Iran an ‘unreasonable requirement’
Former US Ambassador to Israel Martin Indyk predicts that the United States will go to war with Iran as early as 2013. “I’m afraid that 2013 is going to be a year in which we’re going to have a military confrontation with Iran,” he said in an interview on CBS’ “Face the Nation.”
During the interview, Indyk pointed out that the time has not come, yet, for the US to take military action. “Iran doesn’t have a nuclear weapon. While there’s still time, there’s not a lot of time,” he said.
Indyk’s remarks came during a discussion with foreign policy experts on the latest protests in the Middle East and Israel’s public statements pressuring the United States over Iran.
As for the public dispute between Prime Minister Benjamin Netanyahu and President Barack Obama over Iran, Indyk said he does not think that “the difference between Netanyahu and Obama on this is that great, in terms of the President’s commitment not to allow Iran to acquire nuclear weapons.”
On Israel’s insistence that Washington publicly declare a “red line’” that Iran will not be permitted to cross, Indyk said “that is an unreasonable requirement.The idea of putting out a public red line – in effect issuing an ultimatum – is something that no president would do,” he said.
“If you noticed, Governor Mitt Romney is not putting out a red line; Senator McCain didn’t, either. And neither is Netanyahu for that matter, in terms of Israel’s own actions,” he added.
Richard Haas, president of the Council on Foreign Relations, echoed Indyk’s assessment that negotiations with Iran have not dissuaded the Iranians to halt their nuclear program. He said Netanyahu has sought to increase pressure publicly because “he doesn’t want these things to be drawn out indefinitely.”
.
MIDDLE EAST WAR COULD ERUPT RIGHT AFTER U.S. PRESIDENTIAL ELECTION
by Vladimir Sazhin | Global Research
While Israel’s right-wing politicians consolidate, the military makes no effort to conceal its active preparations for combat. Military exercise follows military exercise. Some experts even concede that the al-Hartum factory strike, widely attributed in the press to Israel, could have been a rehearsal of sorts.
Iranians are not sleeping through the crisis either; in early October they initiated the launch into Israel’s airspace of the Iranian drone aircraft Hesballoy. On October 29 a large-scale military exercise began in the region along the Iraqi border.
Some political experts claim there will be a risk that a new “big wave” in the Middle East could reach its peak after the American presidential elections, and that the region might plummet into the abyss. They say that Israel is ready to attack Iran’s nuclear facilities.
At the same time the Islamic Republic, whose economy is on the verge of collapse due to sanctions, is also prepared to stand up to Israel.
So far, uncertainty in the US presidential race has served as a containment factor. But what will happen after the elections?
Irina Fedorova, a specialist in Iranian-US relations, delivers a “partly cloudy” forecast for the near future; “Before the Inauguration on January 20 it is hardly possible to anticipate any sudden political moves from the US president, who will be elected on November 6. The main task of the new, or old, president with the US political elite will be the formation of a new government. That is why foreign policy issues will not take precedence in that period.
“The issue that will influence the US president’s opinion on the possibility of a military strike against Iran will be the crisis in Syria, including the problem of Bashar al-Assad. Until those problems are resolved, the US president’s attention will be focused on Syria.”
The Israeli factor cannot be ignored either: the current situation in Israel provides much food for thought. The Knesset is dissolved and elections are set for January 22, the day after the new president of the USA is inaugurated. There are two politicians who are ready for a war against Iran; Benjamin Netanyahu from Likud and Avigdor Lieberman of Israel is Our Home [Yisrael Beiteinu], and there is a very real possibility that one of them will win.
The likelihood of finding a solution to the Iranian problem between the US and Israeli elections cannot be ruled out completely, but during that period, anti-war pressure on the Cabinet will dwindle to almost zero. That is because, although Knesset deputies continue with their duties, they are essentially already “lame ducks” in the absence of a sitting parliament. The current Knesset cannot be expected to address the issue of a no-confidence vote before the elections and, in the event of a successful strike against Iran, as anticipated by its proponents, it would be seen as a vote winner in the election run-up.
While Israel’s right-wing politicians consolidate, the military makes no effort to conceal its active preparations for combat. Military exercise follows military exercise. Some experts even concede that the al-Hartum factory strike, widely attributed in the press to Israel, could have been a rehearsal of sorts.
Iranians are not sleeping through the crisis either; in early October they initiated the launch into Israel’s airspace of the Iranian drone aircraft Hesballoy. On October 29 a large-scale military exercise began in the region along the Iraqi border.
It is not however the growing military activity in Iran that worries Israel, but the Iranian nuclear programme. Recently, there was an announcement that Iran had finished the installation of a centrifuge at the Fordo underground military facility. Western experts believe that Iranian nuclear specialists can now produce uranium enriched not only to 60%, but the 90% purity required for weapons grade material. If true that can only serve to encourage Israel to strike first.
Irina Fedorova observed: “There can be unpredictable decisions in politics and it is possible that the situation could arise when the Israeli military, without Washington’s approval, would start an operation against Iran. In that case the USA would, without doubt, support Israel.”
And many experts believe that that is just what is likely to happen, right after the US presidential elections.
.
FOUR SIGNS THAT ISRAEL’S SHOWDOWN WITH IRAN IS ALMOST HERE
By The Week’s Editorial Staff | The Week
Israel warns that the clock is ticking, and that Iran is dangerously close to acquiring nuclear weapons. Is a long-feared military clash looking more and more likely?
Over the last several days, Israeli Prime Minister Benjamin Netanyahu has loudly and repeatedly urged that President Obama draw a “red line” that Iran’s nuclear program can’t cross, warning that without such a line, the Islamic Republic will likely be within reach of building its first atomic bomb in six or seven months. Obama administration officials say Netanyahu’s timetable is wrong, and that Tehran will need at least a year to gather the nuclear fuel it would need, and even longer to fit a warhead onto a missile. Is a violent showdown between Iran and Israel nearly here? Many analysts see Netanyahu’s increasingly vocal demands as proof that conflict is looming. Here, four other signs that the clock might really be running out:
1. Iran is getting more and more belligerent
Tehran hasn’t exactly been mending its ways in the face of aggressive warnings and tightening sanctions, says Tyler Durden at Zero Hedge. In fact, Iran’s Revolutionary Guard recently stoked tensions even further by admitting that “its troops are now on the ground in Syria,” helping the embattled regime in its effort to wipe out the pro-democracy opposition. Of all the disturbing developments surrounding Iran’s refusal to curb its nuclear program, that could be the one “to light this whole mess on fire.”
2. And accusing nuclear inspectors of sabotage
Iran’s nuclear program chief, Fereydoon Abbasi-Davani, says “only mutual trust” will allow his country to soothe the West’s fears about his country’s nuclear program, say Najmeh Bozorgmehr and James Blitz in Britain’s Financial Times, which Iran insists is for peaceful purposes. But it’s becoming pretty clear that neither side believes a word the other says. This week, Abbasi-Davani even accused International Atomic Energy Agency inspectors of having been infiltrated by “terrorists and saboteurs” who in August used explosives to knock out power to one of Iran’s uranium enrichment facilities. The IAEA, of course, denies the charge, and says Iran is simply unwilling to cooperate to provide “credible assurance” that it’s not trying to build a bomb.
3. The West is gathering an armada off Iran
If you need proof that Western leaders think Israel is getting ready to strike Iran, take a look at the Persian Gulf, says Sean Rayment at Britain’s Telegraph. The U.S. and Britain are massing an armada of warships because they believe that Tehran would respond to an attack on its nuclear facilities by mining or blockading the Strait of Hormuz, a shipping lane that handles 35 percent of the world’s oil distributed by sea. This “unprecedented show of force” is a clear sign that the long-feared showdown might be near.
4. Diplomacy is going nowhere
“There is still time” to work out a negotiated solution and avoid war, Martin Indyk, America’s former ambassador to Israel tells CBS News. “I’m pessimistic about that,” though, as Iran hasn’t budged. If nothing changes, “then I am afraid that 2013 is going to be a year in which we’re going to have a military confrontation with Iran.”
-
NINETEEN SIGNS THAT ISRAEL AND IRAN ARE ON THE VERGE OF WAR
Michael Snyder
The American Dream
Sept 3, 2012
There is going to be war in the Middle East. It is just a matter of time until it happens. Israel has decided that there is no way that it can ever allow Iran to develop the capability to build nuclear weapons.
Iran has gone “all-in” on developing a nuclear program and it has become a matter of national pride at this point. Iran does not fear an Israeli attack against its nuclear program. In fact, Iran anticipates that an Israeli attack would cause the Islamic nations of the Middle East to come together and declare war against Israel. Sadly, there is a very strong chance that an Israeli attack on Iran would actually spark a larger regional war. But there is no way that Israel is going to allow Iran to develop the capability to build nuclear weapons, and time for a strike may be running out.
The following are 19 signs that Israel and Iran are on the verge of war….
#1 Major drills simulating missile strikes have recently been held in Tel Aviv.
#2 The Israeli military has been distributing brochures to the Israeli population instructing them what to do in the event that Israel launches a strike against Iran.
#3 Israel has ramped up the distribution of gas masks to the general public.
#4 One recent poll found that 25 percent of all Israelis said that they would leave the country if Iran got nuclear weapons. The pressure on the Israeli government to do something before it is too late is enormous.
#5 Israeli Prime Minister Benjamin Netanyahu has publicly declared that negotiations with Iran have failed.
#6 Netanyahu reportedly “got into a diplomatic shouting match with US Ambassador Dan Shapiro” recently over what to do about Iran.
#7 According to Ynet News, Israeli Defense Minister Ehud Barak is in favor of striking Iran….
“Barak is advocating for action and the defense establishment is investing billions to prepare for an Israeli military operation”
#8 Israeli Ambassador to the U.S. Michael Oren told MSNBC recently that the Israeli clock for a strike on Iran “is ticking faster” than the Obama administration clock.
#9 Former Mossad chief Efraim Halevy made the following statement back at the beginning of August….
“If I were an Iranian, I would be very fearful of the next 12 weeks”
#10 According to a new UN report, Iran’s nuclear program continues to grow stronger. The following is from a recent articlein the Jerusalem Post….
“A UN report released earlier in the day revealed that Iran doubled the number of uranium enrichment machines it has in an underground bunker, showing that Tehran continued to defy Western pressure to stop its atomic work and the threat of Israeli attack.”
#11 Senior Iranian cleric Ayatollah Ahmad Khatami recently gave the following warning about what will happen if Israel strikes Iran….
“They have seen our missiles with a range of 2,000 kilometers in the Islamic Republic’s exercises, and in case of an attack, Tel Aviv will turn into ashes.”
#12 Iran is planning to hold a “massive air defense drill” during the month of October.
#13 Iran is promising to take military action against Israel if the United States attacks Syria.
#14 A retired Hezbollah general says that Iran wants to build a nuclear weapon to “create a balance of terror with Israel” and “finish off the Zionist enterprise.”
#15 Debka’s military and intelligence sources are reporting that Iran will have enough enriched uranium to build a nuclear weapon by October 1st.
#16 Something very unusual appears to be happening in Iran. According to a report that was recently posted on Steve Quayle’s website, one Iranian family is reporting that Iranians are being ordered to stay inside for the next two weeks….
The husband said that their government has just shut sown the whole country for 2 weeks. Every business and every dwelling is ordered to close. Every citizen ordered to stay in their home. If they go out they are stopped by police and will have to show their id and or papers. Her husband said they are being told it is because the Arab leaders are meeting with their government for the next 2 weeks, and that’s all they were told.
#17 Russian President Vladimir Putin has severed military ties with both Iran and Syria.
#18 The Obama administration is so worried about an Israeli attack in Iran before the election that they are taking very public measures to let Israel know that they will be “on their own” if they decide to go through with it.
#19 A joint U.S./Israeli military exercise scheduled for late October has been dramatically scaled back by the Obama administration according to Time Magazine….
Well-placed sources in both countries have told TIME that Washington has greatly reduced the scale of U.S. participation, slashing by more than two-thirds the number of American troops going to Israel and reducing both the number and potency of missile interception systems at the core of the joint exercise.
