On the heels of global stock markets remaining strong, today the 42-year market veteran who correctly predicted that the Fed would not taper spoke with King World News about the frightening problems which are facing the United States and the rest of the world. Below is the tremendous interview with Egon von Greyerz, who is founder of Matterhorn Asset Management out of Switzerland.
Greyerz: “Eric, I think today is an important day for the metals and also for the dollar. I will come back to that later, but first let’s look at the fundamentals that will drive these market moves.
“Since 2008, the main central banks of the world have printed $9 trillion. On top of that, the US federal debt has increased by almost $8 trillion during that same time period. If we had a temporary crisis in 2008, then money printing should have stopped. But is hasn’t.
And the printing is continuing at the same rate since 2010. Since 2010, the biggest central banks have printed $5 trillion, and US debt has increased by another $5 trillion. So, Eric, anyone who believes that printing can end, or that tapering can start, doesn’t know what’s happening in the world.
Let’s first look at the European banks, they are under tremendous pressure. The ECB has lent them one trillion euros, and very little of that has been repaid. Most of it falls due in 2014. Both Spain and Italy owe well over $200 billion each. There’s no chance of these countries repaying that money.
Money supply in Europe is falling fast, and so is bank lending. In October, bank loans declined by 6% in Italy, and by 19% in Spain. These countries are already under massive pressure, and they don’t have banking systems that can support the survival of the economy. They have essentially stopped lending to their economies.
This is why the ECB lowered their discount rate by .25%. On top of that, European banks need another 280 billion euros for the Basel III requirements next year. Again, they have no chance of finding $280 billion. Remember, none of the toxic debt that started the problem in 2008 has been dealt with — it’s still there. So we have a European banking system which is fighting for survival.
And if we look at the banks in the US, why do you think that Goldman Sachs, JP Morgan, and Morgan Stanley are all downgraded? It’s because their balance sheets would have had major deficits if they valued their toxic debt at market value. In addition, US banks have several hundred trillion of derivatives, a big part of which is worthless.
Many so-called experts today say we will have a continued deflation. Eric, in my view there is no chance of a deflation because every government and every central bank in the world knows that deflation means a collapse of the financial system. The central banks have now created a system which is totally dependent on ever-more credit and QE. So there is nothing that can stop them from printing money. On the contrary, they will need to print a lot more. Instead of central banks printing $2 trillion each year, it will soon be $10 trillion, and eventually a lot more.
Of course the printing will lead to a collapse of the currencies. This will require even more printing. So this vicious cycle will continue until paper money dies. Of course the printing of worthless money will have no effect, but they will still print more until governments and central banks have lost control of the economy.
That will lead to a total police state or anarchy in many countries. There is a risk that this will happen in several countries, including the US. There will be virtually no support system. Paper money will have no function. Instead, there will be barter and theft.
Will there be a reset to a new reserve currency after this hyperinflationary depression? I doubt that it will come very soon because governments in such a scenario would not be in control of their countries. So it will be difficult to come to an agreement on an international level. So in my view it could be a long time before we have a reset.
Instead, after the hyperinflationary depression, I think there will be a deflationary implosion. In that scenario the banking system will not survive, and all of the assets values which have been blown up by the credit bubbles will collapse. When will this happen? In my view the first phase is starting now which is the inflationary, leading to the hyperinflationary phase. So the risks are there now.
Would insurance in the form of gold help in this scenario? Some governments might attempt to ban gold, but others won’t. That’s why it’s so important to keep your gold in a country where the rule of law prevails. Switzerland and Singapore fits into that definition.
Of course I hope all of these terrible events won’t happen, but the risks are greater than ever. Coming back to the markets, investors must watch the dollar because the fall of the dollar will be the trigger of all of these events. And unlike gold, the dollar is almost impossible to manipulate because of the size of the market.
We can now see the dollar gradually and consistently falling. But we are very near the point where we could see a major dollar waterfall decline. This would mean that the massive move we expect higher in gold and silver could start anytime. That would make 2014 into a very exciting time for precious metals investors, but a tough time for global stock markets and the world economy.”
GET READY FOR A WORLDWIDE DEPRESSION AND HISTORIC SOCIAL UNREST
With gold and silver being smashed once again, today a man who has been involved in the financial markets for 50 years, and whose business partner is billionaire Eric Sprott, warned King World News that investors need to prepare for an epic worldwide depression and unprecedented social unrest. He also discussed gold and silver. Below is what John Embry had to say in this powerful and timely interview.
Embry: “What really caught my attention was the brilliant interview you did with Egon von Greyerz yesterday. He addressed a point that is missed by a lot of people. Everybody seems to think that with all of the problems in the West that the Chinese economy will save us because of the growth phenomenon that’s been going on over there for the past 20 years.
“But as Egon pointed out, China probably has as big or even a bigger credit bubble than the West ever had. Since the financial crisis hit in 2008, China has gone to money printing hand-over-fist, with increased debt growth, in order to keep their economy moving forward. China has a political imperative to do this because the public is not terribly happy with the situation.
But the leaders placate the public with economic growth and job opportunities. This is unsustainable, and it’s incredibly important to realize this because without China’s growth, if it were to recede at some point in the future, when you superimpose that over the mess in the West, we could be headed for a worldwide depression of epic proportions.
But I’m also focused on the gold market, which is the most counterintuitive market I’ve ever seen. Silver is the same way, but I want to talk about gold. All I see is currency debasement everywhere as the money supply around the world is going parabolic, which should be extremely bullish for gold.
At the same time, physical inventories are clearly falling. The amount of gold going into China is virtually taking up the entire world annual production. But the Chinese are not the only entities buying gold. This is why you know there is a great deal of Western gold flooding the market through various leasing mechanisms.
As a result you have this remarkably negative sentiment which has developed because the gold price has been crushed by the paper market. The thing that has me most concerned here is the leverage in the fractional reserve paper market. When you look at how many claims there are on each ounce of gold that exists in places like the LBMA and the Comex they are staggering. There are about 70 claims for each ounce of gold.
At some point this will become the real story. When the fundamentals finally assert themselves, and entities who think they have gold are disabused of that fact and realize all they really have is a paper replication of gold, I think it will all be settled for cash at the very time these entities won’t want cash because it is being debased at an ever-greater clip.
So gold and silver are setting up for probably the greatest bull market in anything. But until it happens, everybody is negative and being influenced by the action in the paper gold market. I’ve never seen anything like this. It’s not just the gold and silver markets that are being influenced, as Michael Pento brilliantly pointed out in his KWN interview, you have interest rates being driven down to a level that reflects neither the inflation or the credit risks. So it’s unsustainable.
The only reason the economy and the financial system is remaining afloat is because of these ridiculously unsustainable low interest rates. So we’re headed for a major crisis, it’s just a question of when? The combination of derivatives, QE and algorithmic trading have allowed all of these markets to be manipulated and falsified for far longer than the rational mind would have expected. But it’s solving nothing, and the end game just gets worse with each passing day.”
Embry added: “People who have been big believers in gold and silver have been giving up recently. The only thing I can say in response to that is this is the best opportunity to buy this stuff in history. Don’t give in because this is what the central planners want you to do. Central planners in the West want people to throw in the towel because they want your metal.
In the midst of all of this we have Western governments falsifying economic data by overstating the growth numbers. They are doing this in a desperate attempt to maintain confidence in the system. My greatest fear is that if I’m right and the Western financial system and global economy implodes, I think we will see the most frightening level of social unrest in history.”
NOBEL PRIZE WINNER EUGENE FAMA: THE WORLD IS AT RISK OF RECESSION IN 2014
by Mia Shanley and Ilze Filks | Reuters
December 7, 2013
STOCKHOLM (Reuters) – One of the three Americans who won this year’s Nobel prize for economics said bloated public deficits on both sides of the Atlantic meant that recession remained a real risk for 2014.
Eugene Fama, who shares this year’s 8 million crown ($1.2 million) prize with Robert Shiller and Lars Peter Hansen, said on Saturday that highly indebted governments in the United States and Europe posed a constant threat to the global economy.
“There may come a point where the financial markets say none of their debt is credible anymore and they can’t finance themselves,” he told Reuters in the snow-covered Swedish capital, where he will receive his prize on Tuesday.
“If there is another recession, it is going to be worldwide.”
Fama, who has been called the father of modern finance and shared the economics prize for research into market prices and asset bubbles, played down this week’s strong U.S. labor market data.
“I am not reassured at all,” he said.
The U.S. jobless rate fell to a five-year low of 7.0 percent in November, and employers hired more workers than expected.
“The jobs recovery has been awful. The only reason the unemployment rate is 7 percent, which is high by historical standards in the U.S., is that people gave up looking for jobs,” he said.
“I just don’t think we have come out of (recession) very well,” he said.
Fama, who argued in 1970 that markets are efficient and that prices reflect all publicly available information, said he will give his prize money to the University of Chicago, where he is a professor.
Asked what he thought of current high prices in the stock market, Fama said he believed companies had become much more efficient after the 2008-2009 financial crisis.
“The response of companies after the recession was to slim down, get much more effective and they got very profitable, so their prices continue to appreciate,” he said.
Fama’s theory implied that one cannot systematically outperform the market. He said he keeps his personal investments entirely in index funds, a type of mutual fund that tracks the performance of a market index such as the S&P 500 <.SPX>.
JIM ROGERS CAUTIONS “BE PREPARED, BE WORRIED, AND BE CAREFUL…THIS IS GOING TO END BADLY”
by Tyler Durden | ZeroHedge
“Eventually, the whole world is going to collapse,” Jim Rogers chides a disquieted CBC anchor as he explains the reality that, “we in the West have staggering debts. The United States is the largest debtor nation in the history of the world,” adding that “this is going to end badly.“
However, the co-founder of Soros’ Quantum fund is convinced that the commodity super-cycle is far from over, but driven by supply constraints (and cost increases) as opposed to demand from higher growth. The following interview provides more color on his commodity view as he re-iterates his bullish stance on Ag (with sugar a focus) and Natural Gas (some harsh natural realities coming), warning “don’t get too excited about fracking,” when he talks energy products.
Rogers, in his inimitable way, sums up the state iof euphoria that many markets find themselves in thus, “we are all floating around on a sea of artificial liquidity right now. This is not going to last.”
On the end of the commodity super-cycle:
“Commodities have pulled back, but I would remind you that in all bull markets there are periods of correction.
In 1987 – during the great bull market in stocks – stocks went down 40 to 80 per cent around the world; again in 1989, 1990, 1994, etc. Every time people said the bull market’s over, but it wasn’t. I think that’s what’s happening with commodities now.”
On the next crisis:
“2008 was so much worse than 2000 because the debt was so much higher, you wait until 2014 or 2015 when the next crisis hits…
debt has gone through the roof, the next one’s gonna be really bad“
His final words:
“Be prepared, be worried, and be careful“
MARC FABER: ‘WE ARE IN A MASSIVE SPECULATIVE BUBBLE’
by Jeff Morganteen, CNBC
Leave it to uber-bear Marc Faber to bring bad news on Black Friday.
Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC on Friday he believes a “massive speculative bubble” has encroached on everything from stocks and bonds to bitcoin and farmland. He attributed the vast bubble to “symptoms of excess liquidity.”
Faber said the markets, which have reached record highs, could still rise before the bubble bursts, if stimulus programs such as the Federal Reserve’s massive monthly bond purchases and super-low interest rates continue.
“Now can the market go up another 20 percent before it tumbles?” Faber said on“Squawk Box”. “Yeah, it can go up even more, if you print money.”
Warning investors that they could see disappointing long-term returns in equities, Faber said he thought a correction in equities was overdue when the S&P 500index crossed 1,600 points. The benchmark index surpassed 1,808 points this week.
Faber pointed to a high Shiller price-to-earnings ratio, a market indicator named after Yale University professor and Nobel Prize winner Robert Shiller, which relies on 10 years of adjusted inflation, as an indicator of the bubble. He said a high Shiller P/E ratio suggests low returns in the future.
Faber also referred to the rapid rise of bitcoin, the digital currency that crossed $1,200 early Friday, as an area affected by excess liquidity.
“Farmland is up 10 times over the last 10 years,” Faber said. “And bitcoins are up now and who knows what next will go up.”
During recent interviews with CNBC, Faber predicted that European equities would outperform stocks in the U.S. and emerging markets, and that a credit boom in China puts the world in a worse position than it was in 2008, before the global financial crisis.
MARC FABER: WORLD BANKERS ARE GOING TO BANKRUPT THE ENTIRE WORLD
By Patrick MontesDeOca | etfdailynews.com
In a recent interview with Equity Management Academy, Dr. Marc Faber and Patrick MontesDeOca outlined how he believes that central banks around the world, by printing money, are setting up the global economy for collapse.
Faber is the author and publisher of the Gloom, Boom and Doom Report,which highlights unusual investment opportunities, as well as several books on investment. He was managing director of Drexel, Burnham Lambert, and has lived in Hong Kong since 1973.
Faber believes that demand for gold will continue to be high and, if anything will increase. He said, “In Asia it has always been traditional to own gold….It was illegal to own gold in China until about ten years ago. Now the government is actually encouraging people to own gold.” Therefore, he said, demand is “very strong” and, with increasing numbers of wealthy people in Asia, “demand is rising very rapidly.” Furthermore, Faber believes that if the Chinese economy slows down, the government in China will do what governments everywhere else in the world have done, and print money. If that happens, then “gold demand from China would actually increase and not decrease.”
In the long view, Faber discussed that shift in the economic balance of power from the Old World, which is Western Europe, the United States and to some extent Japan to Asia, and especially China. Much of the recent growth in the world economy has been in Asia. However,
Western Central Banks still own about 21% of all the gold in the world, if they still have it, which is “the big question Eric Sprott has raised on numerous occasions” in interviews with EMA and others. China has about $3 trillion in reserves, but only 2% or 3% of it is in gold. Faber argued that if China follows the pattern of other emerging economies, it will slowly increase its gold holdings, which will further increase demand.
Turning to mining stocks, Faber said, “If you ask anyone, they say to buy low and sell high, but when it comes to actually investing, they buy high and sell low.” He argued that individuals tend to “Buy things that are moving…often near a top.” He said that compared to fine wines, real estate, stocks, bonds, and many commodities, gold and silver are relatively inexpensive, and “gold and mining shares in general are the only sector in the market that is very weak.” This, he suggests, may be a good time to buy such a weak market.
Even with the problems in the United States of a dysfunctional government, Obamacare and a lack of education, Faber said, “I think the dollar will stay as the reserve currency, not because there is anything particularly good about the US dollar,” but because the US is decreasing its energy dependence on foreign sources and other currencies are no better. “In my view,” he said, “well to do people and people who are thinking for themselves, will continue to diversity out of paper money into physical gold.”
In relation to the stock market, Faber said, “I’ve been arguing for almost a year that we might have a 20% correction in the market, but it also possible that we are in a market like in 1986 – 1987 when the market just kept going up and up, and we had a 40% crash within two months. That scenario is increasingly likely in the next 4 to 6 months.” He said, “We are somewhere near the end of a bull market” and warned that it is not a particularly good time to increase an equity position. It is, he said, “probably a good time to reduce them.”
When I asked about his preferences between gold and silver he said, “All the precious metals will basically move in concert. If gold goes up, silver will go up. Will silver go up more?
Who knows.” He recommends owning gold and silver, and probably platinum, since the supply/demand situation for platinum is rather favorable.
He said, “I prefer to own physical gold and to store it outside the United States.” He stressed that where you store your gold is an important issue, given the possibility of government intervention in the personal ownership of gold. Wherever you store it, however, he said, “I prefer to own physical gold because I think the entire financial system is going to collapse at some point in the future.”
As many experts have said before, he said, “I’ve been arguing for a long time that US monetary policies are a disaster. You cannot purposely create bubbles to grow the economy. If do, get bubbles….[and the] Damage to the economy is far greater than the earlier benefit.”
He said, “They all say Mr. Bernanke saved the world in 2008-2009, when in fact Mr. Greenspan and Bernanke almost destroyed the world.”
Keeping interest rates artificially low punishes savers, who have saved all their lives for retirement. Money in the bank returns next to nothing, so savers are forced to speculate and, Faber said, “it will end very, very badly.” He does not know when it will end, but the longer it goes on, the farther the economy will fall when it ends.
There is, he said, no end of such policies in sight. In November 2008 when QE was introduced, there was talk of an exit strategy. “You never hear such talk now,” he said. “We are going to go to QE99, because when governments introduce new programs under the excuse of an urgent need to fix something, usually these programs stay in place for a very long time. Maybe they’ll do a cosmetic tapering at some point…but as soon as there is any sign of a crisis, they’ll go to $150 billion a month or more.”
Faber believes that “It is quite likely that interest rates will go up.” He argues that the real cost of living has been increasing on the order of 5% or more per year. Therefore, interest rates are already negative, which is “positive for gold in the long run.”
The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.
ERIC SPROTT: TERRIFYING THREAT TO THE FINANCIAL SYSTEM
On the heels of the US jobs release, and significant volatility in both the gold and silver markets, today billionaire Eric Sprott spoke with King World News about a terrifying threat to the global financial system. The Canadian billionaire also spoke about the enormous implications of this for people around the world. Below is what Sprott, who is Chairman of Sprott Asset Management, had to say in part I of this remarkably powerful interview series.
Sprott: “The most imminent threat (to the financial system) is where another banking system goes down. Maybe it will be Slovenia, Spain, Portugal, or something like that. But you know there have been a lot of deposits taken out of these banks.
“Of course that’s been offset by the Fed lending to the US subsidiaries of the European banks and anyone who is in trouble, so they can pay off the depositors. But the time is coming when we all realize that the banking system, because the assets are weak, some day there is going to be another bail-in.
And the minute that bail-in gets reported, unlike the Cypriot bail-in, people will realize that it’s very, very risky having your money in banks. The minute that happens it will trigger gold and silver, and I think that’s the next event to watch for — some weakness, or some outright bail-in of another banking system.”
Eric King: “Eric, I know it’s impossible for you to know, but how close are we to that (moment) would you say?”
Sprott: “It depends on who the next country is and how big it is. If it was Spain I think it would be too big for the ECB or governments to deal with. Maybe they can get away with Slovenia, who came out said their banks had a $5 billion shortfall.
But it looks today like nobody wants to write the check any more. The governments don’t want to write these checks to support their banking system. So it could be any time. We keep progressing with what they call in Europe ‘The Banking Resolution,’ which is really the ‘Bail-In Resolution.’
I think the BIS has set the tone. They’ve said, ‘Well, it’s so simple to deal with a bail-in bank. We just close it on Friday, we make the depositors and creditors take the hit, and we open it on Monday.’ It’s fine for them (the BIS), but not so fine for the depositors. And when it starts to reverberate that you don’t want to have deposits in a bank, that’s when all hell is going to break loose.”
Eric King: “Eric, when you say, ‘All hell is going to break loose,’ how bad will this be?”
Sprott: “Well, you know, Eric, I’ve read all of the interviews that you’ve ever had on your website, and some people go to the reality of what happens when the banking system fails? I mean I don’t even think people, and even I don’t want to contemplate it. It’s an utter disaster if people don’t trust governments, currencies, and banking systems, because everything stops.
I don’t even want to go there in a way because that outcome is something that none of us would really want to view in the clarity of the situation that we all find ourselves in, but it would not be pretty to say the least.”
ERIC SPROTT: THE END GAME IS ABSOLUTELY HORRIFYING
In one of his most important and powerful interviews in history, today billionaire Eric Sprott warned King World News that the end game is absolutely horrifying for humanity. The Canadian billionaire also spoke about the enormous implications of this for people around the world. Below is what Sprott, who is Chairman of Sprott Asset Management, had to say in part II of this remarkably powerful interview series.
Eric King: “What we are really talking about here is an acceleration of the confiscation of wealth. What’s being proposed around the world, the wealth taxes and some of these other things, it is the confiscation of wealth going forward — that’s the theme by governments, isn’t it?”
Sprott: “That is the ongoing thing that is happening. There was some work done in the UK saying that by having zero interest rates you help the banking system by 120 billion pounds a year. But of course the opposite side of that is the savers don’t make 120 billion pounds. And with this financial repression ongoing, people can’t better themselves. They are losing out to inflation.
“So it’s this grind on the 99% which is continuing.
As you would undoubtedly agree, we have inflation which is understated. If you imagine what’s going to happen post-January 1st in the US, when one of your biggest costs in a US household already is healthcare and now we’re talking about premiums going up 50% to 100%, it’s just shocking the relevance of it to the 99%.
This is what’s going on: Everything that’s been done since 2008 is to save the banking system — to let the banks make money because they had lost a lot of capital. Of course the opposite is whatever they make, some saver doesn’t make. So, yes, the transfer just keeps moving on from the people to the banks, people to the banks. Ultimately, the consumer can’t spend what he (or she) doesn’t have, so we are going to see that manifested. I can’t even imagine in the US when people have to face this reality of their healthcare bills.
Of course we are all ignoring it in a way. We talk about how bad the website is. Forget the website, what about the cost of insurance? It seems to me that the cost of insurance is escalating dramatically for everyone, and it’s a big cost for everyone already. So it’s not going to be pretty.”
Eric King: “Eric, as this whole thing begins to collapse, the paper Ponzi scheme around the globe, do you worry about wealth confiscation? Is that something you worry about as governments collapse?”
Sprott: “Absolutely. People in power want to stay in power. And if it means abrogating your debt obligations, pension fund obligations, Medicare obligations, and/or seizing assets, in a sense, in the previous part of this conversation, they are seizing assets already. They are not letting the savers make money so that the banks can make money. It’s already a seizure of assets that’s taking place.
But in its extreme, when they have to somehow make day-to-day decisions, yes, do I worry that 401k contributions could be confiscated. Yes, I worry about that. I worry that they could attempt to confiscate gold. People who are in power that are in desperate situations do desperate things. That’s why everyone has to have some gold and silver out of the system.”
Eric King: “Eric, what’s your greatest fear going forward. What has you worried?”
Sprott: “My greatest fear is that governments are broke. Governments have overspent and there is nothing they can do about it. They are going to fail on their obligations, and when they fail the economic impact will be so dire.
Imagine what the outlook for Detroit must be as all of these pensioners finally figure out they are going to get 16 cents on the dollar. How is it going to work in Detroit when there is no spending power? What if it moves on to Chicago, or the US government? Oh my God, there are so many governments, cities and states which are in trouble that have to face the music.
And once they face the music, the guy who thought he was going to get something is not going to get it. What does that do to the economy? It’s not a pleasant outlook. So that’s what I worry about. I worry about the final recognition that we’ve overspent, we’ve borrowed from the future, massively borrowed from the future, and when you massively borrow from the future, the present gets impacted someday.”
Eric King: “When you say, ‘someday,’ and I know you’ve studied the Great Depression, but some have talked about a Greater Depression. Is that what you worry about going forward, that it’s going to be that much worse for the people when this all hits the fan?”
Sprott: “I think so, Eric. I mean we have way more leverage than we ever had. And when someone thinks they are going to get their $100,000 pension, or $50,000 pension, and the next thing you know they are informed, ‘Well, you know your $100,000 became $16,000,’ or ‘your $50,000 became $8,000,’ just think of the shift that has to take place here.
Think of the poor guy making $8,000 and he finds out his health care bill is over $8,000. The whole thing makes no sense. The numbers don’t work. And we are going to face that reality. I don’t know when the US government, and not just the US government, but when other governments face up to, ‘OK, how are we going to right the ship here?’ It’s not going to be easy to right the ship. There are going to be very, very hard times that we are all going to go through to get there.
And I’m not one who is imagining that one tries to prosper in that. Whenever I got into gold back in 2000 I said, ‘You know what, I just want to try to survive this thing. I want to try to survive because the paper assets will end up with no value.’ Any study of currencies will show that the currency ends up being worth zero, and we have abused it so immensely here recently with all this printing going on.
I always ask investors, smart people, ‘Do you believe in zero interest rates, and do you believe in printing money? And if you do, fine, play the game. If you don’t, don’t play the game, and get involved in something where you can salvage your net worth at the end of the day.”
THE SAME PEOPLE WHO BROUGHT US THE GREAT FINANCIAL CRISIS HAVE CREATED A DANGEROUS NEW PARADIGM
by John Mauldin, Thoughts From The Frontline
The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.
– Alan Greenspan
If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.
– John Maynard Keynes
And He spoke a parable to them: “Can the blind lead the blind? Will they not both fall into the ditch?”
– Luke 6:39-40
Six years ago I hosted my first Thanksgiving in a Dallas high-rise, and my then-90-year-old mother came to celebrate, along with about 25 other family members and friends. We were ensconced in the 21st floor penthouse, carousing merrily, when the fire alarms went off and fire trucks began to descend on the building. There was indeed a fire, and we had to carry my poor mother down 21 flights of stairs through smoke and chaos as the firemen rushed to put out the fire. So much for the advanced fire-sprinkler system, which failed to work correctly.
I wrote one of my better letters that week, called “The Financial Fire Trucks Are Gathering.” You can read all about it here, if you like. I led off by forming an analogy to my Thanksgiving Day experience:
I rather think the stock market is acting like we did at dinner. When the alarms go off, we note that we have heard them several times over the past few months, and there has never been a real fire. Sure, we had a credit crisis in August, but the Fed came to the rescue. Yes, the subprime market is nonexistent. And the housing market is in free-fall. But the economy is weathering the various crises quite well. Wasn’t GDP at an almost inexplicably high 4.9% last quarter, when we were in the middle of the credit crisis? And Abu Dhabi injects $7.5 billion in capital into Citigroup, setting the market’s mind at ease. All is well. So party on like it’s 1999.
However, I think when we look out the window from the lofty market heights, we see a few fire trucks starting to gather, and those sirens are telling us that more are on the way. There is smoke coming from the building. Attention must be paid.
I was wrong when I took the (decidedly contrarian) position that we were in for a mild recession. It turned out to be much worse than even I thought it would be, though I had the direction right. Sadly, it usually turns out that I have been overly optimistic.
This year we again brought my now-96-year-old mother to my new, not-quite-finished high-rise apartment to share Thanksgiving with 60 people; only this time we had to contract with a private ambulance, as she is, sadly, bedridden, although mentally still with us. And I couldn’t help pondering, do we now have an economy and a market that must be totally taken care of by an ever-watchful central bank, which can no longer move on its own?
I am becoming increasingly exercised that the new direction of the US Federal Reserve, which is shaping up as “extended forward rate guidance” of a zero-interest-rate policy (ZIRP) through 2017, is going to have significant unintended consequences. My London partner, Niels Jensen, reminded me in his November client letter that,
In his masterpiece The General Theory of Employment, Interest and Money, John Maynard Keynes referred to what he called the “euthanasia of the rentier”. Keynes argued that interest rates should be lowered to the point where it secures full employment (through an increase in investments). At the same time he recognized that such a policy would probably destroy the livelihoods of those who lived off of their investment income, hence the expression. Published in 1936, little did he know that his book referred to the implications of a policy which, three quarters of a century later, would be on everybody’s lips. Welcome to QE.
It is this neo-Keynesian fetish that low interest rates can somehow spur consumer spending and increase employment and should thus be promoted even at the expense of savers and retirees that is at the heart of today’s central banking policies. The counterproductive fact that savers and retirees have less to spend and therefore less propensity to consume seems to be lost in the equation. It is financial repression of the most serious variety, done in the name of the greater good; and it is hurting those who played by the rules, working and saving all their lives, only to see the goal posts moved as the game nears its end.
Central banks around the world have engineered multiple bubbles over the last few decades, only to protest innocence and ask for further regulatory authority and more freedom to perform untested operations on our economic body without benefit of anesthesia. Their justifications are theoretical in nature, derived from limited-variable models that are supposed to somehow predict the behavior of a massively variable economy. The fact that their models have been stunningly wrong for decades seems to not diminish the vigor with which central bankers attempt to micromanage the economy.
The destruction of future returns of pension funds is evident and will require massive restructuring by both beneficiaries and taxpayers. People who have made retirement plans based on past return assumptions will not be happy. Does anyone truly understand the implications of making the world’s reserve currency a carry-trade currency for an extended period of time? I can see how this is good for bankers and the financial industry, and any intelligent investor will try to take advantage of it; but dear gods, the distortions in the economic landscape are mind-boggling. We can only hope there will be a net benefit, but we have no true way of knowing, and the track records of those in the driver’s seats are decidedly discouraging.
For this week’s Thanksgiving weekend letter I offer a section from my new book (co-authored with Jonathan Tepper), called Code Red. You can see a video interview with Jonathan Tepper and me and buy the book here, or of course you can go to Amazon and read the reviews. And the book is in all the bookstores. Needless to say, it will make an excellent gift for clients, family, and friends.
At the end of the letter I will provide a link to a free webinar I am doing next week with Jonathan Tepper and Lacy Hunt, hosted by Altegris Investments, on the implications of ZIRP and other unconventional policies; but now let’s jump into Code Red. In this section, we deal with the topic of central banking and its failures and ponder the implications of continuing to give the same people ever more authority and responsibility. This is from Chapter 5, called:
Arsonists Running the Fire Brigade
In the old days, central banks raised or lowered interest rates if they wanted to tighten or loosen monetary policy. In a Code Red world everything is more difficult. Policies like ZIRP, QE, LSAPs, and currency wars are immensely more complicated. Knowing how much money to print and when to undo Code Red policies will require wisdom and foresight. Putting such policies into practice is easy, almost like squeezing toothpaste. But unwinding them will be like putting the toothpaste back in the tube.
We’ll admit that we’re having too much fun criticizing central bankers, the Colonel Jessups of the Code Red world. But please don’t just take our word for it when we tell you that they’re clueless. Let’s look at what others have written.
In 2009 Congress created the Financial Crisis Inquiry Commission to uncover the causes and consequences of the financial catastrophe that almost brought down the world financial system. They roundly condemned the Federal Reserve:
We conclude this crisis was avoidable. The crisis was the result of human action and inaction…. The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage lending standards. The Federal Reserve was the one entity empowered to do so and it did not…. We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.
Not surprisingly, public confidence in the Fed has plummeted.
The Federal Reserve performed disastrously before the Great Financial Crisis, but almost all central banks were asleep at the wheel. The record of central banks around the world leading up to the Great Financial Crisis was an unmitigated disaster. All countries that had housing bubbles and large bank failures failed to spot them beforehand. In the case of England, where almost all major banks went bust (some rather spectacularly!) and required either nationalization or fire sales to foreign banks, the Bank of England never saw the crisis coming. Let’s look at what The Economist has to say about central bank failures:
In 1996 the Bank of England pioneered financial-stability reports (FSRs); over the next decade around 50 central banks and the IMF followed suit. But according to research cited by Howard Davies and David Green in “Banking on the Future: The Fall and Rise of Central Banking,” published last year, in 2006 virtually all the reports, including Britain’s, assessed financial systems as healthy. In the basic function of identifying emerging threats, “many central banks have been performing poorly,” they wrote.
According to published reports, the Bank of England only learned about the bankruptcy of one huge bank after another a few days before the actual public announcement. So much for staying on top of the situation. The regulators were captured by the very institutions they were supposed to regulate, with neither the banks of the regulators understanding the serious nature of the problems they were creating with their actions.
Housing bubbles swelled and burst everywhere: Spain, Ireland, Latvia, Cyprus, and the United Kingdom. Countries that had to recapitalize or nationalize their banks were broadsided by a disaster they did not anticipate, prepare for, or take action to prevent. In the case of Spain, even after the crisis unfolded, the Bank of Spain acted like a pimp for its own banks. It insisted nothing was wrong and proceeded to help its banks sell loads of crap to unsuspecting Spaniards in order to recapitalize the banks. (We apologize for our language, but there is no other word besides crap that properly characterizes selling worthless securities to poor pensioners – well, there are, but they are even less suitable for public consumption).
In fairness, central bankers did save the world after the Lehman Brothers bankruptcy. The money printing that the Federal Reserve oversaw after the failure of Lehman Brothers was entirely appropriate to avoid another Great Depression. But giving them credit for that is like praising an arsonist for putting out the fire he started.
The failure of central banks makes it all the more remarkable that they were given even more responsibility in the wake of crisis. Since 2007 central banks have expanded their remits, either at their own initiative or at governments’ behest. They have exceeded the limits of conventional monetary policy by buying massive amounts of long-dated government bonds, mortgage-backed securities, and other assets. They have also taken on more responsibility for the supervision of banks and the stability of financial systems.
