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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘Switzerland

The Nightmare after Christmas

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by Detlev Schlichter
of The Cobden Center
Posted December 26, 2011

THE PATHETIC STATE OF THE GLOBAL FINANCIAL SYSTEM WAS AGAIN ON DISPLAY THIS WEEK. Stocks around the world go up when a major central bank pumps money into the financial system. They go down when the flow of money slows and when the intoxicating influence of the latest money injection wears off. Can anybody really take this seriously? On Tuesday, the prospect of another gigantic cash infusion from the ECB’s printing press into Europe’s banking sector, which is in large part terminally ill but institutionally protected from dying, was enough to trigger the established Pavlovian reflexes among portfolio managers and traders.

None of this has anything to do with capitalism properly understood. None of this has anything to do with efficient capital allocation, with channelling savings into productive capital, or with evaluating entrepreneurship and rewarding innovation. This is the make-believe, get-rich-quick (or, increasingly, pretend-you-are-still-rich) world of state-managed fiat-money-socialism. The free market is dead. We just pretend it is still alive.

There are, of course those who are still under the illusion that this can go on forever. Or even that what we need is some shock-and-awe Über-money injection that will finally put an end to all that unhelpful worrying about excessive debt levels and overstretched balance sheets. Let’s print ourselves a merry little recovery.

How did Mr. Bernanke, the United States’ money-printer-in-chief put it in 2002? “Under a paper-money system, a determined government can always generate higher spending…” (Italics mine.)

Well, I think governments and central banks will get even more determined in 2012. And it is going to end in a proper disaster.

Lender of all resorts

Last week in one of their articles on the euro-mess, the Wall Street Journal Europe repeated a widely shared myth about the ECB: “With Germany’s backing, the ECB has so far refused to become a lender of last resort, …” This is, of course, nonsense. Even the laziest of 2011 year-end reviews will show that the ECB is precisely that: A committed funder of states and banks. Like all other central banks, the ECB has one overriding objective: to create a constant flow of new fiat money and thus cheap credit to an overstretched banking sector and an out-of-control welfare state that can no longer be funded by the private sector. That is what the ECB’s role is. The ECB is lender of last resort, first resort, and soon every resort.

Let’s look at the facts. The ECB started 2011 with record low policy rates. In the spring it thought it appropriate to consider an exit strategy. The ECB conducted a number of moderate rate hikes that have by now all been reversed. By the beginning of 2012 the ECB’s policy rates are again where they were at the beginning of 2011, at record low levels.

So why was the springtime attempt at “rate normalization” aborted? Because of deflationary risks? Hardly. Inflation is at 3 percent and thus not only higher than at the start of the year but also above the ECB’s official target.

The reason was simply this: states and banks needed a lender of last resort. The private market had lost confidence in the ability (willingness?) of certain euro-zone governments to ever repay their massive and constantly growing debt load. Certain states were thus cut off from cheap funding. The resulting re-pricing of sovereign bonds hit the banks and made it more challenging for them to finance their excessive balance sheets with money from their usual sources, not least U.S. money market funds.

So, in true lender-of-last resort fashion, the ECB had to conduct a U-turn and put those printing presses into high gear to fund states and banks at more convenient rates. While in a free market, lending rates are the result of the bargaining between lenders and borrowers, in the state-managed fiat money system, politicians and bureaucrats define what constitutes “sustainable” and “appropriate” interest rates for states and banks. The central bank has to deliver.

The ECB has not only helped with lower rates. Its balance sheet has expanded over the year by at least €490 billion, and is thus 24% larger than at the start of the year. This does not even include this week’s cash binge. The ECB is funding ever more European banks and is accepting weaker collateral against its loans. Many of these banks would be bust by now were it not for the constant subsidy of cheap and unlimited ECB credit. If that does not define a lender of last resort, what does?

And as I pointed out recently, the ECB’s self-imposed limit of €20 billion in weekly government bond purchases (an exercise in market manipulation and subsidization of spendthrift governments but shamelessly masked as an operation to allow for smooth transmission of monetary policy) is hardly a severe restriction. It would allow the ECB to expand its balance sheet by another €1 trillion a year. (The ECB is presently keeping its bond purchases well below €20 billion per week.)