The truth is that war in the Middle East is seemingly inevitable, and when it happens it could very well set off World War III.
-
JOEL SKOUSEN: THE GLOBALISTS PLAN TO ATTACK THE UNITED STATES WITH NUCLEAR WEAPONS REVEALED
Published on Oct 20, 2012 by TheAlexJonesChannel
The world is getting increasingly unstable. Debt levels are unsustainable, world financial markets are calling for constant bailouts, and the US is continuing to antagonize the Middle East with military intervention. Any number of these crises can lead to a break down in the social order of the high density urban areas of the United States. Could you survive without public utilities or supermarkets through a winter? Are there enough people around you that are prepared to band together and help one another during social unrest? More and more people are reevaluating their living arrangements to be prepared for prolonged disasters. But what if you have to stay in a big city for work? Have you developed some contingency plans? Are you located in a part of the city that will allow escape through the rural byways? Have you made a transportation plan? And, what can be done to secure your home now in case you can’t get out in a crisis? Strategic Relocation has the answers.
-
-
LYNDON LAROUCHE: ‘GLOBAL THERMAL NUCLEAR WAR UNDER PRESIDENT OBAMA WOULD BE UNSURVIVABLE’
-
DAVID C. PACK: THE RED HORSE OF WAR
History has been a chronicle of armed conflict. The second of the Four Horsemen of the Apocalypse, the red horse, represents the horror of war. Wars have intensified through history and this trend will grow worse—much worse.
Jesus said wars would increase and grow much worse just before His return. Prophecy shows the second of the Four Horsemen of the Apocalypse—the red horse of war—will spread war to affluent Western nations—and soon.
-
-
PENTAGON KNOWS CHINA WILL BE U.S. ENEMY NO. 1 STARTING IN 2017
-
THE PENTAGON TARGETS CHINA
Since the collapse of the Soviet Union and the nominal end of the Cold War some twenty years back, rather than reducing the size of its mammoth defense spending, the US Congress and all US Presidents have enormously expanded spending for new weapons systems, increased permanent military bases around the world and expansion of NATO not only to former Warsaw Pact countries on Russia’s immediate periphery; it also has expanded NATO and US military presence deep into Asia on the perimeters of China through its conduct of the Afghan war and related campaigns.
Part I The Pentagon Targets China
On the basis of simple dollar outlays for military spending, the US Pentagon combined budget, leaving aside the huge budgets for such national security and defense-related agencies of US Government as the Department of Energy and US Treasury and other agencies, the US Department of Defense spent some $739 billion in 2011 on its military requirements. Were all other spending that is tied to US defense and national security included, the London-based International Institute for Strategic Studies estimates an annual military spending of over $1 trillion by the United States. That is an amount greater than the total defense-related spending of the next 42 nations combined, and more than the Gross Domestic Product of most nations.
China officially spent barely 10% of the US outlay on its defense, some $90 billions, or, if certain defense-related arms import and other costs are included, perhaps $111 billion a year. Even if the Chinese authorities do not publish complete data on such sensitive areas, it is clear China spends a mere fraction of the USA and is starting from a military-technology base far behind the USA.
China today, because of its dynamic economic growth and its determination to pursue sovereign Chinese national interests, merely because China exists, is becoming the Pentagon new “enemy image,” now replacing the earlier “enemy image” of Islam used after September 2001 by the Bush-Cheney Administration to justify the Pentagon’s global power pursuit, or that of Soviet Communism during the Cold War. The new US military posture against China has nothing to do with any aggressive threat from the side of China. The Pentagon has decided to escalate its aggressive military posture to China merely because China has become a strong vibrant independent pole in world economics and geopolitics. Only vassal states need apply to Washington’s globalized world.
Obama Doctrine: China is the new ‘enemy image’
After almost two decades of neglect of its interests in East Asia, in 2011, the Obama Administration announced that the US would make “a strategic pivot” in its foreign policy to focus its military and political attention on the Asia-Pacific, particularly Southeast Asia, that is, China. The term “strategic pivot” is a page out of the classic textbook from the father of British geopolitics, Sir Halford Mackinder, who spoke at various times of Russia and later China as “pivot powers” whose geographical and geopolitical position posed unique challenges toAnglo-Saxon and after 1945, to American hegemony.
During the final months of 2011 the Obama Administration clearly defined a new public military threat doctrine for US military readiness in the wake of the US military failures in Iraq and Afghanistan. During a Presidential trip to the Far East, while in Australia, the US President unveiled what is being termed the Obama Doctrine.[1]
Obama told the Australians then:
With most of the world’s nuclear power and some half of humanity, Asia will largely define whether the century ahead will be marked by conflict or cooperation…As President, I have, therefore, made a deliberate and strategic decision — as a Pacific nation, the United States will play a larger and long-term role in shaping this region and its future…I have directed my national security team to make our presence and mission in the Asia Pacific a top priority…As we plan and budget for the future, we will allocate the resources necessary to maintain our strong military presence in this region. We will preserve our unique ability to project power and deter threats to peace…Our enduring interests in the region demand our enduring presence in the region.
The United States is a Pacific power, and we are here to stay. Indeed, we are already modernizing America’s defense posture across the Asia Pacific. It will be more broadly distributed — maintaining our strong presence in Japan and the Korean Peninsula, while enhancing our presence in Southeast Asia. Our posture will be more flexible — with new capabilities to ensure that our forces can operate freely .. I believe we can address shared challenges, such as proliferation and maritime security, including cooperation in the South China Sea.[2]
The centerpiece of Obama’s visit was the announcement that at least 2,500 elite US Marines will be stationed in Darwin in Australia’s Northern Territory. In addition, in a series of significant parallel agreements, discussions with Washington were underway to fly long-range American surveillance drones from the remote Cocos Islands — an Australian territory in the Indian Ocean. Also the US will gain greater use of Australian Air Force bases for American aircraft and increased ship and submarine visits to the Indian Ocean through a naval base outside Perth, on the country’s west coast.
The Pentagon’s target is China.
To make the point clear to European members of NATO, in remarks to fellow NATO members in Washington in July 2012, Phillip Hammond, the UK Secretary of State for Defense declared explicitly that the new US defense shift to the Asia-Pacific region was aimed squarely at China. Hammond said that, “the rising strategic importance of the Asia-Pacific region requires all countries, but particularly the United States, to reflect in their strategic posture the emergence of China as a global power. Far from being concerned about the tilt to Asia-Pacific, the European NATO powers should welcome the fact that the US is willing to engage in this new strategic challenge on behalf of the alliance.” [3]
As with many of its operations, the Pentagon deployment is far deeper than the relatively small number of 2,500 new US soldiers might suggest.
In August 2011 the Pentagon presented its annual report on China’s military. It stated that China had closed key technological gaps. Deputy Assistant Secretary of Defence for East Asia, Michael Schiffer, said that the pace and scope of China’s military investments had “allowed China to pursue capabilities that we believe are potentially destabilizing to regional military balances, increase the risk of misunderstanding and miscalculation and may contribute to regional tensions and anxieties.” [4] He cited Chinese refurbishing of a Soviet-era aircraft carrier and China’s development of its J20 Stealth Fighter as indications of the new capability requiring a more active US military response. Schiffer also cited China’s space and cyber operations, saying it was “developing a multi-dimensional program to improve its capabilities to limit or prevent the use of space-based assets by adversaries during times of crisis or conflict.” [5]
Part II: Pentagon’s ‘Air-Sea Battle’
The Pentagon strategy to defeat China in a coming war, details of which have filtered into the US press, is called “Air-Sea Battle.” This calls for an aggressive coordinated US attack. US stealth bombers and submarines would knock out China’s long-range surveillance radar and precision missile systems deep inside the country. This initial “blinding campaign” would be followed by a larger air and naval assault on China itself.[6] Crucial to the advanced pentagon strategy, deployment of which has already quietly begun, is US military navy and air presence in Japan, Taiwan, Philippines, Vietnam and across the South China Sea and Indian Ocean. Australian troop and naval deployment is aimed at accessing the strategic Chinese South China Sea as well as the Indian Ocean. The stated motive is to “protect freedom of navigation” in the Malacca Straits and the South China Sea. In reality it is to be positioned to cut China’s strategic oil routes in event of full conflict.
Air-Sea Battle’s goal is to help US forces withstand an initial Chinese assault and counterattack to destroy sophisticated Chinese radar and missile systems built to keep US ships away from China’s coastline.[7]
US ‘Air-Sea Battle’ against China
In addition to the stationing of the US Marines in the north of Australia, Washington plans to fly long-range American surveillance drones from the remote Cocos Islands — an Australian territory in the strategically vital Indian Ocean. Also it will have use of Australian Air Force bases for American military aircraft and increased ship and submarine visits to the Indian Ocean through a naval base outside Perth, on Australia’s west coast.[8]
The architect of the Pentagon anti-China strategy of Air-Sea battle is Andrew Marshall, the man who has shaped Pentagon advanced warfare strategy for more than 40 years and among whose pupils were Dick Cheney and Donald Rumsfeld. [9] Since the 1980s Marshall has been a promoter of an idea first posited in 1982 by Marshal Nikolai Ogarkov, then chief of the Soviet general staff, called RMA, or ‘Revolution in Military Affairs.’ Marshall, today at the ripe age of 91, still holds his desk and evidently very much influence inside the Pentagon.
The best definition of RMA was the one provided by Marshall himself: “A Revolution in Military Affairs (RMA) is a major change in the nature of warfare brought about by the innovative application of new technologies which, combined with dramatic changes in military doctrine and operational and organizational concepts, fundamentally alters the character and conduct of military operations.” [10]
It was also Andrew Marshall who convinced US Defense Secretary Donald Rumsfeld and his successor Robert Gates to deploy the Ballistic Missile “defense” Shield in Poland, the Czech Republic, Turkey and Japan as a strategy to minimize any potential nuclear threat from Russia and, in the case of Japan’s BMD, any potential nuclear threat from China.
PART III: ‘String of Pearls’ Strategy of Pentagon
In January 2005, Andrew Marshall issued a classified internal report to Defense Secretary Donald Rumsfeld titled “Energy Futures in Asia.” The Marshall report, which was leaked in full to a Washington newspaper, invented the term “string of pearls” strategy to describe what it called the growing Chinese military threat to “US strategic interests” in the Asian space.[11]
The internal Pentagon report claimed that “China is building strategic relationships along the sea lanes from the Middle East to the South China Sea in ways that suggest defensive and offensive positioning to protect China’s energy interests, but also to serve broad security objectives.”
In the Pentagon Andrew Marshall report, the term China’s “String of Pearls” Strategy was used for the first time. It is a Pentagon term and not a Chinese term.
The report stated that China was adopting a “string of pearls” strategy of bases and diplomatic ties stretching from the Middle East to southern China that includes a new naval base under construction at the Pakistani port of Gwadar. It claimed that “Beijing already has set up electronic eavesdropping posts at Gwadar in the country’s southwest corner, the part nearest the Persian Gulf. The post is monitoring ship traffic through the Strait of Hormuz and the Arabian Sea.” [12]
The Marshall internal report went on to warn of other “pearls” in the sea-lane strategy of China:
• Bangladesh: China is strengthening its ties to the government and building a container port facility at Chittagong. The Chinese are “seeking much more extensive naval and commercial access” in Bangladesh.
• Burma: China has developed close ties to the military regime in Rangoon and turned a nation wary of China into a “satellite” of Beijing close to the Strait of Malacca, through which 80 percent of China’s imported oil passes. China is building naval bases in Burma and has electronic intelligence gathering facilities on islands in the Bay of Bengal and near the Strait of Malacca. Beijing also supplied Burma with “billions of dollars in military assistance to support a de facto military alliance,” the report said.
• Cambodia: China signed a military agreement in November 2003 to provide training and equipment. Cambodia is helping Beijing build a railway line from southern China to the sea.