The Banking Act of 1933, more popularly known as the Glass-Steagall Act, forced a separation of commercial and investment banks by preventing commercial banks from underwriting securities. Investment banks were prohibited from taking deposits. Until it was repealed in 1999, the Glass-Steagall Act worked brilliantly, helping to prevent a major financial crisis. It was replaced by the Graham-Leach-Bliley Act, which ended regulations that prevented the merger of banks, stock brokerage companies, and insurance companies. The American public’s interests were thrown to the wolves of Wall Street, and the Fed and the Clinton administration gave the middle finger to financial stability.
After the Great Financial Crisis, Congress could have simply reinstated Glass-Steagall. The act was only 37 pages long, but it had worked incredibly well. Instead, after an orgy of bank lobbying and Congressional kowtowing to the bankers who had brought the world to the brink of a global depression, Congress passed the Dodd-Frank Act. It is over 2,300 pages long; no one is sure what is in it or what it means; and it has added a dizzyingly complex tangle of regulations and bureaucracy to what should have been a simple, straightforward reform of the financial sector. (The act is so long and complicated that it was nicknamed the “Lawyers’ and Consultants’ Full Employment Act of 2010.”) You will hardly be reassured to learn that the Federal Reserve’s powers were expanded through Dodd-Frank.
Please note that it was the same banks and investment firms that lobbied to repeal Glass-Steagall in 1999 that so aggressively and successfully lobbied for the Dodd-Frank Act. While there are some features contained in the plan that are good, the basic problems still remain. Industry insiders were able to assure that business as usual could continue. And to judge from their profits, it has done so remarkably well.
The Fed didn’t need more powers. In the years leading up to the Great Financial Crisis, the Fed already had almost all the tools it needed to prevent the subprime debacle. It simply failed to use them. You could call that lapse nonfeasance, dereliction of duty, going AWOL, or anything other than doing their duty. If you don’t believe you are capable of recognizing a bubble in advance, then all the additional regulations in the world won’t make any difference in preventing a bubble. Dodd-Frank merely gave them more regulations not to enforce. It is the mindset that needs changing, not simply the regulations.
According to the Financial Crisis Inquiry Commission, the Federal Reserve failed to use the tools at its disposal to regulate mortgages or bank holding companies or to prevent the abusive lending practices that contributed to the crisis. The central bank didn’t “recognize the cataclysmic danger posed by the housing bubble to the financial system and refused to take timely action to constrain its growth,” the report said. It also “failed to meet its statutory obligation to establish and maintain prudent mortgage lending standards and to protect against predatory lending.”
The most sordid part of the Great Financial Crisis was not the extreme failure by central banks to regulate. The most egregious violation of the public interest came in the form of the massive subsidies and aid the central banks gave to the banking system when the crisis was underway. The great journalist and essayist Walter Bagehot argued in the mid-19th century that during a financial crisis central banks should lend freely but at interest rates high enough to deter borrowers not genuinely in need, and only against good collateral. During the crisis, the Fed and other central banks lent trillions of dollars at zero cost against the shoddiest of collateral. And the Fed went out of its way to provide gifts to Wall Street banks via the back door. For example, when AIG went bust, Timothy Geithner decided that the US taxpayer should pay out credit default swaps to AIG’s counterparties at full price. Goldman Sachs was given a parting gift to $10 billion. Ge ithner did not even negotiate a haircut. The money went to dozens of banks, many which were not even American. It is no wonder Geithner became well-known as “Wall Street’s lapdog.”
Our good friend Dylan Grice wrote a fascinating piece on what happens when you have too many rules and too little common sense. In a Dutch town called Drachten, local government decided to take out all traffic lights and signs. They hoped people would pay more attention to the road rather than fixate on rules and regulations. They were right. In Drachten there used to be a road death every three years, but there have been none since traffic light removal started in 1999. There have been a few small collisions, but these are almost to be encouraged. A traffic planner explained, “We want small accidents in order to prevent serious ones in which people get hurt.” Let’s see what Dylan has to say about the lessons for capital markets:
You might be thinking that traffic lights don’t have anything to do with the markets we all work in. But I think they do. Instead of traffic lights and road signs think rating agencies; think Basel risk weights for Core 1 and Core 2 bank capital; think Solvency 2; or think of the ultimate market regulators of our currencies – the central banks – and the Greenspan/Bernanke “put” which was once imagined to exist. Haven’t these regulators provided the same illusion of safety to financial market participants as traffic safety tools do for drivers? And hasn’t this illusion of safety been even more lethal?
Wouldn’t it be nice if central bankers thought more like Drachten town planners? But central bankers and parliaments prefer extensive rules to a common-sense approach.
Unlike the planners of Drachten, the Federal Reserve and central banks around the world issue extensive sets of regulation, fail to enforce them, encourage everyone to speed, and then when crashes happen they protect as many banks as possible from the consequences of their own actions.
The Federal Reserve is in desperate need of reform. This doesn’t mean that politicians should be deciding interest rates or that banking supervision should be taken away from central banks. But central bankers should be answerable to the public for how they do their jobs. Accountability has been completely missing throughout the entire crisis. Almost all central banks failed to do even the basics of their job. The regulations they created, especially in Europe, made it possible for banks to take massive risk and make huge profits that ultimately had to be bailed out by taxpayers.
They believe the banks and other institutions they were regulating when they showed the models which they created which demonstrated conclusively there was no risk. Everyone, bankers and regulators, believed we were in a new era, for the old rules of common sense didn’t apply. Central bankers didn’t need more rules or regulations. They failed miserably at even carrying out the simple job they had. The regulatory functions of central banks should be treated like those of any other regulatory agency. It is critical that we hold central bankers accountable for their management of the banking system.
No Apologies, Only Promotions
One of the most disastrous battles of World War I was the British Gallipoli campaign in Turkey in 1915. It was utterly devastating, leaving more than 50,000 British wounded and almost 100,000 dead. Winston Churchill, first lord of the Admiralty, was one of the architects of the campaign. In the wake of the outcome, he resigned his post to become a soldier in the war. Churchill was a humble man who felt he was at fault. He was honorable. But if Churchill had been a central banker, he would never have had to accept responsibility or resign. He would have kept his job and been given even more far-reaching powers and a big pay raise to boot.
For the past few years, central bankers have been living large. The same people who brought us the Great Financial Crisis are now bringing us a world of Code Red policies and financial repression. The arsonists are running the fire brigade.
Where is the central banker who has apologized for contributing to the crisis or for being asleep at the wheel? Given how disastrous their performance has been, it is extraordinary that the same cast of characters is still running the show. Central bankers are lucky that they still have jobs. As far as we are aware, no central banker was fired for incompetence or mismanagement. Many have retired and are now enjoying generous pensions and highly paid consulting careers advising investment funds as to what their former colleagues might do next.
Central bankers have had plenty of time to discuss the financial crisis since 2008, but they have provided only scholarly disquisitions as to what went wrong in the banking crisis, without accepting any responsibility at all. At no time have any central bankers admitted that they might have ignored the warning signs of excessive debt, kept interest rates too low for too long, ignored bubbles in housing markets, failed to regulate banks correctly, or proved themselves even mildly incompetent.
Not only were central bankers not fired, many were promoted instead and given pay raises. Timothy Geithner, who headed the Federal Reserve Bank of New York, not only failed to regulate a host of banks that needed massive government bailouts but was an active apologist for Wall Street banks. For his efforts he was promoted to Secretary of the Treasury under President Obama. In Europe, Spanish central bankers stand out as perhaps the most incompetent ever, having overseen dozens of banks that created the biggest housing bubble in European history and having failed to recognize problems not only before but after they happened. Bankers like Jose Viñals, Jose Caruana, and others were given plum jobs at the IMF and the ECB after being asleep at the wheel in Spain.
Granting extra powers to central banks without a change in the philosophy behind their management is like encouraging an irresponsible teenager. Imagine your teenage son borrowed the family car and crashed it, and instead of punishing him you bought him a new Ferrari to test drive. Conventional monetary policies are like a sturdy old family station wagon, but Code Red policies are like a modified Ferrari 288 GTO capable of hitting 275 miles per hour. Given how spectacularly central banks failed during the Great Financial Crisis, it blows the mind that they’ve been handed the keys to a faster set of wheels.
One last thought. You might get from reading this that we are against rules and regulations. Far from it. We just like very simple, workable rules. Reinstate Glass-Steagall. Limit the ability of banks to create leverage, and require even more capital as they get larger. Banks that are systemically too big to fail are too big, period. Take away the incentive to grow beyond what is prudent for the deposit insurance scheme of a nation to maintain. Allowing bankers to take the profits and then hand taxpayers the losses in a crisis is not good policy, even if it is bolstered by 1,000 pages of regulations written by lawyers and bank lobbyists who then proceed to “massage” them in order to do what they want to anyway.
But, alas, such hopes may remain dreams deferred until there is yet another crisis and taxpayers are asked to absorb even greater losses (but we can always hope!). So, in the meantime, as prudent investors and managers, we must be aware of the realities we face. The saying in Africa is that it is not the lion you can see that is the danger, instead it is the one hidden in the grass that leaps out at you as you try to escape the one you see. Later we will talk about a few strategies that can help you handle the risks that crouch hidden in the grass.
YUAN PASSES EURO AS SECOND MOST USED TRADE-FINANCE CURRENCY
By Fion Li – Bloomberg
China’s yuan overtook the euro to become the second-most used currency in global trade finance after the dollar this year, according to the Society for Worldwide Interbank Financial Telecommunication.
The currency had an 8.66 percent share of letters of credit and collections in October, compared with 6.64 percent for the euro, Swift said in a statement today. China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financial-messaging platform.
The yuan had the fourth-largest share of global trade finance in January 2012 with 1.89 percent, while the euro’s was the second-biggest at 7.87 percent, Swift said.
“It’s true that overseas exporters are using the renminbi more as the contract currency to increase the attractiveness and competitiveness of goods or services sold to China,” said Cynthia Wong, the Hong Kong-based head of emerging-market trading for Singapore and Hong Kong at Societe Generale SA.
The U.S. dollar led all currencies with an 81.08 percent share of letters of credit and collections in October, down from 84.96 percent in January 2012, according to data compiled by Swift. The yen slipped from the third-most used global currency to fourth over the same period, declining from a 1.94 percent share to 1.36 percent.
China is seeking a greater role for its currency in global trade and investment as the state loosens controls on the exchange rate and borrowing costs in the world’s second-largest economy. People’s Bank of China Deputy Governor Yi Gang said Nov. 20 it is no longer in the nation’s interest to keep building up its foreign-exchange reserves, which totaled a record $3.66 trillion at the end of September.
Yuan deposits in Hong Kong, the largest pool outside China, rose the most since April 2011 to a record 782 billion yuan ($128 billion) in October. Agreements were announced this quarter to start direct currency trading between the yuan and both the British pound and Singapore dollar.
“The renminbi is clearly a top currency for trade finance globally and even more so in Asia,” Franck de Praetere, Swift’s Singapore-based head of payments and trade markets for Asia Pacific, said in the statement.
The Chinese currency ranked No. 12 for transactions in the global payments system in October, unchanged from the previous month, according to Swift figures. Payment value for the currency rose 1.5 percent that month, less than the 4.6 percent growth for all currencies, the Swift data showed. That saw the yuan’s market share drop to 0.84 percent from 0.86 percent in September.
Daily yuan transactions surged to $120 billion in April from $34 billion in 2010, making it the ninth most-traded currency in the world, according to a September report by the Bank for International Settlements in Basel, Switzerland.
The yuan has appreciated 2.3 percent against the greenback this year, the best performance in Asia, according to data compiled by Bloomberg. The currency closed at 6.0924 per dollar today in Shanghai, little changed from yesterday.
China accounted for 59 percent of the trade finance denominated in yuan in October and Hong Kong’s share was 21 percent, Swift data showed. Singapore had 12 percent with Germany and Australia having 2 percent each.
“I’m not surprised as cross-border trades between China and Hong Kong have been quite dominantly denominated in yuan,” Raymond Yeung, a Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd., said by phone today. “Yuan trades usually increase when there are strong expectations for yuan appreciation.”
International use of the yuan is increasing as China opens up its capital markets. In the first nine months of this year, about 17 percent of China’s global trade was settled in the currency, compared with less than 1 percent in 2009, according to Deutsche Bank AG.
China and the U.K. will begin direct trading between the yuan and the British pound, Chancellor of the Exchequer George Osborne said on Oct. 15. China also approved an 80 billion yuan quota allowing investors in London to buy onshore assets. Singapore inked a similar agreement with China a week later. Direct trading between the currencies of Japan and Australia started in the past two years.
The European Central Bank and the People’s Bank of China agreed to establish a bilateral currency swap line of as much as 350 billion yuan, the Frankfurt-based central bank said in October.
The Chinese central bank limits the yuan spot rate’s daily moves to 1 percent on either side of a fixing it sets every day. The trading band was widened in April 2012, after being expanded from 0.3 percent in May 2007. The yuan in Shanghai has traded 0.7 percent stronger than the fixing on average this quarter, down from 0.8 percent in the first nine months of the year, according to data compiled by Bloomberg.
The People’s Bank of China will “basically” end normal intervention in the foreign-exchange market and broaden the yuan’s daily trading limit, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined following a Communist Party meeting that ended Nov. 12.
KYLE BASS WARNS WHEN “EVERYONE IS ‘BEGGING THY NEIGHBOR’…THERE WILL BE CONSEQUENCES
by Tyler Durden | ZeroHedge
December 5, 2013
“There are going to be consequences to central bank balance sheet expansion all over the world,” Kyle Bass tells Steven Drobny in his new book, The New House of Money, adding “It’s a beggar-thy-neighbor policy, but everyone is beggaring thy neighbor.” The Texan remains concerned at QE’s effects on wealth inequality and worries that “at some point this is going to ignite and set cost pressures off.” While Gold-in-JPY is his recommended trade for non-clients, his hugely convex trades on Japan’s eventual collapse remain as he explains the endgame for his thesis, “won’t buy back until JPY is at 350,” and fears “the logical conclusion is war.“
Excerpted from Steven Drobny’s The New House Of Money,
Drobny: You’re on the tape saying that dollar/yen is going to 200.
Bass: If I’m right, it will go much further than that. I don’t think it will hit 500, but in crises, currencies swing too far. They can start discounting 15% or 20% rates out ad infinitum because they are in a full bond crisis. But once they flush the debt and have a reset, you’re not going to have 20% rates ad infinitum. We’ve committed more capital to the currency market, but all of the convexity is in the bond market.
US DOLLAR-JAPANESE YEN EXCHANGE RATE DECEMBER 8, 2013: 102.9900
Price of 1 USD in JPY 1.2000
Drobny: Recently we’ve seen the yen move your way and everyone is getting excited about “The Japan Trade” – is this the big move you’ve been looking for?
Bass: No, this is just the beginning. It’s not the real move. The real move happens when it runs away from the authorities and they lose control.
Drobny: At what point do you go the other way and buy Japan?
Bass: When the yen is 350 and they’ve wiped out their debts.
Drobny: Let’s play out your Japan scenario. If the yen goes to 350 and Japanese government bond yields go to 20% and they can no longer finance themselves such that it becomes a financial disaster, what are the implications for the rest of the world?
Bass: Well, policymakers have been changing the rules, which is challenging for macro hedge funds. But that’s the beauty of this situation.
Drobny: What if they decide to just knock a few zeros off the debt?
Bass: In the end, they may be forced to do so.
Drobny: What if they bought the whole debt stock at 1% yield?
Bass: That’s the St. Louis Fed’s school of thought, which contends that countries that have their own central banks can print their own currency and will never fall. For the world’s sake, I wish that were true. For the last 2000 years, it hasn’t been true, and I don’t believe it to be true. If it is true, I’ll lose 150 basis points a year and move on. Our core portfolio will be fine. Still, if it were true, then why even have fiscal policy? We don’t need a fiscal policy if that’s the case – we could just spend the money however we want. Policymakers don’t believe there are consequences to their actions, but the consequences will come. Economic gravity will actually set in.
Drobny: But you don’t suffer the consequences if you are out of office. That’s the next person’s problem.
Bass: The point is that no one will make those difficult decisions unless they’re forced to make them. The politics of all these situations tell me how this is going to play out, and that’s through massive central bank balance sheet expansion and capital controls.
The Fed recently wrote a paper that actually endorsed capital controls if done concurrently with other nations. It’s hard for me to fathom that capital controls can ever be a great idea, but this is what you’re going to see.
We are in a period that will be characterized by enormous cross-border capital flows. How will it play out? Let’s assume that I’m right about Japan. What happens then? Nominal interest rates in the US and Germany go negative. The Pavlovian response is to fly to perceived safety; this is why we’re not betting against US rates. In fact, we’re receiving rates in Europe and Australia right now because some sort of stagflation will play out first, before you start to see the real problems in Japan. If you look at history and try to understand what has created despotic rulers and wiped out populations financially in the past, and what happens next, the logical conclusion is war.
Drobny: Who is the war going to be between?
Bass: I’m not exactly sure, but it seems to me that the aggressor in Asia is China and they don’t get along with Japan.
Post-World War II, Japan has been constitutionally limited, such that they cannot declare war. But current Prime Minister Abe is talking about rewriting the constitution so that they can actually declare war again. That’s not stabilizing for the region. Nationalism is rearing its head as we speak.
A third of the population in Japan is over the age of 60, and a quarter is over the age of 65. To put this into context, in the broader developed world only about 8% of the population is over 65. At a point when these people need the money the most, they could lose 30-40% of their savings, maybe more in terms of purchasing power. The social repercussions bother us more than the financial repercussions because the social fabric of Japan will either be stretched or most likely torn, and we don’t know what’s going to happen next.
Drobny: Besides Japan, what bothers you?
Bass: There are going to be consequences to central bank balance sheet expansion all over the world. Look at currency cross rates. If all central banks are expanding at the same rate, the cross rates aren’t moving, but your purchasing power, in terms of goods and services in the country where you live, is diminishing. You’re not focused on real returns, you’re preoccupied with the cross rates. It’s a beggar-thy-neighbor policy, but everyone is beggaring thy neighbor.
I really worry about the true cost of goods and services, but people are preoccupied by the dollar/euro exchange rate to gauge the relative strength of the European economy. You see this preconditioned response and even macro players say things like, “Oh, buy the Nikkei at week end.” They’re picking up a dime in front of a bulldozer. Japanese industry has been hollowed out. The exchange rate may stop the decline for a certain period of time but it’s a secular decline. The people that own Japanese equities right now are tourists. But this creates opportunities in the marketplace.
Bass On inflation,
When you look at what’s going on from an inflation perspective, central banks have printed about $10 trillion dollars since the beginning of the crisis. The first $4-5 trillion went into re-equitizing heavily leveraged structures and bringing down rates. The second $4-5 trillion is making its way into the monetary base, and even though the multiplier is not working, at some point this is going to ignite and set cost pressures off. Again, it won’t be demand-pull, which is technically a good kind of inflation. Rather, it would result from too much money in the system.
Bass On QE’s effects on wealth inequality,
It will show up in food in the early stages. Global QE is filtering its way into asset prices. Those closest to the proverbial spigot are enjoying the printing the most with most in the middle and lower class not feeling the love at all. All you have to do is look at the gap between median income and mean income growing ever wider. This means the rich are getting richer while the rest stay stagnant or even decline.
Drobny: If you could do only one trade for the next ten years – non-risk-managed…
Bass: Actually, the answer to this one is easy – I would buy gold in yen.
OBAMA ADMINISTRATION SERIOUSLY CONSIDERING MINTING $1 TRILLION PLATINUM COIN TO AVOID BREACHING THE DEBT CEILING
By Danny Vinik | Business Insider
Remember #MintTheCoin? It was an idea pushed mostly by bloggers to allow the Treasury Department to avoid hitting the debt ceiling without any Congressional action.
Treasury would mint a trillion dollar platinum coin, deposit it at the Federal Reserve and use those funds to make future payments. Just like that, the debt ceiling would be effectively eliminated.
Turns out, the Obama administration seriously considered minting the coin, according to the Huffington Post:
The Justice Department’s Office of Legal Counsel, which functions as a sort of law firm for the president and provides him and executive branch agencies with authoritative legal advice, formally weighed in on the platinum coin option sometime since Obama took office, according to OLC’s recent response to HuffPost’s Freedom of Information Act (FOIA) request. While the letter acknowledged the existence of memos on the platinum coin option, OLC officials determined they were “not appropriate for discretionary release.”
A 1996 law allows Treasury to mint platinum coins of any denomination. Supporters of the plan wanted Treasury to do just that, but in a large enough in value to enable the government to pay all of its bills.
In January, the White House shot down the proposal and the Federal Reserve has said that it would not accept the deposit of a trillion dollar coin. Nevertheless, many economic reporters supported the idea since breaching the debt ceiling would be catastrophic.
In October, Congress struck a last-minute deal to raise the debt-ceiling until mid-February. Treasury will be able to extend that deadline a bit by its use of extraordinary measures, but another potential debt limit fight is lurking next year. If Republicans choose to risk breaching the debt ceiling again, maybe the White House will take a second look at minting the coin.
GLOBAL DEBT AND THE HUMAN BUBBLE
Published on Feb 11, 2013
RUSSIA’S PLAN TO USE NUCLEAR WEAPONS ON THE UNITED STATES
CHINA’S PLAN TO USE NUCLEAR WEAPONS ON THE UNITED STATES
CHINA CREATES AIR DEFENSE ZONE OVER JAPAN-CONTROLLED ISLANDS
JAPANESE PRIME MINISTER PREPARES FOR WAR WITH CHINA
PLANS FOR REDRAWING THE MIDDLE EAST: THE PROJECT FOR A NEW MIDDLE EAST
MIDDLE EAST WAR GETTING CLOSE
US-IRAN DEAL: US CHANGE OF HEART OR GRAND DECEPTION?
THE PLANNED DESTRUCTION OF THE UNITED STATES
THE BIG WALL STREET BANKS ARE ABOUT TO ENTER A DEATH SPIRAL
OBAMA: PREPARING “MY MILITARY” FOR THE NEXT STEP?
ORRIN HATCH PUSHES FOR PASSAGE OF TRANS PACIFIC PARTNERSHIP; OBAMA READY TO SIGN AWAY U.S. SOVEREIGNTY
DOW JONES INDUSTRIAL AVERAGE CLOSE DECEMBER 6, 2013: 16020.20
S&P 500 STOCK INDEX CLOSE NOVEMBER 6, 2013: 1805.09
INSTITUTIONS HAVE BEEN DUMPING BILLIONS OF DOLLARS OF STOCKS ALL YEAR, BUT NOW THE SELLING IS REALLY ACCELERATING
by Matthew Boesler | Business Insider
Every week, BofA Merrill Lynch equity strategist Savita Subramanian publishes data showing what BofAML clients are doing with their holdings of U.S. stocks.
During the week ended November 29, in keeping with a trend the bank has been observing since it started compiling these data in 2008, big institutions that do business with BofAML unloaded $2.3 billion from their U.S. equity portfolios.
“Institutional flows suggest waning confidence in U.S. equities,” writes Subramanian in a note to clients this morning.
“Last week, as the S&P 500 climbed another 0.1%, BofAML clients were net sellers for the sixth consecutive week, in the amount of $2.47 billion. ”Net sales were led by institutional clients for the second week in a row, and this group’s net sales were the third-largest in our data history (since 2008). This group remains the biggest net seller year-to-date. Hedge funds were also net sellers for the third consecutive week, while private clients were the sole net buyers.”
Subramanian notes that these private (retail) clients have added to their portfolios in 24 of the last 27 weeks — and unlike institutional and hedge fund clients, they are the only net buyers of stocks so far in 2013.
So, what’s behind the institutional selling?
“While much of institutional clients’ net sales post-crisis were likely due to redemptions, some outflows year-to-date could suggest a rotation out of U.S. stocks and into global equities,” says Subramanian.
THE STOCK MARKET IS AT AN ALL-TIME HIGH – HERE’S WHY SO MANY AMERICANS DON’T CARE
by Sam Ro | Business Insider
Stocks are at all-time highs, and anyone invested in the market has reason to be happy.
But that’s just it. It’s only the people who are investing who have gotten a piece of this 3.5-year-long bull market, which has seen the S&P 500 explode 170%
According to Gallup’s annual Economics and Personal Finance survey, which was conducted in April, just 52% of Americans are personally or jointly with a spouse invested in the stock market. This is the lowest level since at least 1998.
Gallup attributes this low ownership rate to the high unemployment rate.
“Between 1998 and 2008, a period of relatively modest unemployment, Gallup, with one exception, found at least 60% of Americans reporting that they owned stock,” said Gallup’s Lydia Saad. “That changed in April 2009, at the same time the nation’s economy was descending into recession and experiencing a near-doubling of the unemployment rate compared with April 2008. By April 2012, with unemployment still elevated at 8.1%, stock ownership had fallen to 53%. It remains at about that level today, perhaps indicating that the nation’s current 7.5% unemployment rate, while improved, is still too high to support broader stock ownership.”
Gallup’s survey revealed that 61% of those employed were invested in stocks compared to the just 41% of those not employed.
This inability to invest only adds to the feeling of haves versus have-nots in America.
The Pew Research Center conducted a similar survey in March and found that just 45% of Americans had money in the market.
Pew also uncovered significant demographic patterns.
“Our survey found that stock ownership was sharply differentiated by age, race and socioeconomic status,” said Pew’s Drew DeSilver. “More than half (55%) of whites, for instance, said they were invested in stocks, compared with 28% of blacks and 17% of Hispanics. 77% of college graduates reported being invested in stocks (versus less than half of non-graduates), and 80% of people with incomes of $75,000 or more, compared with 55% of people with incomes of $30,000 to $75,000 and just 15% of people with incomes below $30,000.”
In short, people with money in stocks “tend to be white, wealthy and more educated.”
We can’t, however, ignore te possibility that the willingness to invest has also been low. The breathtaking collapse of the stock market from Fall 2008 into Spring 2009 certainly left a bad taste in the mouths of investors.
But that bad memory may finally be fading.
“2014 may finally be the year individual investors, as a group, begin to buy stocks in contrast to the net selling they have done since the bull market began nearly five years ago,” said LPL Financial’s Jeff Kleintop. “The five-year trailing annualized return for stocks has been weak, especially compared to bonds, in recent years. However, as 2014 gets underway, the one-, three-, and five-year trailing annualized returns for the S&P 500 will all be in the double digits for the first time this business cycle”
“Our analysis of history shows that it is the five-year return that individual investors tend to chase, based on net inflows to U.S. stock funds,” argued Kleintop. “As of March 6, 2014, five years from the bear market low in the S&P 500 — even assuming no additional growth in the stock market between now and then — the five-year annualized return may have exceeded bonds’ 5% return by 20%. This may prompt many investors to reconsider the role of stocks in their portfolios, especially as interest rates rise and bond performance lags.”
For the sake of those just re-entering the market, let’s hope the bull market doesn’t end anytime soon. Because the only thing worse than not making money on the way up is losing money on the way down.
STOCKS ARE UNDER PRESSURE
Published on Dec 4, 2013
STOCKS, BONDS, GOLD, SILVER: BLACK IS WHITE AND WHITE IS BLACK
Published on Dec 5, 2013
U.S. TREASURY BONDS
US Treasury Bonds Rates
TREASURIES – YIELDS STEADY AFTER DATA; INVESTORS WEIGH FEDERAL RESERVE POLICY
- Ten-year yields retrace after earlier hitting 2.93 percent
- Some traders see short squeeze after initial yield spike
- Strong jobs data raises bets that Fed will act sooner
- Fed buys $5.13 billion notes due 2017, 2018
By Karen Brettell and Luciana Lopez
NEW YORK, Dec 6 (Reuters) – U.S. Treasuries’ yields were steady on Friday after they briefly surged to their highest level since September following a strong jobs report, which caused investors to evaluate anew when the Federal Reserve is likely to begin paring back its bond-purchase program.
U.S. employers added 203,000 jobs in November and the jobless rate fell to a five-year low of 7.0 percent, raising expectations the Federal Reserve will begin reducing its bond purchases in coming months.
But Treasuries were volatile and traders said some investors positioning for yield increases may have been caught by a short squeeze that sent yields tumbling, leaving them be near unchanged after an initial jump.
“I think everyone got a little too far ahead of themselves expecting very strong economic numbers. The market priced in most of a worse-case scenario heading into the number,” said Aaron Kohli, an interest rate strategist at BNP Paribas in New York.
Benchmark 10-year notes were last up 2/32 in price to yield 2.857 percent, after briefly rising as high as 2.93 percent, the highest level since Sept. 13. They have increased from 2.70 percent a week-and-a-half ago.
The 30-year bond traded up 13/32 in price to yield 3.890 percent.
“The market reacted pretty violently to the report, and I think a lot of people got caught in the hole,” said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Traders had expected job gains of around 200,000, higher than economists’ expectations of around 180,000, based on the median estimate of 90 economists polled by Reuters before the data.
The Federal Reserve will start reducing its massive bond-buying program no later than March, according to a Reuters poll on Friday, with a handful of Wall Street firms expecting the U.S. central bank taking action as early as December following a second straight month of robust jobs gains.
Still, the Fed could wait for a more sustained run of data – and the confirmation of Janet Yellen as the new Fed chair – before changing its policy stance.
“If you string these kind of numbers consistently for the next six months or so I think you will see an exit, but I don’t think that’s happening until after she’s confirmed and after you see these numbers fall in line,” said Richard Daskin, the chief investment officer of RSD Advisors in New York.
Improving labor market prospects also buoyed consumer confidence in early December. The Thomson Reuters/University of
Michigan’s preliminary consumer sentiment index jumped to 82.5 from 75.1 in November, a separate report showed on Friday.
The Fed will meet on Dec. 17 and 18 in its final meeting of the year. Some traders have said that it may be more hesitant to act in December for fear of disrupting market liquidity heading into year-end.
A few weeks ago many traders and analysts had expected that the Fed would be most likely to act at its March meeting.
The Fed bought $5.13 billion in notes due 2017 and 2018 on Friday as part of its ongoing purchases.
Unemployment near 6 percent could force the Fed’s hand in coming months by making purchases politically unfeasible.
“It would be much harder for the Fed politically to continue buying if they don’t have unemployment at high levels,” said
The Fed is seen as likely to stress its plans to hold rates near record lows even as it begins to pare bond purchases, in an
effort to stem any dramatic yield rise that could otherwise threaten the economic recovery.
But the drop in the unemployment rate brought it closer to the 6.5 percent level that Fed officials have said would trigger
discussions over when to raise interest rates from their current levels near zero.
Some economists think the central bank will lower that threshold to convince markets that any rate hike is a long way
-CHART OF THE WEEK: The Fed Now Owns One Third Of The Entire US Bond Market. Read more here-http://bit.ly/1aDimJ9
TAKE COVER! BOND MARKET ‘HELL’ COULD BE ON THE WAY
by Matt Clinch | CNBC
If fixed-income investors were under any impression that 2014 could mark an end to the turbulence experienced this year, they should think again – with some analysts predicting volatile conditions on both sides of the Atlantic.
“It’s a dangerous game trying to time your exit,” Johan Jooste, head of the London investment office at private banking group Julius Baer told CNBC Thursday. “The level of yields and the direction of yields both argue against really having strong fixed income exposure.”
The interest rate on the U.S. benchmark 10-year Treasury started 2013 at 1.8 percent, following an open-ended commitment by the Federal Reserve to continue buying bonds, which suppressed yields close to record-low rates.
But with the Fed looking to take the foot off the gas – which would see a major buyer retreating from the market – yields have been on a rollercoaster ride since May. Yields on 10-year notes spiked to 3 percent in September before settling near 2.7 percent.
The worry for investors is that as yields surge higher, the bond price deteriorates – and anyone holding government bonds when this spike happens is set to lose money.
With the U.S. Treasury market influencing the price all sorts of fixed income assets all over the globe, 2014 could prove to be a minefield, according to Bill Blain, senior fixed income broker at Mint Partners.
“I reckon we’re going to have hell in the bond markets next year,” he told CNBC.
“I think there is potential for a massive sell-off in the U.S. once we see the taper (of the Fed’s bond buying program) finally start and that’s not because people are not prepared, it’s because that is what happens when you stop distorting markets.”
The advice from Blain is: “Buy (bonds) now and sell them as soon as you feel they are weak.”
Euro crisis reignited?
Meanwhile, researchers at Swiss bank UBS said the “very strange taper-talk state” in sovereign bond markets meant investors should look to peripheral Europe for safety.
Spanish and Italian bond yields were once a key gauge for how serious the euro zone sovereign debt crisis was, with yields peaking above 7 percent in 2012. But markets have eased since, interest rates have slunk down to 4 percent and UBS said that investors should consider buying peripheral debt.