Deflation? What deflation?

It is noteworthy that there still seems to be a widespread belief that all this money-printing will not lead to higher inflation because of the offsetting deflationary forces emanating from private bank deleveraging and fiscal austerity.

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China demands American austerity

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from The Daily Bell
Originally posted June 09, 2011

China warns U.S. debt-default idea is “playing with fire … Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday. The idea of a technical default – essentially delaying interest payments for a few days – has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday. But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn. – Reuters

Dominant Social Theme:
Don’t even try it. Don’t even go there. You owe us the interest and … you … will … pay!

Free-Market Analysis:
We tend to go back and forth regarding the world’s larger financial fix. We have arrived at the idea, eventually that the Anglo-American power elite responsible for the mess wants to push Western citizens as far as possible without setting up full-scale revolutions. The idea is simply to afflict Western Middle Classes with such misery that they will not notice when their countries’ sovereignty is removed in favor of a One World Order.

The best way to do this is to keep people distracted and miserable – hovering on the edge of foreclosure, food insecurity and professional oblivion. In Europe this has been accomplished by ensuring that many countries have borrowed far more than they can pay back, thus ensuring generations of “austerity” (assuming that Europe’s young people don’t revolt against the prospect). Hey, it’s a fine line.

America has been a tougher nut to crack. Americans come from hardy immigrant stock and have tended to be thrifty and hard working, certainly in the past. The Anglo-American power elite has been at work for decades to ensure these admirable qualities are subdued. Result? America’s finances are a mess.

The US deficit is scheduled to reach $1.4 trillion, and the U.S. Treasury Dept., responsible for funding it, needs to borrow more money than it is authorized to do. Republicans in the House and Senate have seized on the opportunity to demand that the Obama Administration agree to significant cuts in spending.

The Democrats, for their part, warn that using the debt-ceiling to enforce frugality is a most dangerous strategy, one that could virtually sink the United States’ credit. If the US cannot borrow, it will have to default on its debt payments, which would likely lead to some sort of devaluation of the dollar. Since the dollar is the reserve currency of the world, this would lead to significant tumult abroad.

China is willing to do its part in this all, apparently. According to a Reuters’ article that appeared yesterday (see excerpt above), China’s top officials have some strong opinions about a potential default in the US. Reuters quotes Li Daokui, an adviser to the People’s Bank of China, as saying that a default could undermine the U.S. dollar. “I think there is a risk that the U.S. debt default may happen,” Li told reporters (according to Reuters) on the sidelines of a forum in Beijing. “The result will be very serious and I really hope that they would stop playing with fire.”

While no one seems to know how much US debt China holds, Reuters claims confidently that it is $1 trillion. We’ve read US$800 million and US$ 2 trillion as well. But US$1 trillion sounds about right. That’s certainly a lot of money. Do Chinese officials really expect to get repaid? Here’s Li again: “I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar’s value.”

Ben Westmore, a commodities economist at National Australia Bank, is also upset that the Republicans are holding the debt-ceiling hostage. “It has dire implications for the economy at a time when the macro data is softening. It’s just a horrible idea.”

Financial markets remain steady, but that may not be the case if the stand-off continues. Republicans, Reuters informs us, have been working on the theory that bondholders would put up with a delay in payments in return for a bipartisan deal that would lower US spending and make the country stronger in the long term.

According to Reuters, central banking officials around the world are less sanguine about the ramifications than Republicans are. “This could then create huge panic globally,” Reuters quotes one Indian central banking official as saying. At the same time, India’s Treasury officials continue to buy and hold dollars. The government held US$39.8 billion in U.S. Treasuries as of March.

Of course, Reuters doesn’t mention that countries HAVE to buy dollars in order to purchase oil from Saudi Arabia, which will not accept anything else. This is how the dollar’s reserve currency status is enforced.

The article concludes by quoting Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, as saying that default was indeed a real risk. “The possibility is quite high to see a default of the U.S. debt, which would harm many countries in the world, and China in particular.”