• South China Sea: Chinese activities in the region are less about territorial claims than “protecting or denying the transit of tankers through the South China Sea,” the report said. China also is building up its military forces in the region to be able to “project air and sea power” from the mainland and Hainan Island. China recently upgraded a military airstrip on Woody Island and increased its presence through oil drilling platforms and ocean survey ships.
• Thailand: China is considering funding construction of a $20 billion canal across the Kra Isthmus that would allow ships to bypass the Strait of Malacca. The canal project would give China port facilities, warehouses and other infrastructure in Thailand aimed at enhancing Chinese influence in the region, the report said… The U.S. military’s Southern Command produced a similar classified report in the late 1990s that warned that China was seeking to use commercial port facilities around the world to control strategic “chokepoints.” [13]
Breaking the String of Pearls
Significant Pentagon and US actions since that 2005 report have been aimed to counter China’s attempts to defend its energy security via that “String of Pearls.” The US interventions since 2007 into Burma/Myanmar have had two phases.
The first was the so-called Saffron Revolution, a US State Department and CIA-backed destabilization in 2007 aimed at putting the international spotlight on the Myanmar military dictatorship’s human rights practices. The aim was to further isolate the strategically located country internationally from all economic relations, aside from China. The background to the US actions was China’s construction of oil and gas pipelines from Kunming in China’s southwest Yunnan Province, across the old Burma Road across Myanmar to the Bay of Bengal across from India and Bangladesh in the northern Indian Ocean.
Forcing Burma’s military leaders into tighter dependency on China was one of the factors triggering the decision of the Myanmar military to open up economically to the West. They declared that the tightening of US economic sanctions had done the country great harm and President Thein Sein made his major liberalization opening, as well as allowing US-backed dissident, Aung San Suu Kyi, to be free and to run for elective office with her party, in return for promises from US Secretary of State Hillary Clinton of US investment in the country and possible easing of US economic sanctions. [14]
The US corporations approaching Burma are hand-picked by Washington to introduce the most destructive “free market” reforms that will open Myanmar to instability. The United States will not allow investment in entities owned by Myanmar’s armed forces or its Ministry of Defense. It also is able to place sanctions on “those who undermine the reform process, engage in human rights abuses, contribute to ethnic conflict or participate in military trade with North Korea.” The United States will block businesses or individuals from making transactions with any “specially designated nationals” or businesses that they control — allowing Washington, for example, to stop money from flowing to groups “disrupting the reform process.” It’s the classic “carrot and stick” approach, dangling the carrot of untold riches if Burma opens its economy to US corporations and punishing those who try to resist the takeover of the country’s prize assets. Oil and gas, vital to China, will be a special target of US intervention. American companies and people will be allowed to invest in the state-owned Myanma Oil and Gas Enterprise.[15]
Obama also created a new power for the government to impose “blocking sanctions” on any individual threatening peace in Myanmar. Businesses with more than $500,000 in investment in the country will need to file an annual report with the State Department, with details on workers’ rights, land acquisitions and any payments of more than $10,000 to government entities, including Myanmar’s state-owned enterprises.
American companies and people will be allowed to invest in the state-owned Myanma Oil and Gas Enterprise, but any investors will need to notify the State Department within 60 days.
As well, US “human rights” NGOs, many closely associated with or believed to be associated with US State Department geopolitical designs, including Freedom House, Human Rights Watch, Institute for Asian Democracy, Open Society Foundations, Physicians for Human Rights, U.S. Campaign for Burma, United to End Genocide— will now be allowed to operate inside Myanmar according to a decision by State Secretary Clinton in April 2012.[16]
Thailand, another key in China’s defensive String of Pearl Strategy has also been subject of intense destabilization over the past several years. Now with the sister of a corrupt former Prime Minister in office, US-Thai relations have significantly improved.
After months of bloody clashes, the US-backed billionaire, Former Thai Prime Minister Thaksin Shinawatra , managed to buy the way to put his sister, Yingluck Shinawatra in as Prime Minister, with him reportedly pulling the policy strings from abroad. Thaksin himself was enjoying comfortable status in the US as of this writing, in summer 2012.
US relations with Thaksin’s sister, Yingluck Shinawatra, are moving in direct fulfillment of the Obama “strategic pivot” to focus on the “China threat.” In June 2012, General Martin E. Dempsey, chairman of the US Joint Chiefs of Staff, after returning from a visit this month to Thailand, the Philippines and Singapore stated: “We want to be out there partnered with nations and have a rotational presence that would allow us to build up common capabilities for common interests.” This is precisely key beads in what the Pentagon calls the String of Pearls.
The Pentagon is now quietly negotiating to return to bases abandoned after the Vietnam War. It is negotiating with the Thai government to create a new “disaster relief” hub at the Royal Thai Navy Air Field at U-Tapao, 90 miles south of Bangkok.
The US military built the two mile long runway there, one of Asia’s longest, in the 1960s as a major staging and refueling base during the Vietnam War.
The Pentagon is also working to secure more rights to US Navy visits to Thai ports and joint surveillance flights to monitor trade routes and military movements. The US Navy will soon base four of its newest warships — Littoral Combat Ships — in Singapore and would rotate them periodically to Thailand and other southeast Asian countries. The Navy is pursuing options to conduct joint airborne surveillance missions from Thailand.[17]
In addition, Deputy Defense Secretary Ashton Carter went to Thailand in July 2012 and the Thai government has invited Defense Secretary Leon Panetta, who met with the Thai minister of defense at a conference in Singapore in June.[18]
In 2014, the US Navy is scheduled to begin deploying new P-8A Poseidon reconnaissance and anti-submarine aircraft to the Pacific, replacing the P-3C Orion surveillance planes. The Navy is also preparing to deploy new high-altitude surveillance drones to the Asia-Pacific region around the same time. [19]
PART IV: India-US Defense ‘Look East Policy’
US Secretary of Defense Leon Panetta was in India in June of this year where he proclaimed that defence cooperation with India is the lynchpin of US security strategy in Asia. He pledged to help develop India’s military capabilities and to engage with India in joint production of defence “articles” of high technology. Panetta was thr fifth Obama Cabinet secretary to visit India this year. The message that they have all brought is that, for the US, India will be the major relationship of the 21st century. The reason is China’s emergence. [20]
Several years ago during the Bush Administration, Washington made a major move to lock India in as a military ally of the US against the emerging Chinese presence in Asia. India calls it India’s “Look East Policy.” In reality, despite all claims to the contrary, it is a “look at China” military policy.
In comments in August 2012, Deputy Secretary of defense Ashton Carter stated, “India is also key part of our rebalance to the Asia-Pacific, and, we believe, to the broader security and prosperity of the 21st century. The US-India relationship is global in scope, like the reach and influence of both countries.” [21] In 2011, the US military conducted more than 50 significant military activities with India.
Carter continued in remarks following a trip to New Delhi, “Our security interests converge: on maritime security, across the Indian Ocean region; in Afghanistan, where India has done so much for economic development and the Afghan security forces; and on broader regional issues, where we share long-term interests. I went to India at the request of Secretary Panetta and with a high-level delegation of U S technical and policy experts.” [22]
Indian Ocean
The Pentagon “String of pearls” strategy against China in effect is not one of beautiful pearls, but a hangman’s noose around the perimeter of China, designed in the event of major conflict to completely cut China off from its access to vital raw materials, most especially oil from the Persian Gulf and Africa.
Former Pentagon adviser Robert D. Kaplan, now with Stratfor, has noted that the Indian Ocean is becoming the world’s “strategic center of gravity” and who controls that center, controls Eurasia, including China. The Ocean is the vital waterway passage for energy and trade flows between the Middle East and China and Far Eastern countries. More strategically, it is the heart of a developing south-south economic axis between China and Africa and Latin America.
Since 1997 trade between China and Africa has risen more than twenty-fold and trade with Latin America, including Brazil, has risen fourteen fold in only ten years. This dynamic, if allowed to continue, will eclipse the economic size of the European Union as well as the declining North American industrial economies in less than a decade. That is a development that Washington circles and Wall Street are determined to prevent at all costs.
Straddled by the Islamic Arch–which stretches from Somalia to Indonesia, passing through the countries of the Gulf and Central Asia– the region surrounding the Indian Ocean has certainly become the world’s new strategic center of gravity.[23]
No rival economic bloc can be allowed to challenge American hegemony. Former Obama geopolitical adviser Zbigniew Brzezinski, a student of Mackinder geopolitics and still today along with Henry Kissinger one of the most influential persons in the US power establishment, summed up the position as seen from Washington in his 1997 book, The Grand Chessboard: American Primacy and It’s Geostrategic Imperatives:
It is imperative that no Eurasian challenger emerges, capable of dominating Eurasia and thus of also challenging America. The formulation of a comprehensive and integrated Eurasian geo-strategy is therefore the purpose of this book. [24]
For America, the chief geopolitical prize is Eurasia…. America’s global primacy is directly dependent on how long and how effectively its preponderance on the Eurasian continent is sustained. [25]
In that context, how America ‘manages’ Eurasia is critical. Eurasia is the globe’s largest continent and is geopolitically axial. A power that dominates Eurasia would control two of the world’s three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa’s subordination, rendering the Western Hemisphere and Oceania geopolitically peripheral to the world’s central continent. About 75 per cent of the world’s people live in Eurasia, and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for 60 per cent of the world’s GNP and about three-fourths of the world’s known energy resources. [26]
The Indian Ocean is crowned by what some call an Islamic Arch of countries stretching from East Africa to Indonesia by way of the Persian Gulf countries and Central Asia. The emergence of China and other much smaller Asian powers over the past two decades since the end of the Cold war has challenged US hegemony over the Indian Ocean for the first time since the beginning of the Cold War. Especially in the past years as American economic influence has precipitously declined globally and that of China has risen spectacularly, the Pentagon has begun to rethink its strategic presence in the Indian Ocean. The Obama ‘Asian Pivot’ is centered on asserting decisive Pentagon control over the sea lanes of the Indian Ocean and the waters of the South China Sea.
The US military base at Okinawa, Japan is being rebuilt as a major center to project US military power towards China. As of 2010 there were over 35,000 US military personnel stationed in Japan and another 5,500 American civilians employed there by the United States Department of Defense. The United States Seventh Fleet is based in Yokosuka. The 3rd Marine Expeditionary Force in Okinawa. 130 USAF fighters are stationed in the Misawa Air Base and Kadena Air Base.
The Japanese government in 2011 began an armament program designed to counter the perceived growing Chinese threat. The Japanese command has urged their leaders to petition the United States to allow the sale of F-22A Raptor fighter jets, currently illegal under U.S law. South Korean and American military have deepened their strategic alliance and over 45,000 American soldiers are now stationed in South Korea. The South Koreans and Americans claim this is due to the North Korean military’s modernization. China and North Korea denounce it as needlessly provocative.[27]
Under the cover of the US war on Terrorism, the US has developed major military agreements with the Philippines as well as with Indonesia’s army.
The military base on Diego Garcia is the lynchpin of US control over the Indian Ocean. In 1971 the US military depopulated the citizens of Diego Garcia to build a major military installation there to carry out missions against Iraq and Afghanistan.
China has two Achilles heels—the Straits of Hormuz at the mouth of the Persian Gulf and the Strait of Malacca near Singapore. Some 20% of China oil passes through the Straits of Hormuz. And some 80% of Chinese oil imports pass through the Strait of Malacca as well as major freight trade.
To prevent China from emerging successfully as the major economic competitor of the United States in the world, Washington launched the so-called Arab Spring in late 2010. While the aspirations of millions of ordinary Arab citizens in Tunisia, Libya, Egypt and elsewhere for freedom and democracy was real, they were in effect used as unwitting cannon fodder to unleash a US strategy of chaos and intra-islamic wars and conflicts across the entire oil-rich Islamic world from Libya in North Africa across to Syria and ultimately Iran in the Middle East. [28]
The US strategy within the Islamic Arch countries straddling the Indian Ocean is, as Mohamed Hassan, a strategic analyst put it thus:
The US is…seeking to control these resources to prevent them reaching China. This was a major objective of the wars in Iraq and Afghanistan, but these have turned into a fiasco. The US destroyed these countries in order to set up governments there which would be docile, but they have failed. The icing on the cake is that the new Iraqi and Afghan government trade with China! Beijing has therefore not needed to spend billions of dollars on an illegal war in order to get its hands on Iraq’s black gold: Chinese companies simply bought up oil concessions at auction totally within the rules.