“In risk-adjusted terms, given the low volatility that we see in the government bond markets in Europe, peripheral European government bonds are looking very attractive indeed,” strategists Ramin Nakisa and Stephane Deo said in a note released on Thursday.
“If we look back over the last three months, then in risk-adjusted terms the combination of high coupon and low volatility makes Spain, and to a lesser extent, Italy, rank well above Treasurys and even EM (emerging market) sovereign debt.”
But Blain gave a stark warning to investors looking across the Atlantic at the bonds of southern European nations.
He expects the European Central Bank (ECB) to inject liquidity into the markets via its long-term refinancing operation and to opt for negative rates, which would see European banks charged interest on the reserves they keep at the ECB.
As a result, lenders would use more money to buy up peripheral debt, according to Blain, thus increasing the link between European banks and their exposure to the region’s fragile economies.
“They are not sovereign bonds anymore, they are bonds issued by a sovereign entities linked to a currency they don’t control,” he said. “If things turn badly, let’s say at the result of another rout in the U.S. bond markets when the taper finally begins…then we get the whole crisis reignited.”
BILL GROSS EXPLAINS WHAT KEEPS HIM UP AT NIGHT
by Tyler Durden | ZeroHedge
The choice extracts from Bill Gross’ just released latest monthly letter:
What keeps us up at night? Well I can’t speak for the others, having spoken too much already to please PIMCO’s marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the “New Normal” characterization of our post-Lehman global economy, now focuses on the possibility of a” T junction” investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world.
This year’s April taper talk by the Federal Reserve is perhaps a good example of this forward path of asset returns. Admittedly the reaction in the bond market was rather sudden and it precipitated not only the disillusioning of bond holders, but also an increase in redemptions in retail mutual fund space. But then the Fed recognized the negative aspects of “financial conditions,” postponed the taper, and interest rates came back down. Sort of a reverse “Sisyphus” moment – two steps upward, one step back as it applies to yields.
… investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. “You have no other choice,” their policies insinuate. “Get used to negative real interest rates, move out on the risk spectrum and in the process help heal the real economy,” they seem to command.
In brief: Gross now sees investors as desperate guinea pigs in the Fed’s behavioral experiment.
Stock investors, however, were only mildly discouraged and continued their faith-based, capital gain dependent investments despite what should be the obvious conclusion that QE and low interest rates were as critical to their market as they were to bonds. “What other choice do we have?” has become the mantra of stock investors globally, which speaks more to desperation than logical thinking.
The punchline: the moment when the reflexive bubble pops (“we know that they know that we know that they know” courtesy of The Burbs), and the Fed’s worst fears come true.
… Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE.
And that is the game over point (although fear lies in bowels?).
And the full letter below:
On the Wings of an Eagle
I’ve always liked Jack Bogle, although I’ve never met him. He’s got heart, but as he’s probably joked a thousand times by now, it’s someone else’s; a 1996 transplant being the LOL explanation. He’s also got a lot of investment common sense, recognizing decades ago that investment managers in composite couldn’t outperform the market; in fact, their alpha would be negative after fees and transaction costs were factored in. His early business model at Vanguard promoting index funds was a mystery to me for at least a few of my beginning years at PIMCO. Why would most investors be content with just average performance, I wondered? The answer is certainly now obvious; an investor should want the highest performance for the least amount of risk, and for almost all measurable asset classes, index funds and many ETFs have done a better job than almost all active managers primarily because of lower fees.
The “almost all” caveat is the reason I can write so freely and with such high praise for Vanguard. I am, after all, supposed to be promoting PIMCO in these Investment Outlooks, and PIMCO is a $2 trillion active manager with lots of long-term consistent alpha. Jack marvels about what he himself labeled in a recent Morningstar interview the “PIMCO effect.” To paraphrase his interview, he spoke to index managers beating almost all active managers, but then “there was the PIMCO effect.” We at PIMCO thank him for that with a “back atcha, Jack!” There’s actually a place for both of our firms and investment philosophies in this age of high finance. If Bogle’s concept of indexing was metaphorically similar to finding a cure for the cancerous devastation of high fees, then perhaps PIMCO’s approach could be similar to mapping the investment genome and using it to produce consistently high alpha. There’s room for each of these investment laboratories. I will admit that there are other active management labs as well that are worthy of not only recognition, but investor confidence and dollars. I have nothing but the highest of praise for Bridgewater’s Ray Dalio and GMO’s Jeremy Grantham and their staffs. Their voluminous thoughts occupy a special corner of my desk library. Each has a distinctly different approach to active management – Dalio’s focusing on a levering/delevering template and Grantham’s on a historical reversion to the mean for most asset classes.
Neither Vanguard, PIMCO, Bridgewater nor GMO, however, has discovered a cure for the common cold. Our performance periodically, and sometimes for frustrating long stretches, stuffs our noses or aches our heads, and makes us wonder why we hadn’t been more careful about washing our hands during flu season. Our firms make mistakes, even if, in Vanguard’s case, it’s the indexed mantra of being fully invested in an overvalued market.
Where might our future mistakes be hiding? What keeps us up at night? Well I can’t speak for the others, having spoken too much already to please PIMCO’s marketing specialists, but I will give you some thoughts about what keeps Mohamed and me up at night. Mohamed, the creator of the “New Normal” characterization of our post-Lehman global economy, now focuses on the possibility of a” T junction” investment future where markets approach a time-uncertain inflection point, and then head either bubbly right or bubble-popping left due to the negative aspects of fiscal and monetary policies in a highly levered world. We are both in agreement on the perilous future potential of market movements. Mohamed’s T, I believe, was meant to be more descriptive than literal, and is a concept, like the New Normal, that may gain acceptance over the next few months or years. But aside from a financial nuclear bomb à la Lehman Brothers, our actual scenario is likely to play out more gradually as private markets realize that the policy Kings/Queens have no clothes and as investors gradually vacate historical asset classes in recognition of insufficient returns relative to increasing risk. The actual T might in reality be shaped something like this: , perhaps a winged eagle signifying something more gradually sloping left or right. This year’s April taper talk by the Federal Reserve is perhaps a good example of this forward path of asset returns. Admittedly the reaction in the bond market was rather sudden and it precipitated not only the disillusioning of bond holders, but also an increase in redemptions in retail mutual fund space. But then the Fed recognized the negative aspects of “financial conditions,” postponed the taper, and interest rates came back down. Sort of a reverse “Sisyphus” moment – two steps upward, one step back as it applies to yields and more of a , than a T. Investors now await nervously for news on the real economy as well as the medicine that Janet Yellen will apply to it.
That medicine, however, will most assuredly include negative real interest rates that at some point will give bond and stock investors pause as to the continued potency of historical total return policies generated primarily by capital gains. Bond investors found that out in May, June and July after 10-year Treasuries had bottomed at 1.65%. Stock investors, however, were only mildly discouraged and continued their faith-based, capital gain dependent investments despite what should be the obvious conclusion that QE and low interest rates were as critical to their market as they were to bonds. “What other choice do we have?” has become the mantra of stock investors globally, which speaks more to desperation than logical thinking.
Well, my point about the gradual as opposed to sudden disillusioning of investors worldwide is just that. The standard “three musketeers” menu for retail investors has always been 1) investment grade and 2) high yield bonds as well as 3) stocks. In recent years, institutional investors have gravitated into 4) alternative assets, 5) hedge funds and 6) unconstrained space, and so for them there appears to be an increasing array of higher return alternatives. All of the above 1-6, however, contain artificially priced assets based on artificially low interest rates. Some are unlevered, like Treasury bonds, but nonetheless priced too high by the Fed in an effort to encourage migration to riskier bonds and/or asset classes. Others, such as many alternative assets, depend on the levering of portfolios themselves, borrowing at 10-50 basis points in overnight repo and investing at higher rates of return despite their artificiality. But investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth. The Fed, the BOJ (certainly), the ECB and the BOE are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high quality assets. “You have no other choice,” their policies insinuate. “Get used to negative real interest rates, move out on the risk spectrum and in the process help heal the real economy,” they seem to command.
Yet this now near 5-year migration across the global asset plains in search of taller grass and deeper water has had limits, both in price and real growth space. If monetary and fiscal policies cannot produce the real growth that markets are priced for (and they have not), then investors at the margin – astute active investors like PIMCO, Bridgewater and GMO – will begin to prefer the comforts of a less risk-oriented migration. If they cannot smell the distant water or sense a taller strand of Serengeti grass, astute investors might move away from traditional risk such as duration as opposed to towards it. Deep in the bowels of central banks research staffs must lay the unmodelable fear that zero-bound interest rates supporting Dow 16,000 stock prices will slowly lose momentum after the real economy fails to reach orbit, even with zero-bound yields and QE.
In gradually moving away from traditional risk assets, I again refer to my August Investment Outlook called “Bond Wars.” In it, I suggested that bonds and bond portfolios contain a number of inherent “carry” risks and that duration/maturity was but one of them. I suggested that if the Fed and other central banks had artificially lowered yields and elevated bond prices, then a traditional bond fund should underweight duration and perhaps overweight other carry alternatives such as volatility, curve and credit. This we have done, and our relative performance reflects it. The “PIMCO effect,” as Jack Bogle calls it, is alive and well in 2013. Our primary thrust has been to focus on what we are most (although not totally) confident about, that the Fed will hold policy rates stable until 2016 or beyond. While this and its conjoined policy of QE may have only redistributed wealth as opposed to creating it (picking savers’ pockets while recapitalizing banks and the wealthiest 1% of our population), it is a policy that a Janet Yellen Fed seems determined to pursue. The taper will lead to the elimination of QE at some point in 2014, but the 25 basis point policy rate will continue until 6.5% unemployment and 2.0% inflation at a minimum have been achieved. If so, front-end Treasury, corporate and mortgage positions should provide low but attractively defensive returns. We have positioned our bond wars portfolio – heavily front-end maturity loaded along with credit, volatility and curve steepening positions, with the aim of outperforming Vanguard as well as many other active managers.
There is no doubt, however, that this portfolio construct is dependent on the eagle’s wingsas opposed to the junction of a T. Overlevered economies and their financial markets must at some point pay a price, experience a haircut, and flush confident investors from the comfort of this Great Moderation Part II. We at PIMCO will prepare for that day while hopefully consistently beating Vanguard along the way.
Eagle’s Speed Read
1) Be confident in the “PIMCO effect,” as Jack Bogle calls it.
2) Look for constant policy rates until at least 2016. Front-end load portfolios. Don’t fight central banks, but be afraid.
3) Global economies and their artificially priced markets are increasingly at risk, but the unwinding may occur gradually. Think!
William H. Gross
BILL GROSS SAYS CENTRAL BANK CASH INFLUX RAISES GLOBAL ASSETS’ RISK
By Liz Capo McCormick – Bloomberg
Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the unprecedented cash added to the financial system by central banks is raising the risk of a slide in global asset prices.
“Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth,” Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today. The Federal Reserve, Bank of Japan, European Central Bank and Bank of England “are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high-quality assets.”
Gross reiterated that Pimco is focused on shorter-maturity Treasuries, mortgage and corporate debt that will benefit by the Fed keeping its target rate for overnight loans near zero for several years. Fed policy makers cut rates to a record low as the financial crisis mounted in 2008 and vowed to keep them there until the economy and employment show sustained signs of recovery.
“This now near five-year migration across the global asset plains in search of taller grass and deeper water has had limits, both in price and real growth space,” Pimco’s co-chief investment officer wrote. “If monetary and fiscal policies cannot produce the real growth that markets are priced for, and they have not, then investors at the margin” will begin “to prefer the comforts of a less risk-oriented migration.”
Global stocks beat all assets for a third month in November, the longest winning streak since 2009. Commodities extended declines as gold fell the most since June.
The MSCI All-Country World Index of equities in 45 markets rose 1.5 percent including dividends and the Standard & Poor’s 500 Index reached a record as China pledged to expand economic freedoms, the European Central Bank cut interest rates and speculation increased the Fed will delay reducing stimulus. The U.S. Dollar Index advanced 0.6 percent and the S&P GSCI Total Return Index of 24 commodities fell 0.8 percent. Bonds of all types lost 0.16 percent on average, according to Bank of America Merrill Lynch’s Global Broad Market Index.
“Look for constant policy rates until at least 2016,” in the U.S., Gross said. “Front-end load portfolios. Don’t fight central banks, but be afraid. Global economies and their artificially priced markets are increasingly at risk, but the unwinding may occur gradually.”
The Fed, which has kept its benchmark overnight bank lending rate in a range of zero to 0.25 percent since December 2008, has said it will maintain that rate while unemployment held above 6.5 percent and inflation stayed below 2.5 percent.
The performance of the Total Return Fund over the past three years puts it ahead of 74 percent of similarly managed funds, gaining 4.34 percent over the period, according to data compiled by Bloomberg.
Pimco, a unit of the Munich-based insurer Allianz SE, managed over $2 trillion in assets.
BILL GROSS: DON’T FIGHT THE FED, BUT BE WARY
By Jesse Solomon
NEW YORK (CNNMoney) – Investors are playing a dangerous game, according to Pimco’s Bill Gross.
In his monthly investment outlook, the bond king characterized central banks’ “medicine” of loose monetary policy as a “desperate gamble to promote growth.”
The Federal Reserve has launched three rounds of stimulus — or quantitative easing — since late 2008.
And its spigot of cheap money is largely responsible for the bull market of the last five years. The S&P 500 has more than doubled during that time.
The consequence, according to Gross: “artificially priced assets based on artificially low rates.”
And he fears investors have nowhere to hide.
According to Gross, the policies set by the Fed, Bank of Japan, European Central Bank, and Bank of England are telling investors they have no alternatives.
“Get used to negative real interest rates, move out on the risk spectrum and in the process help heal the real economy,” is what they seem to be telegraphing, said Gross.
While the Fed’s stimulus programs were meant to create wealth, Gross says they’ve instead redistributed it, with the wealthy thriving while savers get decimated.
Gross does think the Fed will pull back on its stimulus at some point in 2014. At the same time, he believes interest rates will remain low until 2016.
His strategy: load up on short-term Treasuries, along with corporate and mortgage bonds.
“Our primary thrust has been to focus on what we are most (although not totally) confident about,” Gross reveals.
Gross also praises Vanguard Group founder John Bogle, who designed many of the low-cost index funds popular with retail investors today.
“He’s got a lot of investment common sense, recognizing decades ago that investment managers in composite couldn’t outperform the market,” Gross said.
Of course, for Gross, the exception is Pimco.
“If Bogle’s concept of indexing was metaphorically similar to finding a cure for the cancerous devastation of high fees, then perhaps Pimco’s approach could be similar to mapping the investment genome and using it to produce consistently high alpha.”
But neither firm “has discovered a cure for the common cold,” Gross quips.
Pimco does, however, seem to be feeling under the weather lately. The Pimco Total Return fund (PTTRX), is down almost 3.5% this year.
And it’s shrinking. Investors pulled out almost $37 billion so far this year — forcing it to cede its title as the world’s largest mutual fund.
Gross, known for his spirited investment letter insights packed with pop culture metaphors, is one of the most closely watched players on Wall Street.
WORLD FINANCIAL REPORT DECEMBER 6, 2013
-Canada Keeps Key Rate at 1% in Flagging Inflation Risk. Bank of Canada Governor Stephen Poloz kept his main interest rate unchanged and said the risks of inflation staying below target “appear to be greater” in an economy that’s two years away from reaching full output. Policy makers kept the benchmark rate on overnight loans between commercial banks at 1 percent, where it’s been for more than three years. Read more here-http://bloom.bg/1dSVTzn and http://bloom.bg/18lIR98
-Argentines Hit With 35% Foreign Credit Card Tax for Holidays. Argentine President Cristina Fernandez de Kirchner increased a tax on credit card purchases abroad ahead of the southern hemisphere summer vacation period to stem a hemorrhaging of reserves to a seven-year low. The government raised a levy on card purchases in foreign currency to 35 percent from 20 percent, according to a resolution published in today’s Official Gazette. Central bank reserves have plunged 29 percent this year to $30.9 billion as the government uses them to pay international debt and import energy, while Argentines have increased spending on foreign vacations and online shopping. Read more here-http://bloom.bg/18ogxjh
-EU Imposes E1.7 billion in fines on banks in rate-rigging scandal. The European Union has fined a group of global financial institutions, including for the first time two American banks, a combined 1.7 billion euros to settle charges they colluded to fix two benchmark interest rates. The settlement, worth about $2.3 billion and announced by European Union antitrust officials today, relates to actions by traders at some of the world’s largest banks, including Citigroup, Royal Bank of Scotland and Deutsche Bank. The banks were accused of fixing rates for the London interbank offered rate, or Libor, as it relates to the Japanese yen and the euro interbank offered rate, or Euribor. Read more here-http://bit.ly/191JTYm
-Unemployed Greeks Reconnect as Underground Electricians Defy Law. Kostas Ioannidis, an unemployed metalworker with an ailing mother and disabled wife, can’t afford electricity. So he steals it instead. Read more here-http://bloom.bg/IG1wlT
-UK Households Raid Savings At Record Rate. A Sky News investigation has found evidence that Britons are raiding their savings at the fastest rate since records began. Read more here-http://yhoo.it/1bj8wPS
-Britain’s personal debt mountain hits record high of £1,429,624,000,000 as mortgage approvals soar to pre-crash levels. Britain’s household debt mountain has soared to a record £1.43trillion, the Bank of England revealed today. Personal debt has risen steadily since the financial crash, and is now higher than the previous record seen five years ago. The increase is seen as a sign of increased consumer confidence, as the economic recovery gathers pace, but it could also mean more people relying on credit to make ends meet. Read more here-http://dailym.ai/18lB1w3
DR. JEROME CORSI: OBAMA’S “CHANGE” IS NOTHING BUT A COMMUNIST REVOLUTION
The strategy Obama will use to fully take over the United States
Published on Dec 9, 2013
PRESIDENT OBAMA: THE CIA MANCHURIAN CANDIDATE GROOMED BY COMMUNISTS TO DESTROY THE UNITED STATES OF AMERICA
THE PLANNED DESTRUCTION OF THE UNITED STATES
OBAMA’S PLAN TO DEPOPULATE THE SUBURBS
THE BIG WALL STREET BANKS ARE ABOUT TO ENTER A DEATH SPIRAL
RUSSIA’S PLAN TO USE NUCLEAR WEAPONS ON THE UNITED STATES
CHINA’S PLAN TO USE NUCLEAR WEAPONS ON THE UNITED STATES
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37 REASONS WHY “THE ECONOMIC RECOVER OF 2013″ IS A GIANT LIE
December 9, 2013
“If you repeat a lie often enough, people will believe it.” Sadly, that appears to be the approach that the Obama administration and the mainstream media are taking with the U.S. economy. They seem to believe that if they just keep telling the American people over and over that things are getting better, eventually the American people will believe that it is actually true.
Image: Wall Street (Wikimedia Commons).
On Friday, it was announced that the unemployment rate had fallen to “7 percent”, and the mainstream media responded with a mix of euphoria and jubilation. For example, one USA Today article declared that “with today’s jobs report, one really can say that our long national post-financial crisis nightmare is over.” But is that actually the truth? As you will see below, if you assume that the labor force participation rate in the U.S. is at the long-term average, the unemployment rate in the United States would actually be 11.5 percent instead of 7 percent. There has been absolutely no employment recovery. The percentage of Americans that are actually working has stayed between 58 and 59 percent for 51 months in a row. But most Americans don’t understand these things and they just take whatever the mainstream media tells them as the truth.
And of course the reality of the matter is that we should have seen some sort of an economic recovery by now. Those running our system have literally been mortgaging the future in a desperate attempt to try to pump up our economic numbers. The federal government has been on the greatest debt binge in U.S. history and the Federal Reserve has been printing money like crazed lunatics. All of that “stimulus” should have had some positive short-term effects on the economy.
Sadly, all of those “emergency measures” do not appear to have done much at all. The percentage of Americans that have a job has stayed remarkably flat since the end of 2009, median household income has fallen for five years in a row, and the rate of homeownership in the United States has fallen for eight years in a row. Anyone that claims that the U.S. economy is experiencing a “recovery” is simply not telling the truth. The following are 37 reasons why “the economic recovery of 2013″ is a giant lie…
#1 The only reason that the official unemployment rate has been declining over the past couple of years is that the federal government has been pretending that millions upon millions of unemployed Americans no longer want a job and have “left the labor force”. As Zero Hedge recently demonstrated, if the labor force participation rate returned to the long-term average of 65.8 percent, the official unemployment rate in the United States would actually be 11.5 percentinstead of 7 percent.
#2 The percentage of Americans that are actually working is much lower than it used to be. In November 2000, 64.3 percent of all working age Americans had a job. When Barack Obama first entered the White House, 60.6 percent of all working age Americans had a job. Today, only 58.6 percent of all working age Americans have a job. In fact, as you can see from the chart posted below, there has been absolutely no “employment recovery” since the depths of the last recession…
#3 The employment-population ratio has now been under 59 percent for 51 months in a row.
#4 There are 1,148,000 fewer Americans working today than there was in November 2006. Meanwhile, our population has grown by more than 16 million people during that time frame.
#5 The “inactivity rate” for men in their prime working years (25 to 54) has just hit a brand new all-time record high. Does this look like an “economic recovery” to you?…
#6 The number of working age Americans without a job has increased by a total of 27 million since the year 2000.
#7 In November 2007, there were 121.9 million full-time workers in the United States. Today, there are only 116.9 million full-time workers in the United States.
#8 Middle-wage jobs accounted for 60 percent of the jobs lost during the last recession, but they have accounted for only 22 percent of the jobs created since then.
#9 Only about 47 percent of all adults in America have a full-time job at this point.
#10 The ratio of wages to corporate profits in the United States just hit a brand new all-time low.
#11 It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.
#12 Approximately one out of every four part-time workers in America is living below the poverty line.
#13 In this economic environment, there is intense competition even for the lowest paying jobs. Wal-Mart recently opened up two new stores in Washington D.C., and more than 23,000 people applied for just 600 positions. That means that only about 2.6 percent of the applicants were ultimately hired. In comparison, Harvard offers admission to 6.1 percent of their applicants.
#14 According to the Social Security Administration, 40 percent of all U.S. workers make less than $20,000 a year.
#15 When Barack Obama took office, the average duration of unemployment in this country was 19.8 weeks. Today, it is 37.2 weeks.
#16 According to the New York Times, long-term unemployment in America is up by 213 percent since 2007.
#17 Thanks to Obama administration policies which are systematically killing off small businesses in the United States, the percentage of self-employed Americans is at an all-time low today.
#18 According to economist Tim Kane, the following is how the number of startup jobs per 1000 Americans breaks down by presidential administration…
Bush Sr.: 11.3
Bush Jr.: 10.8
#19 According to the U.S. Census Bureau, median household income in the United States has fallen for five years in a row.
#20 The rate of homeownership in the United States has fallen for eight years in a row.
#21 Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 54.9 percent of all Americans are covered by employment-based health insurance, and thanks to Obamacare millions more Americans are now losing their health insurance plans.
#22 As 2003 began, the average price of a gallon of regular gasoline was about $1.30. When Barack Obama took office, the average price of a gallon of regular gasoline was $1.85. Today, it is $3.26.
#23 Total consumer credit has risen by a whopping 22 percent over the past three years.
#24 In 2008, the total amount of student loan debt in this country was sitting at about 440 billion dollars. Today, it has shot up to approximately a trillion dollars.
#25 Under Barack Obama, the velocity of money (a very important indicator of economic health) has plunged to a post-World War II low.
#26 Back in the year 2000, our trade deficit with China was 83 billion dollars. In 2008, our trade deficit with China was 268 billion dollars. Last year, it was 315 billion dollars. That was the largest trade deficit that one nation has had with another nation in world history.
#27 The gap between the rich and the poor in the United States is at an all-time record high.
#28 Right now, 1.2 million students that attend public schools in the United States are homeless. That is a brand new all-time record high, and that number has risen by 72 percent since the start of the last recession.
#29 When Barack Obama first entered the White House, there were about 32 million Americans on food stamps. Today, there are more than 47 million Americans on food stamps.
#30 Right now, approximately one out of every five households in the United States is on food stamps.
#31 According to the Survey of Income and Program Participation conducted by the U.S. Census, well over 100 million Americans are enrolled in at least one welfare program run by the federal government.
#32 In 2000, the U.S. government spent 199 billion dollars on Medicaid. In 2008, the U.S. government spent 338 billion dollars on Medicaid. In 2012, the U.S. government spent 417 billion dollars on Medicaid, and now Obamacare is going to add tens of millions more Americans to the Medicaid rolls.
#33 In 2000, the U.S. government spent 219 billion dollars on Medicare. In 2008, the U.S. government spent 462 billion dollars on Medicare. In 2012, the U.S. government spent 560 billion dollars on Medicare, and that number is expected to absolutely skyrocket in the years ahead as the Baby Boomers retire.
#34 According to the most recent numbers from the U.S. Census Bureau, an all-time record high 49.2 percent of all Americans are receiving benefits from at least one government program.
#35 The U.S. government has spent an astounding 3.7 trillion dollarson welfare programs over the past five years.
#36 When Barack Obama was first elected, the U.S. debt to GDP ratio was under 70 percent. Today, it is up to 101 percent.
#37 The U.S. national debt is on pace to more than double during the eight years of the Obama administration. In other words, under Barack Obama the U.S. government will accumulate more debt than it did under all of the other presidents in U.S. history combined.
Fortunately, it appears that most Americans are not buying into the propaganda. According to a new CNN survey, the percentage of Americans that believe that the economy is getting worse far exceeds the percentage of Americans that believe that the economy is improving…
Americans views on the state of the nation are turning increasingly sour, according to a new national poll.
And a CNN/ORC International survey released Friday also indicates that less than a quarter of the public says that economic conditions are improving, while nearly four in ten say the nation’s economy is getting worse.
Forty-one percent of those questioned in the poll say things are going well in the country today, down nine percentage points from April, and the lowest that number has been in CNN polling since February 2012. Fifty-nine percent say things are going badly, up nine points from April.
-CHART OF THE WEEK: One Of These Is The “Real” Economy. It seems some among the mainstream media believe “the economy is improving.” In the interests of clearing up that little misunderstanding, we hope the following chart will clarify which “economy” is improving. Read more here-http://bit.ly/1eT4DC4
U.S. UNEMPLOYMENT RATE HITS 5-YEAR LOW, EYES ON THE FEDERAL RESERVE
* Nonfarm payrolls rise by 203,000 in November
* Report’s strength could lead Fed to taper bond buys
* Jobless rate falls to 7.0 percent from 7.3 percent
* Average hourly earnings, workweek increase
* Inflation pressures remain muted
By Lucia Mutikani
WASHINGTON, Dec 6 (Reuters) – U.S. employers hired more workers than expected in November and the jobless rate hit a five-year low of 7.0 percent, raising chances the Federal Reserve could start ratcheting back its bond-buying stimulus as soon as this month.
Nonfarm payrolls increased by 203,000 jobs last month, following a similarly robust rise in October, the Labor Department said on Friday. The report, which showed broad gains in employment and a rise in hourly earnings, suggested strength in the economy heading into year-end.
“It will add further confidence to the Fed of a reduced need for monetary stimulus in the U.S economy. We now see the bias shifting in favor of a January tapering announcement,” said Millan Mulraine, senior economist at TD Securities in New York.
The unemployment rate dropped three tenths of a percentage point to its lowest level since November 2008 as some federal employees who were counted as jobless in October returned to work after a 16-day partial shutdown of the government.
The decline came even as the participation rate – the share of working-age Americans who either have a job or are looking for one – bounced back from October’s 35-1/2-year low.
A separate report showed improving labor market prospects buoyed consumer confidence in early December.
Contributing to its firm tone, the jobs report showed that the length of the average workweek reached a three-month high and that 8,000 more workers were hired in September and October than previously reported.
In addition, a measure of underemployment that includes people who want a job but who have given up searching and those working part-time because they cannot find full-time jobs fell to a five-year low.
U.S. benchmark Treasury yields hit a three-month high as traders raised bets the Fed could reduce its bond purchases as early as its next meeting on Dec. 17-18, though they later eased back and finished the day little changed. Major U.S. stock
indexes rose, with the S&P 500 ending a five-day losing streak with its best gain in nearly a month.
The financial market reaction showed investors are less anxious about the Fed’s impending wind down of asset buying than six months ago, when the first hints from Fed leaders of a pullback sent stock prices tumbling and bond yields surging.
The central bank has been buying $85 billion in Treasury and mortgage-backed bonds each month to hold long-term borrowing costs down in a bid to spur a stronger economic recovery.
Chicago Fed President Charles Evans, who has been an outspoken advocate for the Fed’s stimulus program, said on Friday he was open to trimming purchases this month, although he would prefer to see an even healthier jobs market.
“I’ll be open-minded,” he told Reuters Insider. “Everything else (being) equal, I would like to see a couple of months of good numbers, but this was improvement.”
Many economists still expect the central bank to wait until March before dialing back its bond purchases, but a Reuters poll of big bond dealers found a growing number now see December or January as likely.
MIXED ECONOMIC DATA
While labor market and consumer spending indicators are strengthening, the housing market and business spending have slowed. Inflation is still low, which economists say will make Fed officials cautious in pulling back its stimulus.
Economists also believe the Fed will be wary of dialing back bond purchases before lawmakers strike a deal to fund the federal government. That could come as soon as next week, however. Congressional aides have said negotiators are down to the final details.
A separate report from the Commerce Department showed consumer prices were steady in October, after having risen by 0.1 percent for three straight months. Over the past 12 months, prices rose 0.7 percent, the smallest gain since October 2009.
Excluding food and energy, prices were up just 0.1 percent for a fourth straight month. These so-called core prices were up only 1.1 percent from a year ago. Both inflation measures remained well below the Fed’s 2 percent target.
“While fiscal issues appear less ominous and employment prospects look favorable, we still think that before pulling back on asset purchases the Fed would like to see more evidence that housing is stabilizing and that inflation is finding a floor,” said Michael Feroli, an economist at JPMorgan.
The drop in the unemployment rate brought it closer to the 6.5 percent level that policymakers said would trigger discussions over when to raise interest rates from their current levels near zero.
Some economists think the Fed will lower that threshold to convince markets that any rate hike is a long way off.
“We expect that when tapering starts, it will be coupled with stronger forward rate guidance, including a cut in the unemployment rate threshold,” said Ted Wieseman, an economist at Morgan Stanley in New York.
The job gains in November were broad-based, with 63.5 percent of industries increasing employment. Private-sector payrolls rose 196,000. But government employment also increased as hiring by state and local governments offset a drop in federal employment.
Manufacturing payrolls moved up 27,000, the fourth straight monthly gain and the largest since March 2012. Construction employment rose 17,000, building on an October increase even though the housing market has lost some momentum.
Growth in retail employment slowed, with the sector adding 22,300 last month compared to 45,800 in October. A late Thanksgiving holiday could have resulted in some seasonal hiring not being captured in November’s report.
Leisure and hospitality, as well as professional and business services payrolls, showed gains, but at a slower pace than in October.
Average hourly earnings rose by four cents last month, while the length of the workweek edged up to an average of 34.5 hours from 34.4 hours – both bullish signs for the economy.
41% OF NET NEW JOBS IN NOVEMBER WERE IN GOVERNMENT
By Terence P. Jeffrey
(CNSNews.com) – Federal, state and local governments hired a net additional 338,000 workers in November, equaling 41 percent of the total of 818,000 net additional jobs created in the United States during the month.
At the same time, the unemployment rate for government workers fell from 4.4 percent in October to 3.2 percent in November. (The overall national unemployment rate fell from 7.3 percent to 7.0 percent.)
In October, governments around the country employed 19,726,000 people, according to data released today by the Bureau of Labor Statistics. In November, that rose to 20,064,000—a net increase of 338,000 people employed by government.
Overall, in October, 143,568,000 people in the United States had jobs, according to BLS. In November, that rose to 144,386,000—a net increase of 818,000 people employed.
The net increase of 338,000 people working for government equaled 41 percent of the overall net increase of 818,000 people working in the United States.
From October to November, the unemployment rate dropped from 7.3 percent to 7.0 percent. November was the 60th straight month that unemployment has been 7.0 percent or higher.
Despite the October-to-November increase in the number of people working for government in the United States, the 20,064,000 working for government this November was still fewer than the 20,598,000 who worked for the government in November 2012, according the BLS.