We’re not so sure as Gangming that the “possibility is high” that the US will default, or not seriously anyway. The House is led by Ohio Republican John A. Boehner (about as radical as a mushroom). Boehner is one of a handful of elite politicians, one of the most powerful men in the world thanks to his position as Speaker of the House. The idea that John Boehner will lead a radical restructuring of America’s finances does not seem especially feasible to us.

Of course, a good deal of pressure is being put on Boehner by the Republican-oriented Tea Party, and perhaps this will serve to shove the Republicans out of what would otherwise be their comfort zone. Hard to tell, really.

What is more significant from our point of view is the message the Chinese are sending. The Chinese central bankers, like central bankers around the world are not willing to entertain an iota’s reconfiguration of America’s debt. It’s a kind of dominant social theme – a fear based promotion. We’re not sure it will hold, but the rhetoric is stern. We have seen the same sort of implacable rigor in Europe, where the ECB has been at the forefront of the fight to ensure that Greece and the rest of the PIGS pay ever euro of their increasingly unpayable sovereign debt.

The mechanism of American austerity, then, is to be Chinese insistence on the immutability of American repayment terms. What the sovereign crisis is doing to Europe, the Chinese will do to America. In fact, American “austerity” is already here. The Chinese are providing the proximate cause, but increasingly we believe this was the plan all along.

Britain is in the same fix, Europe is rioting, the Middle East has gone up in smoke and Africa is trending the same way. Surely this couldn’t be coincidence could it? We think not. The world’s economic system is controlled out of the City of London via the Bank for International Settlements (based in Switzerland) and over 100 central banks around the world. The Anglosphere elite that constructed this system knew full well it would self-destruct over time.

They knew it in Europe, too. In fact, it has been admitted. The Eurocrats knew that the current system was unstable and would break down. They intended to take advantage of it to build a more centralized system and in fact they are currently doing so.

The wild card, as we have pointed out, is the Internet itself (and the truth-telling it provides), which we believe has destabilized Europe far beyond what the elites expected. They are said to be meeting somewhat unhappily in Switzerland today, as part of the annual Bilderberg affair. War is supposedly on the menu, along with selecting an IMF chief – and stabilizing Europe. There is to be austerity, yes, but not revolution.

In America, austerity is coming, too. The Chinese and perhaps the Japanese (and other creditors) will demand it. But the same realities hold for America as for Europe. There is perhaps a limit to what people will put up with, a limitation reinforced by the Internet Reformation.

Conclusion:
We have no doubt that a chaotic financial situation around the world was intended to increase pressure for a more centralized currency – and for more centralized bank regulations, etc. We are not so sure the current plan will hold. Will the elites get their chaos? They might wish to be careful what they wish for.

Bernanke’s QE^X Box

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by Gordon T. Long
of Tipping Points
Posted originally April 21, 2011

Chairman Bernanke has placed himself in a box. It is not a box of his choosing, but rather the result of his misguided economic beliefs, use of flawed statistical data, geo-political events occurring during his watch, poor decisions and a penchant for political pandering. Some of these may be requirements for academia success but not for leading global financial markets during turbulent times.

It is time for Professor Bernanke to return to the collegial setting of Princeton University while the world still has time to correct the path he has mistakenly set us on.

I was angry during most of former Chairman Greenspan’s tenure because of his persistent use of liquidity pumping to solve every problem from Y2K to the Peso crisis. Greenspan’s inability to see a bubble two inches from his nose and yet still pontificate about irrational exuberance, rather than taking the punch bowl away from the party, incited me. Bernanke does not affect me that way. He simply disappoints and leaves a taste like eating dry shredded wheat, with the hope of a child, to eventually get the prize at the bottom of the box.

Character flaws show during times of stress. Honesty, integrity, value systems and beliefs are put to test and are highlighted under the public media microscope. I’m sure Chairman Bernanke is a nice guy, loved by his family but he is missing a backbone. On April 27th, 2011, that will become obvious to all.

SIGNAL MEETING

On April 27th, 2011 the Federal Open Market Committee (FOMC) issues its next decision and statement regarding the future of Quantitative Easing (QE) II. Though previously announced to officially end June 30th, 2011 there are serious questions if this is still a viable option.