[T]he USA’s…strategy has failed all along the line. There is nevertheless one option still open to the US: maintaining chaos in order to prevent these countries from attaining stability for the benefit of China. This means continuing the war in Iraq and Afghanistan and extending it to countries such as Iran, Yemen or Somalia.[29]
PART V: South China Sea
The completion of the Pentagon “String of Pearls” hangman’s noose around China to cut off vital energy and other imports in event of war by 2012 was centered around the increased US manipulation of events in the South China Sea. The Ministry of Geological Resources and Mining of the People’s Republic of China estimated that the South China Sea may contain 18 billion tons of crude oil (compared to Kuwait with 13 billion tons). The most optimistic estimate suggested that potential oil resources (not proved reserves) of the Spratly and Paracel Islands in the South China Sea could be as high as 105 billion barrels of oil, and that the total for the South China Sea could be as high as 213 billion barrels. [30]
The presence of such vast energy reserves has not surprisingly become a major energy security issue for China. Washington has made a calculated intervention in the past several years to sabotage those Chinese interests, using especially Vietnam as a wedge against Chinese oil exploration there. In July 2012 the National Assembly of Vietnam passed a law demarcating Vietnamese sea borders to include the Spratly and Paracel islands. US influence in Vietnam since the country opened to economic liberalization has become decisive.
In 2011 the US military began cooperation with Vietnam, including joint “peaceful” military exercises. Washington has backed both The Philippines and Vietnam in their territorial claims over Chinese-claimed territories in the South China Sea, emboldening those small countries not to seek a diplomatic resolution.[31]
In 2010 US and UK oil majors entered the bidding for exploration in the South China Sea. The bid by Chevron and BP added to the presence of US-based Anadarko Petroleum Corporation in the region. That move is essential to give Washington the pretext to “defend us oil interests” in the area. [32]
In April 2012, the Philippine warship Gregorio del Pilar was involved in a standoff with two Chinese surveillance vessels in the Scarborough Shoal, an area claimed by both nations. The Philippine navy had been trying to arrest Chinese fishermen who were allegedly taking government-protected marine species from the area, but the surveillance boats prevented them. On April 14, 2012, U.S. and the Philippines held their yearly exercises in Palawan, Philippines. On May 7, 2012, Chinese Vice Foreign Minister Fu Ying called a meeting with Alex Chua, Charge D’affaires of the Philippine Embassy in China, to make a serious representation over the incident at the Scarborough Shoal.
From South Korea to Philippines to Vietnam, the Pentagon and US State Department is fanning the clash over rights to the South China Sea to stealthily insert US military presence there to “defend” Vietnamese, Japanese, Korean or Philippine interests. The military hangman’s noose around China is being slowly drawn tighter.
While China’s access to vast resources of offshore conventional oil and gas were being restricted, Washington was actively trying to lure China into massive pursuit of exploitation of shale gas inside China. The reasons had nothing to do with US goodwill towards China. It was in fact another major weapon in the destruction of China, now through a form of environmental warfare.
-
THE CHINESE ARE STARTING TO FEEL SURROUNDED BY U.S. FORCES FROM ALL SIDES
“I don’t think that China’s leaders today want to make compromises with the US. It is unlikely that China will agree to create a program of developing its navy that would satisfy the US. In its turn, the US also doesn’t want to be ousted by China from its positions in the Asia-Pacific region. Besides its military presence there, the US also wants to maintain control over all the transport routes in this region, and China is now becoming a serious rival for the US from this point of view as well.”
In 2012, the US announced that it is starting “to return to Asia” – that is, to broaden its military presence in the south of the Asia-Pacific region.
This is the US’s response to China’s increasing military activity in disputed waters in the East China and the South China Seas.
The US is going to move up to 60% of its navy to the Asia-Pacific region. That would increase the US’s military presence there 3 times in comparison with the current situation.
At present, about 60 to 70 US military ships and from 200 to 300 planes are constantly present at US naval bases in Japan and South Korea. Besides, at least 2 US aircraft carriers are constantly keeping watch in the region.
Now, according to President Obama’s order, US naval forces are to increase in Australia, Singapore and the Philippines.
In Australia, the number of US marines will be increased 10 times and will reach 2,500 people. Besides, the US will have broader access to the Australian naval base on the coast of the Indian Ocean, to the south of the city of Perth.
Up to 4 US navy ships will be deployed near Singapore’s coast.
The US is also planning to deploy up to 500 servicemen and reconnaissance aircraft in the Philippines and to create a center for repairing US navy ships there. Moreover, the US does not rule out that in some time from now, the Philippines may become the center of commanding US forces in the Asia-Pacific region.
“In such conditions, the Chinese are starting to feel surrounded by US forces from all sides,” Russian expert in Eastern affairs Yuri Tavrovsky said in an interview with the Voice of Russia. “After all, the US does not hide the fact that the reason it is strenthening its military presence in the Asia-Pacific region is the growing influence of China there.”
“In its turn, China is actively developing its navy,” Mr. Tavrovsky continues. “It is hard to deny that within the last few years, China’s economy has been rapidly developing, which has allowed China to considerably increase its military might. It would probably be an exaggeration to say that China is becoming aggressive, but it is obviously starting to realize that it is getting strong enough to afford dictating its will to other countries.”
Another Russian expert, Evgeny Kanaev, is predicting that US-Chinese relations will most probably aggravate even further:
“I don’t think that China’s leaders today want to make compromises with the US. It is unlikely that China will agree to create a program of developing its navy that would satisfy the US. In its turn, the US also doesn’t want to be ousted by China from its positions in the Asia-Pacific region. Besides its military presence there, the US also wants to maintain control over all the transport routes in this region, and China is now becoming a serious rival for the US from this point of view as well.”
Experts are concerned that the US’s policy of regaining military control over the Asia-Pacific region and its competition for this role with China may aggravate the situation in this region to a very dangerous point.
-
-
FORMER WORLD BANK PRESIDENT JAMES WOLFENSOHN DISCUSSES THE FUTURE OF THE GLOBAL ECONOMY
THE FORMER PRESIDENT OF THE WORLD BANK, JAMES WOLFENSOHN, MAKES STUNNING CONFESSIONS AS HE ADDRESSES GRADUATE STUDENTS AT STANFORD UNIVERSITY. HE REVEALS THE INSIDE HAND OF WORLD DOMINATION FROM PAST, TO THE PRESENT AND INTO THE FUTURE. THE SPEECH WAS MADE JANUARY 11TH, 2010.
HE TELLS THE STUDENTS WHAT’S COMING, “A TECTONIC SHIFT” IN WEALTH FROM THE WEST TO THE EAST. BUT HE DOESN’T TELL THE STUDENTS THAT IT IS HIS INSTITUTION, THE WORLD BANK, THAT’S DIRECTING AND CHANNELING THESE CHANGES.
WOLFENSOHN’S OWN INVESTMENT FIRM IS IN CHINA, IS NOW POISED TO PROFIT FROM THIS “IMMINENT SHIFT” IN GLOBAL WEALTH.
-
CHINA’S ECONOMY WILL SURPASS THE U.S. IN 2016
For the first time, the International Monetary Fund has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China. And it’s a lot closer than you may think. According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016.
It provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.
According to the IMF forecast, whoever is elected U.S. president in 2012, that person will be the last one to preside over the world’s largest economy. Most people aren’t prepared for this. They aren’t even aware it’s that close.
The American Dream is dying. Every month more American families are slipping out of the middle class and into poverty. The sad part is, very few people still don’t see the collapse that is coming.
When the U.S. dollar dies and the financial system collapses the U.S. is not going to be able to get all of the things it’s needs from the rest of the world. That is going to cause fundamental changes inside the United States. The U.S. economic news is getting worse and worse, but this is just the beginning. What is eventually going to happen in the United States is an economic collapse so nightmarish that most Americans can’t even imagine it right now.
-
CHINA PASSES U.S. TO BECOME WORLD’S BIGGEST TRADING NATION
By NewsMax
February 10, 2013
China surpassed the U.S. to become the world’s biggest trading nation last year as measured by the sum of exports and imports of goods, a milestone in the Asian nation’s challenge to the U.S. dominance in global commerce that emerged after the end of World War II.
U.S. exports and imports of goods last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s total trade in goods in 2012 amounted to $3.87 trillion.
China’s increasing influence threatens to disrupt regional trading blocs as it becomes the most important commercial partner for countries including Germany, which will export twice as much to China by the end of the decade as it does to neighboring France, said Goldman Sachs Group Inc.’s Jim O’Neill.
“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” O’Neill, chairman of Goldman Sachs’s asset management division and the economist who bound Brazil to Russia, India and China to form the BRIC investing strategy, said in a telephone interview. “At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe.”
When taking into account services, U.S. total trade amounted to $4.93 trillion in 2012, according to the U.S. Bureau of Economic Analysis. The U.S. recorded a surplus in services of $195.3 billion last year and a goods deficit of more than $700 billion, according to BEA figures. China’s 2012 trade surplus, measured in goods, totaled $231.1 billion.
The U.S. economy is also double the size of China’s, according to the World Bank. In 2011, the U.S. gross domestic product reached $15 trillion while China’s totaled $7.3 trillion. China’s National Bureau of Statistics reported Jan. 18 that the country’s nominal gross domestic product in 2012 totaled 51.93 trillion yuan ($8.3 trillion).
“It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume,” Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. “The surpassing of the U.S. is not because of a substantially undervalued currency that has led to an export boom,” said Lardy, noting that Chinese imports have grown more rapidly than exports since 2007.
The U.S. emerged as the preeminent trading power following World War II as it spearheaded the creation of the global trade and financial architecture and the U.K. began dismantling its colonial empire. China began focusing on trade and foreign investment to boost its economy after decades of isolation under Chairman Mao Zedong. Economic growth averaged 9.9 percent a year from 1978 through 2012.
China became the world’s biggest exporter in 2009, while the U.S. remains the biggest importer, taking in $2.28 trillion in goods last year compared with China’s $1.82 trillion of imports. HSBC Holdings Plc forecast last year that China would overtake the U.S. as the top trading nation by 2016.
China was last considered the leading economy during the height of the Qing dynasty. The difference is that in the 18th century, the Qing Empire — unlike rising Britain — didn’t focus on trade. The Emperor Qianlong told King George III in a 1793 letter that “we possess all things. I set no value on objects strange or ingenious, and I have no use for your country’s manufactures.”
While China is the biggest energy user, has the world’s biggest new car market and the largest foreign currency reserves, a significant portion of China’s trade involves importing raw materials and parts to be assembled into finished products and re-exported, an activity that provides “only modest value added,” Eswar Prasad, a former International Monetary Fund official who is now a professor at Cornell University in Ithaca, New York, said in an e-mail.
Last month China’s trade expanded more than estimated, with exports rising 25 percent from a year earlier and imports increasing 28.8 percent, government data released yesterday showed. China’s trade figures in January and February are distorted by the week-long Lunar New Year holiday that fell in January of last year and started yesterday.
Economists from banks including UBS AG and Australia & New Zealand Banking Group Ltd. recently questioned the veracity of China’s export data after the customs administration reported an unexpected 14.1 percent export gain in December. The General Administration of Customs defended the data last month, saying all statistics are based on actual customs declarations, and the Ministry of Commerce said the jump was caused by exporters who hurried shipments before a waiver of inspection fees expired at the end of the month.
The U.S.’s bilateral trade deficit with China, which peaked in 2012, could remain a flashpoint of tension between the two countries, Prasad said.
“This trade imbalance is not representative of the amount of goods actually produced in China and exported to the U.S., but this perspective tends to get lost amidst the heated political rhetoric in the U.S,” said Prasad.
According to O’Neill, the trade figures underscore the need to draw China further into the global financial and trading architecture that the U.S. helped create.