REPORT: PRIVATE SECTOR SHRANK IN 41 STATES UNDER OBAMA
Posted By Michael Bastasch | The Daily Caller
The Obama administration is painting a much rosier picture of American jobs than the data supports, two researchers claim.
They have been touting their recent study showing that nearly every state has seen its private sector shrink under the Obama administration.
“Our findings show that for many states, the impact of the recession and slow recovery on the private sector has been more severe than the official economic data indicates,” Keith Hall, a senior fellow at the free-market Mercatus Center, told The Daily Caller News Foundation.
Hall and fellow researcher Robert Greene found that 41 states saw their private sectors shrink from 2007 to 2012. Alabama, Arizona, Florida, Idaho and Nevada have seen the largest contractions in their respective private sectors — in 2012, Nevada’s has shrunk 13 percent below 2007 levels.
However, only three states have seen their private sectors grow more than two percent since 2007. North Dakota saw its private sector explode nearly 25 percent in five years largely due to a boom in oil production brought about by hydraulic fracturing.
Alaska also saw its private sector grow by nearly 7 percent. Texas, which is often touted as one of the best states for business, saw its private sector grow nearly 6 percent from 2007 to 2012.
“Texas is the only state that ranks in the top five for both current economic climate and growth prospects (it ranks first and second respectively),” according to Forbes magazine. “There are 116 of the 1,000 largest public and private companies in the U.S. based in Texas, including giants like AT&T, ExxonMobil and Dell. The Texas economy is expected to expand 4.2 percent annually over the next five years, which is second best in the nation.”
At the same time, the study found that public sector jobs make up about 16 percent of the employment nationwide — including federal, state and local government workers. Add in federal government contractors and the percentage of government and government-supported jobs climbs to more than 19 percent of the job market.
“We find that nearly 3.5 million private sector jobs are supported by federal government contracts,” Hall told TheDCNF. “By state, these jobs accounted for between 0.7 and 10.7 percent of total jobs in 2012.”
In some states, government and federal-contract makes up nearly one-third of the job market, meaning that these states heavily rely on government spendings.
“In seven states (Alabama, Alaska, Maryland, Mississippi, New Mexico, Virginia, and Wyoming), government-financed jobs account for more than 25 percent of nonfarm payroll jobs,” Hall and Greene write in their study. “On the other hand, six states (Delaware, Indiana, Nevada, Pennsylvania, Rhode Island, and Wisconsin) have labor markets in which less than 16 percent of nonfarm payroll jobs are directly or indirectly financed by the federal government.”
JOB NUMBERS COOKED TO KEEP QUANTITATIVE EASING SCAM ROLLING
Fed cartel will never back off on the heavy bond purchases
December 9, 2013
QE Infinity. Fed cartel owns 36% of all Treasury securities between 5 years and 10 years in maturity and 40% of government bonds over 10 years in maturity as well as 25% of all the mortgage backed securities.
On Friday, the establishment media hinted the Federal Reserve was about put the brakes on its bankster monetization program, otherwise known as helicopter quantitative easing, in response to what was touted as a significant reduction in unemployment. The privately owned cartel masquerading as a federal agency claims quantitative easing — purchasing between $85 billion to $65 billion a month in Treasury bonds — will “stimulate” the economy and somehow bring back millions of jobs outsourced to slave labor gulags in China and Asia.
Instead, QE is another scam designed to establish “the greatest backdoor Wall Street bailout of all time,” according to a former Wall Street employee, Andrew Huszar. “Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets,” Huszar wrote for the Wall Street Journal in November.
Taper talk is now making the rounds. “Investors say the upbeat jobs report puts the Federal Reserve one step closer toward dialing back its $85 billion-a-month bond-buying program,” the Journal reported on Friday.
It looks like the latest job report is another snow job, however, same as the one rolled out last October. “The October 2012 pre-election Non-Farm Jobs Report was falsified,” writes Jim Willie. “Nothing new in following orders from the camp commandants in officialdom. The reduced jobless rate from 8.1% to 7.8% permitted the occupant of the White House to report the success of the economic recovery.”
On Saturday, John Crudele, writing for the New York Post, said the latest pie-in-the-sky employment data was probably cooked up by the Census Bureau, which collects data on the unemployment rate for the Labor Department. He cites an even earlier instance of cooked books, back in 2010.
“The culprit said back then (and to me during an interview) that he was told to do so by Census supervisors who were in the position to instruct others to make similar fabrications,” Crudele writes. “In fact, a source who I haven’t named but who is familiar with the Census data accumulation process has told me that falsifications have been occurring on a regular basis.”
According to a corporate media with eyes fixed on the stock market, the jobs numbers, which Crudele’s sources say are cooked, will result in the end of ZIRP and QE Infinity. Some economists, though, believe the Fed cartel will never back off on the heavy bond purchases.
“I still think it’s more likely that the Fed is going to hold off,” on tapering, said Scott Brown, chief economist at Raymond James. “Even though jobs are picking up, we are still a very long way from normal in the job market.”
The Gray Lady said as much. Cartel officialdom told the New York Times they “are in no hurry to retreat from their bond-buying campaign to stimulate the economy and are likely to postpone any cuts to the program until next year… influential Fed officials see little harm in postponing the decision, particularly compared with the risks of pulling back too soon.”
And hold off forever, or at least until the bottom falls out and the banksters scramble for their offshore havens and leave the rest of us to flounder in the wreckage of what was not long ago the most productive and dynamic economy the world has ever experienced.
“The banker welfare, feeding at the trough, knows no end,” Willie explains. “It came into the open with the TARP Fund bait & switch tactic deployed to garner $700 billion. The funds were largely used to cover big bank bonds and preferred stock, a favorite asset holding by the bankers and their families. It has become a national priority to preserve the college funds for their children, not to mention their lunch accounts and many mistresses (see Jamie Dimon). The inside word has it that the QE3 includes a hidden chamber, to cover the toxic fraud-ridden mortgage bonds and collateralized debt obligations that clog the housing market itself.”
The end result will not be pretty, Willie warns. “The loser will be the United States, the United Kingdom, and Western Europe. These regions will tiptoe into the Third World if lucky, and fall head first into the Third World if not careful.”
MORE MISLEADING OFFICIAL EMPLOYMENT STATISTICS
Paul Craig Roberts
December 11, 2013
The payroll jobs report for November from the Bureau of Labor Statistics says that the US economy created 203,000 jobs in November. As it takes about 130,000 new jobs each month to keep up with population growth, if the payroll report is correct, then most of the new jobs would have been used up keeping the unemployment rate constant for the growth in the population of working age persons, and about 70,000 of the jobs would have slightly reduced the rate of unemployment. Yet, the unemployment rate (U3) fell from 7.3 to 7.0, which is too much for the job gain. It seems that the numbers and the news reports are not conveying correct information.
Image: Job Fair (Wikimedia Commons).
As the payroll jobs and unemployment rate reports are released together and are usually covered in the same press report, it is natural to assume that the reports come from the same data. However, the unemployment rate is calculated from the household survey, not from payroll jobs, so there is no statistical relationship between the number of new payroll jobs and the change in the rate of unemployment.
It is doubtful that the differences in the two data sets can be meaningfully resolved. Consider only the definitional differences. The payroll survey counts a person holding two jobs as if it were two employed persons, while the household survey counts a person holding two jobs as one job. Also the two surveys treated furloughed government workers during the shutdown differently. They were unemployed according to the household survey and employed according to the payroll survey.
To delve into the meaning of the numbers produced by the two surveys, keep in mind that payroll jobs can increase simply because the birth-death model used to estimate the numbers of unreported business shutdowns and startups can underestimate the former and overestimate the latter.
The unemployment rate can decline simply because the definition of the work force excludes discouraged workers. Thus, an increase in the number of discouraged workers can lower the measured rate of unemployment.
Before reviewing this, let’s first assume that the story of 203,000 new payroll jobs in November is correct. Where does the BLS say these jobs are? Are these the long-missing New Economy jobs that we were promised in exchange for giving China our well-paid manufacturing jobs and giving India our well-paid professional service jobs?
According to BLS, the jobs are mainly the same lowly-paid, part-time, nontradable domestic service jobs that I have been reporting for a decade or longer.
BLS reports that 17,000 jobs are in construction. On the surface this looks like some slight pickup in housing, but less than 5,000 of the jobs are in residential and nonresidential construction. The bulk of the claimed jobs are in “specialty trade contractors.” Specialty trade contractors are involved in repairs, alterations, and maintenance, but some of the work pertains to site preparation for new construction.
The BLS also claims 27,000 jobs in manufacturing. What precisely is being manufactured? Apparently, very little. The manufacturing jobs are spread over about 23 categories.
The manufacture of wood products gained 600 jobs. (Keep in mind that we are talking about a population over 300,000,000, and a participating work force of approximately 155,000,000.) Nonmetallic mineral products experienced, according to the BLS, 2,000 new jobs. Machinery gained 300 new jobs. Computer and electronic products gained 500 new jobs. Electrical equipment and appliances gained 600 jobs. Transportation equipment gained 4,900 jobs. Furniture manufacture gained 2,100 jobs (apparently to fill the foreclosed unoccupied houses). Food manufacturing gained 7,800 jobs. Petroleum and coal products gained 1,600 jobs, chemicals gained 2,200 jobs, and plastics and rubber products gained 1,300 jobs.You can review the remaining categories on the BLS site.
Most the rest of the 203,000 jobs–152,000–were in lowly paid domestic nontradable services (nontradable means that the jobs do not produce a service that can be exported), such as retail trade with 22,300 jobs, transportation and warehousing with 30,500 jobs, temporary help services with 16,400 jobs, ambulatory health care services with 26,300 jobs, home health care services with 11,800 jobs, and the old reliable waitresses and bartenders with 17,900 jobs.
This is the jobs profile of the American super economy. It is the profile of India 30 or 40 years ago.
Are even these lowly paid part-time domestic jobs really there? Perhaps not. According to statistician John Williams (shadowstats.com), the government shutdown and reopening, the birth-death model, and concurrent-seasonal-adjustment problems can result in misstated jobs.
The unemployment rate is affected by not counting discouraged workers who cannot find employment. No discouraged unemployed worker and no person forced to work in a part-time job because he cannot find full-time employment is counted in the 7.0 unemployment rate (U3).
To be included in the U3 unemployment rate, an unemployed person has to have looked for a job in the past four weeks. Those who have looked for a job until they are blue in the face and have given up looking are not counted in the U3 rate. In November any unemployed workers, discouraged by the absence of jobs, who ceased to look for employment were dropped from the labor force that U3 considers to be the base for the measure of unemployment. Thus, if unemployed workers move into the discouraged category, the rate of unemployment falls even if not a single person finds a job.
The government has a second unemployment rate, U6, about which little is heard. This rate counts workers who have been discouraged for less than one year. This unemployment rate is 13.2 %, almost double the reported rate.
In other words, the U3 measure of unemployment can decline for two different reasons: the economy can create more employment opportunities or people become discouraged and stop looking for jobs. Discouraged workers move into the U6 category where they are counted as unemployed until they have been discouraged for more than one year when they are no longer officially considered to be part of the labor force. The U6 unemployment rate can rise as short-term discouraged workers are dropped out of the U3 measure and moved into the U6 measure, and the U6 rate can fall when the workers become long-term discouraged and are officially removed from the labor force.
Think about this for a minute. The BLS admits that the US unemployment rate that includes people who have been discouraged about finding a job for less than one year is 13.2%. The official line is that the US economy has been enjoying a recovery since June 2009. How is there a recovery when 13.2% of the population is unemployed?
This question becomes even more pointed when the long-term–more than one year–discouraged workers who cannot find a job are included in the measure of unemployment. The US government does not provide such a measure. However, John Williams (shadowstats.com) does. His estimate produces a 23.2% rate of US unemployment. An increase in the number of long-term discouraged workers is consistent with the drop in the US labor force participation rate from 66% in December 2007 to 63% in November 2013.
There is no such thing as a recovery with 23.2% unemployment.
So, if there is no economic recovery, why are stock and bond prices so high, at all-time records? The answer is simple. The Federal Reserve is printing $1,000 billion new dollars annually and the newly created money is going into the bond and stock markets, driving them to high bubble levels.
So here sits the US economy with substantial unemployment, with massive trade and budget deficits that are taxing the US dollar’s credibility, with the labor force participation rate declining because there are no jobs to be found, and we are enjoying economic recovery with bond and stock prices at historic highs.
If this isn’t enough of a puzzle, consider the official second estimate of third quarter GDP growth. According to this estimate, the US economy expanded at a 3.6% rate in the third quarter; yet official U6 unemployment is 13.2%.
And if you believe the government, there is no inflation either. Yes, I know, your grocery bills go up each month.
Keep in mind that many of the new November payroll jobs could reflect seasonal hiring gearing up for the Christmas sales season. Remember, the payroll survey counts one person with two part-time jobs as two jobs.
Economic recovery requires a growth in real median family income and/or an increase in consumer debt, and, except for a rise in student loan debt, there is no sign of either.
US real median household income has declined from $56,189 in 2007 to $51,371 in 2012, a decline of $4,818 or 8.6%. http://www.deptofnumbers.com/income/us/
US real per capita income has declined from $29,554 in 2007 to $27,319 in 2012, a drop of $2,235 or 7.5%.
How do consumers take on more debt in order to finance their consumption when their real incomes are falling? The growth in consumer credit outstanding is due to student loan growth.
I have not seen the establishment’s explanation of how recovery can occur without growth in real purchasing power either from rising real incomes or rising consumer indebtedness.
According to the Bureau of Labor Statistics, there are 1,277,000 fewer seasonally adjusted payroll jobs in November 2013 than in December 2007.
How it is possible for the economy to have been in recovery since June 2009 (according to the National Bureau of Economic Research) and there are 1,277,000 fewer jobs today than existed six years ago prior to the recession?
How has real Gross Domestic Product recovered when jobs and real consumer incomes have not?
These are among the many questions that go unasked and unanswered.
Statistician John Williams says that the economic recovery is a statistical illusion created by deflating nominal GDP with an understated measure of inflation.
“JUST PERFECT” JOBS NUMBER SPARKS NEVERTAPER RALLY!
Published on Dec 6, 2013
10,982,920: MORE AMERICANS ON DISABILITY THAN PEOPLE IN GREECE
By Terence P. Jeffrey | CNS News
(CNSNews.com) – The total number of people in the United States now receiving federal disability benefits hit a record 10,982,920 in November, up from the previous record of 10,978,040 set in May, according to newly released data from the Social Security Administration.
The 10,982,920 Americans taking disability benefits in November outnumbered the total population of Greece, which is 10,772,967, according to the Central Intelligence Agency.
The record 10,982,920 total disability beneficiaries in November, included a record 8,941,660 disabled workers (up from 8,936,932 in October), 1,883,594 children of disabled workers, and 157,666 spouses of disabled workers.
November was the 202nd straight month that the number of disabled workers in the United States increased. The last time the number decreased was January 1997. That month the number of workers taking disability dropped by 249 people—from 4,385,623 in December 1996 to 4,385,374 in January 1997.
The record 10,982,920 total disability beneficiaries in the United States in November also exceeded the total number of people in Portugal (10,799,270), Tunisia (10,835,873) and Burundi (10,888,321).
PRESIDENT OBAMA’S WEEKLY ADDRESS: CALLING ON CONGRESS TO EXTEND UNEMPLOYMENT BENEFITS
December 07, 2013
In this week’s address, President Obama says that before Congress leaves for vacation, they should extend unemployment benefits for 1.3 million hardworking Americans who will lose this lifeline at the end of the year.
OBAMA: HOLE U.S. ‘DIGGING OUT OF’ REQUIRES BILLIONS MORE IN UNEMPLOYMENT BENEFITS
By Dave Boyer | The Washington Times
December 8, 2013
Although the jobless rate in November fell to its lowest level since he took office, President Obama called on Republican lawmakers Saturday to spend tens of billions on unemployment benefits that are set to expire this month.
“It shouldn’t be a partisan issue,” Mr. Obama said in his weekly address. But he said the “economic lifeline” is in jeopardy.
“All because Republicans in this Congress — which is on track to be the most unproductive in history — have so far refused to extend it” Mr. Obama said.
If Congress doesn’t act before lawmakers leave on their holiday break, about 1.3 million unemployed Americans will see their benefits run out. The nonpartisan Congressional Budget Office has estimated it would cost taxpayers about $26 billion to extend the benefits through next year.
The jobless rate in November dropped from 7.3 percent to 7 percent, its lowest level of Mr. Obama’s presidency. But the president said that’s no reason to cut off benefits for those still out of work.
“The hole that we’re still digging out of means that there are still millions of Americans looking for work — often because they’ve been laid off through no fault of their own,” Mr. Obama said. “These are people we know. They’re our friends and neighbors.”
Congressional negotiators are closing in on a deal to end the so-called “sequester” budget cuts and increase spending in 2014. But so far the potential deal doesn’t include an extension of unemployment insurance.
Most economists say unemployment benefits help the economy because recipients spend the money quickly on daily household needs.
“If Congress refuses to act, it won’t just hurt families already struggling – it will actually harm our economy,” the president said. “Unemployment insurance is one of the most effective ways there is to boost our economy.”
OBAMA DECRIES U.S. INCOME GAP THAT HAS WIDENED UNDER HIS WATCH
By David J. Lynch – Bloomberg
The gap between rich and poor that President Barack Obama yesterday called a “fundamental threat to the American dream” has grown during his administration.
The richest 10 percent of Americans earned a larger share of income last year than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. Those in the top one-tenth of income distribution earned at least $146,000 in 2012, almost 12 times what those in the bottom tenth made, Census Bureau data show.
Much of the gap is out of the president’s control, economists say, citing forces such as globalization and the spread of technology that are overwhelming government remedies. Yet while Obama complains that Republicans are blocking his efforts to boost the minimum wage and provide universal pre-school, other policies that he has enacted such as trade agreements also may have contributed to inequality, they say.
“There are things he could do that he hasn’t done,” says Dean Baker, co-director of the Center for Economic and Policy Research, a Democratic-leaning research group in Washington. “He’s done nothing to rein in the financial sector.”
The president also stumbled in implementing the biggest new government program that would benefit the have-nots, the health-care law known as Obamacare. The Oct. 1 debut of the program’s website was botched so badly that it has sapped public support for the administration and emboldened its political opponents.
While acknowledging yesterday “admittedly poor execution” in introducing the health-care exchanges, Obama said the insurance expansion would reduce a “major source of inequality and help ensure more Americans get the start that they need to succeed.”
The speech — filled with bedrock themes of equality dear to Obama’s base — comes as some Americans are expressing disappointment in his handling of the Affordable Care Act, National Security Agency snooping and other issues. Obama and the Democrats need to energize the party’s voters heading into the 2014 congressional elections, and the speech offered much to remind them why they supported Obama in the first place.
At the same time, there were few new concrete proposals to combat inequality and little in the way of specific policy prescriptions to close the gap in Obama’s remaining three years in office. The speech also contained many of the same themes of an address he delivered almost two years ago to the day in Osawatomie, Kansas.
The top tier of Americans are doing fine. After-tax corporate profits have more than doubled as a share of the economy and are now at their highest level since records were kept in 1947.
Meanwhile, workers are compensated with a smaller share of national output than at any time since 1952.
“We’re talking about a society where the well-off and the educated are doing better and the rest are doing worse,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, told Bloomberg Television last week.
Rather than embracing new government programs, Republicans say economic growth will help resolve what Obama calls “the defining challenge of our time.” With House Republicans opposed to any expansion of federal spending, the president challenged them to advance alternative ideas for promoting greater economic opportunity.
“If Republicans have concrete plans that will actually reduce inequality, build the middle class, provide more ladders of opportunity to the poor, let’s hear them,” he said yesterday.
It’s a political issue that resonates with voters. In a May survey by the Pew Research Center, 66 percent of Americans said inequality has increased and 47 percent agreed it was “a very big problem.”
And there are signs that public attention to the issue may be intensifying. In Washington, where chronic concern over federal budget deficits has diminished since the 16-day government shutdown in October, the president has thrown his support behind proposals to increase the $7.25 federal minimum wage.
After proposing an increase to $9 in February, Obama last month endorsed a Senate bill that would raise the rate to $10.10 over two years.
“The president is talking about what I think the country ought to be talking about,” says economist Lawrence Mishel of the Economic Policy Institute, a Washington-based research group that focuses on the needs of lower-income workers. “It does reflect a shift in the center of gravity.”
Elsewhere, fast-food workers in 100 cities plan to strike today, seeking a higher minimum wage, which was last raised in 2009. Pope Francis last week added his voice to those worried about the deepening chasm between society’s most and least affluent.
“Just as the commandment ‘thou shalt not kill’ sets a clear limit in order to safeguard the value of human life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality,” the pope said. “Such an economy kills.”
Workers haven’t done as well as investors under Obama. Since the end of the recession in mid-2009, the economy has grown at an average 2.1 percent pace. The 7.3 percent jobless rate, though down from its 10 percent peak in 2009, remains more than a full percentage point above the 30-year average.
New trade deals with South Korea, Colombia and Panama continued a decades-long expansion of cross-border commerce that some economists say has cost American workers millions of jobs. A trade deficit of about 3 percent of gross domestic product is probably directly costing the economy about 4 million to 6 million jobs, says Baker.
Since Obama’s first inauguration amid the depths of the recession, the stock market has powered to new heights. The benchmark Standard & Poor’s 500 index closed yesterday at 1792.81, up more than 120 percent since Jan. 20, 2009.
Though those gains have cheered investors, most Americans have watched from the sidelines. The richest third of U.S. households account for 89 percent of all equities ownership, according to the Center for Retirement Research at Boston College.
SENATOR RAND PAUL KNOCKS CALL FOR MORE LONG-TERM JOBLESS AID, SAYS CREATING ‘PERPETUAL UNEMPLOYED’
December 8, 2013
Sen. Rand Paul, in an interview on “Fox News Sunday,” rebuffed President Obama’s call to extend long-term jobless benefits, saying the program is creating a group of “perpetual unemployed.”
“While it seems good, it actually does a disservice to the people you’re trying to help,” Paul, R-Ky., said.
The jobless benefits issue is becoming an integral part of negotiations over a budget bill for 2014. Lawmakers face a Jan. 15 deadline to pass a new bill, but Democrats want to make sure long-term unemployment benefits are included.
Obama used his weekly radio address to reiterate that call. He said that more than 1 million Americans will lose benefits if lawmakers don’t act and that unemployment insurance is one of the most effective ways to boost the economy. He argued providing benefits does not stop people from trying to find work.
But Paul argued the opposite, and noted employers would be more reluctant to hire somebody who has been on unemployment for 99 weeks — which was the maximum duration of unemployment aid during the height of the recession — than someone who has only been on unemployment for a few weeks.
Benefits for 1.3 million people out of work for longer than six months expire Dec. 28, and that would be the case for 1.9 million more people in the first half of next year.
House Speaker John Boehner said he is waiting to review any proposal the White House would like to make.
Paul is considered a potential Republican presidential candidate in 2016. He said Sunday “the thought has crossed my mind” to run and he is “seriously thinking about it.”
But, reiterating his remarks from a day earlier, Paul said he must consider his family’s wishes.
ONLY APPROVED CAPITALISM ALLOWED
by Joel Skousen | World Affairs Brief
The story of overzealous bureaucrats in my hometown of Portland, Oregon refusing to allow a young girl to sell mistletoe has raised the ugly issue of regulated commerce. Millions are collected each year from people trying to make a living by state and local government exacting licenses and fees from them—supposedly to protect the public, but enforcement of fraud is nil. Rather it has become a principle of bureaucracy—don’t allow any uncontrolled market activity. Control and tax everything. Jon Rappoport wrote a stunning piece on the plight of the girl in light of the overall problem we are facing vis-a-vis economic freedom everywhere:
The [socialist and Marxist] psyop works this way: label all criminal machinations designed to make the rich richer and the poor poorer “capitalism.” “Well, freedom and the free market didn’t work. It was always corrupt to the core. So let’s kill capitalism and install a fair and equitable and humane system…”
The objective? Increase the power of government and its allied corporations to control the means of production and the distribution of goods and services… capitalism actually means: you produce something and you charge money for it. People who want it pay for it. All by itself, that system doesn’t make the rich richer and the poor poorer.
Hijacking that system creates the problem. Illegal coercive monopolies create the problem. Covert government favoritism creates the problem. The failure to prosecute these crimes creates the problem. Inventing so much money out of thin air decreases the value of the money you have, and that’s a problem. Saddling small businesses with so many regulations saps their money and energy and creates a problem.
Fascists telling an 11-year-old girl named Madison Root she can’t sell mistletoe in Portland, Oregon, but can beg for money in the park illustrates the problem. She can “ask for donations,” but she can’t sell. The federal government can offer hundred of billions and even trillions of dollars to big banks, but a little girl can’t sell mistletoe.
On behalf of Monsanto and other biotech ag giants, the US government can send advance men around the world to promote GMO food, can try to drown Africa in toxic GMOs, but a little girl can’t sell mistletoe without a business license.
The dangers of GMO foods, laced with pesticides, are now fully documented. It’s important for every reader to start actively evading GMO foods, especially soy and corn, and seek out grass-fed beef and organic chicken meat that hasn’t been fed GMO soy and corn. The definitive work on the scientific evidence and the government funded collusion with Monsanto and others biotech corporations is Jeffrey Smith’s “Seeds of Deception.” It’s available now with an excellent DVD interview here.
What’s next? SWAT teams invading garage sales and shutting them down? Oh, wait. Was Madison Root selling mistletoe on public property? Was that the crime? Public property means “government-controlled” and has nothing to do with the public, the people? Then why not call it government-owned land?
Giant pharmaceutical companies can sell government-approved toxic drugs that kill 106,000 people a year, like clockwork, in the US, without fear of criminal prosecution, but a little girl can’t sell mistletoe. (See Starfield, Journal of the American Medical Association, July 26, 2000, “Is US health really the best in the world?”) Pharma doesn’t operate according to the rules of capitalism; it operates on the basis of government protection in the service of poisoning the population, while racking up billions in profits.
Defense corporations can win taxpayer-funded government contracts… don’t operate according to the rules of capitalism; they operate on the basis of government-mandated imperial empire.
Producing and selling goods which are non-harmful isn’t the problem. Cronyism and hijacking and pirating that system are the problem. [Well said.]
Incredibly, Marxism is alive and well in the US, and the dumber people are, the more they fall for it. This week, fast food workers went on strike in big union strongholds like New York demanding an astronomical doubling of the minimum wage from $7.25 to $15. Many skilled construction workers in today’s economy are lucky to get $15/hour.
Strikers in NY make almost $9/hour and still complain about it not being a “living wage.” That isn’t the point. A “living wage” is relative to your lifestyle and responsibilities. There are many low paying jobs that people want and take because they don’t have to make $15/hour to live. Young people just starting out in life share lodging with family or friends, take public transit or in other ways live way below the average family. They have few skills and need low paying jobs to start getting ahead. Millions do so every year. I used to be one of them but you get more skilled and you move on. Nobody with skills stays down at the level of unskilled labor. These jobs are meant to be temporary in life and that’s why the turnover is high.
Strikers also forget what dictates the price of labor—how many others can do that job. The less skill required, the more competition you’ll have at that job and the lower the wage—because those that can live more cheaply than you can outbid you. Every person who accepts one of these jobs is proof they see it as a benefit, not a curse. They may not like it forever, and they shouldn’t, but most people working in the fast food world are happy just to have a job—and they aren’t striking. It’s the labor union mentality, calling for government intervention that is bringing on the strike. The more government forces higher wages, the more those jobs will disappear—priced out of the market.
-Black Friday Weekend Spending Drop Pressures U.S. Stores. The first spending decline on a Black Friday weekend since 2009 reinforced projections for a lackluster holiday, increasing chances retailers will extend the deep discounts already hurting their profit margins. Read more here-http://bloom.bg/18FYMSc
-Wal-Mart’s #1 Black Friday Seller Was A 29-Cent Washcloth And There’s Video Of People Going Wild For Them. Read and watch here-http://read.bi/1dT1QfN
PROFESSOR LAURENCE KOTIKOFF: AMERICA IN WORSE FINANCIAL SHAPE THAN DETROIT
By Greg Hunter’s USAWatchdog.com
Boston University Economics Professor, Laurence Kotlikoff, says, “The country is in worse fiscal shape by many miles than Detroit. So, the country is essentially bankrupt.” Dr. Kotlikoff estimates the long term debt and liabilities of America are more than $200 trillion! He is spearheading a bill in Congress called The Inform Act. It is an attempt to wake up the nation to our dire financial situation so something can be done to fix this enormous problem. Dr. Kotlikoff explains, “The bill has been endorsed by over 1,000 economists, including 15 Nobel Prize winners in economics . . .Never in the history of this country have this many top economists from all political persuasions endorsed a piece of legislation like this.” Dr. Kotlikoff and his fellow economists all contend, “The country needs to do honest accounting.” The professor charges the government is “disguising the true problem.” Dr. Kotlikoff says, “The government is printing mountains of money to pay its bills. The Fed is printing 29 cents of every dollar that Uncle Sam is spending.” What happens if this continues? Dr. Kotlikoff says, “Eventually somebody recognizes this and starts dumping the bonds, and interest rates go up, and inflation takes off, and were off to the races.” In closing, Dr. Kotlikoff warns, “This is going to crash, but there are different ways for cancer to kill you. It can be very gradual . . . or it can attack some organ and you can die overnight. Either of those outcomes can happen.” Professor Kotlikoff and, indeed, virtually the entire economics profession, are appealing for your help to get your members of Congress, starting with your Senators, to pass this vital law. Join Greg Hunter as he goes One-on-One with Professor Laurence Kotlikoff.
DETROIT RETIREES PUT ON NOTICE IN BANKRUPTCY RULING
By Steven Church and Steven Raphael – Bloomberg
Detroit, once the symbol of U.S. manufacturing muscle, was given the authority to try to pare billions in debt and slash employee pensions in a federal court ruling that may have implications for distressed cities across the U.S.
U.S. Bankruptcy Judge Steven Rhodes, in a decision announced today in Detroit, ruled that the city had properly sought bankruptcy protection on July 18, the largest ever for a municipality, rejecting arguments by unions that pension cuts are barred by Michigan’s constitution.
The decision means Detroit can now write a plan to restructure its $18 billion of debt and trim pension benefits under the protections of Chapter 9 of the U.S. Bankruptcy Code. That code limits what creditors of municipalities, including bondholders and labor groups, can do to impede restructuring efforts.
“This once proud and prosperous city cannot pay its debts,” Rhodes said, in finding that the city was insolvent. Detroit “has the opportunity for a fresh start.”
While unions moved to appeal Rhodes’s ruling, Detroit expects to file a debt adjustment plan with the court in the first week of January, after creditors have seen it, Kevyn Orr, the city’s emergency manager, said at a press conference after today’s hearing.
Detroit, the country’s 18th-largest city, has said it doesn’t have the money to pay bondholders, retirees and employees everything it owes them while still providing its 700,000 residents basic city services, such as ambulances and streetlights.
“There’s going to be pain for a lot of different people,” Mayor Dave Bing said at the same press conference. “In the long run, the future for the city will be bright.” Bing said the mayor-elect, Mike Duggan, will have a clean balance sheet to work with to improve city services as debt is cut.
Rhodes found that the city was insolvent and had sought bankruptcy protection in good faith, two requirements of the law. Municipal unions had asserted the city always intended to file for bankruptcy and had refused to negotiate with creditors before filing.
Unions and retirement systems also claimed that because Michigan’s constitution protects pensions, Republican Governor Rick Snyder shouldn’t have authorized the city to file bankruptcy. They also argued that the U.S. Constitution protected the right of the states to prevent pension cuts in Chapter 9.
In ruling that pensions are not protected, Rhodes may have undermined union claims in other distressed municipalities, said attorney Ken Klee, who represented Jefferson County, Alabama, in its bankruptcy.
“The pension people around the country have positioned themselves around that argument,” Klee said. “They really put themselves in a box.”
Klee helped rewrite Chapter 9 in the 1970s while working as a lawyer for Congress. His client, Jefferson County, officially ended its bankruptcy today with the closing of a bond issue to raise money to pay creditors.
Investors are fighting the bankruptcy of Stockton, California, in part because the city has proposed paying its pension obligations in full and while cutting other debt.
In its bankruptcy, San Bernardino, California, is battling the California Public Employees’ Retirement System over pension contributions payments that city failed to make. Calpers has argued that state law protects it from cuts in bankruptcy court.
“To us, it was good enough to hear him say that nothing is off the table, including the pensions,” said Rafael Costas, who oversees about $72.5 billion of local debt as co-director of municipal debt at Franklin Advisers Inc. in San Mateo, California.