This particular meeting is the ‘signal’ meeting that the financial community will be looking for to assess risk and strategy. Many (including myself) have already concluded what the outcome will be and are preparing accordingly. On this date Bernanke will hold the first ever press briefing by the Federal Reserve, in addition to releasing forward forecasts which are usually held another 3 weeks. It is going to be an exciting event.

Unfortunately, Chairman Bernanke is going to disappoint!

THE BERNANKE BOX

Let’s summarize the box Bernanke presently finds himself in.

REAL RATES

Interest rates have been artificially suppressed for such a long time that no matter what Bernanke does come June, interest rates will likely begin rising. Therein lies the problem for the Fed.  Any further debt monetization by the central bank is now becoming counterproductive. If Bernanke enacts another iteration of Quantitative Easing, the Fed may find itself the only player in the bond market. According to my analysis this is nearly the case already.

The truth is that only a central banker can afford to own bonds that are yielding rates well below inflation, and growing even more so.  The lower real interest rates become, the less participation there will be in the bond market from private sources. If you don’t believe me, ask PIMCO, the world’s largest Bond fund who is not only out of US Treasuries but selling short. China  has been a net seller of US Treasuries since October. Besides the Fed, who is willing to buy the $1.65 Trillion in fresh new US debt paper?

So if Bernanke extends QEII we have a collapse in the US$ and a complete lockout of auction buyers. If they stop QE II, interest rates go through the roof immediately and the US government with short duration paper has an immediate and serious fiscal funding gap.

Bernanke is in a Box!

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A Middle East warning: American-style democracy isn’t the answer

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by  Ron Holland
Originally posted March 12, 2011

The entire world except for government leaders and politicians are thrilled with the revolutionary spirit moving through the Middle East. The leaders of authoritarian regimes from Tunisia to Egypt have fallen and the rest are threatened in every nation in the region.

It is my hope that your brave spirit of rebellion against one party rule and foreign backed puppet governments will provide encouragement to people around the world to stand up and follow your example showing how your fear of government tyranny is over.

Most governments ultimately rule and generate tax revenue by threat and force of arms and the only difference is the degree of violence and police state actions. While here in the West, we join you in solidarity for freedom and representative government, please understand that our history over the last 100 years clearly shows how democracy isn’t the panacea claimed by most establishment politicians. Thomas Jefferson described democracy as nothing more than “mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine”. Trust me, democracy can be just as bad and often less efficient than authoritarian dictators, fake monarchs and military rule.

Anthony Wile, chief editor of The Daily Bell has explained the problems of American, democracy better than anyone I know in his Middle East interview Wednesday on Russia Today (RT) which broadcasts in English to over 100 nations around the world.

US-style regulatory democracy is a government-intensive approach that seeks to regulate almost every facet of human behavior and uses concerns for people’s “safety” as a justification for tremendous authoritarianism at home, and I might add for our Middle East friends, a neocon military policy of aggression, occupation and natural resource control abroad.

The representative features of democracy also have major flaws because this model allows powerful domestic special interests at home or foreign power elites to easily buy off a majority of parliament members and control the government and monetary policies of the nation state. Just as your dictators or monarchies have been controlled by Western interests allowing the pillaging of your natural resources, it is a very simple matter to buy majority control of representatives who should be representing the citizens but instead sell their souls to outside interests.

The worst problem with US-style democracy is the illusion that individuals or voters have power or control over the government. Yes, you get to vote and protest which on the surface might appear an improvement over a government structure controlled by a few at the top but this brings up the fatal weakness of regulatory and representative democracy as is practiced in Europe and the West today.

In order to create the illusion of benefits to voters, these democracies have to borrow massive amounts of money to buy votes and benefits today and most of the burdensome costs are placed on future generations. Therefore sovereign-debt-financed democracy can only exist as long as investors are willing to purchase the treasury debt obligations to finance this kind of welfare/warfare state. Heavily indebted Europe and America are now rapidly reaching the end of this fatal debt Ponzi scheme cycle as the current and future tax revenues cannot service the debt.

The end of the debt spiral is here for the western democracies and this is why the world economy is crashing and inflation is now destroying the ability of the working poor around the world to feed themselves.

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