“One way or another we have to get China more involved in the global organizations of today and the future despite some of their own reluctance,” O’Neill said, mentioning China’s inclusion in the IMF’s Special Drawing Rights currency basket. “To not have China more symbolically and more importantly actually central to all these things is just increasingly silly.”
-
CHINA WILL HAVE THE WORLD’S LARGEST GOLD RESERVES IN 2 TO 3 YEARS
Acclaimed money manager Stephen Leeb told King World News that “… within the next 2 or 3 years China is going to be the largest gold holder in the world.” Here is what Leeb had to say: “Obviously the markets are to say the least a little bit jittery. The key here is not so much what the Fed said yesterday when they again discussed that they may consider cutting back on quantitative easing, but it’s really the context in which that was said.”
“The reason I say this is because frankly the data on the economy is nothing to write home about. The numbers which were released yesterday which struck me had to do with the fact that banks are simply not lending out money. The so-called loan/deposit ratio, which is a percentage that banks loan out, has been falling dramatically.
Now what banks are doing with this money I really don’t know, but they have massive amounts of money on hand….
But importantly the Fed is saying that they may get a little bit tighter at a time when data from Europe to the US is simply not good. That by itself is enough to cause a lot of jitters across the world.
So we have seen this turmoil in the gold market. This is a situation where the central are probably going to have to throw a bit more caution to the wind. It puts a knot in your stomach if you think that gold is the worldwide barometer, and of course we already know there is this shift of power going on from West to East.
I believe the Chinese will step in to the gold market and support at these levels because they have a populace which owns a lot of it, and they certainly have the wherewithal to fight any selling, especially if that selling is short selling. So I’m bullish. I’m flat out bullish on gold.
Any selling that’s going on here is just selling to the Chinese. The gold that is reported to be flowing to the Chinese through Hong Kong is only part of the story. The Chinese are importing gold from other sources. Certainly within the next 2 or 3 years China is going to be the largest gold holder in the world.
Again, I think that gold will continue to act as a barometer, and as gold continues in its bull market by heading thousands of dollars higher, the gold barometer is signaling the East triumphing over the West. Unfortunately, unless we begin to take this situation seriously in the West, that’s just how this is going to continue to unfold, and gold is going to reflect it. The bottom line is you are going to see dramatically and I mean dramatically higher prices. There is nothing that’s changed my mind about that at all.”
-
GEORGE SOROS: CHINA WILL BE THE NEW WORLD RESERVE CURRENCY
-
CAN AMERICA SURVIVE WITHOUT CHINA’S EXPORTS?
Published on Feb 21, 2013
Virginia based security company Mandiant has linked more than 140 cases of cyber attacks in the US and across the globe to the Chinese military. China’s defense minister has addressed the allegations publicly and claims there is no proof that such cyber threats originated in their country. So should we be concerned about the allegations? Brian Duggan, technologist with New American Foundation, joins us to discuss the budding cyberwar between the two super-powers and weighs in on what any sanctions from Washington would do to alter America’s economy and the relationship between the US and China.
-
IAN BREMMER: THE JAPAN-CHINA CRISIS IS THE MOST SIGNIFICANT GEOPOLITICAL TENSION IN THE WORLD
January 27, 2013
By Henry Blodget and Paul Szoldra | Business Insider
China and Japan appear to be on the verge of a shooting war over some tiny islands that are the subject of a territorial dispute.
Tension between these countries is escalating irrespective of the islands, and it is a matter of immense national concern for the United States and the rest of the world.
Yesterday in Davos, I sat down with Ian Bremmer, the president of geopolitical consulting firm Eurasia Group, to get his take on the situation.
Blodget: What’s going to happen with China and Japan?
Bremmer: The big problem is that the relationship, the balance of power between these two countries, has changed and is changing dramatically—and really, very strongly not in Japan’s favor.
From a security perspective, a political perspective, an economic perspective, this is just creating big, big problems for the Japanese. And now they finally have a leader that has a good shot at staying around for a while. He has a more—not just nationalist inclination—but a more pro-democracy inclination. He was prime minister last time and people said he was more pragmatic, but if you met with him, he talked about wanting to create a league of democracies in Asia [and] orienting much more towards India and Australia and New Zealand. He was Mr. Pivot before pivoting was fashionable, right?
Now he comes into a context where the U.S. is already acting in a way that’s concerned about a Chinese challenge in the region. It’s the single biggest strategic effort that the Obama administration has engaged in, from a foreign policy perspective.
And you have to think that the Chinese are going to see all this as provocative. The real question is, to what extent is the Chinese government prepared to respond in an escalatory fashion? Is this Russia vs. Georgia? A little bit, right. Are you poking the bear?
And I don’t know the answer to that, but I suspect it’s not good.
A couple of quick points on that:
First of all, unlike Hu Jintao who really didn’t have control over the military, Xi Jinping does. He has much more direct consolidation of these, sort-of standing committees around him. He’s a much stronger figure, much stronger personality, has much more loyalty from the military. So, if he wants to escalate, he can feel much more comfortable and confident that he can ratchet up and ratchet back without it getting out of control.
That’s dangerous for Japan.
Also if you look at the way the Chinese have engaged before on this issue: buzzing the territories with planes right before the elections, almost as if they didn’t want [Shinzo] Abe in, [but] they certainly didn’t mind Abe in. Anti-Japanese nationalism is a fairly easy play for the Chinese to engage in that allows them to defuse some of what would otherwise be discontent with things that would be more problematic for the Chinese government.
One final point on this: when you look at China vs. Japan, compared to all of the other territories in the region — you talk about East China Sea, South China Sea — with all those countries in the South China Sea, the Chinese themselves are a much larger economy than any of those countries, but also the Chinese have very large diaspora communities that dominate the economies of those countries. They are the key business people, and over time, that makes the Chinese much more comfortable. They know what’s going on inside the country, it creates more transparency. But also it means that over time the Chinese really feel like if they just build the economic relationship, the security will come.
They are going to get the political influence, they’re going to get the security influence, bilaterally. All they can do is make sure the U.S. isn’t able to create strong multilateral ties in the region.
With Japan that’s not true.
There are no Chinese in Japan that have significant business influence. It’s very opaque to them the way the system actually works. Japan’s much bigger, so if you’re China, [you are] thinking about how you’re going to tip the balance over time in your direction. When you become the world’s largest economy, as you’re building out your military, your problem is Japan.
The country that you’re prepared to be more aggressive towards — call it assertive now — but over time perhaps aggressive is Japan. And all of these things, all of these structural factors, really worry me. There’s no question that the economic ties are still important between these two countries. There’s no question that the United States certainly does not want to see conflict between their allies Japan, and the Chinese. But how much effort the U.S. will be able to put into stopping it and given how tied the Americans are to the Japanese; it’s not clear to me this isn’t going to get worse. If I had to bet right now, I think there is [going to be] a significant run of escalation in 2013.
And I think by far, China-Japan is the most significant geopolitical tension on the map, in terms of direct bilateral conflict in the coming years.
Blodget: Do you think they’ll go to war?
Bremmer: I think they are at war. I think that cyberwarfare against Japanese banks has gone up greatly. I think you look at the anti-Japanese demonstrations that were clearly stimulated by the Chinese government, and the impact that’s had directly on Japan investment in China. Warfare is conducted by other means today. And we can certainly not say that these guys are friends. The question is are they frenemies or are they enemies?
I would tell you that looking at the entire G20, the single worst bilateral relationship among any two countries in the G20 is China-Japan, right now. I think that’s clear. By the way, 10 years ago, it was Russia-Japan. Now, at that point it was also over contested territories. The Japanese actually worked really hard to try to improve that relationship.
It was a lot easier for many, many reasons. You didn’t have the cultural issues. The Russians saw Japanese as being able to write checks, and all this sort of thing. In China-Japan, it’s radically harder.
Do I think that they will come to direct [confrontation]? This isn’t Russia invading Georgia with tanks, but we could absolutely see direct military skirmishes over the contested territory, sure. And that potentially could involve escalation of American presence in the region. The danger here is that it has the knock-on impact of deteriorating U.S.-China relations as well.
Blodget: So what happens if we get exactly that. A Japanese plane shoots tracers at a Chinese plane. The Chinese plane responds and shoots down the Japanese plane. What happens?
Bremmer: Well, first of all, you’re gonna see a cut-off of diplomatic ties between the two countries. The ambassadors of course, will immediately be withdrawn. Not complete secession, but that’s the first thing that happens. You’ll see anti-Chinese and anti-Japanese across the board. You’ll see some violence.
There will probably be Japanese ex-pats living in China that will be roughed up and killed. Japanese exposure in China which has already taken a beating would be considered unsustainable. Japanese companies would be leaving China in droves.
That’s bad enough. Those are things that are virtually certain to happen if you had that type of a confrontation. The question would then be, can both sides dial it back?
I suspect from a military perspective they would. The Americans [would] immediately have a show of force. There obviously would be highest alert for both sides, but there would also be a lot of confidence-building measures between the U.S. and China to try to assure the Japanese-China military conflict would not spill out of control.
Now keep in mind, Japan spends something like 1% of its GDP on the military. The Japanese aren’t defending themselves on this stuff, we are. That makes life easier in terms of thinking about how bad it can get, but because there’s no danger of going to war, right — direct military conflict — that allows both sides to believe that escalation is more feasible.
The Cold War, if there had been conflict — East and West Germany — people were talking World War III. No one’s talking about that here.
Blodget: Because Japan’s so weak.
Bremmer: In part because Japan’s so weak. In part because Japan, China, and the United States have so many interlocking interests with the Chinese.
Blodget: But if the U.S. has a show of force, it is to protect the Japanese?
Bremmer: Has to be. Japan’s our ally.
Blodget: We have huge interests in China as well.
Bremmer: Yes, we do.
Blodget: We’re going to take a side immediately?
Bremmer: We have taken a side. If you look at Hillary Clinton on this point, it is very much, “We don’t want to get involved in this conflict, but let’s be very clear: we support Japanese territorial integrity.” And look, we gave the Japanese administration over these islands. They are our strategic ally. We are committed to that.
We have huge interests in the Middle East in energy that are going down over time. Israel is our ally. That gets us into trouble. This is clearly an analogous-type situation, but China is much more important to us economically than all these folks in the Middle East.
BIodget: So if China decides to take these islands, we defend Japan? Do we go to war with China?
Bremmer: I think the likelihood of that scenario is very low indeed, precisely because the United States is involved. And so, while the Chinese have prepared to play hardball with Japan, I don’t believe the Chinese are prepared to play hardball with the United States.
And that’s going to have a knock-on economic effects. It’ll impact U.S.-China trade relations, and it’ll certainly make it much colder between the two countries. It makes the potential for a nascent cooperation on things like Syria over time very de minimis. North Korea and plenty of places where we need to cooperate are much, much harder.
These are the world’s two most important powers right now.
But, I think the likelihood of the Chinese [engaging militarily] with the Americans in the region defending the Japanese is very low indeed. That to me, is fear mongering.
Where I think the potential is — for actual serious economic conflict between Japan and China, over a military skirmish. That’s actually real, that’s on the table right now, that could happen tomorrow.
That’s a real thing.
-
POWDER KEG IN THE PACIFIC: WILL CHINA-JAPAN-U.S. TENSIONS IGNITE A CONFLICT?
January 27, 2013
Don’t look now, but conditions are deteriorating in the western Pacific. Things are turning ugly, with consequences that could prove deadly and spell catastrophe for the global economy.
In Washington, it is widely assumed that a showdown with Iran over its nuclear ambitions will be the first major crisis to engulf the next secretary of defense — whether it be former Senator Chuck Hagel, as President Obama desires, or someone else if he fails to win Senate confirmation. With few signs of an imminent breakthrough in talks aimed at peacefully resolving the Iranian nuclear issue, many analysts believe that military action — if not by Israel, then by the United States — could be on this year’s agenda.
Lurking just behind the Iranian imbroglio, however, is a potential crisis of far greater magnitude, and potentially far more imminent than most of us imagine. China’s determination to assert control over disputed islands in the potentially energy-rich waters of the East and South China Seas, in the face of stiffening resistance from Japan and the Philippines along with greater regional assertiveness by the United States, spells trouble not just regionally, but potentially globally.