Protecting pensions “would obviously leave a lot less money for the rest of the people who are lined up,” he said.
Detroit’s debt-adjustment plan must treat similar creditors equally, which means if unsecured bondholders take losses, retirees should lose by the same percentage, according to Dale Ginter, a bankruptcy lawyer who is not involved in the case.
Before Detroit’s bankruptcy, Orr, the emergency manager, proposed canceling $3.5 billion in future obligations to the pension system and $1.4 billion in unsecured bonds the city issued in 2005 and 2006 to fill a hole in its retirement system.
Orr offered to replace those debts with a $2 billion note paying 1.5 percent interest, which would give bondholders, the pension system and other unsecured creditors pennies on the dollar.
Orr said he expects an appraisal of the Detroit Institute of Arts collection by Christie’s Inc. as early as this week. He also said he may try to create an agency to run Detroit’s water system and pay the city a fee.
Orr has said he must move quickly to get a debt-adjustment plan approved before his term in office can be ended by the city council in September.
Within moments of the decision, the American Federation of State, County and Municipal Employees, which represents city workers, filed a notice of appeal.
“We are very concerned about how this ruling may affect retired city employees,” Sharon L. Levine, an attorney for the union, said before today’s hearing.
Rhodes cautioned lawyers on both sides today not to assume his statement on pension cuts means he would approve such a proposal. Any plan would have to meet bankruptcy code standards, and he would take into consideration how cuts would affect creditors, including retirees, the judge said.
The judge said that under the bankruptcy code the case can’t be halted while creditors appeal.
After the bankruptcy was filed in July, Rhodes ordered the city and its creditors into confidential mediation sessions overseen by the chief judge of the U.S. District Court in Detroit, Gerald Rosen.
Mediation may yield a proposal to cut debt by the end of the year.
Should talks fail, the city would need to persuade Rhodes to approve the plan of adjustment over creditor objections.
Trading in Detroit municipal securities has slowed since the weeks following the city’s bankruptcy filing, according to data compiled by Bloomberg.
About $20,000 of Detroit general obligation bonds maturing in April 2020 changed hands today at an average yield of 7.29 percent, or 89 cents on the dollar, data compiled by Bloomberg show. The securities are insured by National Public Finance Guarantee Corp.
Some Detroit sewer bonds due in July 2016 traded today before the ruling for the first time since Nov. 8, at an average yield of 5.21 percent, the lowest since October, according to data compiled by Bloomberg. The debt is also backed by National.
Orr has said the city is going to honor water and sewer securities.
The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
FEDERAL JUDGE: DETROIT CAN FILE FOR BANKRUPTCY
Published on Dec 5, 2013
DETROIT BANKRUPTCY RISKS PENSIONS AS CUTS RULED POSSIBLE
By William Selway and Steven Church – Bloomberg
Police, firefighters and other municipal workers can no longer count on a financially secure retirement based on a city-sponsored pension.
A federal judge yesterday ruled that Detroit, the largest U.S. city to file for bankruptcy protection, may cut employees’ retirement benefits as it looks to emerge from $18 billion of debt with a sputtering economy and a declining population. The ruling cast uncertainty on the incomes of thousands of former workers of Michigan’s largest city, where pensions average $19,000 a year and were assumed to be protected by state law.
“There are a lot of hurdles before you can go into bankruptcy,” said Peter Henning, a professor of constitutional law at Wayne State University in Detroit. “It does send a message to retirees that you can’t assume that because there’s a state constitutional protection that your pension can’t be cut.”
The judge’s decision is the latest challenge to local government employees’ pensions, which guarantee fixed annual payments based on how long workers were on the job. Stung by investment losses and the failure to set aside enough money, the twenty-five largest U.S. cities have $125 billion less than they will need to pay for benefits they have promised, according to Morningstar Inc.
The shortfalls are forcing governments to put more money into their pensions and have led officials to propose lifting retirement ages, requiring employees to contribute more out of their paychecks, or put new employees into 401(k)-style accounts commonly used outside of the public sector.
In Illinois, where lawmakers yesterday approved a bill to rescue its underfunded pension system, Chicago’s pension burdens have sent the city’s credit rating tumbling. In California, San Jose Mayor Chuck Reed is leading the push for a statewide initiative that would let cities cut benefits already promised to employees. And in Central Falls, Rhode Island, a judge last year approved cutting pensions to help it emerge from insolvency.
U.S. Bankruptcy Judge Steven Rhodes, who’s overseeing the Detroit case, yesterday ruled that the city can try to reduce workers’ retirement checks under its plan to emerge from court protection, saying federal law trumps the pension safeguards in Michigan’s constitution.
Rhodes’s decision is the first to reject arguments by union and pension officials that a state constitution shields retiree paychecks, said bankruptcy attorney Jim Spiotto, an attorney with Chapman & Cutler LLP in Chicago.
No specific benefit cuts were approved under the ruling. Those decisions will be made later, as the court evaluates competing interests of pensions and other creditors, including owners of debt backed by the city’s general pledge to repay.
Brendan Milewski, a 34-year-old former Detroit firefighter who was partially paralyzed when a building collapsed on him, said public employees are preparing to see their checks cut and to pay more for their health care. He said he receives $2,800 a month from the city.
“It’s going to be devastating,” he said. “We got assurance that all our worst fears are coming true — we just don’t know how big the hit is going to be.”
The Detroit decision was criticized by the California Public Employees’ Retirement System, the largest U.S. pension fund, which has been fighting with the city of San Bernardino as it deals with bankruptcy. Calpers has argued that state law protects cutting the city’s debt to pension funding in Chapter 9 proceedings.
“The ruling is short-sighted and does not take into account the promises made in exchange for the financial and physical investments that public employees and retirees make in our communities,” Brad Pacheco, a Calpers spokesman, said in an e-mail.
David Crane, a one-time economic adviser to former California Governor Arnold Schwarzenegger on pension issues, said the Detroit case may pressure employee unions into accepting curbs on retirement benefits should a city’s financial distress push it toward insolvency.
“What you really hope something like this does will lead the unions to recognize that there is a chance that their benefits could be cut back in bankruptcy and they’re better off working with these cities now to share in the pain,” he said.
While three California cities — Vallejo, San Bernardino, and Stockton — filed for bankruptcy after being stung by the housing market collapse and the recession, such filings by municipalities are rare.
From 1970 to 2009, only a handful of cities and counties filed for bankruptcy protection, according to the National League of Cities. This year, U.S. city finances are mending from the recession that ended in 2009, with an expectation that revenue will rise for the first time since 2006, according to a survey by the League released in October.
Few cities are struggling as much as Detroit, which has lost a quarter of its population since 2000, following a decades-long slide that eroded its tax base as the U.S. automobile industry’s fortune’s declined.
A study of 173 cities by the Center for Retirement Research at Boston College found that the pension funds typically consumed 7.9 percent of city tax revenue — though for some, including Chicago, the figure was twice as high.
“Most cities and towns are not faced with the issues Detroit is,” said Jean-Pierre Aubry, the center’s assistant director for state and local research. “The city has been shrinking for the last 30 years. The bankruptcy just made it official.”
Trident Municipal Research, a firm in New York that tracks local finances, said the possibility of pension-benefit cuts raised by the Detroit case probably won’t prompt other cities to declare insolvency. To qualify for bankruptcy, a city needs to prove its insolvent, not just seeking to use the courts to rid itself of its debts.
The ruling “in no way opens the door for a flood of Chapter 9 filings that may be presumed to be ‘waiting in wings,”’ Trident said in a note to clients. ‘‘The reality of the handful of bankruptcies in the post-crisis era is that bankruptcy is painful for all involved.’’
BILL ROBERTS ON DETROIT BANKRUPTCY
A HARD LESSON FROM DETROIT: THEY WILL STEAL YOUR PENSION
By David Cay Johnston | Newsweek
Anyone in a public-sector job looking forward to retiring in comfort should look carefully at what is going on in Detroit and Springfield, Ill. Sherlock Holmes would call it the case of the missing pension money.
News leaking out this week from the Motor City tells how the enormous gap between the pensions workers earned and the money set aside to pay for them will be closed. By stealing from the workers.
Courts, legislatures, and corporations are all working in concert not to pay the full benefits owed. For decades, political and business leaders failed to set aside the right amount of money each payday to cover the pensions workers earned and, in some cases, covered up the mismanagement of pension fund investments.
This is nothing short of theft, as pensions are simply deferred wages, that is, money that workers could have taken as cash in their regular paychecks had they not opted to set it aside.
In Detroit, a federal bankruptcy judge handling the city’s Chapter 9 case held Tuesday decided he could safely ignore a Michigan Constitution provision barring any reduction in pension benefits to already retired public sector workers. Judge Steven W. Rhodes went beyond asserting the supremacy of federal law over state regulations, ruling that the pensions workers earned were a mere “contractual obligation,” no different from any other bill the city owes but lacks the money to pay.
The result will mean even worse poverty in the sputtering Motown, where a once robust industrial tax base has withered away, the starkest example of the economic devastation wrought by government policies that for decades have encouraged companies to move manufacturing offshore.
Financial mismanagement in Detroit under every mayor in the past six decades also contributed to the disaster, except for the honorable exception of Coleman Young in the mid-1970s. The result: Public worker pensions averaging $19,000 a year will be cut to the bone. That is sure to increase demands for federally funded food stamps, a program which Congress has just cut, and other welfare to make up for some of pensions workers earned but will not collect.
Norman Stein, a Drexel University law professor who is an expert on pensions, said that if the Detroit order stands it will become standard practice to slash benefits.
“It would be a human catastrophe of the first order if pensions of vulnerable older workers can be cut whenever a local government goes to bankruptcy court,” Stein said. “We will be consigning firemen and policemen, who did nothing wrong other than protecting the city and depending on the city’s promise, into old-age poverty.”
In Illinois, legislators have agreed to cut future public employees’ retirement benefits by $160 billion over the next three decades. That 43 percent reduction will be achieved gradually, unlike the draconian Detroit ruling where the loss will be borne heavily by current retirees.
For decades, Illinois failed to invest the necessary funds each year to support the pensions it was promising. In effect, they were stealing from the workers today with a feeble promise to somehow make it up later.
If workers got only 90 cents on the dollar owed in their paychecks they would soon notice and kick up a fuss. But money not paid over to the pension plan rarely shows up on pay stubs.
Properly funded and invested, traditional defined benefit pensions are the most economical way to save for old age, combining contributions in a large pool to absorb short-term swings and the vagaries of professional investment management. They also have much lower costs than 401(K) plans. And they require a much smaller reserve against an unexpectedly long life, where the actuarial risk is concentrated in one person who must save too much or risk dire straits late in life.
But, as millions of workers are learning, the laws requiring that money be set aside and prudently invested are more loophole than safety net. This is producing not just misery for those left broke and helpless in old age, as seems about to happen in Detroit, but it is eroding trust in democratic government and the rule of law.
According to Government Accountability Office research, public employees across America may be cheated out of almost a trillion dollars, nearly half the benefits they have already earned, but not yet collected.
Private-sector workers are at risk of losing almost as much, about $840 billion, although at the moment Congress guarantees a portion of company pensions so actual losses could be much smaller.
Failing to turn money over to pension plans each pay period has become commonplace for states and local governments in the past three decades. When Republican Christie Todd Whitman became governor of New Jersey in 1994, she financed a tax cut by not funding the state employee pension plan, fulfilling her promise to that blue state’s voters.
What Whitman really did was force future tax hikes or cuts in government services, but they would not come due until long after she left office in 2001 – another kind of reckless cheating on ordinary folks.
Politicians in both parties have employed similar short-funding strategies across the country. In New Orleans, bankrupt Stockton, Calif., and 3,000 other local government districts, shortfalls have been met by taking on more debt. Instead of investing money and earning interest, these feckless administrators borrowed and paid interest, magnifying taxpayer costs, Boston College researchers found.
Private-sector corporations that surreptitiously shorted worker pay by not setting aside enough money in pension plans have long found ways to cheat workers out of the benefits they earned as well as reneging on a federal guarantee that the money due in old age would be there. Even worse, Congress and the courts have approved these deals, either tacitly or directly.
One technique used to chisel workers is to replace the pension with a private annuity. If the insurer issuing the annuity goes broke, the workers collect next to nothing, as happened to textile workers in the South.
Another strategy is to convert a single-employer plan to a multi-employer plan. That reduces the federal guarantee from more than $1,000 per week to a quarter of that sum while wiping out a great deal and sometimes all of a shortfall.
Almost four decades after Congress passed the Employee Retirement Income Security Act in 1974, corporate pension plans are short by more than $800 billion worth of assets. Fifty of these plans, out of 26,000, are short by more than $450 billion.
Among the 1,475 multiemployer plans commonly used by trucking and construction companies, the shortfall is about $390 billion and 50 plans account for more than half the missing money.
When US Airways and United Airlines sought refuge in bankruptcy a decade ago they stuck the Pension Benefit Guaranty Corporation with about $9 billion of obligations. Those bankruptcies came after executives took enormous salaries, even by the already bloated standards of big companies, and pocketed their pension money in lump-sum payments.
As long as a company does not file for bankruptcy within a year, executives are allowed to keep their pension money even as more humble workers are forced to take cuts. The cuts were especially hard on pilots: Federal pension law only insures pensions at age 65 and pilots, by a law in effect at that time, had to retire at age 60, meaning they got less than 60 percent of the pension benefits they earned.
It’s not as if this problem came out of nowhere. Congress and state legislatures have known about the failure to properly fund pensions since at least the 1964 collapse of Studebaker. Workers for the South Bend, Ind., carmaker who retired on a Friday that year got their pensions; those retiring the following Monday and later got nothing.
A decade later, the Employee Retirement Income Security Act became law, setting standards for how much money had to be set aside in private-sector pension plans. Before the ink from President Gerald Ford’s pen had barely dried, however, corporate America started working to reduce the funding requirements.
One arcane rule after another was enacted by Congress or written into regulations that allowed companies to invest less than sound financing required.
At the insistence of Democrats, the amounts that could be put into pension plans were limited. The maximum salary that can be covered by a pension this year is $255,000.
That leaves out most of the pay to the top 1 percent of workers, who just happen to include the top executives who set the compensation for everyone below them.
Once a CEO’s pension benefits became disconnected from the office worker, factory hand, and janitor, companies began emphasizing executive retirement plans that were lavishly funded. Some executives built billion-dollar fortunes tax-free.
In theory, these executive plans were risky because they lacked a PBGC guarantee. But when companies collapsed, the rank-and-file were shortchanged and sometimes wiped out of their retirement money, while executives walked away with every penny and in some cases got their retirement money doubled.
Congress did nothing to address this or subsequent reports by others, notably Ellen Schultz, whose incisive coverage of pension thievery was abruptly stopped by The Wall Street Journal just as the trend was taking off. Instead, Congress has gradually weakened worker pension protections.
Congress required companies to put away less money for many workers than good financing required because of the way the maximum salary qualifying for a pension is calculated.
A worker whose pay at the age of 30 shows that at 65 she would likely be making twice the maximum has only about half the necessary money set aside. The result is that for workers who leave an employer before age 65, too little money is set aside to cover the benefits they earned, making the overall pension pool too shallow.
Yet this scandal in the way pensions are inadequately funded is not a hot political issue. Neither party appears interested in what is of key importance to all older Americans – and should be of interest to younger ones too.
The number of hearings held by Congress this year on protecting pensions? Zero.
DETROIT RULING OPENS DOOR TO PENSION CUTS ACROSS THE NATION
A bankruptcy judge’s ruling that Detroit’s pension funds — like its other creditors — can take a hit might lead other financially troubled cities down the same path, experts say.
By Alana Semuels | Los Angeles Times
December 7, 2013
For 34 years, Gwendolyn Beasley worked as a clerk at the Detroit Public Library and paid a portion of her salary into a fund that would someday help pay for her pension.
Now retired, Beasley, 67, receives $1,500 a month from that pension. But she’s cutting back on spending after a judge ruled last week that Detroit’s pension funds, like other city creditors, may have to take a hit as the city reorganizes its finances under bankruptcy.
“I think it’s so very unfair,” Beasley said. “We retired expecting to get a certain amount of benefits. Now you’ve pulled the rug out from under us.”
It’s not just Detroit retirees who are worried about their pensions. Financially troubled cities in California, Illinois and Pennsylvania will soon face decisions on what to do with chronically underfunded pension funds, and experts say the Detroit ruling has made it easier for cities to argue that pensions must be cut.
“If I were a retired public-sector pensioner, I’d be worried today,” said Olivia Mitchell, a professor at the Wharton School of Business and the director of the Pension Research Council.
For decades, representatives of public-sector pensions have depended on constitutional provisions in various states, including Michigan and Illinois, that protected pensions. Now, U.S. Bankruptcy Judge Steven Rhodes’ ruling has shown that federal bankruptcy laws preempt those state provisions. Any city that has underfunded pensions and troubled finances could soon look to bankruptcy as a way out of paying pensions, experts say, as long as their state allows them to file for Chapter 9 protection.
“This is really the first time that there’s been a clear decision by a judge that, yes, pension promises are on the cutting board too,” Mitchell said.
Few experts believe that pensions of current retirees will be cut significantly, and many cities probably will negotiate with unions on pension payouts rather than go through bankruptcy to avoid doing so.
But the timing of the Detroit ruling is especially worrying for some public employee unions because public employees have become big targets as struggling states and cities deal with the effects of the Great Recession. States have reduced employees’ ability to collectively bargain.
Rhodes’ ruling, issued Tuesday, could have implications in California cities such as San Bernardino, which was deemed eligible for bankruptcy this year but is still battling with the California Public Employees’ Retirement System over what it owes the pension fund and what it will pay into it in the future. The ruling may also give more bargaining power to the city of Vallejo, which emerged from bankruptcy protection two years ago but is again struggling with rising pension costs.
Cities in upstate New York, including Syracuse, and towns in Pennsylvania, such as Scranton, could look at Rhodes’ decision and be influenced to file for bankruptcy, said Robert Novy-Marx, a professor of finance with the Simon School of Business at the University of Rochester.
“This ruling is just enormously important. It’s a total sea change,” he said. “The threat of bankruptcy now gives municipalities a little more power at the bargaining table.”
There are more than a dozen states where pensions are, in theory, protected by laws that bar municipalities from filing for bankruptcy. But even in those states, some pensioners are worried. Rick Reimer, who represents the Illinois Public Pension Funds Assn., says that although cities aren’t allowed to file for Chapter 9 in Illinois, there is some concern that the Legislature will change this law.
“The people of Illinois that I represent are worried that this might have some sort of domino effect,” he said.
Pensions for retirees are undergoing changes too: On the same day that Rhodes declared Detroit eligible for bankruptcy, the Illinois Legislature voted to cut back retirees’ cost-of-living adjustments to slightly reduce pension costs. Oregon did the same thing earlier this year, and Rhode Island reduced benefits in 2011.
Unions are fighting a perception that because private-sector employees don’t have pensions, public-sector employees shouldn’t either. They are also being unfairly blamed for financial mismanagement of their pension funds, said Sharon Levine, who represented the American Federation of State, County and Municipal Employees in the Detroit case.
“For example, in Detroit, it’s been years and years of layering new debt on top of old debt,” she said. “To somehow or other have part of the discussion to be that Detroit’s plight is the fault of the retirees is devastating for those folks.”
In reality, Novy-Marx said, many pension funds face such shortfalls now because the accounting standards for public employee pensions are lax, which allowed governments to stop payments to pension funds whenever they had budget troubles. Rather than raising taxes or balancing budgets, governments borrowed from pension funds, he said.
Now eyes will be on Detroit as it decides how to pay its pensioners and other bondholders while still providing essential city services.
“We have yet to have a case that really governs how the court is supposed to divvy up what’s available among creditors when there’s not enough to go around,” said Mark Kaufman, a bankruptcy attorney who was the lead counsel in restructuring Harrisburg, Pa., which altered its finances without filing for bankruptcy. “That’s now about to unfold in Detroit.”
DETROIT BANKRUPTCY—EVERYTHING GOES
by Joel Skousen | World Affairs Brief
Detroit is the largest municipal bankruptcy ever, but it probably won’t be the last. New York’s would have been larger, but they got bailed out by the feds. A judge’s ruling this week opened the floodgates on the auctioning off of Detroit, and that means no federal bailout. It also means that nothing is sacred, nothing is protected and even art isn’t priceless—as it should be. For too long investors have considered municipal bonds as good as their taxpayer funding, but this ruling is going to forever alter a city’s ability to sucker investors again. Micheline Maynard reports from Detroit:
Judge Steven Rhodes laid out his rationale for allowing Detroit to seek the biggest municipal bankruptcy in American history. “This is indeed a momentous day,” Rhodes told the hushed courtroom. “We have a finding that this proud and once prosperous city cannot pay its debts.” By the time the soft-spoken federal judge had finished, it was clear that from worker pensions to the city’s art treasures, nothing in Detroit is completely safe in Chapter 9 bankruptcy.
The effect of his ruling is likely to touch all corners of the city and could serve as a legal precedent for other municipalities reckoning with unsustainable debt. Here are three of the most important takeaways:
Pensions Aren’t Sacred. Lawyers for the city’s 48 organized labor groups argued strenuously that Michigan law protected state employees’ pensions. Rhodes disagreed, noting that the state’s constitution classified pensions as a contractual obligation on cities’ part, not something requiring special treatment. That means the city can treat pensions like any other potentially voidable contract. Expect it to do so.
And that’s the way it should be. Taxpayers should not be held hostage to excessive promises corrupt city officials make with unions under coercive bargaining powers. Bankruptcy is the only way auto unions were broken and it’s the only way to break union power in government.
There’s No Such Thing as Priceless Art. The prospect of selling treasured pieces from the collection of the Detroit Institute of Arts has raised alarm among art-lovers and citizens, who worry the city would be using its cultural heritage to service its debt. In his ruling, Rhodes gave Orr the leeway to pursue such a move, though he cautioned the emergency manager against holding the equivalent of a fire sale. In unloading assets, Rhodes said, a debtor needs to take “extreme care” to be sure that a sale is absolutely necessary.
The judge’s warning is timely. Lawyers and administrators get their fat fees whether they get good value in liquidation or not—it’s not a good system.
A visibly upset Sharon Levine, who represents the American Federation of State, County and Municipal Employees in the case, said her group planned to appeal Rhodes’ ruling to the Sixth Circuit Court in Cincinnati and beyond that, to the U.S. Supreme Court if necessary.
In ruling that Detroit could proceed with its bankruptcy anyway, Rhodes showed that a failing by city officials with labor groups wasn’t enough to offset the overwhelming need for the case to go on. “For the image of labor, Detroit is a catastrophe,” said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “The aristocrats of labor have become the paupers of labor. What affected yesterday’s manufacturing workers is now affecting policemen and firefighters. Nobody is safe.”
Everyone wants safety, but in the real world there are no guarantees. Those of us who have to make a living in the truly free markets, by voluntarily getting others to see value in what we offer can never fully rest, except as we keep performing or stockpile and save while we are capable of working.
Why should state or federal workers have guarantees the rest of us don’t? Ultimately, everyone’s pensions will be at risk, so don’t count on it. Even those government or corporate pensions that don’t go bankrupt will see inflation eat at their value.
BAIL-IN: DETROIT EMERGENCY MANAGER NOW WANTS TO PAY MORE SWAPS
Detroit is not a systemically important bank, and the process is anything but orderly, but it is being liquidated in a process which directly imitates the Bank for International Settlements’ horror-fantasy known as a big bank “bail-in”. That is a process in which anybody and everybody holding legal liabilities of the bank (or here, the City of Detroit) can get illegally wiped out, but the process produces chaotic liquidation anyway because the protected payments to the exceptions—the financial institutions which hold “qualified financial contracts” (financial derivatives, repo agreements)—take total priority.
Days after Federal judge Steven Rhodes ruled that a governor-appointed “emergency manager” can take Detroit into Chapter 9 bankruptcy, despite not meeting the legal preconditions for it; and that municipal workers pensions can be cut or even taken despite their state constitutional protection; that manager, Kevyn Orr, plans to enter more derivatives “swaps” agreements, in order to pay previous “swaps” agreements to Wall Street.
In March, two days before moving to enter bankruptcy, Orr made a separate deal with the holders of interest rate swaps which Detroit had been induced to enter into—UBS bank and Bank of America’s Merrill-Lynch investment bank—to pay them 75% of their claims on these swaps by the end of this year (about $225 million) or 82% by next March (about $245 million).
Meanwhile, Orr immediately stopped the city’s payments on bonds held by its municipal pension funds, and has already “bailed in” those funds to the tune of about $120 million in defaulted payments. He proposed to replace Detroit’s retirement health benefits with $120/month/retiree to buy health insurance “bronze” or “silver” plans on the Obamacare exchanges, or Medicare supplements if the retiree is Medicare-eligible. Federal judge Rhodes rejected public unions’ objections to the pension cuts: the pension fund is now only 80% funded and falling. The $19,000/year pensions are likely to be cut by more than 20%, and the unions fear, by half, impoverishing the retirees, many of whom do not get Social Security.
But Judge Rhodes did not menace the payments to UBS and BoA. City creditors may yet sue in objection to their payoff. But now Orr has filed to borrow $350 million in “debtor-in-possession (DIP) financing” from the LIBOR-rigging specialists at Barclays bank, in order to pay UBS and BoA their $225 million fast on their swaps, and apply the rest to “city operations.” And part of the Barclays DIP loan package is new interest-rate swaps; Orr will not reveal either the terms of the new swaps, or Barclays’ fees. The Detroit City Council has voted unanimously against taking this DIP loan from Barclays; but Orr thinks the Federal court will approve it on Dec. 17.
The next steps of liquidation apparently will also include privatization sales of the Detroit Water and Sewerage Commission, and the Detroit Institute of Arts.
DETROIT LOST CITY
APPEALS FILED AGAINST DETROIT BANKRUPTCY CASE RULING
Michigan Council 25 of AFSCME and the Detroit “sub-chapter” of AFSCME retirees on December 3rd filed with the Bankruptcy Court in Detroit, a notice of appeal to the U.S. District Court in Detroit, against the oral ruling from the bench that day in the City of Detroit bankruptcy-eligibility trial.
The Police and Fire Retirement System of Detroit and the General Retirement System of Detroit also filed a notice of appeal, the next day, and along with it, a motion for direct appeal to the Sixth Circuit of the U.S. Court of Appeals. (The latter motion is necessary, because under federal bankruptcy court rules, the initial appeal from a Bankruptcy Court ruling is generally to the federal District Court.)
The summary in the retirement systems’ introduction to the motion quotes Judge Rhodes’s ruling on an earlier motion to stay the case, about the urgency of resolving the matter expeditiously, and also from statements by the City to similar effect. It states pointedly, that:
“This Court’s eligibility ruling is a paradigmatic case for immediate appeal to the Sixth Circuit. The City’s eligibility to file for Chapter 9 bankruptcy is undeniably of great ‘public importance.’ An immediate appeal of the City’s eligibility would ‘materially advance’ the progress of this case. The Court’s ruling directly conflicts with an earlier judgment of a Michigan state court concerning the effect of the Pensions Clause on the City’s ability to discharge accrued pension benefits in bankruptcy. The Court’s ruling concerning the Michigan Pensions Clause conflicts with the position of the Michigan Attorney General, the state’s chief legal officer, who explained that ‘Michigan’s constitutional protection of pensions is broader than that afforded to ordinary contracts,’ and that the Pensions Clause is thus ‘an impermeable imperative’ ‘not subject to discharge by exigency including a Chapter 9 proceeding under the federal Bankruptcy Code.’ And the eligibility issue presents significant questions of federal and state law as to which there is ‘no controlling decision’ of the Sixth Circuit or U.S. Supreme Court.” (Citations to statute and case-filings omitted.)
“The Sixth Circuit eventually will decide whether the City is eligible to be a Chapter 9 debtor. The only question is timing. Because time is manifestly of the essence, this Court should certify its eligibility ruling for an immediate appeal to the Sixth Circuit.”
“BAIL-IN” STRIKES PENSIONS IN DETROIT AND ILLINOIS
The Empire tried to further twist the “bail-in” knife into the heart of America yesterday. In Detroit, a Federal bankruptcy judge gave the go-ahead for the city to enter Chapter 9 bankruptcy and, explicitly, to eviscerate public sector retirees’ pensions, which he falsely said were no different from other debts. In Illinois, the legislature approved a labyrinthian bill to cut pensions and raise the retirement age of state employees. Both Michigan and Illinois have embedded in their constitutions provisions that absolutely protect pensions. But what of that?
The simultaneous attacks bear witness to the validity of Lyndon LaRouche’s comments to the LPAC National Policy Committee yesterday: “….First of all there is a general breakdown crisis, reaching a point of what’s called ‘bail-in,’ and we’re about to reach the bail-in level, around the world essentially, but especially in certain troubled areas, such as Europe and the United States. The United States is going to have to deal with a bail-in threat. That means that we’re going to have to cancel Wall Street, essentially, and what Wall Street represents in most parts of the world…. We’re headed for a fundamental change which is already under way….“
Watch LaRouchePAC Policy Committee member Bill Roberts statement on the Detroit Bankruptcy.
Wall Street speculators destroyed the once-advanced industrial base of Detroit, and turned the city of nearly 2 million, with the highest household income in the country, into a depopulated hulk of a ghetto, burdened with some $18 billion in debt and long-term liabilities. Right-wing Gov. Rick Snyder imposed technocrat Emergency Manager Kevyn Orr on the city, taking all real power out of the hands of elected officials. Orr led the effort to put the city through Chapter 9 bankruptcy, to which, after much toing and froing, Judge Steven Rhodes gave his oral blessing today, with his 140-page ruling to follow. During the course of his 90-minute oration today, the Detroit Free Press reports: “Despite the criticism of Detroit’s negotiations, Rhodes said moments later that negotiating in good faith was ‘impracticable’ for the city because its financial crisis was growing worse, and creditors filed several lawsuits that could have derailed a bankruptcy filing.”
That Orr’s operatives haven’t negotiated in good faith is one of the primary contentions — aside from the whole process violating the state’s constitution — of lawyers representing unions and retirees, whose current average annual pension is $20,000. Rhodes admitted that Orr hasn’t negotiated in good faith, a basic requirement for bankruptcy, but approved the bankruptcy filing anyway! Orr’s plan is expected to include cuts to unsecured creditors as well as asset sales, the latter including privatization of the water and sewer department, and the possible sale of exhibits of the Detroit Institute of Arts.
Lawyers are already appealing the judge’s decision that has made Detroit now the largest municipal Chapter 9 bankrupt in the nation’s history, one that other cities in dire straits throughout the country may try to follow further into hell.
- And, in Illinois -
In Illinois, the leaders of both houses of the legislature are pushing the plan that will purportedly trim an accumulated $100 billion deficit in the state employees’ pension funds. The plan is also backed by Democratic Gov. Pat Quinn. WLS-TV in Chicago reports that debate on the bill began Tuesday afternoon, even though most lawmakers had not been given a copy of the bill until Monday. State Rep. Mike Tryon noted that the state constitution explicitly prohibits public pensions from being diminished or impaired.
“You can’t just prepare a solution on public policy regarding pensions and throw the constitution out,” said Tryon. But that didn’t prevent nine of the 10-member bipartisan pension conference committee from signing off on the deal late Monday. Tuesday evening, the Senate voted it up 30-24, and then the House by 62-53.
Wall Street’s credit-rating agencies have downgraded Illinois to the lowest rating of any state in the country. Its annual pension payments have grown to about one-fifth of the state’s general funds budget.
The plan that the financiers want pushed through would raise the retirement age for workers ages 45 and younger, on a sliding scale. The current annual 3% cost-of-living increases for retirees would be replaced with a system that only provides the increases on a portion of benefits. Some workers would have the “option” of freezing their pension and starting a 401(k)-style defined-contribution plan. Beancounters make the laughable contention that the plan would save the state $160 billion over 30 years and fully fund the pension systems by 2044.
Other public employees not directly affected by the plan, such as Chicago school teachers, are mobilizing against the bill, recognizing that once it were rammed through, their pensions will be next on the block.
ILLINOIS LAWMAKERS CONFRONT HISTORIC BURDEN OF PENSION FUTILITY
By Tim Jones and Brian Chappatta – Bloomberg
When Illinois lawmakers report to the capital in Springfield today for another attempt at fixing the nation’s worst-funded state pension system, the gathering will have a ring of familiarity.
February 2012: “Today, our rendezvous with reality has arrived,” said Democratic Governor Pat Quinn in his budget presentation to lawmakers, who months later left the statehouse without acting on pensions.
August 2012: “We all look like idiots,” said then-Representative Daniel Biss, a Democrat, after lawmakers failed again to act, this time in a special session.
May 2013: “We have no choice. We have to move forward today,” Tom Cross, the then-House Republican leader, said during another pension debate. They didn’t.
After seven credit-rating downgrades since June 2010, an unfunded pension liability of $100 billion and five aborted attempts in 16 months to shore up the retirement system, lawmakers will try again to pass a bill that would save the state $160 billion over the next 30 years. The governor’s office is bullish. John Sinsheimer, the state’s director of capital markets, said yesterday that Illinois plans to offer $350 million in general-obligation bonds Dec. 12.
The penalty on Illinois general-obligation bonds has extended declines since legislative leaders last week said they had a tentative agreement to stabilize the pension fund. The yield spread on debt due in 10 years relative to benchmark munis fell to 1.7 percentage points on Nov. 29, the lowest since August, according to data compiled by Bloomberg. A shrinking spread usually signals investor confidence that the state’s finances will improve.
Investor expectations have been raised before, only to be dashed in the legislative arena. Illinois’s long-running pension drama, which stretches back decades, reaffirms the belief that politics is a game of addition, not subtraction.
“It’s very hard to take anything away from anybody without a great deal of pain and animosity,” said Doug Whitley, president and chief executive officer of the Illinois Chamber of Commerce.
“They all know it needs to be done. They just don’t want to take the hard vote, primarily for their own political skin,” Whitley said.
The proposal legislative leaders agreed to Nov. 27 would limit annual cost-of-living allowances and raise the retirement age for some workers. That would produce the bulk of the $160 billion of savings over 30 years, according to the plan.
Unions, which represent about 760,000 workers and retirees, promised to challenge the measure in court, claiming it violates language in the Illinois constitution that says retirement benefits “shall not be diminished or impaired.”
Even if lawmakers approve a bill, the promised suit will cast a budgetary cloud over the state until the courts rule.
“You know everyone is going to sue,” said Bart Mosley, co-president of Trident Municipal Research in New York. “You don’t get an upgrade on the basis of this any time soon, even if it was to pass easily in a vote tomorrow or later this week.”
Abdon Pallasch, a spokesman for Quinn, said the governor doesn’t expect an improved credit rating at once, but that lawmakers can stop the persistent cuts, which he said have cost the state $180 million just this year.
“The primary reason cited by every bond rating agency that has lowered Illinois’ rating has been the state’s failure to address its pension problems,” he said in an e-mail. “We would hope that a vote for the bipartisan pension reform plan this week would stop those downgrades that have cost Illinois taxpayers so much.”
The task is complicated by the approach of the 2014 election year. Republican State Treasurer Dan Rutherford, a candidate for governor, said yesterday in a prepared statement he opposes the bill and does “not believe it will withstand judicial review should it pass.”
While Democrats hold veto-proof majorities — 71-47 in the House and 40-19 in the Senate — the party’s natural constituency is organized labor. At the same time, most House Republicans in southern Illinois districts that have prisons and state colleges and universities voted against a pension bill in May.
Republican U.S. Senator Mark Kirk in a statement yesterday urged rejection of a bill “that neither lawmakers nor the voters have had time to read.”
“There will be no federal bailout for the state of Illinois, so legislators must get this right,” Kirk said.
Illinois has the lowest credit grade among U.S. states from the three biggest ratings companies. Its bonds are the worst performers this year among the 27 states tracked by Standard & Poor’s, losing 3.13 percent through Nov. 29. That compares with a 2.26 percent decline for the $3.7 trillion municipal market, S&P data show.
“Their bonds are, quite frankly, getting lumped in with a lot of distressed credits like Puerto Rico and Detroit, and they’re nothing like either of those two,” said Robert Miller, who helps oversee $33 billion in munis, including Illinois bonds, at Wells Capital Management in Menomonee Falls, Wisconsin.
“Chicago and Illinois both have a lot going for them and are being penalized because of their inability to deal with a large, but solvable, issue,” Miller said.
PENSION CRISIS ENDANGERS CHICAGO’S FUTURE
By SARA BURNETT
December 11, 2013
CHICAGO (AP) – It’s not the vision of a world-class city that Chicago Mayor Rahm Emanuel typically likes to portray.
More teachers losing their jobs, thousands fewer police and firefighters on duty, less frequent trash collection and miles of potholed roads going unrepaired – all as property taxes soar.
But that’s the scenario Emanuel and others have said could befall the nation’s third-largest city if the state Legislature – which passed a landmark measure last week to address Illinois’ severe public pension shortfall – doesn’t deal with Chicago’s own multibillion-dollar pension problem.
The economic capital of Illinois and the Midwest, Chicago holds the dubious distinction of having the worst-funded public pension system of any major U.S. city. It’s a crisis that’s putting in peril Chicago’s reputation as “the city that works,” and its vision of being a modern transportation hub in the midst of a high-tech boom.
“Chicago sticks out for all the wrong reasons,” said Rachel Barkley, a municipal credit analyst at Morningstar Inc. (MORN), referring to a public pension system that is only 35 percent funded, compared to New York’s 60 percent and San Francisco’s 88 percent.
It’s raising the question: Which version of itself will Chicago become?
Just raising taxes, which could cause businesses to leave, or cutting services, which would penalize residents, won’t be enough, said Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago.
“I don’t think either one is even a possibility,” he said. “Everybody’s going to have to give something.”
Chicago’s pension funds for city workers, police officers and firefighters are about $19.5 billion short of what’s needed to meet its current obligations.
The shortfall amounts to about $7,100 per Chicago resident. That’s nearly eight times the per person cost of the unfunded pension liability in Detroit, a city that saw its population plummet in the years before it went into bankruptcy earlier this year. Add in the unfunded liability for Chicago teacher pensions, and the total shortfall jumps to about $27 billion.
City officials say the shortfall is due largely to investment losses during recent economic downturns, to workers and retirees living longer and to increases in benefits. The city’s annual contributions to the funds, set by state statute, also were well below what was necessary for meeting its obligations, according to a Morningstar analysis.
Under state statute, those contributions are now scheduled to more than double next year, to about $1.07 billion. Emanuel, a former White House chief of staff who is up for re-election in 2015, says the increase is about equal to the annual cost of having 4,300 police officers on the beat or resurfacing 16,000 city blocks.
If the city doesn’t cut services and pension benefits aren’t changed, he says, the annual payment would require a 150 percent hike in property taxes – an increase he calls “unacceptable.” Chicago Public Schools’ payment to the pension fund for Chicago teachers also is slated to increase next year, from $196 million last year to $600 million.
Emanuel wants the Legislature, which must approve any changes to pension benefits, to raise the retirement age and cut cost-of-living increases, as it did for the state pension system.
“The pension crisis is not truly solved until relief is brought to Chicago and all of the other local governments across our state that are standing on the brink of a fiscal cliff because of our pension liabilities,” he said after lawmakers approved the state changes last week.
Senate President John Cullerton, a Chicago Democrat, said he wants to take up the issue “as soon as we can when we come back next year.” Lawmakers are next scheduled to meet at the Capitol in Springfield in late January.
Jesse Sharkey, vice president of the Chicago Teachers Union, said the union fully expects a bill that will solve the problem “on the backs of working people.”
He warned the Legislature should prepare for protests on the scale of those in Wisconsin in 2011, when thousands of union members camped out in the state Capitol to protest Republican Gov. Scott Walker’s attempts to effectively end collective bargaining for most state workers.
“There’s no way this attack isn’t coming, and we’re gearing up for it,” Sharkey said.
Emanuel isn’t backing down either.
He says reducing the city’s and the Chicago Public Schools’ payments to the pension funds is particularly critical for the school system, which closed dozens of schools this fall, in part because of budget problems.
“I don’t want the cost as it relates to pensions to crowd out the future of the city of Chicago, which is our children,” he told a group of executives during a recent Bloomberg Business Summit.
-Rarecoloreddiamonds.com Featured Diamond of the Week. This week’s Diamond is a 3.06 Radiant Cut Fancy Yellow Internally Flawless. Harold Seigel-Watch video here-http://bit.ly/LIsp98
-Betting on Hard Assets: Investing in Diamonds. Rare Colored Diamonds Founder and CEO Harold Seigel discusses the company’s growth with Carol Massar on Bloomberg Television’s “Money Moves.” Watch more here-http://bloom.bg/H4vGPl
-Are Colored Diamonds an Investors Best Friend? Rare Colored Diamonds Founder and CEO Harold Seigel explains to Deirdre Bolton why colored diamonds have great track records when it comes to investing. He speaks on Bloomberg Television’s “Money Moves.” Watch more here-http://bloom.bg/116cUho
-A Rising Appetite to Invest in Colored Diamonds. The numbers are so high that they almost sound unreal. “The Pink Star,” a 59.60-carat oval cut fancy vivid pink diamond, sold on Nov. 13 for $83.2 million at a Sotheby’s auction in Geneva. Described as the largest internally flawless diamond ever graded by the Gemological Institute of America, the stone was promptly renamed “The Pink Dream” by its buyer, the New York-based diamond cutter Isaac Wolf. It had been estimated at over $60 million. A day earlier, Christie’s Geneva auctioned “The Orange,” a 14.82-carat diamond, billed as the “largest fancy vivid orange diamond in the world,” for $35.5 million.
It had been expected to sell for $17 million to $20 million. “Ten years ago the stone would have made a fraction of this price,” said Rahul Kadakia, head of jewelry for Christie’s Americas and Switzerland, referring to “The Orange.” With big diamonds fetching such stratospheric prices this autumn, it is small wonder that the stones have held their value with collectors and investors. The reasons range from the rarity of the stones, especially the colored varieties, to the desire of wealthy investors to diversify their portfolios with tangible assets as a hedge against volatile equity markets. Read more here-http://nyti.ms/1c6KcQu
-Pink Diamond Sets $83 Million Record for Priciest Gem. A 59.60-carat pink diamond sold for $83 million, a record for any gemstone at auction. The oval-cut stone’s price included the auction premium tonight in Geneva, New York-based Sotheby’s said, calling the gem one of the earth’s greatest natural treasures. The sale is a sign of market buoyancy and a high-profile success for Sotheby’s, which is facing pressure from investors, diamond dealers said. The Dow Jones Industrial Average touched an intraday record today before the sale of the stone. “It elicits almost a visceral response,” David Bennett, the auctioneer, said of the gem. “This stone checks every single box in terms of rarity, quality, size and everything.
The crown jewels of England, which is one of the greatest jewel cases, does not have a diamond this size or this color.” Steinmetz Diamonds, the firm owned by Israel’s richest man, Beny Steinmetz, cut and polished the stone, which was mined by De Beers in Africa. After two years of preparation, Danish model Helena Christensen wore the stone around her neck to exhibit the stone to the public for the first time in Monaco in 2003. The stone is fancy vivid pink, the highest grade for the color of diamonds, and the purity of its crystals ranks among the top 2 percent in the world. Bennett had set the previous record for any stone sold in auction in 2010 with the $45.6 million “Graff Pink” diamond. The “Pink Star” is more than twice the size of the 24.78-carat “Graff Pink.” Read more here-http://bloom.bg/19kYfPb and http://bbc.in/17sLHW6 and http://bit.ly/17wfkLJ and http://reut.rs/HOHGou and http://read.bi/HRCzUK
-Dealer Isaac Wolf Is Buyer of $83 Million Record Diamond. Isaac Wolf, a New York-based diamond cutter, was the buyer of the 59.60-carat pink diamond that sold for $83 million in Geneva last night, a record for any gemstone at auction. Wolf renamed the oval-cut stone the “Pink Dream,” New York-based Sotheby’s said. He competed against three others for the gem in bidding that lasted about five minutes before the strike of the gavel, followed by cheers and applause. The diamond, originally named ‘‘The Steinmetz Pink,’’ was sold privately in 2007 for an undisclosed amount.
The gem has been included in the ‘‘Splendor of Diamonds’’ exhibition at the Smithsonian Institution in Washington. It was the largest internally flawless fancy vivid pink diamond ever graded by the Gemological Institute of America. The sale follows a Sotheby’s auction in Hong Kong in October containing white and blue diamond’s valued at more than $28 million and $19 million each. Investment-grade diamonds attract buyers both as status symbols and hedges against volatility in the financial markets. Colored stones, which account for about 0.01 percent of mined production, are prized for their rarity and command the highest price per carat. Read more here-http://bloom.bg/19kYfPb
-Orange Diamond Sells for $36 Million at Christie’s. The largest fancy-vivid orange diamond known to exist sold for 32.6 million Swiss francs ($36 million) at Christie’s International in Geneva. The 14.82-carat pear-shaped stone’s price including fees was about $2.4 million per carat, according to the auction house at last night’s sale. This was a per-carat record for any colored diamond at a public sale. The gem also set a record for an orange diamond of its type, Christie’s said.
“There are buyers out there for these great rarities,” Bennett said in an interview Nov. 8. “There are moments to offer these things and there are moments when it just doesn’t feel right. This does feel like one of the right moments.” While pink and blue diamond’s regularly appear at auctions, the orange stones are much rarer. Christie’s diamond had been with the same anonymous owner for at least 30 years, the auction house said, describing its clarity as VS1. The stone exceeded its presale estimate of as much as $20 million, or $1.3 million per carat.
“As far as orange diamonds go, it has no peer,” Alan Bronstein, a consultant in colored diamonds who knows the stone, said before last night’s sale. The previous time an orange diamond of the same classifications appeared at auction, it weighed 5.54 carats. Known as “The Pumpkin Diamond,” it fetched $1.3 million at Sotheby’s in 1997, selling to Ronald Winston, a son of the Harry Winston founder. Read more here-http://bloom.bg/1cV56qz and http://dailym.ai/185gpsf and http://bit.ly/1j4Q8f7
GOLD INDEX CLOSE DECEMBER 6, 2013: $1230.00
SHANGHAI EXCHANGE HAS DELIVERED MORE GOLD THAN FORT KNOX
On the heels of more volatile trading in global markets, today Canadian legend John Ing told King World News that the Shanghai Gold Exchange has now delivered more than gold than what is supposedly stored at Fort Knox in the United States. Ing, who has been in the business for 43 years, also spoke about how this will impact the price of gold in the future. Below is what Ing had to say in his fascinating interview.
Ing: “There has been a great deal of noise, but amid that noise you have to separate the rhetoric from the reality. This on-again, off-again quantitative easing is just more of the rhetoric. It reminds of the 1970s, when there was ‘peace in Vietnam.’ Well, it took 3 years to have peace in Vietnam.
But every time peace was declared, the stock market went up 100 points, and then it would go down when it wasn’t going to happen. It feels like the same thing with quantitative easing..
“Is tapering going to happen? Yes, at some point it will.
Meanwhile, we have the Dow Jones and S&P recently making new all-time highs. At the same time, all of the risk assets such as gold and platinum are trading at their lows. So investors think that trees will grow to the sky, but we realize that’s not so. This is why it is so important for investors to look at the fundamentals right now. The US dollar has not rallied as it should. It should be over 83 or 84 on the US Dollar Index if this was a great bull market. Instead, the Dollar Index is trading at 80.29.
The 10-Year Treasury yields have been edging higher, and that tells me international investors are very concerned. The 10-Year Treasury is now at 2.85%, possibly headed to 3%. If it breaks above 3%, the 10-Year will head to 3.25% and then to 4%. The reality is this is kind of scary, Eric. With all of that as a backdrop, I still think gold has made its lows and the mining shares are thoroughly sold out.
China has been the fastest growing economy in history. We just don’t know what is happening in China from a financial point of view. Right now the US dollar is the pinnacle of the world’s financial system. But the problem with the US dollar is it is being printed ad nauseam, like a Xerox machine. This has devalued the dollar. It certainly has helped the Americans, but it hasn’t helped the Chinese, who are sitting with some $3.7 trillion of foreign exchange reserves.
So the Chinese have been buying hard assets such as companies. They have also been buying copper and gold. I visited the Shanghai Gold Exchange in 2009, and today that futures exchange is bigger than the Comex. Most importantly, if you look at their deliveries, they have delivered 8,655 tons of gold since 2009. That is a staggering amount of gold because that’s more gold than the Americans are supposed to have at Fort Knox.
The Chinese have consumed somewhere in the neighborhood of 1,700 tons of gold in just the first 8 months of this year. This works out to the Chinese consuming all of the world’s production in one year. Where is that gold going? I believe that gold is going into their foreign exchange reserves.
The renminbi is already the second largest currency used in global trade now. So the Chinese are moving to make the dollar antiquated. The renminbi will eventually have some sort of gold backing. I think that role for gold will be very important for China’s growth. We also see China flexing its muscles militarily, but we have to stay focused on China’s role in the global financial system, and that’s definitely growing, and this is good for gold.”
-CHART OF THE WEEK: Comparison between the 1970s Gold Bull Market and the Current Bull Market. Due to the clearly positive COT data as well as extremely oversold conditions, we assume that a bottoming process will soon begin. Regarding the sentiment situation, we see anything but euphoria in gold. Skepticism, fear and panic never signal the end of a long-term bull market. We therefore judge that our long-term price target of $2,300, first stated several years ago, continues to be realistic. Read more here-http://bit.ly/18c8mf1
-CHART OF THE WEEK: Time for Goldbugs to Admit Defeat? Given that all the reasons gold rose from 2001 to 2011 are still in force, I am convinced gold’s current correction is the setup for a second big surge and, ultimately, a true gold mania of historic proportions. Just because gold doesn’t seem to be reacting to Fed money-printing at the moment doesn’t mean it won’t. Sooner or later, reality trumps fantasy. Reason says that you can’t quintuple your balance sheet in five years and expect no repercussions. The Fed keeps hinting it will taper its money printing, but it still has not. We’ve had QE1, QE2, Operation Twist, and now QE3 none of them has worked, and the new Fed chair wants to print even more money. It’s pure fantasy to believe there will be no consequences to these actions and the reality is that whatever else happens, gold will react positively. Should gold investors admit defeat? I say it’s reckless central bankers who should declare defeat. Read more here-http://bit.ly/1bjZrD7
-TF Metals Report: Courage and conviction. The TF Metals Report’s Turd Ferguson sticks his neck way out today, asserting that JPMorganChase has cornered Comex gold futures and is taking delivery of December contracts and that this ensures a rising gold price. If it doesn’t happen, maybe we’ll know that the Comex isn’t quite the center of things after all. Read more here-http://bit.ly/1cmvOW9
-Pierre Lassonde: This Will Trigger Next Leg Of The Gold Bull Market. You can have a disconnect between the paper gold market and the physical gold market for several months before the physical market reasserts itself. At the end of the day, it’s whoever buys the last ounce of physical gold that will determine the price of gold. Read more here-http://bit.ly/ISIbz5
-Pierre Lassonde: This Can Radically Change The Gold Price Overnight. What could precipitate a major sentiment change in the gold market and a significant revaluation of gold is if we were to see a default in Europe, whether it’s Greece, Spain, or another EU member. I think you will see defaults. I don’t believe that Greece will ever be able to repay its debt. I don’t believe that Portugal or Italy will be able to repay their debts, and France is on the same path. So when we have a major catastrophe in Europe, all of the sudden you will have one of those seminal events where people say, ‘We are going to see a euro breakup, I would rather own gold.’
We could see that situation literally take place overnight. The reason I am saying this is investors can try to be ‘cute’ and think, ‘The bottom is going to be next year, so I’m not going to get into gold yet. But by investors trying to bottom-fish, they can miss the whole upside move in gold really easily because you don’t know when these disasters are going to happen. When I look at the gold price today, and I see you could have $75 on the downside, and possibly a $1,000 upside, well, I would tell people you don’t play for the last dollar. You better be invested here rather than on the sidelines, that’s my view. Read more here-http://bit.ly/1iE6ccV
-Stephen Leeb: China Mining Some Gold For A Staggering $2,500 An Ounce. China is the world’s largest producer of gold, and they keep all of that gold production. So not only are the Chinese vacuuming up all of the gold from the West, but they are also keeping the world’s largest volume of production for themselves as well. This is why the West is losing control and the people in the West are going to be the bag holders. But the only way the Chinese can be doing all of this mining is if they believe gold is going to be selling for at least $2,000 to $2,500. The Chinese are not looking at the price of gold today. Instead they are planning for the future. This is what they are doing when they decide whether or not to go ahead with a particular project.
They don’t front-weight things. In other words, if they put up an infrastructure project and that infrastructure project doesn’t earn anything for 3 or 4 years, they will live with it if they believe that 5 or 10 years out they are going to be able to use it in the future to dominate things. And that’s exactly what you are seeing with their gold production. There is no way, given China’s reserve base, that they could afford to mine as much gold as they are mining today unless they are assuming gold will trade between $2,000 and $2,500.
This is because some of their reserves are being mined at a significant loss in terms of today’s gold price. So here you have a country that is buying gold hand-over-fist, and they are mining gold as if they know it’s going to be priced at a minimum of $2,000 to $2,500. As an investor, I’m not going to fight them. It’s one thing to say, ‘They are buying gold.’ Well, they are buying gold at around $1,200, but it’s another thing to see them mining gold at all-in cash costs in the $2,000 to $2,500 range on some of these projects in China.
In other words, the Chinese are betting on significantly higher gold prices over time, otherwise they wouldn’t be mining at those high cost projects in China. But they are spending that kind of money right now at some of these projects in order to cultivate gold. So either you believe the Chinese are idiots, or you believe they are correct in their belief that gold is going to surge well over $2,000 an ounce. I’m betting the Chinese are right and gold is going a hell of a lot higher from here over time. Read more here-http://bit.ly/1d00MBP
-Alasdair Macleod: Gold and interest rates. Interest rates are not always the major influence on the price of gold, GoldMoney research director Alasdair Macleod writes today. “Traders in paper markets,” Macleod writes, “are interested only in short-term relationships, and therefore pay little or no attention to long-term fundamentals. If we consider the relative increases in the quantity of gold and a fiat currency such as the dollar, gold today is demonstrably undervalued compared with where it was before the Lehman crisis.” Read more here-http://bit.ly/1eQxF5l
-At London conference Hathaway predicts implosion of paper gold. Reporting from the Mines and Money conference in London, Mineweb’s Lawrence Williams quotes the Tocqueville Gold Fund’s John Hathaway as attributing gold’s recent price decline to the liquidation of paper gold that has been caused by the scramble for real metal. Hathaway is quoted as predicting an “implosion of credit structures” related to gold, and as asserting that any U.S. gold reserve remaining at Fort Knox is “encumbered by so many lending agreements to banks and their clients that having it there physically is meaningless.” Read more here-http://bit.ly/18mA97o
-Bullion smuggling outstrips narcotics to feed India’s gold habit. Indian gold smugglers are adopting the methods of drug couriers to sidestep a government crackdown on imports of the precious metal, stashing gold in imported vehicles and even using mules who swallow nuggets to try to get them past airport security. Stung by rules imposed this year to cut a high trade deficit and a record duty on imports, dealers and individual customers are fanning out across Asia to buy gold and sneak it back into the country. Read more here-http://bit.ly/IsXUV1
-The silence of the blockheads maybe soon to be dead silence. Noting that the price of gold is starting to fall below the cost of production, Zero Hedge observes tonight: “Not even Bernanke, Yellen, or all the paper gold exchange-traded funds in the world will be able to do much to suppress gold prices from reaching their fair value when gold production hits a standstill and when demand, especially by China, is still in the hundreds of tons each year.” The Zero Hedge commentary speculates about the gradual shutdown, company by company, of the gold mining industry as production costs cannot be recovered. Read more here-http://bit.ly/1cmAprC
-Swiss refinery report: Gold supply has never been tighter. Read more here-http://bit.ly/1iEAdcp
-Got Gold Report: Unprecedented bullish indicator in gold futures trading data. Read more here-http://bit.ly/1bLa7AM
SILVER INDEX CLOSE DECEMBER 6, 2013: $19.52
-”The great thing about the manipulation premise is that it is a one-way conversion process. Those unsure of the manipulation can be converted into seeing the manipulation if they look deep and objectively enough; those who grasp the manipulation can never be converted back again after they recognize the truth. At some point, enough will become aware of the scam being run on the Comex so as to render it unsustainable. If a physical silver shortage hits first, then it won’t matter if enough learn of it or not.” Ted Butler December 4 2013 via Ed Steer Casey Research-Read more here-http://bit.ly/18Fugb7
-”By knowing that gold and silver prices only fall sharply when the commercials are looking to buy, one does not need to know much more. JPMorgan and the other collusive commercials are not rigging prices lower and buying more gold and silver contracts in order to sell at still lower prices. That’s not something you do when you control a market. I can’t tell you the ultimate bottom; but I can tell you JPMorgan and the commercials are not buying to sell those contracts lower still. Even if you guess that prices will fall lower as JPMorgan rigs prices lower in order to buy, there is a terminal point. That point is closer than ever before.” Ted Butler December 2 2013 via Ed Steer Casey Research-Read more here-http://bit.ly/18bAkrk
-”I’d peg JPMorgan at 80,000 contracts net long, based upon big net buying in the producer/merchant category of the disaggregated report, which flipped to net long for the first time in my memory. At 80,000 contracts net long, JPMorgan controlled 24.5% of the entire net open interest in Comex gold futures after spreads are deducted from open interest. Even more shocking is that JPMorgan holds 51.5% of all long gold commercial contracts on the Comex, the largest precious metals exchange in the world. It is not possible that these market shares do not constitute price manipulation. And as extreme as JPMorgan’s gold market corner is, I still get the sense that the bank is holding back a bit in buying more because its market share is so unprecedented. I’d like to see anyone try to defend it in legitimate free market terms.” Ted Butler December 2 2013 via Ed Steer Casey Research-Read more here-http://bit.ly/1bKmCN9
-Despite record 2013 sales, Silver Eagle coin sales lag in November. 2013 American Gold Eagle bullion coin sales have already surpassed last year’s totals, but silver sales have fallen, although not for the reason one might think. Read more here-http://bit.ly/IKKHXh
-New Security Features for 2014 Silver Maple Leaf Bullion Coins. Read more here-http://bit.ly/1cZDOKS
-Steve St. Angelo: Canadian Maple Leaf Sales Q1-Q3 Already Surpass 2012 Total. Read more here-http://bit.ly/1gbkLCJ
-Silver mining company says it’s helpless against market manipulation. Read more here-http://bit.ly/IEWuWN
-People Are Buying A Lot Of Silver And Gold With Their Bitcoins.
-Gold and silver bullion was apparently among the biggest selling items on Bitcoin Black Friday. According to Bitpay, one of the largest Bitcoin payment processors, the top-three online retailers on November 29 were KnCMiner, Gyft, and Amagi Metals. Amagi Metals chief Stephen McAskill told BI in a separate interview that his site processed $900,000 worth of bitcoin between Thanksgiving and Sunday. The biggest selling items were silver and gold coins and bars, he said. “To me it makes sense,” he said. “A lot of bitcoin enthusiasts are interested in sound money, money that doesn’t lose value.” Read more here-http://read.bi/ISxCvK
WTIC LIGHT CRUDE OIL CLOSE DECEMBER 6, 2013: $97.82
BRENT CRUDE OIL CLOSE DECEMBER 6, 2013: $111.61
THE TEXAS HOCKEY STICK: CHARTING LONE STAR OIL BOOM
By KATHLEEN HARTNETT-WHITE AND VANCE GINN | Investor’s Business Daily
While the U.S. economy slogs along, the Texas oil and gas sector is soaring beyond all records and current projections. A pillar of hope for the rest of the economy, the energy boom in Texas is a reminder of the power of competitive free markets.
By leaps and bounds, Texas oil increasingly dominates the phenomenal rise in domestic oil production. After 28 years of continuing decline, Texas has increased its oil production by a remarkable 141% since January 2009, a rate of growth coincident with an astonishing 155% increase in the inflation-adjusted West Texas Intermediate oil price (see chart above).
Clearly, the higher oil price incentivized Texas oil businesses to do what the private sector does best: produce!
According to data recently released by the Energy Information Administration, Texas pumped 2.7 million barrels a day in September 2013, the highest monthly average since the EIA began keeping records in 1981.
Since December 2012, Texas has increased oil output by almost 29%. And September 2013 marked the 25th consecutive month the state’s oil production increased more than 25% on a year-over-year basis.
Steadily declining since 1981, Texas oil production in 2009 took off at a dizzying pace made possible by the innovative technologies known as fracking, directional drilling and seismic imaging. Initially financed and developed by independent oil companies, these innovations finally unlocked the long-identified but inaccessible shale resources in Texas.
After George Mitchell — known as the “Father of Fracking” — successfully fracked the abundant natural gas in the Barnett shale near Dallas, oilmen soon adapted the technologies to pump oil from South Texas’ Eagle Ford shale and the long moribund Permian Basin in West Texas.
In a few short years, Texas oil output increased from 20% to 35% of all domestic crude oil, three times more than the Bakken fields of North Dakota, and almost as much oil as the next six top oil-producing states combined. If the Lone Star State is considered a country and its oil production is compared with oil-producing nations, Texas would rank as the 10th highest oil-producing nation in the world!
And the Texas energy juggernaut could get much bigger! Although in early development, the Spraberry/Wolfcamp formation along the eastern edge of the Permian Basin may hold 50 billion barrels of recoverable oil. This is more than the Eagle Ford and Bakken fields combined and would make the Spraberry the second-largest oil field in the world after the famed Ghawar field in Saudi Arabia.
The scale of the Spraberry’s geological formation is staggering. While Eagle Ford’s producing zones may average 300 feet, the Spraberry’s seams are roughly 3,000 to 4,000 feet thick! Although drilling costs in the Spraberry are now high, early production reports are impressive.
At even the current rate of growth, Texas is on track to produce more than 3 million barrels per day in early 2014, exceeding its 1972 historical peak of 3.4 million barrels a day by 2015. Put your money on an even earlier date unless forces above the ground such as President Obama’s “Climate Action Plan” thwart the historic success of the Texas oil and gas business.
The International Energy Agency’s recent World Energy Outlook 2013 has taken note of the surging production in Texas. IEA earlier projected that the U.S. would surpass Russia and Saudi Arabia to become the world’s largest oil producer in 2017. The new Outlook moves the date forward to 2015.
While six U.S. presidents futilely pledged energy independence, energy entrepreneurs in Texas developed the drilling methods to capture this country’s mother lode of oil and gas previously locked in rock. No grandiose federal energy plans, subsidies or fancy websites were needed to achieve energy independence and effortlessly increase employment.
According to Mark Perry, author of the Carpe Diem blog, Texas oil and gas businesses hired 15,000 new employees over the most recent 12-month period through October, which translates to 58 new jobs every business day or seven new jobs per hour. That compares quite well to the president’s fruitless and often bankrupt green jobs initiatives.
For this unparalleled success in the energy sector, we should thank risk-taking men and women in the Texas oil business for setting the U.S. well on its way to becoming the world’s energy superpower and for renewing faith in the prodigious vigor of free enterprise.
NATIONAL AVERAGE GAS PRICE DECEMBER 7, 2013: $3.24/GAL
|December 7, 2013
|December 6, 2013
|One Week ago
|One Month ago
|One Year ago
FIAT DOLLAR IS THE REAL REASON FOR HIGH GAS PRICES
Published on Jul 19, 2012
U.S. DOLLAR INDEX CLOSE DECEMBER 6, 2013: 80.27
PETER SCHIFF: HOLDING U.S. DOLLAR COULD BE RISKIER THAN STOCKS
Published on Dec 3, 2013
PETER SCHIFF: INFLATION PROPAGANDA EXPOSED
Published on Jan 10, 2013
The CPI is no longer a tool to accurately measure inflation, but an instrument of propaganda the government uses to hide accelerating inflation from the public and financial markets. Modest CPI increases over the past several years do not reflect an absence of inflation, but a design flaw in the index that fails to fully capture the magnitude of price increases. Central bankers drawing economic conclusions regarding inflation and monetary policy based on this highly flawed data point are making a major policy error.
Note: Prices for the twenty items in our basket rose 44.3% during a ten-year period despite an official rise in the CPI of just 27.5% during the same time frame. But that is using official government numbers to evidence those price increases. However, judging by the inaccuracy of government numbers on other items, such as newspapers and health insurance, the actual rate of increase of the prices of the goods in our basket was likely much higher than what the government claimed!