Islands, Islands, Everywhere
The possibility of an Iranian crisis remains in the spotlight because of the obvious risk of disorder in the Greater Middle East and its threat to global oil production and shipping. A crisis in the East or South China Seas (essentially, western extensions of the Pacific Ocean) would, however, pose a greater peril because of the possibility of a U.S.-China military confrontation and the threat to Asian economic stability.
The United States is bound by treaty to come to the assistance of Japan or the Philippines if either country is attacked by a third party, so any armed clash between Chinese and Japanese or Filipino forces could trigger American military intervention. With so much of the world’s trade focused on Asia, and the American, Chinese, and Japanese economies tied so closely together in ways too essential to ignore, a clash of almost any sort in these vital waterways might paralyze international commerce and trigger a global recession (or worse).
All of this should be painfully obvious and so rule out such a possibility — and yet the likelihood of such a clash occurring has been on the rise in recent months, as China and its neighbors continue to ratchet up the bellicosity of their statements and bolster their military forces in the contested areas. Washington’s continuing statements about its ongoing plans for a “pivot” to, or “rebalancing” of, its forces in the Pacific have only fueled Chinese intransigence and intensified a rising sense of crisis in the region. Leaders on all sides continue to affirm their country’s inviolable rights to the contested islands and vow to use any means necessary to resist encroachment by rival claimants. In the meantime, China has increased the frequency and scale of its naval maneuvers in waters claimed by Japan, Vietnam, and the Philippines, further enflaming tensions in the region.
Ostensibly, these disputes revolve around the question of who owns a constellation of largely uninhabited atolls and islets claimed by a variety of nations. In the East China Sea, the islands in contention are called the Diaoyus by China and the Senkakus by Japan. At present, they are administered by Japan, but both countries claim sovereignty over them. In the South China Sea, several island groups are in contention, including the Spratly chain and the Paracel Islands (known in China as the Nansha and Xisha Islands, respectively). China claims allof these islets, while Vietnam claims some of the Spratlys and Paracels. Brunei, Malaysia, and the Philippines also claim some of the Spratlys.
Far more is, of course, at stake than just the ownership of a few uninhabited islets. The seabeds surrounding them are believed to sit atop vast reserves of oil and natural gas. Ownership of the islands would naturally confer ownership of the reserves — something all of these countries desperately desire. Powerful forces of nationalism are also at work: with rising popular fervor, the Chinese believe that the islands are part of their national territory and any other claims represent a direct assault on China’s sovereign rights; the fact that Japan — China’s brutal invader and occupier during World War II — is a rival claimant to some of them only adds a powerful tinge of victimhood to Chinese nationalism and intransigence on the issue. By the same token, the Japanese, Vietnamese, and Filipinos, already feeling threatened by China’s growing wealth and power, believe no less firmly that not bending on the island disputes is an essential expression of their nationhood.
Long ongoing, these disputes have escalated recently. In May 2011, for instance, the Vietnamese reported that Chinese warships were harassing oil-exploration vessels operated by the state-owned energy company PetroVietnam in the South China Sea. In two instances, Vietnamese authorities claimed, cables attached to underwater survey equipment were purposely slashed. In April 2012, armed Chinese marine surveillance ships blocked efforts by Filipino vessels to inspect Chinese boats suspected of illegally fishing off Scarborough Shoal, an islet in the South China Sea claimed by both countries.
The East China Sea has similarly witnessed tense encounters of late. Last September, for example, Japanese authorities arrested 14 Chinese citizens who had attempted to land on one of the Diaoyu/Senkaku Islands to press their country’s claims, provoking widespread anti-Japanese protests across China and a series of naval show-of-force operations by both sides in the disputed waters.
Regional diplomacy, that classic way of settling disputes in a peaceful manner, has been under growing strain recently thanks to these maritime disputes and the accompanying military encounters. In July 2012, at the annual meeting of the Association of Southeast Asian Nations (ASEAN), Asian leaders were unable to agree on a final communiqué, no matter how anodyne — the first time that had happened in the organization’s 46-year history. Reportedly, consensus on a final document was thwarted when Cambodia, a close ally of China’s, refused to endorse compromise language on a proposed “code of conduct” for resolving disputes in the South China Sea. Two months later, when Secretary of State Hillary Rodham Clinton visited Beijing in an attempt to promote negotiations on the disputes, she was reviled in the Chinese press, while officials there refused to cede any ground at all.
As 2012 ended and the New Year began, the situation only deteriorated. On December 1st, officials in Hainan Province, which administers the Chinese-claimed islands in the South China Sea,announced a new policy for 2013: Chinese warships would now be empowered to stop, search, or simply repel foreign ships that entered the claimed waters and were suspected of conducting illegal activities ranging, assumedly, from fishing to oil drilling. This move coincided with an increase in the size and frequency of Chinese naval deployments in the disputed areas.
On December 13th, the Japanese militaryscrambled F-15 fighter jets when a Chinese marine surveillance plane flew into airspace near the Diaoyu/Senkaku Islands. Another worrisome incident occurred on January 8th, when four Chinese surveillance ships entered Japanese-controlled waters around those islands for 13 hours. Two days later, Japanese fighter jets were again scrambled when a Chinese surveillance plane returned to the islands. Chinese fighters then came in pursuit, the first time supersonic jets from both sides flew over the disputed area. The Chinese clearly have little intention of backing down, having indicated that they will increase their air and naval deployments in the area, just as the Japanese are doing.
Powder Keg in the Pacific
While war clouds gather in the Pacific sky, the question remains: Why, pray tell, is this happening now?
Several factors seem to be conspiring to heighten the risk of confrontation, including leadership changes in China and Japan, and a geopolitical reassessment by the United States.
* In China, a new leadership team is placing renewed emphasis on military strength and on what might be called national assertiveness. At the 18th Party Congress of the Chinese Communist Party, held last November in Beijing, Xi Jinping was named both party head and chairman of the Central Military Commission, making him, in effect, the nation’s foremost civilian and military official. Since then, Xi has made several heavily publicized visits to assorted Chinese military units, all clearly intended to demonstrate the Communist Party’s determination, under his leadership, to boost the capabilities and prestige of the country’s army, navy, and air force. He has already linked this drive to his belief that his country should play a more vigorous and assertive role in the region and the world.
In a speech to soldiers in the city of Huizhou, for example, Xi spoke of his “dream” of national rejuvenation: “This dream can be said to be a dream of a strong nation; and for the military, it is the dream of a strong military.” Significantly, he used the trip to visit the Haikou, a destroyer assigned to the fleet responsible for patrolling the disputed waters of the South China Sea. As he spoke, a Chinese surveillance plane entered disputed air space over the Diaoyu/Senkaku islands in the East China Sea, prompting Japan to scramble those F-15 fighter jets.
* In Japan, too, a new leadership team is placing renewed emphasis on military strength and national assertiveness. On December 16th, arch-nationalist Shinzo Abe returned to power as the nation’s prime minister. Although he campaignedlargely on economic issues, promising to revive the country’s lagging economy, Abe has made no secret of his intent to bolster the Japanese military and assume a tougher stance on the East China Sea dispute.
In his first few weeks in office, Abe has already announced plans to increase military spending and review an official apology made by a former government official to women forced into sexual slavery by the Japanese military during World War II. These steps are sure to please Japan’s rightists, but certain to inflame anti-Japanese sentiment in China, Korea, and other countries it once occupied.
Equally worrisome, Abe promptly negotiated an agreement with the Philippines for greater cooperation on enhanced “maritime security” in the western Pacific, a move intended to counter growing Chinese assertiveness in the region. Inevitably, this will spark a harsh Chinese response — and because the United States has mutual defense treaties with both countries, it will also increase the risk of U.S. involvement in future engagements at sea.
* In the United States, senior officials are debating implementation of the “Pacific pivot” announced by President Obama in a speech before the Australian Parliament a little over a year ago. In it, he promised that additional U.S. forces would be deployed in the region, even if that meant cutbacks elsewhere. “My guidance is clear,” he declared. “As we plan and budget for the future, we will allocate the resources necessary to maintain our strong military presence in this region.” While Obama never quite said that his approach was intended to constrain the rise of China, few observers doubt that a policy of “containment” has returned to the Pacific.
Indeed, the U.S. military has taken the first steps in this direction, announcing, for example, that by 2017 all three U.S. stealth planes, the F-22, F-35, and B-2, would be deployed to bases relatively near China and that by 2020 60% of U.S. naval forces will be stationed in the Pacific (compared to 50% today). However, the nation’s budget woes have led many analysts to question whether the Pentagon is actually capable of fully implementing the military part of any Asian pivot strategy in a meaningful way. A study conducted by the Center for Strategic and International Studies (CSIS) at the behest of Congress, released last summer,concluded that the Department of Defense “has not adequately articulated the strategy behind its force posture planning [in the Asia-Pacific] nor aligned the strategy with resources in a way that reflects current budget realities.”
This, in turn, has fueled a drive by military hawks to press the administration to spend more on Pacific-oriented forces and to play a more vigorous role in countering China’s “bullying” behavior in the East and South China Seas. “[America’s Asian allies] are waiting to see whether America will live up to its uncomfortable but necessary role as the true guarantor of stability in East Asia, or whether the region will again be dominated by belligerence and intimidation,” former Secretary of the Navy and former Senator James Webb wrote in the Wall Street Journal. Although the administration has responded to such taunts by reaffirming its pledge to bolster its forces in the Pacific, this has failed to halt the calls for an even tougher posture by Washington. Obama has already been chided for failing to provide sufficient backing to Israel in its struggle with Iran over nuclear weapons, and it is safe to assume that he will face even greater pressure to assist America’s allies in Asia were they to be threatened by Chinese forces.
Add these three developments together, and you have the makings of a powder keg — potentially at least as explosive and dangerous to the global economy as any confrontation with Iran. Right now, given the rising tensions, the first close encounter of the worst kind, in which, say, shots were unexpectedly fired and lives lost, or a ship or plane went down, might be the equivalent of lighting a fuse in a crowded, over-armed room. Such an incident could occur almost any time. The Japanese press has reported that government officials there are ready to authorize fighter pilots to fire warning shots if Chinese aircraft penetrate the airspace over the Diaoyu/Senkaku islands. A Chinese general has said that such an act would count as the start of “actual combat.” That the irrationality of such an event will be apparent to anyone who considers the deeply tangled economic relations among all these powers may prove no impediment to the situation — as at the beginning of World War I — simply spinning out of everyone’s control.
Can such a crisis be averted? Yes, if the leaders of China, Japan, and the United States, the key countries involved, take steps to defuse the belligerent and ultra-nationalistic pronouncements now holding sway and begin talking with one another about practical steps to resolve the disputes. Similarly, an emotional and unexpected gesture — Prime Minister Abe, for instance, pulling a Nixon and paying a surprise goodwill visit to China — might carry the day and change the atmosphere. Should these minor disputes in the Pacific get out of hand, however, not just those directly involved but the whole planet will look with sadness and horror on the failure of everyone involved.
-
CROSS TALK: CHINA VS JAPAN ISLANDS DISPUTE
Published on Sep 24, 2012
The China-Japan island dispute is mounting. What is this growing dispute really about? The rise of China or the insecurity of Japan? Is it a resource grab? A security issue? Who do the islands rightfully belong to? Does the US have a hand in the argument? And is there really any solution? CrossTalking with Mark Selden, Bruce Klingner and Brian Becker.
-
JAPAN WARNS IT MAY FIRE ON CHINESE AIRCRAFT OVER DISPUTED ISLANDS
January 26, 2013
China Retorts: “There Will Be No Second Shot”
A week ago we reported that following what China said was a response to counter “Japanese military aircraft disrupting the routine patrols of Chinese administrative aircraft” over the East China Sea, the world’s most populous country (and one which has the largest, 2.25 million strong, standing army) scrambled several jets and put its military on high alert. Now, it is the turn of Japan, and its brand new militant and nationalistic government, to “retaliate” and escalate tensions by one more notch, in the process crashing any hope that Chinese imports of Japanese goods may resume, and obviating the ongoing temporary plunge in the yen (which while doing nothing to boost exports to this 20% trading partner, has made imports so expensive, inflation in the past two months has already soared well above the 2% target for various key goods as previously reported).