THE OBAMA ADMINISTRATION AGENDA TO “KILL THE U.S. DOLLAR”
by Douglas J. Hagmann
March 30, 2013
Some might be surprised to learn that the fate of America’s economy has already been determined, verified and announced by the Obama White House. Yet, it has received scant attention from the corporate media. In 2011, economist Kyle Bass interviewed a senior member of the Obama administration about its planned solutions for fixing the US economy and trade deficit [i].
Among the questions he asked was about U.S. exports and wages, but the question itself was not nearly as important as the response he received from this senior administration official. In fact, this single, seven word response clarifies everything, explains everything, and leaves little else to discuss: “We’re just going to kill the dollar.”
There it is, the entire agenda in one short sentence. It explains everything we’ve been seeing domestically and globally. That one statement makes every other question irrelevant, or otherwise answers all economic questions and explains everything. Nothing else matters. I urge you to ponder that statement and all that it implies. Doing so will provide you with the clarity to understand not only what is taking place today, but what is yet to come.
It is important to note the specificity of the word “kill.” Stated in the active voice, it means an unambiguously intentional and deliberate act. The murder of our national currency, the United States Dollar (USD), is the ultimate agenda to be implemented under Obama. To “kill” our national currency will subvert the United States and destroy it from within. This begs a number of questions, including what type of Americans would actually have, as their objective, the destruction of our national currency? To whom do they hold their allegiance, if not to the American people whose life’s work as well as the toil of our ancestors is represented in the form of wealth held in U.S. dollars? Does this make any sense to us, as Americans? The answer of course is “no.”
By its very definition, to kill our national currency is an act of high treason by those engaged in this activity. It undermines the very sovereignty and survival of our nation, and will have a life-changing impact on every citizen in the U.S. It will also impact every nation and the people of every nation on the planet, as the USD is presently the world’s reserve currency. It is an act that should result in the filing of criminal charges against the conspirators, a trial of their peers and if convicted, a death sentence. It’s that serious.
According to my source, we are past the point of no return. We will not be able to stop what is coming, but must be wise enough to prepare and “get out of the way.” The murder plot involving the death of the dollar did not begin with Obama, but he and other conspirators have accelerated the plans, plots and schemes for its demise.
The ultimate objective is to implement an international currency in tandem with a system of global governance. The problem is that most people are not thinking large enough, nor do they understand the magnitude of the lie.
They are not seeing the larger picture as their focus is diverted elsewhere. For example, they focus on various tentacles of the octopus such as the gun confiscation initiative, the DHS armament acquisitions and economic woes as independent and unrelated events. They are not.
Meanwhile, others continue to adhere to, or even perpetuate the dual party meme of governance, holding dearly to the notion that there is a practical difference between the Republican and Democrat parties. Have we not seen sufficient evidence that they are now of one party acting in concert with each other? They cannot see the collusion and backroom deals, and continue to hope that the next election will finally change the unchangeable continuity of agenda.
Most of the elected officials are on board with the subjugation of the United States to a global system of governance. Some are actively facilitating this agenda, while others are making nominal objections on the stage of political theater while hoping to earn a seat at the global table. It’s entertainment for the globalists, distraction of the masses, and diversionary fodder for the talking heads in the media.
America has become a captured operation – captured from within. Think of the Vichy French, internal collaboration with the enemy, or softening the ground for a full takeover from within. The takeover of America has already happened, the collaborators have already been installed, and we are now on a path to complete subjugation of a larger global system of governance. If you continue to doubt this, how else would you explain the numerous examples of our dual-party governmental acquiescence of self destruction?
Those who are pleased about the new record setting stock-market highs and various other manipulated statistics that indicate our economy is improving will be the most vocal critics of this report and who will attempt to discredit the validity of the information offered here. The more intellectually astute will look beyond the statistics offered for mass consumption not only to identify the deliberately manipulated data, but to understand what is actually driving these false hopes, figures and data. It is a magic show, and many are still captivated by the magicians’ many diversions, failing to realize that we are engaged in a global war while being simultaneously hobbled by enemy infiltrators from within.
One reason we are seeing new stock market highs is the rush to the dollar from other currencies, especially in the Eurozone. Another reason is the monetization of our debt by the Federal Reserve, despite the previous denials of Ben Bernanke and others.
Simply put, the plan by the globalists, or the central bankers and those behind them, is to create this rush to the USD like passengers from sinking ships to lifeboats. Once the lifeboats are filled to capacity, they will be sunk, and the United States Dollar will be completely worthless. As in such a scenario, many will not make it. Many will die from what is coming. The level of evil behind this plan is incomprehensible to the normal human mind.
We are at war with Russia. After removing Qaddafi from power in Libya, the Obama-Clinton black-ops plan was immediately put into action. Benghazi was the logistics hub for arming the anti-Assad terrorists by our own State Department covert operatives who were shipping millions of tons of weapons to Syria via Turkey and other staging areas. Russia was aware of our actions, and through the attack at the CIA operations center in Benghazi by proxy forces, exposed this operation to the world while putting a stop to this operation. It seems that everyone except the Western media reported what had taken place.
The “dirty little secret” that explains why we have not been told the truth about Benghazi is quite simple. The efforts to overthrow Assad from power are continuing, except the arms and munitions shipments are now originating primarily from Croatia. Overthrowing Assad would pose a direct threat to Russia, both militarily and economically. Are we to expect Russia’s Putin to simply accept this without response? No. So what is Russia doing to subvert our efforts? He is waging war against America, striking at the weak underbelly of our economy which is the “oil backed” dollar as identified in Michael Reagan’s article, Building on a Kernel of Truth.
Sadly, the Obama regime is doing nothing to protect us from this asymmetrical war. It’s as if they are allowing it to take place.
Although it was reported in The New York Times, few have paid attention to last week’s meeting between Chinese President Xi Jinping and Russian President Vladimir Putin in Moscow, but it was an extremely important event in terms of the planned murder of the U.S. dollar. An alliance is being forged between Russia and China to replace the USD as the reserve currency, already severely weakened by the policies of those in power, with a gold backed currency.
While reports do exist that cite the hoarding of gold by China and Russia, they are purposely under reporting their collective reserves. Meanwhile, Americans can’t even get honest answers to the amounts of our own gold reserves held in Fort Knox or the Federal Reserve. Don’t people find this reluctance for audit and inspection a bit curious if not outright suspicious?
The battle is being waged not only by military might but by a currency war. We are “being played” through our military involvement in the Middle East, including our covert operations against Syria at the behest of Saudi Arabia. Unlike Iraq, the war in Syria will explode, turn hot, and we will be engaged in an ominous battle that will quickly expand and turn deadly. Weakened militarily through the policies of the Obama regime, coupled with an already weakened economy, the U.S. will suffer consequences unlike anyone might imagine or is willing to address. It is a recipe for disaster planned and initiated by the global elite behind the central banking system, including those in our own government. We have been set up from within, lied to, and now, we are about to see exactly what this globalist system has in store for not only the United States, but every nation of the world.
It is critical to understand that the take-down of the U.S. will be the result of an asymmetrical war that includes the weakening of our military, our economy, and a direct assault on our ability to keep the dollar as the world reserve currency and protect the free flow of oil and energy to the United States.
Within the last week, China held a surprise naval exercise in the South China Sea. Meanwhile, Russia displayed their resurgent military might in the Black Sea. These exercises were conducted as U.S. military forces are spread thinly across many areas in the world. Is anyone paying attention here?
Just as certain a collapse of the dollar is coming, so will be chaos on the streets of America caused by this plan “to kill the dollar.” The central bankers and the leaders selected to govern each country have effectively used the Hegelian Dialectic [ii] to implement their agenda. Just as stated by George H.W. Bush on September 11, 1990, their predetermined solution of a “New World Order” is being formed before our very eyes. They’ve told us what they are doing, but we have chosen not to listen or failed to understand what was being said.
The U.S. has always been the firewall against the globalists. By their persistence, infiltration of global elitists into our government, and covert subversion from within, we are being led to slaughter. A view from space, looking at the larger picture of events for which many have questions, a clearer picture emerges. There will be some who dare to resist the pillaging of our bank accounts, the erosion of our rights, and the enslavement that comes with the dismantling of America.
The dust clouds visible on the far horizon that watchmen have been reporting for decades can now be seen as an attacking army of barbarians, whose fighters are now on the ladders and cannons are breaching our empire’s outer walls. Who knows how long the inner walls of our empire will survive the next wave of their coming attack.
Perhaps Ernest Hemmingway said it best in referencing John Donne from his novel of the same name… “And therefore never send to know for whom the bell tolls; It tolls for thee.”
RUSSIA’S PLAN TO USE NUCLEAR WEAPONS ON THE UNITED STATES
CHINA’S PLAN TO USE NUCLEAR WEAPONS ON THE UNITED STATES
CHINA CREATES AIR DEFENSE ZONE OVER JAPAN-CONTROLLED ISLANDS
JAPANESE PRIME MINISTER PREPARES FOR WAR WITH CHINA
PLANS FOR REDRAWING THE MIDDLE EAST: THE PROJECT FOR A NEW MIDDLE EAST
MIDDLE EAST WAR GETTING CLOSE
US-IRAN DEAL: US CHANGE OF HEART OR GRAND DECEPTION?
THE PLANNED DESTRUCTION OF THE UNITED STATES
THE BIG WALL STREET BANKS ARE ABOUT TO ENTER A DEATH SPIRAL
OBAMA: PREPARING “MY MILITARY” FOR THE NEXT STEP?
ORRIN HATCH PUSHES FOR PASSAGE OF TRANS PACIFIC PARTNERSHIP; OBAMA READY TO SIGN AWAY U.S. SOVEREIGNTY
CHICAGO FED PRESIDENT CHARLES EVANS SAYS OPEN-MINDED ON DECEMBER TAPER, BUT PREFERS WAITING
By Ann Saphir
(Reuters) – A top Federal Reserve official said on Friday he was open to reducing the U.S. central bank’s bond buying stimulus program this month, although he would like to see a stronger labor market first.
Chicago Fed President Charles Evans said hiring data released earlier in the day showed the economy was improving, but he wasn’t fully convinced it was time to reduce the pace of bond buying.
“I’ll be open-minded,” Evans said in an interview with Reuters Insider when asked about the December meeting. “Everything else (being) equal, I would like to see a couple of months of good numbers, but this was improvement.”
Fed policymakers meet on December 17-18 and the future of their $85-billion-a-month bond-buying program looms large on the agenda, after officials said at their last meeting they would look to scaling back the stimulus in the next few months.
The program aims to help the economy by making it cheaper for businesses to invest and workers to buy homes but several years of slow, steady job growth, as well as concerns that the bond-buying might be fueling bubbles in corners of the economy, suggest the purchases may be reaching their use-by date.
Labor Department data showed that the jobless rate fell in November to a five-year low at 7 percent and employers added more new jobs to their payrolls than expected.
Evans is a voting member on the Fed’s policy-setting committee this year and has been an outspoken advocate for the institution’s efforts to nurse the economy back to health following the 2007-09 recession.
In the interview, he reiterated his view that the Fed should provide more clarity about the future path of interest rates, which could compensate for an eventual tapering of bond purchases.
One way to do this, he said, would be for the Fed to promise not to raise interest rates until the jobless rate falls to 6 percent. Currently, the Fed has pledged to keep rates near zero at least until unemployment hits 6.5 percent, as long as inflation does not threaten to rise above 2.5 percent.
If policymakers lowered the threshold at the same time as they start to reduce bond purchases, he said, the central bank would be “maintaining the same level of accommodation.”
Earlier this year, when Fed Chairman Ben Bernanke signaled the Fed was starting to consider winding down the bond buys, investors pushed up borrowing costs so much that some worried this could undercut the still-fragile recovery.
Startled Fed officials have since stressed that reducing bond buying does not mean they will raise rates sooner than necessary, and Evans said markets were getting that message.
“The key thing is provide a sufficient amount of confidence to the public and the markets that we are going to continue to provide as much accommodation as is necessary,” he said.
While encouraged about progress on the jobs front, Evans said he was “certainly nervous” about inflation that continues to run well below the Fed’s 2 percent target.
In the year through October, the gauge of inflation targeted by the Fed rose just 0.7 percent. Another reading that strips out food and energy rose a little more quickly, gaining 1.1 percent. Evans said this core reading was a better measure of the inflation outlook, but it was troubling nonetheless.
“We need to defend our inflation goal from below as well as from above,” Evans said.
FEDERAL RESERVE COULD DELAY RATE HIKES WITH INFLATION ‘FLOOR’: FED STUDY
By Ann Saphir
(Reuters) – The Federal Reserve could bolster its commitment to ultra-low interest rates by ruling out a rate hike until inflation heads closer to its 2-percent goal, according to research published Wednesday by the Cleveland Fed.
The study plunges the usually low-profile regional Fed into one of the most pressing debates among U.S. central bankers: how best to keep market rates from rising to potentially growth-sapping levels once the Fed begins to withdraw its massive monetary stimulus.
Fed policymakers fret that when they begin to reduce their $85-billion-a-month bond-buying program, investors will conclude that rate hikes are not far behind, and will push up market rates farther and faster than the Fed believes is healthy for the economy.
Policymakers are therefore keen to find ways to convince markets they are serious about keeping rates low for a long time.
Wednesday’s research may add weight to arguments for adopting a so-called inflation floor. Edward Knotek II, who co-authored the study with fellow Cleveland Fed researcher Saeed Zaman, said he believes they are among the first to publish a study assessing the benefits of an inflation floor.
The study shows not just that a floor can delay the likely timing of the Fed’s rate hike, but also that “the choice of the floor matters,” he said in an interview.
Adopting an inflation floor of 1.75 percent, a promise that the Fed will not even consider raising rates until inflation is projected to breach that level, would likely delay any rate hike until the first quarter of 2016, the research showed.
An inflation floor of 1.5 percent would likely keep the Fed from raising rates only until the second quarter of 2015.
By contrast, the Fed’s current pledge to defer any rate hike until either the unemployment rate falls to at least 6.5 percent or inflation threatens to rise above 2.5 percent could result in rates rising as early as the first quarter of 2015, according to the research published Wednesday.
That’s earlier than a number of Fed officials believe is either likely or desirable.
Cleveland Fed chief Sandra Pianalto, who has announced plans to retire early next year, has not herself publicly embraced an inflation floor.
But the idea has a “few” supporters at the Fed, minutes of the central bank’s October meeting show, including most vocally St. Louis Fed chief James Bullard.
Asked about an inflation floor in September, Fed Chair Ben Bernanke said that it was “one possibility.”
Fed policymakers next meet in about two weeks.
Other policy options aimed at underscoring the Fed’s commitment to low rates include lowering the unemployment threshold for considering a rate hike to at least 6 percent and lowering the interest paid to banks on their excess reserves.
The chiefs of the Minneapolis and Chicago Feds have strongly supported the first idea; the latter has the backing of San Francisco Fed President John Williams.
More popular among policymakers, the October Fed meeting minutes suggested, is to leave the thresholds be and to instead offer qualitative guidance to markets about what conditions would prompt it to raise rates.
Providing such details, San Francisco Fed’s Williams told Reuters on Tuesday, would reassure investors rates will stay low for a long time even after the Fed stops buying bonds.
THE FEDERAL RESERVE WILL PUSH DOLLAR VALUE LOWER
Published on Dec 3, 2013
BEN SWANN: QUANTITATIVE EASING AND WHAT IT MEANS FOR THE U.S. ECONOMY
Published on Sep 19, 2012
BILL STILL: 100 YEARS OF TYRANNY BY THE FEDERAL RESERVE BANKING CARTEL
JEKYLL ISLAND – THE TRUTH ABOUT THE FEDERAL RESERVE (TRAILER)
G. EDWARD GRIFFIN ON THE 100 YEAR OLD CREATURE FROM JEKYLL ISLAND
Published on Nov 12, 2013
JPMORGAN WARNS 465,000 CARD USERS ON DATA LOSS AFTER CYBER ATTACK
By David Henry and Jim Finkle
(Reuters) – JPMorgan Chase & Co is warning some 465,000 holders of prepaid cash cards issued by the bank that their personal information may have been accessed by hackers who attacked its network in July.
The cards were issued for corporations to pay employees and for government agencies to issue tax refunds, unemployment compensation and other benefits.
JPMorgan said on Wednesday it had detected that the web servers used by its site http://www.ucard.chase.com had been breached in the middle of September. It then fixed the issue and reported it to law enforcement.
Bank spokesman Michael Fusco said that since the breach was discovered, the bank has been trying to find out exactly which accounts were involved and what information may have been compromised. He declined to discuss how the attackers breached the bank’s network.
Fusco said the bank was notifying the cardholders, who account for about 2 percent of its roughly 25 million UCard users, about the breach because it couldn’t rule out the possibility that their personal information was among the data removed from its servers.
The bank typically keeps the personal information of its customers encrypted, or scrambled, as a security precaution. However, during the course of the breach, personal data belonging to those customers had temporarily appeared in plain text in files the computers use to log activity.
The bank believes “a small amount” of data was taken, but not critical personal information such as social security numbers, birth dates and email addresses.
Cyber criminals covet such data because it can be used to open bank accounts, obtain credit cards and engage in identity theft. Many states require banks to notify customers if they believe there is any chance that such information may have been taken in a breach.
The bank is also offering the cardholders a year of free credit-monitoring services.
The warning only affects the bank’s UCard users, not holders of debit cards, credit cards or prepaid Liquid cards.
Fusco said the bank had not found that any funds were stolen as a result of the breach and that it had no evidence that other crimes have been committed. As a result, it was not issuing replacement cards.
The spokesman declined to identify the government agencies and businesses whose customers it had warned about the breach.
Officials from the states of Louisiana and Connecticut said the bank notified them this week that personal information of some of their citizens may have been exposed.
Louisiana citizens included about 6,000 people who received cards with state income tax refunds, plus 5,300 receiving child support payments and 2,200 receiving unemployment benefits, according to a statement from state Commissioner of Administration Kristy Nichols on Wednesday.
Nichols said Louisiana would “hold JP Morgan Chase responsible” for protecting the rights and personal privacy of the citizens.
Connecticut Treasurer Denise Nappier said she was “dismayed” that the bank took two and a half months to notify the state of the problem.
“JPMorgan Chase has some work to do, not only to assure the holders of its debit cards, but also to restore the state’s confidence in the company’s ability to remain worthy of our continued business,” Nappier said in a statement on Thursday.
The bank said it didn’t know who was behind the attack, though the Secret Service and FBI were investigating the matter.
Businesses and government agencies are increasingly using prepaid cards because they are easier to cash than paper checks.
Yet the vast stores of data behind payment cards of all kinds have created new risks. In 2007, some 41 million credit and debit card numbers from major retailers, including the owner of T.J. Maxx stores, were stolen.
In May of this year, U.S. prosecutors said a global cybercrime ring had stolen $45 million from banks by hacking into credit card processing firms and withdrawing money from automated teller machines in 27 countries.
JPMORGAN CHASE CYBERATTACK: ALMOST HALF A MILLION CORPORATE CUSTOMERS’ DATA BREACHED, BANK WARNS
The entrance to JPMorgan Chase’s international headquarters on Park Avenue is seen in New York October 2, 2012. Reuters
By Amrutha Gayathri | International Business Times
December 05 2013
The bank said only “a small amount” of data may have been accessed by outsiders and that it did not include vital information such as social security numbers and email addresses. Hackers often use such data to steal identities for obtaining credit cards or to open bank accounts, according to Reuters.
The bank said only UCard customers were affected, and data of holders of debit cards, credit cards or prepaid Liquid cards, were not compromised in the incident.
According to JPMorgan, the Secret Service and the FBI have launched an investigation into the cyberattack, and as of now, the bank does not know who was responsible for the attack.
In May, federal authorities had revealed that a sophisticated global network of cyber-criminals stole $45 million within hours from cash machines around the world. The theft, which a U.S. prosecutor described as a “massive 21st-century bank heist” was carried out by hacking into bank databases and stealing all the information needed to withdraw money.
Corporations use JPMorgan’s cash card, known as UCard, to pay salaries, while government agencies use it for issuing tax refunds and unemployment benefits. JPMorgan said it discovered in September that web servers supporting its site, http://www.ucard.chase.com, had been hacked, potentially involving unauthorized access to the personal information of 465,000 cardholders, according to a Reuters report.
The issue was soon fixed and the incident has been brought to the attention of law enforcement authorities, JPMorgan said, adding that the bank has been trying to identify how many accounts were compromised in the attack.
About 2 percent of the 25 million UCard users could have been potentially affected and the bank is in the process of notifying the clients, Reuters reported, citing JPMorgan spokesman Michael Fusco.
The bank said only “a small amount” of data may have been accessed by outsiders and that it did not include vital information such as social security numbers and email addresses. Hackers often use such data to steal identities for obtaining credit cards or to open bank accounts, according to Reuters.
The bank said only UCard customers were affected, and data of holders of debit cards, credit cards or prepaid Liquid cards, were not compromised in the incident.
According to JPMorgan, the Secret Service and the FBI have launched an investigation into the cyberattack, and as of now, the bank does not know who was responsible for the attack.
In May, federal authorities had revealed that a sophisticated global network of cyber-criminals stole $45 million within hours from cash machines around the world. The theft, which a U.S. prosecutor described as a “massive 21st-century bank heist” was carried out by hacking into bank databases and stealing all the information needed to withdraw money.
BIG BANKS ARE BEING HIT WITH CYBERATTACKS “EVERY MINUTE OF EVERY DAY”
By Michael Snyder | Economic Collapse
December 5th, 2013
What would you do if you logged in to your bank account one day and it showed that you had a zero balance and that your bank had absolutely no record that you ever had any money in your account at all? What would you do if hackers shut down all online banking and all ATM machines for an extended period of time? What would you do if you requested a credit report and discovered that there were suddenly 50 different versions of “you” all using the same Social Security number? Don’t think that these things can’t happen. According to Symantec, there was a 42 percent increase in cyberattacks against U.S. businesses last year. And according to a recent report in the Telegraph, big banks are being hit with cyberattacks “every minute of every day”. These attacks are becoming more powerful and more sophisticated with each passing year. Most of the time the general public never hears much about the cyberattacks that are actually successful because authorities are determined to maintain confidence in the banking system. But if people actually knew the truth about what was going on, they would not have much confidence at all.
At this point, the attacks have become so frequent that there is literally no break between them. According to the Telegraph, major financial institutions are continually under assault, and the total number of attacks is constantly increasing…
Every minute, of every hour, of every day, a major financial institution is under attack.
Threats range from teenagers in their bedrooms engaging in adolescent “hacktivism”, to sophisticated criminal gangs and state-sponsored terrorists attempting everything from extortion to industrial espionage. Though the details of these crimes remain scant, cyber security experts are clear that behind-the-scenes online attacks have already had far reaching consequences for banks and the financial markets.
The amount of money that some of these hackers are stealing is absolutely staggering. For example, during “Operation High Roller” thieves got away with somewhere between 78 million and 2.5 billion dollars…
Dissected last year, Operation High Roller marked one of the biggest online thefts to have been made public. According to details of the investigation, somewhere between $78m (£48m) and $2.5bn was last year stolen from thousands of bank accounts across Europe, the US and Latin America.
Among the customers targeted were rich individuals and high-value commercial accounts, with sophisticated software identifying the victims’ main bank accounts and transferring money to prepaid debit cards which could be cashed anonymously. Once the money had been taken, the hackers were able to hide their thefts by changing the victims’ bank balances so they appeared unaltered.
Do you find it unsettling that the authorities don’t even know how much money was actually stolen?
And earlier this year, another gang of cyberthieves was able to steal 45 million dollars from ATM machines…
A global posse of cyberthieves, armed with laptops in place of guns, hacked into financial institutions and stole $45 million from automated teller machines in a first-of-its-kind heist made for the 21st century, authorities in New York said Thursday.
Over a seven-month period ending last month, the authorities said, hackers broke into computer networks of financial companies in the United States and India and eliminated the withdrawal limits on prepaid debit cards.
Then, people involved in the heist withdrew tens of millions of dollars from ATMs in Manhattan and more than 20 other places around the world. In one case, surveillance cameras picked up a member of the “cashing crew” going from machine to machine, his cash-stuffed bag growing bigger with each hit.
But thefts involving tens of millions of dollars are just the beginning.
In the future, gangs of hackers, terror organizations or even foreign governments could use cyberattacks to bring the entire system down.
John McAfee (formerly of McAfee Associates) recently warned that we are now entering an era of apocalyptic cyberattacks. He said that in the “next world war … the aggressors will be people sitting at home in armchairs while their software turns … all of our guns, our bombs … against us.”
The truth is that it is not just our financial system that is vulnerable. Literally anything that is connected to the Internet could be attacked.
And that is a lot of stuff.
But for now, the big financial institutions remain the most prominent target. Just this week, we learned that a successful cyberattack on JPMorgan Chase resulted in the theft of the personal information of close to half a million corporate and government clients…
Personal information of nearly half a million corporate and government clients who hold prepaid cash cards issued by JPMorgan Chase & Co. (NYSE:JPM) may have been compromised in a cyberattack that took place on the bank’s network in July, the bank warned on Wednesday.
Corporations use JPMorgan’s cash card, known as UCard, to pay salaries, while government agencies use it for issuing tax refunds and unemployment benefits. JPMorgan said it discovered in September that web servers supporting its site, http://www.ucard.chase.com, had been hacked, potentially involving unauthorized access to the personal information of 465,000 cardholders, according to a Reuters report.
The issue was soon fixed and the incident has been brought to the attention of law enforcement authorities, JPMorgan said, adding that the bank has been trying to identify how many accounts were compromised in the attack.
Of course this was not the first major “technical glitch” that JPMorgan Chase has encountered this year. In fact, earlier this year thousands upon thousands of their customers logged into their bank accounts only to discover that their balances had all been reset to zero. That problem was fixed shortly thereafter, but I guarantee you that all of the customers that witnessed that “glitch” will remember it for a very long time.
And certainly JPMorgan Chase is far from alone in dealing with these kinds of issues. In fact, major U.S. bank websites were offline for a combined total of 249 hours during just one six week period earlier this year.
When it comes to the Internet, nobody is ever entirely safe. Every major website and every major company are being targeted. According to USA Today, a cyberattack that began on October 21st has resulted in the theft of the login information for about 2 million Internet accounts…
Almost 2 million accounts on Facebook, Google, Twitter, Yahoo and other social media and Internet sites have been breached, according to a Chicago-based cybersecurity firm.
The hackers stole 1.58 million website login credentials and 320,000 e-mail account credentials, among other items, the firm Trustwave reported. Included in the breaches were thefts of 318,121 passwords from Facebook, 59,549 from Yahoo, 54,437 from Google, 21,708 from Twitter and 8,490 from LinkedIn. The list also includes 7,978 from ADP, the payroll service provider. According to a Trustwave blog, “Payroll services accounts could actually have direct financial repercussions.”
So be cautious on the Internet. The bad guys are out there, and they are becoming more sophisticated with each passing day.
And if you think that “the government will protect us”, you are just being naive.
In fact, government agencies cannot even protect themselves from these guys. For example, identity thieves have been making fools of the IRS for years…
The Internal Revenue Service sent 655 tax refunds to a single address in Kaunas, Lithuania — failing to recognize that the refunds were likely part of an identity theft scheme. Another 343 tax refunds went to a single address in Shanghai, China.
Thousands more potentially fraudulent refunds — totaling millions of dollars — went to places in Bulgaria, Ireland and Canada in 2011.
In all, a report from the Treasury Inspector General for Tax Administration today found 1.5 million potentially fraudulent tax returns that went undetected by the IRS, costing taxpayers $3.6 billion.
So if you are waiting for the incompetent U.S. government to fix this problem, you are going to be waiting for a very, very long while.
As a society, we are constantly becoming even more dependent on the Internet.
Meanwhile, the attacks on the Internet are continually becoming even more sophisticated.
At some point those attacks are going to cause some major league problems.
It is just a matter of time.
WITH TOP FOUR U.S. BANKS HOLDING $217 TRILLION IN DERIVATIVES, TOTAL NUMBER OF U.S. BANKS DROPS TO RECORD LOW
by Tyler Durden | ZeroHedge
Overnight, the WSJ reported a financial factoid well-known to regular readers: namely that as a result of a broken system that ever since the LTCM bailout has encouraged banks to become take on so much risk they become systematically important (as in their failure would “end capitalism as we know it”), and thus Too Big To Fail, there has been an unprecedented roll-up of existing financial institutions especially among the top, while the smaller, less “relevant”, if far more prudent banks have been forced out of business. “The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show. About 17% of the banks collapsed.”
The resulting elimination of over 10,000 banks in the past thee decades is shown in the WSJ chart below, which also shows total amounts of bank deposits.
The WSJ comments as follows:
The consolidation could help alleviate concerns that the abundance of U.S. banks leads to difficulties in oversight or a less-efficient financial system. Meanwhile, overall bank deposits and assets have grown, despite the drop in institutions.
Well, first of all, as David Kemper, chief executive of Commerce Bancshares Inc., a regional bank based in Missouri, said “Seven thousand is still an awful lot of banks,” particularly in an era where brick-and-mortar branches are becoming less profitable, said “There’s no reason why we need that many banks, especially if those smaller banks have a much lower return on capital. The small banks’ bread and butter is just not there anymore.”
But more important is the erroneous observation about deposits, which indicates a persistent lack of understanding about how QE works. As we won’t tire of explaining, the ~$2.2 trillion surge in deposits since Lehman is matched only by the ~$2.2 trillion surge in Fed created reserves. In other words, excess reserves appear on bank balance sheet as excess deposits, which are then used by banks to gamble away a la the London Whale, which used nearly half a trillion in fungible reserves (as manifested the liability side of its ledger) to fail in cornering the IG9 market. This transformation is shown on the chart below (discussed in depth here).
The point here is that the number of banks is largely irrelevant: it is obvious that the big will keep on getting bigger, and the Big 5 banks will do all in their power to either acquire their profitable competition or put everyone else out of business. However, the far bigger question is what happens to bank deposits once the Fed start to taper, ends QE or outright unwinds its balance sheet, which ultimately would soak up trillions from bank deposits. Because if there is one thing that is clear is that without the Fed, and without commercial bank loan creation (which has been non-existent in the past 5 years), bank balance sheet would be exactly where they were the day Lehman died.
Finally, one does not need to go any further than the following chart from the OCC showing total bank derivative holdings for all US banks and just the Top 4. The punchline: just the 4 biggest US banks hold $217.5 trillion, or 93% of the total $233.9 trillion in derivatives.
In light of the above, who cares how many other banks in the US exist?
NOMI PRINS: BIG SIX BANK STOCKS OUTPERFORMING MARKET BY TEN TIMES
By Greg Hunter’s USAWatchdog.com
Nomi Prins, former Wall Street banker and author, says, “There’s this myth . . . that somehow the Fed’s quantitative easing (money printing) is helping to create jobs.” What’s really going on? Prins says, “The big six bank stocks are outperforming the rise in the stock market generally by ten times, and that is really not talked about very much, and that’s a big multiple.” Prins goes on to say, “They are the ones who have received the most benefit, and they are the ones who are still in trouble.” Can the Fed stop supporting the big banks? According to Prins, “The banks can’t survive without the Fed support, period. . . . The Fed will not discontinue its program of helping these banks because the levels of problems are still the same.” According to Prins, depositors could be in trouble during the next banking calamity. Prins contends, “That is a danger. Depositors could lose money because the FDIC would not be able to contain a mega fallout. . . . They’re creating a facade of stability until it falls apart.” Join Greg Hunter as he goes One-on-One with Nomi Prins, best-selling author of “It Takes a Pillage.”
YES, FEDS CAN TAKE YOUR DEPOSITS
Global trend sparked by Cyprus’ confiscation of accounts balances
by Jerome R. Corsi | World Net Daily
NEW YORK – Can the federal government confiscate all the deposits in an American citizen’s FDIC-insured bank account?
The answer is “Yes.”
As WND reported, the Dodd-Frank bill allows the federal government to confiscate bank deposits in an unlimited “bail-in” for banks “too big to fail,” provided the account holder gets equity in exchange for the deposits.
In March, Cyprus agreed to confiscate 10 percent of all deposits in Cypriot banks, calculated to result in a 10 billion euro “bail-in” as a condition of obtaining an emergency Eurozone bail-out of 10 billion euros.
The question increasingly getting asked in international banking circles is this: Was the “Cyprus Experiment” in which the government confiscated bank deposits a first step toward what may well become a global trend over the next few years?
EU proposes deposit grab
Anyone who thinks the scenario is merely academic must realize that the European Parliament already is in the process of passing new regulations adopting the recommendation of its Economic and Monetary Affairs Committee. The panel recommends that a deposit guarantee funds should not protect a deposit of funds in a “guaranteed account” can be siezed when financial difficulties call for rescuing a troubled financial institution.
The text of the EU’s Economic and Monetary Affairs Committee recommendation calls for ruling out using deposits below 100,000 euros and specifies that confiscating deposits above 100,000 euros should be a last resort.
A European Parliament press release dated May 21 specified the “bail-in” scheme proposed by the EU’s Economic and Monetary Affairs Committee should be up and running by January 2016.
With the EU moving to codify procedures for confiscating depositor funds in a bank “bail-in,” the confiscation of deposits last March in the Mediterranean island nation of Cyprus may have only been a dry run for future bank crises anticipated by EU financial experts.
Are private retirement assets safe?
WND reported Sept. 9 that Polish Prime Minister Donald Tusk announced a government decision in September to transfer to ZUS, the government pension system, all bond investments in privately held pension funds within the state-guaranteed system.
With the U.S. and the EU struggling with a debt crisis caused by slow economic growth and massive growth in social welfare programs, WND has previously reported that all private assets, including IRA and 401(k) retirement assets, may not be immune from one form or another of government takeover, even if new federal regulations that require a percentage of all private retirement assets in the U.S. be invested in federal government IOUs, including U.S. Treasury debt.
WND has reported government officials continue to eye the multi-trillion dollar private retirement savings market, including IRAs and 401(k) plans, seeing the opportunity to redistribute private retirement savings to less affluent Americans and to force the retirement savings out of the private market and into government-controlled programs investing in government-issued debt.
The ‘bail-in’ strategy
The possibility bank deposits could get confiscated by the federal government caused a firestorm of controversy following a WND story indicating Greece is considering confiscating corporate deposits to pay social security contribution shortfalls in the country.
“How is this possible?” many posting on Twitter and Facebook asked after the WND article was published.
The answer is provided in a little-noticed Dec. 10, 2012, memorandum published by the FDIC in the United States and the Bank of England in the United Kingdom titled “Resolving Globally Active, Systemically Important Financial Institutions.”
This paper redefines “too big to fail” companies as “Globally Active, Systemically Important, Financial Institutions,” or G-SIFIs, in the terminology of international banking.
The goal of the paper is to find a way to save big banks that are facing a financial crisis without having to utilize taxpayer funds to “bail out” the bank with what amounts to either a federal government loan or a federal government equity injection resulting in the government owning some percentage of the bailed-out bank.
The “bail-in” strategy under which some or all private bank deposits are confiscated to resolve a financial crisis was made possible because of powers granted the federal government in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
In banking terms, the strategy creates a single receivership at a top-tier holding company and assigns losses to shareholders and unsecured creditors of the holding company. The aim is to transfer the sound operating bank subsidiaries that emerge from the restructuring to a new solvent entity or entities.
Put simply, bank deposits are considered under Dodd-Frank to be “owned” not by the despositor but by the bank, such that the bank has a contingent liability to owner regarding the deposits.
But that contingent liability can either be honored by the bank giving the account holder back his deposits when requested or giving bank stock should the bank need to confiscate the deposits to make up for a deficiency in the legal reserves required to operate or in any other financial crisis the bank faces.
The stock the account holder receives might not be in the bank where the money was deposited. It could be in the new bank entity or subsidiary that emerges after the “bail-in” has been accomplished.
Under Dodd-Frank, depositors are an unsecured creditor to the bank. The federal government under “Orderly Liquidation Authority” outlined in the legislation can seize any financial firm, not simply the largest ones, if the Federal Reserve, the secretary of the Treasury and the FDIC determine a particular bank failure may cause instability in the U.S. financial system.
A creative alternative to giving account holders bank equity after confiscating their deposits to “bail-in” a troubled financial institution may be to offer a special-issue U.S. Treasury instrument that may only be sold over a five-year period.
MONEY IS NOT SAFE IN THE BIG BANKS
RELATED POST: THE BIG WALL STREET BANKS ARE ABOUT TO ENTER A DEATH SPIRAL
STATEMENT BY REP. ANDREA BOLAND (D-ME) ON GLASS-STEAGALL
Published on Dec 5, 2013
Maine State Rep. Andrea Boland delivers a statement after a day of organizing on Capitol Hill with LaRouche PAC. Rep. Boland is the primary sponsor of legislation for the re-introduction of Glass-Steagall banking legislation at the 2013 National Conference of State Legislatures.
STATE LAWMAKERS AND WALL STREET CLASHED AT NCSL
The clash came to a head mid-day on Thursday, when the relevant NCSL Committee officially took up the Glass-Steagall Resolution; and heard a powerful 12 minute presentation from Rep. Boland. The Committee barely scraped together representatives of the 10 states needed for a quorum, and 15 legislators were present in total. When nine of the ten states voted against the resolution—after presenting blatant bought-and-paid-for-rhetoric right out of the ABA letters—the point was clearly made: Boland herself, and the principle of Glass-Steagall are victorious over the corruption of those still grovelling to the banksters.
Wall Street is clearly freaked. Its huge deployment to the August national conference of the NCSL successfully staved off passage of a similar resolution which would demand that Congress act to push through the Glass Steagall bills in Congress—HR 129 and S. 1282 or S. 985, but the momentum nationally for cutting off Wall Street and its deadly gambling crimes, has continued to grow.
- Glass Steagall in Committee; Banksters on Patrol -
The following blow-by-blow account was provided from an attendee at Thursday’s hearing by the NCSL Committee on Communications, Financial Services and Interstate Commerce, 10 of whose total membership (of 16-18 members) were present. (Taping was not permitted). Of the total audience of 30 at the hearing, at least 25% were bank lobbyists—including Bank of America, JPMorgan Chase, Citigroup, and the American Bankers Association—out in force on behalf of Wall Street, patrolling the halls and proceedings. [Earlier this morning at a different hearing, one EIR reporter was kicked out of the conference, for not having, "the right credentials." This occurred right after the reporter, covering a session on privatizing Fannie Mae and Freddie Mac as a banking "reform," raised a question on Glass-Steagall. Shortly thereafter, not only was she expelled, but other journalists were summarily subjected to a credentials check, to determine if they were "legitimate media"].
The CFI Committee convened at 1:30 pm, with the Glass Steagall Resolution as the first order of business. Its sponsor, Maine Rep. Andrea Boland, was called as the witness, and gave an eloquent, extempore 12 minute presentation, demanding its passage. The text was projected on the screen; parts of it were read aloud. The text was also available in the NCSL conference booklet.
But in addition, all hearing participants had printed copies of an attack on the Resolution, issued Dec. 3 to the lawmakers, by George Gervais, Commissioner of the Maine Department of Economic and Community Development, on behalf of himself and Governor Paul LePage. This letter flew in the face of the Maine state legislature resolution calling for a return to Glass Steagall resolution, which passed both houses of the legislature by acclamation in April 2013.
- Rep. Andrea Boland’s Presentation -
Rep. Boland began by explaining her Resolution to Reinstate Glass Steagall. She then continued, speaking very directly to her fellow lawmakers (reported here throughout, in paraphrase): I know that the American Bankers Association (ABA) and bankers have been lobbying against the Resolution. I know that all of you need to raise money to get re-elected. I know that the bankers are all over the legislatures. I know it will be hard for many of you to vote for this Resolution, because the bankers have a powerful lobby.
But look: the crisis is in the headlines. She read a headline, “JPMorgan Chase Makes $13.8 Billion Settlement;” and another: “Bank of America Makes Large Settlement on Bad Mortgages,” She read, ‘The tally of U.S. banks is at a record low [number]. The small banks are run out of business, while the big banks are continuing to grow.’ She said, there are no loans going out to Mainstreet. The major banks are speculating to a degree not seen since the 1929 crash.
Rep. Andrea Boland
Let me give this a personal slant. In my other life, I am a real estate title examiner, and I have seen a dramatic change take place. Previously, the title examiner attorney would sign his name to a certificate of title, and stand behind it. Now, we have title insurance; and the lawyer doesn’t have to stand behind his examination.
Now, the same thing is going on with the large banks; they are selling protection with securities, to protect themselves from disaster. Not to expound on every detail, but this process is leading us to a new crisis.
When I raise Glass-Steagall to ordinary people in Maine, they say: ‘It makes sense. We should not be speculating with the money people put in the bank.’ It should be secure to ordinary people, who just want their money safe in the bank. If people want to speculate, they should go to a brokerage house, or investment firm.
Now, people deposit their money, and it’s speculated on. A mortgage might be issued; then the mortgage is sent out of town. It used to be the case, that the mortgage stayed in town. You knew your own banker. And we’ve lost that feeling.
It’s just like when I’m a title examiner. I saw the prices started to skyrocket on the same properties. I said to myself, how can that be? And then I saw the urgency to quickly re-sell the mortgage to a secondary market; and then what happened is, there would be selling, re-selling, packaging, and again, re-selling. The process is now selling, reselling, packaging the same mortgage. The commercial banks have essentially been funded the same way as the investment banks.
And to keep the process going, they are getting $85 bil a month from the Federal Reserve, to keep doing this. If the Federal Reserve evens mentions reducing this, the stock markets immediately go down.
- Banking System: A House of Cards -
It’s now like a house of cards. There is $70 trillion in the global GDP, and $770 trillion in global derivatives supported by the GDP! This makes no sense.
The banks are being funded, but businesses can’t get loans. In many states, re-development authorities, which build infrastructure, can’t get money because the money is going other places. And now, as we are fighting to get Glass Steagall, threats are coming down from the bankers, pleading, ‘why didn’t you call us, to let us know your concerns.’
In Maine, Bank of America is threatening to move over a thousand people, and there would be eight people losing their jobs in my area. And people think that’s what this is all about.
Well, if Glass Steagall passes, there will be more pain for some of the banks. But I would rather have pain for the banks, than pain on the rest of us for not doing this.
Ask yourself, there’s $700 trillion being traded in derivatives against $70 trillion in GDP—that’s a small pot holding up a gigantic tower. A lot will be lost by some people. But a lot will be gained by my people and any citizens whom you represent.
There will be pain for people at the top, lots of pain. But better that, than pain for people at the bottom.
- Three Piqued Responses -
The Committee members, and those in the room were completely provoked by Boland’s tough presentation. Immediately three of the Committee members jumped up to speak.
The first was a State Senator Travis Holdman from Indiana. A former bank chairman, and chairman of the banking committee in the state Senate (where Glass Steagall was not taken up, though it passed in the Indiana state house by acclamation in May, 2013), he said, ‘I take offense personally at the implication that I am taking money from the bankers, and the implication that that’s why, it influences what I do. If I took contributions in Indiana, I would be immediately brought up on ethics charges. How dare you insinuate this?’
The Indiana lawmaker was flipped, and continued: ‘The lady from Maine, whom I respect, read to you from the Wall Street Journal, well I’m going to read to you from the Wall Street Journal.’ He then picked up Thursday’s issue of the WSJ, “Banks Brace for Tighter Regulation,” indicating, ‘now let me keep reading from the newspapers,’ but instead, he picked up the ABA fact sheet, and read it verbatim! He read for five minutes, as if it came from the newspapers. He even said it was from the newspapers.
And furthermore, he then said, it is true that the Glass Steagall Resolution passed the Indiana state House, but not the Senate, and everybody knows, that if it just passes one house, it’s not worth the paper it’s written on.
What I think is, that we don’t need Glass Steagall, we need to repeal Dodd Frank, and privatize Fannie and Freddie. He sat down.
State Senator Curtis Bramble of Utah, in line to become NCSL President in mid-2014, spoke next. He went through his own credentials. “I am the Chair of the Business and Labor Committee in Utah. For the sake of disclosure. I am a CPA and I audited banks in the 1980s to make sure they complied with FDIC requirements. I’ll be honest. Frankly, I’ve been lobbied even more by LaRouchePAC, than even the ABA. If people in this room vote for the Resolution, it doesn’t mean they support LaRouchePAC. And if they vote against it, it doesn’t mean they support the ABA.’
After this formulation—calculated for impact, Harper continued, ‘OK. I just want to read something.’ He then took the Dec. 3 letter from Maine, and read it, to attack the Glass Steagall Resolution. He ended, with, ‘I think, based on this, we should defeat the Resolution on its merits.’
Rep. Barry J. Hobbins of Maine went through a faint praise for Andrea, describing her, “as always being passionate for the issue she fights for. We disagree on this, however. Maine has 9,000 people in its financial institutions, who could be affected. I am on the board of Gorham Savings Bank, and the president of our bank, is now the state president of the Maine Bankers Association. And not only that, but for the purposes of disclosure, the Maine Bankers Association did contribute to my compaign.’ He continued coyly, playing to the bank lobbyists, ‘But frankly, it was a small contribution, and I had expected more.’
Then, picking up the Maine ABA letter, he continued, ‘So this Resolution assumes that the repeal of Glass Steagall led to the crash. But I just want to re-quote my friend from Indiana, who said there were other causes. [His friend had NOT given other causes; he too had just read the ABA letter]. Frankly, there are changes going on now in banking pursuant to Dodd Frank, and we now have the tools to regulate the banks,’ which was a direct quote from the ABA letter. ‘Therefore, passing this Resolution would not be good for the citizens of Maine.’
A motion was put to take a vote. But Rep. Dan Flynn from Texas stood up, ‘Before we vote on the motion, I request a point of order, to make one last comment. I am a former banker, and frankly, I oppose the Resolution. The repeal of Glass Steagall didn’t cause the crash. What we should do, is repeal Dodd Frank. The repeal of Glass Steagall has been talked about by people who have been talking to me on the phone and in the halls, but my conclusion is that we should defeat it.’
- Andrea Boland’s Rebuttal -
Andrea Boland intervened at this point, saying, ‘I want to make a brief rebuttal.’ She was given one minute. She said, ‘I know that the bankers know about how to present their case to you. And I know that you have gotten letters from them on this. And I apologize to you for the letter you have received from my governor; and that the letter was signed by the Secretary for Economic Development.
‘I have another resolution in an adjacent committee on protecting our electric grid, and our Secretary, Mr. Gervais, who signed the letter, would not even consider measures for protecting our electric grid, even though my resolution passed the Maine legislture. It hurts when you lose your electricity.
‘Look, all the arguments today presented against this Resolution, have been total mis-information. I urge you to consider the arguments of Elizabeth Warren, Marcy Kaptur and Tom Harkin, and not the arguments of the banks. Follow what Elizabeth Warren is saying, against the bankers.’
The vote was then taken, which was unanimous against the Resolution, except for Maine, which was termed a “split” vote, because the two Maine lawmakers voted oppositely. It was noteworthy, that at least three Committee members had previously said that they would vote up the Resolution, but were strong-armed against it.
Afterwards, as people started leaving, almost all the Committee Members gave a craven thumbs-up, or shook hands with the bank lobbyists. It was conspicuous.
DISCUSSION ON NCSL WITH ANDREA BOLAND AND DIANE SARE
Published on Dec 7, 2013
A resolution for Glass-Steagall, sponsored by Maine Rep. Andrea Boland, is scheduled to be heard and voted on by the group of approximately 200 delegates assembled. Boland’s resolution has been co-sponsored by 18 other state legislators, from 15 different states, some of them lead sponsors of memorials for Glass-Steagall in their own legislatures.
-Watch Andrea Boland’s Statement, on Organizing Capitol Hill, December 5th-
Wall Street is clearly worried. Its huge deployment to the August national conference of the NCSL successfully staved off passage of a similar resolution which would demand that Congress act to push through HR 129 and S. 1282 or S. 985, but the momentum nationally for cutting off Wall Street and its gambling habit, has continued to grow. Thus, during the last week of November, letters began to be sent from the state branches of the American Bankers Association to at least the sponsors of the Boland resolution—and perhaps all those attending the forum, informing the legislators that the banking associations strongly opposed the resolution.
The content of the resolution is a compilation of the same fraudulent arguments which the Obama Administration and the banking community have been peddling for years—and have been soundly refuted by EIR and honest experts such as FDIC vice-chairman Thomas Hoenig. As the notorious Jamie Dimon did in an interview in The Oklahoman last summer, the letters claim that the regulations in Dodd-Frank will deal with whatever real problems there are in banking practice—at the same time that they fight tooth and nail to eliminate these regulations! Watch this space for further updates.
Boland Gives Strong Presentation on Necessity of Glass-Steagall
Maine State Rep. Andrea Boland gave a strong presentation on the necessity of Glass-Steagall to the 10 members of the Committee hearing the Resolution supporting Glass-Steagall (Committee on Communications, Financial Services and Interstate Commerce). They were corrupt oafs and voted it down; amidst an audience of 30, of which 25% were bankster lobbyists. But the occasion was clearly—and explicitly, repeatedly—a dramatic showdown between the ideas of Lyndon LaRouche and Wall Street.
TO FEND OFF GLASS-STEAGALL, VOLCKER RULE IS ACCELERATED
BITCOIN’S UNCERTAIN FUTURE VS. ITS METEORIC RALLY
Commentary: Serious investors may want to steer clear
By Michael Casey | Market Watch
There’s a reason why bitcoin critics are evoking Tulip Mania as the digital currency’s price soars to new heights.
It’s because the story of the Netherlands’ great tulip bubble of 1637 helps focus the mind on the basic question at the heart of any financial bubble assessment: whether there’s a blatant disconnect between an asset’s price and its fundamental value. There are some decent arguments why bitcoin’s detractors could be wrong. But, either way, anyone hoping to ride this rally higher should think about what constitutes the digital currency’s fundamental value.
Of course, there’s no surefire way to determine fundamental or fair value — notwithstanding the useful benchmarks for doing so in markets such as stocks — especially for something as untested as this. But the lesson of Tulip Mania is that when prices truly get into bubble territory, your gut can be as good a gauge as anything. At its peak, the price for a single tulip bulb in 1637 stood at 10 times the annual income of a skilled Dutch craftsman. Based on that simple, fundamental assessment of the market’s potential, something was clearly amiss.
So, what of bitcoin and the 8,900% rally since Jan. 1 that took the virtual currency to a peak of $1,200 this week? The fundamental question in this case is whether the digital currency will eventually become a widely accepted means of exchange and a store of value. Will businesses and individuals everywhere routinely use bitcoin to purchase goods and services? Will they happily store their savings in bitcoin, not because they are betting on gains versus the dollar but because they regard it as a safe and stable vehicle for doing so? And if all of this is indeed part of bitcoin’s destiny, how long will it take to get there? Read: Bitcoin fever is a fool’s gold rush.
I’m generally agnostic on those questions.
My own sense is that it will take far too long for bitcoin to rise to an appropriate level of acceptance to justify a rally as fast as this — not when the dollar, euro, yen and the rest of the world’s government-issued currencies are so deeply entrenched in the global financial system. And there’s a real risk that copycat digital currencies will dilute the demand for bitcoin.
Yet there are some strong arguments in favor of this revolutionary digital currency: bitcoin has great potential as a highly secure, low-cost vehicle for electronic transactions in competition with credit cards; it could enjoy a powerful first-mover advantage allowing it to set the standard for digital currency transactions; and its inherently limited supply makes it attractive to investors seeking an alternative to both fiat currencies and gold. Bitcoin’s attributes facilitate this: it generates close to zero transaction costs; it bears powerful encryption protections; and, unlike unlimited fiat currencies, there’s expected to be a finite amount in circulation as the algorithm behind bitcoin’s production is believed to be programed to stop doing so at a predetermined point. Read: Where does your bitcoin investment go when you die?
In fact, as Citibank currency strategist Steven Englander observed in a research note this week, “with its inelastic supply and deflationary bias, [bitcoin] would look attractive to [central bank] reserve managers as a complement to gold, and in contrast to fiat currencies in unlimited supply.” That makes the People’s Bank of China bitcoin’s biggest potential customer. Even if the limits to circulation will put a cap on China and other big reserve manager’s capacity to trade in this market, for now the sharp rally in bitcoin’s dollar-based valuation means that it could theoretically absorb a much bigger portion of their current reserves. It’s no surprise, perhaps, that a move by one unit of state-owned China Telecom to accept certain payments in the digital currency is being interpreted by some as a way for China to promote it. http://www.forbes.com/sites/quora/2013/12/03/what-is-beijings-rationale-for-promoting-bitcoin/
None of this precludes the prospect that bitcoin’s recent price action represents a bubble. The proof that it isn’t does not hinge solely on whether bitcoin can become a big player in commercial transactions but whether that happens fast enough to justify the exponential increase in its price versus the dollar. Tulip bulbs ultimately proved to be a lasting, viable product. They were just priced wrong.
What does matter is that investors go to the trouble of asking and exploring these fundamental questions about bitcoin’s inherent value and weigh that against the price they pay for it.
The recent rally seems to have been triggered by gestures from financial authorities that were seen as quasi endorsements: Federal Reserve Chairman Ben Bernanke’s comment last week that bitcoin “may have long-term promise” and news that the Royal Mint in the U.K. is considering a proposal by the Channel Island of Alderney to turn the British crown dependency into the first jurisdiction to mint physical bitcoin.
Still, looking at the digital currency’s eye-popping charts, it’s hard not to suspect that a bandwagon to nowhere has set forth. Many are clearly buying bitcoin simply because they believe it’s going to go higher for its own sake. If so, it represents pure, rampant speculation — a signal for serious investors to steer clear of it.
CHINA BANS FINANCIAL COMPANIES FROM BITCOIN TRANSACTIONS
By Bloomberg News
China’s central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-fold jump in its value sparked a surge of investor interest in the country.
Bitcoin plunged more than 20 percent to below $1,000 on the BitStamp Internet exchange after the People’s Bank of China said it isn’t a currency with “real meaning” and doesn’t have the same legal status. The public is free to participate in Internet transactions provided they take on the risk themselves, it said.
The ban reflects concern about the risk the digital currency may pose to China’s capital controls and financial stability after a surge in trading this year made the country the world’s biggest trader of Bitcoin, according to exchange operator BTC China. Bitcoin’s price jumped more than ninefold in the past two months alone, prompting former Federal Reserve Chairman Alan Greenspan to call it a “bubble.”
“The concern is that it interferes with normal monetary policy operation,” said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong. “It represents an unofficial leakage to the current monetary system and trades globally. It is difficult to regulate and could be used for money laundering. I think the central bank is right to make this move.”
Bitcoin prices plunged to $875 at 6:02 p.m. Shanghai time on BitStamp, an Internet-based exchange where the currency is traded for dollars, euros and other currencies. They closed at a record high of $1,132.01 yesterday. On the Mt.Gox exchange, the currency traded at $901, down from today’s high of $1,240. Prices dropped to as low as 4,521.1 yuan on BTC China, after rising as high as 7,050 yuan.
The People’s Bank of China said financial institutions and payment companies can’t give pricing in Bitcoin, buy and sell the virtual currency or insure Bitcoin-linked products, according to a statement on the central bank’s website.
PBOC, China Banking Regulatory Commission and other regulators have held discussions about drafting rules for trading platforms that facilitate the buying and selling of the virtual money, two people with direct knowledge of the matter said. They were not authorized to speak because the information is not public.
“We’re happy to see the government start regulating the Bitcoin exchanges,” Chief Executive Officer Bobby Lee of BTC China, the largest Bitcoin exchange in the country, said in a phone interview before the PBOC announcement. Regulations would be for “the good of the consumer,” he said. BTC is seeking recognition of the currency so it can be used to buy goods and services instead of being used for speculation, he said.
New rules for Bitcoin may not clarify Bitcoin’s legal status as regulators are divided over the issue, the people said. People are free to trade Bitcoin even as China refrains from recognizing it as a currency in the short term, PBOC’s Deputy Governor Yi Gang was cited by the 21st Century Business Herald as saying last month.
Bitcoin prices are unsustainably high and the virtual money isn’t currency, Greenspan said in a Bloomberg Television interview from Washington yesterday.
“It’s a bubble,” said Greenspan. “It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
A Justice Department official said Nov. 18 Bitcoins can be “legal means of exchange” at a U.S. Senate committee hearing, boosting prospects for wider acceptance of the virtual currency. Fed Chairman Ben S. Bernanke told the Senate committee the U.S. central bank has no plans to regulate the currency.
A local branch of China Telecom Corp. is accepting Bitcoins as deposits for a new Samsung Electronics Co. handset. Phone buyers can pay 0.1 Bitcoin to book a Samsung W2014 mobile phone for pickup starting Dec. 20, according to a statement posted on the internal website of China Telecom’s Jiangsu branch and confirmed by a customer service representative.
The growth of Bitcoin in China has come amid speculation that regulators may halt trading after police arrested three people on suspicion of stealing money from investors through a fake online exchange.
GBL, a Bitcoin trading platform that began operating in May and had 4,493 registered users at the end of September, abruptly closed on Oct. 26, the official Xinhua News Agency reported Dec. 3., citing police in eastern Zhejiang privince’s Dongyang city.
One investor who reported the case to the police claimed a loss of 90,000 yuan ($14,774), Xinhua reported, saying the total amount of money stolen was unclear. The Hong Kong Standard reported on Nov. 11 that investors may have lost as much as 25 million yuan after the site closed.
There are about 12 million Bitcoins in circulation, according to Bitcoincharts, a website that tracks activity across various exchanges. Bitcoin was introduced in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto.
“The scale of the Bitcoin market isn’t significant enough to disrupt China’s financial system, but its growth has been very strong,” said Peter Pak, head of trading of BOCI Securities Ltd. in Hong Kong by phone. “Regulators might be worried that this could get out of control in one to two years if they don’t do something.”
BITCOIN: DUMP IT!
Published on Dec 2, 2013
CRYPTOCURRENCIES: THE WAY OF THE FUTURE?
Published on Dec 5, 2013
Bitcoin, the alternative cryptocurrency, is the trendiest answer to “What’s in your wallet?” since, well, a certain credit card. The value of Bitcoins has skyrocketed over the last year, as the digital currency is used to pay colleges tuitions, assassins’ contracts and the paycheck for a police chief in Kentucky. Now there’s another online currency, Litecoin, which was created by former Google employee and MIT student Charles Lee to correct some of Bitcoin’s flaws. RT’s Meghan Lopez asks Yanis Varoufakis, political economist and author of “The Global Minotaur,” if cryptocurrencies are just a flash in the pan, or if they’re the financial future of the world.
JEFF GUNDLACH, ROBERT SHILLER, AND NOURIEL ROUBINI ALL AGREE THAT ONE HOUSING MARKET LOOKS LIKE A TOTAL BUBBLE
by Steven Perlberg | Business Insider
Bond oracle Jeff Gundlach and recent Nobel Prize-winner Robert Shiller sat down with Barron’s for a joint interview to “size up the world.”
These guys are, quite simply, two of the sharpest market minds out there right now, so it’s especially interesting when their opinions line up. And it seems the two are in agreement over Norway’s bubbly, “out of whack” housing market.
First, Gundlach serves up some numbery goodness, and then Shiller brings it home with a dose of cerebral cultural commentary. From Barron’s:
Gundlach: Take a look at Norway if you want to see a country that really looks out of whack. The housing market there has been so strong, and the debt ratios are so high. People don’t think about Norway as being that type of a country. But if you look at the charts, it is pretty remarkable. By last June, the Norway housing index had risen 77% from year-end 2004, an all-time high. The U.S. home-price index, by contrast, sat at a 3% loss, compared with its level at year-end 2004.
Shiller: I’ve been trying to understand and think about these things in psychological terms. So what is it with the Norwegians? Well, they have a kind of a superiority complex. First of all, they were smart enough not to join the European Union, and they don’t bear any of the burden of the southern EU countries. And they have North Sea oil, and their economy looks good. So they just think they are immune from all the problems of the world, and people are coming into Norway for jobs. So it just sounds to them that their real estate ought to be booming…There is something about our culture at this point in history. The rise of capitalism all over the world has gotten people in a very speculative mode in lots of places, and we are all capitalists now in a much deeper sense than we ever were before.
Gundlach and Shiller join another major economic voice, Nouriel Roubini, in sounding the alarm over Norway. They’re not alone. Last year, The Atlantic’s Matthew O’Brien put it best, writing that Norway’s housing bubble “makes ours look almost cute by comparison.”
And according to a new IMF report, Norway has the third most overvalued housing market in the developed world, beaten out by only New Zealand and Canada.
Last year, the San Francisco Fed compared U.S. and Norwegian home prices. Here’s the chart:
BACK TO HOUSING BUBBLES
by Nouriel Roubini
NEW YORK – It is widely agreed that a series of collapsing housing-market bubbles triggered the global financial crisis of 2008-2009, along with the severe recession that followed. While the United States is the best-known case, a combination of lax regulation and supervision of banks and low policy interest rates fueled similar bubbles in the United Kingdom, Spain, Ireland, Iceland, and Dubai.
Now, five years later, signs of frothiness, if not outright bubbles, are reappearing in housing markets in Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand, and, back for an encore, the UK (well, London). In emerging markets, bubbles are appearing in Hong Kong, Singapore, China, and Israel, and in major urban centers in Turkey, India, Indonesia, and Brazil.
Signs that home prices are entering bubble territory in these economies include fast-rising home prices, high and rising price-to-income ratios, and high levels of mortgage debt as a share of household debt. In most advanced economies, bubbles are being inflated by very low short- and long-term interest rates. Given anemic GDP growth, high unemployment, and low inflation, the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices.
The situation is more varied in emerging-market economies. Some that have high per capita income – for example, Israel, Hong Kong, and Singapore – have low inflation and want to maintain low policy interest rates to prevent exchange-rate appreciation against major currencies. Others are characterized by high inflation (even above the central-bank target, as in Turkey, India, Indonesia, and Brazil). In China and India, savings are going into home purchases, because financial repression leaves households with few other assets that provide a good hedge against inflation. Rapid urbanization in many emerging markets has also driven up home prices, as demand outstrips supply.
With central banks – especially in advanced economies and the high-income emerging economies – wary of using policy rates to fight bubbles, most countries are relying on macro-prudential regulation and supervision of the financial system to address frothy housing markets. That means lower loan-to-value ratios, stricter mortgage-underwriting standards, limits on second-home financing, higher counter-cyclical capital buffers for mortgage lending, higher permanent capital charges for mortgages, and restrictions on the use of pension funds for down payments on home purchases.
In most economies, these macro-prudential policies are modest, owing to policymakers’ political constraints: households, real-estate developers, and elected officials protest loudly when the central bank or the regulatory authority in charge of financial stability tries to take away the punch bowl of liquidity. They complain bitterly about regulators’ “interference” with the free market, property rights, and the sacrosanct ideal of home ownership. Thus, the political economy of housing finance limits regulators’ ability to do the right thing.
To be clear, macro-prudential restrictions are certainly called for; but they have been inadequate to control housing bubbles. With short- and long-term interest rates so low, mortgage-credit restrictions seem to have a limited effect on the incentives to borrow to purchase a home. Moreover, the higher the gap between official interest rates and the higher rates on mortgage lending as a result of macro-prudential restrictions, the more room there is for regulatory arbitrage.
For example, if loan-to-value ratios are reduced and down payments on home purchases are higher, households may have an incentive to borrow from friends and family – or from banks in the form of personal unsecured loans – to finance a down payment. After all, though home-price inflation has slowed modestly in some countries, home prices in general are still rising in economies where macro-prudential restrictions on mortgage lending are being used. So long as official policy rates – and thus long-term mortgage rates – remain low, such restrictions are not as binding as they otherwise would be.
But the global economy’s new housing bubbles may not be about to burst just yet, because the forces feeding them – especially easy money and the need to hedge against inflation – are still fully operative. Moreover, many banking systems have bigger capital buffers than in the past, enabling them to absorb losses from a correction in home prices; and, in most countries, households’ equity in their homes is greater than it was in the US subprime mortgage bubble. But the higher home prices rise, the further they will fall – and the greater the collateral economic and financial damage will be – when the bubble deflates.
In countries where non-recourse loans allow borrowers to walk away from a mortgage when its value exceeds that of their home, the housing bust may lead to massive defaults and banking crises. In countries (for example, Sweden) where recourse loans allow seizure of household income to enforce payment of mortgage obligations, private consumption may plummet as debt payments (and eventually rising interest rates) crowd out discretionary spending. Either way, the result would be the same: recession and stagnation.
What we are witnessing in many countries looks like a slow-motion replay of the last housing-market train wreck. And, like last time, the bigger the bubbles become, the nastier the collision with reality will be.
-CHART OF THE WEEK: Here’s Why New Home Sales Exploded In October. New home sales surged 25.4% month-over-month to an annualized pace of 444,000 in October. Read more here-http://read.bi/1bh3dBn