Moments ago, Japan says it may fire warning shots and take other measures to keep foreign aircraft from violating its airspace in the latest verbal blast between Tokyo and Beijing that raises concerns that a dispute over hotly contested islands could spin out of control.
Japanese officials made the comments after Chinese fighters tailed its warplanes near the islands recently. The incident is believed to be the first scrambling of Chinese fighters since the tensions began to rise last spring.
According to Chinese media, a pair of J-10 fighters was scrambled after Japanese F-15s began tailing a Chinese surveillance plane near the disputed islands in the East China Sea. China has complained the surveillance flight did not violate Japanese airspace and the F-15s were harassing it.
It was the first time the Chinese media has reported fighters being mobilized to respond to Japanese air force activity in the area and comes amid what Japan says is a rapid intensification of Chinese air force activity around the islands, where Japanese and Chinese coast guard ships have squared off for months.
Perhaps it may surprise Japan, but “China’s reaction” will hardly be one of a dog retreating with its tail between its legs. In fact, it will likely be quite the opposite.
And the fact that the US has once again stepped in, and is once again on the side of the party that started this whole escalation fiasco (that would be Japan for those who have forgotten), will not help:
“Japan’s desire to fire tracer warning shots as a way of frightening the Chinese is nothing but a joke that shows the stupidity, cruelty and failure to understand their own limitations,” Maj. Gen. Peng Guangqian of the Chinese Academy of Military Sciences was quoted as saying by the China News Service and other state media.
“Firing tracer bullets is a type of provocation; it’s firing the first shot,” he said. “Were Japan to dare to fire tracers, which is to say fire the first shot, then China wouldn’t stint on responding and not allow them to fire the second shot.“
Sounds like a catalyst to double down and buy every ES contract in sight: just think of the GDP boost and appropriate fiscal multiplier once Japan is levelled.
–
JAPAN ACCUSES CHINA OF USING WEAPONS RADAR ON SHIP
By MARI YAMAGUCHI
Associated Press
Feb 5, 2013
TOKYO (AP) — Japan on Tuesday accused Chinese navy vessels of locking a weapons-targeting radar on a Japanese destroyer and helicopter amid escalating territorial disputes between the Asian powers.
Japanese Defense Minister Itsunori Onodera accused Chinese navy vessels of using the weapons radar in two incidents last month, on Jan. 19 and Jan. 30. He said it happened in the East China Sea, suggesting it was near disputed islands controlled by Japan but also claimed by China. He did not give an exact location.
Onodera said the action could have led to a dangerous situation. Shots were not fired on either occasion.
“It is extremely abnormal to use such fire-control radar, or radar for (weapons) firing,” he told reporters in an emergency briefing. “The incident could have led to a dangerous situation in case of a misstep.”
“We will sternly call on the Chinese side to refrain from such dangerous acts,” he added.
The United States, which is a treaty ally of Japan, voiced concern. State Department spokeswoman Victoria Nuland said such actions could escalate tensions and increase the risk of an incident or miscalculation that would undermine peace, stability and economic growth in the region.
Chinese maritime surveillance vessels have repeatedly entered Japanese-claimed waters around the islands since last September, when Japan’s government nationalized some of the islands, known as Senkaku in Japan and Diaoyu in China. The purchase triggered violent protests across China.
Japan’s Foreign Ministry lodged a formal protest with China earlier Tuesday through the Chinese Embassy in Tokyo and the Japanese Embassy in Beijing, officials said. China said it would look into the alleged incidents, according to Foreign Minister Fumio Kishida.
Onodera said Japan waited to report the incidents because it took time to verify the source and nature of the radar allegedly used by the Chinese frigates.
New U.S. Secretary of State John Kerry spoke by phone Tuesday with Chinese Foreign Minister Yang Jiechi and they discussed “regional security issues,” Nuland said. She declined to say whether the radar-targeting incidents were among the issues they talked about.
-
CHINA’S BELLIGERENCE CALLED ‘CRISIS GREATER THAN IRAN’
U.S. already committed to helping Japan, Philippines
by F. Michael Maloof | World Net Daily
WASHINGTON – China’s new assertiveness in the South China Sea and its confrontational position in conflicts with its neighbors are seen by experts as a crisis that will be of a greater magnitude, especially for the United States, than the issue of whether to bomb Iran’s nuclear facilities, reports Joseph Farah’s G2 Bulletin.
Asian analyst Michael Klare says China’s aggression will be a “potential crisis of far greater magnitude (than Iran) and potentially far more imminent than most of us imagine.”
“China’s determination to assert control over disputed islands in the potentially energy-rich waters of the East and South China Seas, in the face of stiffening resistance from Japan and the Philippines, along with greater regional assertiveness by the United States, spells trouble not just regionally, but potentially globally,” Klare recently told the Asia Times.
Klare acknowledges a crisis from bombing Iran would create considerable disorder in the Middle East and threaten global oil production and shipping.
However, a crisis in the East or South China Seas would pose an even “greater peril” due to the prospect of a U.S.-China military standoff that could threaten Asian economic stability.
The U.S. is committed by treaty to assist Japan and the Philippines in the event of an attack.
The U.S. commitment goes beyond its military alliances and includes the close trade ties with the Asian countries.
“With so much of the world’s trade focused on Asia, and the American, Chinese and Japanese economies tied so closely together in ways too essential to ignore, a clash of almost any sort in these vital waterways might paralyze international commerce and trigger a global recession – or worse,” Klare said.
While such a conflict may seem unlikely, there are ominous indications a clash could occur soon.
China has committed its military to enforce claims on the East and South China Seas that also are made by Japan, Vietnam and the Philippines. The claims include what Klare calls a “constellation” of uninhabited atolls and islets.
Adding to the potential for conflict has been the announced U.S. policy of “rebalancing” its forces in the Pacific, which has increased tensions in the region.
The U.S. supports the claims of the various countries involved in disputes with China and also backs India, which recently entered into contracts with Vietnam for mineral and oil exploration in the East and South China Seas.
Like the U.S., India also is moving naval assets into the region to enforce its right of exploration.
-
CHINESE TROOP MOVEMENTS SIGNAL WAR?
Published on Feb 11, 2013
-
Tanks, one by one, moving along a main road in China’s coastal Fujian province. Driving up speculations that the Chinese military may be warming up for war. Local residents took these pictures between February 3 to February 6. At times, the line of tanks and artillery blocked traffic for several miles.
And it wasn’t just in Fujian province. These military vehicles were spotted further up the coast, in neighboring Zhejiang province. According to dissident website, molihua.org, these tanks in Hubei province are being transported from a military base to the coast.
The troop movements come after months of escalating tensions between China and Japan over the disputed territory of the Diaoyun, or Senkaku islands and they’re known in Japan. It’s caused international worries that the two countries may be on the cusp of war. Both sides have scrambled jets and warships in the region. In January, during naval exercise near the disputed waters, Chinese warships reportedly directed their targeting radar at a Japanese vessel.
On February 7, State-run Global Times published this article saying there is a “serious possibility” a military conflict may flare up between China and Japan. It continues to say that fewer and fewer people are hopeful for a peaceful resolution to the Diaoyu Island crisis.
Are we in a countdown to war between China and Japan? NTD will continue to keep you posted as the situation develops.
-
PACIFIC TENSIONS BEING RATCHED UP
February 9, 2013
Despite efforts by the new Japanese Prime Minister Shinzo Abe to finally reach a territorial settlement with Russia over the Northern Islands, a conflict left over from World War II, the conflict heated up yesterday as the Japanese air force scrambled four jet fighters against two Russian fighters that allegedly violated Japanese air space near the northern tip of the northern island of Hokkaido. The Japanese government lodged a “severe protest” with the Russian Embassy in Tokyo and demanded that the Russian government investigate. The Russians, for their part, denied there was any airspace violation and said that their aircraft had been flying in international airspace that they have routinely used for years. In fact, they were participating in a combined naval and air exercise around the disputed Kurile Islands that the Russian Ministry of Defense had announced on Feb. 5. Russian troops first occupied the Kuriles at the end of World War II and the two countries have disputed sovereignty over the islands ever since.
The incident followed by a week an incident in the East China Sea where the Japanese Defense Ministry claimed that a Chinese naval vessel locked on to a Japanese naval vessel with radar intended to guide weapons, but then turned off the radar without firing. The incident occurred near the Senkaku Islands, claimed by both Japan and China. “One step in the wrong direction could have pushed things into a dangerous situation,” Japanese Defense Minister Itsunori Onodera told reporters on Feb. 5 about the use of the radar. China denied that the radar was of the weapon-directing type.
While all this is going on, the United States, Japan, and Australia have been staging joint exercises, known as Cope North, this week, from the U.S. territory of Guam. Officers leading the exercises claim they are not aimed at China, but rather at improving their own ability to inter-operate. “The training is not against a specific country, like China,” Japan Air Self-Defense Force Lt. Gen. Masayuki Hironaka said, according to the Associated Press. “However, I think [the fact] that our alliance with the U.S. and Australia is healthy is a strong message.” The Associated Press report puts the exercise squarely in the context of President Obama’s Asia Pivot, reporting that exercises like Cope North are a “key element” of Washington’s evolving strategy there. That the Chinese might be taking away a different message from the one that the United States, Japan, and Australia wish to project is known. “I think the P.R.C. has a tendency to look at things in a different light,” said U.S. Pacific Air Forces Commander Gen. Herbert Carlisle. “I think they may take this as something different than it is intended.”
-
VIDEO: CHINESE NAVAL FLEET RETURNS HOME AFTER TRAINING IN PACIFIC
Published on Feb 13, 2013
A People’s Liberation Army Navy fleet is on their way to Qingdao Port in northeast China after they finished intensive training missions in the West Pacific. During the training, the fleet held drills about attacks and defense, air defense and anti-submarine and over-the-horizon attack. Meanwhile, the training tested tactics, technical performances and computerized remote capacity of supplies.
-
THE ECONOMIC IMPACT OF A WAR BETWEEN JAPAN AND CHINA
Published on Feb 21, 2013
for more http://countdowntozerotime.org/
A major conflict between the region’s two largest economies would not only impose a harsh dilemma on U.S. diplomats, but also have a significant impact on the entire global economy. It is in every nation’s best interest that the Chinese and Japanese settle their territorial dispute peacefully.
-
THE DANGER OF WAR IN ASIA
Peter Symonds
12 February 2013
Two recent commentaries highlight the growing nervousness in ruling circles internationally about the danger of a new world war erupting in Asia. Both point to the region’s extremely tense maritime disputes, especially between China and Japan, and draw parallels with the build-up of competing interests and alliances that led inexorably to the eruption of World War I in 1914.
In an article entitled “A Maritime Balkans of the 21st Century?” in the Foreign Policy journal on January 30, former Australian Prime Minister Kevin Rudd declared: “There are no ordinary times in East Asia. With tensions rising from conflicting territorial claims in the East China and South China seas, the region increasingly resembles a 21st century maritime redux of the Balkans a century ago—a tinderbox on water. Nationalist sentiment is surging across the region, reducing the domestic political space for less confrontation approaches… In security terms, the region is more brittle than at any time since the fall of Saigon in 1975.”
Writing in the Financial Times on February 4, commentator Gideon Rachman made the same point in his article, “The shadow of 1914 falls over the Pacific.” He wrote: “The flickering black and white films of men going ‘over the top’ in the First World War seem impossibly distant. Yet the idea that the great powers of today could never again stumble into a war, as they did in 1914, is far too complacent. The rising tensions between China, Japan and the US have echoes of the terrible conflict that broke out almost a century ago.”
The tone of the articles is not shrill. Neither writer believes that world war is imminent, but, in their sober assessments, neither do they rule it out. The most immediate flashpoint is the territorial dispute over the rocky outcrops in the East China Sea known as Senkaku in Japan and Diaoyu in China. Since last September, when Tokyo “nationalised” the islets, increasingly dangerous manoeuvres by Chinese and Japanese vessels and aircraft in the disputed waters and airspace have raised the risk of an incident that could spark open conflict.
The dangers have been compounded following Japan’s election in December. As Rachman noted: “[T]he new Japanese cabinet is full of hard-line nationalists, who are more inclined to confront China.” In the latest episode, last week, Tokyo accused Chinese naval vessels of twice locking their weapons systems onto Japanese targets, sparking another round of caustic public denials and accusations.
Rudd and Rachman made no reference to the real causes of the rising geo-political tensions and the outpouring of nationalism, which lie in the deepening global economic breakdown. Above all, they cover up the role of the Obama administration and its “pivot to Asia” that has deliberately encouraged allies like Japan and the Philippines to more aggressively push their territorial claims against China. Washington is establishing a system of military alliances, bases and strategic partnerships throughout the region, including in Australia, India, South Korea and Japan, aimed against Beijing.
Long gone is the triumphalism in bourgeois circles about a new period of peace and prosperity following the collapse of the Soviet Union two decades ago. The end of the Cold War opened up all the old great power antagonisms and rivalries that are fuelling a new neo-colonial scramble for raw materials, markets and cheap labour across the globe. The most destabilising factor in world politics has been US imperialism, which has exploited its military superiority to launch one war after another in a desperate attempt to offset its economic decline.
Obama’s “pivot to Asia” is bound up with the transformation of the region, above all China, into a gigantic cheap labour platform for the world’s competing global corporations. Washington’s strategic push throughout Asia to undermine Chinese influence is bound up with its efforts to maintain its economic dominance by dictating trade terms via its Trans Pacific Partnership grouping.
Likening the world situation to 1914, Rachman wrote: “China now, like Germany 100 years ago, is a rising power that fears the established great power [the United States] is intent on blocking its ascent.” It is true that as it scours the globe for raw materials and markets, China, as did Germany, comes into conflict with the dominant powers, above all the US. Unlike Germany, however, China is not an imperialist power. Its massive imports of energy and minerals feed huge manufacturing enterprises that are either owned by, or supply, global corporate giants. Despite its size, the Chinese economy is completely dependent on foreign investment, foreign technology and a world capitalist order dominated by American imperialism.
Rudd and Rachman both concluded their articles with the hope that rationality and shared economic interests would prevail over war. These hopes, however, were undercut by the comments, cited by Rachman, of Harvard professor Joseph Nye, who took part in a top-level US mission to Beijing and Tokyo in October. “We discussed the 1914 analogy among ourselves,” Nye explained. “I don’t think any of the parties wants war, but we warned both sides about miscommunications and accidents. Deterrence usually works among rational actors, but the major players in 1914 were also rational actors.”
Nye’s remarks point to the fact that war is not a matter of subjective intentions, but is driven by objective social and economic forces. Following 1914, the most far-sighted Marxist revolutionaries of the day—Lenin and Trotsky—concluded that the war signalled the breakdown of capitalism and the opening up a new epoch of wars and revolution—the epoch of imperialism. The outbreak of war also brought the Russian Revolution of October 1917 that established the first workers’ state and gave a mighty impetus to the struggles of the working class internationally.
Profound economic, technological and political changes have taken place over the past century, but the fundamental contradictions of capitalism remain: between world economy and the outmoded nation state system, and between socialised production and the subordination of all economic activity to private profit. The sole social force able to prevent the slide to world war and barbarism is the international working class, through the abolition of the profit system and the establishment of a world-planned socialist economy. That requires a thorough assimilation of the lessons of the strategic experiences of the working class in the 20th century—above all, of the protracted struggle of the international Trotskyist movement for the program of Marxism.
-
DISPUTE OVER ISLANDS REFLECTS JAPANESE FEAR OF CHINA’S RISE
By MARTIN FACKLER | The New York Times
August 21, 2012
ISHIGAKI, Japan — When the flotilla of 21 fishing boats arrived at an island chain at the center of a growing territorial dispute with China, the captains warned the dozens of activists and politicians aboard not to attempt a landing.
Ten of the activists jumped into the shark-infested waters anyway, swimming ashore on Sunday and planting the rising sun flag that evokes painful memories of Imperial Japan’s 20th-century march across Asia.
“We feel that they dragged us into an international incident,” said Masanori Tamashiro, one of the boat captains.
That feeling is widely shared in Japan, where a small number of nationalists has pushed the country to assert itself more boldly to counter China’s and South Korea’s economic rise and China’s quickly evolving territorial ambitions. The conflict with China has raised the specter that the United States, Japan’s longtime defender, could be pulled into the fight.
The nationalists have gained traction for their cause in recent months by taking advantage of the government’s political weakness, forcing the governing party to take a tougher stand on the islands west of here, known as the Senkakus in Japan and the Diaoyu in China.
But the activists are also tapping into a widespread anxiety over China, which intensified two years ago during the last major flare-up over the Senkakus. China retaliated then for Japan’s arrest of a fishing captain by starving Japan of the rare earths needed for its already struggling electronics industry. That anxiety became more pronounced in recent months as China expanded its claims in the nearby South China Sea, challenging Vietnam, the Philippines and others over more than 40 islands in a vast area, and backing its statements with aggressive moves that included sending larger patrol boats to disputed waters.
There is still little appetite in pacifist Japan for a full-blown confrontation with China. But analysts say consensus is growing on the need to stand up to China as power in the region appears to slip further from economically fading Japan and the United States.
“We are all gearing up for an international tug of war in this region,” said Narushige Michishita, an expert on security issues at the National Graduate Institute for Policy Studies in Tokyo. “Whenever the distribution of power changes in a dramatic way, people start to redraw lines.”
That is precisely what is happening in the South China Sea, which has received more international attention than Japan’s territorial battles. But experts say the increasingly shrill war of words over disputed islands between Japan and its East Asian neighbors, including China and South Korea, is potentially more explosive. Unlike in the South China Sea, where the frictions center on competition for natural resources, the East Asian island disputes are more about history, rooted in lingering — and easily ignited — anger over Japan’s brutal dominance decades ago.
Those raw emotions were loosed over the weekend, as hundreds and possibly thousands of Chinese — in protests that were at least tolerated by the government — poured into the streets in several cities to denounce Japan’s claims over the Senkakus.
“The stakes are much higher in East Asia because you have bigger countries in close proximity, and the conflicts are more direct and emotional,” said Kent Calder, director of the Edwin O. Reischauer Center for East Asian Studies at Johns Hopkins University.
The ramifications for the United States are also potentially more troubling, analysts said. The United States has been urging Japan and South Korea to pick up more of the burden of defending against China and North Korea, but the countries’ latest standoff over islets that sit between them, known as Takeshima in Japan and Dokdo in Korean, contributed to South Korea’s decision to back out of an agreement to share military intelligence with Japan.
An even bigger, though remote, risk for the United States, some analysts said, is that it could be dragged into an armed conflict between China and Japan, which it is obligated by treaty to defend.
“There is a real possibility that if diplomacy fails, there will be a war,” said Kazuhiko Togo, a former career Japanese diplomat who has written on the island issues.
The current row between Japan and China was started by Tokyo’s governor, Shintaro Ishihara, a longtime and outspoken advocate of conservative issues. Last spring, he said he wanted Tokyo to buy the islands from their current owner, a Japanese citizen, to better defend them from China. Under pressure not to look weak in advance of elections, Prime Minister Yoshihiko Noda quickly said the central government would buy the islands instead.
That set off a tit-for-tat between activists from both countries. First, seven Hong Kong activists landed last week on Uotori, the largest of the disputed islands, and were among 14 Chinese arrested by Japan and quickly deported. Japanese nationalists retaliated with their landing on the same island on Sunday. (In a sign of how small the circle of Japanese activists is, one of the eight national lawmakers who joined the flotilla, Eriko Yamatani of the opposition Liberal Democratic Party, was also part of a recent episode that helped set off the latest battle between South Korea and Japan over their disputed islands.)
That flotilla left from here, on Ishigaki island, on the southern edge of the Okinawa chain about 80 miles from the Senkakus.
Yoshiyuki Toita, a 42-year-old member of Ishigaki’s city assembly, was one of the few local residents who joined the expedition. “Japan has come to the point that it must change,” Mr. Toita said. “The era of just depending on the United States is over.”
Even so, Mr. Toita agreed with mainstream opinion that Japan should cleave more closely to the United States.
Still, the government has taken at least some actions to show its own willingness to push back at China, most notably redrawing its national defense strategy, which had once focused on the Soviet Union in the north, but now will concentrate on protecting against China in the south. An opinion poll last October conducted by the prime minister’s office showed a growing wariness, with more than 70 percent of Japanese saying they do not have “friendly feelings” toward China.
Such sentiments have even made inroads here in Ishigaki, a part of Okinawa, where a deep pacifism was born of the anger at the Japanese Imperial Army’s forcing of civilians to commit suicide during World War II, as well as the heavy American troop presence after the war.
As Chinese warships and patrol boats have become a more frequent sight near here, some islanders have begun to speak out more in support of the American and Japanese militaries, even as sentiment against United States bases remains strong.
Since the events of two years ago when China cut off supplies of rare earths, Ishigaki’s mayor, Yoshitaka Nakayama, began flying the rising sun flag in front of City Hall for the first time since World War II.
At the same time, said Mr. Nakayama, 45, he values his island’s growing trade and tourism links to the Chinese-speaking world, especially Taiwan, which also stakes a claim to the Senkakus.
Mr. Tamashiro, the fishing boat captain, expressed similar conflicted feelings, even as he has begun taking more activists to see the islands. “Basically, fishermen don’t want the politics to disrupt their livelihoods,” Mr. Tamashiro said. But at $4,500 per boat charter, he said, going to the Senkakus “is not bad money.”
-
NORTH KOREA IS GETTING THE HANG OF BUILDING ATOMIC BOMBS
by Yekaterina Kudashkina | The Voice of Russia
For now we don’t have enough information to know how much of a change this third test represents, I mean we know that the power of the nuclear device that was used is greater than in the previous test. And the first one in 2006 was generally considered to be a failure. And the second one was a bit greater and the third one which happened yesterday was the greatest in terms of yield. So, this is the main indicator that North Korea has made progress in its mastery of the design of nuclear weapons.
However, there is still a lot of details that have to surface in order to understand whether or not this is a huge change. For example, we have no idea about the kind of fissile material that was used to detonate this weapon inside the weapon. And this is an important element since until now they were relying on plutonium to design their weapons. Whether or not they still do so, or if they rely on highly enriched uranium would be a huge change meaning that they are supposed to have much greater stocks of uranium and much smaller stocks of plutonium. So, this is an important issue that we have to take a closer look at it in the next weeks and try to figure out whether or not this test represents a huge change in the North Korean military capability.
But where are they getting their technology from?
When we talk of the nuclear weapon itself we know that they apparently have received some information from Pakistan in the past, not recently but in the past. As you may be aware of the father of the Pakistani nuclear bomb Abdul Qadeer Khan was the head of a network which proliferated nuclear technology, plants of nuclear weapons and particularly centrifuges that are used to enrich uranium. Those technologies were proliferated to Iran, to North Korea and we know that North Korea has been developing its uranium enrichment program for at least ten years. It was revealed two or three years ago that there were clear indicators that they were trying to do so as soon as 2003 or 2002.
So, in this area the help came mostly from Pakistan, but not the state itself, but from a clandestine supplier which included one of the responsible inside Pakistan for the Pakistani nuclear program. But of course the Pakistani Government always denied that they were involved directly.
It is very interesting that Iran this time reacted by saying that all nuclear devices should be destroyed in the Korean Peninsula. And to me it looks a little bit like an untypical reaction, unusual reaction on the part of Tehran. How could we read it?
Well, I think we have to see this as a political posturing from Tehran. As you know they’ve always denied that they have the ambition to develop nuclear weapons. It’s always been stated like that. So, it is not a surprise to me tha